June 23, 2021

Supreme Court Decides Collins v. Yellen

On June 23, 2021, the U.S. Supreme Court decided Collins v. Yellin, holding that: (1) shareholders could not bring a claim that the Federal Housing and Finance Agency (FHFA) violated the Housing and Economic Recovery Act of 2008 (“Recovery Act”) in its conservatorship of Fannie Mae and Freddie Mac, but (2) the FHFA’s agency leadership structure, which limits the President’s authority to remove the Director was unconstitutional because it violated the separation of powers.

In the aftermath of the national housing bubble burst in 2008, two of the top sources of mortgage financing — Fannie Mae and Freddie Mac — were in serious financial trouble. To avoid additional economic downturn, Congress passed the Recovery Act, which created the FHFA to regulate the two companies. One singular Director was to lead the FHFA, and that Director was only removable by the President “for cause.”

The FHFA put Fannie Mae and Freddie Mac into conservatorship and made a deal with the Department of Treasury in which the companies would receive an influx of capital in exchange for agreed-upon shares and fixed-rate dividends. The FHFA later decided to change the fixed-rate dividend formula to a variable-based one. A group of shareholders challenged this decision, claiming both that the FHFA exceeded its authority as a conservator and that the agency’s leadership structure was an unconstitutional violation of separation of powers. The District Court dismissed the statutory claim and granted summary judgment in favor of the FHFA on the constitutional issue. The Fifth Circuit reversed and concluded that the appropriate remedy for the constitutional violation was to sever the restrictions on removing the Director from the Recovery Act.

The Supreme Court held that the statutory claim had to be dismissed but that the removal restriction was unconstitutional. The statutory claims were improper because special anti-injunction provisions of the Recovery Act prohibit courts from restraining the FHFA’s ability to act as a conservator. The Court held that because the Agency was acting in the best interest of the companies and the public, as authorized by the statute, it was acting within its role as a conservator, and the plaintiffs were barred from challenging its decision.

On the other hand, the Court found that the FHFA’s removal restriction was unconstitutional. The Court first determined that the shareholders had standing to challenge the decision, the claim was not moot or otherwise barred by the Recovery Act, and the claim could proceed even though dividend change occurred while the FHFA was led by an acting director. The Court then held that the removal restriction violated the separation of powers. It drew on its precedent in Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. __ (2020), where the Court found Congress could not limit the President’s power to remove the Director of the Consumer Financial Protection Bureau. The Court rejected the shareholders’ request to undo the change to the dividend formula and instead remanded to the lower courts to determine if the shareholders suffered any sort of compensable retrospective harm as a result of the constitutional violation.

Justice Alito delivered the opinion of the Court, in which Chief Justice Roberts and Justices Thomas, Kavanagh, and Barrett joined in full. Justices Kagan, Breyer, Gorsuch, and Sotomayor joined the opinion in part. Justice Thomas filed a concurring opinion; Justice Gorsuch filed an opinion concurring in part; Justice Kagan filed an opinion concurring in part and concurring in the judgment, which was joined in part by Justices Breyer and Sotomayor. Justice Sotomayor filed an opinion concurring in part and dissenting in part, which was joined by Justice Breyer.

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