Removing Barriers Blog

SCOTUS Finds Director Calabria is Removable at Will
Posted June 23, 2021 by CUNA Advocacy

On Wednesday, the Supreme Court issued its opinion in Collins v. Yellen (formerly Collins v. Mnuchin). This case was brought by shareholders of Fannie Mae seeking to have the net worth sweep in the third amendment to the Preferred Stock Purchase Agreement (PSPA) voided. The shareholders argued, among other things, that the FHFA was unconstitutionally structured as its director was removable by the President only for cause, and not at will.

President Biden Can Remove Calabria at Will
The Court affirmed the appellate court’s findings. The First Circuit sitting en banc found that the FHFA’s structure is unconstitutional and ordered that the language in the creating the unconstitutional structure be severed from the Housing and Economic Recovery Act of 2008. The Supreme Court’s decision means that Director Calabria is now removable at will by President Biden.

Don’t Expect Ratifications or Immediate Practical Effect
While the majority of Justices agreed that the FHFA is unconstitutionally structured, there was multiple dissenting opinions about what that means for FHFA actions made prior to this decision. In the majority opinion, the Court seems to telegraph that the agency’s authority would not be affected by the unconstitutional structure. It also addressed the reaffirmation issue from Seila:

 In Seila Law,24 after holding that the restriction on the removal of the CFPB Director was unconstitutional and severing that provision from the rest of the Dodd-Frank Act, we remanded the case so that the lower courts could decide whether, as the Government claimed, the Board’s issuance of an investigative demand had been ratified by an Acting Director who was removable at will by the President. See 591 U. S., at ___ (slip op., at 36). The shareholders argue that this disposition implicitly meant that the Director’s action would be void unless lawfully ratified, but we said no such thing. The remand did not resolve any issue concerning ratification, including whether ratification was necessary. (Emphasis added).

This seems to indicate that Director Kraninger’s ratifications after Seila Law may have been unnecessary. Regarding the shareholder’s claims, the Court dismissed their remaining statutory claim against the net worth sweep. The Court remanded the case back to the lower court for findings on whether the unconstitutionality of the FHFA’s structure entitles the Plaintiff to any remedy. However, the Court also indicated that the shareholders would need to draw a causal link between the unconstitutional removal provision and the FHFA actions that they allege caused them harm, such as some evidence that the President attempted to or would have liked to remove the director, but did not because of the unconstitutional provision. 

Justice Thomas wrote a concurring opinion indicating he thought the Court should have gone further by clearly stating that “The mere existence of an unconstitutional removal provision, too, generally does not automatically taint Government action by an official unlawfully insulated." On the other hand, Justices Gorsuch argued in his concurring opinion that unconstitutionally unsupervised officials are not wielding appropriate powers and their actions may need to be unwound. 

Ultimately, the majority opinion seems to indicate that prior FHFA actions should be viewed as valid, unless a court issues an opinion specifying otherwise.