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What Judge Kavanaugh could mean for the CFPB as a SCOTUS justice

As we discuss below, President Trump’s nomination of D.C. Circuit Judge Brett Kavanaugh to serve as a Justice of the U.S. Supreme Court could have significant implications for all federal agencies should Judge Kavanaugh be confirmed.  However, in light of Judge Kavanaugh’s rulings in the PHH case, the implications for the CFPB could be even more consequential.

Judge Kavanaugh was a member of the 3-judge D.C. Circuit panel and the author of the panel’s decision in PHH which held that the CFPB’s single-director-removable-only-for-cause structure violates Article II of the U.S. Constitution.  He also took the same position in his dissent from the en banc majority decision in PHH which held that the structure is constitutional.  In both the panel decision and his dissent from the en banc decision, Judge Kavanaugh concluded that the proper remedy was to sever the for-cause removal provision from the Dodd-Frank Act and thereby allow the CFPB to continue to operate with a Director removable by the President at will (rather than strike Title X of Dodd-Frank in its entirety).

While there is no possibility of PHH reaching the Supreme Court (none of the parties sought certiorari and the CFPB dismissed its administrative proceedingagainst PHH), there are several other pending cases involving a challenge to the CFPB’s constitutionality that could reach the Supreme Court in the coming years.  Those cases include All American Check Cashing’s interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit of the district court’s ruling upholding the CFPB’s constitutionality which is currently being briefed and a possible appeal to the Second Circuit in the RD Legal Funding case of the district court’s ruling holding that the CFPB’s structure is unconstitutional.

Should Judge Kavanaugh have an opportunity to rule on the question of the CFPB’s constitutionality as a member of the Supreme Court, we would expect him to be a definite vote in favor of a decision that holds that the CFPB’s structure is unconstitutional and severs the for-cause removal provision instead of striking all of Title X.  (Of course, there is also the possibility that this question could become moot if Congress were to change the for-cause removal provision or change the CFPB’s leadership structure to a multi-member commission.)  For that reason, we would also expect Judge Kavanaugh to face a request for him to recuse himself from the litigants who are defending the CFPB’s constitutionality.

In making such a request, the litigants are likely to rely on 28 U.S.C. Section 455 which provides:

(a) Any justice, judge, or magistrate judge of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b)  He shall also disqualify himself in the following circumstances:

[(1)-(2) omitted]

(3)   Where he has served in governmental employment and in such capacity participated as counsel, adviser or material witness concerning the proceeding or expressed an opinion concerning the merits of the particular case in controversy;

[(4)-(5) omitted].

The litigants seeking Judge Kavanaugh’s recusal might argue that based on his PHH opinions, he is a “justice” who “has served in governmental employment and in such capacity…expressed an opinion concerning the merits of the particular case in controversy.”

While the phrase “particular case in controversy” arguably is limited to the specific case in which the Justice previously issued an opinion (i.e. PHH), a broader reading is suggested by a memorandum written by Justice Scalia regarding his decision not to recuse himself from a case in which Vice President Cheney was a named party.  That case involved a claim that a government committee had not complied with the Federal Advisory Committee Act (FACA).  According to Justice Scalia, Vice President Cheney’s name appeared in the lawsuit “only because he was the head of [that] Government committee.”

In explaining his decision not to recuse himself, Justice Scalia indicated that his personal friendship with Vice President Cheney did not call his impartiality into question under Section 455(a).  He stated that “while friendship is a ground for recusal of a Justice where the personal fortune or the personal freedom of the friend is at issue, it has traditionally not been a ground for recusal where official action is at issue, no matter how important the official action was to the ambitions or the reputation of the Government officer.”

However, in a footnote, Justice Scalia noted that the public interest group that was seeking his recusal had cited to the Supreme Court’s decision in Public Citizen v. Department of Justice, 491 U. S. 440 (1989), as a prior case in which Justice Scalia had recused himself.  Justice Scalia commented that while that case also involved FACA, as Assistant Attorney General for the Office of Legal Counsel, he had provided an opinion “that addressed the precise question presented in Public Citizen: whether the American Bar Association’s Standing Committee on Federal Judiciary, which provided advice to the President concerning judicial nominees, could be regulated as an ‘advisory committee’ under FACA.”  Judge Scalia stated that he “concluded that [his] withdrawal from the case was required by 28 U. S. C. §455(b)(3), which mandates recusal where the judge ‘has served in governmental employment and in such capacity . . . expressed an opinion concerning the merits of the particular case in controversy.’”  He further stated that, in contrast, “I have never expressed an opinion concerning the merits of the present case.”

Even if the phrase “the merits of the particular case in controversy” is read broadly, it seems doubtful that Section 455 was intended to apply where the prior opinion in question is one that a Justice whose recusal is sought issued as an appellate judge.  A separate provision, 28 U.S.C. Section 47, bars a judge from hearing an appeal in a case only where he or she was the trial judge.  There is no similar express prohibition on a Supreme Court Justice hearing an appeal in a case where he or she was an appellate judge.  It also bears noting that the circumstances involved in Justice Scalia’s recusal from Public Citizen are distinguishable from those that would be presented by Judge Kavanaugh’s recusal in that Justice Scalia had previously expressed his views on FACA in his capacity as a government attorney and not as a judge.  In any event, there is no mechanism for enforcing a Supreme Court Justice’s compliance with 28 U. S. C. Section 455 and Supreme Court Justices do not feel bound by the restrictions that apply to other members of the federal judiciary.

Based on the panel decision in PHH, it appears that Judge Kavanaugh would likely take an unfavorable view of aggressive actions and positions of any federal agency that are not clearly consistent with the agency’s statutory authority.  In the panel decision, Judge Kavanaugh refused to give Chevron deference to the CFPB’s interpretation of RESPA, observing that the statutory language “specifically bars the aggressive interpretation of [RESPA’s referral fee prohibition] advanced by the CFPB in this case.”

The panel decision in PHH also found that the CFPB’s retroactive application of its RESPA interpretation violated the Due Process Clause.  This suggests that Judge Kavanaugh could be favorably disposed to other due process challenges to agency actions or positions.

Copyright © by Ballard Spahr LLP

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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.

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