Collins v. Yellen

The Recovery Act provides that, absent specifically authorized review, no court may act to “restrain or affect” the FHFA’s exercise of its powers or functions as conservator or receiver. The Court agreed with the courts of appeals that this provision does not shield actions beyond the FHFA’s statutory authority, but it does foreclose relief when the Agency acts within that authority.

The conservatorship provisions give the FHFA broad authority to control a regulated entity’s assets and operations, conduct its business, and take actions it considers in the best interests of either the entity or the FHFA itself. That last alternative matters: the FHFA could pursue a rehabilitation strategy that served the Agency and the public interest in mortgage-market stability even if it did not best serve Fannie Mae, Freddie Mac, or their shareholders.

The Third Amendment eliminated the recurring practice in which the companies drew Treasury funds merely to pay Treasury’s fixed cash dividends. The FHFA could reasonably conclude that replacing fixed dividends with a variable dividend tied to net worth would preserve Treasury’s remaining commitment as a backstop for the companies’ operations and thus support the secondary mortgage market.

The shareholders’ preferred alternatives did not show that the FHFA exceeded its authority. Their projected earnings recovery was uncertain, and dividends paid in kind would have postponed rather than eliminated the cash-dividend problem. Nor did the net-worth sweep amount to an unauthorized liquidation: Fannie and Freddie continued operating actively in the mortgage market rather than winding down their affairs.

The alleged transfer of value from shareholders’ interests in Fannie Mae and Freddie Mac to Treasury through the net-worth sweep was a classic economic injury. That was sufficient injury in fact.

The injury was fairly traceable to the FHFA’s adoption and continued implementation of the Third Amendment. For standing purposes, a plaintiff need trace injury to the defendant’s allegedly unlawful conduct, not prove at the threshold that the injury was caused directly by the particular statutory provision alleged to be unconstitutional.

The requested retrospective relief could redress at least some of the asserted harm. The Court therefore had jurisdiction to decide the constitutional claim, even though the shareholders would still need to establish their entitlement to a remedy.

After argument, the FHFA and Treasury adopted a Fourth Amendment that ended the variable dividend formula responsible for the shareholders’ ongoing injury. That development removed any live basis for injunctions against future implementation of the Third Amendment.

The shareholders nonetheless continued to seek retrospective relief for payments and injuries allegedly caused while the Third Amendment was in force. That live claim for backward-looking relief prevented the constitutional challenge from becoming moot.

When the FHFA becomes conservator, the Recovery Act transfers stockholder rights held “with respect to” the regulated entity and its assets. That language reaches corporate and property-related rights, not every claim a shareholder might possess.

A separation-of-powers challenge to an unconstitutional removal restriction protects a structural liberty interest shared with all persons who have standing to sue. It is not a right belonging uniquely to shareholders by virtue of their ownership interest in Fannie Mae or Freddie Mac. The FHFA therefore did not succeed to that constitutional claim.

The Recovery Act expressly states that the confirmed Director serves a five-year term unless removed by the President for cause. Its separate provision on Acting Directors authorizes the President to designate a deputy to serve temporarily but contains no comparable removal protection.

The Court applied the usual presumption that, when Congress has not clearly restricted removal, an executive officer serves at the President’s pleasure. Congress’ express inclusion of a restriction for a confirmed Director and omission of one for an Acting Director showed that the two offices were treated differently.

Because the Acting Director who adopted the Third Amendment was removable at will, actions taken during that Acting Director’s tenure could not be attributed to the unconstitutional removal restriction. But confirmed Directors later continued to implement the Third Amendment, so the constitutional claim did not fail altogether.

Seila Law held that Congress generally may not protect the sole head of an agency exercising executive power from at-will presidential removal. The FHFA, like the Consumer Financial Protection Bureau, is headed by one Director and its enabling statute limits the President to removal only for cause.

The Court rejected the argument that the FHFA’s allegedly narrower authority justified a different result. Presidential removal authority promotes democratic accountability and permits the President to supervise executive subordinates; those interests do not turn on a judicial comparison of one agency’s relative size or regulatory reach.

The FHFA exercises executive power even when it acts as conservator. It operates under a federal statute, interprets and implements that statute, can place companies into conservatorship, issue orders and subpoenas, and may act in its own interests or the public’s interests rather than solely as an ordinary private conservator would.

The fact that the FHFA principally regulates government-sponsored enterprises did not eliminate the constitutional concern. Its decisions can profoundly affect millions of people and the national housing market. And even a comparatively modest for-cause restriction is incompatible with the President’s need to remove a single agency head for policy differences, poor performance, or loss of confidence.

The FHFA officials involved were properly appointed. An unconstitutional restriction on the President’s removal power does not mean that those officials lacked authority to perform the functions of their office from the outset, as would be true of an official appointed in violation of the Appointments Clause.

The Acting Director who adopted the Third Amendment was removable at will, eliminating any basis to set aside the amendment in full on the asserted constitutional theory. The Court also found no precedent requiring all actions later implemented by properly appointed confirmed Directors to be treated as void merely because they were protected from at-will removal.

Still, an unconstitutional removal restriction can cause compensable harm in particular circumstances. For example, the restriction might matter if the President attempted to remove a Director but was prevented from doing so, or publicly indicated that he would remove the Director but for the statute.

The Court remanded for the lower courts to determine whether the restriction actually caused harm here, including whether the President might have replaced a confirmed Director or whether a Director’s conduct would have differed absent the protection. The lower courts could also address Treasury’s fact-dependent laches defense.