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Case number 16-1368, Mark E. Lucetti, petitioner, versus Securities and Exchange Commission.

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Mr. Cox for the petitioner.

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Mr. Freeman for the respondent.

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Ms.

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Helvin for the respondent.

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Good morning, Mr. Cox.

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Good morning, Your Honor.

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And may it please the Court, I'd like to reserve five minutes for rebuttal.

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Government agents at the PCAOB, using federal power, took testimony from the petitioner while denying his lawyer the assistance of an expert to help defend the deposition.

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That questioning involved arcane issues of accounting and auditing, and that's not surprising because the board was created specifically to be a place where that expertise was brought to bear.

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Significantly, the government itself had expert help and even had two experts participate in the questioning, asking roughly 500 questions over four days of interrogation.

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The government then turned around and used the testimony as the basement for an enforcement action to deprive the petitioner of his profession.

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And all of this happened at a time when the government agency was unconstitutionally structured.

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The result was a government proceeding that was both unlawful and unfair.

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Did the unconstitutional taint affect the investigation in any way?

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How would it have?

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Well, Your Honor, it affected the investigation in many ways.

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I mean, that's the only part of the proceeding that was undertaken under the taint, right?

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Well, no, Your Honor.

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Once the Supreme Court decision came down, they shifted gears and got folks properly appointed and so forth.

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So it's the investigation that's suspect in your theory, is that right?

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Well, two things, Your Honor.

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For starters, the investigation clearly was suspect.

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It's not disputed.

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that the time that the investigation began, they made the decision to use their prosecutorial power in this way that was unconstitutionally structured under free enterprise.

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It's undisputed at the time that they took the next step and decided they were going to go forward, they were unconstitutionally structured.

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It's also the case, Your Honor, that they never went back and revisited those decisions, even after Free Enterprise Fund.

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I thought they reviewed things de novo, didn't they?

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They didn't use any magic words like we ratify, right?

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No, they certainly did not.

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And again, no one says that they did.

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We're not making a magic words argument, Your Honor.

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What we are saying, though, is in the cases where

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subsequent decisions by lawful government agencies are deemed to ratify, that the agencies have in fact gone back and grappled with the problem.

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And here, they didn't.

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So we think, Your Honor, that there was clearly unconstitutional action.

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There was de novo review.

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What did that entail?

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The de novo review just looked at the record.

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It didn't go back and say, would we have

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prosecuted this case.

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Would we have used our power and our resources in this way?

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And when you look, Your Honor, at Landry and SW General, those are cases that stand for the proposition that this type of structural error can't be ratified, and in particular, when what you are talking about is an underlying exercise of prosecutorial discretion.

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So, Your Honor, we think that there wasn't ratification here, inputs and otherwise.

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We also don't think that there could have been.

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How do you square Landry and Doolin, or do you?

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Well, Your Honor, I think that the answer to that is that Doolin is a case that, although intercollegiate suggests that, hey, maybe it's really about the Constitution, it really is a statutory error.

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It's not a structural error.

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And it's also not involving the exercise of prosecutorial discretion.

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When you look at the opinion in Doolin, the court says two things that are quite odd.

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It says, we have no doubt it would come out the same way.

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They go on to say, we're sure, we're sure the agency would do the same thing.

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Those are odd things for court to say.

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But specifically, in SW General, the court said, we can't know, we can't know what would happen when what you're talking about is prosecutorial discretion.

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And let me just add, Your Honor,

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on your point about ratification, we know what ratification looks like because the SEC just told us in the materials we put in through our 28-J letter.

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And those materials are significant because they show that robust ratification isn't de novo review.

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You have to go back and look, as they say, at all procedural decisions.

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And here, that includes all of the decisions taken at a time before Free Enterprise Fund.

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And, Your Honor, my point about counsel is, I think, relevant here as well.

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At the time, they made these decisions about not permitting counsel to have the assistance of an expert.

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They were an unconstitutional entity.

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They didn't understand that they were operating under the due process clause.

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And so they made these decisions without taking into account the due process clause.

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If we agreed with you on the counsel point,

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Do we get to anything else?

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No, Your Honor, I think that if you agree with us on the counsel point, that that is the end of the case and that on remand, the board can decide what they would want to do next.

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But I think that under the circumstances here, we clearly have shown, if need be, that there was injury from the counsel point and that the notion that a subsequent decision on the merits, which simply takes as a given the decision to prosecute and the documents that surround that decision, is inadequate to fix that particular problem.

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How is it a violation of due process at the investigatory stage to not have an expert?

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Your Honor, I'd make three points if I may.

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For starters, the rule that the PCOB adopted tracks word for word the right to be accompanied, represented, and advised by counsel, the APA language and the APA.

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this court, the district court in Whitman, construed that to say the right to counsel contains the right to have an expert.

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And Whitman is strikingly on point.

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It's a case about investigative testimony.

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It's about talking to accountants.

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And it says, when you're in that situation, that the lawyer has to have access to it.

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So there's that.

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Well, there's, I mean, one, it's not binding on us.

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To be short.

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But secondly,

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I mean, there's no question that the lawyer had access to an expert and that your client had access to an expert.

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He just didn't have an expert sitting in there with him as he's answering questions.

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That's right, Your Honor.

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Are you saying that the expert

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would be able to tap him on the shoulder mid-answer and whisper in his ear to help him answer specific questions as they were being propounded to him?

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I think the point, Your Honor, is the expert we will tap the lawyer on the shoulder and whisper in the lawyer's ear to help the lawyer understand what the questioning is about.

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And Your Honor, you talk also about investigative testimony, as I said.

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And that matters how?

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When the lawyer isn't answering the questions, the witnesses.

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The lawyer has obviously a very robust rule on any of these government interrogations.

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He can say that question's unclear.

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He can ask for clarification.

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He can say which of the... If the witness doesn't need clearing up and can answer the question,

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then what does it matter if the lawyer thinks the question's unfair?

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Well, Your Honor, when you look at the questioning, there are repeated instances where the witness is floundering and needs help.

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That's number one.

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Number two, with structure.

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So the witness could take a recess, and the lawyer could take a recess, and the expert could be right outside, and they could confer what the expert can, right?

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That's right, Your Honor, but the right to counsel is more robust than that.

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and that when you talk about investigative testimony, we made the argument that under Matthews, the question is what processes do.

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This court said in the American Railroad case that due process is about fairness.

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And it's not fair to make the lawyer sit there while this interrogation is going on basically in another language and say, well, your recourse is to stop after every question and go out into the hallway.

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You're asking for a right to tap the witness's toe under the table, right?

[00:09:11] Speaker 05:
No, Your Honor.

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I'm asking for the right to counsel as described in Whitman and as the point about it not being binding on this court.

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I was trying to be facetious with you.

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I think you're arguing that you want to be able to have the lawyer to be able to help the witness and the lawyer needs to have the expert to do so.

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That's right.

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I want the lawyer to be able to actually assist.

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I do want to touch on my third argument, Your Honors, which is the oath.

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The oath that we think is a very important issue here, and that although after free enterprise fund, the removal issue was addressed, that the board at the time that made the decision to issue here, it's still not taken the oath.

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That's relevant, both because it means that the board was still acting inconsistent with the Constitution, but it also illuminates the fact that the time they were making these decisions, they were not mindful that... So your constitutional argument is that an officer cannot enter into office without having taken an oath?

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Is that your argument?

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And that's certainly true for the president, but the Constitution doesn't say that for the other officers, does it?

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Well, Your Honor, it does say everyone will take an oath, and then the statute that was adopted in 1789 says you take that oath before you enter into service.

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And that's the way it's been interpreted.

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And these people not only didn't take it before they entered into service, they didn't take it for five or six or seven years after they'd said to the Supreme Court, yeah, we're government agents.

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I'll reserve the balance on my back.

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Thank you.

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Thank you.

[00:10:50] Speaker 03:
Good morning, Your Honor.

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I may please the court.

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Mark Freeman from the Department of Justice on behalf of the commission.

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Happy to start wherever it would be useful for the court.

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If I go first to the ratification question.

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What about on the counsel, the expert issue?

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What is the rationale for not allowing that?

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Your Honor, on that point, actually, counsel for the Securities and Exchange Commission is going to address that point.

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I'm sorry.

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I know that that's a faux pas normally, but we've asked the court's indulgence so that I could be here to address the separation of powers questions.

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If the court has questions on that front, we'd be glad to address them.

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Don't we look at this as a situation where the prosecutorial decision that was made was made by an unconstitutional agency and that prosecutorial decision as distinct from the subsequent adjudicative decision was never ratified?

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So I think this court's decision in Dulin answers that question.

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In Dulin, after all, that was the Office of Thrift Supervision, where there was an enforcement action.

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And the objection was made exactly along these lines, that the decision to commence the enforcement action had been made by an improperly appointed director of OTS.

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That went through an initial hearing all the way to objections to the director.

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At that point, a new director was properly appointed.

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And what this court said was, the decision to find by a preponderance of the evidence that a violation had occurred necessarily affirmed and ratified the decision to investigate initially whether such a decision had occurred.

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So I have two questions.

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One will be about Landry and the Southwest General.

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The other, though, is,

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That logic assumes that the prosecutorial and adjudicative functions of a combined agency are the same, when in fact those functions are distinct.

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Well, in Southwest General they were distinct, Your Honor.

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This Court made the point in Southwest General that the General Counsel of the NLRB is a statutorily independent body appointed by the President, confirmed by the Senate.

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And the court could not be confident in Southwest General as a result that because it was the general counsel of the NLRB who made the decision to commence a proceeding, that the board's determination at the end ratified that choice.

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Now, in this case, as Your Honor knows, the board is the one that voted to begin the investigation.

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the board then voted to institute the disciplinary proceeding, and at the end, the board voted to find a violation.

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All of the relevant powers here, unlike in Southwest General, were exercised by the board itself, and that was true in Doolin as well.

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Don't you think the board has a prosecutorial hat on in one

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point in that proceeding and an adjudicative hat on and the other?

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And do you think they're always wearing all the hats?

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Well, I think of the APA, Your Honor, they are always wearing the hats.

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As the court knows, the APA requires a division between prosecutorial and adjudicative functions for lower officers, but for the head of the agency specifically said that division does not apply.

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And in Withrow versus Larkin and other cases, the Supreme Court has recognized that.

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But more to your point, maybe it would be more satisfying to give a factual answer here.

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In this case,

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The board and the initial hearing officer were very well aware of the argument that the investigation by petitioner, that the investigation should never have commenced.

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Let's recall what happened here.

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On the morning that petitioner's hearing was scheduled to begin in front of the PCAOB,

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The parties heard that the Supreme Court had issued its decision in free enterprise fund.

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And so petitioners counsel said, hey, can we have a day to digest this?

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And the hearing officer said, sure.

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And the next day, they moved to dismiss on the ground that the proceeding had been improperly initiated, commenced at a time when under free enterprise fund, the board was improperly structured.

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The hearing officer rejected that contention.

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Then there was an appeal to the board and petitioner argued the investigation was improperly commenced.

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You didn't decide whether to commence this.

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And in five pages of its 100 plus page decision, and this begins at page 859 of the joint appendix,

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the board explained in detail why there was no problem and one of the points this board specifically says is with due consideration as properly appointed officers we conclude that this investigation was conducted fully and fairly but it doesn't say and this is their point as you understand yeah which would have been easy to say we

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ratify the decision to initiate the charges.

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Right, and in Doolin, this court specifically said that the decision to find a violation, and even though, as the court knows... But Doolin, do you think Landry is consistent with Doolin?

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I do, Your Honor.

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I do think Landry is consistent with Doolin.

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What Landry was explaining...

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And I know that the court understands principles.

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But what's your explanation?

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Because obviously, Judge Randolph took a different approach in Landry and thought.

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And he, of course, is the author of Doolin.

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Exactly.

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Well, let me make a few points.

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First, this court addressed and rejected the same contention that Landry was inconsistent with Doolin in similar cases in the intercollegiate broadcasting case.

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There's about a part C of the discussion that rejects that contention.

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So I think that's off the table for purposes of the panel.

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But to answer the question directly, I think what Landry addresses is the contention that the FDIC, I think, unwise made in that case, that this court could not reach the merits of the Appointments Clause challenge to the ALJ at the FDIC because the petitioner in that case could not show injury ex ante from the

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from the alleged appointments clause error.

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They said, well, since you can't show that a correctly appointed person would have done something else, then effectively you don't have standing.

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And what this court said was, no, that's not how the appointments clause works.

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We're going to presume that you have prejudice.

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It's a structural error in that sense.

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And so the equivalent here would be,

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Free Enterprise One had never been decided, and it was petitioner that was raising this argument, unappealed to this court.

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We would not be able to say to the court, well, you can't show that because of the removal restrictions on the members of the board, that the board would not have found that you violated professional accounting standards, and so you can't raise that argument.

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That is what Landry forecloses.

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What Doolin says is that when you have the same decision maker,

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who initiated a proceeding that says, you know, we think there's a reason to believe a violation may have occurred.

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And then that very same decision-maker, having been properly appointed and free of structural error, says a violation did in fact occur.

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You received all that you were entitled to.

[00:17:39] Speaker 02:
It does blur the two things, though.

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It's a different inquiry.

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The decision whether to initiate is different from the decision to sustain.

[00:17:47] Speaker 03:
Well, but again, Your Honor, I get your point as a matter of common sense.

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And also, I hope it's a matter of circuit precedent.

[00:17:55] Speaker 02:
Well, that too.

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But of course, you would assume they would add the next sentence or the missing sentence that the petitioners complained about, but it wasn't there.

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And the question, your point is circuit precedent doesn't

[00:18:09] Speaker 03:
Well, let me offer one other, I think, principal answer, independent of those.

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As the court knows, ratification, it's basic principle of common law ratification, that ratification can be implicit.

[00:18:20] Speaker 03:
That's in, and so... Oh, that's not...

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very persuasive in this context.

[00:18:25] Speaker 03:
Well, but if ratification can be, so the Supreme Court and FEC versus NRA Victory Fund said ratification is applied to the government, comes from common law principles.

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If ratification can be implicit, as it always has been a rule in the common law that ratification can be implicit, then there can't be a magic words requirement.

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And that's what Doolin rejected.

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Doolin said, although the director did not use the word ratification,

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It had the effect of ratifying.

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And if that's true, and if ratification can be implicit, then there's no reason why, although it might have been best practice for the board to use the word ratify here, there was no reason they were required to do so.

[00:18:59] Speaker 03:
Are you the oath guy, or is that the?

[00:19:01] Speaker 02:
Yes, I'm the oath guy.

[00:19:02] Speaker 02:
OK.

[00:19:04] Speaker 03:
What about the oath?

[00:19:05] Speaker 03:
So bracketing the point about whether it's properly preserved, because we don't think they preserved that.

[00:19:11] Speaker 02:
Assume for present questioning that it's preserved.

[00:19:13] Speaker 03:
Yes.

[00:19:15] Speaker 03:
We are not here contesting that the oath is a requirement on officers of the United States.

[00:19:20] Speaker 03:
It is a requirement in Article 6 of the Constitution, just as it is for officers of state government.

[00:19:24] Speaker 03:
Before they take any significant action?

[00:19:27] Speaker 03:
That is certainly the best practice.

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That is not, we think, what the Constitution requires as a minimum

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element.

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Now, petitioners write that from the beginning of the Republic, the statutes have generally required that persons take oaths.

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I took an oath.

[00:19:42] Speaker 03:
The statute requires that government officials take oaths.

[00:19:46] Speaker 03:
But that statute, 5 U.S.C.

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3331, which is the oath requirement for federal employees, does not, by its terms, apply to the board.

[00:19:55] Speaker 03:
That's not a justification.

[00:19:57] Speaker 03:
That's just, I think, an explanation for why we ended up where we are.

[00:20:00] Speaker 03:
The rule that applies to the board

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the government for statutory purposes.

[00:20:08] Speaker 03:
And it was a mistake.

[00:20:09] Speaker 03:
It was an oversight.

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They should have taken the oath, and we've been reliably informed that they have now taken the oath.

[00:20:15] Speaker 03:
The petitioner's argument, though, has to be to prevail on that ground, that the government should have taken the oath.

[00:20:20] Speaker 03:
When, through inadvertence from a state, an officer of the United States fails to take the oath required under Article 6, which, as Judge Griffith pointed out, has a different textual basis than the oath of the President, that every action taken by that officer is thereby invalid.

[00:20:35] Speaker 03:
decision of this court or the Supreme Court supports that premise.

[00:20:38] Speaker 02:
No case contradicts that premise either.

[00:20:41] Speaker 03:
Well, no case contradicts it, although we point out in a brief.

[00:20:43] Speaker 02:
I guess the theory would be the government hammers people all the time for, as your inadvertence and mistake.

[00:20:50] Speaker 03:
And when the government makes... And we could have fired the board members for this reason, I think, Your Honor.

[00:20:58] Speaker 03:
The United States government is entitled to insist that its officers take oaths.

[00:21:03] Speaker 03:
The Constitution requires that.

[00:21:05] Speaker 02:
And oaths are all over the constitutional text, as you're aware.

[00:21:09] Speaker 02:
I am, Your Honor.

[00:21:10] Speaker 02:
The framers were very insistent on the oath.

[00:21:12] Speaker 03:
Indeed, which is why we're not disputing that an oath is necessary.

[00:21:16] Speaker 03:
But again, to your point, Your Honor,

[00:21:17] Speaker 03:
Oaths are all over the constitutional text, and we assume the framers mean what they say.

[00:21:22] Speaker 03:
As to the president, they say he must take an oath before he takes up the office.

[00:21:27] Speaker 03:
The Article 6 requirement, which, let's remember, applies to both state and federal government officers, does not have that language.

[00:21:34] Speaker 04:
Hasn't the court told us to look to practice as well when judging?

[00:21:38] Speaker 04:
Yes.

[00:21:38] Speaker 04:
And the practice here, as you've acknowledged, has been you can't

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enter into the office without having taken the oath.

[00:21:45] Speaker 04:
And that's because by statute the court has... And the theory there is that you become a different person with different loyalties once the oath is taken.

[00:21:53] Speaker 04:
Why doesn't that argument, if it's preserved... If it's preserved.

[00:21:55] Speaker 04:
If it's preserved, why doesn't that bleed right into the appellant's argument that there's a taint associated with this?

[00:22:03] Speaker 04:
Everything involved in this, in the investigation, is tainted because it wasn't done by the rules of the Constitution.

[00:22:14] Speaker 03:
So, again, we agree that an oath should have been taken.

[00:22:16] Speaker 03:
It has now been taken.

[00:22:18] Speaker 03:
On the question whether... But that's important.

[00:22:23] Speaker 04:
It'd be one thing if the oath was taken and then the action was started again, the investigation was started again, because they're now different people, right, with this new obligation, and they undertake the investigation with that new obligation in mind.

[00:22:38] Speaker 04:
That wasn't done here.

[00:22:39] Speaker 04:
Again, why doesn't that reinforce Mr. Cox's argument that this whole process was

[00:22:45] Speaker 04:
tainted irreparably.

[00:22:47] Speaker 03:
So it does not taint the appointment because the taking an oath under article six is not

[00:22:55] Speaker 03:
an aspect of the appointment itself.

[00:22:58] Speaker 03:
As we know from Marbury v. Madison, the appointment was consummated when the commission voted.

[00:23:03] Speaker 03:
Absolutely.

[00:23:03] Speaker 03:
And you go on the payroll.

[00:23:05] Speaker 02:
Yes.

[00:23:06] Speaker 02:
But there's a difference between going on the payroll, you're appointed, and then taking action against others.

[00:23:11] Speaker 02:
And the oath has always been understood to be, you agree with this.

[00:23:16] Speaker 02:
I agree.

[00:23:16] Speaker 02:
And the question in this case, we think, is a remedial one.

[00:23:18] Speaker 03:
your honor.

[00:23:19] Speaker 02:
The issue is... Well, if I became a judge, appointed, had my commission, and issued a bunch of decisions in my first few months, but I'd forgotten to take the oath, would those be valid decisions because I later took the oath?

[00:23:36] Speaker 03:
I don't know the answer to that question, but I don't think it's obvious.

[00:23:39] Speaker 03:
That's pretty obvious.

[00:23:42] Speaker 04:
What then is the purpose of the oath?

[00:23:45] Speaker 04:
If it isn't to affect the decision immediately before the officer is a judge, then what purpose is it?

[00:23:52] Speaker 03:
The purpose of the oath is exactly as the court says.

[00:23:55] Speaker 03:
It is to put a person in a frame of mind.

[00:23:58] Speaker 03:
And again, I don't want to be misunderstood as disparaging the purposes of the oath.

[00:24:01] Speaker 04:
And if I hadn't taken that oath, if Judge Cavanaugh hadn't taken that oath in deciding the decision, under the Constitution, he would not be in the frame of mind that the framers intended.

[00:24:09] Speaker 04:
So you've got to do it again.

[00:24:10] Speaker 03:
And from the beginning of this republic,

[00:24:13] Speaker 03:
Congress has enacted statutes that impose various requirements to assuming the office.

[00:24:18] Speaker 03:
The Supreme Court's LeBron case.

[00:24:20] Speaker 03:
In the LeBron case, not LeBron, LeBaron, excuse me.

[00:24:24] Speaker 03:
In LeBaron, the court said, look, the appointment is valid when the appointment is made.

[00:24:28] Speaker 03:
Congress can thereafter impose additional requirements antecedent to assuming the powers of the office.

[00:24:34] Speaker 03:
And what those additional requirements were in LeBaron, it was a bond, the old practice of requiring federal officials to post a bond before assuming the powers of their office, and also the oath.

[00:24:46] Speaker 03:
And if the court looks back at cases from the 18th century, there are some that say, under the facts of the statute in that case, you had not posted a bond, you could not exercise the powers of your office.

[00:24:56] Speaker 03:
In others, they interpret the statute and say, well, here we don't think the bond was an antecedent.

[00:25:01] Speaker 02:
I think your argument is that an oath can be retroactive.

[00:25:06] Speaker 03:
I'm not making a retroactivity argument, Your Honor.

[00:25:09] Speaker 02:
Well, I think, because you're saying the fact that they took it now, they have now taken it, it's good enough.

[00:25:17] Speaker 03:
What we are saying is, we agree, at the time that the decision is

[00:25:22] Speaker 03:
case was entered.

[00:25:23] Speaker 03:
They had not taken an oath.

[00:25:24] Speaker 03:
We're not contending that the oath that they have now taken is retroactively valid in some sense.

[00:25:31] Speaker 03:
What we're trying to say is that as a remedial matter,

[00:25:36] Speaker 03:
The question is what happens when an officer is not bound by any statute that requires... I think everything's void.

[00:25:42] Speaker 03:
Isn't that what happens?

[00:25:44] Speaker 03:
Well, not necessarily, Your Honor.

[00:25:46] Speaker 03:
That question has never been decided, and furthermore... I understand that.

[00:25:51] Speaker 02:
If it's preserved, and we have to get to it, we have to decide it one way or the other.

[00:25:55] Speaker 02:
So to say it's never been decided just heightens the importance of the issue.

[00:25:59] Speaker 02:
It doesn't tell me which way to decide the issue.

[00:26:00] Speaker 03:
Well, and the authorities that exist on this question are cited in our brief.

[00:26:04] Speaker 03:
They are the Metcham Treatise from 1890, which says that the oath is not a criterion of the office.

[00:26:09] Speaker 03:
There are the Office of Legal Counsel Decisions, which rely on that Metcham Treatise.

[00:26:13] Speaker 03:
There's an 1855 SDNY decision about Customs House officers who said that although those are required to take the oath, that oath doesn't invalidate their ability to exercise the office.

[00:26:27] Speaker 03:
And then we have the very first statute

[00:26:29] Speaker 03:
enacted by the very first Congress, which was the regulating the taking of oaths.

[00:26:34] Speaker 03:
And that statute, as to state officers, said, you can wait up to 30 days.

[00:26:40] Speaker 03:
And so the certainly bespeaks an initial... Not six years.

[00:26:44] Speaker 03:
What was it here?

[00:26:46] Speaker 03:
It was quite a period, Your Honor, with multiple years.

[00:26:48] Speaker 03:
But again, petitioners' argument, recall, is that it is a constitutional requirement

[00:26:53] Speaker 03:
you cannot exercise any power of your office absent the oath.

[00:26:57] Speaker 03:
And that very first statute.

[00:26:58] Speaker 02:
The way you just stressed that makes it sound like it's extreme.

[00:27:02] Speaker 02:
I thought that was obvious that you can't do anything significant until you take the oath as an officer of the United States.

[00:27:09] Speaker 03:
It is absolutely best practice and the consistent practice under statute.

[00:27:13] Speaker 03:
But again, we have a different constitutional text for the president and for other officers.

[00:27:19] Speaker 03:
The Article 6 requirement

[00:27:21] Speaker 03:
does not have that antecedent.

[00:27:23] Speaker 02:
I don't want to belabor it, but the different constitutional

[00:27:32] Speaker 02:
is interesting in the abstract, but then we look at the Article VI oath, and you're not saying, oh, that just means you can take it at any time before you exit office, correct?

[00:27:42] Speaker 02:
Correct.

[00:27:42] Speaker 02:
So by necessary implication of reading it, it is suggested that you take the oath before you start doing things.

[00:27:51] Speaker 03:
But we know from the very first statute enacted by the very first Congress.

[00:27:54] Speaker 03:
30 days.

[00:27:54] Speaker 03:
But again, that refutes the contention that you could not have done anything.

[00:27:59] Speaker 03:
But there was a transition.

[00:28:00] Speaker 02:
Can I ask a question about commission?

[00:28:02] Speaker 02:
Of course.

[00:28:04] Speaker 02:
On the commission issue, which I find interesting, at least in the abstract, what is the current practice and rule on commissions for officers who are officers in the United States?

[00:28:20] Speaker 02:
but are inferior officers who may not have been appointed by the president directly.

[00:28:25] Speaker 03:
Right, so as the court knows, the practice for officers appointed by the president, either inferior or principal, is that the president consummates the appointment by signing a commission, generally, although I don't understand that that's the universal practice with respect to some officers in the military, as the Federal Circuit case cited in our brief indicates.

[00:28:41] Speaker 03:
As to officers appointed by the heads of departments,

[00:28:44] Speaker 03:
who are inferior officers.

[00:28:46] Speaker 03:
My understanding is that although many receive commissions directly, not all do, and that in fact the commission practice works in the manner that Chief Justice Marshall in Marbury v. Madison contemplated, which is that he says, look, that is a duty independent of the appointment.

[00:29:03] Speaker 03:
the performance of which, perhaps, may not legally be refused.

[00:29:08] Speaker 03:
So if an inferior officer says to the president, hey, I know I'm lawfully appointed.

[00:29:12] Speaker 03:
I was appointed by the vote of the Securities and Exchange Commission.

[00:29:14] Speaker 03:
But I'd like my commission, that that commission generally issues.

[00:29:19] Speaker 03:
But it is not the case that in every circumstance a commission automatically issues to every inferior officer appointed by the head of a department.

[00:29:27] Speaker 03:
And the court in Marbury v. Madison blessed that practice.

[00:29:29] Speaker 03:
In fact, the court said,

[00:29:32] Speaker 03:
And if I recall this around page 156 of the opinion, the court says, if the chief executive had said that every officer shall take upon himself to request the commission, the appointments would be no less valid as a result.

[00:29:46] Speaker 03:
So it's just a question of how the president performs the duty to commission officers of the United States.

[00:29:53] Speaker 03:
And nothing in this court's cases, or certainly not in Marbury v. Madison, suggests that

[00:29:59] Speaker 03:
a litigant can say, although you can't produce that piece of paper.

[00:30:02] Speaker 03:
I mean, here they didn't even say that until it was too late.

[00:30:04] Speaker 03:
But because you can't say you haven't produced that piece of paper, you cannot lawfully exercise the powers of your office.

[00:30:10] Speaker 04:
Speak to the preservation of this issue, please.

[00:30:13] Speaker 03:
Yes.

[00:30:13] Speaker 03:
So both of these issues were raised for the first time in briefing in front of the commission.

[00:30:19] Speaker 03:
If the court looks even to the notice of appeal, what functionally notice of appeal to the commission, that's at 887 of the record.

[00:30:27] Speaker 03:
All that petitioners said they were raising in the commission was the free enterprise fund point about the ratification and the right to counsel point.

[00:30:36] Speaker 03:
Neither the oath nor the commission argument was mentioned.

[00:30:39] Speaker 03:
He was raised for the first time in the commission.

[00:30:42] Speaker 03:
The commission's decision itself, which begins at page 266 of the record, says this is forfeited, but then goes on to address it on the merits in an abundance of caution.

[00:30:50] Speaker 03:
But I think, candidly, what happened here, and counsel will be in a better position to address this, is that argument didn't occur to them until Justice Alito published his concurring opinion in the Amtrak case in the Supreme Court, which happened after the appeal had already been taken to the commission.

[00:31:05] Speaker 03:
And the oath one in particular, I think, underscores the reasons why we insist on preservation.

[00:31:11] Speaker 03:
When this issue was presented, the board members took the oath.

[00:31:17] Speaker 03:
If the issue had been presented to the board, they could have taken the oath at that time and obviated any need for this court to address the question.

[00:31:23] Speaker 03:
That's the reason we insist on the presentation of issues to agencies.

[00:31:29] Speaker 03:
They say, in essence, that it's a structural issue.

[00:31:33] Speaker 03:
They do say that, Your Honor.

[00:31:34] Speaker 03:
But even structural issues, typically we require structural issues.

[00:31:40] Speaker 03:
The court has used the word structural in a couple of different senses.

[00:31:43] Speaker 03:
And in the sense in which this court addressed structural in Landry, that meant you're not required to show prejudice.

[00:31:49] Speaker 03:
And we're not suggesting that they're required to show prejudice from the oath.

[00:31:52] Speaker 03:
But we do think they have to preserve the error.

[00:31:54] Speaker 03:
And the reason for preservation is that, as the court well knows, the point of that doctrine is you give agencies an opportunity to correct their errors.

[00:32:01] Speaker 03:
This was an oversight.

[00:32:02] Speaker 03:
I don't know this for sure because it's not in the record.

[00:32:04] Speaker 03:
My speculation, personally, is that because the board is not an agency of the United States by statute, the oath statute doesn't apply.

[00:32:12] Speaker 03:
And my guess is some board lawyer went through the list of statutes that apply to them, didn't stumble upon the oath, and forgot.

[00:32:19] Speaker 03:
When it was fixed, it was fixed.

[00:32:21] Speaker 03:
And if the issue had been raised, it would have been fixed sooner.

[00:32:26] Speaker 04:
Thank you very much.

[00:32:27] Speaker 04:
Thank you.

[00:32:27] Speaker 04:
I hear from the lawyer for the SEC, please.

[00:32:34] Speaker 00:
Good morning.

[00:32:35] Speaker 00:
Lisa Helvin with the Securities and Exchange Commission.

[00:32:38] Speaker 00:
Can I start with your question, Judge Kavanaugh, about why the rule exists as it does?

[00:32:44] Speaker 00:
And I think I want to emphasize that in the adapting release for the rule, the board encouraged the staff to allow an expert when appropriate.

[00:32:54] Speaker 00:
And the board said that it expects the staff to be accommodating of requests for experts.

[00:32:59] Speaker 00:
The one exception that it called out was the one that happened here.

[00:33:03] Speaker 00:
where an accounting firm wants a senior partner to sit in on the testimony of all of its witnesses.

[00:33:09] Speaker 00:
And it said, in that particular circumstance, that expert is not the expert that we want to attend the testimony.

[00:33:16] Speaker 04:
And I think- Why?

[00:33:17] Speaker 04:
What's the reasoning for that?

[00:33:18] Speaker 04:
What's the rationale behind that?

[00:33:20] Speaker 00:
Well, as the board explained in the adopting release, it doesn't want one of its senior accounting partners to be effectively supervising or directing the testimony.

[00:33:30] Speaker 04:
But there were lawyers from Ernst and Young there.

[00:33:33] Speaker 00:
There were lawyers for Ernst and Young there.

[00:33:35] Speaker 04:
And I presume they were in the senior position of the firm?

[00:33:39] Speaker 00:
Yes, and the staff here, through the rule.

[00:33:42] Speaker 04:
So what's the difference?

[00:33:43] Speaker 04:
If the idea behind this distinction is that you don't want to let management know what's going on, that's not possible.

[00:33:55] Speaker 04:
You've got their lawyers there.

[00:33:56] Speaker 04:
The lawyer's going to be breaching an obligation if she doesn't inform management what's going on.

[00:34:03] Speaker 04:
So I don't understand the distinction.

[00:34:05] Speaker 00:
Of course, practically speaking that is true, but I think the reality is that the staff had the discretion and were encouraged through the adopting release to exclude that particular accountant.

[00:34:17] Speaker 00:
They didn't have the discretion to exclude counsel because the rules said that counsel... But I'm trying to get it.

[00:34:22] Speaker 04:
You're saying they had the discretion to exclude that expert and then the because, as I understand, because that expert

[00:34:31] Speaker 04:
was part of management.

[00:34:33] Speaker 04:
But you had a lawyer sitting right there who was part of management as well.

[00:34:37] Speaker 04:
So I don't, I don't, that to me that rationale breaks down.

[00:34:40] Speaker 04:
Maybe I'm missing something.

[00:34:42] Speaker 00:
I do understand your concern.

[00:34:43] Speaker 00:
I think the point here, in-house counsel won't always attend perhaps.

[00:34:48] Speaker 06:
But we're talking about in this case, right.

[00:34:50] Speaker 00:
Of course, but speaking to the purpose of the rule, which is the origin of the question, I think the rule gives discretion to exclude.

[00:34:57] Speaker 04:
Sure, but then if that's the purpose of the rule, it breaks down in this case because you've already allowed the lawyer from the firm to be there.

[00:35:06] Speaker 04:
So you have to come up with some of the reason to not allow an expert to be there, and I don't think there is one.

[00:35:10] Speaker 00:
But I think the reality is that that is how the rule is drafted, and the board, the staff exercised the discretion they understood themselves to have.

[00:35:18] Speaker 04:
And I think it's really important to emphasize here that had there been- But are we to enforce a rule if we don't think it makes any sense, if it's inconsistent?

[00:35:26] Speaker 04:
Isn't that sort of the textbook definition of arbitrary and capricious?

[00:35:30] Speaker 00:
Well, I think I want to turn to the facts, because I think it's really helpful to look at the facts to understand the perception or the argument that there was prejudice as a result of this decision here, which is that this is- Before that, can I ask just one question?

[00:35:44] Speaker 02:
Do you agree that Whitman is correctly decided?

[00:35:51] Speaker 00:
That was certainly the district court's reading of the APA.

[00:35:55] Speaker 02:
Do you agree that Whitman was correctly decided?

[00:35:58] Speaker 00:
That question wasn't presented.

[00:35:59] Speaker 00:
I'm not authorized to speak on the scope of Whitman and whether it was correct.

[00:36:06] Speaker 00:
The commission didn't appeal that decision.

[00:36:08] Speaker 02:
Are you arguing that we should not consider Whitman correctly decided?

[00:36:12] Speaker 00:
No.

[00:36:13] Speaker 02:
Okay, that's all I need.

[00:36:14] Speaker 00:
The commission didn't appeal Whitman, but then I do want to speak to

[00:36:18] Speaker 00:
the APA and prejudice, if I may, even assuming that the rule articulated in Whitman, the APA-based rule applies here.

[00:36:27] Speaker 00:
And the court can certainly say that, although, of course, the APA doesn't apply to the PCAOB.

[00:36:34] Speaker 00:
But even if the court imported the Whitman rule to the PCAOB context, under the APA, there's still a harmless error analysis.

[00:36:45] Speaker 00:
A petitioner just hasn't shown that he was harmed by this decision.

[00:36:49] Speaker 00:
Recall that this was Ernst and Young's request, not his request personally, to have its expert attend.

[00:36:56] Speaker 00:
Neither Ernst and Young, nor he on his own behalf, ever sought to clarify the scope of the denial, to say, you denied this expert, but I'm confused because in-house counsel are attending.

[00:37:06] Speaker 00:
Neither ever proposed another expert, so said, this is really important to us.

[00:37:10] Speaker 00:
Let's go find someone else who can provide the same level of expertise here.

[00:37:15] Speaker 00:
After the testimony, Mr. Liccetti never sought to strike or amend or otherwise clarify any of his answers, which the staff had specifically noted that he could do in their letter.

[00:37:26] Speaker 00:
And this whole time, both he and Ernst and Young were represented by experienced outside counsel from Latham and Watkins.

[00:37:33] Speaker 00:
So you would have expected them to have taken some of these steps if, in fact, the lack of an expert made a difference to the defense.

[00:37:40] Speaker 02:
Do you think if the council had been denied, not the expert, that you could apply harmless narrow analysis to that?

[00:37:55] Speaker 00:
Perhaps, I think that would be a sort of more clear violation of the board's rules, assuming that you do sort of look to the APA harmless error standard, or even if you're looking at this as a Fifth Amendment case, although as Judge Wilkins pointed out, the Fifth Amendment doesn't apply here, but looking to those sort of analogous

[00:38:15] Speaker 00:
legal scenarios where lawyers, where witnesses are entitled to lawyers, both the APA and the Fifth Amendment right to counsel do have a harmless error, do apply harmless error.

[00:38:27] Speaker 00:
And so I think, yes, you probably would apply harmless error analysis, although in that situation, I imagine it would be easier to show prejudice.

[00:38:36] Speaker 02:
And we're trying to- That's where the structural and another sense of structural

[00:38:41] Speaker 02:
Some errors are structural and you can't, you don't do the traditional harmless error analysis because it's impossible really to do it.

[00:38:49] Speaker 00:
That's true.

[00:38:49] Speaker 00:
So if this, if you look at this as an APA rate.

[00:38:51] Speaker 02:
And why isn't this, if counsel's like that, and I know you didn't concede that, but if counsel's like that, why isn't the expert also like that?

[00:38:59] Speaker 00:
Well, I think the analogy then is the Sixth Amendment, is that right?

[00:39:02] Speaker 00:
And if so, I mean, as we explained in the brief, the Sixth Amendment certainly itself doesn't apply here, because this isn't a criminal consideration.

[00:39:09] Speaker 00:
No, right.

[00:39:09] Speaker 02:
It's the analogy, though.

[00:39:10] Speaker 02:
On the prejudice inquiry, the analogy, that's what I'm trying to figure out.

[00:39:16] Speaker 00:
Sure, but again, and I don't mean to belabor this, but I will.

[00:39:21] Speaker 00:
And I think they need to look at the remedy.

[00:39:24] Speaker 00:
And so if the remedy is a Sixth Amendment error or something analogous to the Sixth Amendment, then the remedy is an exclusionary balancing test.

[00:39:32] Speaker 00:
And so here, the evidence was, in fact, effectively excluded.

[00:39:37] Speaker 00:
Neither the board nor the commission relied on Mr. Lucchetti's investigative testimony.

[00:39:41] Speaker 00:
both found that ample other evidence established liability and that's a joint appendix 855 and 2087 to 88.

[00:39:50] Speaker 00:
sort of one more step here, we have ratification as well.

[00:39:54] Speaker 00:
And under cases like Dulin and combat veterans, the board's final decision on the merits necessarily cured any decision in the OIP if one looks at the error as one that sort of infected the OIP.

[00:40:08] Speaker 00:
So whether we see this as an APA violation or a Fifth Amendment violation, it's a harmless error analysis.

[00:40:14] Speaker 00:
And for all the reasons I walked through, it's incredibly difficult for him to show that he was prejudiced.

[00:40:19] Speaker 00:
If we look at this as a Sixth Amendment violation or something equivalent, the remedy is exclusion, and the evidence was excluded.

[00:40:25] Speaker 00:
And then if we look at the error as one of a tainted OIP, then again, the remedy is there.

[00:40:32] Speaker 00:
It's ratification.

[00:40:33] Speaker 00:
So even assuming an error here, he's just not entitled to any relief at this point.

[00:40:39] Speaker 00:
He's gotten all the relief that he was entitled to.

[00:40:41] Speaker 04:
Thank you very much.

[00:40:49] Speaker 04:
How much time does Mr. Cox have?

[00:40:50] Speaker 04:
Four minutes?

[00:40:51] Speaker 06:
Okay.

[00:40:52] Speaker 05:
Could you start with the preservation of the oath argument?

[00:40:57] Speaker 05:
Yes, Your Honor.

[00:40:58] Speaker 05:
I don't think you should think of it as preservation for at least two reasons.

[00:41:02] Speaker 05:
The first is this Court in PHH said these kinds of decisions should be decided by the Court.

[00:41:09] Speaker 05:
And this case has been, the issue's been fully briefed, the government's here to speak to these issues, and we think you should proceed to go ahead and decide it on the PHH ground.

[00:41:19] Speaker 05:
Secondly, Your Honor, think about what happened here.

[00:41:22] Speaker 05:
The board, as long ago as prior to the 2010 decision in free enterprise fund, says to the Supreme Court... To get back to the PHH, that was preserved in PHH.

[00:41:35] Speaker 02:
What are you relying on that for?

[00:41:37] Speaker 05:
I'm relying, Your Honor, on note one of PHH, where there's a long discussion that basically says if there is standing, which we clearly have, then we should reach these issues, rather than punting them.

[00:41:48] Speaker 02:
Then, Your Honor, as I say, before the Free Enterprise Fund decision, which was in— That was not an avoidance point, not a preservation point, as I'm recalling.

[00:41:59] Speaker 05:
I think you are right, Your Honor.

[00:42:00] Speaker 05:
I think you're right about that.

[00:42:01] Speaker 05:
But I think the principle— The broader principle is what you're— The Court should decide these issues.

[00:42:06] Speaker 05:
Back in 2010, the Board said to the Supreme Court of the United States, we are the government for constitutional purposes.

[00:42:13] Speaker 05:
And yet, until the briefing in this case, they had never taken the oath.

[00:42:19] Speaker 05:
So they'd never thought through what it meant to be.

[00:42:23] Speaker 04:
What do you do with their best practices argument, that there's not a constitutional requirement of taking an oath before entering office, and evidence of that being the first act, the first Congress gave folks 30 days?

[00:42:36] Speaker 05:
Well, Your Honor, I think two things.

[00:42:38] Speaker 05:
One is that 30 days is not seven years.

[00:42:41] Speaker 05:
And two, when you look at the statute, the statute has multiple sections.

[00:42:45] Speaker 05:
And as you march through the sections, there is a section that deals with officials of the executive branch, and it has the phrase in it before entering into the execution of their duties.

[00:42:55] Speaker 05:
You take the oath.

[00:42:57] Speaker 05:
So once they say, we're the government for constitutional reasons, Article 6 kicks in, and the years tick by, and they don't do anything about it.

[00:43:06] Speaker 05:
And that is significant, both on the question of should you address it.

[00:43:11] Speaker 05:
It's significant because it shows one of the fundamental problems here about the board's operation.

[00:43:15] Speaker 05:
But it's also significant because it means, in your words, Your Honor, when they were making the decisions here that injured the petitioner, they had not become another person.

[00:43:25] Speaker 05:
All of those things are very significant.

[00:43:28] Speaker 02:
So it's always void.

[00:43:29] Speaker 02:
Everything that they've done is void, even if it hasn't been raised or preserved by a litigant?

[00:43:35] Speaker 05:
Is that the... Well, I think, Your Honor, that the number of cases where these issues are still alive that haven't been resolved or where the statute hasn't run will be few.

[00:43:43] Speaker 05:
But I do think in a live case, just like, you know, in the case the day after INS versus Chadha, people could still raise that argument.

[00:43:51] Speaker 05:
If I could just mention quickly two of the authorities that my colleagues relied on, that OLC opinion.

[00:43:56] Speaker 05:
That is an OLC opinion about what are the characteristics of an office.

[00:44:01] Speaker 05:
And when it talks about the oath, it is knocking back in a short paragraph the argument that if you take an oath, then you are in an office.

[00:44:09] Speaker 05:
The entire opinion is about elements that make an office.

[00:44:12] Speaker 05:
It's got nothing to do with this case.

[00:44:14] Speaker 05:
Marbury versus Madison, of course.

[00:44:16] Speaker 05:
In Marbury versus Madison, it was undisputed that the commission existed on the face of the earth.

[00:44:22] Speaker 05:
Here, it's undisputed that the commission does not exist.

[00:44:25] Speaker 05:
There is no commission.

[00:44:28] Speaker 05:
Turning quickly, if I may, to the arguments we heard about the rule.

[00:44:35] Speaker 02:
of the escort assistance, you know, we do think... Their whole thing there is that it's harmless and they've got different flavors to that which I think you need to respond to.

[00:44:43] Speaker 05:
Right, Your Honor, I think a number of things.

[00:44:46] Speaker 05:
Number one is that we have shown prejudice if we have to.

[00:44:50] Speaker 05:
They relied on this testimony.

[00:44:51] Speaker 05:
They relied on it to start the case.

[00:44:54] Speaker 05:
They rely on it in the decision.

[00:44:56] Speaker 05:
They disclaim that, Your Honor.

[00:44:58] Speaker 05:
They say, we never relied on the investigative testimony.

[00:45:01] Speaker 05:
But, Your Honor, if you look at JA791, there's a site to it.

[00:45:06] Speaker 05:
If you look at JA2088, note 86, the SEC acknowledges that.

[00:45:10] Speaker 05:
And so at a time when the board knew we were arguing that they shouldn't be relying on this testimony, and they presumably scrubbed the opinion with that in mind, something still bled through.

[00:45:21] Speaker 05:
I think that that is indicative of what was going on in this case.

[00:45:26] Speaker 05:
You know, the argument that the Fifth Amendment doesn't apply, I just don't think that that's correct.

[00:45:31] Speaker 05:
And I think, indeed, that goes back to when you put on your constitutional cap when you take the oath.

[00:45:36] Speaker 05:
And so I don't think we need to show prejudice.

[00:45:39] Speaker 05:
But even if we did, when you think about what's going on here, the asymmetry, the government's access to experts, the use of those experts to ask questions, the whole setting of the case,

[00:45:51] Speaker 05:
that we have shown that we were prejudiced.

[00:45:54] Speaker 05:
And in the briefing, we do point you to specific questions that we think are unintelligible to even the most skilled lawyer.

[00:46:01] Speaker 01:
How is it really asymmetry if the government's experts during an investigation ask questions?

[00:46:07] Speaker 01:
Part of your premise is that the lawyers

[00:46:11] Speaker 01:
don't understand this well enough always to, you know, Mercedes lawyers don't understand this well enough to know how and when to object.

[00:46:22] Speaker 01:
Well, doesn't that same premise hold that the board's lawyers may not really know all of the right questions to answer or all the right follow up to do?

[00:46:30] Speaker 01:
And so all they're trying to do is make sure that they have people present to ensure that they do a fair investigation.

[00:46:40] Speaker 01:
This isn't like, you know, one side having kind of more knowledge than the other.

[00:46:48] Speaker 05:
Well, no, Your Honor, it is precisely one side having more knowledge than the other.

[00:46:51] Speaker 05:
It's not just that they're using the experts to whisper in the ears of their lawyers.

[00:46:55] Speaker 05:
The experts ask questions directly.

[00:46:58] Speaker 05:
And so the experts are there representing the board, bringing governmental power to bear upon the petitioner when the petitioner is not on the same level playing the field.

[00:47:11] Speaker 05:
He's been disabled by the government.

[00:47:14] Speaker 05:
So I think that if we had to show prejudice.

[00:47:16] Speaker 01:
The petitioner himself is an expert.

[00:47:20] Speaker 05:
Your Honor, I think that that's not an argument the court would accept in other circumstances.

[00:47:25] Speaker 05:
I think it's not fair to say that someone who is facing a governmental sanction which will deprive him of his livelihood is able to give expert testimony.

[00:47:38] Speaker 05:
I don't think the board would have allowed Mr. Leggetti to qualify as an expert and give expert testimony that said your point of view, your interpretation of the nine audit standards at issue is incorrect.

[00:47:50] Speaker 05:
So I understand that there is a sense that if you are talking to a lawyer about securities fraud, well, the lawyer, the witness, is an expert about securities fraud, because after all, he's a securities lawyer.

[00:48:01] Speaker 05:
But we would still say he gets the right to counsel.

[00:48:04] Speaker 05:
And Whitman says the right to counsel carries with it.

[00:48:07] Speaker 05:
The expert and the facts in this case demonstrate why that's so.

[00:48:12] Speaker 05:
So, Your Honor, I think that throughout this case, the board has not grappled with the fact that it is the government.

[00:48:19] Speaker 05:
It hasn't grappled with the consequences of free enterprise fund.

[00:48:22] Speaker 05:
And this is a fundamentally unfair proceeding that needs to be vacated.

[00:48:27] Speaker 05:
And the board, on remand, as we said, can decide how it wants to proceed when it's wearing its constitutional hat.

[00:48:32] Speaker 05:
Thank you very much.

[00:48:33] Speaker 05:
Thank you.

[00:48:33] Speaker 05:
Thank you for your argument.

[00:48:34] Speaker 05:
The case is submitted.

[00:48:35] Speaker ?:
Thank you.