Supreme Court Concludes That Dodd-Frank’s “For Cause” CFPB Director Removal Provision Violates Separation Of Powers, But Finds Provision Severable And Thus Leaves CFPB’s Authority Intact
Securities Litigation
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  • Supreme Court Concludes That Dodd-Frank’s “For Cause” CFPB Director Removal Provision Violates Separation Of Powers, But Finds Provision Severable And Thus Leaves CFPB’s Authority Intact
    On June 29, 2020, the United States Supreme Court, in a 5-4 decision authored by Chief Justice Roberts, held that the structure of the Consumer Financial Protection Bureau (“CFPB”), which permitted the President to remove the CFPB’s Director only for “inefficiency, neglect of duty, or malfeasance in office,” violated the Constitution’s separation of powers.  The Court further concluded, however, that the provision was severable from the remainder of Title X of the Dodd-Frank Act (which created the CFPB), and thus the Court left the CFPB’s rulemaking, enforcement, and adjudicative powers intact.  Seila Law LLC v. CFPB, —U.S.—, 2020 WL 3492641 (June 29, 2020).  The background of this case was further discussed in our prior post.

    Petitioner was a law firm that received a civil investigative demand from the CFPB seeking information and documents regarding the firm’s business practices.  The firm refused to comply with the demand on the ground that the CFPB’s structure violated the U.S. Constitution’s separation of powers—under which all “executive Power” is “vested in a President”—because the CFPB was headed by a single Director removable only for cause.  The CFPB then filed a petition to enforce the demand, which the lower court upheld.  The Ninth Circuit affirmed, holding that the challenge to the CFPB’s structure was foreclosed by prior precedent upholding “for cause” limitations on Presidential removal power—namely, Humphrey’s Executor v. United States, 295 U.S. 692 (1935), and Morrison v. Olson, 487 U.S. 674 (1988).  2020 WL 3492641, at *6–7.

    The Supreme Court reversed.  Chief Justice Roberts’ majority opinion explained that the Court’s precedents recognized only two exceptions to the President’s unrestricted removal power, and the Court declined to extend those precedents to what it described as “the novel context of an independent agency led by a single Director.”  Id. at *5.  The majority distinguished Humphrey’s Executor as having merely “permitted Congress to give for-cause removal protection to a multimember body of experts who were balanced along partisan lines, appointed to staggered terms, performed only ‘quasi-legislative’ and ‘quasi-judicial functions,’ and were said not to exercise any executive power.”  Id. at *12.  As for Morrison—which approved for-cause removal protection for the independent counsel—Chief Justice Roberts observed that the Court had “concluded that the removal protections did not unduly interfere with the functioning of the Executive Branch because the independent counsel was an inferior officer under the Appointments Clause, with limited jurisdiction and tenure and lacking policymaking or significant administrative authority.”  Id. at *11.  In contrast, the majority noted, the CFPB Director is a principal officer with broad duties, including the authority to (i) “promulgate binding rules fleshing out 19 federal statutes, including a broad prohibition on unfair and deceptive practices in a major segment of the U.S. economy,” (ii) “unilaterally issue final decisions awarding legal and equitable relief in administrative adjudications,” and (iii) “seek daunting monetary penalties against private parties on behalf of the United States in federal court.”  Id. at *12.  Accordingly, the majority concluded that the restrictions imposed by Congress on the CFPB Director’s removal were unconstitutional in light of the general rule that the President possesses “the authority to remove those who assist him in carrying out his duties.”  Id. at *5.

    Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented from the holding that the CFPB’s structure violated separation of powers.  The dissent disagreed in all respects with the majority’s framing of separation of powers and the Court’s prior precedents.  Indeed, Justice Kagan stated that “the majority’s general rule [of unrestricted presidential removal power] does not exist” in the text of the Constitution, and “[i]ts exceptions likewise, are made up for the occasion—gerrymandered so the CFPB falls outside them.”  Id. at *34.  In particular, the dissent argued that the majority’s attempt to distinguish multimember bodies from the CFPB’s structure of the single Director “does not respond to the constitutional values at stake” because “the President has at least as much control over an individual as over a commission—and possibly more.”  Id.  Thus, the dissent concluded that the majority “commits the Nation to a static version of governance, incapable of responding to new conditions and challenges” and “wipes out a feature of that agency its creators thought fundamental to its mission—a measure of independence from political pressure.”  Id.

    Seven justices, however, agreed that the removal provision was “severable” from the remainder of the statute that established the CFPB’s authority.  The Court explained that the Dodd-Frank Act contains an express severability clause that states that if any provision were held unconstitutional, the remainder should “not be affected.”  Id. at *20.  Moreover, the Court emphasized that, regardless of the presence of a severability clause, the “provisions of the Dodd-Frank Act bearing on the CFPB’s structure and duties … are capable of functioning independently, and there is nothing in the text or history of the Dodd-Frank Act that demonstrates Congress would have preferred no CFPB to a CFPB supervised by the President.”  Id.  While petitioner argued that the severability clause was “boilerplate” because it applied to the entire Dodd-Frank Act and “appears almost 600 pages before the removal provision at issue,” the Court explained that the clause appeared in a “logical and prominent place” and that Congress “was not required to laboriously insert duplicative severability clauses, provision by provision, to accomplish its stated objective.”  Id.  The Court also rejected petitioner’s argument that the general severability clause should not be deemed applicable to the entire Dodd-Frank Act because doing so would render redundant an additional severability clause contained in a subtitle of the Act.  To the contrary, the Court concluded that the additional clause originated from a standalone bill that was later incorporated into Dodd-Frank and that its “redundancy [was] both inescapable and unilluminating.”  Id.  Finally, the Court dismissed petitioner’s argument that the statutory text and legislative history showed that Congress would not have wanted to give the President “unbridled control” over the CFPB.  The Court concluded that this only showed that Congress “preferred an independent CFPB to a dependent one”—not that Congress would have preferred “no agency at all” to a dependent CFPB, which the Court found particularly doubtful given that eliminating the CFPB “would trigger a major regulatory disruption and would leave appreciable damage to Congress’s work in the consumer-finance area.”  Id. at *21. 

    Justice Thomas, joined by Justice Gorsuch, concurred in the judgment that the CFPB’s structure was unconstitutional, but made clear that he would have preferred to expressly overrule the entirety of Humphrey’s Executor, which in his view could not be reconciled with the separation of powers.  Id. at *22.  Moreover, dissenting on the issue of severability, Justice Thomas argued that the Court should not have reached the issue, because in his view the civil investigative demand was not enforceable regardless whether the CFPB’s investigation had been ratified by the current director.  Id. at *30–31.  Further, even if a severability analysis were necessary, Justice Thomas expressed discomfort with “speculation as to what the Legislature would have preferred” and encouraged the Court to “take a close look at our precedents” regarding severability.  Id. at *33.

    While this decision removes a restriction on the power of the President to remove the CFPB’s Director, the Court’s holding on severability clarifies an issue that potentially could have had extraordinarily far-reaching effects regarding the authority of the CFPB to exercise its powers and the validity of the actions taken by the CFPB in its nearly ten-year history.