The Brief is in for Selia Law

The Late and Revised Brief is in for Selia Law

Seila Law and CFPB file briefs in U.S. Supreme Court

Seila Law and the CFPB filed their briefs in the U.S. Supreme Court.

Both briefs address the question presented in Seila Law’s certiorari petition, which is whether the CFPB’s single-director-removable-only-for-cause structure violates the separation of powers in the U.S Constitution.

They both also address the second question that the Court asked the parties to brief in its order granting Seila Law’s petition, which is whether, if the CFPB is found to be unconstitutional, the Dodd-Frank Act’s for-cause removal provision can be severed from the remainder of the Act.

While Seila Law and the CFPB respond similarly to the first question, their responses to the second question are very different.

With regard to the CFPB’s constitutionality, Seila Law and the CFPB both argue that the CFPB’s structure violates the separation of powers because it impermissibly restricts the President’s exercise of his executive authority.

In its decision upholding the CFPB’s constitutionality, the Ninth Circuit relied substantially on the Supreme Court’s 1935 decision in Humphrey’s Executor v. United States.  In that decision, the Court ruled that a for-cause removal restriction on FTC commissioners did not violate separation of powers.  Both Seila Law and the CFPB argue that for various reasons, including that it dealt with a “non-partisan” multi-member commission, Humphrey’s Executor has no application to the CFPB’s single-director structure.  Alternatively, they both argue that if the Supreme Court nevertheless determines that Humphrey’s Executor is controlling, the Court should overrule it.

With regard to whether severance is the appropriate remedy should the Court find the CFPB’s structure to be unconstitutional, Seila Law and the CFPB take opposite positions, with Seila Law arguing that the for-cause removal provision is not severable and the CFPB arguing that severance would be the appropriate remedy. 

SELIA LAW ARGUMENTS

As an initial matter, Seila Law argues that, even if the Supreme Court determines that the CFPB’s structure is unconstitutional, it does not need to reach the severance question.  According to Seila Law, the Court can give it complete relief simply by holding that the CID issued to Seila Law is invalid and it is questionable whether the Court even has Article III power “to take an eraser to statutory provisions when doing so will have no bearing on the judgment in the pending case.”

Seila Law also asserts that “there is a particularly good reason” for the Court not to address severability, namely that Congress would have structured the CFPB as a multi-member commission rather than as an agency headed by a single director removable by the President at will.  It asserts that if it reaches the question of severability, the Court will be left with an “unpalatable choice” between “mak[ing] the Director of the CFPB removable at will” and “eliminat[ing] the CFPB altogether.”

Seila Law argues that if the Court were to “simply hold that the CFPB’s structure violates the separation of powers and enter judgment for the petitioner,” the CFPB “will be on notice of its unconstitutionality–just as it has been since the Director acknowledged its constitutional defect several months ago.”  And “more importantly, Congress will be on notice that it should amend the Dodd-Frank Act to remedy that defect—and that it, not this Court, should make that quintessentially legislative decision in the first instance.”

Finally, Seila Law argues that the for-cause removal provision is not severable and the appropriate remedy “under a severability analysis is to invalidate the entirety of Title X of the Dodd-Frank Act.”

Once again, Seila Law asserts that making the CFPB’s Director removable at will would “create an agency that the Congress that enacted the Dodd-Frank Act would surely not have wanted.”  It also argues that although the Dodd-Frank Act has a general severability clause, “the clause does not reflect a congressional judgment that every single provision within each title is severable from the title in which it resides.”

As evidence of that, Seila Law asserts that “when Congress wanted specific provisions within a title of the Dodd-Frank Act to be severable, it included an additional severability clause within that title.  Congress conspicuously did not do so in Title X.” (emphasis provided, citations omitted.)

It argues that a holding that the removal provision cannot be severed would restore the status quo before the Dodd-Frank Act was enacted “pending, of course, any action by Congress in response to the Court’s decision.”  According to Seila Law, “it would not eliminate federal consumer-financial protection; instead, it would return authority under the eighteen preexisting federal consumer-protection laws to other agencies…to administer and enforce those laws.”

CFPB COUNTER-ARGUMENTS

In contrast, the CFPB argues that the appropriate remedy for the CFPB’s unconstitutionality is for the Supreme Court to sever the for-cause removal provision from the Dodd-Frank Act.  Pointing to the Dodd-Frank Act’s general severability clause, the CFPB asserts “there is no basis to conclude that Congress would have preferred to have no Bureau at all rather than a Bureau headed by a Director who would be removable like almost all other single-headed agencies.”

The CFPB does not argue, however, that the CID issued to Seila Law remains valid despite the Bureau’s unconstitutionality nor does it reference the argument that it has previously made that former Acting Director Mulvaney’s ratification of its petition to enforce the CID cured any constitutional defect.

Rather, it only asks the Court to vacate the Ninth Circuit’s judgment and remand the case to the Ninth Circuit for further proceedings.

The lawyers for Selia are going for the paranormal… pic.twitter.com/GhhOOMqyjV

— LawsInTexas (@lawsintexasusa) December 9, 2019

A Look at “Small Business Owner from Mississippi” Michael Gray, All American Check Cashing Inc. #CFPB #AmericaFirst https://t.co/HaE0N7vDIt pic.twitter.com/IZ09WL9jME

— LawsInTexas (@lawsintexasusa) December 5, 2019

#AI #DataScience #Judge #Texas #ImpeachmentHearing https://t.co/8dI3BaCgqN

— LawsInTexas (@lawsintexasusa) December 4, 2019

The Future of the CFPB: the Executive Branch and Separation of Powers

On October 18, 2019 the Supreme Court granted certiorari in Seila Law v. Consumer Financial Protection Bureau (CFPB). SCOTUS  will answer the question of “whether the substantial executive authority yielded by the CFPB, an independent agency led by a single director, violates the separation of powers,” and the Justices requested that the parties brief and argue an additional issue: “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. § 5491(c)(3) [the for-cause removal provision] be severed from the Dodd-Frank Act?”

Origins of the Consumer Financial Bureau and Previous Constitutional Challenges

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) established the CFPB as an independent bureau within the Federal Reserve System designed to protect consumers from abusive financial services practices.  The structure and constitutionality of the CFPB has been addressed before. In 2018, the D.C. Circuit held in PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. 2018) (PHH) that the current structure of the CFPB, which features a single director that cannot be removed by the president except for cause, “is consistent with Article II” of the Constitution.

The PHH opinion stated that Congress’ response to the consumer finance abuse that led up to the 2008 financial crisis purposely created the CFPB to be “a regulator attentive to individuals and families”  because the existing regulatory agencies were too concerned about the financial industry they were supposed to supervise. It was determined that the CFPB needed independence to do its job, and the CPFB structure was designed to confer that independence.   Neither PHH Corporation nor the CFPB filed a petition for certiorari to ask the Supreme Court to review the D.C. Circuit’s decision.

Background of the Seila Law Case

In Seila Law v. Consumer Financial Protection Bureau (CFPB) the Petitioner is a law firm that provides a variety of legal services to consumers, and as part of a CFPB investigation into whether Seila Law violated certain federal laws, the CFPB issued a civil investigative demand seeking information and documents. Seila Law objected to the demand on the ground that the CFPB was unconstitutionally structured and filed a petition to a federal district court for enforcement. The district court held that the structure of the CFPB did not violate the separation of powers and was constitutional, after which that district court decision was appealed. The Ninth Circuit affirmed, noting that the issues had been “thoroughly canvassed” in the DC Circuit it in PHH, and adopting the position of the PHH majority that the CFPB’s structure is constitutional. Seila Law filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of the Ninth Circuit’s ruling, and here we are.

An Experienced Federal Agency Litigator’s Perspective

Mr. Anthony E. DiResta, is co-chair of Holland & Knight’s Consumer Protection Defense and Compliance Team, and a former Director of the Federal Trade Commission’s (FTC) Southeast Regional office.  Mr. DiResta was kind enough to take some time with the National Law Review to discuss the upcoming Seila Law decision and its impact on the future of the CFPB.

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NLR: Can you sum up the CFPB and separation of powers story to this point from your own viewpoint?

DiResta: The Supreme Court has decided to review this case because of the constitutionality of the CFPB’s structure, based on separation of powers. Any single leader in government who doesn’t serve at the pleasure of the President may simply have too much power, and people with certain jurisprudential philosophies about how government should be run find that an offensive situation. That’s the theory behind the certiorari decision and why SCOTUS is addressing the case – it’s really a question of constitutionality and the power of administrative agencies. Additionally, the Court will look at the severability of the CFPB in Dodd-Frank, whether it’s possible to just restructure the single leader structure, and then leave the Bureau intact to continue business as usual.

NLR: It seems many of these issues could’ve been avoided had the CFPB been structured more as a multi-member commission initially or if Congress had simply expanded FTC powers.  Why do you think it was structured differently?

DiResta: That’s a matter of speculation – but I think it might have gone something like this: After the Recession in the early 2000s, many people felt that government was asleep at the wheel, letting  devastating things in banking and finance and servicing to consumers run out of control, which led to serious blunders and mishaps. So it was decided that a new office was needed – and this was led by representatives in Congress like Elizabeth Warren.

Why they didn’t simply expand the power and resources of the FTC is also pure speculation – they could have merely expanded FTC’s jurisdiction and reach to achieve similar outcomes and intentions.

The Constitutionality of the CFPB

NLR: Do you think SCOTUS will rule in favor of the petitioner in Seila Law, and find the structure of the CFPB unconstitutional?

DiResta: I do. I suspect that SCOTUS will, in fact, find the structure unconstitutional on the basis of the separation of powers. But I also believe that an even more interesting part of that will be the discussion of the severability of the organization’s leadership, leaving the CFPB itself intact. If the structure is unconstitutional, how the Court recommends a remedy to correct that unconstitutionality could have far-reaching effects. This is so important – and we should all be excited that we get to watch this corrective process in action.

NLR: Is there a chance this would result in a complete restructure of CFPB, or even its possible dissolution?

DiResta: I really don’t think so – and the Court couldn’t do that anyway. The Court could recommend to Congress that a certain path for correction be followed, but it will be up to Congress to rearrange the CFPB (if that’s the result) in the best way. The legislative branch will just have to make sure it’s done, in a way that the Court recommends.

Some More Background on CFPB Constitutionality Litigation

Then-Judge, now Justice Kavanaugh was on the U.S Court of Appeals Court for the D.C. Circuit for the 2018 en banc ruling in the PHH Corp. v. CFPB case and on the 2016 three-judge decision. Judge Kavanaugh authored two opinions regarding PHH:  declaring a certain aspect of the CFPB to be unconstitutional and in 2018, the dissenting opinion from the en banc U.S. Court of Appeals for the D.C Circuit’s decision overruling the 2016 panel opinion.

The 2016 panel opinion determined that the structure of the CFPB is unconstitutional stating:  “The concentration of massive, unchecked power in a single Director marks a dramatic departure from settled historical practice and makes the CFPB unique among independent agencies.” And the 2016 panel also presented a view of the Constitution that vests with the president an extensive degree of unilateral authority over the executive branch’s enforcement of federal laws.

NLR:  Since Justice Kavanaugh was a judge involved in a similar case – PHH Corp. v. CFPB – why is he allowed to rule on this matter again?

DiResta: I’m not an expert on judicial ethics but there does not appear to be improper bias in Kavanaugh reviewing this decision. Rather, his views in PHH reflect a philosophical perspective on separation of powers and the role of administrative agencies.  In fact, I expect they’ll use his past ruling on PHH as part of their internal discussion.

Seila Law v CFPB and Election Politics

NLR: It’s difficult to ignore the political undertones of this case:  a watchdog organization created, in part, with input from some high-profile democrats (most notably Elizabeth Warren, who is currently running as a candidate for president) is being challenged and that challenge is being echoed in support by largely conservative elements.  In your view, is this case a litmus test for the Supreme Court delving into political issues, something it has largely tried not to do?

DiResta: No – I really don’t see this as political. Again, this is a purely constitutional question, a legal question, and it’s exactly the kind of case the SCOTUS should be deciding. If we’re honest, this is a perfect example of why we have SCOTUS in the first place: To examine how effective our public servants are behaving and performing their responsibilities under the constitutional structure revealed in the separation of powers doctrine.

Besides that, politically speaking, this could boomerang. Consider: if the Democrats win the White House in 2020, and the Court were to change the structure, that would offer any Democratic President the opportunity to appoint a new Director in 2021, and Kathleen Kraninger’s term isn’t up until 2023.

Informed Democracy at Work

While the situation with CFPB and its constitutionality is demonstrably important, DiResta touched on a few more salient – though no less important – points.

DiResta: Democracy isn’t supposed to be easy. Democracy is hard – it’s messy and complicated. It’s in its nature, and in the nature of different ideas.

In a free marketplace of ideas, people will clash when citizens are free to express themselves, and there will always be conflict – but it’s out of resolving those conflicts that democracy claims – and grows – its power and attraction. It’s so important that we – the people – see this and get to comment on it – to watch this happening.

NLR: Absolutely. In a world where the news cycle has compressed from days, to hours, to minutes – while attention spans have diminished in similar fashion – it’s increasingly important that these monumental workings in government are transparent, and that people see them.

DiResta: I couldn’t agree more. And – as a young lawyer, I  had the privilege to work with some very dedicated and highly professional journalists who understood journalism as a public service, not as entertainment.  These journalists saw themselves as educators, bringing light to the processes and prospects of government to citizens. And that’s how the media serves effectively as the Fourth Branch of government. A branch that presents a constant check to the power of government and its branches, and that gives the people the knowledge to make better decisions, and to vote for the best people and the best situations.

Federal Court in NY joins the Stay with 2nd (also now agreed to stay) and 9th Circuits re CFPB v Selia Law Case Before the US Supreme Court (19-7) resulting in the 5th Cir. and 11th Cir. as the only Circuits causing a split. @SCOTUSblog #lawtwitter #CFPBhttps://t.co/NEuJ8xNYSt pic.twitter.com/ZmXwAFv7dO

— LawsInTexas (@lawsintexasusa) November 7, 2019

Well, the Indian Tribe Case at #CA5 went to En Banc without #judge Jim Ho. His wifes’ law firm are representing parties in the case, e.g. Danielle Clifford by Scott Hvidt of Gibson Dunn. But it didn’t stop him sitting on #DeutscheBank cases. #AuditTexas https://t.co/cJ21lIPZ5f pic.twitter.com/Q9cWaeQ83h

— LawsInTexas (@lawsintexasusa) November 8, 2019