More on The Interesting Appointments Clause Issue:

Lawprof Donna Nagy writes:

I've been out of town for a few days, so I just saw your post on the PCAOB and the Appointments Clause. I discussed the appointments clause issue extensively in my article, Playing Peekaboo with Constitutional Law: The PCAOB and its Public/Private Status, 80 Notre Dame Law Review 973 (2005) (pages 1049-53). As I point out in the article, the PCAOB also triggers separation of powers questions that are related to the appointments clause issue: whether Congress can shield the PCAOB's enforcement function from presidential control by placing the responsibility for oversight -- including the power to remove the PCAOB's five members -- in a source other than the President. (see pages 1053-57).

A threshold issue to any constitutional challenge under the appointments clause or the doctrine of separation of powers is whether the PCAOB is an entity of the federal government notwithstanding Congress's pronouncement in the Sarbanes-Oxley Act that the PCAOB is a private nonprofit corporation. Based on the analysis in Lebron v. National Railroad Passenger Corp., I conclude that the PCAOB must be considered the "government itself" for purposes of constitutional law (pp. 1036-44)

Here's a link to an earlier draft of the article on SSRN.

I see that the Free Enterprise Fund filed a complaint yesterday challenging the constitutionality of the PCAOB.

Given the stakes, litigation over the PCAOB's constitutional status was inevitable.

Hans Bader (mail):
As Professor Nagy's well-written (and aptly-titled) law review article explains, the fact that the PCAOB, although claiming to be private, is in reality a government agency, means that it is subject to the Constitution, and as a result, a host of constraints that it has not acknowledged.

It is subject not only to the strictures of the Appointments Clause, but other constitutional constraints, like the First Amendment, due process clause, and Fifth Amendment, which restrict how it can run its disciplinary proceedings, and what rules it can impose on accountants.
2.8.2006 3:34pm
JLR (mail):
I am in the process of reading Professor Nagy's ND Law Review article (the actual published article in 80 ND L. Rev 975 [2005]), and it is definitely quite informative.

One of the many interesting points made by Professor Nagy:

Professor Nagy adumbrates how Lebron v. Nat'l RR Passenger Corp, 513 US 374 (1995) applies to the PCAOB, and also adumbrates not just specific constitutional constraints applying to the PCAOB qua government agency (e.g., the Appointments Clause), but also general constitutional constraints, which not only affect its rulemaking and disciplinary proceedings (as Mr. Bader noted above), but how the PCAOB may treat its employees as well.

To quote from the article: "as the 'government itself,' the PCAOB must afford its employees constitutional rights and liberties to which they would not be entitled were they working for a truly private employer" (page 1044). For example, Professor Nagy accurately notes that the Fourth Amendment's ban on unreasonable searches and seizures may prohibit mandatory drug testing for PCAOB employees (cf. Von Raab).

Therefore, if the PCAOB denies its employees constitutional protections afforded to government employees (by making drug testing mandatory, for example), the PCAOB's constitutionality could also be challenged by PCAOB employees themselves, claiming that under Lebron they are actually employees of the government, and not "private" employees.
2.8.2006 5:13pm
JLR (mail):
One more brief point I want to make about Professor Nagy's article:

For a detailed rationale as to why the "Head" of the SEC could be the SEC Chairman alone (who is, as Professor Nagy quotes from the SEC's website, "the SEC's top executive"), see pages 1051-1052, specifically footnote 424.

(Professor Nagy also points out on page 1051, and specifically in footnote 423, that the five Commissioners could also be considered a collective "Head." I personally find the argument that the SEC Chairman alone is the "Head" to be more persuasive.)

I heartily recommend Professor Nagy's ND Law Review article -- it's quite elucidating on both the empirical and the normative issues. The article really does explain why, to quote from the conclusion, Congress should "cease playing peekaboo with public/private regulators modeled after the PCAOB."
2.8.2006 7:11pm