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Volokh Conspiracy

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.


NEXT: National injunctions and "a spirit of defiance of judicial authority"

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  1. Article III case and controversy requires that for standing the remedy for a favorable decision is likely to redress the injury. Given that this narrow remedy doesn't do that wouldn't it mean there is no standing for the constitutional question? How can the court simultaneously say they have standing and therefore jurisdiction for that question but then hold that even if the claim is correct (as they hold) the remedy doesn't redress the injury? I don't see how they go together.

  2. IANAL. What constitutes "for cause"? I can understand if that doesn't include "because I don't like the cut of his job", but does include "he embezzled funds". In between are things like he "greatly diminished the value of their shares". Is that not a qualifying cause?

    1. s/job/jib/

    2. "What constitutes “for cause”?"

      The practical answer is that if the fired bureaucrat doesn't like being fired, they can sue over it. Maybe they win, and maybe they don't win.... it'll be up to the jury. What's not clear is how the power struggle comes out. If the president fires them "for cause" and it turns out that the jury rules it wasn't for "cause" two years down the line, the President isn't paying the back pay, and likely the court isn't ordering the fired guy back into the job. And meanwhile, someone else has been running the agency. Unless... the President fires the head of the agency, and the agency head says "Nope" and shows up for work, and the agency's workers continue to take his direction. Unless... the President sends in a SEAL team to secure the executive office, and they physically remove the guy from the building.

      There's a mid-budget political thriller movie hiding in there somewhere. If you don't need an A-list cast to get it made, you could probably have it ready for theaters by November 2020.

  3. " 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."

    If it doesn't faithfully execute its legal obligations, then the President can fire the director for cause.

  4. "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."

    Then perhaps they should have pursued a litigation strategy that the devaluation of their shares was wrongful, and should have been remedied by some form of damages. If they did pursue this line of argument, but did not prevail on it, then they aren't entitled to damages.

    1. I wondered about that.

      Is the claim that the "for cause" requirement prevented the President from removing directors who were clearly mismanaging the agency, and hence caused the losses?

      But why wouldn't that mismanagement, if it occurred, be a sufficient cause for removal?

      I note that FHFA has objectives other than maximization of the value of shares in Fannie Mae and Freddie Mac, so it is also possible that the actions that caused the loss were in keeping with the agency's goals.

  5. Let me see...believe it or not I'm asking this for information:

    Apart from Myers v. United States, are there any other Supreme decision from which Holmes and Brandeis both dissented, but which are still good as precedents today?

    1. Abrams v United States possibly? The dissent is obviously hugely influential and has moved the law largely to where it is, but there may be argument that given Holder v Humanitarian Law Project the Court still rejects his formulation of the test- "produces or is intended to produce clear and imminent danger." Perhaps any money or services going to a terrorist organization by definition produces said danger even if they also do legal stuff and that is what the act is meant for (as Congress held and the Court deferred to), but it isn't clear to me Holmes and Brandeis would accept that.

      Obviously this largely has been over turned into the Holmes-Brandeis view so it is at best minimally still good law.

      This was just off the top of my head, I would be shocked if there weren't more though.

    2. There's a law review article titled Holmes and Brandeis: Companions in Dissent (10 Vand. L. Rev. 269 (1956-1957)) that might serve as a good place to start. It's old, so I'm not sure how easy it will be to find, but it should at least include many of their joint dissents.

  6. The executive branch is unitary, vested in the President alone.

    Congress isn't allowed to go and create new little fiefdoms of power composed of unelected bureaucrats, sitting outside the 3 branches.

    1. Indeed. But the best reading of the statute is that the for-cause part is several and Congress still created the FHFA but that the head serves at the pleasure of the President.

      In which case, the plaintiffs still lose/win.

    2. "Congress isn’t allowed to go and create new little fiefdoms of power composed of unelected bureaucrats, sitting outside the 3 branches."

      Well, they are allowed to go and create new little fiefdoms of power composed of unelected bureaucrats, it's just that when they do, the result falls under the legislative branch.

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