Rehearing Sought in Case Backing CFPB Enforcement Authority

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By Chris Bruce

June 29 — Lawyers asked a federal appeals court to rehear an April ruling that said a federal court could hear a case brought by the Consumer Financial Protection Bureau (CFPB), even though the agency's director was not properly confirmed when the case was filed ( Cons. Fin. Protection Bureau v. Gordon, 9th Cir., No. 13-cv-56484, petition for rehearing en banc 6/27/16 ).

The June 27 petition for rehearing by the full U.S. Court of Appeals for the Ninth Circuit marks the latest move among several active cases that challenge CFPB enforcement actions.

In its petition, the Washington Legal Foundation, a public interest law firm, said the Ninth Circuit's April decision wrongly said a district court had jurisdiction to hear the CFPB's July 2012 suit against California attorney Chance Gordon. It also said the Ninth Circuit went astray by saying CFPB Director Richard Cordray, who assumed the post in a January 2012 recess appointment by President Barack Obama, ratified his early actions after being confirmed by the Senate in July 2013.

“Because neither Cordray nor anyone else associated with CFPB possessed legal capacity to authorize this enforcement proceeding when it was filed and litigated, Supreme Court precedent bars him from ratifying it later,” the petition said.

CFPB Sues Attorney

The Washington Legal Foundation represents Gordon, who was sued by the CFPB in 2012 in connection with a loan modification business.

The CFPB said Gordon made unfair and deceptive promises of mortgage relief to consumers, and falsely claimed his business was affiliated with the government. The district court ruled in favor of the CFPB.

Gordon appealed to the Ninth Circuit, which, in a majority ruling in April by Judges John B. Owens and William K. Sessions, affirmed most of the district court ruling, even though it vacated an $11.4 million disgorgement order by the district court.

Judge Sandra S. Ikuta dissented, saying “no one had the executive power necessary to prosecute this civil enforcement action in the district court.”

“We know that Cordray was not properly appointed by the President and therefore did not have any authority to enforce public rights,” she said. “As a result, Cordray lacked the Executive’s unique Article III standing.”

Court Seeks Briefs

The case took a new turn June 6, when the Ninth Circuit asked for briefing on whether its full complement of judges should rehear the case.

That sparked the June 27 response by the Washington Legal Foundation urging rehearing.

The CFPB responded the same day, saying the court should not rehear the matter.

According to the CFPB, the Ninth Circuit's holding on the ratification question is right on point with “the uniform view” of other federal appeals courts that have tackled similar ratifications.

And even if Cordray lacked authority at the time the lawsuit was filed, that's an Article II question that goes to the power of the executive branch, and not to the power of courts to act under Article III, the CFPB said.

“The President may have exceeded the Article II restraints on his authority by appointing the official, but it does not follow that the judiciary exceeds the distinct Article III limits on its authority by hearing a suit brought by that official,” the brief said.

CFPB Counters PHH

Meanwhile, CFPB lawyers also responded June 27 in a separate case now in the D.C. Circuit involving PHH Corp.'s appeal from a June 2015 enforcement ruling by Cordray ( Cons. Fin. Protection Bureau v. Gordon, 9th Cir., No. 13-cv-56484, response filed 6/27/16 ).

In a June 23 letter, lawyers for PHH said the U.S. Supreme Court's June 20 opinion in Encino Motorcars, LLC v. Navarro bolsters its argument that Cordray's decision doesn't merit deference from the court under the Supreme Court's ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

But CFPB Senior Litigation Counsel Lawrence DeMille-Wagman disagreed in a June 27 response. Unlike the Encino Motors case, he said, a regulatory letter cited as support by PHH was an unofficial staff interpretation relied upon by PHH at its own risk, he said.

“To the extent that Encino Motors is relevant to this case, it suggests that Chevron deference is appropriate,” DeMille-Wagman said.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Mike Ferullo at mferullo@bna.com

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