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Senate Confirms Richard Cordray as CFPB Director
This evening, the U.S. Senate voted 66 to 34 to confirm Richard Cordray as CFPB Director, for a five year term. As is well known, Mr. Corday had been serving in that position as a recess appointee and his recess appointment was set to expire at the end of this year. Moreover, his recess appointment has been the subject of a litigation challenge, and the issue of the validity of recess appointments such as his may have been resolved by the U.S. Supreme Court in the next term. The Senate vote on Mr. Cordray’s nomination came after several days of Senate debate over the Senate’s confirmation process and filibuster rules that resulted in a path forward on up or down votes on several presidential nominations. It ended a two-year stalemate between Republicans and Democrats over the Mr. Cordray’s nomination, based on a fundamental disagreement regarding the structure and oversight of the CFPB. For example, Republican members of both the Senate and the House have called for the CFPB’s director-led structure to be replaced by a commission, and for the CFPB’s budget to be subject to the annual congressional appropriations process.
There may be movement on one potential change to oversight of the CFPB. Concurrent with the agreement to vote on Mr. Cordray’s nomination, Senator Portman (R-OH) announced a bill that would establish an office of inspector general for the CFPB. Currently the Bureau shares an inspector general with the Federal Reserve Board. Also, following the confirmation vote, the Chairman of the House Financial Services Committee immediately dropped his objection to Mr. Cordray testifying before that committee and stated that the committee will call him to testify on the CFPB’s annual report as soon as practicable.
The confirmation of Mr. Cordray, and the expected confirmation of new presidential nominees to the National Labor Relations Board, may impact the Supreme Court’s pending review of presidential recess appointment power, a case we have written about on several other occasions, including most recently when the Supreme Court agreed to hear the case.
Other nominations of interest remain pending. For example, the President has nominated Representative Mel Watt (D-NC) to serve as FHFA Director. The Senate Banking Committee was set to vote on that nomination this morning, but postponed the vote until Thursday.
SCOTUS To Hear Recess Appointment Case, Potential Implications for CFPB Director
This morning, the U.S. Supreme Court agreed to hear the federal government’s challenge to a January 2013 decision by the Court of Appeals for the D.C. Circuit that appointments to the National Labor Relations Board (NLRB) made by President Obama in January 2012 during a purported Senate recess were unconstitutional. NLRB V. Noel Canning, No. 12-1281. Last month, the Third Circuit similarly invalidated a different NLRB recess appointment made by President Obama.
CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. Mr. Cordray, whose recess appointment is due to expire at the end of this year, was re-nominated by President Obama this year to serve a full term as director, but his confirmation is being held up in the Senate. All but two Senate Republicans have pledged to oppose Mr. Cordray for the position unless oversight of the CFPB is altered, including by changing its governance structure to a commission structure.
In its review, the Supreme Court will address two questions presented by the government, as well as a third the Court added. The government’s petition asked the court to determine (i) whether the President’s recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions and (ii) whether the President’s recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess. The Court also signaled its intent to address the issue of Senate pro forma sessions with a question it added - whether the President's recess appointment power may be exercised when the Senate is convening every three days in pro forma sessions. The Court is likely to hear the case in the fall and issue its opinion next year.
U.S. Supreme Court Holds FAA Permits Class Arbitration Waivers
On June 20, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not permit courts to invalidate a class arbitration waiver “on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.” American Express Co. v. Italian Colors Restaurant, 570 U.S. ___ (2013). The Court reversed a Second Circuit decision that held that because the costs for the individual plaintiff to arbitrate its claims would be prohibitive, the class action waiver was unenforceable and arbitration could not proceed. The Court explained that the Second Circuit’s “effective vindication” doctrine is a judge-made exception to the FAA that “finds its origin in the desire to prevent ‘prospective waiver of a party’s right to pursue statutory remedies,’. . . [b]ut the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” The Court added that there is no congressional command to reject the waiver of class arbitration, and that congressional approval of Rule 23 does not establish an entitlement to class proceedings for the vindication of statutory rights.
Special Alert: SCOTUS Grants Cert. Petition Regarding Use of Disparate Impact Analysis Under the FHA
This morning, the U.S. Supreme Court granted certiorari in Township of Mount Holly, New Jersey, et al. v. Mt. Holly Gardens Citizens in Action, Inc., et al. (No. 11-1507). The case has been watched closely by financial institutions because it raised questions about the viability of disparate impact claims under the Fair Housing Act ("FHA"). Disparate impact theory allows government and private plaintiffs to establish "discrimination" based solely on the results of a neutral policy, without having to show any intent to discriminate - or even in the absence of an intent to discriminate.
The Court has agreed to address one of two disparate impact questions presented in a petition from the Township of Mount Holly, New Jersey (and other appellants) - specifically the threshold question of whether disparate impact claims are cognizable under the FHA. Though not a lending case, the case could offer the Supreme Court its first opportunity to rule on the issue of whether the FHA permits plaintiffs to bring claims under a disparate impact theory. Last year, the parties in another fair housing case brought before the Court, Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010), withdrew the case before the Court had an opportunity to decide the issue.
To date, eleven federal courts of appeals have upheld the cognizability of disparate impact claims under the FHA (Title VIII of the Civil Rights Act of 1968). They have done so based on their analysis of the Supreme Court's then-current Title VII jurisprudence regarding employment discrimination - which the appellate courts interpreted as permitting disparate impact claims - and a conclusion that disparate impact claims are consistent with the purposes of the FHA. In the seminal employment disparate impact case Griggs v. Duke Power, 401 U.S. 424 (1971), the Court held that a power company's neutral requirement that all employees have a high school education regardless of whether it was necessary for their job was discriminatory under Title VII because it had a disparate effect on African-Americans. However, the Court subsequently has issued a series of opinions, culminating in Smith v. City of Jackson, 544 U.S. 228 (2005), that call into question the prior appellate court holdings regarding the FHA into question. In City of Jackson, the Court held that employment-related disparate impact claims are grounded in Title VII's specific statutory text, not merely in the broader purpose of the legislation. Since City of Jackson, the courts of appeals have offered almost no guidance as to whether the FHA's statutory text permits disparate impact claims.
Earlier this year, the Department of Housing and Urban Development issued a rule on the use of disparate impact under the FHA that codified a three-step burden-shifting approach to determine liability under a disparate impact claim. Citing that rule, among other things, the government urged the Court not to grant cert. and instead allow courts to implement the HUD rule.
While the Court now may have the opportunity to resolve the basic question of whether disparate impact claims are cognizable under the FHA, it could bypass certain, more nuanced issues relating to how such claims should be analyzed and the means by which statistical evidence should be evaluated in context of that analysis. These issues were raised in a multi-part second question on which cert. was not granted. Additionally, the question before the Court is whether disparate impact claims are cognizable under Section 804 of the FHA. Depending on the Court's analysis, the question of whether Section 805 of the FHA - the section specifically applicable to mortgage financing - permits disparate impact claims may remain an open issue.
The parties in the Mt. Holly case have been involved in well-publicized settlement meetings, which will continue this week. For this reason, the prospect exists that this matter may also be resolved prior to the Court having a chance to determine the question it has certified for review.
If the parties do not resolve the matter, the Court likely will hear the case in the fall and will issue a ruling in the spring of 2014.
Massachusetts Supreme Court Holds That Courts May Invalidate Certain Arbitration Agreements With Class Action Waivers
On June 12, the Massachusetts Supreme Judicial Court (SJC) held that courts may invalidate an arbitration agreement that includes a class action waiver where the plaintiff demonstrates that his or her claim effectively cannot be pursued in individual arbitration. Feeney v. Dell, Inc., No. SJC-11133, 2013 WL 2479603 (Mass. Jun. 12, 2013). In this case, the court determined that the plaintiffs could not effectively pursue their statutory claim under the individual claim arbitration process given the complexity of their claims and the small amounts of individual damages. The SJC therefore affirmed the trial court’s order invalidating the agreement. According to the SJC, the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), left open the possibility that an arbitration agreement may be invalidated if the agreement effectively prevents the claimant from vindicating his or her statutory cause of action. Still, the SJC’s decision arguably conflicts with several decisions in the federal courts of appeal that question that the continuing vitality of the “vindication of rights” doctrine following Concepcion. The decision also addresses an issue currently before the Supreme Court in American Express Co. v. Italian Colors Restaurant, No. 12-133 (S. Ct. argument heard Feb. 27, 2013).
U.S. Supreme Court Refuses to Vacate Arbitrator's Decision Allowing Class Arbitration
On June 10, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not permit a court to vacate an arbitrator’s decision to allow class arbitration where the parties authorized the arbitrator to decide the issue. Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (2013). In this case, a health insurance company sought to overturn an arbitrator’s holding that the contract between the company and a doctor claiming the insurer failed to fully pay him and similarly situated doctors authorized class arbitration of the claims. The parties agreed that the arbitrator should decide the issue, but in seeking to overturn the decision, the insurer argued that the arbitrator exceeded his authority under the FAA. Citing the narrow standard of judicial review under the relevant FAA provision and the “heavy burden” a party bears under that provision, the Court held that the parties’ agreement to allow the arbitrator to decide the issue of class arbitration of the claims is sufficient to show that he did not exceed his powers. The insurer argued that the Court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) that an arbitration panel exceeded its powers when it ordered a party to submit to class arbitration should apply here. The Court rejected that argument, explaining that in Stolt-Nielsen the Court overturned the arbitral decision because it lacked any contractual basis for requiring class procedures, whereas in this case, the arbitrator construed the parties’ contract at their request.
Supreme Court Applies Chevron Deference to Agency's Interpretation of Statutory Jurisdiction
On May 20, the U.S. Supreme Court held that Chevron deference applies to an agency's interpretation of its own statutory jurisdiction. City of Arlington v. FCC, 569 U.S. ___ (May 20, 2013). In this case, two Texas localities challenged the FCC's ability to administer part of the Communications Act of 1934, arguing that an agency's interpretation of a statutory ambiguity that concerns the scope of its statutory authority is a jurisdictional issue and that Chevron should not apply. The Court disagreed and stated that there is no basis for carving out an arbitrary subset of "jurisdictional" questions from the Chevron framework. To hold otherwise, the Court reasoned, would be to accept a false dichotomy between "jurisdictional" and "nonjurisdictional” agency interpretations, and transfer certain interpretive decisions from the agencies that administer the statutes to the federal courts. Although decided in the context of an action taken by the FCC, this is a broad administrative law decision that will affect regulated entities' ability to challenge certain regulatory actions taken by other federal agencies.
Obama Administration Seeks Supreme Court Review of Recess Appointment Decision
On April 25, the DOJ and the National Labor Relations Board (NLRB) filed a petition seeking U.S. Supreme Court review of the D.C. Circuit Court’s January 25, 2013 decision invalidating the appointment of three NLRB members. Nat’l Labor Rel. Bd. v. Noel Canning, No. 12-1281 (cert. pet. filed, Apr. 25, 2013). The D.C. Circuit held that appointments to the NLRB made by President Obama in January 2012 during a purported Senate recess were unconstitutional. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. The petition asks the Court to resolve two questions: (i) whether the President’s recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions, and (ii) whether the President’s recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess. If the Court accepts review of the case, it likely would be heard during the Court’s next session, which begins in October 2013.
Supreme Court Agrees to Review Standard for Enforcement of Forum Selection Clauses
On April 1, the U.S. Supreme Court agreed to review a decision from the U.S. Court of Appeals for the Fifth Circuit that denied a mandamus petition against a district court that held that when a forum-selection clause designates a specific federal forum or allows the parties to select the federal courts of a different forum, the federal change of venue statute, 28 U.S.C. § 1404(a),—as opposed to Rule 12(b)(3) and 28 USC § 1406—is the proper procedural mechanism for the clause’s enforcement. Atl. Marine Constr. Co., Inc. v. U.S. Dist. Ct. for the W. Dist. of Tex., No. 12-929, 2013 WL 1285318 (cert. granted Apr. 1, 2013). This issue is significant because § 1404(a) applies when venue is proper but a transfer is sought, whereas Rule 12(b)(3) and § 1406 provide for dismissal or transfer of an action that has been brought in an improper venue. Thus, this question turns on whether private parties can, through a forum-selection clause, render venue improper in a court in which it is otherwise proper. The grant of certiorari notes that the majority of federal circuit courts hold that a valid forum-selection clause renders venue “improper” in a forum other than the one designated by the contract and that, in those circuits, the clauses are routinely enforced by motions to dismiss or transfer venue under Rule 12(b)(3) and § 1406. In addition to the Fifth Circuit, the Third and Sixth Circuits follow a contrary rule. The Supreme Court has requested that the parties address two issues in their briefs: (i) whether the Courts decision in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), changed the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a); and (ii) if so, how should district courts allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause?
Justices Question Agency Deference Doctrine
On March 20, an environmental case before the Supreme Court spurred two opinions from three Justices that question the continuing vitality of the agency deference doctrine known as Auer deference. Decker v. Nw. Envtl. Defense Ctr., No. 11-338, slip op. (S. Ct. Mar. 20, 2013). Auer deference provides that a court should ordinarily defer to an agency’s view of its own regulation, so long as the agency’s view is not “plainly erroneous” or “inconsistent” with that regulation. But in a partial dissent, Justice Scalia criticized the basis for the doctrine and attacked each of the three reasons why the doctrine is invoked. Justice Scalia was not alone. Two other justices—including Chief Justice Roberts—said that they also felt it was appropriate to reconsider Auer when the proper case presented itself. Reconsidering Auer could in turn effect a significant change in how many federal administrative cases—including cases involving banking and financial regulators—are handled.