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D.C. federal district court rejects recess appointment challenge

Posted in CFPB General

The D.C. federal district court has rejected the plaintiffs’ attempt in State National Bank of Big Spring, Texas, et al. v. Lew, et al. 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 to the CFPB pending a decision by the D.C. Circuit in PHH Corporation v. CFPB.

In that case, PHH is arguing 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. The D.C. Circuit held oral argument this past April.  In its decision, the district court noted that the plaintiffs in State National Bank of Big Spring had filed an amicus brief in support of PHH in which they made largely the same constitutional argument that they made in their own case.

The district court had initially dismissed the second amended complaint in State National Bank of Big Spring on standing and ripeness grounds.  In July 2015, that decision was reversed in part by the D.C. Circuit, which ruled that the bank had standing to challenge the constitutionality of the CFPB and Director Cordray’s recess appointment.  With regard to the recess appointment challenge, in addition to remanding the case 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.”  In August 2013, following his confirmation by the Senate, Director Cordray published a notice in the Federal Register “affirm[ing] and ratify[ing] any and all actions” he took while a recess appointee.

In its decision on remand, the district court observed that the CFPB made no attempt to rebut the argument that Director Cordray’s recess appointment was unconstitutional, which the district court found to be “unsurprising in light of the Supreme Court’s decision in Noel Canning.”  The plaintiffs conceded that Director Cordray’s confirmation mooted their attempt in the lawsuit to use his recess appointment as grounds for challenging his authority to take any action as CFPB Director.  They argued, however, and the district court agreed, that the entire case was not moot because the court could still grant them partial relief by enjoining the enforcement of regulations that were promulgated prior to Director Cordray’s confirmation.  Nevertheless, the district court concluded that despite his unconstitutional recess appointment, Director Cordray’s subsequent confirmation and ratification “saves the regulations from plaintiffs’ challenge.”

In April 2016, in CFPB v. Chance Edward Gordon, a divided Ninth Circuit panel ruled that Director Cordray’s invalid recess appointment did not render the CFPB’s enforcement action against the defendant invalid because his subsequent valid appointment coupled with his ratification notice cured any initial constitutional deficiencies.