Free Enterprise Fund v. Public Company Oversight Board – Oral Argument – December 07, 2009

Media for Free Enterprise Fund v. Public Company Oversight Board

Audio Transcription for Opinion Announcement – June 28, 2010 in Free Enterprise Fund v. Public Company Oversight Board

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John G. Roberts, Jr.:

We will hear argument first this morning in Case 08-861, Free Enterprise Fund and Beckstead and Watts v. The Public Company Accounting Oversight Board.

Mr. Carvin.

Michael A. Carvin:

Mr. Chief Justice, and may it please the Court: The board is unique among Federal regulatory agencies in that the President can neither appoint nor remove its members, nor does he have any ability to designate the chairman or review the work product, so he is stripped of the traditional means of control that he has over the traditional independent agencies.

On the other side of the balancing test, Congress provided no reason for stripping him of these traditional means of control.

Ruth Bader Ginsburg:

Why do you call it an independent regulatory agency?

I mean, Congress wanted it to be independent of the profession.

That much is clear.

It didn’t want it to be independent of the SEC, so why are you characterizing it as an independent regulatory agency?

Michael A. Carvin:

Justice Ginsburg, by making it public, it made it free of the accounting profession.

So then the next question is: Why didn’t they have the same relationship between this agency and the President that the FCC and SEC have?

And, in those instances, the President can appoint and remove the members.

Now, why didn’t they do that here?

Ruth Bader Ginsburg:

But the–

Michael A. Carvin:

There was–

Ruth Bader Ginsburg:

–The SEC doesn’t have another overseer.

I mean, the SEC is set up like the FCC, the other independent regulatory commissions, but this is a board that has a relationship with the SEC, where it can’t do anything that doesn’t have the SEC’s approval.

Michael A. Carvin:

–There is a buffer between the President and the board, and that’s called the SEC, and the board can do many things without the approval of the SEC.

Most notably, it can conduct inspections and investigations.

There is no statutory–

Ruth Bader Ginsburg:

It can’t even issue a subpoena without the SEC’s approval.

Michael A. Carvin:

–It actually can collect information from anyone associated with the people they regulate, the auditing committees.

If it seeks to get a subpoena from someone outside — if it seeks information from someone outside–

Ruth Bader Ginsburg:

So the SEC really could stop anything?

Michael A. Carvin:

–It cannot, for example, stop what happened to the Petitioners here.

There is no mechanism in the statute, in any way, shape, or form, for the SEC to stop an inspection or investigation as it is ongoing.

Ruth Bader Ginsburg:

What happened to the Petitioners here?

I think, if you were challenging what happened to the Petitioners here, certainly it would be a question of how you would have to do that.

You ordinarily go through the internal proceedings.

But here you are bringing a facial challenge and you say, never mind any particular proceedings; the whole thing is no good.

Michael A. Carvin:

No, no, and I’m dealing with the inspections issue at large, not for — for Petitioner or for anyone else, there is no mechanism — no existing mechanism for the SEC, in any way, to say stop the investigation.

Michael A. Carvin:

Equally important–

Antonin Scalia:

When you say SEC adopt a rule that would give the SEC authority to — to stop it?

Michael A. Carvin:

–No, it couldn’t, and — but I think the main point is, Your Honor, it hasn’t, and since it hasn’t, it doesn’t have that authority now.

Antonin Scalia:

Well, I’m–

Michael A. Carvin:

But I can tell you–

Antonin Scalia:

–I’m not sure that’s the main point.

I think the main — the main point is whether the FCC could stop it — the SEC could stop it if it wanted to.

Michael A. Carvin:

–Yes, and right now it cannot, and that’s because–

Antonin Scalia:

Never mind “Right now, it cannot”.

If it issued a rule that said you need our approval–

Michael A. Carvin:

–Yes, it cannot issue such a rule.

Antonin Scalia:

–It cannot issue such a rule?

Michael A. Carvin:

Absolutely not.

Antonin Scalia:

Why not?

Michael A. Carvin:

Well, the provision they point to, 7217(d)(1), says it can relieve the board of responsibility, but there is nothing in the statute that gives the SEC to conduct the board’s statutory duties.

For example, it couldn’t say, we will now collect the fees that are going to the board, we will now conduct the registration that’s going to the board.

Antonin Scalia:

Well, why — why isn’t this simply relieving the board of responsibility, saying, you no longer have responsibility for — for investigation and inspection in these areas?

Michael A. Carvin:

But that–

Antonin Scalia:

They could do that, couldn’t they?

Michael A. Carvin:

–No, it can’t.

But even if it could, my major point is it can’t–

Antonin Scalia:

Well, let’s talk about whether it can’t or not.

Why can’t it?

Michael A. Carvin:

–All right.

If you turn to 39 and 40a of the board’s appendix, at the back of the red brief, the board’s brief, it walks you through the statutes we have been talking about.

And at the bottom of 39a, that’s 7217(d)(1), and that’s where it says it can relieve the board of responsibilities.

And I have two points on that.

One is there’s nothing in here that gives the SEC the power to assume the responsibility.

It simply says the board need not comply with that obligation.

My second point is: This doesn’t stop the board from doing something.

Michael A. Carvin:

If I relieve my associate of the responsibility to give me a brief tomorrow, I haven’t told him he can’t do it.

If I want to impose a limitation on him, if I want to say stop, I have to enclose a limitation.

And if you will turn to the very next page–

Antonin Scalia:

Don’t — don’t you think that’s what it means, though, realistically?

Michael A. Carvin:

–You know, Your Honor, I think that would be–

Antonin Scalia:

When you no longer have responsibility to perform a government — governmental act, you no longer have authority to perform it.

Michael A. Carvin:

–If you viewed it in isolation, that would be an arguable principle.

But if you turn to the next page, 40a, you see a very specific provision in the statute that talks about how they can impose limitations on the board.

And this is when they want to censure — impose limitations upon the activities, functions, and operations of the board.

And what do they need to do?

They have to have a hearing that the board has violated or is unable to comply with any provision of this Act or without reasonable justification or excuse.

So Congress has established very serious barriers to the SEC even limiting the board’s responsibilities.

Stephen G. Breyer:

Well, they don’t have to — they can’t issue a subpoena without the board’s approval, I take it — the commission’s approval.

Michael A. Carvin:

They have very serious information-gathering powers totally distinct from the board.

Stephen G. Breyer:

What?

Michael A. Carvin:

Any — any person who is a registered association or anyone who is associated with them has to provide documents, witness testimony, wholly apart from a subpoena, so anyone who is within the regulatory–

Stephen G. Breyer:

Or what?

Michael A. Carvin:

–Or they will suffer the sanctions that are listed in the statute.

Stephen G. Breyer:

And the commission can’t change the sanctions?

Michael A. Carvin:

Well, not — obviously the commission can review the sanctions.

But the–

Stephen G. Breyer:

And it can’t — it can’t pass a rule saying, we don’t want you to do that?

Michael A. Carvin:

–Well, sanctions of course are done with order.

They get to review the sanctions after the board has done it.

I’m talk about the prosecutorial, investigative techniques–

Stephen G. Breyer:

So as far as — if the company was ever certain it was right and that the Accounting Board was out of control, completely wrong, the company would just say: I’m not complying–

Michael A. Carvin:

–Well — but–

Stephen G. Breyer:

–fine, do what you want.

Michael A. Carvin:

–But–

Stephen G. Breyer:

And then at that moment, the group that would decide whether they were right or the board was right would be the commission; is that right?

Michael A. Carvin:

–Well, I don’t think there ever would be a dispute about whether or not they would have access to their documents and their testimony, because it’s written right in the statute–

Stephen G. Breyer:

It says you don’t — you can get it even without a subpoena?

Michael A. Carvin:

–Yes, absolutely.

Stephen G. Breyer:

Where does it say that?

Or I’ll take your word for it.

I’ll look it up.

Anthony M. Kennedy:

What happens–

Stephen G. Breyer:

I don’t want to delay you, so forget it.

I’ll look it up later.

Anthony M. Kennedy:

–What happens to the information that the board obtains?

Can the board go public with that–

Michael A. Carvin:

I think–

Anthony M. Kennedy:

–or is it all confidential?

Michael A. Carvin:

–I think there are certain confidentiality restrictions as part of their investigative and inspection thing.

It’s — it’s the normal kind of inspection, where you go through the investigation and they would review the various documents.

And my — but my basic point is that that is a very serious burden on American citizens.

That is something that is totally outside the SEC’s control.

Anthony M. Kennedy:

The — the burden of time of compliance?

Michael A. Carvin:

I’m sorry.

Anthony M. Kennedy:

The burden is because it’s difficult and expensive to comply?

Michael A. Carvin:

That would be one.

Number two — and I think probably more important — since the SEC doesn’t review it, this board was created to make sure that there was no more Enrons.

So let’s look at it from the other perspective.

Let’s say the board was negligent or sloppy in ferreting out the kind of auditing standards and abuses that the statute was enacted to do.

The SEC would have no way of knowing that, no way of–

Anthony M. Kennedy:

No — but I’m — I’m talking about the harm to your client and to the — those similarly situated.

Michael A. Carvin:

–Yes.

Anthony M. Kennedy:

There’s the cost of compliance.

What other harms or dangers or risks are inherent in the power of the board unmonitored, unchecked by the SEC, to investigate?

Michael A. Carvin:

You’re right, Your Honor.

Michael A. Carvin:

The burden here is the burden that Mr. Olson suffered in Morrison v. Olson.

He was never indicted.

There was never any sanctions subject to review.

But he was subject to a burdensome investigation and that is the burden that affects American citizens that is beyond the review of the SEC.

Stephen G. Breyer:

But I’ve got one thing on my list.

I’m looking to what they control, can’t control — the commission.

And so far I’ve written that in your view the commission can investigate people without subpoenas, and the commission can do nothing about it, okay?

That’s one.

Michael A. Carvin:

Yes.

Stephen G. Breyer:

Now, what’s two?

Michael A. Carvin:

Well, I think that that is the main point.

Stephen G. Breyer:

Okay.

So we only have one on our list.

Michael A. Carvin:

Well–

Stephen G. Breyer:

Okay.

Michael A. Carvin:

–But I do want to emphasize that–

Stephen G. Breyer:

I’m not saying it’s good or bad.

I just want to be sure I have a complete list.

Michael A. Carvin:

–If I might elaborate slightly, Justice Breyer, I think it’s important to understand that they have the ability to inspect foreign auditing firms, and the Cato Institute filed a brief that described the adverse reaction of the 27 countries where they are currently exercising this inspection power abroad.

That is totally beyond the control of the President, obviously, as well as the SEC, to say how these — how these inspections and investigations are going.

The–

Sonia Sotomayor:

They can’t pass rules?

Michael A. Carvin:

–Again, they can pass rules, but the Attorney General–

Sonia Sotomayor:

What — what is the difference between what you are talking about and an employer who says: Look, I can’t stick my nose in every bit of business that goes on in my office because that’s impossible; otherwise I’d be doing all the work and I just humanly can’t.

I’m delegating to you the responsibility to do X, Y, and Z according to these rules of conduct.

Michael A. Carvin:

–There are three fundamental differences, Justice–

Sonia Sotomayor:

What’s the difference between that and this scheme?

Michael A. Carvin:

–In your hypothetical, the principal has exactly the same powers as the subordinate.

Here the subordinate has statutory duties and responsibilities totally distinct from what the SEC can do.

In addition to inspections, they can–

Sonia Sotomayor:

Well — let’s break down each part of your argument, please.

You are suggesting that Congress doesn’t have the power to determine that a particular principal or agent of the government doesn’t have certain responsibilities?

Michael A. Carvin:

–No, obviously they do.

And what I’m — you were asking for — I’m now trying to describe the relationship between the SEC and the board, and the one difference between the normal employer — employee relationship is that the board has statutory authority wholly distinct from the principal.

Number two, if that subordinate didn’t do things the way the principal wanted in the employment situation, the principal could fire the subordinate.

When can the SEC fire the board in these circumstances?

Only when they have committed gross abuses and after notice and opportunity for a hearing.

Stephen G. Breyer:

And if you have a statute that says each Department — Commerce, Justice — the Attorney General of the United States or the secretary shall appoint an inspector general who will in fact inspect and find ethics violations and that office — he cannot be removed from that office without cause.

In your view, that’s all — and it would be unconstitutional.

Michael A. Carvin:

No, no.

In the Interior Department, those are of course the President’s alter egos–

Stephen G. Breyer:

Yes.

Well, why?

What’s the difference?

Michael A. Carvin:

–Well, two differences.

One is the — the Secretary of the Interior is the President’s alter ego, and so, therefore, the President–

Stephen G. Breyer:

So you are saying that the — the chairman of the SEC does not under the Constitution have the authority or the SEC does not have the authority to appoint individuals who cannot be removed without cause?

Michael A. Carvin:

–Well, I think there is two points.

Stephen G. Breyer:

Or — or you might be saying they do not have the authority to appoint inferior officers of the United States.

I don’t know why they wouldn’t have that authority if the Secretary of the Interior has that authority.

Michael A. Carvin:

Well, because Freytag made it clear that there’s a difference between an independent agency, like the Tax Court.

Stephen G. Breyer:

What’s an independent agency?

Michael A. Carvin:

Well, in that case was an independent agency in the Executive Branch–

Stephen G. Breyer:

Well, what is an independent agency?

Michael A. Carvin:

–One that is not subject to the President’s plenary control.

Stephen G. Breyer:

But why isn’t — so why aren’t they subject to the President’s plenary control?

Michael A. Carvin:

Because of Humphrey’s Executor and because of the removal provisions, which pose very serious removal restrictions on the President’s ability to control the SEC.

Sonia Sotomayor:

But you just–

Stephen G. Breyer:

The SEC.

What — what restrictions?

Stephen G. Breyer:

Because, interestingly enough, my law clerks have been unable to find any statutory provision that says that the President of the United States can remove an SEC commissioner only for cause.

Michael A. Carvin:

It is silent, and — but it still–

Stephen G. Breyer:

It’s silent.

Michael A. Carvin:

–Well–

Stephen G. Breyer:

Then, in other words–

Antonin Scalia:

I don’t think the government will think it has achieved a great victory if it comes out of this with the proposition that the SEC is not an independent regulatory agency.

And I don’t think the government is arguing that position.

Michael A. Carvin:

–They have not taken that position.

Stephen G. Breyer:

–But that was not what I have asked.

Michael A. Carvin:

I know.

They haven’t taken–

Stephen G. Breyer:

I know.

I’m not interested in that.

I’m interested in an answer to my question.

Michael A. Carvin:

–Yes.

Stephen G. Breyer:

And the answer to my — my question was–

Michael A. Carvin:

There is–

Stephen G. Breyer:

–is there anything in the law, as far as you know, any statute, that says that the President cannot remove a commissioner or the chairman of the SEC but for cause?

Michael A. Carvin:

–Yes.

Stephen G. Breyer:

The answer is there is something?

Michael A. Carvin:

Yes.

Stephen G. Breyer:

Where — where is that?

Would you refer me to that citation?

Because we couldn’t find it.

Michael A. Carvin:

It’s — they’re given 5-year terms, so obviously if you have a term of 5 years, there is no removal provision.

Under this Court’s precedent in Wiener, if there is a term, you need to look at the function of the agency.

There was no removal restriction in Wiener.

Ruth Bader Ginsburg:

I thought that both sides–

Michael A. Carvin:

The Court–

Ruth Bader Ginsburg:

–I thought that both sides agreed that there is no statute, everybody agrees to that.

Ruth Bader Ginsburg:

But I thought that the government, just as your side, agreed that the President could dismiss an SEC commissioner for cause.

Michael A. Carvin:

–Yes, with — pursuant — yes, for cause, but–

Ruth Bader Ginsburg:

Even though there’s no statute that says anything either way.

Michael A. Carvin:

–And the reason we–

Ruth Bader Ginsburg:

For cause would be short of the 5-year term.

Michael A. Carvin:

–The reason we infer FTC, and under Wiener, you need to look at function of the agency to determine the President’s removal authority, and–

Antonin Scalia:

“For cause” doesn’t mean for failure to obey the President’s instructions, does it?

Michael A. Carvin:

–Not under Humphrey’s Executor, which made it quite clear that the President had no–

Antonin Scalia:

That’s why it’s called an independent regulatory agency, because it’s not subject to presidential control.

Michael A. Carvin:

–Right.

Stephen G. Breyer:

I don’t agree with that, but I mean, you do agree.

I thought an independent agency is a function of a number of different things: where it is on the chart, what people’s customs have grown up to, expectations about it–

Michael A. Carvin:

And I will–

Stephen G. Breyer:

–what the President might expect he can do or not.

But all those things are not what I’d call hard law.

Michael A. Carvin:

–It may not be hard law, but–

Stephen G. Breyer:

Well but if it’s not hard law, then I wonder.

Michael A. Carvin:

–Well–

Stephen G. Breyer:

I mean, that’s why I asked the question.

It’s not what I have the answer to.

Michael A. Carvin:

–Well, if Your Honor wants to infer at-will removal of the SEC, that would be effectively overruling Humphrey’s Executor.

And if you want to make a–

Stephen G. Breyer:

Why?

In Humphrey’s Executor there was no provision that said–

Michael A. Carvin:

–Well–

Stephen G. Breyer:

–There was a provision, which we know, that said the President cannot remove an FTC commissioner but for cause.

Have I been wrong on that all those years?

Michael A. Carvin:

–No, you’ve been entirely right, but Humphrey’s Executor didn’t focus on the removal provision.

It said that that removal provision was constitutional, and the reason it was constitutional was because you could make executive actors separate from the chief executive.

The SEC, like the FCC, has always been lumped in with the FTC in terms of that.

Michael A. Carvin:

If this Court wants to say that — that those people are subject to the President’s plenary–

Antonin Scalia:

I’d love to say that.

That would be wonderful.

Michael A. Carvin:

–I’m not going to stand in your way, because that would obviously–

[Laughter]

That would obviously render the board unconstitutional.

I think the key point here–

Stephen G. Breyer:

It would render the board unconstitutional?

Michael A. Carvin:

–Yes, because–

Stephen G. Breyer:

If an executive appointee who is a superior officer of the United States appoints an inferior officer, which inferior officer can be removed only for cause — I mean, my goodness — I can — there are lots of shapes and sizes.

I can’t imagine what would be unconstitutional about that.

What?

Michael A. Carvin:

–Well, Your Honor, if the President called up the head of the SEC and said, I want you to seek sanctions against the chairman of Exxon, under the traditional understanding of Humphrey’s Executor the SEC commissioner would not be beholden to follow the President’s direction.

The same would be true if he called him up and said, fire the chairman of the PCAOB.

And if that is so, then the President has no ability to remove somebody exercising a very important executive function, and unless we are going to rewrite what has been generally understood as the independence of — of independent agencies, then there is a fundamental difference between the President’s ability to fire an inferior officer at the Justice Department and fire an inferior officer at the independent agency.

Antonin Scalia:

This is not an argument you have made anyway.

Can we go on to the arguments that you’ve made?

Michael A. Carvin:

Yes.

Antonin Scalia:

Thank you.

Michael A. Carvin:

And in terms of that basic argument, he cannot control, for example, the appointment of the board members, which he could with respect to officers over whom he exercises.

He can’t tell the SEC whom to appoint to the board.

And in terms of the question that Justice Scalia asked earlier, I don’t think it’s a statutory principle that you pretend–

Sonia Sotomayor:

–Is it unconstitutional for the President not to be able to appoint an inferior officer?

Michael A. Carvin:

–Not an inferior officer.

But, of course, these are principal officers for three reasons–

Sonia Sotomayor:

Assuming we don’t accept your characterization of them?

Michael A. Carvin:

–Then I have two other arguments, Your Honor.

One is: The SEC cannot be a department under Freytag, because it is an independent agency indistinguishable from the Tax Court.

And — and what the Freytag majority opinion said was, if you are unlike a cabinet department because you are not subject to political oversight, then–

Antonin Scalia:

I hope your case doesn’t rest on Freytag.

Antonin Scalia:

[Laughter]

Michael A. Carvin:

–So do I.

I want to take an opportunity to focus on the real point of Freytag, which was made very eloquently in the Freytag dissenting opinion, which was–

[Laughter]

John G. Roberts, Jr.:

And the brief.

[Laughter]

Michael A. Carvin:

The Appointments Clause is designed to achieve accountability, and even when you are not talking about presidential advice and consent positions, the way we achieve that accountability is by vesting it, in the words of the dissenting opinion, in “the President’s direct lieutenant”.

And that’s very important because it makes the President accountable for those positions, and it also makes them able to resist congressional encroachments.

And this scheme, besides, embodies precisely the evil that was condemned by every member of the Court in Freytag and in Edmond, which is it creates an unaccountable system where a multi-member commission beyond the President’s political oversight and control is making appointments.

Not one elected representative, in the President or the Senate, has any influence who — over the people appointed to this board–

Ruth Bader Ginsburg:

Does that mean, Mr. Carvin, that the SEC cannot appoint heads of — heads of its divisions?

I assume that they would fit within the characterization “inferior officers”.

Michael A. Carvin:

–That would be true, and–

Ruth Bader Ginsburg:

So — but if the SEC can’t appoint–

Michael A. Carvin:

–No, they can’t appoint inferior officers.

Now, the board with the–

Ruth Bader Ginsburg:

–Yes, so what are — so what are the heads of the various divisions of the SEC?

Michael A. Carvin:

–The board and the SEC say they are not inferior officers, because they do not under Freytag have any specific statutory authorization.

They are not, in the words of the Appointments Clause, “established by law”.

So if they are–

Ruth Bader Ginsburg:

Aren’t there — aren’t there people within the independent regulatory commissions that have jobs comparable to people who are in the departments–

Michael A. Carvin:

–Yes.

Ruth Bader Ginsburg:

–that the head of the department can appoint?

So who can appoint such people in the FEC, the FTC, the FCC, and so on?

Michael A. Carvin:

There are two differences.

One is, for those lower-level people within the executive departments, they have specific statutory creation of those offices, the Solicitor General on down.

There is no statute saying that anybody below the commission level at the SEC has any job.

That’s totally up to the discretion of the commission.

They can vest them with whatever authority they want or not.

Anthony M. Kennedy:

But — but the question is — I assume it’s the follow-up question that Justice Ginsburg is interested in — under your view of the case, why is that lawful?

Michael A. Carvin:

No, it would only be unlawful if they were inferior officers.

And if the board is correct that they are not inferior officers, there would be no constitutional problem at all with the SEC, for example, appointing a general counsel.

I should–

Antonin Scalia:

I don’t understand that.

It’s okay for them to appoint principal officers, but not inferior officers?

Michael A. Carvin:

–No, no.

Employees, Your Honor.

Antonin Scalia:

Oh.

Oh, I see.

Michael A. Carvin:

And the argument for them being employees that the board has advanced is that they’re — that they’re–

Antonin Scalia:

I wish you had said that.

You really had me scared there.

[Laughter]

Michael A. Carvin:

–If I am scaring you, I’m not doing my job–

Antonin Scalia:

You’re saying they are not inferior officers and also not principal officers, but merely employees?

Michael A. Carvin:

–Merely employees.

Antonin Scalia:

And who appoints — who appoints the inferior officers at the — at the SEC?

Michael A. Carvin:

Well, that’s my other point.

The chairman does, and so if you accept their view of who the head of the department is, which is the commission–

Antonin Scalia:

All those appointments are presumably invalid.

Michael A. Carvin:

–all those appointments are unconstitutional, so under their theory–

Antonin Scalia:

That would be a shame.

Michael A. Carvin:

–since the chairman didn’t appoint any — the general counsel, the heads of any of the departments, all of them are unconstitutional.

Stephen G. Breyer:

Does the chairman serve as a chairman for a fixed term?

Michael A. Carvin:

Not as chairman.

Stephen G. Breyer:

No?

Okay.

Michael A. Carvin:

He just has–

Stephen G. Breyer:

So, therefore, what you had said before would not apply to the chairman, that is to say: The President can remove him at will–

Michael A. Carvin:

–Not–

Stephen G. Breyer:

–There is no statute to the contrary; he does not serve for a fixed term, and so you cannot imply that.

Since the chairman cannot–

Michael A. Carvin:

–But this statute doesn’t–

Stephen G. Breyer:

–can remove him at will — you do not have what you would call the gearing into play, this somewhat mechanical jurisprudence, of what’s an independent agency.

Michael A. Carvin:

–No, he can remove the chairman at his pleasure, which — but not a commissioner.

And that’s our whole point.

That’s a very key point.

Stephen G. Breyer:

So you are saying that the chairman, not the commissioner, is the person who does the appointing?

Michael A. Carvin:

We argue that.

They argue the opposite.

Under the statute–

Stephen G. Breyer:

Okay.

Michael A. Carvin:

–the commissioner does the appointing.

And that’s our key point.

Because the President exercises such extraordinary control over the chairman and therefore is able to control the SEC staff, Congress, in the statute, took away that traditional enforcement mechanism.

All of the SEC staff you were referring to earlier, Justice — Justice Ginsburg, are the chairman’s alter egos.

And since they are the chairman’s alter egos, they are completely constitutional.

And Congress, again, took away the chairman’s powers, which was a way of limiting the President’s ability to control the board.

And I think they — but our basic observation–

Ruth Bader Ginsburg:

So this whole thing would be constitutional if, instead of giving the appointing power to the commission, they had given it to the chairman?

Michael A. Carvin:

–No, because we believe they are principal officers for three reasons under Edmond: They run their own shop; the commission has no control over the officers on the board, since it can only remove them in these extraordinarily narrow situations; and as we have discussed at length before, it can only review part of its work product, whereas the appeals court judges in Edmond, all of their work product was subject to review.

And I think the removal provision is particularly important here.

The board can pursue policies that the SEC absolutely abhors and thinks are completely counterproductive, but under this extraordinarily narrow removal provision–

Ruth Bader Ginsburg:

Isn’t that a highly unlikely scenario?

I mean, this thing won’t work unless these two are working in harmony.

Michael A. Carvin:

–Well, it would work perfectly if the board was an independent, autonomous entity that was not subject to the plenary control of the SEC, and that’s exactly how the Senate report described it.

No, the New York Stock Exchange works perfectly fine even though the SEC has oversight responsibility over the New York Stock Exchange directly analogous to the oversight responsibility it has over the board.

And so, no, it would work perfectly fine if you followed the congressional scheme, which was an agency with its own autonomy and power.

And since it is an agency that has its own revenue sources, its own statutory authority, it has to be an agency composed of principal officers.

Elsewise very powerful agencies, including the CIA, for example, would be considered inferior officers simply because in an organizational chain they report to some others.

Michael A. Carvin:

And I would argue, to get back to my original point, Justice Scalia, that that would absolutely confound the accountability that the Framers insisted upon, that either the President and the Senate or a direct lieutenant of the President make the kinds of appointments of inferior officers and that the important officers go through the advice and consent process.

If there are no further questions, I’d like to reserve the remainder of my time.

John G. Roberts, Jr.:

Thank you, Mr. Carvin.

Michael A. Carvin:

Thank you.

John G. Roberts, Jr.:

General Kagan.

Elena Kagan:

Mr. Chief Justice, and may it please the Court: Resolution of this case follows from a simple syllogism, and it is this: The President has constitutionally sufficient control over the SEC; the SEC has comprehensive control over the Accounting Board; therefore, the President has constitutionally sufficient control over the Accounting Board.

Now, Mr. Carvin has suggested that there–

Antonin Scalia:

Excuse me.

The President has adequate control over the SEC only because he can dismiss the chairman of the SEC.

But the activity here is not governed by the chairman of the SEC.

There’s no role whatever for the chairmanship.

The — the governance of this board is by the members of the SEC.

So that’s quite different from saying — you know, I — I think your syllogism breaks down at that point.

Elena Kagan:

–Well, I — I think not, Justice Scalia.

Humphrey’s Executor said 70 years ago the President does have constitutionally sufficient control over the SEC generally, including the chair.

Now, the SEC has constitutionally — has comprehensive control over the Accounting Board.

There is nothing that the Accounting–

Antonin Scalia:

The chairman, which is — which is — which is the — what should I say — the knife that the President has into the SEC, has no role in the control of this board.

Elena Kagan:

–The — the chair has the same role that he has with respect to pretty much everything else that the SEC does.

The SEC–

John G. Roberts, Jr.:

No.

I thought the employees were appointed by the chairman, not by the commission.

Elena Kagan:

–Subject to the control — subject to the approval of the commission.

So–

John G. Roberts, Jr.:

So you think — you think a — a veto power is the same as an original — original power?

Elena Kagan:

–Well, in fact, the commission could do the exact same thing in this case.

The commission could delegate its control over the Accounting Board to the chair, subject to the control of the commission again.

So I think that there is no difference with respect to the SEC’s supervision of the board than there is with respect to the SEC’s supervision of any of its other functions or any–

John G. Roberts, Jr.:

Well, let’s say–

Elena Kagan:

–of its staff.

John G. Roberts, Jr.:

–Let’s say that the — let’s say that the board issues — demands documents from a particular company.

Can the SEC direct them not to do that?

Elena Kagan:

The SEC has full control over the investigative and inspection function of the board.

This was what Mr. Carvin — was the one thing that Mr. Carvin said the SEC lacked, but in fact it does not, because the board’s investigations and the board’s inspections are all done according to rule.

And the SEC in a number of ways can change those rules.

The SEC can reach out and abrogate any board rules, including rules relating to inspections and investigations.

The SEC also has power to promulgate its own rules, if–

Antonin Scalia:

Excuse me, but, you know, Congress — Congress can change the statutory authority of any agency just like that.

Does that mean that Congress is controlling the agency?

Elena Kagan:

–Well, it’s certainly part of Congress’s control mechanisms.

And this, too, is part of the SEC’s control mechanisms with relation to the Accounting Board.

The Accounting Board can take no–

Antonin Scalia:

I’m not sure that — that the ability to take away responsibility for an agency — from an agency is the same as controlling what authority that agency does exercise.

It seems to me they are two different things.

Elena Kagan:

–And I think that the SEC has both.

It certainly has the authority to take away responsibility from the Accounting Board.

The rescission provision in 7217 makes that completely clear.

But it also has authority to set the ground rules by which the Accounting Board does anything and everything.

It can say tomorrow — it can promulgate a rule and say all inspections have to be approved by us, all investigations–

John G. Roberts, Jr.:

Will that be consistent — do you think that will be consistent with the intent of Congress in establishing the PCAOB?

Elena Kagan:

–I — I do think it would be consistent with the intent of Congress, Mr. Chief Justice, because the intent of Congress was to place the Accounting Board under the extremely close and comprehensive supervision of the SEC.

The references to independence that one finds throughout the legislative record here are almost all references to independence from the accounting industry, not from the SEC.

Quite to the contrary, Congress made it clear–

John G. Roberts, Jr.:

Why did — just out of — I guess maybe it’s not important, but why did the — why did Congress set up a separate board if it’s going to be entirely controlled by the SEC?

Elena Kagan:

–I think it is important, Mr. Chief Justice, and I think that there were a few reasons.

First, Congress wanted to make sure that this board did not compete with the SEC’s own resources.

Members of Congress thought that the SEC had been resource-strapped and wanted to create something with its own separate funding stream, which it was able to do by declaring this a kind of quasi-governmental — agency.

Second, it wanted to get the board outside of the normal civil service laws, because it wanted to attract people that it thought it could not attract on normal civil service salaries.

And third, I think history and tradition have a great role in — in the question that you are answering, because what — the history and tradition of SEC regulation of the financial industry in general is — is — in — in some part through the SROs, the self-regulatory organizations.

So–

John G. Roberts, Jr.:

Before we get — before you get too far into that, of those first two things, is there any reason Congress couldn’t have achieved those same objectives by establishing the PCAOB as a division within the SEC?

Elena Kagan:

–Well, I — I think so.

I think it would have been harder to establish a separate funding stream to take the Accounting Board out of the civil service when the rest of the SEC is subject to normal congressional appropriations and is subject to basic civil service laws regarding salary and so forth.

So, this was a way to — to have both.

And it was also, I think–

Anthony M. Kennedy:

But that’s — that’s the history and tradition of this board, which isn’t very long.

But the history and tradition of boards like this is that their investigative powers are independent.

Now, you say that there could be a rule, but that just isn’t the way it works.

And if you refer us to history and tradition for other purposes, we ought to look at the operational principles, operational assumptions of this board.

Elena Kagan:

–Well, I — I — I do think, Justice Kennedy, that — that the way this board is set up, the statutory scheme and structure, makes it clear that the SEC has comprehensive authority not just over the rulemaking, but over the investigative and inspection activities of the board; that no — no sanction arising from an investigation can be issued except if the board agrees; that no inspection report can be issued except if the — excuse me — except if the SEC agrees.

And further, as I said before, that the SEC can reach further back into the process and say, not only do we have this kind of veto authority over any sanction that comes out of an investigation or over any report that comes out of an inspection, but we can also change the way those inspections and investigations are conducted in the first place.

John G. Roberts, Jr.:

Does it have consequences for public companies subject to the board if it refuses to turn over documents requested by this — this board?

Elena Kagan:

Well, for — for — for public companies for — not for the accounting firms in general, but for their public company clients, any subpoena would have to come, as Justice Ginsburg rightly said–

John G. Roberts, Jr.:

Oh, I know, but presumably you only get a subpoena when people don’t cooperate.

Elena Kagan:

–That — that’s correct.

And — and certainly public companies could cooperate, and certainly public companies have cooperated with the board–

John G. Roberts, Jr.:

And what happens if they don’t?

Elena Kagan:

–I — I think that the board would go to the — to the SEC for a subpoena, ask the SEC for a subpoena, and the SEC would choose whether to grant that subpoena and whether to allow the kind of investigation that the board wants.

John G. Roberts, Jr.:

Are there any other — are there any consequences from the company’s refusal short of — that would not require the board to get a subpoena?

Elena Kagan:

Are there any other consequences for the public company?

John G. Roberts, Jr.:

In the absence of the subpoena, if nothing happens?

Elena Kagan:

–I — I — I believe that that’s the case.

I believe that it’s the choice of the public company whether to comply or not.

If the public company chooses not to comply, the board has to go to the SEC and to get a subpoena.

John G. Roberts, Jr.:

Is it — does it have a consequence as a practical matter for the company if it doesn’t comply with a request from this board?

Elena Kagan:

Well, the board does not regulate the public companies themselves.

The board only regulates the accounting firms.

Now, the accounting firms do, as a condition of their registration, have to present any documents that the — the — the board wants.

And so the accounting companies have a real reason to comply with the board’s requests.

John G. Roberts, Jr.:

So there are in fact collateral consequences that take place without any involvement by the SEC?

Elena Kagan:

Well, I — I — I think again the SEC could change any of the rules that govern inspections, any of the rules that govern investigations.

John G. Roberts, Jr.:

So if you had a statute here that said, look, if you don’t comply with the board’s request for documents, your authorities will be suspended, and if that were the statute, you would say, well, that’s okay, because the SEC can always change that rule.

Elena Kagan:

I think that — that the relationship between the SEC and the board has to be looked at as a whole.

And it’s clear that the SEC has control over everything that the board does or could have control over everything the board does.

Ruth Bader Ginsburg:

General Kagan, I thought that — the Chief asked a question, he posed a sanction, and I thought that any sanction the board wants to impose has to be approved by the SEC?

Elena Kagan:

Well, that’s exactly right.

Any sanction, any final inspection–

John G. Roberts, Jr.:

I’m sorry, I asked you whether there were any consequences from the failure of the company to turn over documents; and is your answer that there are no consequences whatever?

Elena Kagan:

–There are no consequences with respect to the failure of public companies — not the accounting firms, but public companies — to turn over documents absent a subpoena, which the SEC needs to issue.

Samuel A. Alito, Jr.:

As a practical matter, does the President have any ability to control what the board does?

Elena Kagan:

I think, Justice Alito, the President has the exact same ability that the President has with respect to every other aspect of the SEC’s operations.

So, the–

Antonin Scalia:

No, that’s–

Samuel A. Alito, Jr.:

Well, why is that–

Antonin Scalia:

–But that’s not true.

He can remove — he can remove the chairman of the SEC.

Elena Kagan:

–And–

Antonin Scalia:

And he cannot — he cannot remove the commissioners.

And it’s the commissioners that govern the board, not the chairman.

Elena Kagan:

–Well, it’s the commissioners that govern all aspects of the SEC’s operations.

The chair only does what is delegated to him by the commission or — either — or through the reorganization plans.

Samuel A. Alito, Jr.:

–Well, let me give you an example.

Suppose the President objects to the — the very large salaries that the members of the board receive.

What are their salaries?

Elena Kagan:

Excuse me.

They are over $500,000.

Samuel A. Alito, Jr.:

And they — did they decide that themselves?

Elena Kagan:

Subject to the review of the commission.

And the commission has been active in this area.

Samuel A. Alito, Jr.:

Suppose the President reads about this and he says: This is outrageous; I want to change it.

Samuel A. Alito, Jr.:

How can he do that?

Remove–

Elena Kagan:

Well, I think he does–

Samuel A. Alito, Jr.:

–remove that — remove the SEC commissioners unless they take action against the board?

Elena Kagan:

–I think he does everything that he would do with respect to any other SEC function, is that he or some member of his staff would call the chair or would call other commissioners and say: I have a problem with this.

Antonin Scalia:

Would you please change it?

Right?

Elena Kagan:

Would you please change it — and — and–

[Laughter]

–and with respect to that, that’s exactly what–

Antonin Scalia:

I could do that.

[Laughter]

Elena Kagan:

–Justice Scalia, that’s Humphrey’s Executor.

Humphrey’s Executor does indeed say that the President can’t order the SEC commissioners in the same way that he might be able to–

John G. Roberts, Jr.:

Yes, yes.

Elena Kagan:

–That’s a 70-year-old precedent.

John G. Roberts, Jr.:

Right.

That’s Humphrey’s Executor.

But you have to add to Humphrey’s Executor Perkins and Morrison.

Humphrey’s Executor says you can limit the President’s removal power.

That doesn’t get you down to the board.

You have to also say the principal officers — there can be limits on their removal authority of the board members.

Elena Kagan:

I — I understand the temptation to say something like, well, we don’t really much like Humphrey’s Executor, but we are stuck with it, but not an inch further.

John G. Roberts, Jr.:

I didn’t say anything bad about Humphrey’s Executor.

[Laughter]

Elena Kagan:

But — but–

Antonin Scalia:

I did, I did.

[Laughter]

Elena Kagan:

–But this in–

Antonin Scalia:

We did overrule it, by the way, in — in Morrison, didn’t we?

Elena Kagan:

–But two points.

This in fact does not go an inch further, and it doesn’t go an inch further because of the SEC’s comprehensive control over the board, which makes the board function–

John G. Roberts, Jr.:

What is — I’m sorry.

What is the removal authority of the SEC with respect to board officers?

Elena Kagan:

–The removal authority of the SEC with respect to — with respect to board officers is a for-cause removal limitation.

John G. Roberts, Jr.:

All right.

So there is a limitation there.

For cause does not include failure to follow the policies of the President.

Elena Kagan:

Let’s assume that that’s correct.

John G. Roberts, Jr.:

So you need to rely on Morrison to make the limitations on what the SEC can do with respect to the board constitutional.

Elena Kagan:

I think–

John G. Roberts, Jr.:

And you need to rely on Humphrey’s Executor to make the limitations on what the President can tell the SEC constitutional.

Elena Kagan:

–Mr. Chief Justice, removal is just a tool.

Removal is not the ultimate constitutional question.

The ultimate constitutional question is the level of presidential control, and the presidential control here is exactly the same with respect to the board’s activities as it is with respect to the SEC staff’s activities–

John G. Roberts, Jr.:

Oh, no, no, because you have got an extra layer there.

Let’s say, I mean, that you have to have two violations of the for-cause provision.

You have got to have — you have to meet the requirement in two places.

When the SEC wants to remove the board member, they can only do that for cause.

And if they decide, well, there isn’t cause, I’m not going to do it, then the President under your theory has to remove the SEC commissioners, all of them, not just — not just the chairman, and he can only do that for cause.

So you have got “for cause” squared, and that’s — that’s a significant limitation that Humphrey’s Executor didn’t recognize and Morrison didn’t recognize.

Elena Kagan:

–But that for-cause provision is surrounded by a panoply of other control mechanisms–

John G. Roberts, Jr.:

Which one are we talking about, the first one or the second one?

Elena Kagan:

–The — the for-cause provision on the board members is surrounded by a panoply of other control mechanisms which function as a complete substitute, which give the SEC–

John G. Roberts, Jr.:

Well, let’s just talk — a practical example.

The board says I want to get the documents of company X.

The SEC thinks they shouldn’t do that.

Okay?

Can they remove them for that situation — in that situation?

Elena Kagan:

–Well, they can pass a rule that says no, you can’t get the — the documents of company X, and then when the board members go ahead and try to get the documents of company X–

John G. Roberts, Jr.:

Can they say–

Elena Kagan:

–they can remove them.

John G. Roberts, Jr.:

–you are fired?

Can they say, you are fired because we have control over what you do and we don’t think you should do that?

Elena Kagan:

I think that they effectively can.

They would have to do it by — I think that the easiest, quickest, most legally secure way would be to — to do it by — by promulgating a rule that says you can’t do this.

And then–

John G. Roberts, Jr.:

The easiest way to do it is to pick up the phone, not by promulgating a rule.

Elena Kagan:

–I said the most legally secure way to do it would be to do it that way.

I think that the fact that they have that formal mechanism means that they could pick up the phone and accomplish the exact same thing, because–

John G. Roberts, Jr.:

Can the President pick up the phone and fire the SEC commissioners?

Elena Kagan:

–The President can pick up the phone and fire the SEC commissioners for cause, however “cause” has been defined.

John G. Roberts, Jr.:

He thinks — he thinks they — the board should be getting the documents from the other company, and the SEC thinks they can’t.

So the SEC tells the board, don’t go after that company, and because they do that the President fires the SEC.

Does that work under your theory?

Elena Kagan:

So now the SEC has given the board one order and the President doesn’t like the order that the SEC has given to the board?

John G. Roberts, Jr.:

Right.

Elena Kagan:

Again, the President has the same level of control over the SEC as he has with respect to anything else.

That’s just Humphrey’s Executor.

John G. Roberts, Jr.:

I’m not worried if it’s the same.

I’m worried if it’s enough.

Elena Kagan:

Well, but that’s Humphrey’s Executor.

Humphrey’s Executor said it was enough.

John G. Roberts, Jr.:

Right.

And then–

Elena Kagan:

And the question is whether this goes any further.

John G. Roberts, Jr.:

–It goes further because you’ve got to rely on the SEC to get to the board.

So there you’ve got to rely on Perkins and Morrison.

Elena Kagan:

You always have to rely on the SEC to do anything, to supervise anybody in its field of operations, whether it’s the SEC’s own staff or whether it’s the board members, who stand in essentially the same relationship to the SEC commissioners as the own SEC staff does.

Samuel A. Alito, Jr.:

Well, do you dispute the proposition that the more layers of for-cause removal you add, the — the less control the President has?

Samuel A. Alito, Jr.:

Suppose there were five layers.

Elena Kagan:

Justice Alito, I think it all depends.

I mean, we are not saying that a double for-cause provision is always constitutional, just as we are not saying that a single for-cause provision is always constitutional.

The question is, in what context does that for-cause provision operate?

And where it operates in a context like this one, where it is surrounded by a panoply of alternative and — and equally effective control mechanisms, it simply should not matter that there’s another for-cause provision.

Stephen G. Breyer:

Well, what do — what do you say in response to their formal argument that heads of departments are those people whom the President has at-will control over, like the Secretary of Defense, and Freytag is support for that.

And these aren’t those people, so the SEC’s members must be inferior officers, and the Constitution says nothing about and implicitly forbids inferior officers from appointing other inferior officers beneath them.

All right, that’s a formal argument, but I got that out of their briefs, and I want to know what you respond to it.

Elena Kagan:

Well, Justice Scalia, who doesn’t much like Humphrey’s Executor, nevertheless wrote a brilliant opinion in Freytag saying that in fact independent agencies were departments, and — and — and so that commissioners of the SEC would be principal officers, their appointees would be inferior officers, if — if those appointees were subject to the direction and supervision of the principals in exactly the way Justice Scalia said was necessary in the Edmond case.

He is–

Stephen G. Breyer:

Yes.

So I — so we have to take the dissent there as opposed to taking the majority?

Elena Kagan:

–No, no, no.

Freytag — Freytag reserves the question–

Stephen G. Breyer:

I see.

Elena Kagan:

–whether the independent agencies were departments for purposes of the Appointments Clause and, indeed, in reserving that question, suggested that they thought that the independent agencies, so-called, were a very different kind of creature than the small, specialized units such as the Tax Court.

So I think that the–

Anthony M. Kennedy:

I want to ask — I want to ask one thing: You want us to imply or find — or you want us to infer from the statute that there’s a power in the President to remove SEC commissioners for cause?

You want us to find that that is implied in the statute?

Elena Kagan:

–Justice Kennedy, the conventional understanding, really, ever — ever since Humphrey’s Executor, is that SEC commissioners are subject to a for-cause removal provision.

And the government–

Anthony M. Kennedy:

All right.

What is — what is the authority for us to find that there is an implication in the statute to remove just for cause?

There’s — wouldn’t that be unique in our precedents?

Elena Kagan:

–I think that — if I understand the question correctly, I think that the — the implication about–

Anthony M. Kennedy:

I mean, if there is a removal power implied, why isn’t it removal for all purposes?

How — why can it be limited to just for cause?

What authority do we have to do that?

Elena Kagan:

–Well, I think that the understanding about the SEC commissioners is that the SEC commissioners were, essentially, the same as the FTC commissioners, which, under — which, under Humphrey’s, were removable only for cause, and as I believe–

Sonia Sotomayor:

But that’s because the statute required it.

Elena Kagan:

–Yes, but — you’re exactly right, and it’s a — it’s a perplexity of this law, but for many, many decades, everybody has assumed that the SEC commissioners are subject to the same for-cause removal provision, and the government has not contested that in this case, nor has Mr. Carvin.

Antonin Scalia:

General Kagan, the government argues here that the head of department is all of the commissioners.

Elsewhere, it is the chairman of the SEC who — who appoints inferior officers.

Now, which is it?

Are all those appointments by the chairman invalid?

Elena Kagan:

No, they’re not, because all those appointments are made subject to the approval of the commission.

Antonin Scalia:

Well, that’s something quite different.

He makes the appointments.

They can overturn it, but the appointment must be made by the head of the department, and the appointments are not made by the commissioners.

They are made by the chairman.

Elena Kagan:

Well, I think practice in this regard has changed in different administrations, but if you look at the amicus brief that was filed by the former chairmen of the SEC, they make clear that in fact the commission has ultimate authority over each and every appointment.

John G. Roberts, Jr.:

What do they have to say about the theory that the SEC commissioners can be removed by the President?

Elena Kagan:

I believe, Mr. Chief Justice, that nobody has contested that question.

John G. Roberts, Jr.:

And you are not contesting it?

Elena Kagan:

And we are not contesting the question that the SEC commissioners, themselves, are removed by the President for cause under, I would say, a very broad for-cause provision, in the way that Bowsher suggested, not something that’s niggling and technical.

John G. Roberts, Jr.:

Thank you, General.

Elena Kagan:

Thank you, Mr. Chief Justice.

John G. Roberts, Jr.:

Mr. Lamken.

Jeffrey A. Lamken:

Thank you, Mr. Chief Justice, and may it please the Court: The SEC has pervasive authority over every aspect of the board’s operations.

Board rules and sanctions have no effect, except as the SEC allows, and can be changed by the SEC at any time.

Board inspections and investigations are subject to plenary SEC control.

Not only are they conducted under rules that the SEC must approve, but the SEC can threaten or actually rescind the board’s enforcement authority any time it thinks that’s appropriate in the public interest.

It controls the board’s budget and salaries, and it can reassign matters to–

John G. Roberts, Jr.:

I thought — so you disagree with General Kagan?

I thought she said one of the reasons for taking the board outside the SEC is that they’d have an independent funding stream.

Jeffrey A. Lamken:

–Independent of the congressional appropriations process, not independent of the SEC.

Section 7219 is clear as water that the SEC controls the board budget, and the SEC in fact has used that control to regulate down to the level of the board members’ salaries.

In addition, the SEC can impose rules requiring getting — requiring the board, for example, to get SEC pre-approval for particular steps or particular actions.

Antonin Scalia:

Do you know any other agency composed of inferior officers that has the power to acquire its own budget, as this board does, by simply assessing a tax upon the people that it regulates?

Jeffrey A. Lamken:

In fact, this board doesn’t have that power, because it can only do so as the SEC allows.

Jeffrey A. Lamken:

Here, as in all other contexts, it is the will of the SEC that controls–

Antonin Scalia:

The SEC can overturn it, but it’s up to the board — the board can do it.

Do you know of any parallel situation where there is a, supposedly, agency composed of inferior officers who have the power to tax the public unless it’s overturned by somebody else?

Jeffrey A. Lamken:

–Well, there’s a bunch of other similar entities, such as the SIPC and the like, that assess fees, and many of their officers are appointed by department heads, rather than the — than the President.

And so, yes, I think that’s actually not an uncommon feature, but the most — but the most critical aspect of this is, here, as in every other context, it is the judgment and the decision of the SEC that controls.

The board can propose, but it’s the SEC that decides.

John G. Roberts, Jr.:

Well, the board can act, and the SEC can, I suppose, retroactively veto their actions, but the SEC doesn’t propose what actions the board takes, actions that can have significant, devastating consequences for the regulated bodies.

Jeffrey A. Lamken:

Well, precisely the opposite.

With respect to rules, the board’s rules are ineffective–

John G. Roberts, Jr.:

I’m not talking about rules.

Agencies in the government do not act only in implementing a particular rule.

They have authority to regulate.

And the board here, for example, can tell a particular entity: You have to turn over these documents.

They don’t have to have a rule that says, this company must turn over the documents.

Jeffrey A. Lamken:

–And the SEC staff can do precisely the same thing.

In fact, right now they can issue subpoenas without asking the commission for consent.

And the — and the answer is, if you don’t like it, you go to the principal officer, and you say, rescind the board’s authority — threaten to rescind the board’s authority; this is out of line.

And the SEC has broad authority in the public interest to rescind the — the board’s authority to enforce the action, enforce the law in any respect–

Antonin Scalia:

But you can say the same — you can say the same thing about Congress.

I mean, this is not the kind of control that an executive officer normally is supposed to have over inferior officers; when they do something, you can take away their authority.

–Congress can do that.

Jeffrey A. Lamken:

Well, Congress would have to do that by legislation, subject to veto by the President, and in fact this is precisely the type of control that powerful executives regularly exercise.

If they don’t like the way an inferior is doing something, they can take away that authority, and they can take away their salary as well, which is so close to being fired that I can’t see any light between them, frankly, Your Honor.

So the board — the SEC controls whether — what the scope of the board’s authority is and its salaries–

John G. Roberts, Jr.:

Is there any other–

Jeffrey A. Lamken:

–and it can issue rules requiring start, stop, or obey my commands.

And–

John G. Roberts, Jr.:

–Is there any other situation in the vast federal bureaucracy, where you have this two-level situation that we have here?

Jeffrey A. Lamken:

–Oh–

John G. Roberts, Jr.:

In other words, the President can’t remove the SEC commissioners at will.

John G. Roberts, Jr.:

They can’t remove the PCAOB commissioners at will.

Or even if you look at it from the for-cause perspective, there has to be two layers of “for cause”.

Jeffrey A. Lamken:

–Mr. Chief Justice, of course, we view rescinding an officer’s authority and paycheck as being exactly like rescinding the officer’s position, but if you are going to look at formal removal authority, that exists throughout the United States government.

There are 1,100 administrative–

John G. Roberts, Jr.:

What — well, give me an example.

Jeffrey A. Lamken:

–1,100 administrative law judges, right now, which are for-cause removed operating in independent agencies with for-cause removal by the President.

There’s the Postal Service’s IG’s office, with 1,100 employees and 90 offices nationwide, removable for cause by an entity that is removable for cause.

We list–

Anthony M. Kennedy:

But we are talking — we are talking about independent or quasi-independent agencies, and I understood Solicitor General Kagan to say that it’s quite all right with an independent agency for the President to phone them on an ongoing basis and say, do this, and do that.

Do you agree that that’s what a President ought to do with an independent agency?

Jeffrey A. Lamken:

–Well, Your Honor, I would think that–

Anthony M. Kennedy:

Call them on a routine basis, to supervise what they are doing?

Jeffrey A. Lamken:

–If the — if the response from the agency falled out — falled out — fell outside the range of reasonable policy responses the agency could adopt, then that might amount to inefficiency, neglect, or malfeasance.

And the SEC works–

Anthony M. Kennedy:

Well, they — they — this board has authority to — to tax those people it regulates, to issue subpoenas, and so forth.

Jeffrey A. Lamken:

–Right.

Anthony M. Kennedy:

But this isn’t subject to the operations of the President, if he has to go through an independent agency.

Are you encouraging the President, on an ongoing, daily basis, to instruct an independent agency what he wants done?

Jeffrey A. Lamken:

Your Honor, the President has the same control over the SEC’s supervision over the board that he has over everything else that falls within the SEC’s jurisdiction.

Antonin Scalia:

Which is nothing, which is nothing.

Jeffrey A. Lamken:

With–

Antonin Scalia:

I — when I was OLC, I would — I advised the President, you can’t interfere with — I think, if the President called up the FCC and said, I want you to rule this way, I want this kind of a rule from the FCC, I think there would be an impeachment motion in Congress.

Jeffrey A. Lamken:

–But that — that–

Antonin Scalia:

Congress set up that agency to be independent from the President.

That was the whole purpose of it, wasn’t it?

Jeffrey A. Lamken:

–Which is what Humphrey’s — Humphrey’s Executor held up — held up — upheld that.

That is what Humphrey’s Executor upheld, but this adds nothing to Humphrey’s Executor because the SEC–

Anthony M. Kennedy:

No, no, Humphrey’s — Humphrey’s Executor was not a specific issue.

It was just the general qualifications.

Jeffrey A. Lamken:

–I’m sorry.

Jeffrey A. Lamken:

I believe Humphrey’s Executor was that he couldn’t remove the — the officers–

Anthony M. Kennedy:

I — I–

Jeffrey A. Lamken:

–except for cause, and “for cause”–

Anthony M. Kennedy:

–I — I understand that.

Jeffrey A. Lamken:

–is traditionally understood to be inefficiency, neglect, or malfeasance in office.

But this does not depart at all from that standard, because the President has the same control over the SEC that he has over any other independent agency, and the SEC has pervasive control over the board, and it simply makes no sense to say that Congress can give the SEC or an independent agency–

John G. Roberts, Jr.:

The formulation–

Jeffrey A. Lamken:

–regulatory authority, but not the ability to choose its–

John G. Roberts, Jr.:

–The formulation — excuse me.

Jeffrey A. Lamken:

–I’m sorry.

John G. Roberts, Jr.:

The formulation that you use and your friend the Solicitor General have used — has used is that they have the same authority that they have over every other independent agency, but I’m — it’s very hard to find out exactly what that authority is.

So what is your position about the authority of the President?

Is it more than for cause or only for cause?

Jeffrey A. Lamken:

Our position is the same as the Solicitor General’s, because I represent inferior officers whose positions are controlled by the SEC who are principal officers, and their lawyer is the Solicitor General.

So–

John G. Roberts, Jr.:

What do you understand that position to be?

Jeffrey A. Lamken:

–The position I understand the Solicitor General to have is that the traditional understanding of the SEC is that it is an independent agency.

But–

John G. Roberts, Jr.:

So the President — I guess I’m following up on Justice Kennedy’s question — the President cannot call them and say, take this particular action in this particular case.

Jeffrey A. Lamken:

–I don’t think he would be able to enforce that in — by removal, except–

Antonin Scalia:

But it’s okay for him to ask them?

It’s okay for him to suggest to an independent regulatory agency that this is how he wants something done?

Jeffrey A. Lamken:

–Justice Scalia, the Treasury Department–

Antonin Scalia:

Do you know of any instance where that has happened?

Jeffrey A. Lamken:

–works closely with the SEC and tells the SEC precisely what it thinks the SEC should do on a regular basis, but the difference is the SEC turns around and can tell the board exactly what it wants the board to do and back it up by taking away their salaries, threatening to rescind the enforcement authority, announcing rules that say you may start, stop, alter investigations upon our direction or the direction of the chief accountant.

The control of the SEC over the board is plenary.

This Court vindicated–

Antonin Scalia:

But what does the Treasury Department tell the SEC to do?

Jeffrey A. Lamken:

–Well, it issues recommendations, for example, on how it wants the SEC to handle, for example, international aspects.

One of the issues brought up here was the SEC’s handling of international things, and that’s something that the SEC — its international bureau coordinates over–

Antonin Scalia:

It takes the initiative?

The SEC doesn’t request that information?

Jeffrey A. Lamken:

–Pardon.

Antonin Scalia:

The SEC does not request that information; the Treasury Department just butts in?

Is that it?

Jeffrey A. Lamken:

It’s one — this is one Executive Branch, Your Honor–

Antonin Scalia:

I understand, but–

Jeffrey A. Lamken:

–and they work closely together–

Antonin Scalia:

–I understand, but–

Jeffrey A. Lamken:

–and I can’t tell you exactly how they work, but–

Antonin Scalia:

–It’s one thing for the SEC to ask the Treasury Department’s view.

It’s another for the Treasury Department to butt in.

Does it butt in?

Jeffrey A. Lamken:

–I — I do believe that — that other agencies do butt in all the time, and the question is–

Stephen G. Breyer:

What’s the reason–

Jeffrey A. Lamken:

–what’s the control?

Stephen G. Breyer:

–What is the reason for this?

Having read this enlightening opinion of Justice Scalia in Freytag, which is enlightening to me if I’ve read it correctly, I would say that the question — there are two separate questions.

One question is: What is a department?

And this might well fit within that.

And the second question, which is separate but mixed up in the cases, but not his, is: When is it constitutional for Congress to limit the President in his ability to dismiss a — an officer of the United States or — inferior or superior — for cause?

And — and what’s — if you can answer it, what are the justifications here for imposing that requirement?

Jeffrey A. Lamken:

I think the first half is, What’s a department?

And the answer–

Stephen G. Breyer:

I’m not interested in that.

Jeffrey A. Lamken:

–Okay.

Stephen G. Breyer:

I’m interested in — I’m developing–

Jeffrey A. Lamken:

The justifications for the limitations on the removal of the officers of the board?

Stephen G. Breyer:

–That’s right.

Jeffrey A. Lamken:

Right.

Jeffrey A. Lamken:

And the answer to that is that these are the standard limitations — the standard removal provisions that exist throughout the financial area where the SEC has a subordinate entity under its control, and Congress presumed that because the SEC’s — the SEC’s control was so pervasive, it didn’t need to go back and revisit those standard removal provisions, because — precisely because — the SEC has power to rescind the board’s enforcement authority, establish rules requiring it to obey commands, disobedience of which would be grounds for removal, to withdraw the salaries.

The control is so pervasive that these removal provisions did not have to be reconsidered.

And from the board’s perspective, they’re just another means of control, one that actually taints them, as Shurtleff points out, with having committed misconduct.

Thank you, Your Honor.

John G. Roberts, Jr.:

Thank you, Mr. Lamken.

Mr. Carvin, to keep the time even here, you have 8 minutes.

Michael A. Carvin:

The first thing I’d like to address is the Solicitor General’s syllogism that because the President can control the SEC, somehow he can control those whom the SEC regulates.

Well, the New York Stock Exchange has exactly the same relationship as the — with the SEC as does the board, and no one would argue, I don’t think, that he has any power — the President, that is — to direct and supervise the New York Stock Exchange.

In response to your question, Justice Alito, he couldn’t complain about the excessive salary of Mr. Grasso at the New York Stock Exchange.

I’d also like to knock down this myth–

Ruth Bader Ginsburg:

But there is — there is — it was working okay with the Stock Exchange.

It wasn’t working okay with the accountants.

And there’s a problem.

There’s a problem that Congress had to solve.

It wanted to tighten the oversight of the auditing function.

And they wanted to have people who were not beholden to the profession, but who were knowledgeable and could command high salaries to be doing this job.

Michael A. Carvin:

–No, that’s entirely true, Justice Ginsburg, and the point is they could have accomplished all that and made the board members appointed and removable by the President, if — if–

Ruth Bader Ginsburg:

How about if they — would it work if the board members were proposed by the SEC, by SEC commissioners, subject to the approval of the President?

Would that be–

Michael A. Carvin:

–Well, I — no, because the word “approval”, as earlier colloquy has suggested, is–

Ruth Bader Ginsburg:

–But the nominee would be — by a nomination.

The names would be presented.

Michael A. Carvin:

–The President needs the unfettered ability to appoint principal officers, not to have some subordinate agency tell him who he can appoint.

That would be a severe restriction, far greater, for example, than was at issue in Public Citizen.

And that’s essentially my point.

Ruth Bader Ginsburg:

So, you–

Michael A. Carvin:

They can’t give you — I’m sorry.

Ruth Bader Ginsburg:

–You were — I’m sorry, then.

I interrupted you, but I wanted you to give me your full picture of how this could be done, how Congress could accomplish its goal of having a strong, effective oversight body?

Michael A. Carvin:

In the same way they have strong, effective oversight of the communications industry and what the FTC does and the SEC.

Michael A. Carvin:

Just follow the model for independent agencies that has been used for over a hundred years.

You make them appointed by the President, removable by the President, and the President gets to designate the chairman.

The–

Ruth Bader Ginsburg:

So it would be totally separate.

Then you would — you’d say it would have to be a totally separate independent regulatory agency.

It could not be put under the wing of the SEC.

Michael A. Carvin:

–You could have exactly the same relationship between the SEC and this agency, which I think is not under the wing of the SEC now.

The only difference is, instead of having the commissioners appoint them and remove them, you’d have the President appoint them and remove them.

John G. Roberts, Jr.:

Well, I would have — Judge Kavanaugh has suggested there are two ways to cure this problem: One, have the President appoint and remove; and the other thing, make it truly subordinate to the SEC.

Now, I’ve heard the argument on the other side, both from the government — well, it’s an issue with the government — the Solicitor General and the board, that the agency, the board, is completely subordinate to the SEC.

Well, if Congress — Congress could fix this problem by saying: The board is subordinate to the SEC.

Michael A. Carvin:

So why have they created any independence if they really wanted them to be subordinate?

And I really want to deal with that.

This notion that they could pass rules to govern the investigative activities of the board is a myth.

The attorney general in Morrison had the ability to promulgate rules for prosecution, but he couldn’t tell Alexia Morrison how to proceed in that individual case.

He couldn’t say: Anything she does with respect to Mr. Olsen, I need to pre-approve.

Why?

Because the independent counsel, under that statute, had the prosecutorial authority.

Under this statute, the board has the prosecutorial authority, and everyone knows you can’t govern the kind of manifold decisions that prosecutors need to make through some kind of bulky notice-and-comment rulemaking.

And that is why it is utterly mythical to pretend that they have this power.

Justice Scalia, we assume that people exercise the powers they have, removal and the like.

We don’t assume that they exercise powers that they don’t have simply because they can theoretically get it.

What if the statute said the SEC–

Antonin Scalia:

Say it again–

Michael A. Carvin:

–Okay.

Let’s–

Antonin Scalia:

–We don’t assume that they–

Michael A. Carvin:

–That they have powers they don’t have simply because they can reach out and get it.

So let’s assume the statute here said the SEC could transfer the board’s powers to the Treasury instead of the SEC.

Would we assume — would we analyze this case as if the Treasury was conducting the board’s powers simply because the SEC had the theoretical ability to transfer it?

Michael A. Carvin:

This Court has emphasized countless times that you analyze separation of powers cases with respect to the practical consequences, as Mistretta said it; as Plaut said it, with respect to bright lines and high walls; and as Airport Authority said it, with great skepticism of Congress’s subtle encroachments.

You don’t create fictional realities which allow severe usurpations of executive authority on the basis of fictional–

Ruth Bader Ginsburg:

We don’t know — we don’t know what’s fictional and what is not here, because you came in, and you don’t have a particular case.

Michael A. Carvin:

–I do have–

Ruth Bader Ginsburg:

Do you have another instance where Congress set up a scheme, and without having a particular case of an individual who has been hurt, you come in and say: We might sometime be hurt by this, so we want the whole thing knocked down in the absence of any concrete case.

Michael A. Carvin:

–Justice Ginsburg, we know exactly what the SEC and the Solicitor General think about the interrelationship of the Constitution and the statute, because they have expressed it in briefs from the district court on up.

I am saying that even if you bend over backwards to give them this power under the statute, what you can’t do is pretend that they have exercised this power under the statute.

The first might be a doctrine of statutory construction.

The second is deciding separation of powers cases on the basis of a fictional world that doesn’t really exist.

And I would suggest that that would give Congress an extraordinary blueprint for using the board as a model for each and every executive department.

What would stop them from tomorrow; from transferring the Transportation and Labor and Energy Departments to a private corporation like the board, and creating some bipartisan commission that’s going to oversee this board with these fictional hypothetical realities?

If this Court endorses this scheme, they have literally offered no limiting principle why that couldn’t be applied to each and every executive function.

To the contrary, they have emphasized that there is no constitutional distinction between alter egos and these independent commissions, and they have sought to justify this scheme on the basis of cases involving core executive functions, Perkins and Morrison.

So, again–

Ruth Bader Ginsburg:

If we took away — I mean, one big point was the double for-cause.

So let’s say we have said that the SEC could fire board members, period.

Then that would remove the double for-cause.

Would this statute then be constitutional?

Michael A. Carvin:

–Well, I don’t think you can sever that provision from the statute, because I don’t — I think you’d be rewriting the statute and re-striking the balance that Congress did.

Moreover, of course, it wouldn’t solve the Appointments Clause problem because, again, these are principal officers not appointed by the President, and even if they are inferior officers, the SEC is not a department.

So–

Ruth Bader Ginsburg:

So, it’s not the double for — the double for-cause isn’t, in your judgment, what sinks this statute?

Michael A. Carvin:

–Well, no.

It is a very serious — yes, it is on my view absolutely dispositive of why the statute is no good.

I’m saying merely fixing that will not fix the entire statute, because in addition to removal problems, we have very serious appointment problems under the appointments clause–

John Paul Stevens:

May I ask one — one narrow question?

If we assume that the members of the board are inferior officers, and if we — do — would you agree that if the board had unrestricted power to discharge them at will, the statute would be constitutional?

Michael A. Carvin:

–Your — I’m — I’m to assume that the Appointments Clause problem — if they are inferior officers, again, I have an Appointments Clause problem, because they are appointed by somebody who is not department head, i.e., the SEC commissioner.

Do you want me to take that out and assume that that’s okay as well?

John Paul Stevens:

Yes.

Michael A. Carvin:

Okay.

So, if we are looking at it strictly from a separation of powers perspective, it is true that eliminating the for-cause removal provision goes a long way towards fixing the problem, but it doesn’t go all the way and for one reason, which is we think the SEC imposes — is at the outermost limits of constitutional acceptability.

And so, unless the President has the same control over the officers that he has over the SEC, it would not be good.

John Paul Stevens:

But your answer to my question is that even if they are inferior officers and the other conditions have been met, if the Commission had unrestricted power of removal, the statute would still be unconstitutional.

Michael A. Carvin:

Principally because they are not subject–

John Paul Stevens:

The answer is yes is what I just–

Michael A. Carvin:

–I’m sorry.

Yes, Your Honor.

May I just–

John Paul Stevens:

–Yes.

Sure.

Michael A. Carvin:

–They are not subject to the chairman’s control, unlike the SEC general counsel, and they have statutory duties entirely distinct from the commission.

unlike the SEC general counsel.

John G. Roberts, Jr.:

Thank you, counsel.

The case is submitted.