Update: Third Circuit recess appointment decision ups the ante on certiorari

by Ballard Spahr LLP
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Last week’s News Flash alerted readers that a second federal appellate court has now invalidated a NLRB recess appointment as incompatible with the meaning of the phrase, “the Recess of the Senate” in the Recess Appointment Clause of the Constitution. The result in the Third Circuit case, NLRB v. New Vista Nursing & Rehabilitation, though identical to the D.C. Circuit’s earlier decision in NLRB v. Noel Canning, was based on different facts and relies on a different rationale. (Our legal alert on New Vista discusses the differences between the two decisions)

            Nevertheless, the confluence of decisions by two federal appellate courts at the very time that the Senate is about to take up President Obama’s renomination of Richard Cordray to head the CFPB gives Senate Republicans little incentive to agree to his confirmation. Mr. Cordray’s occupancy of the CFPB Director position, as is well-known to readers of this blog, is the result of a recess appointment made on the very same day as the NLRB recess appointments that were held unconstitutional in Noel Canning. As a result, Mr. Cordray’s appointment is equally vulnerable to legal challenge, especially in the D.C. Circuit.

            With that possibility, and the potential ensuing chaos from such a legal challenge, hanging over the Bureau like the sword of Damocles, the refusal of Senate Democrats and the Obama Administration to negotiate some of the changes to the role, structure and funding of the agency sought by Senate Republicans seems needlessly to court disaster. The only possibility that gives the Administration a reprieve is a a grant of certiorari and reversal of the D.C. Circuit’s decision in Noel Canning. The other possibilities – denial of certiorari or affirmance of the D.C. Circuit’s decision – make the filing of a suit to challenge final CFPB action (such as a rulemaking or an enforcement order) based on the invalidity of Cordray’s appointment increasingly tempting for someone aggrieved by such action. Moreover, the longer this drags on, the more likely it becomes that someone with unassailable standing to litigate (unlike, for example, the original State National Bank of Big Spring) will file such a challenge. Indeed, even if the Supreme Court were to grant certiorari in Noel Canning before its summer recess, the earliest a decision could be expected would be near the end of 2013 – by which time, Mr. Cordray’s recess appointment would be about to expire anyway.

                All of this uncertainty could be averted by a deal that permits Mr. Cordray’s confirmation by the Senate. This would all but eliminate any incentive to challenge his recess appointment. The problem is not that Mr. Cordray, individually, is unconfirmable – indeed, he appears to be a dedicated and extremely capable public servant.  What holds up his confirmation are structural issues, such as the desire of Senate Republicans to transform the CFPB from a one-person agency to a multi-member Board or Commission and to make it subject to the appropriations process. The addition of the Third Circuit’s New Vista decision raises the recess appointment stakes significantly, and continued refusal by Senate Democrats and the Obama Administration to negotiate seems increasingly high risk. Invalidation of Mr. Cordray’s recess appointment – and the consequent throwing into limbo of many of the actions taken by the CFPB since then – is unlikely to be in the interests of the financial services industries, the government, or consumers.

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Ballard Spahr LLP
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