- In Seila Law v. Consumer Financial Protection Bureau, the Supreme Court confronts the question of whether the CFPB's structure, with a single director removable only "for cause," is constitutional.
- The Court's decision could reshape the Dodd-Frank Act and have broader implications for how Congress can shape the relationship between the president and independent agencies.
- Some of the justices seem inclined to find the "for cause" provision severable from the remainder of the Dodd-Frank Act, such that the rest of the law would survive.
- Some of the justices seem to believe the issue regarding the director's removal is not ripe, considering that the president has not tried to fire her.
Yesterday, the Supreme Court heard oral argument in Seila Law v. Consumer Financial Protection Bureau and should issue a decision by the middle of this summer. Depending on how the Court decides this case, it could reshape one of the most significant pieces of post-2008 financial crises legislation—the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Court could also change both the ability of Congress to delegate certain executive branch functions by legislation and the way that the executive branch controls independent agencies.
The case stems from the CFPB's issuance of a civil investigative demand (CID), in response to which Seila Law argued that the structure of the CFPB violates the Constitution's separation of powers principle that the president must faithfully execute the laws of the United States. In Seila Law's view, the CFPB's structure is unconstitutional because the CFPB director is removable only "for cause" and not at the will of the president. The Court focused on whether (a) the issue is ripe for resolution, because no one has tried to remove the director; (b) the issue is moot, because an acting director who is removable at will ratified the CID; (c) the Court could fashion some type of standard defining "for cause," so that it does not violate the separation of powers principles, akin to a unitary theory of executive branch authority that rests with the president; and (d) the provision that mandates that the director of the CFPB can be removed only "for cause" is severable.
In a relatively rare situation, Seila Law and the solicitor general of the United States both agree that the CFPB structure is unconstitutional. Usually, the solicitor general defends government agencies and acts of Congress. As a result, the Court appointed an attorney to argue on the CFPB's behalf and heard argument by an attorney representing Congress, in which both argued that the acting director of the CFPB had ratified the CID and no one has tried to remove the director, so there are no issues for the Court to decide that relate to whether the CFPB&'s structure is constitutional. Nonetheless, both argued in the alternative, that the CFPB's structure is constitutional, the "for cause" provision is severable, and the remainder of the statute should be preserved. In one notable part of the argument, the representative for Congress reminded the Court that it is nearly impossible to unwind the Dodd-Frank Act, because, among other things, some of the predecessor agencies from which the CFPB drew its authority no longer exist.
Justices Ginsburg and Sotomayor expressed sympathy for the argument that there are no issues for the Court to decide with respect to the constitutionality of the CFPB's structure. Justice Sotomayor suggested that it would be appropriate to wait until an actual dispute arises between the president and a CFPB director whom the president wishes to fire. However, this view did not appear to draw significant support from other justices.
The solicitor general stated that the president generally possesses the "unrestricted authority" to remove senior government officials. He recognized that, in Humphrey's Executor v. United States, 295 U.S. 602 (1935), the Court had not adhered to this view, instead upholding the constitutionality of the structure of the FTC, with five commissioners removable only for cause. However, he warned that if the Humphrey's Executor exception were to be extended, there would be no limiting principle, and even the president's ability to remove cabinet members at will could be called into doubt. The House's attorney sought to reassure the Court, stating that the House has never tried to alter the at-will status of cabinet officials.
The Court also analyzed the language of the statute at issue in Seila Law, which provides that the president may remove the CFPB director only for "inefficiency, neglect of duty, or malfeasance in office." Chief Justice Roberts floated the possibility of avoiding the constitutional issue by interpreting a term such as "inefficiency" expansively, such that the "for cause" restriction would not in practice impose significant constraints on a president seeking to replace the CFPB director. However, this proposal met with a lukewarm reception. Justice Kavanaugh cautioned that such a relaxed standard would undermine the independence of other agencies with similar removal restrictions, while Justice Gorsuch queried whether this would simply amount to a less "honest" way of overturning Humphrey's Executor. Meanwhile, a ruling against the CFPB would call into question the constitutionality of the structures of other agencies with single directors, including the Office of the Comptroller of the Currency (OCC).
If the Court finds the CFPB's structure unconstitutional, a further question is whether the offending provision can be severed from the Dodd-Frank law, or whether the entire law would be invalidated. Justice Kavanaugh suggested that a failure to heed Dodd-Frank's severability clause would constitute a rewriting of Dodd-Frank. Here, the solicitor general and counsel for the House found common ground, agreeing that if the removal restrictions are found unconstitutional, they should be separated from the rest of Dodd-Frank, such that the law would survive.
We offer no certain predictions as to how the Court may decide this case, but we do place higher odds on the Court finding the "for cause" provision severable versus invalidating the entirety of the Dodd-Frank Act. While it certainly is possible that some justices will advocate to overturn Humphrey's Executor, it is less clear that there is a consensus on that approach. A copy of the oral argument audio should be here by the end of the week: https://www.supremecourt.gov/oral_arguments/argument_audio/2019#list