Seila Law v. Consumer Financial Protection Bureau

Seila Law LLC v. Consumer Financial Protection Bureau, 591 U.S. ____ (2020) was a U.S. Supreme Court case which determined that the structure of the Consumer Financial Protection Bureau (CFPB), with a single director who could only be removed from office "for cause", violates the separation of powers. The Court's 5–4 decision, issued on June 29, 2020, recognized that the directorship position was severable from the statute that established the CFPB, allowing the CFPB to continue to operate.

Seila Law LLC v. Consumer Financial Protection Bureau
Argued March 3, 2020
Decided June 29, 2020
Full case nameSeila Law LLC v. Consumer Financial Protection Bureau
Docket no.19-7
Citations591 U.S. ___ (more)
140 S. Ct. 2183
ArgumentOral argument
Case history
PriorConsumer Financial Protection Bureau v. Seila Law LLC, 923 F.3d 680 (9th Cir. 2019), affirming Consumer Financial Protection Bureau v. Seila Law LLC, No. 8:17-cv-01081-JLS-JEM, 2017 WL 6536586 (C.D. Cal. 2017)
Holding
The CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance violates the separation of powers.
Court membership
Chief Justice
John Roberts
Associate Justices
Clarence Thomas · Ruth Bader Ginsburg
Stephen Breyer · Samuel Alito
Sonia Sotomayor · Elena Kagan
Neil Gorsuch · Brett Kavanaugh
Case opinions
MajorityRoberts, joined by Alito, Kavanaugh; Thomas & Gorsuch (all but part IV)
Concur/dissentThomas, joined by Gorsuch
Concur/dissentKagan, joined by Ginsburg, Breyer, Sotomayor
Laws applied
U.S. Const., Art. II, §2, cl. 2
Dodd-Frank Act

Background

The CFPB was envisioned by Elizabeth Warren while she was a law professor at Harvard Law School, it was brought into being through the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act.

The CFPB was designed to protect consumers and promote regulations to prevent similar events such as the Great Recession that ran from 2007 to 2009.[1] To be able to promote these regulations, it was determined that agency needed to be independent, and thus it was established to have a single Director, selected by the President with confirmation by the Senate, appointed to a five-year term, and who could only be removed for "malfeasance, inefficiency or neglect of duty", as set by 12 U.S.C. § 5491(c)(3).[1] Since its establishing, the CFPB has actively gone after banks and other financial service providers that have determined to be "bad actors". Notably, the CFPB was a major player in the Wells Fargo account fraud scandal.[1]

The CFPB was established under President Barack Obama and the Democratic-led Congress, and had been seen as a bane by the Republican Party as a sign of government overreach. In the years after it was established, the Republicans gained control of the Senate, and Donald Trump became President in 2017, putting the CFPB under scrutiny. Businesses that also shared this dismissive view of the CFPB began to file lawsuits to try to challenge the agency's legality.[2]

These lawsuits focused on the for-cause termination statute around the CFPB's directorship position. For-cause removal of agency executives presents a prima facie challenge to the separation of powers, because it places a limit—imposed by Congress, a co-equal branch of government—on the President's Article II authority over executive branch officials. Accordingly, the constitutionality of the CFPB's organizational structure has been subject to extensive litigation.[3] Most courts that have considered the question have found that for-cause removal of the CFPB Director is constitutional.[4]

The Supreme Court has previously held that for-cause removal is constitutional in Humphrey's Executor v. United States (Humphrey's Executor) and Morrison v. Olson (Morrison), at least where the agency in question exercises "quasi-legislative" or "quasi-judicial" functions. However, the Court reached the opposite conclusion in Free Enterprise Fund v. Public Company Accounting Oversight Board, a case in which officers of the Public Company Accounting Oversight Board had two levels of protection against presidential removal.

Facts and procedural history

Seila Law LLC (Seila Law), a law firm that provided debt relief services, was under investigation by the CFPB. As part of its investigation, the CFPB issued a civil investigative demand (CID) to Seila Law, which required Seila Law to produce certain documents. Seila Law declined to comply with the CID and challenged the constitutionality of the CFPB. The CFPB brought a motion to enforce the CID to the United States District Court for the Central District of California, where District Judge Josephine Staton granted the motion after finding the CFPB was constitutionally structured.[5]

Seila Law's appeal to the Ninth Circuit was dismissed. The 9th Circuit panel affirmed the District Court's ruling, and agreed that the Supreme Court's prior decisions upholding for-cause removal in Humphrey's Executor and Morrison were "controlling."[6] It also referred approvingly to the en banc decision of the DC Circuit in PHH Corp. v. CFPB (2018), in which the Circuit found that the structure of the CFPB was constitutional.[7]

There was arguably a circuit split on the question presented in Seila Law. While the Ninth Circuit and DC Circuit had held that the CFPB's structure is constitutional, the Fifth Circuit in Collins v. Mnuchin (2018) held that the structure of the Federal Housing Finance Agency—another agency whose director can be removed only for cause—violated the separation of powers.[8]

Supreme Court

The Supreme Court granted certiorari in Seila Law on October 18, 2019, and heard oral argument on March 3, 2020.[9]

The Court issued its decision on June 29, 2020. The 5–4 decision ruled that the CFPB structure, with a sole director that could only be terminated for cause, was unconstitutional as it violated the separation of powers, vacating the lower court judgement and remanding the case for review. The Court recognized that the statutes around the director of the CFPB was severable from the rest statute establishing the agency, and thus "The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will."[10]

Chief Justice John Roberts wrote the majority opinion joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, and Brett Kavanaugh. Roberts wrote that the CFPB structure with a single point of leadership that could only be removed for cause "has no foothold in history or tradition", and has only used in four other instances: three current uses for the United States Office of Special Counsel, the Social Security Administration, and the Federal Housing Finance Agency, and temporarily for one year during the American Civil War for the Office of the Comptroller of the Currency.[10] Roberts wrote that the three current uses "these examples are modern and contested; and they do not involve regulatory or enforcement authority comparable to that exercised by the CFPB."[10] Roberts also wrote that the CFPB structure "is also incompatible with the structure of the Constitution, which — with the sole exception of the Presidency — scrupulously avoids concentrating power in the hands of any single individual."[10] Roberts referred back to the precedent established by Humphrey's Executor and Morrison as a basis for the majority's decision.[11]

Thomas wrote a partial concurrence joined by Gorsuch, adding that he believed that Humphrey's Executor should be overturned and all "for cause" terminations positions should be considered unconstitutional. Thomas also wrote that he believed there was no need to resolve the severability matter for the specific case at hand.[11]

Justice Elena Kagan wrote the dissent joined by Justices Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor. Kagan wrote that "Today's decision wipes out a feature of that agency its creators thought fundamental to its mission — a measure of independence from political pressure."[10] Kagan challenged the separation of powers argument presented by the majority: "Nowhere does the text [of the Constitution] say anything about the President's power to remove subordinate officials at will."[10] The dissenting Justices did concur on the matter of severability of the remaining structure of the CFPB outside of the director.

Commentary

An alert published by Holland & Knight noted that the litigation posture of Seila Law is unusual, as the CFPB has declined to defend the constitutionality of its own structure before the Supreme Court.[12]

Thomas A. Barnico, a professor at Boston College Law School, noted that the case raised federalism issues. In particular, he suggested that the CFPB's power to pre-empt state legislation presents special concerns regarding accountability for its leadership.[13][14]

Impact

Subsequent to the Seila Law decision, the Supreme Court certified the petition to the Fifth Circuit decision on Collins v. Mnuchin related to the Federal Housing Finance Agency that had been established with the same single-administrator position, dismissable only for cause, as the CFPB. The case was scheduled to be heard in the 2020 term.[15]

References

Sources
  • Consumer Financial Protection Bureau v. Seila Law LLC, 923 F.3d 680 (9th Cir. May 6, 2019). [Seila Law CA]

Notes
  1. Totenberg, Nina (June 29, 2020). "Supreme Court Gives President Power To Fire Key Independent Agency Chief". NPR. Retrieved June 29, 2020.
  2. Liptak, Adam (June 29, 2020). "Supreme Court Lifts Limits on Trump's Power to Fire Consumer Watchdog". The New York Times. Retrieved June 29, 2020.
  3. Garcia, Rebecca (2019). "Consumer News: Consumer Financial Protection Bureau Reverses Course". Loyola Consumer Law Review. 32 (1): 194 – via HeinOnline.
  4. Harvey, Hosea H. (2019). "Constitutionalizing Consumer Financial Protection: The Case for the Consumer Financial Protection Bureau". Minnesota Law Review. 103 (6): 2432–33 – via HeinOnline.
  5. Consumer Financial Protection Bureau v. Seila Law LLC, ___ F__ ___ (United States District Court for the Central District of California August 25, 2017).
  6. Consumer Financial Protection Bureau v. Seila Law LLC, 923 F.3d 680 (9th Cir. May 6, 2019).
  7. PHH Corp. v. Consumer Financial Protection Bureau, 881 F.3d 75 (D.C. Cir. January 31, 2018).
  8. Adler, Jonathan H. (2019-10-18). "Is the CFPB Unconstitutional? We'll Soon Find Out". The Volokh Conspiracy. Retrieved 2020-06-20.
  9. "Case File: Seila Law LLC v. Consumer Financial Protection Bureau". SCOTUSblog. Retrieved 2020-06-20.
  10. Mangan, Dan; Higgens, Tucker (June 29, 2020). "Supreme Court leaves consumer regulator standing but backs president's ability to fire director". CNBC. Retrieved June 29, 2020.
  11. Adler, Jonathan (June 29, 2020). "With Chief in Charge, SCOTUS Strikes Down Louisiana Abortion Law and Eliminates CFPB Independence". Reason. Retrieved June 29, 2020.
  12. DiResta, Anthony E.; Haller, David L. (2020-03-20). "Supreme Court Wrestles with Constitutional Challenge to the CFPB". Holland & Knight.
  13. Barnico, Thomas E. (2020-04-13). "Seila Law LLC v. CFPB: "Humphrey's Pre-emptor"?". Notice & Comment (Yale Journal on Regulation).
  14. Brief for the Respondents, Seila Law v. CFPB, p. 7.
  15. "U.S. Supreme Court to Weigh Shareholder Suit Over Fannie Mae, Freddie Mac". Reuters. July 9, 2020. Retrieved July 9, 2020 – via U.S. News and World Report.
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