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Why John McCain's Plan to Fire SEC Chairman Christopher Cox Might Well Be Deemed Unconstitutional, Absent Changes at the Supreme Court - and Why Issues Regarding the Independent Federal Agencies Are Once Again Current and Pressing


Thursday, Sept. 25, 2008

The current meltdown in the financial markets will surely be a boon to lawyers, if to few others: It will spawn a host of novel legal issues as prosecutors and courts sort through who should be held responsible for the greatest financial crisis in 80 years and how, within legal bounds, the world can be set right again.

But before we get to new issues like these, it's worth discussing an old issue that could perhaps be revived if Sen. John McCain is elected President. In his first response to the economic crisis, McCain said that if he were in charge, he would fire Christopher Cox, the former GOP Congressman who currently serves as Chairman of the Securities and Exchange Commission.

The problem with this plan is that -- as Senator Barack Obama, a former constitutional law professor, probably could have told Senator McCain -- the President does not have unfettered power to fire the Chair of the SEC. Under a line of cases dating back, not so coincidentally, to the Great Depression, the Supreme Court has consistently ruled that Congress can limit a President's power to remove the heads of so-called "independent" agencies - like the SEC, the Federal Communications Commission, and the Federal Trade Commission (to name just some).

These "independent" agencies are the ones that exercise quasi-judicial and quasi-legislative power, in addition to performing traditional executive branch functions. Although the President appoints the commissioners for these agencies, in setting up the independent commissions, Congress tried to provide the commissioners with some genuine independence from any particular President or Administration. It did so, in particular, by creating terms of office longer that the four years guaranteed to a President and by providing, either explicitly or implicitly, that the President can remove the commissioners from office only "for cause." And, thus, McCain would have no authority to get rid of Chris Cox out of pique or political expediency or even a disagreement over policy. But there is more to McCain's assault on Chris Cox than simply a "gotcha" mistake with respect to a point of administrative and constitutional law - as I will explain.

The Conservative Distrust of Independent Agencies Likely Lies Beneath McCain's Error

For decades, leading conservative legal theorists have attacked the independence of the independent agencies, arguing under what they call the theory of the "unitary executive" that the Constitution gives Congress no authority to limit the power of Presidents to remove the heads of these agencies. If McCain were to be elected President, it is well within the realm of possibility that, as the composition of the Supreme Court inevitably changes, he could marshal enough support on the Court to reverse 70 years of precedent and thus to gain unrestricted presidential power to fire the heads of the independent agencies.

Recognition of Congress's power to limit the authority of Presidents to fire the heads of independent agencies (despite having appointed them) stems from the 1935 Supreme Court decision in Humphrey's Executor v. United States. William Humphrey was a member of the Federal Trade Commission whom President Franklin Roosevelt fired for being insufficiently supportive of Roosevelt's New Deal policies. Because the federal Act setting up the FTC does not permit the President to remove a commissioner except for "inefficiency, neglect of duty or malfeasance in office," Humphrey resisted Roosevelt's directive, continued to show up for work, and sued.

A unanimous Supreme Court sided with Humphrey. It ruled that agencies like the FTC, which undertake quasi-judicial and quasi-legislative functions, are not an arm of the Executive Branch and perform tasks not properly characterized as executive in nature - and, thus, need not be fully subject to Executive Branch (i.e., presidential) control. In the Court's view, the constitutional doctrine of separation of powers clearly mandated this result. Congress had the authority to create hybrid agencies performing non-executive functions and, with this authority, came a commensurate power to shield such agencies from unfettered Executive Branch control.

In the decades since Humphrey's Executor, the Court has reaffirmed and even expanded its holding numerous times. In the 1958 case Wiener v. United States, for example, the Court, again unanimously, stymied President Dwight Eisenhower's attempt to remove a commissioner from the War Claims Commission, ruling that, even in the absence of an explicit congressional limitation (like that contained in the act setting up the FTC), Presidents still could not fire the heads of independent agencies absent good cause.

As Justice Felix Frankfurter wrote for the Court, a President's power of removal varies depending on the functions performed by the commission at issue. Members of the Claims Commission were not subject to removal by the President absent cause, because Congress established the Commission to perform the essentially judicial function of adjudicating claims - and commissioners performing such non-executive duties were not subject to outright Executive control, even absent explicit protection from Congress.

If McCain Is Elected and Appoints One or Two New Justices, Supreme Court Precedent Protecting Independent Agencies May Well Be Reversed

In the last 20 years or so, however, Humphrey's Executor and the principle of independence it enshrines have come under increasing assault. The critics argue that presidential appointees should be subject to unfettered presidential removal in order to maintain strong accountability for these officials, who, notwithstanding some of the quasi-legislative or quasi-administrative work they do, are really part of the apparatus of the Executive Branch.

Within the Supreme Court, Justice Antonin Scalia is an outspoken proponent of this view. According to Scalia, administrative agencies and the policymakers who run them belong to the Executive Branch and should be subject to presidential removal. Quite simply, in Scalia's view, Humphrey's Executor was a grave mistake - and Scalia has stated specifically that it should be overruled.

There can be little doubt that at least two other Justices share Scalia's view. Justices Clarence Thomas and Samuel Alito have both expressed sympathy for the "unitary executive" theory that would place the entire administrative state under presidential control. Chief Justice John Roberts may be in this camp as well.

Just doing the math, it is readily apparent that Humphrey's Executor might be in play if McCain wins the presidency. It is commonly thought (though by no means a sure thing) that there will be as many as three Supreme Court vacancies in the next four years - and that the retiring Justices will come from the liberal wing of the Court. (Most observers believe that the Justices who might depart are - from most likely to least likely -- John Paul Stevens, Ruth Bader Ginsburg, and David Souter.) If McCain chose to replace these liberals with devotees of the "unitary executive" theory, then the constitutional underpinnings of the modern administrative state might shift profoundly in favor of total executive control.

Why This Legal Clash is Also a Clash of Worldviews

Behind this fight over legal doctrine and precedents, are two very different worldviews as to how to make policy. At the risk of oversimplification, one worldview sees particular danger in an unchecked executive and wants to insulate the ever-more-powerful independent agencies from the purely-partisan control that would come from complete executive authority over them. In contrast, the other worldview relishes executive power and the consistency in policymaking that would come from allowing presidents to control removal from, as well as appointment to, all regulatory agencies, regardless of the type of work they do.

The financial crisis has skewed a lot of the usual faultlines of American politics: A conservative Republican administration, once the champion of deregulation, has now called for the nationalization of big chunks of the financial system, while some liberals call for oversight designed, in part, to preserve free-market forces. One consequence of this crisis will be a substantially increased role for at least one independent agency, the SEC. And with the consolidation ongoing in American business, other agencies will likely grow more powerful as well. It may be that, in light of new conditions, a new consensus will emerge about how, constitutionally, our regulatory apparatus should be structured and held accountable.

But, if not, this election would seem to present a clear choice on this issue, as on so many others: It's hard to imagine an Obama Administration pushing to overturn Humphrey's Executor and undermine the independence of numerous regulatory agencies. A McCain Administration, however, very well might.

Edward Lazarus, a FindLaw columnist, writes about, practices, and teaches law in Los Angeles. A former federal prosecutor, he is the author of two books -- most recently, Closed Chambers: The Rise, Fall, and Future of the Modern Supreme Court.

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