Patrick Collins v. Steven Mnuchin, SecretarPatrick Collins v. Steven Mnuchin, Secretar
The bicentennial of the United States Constitution in 1987 celebrated our Founding generation‘s ingenious system of separated powers: legislative, executive, and judicial. The Constitution inaugurated a revolutionary design. Madisonian architecture infused with Newtonian genius—three separate branches locked in synchronous orbit by competing interests. “Ambition . . . made to counteract ambition,” explained Madison, making clear that this law
The Constitution‘s 200th birthday coincided with a centennial, the 100th birthday of the federal administrative state.2 Congress‘s passage in 1887 of the Interstate Commerce Act, making railroads the first industry subject to federal regulation, and the Act‘s creation of the nation‘s first federal regulatory body, the Interstate Commerce Commission, profoundly altered the Framers’ tripartite structure. The ICC was an amalgam of all three powers, blending functions of all three branches. The administrative state has sprouted since
* * *
The plaintiffs (the Shareholders) own shares in Fannie Mae and Freddie Mac. In 2008 Fannie and Freddie‘s new regulator, the Federal Housing Finance Agency, placed them in conservatorship. FHFA secured financing from the Treasury to keep Fannie and Freddie afloat. That relationship continued, and in 2012 FHFA and Treasury adopted a Third Amendment to their financing agreements. Under the Third Amendment, Fannie and Freddie give Treasury nearly all their net worth each quarter as a dividend.
The Shareholders have two principal objections to this arrangement:
First, the Third Amendment exceeded FHFA‘s statutory powers. FHFA‘s enabling statute gives it general powers to use as either conservator or receiver. The statute grants other, more directed powers to FHFA as conservator or receiver respectively. As conservator, the agency may take actions “(i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.”4 These enumerated conservator powers don‘t vanish in the glare of the more general ones. Congress created FHFA amid a dire financial calamity, but
Second, the Shareholders argue that FHFA lacked authority to adopt the Third Amendment because its Director was not removable by the President. We adhere to the panel‘s reasoning and conclusion that FHFA‘s design, an independent agency with a single Director removable only “for cause,” violates the separation of powers.5 In Parts VII–VIII of this opinion, a majority of the en banc court holds that the Director‘s “for cause” removal protection is unconstitutional.
The remaining question is what remedy the Shareholders are entitled to. A different majority of the en banc court holds that prospective relief is the proper remedy. In Judge Haynes‘s opinion,6 a majority holds that the Shareholders can only obtain a declaration that the FHFA‘s structure is unconstitutional.
We REVERSE the judgment dismissing Count I and REMAND that claim for further proceedings. We AFFIRM the judgment dismissing Counts II and III. The court REVERSES the judgment as to Count IV and REMANDS that claim for entry of judgment that the “for cause” removal limitation in
During last decade‘s housing-market crisis, Congress passed and President George W. Bush signed the Housing and Economic Recovery Act of 2008 (HERA).7 The statute created FHFA as an independent agency to oversee the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie and Freddie are government-sponsored entities (GSEs) that also have private shareholders, including the plaintiffs in this case. Some background on FHFA and the GSEs is useful.8
A
Congress created Fannie Mae in 1938.9 Its purposes include “provid[ing] stability in the secondary market for residential mortgages,” “increasing the liquidity of mortgage investments,” and “promot[ing] access to mortgage credit throughout the Nation.”10 Congress created Freddie Mac in 1970 to “increase the availability of mortgage credit for the financing of urgently needed housing.”11 Among other activities, Fannie and Freddie purchase mortgages originated by private banks, bundle the mortgages into income-producing securities, and sell the securities to investors.
In 2007, mortgage delinquencies and defaults sparked a bank liquidity crisis that kindled a recession. At the time, Fannie and Freddie controlled
In 2008, the President signed HERA into law to protect the national economy from further losses. HERA established FHFA as an “independent agency of the Federal Government” and classified Fannie and Freddie as “regulated entit[ies]” under FHFA.13
B
A single Director leads FHFA.14 He is “appointed by the President, by and with the advice and consent of the Senate.”15 The Director serves a term of five years, “unless removed before the end of such term for cause by the President.”16 The Director designates three Deputy Directors.17 In case of a vacancy in the Director office, “the President shall designate [one of the Deputy Directors] to serve as acting Director until the return of the Director, or the appointment of a successor.”18
FHFA regulates normal GSE operations. The Director must issue regulations, guidelines, or orders necessary to oversee the GSEs and ensure their sound operations.22 FHFA also has enforcement authority. The Director may bring charges against a GSE for unsound practices or violating the law.23 He may issue cease-and-desist orders, require the GSE to remedy any violations, and impose penalties.24
C
FHFA is not just a regulator. Under
Section 4617 next provides FHFA‘s general powers as conservator or receiver. In either role, FHFA is a successor to the GSE:
The Agency shall, as conservator or receiver, and by operation of law, immediately succeed to—
(i) all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity . . . .27
Similarly, FHFA in either role may operate the GSE:
The Agency may, as conservator or receiver—
(i) take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity;
(ii) collect all obligations and money due the regulated entity;
(iii) perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver;
(iv) preserve and conserve the assets and property of the regulated entity; and
(v) provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver.28
And FHFA in either role may exercise incidental powers to carry out those enumerated:
Incidental powers
The Agency may, as conservator or receiver—
(i) exercise all powers and authorities specifically granted to conservators or receivers, respectively, under this section, and such incidental powers as shall be necessary to carry out such powers; and
(ii) take any action authorized by this section, which the Agency determines is in the best interests of the regulated entity or the Agency.29
FHFA in either role may also order a shareholder, director, or officer to perform any function.30 And in either role it may transfer or sell any GSE asset or liability without consent.31 FHFA in either role also benefits from an anti-injunction provision:
Except as provided in this section or at the request of the Director, no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.32
E
Other powers depend on capacity. Section 4617 grants some powers to FHFA as conservator only:
Powers as conservator
The Agency may, as conservator, take such action as may be—
(i) necessary to put the regulated entity in a sound and solvent condition; and
(ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.33
It grants other powers to FHFA as receiver only:
Additional powers as receiver
In any case in which the Agency is acting as receiver, the Agency shall place the regulated entity in liquidation and proceed to realize upon the assets of the regulated entity in such manner as the Agency deems appropriate . . . .34
It is extensive. As receiver FHFA must publish and mail notice to creditors to present their claims.35 It generally must allow or disallow a claim within 180 days of filing.36 It must expedite certain secured claims with potential for irreparable injury.37 It may also make rules for allowing and disallowing claims.38 And it must allow proven claims.39 Creditors may alternatively pursue their claims in U.S. district court.40 The receivership scheme qualifies the succession provision by carving out surviving shareholder and creditor rights:
[T]he appointment of the Agency as receiver . . . and its succession, by operation of law, to the rights, titles, powers, and privileges described in subsection (b)(2)(A) shall terminate all rights and claims that the stockholders and creditors of the regulated entity may have against the assets or charter . . . except for their right to payment, resolution, or other satisfaction of their claims, as permitted under subsectiоns (b)(9), (c), and (e).41
In short, FHFA as receiver must divide the GSEs’ assets between creditors and shareholders according to law.
Congress also amended the GSEs’ charters by giving Treasury temporary authority to purchase their securities.42 In connection with any purchase, it required Treasury to make an “[e]mergency determination” that the purchase would “(i) provide stability to the financial markets; (ii) prevent disruptions in the availability of mortgage finance; and (iii) protect the taxpayer.”43 Congress also prescribed six mandatory considerations for exercising the authority, “[t]o protect the taxpayers.”44 The temporary purchase authority terminated on December 31, 2009, except for Treasury‘s rights under purchases already made.45
II
In September 2008, FHFA appointed itself a conservator for the GSEs. The next day, Treasury and the GSEs entered Preferred Stock Purchase Agreements. Treasury made a capital commitment, capped at $100 billion per GSE, to keep them from defaulting. In return, Treasury received one million senior preferred shares in each GSE. These shares entitled Treasury to:
- a $1 billion senior liquidation preference;
- a dollar-for-dollar increase in that preference each time a GSE drew on the capital commitment;
- quarterly dividends of either an amount equal to 10% of the liquidation preference, or a 12% increase in the liquidation preference itself;
- warrants allowing Treasury to purchase up to 79.9% of common stock;
and periodic commitment fees.
The Agreements also prohibited the GSEs from declaring a dividend or making any other distribution without Treasury‘s consent.
Treasury and FHFA later amended the Agreements. In May 2009 they adopted the First Amendment: Treasury agreed to double its funding commitment to $200 billion per GSE. In December 2009 they adopted the Second Amendment: Treasury agreed to an increased, adjustable commitment to account for the GSEs’ losses. As of August 2012, the GSEs had drawn approximately $187 billion from Treasury‘s funding commitment. But they lacked the cash to pay 10% dividends. So in August 2012 FHFA and Treasury adopted the Third Amendment to the Agreements.
The Third Amendment replaced the quarterly 10% dividend with variable dividends equal to the GSEs’ entire net worth except a capital reserve. The Shareholders call this arrangement the “net worth sweep.” The capital reserve buffer started at $3 billion. It decreased annually until it reached zero in 2018. This arrangement was a double-edged sword. The GSEs no longer struggled to make dividend payments, but they would also no longer accrue capital. Treasury also suspended the periodic commitment fees. Treasury announced that the Third Amendment would “expedite the wind down of Fannie Mae and Freddie Mac” and ensure that the GSEs “will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”46 A federal official commented privately that the
The net worth sweep transferred a fortune from Fannie and Freddie to Treasury. When this suit was filed, the GSEs had paid $195 billion in dividends under the net worth sweep. Under the Agreements more broadly, Treasury had disbursed $187 billion and recouped $250 billion, thanks largely to the net worth sweep.
III
The Shareholders sued FHFA, its Director, Treasury, and its Secretary (the Agencies). They assert four causes of action, three statutory and one constitutional:
- In Count I, they allege the Administrative Procedure Act (APA),
5 U.S.C. § 706(2)(C) ,(D) , affords relief because FHFA exceeded its statutory conservator authority under12 U.S.C. § 4617(b)(2)(D) . - In Count II, they allege the APA,
5 U.S.C. § 706(2)(C) ,(D) , affords relief because Treasury exceeded its securities-purchase authority under12 U.S.C. §§ 1455(l) ,1719(g) . Specifically, they allege that Treasury purchased securities after the sunset period, failed to make the required “[e]mergency determination[s],” and disregarded statutory “[c]onsiderations.” - In Count III, they allege the APA,
5 U.S.C. § 706(2)(A) , affords relief because Treasury‘s adoption of the net worth sweep was arbitrary and capricious. - In Count IV, they allege FHFA violates Article II, §§ 1 and 3 of the Constitution because, among other things, it is headed by a single Director removable only for cause.
The Agencies each moved to dismiss all claims under
A panel of this court affirmed as to the statutory claims and reversed as to the constitutional claim.48 We then granted rehearing en banc, vacating the panel decision.49 Before rehearing en banc, both FHFA and Treasury admitted the merits of Count IV: FHFA‘s structure violates the separation of powers. But, several months after rehearing en banc, FHFA reversed its position again. It now contends that FHFA‘s structure is constitutional. Treasury stands by its contrary position. And FHFA and Treasury maintain that for a number of other reasons the Shareholders are not entitled to relief on Count IV.
IV
The rules governing jurisdiction and our standard of review are familiar.
Jurisdiction. The district court had jurisdiction under
V
We begin with Counts I–III, the Shareholders’ statutory claims. Before reaching the merits, we must decide whether they are justiciable under HERA‘s anti-injunction provision and succession provision.
A
HERA‘s anti-injunction provision limits court action against FHFA‘s conservator or receiver powers:
Except as provided in this section or at the request of the Director, no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.55
To interpret this provision, we consult its plain meaning and its past judicial interpretations (including in predecessor statutes).
Past judicial interpretations confirm this view. Congress borrowed much of HERA‘s text from the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).57 FIRREA authorizes the Federal Deposit Insurance Corporation (FDIC) to act as conservator or receiver for distressed banks.58 FIRREA‘s vintage conservator and receiver scheme, including the anti-injunction provision, is materially similar to HERA‘s.59 So is one of FIRREA‘s own predecessors, the Financial Institutions Supervisory Act of 1966 (FISA), which governed conservatorship and receivership by the Federal
The Supreme Court tells us that those provisions’ judicial interpretations guide our analysis of HERA. “[W]here, as here, Congress adopts a new law incorporating sections of a prior law, Congress normally can be рresumed to have had knowledge of the interpretation given to the incorporated law, at least insofar as it affects the new statute.”61 “And when ‘judicial interpretations have settled the meaning of an existing statutory provision, repetition of the same language in a new statute indicates, as a general matter, the intent to incorporate its judicial interpretations as well.‘”62
The Supreme Court interpreted FISA‘s anti-injunction provision in Coit.63 It held the provision did not strip federal jurisdiction over claims in a FSLIC receivership.64 Rather, it “simply prohibit[ed] courts from restraining or affecting . . . those receivership ‘powers and functions’ that have been granted by other statutory sources.”65 So the anti-injunction provision didn‘t affect whether a particular power existed in the first place.66
We have applied Coit to FIRREA‘s anti-injunction provision. In Onion we held that the provision prevented a federal court from stopping a
Ward is the anti-injunction provision‘s strongest expression. We declined to review even whether the receiver breached its express statutory duty to maximize the property‘s value.70 But we did so based on the understanding that, even if the receiver sold the property for inadequate value, it had “improperly or unlawfully exercised an authorized power or function,” not “engage[d] in an activity outside its statutory powers.”71 Ward‘s facts are different from this case. In Ward, selling low instead of high was an improper use of the receiver‘s power to liquidate assets. But here, FHFA as conservator essentially liquidated assets without ever being appointed receiver. Improperly exercising a power is not restrainable, but exercising one beyond statutory authority is.
Other circuits follow the same interpretation. Even our sister courts that rejected claims like Counts I–III acknowledge the same rule: “Section 4617(f) will not protect the Agency if it acts either ultra vires or in some third capacity”
The provision‘s plain meaning, FIRREA precedent, and HERA precedent show that we may grant relief if FHFA exceeded its statutory powers. The Agencies primarily contend that the Third Amendment falls within the conservatorship powers,
The Agencies suggest Treasury‘s temporary purchase authority authorized the Third Amendment.75 Congress authorized Treasury to “purchase any obligations and other securities issued by the [GSEs] . . . on such terms and conditions . . . and in such amounts as the Secretary may determine.”76 It also authorized Treasury “at any time[] [to] exercise any rights received in connection with such purchases.”77
The Agencies also contend that Congress ratified the Third Amendment in the Consolidated Appropriations Act of 2016.80 This act restricted Treasury from disposing of certain shares, specifically including its rights under the Third Amendment, until 2018.81 The statute‘s most favorable reading for Treasury is that, in directing Treasury to retain its Third Amendment interest, Congress recognized or enacted that interest‘s lawfulness.82
The Appropriations Act does not support that reading. In directing Treasury to retain preferred shares, it speaks to future conduct, not past action. The Supreme Court has “recognized congressional acquiescence to administrative interpretations of a statute in some situations, [but] ha[s] done so with extreme care.”83 Treasury faces “a difficult task in overcoming the plain
It follows that whether the anti-injunction provision bars relief on Counts I–III depends entirely on whether the net worth sweep exceeded FHFA‘s statutory conservatorship powers.86
B
The Agencies next invoke HERA‘s succession provision as a defense. When appointed conservator, FHFA succeeds to certain shareholder rights:
The Agency shall, as conservator or receiver, and by operation of law, immediately succeed to . . . all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity . . . .87
The Agencies say that FHFA succeeded to the Shareholders’ right to bring derivative suits, and Counts I–III are derivative. Generally speaking, “[t]he derivative form of action permits an individual shareholder to bring ‘suit to enforce a corporate cause of action against officers, directors, and third parties,‘” whereas a direct cause of action belongs to the shareholder himself.88
To decide whether Counts I–III are direct or derivative, we begin with the cause of action. Counts I–III assert rights under the APA. Under
The APA cause of action is broad. The “Administrative Procedure Act . . . embodies the basic presumption of judicial review to one ‘suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute.‘”93 “[J]udicial review of a final agency
“Whether a plaintiff comes within the zone of interests . . . requires us to determine, using traditional tools of statutory interpretation, whether a legislatively conferred cause of action encompasses a particular plaintiff‘s claim.”97 The Supreme Court once considered the zone of interests a matter of “prudential standing,” but now calls it one of statutory interpretation.98 The Court “ha[s] said, in the APA context that the test is not ‘especially demanding.‘”99 It has “conspicuously included the word ‘arguably’ in the test
Count I, to the extent it has merit, is a direct claim. The Shareholders suffered injury in fact—they were excluded from the GSEs’ profits. And they are within the zone of interests HERA protects. Count I alleges that FHFA violated
Plus, HERA elsewhere states that the succession provision does not extinguish the Shareholders’ right to pursue their claims in receivership.108 This matters because Count I essentially alleges that an improper conservatorship preempted rights that could have been redeemed in receivership.109 Because the Shareholders are within the zone of interests protected by HERA‘s enumeration of conservator powers, they have a direct claim.
And the prudential shareholder-standing rule does not change this analysis. The rule is “a strand of the standing doctrine that prohibits litigants from suing to enforce the rights of third parties.”110 But for APA claims, “Congress itself has pared back traditional prudential limitations.”111 The APA does not abolish the shareholder-standing doctrine. But it limits it in some cases. James Madison is one example, because the court held it had jurisdiction to review the shareholder‘s APA action against appointment of a receiver.112 The Supreme Court decisions City of Miami and Lexmark also support this point: For very broad statutory rights like the APA, an injury in fact and
In so holding, we do not say that there is no direct–derivative distinction for APA claims. Nor is it true that any shareholder may obtain review of agency action affecting his holdings. In Thompson v. North American Stainless, LP, the Supreme Court rejected the “absurd” proposition that shareholders could sue under Title VII employment protections.114 Shareholders are not within Title VII‘s zone of interests because “the purpose of Title VII is to protect employees from their employers’ unlawful actions.”115 But a corporate reorganization statute is a different animal. Shareholders may be within its zone of interests, and here they are.116
Counts II and III, however, are not within the asserted statutes’ zone of interests. In Count II the Shareholders allege that Treasury violated
Congress granted this purchase authority to protect markets, consumers, and taxpayers, not GSE stakeholders. The emergency determination asks whether a purchase will stabilize markets, prevent disruptions in mortgage finance, and protect taxpayers.119 And the statutes’ mandatory “[c]onsiderations” are likewise public-oriented: Treasury must consider the GSEs’ condition, and any transaction‘s structure, “[t]o рrotect the taxpayers.”120 So we agree with the district court, though for a different reason, that Counts II and III must be dismissed.
VI
We now consider Count I‘s substantive allegation that the net worth sweep exceeded FHFA‘s conservator powers. Like any federal agency, FHFA “literally has no power to act . . . unless and until Congress confers power upon it.”121 This principle is enshrined in statute: “The reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be . . . in excess of statutory jurisdiction, authority, or limitations . . . .”122 It is recognized in prominent Supreme Court decisions and implicit in countless
A
To define FHFA‘s statutory authority, we “follow the cardinal rule that a statute is to be read as a whole, since the meaning of statutory language, plain or not, depends on context.”125 Emphasis on isolated provisions at the expense of other, more applicable ones is “hyperliteral and contrary to common sense.”126 As Learned Hand explained, “[w]ords are not pebbles in alien juxtaposition; they have only a communal existence.”127 Our analysis proceeds in three parts: HERA‘s plain meaning, its past judicial interpretations (including FIRREA precedent), and insight from common-law conservatorship.
1
Under HERA‘s plain meaning, FHFA as conservator has limited, enumerated powers. To begin with, conservator and receiver are distinct and mutually exclusive roles. HERA says FHFA may “be appointed as conservator or receiver for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity.”128 In ordinary use, the word “or” is “almost always
Some powers do overlap. HERA grants general powers to FHFA as either conservator or receiver. In either capacity, FHFA is a successor to the GSE.132 It succeeds to the GSE‘s and its stakeholders’ “rights, titles, powers, and privileges . . . with respect to the regulated entity and [its] assets.”133 Similarly, FHFA in either capacity has power to operate the GSE.134 This includes taking over its assets, operating its business, collecting obligations, performing its functions, preserving and conserving its assets and property, and entering contracts.135 The list goes on: In either role FHFA may transfer assets or
But that list has an end. Other powers depend on which role FHFA occupies. The statute enumerates FHFA‘s separate “[p]owers as conservator“:
The Agency may, as conservator, take such action as may be—(i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.141
Then it enumerates “[a]dditional powers as receiver“:
“In any case in which the Agency is acting as receiver, the Agency shall place the regulated entity in liquidation and proceed to realize upon the assets of the regulated entity in such manner as the Agency deems appropriate, including through the sale of assets . . . .”142
The receiver powers also include organizing a successor enterprise143 and administering a detailed claim-processing scheme.144
The receiver powers stand in contrast to the conservator powers. As receiver, FHFA gains the power to liquidate the GSE and realize on its assets.145 It also gains the power to notice, review, and determine creditors’ claims.146 A conservator does not have these powers. If it did, a conservator
The Agencies contend that the general powers to “operate the regulated entity” and “conduct all [its] business,”147 or “transfer or sell any asset or liability of the regulated entity in default,”148 authorize the net worth sweep. But if read so broadly, these provisions would obliterate the receivership claim-processing duties. If a conservator or receiver may enter any transaction as part of “operat[ing]” the GSE and “conduct[ing]” its business,149 there is no bar to circumventing HERA‘s creditor and shareholder protections.
That would raze the receiver‘s duties to notice and adjudicate claims.150 It would also be inconsistent with creditors’ and shareholders’ right to have their claims paid in receivership.151 So it cannot be a correct reading. “In construing a statute we are obliged to give effect, if possible, to every word Congress used.”152 And “the canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme.”153
Rather than give the general powers their broadest possible meaning, we give them a meaning consistent with the separate conservator and receiver powers. A coherent interpretation of these provisions is not just reasonable, it is mandatory. In RadLAX, the Supreme Court held that when “a general authorization and a more limited, specific authorization exist side-by-side” in
Applying this to HERA, § 4617(b)(2)(D) enumerates the conservator‘s specific powers to “put the regulated entity in a sound and solvent condition,” “carry on [its] business,” and “preserve and conserve” its assets. The shared conservator-receiver powers are more general and would swallow the rest of the statute if interpreted broadly. So the more “particular enactment must be operative.”157 “[M]ay means may” and “‘may’ is, of course, ‘permissive rather than obligatory.‘”158 But here “may” is a grant of power that enables FHFA to act. FHFA as conservator may not exercise a power beyond the ones granted.159
The incidental-powers provision does not change this. It gives FHFA other powers “necessary to carry out” its enumerated ones.160 We doubt that Congress “in fashioning this intricate . . . machinery, would thus hang one of
The best-interests clause is also consistent with this reading. That clause, within the incidental-powers provision, authorizes FHFA to “take any action authorized by this section, which the Agency determines is in the best interests of the regulated entity or the Agency.”164 Permitting the conservator to act in its own interest may appear to depart from the traditional view of a conservator as fiduciary. But the best-interests clause modifies FHFA‘s authority “as conservatоr or receiver,”165 and it only affects actions that are otherwise “authorized by this section.”166 So FHFA may pursue its own interests only within the conservator‘s enumerated powers. It may not, for example, wind down a GSE and jettison receivership protections all in its own best interests. That would not be “authorized by this section.” Instead, this
2
FIRREA decisions also demonstrate the conservator‘s limited, enumerated powers.168 FIRREA‘s conservator-powers provision is materially identical to HERA‘s.169 In McAllister we interpreted that provision to “state[] explicitly that a conservator only has the power to take actions necessary to restore a financially troubled institution to solvency.”170 We are in good company—the Fourth, Eighth, Ninth, Eleventh, and D.C. Circuits have articulated similar views.171 Under FIRREA, a conservator has power to steward the bank‘s assets, not to make every conceivable use of them.
The common-law meaning of “conservator” also shows it has limited powers. The Supreme Court recognizes a “settled principle of interpretation that, absent other indication, Congress intends to incorporate the well-settled meaning of the common-law terms it uses.”172 And “absence of contrary direction may be taken as satisfaction with widely accepted definitions, not as a departure from them.”173
There is no shortage of authority for traditional conservatorship. Well before HERA, or even FIRREA, the Supreme Court recognized that a conservator has limited powers and must conserve the ward‘s property.174 Under the Uniform Probate Code, a “conservator” is a fiduciary held to the same standard of care as a trustee.175 And according to the Congressional Research Service, “[a] conservator is appointed to operate the institution, conserve its resources, and restore it to viability.”176 Black‘s Law Dictionary defines “conservator” as “[a] guardian, protector, or preserver . . . the modern equivalent of the common-law guardian,” and it defines “managing
Tethering the conservator‘s powers to traditional principles of insolvency is both sound and indispensable. FHFA‘s present Director has explained that “[a] market economy depends upon predictable rules to govern competition. These rules must include . . . predictable and fair standards to allocate losses and rehabilitate or liquidate a company when it cannot pay its debts.”178 Considering this need for continuity, HERA‘s conservator powers must be interpreted in light of both FIRREA decisions and traditional conservatorship.179 These authorities “reflect a fundamental difference between the missions of a conservator, which seeks to reorganize, and a receiver, which seeks to liquidate.”180
Congress built FIRREA, and later HERA, on this common-law understanding. Until recently, FHFA agreed. It told Congress in 2010 that “[t]he purpose of conservatorship is to preserve and conserve each company‘s assets and property and to put the companies in a sound and solvent condition.”181 In 2011, it had a “statutory mission to restore soundness and solvency to insolvent regulated entities and to preserve and conserve their assets and property.”182 In a 2012 regulation, it said “FHFA‘s duties as
Congress did not repudiate common-law conservatorship in FIRREA or HERA. Instead, it consistently authorized the FDIC and then FHFA to put entities in a “sound and solvent condition,” “carry on th[eir] business,” and “preserve and conserve th[eir] assets and property.”184 Neither HERA‘s general powers, implied powers, nor right to act in FHFA‘s own bеst interest is the kind of “contrary direction” that quells common-law conservatorship.185 A conservatorship of Fannie Mae or Freddie Mac (here, both) sways an entire industry. Given the potential effect on markets, firms, and consumers, partial suggestions are not enough to show that HERA inverted traditional conservatorship.186 “Conservator” is an old role‘s anchor, not a new role‘s banner.187
B
Now to apply this understanding of conservator powers to the Third Amendment. We hold the Shareholders stated a plausible claim that the Third Amendment exceeded statutory authority. Transferring substantially all
In adopting the net worth sweep, the Agencies abandoned rehabilitation in favor of “winding down” the GSEs. Treasury announced that the Third Amendment would “expedite the wind down of Fannie Mae and Freddie Mac” and ensure that the GSEs “will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”189 The FHFA acting Director also said that the Third Amendment “reinforce[d] the notion that the [GSEs] will not be building capital as a potential step to regaining their former corporate status.”190 In a report to Congress, FHFA explained that it was “prioritizing [its] actions to move the housing industry to a new state, one without Fannie Mae and Freddie Mac.”191 For reasons we are about to explain, this “wind down” exceeded the conservator‘s powers and is the type of transaction reserved for a receiver.
As a textual matter, the net worth sweep actively undermined pursuit of a “sound and solvent condition,” and it did not “preserve and conserve” the GSEs’ assets.192 Treasury has collected $195 billion under the net worth sweep.193 This alone exceeds the $187 billion it invested.194 After paying back
FHFA had authority, of course, to pay back Treasury for the GSEs’ draws on the funding commitment. The funding commitment provided liquidity and took on risk, so Treasury was also entitled to compensation for the cost of financing. But the net worth sweep continues transferring the GSEs’ net worth indefinitely, well after Treasury has been repaid and the GSEs returned to sound condition. That kind of liquidation goes beyond the conservator‘s powers.
FIRREA precedent confirms that this exceeds statutory conservator powers. In Elmco Properties, the Fourth Circuit held that a creditor was unlawfully deprived of its claim because it never received notice of the receivership.197 The creditor had notice of a conservatorship. But “the RTC as conservator cannot . . . liquidate a failed bank. Instead, the conservator‘s function is to restore the bank‘s solvency and preserve its assets.”198 Dividing up and distributing the institution‘s property is inconsistent with a conservator‘s powers, so the creditor in Elmco was not on inquiry notice to pursue its claim.199 To “wind down” the GSEs’ affairs here, FHFA needed to follow HERA‘s carefully crafted receivership procedures. But FHFA was never appointed receiver, so it lacked authority to bleed the GSEs’ profits in perpetuity.
It is worth noting that the facts at this stage are distinguishable from those in some sister-circuit decisions. The Shareholders appeal from a dismissal under
But Saxton v. Federal Housing Finance Agency210 and Roberts v. Federal Housing Finance Agency211 had facts similar to the Shareholders’ allegations here. So we recognize that our decision conflicts with at least some other circuits. The conflict is whether HERA authorized FHFA to adopt the Third Amendment. We think that, in interpreting HERA‘s conservatorship and
The complaint states a plausible claim that FHFA exceeded its statutory authority. Judge Haynes‘s dissent suggests that the Shareholders could waive the legal standard for reviewing the grant of a motion to dismiss. But the Supreme Court explained in Iqbal that “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.‘”212 The standard is generally applicable, and we see no exception here. When we reverse the grant of a motion to dismiss, the district court may decide if fact issues require trial or if summary judgment should be granted.213 The proper remedy is to reverse the motion-to-dismiss denial and remand Count I for further proceedings.
VII
We now turn to Count IV, the Shareholders’ constitutional claim. Although the Shareholders could theoretically obtain full relief under Count I alone, they appeal from the dismissal of that count, so the parties have yet to litigate it to judgment. On the constitutional claim, in contrast, both sides moved for summary judgment in the district court. So we consider whether the
A
Federal courts have power to decide “Cases” and “Controversies.”215 “That case-or-controversy requirement is satisfied only where a plaintiff has standing.”216 At its “irreducible constitutional minimum,” standing requires plaintiffs to show they suffered “an injury in fact,” the injury is “fairly traceable” to the defendant‘s actions, and the injury will “likely . . . be redressed by a favorable decision.”217 “The party invoking federal jurisdiction bears the burden of establishing these elements.”218 Here, the summary-judgment standard applies to jurisdictional facts.219
The Shareholders suffered injury in fact. The required injury to challenge agency action is minimal: The Supreme Court has “allowed important interests to be vindicated by plaintiffs with no more at stake in the outcome of an action than a fraction of a vote, a $5 fine and costs, and a $1.50 poll tax.”220 The Agencies contend that, by the time of the net worth sweep, the Shareholders had no rights to dividends and their shares were delisted from
The Shareholders’ injury is traceable to the removal protection. The Agencies contend that the President‘s undisputed control over FHFA‘s counterparty, Treasury, shows that a President-controlled FHFA would have adopted the net worth sweep. But standing does not require proof that an officer would have acted differently in the “counterfactual world” where he was properly authorized.222 In Free Enterprise Fund, the Supreme Court explained that “the separation of powers does not depend on the views of individual Presidents, nor on whether ‘the encroached-upon branch approves the encroachment.‘”223 And in Bowsher v. Synar, the Court said that “[t]he separated powers of our Government cannot be permitted to turn on judicial assessment of whether an officer exercising executive power is” likely to be fired.224 The Shareholders observe that FHFA‘s status as an “independent” counterparty could actually have boosted the Third Amendment‘s political salability. Fortunately, under Synar and Free Enterprise Fund, we need not weigh in on that counterfactual.
The Shareholders have standing.
B
The succession provision does not bar Count IV because it does not bar any direct claims.226 A plaintiff with Article III standing can maintain a direct claim against government action that violates the separation of powers.227 In Bond v. United States the Supreme Court collected numerous separation-of-powers cases litigated by individuals with an otherwise-justiciable case or controversy.228 “If the constitutional structure of our Government that protects individual liberty is compromised, individuals who suffer otherwise justiciable injury may object.”229
There is a separate reason the succession provision does not bar the Shareholders’ constitutional claim. “[W]here Congress intends to preclude judicial review of constitutional claims its intent to do so must be clear.”230
VIII
The Shareholders are entitled to judgment on Count IV.
A
HERA‘s for-cause removal protection infringes Article II. It limits the President‘s removal power and does not fit within the recognized exception for independent agencies. That exception, established in Humphrey‘s Executor v. United States, has applied only to multi-member bodies of experts.235 A single agency director lacks the checks inherent in multilateral decision making and is more difficult for the President to influence.236 We reinstate Part II B 2 of the panel opinion, which holds that FHFA‘s structure is unconstitutional.237 That Part explains that the Director‘s removal protection, in combination with
We disagree with Judge Higginson‘s attempt to distinguish this removal protection from those the Supreme Court has held unconstitutional. He cites scholarship that HERA‘s “for cause” removal provision gives less protection than statutes limiting removal to “inefficiency, neglect of duty, or malfeasance in office.”239 Initially, requiring “cause” for removal is well recognized as an independent agency‘s threshold feature.240 And in Synar, when the Supreme Court considered a statute permitting Congress to remove an official for “inefficiency,” “neglect of duty,” or “malfeasance,” it held this alternative language is quite broad.241 True, the removal protection that Free Enterprise Fund held unconstitutional was exceptionally strict.242 But the Court held that the proper amount of second-level removal protection there was none, not a relaxed amount.243
Judge Higginson also pоints to uncertainty about whether and how a removal would unfold. But the Court in Synar “reject[ed] [the] argument that consideration of the effect of a removal provision is not ‘ripe’ until that provision is actually used.”244 In Synar this was because Congress‘s removal
B
The Agencies contend the Shareholders are not entitled to relief for other reasons. They first say that the FHFA acting Director who adopted the Third Amendment was, unlike a normally appointed Director, not insulated from removal. Under
But HERA unequivocally says what kind of agency it creates: “There is established the Federal Housing Finance Agency, which shall be an independent agency of the Federal Government.”246 In history and Supreme Court precedent, Presidential removal is the “sharp line of cleavage” between independent agencies and executive ones.247 So we do not read the procedural guidance for choosing an acting Director to override the removal restriction, much less FHFA‘s central character. Instead, we read these provisions together.248 The removal restriction applied to the acting Director.
Judge Costa‘s contrary authorities are distinguishable. In Swan v. Clinton, the D.C. Circuit held that the President could remove a National
Judge Costa also cites the Office of Legal Counsel opinion Designating an Acting Director of the Bureau of Consumer Financial Protection.254 That opinion is about filling a vacancy under the CFPB‘s enabling statute and the Federal Vacancies Reform Act. Its reasoning includes a general rule that statutory removal protection does not extend to anyone temporarily performing an office.255 But it relies principally on Swan for that proposition, and it doesn‘t explain why the same rule cuts across different enabling
C
Treasury also contends that FHFA in its conservator capacity does not exercise executive power, so violating the separation of powers was harmless here. Treasury cites Beszborn, where we held that the RTC as receiver exercised nongovernmental power in suing on behalf of the institution in receivership.256 “[T]he suit was purely an action between private individuals.”257 So later criminal prosecution of the same defendants did not violate the Double Jeopardy Clause because the first “punishment,” the civil suit, was not sought by a sovereign.258 Treasury also observes that private parties are sometimes appointed as receivers.259
Whether an agency exercises government power as conservator or receiver “depends on the context of the claim.”260 In Slattery, the Federal Circuit held that the FDIC as receiver acted for the United States when it retained a surplus from the seized bank‘s assets.261 “[T]he claims [we]re asserted against the government, seeking return of the monetary surplus obtained for the seized bank.”262 So the bank‘s former shareholders could maintain their claims against the United States.263
Treasury‘s remaining arguments do not budge this point. It cites
Finally, Treasury‘s attempt to distinguish the Third Amendment from governmental power is not, in any event, a standing argument. In the Appointments Clause case Freytag v. Commissioner, the Supreme Court held that whether the official acted as an Officer of the United States in the particular decision challenged was “beside the point” for standing purposes.271 The Court rejected the Commissioner‘s argument that the taxpayers lacked standing to complain about the special trial judge‘s role in other cases.272 If by statute he performed at least some duties of an Officer of the United States, his appointment must accord with Article II.273 This case is analogous.274
* * *
The Constitution bounds Congress‘s power to create agencies, draw their structure, and grant them authority. Agencies with removal-protected principal officers were a unique, but recognized, blend of legislative, executive, and judicial powers long before the FHFA. Their unique position has also been relatively static, until recently. The removal-protected FHFA Director is a new
Some of us1 agree with the conclusion reached in Section VIII.A–C of the majority en banc opinion that the FHFA is unconstitutionally structured, and some of us2 conclude otherwise, but we all agree that, given the holding of the majority of the en banc court reversing the district court on this point and finding the FHFA to be unconstitutionally structured, it is necessary to reach the question of what remedy is appropriate for the structure found to be unconstitutional by the majority. We now turn to the remedy question.
When addressing the partial unconstitutionality of a statute such as this one, we seek to honor Congress‘s intent while fixing the problematic aspects of the statute. Thus, in this case, the appropriate—and most judicially conservative—remedy is to sever the “for cause” restriction on removal of the FHFA director from the statute. See
The remedial analysis here is informed by that in Free Enterprise Fund. We start from the “normal rule that partial, rather than facial, invalidation is the required course.” Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 504 (1985); Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 508 (2010) (“‘Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,’ severing any ‘problematic portions while leaving the remainder intact.‘” (quoting Ayotte v. Planned Parenthood of N. New Eng., 546 U.S. 320, 328–29 (2006))). Just as in Free
Here it is also “true that the language providing for good-cаuse removal is only one of a number of statutory provisions that, working together, produce a constitutional violation.” Id. But, as the Supreme Court recognized, we should not roam further to invalidate other provisions or modify the statute‘s requirements. The other options would be far more invasive and “editorial.” Id. at 510. Instead, we pursue a path that respects the legislative decisions made by the Congress that passed HERA and the legislative power of the current Congress to amend the statute without unwarranted disruption.
The Shareholders ask that we also invalidate the Net Worth Sweep, claiming the remedy must resolve the injury. Assuming arguendo that an injury in the form of an unconstitutionally structured agency exists,3 the Shareholders may not pick and choose among remedies based on their preferences. The Shareholders’ complaint requested that a court invalidate only the Net Worth Sweep. They never requested a declaratory judgment about the PSPAs as a whole or even the Third Amendment. That is because the rest of the deal is a pretty good one for them: who would not want a virtually unlimited line of credit from the Treasury? Yet the Shareholders’
Generally, there are at least two classes of cases where the appropriate remedy is to invalidate an action taken by an unconstitutional agency or officer. First, the Supreme Court has invalidated actions by actors who were granted power inconsistent with their role in the constitutional program. For example, the Shareholders’ marquee case for their theory is Bowsher v. Synar, 478 U.S. 714 (1986). There, Congress delegated executive authority to a congressional officer. Id. at 732–34. But “Congress [could not] grant to an officer under its control what it [did] not possess.” Id. at 726. The Supreme Court declared unconstitutional the statutory power that impermissibly empowered the congressional officer to exercise executive authority. Id. at
Second, the Court has invalidated actions taken by individuals who were not properly appointed under the Constitution. It has thus vacated and remanded adjudications by officers who were not appointed by the appropriate official, see Lucia v. SEC, 138 S. Ct. 2044, 2055 (2018), or who skipped Senate confirmation through misuse of the Recess Appointments Clause, see NLRB v. Noel Canning, 573 U.S. 513 (2014).
A common thread runs through these two categories. In each, officers were vested with authority that was never properly theirs to exercise. Such separation-of-powers violations are, as the D.C. Circuit put it, ”void ab initio.” Noel Canning v. NLRB, 705 F.3d 490, 493 (D.C. Cir. 2013), aff‘d but criticized, 573 U.S. 513.
Restrictions on removal are different. In such cases the conclusion is that the officers are duly appointed by the appropriate officials and exercise authority that is properly theirs. The problem identified by the majority decision in this case is that, once appointed, they are too distant from presidential oversight to satisfy the Constitution‘s requirements.
But even if that theory is right, it does not apply here for two reasons. First, the action at issue is the adoption of the Net Worth Sweep, and the President had adequate oversight of that action. The entire PSPAs, including the Third Amendment‘s Net Worth Sweep, were created between the FHFA and Treasury. During the process, the Treasury was overseen by the Secretary of the Treasury, who was subject to at will removal by the President. The President, thus, had plenary authority to stop the adoption of the Net Worth Sweep. This is thus a unique situation where we need not speculate about whether appropriate presidential oversight would have stopped the Net Worth Sweep. We know that the President, acting through the Secretary of the Treasury, could have stopped it but did not.6
Second, we can take judicial notice of this reality: subsequent Presidents have picked their own FHFA directors, allaying concerns that the removal restriction prevented them from installing someone who would carry out their policy vision. After the adoption of the Net Worth Sweep, President Obama selected a Director who was confirmed by the Senate. Once confirmed, that
Our decision not to invalidate the Net Worth Sweep is thus grounded in our respect for the Constitution and our co-equal branches of government. Undoing the Net Worth Sweep, as suggested by the dissenting opinion, would wipe out an action approved or ratified by two different Presidents’ directors under the guise of respecting the presidency; how does that make sense? Here, the Constitution commits executive authority to the President. The President had full oversight of the adoption of the Net Worth Sweep, and each President since has appointed FHFA Directors who have affirmed it. We should not invalidate those Presidents’ executive actions by invoking their need to exercise executive authority.
One final point: any remedy that invalidates the Net Worth Sweep without a judgment that fixes the constitutional problems would be
In summary, the Shareholders’ ongoing injury, if indeed there is one,7 is remedied by a declaration that the “for cause” restriction is declared removed. We go no further. We will not let the Shareholders pick and choose parts of the PSPAs to invalidate when the President had adequate oversight over their adoption and particularly when two different presidents have selected agency heads who have supported the Net Worth Sweep. The appropriate remedy is the one that fixes the Shareholders’ purported injury. That is exactly what our declaratory judgment does. Consequently, we decline to invalidate the Net Worth Sweep or PSPAs.8 Instead, we conclude, given that the majority of the court has found the FHFA unconstitutionally structured, that the appropriate remedy for that finding is to declare the “for cause” provision severed.
While I join all of Judge Willett‘s superb majority opinion, I do not join his separate opinion that concludes the proper remedy for the separation-of-powers violation here is to vacate the Third Amendment. To the contrary, the proper remedy—as Judge Haynes cogently explains in her separate majority opinion—is to sever the for-cause removal provision from the challenged statute. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 508 (2010) (“PCAOB“) (“‘Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,’ severing any ‘problematic portions while leaving the remainder intact.‘“) (quoting Ayotte v. Planned Parenthood of N. New Eng., 546 U.S. 320, 328–29 (2006)). I write separately to explain why I think the Supreme Court‘s precedents compel that narrower remedy.
To justify vacating the Third Amendment, Judge Willett asserts that “the action of an unconstitutionally-insulated officer . . . must be set aside.” Willett Dissent at 1. I can find no support for that categorical proposition. Judge Willett relies principally on Bowsher v. Synar, 478 U.S. 714 (1986), but Bowsher is off-point. Bowsher involved a challenge—not to an executive-branch official “insulated” from presidential oversight—but to the Comptroller General, essentially a legislative officer, removable by Congress, who was purporting to exercise executive power. See 478 U.S. at 728 (noting Comptroller General was removable by joint resolution “at any time” so that the officer “should be brought under the sole control of Congress“) (quotes omitted); id. at 730 (noting “Congress has consistently viewed the Comptroller General as an officer of the Legislative Branch“). This Article I creature, Bowsher unsurprisingly told us, “may not be entrusted with executive powers.”
Putting Bowsher aside, more recent Supreme Court authority confirms my view that severance is the proper remedy for the separation-of-powers violation before us. In PCAOB, the petitioners argued that the agency‘s “freedom from Presidential oversight and control rendered it and all power and authority exercised by it in violation of the Constitution.” 561 U.S. at 508 (quotes omitted). But the Court “reject[ed] such a broad holding” and deployed the narrower remedy of severing the unconstitutional culprit—there, the second layer of for-cause removal. Id. at 509–10. Moreover, for remedial purposes PCAOB contrasted an unconstitutionally insulated officer with an unconstitutionally appointed officer: The Court pointedly “[p]ut[ ] to one side petitioners’ Appointments Clause challenges,” id. at 508, which it addressed (and rejected) in another part of its opinion. Id. at 510–13. When the Court did later find an Appointments Clause violation in Lucia, its remedy was to vacate the prior actions of the invalidly appointed officers. See Lucia v. S.E.C., 138 S. Ct. 2044, 2055 (2018) (concluding “the ‘apprоpriate’ remedy for an adjudication tainted with an appointments violation is a new ‘hearing before a properly appointed’ official“) (quoting Ryder v. United States, 515 U.S. 177, 183 (1995)). That is the kind of backward-looking remedy—vacating the Third Amendment—Judge Willett would apply here, but the Supreme Court‘s cases do not support applying it to fix an unconstitutionally insulated agency head.
We join Judge Willett‘s opinion.1 We write separately in response to the suggestion that there is no constitutional problem because this case does not involve the Public Company Accounting Oversight Board (“PCAOB“), the Comptroller General, or the Postmaster General. Post, at 97–107 (Higginson, J.). Our learned colleague suggests that: (I) the Constitution‘s original public meaning offers little guidance on the scope of the removal power; (II) the Supreme Court‘s precedents don‘t help the shareholders here; and (III) even if they did, we have the “judicial” power to rewrite Congress‘s law. With greatest respect, that‘s all wrong.
I.
The Constitution vests in the President the power to remove executive officers. Any intimation to the contrary must be rejected.
A.
Traditionally, the executive power allowed the head of state to appoint and remove his ministers, as well as his judges, at will. See 1 William Blackstone, Commentaries *260 [hereinafter Blackstone‘s Commentaries] (describing English efforts to “remove all judicial power out of the hands of the king‘s privy council“); id. at *261–63 (explaining that “the king is . . . the fountain of honour, of office, and of privilege,” that the king holds
In response, some early State constitutions limited the executive power to appoint judges and officers. See, e.g.,
When the Framers drafted the federal Constitution, they had the same options before them. Ultimately, they chose to give Article III judges “good Behaviour” protection from presidential interference, see
What the text and structure of the Constitution provide, the historical practice confirms. Start with the very first Congress.
On March 4, 1789, Congress convened in New York City. 1 Annals of Cong. 15, 95 (1789). One of its first orders of business was to propagate the Executive Branch. Representative James Madison moved “that there shall be established an Executive Department, to be denominated the Department of Foreign Affairs, at the head of which there shall be an officer, to be called the Secretary to the Department of Foreign Affairs, who shall be appointed by the President, by and with the advice and consent of the Senate; and to be removable by the President.” Id. at 370–71.
The motion sparked a debate “centered around whether the Congress ‘should recognize and declare the power of the President under the Constitution to remove the Secretary of Foreign Affairs without the advice and consent of the Senate.‘” See Bowsher v. Synar, 478 U.S. 714, 723 (1986) (quoting Myers v. United States, 272 U.S. 52, 114 (1926)). And it culminated in the famed “Decision of 1789” in which a majority of both legislative chambers agreed that “the Constitution‘s grant of executive power authorized the President to remove executive officers.” Saikrishna Prakash, New Light on the Decision of 1789, 91 Cornell L. Rev. 1021, 1023 (2006) [hereinafter Prakash, Decision of 1789]; see also 1 Annals of Cong. at 399.
Up until the Civil War, there was virtually no doubt that the Decision of 1789 was correct. Presidents Washington, Adams, and Jefferson relied on that power to remove over 170 officers. Prakash, Decision of 1789, supra, at 1066. In their respective Commentaries in the 1820s and 1830s, Chancellor James Kent and Justice Joseph Story considered the matter settled and beyond alteration. See Myers, 272 U.S. at 148–50.
The history of the use of the removal power—and congressional acquiescence in that use—matters. In interpreting the Constitution, “we put significant weight upon historical practice,” particularly where the issues “concern the allocation of power between two elected branches of Government.” NLRB v. Noel Canning, 573 U.S. 513, 524 (2014). Indeed, “a practice of at least twenty years duration on the part of the executive department, acquiesced in by the legislative department, is entitled to great regard in determining the true construction of a constitutional provision the phraseology of which is in any respect of doubtful meaning.” The Pocket Veto Case, 279 U.S. 655, 690 (1929) (quotation omitted). We should therefore be especially hesitant to interfere with an executive power that was exercised, unfettered by Congress, for over 75 years.
The Supreme Court first squarely addressed the President‘s constitutionally vested removal power in 1926.4 But once proved not enough. In the decades since, the Court has offered varying takes on the limits of that power—all apparently still good precedent. See Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477, 483 (2010) (“The parties do not ask us to reexamine any of these precedents, and we do not do so.“). Yet none of those precedents supports the novel limits on removal found in the Housing and Economic Recovery Act (“HERA“). Indeed, the lack of historical precedent to support HERA may be “the most telling indication of the severe constitutional problem” with it. Id. at 505 (quoting Free Enterprise Fund v. Public Company Accounting Oversight Board, 537 F.3d 667, 699 (D.C. Cir. 2008) (Kavanaugh, J., dissenting)).
A.
Let‘s start at the beginning. In Myers, the Court addressed “whether under the Constitution the President has the exclusive power of removing executive officers of the United States whom he has appointed by and with the advice and consent of the Senate.” 272 U.S. at 60. The Court noted “[t]here is
Instead, the Court considered the original meaning of the “executive power,” the Decision of 1789, and the President‘s duties under the Take Care Clause. As to the original meaning of the “executive power,” the Court noted that both the Congress constituted under the Articles of Confederation and the British crown exercised executive power, and that as a part of that power, both the Congress and the crown could appoint and remove executive officers. Id. at 110, 118. The Court‘s extensive discussion of the Decision of 1789, see id. at 111–63, underscored the importance of that Congress‘s constitutional deliberation and the ensuing “clear affirmative recognition of [the Decision of 1789] by each branch of the government,” id. at 163. And Chief Justice Taft considered the duties of his former post. Speaking from experience,5 the Chief Justice explained that “when the grant of the executive power is enforced by the express mandate to take care that the laws be faithfully executed, it emphasizes the necessity for including within the executive power as conferred the exclusive power of removal.” Id. at 122; see Jack Goldsmith & John F. Manning, The Protean Take Care Clause, 164 U. Pa. L. Rev. 1835, 1836 (2016) (“Chief Justice Taft invoked [the Take Care Clause] to hammer home the implication that a President charged with exercising all of the executive power must have the means to control subordinates through whom he or she would necessarily act[.]“). On this point, text, history, and structure all aligned:
The vesting of the executive power in the President was essentially a grant of the power to execute the laws. But the President alone and unaided could not execute the laws. He must execute them by the assistance of subordinates. . . . As he is charged specifically to take care that they be faithfully executed, the reasonable implication, even in the absence of express words, was that as part of his executive power he should select those who were to act for him under his direction in the execution of the laws. The further implication must be, in the absence of any express limitation respecting removals, that as his selection of administrative officers is essential to the execution of the laws by him, so must be his power of removing those for whom he cannot continue to be responsible. It was urged that the natural meaning of the term ‘executive power’ granted the President included the appointment and removal of executive subordinates. If such appointments and removals were not an exercise of the executive power, what were they? They certainly were not the exercise of legislative or judicial power in government as usually understood.
Myers, 272 U.S. at 117–18 (citations omitted).
As the Court‘s opinion drew to a close, it returned to the Decision of 1789. The Court again emphasized that the first Congress “was a Congress whose constitutional decisions have always been regarded, as they should be regarded, as of the greatest weight in the interpretation of that fundamental instrument.” Id. at 174–75. And because the Court “found [its] conclusion strongly favoring the view which prevailed in the First Congress,” it “ha[d] no hesitation in holding that conclusion to be correct.” Id. at 176. So the Court held “that the Tenure of Office Act of 1867, in so far as it attempted to prevent the President from removing executive officers who had been appointed by him by and with the advice and consent of the Senate, was invalid.” Ibid.
Under Myers, this would be an easy case: Any limit on the President‘s power to remove a principal executive officer is unconstitutional.
B.
Of course, Myers was not the last word on the nature of the President‘s removal power. In Humphrey‘s Executor v. United States, 295 U.S. 602 (1935), the Supreme Court announced a different rule. The Humphrey‘s Executor Court maintained that Congress could not prevent the President from removing any (principal) officers exercising “purely” executive power. But it introduced the concept of administrative agencies that don‘t exercise executive power—a possibility Myers seemingly had not contemplated. See also Prakash, Decision of 1789, supra, at 1071 (arguing the Decision of 1789 did not resolve whether Congress could limit the President‘s removal power for non-executive officers). And for these non-executive administrative agencies, it approved greater restrictions on the President‘s removal power. Humphrey‘s Executor, 295 U.S. at 631–32.
The administrative agency at issue was the Federal Trade Commission. President Hoover appointed Humphrey as a Commissioner. Soon after his election in 1932, President Roosevelt removed Humphrey from office. Id. at 619. To his dying day, Humphrey maintained he was still a Commissioner.
President Roosevelt had cited no “inefficiency, neglect of duty, or malfeasance in office” as cause for removing Humphrey. Id. at 620, 626. He simply wanted to appoint his own Commissioner with whom he “should have a full confidence.” Id. at 620 (citing a letter from Roosevelt to Humphrey). Roosevelt‘s administration pointed to Myers. After all, Myers had recently confirmed that the Constitution grants the President unrestricted power to remove executive officers for any reason or no reason at all. See 272 U.S. at 176 (holding a statute that “attempted to prevent the President from removing executive officers who had been appointed by him . . . was invalid“). Roosevelt‘s administration argued that the Myers rule applied to the Federal Trade Commissioners, notwithstanding Congress‘s provision of a term of office and enumeration of causes justifying their removal. Humphrey‘s Executor, 295 U.S. at 626.
The Court disagreed. Relying on the FTCA‘s legislative history, it reasoned Congress had intended the FTC to function “wholly disconnected from the executive department.” Id. at 630. The FTC was “to be nonpartisan; and it must, from the very nature of its duties, act with entire impartiality.” Id. at 624. And the Court maintained that the FTC‘s “duties are neither political nor executive, but predominantly quasi judicial and quasi legislative.”
Humphrey‘s Executor is difficult to apply for two reasons. First, its division between purely executive and quasi-legislative or quasi-judicial does not map neatly onto modern understandings of executive power. See Morrison v. Olson, 487 U.S. 654, 689 n.28 (1988) (discussing “[t]he difficulty of defining such categories of ‘executive’ or ‘quasi-legislative’ officials“); see also Bowsher, 478 U.S. at 762 n.3 (1986) (White, J., dissenting). And second, the Supreme Court itself limited Humphrey‘s Executor in Bowsher. There, the Comptroller General was subject to removal only by Congress and only for cause. See Bowsher, 478 U.S. at 727–28. The Court held this violated the Constitution‘s separation-of-powers principles by making an official exercising executive power subservient to the legislative branch. See id. at 726, 732–33. The Comptroller General‘s primary duty was to prepare a detailed report in accordance with a legislative mandate. Id. at 732. The Court held that this
Given that Bowsher turned on Congress‘s control over the executive officer in question—a problem undisputedly not at issue here—the dissenters are tempted to ignore Bowsher as irrelevant. Post, at 99 (Higginson, J.). But Bowsher is highly relevant in the way it cabins Humphrey‘s Executor. After Bowsher, Congress cannot legislate around the nature of executive power by creating an office that reports to another branch, rather than (or in addition to) reporting solely to the Executive Branch. See 478 U.S. at 731–32; cf. Humphrey‘s Executor, 295 U.S. at 628 (reasoning the FTC is not an executive agency because it was “created by Congress to carry into effect legislative policies . . . in accordance with the legislative standard . . . and to perform other specified duties as a legislative or as a judicial aid“).
So what does Humphrey‘s Executor by way of Bowsher mean here? Well, the Federal Housing Finance Agency (“FHFA“) Director obviously exercises executive power. As relevant to this case, FHFA implemented a statute—HERA—by making factual findings that triggered authorization to take over and operate the Government Sponsored Entities (“GSEs“). That‘s an executive act. Cf. Gundy v. United States, 139 S. Ct. 2116, 2140 (2019) (Gorsuch, J., dissenting) (explaining that “condition[ing]” the application of statutes “on fact-finding” by the executive has been “long associated with the executive
True, FHFA also has powers that might seem quasi-legislative. For example, it can promulgate regulations. See, e.g.,
But wherever you draw the line between “executive” and “quasi-legislative” power, the exercise of power at the heart of this case is executive.6
FHFA executed a contract and enforced its terms; that is the heartland of executive power. See also Part II.E, infra. In deciding this case or controversy, our constitutional analysis should focus on the nature of the agency action being challenged—not the agency‘s power in the abstract. Thus, in relevant part, “the character of the office” held by the FHFA Director is executive. Humphrey‘s Executor, 295 U.S. at 631. Again, the for-cause removal restriction is invalid.7
C.
In Morrison v. Olson, 487 U.S. 654 (1988), the Supreme Court arranged the removal precedents around a new organizing principle: Removаl restrictions cannot unduly interfere with the President‘s fulfillment of his constitutional obligations—including the power to take care that the laws be faithfully executed. Morrison involved the Ethics in Government Act‘s provision for the appointment of an independent counsel to “investigate, and, if appropriate, prosecute certain high-ranking Government officials for violations of federal criminal laws.” Id. at 660 (discussing
The Morrison Court instead concluded that the constitutionality of limitations on the President‘s removal power is not “define[d] [by] rigid categories of those officials who may or may not be removed at will by the President, but” aims to “ensure that Congress does not interfere with the President‘s exercise of the ‘executive power’ and his constitutionally appointed duty to ‘take care that the laws be faithfully executed’ under Article II.” Morrison, 487 U.S. at 689–90. So, under Morrison, removal restrictions that do not limit “the President‘s ability to perform his constitutional duty” are permissible. Id. at 690.
The Morrison Court concluded the independent counsel‘s office survives this test. First, the Court deemed the independent counsel an inferior office “with limited jurisdiction and tenure and lacking policymaking or significant administrative authority.” Id. at 691; see also id. at 671–72. Second, the Court noted that the President retained the ability to remove the independent counsel for cause (through the Attorney General). Id. at 692–93; see also id. at 696. Congress limited the removal power “to establish the necessary independence of the office,” the Court concluded. Id. at 693. And in light of the independent counsel‘s status as an inferior officer accountable to the
So what of the FHFA Director? Like the independent counsel, the FHFA Director exercises the executive power of implementing the laws. See Part II.B, supra. But unlike the independent counsel, the FHFA Director is a principal officer with significant authority, and he is not subject to significant presidential control through any other executive officer. FHFA‘s insulation from the ordinary appropriations process means its Director does not even answer to Congress. Cf. Humphrey‘s Executor, 295 U.S. at 628 (explaining the FTC is quasi-legislative because it acts “in aid of the legislative power” where it makes “investigations and reports . . . for the information of Congress“). And that also deprives the President of the control he exercises over most independent agencies, who “must participate in the annual budget cycle” under the oversight of the Office of Management and Budget.8 Perhaps it‘s true that “[n]o man is an island.” John Donne, Devotions Upon Emergent Occasions, Meditation XVII 108 (Ann Arbor Paperback ed., 1959) (1624). But FHFA‘s Director comes pretty close.
To satisfy Morrison, “the Executive Branch” must have “sufficient control over” the independent officer “to ensure that the President is able to perform his constitutionally assigned duties.” 487 U.S. at 696. Here, it‘s not clear the Executive Branch has any control at all.
In Free Enterprise Fund, the Supreme Court made clear that Morrison only extends so far. The Free Enterprise Fund Court dealt with the members of the Public Company Accounting Oversight Board (“PCAOB“) who could be removed only by the Securities and Exchange Commission (“SEC“). 561 U.S. at 483. The PCAOB board members could only be removed by the SEC for cause, and the members of the SEC are principal officers who can only be removed by the President for cause. Id. at 486–87. The Court concluded this double for-cause protection arrangement violates the Constitution:
This novel structure does not merely add to the Board‘s independence, but transforms it. Neither the President, nor anyone directly responsible to him, nor even an officer whose conduct he may review only for good cause, has full control over the Board.
Id. at 496. So the Court found PCAOB Commissioners could not constitutionally exercise executive power. See ibid.
The Court reaffirmed its focus on the importance of the relevant office by distinguishing principal officers from inferior officers and inferior officers from mere employees. Id. at 506 (“We do not decide the status of other Government employees, nor do we decide whether ‘lesser functionaries subordinate to officers of the United States’ must be subject to the same sort of control as those who exercise ‘significant authority pursuant to the laws.‘“). Thus, the above analysis concerning the status of a principal officer under Morrison applies here in much the same way.
But Free Enterprise Fund also emphasized a suspicion of novel agency structures. Before the case came before the Supreme Court, then-Judge Kavanaugh had dissented from the D.C. Circuit‘s opinion upholding the PCAOB:
Humphrey‘s Executor and Morrison represent what up to now have been the outermost constitutional limits of permissible congressional restrictions on the President‘s removal power. Therefore, given a choice between drawing the line at the holdings in Humphrey‘s Executor and Morrison or extending those cases to authorize novel structures such as the PCAOB that further attenuate the President‘s control over executive officers, we should opt for the former. We should resolve questions about the scope of those precedents in light of and in the direction of the constitutional text and constitutional history. In this case, that sensible principle dictates that we hold the line and not allow encroachments on the President‘s removal power beyond what Humphrey‘s Executor and Morrison already permit.
Free Enterprise Fund, 537 F.3d at 698 (Kavanaugh, J., dissenting) (citations omitted). The Supreme Court shared his concern: “Perhaps the most telling indication of the severe constitutional problem with the PCAOB is the lack of historical precedent for this entity.” Free Enterprise Fund, 561 U.S. at 505 (quoting 537 F.3d at 699 (Kavanaugh, J., dissenting)).
The novel agency structure at issue in this case raises similar suspicions. Granting that the protections here are not a “Matryoshka doll of tenure protections,” id. at 497, Congress nevertheless insulated the FHFA Director in an unprecedented way. The FHFA Director is a principal officer, not an inferior one or an employee; he exercises significant executive authority; and he does so by himself, not as part of a multi-member body. Cf. PHH Corp. v. CFPB, 881 F.3d 75, 198 (D.C. Cir. 2018) (en banc) (Kavanaugh, J., dissenting) (noting that another agency‘s “single-Director structure departs from settled historical practice, threatens individual liberty, and diminishes the President‘s Article II authority to exercise the executive power.“).9 HERA thereby grants
E.
Judge Higginson‘s principal response to all of this is that “FHFA‘s conservatorship function” is “a role one would be hard-pressed to characterize as near the heart of executive power.” Post, at 107. We disagree. To our minds, you‘d be hard-pressed to characterize it as anything other than executive power.
“The executive power” vested by Article II, Section 1, is the power of ”enforcing the laws.” 1 Blackstone‘s Commentaries, supra, at *146. At the Founding, the “executive power” was understood in contradistinction to the “legislative” power of “making the laws.” Ibid.; see also
There can be no doubt that FHFA purported to “execute” HERA here—even if it did so unlawfully. See ante, at 50–52 (Willett, J.). It “made use of” the statute to adopt the Third Amendment. And it made use of the statute (and the Third Amendment) to sweep the GSEs’ profits. That plainly constitutes “the executive power.”
But suppose we‘re wrong that FHFA is an executive branch agency—where would you put it instead? FHFA is an agency of the federal government. See
It‘s irrelevant that the Secretary of the Treasury—the other party to the Net Worth Sweep—could veto the deal. Cf. post, at 105 (Higginson, J.); post, at 112–13 (Costa, J.). It has never been true that setting aside an officer‘s action in a case involving the removal power requires proof that an uninsulated officer would not have taken the challenged action. Such counterfactual causation is alien to the Supreme Court‘s interpretation of Article II. Neither appointment cases nor removal cases require it. See Landry v. FDIC, 204 F.3d 1125, 1131 (D.C. Cir. 2000) (“There is certainly no rule that a party claiming
Take Free Enterprise Fund, for example. That case implicated both appointment and removal. As to the former, the Court refused to require counterfactual causation as an element of standing to bring an appointment claim. 561 U.S. at 512 n.12 (“[S]tanding does not require precise proof of what the Board‘s policies might have been in that counterfactual world.“). And as to the latter, the Court likewise rejected counterfactual causation. The Court granted prospective relief requiring officers to be properly removable before exercising executive authority. Id. at 513. And it did so without analyzing whether less-insulated officers would make different decisions than the unconstitutionally insulated officers did. If a plaintiff must show that a removable officer would make a different decision, then Free Enterprise Fund
Or take NLRB v. Noel Canning, 573 U.S. 513 (2014). By the time that case reached the Supreme Court, the NLRB already had new, validly appointed members. There was no evidence the new Board members were inclined to overturn the actions of the old, unconstitutionally appointed members. In fact, the litigants challenging the appointments told the Supreme Court that “going forward the government can solve the problem through agency ratification of past decisions.” Transcript of Oral Argument at 66, Noel Canning, 573 U.S. 513 (No. 12-1281). Nevertheless, the Court invalidated the old members’ decisions. See Noel Canning, 573 U.S. at 522 (“[T]hat the Board now unquestionably has a quorum does not moot the controversy about the validity of the previously entered Board order.“).
The best support we can find for counterfactual causation is in the Bowsher dissent. It argued the unconstitutional removal provision was “unlikely to be” invoked, meaning in “political realit[y]” the officer‘s decision-making was unaffected. 478 U.S. at 730 (discussing Justice White‘s dissent). But the majority rejected that analysis: “The separated powers of our Government cannot be permitted to turn on judicial assessment of whether an officer exercising executive power is” likely to be fired. Ibid. “The Framers did not rest our liberties on such bureaucratic minutiae.” Free Enterprise Fund, 561 U.S. at 500. Thus, there is no reason for us to speculate about what a more-accountable officer would have thought about the Net Worth Sweep. And the Treasury Secretary‘s agreement to the Net Worth Sweep doesn‘t tell us anything about the propriety of insulating the FHFA Director.
A majority of our Court believes that the appropriate remedy for the constitutional violation is to delete the offending statutory text. We respectfully disagree, because we do not think our limited Article III power to decide cases and controversies permits such a remedy.
The judicial power vested by Article III of the Constitution extends to “Cases” and “Controversies.”
When then-Judge Scalia was sitting as a member of the three-judge district court in Synar v. United States, he recognized the importance of choosing a remedy that redresses the plaintiffs’ injury-in-fact. See Synar v. United States, 626 F. Supp. 1374, 1393 (D.D.C.) (per curiam), aff‘d sub nom. Bowsher v. Synar, 478 U.S. 714 (1986). In that case, the constitutional violation was caused by a “combination” of statutes: one authorizing an officer to exercise executive power and another governing the appointment or removal of the officer in question. Ibid. Justice Scalia was faced with the question: Which statute should the court refuse to apply when either one would be constitutional in isolation? His answer was the statute that “allegedly
In this case, Plaintiffs are injured by the Net Worth Sweep—an exercise of executive power unconstitutionally granted by HERA. Plaintiffs lost the value of their investments because FHFA used the Net Worth Sweep to transfer their money to the Treasury. They ask us to “[v]acat[e] and set[] aside the [contract‘s] Net Worth Sweep” provision. Our Article III powers permit us to grant this remedy, as it would redress Plaintiffs’ injury-in-fact. Such a remedy finds support in precedent. See, e.g., Noel Canning v. NLRB, 705 F.3d 490, 493, 514–15 (D.C. Cir. 2013), aff‘d, 134 S. Ct. 2550 (2014) (vacating the NLRB‘s order because the Board was unconstitutionally constituted); see also Dresser-Rand Co. v. NLRB, 576 F. App‘x 332, 33–34 (5th Cir. 2014) (vacating Board‘s order that was issued by only two lawfully appointed members).
Instead of granting this remedy, a majority of our Court charts a different path. They seek to blue-pencil the statute by deleting the unconstitutional statutory provision. Such a remedy is improper for two reasons.
First, it affords Plaintiffs no relief whatsoever. On these facts, editing the statute would not resolve any case or controversy. Plaintiffs do not complain about the possibility of future regulatory activity. Instead, they complain only about a past decision made by the FHFA Director: contractually agreeing to the Net Worth Sweep. A complaint based solely on past violations cannot justify prospective relief ordering an agency to disregard a statutory provision going forward. In a case seeking redress for past harms such as this one, prospective relief is no relief at all. Cf. Lucia v. SEC, 138 S. Ct. 2044, 2055 n.5 (2018) (explaining that Appointments Clause remedies should be designed to preserve the separation of powers and “to create ‘[]incentive[s] to raise Appointments Clause challenges‘” (quoting Ryder v. United States, 515 U.S. 177, 183 (1995)).
Free Enterprise Fund is the principal precedent for the majority‘s blue-pencil remedy. But there, the plaintiffs sought an injunction against future audits and investigations by the unconstitutionally insulated agency. To remedy the plaintiffs’ prospective injury-in-fact, the Court refused to apply the statute insulating the officers from removal. See 561 U.S. at 508–10. The Court recognized that the statutory provision was “only one of a number of statutory provisions that, working together, produce a constitutional violation.” Id. at 509. In refusing to apply the for-cause protection provision that insulated the PCAOB commissioners from removal, it applied the most modest remedy it could to redress the plaintiffs’ injuries. Thus, the Free Enterprise Fund remedy was effectively an injunction ordering the agency to disregard the second layer of for-cause removal protection going forward, unless and until Congress chose to fix the constitutional violation in a different way. In this case, Plaintiffs did not complain about the threat of future harm, so blue-penciling the statute would not redress any injury they have alleged.
Strangely, our colleagues who argue that Plaintiffs lack standing to bring their constitutional claim also join a majority of the Court in endorsing a blue-penciling remedy. Nowhere in their opinion do they explain how our Court could purport to delete a statutory provision when there is no active case or controversy within the meaning of Article III. We think Plaintiffs do have standing, yet we cannot identify how deleting the FHFA Director‘s removal protection would redress any harm Plaintiffs have alleged. On what basis
The second problem we have with the remedy endorsed by a majority of our Court is that we do not believe Article III of the Constitution permits us to “strike” the FHFA Director‘s for-cause protection from the statute. See Murphy v. NCAA, 138 S. Ct. 1461, 1485 (2018) (Thomas, J., concurring) (explaining that “[e]arly American courts did not have a severability doctrine” because “[t]hey recognized that the judicial power is, fundamentally, the power to render judgments in individual cases“); Jonathan F. Mitchell, The Writ-of-Erasure Fallacy, 104 Va. L. Rev. 933, 936 (2018) (explaining “federal courts have no authority to erase a duly enacted law from the statute books” but have only the power “to decline to enforce a statute in a particular case or controversy” and “to enjoin executive officials from taking steps to enforce a statute“); Kevin C. Walsh, Partial Unconstitutionality, 85 N.Y.U. L. Rev. 738, 756 (2010) (explaining that the Founders did not conceive of judicial review as the power to “strike down” legislation).
At the Constitutional Convention, several delegates, including James Wilson and James Madison, argued for a “Council of Revision” comprised of federal judges and the executive. Mitchell, supra, at 954. The Council would have had the power to veto legislation passed by Congress, subject to congressional override. Ibid. A veto of legislation would render it “void,” without any legal effect. Ibid. That proposal was defeated at the Convention on June 4, 1787.
In the final Constitution, the judiciary was given only the power to decide cases and controversies—to resolve legal disputes between parties and order remedies to redress injuries. Thus, when a court concludes that a statute is unconstitutional, it is not “striking down” or “voiding” or “invalidating” the law. It is merely holding that the law may not be applied to the parties in the dispute. The Constitution does not empower courts to delete sections of state and federal codes. The Founders expressly considered the possibility of a judicial veto, and they rejected it multiple times during the Constitutional Convention.
This history has been obscured by rhetoric that Chief Justice Marshall used in Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803), to explain judicial review. In that case he famously declared that a statute found unconstitutional by a court becomes “entirely void,” “invalid,” and “not law.” Id. at 177–78. Subsequent cases have compounded the confusion. See, e.g., The Civil Rights Cases, 109 U.S. 3, 26 (1883) (holding “void” sections 1 and 2 of the Civil Rights Act of 1875). Nevertheless, it is indisputable that courts do not have the power to erase duly enacted statutes. Instead, they may decline to enforce them or enjoin their future enforcement to resolve cases and controversies.
Our Court should not add to the confusion about the judiciary‘s limited powers by claiming to “sever” a statute based on open-ended speculation about how Congress would have solved the separation-of-powers problem. And we certainly should not rewrite the statute while pretending such legislative activity is the most modest judicial remedy. We would instead remand to the
* * *
Whether we apply the Constitution‘s original public meaning, Myers, Humphrey‘s Executor, Morrison, or Free Enterprise Fund, the conclusion in this case is the same. The FHFA Director cannot exercise the executive power of the United States because he is unconstitutionally insulated from presidential control and accountability. And our Court does not have the power under Article III to order a remedy that does not redress Plaintiffs’ injuries.
I conclude—as the panel in this case and five other circuits have held—that
Every court to address the issue agrees that the core question is whether the FHFA acted within its statutory authority. It is the core question because
Given HERA‘s grant of extensive powers to the FHFA, I conclude that the FHFA acted within its statutory powers when it adopted the Net Worth Sweep. The FHFA‘s “powers are many and mostly discretionary.” Jacobs, 908 F.3d at 889. To begin with, once a conservator, the FHFA takes over the rights and powers of the shareholders, officers, and directors.
Most importantly, when the FHFA conducts a company‘s business, it does not have to consider the interests of shareholders. HERA dictates that the Director “ensure that . . . the activities of each regulated entity and the manner in which such regulated entity is operated are consistent with the public interest.”
This broad statutory grant of authority undermines the Shareholders’ core arguments. To begin with, the Shareholders argue that the statute requires the FHFA to pursue the goal of “preserving and conserving” assets and operating the GSEs in a “sound and solvent” manner. But those quoted terms are snippets from only some of the provisions in § 4617 granting the FHFA authority. See
The Shareholders also argue that the word “conservator” connotes a requirement that the FHFA “conserve” assets. They rely on the common law meaning of the term, which they believe Congress reflected in the statute. Congress is free to use common law terms in statutes, which courts then look to when interpreting the statute in the absence of statutory definitions. But that general rule gives way when the statute dictates otherwise. See, e.g., Taylor v. United States, 495 U.S. 575, 594 (1990). Here, HERA‘s statutory scheme is inconsistent with the traditional notions of a conservator. Common law conservators are supposed to look out for the rights of shareholders or other beneficiaries. But the FHFA looks out for the public‘s and its own interests, a key difference from common law conservatorships. So this court
During oral argument before the en banc court, a member of our court suggested that this claim should not be resolved on a motion to dismiss because it includes factual allegations beyond what appeared before other courts of appeals. However, neither party had previously argued this point, each proceeding from the assumption that this was purely a legal issue that could be resolved on a motion to dismiss. Indeed, the term “plausible” as it relates to the Shareholders’ complaint appears nowhere in their briefing. Instead, the Shareholders focused their assertions on the contention that the FHFA exceeded its statutory powers as a matter of law. They certainly never argued that there are “fact issues” that need to be litigated or more fully developed as it pertains to their statutory arguments regarding § 4617(f). It is hardly novel law that an appellant‘s failure to brief an issue waives it. See, e.g., Singh v. RadioShack Corp., 882 F.3d 137, 149 (5th Cir. 2018).
Despite the clear waiver, that en banc oral argument question has now morphed into the holding of the majority opinion on this issue. The majority opinion concludes that the Shareholders stated a “plausible” claim that the FHFA exceeded its statutory authority in enacting the Third Amendment and remands for “further proceedings.” Now, due to the majority opinion‘s departure from the Shareholders’ arguments, will the district court be required to hold a trial on FHFA‘s intent? That makes little sense.
Even if this argument were not waived, it still does not pass muster as a distinction from the other circuits’ decisions. First, the complaints in the previous suits all alleged that the FHFA did not have the intent of conserving the GSEs’ capital, even if they did not cite every piece of evidence supporting that view. Second, and more importantly, the statute permits the FHFA to act
Nothing about this case alters the robust case law from other circuits. I would join all our sister circuits that have considered this question and rejected the Shareholders’ statutory claim. The Shareholders have not shown that the FHFA exceeded its enormous grant of authority. I conclude that § 4617(f) bars us from “tak[ing] any action to restrain or affect the exercise of powers or functions of the [FHFA] as a conservator or a receiver.” Because the Shareholders’ statutory claims would “restrain or affect” the FHFA‘s acting in its role as conservator, the Shareholders’ claims should fail. I would affirm the district court‘s order granting the Agencies’ motions to dismiss the Shareholders’ APA claims because such claims are barred by
It is wrong to declare the FHFA unconstitutionally structured. Neither the parties nor the majority has addressed the statutory text central to the constitutional issue: the provision establishing the FHFA Director‘s five-year term “unless removed before the end of such term for cause by the President.”
It is unwise to base a momentous constitutional ruling on the expected effects of a statutory provision no one has made the effort to construe.
***
The Constitution affords sparse materials to resolve this question––only broad pronouncements that “[t]he executive Power shall be vested” in the President and that “he shall take Care that the Laws be faithfully executed.”
What we have instead is a relatively limited body of modern Supreme Court decisions. Only six cases, decided over eighty-five years, comprise the corpus of relevant precedential material. On the one side, three cases identify unconstitutional limits on the presidential removal power. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477 (2010); Bowsher v. Synar, 478 U.S. 714 (1986); Myers v. United States, 272 U.S. 52 (1926). On the other, three cases uphold limits on the presidential removal power. See Morrison v. Olson, 487 U.S. 654 (1988); Wiener v. United States, 357 U.S. 349 (1958); Humphrey‘s Executor v. United States, 295 U.S. 602 (1935).2 As with the sparseness of constitutional text, the limited extent of this caselaw counsels, at minimum, caution before we announce from the bench that Congress has violated the Constitution.3
Appellants’ constitutional challenge therefore stands or falls on Free Enterprise Fund, the only other Supreme Court decision fashioning the Constitution‘s scant textual materials into a rule by which we might invalidate an agency‘s structure. In Free Enterprise Fund, the Court affirmed the principle that “Congress can, under certain circumstances, create independent agencies run by principal officers appointed by the President, whom the President may not remove at will but only for good cause.” 561 U.S. at 483. Free Enterprise Fund addressed “something quite different“: vesting the for-cause removal decision in officials who were themselves protected against removal without cause, thereby creating “two layers of good-cause tenure.” Id. at 495, 497. Appellants thus have the difficult task of showing that Free Enterprise Fund, which affirmed one layer of good-cause tenure while condemning two, somehow requires us to invalidate the one layer protecting the FHFA Director.
In addition to showing that Free Enterprise Fund implicitly negated a principle it explicitly affirmed, Appellants must also confront three cases approving good-cause tenure: Humphrey‘s Executor, Wiener, and Morrison. These cases each affirmed Congress‘s power to insulate officials against
Humphrey‘s Executor came first, nine years after Myers‘s ringing vindication of the President‘s “unrestricted power of removal.” See Myers, 272 U.S. at 176. The case concerned the protection of Federal Trade Commission members from removal unless for “inefficiency, neglect of duty, or malfeasance in office.” 295 U.S. at 619. Given Myers‘s emphatic declaration of principle, this insulation of FTC commissioners would surely fall. But it did not. A unanimous Supreme Court ruled that Myers “cannot be accepted as controlling [the] decision here.” Id. at 627. The Court recognized Congress‘s power to create “quasi legislative or quasi judicial agencies” that could act “independently of executive control.” Id. at 629. It read Myers as “confined to purely executive officers” and stated a new principle: that Congress‘s power to “preclud[e] a removal except for cause will depend upon the character of the office.” Id. at 631–32.
Two decades later, the Supreme Court сonsidered the removal of a member of the War Claims Commission, an adjudicatory body for claims of injury or property damage in the Second World War. Wiener, 357 U.S. at 350–51. Unlike the FTC statute at issue in Humphrey‘s Executor, the statute creating the War Claims Commission said nothing about removal. Id. at 352. One would think, therefore, that the President‘s removal power would operate unrestricted, per Myers. On the contrary, Wiener adhered to Humphrey‘s Executor‘s distinction between purely executive officers and those meant to exercise independent judgment. Focusing on the “nature of the function that Congress vested in the War Claims Commission,” the Court read for-cause removal protection into the statute. Id. at 353–56.
Appellants thus confront a precedential barrier they cannot surmount: three cases affirming good-cause tenure in a variety of circumstances; and a fourth case affirming it again while invalidating a form of double good-cause tenure not present here.4
As explained, we have previously upheld limited restrictions on the President‘s removal power. In those cases, however, only one level of protected tenure separated the President from an officer exercising executive power. It was the President—or a subordinate he could remove at will—who decided whether the officer‘s conduct merited removal under the good-cause standard.
The Act before us does something quite different. It not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists. That decision is vested instead in other tenured officers—the Commissioners [of the SEC]—none of whom is subject to the President‘s direct control. The result is a Board that
is not accountable to the President, and a President who is not responsible for the Board. The added layer of tenure protection makes a difference.
591 U.S. at 495 (emphasis added). Thus, to import Free Enterprise Fund‘s phrases describing novel structures into this case is to erase the distinction those descriptions were meant to draw.6
Appellants’ challenge rests on a tenuous interpretation not only of Free Enterprise Fund but also of the scholarly literature on administrative agency design.7 Appellants argue, and the majority opinion agrees, that various otherwise unremarkable agency design features, through undescribed alchemy, combine to make the FHFA Director unduly insulated from presidential control. But upon a closer look, these assertions are little more than debatable empirical claims—hardly the firm footing judges need to take the bold step of declaring Congress‘s agency design choices unconstitutional.
The majority opinion for the en banc D.C. Circuit addressing the constitutionality of the Consumer Financial Protection Bureau has already surveyed the dubious empirical propositions on which Appellants and the majority opinion depend. See PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 92–110 (D.C. Cir. 2018).8 That wheel need not be reinvented here,9 but a few points may usefully be added.
The majority opinion gives weight to the purportedly insulating effect of the FHFA‘s single-headed structure, but that structure may just as readily promote accountability as inhibit it, by spotlighting the obstacle in the way of the President‘s will. The majority opinion values the internal checks of a multi-member structure, particularly when bipartisan balance is required, but such structures tie a President‘s hands as much as free them. If the constitutional concern here is undue interference with presidential control, an agency structure requiring the President to appoint a political opponent can hardly be said to enhance presidential sway. Such a structure could not be said to have constitutional significance either. The Supreme Court never suggested in Free Enterprise Fund that the internal dynamics fostered by the PCAOB‘s multi-member structure might avoid a constitutional violation.10 The dubiousness of these various claims in turn makes their “combined effect” yet more questionable.11
Moving from generalities to specifics, the FHFA does not exhibit undue insulation. As Judge Costa‘s opinion explains, the FHFA undertook every action at issue here by agreement with the Secretary of the Treasury, a purely executive officer serving at the pleasure of the President. The President thus had direct control via the bargaining power of the Secretary.
Moreover, two unusual features present in Free Enterprise Fund are not present here. First, the statutory grounds for removal of PCAOB members set
Finally, the nature of the FHFA‘s function and the character of the Director‘s office matter, even though Morrison downgraded Wiener‘s and Humphrey‘s Executor‘s inquiries from a determinative to a subsidiary level. See Morrison, 487 U.S. at 691. The majority and dissenting opinions on Appellants’ statutory claims cover the relevant ground. As their discussions make clear, the FHFA Director wields no prosecutorial power as the independent counsel in Morrison had. The Director has powers of regulation
***
Regarding Appellants’ constitutional claim against the FHFA, I see only reasons for caution and skepticism, and none for action. Neither the Constitution‘s text, nor the Supreme Court‘s constructions thereof, nor the adversary process in this litigation has given us much ground on which to declare the FHFA‘s design unconstitutional. If so thin a record may be made the basis for invalidating Congress‘s considered response to a major crisis in American life, I am apprehensive about the responsible use of our nullification power henceforth.
In a separation-of-powers case, our vigilance should first be directed at the constitutional limits on our own power. Raines v. Byrd, 521 U.S. 811, 819 (1997) (“[O]ur standing inquiry has been especially rigorous when reaching the merits of the dispute would force us to decide whether an action taken by one of the other two branches of the Federal Government was unconstitutional.“). We have failed in that duty. In concluding that unravelling the Net Worth Sweep is not the remedy for the allegedly unconstitutional insulation of the FHFA, the court recognizes that the President has always maintained “oversight” of the Net Worth Sweep. Majority Op. (Remedy) 58. But that conclusion does not just resolve the final question for the constitutional claim. It also answers the first question any case poses: Is there jurisdiction?
The answer is “no” because presidential control of the Net Worth Sweep means there is no connection between the good-cause removal provision for FHFA Directors that plaintiffs challenge and the injury from the New Worth Sweep they allege. In other words, the limitation on the removal power did not cause their injury.
The requirement that an alleged constitutional defect caused the plaintiff‘s injury is part of the threshold standing inquiry—the standing lingo is “traceability“—that ensures we are only deciding constitutional issues when they arise in “cases” or “controversies.” Raines, 521 U.S. at 818–19. For numerous reasons described below (some of which are recognized in the court‘s remedial ruling), the Net Worth Sweep is not traceable to the for-cause limitation on the President‘s power to remove the FHFA Director. In deciding whether Congress has violated the separation of powers at the behest of plaintiffs who lack standing, we violate the separation of powers ourselves. See
This is not just a case in which plaintiffs fail to prove standing; the history and nature of the Net Worth Sweep, as well as the Shareholders’ own allegations, disprove standing. Let us count the ways the record refutes the required causal link.
For starters, the Acting Director of the FHFA who agreed to the Third Amendment was subject to full removal power. See
That Congress created the FHFA as “an independent agency,” Majority Op. at 48 (citing
Doing so for the first time here is particularly problematic because penciling in a for-cause limitation on the removal of Acting Directors creates a constitutional issue. In interpreting statutes, we are supposed to avoid constitutional difficulties, not create them. Edward J. Bartolo Corp. v. Fla. Gulf Coast Bldg. & Const. Trades Council, 485 U.S. 568, 575 (1988) (“[W]here an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress.“).
Why turn these cardinal rules of statutory construction upside down? Because the implication is quite clear when the statute governing Acting Directors is read according to its plain language: If the FHFA agreed to the Net Worth Sweep when its leader was fully accountable to the President, then any injury that policy caused is not traceable to the for-cause removal limitation the Shareholders seek to challenge. Indeed, this may be why none of the numerous other statutory challenges to the Net Worth Sweep that courts of appeals have decided included the constitutional claim about the removal power. See Jacobs v. FHFA, 908 F.3d 884 (3d Cir. 2018); Saxton v. FHFA, 901 F.3d 954 (8th Cir. 2018); Roberts v. FHFA, 889 F.3d 397 (7th Cir. 2018); Robinson v. FHFA, 876 F.3d 220 (6th Cir. 2017); Perry Capital LLC v. Mnuchin, 864 F.3d 591 (D.C. Cir. 2017). As for the only other case that challenged the removal power in connection with the Net Worth Sweep, a court dismissed it for lack of standing, recognizing that the policy came from an Acting Director subject to full presidential control. Bhatti v. FHFA, 332 F. Supp. 3d 1206, 1213–14 (D. Minn. 2018), appeal docketed, No. 18-2506 (8th Cir. July 16, 2018).
The role of a presidentially accountable FHFA official in agreeing to the Net Worth Sweep is enough to reject traceability. But there is more.
The Shareholders’ allegations confirm that the Third Amendment was not the product of any improper insulation of the FHFA from presidential control. In fact, their theory is the opposite—that the Third Amendment was
Treasury‘s role provides even more proof that the Net Worth Sweep is not traceable to the for-cause removal limitation. The necessary and ongoing involvement of an agency not suffering from any alleged constitutional defect is an unusual feature in a separation-of-powers case.3 Ever since Treasury was established in 1789 as the third department in the executive branch,4 its secretary has been subject to at-will removal. So even if the President сould not express any disapproval of the Net Worth Sweep policy through the FHFA once a Senate-confirmed Director replaced the Acting Director, the Treasury Secretary was always an outlet for any such views. Yet Treasury has continued to accept the dividends for each of the past 27 quarters (since the Third Agreement was signed in August 2012), showing that Treasury‘s leadership has not viewed the Net Worth Sweep as out of step with the preferred policy of either the Obama or Trump Administration. If that stance
Looking at the government officials involved in both the creation and continuation of the Net Worth Sweep leads to one conclusion: The injury Shareholders complain about in no way flows from any limits on the President‘s ability to influence FHFA policy.
Nor can the Shareholders rely on “regulated entity” standing. That doctrine describes removal power cases in which courts have found standing because the party bringing the challenge is under investigation. Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 487–88 (2010); Morrison v. Olson, 487 U.S. 654, 667–68 (1988); PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 82 (D.C. Cir. 2018). But those cases were brought by the individuals or corporations subject to agency authority. In contrast, the FHFA is not “overseeing” or regulating the Shareholders. To the extent it is engaged in ongoing oversight of anything, it is of the government sponsored entities. Corporate law distinguishes between a corporation and its shareholders for standing purposes; a shareholder, or even a majority of them, cannot litigate in the shoes of the corporation.5 See Dole Food Co. v. Patrickson, 538 U.S. 468, 474-75 (2003) (“A basic tenet of American corporate law is that the corporation and its shareholders are distinct entities. An individual shareholder, by virtue of his ownership of shares, does not own the corporation‘s assets . . . .” (citations omitted)); Fox v. Harbottle, 2 Hare 461 (Eng. 1843) (seminal corporate law case holding that the proper plaintiff in an action alleging an injury to the corporation is the corporation). Think of the potential for chaos if the law were otherwise. Any shareholder of a corporation—for major ones like Wal-Mart or GE we are talking about tens of thousands of potential plaintiffs—could claim to represent the company despite shareholders holding widely varying views on issues affecting the corporation. Consistent with the long-established rule that a business entity has to litigate on its own behalf, no case has recognized that the shareholders of a regulated entity have standing to bring constitutional challenges to the structure of the regulator. That astonishingly expansive view of regulated entity standing cannot be the law.
So if Shareholders have standing at all, it must be founded on harms the Net Worth Sweep directly inflicts on them. On that score, while the standing requirements are sometimes relaxed in separation-of-powers cases,6 they are not removed. See Bond v. United States, 564 U.S. 211, 225 (2011) (continuing to require that a plaintiff must show an “actual or imminent harm that is concrete and particular, fairly traceable to the conduct complained of, and likely to be redressed by a favorable decision“). The Supreme Court has
Because presidential control over the creation and enforcement of the Net Worth Sweep refutes any link between it and the challenged limits on presidential oversight of the FHFA, Shareholders have little more claim to litigate the structure of that agency than any taxpayer would. Hein v. Freedom from Religion Found., 551 U.S. 587, 609–10 (2007) (recognizing that taxpayer standing generally does not exist). If they could be parties to this case, most taxpayers would present a different perspective on the Net Worth Sweep. It has helped repay the roughly $190 billion taxpayers lent to bail out Fannie and Freddie before the 2008 financial collapse—a key component of the recovery from the Great Recession given the outsized role of Fannie and Freddie in the housing market.9 Plaintiffs who invested before the collapse would have lost their entire investment were it not for the bailout. Those who have invested since have paid “pennies on the dollar” in a speculative play based on hopes
In my view, the proper remedy for Count IV is to vacate the Third Amendment. I respectfully dissent from the court‘s decision to instead grant a prospective remedy.
I
When a plaintiff with Article III standing challenges the action of an unconstitutionally-insulated officer, that action must be set aside. In Bowsher v. Synar, the Supreme Court held the Comptroller General could not prescribe budget reductions because he was not removable by the President.1 “Once an officer is appointed, it is only the authority that can remove him, and not the authority that appointed him, that he must fear and, in the performance of his functions, obey.”2 The Comptroller General exercised executive power: His role required him to “interpret” the law and “exercise judgment” in applying it.3 Because he did so outside the President‘s supervision, the Court set aside his sequestration order. The Court affirmed the district court‘s judgment “that the presidential sequestration order issued . . . pursuant to the unconstitutional automatic deficit reduction process be, and hereby is, declared without legal force and effect.”4
Synar‘s remedial approach applies here. It is the only Supreme Court case that presented the issue. In Myers v. United States, the Court upheld a postmaster‘s removal, so it had no need to grant relief against past government
In Free Enterprise Fund, the Court held the Public Company Accounting Oversight Board‘s double for-cause removal protection unconstitutional.7 But no Board action had become final against the plaintiff, an accounting firm.8 So the Court “excised” the offending removal protection from the statute going forward.9 The plaintiff had standing for prospective relief because the challenged agency “regulate[d] every detail of an accounting firm‘s practice.”10 The unconstitutionally-insulated regulator inflicted an ongoing injury.
Here, in contrast, FHFA generally regulates the GSEs, not their shareholders. And the Third Amendment, which became final in 2012, caused the Shareholders’ injury. So I disagree with Judge Duncan‘s view that Free Enterprise Fund, or any Supreme Court decision, counsels against a vacatur remedy in this case. And the Shareholders’ lack of “regulated party” standing separates me from Judge Haynes‘s remedial theory.
Despite having no occasion to vacate agency action, Free Enterprise Fund reinforces Synar‘s principle that an unconstitutionally-insulated officer may not exercise executive power. “[T]he Framers sought to ensure that ‘those who are employed in the execution of the law will be in their proper situation, and the chain of dependence be preserved; the lowest officers, the middle grade, and the highest, will depend, as they ought, on the President, and the President on the community.‘”11 “By granting the Board executive power
II
Unconstitutional protection from removal, like unconstitutional appointment, is a defect in authority. Appointments Clause decisions routinely set aside agency action. In Lucia v. SEC, the Court held that administrative law judges must be appointed by a “head of department,” not by staff.13 As remedy, the Court granted a new hearing before a different ALJ.14 It disapproved curing the defective appointment by a quick (already-issued) ratification of the ALJ‘s appointment.15 Similarly, in NLRB v. Noel Canning, the Court held that three NLRB Members were unconstitutionally appointed without Senate advice and consent.16 It affirmed the Court of Appeals‘s decision that the NLRB order, issued without a properly-appointed quorum, was “invalid.”17
These cases are apt because there, as here, a defect in authority made agency action unlawful. In debating the first executive agencies, James Madison insisted the President naturally had “the power of appointing, overseeing, and controlling those who execute the laws.”18 Unlike judicial
Treasury contends that when agency action is held unlawful, vacatur is not mandatory but subject to equitable remedial authority.22 And it maintains that the case for such relief here is weak. The Shareholders waited four years to sue; vacatur might disrupt the GSEs’ operations or the housing market generally; and the Shareholders wielded 20/20 hindsight to target an initially risky, but now astute, Treasury bargain. It also says the case for equitable relief here is worse than Synar, where the statutory fallback provision was ready at hand.23
These arguments do not defeat vacatur here. Appointments Clause cases refute the point that vacatur is too disruptive. As a remedial matter, Lucia granted the petitioner a new hearing based on an appointment defect that was
Treasury‘s cases urging equitable discretion are distinguishable. They discuss prospective remedies like prohibitory or mandatory injunctions, not vacatur of agency action that violated the separation of powers.27 In contrast, neither Synar, Lucia, nor Noel Canning discusses equitable-discretion principles or applies the four-factor test for granting an injunction.
III
Although setting aside agency action is not subject to the four-factor injunction standard, it remains an equitable remedy. Doing so here is like rescinding a contract. “A transfer by an agent, trustee, or other fiduciary
* * *
The Shareholders are entitled to declaratory judgment that the Third Amendment exceeded FHFA‘s lawful authority because the agency adopted it outside the President‘s supervision.30 This analysis also supports an injunction vacating the Third Amendment.31 In light of recent developments, I would remand Count IV to the district court for entry of a judgment consistent with this opinion.32
Notes
A derivative suit is the notable exception. As noted in the majority opinion, our sister circuits have determined that the FHFA, not the Shareholders, has sole authority to bring a derivative suit. Maj. Op. 21–22. See also Roberts, 889 F.3d at 408; Perry Capital, 864 F.3d at 624. And while two circuits have found an exception in an analogous situation—when the FDIC as conservator of a bank has a conflict of interest with respect to a particular claim—no such exception to HERA‘s grant of “all rights, titles, powers, and privileges of the regulated entity, and of any stockholder” to the FHFA as conservator appears in the statutory text.
But those issues arise in the context of whether Shareholders can bring their statutory claim. The majority opinion concludes that this is a direct shareholder action. That analysis does not carry over to standing for the constitutional claims based on regulated entity status. For that, it has always been the entity being regulated—not its shareholders—that has standing to challenge the structure of the regulating agency.
272 U.S. 52, 176 (1926); see id. at 106.Two other cases the Shareholders rely on are inapposite. Noel Canning arose directly from an enforcement action brought by the challenged agency, so standing was not even discussed. N.L.R.B. v. Noel Canning, 573 U.S. 513 (2014). Beyond that, the case involved an unconstitutional appointment, not an impropеrly insulated agency. That is an important distinction—any action an improperly appointed agency official takes is “void ab
Bowsher v. Synar may provide even less assistance. 478 U.S. 714 (1986). For one, as Judge Higginson points out, that case is less about limiting the President‘s ability to control an agency and more about placing executive authority in the hands of a legislative officer. Higginson Op. at 3. And in any case, unlike here, in Bowsher there was evidence that the constitutional defect prevented the President from carrying out his preferred policy. See Brief for the United States, Bowsher v. Synar, 478 U.S. 714 (1986), 1986 WL 728082, at *44–51. Indeed, the central purpose of the statute challenged in Bowsher was to tie the President‘s hands and force him to sequester funds hand-selected by a Comptroller General who answered directly to Congress. Bowsher, 478 U.S. at 718. So standing for union members whose cost of living adjustments were withheld as a result of sequestration was easily satisfied—their money was sequestered at the behest of a Comptroller General who never should have had that authority in the first place. Id. at 721.
Id. at 490.It is the Sense of Congress that Congress should pass and the President should sign into law legislation determining the future of Fannie Mae and Freddie Mac, and that notwithstanding the expiration of subsection (b), the Secretary should not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred stock acquired pursuant to the Senior Preferred Stock Purchase Agreement until such legislation is enacted.