The lamps lining the streets of Washington D.C. were still glowing when a small group of people began gathering outside the D.C. Circuit Court of Appeals on May 24. By the time the court doors were opened, the line of media, counselors and spectators waiting to hear the oral arguments for PHH Corp. v. CFPB was reaching around the building.
“I’ve never seen anything like this,” someone said.
Once attendees got through the TSA-like security, re-buckling their belts and mourning the loss of their bottled water, they then waited along the wall outside the court room. Counselors and their families members were seated first, then the media, then everyone else. Once everyone signed an affidavit stating that their phone was turned off, they were allowed to sit down.
Okay, that last part about the affidavits is hyperbole, but that was the vibe radiating from the court security officers: Tension. Anticipation was the vibe from everyone else waiting to hear PHH Corp.
Attendees waited patiently as Lucia v. SEC was argued first. In their decision granting the CFPB’s petition for rehearing, the full D.C. Circuit had asked PHH Corp. and the bureau to answer the following question: If the en banc court concludes in Lucia that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?
Within its brief, PHH Corp. argued that if the en banc court holds that the administrative law judge (ALJ) in Lucia was improperly appointed, then the ALJ’s decision in PHH Corp. also should be regarded as invalid, and CFPB Director Richard Cordray’s order would need to be vacated.
On the other hand, the CFPB argued that if the D.C. Circuit finds that the Lucia ALJ had been improperly appointed, then the D.C. Circuit should call for supplemental briefing to determine whether the Lucia holding applies to the ALJ that presided over PHH Corp.’s case.
Although the Lucia case may play a role in PHH Corp., it was clear that the attendees were not there to hear Lucia, but were more interested to hear the arguments regarding the CFPB’s structure and how RESPA Section 8 should be interpreted.
As soon as the PHH Corp. oral arguments were next, the room became alive and alert.
Because the D.C. Circuit’s order granting the CFPB’s petition for rehearing focused on the constitutionality question, it was no surprise that former Solicitor General, and counsel for PHH, Ted Olson, a partner at Gibson Dunn, gave the mortgage company’s opening arguments, just as he did in the first hearing before the D.C. court.
Olson was asked whether PHH Corp.’s constitutionality argument survived Supreme Court precedent that upheld the “for cause” limitation on the president’s ability to fire Federal Trade Commissioners (Humphrey’s Executor) and the appointment of single, independent counsel (Morrison).
Olson argued that it wasn’t just the CFPB’s single-director, removable-for-cause-only elements that made it unaccountable and unconstitutional.
“This agency goes further than anything Congress has ever attempted to do in history,” Olson stated, asserting that the CFPB’s entire structure diminished the president’s power to enforce the law.
Circuit Judge Thomas Griffith, who was appointed by former president George W. Bush in 2005, repeatedly asked how the CFPB’s structure diminished the president’s ability to enforce the law. Griffith also suggested that with the current single-director structure, the president only had to remove one individual.
“That seems to make the president more powerful,” Griffith added.
Circuit Judge Brett Kavanaugh, who also was appointed by President Bush in 2006, and who wrote the three-judge panel’s previous decision, chimed in that the difference between the appointments process here versus other federal agencies was that the CFPB had a slower turnover rate. For example, during the transition, President Donald Trump was able to appoint his own chairpersons for certain agencies.
Here, Kavanaugh added, Trump’s leader at the CFPB is being guided by the “dead hand of the past president.”
Circuit Judge Patricia Millett, who was appointed by former president Barack Obama in 2013, added that Trump would be able to appoint his own CFPB director given the 5-year term limits. She later asked Olson to weigh different options: Does the president have more power when he can appoint a single director of his own choosing, or when he is mandated to occasionally appoint a commissioner from the opposing party?
Kavanaugh countered that such term limits does not guarantee that a president will be able to appoint his own CFPB director, or at least not until two or three years into his term. Circuit Judge Cornelia Pillard, who was appointed by Obama in 2013, countered that members of the Board of Governors of the Federal Reserve served 14-year terms.
Pillard also added that Congress seemed to have added the “for cause” provision to ensure that the CFPB director isn’t removed simply for policy differences and to “avoid financial cronyism.”
Department of Justice (DOJ) Attorney Hashim Mooppan was next, arguing the United States’ (under the new administration) case that the CFPB’s structure violated the president’s Article II authority over executive branch appointments. Mooppan called the CFPB a quintessentially executive agency, whose director couldn’t be distinguished from the Treasury Secretary or other members of the president’s Cabinet.
Mooppan further argued that the protections under Humphrey’s and Morrison should not be extended to the CFPB because Humphrey’s applied to multi-member agencies and because Morrison dealt with inferior officers with limited jurisdiction and terms lengths.
Mooppan referenced Page 58 of the three-judge panel’s October decision, in which Kavanaugh wrote: “In any event, although it is true that Article II violations often involve diminishment of presidential power, neither Humphrey’s Executor nor any later case gave Congress a free pass, without any boundaries, to create independent agencies that depart from history and threaten individual liberty. Humphrey’s Executor does not mean that anything goes.”
Millet asked Mooppan how the en banc court should draft an opinion that would be against the CFPB’s structure but not against other single-headed agencies, such as the Social Security Administrator or the Postmaster General. Mooppan reiterated that the CFPB was structurally distinct from these other agencies.
Appearing next was CFPB Attorney Lawrence DeMille-Wagman, argued for the CFPB in the first D.C. court case. He argued this time that the president’s ability to fire the CFPB director, even “for cause,” made the CFPB director sufficiently accountable. Concerns were expressed that such “for cause” protections could be extended to members of the president’s Cabinet.
Circuit Judge Janice Rogers Brown, who was appointed by Bush in 2005, asked DeMille-Wagman whether he could point to any specific instances where an independent agency head had been removed “for cause.” DeMille-Wagman could not. At this point, Judge Robert Wilkins pointed out that the “for cause” provision seemed to be a “toothless protection” for the president.
DeMille-Wagman also reiterated the CFPB’s position that Congress always can change the structure and term limits on the CFPB’s leadership. In response to this, however, Kavanaugh asked, “What if Congress passed a 30-year limit for the next director? Is that constitutional?”
Judge A. Raymond Randolph, who was appointed by President George H.W. Bush in 1990, asked DeMille-Wagman whether it was still the CFPB’s position that RESPA’s three-year statute of limitations (SOL) did not apply to administrative enforcement actions. DeMille-Wagman stated that RESPA’s SOL applies for judicial cases, but had no effect in this case because it was an administrative action.
Following DeMille-Wagman’s 30 minutes at the podium, Olson used the remainder of his time for a rebuttal.
“There’s never been an agency like this,” he argued, adding that the sum total of the CFPB’s features – though individually allowed in Humphrey’s Executor and Morrison – created the most powerful, “manifestly unconstitutional” agency. Olson added that given the CFPB’s functions as a quasi-legislature and quasi-adjudicator, a “plurality” within the executive branch had been created.
Schulman’s reaction
RESPA News caught up with RESPA expert Phil Schulman, partner at Mayer Brown, to discuss his initial thoughts about the oral arguments. Schulman stated that, based on the questions posed by the full court, it is likely Cordray will remain at the head of the CFPB until the end of his term in July 2018.
Schulman added that he did not think the court would find the CFPB’s single-director, removable-only-for-cause structure to be unconstitutional, let alone find the CFPB to be unconstitutional in its entirety, as PHH Corp. argued.
Unfortunately, because only one question was asked regarding RESPA, the industry was not given much indication of where it might rule on the RESPA issues; however, Schulman said that he thinks the court ultimately will affirm the three-judge panel’s RESPA findings.
Schulman also noted that D.C. Circuit Judge Karen Henderson did not ask any questions throughout the arguments. Henderson, who was one of the three judges listed on the initial panel decision, had written a separate concurring opinion to dissent on the panel’s decision on the CFPB’s constitutionality. She had argued that the D.C. Circuit was not the appropriate venue to decide that question and that the court could make a decision on the RESPA issues alone.