Facts
- Congress enacted the Housing and Economic Recovery Act of 2008 (HERA) creating the Federal Housing Finance Agency (FHFA) as regulator of Fannie Mae and Freddie Mac and authorizing it to act as their conservator or receiver.
- HERA provided that FHFA would be led by a single Director removable by the President only “for cause.”
- FHFA placed Fannie Mae and Freddie Mac into conservatorship and, acting on their behalf, entered stock purchase agreements with the U.S. Department of the Treasury that required fixed quarterly dividends on senior preferred stock.
- In 2012, FHFA and Treasury executed a Third Amendment replacing fixed dividends with a “net worth sweep,” requiring quarterly payments of essentially the companies’ net worth (minus a capital reserve) to Treasury.
- Private shareholders alleged the sweep eliminated any realistic possibility of residual profits flowing to them and reduced share value.
- Shareholders sued asserting (1) statutory claims that FHFA exceeded its conservator authority under HERA and (2) a constitutional claim that the for-cause removal restriction violated separation of powers.
Issues
- Whether HERA’s anti-injunction provision bars courts from entertaining shareholders’ statutory challenges to the Third Amendment as an action within FHFA’s conservator powers.
- Whether HERA’s for-cause removal restriction for the single FHFA Director violates Article II’s separation of powers.
- If the removal restriction is unconstitutional, whether and what relief is available for prior agency actions, including whether plaintiffs must show compensable harm caused by the restriction.
Decision
- The Court held the shareholders’ statutory claims were barred by HERA’s anti-injunction provision because the challenged amendment fell within FHFA’s conservatorship functions.
- The Court held the for-cause removal restriction for the FHFA Director was unconstitutional and severable from the remainder of HERA.
- The Court declined to treat past FHFA actions as automatically void due to the removal defect.
- The Court vacated the remedial judgment and remanded for determination whether the unconstitutional removal restriction caused compensable injury (including whether presidential inability to remove the Director affected the challenged action).
Legal Principles
- When Congress bars courts from “restrain[ing] or affect[ing]” an agency’s exercise of conservator/receiver powers, statutory challenges to actions within that grant are generally not judicially reviewable.
- A single-headed agency exercising significant executive authority may not be insulated from presidential control by a for-cause removal restriction, consistent with Article II.
- An unconstitutional removal restriction does not by itself negate the agency head’s authority to take otherwise lawful actions; relief depends on showing that the restriction caused actual, compensable harm.
- Severability is the default remedy for an unconstitutional removal provision absent a showing that Congress would have preferred invalidation of the agency’s remaining authorities.
Conclusion
The Court rejected the shareholders’ statutory attack on the net worth sweep as barred by HERA’s limits on judicial interference with FHFA conservator actions, held FHFA’s single-Director for-cause removal protection unconstitutional but severable, and required plaintiffs to prove that the removal defect caused compensable harm before obtaining relief for prior agency decisions.