FREE ENTERPRISE FUND V. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
130 S.Ct. 3138 (2010)
NATURE OF THE CASE: Free Enterprise (P) appealed a grant of summary judgment to Public
(D) in P’s constitutional challenge to D’s dual removal provisions.
FACTS: D was created by Congress but the individual members of the Board-like the
officers and directors of the self-regulatory organizations-are substantially insulated from
the SEC's control. The SEC cannot remove Board members at will, but only “for good cause
shown,” “in accordance with” certain procedures. Removal of a Board member requires a formal
Commission order and is subject to judicial review. 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.” Beckstead (P1), is a Nevada
accounting firm registered with D. D inspected the firm, released a report critical of its
auditing procedures, and began a formal investigation. Ps then sued the Board and its
members, seeking (among other things) a declaratory judgment that the Board is
unconstitutional and an injunction preventing the Board from exercising its powers. The
District Court granted summary judgment to D. A divided Court of Appeals affirmed. On the
merits, the Court of Appeals recognized that the removal issue was “a question of first
impression,” as neither that court nor this one “ha[d] considered a situation where a
restriction on removal passes through two levels of control.” It ruled that the dual
restraints on Board members’ removal are permissible because they do not “render the
President unable to perform his constitutional duties.” The dissent argued that “the double
for-cause removal provisions in the [Act] … combine to eliminate any meaningful Presidential
control over the [Board].”
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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