Last month a divided federal appeals court ruled 2-to-1 that a regulatory board at the heart of Sarbanes-Oxley was constitutional even though the president does not appoint -- and cannot remove -- the board's members.
Well, the losing side in that ruling -- a group led by Jones Day and former U.S. solicitor general Kenneth Starr -- wants the U.S. Court of Appeals for the D.C. Circuit to hear the case again. In a petition filed Friday, they claim the board, dubbed the Public Company Accounting Oversight Board, is unconstitutional because it robs the president of his appointment powers and the ability to fire bureaucrats who disagree with his policy goals. They argue that Congress took away those powers by creating the board and its appointment system in SOX.
The board monitors auditors to make sure their ratings of public companies are on the up-and-up. It has broad authority, including the power to inspect auditors periodically, require corporate executives to certify financial statements and levy hefty fines.
The board recently fined Deloitte $1 million for mishandling a 2003 audit of Ligand Pharmaceuticals.
All of this has made it a natural enemy of the Free Enterprise Fund, a group that advocates for laissez-faire government and low taxes. The fund carried the case against the board to the D.C. Circuit after an accounting firm, Las Vegas-based Beckstead & Watts, lost at the district level.
Starr and a Jones Day team led by Michael Carvin and Christian Vergonis argued the board violated the Constitution since the Securities and Exchange Commission, not the president, holds the power to appoint and remove the board's five members -- and only "for cause."
The board, represented by general counsel J. Gordon Seymour and Jeffrey Lamken of Baker Botts, argued that several agencies are historically independent from the president, including the Federal Communications Commission and the Federal Trade Commission. They also argued that the president can influence the board through his power to remove and appoint members of its parent, the SEC. (Side note: The president can, in fact, remove top officials at the FTC and FCC, but only if good cause is shown; most presidential appointees are at-will employees who can be removed for any reason, including disagreement with the president's policies.)
Lamken and Seymour convinced two of the three judges. Judge Brett Kavanaugh -- a George W. Bush appointee -- dissented, calling the case the "most important separation of powers case to reach the courts in the last 20 years." He labeled the board "unaccountable and divorced from presidential control to a degree not previously countenanced in our constitutional structure."
The team drew heavily on Kavanaugh's dissent in their petition, which asks for both a rehearing and a rehearing en banc. They thought about appealing directly to the U.S. Supreme Court but believe the issue "is important enough that the circuit might want to rehear it," Vergonis says.
One of the circuit's 10 judges can call for a vote on the rehearing question, Vergonis says. If a majority vote to rehear, they can argue the case again.
Lamken declined comment on the case or whether the board would hire him to argue again should the court grant a rehearing. A board spokeswoman did not immediately return calls.
This article first appeared on the AmLaw Daily blog.