Announced eight years ago, the Supreme Court’s decision in Free Enterprise Fund was an extremely important opinion for originalism and for the stricter separation of powers approach (which is sometimes known as formalism). While the decision is too complicated to discuss in any detail, here I will focus upon some of the high points.
The case grew out of a provision of the Sarbanes Oxley Act, which established the Public Company Accounting Oversight Board (PCAOB) as a regulatory agency that was under the limited control of the Securities Exchange Commission. This aspect of the Act started a trend in regulatory laws (continued in the Dodd Frank banking legislation and Obamacare) that embraced greater independence from presidential control of regulatory agencies — a trend which I regard as quite undesirable.
The PCAOB members were removable only for cause by the SEC, and the SEC members were also deemed by the Court to be removable for cause. (Removability for cause limits the reasons why an officer can be removed, such as for violating the law or not doing one’s job properly. For more on removability for cause, see here.) Moreover, the PCAOB members were appointed by the SEC. In these two ways, the PCAOB was made largely independent of presidential control.
In a 5 to 4 decision, the Supreme Court held that the removal provision was unconstitutional. While court cases had held that an agency, such as the SEC, could be made removable for cause, it had never held that an agency (the PCAOB) could be made removable for cause by another agency that was itself removable for cause (the SEC). In Free Enterprise Fund, the Court held that such double for cause removal provisions were unconstitutional. Thus, it concluded that the PCAOB had to be fully removable by the SEC.
The Supreme Court also held that the appointment provision in the statute, which involved the appointment by the SEC of the PCAOB, was also unconstitutional. The reason was that if the PCAOB was subject only to a for cause removal, the PCAOB members constituted non-inferior officers. Such officers had to be appointed by the President with the advice and consent of the Senate. By contrast, inferior officers could be appointed by the President alone, heads of departments, and by courts of law. Once the PCAOB was made fully removable by the SEC, the PCAOB members were no longer non-inferior officers (since they could be controlled by the SEC) and therefore could be subject to appointment by the SEC (which was the head of a department).
The opinion was a positive development for originalism for several reasons. First, it was the first case to hold a law unconstitutional as violating the executive power vesting clause since before the New Deal. Because I believe the President’s removal power derives from this clause, the Court’s revival of this clause was a welcome development.
Second, in several lenient (and problematic) separation of powers opinions, the Court drew a distinction that it used to justify departures from the strict separation of powers. Under this distinction, the Court stated that a strict approach would apply to laws that enhance the powers of Congress, but that a lenient approach would apply to laws that restricted (or expanded) the powers of the executive or judicial branch. This distinction had no basis in the original meaning, but it did seem to account for the results in many of the cases. But in Free Enterprise Fund, the Court did not follow the distinction. Instead, it held that a removal restriction — a restriction on executive power — was unconstitutional. Perhaps the case will begin to put an end to this spurious approach.