0 8 8 6 1 j~4~",4 5 o 2009

No. 08-~6CE~ OF THE ~L~RK

IN THE~u~eme ~eut’t eg t~e i~tnite~ ~t~te~

FREE ENTERPRISE FUND ANDBECKSTEAD AND WATTS, LLP,

Petitioners,

V.

PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARDAND UNITED STATES OF AMERICA,

Respondents.

On Petition for a Writ of Certiorarito the United States Court of Appealsfor the District of Columbia Circuit

PETITION FOR A WRIT OF CERTIORARI

KENNETH W. STARR24569 Via De CasaMalibu, CA 90265

VIET D. DINHBANCROFT ASSOCIATESPLLC1919 M Street, N.W.Suite No. 470Washington, DC 20036

January 5, 2009

MICHAEL A. CARVINCounsel o£Record

NOEL J. FRANCISCOCHRISTIAN G. VERGONISJONES DAY51 Louisiana Avenue, N.W.Washington, DC 20001(202) 879-3939

Counsel for Petitioners

[Adoh’tional counsel listed on h~’de ~ront corer]

WlLSON-EPES PRINTING CO., INC. - (202) 789-0096 - WASHINGTON, D. C. 20002

¯ .SAM KAZMANHANS BADERCOMPETITIVEENTERPRISE INSTITUTE

1001 ConnecticutAvenue, N.W., Ste. 1250Washington, DC 20036

QUESTIONS PRESENTED

1. Whether the Sarbanes-Oxley Act of 2002violates the Constitution’s separation of powers byvesting members of the Public Company AccountingOversight Board ("PCAOB") with far-reachingexecutive power while completely stripping thePresident of all authority to appoint or remove thosemembers or otherwise supervise or control theirexercise of that power, or whether, as the court ofappeals held, the Act is constitutional becauseCongress can restrict the President’s removalauthority in any way it "deems best for the publicinterest."

2. Whether the court of appeals erred in holdingthat, under the Appointments Clause, PCAOBmembers are "inferior officers" directed andsupervised by the Securities and ExchangeCommission ("SEC"), where the SEC lacks anyauthority to supervise those members personally, toremove the members for any policy-related reason orto influence the members’ key investigative functions,merely because the SEC may review some of themembers’ work product.

3. If PCAOB members are inferior officers,whether the Act’s provision for their appointment bythe SEC violates the Appointments Clause eitherbecause the SEC is not a "Department" underFre~vtag v. Commissioner, 501 U.S. 868 (1991), orbecause the five commissioners, acting collectively,are not the "Head" of the SEC.

ii

PARTIES TO THE PROCEEDING ANDCORPORATE DISCLOSURE STATEMENT

The parties to the proceeding below are identifiedin the caption of the case.

Petitioner Free Enterprise Fund has no parentcorporation and no publicly held corporation has a10% or greater ownership interest in Free EnterpriseFund.

Petitioner Beckstead and Watts, LLP, has noparent corporation and no publicly held corporationhas a 10% or greater ownership interest in Becksteadand Watts, LLP.

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TABLE OF CONTENTS

Page

QUESTIONS PRESENTED .......................................i

PARTIES TO THE PROCEEDING ANDCORPORATE DISCLOSURESTATEMENT .....................................................ii

TABLE OF AUTHORITIES ......................................v

OPINIONS BELOW ..................................................1

JURISDICTION .........................................................1

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED ................................1

STATEMENT OF THE CASE ...................................1

REASONS FOR GRANTING THE PETITION ........7

I. This Case Is Important and WarrantsReview .................................................................7

II. The Decision Below Is Contrary to theCourt’s Separation-of-Powers Precedent .....,... 14

III. The Decision Below Is Contrary to theCourt’s Appointments Clause Precedent .........27

IV. The Opinion Below Commits Other BasicLegal Errors ......................................................35

CONCLUSION .......................~ ................................39

iv

TABLE OF CONTENTS(Continued)

Page

APPENDIX

Order of the United States Court of Appealsfor the District of Columbia Circuit (Nov.17, 2008) ............................................................la

Opinion of the United States Court of Appealsfor the District of Columbia Circuit(Aug. 22, 2008) ...................................................3a

Order of the United States District Court forthe District of Columbia (Mar. 21, 2007) .....105a

Memorandum Decision of the United StatesDistrict Court for the District of Columbia(Mar. 21, 2007) ..............................................106a

Sarbanes-Oxley Act of 2002 ................................118a

Securities Exchange Act of 1934 .........................169a

U.S. Constitution, Appointments Clause ...........183a

V

TABLE OF AUTHORITIES

PageCases

Bowsher v. Synar, 478 U.S. 714 (1986) ....7, 15, 19-20Buekley v. Valeo,

424 U.S. 1 (1976) ................ 7, 14-15, 20, 22, 26, 35Chisom v. Roemer, 501 U.S. 380 (1991) ...................37Clinton v. Jones, 520 U.S. 681 (1997) ......................15Edmond v. United States,

520 U.S. 651 (1997) ............19, 24-25, 29-30, 32-34Freytag v. Commissioner,

501 U.S. 868 (1991) ......................14, 20, 30-31, 38Humphrey’~ Executor v. United States,

295 U.S. 602 (1935) .............................................19Lebron y. National Railroad Passenger Corp.,

513 U.S. 374 (1995) ...............................................7Loving y. United States, 517 U.S. 748 (1996) ....14, 18Metropolitan Washington Airports Authority

v. Citizens for the Abatement o£Airera£tNoise, Inc., 501 U.S. 252 (1991) .....................13-14

Morrison v. Olson,487 U.S. 654 (1988) .............9, 14-15, 18-23, 25, 34

Myers v. United States,272 U.S. 52 (1926) ...................................14, 15, 24

Nixon v. Administrator of General Services,433 U.S. 425 (1977) .......................................18, 22

Parsons g. United States, 167 U.S. 324 (1897) ........19Ponzi v. Fessenden, 258 U.S. 254 (1922) .................25Public Citizen v. Department o£Justiee,

491 U.S.440 (1989) .......................................19, 24

vi

TABLE OF AUTHORITIES(Continued)

Page

In re Sealed Case, 838 F.2d 476 (D.C. Cir..),rev’d sub nom. Morrison v. Olson, 487 U,S.654 (1988) ............................................................24

United States v. Perkins,116 U.S. 483 (1886) ...................... ~ ............ 6, 10, 23

United States v. Salerno, 481 U.S. 739 (1987) ........26Weiss v. United States, 510 U.S. 163 (1994) ......30-31Wiener v. United States, .357 U.S. 349 (1~58) .........19

Constitutions and Statutes

U.S. Constitution, Appointments Clause ........passim10 U.S.C. § 153 ..........................................................2915 U.S.C. § 78ff ...........................................................315U.S.C. § 78s .......................................................: ....5Sarbanes-Oxley Act of 2002, 15 U.S.C. §§ 7201 et seq.

§ 3, 15 U.S.C. § 7202 ........................................3, 36§ 101, 15 U.S.C. § 7211 ................2, 4, 9, 17, 28, 36

212628495O

§ 103,§ 104,§ lO5,§ 107,§ 109,U.S.C.U.S.C.U.S.C.U.S.C.U.S.C.

15 U.S.C. § 7213 ..........................................315 U.S.C. § 7214 ..........................................315 U.S.C. § 7215 .......................................3-415 U.S.C. § 7217 ................4-5, 17, 21, 36-3715 U.S.C. § 7219 ....................................3, 16§ 393 ..........................................................29§ 7801 ........................................................29§ 1254 ..........................................................1§ 106 ..........................................................29§ 403-4a ....................................................29

vii

TABLE OF AUTHORITIES(Continued)

Page

Reorganization Act of 1949, Pub. L. No. 109,

63 Stat. 203, codified as revised at 5 U.S.C.§§ 901 et seq. ........................................................39

Executive Materials

Reorganization Plan No. 10 of 1950, 15 Fed.Reg. 3175 (May 25, 1950), reprinted in5 U.S.C. app. at 567-68 (2006) ............................39

Legislative Materials

1 Annals of Cong. (Joseph Gales ed., 1834) .......14, 16148 Cong. Rec. $6327-06

(daily ed. July 8, 2002) ................................2, 9, 28H.R. 3795, 107th Cong. (2002) ...................................8H.R. 5184, 107th Cong. (2002) ...................................8S. 1896, 107th Cong. (2002) ........................................8S. 2056, 107th Cong. (2002) ........................................8

Other Authorities

Akhil Reed Amar, America’~ Constitution:A Biography (2005) ..............................................15

David Katz, Hot Times for Accoun ring

Officia]s, CFO.com (Mar. 11, 2008) ....................16Laurence H. Tribe, American Constitutional

Law(3d ed. 2000) ................................................22

Blank Page

OPINIONS BELOWThe opinion of the court of appeals (Pet. App. 3a-

104a) is reported at 537 F.3d 667. An order denyingrehearing and rehearing on banc (Pet. App. la) isunreported. The district court’s memorandum andorder granting Respondents’ motions for summaryjudgment (Pet. App. 105a-117a) are unreported butavailable electronically at 2007 WL 891675.

JURISDICTION

Petitioners seek review of a final decision of thecourt of appeals entered on August 22, 2008.Rehearing and rehearing en bane were denied onNovember 17, 2008. This Court has jurisdictionpursuant to 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED

This case involves the Sarbanes-Oxley Act of 2002,Pub. L. No. 107-204, 116 Stat. 745 (codified at 15U.S.C. §§ 7201 et seq.), reprinted at Pet. App. 118a-182a, and the Appointments Clauseof theConstitution (Pet. App. 183a).

STATEMENT OF THE CASE

Petitioners seek review of the D.C. Circuit’sdecision rejecting their contention that, by strippingthe President of all power to appoint, remove orotherwise supervise the members of the PublicCompany Accounting Oversight Board ("PCAOB" or"Board"), the Sarbanes-Oxley Act ("SOX" or "Act")

2

violates the Constitution’s separation of powers andAppointments Clause.

1. Congress passed the Act in reaction to high-profile accounting scandals involving Enron andother companies. Pet. App. 6a. The .Act subjectsaccounting firms that audit public companies to thebroad regulatory authority of the PCAOB, a neworganization specifically designed to be 5:ee from anyand all political influence---including that of both thePresident and the already independent SEC. Pet.App. 34a.

The Act gives the PCAOB, a putatively privatecorporation, see SOX § 101(b), 15 U.S.C. § 7211(b),"massive power, unchecked power, by design," 148Cong. Rec. $6327-06, $6334 (daily ed. July 8, 2002)(statement of Sen. Gramm). The Board exercises itsauthority through five members who serve forstaggered five-year terms. SOX § 101(e), 15 U.S.C.§ 7211(e). These members are neither appointed norremovable by the President, but i.nstead areappointed and removable by a majority vote of theSEC. SOX § 101(e)(4), (6), 15 U.S.C. §§ 7211(e)(4),(6).

The Act permanently vests the PCAOB with broadregulatoryaccountingcompanies.the Board:

and enforcement authority over allfirms that audit publi~cly traded

Among other things, the Act authorizes

to promulgate rules, including professionalstandards, "as may be necessary orappropriate in the public interest or for the

protection of investors," SOX § 103(a)(1), 15U.S.C. § 7213(a)(1), the willful violation ofwhich constitutes a felony criminal offense,~ee 15 U.S.C. § 78ff(a) (made applicable bySOX § 3(b), 15 U.S.C, § 7202(b));

¯ to conduct a "continuing program ofinspections" that involves the selectiveinspection and review of an accountingfirm’s audit engagements, SOX § 104(a),15 U.S.C. § 7214(a);

¯ to conduct a formal investigation of any actby a regulated accounting firm that "mayviolate" the Act, Board rules, securities lawsor professional standards, SOX § 105(b)(1),15U.S.C. § 7215(b)(1), and impose severesanctions for violations "as it determinesappropriate," id. §105(c)(4), 15 U.S.C.§ 7215(c)(4); and

¯ to sets its own budget, funded through a taxthat it levies on publicly traded companies,SOX § 109(b)-(d), 15 U.S.C. § 7219(b)-(d).

The Act gives the President absolutely no oversightover PCAOB activities, through the power of removalor otherwise. The Act also imposes numerousconstraints on the independent SEC’s ability toexercise any meaningful oversight. Thus:

¯ the Act allows the SEC to remove a Boardmember only after notice and a hearing, andthen only if the member (i) "has willfullyviolated" any provision of the Act, the rules

4

of the Board or the securities laws, (ii) "haswillfully abused [his] authority," or (iii)"without reasonable justification] or excuse,has failed to enforce compliance with anysuch provision or rule, or any professionalstandard," SOX §§ 101(e)(6) & 107(d)(3), 15U.S.C. §§ 7211(e)(6) & 7217(d)(3);

the SEC exercises no control over theconduct of the Board’s regular inspections,including its choices about which firms toinvestigate, SOX § 105(b)(1), 15 U.S.C.§ 7215(b)(1), and the manner and scope of itsreview, id. § 105(b)(2), 15 U.S.C. §7215(b)(2);

the SEC has no authority tc, direct thePCAOB to investigate or to impose sanctionson the target of an investigation; instead,SEC review occurs only if the PCAOB optsfor sanctions, at which point the SEC maymodify or cancel the sanctions only if itmakes specific statutory finding~,~ after noticeand a hearing, SOX § 107(c)(2)-(3), 15 U.S.C.§ 7217(c)(2)-(3);

the SEC is required to ("shall") approve aproposed Board rule, "if it finds ~hat the ruleis consistent with the requirements of thisAct and the securities laws, or is necessaryor appropriate in the public interest or forthe protection of investors," SO)[ § 107(b)(3),15 U.S.C. § 7217(b)(3) (emphasis. added), andmay "abrogate, delete, or add to" such rule

only through notice-and-commentrulemaking, 15 U.S.C. § 78s(c) (madeapplicable by sex § 107(b)(5), 15U.S.C.§ 7217(b)(5)); and

¯ the Act allows the SEC to "censure or imposelimitations upon the activities, functions,and operations of the Board," only if--"afternotice and opportunity for a hearing’--itfinds on the record that the Board (i) hasviolated or is unable to comply with anyprovision of the Act, the rules of the Boardor the securities laws or (ii) withoutreasonable justification or excuse, has failedto enforce compliance with any suchprovision or rule or any professionalstandard. SOX § 107(d)(2), 15U.S.C. §7217(d) (2) (emphasis added).

2. Petitioners Beekstead and Watts, an accountingfirm subject to and injured by the PCAOB’sregulations, inspections and investigations, and FreeEnterprise Fund, an organization with memberssubject to the PCAOB’s authority, sought adeclaratory judgment that the provisions of the Actestablishing the Board are unconstitutional and aninjunction prohibiting the Board and its membersfrom carrying out their powers. Pet. App. 8a, 109a-110a.

The district court entered summary judgment infavor of Respondents on all claims. Pet. App. 112a-l17a. By a 2-1 decision, the Court of Appealsaffirmed, concluding that the PCAOB does not violate

6

either the Appointments Clause or separation ofpowers. On the former point, the panel held thatPCAOB members are inferior officers who may beappointed by the SEC because the SEC is a"Department" of which its five commissioners, actingcollectively, are the "Head." Pet. App. 11a-25a. Onthe latter point, the panel held that in the case ofinferior officers, "Congress ’may limit and restrict thepower of removal as it deems best for the publicinterest."’ Pet. App. 36a (quoting United State~ v.Perkin~, 116 U.S. 483, 483 (1886)).

Judge Kavanaugh dissented. He concluded thatthe Act violates separation of powers because its"unique and apparently unprecedented double for-cause removal [provisions] -- an indepe~.dent agencywhose heads are removable for cause only by anotherindependent agency -- overruns the boundaries setby Supreme Court precedents in Humphrey’~Executor and Morrison with respect to congressionalencroachment on Presidential removal authority."Pet. App. 80a. He also concluded that the Actviolates the Appointments Clause because itsrestrictions on the SEC’s ability to remove PCAOBmembers, coupled with the lack of any other methodfor the SEC to manage the Board’s inspections andinvestigations, renders Board members principalofficers who must be appointed by the President withSenate confirmation. Pet. App. 90a-97a.

On November 17, 2008, the full circuit, voting 5-4,denied rehearing en bane. Pet. App. la.

7

REASONS FOR GRANTING THE PETITION

I. This Case Is Important and Warrants Review

As the dissenting opinion below correctlyrecognized, this is "the most important separation-of-powers case regarding the President’s appointmentand removal powers to reach the courts in the last 20years." Pet. App. 41a. The case’s importance, andthe panel majority’s profound constitutional errors,are further confirmed by the D.C. Circuit’s closelydivided 5-4 vote on rehearing en bane.

At every level, it is clear that this Court’s review iswarranted. The issues presented go to the heart ofthe relationship between the Legislative andExecutive Branches and all agree that this is a "caseof first impression" (Pet. App. 26a) because it involvesa wholly unprecedented model for federal agencies.1

The manner in which the court below resolved thesenovel issues is not only irreconcilable with thisCourt’s precedent and basic separation-of-powersprinciples, but also expressly authorizes Congress toenact a sea change in the structure of the federalgovernment and strip the President of his most basicmeans for carrying out his constitutional dutiesthrough subordinates. Finally, the Board exercises

1 All agree as well that the Board is a government entity for

constitutional purposes notwithstanding its statutorydescription, see Lebron v. Nat’l R.R. Passenger Corp., 513 U.S.374, 400 (1995), and that its members are officers of the UnitedStates exercising executive power, see Bowsher v. Synar, 478U.S. 714, 732-33 (1986); Buekley v. Vsloo, 424 U.S. 1, 139 (1976)(per euriam).

8

an extraordinarily important regulatory functionvital to the Nation’s economy, so resolution of itsconstitutional status is imperative for that reasonalone.

In creating the Board, Congress deliberatelysought to test the outer boundaries of its ability toreduce Presidential power, by establishing a ’"FifthBranch’ of the Federal Government" (Pet. App. 72a)over which the President has markedly less controlthan he exercises over traditional "Fourth Branch"independent agencies like the SEC, which "up to nowhave [reflected] the outermost constitutional limits ofpermissible congressional restrictions" on thePresident (Pet App. 67a). As the court belowacknowledged, the only reason for this additionaldiminution of the "level of Presidential controF overexecutive officers was "Congress’ intention to insulatethe Board from partisan forces" that the President(and perhaps Congress) was purportedly able tosomehow exert on a traditional independent agencylike the SEC. Pet. App. 34a. Thus, Congress rejectedproposals to lodge the Board’s enforcement functionin the SEC, see, e.g., H.R. 5184, 107th Cong. (2002);H.R. 3795, 107th Cong. (2002); S. 2056, 107th Cong.(2002); S. 1896, 107th Cong. (2002), and insteaddesignated the Board a private corporation with thesame autonomy from Presidential control as private"self-regulatory-organizations (SROs) . . . such as theNew York Stock Exchange," upon which it wasexplicitly "modeled." Pet. App. 35a n.13.

The tangible way in which Congress secured theBoard’s independence from the President was toprevent the President from either appointing orremoving Board members, as he does for eyer~y otherindependent agency, and to deprive him of anyauthority to review the Board’s work product or evenits budget. See supra pp. 2-5. The Board’s extremelyimportant and concededly executive law-enforcementfunction is to prevent future Enron-like accountingscandals by aggressively investigating and inspectingthe auditors of publicly traded companies, pursuantto an open-ended "public interest" mandate. SOX§ 101(a) & (c), 15 U.S.C. § 7211(a) & (c).

The fundamental constitutional flaws in Congress’novel experiment are apparent. Since it is notpossible to control or supervise subordinates whomone can neither appoint nor remove, Congress’decision to "completely strip[]" the President of bothof these essential tools, by definition, "impermissiblyburdens the President’s power to control or supervise¯ . . an executive official~ in the execution of his orher duties." Morri~on v. O]~on, 487 U.S. 654, 692(1988). Relatedly, since Board members have clearlybeen granted "massive power, unchecked by design,"148 Cong. Rec. at $6334, it seems self-evident thatthey are principal officers under the AppointmentsClause, who must be appointed by the President andconfirmed by the Senate.

The court below, however, upheld this schemepursuant to a series of rulings that are contrary toprecedent and, at a minimum, raise such serious and

10

novel constitutional questions that this Court shouldresolve them directly. First, with respect to removal,the panel majority made the truly astonishing rulingthat the President has no constitutional prerogativeto remove inferior officers because Congress hasplenary authority to ’"limit and restrict the power ofremoval as it deems best for the publ![c interest."’Pet. App. 17a, 36a (quoting Perkin~, 116 U.S. at 483).

Moreover, according to the court, stripping thePresident of the removal (and appointment) power isperfectly acceptable because the SEC, an agencyconcededly independent of Presidential control, hasthose powers. Pet. App. 29a-31a. It is purportedly ofno moment that the SEC is designed precisely topursue policies "independent" of the President,because this Court has upheld placing the removalpower in "alter ego" Cabinet officers such as theAttorney General, and "nothing in Morrisonsuggests" that there is a constitutionally cognizabledifference between "the Attorney General--[who]serve[s] at the pleasure of the President"--and"independent agencies" whose Commissioners mayonly be removed for cause. Pet. App. 33a-34a.Finally, the fact that even the SEC’s power tosupervise the Board’s policy judgments isprecluded--by virtue of the Act’s prohibition againstremoving Board members unless they engage in"willful" legal violations or abuses, or unreasonablefailures to enforce--is unimportant because the SEChas the power to veto the Board’s work product andallegedly has the unexerc/sed statutory authority tousurp the Board’s functions. Pet. App. 30a, 35a-36a.

11

With respect to the Appointments Clause, the courtconcluded that the same SEC power of review andunexercised power to supplant renders the Board"inferior" to SEC Commissioners and thus allowsappointment by the Commissioners--notwithstanding that Congress deliberately made theBoard independent of the SEC, and severelycircumscribed the Commissioners’ removal power,precisely to ensure that the Board was not directed orsupervised by an SEC subject to "partisan pressures."Pet. App. 34a.

The decision below, then, quite expresslyauthorizes Congress to create independent agenciesthat are "supervised" by otl~er independent agencies,rather than by the President himself. ThePresident’s Article II prerogative to control throughappointment and removal, as well as hisAppointments Clause prerogative to appoint, are allsatisfied if independent agencies like the SEC areprovided with those powers. The AppointmentsClause is satisfied because "Fifth Branch"independent agencies like the Board are "inferior" to"Fourth Branch" independent agencies like the SEC,and the SEC may appoint such "inferior officers"because it is a "Department." Under separation ofpowers, Congress may transfer the President’sremoval authority to independent agencies like theSEC both because they are no different thanPresidential "alter egos" like the Attorney General(who may share the President’s removal power) andbecause Congress can impose any removal restrictionit "deems best."

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If the panel majority is correct that the SEC’ssupervision of the Board is as constitutionallyacceptable as the President’s or a Cabinet official’ssupervision of inferior Executive Branch officers, thisnecessarily means that all the functions currentlyperformed by such lower-level Executive Branchofficers may be transferred to entities identical to theBoard and that the supervisory functions of Cabinetofficers may be transferred to independent agencieslike the SEC. Thus, as the dissenting opinionemphasized and the panel majority did not contest,the decision below grants "Congress... [a] license tocreate a series of independent bipartisan boardsappointed by independent agencies and removableonly for cause by such independent agencies." Pet.App. 71a. This, of course, is true with respect toevery executive function--from State to Education--so, for example, Congress could vest the authority toprosecute all federal crimes in a "CriminalProsecution Board" whose members would beappointed and removable for cause by anindependent "Criminal Justice Commission." NeitherRespondents nor the panel majority even attemptedto suggest any limiting principle to this analysis.There certainly is no implicit exception to the rulingbelow for "core" executive functions because the panelmajority affirmatively stated that its analysis wasnot affected by the type of function performed by theofficer at issue (Pet. App. 34a) and relied principallyon this Court’s decisions in Morrison and Perkins,which involved the core executive functions ofcriminal prosecution and military service.

13

It is therefore clear that the panel majority "green-li[t] Congress to create a host of similar entities" (Pet.App. 71a) to perform any executive function, allowingCongress to reduce the President to the largelysymbolic and hortatory role of appointing bipartisanindependent commissioners with defined tenure who,in turn, would appoint independent Boards that dothe actual governing, but cannot be removed by thePresident in any circumstance or even by theindependent agency absent offenses which wouldjustify impeachment.

This dramatic alteration of the rules governing theorganization of the federal government should not beimplemented absent review by this Court, even if thepanel majority’s constitutional analysis were not soseriously flawed for the reasons detailed below.

Finally, while there is no split in the lower federalcourts concerning the constitutional status of therecently created Board, none of the Court’s cases onthe Constitution’s structural protections have, so faras we can discern, involved such a split. This reflectsnot only the rarity of such splits, but the need for thejudiciary to be vigilant in policing Congress’ efforts toimpinge on coordinate branches even when thepotential encroachment seems "innocuous." Metro.Wash. A~’rport~ Auth. v. Citizen~ for the Abatementof Aircraft Noi~o, Inc., 501 U.S. 252, 277 (1991)("MWAA"). This is because, "as James Madisonpresciently noted," Congress will continually seek to"mask under complicated and indirect measures theencroachment which it makes on the co-ordinate

14

departments." Id. Here, there is nothing "innocuous"about Congress’ effort to transfer a vital lawenforcement function from a politically accountablePresident to a "private" entity precisely for thepurpose of shielding it from any politicalaccountability or "pressure" (save that from thelegislators who control its existence). To thecontrary, this "wolf comes as a wolf." ~[or.rison, 487U.S. at 699 (Scalia, J., dissenting).

II. The Decision Below Is Contrary to the Court’sSeparation-of-Powers Precedent

’" [A] rticle [II] grants to the President the executivepower of the Government, i.e., the generaladministrative control of those executing the laws,including the power of appointment and removal ofexecutive of£ieers .... "’ Buekley, 424 U.S. at 136(quoting Myers v. United States, 272 U.S. 52, 117(1926) (emphasis added)); see also 1 Anr_Lals of Cong.481 (Joseph Gales ed., 1834) (remarks of Madison) ("Iconceive that if any power whatsoever is in its natureexecutive, it is the power of appointing, overseeing,and controlling those who execute the laws."). Thispower is granted to the President "to protect theliberty and security of the governed" (.MWAA, 501U.S. at 272) by "ensur[ing] that those ’who wield[]"potentially tyrannical government power are"accountable to the political force and the will of thepeople." Freytag v. Comm’r, 501 U.S. 868, 884(1991); see also Loving v. United States, 517 U.S.748, 758 (1996) ("The clear assignment of power to abranch ... allows the citizen to know ’who may be

15

called to answer for making, or not making, thosedelicate and necessary decisions essential togovernance."). To achieve that accountability, allgovernment officers who wield the President’sexecutive power must "act for him under his directionin the execution of the laws." Buck]ey, 424 U.S. at136; see also Clinton v. Jones, 520 U.S. 681, 712(1997) (Breyer, J., concurring in judgment) ("[t]heFounders . . . consciously deeid[ed] to vest executiveauthority in one person rather than several" "in orderto focus Executive responsibility therebyfacilitatingaccountability"); Akhil Reed Amar,America’s Constitution: A Biography 197 (2005)("Article II did make emphatically clear from start tofinish that the President would be personallyresponsible for his branch"). _

Congress thus violates the separation of powerswhen it "impermissibly burdensthe President’spower to control or supervise an executiveofficial[] in the execution of hisor her duties."Morrison, 487 U.S. at 692. The essential tool for suchcontrol is obviously the power to remove because"[o]nce an officer is appointed, it is only the authoritythat can remove him.., that he must fear and, in theperformance of his functions, obey." Bowsher, 478U.S. at 726 (internal quotation marks omitted); seealso Myers, 272 U.S. at 131 (’"[i]f the Presidentshould possess alone the power o£ remora] fromoffice, those who are employed in the execution of lawwill be in their proper situation, and the chain ofdependence be preserved; the lowest officers, themiddle grade, and the highest, will depend, as they

16

ought, on the President, and the President on thecommunity"’ (quoting 1 Annals of Cong. 499 (remarksof Madison)) (emphasis added)).

1. Here, the Board constitutes a whollyunprecedented effort by Congress to eliminate thePresident’s control of executive officers to themaximum possible extent, short of assigning theappointment and removal power to itself. The panelmajority’s endorsement of this unprecedentedencroachment is squarely at odds with this Court’sdecisions.

The heads of evez’y other independent agencyexercising the executive function are appointed andremoved by the President (Pet. App. 62a), yet herethe President has been deprived of both of thesefundamental means of control. The President islikewise denied any direct or indirect influence overthe Board’s finances. The Board raises its own moneyoutside of the congressional appropriations processthrough direct taxation of registered corporations, seeSOX § 109, 15 U.S.C. § 7219, and the l~’resident hasno power to review the Board’s budget, includingmembers’ salaries which, at $654,000 for theChairman and $532,000 for the other members, seeDavid Katz, Hot Times for Accounting Officials,CFO.eom (Mar. 11, 2008), far exceed that of thePresident and are nearly four times greater than thatof SEC Commissioners. Consequently, the Presidentis deprived of the "additional levers of influence" that,according to the panel majority, he has overtraditional independent agencies, such as lending his

17

’"presidential goodwill’ to obtain budgetary andlegislative support" or using his "administrative tools"such as "centralization of . personnelrequirements." Pet. App. 28a-29a.

Congress was also vigilant in depriving thePresident of any ability to influence the Boardthrough the SEC. As the opinion below correctlynotes, the SEC Chairman "dominates Commissionpolicymaking," "directs the administrative side ofCommission business" and "command[s] staffloyalties." Pet. App. 29a (internal quotation marksomitted; alteration in panel opinion). The Chairman,in turn, is beholden to the ~ President because heserves as Chairman "at the pleasure of thePresident." Pet. App. 33a. Apparently recognizingthis, Congress denied the Chairman his traditionalstatutory authority to "appoint and supervisepersonnel" (Pet. App. 25a) by vesting appointment ofPCAOB members in the entire Commission, abipartisan body less subject to Presidential influence.SOX § 101(e)(4), 15 U.S.C. § 7211(e)(4). Moreimportant, Congress made sure that the SEC wouldnot be able to impose its policy views on Boardmembers by affirmatively precluding the Commissionfrom removing members for any policy-related reason,permitting removal only for "willful" law violations or"abuses" or for "fail[ing] to enforce compliance" withthe Act absent "reasonable ... excuse." SOX§ 107(d)(3), 15 U.S.C. § 7217(d)(3). Thus, whateverindirect influence the President has over SECCommissioners cannot be transformed into influenceover Board members.

18

Congress did not pretend that this severedeparture from the independent-agency norm wasdone for any neutral purpose or becal~se of somepeculiar characteristic of financial-accountingregulation. As noted, the avowed and exclusivepurpose of modeling the Board after privateorganizations like the New York Stoc]~ Exchange,over whom the President obviousl[y has nosupervisory power, was to "insulate" it from thedemocratic process and the democratically electedPresident. See ~upra p. 8. Neither the panel majoritynor Respondents even attempted to offer any reasonwhy the level of Presidential control over a traditionalindependent agency was insufficient "insulation" orotherwise problematic.

2. Since the Act strips the President of everypotential means of controlling or super’~ising Boardmembers, it necessarily "impermissibl.y interfereswith the President’s exercise of his constitutionallyappointed functions." Morri~on, 487 U.S. at 685;al~o Loving, 517 U.S. at 757; Nixon v. A.dm’r of Gen.Serw., 433 U.S. 425, 443 (1977). The panel majority’scontrary conclusion is irreconcilable width Morri~onand this Court’s other precedent, as well as with anyconception of separated powers that providescognizable protection to the Executive againstcongressional encroachments.

Under Morrison, the test in this area is whether acongressional enactment "impermissibly burdens thePresident’s power to control or supervise anexecutive official[] in the execution of his or her

19

duties," either by virtue of a removal restriction,"taken by itself," or, if the removal restriction isacceptablel by the statute "taken as a whole."Morrison, 487 U.S. at 685, 692. The Act must beunconstitutional under Mot_risen because it strips thePresident of removal power to the maximum extentpossible and, alternatively, violates every one of theadditional, non-removal factors identified by thatopinion as relevant to the separation-of-powersanalysis.

First, the opinion below violates Morrison’sthreshold requirement that the President must havesome power to remove. The Court’s precedent andcommon sense establish that officers will only "obey"those who may remove them. Bowshot, 478 U.S. at726. Indeed, the one constant in the Court’sseparation-of-powers jurisprudence is that the powerto control a subordinate is dictated by the scope of theremoval power. See Edmond v. United States, 520U.S. 651, 664 (1997) ("[t]he power to remove officers... is a powerful tool for control"); Wiener v. UnitedStates, 357 U.S. 349, 355-56 (1958); Humphrey’s Ex’rv. United States, 295 U.S. 602, 625-26 (1935); Parsonsv. United States, 167 U.S. 324, 342 (1897). Since thePresident cannot "control or supervise an executiveofficial" absent the ability to remove him, "thePresident’s power to remove Executive officers . . . is... a necessary part of the grant of the ’executivePower."’ Pub. Citizen v. Dep’t of Justice, 491 U.S.440, 484 (1989) (Kennedy, J., concurring). Thus,Article II is violated if the removal power is"completely stripped" from the President or an "alter-

2O

ego" Cabinet official, for then there are ".~o moans forthe President to ensure the ’faithful execution’ of thelaws." Morri~on, 487 U.S. at 692 (emphasis added).

Here, the President’s removal power’ has plainlybeen "completely stripped." In light of the SEC’sindependent policy discretion,2 it is clear--andundisputed by both the panel majority andRespondents--that the President has ~ao power todirect the SEC to exercise its discretion to remove aBoard member, any more than he coul,:l issue suchdirections on the "countless other discretionarydecisions" the SEC makes. PCAOB D.C. Cir. Br. at46.

While the panel majority found that the Presidenthad influence over the SEC, it did not, to its credit,suggest that such influence could somehc, w coerce theSEC to exercise its discretion to remove Boardmembers, Since the President cannot order theindependent SEC, unlike an "alter ego" Cabinetmember, to remove a Board member, vesting theremoval authority in the SEC, standing alone, clearly"completely strips" the President of any power toremove. Moreover, even the Commission cannotcontrol or supervise how Board members choose toexecute the law because the Act allows removal ofBoard members only for willful abuses akin to

2 The SEC is one of the agencies "independent of the Executive

in [its] day-to-day operations." Buckley, 424 U.S. at 133; seealso Freytag, 501 U.S. at 916 (Scalia, J., concurring in part andconcurring in the judgment); Bowsher, 478 U.S. at 739 (Stevens,J., concurring in the judgment).

21

impeachable offenses, not for any policydisagreement. See supra pp. 3-4.

Moreover, even if the President could justifyremoving a Commissioner for failing to fire a Boardmember, this would still not cause removal of themember. To accomplish that, the President wouldhave to remove all the recalcitrant Commissionersand nominate new ones who he hoped wouldeffectuate the removal (even though they would beobliged to remain neutral on that question becauseremoval can only be accomplished after an impartialhearing, see SOX§ 107(d)(3), 15 U.S.C. § 7217(d)(3)).And then the Senate would have to confirm suchCommissioners, in contravention of the establishedprinciple that the "Constitution prevents Congress"from "gain[ing] a role in the removal of executiveofficials." Morrison, 487 U.S. at 686.

In short, the President cannot realisticallyeffectuate the removal of any Board member, directlyor indirectly, and any unrealistic removal scenarionecessarily requires Senate concurrence. The panelmajority did not attempt the Sisyphean task ofexplaining why this scheme does not "completelystrip" the President of removal power, contentingitself with the observation that Morrlson "did notpurport to establish what removal restrictions would’completely strip[]’ the President of removalauthority." Pet. App. 34a n.12 (alteration in panelopinion).

Second, even assuming arguendo that the removaldeprivation, "taken by itself," did not unduly infringe

22

the executive power, every other factor considered inMorrison demonstrates that the Act, ~"taken as awhole," plainly does so. First, the Pres![dent has noother means of influencing the Board’s personnelsince he cannot appoint like-minded individuals. SeeBuekley, 424 U.S. at 133, 135-36; Laurence H. Tribe,American Constitutional Law § 4-8, at 684 (3d ed.2000) ("[where] officer is appointed by persons whoare themselves not politically accountable.., ongoingsupervision by the President or by someoneserving at [his] pleasure, seems particularlyimportant"). Second, unlike the Independent Counselstatute, the Act is not a temporary or limitedinterference with the President’s ability to executethe law in special circumstances, but a permanentreallocation of broad policymaking authority in a free-standing agency. See Morrison, 487 U.S. at 691(Independent Counsel has only "limited jurisdictionand tenure and lacks policymaking or administrativeauthority"). Third, far from being "" , ""justified by anoverriding need" (Nixon, 433 U.S. at 443), such as thenecessity of avoiding "conflicts of interest . . . whenthe Executive Branch is called upon to investigate itsown high-ranking officers," Morrison, 487 U.S. at 677,the only explanation for not vesting the SEC or atraditional independent agency with the Board’sfunctions is, as noted, the bare and improper desire tomake the Board more "independent" of the President.See supra p. 8.

In short, because the Act violates both thethreshold requirement of preserving some form ofPresidential removal and every other factor bearing

23

on whether the President’s ability to "control andsupervise" officials has been improperly trammeled,the result below is irreconcilable with any plausibleinterpretation of Morri~on.

3. Perhaps even more troubling than the holdingbelow is the panel majority’s reasoning, whichfundamentally skews the proper separation-of-powersanalysis by ignoring the central question of the extentof Presidential control over his subordinates andsubstituting an analysis which eviscerates anyserious protection of executive power.

First, and most dramatically, the panel majorityexplicitly holds that the Constitution allows Congressto impose an~v restriction on the President’s ability toappoint o~" remove inferior officers, no matter howimportant their function.

At Respondents’ urging, the court belowrepeatedly stated that Congress may imposerestriction on the President’s authority to remove aninferior officer "that Congress deems best for thepublic interest." Pet. App. 17a, 36a (quoting116 U.S. at 485); ~ee ~1~o Pet. App. 17a ("no caseprescrib[es] the ways in which Congress can restrict aprincipal officer’s removal of his inferiors"). This rulesquarely conflicts with Morri~on’~ holding thatCongress may not impose removal restrictions oninferior officers like the Independent Counsel to theextent they "impermissibly interfere with thePresident’s exercise of his constitutionally appointedfunctions" (487 U.S. at 685), as well as this Court’sconsistent recognition that the President’s removal

24

authority, far from being subject to Congress’ plenarycontrol, is a "necessary part of the . . . ’executivePower,"’ Pub. Citizen, 491 U.S. at 484 (Kennedy J.,concurring) (emphasis added);.see also F, dmond, 520U.S. at 664; Myers, 272 U.S. at 117. And, of course,the court below also upheld completely stripping thePresident of his appointment power by vesting it inan agency which concededly makes appointmentsindependent of the President. Pet. App. 28a. Thus,under the opinion below, executive officers may beappointed by independent agencies who make thoseselections free from Presidential influence and maybe wholly immunized from removal (at least absentextraordinary wrongdoing) by either the President orthe independent agency.

This complete deprivation of the President’~control over executive officers necessarily preventshim from performing his constitutional duties.Contrary to the panel majority’s conclusion, thisdeprivation is not somehow cured or renderedpermissible by vesting an agency independent of thePresident with the ability--especially the unexereisedability--to review or supplant the work product ofthose officers. Pet. App. 29a-31a, 36m The panel’scontrary ruling is fundamentally mistaken because iterroneously equates (1) the SEC with the President ora Presidential "alter ego"; (2) supervising officers withreviewing an office’s work produe~, an~ (3) actuallysupervisingwith a theoretical ability to supplant.

At the threshold, because the SEC isnot the "handof the President" analogous to a Cabinet officer (In re

25

Sealed Case, 838 F.2d 476, 528 n.30 (D.C. Cir. 1988)(Ginsburg, J., dissenting) (quoting Ponzi .y.Fessenden, 258 U.S. 254, 262 (1922)), rev’d sub nora.Morrison), vesting it with control over Boardmembers or policies could not possibly ameliorate thePresident’s deprivation since, at most, it would simplymean that the Board would follow the SEC’sindependent policies. Moreover, even assuming thatSEC control over Board members would satisfyArticle II, the SEC cannot require Board members topursue even the SEC’s policies because it cannotremove members for pursuing policies the SEC viewsas fundamentally misguided. See supra pp. 3-4.

The panel majority found that the SEC’s inabilityto control how Board members performed theirregulatory functions through removal was not a"functional concern [of] constitutional dimension"because "the Commission can withdraw or preemptany aspect of the Board’s substantive regulatoryauthority." Pet. App. 30a (quoting U.S.D.C. Cir. Br.at 50 (emphasis added)). But the question underseparation of powers and the Appointments Clause,respectively, is whether executive officials are"control[led] or supervised" or "directed andsupervised" by the President or one of his departmentheads. See Morrison, 487 U.S. at 692; Edmond, 520U.S. at 663. Such supervision requires some abilityto direct or control how the officers perform theirfunctions in the first instance. The SEC’s ability to"preempt" the Board’s proposed rules and sanctions isnot supervision of how Board members do their job; it

26

is a post hoe review of the Board’s collective workproduct.

Even more obviously, the SEC’s pc~rported andwholly unexercised statutory authority to "withdraw"and take over the Board’s inspection andinvestigative functions cannot possibly be equatedwith supervising the Board’s exercise of thosefunctions. Nor does it change the fact that the Boardis performing those functions free from Presidentialcontrol. The only relevant question is whether thePresident has sufficient control over "those executingthe laws" against Petitioners (Buckley, 424 U.S. at136), not whether he adequately controls those whomight theoretically execute the laws in the future.

Yet, under the panel majority’s revolutionaryregime, Congress can authorize officers who areconcededly beyond any Presidential control toperform critical executive functions simply by vestinga constitutionally compliant agency with thediscretion to assume that executive function in thefuture. The panel majority apparently believed thatit must treat the SEC’s theoretical ability to take overthe Board’s functions as if the SEC had actually doneso because such fictions are somehow required in"facial" challenges to unconstitutional entities. Pet.App. 37a n.14. But, of course, Petitioners need onlyshow that "no set of circumstances exist’ in which theBoard--the entity actually regulating Petitioners--isconstitutional, United States v. Salerno, 481 U.S. 739,745 (1987); they obviously need not show that adifferent regulator would also be unconstitutional if

27

the circumstances dramatically change--ie., if theSEC ever does assume the Board’s regulatoryfunctions. For example, if a statute empowered anagency’s ALJs to adjudicate Article III controversies,affected litigants could challenge the propriety of theALJ’s adjudication as "facially" unconstitutional, evenif the statute authorized the Department Head totransfer the cases to the proper Article III courts.

In short, the panel majority’s bizarre requirementthat separation-of-powers litigants show that anyconceivable alteration of the present unconstitutionalsituation would also be unconstitutional, by itself,warrants review and reversal by the Court.

III. The Decision Below Is Contrary to the Court’sAppointments Clause Precedent

The foregoing establishes that the Act violatesseparation-of-powers principles even assuming thatBoard members are inferior officers who may beappointed by "Heads of Departments" under theAppointments Clause (and even assuming that SECCommissioners are Department Heads). It is quiteclear, however, that Board members are principalofficers who may only be appointed by the Presidentwith the advice and consent of the Senate, and thepanel majority’s fundamentally mistaken contraryconclusion separately warrants this Court’s review.

At the most basic level, common sense andhistorical practice compel the conclusion that Boardmembers are principal officers, not subordinates ofthe SEC Commissioners. The Board is not subject to

28

any governmental chain of command, or publicoversight, because Congress desig~Lated it a"corporation" whose members are riot"officer[s] . . . oragent[s] for the Federal Government." SOX § 101(b),15 U.S.C. § 7211(b). As noted, Congres~ consciouslychose this private New York Stock Exc:hange modelprecisely to render the Board independent of the SECand its attendant "partisan" pressures. See supra p.8. Moreover, Board members exercise extraordinaryautonomy and power, raising their c, wn revenuethrough direct taxation and establishing standardsfor "all accountants and everyone they work for,which directly or indirectly is every breathing personin the country," 148 Cong. Rec. at $6334~ pursuant toa broad "public interest" mandate, see SOX § 101(a),15 U.S.C. § 7211(a). Board members’ salaries are alsonearly four times larger than their alleged "superiors"at the SEC. See supra p. 16.

As even the panel majority conceded, if the Boardis acknowledged to be the "independent agency" it soobviously is, the conclusion that its members areprincipal officers "conveniently follows." Pet. App.30a n.9. This is because the heads of all suchagencies or quasi-governmental corporations areappointed by the President with Senate confirmation(Pet. App. 62a)--reflecting the historical consensusthat those who run their own "shops" are necessarilysuperior officers. Consequently, in order to avoid theinexorable conclusion that Board members areprincipal officers if the Board is "independent," thepanel majority mischaracterized the Board as a"heavily controlled component of the SEC." Pet. App.

29

29a-30a; ~ee al~o Pet. App. 33a (Board is "entity

within the Executive Branch"). This basic error,particularly when coupled with the court’s relatederror that independent agencies are "Departments"under the Appointments Clause, both underminesevery purpose of that Clause identified by any Justiceand provides a blueprint for Congress to dramaticallyremake the statuB quo by stripping the President ofhis ability to appoint officials exercisingextraordinary executive power.

Under the panel majority’s opinion, the head of anagency whose work product is subject to review byanother federal officer is ipso facto an inferior officer.Pet. App. 12a-13a. Under this standard, officials aspowerful and autonomous as the heads of the CIA,IRS, FDA, FAA and Joint Chiefs of Staff allcurrently Presidential appointees are inferiorofficers because their work product is, or at leastpotentially is, subject to review by higher-rankingexecutive officers.3 Thus, the panel majority’s test forinferior officers, if left unattended, would directlyundermine the fundamental purposes of a "Clausedesigned to preserve political accountability relativeto important Government assignments." Edmond,520 U.S. at 663. Permitting such important officersto take office without "the joint participation of thePresident and Senate" would allow the politicalbranches to evade "public accountability for both themaking of a bad appointment and the rejection of a

3 See, e.g., 50 U.S.C. § 403-4a(b); 26 U.S.C. § 7801(a)(1); 21

U.S.C. § 393(d)(2); 49 U.S.C. § 106(f)(3)(B)(i); 10 U.S.C. § 153(a).

3O

good one." Id. at 660; ~ee al~o Freytag, 501 U.S. at884; Wei~s v. United States, 510 U.S. 163, 188 n.3(1994) (Souter, J., concurring) ("if Congress.authorizes a lower level Executive Branch official toappoint a principal officer, it... has adopted a morediffuse and less accountable mode of appointmentthan the Constitution requires"). Further, grantingthe appointment power to independent agencies, forwhom the democratically elected President is notresponsible, would undermine the "Framers’determination to limit the distribution ofappointment power" in order to "ensure that thosewho wield~ it were accountable to political force andthe will of the people." Freytag, 501 U.S. at 884."This process . . . deprives the public of any realisticability to hold easily identifiable elected officials toaccount for bad appointments." Wei~s, 510 U.S. at191 (Souter, J., concurring).

Indeed, the opinion below seems consciouslydesigned to guarantee that all involved can evadeaccountability if Board members fail to unearthEnron-like accounting fraud. The President wouldobviously not be responsible for failures of officials hecould not select or replace; the SEC Chairman wouldnot be responsible because his appoint~aaent powershave been diffused to all the Commissioners; and theCommissioners would also not be responsible becausethere is an inherent "lack of accountability inappointments by a ..... multimember executive,"Freytag, 501 U.S. at 904-05 (Scalia, J., concurring)and, in any event, they have no extant mechanism forreviewing-the Board’s failures to investigate and

31

cannot remove Board members for such mistakes injudgment. Thus, if the central issue in a Presidentialre-election campaign were the Board’s failure toadequately police the financial markets (analogous toour most recent election), the incumbent would not beaccountable for the Board’s failures, and the newPresident could not remove the members that he, andthe American public that elected him, view asincompetent.

Finally, the Act commits the cardinal sin of"aggrandiz[ing] [Congress’] own appointment power"by allowing it to influence "through indirection"(Wei~s, 510 U.S. at 187 (Souter, J., concurring)) theSEC Commissioners who, because they are not thePresident’s "direct lieutenants," have no "means toresist legislative encroachment[s] upon th[e][appointment power]." Freytag, 501 U.S. at 906(Scalia, J., concurring). At the same time, Congresswould bear no accountability for the Commission’sbad appointments because the Senate has notconfirmed them.

In short, a definition of inferior officer whichensnares such autonomous and powerful officialsmust be wrong. The panel majority arrived at thisunprecedented and extraordinarily counter-intuitiveresult only by mangling Edmond’~ "direction andsupervision" test, for reasons similar to those thatskewed its separation-of-powers analysis.

_First, particularly since the Appointments Clausedeals only with "Officers," it is clear that a superiormust directly supervise the Officer, not just review

32

the Officer’s substantive work, in order for thatofficial to be inferior. Thus, for examp].e, it is well-established that "United States district judges cannotbe inferior officers, since the power of appellatereview does not extend to them perso~aally, but islimited to their judgments." Edmond, 520 U.S. at 667(Souter, J., concurring). Here, in stark contrast to theJudge Advocate General’s power to remove the judgesin Edmond "without cau~d’ and to otherwise exerciseextensive "administrative oversight" of them, id. at664 (majority opinion) (emphasis added), the SEC hasno supervisory power over the Board memberspersonally, since it cannot review their individualperformance or remove them for inefficiency or policymistakes.

As noted, the panel majority did not find that theSEC is authorized to remove for poor performance,but simply discounted this "powerful tool for control"(Edmond, 520 U.S. at 664) as having any realsignificance, because it concluded that "what is keyunder the Edmond analysis is the fact that Boardmembers ’have no po~ver to render a final decision onbehalf of the United States."’ Pet. App. 13a (quotingEdmond, 520 U.S. at 665). This is plainly incorrect.The extremely narrow removal prc,vision herenecessarily precludes any finding of "direction andsupervision" because removal i~ key and the entirepoint of such restrictive provisions is to make clearthat Board members are free from SEC policydirection. And many principal officers, like the headsof the FDA and IRS, cannot take "final," legally

33

binding action absent potential review by otherofficials. See supra note 3.

Second, and in any event, the SEC does not directand supervise even the Board’s work product, sincethere is concededly no statutory provision, analogousto those authorizing SEC review of the Board’s rulesand sanctions, for reviewing or supervising theBoard’s critical investigative and inspectionfunctions. As the dissenting opinion correctly noted,the SEC’s power to review rules and sanctions is notremotely sufficient to "direct and supervise" theBoard’s key decisions on whether to initiate or dropan investigation, any more than "[a]fter-the-factjudicial or quasi-judicial review" of a prosecutor’sdecision suggests that the court is somehow"supervising" the prosecutor. Pet. App. 92a.Moreover, if the SEC ever does exercise its allegedauthority to transfer the Board’s investigativeactivities to itself, this would simply supplant theBoard’s functions; it would not supervise how theBoard conducts those functions. See Pet. App. 93a("Congress may switch regulatory authority from oneagency to another, but that does not make the initialagency ’directed and supervised’ by Congress").

Tt~ird, it is clear that direction and supervision bya superior, particularly of the officer’s work product,while "necessary for inferior officer status," is "notsufficient to establish it." Edmond, 520 U.S. at 667(Souter, J., concurring). Again, the contrary viewwould mean that officials such as the SolicitorGeneral and all Deputy Secretaries are inferior

34

officers simply because they are subject to oversightby the head of a department.

Fourth, the panel majority found that the Boardsatisfied the "direction and supervision" testprincipally because the "Board’s abi[lity to actindependently is dwarfed by the ’independentdiscretion [of the Independent Counsel] to exercisethe power delegated to her under the [Ethics inGovernment] Act.’" Pet. App. 14a (quoting Morri~on,487 U.S. at 681); see also Pet. App. 1,1a n.3. ButMorrison "explicitly" did "not purport to set forth adefinitive test for whether an office is ’inferior’ underthe Appointments Clause" (Edmond, 520 U.S. at 661(emphasis added)), did not even consider whether theIndependent Counsel was directed and supervised aspart of its "inferior officer" analysis, and applied afour-factor test that would necessarily render theBoard members principal officers because it primarilyfocused on whether the officer has "limited duties"and "tenure" and "jurisdiction." Id. (citing Morrison,487 U.S. at 671-72.)

Thus, the Independent Counsel obvi,ously cannotbe used as a benchmark for assessing how muchdirection and supervision is adequate where, as here,the offices at issue are permanent and. have broadjurisdiction. Any such rule would render the Edmondtest utterly toothless because the IndependentCounsel had virtually no "direction and supervision"over her case-specific judgments. At a minimum, ifthere is tension between Morrison and Edmond onhow to determine the inferior status of permanent

35

offices, the Court needs to resolve that fundamentalconfusion.

Finally, the panel majority’s sharp departure fromprecedent and historical practice raises a host ofunresolved issues and creates the potential for chaos.Here, for example, if Board members truly are"inferior," then all officers working at the Boardsuch as the Chief Auditor, who plainly "exercise[s]significant authority pursuant to the laws of theUnited States" (BuckIe.v, 424 U.S. at 126) areappointed unconstitutionally because "inferiorofficers" have no power to appoint. Similar issueswould occur at the other agencies, mentioned above,see supra p. 29 & note 3, whose heads are erroneouslydesignated "inferior officers" under the decisionbelow. For this reason alone, it is important for theCourt to review the decision below and provideguidance on this and similar complications.

IV. The Opinion Below Commits Other BasicLegal Errors

Although the opinion below should be reviewedand reversed based on the fundamental errors setforth above, the panel majority’s statutory andAppointments Clause analysis contains additional,important flaws also warranting review.

1. First, with respect to the Act, the panel wasplainly wrong in concluding that Congress, at thesame time it was consciously separating the Boardfrom the SEC and vesting it with its own specificstatutory responsibilities, nonetheless simultane-

36

ously authorized the SEC, at its discretion, to renderthe Board a Potemkin village full of idle, well-paidofficers, by usurping all of the Board’s functions. It isthe Board, not the Commission, that is expresslygiven the authority and duty to "register,""investigate" and "establish standards" for"registered public accounting firms" and to "assessand collect accounting support fees" from publiclyregistered corporations, sex § 101(c)(1)-(4) & (f)(5),15 U.S.C. § 7211(c)(1)-(4) & (f)(5). Whi][e the Boardexercises this statutory authority ’"subject to actionby the Commission under section [107, 15 U.S.C. §]7217,"’ that section "gives the SEC power to reviewonly Board ru/es," but "does not give the SEC powerto direct or supervise Board inspections,inve~tigation~, and enforcement aetion~." Pet. App.94a-95a (quoting sex § 101(c), 15 U.S.C. § 7211(c);footnotes omitted). And while, as the panel majoritycorrectly noted, the Act "preserve~’ the Commission’sexisting authority (Pet. App. 19a) by saying that thenew "Act" did not "impair or limit" SEC authority(sex § 3(e), 15 U.S.C. § 7202(e)), this manifestly doesnot grant the Commission any new authority or anyability to usurp the Board’s new authority. Thus, theCommission has no power to implement the Act’snew requirements concerning inspection,investigation and sanctioning of auditors~ or to collectthe fees that support such activity.

Moreover, with respect to the Commission’s abilityto ]imit (rather than usurp) the Board’s activities, thepanel majority simply ignored the statutory provisionwhich deals directly with that very issue, presumably

37

because that provision makes clear that such"limitations" may be imposed only if the SEC finds,after a hearing, that the Board has "violated" thesecurities laws, is "unable to comply" with those lawsor, "without reasonable justification or excuse," hasfailed to enforce them. SOX § 107(d)(2), 15 U.S.C. §7217(d)(2). The SEC may stop the Board from acting,then, only where the Board has grossly abused itsauthority. Contrary to the opinion below, the SEC’sgeneral power to issue regulations "in furtherance ofthe Act" plainly does not allow it to limit or take overthe Board’s functions. Pet. App. 19a-20a. Any suchSEC action cannot "further some aspect of the Act"both because it would render the specific provisiongoverning Board "limitations" a nullity and becausethe Act "nowhere gives the SEC authority to directand supervise Board inspections, investigations, andenforcement actions." Pet. App. 95a. Thus, theCommission could no more directly supervise or takeover the Board’s investigatory powers than it coulddirectly collect fees from public corporations.4

4 The panel majority was so intent on expanding the SEC’ssupervisory powers that it interpreted the statutoryrequirement that the SEC "shall" approve all Board rules thatare either consistent with the Act "o~’ the public interest, SOX §107(b)(3), 15 U.S.C. § 7217(b)(3) (emphasis added), to requireSEC approval only if the SEC finds the rule consistent with thestatute "and’ the public interest. Pet. App. 15a (emphasis inpanel opinion). But it obviously constitutes "radical surgery’’and "distorts the plain meaning of the [Act] to substitute theword ’or’ for the word ’and."’ Chisom v. Roemer, 501 U.S. 380,397 (1991).

38

2. In addition, contrary to the panel majority’sconclusion, the Act violates the Appointments Clauseeven if Board members are inferior officers becausethe SEC is not a "Department" and itsCommissioners, acting collectively, are not the SEC’s"Head."

As this Court made clear in Freyt~g, the term"Department" in the Appointments Clause is confinedonly to those agencies that resemble a cabinetdepartment and, most significantly, only those the"heads [of which] are subject to the exercise ofpolitical oversight and share the President’saccountability to the people." 501 U.S. at 886; geeal~o id. at 906-07 (Scalia, J., concurring) (noting thatthe key defining factor of a "department"’ is an officerun by someone who is a "direct lieutenant~""directly answerable" to the President). As anindependent agency over which the President haslimited control, the SEC has the exact samecharacteristics that caused this Court to hold in_Freytag that the Tax Court did not qualify as a"Department." See id. at 885-87.

As the district court held (Pet. App. l13a-l14a),the five SEC commissioners are also no~t the "Head"of the SEC because the "Framers recognized thedangers posed by an excessively diffuse appointmentpower" beyond a single person. Freyt~g,, 501 U.S, at885. Rather, if there is a "Head" of the SEC, it is theChairman, who, as the panel recognized, "directs"administrative and personnel actions and "dominatescommission policymaking." Pet. App. 28a-29a; gee

39

a]so Pet. App. 113a-114a; Reorganization Plan No. 10of 1950 § l(a), 15 Fed. Reg. 3175 (May 25, 1950),reprinted in 5 U.S.C. app. at 567-68 (2006)(delegating Chairman "executive and administrativefunctions" under President’s power to "provi[de] forthe appointment and compensation of the head.., ofany agency," Reorganization Act of 1949, Pub. L. No.109, § 4(2), 63 Stat. 203, 204, codified as revised at 5U.S.C. § 904(2) (emphasis added)). The panelmajority’s contrary conclusion renders all inferiorofficers at the SEC unconstitutional, because theyhave been appointed by the Chairman, not the multi-member Commission "Head."

CONCLUSION

The petition for a writ of certiorari should begranted.

VIET D. DINHBANCROFT ASSOCIATESPLLC1919 M Street, N.W.Suite No. 470Washington, DC 20036(202) 234-0090

SAM KAZMAN

HANS BADERCOMPETITIVE

ENTERPRISE INSTITUTE1001 ConnecticutAvenue, N.W., Ste. 1250Washington, DC 20036(202) 331-1010

January 5, 2009

4O

Respectfully submitted,

MICHAEL A. CARV~[NCounsel of Record

NOEL J. FRANCISCOCHRISTIAN G. VERGONISJONES DAY51 Louisiana Avenue, N.W.Washington, DC 20001(202) 879-3939

KENNETH W. STA~’~R24569 Via De CasaMalibu, CA 90265(310) 506-4621

Counsel for Petitioners