PHH Case Could Be Tied to Separate Cordray Challenge

By Chris Bruce

A brief Jan. 5 order by a federal judge means an appellate proceeding involving PHH Corp. and a separate challenge to the Consumer Financial Protection Bureau could be single-tracked in the U.S. Court of Appeals for the District of Columbia Circuit ( State Nat’l Bank v. Lew , D.D.C., No. 12-cv-01032, 1/5/17 ).

The ruling by Judge Ellen S. Huvelle of the U.S. District Court for the District of Columbia came shortly after a Jan. 4 filing by lawyers for State National Bank of Big Spring Texas, which has challenged the constitutionality of the Dodd-Frank Act’s for-cause removal provision that protects CFPB Director Richard Cordray.

Their Jan. 4 filing asked Huvelle to schedule a status conference to clarify where their case stands in the wake of an October ruling in favor of Mount Laurel, N.J.-based PHH Corp. by a D.C. Circuit panel. Two judges on the three-judge panel said the removal provision violates the U.S. Constitution.

The bank said it wants a partial summary judgment ruling in its favor on the constitutionality of the “for cause” provision, which could then be certified to the D.C. Circuit. That could lead to consolidation of the bank’s matter and the PHH case, which the CFPB has petitioned for review by the D.C. Circuit’s full bench.

Consolidation, lawyers for the bank told Huvelle, would allow the D.C. Circuit “to efficiently resolve in a single sitting all pending merits questions within its jurisdiction pertaining to the standalone constitutionality of the CFPB Director’s for-cause removal provision.”

Huvelle granted the motion Jan. 5, scheduling a Jan. 17 status conference and ordering the government to file a response by Jan. 11.

Question in Limbo?

In a footnote to their Jan. 4 filing, lawyers for State National Bank said clarity is needed. If the D.C. Circuit considers the for-cause provision only in the context of the PHH-CFPB matter, they said, the court might vacate the October PHH decision without reaching the “for-cause” question in that case.

The question would then be in limbo, they said. “That disposition would leave this Court in the unenviable position of being required to resolve Plaintiffs’ challenge to the CFPB’s constitutionality with a vacated panel decision in PHH having been the last word on the matter, but having no further legal effect, and without the D.C. Circuit having provided any further guidance on the point. Partial summary adjudication followed by certification would avoid this conundrum,” the footnote said.

The bank’s attack on the for-cause provision is just part of its case. State National Bank also seeks a ruling invalidating the CFPB as a whole. But that can be considered separately from the status conference on the for-cause provision, the bank said.

Among other points, the October PHH ruling is significant because it exposes Cordray to possible removal by President-elect Donald Trump once he takes office. However, the effect of the ruling is stayed while the D.C. Circuit considers the CFPB’s request to review the decision.

The D.C. Circuit hasn’t yet ruled on the CFPB’s petition but is expected to do so early this year.

State National Bank is represented by Gregory Jacob of O’Melveny & Myers in Washington.

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

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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