This article previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.
On Friday, PHH filed its opening en banc brief with the D.C. Circuit in the rehearing of its appeal of Director Cordray’s June 2015 decision that affirmed an administrative law judge’s (ALJ) recommended decision concluding PHH had violated RESPA and increased the ALJ’s disgorgement award from over $6.4 million to over $109 million. The rehearing was sought by the CFPB after a divided D.C. Circuit panel ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and severed the unconstitutional provision to make the CFPB Director removable without cause by the President; rejected Director Cordray’s new RESPA interpretation and held that even assuming that his interpretation was consistent with RESPA, the CFPB’s attempt to apply that new interpretation retroactively violated due process; held that statutes of limitations apply to CFPB administrative enforcement actions; and remanded to the CFPB for further proceedings consistent with the panel’s decision.
In its opening brief, PHH argues that the CFPB’s “unprecedented independence from the elected branches of government violates the separation of powers” and that because the CFPB’s “constitutional infirmities extend far beyond limiting the President’s removal power…the proper remedy is to strike down the agency in its entirety.” According to PHH, the Dodd-Frank “for-cause removal provision is not severable from the rest of the provisions establishing the CFPB because severance would create a new agency unrecognizable to the Congress that passed Dodd-Frank.” PHH contends that the court cannot avoid the separation-of-powers issues “simply by adopting the panel’s statutory holdings and remanding to the CFPB, because this Court cannot remand a case to an unconstitutional agency.” PHH asserts that such issues can only be avoided “by vacating the CFPB’s order without remand, so that the CFPB would not be free to resume proceedings against PHH.” (emphasis provided).
In its order granting the CFPB’s petition for rehearing en banc, one of the issues the court ordered the parties to address was what the appropriate disposition would be in PHH if the court were to hold that the ALJ in Lucia v. SEC was an inferior officer. In Lucia, a panel of the D.C. Circuit held that because the SEC’s ALJ was an “employee” rather than “inferior officer” who must be appointed in accordance with the Appointments Clause of the U.S. Constitution, the ALJ’s appointment by the SEC’s Office of Administrative Law Judges rather than an SEC Commissioner was constitutional. The D.C. Circuit granted a petition for rehearing en banc in Lucia and, as noted below, has scheduled oral argument in that case and in PHH for the same day.
Responding to the issue posed by the D.C. Circuit, PHH argues in its brief that if the court holds the ALJ in Lucia was improperly appointed, then the ALJ in its case was also an “inferior officer” who was not appointed in accordance with the Appointments Clause. As a result, the entire hearing before the ALJ was invalid, Director Cordray’s order would need to be vacated, and “any future proceeding must begin afresh before a constitutionally structured agency but also before a valid adjudicator.” PHH further argues that merely restarting the current proceeding still would not provide PHH with full relief because “the unconstitutional taint stemming from the initial authorization of the Notice of Charges would continue to infect this matter.” PHH asserts that for this reason, the court “must decide PHH’s separation-of-powers challenge even if the ALJ was improperly appointed.”
With regard to the RESPA issues, PHH contends they “should not properly be disputed” before the en banc court “and any en banc opinion should simply reinstate the panel’s statutory rulings.” It also observes that the RESPA issues “plainly were not en banc-worthy” and Director Cordray’s RESPA interpretation, if adopted by the en banc court, “would create a circuit split with every other court to have considered RESPA’s proper scope.” Nevertheless, PHH states that “[i]n an abundance of caution and in light of the critical importance of the RESPA issues to PHH and to the entire settlement-services industry…PHH addresses those issues directly [in its brief] to demonstrate that there is no legitimate basis to revisit the panel’s statutory rulings.”
Amicus briefs in support of PHH were filed on Friday by:
- The Chamber of Commerce of the United States of America
- American Bankers Association, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, Housing Policy Council of the Financial Services Roundtable, Real Estate Services Providers Council and seven other trade groups
- ACA International
- The Cato Institute
- RD Legal Partners, LP, RD Legal Funding, LLC, RD Legal Finance, LLC and a related individual
- The Attorneys General of Missouri, Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Nevada, Oklahoma, South Dakota, Texas, West Virginia, and Wisconsin
- State National Bank of Big Spring, 60 Plus Association, Inc., and Competitive Enterprise Institute
The RD Legal amici are defendants in an enforcement action filed by the CFPB and the New York Attorney General last month alleging that a litigation settlement advance product offered by RD Legal is a disguised usurious loan that is deceptively marketed and abusive. (In their brief, the RD Legal amici claim that the action was filed in retaliation for a preemptive challenge to the CFPB’s jurisdiction filed by RD Legal.) State National Bank of Big Spring and the other amici on its brief are the plaintiffs in a separate lawsuit pending in D.C. federal district court challenging the CFPB’s constitutionality. The State National Bank of Big Spring plaintiffs previously filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH en banc rehearing.
In their amicus brief, the Republican state AGs argue that separation of powers creates a structural check against the aggregation of power on the federal level and protects the role of the states in the federal system by limiting the range of permissible federal action and ensuring federal power can only be wielded by officials who are politically accountable. A group of Democratic AGs from 16 states and the District of Columbia filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH appeal. Among the arguments made by the Democratic AGs in support of their motion was that their intervention was necessary because the Trump Administration might not defend the CFPB’s constitutionality.
Except for the brief filed by the ABA and twelve other trade groups which addresses only the merits of PHH’s RESPA arguments, the amicus briefs only address the CFPB’s constitutionality and argue that the CFPB is unconstitutionally structured because of the CFPB Director’s expansive powers and insulation from Presidential and Congressional oversight. (ACA International’s brief includes the argument that, in addition to being insulated from accountability, the CFPB’s funding mechanism also raises a conflict of interest. According to ACA, the civil penalty fund “creates a perverse incentive for the Bureau to use its enforcement actions as a funding mechanism, where the Bureau is both prosecutor and beneficiary.”)
The ABA’s brief states that even though amici “do not understand the Court to have granted en banc review to reconsider the panel’s straightforward resolution of the RESPA and fair notice questions,” they are nonetheless “filing this brief out of an abundance of caution because [such] questions addressed by the panel are of critical importance to them and their members.” The ABA amici argue that the CFPB “misread RESPA, overturned decades of settled interpretations without any notice, and disrupted a large sector of the economy.” They assert that the panel’s decision “correctly restored the status quo” and urge the en banc court “to let that decision stand.”
Also on Friday, the D.C. Circuit entered an order allowing each side 30 minutes at the en banc oral argument scheduled for May 24, 2017. The order also indicates that the oral argument in Lucia v. SEC, also scheduled for May 24, will be heard first to be followed by a “short recess” before the argument in PHH. Finally, the order confirms that the en banc panel will consist of eleven judges, including Senior Judge Randolph. In addition to Senior Judge Randolph, four of the other panel members were appointed by a Republican president.