Banking and Finance Law Daily Big Spring Bank wants ride on PHH Corp. coattails
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Friday, January 6, 2017

Big Spring Bank wants ride on PHH Corp. coattails

By Richard A. Roth, J.D.

A bank challenging the constitutionality of the Consumer Financial Protection Bureau’s single director structure has taken the unusual step of asking for a summary judgment against one aspect of its case. According to a motion for a status conference filed by State National Bank of Big Spring, a summary judgment by the U.S. District Court for the District of Columbia that the CFPB’s single-director structure does not violate constitutional separation of powers principles could allow the bank’s four-year-old suit to be appealed to the U.S. Court of Appeals for the District of Columbia Circuit and consolidated with PHH Corp. v. CFPB, which raises the same issue.

The bank filed a suit in 2012 that broadly challenges the CFPB’s creation and the director’s powers. The suit already has reached the D.C. Circuit once, when the appellate court decided that the bank had standing to maintain its challenge against both the bureau’s structure and Director Richard Cordray’s recess appointment (see State National Bank of Big Spring v. Lew, discussed at Banking and Finance Law Daily, July 24, 2015). The district court judge has since decided that Cordray effectively ratified actions taken under the invalid recess appointment after he was confirmed as director by the Senate (see State National Bank of Big Spring v. Lew, discussed at Banking and Finance Law Daily, July 14, 2016).

Consolidated consideration. A three-judge panel of the D.C. Circuit recently decided, by a two-to-one vote, that the Constitution does not permit the CFPB to exist as an independent agency with a single director. However, the remedy decided upon was to treat the bureau as an executive agency whose director was subject to being dismissed at the president’s pleasure (see PHH Corp. v. CFPB, discussed at Banking and Finance Law Daily, Oct. 11, 2016). This separation of powers issue is one aspect of the bank’s case as well.

The CFPB has asked the D.C. Circuit for a full-court rehearing of the panel’s PHH Corp. decision. If that request is granted, the panel decision will be vacated. According to the bank’s status conference request, a quick summary judgment against its separation of powers attack would allow it to ask the appellate court to accept an appeal of the issue immediately. The bank’s suit then could be consolidated with PHH Corp.’s suit, and the separation of powers issue could be handled efficiently in a single decision.

The bank’s concern is that in the absence of a consolidated appeal, the appellate court could grant the en banc rehearing and then decide PHH Corp.’s case on grounds that would not include separation of powers. This would leave the separation of powers issue to be decided in the bank’s suit, first by the district court and then later by the appellate court. Consolidating the two suits would save time and effort, the bank says.

The government does not object to the bank’s request for a status conference, but the bank’s motion notes that the government does not agree with the plan to consolidate the cases. The district court judge has scheduled the conference for Jan. 17, 2017, and directed the government to outline its position by Jan. 11, 2017.

Attorneys: Gregory Frederick Jacob (O'Melveny & Myers LLP) for State National Bank of Big Spring. Justin Michael Sandberg, U.S. Department of Justice, for Secretary of the Treasury Jacob J. Lew.

Companies: PHH Corporation; State National Bank of Big Spring

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