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Fleeting Glimpse of RESPA Issues in PHH Argument as Court Focuses on Bureau Constitutionality

Although the RESPA issues were addressed in the briefs filed by the parties in the PHH case, at oral argument this week the parties and the en banc D.C. Circuit focused heavily on whether the president’s authority is unconstitutionally limited by the broad powers of the Consumer Financial Protection Bureau (“Bureau”) and the fact that the president may remove the Bureau’s single director only “for cause.” PHH is the first contested Bureau enforcement action to go through an administrative trial, appeal within the Bureau, and now full federal court review.  Members of the real estate settlement services industry have spent the past two years hoping that the D.C. Circuit in PHH will reject the Bureau’s controversial RESPA interpretations to confirm that the anti-kickback provision in Section 8(a) of RESPA is subject to a statutory exemption in Section 8(c)(2).  Yet RESPA was barely mentioned during this week’s oral argument, with the judges directing most of their questions to the constitutionality question.  Nevertheless, sometimes that which is unsaid is significant.

Tellingly, counsel for the Bureau seemed perfectly content to let the entire argument proceed without uttering a single word about the Bureau’s disagreement with the 2016 panel decision in the case, which held that the Bureau’s interpretation of RESPA and the Section 8(c)(2) exemption was flat wrong.

Indeed, it was only toward the end of lengthy arguments on the constitutional issues that Judge Randolph (a member of the original panel in PHH) briefly inquired as to whether the agency still maintains that there is no statute of limitations for an enforcement action that the Bureau chooses to pursue as an administrative proceeding.  Bureau counsel responded somewhat meekly that the agency’s position on this issue has evolved, with the Bureau now acknowledging that in most cases—at least those in which the Bureau seeks disgorgement, a civil penalty, or some other type of fine or forfeiture—the five-year limitations period under 12 U.S.C. § 2462 would apply.

Judge Pillard then asked counsel for the Bureau to explain how, before the director of the Bureau issued the PHH decision in 2015, members of industry had fair notice of what conduct is prohibited and what conduct is permissible under RESPA.  Bureau counsel pointed to the plain language of the statute itself, stating that Section 8(c)(2) of RESPA requires the provision goods, services, or facilities and a “bona fide” payment in exchange.  Bureau counsel argued that such a payment cannot be “bona fide” (and therefore is not exempt) if it is intended to compensate for referrals.  The authors of this article have previously criticized that position and the PHH three judge panel rejected the Bureau’s position as inconsistent with the RESPA statute (going so far as to characterize this holding as “not a close call.”).

On rebuttal during oral argument, counsel for PHH made an emphatic plea for the court to reinstate the panel’s 2016 RESPA holding, emphasizing industry’s need for the reasoning and certainty offered by the panel’s treatment of those RESPA issues.

Thus, even if the constitutional questions took center stage during this week’s oral argument, the RESPA and statute of limitation issues remain nicely teed up for the court.

What to Expect

Based on how oral argument went, it appears unlikely that the court will try to avoid the constitutional issues altogether.  Judge Henderson (also a member of the original panel in PHH) was not among the active questioners on the bench, and her dissent from the panel’s opinion, which suggested that the court need not decide the constitutional questions if it agrees to reverse the Director based on the RESPA interpretation, was not mentioned during argument.  Both parties (as well as the Department of Justice, on behalf of the president) have urged the court to rule on constitutionality.

The constitutional question is a close one and may well come down to whether the court views the Bureau as a new and unprecedented concentration of executive power in a federal agency.  However, even if the en banc court holds that the Bureau’s structure is unconstitutional, it seems unlikely that it will prescribe a remedy that is broader than that which the panel identified (i.e., striking the “for cause” provision).

In any event, the D.C. Circuit’s ruling on the constitutionality of the Bureau’s structure may not be the final word.   Even if the panel decision is reinstated in its entirety—and certainly if it is not reinstated—PHH may well seek review by the U.S. Supreme Court.  PHH has argued not only that the Bureau’s structure is unconstitutional but also that this deficiency cannot be remedied simply by making the Director’s position terminable at will.  Further, the Ninth Circuit Court of Appeals is poised to address this same Bureau constitutionality issue, which eventually could result in a conflict between circuits if the Ninth Circuit and the D.C. Circuit reach different results.

Finally, and perhaps most importantly, it seems likely that the full D.C. Circuit will reinstate the panel’s RESPA holding and discussion in PHH.  Certainly, there was little debate about them at oral argument this week, where the judges revealed no skepticism about the panel’s views on those issues, which lie at the heart of the case.

© 2020 Foley & Lardner LLPNational Law Review, Volume VII, Number 145


About this Author

Jay N. Varon, Foley Lardner, Antitrust Lawyer, Corporate Litigation Attorney

Jay N. Varon is a partner and litigation lawyer in the firm's Washington D.C. office. Mr. Varon has litigated a broad cross-section of commercial cases around the country, including antitrust and unfair competition, consumer finance and deceptive trade practice involving matters relating to the Real Estate Settlement Procedures Act of 1974 ("RESPA"), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act, ("FCRA"), Truth In Lending Act ("TILA"), "fair lending" and related federal and state unfair trade practice and consumer...

Jennifer Keas, Foley, Arbitration, Dispute Resolution Lawyer,

Jennifer M. Keas is senior counsel and a litigation lawyer with Foley & Lardner LLP and a member of the Consumer Financial Services, Business Litigation & Dispute Resolution and Distribution & Franchise Practices.

As a member of the Litigation Department, Ms. Keas has experience assisting Foley’s clients with a broad range of litigation, trial, and appellate matters, including:

Class action defense in matters pending before state and federal courts

Defense of claims filed under the Real Estate Settlement Procedures Act of 1974 (RESPA) and related federal and state unfair trade practice and consumer protection laws

Multidistrict settlement in a series of class action lawsuits in the consumer protection arena

Defense of claims filed under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)

Preparing briefs for matters before appellate courts in the Second, Fourth, and Sixth Circuits and an amicus brief in a RESPA case before the U.S. Supreme Court