Stipulating the law.

• Author: Lawson, Gary

In Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court decided important questions of structural constitutionalism on the assumption, shared by all of the parties, that members of the Securities and Exchange Commission are not removable at will by the president. Four Justices strongly challenged the majority's willingness to accept what amounts to a stipulation by the parties to a controlling issue of law. As a general matter, the American legal system does not allow parties to stipulate to legal conclusions, though it welcomes and encourages stipulations to matters of fact. I argue that one ought to take seriously the idea that stipulations of law should be as integral a part of the adjudicative process as stipulations of fact--or, at the minimum, that the acceptance of stipulations of law rests on defensible assumptions about the nature of adjudication as a mechanism for resolving disputes rather than as a mechanism for declaring the law or expressing public values. Objections to the wide use of legal stipulations often focus on the potential third-party effects of adjudication, primarily (though not exclusively) through precedent. Those objections generally assume a contestable theory of precedent that emanates from a law-declaring rather than a dispute-resolving theory of adjudication. It is quite possible for a theory of precedent to accompany a dispute-resolution model of adjudication without raising (undue) concerns about externalities in accepting legal stipulations. Thus, the legal system should consider extending the degree to which it enables parties to control the legal issues decided by courts.

TABLE OF CONTENTS INTRODUCTION I. LAWS BY AGREEMENT A. The Pregame Show B. Shaping the Playing Field C. The Supreme Court Speaks II. THE FORMS AND LIMITS OF STIPULATIONS A. Stipulating Facts B. Stipulating Law III. TAKING STIPULATIONS SERIOUSLY A. A Tale of Two Models B. Legal Externalities C. Other Grounds 1. Law Declaration 2. Interpretative Method 3. Judicial Independence 4. Safeguarding Power CONCLUSION INTRODUCTION

Free Enterprise Fund v. Public Co. Accounting Oversight Board (1)--the last decision announced by the Supreme Court during the October 2009 term--has been called "the most important separation-of-powers case regarding the President's appointment and removal powers to reach the courts in the last 20 years." (2) Fourteen organizations and groups filed amicus curiae briefs on the merits in the Supreme Court. Yet perhaps the most important issue the case presented was not briefed by any of the parties or amici and has nothing to do with the Constitution's rules regarding appointment and removal of federal personnel. The deepest issue lurking in Free Enterprise Fund concerns the very nature of adjudication.

In Free Enterprise Fund, the petitioners challenged both the appointment and removal provisions for the Public Company Accounting Oversight Board ("PCAOB" or "the Board"), a federal agency created by the Sarbanes-Oxley Act of 20023 to exercise sweeping regulatory authority over the financial audits of publicly traded companies. Under the statute, the PCAOB members are appointed by the Securities and Exchange Commission ("SEC" or "the Commission") (4) and are removable by the Commission only for narrowly specified causes. (5) The Supreme Court unanimously rejected the various Appointments Clause challenges, (6) but in a sharply split decision held that the removal provisions for PCAOB members unduly limited the president's power to control the administration of the laws. The five-Justice majority maintained that the statute imposed an impermissible restriction on presidential supervision by establishing a "double-for-cause" removal framework, under which the PCAOB members could be removed only for cause by the members of the SEC who themselves are removable only for cause by the president. (7) Four dissenters insisted that the statute was a reasonable congressional accommodation of the twin needs for agency independence and accountability and was consistent with long-established precedent approving for-cause removal provisions for federal agency officials. (8)

In resolving these crucial questions of structural constitutionalism, the majority and dissenting opinions fractured along a number of recognizable, and perhaps predictable, jurisprudential divides: formalism versus functionalism, (9) originalism versus non-originalism, (10) and precedent-as-law versus precedent-as-side-constraint. (11) All of these divides in Free Enterprise Fund deserve careful attention, and I am sure that they will receive that attention elsewhere. But in this Article, I focus on a subtler, though in the end even more fundamental, divide that largely flew beneath the radar as the case was litigated and decided.

The majority's holding that a double-for-cause removal provision is unconstitutional was based on the premise that the relevant statutes in fact (or, more precisely, in law) set up a double-for-cause removal provision. Congress unambiguously meant for the PCAOB members to be subject only to for-cause removal under the plain terms of the Sarbanes-Oxley Act, but what about the members of the SEC? As Justice Breyer pointed out both at oral argument (12) and in his dissent, (13) the Securities Exchange Act imposes no express statutory restrictions on the removability of members of the SEC. (14) Nonetheless, it has long been universally assumed that Commission members are removable only for cause. All of the parties in Free Enterprise Fund proceeded on that assumption, (15) as had all of the judges in the lower court (16) as well as parties and courts in previous cases. (17) The five Justices in the majority in Free Enterprise Fund went along with the parties' agreed view of the law regarding the removal of Commission members without conducting an independent inquiry into the matter: "The parties agree that the Commissioners cannot themselves be removed by the President except under the Humphrey's Executor standard of 'inefficiency, neglect of duty, or malfeasance in office,' and we decide the case with that understanding." (18)

In his dissenting opinion, Justice Breyer strongly challenged the majority's willingness to accept what amounted to stipulations by the parties about the applicable law governing the removability of SEC commissioners:

One last question: How can the Court simply assume without deciding that the SEC Commissioners themselves are removable only "for cause?" Unless the Commissioners themselves are in fact protected by a "for cause" requirement, the Accounting Board statute, on the Court's own reasoning, is not constitutionally defective. I am not aware of any other instance in which the Court has similarly (on its own or through stipulation) created a constitutional defect in a statute and then relied on that defect to strike a statute down as unconstitutional. It is certainly not obvious that the SEC Commissioners enjoy "for cause" protection. Unlike the statutes establishing [forty-eight other agencies], the statute that established the Commission says nothing about removal. It is silent on the question. As far as its text is concerned, the President's authority to remove the Commissioners is no different from his authority to remove the Secretary of State or the Attorney General. .... The Court then, by assumption, reads into the statute books a "for cause removal" phrase that does not appear in the relevant statute and which Congress probably did not intend to write. And it does so in order to strike down, not to uphold, another statute. This is not a statutory construction that seeks to avoid a constitutional question, but its opposite. (19) Professor Tuan Samahon made a similar point after the oral argument in Free Enterprise Fund but before the decision was issued, asking: "Since when can parties stipulate to different statutory language than that which was duly enacted and the Court go along with it?" (20)

Justice Breyer and Samahon have a point. Certainly, if the members of the SEC are removable at the will of the president, the majority's problem with the removal provisions for PCAOB members would vanish, as there would be only one layer of for-cause removal separating the PCAOB members from the president. Isn't it the height of judicial activism to declare a federal statute unconstitutional based on quite possibly false assumptions about the state of the law? Wouldn't judicial modesty counsel investigation of the actual law concerning the removal of SEC commissioners before announcing broad constitutional rules that depend on that law? Aren't these particularly telling questions given the straight conservative-liberal split on the 5-4 vote, with the conservative Justices forming the seemingly "activist" majority? Perhaps at the end of the day, after an independent inquiry, the Court would decide that SEC commissioners are indeed removable only for cause and proceed with its analysis, but aren't Justice Breyer and Samahon right that such an inquiry is appropriate, if not jurisprudentially mandatory?

As it happens, they are probably fight from the standpoint of established practice but, I believe, wrong from the standpoint of sound principles of adjudication. At a minimum, the majority's position rests on a coherent and defensible--and in crucial respects quite modest and "restrained"--vision of the role of courts in adjudication, though neither the majority nor any other court has taken this vision anywhere near its logical extreme. Determination of the appropriate adjudicative principles, however, rests on highly controversial foundational assumptions about the nature of law and the nature of courts that, if they truly underlay the majority's opinion, should have been articulated and defended.

By accepting the parties' stipulation about the law, the Court placed itself in the narrow role of an arbitrator of disputes, resolving only...