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Federal Appeals Court’s Dissenting Judge Says CFPB Is Unconstitutional, Would Have Ruled For Secondary Market Company

As described here, in a 2-1 opinion, the U.S. Court of Appeals for the District of Columbia denied a motion for an injunction, pending appeal, against the Consumer Financial Protection Bureau (CFPB) by a secondary insurance market company, and rejected that company’s argument that the CFPB’s structure violates the U.S. Constitution.

The unidentified company had filed a lawsuit (John Doe Company v. Consumer Financial Protection Bureau, et al., Civil Docket No. 1:17-cv-00049-RC, U.S. Dist. Ct., District of Columbia) against the Consumer Financial Protection Bureau (CFPB) and its director, Richard Cordray, arguing that the CFPB’s authority was unconstitutional.

On appeal, the federal Court of Appeals for the District of Columbia in Doe Co. v. Cordray, No. 17-5206 (D.C. Cir. Mar. 3, 2017), in a 2-1 opinion, rejected the company’s request for a preliminary injunction against the CFPB.

Circuit Judges Patricia Ann Millet and Robert L. Wilkins were in the majority, while Circuit Judge Brett M. Kavanaugh dissented.

In his dissent, Judge Kavanugh said the company had standing to challenge the CFPB’s structure as unconstitutional and “need not wait for a CFPB enforcement action”:

Petitioner John Doe Company claims that it is being regulated by an unconstitutionally structured agency, the Consumer Financial Protection Bureau.  The CFPB has issued binding rules that govern the Company’s conduct, and the CFPB can bring enforcement actions against the Company for violations of those rules (or of statutes).  Under the Supreme Court’s and this Court’s precedents, the Company as a regulated entity has standing to raise its free-standing constitutional claim, and the claim is ripe.  The Company need not wait for a CFPB enforcement action in order to raise the constitutional challenge.

Moreover, said Judge Kavanaugh, “[t]o use the Supreme Court’s words, we ‘normally do not require plaintiffs to bet the farm’ by violating the law in order to challenge the constitutionality of the regulating agency.”

Further, wrote Judge Kavanaugh in his dissent, “[i]n my view, the Company has shown a likelihood of success on the merits of its constitutional claim, for reasons fully explained in this Court’s opinion in PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir. 2016).”  There, he said of a now-vacated opinion (in a case that is headed to rehearing en banc), “[t]he ‘CFPB’s structure violates Article II of the Constitution because the CFPB operates as an independent agency headed by a single Director.'”

Further, said Judge Kavanaugh, “in my view, the CFPB’s structure is unconstitutional” and “given the Supreme Court’s Article II precedents, I believe that the CFPB’s structure is likely to be ruled unconstitutional, whether by this Court sitting en banc or by the Supreme Court.”  Accordingly, he said that the unnamed company has shown a likelihood of success on the merits.  In addition, the company has shown irreparable harm” – something that “occurs almost by definition when a person or entity demonstrates a likelihood that it is being regulated on an ongoing basis by an unconstitutionally structured agency that has issued binding rules governing the plaintiff’s conduct and that has authority to bring enforcement actions against the plaintiff.”  Further, he added a “party seeking a preliminary injunction in one court is not barred from obtaining the preliminary injunction simply because some other court might someday grant relief to that party.”  In addition, wrote Judge Kavanaugh, it is not in the public interest to “let an unconstitutionally structured agency continue to operate until the constitutional flaw is fixed.”  Accordingly, Judge Kavanaugh dissented from the Circuit Court’s denial of the motion for an injunction pending appeal.

The opinion is available here.

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