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05/02/2013

Sean Croston: The Chairman or the Board
Mike Rappaport

This paper address an issue that I have often mentioned to my Administrative Law classes, but which has been neglected.  The abstract does not suggest an originalist inquiry, but clearly the issue would be relevant to a textualist and originalist approach.   

For the past 130 years, Congress has alternated between two competing structural visions of ideal administrative agency design — single-administrator versus multi-member organization. Over time, Congress has frequently reacted to strong arguments from both sides by approving various arrangements that conflate the two models, particularly with respect to the important but often-overlooked authority to appoint “inferior officers” within multi-member agencies. In many cases, the Chairmen (or their equivalent) of these multi-member Boards and Commissions retain some or all power to select high-ranking agency staff, while their fellow Board or Commission members have authority over agency rulemaking, adjudication, and other key functions. While such power-sharing arrangements may have kept the peace in some sense for many years, recent events call into question the constitutional integrity of these mixed-management models.

Most importantly, on June 28, 2010, the Supreme Court issued its decision in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), a hotly-contested 5-4 ruling involving several challenges to the appointment and removal of the Public Company Accounting Oversight Board at the Securities and Exchange Commission (SEC). The slip opinion and Justice Breyer’s accompanying dissent ran over 100 pages, many of them disputing controversial “for cause” removal standards at independent agencies. But two interesting paragraphs near the end of the majority opinion have received little attention in subsequent analyses. These paragraphs settled a fairly novel challenge to the Board appointments, which alleged that they were invalid because the SEC Chairman made them only after obtaining the Commission’s approval.

In the course of rejecting this particular challenge, the Court set forth sensible new criteria for determining the “Head” responsible for making appointments of senior staff within a multi-member agency for purposes of the Constitution’s Appointments Clause: the “Head” is generally the person or entity that sets the agency’s internal policies and has final say over the exercise of the agency’s rulemaking, adjudicatory, and investigatory powers. But upon applying these standards to the organizational structures of current multi-member agencies, it becomes relatively clear that the constitutional “Heads” of most of these agencies are their respective Boards or Commissions, acting jointly. This conclusion casts serious doubt upon the constitutionality of a number of Chairman-initiated appointments long set by statute.

In short, the Court’s reasoning suggests that only the purest forms of the two competing organizational models will pass constitutional muster: a full multi-member Commission or Board (acting jointly) must direct all appointments and removals of subordinate officers, or an agency must be controlled by a single administrator who likewise directs all appointments and removals of subordinate officers. The currently popular half-and-half model whereby multi-member agency Chairmen control appointments and removals or have the sole power to initiate those appointments or removals does not appear to comply with the Appointments Clause, as interpreted by the Court.

In addition, the Court’s reasoning raises new questions about the constitutionality of the frequently-used “approbation” model, whereby multi-member Boards or Commissions cannot initiate and may only approve inferior officer appointments (or removals), which must be initiated by their Chairmen. These conclusions could have far-reaching effects if litigators recognize and begin to rely upon the Supreme Court’s standards set forth in PCAOB.