Ninth Circuit Upholds CFPB in Action Against Attorney-Loan-Modifier

Steven D. Schwinn, John Marshall Law School

The Ninth Circuit ruled yesterday in CFPB v. Gordon that Consumer Financial Protection Bureau Chief Richard Cordray had authority and standing to bring an enforcement claim against Chance Gordon, a California attorney and putative provider of home loan modification services.

The ruling is a win for the hotly contested CFPB and Cordray's authority during the period after his recess appointment but before his Senate confirmation.

President Obama initially appointed Cordray by recess appointment on January 4, 2012--the same day that he appointed three individuals to the NLRB by recess appointment, an act that the Supreme Court ruled invalid in Noel Canning. President Obama later renominated Cordray, and he was confirmed by the Senate on July 16, 2013. A month and a half later, the CFPB issued a Notice of Ratification, ratifying all of Cordray's actions from January 4, 2012, through July 17, 2013.

The CFPB filed a civil enforcement action against Gordon in July 2012, apparently in this ratification period. Gordon moved to dismiss for lack of standing and for a violation of the Appointments Clause. A split panel of the Ninth Circuit rejected his claims.

The court ruled first that Cordray's appointment has nothing to do with Article III standing, because executive enforcement is independent of Article III. The court explained:

Here, Congress authorized the CFPB to bring actions in federal court to enforce certain consumer protection statutes and regulations. And with this authorization, the Executive Branch, through the CFPB, need not suffer a "particularized injury"--it is charged under Article II to enforce federal law. That its director was improperly appointed does not alter the Executive Branch's interest or power in having federal law enforced . . . . While the failure to have a properly confirmed director may raise Article II Appointments Clause issues, it does not implicate our Article III jurisdiction to hear this case.

Moreover, the court held that Cordray's ratification cures any Appointments Clause deficiencies that might otherwise destroy the CFPB's enforcement action against Gordon. In other words, Cordray ratified all his prior actions after his recess appointment but before his Senate confirmation, including the civil enforcement action against Gordon, and that solved any problems that he might have had for actions taken during that period.

Judge Ikuta dissented, arguing that because Cordray's recess appointment was invalid, "no one could claim the Executive's unique Article III standing. Because the plaintiff here lacked executive power and therefore lacked Article III standing, the district court was bound to dismiss the action."