Notice & Comment

IG Reform (Maybe) Hits a Free Enterprise Fund Wall, by Todd Phillips

Following President Trump’s removal of several inspectors general over the past several months, various members of Congress have introduced legislation to protect the independence of those offices. However well-intentioned these reforms are (I won’t opine on their merits), some may run afoul of the double for-cause removal issue in Free Enterprise Fund v. PCAOB.

Inspectors general, or IGs, are presidentially-appointed and Senate-confirmed individuals inside agencies to, in the words of the Inspector General Act of 1978, “conduct and supervise audits and investigations relating to the programs and operations” of agencies; “promote economy, efficiency, and effectiveness” and “prevent and detect fraud and abuse in” agency programs; and keep agency heads and Congress “fully and currently informed about problems and deficiencies relating to the administration of” such programs.

The bills introduced in Congress would make various changes to the Inspector General Act, all with the intention of providing more protection to inspectors general. Two bills would provide explicit for-cause removal protections for IGs. The Inspectors General Independence Act of 2020 would provide seven-year terms for inspectors general and provide them removal protection except “for permanent incapacity, inefficiency, neglect of duty, malfeasance, or conviction of a felony or conduct involving moral turpitude.” The Inspector General Independence Act does not provide IGs set terms but does provide removal protections except for the above causes and more, plus the reasons must be documented (for example, removal is allowed for “documented malfeasance”). In executive branch agencies, these bills offer inspectors general removal protection from the president, and in independent agencies, from those agency heads. A third bill, the Securing Inspector General Independence Act of 2020, continues to allow for at-will removal but requires the president or agency head to “communicate in writing the substantive rationale, including detailed and case-specific reasons,” for the IGs firing. It also creates a succession plan for when there is a vacancy in an inspector general position.

With regard to the removal protections for inspectors general within independent agencies in the first two bills, these protections may suffer from the same constitutional problem as did removal protections for the Public Company Accounting Oversight Board. At issue in Free Enterprise Fund were removal protections for members of the PCAOB. The Sarbanes-Oxley Act of 2002 created PCAOB, a five-member “nonprofit corporation” with members appointed by the Securities and Exchange Commission. The Act contained a provision restricting the SEC from removing board members except “for good cause shown.” It is also important to note that members of the SEC maintain similar for-cause removal protection from the President, so that PCAOB members maintained “dual” for-cause removal protection.

The Supreme Court struck down this dual protection. The Court determined that PCAOB members are inferior officers under the Constitution and double for-cause removal in such situations “subverts the President’s ability to ensure that the laws are faithfully executed.” As Chief Justice Roberts wrote, “[i]t not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists.” As I understand it, with one level of removal protection, the president could have a say whether cause exists to fire a PCAOB member. If PCAOB had for-cause protections but the SEC did not, the president could determine that good cause exists to remove a PCAOB member and could fire the SEC for not finding cause to remove the PCAOB member. If the protections were flipped and the SEC had for-cause protections but the PCAOB did not, the president could find cause to removethe SEC for not firing the PCAOB member. However, with two levels of protection, the president “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.” In sum, “[w]ithout 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.”

Regarding the two inspectors general bills that provide for-cause protections, they may run into Free Enterprise Fund issues. If an independent agency’s inspector general can only be removed by the agency’s head and only for cause, and that head can only be removed by the president for cause, this seems to violate the exact principle the Supreme Court articulated.

There is a wrinkle, though; IGs may not actually be inferior officers, and so Free Enterprise Fund may not apply at all. I was unable to find a single court case ruling on the issue of whether inspectors general are principal or inferior officers. The Supreme Court has explained that “inferior officers are officers whose work is directed and supervised at some level by other officers appointed by the President with the Senate’s consent.” Although inspectors general are a part of the agency in which they are employed—the Inspector General Act “established in each [agency] an office of Inspector General”— their work is not “directed and supervised” by the head of the agency. Further, although IGs are comparable in many ways to the special counsel who the Supreme Court held to be an inferior officer in Morrison v. Olson (the special counsel could be removed only by the Attorney General and only for cause, and she possessed independent discretion to exercise the limited powers of investigation and prosecution delegated to her), they differ in one significant way: Inspectors general must be confirmed by the Senate.

I truthfully have no idea how a court would rule on for-cause protections for independent agency inspectors general, but we may soon get a clue. Within the next few weeks the Supreme Court will decide the constitutionality of the for-cause removal protections for director of the Consumer Financial Protection Bureau in Seila Law v. CFPB. Although the case will likely turn on other issues, it is worth noting that the Dodd-Frank Act, which created the agency, placed the CFPB within the Federal Reserve System. The CFPB’s director is confirmed by the Senate and does not report to the head of the Federal Reserve, the Board of Governors. The CFPB wields many powers and authorities that inspectors general do not, of course, but it will be interesting nonetheless if the Court provides insight as to how courts would address for-cause protection for IGs.

Todd Phillips is a government lawyer in Washington, DC. This post expresses the author’s personal views alone.

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