Supreme Court to hear case on regulatory independence

• Key insight: The Supreme Court granted certiorari in Slaughter v. Trump, a case challenging the president's removal of a Federal Trade Commission member earlier this year.
• Expert quote: "Our emergency docket should never be used, as it has been this year, to permit what our own precedent bars." — Justice Elena Kagan, dissenting from the majority in granting certiorari.
• What's at stake: The case offers the court an opportunity to strike down Humphrey's Executor v. United States, a 1935 case that found independent agencies whose members cannot be fired by the president but for cause as constitutional — an outcome with significant implications for the Federal Reserve.

The Supreme Court Monday afternoon granted certiorari in a case challenging the president's authority to fire members of independent agencies, and the outcome of the case could have profound implications for the independence of the Federal Reserve. 

The high court granted an administrative stay in a case challenging whether President Trump was correct in dismissing Rebecca Slaughter from her position as a member of the Federal Trade Commission without cause. The court treated that application for a stay — which would leave Slaughter off the job pending the outcome of the case — as a petition for certiorari, which the court also granted. The court will hear oral arguments in December. 

At issue is the constitutionality of independent regulatory agencies, which have multi-member commission-style leadership structures and whose members are statutorily protected from removal by the president except for cases of inefficiency, neglect of duty or malfeasance in office. President Franklin Roosevelt fired FTC Commissioner William Humphrey — a Coolidge and Harding appointee — from the agency, arguing that as the chief executive, any agency wielding executive power should do so at the pleasure of the president. 

Humphrey had died after being removed, but his estate brought a suit against the government arguing that the "for cause" protections enshrined by Congress must be respected by the president. The court decided in the 1935 case Humprey's Executor v. United States that because independent agencies wield "quasi-legislative" and/or "quasi-judicial" powers, their power is not entirely executive in nature and thus not entirely the president's to direct. That precedent has upheld the modern administrative state, including the Federal Reserve Board of Governors, who enjoy "for cause" protections as well.

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The decision to hear the case was not unanimous. Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson wrote in a dissent authored by Kagan that the court's decision to grant the petition for stay pending the outcome of the case is in effect granting the president powers that the court itself has found unconstitutional. 

"[Trump] may now remove — so says the majority, though Congress said differently — any member he wishes, for any reason or no reason at all. And he may thereby extinguish the agencies' bipartisanship and independence," Kagan wrote. "The majority may be raring to [overturn Humphrey's], as its grant of certiorari before judgment suggests.  But until the deed is done, Humphrey's controls, and prevents the majority from giving the President the unlimited removal power Congress denied him. Because the majority's stay does just that, I respectfully dissent."

The case does not in itself directly concern the Federal Reserve, but any ruling in the Slaughter case will almost certainly carry with it implications for the Fed. The Supreme Court is also considering a petition by the White House to strike down a lower court injunction allowing Fed Gov. Lisa Cook to remain on the job pending the outcome of her lawsuit challenging her purported removal in late August, which Cook argues is illegal in part because of the constitutional protections bolstered by Humphrey's Executor. 

Trump had moved to fire Cook by posting a screenshot of a letter addressed to Cook in late August, in which he cited allegations of mortgage impropriety as his reason for dismissing Cook. Cook challenged her termination, arguing that the "for cause" protections outlined in the Federal Reserve Act, though silent on what counts as "cause," were designed to prevent presidents from applying undue pressure on the central bank to influence interest rates, and thus cannot be extended beyond issues related to a governor's actions while in office. Cook also argued that her due process rights were abridged by terminating her without a fair hearing. 

In a May ruling overturning a lower court injunction allowing other fired members of independent agencies to remain on the job, the Supreme Court noted that whatever merits may be present in that case would not have a bearing on the Federal Reserve. The high court said in that ruling that the Federal Reserve "is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States," and thus a ruling in that case would not be applicable to the Fed.