Shareholders Challenging FHFA's Constitutionality Want Supreme Court to Hear Their Case—Even Though They Won

Fannie Mae and Freddie Mac shareholders convinced the Fifth Circuit to declare the Federal Housing Finance Agency's structure unconstitutional, but they're seeking Supreme Court review nonetheless.

Several shareholders of Fannie Mae and Freddie Mac were unhappy with actions taken by the Federal Housing Finance Agency (FHFA) that greatly diminished the value of their shares. The shareholders sued, alleging (among other things) that the FHFA is unconstitutional because its Director is insulated from Presidential control because the director may only be removed for "cause."

Last summer, a divided panel of the U.S. Court of Appeals for the Fifth Circuit agreed with the shareholders' claim. Earlier this month, the entire Fifth Circuit, sitting en banc, agreed (albeit in a highly splintered opinion), affirming the panel's opinion that the limitations on the removal of the FHFA's Director violates the separation of powers.

Despite their victory, the shareholders filed a petition for certiorari last week, asking the Supreme Court to review the Fifth Circuit's decision. Why would a prevailing party do such a thing? In this case, because the shareholders are unsatisfied with the remedy provided by the Fifth Circuit's decision.

A majority of the en banc court found that the FHFA Director's for-cause removal protection infringes upon the President's ability to supervise the agency and ensure that it faithfully executes its legal obligations. A different majority of the en banc court held that the only remedy to which the shareholders were entitled was the prospective remedy of voiding the for-cause removal action. This left the shareholders unsatisfied because such a remedy does nothing to redress the injury—the devaluation of their shares in Fannie Mae and Freddie Mac—that was the basis of their suit.

While the shareholders (and their attorneys) are no doubt happy that the Fifth Circuit found their constitutional analysis compelling, they are seeking certiorari so that the Supreme Court can clarify the law of severability and consider whether greater relief was warranted in this case. On the one hand, the Supreme Court has adopted quite limited remedies in its own removal power decisions (such as Free Enterprise Fund v. PCAOB). On the other hand, in a case such as this, the result is a remedy that fails to redress the plaintiffs' injuries.

Supreme Court review of this case, Collins v. Mnuchin, seems quite likely because the Court nearly always grants certiorari when a circuit court decision invalidates a federal law. Were that not enough, the logic of the Fifth Circuit's Collins decision conflicts with opinions of the U.S. Courts of Appeals for the Ninth Circuit and the D.C. Circuit that rejected constitutional challenges to the Consumer Financial Protection Bureau, the head of which is also insulated by a for-cause removal provision. What this petition for certiorari seeks to ensure is that the Court pays adequate attention to the remedial questions if it accepts the constitutional challenges to these unusual agency structures.