Alston & Bird Consumer Finance Blog

Supreme Court Decisions

Upcoming Webinar on Implications of Collins v. Yellen

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On Friday, July 2, Alston & Bird partner Jason Levine will participate in a Federalist Society webinar discussing the Supreme Court’s Collins v. Yellen ruling and its implications.  In Collins v. Yellen, issued on June 23, the Court held that: (1) because the Federal Housing Finance Agency did not exceed its authority under the Housing and Economic Recovery Act of 2008, the anti-injunction provisions of the Recovery Act bar the statutory claim brought by shareholders of Fannie Mae and Freddie Mac; and (2) the Recovery Act’s structure violates the separation of powers.

 

Pennsylvania Court Invalidates Statewide Pandemic Restrictions

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A&B ABstract:  In County of Butler v. Wolf, a federal court in Pennsylvania struck down as unconstitutional key aspects of the Pennsylvania Governor’s COVID-19 Emergency Order: limitations on the size of indoor gatherings and the “closure of all businesses that are not life sustaining.”  The decision has been appealed, but the breadth of the court’s order is striking and the issue now is whether other courts will follow suit.

Challenges to COVID-19 Restrictions Usually Fail

Federal courts have been hesitant to rule that COVID-19 regulations are unconstitutional.  Notably, the Seventh Circuit recently rejected the Illinois Republican Party’s challenge to the Illinois governor’s executive order limiting physical gatherings for a social event or a political rally but providing an exemption for religious gatherings.  Relatedly, the U.S. Supreme Court recently declined, in a 5-4 decision, to enjoin California’s restrictions on attendance at religious services.

The cases that have found COVID-19 regulations constitutionally defective have generally fallen into two camps: either the court finds the law is too poorly worded (i.e., unconstitutionally vague), or the application of the law is irrational (i.e., violates due process and/or equal protection).  These problems have usually been fixable once spelled out.  For example, a Wisconsin state court judge ruled in July that Racine’s regulations were unconstitutionally overbroad and vague, but held that the city would “maintain[] its full power to issue a new order addressing COVID-19.”

County of Butler v. Wolf Struck Down COVID-19 Restrictions

Unlike other courts, the U.S. District Court for the Western District of Pennsylvania found broad constitutional violations that could not be easily remedied in County of Butler v. Wolf.  The plaintiffs challenged Pennsylvania Governor Tom Wolf’s COVID-related “emergency” restrictions limiting the number of people permitted to attend gatherings and determining which businesses could remain open, based on whether they are “life-sustaining” in nature.  The challenge was rooted in alleged violations of equal protection, due process, and First Amendment rights.

Constitutional Issues

The court found three constitutional problems with the Governor’s orders.  First, the court held that the gathering limits—25 persons for indoor gatherings, and 250 for outdoor gatherings—violated the First Amendment right to assemble because the attendance caps for assemblies were more restrictive than the 25% or 50% occupancy restrictions on certain businesses.  Further, the court found that the 25-person restriction, and the fact that the restrictions applied equally across all counties regardless of their COVID statistics, was not rationally supported by evidence.

Second, the court held that the temporary closure of certain “non-life-sustaining” businesses violated plaintiffs’ substantive due process rights under the Fourteenth Amendment because it was too broad and harsh to pass constitutional muster, and violated the right to choose one’s profession.  Citing the century-old Supreme Court decision in Lochner v. New York, the court found that the order violated plaintiffs’ economic due process rights.

Finally, the court held that the closure of certain “non-life-sustaining” businesses also violated plaintiffs’ equal protection rights under the Fourteenth Amendment, finding no rational basis for the regulations because some businesses were treated differently than other, similar businesses.  The court illustrated its reasoning with an example that imposing constraints on a “mom-and-pop” hardware store while allowing Walmart to sell the same products would not keep a consumer at home; it would simply send her to Walmart, doing nothing to protect her or others from COVID.  As a result, the court found that the restrictions’ means did not rationally relate to their ends.

Impact of the County of Butler v. Wolf Decision

Governor Wolf has already sought a stay of the decision and filed an appeal to the U.S. Court of Appeals for the Third Circuit.  But even without a stay, the immediate impact of the decision is questionable because the challenged restrictions had, at the time of the court’s decision, already been eased by Governor Wolf as part of the Commonwealth’s phased reopening plan.  This raised questions of mootness that the district court brushed aside, but which are sure to be reviewed on appeal.  Moreover, the ruling does not impact other restrictions that are still in place involving teleworking, a mandatory mask order, and worker and building safety orders.

If the holding is affirmed in the Third Circuit, however, it will become precedential and could impact restrictions in other jurisdictions within the circuit, including New Jersey, Delaware, and the Virgin Islands.  At a minimum, until the Third Circuit decides the case, County of Butler will certainly be advanced as persuasive authority by other challengers in other courts.  Its reasoning and outcome could have far-reaching impacts if adopted elsewhere.

Takeaways

Constitutional challenges to pandemic restrictions are pending in other federal courts.  A federal court in Maine recently heard oral argument on challenges to Maine’s emergency rules, including a claim that the governor’s quarantine requirement is an unconstitutional restriction on people’s right to travel.  That court has not yet issued an opinion.  Other challenges to COVID-19 restrictions are pending in federal district courts across the country, including in Arizona, California, Massachusetts, and New York. County of Butler could influence these decisions.

There are also hints that the U.S. Supreme Court may have interest in considering these types of constitutional challenges.  County of Butler cited Justice Alito’s recent dissent in the Court’s denial of injunctive relief in Calvary Chapel Dayton Valley v. Sisolak.  That case involved a challenge to certain COVID-19 restrictions in Nevada.  Justice Alito’s dissent advocated for a stricter constitutional review of emergency health measures, stating, “we have a duty to defend the Constitution, and even a public health emergency does not absolve us of that responsibility.”  Justice Alito also noted that “a public health emergency does not give Governors and other public officials carte blanche to disregard the Constitution for as long as the medical problem persists.”  

The dissent (which was joined by Justices Thomas and Kavanaugh) signals that at least some members of the Supreme Court are mindful of these constitutional challenges, and may be ready to consider such a case when an appropriate petition for writ of certiorari is filed.  County of Butler could provide that vehicle for Supreme Court review.

Supreme Court Ruling Addresses FDCPA Statute of Limitations

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A&B ABstract: 

On December 10, 2019, the U.S. Supreme Court held that, absent the application of an equitable doctrine, the one-year statute of limitations for actions against debt collectors under the Fair Debt Collection Practices Act (“FDCPA”) begins to run on the date on which an alleged FDCPA violation occurs, not the date on which the violation is discovered.  In doing so, the Supreme Court declined to apply a general discovery rule to the FDCPA’s limitation period as a principle of statutory interpretation, but left the door open for the application of a fraud-specific discovery rule as an equitable doctrine.

Background

The case—Rotkiske v. Klemm, 589 U.S. ___ (2019)—involves the suit of a credit card debtor (“Rotkiske”) against his debt collector (“Klemm”), claiming Klemm attempted to collect an unpaid debt that it lacked the lawful ability to collect.  In January 2009, Klemm sued Rotkiske on the debt and employed fraudulent service of process to obtain and conceal a default judgment. Rotkiske did not discover the existence of the default judgment against him until September 2014.  On June 29, 2015, less than one year after discovering the default judgment, but more than six years after it was obtained, Rotkiske sued Klemm under the FDCPA.

Klemm moved to dismiss under the FDCPA’s one-year statute of limitations, 15 U.S.C. § 1692k(d).  Citing Ninth Circuit precedent, Rotkiske responded that the “discovery rule” should apply so that the statute of limitations began to run when he knew or should have known of the alleged FDCPA violation, rather than the date the violation occurred.  The district court rejected Rotkiske’s argument and dismissed the action as time barred.  An en banc Third Circuit affirmed.  Notably, Rotkiske failed to raise the application of equitable doctrines on appeal, so the Third Circuit did not address that issue.  The Supreme Court granted certiorari to resolve the conflict between the Ninth and Third Circuits.

The Discovery Rule

On review, the Court explained that there is no generally accepted meaning of the phrase “discovery rule,” but that there are at least two conceptions of the rule: (1) the application of a general discovery rule as a principle of statutory interpretation, and (2) the application of a fraud-specific discovery rule as an equitable doctrine.  Addressing each in turn, the Court affirmed the Third Circuit’s decision.

First, the Court explained that Rotkiske was, in effect, asking the Court to read the discovery rule into § 1692k(d)’s limitations period, even though this would amount to an “atextual judicial supplementation” of the statute.  The Court cited several other federal statutes that expressly set limitations periods to run from the date on which a violation occurred or the date of discovery of such violation, concluding that in the absence of such language, the Court could not supply the discovery rule as an exception.  It characterized the argument in favor of supplementing § 1692k(d)’s plain language as “bad wine of recent vintage.”

Second, the Court explained that while there is a basis in the Court’s precedent for applying an equity-based doctrine to toll the statute of limitations, Rotkiske had failed to preserve the issue before the Third Circuit.  As such, the Court declined to decide whether §1692k(d) permits the application of equitable doctrines, but indicated that an equitable, fraud-specific discovery rule might potentially apply in other cases.

On this second point, Justice Sotomayor (concurring) stated that this fraud-specific equitable principle was not the bad wine of recent vintage that the majority denounced, and that nothing in the Court’s decision prevented parties from invoking a fraud-specific discovery rule.

To this end, Justice Ginsberg (dissenting in part) went even further, framing the fraud-based discovery rule as a statutory presumption “read into every federal statute of limitations.”  She also said that “[u]nlike the general discovery rule, there is no reason to believe the FDCPA displaced the fraud-based discovery rule,” and “[t]he Court does not hold otherwise.”  In her view, the fraud-based discovery rule would apply “if either the conduct giving rise to the claim is fraudulent, or if fraud infects the manner in which the claim is presented.”

Takeaway

The Rotkiske decision conclusively bars the application of a general discovery rule to the FDCPA’s one-year statute of limitations.  The decision, however, leaves the door open for the application of a fraud-specific discovery rule as an equitable doctrine, likely if (1) the conduct giving rise to the claim is fraudulent, or (2) fraud infects the manner in which the claim is presented.

Supreme Court Cases Threaten a “Cornerstone” of the FTC’s Enforcement Program – Disgorgement

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A&B ABstract:   

For decades, the FTC has pursued defendants allegedly engaged in “unfair or deceptive acts or practices in or affecting commerce” in violation of the FTC Act.[i]  Specifically, the FTC has used Section 13(b) of the FTC Act to file dozens of lawsuits in federal court each year and recover billions of dollars in disgorgement against such defendants.  The FTC recently referred to its efforts to obtain disgorgement under Section 13(b) as “a cornerstone of the FTC’s enforcement program for more than 30 years.”[ii]  Depending on how the Supreme Court rules on forthcoming cases, the FTC may lose this “cornerstone” absent future Congressional action.

Discussion:

Section 13(b) of the FTC Act provides that, where the FTC “has reason to believe” that a person “is violating or is about to violate” the FTC Act or a law enforced by the FTC, it can pursue a preliminary or permanent injunction in federal court.[iii]  The text of Section 13(b) mentions only injunctive relief, and does not mention disgorgement or restitution.  Courts for years, however, have held that Section 13(b) provides a broad grant of equitable authority, which included disgorgement as an equitable remedy.[iv]  As one district court described it, “[t]his is not supported by the plain text of the statute, but has been read into it by well-meaning judicial efforts to effect the ‘purpose’ of the statute.”[v]  Just a few years ago, the FTC obtained its largest ever disgorgement award in a litigated case – $1.27 billion in FTC v. AMG Capital Mgmt., LLC.[vi]  And, until August 2019, the circuit courts were unanimous in allowing the FTC to obtain disgorgement in actions under Section 13(b).

FTC v. Credit Bureau Center, LLC

On August 21, 2019, the Seventh Circuit in FTC v. Credit Bureau Center, LLC, overturned prior precedent and held for the first time that “[S]ection 13(b)’s permanent injunction provision does not authorize monetary relief.”[vii]  The court “recognize[d] that this conclusion departs from the consensus view of our sister circuits,” but nonetheless held that the “plain text” of Section 13(b) does not provide for disgorgement.  To date, the FTC has not sought Supreme Court review of this decision, although it stated that it and the Office of the Solicitor General “are currently evaluating whether to file a petition for a writ of certiorari.”[viii] The FTC recently obtained an extension until December 19, 2019 to file a petition for a writ of certiorari.

FTC v. AMG Capital Mgmt., LLC

The Seventh Circuit’s decision in Credit Bureau Center followed a December 2018 concurring opinion in the Ninth Circuit case of FTC v. AMG Capital Mgmt., LLC, where two of the three judges on the panel urged the court to rehear the case en banc to overturn the circuit’s prior precedent allowing the FTC to obtain disgorgement under Section 13(b).[ix]  Rehearing was denied, and as a result, the FTC’s $1.27 billion disgorgement award was affirmed.

The FTC’s decision whether or not to seek Supreme Court review in Credit Center Bureau will be informed by the fact that AMG Capital has made its way onto the Supreme Court’s certiorari petition docket.  On October 18, 2019, the defendants in AMG Capital filed their petition for a writ of a certiorari with the Supreme Court.[x]  The petitioners relied on the Seventh Circuit’s decision in Credit Center Bureau and the text of Section 13(b).  The petitioners argued that Section 13(b) “nowhere mentions monetary relief” and the statute stands in stark contrast to Section 19 of the FTC Act.  That section specifically allows for, among other things, “the refund of money or return of property, [and] the payment of damages” (1) when the FTC shows that the conduct at issue violates an existing FTC rule or (2) when the defendant violates a prior cease-and-desist order.[xi]  The FTC requested an extension until December 20, 2019 to file its response to this certiorari petition.  Therefore, the FTC has some significant decisions to make in the coming few weeks.

Liu v. SEC

Regardless of whether the Supreme Court reviews either the Seventh Circuit decision in Credit Bureau Center or the Ninth Circuit decision in AMG Capital, the Supreme Court is set to review the question of whether disgorgement constitutes “equitable relief” in the context of a securities law violation.  On November 1, 2019, the Supreme Court granted certiorari in the case of Liu v. SEC and will determine whether the Securities and Exchange Commission can obtain disgorgement as an equitable remedy in an enforcement action.[xii]  A decision in Liu is expected by June 2020.

While Liu involves the SEC and its enforcement statutes, and not the FTC and the FCT Act, the decision in Liu is nonetheless likely to impact the FTC’s ability to obtain disgorgement under the FTC Act.  Much like the FTC, the SEC has for many years sought disgorgement in enforcement proceedings.  “Beginning in the 1970’s, courts ordered disgorgement in SEC enforcement proceedings in order to deprive …defendants of their profits in order to remove any monetary reward for violating securities laws and to protect the investing public by providing an effective deterrent to future violations.”[xiii]  Courts have done so, even though by statute, the SEC can only obtain injunctive relief, equitable relief or civil monetary penalties.[xiv]

Kokesh v. SEC

Liu follows the Supreme Court’s 2017 decision in Kokesh v. SEC.[xv]  In that case, the Supreme Court held that “SEC disgorgement … bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate.  The 5-year statute of limitations in [15 U.S.C.] § 2462 therefore applies when the SEC seeks disgorgement.”[xvi]  The Supreme Court, however, was careful to note in a footnote that “[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or whether courts have properly applied disgorgement principles in this context.”[xvii]

The Supreme Court will now specifically answer that question in Liu and determine whether disgorgement constitutes an equitable remedy following its holding that disgorgement is a “penalty.”  The oral argument from Kokesh showed that five Justices at the time questioned the statutory authority for the disgorgement remedy given that the enforcement statutes do not specifically provide for such a remedy.

Justice Gorsuch – “Well, here we don’t know [when the disgorged money goes to the victim], because there’s no statute governing it.  We’re just making it up.”

Chief Justice Roberts – “[T]he SEC devised this [disgorgement] remedy or relied on this remedy without any support from Congress.”

Justice Alito – “[I]t would certainly be helpful and maybe essential to know what the authority for [disgorgement] is.”

Justice Sotomayor – “Can we go back to the authority? …[I]f they’re not doing restitution, how could that be the basis of disgorgement?”

Justice Kennedy – “Is it clear that the district court has statutory authority to do this? …[I]s there specific statutory authority that makes it clear that the district court can entertain this remedy?”[xviii]

In addition, then Circuit Judge Kavanaugh wrote in Saad v. SEC that Kokesh “overturned a line of cases from [the D.C. Circuit] that had concluded that disgorgement was remedial and not punitive” and “the Court’s reasoning in Kokesh was not limited to the specific statute at issue there.”[xix]  All of this suggests that there is a likelihood that the Supreme Court will hold that disgorgement – in the SEC context – which has already been held to be a “penalty,” does not constitute “equitable relief.”

Takeaways:

 

The Supreme Court’s acceptance of the appeal in Liu would seem to increase the chance the Supreme Court accepts the pending certiorari petition in AMG Capital given the similarity between the disgorgement issues in the context of the SEC and the FTC.  Similarly, as a result of Liu and the pending certiorari petition in AMG Capital, the FTC may elect to seek certiorari from the Seventh Circuit’s decision in Credit Bureau Center.  Therefore, there is at least an increased likelihood that the Supreme Court will specifically take an appeal on the direct issue of whether the FTC can obtain disgorgement under Section 13(b).  Given the Supreme Court’s holding in Kokesh that disgorgement is a penalty for statute of limitations purposes and the Justices comments at oral argument, such an appeal creates a risk to the FTC that the Supreme Court will similarly rule that disgorgement under the FTC Act is also a penalty, and thus does not fall within the scope of equitable relief allowed by Section 13(b).

Even if the Supreme Court does not take the appeal in AMG Capital (or Credit Bureau Center, if a petition is filed), a ruling in Liu that the SEC cannot seek and obtain disgorgement as “equitable relief” would nonetheless have consequences for the FTC and its ability to obtain disgorgement under the FTC Act.  Indeed, the FTC has recognized that the SEC statutory framework is similar to the FTC Act in that neither expressly mention monetary relief, but courts have nonetheless allowed disgorgement as a remedy.  Thus, an adverse ruling in Liu in the SEC context would provide defendants with arguments in the district courts and circuit courts that prior precedent allowing disgorgement as a form of equitable relief to the FTC is no longer tenable.  In such a case, the lower courts would have a new legal basis upon which to follow the Seventh Circuit’s lead from Credit Bureau Center and foreclose the FTC from continuing to use disgorgement as the “cornerstone” of its enforcement program.  The strength of such arguments will be determined in the next several months as these cases get decided.

 

[i] 15 U.S.C. § 45(a)(1).

[ii] Motion to Stay the Mandate at 5, FTC v. Credit Bureau Ctr., LLC, No. 18-2847, ECF No. 61 (7th Cir. Sept., 17, 2019).

[iii] 15 U.S.C. § 53(b).

[iv] See, e.g., FTC v. Commerce Planet, Inc., 815 F.3d 593 (9th Cir. 2016); FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir. 1996); FTC v. Bronson Partners, LLC, 654 F.3d 359 (2nd Cir. 2011); FTC v. Freecom Commc’ns, Inc., 401 F.3d 1192 (10th Cir. 2005); FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1 (1st Cir. 2010).

[v] FTC v. Hornbeam Special Situations, LLC, No. 1:17-cv-3094, 2018 WL 6254580 (N.D. Ga. Oct. 15, 2018).

[vi] https://www.ftc.gov/news-events/blogs/business-blog/2016/10/record-13-billion-ruling-against-scott-tucker-others-behind; FTC v. AMG Capital Mgmt., LLC, 910 F.3d 417 (9th Cir. 2018).

[vii] 937 F.3d 764 (7th Cir. 2019).

[viii] Motion to Stay the Mandate at 3, Credit Bureau Ctr., No. 18-2847, ECF No. 61 (7th Cir. Sept., 17, 2019).

[ix] AMG Capital, 910 F.3d at 421.

[x] AMG Capital Mgmt., LLC v. FTC, No. 19-508 (U.S.).

[xi] 15 U.S.C. § 57b(a).

[xii] Petition for a Writ of Certiorari, Liu v. SEC, No. 18-1501 (petition granted, Nov. 1, 2019).

[xiii] Kokesh v. SEC, 137 S.Ct. 1635, 1640 (2017).

[xiv] 15 U.S.C. §§ 77t(b), (d), 78u(d)(1), (3) and (5).

[xv] Kokesh, 137 S.Ct. at 1635.

[xvi] Kokesh, 137 S.Ct. at 1644.

[xvii] Kokesh, 137 S.Ct. at 1642 n3.

[xviii] Petition for a Writ of Certiorari at 9, Liu v. SEC, No. 18-1501 (citing oral argument transcript at 7-9, 13, 31, 52, Kokesh v. SEC, No. 16-529 (Apr. 18, 2017)).

[xix] Saad v. SEC, 873 F.3d 297, 305 (D.C. Cir. 2017).

Supreme Court to Decide CFPB’s Constitutionality

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A&B ABstract: On October 18, 2019, the Supreme Court granted certiorari in Seila Law v. CFPB to decide the constitutionality of the Consumer Financial Protection Bureau’s leadership structure.[1]  Significantly, the Court also ordered the parties to brief and argue a second question: “If the Consumer Financial Protection Bureau [“CFPB”] is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. § 5491(c)(3) [which permits the President to remove the Director of the CFPB only for cause] be severed from the Dodd-Frank Act?”[2]

A decision on these two questions could significantly affect every financial institution or entity regulated by the CFPB.

The Constitutionality of the CFPB

In response to the 2008 financial crisis, Congress passed the Dodd-Frank Act, which included the Consumer Financial Protection Act (“CFPA”) and created, arguably, one of the most powerful federal agencies to have ever existed—the CFPB.[3]  This power emanates from the CFPB’s single director structure, the CFPB’s broad rulemaking and enforcement authority, and the fact that the CFPB’s Director is insulated from removal except for cause.  Since the CFPB’s inception, there have been numerous challenges to the constitutionality of what is known as the “for-cause” removal provision of the CFPA, which permits the President to remove the Director of the CFPB, not at will, but only “for inefficiency, neglect of duty, or malfeasance in office.”[4]  Challenges have been brought in courts in the Second, Third, Fifth, Ninth, Tenth, Eleventh, and D.C. Circuits.[5]

One of the most significant challenges to the CFPB’s constitutionality occurred before an en banc D.C. Circuit in PHH Corp. v. CFPB.  There, a majority of the D.C. Circuit held that the CFPB’s leadership structure was constitutional, reversing the three-judge-panel decision written by now-Justice Kavanaugh.[6]   Justice Kavanaugh then dissented from the en banc opinion that reversed the original decision. In his dissent, he again concluded that the CFPB’s leadership structure was unconstitutional because the Director’s power and authority were “massive in scope, concentrated in a single person, and unaccountable to the President.”[7]  It is unclear whether Justice Kavanaugh will choose to recuse himself in Seila Law, given that he has already ruled on the issue of the CFPB’s constitutionality in PHH Corp., though he is not required to do so.

One of the most recent challenges, and the one to be reviewed by the Supreme Court, was raised by the law firm Seila Law.  As explained in a previous post,[8] Seila Law involves Seila Law’s refusal to comply with a CFPB civil investigative demand (“CID”).  When the CFPB moved to enforce the CID in federal district court, Seila Law argued that the CFPB’s structure was unconstitutional and, as a result, the CID was unenforceable.  While the CFPB prevailed before the district court, and on appeal to the Ninth Circuit, with the argument that the CFPB’s leadership structure was constitutional, it has since asserted the new position that the for-cause removal provision is unconstitutional.[9]  The Supreme Court has now taken up Seila Law’s petition for certiorari.

The Severability Question

While Seila Law petitioned for certiorari on the issue of whether the CFPB’s leadership structure is unconstitutional, the obvious follow-up question is what happens as the remedy if it is.  That is, what happens if the Supreme Court strikes down the CFPA’s for-cause removal provision?  Recognizing this, when the Supreme Court granted certiorari in Seila Law, it sua sponte also ordered the parties to brief and argue the additional question of whether the for-cause removal provision is severable from the remainder of the CFPA, if the CFPB’s leadership structure is found unconstitutional on the basis of separation of powers.

This is significant because if the Court holds that the provision is not severable, it could strike down the entire CFPA, resulting in any number of drastic consequences.  For example, the Court could strip the CFPB of its enforcement powers or hold that all of the CFPB’s actions to date were ultra vires.  At least one amicus litigant in Seila Law has already made arguments to this end.  The State of Texas’s amicus brief on the certiorari issue took the position that the for-cause removal provision renders the CFPB unconstitutional and, as a result, there is no obligation for Seila Law to answer the CFPB’s CID.[10]

If the provision is found to be severable, then the CFPB likely would proceed with business as usual, even if its structure is held unconstitutional because the remedy would be to make the CFPB’s Director removable at the will of the President.  This is the position the CFPB has taken in recent statements agreeing that its leadership structure is unconstitutional.[11] The CFPB has largely relied on the fact that the Dodd-Frank Act contains a severability clause, which states that “[i]f any provision of this Act . . . is held to be unconstitutional, the remainder of this Act . . . shall not be affected thereby.”[12]  As such, the CFPB has stated that “a Supreme Court decision holding that the for-cause removal provision is unconstitutional should not affect the Bureau’s ability to carry out its important mission [of consumer protection],” because “if the Court holds the for-cause removal provision unconstitutional, the CFPA should remain ‘fully operative’ and the Bureau would ‘continue to function as before, just with a Director who ‘may be removed at will by the President.’”[13]

Notably, though it is unclear what position the Justices will take on the severability issue, Justice Kavanaugh’s original decision in PHH Corp., and his dissent in the en banc review, also touched on severability, finding that “[a]s to remedy . . . [t]he Supreme Court’s Free Enterprise Fund decision and the Court’s other severability precedents require that we sever the CFPB’s for-cause provision, so that the Director of the CFPB is supervised, directed, and removable at will by the President.”[14]

Takeaway

After years of litigation, and conflicting court decisions, the Supreme Court has finally agreed to take on the question of whether the CFPB’s leadership structure is unconstitutional and, if so, what the remedy should be.  That said, even if the CFPB’s leadership structure is found to be unconstitutional, at least one conservative Justice is already on record with the conclusion that the for-cause provision is severable (though Justice Kavanaugh could elect to recuse himself).  While the ultimate outcome is unclear, this case promises to be a major development in the arena of consumer finance and administrative law.

Seila Law will likely be scheduled for oral argument in early 2020, with a decision following in the coming summer.  For now, we will be monitoring the case for developments, including what arguments rise to the top during the briefing process.

[1] https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-7.html (Oct. 18, 2019).
[2] Id.
[3] See 12 U.S.C. § 5491.
[4] See 12 U.S.C. § 5491(c)(3); see e.g., CFPB v. Nationwide Biweekly Admin., No. 18-15431 (9th Cir.); CFPB v. CashCall, Inc., No. 18-55479 (9th Cir.); CFPB v. All Am. Check Cashing, Inc., No. 18-90015 (5th Cir.); CFPB v. RD Legal Funding, LLC, No.18-2860 (2d Cir.); Community Fin. Servs. Assoc. v. CFPB, No. 1:18-cv-0295 (W.D. Tex.); CFPB v. Ocwen Fin. Corp., No. 9:17-cv-80495 (S.D. Fla.); BCFP v. Progrexion Mktg., Inc., 2:19-cv-00298 (D. Utah); CFPB v. Navient Corp., 3:17-cv-101 (M.D. Pa.).
[5] See CFPB v. Nationwide Biweekly Admin., No. 18-15431 (9th Cir.); CFPB v. CashCall, Inc., No. 18-55479 (9th Cir.); CFPB v. All Am. Check Cashing, Inc., No. 18-90015 (5th Cir.); CFPB v. RD Legal Funding, LLC, No.18-2860 (2d Cir.); Community Fin. Servs. Assoc. v. CFPB, No. 1:18-cv-0295 (W.D. Tex.); CFPB u. Ocwen Fin. Corp., No. 9:17-cv-80495 (S.D. Fla.); BCFP v. Progrexion Mktg., Inc., 2:19-cv-00298 (D. Utah); CFPB v. Navient Corp., 3:17-cv-101 (M.D. Pa.).
[6] PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75 (D.C. Cir. 2018) (en banc).
[7] PHH Corp., 881 F.3d 75, 166 (Kavanaugh, J., dissenting).
[8] https://www.alstonconsumerfinance.com/cfpb-changes-tack-on-for-cause-removal-provision/.
[9] See CFPB v. Seila Law, No. 19-7 (S. Ct. ), CFPB Br. on Pet. for Cert. (filed Sept. 17, 2019).
[10] See CFPB v. Seila Law, No. 19-7 (S. Ct.), Texas Amicus Br. on Pet. for Cert. at 16.
[11] See September 17, 2019 Letters from Director Kraninger to Speaker Pelosi and Majority Leader McConnell (quoting Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477, 508 (2010)).
[12] See 12 USCS § 5302 (“If any provision of this Act, an amendment made by this Act, or the application of such provision or amendment to any person or circumstance is held to be unconstitutional, the remainder of this Act, the amendments made by this Act, and the application of the provisions of such to any person or circumstance shall not be affected thereby.”).
[13] See September 17, 2019 Letters from Director Kraninger to Speaker Pelosi and Majority Leader McConnell (quoting Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477, 508 (2010)).
[14] PHH Corp., 881 F.3d 75, 167 (Kavanaugh, J., dissenting).