Oral argument generated considerable commentary. Some saw the case as dividing along traditional conservative and liberal lines, with Justice Kennedy playing the traditional role of swing vote. Moreover, the Washington Post went further and suggested an outcome: "The questioning indicated that Justice Anthony M. Kennedy might cast the deciding vote; he seemed skeptical of arguments that the SEC's control of the board was pervasive."
A review of the transcript, however, suggests that in fact the Court may not be so divided. Or, perhaps a better way to say it, is that the Court factions are not so unified. The conservatives on the Court had a hard time finding a theory that would allow, in a facial challenge, for a determination that the PCAOB was unconstitutional.
Petitioners primarily argued that the PCAOB had unreviewable discretion through its ability to initiate investigations. Justice Scalia seemed unconvinced that the SEC could not prevent improper investigations through its rulemaking authority. Although counsel for Petitioner denied that the SEC had the authority, the Solicitor General argued otherwise. As she noted: "But [the SEC] also has authority to set the ground rules by which the Accounting Board does anything and everything. It can say tomorrow -- it can promulgate a rule and say all inspections have to be approved by us, all investigations." In other words, the one area of concern about unreviewable discretion by the PCAOB was in dispute. Unless the Court is prepared to resolve the issue, it will likely have to accept the Solicitor General's characterization.
Justice Kennedy asked only a few questions, at least some of which suggested that he was not impressed with the concern over the PCAOB's investigatory authority. In the early moments of the argument, he essentially made clear that he considered the "harm" to accounting firms as a result of any investigatory discretion by the PCAOB as a "cost of compliance." The characterization seemed to suggest that he viewed Petitioners' argument about harm as nothing more than a routine business expense, hardly a basis for ruling a statute unconstitutional.
Justices Alito and Roberts worked hard to find places where the PCAOB had discretion that was effectively unreviewable. They suggested that the PCAOB was unique. They questioned counsel about the budget and about salaries paid to board membes. Jefferey Lamken provided strong responses, repeating over and over that even salaries and budget were subject to SEC oversight. In the end, neither Justice was able to get a clear example of an aspect of the PCAOB's function that wasn't under the control of the SEC.
In the end, the PCAOB will hold the votes of the four liberals. For the conservatives to find the PCAOB unconstitutional, they will have to conclude that the president exercised insufficient control over the PCAOB. That in turn will require a finding that the double layer of removal authority is per se unconstitutional and that the SEC lacked plenary control over the PCAOB. While there will be some support for the former, the latter, particularly given the high level of SEC control and the uncertainty of the SEC's rulemaking authority (which arguably could be used to remove even the authority to initiate certain investigations), will be difficult to conclude.
The transcript, briefs, and other primary materials can be found at the DU Corporate Governance web site.