Guest Post: Andrew Coan, How Stare Decisis Can Save the Fed

Andrew Coan is Milton O. Riepe Chair in Constitutional Law at The University of Arizona

How Stare Decisis Can Save the Fed

The Supreme Court’s recent emergency docket decisions, most notably Trump v. Wilcox, have made the independence of the Federal Reserve an urgent question. It now seems clear that a majority of justices is prepared to overrule Humphrey’s Executor v. United States and hold independent agencies unconstitutional. Wilcox tried to calm the waters by signaling that the Fed might be different, but Justice Kagan’s dissent strongly disputed this point. Subsequent commentary has further muddied the waters.

Many commentators have embraced Kagan’s all-or-nothing view: the constitutionality of the Fed must stand or fall with other independent agencies. Others have defended the Wilcox carveout by arguing that the Fed’s role is unique, mostly non-regulatory, and supported by historical tradition dating back to the First Bank of the United States. But these legal and historical arguments are hotly contested. Moreover, the most nuanced and persuasive arguments apply to only some of the modern Fed’s functions, most notably monetary policy. It would be extremely difficult—perhaps impossible—for the Court to preserve the Fed’s independence for monetary policy while subjecting its regulatory functions to presidential control.

Is there a better, less fraught way to save the Fed if the Supreme Court remains convinced that Humphrey’s was wrongly decided? I think there is. In a widely discussed recent post, Will Baude suggested that the Court might invoke stare decisis to save the Fed, even while overruling Humphrey’s for other agencies. This suggestion seems puzzling at first—the problem of saving the Fed only arises if stare decisis fails to sustain Humphrey’s. But Baude’s suggestion points toward something subtle, important, and novel: the Court might disaggregate the stare decisis question, distinguishing the Fed from other independent agencies not on the constitutional merits but in balancing the costs and benefits of departing from precedent. Call this retail stare decisis (my term, not Baude’s).

What would this look like, and can it be justified? Baude does not elaborate, but the stakes are high, and it is worth considering the question carefully.

Start with the basics. Stare decisis balances the benefits of correcting legal errors against the costs—most notably, the disruption of reliance interests. With a precedent as sweeping as Humphrey’s, it would be quite surprising if this balance came out the same way for every affected institution. Independent agencies range widely in structure, function, and policy significance. Even assuming the presumption of stare decisis is overcome for most of them, there is a strong argument that the reliance interests surrounding the Fed are uniquely strong. The Fed’s long-standing tradition of independence underwrites the reserve status of the dollar, anchors inflation expectations, and supports the financial infrastructure underpinning the global economy. Most experts believe that revoking that independence would create catastrophic economic risks.

It is difficult to imagine a stronger case for adhering to stare decisis. But that case is quite specific to the Fed. The balance may well come out differently for other agencies. This is the natural implication of the Fed’s unique importance to the U.S. financial system, combined with a stare decisis doctrine that attaches major weight to reliance interests.

Retail stare decisis may sound like a novelty, and in some respects, it is. But the concept is grounded in familiar principles and has close parallels in the Supreme Court’s long-standing practice. The Court has often reaffirmed precedents in part, while discarding or revising other parts. Planned Parenthood v. Casey reaffirmed “the core holding” of Roe v. Wade while abandoning the trimester framework. Agostini v. Felton reaffirmed the purpose and effects tests of Lemon v. Kurtzman while substantially revising Lemon‘s excessive entanglement test. Kisor v. Wilkie arguably did the same for Auer deference to agency interpretations of their own regulations, preserving the doctrine while subjecting it to stringent limits not expressly acknowledged in Auer. Humphrey’s itself partially overruled Myers v. United States, in substance if not in form, by confining its prohibition on removal restrictions to “purely executive officers.” None of these decisions applied stare decisis in the institution-by-institution fashion contemplated by retail stare decisis. But like retail stare decisis, all conclude that the presumption of stare decisis is overcome for some but not all aspects of a prior decision.

Retail stare decisis is also closely akin, though not identical, to what Richard Re has called “narrowing“—the Supreme Court’s practice of limiting the reach of precedents while purporting merely to interpret or clarify them. Seila Law v. CFPB and Free Enterprise Fund v. PCAOB both narrowed Humphrey’s in this way, recasting it as an exception to the general prohibition against restrictions on the removal of important executive-branch officials. This was not a convincing interpretation of Humphrey’s as a textual, historical, or logical matter. But the Court that decided Seila Law and Free Enterprise Fund clearly believed that Humphrey’s was wrongly decided and that the costs of applying it to the Consumer Financial Protection Bureau and Public Company Accounting Oversight Board exceeded the benefits. At the same time, the Court was plainly concerned that outright reversal would be too disruptive. Like retail stare decisis, narrowing resolves this dilemma by preserving a decision for some applications while limiting it for others, where the Court believes reliance interests are weaker.

The difference is that retail stare decisis focuses on balancing these costs and benefits within the familiar framework of stare decisis, while narrowing focuses on the contours–and ambiguities–of the precedent being narrowed. For narrowing to work, there must be at least a colorable argument that the precedent in question does not apply to the case before the court. This means retail stare decisis will sometimes be plausible and attractive in circumstances where narrowing would not be. The constitutionality of the Fed is a good example. A decision narrowing Humphrey’s to cover only the Fed would twist that decision beyond all recognition. But retail stare decisis offers a straightforward explanation for limiting the stare decisis effect of Humphrey’s to the Fed. In other contexts, narrowing may be more attractive.

If Wilcox is any indication, a majority of the current Court has tired of narrowing Humphrey’s. Outright reversal appears virtually inevitable–and imminent. But even outright reversal need not be an all-or-nothing proposition. Retail stare decisis provides a way for the Supreme Court to save the Fed that is fully consistent with the logic of stare decisis and the Court’s past practice of narrowing and partial reversals of precedent. Unlike other justifications for the Wilcox carveout, retail stare decisis does not rely on contested claims about the Fed’s historical pedigree or require difficult line-drawing between the Fed’s various functions. Most important, it resolves the conflict between unitary executive theory and the Fed’s independence without risking financial catastrophe.

In my view, the best solution to this conflict would be to abandon the unitary executive theory. The second best would be to reaffirm the constitutionality of independent agencies broadly on stare decisis grounds. But for a Court that rejects both these options, retail stare decisis offers a plausible and principled solution—one that has the virtue of candor about what the Court is really doing and why. All efforts to save the Fed ultimately rest on the same foundation: everyone recognizes that eliminating its independence would be catastrophically disruptive. This is exactly the sort of problem that stare decisis exists to solve.