Banking and Finance Law Daily Seila Law files reply brief in CFPB litigation
Thursday, May 10, 2018

Seila Law files reply brief in CFPB litigation

By Nicole D. Prysby, J.D.

Seila Law, LLC has submitted a reply brief in its appeal before the U.S. Court of Appeals for the Ninth Circuit, in connection with litigation involving the Consumer Financial Protection Bureau. As previously reported, Seila Law asked the appellate court to overturn a U.S. district judge’s order requiring the law firm to comply with a civil investigative demand issued by the CFPB for information regarding the firm’s debt-relief services (Seila Law, LLC v. Consumer Financial Protection Bureau, Docket No. 17-56324).

In its initial brief, Seila Law argued that the CFPB’s structure violates the Constitution, and, as a structurally unconstitutional agency, it cannot enforce a CID. It cited the decision of a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit that the CFPB’s organization infringed on the President’s power to ensure that federal law is faithfully executed and violated "separation of powers" principles. In its response, the CFPB noted that subsequent events have undercut that argument. In January 2018, the D. C. Circuit’s full panel determined that the Bureau’s structure does not violate the Constitution, rejecting the concerns of the earlier three-judge panel. In addition, the President appointed Mick Mulvaney as Acting Director of the CFPB, and he has chosen to ratify earlier CFPB decisions to issue the CID. As a result, the head of the Bureau, who is removable by the President at will, has authorized the investigation (see Banking and Finance Law Daily, March 22, 2018).

In its May 9, 2018, reply brief, Seila Law argued against the CFPB’s mootness argument, reasserted its argument that the CFPB’s structure violates Article II, and asserted that, regardless, the CID is unenforceable. Seila Law stated that there is no evidence that Acting Director Mulvaney ratified the CID. For example, there was no declaration filed in which he testified that he ratified the decision to issue the CID. In fact, Mulvaney’s public statements regarding his belief that the CFPB has a lack of accountability establish that he sides with Seila Law on the issue. Even if he had ratified the issuance of the CID, Seila Law asserts that a ratification cannot cure the unconstitutional structure of the CFPB. And once Acting Director Mulvaney’s term expires, the CFPB will once again be led by a principal officer removable only for cause. Therefore, the issue is not mooted because the separation-of-powers violation is capable of repetition and yet evading review.

Seila Law also asserted that the CFPB had waived any argument that the narrow exceptions to the President’s removal power should be applied to the CFPB, because the Bureau did not specifically make that argument in its brief. Even assuming the CFPB had not waived the argument, while the U.S. Supreme Court has yet to decide the constitutionality of an agency with a structure such as the CFPB’s, existing precedent supports its invalidation, as the CFPB does not fit into the limited exceptions to the general rule that removal is incident to the power of appointment of Article II—those exceptions being a multi-member body of experts with limited executive duties and certain inferior officers with limited tenure and a narrow scope of powers.

Finally, Seila Law asserted that the CID is unenforceable because the CFPB lacks the authority to exercise enforcement authority with respect to activities engaged in by a lawyer as part of the practice of law. Because the CFPB seeks information about a law firm and its relationships with its client, the CID has no lawful purpose.

Attorneys: Thomas H. Bienert, Jr. and Anthony Bisconti (Bienert, Miller & Katzman, PLC) for Seila Law, LLC.

Companies: Seila Law, LLC

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