Friday, November 1, 2013

Free Enterprise Fund v. Public Company Accounting Oversight Board case brief

Free Enterprise Fund v. Public Company Accounting Oversight Board case brief summary
130 S. Ct. 3138 (2010)

Petitioner accounting firm and a nonprofit organization sued respondent Public Company Accounting Oversight Board and its members, seeking a declaratory judgment and injunctive relief that the Sarbanes-Oxley Act contravened the separation of powers and the Appointments Clause. The U.S. Court of Appeals for the District of Columbia Circuit affirmed the summary judgment granted in favor of the Board and its members. Certiorari was granted.

  • In 2002, Congress enacted the Sarbanes-Oxley Act, which, among other provisions, SOX provided for regulating of the accounting industry by a new Public Company Accounting Oversight Board (Board) (defendant). 
  • The Board was to be composed of 5 members, appointed to staggered five-year terms.
  • The Board is under the oversight of the Securities and Exchange Commission (SEC), but the SEC cannot remove Board members except for good cause. 
  • SEC Commissioners determine whether or not there is good cause to remove a Board member. 
  • SEC Commissioners can not be removed by the President except for “inefficiency, neglect of duty, or malfeasance in office.” 
  • The Board began an investigation of Beckstead and Watts, LLP, which is a Nevada accounting firm, after it found deficiencies in its accounting procedures in an inspection. 
  • Beckstead and Watts and the Free Enterprise Fund, a non-profit organization of which Beckstead & Watts is a member, (Ps) brought suit, seeking, a declaratory judgment that the Board is unconstitutional because the Board’s protection from removal is in conflict with Article II’s vesting of the executive power in the President. 
  • The lower courts rejected plaintiffs’ claims. 
  • The Supreme Court granted certiorari.

  • 15 U.S.C.S. § 78y did not strip the district court of jurisdiction over the claims. 
  • The Court held that the dual for-cause limitations on the removal of Board members contravened the Constitution's separation of powers. 
  • The Sarbanes-Oxley Act not only protected Board members from removal except for good cause, but withdrew from the President any decision on whether that good cause existed. 
  • That decision was vested instead in other tenured officers--Security and Exchange Commissioners--none of whom was subject to the President's direct control. 
  • The result was a Board that was not accountable to the President, and a President who was not responsible for the Board. 
  • The unconstitutional tenure provisions were severable from the remainder of the statute. Concluding that the removal restrictions imposed by 15 U.S.C.S. §§ 7211(e)(6) and 7217(d)(3) were invalid left the Board removable by the Commission at will, and left the President separated from Board members by only a single level of good-cause tenure. 
  • The Sarbanes-Oxley Act remained fully operative as a law with those tenure restrictions excised. 
  • The Appointments Clause challenges had no merit.

The judgment of the United States Court of Appeals for the District of Columbia Circuit was affirmed in part as to the issue of jurisdiction and was reversed in part as to the constitutionality of the removal restrictions for Board members. The case was remanded for further proceedings consistent with the opinion. 5-4 Decision; one dissent.

Recommended Supplements for Administrative Law Examples & Explanations: Administrative Law, Fourth Edition
Administrative Law and Process: In a Nutshell (Nutshell Series)

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