SYMBOLISM AND SEPARATION OF POWERS IN AGENCY DESIGN.

Author:Hickman, Kristin E.
Position:Symposium: Administrative Lawmaking in the Twenty-First Century
 
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The political polarization of our time has profound implications for the ability of federal government agencies to perform the functions and accomplish the goals that Congress has given them. (1) Congress depends heavily on agencies to implement and administer government programs, not limited to but certainly including policymaking through the promulgation of regulations and the adjudication of individual enforcement actions. (2) No matter how doggedly an agency enforces statutory and regulatory requirements, however, the efficacy of government programs ultimately depends on the willingness of their targets and beneficiaries to accept and comply with the pronouncements of the agencies tasked with administering those programs. (3) If we want people voluntarily to comply with statutory requirements, we ought to have some concern for public perceptions regarding the fairness and legitimacy of agencies and agency action. (4) Meanwhile, in the current political climate, a substantial portion of the electorate questions that fairness and legitimacy. (5)

Administrative law has seen several cases in recent years focused on agency design and separation of powers principles. In particular, the Supreme Court and the D.C. Circuit have found the statutory design of a particular federal government agency or office within an agency to be constitutionally flawed on separation of powers grounds. (6) When a court finds a legal problem with an agency's structure or actions, the traditional remedy is to vacate the action or actions giving rise to the challenge. (7) With structural deficiencies in an agency's design, this traditional remedy means that none of the agency's actions are valid until Congress resolves the problem. But in these recent cases, upon finding constitutional violations, the courts' remedy du jour has been to take it upon themselves to tweak the details of the challenged agency's design--specifically, by severing a sentence or two from the agency's governing statute to allow particular agency officials to be removed from office by the President at will rather than only for cause. (8) Meanwhile, the courts left the actions of the challenged agency, and the structures and actions of identically or similarly designed agencies, largely or entirely untouched. In short, the challenging parties achieved a symbolic victory in favor of their vision of the Constitution, but otherwise not much changed.

My goal with this Essay is a modest one: to raise a few reservations regarding judicial refashioning of agency design via this severance remedy for separation of powers violations. To that end, the Essay will proceed fairly straightforwardly. I will describe three cases or sets of cases in which the Supreme Court or the D.C. Circuit has employed the severance remedy: Free Enterprise Fund v. Public Company Accounting Oversight Board, (9) a series of D.C. Circuit cases brought by the Intercollegiate Broadcasting System against the

Copyright Royalty Board, (10) and PHH Corp. v. Consumer Financial Protection Bureau. (11) Then i will highlight three reservations i have about using the severance remedy in this way: (1) that the remedy may not reflect the judicial restraint that motivates it; (2) that the remedy is sufficiently weak that its repeated use will chill litigation of legitimate constitutional challenges; and (3) that the remedy makes agency officials more politically accountable when, arguably, popular understandings of separation of powers principles might counsel otherwise. To the extent these reservations are accurate, judicial use of the severance remedy to address agency design flaws may, in turn, exacerbate questions regarding the fairness and legitimacy of agency actions.

I have no grand proposals for addressing these reservations. Conceding longstanding administrative law precedents, realities of contemporary governance, and institutional constraints faced by the judiciary, i am not even prepared to say that the severance remedy is not the best alternative available in at least some agency design cases. To the extent one concludes that the severance remedy is a problem, the only true solution may be for Congress to amend existing statutes or think again before getting too creative with agency design. At a minimum, however, courts ought to at least contemplate the potential drawbacks, as well as the arguable benefits, before employing the severance remedy.

  1. THREE RECENT AGENCY DESIGN CASES

    Perhaps not unlike some academic articles, judicial opinions that address agency design and separation of powers principles are often rhetorically lofty but abstract and largely detached from the details of the underlying dispute and the day-to-day reality of agency operations. To lay some groundwork for the concerns i wish to raise, the following paragraphs describe three recent cases in which the Supreme Court or D.C. Circuit has used the severance remedy to alter the design of a federal agency after concluding that the statutory scheme governing the agency violated separation of powers principles.

    1. Free Enterprise Fund v. PCAOB

      In Free Enterprise Fund v. Public Company Accounting Oversight Board, (12) the Court considered the constitutionality of the Public Company Accounting Oversight Board (PCAOB). Congress established the PCAOB as part of the Sarbanes-Oxley Act of 2002 (SOX). (13) The PCAOB's purpose is "to oversee the audit of companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports." (14) SOX called for the SEC to appoint the PCAOB's members, and also gave the SEC the power to remove a member of the PCAOB for cause after an evidentiary hearing. (15) SOX gave the PCAOB expansive rulemaking and enforcement powers, including the authority to conduct investigations and disciplinary proceedings, and to impose sanctions upon public accounting firms for violating PCAOB rules. (16) In short, the PCAOB makes rules governing accountants and uses agency-level adjudication to enforce those rules by imposing sanctions on accountants who violate them. SOX also gave the SEC the power to review and potentially reject the PCAOB's rules, orders, and sanctions. (17)

      Beckstead and Watts was a small Nevada accounting firm. (18) In 2004 and 2005, PCAOB inspectors investigated the firm, issued a publicly available inspection report criticizing the firm's auditing practices, and initiated formal enforcement proceedings against the firm. (19) Beckstead and Watts filed a complaint seeking declaratory and injunctive relief and claiming that the firm's efforts to comply with PCAOB requirements had forced it to turn away most of its clients, thereby substantially reducing the firm's earnings. (20) Beckstead and Watts was joined in that action by the Free Enterprise Fund, a nonprofit membership organization described as "promot[ing] economic growth, lower taxes, and limited government" that "[sought] to vindicate the interests of its members... subject to the Board's authority and... injured by the [PCAOB's] regulations." (21) Although the complaint briefly alleged that PCAOB requirements were unreasonable for the types of companies that Beckstead and Watts audited, the complaint did not challenge any particular PCAOB rule as arbitrary and capricious. (22) Rather, the complaint focused exclusively on constitutional challenges to the PCAOB's statutory design. (23)

      By the time the case made it to the Supreme Court, (24) the issues had been honed to the following: Did SOX violate separation of powers principles by restricting the President's authority to appoint and remove PCAOB members? (25) Were PCAOB members principal officers (who should have been appointed by the President with advice and consent of the Senate) or inferior officers? (26) If the latter, were the SEC's Commissioners collectively the "head of a department" for Appointments Clause purposes? (27)

      The Court held that the members of the PCAOB were inferior officers who could be appointed by the SEC. (28) All of the Justices agreed that the SEC Commissioners, acting collectively, constituted the head of a department eligible to appoint inferior officers under the Appointments Clause. (29) But the Justices differed in their reasoning for why the PCAOB members were inferior officers. The dissenting Justices reasoned that the SEC's supervisory authority over the PCAOB's functions alone offered sufficient basis to conclude that the members of the PCAOB were inferior officers. (30) But with Chief Justice John Roberts writing on behalf of the five-Justice majority, the Court conditioned its holding on the remedy it imposed: striking a sentence from SOX limiting the SEC's power to remove PCAOB members. (31) Without that change, the PCAOB's statutory design would have been unconstitutional.

      As the Court noted, SOX severely limited the SEC's power to remove PCAOB members in three ways. First, SOX established an unusually stringent standard for removing a PCAOB member. Rather than the traditional, and somewhat mushy, statutory language listing "inefficiency, neglect of duty, or malfeasance in office" as grounds for removal, (32) SOX required specific findings that the member "willfully violated" SOX, PCAOB rules, or the securities laws; "willfully abused" his authority; or "failed to enforce compliance" with SOX, PCAOB rules, or professional standards "without reasonable justification or excuse." (33) Even then, SOX only authorized removal "as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of" the statute or securities laws. (34) Second, SOX required the SEC to conduct a formal, on-the-record hearing in making such findings. (35) Third, by requiring a formal SEC order for removal, SOX subjected any such decision to judicial review...

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