Can Lisa Cook Keep Her Fed Seat? That's Actually (at Least) Five Questions

A federal statute allows the president to appoint someone to the Federal Reserve Board of Governors for a term of up to 14 years. President Biden appointed Lisa Cook to a 14-year term in 2022. Under ordinary circumstances, she would remain in that seat until 2036, but President Trump has purported to remove her, claiming that her alleged listing of two different houses as her intended primary residence in roughly contemporaneous mortgage applications was financial fraud that renders her unfit to participate in setting monetary policy. That same statute linked above does give the president the authority to remove a Fed member before the expiration of their term "for cause." 

What follows? It is tempting to throw up one's hands and say simply: It depends on what five Justices of the Supreme Court want to do. That's certainly true in an ultimate sense, but the law is not completely silent on the question. Accordingly, I'll break this down through five sub-questions.

1. Is For-Cause Removal Protection for the Fed Constitutional?

Let's begin with the question whether the for-cause removal protection is valid. Earlier this year, in Trump v. Wilcox, the Supreme Court indicated that such protection is generally unconstitutional as an impermissible restriction on executive power, thereby nearly sub silentio overruling Humphrey's Executor v. United States, which had approved for-cause removal protection for members of the Federal Trade Commission. If the Constitution gives the president the power to fire Fed members at will, then it doesn't matter whether Trump had cause to fire Cook.

However, in Wilcox the Court went out of its way to distinguish the Fed, which it described as "a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States." As I observed at the time in an essay on this blog, the suggested distinctions are not especially persuasive, but they do indicate that the Court values Fed independence--undoubtedly because the Justices understand that political meddling with the central bank's monetary policy role is potentially disastrous for the economy. Accordingly, I'll assume for now that the Court would not invalidate the statutory for-cause removal protection for members of the Fed. 

2. What is the Meaning of "Cause?"

Somewhat maddeningly, the statute that allows the president to dismiss a member of the Fed Board of Governors "for cause" does not define "cause." That's the fault of Congress. In some other statutes, it has spelled out what "cause" means. For example, the statute at issue in Humphrey's--which is still on the books--states that before the expiration of a Federal Trade Commissioner's term, they "may be removed by the President for inefficiency, neglect of duty, or malfeasance in office."

That's not obviously helpful, because it appears to merely substitutes one vague phrase for another. And I certainly don't like the inclusion of "inefficiency" in the FTC statute because it's easy to imagine a president claiming that the Commissioner's votes are producing bad economic outcomes and are thus "inefficient." Such a reading would allow a president to dismiss a Federal Trade Commissioner based on a policy disagreement. For that reason, however, I think courts would be acting sensibly to reject a broad reading of "inefficiency." The whole point of the clause is to limit the grounds on which the president can dismiss a Federal Trade Commissioner, so "inefficiency" must mean something else--something like wasting their budget on boondoggle trips or bedazzling their office.

The FTC definition is, in any event, somewhat more definite than the Fed one. If the FTC statute applied to the Fed, it would pretty clearly render Cook's alleged mortgage application fraud not cause, because it did not occur while she was "in office."

Meanwhile, I have seen some commentators argue that "cause" must refer to acts in office, even though the Fed statute doesn't say that expressly. It's possible that there is some lower court case law to that effect, although there is no such case law involving the Fed or from the Supreme Court.

In any event, I'm dubious as a matter of first principle. Absent definitive text or precedent to the contrary, I don't see why sufficiently bad and salient acts before taking office can't constitute cause for dismissal. Suppose that the president nominated someone to the Fed Board of Governors based on their record as an economics scholar who had published extensively on monetary policy, and suppose further that the Senate confirmed them based on the same record. Now imagine that after this person took office it was discovered that they had faked all of the data in their most important academic papers. Why couldn't that constitute cause? It vitiates the very basis for them getting the job in the first place.

Note that I haven't taken a position on whether the alleged mortgage fraud--if proven or admitted--should constitute cause. It doesn't seem directly relevant to Cook's duties as a member of the Fed Board of Governors, although it sort of rhymes with those duties. On the Fed, she is involved in setting interest rates; if she deliberately misled mortgage lenders into thinking that a property was going to be her primary residence when it wasn't, that would have gotten her a better rate than she was entitled to. That's certainly not good behavior, but the fact that both the behavior and the duties are related to interest rates seems tenuous. The argument for finding cause would be simply that Cook lacks the kind of good character to be on the Fed. Coming from Trump, that's at least . . . ironic.

3. What Procedures, if Any, Are Required for Showing Cause?

In most settings in which personnel have some kind of tenure, there are express procedural requirements that must be met before they can be dismissed. These will typically include something like the following, which summarizes what it takes to dismiss a tenured faculty member at Cornell: A complaint; a formal investigation; a hearing; decision by the provost; review by a faculty committee; review by the president. There are opportunities for the faculty member to present evidence and challenge allegations at every phase.

Notably, and again, maddeningly, the Fed statute does not establish any procedural requirements. However, that doesn't mean that none are required. At a bare minimum, a member of the Fed Board of Governors would have a sufficient property or liberty interest in keeping their position that the Fifth Amendment's Due Process Clause would require the core requisites of due process: notice and an opportunity to be heard. Unlike in other contexts, that opportunity to be heard might not be before a neutral decision maker. After all, the statute expressly authorizes the president to remove a Fed Board member for cause. Even so, it would not comport with due process for the president to make a removal decision based on alleged cause without some substantial process. Cook has received none.   

4. What if the Stated Cause is Pretextual?

Suppose that Cook either doesn't contest or contests the allegation but is found after a fair process to have engaged in mortgage fraud. Does it matter that Trump is using that pretextually? It is pretty clear that Federal Housing Finance Agency Director Bill Pulte--a Trump loyalist--went digging for whatever dirt he could find on Cook. It cannot simply be a coincidence that in the space of a few months he has alleged mortgage fraud by Cook, NYS Attorney General Letitia James, and California Senator Adam Schiff. Cook is in the way of Trump's takeover of the Fed. James and Schiff are on Trump's enemies list. Among the millions of people whose mortgage applications Pulte could have examined, he chose these three (and perhaps a few other Democrats and Trump critics) because of an ulterior political motive. As further evidence, consider that Pulte hasn't (at least as of yet) focused attention on Texas Republican Attorney General Ken Paxton, who reportedly listed three separate properties as his primary residence in mortgage applications.

To be clear, I'm not in any way excusing or trivializing mortgage fraud by anyone. I'm just raising the question whether the apparently pretextual nature of the charge makes a difference. Let's put aside James and Schiff, whose circumstances might better be analyzed in accordance with what I wrote about the investigation of John Bolton on Monday and about the flag burning executive order on Tuesday.

One can stare at the words of the Fed statute for hours without gaining much traction on whether pretext matters. On one hand, if the president's motive in removing Cook is (as just about everybody who isn't a MAGA hack knows it is) to replace her with a compliant rate-lowering loyalist, then in some sense she isn't being removed for cause. She's being removed for not being a Trump loyalist, with the alleged cause just being a pretext. On the other hand "for cause" could simply mean "if there is cause." And if one fairly concludes that Cook did engage in mortgage fraud and that such behavior is highly salient, then that would be cause.

In the labor, employment, and employment discrimination law context, an asserted cause that is not the true cause will typically not suffice--even if the stated cause could justify dismissal if it were the true motive. Whether that principle applies in the Fed context is in principle a question of statutory interpretation, but as I have noted, it is not a question to which textual analysis provides a determinate answer. My inclination would be to say that pretext does vitiate cause for Federal Reserve Board members. I don't worry too much about second-guessing because for-cause removals are rare, and when there is one, it will typically be difficult to show pretext--except during the administration of a president who routinely says the quiet part out loud.

5. What Judicial Remedies Are Available?

Cook is expected to sue any minute. She will almost certainly seek a preliminary injunction against her removal from her position as a member of the Fed's Board of Governors. It is widely expected that she will sue the Fed itself and perhaps other government officials but not President Trump, presumably because cases dating to Mississippi v. Johnson (1866) hold that federal judges cannot enjoin the president directly. I would have said that this is a mere formality, but there is reason to think that Trump's Justice Department will argue more substantively that injunctive relief permitting Cook to keep or be reinstated in her seat is unavailable.

I say that because that is pretty much what the Solicitor General argued in his briefing in the consolidated cases decided earlier this year as Trump v. Wilcox. In addition to noting that Humphrey's resulted only in back pay, not reinstatement, the SG argued that the presidential immunity ruling in Trump v. United States precludes injunctive relief for an allegedly wrongly removed government official because the removal power, being a core executive power, is "conclusive and preclusive."

That's doubly dubious. First, it's not at all clear that Trump has any bearing on a civil lawsuit. Second, even if it does, the SG's analysis is misguided. His reason for treating removal power as core was his argument that Congress cannot constrain it. But if Congress can constrain the president's removal power--as the Court hinted it can at least when it comes to the Fed--then removal of a member of the Fed's Board of Governors is not a core executive power. The briefing on the other side is quite persuasive that the precedents allow a district judge to issue an injunction against persons other than the president that has the effect of leaving or restoring an officer in their job.

Persuasive to me, anyway. The Court in Wilcox did not address the remedial question because it held that Trump was likely to succeed on the merits in showing that the officers at issue there--members of the National Labor Relations Board and Merit Systems Protection Board--fall outside the incredibly narrow domain to which it confined Humphrey's Executor (without even acknowledging that it was doing so). Because the Court decided Wilcox on its emergency docket, there was no oral argument from which we could glean its views about the remedial question.

We will likely learn the Justices' views on that or some other dispositive issue arising out of Trump's effort to reshape the Fed before too long.

-- Michael C. Dorf