Business & Practice

Law Firm Adds Appellate Heavyweight in CFPB Leadership Fight

June 10, 2019, 3:15 PM

A California debt collection law firm has hired one of the appellate bar’s biggest names to handle its Supreme Court challenge of the Consumer Financial Protection Bureau’s constitutionality.

Kannon Shanmugam of Paul Weiss Rifkind Wharton & Garrison LLP will lead Seila Law LLC’s case at the Supreme Court level, according to court filings June 7. Shanmugam declined to comment on June 10.

Seila Law LLC on June 7 asked the U.S. Court of Appeals for the Ninth Circuit to stay a civil investigative demand the CFPB wants to enforce after the appellate panel ruled the bureau’s single-director leadership structure is constitutional. Seila Law asked for the stay because it “plans to file a petition for certiorari presenting the exceptionally important question whether the CFPB’s structure violates the constitutional separation of powers,” according to the firm’s motion.

The CFPB opposes Seila Law’s proposal for a stay on the civil investigative demand, which are the equivalent of subpoenas.

Challenges Afoot

Industry critics of the CFPB and Republican lawmakers have complained that the CFPB’s single director leadership structure that only allows the president to fire the director for cause is unconstitutional since the bureau’s inception.

Two appellate courts have found that the structure is constitutional.

An en banc ruling of U.S. Court of Appeals for the D.C. Circuit in 2018 said that the CFPB’s structure was constitutional, overturning an earlier panel decision in that circuit written by now Supreme Court Justice Brett Kavanaugh.

Kavanaugh ruled that the CFPB’s structure was unconstitutional, and proposed fixing that by making the bureau’s director fireable at will by the president.

The Ninth Circuit on May 6 made a similar ruling, citing the en banc D.C. Circuit majority opinion.

Another case challenging the CFPB’s constitutionality is pending before the U.S. Court of Appeals for the Fifth Circuit. The U.S. Court of Appeals for the Second Circuit is also hearing a CFPB appeal of a district court judge’s ruling that its leadership structure was unconstitutional, and that there was no way to fix it.

Tough Choice

The CFPB constitutionality question may not reach the Supreme Court until there is a circuit split. The Supreme Court has previously denied a cert petition filed by the State National Bank of Big Spring, Texas, which sought review of an earlier D.C. Circuit opinion finding the CFPB’s structure constitutional.

But Seila Law said in its June 7 filing that the Supreme Court should not wait for that split to occur.

The Trump administration supports the challenges to the CFPB’s constitutionality and has cited the Seila Law case as a good potential vehicle for the Supreme Court to take on the question, according to the firm’s motion.

Seila Law says it faces the potentiality of providing information to the CFPB that could lead to an enforcement action even as it litigates whether the bureau should exist in its current form.

Because of that, a “short additional stay” of the civil investigative demand while the Supreme Court weighs taking up its case was in order, the firm said.

Consumer Financial Protection Bureau v. Seila Law LLC, 9th Cir., 17-56324, Motion by Appellant for Stay of the Mandate 6/7/19

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

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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