219 

### Special Master for Troubled Asset Relief Program Executive Compensation

The Special Master for Troubled Asset Relief Program Executive Compensation is not aprincipal officer for purposes of the Appointments Clause and thus need not be appointed by the Pr esident, by and with the advice and consent of the Senate.

November 5, 2010

M EMORANDUM O PINION FOR THE G ENERAL C OUNSEL
D EPARTMENT OF THE T REASURY

AND THE
S PECIAL I NSPECTOR G ENERAL
T ROUBLED A SSET R ELIEF P ROGRAM

You have asked for our opinion whether the Special Master for Troubled Asset Relief Program Executive Compensation (“Special Master”) is a principal officer for purposes of the Appointments Clause, U.S. Const. art. II, § 2, cl. 2, and thus must be appointed by the President, by and with

the advice and consent of the Senate. 1 The position of Special Master was created by the Secretary of the Treasury, who has charged the Special Master with assisting in the enforcement of the executive compensation and corporate governance requirements established un der the Emergen cy Economic Stabilization Act (“EESA” ) , Pub. L. No. 110

- 343 , § 111, 122

Stat. 376 5, 3776

– 77 (2008) (as amended). See 31 C.F.R. § 30.16(a) (2010). For the reasons that follow, we conclude that the Special Master is not a principal officer. 2

1 See Letter for David J. Barron, Acting Assistant Attorney General, Office of LegalCounsel, from Neil M. Barofsky, Special Inspector General, Office of the Special Inspector General for the Troubled Asset Relief Program (Aug. 20, 2010) (“SIGTARP Letter”). The Treasury Department Gener a l Counsel’s request was conveyed orally.

2 Both the Treasury Department General Counsel and the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) premise their shared opinion request on

the assumption that the Special Master is an officer of the United States. We take that assumption as a given for purposes of this memorandum.34 Op. O.L.C. 219 (2010)

220

I.

On October 3, 2008, in the midst of a major crisis affecting the Nation’s financial system, Congress enacted the EESA to provide the Secretary of the Treasury with immediate authority and facilities “to restore liquidity and stability to the financial s ystem of the United States.” 12 U.S.C. § 5201(1) (2006 & Supp. III 2009). Generally speaking, the “EESA vests the Secretary with the flexibility and power to take bold actions necessary to stabilize the economy.” In re Motors Liquidation

Co. , 430 B.R. 65, 94 (S.D.N.Y. 2010).

Title I of the EESA aut horizes the Secretary “ to establish the Tro ubled Asset Relief Program ( or ‘TARP’ ) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution,

on such terms and condit ions as a re determined by the Secretary.” 12 U.S.C. § 5211(a)(1). Section 111 of the EESA, as amended, see Pub. L.

No. 111

- 22, § 403, 123 Stat. 1632, 1658 (2009); Pub. L. No. 111

- 5, § 7001, 123 Stat

. 115 , 516

– 20 (2009), imposes requirements on TARP recipie nts related to corporate governance and executive compensation.

See 12 U.S.C. § 5221. Subsections (b), (f), and (h) of that section are of particular relevance to determining the status of the Special Master. Subsection (b) provides that “[t] he Secretary s hall require each TARP recipient to meet appropriate standards for executive compen sation and corporate governance,” id. § 5221(b)(2); see also id. § 5221(b)(1) (“During the period in which any obligation arising from financial assistance provided under th e TARP remains outstanding, each TARP recipient shall be subject to

. . . the standards established by the Secretary under this section”), and it establishes a series of specific requirements that must be included in those standards, see id. § 5221(b)(3). 3 Subsection (f) directs

3 Those requirements include:
(A) Limits on compensation that exclude incentives for senior executive officers

of the TARP recipient to take unnecessary and excessive risks that threaten the value of such recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding.

(B) A provision for the recovery by such TARP recipient of any bonus, retention award, or incentive compensation paid to a senior executive officer and any of the next 20 most highly

- compensated employees of the TARP recipient based onSpecial Master for T roubled Asset Relief Program Executive Compensa tion

221 statements of earnings, revenues, gains, or other criter ia that are later found to be materially inaccurate.

(C) A prohibition on such TARP recipient making any golden parachute payment to a senior executive officer or any of the next 5 most highly

- compensated employees of the TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding.

(D) (i) A prohibition on such TARP recipient paying or accruing any bonus, retention award, or incentive compensation during the period in which any obl igation arising from financial assistance provided under the TARP remains outstanding, except that any prohibition developed under this paragraph shall not apply to the payment of long

- term restricted stock by such TARP recipient, provided that such long

- t erm restricted stock

— (I) does not fully vest during the period in which any obligation arisingfrom financial assistance provided to that TARP recipient remains outstanding;

(II) has a value in an amount that is not greater than 1/3 of the total amount of annual compensation of the employee receiving the stock; and

(III) is subject to such other terms and conditions as the Secretary may determine is in the public interest.
(ii) The prohibition required under clause (i) shall apply as follows:
(I) For any financial institution that received financial assistance provided under the TARP equal to less than $25,000,000, the prohibition shall apply only to the most highly compensated employee of the financial institution.

(II) For any financial institution that received financial assistance provided under the TARP equal to at least $25,000,000, but less than $250,000,000, the prohibition shall apply to at least the 5 most highly

- compensated employees of the financial institution, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.

(III) For any financial institution that received financial assistance provided under the TARP equal to at least $250,000,000, but less than $500,000,000, the prohibiti on shall apply to the senior executive officers and at least the 10 next most highly

- compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.

(IV) For any financial instituti on that received financial assistance provided under the TARP equal to $500,000,000 or more, the prohibition shall apply to the senior executive officers and at least the 20 next most highly

compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.
(iii) The prohibition required under clause (i) shall not be construed to prohibitany bonus payment required to be paid pursuant to a written employment contract executed on or befo re February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.34 Op. O.L.C. 219 (2010)

222the Secretary to “review bonuses, retention awards, and other compensation paid to the senior executive officers and the next 20 most highly

compensated employees of each entity receiving TARP assistance before February 17, 2009, to determine whether any such payments were inconsistent with the purposes of this section or the TARP or were otherwise contrary to the public interest.” Id. § 5221(f). Subsection (h) requires the Secretary to “ promulgate regulations to implement this secti on. ” Id. § 5221(h).
Section 101(c) of the EESA provides that “[t]he Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in [the EESA].” 12 U.S.C. § 5211(c). These authorities include, “without limitat ion,” “direct hiring authority with respect to the appointment of employees to administer [the EESA],” id. § 5211(c)(1), and “[i]ssuing such regulations and other guidance as may be necessary

or appropriate to define terms or carry out the authorities or p urposes of [the EESA],” id. § 5211(c)(5).
On June 15, 2009, the Secretary issued an Interim Final Rule on TARP Standards for Compensation and Corporate Governance (“Interim Rule”).

See 74 F ed. R eg. 28,394

– 423 (codified at 31 C.F.R. pt. 30). The Interim

Ru le, which became effective on the day it was issued, see 74 F ed. R eg. at 28,423; 31 C.F.R. § 30.17 (2010), elaborates the specific standards andother requirements relating to corporate governance and executive compensation that section 111 of the EESA est ablishes for TARP recipients.
To ensure that these requirements are applied “efficiently,” “consistently,” and “equitably,” the Interim Rule further provides that the Secretary “shall establish the Office of the Special Master for TARP Executive Compensat ion.” 74 F ed. R eg. at 28,403; 3 1 C.F.R. § 30.16(a). The Special Master is to “be appointed by, and serve at the pleasure of, the Secretary,” and “may be removed by the Secretary without notice, without cause, and prior to the naming of any successor Specia l Master.” Id

. The Interim

(E) A prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enha nce the compensation of any of its employees.

(F) A requirement for the establishment of a Board Compensation Committee that meets the requirements of subsection (c).

12 U.S.C. § 5221(b)(3).Special Master for T roubled Asset Relief Program Executive Compensa tion

223 Rule delegates to the Special Master certain of the Secretary’s “powers, duties, and responsibilities” relating to enforcement of the Act. Id

. These delegated functions include: (1) interpreting how the requirements on

executive compensation and corporate governance established under section 111 of the EESA, the Interim Rule, and any other applicable guidance apply to TARP reci pients and their employees; (2) determining whether compensation paid to employees of TARP recipients pri or to February 17, 2009 was “inconsistent with the purposes of section 111 of [the] EESA or TARP, or otherwise contrary to the public interest,” and, if so, negotiating with the TARP recipient and the compensated employee for appropriate reimbursement to t he g overnment; (3) determiningwhether to approve compensation payments to, and compensation structures for, certain highly compensated employees of TARP recipients receiving financial assistance defined by the Interim Rule as “exceptional

financial assist ance”; and (4) issuing advisory opinions on compensation payments to, and compensation structures for, certain employees of TARP recipients generally. Id . § 30.16(a)(1)

– (4). In making determinations under paragraphs (2) or (3) and in offering opinions unde r paragraph (4), the Special Master must follow a set of principles outlined in the Interim

Rule. See id . § 30.16(a) (2)

– (4). 4

4 The Interim Rule provides:
In reviewing a compensation structu re or a compensation payment to determine whether it is inconsistent with the purposes of section 111 of EESA or TARP or is otherwise contrary to the public interest, the Special Master shall apply the principles enumerated below. The principles are intend ed to be consistent with soundcompensation practices appropriate for TARP recipients, and to advance the purposes and considerations described in EESA sections 2 and 103, including the maximization of overall returns to the taxpayers of the United States and providing stability and preventing disruptions to financial markets. The Special Master has discretion to determine the appropriate weight or relevance of a particular principle depending on the facts and circumstances surrounding the compensation stru cture or payment under consideration, such as whether a payment occurred in the past or is proposed for the future, the role of the employee within the TARP recipient, the situation of the TARP recipient within the marketplace and the amount and type of

fi nancial assistance provided. To the extent that two or more principles may appear inconsistent in a particular situation, the Special Master will determine the relative weight to be accorded each principle. In the case of any review of payments already

mad e under paragraph (c)(2) of this section, or of any rights to bonuses, awards, or other compensation already granted, the Special Master shall apply these principles34 Op. O.L.C. 219 (2010)

224 by considering the facts and circumstances at the time the compensation was granted, earne d, or paid, as appropriate.
(i) Risk. The compensation structure should avoid incentives to take unnecessary or excessive risks that could threaten the value of the TARP recipient, including incentives that reward employees for short

- term or temporary incr eases in value, performance, or similar measure that may not ultimately be reflected by an increase in the long

- term value of the TARP recipient. Accordingly, incentive payments or similar rewards should be structured to be paid over a time

horizon that ta kes into account the risk horizon so that the payment or reward reflects whether the employee's performance over the particular service period has actually contributed to the long

- term value of the TARP recipient.

(ii) Taxpayer return. The compensation str ucture, and amount payable whereapplicable, should reflect the need for the TARP recipient to remain a competitive enterprise, to retain and recruit talented employees who will contribute to the TARP recipient's future success, and ultimately to be able t o repay TARP obligations.

(iii) Appropriate allocation. The compensation structure should appropriately allocate the components of compensation such as salary, short

- term and long

term incentives, as well as the extent to which compensation is provided in cash, equity or other types of compensation such as executive pensions, other benefits,or perquisites, based on the specific role of the employee and other relevant circumstances, including the nature and amount of current compensation, deferred
compensat ion, or other compensation and benefits previously paid or awarded.The appropriate allocation may be different for different positions and for different employees, but generally, in the case of an executive or other senior level position a significant por tion of the overall compensation should be long

- termcompensation that aligns the interest of the employee with the interests of shareholders and taxpayers.

(iv) Performance

- based compensation. An appropriate portion of the compensation should be performan ce

- based over a relevant performance period. Performance

- based compensation should be determined through tailored metricsthat encompass individual performance and/or the performance of the TARP recipient or a relevant business unit taking into considerati on specific business objectives. Performance metrics may relate to employee compliance with relevantcorporate policies. In addition, the likelihood of meeting the performance metrics should not be so great that the arrangement fails to provide an adequate incentive for the employee to perform, and performance metrics should be measurable, enforceable, and actually enforced if not met. The appropriate allocation and the appropriate performance metrics may be different for different positions
and for differe nt employees, but generally a significant portion of total compensation should be performance

- based compensation, and generally that portion should be greater for positions that exercise higher levels of responsibility.

(v) Comparable structures and paymen ts. The compensation structure, and amount payable where applicable, should be consistent with, and not excessive,Special Master for T roubled Asset Relief Program Executive Compensa tion

225 When acting under paragraphs (2) and (3), the Special Master must make an “initial determination” within 60 days of receiving a “s ubstantially complete submission” from a TARP recipient. Id. § 30.16(c)(1). The TARP recipient then has 30 days to request reconsideration of the initial determination, and t he Special Master must provide a “ final de

termination ” in writing within 30 days thereafter , setting forth the facts and analysis that formed the basis for the determination. Id . If the TARP recipient does not request reconsideration within 30 days, the

initial determination “ shall be treated as a final determination. ” Id.

The Interim Rule also specifies the effects of the Special Master’s decisions. The Interim Rule provides that “[i]n the case of any final determination that the TARP recipient is required to receive, the final deter

mination of the Special Master shall be final and b inding and treated as the determination of the Treasury.” Id . § 30.16( c ) (2). “An advisory opinion of the Special Master,” however, “shall not be binding upon any TARP recipient or employee, but may be relied upon by a TARP recipient or employee if the advi sory opinion applies to the TARP recipient andthe employee and the TARP recipient and employee comply in all respects with the advisory opinion.” Id . § 30.16(c ) (3).
Finally, the Interim Rule provides that the Special Master “shall have

such other duties a nd powers related to the application of compensationissues arising in the administration of [the] EESA or TARP as the Secretary or the Secretary’s designate may delegate to the Special Master, including, but not limited to, the interpretation or applicati on of contrac-

taking into account compensation structures and amounts for persons in similar positions or roles at similar entities that are similarly situ ated, including, as applicable, entities competing in the same markets and similarly situated entitiesthat are financially distressed or that are contemplating or undergoing reorganization.

(vi) Employee contribution to TARP recipient value. The compensat ion structure, and amount payable where applicable, should reflect the current or prospective contributions of an employee to the value of the TARP recipient, taking into account multiple factors such as revenue production, specific expertise, compliance w ith company policy and regulation (including risk management),and corporate leadership, as well as the role the employee may have had with respect to any change in the financial health or competitive position of the TARP recipient.

31 C.F.R. § 30.16(b).34 Op. O.L.C. 219 (2010)

226 tual provisions between the Federal government and a TARP recipient as those provisions relate to the compensation paid to, or accrued by, an employee of such TARP recipient.” Id . § 30.16(a) (5). 5

II.

The Appointments Clause states:

[The Pres ident]

. . . shall nominate, and by and with the Advice andConsent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein ot herwise provided for, and which shall be established by Law: but theCongress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

U.S. Const. art. II , § 2, cl. 2. As the Clause thus makes clear, officers of the United States fall into two basic categories: principal officers and

inferior officers. See

, e.g. , United States v. Germaine , 99 U.S. (9 Otto) 508, 509 (1878) (“The Constitution for purposes of appointment

. . . divides all its officers into two classes.”); see also Morrison v. Olson

, 487 U.S. 654, 670 (1988). Principal officers must be appointed by the President, by and with the advice and consent of the Senate. Inferior officers must be appoint ed in the same manner, unless Congress “by

Law vest [s ] the [i r] Appointment

. . . in the President alone, in the Courts of Law, or in the Heads of Departments.” U.S. Const. art. II, § 2, cl. 2 ; see Morrison , 487 U.S. at 670

– 71; Buckley v. Valeo , 424 U.S. 1 , 132

5 The preambl e to the Interim Rule characterizes the Special Master’s residual authority as limited to matters arising under section 111 of the EESA. It states that “[t]he scope of the Special Master’s authority and responsibility is limited to compensation and
corporate governance matters under section 111 with respect to TARP recipients, and the Special Master has no authority to provide guidance or review any submissions with respect to matters other than compensation and corporate governance matters unde r section 111 , or to provide guidance or review any submissions with respect to compensation or corporate governance matters of employers that are not TARP recipients.” 74 Fed. Reg. at 28,404 (emphasis added). The Treasury Department General Counsel’s Offi ce has informed us that the Secretary has not assigned any additional functions to the Special Master under this provision.Special Master for T roubled Asset Relief Program Executive Compensa tion

227 (1976) (per curiam). “[T]he terms of the Appointments Clause set out theonly means by which Congress may provide for the appointment of ‘Officers of the United States,’” The Constitutional Separation of Powers Between the President and Congress , 20 Op. O.L.C. 124, 139 (1996) (citing Buckley , 424 U.S. at 124

– 37), and “[n]either Congress nor the Executive can agree to waive this structural protection,” Freytag v.

Comm ’ r , 501 U.S. 868, 880 (1991).
The Special Inspector General for the Troubled Asset Rel ief Program (“SIGTARP”) questions whether the Special Master is a principal officer because, in his view, “the Secretary appears to be without authority to control the actions of the Special Master in any

. . . meaningful manner”

other than removal. SIGTAR P Letter at 5. 6 If the Special Master were indeed a principal officer, his appointment by the Secretary would not be in conformity with the Appointments Clause.
In our view, the Special Master is not a principal officer. The Supreme

Court has “not set for th an exclusive criterion for distinguishing between principal and inferior officers for Appointments Clause purposes.” Edmond v. United States , 520 U.S. 651, 661 (1997). But in three decisions over the past quarter century the Court has set out a number o f important guideposts by which to distinguish principal from inferior officers.

In Morrison v. Olson , 487 U.S. 654 (1988), the Supreme Court considered whether an independent counsel appointed pursuant to the Ethics in Government Act of 1978, 28 U.S.C. § § 591

– 599 (1988), was an inferior officer. It concluded that she was, based on four considerations. First, the Court noted that the independent counsel was “subject to removal by a higher Executive Branch official” (the Attorney General). Morrison , 487

U.S . at 671. The Court explained that this factor weighed in favor of viewing the independent counsel as an inferior officer even though “she possesse[d] a degree of independent discretion to exercise the powers delegated to her under the Act.” Id

. Second, th e Court relied on the fact

6 The Office of the Special Inspector General for the Troubled Asset Relief Program was created by the EESA. 12 U.S.C. § 5231(a). T he Office is headed by a Special Inspector General

— the SIGTARP

— who is appointed by the President, with the advice and

consent of the Senate. I d. § 5231(b). The duties of the SIGTARP include conducting audits and investigations of the Secretary’s purchase, management, and sale of assets

under the TARP and of the Secretary’s management of the TARP, as well as conducting audits and investigations of other actions taken under the EESA. I d. § 5231(c)(1), (4).34 Op. O.L.C. 219 (2010)

228 that the independent counsel performed what it considered only “limited duties” because she was “restricted primarily to investigation and, if appropriate, prosecution for certain federal crimes.” Id . The Court acknowledged that the Ethics in Government Act gave the independentcounsel “full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice,” but thought it significant that “this grant of authority doe s not include any authority to formulate policy for the Government or the Executive Branch, nor does it give appellant any administrative dutie s outside of those necessary to operate her office.” Id . at 671

– 72. Third, the Court stressed that the independen t counsel’s jurisdiction was rela

tively narrow , both because the Ethics in Government Act itself was “restricted in applicability to certain federal officials suspected of certain serious federal crimes” and because “an independent counsel can only act

wi thin the scope of the jurisdiction that has been granted by the Special Division pursuant to a request by the Attorney General

. ” Id . at 672. Fourth, the Court pointed out that the independent counsel’s tenure was

“limited” because while h er office had no f ixed term, it was “‘temporary’ in th e sense that an independent counsel is appointed essentially toaccomplish a single task, and when that task is over the office is terminated.” Id.

Almost a decade after Morrison , the Court returned to the distinction

b etween principal and inferior officers in Edmond v. United States , 520 U.S. 651 (1997). Edmond concerned civilians appointed by the Secretary of Transportation to serve as military judges on the Coast Guard Court of Criminal Appeals. The Supreme Court conc luded that the judges were inferior officers, but it characterized the factors it had relied on in Morrison as not “definitive” and adopted a somewhat different approach. Id . at
661. The Court acknowledged that judges on the Coast Guard Court of

Criminal A ppeals did not have a “narrow” jurisdiction or “limited” tenure,

as those terms had been used in Morrison , and that the third and fourth

considerations discussed in Morrison thus cut against characterizing the judges as inferior officers. Id . It nonetheles s deemed them inferior officers because their work was “directed and supervised at some level by other [officers] who were appointed by Presidential nomination with the

advice and consent of the Senate.” Id . at 663. That supervision, the CourtSpecial Master for T roubled Asset Relief Program Executive Compensa tion

229 explained, w as carried out by two Executive Branch actors. The Judge Advocate General of the Coast Guard (the Secretary of Transportation’s subordinate) “exercise[d] administrative oversight over the Court of Criminal Appeals” in that the Judge Advocate General establ ished the court’s rules of procedure, could order any of its decisions submitted for review, and could remove judges without cause. I d. at 664, 666. And the Court of Appeals for the Armed Forces (an Executive Branch tribunal)

could review and reverse the l ower tribunal’s decisions, and prevent any final order from being issued. I d. at 664

– 65. Thus, “[w]hat is significant,” the Supreme Court explained, “is that the judges of the Court of Criminal Appeals have no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.” Id . at 665.
Rather than listing a number of non

- exclusive factors as it had done in

Morrison , then, the Court in Edmond appeared to offer one overall standard for identifying inferio r officers. “Generally speaking,” the Court stated, “the term ‘inferior officer’ connotes a relationship with some higher ranking officer or officers below the President: Whether one is an ‘inferior’ officer depends on whether he has a superior.” Id . at 66 2. At the same time, the Court indicated that determining whether an officer has a superior in this sense may well require considering a number of factors,including whether the officer is removable by an Executive Branch official below the President and w hether the officer’s work “is directed and supervised at some level by others who were appointed by Presidential

nomination with the advice and consent of the Senate.” Id . at 663. Earlier this year, the Supreme Court followed the Edmond approach

for distin guishing inferior from principal officers in Free Enterprise Fund v. Public Company Accounting Oversight Board , 130 S. Ct. 3139 (June 28, 2010). In Free Enterprise Fund , the Court considered separation of powers and Appointments Clause challenges to the st ructure of the Public Company Accounting Oversight Board (“PCAOB”), a sta

tutorily created entity with “expansive powers to govern [the accounting] industry.” Id. at 3147. The statute establishing the PCAOB, the

Sarbanes

- Oxley Act of 2002, 15 U.S.C. §§ 721 1

– 7219 (“SOX Act”), provided for the Securities and Exchange Commission (“SEC”) to appoint34 Op. O.L.C. 219 (2010)

230 the PCAOB’s members. 7 The SOX Act also granted the SEC “[b]road power over [the PCAOB] functions,” id . at 3148, including approving the PCAOB’s budget, issuing regul ations that bind it, relieving the PCAOB of authority, amending and denying approval for PCAOB sanctions and rules, and enforcing PCAOB rules on its own. See id. at 3158. Under the SOX Act as enacted, however, the SEC could remove PCAOB members only “‘for good cause shown,’” “‘in accordance with’” specified procedures. Id. at 3148 (quoting 15 U.S.C. § 7211(e)(6)). The Court held that the resulting dual for

- cause limitations on the President’s ability to

remove PCAOB members

— with the SEC Commissioners remova ble by the President only for good cause, and the PCAOB members removableby the SEC only for another, more restrictive type of good cause specified in the SOX Act

— was “contrary to Article II’s vesting of the executive power in the President,” and therefor e violated the separation of

powers. Id. at 3147, 3154. To remedy the infirmity, the Court excised from the SOX Act the provision making PCAOB members removable only for cause, thus rendering them removable by the SEC at will.
Turning to the Appointments C lause challenge under this modified statutory structure, the Court concluded that the PCAOB’s members were properly appointed inferior officers. “Given that the Commission is properly viewed, under the Constitution, as possessing the power to

remove Board members at will,” the Court explained, “and given theCommission’s other oversight authority, we have no hesitation in concluding that under Edmond the Board members are inferior officers.” Id.

at 3162.

Both Edmond and Free Enterprise F und indicate that th e level of direction and supervision exercised by a superior over a subordinate need not

be total for the subordinate to qualify as an inferior officer. In Edmond

, for example, the Court acknowledged that the scope of substantive review

that the Court of A ppeals for the Armed Forces exercised over the Court of Criminal Appeals “is narrower than that exercised by the Court of Criminal Appeals,” because “so long as there is some competent evidence

7 The parties stipulated that SEC Commissioners could not b e removed by the President except for “‘inefficiency, neglect of duty, or malfeasanc e in office,’” and the Court

decided the case based on that understanding. Free Enterprise Fund , 130 S. Ct. at 3148

– 49.Special Master for T roubled Asset Relief Program Executive Compensa tion

231 in the record to establish each element of the offense beyond a reasonable doubt, the Court of Appeals for the Armed Forces will not reevaluate the facts.” 520 U.S. at 665. What was “significant” in concluding that the Court of Criminal Appeals judges nonetheless were inferior officers, however, was that they “have n o power to render a final decision on behalf of the United States unless permitted to do so by other Executive

officers.” Id . Similarly, in F ree Enterprise F und , the Court rejected theproposition that the SEC’s power over the PCAOB’s activities was “plena ry.” 130 S. Ct. at 3159. Rather, the Court observed, the PCAOB “is empowered to take significant enforcement actions, and does so largely independently of the Commission”; indeed, “the Act nowhere gives the Commission effective power to start, stop, or alt er individual Board investigations.” Id. ; see also id. at 3159 (“The Board

. . . has significant independence in determining its priorities and intervening in the affairs

of regulated firms (and the lives of their asso ciated persons) without Commission pre approval or direction.”). Thus, Edmond and Free Enterprise F und make clear (as had Morrison ) that an e xecutive official canexercise some level of independent authority and still qualify as an inferior officer, so long as it can be said that the official “ is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.” Edmond , 520 U.S. at 663 (emphasis added).

III

.

Applying the principles established by the Supreme Court, we think i t clear that the Special Master is not a principal officer. If one looks to the

four Morrison factors

— removal, duties, jurisdiction, and tenure

— they all point in favor of the conclusion that the Special Master is not a principal officer. The Special Master is subject to at

- will removal by the Secretary (without “notice” or “cause”). 31 C.F.R. § 30.16(a) . The Special Master’s duties are limited. As indicated above, they consist of interpreting EESA

related requirements on TARP recipients’ executive compensat ion andcorporate governance, negotiating reimbursements for improper compensation payments made by TARP recipients before February 17, 2009, determining whether to approve compensation payments and structures relating to certain employees of TARP recipien ts receiving “exceptional financial assistance,” and issuing advisory opinions. See supra pp. 222

–34 Op. O.L.C. 219 (2010)

232 226 & note 4 . Like the independent counsel in Morrison , the Special Master thus lacks both “authority to formulate policy for the Government

or the Executive Branch” and significant administrative duties. 487 U.S.

at 671

– 72. 8 While the Special Master is entrusted with authority to interpret section 111 of the EESA, the Interim Rule, and related guidance, the Special Master is authorized to do so only in applying those provisions to the compensation practices of particular TARP recipients

and certain of their employees. The Special Master’s jurisdiction is limited to TARP recipients’ executive compensation and corporate governance. S ee id

. And the Special Master’s tenure is limited to the duration of the Secretary’s authority under section 111 of EESA, namely “ the period in which any obligation arising from financial assistance provided under the TARP remains outstanding .” 12 U.S.C. § 5221(b)(1). The Special Master, then, bears each of the marks of inferior officer status attributed to the independent counsel in Morrison

. If one looks not to the Morrison factors, but instead to the Edmond considerations of whether the Special Master is removable by an officer other than the President and whether the Special Master’s work is subjectto “some level” of “direct[ion] and supervis[ion]” by an official appointed by the Presi dent, with the advice and consent of the Senate

— here, the Secretary of the Treasury

— again we think it clear that the Special Master is not a principal officer. 520 U.S. at 663.
First, the Special Master is removable by the Treasury Secretary at will.

The S pecial Master serves “at the pleasure of the Secretary, and may be removed by the Secretary without notice, without cause, and prior to the naming of any successor Special Master.” 31 C.F.R. § 30.16(a). As the Supreme Court has remarked more than once, “ [t ] he power to remove

8 Under the Interim Rule’s residual clause, th e Special Master may also be given those “duties and powers related to the application of compensation [and corporate governance] issues arising in the administration of [the] EESA or TARP as the Secretary or the Secretary’s designate may delegate to the S pecial Master.” Id . § 30.16(a) (5). But while the outer limit of those potential duties

— none of which has been granted

— is not precisely defined, the clause by its terms encompasses only the “application” of compensation

issues. Id . Accordingly, we do not be lieve that the clause contemplates the Secretary’sdelegation to the Special Master of authorities under section 111 that might be characterized as more closely resembling policymaking, such as the establishment of executive compensation and corporate gove rnance standards. Cf . 12 U.S.C. § 5221(b)(2).Special Master for T roubled Asset Relief Program Executive Compensa tion

233 officers

. . . is a powerful tool for control.” Edmond , 520 U.S. at 664 (citing Bowsher v. Synar , 478 U.S. 714, 727 (1986) and Myers v. United

States , 272 U.S. 52 (1927)); see Free Ent erprise Fund , 130 S. Ct. at 3162 (“‘[t]he power to r emove officers’ at will an d without cause ‘is a powerful tool for control’ of an inferior” (quoting Edmond )).
Second, the Treasury Department has reasonably construed the InterimRule as not precluding the Treasury Secretary from reviewing and revising the Special Master’s determinations should the Secretary choose to exercise that authority.
Whether the Interim Rule permits the Special Master’s determinations to be reviewed by the Treasury Secretary is a point of contention between

the SIGTARP and the Trea sury Department. The SIGTARP argues that the Interim Rule insulates the Special Master’s determinations from

s ecretarial review. He notes that the Interim Rule “does not expressly authorize any internal approval or review of the Special Master’s actions.” SIGTARP Letter at 8. Instead, by making the “final determinations” of the Special Master “final and binding” and “treated as the determination of the Treasury,” the SIGTARP contends, the Interim Rule precludes

further review. Id. The Treasury Department, b y contrast, takes the view that the Special Master’s “decisions remain subject to further review within the Treasury.” 9
Our approach to this question is informed by the familiar principle that the Secretary’s interpretation of his own regulations is entitl ed to deference “unless plainly erroneous or inconsistent with the regulation.” Auer

v. Robbins , 519 U.S. 452, 461 (1997) (quoting Robertson v. Methow Valley Citizens Council , 490 U.S. 332, 359 (1989), in turn quoting Bowles

v. Seminole Rock & Sand Co. , 32 5 U.S. 410 , 414 (1945)). We think the Treasury Department’s interpretation of the Interim Rule readily meets

that standard.

9 Letter for Bryan Saddler, Chief Counsel, SIGTARP, from Timothy G. Massad, Chief Counsel, Office of Financial Stability

, at 2 (Mar. 26, 2010); see Letter for Bryan Saddler, Chief Counsel, Special Inspector Gen eral for the Troubled Asset Relief Program, Department of the Treasury, from Timothy G. Massad, Chief Counsel, Office of Financial Stability

, at 1 (July 29, 2010) (“the decisions of the Special Master are subject to review ( i.e. , can be reviewed) by other officials within Treasury”). The Treasury Department

General Counsel’s Office has confirmed for us that these statements reflect the view of the Secretary of the Treasury.34 Op. O.L.C. 219 (2010)

234 The Interim Rule’s lack of an express authorization for s ecretarial review of the Special Master’s determination does not imply prec lusion of such review. On the contrary, by statute the Secretary is “the head of the Department,” 31 U.S.C. § 301(b), and is vested with the “[d]uties and powers of the officers and employees of the Department,” i d . § 321(c). In our view, these statutes cr eate a strong presumption that officials within the Department are subject to the Secretary’s supervision, including the authority to review and reverse their decisions. This default rule may be overcome, we have suggested, when there is “specific and expl icit reservation of ‘final decisionmaking power ’ in a subordinate official,” in the sense of a preclusion of the presumptive reviewing authority possessed by the department head. Memorandum for the Deputy Attorney General from Leon Ulman, Deputy Assistant Attorney General, Office of Legal Counsel, Re: Authority of the Attorney General Over the National Institute of Justice and the Bureau of Justice Statistics at 2 (Oct. 14, 1980) (“NIJ/BJS Memo”) (emphasis added); see also Under Secretary of Treasury for

En forcement , 26 Op. O.L.C. 230, 232

– 33 (2002) (applying similar principle to Treasury Department). But we think it reasonable to conclude that the Interim Rule lacks a clear enough preclusion of s ecretarial review to overcome the presumption of s ecretarial s upervisory authority.
To be sure, the Interim Rule characterizes the Special Master’s final determinations as “final and binding” and directs that they be “treated as the determination of the Treasury.” 31 C.F.R. § 30.16(c)(2). But those phrases by themsel ves do not necessarily, or even most naturally, amount to the sort of specific and explicit reservation of decision

- making power in the Special Master that would insulate the Special Master’s final

determinations from s ecretarial review. Indeed, on at leas t two occasions we have concluded that similar phrases were inadequate to demonstrate an intent to insulate subordinate officials’ decisions from review by the head of a Department. See Memorandum for Alan C. Raul, General Counsel, Department of Agricultur e, from Doug R. Cox, Deputy Assistant Attorney General, Re: Secretary of Agriculture Review of ALJ Decisions (Feb. 20, 1991) (statute providing that subordinate officials’ decisions “shall be final” and “shall take effect” thirty days after notice of

their delivery did not prohibit issuance of regulations providing for

s ecretarial review); Secretary of Education Review of Administrative Law Judge Decisions , 15 Op. O.L.C. 8, 10

– 13 (1991) (“ Secretary of Educa-Special Master for T roubled Asset Relief Program Executive Compensa tion

235 tion Review ”) (statute providing that an administra tive law judge’s decision “shall be considered to be a final agency action” did not preclude further agency review). As we explained in the earlier of those opinions, when a statute (or regulation) refers to a decision as “final agency action”

it is often “understood to mean that action which is necessary and sufficient for judicial review” under the Administrative Procedure Act even though the decision may be “subject to reconsideration or appea l to a higher authority within the agency.” Id . at 10

– 11; cf. Darby v. Cisneros

, 509 U.S. 137, 144

– 47 (1993) (explaining that agency decisions may be final for purposes of judicial review even though additional, optional levels of administrative review may be available). As we made clear in the later of those prior opinions, we have concluded that it was reasonable to attach the same interpretation to a statute (or regulation) that

characterizes an official’s decision as “final.” Secretary of Agriculture

Review , 15 Op. O.L.C. at 1

– 2. 10

10 The SIGTARP contends that our opinion in Secretary of Education Review of ALJ

Deci sions is “largely inapposite” because the statute at issue there and the Interim Rule differ in two material respects. SIGTARP Letter at 6. First, the SIGTARP points out that

the statute at issue in Secretary of Education Review used the phrase “ shall be c onsidered

to be a final agency action,” whereas the Interim Rule provides that “final determinations” of the Special Master “ shall be final and binding and treated as the determination of the Treasury.” SIGTARP Letter at 6

– 7. We do not think, however, that the absence of the verb “considered” is decisive (particularly given the Interim Rule’s use of the similar verb “treated”). Indeed, we have previously rejected such a distinction. Admittedly, in Secretary of Education Review , we determined that Congress’s use of “shall be considered” instead of the more unequivocal “shall be” made it easier to conclude that Congress did not intend to preclude further agency review. 15 Op. O.L.C. at 10. “[L]anguage that the ALJ’s decision ‘shall be the final agency action’, ” we explained, “would, at a minimum, present a question as to whether Congress intended for the ALJ decision to be final in the sense that no further agency review is available.” Id

. at 10 n.3. Nevertheless, we concluded that it was “unlikely that we woul d construe even this language to express an intent to foreclose secretarial review, absent affirmative evidence that Congress so intended.” Id

. A month later we made good on that prediction by finding that a statute using the phrase

“shall be final”

— withou t the “considered” phrasing

— also did not preclude secretarial

review. Secretary of Agriculture Review at 1

– 2. Second, the SIGTARP emphasizes that
the statute at issue in Secretary of Education Review used the phrase “final agency action,” a term borrowed a lmost directly from the Administrative Procedure Act, see 5 U.S.C. § 704 (“final agency action for which there is no other adequate remedy in a court [is] subject to judicial review”), while the Interim Rule uses “final determination”

and “final and bindin g.” See SIGTARP Letter at 7. Again, we hardly think that difference is decisive, as our memorandum on Secretary of Agriculture Review , which addressed a34 Op. O.L.C. 219 (2010)

236 Similarly, the Interim Rule’s ch aracterization of the Special Master’s final determinations as “final and binding” may reasonably be understood as intended not to insulate the Special Master’s decisions from s ecretarial review, but instead to make clear when the Special Master’s decision s take effect and thus become ripe for judicial review. This understandingdraws support from the Interim Rule’s distinction between “initial determinations” and “final determinations.” 31 C.F.R. § 30.16(c)(1). After the Special Master renders an “initial determination,” the TARP recipient has 30 days to request reconsideration, and the Special Master must provide a “final determination” in writing within 30 days thereafter, setting forth the facts and analysi s that formed the basis for the determination. I d . If the TARP recipient does not request reconsideration within 30 days, the

initial determination “shall be treated as a final determination.” Id. Initial determinations trigger a deadline for a reconsideration request; final determinations impose an obl igation to abide by the Special Master’s directives and thus signal an entitlement to seek judicial review. Given these other legal effects, we do not see any reason to conclude that the terms “final and binding” in the Interim Rule must be read to have th e additional effect of insulating the Special Master’s decisions from further review by the Secretary.
A comparison of the Interim Rule with a regulation the Supreme Court has found to impose a limitation on review by the head of a department

underscores t he point that the Treasury Department’s understanding of

the Interim Rule as not involving such elimination of s ecretarial review is

reasonable. In United States v. Nixon , 418 U.S. 683 (1974), the Court found that a regulation delegating authority in certa in matters to a SpecialProsecutor and providing that “[t]he Attorney General will not countermand or interfere with the Special Prosecutor’s decisions or actions” shielded the Special Prosecutor’s decisions from revision by the Attorney

General. Id . at 69 4 n.8. That language is much more direct and specific than the language in the Interim Rule. It constitutes the sort of “specific and explicit reservation of ‘final decisionmaking power’” that we have indicated would be necessary to shield a subordinate of ficial’s decisions from review by a Department head.

statute characterizing officials’ decisions as “final” (rather than as “final agency action”),

indicate s.Special Master for T roubled Asset Relief Program Executive Compensa tion

237 For all these reasons, we think the Treasury Department’s interpretation of the Interim Rule as not precluding s ecretarial review of the Special Master’s determinations is not plainly erroneous or incons istent with the

Interim Rule. 11
A third consideration, not necessary to our analysis, may offer somefurther support for the conclusion that the Special Master is not a principal officer. The Secretary has established the specific functions of the Special Master by regulation and thus may alter the Special Master’spowers, or even abolish the position, by regulation. The degree of incremental control this regulatory power over the Special Master affords the Secretary is not clear, given both that (i) were t he Secretary to eliminate or modify the position of Special Master, he would need to do so by regulation, and that revising regulation would have to conform to statutes

11 We do not mean to suggest that use of the term “final,” when considered in context and in conjunction with other considerations, may never lead to the conclusion that a statute or regulation was intended to insulate a subordinate official’s decisions from review by the head of a Department. In at least one instance, for example, we have advised that an explicit statutory delegation of “final authority over all grants, cooperative agreements, and contracts” to the “Directors” of certain entities establi shed by statute within the Department of Justice precluded the Attorney General from overturning the Directors’ decisions. NIJ/BJS Memo at 2. But our reasoning in reaching that conclusion only confirms the reasonableness of interpreting the Interim Rule as not precluding

s ecretarial review.
First, the statute at issue in that earlier memorandum did not characterize the subordinate officials’ individual decisions as “final,” let alone contrast such “final determinations” with “initial determinations,” as the Interim Rule does. Rather, that statute endowed those officials with “final authority ” over several classes of decisions. Id . at 1 (emphasis added) . The latter wording is not easily understood as simply identifying certain decisions as ready for judicial review; instead it is much more readily understood as granting certain officials the last word in the Department. Second, as we noted, the legislative history of the statute at issue in that memorandum supported the conclusion that Congress intended the Di rectors created by the statute to be protected from reversal by the Attorney General. See id . Third, the Directors, unlike the Special Master, were appointed by the President, with the advice and consent of the Senate. Id

. That eliminated any concern roote d in the Appointments Clause that might have counseled against finding that the Directors’ decisions were shielded from review by the Attorney General.Here, such constitutional avoidance concerns would, if anything, support the reasonableness of reading t he Interim Rule as not precluding s ecretarial review of the Special
Master’s decisions. See generally Application of 28 U.S.C. § 458 to Presid ential Appoint ments of Federal Judges , 19 Op. O.L.C. 350, 352 (1995) (describing avoidance canon and noting its use in Executive Branch legal interpretation).34 Op. O.L.C. 219 (2010)

238 placing procedural limits on the Secretary’s rulemaking authority and

that (ii) the Spe cial Master is already subject to removal by the Secretary

without cause. 12 But this power may represent some small additional

lever of “direct[ion] and supervis[ion].” Edmond , 520 U.S. at 663.

IV.

Accordingly, whether we apply the Morrison or the Edmond an alysis, the Special Master is not a principal officer and therefore need not be appointed by the President, by and with the advice and consent of the

Senate.

JONATHAN G. CEDARBAU M Acting Assistant Attorney General Office of Legal Counsel

12 Compare Morrison , 487 U.S. at 721 (Scalia, J., dissenting) (characterizing power of “amending or revoking [an authorizing] regulation” as a means of at

- will removal); and In
re Sealed Case , 829 F.2d 50, 56

– 57 (D.C. Cir. 1987) (Attorney General’s ability to abolish position of Iran

- Contra Independent Counsel by rescinding authorizing regulation

supp orts conclusion that Indepen dent Counsel is not a principal officer), with Free Enterprise Fund , 130 S. Ct at 3158

– 59 (“[A]ltering the .

. . powers of an agency as a whole is a problematic way to control an infer ior officer. The Commission cannot wield a

f ree hand to supervise individual members if it must destroy the Board in order to fix it.”).