In Seila Law LLC v. Consumer Financial Protection Bureau (CFPB), the Supreme Court decided the constitutionality of the CFPB, an agency long criticized not just by the business community but also constitutional scholars who see major problems a single-director agency seemingly unaccountable to the president or anyone else. The lawsuit was brought by a law firm that assists in resolving personal-debt issues, among other legal work that puts it in the crosshairs of those who want greater regulation of consumer-facing financial services. The CFPB is the most independent of independent agencies, with power to make rules, enforce them, adjudicate violations in its own administrative hearings, and punish wrongdoers. It doesn’t need Congress to approve its budget, because its funding requests are met by another agency insulated from political control: the Federal Reserve. Even CFPB supporters concede that the CFPB structure and authority is unique. John Eastman and Brian Johnson join us to discuss the Supreme Court's decision and the greater implications.
John Eastman, Henry Salvatori Professor of Law and Community Service and Director, Center for Constitutional Jurisprudence, Chapman University Fowler School of Law
Brian Johnson, Partner, Alston & Bird
Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.
Nick Marr: Welcome to The Federalist Society's Teleforum conference call. This afternoon will be a Courthouse Steps Decision Teleforum on the recent Supreme Court ruling in Seila Law. v. The Consumer Financial Protection Bureau or CFPB. My name is Nick Marr, and I am Assistant Director of practice groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts today's call.
Today we are fortunate to have with us John Eastman, a Henry Salavtori Professor of Law and Community Service and Director of the Center for Constitutional Jurisprudence at Chapman University's Fowler School of Law, and Brian Johnson, a Partner at Alston & Bird.
After our speakers give their opening remarks, we will then go to audience Q&A. Thank you both for being with us here today. John, the floor is yours.
Dr. John C. Eastman: Thank you very much, Nick. And let me make one slight correction. The Center for Constitutional Jurisprudence is sponsored by the Claremont Institute, where I'm a senior fellow, and we run the Constitutional Litigation Clinic at Chapman. Just got to keep my two hats and masters straight.
We're talking today about the Supreme Court's decision in Seila Law not unexpectedly finding that the single director, unaccountable to the president or anybody else in the world, format that Congress set up with the Consumer Finance Protection Bureau was an unconstitutional restriction on the president's executive authority conveyed by Article II of the Constitution.
Interestingly, the opinion so holding garnered five votes, written by Chief Justice John Roberts, who has the opinion for the Court, joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh in Parts 1, 2, and 3 of his opinion.
Now, this is an extremely significant case for administrative law and separation of powers and kind of getting us back on the right track for constitutional separation of powers as the Constitution mandates and certainly envisioned.
The case that got us on the wrong path was a New Deal-era case called Humphrey's Executor. Humphrey's Executor had largely ignored immediately prior precedent where the Supreme Court held that the president's executive power, which is conveyed upon him—the executive power, unitary executive idea in Article II—necessarily implied that he had the power to remove executive officers, even those that had been nominated by the president and confirmed by the Senate; that the Senate confirmation process was an exception to the executive power, otherwise broadly granted, and unless the exception was specific, the general rule of executive power invested in the president would prevail.
Humphrey's Executor changed that and really laid the groundwork for the administrative state of independent, unelected, and largely unaccountable agencies running large swaths of the nation's economy and controlling large aspects of our lives.
Humphrey's Executor, though, involved a multi-member commission at the Federal Trade Commission with staggered terms, and the Court, there, held that because they exercised more quasi-legislative and quasi-judicial powers rather than core executive powers, that it was permissible for Congress to constrain the president's removal authority for the members of that multi-member commission.
Now, that distinction between quasi-legislative and quasi-judicial powers on the one hand and purely executive powers on the other was blown out of the water when the Supreme Court, half a century later, decides Morrison v. Olson, which was an independent prosecutor exercising purely executive powers that could not be removed by the president, and the Court upheld that as well.
Chief Justice Roberts distinguishes both of those cases here. Humphrey's Executor was a multi-member commission; the CFPB is headed by a single director. Morrison was an inferior officer whereas the CFPB is headed by a director who's clearly superior or a constitutional officer.
The big question in the dispute between Chief Justice Roberts and the concurring opinion by Justice Thomas, or the opinion concurring in part and dissenting in part, is whether to overrule Humphrey's Executor outright as that finding has no basis in the Constitution and, in fact, really undermining this core separation of powers principle.
Thomas, of course, as is his wont, and in this he was joined by Justice Neil Gorsuch, would overrule Humphrey's Executor as wrongly decided. But he says that this opinion goes a pretty long way in accomplishing that. "The Court has repudiated almost every aspect of Humphrey's Executor. In a future case, I would repudiate what is left of this erroneous precedent."
Just in case anybody misconstrued what he's talking about here, he says, "That decision has paved the way for an ever-expanding encroachment on the power of the executive, contrary to our constitutional design. It represented a fundamental departure from our constitutional structure with nothing more than hand waving and obfuscating phrases such as 'quasi-legislative' or 'quasi-judicial.'"
That's pretty good and it's pretty vintage Justice Thomas in criticizing the prior president. Although, it's probably a little hard for Chief Justice Roberts at the moment given his signing on to clearly erroneous precedent in the Louisiana abortion case earlier this week to have taken the step of actually formally overturning Humphrey's Executor.
Now, where does dispute lie in Justice Thomas' opinion concurring there is also a dissenting opinion, in part, and that is on the question of severability. Here, Chief Justice Roberts, at this point writing for himself, Justice Alito, and Justice Kavanaugh, and then joined just with an aside by the four liberals, Ginsburg, Breyer, Kagan, and Sotomayor, says that we need to reach the question of whether the appointment or removal authority provision is severable so that the rest of the Consumer Finance Protection Bureau remains intact. In fact, as I expect—and Brian will be taking this up more—may end up continuing to operate as if nothing happened here.
Chief Justice Roberts ended up saying it is, in fact, severable, and the remainder of the CFPB, therefore, stays in place; remands the case back to the Ninth Circuit to decide whether, in the brief period when the CFPB was headed by an acting interim director who was removable by the president, that that necessarily amounted to a constitutional ratification of the investigative order that CFPB sought to enforce against Seila Law, the plaintiff in this case. We'll have a remand for that.
Here's my concern. There are several other aspects of the CFPB that I think are equally constitutionally troubling. The CFPB gets its funding completely outside of the constitutional appropriation process. In fact, it has a double insulation from that constitutional appropriation process that gives Congress some oversight authority over executive agencies. It gets to raise its own money by tapping into the funds from the Federal Reserve, which itself gets to raise its own money by participating banks in the Federal Reserve System.
All of this, I think, is a blatant violation of Article I, Section 9's requirement that appropriations only be done by act of Congress.
The second thing—and this goes to the heart of one of the big questions in Humphrey's Executor that was not addressed then and is still not addressed, at least not by the majority opinion—and that is a single agency that exercises rulemaking authority and enforcement authority and adjudicative authority, as Chief Justice Roberts acknowledges this agency does, in fact, he calls it "extensive rulemaking, enforcement, and adjudicative authority," why does that not, itself, violate the separation of powers provisions of the Constitution? Congress is supposed to be the one that exercises lawmaking power. The executive, the president, is supposed to be the one that exercises enforcement authority. And the courts are supposed to be the ones that adjudicate individual rights under the exercises of those two authorities.
None of that exists with the CFPB, and it didn't exist with Humphrey's Executors either. Calling it "quasi-legislative" or "quasi-judicial" didn't solve the problem; it exacerbated it. And yet, that seems to be the norm that by saying this one removal provision is unconstitutional, but severing it from the rest and allowing the remainder of the statute to stay in place, kind of ratifies those unconstitutional intrusions on our structural constitutional design.
That's my greatest fear; that on remand, we'll just kind of pretend none of that's there. The Court, having spoken, will just now have some modicum of presidential oversight authority that he can remove for will rather than merely for cause, but all the rest of those real troubling aspects of the CFPB, and a number of "numerous other unaccountable agencies," to use another phrase from Justice Thomas' separate opinion, will continue to go on as if nothing else happened.
Now, one thing I want to say about Justice Kagan's dissent. She concurs, of course, in the question of severability, but she dissents otherwise, and she's joined in that by Justices Ginsburg, Breyer, and Sotomayor. She does say something that I think is very significant. She says, "Nothing in the Constitution speaks of the removal power of the president."
Well, on that, she's bucking up against the old Myers decision and the famous decision of 1789 in Congress that by assigning the executive power to the president, he necessarily has to be able to control his subordinates. Otherwise, he's not the one exercising the executive power or being able to take care that the Constitution be faithfully executed as his oath of office requires.
But she rightly recognizes, I think, that there really, in principle, is no difference on the separation of powers problem between a single-member or a multi-member agency. In fact, I think she makes a pretty interesting argument that a single-member agency might be more susceptible to the president's cajoling authority, the bully pulpit authority if you will, than a multi-member agency might be because their accountability for their actions is more diffuse.
But the principle here that the president has to be able to yield supervisorial authority over anyone exercising executive power doesn't seem to turn on whether the person exercising that power is a single-member or a multi-member commission. And I think she's right about that, and I wish the Court majority, in Chief Justice Roberts' opinion, had taken that issue up with greater surety.
It was easy to say well, Humphrey's Executor dealt with a multi-member commission; this is a single director and, therefore, they're different. But I think Justice Kagan, in dissent, makes a pretty persuasive argument that they're not different on the principle that's at issue here. Now, she would say they both should be upheld, and I would say they both should fall, but that seems to be the logic that needs to be addressed here.
Justice Thomas has, of course, invited that in future cases which would more explicitly overrule Humphrey's Executor outright, but that seems to be where things are going.
With that, I'd like to pass it to Brian and he can address what he thinks -- how the CFPB is actually going to work on the ground, how it works on the ground, and what impact this decision might have, and what we might expect to see on remand.
Take it away.
Brian Johnson: Thank you, John. It's good to be here with you and for all the listeners, and I appreciate the invitation from The Federalist Society.
By way of background, as recently as March, I was not in private practice but instead was serving as deputy director of the CFPB. So, I have some insight from two years of service at the agency of what I think might be the practical implications of yesterday's decision on agency operations.
As, John, you mentioned, in one sense, it's business as usual. However, I think there are some important changes that may result from yesterday's decision.
I'll start by picking up on your discussion on severability and point to on severability and point to, I think, an important and interesting observation that Justice Thomas made in his concurrence in part and dissent in part, his dissent on severability. And that's that this case or controversy arose because of the interaction of two different statutory provisions.
One was, of course, the conditions on removal of the director under Title X of Dodd-Frank, and the second was the statutory authority granted to the director to enforce a CID. And it was Seila Law's resistance to the Bureau's CID and the Bureau's subsequent resort to federal court to try and enforce that CID that gave rise to the original controversy. Of course, Seila then argued that the Bureau is unconstitutionally structured because of the conditions on removal.
Justice Thomas, I think rightfully, notes in his dissent regarding severability that there are two provisions here that could be severed from the statute, but the severance of either one of which would resolve the conflict here. In the majority opinion on severability, neither really recognizes that nor grapples with which of the two statutory provisions should be selected and certainly no conditions or rule is enunciated that would govern how a court, or the Court, would choose between those two.
Thomas, I think, makes the observation that, rather arbitrarily or because of the majority's preference, they simply selected the conditions on removal and chose to sever those provisions rather than the authority of the director to enforce a CID, which would have equally resolved the matter, at least from Seila Law's perspective.
That gets to what are the practical implications of the Court's decision to sever the conditions on removal? As I mentioned, in one sense, it's business as usual. A more modest, in one view, resolution of the matter would've been for the Court to simply decline to enforce the CID but not address severability. That would have resolved the matter for Seila but left the matter open for other institutions that are subject to the Bureau's jurisdiction.
That would have permitted additional challenges, of course, to agency enforcement actions but would have, I think, stood a better chance of spurring congressional action in response to address many of the institutional infirmities that, John, you addressed earlier with regard to budget independence and other matters.
Severability saved the Bureau from the effort of having to defend itself from those arguments in successive challenges to its authority. But what it did, I think, for all intents and purposes, is make the director answerable to the president. Director Kraninger now effectively serves at the will of President Trump, and future directors will serve at the will of future presidents.
What are the practical implications for the Bureau today? One, I say at the outset, is it was foreseeable that Director Kraninger, in joining the position of DOJ in arguing that the agency's structure was unconstitutional, that the most likely outcome would be that there is now a substantial risk that her tenure as director could be cut short in light of this fall's presidential election.
I would note that it takes some degree of courage to stand on principle and to make that argument, recognizing that it certainly is not in her immediate personal interest.
I'd say there are two other foreseeable consequences. First, I believe the president could now insist that the CFPB, as a formerly independent executive agency, follow all executive orders. Those executive orders include, of course, 12866, which is robust cost-benefit analysis that would attach to any agency rulemaking, and certainly many others, including the executive orders issued by President Trump under the present administration.
The second is an issue that, John, you touched on earlier, which relates to the budget. As you mentioned, the CFPB is not appropriated. It draws its funds, no questions asked, from the Fed; an amount determined by the director on the quarterly basis to be "reasonably necessary to carry out the Bureau's authorities."
Now that the director serves at the pleasure of the president, an interesting question arises, which is what if those two individuals have a difference of opinion about what is the amount that is "reasonably necessary to carry out the Bureau's authorities"?
And I mention that because the president's budget request for Fiscal 2021, which begins October 1 of this year, established—or would, if enacted by Congress—establish a budget cap of $485 million. To the contrary, Director Kraninger's projected budget for the next fiscal year is $595.2 million. So that's a $110 million difference of opinion each year, presumably, moving forward.
Whose opinion prevails there? I think it's clear that the president's opinion prevails to the extent there's a disagreement about resource needs for the agency. And I think one foreseeable consequence of the Seila Law case is that OMB could reach out to CFPB and order CFPB tomorrow, for instance, to draw up plans to bring its budget into harmony with the president's budget request for the next fiscal year.
Or, hypothetically, the president could signal to Congress that he will maintain a budget for a certain period of time and then zero out that budget as a means of encouraging Congress to appropriate the agency and present it with a choice of whether to engage in appropriations and bring the agency into the regular budget process or permit it to shut down. That's, of course, an outer bound, I think, of the president's authority, but nonetheless a foreseeable way to engage with Congress in the future.
As a practical matter, I think some of the severability analysis in the Court's decision was, unfortunately, lacking. There are other odd consequences of the Court's decision to simply sever the conditions on removal.
One relates to not just the agency's authority in Title X of Dodd-Frank but also affects the operations of Title I of Dodd-Frank. There was careful consideration about the scope of the severability clause and what import should be given, given that the severability clause in Dodd-Frank appeared at the very beginning of the Dodd-Frank Act itself; there's no specific severability clause in Title X.
The reason I mention Title I is there is a process, as many of you are familiar with, for the Financial Stability Oversight Council, which was created by Dodd-Frank, to designate non-bank financial institutions for heightened prudential supervision by the Federal Reserve.
Theoretically, if the Bureau now answers to the president and Treasury, who chairs FSOC, now answers to the president, you have a voting bloc and a growing coalition. If, as many speculate, the reasoning of yesterday's opinion similarly applies to FHFA, well, FHFA is also a voting member of FSOC.
If the reasoning is extended to, for instance, the Office of the Comptroller of the Currency, again, the voting bloc within the Financial Stability Oversight Council could be extended such that a vote to designate an institution as a so-called SIFI requires a two-thirds vote.
Well, if you have a voting bloc of -- instead of Treasury starting and trying to convince six of the nine remaining members to go along with a designation and instead you now have a voting bloc, the bar is lower to convince remaining members to join on. So it would require three of six remaining members, instead, to join.
That is a much lower bar, a having served on the FSOC Deputies Committee, it is a slow process that is intended to create consensus over time. Starting with that much lower threshold, obtaining the assent of three of six members as opposed to six of nine is a much lower bar for potential designation.
So, hypothetically, if a president decided that it wanted to designate Fannie Mae or Freddie Mac as a non-bank SIFI and subject them to additional fed supervision, that task became much easier as a consequence of yesterday's opinion.
There are also other quirks within the statute that weren't considered by the Court. One is, for instance, that for budgetary purposes, OMB is prohibited from reviewing or approving a CFPB budget. And yet, as of today, the CFPB answers to the president. So it is an odd consequence of the interaction of the statutes that OMB, which is the portion of the White House set up to review budgets and approve budgets, cannot do so with respect to the CFPB. Presumably, some other organ of the White House or the administration would perform that task.
Also, the White House is prohibited, under Section 1012 of Dodd-Frank, from reviewing or requiring testimony to Congress or the submission of legislative recommendations. Again, an odd consequence in that any agency answerable to the president typically circulates testimony and legislative requests in advance but would be still prohibited from doing so in this instance.
It also may affect, indirectly, interagency dynamics. Historically, there has been some tension with the Department of Education and the Bureau with respect to the supervision of federal student loan servicers. That tension may now melt away in the sense that two agencies answerable to the same chief executive have a better means of resolving any sort of jurisdictional or institutional attentions.
With that, I think I'll leave it there and turn it back to John. I do have some additional thoughts about what I think is the question that may be on most folks' minds, which is post-Seila and the limiting of Humphrey's, in Justice Thomas' view, to "multi-member agencies that do not wield substantial executive power," the question is how would the Court treat a future challenge to the constitutionality of an agency like, for instance, the modern FTC or the SEC or a host of other modern, multi-member, bipartisan agencies that do have conditions in place for removal by the president of those individual commissioners or members?
I think it's unclear exactly how that would come out, and I think it's unclear for the basic reason that I think the majority opinion fails to establish a coherent removal doctrine and certainly didn't announce a clear test that could be parsed, I think, from the opinion on how those cases might be resolved in the future.
I think that's frustrating and I guess, to be fair, wasn't squarely before the court. Although, I do find it interesting that there were multiple references to multi-member commissions strewn throughout the remainder of the opinion, and I take it that some import should be given to those references.
John, I'll turn it back to you.
Dr. John C. Eastman: Brian, thanks very much. Your inside expertise was particularly helpful here.
I think the questions that are going to arise most immediately -- in this particular case, what's going to happen with the remand and did that interim appointment of an acting director, who clearly was removable by the president at will, effectively insulate the illegal decision by Director Cordray here of going after Seila Law by a director who was not removable by the president.
But the next rounds, we've got a couple of different avenues and ways of distinguishing, and we'll see how much Justice Thomas' concurrence on this proves prescient or wishful thinking. And that is what if we have single-director agencies that don't wield substantial executive enforcement power, but are more vintage like Humphrey's Executor doing quasi-legislative, quasi-judicial things? Will the court simply sit on the Humphrey's Executor laurels, or will it really confront the separation of powers problems there as well?
And then, the second one is when you get into multi-member commissions that do wield substantial executive power—because that's another phrase that gets repeated often as a way of distinguishing Humphrey's Executor—will the focus be on the nature of the power being wielded? And that if they're exercising substantial executive power, even a multi-member commission has to be more directly accountable to the president? Or will they let that one slide as well? Those are the kind of different routes that lie ahead of us.
I do want to make a comment about the budget. I'm reminded years ago when the federal insurance on bank accounts was $10,000. That's going back before many of our listeners will remember. And it was too low, and it hadn't been adjusted for inflation. And so, there was a bill in the House of Representatives to raise that threshold to $40,000, and the Senate voted to raise it to $50,000. Of course, that disagreement goes into a conference committee, and they come back out of conference with raising it to $100,000.
Which makes perfect sense. $40 plus $50 plus the initial $10, that's $100. And here, you can look at the president's budget of $490 and CFPB's budget of $590 and add that $100,000 difference and maybe come out of Congress with a $1.18 billion budget. Who knows what can happen in the process.
So that's my follow-on comments, with a little levity, I hope. But I think the substantial question there is what happens next with these other agencies that have one or other of the aspects at issue, but not both. How will the Court address those?
Brian Johnson: And, John, maybe I'll point out one other thing that has a bearing, at least with respect to the multi-member agencies exercising substantial executive power. The Roberts' opinion is specifically drafted to rely on two independent grounds, which I found a bit interesting.
The first is a holding in Page 3 of the syllabus that "the CFPB structure has no foothold in history or tradition." Explicitly, the opinion mentions that rather than create "a traditional independent agency headed by a multi-member board or commission, Congress chose to have the CFPB governed by a single director."
That's clearly, I think, an explicit reference to, or acknowledgement of, the fact that the FTC—and a host of other post-New Deal administrative state agencies which have blossomed under the mistake of Humphrey's—they exist and how have a foothold in history and tradition whether or not Humphrey's was wrongly decided and whether or not the operation of each of those agencies, or the structure, is unconstitutional.
That was one of the independent grounds that Roberts cited. The second was, of course, that the single-director configuration is also incompatible with the structure of the Constitution.
As I think about using Seila as a template in trying to analyze how the Court might work through the question of a modern FTC or, for instance, if Congress takes what appears to be, at the tail end of the majority opinion, an invitation to adopt legislation to change the CFPB structure into a multi-member agency, how would the Court think about this?
If working through these two independent grounds, I think the Court has clearly signaled that any agency that has existed for some time that happens to have the structure of a multi-member bipartisan agency with removal protections would now have a foothold in history and tradition.
So I think that independent ground that the Court found relevant, if not dispositive, in the present case would not be there for those types of agencies. You're left with analysis under the second independent ground, which is, is the structure incompatible with the structure of the Constitution?
There, the only takeaway I could find is that the Court was quite clear that, in trying to limit Humphrey's, it limited the application in the future to multi-member expert agencies that "do not wield substantial executive power."
So to the extent that the CFPB structured as a multi-member agency or the FTC or the SEC or any host of the other alphabet soup agencies are reviewed in that manner, I think it's clear that each of them exercises what the Court found to be executive power and quintessential executive power. They can levy penalties on private market actors, and Roberts clearly identified that as a quintessentially executive power in the syllabus of the opinion.
If that's the case, I think the Court would treat an agency with that type of structure as, again, distinguishable from Humphrey's. But that doesn't give any more insight for us into how it might ultimately resolve the case. Again, I think it's frustratingly unclear. You spoke of the need for a clear test to help further develop a coherent removal doctrine.
I was struck during briefing by the Cato amicus that offered a clear test for going forward, which is, one, does the officer exercise executive power? And if so, does Congress interfere with the president's power to supervise and remove the agents who wield that executive power in his stead?
I think adopting a test like that would certainly go a long way towards reestablishing separation of powers boundaries here and in creating a coherent doctrine that could be applied to dozens of these agencies in the future, if challenged.
Dr. John C. Eastman: Yeah, no, it's a fairly simple test. Does this agency meet the Constitution? If so, it's valid; if not, we strike it down. But that would raise questions about a whole lot of agencies, and I fear that at least some members of this Court are not willing to go quite so broadly. I think the remedy here, the severance remedy, is designed to establish some guideposts on separation of powers questions without really upsetting the apple cart itself.
Let's talk about what we expect on remand. I fully expect -- if the acting director's actions didn't ratify this, then there will be a subsequent decision that will ratify it. As far as Seila Law is concerned, there's going to be an investigative demand for records against them by this agency that is not unlike what they faced four or five years ago.
So, on that sense, nothing much will have changed. The real 800-pound gorilla here is even with a removal authority, how much supervisorial authority does a president, or how much electoral accountability, through the president's election, does an agency that's largely not on the radar of voters really constrain the exercise of power by that agency? It takes an immense amount of power. It takes an immense amount of time and energy for anybody that's a political appointee anywhere in the Executive Branch to actually give effect to the president's priorities when they run counter to the status quo.
What I fear here is that this decision will be more symbolic than efficacious in long-term practice, and we will have pretended to reestablish somewhat a separation of powers without really changing much.
Brian Johnson: I fear you may be right there. And I fully concede that, having lived and breathed CFPB for the past eight years, I lack the perspective to understand how important it is in the grand scheme of things. But also, I can tell you that in two years of working within the agency, the manifest challenges to changing policy direction for an agency constructed such as that and staff as it is.
I think you are right that it is significantly time consuming and would demand a significant amount of presidential attention to ensure that priorities are implemented over the long term.
I can say that Congress has, in the past, wrestled with these challenging questions of agency design, and when I was on the Hill, Chairman Hensarling tried to move legislation to impose some of the institutional safeguards that would protect the liberty of the people over time, such as moving the agency onto appropriations, imposing the REINS Act, which is a check on the rulemaking authority, and restructuring the agency.
The principle that he articulated in at least the legislative approach to this was let's understand first what authorities should be exercised by the agency, and then, once having established those authorities, let's understand what would be the most efficient or most effective governance structure.
So it could be that there are circumstances when a multi-member commission would be more efficient, or at least more deliberative, and moderate the policy output of the agency. It could be that there are circumstances, like if the agency operated as a standalone civil enforcement agency that's purely executive where a single director, answerable to the president, would be the preferable outcome.
I think the overall consideration there should be, again, whether it's the Court test to draw a distinction for whether an agency's structure is constitutional, or from a legislative perspective, first consider what authority is being exercised. Is it executive in nature? Is it not? And then, who is exercising it? I think clarity in that regard, whether coming from Congress or whether coming from the Court, would go a long way towards restoring some semblance of constitutionality here.
Dr. John C. Eastman: Agreed. I've got one more comment to make; a little parting shot at a particularly priceless passage in, I think, Justice Roberts's opinion. And then, we'll open it up for question.
What I found particularly priceless was this line: "We have the negative power to disregard an unconstitutional enactment, but we cannot rewrite Congress' work by creating offices, terms, and the like. Such editorial freedom belongs to the legislature not to the judiciary."
I just can't read that line with a straight face keeping in mind how we just a few weeks ago rewrote Title VII of the 1964 Civil Rights Act with an opinion with Roberts in the majority. Or that he himself rewrote the Affordable Care Mandate to be a tax when it wasn't a tax. Or wrote the exchanges established by the state to include exchanges not established by the state in order to fix what he perceived as constitutional infirmities without striking down those statutes.
Perhaps I'm expecting too much by way of consistency. With that, let's open it up for questions from the audience.
Nick Marr: Great. We'll go to audience questions now. We've got one so far. Okay, Caller 703, you have the floor.
Wayne Abernathy: Great. Thank you very much. This is Wayne Abernathy. I've had the pleasure to meet both of you and really appreciate, John and Brian, your very insightful and useful comments on this very significant decision.
I'd like to offer a practical question, if I may. Under the Dodd-Frank Act, the deputy director is appointed by the director of the Bureau and succeeds that director as acting director should the director step down or leave for whatever particular reason.
That condition -- if we're in a situation where there is a vacancy of a Senate-confirmed director and so you have the deputy director as the acting director, can the president, under this decision, remove that acting director? And if so, does that mean that he has the power to designate the next acting director?
Brian Johnson: It's an interesting question. I think, ultimately, the answer is somewhat irrelevant because the history of the Bureau has already confronted this matter in one way, which was on Director Cordray's resignation. At the 11th hour, he appointed the then-chief of staff as deputy director of the Agency, who assumed the powers of acting director under the statutory provision you noted. At the same time, President Trump appointed Mick Mulvaney as acting director of the Agency under the Federal Vacancies Reform Act.
The matter was litigated by the acting deputy director of the Bureau, moved through several rounds of litigation, and the ultimate resolution was that the statutory provision that permits the deputy director to act as the acting director of the Agency in the absence of the director is not the sole means of appointment of a director, and that the president retains authority, under the Federal Vacancies Reform Act, to appoint an acting director. And there's some parameters on who can be appointed, but nonetheless, the president could select from a number of other individuals to serve as the acting director.
So, Wayne, I think in the hypothetical that you enounced, whether or not the circumstances you described came to pass, I think the president would still retain the authority under the Federal Vacancies Reform Act to displace that acting deputy and, therefore, could appoint a director who would be answerable to him.
Dr. John C. Eastman: And I'll pick upon that as well, Wayne. I think the reasoning of Roberts's opinion here bolsters the lower court judgments in that controversy. Because if you had an outgoing director who had been removed by the president be able to appoint his successor until a new Senate-confirmed replacement is in place, then for all of the reasons a removal only for-cause clause created a problem that insulation of presidential removal would exacerbate the problem that led to finding the removal clause at issue here unconstitutional.
So I think it bolsters the lower court's judgement that led Acting Director Mulvaney to become acting director.
Nick Marr: All right. We don't have any questions in the queue right now. John, I'll send it back to you, if you have a couple more minutes of comments.
Dr. John C. Eastman: Nobody wanted to take me up on my trying to get in place the Title VII cases or the Obamacare cases. That's okay. I'll continue to press those issues because I think they're important.
We seem to have a court that wants to find its way back toward constitutionality on a lot of the things that have gone on in the last three-quarters of a century but without really rocking the boat on what's gone on in the last three-quarters of the century.
Those two things are a little hard to reconcile, at points, and I think we see that here. I think Brian's description of all of the various statutory provisions in the Dodd-Frank Act that are now in utter conflict with the resolution of this case; that OMB is prohibited from reviewing the CFPB budgets; that the White House is barred from reviewing CFPB's testimony to Congress. I mean, those things just are incompatible with the notion that the CFPB has to be accountable to the president.
There's lot of other provisions like that as well. If we really were to take the holding in these couple of cases seriously, there would be a much more dramatic change in the way the federal government does business. But that doesn't seem to be the outgrowth of the decisions.
It reminds me of the comparable Commerce Clause revolution that seemed to have been fairly short lived. If you took seriously what the Supreme Court did in 1995 in the Lopez case, half of the U.S. Code would be susceptible to challenge. And yet, none of those challenges ever materialized with any prospect of success at the Supreme Court.
We really have to begin at some point to wonder whether we're setting some markers here without really much intent of following the implications of those markers to their full consequence if it means some of the doing business as usual in Washington D.C. would have to change.
That's my biggest concern here. I really think the most troubling aspect of the CFPB statute—the combination of executive, legislative, and judicial powers all in the single hand, whether that's a one hand or a multi-member body—that's just, according to Montesquieu, the definition of tyranny. And we see the way that plays out.
The more these agencies get to operate in that fashion, the more arrogant they get in the exercise of their power.
The second one here—and this one is fairly unique—not even accountable to Congress via the appropriation process. The notion that the Agency gets to write its own laws, enforce, and choose who to enforce them against, and then adjudicate them and gets to develop the budget that it thinks it needs to go after however many people for whatever reason it thinks necessary, that's a very dangerous accumulation of powers that would've had Madison and his colleagues turning over in their graves.
That seems to be more constitutionally troubling and problematic to me than just the removal clause. If they were taking the removal issue as the first step and really remedying a lot of these constitutional problems, I'd applaud it much more vigorously than I'm doing now.
If instead it seems to inoculate those other problems because we've already confronted the statute and found this one provision wanting, then we've really barely scratched the surface of the problems at issue.
Nick Marr: All right. We'll go to the next caller now.
Brian Johnson: Sorry, just one quick observation in response to those observations. Just as a practical matter, there's no guarantee that a multi-member commission will be more moderated in terms of result, and the historic -- what I would point to historically is the FTC in the 1970s.
A majority of three members there were able to do as much damage there as I think a single director of the agency could do. And the saving grace there, I would note, was Congress electing to zero out the agency's budget for a period of two years until those members saw the light -- changed course as a result.
Dr. John C. Eastman: I think that's the important insight that Justice Kagan has; although, she comes down on the side of letting either multi-member or single-district run wild with their power rather than curtailing on both sides.
Nick Marr: All right. Go ahead Caller 415.
Tom Gede: Yes, this is Tom Gede. I had a question for both of you, and that is Justice Thomas refers to the choice that the majority made that either the director lacked executive authority under the statute to seek enforcement of the CID or the removal power, and that the majority chose which of the provisions to sever. And that had the Court picked the enforcement authority, it would've resolved both questions.
But my question is what compels the notion that the director lacked executive authority to enforce the CID that isn't tied to the removal and executive power?
Dr. John C. Eastman: Yeah, I'll take that at first. I think Justice Thomas' point is look, if the problem is that a single director not removable at will by the president who exercises significant enforcement or executive power is constitutionally problematic. We can solve that problem either by saying you don't have enforcement power, and then we're back in Humphrey's Executor land of an agency not exercising executive power, and it doesn't raise the same kind of constitutional threat to Article II powers that this agency does. Or you can make him accountable to the president while he still wields executive power.
Either one of those would solve the constitutional problem that Roberts focused on. So the notion that he picks one rather than the other means he is deciding how to legislatively respond to the constitutional problem while at the same time saying that's not what he's doing. And I think that's the main point that Justice Thomas is trying to make here.
Where Justice Thomas would leave it is say, "Look, we find an enforcement action—that's executive power—by somebody unaccountable to the president is constitutionally problematic. Therefore, the subpoena issued, or the investigative order issued against Seila Law can't be enforced. Period."
That leaves the statute otherwise intact but lacks for the enforcement. Whether Congress wants to fix it by providing removal authority or by stripping the Agency of its enforcement power and instead having to seek enforcement permission from the Department of Justice or something like that, that would be up for Congress.
The chief's opinion made a legislative judgment about which of those two clauses Congress would more likely have wanted to keep given the constitutional infirmity. I think Justice Thomas's point is there's just no evidence one way or the other about that.
Nick Marr: Okay. We'll go to our next caller now.
Brian Johnson: [inaudible 00:50:24] anything more to add other than I think it underscores the discussion that Justice Thomas had in his dissent about his growing concern about the arbitrary nature by which the Court is applying severability. There's nothing that he can point to that's rooted in the text that would help the Court decide in the manner that it did in this case.
Nick Marr: All right. We'll go to our next caller now. Area Code 678, you have the floor.
Robert Barker: Hi. This is Robert Barker in Atlanta calling. Thank you for the discussion. I guess I would make an observation just on the point of the multi-member versus single-member committees, other than the FTC.
In the ‘70s, you've got the Triumvirate in Rome, the Committee on Public Safety in the French Revolution, the Politburo, various Juntas in Latin America. There are all sorts of committees that have wielded extraordinary powers in the past and just making it more than one person I don't think resolves that issue.
But my other question is simply, to leave aside all the constitutional issues, how do you resolve their position on severability in this case with the position on severability in the Hellerstedt case, for example? And Breyer, there, went out of his way to say that despite the existence of a severability provision and despite the fact that some of the things that were held to be unconstitutional that were cited in the dissent—like the requirement that patients be treated with respect or requirement that there not be false advertising or the requirement that there be fire extinguishers and various things in abortion clinics—all of those had to be stricken as unconstitutional because any burden on an abortion clinic was not going to be tolerated.
So the whole severability clause was ignored whereas in this case, it seems that the majority says quite clearly it's very easy to resolve the severability issue if there is a severability clause.
So it's either because the majority in this case how is overruling Hellerstedt's point on that, or maybe they're looking at a state court severability clause differently than they're looking at a congressional one. I just wonder whether you have any thoughts on what this means to the future of severability clauses in legislation?
Dr. John C. Eastman: If I might channel late great Justice Scalia for a moment. I think there's a third alternative, and that is those are abortion cases; this is not. That's the difference.
We seem to not apply faithfully a whole lot of doctrines when we've got a case dealing with abortion. So I don't think you can take this ruling on severability and apply it backwards to Whole Woman's Health or take the Whole Woman's Health ruling on severability and apply it in any other context. They are sui generis.
It's not the way it out to be, and I think one of the more troubling aspects of the June Medical case decided Monday—was it Monday?—yeah, yesterday, was the failure to confront the third-party standing doctrine in a way that was consistent with its application in every other body of law except for abortion. But that's the -- abortion distortion in the law seems to be alive and well.
Brian Johnson: And I'd only add that the standard such that it is, as was articulated in Seila, is essentially if we can't prove a counterfactual, the default is to go with severability. In other words, the Court, in this case, tried to ascertain whether the circa 2009, 2010 Dodd-Frank Congress would've preferred no agency to the agency as modified, according to yesterday's decision.
If it's counterfactual, it's fundamentally unknowable, and I don't think there's anything within the bounds of Title X or all of Dodd-Frank that really lends the Court any special insight into that matter.
The instinct seems to be Congress acted and, therefore, would prefer to act notwithstanding the outcome. But, again, I don't know that there's any way to know that as a fundamental matter, and so, again, I think it speaks to Thomas's observation that this seems to be an arbitrary exercise.
Dr. John C. Eastman: You could even go down another layer in the onion of what Congress would've intended and ask, "Would they have intended an agency over which they have no control through the appropriations power to be under the supervisorial control of this president?" And get to 180-degree different answer than what Roberts came up with here.
Nick Marr: John, Brian, do we have time for one more question?
Dr. John C. Eastman: I think so.
Brian Johnson: Sure.
Nick Marr: Okay, great. We'll go to the next caller. Area Code 512, you have the floor.
Caller 4: Hi, yes. Good afternoon. Thanks so much for what you're doing. As a litigator and a person who's politically conservative, I just got a real practical question because if not the CFPB, my question is then what? And here's why.
I litigated for about eight years, prior to me changing careers, mortgage foreclosures. And it was in the wake of the 2008 crash, and what I've seen, and I've seen this regularly—John would agree with me—that when the government intervenes in the economy, it picks a winner and a loser.
Well, Dodd-Frank didn't happen because of anything happened in 2000. It happened when the government gave permission, decades before that, to begin to securitize mortgage. It gave its rubber stamp of approval in mortgage securitization. And now, what I'm even seeing is that the courts are saying, "Hey, Joe Citizen, you have no right to sue for failure of a mortgage company to send you a TILA-RESPA, hello or goodbye letter."
And CFPB rules and regulations and the CFPB was one of the avenues of enforcement of that. So, what you have now is government intervening on behalf of business and giving an extra-special permission to securitize mortgages. That intervention then causes marketplace confusion, and you have no means of enforcement.
So if not CFPB, then what? Because the courts are saying individual homeowners don't have standing -- I was one of the few conservatives in the foreclosure defense bar. Most of them were bleeding heart liberals. It was a real challenge to me to see why someone would say they were conservative and for less government, but yet they'll give business extra permissions, distort the marketplace, and have no recourse for individual homeowners. And the CFPB seemed to be an organization wildly misstructured that at least had a goal of correcting that tilt of the scales.
Brian Johnson: I don't know if this will be satisfying to you. Suffice it to say there has been a longstanding controversy about this type of interaction. The Dodd-Frank Congress established the preemption standard for the Bureau such that the Bureau can establish [inaudible 00:57:53], and for purposes of consumer protection laws, states can go further.
Now, in terms of state enforcement of federal provisions, some of those statutes have private rights of actions; some don't. I think the answer is ultimately, again, up to Congress in determining if not the Bureau, then who? And under what circumstances private rights of action or other enforcement actions can be brought by parties other than the Bureau.
Dr. John C. Eastman: Very good. I don't have anything to add other than to say it was a good first step on separation of powers doctrine. It seems to follow on the heels of the Public Accounting Board decision some few years ago.
I think it remains to be seen how far that separation of powers principle can actually take root as it gets applied to other agencies that wield an immense amount of executive power all across town and, indeed, across the country.
I hope we've raised for you all, the listeners, and those that are subsequently to be listening via podcast some of the concerns but also some of the future questions that we ought to be addressing as we consider the constitutional design that our Founders bequeathed to us.
Brian, do you have any closing comments? And then we'll pass it back to the FedSoc and let them close us out.
Brian Johnson: None other than it's been a pleasure to participate, and thank you all for listening.
Nick Marr: Thanks to you both on behalf of The Federalist Society, and I want to thank you for the benefit of your valuable time and expertise today. For the audience, we welcome listener feedback by email at email@example.com.
Our next Courthouse Steps Decision Teleforum will be held tomorrow at this same number at 3:00 p.m. Eastern time when we will over the Court's ruling today in Espinoza v. Montana Department of Revenue. Thank you all for joining us today. We are adjourned.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.