p. 48, New note 5.a. to follow CFTC v. Schor-- Abandoning the Schor framework for some non-Article III tribunals (bankruptcy courts) but not others (agencies)?
5.a. Abandoning the Schor framework for some non-Article III tribunals (bankruptcy courts) but not others (agencies)? As the preceding note demonstrates, many of the Court’s most important explorations of the constitutional limits on adjudication by non-Article III tribunals have involved challenges to the authority of bankruptcy judges, who lack the constitutional tenure and salary protections of Article III judges. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality) (holding that Congress could grant adjudicatory authority to non-Article III judges only for territorial courts, courts-martial, or for determining public rights); Granfinanciera S.A. v. Nordberg, 492 U.S. 33 (1989) (stating that if a statutory cause of action does not implicate a “public right,” then “Congress may not assign its adjudication to a specialized non-Article III court”).
In 2011, the Court decided another such case, Stern v. Marshall, 131 S. Ct. 2594 (2011). This case addressed whether a bankruptcy court could constitutionally determine a compulsory counterclaim for tortious interference. In a hard-edged opinion reminiscent of Northern Pipeline, the majority concluded that this exercise of jurisdiction violated Article III because: (1) the claim did not implicate public rights; and (2) the bankruptcy court was not acting as an “adjunct” to an Article III court. The four-justice dissent, authored by Justice Breyer, observed that this approach seemed to ignore the Schor framework—which treats the characterization of a right as “public” as one factor among others to consider in determining Article III violations. In apparent response, the majority expressly limited the implications of Stern for agency authority, observing that the bankruptcy and agency contexts are “markedly distinct” and that “we do not in this opinion express any view on how the [public rights] doctrine might apply in that different context.” The tension between the two approaches, however, remains.
Federalism: whose law is it anyway. Schor is really about the delegation of authority to decide state law. As Justice O’Connor observed “The counterclaim asserted in this litigation is a ‘private’ right for which state law provides the rule.” Note that Conti’s action in a federal [Article III] court was in diversity. That means that the law, due to the Erie doctrine, would have been state law. Note also that she compares the jurisdiction granted the CFTC to what is now called “supplemental” jurisdiction (former pendent and ancillary jurisdiction). Supplemental jurisdiction empowers federal courts to decide state law related to a federal case. Should Congress be allowed to delegate to a federal agency the power to decide state law? Does such a delegation violate the very fundamental constitutional guarantee of a federal form of government?
4.a. Making hard-to-remove principal officers into easy-to-remove inferior officers. In Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, the D.C. Circuit concluded that Copyright Royalty Judges (CRJs) are, as defined by statute, principal officers, and, as such, could not be constitutionally appointed by the Librarian of Congress. 684 F.3d 1332 (D.C. Cir. 2012). Rather than toss out the entire CRJ scheme as unconstitutional, the court instead transformed them into inferior officers by making them easier to remove. Id. at 1340 (relying on Free Enterprise Fund v, Public Company Accounting Oversight Bd., 130 S. Ct. 3138, 3161 (2010). [For further discussion of PCAOB, see below in this Supplement.]
Copyright Royalty Judges (“CRJs”) have authority to set “reasonable” copyright royalty rates where negotiations among the interested parties fail. 17 U.S.C. § 801(b)(1). As a practical matter, CRJs have considerable discretion in determining what is “reasonable.”
The Librarian of Congress, an officer appointed by the President with the advice and consent of the Senate, appoints the three CRJs to staggered six-year terms. The Librarian approves the CRJs procedural regulations, issues ethical rules governing CRJs, and provides CRJs with logistical support. IBS, 684 F.3d at 1338. The Register of the Library of Congress is appointed by the Librarian and subject to his direction. Id. The Register has authority to issue interpretations of law that bind the CRJs and to review their decisions for legal error. Subject to this caveat, CRJ decisions are not subject to correction by any other entity within the executive branch. Id. at 1340.
The D.C. Circuit observed that the law is unclear regarding the role that the “significance” of an officer’s authority plays in determining whether she is a principal or inferior officer. Id. at 1337. To the degree this “metric” matters, however, it supported the conclusion that CRJs are principals as their ratemaking determinations can control “billions of dollars and the fates of entire industries.” Id. at 1338 (citation omitted).
Having made this threshold observation, the court then applied three factors drawn from Edmond v. United States, 520 U.S. 651 (1997), bearing on the principal-inferior divide: (1) the degree of supervision and control exercised by higher executive authorities; (2) removability; and (3) power to render final decisions uncorrectable by other executive authorities.
The first factor suggested that CRJs are principal officers given that the real heart of their power lies in their control over discretionary, fact-bound royalty determinations. The Register’s authority over legal determinations does little to check this practical power.
By statute, the Librarian could remove a CRJ only for cause. Therefore, the second factor, removability, plainly favored principal officer status. (But the court noted that an officer can, under some circumstances, be “inferior” even if there is a good-cause restriction on removal in light of United States v. Morrison, 487 U.S. 654 (1988).)
As for the third factor, no executive authority could review the CRJs’ rate determinations to the degree they rested on facts. Again, the Register’s authority over issues of law did not fundamentally alter the CRJs’ effective power.
Based on these conclusions, the court concluded that vesting the power to appoint CRJs in the Librarian violated the Appointments Clause. The proper fix for this problem was not to hold the entire CRJ statutory scheme unconstitutional and therefore void. Instead, following the lead of the Supreme Court in PCAOB, the court severed the portion of the statute that imposed a good-cause limitation on removal of CRJs by the Librarian. IBS, 684 F.3d at 1340-41 (citing PCAOB, 130 S. Ct. at 3161). Subjecting CRJs to plenary removal authority would enhance the Librarian’s control over CRJs sufficiently to make them “inferior.” Id. at 1341.
p. 84, New note 5.a to follow Morrison v. Olson—A major clash over recess appointments
5.a. A major clash over recess appointments. What if the President needs to appoint an officer in a hurry, and the Senate is not available to handle confirmation? This sort of problem was likely to occur with frequency during the early years of the Republic, long before planes, trains, and automobiles. The Constitution addressed this problem with the Recess Appointments clause, which states, “[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commission which shall expire at the End of their next Session.” U.S. Const., Art. II, § 2, cl.3. In the modern era, this power has become particularly useful as a means of evading, at least in part, Senate filibusters of appointments, which have become far more common in recent years.
An interbranch conflict over this power recently came to a head in Noel Canning v. NLRB, 705 F.3d 490 (D.C. Cir. 2013), cert. granted 133 S. Ct. 2861 (2013). The petitioner challenged the authority of the National Labor Relations Board (“NLRB” or “Board”) to act on the ground that it lacked its required quorum of three members. The Senate had confirmed two members of the Board in 2010. President Obama had installed three other members via recess appointments on January 4, 2012. At that time, the Senate was holding pro forma sessions every three business days but was otherwise adjourned.
The D.C. Circuit held that the President’s recess appointments were invalid. The court stressed that the constitutional text refers not just to any old break in Senate proceedings but to “the Recess.” Id. at 500. On a closely related point, the structure of the clause creates a dichotomy indicating that the Senate is in “the Recess” only when it is not in “Session.” Id. Thus, the President may properly invoke the recess appointment power only during periods between sessions. The Senate was formally in session when the President attempted his January 4, 2012 appointments, which therefore failed.
Squashing the President’s power still further, the Canning court indicated that the Senate has complete control over the creation of intersession recesses. Ever since the First Congress, the Senate has signaled the end of a session by adjourning sine die (without day). Id. at 512. If the Senate simply declines ever to adjourn sine die, then it creates no intersession recesses—any given session will last right up until the time the next one starts. Id. at 513. With no intersession recesses, the President cannot make recess appointments.
Two members of the D.C. Circuit panel reached an alternative ground for throwing out the President’s three recess appointments. The Recess Appointments clause authorizes the President to fill “Vacancies that may happen during the Recess of the Senate.” The Board contended that this language refers to vacancies that “happen to exist” during a recess. A majority of the panel rejected this reading, holding that this language permits the President to fill a vacancy only if it arises during the particular intersession recess in which he makes the appointment. The majority conceded that this alternative holding conflicted with three earlier opinions from other circuits. These opinions had failed, however, to give due regard to the “original public meaning of the word ‘happen’” and were otherwise flawed. Id. at 509.
Since issuance of Canning, two circuit courts have followed in the D.C. Circuit’s wake, holding in 2-1 decisions over vigorous dissents that the recess appointment power is available only during intersession recesses. NLRB v. Enterprise Leasing Co. Southeast, LLC, 2013 WL 3722388 (4th Cir.); NLRB v. New Vista Nursing and Rehabilitation, 719 F.3d 203 (3rd Cir. 2013). We may expect further and more definitive word soon on this clash of powers as the Supreme Court has granted certiorari in the Canning case.
p. 84, following note 5 after Morrison v. Olson — revised note 5.a. - Supreme Court resolves clash over recess appointments
5.a. Supreme Court resolves a big separation-of-powers clash over recess appointments. What if the President needs to appoint an officer in a hurry, and the Senate is not available to handle confirmation? This sort of problem was likely to occur often during the early years of the Republic, long before planes, trains, and automobiles. The Constitution addressed it with the Recess Appointments Clause, which states, “[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.” Art. II, § 2, cl.3. In the modern era, this power became useful as a means of evading, at least in part, Senate filibusters of appointments. The Senate’s decision in 2013 to allow a simple majority to end debate on executive and judicial appointments (other than to the Supreme Court) significantly reduced this concern.
A major conflict over the recess-appointments power recently came to a head in Noel Canning v. NLRB, 134 S. Ct. 2550 (2014). The petitioner challenged the authority of the National Labor Relations Board (“Board”) to act on the ground that it lacked its required quorum of three members. The Senate had confirmed two members of the Board in 2010. President Obama had installed three other members via recess appointments on January 4, 2012. The Senate had recessed on December 17, 2011 but had agreed to hold pro forma sessions (during which no business was to be transacted) every Tuesday and Friday until January 20, 2012.
The D.C. Circuit held that the President’s recess appointments were invalid. The court stressed that the Constitution’s reference to “the Recess” does not refer to any and all breaks in Senate proceedings. 705 F.3d 490, 500 (D.C. Cir. 2013). The structure of the clause creates a dichotomy indicating that the Senate is in “the Recess” only when it is not in “Session.” Id. Thus, the President may properly invoke the recess-appointments power only during periods between sessions—i.e., intersession recesses. The Senate was not taking an intersession recess when the President attempted his January 4, 2012 appointments, which therefore failed.
Two members of the panel reached an alternative ground for throwing out the President’s three recess appointments. The Recess Appointments Clause authorizes the President to fill “Vacancies that may happen during the Recess of the Senate.” The Board contended that this language refers to vacancies that “happen to exist” during a recess, not just to those vacancies that originate while the Senate is in recess. A majority of the panel rejected this reading, holding that this language permits the President to fill a vacancy only if it arises during the particular intersession recess in which he makes the appointment.
The Supreme Court affirmed the result unanimously, but used two wildly conflicting opinions to do so—a five-justice majority opinion authored by Justice Breyer and a four-justice dissent authored by Justice Scalia.
Justice Breyer’s majority opinion rejected the D.C. Circuit’s conclusion that “the Recess” referred only to intersession recesses. As a linguistic matter, the majority observed that the article “the” sometimes refers to a particular thing but sometimes refers to a term generically. As an example of the latter, the majority noted that the Constitution tells the Senate to choose a President pro tempore in the Absence of the Vice-President.” Art. I, § 3, cl. 5 (emphasis added by the Court). This provision does not contemplate that a Vice-President may be absent from the Senate just once; likewise, “the Recess” may refer to more than one recess.
After finding linguistic ambiguity, the majority observed that the purpose of the Recess Appointments Clause, to ensure smooth operation of government, applies just as much to intra- as to inter-session recesses. It then surveyed historical practice, observing that modern presidents have made thousands of intra-session appointments and that the Senate has, by and large, acquiesced. Combining these points, the Court concluded that the President has power to make intra-session recess appointments during recesses of substantial length.
As for the required length, the Solicitor General had argued for a three-day limit, borrowing from the Adjournments Clause, which bars either house of Congress from adjourning for more than three days during a session without the consent of the other. Art. I, § 5, cl. 4. The Court agreed that three days did not interrupt the Senate’s business long enough to justify recess appointments. Turning again to historical practice, it observed that presidents had only very rarely invoked this power during a recess of less than ten days. Characterizing these instances as anomalies, the Court declared that historical practice justified a presumption that a President cannot make a recess appointment during a recess of less than ten days.
The majority opinion took a similar approach to the problem of determining whether the power to fill “Vacancies that may happen during the Recess of the Senate” applies to vacancies that “happen to exist” when a recess begins or is instead limited to vacancies that “happen to arise” during a recess. First the Court surveyed historical, linguistic usage to find ambiguity; after doing so, the Court explained that both the purpose of the Recess Appointments Clause and historical practice justified the broader, more president-friendly construction.
Given this much, one might think that the executive branch was on its way to a narrow victory in Noel Canning. It lost, however, because the majority concluded that the recess during which the President made his appointments was shorter than the presumptive ten-day limit. When the Senate recessed on December 17, it also agreed to hold “pro forma sessions” on Tuesdays and Fridays until January 20, 2012. The Supreme Court determined that, “for the purposes of the Recess Appointments Clause, the Senate is in business when it says it is, provided that, under its own rules, it retains the capacity to transact Senate business.” The Senate claimed that it was in session during the pro forma sessions, and it retained the capacity under its rules to conduct business during them, notwithstanding a stated intention not to do so. Therefore, the President had exercised his recess-appointments power not during a month-long recess, but during a three-day recess.
Justice Scalia, writing for the Court’s reliably conservative quartet, concluded that the Recess Appointments Clause was, in pertinent respects, unambiguous. It authorized presidential recess appointments only during inter-session recesses and only for vacancies that arose during these recesses. He chided the majority for adopting an “adverse possession theory of executive authority” based on Presidents’ relatively modern practice of claiming this power and the Senate’s failure to resist strongly enough. The dissent claimed that this approach was wrong both because historical practice could not overcome clear constitutional instructions and because the historical practice at issue in the case was itself mixed and ambiguous at best.
7. The Supreme Court’s most recent major pronouncement on appointment and removal: Applying Edmond and Morrison. In Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S. Ct. 3138 (2010), the Free Enterprise Fund (FEF) challenged the constitutionality of statutory provisions governing appointment and removal of members of the Public Company Accounting Oversight Board (PCAOB). Congress had created the PCAOB in the aftermath of the Enron and WorldCom scandals to “oversee the audit of public companies that are subject to the securities laws.” 15 U.S.C. § 7211(a). Chief Justice Roberts offered the following summary of the PCAOB’s structure and powers:
The Board is charged with enforcing the Sarbanes-Oxley Act, the securities laws, the Commission's rules, its own rules, and professional accounting standards. §§ 7215(b)(1), (c)(4). To this end, the Board may regulate every detail of an accounting firm's practice, including hiring and professional development, promotion, supervision of audit work, the acceptance of new business and the continuation of old, internal inspection procedures, professional ethics rules, and “such other requirements as the Board may prescribe.” § 7213(a)(2)(B).
The Board promulgates auditing and ethics standards, performs routine inspections of all accounting firms, demands documents and testimony, and initiates formal investigations and disciplinary proceedings. §§ 7213-7215 (2006 ed. and Supp. II). The willful violation of any Board rule is treated as a willful violation of the Securities Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. § 78a et seq.-a federal crime punishable by up to 20 years' imprisonment or $25 million in fines ($5 million for a natural person). §§ 78ff(a), 7202(b)(1) (2006 ed.). And the Board itself can issue severe sanctions in its disciplinary proceedings, up to and including the permanent revocation of a firm's registration, a permanent ban on a person's associating with any registered firm, and money penalties of $15 million ($750,000 for a natural person). § 7215(c)(4). …
The Act places the Board under the SEC's oversight, particularly with respect to the issuance of rules or the imposition of sanctions (both of which are subject to Commission approval and alteration). §§ 7217(b)-(c). But the individual members of the Board … are substantially insulated from the Commission's control. The Commission cannot remove Board members at will, but only “for good cause shown,” “in accordance with” certain procedures. § 7211(e)(6).
Id. at 3147-48.
Appointment issues: FEF contended that assigning power to the SEC to appoint PCAOB members violated the Constitution because: (a) PCAOB members were not “inferior” officers and therefore needed to be appointed by the President; (b) even if PCAOB members were inferior, the SEC could not appoint them because it is not a “department” within the meaning of the Appointments Clause; and (c) the Commission as a group could not appoint members of the PCAOB because, even if the SEC is a “department,” its true head is its Chairman—not the collective of the Commissioners. Id. at 3162-64. The justices made speedy work of rejecting these arguments. Following Edmond (discussed in note 4, supra), they held that PCAOB members are “inferior” insofar as they are subject to the control of the SEC—the Board’s superior, as it were. Following Justice Scalia’s concurrence in Freytag (discussed in note 5, supra), the Court held that the SEC is a “department” as it is “a freestanding component of the Executive Branch, not subordinate to or contained within any other such component.” Id. at 3162. Lastly, the Court quickly disposed of the argument that the Chairman is the head of the SEC, noting that its powers “are generally vested in the Commissioners jointly.” Id. at 3163.
Removal and the problem of double-for-cause restrictions (that aren’t really double at all?): Removal presented a far thornier problem, prompting a 5-4 split among the justices. The debate swirled around the premise that two layers of for-cause protection insulate Board members from presidential control—i.e., the President can remove SEC Commissioners only for cause, and the SEC Commissioners can remove PCAOB members only for cause. According to the majority, this double insulation weakened presidential control of PCAOB members too much:
A second level of tenure protection changes the nature of the President's review. Now the Commission cannot remove a Board member at will. The President therefore cannot hold the Commission fully accountable for the Board's conduct, to the same extent that he may hold the Commission accountable for everything else that it does. The Commissioners are not responsible for the Board's actions. They are only responsible for their own determination of whether the Act's rigorous good-cause standard is met. And even if the President disagrees with their determination, he is powerless to intervene-unless that determination is so unreasonable as to constitute “inefficiency, neglect of duty, or malfeasance in office.”…
This novel structure does not merely add to the Board's independence, but transforms it. Neither the President, nor anyone directly responsible to him, nor even an officer whose conduct he may review only for good cause, has full control over the Board. The President is stripped of the power our precedents have preserved, and his ability to execute the laws-by holding his subordinates accountable for their conduct-is impaired.
That arrangement is contrary to Article II's vesting of the executive power in the President. Without the ability to oversee the Board, or to attribute the Board's failings to those whom he can oversee, the President is no longer the judge of the Board's conduct. He is not the one who decides whether Board members are abusing their offices or neglecting their duties. He can neither ensure that the laws are faithfully executed, nor be held responsible for a Board member's breach of faith. This violates the basic principle that the President “cannot delegate ultimate responsibility or the active obligation to supervise that goes with it,” because Article II “makes a single President responsible for the actions of the Executive Branch.”
Id. at 3154. To remedy this problem, the Court invalidated the for-cause restriction on removal of PCAOB members by SEC commissioners—but, to FEF’s disappointment, otherwise left the PCAOB intact.
Stepping back, recall from Morrison that restrictions on removal that interfere too much with presidential authority to ensure execution of the laws violate separation of powers. We learn in Morrison that: (a) a for-cause restriction on removal of independent counsel by the Attorney General does not weaken presidential control too much; and (b) it is still good law that a for-cause restriction on presidential removal of officers like FTC Commissioners does not weaken presidential control too much, (see Morrison’s discussion of Humphrey’s Executor). By contrast, thanks to FEF, we now know that double for-cause insulation of officers from presidential removal can constitute too much interference.
The four-justice dissent, led by Justice Breyer, strongly disagreed on a number of levels. Most striking of all, he observed that SEC Commissioners are not in fact protected by any statutory restriction on their removal! Id. at 3182-84. This fact is not so surprising once one realizes that Congress created the SEC between issuance of Myers and Humphrey’s Executor—a time when congressional authority to restrict presidential removal authority was in doubt. The FEF majority evaded this problem by declaring that it proceeded under the “understanding” that SEC Commissioners—notwithstanding statutory silence on the subject—can be removed only for good cause because all the parties agreed with this position. Id. at 3148-49.
In addition, Justice Breyer contended: (a) in the absence of clearly controlling constitutional text, history, or precedent, the Court should have deferred to the shared judgments of the political branches on structuring of the PCAOB; (b) as a practical matter, the for-cause limitation on removal of PCAOB members was unlikely to matter much given that Sarbanes-Oxley “provides the Commission with full authority and virtually comprehensive control over all of the Board's functions,” Id. at 3172; and (c) the majority’s rule was sufficiently murky that it might “sweep[ ] hundreds, perhaps thousands of high level government officials within the scope of the Court's holding, putting their job security and their administrative actions and decisions constitutionally at risk.” Id. at 3179.
Justice Breyer’s dissent also contained broad reflections on the nature of agency independence and the many factors that bear on real levels of presidential control. Agency independence, he opined, is about much more than for-cause restrictions on removal:
In practical terms no “for cause” provision can, in isolation, define the full measure of executive power. This is because a legislative decision to place ultimate administrative authority in, say, the Secretary of Agriculture rather than the President, the way in which the statute defines the scope of the power the relevant administrator can exercise, the decision as to who controls the agency's budget requests and funding, the relationships between one agency or department and another, as well as more purely political factors (including Congress' ability to assert influence) are more likely to affect the President's power to get something done. That is why President Truman complained … “‘the powers of the President amount to’” bringing “ ‘people in and try[ing] to persuade them to do what they ought to do without persuasion.’ ” C. Rossiter, The American Presidency 154 (2d rev. ed.1960). And that is why scholars have written that the President “is neither dominant nor powerless” in his relationships with many Government entities, “whether denominated executive or independent.” Strauss, The Place of Agencies in Government: Separation of Powers and the Fourth Branch, 84 Colum. L.Rev. 573, 583 (1984) (hereinafter Strauss). Those entities “are all subject to presidential direction in significant aspects of their functioning, and [are each] able to resist presidential direction in others.” Ibid. (emphasis added).
Id. at 3170. Understood in the context of these underlying realities, Justice Breyer insisted that the for-cause restriction on removal of PCAOB members by SEC Commissioners was constitutionally unobjectionable.
For an edited version of Free Enterprise Fund, click here.