Banking and Finance Law Daily Under new director, FHFA urges Fifth Circuit to uphold constitutionality of for-cause removal provision
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Friday, July 12, 2019

Under new director, FHFA urges Fifth Circuit to uphold constitutionality of for-cause removal provision

By Paul A. Ferrer, J.D.

Under its interim director, the FHFA had previously elected not to defend the constitutionality of a provision allowing FHFA’s director to be removed by the President only for cause, which a panel of the court had determined violated the separation of powers.

In a July 9, 2019, letter to the Fifth Circuit, counsel for the Federal Housing Finance Agency notified the court that a new director had been sworn in in April and that, under the new director, Dr. Mark A. Calabria, the FHFA had considered the constitutional issue and decided to reassert its previous position defending the constitutionality of the for-cause removal provision. The FHFA thus urged the court to uphold the provision and allow the FHFA to withdraw statements made under the former interim director electing not to defend the provision’s constitutionality in the case of Collins v. Mnuchin, Case No. 17-20364.

The plaintiffs in the action challenged the validity of a provision, known as the Third Amendment, in the Housing and Economic Recovery Act (HERA) that sought to create a FHFA that would not be subject to political influence by allowing the President to remove the FHFA director only for cause. A divided three-judge panel of the Fifth Circuit agreed with the plaintiffs, concluding that the Third Amendment violated the separation of powers and therefore had to be severed from the remainder of HERA, rendering the director removable at the President’s discretion (see Banking and Finance Law Daily, July 18, 2018).

In its brief filed before the panel, and in its petition seeking rehearing by the Fifth Circuit en banc, the FHFA defended the constitutionality of the Third Amendment. But shortly after the Fifth Circuit granted rehearing en banc, the term of the former FHFA director expired. Under interim leadership between January and April 2019, including during a supplemental en banc briefing and oral argument, FHFA elected not to defend the constitutionality of the Third Amendment.

New director, new position. In its letter to the Fifth Circuit, the FHFA, through counsel, advised the court that a new FHFA director had been sworn in in April. Under its new director, the FHFA reconsidered the issue and decided to reassert its former position that HERA’s structure is constitutional. Accordingly, FHFA requested that the Fifth Circuit consider the arguments in its panel brief and en bancpetition as presenting the FHFA’s operative position and allow the FHFA to withdraw contrary statements in FHFA’s supplemental en banc brief and at oral argument.

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