UPDATE: The Supreme Court has decided to review the Selia Law (9th Cir.) case and also appears to have added the All American Check Cashing (5th Cir.) question: if CFPB is unconstitutional, will it also mean that Dodd-Frank Act should be struck down?
Friday, 18th October, 2019
Justices to review constitutionality of CFPB structure
The website of the Consumer Financial Protection Bureau, created in 2010 under the Dodd-Frank Act as a response to the 2008 financial crisis, describes the CFPB as a “U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.” Today the Supreme Court agreed to hear a challenge to the constitutionality of statutory restrictions on the president’s ability to remove the director of the CFPB from office. The dispute is not merely an academic one: If the justices agree that the restrictions violate the doctrine known as the separation of powers – the idea that the Constitution divides the different functions of government among the executive, judicial and legislative branches – their ruling could potentially unravel all the CFPB’s decisions in the nine years since its creation.
The case now before the court was filed by Seila Law, a law firm that provides, according to its briefs, “a variety of legal services to consumers, including assistance with the resolution of consumer debt.” When the CFPB began an investigation into whether Seila had violated federal telemarketing laws, it sought information and documents from the firm. Seila objected to the request. It argued that the structure of the CFPB is unconstitutional because the bureau is headed by a single director, who has significant power but can only be removed by the president “for cause” – that is, for a very good reason.
The U.S. Court of Appeals for the 9th Circuit conceded that Seila’s argument was “not without force,” but it ultimately concluded that the Supreme Court’s cases point in the other direction. Although the director can only be removed for cause, the court of appeals reasoned, that restriction does not “impede the President’s ability to perform his constitutional duty to ensure that the laws are faithfully executed.”
Seila went to the Supreme Court at the end of June, asking the justices to weigh in. It told the court that the question presented by its case is “exceptionally important” and that “the time for this Court to resolve the long-running debate about the constitutionality of the CFPB is now.”
In a brief filed last month, the CFPB agreed with Seila that the court should grant review and hold that the restriction on removal of the agency’s director “impermissibly infringes the separation of powers fundamental to our constitutional structure.” Today the justices granted Seila’s request, and they instructed Seila and the CFPB to brief an additional question: If the court agrees that the provision limiting the president’s ability to remove the CFPB director is unconstitutional, can that provision be separated from the rest of the Dodd-Frank Act? The CFPB argued that it can be, which would give the court a way to strike down the specific provision without invalidating the entire CFPB, but now the Supreme Court will decide.
The justices will not hear oral argument until early next year, but one justice – Brett Kavanaugh – has already tipped his hand. When he was still a judge on the U.S. Court of Appeals for the District of Columbia Circuit, Kavanaugh dissented from a decision by the full court of appeals that rejected a similar challenge to the constitutionality of the CFPB’s leadership structure. Characterizing the director’s authority as “power that is massive in scope, concentrated in a single person, and unaccountable to the President,” Kavanaugh agreed with the challenger that what he described as the CFPB’s “novel structure” violates the Constitution.
The challenge to the constitutionality of the CFPB’s leadership structure is one of four cases granted this afternoon, following the justices’ private conference this morning. Another grant today involves the Constitution’s suspension clause, which provides that the “writ of habeas corpus” – the opportunity to challenge the validity of imprisonment or detention – “shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it.” In Department of Homeland Security v. Thuraissigiam, the justices will decide whether a federal law that limits judicial review of expedited deportation orders in habeas corpus proceedings to three specific determinations violates the suspension clause. The question arises in the case of a Sri Lankan citizen who was arrested after crossing the U.S.-Mexico border without documentation and was placed in expedited deportation proceedings. When his asylum claims were rejected, Thuraissigiam filed a habeas petition in federal court, arguing that the deportation order violated his rights and seeking a new chance to apply for asylum. The 9th Circuit ruled that, at least as applied to Thuraissigiam, the limitations imposed by federal law violate the suspension clause; the justices will now review that ruling.
The court will also wade into the immigration arena in Nasrallah v. Barr, in which it will consider whether the federal courts of appeals have the authority to review the factual findings at the heart of decisions denying withholding of removal, which is available to individuals who are not eligible for asylum. The petition for review was filed by Nidal Nasrallah, a Lebanese citizen who became a lawful permanent resident of the United States in 2007. DHS began proceedings to deport him after he pleaded guilty to two counts of receiving stolen property. An immigration judge agreed that he was eligible for temporary relief from deportation, but the Board of Immigration Appeals reversed, concluding that Nasrallah had not shown that he would be tortured (the standard for relief) if he were returned to Lebanon. The court of appeals ruled that it lacked the power to review that determination, and now the Supreme Court will weigh in.
Finally, in Lomax v. Ortiz-Marquez, the justices will decide whether a dismissal without prejudice for failure to state a claim counts as a “strike” for purposes of the Prison Litigation Reform Act, which bars inmates from filing or appealing a federal civil action without paying the associated fees if they have filed three or more cases or appeals that were dismissed because the lawsuits were frivolous or malicious or did not make out a proper claim.
The four cases granted today are likely to be scheduled for oral argument early next year, with a decision to follow by summer. Additional orders from today’s conference are expected on Monday, October 21, at 9:30 a.m.
Seila Law has filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of the Ninth Circuit’s ruling that the CFPB’s single-director-removable-only-for-cause structure is constitutional. The petition follows the entry of an order by the Ninth Circuit granting Seila Law’s motion for a stay of the Ninth Circuit’s mandate in the case pending resolution of the petition by the Supreme Court.
There is currently no circuit split regarding the CFPB’s constitutionality, with both the Ninth Circuit and the en banc D.C. Circuit in PHH having ruled that the CFPB’s structure is constitutional.
Nevertheless, Seila Law argues that “further percolation” would not benefit the Supreme Court in resolving the question of the CFPB’s constitutionality. In support, Seila Law references the Ninth Circuit’s comment in its decision that “the majority, concurring, and dissenting opinions from the en banc D.C. Circuit in PHH ‘thoroughly canvassed’ the arguments involved in the constitutionality debate.”
Seila Law contends that, in light of these “extensive” opinions, “[a]dditional opinions from other courts of appeals will add little to this Court’s consideration of the issue.”
In addition to asserting that “the importance of the [separation-of-powers] question presented [by this case] cannot be overstated,” Seila Law observes that “even outside the circumstances of this case, the Court routinely grants review in cases presenting significant separation-of-powers issues in the absence of a conflict between the courts of appeals.”
The Solicitor General must respond to Seila Law’s petition by July 29, 2019. (Now extended to August 28, 2019). While the DOJ opposed the certiorari petition filed by State National Bank of Big Spring (SNB) that also asked the Supreme Court to decide whether the CFPB’s structure is constitutional, it did so because it viewed that case as “a poor vehicle to consider the [constitutionality] question.”
However, the DOJ called the question an “important one that warrants [the Supreme] Court’s review in an appropriate case.”
The DOJ pointed to Seila Law, which was then still pending in the Ninth Circuit, as an example of another case that raised a similar constitutional challenge but would be a better vehicle. (The DOJ also pointed to All American Check Cashing (in which the Fifth Circuit held oral argument in March 2019) and RD Legal Funding (in which briefing is still ongoing in the Second Circuit) as two other examples. SNB’s petition was denied by the Supreme Court.)
The CFPB, which has defended its constitutionality to date, may be unable to separately oppose Seila Law’s petition for certiorari. Dodd-Frank Section 1054(e) provides:
The Bureau may represent itself in its own name before the Supreme Court of the United States, provided that the Bureau makes a written request to the Attorney General within the 10-day period which begins on the date of entry of the judgment which would permit any party to file a petition for writ of certiorari, and the Attorney General concurs with such request or fails to take action within 60 days of the request of the Bureau.
The Ninth Circuit’s judgment was entered on May 6 and we are not aware of a request by the CFPB to the Attorney General to represent itself before the Supreme Court.
The DOJ’s position regarding SNB’s certiorari petition makes it seem unlikely that the DOJ would oppose Seila Law’s petition. The more likely scenario would seem to be for the DOJ to agree with Seila Law that the Supreme Court should agree to hear the case and rule that CFPB’s structure is unconstitutional.
As a result, should the Supreme Court grant Seila Law’s petition, it may be necessary for the Supreme Court to appoint an amicus curiae to defend the Ninth Circuit’s judgment, an action that is part of the Supreme Court’s usual practice when no party is defending the circuit court’s judgment.
Seila Law LLC v. Consumer Financial Protection Bureau
|Docket No.||Op. Below||Argument||Opinion||Vote||Author||Term|
Issue: Whether the vesting of substantial executive authority in the Consumer Financial Protection Bureau, an independent agency led by a single director, violates the separation of powers.
- Petitions of the week (Aurora Barnes)
|Date||Proceedings and Orders (key to color coding)|
|Jun 28 2019||Petition for a writ of certiorari filed. (Response due July 29, 2019)|
|Jul 12 2019||Blanket Consent filed by Petitioner, Seila Law LLC.|
|Jul 24 2019||Motion to extend the time to file a response from July 29, 2019 to August 28, 2019, submitted to The Clerk.|
|Jul 25 2019||Motion to extend the time to file a response is granted and the time is extended to and including August 28, 2019.|
Scott Keller, the former Texas solicitor general is now at Baker Botts, and Texas’ current solicitor general, Kyle Hawkins Question CFPB Consitutionality in US Supreme Court Amicus Brief.
Texas’ current and former solicitors general are calling on the U.S. Supreme Court to take up a case that could cripple the Consumer Financial Protection Bureau.
Texas’ current solicitor general, Kyle Hawkins, is among a group of conservative state officials, including colleagues from Arkansas, Kansas and Georgia, who have signed an amicus brief Monday against the CFPB. Hawkins is also joined by Scott Keller, the former Texas solicitor general now at Baker Botts, who signed a similar brief on behalf of the Cato Institute.
Both briefs said the current structure of the CFPB is unconstitutional since it’s headed by a single director who can only be removed by the president for cause. That restriction on the president’s discretion to remove a bureau director violates the Constitution’s separation of powers.
“So the CFPB wields substantial power exercised by the fiat of a single, almost unreviewable, virtually unremovable director,” Keller wrote for Cato. “The CFPB director can issue regulations that bind any person under its jurisdiction, investigate potential violations of those regulations, prosecute actions in its own administrative tribunals, and appropriate Federal Reserve money to itself.
If the president cannot remove an agency head at will, it could create a situation where the director could ignore orders from the executive branch.
“The threat to liberty posed by the CFPB is uniquely acute. In a supposed effort to protect consumers, the Dodd-Frank Act deliberately stripped power that had been spread across ‘seven different federal regulators’ as well as their state-law counterparts,” the brief signed by Hawkins said. “Rather than shift that power to an existing department overseen by a cabinet secretary, however, the act concentrated that power in the hands of a bureaucrat who need not seek the approval either of the electorate or an elected official.”
The case is the latest to reach the Supreme Court challenging the constitutionality of the consumer bureau’s structure, an issue long pressed by business advocates and Republicans on Capitol Hill. The justices have not yet taken any case that squarely addresses the CFPB’s structure.
Seila Law, represented by Kannon Shanmugam of Paul, Weiss, Rifkind, Wharton & Garrison, is challenging a ruling from the U.S. Court of Appeals for the Ninth Circuit. Shanmugam filed a petition in the high court in June, arguing the president should have the power to remove the CFPB director at will.
“The time for this court to resolve the long-running debate about the constitutionality of the CFPB is now,” Shanmugam wrote. “The court has consistently recognized that the Constitution empowers the president to keep federal officers accountable by removing them from office.”
The Trump-era Justice Department has taken litigation positions against the single-director structure of the consumer bureau, and the government is expected to participate in the case at the Supreme Court.
In December, the Justice Department pitched the Supreme Court on taking up the issue, but only in a case that would not force Justice Brett Kavanaugh to recuse. Kavanaugh, as a D.C. Circuit judge, had assailed the “massive, unchecked power” of the CFPB.
The Justice Department’s response in the Seila Law case was due Monday, but Noel Francisco, the U.S. solicitor general, received an extension to file by Aug. 28.