People For the American Way

Confirmed Judges, Confirmed Fears: Trump Judge Casts Deciding Vote to Give President Power to Fire Head of Independent Housing Agency, Based on Kavanaugh Theory

News and Analysis
Confirmed Judges, Confirmed Fears: Trump Judge Casts Deciding Vote to Give President Power to Fire Head of Independent Housing Agency, Based on Kavanaugh Theory

Confirmed Judges, Confirmed Fears” is a blog series documenting the harmful impact of President Trump’s judges on Americans’ rights and liberties. 

Trump Fifth Circuit Judge Don Willett recently cast the deciding vote in a ruling that struck down a federal statute that provided that the president could fire the head of an independent federal housing finance agency, the Federal Housing Finance Agency (FHFA), only for cause. Based in large part on a theory advanced by Supreme Court nominee Brett Kavanaugh, which was rejected by the majority of the D.C. Circuit, the Fifth Circuit majority effectively amended the statute to require that the president be able to fire the head of FHFA for any reason at all, despite a dissent from the chief judge of the circuit. Willett went even further and argued in dissent that the court should rule on a statutory challenge to FHFA actions that displeased large real estate investors, despite contrary rulings by three other federal circuit courts.

The case, Collins v. Mnuchin, concerns a law passed by Congress and signed by President Bush to help “reverse a national housing market meltdown” and deal with the mortgage and financial crisis a decade ago. The two government sponsored entities (GSEs) that are “mainstays of  the U.S. mortgage market” – Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) – were beginning to experience financial instability because of the large number of toxic subprime mortgage loans by banks. To “protect the fragile national economy from future losses,” Congress established FHFA as an independent agency to ensure that Fannie and Freddie operate “in a safe and sound manner.” Among its other actions, FHFA arranged for the Department of the Treasury to provide over $200 billion in financing to the GSEs, in return for an agreement to pay back that funding expeditiously, which required deferring payment of dividends to large investors who are shareholders of the GSEs.

The shareholders objected and filed suit, claiming that the FHFA did not have authority to take the action under the law, and that the FHFA itself was unconstitutional because it is led by a single director who can be removed by the president only for cause. The district court found for the agency on both claims, and the investors appealed. The three judges who heard the appeal split differently on the two issues.

In a 2-1 unsigned decision by Judge Willett and Judge Haynes, the appeals court agreed with the investors that the FHFA as structured by Congress was unconstitutional. They relied heavily on the reasoning of Judge Brett Kavanaugh in arguing in dissent that the Consumer Financial Protection Bureau was unconstitutional in PHH Corp. v. CFPB. They cited Kavanaugh’s dissent eight times, and argued as he did that having a single director removable only for cause “diminishes Presidential power” so much that it violates Article II of the Constitution. As a remedy, they ordered that the law be effectively rewritten to allow the President to remove the FHFA director for any reason at all.

The majority of the full D.C. Circuit had rejected Kavanaugh’s claim, pointing out that it “flies in the face” of previous Supreme Court decisions and “defies historical practice,” and that the CFPB statute was a “valid exercise” of Congress’ law-making authority. Fifth Circuit Chief Judge Stewart agreed with the D.C. Circuit majority and dissented in the 2-1 decision, pointing out that there was an FHFA oversight board and that the FHFA set-up was similar to that of the Social Security Administration. In some respects, the 2-1 majority in Collins went even further than Kavanaugh did in PHH, because Kavanaugh distinguished FHFA as an agency that does not exercise “core Article II executive power” in bringing law enforcement actions as does CFPB, even as he noted that FHFA’s status was “contested.”

Judge Willett went even further. He filed a dissent from the ruling by Chief Judge Stewart and Judge Haynes that upheld the district court’s dismissal of the claim that the FHFA action to help finance the GSEs violated the law. Willett was extremely sarcastic in describing the action, asserting that it “forever trapped” the GSEs in a “zombie-like trance” and that they were “bled of their profits quarter after quarter in perpetuity.” Yet even Willett recognized that three other circuit courts of appeal had ruled that the action “falls squarely within the FHFA’s authority” and that “Congress could not have been clearer” about leaving “hard operational calls to FHFA’s managerial judgment.” The Fifth Circuit majority rejected the investors’ claims and Willett’s arguments “on the same well-reasoned basis” as in the three other rulings.

Willett’s opinions and rhetoric in Collins are extremely troubling. One commentator has noted that the reasoning of the 2-1 majority on the constitutionality of the FHFA could even be used to “strip independence from the Federal Reserve’s Board of Governors.”