In re Hennen

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

FREE ENTERPRISE FUND, et al., ) 
) 
Plaintiffs, ) 
) 
v. ) Civ. A. No. 06-217 (JR) 
) 
THE PUBLIC COMPANY ACCOUNTING ) 
OVERSIGHT BOARD, et al., ) 
) 
Defendants. ) 
) 
MEMORANDUM OF PROPOSED INTERVENOR UNITED STATES IN OPPOSITION

TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF

UNITED STATES’ CROSS-MOTION FOR SUMMARY JUDGMENT

Of Counsel: 
BRIAN G. CARTWRIGHT 
General Counsel 
ANDREW N. VOLLMER 
Deputy General Counsel 
JACOB H. STILLMAN 
Solicitor 
JOHN W. AVERY 
Special Counsel 
Securities and Exchange Commission 
100 F Street, N.E. 
Washington, D.C. 20549 
PETER D. KEISLER 
Assistant Attorney General 
KENNETH L. WAINSTEIN 
United States Attorney 
SUSAN K. RUDY 
Assistant Director 
ROBERT J. KATERBERG
 (D.C. Bar No. 466325) 
Trial Attorney 
U.S. Department of Justice 
Civil Division, Federal Programs Branch 
20 Massachusetts Avenue, N.W., Room 6112 
Washington, D.C. 20001 
Telephone: (202) 616-8298 
Facsimile:       (202)       616-8460       
Attorneys for the United States 

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY ............................................1

STATUTORY BACKGROUND ................................................3

ARGUMENT ................................................................9

I.	THE PCAOB FULLY COMPORTS WITH THE APPOINTMENTS CLAUSE ...9

A.	The Members of the PCAOB Are Inferior Officers. . . . . . . . . . . . . . . . . . . . . . .11

B.	Congress May Vest Power to Appoint Inferior Officers in the SEC . . . . . . . . . .17

II.	THE PCAOB IS CONSISTENT WITH THE SEPARATION OF POWERS .....24

III.	TITLE I OF THE SARBANES-OXLEY ACT DOES NOT IMPROPERLY

DELEGATE LEGISLATIVE POWER 
....................................34

CONCLUSION .............................................................39

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TABLE OF AUTHORITIES

CASES           Page (s) 
A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935) . . . . . . . . . . . . . . . . . . . 34

American Power & Light Co. v. SEC 329 U.S. 90 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Bowsher v. Synar, 478 U.S. 714 (1986) ...........................................31

Buckley v. Valeo, 424 U.S. 1 (1976) ...........................................10, 20

Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc., 467 U.S. 837 (1984) . . . . . . . . . . . . . . . 29

Collins v. United States, 14 Ct. Cl. 568 (1878) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Cospito v. Heckler, 742 F.2d 72 (3d Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Cunningham v. Neagle, 135 U.S. 1 (1890)  ......................................18, 21

Edmond v. United States, 520 U.S. 651 (1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

First Jersey Securities, Inc. v. Bergen, 605 F.2d 690 (3d Cir. 1979), 

cert. denied, 444 U.S. 1074 (1980)  .........................................39

FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Freytag v. Commissioner, 501 U.S. 868 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 18, 19, 22

Gold v. SEC, 48 F.3d 987 (2d Cir. 1995)  ..........................................14

Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949) .....................................32

Humphrey’s Executor v. United States, 295 U.S. 602, 621-22 (1935) . . . . . . . . . . . . . . . . . . . . 32

In re Hennen, 38 U.S. (13 Pet.) 230 (1839) .........................................29

In re Sealed Case, 829 F.2d 50 (D.C. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

J.W. Hampton, Jr. & Co. v. United States, 276 U.S. 394 (1928) . . . . . . . . . . . . . . . . . . . . . . . . 34

Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374 (1995). . . . . . . . . . . . . . . . . . . . . . . . . . . .  9 

-iii­

Lichter v. United States, 334 U.S. 742 (1948) .......................................35

Morrison v. Olson, 487 U.S. 654 (1988) ....................................... passim

Myers v. United States
, 272 U.S. 52 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 29, 30

NASD v. SEC, 431 F.3d 803 (D.C. Cir. 2005) ....................................4, 14

National Broad. Co. v. United States, 319 U.S. 190 (1943) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Nat’l Fed’n of Fed. Employees v. United States, 905 F.2d 400 (D.C. Cir. 1990) . . . . . . . . . . . . 34

New York Central Securities Corp. v. United States, 287 U.S. 12 (1932) . . . . . . . . . . . . . . . . . 35

Panama Refining Co. v. Ryan, 293 U.S. 388 (1935) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

R.H. Johnson & Co. v. SEC, 198 F.2d 690 (2d Cir.),

cert. denied, 344 U.S. 855 (1952)  ..........................................39

Shultz v. SEC, 614 F.2d 561 (7th Cir. 1980) ........................................14

Shurtleff v. United States, 189 U.S. 311 (1903) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Silver v. United States Postal Service, 951 F.2d 1033 (9th Cir. 1991) . . . . . . . . . . . . . . . . . 21, 22

Staples v. United States, 511 U.S. 600 (1994) ....................................... 32

Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381 (1940) . . . . . . . . . . . . . . . . . . . . . . . . . 39

Todd & Co., Inc. v. SEC, 557 F.2d 1008 (3d Cir. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

United States v. Arthur Young & Co., 465 U.S. 805(1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

United States v. Ehrlichman, 546 F.2d 910 (D.C. Cir. 1976) 

cert. denied, 429 U.S. 1120 (1977)  .........................................32

United States v. Gantt, 194 F.3d 987 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 23

United States v. Germaine, 99 U.S. 508 (1879) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 17, 18

United States v. Grace, 778 F.2d 818 (D.C. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

United States v. Grimaud, 220 U.S. 506 (1911) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

-iv­

United States v. Hilario, 218 F.3d 19 (1st Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

United States v. Mistretta, 488 U.S. 361 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 34, 36

United States v. Mouat, 124 U.S. 303 (1888) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 21

United States v. Nixon, 418 U.S. 683(1974) ........................................15

United States v. Perkins, 116 U.S. 483 (1886) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 29, 31

United States v. Salerno, 481 U.S. 739 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 35

Wonsover v. SEC, 205 F.3d 408 (D.C. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Yakus v. United States, 321 U.S. 414 (1944)  .......................................35

STATUTES 
7 U.S.C. § 155 ...............................................................22

15 U.S.C. § 7202 ......................................................... passim

15 U.S.C. § 7211 ......................................................... passim

15 U.S.C. § 7212 ..........................................................4, 6, 8

15 U.S.C. § 7213 ......................................................... passim

15 U.S.C. § 7214 ......................................................6, 7, 13, 27

15 U.S.C. § 7215 ......................................................... passim

15 U.S.C. § 7217 ......................................................... passim

15 U.S.C. § 7219 .....................................................4, 15, 37, 38

15 U.S.C. § 78d ...........................................................18, 20

15 U.S.C. § 78ff .......................................................... passim

-v­

28 U.S.C. § 546 ..............................................................23

28 U.S.C. § 671 ..............................................................23

28 U.S.C. § 672 ..............................................................23

47 U.S.C. § 2 ................................................................22

OTHER MATERIALS 
Authority of Civil Service Commission to Appoint a Chief Examiner,

37 Op. Att’y Gen. 227 (1933)  ...................................... .18, 19, 22

The Constitutional Separation of Powers Between the President and Congress, 

20 Op. Off. Legal Counsel 124 (1996) ......................................19

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INTRODUCTION AND SUMMARY 
The United States respectfully submits this memorandum of points and authorities in 
opposition to plaintiffs’ motion for summary judgment and in support of the United States’ cross-
motion for summary judgment.  After a series of devastating accounting scandals, Congress 
enacted the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745, to restore public 
confidence in the securities markets by, among other things, instituting a new regime to govern 
public accounting firms.  This new regime involved the creation of a new entity, the Public 
Company Accounting Oversight Board (“PCAOB” or “Board”), subordinate to the Securities and 
Exchange Commission (“SEC”).  Under the statute, the PCAOB is charged with registering 
public accounting firms, issuing auditing standards, inspecting public accounting firms, and 
disciplining such firms and their associated persons.  All of these functions are subject to the 
pervasive oversight of the SEC, which also appoints the members of the PCAOB and has 
authority to remove them for good cause shown.  For example, the proposed rules of the PCAOB 
and, if appealed, its disciplinary sanctions, do not even become effective until after approval by 
the SEC based on an independent review.  Further, the SEC is broadly empowered to relieve, by 
rule, the PCAOB of any of its enforcement responsibilities. 
Plaintiffs challenge the constitutionality of the PCAOB on three grounds.  First, under the 
Appointments Clause of the Constitution, they urge that PCAOB members are “Principal” 
officers who must be appointed by the President.  Alternatively, assuming that Board members 
are “Inferior” officers, they argue that their appointment by the SEC is not appointment by the 
“Heads of Departments” within the meaning of the Appointments Clause.  
These contentions are without doctrinal foundation.  As the Supreme Court has 
explained, “the term ‘inferior officer’ connotes a relationship with some higher ranking officer or 

officers below the President: Whether one is an ‘inferior’ officer depends on whether he has a 
superior.” Edmond v. United States, 520 U.S. 651, 662 (1997). The SEC’s pervasive oversight 
authority leaves no doubt of the existence of a “superior/inferior” relationship for purposes of the 
Appointments Clause, and the degree of oversight is at least as significant as that involved in 
Edmond itself, where judges of the Coast Guard Court of Criminal Appeals were held to be 
“Inferior” officers.  Plaintiffs similarly err in urging that the SEC should be treated as a headless 
non-Department.  In many crucial respects, the SEC functions analogously to a Cabinet-level 
agency, and neither the text nor the purpose of the Appointments Clause requires that 
appointments be made by an individual head rather than by the governing Commissioners as a 
body. 
Plaintiffs’ second challenge, brought under the general separation-of-powers principle, 
fails for many of the same reasons as their Appointments Clause contentions.  The SEC’s broad 
and pervasive oversight renders implausible plaintiffs’ insistence that the Board, by its nature, 
impermissibly derogates Executive Branch authority.  Their arguments based on the provisions 
governing removal of Board members fare no better.  The Constitution does not require that the 
President be able to remove “Inferior” officers, such as PCAOB members, directly; such officers 
may be removed by those who appointed them in the first instance.  Nor does a requirement that 
removal of an “Inferior” officer be for good cause violate the relevant constitutional standards. 
At bottom, plaintiffs’ argument offers little more than a series of unfounded speculations 
premised on unlikely readings of statutory terms.  Their invitation to engage in this type of 
reasoning should be rejected. 
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Plaintiffs’ third and final challenge is equally without merit.  The non-delegation doctrine 
requires merely that Congress provide an “intelligible principle” in conferring discretionary 
authority, and the Supreme Court has “found the requisite ‘intelligible principle’ lacking” on only 
two occasions, both over seven decades ago.  
Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 
474 (2001). Plaintiffs fail to distinguish any grant of authority vested in the PCAOB from the 
dozens of similar grants of authority upheld by the courts. 
In sum, if the Court denies defendants’ pending motion to dismiss,
1
 it should grant the 
motion of the United States for summary judgment and deny plaintiffs’ motion for summary 
judgment. 
STATUTORY BACKGROUND 
In 2002, Congress passed and the President signed into law the Sarbanes-Oxley Act of 
2002, Pub. L. No. 107-204, 116 Stat. 745.  “The Act adopt[ed] tough new provisions to deter and 
punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect 
the interests of workers and shareholders.”  Statement on Signing the Sarbanes-Oxley Act of 
2002, 38 Weekly Comp. of Pres. Docs. 1286 (July 30, 2002).  The Act was a response to a series 
of devastating corporate scandals and implosions in 2001 and 2002 involving Enron, WorldCom, 
and other publicly traded companies.  Many of these scandals involved aggressive and/or 
fraudulent accounting practices, and in several instances the audit firms were faulted for failing 
1 
  On June 2, 2006, the United States filed a Statement of Interest in support of 
defendants’ motion to dismiss (dkt. no. 19).  The United States continues to believe that this case 
must be dismissed because, among other things, plaintiffs have failed to bring their claims 
through the Sarbanes-Oxley Act’s exclusive statutory review mechanism.  Indeed, we believe 
that examination of the constitutional issues, as set forth herein, will underscore why pre-merits 
dismissal is appropriate. 
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to detect the underlying conduct.  As a result, many believed a central body with adequate 
resources and independence from the profession was needed to oversee the audit profession.
2 
The Sarbanes-Oxley Act incorporated a number of different reforms in a variety of areas. 
One of its significant components was Title I, which created and installed the PCAOB to fill the 
previous void in regulation and oversight of public accounting firms.  Under the umbrella of the 
SEC’s authority, the PCAOB was vested with the functions of registration of public accounting 
firms, promulgation of rules and standards relating to public company audits; periodic 
inspections of registered accounting firms; and investigation and discipline of registered 
accounting firms.
  See 15 U.S.C. §§ 7212, 7213, 7214, 7215.  In situating the PCAOB as a 
subordinate body reporting to the SEC, Congress drew on a longstanding model in securities 
regulation of having specific regulatory functions carried out by industry bodies, known as “self­
regulatory organizations” (“SROs”), under the SEC’s oversight and supervision.  
See generally 
NASD v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005) (“A statutory system authorizing self-
regulatory organizations to act as quasi-governmental agencies in disciplining members for 
federal securities law violations has existed for almost 70 years.”). 
The SEC was given overarching supervisory authority over the PCAOB.  The SEC 
appoints the PCAOB’s members.  15 U.S.C. § 7211(e)(4)(A).  It approves the PCAOB’s budget. 
15 U.S.C. § 7219(b). Replicating the SEC’s authority over the SROs, the statute gives the SEC 
2 
  The United States’ system of securities regulation depends on the financial statements 
that publicly traded companies file with the Securities and Exchange Commission (“SEC”) being 
audited by an independent certified public accountant in accordance with generally accepted 
auditing standards.  United States v. Arthur Young & Co., 465 U.S. 805, 810-11 (1984).  The 
Supreme Court has described independent auditors as “public watchdogs” who “owe[] ultimate 
allegiance to the corporation’s creditors and stockholders, as well as to the investing public.”
  Id. 
at 817-18. 
-4­

general “oversight and enforcement authority over the Board,” including the authority to impose 
recordkeeping requirements on the PCAOB and to examine those records at any time.  15 U.S.C. 
§ 7217(a) (incorporating 15 U.S.C. §§ 78q(a)(1), (b)(1)).  The SEC must approve the conduct of 
any litigation by the PCAOB.  15 U.S.C. § 7211(f)(1).  The PCAOB does not have its own 
subpoena authority in its investigations; rather, it needs to seek issuance by the Commission of a 
subpoena. 
See 15 U.S.C. § 7215(b)(2)(D).  Nor may it refer an investigation to the Department 
of Justice or state attorneys general except pursuant to the direction of the SEC.  See 15 U.S.C. 
§ 7215(b)(4)(B)(iii).  The PCAOB is required to submit an annual report, including audited 
financial statements, to the SEC.  
See 15 U.S.C. § 7211(h). 
The SEC is empowered to remove any member of the PCAOB “in accordance with 
section 7217(d)(3) of this title, for good cause shown before the expiration of the term of that 
member.”  15 U.S.C. § 7211(e)(6).  Section 7217(d)(3) provides that the SEC may remove any 
member of the PCAOB from office if it finds, on the record after notice and an opportunity for a 
hearing, that the member “(A) has willfully violated any provision of this Act, the rules of the 
Board, or the securities laws; (B) has willfully abused the authority of that member; or (C) 
without reasonable justification or excuse, has failed to enforce compliance with any such 
provision or rule, or any professional standard by any registered public accounting firm or any 
associated person therewith.”  15 U.S.C. § 7217(d)(3).  The SEC may also censure PCAOB 
members for the same reasons and in the same manner.  
Id.  
Moreover, apart from its authority to remove individual PCAOB members outright or 
censure them for the reasons described above, the SEC is empowered to “censure or impose 
limitations upon the activities, functions, and operations of the Board” if it finds, on the record 
-5­


after notice and an opportunity for a hearing, that the PCAOB “(A) has violated or is unable to 
comply with any provision of this Act, the rules of the Board, or the securities laws, or (B) 
without reasonable justification or excuse, has failed to enforce compliance with any such 
provision or rule, or any professional standard by any registered public accounting firm.”  15 
U.S.C. § 7217(d)(2). And, the SEC “by rule, consistent with the public interest, the protection of 
investors, and the other purposes of this Act and the securities laws, may relieve the Board of any 
responsibility to enforce compliance with any provision of this Act, the securities laws, the rules 
of the Board, or professional standards.” 15 U.S.C. § 7217(d)(1). 
Further, as previously explained in detail in the United States’ Statement of Interest, the 
statute vests the SEC with specific review power over every final legal action the PCAOB takes. 
This is accomplished by making the pre-existing framework for SEC review over actions of 
SROs applicable to the PCAOB, with enhancements that give the SEC even greater power over 
the PCAOB than it possesses over the SROs.  The PCAOB promulgates rules governing auditors 
of public company financial statements and internal controls and the conduct of public company 
audits, but all such proposed rules must be approved by the SEC, and do not go into effect until 
so approved.  15 U.S.C. § 7217(b). Such review includes the rules the PCAOB adopts to govern 
its own functions such as, for example, rules governing the registration of public accounting 
firms, 15 U.S.C. § 7212, rules governing the periodic inspections of accounting firms, 15 U.S.C. 
§ 7214, rules governing the investigation, hearing, and disciplinary sanction process, 15 U.S.C. 
-6­


§ 7215, and rules governing the process of allocating, assessing, and collecting annual support 
fees, 15 U.S.C. § 7219.
3 
The statute also gives the SEC supervisory authority over the PCAOB’s conduct of 
regular inspections.  If a registered accounting firm disagrees with the assessments contained in 
the PCAOB’s final inspection report, after having previously responded to the PCAOB 
concerning the issues in question, the firm may seek review of the final inspection report by the 
SEC. 15 U.S.C. § 7214(h)(1)(A).  A firm may also seek review if it disagrees with a 
determination of the Board that criticisms or defects identified in an inspection report have not 
been addressed to the satisfaction of the Board within 12 months of the date of the inspection 
report.  15 U.S.C. § 7214(h)(1)(B).   
Likewise, any disciplinary sanction that the PCOAB imposes on an accountant must be 
reported to the SEC, 15 U.S.C. § 7217(c)(1), and is then subject to SEC review either on 
application of the disciplined person or on the SEC’s own motion, 15 U.S.C. § 7217(c)(2) 
(incorporating 15 U.S.C. § 78s(d)(2)).  Unlike the comparable provisions with regard to SEC 
review of SRO disciplinary sanctions, a PCAOB disciplinary sanction is automatically stayed 
upon the initiation of SEC review.  15 U.S.C. § 7215(e); compare 15 U.S.C. § 78s(d)(2). The 
SEC’s review of a PCAOB disciplinary sanction is 
de novo.  15 U.S.C. § 7217(c) (incorporating 
15 U.S.C. § 78s(e)(1)).  In addition, upon making certain findings the SEC is empowered to 
3
 In addition to the SEC’s automatic review of all proposed rules of the PCAOB as they 
come up, the SEC has separate authority at any time to abrogate, delete, or add to the rules of the 
PCAOB, by rule of the SEC, as it may deem necessary or appropriate “to assure the fair 
administration of the [PCAOB], conform the rules promulgated by [the PCAOB] to the 
requirements of title I of the Sarbanes-Oxley Act of 2002, or otherwise further the purposes of 
that Act, the securities laws, and the rules and regulations thereunder applicable to the 
[PCAOB].”  
See 15 U.S.C. § 7217(b)(5) (incorporating by reference 15 U.S.C. § 78s(c)). 
-7­

“enhance, modify, cancel, reduce, or require the remission of [the] sanction,” powers broader 
than the comparable provision for SROs, which does not include enhancement authority and is 
triggered by a narrower set of findings.  15 U.S.C. § 7217(c)(3); 
compare 15 U.S.C. § 78s(e)(2).  
The SEC’s review of PCAOB disciplinary sanctions also applies to any denial by the PCAOB of 
registration of a public accounting firm, which is treated as a form of disciplinary sanction.  
See 
15 U.S.C. § 7212(c)(2).  Thus, between the provisions governing rules, those involving final 
inspection reports, and those pertaining to disciplinary sanctions, the SEC is vested with review 
of any final legal action that the PCAOB may take.  
See generally Statement of Interest of the 
United States (dkt. no. 19) at 4-8.
4 
Finally, the SEC possesses general rulemaking authority under the Sarbanes-Oxley Act. 
See 15 U.S.C. § 7202(a) (“The Commission shall promulgate such rules and regulations, as may 
be necessary or appropriate in the public interest or for the protection of investors, and in 
furtherance of this Act.”).  Such general rulemaking authority affords the SEC significant 
additional means of control over the PCAOB.  For example, the SEC could adopt rules that 
would enable it to take immediate action to require the PCAOB to stop or start a PCAOB 
inspection, investigation, or disciplinary proceeding.  The statute also expressly states that 
nothing in it detracts from the SEC’s pre-existing authority over many of the same matters that 
are the subject of the PCAOB’s work.  
See 15 U.S.C. § 7202(c).
5 
  Thus, apart from the formal 
4
 As described more fully in the Statement of Interest, the statute also provides for judicial 
review of the orders of the SEC approving or disapproving PCAOB rules or disciplinary 
sanctions. 15 U.S.C. § 78y(a); see generally Statement of Interest at 4-8. 
5
 15 U.S.C. § 7202(c) provides as follows: 
(continued...) 
-8­

legal mechanisms through which the SEC directly exercises oversight over the PCAOB, the SEC 
fully retains its own authority to engage directly in regulation and oversight of public accounting 
firms. 
ARGUMENT 
I. THE PCAOB FULLY COMPORTS WITH THE APPOINTMENTS CLAUSE 
The statutory method for appointing the members of the PCAOB is consistent with the 
Appointments Clause because the members of the PCAOB are Inferior Officers who may be 
appointed by Heads of Departments, including the SEC.
6 
  Therefore, plaintiffs’ motion for 
5
(...continued) 
EFFECT ON COMMISSION AUTHORITY.  Nothing in this Act or the rules of 
the Board shall be construed to impair or limit -­
(1) the authority of the Commission to regulate the accounting profession,

accounting firms, or persons associated with such firms for purposes of

enforcement of the securities laws;

(2) the authority of the Commission to set standards for accounting or auditing 
practices or auditor independence, derived from other provisions of the securities 
laws or the rules or regulations thereunder, for purposes of the preparation and 
issuance of any audit report, or otherwise under applicable law; or 
(3) the ability of the Commission to take, on the initiative of the Commission, 
legal, administrative, or disciplinary action against any registered public 
accounting firm or any associated person thereof. 
6
 A threshold concern in this case is whether the PCAOB is part of the government for 
Appointments Clause and other constitutional purposes.  The statute provides that “[t]he Board 
shall not be an agency or establishment of the United States Government” and that “[n]o member 
or person employed by, or agent for, the Board shall be deemed to be an officer or employee of or 
agent of the Federal Government by reason of such service.”  15 U.S.C. § 7211(b).  While this 
provision is entitled to some weight, it is not dispositive for constitutional purposes.  Cf. Lebron 
v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 392-93 (1995) (holding that federally created 
corporation was subject to the restrictions imposed by the First Amendment where the 
government “creates a corporation by special law, for the furtherance of governmental objectives, 
(continued...) 
-9­

summary judgment on this claim should be denied and the United States’ cross-motion for 
summary judgment should be granted. 
The Appointments Clause provides in pertinent part: 
[The President] . . . shall nominate, and by and with the Advice and 
Consent of the Senate, shall appoint . . . Officers of the United 
States, whose Appointments are not herein otherwise provided for, 
and which shall be established by Law: but the Congress may by 
Law vest the Appointment of such inferior Officers, as they think 
proper, in the President alone, in the Courts of Law, or in the 
Heads of Departments. 
U.S. Const., art. II, § 2, cl. 2.  In operation, the Clause divides all “Officers of the United States” 
into two categories:  Principal Officers and Inferior Officers.
7 
See United States v. Germaine, 99 
U.S. (9 Otto) 508, 509 (1879). Principal Officers must be appointed through nomination by the 
President with the advice and consent of the Senate.  See Buckley v. Valeo, 424 U.S. 1, 132 
(1976). However, Congress is permitted to make Inferior Officers appointable by the President 
alone, Courts of Law, or Heads of Departments.  Id. 
The members of the PCAOB are appointed by the SEC.  See 15 U.S.C. § 7211(e)(4).  The 
constitutional validity of this method of appointment thus involves two questions:  (1) whether 
the members of the PCAOB are Inferior Officers, as opposed to Principal Officers; and (2) 
6
(...continued) 
and retains for itself permanent authority to appoint a majority of the directors of that 
corporation”). The Court need not resolve the question whether the PCAOB is a governmental 
entity for separation-of-powers purposes, because whether or not it is, the PCAOB is 
constitutional for the reasons set forth herein. 
7
 We capitalize “Principal Officer(s)” and “Inferior Officer(s)” herein to make clear that 
the terms are used in their specialized constitutional sense. 
-10­

whether the SEC constitutes a Department with its Commissioners as Head.  Both questions 
should be answered in the affirmative. 
A. The Members of the PCAOB Are Inferior Officers 
Under the relevant Supreme Court precedents, the members of the PCAOB must be 
considered Inferior Officers.
8 
“The Constitution does not use the term ‘inferior’ ‘in the sense of petty or unimportant’ 
but in the sense of a subordinate to a principal officer.” United States v. Gantt, 194 F.3d 987, 
999 (9th Cir. 1999) (quoting 
Collins v. United States, 14 Ct. Cl. 568, 574 (1878)); see also 
Edmond v. United States, 520 U.S. 651, 663 (1997) (even Inferior Officers “exercise significant 
authority pursuant to the laws of the United States”).  In 
Edmond, the Court articulated the 
standard as follows:  
Generally speaking, the term “inferior officer” connotes a relationship with some 
higher ranking officer of officers below the President:  Whether one is an 
“inferior” officer depends on whether he has a superior. . . . [W]e think it evident 
that “inferior officers” are officers whose work is directed and supervised at some 
level by others who were appointed by Presidential nomination with the advice 
and consent of the Senate. 
Id. at 662-63.  Applying this standard, the Court held in Edmond that civilian judges of the Coast 
Guard Court of Criminal Appeals were Inferior Officers, and thus could be permissibly appointed 
by the Secretary of Transportation, because the work of those judges was supervised in two 
distinct respects.  First, the Judge Advocate General for the Coast Guard, a subordinate of the 
Secretary of Transportation, had administrative oversight over the judges, prescribed the court’s 
8
 We assume arguendo that the members of the PCAOB are “Officers of the United 
States,” as opposed to mere employees.  If they were only employees, their appointments would 
plainly be constitutional.  
See Freytag v. Commissioner, 501 U.S. 868, 880 (1991). 
-11­

rules of procedure, and could remove a judge from his judicial assignment without cause, albeit 
not in a manner to influence the outcome of individual proceedings.  Id. at 664. Second, the 
Court of Appeals for the Armed Forces had substantive oversight over the judges’ output:  they 
reviewed decisions by the Court of Criminal Appeals (a) involving a death sentence, (b) where 
the Judge Advocate General ordered such review, or (c) where the court granted review upon 
petition of the accused.  
Id. at 665. That such review was less than plenary and did not include 
reassessment of factual matters was of no moment; rather, “[w]hat is significant is that the judges 
of the Court of Criminal Appeals have no power to render a final decision on behalf of the 
United States unless permitted to do so by other Executive Officers.”  
Id.    
Under Edmond, the members of the PCAOB are Inferior Officers because “their work is 
directed and supervised at some level,” indeed, comprehensively, by the SEC, the members of 
which “were appointed by Presidential nomination with the advice and consent of the Senate.” 
Edmond, 520 U.S. at 663. The SEC has review power over every final legal action the PCAOB 
takes.  Indeed, the PCAOB’s rules and, if appealed, disciplinary sanctions do not even go into 
effect without SEC approval.  See 15 U.S.C. § 7215(e) (disciplinary sanctions); 15 U.S.C. 
§ 7217(b)(2) (rules).  Thus, as in Edmond, the PCAOB members “have no power to render a 
final decision on behalf of the United States” unless permitted by the SEC.  
Edmond, 520 U.S. at 
665. Moreover, the SEC approves the PCAOB’s budget, has general “oversight and enforcement 
authority” over the Board, including authority to impose recordkeeping requirements on the 
PCAOB and to examine the PCAOB’s records, and must approve the conduct of any litigation by 
the PCAOB. 15 U.S.C. §§ 7211(f)(1), 7217(a) (incorporating 15 U.S.C. § 78q(a)(1), (b)(1)), 
7219(b).  In conducting investigations, the PCAOB lacks its own subpoena authority and is 
-12­


limited to applying to the SEC for a subpoena “in a manner established by the Commission,” 15 
U.S.C. § 7215(b)(2)(D), and is obligated to notify the Commission of any pending PCAOB 
investigation involving a potential violation of the securities laws and thereafter coordinate as 
necessary to protect any parallel SEC investigation, 
id. § 7215(b)(4)(A).  The SEC can “relieve 
the Board of any responsibility to enforce compliance with any provision of this Act, the 
securities laws, the rules of the Board, or professional standards,”  15 U.S.C. § 7217(d)(1), and 
can “censure or impose limitations upon” its “activities, functions, and operations,” 15 U.S.C. 
§ 7217(d)(2).  And, significantly, the SEC has authority under the Sarbanes-Oxley Act to make 
its own rules “as may be necessary or appropriate in the public interest or for the protection of 
investors, and in furtherance of this Act,” 15 U.S.C. § 7202(a), which would enable it adopt rules 
providing an even greater degree of control over PCAOB activities than directly under the 
statute. 
Indeed, the level of supervision exercised by the SEC over the PCAOB not only meets, 
but exceeds, the level of supervision exercised over the Coast Guard judges deemed sufficient in 
Edmond.  Whereas the Court of Appeals for the Armed Forces reviewed only a subset of 
decisions of the Coast Guard judges, Edmond, 520 U.S. at 665-66, the SEC reviews all PCAOB 
rules and 
all appealed PCAOB disciplinary sanctions, as well as final PCAOB inspection reports 
if duly challenged.  See 15 U.S.C. § 7217(b), (c); 15 U.S.C. § 7214(h).  Moreover, the SEC’s 
standard of review is significantly more probing than the Court of Appeals for the Armed Forces’ 
standard of review of decisions of the Coast Guard Court of Criminal Appeals.
9 
  Indeed, the D.C. 
9
 To the extent plaintiffs question the SEC’s standard of review of PCAOB actions, that 
would only militate in favor of requiring plaintiffs’ claims to be brought through the exclusive 
(continued...) 
-13­

Circuit recently described the SRO-review scheme, which the Sarbanes-Oxley Act incorporates 
and applies to the PCAOB (with some modifications that make SEC review of PCAOB sanctions 
even more rigorous), as follows: 
The congressional scheme, in short, establishes a system in which the 
Commission not only closely supervises and approves the processes by which 
NASD brings disciplinary action, but in which the Commission fully revisits the 
issue of liability, and can completely reject or modify NASD’s decision as it 
deems appropriate
.  NASD’s disciplinary process essentially supplants a 
disciplinary action that might otherwise start with a hearing before an ALJ.  And 
NASD’s authority to discipline its members for violations of federal securities law 
is entirely derivative.  
The authority it exercises ultimately belongs to the SEC, 
and the legal views of the self-regulatory organization must yield to the 
Commission’s view of the law
. 
NASD v. SEC, 431 F.3d 803, 806 (D.C. Cir. 2005) (emphasis added).  The Court of Appeals 
repeatedly used the word “plenary” to characterize the review of the SEC over “adjudications 
conducted by self-regulatory organizations like NASD.”  Id. at 807, 808; see also, e.g., Gold v. 
SEC, 48 F.3d 987, 990 (2d Cir. 1995) (interpreting same statutory scheme as providing for de 
novo SEC review of disciplinary sanctions imposed by the New York Stock Exchange); Shultz v. 
SEC
, 614 F.2d 561, 568 (7th Cir. 1980) (“In reviewing a decision of the Exchange, the 
Commission makes a de novo determination of the facts and the law.”); compare Edmond, 520 
U.S. at 665 (“so long as there is some competent evidence in the record to establish each element 
of the offense beyond a reasonable doubt, the Court of Appeals for the Armed Forces [would] not 
9
(...continued) 
review mechanism in the statute, which would give the Court a concrete record to show how the 
SEC conducted its review in a particular case.  
See generally Statement of Interest of the United 
States (dkt. no. 19). 
-14­

reevaluate the facts”).
10 
  The SEC’s supervision is also enhanced by the fact that all aspects of 
supervision, as well as appointment power, are concentrated in the SEC, whereas in Edmond, 
supervision of the work of the Coast Guard Court of Criminal Appeals judges was split between 
the Judge Advocate General for the Coast Guard and the Court of Appeals for the Armed Forces, 
and appointment power was vested in a third actor, the Secretary of Transportation.  Thus, to an 
even greater extent than the Coast Guard Court of Criminal Appeals judges, the PCAOB is 
supervised by superior officers. 
Plaintiffs’ assertion that “the breadth and independence of PCAOB Members is 
indistinguishable from the commissioners or members of other U.S. agencies with extensive 
regulatory powers over specialized subject matters,” such as the Federal Communications 
Commission, Consumer Product Safety Commission, Federal Trade Commission, and others 
(Pls’ Mem. at 34 & n.8) rings hollow.  The distinctions are many and obvious.  None of those 
agencies is subordinate to a supervising agency that may at any time rescind its enforcement 
10
 Moreover, the SEC is not limited to affirming or reversing the PCAOB’s disciplinary 
sanction; rather, its broad remedial powers include the ability to “enhance, modify, cancel, 
reduce, or require the remission” of such a sanction.  15 U.S.C. § 7217(c)(3).  Further, the statute 
gives the SEC various other tools for exerting its supervisory control over the PCAOB, from its 
authority to abrogate, delete, or add to the PCAOB’s rules as it deems necessary or appropriate, 
15 U.S.C. § 7217(b)(5), to its power to “relieve the Board of any responsibility to enforce 
compliance with any provision,” 15 U.S.C. § 7217(d)(1), to its ability to “impose limitations 
upon the activities, functions, and operations of the Board,” 15 U.S.C. § 7217(d)(2), to its 
approval power over the PCAOB’s budget, 15 U.S.C. § 7219(b), to its general rulemaking 
authority under the Sarbanes-Oxley Act, 15 U.S.C. § 7202(a).  Such capacious authority 
reinforces that the PCAOB members are Inferior Officers.  
Cf. United States v. Nixon, 418 U.S. 
683, 696 (1974) (stating that the Special Prosecutor was a “subordinate office[r]” because the 
President or the Attorney General could have removed him at any time, if by no other means than 
amending or revoking the regulations defining his authority); In re Sealed Case, 829 F.2d 50, 56 
(D.C. Cir. 1987) (noting that the Attorney General could rescind the regulation that delegated the 
Independent Counsel his authority and “thereby abolish[] the Office of the Independent Counsel: 
Iran/Contra”). 
-15­

authority in whole or in part.  None of those agencies must send its rules and challenged 
disciplinary sanctions for review by a supervising agency in order for such actions to take effect. 
None of those agencies is subject to being censured or having limitations imposed upon its 
activities, functions, and operations by a supervising agency.  Equally without foundation is 
plaintiffs’ insistence that 
Edmond rested on the Judge Advocate General’s “ongoing, day-to-day” 
supervision of “significant daily oversight” of the Coast Guard judges. See Pls’ Mem. at 29, 31, 
32. Edmond is devoid of any such characterization, which is also belied by the statute the Court 
cited to describe the relationship.  
See Edmond, 520 U.S. at 664 (supervision consisted of (a) 
authority to prescribe rules of procedure, (b) authority to consult with other JAGs to formulate 
court-martial policies and procedures, and (c) removal power); 10 U.S.C. § 866(f). 
In both Edmond and the instant case, the officers in question are removable by officials 
subordinate to the President.  It is true that the members of the PCAOB are removable for “good 
cause shown,” 15 U.S.C. § 7211(e)(6), while in Edmond, the Coast Guard Court of Criminal 
Appeals judges could be removed by the Judge Advocate General from their judicial assignment 
without cause (although such removal could not be used “to influence . . . the outcome of 
individual proceedings”), see Edmond, 520 U.S. at 664. This distinction, however, is not 
controlling because removal without cause is not a 
sine qua non for Inferior Officer status.  In 
Morrison v. Olson, 487 U.S. 654 (1988), all of the participating Justices agreed on this 
proposition; even Justice Scalia, in dissent, apparently would have considered the independent 
counsel an Inferior Officer if, even though removable only for good cause, she had been subject 
to the Attorney General’s supervision in the conduct of her duties.  
See id. at 723-24 & n.4 
(Scalia, J., dissenting); compare id. at 671 (majority opinion); see also United States v. Perkins, 
-16­


116 U.S. 483, 484-85 (1886).  The scope of removal power is simply one factor relevant to 
whether the officer is “directed and supervised at some level” by Presidential appointees.  See 
Edmond
, 520 U.S. at 663.
11 
  Here, in light of all of the features of the statute that overwhelmingly 
and cumulatively demonstrate plenary control by the SEC over the PCAOB, the PCAOB 
members are plainly Inferior Officers. 
B. Congress May Vest Power to Appoint Inferior Officers in the SEC 
Because the members of the PCAOB are Inferior Officers, Congress was permitted to 
vest their appointment “in the President alone, in the Courts of Law, or in the Heads of 
Departments.”  The statute clearly complies with this provision because the SEC is a 
Department, with the Commissioners as its Head or Heads.  Plaintiffs challenge this conclusion, 
arguing that (1) the SEC is not a Department, and (2) a Head of a Department can only be an 
individual and therefore the Commissioners together cannot be a Head.  Neither argument 
withstands scrutiny. 
1. The SEC clearly is a Department within the meaning of the Appointments Clause. 
The word “Department” as used in the Appointments Clause “has reference to the subdivision of 
the power of the Executive into departments, for the more convenient exercise of that power.” 
11
 We recognize that in Morrison, the Court looked at a set of considerations that varied 
somewhat from those in Edmond in concluding that the independent counsel under the Ethics in 
Government Act of 1978 was an Inferior Officer.  487 U.S. at 671-72 (considering that (1) she 
was subject to removal by a higher officer; (2) she performed only limited duties, (3) her 
jurisdiction was narrow, and (4) her tenure was limited).  In Edmond, however, the Court 
clarified that these four factors were geared to the specific situation in Morrison and were not 
intended as universal criteria to govern every future Appointments Clause analysis.  See 
Edmond, 520 U.S. at 661-62 (“Morrison did not purport to set forth a definitive test for whether 
an office is ‘inferior’”).  For example, the fact that the third and fourth Morrison factors did not 
describe Coast Guard Court of Criminal Appeals judges did not cause the 
Edmond Court any 
hesitation in concluding that such judges were Inferior Officers.  Id. at 661. 
-17­

United States v. Germaine, 99 U.S. 508, 510 (1879). The SEC, whose members are appointed by 
the President by and with the advice and consent of the Senate, see 15 U.S.C. § 78d(a), is the 
principal federal agency charged with administration of the securities laws, and exercises 
governmental authority without being subordinated to any other broader unit within the 
Executive Branch. 
Plaintiffs’ theory that the SEC is constitutionally barred from appointing Inferior Officers 
is rooted in the notion that what they call “independent agencies like the SEC” cannot be 
“Departments” under the Appointments Clause.  
See Pls’ Mem. at 35.  But we are aware of no 
court that has adopted such a novel construction.
12 
  The best that plaintiffs can muster is 
inferences from the five-Justice majority opinion in 
Freytag v. Commissioner, 501 U.S. 868 
(1991), which held that the Tax Court, an Article I court, was a Court of Law, rather than a 
Department, for purposes of the Appointments Clause.  To be sure, the Freytag majority noted 
that “[c]onfining the term ‘Heads of Departments’ in the Appointments Clause to executive 
divisions like the Cabinet-level Departments constrains the distribution of the appointment 
power.”  Id. at 886 (emphasis added).  However, the Freytag majority did not define exactly what 
agencies it considered “like” the Cabinet Departments, and expressly reserved the particular 
12
 Plaintiffs cite several cases from the 19th century that treat the term “Departments” as 
generally coextensive with the Cabinet departments.  See Pls’ Mem. at 36-37 (citing United 
States v. Mouat, 124 U.S. 303 (1888); Cunningham v. Neagle, 135 U.S. 1 (1890); and United 
States v. Germaine, 99 U.S. 508 (1879)).  These references, however, are merely descriptive of 
the historical fact that the Departments for Appointments Clause purposes during that era 
generally were the same as the Cabinet departments.  See Authority of Civil Service Commission 
to Appoint a Chief Examiner, 37 Op. Att’y Gen. 227, 230-31 (1933) (opining that Germaine and 
Mouat do not have “any controlling effect upon the present question” whether the Civil Service 
Commission was an agency capable of appointing Officers of the United States, because “the 
Civil Service Commission, which was the first independent establishment of the Government, 
was not in existence” at the time of 
Germaine). 
-18­

question presented here: “We do not address here any question involving an appointment of an 
inferior officer by the head of one of the principal agencies, such as [inter alia] the Securities and 
Exchange Commission . . . .”  Freytag, 501 U.S. at 887 n.4. 
Meanwhile, the four concurring Justices in Freytag emphatically rejected an interpretation 
of Departments that would exclude agencies outside the Cabinet.  See id. at 918-22 (Scalia, J., 
concurring in part and concurring in the judgment, joined by O’Connor, Kennedy, and Souter, 
JJ.).  The concurring Justices instead construed  “Departments” to encompass “all agencies 
immediately below the President in the organizational structure of the Executive Branch,” 
including “all independent executive establishments.”  Id. at 918-19 (Scalia, J., concurring in part 
and concurring in the judgment).  These Justices also noted that narrowly limiting “Departments” 
to Cabinet departments -- the construction urged by plaintiffs here -- would be problematic 
because it would “cast[] into doubt the validity of many appointments and a number of explicit 
statutory authorizations to appoint.”  Id. at 918 (Scalia, J., concurring in part and concurring in 
the judgment).
13 
13
 The position espoused by the four concurring Justices in Freytag and reserved by the 
five-Justice majority is consistent with the longstanding interpretation of Congress and the 
Executive Branch.  As Justice Scalia observed, “Congress has empowered non-Cabinet agencies 
to appoint inferior officers for quite some time,” 
Freytag, 501 U.S. at 918 (Scalia, J., concurring 
in part and concurring in the judgment), as exemplified by the grant of authority to the SEC “to 
appoint . . . such officers . . . as may be necessary,” 15 U.S.C. § 78d(b)(1).  Similarly, in 1933, 
the Attorney General opined that the Civil Service Commission was a Department capable of 
receiving authority to appoint an inferior officer, even though it was “not a subordinate 
Commission attached to one of the so-called executive departments but is in itself an 
independent division of the Executive Branch of the Government with certain independent duties 
and functions.”  
Authority of Civil Service Commission to Appoint a Chief Examiner, 37 Op. 
Att’y Gen. at 231.  This reasoning has recently been reaffirmed.  See The Constitutional 
Separation of Powers Between the President and Congress, 20 Op. Off. Legal Counsel 124, 152­
53 (1996) (“[M]ost of the independent agencies are clearly analogous to major executive 
(continued...) 
-19­

It would, indeed, be “a most implausible disposition” to create a system where any 
Inferior Officers within non-Cabinet agencies could not be appointed by their immediate 
superiors, but instead “must be appointed by the President, the courts of law, or the ‘Secretary of 
Something Else.’”  Freytag, 501 U.S. at 919-20 (Scalia, J., concurring in part and concurring in 
the judgment).  Without a firmer basis in precedent than plaintiffs have offered, the Court should 
not assume that the Appointments Clause demands such a major overhaul of the federal 
infrastructure.
14 
2. Similarly, the Commissioners are plainly the “Head” or “Heads” of the SEC.
15 
See 15 
U.S.C. § 78d (establishing SEC as headed by five individuals appointed by the President with the 
advice and consent of the Senate).  Thus, the appointment power, like the various regulatory 
powers they hold under the securities laws, may permissibly be exercised by them on a collective 
13
(...continued) 
agencies.  They exercise governmental authority without being subordinated to any broader unit 
within the executive branch, and Congress has implicitly characterized them as ‘Departments’ for 
Appointments Clause purposes by permitting their heads to appoint officials who plainly are 
inferior officers.”). 
14
 The passage plaintiffs cite (Pls’ Mem. at 37) from Buckley v. Valeo, 424 U.S. 1 (1974), 
does not sustain their argument.  This passage merely states that the Departments referred to in 
the Appointments Clause “are themselves in the Executive Branch 
or at least have some 
connection with that branch
.”  Id. at 127 (emphasis added).  The point the Court was making, as 
expressed in the very next sentence, was that Congress and its officers could not be considered 
Heads of Departments.  See id. This passage therefore provides no support for carving non-
Cabinet agencies, which, unlike Congress, surely “at least have some connection with [the 
Executive] branch,” id., out of the scope of “Departments.”
15 
  It is worth noting that the Appointments Clause uses “Heads” in the plural.  While the 
plural form might be read as merely agreeing with the plural form of the word “Departments,” it 
is noteworthy that the syntax does not rule out that a Department could have multiple Heads even 
if the word “Head” in the singular is read as limited to a single individual.  In any event, as 
discussed 
infra, there is ample reason to conclude that “Head” need not be read as limited to a 
single individual. 
-20­

 
basis. Plaintiffs argue that the Constitution permits only an individual to be a “Head of a 
Department” constitutionally capable of receiving appointment authority.  See Pls’ Mem. at 39­
43. But plaintiff cites no case authority so holding, and we are aware of none. 
As with their argument that the SEC is not a Department, Plaintiffs cite dicta in two 19th 
century cases for the proposition that the phrase “Heads of Department” has been “understood to 
encompass the cabinet secretaries.”  Pls’ Mem. at 42 (citing 
United States v. Mouat, 124 U.S. 
303 (1888); and Cunningham v. Neagle, 135 U.S. 1 (1890)).  But, again, this proves little.  That 
the phrase has been understood to 
encompass the cabinet secretaries does not mean that it is 
limited to the cabinet secretaries.  These opinions were written before the proliferation of 
regulatory agencies headed by multi-member boards or commissions, and so it is hardly 
surprising that the contemporary Court did not anticipate that category when speaking about 
“Heads of Departments.”
16 
The one court that has addressed this issue has rejected the argument that the 
Appointments Clause precludes multi-member bodies from being “Heads of Departments.”  In 
Silver v. United States Postal Service, 951 F.2d 1033 (9th Cir. 1991), the court held that the 
appointment of the Postmaster General was proper because “within the corporate structure 
adopted by Congress, the [nine presidentially appointed Governors] are the head of the 
department.”  
Id. at 1038. While the dissenting judge defined the group constituting the Head of 
16
 By 1923, in contrast, Congress was defining “the head of the department” for certain 
statutory purposes as “the officer or group of officers in the department who are not subordinate 
to or responsible to any other officer of the department.”  Classification Act of 1923, ch. 265, § 2, 
42 Stat. 1488 (emphasis added).  While not controlling for constitutional purposes, this definition 
belies plaintiffs’ portrayal of the phrase “Heads of Departments” as having a universal, fixed 
meaning limited to individuals. 
-21­

 
the Department slightly differently, he emphasized that there was no constitutional problem with 
a collective Head.  See id. at 1043-44 & n.3 (O’Scannlain, J., dissenting) (“Although the 
Supreme Court has never addressed the question of whether a group, as opposed to an individual, 
could be a department head, many independent regulatory agencies are headed by groups with no 
apparent constitutional infirmity, and the Attorney General determined as early as 1933 that 
groups could be ‘Heads of Departments.’”); 
see also Authority of Civil Service Commission to 
Appoint a Chief Examiner, 37 Op. Atty. Gen. 227 (1933) (finding no obstacle to the three 
members of the Civil Service Commission collectively acting as the “Head of a Department” for 
Appointments Clause purposes). 
The approach taken by the Ninth Circuit in Silver and reflected in consistent Executive 
Branch interpretations is sound.  As Judge O’Scannlain observed, regulatory agencies headed by 
multi-member bodies have functioned as an essential part of the federal government for many 
decades, Silver, 951 F.2d at 1044 (O’Scannlain, J., dissenting), and Congress has long 
empowered such agencies to appoint officers.
17 
  Plaintiffs’ interpretation of “Head” as confined 
to an individual ignores the reality of the current structure of the federal government and, no less 
than their artificially restrictive interpretation of “Departments,” “casts into doubt the validity of 
many appointments and a number of explicit statutory authorizations to appoint.”  
Freytag, 501 
U.S. at 918 (Scalia, J., concurring in part and concurring in the judgment). 
17 
  See, e.g., 47 U.S.C. § 155(e) (“The [Federal Communications] Commission shall have 
a Managing Director who shall be appointed by the Chairman subject to approval of the 
Commission.”); 7 U.S.C. § 2(a)(4) (“The [Commodity Futures Trading] Commission shall have 
a General Counsel, who shall be appointed by the Commission and serve at the pleasure of the 
Commission.”). 
-22­

Finally, plaintiffs’ argument that the Framers considered it intolerable for a collective 
body to have appointing authority is contradicted by the Appointments Clause’s provision 
allowing Inferior Officers to be appointed by “Courts of Law,” which often consist of multiple 
members.  The Judiciary Act of 1789 provided for the appointment of the Clerk of the Supreme 
Court by the Supreme Court, a body then consisting of six Justices.  See Act of Sept. 24, 1789, 
§§ 1, 7, 1 Stat. 73, 76. Similarly today, many statutes provide for the Judges of a Court 
collectively to appoint officers.
18 
  For all of these reasons, plaintiffs’ argument that the 
Constitution allows only individuals to be “Heads of Departments” should be rejected.  Because 
the PCAOB members are Inferior Officers and the SEC is a permissible appointing authority, the 
Sarbanes-Oxley Act’s provisions regarding the appointment of PCAOB members comply with 
the Constitution.
19 
18 
See, e.g., 28 U.S.C. §§ 671, 672 (Justices of the Supreme Court appoint Clerk and 
Marshal of Supreme Court); 
id. § 631(a) (Judges of each U.S. District Court appoint Magistrate 
Judges); id. § 152(a)(1) (Judges of each Court of Appeals appoint Bankruptcy Judges); id. 
§ 751(a) (Judges of each U.S. District Court appoint Clerk of Court); id. § 546(d) (providing for 
appointment of U.S. Attorneys, Inferior Officers, by U.S. District Court to fill vacancies in 
certain circumstances); see also United States v. Hilario, 218 F.3d 19, 21, 26 (1st Cir. 2000) 
(sustaining 28 U.S.C. § 546(d) against Appointments Clause challenge); 
United States v. Gantt, 
194 F.3d 987, 999-1000 (9th Cir. 1999) (same). 
19
 In a footnote, plaintiffs object to the requirements that two, but no more than two, 
PCAOB members be accountants, and that appointments be made in consultation with the 
Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve 
System.  Pls’ Mem. at 43 n.14.  Assuming 
arguendo that plaintiffs have standing to maintain 
these objections, but see Defs’ Motion to Dismiss at 40-42, these provisions do not offend the 
Appointments Clause. “To Congress under its legislative power is given the establishment of 
offices, the determination of their functions and jurisdiction, [and] the prescribing of reasonable 
and relevant qualifications and rules of eligibility of appointees,” Myers v. United States, 272 
U.S. 52, 129 (1926) (emphasis added), provided that “the qualifications do not so limit selection 
and so trench upon executive choice as to be in effect legislative designation,” id. at 128. 
Eligibility conditions relating to profession or expertise have been common throughout the 
(continued...) 
-23­

II. THE PCAOB IS CONSISTENT WITH THE SEPARATION OF POWERS 
As we have shown, the PCAOB is fully consistent with the Appointments Clause because 
its members are “officers whose work is directed and supervised at some level by others who 
were appointed by Presidential nomination with the advice and consent of the Senate.”
 Edmond, 
520 U.S. at 663. Plaintiffs also urge, however, that the structure of the PCAOB violates the 
separation of powers, focusing in particular on the provisions regarding who can remove PCAOB 
members and in what circumstances.  These arguments are no more persuasive than plaintiffs’ 
contention that the SEC lacks authority to appoint PCAOB members in the first place. 
At the outset, it is important to emphasize that this case “does not involve an attempt by 
Congress to increase its own powers at the expense of the Executive Branch.”
 Morrison, 487 
U.S. at 694; see Pls’ Mem. at 23-24 (conceding this point).  Nor, of course, does “the Act work 
any judicial usurpation of properly executive functions.”  Id. at 695 (emphasis in original).  As 
the Court observed in United States v. Mistretta, 488 U.S. 361 (1989), separation of powers 
concerns are most clearly presented by such “encroachment and aggrandizement.”  Id. at 382. 
Here, in contrast, the only question is whether the overall statutory scheme “impermissibly 
undermines the powers of the Executive Branch or disrupts the proper balance between the 
coordinate branches by preventing the Executive Branch from accomplishing its constitutionally 
19
(...continued) 
Nation’s history.  See, e.g., Act of Sept. 24, 1789, § 35, 1 Stat. 73, 92 (providing that Attorney 
General and U.S. Attorneys must have learning in the law).  Here, the qualifications -- which 
ensure that the PCAOB will have some accounting expertise but not be dominated by 
accountants to the point where its independence from the industry is compromised -- are 
reasonable and relevant, and the pool of candidates is large enough that the requirements can 
hardly be said to constitute “legislative designation” of appointees.  Nor is there anything 
constitutionally problematic about a Head of a Department consulting with other Executive 
Branch officials about an appointment.     
-24­

assigned functions.”  Morrison, 487 U.S. at 695 (citations and internal quotation and alteration 
marks omitted). 
The statute, taken as a whole, plainly does not undermine the powers of the Executive 
Branch or disrupt the proper balance between the coordinate branches.  Plaintiffs attach much 
significance to the provisions of the statute regarding removal of members of the PCAOB. 
While removability is, indeed, an important consideration, it is significant not as an end in itself, 
but because it is a means of asserting control over what a subordinate does.  Removal is a 
“powerful tool for control,” 
Edmond, 520 U.S. at 664, but it is not the only tool, see Morrison, 
487 U.S. at 689-90 (“The analysis contained in our removal cases is designed . . . to ensure that 
Congress does not interfere with the President’s exercise of the ‘executive power’ and his 
constitutionally appointed duty to ‘take care that the laws be faithfully executed’ under Article 
II.”). 
Thus, the removal provisions of the statute cannot be considered at in isolation, but rather 
must be examined as one aspect of an overall statutory scheme that includes pervasive 
mechanisms for SEC control over the PCAOB at every turn.  The SEC possesses broad authority 
over the PCAOB quite apart from its ability to remove PCAOB members.  The PCAOB’s rules 
and disciplinary sanctions alike do not become effective until approved by the SEC, and both 
may be changed by the SEC.  15 U.S.C. § 7215(e), 7217(b)(2), (b)(4), (b)(5), (c)(2), (c)(3).  The 
PCAOB does not possess its own subpoena power.  15 U.S.C. § 7215(b)(2)(D).  Thus, the 
coercive powers of the PCAOB are subject to pervasive, particularized checks.  Furthermore, the 
SEC, “by rule, consistent with the public interest, the protection of investors, and the other 
purposes of this Act and the securities laws, may relieve the Board of any responsibility to 
-25­


enforce compliance with any provision of this Act, the securities laws, the rules of the Board, or 
professional standards.” 15 U.S.C. § 7217(d)(1); see also 15 U.S.C. § 7217(d)(2) (empowering 
SEC to “censure or impose limitations upon the activities, functions, and operations of the 
Board” in certain other circumstances).  Thus, the SEC could withdraw enforcement authority, in 
a class of cases or even a particular case, if it believed in the exercise of its regulatory oversight 
that the PCAOB was being too aggressive or not aggressive enough in its inspections, 
investigations, or disciplinary proceedings.  The SEC also has the ability, either through an 
amendment of the PCAOB’s rules, 
see 15 U.S.C. § 7217(b)(5), or by promulgating its own rules 
under its general authority, see 15 U.S.C. § 7202(a), to direct the PCAOB to notify it about 
preliminary matters such as the institution of particular inspections, investigations, or disciplinary 
proceedings, and require the SEC’s advance approval in order for the PCAOB to initiate or cease 
such an undertaking.
20 
This extensive power of the SEC to supervise and control the PCAOB’s activities on a 
number of fronts refutes plaintiffs’ depiction of the PCAOB as a rogue agency exercising 
unchecked power, even without taking into account the SEC’s power to remove members of the 
PCAOB. Plaintiffs generally challenge the adequacy of the various mechanisms through which 
the SEC has supervisory authority over the PCAOB.  
See Pls’ Mem. at 26-28.  But these attacks 
are not only misguided coming from plaintiffs who have circumvented those very mechanisms 
and thereby eluded any concrete test of their adequacy, they also are legally flawed.  For instance, 
plaintiffs decry the SEC’s lack of “day-to-day” oversight of the PCAOB activities, complain that 
20 
  Moreover, the PCAOB’s enforcement authority is not exclusive and is not in 
derogation of the SEC’s own enforcement authority.  See 15 U.S.C. § 7202(c). 
-26­

the PCAOB can engage in certain inspection and investigatory activities “on its own,” and 
protest that the SEC’s review of disciplinary sanctions is “appellate-like.” Pls’ Mem. at 26. But 
such “day-to-day” oversight was not necessary to sustain the constitutionality of the independent 
counsel statute in Morrison, where there was no requirement that the Attorney General, for 
example, approve the independent counsel’s issuance of a subpoena or filing of a motion.
21 
Plaintiffs likewise offer no reason why “appellate-like” oversight over disciplinary sanctions 
cannot constitute effective control, particularly when the review is de novo and, if challenged, the 
sanction remains non-public and does not take effect until ordered by the SEC, see 15 U.S.C. 
§ 7215(e)(1), (d)(1)(C); supra at 13-14 (citing cases establishing that SEC review of disciplinary 
sanctions is de novo and/or plenary).  In any event, the SEC has ample means available under the 
21 
 Plaintiffs’ assertions in this regard also are laden with embellishment.  They assert that 
“the PCAOB decides, on its own, how to conduct its regular inspections.”  Pls’ Mem. at 26. The 
statute requires the PCAOB to conduct a program of inspections pursuant to rules it adopts.  15 
U.S.C. § 7214; see also 15 U.S.C. § 7211(c)(3), (g).  Such rules are subject to approval of the 
SEC and do not become effective until so approved, 15 U.S.C. § 7217(b), and even after 
approved, can be changed by the SEC, 15 U.S.C. §§ 7217(b)(5), 78s(c).  Moreover, a final 
inspection report by the PCAOB in a particular case is reviewable by the SEC pursuant to 15 
U.S.C. § 7214(h). According to plaintiffs, the PCAOB likewise decides “on its own . . . whether 
to commence an investigation” and “how that investigation should proceed,” but the statute itself 
provides that “[t]he Board shall notify the Commission of any pending Board investigation 
involving a potential violation of the securities laws, and thereafter coordinate its work with the 
work of the Commission’s Division of Enforcement, as necessary to protect an ongoing 
Commission investigation,” 15 U.S.C. § 7215(b)(4)(A), and the SEC would be free to expand on 
such requirements through its own rulemaking authority or its authority to amend the PCAOB’s 
rules. Moreover, as the PCAOB lacks its own subpoena authority, it must apply to the SEC “in a 
manner established by the Commission” to obtain a subpoena requiring testimony or production 
of documents.  15 U.S.C. § 7215(b)(2)(D).  And, the PCAOB is not even permitted to refer an 
investigation to the Department of Justice or state attorneys general except at the SEC’s 
direction.  15 U.S.C. § 7215(b)(4)(iii).  These constraints are hardly emblematic of full 
independent investigative authority.  
Compare, e.g., Morrison, 487 U.S. at 662 (statute granted 
independent counsel “‘full power and independent authority to exercise all investigative and 
prosecutorial functions and powers of the Department of Justice, the Attorney General, and any 
other officer or employee of the Department of Justice’”). 
-27­

statute by which it could institute a regime of “day-to-day” control, including, for example, 
requirements for advance notice and advance approval of particular PCAOB actions. 
Plaintiffs complain that the SEC’s automatic review of rules issued by the PCAOB is 
inadequate because it involves “cumbersome procedures.”  Pls’ Mem. at 27.  Given plaintiffs’ 
professed concern about the PCAOB exercising unchecked authority to their detriment, however, 
this is an odd argument for them to be making.  After all, the “cumbersome procedures” 
delay the 
effectiveness of a proposed rule of the PCAOB, 15 U.S.C. §7217(b)(2), and afford any 
“interested persons,” such as affected accounting firms like plaintiff Beckstead and Watts, “an 
opportunity to submit written data, views, and arguments” before the SEC decides whether to 
approve the rule, 15 U.S.C. § 78s(b)(1).  It is not uncommon for litigants challenging an exercise 
of regulatory authority to protest not being given an opportunity to comment on a proposed rule, 
but this may be the first time such a litigant complains that they were given such an opportunity. 
Moreover, to the extent the statutory procedures operate as a constraint on the SEC, they 
constrain both disapprovals and approvals of PCAOB rules alike. 
Nor does plaintiffs’ hyperbole about “the vast majority” of the SEC’s oversight being 
under “so deferential” a standard “that it fails to impose any significant restraint upon the 
PCAOB’s exercise of discretion” (Pls’ Mem. at 27) withstand scrutiny.  Plaintiffs ignore that the 
SEC’s review of PCOAB disciplinary sanctions is indisputably 
de novo. See supra at 13-14. 
Likewise, as to the standard for SEC review of PCAOB proposed rules, plaintiffs merely 
speculate that the standard is implemented and applied in a deferential manner, and overlook 
entirely the SEC’s independent authority to abrogate, delete, or add to the rules of the PCAOB, 
see 15 U.S.C. § 7217(b)(5), and its independent authority to make rules of its own under the 
-28­


  
Sarbanes-Oxley Act, 15 U.S.C. § 7202(a), neither of which are governed by the standard for SEC 
direct review of PCAOB proposed rules.
22 
As we have emphasized, the separation of powers analysis looks at the totality of the 
circumstances, and does not turn on the removal provisions in isolation.  Nonetheless, plaintiffs’ 
challenge to those provisions is likewise without merit. 
1. Plaintiffs’ first argument in this regard is that the statute is unconstitutional for not 
making the PCAOB members removable by the President himself.  This argument fails because, 
as discussed above, the members of the PCAOB are Inferior Officers who are appointed by the 
SEC. 
See supra Section I.A.  The general rule has long been that such officials are removable by 
the same subordinate officials who appointed them, rather than directly by the President himself. 
This is true because the power to remove is an incident of the power to appoint.  
See Myers v. 
United States, 272 U.S. 52, 119, 121, 126, 161 (1927). In 1839, the Supreme Court applied that 
maxim to hold that an Inferior Officer appointed by the Head of the Department was removable 
by that same Head, not by the President himself.  See In re Hennen, 38 U.S. (13 Pet.) 230, 259-60 
(1839) (noting that “the President has certainly no power to remove”); see also United States v. 
Perkins, 116 U.S. 483, 485 (1886). 
That rule has been adhered to ever since.  See Morrison, 487 U.S. at 689 n.27; see also id. 
at 724 (Scalia, J., dissenting) (describing as “established” the proposition that the President's 
22
 There is no support for plaintiffs’ ipse dixit comparison (Pls’ Mem. at 9, 27-28) of the 
SEC’s review of proposed PCAOB rules to the Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, 
Inc., 467 U.S. 837, 843-44 (1984), standard by which courts review administrative agencies’ 
construction of laws they are entrusted with implementing.  To the extent that Chevron is 
relevant to this case, it counsels that this Court should defer to the SEC’s interpretations of the 
Sarbanes-Oxley Act, and thus undermines rather than supports plaintiffs’ arguments.  
See 
Statement of Interest of the United States at 20-21. 
-29­

power “to remove inferior officers who exercise executive power, and whose appointment 
Congress [has] removed from the usual procedure of Presidential appointment with Senate 
consent, could be restricted, at least where the appointment had been made by an officer of the 
Executive Branch,” citing 
Perkins). In Myers, the seminal case affirming the President's inherent 
authority to remove officers appointed directly by him, the Court emphasized that “[t]he 
authority of Congress given by the excepting clause [of the Appointments Clause] to vest the 
appointment of such inferior officers in the heads of departments carries with it authority 
incidentally to invest the heads of departments with power to remove.”  
Myers, 272 U.S. at 161. 
Other than repeating their contention that the PCAOB members are Principal Officers, which we 
have already dealt with, 
see supra Section I.A, plaintiffs offer no valid reason to depart from this 
longstanding principle.  Thus, their attack on who is vested with the power to remove PCAOB 
members should be rejected. 
2. Plaintiffs next assert that, regardless of who has the removal power, the scope of that 
power is constitutionally insufficient because PCAOB members may only be removed for “good 
cause shown.”  As a threshold matter, and as both majority and dissent agreed in Morrison, the 
fact that removal of an Inferior Officer is conditioned on good cause does not, in and of itself, 
establish a violation of the separation of powers.  
See Morrison, 487 U.S. at 691-92 (“we cannot 
say that the imposition of a ‘good cause’ standard for removal by itself unduly trammels on 
executive authority”); id. at 696 (“the power to remove the counsel for ‘good cause’ . . .  provides 
the Executive with substantial ability to ensure that the laws are ‘faithfully executed’ . . . .”); 
id. 
at 724 n.4 (Scalia, J., dissenting) (recognizing that it is sufficient to ensure presidential “control 
over all exercises of the executive power” if Inferior Officers are simply “removable for cause, 
-30­


which would include, of course, the failure to accept supervision” (emphasis in original)).  For 
example, in Perkins, the Court upheld a statute barring removal of an Inferior Officer except 
pursuant to court martial for the reasons specified by statute, such as failure to accept 
supervision. 116 U.S. at 485. 
Moreover, the language in this statute establishing certain grounds for removability of 
PCAOB members, appropriately construed, does not “unduly trammel[] on executive authority,”  
Morrison, 487 U.S. at 691, 692, particularly in light of the SEC’s myriad other supervisory 
powers over the PCAOB.  Plaintiffs take issue with the adverb “willfully” in two of the three 
provisions describing situations that may trigger removal.  
See 15 U.S.C. §§ 7217(d)(3)(A) (“has 
willfully violated any provision of this Act, the rules of the Board, or the securities laws”), (B) 
(“has willfully abused the authority of that member”).  Plaintiffs contend that “willfully” sets the 
bar too high, theorizing that an “honest but overzealous regulator who launches deep and onerous 
investigations into what he erroneously perceives as violations of PCAOB rules” would be 
immune from removal because his abuse of authority would be merely “negligent.”  Pls’ Mem. at 
22. 
Plaintiffs’ hypothetical scenario, however, is predicated on layers of supposition and 
disregards ordinary legal meanings.
23 
  It depends on the proposition that a good-faith mistake of 
23
 Among other things, plaintiffs’ argument assumes that the SEC would be constrained to 
read the categories delineated in § 7217(d)(3) as implicitly defining the exclusive circumstances 
of “good cause shown” as that term is used in § 7211(e)(6).  While an argument to that effect 
could be made, it is also the case that the statute does not explicitly state that the § 7217(d)(3) 
categories are exclusive; § 7217(d)(3) does not use the term “good cause shown”; the qualifier 
“in accordance with section 7217(d)(3)” in § 7211(e)(6) need not be read as a matter of grammar 
to modify the term “good cause shown”; and it is at least “arguable” whether “the enumeration of 
certain specified causes of removal excludes the possibility of removal for other causes,” 
Bowsher v. Synar, 478 U.S. 714, 729 (1986) (citing Shurtleff v. United States, 189 U.S. 311, 
(continued...) 
-31­

law negates the element of willfulness, but even in the criminal law, the general rule is to the 
contrary.  See, e.g., United States v. Ehrlichman, 546 F.2d 910, 918-19 (D.C. Cir. 1976) (even 
though offense contains specific intent requirement, “[a] mistake as to the legality of the 
prohibited activity . . . is no defense” because “the mental state required for most ‘specific intent’ 
offenses does not involve knowledge of illegality”), 
cert. denied, 429 U.S. 1120 (1977); Staples 
v. United States, 511 U.S. 600, 622 n.3 (1994) (Ginsburg, J., concurring) (“The mens rea 
presumption requires knowledge only of the facts that make the defendant's conduct illegal, lest it 
conflict with the related presumption, deeply rooted in the American legal system, that, 
ordinarily, ignorance of the law or a mistake of law is no defense to criminal prosecution.” 
(internal quotation marks omitted)).  Similarly, in construing the term “willfully” as used in 
statutes regulating the conduct of primary actors under the securities laws, the D.C. Circuit has 
long rejected a requirement of knowledge of illegality.  See, e.g., Wonsover v. SEC, 205 F.3d 
408, 414 (D.C. Cir. 2000) (“‘It is only in very few criminal cases that “willful” means done with 
a bad purpose.  Generally, it means no more than that the person charged with the duty knows 
what he is doing.  It does not mean that, in addition, he must suppose that he is breaking the 
law.’” (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949))).  It is implausible to read 
the statute as constraining the SEC, in implementing a civil statute involving removal from a 
public office under its supervision, to interpret the term “willfully” as not only departing from its 
23
(...continued) 
315-16 (1903)); but see Humphrey’s Executor v. United States, 295 U.S. 602, 621-22 (1935) 
(distinguishing Shurtleff as applicable only to offices without fixed terms).  In any event, these 
are issues that should appropriately be considered in the first instance by the SEC, which is 
responsible for exercising the removal power in the Sarbanes-Oxley Act. 
-32­

normal construction in the securities laws, but as setting a materially higher bar than is generally 
required for criminal prosecutions involving potential loss of liberty. 
Even assuming arguendo that the SEC would be constrained to interpret the statute as 
plaintiffs do, plaintiffs’ hypothetical is still overstated.  A refusal to accept the statutorily 
prescribed supervision or comply with a lawful order of the SEC could reasonably be considered 
a willful abuse of authority.  Since, by their very nature, regulatory acts such as issuing rules, 
commencing investigations, and imposing disciplinary are highly deliberative and considered 
acts, particularly when undertaken by a collective body, it is difficult to see how an abuse of 
authority in doing any of those things might be considered “negligent,” a concept more suited to 
tort or criminal law.  Moreover, even if a single, isolated abuse of authority might have been 
“negligent” in its very first occurrence, as a practical matter that description would likely be 
short-lived; upon the PCAOB member being apprised of the SEC’s view of his actions, any 
continuation of such conduct would be in defiance of the SEC and indisputably willful. 
Construed with due regard for the canon of constitutional avoidance, the statute is thus easily 
read to permit removal of an “honest but overzealous regulator” who acts 
ultra vires by 
repeatedly opening investigations based on an overreaching interpretation of the law or otherwise 
fails to accept the SEC’s supervision.  This is a facial challenge, where in order to prevail, 
plaintiffs have the burden of showing  “that no set of circumstances exists under which the Act 
would be valid.”
  United States v. Salerno, 481 U.S. 739, 745 (1987).  Plaintiffs cannot sustain 
this burden because they cannot show that there is no possible way the SEC could construe and 
apply its removal authority in a constitutionally sufficient manner. 
-33­


In sum, plaintiffs’ separation-of-powers challenge fails because the statute gives the SEC 
considerable oversight powers and thus places numerous, meaningful checks on the PCAOB’s 
exercise of its functions, because the PCAOB members are Inferior Officers who may be 
removed by the same appointing authority that appointed them, and because the removal 
provision itself need not be read with the restrictive gloss that plaintiffs ascribe to it.  
III.	TITLE I OF THE SARBANES-OXLEY ACT DOES NOT IMPROPERLY 
DELEGATE LEGISLATIVE POWER 
The final issue in this case, raised only in passing by plaintiffs (Pls’ Mem. at 43-45) but 
developed more fully by amicus Washington Legal Foundation, is whether the Sarbanes-Oxley 
Act unconstitutionally delegates legislative power to the PCAOB.  For the reasons described 
below, summary judgment should be granted in favor of the United States on this claim as well. 
The non-delegation doctrine mandates that when Congress confers discretionary authority 
on administrative agencies, it must “lay down by legislative act an intelligible principle to which 
the person or body authorized to [act] is directed to conform.”  J.W. Hampton, Jr. & Co. v. 
United States
, 276 U.S. 394, 409 (1928).  As the D.C. Circuit has noted, “[t]he ‘intelligible 
principle’ test has not been a tough one.”  Nat’l Fed’n of Fed. Employees v. United States, 905 
F.2d 400, 404 (D.C. Cir. 1990).  In fact, as the cases have often emphasized, the Supreme Court 
has “found the requisite ‘intelligible principle’ lacking” on only two occasions, both over seven 
decades ago.  Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 474 (2001) (citing Panama 
Refining Co. v. Ryan, 293 U.S. 388 (1935), and A.L.A. Schechter Poultry Corp. v. United States, 
295 U.S. 495 (1935)).  The Court has “‘almost never felt qualified to second-guess Congress 
regarding the permissible degree of policy judgment that can be left to those executing or 
-34­


applying the law.’”  Id. at 474-75 (quoting Mistretta v. United States, 488 U.S. 361, 416 (1989) 
(Scalia, J., dissenting)). 
For example, the Supreme Court has upheld against delegation challenges statutes that 
granted the FCC and ICC the authority to promulgate regulations in accordance with their views 
of the “public interest.”  
National Broad. Co. v. United States, 319 U.S. 190 (1943) (FCC); New 
York Central Securities Corp. v. United States, 287 U.S. 12 (1932) (ICC).  Likewise, a statute 
was upheld that granted an agency the authority to fix commodity prices that “in [the 
Administrator’s] judgment will be generally fair and equitable and will effectuate the purposes of 
this Act” to stabilize prices and avert speculation.  
Yakus v. United States, 321 U.S. 414, 420, 
424-27 (1944).  
See also Lichter v. United States, 334 U.S. 742 (1948) (upholding grant of 
authority to recoup “excess profits” without specification of how much profit was too much); 
American Power & Light Co. v. SEC 329 U.S. 90 (1946) (upholding grant of authority to SEC to 
modify holding company structures to ensure they are not “unduly or unnecessarily 
complicate[d]” and do not “unfairly or inequitably distribute voting power among security 
holders”); FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) (upholding grant of authority to 
FPC to determine “just and reasonable” rates); Whitman, 531 U.S. at 472-75 (upholding grant of 
authority to EPA to set air quality standards that “allowing an adequate margin of safety, are 
requisite to protect the public health”). 
The PCAOB performs a number of different functions, which are governed by a variety 
of intelligible principles set out in different parts of the statute.  While we do not undertake to 
catalogue every one of them exhaustively here, a substantial majority of the provisions of the Act 
delegating authority to the PCAOB are bounded by the phrase “necessary or appropriate in the 
-35­


public interest or for the protection of investors” or similar language.  See, e.g., 15 U.S.C. 
§ 7213(a)(1), (b).
24 
  This standard was not composed out of whole cloth for the PCAOB, but 
rather is a mainstay of the securities laws, appearing dozens of times in the Securities Act of 
1933 and Securities Exchange Act of 1934 to govern numerous grants of authority to the SEC 
itself.
25 
  It is comparable to, if not more specific than, the various standards (e.g., “public 
interest,” “fair and equitable,” “just and reasonable,” etc.) upheld in the cases cited above.  
Thus, Title I of the Sarbanes-Oxley Act poses no delegation problem because it outlines 
the policies which prompted establishment of the PCAOB, explains what the PCAOB should do 
and how it should do it, and sets out specific directives to govern particular situations the 
PCAOB may encounter in its work.  See Mistretta v. United States, 488 U.S. 361, 379 (1987) 
(upholding statute delegating authority to the Sentencing Commission to promulgate sentencing 
guidelines because “[t]he statute outlines the policies which prompted establishment of the 
Commission, explains what the Commission should do and how it should do it, and sets out 
24
 See also 15 U.S.C. § 7211(a) (PCAOB’s overarching purpose is “to protect the interests 
of investors and further the public interest in the preparation of informative, accurate, and 
independent audit reports”), (b)(5) (PCAOB authorized to perform “other duties or functions . . . 
in order to protect investors, or to further the public interest”); 15 U.S.C. § 7212(b)(2)(H) 
(PCAOB may add to required contents of registration application “as necessary or appropriate in 
the public interest or for the protection of investors”); 15 U.S.C. § 7214(b)(2) (authorizing 
PCAOB to vary, by rule, frequency of inspections if “consistent with the purposes of this Act, the 
public interest, and the protection of investors”); 15 U.S.C. § 7216(a)(2) (authorizing PCAOB, 
by rule, to regulate certain foreign public accounting firms to whom the Act would otherwise not 
apply, if “necessary or appropriate, in light of the purposes of this Act and in the public interest 
or for the protection of investors”), (c) (authorizing PCAOB to exempt any foreign public 
accounting firm or class of firms from the Act if “necessary or appropriate in the public interest 
or for the protection of investors”).
25 
  See, e.g., 15 U.S.C. § 77b(10); 15 U.S.C. § 77c(b); 15 U.S.C. § 77g(a); 15 U.S.C. 
§ 77j; 15 U.S.C. § 77zz-3; 15 U.S.C. § 78f(a); 15 U.S.C. § 78g; 15 U.S.C. § 77i(a)(6), (b), (c); 15 
U.S.C. § 78j(a)(1), (b); 15 U.S.C. § 78n(a); 15 U.S.C. § 78s(a)(3), (b)(3)(B); 15 U.S.C. § 78u­
1(c). 
-36­

specific directives to govern particular situations”) (internal quotation marks omitted). 
While plaintiffs have generally eschewed challenging any particular act of the PCAOB, 
see, e.g., Plaintiffs’ Memorandum of Points & Authorities in Opposition to Defendants’ Motion 
to Dismiss (dkt. no. 20) at 8, for purposes of their non-delegation claim they focus on what they 
characterize as the PCAOB’s “authority to promulgate and impose criminal sanctions and impose 
taxes on broad swaths of the American public.”  Pls’ Mem. at 45; 
see also Amicus Curiae Mem. 
of the Washington Legal Found. (dkt. no. 33) at 6-11 (“WLF Amicus Mem.”).  Such rhetorical 
flourishes bear little relation to what the statute actually provides.  By “taxes on broad swaths of 
the American public,” plaintiffs are presumably referring to the accounting support fee on issuers 
of publicly traded securities provided for by 15 U.S.C. § 7219(d).  Assuming arguendo that 
Beckstead and Watts, which does not purport to be an issuer of publicly traded securities, would 
somehow have standing to challenge an accounting support fee payable by others, plaintiffs fail 
to recognize that the accounting support fee owes its existence to the statute itself.  The statute 
directs the PCAOB to set the amount of the fee or a formula for calculating such amount, in 
either case subject to the approval of the SEC.  15 U.S.C. § 7219(d)(1). In setting that amount or 
formula, the PCAOB is guided by the statutory commands that the fee be “reasonable” and 
“necessary or appropriate to establish and maintain the Board.” 
Id.  Further, the statute mandates 
that the rules for allocation, assessment, and collection of the accounting support fee be 
“equitable” and “in accordance with” a detailed market capitalization-based formula for the 
allocation of accounting support fees among issuers, spelled out in the statute itself.  15 U.S.C. 
§ 7219(d)(2), (g).  If plaintiffs and 
amicus do not see a sufficient “intelligible principle” in these 
provisions, they are not looking very hard. 
-37­


Plaintiffs’ rhetoric about the PCAOB creating criminal law and “impos[ing] criminal 
sanctions” and Congress “delegat[ing] away its authority to create criminal law” (Pls’ Mem. at 
44, 45) is equally overblown.  The PCAOB does not have any power even to 
refer a matter to the 
Attorney General for possible criminal enforcement except at the direction of the SEC, see 15 
U.S.C. 7215(b)(4)(B)(iii), let alone power to bring a criminal case or to develop substantive 
criminal law. Even to the extent the Court were to entertain in this facial civil challenge the 
hypothesis of a violation of a rule promulgated by the PCAOB being, through operation of 15 
U.S.C. § 7202(b)(1) combined with 15 U.S.C. § 78ff(b), criminally prosecuted,
26
 it is well-
established that there would be no non-delegation problem associated with that situation.  See 
United States v. Grace
, 778 F.2d 818, 822 (D.C. Cir. 1985) (per curiam) (“categorically 
rejec[ting]” argument that criminal punishment for violations of National Park Service 
regulations constituted an “unlawful delegation of powers,” because “[i]t is not the Park Service 
but the Congress that has criminalized violations of the Park Service regulations”); see also 
United States v. Grimaud, 220 U.S. 506, 521 (1911) (“[T]he authority to make administrative 
rules is not a delegation of legislative power, nor are such rules raised from an administrative to a 
legislative character because the violation thereof is punished as a public offense.”).  The 
PCAOB is not transformed into a maker of criminal law merely because Congress incorporates 
its rules into a general enforcement framework that includes criminal provisions. 
26
 Of course, based on largely the same set of considerations urged in our Statement of 
Interest, there are serious questions whether plaintiffs have standing to make such a speculative 
and attenuated claim, and whether judicial consideration of such a claim would not be more 
appropriately reserved for a criminal case where it might be presented in a concrete fashion. 
-38­


For the above reasons, the Court should reject plaintiffs’ non-delegation challenge.
27 
CONCLUSION 
For the foregoing reasons, the United States respectfully submits that, if defendants’ 
motion to dismiss is denied, plaintiffs’ motion for summary judgment should be denied and 
proposed intervenor United States’ motion for summary judgment should be granted. 
27
 While plaintiffs should not be permitted to switch horses midstream by treating the 
PCAOB as a private entity when their other arguments necessarily characterize it as 
governmental for constitutional purposes, see Pls’ Mem. at 14 n.3; WLF Amicus Mem. at 12-14, 
the outcome of the non-delegation analysis would not be different if the PCAOB were treated as 
private. Plaintiffs cite old cases disapproving private delegations in certain circumstances, but 
ignore a countervailing body of precedent approving such delegations provided that the private 
body is substantially subject to the oversight and supervision of a government agency and the 
“intelligible principle” standard is otherwise met.  
See Sunshine Anthracite Coal Co. v. Adkins, 
310 U.S. 381, 399 (1940) (approving delegation to industry board because “[t]he members of the 
[industry board] function subordinately to the [governmental] Commission.  It, not the [industry 
board] authorities, determines the prices.  And it has authority and surveillance over the activities 
of these authorities.”); 
Cospito v. Heckler, 742 F.2d 72, 89 (3d Cir. 1984) (approving 
Medicare/Medicaid laws’ conferral of certain functions on private Joint Committee on 
Accreditation of Hospitals; “Since, in effect, all actions of JCAH are subject to full review by a 
public official who is responsible and responsive to the political process, we find that there has 
been no real delegation of authority to JCAH.”).  The courts have uniformly applied this 
principle to uphold the activities of SROs, such as the NASD and NYSE, which are supervised 
by the SEC.  
R.H. Johnson & Co. v. SEC, 198 F.2d 690, 695 (2d Cir.), cert. denied, 344 U.S. 855 
(1952); Todd & Co., Inc. v. SEC, 557 F.2d 1008, 1012-13 (3d Cir. 1977); First Jersey Securities, 
Inc. v. Bergen, 605 F.2d 690, 697 (3d Cir. 1979), cert. denied, 444 U.S. 1074 (1980).  As 
discussed above and in the United States’ previous Statement of Interest, the SEC’s oversight 
and review authority over the PCAOB is patterned after and, if anything, is greater than the 
SEC’s oversight and review authority over these SROs.  Thus, even treating the PCAOB as a 
private entity, there simply is no delegation problem here.     
-39­

Dated: September 1, 2006 
Of Counsel: 
BRIAN G. CARTWRIGHT 
General Counsel 
ANDREW N. VOLLMER 
Deputy General Counsel 
JACOB H. STILLMAN 
Solicitor 
JOHN W. AVERY 
Special Counsel 
Securities and Exchange Commission 
100 F Street, N.E. 
Washington, D.C. 20549 
Respectfully submitted, 
PETER D. KEISLER 
Assistant Attorney General 
KENNETH L. WAINSTEIN 
United States Attorney 
SUSAN K. RUDY 
Assistant Director 
Federal Programs Branch 
_/s/ Robert J. Katerberg________________ 
ROBERT J. KATERBERG
 (D.C. Bar No. 466325) 
Trial Attorney 
U.S. Department of Justice 
Civil Division, Federal Programs Branch 
20 Massachusetts Avenue, N.W., Room 6112 
Washington, D.C. 20001 
Telephone: (202) 616-8298 
Facsimile:       (202)       616-8460       
[email protected] 
Attorneys for the United States 
-40­

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA


FREE ENTERPRISE FUND, et al., ) 
) 

Plaintiffs, ) 
) 

v. ) Civ. A. No. 06-217 (JR) 
) 

THE PUBLIC COMPANY ACCOUNTING ) 
OVERSIGHT BOARD, et al., ) 

) 
Defendants. ) 

) 

MEMORANDUM OF PROPOSED INTERVENOR UNITED STATES IN OPPOSITION

TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF


UNITED STATES’ CROSS-MOTION FOR SUMMARY JUDGMENT


Of Counsel: 

BRIAN G. CARTWRIGHT 
General Counsel 

ANDREW N. VOLLMER 
Deputy General Counsel 

JACOB H. STILLMAN 
Solicitor 

JOHN W. AVERY 
Special Counsel 

Securities and Exchange Commission 
100 F Street, N.E. 
Washington, D.C. 20549 

PETER D. KEISLER 
Assistant Attorney General 

KENNETH L. WAINSTEIN 
United States Attorney 

SUSAN K. RUDY 
Assistant Director 

ROBERT J. KATERBERG
 (D.C. Bar No. 466325) 
Trial Attorney 
U.S. Department of Justice 
Civil Division, Federal Programs Branch 
20 Massachusetts Avenue, N.W., Room 6112 
Washington, D.C. 20001 
Telephone: (202) 616-8298 
Facsimile: (202) 616-8460 

Attorneys for the United States 



TABLE OF CONTENTS


INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 


STATUTORY BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 


ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 


I.	 THE PCAOB FULLY COMPORTS WITH THE APPOINTMENTS CLAUSE . . . 9 


A.	 The Members of the PCAOB Are Inferior Officers . . . . . . . . . . . . . . . . . . . . . . . 11


B.	 Congress May Vest Power to Appoint Inferior Officers in the SEC . . . . . . . . . . 17


II.	 THE PCAOB IS CONSISTENT WITH THE SEPARATION OF POWERS . . . . . 24


III.	 TITLE I OF THE SARBANES-OXLEY ACT DOES NOT IMPROPERLY

DELEGATE LEGISLATIVE POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34


CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


-ii­



TABLE OF AUTHORITIES


CASES            Page (s) 

A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935) . . . . . . . . . . . . . . . . . . . 34


American Power & Light Co. v. SEC 329 U.S. 90 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


Bowsher v. Synar, 478 U.S. 714 (1986)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


Buckley v. Valeo, 424 U.S. 1 (1976)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 20


Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc., 467 U.S. 837 (1984) . . . . . . . . . . . . . . . 29


Collins v. United States, 14 Ct. Cl. 568 (1878) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11


Cospito v. Heckler, 742 F.2d 72 (3d Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


Cunningham v. Neagle, 135 U.S. 1 (1890)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 21


Edmond v. United States, 520 U.S. 651 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim


First Jersey Securities, Inc. v. Bergen, 605 F.2d 690 (3d Cir. 1979), 

cert. denied, 444 U.S. 1074 (1980)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


Freytag v. Commissioner, 501 U.S. 868 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 18, 19, 22


Gold v. SEC, 48 F.3d 987 (2d Cir. 1995)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14


Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


Humphrey’s Executor v. United States, 295 U.S. 602, 621-22 (1935) . . . . . . . . . . . . . . . . . . . . 32


In re Hennen, 38 U.S. (13 Pet.) 230 (1839)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29


In re Sealed Case, 829 F.2d 50 (D.C. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


J.W. Hampton, Jr. & Co. v. United States, 276 U.S. 394 (1928) . . . . . . . . . . . . . . . . . . . . . . . . 34


Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 


-iii­



Lichter v. United States, 334 U.S. 742 (1948)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


Morrison v. Olson, 487 U.S. 654 (1988)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


Myers v. United States, 272 U.S. 52 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 29, 30


NASD v. SEC, 431 F.3d 803 (D.C. Cir. 2005)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 14


National Broad. Co. v. United States, 319 U.S. 190 (1943) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


Nat’l Fed’n of Fed. Employees v. United States, 905 F.2d 400 (D.C. Cir. 1990) . . . . . . . . . . . . 34


New York Central Securities Corp. v. United States, 287 U.S. 12 (1932) . . . . . . . . . . . . . . . . . 35


Panama Refining Co. v. Ryan, 293 U.S. 388 (1935) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34


R.H. Johnson & Co. v. SEC, 198 F.2d 690 (2d Cir.),

cert. denied, 344 U.S. 855 (1952)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


Shultz v. SEC, 614 F.2d 561 (7th Cir. 1980)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14


Shurtleff v. United States, 189 U.S. 311 (1903) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


Silver v. United States Postal Service, 951 F.2d 1033 (9th Cir. 1991) . . . . . . . . . . . . . . . . . 21, 22


Staples v. United States, 511 U.S. 600 (1994)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32


Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381 (1940) . . . . . . . . . . . . . . . . . . . . . . . . . 39


Todd & Co., Inc. v. SEC, 557 F.2d 1008 (3d Cir. 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39


United States v. Arthur Young & Co., 465 U.S. 805(1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4


United States v. Ehrlichman, 546 F.2d 910 (D.C. Cir. 1976) 

cert. denied, 429 U.S. 1120 (1977)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


United States v. Gantt, 194 F.3d 987 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 23


United States v. Germaine, 99 U.S. 508 (1879) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 17, 18


United States v. Grace, 778 F.2d 818 (D.C. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


United States v. Grimaud, 220 U.S. 506 (1911) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


-iv­



United States v. Hilario, 218 F.3d 19 (1st Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


United States v. Mistretta, 488 U.S. 361 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 34, 36


United States v. Mouat, 124 U.S. 303 (1888) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 21


United States v. Nixon, 418 U.S. 683(1974)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


United States v. Perkins, 116 U.S. 483 (1886) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 29, 31


United States v. Salerno, 481 U.S. 739 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


Whitman v. Am. Trucking Ass’ns, 531 U.S. 457 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 35


Wonsover v. SEC, 205 F.3d 408 (D.C. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


Yakus v. United States, 321 U.S. 414 (1944)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


STATUTES 

7 U.S.C. § 155  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22


15 U.S.C. § 7202  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


15 U.S.C. § 7211  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


15 U.S.C. § 7212  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 6, 8


15 U.S.C. § 7213  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


15 U.S.C. § 7214  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 13, 27


15 U.S.C. § 7215  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


15 U.S.C. § 7217  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


15 U.S.C. § 7219  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 15, 37, 38


15 U.S.C. § 78d  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20


15 U.S.C. § 78ff  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  passim


-v­



28 U.S.C. § 546  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


28 U.S.C. § 671  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


28 U.S.C. § 672  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


47 U.S.C. § 2  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22


OTHER MATERIALS 

Authority of Civil Service Commission to Appoint a Chief Examiner,

37 Op. Att’y Gen. 227 (1933)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .18, 19, 22


The Constitutional Separation of Powers Between the President and Congress, 

20 Op. Off. Legal Counsel 124 (1996)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19


-vi­



INTRODUCTION AND SUMMARY 

The United States respectfully submits this memorandum of points and authorities in 

opposition to plaintiffs’ motion for summary judgment and in support of the United States’ cross-

motion for summary judgment.  After a series of devastating accounting scandals, Congress 

enacted the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745, to restore public 

confidence in the securities markets by, among other things, instituting a new regime to govern 

public accounting firms.  This new regime involved the creation of a new entity, the Public 

Company Accounting Oversight Board (“PCAOB” or “Board”), subordinate to the Securities and 

Exchange Commission (“SEC”).  Under the statute, the PCAOB is charged with registering 

public accounting firms, issuing auditing standards, inspecting public accounting firms, and 

disciplining such firms and their associated persons.  All of these functions are subject to the 

pervasive oversight of the SEC, which also appoints the members of the PCAOB and has 

authority to remove them for good cause shown.  For example, the proposed rules of the PCAOB 

and, if appealed, its disciplinary sanctions, do not even become effective until after approval by 

the SEC based on an independent review.  Further, the SEC is broadly empowered to relieve, by 

rule, the PCAOB of any of its enforcement responsibilities. 

Plaintiffs challenge the constitutionality of the PCAOB on three grounds.  First, under the 

Appointments Clause of the Constitution, they urge that PCAOB members are “Principal” 

officers who must be appointed by the President.  Alternatively, assuming that Board members 

are “Inferior” officers, they argue that their appointment by the SEC is not appointment by the 

“Heads of Departments” within the meaning of the Appointments Clause.  

These contentions are without doctrinal foundation.  As the Supreme Court has 

explained, “the term ‘inferior officer’ connotes a relationship with some higher ranking officer or 



officers below the President: Whether one is an ‘inferior’ officer depends on whether he has a 

superior.”  Edmond v. United States, 520 U.S. 651, 662 (1997). The SEC’s pervasive oversight 

authority leaves no doubt of the existence of a “superior/inferior” relationship for purposes of the 

Appointments Clause, and the degree of oversight is at least as significant as that involved in 

Edmond itself, where judges of the Coast Guard Court of Criminal Appeals were held to be 

“Inferior” officers.  Plaintiffs similarly err in urging that the SEC should be treated as a headless 

non-Department.  In many crucial respects, the SEC functions analogously to a Cabinet-level 

agency, and neither the text nor the purpose of the Appointments Clause requires that 

appointments be made by an individual head rather than by the governing Commissioners as a 

body. 

Plaintiffs’ second challenge, brought under the general separation-of-powers principle, 

fails for many of the same reasons as their Appointments Clause contentions.  The SEC’s broad 

and pervasive oversight renders implausible plaintiffs’ insistence that the Board, by its nature, 

impermissibly derogates Executive Branch authority.  Their arguments based on the provisions 

governing removal of Board members fare no better.  The Constitution does not require that the 

President be able to remove “Inferior” officers, such as PCAOB members, directly; such officers 

may be removed by those who appointed them in the first instance.  Nor does a requirement that 

removal of an “Inferior” officer be for good cause violate the relevant constitutional standards. 

At bottom, plaintiffs’ argument offers little more than a series of unfounded speculations 

premised on unlikely readings of statutory terms.  Their invitation to engage in this type of 

reasoning should be rejected. 

-2­




Plaintiffs’ third and final challenge is equally without merit.  The non-delegation doctrine 

requires merely that Congress provide an “intelligible principle” in conferring discretionary 

authority, and the Supreme Court has “found the requisite ‘intelligible principle’ lacking” on only 

two occasions, both over seven decades ago.  Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 

474 (2001). Plaintiffs fail to distinguish any grant of authority vested in the PCAOB from the 

dozens of similar grants of authority upheld by the courts. 

In sum, if the Court denies defendants’ pending motion to dismiss,1 it should grant the 

motion of the United States for summary judgment and deny plaintiffs’ motion for summary 

judgment. 

STATUTORY BACKGROUND 

In 2002, Congress passed and the President signed into law the Sarbanes-Oxley Act of 

2002, Pub. L. No. 107-204, 116 Stat. 745.  “The Act adopt[ed] tough new provisions to deter and 

punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect 

the interests of workers and shareholders.”  Statement on Signing the Sarbanes-Oxley Act of 

2002, 38 Weekly Comp. of Pres. Docs. 1286 (July 30, 2002).  The Act was a response to a series 

of devastating corporate scandals and implosions in 2001 and 2002 involving Enron, WorldCom, 

and other publicly traded companies.  Many of these scandals involved aggressive and/or 

fraudulent accounting practices, and in several instances the audit firms were faulted for failing 

1   On June 2, 2006, the United States filed a Statement of Interest in support of 
defendants’ motion to dismiss (dkt. no. 19).  The United States continues to believe that this case 
must be dismissed because, among other things, plaintiffs have failed to bring their claims 
through the Sarbanes-Oxley Act’s exclusive statutory review mechanism.  Indeed, we believe 
that examination of the constitutional issues, as set forth herein, will underscore why pre-merits 
dismissal is appropriate. 

-3­



to detect the underlying conduct.  As a result, many believed a central body with adequate 

resources and independence from the profession was needed to oversee the audit profession.2 

The Sarbanes-Oxley Act incorporated a number of different reforms in a variety of areas. 

One of its significant components was Title I, which created and installed the PCAOB to fill the 

previous void in regulation and oversight of public accounting firms.  Under the umbrella of the 

SEC’s authority, the PCAOB was vested with the functions of registration of public accounting 

firms, promulgation of rules and standards relating to public company audits; periodic 

inspections of registered accounting firms; and investigation and discipline of registered 

accounting firms.  See 15 U.S.C. §§ 7212, 7213, 7214, 7215.  In situating the PCAOB as a 

subordinate body reporting to the SEC, Congress drew on a longstanding model in securities 

regulation of having specific regulatory functions carried out by industry bodies, known as “self­

regulatory organizations” (“SROs”), under the SEC’s oversight and supervision.  See generally 

NASD v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005) (“A statutory system authorizing self-

regulatory organizations to act as quasi-governmental agencies in disciplining members for 

federal securities law violations has existed for almost 70 years.”). 

The SEC was given overarching supervisory authority over the PCAOB.  The SEC 

appoints the PCAOB’s members.  15 U.S.C. § 7211(e)(4)(A).  It approves the PCAOB’s budget. 

15 U.S.C. § 7219(b). Replicating the SEC’s authority over the SROs, the statute gives the SEC 

2   The United States’ system of securities regulation depends on the financial statements 
that publicly traded companies file with the Securities and Exchange Commission (“SEC”) being 
audited by an independent certified public accountant in accordance with generally accepted 
auditing standards.  United States v. Arthur Young & Co., 465 U.S. 805, 810-11 (1984).  The 
Supreme Court has described independent auditors as “public watchdogs” who “owe[] ultimate 
allegiance to the corporation’s creditors and stockholders, as well as to the investing public.”  Id. 
at 817-18. 

-4­



general “oversight and enforcement authority over the Board,” including the authority to impose 

recordkeeping requirements on the PCAOB and to examine those records at any time.  15 U.S.C. 

§ 7217(a) (incorporating 15 U.S.C. §§ 78q(a)(1), (b)(1)).  The SEC must approve the conduct of 

any litigation by the PCAOB.  15 U.S.C. § 7211(f)(1).  The PCAOB does not have its own 

subpoena authority in its investigations; rather, it needs to seek issuance by the Commission of a 

subpoena. See 15 U.S.C. § 7215(b)(2)(D).  Nor may it refer an investigation to the Department 

of Justice or state attorneys general except pursuant to the direction of the SEC.  See 15 U.S.C. 

§ 7215(b)(4)(B)(iii).  The PCAOB is required to submit an annual report, including audited 

financial statements, to the SEC.  See 15 U.S.C. § 7211(h). 

The SEC is empowered to remove any member of the PCAOB “in accordance with 

section 7217(d)(3) of this title, for good cause shown before the expiration of the term of that 

member.”  15 U.S.C. § 7211(e)(6).  Section 7217(d)(3) provides that the SEC may remove any 

member of the PCAOB from office if it finds, on the record after notice and an opportunity for a 

hearing, that the member “(A) has willfully violated any provision of this Act, the rules of the 

Board, or the securities laws; (B) has willfully abused the authority of that member; or (C) 

without reasonable justification or excuse, has failed to enforce compliance with any such 

provision or rule, or any professional standard by any registered public accounting firm or any 

associated person therewith.”  15 U.S.C. § 7217(d)(3).  The SEC may also censure PCAOB 

members for the same reasons and in the same manner.  Id.  

Moreover, apart from its authority to remove individual PCAOB members outright or 

censure them for the reasons described above, the SEC is empowered to “censure or impose 

limitations upon the activities, functions, and operations of the Board” if it finds, on the record 

-5­




after notice and an opportunity for a hearing, that the PCAOB “(A) has violated or is unable to 

comply with any provision of this Act, the rules of the Board, or the securities laws, or (B) 

without reasonable justification or excuse, has failed to enforce compliance with any such 

provision or rule, or any professional standard by any registered public accounting firm.”  15 

U.S.C. § 7217(d)(2). And, the SEC “by rule, consistent with the public interest, the protection of 

investors, and the other purposes of this Act and the securities laws, may relieve the Board of any 

responsibility to enforce compliance with any provision of this Act, the securities laws, the rules 

of the Board, or professional standards.”  15 U.S.C. § 7217(d)(1). 

Further, as previously explained in detail in the United States’ Statement of Interest, the 

statute vests the SEC with specific review power over every final legal action the PCAOB takes. 

This is accomplished by making the pre-existing framework for SEC review over actions of 

SROs applicable to the PCAOB, with enhancements that give the SEC even greater power over 

the PCAOB than it possesses over the SROs.  The PCAOB promulgates rules governing auditors 

of public company financial statements and internal controls and the conduct of public company 

audits, but all such proposed rules must be approved by the SEC, and do not go into effect until 

so approved.  15 U.S.C. § 7217(b). Such review includes the rules the PCAOB adopts to govern 

its own functions such as, for example, rules governing the registration of public accounting 

firms, 15 U.S.C. § 7212, rules governing the periodic inspections of accounting firms, 15 U.S.C. 

§ 7214, rules governing the investigation, hearing, and disciplinary sanction process, 15 U.S.C. 

-6­




§ 7215, and rules governing the process of allocating, assessing, and collecting annual support 

fees, 15 U.S.C. § 7219.3 

The statute also gives the SEC supervisory authority over the PCAOB’s conduct of 

regular inspections.  If a registered accounting firm disagrees with the assessments contained in 

the PCAOB’s final inspection report, after having previously responded to the PCAOB 

concerning the issues in question, the firm may seek review of the final inspection report by the 

SEC. 15 U.S.C. § 7214(h)(1)(A).  A firm may also seek review if it disagrees with a 

determination of the Board that criticisms or defects identified in an inspection report have not 

been addressed to the satisfaction of the Board within 12 months of the date of the inspection 

report.  15 U.S.C. § 7214(h)(1)(B).   

Likewise, any disciplinary sanction that the PCOAB imposes on an accountant must be 

reported to the SEC, 15 U.S.C. § 7217(c)(1), and is then subject to SEC review either on 

application of the disciplined person or on the SEC’s own motion, 15 U.S.C. § 7217(c)(2) 

(incorporating 15 U.S.C. § 78s(d)(2)).  Unlike the comparable provisions with regard to SEC 

review of SRO disciplinary sanctions, a PCAOB disciplinary sanction is automatically stayed 

upon the initiation of SEC review.  15 U.S.C. § 7215(e); compare 15 U.S.C. § 78s(d)(2). The 

SEC’s review of a PCAOB disciplinary sanction is de novo. 15 U.S.C. § 7217(c) (incorporating 

15 U.S.C. § 78s(e)(1)).  In addition, upon making certain findings the SEC is empowered to 

3 In addition to the SEC’s automatic review of all proposed rules of the PCAOB as they 
come up, the SEC has separate authority at any time to abrogate, delete, or add to the rules of the 
PCAOB, by rule of the SEC, as it may deem necessary or appropriate “to assure the fair 
administration of the [PCAOB], conform the rules promulgated by [the PCAOB] to the 
requirements of title I of the Sarbanes-Oxley Act of 2002, or otherwise further the purposes of 
that Act, the securities laws, and the rules and regulations thereunder applicable to the 
[PCAOB].”  See 15 U.S.C. § 7217(b)(5) (incorporating by reference 15 U.S.C. § 78s(c)). 

-7­



“enhance, modify, cancel, reduce, or require the remission of [the] sanction,” powers broader 

than the comparable provision for SROs, which does not include enhancement authority and is 

triggered by a narrower set of findings.  15 U.S.C. § 7217(c)(3); compare 15 U.S.C. § 78s(e)(2).  

The SEC’s review of PCAOB disciplinary sanctions also applies to any denial by the PCAOB of 

registration of a public accounting firm, which is treated as a form of disciplinary sanction.  See 

15 U.S.C. § 7212(c)(2).  Thus, between the provisions governing rules, those involving final 

inspection reports, and those pertaining to disciplinary sanctions, the SEC is vested with review 

of any final legal action that the PCAOB may take.  See generally Statement of Interest of the 

United States (dkt. no. 19) at 4-8.4 

Finally, the SEC possesses general rulemaking authority under the Sarbanes-Oxley Act. 

See 15 U.S.C. § 7202(a) (“The Commission shall promulgate such rules and regulations, as may 

be necessary or appropriate in the public interest or for the protection of investors, and in 

furtherance of this Act.”).  Such general rulemaking authority affords the SEC significant 

additional means of control over the PCAOB.  For example, the SEC could adopt rules that 

would enable it to take immediate action to require the PCAOB to stop or start a PCAOB 

inspection, investigation, or disciplinary proceeding.  The statute also expressly states that 

nothing in it detracts from the SEC’s pre-existing authority over many of the same matters that 

are the subject of the PCAOB’s work.  See 15 U.S.C. § 7202(c).5   Thus, apart from the formal 

4 As described more fully in the Statement of Interest, the statute also provides for judicial 
review of the orders of the SEC approving or disapproving PCAOB rules or disciplinary 
sanctions. 15 U.S.C. § 78y(a); see generally Statement of Interest at 4-8. 

5 15 U.S.C. § 7202(c) provides as follows: 

(continued...) 

-8­



legal mechanisms through which the SEC directly exercises oversight over the PCAOB, the SEC 

fully retains its own authority to engage directly in regulation and oversight of public accounting 

firms. 

ARGUMENT 

I. THE PCAOB FULLY COMPORTS WITH THE APPOINTMENTS CLAUSE 

The statutory method for appointing the members of the PCAOB is consistent with the 

Appointments Clause because the members of the PCAOB are Inferior Officers who may be 

appointed by Heads of Departments, including the SEC.6   Therefore, plaintiffs’ motion for 

5(...continued) 
EFFECT ON COMMISSION AUTHORITY.  Nothing in this Act or the rules of 
the Board shall be construed to impair or limit -­

(1) the authority of the Commission to regulate the accounting profession,

accounting firms, or persons associated with such firms for purposes of

enforcement of the securities laws;


(2) the authority of the Commission to set standards for accounting or auditing 
practices or auditor independence, derived from other provisions of the securities 
laws or the rules or regulations thereunder, for purposes of the preparation and 
issuance of any audit report, or otherwise under applicable law; or 

(3) the ability of the Commission to take, on the initiative of the Commission, 
legal, administrative, or disciplinary action against any registered public 
accounting firm or any associated person thereof. 

6 A threshold concern in this case is whether the PCAOB is part of the government for 
Appointments Clause and other constitutional purposes.  The statute provides that “[t]he Board 
shall not be an agency or establishment of the United States Government” and that “[n]o member 
or person employed by, or agent for, the Board shall be deemed to be an officer or employee of or 
agent of the Federal Government by reason of such service.”  15 U.S.C. § 7211(b).  While this 
provision is entitled to some weight, it is not dispositive for constitutional purposes.  Cf. Lebron 
v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 392-93 (1995) (holding that federally created 
corporation was subject to the restrictions imposed by the First Amendment where the 
government “creates a corporation by special law, for the furtherance of governmental objectives, 

(continued...) 

-9­



summary judgment on this claim should be denied and the United States’ cross-motion for 

summary judgment should be granted. 

The Appointments Clause provides in pertinent part: 

[The President] . . . shall nominate, and by and with the Advice and 
Consent of the Senate, shall appoint . . . Officers of the United 
States, whose Appointments are not herein otherwise provided for, 
and which shall be established by Law: but the Congress may by 
Law vest the Appointment of such inferior Officers, as they think 
proper, in the President alone, in the Courts of Law, or in the 
Heads of Departments. 

U.S. Const., art. II, § 2, cl. 2.  In operation, the Clause divides all “Officers of the United States” 

into two categories:  Principal Officers and Inferior Officers.7 See United States v. Germaine, 99 

U.S. (9 Otto) 508, 509 (1879). Principal Officers must be appointed through nomination by the 

President with the advice and consent of the Senate.  See Buckley v. Valeo, 424 U.S. 1, 132 

(1976). However, Congress is permitted to make Inferior Officers appointable by the President 

alone, Courts of Law, or Heads of Departments.  Id. 

The members of the PCAOB are appointed by the SEC.  See 15 U.S.C. § 7211(e)(4).  The 

constitutional validity of this method of appointment thus involves two questions:  (1) whether 

the members of the PCAOB are Inferior Officers, as opposed to Principal Officers; and (2) 

6(...continued) 
and retains for itself permanent authority to appoint a majority of the directors of that 
corporation”). The Court need not resolve the question whether the PCAOB is a governmental 
entity for separation-of-powers purposes, because whether or not it is, the PCAOB is 
constitutional for the reasons set forth herein. 

7 We capitalize “Principal Officer(s)” and “Inferior Officer(s)” herein to make clear that 
the terms are used in their specialized constitutional sense. 

-10­



whether the SEC constitutes a Department with its Commissioners as Head.  Both questions 

should be answered in the affirmative. 

A. The Members of the PCAOB Are Inferior Officers 

Under the relevant Supreme Court precedents, the members of the PCAOB must be 

considered Inferior Officers.8 

“The Constitution does not use the term ‘inferior’ ‘in the sense of petty or unimportant’ 

but in the sense of a subordinate to a principal officer.”  United States v. Gantt, 194 F.3d 987, 

999 (9th Cir. 1999) (quoting Collins v. United States, 14 Ct. Cl. 568, 574 (1878)); see also 

Edmond v. United States, 520 U.S. 651, 663 (1997) (even Inferior Officers “exercise significant 

authority pursuant to the laws of the United States”).  In Edmond, the Court articulated the 

standard as follows:  

Generally speaking, the term “inferior officer” connotes a relationship with some 
higher ranking officer of officers below the President:  Whether one is an 
“inferior” officer depends on whether he has a superior. . . . [W]e think it evident 
that “inferior officers” are officers whose work is directed and supervised at some 
level by others who were appointed by Presidential nomination with the advice 
and consent of the Senate. 

Id. at 662-63.  Applying this standard, the Court held in Edmond that civilian judges of the Coast 

Guard Court of Criminal Appeals were Inferior Officers, and thus could be permissibly appointed 

by the Secretary of Transportation, because the work of those judges was supervised in two 

distinct respects.  First, the Judge Advocate General for the Coast Guard, a subordinate of the 

Secretary of Transportation, had administrative oversight over the judges, prescribed the court’s 

8 We assume arguendo that the members of the PCAOB are “Officers of the United 
States,” as opposed to mere employees.  If they were only employees, their appointments would 
plainly be constitutional.  See Freytag v. Commissioner, 501 U.S. 868, 880 (1991). 

-11­



rules of procedure, and could remove a judge from his judicial assignment without cause, albeit 

not in a manner to influence the outcome of individual proceedings.  Id. at 664. Second, the 

Court of Appeals for the Armed Forces had substantive oversight over the judges’ output:  they 

reviewed decisions by the Court of Criminal Appeals (a) involving a death sentence, (b) where 

the Judge Advocate General ordered such review, or (c) where the court granted review upon 

petition of the accused.  Id. at 665. That such review was less than plenary and did not include 

reassessment of factual matters was of no moment; rather, “[w]hat is significant is that the judges 

of the Court of Criminal Appeals have no power to render a final decision on behalf of the 

United States unless permitted to do so by other Executive Officers.”  Id.    

Under Edmond, the members of the PCAOB are Inferior Officers because “their work is 

directed and supervised at some level,” indeed, comprehensively, by the SEC, the members of 

which “were appointed by Presidential nomination with the advice and consent of the Senate.” 

Edmond, 520 U.S. at 663. The SEC has review power over every final legal action the PCAOB 

takes.  Indeed, the PCAOB’s rules and, if appealed, disciplinary sanctions do not even go into 

effect without SEC approval.  See 15 U.S.C. § 7215(e) (disciplinary sanctions); 15 U.S.C. 

§ 7217(b)(2) (rules).  Thus, as in Edmond, the PCAOB members “have no power to render a 

final decision on behalf of the United States” unless permitted by the SEC.  Edmond, 520 U.S. at 

665. Moreover, the SEC approves the PCAOB’s budget, has general “oversight and enforcement 

authority” over the Board, including authority to impose recordkeeping requirements on the 

PCAOB and to examine the PCAOB’s records, and must approve the conduct of any litigation by 

the PCAOB. 15 U.S.C. §§ 7211(f)(1), 7217(a) (incorporating 15 U.S.C. § 78q(a)(1), (b)(1)), 

7219(b).  In conducting investigations, the PCAOB lacks its own subpoena authority and is 

-12­




limited to applying to the SEC for a subpoena “in a manner established by the Commission,” 15 

U.S.C. § 7215(b)(2)(D), and is obligated to notify the Commission of any pending PCAOB 

investigation involving a potential violation of the securities laws and thereafter coordinate as 

necessary to protect any parallel SEC investigation, id. § 7215(b)(4)(A).  The SEC can “relieve 

the Board of any responsibility to enforce compliance with any provision of this Act, the 

securities laws, the rules of the Board, or professional standards,”  15 U.S.C. § 7217(d)(1), and 

can “censure or impose limitations upon” its “activities, functions, and operations,” 15 U.S.C. 

§ 7217(d)(2).  And, significantly, the SEC has authority under the Sarbanes-Oxley Act to make 

its own rules “as may be necessary or appropriate in the public interest or for the protection of 

investors, and in furtherance of this Act,” 15 U.S.C. § 7202(a), which would enable it adopt rules 

providing an even greater degree of control over PCAOB activities than directly under the 

statute. 

Indeed, the level of supervision exercised by the SEC over the PCAOB not only meets, 

but exceeds, the level of supervision exercised over the Coast Guard judges deemed sufficient in 

Edmond. Whereas the Court of Appeals for the Armed Forces reviewed only a subset of 

decisions of the Coast Guard judges, Edmond, 520 U.S. at 665-66, the SEC reviews all PCAOB 

rules and all appealed PCAOB disciplinary sanctions, as well as final PCAOB inspection reports 

if duly challenged.  See 15 U.S.C. § 7217(b), (c); 15 U.S.C. § 7214(h).  Moreover, the SEC’s 

standard of review is significantly more probing than the Court of Appeals for the Armed Forces’ 

standard of review of decisions of the Coast Guard Court of Criminal Appeals.9   Indeed, the D.C. 

9 To the extent plaintiffs question the SEC’s standard of review of PCAOB actions, that 
would only militate in favor of requiring plaintiffs’ claims to be brought through the exclusive 

(continued...) 

-13­



Circuit recently described the SRO-review scheme, which the Sarbanes-Oxley Act incorporates 

and applies to the PCAOB (with some modifications that make SEC review of PCAOB sanctions 

even more rigorous), as follows: 

The congressional scheme, in short, establishes a system in which the 
Commission not only closely supervises and approves the processes by which 
NASD brings disciplinary action, but in which the Commission fully revisits the 
issue of liability, and can completely reject or modify NASD’s decision as it 
deems appropriate. NASD’s disciplinary process essentially supplants a 
disciplinary action that might otherwise start with a hearing before an ALJ.  And 
NASD’s authority to discipline its members for violations of federal securities law 
is entirely derivative.  The authority it exercises ultimately belongs to the SEC, 
and the legal views of the self-regulatory organization must yield to the 
Commission’s view of the law. 

NASD v. SEC, 431 F.3d 803, 806 (D.C. Cir. 2005) (emphasis added).  The Court of Appeals 

repeatedly used the word “plenary” to characterize the review of the SEC over “adjudications 

conducted by self-regulatory organizations like NASD.”  Id. at 807, 808; see also, e.g., Gold v. 

SEC, 48 F.3d 987, 990 (2d Cir. 1995) (interpreting same statutory scheme as providing for de 

novo SEC review of disciplinary sanctions imposed by the New York Stock Exchange); Shultz v. 

SEC, 614 F.2d 561, 568 (7th Cir. 1980) (“In reviewing a decision of the Exchange, the 

Commission makes a de novo determination of the facts and the law.”); compare Edmond, 520 

U.S. at 665 (“so long as there is some competent evidence in the record to establish each element 

of the offense beyond a reasonable doubt, the Court of Appeals for the Armed Forces [would] not 

9(...continued) 
review mechanism in the statute, which would give the Court a concrete record to show how the 
SEC conducted its review in a particular case.  See generally Statement of Interest of the United 
States (dkt. no. 19). 

-14­reevaluate the facts”).10   The SEC’s supervision is also enhanced by the fact that all aspects of 

supervision, as well as appointment power, are concentrated in the SEC, whereas in Edmond, 

supervision of the work of the Coast Guard Court of Criminal Appeals judges was split between 

the Judge Advocate General for the Coast Guard and the Court of Appeals for the Armed Forces, 

and appointment power was vested in a third actor, the Secretary of Transportation.  Thus, to an 

even greater extent than the Coast Guard Court of Criminal Appeals judges, the PCAOB is 

supervised by superior officers. 

Plaintiffs’ assertion that “the breadth and independence of PCAOB Members is 

indistinguishable from the commissioners or members of other U.S. agencies with extensive 

regulatory powers over specialized subject matters,” such as the Federal Communications 

Commission, Consumer Product Safety Commission, Federal Trade Commission, and others 

(Pls’ Mem. at 34 & n.8) rings hollow.  The distinctions are many and obvious.  None of those 

agencies is subordinate to a supervising agency that may at any time rescind its enforcement 

10 Moreover, the SEC is not limited to affirming or reversing the PCAOB’s disciplinary 
sanction; rather, its broad remedial powers include the ability to “enhance, modify, cancel, 
reduce, or require the remission” of such a sanction.  15 U.S.C. § 7217(c)(3).  Further, the statute 
gives the SEC various other tools for exerting its supervisory control over the PCAOB, from its 
authority to abrogate, delete, or add to the PCAOB’s rules as it deems necessary or appropriate, 
15 U.S.C. § 7217(b)(5), to its power to “relieve the Board of any responsibility to enforce 
compliance with any provision,” 15 U.S.C. § 7217(d)(1), to its ability to “impose limitations 
upon the activities, functions, and operations of the Board,” 15 U.S.C. § 7217(d)(2), to its 
approval power over the PCAOB’s budget, 15 U.S.C. § 7219(b), to its general rulemaking 
authority under the Sarbanes-Oxley Act, 15 U.S.C. § 7202(a).  Such capacious authority 
reinforces that the PCAOB members are Inferior Officers.  Cf. United States v. Nixon, 418 U.S. 
683, 696 (1974) (stating that the Special Prosecutor was a “subordinate office[r]” because the 
President or the Attorney General could have removed him at any time, if by no other means than 
amending or revoking the regulations defining his authority); In re Sealed Case, 829 F.2d 50, 56 
(D.C. Cir. 1987) (noting that the Attorney General could rescind the regulation that delegated the 
Independent Counsel his authority and “thereby abolish[] the Office of the Independent Counsel: 
Iran/Contra”). 

-15­



authority in whole or in part.  None of those agencies must send its rules and challenged 

disciplinary sanctions for review by a supervising agency in order for such actions to take effect. 

None of those agencies is subject to being censured or having limitations imposed upon its 

activities, functions, and operations by a supervising agency.  Equally without foundation is 

plaintiffs’ insistence that Edmond rested on the Judge Advocate General’s “ongoing, day-to-day” 

supervision of “significant daily oversight” of the Coast Guard judges. See Pls’ Mem. at 29, 31, 

32. Edmond is devoid of any such characterization, which is also belied by the statute the Court 

cited to describe the relationship.  See Edmond, 520 U.S. at 664 (supervision consisted of (a) 

authority to prescribe rules of procedure, (b) authority to consult with other JAGs to formulate 

court-martial policies and procedures, and (c) removal power); 10 U.S.C. § 866(f). 

In both Edmond and the instant case, the officers in question are removable by officials 

subordinate to the President.  It is true that the members of the PCAOB are removable for “good 

cause shown,” 15 U.S.C. § 7211(e)(6), while in Edmond, the Coast Guard Court of Criminal 

Appeals judges could be removed by the Judge Advocate General from their judicial assignment 

without cause (although such removal could not be used “to influence . . . the outcome of 

individual proceedings”), see Edmond, 520 U.S. at 664. This distinction, however, is not 

controlling because removal without cause is not a sine qua non for Inferior Officer status.  In 

Morrison v. Olson, 487 U.S. 654 (1988), all of the participating Justices agreed on this 

proposition; even Justice Scalia, in dissent, apparently would have considered the independent 

counsel an Inferior Officer if, even though removable only for good cause, she had been subject 

to the Attorney General’s supervision in the conduct of her duties.  See id. at 723-24 & n.4 

(Scalia, J., dissenting); compare id. at 671 (majority opinion); see also United States v. Perkins, 

-16­




116 U.S. 483, 484-85 (1886).  The scope of removal power is simply one factor relevant to 

whether the officer is “directed and supervised at some level” by Presidential appointees.  See 

Edmond, 520 U.S. at 663.11   Here, in light of all of the features of the statute that overwhelmingly 

and cumulatively demonstrate plenary control by the SEC over the PCAOB, the PCAOB 

members are plainly Inferior Officers. 

B. Congress May Vest Power to Appoint Inferior Officers in the SEC 

Because the members of the PCAOB are Inferior Officers, Congress was permitted to 

vest their appointment “in the President alone, in the Courts of Law, or in the Heads of 

Departments.”  The statute clearly complies with this provision because the SEC is a 

Department, with the Commissioners as its Head or Heads.  Plaintiffs challenge this conclusion, 

arguing that (1) the SEC is not a Department, and (2) a Head of a Department can only be an 

individual and therefore the Commissioners together cannot be a Head.  Neither argument 

withstands scrutiny. 

1. The SEC clearly is a Department within the meaning of the Appointments Clause. 

The word “Department” as used in the Appointments Clause “has reference to the subdivision of 

the power of the Executive into departments, for the more convenient exercise of that power.” 

11 We recognize that in Morrison, the Court looked at a set of considerations that varied 
somewhat from those in Edmond in concluding that the independent counsel under the Ethics in 
Government Act of 1978 was an Inferior Officer.  487 U.S. at 671-72 (considering that (1) she 
was subject to removal by a higher officer; (2) she performed only limited duties, (3) her 
jurisdiction was narrow, and (4) her tenure was limited).  In Edmond, however, the Court 
clarified that these four factors were geared to the specific situation in Morrison and were not 
intended as universal criteria to govern every future Appointments Clause analysis.  See 
Edmond, 520 U.S. at 661-62 (“Morrison did not purport to set forth a definitive test for whether 
an office is ‘inferior’”).  For example, the fact that the third and fourth Morrison factors did not 
describe Coast Guard Court of Criminal Appeals judges did not cause the Edmond Court any 
hesitation in concluding that such judges were Inferior Officers.  Id. at 661. 

-17­



United States v. Germaine, 99 U.S. 508, 510 (1879). The SEC, whose members are appointed by 

the President by and with the advice and consent of the Senate, see 15 U.S.C. § 78d(a), is the 

principal federal agency charged with administration of the securities laws, and exercises 

governmental authority without being subordinated to any other broader unit within the 

Executive Branch. 

Plaintiffs’ theory that the SEC is constitutionally barred from appointing Inferior Officers 

is rooted in the notion that what they call “independent agencies like the SEC” cannot be 

“Departments” under the Appointments Clause.  See Pls’ Mem. at 35.  But we are aware of no 

court that has adopted such a novel construction.12   The best that plaintiffs can muster is 

inferences from the five-Justice majority opinion in Freytag v. Commissioner, 501 U.S. 868 

(1991), which held that the Tax Court, an Article I court, was a Court of Law, rather than a 

Department, for purposes of the Appointments Clause.  To be sure, the Freytag majority noted 

that “[c]onfining the term ‘Heads of Departments’ in the Appointments Clause to executive 

divisions like the Cabinet-level Departments constrains the distribution of the appointment 

power.”  Id. at 886 (emphasis added).  However, the Freytag majority did not define exactly what 

agencies it considered “like” the Cabinet Departments, and expressly reserved the particular 

12 Plaintiffs cite several cases from the 19th century that treat the term “Departments” as 
generally coextensive with the Cabinet departments.  See Pls’ Mem. at 36-37 (citing United 
States v. Mouat, 124 U.S. 303 (1888); Cunningham v. Neagle, 135 U.S. 1 (1890); and United 
States v. Germaine, 99 U.S. 508 (1879)).  These references, however, are merely descriptive of 
the historical fact that the Departments for Appointments Clause purposes during that era 
generally were the same as the Cabinet departments.  See Authority of Civil Service Commission 
to Appoint a Chief Examiner, 37 Op. Att’y Gen. 227, 230-31 (1933) (opining that Germaine and 
Mouat do not have “any controlling effect upon the present question” whether the Civil Service 
Commission was an agency capable of appointing Officers of the United States, because “the 
Civil Service Commission, which was the first independent establishment of the Government, 
was not in existence” at the time of Germaine). 

-18­



question presented here: “We do not address here any question involving an appointment of an 

inferior officer by the head of one of the principal agencies, such as [inter alia] the Securities and 

Exchange Commission . . . .”  Freytag, 501 U.S. at 887 n.4. 

Meanwhile, the four concurring Justices in Freytag emphatically rejected an interpretation 

of Departments that would exclude agencies outside the Cabinet.  See id. at 918-22 (Scalia, J., 

concurring in part and concurring in the judgment, joined by O’Connor, Kennedy, and Souter, 

JJ.).  The concurring Justices instead construed  “Departments” to encompass “all agencies 

immediately below the President in the organizational structure of the Executive Branch,” 

including “all independent executive establishments.”  Id. at 918-19 (Scalia, J., concurring in part 

and concurring in the judgment).  These Justices also noted that narrowly limiting “Departments” 

to Cabinet departments -- the construction urged by plaintiffs here -- would be problematic 

because it would “cast[] into doubt the validity of many appointments and a number of explicit 

statutory authorizations to appoint.”  Id. at 918 (Scalia, J., concurring in part and concurring in 

the judgment).13 

13 The position espoused by the four concurring Justices in Freytag and reserved by the 
five-Justice majority is consistent with the longstanding interpretation of Congress and the 
Executive Branch.  As Justice Scalia observed, “Congress has empowered non-Cabinet agencies 
to appoint inferior officers for quite some time,” Freytag, 501 U.S. at 918 (Scalia, J., concurring 
in part and concurring in the judgment), as exemplified by the grant of authority to the SEC “to 
appoint . . . such officers . . . as may be necessary,” 15 U.S.C. § 78d(b)(1).  Similarly, in 1933, 
the Attorney General opined that the Civil Service Commission was a Department capable of 
receiving authority to appoint an inferior officer, even though it was “not a subordinate 
Commission attached to one of the so-called executive departments but is in itself an 
independent division of the Executive Branch of the Government with certain independent duties 
and functions.”  Authority of Civil Service Commission to Appoint a Chief Examiner, 37 Op. 
Att’y Gen. at 231.  This reasoning has recently been reaffirmed.  See The Constitutional 
Separation of Powers Between the President and Congress, 20 Op. Off. Legal Counsel 124, 152­
53 (1996) (“[M]ost of the independent agencies are clearly analogous to major executive 

(continued...) 

-19­



It would, indeed, be “a most implausible disposition” to create a system where any 

Inferior Officers within non-Cabinet agencies could not be appointed by their immediate 

superiors, but instead “must be appointed by the President, the courts of law, or the ‘Secretary of 

Something Else.’”  Freytag, 501 U.S. at 919-20 (Scalia, J., concurring in part and concurring in 

the judgment).  Without a firmer basis in precedent than plaintiffs have offered, the Court should 

not assume that the Appointments Clause demands such a major overhaul of the federal 

infrastructure.14 

2. Similarly, the Commissioners are plainly the “Head” or “Heads” of the SEC.15 See 15 

U.S.C. § 78d (establishing SEC as headed by five individuals appointed by the President with the 

advice and consent of the Senate).  Thus, the appointment power, like the various regulatory 

powers they hold under the securities laws, may permissibly be exercised by them on a collective 

13(...continued) 
agencies.  They exercise governmental authority without being subordinated to any broader unit 
within the executive branch, and Congress has implicitly characterized them as ‘Departments’ for 
Appointments Clause purposes by permitting their heads to appoint officials who plainly are 
inferior officers.”). 

14 The passage plaintiffs cite (Pls’ Mem. at 37) from Buckley v. Valeo, 424 U.S. 1 (1974), 
does not sustain their argument.  This passage merely states that the Departments referred to in 
the Appointments Clause “are themselves in the Executive Branch or at least have some 
connection with that branch.”  Id. at 127 (emphasis added).  The point the Court was making, as 
expressed in the very next sentence, was that Congress and its officers could not be considered 
Heads of Departments.  See id. This passage therefore provides no support for carving non-
Cabinet agencies, which, unlike Congress, surely “at least have some connection with [the 
Executive] branch,” id., out of the scope of “Departments.”

15   It is worth noting that the Appointments Clause uses “Heads” in the plural.  While the 
plural form might be read as merely agreeing with the plural form of the word “Departments,” it 
is noteworthy that the syntax does not rule out that a Department could have multiple Heads even 
if the word “Head” in the singular is read as limited to a single individual.  In any event, as 
discussed infra, there is ample reason to conclude that “Head” need not be read as limited to a 
single individual. 

-20­



 

basis. Plaintiffs argue that the Constitution permits only an individual to be a “Head of a 

Department” constitutionally capable of receiving appointment authority.  See Pls’ Mem. at 39­

43. But plaintiff cites no case authority so holding, and we are aware of none. 

As with their argument that the SEC is not a Department, Plaintiffs cite dicta in two 19th 

century cases for the proposition that the phrase “Heads of Department” has been “understood to 

encompass the cabinet secretaries.”  Pls’ Mem. at 42 (citing United States v. Mouat, 124 U.S. 

303 (1888); and Cunningham v. Neagle, 135 U.S. 1 (1890)).  But, again, this proves little.  That 

the phrase has been understood to encompass the cabinet secretaries does not mean that it is 

limited to the cabinet secretaries.  These opinions were written before the proliferation of 

regulatory agencies headed by multi-member boards or commissions, and so it is hardly 

surprising that the contemporary Court did not anticipate that category when speaking about 

“Heads of Departments.”16 

The one court that has addressed this issue has rejected the argument that the 

Appointments Clause precludes multi-member bodies from being “Heads of Departments.”  In 

Silver v. United States Postal Service, 951 F.2d 1033 (9th Cir. 1991), the court held that the 

appointment of the Postmaster General was proper because “within the corporate structure 

adopted by Congress, the [nine presidentially appointed Governors] are the head of the 

department.”  Id. at 1038. While the dissenting judge defined the group constituting the Head of 

16 By 1923, in contrast, Congress was defining “the head of the department” for certain 
statutory purposes as “the officer or group of officers in the department who are not subordinate 
to or responsible to any other officer of the department.”  Classification Act of 1923, ch. 265, § 2, 
42 Stat. 1488 (emphasis added).  While not controlling for constitutional purposes, this definition 
belies plaintiffs’ portrayal of the phrase “Heads of Departments” as having a universal, fixed 
meaning limited to individuals. 

-21­



 

the Department slightly differently, he emphasized that there was no constitutional problem with 

a collective Head.  See id. at 1043-44 & n.3 (O’Scannlain, J., dissenting) (“Although the 

Supreme Court has never addressed the question of whether a group, as opposed to an individual, 

could be a department head, many independent regulatory agencies are headed by groups with no 

apparent constitutional infirmity, and the Attorney General determined as early as 1933 that 

groups could be ‘Heads of Departments.’”); see also Authority of Civil Service Commission to 

Appoint a Chief Examiner, 37 Op. Atty. Gen. 227 (1933) (finding no obstacle to the three 

members of the Civil Service Commission collectively acting as the “Head of a Department” for 

Appointments Clause purposes). 

The approach taken by the Ninth Circuit in Silver and reflected in consistent Executive 

Branch interpretations is sound.  As Judge O’Scannlain observed, regulatory agencies headed by 

multi-member bodies have functioned as an essential part of the federal government for many 

decades, Silver, 951 F.2d at 1044 (O’Scannlain, J., dissenting), and Congress has long 

empowered such agencies to appoint officers.17   Plaintiffs’ interpretation of “Head” as confined 

to an individual ignores the reality of the current structure of the federal government and, no less 

than their artificially restrictive interpretation of “Departments,” “casts into doubt the validity of 

many appointments and a number of explicit statutory authorizations to appoint.”  Freytag, 501 

U.S. at 918 (Scalia, J., concurring in part and concurring in the judgment). 

17   See, e.g., 47 U.S.C. § 155(e) (“The [Federal Communications] Commission shall have 
a Managing Director who shall be appointed by the Chairman subject to approval of the 
Commission.”); 7 U.S.C. § 2(a)(4) (“The [Commodity Futures Trading] Commission shall have 
a General Counsel, who shall be appointed by the Commission and serve at the pleasure of the 
Commission.”). 

-22­



Finally, plaintiffs’ argument that the Framers considered it intolerable for a collective 

body to have appointing authority is contradicted by the Appointments Clause’s provision 

allowing Inferior Officers to be appointed by “Courts of Law,” which often consist of multiple 

members.  The Judiciary Act of 1789 provided for the appointment of the Clerk of the Supreme 

Court by the Supreme Court, a body then consisting of six Justices.  See Act of Sept. 24, 1789, 

§§ 1, 7, 1 Stat. 73, 76. Similarly today, many statutes provide for the Judges of a Court 

collectively to appoint officers.18   For all of these reasons, plaintiffs’ argument that the 

Constitution allows only individuals to be “Heads of Departments” should be rejected.  Because 

the PCAOB members are Inferior Officers and the SEC is a permissible appointing authority, the 

Sarbanes-Oxley Act’s provisions regarding the appointment of PCAOB members comply with 

the Constitution.19 

18 See, e.g., 28 U.S.C. §§ 671, 672 (Justices of the Supreme Court appoint Clerk and 
Marshal of Supreme Court); id. § 631(a) (Judges of each U.S. District Court appoint Magistrate 
Judges); id. § 152(a)(1) (Judges of each Court of Appeals appoint Bankruptcy Judges); id. 
§ 751(a) (Judges of each U.S. District Court appoint Clerk of Court); id. § 546(d) (providing for 
appointment of U.S. Attorneys, Inferior Officers, by U.S. District Court to fill vacancies in 
certain circumstances); see also United States v. Hilario, 218 F.3d 19, 21, 26 (1st Cir. 2000) 
(sustaining 28 U.S.C. § 546(d) against Appointments Clause challenge); United States v. Gantt, 
194 F.3d 987, 999-1000 (9th Cir. 1999) (same). 

19 In a footnote, plaintiffs object to the requirements that two, but no more than two, 
PCAOB members be accountants, and that appointments be made in consultation with the 
Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve 
System.  Pls’ Mem. at 43 n.14.  Assuming arguendo that plaintiffs have standing to maintain 
these objections, but see Defs’ Motion to Dismiss at 40-42, these provisions do not offend the 
Appointments Clause. “To Congress under its legislative power is given the establishment of 
offices, the determination of their functions and jurisdiction, [and] the prescribing of reasonable 
and relevant qualifications and rules of eligibility of appointees,” Myers v. United States, 272 
U.S. 52, 129 (1926) (emphasis added), provided that “the qualifications do not so limit selection 
and so trench upon executive choice as to be in effect legislative designation,” id. at 128. 
Eligibility conditions relating to profession or expertise have been common throughout the 

(continued...) 

-23­



II. THE PCAOB IS CONSISTENT WITH THE SEPARATION OF POWERS 

As we have shown, the PCAOB is fully consistent with the Appointments Clause because 

its members are “officers whose work is directed and supervised at some level by others who 

were appointed by Presidential nomination with the advice and consent of the Senate.”  Edmond, 

520 U.S. at 663. Plaintiffs also urge, however, that the structure of the PCAOB violates the 

separation of powers, focusing in particular on the provisions regarding who can remove PCAOB 

members and in what circumstances.  These arguments are no more persuasive than plaintiffs’ 

contention that the SEC lacks authority to appoint PCAOB members in the first place. 

At the outset, it is important to emphasize that this case “does not involve an attempt by 

Congress to increase its own powers at the expense of the Executive Branch.”  Morrison, 487 

U.S. at 694; see Pls’ Mem. at 23-24 (conceding this point).  Nor, of course, does “the Act work 

any judicial usurpation of properly executive functions.”  Id. at 695 (emphasis in original).  As 

the Court observed in United States v. Mistretta, 488 U.S. 361 (1989), separation of powers 

concerns are most clearly presented by such “encroachment and aggrandizement.”  Id. at 382. 

Here, in contrast, the only question is whether the overall statutory scheme “impermissibly 

undermines the powers of the Executive Branch or disrupts the proper balance between the 

coordinate branches by preventing the Executive Branch from accomplishing its constitutionally 

19(...continued) 
Nation’s history.  See, e.g., Act of Sept. 24, 1789, § 35, 1 Stat. 73, 92 (providing that Attorney 
General and U.S. Attorneys must have learning in the law).  Here, the qualifications -- which 
ensure that the PCAOB will have some accounting expertise but not be dominated by 
accountants to the point where its independence from the industry is compromised -- are 
reasonable and relevant, and the pool of candidates is large enough that the requirements can 
hardly be said to constitute “legislative designation” of appointees.  Nor is there anything 
constitutionally problematic about a Head of a Department consulting with other Executive 
Branch officials about an appointment.     

-24­



assigned functions.”  Morrison, 487 U.S. at 695 (citations and internal quotation and alteration 

marks omitted). 

The statute, taken as a whole, plainly does not undermine the powers of the Executive 

Branch or disrupt the proper balance between the coordinate branches.  Plaintiffs attach much 

significance to the provisions of the statute regarding removal of members of the PCAOB. 

While removability is, indeed, an important consideration, it is significant not as an end in itself, 

but because it is a means of asserting control over what a subordinate does.  Removal is a 

“powerful tool for control,” Edmond, 520 U.S. at 664, but it is not the only tool, see Morrison, 

487 U.S. at 689-90 (“The analysis contained in our removal cases is designed . . . to ensure that 

Congress does not interfere with the President’s exercise of the ‘executive power’ and his 

constitutionally appointed duty to ‘take care that the laws be faithfully executed’ under Article 

II.”). 

Thus, the removal provisions of the statute cannot be considered at in isolation, but rather 

must be examined as one aspect of an overall statutory scheme that includes pervasive 

mechanisms for SEC control over the PCAOB at every turn.  The SEC possesses broad authority 

over the PCAOB quite apart from its ability to remove PCAOB members.  The PCAOB’s rules 

and disciplinary sanctions alike do not become effective until approved by the SEC, and both 

may be changed by the SEC.  15 U.S.C. § 7215(e), 7217(b)(2), (b)(4), (b)(5), (c)(2), (c)(3).  The 

PCAOB does not possess its own subpoena power.  15 U.S.C. § 7215(b)(2)(D).  Thus, the 

coercive powers of the PCAOB are subject to pervasive, particularized checks.  Furthermore, the 

SEC, “by rule, consistent with the public interest, the protection of investors, and the other 

purposes of this Act and the securities laws, may relieve the Board of any responsibility to 

-25­




enforce compliance with any provision of this Act, the securities laws, the rules of the Board, or 

professional standards.”  15 U.S.C. § 7217(d)(1); see also 15 U.S.C. § 7217(d)(2) (empowering 

SEC to “censure or impose limitations upon the activities, functions, and operations of the 

Board” in certain other circumstances).  Thus, the SEC could withdraw enforcement authority, in 

a class of cases or even a particular case, if it believed in the exercise of its regulatory oversight 

that the PCAOB was being too aggressive or not aggressive enough in its inspections, 

investigations, or disciplinary proceedings.  The SEC also has the ability, either through an 

amendment of the PCAOB’s rules, see 15 U.S.C. § 7217(b)(5), or by promulgating its own rules 

under its general authority, see 15 U.S.C. § 7202(a), to direct the PCAOB to notify it about 

preliminary matters such as the institution of particular inspections, investigations, or disciplinary 

proceedings, and require the SEC’s advance approval in order for the PCAOB to initiate or cease 

such an undertaking.20 

This extensive power of the SEC to supervise and control the PCAOB’s activities on a 

number of fronts refutes plaintiffs’ depiction of the PCAOB as a rogue agency exercising 

unchecked power, even without taking into account the SEC’s power to remove members of the 

PCAOB. Plaintiffs generally challenge the adequacy of the various mechanisms through which 

the SEC has supervisory authority over the PCAOB.  See Pls’ Mem. at 26-28.  But these attacks 

are not only misguided coming from plaintiffs who have circumvented those very mechanisms 

and thereby eluded any concrete test of their adequacy, they also are legally flawed.  For instance, 

plaintiffs decry the SEC’s lack of “day-to-day” oversight of the PCAOB activities, complain that 

20   Moreover, the PCAOB’s enforcement authority is not exclusive and is not in 
derogation of the SEC’s own enforcement authority.  See 15 U.S.C. § 7202(c). 

-26­



the PCAOB can engage in certain inspection and investigatory activities “on its own,” and 

protest that the SEC’s review of disciplinary sanctions is “appellate-like.”  Pls’ Mem. at 26. But 

such “day-to-day” oversight was not necessary to sustain the constitutionality of the independent 

counsel statute in Morrison, where there was no requirement that the Attorney General, for 

example, approve the independent counsel’s issuance of a subpoena or filing of a motion.21 

Plaintiffs likewise offer no reason why “appellate-like” oversight over disciplinary sanctions 

cannot constitute effective control, particularly when the review is de novo and, if challenged, the 

sanction remains non-public and does not take effect until ordered by the SEC, see 15 U.S.C. 

§ 7215(e)(1), (d)(1)(C); supra at 13-14 (citing cases establishing that SEC review of disciplinary 

sanctions is de novo and/or plenary).  In any event, the SEC has ample means available under the 

21  Plaintiffs’ assertions in this regard also are laden with embellishment.  They assert that 
“the PCAOB decides, on its own, how to conduct its regular inspections.”  Pls’ Mem. at 26. The 
statute requires the PCAOB to conduct a program of inspections pursuant to rules it adopts.  15 
U.S.C. § 7214; see also 15 U.S.C. § 7211(c)(3), (g).  Such rules are subject to approval of the 
SEC and do not become effective until so approved, 15 U.S.C. § 7217(b), and even after 
approved, can be changed by the SEC, 15 U.S.C. §§ 7217(b)(5), 78s(c).  Moreover, a final 
inspection report by the PCAOB in a particular case is reviewable by the SEC pursuant to 15 
U.S.C. § 7214(h). According to plaintiffs, the PCAOB likewise decides “on its own . . . whether 
to commence an investigation” and “how that investigation should proceed,” but the statute itself 
provides that “[t]he Board shall notify the Commission of any pending Board investigation 
involving a potential violation of the securities laws, and thereafter coordinate its work with the 
work of the Commission’s Division of Enforcement, as necessary to protect an ongoing 
Commission investigation,” 15 U.S.C. § 7215(b)(4)(A), and the SEC would be free to expand on 
such requirements through its own rulemaking authority or its authority to amend the PCAOB’s 
rules. Moreover, as the PCAOB lacks its own subpoena authority, it must apply to the SEC “in a 
manner established by the Commission” to obtain a subpoena requiring testimony or production 
of documents.  15 U.S.C. § 7215(b)(2)(D).  And, the PCAOB is not even permitted to refer an 
investigation to the Department of Justice or state attorneys general except at the SEC’s 
direction.  15 U.S.C. § 7215(b)(4)(iii).  These constraints are hardly emblematic of full 
independent investigative authority.  Compare, e.g., Morrison, 487 U.S. at 662 (statute granted 
independent counsel “‘full power and independent authority to exercise all investigative and 
prosecutorial functions and powers of the Department of Justice, the Attorney General, and any 
other officer or employee of the Department of Justice’”). 

-27­



statute by which it could institute a regime of “day-to-day” control, including, for example, 

requirements for advance notice and advance approval of particular PCAOB actions. 

Plaintiffs complain that the SEC’s automatic review of rules issued by the PCAOB is 

inadequate because it involves “cumbersome procedures.”  Pls’ Mem. at 27.  Given plaintiffs’ 

professed concern about the PCAOB exercising unchecked authority to their detriment, however, 

this is an odd argument for them to be making.  After all, the “cumbersome procedures” delay the 

effectiveness of a proposed rule of the PCAOB, 15 U.S.C. §7217(b)(2), and afford any 

“interested persons,” such as affected accounting firms like plaintiff Beckstead and Watts, “an 

opportunity to submit written data, views, and arguments” before the SEC decides whether to 

approve the rule, 15 U.S.C. § 78s(b)(1).  It is not uncommon for litigants challenging an exercise 

of regulatory authority to protest not being given an opportunity to comment on a proposed rule, 

but this may be the first time such a litigant complains that they were given such an opportunity. 

Moreover, to the extent the statutory procedures operate as a constraint on the SEC, they 

constrain both disapprovals and approvals of PCAOB rules alike. 

Nor does plaintiffs’ hyperbole about “the vast majority” of the SEC’s oversight being 

under “so deferential” a standard “that it fails to impose any significant restraint upon the 

PCAOB’s exercise of discretion” (Pls’ Mem. at 27) withstand scrutiny.  Plaintiffs ignore that the 

SEC’s review of PCOAB disciplinary sanctions is indisputably de novo. See supra at 13-14. 

Likewise, as to the standard for SEC review of PCAOB proposed rules, plaintiffs merely 

speculate that the standard is implemented and applied in a deferential manner, and overlook 

entirely the SEC’s independent authority to abrogate, delete, or add to the rules of the PCAOB, 

see 15 U.S.C. § 7217(b)(5), and its independent authority to make rules of its own under the 

-28­




  

Sarbanes-Oxley Act, 15 U.S.C. § 7202(a), neither of which are governed by the standard for SEC 

direct review of PCAOB proposed rules.22 

As we have emphasized, the separation of powers analysis looks at the totality of the 

circumstances, and does not turn on the removal provisions in isolation.  Nonetheless, plaintiffs’ 

challenge to those provisions is likewise without merit. 

1. Plaintiffs’ first argument in this regard is that the statute is unconstitutional for not 

making the PCAOB members removable by the President himself.  This argument fails because, 

as discussed above, the members of the PCAOB are Inferior Officers who are appointed by the 

SEC. See supra Section I.A.  The general rule has long been that such officials are removable by 

the same subordinate officials who appointed them, rather than directly by the President himself. 

This is true because the power to remove is an incident of the power to appoint.  See Myers v. 

United States, 272 U.S. 52, 119, 121, 126, 161 (1927). In 1839, the Supreme Court applied that 

maxim to hold that an Inferior Officer appointed by the Head of the Department was removable 

by that same Head, not by the President himself.  See In re Hennen, 38 U.S. (13 Pet.) 230, 259-60 

(1839) (noting that “the President has certainly no power to remove”); see also United States v. 

Perkins, 116 U.S. 483, 485 (1886). 

That rule has been adhered to ever since.  See Morrison, 487 U.S. at 689 n.27; see also id. 

at 724 (Scalia, J., dissenting) (describing as “established” the proposition that the President's 

22 There is no support for plaintiffs’ ipse dixit comparison (Pls’ Mem. at 9, 27-28) of the 
SEC’s review of proposed PCAOB rules to the Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, 
Inc., 467 U.S. 837, 843-44 (1984), standard by which courts review administrative agencies’ 
construction of laws they are entrusted with implementing.  To the extent that Chevron is 
relevant to this case, it counsels that this Court should defer to the SEC’s interpretations of the 
Sarbanes-Oxley Act, and thus undermines rather than supports plaintiffs’ arguments.  See 
Statement of Interest of the United States at 20-21. 

-29­



power “to remove inferior officers who exercise executive power, and whose appointment 

Congress [has] removed from the usual procedure of Presidential appointment with Senate 

consent, could be restricted, at least where the appointment had been made by an officer of the 

Executive Branch,” citing Perkins). In Myers, the seminal case affirming the President's inherent 

authority to remove officers appointed directly by him, the Court emphasized that “[t]he 

authority of Congress given by the excepting clause [of the Appointments Clause] to vest the 

appointment of such inferior officers in the heads of departments carries with it authority 

incidentally to invest the heads of departments with power to remove.”  Myers, 272 U.S. at 161. 

Other than repeating their contention that the PCAOB members are Principal Officers, which we 

have already dealt with, see supra Section I.A, plaintiffs offer no valid reason to depart from this 

longstanding principle.  Thus, their attack on who is vested with the power to remove PCAOB 

members should be rejected. 

2. Plaintiffs next assert that, regardless of who has the removal power, the scope of that 

power is constitutionally insufficient because PCAOB members may only be removed for “good 

cause shown.”  As a threshold matter, and as both majority and dissent agreed in Morrison, the 

fact that removal of an Inferior Officer is conditioned on good cause does not, in and of itself, 

establish a violation of the separation of powers.  See Morrison, 487 U.S. at 691-92 (“we cannot 

say that the imposition of a ‘good cause’ standard for removal by itself unduly trammels on 

executive authority”); id. at 696 (“the power to remove the counsel for ‘good cause’ . . .  provides 

the Executive with substantial ability to ensure that the laws are ‘faithfully executed’ . . . .”); id. 

at 724 n.4 (Scalia, J., dissenting) (recognizing that it is sufficient to ensure presidential “control 

over all exercises of the executive power” if Inferior Officers are simply “removable for cause, 

-30­




which would include, of course, the failure to accept supervision” (emphasis in original)).  For 

example, in Perkins, the Court upheld a statute barring removal of an Inferior Officer except 

pursuant to court martial for the reasons specified by statute, such as failure to accept 

supervision. 116 U.S. at 485. 

Moreover, the language in this statute establishing certain grounds for removability of 

PCAOB members, appropriately construed, does not “unduly trammel[] on executive authority,”  

Morrison, 487 U.S. at 691, 692, particularly in light of the SEC’s myriad other supervisory 

powers over the PCAOB.  Plaintiffs take issue with the adverb “willfully” in two of the three 

provisions describing situations that may trigger removal.  See 15 U.S.C. §§ 7217(d)(3)(A) (“has 

willfully violated any provision of this Act, the rules of the Board, or the securities laws”), (B) 

(“has willfully abused the authority of that member”).  Plaintiffs contend that “willfully” sets the 

bar too high, theorizing that an “honest but overzealous regulator who launches deep and onerous 

investigations into what he erroneously perceives as violations of PCAOB rules” would be 

immune from removal because his abuse of authority would be merely “negligent.”  Pls’ Mem. at 

22. 

Plaintiffs’ hypothetical scenario, however, is predicated on layers of supposition and 

disregards ordinary legal meanings.23   It depends on the proposition that a good-faith mistake of 

23 Among other things, plaintiffs’ argument assumes that the SEC would be constrained to 
read the categories delineated in § 7217(d)(3) as implicitly defining the exclusive circumstances 
of “good cause shown” as that term is used in § 7211(e)(6).  While an argument to that effect 
could be made, it is also the case that the statute does not explicitly state that the § 7217(d)(3) 
categories are exclusive; § 7217(d)(3) does not use the term “good cause shown”; the qualifier 
“in accordance with section 7217(d)(3)” in § 7211(e)(6) need not be read as a matter of grammar 
to modify the term “good cause shown”; and it is at least “arguable” whether “the enumeration of 
certain specified causes of removal excludes the possibility of removal for other causes,” 
Bowsher v. Synar, 478 U.S. 714, 729 (1986) (citing Shurtleff v. United States, 189 U.S. 311, 

(continued...) 

-31­



law negates the element of willfulness, but even in the criminal law, the general rule is to the 

contrary.  See, e.g., United States v. Ehrlichman, 546 F.2d 910, 918-19 (D.C. Cir. 1976) (even 

though offense contains specific intent requirement, “[a] mistake as to the legality of the 

prohibited activity . . . is no defense” because “the mental state required for most ‘specific intent’ 

offenses does not involve knowledge of illegality”), cert. denied, 429 U.S. 1120 (1977); Staples 

v. United States, 511 U.S. 600, 622 n.3 (1994) (Ginsburg, J., concurring) (“The mens rea 

presumption requires knowledge only of the facts that make the defendant's conduct illegal, lest it 

conflict with the related presumption, deeply rooted in the American legal system, that, 

ordinarily, ignorance of the law or a mistake of law is no defense to criminal prosecution.” 

(internal quotation marks omitted)).  Similarly, in construing the term “willfully” as used in 

statutes regulating the conduct of primary actors under the securities laws, the D.C. Circuit has 

long rejected a requirement of knowledge of illegality.  See, e.g., Wonsover v. SEC, 205 F.3d 

408, 414 (D.C. Cir. 2000) (“‘It is only in very few criminal cases that “willful” means done with 

a bad purpose.  Generally, it means no more than that the person charged with the duty knows 

what he is doing.  It does not mean that, in addition, he must suppose that he is breaking the 

law.’” (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949))).  It is implausible to read 

the statute as constraining the SEC, in implementing a civil statute involving removal from a 

public office under its supervision, to interpret the term “willfully” as not only departing from its 

23(...continued) 
315-16 (1903)); but see Humphrey’s Executor v. United States, 295 U.S. 602, 621-22 (1935) 
(distinguishing Shurtleff as applicable only to offices without fixed terms).  In any event, these 
are issues that should appropriately be considered in the first instance by the SEC, which is 
responsible for exercising the removal power in the Sarbanes-Oxley Act. 

-32­



normal construction in the securities laws, but as setting a materially higher bar than is generally 

required for criminal prosecutions involving potential loss of liberty. 

Even assuming arguendo that the SEC would be constrained to interpret the statute as 

plaintiffs do, plaintiffs’ hypothetical is still overstated.  A refusal to accept the statutorily 

prescribed supervision or comply with a lawful order of the SEC could reasonably be considered 

a willful abuse of authority.  Since, by their very nature, regulatory acts such as issuing rules, 

commencing investigations, and imposing disciplinary are highly deliberative and considered 

acts, particularly when undertaken by a collective body, it is difficult to see how an abuse of 

authority in doing any of those things might be considered “negligent,” a concept more suited to 

tort or criminal law.  Moreover, even if a single, isolated abuse of authority might have been 

“negligent” in its very first occurrence, as a practical matter that description would likely be 

short-lived; upon the PCAOB member being apprised of the SEC’s view of his actions, any 

continuation of such conduct would be in defiance of the SEC and indisputably willful. 

Construed with due regard for the canon of constitutional avoidance, the statute is thus easily 

read to permit removal of an “honest but overzealous regulator” who acts ultra vires by 

repeatedly opening investigations based on an overreaching interpretation of the law or otherwise 

fails to accept the SEC’s supervision.  This is a facial challenge, where in order to prevail, 

plaintiffs have the burden of showing  “that no set of circumstances exists under which the Act 

would be valid.”  United States v. Salerno, 481 U.S. 739, 745 (1987).  Plaintiffs cannot sustain 

this burden because they cannot show that there is no possible way the SEC could construe and 

apply its removal authority in a constitutionally sufficient manner. 

-33­




In sum, plaintiffs’ separation-of-powers challenge fails because the statute gives the SEC 

considerable oversight powers and thus places numerous, meaningful checks on the PCAOB’s 

exercise of its functions, because the PCAOB members are Inferior Officers who may be 

removed by the same appointing authority that appointed them, and because the removal 

provision itself need not be read with the restrictive gloss that plaintiffs ascribe to it.  

III.	 TITLE I OF THE SARBANES-OXLEY ACT DOES NOT IMPROPERLY 
DELEGATE LEGISLATIVE POWER 

The final issue in this case, raised only in passing by plaintiffs (Pls’ Mem. at 43-45) but 

developed more fully by amicus Washington Legal Foundation, is whether the Sarbanes-Oxley 

Act unconstitutionally delegates legislative power to the PCAOB.  For the reasons described 

below, summary judgment should be granted in favor of the United States on this claim as well. 

The non-delegation doctrine mandates that when Congress confers discretionary authority 

on administrative agencies, it must “lay down by legislative act an intelligible principle to which 

the person or body authorized to [act] is directed to conform.”  J.W. Hampton, Jr. & Co. v. 

United States, 276 U.S. 394, 409 (1928).  As the D.C. Circuit has noted, “[t]he ‘intelligible 

principle’ test has not been a tough one.”  Nat’l Fed’n of Fed. Employees v. United States, 905 

F.2d 400, 404 (D.C. Cir. 1990).  In fact, as the cases have often emphasized, the Supreme Court 

has “found the requisite ‘intelligible principle’ lacking” on only two occasions, both over seven 

decades ago.  Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 474 (2001) (citing Panama 

Refining Co. v. Ryan, 293 U.S. 388 (1935), and A.L.A. Schechter Poultry Corp. v. United States, 

295 U.S. 495 (1935)).  The Court has “‘almost never felt qualified to second-guess Congress 

regarding the permissible degree of policy judgment that can be left to those executing or 

-34­applying the law.’”  Id. at 474-75 (quoting Mistretta v. United States, 488 U.S. 361, 416 (1989) 

(Scalia, J., dissenting)). 

For example, the Supreme Court has upheld against delegation challenges statutes that 

granted the FCC and ICC the authority to promulgate regulations in accordance with their views 

of the “public interest.”  National Broad. Co. v. United States, 319 U.S. 190 (1943) (FCC); New 

York Central Securities Corp. v. United States, 287 U.S. 12 (1932) (ICC).  Likewise, a statute 

was upheld that granted an agency the authority to fix commodity prices that “in [the 

Administrator’s] judgment will be generally fair and equitable and will effectuate the purposes of 

this Act” to stabilize prices and avert speculation.  Yakus v. United States, 321 U.S. 414, 420, 

424-27 (1944).  See also Lichter v. United States, 334 U.S. 742 (1948) (upholding grant of 

authority to recoup “excess profits” without specification of how much profit was too much); 

American Power & Light Co. v. SEC 329 U.S. 90 (1946) (upholding grant of authority to SEC to 

modify holding company structures to ensure they are not “unduly or unnecessarily 

complicate[d]” and do not “unfairly or inequitably distribute voting power among security 

holders”); FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) (upholding grant of authority to 

FPC to determine “just and reasonable” rates); Whitman, 531 U.S. at 472-75 (upholding grant of 

authority to EPA to set air quality standards that “allowing an adequate margin of safety, are 

requisite to protect the public health”). 

The PCAOB performs a number of different functions, which are governed by a variety 

of intelligible principles set out in different parts of the statute.  While we do not undertake to 

catalogue every one of them exhaustively here, a substantial majority of the provisions of the Act 

delegating authority to the PCAOB are bounded by the phrase “necessary or appropriate in the 

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public interest or for the protection of investors” or similar language.  See, e.g., 15 U.S.C. 

§ 7213(a)(1), (b).24   This standard was not composed out of whole cloth for the PCAOB, but 

rather is a mainstay of the securities laws, appearing dozens of times in the Securities Act of 

1933 and Securities Exchange Act of 1934 to govern numerous grants of authority to the SEC 

itself.25   It is comparable to, if not more specific than, the various standards (e.g., “public 

interest,” “fair and equitable,” “just and reasonable,” etc.) upheld in the cases cited above.  

Thus, Title I of the Sarbanes-Oxley Act poses no delegation problem because it outlines 

the policies which prompted establishment of the PCAOB, explains what the PCAOB should do 

and how it should do it, and sets out specific directives to govern particular situations the 

PCAOB may encounter in its work.  See Mistretta v. United States, 488 U.S. 361, 379 (1987) 

(upholding statute delegating authority to the Sentencing Commission to promulgate sentencing 

guidelines because “[t]he statute outlines the policies which prompted establishment of the 

Commission, explains what the Commission should do and how it should do it, and sets out 

24 See also 15 U.S.C. § 7211(a) (PCAOB’s overarching purpose is “to protect the interests 
of investors and further the public interest in the preparation of informative, accurate, and 
independent audit reports”), (b)(5) (PCAOB authorized to perform “other duties or functions . . . 
in order to protect investors, or to further the public interest”); 15 U.S.C. § 7212(b)(2)(H) 
(PCAOB may add to required contents of registration application “as necessary or appropriate in 
the public interest or for the protection of investors”); 15 U.S.C. § 7214(b)(2) (authorizing 
PCAOB to vary, by rule, frequency of inspections if “consistent with the purposes of this Act, the 
public interest, and the protection of investors”); 15 U.S.C. § 7216(a)(2) (authorizing PCAOB, 
by rule, to regulate certain foreign public accounting firms to whom the Act would otherwise not 
apply, if “necessary or appropriate, in light of the purposes of this Act and in the public interest 
or for the protection of investors”), (c) (authorizing PCAOB to exempt any foreign public 
accounting firm or class of firms from the Act if “necessary or appropriate in the public interest 
or for the protection of investors”).

25   See, e.g., 15 U.S.C. § 77b(10); 15 U.S.C. § 77c(b); 15 U.S.C. § 77g(a); 15 U.S.C. 
§ 77j; 15 U.S.C. § 77zz-3; 15 U.S.C. § 78f(a); 15 U.S.C. § 78g; 15 U.S.C. § 77i(a)(6), (b), (c); 15 
U.S.C. § 78j(a)(1), (b); 15 U.S.C. § 78n(a); 15 U.S.C. § 78s(a)(3), (b)(3)(B); 15 U.S.C. § 78u­
1(c). 

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specific directives to govern particular situations”) (internal quotation marks omitted). 

While plaintiffs have generally eschewed challenging any particular act of the PCAOB, 

see, e.g., Plaintiffs’ Memorandum of Points & Authorities in Opposition to Defendants’ Motion 

to Dismiss (dkt. no. 20) at 8, for purposes of their non-delegation claim they focus on what they 

characterize as the PCAOB’s “authority to promulgate and impose criminal sanctions and impose 

taxes on broad swaths of the American public.”  Pls’ Mem. at 45; see also Amicus Curiae Mem. 

of the Washington Legal Found. (dkt. no. 33) at 6-11 (“WLF Amicus Mem.”).  Such rhetorical 

flourishes bear little relation to what the statute actually provides.  By “taxes on broad swaths of 

the American public,” plaintiffs are presumably referring to the accounting support fee on issuers 

of publicly traded securities provided for by 15 U.S.C. § 7219(d).  Assuming arguendo that 

Beckstead and Watts, which does not purport to be an issuer of publicly traded securities, would 

somehow have standing to challenge an accounting support fee payable by others, plaintiffs fail 

to recognize that the accounting support fee owes its existence to the statute itself.  The statute 

directs the PCAOB to set the amount of the fee or a formula for calculating such amount, in 

either case subject to the approval of the SEC.  15 U.S.C. § 7219(d)(1). In setting that amount or 

formula, the PCAOB is guided by the statutory commands that the fee be “reasonable” and 

“necessary or appropriate to establish and maintain the Board.” Id.  Further, the statute mandates 

that the rules for allocation, assessment, and collection of the accounting support fee be 

“equitable” and “in accordance with” a detailed market capitalization-based formula for the 

allocation of accounting support fees among issuers, spelled out in the statute itself.  15 U.S.C. 

§ 7219(d)(2), (g).  If plaintiffs and amicus do not see a sufficient “intelligible principle” in these 

provisions, they are not looking very hard. 

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Plaintiffs’ rhetoric about the PCAOB creating criminal law and “impos[ing] criminal 

sanctions” and Congress “delegat[ing] away its authority to create criminal law” (Pls’ Mem. at 

44, 45) is equally overblown.  The PCAOB does not have any power even to refer a matter to the 

Attorney General for possible criminal enforcement except at the direction of the SEC, see 15 

U.S.C. 7215(b)(4)(B)(iii), let alone power to bring a criminal case or to develop substantive 

criminal law. Even to the extent the Court were to entertain in this facial civil challenge the 

hypothesis of a violation of a rule promulgated by the PCAOB being, through operation of 15 

U.S.C. § 7202(b)(1) combined with 15 U.S.C. § 78ff(b), criminally prosecuted,26 it is well-

established that there would be no non-delegation problem associated with that situation.  See 

United States v. Grace, 778 F.2d 818, 822 (D.C. Cir. 1985) (per curiam) (“categorically 

rejec[ting]” argument that criminal punishment for violations of National Park Service 

regulations constituted an “unlawful delegation of powers,” because “[i]t is not the Park Service 

but the Congress that has criminalized violations of the Park Service regulations”); see also 

United States v. Grimaud, 220 U.S. 506, 521 (1911) (“[T]he authority to make administrative 

rules is not a delegation of legislative power, nor are such rules raised from an administrative to a 

legislative character because the violation thereof is punished as a public offense.”).  The 

PCAOB is not transformed into a maker of criminal law merely because Congress incorporates 

its rules into a general enforcement framework that includes criminal provisions. 

26 Of course, based on largely the same set of considerations urged in our Statement of 
Interest, there are serious questions whether plaintiffs have standing to make such a speculative 
and attenuated claim, and whether judicial consideration of such a claim would not be more 
appropriately reserved for a criminal case where it might be presented in a concrete fashion. 

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For the above reasons, the Court should reject plaintiffs’ non-delegation challenge.27 

CONCLUSION 

For the foregoing reasons, the United States respectfully submits that, if defendants’ 

motion to dismiss is denied, plaintiffs’ motion for summary judgment should be denied and 

proposed intervenor United States’ motion for summary judgment should be granted. 

27 While plaintiffs should not be permitted to switch horses midstream by treating the 
PCAOB as a private entity when their other arguments necessarily characterize it as 
governmental for constitutional purposes, see Pls’ Mem. at 14 n.3; WLF Amicus Mem. at 12-14, 
the outcome of the non-delegation analysis would not be different if the PCAOB were treated as 
private. Plaintiffs cite old cases disapproving private delegations in certain circumstances, but 
ignore a countervailing body of precedent approving such delegations provided that the private 
body is substantially subject to the oversight and supervision of a government agency and the 
“intelligible principle” standard is otherwise met.  See Sunshine Anthracite Coal Co. v. Adkins, 
310 U.S. 381, 399 (1940) (approving delegation to industry board because “[t]he members of the 
[industry board] function subordinately to the [governmental] Commission.  It, not the [industry 
board] authorities, determines the prices.  And it has authority and surveillance over the activities 
of these authorities.”); Cospito v. Heckler, 742 F.2d 72, 89 (3d Cir. 1984) (approving 
Medicare/Medicaid laws’ conferral of certain functions on private Joint Committee on 
Accreditation of Hospitals; “Since, in effect, all actions of JCAH are subject to full review by a 
public official who is responsible and responsive to the political process, we find that there has 
been no real delegation of authority to JCAH.”).  The courts have uniformly applied this 
principle to uphold the activities of SROs, such as the NASD and NYSE, which are supervised 
by the SEC.  R.H. Johnson & Co. v. SEC, 198 F.2d 690, 695 (2d Cir.), cert. denied, 344 U.S. 855 
(1952); Todd & Co., Inc. v. SEC, 557 F.2d 1008, 1012-13 (3d Cir. 1977); First Jersey Securities, 
Inc. v. Bergen, 605 F.2d 690, 697 (3d Cir. 1979), cert. denied, 444 U.S. 1074 (1980).  As 
discussed above and in the United States’ previous Statement of Interest, the SEC’s oversight 
and review authority over the PCAOB is patterned after and, if anything, is greater than the 
SEC’s oversight and review authority over these SROs.  Thus, even treating the PCAOB as a 
private entity, there simply is no delegation problem here.     

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Dated: September 1, 2006 

Of Counsel: 

BRIAN G. CARTWRIGHT 
General Counsel 

ANDREW N. VOLLMER 
Deputy General Counsel 

JACOB H. STILLMAN 
Solicitor 

JOHN W. AVERY 
Special Counsel 

Securities and Exchange Commission 
100 F Street, N.E. 
Washington, D.C. 20549 

Respectfully submitted, 

PETER D. KEISLER 
Assistant Attorney General 

KENNETH L. WAINSTEIN 
United States Attorney 

SUSAN K. RUDY 
Assistant Director 
Federal Programs Branch 

_/s/ Robert J. Katerberg________________ 
ROBERT J. KATERBERG
 (D.C. Bar No. 466325) 
Trial Attorney 
U.S. Department of Justice 
Civil Division, Federal Programs Branch 
20 Massachusetts Avenue, N.W., Room 6112 
Washington, D.C. 20001 
Telephone: (202) 616-8298 
Facsimile: (202) 616-8460 
[email protected] 

Attorneys for the United States 

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mailto:[email protected]