The U.S. Court of Appeals’ majority ruling on PHH Corp. v. the Consumer Financial Protection Bureau (CFPB) was a mosaic of varying statutory interpretations with two main outcomes.
Akerman Partner Thomas Kearney and Buckley Sandler Partner Ben Olson dissected portions of the court’s ruling for Dodd Frank Update that the CFPB is constitutionally structured while simultaneously overturning former director Richard Cordray’s interpretation of the Real Estate Settlement Procedures Act.
“In the court’s view, PHH was asking the court to question the constitutionality of all independent agencies, not just the bureau,” Olson said. “Independent agencies are a fact of life in modern government and it’s understandable that the court would be hesitant to make a ruling that could have significant implications beyond the scope of the case in front of them.”
Kearney and Olson both cited the court’s majority opinion about the PHH’s argument challenging the CFPB’s constitutionality, which has implications extending to other modern independent federal agencies.
“Wide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions,” the ruling states. “The threat PHH’s challenge poses to the established validity of other independent agencies, meanwhile, is very real. PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies — whether collectively or individually led — that, if accepted, would broadly transform modern government.”
The 250-page court ruling included six concurring and dissenting opinions from seven of the 10 judges, many of whom had notably different opinions about the constitutionality question.
“Now we know why it took so long for this to come out,” Olson said, jokingly. “It’s not surprising that a group of judges would have such different, finely nuanced views about these kinds of constitutional issues. From a practical perspective, it makes it difficult for the court to agree on a uniform interpretation of a case.”
Stating that he believes the majority ruling is clear in stating that the bureau’s structure is constitutional and consistent with long-standing Supreme Court precedent, Kearney highlighted some dissenting opinions among the three judges who originally ruled on the case that was appealed to the en banc panel. Those could come into play if the en banc ruling is appealed, or in other litigation involving the question of the CFPB’s constitutionality.
“There are different opinions that add wrinkles to the court’s majority analysis,” Kearney said. “Those opinions speak to the modern administrative state and the constitutional separation of powers. That’s much bigger than the CFPB.”
Specifically, Kearney examined the dissenting opinions offered by Judges Karen Henderson and Brett Kavanaugh, which questioned the constitutionality of all independent federal agencies.
“In my view, Dodd-Frank Title X, otherwise known as the Consumer Financial Protection Act, violates Article II: its ‘language providing for good-cause removal is … one of a number of statutory provisions that, working together, produce a constitutional violation,’ ” Henderson’s opinion states. “Under Article II, ‘[t]he executive power shall be vested in a president’ who ‘shall take care that the laws be faithfully executed.’ In Myers v. United States, 272 U.S. 52 (1926), the United States Supreme Court explained that the president must ordinarily have ‘unrestricted power’ to remove executive officers if he is to faithfully execute the laws. More recently, the court in Free Enterprise Fund emphasized “the importance of removal’ — based on ‘simple disagreement with [an agency’s] policies or priorities’ — as a means of ensuring that the modern administrative state does not ‘slip from the executive’s control, and thus from that of the people.’ Here, when taken together with the rest of Title X, the for-cause removal provision in effect puts the CFPB beyond the people’s reach.”
The majority ruling further highlights how the constitutionality question surrounding independent agencies previously has been addressed.
“The Supreme Court [80] years ago sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB. Humphrey’s Executor v. United States, 295 U.S. 602 (1935),” the ruling states. “In doing so, the court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the president. The court has since reaffirmed and built on that precedent, and Congress has embraced and relied on it in designing independent agencies. We follow that precedent here to hold that the parallel provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act shielding the director of the CFPB from removal without cause is consistent with Article II.”
Another wrinkle Kearney highlighted in the judges’ opinions was Thomas Griffith’s concurring opinion, seemingly suggesting that the task of presenting sufficient evidence to remove a CFPB director for cause is more attainable than many believe.
“Griffith’s concurrence focuses on the question of how hard is it to actually fire someone,” Kearney said. “That is an interesting point because it wasn’t given a lot of ink prior to this. The bureau wouldn’t have made these arguments because they aren’t going to articulate how hard it would be to fire their own leader. It’s hard to know how high a hurdle the for-cause provision is until a president tries to use it. So, Griffith’s opinion may have been intended to clarify that it isn’t as insurmountable as some people are making it seem.”
Judge A. Raymond Randolph’s opinion that the CFPB’s use of an administrative law judge not appointed by the president violates the Constitution’s Appointments Clause is another aspect of the majority decision that Kearney said could be brought up in future litigation.
“I write to identify a separate constitutional issue that provides an additional reason for setting aside not only the order of the Director of the Consumer Financial Protection Bureau, but also all proceedings before the CFPB’s administrative law judge, including his recommended decision,” Randolph wrote in his opinion. “After the CFPB’s enforcement unit filed a Notice of Charges against PHH, an administrative Law Judge held a nine-day hearing and issued a recommended decision, concluding that petitioners had violated the Real Estate Settlement Procedures Act of 1974. In PHH’s administrative appeal, the director ‘affirm[ed]’ the ALJ’s conclusion that PHH had violated that act. I believe the ALJ who presided over the hearing was an ‘inferior officer’ within the meaning of Article II, section 2, clause 2 of the Constitution. That constitutional provision requires ‘inferior Officers’ to be appointed by the president, the ‘courts of law,’ or the ‘heads of departments.’ This ALJ was not so appointed. Pursuant to an agreement between the CFPB and the Securities and Exchange Commission, the SEC’s chief administrative law judge assigned him to the case. In addition to the unconstitutional structure of the CFPB, this violation of the Appointments Clause rendered the proceedings against PHH unconstitutional.”