June 30, 2020

Seila Law v. Consumer Financial Protection Bureau: Score One for The Unitary Executive Theory

Alan B. Morrison Lerner Family Associate Dean for Public Interest and Public Service Law; Professorial Lecturer in Law, George Washington University Law School

In SEILA LAW v. CONSUMER FINANCIAL PROTECTION BUREAU, No. 19-7, the Supreme Court, in an opinion written by Chief Justice John Roberts, held that the restrictions on the power of the President to remove the director of the CFPB are unconstitutional.  The outcome, including the 5-4 vote on the merits, was expected, and was a major victory for those who support the “unitary executive theory” of the Constitution under which Congress has very limited powers to check the President over federal agencies.  As the same time, with only Justices Clarence Thomas and Neil Gorsuch dissenting, the Court held that the unconstitutional limits on removal were severable from the rest of the law, so that the CFPB will continue to operate, but with the director subject to removal at will by the President.

The battle on the merits can be briefly, if somewhat unfairly, described as a difference in understanding of how the Constitution allocates power over the various departments and agencies that Congress creates.  Supporters of the Unitary Executive, which include The Chief Justice, Justices Samuel Alito, and Brett Kavanaugh, as well Justices Thomas and Gorsuch, contend that the Framers intended that the President have wide-ranging control over the officers in the executive branch that wield significant power, which includes the power to fire those officers at will, unlike the statute that created the CFPB, under which the director could only be removed for “inefficiency, neglect of duty, or malfeasance in office.”  On the other hand, Justice Elena Kagan, writing for herself and Justices Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor, concluded that the Constitution allows the political branches to enact laws creating various degrees of agency independence and presidential control and that the Constitution would invalidate restrictions on removal only when the law applied to officers like the Secretary of State and the Secretary of Defense, who directly advise and assist the President in carrying out his constitutional functions.

The 20 pages that the Chief Justice devoted to the merits and the 39 pages of the dissent both examined the same constitutional history, reviewed the so-called Decision of 1789, in which the First Congress grappled with the issue of removal and ultimately did not decide it, the history of federal agencies in which Congress imposed removal conditions on the President, and a series of cases dating back to 1926, in which the Court had ruled on a variety of manifestations of the removal issue. Despite the common data base, the two opinions fundamentally disagreed over whether the default position favors the President or the Congress, with the President prevailing here, where the agency is headed by a single director, instead of a multi-member body, like the Federal Trade Commission, whose identical removal restrictions were upheld in Humphrey’s Executor v. United States, 295 U. S. 602 (1935).  The Court declined “to extend these precedents to a new configuration: an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met.”  There is nether time nor space to reprise that debate, except to note that in my view the dissent has the better of the argument.  Before discussing the certainty of future litigation over the restrictions on at will removal under the statutes governing many other agencies, as well as the impact of the severability ruling in this case, a few words are in order on the justiciability issues that the Chief Justice (but not the dissent) addressed.

Before reaching the merits, the Chief Justice responded to several arguments made by the Court-appointed amicus (Paul Clement), the House of Representatives (which defended the law, while the Senate sat on the sidelines), and me in my amicus brief.  I will discuss only two: standing and lack of a case or controversy.  The petitioner is a private law firm that refused to comply with the CFPB’s demand for information relating to its debt collection practices. When it was sued, among its defenses was that the law under which the demand was made was unconstitutional because the President could not fire the director of the CFPB at will – even though neither the President when the demand was made, nor the current President, had ever attempted to fire either the prior or current director.  In response to the defense of a lack of standing, the law firm alleged no more than it had the right to have an agency whose head was accountable to the President, but made no showing of any further injury, nor did it explain what the connection might be between the injury to the President and a right to refuse to respond to the CFPB’s information demand.

In rejecting the standing objection, the majority cited several cases including Free Enterprise Fund v. Public Company Accounting Oversight Board and Morrison v. Olson in which a private party had objected to similar restrictions on removal and the Court had decided those cases on the merits.  However, in none of those cases was the standing issue raised, let alone directly decided.  In addition, in all of those cases, there was also a challenge to the method by which the officers in question were appointed, which explains why the standing issue may not have been raised.  I continue to believe that the Seila firm had no standing to raise a claim of injury to the interests of the President and that the decision to the contrary is inconsistent with the Court’s generally very stringent standing decisions, mostly recently in Thole v. U.S. Bank, N.A. No,17-1712 June 1, 2020.  See also Alan B. Morrison, Standing Is Jurisdictional Requirement – Unless the Government Wants the Merits Decided.  Indeed, the same day that this case was decided, Justices Thomas and Gorsuch, in separate dissenting opinions in June Medical Services LLC. v. Russo, No, 18-1323, concluded that abortion facilities lacked standing to sue to protect the ability of their patients to obtain an abortion without undue restrictions.

Going forward, the standing ruling is going to be quite significant.  Although the holding in Seila Law applies only to the CFPB, there is much in the Chief Justice’s opinion that would support its application to the FTC and the many other agencies – ranging from the National Labor Relations Board, to the Federal Communications Commission, to the Federal Election Commission, and the Federal Reserve Board, all of whom have more than one member and all of whom have restrictions on removal.   Indeed, the opinion of Justice Thomas, in which Justice Gorsuch concurred, took the next step:

But with today’s decision, the Court has repudiated almost every aspect of Humphrey’s Executor. In a future case, I would repudiate what is left of this erroneous precedent.  Concurring opinion at 1.

To be sure, there are plenty of quotes from the Chief Justice’s opinion that would support limiting it to agencies with a single head, and the four dissenters would surely join in that result.  I do not seek to predict how such a challenge would come out, but I can confidently predict that there will be multiple challenges to adverse decisions of every one of these agencies with removal limitations and they can – as Seila Law did – raise them in every case because the standing requirement has been effectively eliminated.  Indeed, a lawyer who failed to raise the issue might well be guilty of malpractice.

There is a possible way out of these agencies having to defend their removal restrictions on the merits.   In the final section of his opinion, the Chief Justice held that the unconstitutional removal restrictions did not bring down the whole CFPB statute with it.  Opinion 30-36. If it had, petitioner would have been entitled to have the proceeding dismissed, which is what Justices Thomas and Gorsuch would have done. Concurring Opinion at 24: ‘I would resolve this case by simply denying the CFPB’s petition to enforce the civil investigative demand.”  Suppose in the next case in which this issue is raised, the agency argues, pointing to the final section of the Chief Justice’s opinion, and also to the many years that Congress has supported this agency. It would then argue that, even if the removal restrictions are unconstitutional, they are severable and therefore the plaintiff will gain nothing from the ruling on the removal issue, and there is no need for the court to rule on the constitutional question.[1]

The other justiciability argument was that there was no case or controversy because the petitioner and the CFPB agreed that the removal restrictions are unconstitutional.  The Court attempted to cure this by the appointment of an amicus to defend the statute.  The issue was whether this eliminated the problem, and the majority agreed that the Court had succeeded.  Opinion at 10-11.  For that conclusion it found support in United States v. Windsor, 570 U. S. 744 (2013), in which the House of Representatives as amicus supported the Defense of Marriage Act which the Obama Administration declined to defend, just as the Trump Administration refused to defend the CFPB law here.  The Chief Justice failed to note that he joined the dissent of Justice Antonin Scalia (with Justice Thomas) that would have dismissed that case for want of jurisdiction, id. at 778, or that only Justice Alito found the presence of an amicus to be decisive there.  Id. at 803-807.

In addition, if the petition in Windsor had been dismissed, it would have been almost impossible for another case to make it to the Court as long as the United States agreed that DOMA was unconstitutional.  Coupled with the fact that DOMA impacted over 1100 statutes in all three branches of the federal government, the prudential considerations were very much in favor of deciding the issue then, as the Court observed.  Id. at 759-763.  But in this case, there would be no impediment to having the constitutionality of the removal restrictions adjudicated.  All this President (or any future President) would have to do is fire the director, and if a lawsuit followed, the Court could decide the case in a true adversary context.  In fact, this President had ten months to fire Richard Cordray, the former director, but he did not do so. This is not an argument that a presidential firing is necessarily the only way for this issue to be decided, but only that there was no reason to reach out to decide a constitutional issue when the parties did not disagree and when principles of constitutional avoidance pushed in the opposite direction.

There is, of course, another way beyond a lawsuit like this that could bring to the fore the issue of how far this ruling extends.  The President could simply start firing officials on multi-member bodies whose rulings or policies he dislikes, perhaps beginning with the chair of the Federal Reserve, whom the President believes is implementing policies that are not sufficiently favorable to his re-election.  To date, he has been told that such a firing is unauthorized, but after today, even a cautious lawyer would have to agree that the issue is unsettled. And if such a firing took place, and the chairman sued to keep his job and/or for back pay, it would be just one more lawsuit that might not be resolved until this President is no longer in office.

In a prior case, this Administration took the position that administrative law judges at the SEC could also be removed at will, but the Court declined to reach that issue.  Lucia v. SEC, 138 S. Ct. 2044, 2050 n. 1 (2018).  That issue is certain to surface again, either by an attempt to remove an ALJ, without cause, or by a challenge similar to that in this case.  In addition, the majority noted that the Social Security Administration now has a single administrator with for-cause removal protections, although it suggested that the agency may perform functions that may distinguish it from the CFPB. Opinion at 20.  Given all the disgruntled applicants for disability benefits, this looks like another fertile ground for litigation.

Finally, there is a small irony in this victory for this President.  If he loses his re-election bid, his successor will be able to remove the CFPB director immediately, instead of having to wait until 2023 when the incumbent’s five-year term will be over.  But for those who believe that the Constitution does not preclude Congress from having the right to decide that some agencies should have some measure of independence from the President in order to carry out their statutory mandates, Seila Law is a potentially huge setback, depending on whether the Court limits it to agencies with a single director, like the CFPB, or extends it broadly by overruling Humphrey’s Executor.

 Mr. Morrison is the Lerner Family Associate Dean for Public Interest & Public Service Law at George Washington University Law School, where he teaches civil procedure and constitutional law.  He filed an amicus brief in the Seila law case, arguing that the Court should not reach the merits of the constitutional issue presented.

[1] It is arguable that the ability of an agency to succeed on this approach depends on a subsequent ratification by an officer who is subject to at will removal, which had been made in Seila Law, but which is not likely to be available in future cases.

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