Has the Supreme Court closed one avenue of constitutional arguments against the structure of the Federal Reserve only to open up another? By labeling the Fed a “quasi-private” entity, parties aggrieved by the Federal Reserve’s actions may challenge them as violations of the private nondelegation doctrine.

On May 22, the Court made major waves in a decision on an application for a stay in Trump v. Wilcox, a case that could serve as a vehicle to overturn Humphrey’s Executor and end a century of understanding about the constitutionality of for-cause removal protections enjoyed by the heads of a wide variety of federal agencies. Those agencies appeared to include the Federal Reserve—at least until last month, when the Court placed it safely outside the case’s potential blast radius. Because the Fed is a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the Court argued, any ruling on the constitutionality of the for-cause removal protections at issue in Wilcox would not implicate similar protections for the Governors of the Federal Reserve. 

Already, several legal commentators have put their shoulders to the wheel refuting each of the sentence’s core premises—that the Fed is unique, quasi-private, and follows in the tradition of the First and Second Bank (Professor Lev Menand’s thorough response is one worth holding up). However, even if one accepts the Court’s premises as they currently stand, this sentence may lead to many more constitutional interrogations of the Fed. Specifically, if the Federal Reserve is indeed “quasi-private,” then the power it exercises would seem to violate the Constitution’s prohibition on delegations of vested constitutional power to private entities.

There has been some speculation about the revival of the nondelegation doctrine for several years, most of which has concerned delegations by Congress to the Executive. But as far back as the New Deal-era case Carter v. Carter Coal Co., delegation to private parties has been understood to be “delegation in its most obnoxious form.” If the Federal Reserve, including the Board of Governors and the Open Market Committee, is “quasi-private,” then it must be asked whether constitutional authority has impermissibly passed into private hands.

If this question were presented to the Court, it may use one of the frameworks presented in Dep’t of Transportation v. Ass’n of American Railroads (“Amtrak”) to answer it. In Amtrak, the Court held that the metrics and standards developed by the company and federal regulators did not violate the nondelegation doctrine because Amtrak was “created by the Government, is controlled by the Government, and operates for the Government’s benefit,” and was therefore a government entity in exercising its regulatory power. In a concurrence, Justice Alito expressed concern about other potential constitutional infirmities for the railroad company, including that Amtrak’s board members did not swear an oath to support the Constitution pursuant to Article VI, Clause 3. Justice Thomas articulated an alternative framework for delegation challenges which attended to not only an entity’s status as public or private but whether the authority it wielded was one provided to a branch of the federal government under one of the Constitution’s Vesting Clauses. In Thomas’ view, because a private entity is not Congress, the President, or the Judiciary, the use of any vested authority would violate the private nondelegation doctrine.

As Menand explained in his initial assessment, the name “Federal Reserve” describes a constellation of entities, including the Board of Governors, the Open Market Committee, and the Banks. Most problematic here would appear to be the inclusion of the Board of Governors, which the Court believes is “quasi-private” enough to be relevant for Article II analysis. It seems extremely difficult to square identifying the Board of Governors as part of a “private” or “quasi-private” entity with the Court’s holding in Amtrak. Like Amtrak, the Federal Reserve was “created by the Government, is controlled by the Government, and operates for the Government’s benefit.” Considering the vast amount of agency activity the Board undertakes, including rulemaking under the Administrative Procedure Act, enforcement actions, and fulfilling Freedom of Information Act requests, this seems like an absurd understatement. In the same vein, much of this would, under Thomas’ analysis, clearly appear to be the exercise of power vested in the President under Article II.

In his Amtrak concurrence, Alito argued that “liberty requires accountability” and warned that “[o]ne way the Government can regulate without accountability is by passing off a Government operation as an independent private concern.” It is unclear whether any degree of privateness, including “quasi”-privateness, is sufficient to preclude an entity from wielding any Vesting Clause authority, or if quasi-private entities can phase in and out of public- and privateness to wield vested constitutional power at their convenience. If the answer is the latter, then the Court may have created a workaround to the accountability the private nondelegation doctrine is supposed to provide. Hybrid institutions may become an acceptable way to permit private entities to wield public power.

In 2022, Justice Alito authored a statement on the denial of certiorari in Texas v. Commissioner of Internal Revenue joined by Justices Thomas and Gorsuch urging the Court to clarify the parameters of the private nondelegation doctrine. Now that the Court has declared the Federal Reserve quasi-private, challenges to the Fed’s authority may present that opportunity.

Domenic Powell is an Administrative Law Fellow of the American Bar Association’s Section of Administrative Law & Regulatory Practice. He has worked in Congress as a fellow on the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law and as a counsel for the Consumer Financial Protection Bureau. His views are his own.