In a 7-2 decision, the Supreme Court of the United States ruled that the Federal Housing Finance Agency’s (“FHFA”) statutory structure, which protected its director from being removed from position “only for cause”, violated the Constitution’s separation of powers. Writing for the majority in Collins, et al. v. Yellen, et al., Nos. 19-422 and 19-563, Justice Alito found that “the Constitution prohibits even ‘modest restrictions’ on the President’s power to remove the head of an agency with a single top officer.” The Supreme Court found this structure to violate the Constitution and reasoned that “the President must be able to remove not just officers who disobey his commands but also those he finds to be negligent and inefficient[.]” Hours after the Supreme Court rendered its ruling, President Biden removed FHFA’s Director, Mark Calabria.
The Supreme Court’s ruling was consistent with another recent decision in Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020). There, the Supreme Court similarly held that Congress could not limit the President’s power to remove the Director of the Consumer Financial Protection Bureau. The Court’s recent rulings in Collins and Seila reinforce the separation of powers doctrine and the President’s authority to dismiss governmental officers from their posts without cause.
Additionally, the Supreme Court acknowledged in a footnote that other federal agencies share similar leadership structures as the FHFA, but did not “comment on the constitutionality of any removal restriction that applies to their officers.” Looking forward, the Supreme Court’s ruling in Collins may pave an easy path for President Biden to dismiss other holdover heads of agencies that were previously appointed by President Trump, including those in the Social Security Administration and the Office of Special Counsel.
After determining the tenure protection of the FHFA to be unconstitutional, the Supreme Court turned its attention to the heart of the case in Collins involving a challenge by Fannie Mae and Freddie Mac shareholders with regard to a 2012 amendment agreement between the U.S. Treasury and the FHFA. In 2012, the FHFA, as the conservator for Fannie Mae and Freddie Mac, entered into an agreement that requires Fannie Mae and Freddie Mac to pay out billions in profits to the FHFA and Treasury. The shareholders argued the agreement was illegal and should be set aside. The shareholders argued the 2012 agreement was adopted and implemented by officers who lacked constitutional authority, thereby rendering their actions void ab initio. The Supreme Court disagreed. While the Supreme Court found the structure of the FHFA to be unconstitutional, the Court declined to overturn the agreement on a constitutional basis. Justice Alito reasoned that while the FHFA “unconstitutionally limited the president’s authority to remove the confirmed directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the [2012 agreement] as void.”
Despite this ruling against the shareholder’s constitutional challenge of the 2012 agreement, the Supreme Court left open the possibility that the shareholders could be entitled to retrospective relief. The Court remanded the matter to the lower courts for the parties’ to present arguments on this point.