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Free Enterprise Fund v. PCAOB

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Brief Fact Summary.

Congress enacted a law establishing the Public Company Accounting Oversight Board. Under the Act, the SEC had oversight over the Board, but it could only remove Board members for good shown

Synopsis of Rule of Law.

Congress cannot impose dual limitations upon the President’s power to remove certain federal officers.

Points of Law - Legal Principles in this Case for Law Students.

Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law.

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Facts.

The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) to regulate the accounting industry. The Board was composed of five members appointed by the Securities and Exchange Commission (SEC). Under the Act, the SEC had oversight over the Board, but it could only remove Board members for good shown cause in accordance with appropriate procedure.

Issue.

Did Congress’ Act imposing dual limitations on the President’s  ability to remove members of the PCAOB violate the Constitution?

Held.

Yes, Congress’ Act imposing dual limitations on the President’s  ability to remove members of the PCAOB violated the Constitution.

Dissent.

Justice Breyer

Justice Breyer argued that the Supreme Court’s opinion failed to explain why two layers of for cause protection is different from one layer.

Discussion.

According to the Supreme Court, Congress imposed dual limitations on the President’s power to remove Board members by requiring the SEC to determine whether good cause existed to remove a Board member, and making the President powerless to intervene in that determination unless it met a certain threshold of unreasonableness. The dual limitations on the removal of Board members contradicted the separation of powers doctrine, because it inhibited the President’s ability to hold the SEC accountable for the Board’s actions. By doing so, the Act prevented the President from fulfilling his Article II duty to ensure that the laws are faithfully executed.


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