Notice & Comment

D.C. Circuit’s Double-Header on Article II

20160601_jennifermascottThis week the D.C. Circuit sitting en banc heard arguments in its blockbuster (by Washington standards) double-header featuring the appointments and removal implications of Article II. In a nutshell, the cases address whether Article II’s transparency and accountability requirements mean (i) a single head of an executive branch agency must be removable at will (PHH Corp. v. CFPB) and (ii) democratically responsive actors must appoint formal agency adjudicators (Raymond Lucia Corp. v. SEC).

The line of people waiting for seating began outside before 7am, when the courthouse opened its doors. (Including self-described Ad Law nerd, yours truly.) During arguments the courtroom was packed, with people filling the benches elbow to elbow.

The arguments met the level of anticipation. Each of the five advocates was excellent. The constitutional issues in each case were front and center.

PHH Corporation v. CFPB

Even though PHH was argued second, I’ll take it on first. The core issue in the argument was whether the Supreme Court’s approval of removal restrictions in Humphrey’s Executor and Morrison v. Olson directly apply to permit restrictions on the removal of the single head of the Consumer Financial Protection Bureau (CFPB).

The standard Ad Law 101 reading of these two Supreme Court cases suggests the following principles. Preservation of the President’s executive power means the President must be able to remove at will single heads of purely executive agencies. But Congress may in contrast, establish independent agencies where members of multi-headed independent commissions will exercise “quasi-legislative” and “quasi-judicial” power subject to removal for only very limited reasons. (Humphrey’s Executor.) The general idea underlying the 1935 opinion was that the President’s ability to carry out his “take Care” duty is not impermissibly thwarted when he’s restrained in firing actors who exercise some type of not-entirely-executive power. (Query what provision of the three-branch government’s Constitution permits some fourth or fifth category of “quasi” power. But perhaps, as some members of the en banc court suggested, that’s a question for the Supreme Court itself to answer on another day—hopefully sometime soon.) Morrison constricted executive power one step further by suggesting it’s OK for the President to have limited removal authority over even executive officers, as long as they are somewhat-less-important “inferior officers.”

The PHH en banc arguments challenged some of these traditional takeaways from Humphrey’s Executor and Morrison and added texture to those cases’ interpretation. Former Solicitor General Ted Olson, arguing for the original panel decision striking down the CFPB’s removal structure, pointed out that the Supreme Court’s 2010 opinion in Free Enterprise Fund indicated skepticism of both Morrison and Humphrey’s Executor. In light of Free Enterprise Fund, Mr. Olson said the earlier cases should be seen as narrow exceptions from the President’s general blanket Article II at-will removal power. Because the CFPB Director is a single agency head, exercising what Mr. Olson characterized as “executive” power as a principal—not inferior—officer, Mr. Olson contended the Director clearly falls outside of the narrow exceptions and must be removable at will.

Some members of the en banc court seemed unconvinced. Judge Tatel contended that Morrison hardly could stand for the proposition that only relatively unimportant executive officers may be subject to removal restrictions. After all, the Morrison Court permitted removal restrictions for the independent counsel, an officer who had vast power to investigate other high-level executive officials.

Mr. Olson responded in part by demonstrating that in fact the CFPB director does have significantly more power than the now-defunct independent counsel position. For example, the CFPB Director has the exclusive power to appoint all officials in his agency without Senate consent, interpret statutes, decide what to prosecute, and impose penalties of millions of dollars.

Judge Griffith from early in the argument hammered on a separate but related issue: Even assuming the CFPB Director exercises as much authority as an entire multi-member commission, how do limitations on removing one CFPB head hamper the President’s executive authority any more than the collective limitations on removing three or five independent agency heads? Surely it must be tougher for a President to remove all five agency heads acting against his agenda than just one tenure-protected agency head.

Mr. Olson replied that the CFPB’s structure was a greater intrusion on the President’s executive power than the FTC structure in Humphrey’s Executor because the CFPB Director, as a single head, had more raw, unchecked power than each individual FTC commissioner. But Judge Griffith seemed undeterred, contending in essence that the singular versus collective nature of a commission’s actions had no impact on the amount of executive power the board or commission as a whole was taking from the President. Mr. Hashim Mooppan, Deputy Assistant Attorney General in Civil Appellate at DOJ, addressed this debate in his later argument. Mr. Mooppan observed that one key feature of our nation’s sole executive is that he or she, acting as one, may move with “vigor” and “dispatch” to more effectively carry out executive power. In that sense, of course a single head of a board exercises more executive-like power in place of the elected President than either individual commissioners of a multi-member agency or the entire multi-member board as a whole.

As an aside, one additional aspect of power that perhaps surprisingly received little of the court’s attention is the question of whether the unique unitary structure of the CFPB represents a newly invasive degradation of the power of the electorate. Under Free Enterprise Fund and the Constitution the question cannot just be whether a new agency structure takes power from the Executive—but whether the agency takes power from the source from which all federal power is derived—“We the People.” In Free Enterprise Fund, the Court emphasizes that when “vast power” within the Executive Branch “slip[s] from the Executive’s control,” that power more fundamentally also slips from the people. See here at 18-20. And certainly, a single agency head who can act without even having to garner the consent of several fellow Commissioners has more significant ability to impose a heavy hand than the power held by one out of five FTC Commissioners.

In a real-life example of how independent agencies stand outside—and sometimes against—the line of democratically elected executive authority, after Mr. Olson sat down, the government entered the case to argue against itself. DAAG Hashim Mooppan, participated in the case on the side of PHH—against the CFPB. The crux of Mr. Mooppan’s argument was that the Supreme Court in Humphrey’s Executor actually did not approve restrictions on the removal of FTC Commissioners because of the non-executive nature of the power they exercise, but because of the multi-member nature of the Commission. On that theory, the CFPB’s case is entirely distinct from Humphrey’s Executor, which in no way permits limitations on presidential removal of a single agency head like the CFPB Director. Mr. Mooppan rested this argument on the contention that when Humphrey’s Executor labeled the FTC an “administrative body” and described the Commissioners’ “character,” the Court was referencing the multi-member nature of the Commission, not some kind of non-executive FTC authority.

It was unclear whether the court was persuaded it should apply this reading of Humphrey’s Executor to decide the PHH litigation. But at the conclusion of Mr. Mooppan’s advocacy, one courtroom observer whispered, “Who was that? He was really good.”

Mr. Lawrence DeMille-Wagman argued on behalf of the CFPB. During his argument the court returned to its assessment of whether the President is better able to “take Care that the Laws be faithfully executed” by replacing agency leadership within the framework of the single-headed CFPB or the multi-headed FTC. In particular, Judge Srinivasan asked whether a President was more likely to have the chance to remove and appoint a new CFPB Director or remove and appoint a majority of new FTC Commissioners. The CFPB had gamed out a precise answer to this question. Mr. DeMille-Wagman quickly spit out the questionably relevant statistic that Presidents have a 4/5 (or 80%) chance of replacing a CFPB Director but only at 4/7 (or 58%) chance of replacing a majority of FTC Commissioners.

It’s comforting to think that the enduring character of the Constitution’s Article II executive power might now be measured in relative fractional quantities. Perhaps the court instead will be moved by Judge Kavanaugh’s more straightforward observation during argument that at least in the case of a typical multi-member commission, a newly elected President may immediately change which commissioner is designated as head chairperson. Not so with the CFPB.

As Judge Kavanaugh further pointed out, a sitting President may never have the opportunity to appoint a CFPB Director, whose five-year term extends past an elected President’s own four years. Judge Kavanaugh queried whether some of the groups supporting the CFPB Director’s protected five-year term might become faint-hearted supporters if in a few years the presidency is filled by a consumer protection advocate who chafes against decisions made by a President Trump-appointed CFPB Director. If a President may not necessarily appoint her own CFPB Director and the Director may not be removed when his actions thwart the elected executive’s agenda, what democratic accountability benefits derive from the existence of one clear CFPB head?

Unfortunately for PHH—and some might say for accountability in the exercise of power—numerous members of the court seemed reticent to distinguish the CFPB’s single director structure from the governmental actors with tenure protection in Morrison and Humphrey’s Executor. It would not be surprising if the D.C. Circuit reversed the panel decision, claiming its hands are tied by the Supreme Court’s authorization of removal limitations in the past. But then it also seems likely the Supreme Court may take the case and hand down another decision in the vein of Free Enterprise Fund, clarifying that tenure-protected single agency heads simply take degradations of executive power a step too far.

Raymond J. Lucia, Companies, Inc. v. SEC

Here are just several highlights from the arguments in this case. The legal issue is whether administrative law judges (ALJs) presiding over formal agency adjudication in the SEC are “Officers of the United States” subject to Article II Appointments Clause requirements. If the ALJs are officers, they must be appointed by the President or the SEC Commissioners (the department head, per Free Enterprise Fund)—not by the Chief ALJ who hires them now. In 1976 in Buckley v. Valeo the Supreme Court pronounced that the general governing standard for Article II “officer” status is whether an official has “significant authority.” In 1991, in Freytag v. Commissioner, the Supreme Court said that “significant authority” can be measured by factors such as the importance of the issues handled by an official and the official’s level of discretionary authority. The original D.C. Circuit panel considering this case also was bound by the D.C. Circuit’s 2000 decision in Landry v. FDIC that concluded Freytag made final decision-making authority an additional mandatory prerequisite for achieving “officer” status.

Both advocates in this case faced rigorous questioning. Right out of the gate Judge Pillard asked Mr. Mark Perry—the Gibson Dunn attorney representing Mr. Raymond Lucia—what kind of power the ALJs exercised on their own, apart from the authority of the SEC Commissioners. By statute, the SEC may delegate any of its powers to the ALJs—which would suggest the ALJs could be empowered to do all kinds of significant things, including issuing SEC enforcement decisions. In practice, however, the SEC by regulation has established that before any judgment becomes effective, the SEC—not the ALJs—must “enter an order of finality.” Judge Pillard’s questions suggested that within this framework, the ALJs never really act on their own but merely as adjuncts for the SEC. Underlying this line of questioning from Judge Pillard and others seemed to be the standard for defining “officer” set forth by a 2007 Office of Legal Counsel opinion, which suggests “officers” include only those with power to take actions binding third parties or the government.

Mr. Perry explained in his argument that even though SEC regulations require the Commission to issue orders effectuating ALJ opinions, the SEC rarely reverses ALJ decisions. In a large number of cases, therefore, the ALJ’s decision effectively is the Commission’s decision, with the Commission merely issuing a pro forma piece of paper certifying the ALJ’s binding decision.

Several judges still did not seem convinced that the ALJs were the actors taking final, binding agency action within this framework. But it was soon pointed out that this type of inquiry seemed to merge with the notion that the key factor in the Article II “officer” analysis is final decision-making authority. And at least some of the judges clearly agreed that Landry had improperly found final decision-making authority to be essential to “officer” status. In fact, Judge Tatel explicitly acknowledged that he thought the D.C. Circuit in Landry had misconstrued the Supreme Court’s holding in Freytag.

In Freytag, the Supreme Court evaluated whether special trial judges (STJs) on the Tax Court were Article II “officers.” The Court held they were, in large part because they engaged in significant duties like taking testimony, conducting trials, ruling on the admissibility of evidence, and enforcing compliance with discovery orders. In the alternative, the Court noted the STJs would have been “officers” even if some of their duties were insignificant because in certain cases, the STJs issued final decisions for the Tax Court.

Once the relevance of finality is eliminated, the consensus in the courtroom seemed to be that the relevant inquiry under Freytag would be how the SEC ALJs’ authority lined up against that of Freytag’s STJs. Arguing for the SEC, Mr. Mark Stern seemed to concede that, like the STJs, the SEC’s ALJs take testimony, conduct trials, and rule on evidence. He vigorously contended, however, that ALJs are materially different from the STJs because in his view the ALJs lack authority to enforce compliance with discovery orders.

Judges on the en banc court then asked Mr. Stern to specify what he believed the governing test for “officer” status should be. In other words, if the only factor dividing ALJs from the STJs is their lack of discovery compliance authority, what possible “officer” test would place STJs on the “officer” side of Article II but ALJs on the non-“officer” side of the line? Judge Kavanaugh commented that the only test could be one that said an “officer” is someone who could take testimony, conduct trials, rule on evidence—but not enforce discovery orders. And he had trouble figuring out “what sense that makes.” Mr. Stern tried to persuade the court that an extra factor making the STJs more “officer”-like was the fact that the STJs operate as part of a weightier “court of law,” not just within an administrative tribunal. It was unclear whether any judge bought into that particular distinction.

Coloring the entire argument seemed to be the judges’ concerns about the possible ramifications of concluding the SEC ALJs are “officers.” Mr. Perry was asked to quantify how many other similarly situated ALJs might qualify as “officers” if the SEC ALJs fall within Article II. When pressed, Mr. Perry said 142—excluding the numerous Social Security judges known as ALJs who, unlike the SEC’s ALJs, conduct no formal agency adjudication under the Administrative Procedure Act.

The court then asked Mr. Perry about the back-end ramifications of concluding ALJs are “officers.” Would such a finding mean ALJs must be removable at will? Under Free Enterprise Fund, Article II “officers” may be subject to at most one layer of for-cause removal protection. The SEC’s ALJs right now arguably are ensconced within three such layers—(i) the removal protections that SEC Commissioners arguably enjoy and (ii) the removal limitations governing the Merit Systems Protection Board (MSPB), which (iii) in turn must approve for-cause disciplinary actions against the ALJs.

Mr. Perry observed that Free Enterprise Fund did not say which of the multiple layers of protection must be eliminated in a given case. Perhaps a court would conclude, for example, that MSPB Members, rather than ALJs, must be removable at will. Judge Kavanaugh also drew the court’s attention to Footnote 10 in Free Enterprise Fund, which reserved the question of whether adjudicatory officials might be sufficiently distinguishable that they fall outside of the double for-cause removal ban.

Even perhaps more than PHH, this case seems likely to end up in the Supreme Court. Either the en banc court will uphold the panel determination that the SEC’s ALJs are not officers—keeping in place the D.C. Circuit-Tenth Circuit split. Or the en banc court will reverse the panel, becoming the second court of appeals to rule against the government on an important issue.


Jennifer Mascott is an Olin/Searle Fellow in Law affiliated with the Georgetown University Law Center and the George Washington University Law School. Previously she taught Administrative Law as a Professorial Lecturer in Law at the GW Law School and served as a law clerk to Justice Clarence Thomas and D.C. Circuit Judge Brett Kavanaugh. She is the author of Who are “Officers of the United States”?, which analyzes the original public meaning of the Appointments Clause and will be published in the Stanford Law Review in 2018.

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