Cook Hearing Ends With Tough Questions But No Judge Ruling (1)

Questions about whether President Donald Trump had cause to try to push out Federal Reserve Governor Lisa Cook dominated a court hearing Friday, as a judge weighs whether he had proper reasons to order her removal from the US central bank.

US District Judge Jia Cobb peppered lawyers for Cook and the administration for about two hours Friday, before ending the hearing without ruling on the Fed governor’s request for a temporary order blocking Trump’s effort to oust her. The judge, who isn’t expected to make a decision this week, didn’t indicate which way she is leaning in a landmark lawsuit that could determine the future of the Fed’s independence.

The hearing capped weeks of criticism of the Fed by the Trump administration and signaled the beginning of a pitched legal fight that is likely to land before the US Supreme Court. Cook sued after Trump moved to fire her for allegedly engaging in fraud by declaring two homes as her primary residence in separate mortgage applications. She hasn’t been charged with wrongdoing.

The judge focused in particular on Cook’s argument that being accused of wrongdoing and fired through a series of social media posts didn’t amount to proper due process under US law.

Cook lawyer Abbe Lowell spent more than an hour fielding questions from the judge over what cause the president needs to fire a Fed governor and whether Trump acted on an improper pretext. The judge also probed whether Cook received appropriate notice.

Attorneys Norman Eisen, second left, and Abbe Lowell, representing Federal Reserve Governor Lisa Cook, exit federal court in Washington on Aug. 29.

Photographer: Graeme Sloan/Bloomberg

Lowell said that fraud allegations have become a “weapon of choice” for Trump as he seeks to remove officials whom he views as obstacles to his agenda. Trump’s motive, he argued, signaled he didn’t have the necessary cause to fire Cook.

Trump is not seeking a Fed governor who “has never committed an infraction in their life,” Lowell said, but one who “would lower the interest rate” to what the president “demanded.”

No Explanation

Justice Department attorney Yaakov Roth argued that Cook’s failure so far to explain the alleged mortgage discrepancies suggests she did something wrong and supports Trump’s right to remove her for cause. If there was an explanation, he said, “we would have heard it by now.”

As part of her lawsuit, Cook suggested that an unintentional “clerical error” may have been behind the mortgage filling.

Roth denied that Trump is looking to remove Cook over policy disagreements. She was appointed by former President Joe Biden and her term was set to expire in 2038. Roth also disputed the claim by Cook that Trump has violated her right to contest the claims against her.

Cook sued Trump on Thursday, arguing that his attempt to fire her was a power grab that could cause “irreparable harm” to the US economy. The president is seeking to remove her over claims by
Federal Housing Finance Agency Director Bill Pulte that she lied on mortgage documents.

At the hearing, the judge said she is “uncomfortable” with Cook’s argument that she was fired on a pretext. But she said she’s also uncomfortable with Trump explicitly saying he wanted a majority on the Fed’s board and then saying “find reasons to kick all these people off so I can get my people in.”

Cobb also signaled that she is grappling with whether she has authority at all to review the legitimacy of Trump’s stated reasons for firing Cook, or if he’s entitled to wide discretion when deciding to remove someone “for cause.”

The judge is not expected to issue a ruling before at least Tuesday, when Cook’s lawyers are due to file another legal brief addressing the judge’s questions on Friday and responding to the government’s arguments.

Yaakov Roth, principal deputy attorney general at the DOJ, right, arrives at federal court in Washington on Aug. 29.

Photographer: Graeme Sloan/Bloomberg

Next Steps

In a statement Tuesday, the Fed acknowledged Cook was seeking a court order clarifying whether she could continue serving in her role while the case proceeds. The Fed said it would abide by the court’s decision, and a spokesperson added the agency would defer any decision on her work status.

Read More: Cook Signals ‘Clerical Error’ May Be Behind Mortgage Dispute

Just before the hearing, the Justice Department said in a filing that courts should defer to Trump on whether he has sufficient “cause” to fire Cook. Her request for an order temporarily allowing her to remain employed should be denied, the government said. Cook is “highly unlikely to prevail on the merits” of her claim that Trump illegally fired her without cause, they argued.

“Removal for ‘cause’ is a capacious standard, and one Congress has vested in the discretion of the President,” the government said. “Even if it were subject to any judicial review — and over a century of caselaw suggests it is not — that review would have to be highly deferential, lest it intrude into the President’s constitutional authority over principal officers.”

A central claim of Cook’s lawsuit is that Trump violated her constitutional due process rights as well as the Federal Reserve Act by firing her without “cause,” a term that’s been defined to mean inefficiency; neglect of duty; and malfeasance, or wrongdoing, in office.

But the Justice Department argued that Cook was relying on an “artificially narrow interpretation” of what constitutes “cause” for her firing. In the hearing, Roth disputed Cook’s argument that she did not receive the necessary notice of the allegations against her because they were made in a social media post.

“You’re not suggesting what happened would satisfy due process requirements?” the judge asked Roth. He replied that he would.

Read More: Pulte Ups Cook Scrutiny With DOJ Referral on Third Mortgage

(Updates with additional arguments throughout.)

--With assistance from Amara Omeokwe, Anthony Aarons, Steven T. Dennis and Greg Stohr.

To contact the reporters on this story:
Erik Larson in New York at elarson4@bloomberg.net;
Zoe Tillman in Washington at ztillman2@bloomberg.net;
David Voreacos in New York at dvoreacos@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Sara Forden

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