In Collins v. Yellin (previously captioned Collins v. Mnuchin), the U.S. Supreme Court, relying on its decision in Seila Law, held that the Federal Housing Finance Agency’s structure was unconstitutional because the Housing and Economic Recovery Act of 2008 (HERA) only allowed the President to remove the FHFA’s Director “for cause.” Despite ruling that the FHFA’s structure was unconstitutional, the Supreme Court also held that the proper remedy for the constitutional violation was not to invalidate the FHFA actions challenged by the plaintiffs. However, the Supreme Court indicated that the plaintiffs might nevertheless be entitled to retrospective relief if they could show that the unconstitutional removal provision caused harm. The Supreme Court remanded the case to the lower courts to resolve in the first instance whether the provision caused such harm.
The plaintiffs in Collins were shareholders of Fannie Mae and Freddie Mac seeking to invalidate an amendment (Third Amendment) to a preferred stock agreement between the Treasury Department and the FHFA as conservator for Fannie Mae and Freddie Mac. The Third Amendment was adopted by an Acting FHFA Director and subsequent actions to implement the Third Amendment were taken by Senate-confirmed Directors. The Supreme Court agreed to review the en banc Fifth Circuit’s decision which reversed the district court and held that that the FHFA’s structure was unconstitutional.
Now, on remand from the Supreme Court, the en banc Fifth Circuit has issued a decision remanding the case back to the district court to decide whether the plaintiffs suffered compensable harm from the unconstitutional removal provision. Four Fifth Circuit judges dissented from the majority decision, stating that nothing in the Supreme Court’s decision precluded the Fifth Circuit from deciding the harm issue and that the en banc Fifth Circuit “could easily do so” in light of its previous conclusion that the President could have acted to stop the dividend payments required by the Third Amendment but had not done so. According to the dissent, because the plaintiffs had not pointed to sufficient facts to cast doubt on this conclusion, the en banc Fifth Circuit should modify the district court’s judgment by granting declaratory relief in the plaintiffs’ favor stating that HERA’s “for cause” removal provision was unconstitutional and affirming the district court in all other respects, which ruled that the plaintiffs were not entitled to relief with regard to the Third Amendment.