Since it was filed in a California federal court in July 2012, we have been following CFPB v. Chance Edward Gordon, a case in which the CFPB alleged that an attorney duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers. The CFPB charged the defendant with violations of the Consumer Financial Protection Act and Regulation O, the Mortgage Assistance Relief Services Rule.
As part of his affirmative defenses to the CFPB’s complaint, the defendant included a challenge to President Obama’s recess appointment of Director Cordray. In his summary judgment motion, the defendant asserted that, based on the reasoning of the D.C. Circuit’s decision in NLRB v. Noel Canning, Mr. Cordray was not validly appointed as CFPB Director. He argued that in the absence of a validly-appointed Director, the CFPB had no authority over non-banks and the CFPB’s action against him was therefore rendered invalid. The U.S. Supreme Court subsequently affirmed the D.C. Circuit’s ruling that the NLRB appointments at issue in Canning were invalid.
The district court did not address the merits of the defendant’s argument that the CFPB lacked authority to bring the action because of Director Cordray’s unconstitutional appointment, concluding that the argument had been waived. It found that the defendant had violated the CFPA and Regulation O and ordered approximately $11.4 million in disgorgement and restitution.
In its opinion affirming the district court’s finding of liability, the Ninth Circuit considered whether the district court had Article III jurisdiction to hear the CFPB’s enforcement action (an issue which the defendant had not raised but was raised in an amicus brief). According to the Ninth Circuit, any defects in Director Cordray’s appointment did not deprive the court of Article III jurisdiction because the CFPB retained its enforcement authority, and therefore its standing to sue, despite such defects. The Ninth Circuit also ruled that Director Cordray’s invalid recess appointment did not render the enforcement action against the defendant invalid because Director Cordray’s subsequent valid appointment coupled with his notice ratifying the actions he took as Director while serving as a recess appointee cured any initial constitutional deficiencies.
A petition for rehearing en banc was denied on July 20, 2016. On November 17, 2016, the defendant, represented by the Washington Legal Foundation, filed a petition for a writ of certiorari with the U.S. Supreme Court.
The certiorari petition presents two questions. The first question is whether a federal official can retroactively ratify an ultra vires government action when (1) no federal official was authorized to perform the act at the time it was initially undertaken, (2) the purported ratification does not include an examination of any facts related to the act performed, and (3) the ratification purports to encompass not only the initial act but also federal court rulings entered in response to the act. The second question presented is whether federal courts possess Article III subject matter jurisdiction to hear a case filed at the behest of an individual who, from the time suit was filed until judgment was entered, lacked authority to vindicate the Executives Branch’s interest in seeing that the law is obeyed.
The petition asserts that the Ninth Circuit’s ruling conflicts with decisions of the Supreme Court and other appeals courts regarding the authority of federal officials to ratify actions that were unauthorized when undertaken. It also asserts that because the filing of the lawsuit was not approved by a validly-appointed federal officer, the CFPB lacked standing to prosecute it and the case should have been dismissed for lack of Article III jurisdiction.
The petition also contends that the case raises separation of powers issues, arguing that the Ninth Circuit’s decision “constitutes a significant relaxation of Article III’s standing requirements and thus erodes the separation of powers.” It asserts that the importance of such issues “is highlighted by the D.C. Circuit’s recent PHH decision.” In that decision, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional but noted that it “need not here consider the legal ramifications of our decision for past CFPB rules or for past agency enforcement actions.” The petition argues that by granting review in this case, the court “can provide desperately needed guidance to the many courts that already face challenges to [the CFPB’s claims regarding ratification of its past actions].”