Monday, July 23, 2018 9:57:29 PM
Both the FHFA and the Treasury Department, in their briefs to the Fifth Circuit, sought to avoid the constitutionality issue by arguing that the Third Amendment was entered into by the FHFA’s Acting Director who was removable by the President at will and therefore the shareholders’ harm was not traceable to the for-cause removal restriction. The FHFA and Treasury Department argued that because HERA, by its plain terms, only restricted the President’s authority to remove the Director but did not restrict the President’s authority to remove an Acting Director, the Acting Director was not subject to the for-cause removal restriction. The Fifth Circuit rejected this argument stating:
But if the acting Director could be removed at will, the FHFA would be an executive agency—not an independent agency. There is no indication that Congress sought to revoke the FHFA’s status as an independent agency when it is led by an acting, rather than appointed, Director. So an acting Director, like an appointed one, is covered by the removal restriction. (footnotes omitted).
The FHFA also argued in the alternative that the FHFA’s structure was constitutional. In its brief, the FHFA observed that the shareholders were relying on the D.C. Circuit’s vacated panel decision in PHH in arguing that the FHFA’s structure is unconstitutional. The FHFA stated that “the District Court did not err by agreeing with every other court that has considered the issue that “the reasoning of the panel decision in PHH Corp. [is] unpersuasive even if it had not been vacated.'”
In a supplemental filing, the FHFA notified the Fifth Circuit of the D.C. Circuit’s issuance of its en banc PHH decision rejecting the constitutional challenge to the CFPB’s structure and indicated that the D.C. Circuit’s reasoning closely tracked the FHFA’s arguments in support of its constitutionality. In addition to defending its constitutionality, the FHFA took the position that if its structure were found to be unconstitutional, the proper remedy would be to strike the for-cause removal provision.
The Fifth Circuit’s rejection of the argument made by the FHFA and the Treasury Department that the shareholders’ constitutionality challenge failed because the Acting Director was removable at will can be expected to influence whether the CFPB will make a similar argument in the All American Check Cashing case. In opposing All American Check Cashing’s petition to the Fifth Circuit asking it to grant interlocutory review, the CFPB did not directly address the merits of the appellants’ constitutional challenge. Instead, it claimed that because Acting Director Mulvaney is removable at will by the President and had ratified the CFPB’s decision to bring the lawsuit, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured and the constitutionality of the for-cause removal provision was no longer relevant to the case.
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