Acceleration

It’s Stupefying How Tardy the Court of Appeals for the Fifth Circuit Has Been Related to the Case Questioning the Constitutionality of the CFPB which the Texas Attorney General Also Commented On via Amici

On March 12, 2019 the U.S. Court of Appeals for the Fifth Circuit heard oral argument in All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality. We’re still waiting for the Opinion.

Update – September 2019; Fifth Circuit panel in All American Check Cashing asks parties to brief impact of en banc Fifth Circuit decision holding FHFA structure unconstitutional

The issue of the CFPB’s constitutionality is currently before the Fifth Circuit in the interlocutory appeal of All American Check Cashing from the district court’s ruling upholding the CFPB’s constitutionality.  Oral argument was held in March 2019 and no decision has yet been issued.

At oral argument, the panel asked the parties whether it should hold its decision until the en banc court issued its decision in Collins v. Mnuchin, the case involving the FHFA’s constitutionality.  Last Friday, the en banc Fifth Circuit  in Collins, ruling that the FHFA is unconstitutionally structured because it is excessively insulated from Executive Branch oversight and that the appropriate remedy for the constitutional violation is to sever the provision of the Housing and Economic Recovery Act of 2008 that only allows the President to remove the FHFA Director “for cause.”

On Tuesday, the Fifth Circuit sent a letter to the parties in All American Check Cashing directing them to file letter briefs addressing “What action this court should take in light of [the en banc decision in Collins.]”  The briefs (not to exceed 10 pages) must be filed by October 10 and reply letter briefs (not to exceed 3 pages) must be filed by October 24.

Update – September 2019; Fifth Circuit panel in All American Check Cashing asks parties to brief impact of en banc Fifth Circuit decision holding FHFA structure unconstitutional

The en banc Fifth Circuit has ruled in Collins v. Mnuchin that the FHFA is unconstitutionally structured because it is excessively insulated from Executive Branch oversight and that the appropriate remedy for the constitutional violation is to sever the provision of the Housing and Economic Recovery Act of 2008 (HERA) that only allows the President to remove the FHFA Director “for cause.”

The issue of the CFPB’s constitutionality is currently before the Fifth Circuit in the interlocutory appeal of All American Check Cashing from the district court’s ruling upholding the CFPB’s constitutionality.  Oral argument was held in March 2019 and no decision has yet been issued.  However, having asked the parties at oral argument whether it should hold its decision until the en banc court issued its decision in Collins, the Fifth Circuit panel could soon issue a decision in All American Check Cashing.

The en banc court reinstated the portion of the opinion of the Fifth Circuit panel in Collins which held that the FHFA’s structure is unconstitutional.  In doing so, the en banc court observed that the panel had “distinguishe[d] the D.C. Circuit’s PHH decision.”  The panel had stated that it was “mindful” of the D.C. Circuit’s en banc PHH decision finding the CFPB’s structure to be constitutional but that “salient distinctions between the agencies compel a contrary conclusion.”  The panel had observed that, unlike the Federal Housing Finance Oversight Board that oversees the FHFA, the Financial Stability Oversight Council can directly control the CFPB’s actions because it holds veto-power over the CFPB’s policies.  It concluded that the absence of formal oversight of the FHFA by the Executive Branch, combined with the for-cause removal provision, made the FHFA’s structure unconstitutional.

In an opinion by a different majority than the majority that reinstated the panel’s constitutionality ruling, the en banc Fifth Circuit also ruled that the appropriate remedy for the constitutional violation was to sever the for-cause removal provision from HERA.

It is unclear whether the en banc decision in Collins will result in a similar fate for the CFPB.  Two of the three judges on the All American Check Cashing panel, Judge Jerry Smith and Senior Judge Patrick Higginbotham, were appointed by President Reagan, and the third judge, Judge Stephen Higginson, was appointed by President Obama.  Judge Higginbotham did not participate in the en banc Collins decision.

Judge Smith was part of the majority that reinstated the panel ruling that the FHFA is unconstitutional but joined a separate opinion that concluded the proper remedy was to invalidate the agreement that the shareholder plaintiffs were challenging.  The separate opinion contained no discussion of severance.  Judge Higginson wrote a dissent joined by three other judges that concluded that the FHFA is constitutional under existing precedent but agreed that given the constitutionality holding of the en banc court, severing HERA’s for-cause removal provision was the appropriate remedy.  His dissent includes a footnote that states “The majority opinion expresses no disagreement with the D.C. Circuit’s analysis affirming the constitutionality of the CFPB, instead identifying “salient distinctions” between the CFPB and the FHFA.  With that lack of disagreement, I quite agree.”

Given his apparent agreement with PHH, it is likely Judge Higginson will reject All American Check Cashing’s challenge to the CFPB’s constitutionality.  It is difficult, however, to predict how Judge Smith would vote based on his participation in the en banc Collins decision.  It is unclear whether by joining the majority opinion that reinstated the panel’s ruling that the FHFA is unconstitutional and noted its distinction of PHH, Judge Smith was expressing his agreement with PHH.  While the panel indicated that it was “mindful” of PHH and did not express disagreement with PHH, it did not expressly indicate that it agreed with the D.C. Circuit’s conclusion regarding the CFPB’s constitutionality.  In any event, given that the en banc court in Collins found severance of HERA’s for-cause removal provision to be the appropriate remedy, the Fifth Circuit panel in All American Check Cashing would likely rule that Dodd-Frank’s for-cause removal provision should similarly be severed should it find the CFPB’s structure to be unconstitutional.

A ruling by the Fifth Circuit panel that the CFPB’s structure is unconstitutional would create a circuit split, thereby potentially increasing the likelihood that the U.S. Supreme Court will grant the petition for a writ of certiorari filed by Seila Law seeking review of the Ninth Circuit’s ruling that the CFPB’s structure is constitutional.  The DOJ’s response to the petition must be filed by September 18.

Texas Attorney General leads 14-state brief to 5th Circuit challenging CFPB structure

Nearly a year ago (July 2018) the Attorney General of Texas and 13 other state Attorneys General filed an amici curiae brief with the U.S. Court of Appeals for the 5th Circuit, challenging the constitutionality of the CFPB.

The 5th Circuit agreed to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure in response to a CFPB action filed against the companies.

The brief encourages the appellate court to disagree with the en banc decision of the D.C. Circuit, which upheld the Bureau’s structure.

Instead, the Attorneys General argue, the court should find the structure unconstitutional rendering “all its actions unlawful.”

The brief poses similar arguments to past challenges, including (i) the director should be removable at will by the president and (ii) the president’s removal power should only be restricted for multi-member commissions.

Notably, the U.S. District Court for the Southern District of New York recently disagreed with the D.C. Circuit decision, concluding the CFPB’s organizational structure is unconstitutional and terminated the Bureau as a party to an action because the agency lacked the authority to bring claims under the Consumer Financial Protection Act (CFPA).

Fifth Circuit hears oral argument in All American Check Cashing

On March 12, the U.S. Court of Appeals for the Fifth Circuit heard oral argument in All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality.

All American Check Cashing and the other appellants sought the interlocutory appeal after the district court denied their motion for judgment on the pleadings in a lawsuit filed by the CFPB that alleges the appellants engaged in abusive, deceptive, and unfair conduct in connection with making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks.

Citing the D.C. Circuit’s en banc PHH decision, the district court rejected the defendants’ argument that the CFPB is unconstitutional based on its single-director-removable-only-for-cause structure.

It subsequently agreed to certify the constitutionality issue for interlocutory appeal to the Fifth Circuit which accepted the appeal.  (The district court also rejected All American Check Cashing’s three other grounds for its motion for judgment on the pleadings: the CFPA violates due process because it fails to give fair notice of the conduct it proscribes; the CFPA violates the non-delegation doctrine because Congress did not clearly delineate the general policy for, or the boundaries of delegated authority to, the CFPB; and the CFPA violates principles of federalism because the CFPB based several of its CFPA claims on alleged violations of state law by All American Check Cashing.)

The Fifth Circuit panel hearing the oral argument consisted of two judges appointed by President Reagan, Judge Jerry Smith and Senior Judge Patrick Higginbotham, and a third judge appointed by President Obama, Judge Stephen Higginson. The panel’s questions and comments provided no clear clues as to how individual judges were leaning.  Most of the questioning was devoted to exploring each party’s arguments as to why U.S. Supreme Court precedent provided support for its position on the CFPB’s constitutionality.

In its briefs, the CFPB relied primarily on the argument that because Acting Director Mulvaney was removable at will by the President and ratified the CFPB’s decision to bring the lawsuit against the appellants, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured.

While it also argued that the CFPB’s structure is constitutional under existing U.S. Supreme Court precedent, the CFPB did so as a fallback argument. In the oral argument, however, the CFPB’s counsel made the constitutionality of the CFPB’s structure his principal argument, using the ratification argument only for purposes of arguing why All American Check Cashing would not be entitled to judgment on the pleadings in the CFPB’s lawsuit if the panel were to conclude that the CFPB’s structure is unconstitutional and strike the for-cause removal provision.

The CFPB’s counsel argued that Acting Director Mulvaney’s ratification would satisfy All American Check Cashing’s right to have the complaint filed by a CFPB Director removable at will, and that by Director Kraninger also becoming removable at will, the company’s right for the lawsuit to be prosecuted by a Director removable at will would be satisfied.

To the extent the panel provided any clues as to how it might rule, their questions and comments suggested significant concern about the potential far-reaching consequences of a ruling striking all of Title X of the CFPA rather than one only striking the for-cause removal provision.

At the end of January, an en banc Fifth Circuit heard oral argument in the rehearing of Collins v. Mnuchin, in which a Fifth Circuit panel found that the Federal Housing Finance Agency (FHFA) is unconstitutionally structured because it is excessively insulated from Executive Branch oversight.

It determined that the appropriate remedy for the constitutional violation was to sever the provision of the Housing and Economic Recovery Act of 2008 (HERA) that only allows the President to remove the FHFA Director “for cause” but “leave intact the remainder of HERA and the FHFA’s past actions.”

Petitions for rehearing en banc were filed by both the plaintiffs and the FHFA.  The plaintiffs, shareholders of two of the housing government services enterprises (GSEs), are seeking to invalidate an amendment to a preferred stock agreement between the Treasury Department and the FHFA as conservator for the GSEs.

Their petition for rehearing en banc sought reconsideration of the panel’s rulings that the FHFA acted within its statutory authority in entering into the agreement and that the FHFA’s unconstitutional structure did not impact the agreement’s validity.

The FHFA’s petition for rehearing en banc sought reconsideration of the Fifth Circuit’s ruling that the FHFA’s structure is unconstitutional.

In addition to arguing that the panel’s constitutionality ruling conflicts with U.S. Supreme Court precedent and the D.C. Circuit’s en banc PHH decision, the FHFA argued that the plaintiffs do not have Article III standing to bring a separation of powers challenge.

In the All American Check Cashing oral argument, both parties were asked whether the panel should hold its  decision until the en banc court issues its decision in Collins v. Mnuchin, with one judge observing that the en banc court could “overrule” their decision in All American Check Cashing.

All American Check Cashing’s counsel urged the panel not to hold its decision because the en banccourt might not reach the constitutionality issue.  The CFPB’s counsel however indicated that it may be appropriate for the panel to wait to issue its decision if panel members knew that the en banc court will reach the constitutionality issue.

A recording of the oral argument is available here.

Two other cases involving a challenge to the CFPB’s constitutionality are currently pending in the circuit courts.  In RD Legal Funding, which is pending in the Second Circuit, the CFPB and New York Attorney General filed their opening briefs at the end of last week.  In Seila Law, which is pending in the Ninth Circuit, oral argument was held on January 9, 2019.

CFPB Defends Its Constitutionality to Ninth Circuit Panel: Will Kraninger Have a Change of Heart?

The pendency of three cases in circuit courts challenging the CFPB’s constitutionality has given rise to speculation as to whether the CFPB will continue to defend its constitutionality under Director Kraninger’s leadership.  The CFPB continued to defend its constitutionality in these cases while under former Acting Director Mulvaney’s leadership.  It did so, however, as a fallback to its primary argument that because Mr. Mulvaney was removable at will by the President and had ratified the CFPB’s decision to bring the lawsuit in question, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured.

On January 9, a Ninth Circuit panel heard oral argument in CFPB v. Seila Law LLC, one of three pending circuit court cases involving a challenge to the CFPB’s constitutionality.  The appellant in Seila Law is asking the Ninth Circuit to overturn the district court’s refusal to set aside a Bureau civil investigative demand, arguing that the CID is invalid because the CFPB’s structure is unconstitutional.  In its answering brief filed with the Ninth Circuit, the CFPB relied on the ratification argument and its fallback constitutionality argument. (Mr. Mulvaney was Acting Director at the time of briefing.)

At the oral argument, the CFPB maintained the positions taken in its brief, namely that Mr. Mulvaney’s ratification cured any constitutional defect and, in any event, the Bureau’s structure is constitutional under U.S. Supreme Court precedent and the D.C. Circuit’s en banc PHH decision.  This would suggest that Director Kraninger, like former Acting Director Mulvaney, will continue to defend the CFPB’s constitutionality in the other pending cases.

Should she do so, however, Ms. Kraninger will be at odds with the position of the Department of Justice.  In opposing the petition for certiorari filed by State National Bank of Big Spring (which the Supreme Court denied this week), DOJ argued that while it agreed with the bank that the CFPB’s structure is unconstitutional and the proper remedy would be to sever the Dodd-Frank Act’s for-cause removal provision, the case was a poor vehicle for deciding the constitutionality issue.  It also noted that its position “is that of the United States, not the position of the Bureau to date.”  The DOJ had asked the Supreme Court to allow the CFPB to weigh in should it grant the petition for certiorari.  (The DOJ’s position could have added significance because of the Dodd-Frank provision that requires the Bureau to seek the Attorney General’s consent before it can represent itself in the Supreme Court.)

If Director Kraninger has a change of heart, she will be following in the shoes of Joseph Otting, who was appointed Acting FHFA Director by President Trump (and also serves as Comptroller of the Currency).  Next week, the Fifth Circuit is scheduled to hold oral argument in the en banc rehearing of Collins v. Mnuchin, in which a Fifth Circuit panel found that the FHFA is unconstitutionally structured because it is excessively insulated from Executive Branch oversight.  The plaintiffs, shareholders of two of the housing government services enterprises (GSEs), are seeking to invalidate an amendment to a preferred stock agreement between the Treasury Department and the FHFA as conservator for the GSEs.

The Fifth Circuit panel had determined that the appropriate remedy for the constitutional violation was to sever the provision of the Housing and Economic Recovery Act of 2008 (HERA) that only allows the President to remove the FHFA Director “for cause” while “leav[ing] intact the remainder of HERA and the FHFA’s past actions.”  The plaintiffs sought a rehearing en banc to overturn the panel’s rulings that the FHFA acted within its statutory authority in entering into the agreement and that the FHFA’s unconstitutional structure did not impact the agreement’s validity.  The FHFA also sought a rehearing en banc but with the goal of overturning the panel’s determination that the plaintiffs had Article III standing to bring a constitutional challenge.

Despite having argued in its petition for rehearing that the panel’s constitutionality ruling was incorrect, the FHFA has now announced that it will not defend the FHFA’s constitutionality to the en banc court.  In the En Banc Supplement Brief of the FHFA and Mr. Otting, the FHFA states that Mr. Otting “has reconsidered the issues presented in this case.”  It further states that while it remains the FHFA’s position that the plaintiffs’ lack of standing makes it unnecessary for the en banc court to reach the constitutionality issue, to the extent the court concludes it is necessary to do so “FHFA will not defend the constitutionality of HERA’s for cause removal provision and agrees with the analysis in Section II.A of the Treasury’s Supplemental Brief that the provision infringes on the President’s control of executive authority.”

The two other pending circuit court cases challenging the CFPB’s constitutionality are the All American Check Cashing case pending in the Fifth Circuit and the RD Legal Funding case pending in the Second Circuit.  Oral argument is tentatively calendared for the week of March 11, 2019 in the All American Check Cashing case and briefing is scheduled to begin next month in the RD Legal Funding case.

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Laws In Texas is a blog about the Financial Crisis and how the banks and government are colluding against the citizens and homeowners of the State of Texas and relying on a system of #FakeDocs and post-crisis legal precedents, specially created by the Court of Appeals for the Fifth Circuit to foreclose on homeowners around this great State. We are not lawyers. We do not offer legal advice. We are citizens of the State of Texas who have spent a decade in the court system in Texas and have been party to during this period to the good, the bad and the very ugly.

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