Appeals Court Denies Trump’s Bid to Remove Fed Governor Cook

Federal Reserve governor Lisa Cook launched her legal battle on Aug. 28 after she was terminated by Trump. (Drew Angerer/Getty Images)

Key Points

About This Summary

• An appeals court has upheld a lower court’s ruling, allowing Federal Reserve governor Lisa Cook to continue serving.
• Cook was terminated by Trump after FHFA Director Bill Pulte alleged she made false claims on mortgage documents in 2021.
• The court found Cook’s removal likely violated her right to due process, allowing her to participate in the FOMC meeting.

A federal appeals court ruled Monday that Federal Reserve governor Lisa Cook can continue serving at the central bank as her legal case moves forward, upholding a lower court’s ruling.

The ruling by the U.S. Court of Appeals for the District of Columbia Circuit means Cook can participate in the Federal Open Market Committee’s two-day meeting, which starts on Tuesday. The FOMC will vote on any change to the federal-funds rate and is widely expected to decide on a quarter-point rate cut.

Cook launched her legal battle on Aug. 28 after she was terminated by Trump. Federal Housing Finance Agency Director Bill Pulte alleged she made false claims on mortgage documents in 2021 that may have secured her more favorable loan terms, and Trump cited that alleged mortgage fraud as cause for dismissal in an Aug. 25 letter.

In an order issued Monday night, the appeals court found in a 2-1 decision that the lower court’s conclusion was correct that Cook’s removal likely removal violated her right to due process.

“For that reason—and because of the myriad unique features of
this case as compared to other recent challenges to presidential
removals—I vote to deny the government’s emergency request
for a stay pending appeal,” the majority statement reads.

In denying the government’s bid to stay the district court’s ruling, Circuit Judges Bradley N. Garcia and J. Michelle Childs noted that Cook has been serving in her position continuously, and so granting the government’s request for emergency relief would “upend, not preserve,” the status quo.

“Given these unique circumstances, and Cook’s strong likelihood of success on at least her due process claim, the government’s request for relief is rightly denied,” Monday’s order noted.

Circuit Judge Gregory G. Katsas dissented, saying that the “equitable balance” in the case tips in favor of the government.

White House spokesman Kush Desai said in a statement to Barron’s on Tuesday morning that Trump plans to fight the ruling. “The President lawfully removed Lisa Cook for cause. The Administration will appeal this decision and looks forward to ultimate victory on the issue,” Desai said.

A federal judge temporarily granted Cook’s bid to block her termination by Trump on Sept. 9, paving the way for the policymaker to participate in this week’s FOMC meeting and continue serving on the Board of Governors.

But the government immediately appealed the decision, arguing Trump’s move to oust a Fed governor for cause falls within the president’s discretion and should not be second-guessed by the courts. It claimed Trump had clear cause to oust Cook, pointing to alleged misrepresentations on mortgage documents predating her time in office.

“The President removed Cook for cause…after detailing misrepresentations Cook had made in mortgage applications—misrepresentations that would constitute mortgage fraud if made knowingly, and that, at a minimum, reflect a lack of care in financial matters that the President determined was inconsistent with Cook’s holding a position of public financial trust on the Federal Reserve Board,” the government said in a brief.

Cook’s attorneys pushed back against the government’s request for an emergency stay, contending in a response filed Saturday the government had not provided sufficient evidence to merit a “for cause” removal.

Further, Cook’s legal team contends that if the court abdicates its role in reviewing the president’s ability to remove a policymaker in this fashion, it would “transform the Federal Reserve from a historically independent institution into an at-will body, leaving the nation’s central bank (and its monetary policy) at the mercy of the White House and its political whims.”

Cook has continued to carry out her duties during the litigation, her lawyers have noted.

The case involves the first purported “for cause” removal of a Fed governor in the central bank’s 111-year history. Trump’s removal, however, hinges on alleged misrepresentations Cook made on mortgage documents predating her time in office.

Pulte claimed Cook sought several mortgages in 2021 for homes in Michigan and Georgia that she inaccurately listed as primary residences, thus gaining favorable mortgage terms. Pulte later claimed a third mortgage on a home in Massachusetts was also being investigated.

But the government hasn’t produced any evidence that Cook gained favorable rates or other benefits. Additionally, documents reviewed by Barron’s indicate that Cook has claimed the Georgia property as a vacation home, rather than the primary property as Pulte alleged.

Judge Jia M. Cobb stated the case raised “many serious questions of first impression that the Court believes will benefit from further briefing.” But at this preliminary stage, Cobb ruled that Cook made “a strong showing that her purported removal was done in violation of the Federal Reserve Act’s ‘for cause’ provision,” Cobb wrote in granting Cook’s request last week.

Cook’s full 14-year term on the board is set to end in January 2038. She was appointed in 2022 by then-President Joe Biden to fill an unexpired term. She was reappointed in 2023 to her current term.

Write to Megan Leonhardt at megan.leonhardt@barrons.com and Nicole Goodkind at nicole.goodkind@barrons.com