In March 2020, the Fifth Circuit, on its own motion, entered an order vacating the panel’s ruling in All American Check Cashing that the CFPB’s structure was constitutional and granting rehearing en banc.  On June 30, the Fifth Circuit tentatively calendared the case for en banc oral argument during the week of September 21, 2020 and ordered the parties to file supplemental briefs.  All American filed its supplemental en banc brief at the end of last week.

The underlying case is an enforcement action filed by the CFPB against All American in 2016 in a Mississippi federal district court for alleged violations of the CFPA’s UDAAP prohibition.  In March 2018, the district court denied All American’s motion for judgment on the pleadings based on the Bureau’s unconstitutionality and ruled that the CFPB’s structure was constitutional.  In opposing All American’s motion to certify the case for interlocutory appeal, the CFPB argued that a notice of ratification of the action by former Acting Director Mulvaney cured any constitutional defect and mooted the constitutional issue.  The district court did not rule on the CFPB’s ratification argument and in March 2018 granted All American’s motion for interlocutory appeal which the Fifth Circuit agreed to hear.

With the U.S. Supreme Court having ruled in Seila Law that the Bureau’s structure is unconstitutional, the en banc Fifth Circuit can be expected to reverse the panel’s ruling upholding the Bureau’s constitutionality.  Having ruled that the CFPB’s structure was constitutional, the panel did not reach the CFPB’s ratification argument.  On July 17, the CFPB filed a declaration with the Fifth Circuit in which Director Kraninger stated that she has ratified the Bureau’s enforcement action against All American.  Accordingly, the ratification issue could now be decided by the en banc Fifth Circuit.

In its supplemental brief, All American argues that dismissal of the Bureau’s enforcement action is the proper remedy for the constitutional violation.  According to All American, if a court declares an agency unconstitutional without giving meaningful relief to the prevailing challenger, the Constitution’s structural separation of powers guarantee would become meaningless because victims of constitutional violations would have no incentive to challenge such violations.

As an independent grounds for dismissal of the enforcement action, All American argues that the district court lacked jurisdiction to hear the action.  According to All American, because of the CFPB’s defective structure, the CFPB was not lawfully vested with executive power when it filed the enforcement action.  As a result, it lacked standing to sue and the district court never had subject matter jurisdiction over the action.

All American also argues that the ratification of the enforcement action by Director Kraninger and former Acting Director Mulvaney does not remedy the constitutional defect for the following principal reasons:

  • Unlike an action tainted by an appointment defect that involves an agent’s authority, an action taken by a structurally defective agency cannot be ratified.
  • Even if the ratification doctrine applies, U.S. Supreme Court precedent requires that two conditions must be satisfied for a valid ratification: the party ratifying an act must have been able (1) to do the act ratified at the time the act was done, and (2) to also do the act at the time of ratification.
    • The first condition cannot be satisfied because, as a result of the constitutional defect, the CFPB had no authority to bring the enforcement action at the time it was filed nor did it have standing to bring the action.
    • The second condition cannot be satisfied because the CFPB’s purported ratification (whether by Director Kraninger or former Acting Director Mulvaney) occurred after the expiration of the relevant 3-year CFPA statute of limitations.
  • The CFPB’s prosecution of the enforcement action after the Supreme Court’s Seila Law decision remains unconstitutional because the Bureau’s funding structure violates the U.S. Constitution’s Appropriations Clause in Article I by insulating the Bureau from congressional oversight, a problem made worse by the decision because the Bureau is now an executive agency “subject to full control by a President unconstrained by Congress’s appropriations power.”