Constitutional Law Professors Contend that PCAOB's Creation Violated the Appointments Clause

PCAOB members are superior officers of the United States who must be constitutionally appointed by the President and confirmed by the Senate, argued a consortium of constitutional law professors in an amicus brief filed with the Supreme Court in a case challenging the PCAOB’s constitutionality. The mode of appointment specified in the Sarbanes-Oxley Act under which Board members are appointed by the SEC would be permissible only if the members are inferior officers within the meaning of the Appointments Clause, noted the brief, which they are not. The case is before the Supreme Court on a grant of certiorari of a split panel ruling of the DC Circuit Court of Appeals that the PCAOB’s creation was constitutional. The Supreme Court will hear oral arguments this Autumn and a decision is expected during this term. (Free Enterprise Fund and Beckstead & Watts v. PCAOB, Dkt. No. 08-861).

The brief observed that many functions of the PCAOB are not subject to appropriate control and direction by other principal officers. In addition, apart from the lack of control and supervision by superiors, the sheer scope of the responsibilities of the PCAOB mandates that its members be considered principal officers.’

While the SEC has the power to review the PCAOB’s rules and sanctions, conceded the professors, it has no specific statutory power to direct, supervise, or review the PCAOB’s investigative and enforcement decisions, which are precisely the decisions to which the audit firm petitioner here has been subjected. The ability to review subsequent actions, such as reports, sanctions, or rules, that result from investigative and enforcement actions simply is not the power to supervise and direct the investigative and enforcement actions themselves. Citing an example used by Judge Kavanaugh in the panel’s dissent, the brief noted that a federal court’s ability to review the results of a U.S. Attorney’s investigative and prosecutorial efforts is not the power to supervise the investigative and prosecutorial activities themselves.

If the SEC had the plenary power to remove at will the members of the PCAOB, said the brief, that power might suffice to give the SEC adequate supervisory power over all aspects of the PCAOB’s work. But the SEC may only remove a PCAOB member for good cause. Thus, in the absence of at will removal power, the SEC’s supervisory authority must come from more specific statutory provisions, and with respect to the investigative and enforcement decisions illustrated by this case, there are none.

More broadly, the professors argued that the PCAOB is important enough to be a department within the meaning of the Constitution. The PCAOB has authority to regulate virtually every aspect of the public auditing process. The PCAOB is further empowered to inspect, investigate, and discipline all registered public accounting firms. The power to discipline includes the power to impose substantial civil fines. These powers extend to the entirety of the public auditing process, throughout the country and across all businesses.

The Appointments Clause permits appointment of inferior officers by the President, the courts of law, or the heads of departments. According to the professors, the natural inference from this enumeration is that all courts of law and heads of departments must be principal officers in the constitutional sense. Thus, if someone is the head of a department, he or she must be appointed by the President with the advice and consent of the Senate. It followed that the head of the PCAOB, whether that be the Chairperson or the entire PCAOB, is the department head and necessarily a principal officer.

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