Court Opinion

ID: 6103792
Source: CourtListenerOpinion
Date Created: 2022-01-14 20:11:59.589976+00
Date Added: 2024-06-11T08:53:40.428741
License: Public Domain

Special Master for Troubled Asset Relief
                  Program Executive Compensation
The Special Master for Troubled Asset Relief Program Executive Compensation is not a
  principal officer for purposes of the Appointments Clause and thus need not be ap-
  pointed by the President, by and with the advice and consent of the Senate.

                                                                     November 5, 2010

          MEMORANDUM OPINION FOR THE GENERAL COUNSEL
                 DEPARTMENT OF THE TREASURY
                                      AND THE
                       SPECIAL INSPECTOR GENERAL
                     TROUBLED ASSET RELIEF PROGRAM

   You have asked for our opinion whether the Special Master for Trou-
bled 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 under the Emergency
Economic Stabilization Act (“EESA”), Pub. L. No. 110-343, § 111, 122
Stat. 3765, 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 Legal

Counsel, from Neil M. Barofsky, Special Inspector General, Office of the Special Inspec-
tor General for the Troubled Asset Relief Program (Aug. 20, 2010) (“SIGTARP Letter”).
The Treasury Department General 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.

                                         219
                                34 Op. O.L.C. 219 (2010)

                                            I.

   On October 3, 2008, in the midst of a major crisis affecting the Na-
tion’s financial system, Congress enacted the EESA to provide the Secre-
tary of the Treasury with immediate authority and facilities “to restore
liquidity and stability to the financial system 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 authorizes the Secretary “to establish the Troubled
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 conditions as are 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
recipients 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 shall require each TARP
recipient to meet appropriate standards for executive compensation and
corporate governance,” id. § 5221(b)(2); see also id. § 5221(b)(1) (“Dur-
ing the period in which any obligation arising from financial assistance
provided under the 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 val-
       ue of such recipient during the period in which any obligation arising from finan-
       cial 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 on

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Special Master for Troubled Asset Relief Program Executive Compensation

statements of earnings, revenues, gains, or other criteria 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 employ-
ees 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, re-
tention award, or incentive compensation during the period in which any obligation
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-term restricted stock—
          (I) does not fully vest during the period in which any obligation arising
        from financial assistance provided to that TARP recipient remains outstand-
        ing;
          (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 de-
        termine 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 employ-
        ees 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 prohibition shall apply to the senior executive officers and at least the 10
        next most highly-compensated employees, or such higher number as the Sec-
        retary may determine is in the public interest with respect to any TARP re-
        cipient.
          (IV) For any financial institution 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 deter-
        mine is in the public interest with respect to any TARP recipient.
      (iii) The prohibition required under clause (i) shall not be construed to prohibit
    any bonus payment required to be paid pursuant to a written employment con-
    tract executed on or before February 11, 2009, as such valid employment con-
    tracts are determined by the Secretary or the designee of the Secretary.

                                      221
                            34 Op. O.L.C. 219 (2010)

the Secretary to “review bonuses, retention awards, and other compensa-
tion 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 incon-
sistent 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 section.” 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 in-
clude, “without limitation,” “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 purposes 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 Fed. Reg. 28,394–423 (codified at 31 C.F.R. pt. 30). The Interim
Rule, which became effective on the day it was issued, see 74 Fed. Reg. at
28,423; 31 C.F.R. § 30.17 (2010), elaborates the specific standards and
other requirements relating to corporate governance and executive com-
pensation that section 111 of the EESA establishes for TARP recipients.
    To ensure that these requirements are applied “efficiently,” “consist-
ently,” and “equitably,” the Interim Rule further provides that the Secre-
tary “shall establish the Office of the Special Master for TARP Executive
Compensation.” 74 Fed. Reg. at 28,403; 31 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 Special Master.” Id. The Interim

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

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       Special Master for Troubled Asset Relief Program Executive Compensation

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 recipients and their employees; (2) determining
whether compensation paid to employees of TARP recipients prior 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 employ-
ee for appropriate reimbursement to the government; (3) determining
whether to approve compensation payments to, and compensation struc-
tures for, certain highly compensated employees of TARP recipients
receiving financial assistance defined by the Interim Rule as “exceptional
financial assistance”; 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 under 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 structure 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 princi-
       ples enumerated below. The principles are intended to be consistent with sound
       compensation practices appropriate for TARP recipients, and to advance the pur-
       poses and considerations described in EESA sections 2 and 103, including the max-
       imization of overall returns to the taxpayers of the United States and providing sta-
       bility 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 structure
       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
       financial 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
       made 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 principles

                                            223
                         34 Op. O.L.C. 219 (2010)

by considering the facts and circumstances at the time the compensation was grant-
ed, earned, or paid, as appropriate.
     (i) Risk. The compensation structure should avoid incentives to take unneces-
   sary or excessive risks that could threaten the value of the TARP recipient, in-
   cluding incentives that reward employees for short-term or temporary increases
   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, in-
   centive payments or similar rewards should be structured to be paid over a time
   horizon that takes into account the risk horizon so that the payment or reward re-
   flects 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 structure, and amount payable where
   applicable, should reflect the need for the TARP recipient to remain a competi-
   tive enterprise, to retain and recruit talented employees who will contribute to
   the TARP recipient's future success, and ultimately to be able to 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 cir-
   cumstances, including the nature and amount of current compensation, deferred
   compensation, or other compensation and benefits previously paid or awarded.
   The appropriate allocation may be different for different positions and for dif-
   ferent employees, but generally, in the case of an executive or other senior level
   position a significant portion of the overall compensation should be long-term
   compensation that aligns the interest of the employee with the interests of share-
   holders and taxpayers.
     (iv) Performance-based compensation. An appropriate portion of the compen-
   sation should be performance-based over a relevant performance period. Per-
   formance-based compensation should be determined through tailored metrics
   that encompass individual performance and/or the performance of the TARP re-
   cipient or a relevant business unit taking into consideration specific business ob-
   jectives. Performance metrics may relate to employee compliance with relevant
   corporate policies. In addition, the likelihood of meeting the performance met-
   rics should not be so great that the arrangement fails to provide an adequate in-
   centive for the employee to perform, and performance metrics should be meas-
   urable, enforceable, and actually enforced if not met. The appropriate allocation
   and the appropriate performance metrics may be different for different positions
   and for different employees, but generally a significant portion of total compen-
   sation should be performance-based compensation, and generally that portion
   should be greater for positions that exercise higher levels of responsibility.
     (v) Comparable structures and payments. The compensation structure, and
   amount payable where applicable, should be consistent with, and not excessive,

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     Special Master for Troubled Asset Relief Program Executive Compensation

   When acting under paragraphs (2) and (3), the Special Master must
make an “initial determination” within 60 days of receiving a “substan-
tially 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 the 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 de-
cisions. The Interim Rule provides that “[i]n the case of any final deter-
mination that the TARP recipient is required to receive, the final deter-
mination of the Special Master shall be final and binding and treated as
the determination of the Treasury.” Id. § 30.16(c)(2). “An advisory opin-
ion 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 advisory opinion applies to the TARP recipient and
the employee and the TARP recipient and employee comply in all re-
spects with the advisory opinion.” Id. § 30.16(c)(3).
   Finally, the Interim Rule provides that the Special Master “shall have
such other duties and powers related to the application of compensation
issues arising in the administration of [the] EESA or TARP as the Secre-
tary or the Secretary’s designate may delegate to the Special Master,
including, but not limited to, the interpretation or application of contrac-

         taking into account compensation structures and amounts for persons in similar
         positions or roles at similar entities that are similarly situated, including, as ap-
         plicable, entities competing in the same markets and similarly situated entities
         that are financially distressed or that are contemplating or undergoing reorgani-
         zation.
           (vi) Employee contribution to TARP recipient value. The compensation struc-
         ture, and amount payable where applicable, should reflect the current or pro-
         spective contributions of an employee to the value of the TARP recipient, taking
         into account multiple factors such as revenue production, specific expertise,
         compliance with company policy and regulation (including risk management),
         and corporate leadership, as well as the role the employee may have had with re-
         spect to any change in the financial health or competitive position of the TARP
         recipient.
31 C.F.R. § 30.16(b).

                                           225
                               34 Op. O.L.C. 219 (2010)

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 President] . . . shall nominate, and by and with the Advice and
      Consent of the Senate, shall appoint Ambassadors, other public Min-
      isters and Consuls, Judges of the supreme Court, and all other Offic-
      ers of the United States, whose Appointments are not herein other-
      wise provided for, and which shall be established by Law: but the
      Congress may by Law vest the Appointment of such inferior Offic-
      ers, 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 appointed in the same manner, unless Congress “by
Law vest[s] the[ir] 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 preamble to the Interim Rule characterizes the Special Master’s residual authori-

ty 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 under
section 111, or to provide guidance or review any submissions with respect to compensa-
tion 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 Office has
informed us that the Secretary has not assigned any additional functions to the Special
Master under this provision.

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     Special Master for Troubled Asset Relief Program Executive Compensation

(1976) (per curiam). “[T]he terms of the Appointments Clause set out the
only means by which Congress may provide for the appointment of ‘Of-
ficers 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 Relief 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. SIGTARP 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 forth an exclusive criterion for distinguishing between
principal and inferior officers for Appointments Clause purposes.” Ed-
mond 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 of important
guideposts by which to distinguish principal from inferior officers.
   In Morrison v. Olson, 487 U.S. 654 (1988), the Supreme Court consid-
ered 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, the 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). The Office is headed by a Special Inspec-
tor General—the SIGTARP—who is appointed by the President, with the advice and
consent of the Senate. Id. § 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. Id. § 5231(c)(1), (4).

                                         227
                           34 Op. O.L.C. 219 (2010)

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 independent
counsel “full power and independent authority to exercise all investiga-
tive and prosecutorial functions and powers of the Department of Jus-
tice,” but thought it significant that “this grant of authority does not
include any authority to formulate policy for the Government or the
Executive Branch, nor does it give appellant any administrative duties
outside of those necessary to operate her office.” Id. at 671–72. Third,
the Court stressed that the independent 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
within 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 her office had no fixed term, it was “‘tempo-
rary’ in the sense that an independent counsel is appointed essentially to
accomplish a single task, and when that task is over the office is termi-
nated.” Id.
   Almost a decade after Morrison, the Court returned to the distinction
between 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 concluded that the judges were
inferior officers, but it characterized the factors it had relied on in Morri-
son as not “definitive” and adopted a somewhat different approach. Id. at
661.
   The Court acknowledged that judges on the Coast Guard Court of
Criminal Appeals 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 nonetheless deemed them inferior offic-
ers 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 Court

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     Special Master for Troubled Asset Relief Program Executive Compensation

explained, was 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 established the
court’s rules of procedure, could order any of its decisions submitted for
review, and could remove judges without cause. Id. at 664, 666. And the
Court of Appeals for the Armed Forces (an Executive Branch tribunal)
could review and reverse the lower tribunal’s decisions, and prevent any
final order from being issued. Id. 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 stand-
ard for identifying inferior 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 662. 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 offi-
cial below the President and whether 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 distinguishing 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 separa-
tion of powers and Appointments Clause challenges to the structure of
the Public Company Accounting Oversight Board (“PCAOB”), a sta-
tutorily created entity with “expansive powers to govern [the account-
ing] industry.” Id. at 3147. The statute establishing the PCAOB, the
Sarbanes-Oxley Act of 2002, 15 U.S.C. §§ 7211–7219 (“SOX Act”),
provided for the Securities and Exchange Commission (“SEC”) to appoint

                                      229
                               34 Op. O.L.C. 219 (2010)

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 regulations 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 proce-
dures. 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 removable by
the President only for good cause, and the PCAOB members removable
by the SEC only for another, more restrictive type of good cause speci-
fied in the SOX Act—was “contrary to Article II’s vesting of the execu-
tive power in the President,” and therefore 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 Clause 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 the
Commission’s other oversight authority, we have no hesitation in con-
cluding that under Edmond the Board members are inferior officers.” Id.
at 3162.
   Both Edmond and Free Enterprise Fund indicate that the level of direc-
tion 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 Appeals 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

   7The parties stipulated that SEC Commissioners could not be removed by the Presi-
dent except for “‘inefficiency, neglect of duty, or malfeasance in office,’” and the Court
decided the case based on that understanding. Free Enterprise Fund, 130 S. Ct. at 3148–
49.

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     Special Master for Troubled Asset Relief Program Executive Compensation

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 no power to render a final decision on
behalf of the United States unless permitted to do so by other Executive
officers.” Id. Similarly, in Free Enterprise Fund, the Court rejected the
proposition that the SEC’s power over the PCAOB’s activities was “ple-
nary.” 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 alter 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 associated persons) without
Commission preapproval or direction.”). Thus, Edmond and Free Enter-
prise Fund make clear (as had Morrison) that an executive official can
exercise some level of independent authority and still qualify as an inferi-
or officer, so long as it can be said that the official “is directed and super-
vised at some level by others who were appointed by Presidential nomina-
tion 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 it
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 compensation and
corporate governance, negotiating reimbursements for improper compen-
sation payments made by TARP recipients before February 17, 2009,
determining whether to approve compensation payments and structures
relating to certain employees of TARP recipients receiving “exceptional
financial assistance,” and issuing advisory opinions. See supra pp. 222–
                                      231
                               34 Op. O.L.C. 219 (2010)

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 guid-
ance, 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 lim-
ited to TARP recipients’ executive compensation and corporate govern-
ance. See 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 subject
to “some level” of “direct[ion] and supervis[ion]” by an official appoint-
ed by the President, 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 Special 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, the 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 Special Master.” Id. § 30.16(a)(5). But while
the outer limit of those potential duties—none of which has been granted—is not precise-
ly defined, the clause by its terms encompasses only the “application” of compensation
issues. Id. Accordingly, we do not believe that the clause contemplates the Secretary’s
delegation to the Special Master of authorities under section 111 that might be character-
ized as more closely resembling policymaking, such as the establishment of executive
compensation and corporate governance standards. Cf. 12 U.S.C. § 5221(b)(2).

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       Special Master for Troubled Asset Relief Program Executive Compensation

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 Enterprise Fund, 130 S. Ct. at 3162
(“‘[t]he power to remove officers’ at will and without cause ‘is a powerful
tool for control’ of an inferior” (quoting Edmond)).
   Second, the Treasury Department has reasonably construed the Interim
Rule as not precluding the Treasury Secretary from reviewing and revis-
ing 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 Treasury Department. The SIGTARP argues that
the Interim Rule insulates the Special Master’s determinations from
secretarial 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, by 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 entitled to defer-
ence “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., 325 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 General for the Troubled Asset Relief Program, Depart-
ment 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.

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                          34 Op. O.L.C. 219 (2010)

   The Interim Rule’s lack of an express authorization for secretarial re-
view of the Special Master’s determination does not imply preclusion 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,” id. § 321(c). In
our view, these statutes create 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 explicit reser-
vation 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 Coun-
sel, 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
Enforcement, 26 Op. O.L.C. 230, 232–33 (2002) (applying similar princi-
ple to Treasury Department). But we think it reasonable to conclude that
the Interim Rule lacks a clear enough preclusion of secretarial review to
overcome the presumption of secretarial supervisory 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 themselves 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 secretarial review. Indeed, on at least 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 Agriculture, from Doug R. Cox, Deputy Assis-
tant Attorney General, Re: Secretary of Agriculture Review of ALJ Deci-
sions (Feb. 20, 1991) (statute providing that subordinate officials’ deci-
sions “shall be final” and “shall take effect” thirty days after notice of
their delivery did not prohibit issuance of regulations providing for
secretarial review); Secretary of Education Review of Administrative Law
Judge Decisions, 15 Op. O.L.C. 8, 10–13 (1991) (“Secretary of Educa-

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      Special Master for Troubled Asset Relief Program Executive Compensation

tion Review”) (statute providing that an administrative law judge’s deci-
sion “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 suffi-
cient for judicial review” under the Administrative Procedure Act even
though the decision may be “subject to reconsideration or appeal 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 reasona-
ble 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

Decisions 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 considered
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 Secre-
tary 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 conclud-
ed that it was “unlikely that we would 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”—without 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 almost 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 binding.” See SIGTARP Letter at 7. Again, we hardly think that difference
is decisive, as our memorandum on Secretary of Agriculture Review, which addressed a

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                                 34 Op. O.L.C. 219 (2010)

   Similarly, the Interim Rule’s characterization 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 secretarial
review, but instead to make clear when the Special Master’s decisions
take effect and thus become ripe for judicial review. This understanding
draws support from the Interim Rule’s distinction between “initial deter-
minations” 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 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. Initial
determinations trigger a deadline for a reconsideration request; final
determinations impose an obligation 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 the
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 the point that the Treasury Department’s understanding of
the Interim Rule as not involving such elimination of secretarial review is
reasonable. In United States v. Nixon, 418 U.S. 683 (1974), the Court
found that a regulation delegating authority in certain matters to a Special
Prosecutor and providing that “[t]he Attorney General will not coun-
termand or interfere with the Special Prosecutor’s decisions or actions”
shielded the Special Prosecutor’s decisions from revision by the Attorney
General. Id. at 694 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 official’s decisions
from review by a Department head.

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

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      Special Master for Troubled Asset Relief Program Executive Compensation

   For all these reasons, we think the Treasury Department’s interpretation
of the Interim Rule as not precluding secretarial review of the Special
Master’s determinations is not plainly erroneous or inconsistent with the
Interim Rule. 11
   A third consideration, not necessary to our analysis, may offer some
further support for the conclusion that the Special Master is not a princi-
pal officer. The Secretary has established the specific functions of the
Special Master by regulation and thus may alter the Special Master’s
powers, or even abolish the position, by regulation. The degree of incre-
mental control this regulatory power over the Special Master affords the
Secretary is not clear, given both that (i) were the 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 established 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
secretarial review.
   First, the statute at issue in that earlier memorandum did not characterize the subordi-
nate officials’ individual decisions as “final,” let alone contrast such “final determina-
tions” with “initial determinations,” as the Interim Rule does. Rather, that statute en-
dowed 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 Directors 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 eliminat-
ed any concern rooted 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 reasonable-
ness of reading the Interim Rule as not precluding secretarial review of the Special
Master’s decisions. See generally Application of 28 U.S.C. § 458 to Presidential Ap-
pointments of Federal Judges, 19 Op. O.L.C. 350, 352 (1995) (describing avoidance
canon and noting its use in Executive Branch legal interpretation).

                                            237
                                34 Op. O.L.C. 219 (2010)

placing procedural limits on the Secretary’s rulemaking authority and
that (ii) the Special 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 analysis,
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. CEDARBAUM
                                       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
supports conclusion that Independent 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 inferior officer. The Commission cannot wield a
free hand to supervise individual members if it must destroy the Board in order to fix it.”).

                                            238