Friday, December 11, 2009

What 'Free Enterprise Fund' Means for the FCC

Whenever the U.S. Supreme Court takes up a case involving constitutional limits on the powers of an independent federal agency, the implications should logically extend to every independent federal agency. A number of independent federal agencies are built on the Federal Trade Commission model, whereby the agency is run by commissioners who are nominated by the President and confirmed by the Senate but who are not removable from office except “for-cause.” Both the Federal Communications Commission (FCC) and the Securities & Exchange Commission (SEC) fit this model.

A case about constitutional limits on independent federal agency power involving the SEC was argued before the Supreme Court this week. Throughout arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, the FCC was mentioned by name a few times by the Justices and lawyers. Could this case hold any near-term significance for the FCC? Although the ultimate answer depends on how the Supreme Court rules in the case next year, the case won’t likely have any direct impact on current FCC operations. However, to the extent the Supreme Court’s decision elaborates any constitutional rule about independent federal agencies and Presidential power, such a rule would constrain any future Congressional reorganization or reform of any and all independent federal agencies—including the FCC.

Free Enterprise Fund presents the Supreme Court with questions about the constitutionality of the Public Company Accounting Oversight Board (“PCAOB” or “the Board”). Created as part of the Sarbanes-Oxley Act of 2002, the Board’s powers include the collection of information of certain public financial accounting entities, the undertaking of investigations, and the assessments of fees. The Board’s members are appointed by the SEC but not removable by the SEC except for-cause. Since the SEC Commissioners themselves are independent of Presidential control and can be removed from office only for-cause, SarbOx creates a situation that Chief Justice John Roberts referred to this week as “for-cause squared”. That is, independent commissioners not removable from office except for-cause are empowered to appoint Board members who assume regulatory powers but who, in turn, cannot be removed office except for-cause. Free Enterprise Fund poses separation-of-powers questions about whether the makeup of the Board—including the “for-cause squared” barrier—unconstitutionally restricts Presidential authority over control and removal of executive officers.

A reading of the transcript of the arguments conducted at the Supreme Court this week leave the constitutional fate of the Board an open question. The back-and-forth between the lawyers and Justices on independent federal agencies, accountability, and Presidential power provide for a lengthy but intriguing discussion. Last spring’s ruling by the Supreme Court in FCC v. Fox Stations, Inc. (2009) included a spar between Justices Antonin Scalia and John Paul Stevens over the nature of the FCC in relation to the political branches, with Justice Scalia insisting that “[t]here is no reason to magnify the separation-of-powers dilemma posed by the Headless Fourth Branch.” If this week’s argument in Free Enterprise Fund is any indication, next spring’s ruling in the case could provide some kind of sequel installment to the Justices’ ongoing disputes concerning federal independent agencies and the separation-of-powers.

Indeed, “[t]his latest chapter involving the Public Company Accounting Oversight Board is the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” So wrote Judge Brett Kavanaugh of the U.S. Court of Appeals for the District of Columbia last year. A divided panel of the D.C. Circuit previously ruled in favor of the Board’s constitutionality, 2-1. But Judge Brett Kavanaugh’s thorough dissenting opinion explains why even a ruling by the Supreme Court that the Board’s structure is unconstitutional in Free Enterprise Fund would likely be limited in its direct impact:

[F]inding the PCAOB unconstitutional would not itself call into question the many other independent agencies that dot Washington, D.C. The heads of those agencies are appointed by and removable for cause by the President, the precise structure that Humphrey’s Executor upheld and that is conspicuously missing form the PCAOB statute. In other words, the PCAOB is uniquely structured, and a judicial holding invaliding it would be uniquely limited to the PCAOB.

The FCC doesn’t have anything like the Board at issue in Free Enterprise Fund. That is, the FCC has no equivalent Board of members who are appointed by FCC Commissioners to carry out regulatory functions but who are otherwise not removable by the Commissioners except for-cause. A ruling of unconstitutionality in Free Enterprise Fund would not have any direct application for the FCC, and therefore cause no institutional disruption at the FCC.

However, should the Supreme Court rule in Free Enterprise Fund that “for-cause squared” at the “Headless Fourth Branch” of the SEC is unconstitutional, it would mean that any future Congressional reorganization or reform of independent federal agencies such as the FCC would be constrained by the Court’s new precedent. For instance, should the Supreme Court issue such a ruling, it would prohibit future (and purely hypothetical) Congressional legislation creating an FCC-appointed Media Diversity Board or Network Neutrality Board of members who are given regulatory powers and removable only for-cause. Rather, under such a ruling the constitutionally permissible alternatives would most likely include: appointment of Board members by the President with advice and consent of the Senate or placement of such any such Board entirely within an existing federal independent agency and subjecting Board members to at-will removal by the agency.

In sum, regardless of which way the Supreme Court’s rules in Free Enterprise Fund, the ruling will be limited to the PCAOB and the FCC won’t be directly impacted by the Court’s decision. The Justices’ written opinions in the case might include some insightful exchanges on the constitutional relationship between independent federal agencies and the political branches. But any constitutional limit on independent federal agency power set by the Supreme Court in its ruling would constrain future attempts by Congress to establish or reform independent federal agencies such as the FCC.