FEF v. PCAOB: Oral Arguments on the Board's Motion to Dismiss

At the end of June 2006, the District Court heard oral arguments on the PCAOB’s motion to dismiss the FEF suit based on lack of jurisdiction, failure to state a claim, and lack of standing.

Jeffrey Lamken of Baker Botts presented argument first on behalf of the PCAOB.  The Court appeared to indicate some of its view of the merits of the motion before counsel had uttered a word of argument.  As Jeffrey Lamken of Baker Botts rose to present the PCAOB’s position, Judge Robertson asked him to “start with your strongest argument, which would be what, standing?”  Mr. Lamken responded that he woud actually start with what had been the Board’s primary argument in the motion, that the administrative and judicial review system established by Sarbanes-Oxley must be adhered to before bringing suit in federal court. And, in fact, Mr. Lamken spent the entirety of his time arguing points related to that issue.  It took Judge Robertson to remind Mr. Lamken of the Court’s initial curiosity with the standing issue, and upon the Court’s invitation Mr. Lamken took further time to elaborate on the Board’s claim that FEF lacks standing.  Mr. Lamken expounded upon the motion’s argument that FEF failed to disclose who their members are, and in what way they have been injured by the PCAOB. Mr. Lamken went on to state that both plaintiffs lack standing to challenge certain restrictions on the SEC’s selection of Board members because this is an issue that can only be raised by the SEC itself.

Department of Justice attorney Robert Katerberg presented the government’s position.  He expanded on the government’s statement of interest, arguing that, “… Congress is entitled to specify how and when legal challenges to regulatory authorities and their actions occur.” Mr. Katerberg went on to explain that dismissing this claim would ensure that future challenges to regulatory bodies and actions would go through the proper channels and that judicial review of constitutional issues raised is based on a complete administrative record, and not conducted in the abstract. He then argued that the PCAOB should be treated the same as an SRO (Self-Regulatory Organization).  With respect to such organizations, he argued, there is a concrete review procedure in place that is backed by historical and legal precedent. Mr. Katerberg’s final points were in support of the arguments made by the defendant.

Arguing for the plaintiffs, Michael Carvin of Jones Day focused on the argument that the statutory review mechanism is inadequate for granting a remedy to the plaintiffs, though Judge Robertson’s questions were primarily related to standing concerns. Mr. Carvin went on to argue that it should not be required that the SEC interpret the legislation in question, since its expertise is in the area of securities law, not constitutional law. 

At the close of Mr. Carvin’s argument, the Court asked whether the issues going to the merits would not be better framed by motions for summary judgment.  Mr. Carvin agreed readily to the Court’s suggestion.  After some further rebuttal argument by Mr. Carvin, during which he argued that the Court should resolve the jurisdictional questions first before receiving further argument on the merits, the Court answered its own question by inviting both sides to file motions for summary judgment.  Or, more precisely, Judge Robertson said, “I’m not really inviting it so much as I’m not rejecting it.”  In any event, the Court gave no indication that it would take further action on the pending motion before further motions were filed.

Transcript of oral arguments