A panel of the Ninth Circuit recently rejected a challenge to the CFPB’s enforcement authority that was based on the improper recess-appointment of Richard Cordray as the CFPB’s initial Director.
President Obama appointed Cordray as the initial Director of the CFPB on January 4, 2012, relying on his recess-appointment power. The Supreme Court subsequently held that other appointments made on the same day and in similar fashion did not satisfy the requirements of the Appointment Clause, because the Senate was not in recess. Therefore, President Obama re-nominated Cordray as Director on January 24, 2013, and he was confirmed by the Senate on July 16, 2013. Cordray then issued a statement through the CFPB, saying “I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper. To avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period.”
The CFPB filed a civil enforcement action against the appellant, Chance Gordon, in July 2012, during the period Cordray was serving as a recess appointee. The CFPB alleged Gordon had violated the Consumer Financial Protection Act and Regulation O (12 C.F.R. §§ 1015.1–11). The district court ruled in favor of the CFPB on cross-motions for summary judgment, ordering $11.4 million in disgorgement and restitution. The district court did not address the argument that the CFPB lacked authority to bring the suit because its Director had been unconstitutionally appointed.
The Ninth Circuit panel first addressed sua sponte whether the CFPB had Article III standing to confer jurisdiction. The panel found that the improper appointment of the Director did not change the Executive Branch’s interest in enforcing federal law. The CFPB never abandoned the lawsuit against Gordon. Any issues with the authorization of an individual member of the CFPB could not divest the United States’ interest (through the Executive Branch) in bringing the action. Therefore, the CFPB had standing to bring the case.
Additionally, the improper and invalid appointment of Cordray was cured by the subsequent valid appointment and ratification of his previous actions. Since the CFPB had authority to bring the action at the time it was brought against Gordon, the subsequent ratification by Cordray resolved any Appointments Clause deficiencies, in accordance with general doctrine of a principle’s ratification of its agent’s actions.
The Ninth Circuit then affirmed the merits of the district court’s decision granting the CFPB summary judgment on liability, and remanded for the district court to review certain aspects of the damages. In addition, it found that the district court did not abuse its discretion in ordering injunctive relief.
In dissent, Judge Sandra S. Ikuta pointed out that the only way for a plaintiff to have Article III standing is to have executive authority. Executive power is vested in the President, who may delegate it to others in accordance with the Appointment Clause. Cordray was not properly appointed, so he did not have executive authority. Thus, at the time the civil enforcement action was filed, “no one had the executive power necessary to prosecute” it. Without any executive power, no one could claim Article III standing.
Judge Ikuta opined that even though this conclusion would likely apply to many other enforcement actions taken during the 18 months prior to Cordray’s proper confirmation by the Senate, district court should have dismissed the action. The Ninth Circuit panel similarly had a duty to dismiss for lack of Article III jurisdiction.
Weiner Brodsky Kider PC regularly represents clients throughout the United States in connection with CFPB enforcement actions.