Divided Ninth Circuit Upholds Cordray's Authority

By Chris Bruce

April 14 — A divided federal appeals court April 14 said the appointment of Consumer Financial Protection Bureau (CFPB) Director Richard Cordray wasn't fatal to his ability to sue a California attorney in federal court.

The decision by the U.S. Court of Appeals for the Ninth Circuit tackles one of the most hotly contested issues in the wake of the 2010 Dodd-Frank Act — whether Cordray had legal power to act, and in what form, after his January 2012 recess appointment by President Barack Obama but before the Senate's July 2013 confirmation of Cordray as CFPB director.

According to the court, the parties agreed that the recess appointment was invalid, and that his 2013 confirmation by the Senate was valid.

“They disagree as to the significance of these events and the August 2013 ratification,” Judges John B. Owens and William K. Sessions said in their majority opinion.

The decision marks an important victory for the CFPB and its enforcement program, even as it faces other challenges that pose strategic threats to the consumer watchdog.

The ruling comes just days after the CFPB faced skeptical judges in the U.S. Court of Appeals for the District of Columbia Circuit (71 BBD, 4/13/16). Among other matters, that court is considering whether the CFPB's very existence is allowed under the U.S. Constitution.

Not a Problem

In their April 14 majority opinion, Owens and Sessions said the executive branch had “interest” and “power” to enforce federal law, despite problems with Cordray's ability to execute the laws under Article II.

“While the failure to have a properly confirmed director may raise Article II Appointments Clause issues, it does not implicate our Article III jurisdiction to hear this case,” they said.

And ratification of Cordray's actions in August 2013, which followed the Senate's action, cured any remaining Article II problems, they said.

But in a footnote, Owens and Sessions said they did not address whether ratification of Article II problems can cure Article III standing defects.

One Judge Dissents

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.”

The case involved CFPB claims that attorney Chance Gordon violated the law in connection with a loan modification business. The CFPB sued Gordon in July 2012, alleging unfair and deceptive promises of mortgage relief to consumers.

He also claimed his business was affiliated with the government, according to the CFPB.

The agency did not respond to a request for comment.

Disgorgement Order Remanded

The Ninth Circuit ruled for Gordon on one point, vacating an $11.4 million disgorgement order by the district court.

According to Owens and Sessions, Gordon earned some portion of that prior to passage of Dodd-Frank.

The district court will have to address whether retroactive treatment is appropriate, they said.

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

To contact the editor responsible for this story: Seth Stern at sstern@bna.com