//  5/22/17  //  In-Depth Analysis

This week, the D.C. Circuit Court of Appeals, as a full en banc court, will hear oral argument in PHH Corp. v. CFPB.  PHH presents the question whether the structure of the Consumer Financial Protection Bureau is unconstitutional.  Last summer, a D.C. Circuit panel held unconstitutional the CFPB’s structure. 

According to the panel, whether the CFPB’s structure is constitutional turns in part on whether the structure of the CFPB is new. The panel had concluded that the CFPB’s structure differs from the structure other agencies (at least independent ones). And the novelty of the CFPB’s structure, according to the panel, is part of why the CFPB’s structure is constitutional.

In an article that was just published in the Duke Law Journal, I explained why that’s wrong—that is, why a federal statute’s novelty is not an indication that the statute is unconstitutional, and why it shouldn’t be treated as one. The CFPB’s structure is established by statute, so a decision holding the CFPB’s structure unconstitutional amounts to holding unconstitutional the part of the statute that establishes the CFPB’s structure. 

I’ll give the panel the benefit of the doubt and assume they were not refreshing my SSRN page over the summer (totally understandable), which is how they missed the article and its argument.

The introduction to the panel opinion had the following turn of phrase:

[N]o independent agency exercising substantial executive authority has ever been headed by a single power.


Until now.

Elsewhere the panel reiterated that the “novelty” of the CFPB’s structure weighed against its constitutionality. (I’m using air quotes around novelty for reasons I’ll explain tomorrow.)  For example, the panel noted that in Free Enterprise Fund v. PCAOB, the Supreme Court had “emphasized … the novelty of the [PCAOB’s] structure” and had observed that “‘Perhaps the most telling indication of the severe constitutional problem with the PCAOB is the lack of historical precedent for this entity.’”

That Free Enterprise Fund quote, by the way, came from the author of the panel opinion in PHH,Judge Kavanaugh.

The panel decision in PHH illustrates some reasons why judges should not be relying on a statute’s novelty to hold it unconstitutional.   And I hope that the en banc D.C. Circuit uses PHH as an opportunity to curb the anti-novelty rhetoric.

 Why? The first reason why federal courts should not use a federal statute’s novelty as a sign that the statute is unconstitutional is that …. there’s no reason that explains why they should. That is, there’s no (satisfying) explanation for why a federal statute’s novelty would indicate that a statute is unconstitutional.  Note that the quotation from Free Enterprise Fund does not explain why a statute’s novelty is a “telling indication” that the statute is unconstitutional.  I’ll save you the time and say that the rest of the opinion does not provide one either. 

In the early cases in which the Supreme Court flirted with the idea that a statute’s novelty might indicate that a statute is unconstitutional, the Court stated that a statute’s novelty indicated that Congress thought the statute was unconstitutional.  Why does a statute’s novelty indicate that prior Congresses thought that the statute was unconstitutional? Well, the Court maintained, if Congress thought the statute was constitutional, it would have already enacted it.

That explanation makes little sense of how Congress is structured to work, and how it actually works.  Think of it this way: In the mid 2000s, Congress enacted somewhere between 80-100 laws each year.  Did Congress think that every bill it did not enact was unconstitutional, even if a bill was never introduced or discussed in Congress? I kind of think not.

Enacting federal laws is hard—the Constitution creates a complicated system of checks and balances (like bicameralism and presentment) that makes enacting federal laws difficult. James Madison described bicameralism and presentment as a “complicated check” on legislation that would prevent good laws as well as bad ones.  Additionally, when Congress enacts legislation to address an issue, it does not enact into law every possible constitutional means of addressing that issue.  Instead, Congress leaves a bunch of constitutionally permissible forms of regulation on the table.  Congress also has incentives to enact statutes that courts will uphold, which gives Congress a reason to enact statutes that are not novel, even if Congress thinks that those novel statutes are perfectly constitutional.

Arbitrary. Perhaps because novelty is not a good proxy for Congress’s view that a statute is unconstitutional, the Supreme Court has started to omit this explanation for why a statute’s novelty might indicate that a statute is unconstitutional.  Instead, the Court just declares that a statute’s novelty indicates that a statute is unconstitutional. Judge Kavanaugh, however, alluded to an explanation in his dissent from the panel opinion in Free Enterprise Fund (and the panel opinion in PHH).  Randy Barnett offered the same explanation in a lecture about the Supreme Court’s opinion in NFIB v. Sebelius, the decision I (jokingly?) referred to as one of the latest candidates for entry into the anti-canon of constitutional law.

Judge Kavanaugh and Barnett’s explanation for why judges should rely on a statute’s novelty to find a statute unconstitutional is, I think, something like the following:

There are a bunch of unconstitutional statutes, and many of these unconstitutional statutes have been upheld by the Supreme Court. That practice needs to stop. But there are too many unconstitutional statutes to invalidate them all.  On top of that, there is this thing called stare decisis, which requires judges to adhere to prior decisions even if those decisions were wrong. Therefore, we’ll say that all of the statutes that have been enacted thus far and all of the statutes that have been upheld by the Supreme Court are constitutional.  But any statute that differs from those statutes is unconstitutional.  

In the specific context of the constitutional issue in PHH, the argument goes like this: Article II of the Constitution requires the President to have meaningful control over, meaning the power to remove, officers who execute federal law (at least the heads of federal agencies). But, the anti-novelty advocates say, the Supreme Court went horribly wrong when it allowed Congress to violate that principle in Humphrey’s Executor v. United States (and Wiener v. United Statesand Morrison v. Olson).  Those decisions upheld the constitutionality of so-called “independent agencies,” agencies that are led by individual(s) who are not removable at will by the President. Based in part on those decisions, Congress has created a bunch of independent agencies. 

The anti-novelty advocates thus say that our current system of government, in which there are many independent agencies, is unconstitutional.  And the way to temper this rampant unconstitutionality is to stop the creation of new “independent” agencies.  Therefore, they say, we’ll allow Congress to create independent agencies that perfectly resemble the structure of independent agencies that have been declared constitutional, or that perfectly resemble the many other independent agencies that Congress has created in the past.  But Congress cannot create any independent agencies that are structured any differently than prior independent agencies.

But again, the question should be why.  Why use novelty as the line that divides what is constitutional from what is unconstitutional?   I think it’s important to recognize that the argument for using novelty as a limiting principle for Congress’s powers is largely indifferent to what the ultimate limiting principle on Congress’s powers is. That is, it seems as though it is more important to have some limit than it is to have a coherent limit.

There is nothing magic about novelty that makes novelty a good metric for unconstitutionality.  Why not just say “all independent agencies that are established Wednesday through Friday are unconstitutional?”  That rule would also limit Congress’s ability to create additional independent agencies by shortening Congress’s work week.  But the independent agencies that would be upheld would be no more or less unconstitutional than any other independent agencies. 

The same is true for independent agencies that have a new structure.  Those agencies are no more and no less constitutional than the many independent agencies that the Supreme Court has upheld as constitutional, and the many independent agencies that Congress can still create.

PHH illustrates this point fairly well.  The reason why the CFPB is purportedly “novel” is that the CFPB is headed by one commissioner, whereas “all” other independent agencies are headed by multiple commissioners.  But why does that difference make the single-director CFPB less constitutional than multi-member independent agencies? According to the panel, the reason is this:

In the absence of Presidential control, the multi-member structure of independent agencies acts as a critical substitute check on the excesses of any individual independent agency head.

According to the panel, the multi-director structure will limit an agency’s power because obtaining consensus is hard. That point might explain why the single director of the CFPB has more control over the CFPB than a member of a multi-member commission has over a different independent agency. That difference does not, however, explain why the President has any less control over the CFPB (and its single director) than the President has over an independent agency led by a multi-member commission (and its commissioners).

If anything, the one-director structure of the CFPB gives a President more control over the CFPB than over multi-member independent agencies.  When a President goes about trying to remove the head of a one-director agency like the CFPB, all the President has to do is remove and replace one person. But when a President tries to exert control over multi-director agencies, the President has to remove and replace multiple people. 

In Free Enterprise Fund, when the Court relied on the novelty of an agency’s structure to hold it unconstitutional, there was at least a colorable argument for why the agency’s structure gave the President less control than the President had over more traditionally structured agencies.  In Free Enterprise Fund, the agency (the PCAOB) was insulated from Presidential control by a “double” layer of removal restrictions:  The PCAOB directors were removable for cause by the SEC Commissioners, and the SEC Commissioners were themselves removable only for cause by the President. And, the Court reasoned, the two layers of removal restrictions amounted to a greater restriction on the President’s power than one layer of removal restrictions.

PHH thus underscores how novelty results in arbitrary limit on Congress’s powers. To my mind, that’s not great for the rule of law. 

I think part of what motivates Judge Kavanaugh and Barnett is a shared belief that unconstitutional agencies and unconstitutional statutes aren’t great for the rule of law, either. But I don’t think that arbitrary reasoning and specious formalism that invalidates federal statutes is good for the rule of law either.  Imagine if the principle used to limit Congress’s powers were instead “all independent agencies that begin with the letters A-L are unconstitutional.” Would it be better for the rule of law to have that arbitrary limit on Congress’s powers or to have courts uphold independent agencies that are purportedly unconstitutional? If you don’t like that limiting principle, how about “all independent agencies that address issues that begin with the letters A-L are unconstitutional?” Or “if the magic 8-ball says no, the independent agency is unconstitutional?” Or “all independent agencies that are created by Democratic Congresses are unconstitutional?” 

All of those rules would limit Congress’s powers. But the limits would be deeply unsatisfying because they are arbitrary and bear no real relationship to why a statute might be unconstitutional but other statutes are not.



Disclosure:  I’m not sure if this does not make me neutral, but just in case: I wrote an article that argues a federal statue’s novelty is not a sign that a statute is unconstitutional. Two amicus briefs, one that was filed by scholars of financial regulation, the other by scholars of separation of powers, cited the article in the en banc proceedings before the D.C. Circuit.



Follow Leah on Twitter @LeahLitman

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