Remember NLRB v. Noel Canning? It was a case that seemed to have everything — a Supreme Court showdown over the president’s constitutional authorities that threatened to rock the new Consumer Financial Protection Bureau (CFPB) to its foundations. Certain events subsequently undercut the case’s potential to impact the agency, but the Court’s ruling in the case last week still has important implications, according to an attorney who spoke with Dodd Frank Update.
The case involves the National Labor Relations Board (NLRB) and Noel Canning, a soft-drink bottler that challenged recess appointments President Barack Obama made to the board in early 2012. While not mentioned in the case, the NLRB appointments were made at the same time and in the same manner as Richard Cordray’s appointment to lead the CFPB.
The U.S. Court of Appeals for the District of Columbia Circuit invalidated the disputed NLRB appointments in January 2013, and legal scholars suggested that the potential ramifications could be stunning if a court ultimately followed the logic of the Noel Canning decision and invalidated Cordray’s recess appointment.
The Supreme Court later agreed to review Noel Canning, and the financial services industry hunkered down to wait for the Court’s decision as a cloud of uncertainty enshrouded the CFPB and its actions under Cordray’s leadership.
That all changed in July 2013 when the Senate officially confirmed Cordray to become the CFPB’s director. Cordray later ratified all actions he took during his recess appointment. So, when the Supreme Court released an opinion in Noel Canning last week that invalidated the NLRB appointments, participants in CFPB-regulated industries weren’t particularly fazed. However, the Republican leaders of the House Financial Services Committee, who had barred Cordray from testifying before the committee before he was confirmed by the Senate, were not prepared to let the moment pass.
“Clearly and unquestionably, President Obama exceeded his authority when he appointed Director Cordray, just as he exceeded his authority when he made these NLRB appointments,” said Rep. Jeb Hensarling, the committee’s chairman. “Today’s unanimous judgment from the highest court in the land reaffirms and validates our committee’s decision not to hear testimony from Director Cordray on the CFPB’s semi-annual report until he was validly and legally serving in his position.
“By the time the Senate confirmed Mr. Cordray in July 2013, he had served as director for 18 months without legal authority,” Hensarling continued. “This fact calls into question the legality of the official actions he took during this time period and may represent a legal risk for the CFPB.”
Does the bureau face potential legal risk?
Richard Andreano, a partner at Ballard Spahr, told Dodd Frank Update that while Cordray’s Senate confirmation and ratification of past actions may not have sewn up all potential issues, any such issues are likely to remain theoretical and untested for a number of reasons. For instance, such challenges in “uncharted waters” would likely be a “relatively expensive ordeal,” Andreano noted. He also said industry participants probably want to avoid taking action that would cast doubt on the bureau’s activities.
“When you boil it down, they like certainty because then they can make decisions,” Andreano said. “Ever since the actual Senate confirmation, everything that’s occurred since then, no question it’s been done by a director appointed and confirmed by the Senate. So, there’s no issue now. As we get down the road, I think people probably [will] forget that this had ever happened.”
While the case may not have much of an impact on the CFPB in the near term, the Court’s decision has important implications for future nominations, Andreano said. He noted that while the justices unanimously held that the president lacked the authority to make the appointments in question, they were divided over the reasoning underlying that determination.
At issue was the extent to which the Court should weigh practice and precedent in relation to its interpretation of the Constitution’s Recess Appointments Clause, which gives the president power “to fill up all Vacancies that may happen during the Recess of the Senate.”
Andreano noted that, relying on a plain reading of the Constitution, four of the justices believed that “the Recess” should be interpreted as the specific recess that occurs between two sessions of Congress, known as an inter-session recess, which is the break running from November or December to January of the following year.
The majority of the justices, however, held that, based on past use of the Appointments Clause, “the Recess” should be understood as any recess of the Senate, including an intra-session recess. They also said the power to fill vacancies extends to vacancies that occur outside of the inter-session recess, and they discussed how long a recess must normally be before the recess appointment powers become available to the president.
“In light of historical practice, a recess of more than three days but less than 10 days is presumptively too short to fall within the Clause,” the majority determined. “Because the Senate was in session during its pro forma sessions, the president made the recess appointments at issue during a three-day recess. Three days is too short a time to bring a recess within the scope of the Clause, so the president lacked the authority to make those appointments.”
In the end, while the Court invalidated these recess appointments, the ruling represents an important Constitutional law decision that affirms a broad interpretation of the Recess Appointments Clause, Andreano said. He added that, in a few years, the next CFPB director could possibly be recess appointed under the Court’s ruling in Noel Canning.
“What this really does is confirm that this recess power is much broader than a lot of people believed it should be interpreted to be,” Andreano said. “It really gives the president a lot of power to make recess appointments, and my guess is this will come into play in the future involving the bureau or other agencies that could affect the industry.”