On Monday, the U.S. Supreme Court denied the petition for certiorari in CFPB v. Chance Edward Gordon, a case filed by the CFPB in 2012 that alleged the defendant had 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. He argued that because Mr. Cordray was not validly appointed as CFPB Director, the CFPB’s enforcement action was invalid because the CFPB had no authority over non-banks in the absence of a validly-appointed Director. The district court did not address the merits of the defendant’s recess appointment argument but found that he 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 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. The petition for certiorari presented the questions of whether the recess appointment rendered the enforcement action invalid as well as whether it deprived the court of Article III jurisdiction to hear the enforcement action.
We were not surprised by the Supreme Court’s denial of the certiorari petition since there is currently no clear circuit split on the issue of how ratification affects a federal official’s past actions. In addition, Gordon did not present the separation of powers issue involved in PHH. Unlike that issue which could have far-reaching consequences, the ratification issue only impacts actions that pre-date Director Cordray’s subsequent valid appointment. As a result, if after the D.C. Circuit issues its en banc decision in PHH a certiorari petition is filed that presents the separation of powers issue, there is a much greater likelihood that the Court will grant the petition.