The dark cloud that has been hanging over CFPB Director Richard Cordray’s recess appointment just got darker.  In a 2-1 decision in NLRB v. New Vista Nursing and Rehabilitation, the U.S. Court of Appeals for the Third Circuit ruled today that, under the U.S. Constitution’s Recess Appointments Clause (RAC), the President may only make recess appointments during an intersession recess.  In addition, the Third Circuit rejected the NLRB’s argument that pro forma sessions should be deemed a “recess” (on the theory that “recess” for purposes of the RAC should be read to mean any time the Senate is not open for business and unavailable to provide its advice and consent).  While the recess appointment invalidated in New Vista was a 2010 appointment and not the 2012 appointments at issue in Noel Canning, the Third Circuit’s views fully accord with the D.C. Circuit’s determination in Noel Canning v. NLRB.  

In its January 2013 Noel Canning decision, the D.C. Circuit ruled that, because the most recent session began on January 3, 2012 and President Obama’s three NLRB appointments were made on January 4 (while the Senate was conducting pro forma sessions), the appointments were not made during a “recess” within the meaning of the RAC.  Since the President’s recess appointment of Richard Cordray as CFPB Director was also made on January 4, the D.C. Circuit’s opinion cast serious doubt on the validity of Mr. Cordray’s appointment.  By agreeing that recess appointments must be made during an intersession recess to be valid, the Third Circuit has added to that doubt. 

On April 25, the NLRB filed a petition for certiorari, asking the Supreme Court to review Noel Canning.  The respondent has advised the Court it does not intend to oppose the petition. 

We thought the petition for certiorari in Noel Canning had a high probability of success before today’s decision.  The panel split in New Vista further increases the likelihood that certiorari will be granted.

 

“Can we duck the [recess appointments] issue?”  That question was asked yesterday by one of the members of the Third Circuit three-judge panel hearing oral argument on the National Labor Relation Board’s application to enforce its order in NLRB v. New Vista Nursing.
New Vista, like the Noel Canning v. NLRB case decided in January 2013 by the D.C. Circuit, involves an employer’s attempt to block enforcement of an NLRB order based on a challenge to President Obama’s January 2012 recess appointments of three members to the NLRB.  We have been following the NLRB cases because of their implications for the President’s contemporaneous recess appointment of Richard Cordray as CFPB Director.

In Canning, the contested NLRB order was entered in February 2012 and the D.C. Circuit held that, because the three recess appointments violated the U.S. Constitution’s Recess Appointments Clause (RAC), the five-member NLRB did not have the quorum of three necessary for it to lawfully take action.  In New Vista, the contested order was entered in August 2011, before the three recess appointments were made.  However, in March 2012, the NLRB entered several orders on a series of motions for reconsideration filed by New Vista.  As a result, the Third Circuit focused a number of its questions on whether it could review the merits of the August order or otherwise dispose of the case without having to reach the validity of the March orders and thereby avoid the recess appointments issue.

The panel consisted of Judge D. Brooks Smith and Judge Franklin S. Van Antwerpen, both appointed by President George W. Bush, and Judge Joseph A. Greenaway, Jr., appointed by President Obama.  While the all-Republican appointee members of the Canning bench reportedly foreshadowed the result of the case through their intensive questioning of the government’s lawyer, the members of New Vista bench were even-handed in their questions about the recess appointments issue.  Although the judges continued their questioning of the Department of Justice’s attorney (who also argued Canning for the DOJ) beyond her allotted time, they sua sponte gave New Vista’s lawyer additional time for rebuttal he had not reserved and used some of that time to ask him more questions.

The RAC authorizes the president to fill vacancies “that may happen during the Recess of the Senate” through appointments that expire at the end of the next session.  The D.C. Circuit held that the words “the Recess” referred only to an intersession recess of Congress, and not to an intrasession recess.  Because the second session of this past Congress began on January 3, 2012, and the NLRB appointments were made on January 4 (while the Senate was conducting pro forma sessions), the D.C. Circuit ruled they were not made during a “recess” within the meaning of the RAC.

The entire Third Circuit panel seemed troubled by the notion that the Senate could use pro forma sessions in lieu of declaring an intersession recess to thwart a President’s recess appointments.  However, the Republican appointees expressed concerned about the lack of a clear “limiting principle” for determining when the Senate is in “recess.”  This was reflected in a question that Judge Green asked to both the DOJ’s attorney and New Vista’s attorney: Which branch of government should define if the Senate is in recess, the Senate or the President?

While their leaning on the “intersession v. intrasession” question was not obvious, the Third Circuit panel did seem very skeptical about the correctness of the D.C. Circuit’s additional holding that to qualify for a recess appointment under the RAC, a vacancy must “happen” (meaning arise) during the intersession recess. (One of the members of the D.C. Circuit panel did not concur in that holding.)

The NLRB has announced that it plans to file a petition for certiorari asking the Supreme Court to review Canning. The petition must be filed by April 25.  The petition’s probability of success (which is already very high) is likely to increase significantly if the Third Circuit were to issue a decision disagreeing with Canning.  In addition, another NLRB recess appointment case is pending in the Fourth Circuit.  Oral argument in Nestle Dreyer’s Ice Cream Company v. NLRB had tentatively been scheduled for this month but an argument date has not been finalized due to scheduling conflicts of the attorneys involved in the case.

Five-time “Jeopardy!” champion Richard Cordray is now facing a different kind of jeopardy.   The validity of his recess appointment on January 4, 2012 as CFPB Director is under a dark cloud as a result of last Friday’s  decision by the U.S. Court of Appeals for the D.C. Circuit holding that the President’s contemporaneous recess appointments of three National Labor Relations Board members violated the U.S. Constitution’s Recess Appointments Clause.  The significance of this decision cannot be overstated as it raises a host of questions about the potential impact of a judicial ruling that Mr. Cordray’s recess appointment was similarly invalid. For a fuller description of the decision, see our legal alert

On February 4, 2013, from 12:00 p.m. to 1:30 p.m. ET, Ballard Spahr will hold a webinar on “The Impact of the D.C. Circuit Court NLRB Ruling on the CFPB.”  More information on the webinar and a link to register can be found here.

Earlier today, we reported on the panel discussion of the lawsuit filed by State National Bank of Big Spring that took place at the ABA Committee on Consumer Financial Services in Naples, Florida during a session entitled “State National Bank of Big Spring, et al. v. Geithner, et al. – Is the CFPB Constitutional?”  Even more interesting to me than the discussion of that lawsuit was what one of the panelists, Deepak Gupta, had to say about the case pending before the U.S. Court of Appeals for the D.C. Circuit which deals with the legality of President Obama’s recess appointments to the NLRB, Noel Canning v. NLRB, No. 12-1115. 

The NLRB appointments took place on January 4, 2012, the same day the President appointed Richard Cordray to be CFPB Director.  In making all of these appointments, the President took the same legal position – namely, that the Senate was in a de facto recess despite the pro forma Senate sessions held twice a week during the holiday season when the Senators were not actually present in the Senate Chamber.  Deepak observed that the panel which heard oral argument on December 5, 2012, Judges Sentelle, Henderson and Griffith, are quite conservative.  It is my understanding that the panel questioned the government lawyer quite intensively.

If the D.C. Circuit were to hold that the President’s NLRB appointments are invalid, then the President’s appointment of Mr. Cordray would also be invalid.  The Third and Fourth Circuits will also soon address the legality of the President’s NLRB appointments. NLRB v. New Vista Nursing, No. 11-3440 (3rd Cir.) and Nestle Dreyer’s Ice Cream Company v. NLRB, Nos. 12-1684 and 12-1783 (4th Cir.).  It is conceivable that the legality of these appointments may end up in front of the U.S. Supreme Court later this year.  In the meantime, a holding by any Circuit Court that the NLRB appointments are invalid would result in chaos at the CFPB. 

Would any or all of the CFPB’s actions since Mr. Cordray was appointed be invalid?  How do you unscramble the egg?  What about future CFPB actions?  Would the CFPB still be able to supervise large banks? Would the CFPB’s new remittances and mortgage regulations be valid? Would the CFPB be able to issue any new regulations? Would President Obama be able to get the “new” Senate to confirm Mr. Cordray or some other nominee?  Would the President agree to support the demand of many Republican Senators to amend Title X of Dodd-Frank to substitute a 5-member commission for a single director and to subject the CFPB to the Congressional appropriations process?

I don’t think we should get too far ahead of ourselves.  However, there is a real risk that a Circuit Court could invalidate the President’s recess appointments.  Hopefully, the CFPB is planning for that possibility.

Because of their potential implications for the validity of CFPB Director Cordray’s appointment, we have been following several pending cases challenging the National Labor Relations Board’s authority to take various actions based on the alleged invalidity of President Obama’s recess appointment of three individuals to the NLRB.

On December 26, the Seventh Circuit issued an opinion in Richards v. NLRB dismissing the petitions for review for lack of standing.  According to the Seventh Circuit, because the NLRB had already struck down the NLRB policies at issue, the petitioners could no longer show that they suffered an injury-in-fact necessary to provide standing.  Having found the petitioners lacked standing, the Seventh Circuit ruled that it did not need to reach the legitimacy of the NLRB recess appointments.

Earlier in December, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in Noel Canning v. NLRB, another of the cases challenging the NLRB appointments, and a decision in that case is expected soon.

Another case we have been following is State National Bank of Big Spring, Texas, et al. v. Geithner, et al., which is pending in federal district court in Washington, D.C. and includes a direct challenge to President Obama’s recess appointment of Director Cordray.  The case was originally filed in June 2012 by State National Bank of Big Spring, Texas and two non-profit organizations in the metropolitan Washington, D.C. area. In September, an amended complaint was filed adding as plaintiffs the Republican state Attorneys General of Oklahoma, South Carolina and Michigan.  The court is now considering the CFPB’s motion to dismiss the amended complaint which was filed in November.

Recently, 38 Republican Senators signed a document in which they vowed to submit an amicus brief in support of litigation challenging President Obama’s appointments of Richard Cordray and the three new members of the NLRB. Last month, we reported on a case challenging the NLRB appointments that is pending in the U.S. District Court for the District of Columbia. Today, we reported on another case pending in the U.S. District Court for the Eastern District of New York that also challenges the NLRB appointments. Presumably, the 38 Senators will seek to submit an amicus brief in one or both of those cases.

By memorializing their intent to file an amicus brief, it seems clear that the Republican Senators have no intention of being plaintiffs in a lawsuit challenging the appointments. I would guess that the Obama Administration breathed a collective sigh of relief at that news. One wonders whether the Republican Senators made a purely political decision or whether they were given legal advice informing them that the likelihood of success was low.

Shortly after the President appointed Richard Cordray and several members of the NLRB through “recess” appointments, Alan Kaplinsky predicted on this blog that there would be litigation over the validity of the recess appointments first with regard to the NLRB, simply because it was likely to result in a “case or controversy” before anything involving the CFPB. 

Last week, a Brookyln apartment complex fulfilled our prediction for the second time, by raising the invalidity of the President’s recess appointments as a defense to an action initiated by the NLRB.  Bloomberg BusinessWeek reported on the case here.  The same issue was raised in another NLRB case that Keith Fisher blogged about here.  Thus, there are now two NLRB-related cases in which the validity of the recess appointments may be decided.

Because of the obvious implications of any ruling with respect to the validity of the appointment of Mr. Cordray as CFPB Director, we will be watching the proceedings in the New York case, which is styled Paulsen v. Renaissance Equity Holdings LLC, No. 12-cv-350, in the U.S. District Court for the Eastern District of New York.

 Although there has been much discussion during the past week as to the legality of President Obama’s appointment of Richard Cordray as the first Director of the CFPB, there has been little discussion of the President’s appointment at the same time of three individuals to fill vacancies on the National Labor Relations Board (NLRB). Yet it is those latter appointments that may determine the legality of Cordray’s appointment.

That results from the fact that it is more likely that the NLRB (as opposed to Director Cordray) will soon take an official act that will give standing to someone to challenge the appointments in court. If a court determines that the President’s appointments of the three persons to fill the vacancies on the NLRB Board was invalid because the Senate was not in recess, then the same would hold true for Cordray’s appointment. If the court were to hold that the appointments of the persons to the NLRB Board were valid, that would eliminate the “no vacancy” argument but would still leave objectors to Cordray’s appointment with two other arguments – namely, that there was no “vacancy” to fill because Cordray was the first person to fill the position and that Dodd-Frank Act requires confirmation by the Senate.