Federal Reserve Gov. Lisa Cook's lawsuit challenging President Donald Trump's dismissal of her from her post earlier this week poses novel legal questions about executive power that could impact the shape of the federal government for decades to come.
And it will likely hinge on the meaning of a two-word clause in century-old law.
Cook's complaint,
Trump's social media post on Monday evening — which consisted of a screenshot of a letter to Cook informing her that she was thereby "removed" from her seat on the Fed Board — included his rationale for terminating Cook, which suggests that the White House believes the president alone decides what counts as "cause" for removal.
"The executive power of the United States is vested in me as President and, as President, I have a solemn duty to ensure that the laws of the United States are faithfully executed," Trump's letter said. "I determined that faithfully executing the law requires your immediate removal from office."
Cook's suit argues that allegations of misconduct — particularly for alleged offenses that lay outside official duties and predate her assumption of official duties — cannot serve as the basis for for-cause removal.
"It would subvert the Federal Reserve Act, which explicitly requires a showing of 'cause' for a Governor's removal, which an unsubstantiated allegation about private mortgage applications submitted by Governor Cook prior to her Senate confirmation is not," Cook's suit said.
Experts say the courts' interpretation of the "for cause" provision could either reinforce the central bank's independence or weaken protections that have historically shielded Fed officials from political pressure.
Jeremy Kress, associate professor of business law at University of Michigan, said he's watching how the Trump administration responds to Cook's complaint because their legal strategy will reveal just how big of a threat this case poses to central bank independence.
"Does the administration stick to the president's initial rationale that mortgage fraud allegations constitute 'cause' sufficient to fire Governor Cook?" said Kress. "Or does the administration argue in the alternative that 'for cause' removal protections for Federal Reserve governors are unconstitutional?"
According to Kress, the biggest threat to Fed independence would be if a court decides that the "for cause" removal protections as it relates to the Fed is unconstitutional, which would give "the president the ability to remove any governor of the Fed, including the chair." However, if a court issues a narrower ruling that treats the mortgage fraud allegations as sufficient cause, it could still pose a risk to central bank independence, Kress said, because "the claims are thin, but it would at least uphold the principle that the White House must cite some cause to remove someone from the Fed."
Richard Horn, co-founder of Garris Horn LLP and former counsel to the Consumer Financial Protection Bureau, said Cook's suit outlines that Trump's statements that she "may have" and "seemed" to have committed mortgage fraud do not satisfy the "for cause" provision, as the allegations are not backed by facts.
"[A] point she makes, which is an important one, is that if the courts allow these allegations that do not have factual support to be 'cause,' then future presidents could fire any board members they disagree with by concocting fake allegations," said Horn. "It will be very interesting to see how the courts handle this issue with respect to the Fed, because having the country's central bank controlled by the president could be a recipe for disaster."
Cook's complaint, filed Aug. 28, argues that the
"The 'for cause' removal protection guaranteed by the FRA, which has been the bulwark of the Federal Reserve's independence for the past century, prevents the President from firing a Federal Reserve Board governor except 'for cause,' meaning instances of inefficiency, neglect of duty, malfeasance in office, or comparable misconduct," the suit said. "Whether or not the FRA's 'for cause' removal provision is interpreted using the usual standard of 'inefficiency, neglect of duty, or malfeasance in office,' it clearly does not support removal for policy disagreements."
Aaron Klein, senior fellow at Brooking's Institute, said what he finds most troubling in the suit is that the Federal Reserve "will not answer the question of whether Cook is a governor today." As of Thursday, Cook is listed as a board member on the Federal Reserve's website. The Fed declined to comment for this story.
"How can a central bank call itself transparent when it won't tell you who its leaders are?" said Klein.
