The Bureaucracy Declares Independence From The Constitution

In Friday's post I linked to an article by Deroy Murdock that listed some 36 accomplishments of the Trump administration for which we should be thankful at this season of Thanksgiving.  But there's one item that Deroy omitted that may be the most important of all:  the Trump administration has shone the light that makes it abundantly clear how anti-constitutional our federal government and its bureaucracy have become.

Let's face it, so long as a Barack Obama or a Bill Clinton was President -- or for that matter, a George H.W. or W. Bush -- it didn't really matter a whole lot what would happen if the President wanted to change the policy direction of the bureaucracy.  That was because on every (Obama, Clinton) or nearly every (Bush 41 and 43) issue, the President was perfectly happy to go along with whatever the bureaucracy wanted to do.   Now, with Trump, not so much.  So now we get to see what happens when the people elect a new President who wants the bureaucracy to change policy direction.  Does the election count?  Or do the bureaucrats get to continue to do whatever they want and tell the newly-elected President to get lost?

I already covered a few early skirmishes in this incipient war.  Back in February, in a post titled "The Bureaucrats Think That They Don't Answer To The President," it was Acting Attorney General Sally Yates (an Obama holdover still in office due to the delayed confirmation of Jeff Sessions) purporting to direct the Justice Department not to enforce President Trump's just-issued Executive Order on immigration.  Yates asserted that she was entitled to countermand a direct order from the President because an opinion from Justice's Office of Legal Counsel (finding the Executive Order to be presumptively legal) did "not address whether any policy choice embodied in an executive order is wise or just. . . ."  Deep constitutional thinking there, Sally!  However, Trump promptly fired Yates, and she left office.  In July, in a post titled "Government Employees Systematically Violating Their Oaths Of Office," it was a bureaucrat and climate change activist in the Interior Department named Joel Clement.  Clement found himself transferred to another section of Interior where he could not continue to carry on his climate change activism.  He then took to the press declaring himself to be a "whistleblower," and filed a "complaint" with something called the "U.S. Office of Special Counsel," because "[r]emoving a civil servant from his area of expertise and putting him in a job where he’s not needed and his experience is not relevant is a colossal waste of taxpayer dollars."  Even deeper constitutional thinking, Joel!  Once again, however, it appears that Clement accepted his transfer (although presumably his "complaint" continues to wend its way through the adjudication process).

But these were only the warm-ups.  On Friday, we saw the ultimate maneuver of bureaucratic chutzpah.  Richard Cordray, head of the wildly unconstitutional Consumer Financial Protection Bureau, on the Friday after Thanksgiving, suddenly moved up his previously announced resignation from the agency.  Within hours, President Trump had announced an acting-director successor, Mick Mulvaney (also current head of OMB).  The President has the power under something called the Federal Vacancies Act to install as acting director of any agency anyone in the administration who has previously received Senate confirmation to any position.  But wait!  Just hours before, according to an excellent summary from Politico here, Cordray had purported to install the CFPB's chief of staff, one Leandra English, as "Deputy Director."  The Dodd-Frank Act of 2010 provides that the Deputy Director “serve[s] as acting Director in the absence or unavailability of the Director."   Whereupon Cordray sent a note to CFPB staff openly defying the President in his right to name the successor:  "Upon my departure, [English] will become the acting Director pursuant to section 1011(b)(5) of the Dodd-Frank Act."    

So the battle lines are clearly drawn.  Who is in charge at the CFPB:  Mulvaney or English?  Or to put it another way, does the President have any say or control over this particular corner of the bureaucracy, or is CFPB a self-perpetuating agency outside of the Constitution where the director can appoint his own successor without any input from anyone else?

To get the full scoop on what I just called the "wildly unconstitutional" CFPB, the best place to go is the October 2016 decision of the D.C. Circuit in PHH Corp. v. CFPB, written by Judge Brett Kavanaugh.  (Kavanaugh, by the way, is one of the guys on President Trump's list of potential Supreme Court nominees.)  Unfortunately, the decision is over 100 pages long, but I'm going to do my best to summarize it for you briefly.  The CFPB is the deformed brainchild of Massachusetts Senator Elizabeth Warren, who crafted an agency with a single unfirable director and funding outside of all normal budget procedures, thinking she would get the job of Director and could run her own completely independent fiefdom in the government; but then she didn't get the job and it went to Cordray.  The bottom line of the D.C. Circuit decision is that the CFPB was declared to be unconstitutional.  The remedy was that the CFPB Director was declared to be firable at will by the President.  However, on application for en banc review, the full D.C. Circuit stayed that remedy and granted further hearing.  The hearing was held in May.  Six months later, there has been no decision from the en banc Circuit.

Kavanaugh's opinion is essentially divided into two parts.  The first considers the constitutional problem of an "independent" agency, with a single Director, where the Director cannot be fired by the President except in narrowly-defined "for cause" circumstances.  This is by far the longer part of the opinion.  It includes detailed history of "independent" agencies in the federal government (that is, agencies whose directors or commissioners can only be fired "for cause"), and demonstrates respects in which the CFPB goes far beyond any of them.  It concludes that the agency is unconstitutional as structured, and provides the remedy described above -- the Director can be discharged "at will" by the President.

But the second part of the D.C. Circuit's opinion is even more interesting.  Here the court lays out the facts of the case before it.  This is about a seemingly obscure bit of federal regulatory arcana, namely whether under the Real Estate Settlement Procedures Act a lender can participate in a so-called "captive" reinsurance agreements.  It turns out that in 1997 -- under the Presidency of Bill Clinton and the HUD Secretaryship of Andrew Cuomo -- HUD issued a letter interpreting RESPA, and saying that this is perfectly OK for a lender to participate in captive reinsurance arrangements, as long as the mortgage insurers paid no more than reasonable market rates for the reinsurance.

After Dodd-Frank in 2010, CFPB got co-regulatory authority under this statute.  They sued PHH -- before their own "Administrative Law Judge."  And, lo and behold!, they ended up with a judgment against PHH for some $109 million -- for conduct that had been specifically blessed by HUD as the regulator under the very same statute.  Is this OK with you?  From Judge Kavanaugh's opinion:

In this action against PHH, however, the CFPB changed course and, for the first time, interpreted Section 8 [of RESPA] to prohibit captive reinsurance agreements even if the mortgage insurers pay no more than reasonable market value to the reinsurers. The CFPB then retroactively applied that new interpretation against PHH based on conduct that PHH engaged in before the CFPB issued its new interpretation.  . . .  The basic statutory question in this case is not a close call. The text of Section 8(c) permits captive reinsurance arrangements where mortgage insurers pay no more than reasonable market value for the reinsurance. . . .  The CFPB obviously believes that captive reinsurance arrangements are harmful and should be illegal. But the decision whether to adopt a new prohibition on captive reinsurance arrangements is for Congress and the President when exercising the legislative authority. 

Well, what do you expect when you have a completely unaccountable agency answering to no one?  I wouldn't be so sure that this one is going to get through the en banc D.C. Circuit, even as packed by Obama after elimination of the filibuster.  In the Supreme Court, it is dead.       

Anyway, who is going to defend the CFPB?  The Justice Department?  Don't count on it!