Judge grapples with Trump's attempt to remove Lisa Cook as Fed governor

Washington — A federal judge on Friday heard arguments over a bid by Federal Reserve Governor Lisa Cook to remain in her post despite President Trump's efforts to remove her because of allegations she made false representations on mortgage agreements several years ago.

The two-hour-long hearing before U.S. District Judge Jia Cobb marked the first in-person showdown between Justice Department lawyers and Cook's legal team in the wake of her lawsuit, filed Thursday, challenging Mr. Trump's attempt to oust her from the Fed's Board of Governors.

Cook's lawyers have asked the district court to issue a temporary restraining order finding Mr. Trump's purported termination of her to be unlawful and declaring that she remains a member of the Fed's seven-member Board of Governors.

Cobb, appointed by former President Joe Biden, did not issue a decision from the bench. Instead, she noted that the case raises "important questions that may be of first impression" as it relates to the president's firing of a Fed governor. She repeatedly pointed to the "unique functions" of the central bank and the importance "of this being an independent body that it is not supposed to be responsive to any type of political pressure."

Cook was appointed to the post by Biden in May 2022 and reappointed to a full 14-year term set to end in January 2038. She alleges in her lawsuit that Mr. Trump's move violates the Federal Reserve Act, which states that the president can only remove a member of the central bank's Board of Governors "for cause."

In his letter informing Cook that he was terminating her from the Fed Board of Governors earlier this week, Mr. Trump wrote that he had "sufficient cause" to remove her from the position. The president cited as grounds for her firing a letter Bill Pulte, director of the Federal Housing Finance Agency, sent to Attorney General Pam Bondi alleging that Cook made false statements on mortgage agreements.

Pulte, appointed to the post by Mr. Trump, accused Cook of claiming two different properties in Michigan and Georgia as her principal residence on mortgage documents in 2021 in order to gain more favorable lending terms. Cook has not been charged with any civil or criminal offense.

Cook's lawyers said in court papers that she may have "erred" in filling out the form for her private mortgage, but noted that the alleged action took place before she assumed office as a Fed governor.

"None of the alleged misconduct occurred during the performance of Governor Cook's duties as a Federal Board member," they wrote. "And the President and Director Pulte have not even alleged explicitly that Ms. Cook benefited from any clerical error, or that such an error was intentional."

In a statement released through the Fed last week, Cook said, "I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts."

Abbe Lowell, who argued on Cook's behalf before the court, said her firing rests solely on Pulte's assertion that she may have committed wrongdoing. He said Cook did not receive any notice of the allegations against her or a chance to respond to them, which violated her due process rights. Only 30 minutes elapsed between the time Pulte shared on social media the letter to Bondi alleging Cook engaged in mortgage fraud and Mr. Trump, in his own social media post, said she needed to resign, he said.

"This allegation of fraud has become the weapon of choice" for the Trump administration in removing officials, Lowell said, adding that "cause for the president means she won't go along with an interest rate drop."

Cook's lawsuit argues that Mr. Trump's attempt to oust her is "unprecedented and illegal," and, if allowed to stand, would be the first removal of a governor by the president in the Fed's 112-year history. Her attorneys said that while the "for cause" standard is not defined in the Federal Reserve Act, other laws shielding members of independent agencies from being fired without cause require a finding of inefficiency, neglect of duty or malfeasance in office.

"The President's effort to terminate a Senate-confirmed Federal Reserve Board member is a broadside attack on the century-old independence of the Federal Reserve System," Cook's lawyers wrote in a filing.

They warned that Mr. Trump's theory of "cause" would allow him to remove any Fed Board member with whom he disagrees on policy, eroding the central bank's independence and threatening its mission of providing economic stability.

Cobb repeatedly pressed Lowell about incorporating the removal protections included in other laws — inefficiency, neglect of duty or malfeasance in office — into the Federal Reserve Act when that law limits the grounds for removal by the president to "cause." She also asked Lowell to provide the "best authority" that supports the court articulating a framework for determining that an official's past conduct can constitute cause for termination.

Cook's lawsuit names Mr. Trump, the Board of Governors and Fed Chair Jerome Powell as defendants. In a court filing ahead of the hearing, a lawyer for the central bank said it does not intend to offer arguments about Cook's effort to block her removal and reiterated that it would follow any court orders.

Justice Department lawyers defended Mr. Trump's attempt to fire Cook, writing in a separate filing that "making facially contradictory statements in financial documents — whether a criminal burden of proof could be sustained or not — is more than sufficient ground for removing a senior financial regulator from office."

They argued that federal courts cannot second guess the president's judgment about what constitutes "cause," so Mr. Trump's effort to remove Cook is a matter of his discretion and not subject to judicial review. But the Justice Department added that if some judicial review of Cook's removal is appropriate, it would have to be highly deferential to avoid intruding on the president's constitutional authority over principal officers.

"Meanwhile, the President has a strong interest in exercising his statutory authority to remove a federal officer for cause, and the public has a strong interest in stable governance at the Federal Reserve — a stability that would be undercut by the type of pingpong injunctions and stays that have characterized other litigation," Justice Department lawyers wrote.

In questions to Yaakov Roth, principal deputy assistant attorney general, Cobb asked whether the president would have broad discretion to determine what constitutes "cause," given the nature of the Fed Board, and said she was "uncomfortable" with the idea that a president could explicitly express a desire to appoint a majority of governors and instruct his administration to "go dig in" and find reasons to remove sitting members.

"What if the stated cause is demonstrably false?" she asked Roth. "That's still not anything that anyone can do anything about?"

Roth said he was not aware of any statements Mr. Trump had made about Cook before Pulte raised the accusations against her and said there was no indication that Cook's removal is for any reason other than the allegations about her mortgage applications. He also noted that Cook has yet to offer any explanation for the representations on the documents.

Cobb, though, also said she had a "strong reaction" to the suggestion that Pulte's social media post satisfied due-process protections entitling Cook to receive notice of the accusations and an opportunity to respond.

As to the timing of the alleged misconduct — Cook entered into the mortgage agreements in 2021, before she was appointed to the Fed Board — Cobb said that if Cook's removal were reviewable, "it feels weird that an administration could go back and second guess the determinations of prior administrations and Congress in their advice and consent role."

Roth said "cause" requires a reason beyond mere policy disagreements that bears on a person's ability and fitness to do the job.

Cook is the latest Democratic appointee targeted for removal by the president as Mr. Trump seeks to stretch the bounds of executive authority. Since he returned to the White House in January, Mr. Trump has moved to oust members of various independent agencies tapped by his predecessor, including officials at the National Labor Relations Board, Merit Systems Protection Board, Consumer Product Safety Commission and Federal Labor Relations Authority, among others.

Many of his attempted firings have sparked legal battles, and the Supreme Court in some of those cases has allowed the removals to take effect while litigation continues. But in one of those challenges, brought by terminated members of the NLRB and MSPB, the high court suggested that the Fed is different from those other agencies.

The Supreme Court called the central bank a "uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States," the 18th- and 19th-century central bank predecessors of the Fed.

• Donald Trump
• Federal Reserve Board