December 9, 2009

My SCOTUS Experience: The Full Monty

I attended the US Supreme Court’s oral arguments on Monday to hear the fate of the PCAOB argued in FEF and Beckstead & Watts v. PCAOB. It was my first time visiting the land’s highest court. For those that haven’t been, here are 10 take-aways:

1. Simply Wow; A Real Patriotic Experience – Having been to numerous Congressional hearings and other “official” DC meetings, nothing else compares. I could literally feel the history of the country in the room. And I was proud that we have such sharp minds on the bench, even though I don’t agree with all of the views expressed. A “must” for any lawyer, and really any US citizen.

2. How to Attend – I enjoyed the perks of my journalistic hat and obtained a press pass. But even though seating is limited, the main room holds 400-500 and many left after the PCAOB hearing – so it would have been easy to come in and hear the second case. Here is an explanation of how to get in. I saw a number of PCAOB and SEC Staffers in the audience – they got in the same way as the general public. I understand that the cafeteria is open to the public – and it smelled good!

3. Oyez, Oyez, Oyez – When the Justices come into the room – entering simultaneously from behind curtains like magic – they are not announced by their individual names. Instead, they are introduced as a group – followed by three chants of “Oyez’s” by the Court’s Marshall. “Oyez” is sort of an old English tradition. Here is a recording of what that sounds like. Silence by the audience is requested and observed, except for several occasions when something funny is said and there is laughter (ie. a live studio audience). At the conclusion, only one person forgot to observe the request to remain quiet and clapped.

4. Entry into the Supreme Court Bar – The first order of business is the swearing-in of new members of the exclusive Supreme Court Bar. Only those admitted to this bar are permitted to argue before SCOTUS. It’s a pretty small group that does – even though the admission process appears easy – you fill out a form with two sponsors, provide a certificate from your state bar and pay a fee. The problem is that the bar is so small that it’s hard to find two existing SCOTUS bar members to sponsor you. That’s one reason why nepotism happens frequently (although I imagine the practice of parents sponsoring their children is primarily ceremonial as the real SCOTUS bar is dominated by a much smaller subgroup as noted in this paper).

5. Questioning is Pointed – One of the reasons why a visit to hear oral arguments is interesting is that it’s action packed. The lawyers arguing their cases are frequently interrupted by the Justices. It’s not rude – it’s just that time is limited and this is the way it works. During the PCAOB arguments, each advocate didn’t get more than 60 seconds into their opening remarks before they got hit with their first question.

6. Fun Factoids – Very rarely during the 75-minute hearing (it went 15 minutes over) did the term “PCAOB” get mentioned – only 5 times. The PCAOB was often referred to as the “Accounting Board.” And “Sarbanes-Oxley” didn’t get mentioned at all. Don’t believe me? Check the transcript.

7. No Electronics – No electronics of any kind are allowed in the hearing room. Actually, very little of anything. I was allowed to bring in a pad and a pen since I was press. Four sketch artists were drawing to the left of me – probably commissioned by some of the lawyers presenting the arguments (my mom is an artist and has been commissioned to do so in the past).

8. Only One Woman on the Walls – As well known, the Supreme Court has been dominated by white men over its 200-year plus history. As a result, the portraits hanging on the walls reflect that history. With one exception (there could have been more, I didn’t do a comprehensive search), there is a portrait of “Mrs. Roger Taney.” Her own first name is inscribed in small letters underneath (ie. Anne). Poor woman is subjugated to her husband even in death.

9. Building Being Modernized – Although it was hard to tell, posted signs indicate that the Supreme Court building is being modernized for the first time since it was completed 75 years ago. It’s a tremendous building – beautiful through and through. Nice marble walls in the bathroom (Best public bathrooms in DC? The Mandarin Hotel by far).

10. Transcripts Available – Recently, the US Supreme Court began posting same day transcripts of oral arguments. Here is the transcript from the PCAOB case.

Bob Monks recently blogged about his experience of attending the SCOTUS’ Jones v. Harris oral arguments…

Chief Justice Roberts: Examines Intersection of PCAOB and Public Companies

As noted on page 38 of the transcript, Chief Justice Roberts asked several questions about the power of the PCAOB to compel a public company to respond to a PCAOB investigation. Solicitor General Lagan hedged her answer, but essentially said the PCAOB could go to the SEC to obtain a subpoena for this purpose. They were both off the mark a little bit here.

As I’ve been blogging for a long time (also see this blog – and this one which has model language you can put in your auditor engagement letter), the real issue is that a public company won’t even know when the PCAOB is reviewing its financials, work papers, etc. during an investigation because the PCAOB only directly interacts with auditors – not the auditor’s clients. That’s why it’s important for audit committees to insist a provision be inserted into their engagement letters with their auditors to be informed when the PCAOB is digging into their files.

Parsing the Oral Arguments: FEF and Beckstead & Watts v. PCAOB

A number of blogs have weighed in on the substance of the oral arguments made, including:

The Supremes and Sarbanes-Oxley…
Considerations of PCAOB
Sarbanes-Oxley and its devilish details
Donna Nagy on the PCAOB
Oral Argument in Free Enterprise Fund v. PCAOB

Compared to what is provided in those blogs, below is a more comprehensive summary regarding how the oral arguments played out – along with some analysis and conjecture – from a member that also attended the hearing:

Petitioners’ Argument

The Petitioners’, FEF and Beckstead & Watts, argued first. The good news for PCAOB was that the Petitioners’ lawyer, Michael Carvin, had a very tough time making all the points he wanted in the time allotted. (Each side gets 30 minutes.) Justices Breyer, Ginsberg, Scalia and Sotomayor peppered Carvin with so many questions- many of them quite tangential- that he struggled to get back on track. Carvin reserved some time for rebuttal and he closed well.

The argument and questioning focused on the Separation of Powers and Appointments’ Clause issues. The Separation of Powers argument centered whether the structure of the PCAOB allowed Congress to essentially strip the President of the power to effectively oversee an Executive Branch agency. Carvin’s Appointments Clause argument had two parts. First, he argued that the appointments violated the Appointments Clause because PCAOB members are “superior officers” that must be nominated by the President and confirmed by the Senate. Secondly, he argued that assuming they are “inferior officers,” they weren’t appointed by the “head” of a “department.”

The Appointments’ Clause arguments didn’t seem to gain much traction, but there was a good deal of discussion of separation of powers, particularly the President’s inability to directly remove PCAOB members at will.

Respondents’ Argument

US Solicitor General Elena Kagan argued the case for the United States, which previously intervened in the case. Jeff Lampkin argued the case for the PCAOB itself. Kagan and Lampkin had easier times getting through their arguments, but were asked pointed questions by Chief Justice Roberts and Justices Scalia, Alito and Kennedy. Kagan opened with a syllogism. She said: The President has sufficient authority over the SEC (per the case Humphrey’s Executor) and the SEC has sufficient authority over the PCAOB (per her reading of the Sarbanes-Oxley Act). Thus, the President has sufficient authority over the PCAOB. Justice Scalia immediately challenged this assertion and seemed to tip his hand that he thought the structure violated separation of powers doctrine. Chief Justice Roberts also hammered home the point that this would be an extension of Humphrey’s Executor and seemed unwilling to do that. Justices Alito made similar points. Kennedy also focused on the separation of powers issue, although his questions were more confusing. (He needs to be briefed up.)

Posture of the Justices

Judging from their questions/comments and from what I know of their judicial philosophies, I think the Justices Breyer, Ginsberg and Sotomayor are likely to back the PCAOB. I also think that Justice Stevens is also likely to rule in favor of the PCAOB, although he said virtually nothing during oral arguments. (He tried to get Carvin to concede that the PCAOB would be constitutional if the SEC could remove the PCAOB members for cause. Carvin did not concede that point.) I think Chief Justice Roberts and Justices Alito and Scalia will vote to deem the creation of the PCAOB unconstitutional because it violates the doctrine of separation of powers. Justice Kennedy had no questions for Carvin during his opening remarks, but had several for the Respondents’ counsels and for Carvin during his rebuttal. He seemed confused by the issues at times. Justice Thomas said nothing. Justices Kennedy and Thomas frequently seek to limit regulatory reach.


If I had to predict today, I think the PCAOB will lose 5-4. I think Chief Justice Roberts and Justices Alito, Kennedy, Scalia and Thomas will rule that the current structure of the PCAOB violates the separation of power doctrine. I think that Justices Breyer, Ginsberg, Sotomayor and Stevens will side with the PCAOB. Before hearing the arguments, I assumed that Roberts and Kennedy would be the deciding votes based solely on judicial temperament. I now think it all comes down to Kennedy.

Assuming the PCAOB loses, the case will be remanded for further proceedings consistent with the ruling. This means the parties will go back to the trial court for some procedural maneuvering. FEF may try to get an order shutting down the PCAOB immediately, but that is unlikely. Instead, the trial court judge will likely enter the judgment against the PCAOB but stay any order to dissolve it. This would allow Congress to act to try to cure the constitutional defect.

The Court is not expected to issue its opinion until May or June 2010. However, this timetable could make a fix (if necessary) more politically challenging, as it would be required as the congressional mid-term elections loom.

Poll: Which SCOTUS Justice Was Silent?

During these oral arguments, one Supreme Court Justice didn’t ask a single question. Take this anonymous poll to indicate who you think that was…

Online Surveys & Market Research

– Broc Romanek