On The Case

Key CFPB defenders urge SCOTUS to skip constitutional issue

(Reuters) - As I made my way through the 15 briefs submitted to the U.S. Supreme Court by amici who believe that Congress was within its rights when it designed the Consumer Financial Protection Bureau to be headed by a lone director who can’t be removed from office without good cause, I was looking for arguments about what the CFPB’s defenders believe the justices should do if they’re wrong. What if the Supreme Court sides with the debt-relief law firm Seila Law – and with the Justice Department – and concludes that the CFPB’s structure violates separation of powers doctrine?

The Supreme Court is sufficiently interested in that issue to have added it as a question presented by Seila Law’s petition. Merits briefs by Seila’s lawyers at Paul Weiss Rifkind Wharton & Garrison and by DOJ deepened uncertainty about a potential remedy because they diverged: The government believes the provision appointing the CFPB director can be neatly severed from the rest of the CFPB statute, which is part of the Dodd Frank Financial Reform Act. Seila, on the other hand, urged the justices to leave it to Congress to draft a fix for any constitutional flaw in the CFPB statute. And many of Seila’s amici, as I told you last month, tried to cast additional doubt on the quick fix of severability.

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The CFPB’s defenders, as you would expect, sided with DOJ on what the Supreme Court should do if the justices decide the bureau’s director is unconstitutionally insulated from accountability to the president: just sever the appointment provision’s good-cause requirement and otherwise allow the CFPB to continue its crucial mission.

Only three of the amicus briefs backing the CFPB’s structure – from the U.S. House of Representatives, New York and 23 other states, and the National Consumer Law Center and other consumer groups – addressed the question of a cure for the CFPB’s potential constitutional flaw. All of them highlighted Dodd Frank's explicit severability clause, which says that any unconstitutional provision can be cleaved from the rest of the law. They also discussed the Supreme Court’s historic reluctance to interfere more than is absolutely necessary with congressional lawmaking prerogatives.

But what if the Supreme Court never gets to the constitutional question at all? What if, after all of the drama over competing petitions asking the justices to decide whether Congress can shield bureau directors from being fired at the will of the president, it turns out that the Seila Law case is a bad vehicle?

Some of the CFPB’s key defenders are pushing that argument. Foremost among them is Paul Clement of Kirkland & Ellis, who was appointed by the Supreme Court as an amicus because the government has sided with Seila on the constitutional question. Clement’s brief argues elegantly that the text of the Constitution and Supreme Court precedent allow precisely the sort of “modest restriction” that the CFPB appointment provision imposes on the president’s removal power. It also argues, though, that the Supreme Court need not decide the issue.

The CFPB sued Seila Law, he explained, to enforce a civil investigative demand that originated under CFPB Director Richard Cordray. The CID has since been ratified by an acting CFPB director who could be fired at the will of the president and endorsed by the current CFPB director, Kathy Kraninger, who has said she believes that she serves at the will of the president. In other words, Clement’s brief argued, the Seila CID will not live or die based on the constitutionality of the clause appointing the director.

And the law’s constitutionality, he argued, is too grave a question to be decided in a case with ripeness flaws. “The dispute here is not just unripe, but entirely theoretical,” his brief said. “This case simply does not present a proper occasion for this court to resolve the undoubtedly important question petitioner asks it to decide.”

The House of Representatives’ brief, by House counsel Douglas Letter with an assist from the Stanford Supreme Court Law Clinic, made a similar point, though it framed the issue as a matter of standing and constitutional avoidance. Seila “cannot establish any connection between the CID it seeks to avoid and the weighty constitutional issue it urges this court to decide,” the brief said. “This case (is) a profoundly artificial vehicle for deciding whether the removal protection has improperly insulated other CFPB actions from Presidential oversight.”

Like Clement, the House urged the Supreme Court to wait for case that squarely presents the constitutional question, arguing that there’s no rush since the current CFPB director is of the view that she can be fired at the president’s direction. Her actions, the House brief said, are not affected by the appointment provision Seila is challenging. So the justices can postpone a reckoning.

The consumer appellate lawyer Deepak Gupta of Gupta Wessler, in a brief on behalf of three well-known financial regulation scholars, actually called for the Supreme Court to dismiss the Seila case as improvidently granted, citing the same purported disconnect between the constitutional flaw Seila is alleging and the relief it is seeking. “This case does not provide a proper vehicle for determining the scope of ‘for cause’ removal power because there is no case or controversy regarding the application of that clause,” the brief said. “This case is about the CFPB’s ability to enforce a civil investigatory demand … against a private entity that has no interest in whether the director is in fact removable only for cause."

And in a sort of complement to arguments about whether the Supreme Court can and should reach the separation of powers question Seila has posed, University of Virginia law professor John Harrison filed an amicus brief proposing that the justices look first at the remedial question they added to Seila’s petition. If the court decides that the CFPB appointment clause can be severed, Harrison argued, then it can avoid the constitutional issue. Seila, he explained, is trying to squelch a CID. But if the appointment provision can be separated from the CFPB’s investigative authority, Seila can’t get the relief it wants – so, according to Harrison, the court should stop there and decline to decide the constitutional question on the grounds of “prudential ripeness.”

Clearly, these arguments are a detour from the heated constitutional and regulatory concerns at the heart of the CFPB case. But I learned from last term’s Emulex case – in which I was expecting the Supreme Court to decide whether there’s a private right of action for allegedly deceptive tender offer disclosures but the court tossed the case – not to underestimate procedural arguments. Clement and the other amici may not agree on what to call their vehicular concerns with Seila’s case, but they all believe there’s a way for the Supreme Court to dodge the constitutional question.

The Justice Department declined to comment. Seila lawyer Kannon Shanmugam of Paul Weiss declined to provide a statement in response to my email.