Baker Botts Defends SOX Board in Key Separation of Powers Case

Baker Botts fired the latest shot in the ongoing battle over whether a key cog in the Sarbanes-Oxley machine violates the U.S. Constitution by robbing the president of his appointment powers.
The cog in question is the Public Company Accounting Oversight Board, which monitors auditors to make sure their ratings of publicly traded companies are based on sound evidence instead of cronyism. A Nevada accounting firm, Beckstead & Watts, originally brought the case in federal district court; the court dismissed it. At that point, the Free Enterprise Fund, a group that lobbies for laissez-faire government and low taxes, hired a team led by Jones Day and former U.S. Solicitor General Kenneth Starr to pursue the case on appeal. That team lost in a contentious 2-1 decision at the U.S. Court of Appeals for the D.C. Circuit in August, but they asked that court to re! hear the case en banc in papers filed last month.

The board responded Wednesday, and, not surprisingly, it called on the same Baker Botts team that won the first appeals case.

The case is a dream for separation of powers wonks; the dissenting judge in the appeals case, Brett Kavanaugh, called it the "most important separation of powers case to reach the court in 20 years."

The Jones Day-Starr team argues that the board is unconstitutional because the SEC, not the president, has the power to appoint and dismiss members -- and in the latter case, only for cause instead of at will. They claimed such a structure takes away the president's power to remove anyone who disagrees with his policies.

In their response filed late Wednesday, the board's team, led by Baker Botts partner Jeffrey Lamken, argues that the president can influence the SOX board through his appointment power at the SEC. The commission, according to Lamken and J. Gordon Seymour, the board's general counsel, can change the board's governing rules and order it to stop investigations at any time. The SEC can even disband the board altogether. In court papers, Lamken and Seymour liken board members to lower-level bureaucrats who can typically be removed only be their direct bosses, not the president.

Now all the legal teams can do is wait to see if the court will rehear the case en banc. One of the circuit's ten judges can ask for a rehearing. If a majority approves, Starr and Jones Day partners Michael Carvin and Christian Vergonis get their second chance.