On January 2, the U.S. Court of Appeals for the Ninth Circuit upheld the constitutionality of the FHFA’s funding mechanism, affirming the dismissal of a lawsuit that challenged the agency’s authority under the Appropriations Clause and the nondelegation doctrine. The plaintiffs, who had acquired Nevada properties subject to liens held by entities regulated by the FHFA (i.e., Fannie Mae or Freddie Mac), argued that the agency’s funding mechanism — derived from assessments on regulated entities rather than through the ordinary appropriations process — was “unconstitutional” and that the FHFA lacked authority to foreclose on their properties.

The court found that the plaintiffs had standing, as they plausibly alleged injury in fact from foreclosure actions initiated while the entities were under FHFA conservatorship. On the merits, the panel concluded that the Housing and Economic Recovery Act of 2008 (Recovery Act) identifies both a source of funds and a purpose for their use, in line with recent U.S. Supreme Court precedent regarding the Appropriations Clause (covered here). The court also highlighted the Recovery Act’s reporting and auditing requirements as buttressing its reasoning.

Rejecting the plaintiffs’ claims, the panel ruled that the Appropriations Clause does not require a numerical cap on agency funding and that the statute’s limitation to “reasonable costs” provides an “intelligible principle,” thus satisfying the nondelegation doctrine. The court affirmed the district court’s decision to dismiss the case with prejudice, finding amendment would be “futile.”