Thanks to Brad Beckstead, more entrepreneurs will have their day in court

As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead — whose two-person accounting firm had been brought to a stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB — the dissent of Judge Brett Kavanaugh could not have been more powerful.

Judge Kavanaugh called the lawsuit “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” He found the accounting board to be “unaccountable and divorced from Presidential control to a degree not previously countenanced in our constitutional structure.” He then stated that “such unaccountable power is inconsistent with individual liberty.” In the words of an editorial by the New York Sun, this “devastating dissent … all but begs for Supreme Court review.”

But even in the majority opinion itself, there is still a significant victory within the defeat. The Court ruled that Brad Beckstead had standing to sue the PCAOB and the court had “subject matter jurisdiction” over his case. This ruling alone could mean that scores of small businessmen and women can get faster relief from the courts when threatened by unaccountable regulatory agencies, and not have to go through a costly and exhaustive appeals process at government agencies before having their day in court.

For some background, before the merits of a case are even heard in federal court, the court has to determine whether a plaintiff has standing to sue. The Constitution requires that there must be an actual “case or controversy” for a court to intervene. So when someone is a challenging a law or regulation, he or she must show an actual or potential injury from this policy. This requirement is important in keeping a court from being just a policymaking venue that supplants our elected officials. The 1992 Supreme Court case Lujan v. Defenders of Wildlife sets some of these parameters.

But in recent decades with the advent of the modern regulatory state, much of the standing doctrine has been turned upside down. Professional activist plaintiffs suffering the most trivial potential injuries can get immediate standing, while small businessman facing regulatory agencies threatening their livelihoods have to wait years for their day in court.

It is typical for instance for environmentalists to get standing simply if their “views” are affected by, say, a new construction project. In Massachusetts v. Environmental Protection Agency, a 5-4 Supreme Court majority ruled that the state of Massachusetts had standing to sue the EPA because of because global warming might raise sea level in the state a few inches within the next 100 years.

Yet when the government sanctions a business, courts have ruled that businessmen and women have no standing in the courts until they “exhaust” their arguments before the regulatory agency. Never mind that this literal process of “exhaustion” can take years and cost millions, and a small business could go bankrupt by the time the regulatory appeals process is through.

Courts have ruled this way even when Congress hasn’t given the agencies exclusive jurisdiction. And this is what the PCAOB and, intervening on its behalf, the Justice Department argued in Brad Beckstead’s case. Even though the PCAOB through its numerous requests to Beckstead for thousands of documents was greatly slowing his business and threatening the livelihoods of Beckstead and his partner, the government argued that he could not get his day in court until he “exhausted” his argument before the PCAOB and then appealed to the Securities and Exchange Commission.

But Beckstead brave took the government on. His stellar legal team — led by Jones Day attorney Michael Carvin and including former Independent Counsel Ken Starr and former Assistant Attorney General Viet Dinh, as well as CEI attorneys Sam Kazman and Hans Bader — argued successfully that a “facial” challenge to a regulatory agency, arguing that its very structure is unconstitutional, is outside the regulatory appeal process and must be heard by the courts to prevent the violation of constitutional rights.

In her majority opinion (pages 6-8), Judge Judith Rogers agreed. She reaffirmed an earlier ruling by the DC Circuit that a court has “general federal question jurisdiction to consider a facial challenge to a statute’s constitutionality.” She continued, “Therefore, because [Beckstead’s] constitutional challenges to the Act are collateral to the Act’s administrative review scheme, the exhaustion doctrine does not apply, and we hold that the district court had subject matter jurisdiction over the complaint and properly denied the motion to dismiss.”

Although the court this round ruled against the merits of Beckstead’s case — that the PCAOB’s appointment by the Securities and Exchange commission violates the Constitution’s appointment clause (see this analysis on Open Market by Hans Bader) — this ruling on standing by itself is very important. It means that small entrepreneurs in the future will have more recourse against overweening government agencies on shaky constitutional foundations. All Americans owe Beckstead and his legal team a debt of gratitude for this victory on behalf of their liberties.

Click here for Brad Beckstead’s web site with his statement on the case.