On Monday, the first day of its new term, the U.S. Supreme Court denied the petition for a writ of certiorari filed by RD Legal Funding that asked the Court to decide whether the CFPB can ratify actions taken when it was unconstitutionally structured.
In its petition, RD Legal argued 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. The petition asked the Court to decide whether ratification is an appropriate remedy for structural separation of powers violations (i.e. the constitutional violation resulting from the Dodd-Frank Act’s “for cause” removal provision.)
RD Legal filed its petition after the Second Circuit vacated the district court’s judgment dismissing the underlying CFPB enforcement action and remanded the case to the district court to consider the validity of former Director Kraninger’s ratification of the enforcement action. In its opposition to the petition, the CFPB argued that interlocutory review by the Supreme Court was particularly inappropriate because neither the district court nor the Second Circuit had addressed the question presented by the petition.
It also argued that the reasoning in the Supreme Court’s decision in Collins v Yellen provided an independent basis for denying the relief sought by RD Legal—invalidating the enforcement action. In Collins, the Supreme Court held that a constitutional defect in the statutory provision restricting the President’s ability to remove the FHFA Director did not require invalidating a contract adopted and implemented by the FHFA.
The CFPB argued that the lower courts have not had an opportunity to consider the effect of Collins on RD Legal’s challenge to the CFPB’s enforcement action. According to the CFPB, the lower courts might conclude that Collins justifies rejection of RD Legal’s challenge, thereby making it unnecessary for those courts to consider ratification. The CFPB also notes that there is no circuit conflict on the ratification question presented and that cases raising ratification issues are currently pending in four circuit court cases (All American Check Cashing, Law Offices of Crystal Moroney, Nationwide Biweekly Administration, CashCall).