When the State National Bank of Big Spring case challenging the constitutionality of several titles of the Dodd-Frank Wall Street Reform & Consumer Protection Act (“Dodd-Frank”) was originally filed in June 2012, I immediately identified its vulnerability to a motion to dismiss for lack of standing.  Since then, the complaint was amended twice, and a number of states – Alabama, Georgia, Kansas, Michigan, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas, and West Virginia – joined the case as parties plaintiff and added some refinements to the original causes of action.  Nevertheless, the vulnerability remained, and on August 1, 2013 Judge Ellen Segal Huvelle of the U.S. District Court for the District of Columbia granted the Government’s motion to dismiss on standing and ripeness grounds. 

The 62-page opinion essentially proceeds on two parallel tracks, one addressing Counts I-III, claims brought by private plaintiffs, primarily State National Bank of Big Spring, Texas (SNB), and the other Counts (IV-VI) that were principally brought by the States (the court noted that the private plaintiffs, while joining those counts, made no attempt to establish standing in their own right). 

The claims brought by the States (Counts IV-VI) had nothing to do with the CFPB but dealt instead with their status as potential creditors of a failed financial institution.  Their allegations, however, presented no concrete present injury and nothing but speculative – and therefore not cognizable – claims of future injury.  Accordingly, these counts were dismissed as not satisfying the case or controversy prong of standing and as not being ripe for adjudication.

The private plaintiffs challenged in Counts I – III the constitutionality of Dodd-Frank Titles I (establishing the Financial Stability Oversight Council (“FSOC”)), II (establishing the Orderly Liquidation Authority (“OLA”)), and X (establishing the CFPB).  The FSOC and OLA claims contained largely speculative allegations that alleged no concrete injury in fact resulting from any governmental action.  Thus there was no standing there either.

The court made short shrift of the standing of the private plaintiffs other than SNB: their standing was flawed not only by the absence of any showing of causation for the injuries alleged, but the injuries themselves amounted to no more than “generalized grievances,” which are well recognized as non-justiciable.   

According to the court, SNB’s challenge to the recess appointment of Richard Cordray suffers from similar flaws.  SNB can demonstrate no injury attributable to any action of the CFPB under Cordray and therefore lacks standing with respect to the recess appointment.  Furthermore, even if SNB (with only $275 milliion assets) were subject to direct CFPB jurisdiction (which it is not), standing cannot be established merely by being subject to government regulatory authority in the absence of any agency action causing injury in fact.  Otherwise, any entity that pays taxes could challenge any action of the IRS even if not the object of an IRS ruling or enforcement action.

The court found that there was no showing of any CFPB reporting requirements, rulemaking, or enforcement action imposed (or threatened) against SNB, including no interest arising out of the UDAAP authority given to the Bureau or its remittance or mortgage rules.  Likewise, no injury based on incurring compliance costs exists other than that coming about voluntarily (i.e., self-imposed, or, in the court’s words, “self-inflicted”) as costs of learning about the CFPB’s regulatory and enforcement actions against others.  (Injury in fact is the constitutionally required, and not merely prudential, prong of standing analysis that arises from the Article III “case or controversy” requirement). 

In the attachment to our original blog entry on this case, we called attention to the problems for SNB’s case caused by its voluntary exit from the mortgage business well before the Bureau was even up and running.  Judge Huvelle likewise had occasion to mention this more than once in the course of her opinion.  That fact alone fatally undermined SNB’s allegations about injury and causation with respect to the CFPB mortgage rules. 

The plaintiffs have announced that they intend to appeal the district court’s ruling.  I do not believe they have a good chance of prevailing on appeal in the D.C. Circuit, particularly in view of the number of that court’s opinions cited by Judge Huvelle’s opinion.

We shall also be monitoring another challenge to the CFPB’s authority, which was filed on July 22 and summarized by my colleague Barbara Mishkin here.  Unlike the Big Spring case, the plaintiffs in that case have standing to litigate.  We anticipate a responsive pleading from the Bureau in September.