Case Summary
Issue:
Whether the powers delegated to the Public Company Accounting Oversight Board (PCAOB) by the Sarbanes-Oxley Act violate the fundamental constitutional doctrine of separation of powers?
Plaintiff:
Free Enterprise Fund and Beckstead & Watts, LLP
Defendant:
Public Company Accounting Oversight Board (PCAOB); United States of America
Amicus Curiae:
Mountain States Legal Foundation
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Case History
In 2002, following a series of accounting scandals regarding publicly held companies, Congress passed the Sarbanes-Oxley Act of 2002 and established the Public Company Accounting Oversight Board (PCAOB) to oversee the audits of public companies. The five members of the PCAOB are appointed by the Securities and Exchange Commission (SEC), which vests the Board with certain responsibilities, such as enacting auditing standards, inspecting and investigating auditors of public companies, and setting the Board’s budget. No rule promulgated by the Board becomes effective unless and until it is approved by the SEC.
The Free Enterprise Fund, a non-profit, public interest organization, and Beckstead & Watts, a small Nevada accounting firm, sued the PCAOB seeking an order that the Act violates: (1) the separation of powers principal of the U.S. Constitution; (2) the Appointments Clause; and (3) the non-delegation doctrine.
The U.S. District Court for the District of Columbia found that PCAOB members are “inferior officers”; the Act does not unlawfully delegate legislative power to the PCAOB because Congress had provided “intelligible standards”; and “[t]he Supreme Court has never held that the Constitution requires the President to maintain direct removal power over inferior officers.” Although the court recognized that, under the Appointments Clause, the power of appointment must be vested in the SEC Chairman and not the entire SEC, the court held that the Plaintiffs lacked standing on this issue.
On December 14, 2007, the Free Enterprise Fund filed its opening brief in its appeal. On December 31, 2007, MSLF filed its friend of the court brief. Oral arguments were held on April 15, 2008. On August 22, 2008, the D.C. Circuit ruled in favor of the PCAOB and the United States, upholding the District Court’s decision.
On September 19, 2008, the Free Enterprise Fund filed a petition for rehearing en banc. On September 23, 2008, the Court ordered the PCAOB to file a response. On October 22, 2008, response briefs were filed by the United States and by the PCAOB. On November 17, 2008, the petition for rehearing hearing en banc was denied, by a 5-4 vote, and the petition for rehearing was denied, by a vote of 2-1.
On January 5, 2009, the Free Enterprise Fund filed a petition for writ of certiorari with the U.S. Supreme Court. On February 9, 2009, MSLF filed an amicus brief in support of the petition for writ of certiorari. Conference on the petition was held on May 14, 2009, and certiorari was granted on May 18, 2009.
Free Enterprise Fund filed its opening brief on the merits on July 27, 2009. MSLF filed its amicus brief on the merits in support of the Free Enterprise Fund on August 3, 2009. Oral arguments were held on December 7, 2009.
