After nearly a decade of debate among commentators and in the courts below, the US Supreme Court finally heard argument about the constitutionality of the structure of the Consumer Financial Protection Bureau (“CFPB” or “Bureau”). The issue arises in a lawsuit brought by the CFPB to enforce a Civil Investigative Demand (“CID”) it issued to Seila Law, which refused to comply and argued that the agency’s structure violates the Constitution’s separation-of-powers principles because it is headed by a single Director removable only for cause. In an oral argument that lasted well over an hour and featured argument by four different lawyers, the Court heard divergent views regarding whether and how to decide the case.
The argument presented a host of issues for the Justices: whether the case was appropriate for decision at all or should be “dismissed as improvidently granted”; what the Dodd-Frank Act’s limitation on the President’s authority to remove the CFPB Director actually means; whether that limitation violates separation-of-powers principles; and, if it does, what the appropriate remedy should be.
Improvidently granted? Justice Ruth Bader Ginsburg opened the questioning by noting that the case has an “academic quality” to it because Seila Law would suffer the same injury if the Director was removable by the President, noting that then-Acting Director Mick Mulvaney (who was removable at will by the President because of his “acting” status) ratified issuance of the CID. Amicus Paul Clement—who was appointed by the Court to defend the constitutionality of the statute in light of the Justice Department’s position that the agency’s structure is unconstitutional—argued that the parties were essentially asking for an advisory opinion in light of the ratification and that the Court should instead issue an opinion explaining why the case was not appropriate for decision. That, in turn, led to an exchange with Justice Neil Gorsuch, who asked whether the Court should just “DIG” the case (i.e., Dismiss it as Improvidently Granted) in light of the ratification by Mulvaney and the parties’ agreement that the agency is unconstitutional. Given the lack of an apparent uniform approach to the merits among the Justices, it is conceivable that they could decide that this is not the right vehicle to address this issue.
“For Cause.” The Dodd-Frank Act is often described as providing that the CFPB Director can only be removed “for cause.” But what the law actually says is that the Director can be removed by the President for “inefficiency, neglect of duty, or malfeasance in office.” Because this case does not involve an actual attempt by the President to remove a CFPB Director, the Court did not have before it a concrete set of facts to assess against this standard. And that led to many questions about what the standard actually means. Chief Justice John Roberts, among others, asked whether a mere policy disagreement between the President and a CFPB Director might suffice to meet the statutory standard, noting that the President might believe that a particular regulatory approach was not “efficient.” Counsel for Seila Law was firmly of the view that the standard has been understood as “having teeth” and noted that interpreting it as meaning no more than a policy disagreement would effectively overturn the Court’s decision in Humphrey’s Executor v. United States, in which the Court held that President Roosevelt could not remove a Federal Trade Commission (“FTC”) Commissioner simply because of policy disagreements. Amicus Clement and counsel for the House of Representatives—who also argued in favor of constitutionality—could not provide a clear answer to what the standard might be, how it might apply to various levels of policy disagreement and whether it would be judicially administrable. Given the absence of an actual attempted removal, and a concrete set of facts against which to assess if the standard was met, it seems unlikely the Court will attempt to define what constitutes “inefficiency, neglect of duty or malfeasance in office” or accept Amicus Clement’s invitation to avoid the potential constitutional issues by watering down the standard.
Separation of Powers. On the main merits question—whether the removal limitation violates separation-of-powers principles because it impedes the President’s Article II responsibility to ensure that the laws are faithfully executed—the argument returned again and again to the limitations and implications of the parties’ arguments. On the one hand, Seila Law and the Justice Department sought to distinguish a limitation on removal of a member of a multi-member commission like the FTC from a limitation on removal of a single head of an agency. That led to a discussion of why that distinction should matter, with Justice Elena Kagan in particular making the point that removal limitations on multi-member commissions could be seen as a greater impediment to the President’s ability to influence those agencies. On the other hand, Amicus Clement and counsel for the House argued that the principles of Humphrey’s Executor applied to agencies led by a single individual. But that led to a line of questions about whether that meant that Congress could give removal protections to the heads of Cabinet-level agencies such as the Department of Education or the Department of Homeland Security. Chief Justice Roberts asked all the lawyers whether the CFPB’s budget authority was relevant to the issue (though the lawyers did not seem to believe so), and Justice Brett Kavanaugh repeatedly invoked the fact that the current CFPB Director would serve three years into the next President’s term under the current law. Justices Stephen Breyer and Elena Kagan seemed to suggest that there was no hard-and-fast principle to be applied to these issues.
Remedy. The parties also disagreed about what the proper remedy should be in the event that the Court finds the removal restriction unconstitutional. Seila Law argued that the only appropriate remedy was dismissal of the CFPB’s case and invalidation of the CID that it issued to Seila Law; alternatively, it argued that the Court should strike down the CFPB in its entirety. The Justice Department, on the other hand, argued that the Court should rule that the removal restriction is severable from the rest of the statute and that the CFPB can therefore continue to operate.
* * *
The number of parties participating in the argument, and the Justices’ varied questions regarding the host of issues presented by the case, made this a rather interesting oral argument. Based on the questioning alone, the case could lead to a number of different opinions by the Justices, an outcome that would undermine some of the certainty that all parties seek. That said, a merits ruling upholding the CFPB’s current structure as constitutional seems unlikely. While it is possible the Court could decide not to address the merits, the most likely outcome remains the one that then-Judge Kavanaugh reached when he was on the DC Circuit—holding the removal provision unconstitutional and severing it from the rest of the statute. If the Court rules in that manner, its ruling likely will be applied to similar outstanding cases involving the constitutionality of the structure of another independent agency, the Federal Housing Finance Agency, which is the conservator for Fannie Mae and Freddie Mac. A decision is expected by June.
Interview with Matt Wolf from RSM US LLPCredibly Challenged Podcast