Facts
- Congress created the Public Company Accounting Oversight Board (PCAOB) in the Sarbanes–Oxley Act to regulate and discipline accounting firms that audit public companies.
- PCAOB members are appointed by the Securities and Exchange Commission (SEC) to staggered five-year terms.
- Registered accounting firms must comply with PCAOB rules and are subject to PCAOB inspections, investigations, and sanctions.
- The SEC may remove PCAOB members only for good cause and through specified procedures.
- SEC Commissioners are themselves removable by the President only for cause.
- After the PCAOB criticized Beckstead and Watts, LLP in an inspection report and began a formal investigation, the firm and Free Enterprise Fund sued for declaratory and injunctive relief, claiming the PCAOB’s structure violated separation of powers and the Appointments Clause.
- The district court dismissed the complaint, and the D.C. Circuit affirmed, concluding PCAOB members were inferior officers supervised by the SEC and that the structure was constitutional.
Issues
- Whether dual for-cause restrictions—SEC for-cause removal of PCAOB members combined with for-cause presidential removal of SEC Commissioners—violate Article II by unduly limiting presidential control over execution of the laws.
- Whether PCAOB members were appointed in violation of the Appointments Clause because they were not properly appointed as inferior officers by a “Head” of a “Department.”
Decision
- The Court held that dual for-cause limits on removal of PCAOB members violate the separation of powers.
- The Court severed the offending tenure protections, leaving the PCAOB intact but making its members removable at will by the SEC.
- The Court upheld the appointment method, holding PCAOB members are inferior officers and may be appointed by the SEC under the Appointments Clause.
- The judgment was affirmed in part, reversed in part, and remanded.
Legal Principles
- Article II requires sufficient presidential control to maintain accountability for the execution of federal law, and removal authority is a central mechanism for that control.
- Congress may impose some for-cause removal limits, but it may not combine separate for-cause protections to create a dual layer of insulation between the President and officers exercising significant executive authority.
- When an inferior officer is subject to substantial supervision by an executive-branch entity, Congress may vest appointment of that officer in a “Head[] of Department[]” under the Appointments Clause.
- A multi-member commission heading a freestanding executive-branch component can qualify as a “Head” for Appointments Clause purposes.
- When a discrete statutory restriction is unconstitutional, severance is appropriate where the remaining statutory scheme can function and there is no clear indication Congress would have preferred no agency to a constitutionally restructured one.
Conclusion
The Court invalidated the PCAOB’s dual for-cause removal protections as incompatible with Article II accountability, severed those provisions to permit at-will SEC removal of Board members, and upheld the SEC’s appointment of PCAOB members as a permissible appointment of inferior officers.