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Appeals Court Ruling May Nullify Consumer Finance Protection Bureau Rulemakings

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A ruling by the Washington, DC federal appeals court in Noel Canning v. NLRB pretty much ends the ability of presidents to make recess appointments, a measure that has been used since 1867. The suit successfully challenged a NLRB rulemaking on the grounds that three of the five directors were recess appointments which meant the NLRB lacked a quorum to give it authority to act. Georgetown law professor Adam Levitin believes this decision will stick:

The DC Circuit’s held on two separate grounds that the NLRB members were not validly appointed. All of the NLRB members in question were appointed as so-called “recess” appointments by the President, meaning that they were appointed without the advice and consent of the Senate. First, the DC Circuit held that these appointments were invalid because they were appointed under the Recess Appointments power at a time when the Senate was not in recess. And second, the DC Circuit held that the appointments were invalid because the Recess Appointments power only applies to vacancies that arise during a recess, not vacancies that are continuing during a recess, and the vacancies in question arose before the (non-)recess. The ruling is based on the DC Circuit’s close textual reading of the Recess Appointments clause of the Constitution (in particular, the use of the term “the Recess” instead of “a Recess”), but is also butressed by policy arguments.

While I don’t like the result of the decision, it doesn’t read as a strained or flagrantly political decision (unlike Business Roundtable v. SEC, say), even if the panel was all GOP appointees. I assume the decision will get appealed and would think there’s a reasonable chance that certiorari will be granted by the Supreme Court, but there’s a real chance that the decision will stand either because certiorari won’t be granted or because the Supreme Court will affirm.

This decision throws a huge monkey wrench in the Consumer Finance Protection Bureau. The agency was created by combining various existing consumer finance regulatory authority in one place. Actions related to those powers should be unaffected by this decision. However, the CFPB acquired additional powers under Dodd Frank that became effective only when the agency’s director was in place. Richard Cordray, the agency’s first and current director, was a recess appointment. Per the logic of the ruling, any acts that depended on the additional powers that the agency obtained when a director was installed are nullified. Levitin again:

Even if Cordray’s renomination gets confirmed by the Senate, all of the CFPB’s rulemakings and Directorial actions since the recess appointment would seem to be invalid. I don’t know what affect that has on litigation settlements or appointments and administrative matters, but looking through Title X of the Dodd-Frank Act, there are an awful lot of things that the Director, rather than the Bureau are supposed to do. I suppose that a confirmed (or properly recess-appointed) Director would be able to readopt rulemakings and administrative decisions fairly easily, but I suspect it couldn’t be on a nunc pro tunc basis. There’s more litigation to happen, but this could be a real mess.

The Deepak Gupta at the Consumer Law and Policy Blog is more optimistic:

Just because the recess appointment is unconstitutional doesn’t necessarily mean that everything the Bureau has done under Rich Cordray will be wiped out. A longstanding legal doctrine known as the “de facto officer doctrine” is designed to avoid the sort of needless chaos that would otherwise result from a ruling like today’s decision.

The de facto officer doctrine confers validity upon acts performed by a person acting under the color of official title even though is later discovered that the legality of that person’s appointment or election to office is deficient. Although its roots are old and somewhat murky, the Supreme Court recognized the doctrine as recently as 1995. See Ryder v. United States, 515 U.S. 177 (1995).

As the Court explained in Ryder, the doctrine “springs from the fear of the chaos that would result from multiple and repetitious suits challenging every action taken by every official whose claim to office could be open to question, and seeks to protect the public by insuring the orderly functioning of the government despite technical defects in title to office.”

I’m sure we’re going to see more detailed parsing of what this probably means in coming days, but the actions that could be nullified include:

Qualified mortgage rules
Rules to prevent misrepresentation of credit card interest rates
Compelling debt-relief companies to refund illegal fees

Stay tuned….

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43 comments

  1. citalopram

    I think it’s a waste of time relying on the system to correct the wrongs of the system. Marching would be more effective.

    1. btraven

      I think you’re right. Nothing’s gonna change until there is significant civil disruption. In the Thirties there were hundreds of incidents of civil disorder all over the country before the New Deal finally began to bleed off some of the pressure. Same with civil rights and Vietnam.

      “No way to delay that trouble comin’ every day”

        1. YankeeFrank

          Such actions weren’t legal back in the twenties/thirties either. People just did them because they had no choice.

          1. Brooklin Bridge

            The problem with the civil disobedience argument is highlighted by the effectiveness with which the government used modern “super” technology to thwart the OWS movement. This extraordinary control was not available in the 1930′s and the degree of saturation is not even readily available today in most other countries. Egypt would be an example of the US twenty years ago, which is why they were able to have a revolt in the first place(even though it has subsequently been brought back under more rigid control than prior to the revolt). But even that thin gruel of a success is not available to us in the States.

            Between the complete lock step obedience of the media (as expressed by total silence in the case of OWS) and the exceptional coordination of the various police departments and organizations such as the FBI and the CIA, demonstratons and even wide spread social movements have little to no chance even to rise to the public’s attention, never mind in a compelling way.

            People assume we can still “demonstrate” as a last resort but any comfort that might provide is as illusive as the assumption one can still find justice in a US court of law without a very fat wallet. The conditions for success are simply no longer there.

            Even on the internet the number of sites that have not been “Atkinized” are becoming few and far between.

          2. Paul P

            In the 1930′s, you had an insurgent union movement; a large, mobiilized communist and trotskyist left; and a depression without a safety net. Today, the leadership of organized labor delivers the vote of the working class to the Democratic Party, even as the Democratic Party sheds all connection, except rhetorical, to its mass base.

          3. Nathanael

            Brooklin, OWS was small-scale, and even so, the massive force deployed was barely effective. There will be more, and they will be less supressable.

            In the 20s they used Pinkertons, they hired thugs, the police were just as bad, and if that didn’t work they sent in the ARMY. Look up what happened to the “Bonus Army” under Hoover….

            …I don’t think our current elites have learned the lesson of that period, which is that no amount of force can suppress a truly popular movement. It can only be suppressed by making it unpopular. They’ve been trying that too. But they can’t make it stick because they keep on taking people’s food, clothing, shelter, and jobs away.

            “Bread” is an important part of “bread and circuses”. The people in power have the duty to keep people fed. If they fail, then the government is overthrown. Period.

            I cannot imagine what some of those in power are thinking — I cannot believe that they really think a revolution will improve their positions, since their positions are pretty cushy. I think they’re not thinking long-term: I think they’re simply being predatory short-term thinkers, members of Veblen’s Leisure Class.

        2. Jessica

          At this stage, perhaps it is more pivotal that the vast majority is willing to more or less go along with or ignore the deliberate use of torture by American police forces.
          The resilience of the sense of legitimacy of the current regime among ordinary Americans mystifies me.

          1. ambrit

            Dear Jessica;
            I’ll risk breaching Godwins’ Rule and direct your attention to the history of Germany in the previous century. Or perhaps Soviet Russia will do, or America in the McCarthy era, or even the Bonus Marchers. The pivotal moment for today should be when the first National Guard units refuse to fire on demonstrators. However, there was Kent State…

          2. jurisV

            It may seem grim and hopeless, but you don’t have to even come close to Godwin’s rule Ambrit.

            The fall of the Soviet Union Empire is a more recent example. The catalyst was that the police in East Germany refused the order to fire on the protesters — as you noted. This also happened in Latvia, and I believe it also occurred in Poland. For this scenario to play out there have to be mass, non-violent protests — and the leadership of the state has to become so disconnected from the public that the propaganda BS is obvious to a critical mass level of the public. Not surprisingly, violence seems to alienate the police and they will be less reluctant to fire.

            Decadence of power-mad leaders is the virus and while its toxicity is inevitable, the road to the end can be long and rough for the public. The situation may appear bleak for a long time, but the end can come quite suddenly — as it did with the Soviet Empire. I wouldn’t have predicted it even a few months prior.

            In the collapse of the American Empire our mileage and our paths may vary.

          3. Brooklin Bridge

            And exactly what has this “unified” Germany and fall of the USSR accomplished other than for Germany to head up a dystopia working hard to screw the 99% of most of Europe. This would be a puzzling example to take hope from.

          4. Jessica

            Is it not the case that the moment when the police or National Guard or whatever refuse to fire on civilians must be preceding by a large majority of the population being strongly opposed to them firing? I think we have to reach that general withdrawal of support for the state’s violence before the state’s servants will ever withdraw their support.

          5. Nathanael

            This is the key:

            “that the propaganda BS is obvious to a critical mass level of the public”

            which will lead to the precondition you accurately describe, Jessica.

            The propaganda BS is less and less believable every time someone’s home is stolen.

        3. btraven

          I think that’s kind of the point, that they don’t “let” you do it. If they “let” you do it, then it’s not civil DISobedience.

          I don’t think Occupy had much impact in most of the country until the NYPD began to “preserve disorder”, but after that coverage exploded. Similarly, the civil rights movement was given a great boost when the civil authorities, instead of allowing, or better yet ignoring, protests, turned the fire-hoses and dogs loose on peaceful protesters.

  2. Unsympathetic

    Most of the lawyers who blog don’t consider the ruling a slam-dunk – OTB, Volokh among others.

    1. Yves Smith Post author

      You seriously think the Roberts court would not affirm if they decided to hear the case? The Supreme Court that gave us Citizens United?

      And Levitin is a buddy of Warren and on the CFPB’s advisory panel.

      1. Chris Engel

        Well, to be fair, it’s the same court that upheld the Obamacare mandate too.

        So let’s not be overly cynical just yet :)

        1. Mary Bess

          There are at least two reasons Obamacare was upheld that have nothing to do with its constitutionality:

          After two blatantly political decisions (deciding George Bush would be president and corporations could pollute the electoral process with an unlimited amount of cash), the court’s credibility was at stake.

          Although Obamacare will help some people who desperately need it, it’s chief purpose was to transfuse an industry which is flatlining and unsustainable.

        2. ambrit

          Mr. Engel;
          “Obamacare?” I refer to it as Romneycare whenever it comes up in , *ahem*, ‘conversation. That the present Administration has embraced a program originally drafted by the Heritage Foundation says it all.

        3. JGordon

          Before being pro-GOP the court is pro-fascist. Therefore it’s fairly easy to see why Obamacare would be allowed to stand.

      2. Nathanael

        Yves: this ruling cannot and will not be allowed to stand; it is politically impossible for it to stand. I’ll be quite specific.

        The Senate has abdicated all pretense of being a legislative body in favor of being a “filibustering club”. They don’t want to confirm anyone.

        There are a *huge* number of government agencies which are only operating because of recess appointments.

        Leaving the positions vacant is unacceptable to the executive branch. And that’s the one with the army, remember?

        Roberts will be told, point blank, that he has to approve the recess appointments, or he will face a “Roberts has made his decision; now let him enforce it” moment, wherein the executive branch will start simply ignoring the Supreme Court. The Supreme Court has been setting fire to its legitimacy since the 2000 election theft anyway. Roberts doesn’t want that; he’s an institutional type and he wants the institutions to retain power.

        Now, you might think that Obama would just wilt up and be unwilling to do anything. But this strikes to the heart of executive power, and Obama has been remarkably interested in expanding that.

      1. Nathanael

        It could be a big deal, in that it could cause the Supreme Court to lose its position of power.

        It is impossible for the executive branch to accept the ruling as it is inimical to the operation of the executive branch (given the non-functioning US Senate).

        Therefore the ruling will never go into effect. Whether the Supreme Court decides to erase its own power or not is an interesting question. Previous Presidents have ignored Supreme Court orders. Successfully.

  3. Jessica

    When the time comes to restore the rule of law, the task will be complicated by the odd pattern being put into place: when it comes to the misdeeds of the kleptocracy, there is no law so major that it can not be violated with impunity. On the other hand, when it comes to protections for the rest of us, there is no technicality too small that it can not used to undermine.

    1. ambrit

      Dear Jessica;
      Yea, indeed, the ‘Powers’ are quite obviously afraid of “Throwing the banksters out with the bathwater.”
      We live in interesting times.

    2. nad

      The problem with pronouncing return to, “the rule of law,” is whose law?

      As far as I am concerned, the bulk of this nations’ laws are not legitimate.

  4. indio007

    De facto officer doctrine only works under consent or silent acquiescence. Obviously if there was a law suit from the word go , there is no consent or silence.

    “An officer de facto is one whose acts, though not those of a lawful officer, the law, upon principles of policy and justice, will hold valid so far as they involve the interests of the public and third persons, where the duties of the office were exercised:

    First, without a known appointment or election, but under such circumstances of reputation or acquiescence as were calculated to induce people, without inquiry, to submit to or invoke his action, supposing him to be the officer he assumed to be;”

  5. Fraud Guy- Also

    As far as I am concerned, as a technical matter, this ruling is correct, though problematic at the same time.

    Recess appointments are an end run around the “advise and consent” requirement of the Senate. However, this constitutional provision presumes a functional Senate body, which we haven’t seen in a long time. Neither party is accepting of its fundamental responsibility to approve the empanelling of a government administration when the other party controls the white house. Recess appointments are part of the cycle of dysfunctionality, where senators can get away with pure obstructionism on appointments knowing that it won’t cause chaos because the president can keep the lights on using recess appointments.

    The much greater constitutional crisis we are now heading for is the result of the sudden talk among Republicans of changing state law allocating presidential electoral college electors, but only in swing states where it would benefit them. If this happens and survives court challenge, this could put us on the path of actual civil war, in my opinion. It would give the Republican Party the chance to elect presidents while losing the popular votes by upwards of five percentage points and would totally de-legitimize our government in the eyes of many citizens.

  6. LucyLulu

    Per the blogs I read, I think you’re writing this one off too soon as well. Apparently, Sentelle, the senior judge on the court, is a whack job, and retiring in about a week or so. Griffith dissented on the part about the vacancy having to arise during a recess, brought it up several times. The Administration has the option of bringing the case before the full court, usually 11 judges, but there are currently 3 vacancies (not counting Sentelle). Three are Clinton appointees, four are Bush appointees (jr/sr), Sentelle was Reagan. Consensus is a full court verdict would be hard to call but more likely would go to Obama. One of the Republican appointees is very pro-executive powers and has eyes on SCOTUS. It was even speculated that Griffith might change his decision. Sentelle was rumored by the same person to have likely rigged the court to get this outcome as his final parting legacy.

    The defacto officer doctrine may well provide a solution at least retroactively. It seems it would at minimum bar any relief from those who have not already filed complaints. There is a similar doctrine, “presumption of regularity”, that was speculated as potentially applying in a similar manner to the defacto doctrine.

    If Obama decides to skip the full panel review (or if he loses), he has the right to demand SCOTUS hear the case, for a couple different reasons. One was due to the conflicting rulings in different appellate circuits, the other was something about it being a matter of administrative law, sorry, can’t remember a more precise explanation. Either or both may also be privileges that can only be invoked by the President, again, sorry, my memory is a little fuzzy on this part.

    I disagree about this not being a partisan decision. Recess appointments have been made since at least the 1800′s. From what I can tell, the only relatively new element is somebody gavelling in the Senate for 45 seconds every 3-4 days and calling that “in session”. But then the 11 Ct court ruled the opposite way on that and held up the recess appointments when Bush Jr was president. At least Obama has the basis to argue that he had a reasonable expectation that the appointments were valid, which may be relevant as to holding any official acts by appointees as non-voidable.

      1. LucyLulu

        Yep, heard that about Scalia too, lol. The point was that the former whackjob was retiring next week and had put together the three member panel with the odds of an adverse ruling in mind. Hopefully he’ll stay busy at the old folks home in FL playing shuffleboard if Obama pursues an “en banc” ruling. And guess who Reagan replaced with Sentelle on the D.C. Court of Appeals? Scalia. It must be karma!

  7. elboku

    The bigger problem here is that if this ruling is upheld, it has the potential to call into question every recess appointment made and the rules/decisions promulgated by any appointee. To say this would create chaos would be the understatement of the year. Think of how many judges have been recess appointed. Each and every one of their rulings could be called into question. This is a classic case of be careful about what you wish for- ya jes’ might git it!

    1. LucyLulu

      From the arguments I heard, any objections to decisions made by appointees who are called into question must be raised before the appointment is invalidated…… per the defacto officer doctrine or the presumption of regularity, assuming one or both apply.

      “(a) Presumption of regularity . This is expressed by the Latin maxim: Omnia praesumuntur rite esse acta [All acts are presumed to have been done rightly]. The presumption of regularity applies to acts of an official or judicial character. For example, in Berryman v Wise , it was held that an attorney need not prove by his certificate or by a roll of attorneys that he was an attorney. Proof that he acted as such was held sufficient. Again, in R v Roberts it was held that the presumption applied to a deputy judge of county court and in Dillon v R that it applied to a policeman.”

      http://www.insitelawmagazine.com/evidencech4.htm

    2. LucyLulu

      In addition, in Michel v. United States, 2012 WL 102000, W.D.Va. 2012:

      “Part of the basis for his motion is that he doesn’t speak English and that the interpreter who translated the trial proceedings for his benefit failed to communicate to his trial counsel that he had voiced an intent to exercise his Fifth Amendment right to testify. How difficult will it be for the defendant to prove that the interpreter acted improperly? According to the recent opinion of the United States District Court for the Western District of Virginia…… the answer is “pretty difficult.”

      In Michel, the facts were as stated above, with Adelson Michel claiming that his Haitian Creole interpreter failed to communicate his intent to exercise his Fifth Amendment right to testify to his trial attorney. In addressing this argument, the Western DIstrict of Virginia initially noted that

      A number of state courts have recognized that “[t]here is a rebuttable presumption that an interpreter in the course of performing his official duty has acted regularly.”…Furthermore, a limited number of federal courts have likewise recognized that, “upon a collateral attack, an…interpreter is cloaked with the presumption of regularity, which ‘allows a court to assume that an official or person acting under oath of office will not do anything contrary to his or her official duty.’”

      Moreover, the court found that

      even without this supporting authority, a presumption of propriety should accompany a court interpreter in the performance of his or her official duties. The law recognizes many presumptions that place the onus to adduce rebuttal evidence on the party attacking the presumption….”

      http://lawprofessors.typepad.com/evidenceprof/2012/04/assume-that-a-defendant-is-charged-in-atwenty-nine-count-indictment-stemming-from-a-crack-cocaine-conspiracy-and-assume-that.html

  8. Mary

    “Apparently, Sentelle, the senior judge on the court, is a whack job…..”

    Now THERE’S some fact-based, logical thought. (snort)

    Didn’t read any further. Not worth the effort.

    1. LucyLulu

      Don’t care, its your perogative to act grumpy. I threw out some interesting well-argued points though…….and neither the arguments (unfortunately) nor the characterizations were my own.

      1. Mary

        You’re certainly welcome to say “Don’t care…”

        But I advise you that “Whack job” and such terms diminish your credibility on issues. Most readers skip a post using such a term, and pass on by, any future posts by same posters.

  9. GDC707

    My experience has taught me that our society is shot through with ‘whack jobs’ and it is good to be aware of their existence and prior behavior when plotting a future course.
    Presumably the administration is aware of this judge’s kooky behavior and will plan accordingly, unless, of course it actually is relieved at the court’s decision. Obama and company never seemed to be on board with the CFPB in the 1st place and O has shown scant interest in vigorous leadership unless it was in the service of the 1%. We’ll see.

    Thank you for the comment, Lucylu

    1. Mary

      My experience has taught me that our society is shot through with “whack jobs” on both sides of the political spectrum, but that those who use the term “whack job” do so, only to belittle those on the side with which they disagree.

      Focus for them, is for belittling the person, rather than discussing the issues, with very little willingness to openly discuss the “whack jobs” on their own tribal team.

      It’s very adolescent. And boorish.

      1. LucyLulu

        “My experience has taught me that our society is shot through with “whack jobs” on both sides of the political spectrum”

        Pot, meet kettle.

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