RD Legal Funding has filed a petition for a writ of certiorari in the U.S. Supreme Court that asks the Court to decide whether the CFPB can ratify actions taken when it was unconstitutionally structured.

A New York federal district court had dismissed the enforcement action against RD Legal filed jointly by the CFPB and New York Attorney General, ruling that the CFPB’s structure was unconstitutional and that the proper remedy for the constitutional violation was to invalidate Title X in its entirety because the for-cause removal provision was not severable from Title X.  Having invalidated Title X, the district court also determined that there was no longer a statutory basis for the NYAG to bring its federal claims and therefore dismissed such claims for lack of federal jurisdiction.

RD Legal appealed to the U.S. Court of Appeals for the Second Circuit.  While the appeal was pending, the Supreme Court ruled in Seila Law that the CFPB’s structure was unconstitutional because the Dodd-Frank Act provision allowing the President to only remove the CFPB Director “for cause” violated the separation of powers in the U.S. Constitution.  The Supreme Court also ruled that the unconstitutional provision was severable.  Thereafter, the CFPB filed a declaration with the Second Circuit in which former Director Kraninger stated that she had ratified the Bureau’s decisions to file the enforcement action against RD Legal and to appeal from the district court’s dismissal of the action.

Based on the Supreme Court’s Seila Law decision, the Second Circuit issued a summary order that affirmed the district court’s holding that the Dodd-Frank Act’s for-cause removal provision was unconstitutional, reversed its holding that the provision was not severable, and remanded the case to the district court to consider the validity of former Director Kraninger’s ratification of the CFPB’s enforcement action.  The Second Circuit’s order vacated the district court’s judgment dismissing the underlying enforcement action.

RD Legal’s certiorari petition presents the following two questions:

  • Whether ratification is an appropriate remedy for the constitutional violation identified in Seila Law.
  • Whether, after Seila Law found the CFPB’s structure unconstitutional, the CFPB could ratify its enforcement action and appeal to the Second Circuit after the time for doing either had run.

In its petition, RD Legal argues that the ratification of the CFPB’s enforcement action by former Director Kraninger was ineffective because, as an agent of the CFPB, she could not ratify an act that the CFPB, as principal, could not take at the time such act was done due to its unconstitutional structure.  Alternatively, RD Legal argues that even if ratification of an action taken while unconstitutionally structured was possible, former Director Kraninger could not ratify the enforcement action against RD Legal more than three years after it was brought or ratify the appeal more than two years after the CFPB filed its notice of appeal.

Seila Law is also expected to ask the Supreme Court to decide whether former Director Kraninger could ratify actions taken by the CFPB while it was unconstitutionally structured.  After the Supreme Court agreed with Seila Law that the CFPB’s structure was unconstitutional and remanded the case for further consideration, a unanimous Ninth Circuit panel ruled that the civil investigative demand (CID) issued to Seila Law was validly ratified by former Director Kraninger and affirmed the district court’s decision granting the CFPB’s petition to enforce the CID.  Following a sua sponte request from a Ninth Circuit judge for a vote on whether to rehear the case en banc, a majority of the non-recused Ninth Circuit active judges voted against en banc reconsideration and rehearing en banc was denied.  However, four judges joined in an opinion dissenting from the denial.  Seila Law then filed a motion for a stay of the mandate in which it asserted that for the reasons given by the dissenters, “there is a reasonable chance that the Supreme Court will grant certiorari in this case.”  The Ninth Circuit has granted Seila Law’s stay motion pending its filing of a certiorari petition in the Supreme Court.

The ratification question is also before the Fifth Circuit in All American Check Cashing.  In March 2020, the Fifth Circuit, on its own motion, entered an order vacating the panel’s ruling that the CFPB’s structure was constitutional and granting rehearing en banc.  The Fifth Circuit then tentatively calendared the case for en banc oral argument during the week of September 21, 2020 and ordered the parties to file supplemental briefs.  However, on September 9, 2020, after the parties filed their supplemental briefs, the Fifth Circuit issued a directive putting the case on hold until the U.S. Supreme Court issued its decision in Collins v Mnuchin.  In its decision issued earlier this week, the Supreme Court agreed with the en banc Fifth Circuit’s decision in Collins that held the FHFA’s structure is unconstitutional because the Housing and Economic Recovery Act of 2008 only allows the President to remove the FHFA’s Director “for cause.”