State Nat'l Bank of Big Spring v. Lew

• Decision Date: 12 July 2016
• Docket Number: Civil Action No. 12-1032 (ESH)
• Citation: 197 F.Supp.3d 177
• Parties: STATE NATIONAL BANK OF BIG SPRING, et al., Plaintiffs, v. Jacob J. LEW, et al., Defendants.
• Court: U.S. District Court — District of Columbia

197 F.Supp.3d 177

STATE NATIONAL BANK OF BIG SPRING, et al., Plaintiffs,

v.Jacob J. LEW, et al., Defendants.

Civil Action No. 12-1032 (ESH)

United States District Court, District of Columbia.

Signed July 12, 2016

Gregory Frederick Jacob, O'Melveny & Myers LLP, Washington, DC, Alan McCrory Wilson, James Emory Smith, Jr., Office of the Attorney General, Columbia, SC, Edward Scott Pruitt, Patrick R. Wyrick, Attorney General of Oklahoma, Oklahoma City, OK, for Plaintiffs.

Justin Michael Sandberg, Bradley Heath Cohen, Matthew Joseph Berns, U.S. Department of Justice, Ethan Price Davis, King & Spalding LLP, Jonathan Gordon Cooper, Quinn Emanuel Urquhart & Sullivan LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, United States District Judge

Plaintiffs filed this suit in 2012 to challenge the constitutionality of the Consumer Financial Protection Bureau ("CFPB"), which was created as part of the Dodd-Frank Act. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, 124 Stat. 1376 (2010). They also allege that the recess appointment of CFPB Director Richard Cordray was unconstitutional and seek an injunction that would prevent him from taking any further action in that role. After this Court dismissed the lawsuit on standing and ripeness grounds, State Nat. Bank of Big Spring v. Lew , 958 F.Supp.2d 127, 166 (D.D.C.2013), the Court of Appeals reversed in part. See State Nat. Bank of Big Spring v. Lew , 795 F.3d 48, 57 (D.C.Cir.2015). It held that State National Bank of Big Spring ("SNB") had standing to challenge (1) the constitutionality of the CFPB's structure, and (2) Director Cordray's recess appointment. See id. at 54. Upon remand, the parties filed cross-motions for summary judgment. (See Pls.' Mot. for Summ. J. [ECF No. 53-1] ); Defs.' Cross-Mot. for Summ. J. [ECF No. 59-1].)

At this time, the Court will defer ruling on plaintiffs' attack on the CFPB on separation-of-powers grounds. This same constitutional challenge was made to the D.C. Circuit in a recently argued case. See Pet'rs' Statement of Issues, PHH Corp. v. Consumer Fin. Prot. Bureau , Case No. 15–1177 (D.C. Cir. July 24, 2015) (raising the question of "[w]hether the unprecedented structural features of the CFPB, which combine legislative, executive, and judicial power in the hands of a single individual, violate the separation of powers"). Plaintiffs in this case filed an amicus brief in support of petitioners, making largely the same arguments that they make here. See generally Br. of State National Bank of Big Spring, The 60 Plus Association, Inc.; and Competitive Enterprise Institute, PHH Corp. v. Consumer Fin. Prot. Bureau , Case No. 15–1177 (D.C. Cir. Oct. 5, 2015). Given the likelihood that this issue will soon be decided by the Circuit, this Court will hold this matter in abeyance until the Court of Appeals rules in PHH Corp . See, e.g. , Al Qosi v. Bush , 2004 WL 4797470, at *1 (D.D.C. Dec. 17, 2004) (holding further proceedings in abeyance pending resolution of the same issues in a case already before the D.C. Circuit).

It will, however, address the merits of plaintiffs' challenge to the recess appointment of Director Cordray. To do this, it will limit its background discussion to information that is relevant only to that issue.

BACKGROUND

On July 18, 2011, President Obama first nominated Richard Cordray to serve as CFPB Director. (See Defs.' Resp. to Pls.' Statement of Material Facts Not in Dispute ("Defs.' Resp.") [ECF No. 59-2] ¶ 18.) When the Senate took no action on that nomination, the President then appointed him to the position on January 4, 2012, invoking his authority under the Recess Appointments Clause. (See id. ¶ 19.) That same day, the President also invoked his Recess Appointment authority to appoint three members to the National Labor Relations Board ("NLRB"). (See id. ¶ 21.) The Supreme Court subsequently found in National Labor Relations Board v. Noel Canning , ––– U.S. ––––, 134 S.Ct. 2550, 2578, 189 L.Ed.2d 538 (2014), that these NLRB appointments were made in violation of the Recess Appointments Clause.

As a recess appointee, Cordray exercised final decision-making authority concerning several CFPB rulemakings. (See Defs.' Resp. ¶ 27; Electronic Fund Transfers (Regulation E), 77 Fed. Reg. 6,193 (Feb. 7, 2012); 77 Fed. Reg. 50,243 (Aug. 20, 2012); 78 Fed. Reg. 30,661 (May 22, 2013); Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z), 77 Fed. Reg. 51,115 (Aug. 23, 2012);¹ Escrow Requirements Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 4,725 (Jan. 22, 2013); Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 6,407 (Jan. 30, 2013); Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. 10,695 (Feb. 14, 2013).

On January 24, 2013, President Obama re-nominated Cordray to serve as CFPB Director, and the Senate confirmed his nomination on July 16, 2013. (Defs.' Resp. ¶ 26.) The following month, Director Cordray published a Notice of Ratification in the Federal Register, which read as follows:

The President appointed me as Director of the Bureau of Consumer Financial Protection on January 4, 2012, pursuant to his authority under the Recess Appointments Clause, U.S. Const. art. II, § 2, cl. 3. The President subsequently appointed me as Director on July 17, 2013, following confirmation by the Senate, pursuant to the Appointments Clause, U.S. Const. art. II, § 2, cl. 2. 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.

Notice of Ratification, 78 Fed. Reg. 53,734, 53,734 (Aug. 30, 2013).

The primary point of contention between the parties is what legal effect, if any, this purported ratification has.

ANALYSIS

I. RECESS APPOINTMENT

After finding that plaintiffs had standing to challenge Director Cordray's recess appointment as unconstitutional, the Court of Appeals left it to this Court "to consider the significance of Director Cordray's later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment." State Nat. Bank of Big Spring , 795 F.3d at 54. Defendants now argue that the confirmation and subsequent ratification is fatal to plaintiffs' recess appointment challenge for three reasons.

A. Mootness

At the time the Second Amended Complaint was filed, Director Cordray had not yet been confirmed by the Senate, and thus, plaintiffs challenged his authority to take any action as head of the Bureau. (See Second Am. Compl. [ECF No. 24] ¶ 257 (filed Feb. 19, 2013).) They now acknowledge that his subsequent confirmation moots much of their claim for injunctive relief: "To be sure, plaintiffs do not dispute that subsequent to his confirmation, Cordray could (subject to plaintiffs' separation of powers challenge) properly exercise those authorities that are lawfully vested in him as Director of the CFPB." (See Pls.' Reply Br. [ECF No. 62] at 33.) However, they argue that even if they are not entitled to all of the relief they initially requested, the dispute remains live because the Court can still enjoin the enforcement of regulations that were promulgated prior to his confirmation. (See id. ; see also Pls.' Mot. for Summ. J. at 6 (identifying the five regulations issued prior to confirmation "that most directly impact SNB").) Defendants respond that this reframing of the requested relief amounts to a constructive amendment of plaintiffs' complaint and should thus be disallowed. (See Defs.' Cross-Mot. for Summ. J. at 33-34.)

Even if certain remedies have been foreclosed during the course of litigation, the availability of partial relief prevents the case from becoming moot. See Church of Scientology of Cal. v. United States , 506 U.S. 9, 13, 113 S.Ct. 447, 121 L.Ed.2d 313 (1992). Therefore, defendants' mootness argument can only succeed if none of the relief sought remains available in the wake of Director Cordray's confirmation. See id. As discussed, plaintiffs initially sought to enjoin Cordray from "carrying out any of the powers" of his office (Second Am. Compl. ¶ 257), and they continue to seek an injunction against the enforcement of rules promulgated prior to his confirmation. The Court agrees with plaintiffs that the broad request for relief in their complaint encompasses the more limited relief that could still be granted, i.e. , enjoining Director Cordray from carrying out some of the powers of his office. (See Pls.' Reply Br. at 32.) Defendants' argument that "[t]here is no overlap between the injunction originally requested and SNB's present characterization of it" (Defs.' Reply Br. [ECF No. 64] at 20) is not persuasive. For the same reason, there is no support for defendants' argument that the reframed request for relief is not properly before the Court. (See id. at 20–21.) As discussed, the limited relief still potentially available to plaintiffs was sought in their Second Amended Complaint.

B. Standing

Defendants next argue that plaintiffs have not demonstrated standing to challenge most of the regulations they seek to invalidate. (See Defs.' Cross-Mot. for Summ. J. at 35-40.) This both misapprehends the thrust of plaintiffs' claim and flies in the face of the Court of Appeals' decision. First, plaintiffs are not seeking to directly "invalidate" any regulations, as if this were a run-of-the-mill APA challenge. (See Pls.' Reply Br. at 34-35.) Instead, they are seeking a declaration that Director Cordray's recess appointment was unconstitutional, and consequently, an injunction preventing the enforcement of any rules that were issued while he was a recess appointee. (See id. ; see also Second Am. Compl. ¶ 257.) Defendants...