Shareholders of Fannie Mae and Freddie Mac filed a lawsuit against the Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury, aiming to invalidate a third amendment agreement granting unlimited funding from Treasury in exchange for the companies' future profits. The shareholders argue that this agreement was signed by the Acting Director of FHFA, who they claim was serving unconstitutionally due to a violation of the Appointments Clause. Additionally, they seek retrospective relief based on the Supreme Court's ruling in Collins v. Yellen, which found an unconstitutional removal restriction in FHFA's enabling statute. The district court dismissed the case, deeming the Appointments Clause claim a nonjusticiable political question and rejecting the removal restriction claim as unrelated to shareholders' injuries. The appellate court reversed the dismissal on the Appointments Clause issue, concluding that the Acting Director was constitutionally serving when signing the agreement. The case is remanded for further consideration of whether the removal restriction caused harm to the shareholders. The opinion references the history and purpose of Fannie Mae, established in 1938 to enhance the stability and liquidity of the mortgage market.
In 1968, Congress established Fannie Mae as a publicly traded, stockholder-owned corporation, followed by the creation of Freddie Mac in 1970 to enhance mortgage credit availability. Both entities engage in purchasing mortgage loans, pooling them into mortgage-backed securities, and selling these to investors. By 2008, their combined mortgage portfolios reached $5 trillion, representing nearly half of the U.S. mortgage market. However, the economic recession that year led to a significant decline in their portfolio values, risking default and threatening the national economy.
In response, Congress enacted the 2008 Housing and Economic Recovery Act, which created the Federal Housing Finance Agency (FHFA), granting it the authority to oversee Fannie Mae and Freddie Mac as "regulated entities." The FHFA Director was tasked with ensuring their safe and sound operation in the public interest and was given broad powers to act as conservator or receiver, including the authority to take control of assets, manage operations, and preserve the entities' properties. The FHFA can also transfer or sell assets without needing approval, disaffirm contracts, pay obligations, and exercise subpoena power. The Act emphasizes the Director’s role in protecting the public interest while managing the companies' operations.
The Recovery Act authorized the Treasury Department to temporarily purchase obligations and securities from Fannie Mae and Freddie Mac, allowing for significant capital infusion to maintain their liquidity and stability. However, such purchases were contingent upon the Treasury ensuring taxpayer protection, which included limitations on dividend payments. The authority to make these purchases expired on December 31, 2009, after which the Treasury could only hold or sell the securities already acquired. The Act also restricted judicial review of the Federal Housing Finance Agency’s (FHFA) conservatorship actions, preventing courts from interfering with the Agency's powers.
On September 6, 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship due to their inability to access private capital markets, leading to Treasury's commitment to invest billions through Senior Preferred Stock Purchase Agreements. In exchange for this capital, Treasury received one million senior preferred shares in each company, which included a $1 billion liquidation preference, quarterly dividends, and warrants for purchasing up to 79.9% of their common stock. The agreements imposed strict covenants, prohibiting Fannie and Freddie from paying dividends or making distributions without Treasury's consent.
Initially, Treasury's investment commitment was capped at $100 billion per company, but due to escalating financial difficulties, this limit was doubled to $200 billion in May 2009. A subsequent amendment in late 2009 adjusted the cap based on Fannie and Freddie's quarterly losses from 2010 to 2012, reflecting the ongoing need for additional capital support.
As of June 30, 2012, Fannie Mae and Freddie Mac had drawn $187.5 billion from the Treasury. They faced ongoing challenges in generating sufficient capital to meet a 10% dividend obligation to the Treasury, raising concerns from the Federal Housing Finance Agency (FHFA) and Treasury about a cycle of borrowing to pay dividends, thereby increasing debt. In response, the Third Amendment to the Stock Agreements was implemented on August 17, 2012, changing the dividend structure to require Fannie and Freddie to pay dividends only from net worth exceeding a $3 billion capital buffer, which would decrease to zero by 2018. This new formula aimed to prevent further debt accumulation for dividend payments, though it limited their ability to build capital during profitable quarters.
In 2013, Fannie and Freddie paid $130 billion and $40 billion in dividends, respectively, to the Treasury. However, their net worth significantly declined in 2014, resulting in $10.3 billion from Fannie and $5.5 billion from Freddie in dividends. Without the Third Amendment, they would have owed $19 billion in 2015, necessitating further borrowing from the Treasury. In the first quarter of 2016, Fannie paid $2.9 billion while Freddie paid no dividend. The Third Amendment remained until January 2021, when the stock agreements were amended again.
The FHFA operates under a structure led by a single Director appointed by the President, who can be removed "for cause." However, a Supreme Court ruling deemed this restriction unconstitutional, allowing the President to remove the Director at will. The FHFA has had three Senate-confirmed Directors and several Acting Directors during their absences. President Obama appointed Deputy Director Edward DeMarco as Acting Director after the resignation of James Lockhart in August 2009, and DeMarco signed the Third Amendment as conservator for Fannie Mae and Freddie Mac in August 2012.
DeMarco's service as FHFA Acting Director ended with the appointment of Melvin Watt, who took office in January 2014. Shareholders of Fannie Mae and Freddie Mac filed a lawsuit against FHFA and Treasury, claiming violations of the Appointments Clause and separation of powers, and sought to vacate the third amendment. The district court dismissed their complaint for failure to state a claim. While the case was in mediation, the Supreme Court ruled in Collins that the Recovery Act's removal restriction violated separation of powers, but denied the shareholders' request for vacatur of the third amendment, remanding the case to consider possible retrospective relief.
Shareholders contended that DeMarco's signing of the third amendment was unconstitutional under the Appointments Clause. The district court deemed this a nonjusticiable political question, asserting it lacked judicially manageable standards and required a policy determination unsuitable for courts. However, this interpretation was challenged, emphasizing that the relevant inquiry is whether DeMarco violated the Appointments Clause at the time he signed the amendment, not whether he served "too long."
The Eighth Circuit previously addressed a similar claim in Bhatti v. FHFA, rejecting the notion of serving "too long" as a political question. Ultimately, the evaluation of the Appointments Clause claim determined that DeMarco was not in violation of the Constitution when he signed the third amendment, noting that the Appointments Clause mandates presidential appointment and Senate confirmation of principal officers, but recognizes that the appointment of inferior officers may differ due to practical considerations.
The Appointments Clause allows Congress to authorize appointments of inferior officers by the President, heads of executive departments, or courts. The distinction between "inferior" and "principal" officers is unclear, with limited guidance from the Framers. Supreme Court rulings, particularly in United States v. Eaton, affirm that inferior officers can temporarily assume the duties of principal officers during vacancies without changing their status. The Court recognized the risk of principal officer responsibilities going unfulfilled due to the nomination and confirmation process, leading Congress to permit the President to designate acting officials without Senate confirmation. This legislative framework was applied in the Recovery Act, which established the Federal Housing Finance Agency (FHFA) and stipulated that its Director must be appointed by the President with Senate advice and consent. In cases of vacancy, the Act allows the President to designate a Deputy Director as Acting Director. President Obama followed this procedure by appointing Deputy Director DeMarco as Acting Director after Director Lockhart's resignation. The Supreme Court has affirmed that an acting official filling a principal officer's vacancy is an inferior officer, and since Congress authorized the President to make such designations, there were no violations of the Appointments Clause in this scenario. DeMarco's tenure ended upon the appointment of a new Director, aligning with the Recovery Act's provisions.
Section 4512(b) does not permit the appointment of an Acting Director following the removal of the FHFA Director. Before the Supreme Court's decision in Collins, the President could only remove the FHFA Director for cause. The provision limiting the appointment of an Acting Director to instances of death, resignation, illness, and absence mitigates risks of presidential overreach through unilateral removal without Senate consent. Congress retains the authority to impose time limits on acting officials, as seen in other statutes. In this case, there is no violation of the Appointments Clause, nor is there a justification for imposing a time limit on acting officials based on constitutional or statutory frameworks.
The Collins decision confirmed the President's ability to remove the FHFA Acting Director at will and indicated that actions taken by the FHFA under the third amendment were valid. Shareholders' claims that Acting Director DeMarco served unconstitutionally are unconvincing. They argue that historical practices and constitutional text suggest limitations on acting officials, but Congress has not set any time constraints for the FHFA Acting Director. While Congress has enacted time limits for some agencies under the Federal Vacancies Reform Act (FVRA), it has chosen not to impose similar restrictions for the FHFA. The shareholders' assertion that historical norms should influence the interpretation of the Recovery Act is also dismissed as lacking merit in the context of modern statutory analysis.
Shareholders cite NLRB v. Noel Canning to assert that only longstanding historical practices should significantly influence interpretations of the separation of powers. In Noel Canning, the Supreme Court emphasized the importance of historical practice while also considering the text of the Recess Appointments Clause, the opinions of presidential legal advisers, and the relationship between the Clause and congressional acts. The shareholders overlook that the Court acknowledged a practice lasting at least twenty years, involving executive action accepted by Congress, is significant in interpreting constitutional provisions with ambiguous wording. The President has utilized acting officers for over twenty years without congressional time restrictions, indicating long-standing congressional acquiescence to the necessity of temporary appointments during vacancies caused by disagreements between the President and the Senate. The shareholders inaccurately characterize acting officials as a recent occurrence and argue that DeMarco's service was no longer temporary when he signed the third amendment. However, DeMarco's role was indeed temporary, contingent upon the appointment of a successor, as supported by statutory provisions. The shareholders also reference the Recess Appointments Clause to claim that a presidentially designated acting officer can serve for a maximum of about two years. While this clause allows the President to fill vacancies during Senate recesses, acting officials do not fall under this classification, and there is no constitutional or legal precedent suggesting the Recess Appointments Clause applies to them. The justifications for the limited duration of recess appointments differ from those for acting officer appointments.
The Recess Appointments Clause pertains to how vacancies are filled during Senate recess periods, emphasizing a need for fixed appointment durations after the Senate reconvenes. The practice of appointing acting officers does not align with the Recess Appointments Clause, as such appointments can occur at any time without a defined duration. Historical and textual analysis shows no connection between the Recess Appointments Clause and the designation of acting officials. While a two-year limit on acting appointments might seem reasonable, enforcing the Recess Appointments Clause's limit on such officials would be arbitrary. Shareholders argued that a functionalist perspective indicated DeMarco's appointment violated the Appointments Clause, citing an OLC memorandum related to the Acting Director of OMB. However, the Court found no constitutional violations, as Congress permitted the President to appoint an Acting Director under the Recovery Act, which DeMarco's appointment adhered to. His role ceased with the new Director's appointment, and the statute does not allow for an Acting Director in cases of removal. Prior to the Collins decision, the President could only remove the FHFA Director under specific circumstances. This limitation prevents potential abuse of power by the President. The Court concluded there was no Appointments Clause violation and no need to impose a time limit on acting officials. Furthermore, while the Collins case focused on the constitutionality of removal restrictions in the Recovery Act, it also addressed the role of the FHFA’s Acting Director.
The Court determined that the President can remove the Acting Director of the Federal Housing Finance Agency (FHFA) at will, stating that actions taken by the FHFA regarding the third amendment are not void and that the FHFA head possesses the authority to perform their duties. Shareholders presented two arguments asserting that Acting Director DeMarco's service was unconstitutional during his tenure, both of which were found unpersuasive.
First, they claimed that constitutional text, history, and precedent indicated DeMarco's service was unconstitutional when he signed the third amendment due to limited congressional authorization for presidential appointment of acting officials. However, Congress has not imposed time limits on the FHFA Acting Director’s tenure, unlike provisions in the Federal Vacancies Reform Act (FVRA), which allows interim acting officers to serve for limited periods. The FVRA also specifies that it applies only where no statute permits the President to designate an acting official without such limits.
The shareholders contended that historical practice favored imposing statutory limits on acting officers and referenced NLRB v. Noel Canning to argue that only longstanding practices should be significant in separation-of-powers considerations. Additionally, a dissenting opinion suggested a six-month limit on acting officer tenure, based on historical practices. However, the dissent’s interpretation of historical practice was deemed incorrect in this context.
Acting officers historically served until a permanent officeholder resumed duties or a successor was appointed, with Congress initially allowing this for six months. Over time, Congress adjusted the limits: to ten days in 1868, thirty days in 1891, and extended to 120 days in the 1980s. The Federal Vacancies Reform Act (FVRA) of 1998 set the maximum tenure for acting officials at 210 days unless a nomination is pending in the Senate. The dissent argues that this historical limit suggests the Constitution prohibits tenures beyond six months. However, it is posited that Congress has the authority to set these limits and has done so based on policy preferences, rather than being constitutionally constrained.
The Court also emphasized that historical practice is not solely definitive, considering the text of the Appointments Clause, opinions of presidential legal advisers, and Congressional actions. It noted that a long-standing executive practice, accepted by Congress, is significant in interpreting ambiguous constitutional provisions. Over the past twenty years, the President has appointed acting officers without Congressional time restrictions, indicating acceptance of this practice due to vacancies arising from disagreements between the President and the Senate.
Shareholders' claims that acting officials are a recent development are countered by the observation that DeMarco's service was temporary, terminating with the appointment of a successor. The Court referenced prior case law to affirm that the absence of a set time limit does not preclude an appointment being considered temporary, and shareholders failed to identify cases addressing the timeliness of confirmations or defining "limited time" or "special and temporary conditions."
Shareholders argue that under the Recess Appointments Clause, a presidentially designated acting officer may serve for a maximum of about two years, as established by Supreme Court interpretations. This clause allows the President to fill vacancies during Senate recess, but it does not apply to acting officials appointed at any time. The rationale for limiting recess appointments differs from that of designating acting officers, as the latter can occur at any moment and for an indeterminate duration. Historical precedent and constitutional language do not support applying the two-year limit of the Recess Appointments Clause to acting officials. Congress may impose its own limits on acting officials but has not done so in a way that impacts this practice. The district court concluded that arbitrarily extending the two-year limit to acting officials would be unreasonable. Additionally, shareholders cite a functionalist approach, referencing an Office of Legal Counsel memorandum suggesting that while there is no statutory limit on the Acting Director's term, acting service should not extend beyond a reasonable period. This implies that DeMarco's service might violate the Appointments Clause based on the context of "reasonableness."
DeMarco’s tenure as an acting official was deemed excessively long, with shareholders failing to justify the legal significance of an agency’s internal memorandum, which merely advises the Executive Branch without establishing enforceable judicial standards. The district court highlighted that the Office of Legal Counsel (OLC) memo lacks a manageable standard for judicial review concerning an acting official's duration of service. Furthermore, shareholders' proposed reasonableness standard is inappropriate for interpreting the Appointments Clause.
Shareholders also claimed that the unconstitutional removal restriction in the Recovery Act harmed them, but the district court disagreed. Following the Supreme Court's decision in Collins, which deemed the removal restriction unconstitutional, the case was reversed and remanded to assess potential compensable harm to shareholders. The Court emphasized that the Acting Director, who implemented the third amendment, could be removed at will, undermining shareholders' argument for invalidating the amendment entirely. However, the Court acknowledged the possibility of retrospective relief for actions taken by confirmed Directors, noting skepticism about shareholders’ claims due to the lack of constitutional defects in those appointments. Shareholders referenced a statement by former President Trump as evidence of harm caused by the removal restriction, asserting that it indicated potential compensable harm.
Former Congressman Mel Watt's removal from the position of Director of the Federal Housing Finance Agency (FHFA) is proposed, along with the assertion that the FHFA should release Fannie Mae and Freddie Mac from conservatorship. The statement argues for the sale of government stock in these companies for profit and advocates for their full privatization. It criticizes the Obama/Biden administration's financial policies as socialist, claiming the government unlawfully takes money from citizens.
The document notes a legal challenge regarding the constitutionality of the removal restriction on Watt, which has implications for shareholders seeking relief. The shareholders assert that if President Trump had the authority to remove Watt, he would have appointed a Director aligned with his administration's policies. They request an injunction to restore their financial positions as if Trump's policies had been enacted, including the cancellation of Treasury's liquidation preference or conversion of its preferred stock to common stock.
The federal parties contest that this is a new claim for prospective relief made at the appellate level. They argue that the shareholders' amended complaint primarily seeks retrospective relief related to dividend payments under the third amendment's net worth sweep. The court is urged to view these requests as tethered to the constitutional argument against the removal restriction.
Speculation exists regarding whether Trump would have indeed removed Watt or whether a replacement would have pursued the requested financial adjustments. The document references Justice Gorsuch's partial concurrence in a related case, highlighting the uncertainty surrounding the potential actions of Trump's administration.
Shareholders’ Amended Complaint alleges that Fannie Mae and Freddie Mac paid Treasury a total of $215.6 billion in net worth sweep dividends between January 2013 and June 2017, which exceeds the amounts received by $83.3 billion. The complaint also states that Treasury's liquidation preference amounts to $117 billion for Fannie and $72 billion for Freddie. The court references a concurrence by Justice Gorsuch, highlighting the speculative nature of constructing a counterfactual history regarding legislative actions, particularly concerning the constitutionality of the statutory scheme. Justice Thomas, in his concurrence, expresses skepticism about shareholders proving any constitutional violations by the FHFA Director, suggesting that without unlawful actions, no remedy is warranted.
The majority ruling in Collins indicated that the remedy for the FHFA Director's unconstitutional insulation from removal should involve remanding for further consideration of whether the removal restriction harmed shareholders. The district court previously found that the alleged injuries were unconnected to the removal restriction since it was adopted by an Acting Director, but it lacked guidance from the Collins ruling. The current decision remands to the district court to assess potential compensable harm to shareholders due to the unconstitutional removal restriction.
The court reversed the district court's conclusion that shareholders' Appointments Clause claim was a nonjusticiable political question, affirming that Acting Director DeMarco did not violate the Appointments Clause with the third amendment. A dissent from Circuit Judge Thapar emphasizes that the Constitution's language is intentional, arguing against allowing deviations from the Appointments Clause, particularly concerning unconfirmed appointments during crucial governmental roles. The background of this case relates to the founding of Fannie Mae and Freddie Mac during efforts to assist American homebuyers, following the 2008 mortgage crisis.
Companies purchased existing mortgages from banks, allowing banks to issue new loans, and then bundled these mortgages to sell shares, a process known as securitization. This bundling reduced risk for investors; a default on one mortgage would not result in total loss, as other mortgages in the bundle could still be profitable. As a result, more investors entered the market, expanding access to mortgages for Americans and benefiting Fannie Mae and Freddie Mac. Following Congress's decision to privatize these companies, their shareholders also profited, with their combined mortgage portfolios reaching $5 trillion, nearly half of the national market.
The 2008 market collapse significantly impacted Fannie and Freddie, prompting Congressional concern over their potential failure, which could have worsened the economic crisis. In response, Congress enacted the Housing and Economic Recovery Act (HERA), which empowered the Federal Housing Finance Agency (FHFA) director to place the companies into conservatorship for rehabilitation. On September 6, 2008, the FHFA director initiated this conservatorship and subsequently negotiated with the Treasury Department for a capital infusion in exchange for repayment guarantees.
The Third Amendment, signed on August 17, 2012, by acting FHFA director Edward DeMarco, entailed Treasury receiving nearly all of the companies' net worth in exchange for providing them with an unlimited credit line. Although portrayed as a necessary measure during a crisis, the companies had returned to profitability, leading to substantial profits being redirected to Treasury instead of benefiting the companies or their shareholders. This arrangement resulted in over $215 billion being paid to Treasury, significantly more than what would have occurred under prior agreements. In 2017, shareholders initiated legal action against the Third Amendment, alleging that DeMarco's tenure as acting FHFA director violated the Appointments Clause, as he had not been confirmed by the Senate during his tenure leading up to the signing of the Amendment.
Shareholders contend that DeMarco’s tenure as an unconfirmed acting officer violated the Appointments Clause by the time the Third Amendment was signed, rendering the amendment void. The government, including the FHFA and its director, moved to dismiss the claims, which the district court granted, ruling that the duration of an unconfirmed acting officer's service is a nonjusticiable political question. The shareholders are appealing this decision, asserting that the issue is justiciable and that DeMarco indeed violated the Appointments Clause.
The Appointments Clause is viewed as a critical constitutional safeguard, established to prevent abuses of power seen under royal appointments prior to independence. The Framers of the Constitution sought to separate appointment powers between the President and the Senate to ensure both effective administration and accountability. While the President nominates candidates, the Senate’s role is to provide advice and consent, ensuring that only qualified individuals fill vacancies. The historical context emphasizes the importance of this division to protect against tyranny and to hold the President accountable for nominations.
The Framers of the Constitution were concerned that an unchecked President could misuse the appointment power, similar to a monarchy, by favoring allies or family members for significant positions. To mitigate this risk, they established a system where the Senate must confirm presidential nominations, creating a supervisory dynamic. This process incentivizes the President to nominate qualified candidates, as rejection could lead to political embarrassment and hinder legislative goals or reelection efforts. Additionally, the Senate shares responsibility for both poor appointments and the rejection of suitable candidates, which underscores their accountability in the process.
The Appointments Clause differentiates between principal and inferior officers. Principal officers require both presidential nomination and Senate confirmation, while Congress can assign the appointment of inferior officers to various authorities, including the President. Although the Appointments Clause does not explicitly mention acting officers, these individuals typically fill vacancies temporarily and are often classified as inferior officers. Congress has historically authorized such appointments, particularly during vacancies or emergencies, a practice upheld by the Supreme Court.
Data indicate that from 1981 to 2020, the number of acting officers in cabinet positions was nearly equal to that of confirmed secretaries, highlighting the prevalence of acting officers despite limited documentation. The text concludes with a need to evaluate whether a specific individual’s tenure as an acting officer adheres to the established norms and limitations of the Appointments Clause, recognizing that statutory constraints may apply to their duration in office.
Three tests are proposed to determine when an acting officer has exceeded their permissible tenure. The first test is based on historical practice, which establishes a six-month limit for acting officers filling regular vacancies. Service beyond six months is typically deemed unconstitutional, a principle that originates from legislation enacted in 1792 and 1795 by Congress. Although Congress has authorized the appointment of an acting FHFA Director under 12 U.S.C. § 4512(f), it remains unclear whether the President can appoint an acting official without congressional approval.
The case of United States v. Eaton suggests that the acting-officer exception is valid, contradicting the notion that such an exception does not exist. Historical practices provide significant insight into constitutional interpretations and indicate that a six-month limit is widely accepted, reflecting both English legal traditions and over two centuries of congressional practice. The absence of explicit acknowledgment of the acting-officer exception in the Constitution suggests it should be narrowly construed, although historical practices, especially those from the early Congresses and President Washington's administration, carry considerable weight in shaping this interpretation.
While the majority opinion emphasizes the lack of an express limit in the 1792 Act, this absence does not invalidate the six-month tenure established later. The context of early congressional actions and the practices of the Washington administration further reinforce the six-month limit, which also aligns with historical English law that restricted officers to a maximum of six months following the King's death. Additionally, United States v. Eaton introduces a narrow exception for circumstances where vacancies arise from unforeseen events, such as illness abroad.
Andrew Hyman argues that historical and legal precedents suggest a six-month limit on the tenure of acting Cabinet secretaries, a view supported until Congress enacted the Federal Vacancies Reform Act in 1998. Although acting officers can serve beyond six months under "special and temporary conditions," such as those outlined in the Eaton case, the circumstances surrounding DeMarco's appointment do not qualify as either special or temporary, as he served for three years following a resignation from the previous administration.
The Constitution's Appointments Clause indicates that an acting officer may serve until the current Senate expires, allowing for a tenure of up to two years, which aligns with the Recess Appointments Clause. This interpretation suggests that DeMarco's service should have ended on January 8, 2011, when the 111th Senate concluded, well before the signing of the Third Amendment.
Additionally, a 1977 Office of Legal Counsel opinion introduces a reasonableness standard for the tenure of acting officers, identifying six factors to determine what constitutes a reasonable duration. These factors include the nature of the duties, the cause of the vacancy, the timing of the vacancy, whether a nomination has been sent to the Senate, and the President's focus on the appointment.
Factors influencing the President's appointment choices, such as the desire to evaluate an acting officer's performance, illustrate the flexible standard in addressing vacancies. However, this flexibility lacks foundation in the Appointments Clause, historical practices, or constitutional structure, raising concerns about predictability for the government and public. The vagueness of the standard could lead to difficult policy evaluations best suited for political branches, and may discourage judicial courage in challenging actions of the elected branches.
Specifically, the case of DeMarco demonstrates a violation of the Appointments Clause: he held a significant position overseeing a vast mortgage industry during a crisis but was appointed under routine circumstances with minimal effort from the President to find a permanent replacement. Between his appointment and a key amendment, only one nomination was submitted to the Senate, which was quickly rejected. This evidence fails to justify the reasonableness of DeMarco’s three-year tenure.
Counterarguments suggesting that Congress authorized DeMarco's indefinite service through 12 U.S.C. § 4512(f) are unconvincing. While that statute allows deputies to serve as acting Director, it does not impose a time limit for such service. The government also abandoned a potential argument related to agency law that could have upheld the validity of actions taken by an invalidly appointed officer. Overall, no interpretation of the Appointments Clause would support an acting officer bypassing confirmation for three years, rendering DeMarco's actions unlawful.
The court references a previous case, Bhatti v. FHFA, which upheld the validity of the transaction in question. However, the government forfeited its argument regarding ratification by not presenting it in the district court, and did not adequately develop the argument despite being notified of this oversight by shareholders in their opening brief. During oral arguments, the government acknowledged this failure but did not specify any "extraordinary circumstances" that might warrant forgiveness of the forfeiture. The court emphasized it is not its role to create arguments for parties.
The majority's interpretation allows for an acting FHFA director to serve indefinitely until a new director is appointed, which the court argues contradicts constitutional principles and precedents concerning the separation of powers. The Framers intended to divide the appointment power to ensure Senate vetting, thereby safeguarding against cronyism and protecting the public from unsuitable appointees. This vetting process is deemed essential and cannot be waived for convenience.
The government’s reliance on historical practices to justify the lengthy tenure of acting officers is deemed unpersuasive. The court argues that historical examples from the last three decades do not reflect the original understanding of the Constitution at its founding. Congressional authorization without limits on the duration of acting officers does not negate constitutional requirements. The absence of challenges to potentially unconstitutional practices does not imply their legality, and the court maintains that silence in statutes should be interpreted as preserving constitutional limits on tenure. It concludes that even if Morrison v. Olson is still relevant, it does not support the indefinite service implied by the majority's reasoning.
The Supreme Court in Morrison classified the independent counsel's term as "temporary" due to a self-executing limit, as her tenure ended with the completion of her investigation. In contrast, HERA lacks such a limit, allowing DeMarco to indefinitely perform his duties, akin to a cabinet secretary whose tenure depends solely on presidential will. The Senate’s rejection of a presidential nominee does not reset an acting officer's tenure; it begins from the date the vacancy is filled. This prevents the President from circumventing the Appointments Clause through repeated unconfirmable nominations. The issue of an acting officer's status is justiciable, as demonstrated in Eaton, where the Supreme Court addressed an Appointments Clause challenge. Current doctrine maintains that a matter is nonjusticiable only if it is constitutionally committed to a political branch or lacks judicially manageable standards—neither applies here. The text of the Appointments Clause permits judicial review, contrasting with the Senate's sole power in impeachment. While identifying an Appointments Clause violation exists, remedies historically have been limited. The writ of quo warranto and the de facto officer doctrine were primary legal mechanisms to challenge improper appointments, allowing for inquiries into the legitimacy of an official's office.
Most states in America have historically allowed attorneys general to initiate quo warranto actions on behalf of the public, in accordance with common law and statutory provisions. A federal version of this writ is still in use today, as seen in the D.C. Code. Certain jurisdictions permit relators to bring such suits, exemplified by the case Newman v. United States ex rel. Frizzell.
Quo warranto specifically addresses the right of an official to hold office, while the de facto officer doctrine pertains to the validity of an official's actions, even if their appointment is later deemed invalid. This doctrine asserts that an error in appointment does not invalidate the official's actions unless the official is a “mere usurper.” The de facto officer doctrine has significant historical roots and is respected in legal practice, applying even to constitutional claims.
This legal framework aims to maintain stability in government operations by allowing reliance on official acts without the risk of sudden invalidation due to challenges against appointments. The regime governing these remedies and limitations provided structure to appointments litigation for over 150 years. However, in 1962, the Supreme Court's decision in Glidden Co. v. Zdanok weakened the de facto officer doctrine, portraying it as a forfeiture rule against late challenges. The subsequent case of Ryder v. United States further eroded the doctrine, allowing constitutional challenges to take precedence over the prior established protections.
The Court declined to apply the de facto officer doctrine in Glidden due to the involvement of "basic constitutional protections." This decision was seen as a policy to encourage challenges to the Appointments Clause. Consequently, the Court established a new rule that any timely Appointments Clause challenge merits a decision on its merits and potential relief. Previous applications of the de facto officer doctrine in similar cases were limited, with the Court expressing reluctance to extend those precedents. The principle was reaffirmed in Lucia v. SEC, where the Court invalidated an Administrative Law Judge’s appointment and reiterated that timely Appointments Clause challenges warrant relief, reinforcing the incentive to challenge such appointments. The dissent emphasizes that the Constitution's structural protections, akin to individual rights, should not be disregarded, arguing against the majority's approach to the Appointments Clause.
