Explaining the Outcome of, and Speculation About the Role of "Liquidation" in, the SCOTUS CFPB Case
The ruling yesterday in Consumer Financial Protection Bureau (CFPB) v. Community Financial Serv. Ass'n of America, Ltd. brought a sigh of relief to those observers who thought the conservative supermajority on the Supreme Court might just be crazy enough to invalidate a key regulator of the banking industry and call into question the funding for numerous other vital federal agencies. The good news is that the Court reversed the Fifth Circuit's holding that the Constitution's Appropriations Clause forbade Congress from creating a funding mechanism for the CFPB that runs through money earned by the Federal Reserve. The bad news is that any federal judges--the panel below and Justices Alito and Gorsuch in dissent in SCOTUS--credited the challenge at all.
Let's start with the merits of the CFPB case, which are so obvious that Justice Thomas wrote the majority. The Appropriations Clause says: "No money shall be drawn from the treasury, but in consequence of appropriations made by law . . . ." The respondents argued that "appropriations by law" means time-limited acts of Congress designating particular funding for various purposes. That's plainly wrong as a matter of text, purpose, history, and common sense.
The law establishing the CFPB's funding mechanism is . . . wait for it . . . obviously a "law" within the meaning of the Appropriations Clause. The Clause's purpose is to prevent the President from spending money without Congressional authorization, not to limit how Congress funds various agencies. We know that from the English and colonial history leading up to the Clause's adoption and from the fact that since the Founding, Congress has frequently funded federal programs and agencies through user fees and other mechanisms besides time-limited enactments. The Customs Service and the Post Office are two prominent Founding-era examples. There have been many other examples since then.
The Fifth Circuit purported to distinguish those other agencies from the CFPB by claiming that the latter's "perpetual self-directed, double-insulated funding structure goes a significant step further than that enjoyed by the other agencies on offer." Moreover, it pointed to the supposedly greater regulatory authority of the CFPB. But these distinctions have nothing to do with the Fifth Circuit's theory of the Appropriations Clause's meaning, which, if taken seriously, would eviscerate much of the modern federal government--which, in turn, one suspects counted for the Fifth Circuit as a feature, not a bug, of its theory.
Justice Alito's dissent is a similar exercise in illogic. He lists six characteristics of the CFPB's funding mechanism. He then says that during the oral argument the government was unable to identify any other agency, "old or new, [that] enjoyed so many layers of insulation from accountability to Congress." However, the dissent makes no effort to explain (because it cannot) why, under its reading of the Appropriations Clause, the CFPB is above a threshold of insulation that the other agencies are below. His theory would avoid invalidating numerous other federal agencies only by fiat.
The straightforwardness of the foregoing argument explains why Justice Jackson, in a concurrence, says that the Court could have decided the case based just on the plain text of the Appropriations Clause. A second concurrence--by Justice Kagan joined by Justices Sotomayor, Kavanaugh, and Barrett--is a bit more puzzling. To be clear, its content is not at all puzzling. The mystery concerns why it had to be written. Let me explain.
Justice Kagan writes that she agrees with Justice Thomas's majority opinion, which suffices to decide the case. However, where the majority opinion relies on English and colonial history as well as "congressional practice immediately following ratification" to elucidate the original meaning of the Appropriations Clause, Justice Kagan says she would also look to the rest of post-ratification practice. Such longstanding historical practice, she notes, has substantial weight in constitutional interpretation. For that proposition she cites some SCOTUS precedents and Federalist 37, which famously includes James Madison's statement that the meaning of initially unclear legal provisions of law are typically "liquidated" over time. Justice Kagan's concurrence does not quote that particular line, but to constitutional interpretation nerds, it's pretty clear that the citation of Federalist 37 invokes liquidation.
But now the mystery: Why isn't the post-ratification material that Justice Kagan cites in the majority opinion? Presumably she could have seen Justice Thomas's draft opinion and then said to him something like this: "Great job, Clarence. Could you also include some discussion of the longstanding and continuing practice after the immediate post-ratification period? I've drafted some language I'd be happy for you to add to your opinion." Did Justice Kagan make such an offer? If so, did Justice Thomas decline it? If she didn't make such an offer, why not?
The most intriguing possibility is that Justice Kagan did ask Justice Thomas to discuss liquidation but he declined. That's intriguing because in his majority opinion in NYS Rifle & Pistol v. Bruen, Justice Thomas quoted Federalist 37 on liquidation, so he doesn't seem to be opposed to the concept. But he is a bit skeptical. After all, in Bruen, he went on to caution against giving too much weight to liquidation, which, he said, cannot alter a provision's plain meaning. He said more or less the same thing in a concurrence in Gamble v. United States.
Yet we still have a mystery. The post-ratification history that Justice Kagan cites in her concurrence does not contradict the plain meaning of the Appropriations Clause. She offers it to bolster the conclusion that Justice Thomas reaches based on text and original meaning. If Justice Kagan asked Justice Thomas to include post-ratification history, and if he declined to do so (two big ifs), then the fact that she felt the need to write separately suggests a possible future tussle about the role of liquidation.
Where do the other Justices line up? I strongly suspect that, even though Chief Justice Roberts did not join Justice Kagan's concurrence, he would be with her on liquidation. So why didn't he join? My best guess: if he had joined the Kagan concurrence, that would have given it five total votes, which would have rendered it effectively controlling, which in turn would have partially deprived Justice Thomas's opinion of its majority status; having assigned the opinion to Justice Thomas in the first place, perhaps CJ Roberts did not want to take it away from him by joining/creating a five-Justice concurrence.
Justice Jackson is a bit harder to explain here. Her short concurrence doesn't take issue with liquidation. It emphasizes judicial restraint and deference to Congress. Although Justice Jackson seems to be more of an originalist than the other two Democratic appointees, I don't see any evidence that she thinks post-ratification history cannot be used for liquidation purposes. Perhaps my hypothesis about CJ Roberts applies to her as well: she might agree with Justice Kagan's concurrence but have chosen not to join it to prevent Justice Thomas's opinion from losing its full majority status.
I acknowledge the highly speculative nature of my observations about a possible brewing conflict over liquidation. If it comes, I think there are likely to be at least six Justices on the pro-liquidation side, with at most three liquidation skeptics (Thomas, Alito, and Gorsuch). But in addition to being a speculative enterprise, this is probably also a low-stakes conflict. Where the constitutional text is unclear (as it so often is), Justices' ideological druthers will play the dominant role. Post-ratification liquidating history, like the sort of history that bears on original meaning, will typically be used to rationalize decisions reached on other grounds.