state national bank of big spring

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.

According to a Law360 report, the D.C. federal district court has denied the request of the plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew, et al. 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.

The plaintiffs had filed a motion with the district court seeking 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 their motion, 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.

Although it did not oppose the plaintiffs’ motion for a status conference, the CFPB filed a response opposing certification and urging the court to “continue to hold this case in abeyance until the D.C. Circuit mandate issues in PHH.”  While Law360 reported that the court denied the plaintiffs’ consolidation request on January 17, the district court docket currently indicates only that a status conference was held on that day.

Yesterday, the CFPB’s motion to dismiss was granted in State National Bank of Big Spring, Texas, et al. v. Lew, et al., the case filed in federal district court in Washington, D.C. that included a challenge to President Obama’s recess appointment of Richard Cordray and also alleged that the CFPB’s structure and authority violated the Constitution’s separation of powers.  In a 62-page opinion, Judge Ellen Huvelle agreed with the CFPB that the plaintiffs lacked standing to bring their claims. 

We will write more about the decision once we have an opportunity to study the opinion.

We have been following two federal court cases that involve challenges to Director Cordray’s appointment.  The California case, CFPB v. Chance Edward Gordon, was filed in summer 2012 by the CFPB against an attorney and his law firm alleging that the defendants duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers.  The CFPB charged the defendants with violations of the Consumer Financial Protection Act of 2010 (meaning Title X of Dodd-Frank) and Regulation O, the Mortgage Assistance Relief Services Rule.

In November 2012, the CFPB obtained a preliminary injunction freezing the law firm’s assets and appointing a receiver.  As part of their affirmative defenses to the CFPB’s complaint, the defendants had included a challenge to President Obama’s recess appointment of Director Cordray.  In February 2013, the defendants also raised that challenge in their opposition to the receiver’s request for payment.  However, in its order granting the receiver’s request. the court concluded that “any questions as to the constitutionality of the CFPB’s prosecution of this action should not delay the Court’s consideration of the [receiver’s request.]”  The court noted that if it were to eventually determine that the CFPB did not have the authority to institute the action, it “could, presumably, remedy the depletion of the receivership estate by requiring the CFPB to reimburse the receivership estate for the expenses of wrongfully procuring the appointment of the Temporary Receiver.”

In May 2013, both sides filed motions for summary judgment and a hearing on the motions has been set for June 17, 2013.  In support of their summary judgment motion, the defendants assert that, based on the reasoning of the D.C. Circuit’s decision in NLRB v. Noel Canning, Richard Cordray was not validly appointed as CFPB Director. They argue that in the absence of a validly-appointed Director, the CFPB has no jurisdiction over non-banks and the CFPB’s action against the defendants is therefore rendered invalid.

Alternatively, the defendants argue that they are not “covered persons” within the meaning of the Dodd-Frank Act because they did not provide a “consumer financial product or service” but instead provided “custom legal products.”  The defendants also assert that they did not provide “mortgage assistance relief services” within the meaning of Regulation O because the loan modification services they offered were provided for no compensation.  According to the defendants, fees were only charged for pre-litigation, custom legal products.  The CFPB has until June 3 to file a response to the defendants’ motion.

The other case we continue to follow is the Washington, D.C. case filed in summer 2012 by State National Bank of Big Spring against the CFPB, the Department of Treasury, Richard Cordray, and a number of other federal officials.  The original plaintiffs also included two non-profit organizations in the metropolitan Washington, D.C. area.  Since the original complaint was filed, it has been amended twice to also add 11 state Attorneys General as plaintiffs.  Pending before the court is the motion to dismiss filed by the CFPB and other defendants.  The motion does not address the merits of the plaintiffs’ challenge to Mr. Cordray’s appointment but instead challenges the bank’s standing to bring the lawsuit.