Separation of Powers Back Before Court in Collins v. Mnuchin
The U.S. Supreme Court will again consider the President’s appointment and removal powers with regard to an independent, single-director federal agency. Last term, the Supreme Court held in Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2211 (2020) that Consumer Financial Protection Bureau’s (CFPB) leadership by a single individual removable only for inefficiency, neglect, or malfeasance violated the separation of powers. In Collins v. Mnuchin, the question is whether the structure of the Federal Housing Finance Agency (FHFA) violates the separation of powers and, if so, what the proper remedy should be.
Facts of the Case
In 2008, Congress enacted the Housing and Economic Recovery Act (HERA), which created the Federal Housing Finance Agency (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.
The plaintiffs (the Shareholders) own shares in Fannie Mae and Freddie Mac. In 2008, the FHFA placed them in conservatorship. FHFA secured financing from the Treasury to keepFannie and Freddie afloat. That relationship continued, and in 2012, FHFA and U.S. Treasury Department adopted a Third Amendment to their financing agreements. The third PSPA amendment converted a fixed 10% dividend into a “net worth sweep,” which “requires Fannie Mae and Freddie Mac to pay a quarterly dividend to Treasury equal to the entirenet worthof each [GSE],”
The Shareholders sued FHFA, its Director, Treasury, and its Secretary. The Shareholders sought a declaration that the net worth sweep violates HERA and is arbitrary and capricious; a declaration that FHFA’s structure violates the separation of powers; an injunction against Treasury to return net-worth-sweep dividends (or treat them as paying down the liquidation preference); vacatur of the net worth sweep; and an injunction against further implementation of the net worth sweep.
The District Court dismissed the complaint, ruling that all of the Shareholders’ claims fail as a matter of law. The Fifth Circuit Court of Appeals reversed. It held that FHFA’s design violates the separation of powers because “Congress encased the FHFA in so many layers of insulation—by limiting the President’s power to remove and replace the FHFA’s leadership, exempting the Agency’s funding from the normal appropriations process, and establishing no formal mechanism for the Executive Branch to control the Agency’s activities.”
A different majority of the en banc appeals court held that prospective relief was the proper remedy and refused to set aside the net worth sweep. To remedy the constitutional defect, the court severed the FHFA Director’s for-cause removal protections, thereby making him removable by the President at will.
Issues Before the Supreme Court
The Shareholders appealed, and the Supreme Court granted certiorari. The justices have agreed to consider the following questions:
(1) Whether the Federal Housing Finance Agency’s structure violates the separation of powers; and (2) whether the courts must set aside a final agency action that FHFA took when it was unconstitutionally structured and strike down the statutory provisions that make FHFA independent.
Oral arguments are scheduled for December 9, 2020. The justices are expected to render a decision by the end of the term in June 2021.
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- Establishment ClauseFree Exercise Clause
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Preamble to the Bill of Rights
Congress of the United States begun and held at the City of New-York, on Wednesday the fourth of March, one thousand seven hundred and eighty nine.
THE Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best ensure the beneficent ends of its institution.