SCOTUS hears oral argument in Seila Law

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The U.S. Supreme Court heard oral argument yesterday morning in Seila Law.  The two questions before the Court are whether the provision in Title X of the Dodd-Frank Act that only allows the President to remove the CFPB Director for “inefficiency, neglect of duty, or malfeasance in office” violates separation of powers in the U.S. Constitution and, if the provision is unconstitutional, whether it can be severed from the remainder of Title X.

The four attorneys who argued the case were: Kannon K. Shanmugam for Seila Law; Noel J. Francisco, Solicitor General, DOJ, for the CFPB; Paul D. Clement, Court-appointed amicus curiae in support of the Bureau’s constitutionality; and Douglas N. Letter, General Counsel, U.S. House of Representatives.  Attending the oral argument were former CFPB Director Richard Cordray, former Acting CFPB Director Mick Mulvaney, and current CFPB Director Kathy Kraninger.  (Ironically, the oral argument coincided with the release of Mr. Cordray’s new book about his experiences as CFPB Director.)  Also attending the argument was former Senator Chris Dodd whose name, together with that of former Congressman Barney Frank, the Dodd-Frank Act carries.  All of the Justices, with the exception of Justice Thomas, asked questions during the argument.  The transcript of the oral argument is available here.

Many of the Justices’ questions were focused on whether a for-cause removal restriction on the President’s authority to remove an executive officer is only permissible for a multimember agency.  Both Mr. Shanmugam and Solicitor General Francisco argued that the Court should not extend its 1935 decision in Humphrey’s Executor that upheld a for-cause removal restriction on members of a multimember agency to a single-director agency.  Solicitor General Francisco argued that extending Humphrey’s Executor to a single-director agency would create the possibility that Congress could limit the President’s ability to remove cabinet members.  When questioned about that possibility by Justice Gorsuch, Mr. Clement suggested that a for-cause removal restriction could not permissibly apply to cabinet members who exercise duties directly assigned to the President by the Constitution. Justices Ginsburg, Kagan, Sotomayor, and Breyer appeared to be skeptical of the argument made by Seila Law and the DOJ that limiting for-cause removal to multimember agencies was necessary to provide the President with sufficient control over executive officers.

Another focus of the Justices’ questions was the meaning of the Dodd-Frank “inefficiency, neglect of duty, or malfeasance in office” (INM) removal standard.  Mr. Clement argued that the standard can be interpreted to give the President significant discretion to remove an officer.  He suggested that that the interpretation of the INM standard could be flexible based on the context, giving as an example a situation in which the President wanted to remove the CFPB Director because he or she was targeting a friend of the President in an enforcement action (high INM standard) versus a situation in which there was a policy difference between the President and the Director (low INM standard).  Justices Kavanaugh and Gorsuch suggested Mr. Clement’s argument was an attempt to “water down” the INM standard and Chief Justice Roberts raised the concern that Mr. Clement’s approach would lead to case-by-case litigation over whether the INM standard was met.

In several of the past cases involving a challenge to the  CFPB’s constitutionality, parties have used the Title X provision that establishes funding for the CFPB outside of the Congressional appropriations process as further support for the argument that the CFPB is unconstitutionally structured.  Although neither Seila Law nor the DOJ raised the CFPB’s funding in their arguments to the Supreme Court, Chief Justice Roberts questioned whether it should be a factor considered by the Court.

In contrast to many other Supreme Court cases, the Justices’ questions and comments during oral argument did not point to a likely outcome.  Should the Court reach the merits of the constitutional question, Chief Justice Roberts and Justices Kavanaugh, Alito, and Gorsuch seem likely to conclude that the removal provision is unconstitutional while Justices Ginsburg, Kagan, Sotomayor, and Breyer would likely take the opposite position.  Only Justices Ginsburg and Sotomayor raised the possibility that the Court did not need to reach the constitutional question.  While it is possible that a majority of the Court would vote in favor of an outcome in which the Court did not decide the constitutional question, that does not seem to be the likely disposition of the case.

Finally, with the exception of Justice Kavanaugh, the oral argument provided no clues as to how the Justices would vote on severability should the Court reach the constitutional question and a majority concludes that the for-cause removal provision is unconstitutional.  Consistent with his view in the PHH case as a member of the D.C. Circuit, Justice Kavanaugh suggested that  severance of the removal provision from Title X would be the appropriate remedy for a constitutional violation.

We continue to also find irony in the DOJ’s position that the removal provision is unconstitutional.  Should that position prevail, Democrats are more likely than Republicans to benefit because it is unlikely that President Trump would want to remove Director Kraninger while a new Democratic President would likely remove her.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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