In Seila Law LLC v. Consumer Financial Protection Bureau (CFPB), the Supreme Court will decide 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. Please join Ilya Shapiro for a review of the oral arguments in this important case.
Ilya Shapiro, Director, Robert A. Levy Center for Constitutional Studies, Cato Institute
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Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Federalism & Separation of Powers Practice Group, was recorded on Tuesday, March 3, 2020, during a live teleforum conference call held exclusively for Federalist Society members.
Micah Wallen: Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is a Courthouse Steps Oral Argument teleforum on “Seila Law v. Consumer Financial Protection Bureau.” This case was argued earlier this morning before the Supreme Court. My name is Micah Wallen, and I’m the Assistant Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the expert on today’s call.
Today, we are fortunate to have with us Ilya Shapiro, who’s the Director of the Robert A. Levy Center for Constitutional Studies at the Cato Institute. Ilya was also an attendee of the oral arguments this morning. After our speaker gives his opening remarks, we will then go to audience Q&A. Thank you for sharing with us today. Ilya, the floor is yours.
Ilya Shapiro: Thanks very much. It’s great to be on a teleforum again and a Courthouse Steps one. I attended the argument, which was at 10:00 a.m. this morning. I assume most people who are listening to this are familiar with the case. It’s a challenge to the structure of the Consumer Financial Protection Bureau, namely that it has a single director at its head who is removable only “for cause,” that is not “at will” of the President.
Now, this agency, of course, has been long criticized not just by the business community but constitutional scholars who see a problem with that structure. This lawsuit was brought by a law firm, Seila Law in California, that assists people in resolving personal debt issues. And the CFPB issued an investigatory demand on them. And they, in addition to countering however you would under this relevant a statute enforcement provisions, they challenged the constitutionality of the agency altogether.
And the CFPB is the most independent of independent agencies, which makes its own rules, enforces them, adjudicates violations, punishes wrongdoers, and doesn’t even need to go to Congress to get its budget because its funding requests come from the Federal Reserve and other agencies insulated from political control. So the conventional wisdom going into oral argument is that the justices would severe or remove the for-cause removal provision, make it similar to other cases in the past, for example, the PCAOB (“peekaboo”) case, the Public Company Accounting Oversight Board v. Free Enterprise Fund, where they made a for-cause removal of the board members there, and that they would basically allow the President to remove, for whatever reason, and otherwise not touch the agency.
That seemed to be, for example, then-Judge Kavanaugh’s position ruling on a different case but also involving the CFPB. The bottom line up front, I think the conventional wisdom, based on oral argument, holds. That is if you were to put a bet on what is going to happen -- the result here, it’s that precisely they’re not going to throw out the entire agency. But they are going to change the removal provision.
But let’s go through how the argument progressed because I think there are going to be multiple opinions coming out of it, even if the majority or the controlling opinion is what I just said. Kannon Shanmugam of Paul Wiess lead off. And his first sentence -- of course, the Court now gives about two minutes of uninterrupted monologue before they jump in with their questions. Kannon started off with “The structure of the CFPB is unprecedented and unconstitutional,” and lays out all the ways that I’ve just paraphrased, what makes the agency unique.
Justice Ginsburg asked the first question, as is her want. She asks the first question nearly half the time. She said that there’s an academic quality to this case. That is the acting head of the CFPB, under President Trump already, ratified this, as well as other enforcement actions. When the acting head did that, she, or maybe he—I forget whether it was still Mulvaney at the time who was the acting head—was removable because they’re an acting head at the time. So isn’t there a problem here of mootness or standing or something like that?
And Kannon replied, “Well, we’re still being heard.” Even if there’s a ratification, there’s some debate back and forth throughout the argument what this ratification means. There’s no actual formal legal statement of ratification. It was just kind of an off-hand comment by the CFPB counsel, the government counsel, before the Ninth Circuit. But regardless, even if the initial demand -- investigative demand was ratified, there’s still a continuing constitutional problem or a harm from the investigation, the enforcement action continuing as alleged unconstitutional agency.
Justice Sotomayor then asked, “But it’s not that unique, is it? We have the Office of Special Counsel at issue in Morrison v. Olson, or we had that at least. The statute lapsed -- or the Social Security Administration, which is a very large and powerful, important agency, which also only has one director.” And to that, Kannon replied, “Well, Morrison v. Olson had it’s own problems.” And he didn’t say this, but we know kind of recognize that Scalia’s long dissent there may have carried the day. And that’s why Congress didn’t renew it.
And for the Social Security Administration, it doesn’t have any enforcement powers, very different than the CFPB. The Social Security Administration is obviously very important in our lives, a lot of money going through there, but is not taking enforcement actions, punishment actions, writing its own rules, that sort of thing. Plus, it only turned into a single-director agency very recently.
Sotomayor pressed on, on the theme of mootness or standing, about whether the President is the real party being harmed, that is that only when the President wants to move someone from this agency, or whoever else that you want to challenge -- at that point, there’s a cognizable case or controversy. And Kannon said, “Well, in plenty of previous cases,” including ones I’ve mentioned—Morrison, Free Enterprise Fund, which is PCAOB (“Peekaboo”), Bowsher v. Synar—“there was not a contested removal. It was challenged by someone who’s being harmed.”
And then it went back to Justice Ginsburg, who talked about judicial modesty and that the for-cause protection is a modest restraint, not a significant restraint on the President or on the control over the agency. And she said, “Well, what about the liberty of consumers? You’re talking about the individual liberty of your clients, understandably. But what about the liberty of consumers, which Congress had in mind when setting up this agency?”
And that Kannon interpreted as going towards the separability issue and said that, “If this hypothetical is what Congress would have done if it had been told that it couldn’t have this single-director model, then the evidence suggests that it’s not clear at all that they would have wanted presidential control. They really did want this completely independent agency the way it was designed by Elizabeth Warren at the time,” who was supposed to be the first director but then, for various political reasons, that didn’t happen.
John Roberts, the Chief Justice, then talked about the duty of constitutional avoidance. And forget about modesty or restraint. Isn’t it just a matter of we can avoid ruling on difficult constitutional issues if we just tweak the rule here? Justice Kavanaugh put a finer point on it. He said, “It’s not even kind of an abstract severability question. There’s a severability clause in Dodd-Frank that says that, if any provision falls, the rest remain.”
The answer to that from Kannon Shanmugam was, “Well, that’s kind of boilerplate part of Dodd-Frank. It wasn’t specifically about the CFPB. It’s a major piece of legislation, and it could be that the CFPB itself has to stand or fall without touching other parts of Dodd-Frank. And moreover, there’s the presumption of severability applies differently here because of the way that the enforcement action applies, the way that the agency is designed.” Interesting discussion, if you want to go through the transcript, that early bit about Kavanaugh. And that’s key.
He would actually, later on, question the other side as well -- not the other side, but the court appointed amicus, Paul Clement, about severability. So it could be that Kavanaugh, despite his lower court ruling in the PHH case -- or not ruling, but his opinion dissenting from the en banc D.C. Circuit, he might still be open on severability. We shall see.
And finally, Justice Kagan asked about the difference between a multimember and a single-member agency because, earlier, Kannon had said that this is a big difference, that you, the Court, don’t necessarily have to through out Humphrey’s Executor, a case from the ’30s that approved the FTC, the Federal Trade Commission. And the difference there is that there’s a multimember versus a single-member agency and that there’s a lower threat of impinging on liberties and doing other untoward things if there are many members to consult rather than just one who operates completely independently of anyone.
At that point, the Solicitor General got up. And this is an interesting point because the Trump administration stopped defending the CFTC before the Supreme Court. So the government, and ostensibly the CFTC itself, is saying, yes, our structure is not properly designed. And indeed, to put a finer point on it, Noel Francisco, the SG, says, “The only difference between the FTC and a cabinet department, secretary of the treasury, say, is that it’s a multimember head. So you need to have political accountability. It’s problematic to have a single person who is only removable for cause.”
This came up several times during the argument. What if you have a typical cabinet agency? Can the Congress create a cabinet agency and then have the for-cause removal? And in fact, the President can’t change his cabinet. The next President comes in. Maybe it’s a term of years, like for this one. Can’t change this cabinet member. That might be a problem.
Before getting into the meat of that, Justice Ginsburg asked about how common it was for the Solicitor General not to defend federal statutes. And the Solicitor General said, “Well, the governing principle at the Justice Department is to defend the statute unless it intrudes on executive power because then, as the government’s lawyer, there’s sort of a conflict. Do you defend the executive? Do you defend the Congress or the statute itself? And at that point, the Justice Department doesn’t always defend.”
At this point, Justice Alito jumped in and said, “Well, there are also other occasisons when the Justice Department doesn’t defend statutes that don’t necessarily implicate executive power, such as, for example, DOMA, the Defense of Marriage Act.” And the standard there, I think, was when the Justice Department decides that there’s no reasonable defense to be made. There are other standards of cases when the Justice Department doesn’t defend federal statutes.
Justice Breyer than spoke for the first time and distinguished between, say, a postmaster under the early years—is that the Myers case? I think that’s the Myers case, before Humphrey’s Executor—and why the postmaster could be removed is a political plum rather than the FTC being a congressionally designed independent agency. And similarly with, say, the Fed, the Federal Reserve, the Federal Communications Commission, there are strong reasons for giving them independence. And for that matter, the FCC -- the chairman is re-designated by every incoming President or can be changed.
The Solicitor General said, “Well, look. Humphrey’s Executor applies to multimember commissions. And beyond that, there’s no limiting principle. If these completely independent agencies with a single director are okay, then Congress really is creating a fourth or fifth unaccountable branches of government.” Justice Kagan said, “Well, maybe multimember agencies are actually harder to influence and control by the President. If it’s just a single director, then you just get that person on the phone and talk to them. It might be harder if there’s seven directors or board members or what have you that you need to try to cajole.”
Solicitor General Francisco said, “Well, there are certain types of quasi-legislative or quasi-judicial agencies where we allow for-cause removal. But that multi-membership does restrain the agencies in various ways,” that he describes. And Justice Kagan said, “Well, maybe after all the political branches are better positioned to know what promotes liberty and what restrains government power. And maybe we should defer to Congress on that kind of a judgement.”
At that point, Justice Kavanaugh asked, “How much does it matter that the tenure of the director, the single director, goes into the next President’s term? Because isn’t that even more a problem than being able to remove someone, that you’re stuck with someone?” At this point, the five year term doesn’t expire the current director until 2023. Justice Kagan said, “Well, historically, removal isn’t even the big issue,” agreeing with Justice Kavanaugh on that. “Appointment is more important than tenure and certain other considerations,” which is interesting.
It’s kind of a background atmospheric because nobody is challenging the tenure of the director or other provisions. It’s specifically removal that’s at issue here. Going back to severability, Justice Kavanaugh asked his same question again. And the response here was that the Solicitor General does agree that you can severe.
The government is not pushing to dismantle the entire agency. They just want the for-cause removal removed. And Justice Alito kind of put in a wrinkle over that discussion. If there’s a separate concurrence saying we need to go broader, then perhaps Justice Alito, along with Thomas who was silent during the argument, and Justice Gorsuch who -- as I’ll get into in a moment, seems to be the most maximal opponent of the CFPB structure. They might be more willing to go further.
So then Paul Clement, in his, I believe it’s 101st argument before the Court—he gave his 100th last week—got up. And he was the Court appointed amicus, which is an interesting move by Justice Kagan, who’s the circuit justice for the Ninth Circuit, to ask someone who’s identified with the conservative side to defend this agency. Paul Clement effectively is saying that there’s not really a controversy anymore, that even though the government doesn’t want the investigative demand dropped, it’s been ratified and can continue under the person the President, this President himself picked. And that’s the best way to go using constitutional avoidance.
Justice Gorsuch said that we don’t normally decide issues for the first time at the Supreme Court, that this issue of post hoc ratification, as I mentioned earlier, came up in the Ninth Circuit argument -- this does not point at which the lower courts were deciding this case. “So why should we be deciding that? In effect, aren’t you asking for us to dismiss as improvidently granted? Let the case continued. And eventually, maybe one of those issues will come up.”
Paul Clement said, “Well, it’s kind of a prudential test. I could see you writing a fine opinion,” he said, “about how important adversariness is, things like that.” And Gorsuch said, “Boy, that sounds like a dig, like a dismissal of the cert petition.” And presumably, they didn’t appoint an amicus to defend the decision below just to have a dig.
Justice Alito asked about cabinet agencies: Homeland Security, the EPA. Justice Gorsuch earlier mentioned what about a resurrection of the Tenure in Office Act, which got Salmon Chase in trouble earlier in the impeachment of Andrew Johnson. And the response from Clement was that “Well, if the agencies are exercising executive power, than you can have a for-cause removal. It’s more problematic if it’s multimember. That needs to be in creative control there.”
Justice Kavanaugh asked again about “What about if the next President has a different conception? This is different than the FCC and certain other agencies because the President at least re-designates the chairman of those.” Again, there is concern about the tenure of someone that you can’t get rid of.
Chief Justice Roberts asked about the budgetary issue that this is not just insulated from the presidency but insulated from Congress. They don’t have to be accountable there and just get their money from the Fed. And then back to what’s the standard of where you can have a for-cause removal and what constitutes cause? What if there’s strong policy differences, very strong to the point where the director does not want to enforce certain things that the President believes is his constitutional duty to faithfully execute the laws?
Kavanaugh referred to this as a watered-down standard, if what Clement is saying -- that if serious policy differences count as for cause, then that’s a watered-down standard. And Gorsuch piled on saying, “What’s the difference between watering down the standard for for-cause removal and overturning Humphrey’s Executor altogether to make it at will?” Clement said, “Well, it’s kind of a flexible standard with some deference involved there to the political branches.”
Chief Justice Roberts said, “Well, there will be litigation then all over the place on whether the standard has been met. That doesn’t seem like judicial modesty.” Justice Alito, as well, asked “What if it’s just a difference in weighing the consumer and other interests?” Clement said, “Well, I’d rather you not strike down the statute and save it as best you can.”
Doug Letter, representing the House of Representatives, got some argument time there as an intervenor, representing, in theory, Congress, or at least the House’s interest. To be blunt, I don’t think he did a very effective job with his arguments. I don’t know exactly what went on but didn’t seem to be convincing on the point -- especially when he kept being asked by the Chief Justice, by Breyer, by Alito, “Don’t you have a concern about, okay, you have independence from the President, but there’s no accountability to Congress either? Aren’t you at the House concerned about that?”
And Letter said, “Well, no. We’ve done that with the FED, the FDIC, and certain other agencies, particularly in the financial regulatory sector.” Justice Gorsuch says, “Well, where do you draw the line?” The response was, “Well, I’m not sure, but we have to be modest and defer to Congress as much as possible.” Justice Kavanaugh again brought up the idea of the next President being saddled with a CFPB director and a policy enforcement that he doesn’t agree with.
And at the very end of General Counsel Letter’s time, Chief Justice Roberts asked, “Well, Justice Gorsuch’s first question is still on the table. Where do you draw the line?” And the response was, “Well, it’s a fact specific inquiry. Perhaps if there’s something that effects the core executive function, like national security, that would be different than something like this.”
In Kannon’s rebuttal, he talked about three things: the jurisdictional aspect, the fact that this ratification argument goes to the remedy, whether the real problem here is whether the continued enforcement action by the CFPB is constitutional. There’s continuing violation everyday going even beyond the initial investigative demand that was issued, whether that was constitutionally dubious or not. On the merits, he pounded home this idea that what the amicus, Paul Clement, was proposing what the lower court did was to create an exception without limit, not having a limiting principle to where Humphrey’s Executor applied.
Finally, on the remedy, he reiterated that it’s not necessarily a matter of invalidating the entire CFPB but just invalidate this action on the grounds that the removal is improper and that it’s an as-applied challenge at the end of the day, not a facial one. Now, this would, of course, invite further litigation and facial challenges citing this as a precedent. But at least Kannon suggests that an even more restrained or minimal or kind of cleaner way of doing this is not to tweak Congress’ handiwork and figure out how the agency would work with a different removal provision but to invalidate this particular investigative demand. And if Congress doesn’t like that, let Congress make the ultimate fix.
So I think I’ll end there. As I said, my prediction is that it will be 5-4 on the judgement that the removal provision is improper with probably disagreement among that five of what the remedy is, whether to simply sever the removal provision and make it at will rather than for cause, whether to invalidate the entire agency, or whether there’s a distinction or whether there’s a difference -- what Kannon is proposing, simply throwing out the investigative demand in this particular case because the agency is invalid. So I’ll end there.
Micah Wallen: All right. Thank you, Ilya. I’m not seeing any question come through right away. Ilya, is there anything else you want to discuss about the case while we wait for a question or two to come in?
Ilya Shapiro: You know, I’ve been surprised how much media attention this case has gotten, having been involved in the PCAOB Enterprise Fund case and other structural cases, Noel Canning about recess appointments. Those were of great interest to constitutional, sometimes administrative, law scholars. But it didn’t generate interest, not just from the business press, but from the main press. I got more invitations to write op eds and join panels and podcasts and things like that for this case than almost any other.
So I guess people are up in arms about whether it’s the agency up a swamp or the CFPB itself continues to have political salience based on how controversial it was at it’s inception. But the number of people -- by any metric, the number of people in the lawyers’ lounge and the overflow lounge at the Supreme Court -- this case has gotten definitely more attention than I would have expected.
Micah Wallen: All right. And we did have a question come through in that time, so we’ll move to our next caller.
Caller 1: Hi. My question is about this concept of liberty in the arguments and the briefs. I’m kind of curious what’s going on here with Social Security Administration. Is what’s going on is that there’s like a spectrum of liberty, and the argument is that where there’s not enforcement power, for example, there’s less of a need for presidential authority over removal? And when there is enforcement, you are not allowed to have as many constraints, constitutionally?
Ilya Shapiro: Liberty came up early on in an exchange between Kannon Shanmugam, the counsel for Seila Law, and Justice Ginsburg. Kannon was talk about how his client is being harmed. It’s liberty is being affected by what they’re claiming to be an unconstitutional agency. And Justice Ginsberg said, “Well, Congress had in mind the liberty of consumers. And Congress is balancing those liberties, those interests.” It wasn’t a Fourteenth Amendment, Fifth Amendment kind of substantive due process liberty sort of claim, who was better positioned, I guess, to evaluate the claims of liberty.
And as far as the Social Security Administration is concerned, that is, or has fairly recently become in the grand sweep of things, a single director agency. But how it’s distinguishable from the CFPB is that, indeed, it doesn’t have enforcement powers, and it doesn’t, you know, write its own rules that it then enforces and punishes and all of that. That it’s much more of a ministerial function there that the director serves, rather than a policymaking one.
Micah Wallen: All right. Not seeing any other questions in the queue. Ilya, did you have any closing remarks for us or anything else you’d like to share about the case?
Ilya Shapiro: This will likely be -- we’re already at the beginning of March. So this will likely be one of those that’s decided the last two weeks, if not the very last week, of June.
Micah Wallen: One other questions just popped through. So we’ll go ahead and move to that caller next.
Caller 2: So a question on the possible remedies, isn’t there an issue -- if they elect to just throw out the CID, doesn’t that just call into question then anything the agency would do because couldn’t anyone argue that, well, it’s an unconstitutional agency? So I can go to court and get whatever they’re doing invalidated.
Ilya Shapiro: Yeah. I think this sort of parallels the debate over nationwide injunctions. If the Court issues a rule that’s good only for this party before it, only for Seila Law, well then the next party that gets a CID is going to fight this case and say, “Look. The facts aren’t important. They said that the CID is invalid because the director was improperly appointed.” Well, same director for me, and so my CID should be thrown out. And we can have a slew of these suits. I think that’s why whatever rule they do, even though this is an as-applied challenge, it would be hard not to have a broader effect than simply on this case.
Micah Wallen: All right. Well, with no other questions in the queue, I’ll go ahead and wrap us up today. On behalf of The Federalist Society, I’d like to thank our expert for the benefit of his valuable time and expertise today. We welcome listener feedback by email at email@example.com. Thank you all for joining us. We are adjourned.
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