Fannie and Freddie Visit the Supreme Court

Justice Gorsuch

Fannie and Fredddie investors have filed their petition for a writ of certiorari in Perry Capital v. Mnuchin. The question presented is

Whether 12 U.S.C. § 4617(f), which prohibits courts from issuing injunctions that “restrain or affect the exercise of powers or functions of” the Federal Housing Finance Agency (“FHFA”) “as a conservator,” bars judicial review of an action by FHFA and the Department of Treasury to seize for Treasury the net worth of Fannie Mae and Freddie Mac in perpetuity. (i)

What I find interesting about the brief is that relies so heavily on the narrative contained in Judge Brown’s dissent in the Court of Appeals decision. As I had noted previously, I do not find that narrative compelling, but I believe that some members of the court would, particularly Justice Gorsuch. The petition’s statement reads in part,

In August 2012—nearly four years after the Federal Housing Finance Agency (“FHFA”) placed Fannie Mae and Freddie Mac1 in conservatorship during the 2008 financial crisis—FHFA, acting as conservator to the Companies, agreed to surrender each Company’s net worth to the Treasury Department every quarter. This arrangement, referred to as the “Net Worth Sweep,” replaced a fixed-rate dividend to Treasury that was tied to Treasury’s purchase of senior preferred stock in the Companies during the financial crisis. FHFA and Treasury have provided justifications for the Net Worth Sweep that, as the Petition filed by Fairholme Funds, Inc. demonstrates, were pretextual. The Net Worth Sweep has enabled a massive confiscation by the government, allowing Treasury thus far to seize $130 billion more than it was entitled to receive under the pre-2012 financial arrangement—a fact that neither Treasury nor FHFA denies. As was intended, these massive capital outflows have brought the Companies to the edge of insolvency, and all but guaranteed that they will never exit FHFA’s conservatorship.

Petitioners here, investors that own preferred stock in the Companies, challenged the Net Worth Sweep as exceeding both FHFA’s and Treasury’s respective statutory powers. But the court of appeals held that the Net Worth Sweep was within FHFA’s statutory authority, and that keeping Treasury within the boundaries of its statutory mandate would impermissibly intrude on FHFA’s authority as conservator.

The decision of the court of appeals adopts an erroneous view of conservatorship unknown to our legal system. Conservators operate as fiduciaries to care for the interests of the entities or individuals under their supervision. Yet in the decision below, the D.C. Circuit held that FHFA acts within its conservatorship authority so long as it is not actually liquidating the Companies. In dissent, Judge Brown aptly described that holding as “dangerously far-reaching,” Pet.App. 88a, empowering a conservator even “to loot the Companies,” Pet.App. 104a.

The D.C. Circuit’s test for policing the bounds of FHFA’s statutory authority as conservator—if one can call it a test at all—breaks sharply from those of the Eleventh and Ninth Circuits, which have held that FHFA cannot evade judicial review merely by disguising its actions in the cloak of a conservator. And it likewise patently violates centuries of common-law understandings of the meaning of a conservatorship, including views held by the Federal Deposit Insurance Corporation (“FDIC”), whose conservatorship authority under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), served as the template for FHFA’s own conservatorship authority. Judge Brown correctly noted that the decision below thus “establish[es] a dangerous precedent” for FDIC-regulated financial institutions with trillions of dollars in assets. Pet.App. 109a. If the decision below is correct, then the FDIC as conservator could seize depositor funds from one bank and give them away—to another institution as equity, or to Treasury, or even to itself—as long as it is not actually liquidating the bank. The notion that the law permits a regulator appointed as conservator to act in a way so manifestly contrary to the interests of its conservatee is deeply destabilizing to our financial regulatory system. (1-2)

We shall see if this narrative of government overreach finds a sympathetic ear at the Court.

Judge Gorsuch v. Uncle Sam

The Hill published my latest column, Where Does Judge Gorsuch Stand on Limiting the Federal Government? It opens,

This week, all eyes are on Judge Gorsuch’s confirmation hearing for a seat on the Supreme Court. While Gorsuch has not explicitly stated that he wants to drown or deconstruct the federal government, there is troubling language in his opinions that indicates that he shares that goal. While this will hearten many a Tea Partyer, moderate Republicans along with Democrats should be wary of someone who does not value the good that the federal government can and does do.

His opinion in Caring Hearts Personal Home Services v. Burwell describes a federal government that has ceased to function rationally: “The number of formal rules [administrative] agencies have issued thanks to their delegated legislative authority has grown so exuberantly it’s hard to keep up. The Code of Federal Regulations now clocks in at over 175,000 pages. And no one seems sure how many more hundreds of thousands (or maybe millions) of pages of less formal or ‘sub-regulatory’ policy manuals, directives, and the like might be found floating around these days.”

He continues, “This case has taken us to a strange world where the government itself — the very ‘expert’ agency responsible for promulgating the ‘law’ no less — seems unable to keep pace with its own frenetic lawmaking. A world Madison worried about long ago, a world in which the laws are ‘so voluminous they cannot be read’ and constitutional norms of due process, fair notice, and even the separation of powers seem very much at stake.”

While this opinion draws a colorful picture of a topsy-turvy government that plays well to the crowd, the fact is that the federal government runs pretty well given its size and complexity. Indeed, employees of large and profitable corporations can often be heard making the same kind of complaints about their employers. All large organizations have their catch-22s, their inconsistencies, their maddening snafus. But the fact remains that large organizations have been remarkably successful at navigating the modern world.

Gorsuch’s lazy originalism, with musings of Madison’s concerns about a legal code so massive that it is unknowable, may have packed a punch at the dawn of the administrative state a hundred years ago. Today it misses its mark. Indeed, the first lesson I teach my law students is that their job is not to know what the law is in advance, but rather to be able to figure it out when a case presents itself. The same could be said of any professional. A doctor need not know all of the medical literature. She just needs to be able to search it in order to diagnose her patient. In fact, the massive code is pretty knowable. Just use Google. It’s all there.

For those of us who work for large organizations, who deal with large amounts of data, who crisscross the world’s borders, who do business over state lines, we know that we can survive and thrive in this complex world. And there simply is no alternative. To deny this is to pander to silly romantics who pine for a time that passed more than a century ago for most people: when you only did business with your neighbors, when your justice of the peace lived down the block and when you walked to your job across town.

President Trump knows this. His businesses are scattered across the globe. Steve Bannon knows this. He worked at Goldman Sachs. And Judge Gorsuch certainly knows this. But they also know that people like to hear that we can go back to a simpler time that never really existed for most Americans.

We do not need that kind of patronizing nostalgia in the Supreme Court. Our ninth justice should be one who can craft solutions to our 21st century legal problems that are based on the values embodied in the Constitution, not the facts of life of a bygone era.

United States v. CFPB

photo by AgnosticPreachersKid

United States Court of Appeals for the District of Columbia Circuit, E. Barrett Prettyman Federal Courthouse

The Trump Administration has filed an amicus brief in PHH Corp. v. CFPB. The case is schedule for an en banc hearing in May. The filing is particularly newsworthy because the Trump Administration is siding with PHH, a mortgage lender, against the CFPB, a federal agency. The Trump Administration summarizes its position as follows:

In 2010, Congress created the Consumer Financial Protection Bureau (CFPB) as part of the Dodd-Frank Act, giving the CFPB authority to enforce U.S. consumer-protection laws that had previously been administered by seven different government agencies, as well as new provisions added by Dodd-Frank itself. See 12 U.S.C. § 5581(b). The CFPB is headed by a single Director who is appointed by the President, with the advice and consent of the Senate, for a term of five years, id. § 5491(b), (c)(1), and who may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office,” id. § 5491(c)(3).

The panel in this case held that this “for cause” removal provision violates the constitutional separation of powers. Op. 9-10. The panel explained—and neither party disputes—that, as a general matter, the President has “Article II authority to supervise, direct, and remove at will subordinate [principal] officers in the Executive Branch” in order to exercise his vested power and duty to faithfully execute the laws. Op. 4. The panel recognized as well that Humphrey’s Executor v. United States, 295 U.S. 602, 629 (1935), established an exception to that rule, holding that Congress may “forbid [the] removal except for cause” of members of the Federal Trade Commission (FTC)—a holding that has been understood to cover members of other multi-member regulatory commissions that share certain features and functions with the FTC. Op. 4.

The principal constitutional question in this case is whether the exception to the President’s removal authority recognized in Humphrey’s Executor should be extended by this Court beyond multi-member regulatory commissions to an agency headed by a single Director. While we do not agree with all of the reasoning in the panel’s opinion, the United States agrees with the panel’s conclusion that single-headed agencies are meaningfully different from the type of multi-member regulatory commission addressed in Humphrey’s Executor.

The Supreme Court’s analysis in Humphrey’s Executor was premised on the nature of the FTC as a continuing deliberative body, composed of several members with staggered terms to maintain institutional expertise and promote a measure of stability that would not be immediately undermined by political vicissitudes. A single-headed agency, of course, lacks those critical structural attributes that have been thought to justify “independent” status for multi-member regulatory commissions. Moreover, because a single agency head is unchecked by the constraints of group decision-making among members appointed by different Presidents, there is a greater risk that an “independent” agency headed by a single person will engage in extreme departures from the President’s executive policy. And as the panel recognized, while multi-member regulatory commissions sharing the characteristics of the FTC discussed in Humphrey’s Executor have existed for over a century, limitations on the President’s authority to remove a single agency head are a recent development to which the Executive Branch has consistently objected.

We therefore urge the Court to decline to extend the exception recognized in Humphrey’s Executor in this case. (1-2)

This is of course an obscure argument about administrative law jurisprudence, but it also has serious real world consequences. I have previously argued that the panel reached the wrong result in this case and I think that the en banc Court will overturn it.

This amicus brief does not add too much to the reasoning in Judge Kavanaugh’s majority opinion in PHH v. CFPB, although it does flesh out one important argument that it made. The brief provides some support for the position that multi-member commissions are better suited to run independent agencies than single directors. But while it makes the case that single director agencies may not be the best choice for agency design, it does not make the case that it is an unconstitutional one.

 

Gorsuch and the State of Administrative Law

photo by Joe Ravi

The United States Supreme Court

I was interviewed by Harold O’Grady on his podcast for the BLS Library Blog about Supreme Court nominee Judge Gorsuch:

This conversation with Brooklyn Law School Professor David Reiss focuses on his recent article Gorsuch, CFPB and Future of the Administrative State. Prof. Reiss talks about the impact that U.S. Supreme Court nominee Judge Neil Gorsuch would have on the future of administrative law and, in particular, on federal consumer protection enforcement if he is confirmed. Prof. Reiss reviews the case PHH v. Consumer Financial Protection Bureau which the United States Court of Appeals, District of Columbia Circuit decided last year. It is likely the case will be appealed to the Supreme Court. If so, Justice Gorsuch may vote to curtail the independence of the Consumer Financial Protection Bureau and limit its enforcement powers. More generally, Prof. Reiss believes that, given previous rulings by Judge Gorsuch in cases dealing with administrative law, a Justice Gorsuch will be a skeptic of agency action and will support greater judicial review of agency actions.

You can find the link to our conversation here.

GSE Investors’ Hidden Win

Judge Brown

The big news yesterday was that the US Court of Appeals for the DC Circuit ruled in the main for the federal government in Perry Capital v. Mnuchin, one of the major cases that investors brought against the federal government over the terms of the Fannie and Freddie conservatorships.

In a measured and carefully reasoned opinion, the court rejected most but not all of the investors’ claims.  The reasoning was consistent with my own reading of the broad conservatorship provisions of the Housing and Economic Recover Act of 2008 (HERA).

Judge Brown’s dissent, however, reveals that the investors have crafted an alternative narrative that at least one judge finds compelling. This means that there is going to be some serious drama when this case ultimately wends its way to the Supreme Court. And there is some reason to believe that a Justice Gorsuch might be sympathetic to this narrative of government overreach.

Judge Brown’s opinion indicts many aspects of federal housing finance policy, broadly condemning it in the opening paragraph:

One critic has called it “wrecking-ball benevolence,” James Bovard, Editorial, Nothing Down: The Bush Administration’s Wrecking-Ball Benevolence, BARRONS, Aug. 23, 2004, http://tinyurl.com/Barrons-Bovard; while another, dismissing the compassionate rhetoric, dubs it “crony capitalism,” Gerald P. O’Driscoll, Jr., Commentary, Fannie/Freddie Bailout Baloney, CATO INST., http://tinyurl.com/Cato-O-Driscoll (last visited Feb. 13, 2017). But whether the road was paved with good intentions or greased by greed and indifference, affordable housing turned out to be the path to perdition for the U.S. mortgage market. And, because of the dominance of two so-called Government Sponsored Entities (“GSE”s)—the Federal National Mortgage Association (“Fannie Mae” or “Fannie”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “Freddie,” collectively with Fannie Mae, the “Companies”)—the trouble that began in the subprime mortgage market metastasized until it began to affect most debt markets, both domestic and international. (dissent at 1)

While acknowledging that the Fannie/Freddie crisis might justify “extraordinary actions by Congress,” Judge Brown states that

even in a time of exigency, a nation governed by the rule of law cannot transfer broad and unreviewable power to a government entity to do whatsoever it wishes with the assets of these Companies. Moreover, to remain within constitutional parameters, even a less-sweeping delegation of authority would require an explicit and comprehensive framework. See Whitman v. Am. Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001) (“Congress . . . does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.”) Here, Congress did not endow FHFA with unlimited authority to pursue its own ends; rather, it seized upon the statutory text that had governed the FDIC for decades and adapted it ever so slightly to confront the new challenge posed by Fannie and Freddie.

*     *     *

[Congress] chose a well-understood and clearly-defined statutory framework—one that drew upon the common law to clearly delineate the outer boundaries of the Agency’s conservator or, alternatively, receiver powers. FHFA pole vaulted over those boundaries, disregarding the plain text of its authorizing statute and engaging in ultra vires conduct. Even now, FHFA continues to insist its authority is entirely without limit and argues for a complete ouster of federal courts’ power to grant injunctive relief to redress any action it takes while purporting to serve in the conservator role. See FHFA Br. 21  (2-3)

What amazes me about this dissent is how it adopts the decidedly non-mainstream history of the financial crisis that has been promoted by the American Enterprise Institute’s Peter Wallison.  It also takes its legislative history from an unpublished Cato Institute paper by Vice-President Pence’s newly selected chief economist, Mark Calabria and a co-author.  There is nothing wrong with a judge giving some context to an opinion, but it is of note when it seems as one-sided as this. The bottom line though is that this narrative clearly has some legs so we should not think that this case has played itself out, just because of this decision.

Gorsuch, The CFPB and The Administrative State

photo by the White House

Judge Gorsuch with President Trump

I published a column, Gorsuch, CFPB And Future Of The Administrative State, in Law360. While Law360 is behind a paywall, you can also find a version of the article on SSRN or on BePress. Here is the text (footnotes converted to in-text citations):

U.S. Supreme Court nominee Judge Neil Gorsuch would have an outsized influence on federal consumer protection enforcement if he is confirmed. In particular, if PHH v. Consumer Financial Protection Bureau is appealed to the Supreme Court, a Justice Gorsuch is likely to vote to strongly curtail the independence of the Consumer Financial Protection Bureau and limit its enforcement powers. 839 F.3d 1 (D.C. Cir. 2016). More generally, he will be a skeptic of agency action, one who will support greater judicial review of agency actions.

PHH v. CFPB

The Consumer Financial Protection Bureau faces an existential threat from PHH v. CFPB. PHH, a mortgage company, was the subject of a Real Estate Settlement Procedures Act enforcement action by the CFPB. After the CFPB ordered PHH to pay $109 million, PHH petitioned the United States Court of Appeals of Appeals for the District of Columbia Circuit for review. In a wide-ranging opinion, Judge Brett Kavanaugh, joined by Judge A. Raymond Randolph, held that the structure of the CFPB was unconstitutional (Judge Karen Henderson, the third member of the panel, did not join in this part of the opinion). Judge Kavanaugh’s opinion also rejected the CFPB’s interpretation of RESPA as well as its retroactive application. The CFPB has sought en banc review from the D.C. Circuit. If the en banc petition is granted and the panel’s decision is reversed, there is no doubt that PHH will appeal the decision to the Supreme Court.

The rationale for Judge Kavanaugh’s opinion is based on what he describes as a threat to individual liberty that the CFPB’s structure poses. Unlike nearly all other independent agencies whose leaders can only be removed for cause, the CFPB has a single director at its helm instead of a multimember commission. Judge Kavanaugh writes that, “[b]ecause of their massive power and the absence of Presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.” Id. at 6. Kavanaugh finds that multiple commissioners act as a check on each other’s power, while a lone agency director will have as much unchecked authority in his or her domain as the president has throughout the executive branch. The agency director’s unchecked power, according to Kavanaugh, has a “greater risk of arbitrary decisionmaking and abuse of power” than the checked power of commissioners. Id. at 8.

In Humphrey’s Executor v. United States, the Supreme Court held that Congress could create independent agencies, where agency heads are only removable by the president for cause. 295 U.S. 602 (1935). Kavanaugh asks whether the rationale of Humphrey’s Executor, developed with a multimember commission in mind, extends to the CFPB’s single-director structure as well.  Judge Kavanaugh’s analysis of the separation of powers issue focuses heavily on “history and tradition.” 839 F.3d at 7. Finding only three more examples of independent agencies headed by single directors, none of which have “deep historical roots,” Kavanaugh concludes that the single-director structure is a violation of the separation of powers contemplated in the Constitution. Id. at 18. The court’s remedy for this “gross departure from settled historical practice” is to sever the “for-cause” provision from the statute, thereby giving the president the power to remove the CFPB director at will. Id. at 8. This converts the CFPB from an independent agency to a more typical executive agency that is directly accountable to the president.

The result that Kavanaugh reaches is not based on the text of the Constitution nor on a close reading of precedent.  Rather it reflects a broader jurisprudential understanding of how separation of powers principles should shape the modern administrative state.  While I will not provide a thorough critique of this view, I do note that this near-requirement for “deep historical roots” sets a high bar for Congress to jump over as it seeks to regulate the administrative state. I will also note that Kavanaugh provides no support for the claim that a single director would act more arbitrarily and would be more likely to abuse power than a commission.  While this may be true, it is the type of assertion that would seem to call for substantial support, particularly in a judicial opinion that is more than a hundred pages long.

As far as the statutory claim is concerned, Kavanaugh appeared a bit skeptical of the CFPB’s claim that its interpretation of the statute was entitled to Chevron deference (meaning that courts should defer to reasonable agency interpretations of federal laws that the agency administers).  But because he found that the CFPB’s interpretation of RESPA was inconsistent with the statute’s plain language, his Chevron analysis could stop there.  He also found that the CFPB director’s retroactive interpretation of the statute violated the Fifth Amendment because it “contravenes the bedrock due process principle that the people should have fair notice of what conduct is prohibited.” Id. at 46.

Gorsuch and the CFPB

Judge Gorsuch has not had much to say about the regulation of consumer finance directly, but has had lots to say about separation of powers and the appropriate scope of agency action.  His record indicates that he will be skeptical of an expansive CFPB.

Gorsuch echoes Kavanaugh in his Gutierrez-Brizuela v. Lynch concurrence (a case reviewing a Board of Immigration Appeals order).  He writes that the separation of powers must be strictly maintained in order to “guard against governmental encroachment on the people’s liberties . . .” 834 F.3d 1142, 1149 (10th Cir. 2016) (Gorsuch, concurring). Gorsuch appears to believe that Chevron’s purpose and effect are “at odds with the separation of legislative and executive functions . . .” Id. at 1154. At the end of his Gutierrez-Brizuela concurrence, he imagines a world without Chevron and predicts that the federal government could be run just as efficiently as it does with Chevron.  This skepticism for Chevron deference will find allies among the conservative justices sitting on the Supreme Court.

Again, like Kavanaugh, Gorsuch is very skeptical of the retroactive application of an agency’s interpretation of a statute.  In De Niz Robles v. Lynch (another review of a BIA order), he identifies some of the “ill effects” of retroactivity: “upsetting settled expectations with a new rule of general applicability, penalizing persons for past conduct, doing so with a full view of the winners and losers …” 803 F.3d 1165, 1176 (10th Cir. 2015).  These opinions all point to agreement with Kavanaugh’s reasoning in PHH.

Adventures in Wonderland

More telling about Gorsuch’s approach to administrative law issues is the picture of the federal government that he sketches in his opinions.  His opinion in Caring Hearts Personal Home Services v. Burwell (reviewing a Centers for Medicare & Medicaid Services reimbursement denial), describes a federal bureaucracy that has too much in common with the Court of Hearts in Alice’s Adventures in Wonderland, ruled over by its bewildering king and bothersome queen. 824 F.3d 968 (10th Cir. 2016). Caring Hearts opens,

Executive agencies today are permitted not only to enforce legislation but to revise and reshape it through the exercise of so-called “delegated” legislative authority. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 865-66 (1984).  The number of formal rules these agencies have issued thanks to their delegated legislative authority has grown so exuberantly it’s hard to keep up.  The Code of Federal Regulations now clocks in at over 175,000 pages. And no one seems sure how many more hundreds of thousands (or maybe millions) of pages of less formal or “sub-regulatory” policy manuals, directives, and the like might be found floating around these days. For some, all this delegated legislative activity by the executive branch raises interesting questions about the separation of powers.

Id. at 969. Gorsuch notes that this state of affairs “raises troubling questions about due process and fair notice — questions like whether and how people can be fairly expected to keep pace with and conform their conduct to all this churning and changing ‘law.’” Id. He adds:

This case has taken us to a strange world where the government itself — the very “expert” agency responsible for promulgating the “law” no less — seems unable to keep pace with its own frenetic lawmaking. A world Madison worried about long ago, a world in which the laws are “so voluminous they cannot be read” and constitutional norms of due process, fair notice, and even the separation of powers seem very much at stake.

Id. at 976. The “strange world” of Caring Hearts evokes the topsy-turvy trial at the end of Alice’s Adventures in Wonderland.  The trial is adjudicated by the king who wears his crown over his judge’s wig.   The heartless king makes up rules on the spot, much to Alice’s dismay.  It is one thing though for Alice to be benighted by the procedures in the Court of Hearts.  It is quite another for a federal judge to be left bemused by the operations of the modern federal bureaucracy, notwithstanding its voluminous laws, rules and policies.  One would hope that a Supreme Court justice could figure out a way to make sense of it all.

Gorsuch describes a federal bureaucracy that is out of control, just way too big.  It is comforting that Gorsuch identifies and seeks to remedy some of the contradictions that many citizens find themselves caught up in when interacting with the federal government.  But it is disturbing that Gorsuch offers no path of escape from the regulatory Wonderland he describes so dramatically.  The federal government, with its budget measured in the trillions of dollars, is and will remain massive.  Congress will continue to pass more and more laws.  Administrative agencies will continue to promulgate regulations mandated by those laws.

If Gorsuch’s diagnosis is that the federal government is too big to operate rationally, his prescriptions offer no more than temporary relief for the few who make it to federal court.  And there is, of course, no going back to a simpler time.  The world is a lot more complicated than it was in the 1930s when Humphrey’s Executor was decided, let alone than in the 1780s when James Madison was drafting the Constitution.  Today’s citizens live and do business across the globe, with its gross world product of $75 trillion.  Navigating the federal bureaucracy is just one small part of the work of today’s Americans.  And yet somehow they figure out how to navigate the world well enough, notwithstanding its immensity and complexity.  Do we really have to throw up our hands when it comes to the voluminous edicts of the federal government?

The Future of the Administrative State

In the cases discussed above, Kavanaugh and Gorsuch both rely on “history and tradition” to put the judicial stamp of approval on the early administrative state.  This is something of a paradox because that same line of reasoning would have led the 1930s Supreme Court to reject the holding in Humphrey’s Executor because it reflected newfangled ideas about how government should operate in the modern era.  This heavy reliance on past practices does not provide much guidance on how the modern administrative state should be allowed to operate.

If Gorsuch is confirmed, there is no doubt that his will be a skeptical voice regarding the reach of the modern administrative state.  This is not to say that he will be the swing vote on this issue.  But his views will have a far-reaching impact on how the federal bureaucracy operates in general.  And if he hears an appeal from PHH v. CFPB, he will likely be sympathetic to PHH’s positions, both in terms of the unconstitutionality of the CFPB’s structure and in terms of the reach of its enforcement powers.  There is no reason to expect that a Supreme Court with a Justice Gorsuch on it will cry out, “Off with their heads!” to the CFPB and other agencies, like the Queen of Hearts is wont to do.  But there is good reason to expect that it will dramatically limit how agencies go about their business.

Gorsuch and the CFPB

photo provided byUnited States Court of Appeals for the Tenth Circuit

Judge Gorsuch

Bankrate.com quoted me in Supreme Court Pick Could Spell Trouble for the CFPB. It opens,

President Donald Trump’s first Supreme Court pick has been identified as the “most natural successor” to the late Justice Antonin Scalia, whom he would replace.

Neil Gorsuch, 49, a judge on the 10th Circuit Court of Appeals in Denver, is said to share many of Scalia’s beliefs and his judicial philosophy. That could tip the high court back toward the 5-4 conservative split it held during controversial cases prior to Scalia’s death, although Justice Anthony Kennedy will remain a liberal swing vote on certain social issues before the court.

Gorsuch’s big judicial decisions have favored religious freedom over government regulation and state’s rights over the power of the federal government.

But how might that impact consumers or their wallets directly?

“I think with a judge like Gorsuch, you can see there probably will be a tendency in that direction to dissuade innovation,” says David Reiss, a law professor at Brooklyn Law School and the academic program director for the Center for Urban Business Entrepreneurship.

That could mean the Consumer Financial Protection Bureau, whose unique management structure a judge on the U.S. Court of Appeals for the D.C. Circuit last fall called unconstitutional, could face an obstacle on the bench should the legal fight over its construction ever reach the Supreme Court.

Judge Brett Kavanaugh, who wrote the majority opinion for the D.C. circuit panel, said because this independent agency is headed by a director whom the president cannot fire at will – and not, say, a set of commissioners like other agencies within the government – it is a threat to individual liberty.

“In short, when measured in terms of unilateral power, the director of the CFPB is the single most powerful official in the entire U.S. government, other than the president,” Kavanaugh wrote. “In essence, the director is the president of consumer finance.”

How Gorsuch May Rule

Supporters of the bureau are trying to get a hearing before the full U.S. Court of Appeals, but the issue could well wind up in front of the U.S. Supreme Court – that is if Congress doesn’t take action first.

Legal scholars say should Gorsuch win Senate confirmation he is unlikely to look favorably on the bureau’s structure.

Indeed, Gorsuch is likely to “echo the views of Judge Kavanaugh,” Melissa Malpass, senior legal editor for consumer regulatory finance at Thompson Reuters Practical Law, said in an email.

“Judge Gorsuch, through recent decisions, has expressed his disfavor with permitting government agencies to not only determine what the law is, but also to interpret and re-interpret the law as they see fit, often based on the political climate,” Malpass says.

If the Supreme Court were to uphold the Kavanaugh ruling, it “may, in effect, destroy the CFPB as we know it, and that will have an effect on consumers,” Reiss says.

Not everyone, though, thinks restructuring the CFPB as a commission-led agency like the Federal Communications Commission, for example, would be bad for consumers.

Gorsuch’s Path to the High Court

Democrats, still stung over the Senate’s refusal to consider Merrick Garland, then-President Barack Obama’s pick to succeed Scalia, could try to block Gorsuch’s nomination. Under current Senate rules, at least eight Democrats will need to cross the aisle to prevent a filibuster of the appointment.

Gorsuch, who was confirmed for his current post in 2006 by Senate voice vote, has won widespread acclaim in Republican circles. He also received a vote of confidence from a former Obama administration official.

“I think the Democrats are going to ask questions to determine if the nominee is outside what they call the political mainstream,” Reiss says. “We know this battle will be a brutal one, almost definitely because of the treatment of Merrick Garland’s nomination under the Obama administration.”