Credit union overseer is not subject to normal government rules when acting as liquidator.
As the size and scope of government has expanded over the last century, so too has the web of administrative law that constrains the actions of government agencies. Yet a story in last Thursday’s Wall Street Journal has raised a provocative question about the limits of administrative law: Is it possible for a federal agency to escape from the normal rules governing agency action?
Just asking this question may seem unsettling to Americans deeply suspicious of governmental power. But when considered in light of firmly entrenched principles of law, the answer could hardly be more straightforward. Yes, a government agency can sometimes be freed from the normal legal constraints imposed by administrative law.
The Journal story focused on action taken by a government agency called the National Credit Union Administration (NCUA). According to the story, the NCUA entered into contingency fee agreements with two law firms to sue several major banks over losses suffered by insolvent credit unions. The law firms would only get paid if they won the suits or extracted settlements, and what they would earn would be a fixed percentage of whatever money they recovered.
Contingency fee agreements like these are common in private litigation, such as when individuals sue to recover damages suffered from automobile accidents or defective products. Contingency fee agreements are rare when the federal government finds it needs to hire outside lawyers. Indeed, since 2007 contingency fee agreements by federal agencies have been banned by an executive order issued by President George W. Bush and retained by President Barack Obama.
According to the Journal story, the NCUA argues that it is not bound by the executive order because “it is an independent agency acting as a liquidator of failed credit unions.” The Journal reporter further claims that “[l]egal experts are split about the validity of the argument, which appears to be an unsettled area of law.” But in reality, the answer to the legal question is abundantly clear: NCUA is not bound by the contingency fee ban when it acts to liquidate insolvent credit unions.
It is true, of course, that lawyers and legal scholars do debate whether executive orders can impose legal obligations on the heads of agencies. This debate is fiercest over so-called independent agencies, which the NCUA purports to be and for which the executive order banning contingency fees specifically purports to bind. Yet even if presidents can legally bind independent agencies like the NCUA, the nature of that legal obligation is still limited. By its own terms, the contingency fee order states that it “is not intended to, and does not, create any right, benefit, or privilege, substantive or procedural, enforceable at law.”
But we need not be distracted by the issue of presidential authority over independent agencies. The most decisive reason the NCUA cannot be bound by the contingency fee order is based on one of the most undisputable principles of all: presidents are not above the law. The U.S. Constitution does not permit presidents unilaterally to change duly enacted statutes, which means that the president’s contingency fee order is ultimately subordinate to any applicable statutes. This principle is so well-accepted that many executive orders – including the contingency fee one – acknowledge it by their very terms. The contingency fee order states that it must be “implemented consistent with applicable law” and that it “shall not be construed to impair or otherwise affect authority granted by law to an agency.”
The Federal Credit Union Act – a statute passed by Congress – makes quite clear that when the NCUA steps in to liquidate an insolvent credit union, the agency effectively becomes one and the same with the insolvent credit union. Section 1787 of the Act states that when the NCUA becomes the liquidating agent, it “shall…succeed to all rights, titles, powers, and privileges of the credit union” and that it “may … operate the credit union with all the powers of the members or shareholders, the directors, and the officers of the credit union.”
Courts have recognized that this statutory language creates a clear difference between the NCUA acting as a government agency and the NCUA acting as a liquidating agent. When it acts as a liquidating agent, the NCUA is not subject to a variety of rules normally applicable to government agencies. For example, when entering into contracts for office supplies, insolvent credit unions operated by the NCUA in its capacity as liquidating agent do not need to follow government procurement rules. For this same reason, NCUA-operated credit unions in liquidation can contract for lawyers in any way that normal credit unions can.
Of course, at first glance it might seem troubling that a government agency need not function as a government entity, restrained by the usual rules of law applicable to other government agencies. But the NCUA is only freed from administrative law under very narrow, circumscribed conditions. Moreover, since most administrative law derives from statutes, Congress may obviously act by statute to exempt agencies from some of these constraints. It would be another matter altogether if the NCUA were accused of somehow violating the Constitution when acting as a liquidating agent.
In entering into contingency fee agreements, the NCUA implicates neither the constitution nor any statute. The legal question might have been harder had the contingency fee ban not been imposed by an executive order but by a duly enacted statute. In such a hypothetical situation, the question would have become whether a subsequent Congress intended the contingency fee ban to modify Section 1787’s previous grant to the NCUA of “all” rights, powers, and privileges possessed by the credit union. The answer would almost certainly still be “no,” that Congress had intended no such modification, at least if the hypothetical statute were written exactly like President Bush’s executive order. Section 1 of that executive order states that it is intended to address the provision of legal services “to or on behalf of the United States.” By law, when the NCUA serves as liquidating age
nt it is acting immediately for and on behalf of the insolvent credit union – and by extension any of its uninsured depositors as well as the national credit union insurance fund. The stated purpose of the contingency fee ban is to protect “taxpayers,” but the credit union insurance fund that the NCUA administers, and into which any net recoveries from the NCUA’s litigation would be placed, receives no taxpayer funds. It is financed by credit unions themselves.
The bottom line is that when liquidating credit unions the NCUA may lawfully enter into contingency fee agreements. People can debate whether contingency fees make the best practical sense when trying to recover losses suffered by insolvent credit unions. But in the end, it is the NCUA’s call to make. The agency may, when serving as the liquidating agent for insolvent credit unions, legally act like it is not a federal agency.