The Subcommittee on Oversight and Investigations of the House Committee on Financial Services has scheduled a hearing for tomorrow entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.”  The memo from the Committee’s Majority Staff to Committee Members states that “the [h]earing will examine whether the structure of the Bureau violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.”

The hearing will undoubtedly cover the same constitutional issues that are being briefed and will be argued on May 24, 2017 by the parties and their amici before the en banc D.C. Circuit in PHH Corporation v. Consumer Financial Protection Bureau, September Term, 2016, No. 7151177.

The following witnesses will testify:

  • Ted Olson, Partner, Gibson, Dunn & Crutcher, LLP
  • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
  • Adam White, Research Fellow, Hoover Institution
  • Brianne Gorod, Chief Counsel, Constitutional Accountability Center

Mr. Olson is lead counsel to PHH.

According to his bio on the website of the University of Virginia School of Law, Professor Prakash “focuses on separation of powers, particularly executive powers.”  As his 2013 law review article underscores, Professor Prakash strongly advocates in favor of robust Presidential powers. He is a colleague of Aditya Bamzai, an Associate Professor of Law at the same law school.  Professor Bamzai drew attention to himself when he posted a blog on November 22 of last year in the Yale Journal of Regulation and the ABA Section of Administrative Law & Regulatory Practice entitled “The President’s Removal Power and the PHH Litigation.”  We blogged about Professor Bamzai’s blog in which he argued that President Trump could lawfully remove Director Cordray without cause and need not await the outcome of the PHH case.

At the time of Professor Bamzai’s post, the D.C. Circuit had not yet granted the CFPB’s petition for rehearing en banc. The order granting the petition vacated the panel decision that held that the CFPB was unconstitutionally structured and severed the language from Title X of Dodd-Frank which enables the President to remove the Director only for cause, thus enabling the President to remove the Director without cause

It is unknown whether Professor Banzai still adheres to his opinion in light of the fact that the panel opinion has been vacated and, more importantly, whether Professor Prakash shares Professor Bamzai’s opinion.

Adam White’s bio describes Adam as a research fellow at Hoover Institution “writing on the courts and the administrative state for such publications as The Weekly Standard, The Wall Street Journal, Commentary, the Harvard Journal of Law & Public Policy…”  According to its website, “Hoover Institution seeks to improve the human condition by advancing ideas that promote economic opportunity and prosperity, while securing and safeguarding peace for America and all mankind.”  It is fair to characterize Hoover Institution as a conservative think tank.   Mr. White recently testified before the Senate Committee on Commerce, Science, and Transportation at a hearing entitled:  “A Growth Agenda:  Reducing Unnecessary Regulatory Burdens.”  In his testimony, he mentioned that he and his then law firm colleagues were co-counsel to a small community bank in State National Bank of Big Spring v. Lew which in a federal lawsuit challenged the CFPB’s structure as being unconstitutional.  We have blogged about that case on numerous occasions.

It seems clear that Brianne Gorod was chosen as a witness by the Democrats in order to balance the views of the other witnesses.  According to its website, the Constitutional Accountability Center “is a think tank, law firm and action center dedicated to fulfilling the progressive promise of our constitution’s text and history.  We work in our courts, through our government, and with legal scholars to preserve the rights and freedoms of all Americans and to protect our judiciary from politics and special interests.”

We will watch the hearing with interest and blog about it later this week.

PHH has filed a response opposing the motion of the plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew to intervene in the en banc rehearing.  The D.C. Circuit granted the CFPB’s petition for en banc rehearing on February 16.

In July 2016, the D.C. federal district court rejected the plaintiffs’ attempt in State National Bank of Big Spring to invalidate the actions taken by Director Cordray while he was a recess appointee.  The district court deferred ruling on the plaintiffs’ separation of powers constitutional challenge pending a decision by the D.C. Circuit in PHH.  The D.C. Circuit subsequently ruled in PHH that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  Following the D.C. federal district court denial of the plaintiffs’ attempt to consolidate their case with PHH on appeal to the D.C. Circuit, the plaintiff filed a motion to intervene with the D.C. Circuit.

In their motion to intervene, the plaintiffs argued that if the D.C. Circuit grants the CFPB’s petition for rehearing en banc but decides the case on RESPA grounds, their “constitutional claims will be left unresolved, and the district court will be left without binding guidance from this Court as to how the constitutional question should be answered.”  According to the plaintiffs, a decision on RESPA grounds would delay the resolution of their case, “prolonging the harm they suffer from being subject to unconstitutionally promulgated regulations and ensuring that they will wait even longer for an eventual, inevitable merits determination from this Court.”  The plaintiffs also asserted that because they could not rely on PHH to defend the panel’s constitutionality holding as vigorously as they would, they met the requirement for intervention of right that no party to the action could adequately protect their interests.

In its response in opposition to the motion to intervene, PHH argues that like other intervention motions that have been filed in the case, the motion filed by the plaintiffs in State National Bank of Big Spring “appears to be little more than a naked attempt to seize control of this litigation from the actual litigants for the purpose of someday petitioning the Supreme Court for a writ of certiorari in the event the defeated litigant determines that it is not in its interest to do so.  That goal is equally illegitimate when pursued by those who agree with PHH on the separation-of-powers question as it is for those who disagree.”  PHH characterizes the plaintiffs’ motion as an improper attempt to use intervention as a means of circumventing the district court’s abeyance order.

PHH also challenges the plaintiffs’ standing to intervene, asserting that “it is elementary that a third party’s purported interest in securing a particular precedent does not create standing to intervene.” (emphasis provided).  According to PHH, this principle applies with even more force in this case because the plaintiffs are not concerned merely with an adverse legal decision but with any decision that leaves the constitutional claims unresolved.  According to PHH, if the plaintiffs “were truly aggrieved by the CFPB’s order, as PHH is, than it is unclear why [plaintiffs] would have any interest in the rationale this Court employs in vacating that order.  It is well-established that a party’s interest in securing a decision with a particular legal rationale is insufficient to provide standing to appeal the decision if it produces no adverse consequences.” (emphasis provided).

With regard to the plaintiffs’ claim that they cannot rely on PHH to adequately protect their interest in challenging the CFPB’s constitutionality, PHH asserts that “PHH, represented by capable counsel, is fully capable of representing that interest and “there is utterly no reason to think that [plaintiffs] can do a better job in pressing [the constitutional argument] than PHH.” PHH also observes that “[t]o the extent [plaintiffs] are interested in the issues presented, their amicus curiae brief [filed with the D.C. Circuit in support of PHH prior to the panel’s ruling] allows them to be heard and to advise the Court as to the possible effects of its decision in this matter on [plaintiffs’] pending litigation, a traditional function of such briefs.”

 

The plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew have filed a “Motion To Intervene In Any En Banc Proceeding That May Be Granted” in the PHH case.  The motion follows the D.C. federal district court’s denial of the plaintiffs’ attempt to consolidate their case with PHH on appeal to the D.C. Circuit.

In July 2016, the D.C. federal district court rejected the plaintiffs’ attempt in State National Bank of Big Spring to invalidate the actions taken by Director Cordray while he was a recess appointee.  The district court deferred ruling on the plaintiffs’ separation of powers constitutional challenge pending a decision by the D.C. Circuit in PHH.  The D.C. Circuit subsequently ruled in PHH that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  In their motion seeking consolidation filed last month, the plaintiffs argued that judicial economy would be served by having the district court enter partial summary judgment in their favor on their claim that the Dodd-Frank Act’s for-cause removal provision is unconstitutional and then certify the partial summary judgment order for interlocutory appeal to the D.C. Circuit.

In their motion to intervene, the plaintiffs argue that if the D.C. Circuit grants the CFPB’s petition for rehearing en banc but decides the case on RESPA grounds, their “constitutional claims will be left unresolved, and the district court will be left without binding guidance from this Court as to how the constitutional question should be answered.”  According to the plaintiffs, a decision on RESPA grounds would delay the resolution of their case, “prolonging the harm they suffer from being subject to unconstitutionally promulgated regulations and ensuring that they will wait even longer for an eventual, inevitable merits determination from this Court.”

The plaintiffs argue that they meet the standard for intervention of right, which includes a requirement that no party to the action can adequately protect their interests.  According to the plaintiffs, they cannot rely on PHH to defend the panel’s constitutionality holding as vigorously as the plaintiffs would.

The plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew, et al. want the D.C. federal district court to hold a status conference to determine how their case “can be most efficiently adjudicated” in light of the CFPB’s petition to the D.C. Circuit for rehearing en banc in PHH.

In July 2016, the D.C. federal district court rejected the plaintiffs’ attempt in State National Bank of Big Spring to invalidate the actions taken by Director Cordray while he was a recess appointee.  The district court deferred ruling on the plaintiffs’ separation of powers constitutional challenge pending a decision by the D.C. Circuit in PHH.  The D.C. Circuit subsequently ruled in PHH that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.

In their unopposed motion for a status conference, the plaintiffs in State National Bank of Big Spring argue that judicial economy would be served if the district court “were to pave the way for consolidation of this case with PHH on appeal by entering partial summary judgment in favor of Plaintiffs on their standalone claim that the Dodd-Frank Act’s for-cause removal provision …is unconstitutional.”  The plaintiffs assert that the district court could then certify the partial summary judgment order to the D.C. Circuit under 28 U.S.C. Section 1292(b) as “involv[ing] a controlling question of law as to which there is a substantial ground for difference of opinion,” thereby allowing the D.C. Circuit “to efficiently resolve in a single sitting all pending merits questions within its jurisdiction pertaining to the standalone constitutionality” of the for-cause removal provision.  Plaintiffs’ remaining claims would be reserved in the district court for further adjudication following en banc resolution of PHH.

The plaintiffs indicate in their motion that while the government defendants do not oppose their request for a status conference, the defendants do oppose certification.  They also note that if the two cases are not consolidated, the D.C. Circuit could vacate the panel’s decision on RESPA grounds and avoid the constitutional question.  According to the plaintiffs, that would leave the district court in the “unenviable position” of having to resolve the constitutional issue.

The constitutionality of the CFPB’s structure was front and center at this past Tuesday’s oral argument in PHH Corporation et al. v. CFPB before the U.S. Court of Appeals for the D.C. Circuit.  The case involves PHH’s appeal from Director Cordray’s June 2015 decision  affirming an administrative law judge’s recommended decision that concluded PHH had violated the referral fee prohibition in Section 8 of the Real Estate Settlement Procedures Act (RESPA).  PHH’s appeal of the ALJ’s decision to Director Cordray represented the first appeal of a CFPB administrative enforcement proceeding.

In its appeal to the D.C. Circuit, in addition to arguing that Director Cordray’s RESPA interpretations are contrary to law, PHH argues that the CFPB’s RESPA enforcement action against it is void because the CFPB’s structure violates the U.S. Constitution’s separation of powers principles.  More specifically, PHH argues that the Dodd-Frank Act’s placement of sweeping legislative, executive, and judicial power in the hands of a single director who is not accountable to the President or Congress makes the CFPB’s structure unconstitutional.  In particular, PHH points to the President’s ability to remove the CFPB Director only “for cause” and the funding of the CFPB through the Federal Reserve rather than the congressional appropriations process.

Last week, the three members of the D.C. Circuit panel before whom the case would be argued signaled their interest in PHH’s constitutional argument by issuing an order directing the parties to be prepared to address two questions at oral argument.  One question asked what independent agencies “now or historically have been headed by a single person” removable only for cause and the other asked what the appropriate remedy would be if such a structure is unconstitutional.  In particular, the panel asked if the appropriate remedy would be to sever Dodd-Frank’s for-cause provision.  The order was widely viewed as an ominous sign for the CFPB, with many observers noting that all three panel members were appointed by Republican Presidents.

Only two panel members, Judge Brett M. Kavanaugh and Judge A. Raymond Randolph, attended the oral argument.  Although Judge Karen L. Henderson was not present, the court announced that she would consider the case based on the audio recording of the oral argument.

At the oral argument, PHH’s counsel described the CFPB as a “super-executive agency” whose authority is only checked by the courts.  In response to a question from the panel asking whether the CFPB would be constitutional if the President could remove the Director other than for cause, PHH’s counsel responded that the absence of Congressional control over the CFPB’s funding, as well as other concerns such as the Director’s ability to hire and fire CFPB employees and set salaries, would continue to make the CFPB unconstitutional.  When asked what the remedy should be if the CFPB’s structure is unconstitutional, PHH’s counsel indicated that it was “exceedingly important” for the court to address the substantive RESPA issues raised by the case because of their significance to the entire mortgage industry.

He went on to tell the panel that if he “was in your shoes,” he might be “tempted” to write an opinion stating that Congress cannot create an agency that ignores all separation of powers rules.  He also indicated that it would not be appropriate for the court to sever Dodd-Frank’s for-cause provision and send the case back to Director Cordray for reconsideration.  Instead, according to PHH’s counsel, Director Cordray could not continue as Director and someone else “will have to be appointed to an agency that Congress should come back and create in a constitutional way.”

The CFPB was represented at the argument by Lawrence DeMille-Wagman, Senior CFPB Litigation Counsel.  One of the judges observed to Mr. DeMille-Wagman that there were few precedents for an agency headed by a single individual removable only for cause as contrasted with a multi-member commission whose members are removable only for cause.  Mr. DeMille-Wagman argued that Congress can choose how an agency’s leadership is structured and disputed PHH’s contention that the President’s removal power can only be limited for agencies run by a multi-member commission.  When asked if the appropriate remedy would be to sever Dodd-Frank’s for-cause provision if there is a separation of powers violation, Mr. DeMille-Wagman, unlike PHH’s counsel, agreed that severance would be appropriate so that the case could be reconsidered by Director Cordray, who would then be removable by the President without cause.

Because the Judges seemed to be hostile to the CFPB’s defense of its constitutionality, it appears likely that the court will invalidate Director Cordray’s order on at least that basis.  The greatest uncertainty at this point relates to what remedy the court will fashion.  The panel’s decision is unlikely to be the final word, however, since the CFPB can be expected to seek a rehearing en banc by the D.C. Circuit (on which the majority of active judges are Democratic appointees) and/or seek review from the U. S. Supreme Court.

 

The issue of the CFPB’s constitutionality reemerged last week in court and Congress.

On the judicial front, the U.S. Court of Appeals for the D.C. Circuit, in State National Bank of Big Spring, Texas, et al. v. Lew, et al., reversed the district court and ruled that the bank had standing to challenge the  constitutionality of the CFPB and Director Cordray’s recess appointment.  The D.C. Circuit did not, however, rule on the merits of the bank’s constitutionality claims.  (In January 2014, in the CFPB’s enforcement action against Morgan Drexen, a California federal court rejected on the merits a challenge to the CFPB’s constitutionality.)

The case before the D.C. Circuit was originally filed in June 2012 by State National Bank of Big Spring (SNB) and two D.C. area non-profit organizations that joined SNB as plaintiffs.  Eleven Republican state Attorneys General subsequently joined as plaintiffs on the amended complaint filed in September 2012.  The original complaint challenged the constitutionality of Director Cordray’s recess appointment.  It also alleged that the CFPB’s structure and authority violated the Constitution’s separation of powers and that the Financial Stability Oversight Council (FSOC) created by Dodd-Frank was unconstitutional.  The AGs did not join those portions of the amended complaint and instead only joined a newly-added challenge that had nothing to do with the CFPB but dealt with their states’ status as potential creditors of a failed financial institution in the event of an “orderly liquidation” under Title II of Dodd-Frank.  In August 2013, the district court granted the CFPB’s and other defendants’ motion to dismiss on standing and ripeness grounds.

The D.C. Circuit’s decision consisted of the following four rulings:

  • SNB has standing to challenge the CFPB’s constitutionality and the challenge is ripe because SNB is regulated by the CFPB.  The court used the CFPB’s Remittance Rule as an example of the CFPB’s exercise of its regulatory authority to impose new obligations on SNB.  SNB had alleged that the increased compliance costs resulting from the Remittance Rule, coupled with an alleged loss of business, provided sufficient injury to establish standing.  According to the court, SNB was not required to violate the Remittance Rule and trigger an enforcement action to challenge the legality of the CFPB itself.  The D.C. Circuit remanded to the district court for it to consider the merits of SNB’s constitutionality claim.
  • SNB has standing to challenge the constitutionality of Director Cordray’s recess appointment and such challenge is ripe for the same reasons.  While it reversed and remanded to the district court to consider the merits of the issue in light of the U.S. Supreme Court’s decision in Noel Canning, the D.C. Circuit also noted that it “leave[s] it to the District Court to consider the significance of Director Cordray’s later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment.”
  • SNB does not have standing to challenge the FSOC because SNB could not rely on the doctrine of “competitor standing” to argue that the designation of another entity as “too big to fail” indirectly harmed SNB by creating a “reputational benefit” for the competitor.
  • The State AGs do not have standing to challenge Dodd-Frank’s order liquidation authority and the claim is not ripe.  Among the reasons given by the D.C. Circuit was that it was premature for a court to consider the legality of how the government might wield its orderly liquidation authority in a potential liquidation or reorganization.

On the Congressional front, the CFPB’s constitutionality was the focus of testimony given to the Senate Judiciary Committee at a hearing last week entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.”  Among the witnesses was Professor Neomi Rao of George Mason University School of Law.  In her written testimony, Professor Rao provided extensive support for the position that the CFPB is unconstitutional.  According to Professor Rao, because of its “super independence and expansive delegated authority, the CFPB’s structure undermines the Constitution’s checks and balances.”  She also asserted that the CFPB’s “constitutional infirmities have predictably resulted in agency overreach on matters of fundamental importance to the consumer financial marketplace.”  (The written testimony of the other witnesses is available on the Judiciary Committee’s website.)

The Senate Judiciary Committee held a hearing yesterday entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.”  The hearing was focused on constitutional issues relating to the Dodd-Frank Act, including the constitutionality of the CFPB.

The witnesses were: The Honorable C. Boyden Gray of Boyden Gray & Associates, PLLC: Deepak Gupta of Gupta Wessler PLLC; Professor Neomi Rao of George Mason University School of Law; Professor Adam J. Levitin of Georgetown University Law Center; and Dr. Mark Calabria of the Cato Institute.  Their written testimony is available on the Committee website.

 

Last week, in Morgan Drexen, Inc. v. Consumer Financial Protection Bureau, a divided panel of the D.C. Circuit Court of Appeals affirmed the dismissal of an action challenging the constitutionality of the CFPB.  The court did not reach the merits of the constitutional challenge, but rather held that the district court properly dismissed the case for lack-of-standing, and for failure to demonstrate that declaratory and injunctive relief were procedurally proper.

Morgan Drexen is a provider of paralegal and other support services to bankruptcy and debt relief lawyers. Following a more-than one-year investigation, the CFPB notified Morgan Drexen that it was considering an enforcement action against Morgan Drexen and its CEO for alleged violations of the Consumer Financial Protection Act, and the Telemarketing Sales Rule.

Before any enforcement action was filed, Morgan Drexen – as well as Kimberly Pisinski, an attorney who contracted for services from Morgan Drexen –filed a complaint against the CFPB in the district court for the District of Columbia, seeking declaratory and injunctive relief based on a multi-faceted challenge to the constitutionality of the CFPB.  Less than a month later, the CFPB filed an enforcement action in federal court in California against Morgan Drexen and its CEO, but not against Pisinski or any other attorneys who contracted with Morgan Drexen for services.

About eight weeks after the CFPB’s enforcement action was filed, the D.C. court dismissed Morgan Drexen’s and Pisinski’s lawsuit. The court held that Morgan Drexen had an adequate remedy at law in the CFPB’s enforcement action and would suffer no irreparable harm, and that Piskinski had not adequately alleged the requisite injury-in-fact for standing.

The D.C. Circuit affirmed the dismissal.  Addressing Pisinski’s claims first, the court initially observed that Pisinski was not the target of any actual or threatened enforcement action by the CFPB, and that standing to challenge government action is substantially more difficult to establish when the challenger is not the object of the government action.  The court then concluded that Pisinski had not cited sufficient evidence to support her various theories of standing, including that she was responsible for Morgan Drexen’s alleged illegal conduct, that her practice would be harmed by the CFPB’s enforcement action against Morgan Drexen, and that implicit accusations by the CFPB could damage Pisinski’s professional standing.

The court then turned to Morgan Drexen’s claims. The court initially acknowledged that a pre-enforcement suit for injunctive relief aimed at the constitutionality of a statute may be warranted so that a regulated entity is not forced to wait until it is subjected to an enforcement action to raise its constitutional arguments.  But the court explained that the CFPB had brought its enforcement action against Morgan Drexen less than thirty days after Morgan Drexen’s own suit, which at that point gave Morgan Drexen a vehicle to raise its constitutional challenges.  The court further reasoned that the dismissal of the D.C. district court suit relieved the court system of litigating overlapping issues in two federal forums.

As for Morgan Drexen’s claim for declaratory relief, the court held that the D.C. district court properly exercised its discretion not to grant such relief because an adjudication of Morgan Drexen’s constitutional challenges in the D.C. district court would not finally settle the controversy given the pendency of the enforcement action in California, and because the California action could resolve all issues raised in the D.C. district court case. The court further explained that the D.C. district court’s decision to decline to exercise jurisdiction avoided a potentially unnecessary decision on constitutional issues given that Morgan Drexen might have prevailed in the California case based on its non-constitutional defenses.

Judge Cavanaugh wrote a short dissenting opinion. In his view, the CFPB’s action against Morgan Drexen constituted regulation of a business in which Pisinski engaged given that she worked together with Morgan Drexen employees to provide the challenged services.  When a regulated party challenges the legality of the regulating agency’s actions, Judge Cavanaugh reasoned, there is ordinarily little question that the party has standing.

It remains to be seen whether Morgan Drexen and Pisinski will try to leverage Judge Cavanaugh’s dissent into a petition for rehearing en banc.  

Meanwhile, in the CFPB’s enforcement action in California, the district court rejected each of Morgan Drexen’s various constitutional arguments in a nineteen-page January 10, 2014 Order denying Morgan Drexen’s motion to dismiss. More recently, in an Order dated April 21, 2015, the district court entered a default judgment against Morgan Drexen based on alleged falsification of evidence in discovery, and deferred until completion of supplemental briefing whether such sanctions also should be imposed against Morgan Drexen’s CEO. Just last week, the court entered an Order imposing a temporary freeze on Morgan Drexen’s assets, and that same day, Morgan Drexen filed a petition under Chapter 7 of the Bankruptcy Code.

The CFPB’s constitutionality is again before the D.C. Circuit, with the D.C Circuit now being asked to consider the impact of the U.S. Supreme Court’s decision in NLRB v. Canning on actions taken by the CFPB while Director Cordray was serving as a recess appointee.  In that decision, the Supreme Court ruled that President Obama exceeded his constitutional recess appointment authority when he filled three vacancies on the National Labor Relations Board in January 2012.  The D.C. Circuit, whose decision was reviewed by the Supreme Court, had also ruled that the NLRB recess appointments were invalid but did so based on a different reading of the President’s recess appointment authority.

As previously reported, in July 2013, Morgan Drexen filed a lawsuit against the CFPB in a Washington, D.C. federal district court in which it alleged the CFPB’s structure was unconstitutional because it violated the Constitution’s separation of powers.  In August 2013, the CFPB responded by filing an enforcement action against Morgan Drexen in a California federal district court alleging that Morgan Drexen had charged unlawful advance fees for debt relief services and engaged in deceptive acts and practices.  That was followed by Morgan Drexen’s filing of a motion for a preliminary injunction in which it asked the D. C. court to enjoin the CFPB from prosecuting the CA action until the D.C. case was resolved.

In October 2013, the D.C. federal district court granted the CFPB’s motion to dismiss Morgan Drexen’s lawsuit.  The court agreed with the CFPB that injunctive relief as requested by Morgan Drexen was unwarranted because Morgan Drexen could raise its constitutional challenge as a defense in the CA enforcement action.  It also agreed with the CFPB that dismissal was appropriate because Morgan Drexen’s filing was an attempt to prevent the CFPB from having its enforcement action adjudicated in the Ninth Circuit.

In November 2013, Morgan Drexen appealed the dismissal to the D.C. Circuit.  Briefing on the appeal by Morgan Drexen and the CFPB was completed this past spring.  However, on November 3, Morgan Drexen submitted a letter to the D.C. Circuit regarding the Supreme Court’s Canning decision.  The letter asserts that the Supreme Court’s rationale in Canning for invalidating the NLRB appointments means that Director Cordray’s recess appointment was also invalid.  The letter suggests that the CFPB’s enforcement action against Morgan Drexen is invalid because it resulted from an investigation conducted while Mr. Cordray was not lawfully serving as CFPB Director.  (Lawmakers have questioned Director Cordray’s ability to ratify actions he took while a recess appointee.  On August 30, 2013, the CFPB published a notice in the Federal Register in which Director Cordray ratified those actions.)  Oral argument before the D.C. Circuit is scheduled for November 19.

In January 2014, the California federal district court hearing the CFPB’s enforcement action against Morgan Drexen rejected Morgan Drexen’s motion to dismiss based on a challenge to the CFPB’s constitutionality.  The court found that none of the CFPB’s structural features cited by Morgan Drexen rendered the CFPB unconstitutional.  Although similar challenges have been made in other cases, this appears to be the first decision to rule on the merits of such a challenge.

On October 7, 2014, the CFPB filed a motion for summary judgment in which it seeks a permanent injunction barring the defendants from providing debt relief services, $90.7 million in restitution, and a civil money penalty in an unspecified amount.  Morgan Drexen has filed a brief opposing the motion.

 

As previously reported, in January 2014, the California federal district court hearing the CFPB’s enforcement action against Morgan Drexen rejected Morgan Drexen’s motion to dismiss based on a challenge to the CFPB’s constitutionality.  Although similar challenges had been made in other cases, this appeared to be the first decision to rule on the merits of such a challenge.

While its motion to dismiss was pending, Morgan Drexen had sought a preliminary injunction from the district court enjoining the CFPB from moving forward with the case until a decision was rendered on the CFPB’s constitutionality, including any appeal.  After denying Morgan Drexen’s motion to dismiss, the district court denied the injunction as moot.

Morgan Drexen thereafter appealed the denial of the injunction to the Ninth Circuit.  On April 11, 2014, the Ninth Circuit issued an order dismissing the appeal for lack of jurisdiction because of the interlocutory nature of the district court’s order.