The U.S. Supreme Court on Wednesday found that the Federal Housing Finance Agency (FHFA) is unconstitutionally structured due to a statutory provision that violates the separation of powers.
The case stylized as Collins v. Yellen is, at root, about the agency developed by Congress in 2008 to bailout, oversee and regulate two government-created corporations: (1) the New Deal-era Federal National Mortgage Association (Fannie Mae); and (2) the 1970s vintage Federal Home Loan Mortgage Corporation (Freddie Mac).
Litigation began in response to a 2012 agreement between the Obama administration and the companies that changed the terms of how–and how much–the U.S. Department of Treasury would be paid back for the initial $100 billion public investment that saved the underwater underwriters amidst the subprime mortgage crisis.
Shareholders who had their investments subsidized by U.S. taxpayers subsequently rebelled–complaining that the amendment rendered their shares worthless and suing on two grounds: (1) that the FHFA conservatorship’s new divided formula was in violation of the federal statute that created the agency; and (2) that the structure of the agency itself is unconstitutional because its rules only allow the president to fire the agency’s director “for cause.”
Nine justices agreed that the statutory claim by the shareholders was more or less bunk here because the relevant law prohibits the courts from taking “any action to restrain or affect the exercise of [the] powers or functions of the [FHFA] as a conservator.”
Writing for a 7-2 majority, right-wing Justice Samuel Alito vindicated the shareholders’ secondary constitutional claim on the basis that the “Recovery Act’s for-cause restriction on the President’s removal authority violates the separation of powers.”
For the majority, this case was an easy call in light of recent precedent regarding the removal provisions governing executive branch officers.
Last July, the nation’s high court found a removal-for-cause provision in the Obama-created Consumer Financial Protection Bureau (CFPB) unconstitutional as well. In Seila Law v. Consumer Financial Protection Bureau, a 5-4 conservative majority found that similar “for-cause” removal language had to be severed from the rest of the statute that created the CFPB.
“A straightforward application of our reasoning in Seila Law dictates the result here,” Alito notes. “The FHFA (like the CFPB) is an agency led by a single Director, and the Recovery Act (like the Dodd-Frank Act) restricts the President’s removal power.”
In effect, the ruling creates a situation where at-will removal removal for executive branch officers is the standard.
The majority opinion explains its reasoning at length:
The President’s removal power serves vital purposes even when the officer subject to removal is not the head of one of the largest and most powerful agencies. The removal power helps the President maintain a degree of control over the subordinates he needs to carry out his duties as the head of the Executive Branch, and it works to ensure that these subordinates serve the people effectively and in accordance with the policies that the people presumably elected the President to promote. In addition, because the President, unlike agency officials, is elected, this control is essential to subject Executive Branch actions to a degree of electoral accountability. At-will removal ensures that “the lowest officers, the middle grade, and the highest, will depend, as they ought, on the President, and the President on the community.” These purposes are implicated whenever an agency does important work, and nothing about the size or role of the FHFA convinces us that its Director should be treated differently from the Director of the CFPB.
Concurring in part, centrist Justice Elena Kagan noted the upshot of the majority’s decision: “Any ‘agency led by a single Director,’ no matter how much executive power it wields, now becomes subject to the requirement of at-will removal.”
Justice Sonia Sotomayor disagreed with the majority’s decision to upend the employment protections previously afforded to the FHFA director–casting the court’s latest effort as a sharp break from precedent and the overall trajectory of such decisions as a form of activist, judicial overreach.
“The Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress,” the nation’s furthest-left Supreme Court justice argues. “In striking down the independence of the FHFA Director, the Court reaches further than ever before, refusing tenure protections to an Agency head who neither wields significant executive power nor regulates private individuals. Troublingly, the Court justifies that result by ignoring the standards it set out just last Term in Seila Law. Because I would afford Congress the freedom it has long possessed to make officers like the FHFA Director independent from Presidential control, I respectfully dissent.”
Notably, however, while the constitutional proved a sticky source of glue used to fashion the court into a fairly recognizable 6-3 split (Justice Stephen Breyer joined both Kagan and Sotomayor; Kagan concurred in the judgment due to stare decisis but rejected the legal reasoning), all of the justices agreed that the shareholders failed to make their case here on the statutory question.
The court remanded that finding back to the U.S. Court of Appeals for the Fifth Circuit in order for the appellate court to determine what relief, if any, the shareholders are entitled to for having won the constitutional question.
Alito, for his part, expressed severe doubts as to the scope of the remedy that might be available for the shareholders in the end.
Again the ruling [emphasis in original]:
We have already explained that the Acting Director who adopted the third amendment was removable at will. That conclusion defeats the shareholders’ argument for setting aside the third amendment in its entirety. We therefore consider the shareholders’ contention about remedy with respect to only the actions that confirmed Directors have taken to implement the third amendment during their tenures. But even as applied to that subset of actions, the shareholders’ argument is neither logical nor supported by precedent. All the officers who headed the FHFA during the time in question were properly appointed. Although the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void.
It didn’t take long for the court’s opinion to have real-world consequences.
News: Mark Calabria, a Trump appointee, will be replaced as director of the FHFA, which oversees Fannie and Freddie:
WH official says “the President is moving forward today to replace the current Director with an appointee who reflects the Administration’s values”
— Jordan Fabian (@Jordanfabian) June 23, 2021
[image via Alex Wong/Getty Images]
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