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Paul Clement Provides Off-Ramp in CFPB High Court Arguments

March 2, 2020, 10:31 AM

If Chief Justice John Roberts is looking for a way to avoid ruling on the Consumer Financial Protection Bureau’s constitutionality, Paul Clement may have provided him with one.

Clement, the former solicitor general tapped by the Supreme Court to defend the CFPB’s constitutionality, is set to argue Tuesday that Seila Law LLC v. CFPB is the wrong case to test whether the bureau’s’ single-director leadership structure is sound.

Clement’s briefing papers question whether a CFPB civil investigative demand at the center of Seila Law’s challenge is the right kind of case to potentially overturn decades of Supreme Court precedent regarding leadership at independent federal agencies.

That could be an argument that resonates with Roberts, said Gretchen Sperry, the chair of Hinshaw & Culbertson LLP’ appellate practice.

Roberts and Clement “share a similar view in a lot of ways in their approach to cases,” she said.

Wrong Fight?

Seila Law says Dodd-Frank Act provisions that allow the president to fire the CFPB director only for cause violate the Constitution’s separation of powers clause. Republican lawmakers and the financial services industry have long complained that limits on the president’s power to fire the CFPB’s director—coupled with the agency’s independent funding— make it unaccountable to both the executive branch and Congress.

The U.S. Court of Appeals for the Ninth Circuit in May rejected Seila Law’s argument that the CFPB was unconstitutional, and allowed the bureau to enforce its civil subpoena against the California debt collection law firm. The Supreme Court agreed to hear the case in October.

Clement’s argument about the Seila Law case’s inappropriateness is two-fold.

He said that the CFPB’s structure and the president’s inability to fire the director at will have no bearing on the investigative demand the CFPB levied against Seila Law.

CFPB Director Kathleen Kraninger adopted the Trump administration’s position that she serves at the will of the president, and that the CFPB’s structure is unconstitutional. If the president had a problem with the investigative demand, he could have fired Kraninger, Clement argued in a January brief.

For Roberts, and potentially other more conservative justices, those may be powerful arguments, said Brianne Gorod, chief counsel at the Constitutional Accountability Center, a progressive group that filed a brief supporting the the CFPB’s constitutionality.

Former CFPB Director Richard Cordray isn’t convinced the Supreme Court would be take on a weighty question like the CFPB’s constitutionality only to look for a procedural off-ramp.

Cordray argued several cases before the Supreme Court as Ohio’s attorney general, and served as a clerk to Justices Byron White and Anthony Kennedy, overlapping with Justice Brett Kavanaugh in Kennedy’s chambers.

Pivotal Role

Roberts will again be the center of attention once questioning turns to the merits.

Seila Law is asking the Supreme Court to overturn decades of precedent upholding the structure of independent commissions since the 1935 Humphrey’s Executor v. U.S. decision.

The most recent ruling on the structure of an independent agency was the Free Enterprise Fund v. Public Company Accounting Oversight Board decision in 2009. In that case, the Supreme Court ruled that the for-cause removal provision for PCAOB members was unconstitutional because it only gave commissioners at the Securities and Exchange Commission the power to fire PCAOB members for cause, while blocking the president from doing so.

The Free Enterprise Fund upheld Humphrey’s Executor, and Roberts wrote the opinion.

“The fact that the court has so long upheld these for-cause removal provisions, I think the legitimacy of the court should be on his mind,” Gorod said.

The Trump administration argues that the CFPB is different from other independent agencies like the Federal Trade Commission, which have multiple members. The single director has more authority than even a commission chair, who has to get a majority of members for any policy or enforcement move.

The CFPB’s for-cause removal protections for its director, and the director’s five-year term, prevent presidents from having their priorities represented at the agency, said Andrew Pincus, a partner with Mayer Brown LLP’s appellate team.

“It’s hard to do that if you can’t have your people in the principal officer jobs,” said Pincus, who co-authored a brief challenging the CFPB’s constitutionality for the U.S. Chamber of Commerce.

Pincus said he expects the justices to ask a number of questions exploring the issue.

Three Options

The Seila Law case presents the Supreme Court with three different paths forward.

The Trump administration wants the CFPB declared unconstitutional, and the for-cause removal provision severed from its governing statute. That was Kavanaugh’s preferred fix when he ruled that the CFPB is unconstitutional in 2016, while sitting on the U.S. Court of Appeals for the D.C. Circuit. That ruling in PHH Corp. v. CFPB was later overturned in an en banc D.C. Circuit decision.

Seila Law wants the CFPB eliminated entirely, because of constitutional defects. Kavanaugh already rejected that idea in his D.C. Circuit opinion for fear of chaos.

Clement says the court should find that the CFPB is constitutional. The former solicitor general under President George W. Bush and current partner at Kirkland & Ellis will be have 20 minutes to present his arguments. The House of Representatives, which has filed briefs supporting the bureau’s constitutionality, will have 10 minutes.

Clement, Paul Weiss Rifkind Wharton & Garrison LLP partner Kannon Shanmugam, representing Seila Law, and the Trump administration will each have 20 minutes to present their arguments.

The CFPB is likely to survive in one form or another once the dust settles, according to its former chief Cordray.

“It’s prohibitively unlikely” that the Supreme Court would invalidate the entire agency, Cordray said.

The case is Seila Law LLC v. Consumer Financial Protection Bureau, U.S., 19-7, Oral Arguments 3/3/20

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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