February 27, 2020

February 27, 2020

Subscribe to Latest Legal News and Analysis

February 26, 2020

Subscribe to Latest Legal News and Analysis

February 25, 2020

Subscribe to Latest Legal News and Analysis

February 24, 2020

Subscribe to Latest Legal News and Analysis

Mulvaney Regulatory Freeze: TRO Denial

Yesterday afternoon, Judge Timothy Kelly of the D.C. federal district court denied Leandra English’s motion for a temporary restraining order (TRO) to prevent President Trump from appointing or recognizing the appointment of a CFPB Acting Director through any mechanism other than as provided in the Consumer Financial Protection Act  (CFPA).

By denying the TRO, Judge Kelly refused to block Mick Mulvaney, President Trump’s appointee as CFPB Acting Director, from exercising the authority of the Acting Director.  However, despite media reports to the contrary, Judge Kelly did not rule that Mr. Mulvaney lawfully holds the position of Acting Director nor did he block Ms. English from exercising the authority of the Acting Director.  He concluded only that Ms. English was not likely to succeed in her lawsuit, which is still ongoing.  Any final ruling will be subject to appeal to the U.S. Court of Appeals for the D. C. Circuit.  As a result, the potential for chaos at the CFPB remains.

At the TRO hearing, which a Ballard Spahr attorney attended, Deputy Assistant Attorney General Brett Shumate informed the court that Mr. Mulvaney had issued a “soft freeze” on regulatory action.  He also stated that while the CFPB would continue to enforce the law under Mr. Mulvaney, it might take “a different regulatory direction.”  (There has been no official announcement of the freeze yet by the CFPB.  However, according to media reports, in addition to placing a 30-day freeze on all regulatory action, Mr. Mulvaney has frozen hiring and payments into the civil penalty fund.)

Based on a memorandum issued by the DOJ’s Office of Legal Counsel (OLC), the White House takes the position that the President had the legal right to appoint Mr. Mulvaney Acting Director under the Federal Vacancies Reform Act (FVRA) provision that authorizes the President to temporarily fill an “executive agency” position requiring confirmation with someone serving in an acting capacity when the position becomes vacant because the person holding it “dies, resigns, or is otherwise unable to perform the functions and duties of the office.”  According to Ms. English, the President’s FVRA authority is superseded by the CFPA provision that states the Deputy Director “shall serve as Acting Director in the absence or unavailability of the Director.”

In his oral ruling on the TRO, Judge Kelly stated that the FVRA, on its face, appeared to apply in the present situation–a vacancy in the position of CFPB Director created by the Director’s resignation–and that Ms. English had not shown a likelihood that she would succeed on the merits of her claim that the CFPA supersedes the FVRA. Judge Kelly observed that although the CFPA provision specifically relates to the CFPB, the FVRA is more specific in that it explicitly refers to a “vacancy.”  (For reasons we have detailed in a prior blog, we think there are compelling reasons, including the absence of the word “vacancy,” why the phrase “absence or unavailability of the Director” in the CFPA provision does not cover the CFPB Director’s resignation.)  He also indicated that he did not find the use of the words “shall serve” in the CFPA provision persuasive nor was he swayed by Ms. English’s argument that the CFPA’s succession mechanism was necessary to protect the CFPB’s status as an “independent agency.”  In fact, Judge Kelly suggested constitutional separation of powers concerns might arise if the President was prevented from exercising his FVRA authority.

Judge Kelly also ruled that Ms. English had not satisfied the other elements of the standard for obtaining a TRO, namely that without the TRO she would suffer irreparable harm, the TRO would not substantially injure other parties, and the TRO would further the public interest.  In Judge Kelly’s view, because she had not shown a likelihood of success on the merits and thus had not established a clear legal right to serve as Acting Director, she had not shown that she would suffer irreparable harm if the court did not act in her favor.  With regard to the last two TRO elements which, as Judge Kelly noted, are frequently combined and referred to as a “balancing of the equities,” Judge Kelly concluded that granting the TRO would cause the same harm to Mr. Mulvaney as denying the TRO would cause to Ms. English. In addition, he observed that a TRO is ordinarily intended to preserve the status quo, and that because the “facts on the ground” indicate that Mr. Mulvaney rather than Ms. English has been accepted as Acting Director by CFPB staff, granting the TRO would result in a flipping of the status quo.

Prior to the hearing, Ms. English filed a Scheduling Request in which she asked the court to construe her TRO motion as a request for both a TRO and a preliminary injunction so that a denial of the TRO would also serve as a denial of a preliminary injunction from which Ms. English could file an immediate appeal with the D. C. Circuit.  (The denial of a TRO is not appealable.)  Her attorney, Deepak Gupta, renewed this request at the hearing.

Judge Kelly refused the request, noting that additional amicus briefs might be filed and further briefing was needed (including on issues the parties might not yet have considered such as separation of powers.)  The case docket (which appears to treat the request as a motion) indicates that Judge Kelly subsequently entered an order formally denying her request “[f]or reasons stated on the record at the hearing on November 28, 2017.”  The docket also states that “[t]o the extent that the Motion requests that the Court enter a briefing schedule on the merits, the Motion is denied without prejudice.”  Judge Kelly also ordered the parties to “meet and confer, and submit, by December 1, 2017, a joint proposed schedule for briefing the merits and/or for briefing a preliminary injunction, should one be filed by Plaintiff by then” and submit separate proposed schedules if no agreement on a joint proposed schedule is reached.

At the conclusion of the hearing, Mr. Gupta expressed concern that Mr. Mulvaney might attempt to fire Ms. English.  He stated that Mr. Mulvaney had sent an email to Ms. English in which he reprimanded her for  holding herself out as the Acting Director and another email to all CFPB staff asking them to report any communications with Ms. English to the CFPB General Counsel (who has issued a memorandum agreeing that Mr. Mulvaney is legally entitled to serve as Acting Director.)  Mr. Gupta commented that because such actions could have a chilling effect on Ms. English’s ability to perform her duties at the CFPB, whether as Acting Director or in her role as Deputy Director, Mr. Mulvaney might seek to dismiss her for nonperformance.  Mr. Shumate provided no assurances regarding Mr. Mulvaney’s future actions.

Copyright © by Ballard Spahr LLP

TRENDING LEGAL ANALYSIS


About this Author

Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

...
215-864-8544