A. Pure Constitutional Issues
2. Separation-of-Powers Issues Relating to the Appointment
Anotherconstitutionalissuesurroundingthecurrentsystemofbankruptcy administrationinvolvesseparation-of-powersissuesrelatingtotheBAs. Specifi-cally,thispotentialconstitutionalflaw—whichhasgoneunnoticedbyscholars—
involvesquestionsabouttheappointmentandremovalprocessspecifiedforBAs.
ThelegislationcreatingtheBAPrograminNorthCarolinaandAlabama providesthatBAsmaybeappointed“underregulationsissuedbytheJudicial Conference”toactasbankruptcyadministrators.224 TheJudicialConference,in
220. Id.at2613(emphasisadded).
221. Id.at2615(emphasisadded)(quotingCrowellv.Benson,285U.S.22,46(1932)).
222. Id.
223. ThispossibilityisexploredininfraPartIII.B.2.
224. SeeBankruptcyJudges,UnitedStatesTrustees,andFamilyFarmerBankruptcyActof1986,Pub.L.
No.99-554,§302(d)(3)(I),100Stat.3088,3123(amended1990and2000).
turn,haspromulgatedregulationsthatallowthefederalcourtsofappealstoappoint BAstofive-yeartermsfordistrictswithinNorthCarolinaandAlabama.225
AlthoughCongressprovidedthatBAsaretobeappointedpursuanttoJudicial Conferenceregulationsratherthanexpresslycallingforthecourtstoappointthe BAs,226themethodspecifiedbytheJCUSforappointingBAs—appointmentby thecourtsofappeals—seemsconstitutionallypermissibleifBAsareinferiorrather thanprincipalofficers.227 Indeterminingwhichofficersareinferiorratherthan principal,theCourthaslookedtowhethertheofficerisempoweredtoperformonly certain,limitedduties,whethertheofficerislimitedinjurisdictionandtenure,and whethertheofficerissubjecttoremovalbyahigherofficial.228 Applyingthese fac-tors,BAs—assumingtheyareofficersratherthanmereemployees229—seemtobe inferiorratherthanprincipalofficersgiventhattheyareappointedtolimited five-yeartermsandthattheirjurisdictionisgeographicallyconstrained.230 Hence,the methodofappointmentseemspermissible.
Muchmoretroubling,however,isthemethodofremovalthattheJCUShas specifiedforBAs. TheproblemliesinthefactthattheJudicialConference regula-tionsprovidethatthecourtofappealscanremoveaBAbeforetheexpirationofhis five-yeartermonlyforcause,suchasincompetenceormisconduct.231 Inturn,the circuitcourtjudgeswhomayremoveBAsenjoylifetimeappointmentandmayonly beremovedviaimpeachment.232 Inotherwords,bothBAsandthecircuitcourt judgeswhomayremovethemenjoysignificantjobsecurityandinsulationfrom
225. See9JCUSREG.,supranote76,§§230.10,250.70.
226. SeeBankruptcyJudges,UnitedStatesTrustees,andFamilyFarmerBankruptcyAct§302(d)(3)(I), 100Stat.at3123.
227. SeeU.S.CONST.art.II,§2,cl.2(providingthatinferiorofficersmaybeappointedbythecourtsoflaw).
228. SeeMorrisonv.Olson,487U.S.654,671–72(1988)(holdingthattheindependentcounselwasan inferiorofficerbecause,interalia,theindependentcounselwasremovableforcausebytheAttorney Generalandenjoyedlimitedjurisdictionandtenure).
229. ThetestfordeterminingwhetheroneisanofficersubjecttotheAppointmentsClauseratherthan amereemployeeaskswhethertheappointeeexercises“significantauthoritypursuanttothelawsof theUnitedStates.” Buckleyv.Valeo,424U.S.1,126(1976);seealsoMyersv.UnitedStates,272 U.S.52(1926)(findingapostmasterfirstclasstobeaninferiorofficersubjecttotheAppointments Clause);ExparteHennen,38U.S.(13Pet.)225(1839)(findingtheclerkofadistrictcourttobe aninferiorofficerwithinthemeaningoftheAppointmentsClause). ApplyingBuckley’ssignificance test,BAsseemtoqualifyasofficersgiventhattheyexercisesignificantexecutivepowers. Seeinfratext accompanyingnotes238–239.
230. Cf.Stanleyv.Gonzales,476F.3d653,659–60(9thCir.2007)(concludingthataUST—ifanofficer atall—isclearlyaninferiorofficer,notaprincipalofficer,becausethe“positionwaslimited geograph-ically,temporally,andtopically”).
231. See9JCUSREG.,supranote76,§230.20(“Onlytheappointingcourtofappealsmayremovea bankruptcyadministratorfromofficebeforehisorhertermexpires. Incompetence,misconduct, neglectofduty,orphysicalormentaldisabilityaregroundsforremoval.”).
232. SeeU.S.CONST.art.III,§1.
presidentialcontrol. Thisdouble-layerofinsulationbetweenthePresidentand BAsseemshighlyproblematicinlightoftheCourt’sdecisioninFreeEnterprise Fundv.PublicCompanyAccountingOversightBoard(PCAOB).233
InFreeEnterprise,theCourtsplit5–4andheldunconstitutionalan arrange-mentpursuanttowhichmembersofthePCAOBwereremovableonlyforcauseby membersoftheSEC,whomtheCourtinturnassumedtoberemovablebythe Presidentonlyforcause. Instrikingdownthis“doublefor-cause”removal arrange-ment, the majorityopinion writtenby Chief Justice Robertsstressed that the PCAOB,whichhadthepowertopromulgateauditingandethicsstandardsandto initiate formal investigationsand disciplinaryproceedings, possessedexecutive power.234 AlthoughtheCourthadpreviouslyallowedonelayeroftenureprotection betweenthePresidentandanofficerpossessingexecutivepower,theCourtheld thattwolayersoftenureprotectionwereimpermissiblebecausesuchadoublelayer ofprotection“withdrawsfromthePresidentanydecisiononwhetherthatgood causeexists.”235 Inotherwords,thedecisionwhethertoremovethePCAOB mem-berswas“vestedinsteadinothertenuredofficers—the[SEC]Commissioners—
noneofwhomissubjecttothePresident’sdirectcontrol,”leadingtoaBoard“that isnotaccountabletothePresident,andaPresidentwhoisnotresponsibleforthe Board.”236 Inshort,theCourtdecreedthat“[b]ygrantingtheBoardexecutivepower withouttheExecutive’soversight,th[e]ActsubvertsthePresident’sabilitytoensure thatthelawsarefaithfullyexecuted—aswellasthepublic’sabilitytopassjudgment onhisefforts.”237
Thisreasoningrelatingtodoublefor-causeremovalprovisions—ifappliedto theremovalofBAs—wouldseemtoleadtotheconclusionthatthecurrentmethod ofremovingBAsisunconstitutional. BAsexercisesignificantexecutivepowers, includingenforcementofthebankruptcylawsandcontrolovercertainbankruptcy professionals.238 Forexample,inexercisingtheirenforcementpowersandactingas watchdogsinthebankruptcysystem,BAsmaymovefortheconversionordismissal ofaChapter7caseormoveforthedenialorrevocationofaChapter7dischargeif thedebtorhasnotcompliedwiththelaw.239 YetBAsareremovableonlyforcause bycircuitcourtjudges,whoenjoylifetimetenureandcanonlyberemovedvia im-peachment. UnderthereasoningofFreeEnterprise,thisisproblematicbecausethe
233. 130S.Ct.3138(2010).
234. Id.at3148,3159.
235. Id.at3153.
236. Id.
237. Id.at3155.
238. Seesupranotes93–97andaccompanyingtext.
239. Seesupranote86,91–92.
President—asaresultofthedoublelayeroftenureprotection—lackstheauthority toensurethatthebankruptcylawsarefaithfullyexecutedinjudicialdistrictssubject toBAoversight.
Onepossibledistinctionbetweenthedoublelayeroftenureprotection sur-roundingthePCAOBandthedoublelayersurroundingBAsisthatFreeEnterprise, accordingtotheCourt,presented“anevenmoreseriousthreattoexecutivecontrol thanan‘ordinary’dualfor-causestandard”giventhat“Congressenactedan unu-suallyhighstandardthatmustbemetbeforeBoardmembersmayberemoved.”240
UndertheAct,forexample,theSECwouldnotevenhavethepower“tofireBoard membersforviolationsofotherlawsthatdonotrelatetotheAct,thesecuritieslaws, ortheBoard’sauthority.”241 Nonetheless,theCourt’sopinioninFreeEnterprise usedverybroadlanguagethatmightwellbereadtoreachalldoublefor-cause situa-tions. Furthermore,eventhoughthecausestandardthatspeakstotheremovability ofBAsiseasiertomeetthanthecausestandardthatgovernedPCAOB’smembers, theremovalstandardsthatapplytothecircuitcourtjudgeswhoappointBAsaremuch morestringentthantheremovalstandardsinanordinaryfor-causescenario. This isbecausesuchjudges—unlikethemembersoftheSECatissueinFreeEnterprise—
cannotberemovedbythePresidentforcause,butrathercanberemovedfromoffice onlyviaimpeachment.