We have been following very closely developments in NLRB v. Noel Canning, the case seeking Supreme Court review of the D.C. Circuit Court’s judgment invalidating President Obama’s January 4, 2012 appointment of several NLRB members. This case will likely determine the fate of Richard Cordray, who was appointed as Director of the CFPB on the same day and through the same assertion of “recess” appointment authority as the NLRB members in Noel Canning. Accordingly, the outcome of Noel Canning should control Richard Cordray’s current status as CFPB Director and any future purported “recess” appointments by the President of a CFPB director. See our prior posts here and e-alerts here and here.

On May 28, we reported that Noel Canning had advised the Supreme Court on May 23 that it does not oppose the NLRB’s cert petition. We pointed out, however, that the brief urges the Court to consider a third question (in addition to the two questions presented by the NLRB): “Whether the President’s recess appointment power may be exercised when the Senate is convening every three days in pro forma sessions.” The NLRB’s deadline for filing a reply brief is June 4. Once that occurs, the briefing on the NLRB’s cert petition will be complete. Accordingly, we expect that the petition will be considered at the Court’s June 20 Conference, the last scheduled Conference before the Court recesses for the summer. Assuming that the Court grants cert (which we regard as virtually a foregone conclusion), briefing on the merits will take place during the summer and the case will probably be set for oral argument shortly after the Court begins its new term in October. Unless the Court accelerates the issuance of its opinion, it is doubtful that the opinion will be issued before the end of this year, when Mr. Cordray’s term will expire.

In the meantime, a cloud continues to hang over the CFPB and the actions it has taken that require a lawful director. This cloud will not dissipate unless and until the Administration and the Senate Democrats negotiate a legislative compromise regarding the future governance of the CFPB. The President and Senate Democrats seem intent to play out the string in court before negotiating a deal with Senate Republicans. That strategy is not in anyone’s interest – consumers, the consumer financial services industry, and even the President and Senate Democrats. While uncertainty remains as to the outcome of Noel Canning, Senate Republicans will undoubtedly be more limited in their demands than they will be if and when the Supreme Court affirms the D.C. Circuit and holds that the President’s appointments to the NLRB are invalid. I recognize that Majority Leader Reid has threatened to change Senate Rules in order to enable Presidential appointments to be confirmed by a simple majority of 51 Senators rather than the 60 Senators now required to kill a Republican filibuster. Political pundits, including Senate Republicans, don’t believe that Senator Reid will deploy this so-called “nuclear option” since it will come back to haunt the Democrats when there is a Republican President and Republican-controlled Senate. Certainly, a reasonable compromise over CFPB structure and governance is a better option than further impasse and division.

Last week’s News Flash alerted readers that a second federal appellate court has now invalidated a NLRB recess appointment as incompatible with the meaning of the phrase, “the Recess of the Senate” in the Recess Appointment Clause of the Constitution. The result in the Third Circuit case, NLRB v. New Vista Nursing & Rehabilitation, though identical to the D.C. Circuit’s earlier decision in NLRB v. Noel Canning, was based on different facts and relies on a different rationale.  (Our legal alert on New Vista discusses the differences between the two decisions)

Nevertheless, the confluence of decisions by two federal appellate courts at the very time that the Senate is about to take up President Obama’s renomination of Richard Cordray to head the CFPB gives Senate Republicans little incentive to agree to his confirmation.  Mr. Cordray’s occupancy of the CFPB Director position, as is well-known to readers of this blog, is the result of a recess appointment made on the very same day as the NLRB recess appointments that were held unconstitutional in Noel Canning.  As a result, Mr. Cordray’s appointment is equally vulnerable to legal challenge, especially in the D.C. Circuit.

With that possibility, and the potential ensuing chaos from such a legal challenge, hanging over the Bureau like the sword of Damocles, the refusal of Senate Democrats and the Obama Administration to negotiate some of the changes to the role, structure and funding of the agency sought by Senate Republicans seems needlessly to court disaster.  The only possibility that gives the Administration a reprieve is a a grant of certiorari and reversal of the D.C. Circuit’s decision in Noel Canning.  The other possibilities – denial of certiorari or affirmance of the D.C. Circuit’s decision – make the filing of a suit to challenge final CFPB action (such as a rulemaking or an enforcement order) based on the invalidity of Cordray’s appointment increasingly tempting for someone aggrieved by such action.  Moreover, the longer this drags on, the more likely it becomes that someone with unassailable standing to litigate (unlike, for example, the original State National Bank of Big Spring) will file such a challenge.  Indeed, even if the Supreme Court were to grant certiorari in Noel Canning before its summer recess, the earliest a decision could be expected would be near the end of 2013 – by which time, Mr. Cordray’s recess appointment would be about to expire anyway. 

All of this uncertainty could be averted by a deal that permits Mr. Cordray’s confirmation by the Senate.  This would all but eliminate any incentive to challenge his recess appointment.  The problem is not that Mr. Cordray, individually, is unconfirmable – indeed, he appears to be a dedicated and extremely capable public servant.  What holds up his confirmation are structural issues, such as the desire of Senate Republicans to transform the CFPB from a one-person agency to a multi-member Board or Commission and to make it subject to the appropriations process.  The addition of the Third Circuit’s New Vista decision raises the recess appointment stakes significantly, and continued refusal by Senate Democrats and the Obama Administration to negotiate seems increasingly high risk. Invalidation of Mr. Cordray’s recess appointment – and the consequent throwing into limbo of many of the actions taken by the CFPB since then – is unlikely to be in the interests of the financial services industries, the government, or consumers.