938 F.3d 553 (5th Cir. 2019), 17-20364, Collins v. Mnuchin

Docket Nº:17-20364
Citation:938 F.3d 553
Party Name:Patrick J. COLLINS; Marcus J. Liotta; William M. Hitchcock, Plaintiffs-Appellants, v. Steven T. MNUCHIN, Secretary, U.S. Department of Treasury; Department of the Treasury; Federal Housing Finance Agency; Mark A. Calabria, Director of the Federal Housing Finance Agency, Defendants-Appellees.
Attorney:Charles Justin Cooper, Brian W. Barnes, Esq., Peter A. Patterson, David H. Thompson, Cooper & Kirk, P.L.L.C., Washington, DC, Chad Flores, Esq., Beck Redden, L.L.P., Houston, TX, for Plaintiffs-Appellants. Abby Christine Wright, Hashim M. Mooppan, Esq., Gerard J. Sinzdak, Mark Bernard Stern, Esq....
Judge Panel:Before STEWART, Chief Judge, JONES, SMITH, DENNIS, OWEN, ELROD, SOUTHWICK, HAYNES, GRAVES, HIGGINSON, COSTA, WILLETT, HO, DUNCAN, ENGELHARDT, and OLDHAM, Circuit Judges. DON R. WILLETT, Circuit Judge, joined by JONES, SMITH, OWEN, ELROD, HO, DUNCAN, ENGELHARDT, and OLDHAM, Circuit Judges: HAYNES,...
Case Date:September 06, 2019
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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938 F.3d 553 (5th Cir. 2019)

Patrick J. COLLINS; Marcus J. Liotta; William M. Hitchcock, Plaintiffs-Appellants,

v.

Steven T. MNUCHIN, Secretary, U.S. Department of Treasury; Department of the Treasury; Federal Housing Finance Agency; Mark A. Calabria, Director of the Federal Housing Finance Agency, Defendants-Appellees.

No. 17-20364

United States Court of Appeals, Fifth Circuit

September 6, 2019

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Appeal from the United States District Court for the Southern District of Texas, Nancy F. Atlas, U.S. District Judge

Charles Justin Cooper, Brian W. Barnes, Esq., Peter A. Patterson, David H. Thompson, Cooper & Kirk, P.L.L.C., Washington, DC, Chad Flores, Esq., Beck Redden, L.L.P., Houston, TX, for Plaintiffs-Appellants.

Abby Christine Wright, Hashim M. Mooppan, Esq., Gerard J. Sinzdak, Mark Bernard Stern, Esq., U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendants-Appellees Steven T. Mnuchin, Secretary, U.S. Department of Treasury, Department of the Treasury.

Howard N. Cayne, Ian S. Hoffman, Robert J. Katerberg, Dirk Phillips, Esq., Asim Varma, Esq., Arnold & Porter Kaye Scholer, L.L.P., Washington, DC, for Defendant-Appellee Federal Housing Finance Agency, Mark A. Calabria, Director of the Federal Housing Finance Agency.

Katharine M. Mapes, Jeffrey Michael Bayne, Esq., Spiegel & McDiarmid, L.L.P., Washington, DC, for Amici Curiae Harold H. Bruff, Gillian E. Metzger, Peter M. Shane, Peter L. Strauss, Paul R. Verkuil.

Scott Lawrence Nelson, Public Citizen Litigation Group, Washington, DC, for Amicus Curiae Public Citizen, Incorporated.

Elizabeth Bonnie Wydra, Chief Counsel, Constitutional Accountability Center, Washington, DC, for Amici Curiae Sherrod Brown, Senator of Ohio, Catherine Cortez Masto, Senator of Nevada, Chris Van Hollen, Senator of Maryland, Elizabeth Warren, Senator of Massachusetts, Maxine Waters, Representative of California, William Lacy Clay, Representative of Missouri, Emanuel Cleaver, Representative of Missouri, Al Green, Representative of Texas, Carolyn B. Maloney, Representative of New York, Gregory W. Meeks, Representative of New York, Nancy Pelosi, Representative of California, Brad Sherman, Representative of California, Juan Vargas, Representative of California, Nydia M. Velazquez, Representative of New York.

Before STEWART, Chief Judge, JONES, SMITH, DENNIS, OWEN, ELROD, SOUTHWICK, HAYNES, GRAVES, HIGGINSON, COSTA, WILLETT, HO, DUNCAN, ENGELHARDT, and OLDHAM, Circuit Judges.

OPINION

DON R. WILLETT, Circuit Judge, joined by JONES, SMITH, OWEN, ELROD, HO, DUNCAN, ENGELHARDT, and OLDHAM, Circuit Judges:

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The bicentennial of the United States Constitution in 1987 celebrated our Founding generation’s ingenious system of separated powers: legislative, executive, and judicial. The Constitution inaugurated a revolutionary design. Madisonian architecture infused with Newtonian genius— three separate branches locked in synchronous orbit by competing interests. "Ambition ... made to counteract ambition," explained Madison, making clear that this law of constitutional motion, using friction to combat faction, was a feature, not a bug.1 Our Constitution’s most essential attribute, the separation of powers, presumes conflict, which, counterintuitively, produces equilibrium as the branches behave not as willing partners but as wary rivals. And our Constitution’s paramount aim, preserving individual liberty, presumes that branches will behave neither centripetally (seizing other branches’ powers) nor centrifugally (ceding their own), but jealously (defending their assigned powers against encroachment). No mere tinkerers, the Framers upended things. Three rival branches deriving power from three unrivaled words— "We the People"— inscribed on the parchment in supersize script. In an era of kings and sultans, nothing was more audacious than the Preamble’s first three words, a script-flipping declaration that ultimate sovereignty resides not in the government but in the governed.

The Constitution’s 200th birthday coincided with a centennial, the 100th birthday of the federal administrative state.2 Congress’s passage in 1887 of the Interstate Commerce Act, making railroads the first industry subject to federal regulation, and the Act’s creation of the nation’s first federal regulatory body, the Interstate Commerce Commission, profoundly altered the Framers’ tripartite structure. The ICC was an amalgam of all three powers, blending functions of all three branches. The administrative state has sprouted since then. But this iron truth endures: Even the most well-intentioned bureaucrats, no less than presidents, legislators, and judges, are bound by constitutional principles. An agency is restrained by the four corners of its enabling statute and "literally has no power to act ... unless and until Congress confers power upon it."3 And Congress, when creating agencies, is itself constrained— at all times— by the separation of powers.

* * *

The plaintiffs (the Shareholders) own shares in Fannie Mae and Freddie Mac. In 2008 Fannie and Freddie’s new regulator, the Federal Housing Finance Agency, placed them in conservatorship. FHFA secured financing from the Treasury to keep

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Fannie and Freddie afloat. That relationship continued, and in 2012 FHFA and Treasury adopted a Third Amendment to their financing agreements. Under the Third Amendment, Fannie and Freddie give Treasury nearly all their net worth each quarter as a dividend.

The Shareholders have two principal objections to this arrangement:

First, the Third Amendment exceeded FHFA’s statutory powers. FHFA’s enabling statute gives it general powers to use as either conservator or receiver. The statute grants other, more directed powers to FHFA as conservator or receiver respectively. As conservator, the agency may take actions "(i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity."4 These enumerated conservator powers don’t vanish in the glare of the more general ones. Congress created FHFA amid a dire financial calamity, but expedience does not license omnipotence. The Shareholders plausibly allege that the Third Amendment exceeded FHFA’s conservator powers by transferring Fannie and Freddie’s future value to a single shareholder, Treasury. In Parts I-VI of this opinion, a majority of the en banc court holds that this claim survives dismissal under Federal Rule of Civil Procedure 12(b)(6).

Second, the Shareholders argue that FHFA lacked authority to adopt the Third Amendment because its Director was not removable by the President. We adhere to the panel’s reasoning and conclusion that FHFA’s design, an independent agency with a single Director removable only "for cause," violates the separation of powers.5 In Parts VII-VIII of this opinion, a majority of the en banc court holds that the Director’s "for cause" removal protection is unconstitutional.

The remaining question is what remedy the Shareholders are entitled to. A different majority of the en banc court holds that prospective relief is the proper remedy. In Judge Haynes’s opinion,6 a majority holds that the Shareholders can only obtain a declaration that the FHFA’s structure is unconstitutional.

We REVERSE the judgment dismissing Count I and REMAND that claim for further proceedings. We AFFIRM the judgment dismissing Counts II and III. The court REVERSES the judgment as to Count IV and REMANDS that claim for entry of judgment that the "for cause" removal limitation in 12 U.S.C. § 4512(b)(2) is unconstitutional.

I

During last decade’s housing-market crisis, Congress passed and President George W. Bush signed the Housing and Economic Recovery Act of 2008 (HERA).7 The statute created FHFA as an independent agency to oversee the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie and Freddie are government-sponsored entities (GSEs) that also have private shareholders, including the plaintiffs in this case. Some background on FHFA and the GSEs is useful.[8]

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A

Congress created Fannie Mae in 1938.9 Its purposes include "provid[ing] stability in the secondary market for residential mortgages," "increasing the liquidity of mortgage investments," and "promot[ing] access to mortgage credit throughout the Nation."[10] Congress created Freddie Mac in 1970 to "increase the availability of mortgage credit for the financing of urgently needed housing."11 Among other activities, Fannie and Freddie purchase mortgages originated by private banks, bundle the mortgages into income-producing securities, and sell the securities to investors.

In 2007, mortgage delinquencies and defaults sparked a bank liquidity crisis that kindled a recession. At the time, Fannie and Freddie controlled combined mortgage portfolios of approximately $5 trillion— nearly half the United States mortgage market. They suffered multi-billion dollar losses. Indeed, the GSEs lost more in 2008 ($108 billion) than they had earned in the previous thirty-seven years combined ($95 billion).12 But they remained solvent because they had taken a relatively conservative mortgage-investing approach. They continued to support the United States home-mortgage system as distressed banks failed.

In 2008, the President signed HERA...

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