The CFPB and All American Check Cashing have filed a status report with the Mississippi federal district court indicating that they have agreed to a settlement conference before a magistrate judge.

The case was remanded to the district court by the en banc Fifth Circuit, which ruled that the CFPB’s enforcement action against All American could proceed despite the unconstitutionality of the CFPB’s single-director-removable-only-for-cause-structure at the time the enforcement action was filed.  However, in a concurring opinion, five judges expressed their agreement with All American’s argument that the unconstitutionality of the CFPB’s funding mechanism required dismissal of the enforcement action.  In remanding the case, the Fifth Circuit stated that “[w]e place no limitation on the matters that the court may consider, including, without limitation, any other constitutional challenges, and we express no view on the actions it should take in accordance with this opinion or otherwise.”

Following the remand, the CFPB and All American filed a joint motion asking the district court to set a briefing schedule.  The proposed briefing schedule provided for All American to file a renewed motion for judgment on the pleadings and for the parties to address the significant legal developments concerning the CFPB’s constitutionality that had occurred since All American filed its initial motion (such as the U.S. Supreme Court’s Seila Law decision and the Fifth Circuit concurring opinion).  The district court, however, denied the motion and instead ordered that the case go to private mediation or a settlement conference before a magistrate judge, with the parties to decide which route they preferred. 

While the parties’ agreement to a settlement conference before a magistrate judge creates the possibility that the case will be resolved without a ruling from the district court on the constitutionality of the CFPB’s funding structure, that issue is unlikely to go away (particularly in light of the scholarly Fifth Circuit concurring opinion).  For example, the trade groups challenging the CFPB’s payday lending rule submitted the concurring opinion as supplemental authority to the Fifth Circuit panel hearing their appeal and argued that the panel should invalidate the rule based on that opinion. 

The en banc U.S. Court of Appeals for the Fifth Circuit has ruled that the CFPB’s enforcement action against All American Check Cashing can proceed despite the unconstitutionality of the CFPB’s single-director-removable-only-for-cause-structure at the time the enforcement action was filed.  However, in a concurring opinion, five judges expressed their agreement with All American’s argument that the unconstitutionality of the CFPB’s funding mechanism requires dismissal of the enforcement action.

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 unconstitutionality of the CFPB’s single-director-removable-only-for-cause-structure.  The district court ruled that the CFPB’s structure was constitutional but, on All American’s request, certified for interlocutory appeal the question of whether the CFPB’s structure violated the Constitution’s separation of powers.  The appeal was accepted by the Fifth Circuit. 

After a Fifth Circuit panel initially ruled (while Seila Law was awaiting decision by the U.S. Supreme Court) that the structure was constitutional, the Fifth Circuit, on its own motion, voted to rehear the case en banc, thereby vacating the panel’s ruling. 

In its en banc decision, the Fifth Circuit ruled that the Supreme Court’s decision in Seila Law decided the pure question of law raised by All American in the interlocutory appeal.  Because the Supreme Court also held that the unconstitutional removal provision was severable from the rest of the Dodd-Frank Act, the Fifth Circuit determined that dismissal was not warranted despite the district court’s error in finding no constitutional violation.  

The Fifth Circuit indicated that the absence of a dismissal left the CFPB free to continue the enforcement action against All American and remanded the case to the district court.  It stated, however, that “[w]e place no limitation on the matters that the court may consider, including, without limitation, any other constitutional challenges, and we express no view on the actions it should take in accordance with this opinion or otherwise.” 

As an alternative basis for challenging the CFPB’s constitutionality, All American had argued that the CFPB’s budgetary independence from Congress contravenes the Constitution’s separation of powers by violating the Appropriations Clause.  Pursuant to Dodd-Frank, the CFPB receives its funding through requests made by the CFPB Director to the Federal Reserve, subject to a cap equal to 12% of the Federal Reserve’s budget, rather than through the Congressional appropriations process.  In a scholarly concurring opinion in which four other Fifth Circuit judges joined, Judge Edith Jones agreed with All American’s argument, writing that “[t]he CFPB’s budgetary independence makes it unaccountable to Congress and the people.” 

Judge Jones also concluded that there was “no other option” for remedying the separation of powers violation arising from the CFPB’s budgetary independence than dismissing the enforcement action against All American.  She distinguished cases involving an improper removal restriction because, as the Supreme Court indicated in Collins, an unlawful removal provision does not take away an officer’s power to exercise his or her authority.  As a result, for a party challenging a removal provision to establish a right to a remedy, it must show that the unconstitutional provision caused compensable harm.  In the case of an Appropriations Clause violation however, Judge Jones concluded that “a government actor cannot exercise even its lawful authority using money the actor cannot spend.”  She stated that “a constitutionally proper appropriation is as much a precondition to every exercise of executive authority by an administrative agent as a constitutionally proper appointment or delegation of authority.”  Because the separation of powers violation at issue impaired the CFPB Director’s authority to act, she concluded that “the proper remedy is to disregard the government action.”

In a second concurring opinion, Judge Oldham, joined by Judge Englehardt, took the position that the Fifth Circuit had jurisdiction on the interlocutory appeal to decide whether the CFPB’s funding mechanism is constitutional.  (Both of these judges had joined in Judge Jones’ concurring opinion.)

As Judge Jones indicated in her opinion, the D.C. Circuit and several district courts have rejected the argument that the CFPB’s funding mechanism is unconstitutional.  In addition to noting that none of those decisions bind the Fifth Circuit, she observed that “no decision seriously wrestles with the overwhelming separation of powers problem discussed [in her opinion].”  The Appropriations Clause issue could pose a significant threat to the CFPB and It would not be surprising if Judge Jones’ opinion gives rise to a new wave of constitutional challenges in CFPB enforcement actions.

In fact, the trade groups challenging the payment provisions in the CFPB’s 2017 final payday/auto title/high-rate installment loan rule have submitted the en banc All American decision as supplemental authority to the Fifth Circuit panel hearing their appeal.  They argue that the panel should invalidate the rule based on Judge Jones’ concurring opinion.  Oral argument in that case is scheduled for today.  The trade groups have appealed from the district court’s final judgment granting the CFPB’s summary judgment motion and staying the compliance date for the payment provisions until 286 days after August 31, 2021 (which would have been until June 13, 2022).  After the appeal was filed, the Fifth Circuit entered an order staying the compliance date of the payment provisions until 286 days after the trade groups’ appeal is resolved.

Last week, the CFPB filed its supplemental brief with the Ninth Circuit in Seila Law and its supplemental en banc brief with the Fifth Circuit in All American Check Cashing.  The CFPB argues in both briefs that ratification of its actions by both former Acting Director Mulvaney and Director Kraninger cured any initial constitutional deficiency.

Seila Law.  In its Seila Law decision, after ruling that the CFPB’s structure was unconstitutional because its Director could only be removed by the President “for cause,” the U.S. Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s ratification argument.  Because it had ruled that the CFPB’s leadership structure was constitutional, the Ninth Circuit had not previously considered the CFPB’s argument that former Acting Director Mulvaney’s ratification of the CID issued to Seila Law cured any constitutional deficiency.  Following the Supreme Court’s Seila Law decision, the CFPB filed a declaration with the Ninth Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to issue the CID, to deny Seila Law’s request to modify or set aside the CID, and to file a petition in federal district court to enforce the CID.

In its supplemental brief, the Bureau argues that the CID should be enforced because a valid ratification cures an initial defect in an agency action, including the filing of an enforcement action, and the CID’s issuance to Seila Law was “formally and expressly ratified by two Bureau officials removable at will by the President.”  In support of its ratification argument, the CFPB cites the Ninth Circuit’s decision in CFPB v. Gordon that involved former Director Cordray’s ratification of the CFPB’s enforcement action against Gordon after his recess appointment was called into question by the U.S. Supreme Court’s Canning decision and he was reappointed and confirmed by the Senate.  The CFPB also cites the D.C. Circuit’s decision in FEC v. Legi-Tech, Inc. that involved the ratification of an enforcement action by the Federal Election Commission after the correction of a constitutional flaw in its membership structure.  (In its supplemental en banc brief filed in All American Check Cashing discussed below, the CFPB also cites Gordon and Legi-Tech in support of its ratification argument.)

The CFPB also asserts that should the Ninth Circuit set aside the CID, its ruling could “depending on the Court’s reasoning, be used to raise doubts about the validity of other actions the Bureau has taken over the past decade and that a fully accountable Director has now also ratified.  These actions include, for example, regulations governing the nation’s multitrillion-dollar mortgage market.”

All American Check Cashing.  In March 2020 (when Seila Law was still awaiting decision by the Supreme Court), 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.  All American filed its supplemental en banc brief last month.

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.  In July 2020, following the Supreme Court’s Seila Law decision, the CFPB filed a declaration with the Fifth Circuit in which Director Kraninger stated that she had ratified the Bureau’s enforcement action against All American.

In its supplemental en banc brief, the CFPB makes the following principal arguments:

  • Because a valid ratification cures an initial defect in an agency action, the CFPB’s constitutional deficiency and any purported injury suffered by All American as a result of such deficiency was cured by the ratification of the enforcement action by both Acting Director Mulvaney and Director Kraninger.
  • In response to All American’s argument that the Bureau had no authority to bring the enforcement action at the time it was filed because of its unconstitutionality, the Bureau argues that the CFPA’s removal provision did not affect the operation of the remainder of the CFPA, including the CFPA provisions that authorize the Bureau to bring enforcement actions.
  • In response to All American’s argument that Director Kraninger’s purported ratification was ineffective because it occurred after the expiration of the relevant 3-year CFPA statute of limitations, the Bureau argues that (1) only the date on which it filed the enforcement action is relevant for whether the SOL had run, and (2) even if the SOL had run by the date of Director Kraninger’s ratification, it should be equitably tolled because the Bureau pursued its rights diligently by filing its lawsuit in 2016.
  • In response to All American’s argument that an action taken by a structurally defective agency cannot be ratified, the CFPB argues that dismissal of the enforcement action after its ratification by both Acting Director Mulvaney and Director Kraninger (both removable by the President at will) would erode Presidential authority and, if ratification is not permitted, major regulatory disruption would result.
  • In response to All American’s argument that the Bureau lacked standing to file the enforcement action, the Bureau argues that an Article II violation does not implicate the limits on a federal court’s powers in Article III.
  • In response to All American’s argument that 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, the Bureau argues that its funding is not unconstitutionally shielded from Congress because (1) Congress exercised its power under the Appropriations Clause when it enacted the CFPA provision authorizing the Bureau to obtain a capped amount of funding annually from the Federal Reserve, and (2) Congress, at any time, could change the source of the Bureau’s funding or eliminate the Bureau’s funding entirely.

 

 

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.”

This past Friday, 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 Check Cashing.

On July 10, the CFPB filed a similar declaration with the Second Circuit in RD Legal Funding, another circuit court case involving a challenge to the Bureau’s constitutionality that was put “on hold” pending the Supreme Court’s decision in Seila Law.  In that declaration, Director Kraninger stated that she has 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.

It bears noting that in both All American Check Cashing and RD Legal, the CFPB had argued that any constitutional defect was cured by former Acting Director Mulvaney’s ratification of the two enforcement actions.  The CFPB’s ratification argument was not ruled on by the district court in All American Check Cashing and was rejected by the district court in RD Legal Funding.  The Second Circuit has proposed to calendar oral argument in RD Legal Funding during the week of October 5, 2020.  The Fifth Circuit has tentatively calendared en banc oral argument in All American Check Cashing during the week of September 21, 2020 and has ordered the parties to file supplemental briefs.

In Seila Law, the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that former Acting Director Mulvaney had ratified the civil investigative demand issued to Seila Law by the CFPB.  Assuming the CFPB intends to continue its effort to enforce the CID, we would expect the CFPB to now file a declaration with the Ninth Circuit that Director Kraninger has ratified the issuance of the CID to Seila Law.

 

 

With the U.S. Supreme Court having ruled in Seila Law that the CFPB’s leadership structure is unconstitutional, two circuit court cases involving the same constitutional challenge that were “on hold” pending the Supreme Court’s decision will now be moving forward.  The two cases are RD Legal Funding pending in the Second Circuit and All American Check Cashing pending in the Fifth Circuit.

RD Legal Funding.  The underlying case is an enforcement action filed jointly by the CFPB and the New York Attorney General in 2017 in a New York federal district court alleging federal UDAAP and state law claims.  The CFPB appealed to the Second Circuit from the district court’s June 2018 decision, as amended by a September 2018 order, in which it ruled that the CFPB’s structure is unconstitutional, struck the entire CFPA (Title X of Dodd-Frank), and dismissed the CFPB from the case.  The NYAG appealed from the district court’s dismissal of all of the NYAG’s federal and state law claims, and a subsequent order that dismissed the NYAG’s claims under Dodd-Frank Section 1042 “with prejudice.”  (Section 1042 authorizes state attorneys general to initiate lawsuits based on UDAAP violations.)

The CFPB had filed a notice of ratification by former Acting Director Mulvaney with the district court.  In its June 2018 decision, the district court stated that the CFPB’s ratification “does not address accurately the constitutional issue raised in this case, which concerns the structure and authority of the CFPB itself, not the authority of an agent to make decisions on the CFPB’s behalf.”

On July 10, 2020, the CFPB filed a declaration with the Second Circuit in which Director Kraninger stated that she has 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.  In response, RD Legal filed a letter with the Second Circuit in which it stated that the CFPB has waived the ratification issue because it did not appeal the district court’s ruling on ratification.  Alternatively, it argued that the ratification is not effective because Director Kraninger cannot ratify an act that the CFPB could not do at the time such act was done and, in any event, she cannot ratify the enforcement action or appeal because the action would be time-barred and the time to appeal has lapsed.

The Second Circuit can be expected to follow Seila Law and affirm the district court’s ruling that the CFPB’s structure is unconstitutional.  However, also following Seila Law, the Second Circuit can be expected to reverse the district court’s ruling striking all of Title X and rule instead that the Dodd-Frank Act’s “for cause” removal provision should be severed.  Although the district court considered former Acting Director Mulvaney’s ratification and not Director Kraninger’s ratification, its rationale for rejecting former Acting Director Mulvaney’s ratification would apply equally to Director Kraninger’s ratification.  It therefore seems unlikely that the Second Circuit would remand that issue to the district court rather than issue a ruling on ratification.

All American Check Cashing.  The underlying case is an enforcement action filed by the CFPB against All American Check Cashing in 2016 in a Mississippi federal district 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 is 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.

On March 3, 2020 (the same day that the Supreme Court heard oral argument in Seila Law), a Fifth Circuit panel ruled that the CFPB’s structure is constitutional.  On March 20, the Fifth Circuit, on its own motion, entered an order vacating the panel decision 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.

Following Seila Law, the en banc Fifth Circuit can be expected to reverse the panel’s ruling that the CFPB’s structure is constitutional and sever the Dodd-Frank Act’s “for cause” removal provision.  Because it ruled that the CFPB’s structure is constitutional, the panel did not reach the CFPB’s ratification argument.  Assuming the CFPB files a declaration of ratification by Director Kraninger as it did in RD Legal, the en banc Fifth Circuit will have an opportunity to issue a ruling on ratification or could decide to remand that issue to the district court.

In Seila Law, the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that former Acting Director Mulvaney had ratified the civil investigative demand issued to Seila Law by the CFPB.  As a result, three circuit courts (the Second, Fifth and Ninth Circuits) could now issue rulings on the ratification issue.

 

 

 

 

This past Friday, March 20, the Fifth Circuit entered an order granting rehearing en banc in All American Check Cashing.  The Fifth Circuit also vacated the 2-1 panel decision issued on March 3 (the same day that the U.S. Supreme Court heard oral argument in Seila Law) that ruled that the CFPB’s structure is constitutional.

The Fifth Circuit’s order states that “a majority of the circuit judges in regular active service and not disqualified hav[e] voted, on the Court’s own motion, to rehear this case en banc.”  It also states that oral argument will be held “on a date hereafter to be fixed.”

Pursuant to Fifth Circuit Rule 35, any active member of the court or any member of the panel rendering the decision can request a poll of the court’s active members “whether rehearing en banc should be granted, whether or not a party filed a petition for rehearing.”  Such a request triggers the following procedures:

  • The requesting judge will ordinarily send a letter to the Chief Judge with copies to the other active judges and any other panel member.
  • Each active judge casts a ballot and sends a copy to all other active judges and any senior judge who is a panel member.  The ballot indicates whether the judge voting desires oral argument if en banc rehearing is granted.
  • If a majority of active judges who are not disqualified vote for en banc rehearing, the Chief Judge instructs the clerk as to an appropriate order indicating a rehearing en banc with or without oral argument has been granted.
  • If the vote is unfavorable to the grant of rehearing en banc, the Chief Judge advises the requesting judge.  The panel originally hearing the case then enters an appropriate order.

The U.S. Supreme Court has denied the Petition for a Writ of Certiorari Before Judgment filed by All American Check Cashing.

In its petition, All American sought to have the Supreme Court hear its interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality rather than wait for a ruling on its appeal from the Fifth Circuit.  Having filed its petition before the Supreme Court granted Seila Law’s certiorari petition, All American argued that its case was a better vehicle than Seila Law for deciding the constitutionality question but that, at a minimum, its case should be heard as a companion case to Seila Law.

All American’s primary argument for why its case would be a better vehicle was that, unlike Seila Law, its case “squarely present[ed]” the question of whether, even if the agency’s structure is unconstitutional, former Acting Director Mulvaney’s ratification of the CFPB’s challenged action cured any constitutional defect.  Although the CFPB made the ratification argument in Seila Law, it was not addressed by either the district court or the Ninth Circuit (which both held that the CFPB’s structure is constitutional).

We are not surprised that the Supreme Court denied All American’s petition.  It is likely the Supreme Court concluded that its resolution of the remedy question in Seila Law would be sufficient at this time and that it would have another opportunity to address any additional issues raised in All American after the Fifth Circuit renders its decision.

The question presented in Seila Law’s certiorari petition is whether the CFPB’s single-director-removable-only-for-cause structure violates the separation of powers in the U.S. Constitution.  In its Order granting Seila Law’s petition, the Supreme Court directed the parties to also brief and argue the question whether the Dodd-Frank Act’s for-cause removal provision can be severed from the Act if the Bureau’s structure is found to be unconstitutional.  If the Supreme Court reverses the Ninth Circuit on the CFPB’s constitutionality but rules that the for-cause removal provision can be severed, it is unclear whether the Supreme Court will address the effect of severance on prior CFPB actions.  The Supreme Court will hold oral argument in Seila Law on March 3, 2020 and a decision is expected to be issued by the end of the Court’s term in June 2020.

In the meanwhile, it seems unlikely that the Fifth Circuit will issue a decision in All American Check Cashing before the Supreme Court issues its decision in Seila Law.  Two other circuit court cases involving a challenge to the CFPB’s constitutionality have been put on hold pending the outcome in Seila Law.  In CFPB v. CashCall, CashCall appealed to the Ninth Circuit from the district court’s decision ordering CashCall to pay a $10 million statutory fine based on its finding that it was the “true lender” of loans issued to borrowers in 16 states.  CashCall’s grounds for appeal include the district court’s rejection of its constitutional challenge to the CFPB.  The Ninth Circuit has issued an order withdrawing submission of the appeal and staying all further proceedings until the Supreme Court’s decision in Seila Law.  In CFPB and People of the State of New York v. RD Legal, the CFPB and NYAG appealed to the Second Circuit from the district court’s decision holding the CFPB’s structure is unconstitutional and striking all of Title 10 of Dodd-Frank.  The Second Circuit has adjourned oral argument until after Supreme Court issues a decision in Seila Law.

 

 

 

Although the CFPB now agrees that its structure is unconstitutional, it has filed a brief opposing the Petition for a Writ of Certiorari Before Judgment filed by All American Check Cashing with the U.S. Supreme Court.  All American’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality is still pending before the Fifth Circuit (and a second oral argument is scheduled for December 4).  In its petition, All American argued that “there is nothing to be gained by waiting [for the Fifth Circuit’s decision]” because the arguments regarding the CFPB’s constitutionality have already been exhaustively explored in the circuit courts.

Having filed its petition before the Supreme Court granted Seila Law’s certiorari petition, All American argued that its case was a better vehicle than Seila Law for deciding the constitutionality question but that, at a minimum, its case should be heard as a companion case to Seila Law.  All American’s petition presents two questions: whether the CFPB’s structure violates the separation of powers and whether a constitutional defect would entitle a company subject to a CFPB enforcement action to “meaningful relief, such as dismissal of the action.”

In addition to arguing in its opposition that granting All American’s petition “would do nothing to enhance” the Supreme Court’s consideration of the constitutionality question also presented in Seila Law, the CFPB argues that All American’s second question does not warrant Supreme Court review.  According to the Bureau, “lower courts have not yet addressed the particular issue here—whether an enforcement action that was filed by an official who was unconstitutionally insulated from removal by the President must be dismissed even where an official fully accountable to the President decides that it should move forward.”  The Bureau observes that there is no circuit conflict on related remedial issues, with “the few reasoned decisions that address related issues [agreeing] that [a separation-of-powers violation] does not compel invalidation of the agency’s action if those actions are subsequently approved in compliance with separation-of-powers requirements.”

In addition, the Bureau notes that “the ratification is implicated in at most a handful of cases” and asserts that the courts “adjudicating those cases can decide that issue in the first instance if an when doing so becomes necessary.”  (The Bureau states in a footnote that the constitutional issue has not been preserved in all of the 19 enforcement actions it currently has pending.)  Finally, the CFPB asserts that All American’s argument that the proper remedy for a constitutional violation is dismissal of the CFPB’s enforcement action is wrong on the merits because ratification by a CFPB Director who is subject to appropriate Executive oversight can cure any constitutional defect.

In its reply brief, All American reasserts its argument that actions by an unconstitutional agency cannot be made valid through ratification and that “[t]he only remedy to address the CFPB’s structural flaws is dismissal.”  It also argues that its case presents “a crucial companion issue to the merits question that the Court will resolve in Seila Law” and “the only opportunity for the Court to consider the full remedial consequences of the CFPB’s unconstitutionality.”  All American contends that if the Court does not resolve the remedial question now, it will haunt the CFPB’s pending enforcement actions “not to mention other invalid CFPB actions, and cases concerning the acts of the Federal Housing Finance Agency or any other unconstitutionally structured agency.”  All American states that it is “prepared to expedite briefing in this case to allow it to be heard together with Seila Law.”  It suggests a briefing schedule “in which the opening brief is filed 14 days after the petition is granted [which] would allow the CFPB to have the full 30 days to respond, and still enable this Court to schedule this case, as well as Seila Law, as early as February.”

All American also notes in its reply brief that a group of 11 (Republican) state Attorneys General have filed an amicus brief in support of All American’s petition.  In their brief, the AGs also reject the CFPB’s ratification argument.  They urge the Supreme Court to resolve the “lingering question of whether the appropriate remedy [for the CFPB’s unconstitutionality] changes simply because an actor who claims to be removable at will purports to ratify the decision of an otherwise unconstitutional agency” and assert that “delay will only serve to prolong confusion in the multi-billion-dollar market in consumer financial products.”

The briefs in All American have been distributed for the Supreme Court’s conference on December 6.   While the Supreme Court might grant All American’s petition and make All American a companion case to Seila Law, it might instead grant the petition but hold All American until it decides Seila Law.

 

 

 

 

 

 

With the Fifth Circuit having already heard oral argument in March 2019 in All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality, it is not surprising that All American and the CFPB submitted a joint letter to the court requesting “clarification regarding the scope of the issues to be addressed at the December 4 oral argument.”

Last month, after the en banc Fifth Circuit ruled in Collins v. Mnuchin that the FHFA’s structure is unconstitutional, the parties were directed to submit letter briefs regarding what action the Fifth Circuit panel should take in All American in light of Collins.  In their letter seeking clarification, the parties asked whether the oral argument would be limited to the issues addressed in their letter briefs regarding the impact of Collins or whether the panel was also interested in addressing the merits of the constitutionality of the CFPB’s structure.

In response to the parties’ letter, the Fifth Circuit has issued a directive that states:

The court is allowing 30 minutes per side so that all of the issues still remaining in light of (1) Collins v. Mnuchin (en banc) and (2) the CFPB’s change of position can be addressed.  Although the court has ready access to the oral arguments presented in March 2019, the attorneys should argue their entire case without reliance on the March presentation (but mindful that no issue that has been briefed or is jurisdictional is waived).  The attorneys should assume that the grant of certiorari in Seila Law has no effect on the scope of the matters to be presented on December 4, although either side is free to recommend that this case be postponed awaiting a decision in Seila Law.

As we reported, the CFPB has asked the Second Circuit to adjourn the oral argument in RD Legal that is currently scheduled for November 21, 2019 until the Supreme Court decides Seila Law.  (RD Legal has opposed that request.)  The Fifth Circuit’s directive appears to indicate that the panel intends to hold the December 4 oral argument despite the grant of certiorari in Seila Law but would entertain a request to postpone its ruling pending a decision in Seila Law.  (As we also reported, the Ninth Circuit has entered an order withdrawing the submission of CashCall’s appeal from the district court judgment in favor of the CFPB and staying all further proceedings until the Supreme Court’s decision in Seila Law.)

In the joint letter requesting clarification, All American noted that it has filed a Petition for a Writ of Certiorari Before Judgment with the U.S. Supreme Court.  Presumably, regardless of whether it decides to postpone its ruling pending a decision in Seila Law, the Fifth Circuit will wait to see if the Supreme Court grants All American’s Petition for a Writ of Certiorari Before Judgment before taking any further action.