On Friday, PHH filed its opening en banc brief with the D.C. Circuit in the rehearing of its appeal of Director Cordray’s June 2015 decision that affirmed an administrative law judge’s (ALJ) recommended decision concluding PHH had violated RESPA and increased the ALJ’s disgorgement award from over $6.4 million to over $109 million.  The rehearing was sought by the CFPB after a divided D.C. Circuit panel ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and severed the unconstitutional provision to make the CFPB Director removable without cause by the President; rejected Director Cordray’s new RESPA interpretation and held that even assuming that his interpretation was consistent with RESPA, the CFPB’s attempt to apply that new interpretation retroactively violated due process; held that statutes of limitations apply to CFPB administrative enforcement actions; and remanded to the CFPB for further proceedings consistent with the panel’s decision.

In its opening brief, PHH argues that the CFPB’s “unprecedented independence from the elected branches of government violates the separation of powers” and that because the CFPB’s “constitutional infirmities extend far beyond limiting the President’s removal power…the proper remedy is to strike down the agency in its entirety.”  According to PHH, the Dodd-Frank “for-cause removal provision is not severable from the rest of the provisions establishing the CFPB because severance would create a new agency unrecognizable to the Congress that passed Dodd-Frank.”  PHH contends that the court cannot avoid the separation-of-powers issues “simply by adopting the panel’s statutory holdings and remanding to the CFPB, because this Court cannot remand a case to an unconstitutional agency.”  PHH asserts that such issues can only be avoided “by vacating the CFPB’s order without remand, so that the CFPB would not be free to resume proceedings against PHH.” (emphasis provided).

In its order granting the CFPB’s petition for rehearing en banc, one of the issues the court ordered the parties to address was what the appropriate disposition would be in PHH if the court were to hold that the ALJ in Lucia v. SEC was an inferior officer.  In Lucia, a panel of the D.C. Circuit held that because the SEC’s ALJ was an “employee” rather than “inferior officer” who must be appointed in accordance with the Appointments Clause of the U.S. Constitution, the ALJ’s appointment by the SEC’s Office of Administrative Law Judges rather than an SEC Commissioner was constitutional.  The D.C. Circuit granted a petition for rehearing en banc in Lucia and, as noted below, has scheduled oral argument in that case and in PHH for the same day.

Responding to the issue posed by the D.C. Circuit, PHH argues in its brief that if the court holds the ALJ in Lucia was improperly appointed, then the ALJ in its case was also an “inferior officer” who was not appointed in accordance with the Appointments Clause.  As a result, the entire hearing before the ALJ was invalid, Director Cordray’s order would need to be vacated, and “any future proceeding must begin afresh before a constitutionally structured agency but also before a valid adjudicator.”  PHH further argues that merely restarting the current proceeding still would not provide PHH with full relief because “the unconstitutional taint stemming from the initial authorization of the Notice of Charges would continue to infect this matter.”  PHH asserts that for this reason, the court “must decide PHH’s separation-of-powers challenge even if the ALJ was improperly appointed.”

With regard to the RESPA issues, PHH contends they “should not properly be disputed” before the en banc court “and any en banc opinion should simply reinstate the panel’s statutory rulings.”  It also observes that the RESPA issues “plainly were not en banc-worthy” and Director Cordray’s RESPA interpretation, if adopted by the en banc court, “would create a circuit split with every other court to have considered RESPA’s proper scope.”  Nevertheless,  PHH states that “[i]n an abundance of caution and in light of the critical importance of the RESPA issues to PHH and to the entire settlement-services industry…PHH addresses those issues directly [in its brief] to demonstrate that there is no legitimate basis to revisit the panel’s statutory rulings.”

Amicus briefs in support of PHH were filed on Friday by:

The RD Legal amici are defendants in an enforcement action filed by the CFPB and the New York Attorney General last month alleging that a litigation settlement advance product offered by RD Legal is a disguised usurious loan that is deceptively marketed and abusive.  (In their brief, the RD Legal amici claim that the action was filed in retaliation for a preemptive challenge to the CFPB’s jurisdiction filed by RD Legal.)  State National Bank of Big Spring and the other amici on its brief are the plaintiffs in a separate lawsuit pending in D.C. federal district court challenging the CFPB’s constitutionality.  The State National Bank of Big Spring plaintiffs previously filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH en banc rehearing.

In their amicus brief, the Republican state AGs argue that separation of powers creates a structural check against the aggregation of power on the federal level and protects the role of the states in the federal system by limiting the range of permissible federal action and ensuring federal power can only be wielded by officials who are politically accountable.  A group of Democratic AGs from 16 states and the District of Columbia filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH appeal.  Among the arguments made by the Democratic AGs in support of their motion was that their intervention was necessary because the Trump Administration might not defend the CFPB’s constitutionality.

Except for the brief filed by the ABA and twelve other trade groups which addresses only the merits of PHH’s RESPA arguments, the amicus briefs only address the CFPB’s constitutionality and argue that the CFPB is unconstitutionally structured because of the CFPB Director’s expansive powers and insulation from Presidential and Congressional oversight.  (ACA International’s brief includes the argument that, in addition to being insulated from accountability, the CFPB’s funding mechanism also raises a conflict of interest.  According to ACA, the civil penalty fund “creates a perverse incentive for the Bureau to use its enforcement actions as a funding mechanism, where the Bureau is both prosecutor and beneficiary.”)

The ABA’s brief states that even though amici “do not understand the Court to have granted en banc review to reconsider the panel’s straightforward resolution of the RESPA and fair notice questions,” they are nonetheless “filing this brief out of an abundance of caution because [such] questions addressed by the panel are of critical importance to them and their members.”  The ABA amici argue that the CFPB “misread RESPA, overturned decades of settled interpretations without any notice, and disrupted a large sector of the economy.”  They assert that the panel’s decision “correctly restored the status quo” and urge the en banc court “to let that decision stand.”

Also on Friday, the D.C. Circuit entered an order allowing each side 30 minutes at the en banc oral argument scheduled for May 24, 2017.  The order also indicates that the oral argument in Lucia v. SEC, also scheduled for May 24, will be heard first to be followed by a “short recess” before the argument in PHH.  Finally, the order confirms that the en banc panel will consist of eleven judges, including Senior Judge Randolph.  In addition to Senior Judge Randolph, four of the other panel members were appointed by a Republican president.

 

The D.C. Circuit has entered an order granting the CFPB’s petition for rehearing en banc in the PHH case.  Because the order was issued per curiam, it does not indicate which of the active judges voted to grant the petition but only indicates that Chief Judge Garland did not participate.

The order vacates the panel’s October 2016 judgment, sets a briefing schedule, and sets May 24, 2017 as the date for oral argument.   The order also provides that “[w]hile not otherwise limited,” the parties are directed to address the following three issues in their briefs:

  • Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?
  • May the court appropriately avoid deciding that constitutional question given the panel’s ruling on the statutory issues in this case?
  • If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F. 3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

In Lucia, the decision cited in the third issue, a panel of the D.C. Circuit held that because the SEC’s ALJ was an “employee” rather than “inferior officer” who must be appointed in accordance with the Appointments Clause of the U.S. Constitution, the ALJ’s appointment by the SEC’s Office of Administrative Law Judges rather than an SEC Commissioner was constitutional.  In its brief to the D.C. Circuit filed in connection with its appeal from Director Cordray’s order affirming the ALJ’s decision that PHH had violated RESPA, PHH argued that the ALJ was an “inferior officer” whose appointment did not satisfy the Appointments Clause.  PHH indicated in its brief that it was preserving an Appointments Clause challenge to the CFPB’s use of an ALJ for review by the en banc D.C. Circuit or the U.S. Supreme Court.  Nevertheless, the panel’s October 2016 decision included a concurring opinion from Senior Judge Randolph in which he stated that because the ALJ used by the CFPB was an “inferior officer” who had not been appointed in accordance with the Appointments Clause, “[t]his in itself rendered the proceedings against petitioners unconstitutional.”

Because Chief Judge Garland will not be participating, ten active judges will sit on the en banc court, six of whom were appointed by either President Obama or President Clinton.  Since he was on the original panel, Senior Judge Randolph, appointed by President George H.W. Bush, can also sit on the en banc court should he wish to do so.

This past Friday, PHH filed a supplemental response to the CFPB’s petition for en banc rehearing and a response opposing the motion filed by Democratic Attorneys General of 16 states and the District of Columbia to intervene in the PHH appeal.

Supplemental Response.  The D.C. Circuit invited the Solicitor General to file a response to the CFPB’s petition expressing the views of the United States.  After the Department of Justice filed a response, PHH filed a motion for leave to file a supplemental response.  In that motion, PHH asserted that because the DOJ had argued that the D.C. Circuit should grant the CFPB’s petition on several grounds that were not pressed in the CFPB’s petition, PHH was seeking an opportunity to be heard on the views expressed by the United States.  Despite the CFPB’s opposition to PHH’s motion, the D.C. Circuit granted PHH’s motion and required PHH to file its supplemental response by January 27.

In its supplemental response, PHH asserts that the United States did not dispute the panel’s conclusion that the CFPB’s structure is unconstitutional or the panel’s remedy to address the constitutional violation (i.e. severance of the for-cause removal provision) but only challenged the panel’s reasoning in reaching that outcome.  While rejecting the United States’ reading of U.S. Supreme Court precedent with regard to the role of separation of powers in protecting individual liberty, PHH also argues that even under “the United States’ crabbed reading of [such precedent], the panel undoubtedly reached the correct result.”  According to PHH, “the United States identifies no reason for the full Court to grant rehearing simply to retrace the panel’s steps and arrive at the same place.”

PHH also calls “passing strange” the United States’ suggestion for the en banc court to conclude that it should not reach the separation of powers issue under the doctrine of constitutional avoidance while simultaneously arguing that the en banc court should review the panel’s separation of powers analysis.  PHH observes that the “United States cites no examples of an appellate court granting rehearing en banc for the purpose of not reaching an issue.” (emphasis provided).  PHH argues that because the panel properly reached the separation of powers question, the court should reject the United States’ suggestion that the court should grant rehearing on the question but then decline to decide it.

PHH also observes in its supplemental response that the United States did not contest the D.C. Circuit’s RESPA interpretation or its due process holding and instead only addressed its separation of powers holding.  PHH argues that the panel’s RESPA interpretation and due process holding were correct and that “there is no possible basis to rehear either the panel’s RESPA or due-process holdings.” 

Response to Motion to Intervene.  Last week, a motion to intervene was filed with the D.C. Circuit by the Democratic Attorneys General of 16 states and the District of Columbia.  In its response, PHH argues the motion should be denied for reasons that include the following:

  • The motion was untimely because federal appellate rules require a motion to intervene to be filed within 30 days after a petition for review is filed and PHH filed its petition for review in June 2015.   The state AGs’ argument that good cause exists to extend the deadline is “implausible” because the results of the presidential election are not relevant to the question of intervention and even if they were relevant, the state AGs did not explain the reason for “their additional two-and-a-half-month [post-election] delay before seeking to intervene.”  In addition, “intervention would be grossly unfair to petitioners, who suddenly would be faced with the burden of litigating any further judicial proceedings against seventeen new (and sovereign) party opponents.”
  • The state AGs lack standing to intervene because they have no legally protected interest.  With regard to RESPA, the state AGs’ involvement is not “necessary or appropriate to protect the Executive Branch’s interest in the interpretation and enforcement of RESPA.”  With regard to the CFPB Director’s independence, the state AGs “have no standing to defend the constitutionality of a federal statutory provision that applies only to one federal Officer–the Director of the CFPB.”  The panel’s decision does not, as the state AGs contend, “effectively giv[e] the President veto power over” the state AGs’ attempts to enforce the CFPA under Section 1042 because the CFPA merely requires the state AGs to notify the CFPB of an intended enforcement action before filing and allows the CFPB to intervene.  The state AGs “remain free to pursue their own enforcement actions, and the courts would remain the ultimate arbiters of any disagreements.”  The state AGs also provide no explanation for “their illogical and ultimately speculative contention that a constitutionally accountable CFPB would somehow ‘undermine’ regulatory coordination.  To the contrary, states routinely coordinate with constitutionally accountable federal agencies, such as the Department of Justice.”
  • The motion “is simply an effort by the state AGs to intervene in order ‘to file a petition for certiorari,’ as they admit, in the event the Solicitor General does not.”  The state AGs should not be given control over efforts to seek Supreme Court review.  More specifically, granting intervention would circumvent the CFPA provision requiring the CFPB to seek approval from the United States AG to file a certiorari petition–which is “one of the only means that Congress provided the President to supervise litigation involving the CFPB.”

In addition to the state AGs’ motion, two other motions to intervene were filed last week.  One motion was filed by Democratic lawmakers Senator Sherrod Brown and Representative Maxine Waters who are, respectively, the Ranking Members of the Senate Banking Committee and the House Financial Services Committee.  The other motion was filed by Maeve Brown (who chairs the CFPB’s Consumer Advisory Board), Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, Self-Help Credit Union, and United States Public Interest Research Group.  In a footnote to its response, PHH states that it “will promptly and separately respond to those motions.”

PHH has filed a reply to the CFPB’s opposition to PHH’s motion for leave to file a supplemental response to the CFPB’s petition for rehearing en banc.  On December 22, PHH and the United States filed responses to the CFPB’s petition with the D.C. Circuit.  The D.C. Circuit had invited the Solicitor General to file a response expressing the views of the United States.

In its motion for leave to file a supplemental response, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.”  Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.”  In its opposition to the motion, the CFPB states only that it opposes PHH’s motion and that if PHH “wants an opportunity to present additional arguments to this Court, they may do so if this Court grants rehearing en banc and seeks additional briefing.”

In its reply, PHH describes the CFPB’s opposition as “completely nonresponsive to PHH’s basis for seeking a supplemental response.”  It states that “the CFPB does not dispute or even address” PHH’s point that it has not had a chance to respond to the United States’ response and “[i]nstead it offers a non sequitur: that if rehearing is granted, PHH will have a chance to brief the merits.”  PHH asserts “[t]hat is always true—and has nothing to do with whether PHH has had a fair opportunity to respond to the arguments for rehearing. It has not.”

The CFPB has opposed the motion filed by PHH for leave to file a supplemental response to the CFPB’s petition for rehearing en banc.  On December 22, PHH and the United States filed responses to the CFPB’s petition with the D.C. Circuit.  The D.C. Circuit had invited the Solicitor General to file a response expressing the views of the United States.

In its motion for leave to file a supplemental response, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.”  Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.”

The CFPB’s opposition filed in the D.C. Circuit states only that the CFPB opposes PHH’s motion and that if PHH “wants an opportunity to present additional arguments to this Court, they may do so if this Court grants rehearing en banc and seeks additional briefing.”

PHH and the United States have filed responses with the D.C. Circuit to the CFPB’s petition for rehearing en banc.  The D.C. Circuit invited the Solicitor General to file a response expressing the views of the United States and entered an order requiring both PHH and the SG to file their responses by December 22.

In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure violates the U.S. Constitution’s separation of powers.  To remedy the constitutional defect, it severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”  It also rejected the CFPB’s interpretation of RESPA, which departed from HUD’s prior interpretation, to prohibit captive mortgage re-insurance arrangements such as the one at issue in PHH.  The court also held that even if the CFPB’s interpretation was correct, the CFPB’s attempt to retroactively apply its new interpretation violated due process.

In its petition, the CFPB argued that the panel’s constitutionality ruling conflicts with U.S. Supreme Court precedent and should therefore be reconsidered by the court sitting en banc.  It also argued that panel’s RESPA ruling should be reviewed by the court sitting en banc but observed that the panel’s retroactivity holding “is perhaps not worthy of en banc review on its own.”  The CFPB also did not seek en banc reconsideration of the panel’s ruling that CFPB administrative enforcement actions are subject to the same statute of limitations as would apply to a CFPB lawsuit filed in court.

In its response, PHH asserts that the panel’s constitutionality ruling is fully consistent with Supreme Court precedent “and more than two centuries of separation-of-powers jurisprudence.”  As a result, PHH contends the panel’s “correct application of settled constitutional principles warrants no further review.”  PHH argues that further review of the panel’s RESPA interpretation is also not warranted because it “is plainly correct irrespective of the separation-of-powers ruling, and it presents no conflicting authority.”  PHH asserts that “[o]n the contrary, the CFPB would ask the en banc Court to create a circuit split with every other court to have considered the proper scope of RESPA.” (emphasis supplied.)  In addition, PHH contends that the panel’s retroactivity holding “provides another independent basis for vacating the $109 million penalty against PHH.”

The United States, in its response filed by the Department of Justice, does not address the D.C. Circuit’s RESPA rulings and instead “addresses only the panel’s separation-of-powers holding.”  The United States argues that “the panel’s approach to resolving [the CFPB’s] constitutionality departs from the approach the Supreme Court has applied in resolving such separation-of-powers questions.”  According to the United States, the panel’s opinion was “premised on its view that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers.”  The United States contends that, under relevant Supreme Court precedent, the proper inquiry is whether a removal restriction is an “impermissible intrusion on Presidential power or on the functioning of the Executive Branch,” and although a removal restriction’s effect on individual liberty “may shed light on whether it constitutes [such] an impermissible intrusion…the possible impact on individual liberty has not been an independent inquiry.”

PHH has filed a motion for leave to file a supplemental response to the petition for rehearing en banc.  In the motion, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.”  Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.”

The D.C. Circuit has entered an order directing PHH Corporation to file a response to the CFPB’s petition for rehearing en banc in CFPB v. PHH Corporation.

The order, filed November 23, 2016, requires PHH to file its response within 15 days.  It also invites the Solicitor General to file a response to the petition for rehearing en banc, expressing the views of the United States, but does not set a date by which the Solicitor General must file any response.  We expect the Solicitor General to support the CFPB’s petition and given the impending change in Administrations, to file a response promptly.

The order states that absent further order of the court, the court will not accept a reply to the responses.

As we expected, the CFPB filed a petition with the D.C. Circuit this past Friday asking it to grant a rehearing en banc of its decision in CFPB v. PHH CorporationUnder D.C. Circuit rules, PHH may not file a response to the petition unless a response is ordered by the court.

In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  It also rejected the CFPB’s interpretation of RESPA, which departed from HUD’s prior interpretation, to prohibit captive mortgage re-insurance arrangements such as the one at issue in PHH.  The court also held that even if the CFPB’s interpretation was correct, the CFPB’s attempt to retroactively apply its new interpretation violated due process.

In the petition, the CFPB describes the D. C. Circuit’s constitutionality ruling as “set[ting] up what may be the most important separation-of-powers case in a generation.”  According to the CFPB, the case presents “an issue of exceptional importance because it unduly limits Congress’s flexibility to respond to ‘the various crises of human affairs,’ [citing the U.S. Supreme Court’s 1819 McCulloch v. Maryland decision], by creating independent administrative agencies headed by a single director.  And it may affect not only the Bureau but also other agencies headed by a single director removable only for cause (Social Security Administration; Federal Housing Finance Agency; Office of Special Counsel).” (citations omitted)  The CFPB argues in its petition that the ruling conflicts with U.S. Supreme Court precedent and should therefore be reconsidered by the court sitting en banc.

The CFPB also argues that D.C. Circuit’s RESPA ruling should be reviewed by the court sitting en banc because it was based on errors of statutory construction and “fundamentally defeats the statutory purpose.”  Observing that the court’s retroactivity holding “is perhaps not worthy of en banc review on its own,” the CFPB nevertheless asks for an opportunity to address the holding if there is an en banc review of the court’s RESPA interpretation because it “may have been based on the panel’s misinterpretation of section 8 of RESPA.”

Although the D.C. Circuit also rejected the CFPB’s argument that statutes of limitations do not apply to its administrative enforcement actions, the CFPB has not asked for reconsideration en banc of this ruling.  By not seeking review of that ruling, the CFPB has presumably agreed that going forward, it will be subject to the same statute of limitations in administrative proceedings as would apply to it in a lawsuit filed in court.

D.C. Circuit rules provide that a majority of the circuit judges who are in regular active service and who are not disqualified may order that an appeal be reheard by the court en banc.  There are currently 11 active judges, 7 of whom were appointed by either President Obama or President Clinton.  (The Democratic appointees include Chief Judge Merrick B. Garland who was appointed to the U.S. Supreme Court by President Obama.  We understand Judge Garland has recused himself from deciding cases while his nomination is pending.  While it is assumed his nomination will not proceed due to the election results, the timing of his return to full active status is uncertain.)  The circuit rules do not establish a deadline for a decision on a petition for a rehearing en banc.