On Tuesday, the U.S. District Court for the District of Columbia declared the terminations of NCUA Board members Todd M. Harper and Tanya F. Otsuka to be "unlawful," finding that Congress had insulated the NCUA Board members "from at-will removal." The court found that protection from being fired is "consistent with the separation of powers," largely because the multimember NCUA board "does not wield substantial executive power."

"Harper and Otsuka remain members of the NCUA Board and may be removed by the President prior to the expiration of their terms only for cause," District Court Judge Amir H. Ali, a Biden appointee. wrote in a 27-page opinion. 

The court denied the government's cross motion for summary judgment. The case is part of a larger legal dispute over the President's authority to remove members of independent agencies.

The district court also enjoined the four defendants from removing Harper and Otsuka from the board during their terms. The order prohibits Treasury Secretary Scott Bessent, Executive Director of the NCUA Larry Fazio, NCUA Chairman Kyle S. Hauptman, and Deputy Director of Presidential Personnel Trent Morse as well as their "subordinates, agents, and employees," the judge wrote, from firing the Democratic board members during their terms.  

NCUA board members have fixed and staggered six-year terms. Harper's term expires in April 2027, while Otsuka's term ends in August 2029.

In April, Harper and Otsuka sued Bessent, Fazio, Hauptman — the remaining Republican NCUA board member — and Morse, a White House staffer, claiming the men exceeded their statutory authority and threatened financial stability by politicizing the previously bipartisan NCUA. 

Vincent Levy, a partner at Holwell Shuster & Goldberg LLP, who represented Harper and Otsuka, said in a statement that the court's decision "vindicates Congress's judgment that the independence of financial regulators like the NCUA Board is necessary to ensure the stability of our financial markets."

Both Harper and Otsuka declared victory and vindication, though it may be short-lived. The Trump administration is expected to appeal.  

"Today's ruling in favor of immediately restoring the Board to its full capacity is a real win for the 143 million Americans who rely on the National Credit Union Administration to protect their rights and insure their deposits," Harper said in a statement. "It's also a win for all credit unions by maintaining the agency's future independence."

Otsuka said the court's decision "is a victory for the rule of law and the millions of people who use credit unions. 

The judge stated that "the legislative history 'is revealing' and shows [that] 'the Senate Banking Committee believed the six year terms would protect NCUA Board members from at-will removal during their appointed terms.'"

The government claimed that NCUA Board members are removable at the pleasure of the president because Congress did not add express language stating that board members could be removed "only for cause." The court rejected that argument. 

"Both the Supreme Court and D.C. Circuit have been clear that the absence of an express provision should not be treated as dispositive, and agency heads may enjoy for-cause removal protection even in the absence of an express statutory provision," the court stated in its opinion.

Ali wrote that the "absolute freedom from Executive interference, [which] the Supreme Court deemed essential in Humphrey's Executor and Wiener is also critical to the functioning of the NCUA."

The Supreme Court's 1935 decision in Humphrey's Executor v. Roosevelt forms the legal underpinning of independent administrative agencies like the NCUA, finding that Congress can limit the President's power to remove officials from independent agencies, particularly those whose duties include quasi-legislative or quasi-judicial functions. In Wiener v. United States, the Supreme Court in 1958 clarified the limits of presidential power to remove appointed officials, specifically those in quasi-judicial roles. The Court ruled that President Eisenhower did not have the authority to remove Myron Wiener from the War Claims Commission, an independent agency, because the enabling legislation did not specify grounds for removal. 

The court also referred to a Senate report that stated the NCUA administrator is the only federal financial regulator "to serve at the pleasure of the President without tenure." The opinion stated that the Banking Committee "recognizes the need to provide tenure for the Administrator in order to strengthen the [NCUA]'s status as an independent agency."

Harper said he looks forward to working with fellow NCUA board members to ensure the credit union system and economy "remain safe, stable, sound, secure, and fair." Otsuka also said she looks forward to "getting back to work to make sure we have a safe and resilient financial system."

The case could end up at the Supreme Court. A separate case brought by fired Democratic Federal Trade Commissioner Rebecca Slaughter is also being teed up for the high court.

Last week, a U.S. appeals court temporarily blocked a lower court's order that had reinstated Slaughter at the FTC.  The Trump administration is appealing the decision, arguing it infringes on the President's executive authority.