Corporate Accountability

Sen. Brown, Rep. Waters move to defend CFPB in D.C. Circuit appeal

By Alison Frankel

Senator Sherrod Brown of Ohio and Representative Maxine Waters of California filed a motion Thursday to intervene in the Consumer Financial Protection Bureau’s defense of the constitutionality of its one-director structure. Brown and Waters argue that if the Trump administration fires CFPB director Richard Cordray or otherwise drops the agency’s case at the District of Columbia U.S. Circuit Court of Appeals, they have a sufficiently concrete interest to forge on with the litigation because they are the ranking Democrats on the congressional committees overseeing financial institutions.

Brown and Waters, who are represented by the Constitutional Accountability Center, said they want to assure that the CFPB, which was established in the Dodd-Frank financial reforms, gets all of judicial consideration it is entitled to, all the way up to the U.S. Supreme Court. As legislators who voted for the CFPB to be structured as an independent agency, they said, they face the prospect that their votes will be nullified unless they are allowed to step in on behalf of the agency.

Donald Trump’s election put a big cloud of uncertainty over the CFPB’s case at the D.C. Circuit. As you probably recall, a three-judge panel ruled last October that the agency’s structure violates constitutional separation-of-powers doctrine because the agency’s single director, who is appointed to a five-year term, wields too much power without sufficient accountability. The appeals court said the problem would be easily solved by removing strictures on the president’s ability to get rid of the CFPB director (at the moment, Richard Cordray) at will.

The CFPB petitioned in November for an en banc rehearing of the panel’s ruling. In December, in response to an invitation from the appeals court, the Obama Justice Department submitted a brief backing the CFPB’s petition.

But the Trump administration may take a different view. The brief from Brown and Waters details what the lawmakers consider to be ominous portents that the new administration may fire Cordray or order the CFPB to drop the en banc petition and bypass a bid for Supreme Court review. “It has become increasingly clear,” their motion said, that their “interests may no longer be adequately represented by the new administration.”

Brown and Waters aren’t alone: Attorneys general from 16 states and the District of Columbia moved earlier this week to intervene in the D.C. Circuit case, arguing that they were “a crucial part” of the debate that led Congress to structure the CFPB as an independent enforcer of consumer protection laws. “If that independence is going to be eradicated by judicial decision, the state attorneys general should at least be heard on this critical issue,” their motion said.

Several public interest groups represented by Goldstein & Russell also moved Thursday to intervene at the D.C. Circuit. They said they will be “directly prejudiced” if the panel decision stands because it “will structurally compromise the independence of the agency, likely derail pending policy initiatives and enforcement actions, and possibly call into question the validity of past initiatives.”

Of the three intervention motions, the Brown and Waters brief presents the most unusual and intriguing argument for standing to prosecute the CFPB’s appeal if the Trump administration backs out. The theory of vote nullification as a concrete injury goes back at least to 1939, when the U.S. Supreme Court held in Coleman v. Miller that Kansas state senators had standing to sue in federal court when the state adopted a law despite a tie vote in their house. “The plaintiffs include 20 senators, whose votes against ratification have been overridden and virtually held for naught although if they are right in their contentions their votes would have been sufficient to defeat ratification,” the Supreme Court said. “We think that these senators have a plain, direct and adequate interest in maintaining the effectiveness of their votes.”

In 1997’s Raines v. Byrd, however, the Supreme Court ruled six members of Congress did not have standing to challenge the Line Item Veto Act, which was passed despite their votes against it. The congressmen said the law affected them directly and concretely because it effectively took away their right to vote on budget items. The justices didn’t buy it. “Several episodes in our history show that in analogous confrontations between one or both houses of Congress and the executive branch, no suit was brought on the basis of claimed injury to official authority or power,” the Supreme Court said.

There is no precedent from the Supreme Court or the D.C. Circuit that exactly parallels the intervention argument by Brown and Waters, according to Brianne Gorod of the Constitutional Accountability Center. “We’re in uncharted territory here,” she told me. When I asked about the strongest case law backing the vote nullification theory of standing, Gorod mentioned Coleman and a 2000 decision from the D.C. Circuit, Campbell v. Clinton, although the appeals court in that case held members of Congress did not have standing to sue President Bill Clinton over alleged violations of the War Powers Resolution.

The twist in the Brown and Waters theory is that lawmakers will have no opportunity to legislate an independent CFPB if the Trump administration lets stand the D.C. appeals court ruling, so both their past vote in favor of the CFPB’s one-director structure and any future vote to reinstate the agency are at stake in the case. In other words, Gorod said, members of Congress have “no political recourse” and therefore should be permitted to litigate.

I’m sure that theory will get a thorough going-over by Gibson Dunn & Crutcher, which represents PHH Corporation, the mortgage company that challenged the CFPB’s constitutionality (along with a $109 million disgorgement order against the company). PHH counsel Helgi Walker of Gibson said in an email that the company would wait to disclose its arguments until it files its briefs opposing intervention. PHH, of course, has already said in filings that it opposes any en banc rehearing.

According to Thursday’s motions, the CFPB is not taking a position on intervention by Brown, Waters or the public interest groups.

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