Summary
- In a prior SA article, I posited that the Seila SCOTUS case would incentivize FHFA/Treasury to commence settlement negotiations that presage taking the GSEs out of conservatorship.
- On March 3, 2020, SCOTUS heard oral argument in Seila, and as I set forth below, I believe my thesis is intact, although still subject to risk.
- This article discusses the Seila SCOTUS oral argument, the likely Seila outcome, and its effect upon the Collins case and the GSEs' path out of conservatorship.
- The final article on this thesis will be published when SCOTUS delivers its Seila opinion, expected summer 2020.
In For Fannie and Freddie Shareholders, The Road To Litigation Settlement Runs Through Seila, I asserted, before SCOTUS held oral argument in Seila, that the Seila case would act as a proxy for the Collins case, previewing how SCOTUS would decide Collins (which is currently on hold at SCOTUS). I also asserted that this preview would not be propitious for FHFA and Treasury, since I expect the result in Seila would presage an adverse result for FHFA and Treasury in Collins. If so, this preview should rationally incentivize FHFA and Treasury to pursue settlement negotiations with GSE litigating shareholders in Collins sometime this late summer/fall after the Seila decision is released, well in advance of the timeframe GSE shareholders might expect based solely on any SCOTUS review of Collins itself (Collins would likely not be decided until 2021 if granted certiorari).
Now that SCOTUS has heard oral argument in Seila on March 3, 2020, it is time to reconsider my thesis. The Seila oral argument transcript is worth reading in connection with this article, as I will refer to it periodically. [Just as this article “went to press,” Oyez published its transcript aligned with audio at Seila Law LLC v. Consumer Financial Protection Bureau, which readers may want to read and listen to.]
The Thesis (and Its Risks)
The thesis in For Fannie and Freddie Shareholders, The Road To Litigation Settlement Runs Through Seila holds that SCOTUS will invalidate the single agency director removable for cause provision of the portion of the Dodd Frank statute (Title X) that created the CFPB, and grant plaintiff Seila retrospective relief for making a timely constitutional challenge to this provision. This retrospective relief would void the civil investigative demand (CID) (essentially a subpoena to produce documents) that the CFPB issued to Seila.
I also posited in this earlier article that SCOTUS would refrain from granting prospective relief, such as severing the removal for cause provision (leaving the rest of Title X intact) or invalidating Title X in its entirety. I believed that since Seila only asked for retrospective relief in its briefing, SCOTUS would feel obligated to refrain from considering prospective relief. In contrast, in Free Enterprise, a case in which SCOTUS granted prospective relief in a separation of powers case, SCOTUS was asked by the plaintiff to enjoin future operation of the PCAOB and did not request any retrospective relief, so that SCOTUS could only provide plaintiff the relief it requested in that case by taking up the question of prospective relief.
Looking at Seila through the lens of Collins, it is crucial that Seila obtains retrospective relief upon a finding that the removal provision is unconstitutional. In Collins the 5th Circuit en banc found the FHFA single agency director removal for cause provision unconstitutional, but granted only prospective relief by severing that provision from HERA. The 5th Circuit en banc denied plaintiffs the retrospective relief of invalidating the Net Worth Sweep (NWS). At least two judges, swing votes in the 9-7 decision on constitutional remedy, believed that prospective relief but not retrospective relief was mandated by SCOTUS precedent.
