Circuit mulls impact of president’s right to fire CFPB director

The practical impact of a U.S. Supreme Court decision this year giving the president the right to fire the Consumer Financial Protection Bureau's director is getting two days of arguments before the 9th U.S. Circuit Court of Appeals.

On Wednesday, attorneys for mortgage lender Nationwide Biweekly Administration Inc. argued a federal judge's decision imposing a $7.93 million civil penalty for deceptive and abusive conduct should be tossed out because the agency was unconstitutionally structured at the time.

James R. Saywell, a partner with Jones Day, told a 9th Circuit panel the Supreme Court decision in June allowing the agency to remain intact with a presidentially approved appointee does not salvage its original case.

"Five years after the fact, this court should not let the CFPB off so easily," Saywell told the panel. Consumer Financial Protection Bureau v. Nationwide Biweekly Administration Inc. et al., 18-15431 (9th Cir., filed March 15, 2018).

But 9th Circuit judges on the panel, while appearing sympathetic to Saywell's arguments against a San Francisco federal judge's ruling against the lender, questioned whether they were bound by another 9th Circuit panel's decision in a different lawsuit.

That case -- filed by Seila Law LLC, an Orange County law firm that challenged a civil investigative demand by the agency -- was remanded to the 9th Circuit by the Supreme Court and was to be argued Thursday morning.

Chief Justice John G. Roberts Jr. ruled that the agency, as set up under a single director whom the president could not fire, violated the Constitution's separation of powers provisions and addressed the issue by allowing the chief executive to remove the director. Seila Law LLC v. CFPB, 140 S. Ct 2183, 2197 (U.S. June 29, 2020).

The status of each case is different. The mortgage lender is asking the 9th Circuit to wipe out U.S. District Judge Richard Seeborg's decision that it acted deceptively and abusively in violation of the Consumer Financial Protection Act and the Telemarketing Sales Rule, as well as the civil penalty he imposed.

Seila Law is still under investigation by the bureau. Other bureau cases also are being considered on remand by appellate courts around the country.

Bureau director Kathy Kraninger, an appointee of President Donald Trump who has served in the position since 2018, ratified the bureau's decisions in the Nationwide Biweekly Administration case and the Seila Law subpoena.

Thomas McCray-Worrall, a senior counsel with the bureau, told Wednesday's panel the presidential appointment cured any problem.

"The only constitutional defect was the director's insulation from removal," he said.

9th Circuit Judge Consuelo M. Callahan, an appointee of President George W. Bush, asked Saywell if the decision in his case would depend on the outcome of Seila Law.

"That other panel does have precedence by our rule," she said, expressing a desire to avoid an intra circuit split.

Saywell said his client had "much more of an injury dealing with a 5-year-old unconstitutional action." He also raised questions about Seeborg's ruling against the mortgage lender on restitution.

9th Circuit Judges Patrick J. Bumatay and Lawrence VanDyke, both Trump appointees, raised a host of skeptical questions about the bureau's authority to bring the case as well as whether the lender's actions were deceptive.

The entire case won't necessarily turn on the 9th Circuit's decision in Seila Law, Saywell argued, although Callahan said the lender would prevail if the court concludes the consumer protection bureau lacks Article II standing to sue.

Wednesday's panel was comprised entirely of appointees of GOP presidents.

Thursday's Seila Law panel will include two appointees of Democratic presidents, Susan P. Graber and Paul J. Watford, as well as Senior U.S. District Judge Jack Zouhary of the Northern District of Ohio, an appointee of George W. Bush.

Attorneys for the bureau are seeking enforcement of the civil investigative demand. Attorneys for the law firm are asking the panel to reverse a district court judge's order enforcing it.