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State National Bank v. Lew

United States District Court, District of Columbia

July 12, 2016

STATE NATIONAL BANK of BIG SPRING, et al., Plaintiffs,
v.
JACOB J. LEW, et al., Defendants.

          MEMORANDUM OPINION

          ELLEN SEGAL HUVELLE United States District Judge

         Plaintiffs filed this suit in 2012 to challenge the constitutionality of the Consumer Financial Protection Bureau ("CFPB"), which was created as part of the Dodd-Frank Act. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). They also allege that the recess appointment of CFPB Director Richard Cordray was unconstitutional and seek an injunction that would prevent him from taking any further action in that role. After this Court dismissed the lawsuit on standing and ripeness grounds, State Nat. Bank of Big Spring v. Lew, 958 F.Supp.2d 127, 166 (D.D.C. 2013), the Court of Appeals reversed in part. See State Nat. Bank of Big Spring v. Lew, 795 F.3d 48, 57 (D.C. Cir. 2015). It held that State National Bank of Big Spring ("SNB") had standing to challenge (1) the constitutionality of the CFPB's structure, and (2) Director Cordray's recess appointment. See Id. at 54. Upon remand, the parties filed cross-motions for summary judgment. (See Pls.' Mot. for Summ. J. [ECF No. 53-1]); Defs.' Cross-Mot. for Summ. J. [ECF No. 59-1].)

         At this time, the Court will defer ruling on plaintiffs' attack on the CFPB on separation-of-powers grounds. This same constitutional challenge was made to the D.C. Circuit in a recently argued case. See Pet'rs' Statement of Issues, PHH Corp. v. Consumer Fin. Prot. Bureau, Case No. 15-1177 (D.C. Cir. July 24, 2015) (raising the question of "[w]hether the unprecedented structural features of the CFPB, which combine legislative, executive, and judicial power in the hands of a single individual, violate the separation of powers"). Plaintiffs in this case filed an amicus brief in support of petitioners, making largely the same arguments that they make here. See generally Br. of State National Bank of Big Spring, The 60 Plus Association, Inc.; and Competitive Enterprise Institute, PHH Corp. v. Consumer Fin. Prot. Bureau, Case No. 15-1177 (D.C. Cir. Oct. 5, 2015). Given the likelihood that this issue will soon be decided by the Circuit, this Court will hold this matter in abeyance until the Court of Appeals rules in PHH Corp. See, e.g., Al Qosi v. Bush, 2004 WL 4797470, at *1 (D.D.C. Dec. 17, 2004) (holding further proceedings in abeyance pending resolution of the same issues in a case already before the D.C. Circuit).

         It will, however, address the merits of plaintiffs' challenge to the recess appointment of Director Cordray. To do this, it will limit its background discussion to information that is relevant only to that issue.

         BACKGROUND

         On July 18, 2011, President Obama first nominated Richard Cordray to serve as CFPB Director. (See Defs.' Resp. to Pls.' Statement of Material Facts Not in Dispute ("Defs.' Resp.") [ECF No. 59-2] ¶ 18.) When the Senate took no action on that nomination, the President then appointed him to the position on January 4, 2012, invoking his authority under the Recess Appointments Clause. (See Id. ¶ 19.) That same day, the President also invoked his Recess Appointment authority to appoint three members to the National Labor Relations Board ("NLRB"). (See Id. ¶ 21.) The Supreme Court subsequently found in National Labor Relations Board v. Noel Canning, 134 S.Ct. 2550, 2578 (2014), that these NLRB appointments were made in violation of the Recess Appointments Clause.

         As a recess appointee, Cordray exercised final decision-making authority concerning several CFPB rulemakings. (See Defs.' Resp. ¶ 27; Electronic Fund Transfers (Regulation E), 77 Fed. Reg. 6, 193 (Feb. 7, 2012); 77 Fed. Reg. 50, 243 (Aug. 20, 2012); 78 Fed. Reg. 30, 661 (May 22, 2013); Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z), 77 Fed. Reg. 51, 115 (Aug. 23, 2012);[1] Escrow Requirements Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 4, 725 (Jan. 22, 2013); Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 6, 407 (Jan. 30, 2013); Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. 10, 695 (Feb. 14, 2013).

         On January 24, 2013, President Obama re-nominated Cordray to serve as CFPB Director, and the Senate confirmed his nomination on July 16, 2013. (Defs.' Resp. ¶ 26.) The following month, Director Cordray published a Notice of Ratification in the Federal Register, which read as follows:

The President appointed me as Director of the Bureau of Consumer Financial Protection on January 4, 2012, pursuant to his authority under the Recess Appointments Clause, U.S. Const. art. II, § 2, cl. 3. The President subsequently appointed me as Director on July 17, 2013, following confirmation by the Senate, pursuant to the Appointments Clause, U.S. Const. art. II, § 2, cl. 2. I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper. To avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period.

Notice of Ratification, 78 Fed. Reg. 53, 734, 53, 734 (Aug. 30, 2013).

         The primary point of contention between the parties is what legal effect, if any, this purported ratification has.

         ANALYSIS

         I. RECESS APPOINTMENT

         After finding that plaintiffs had standing to challenge Director Cordray's recess appointment as unconstitutional, the Court of Appeals left it to this Court "to consider the significance of Director Cordray's later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment." State Nat. Bank of Big Spring, 795 F.3d at 54. Defendants now argue that the ...


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