Consumer Financial Protection v. Seila Law LLC ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CONSUMER FINANCIAL PROTECTION No. 17-56324
BUREAU,
Petitioner-Appellee, D.C. No.
8:17-cv-01081-
v. JLS-JEM
SEILA LAW LLC,
Respondent-Appellant. OPINION
On Remand From the United States Supreme Court
Argued and Submitted November 19, 2020
San Francisco, California
Filed December 29, 2020
Before: Susan P. Graber and Paul J. Watford, Circuit
Judges, and Jack Zouhary, * District Judge.
Opinion by Judge Watford
*
The Honorable Jack Zouhary, United States District Judge for the
Northern District of Ohio, sitting by designation.
2 CFPB V. SEILA LAW
SUMMARY **
Consumer Financial Protection Bureau
On remand from the United States Supreme Court, the
panel reaffirmed the district court’s order granting the
petition of the Consumer Financial Protection Bureau to
enforce Seila Law LLC’s compliance with the Bureau’s civil
investigative demand requiring the firm to produce
documents and answer interrogatories.
The Supreme Court held that the statute establishing the
Consumer Financial Protection Bureau (CFPB) violated the
Constitution’s separation of powers by placing leadership of
the agency in the hands of a single Director who could be
removed only for cause. Seila Law LLC v. CFPB, 140 S. Ct.
2183, 2197 (2020). The Court concluded, however, that the
for-cause removal provision could be severed from the rest
of the statute and thus did not require invalidation of the
agency itself. The Supreme Court vacated the panel’s prior
judgment, published at CFPB v. Seila Law LLC, 923 F.3d
680 (9th Cir. 2019), and remanded so that the panel could
consider in the first instance whether the civil investigative
demand (CID) was validly ratified by former Acting
Director Mick Mulvaney during his year-long stint in that
office.
The panel held that the CID was validly ratified, but that
there was no need to decide whether the ratification occurred
through the actions of Acting Director Mulvaney. On July 9,
2020, after the Supreme Court’s ruling, the CFPB’s current
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
CFPB V. SEILA LAW 3
Director, Kathleen Kraninger, expressly ratified the
agency’s earlier decisions “to issue the civil investigative
demand to Seila Law, to deny Seila Law’s request to modify
or set aside the CID, and to file a petition requesting that the
district court enforce the CID.” At the time that she ratified
these decisions, Director Kraninger knew that the President
could remove her with or without cause. She nonetheless
ratified the agency’s issuance of the CID and ongoing efforts
to enforce it.
Director Kraninger’s ratification remedied any
constitutional injury that Seila Law may have suffered due
to the manner in which the CFPB was originally structured.
Seila Law’s only cognizable injury arose from the fact that
the agency issued the CID and pursued its enforcement while
headed by a Director who was improperly insulated from the
President’s removal authority. Any concerns that Seila Law
might have had about being subjected to investigation
without adequate presidential oversight and control had now
been resolved. A Director well aware that she may be
removed by the President at will had ratified her
predecessors’ earlier decisions to issue and enforce the CID.
The panel rejected Seila Law’s contention that Director
Kraninger could not validly ratify the CFPB’s earlier actions
because the agency lacked the authority to take those actions
back in 2017. The panel held that Seila Law’s argument was
largely foreclosed by this court’s decision in CFPB v.
Gordon, 819 F.3d 1179 (9th Cir. 2016). Just as in Gordon,
the constitutional infirmity related to the Director alone, not
to the legality of the agency itself.
The panel also rejected Seila Law’s remaining argument
that Director Kraninger’s July 2020 ratification was invalid
because it took place outside the limitations period for
bringing an enforcement action against Seila Law. The
4 CFPB V. SEILA LAW
panel held that Seila Law’s argument failed because this
statutory limitations period pertained solely to the bringing
of an enforcement action, which the CFPB had not yet
commenced against Seila Law. The only actions ratified by
Director Kraninger were the issuance and enforcement of the
CID. The very purpose of such a demand was to assist the
agency in determining whether Seila Law had engaged in
violations that could justify bringing an enforcement action;
it was impossible to know at this point whether such an
action would (or would not) be timely. Seila Law therefore
had raised its statute-of-limitations argument prematurely.
COUNSEL
Anthony R. Bisconti (argued) and Thomas H. Bienert Jr.,
Bienert Katzman PC, Los Angeles, California; Kannon K.
Shanmugam, Paul Weiss Rifkind Wharton & Garrison LLP,
Washington, D.C.; for Respondent-Appellant.
Kevin E. Friedl (argued) and Christopher J. Deal, Attorneys;
Steven Y. Bressler, Assistant General Counsel; John R.
Coleman, Deputy General Counsel; Mary McLeod, General
Counsel; Consumer Financial Protection Bureau,
Washington, D.C.; for Petitioner-Appellee.
OPINION
WATFORD, Circuit Judge:
In February 2017, the Consumer Financial Protection
Bureau (CFPB) issued a civil investigative demand (CID) to
Seila Law LLC, requiring the firm to produce documents and
answer interrogatories. Seila Law refused to comply. In
CFPB V. SEILA LAW 5
June 2017, the CFPB filed a petition to enforce the CID. The
district court granted the petition and we affirmed. CFPB v.
Seila Law LLC, 923 F.3d 680 (9th Cir. 2019). Upon review
of our court’s decision, the Supreme Court held that the
statute establishing the CFPB violated the Constitution’s
separation of powers by placing leadership of the agency in
the hands of a single Director who could be removed only
for cause. Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2197
(2020). The Court concluded, however, that the for-cause
removal provision could be severed from the rest of the
statute and thus did not require invalidation of the agency
itself, as Seila Law had urged. Id. at 2209–11 (plurality
opinion); id. at 2245 (Kagan, J., concurring in judgment with
respect to severability and dissenting in part). The Court
vacated our judgment and remanded so that we could
consider in the first instance “whether the civil investigative
demand was validly ratified” by former Acting Director
Mick Mulvaney during his year-long stint in that office. Id.
at 2208, 2211.
We conclude that the CID was validly ratified, but we
need not decide whether that occurred through the actions of
Acting Director Mulvaney. On July 9, 2020, after the
Supreme Court’s ruling, the CFPB’s current Director,
Kathleen Kraninger, expressly ratified the agency’s earlier
decisions “to issue the civil investigative demand to Seila
Law, to deny Seila Law’s request to modify or set aside the
CID, and to file a petition requesting that the district court
enforce the CID.” At the time that she ratified these
decisions, Director Kraninger knew that the President could
remove her with or without cause. She nonetheless ratified
the agency’s issuance of the CID and ongoing efforts to
enforce it.
6 CFPB V. SEILA LAW
Director Kraninger’s ratification remedies any
constitutional injury that Seila Law may have suffered due
to the manner in which the CFPB was originally structured.
Seila Law’s only cognizable injury arose from the fact that
the agency issued the CID and pursued its enforcement while
headed by a Director who was improperly insulated from the
President’s removal authority. Any concerns that Seila Law
might have had about being subjected to investigation
without adequate presidential oversight and control have
now been resolved. A Director well aware that she may be
removed by the President at will has ratified her
predecessors’ earlier decisions to issue and enforce the CID.
Seila Law advances two arguments challenging the
validity of Director Kraninger’s ratification, neither of which
we find persuasive.
As a threshold matter, Seila Law contends that Director
Kraninger could not validly ratify the CFPB’s earlier actions
because the agency lacked the authority to take those actions
back in 2017. Seila Law bases this argument on the
statement in Federal Election Commission v. NRA Political
Victory Fund, 513 U.S. 88 (1994), that “it is essential that
the party ratifying should be able not merely to do the act
ratified at the time the act was done, but also at the time the
ratification was made.” Id. at 98 (emphasis omitted). In
Seila Law’s view, until the Supreme Court invalidated the
for-cause removal provision, the CFPB was exercising
executive power unlawfully, which in turn rendered all of
the agency’s prior actions void at the time they were taken
and hence incapable of being ratified.
Seila Law’s argument is largely foreclosed by our court’s
decision in CFPB v. Gordon, 819 F.3d 1179 (9th Cir. 2016).
In that case, the CFPB initiated an enforcement action after
Richard Cordray had been appointed as the agency’s
CFPB V. SEILA LAW 7
Director pursuant to President Obama’s recess appointment
power. Id. at 1185–86. Shortly thereafter, the Supreme
Court’s decision in NLRB v. Noel Canning, 573 U.S. 513(2014), called into question the validity of Director
Cordray’s appointment. After he was renominated and
confirmed by the Senate, Director Cordray issued a blanket
ratification of all actions he had taken while serving as a
recess appointee. Gordon, 819 F.3d at 1185–86. We held
that Director Cordray’s ratification cured any Appointments
Clause defect in the initiation of the enforcement action
against the defendant. Id. at 1192. Addressing the same
passage from NRA Political Victory Fund quoted above, we
reasoned that the constitutional defect was limited to
Director Cordray and did not infect the agency as a whole.
Thus, the CFPB as an agency had the authority to bring the
enforcement action both at “the time the act was done” and
at “the time the ratification was made.” Id. at 1191–92.
The same is true here. Just as in Gordon, the
constitutional infirmity relates to the Director alone, not to
the legality of the agency itself. Although the Supreme
Court held in Seila Law that the CFPB’s “structure” violated
the separation of powers, 140 S. Ct. at 2192, the Court
explained that “[t]he only constitutional defect we have
identified in the CFPB’s structure is the Director’s insulation
from removal.” Id. at 2209. Nothing in the Court’s decision
suggests that it believed this defect rendered all of the
agency’s prior actions void. Indeed, had that been the
Court’s view, it presumably would have ordered the
dismissal of this proceeding rather than remanding for us to
consider whether the agency’s actions relating to the CID
had been validly ratified.
We find strong support for our holding in Federal
Election Commission v. Legi-Tech, Inc., 75 F.3d 704 (D.C.
8 CFPB V. SEILA LAW
Cir. 1996), a case cited with approval in Gordon. 819 F.3d
at 1191. In Legi-Tech, the Federal Election Commission
brought a civil enforcement action while two congressional
officers were impermissibly serving as ex officio members
of the Commission. 75 F.3d at 706. After the presence of
those members was held to violate the separation of powers,
the Commission reconstituted itself and ratified its earlier
decision to bring the enforcement action. Id. at 706, 708.
The D.C. Circuit held that the ratification was valid and, in
doing so, rejected the same argument Seila Law advances
here—namely, that a “structural” constitutional defect in an
agency’s composition renders all of the agency’s prior
actions void. Id. at 708–09. Taken together, Legi-Tech and
Gordon confirm that ratification is available to cure both
Appointments Clause defects and structural, separation-of-
powers defects.
Seila Law’s remaining argument is that Director
Kraninger’s July 2020 ratification is invalid because it took
place outside the limitations period for bringing an
enforcement action against Seila Law. In support of its
position, Seila Law again relies on the Supreme Court’s
decision in NRA Political Victory Fund—in particular, its
holding that the Solicitor General could not validly ratify the
filing of an unauthorized petition for certiorari when the
attempted ratification occurred after the time for filing the
petition had already run. 513 U.S. at 98.
The statute of limitations relevant here states that,
“[e]xcept as otherwise permitted by law or equity, no action
may be brought under this title more than 3 years after the
date of discovery of the violation to which an action relates.”
12 U.S.C. § 5564(g)(1). According to Seila Law, the “date
of discovery of the violation” was February 18, 2016, when
the CFPB filed an application (in a proceeding brought
CFPB V. SEILA LAW 9
against a different entity) that accused Seila Law of
wrongdoing. Alternatively, Seila Law contends that the
limitations period began to run at the very latest on
February 27, 2017, when the CFPB issued the CID at issue.
Seila Law’s argument fails because this statutory
limitations period pertains solely to the bringing of an
enforcement action, which the CFPB has not yet commenced
against Seila Law. The only actions ratified by Director
Kraninger are the issuance and enforcement of the CID. The
very purpose of such a demand is to assist the agency in
determining whether Seila Law has engaged in violations
that could justify bringing an enforcement action; it is
impossible to know at this point whether such an action
would (or would not) be timely.
Whether Seila Law would be able to mount a successful
statute-of-limitations defense in a future enforcement action
has no bearing on the validity of Director Kraninger’s
ratification. “[A] party may not defeat agency authority to
investigate with a claim that could be a defense if the agency
subsequently decides to bring an action against it.” EEOC
v. Children’s Hospital Medical Center, 719 F.2d 1426, 1429
(9th Cir. 1983) (en banc). We have applied that principle
specifically in the statute-of-limitations context. In Pacific
Maritime Association v. Quinn, 491 F.2d 1294 (9th Cir.
1974), the employer resisted a demand for documents from
the Equal Employment Opportunity Commission on the
ground that the employee’s underlying discrimination
complaint was untimely. Id. at 1295. We stated that the
“statute of limitations issue has been raised prematurely” and
held that the demand should be enforced so that the agency
could investigate whether there was a continuing violation
that would render the complaint timely. Id. at 1296. Seila
10 CFPB V. SEILA LAW
Law has similarly raised its statute-of-limitations argument
prematurely.
For the reasons given in our earlier decision, we reject
Seila Law’s arguments challenging the CFPB’s statutory
authority to issue the CID. 923 F.3d at 684–85.
Accordingly, we reaffirm the district court’s order granting
the CFPB’s petition to enforce the CID.
AFFIRMED.