Lisa Cook V. Donald Trump is At the Supreme Court. What Now?

The developments in the legal fight between the Federal Reserve Governor Lisa Cook and the second Trump administration have evolved quite rapidly over the past three weeks. It's past time to examine where we’ve been, where we stand as of this writing and what it all means.

First, I want to get the less significant issue out of the way. From the beginning of this episode I’ve treated the allegations of “mortgage fraud” against Lisa Cook to be a lazy pretext. I, of course, did not believe these allegations at any point. However, what was more important than the truth or falsity of the allegations was the clear motivations of the Trump administration itself. Nevertheless, over the last few weeks we have gotten confirmation that the charges are unfounded. 

Reuters first broke the news on September 13th that Governor Cook’s Atlanta mortgage application explicitly marks the residence as a “vacation home”. Bloomberg news independently confirmed Reuters findings. The allegation of mortgage fraud against Lisa Cook coming from the Federal Housing Finance Agency’s head Bill Pulte is not unique. In fact, over the weekend a federal prosecutor resigned over the pressure to prosecute New York Attorney General Letitia James over mortgage fraud claims he didn’t find sufficient grounds for.

Nevertheless, I continue to think that the central issues in this case are about the constitution and the centralization of power in our legal system. They are neatly summarized by the September 2nd filing from Lisa Cook’s lawyers:

I. The Court Has The Authority To Determine Whether The President Complied With The Fra’s “For Cause” Removal Provision

II. President Trump’s Purported Basis For Firing Governor Cook Does Not Amount To “Cause.”

III. Governor Cook Had A Right To Proper Notice And A Meaningful Opportunity To Be Heard Prior To Being Fired

IV. The Events Before President Trump Purportedly Fired Governor Cook Do Not Amount To Proper Notice And A Hearing

In other words, they are about the protections against removal by the president. The various arguments from the defense are about the scope and meaningfulness of this “for cause” limitation. Is the president “complying” with the limitation? Does the cited “cause” truly “amount” to cause? Did Cook receive sufficient due process and does the “for cause” provision in the Federal Reserve Act imply due process? 

These are the questions that had, previous to the rise of “unitary executive theory”, been seen as mostly settled by the case Humphrey's Executor. Yet, the Supreme Court has been acting like that precedent was already overturned. Just yesterday they issued an emergency stay, effectively allowing Trump to fire FTC Commissioner Rebecca Slaughter without cause (she had just been reinstated by a Federal Judge). The brief decision is, however, quite clear on the fact that they plan to formally overturn the decision:

The parties are directed to brief and argue the following questions: (1) Whether the statutory removal protections for members of the Federal Trade Commission violate the separation of powers and, if so, whether Humphrey’s Executor v. United States, 295 U. S. 602 (1935), should be overruled. (2) Whether a federal court may prevent a person’s removal from public office, either through relief at equity or at law. The Clerk is directed to establish a briefing schedule that will allow the case to be argued in the December 2025 argument session. The stay shall terminate upon the sending down of the judgment of this Court

It's worth quoting justice Kagan’s dissent (joined by Sotomayor and Jackson) because they make clear what the stakes of the Supreme Court majority’s recent behavior:

Yet the majority, stay order by stay order, has handed full control of all those agencies to the President. He 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.

As discussed previously, the supreme court has dangled the possibility of "Humphrey's Executor for the Federal Reserve only” in front of the public or- more accurately- Wall Street. This is best understood as “fool’s gold”. 

As an aside, I want to briefly note that I was quite happy to see that Cook’s lawyers cited the monograph I discussed in my first piece on this topic a month ago. It's always gratifying to see substantial impact from the documents one digs up:

In 1972, the Federal Reserve’s longtime General Counsel, Howard Hackley, explained that “[p]resumably, a Board member, like a member of the Interstate Commerce Commission, cannot be removed by the President except for ‘inefficiency, neglect of duty, or malfeasance in office.’ Since the enactment of the original [Federal Reserve] Act – a period of nearly 60 years – no President has attempted to remove a member of the Board.’” Howard Hackley, The Status of the Federal Reserve System in the Federal Government, 50 (1972). The first part of Hackley’s statement—that the FRA’s “for cause” removal provision means INM—remains true. Unfortunately, the second part of his statement no longer does. 

Meanwhile, back at the burning court house.

The Hackley quote is relevant to my core point insofar as it emphasizes that the core protections against the removal of Federal Reserve Board of Governors come from the general law surrounding independent agencies rather than anything specific or special about the Federal Reserve. U.S. District Judge Jia Cobb, in her decision ruling in Cook’s favor, commented on this at length:

“It is a commonplace of statutory interpretation that ‘Congress legislates against the backdrop of existing law.’” Parker Drilling Mgmt. Servs., Ltd. v. Newton, 587 U.S. 601, 611 (2019) (quoting McQuiggin v. Perkins, 569 U.S. 383, 398 n.3 (2013)). Accordingly, the Court finds highly persuasive Cook’s argument that the Federal Reserve Act’s use of “for cause” should also be read in light of prior statutory removal provisions for Presidentially appointed, Senate confirmed roles. Those provisions consistently limited the grounds for presidential removal of agency heads or members to some combination of inefficiency, neglect of duty, or malfeasance (referred to in shorthand as INM), which meant “cases where officials act wrongfully in office” (malfeasance), “fail to perform their statutory duties” (neglect of duty), “or perform them in such an inexpert or wasteful manner that they impair the public welfare” (inefficiency). Jane Manners & Lev Menand, The Three Permissions: Presidential Removal and the Statutory Limits of Agency Independence, 121 Colum. L. Rev. 1, 8 (2021)

It's nice to see courts engage Notes on the Crises friend Lev Menand’s scholarship on presidential removal powers. More fundamentally, the only way to substantiate the meaning of “for cause” in the Federal Reserve Act is the treatment by similar statutory schemes.

Judge Cobb notes that Lisa Cook was not given a chance to confront the evidence against her nor given any ability to respond to Pulte’s allegations:

The Court is highly doubtful that Cook should have been required to piece together the evidentiary basis for a “for cause” removal from a scattered assortment of social media posts and news articles. 

Even if the notice provided had been sufficient, Cook’s due process rights were nevertheless likely violated because she was not given a “meaningful opportunity” to be heard. Loudermill, 470 U.S. at 543. At no point did President Trump indicate that Cook would be provided an opportunity to argue that the allegations were untrue or did not merit removal, or invite Cook to submit such evidence.[...]

Instead, shortly after Director Pulte’s social media post was made public, President Trump called for Cook to resign—a far cry from inviting an opportunity to contest the allegations

Unsurprisingly, the Trump administration appealed this decision on September 10th.

The Appeals Court issued a rapid decision on September 15th the following week. This three judge panel also ruled in Cook’s favor- but under “partisan” lines i.e. two Biden appointees versus one Trump appointee. This is foreboding because it could be a preview of a partisan decision by the Supreme Court. In reading these various opinions, it's clear that judges are struggling to come to conclusions with Humphrey’s Executor only half repealed and the “Federal Reserve” exception only gestured at by the Supreme Court itself. The current jurisprudence implies that Lisa Cook is one of the few officials vested with “executive power” with for cause protections on the planet. 

The dissenting Trump appointee in the Federal Court of Appeals case provides a significant hint at where the Supreme Court might go. The “specialness” of the Federal Reserve cuts both ways. On one hand, it may grant special protections not given to any other “principal officer”. On the other hand, its very importance and uniqueness leans towards reading the provision “for cause” narrowly and in favor of presidential discretion over its own removal powers. To wit:

Moreover, the Board of Governors no doubt is important, but that only heightens the government’s interest in ensuring that its Governors are competent and capable of projecting confidence into markets. And in empowering the President to remove Governors for cause, Congress has specifically assigned that task to the President.

We are thus left with four possibilities. First, the Supreme Court will officially strike down Humphrey’s Executor for all agencies, including the Federal Reserve Board and the Federal Open Market Committee. Second, the Supreme Court will issue another “emergency stay” overturning lower courts decisions but without providing any reasoning justifying Lisa Cook’s firing. Third, the supreme court may leave Lisa Cook in place and eventually solidify the “unitary executive minus the Federal Reserve System theory”. Fourth, the supreme court may remove Lisa Cook while, at the same time, solidifying the “unitary executive minus …” theory while emptying it of content. In many ways using more emergency stays without any stated reasoning on the place of the Federal Reserve in the federal government would be the worst of all possible worlds.

Some readers may think that, in light of the events of September, my piece last month entitled “Powell Will Hang Separately: The Federal Reserve Has Already Failed its Duty to Lisa Cook and the Constitution” was hasty and premature. I certainly took a very strong position early on in the process. It is also true that the early litigation has gone faster and more smoothly than I expected. Lisa Cook was able to vote at last week’s FOMC meeting. Yet, I will hold to my position. First, the controversy over Lisa Cook should have disrupted the appointment of Stephen Miran to the Federal Reserve Board. It did not, and in fact the senate got him in in time to cast his dissenting vote last week alongside Cook. 

Most fundamentally, the real challenge at this stage is the Supreme Court. I’m sure Powell feels comforted that the “heat” is less intense than it was three weeks ago. But that heat, however uncomfortable, is also the Federal Reserve’s most stalwart ally. Letting the supreme court further erode the legal protections Powell and his fellow governors have will be devastating and letting the pressure subside makes that more likely. Lots of eyes were on the Federal Reserve press conference last Wednesday and Powell squandered the opportunity. When asked about whether Miran’s appointment to the Board while remaining on leave from the Council of Economic Advisors, Powell replied:

We're strongly committed to maintaining our independence and beyond that I really don't have anything to share

Victoria Guida at Politico valiantly tried to keep the question at the front of the press conference and Powell simply avoided the issue:

VICTORIA GUIDA. Do you see the court case around Lisa Cook as being related to questions of Fed independence? 

CHAIR POWELL. You know, I see it as a court case that it would be inappropriate for me to comment on. 

In a narrow legal sense these deflections may be wise but as the Supreme Court claims more and more power for the president, Powell’s legal capacity to object will become so small that it can be drowned in a bathtub. Powell may want federal reserve independence to remain above the muck of partisan politics, but it's too late. It's already there. The Federal Reserve can jump into the muck with a strategy and a plan to get out, or it can let itself be drowned in the muck by a Supreme Court issuing final judgment.