DC Circuit Holds Single Member Independent CFPB Unconstitutional, by Jack Beermann

by Chris Walker — Friday, Oct. 14, 2016@chris_j_walker

In PHH Corporation v. Consumer Financial Protection Bureau, the U.S. Court of Appeals for the D.C. Circuit, in an opinion by Judge Brett Kavanaugh, held that it was unconstitutional for the CFPB to be headed by a single Director who could not be removed by the president without cause. The consequences of the court’s decision were muted by its decision not to declare the agency completely unconstitutional. Rather, as the Supreme Court did with the Public Company Accounting Oversight Board (PCAOB), the court simply excised the Director’s “for-cause” protection and its implication that the Director was beyond the president’s control and otherwise left the agency and all of its decisions, intact. Thus, the CFPB can go on as before, with the only change being that the president can remove the Director at will and can order the Director to act in accord with presidential policies and priorities.

Judge Kavanaugh’s reasoning in support of this outcome is surprising. The basis for the decision was not that the president, as head of the Executive Branch, needs the power to control the CPFB. Recall that the need for presidential control was the Supreme Court’s basis for invalidating the PCAOB’s for-cause protections. In the case of the CFPB, Judge Kavanaugh’s expressed reason for invalidating the Director’s protection was that “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” In Judge Kavanaugh’s view, the multi-member structure of most independent agencies provides a check on abuse of power that was, unconstitutionally, absent in the case of the CFPB. (Judge Kavanaugh also relies heavily on the history and tradition of plural heads of independent agencies. In this blog, I focus only on the pragmatic reasoning, not the reasoning based on tradition.)

Reliance on the need for an effective check on arbitrary agency action (as opposed to a purely presidential check) as a reason for invalidating a for-cause removal restriction is new, possibly unprecedented. As far as I am aware, the Supreme Court has never employed this reasoning. In the Humphrey’s Executor case, which Judge Kavanaugh characterizes as a departure from the background principle of complete presidential control, the Supreme Court justified protection from removal on the basis that the Federal Trade Commission, the agency headed by Humphrey, exercised judicial and legislative power and thus there was no need for presidential removal power. In fact, the Court hinted that unrestrained removal power over an official exercising those functions might itself violate, or at least undercut, separation of powers. In Morrison v. Olson, the independent counsel case, the Court abandoned this basis for upholding removal restrictions and instead viewed removal restrictions as presumptively constitutional exercises of Congress’s legislative power, subject to invalidation only if they unduly impair the president’s ability to control the execution of the laws.

Judge Kavanaugh’s reasoning in PHH v. CFPB amounts to a new, pragmatic, basis for upholding the constitutionality of the independence of independent agencies. This is surprising because it is contrary to the late Justice Antonin Scalia’s unitary executive theory that I would expect Judge Kavanaugh to adhere to. Judge Kavanaugh explains that, historically, Congress has structured independent agencies with enforcement, adjudicatory and legislative powers as multi-member agencies and that this structure provides a check on abuse of power that substitutes for the president’s power to direct Executive Branch agencies through direct supervision and unfettered removal. Under the independent counsel case, the question whether independence violates separation of powers involved whether the president’s authority over the Executive Branch was unduly impaired. Under Judge Kavanaugh’s reasoning, the need for presidential control is not based on the Constitution’s vesting of executive power in the president, but rather is based on the pragmatic concern that concentration of power in an unaccountable independent agency might present a risk of arbitrary government action of the sort that separation of powers is designed to prevent. To Judge Kavanaugh, this practical concern leaves Congress with two choices. It can either structure the agency as a multi-member board or it can give the president unfettered removal power.

(As an aside, it does not appear that Judge Kavanaugh would require bi-partisanship on a multi-member board, although one would think that a bi-partisan board would provide a more effective check than a multi-member board with members all of the president’s political party. Perhaps that is because adherents to the unitary executive theory are uncomfortable with the restrictions on presidential appointment power entailed in bi-partisanship requirements.)

Judge Kavanaugh’s pragmatic reasoning is contrary to the traditional formalistic argument against independence, that the Vesting Clause of Article II vests all of the executive power in the president. A Supreme Court majority has never viewed the Vesting Clause as having the same force as other structural provisions such as the bicameralism and presentment requirements or the Appointments Clause, but when those provisions applied, the Court has tended to apply them strictly, without regard to pragmatic concerns. Indeed, Justice White’s arguments in dissent in the Chadha case that the legislative veto was a practical method of maintaining the separation of powers in the administrative state was viewed by the majority as beside the point. Judge Kavanaugh’s reasoning is much closer to Justice White’s than to the majority in decisions like Chadha and those applying the Appointments Clause.

What explains Judge Kavanaugh’s embrace of pragmatic reasoning to uphold independent agencies? Perhaps he realizes that the Supreme Court is very unlikely to adopt the unitary executive theory and require that all Executive Branch officials be under the direct supervision of the president. As a distant second best, at least the multi-member structure of most independent agencies ameliorates the problem of unaccountable, arbitrary agency action. Introducing Judge Kavanaugh the pragmatist! Who knew?

 

Jack Beermann is Professor of Law and Harry Elwood Warren Scholar at Boston University School of Law. This post originally appeared on the ACSblog.

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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About Chris Walker

Christopher Walker is a law professor at The Ohio State University Moritz College of Law. Prior to joining the law faculty, Professor Walker clerked for Justice Anthony Kennedy of the U.S. Supreme Court and worked on the Civil Appellate Staff at the U.S. Department of Justice. His publications have appeared in the California Law Review, Michigan Law Review, Stanford Law Review, and University of Pennsylvania Law Review, among others. Outside the law school, he serves as one of forty Public Members of the Administrative Conference of the United States and on the Governing Council for the American Bar Association’s Section on Administrative Law and Regulatory Practice. He blogs regularly at the Yale Journal on Regulation.

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