PHH Corporation, et al v. CFPB

Filing

OPINION [1640101] filed (Pages: 101) for the Court by Judge Kavanaugh, CONCURRING OPINION (Pages: 1) by Judge Randolph, CONCURRING IN PART AND DISSENTING IN PART OPINION (Pages: 8) by Judge Henderson. [15-1177]

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 12, 2016

Decided October 11, 2016
No. 15-1177

PHH CORPORATION, ET AL.,
PETITIONERS
v.
CONSUMER FINANCIAL PROTECTION BUREAU,
RESPONDENT

On Petition for Review of an Order of
the Consumer Financial Protection Bureau
(CFPB File 2014-CFPB-0002)

Theodore B. Olson argued the cause for petitioners.
With him on the briefs were Helgi C. Walker, Mitchel H.
Kider, David M. Souders, Thomas M. Hefferon, and William
M. Jay.
C. Boyden Gray, Adam J. White, Gregory Jacob, Sam
Kazman, and Hans Bader were on the brief for amici curiae
State National Bank of Big Spring, et al. in support of
petitioners.
Kirk D. Jensen and Alexandar S. Leonhardt were on the
brief for amicus curiae Consumer Mortgage Coalition in
support of petitioners.

Page 1 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

2
Joseph R. Palmore and Bryan J. Leitch were on the brief
for amici curiae American Financial Services Association, et
al. in support of petitioners.
Andrew J. Pincus, Matthew A. Waring, Kathryn
Comerford Todd, and Steven P. Lehotsky were on the brief for
amicus curiae The Chamber of Commerce of the United
States in support of petitioners.
Jay N. Varon and Jennifer M. Keas were on the brief for
amici curiae American Land Title Association, et al. in
support of petitioners.
Phillip L. Schulman and David T. Case were on the brief
for amicus curiae National Association of Realtors in support
of petitioners.
Lawrence DeMille-Wagman, Senior Litigation Counsel,
Consumer Financial Protection Bureau, argued the cause for
respondent. With him on the brief were Meredith Fuchs,
General Counsel, and John R. Coleman.
Julie Nepveu was on the brief for amicus curiae AARP in
support of respondent.
Before: HENDERSON and KAVANAUGH, Circuit Judges,
and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge
KAVANAUGH, with whom Senior Circuit Judge RANDOLPH
joins, and with whom Circuit Judge HENDERSON joins as to
Parts I, IV, and V.
Concurring opinion filed by Senior Circuit Judge
RANDOLPH.
Opinion concurring in part and dissenting in part filed by
Circuit Judge HENDERSON.

Page 2 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

KAVANAUGH, Circuit Judge:
INTRODUCTION AND SUMMARY
This is a case about executive power and individual
liberty. The U.S. Government’s executive power to enforce
federal law against private citizens – for example, to bring
criminal prosecutions and civil enforcement actions – is
essential to societal order and progress, but simultaneously a
grave threat to individual liberty.
The Framers understood that threat to individual liberty.
When designing the executive power, the Framers first
separated the executive power from the legislative and judicial
powers. “The declared purpose of separating and dividing the
powers of government, of course, was to ‘diffus[e] power the
better to secure liberty.’” Bowsher v. Synar, 478 U.S. 714,
721 (1986) (quoting Youngstown Sheet & Tube Co. v. Sawyer,
343 U.S. 579, 635 (1952) (Jackson, J., concurring)). To
ensure accountability for the exercise of executive power, and
help safeguard liberty, the Framers then lodged full
responsibility for the executive power in the President of the
United States, who is elected by and accountable to the people.
The text of Article II provides quite simply: “The executive
Power shall be vested in a President of the United States of
America.” U.S. CONST. art. II, § 1. And Article II assigns
the President alone the authority and responsibility to “take
Care that the Laws be faithfully executed.” Id. § 3. As
Justice Scalia explained: “The purpose of the separation and
equilibration of powers in general, and of the unitary Executive
in particular, was not merely to assure effective government

Page 3 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

4
but to preserve individual freedom.” Morrison v. Olson, 487
U.S. 654, 727 (1988) (Scalia, J., dissenting).
Of course, the President executes the laws with the
assistance of subordinate executive officers who are appointed
by the President, often with the advice and consent of the
Senate. To carry out the executive power and be accountable
for the exercise of that power, the President must be able to
control subordinate officers in executive agencies. In its
landmark decision in Myers v. United States, 272 U.S. 52
(1926), authored by Chief Justice and former President Taft,
the Supreme Court therefore recognized the President’s Article
II authority to supervise, direct, and remove at will subordinate
officers in the Executive Branch.
In 1935, however, the Supreme Court carved out an
exception to Myers and Article II by permitting Congress to
create independent agencies that exercise executive power.
See Humphrey’s Executor v. United States, 295 U.S. 602
(1935). An agency is considered “independent” when the
agency heads are removable by the President only for cause,
not at will, and therefore are not supervised or directed by the
President.
Examples of independent agencies include
well-known bodies such as the Federal Communications
Commission, the Securities and Exchange Commission, the
Federal Trade Commission, the National Labor Relations
Board, and the Federal Energy Regulatory Commission.
Those and other established independent agencies exercise
executive power by bringing enforcement actions against
private citizens and by issuing legally binding rules that
implement statutes enacted by Congress.
The independent agencies collectively constitute, in effect,
a headless fourth branch of the U.S. Government. They
exercise enormous power over the economic and social life of

Page 4 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

5
the United States. Because of their massive power and the
absence of Presidential supervision and direction, independent
agencies pose a significant threat to individual liberty and to
the constitutional system of separation of powers and checks
and balances.
To help mitigate the risk to individual liberty, the
independent agencies, although not checked by the President,
have historically been headed by multiple commissioners,
directors, or board members who act as checks on one another.
Each independent agency has traditionally been established, in
the Supreme Court’s words, as a “body of experts appointed by
law and informed by experience.” Humphrey’s Executor, 295
U.S. at 624 (internal quotation marks omitted).
The
multi-member structure reduces the risk of arbitrary
decisionmaking and abuse of power, and thereby helps protect
individual liberty.
In other words, to help preserve individual liberty under
Article II, the heads of executive agencies are accountable to
and checked by the President, and the heads of independent
agencies, although not accountable to or checked by the
President, are at least accountable to and checked by their
fellow commissioners or board members. No head of either
an executive agency or an independent agency operates
unilaterally without any check on his or her authority.
Therefore, no independent agency exercising substantial
executive authority has ever been headed by a single person.
Until now.
In the Dodd-Frank Act of 2010, Congress established a
new independent agency, the Consumer Financial Protection
Bureau. As proposed by then-Professor and now-Senator
Elizabeth Warren, the CFPB was to be another traditional,

Page 5 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

6
multi-member independent agency. See Elizabeth Warren,
Unsafe at Any Rate: If It’s Good Enough for Microwaves, It’s
Good Enough for Mortgages. Why We Need a Financial
Product Safety Commission, Democracy, Summer 2007, at 8,
16-18. The initial Executive Branch proposal in 2009
likewise envisioned a traditional, multi-member independent
agency. See DEPARTMENT OF THE TREASURY, FINANCIAL
REGULATORY REFORM: A NEW FOUNDATION: REBUILDING
FINANCIAL SUPERVISION AND REGULATION 58 (2009). The
House-passed bill sponsored by Congressman Barney Frank
and championed by Speaker Nancy Pelosi also contemplated a
traditional, multi-member independent agency. See H.R.
4173, 111th Cong. § 4103 (as passed by House, Dec. 11, 2009).
But Congress ultimately departed from the Warren and
Administration proposals, and from the House bill. Congress
established the CFPB as an independent agency headed not by
a multi-member commission but rather by a single Director.
Because the CFPB is an independent agency headed by a
single Director and not by a multi-member commission, the
Director of the CFPB possesses more unilateral authority – that
is, authority to take action on one’s own, subject to no check –
than any single commissioner or board member in any other
independent agency in the U.S. Government. Indeed, as we
will explain, the Director enjoys more unilateral authority than
any other officer in any of the three branches of the U.S.
Government, other than the President.
At the same time, the Director of the CFPB possesses
enormous power over American business, American
consumers, and the overall U.S. economy. The Director
unilaterally enforces 19 federal consumer protection statutes,
covering everything from home finance to student loans to
credit cards to banking practices. The Director alone decides

Page 6 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

7
what rules to issue; how to enforce, when to enforce, and
against whom to enforce the law; and what sanctions and
penalties to impose on violators of the law. (To be sure,
judicial review serves as a constraint on illegal actions, but not
on discretionary decisions within legal boundaries; therefore,
subsequent judicial review of individual agency decisions has
never been regarded as sufficient to excuse a structural
separation of powers violation.)
That combination of power that is massive in scope,
concentrated in a single person, and unaccountable to the
President triggers the important constitutional question at issue
in this case.
The petitioner here, PHH, is a mortgage lender and was
the subject of a CFPB enforcement action that resulted in a
$109 million order against it. In seeking to vacate the order,
PHH argues that the CFPB’s status as an independent agency
headed by a single Director violates Article II of the
Constitution.
The question before us is whether we may extend the
Supreme Court’s Humphrey’s Executor precedent to cover this
novel, single-Director agency structure for an independent
agency. To analyze that issue, we follow the history-focused
approach long applied by the Supreme Court in separation of
powers cases where, as here, the constitutional text alone does
not resolve the matter.
Two recent Supreme Court decisions exemplify that
historical analysis. In its 2010 decision in Free Enterprise
Fund v. Public Company Accounting Oversight Board, the
Supreme Court held that the new Accounting Oversight Board
at issue in that case – with two levels rather than one level of
for-cause protection insulating the independent agency heads

Page 7 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

8
from the President – exceeded the bounds on traditional
independent agencies and thus violated Article II. 561 U.S.
477, 514 (2010). In so ruling, the Court emphasized, among
other things, the novelty of the Board’s structure: “Perhaps
the most telling indication of the severe constitutional problem
with the PCAOB is the lack of historical precedent for this
entity.” Id. at 505 (internal quotation marks omitted). In its
2014 decision in NLRB v. Noel Canning, the Supreme Court
held that recess appointments in Senate recesses of fewer than
10 days were presumptively unconstitutional under Article II.
134 S. Ct. 2550, 2567, slip op. at 21 (2014). Why 10 days?
The Court explained: “Long settled and established practice
is a consideration of great weight in a proper interpretation of
constitutional provisions regulating the relationship between
Congress and the President.” Id. at 2559, slip op. at 7 (internal
quotation marks and alteration omitted). And the historical
practice of Presidents and Senates had established a de facto
10-day line so that recess appointments in recesses of fewer
than 10 days were impermissible. See id. at 2567, slip op. at
20-21.
As those two cases illustrate, history and tradition are
critical factors in separation of powers cases where the
constitutional text does not otherwise resolve the matter. As
Justice Breyer wrote for the Court in Noel Canning, that
bedrock principle – namely, that the “longstanding practice of
the government can inform our determination of what the law
is” – is “neither new nor controversial.” Id. at 2560, slip op. at
7 (internal quotation marks and citation omitted) (quoting
McCulloch v. Maryland, 17 U.S. 316, 401 (1819) and Marbury
v. Madison, 5 U.S. 137, 177 (1803)).
In this case, the single-Director structure of the CFPB
represents a gross departure from settled historical practice.

Page 8 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

9
Never before has an independent agency exercising substantial
executive authority been headed by just one person.
The CFPB’s concentration of enormous executive power
in a single, unaccountable, unchecked Director not only
departs from settled historical practice, but also poses a far
greater risk of arbitrary decisionmaking and abuse of power,
and a far greater threat to individual liberty, than does a
multi-member independent agency.
The overarching
constitutional concern with independent agencies is that the
agencies are unchecked by the President, the official who is
accountable to the people and who is responsible under Article
II for the exercise of executive power. Recognizing the broad
and unaccountable power wielded by independent agencies,
Congresses and Presidents of both political parties have
therefore long endeavored to keep independent agencies in
check through other statutory means. In particular, to check
independent agencies, Congress has traditionally required
multi-member bodies at the helm of every independent agency.
In lieu of Presidential control, the multi-member structure of
independent agencies acts as a critical substitute check on the
excesses of any individual independent agency head – a check
that helps to prevent arbitrary decisionmaking and thereby to
protect individual liberty.
This new agency, the CFPB, lacks that critical check and
structural constitutional protection, yet wields vast power over
the U.S. economy. So “this wolf comes as a wolf.”
Morrison v. Olson, 487 U.S. at 699 (Scalia, J., dissenting).
In light of the consistent historical practice under which
independent agencies have been headed by multiple
commissioners or board members, and in light of the threat to
individual liberty posed by a single-Director independent
agency, we conclude that Humphrey’s Executor cannot be

Page 9 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

10
stretched to cover this novel agency structure. We therefore
hold that the CFPB is unconstitutionally structured.
What is the remedy for that constitutional flaw? PHH
contends that the constitutional flaw means that we must shut
down the entire CFPB (if not invalidate the entire Dodd-Frank
Act) until Congress, if it chooses, passes new legislation fixing
the constitutional flaw. But Supreme Court precedent dictates
a narrower remedy. To remedy the constitutional flaw, we
follow the Supreme Court’s precedents, including Free
Enterprise Fund, and simply sever the statute’s
unconstitutional for-cause provision from the remainder of the
statute. Here, that targeted remedy will not affect the ongoing
operations of the CFPB. With the for-cause provision
severed, the President now will have the power to remove the
Director at will, and to supervise and direct the Director. The
CFPB therefore will continue to operate and to perform its
many duties, but will do so as an executive agency akin to other
executive agencies headed by a single person, such as the
Department of Justice and the Department of the Treasury.
Those executive agencies have traditionally been headed by a
single person precisely because the agency head operates
within the Executive Branch chain of command under the
supervision and direction of the President. The President is a
check on and accountable for the actions of those executive
agencies, and the President now will be a check on and
accountable for the actions of the CFPB as well.
Because the CFPB as remedied will continue operating,
we must also address the statutory issues raised by PHH in its
challenge to the $109 million order against it. 1 PHH raises
three main statutory arguments.
1

If PHH fully prevailed on its constitutional argument,
including with respect to severability, the CFPB could not continue

Page 10 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

11
First, PHH argues that the CFPB incorrectly interpreted
Section 8 of the Real Estate Settlement Procedures Act to bar
so-called captive reinsurance arrangements involving
mortgage lenders such as PHH and their affiliated reinsurers.
In a captive reinsurance arrangement, a mortgage lender (such
as PHH) refers borrowers to a mortgage insurer. In return, the
operating unless and until Congress enacted new legislation. As a
result, we could not and would not remand to the CFPB for any
further proceedings in this case. By contrast, even if PHH fully
prevails on the statutory issues, we still will have to remand to the
CFPB for the agency to conduct the proceeding in accordance with
the appropriate statutory requirements, under which PHH may still
be liable for certain alleged wrongdoing. In other words, PHH’s
constitutional and severability argument, if accepted, would afford it
full relief from any CFPB enforcement action and thus would afford
it broader relief than would its statutory arguments. For that reason,
we have no choice but to address the constitutional issue first. The
constitutional issue cannot be avoided in any principled way. We
therefore respectfully but firmly disagree with Judge Henderson’s
suggestion in her separate opinion that the constitutional issue can be
avoided. In our view, failing to decide the constitutional issue here
would be impermissible judicial abdication, not judicial restraint.
Moreover, apart from that necessity in this case, when a litigant
raises a fundamental constitutional challenge to the very structure or
existence of an agency enforcing the law against it, the courts
ordinarily address that issue promptly, at least so long as
jurisdictional requirements such as standing are met. See, e.g., Free
Enterprise Fund, 561 U.S. at 490-91; Morrison v. Olson, 487 U.S. at
669-70; Buckley v. Valeo, 424 U.S. 1, 12 (1976). That was the
approach we took in both Intercollegiate Broadcasting System, Inc.
v. Copyright Royalty Board, 684 F.3d 1332, 1334, 1336-37 (D.C.
Cir. 2012), and Raymond J. Lucia Cos. v. SEC, No. 15-1345, slip op.
at 7, 2016 WL 4191191, at *3 (D.C. Cir., Aug. 9, 2016). It can be
irresponsible for a court to unduly delay ruling on such a
fundamental and ultimately unavoidable structural challenge, given
the systemic ramifications of such an issue.

Page 11 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

12
mortgage insurer buys reinsurance from a mortgage reinsurer
affiliated with (or owned by) the referring mortgage lender.
We agree with PHH that Section 8 of the Act allows captive
reinsurance arrangements so long as the amount paid by the
mortgage insurer for the reinsurance does not exceed the
reasonable market value of the reinsurance.
Second, PHH claims that, in any event, the CFPB departed
from the consistent prior interpretations issued by the
Department of Housing and Urban Development, and that the
CFPB then retroactively applied its new interpretation of the
Act against PHH, thereby violating PHH’s due process rights.
We again agree with PHH: The CFPB’s order violated
bedrock principles of due process.
Third, in light of our ruling on the constitutional and
statutory issues, the CFPB on remand still will have an
opportunity to demonstrate that the relevant mortgage insurers
in fact paid more than reasonable market value to the
PHH-affiliated reinsurer for reinsurance, thereby making
disguised payments for referrals in contravention of Section 8.
PHH claims, however, that much of the alleged misconduct
occurred outside of the three-year statute of limitations and
therefore may not be the subject of a CFPB enforcement
action. The CFPB responds that, under Dodd-Frank, there is
no statute of limitations for any CFPB administrative actions to
enforce any consumer protection law. In the alternative, the
CFPB contends that there is no statute of limitations for
administrative actions to enforce Section 8 of the Real Estate
Settlement Procedures Act. We disagree with the CFPB on
both points. First of all, the Dodd-Frank Act incorporates the
statutes of limitations in the underlying statutes enforced by the
CFPB in administrative proceedings. And under the Real
Estate Settlement Procedures Act, a three-year statute of

Page 12 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

13
limitations applies to all CFPB enforcement actions to enforce
Section 8, whether brought in court or administratively.
In sum, we grant PHH’s petition for review, vacate the
CFPB’s order against PHH, and remand for further
proceedings consistent with this opinion. On remand, the
CFPB may determine among other things whether, within the
applicable three-year statute of limitations, the relevant
mortgage insurers paid more than reasonable market value to
the PHH-affiliated reinsurer.
In so ruling, we underscore the important but limited
real-world implications of our decision. As before, the CFPB
will continue to operate and perform its many critical
responsibilities, albeit under the ultimate supervision and
direction of the President. Section 8 will continue to mean
what it has traditionally meant: that captive reinsurance
agreements are permissible so long as the mortgage insurer
pays no more than reasonable market value for the reinsurance.
And the three-year statute of limitations that has traditionally
applied to agency actions to enforce Section 8 will continue to
apply.
With apologies for the length of this opinion, we now turn
to our detailed explanation and analysis of these important
issues.
I
PHH is a large home mortgage lender. When PHH and
other lenders provide mortgage loans to homebuyers, they
require certain homebuyers to obtain mortgage insurance.
Mortgage insurance protects lenders by covering part of the
lenders’ losses if homebuyers default on their mortgages.

Page 13 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

14
Homebuyers pay monthly premiums to the mortgage insurer
for the insurance.
In turn, mortgage insurers may obtain mortgage
reinsurance. In the same way that mortgage insurance
protects lenders, mortgage reinsurance protects mortgage
insurers. Reinsurers assume some of the risk of insuring the
mortgage. In exchange, mortgage insurers pay a fee (usually
a portion of the homebuyers’ monthly insurance premiums) to
the reinsurers.
In 1994, PHH established a wholly owned subsidiary
known as Atrium Insurance Corporation. Atrium provided
reinsurance to the mortgage insurers that insured mortgages
generated by PHH. In return, PHH often referred borrowers
to mortgage insurers that used Atrium’s reinsurance services.
That is known as a “captive reinsurance” arrangement, which
was not uncommon in the industry at the time. According to
PHH, the mortgage insurers did not pay more than reasonable
market value to Atrium for the reinsurance.
Originally passed by Congress and signed by President
Ford in 1974, the Real Estate Settlement Procedures Act is a
broad statute governing real estate transactions. One of its
stated purposes was “the elimination of kickbacks or referral
fees that tend to increase unnecessarily the costs of certain
settlement services.” 12 U.S.C. § 2601(b)(2).
To achieve that objective, Section 8(a) of the Act, which is
titled “Prohibition against kickbacks and unearned fees,”
provides: “No person shall give and no person shall accept
any fee, kickback, or thing of value pursuant to any agreement
or understanding, oral or otherwise, that business incident to or
a part of a real estate settlement service involving a federally
related mortgage loan shall be referred to any person.” Id.

Page 14 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

15
§ 2607(a). In plain English, Section 8(a) prohibits, as relevant
here, paying for a referral – for example, a mortgage insurer’s
paying a lender for the lender’s referral of homebuying
customers to that mortgage insurer.
Standing alone, Section 8(a) perhaps might have been
construed by government enforcement agencies to cast doubt
on a mortgage lender’s referrals of customers to mortgage
insurers who in turn purchased reinsurance from a reinsurer
affiliated with the lender. But another provision of the Real
Estate Settlement Procedures Act, Section 8(c), carved out a
series of expansive exceptions, qualifications, and safe harbors
related to Section 8(a). Of relevance here, Section 8(c)
provides: “Nothing in this section shall be construed as
prohibiting . . . (2) the payment to any person of a bona fide
salary or compensation or other payment for goods or facilities
actually furnished or for services actually performed . . . .”
Id. § 2607(c).
Before the creation of the CFPB in 2010, the Department
of Housing and Urban Development, known as HUD,
interpreted Section 8(c) to establish a safe harbor allowing
bona fide transactions between a lender and a mortgage insurer
(or between a mortgage insurer and a lender-affiliated
reinsurer), so long as the mortgage insurer did not pay the
lender for a referral. HUD therefore interpreted Section 8(c)
to allow captive reinsurance arrangements so long as the
mortgage insurer paid no more than reasonable market value
for the reinsurance. If the mortgage insurer paid more than
reasonable market value for the reinsurance, then a
presumption would arise that the excess payment was indeed a
disguised payment for the referral, which is impermissible
under Section 8(a).
HUD repeatedly reaffirmed that
interpretation, and the mortgage lending industry relied on it.

Page 15 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

16
When Congress created the CFPB in 2010, Congress
provided that the CFPB would take over enforcement of
Section 8 from HUD. By regulation, the CFPB carried
forward HUD’s rules, policy statements, and guidance, subject
of course to any future change by the CFPB.
Therefore, under Section 8(c), as authoritatively
interpreted by the Federal Government, PHH as a mortgage
lender could refer customers to mortgage insurers who
obtained reinsurance from Atrium – so long as the mortgage
insurers paid Atrium no more than reasonable market value for
the reinsurance.
Or so PHH thought. In 2014, notwithstanding Section
8(c) and HUD’s longstanding interpretation, the CFPB
initiated an administrative enforcement action against PHH.
The CFPB alleged that PHH’s captive reinsurance
arrangement with the mortgage insurers violated Section 8.
Under the CFPB’s newly minted interpretation, Section 8
prohibits most referrals made by lenders to mortgage insurers
in exchange for the insurer’s purchasing reinsurance from a
lender-affiliated reinsurer. The CFPB said that Section 8 bars
such a captive reinsurance arrangement even when the
mortgage insurer pays no more than reasonable market value to
the reinsurer for the reinsurance.
In its order in this case, the CFPB thus discarded HUD’s
longstanding interpretation of Section 8 and, for the first time,
pronounced its new interpretation. And then the CFPB
applied its new interpretation of Section 8 retroactively against
PHH, notwithstanding PHH’s reliance on HUD’s prior
interpretation. The CFPB sanctioned PHH for previous
actions that PHH had taken in reliance on HUD’s prior
interpretation, even though PHH’s conduct had occurred

Page 16 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

17
before the CFPB’s new interpretation of Section 8. The CFPB
ordered PHH to pay $109 million in disgorgement and
enjoined PHH from entering into future captive reinsurance
arrangements.
PHH petitioned this Court for review. A motions panel
of this Court (Judges Henderson, Millett, and Wilkins)
previously granted PHH’s motion for a stay of the CFPB’s
order pending resolution of the merits in this case.
II
In challenging the enforcement action against it, PHH
raises a fundamental constitutional objection to the entire
proceeding. According to PHH, the CFPB’s structure violates
Article II of the Constitution because the CFPB operates as an
independent agency headed by a single Director. PHH argues
that, to comply with Article II, either (i) the agency’s Director
must be removable at will by the President, meaning that the
CFPB would operate as a traditional executive agency; or (ii) if
structured as an independent agency, the agency must be
structured as a multi-member commission. We agree.
A
We begin by describing the background of independent
agencies in general and the CFPB in particular.
As the Supreme Court has explained, our Constitution
“was adopted to enable the people to govern themselves,
through their elected leaders,” and the Constitution “requires
that a President chosen by the entire Nation oversee the
execution of the laws.” Free Enterprise Fund v. Public
Company Accounting Oversight Board, 561 U.S. 477, 499
(2010). Under the text of Article II, the President alone is

Page 17 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

18
responsible for exercising the executive power. The first 15
words of Article II of the Constitution provide: “The
executive Power shall be vested in a President of the United
States of America.” U.S. CONST. art. II, § 1. And Article II
assigns the President alone the authority and responsibility to
“take Care that the Laws be faithfully executed.” Id. § 3.
Article II makes “emphatically clear from start to finish” that
“the president would be personally responsible for his branch.”
AKHIL REED AMAR, AMERICA’S CONSTITUTION: A BIOGRAPHY
197 (2005); see also Neomi Rao, Removal: Necessary and
Sufficient for Presidential Control, 65 Ala. L. Rev. 1205, 1215
(2014) (“The text and structure of Article II provide the
President with the power to control subordinates within the
executive branch.”).
To exercise the executive power, the President must have
the assistance of subordinates. See Free Enterprise Fund, 561
U.S. at 483. The Framers therefore provided for the
appointment of executive officers and the creation of executive
departments to assist the President “in discharging the duties of
his trust.” Id. (internal quotation marks omitted); see U.S.
CONST. art. II, § 2.
In order to maintain control over the exercise of executive
power and take care that the laws are faithfully executed, the
President must be able to supervise and direct those
subordinate executive officers. See Free Enterprise Fund,
561 U.S. at 498-502. As James Madison stated during the
First Congress, “if any power whatsoever is in its nature
Executive, it is the power of appointing, overseeing, and
controlling those who execute the laws.” 1 ANNALS OF
CONGRESS 463 (Madison) (1789) (Joseph Gales ed., 1834).
To supervise and direct executive officers, the President
must be able to remove those officers at will. See generally

Page 18 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

19
Myers v. United States, 272 U.S. 52 (1926). Otherwise, a
subordinate could ignore the President’s supervision and
direction without fear, and the President could do nothing
about it. See Bowsher v. Synar, 478 U.S. 714, 726 (1986)
(“Once an officer is appointed, it is only the authority that can
remove him, and not the authority that appointed him, that he
must fear and, in the performance of his functions, obey.”)
(internal quotation marks omitted). The Article II chain of
command depends on the President’s removal power. As
James Madison explained: “If the President should possess
alone the power of removal from office, those who are
employed in the execution of the law will be in their proper
situation, and the chain of dependence be preserved; the lowest
officers, the middle grade, and the highest, will depend, as they
ought, on the President, and the President on the community.”
1 ANNALS OF CONGRESS 499 (Madison). The Supreme Court
recently summarized the Article II chain of command this way:
“The Constitution that makes the President accountable to the
people for executing the laws also gives him the power to do
so. That power includes, as a general matter, the authority to
remove those who assist him in carrying out his duties.
Without such power, the President could not be held fully
accountable for discharging his own responsibilities; the buck
would stop somewhere else.” Free Enterprise Fund, 561 U.S.
at 513-14.
In the late 1800s and the early 1900s, as part of the
Progressive Movement and an emerging belief in expert,
apolitical, and scientific answers to certain public policy
questions, Congress began creating new expert agencies that
were independent of the President but that exercised executive
power. The heads of those independent agencies were
removable by the President only for cause, not at will, and were
neither supervised nor directed by the President. Some early
examples included the Interstate Commerce Commission

Page 19 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

20
(1887) and the Federal Trade Commission (1914).
Importantly, the independent agencies were all multi-member
bodies: They were designed as non-partisan expert bodies
that would neutrally and impartially issue rules, bring law
enforcement actions, and resolve disputes in their respective
jurisdictions.
In a 1926 decision written by Chief Justice and former
President Taft, the Supreme Court ruled that, under Article II,
the President must be able to supervise, direct, and remove at
will certain executive officers. The Court stated: “[W]hen
the grant of the executive power is enforced by the express
mandate to take care that the laws be faithfully executed, it
emphasizes the necessity for including within the executive
power as conferred the exclusive power of removal.” Myers,
272 U.S. at 122.
A few years later, based on his reading of Article II and the
Court’s 1926 decision in Myers, President Franklin Roosevelt
vigorously contested the idea that Congress could create
independent agencies and thereby prevent the President from
controlling the executive power vested in those independent
agencies. President Roosevelt did not object to the existence
of the agencies; rather, he objected to the President’s lack of
control over these agencies, which after all were exercising
important executive power.
The issue came to a head in President Roosevelt’s dispute
with William E. Humphrey, a commissioner of the Federal
Trade Commission.
Commissioner Humphrey was a
Republican holdover from the Hoover Administration who, in
President Roosevelt’s view, was too sympathetic to big
business and hostile to the Roosevelt Administration’s
regulatory agenda. Asserting his authority under Article II,
President Roosevelt fired Commissioner Humphrey.

Page 20 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

21
Humphrey contested his removal, arguing that he was
protected against firing by the statute’s for-cause removal
provision, and further arguing that Congress possessed
authority to create such independent agencies without violating
Article II. The case reached the Supreme Court in 1935.
At its core, the case raised the question whether Article II
permitted Congress to create independent agencies whose
heads were not removable at will and would operate free of the
President’s supervision and direction. Representing President
Roosevelt, the Solicitor General argued that the case was
straightforward and controlled by the text and history of
Article II and the Court’s 1926 decision in Myers. But
notwithstanding Article II and the decision in Myers, the
Supreme Court upheld the constitutionality of independent
agencies – a decision that so incensed President Roosevelt that
it helped trigger his ill-fated court reorganization plan in 1937.
See Humphrey’s Executor v. United States, 295 U.S. 602, 624,
631-32 (1935). In allowing independent agencies, the
Humphrey’s Executor Court found it significant that the
Federal Trade Commission was intended “to be non-partisan,”
to “act with entire impartiality,” and “to exercise the trained
judgment of a body of experts appointed by law and informed
by experience.” Id. at 624 (internal quotation marks omitted).
Those characteristics, among others, led the Court to conclude
that Congress could create an independent agency “wholly
disconnected from the executive department.” Id. at 630.
According to the Court, Congress could therefore limit the
President’s power to remove the commissioners of the Federal
Trade Commission and, by extension, Congress could limit the
President’s power to remove the commissioners and board
directors of similar independent agencies. Id. at 628-30. 2
2

To cabin the effects of Humphrey’s Executor on the
Presidency, some have proposed reading the standard for-cause

Page 21 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

22
In the wake of the 1935 Humphrey’s Executor decision,
independent agencies have continued to play an enormous role
in the U.S. Government. The independent agencies possess
massive authority over vast swaths of American economic and
social life.
Importantly, however, the independent agencies have
traditionally operated – and continue to operate – as
multi-member “bod[ies] of experts appointed by law and
informed by experience.” Id. at 624 (internal quotation marks
omitted). 3

removal restrictions in the statutes creating independent agencies to
allow for Presidential removal of independent agency heads based
on policy differences. But Humphrey’s Executor itself rejected that
interpretation.
As the Supreme Court recently explained,
Humphrey’s Executor refuted the idea that “simple disagreement”
with an agency head’s “policies or priorities could constitute ‘good
cause’ for its removal.” Free Enterprise Fund, 561 U.S. at 502.
The correct reading of the “for-cause” restrictions, the Court stated
in Free Enterprise Fund, is that they “mean what they say” and
preclude removal except in cases of inefficiency, neglect of duty, or
malfeasance in office. Id.
3
The independent agencies have been designed, moreover, to
avoid “the suspicion of partisan direction.” Humphrey’s Executor,
295 U.S. at 625. The independent agency heads are appointed by
the President with the advice and consent of the Senate (or appointed
for a temporary period by the President alone in appropriate Senate
recesses). By statute, certain independent agencies must include
members of both major political parties. See, e.g., 15 U.S.C. § 41
(Federal Trade Commission); 15 U.S.C. § 78d(a) (Securities and
Exchange Commission); 15 U.S.C. § 2053(c) (Consumer Product
Safety Commission); 42 U.S.C. § 7171(b)(1) (Federal Energy
Regulatory Commission).

Page 22 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

23
The independent agency at issue here, the CFPB, arose out
of an idea originally proposed by then-Professor and
now-Senator Elizabeth Warren. In 2007, concerned about
balkanized and inconsistent federal law enforcement of
consumer protection statutes, Professor Warren advocated that
Congress create a new independent agency, which she called a
Financial Product Safety Commission. This new agency
would centralize and unify federal law enforcement to protect
consumers. See Elizabeth Warren, Unsafe at Any Rate: If It’s
Good Enough for Microwaves, It’s Good Enough for
Mortgages. Why We Need a Financial Product Safety
Commission, Democracy, Summer 2007, at 8, 16-18.
The agency proposed by Professor Warren was to operate
as a traditional multi-member independent agency. The
subsequent Executive Branch proposal for such a new agency
likewise contemplated a multi-member structure.
See
DEPARTMENT OF THE TREASURY, FINANCIAL REGULATORY
REFORM: A NEW FOUNDATION: REBUILDING FINANCIAL
SUPERVISION AND REGULATION 58 (2009). The originally
passed House bill sponsored by Congressman Barney Frank
and supported by Speaker Nancy Pelosi also would have
created a traditional multi-member independent agency. See
H.R. 4173, 111th Cong. § 4103 (as passed by House, Dec. 11,
2009).
But Congress ultimately strayed from the Warren and
Executive Branch proposals, and from the House bill, as well
as from historical practice, by creating an independent agency
with only a single Director. See Dodd-Frank Wall Street
Reform and Consumer Protection Act, § 1011, 12 U.S.C.
§ 5491. Congress made the Director of the CFPB removable
only for cause – that is, for “inefficiency, neglect of duty, or
malfeasance in office” – during the Director’s fixed five-year
term. See 12 U.S.C. § 5491(c)(3); Humphrey’s Executor, 295

Page 23 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

24
U.S. at 620. Under the statute, the President therefore may not
supervise, direct, or remove at will the Director. As a result,
this statute means that a Director appointed by a President may
continue to serve in office even if the President later wants to
remove the Director based on policy disagreement, for
example. This statute also means that a Director may even
continue to serve under a new President (at least until the
Director’s statutory five-year tenure has elapsed), even though
the new President might strongly disagree with the Director
about policy issues or the overall direction of the agency.
At the same time, Congress granted the CFPB broad
authority to enforce U.S. consumer protection laws. Under
the Dodd-Frank Act, the CFPB possesses the power to
“prescribe rules or issue orders or guidelines pursuant to” 19
distinct consumer protection laws.
12 U.S.C.
§ 5581(a)(1)(A); see also id. § 5481(14). That power was
previously exercised by seven different government agencies.
See id. § 5581(b) (transferring to the CFPB “[a]ll consumer
financial protection functions” previously exercised by the
Board of Governors of the Federal Reserve, the Comptroller of
the Currency, the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, the National Credit Union
Administration, and select functions of the Department of
Housing and Urban Development and the Federal Trade
Commission). The CFPB may pursue actions to enforce the
consumer protection laws in federal court, as well as in
administrative actions before administrative law judges, and
may issue subpoenas requesting documents or testimony in
connection with those enforcement actions.
See id.
§§ 5562-5564. The CFPB has the power to impose a wide
range of legal and equitable relief, including restitution,
disgorgement, money damages, injunctions, and civil
monetary penalties. Id. § 5565(a)(2). And all of this massive
power is lodged in one person – the Director – who is not

Page 24 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

25
supervised, directed, or checked by the President or by other
directors.
Because the Director alone heads the agency without
Presidential supervision, and in light of the CFPB’s broad
authority over the U.S. economy, the Director enjoys
significantly more unilateral power than any single member of
any other independent agency. By “unilateral power,” we
mean power that is not checked by the President or by other
colleagues. Indeed, other than the President, the Director of
the CFPB is the single most powerful official in the entire
United States Government, at least when measured in terms of
unilateral power. That is not an overstatement. What about
the Speaker of the House, you might ask? The Speaker can
pass legislation only if 218 Members agree. The Senate
Majority Leader? The Leader needs 60 Senators to invoke
cloture, and needs a majority of Senators (usually 51 Senators
or 50 plus the Vice President) to approve a law or nomination.
The Chief Justice? The Chief Justice must obtain four other
Justices’ votes for his or her position to prevail. The Chair of
the Federal Reserve? The Chair needs the approval of a
majority of the Federal Reserve Board. The Secretary of
Defense? The Secretary is supervised and directed by the
President. On any decision, the Secretary must do as the
President says. So too with the Secretary of State, and the
Secretary of the Treasury, and the Attorney General.
To be sure, the Dodd-Frank Act requires the Director to
establish and consult with a “Consumer Advisory Board.”
See id. § 5494. But the advisory board is just that: advisory.
Nothing requires the Director to heed the Board’s advice.
Without the formal authority to prevent unilateral action by the
Director, the Advisory Board does not come close to equating
to the check provided by the multi-member structure of
traditional independent commissions.

Page 25 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

26
The Act also, in theory, allows a supermajority of the
Financial Stability Oversight Council to veto certain
regulations of the Director. See id. § 5513. But by statute,
the veto power may be used only to prevent regulations (not to
prevent enforcement actions or adjudications); only when
two-thirds of the Council members agree; and only when a
regulation puts “the safety and soundness of the United States
banking system or the stability of the financial system of the
United States at risk,” a standard unlikely to be met in practice
in most cases. Id. § 5513(c)(3)(B)(ii); see S. Rep. No.
111-176, at 166 (“The Committee notes that there was no
evidence provided during its hearings that consumer protection
regulation would put safety and soundness at risk.”); see also
Todd Zywicki, The Consumer Financial Protection Bureau:
Savior or Menace?, 81 Geo. Wash. L. Rev. 856, 875 (2013)
(“[S]ubstantive checks on the CFPB can be triggered . . . only
under the extreme circumstance of a severe threat to the safety
and soundness of the American financial system. It is likely
that this extreme test will rarely be satisfied in practice.”);
Recent Legislation, Dodd-Frank Act Creates the Consumer
Financial Protection Bureau, 124 Harv. L. Rev. 2123, 2129
(2011) (“[T]he high standard for vetoing regulations . . . will
be difficult to establish.”). The veto power could not have
been used in this case to override the Director’s determination
regarding Section 8, for example. As with the consultation
requirement, the Act’s limited veto provision falls far short of
making the CFPB the equivalent of a multi-member
independent agency.
Finally, the Act technically makes the CFPB part of the
Federal Reserve for certain administrative purposes. See, e.g.,
12 U.S.C. § 5491(a); see also id. § 5493. But that is irrelevant
to the present analysis because the Federal Reserve may not
supervise, direct, or remove the Director.

Page 26 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

27
In short, when measured in terms of unilateral power, the
Director of the CFPB is the single most powerful official in the
entire U.S. Government, other than the President. Indeed,
within his jurisdiction, the Director of the CFPB can be
considered even more powerful than the President. It is the
Director’s view of consumer protection law that prevails over
all others. In essence, the Director is the President of
Consumer Finance. The concentration of massive, unchecked
power in a single Director marks a departure from settled
historical practice and makes the CFPB unique among
traditional independent agencies, as we will now explain.
B
As a single-Director independent agency exercising
substantial executive authority, the CFPB is the first of its kind
and a historical anomaly. Until this point in U.S. history,
independent agencies exercising substantial executive
authority have all been multi-member commissions or boards.
A sample list includes:
•
•
•
•
•
•
•
•
•
•
•
•

Interstate Commerce Commission (1887)
Federal Reserve Board (1913)
Federal Trade Commission (1914)
U.S. International Trade Commission (1916)
Federal Deposit Insurance Corporation (1933)
Federal Communications Commission (1934)
National Mediation Board (1934)
Securities and Exchange Commission (1934)
National Labor Relations Board (1935)
Federal Maritime Commission (1961)
National Transportation Safety Board (1967)
National Credit Union Administration (1970)

Page 27 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

28
•
•
•
•
•
•
•
•
•
•
•
•
•
4

Occupational Safety and Health Review Commission
(1970)
Postal Regulatory Commission (1970)
Consumer Product Safety Commission (1972)
Nuclear Regulatory Commission (1974)
Federal Energy Regulatory Commission (1977)
Federal Mine Safety and Health Review Commission
(1977)
Federal Labor Relations Authority (1978)
Merit Systems Protection Board (1978)
Defense Nuclear Facilities Safety Board (1988)
National Indian Gaming Commission (1988)
Chemical Safety and Hazard Investigation Board
(1990)
Surface Transportation Board (1995)
Independent Payment Advisory Board (2010). 4

In general, an agency without a for-cause removal statute is an
executive agency, not an independent agency, because the President
can supervise, direct, and remove at will the heads of those agencies.
That said, in the period from Myers (1926) to Humphrey’s Executor
(1935), Congress created several multi-member agencies that did not
include for-cause provisions, apparently because Congress believed
that Myers had outlawed making agencies independent. Those
agencies included the FCC and the SEC. After Humphrey’s
Executor, those multi-member agencies were nonetheless treated as
independent agencies. Cf. Free Enterprise Fund v. Public
Company Accounting Oversight Board, 561 U.S. 477, 487 (2010)
(deciding case on assumption that SEC is an independent agency);
Wiener v. United States, 357 U.S. 349, 352-54 (1958). But because
those agencies’ statutes do not contain express for-cause provisions,
some suggest that those agencies should be treated as executive
agencies. See Kirti Datla & Richard L. Revesz, Deconstructing
Independent Agencies (and Executive Agencies), 98 Cornell L. Rev.
769, 834-35 (2013); Note, The SEC Is Not an Independent Agency,
126 Harv. L. Rev. 781, 801 (2013). We need not tackle that

Page 28 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

29
Have there been any independent agencies headed by a
single person? Prior to oral argument, in an effort to be
comprehensive, the Court issued an order asking the CFPB for
all historical or current examples it could find of independent
agencies headed by a single person removable only for cause.
The CFPB found only three examples: the Social Security
Administration, the Office of Special Counsel, and the Federal
Housing Finance Agency. Tr. of Oral Arg. at 19. But none
of the three examples has deep historical roots. Indeed, the
Federal Housing Finance Agency was created only in 2008,
about the same time as the CFPB. The other two are likewise
relatively recent.
And those other two have been
constitutionally contested by the Executive Branch, and they
do not exercise the core Article II executive power of bringing
law enforcement actions or imposing fines and penalties
against private citizens for violation of statutes or agency rules.
For those reasons, as we will explain, the three examples are
different in kind from the CFPB and other independent
agencies such as the FCC, the SEC, and FERC. Those
examples therefore do not count for much when weighed
against the deeply rooted historical practice demonstrating that
independent agencies are multi-member agencies. To borrow
the words of Justice Breyer in Noel Canning, as compared to
the settled historical practice, “we regard these few scattered
examples as anomalies.” NLRB v. Noel Canning, 134 S. Ct.
2550, 2567, slip op. at 21 (2014); see also Free Enterprise
Fund v. Public Company Accounting Oversight Board, 561
U.S. 477, 505-06 (2010).

question in this case and do not imply an answer one way or the other
about the executive or independent status of the multi-member
agencies without express for-cause removal provisions.

Page 29 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

30
First, the CFPB cited and primarily relied on the example
of the Social Security Administration, which is an independent
agency headed by a single Social Security Commissioner.
See 42 U.S.C. §§ 901(a), 902(a). But the current structure of
the agency is relatively recent.
The Social Security
Administration long existed first as a multi-member
independent agency and then as a single-Director executive
agency within various executive departments, most recently
the Department of Health and Human Services. Only in 1994
did Congress change the Social Security Administration to a
single-Director independent agency. Importantly, when the
agency structure was altered in 1994, President Clinton issued
a signing statement expressing his view that the change in the
agency’s structure was constitutionally problematic. See
President William J. Clinton, Statement on Signing the Social
Security Independence and Program Improvements Act of
1994, 2 Pub. Papers 1471, 1472 (Aug. 15, 1994). The status
of that agency’s structure therefore is constitutionally
contested. In those circumstances, the historical precedent
counts for little because it is not settled. Cf. Noel Canning,
134 S. Ct. at 2563-64, 2567, slip op. at 14-15, 20-21
(discounting prior example of appointments during “fictitious”
inter-session recess because of Senate Committee’s strong
opposition to those appointments); INS v. Chadha, 462 U.S.
919, 942 n.13 (1983) (discounting prior statutory legislative
veto provisions because Presidents had objected to those
provisions). If anything, when considered against the “settled
practice,” the Social Security example only highlights the
“anomal[y]” of an independent agency headed by a single
person. Noel Canning, 134 S. Ct. at 2567, slip op. at 21.
Moreover, the Social Security Administration is not a
precedent for the CFPB because the Social Security
Commissioner does not possess unilateral authority to bring
law enforcement actions against private citizens, which is the

Page 30 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

31
core of the executive power and the primary threat to
individual liberty posed by executive power. See Morrison v.
Olson, 487 U.S. 654, 706 (1988) (Scalia, J., dissenting). The
Social Security Administration does not have unilateral power
to impose fines or penalties on private citizens in Social
Security benefits cases. Instead, the bulk of the Social
Security Administration’s authority involves supervision of the
adjudication of private claims for benefits. Although the
agency does possess limited power to seek civil sanctions
against those who file improper claims, the Commissioner may
initiate such a proceeding “only as authorized by the Attorney
General” – who is an executive officer accountable to the
President. 42 U.S.C. § 1320a-8(b).
Second, the CFPB also cited the example of the Office of
Special Counsel, an independent agency headed by a single
Special Counsel. The Office has a narrow jurisdiction and
mainly enforces certain personnel rules against government
employers and employees, such as the prohibition against
improper political activity by government employees. Like
the Social Security Administration, the Office of Special
Counsel lacks deep historical roots. Its single-Director
structure was established in 1978. Also like the Social
Security Administration, the constitutionality of the Special
Counsel has been contested since its creation. Under
President Carter, the Department of Justice opined that the
Special Counsel “must be removable at will by the President”
and expressed opposition to a for-cause removal restriction for
the Special Counsel. Memorandum Opinion for the General
Counsel, Civil Service Commission, 2 Op. O.L.C. 120, 120
(1978).
When Congress passed subsequent legislation
regarding the Office of Special Counsel, President Reagan
vetoed the bill due to “serious constitutional concerns” about
the Office’s status as an independent agency. See President
Ronald Reagan, Memorandum of Disapproval on a Bill

Page 31 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

32
Concerning Whistleblower Protection, 2 Pub. Papers 1391,
1392 (Oct. 26, 1988). The history of the Office of Special
Counsel confirms what one Special Counsel himself has
acknowledged: the agency is “a controversial anomaly in the
federal system.” K. William O’Connor, Foreword to SHIGEKI
J. SUGIYAMA, PROTECTING THE INTEGRITY OF THE MERIT
SYSTEM: A LEGISLATIVE HISTORY OF THE MERIT SYSTEM
PRINCIPLES, PROHIBITED PERSONNEL PRACTICES AND THE
OFFICE OF THE SPECIAL COUNSEL, at v (1985). The status of
the agency remains constitutionally contested and does not
supply a persuasive historical precedent for the CFPB’s
structure. Cf. Noel Canning, 134 S. Ct. at 2563-64, 2567, slip
op. at 14-15, 20-21; Chadha, 462 U.S. at 942 n.13.
Moreover, the Office of Special Counsel is not a precedent
for the CFPB because the Office of Special Counsel is
primarily responsible for enforcing personnel laws against
government agencies and government employees. Unlike the
CFPB, the Office of Special Counsel does not have authority to
enforce laws against private citizens, and does not have power
to impose fines and penalties on private citizens. 5

5

Because the Social Security Administration and the Office of
Special Counsel do not exercise the core executive power of
bringing law enforcement actions and because they have narrow
jurisdiction, a holding invalidating the single-Director structure of
the CFPB would not necessarily invalidate the single-Director
structure of the Social Security Administration and the Office of
Special Counsel.
That said, if those two agencies are
unconstitutionally structured, the remedy would presumably be the
same remedy as in Free Enterprise Fund: severing the for-cause
provision so that the agencies would continue to fully operate, albeit
as traditional executive agencies rather than independent agencies.
Cf. infra pp. 65-69. We do not address those questions here.

Page 32 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

33
Third, the CFPB cited Congress’s 2008 creation of a
single head of the new Federal Housing Finance Agency. See
Housing and Economic Recovery Act of 2008, Pub. L. No.
110-289, § 1101, 122 Stat. 2654, 2662 (codified at 12 U.S.C.
§§ 4511-4512). That agency is a contemporary of the CFPB
and merely raises the same question we confront here. A
body created only in 2008 obviously does not constitute a
historical precedent for the CFPB.
Although not a regulatory agency precedent and not an
example cited by the CFPB as precedent for its single-Director
structure (for good reason), there is at least one other modern
example of an independent entity headed by one person. It is
the now-defunct independent counsel law that was upheld in
Morrison v. Olson, 487 U.S. 654 (1988). But that decision
did not expressly consider whether an independent agency
could be headed by a single director. The independent
counsel, moreover, had only a limited jurisdiction for
particular defined investigations. Id. at 671-72. In addition,
the independent counsel experiment ended with nearly
universal consensus that the experiment had been a mistake
and that Justice Scalia had been right back in 1988 to view the
independent counsel system as an unconstitutional departure
from historical practice and a serious threat to individual
liberty. See id. at 699 (Scalia, J., dissenting) (“this wolf
comes as a wolf”); see also Stanford Lawyer, Spring 2015, at 4
(quoting Justice Kagan’s statement that Justice Scalia’s dissent
in Morrison is “one of the greatest dissents ever written and
every year it gets better”).
The independent counsel
experience, if anything, strongly counsels caution with respect
to single-Director independent agencies. 6
6

Some have suggested that the CFPB Director is similar to the
Comptroller of the Currency. But unlike the Director, the
Comptroller is not independent. The Comptroller is removable at

Page 33 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

34
So that’s all the CFPB has, and that’s not much. As
Justice Breyer stated when facing a similar (actually, a more
robust) historical record in Noel Canning, the few examples
offered by the CFPB are “anomalies.” 134 S. Ct. at 2567, slip
op. at 21. Or as the Court put it in Free Enterprise Fund when
confronting a novel structure, a “handful of isolated” examples
does not count for much when assessed against an otherwise
settled historical practice. 561 U.S. at 505. To be sure, in
“all the laws enacted since 1789, it is always possible that
Congress” created some other independent agencies like the
CFPB “that exercise[] traditional executive functions” but are
headed by single Directors. Free Enterprise Fund v. Public
Company Accounting Oversight Board, 537 F.3d 667, 699 n.8
(D.C. Cir. 2008) (Kavanaugh, J., dissenting); see also Noel
Canning, 134 S. Ct. at 2567, slip op. at 21 (“There may be
others of which we are unaware.”). But “the research of the
parties and the Court has not found such a needle in the
haystack.” Free Enterprise Fund, 537 F.3d at 699 n.8
(Kavanaugh, J., dissenting). “Even if such an example were
uncovered,” there is no question that this kind of
single-Director independent agency “has been rare at best.”
Id.
The bottom line is that there is no settled historical
practice of independent agencies headed by single Directors
who possess the substantial executive authority that the
Director of the CFPB enjoys. The CFPB is exceptional in our
constitutional structure and unprecedented in our constitutional
history. See Who’s Watching the Watchmen? Oversight of the
will by the President. See 12 U.S.C. § 2 (“The Comptroller of the
Currency shall be appointed by the President, by and with the advice
and consent of the Senate, and shall hold his office for a term of five
years unless sooner removed by the President, upon reasons to be
communicated by him to the Senate.”).

Page 34 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

35
Consumer Financial Protection Bureau: Hearing Before the
Subcomm. on TARP, Financial Services and Bailouts of Public
and Private Programs of the H. Comm. on Oversight and
Government Reform, 112th Cong. 77 (2011) (statement of
Andrew Pincus) (“Dodd-Frank sets up for the Bureau an
unprecedented structure that consolidates more power in the
director than in the head of any other agency that regulates
private individuals and entities.”); Recent Legislation,
Dodd-Frank Act Creates the Consumer Financial Protection
Bureau, 124 Harv. L. Rev. 2123, 2130 (2011) (“[T]he CFPB’s
design is troubling because of its unprecedented nature.”);
Note, Independence, Congressional Weakness, and the
Importance of Appointment: The Impact of Combining
Budgetary Autonomy with Removal Protection, 125 Harv. L.
Rev. 1822, 1824 n.15 (2012) (CFPB’s lack of a multi-member
board is “atypical for independent agencies and will amplify
the Director’s independence”); Todd Zywicki, The Consumer
Financial Protection Bureau: Savior or Menace? 81 Geo.
Wash. L. Rev. 856, 899 (2013) (“[T]he agency structure
Congress chose for the CFPB – a single-director structure,
devoid of accountability, and with vast, ill-defined powers –
appears to be unique in recent American history.”). 7

7

The historical practice is further illustrated by the quorum
provisions that are applicable to independent agencies. Those
quorum provisions reinforce the settled understanding that
independent agencies are to have multiple members. Cf. New
Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010); Marshall J. Breger
& Gary J. Edles, Established by Practice: The Theory and Operation
of Independent Federal Agencies, 52 Admin. L. Rev. 1111, 1182 &
app. (2000) (summarizing independent agency quorum
requirements).

Page 35 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

36
C
The CFPB’s departure from historical practice matters.
A long line of Supreme Court precedent tells us that history
and tradition are important guides in separation of powers
cases that, like this one, are not resolved by the constitutional
text alone. As Justice Breyer wrote for the Supreme Court in
Noel Canning, the “longstanding practice of the government
can inform our determination of what the law is.” NLRB v.
Noel Canning, 134 S. Ct. 2550, 2560, slip op. at 7 (2014)
(internal quotation marks and citation omitted). Justice
Breyer quoted James Madison’s statement that it was “foreseen
at the birth of the Constitution, that difficulties and differences
of opinion might occasionally arise in expounding terms &
phrases necessarily used in such a charter . . . and that it might
require a regular course of practice to liquidate & settle the
meaning of some of them.” Id., slip op. at 8 (internal
quotation marks omitted).
Justice Breyer explained,
moreover, that the Court “has treated practice as an important
interpretive factor even when the nature or longevity of that
practice is subject to dispute, and even when that practice
began after the founding era.” Id., slip op. at 7-8.
All of this, Justice Breyer stated, is “neither new nor
controversial.” Id., slip op. at 7. Consider the following:
•

•

“In separation-of-powers cases this Court has often put
significant weight upon historical practice.”
Zivotofsky v. Kerry, 135 S. Ct. 2076, 2091, slip op. at
20 (2015) (internal quotation marks omitted) (quoting
Noel Canning, 134 S. Ct. at 2559, slip op. at 6).
“We therefore conclude, in light of historical practice,
that a recess of more than 3 days but less than 10 days is
presumptively too short to fall within the Clause.”
Noel Canning, 134 S. Ct. at 2567, slip op. at 21.

Page 36 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

37
•

•

•

•

•

•

“Perhaps the most telling indication of the severe
constitutional problem with the [agency] is the lack of
historical precedent for this entity.” Free Enterprise
Fund v. Public Company Accounting Oversight Board,
561 U.S. 477, 505 (2010) (internal quotation marks
omitted).
“[W]hen we face difficult questions of the
Constitution’s structural requirements, longstanding
customs and practices can make a difference.”
Commonwealth of Puerto Rico v. Sanchez Valle, 136 S.
Ct. 1863, 1884, slip op. at 13 (2016) (Breyer, J.,
dissenting).
“[T]raditional ways of conducting government give
meaning to the Constitution.” Mistretta v. United
States, 488 U.S. 361, 401 (1989) (internal quotation
marks and alteration omitted) (quoting Youngstown
Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 610 (1952)
(Frankfurter, J., concurring)).
“Deeply embedded traditional ways of conducting
government cannot supplant the Constitution or
legislation, but they give meaning to the words of a text
or supply them.” Youngstown, 343 U.S. at 610
(Frankfurter, J., concurring).
“A legislative practice such as we have here, evidenced
not by only occasional instances, but marked by the
movement of a steady stream for a century and a half of
time, goes a long way in the direction of proving the
presence
of
unassailable
ground
for
the
constitutionality of the practice, to be found in the
origin and history of the power involved, or in its
nature, or in both combined.” United States v.
Curtiss-Wright Export Corp., 299 U.S. 304, 327-28
(1936).
“Long settled and established practice is a
consideration of great weight in a proper interpretation

Page 37 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

38

•

•
•

•

•

of constitutional provisions of this character.” The
Pocket Veto Case, 279 U.S. 655, 689 (1929).
“Such long practice under the pardoning power and
acquiescence in it strongly sustains the construction it
is based on.” Ex parte Grossman, 267 U.S. 87, 118-19
(1925).
“[A] page of history is worth a volume of logic.” New
York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921).
“[I]n determining the meaning of a statute or the
existence of a power, weight shall be given to the usage
itself – even when the validity of the practice is the
subject of investigation.” United States v. Midwest
Oil Co., 236 U.S. 459, 473 (1915).
“[W]here there is ambiguity or doubt [in the words of
the Constitution], or where two views may well be
entertained, contemporaneous and subsequent practical
construction are entitled to the greatest weight.”
McPherson v. Blacker, 146 U.S. 1, 27 (1892).
“[A] doubtful question, one on which human reason
may pause, and the human judgment be suspended, in
the decision of which the great principles of liberty are
not concerned, but the respective powers of those who
are equally the representatives of the people, are to be
adjusted; if not put at rest by the practice of the
government, ought to receive a considerable
impression from that practice.”
McCulloch v.
Maryland, 17 U.S. 316, 401 (1819).

Stated simply, in separation of powers cases not resolved
by the constitutional text alone, historical practice matters a
great deal in defining the constitutional limits on the Executive
and Legislative Branches. 8 The Supreme Court’s recent
8

The Supreme Court has heavily relied on historical practice as
a guide not just in separation of powers cases, but also in federalism

Page 38 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

39
decisions in Noel Canning and Free Enterprise Fund illustrate
how the Court considers historical practice in this context. 9
cases. In several federalism cases in the last 25 years, the Court has
invalidated novel congressional statutes that alter the traditional
federal-state balance. See New York v. United States, 505 U.S. 144,
177 (1992) (“The take title provision appears to be unique. No
other federal statute has been cited which offers a state government
no option other than that of implementing legislation enacted by
Congress.”); Printz v. United States, 521 U.S. 898, 905 (1997) (“[I]f,
as petitioners contend, earlier Congresses avoided use of this highly
attractive power, we would have reason to believe that the power
was thought not to exist.”); Alden v. Maine, 527 U.S. 706, 744
(1999) (“Not only were statutes purporting to authorize private suits
against nonconsenting States in state courts not enacted by early
Congresses; statutes purporting to authorize such suits in any forum
are all but absent from our historical experience. . . . The provisions
of the FLSA at issue here, which were enacted in the aftermath of
Parden, are among the first statutory enactments purporting in
express terms to subject nonconsenting States to private suits.”);
United States v. Windsor, 133 S. Ct. 2675, 2692, slip op. at 18-19
(2013) (“DOMA, because of its reach and extent, departs from this
history and tradition of reliance on state law to define marriage.”); cf.
National Federation of Independent Business v. Sebelius, 132 S. Ct.
2566, 2586, slip op. at 18 (2012) (binding opinion of Roberts, C.J.)
(“But Congress has never attempted to rely on that power to compel
individuals not engaged in commerce to purchase an unwanted
product.”); id. at 2649, slip op. at 14 (joint dissent of Scalia,
Kennedy, Thomas, and Alito, JJ.) (“[T]he relevant history is not that
Congress has achieved wide and wonderful results through the
proper exercise of its assigned powers in the past, but that it has
never before used the Commerce Clause to compel entry into
commerce.”).
9
Of course, if the constitutional text is sufficiently clear, then
the existence of any historical practice departing from that text is not
persuasive. See, e.g., INS v. Chadha, 462 U.S. 919, 944-46 (1983);
Powell v. McCormack, 395 U.S. 486, 546-47 (1969). Here, the
question concerns the scope of Humphrey’s Executor – which,

Page 39 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

40
In Noel Canning, the Supreme Court speaking through
Justice Breyer stressed the importance of history when
assessing the constitutionality of a novel practice – in that case,
Presidential recess appointments in Senate recesses of fewer
than 10 days. The Court said: “Long settled and established
practice is a consideration of great weight in a proper
interpretation of constitutional provisions regulating the
relationship between Congress and the President.” Noel
Canning, 134 S. Ct. at 2559, slip op. at 7 (internal quotation
marks and alteration omitted). Based on that history, the
Supreme Court ruled that a Senate recess of “less than 10 days
is presumptively too short” for constitutional purposes. Id. at
2567, slip op. at 21. Importantly, the text of the Constitution
did not draw any such 10-day line. But the historical practice
between the President and the Senate had settled on a 10-day
line.
In ruling out recess appointments in recesses of fewer than
10 days, the Noel Canning Court stated that it had “not found a
single example of a recess appointment made during an
intra-session recess that was shorter than 10 days.” Id. at
2566, slip op. at 20. The Court explained that the “lack of
examples suggests that the recess-appointment power is not
needed in that context.” Id. Although the Court did find “a
few historical examples of recess appointments made during
inter-session recesses shorter than 10 days,” the Court stated:
“But when considered against 200 years of settled practice, we

depending on one’s perspective, requires either an analysis of a
court-created exception to Article II or an analysis of ambiguous
constitutional text in Articles I and II. Either way, in resolving
those kinds of separation of powers questions, history and tradition
play a critical role. See Noel Canning, 134 S. Ct. at 2559-60, slip
op. at 6-8; Free Enterprise Fund, 561 U.S. at 505-06.

Page 40 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

41
regard these few scattered examples as anomalies.” Id. at
2567, slip op. at 20-21.
According to the Court, therefore, allowing recess
appointments in Senate recesses of fewer than 10 days would
depart from the settled historical practice and alter the relative
powers of the President and Senate over appointments. So,
too, disallowing recess appointments in Senate recesses of 10
or more days would depart from settled historical practice. In
Noel Canning, the Supreme Court therefore converted that
historical 10-day practice into a constitutional rule. 10
The Supreme Court engaged in the same kind of
history-based analysis in Free Enterprise Fund. Independent
agency heads are ordinarily removable for cause by the
President. In that case, however, the new Accounting
Oversight Board’s members were removable only for cause by
the Commissioners of the SEC, and the SEC Commissioners in
turn were understood to be removable only for cause by the
10

Justice Scalia concurred in the judgment for four Justices in
Noel Canning, arguing as relevant here that the text of the
Constitution rendered intra-session recess appointments
unconstitutional even in Senate recesses of 10 or more days. But
Justice Scalia did not disagree with the Court’s claim that historical
practice often matters in separation of powers cases, which is the
relevant point for our purposes. See Noel Canning, 134 S. Ct. at
2594, slip op. at 5 (Scalia, J., concurring in the judgment) (“Of
course, where a governmental practice has been open, widespread,
and unchallenged since the early days of the Republic, the practice
should guide our interpretation of an ambiguous constitutional
provision.”). Rather, Justice Scalia stated that the constitutional
text in that case was sufficiently clear and dispositive that resort to
historical practice was unnecessary and unwarranted. See id. at
2592, slip op. at 2; see generally John F. Manning, Separation of
Powers as Ordinary Interpretation, 124 Harv. L. Rev. 1939 (2011).

Page 41 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

42
President. In other words, there were two levels of for-cause
removal between the President and the Accounting Oversight
Board.
The Supreme Court drew a line between one level of
for-cause removal, which was the structure of traditional
independent agencies, and two levels of for-cause removal, the
novel structure of the new Accounting Oversight Board. See
Free Enterprise Fund, 561 U.S. at 484. The Court ruled that
the latter was unconstitutional. The Court drew that line in
part because historical practice had settled on one level of
for-cause removal for a President to remove the head of an
independent agency. There were at most “only a handful of
isolated” precedents for the new Board. Id. at 505. The vast
majority of the extant independent agencies had only one level
of for-cause removal. And as the Court noted, there was a
meaningful difference between one level of for-cause removal
and two levels of for-cause removal in terms of an agency’s
insulation from Presidential control. See id. at 495-96.
Therefore, the Court invalidated the structure of the new
Board. 11
Those two cases well illustrate the broader jurisprudential
principle long applied by the Supreme Court: In separation of
powers cases not resolved by the constitutional text alone,
historical practice matters.

11

Justice Breyer dissented for four Justices in Free Enterprise
Fund. But importantly, he dissented not because he disagreed with
the Court’s point that historical practice matters, but rather primarily
because he did not see a meaningful difference – in practical,
analytical, or constitutional terms – between one and two levels of
for-cause removal. See Free Enterprise Fund, 561 U.S. at 525-26
(Breyer, J., dissenting).

Page 42 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

43
D
The CFPB marks a major departure from the settled
historical practice requiring multi-member bodies at the helm
of independent agencies. Because this case is not resolved
solely by the constitutional text, at least as the text was
interpreted in Humphrey’s Executor, the CFPB’s departure
from historical practice matters to the analysis. And the
departure from historical practice matters even more in this
instance because this departure from historical practice
threatens individual liberty. The historical practice of
structuring independent agencies as multi-member
commissions or boards is the historical practice for a reason:
It reflects a deep and abiding concern for safeguarding the
individual liberty protected by the Constitution.
“The Framers recognized that, in the long term, structural
protections against abuse of power were critical to preserving
liberty.” Bowsher v. Synar, 478 U.S. 714, 730 (1986); see
also id. at 721 (“The declared purpose of separating and
dividing the powers of government, of course, was to ‘diffus[e]
power the better to secure liberty.’”) (quoting Youngstown
Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 635 (1952)
(Jackson, J., concurring)). When describing Article II, Justice
Scalia put the point this way: “The purpose of the separation
and equilibration of powers in general, and of the unitary
Executive in particular, was not merely to assure effective
government but to preserve individual freedom.” Morrison v.
Olson, 487 U.S. 654, 727 (1988) (Scalia, J., dissenting).
The basic constitutional concern with independent
agencies is that the agencies are unchecked by the President,
the official who is accountable to the people and who is made
responsible by Article II for the exercise of executive power.
Recognizing the broad and unaccountable power wielded by

Page 43 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

44
independent agencies, Congress has traditionally required
multi-member bodies at the helm of independent agencies. In
the absence of Presidential control, the multi-member structure
of independent agencies acts as a critical substitute check on
the excesses of any individual independent agency head – a
check that helps to prevent arbitrary decisionmaking and abuse
of power, and thereby to protect individual liberty.
But this new agency, the CFPB, lacks that critical check
and structural constitutional protection. And the lack of the
traditional safeguard threatens the individual liberty protected
by the Constitution’s separation of powers.
How do multi-member independent agencies fare better
than single-Director independent agencies in protecting
individual liberty?
As compared to single-Director
independent agencies, multi-member independent agencies
help prevent arbitrary decisionmaking and abuses of power,
and thereby help protect individual liberty, because they do not
concentrate power in the hands of one individual. The point is
simple but profound. In a multi-member independent agency,
no single commissioner or board member possesses authority
to do much of anything. Before the agency can infringe your
liberty in some way – for example, initiating an enforcement
action against you or issuing a rule that affects your liberty or
property – a majority of commissioners must agree. That in
turn makes it harder for the agency to infringe your liberty.
As the current Chair of the Federal Trade Commission has
explained, it takes “a consensus decision of at least a majority
of commissioners to authorize, or forbear from, action.”
Edith Ramirez, The FTC: A Framework for Promoting
Competition and Protecting Consumers, 83 Geo. Wash. L.
Rev. 2049, 2053 (2015). In a multi-member agency, even
though each individual commissioner is not accountable to or
checked by the President, each commissioner is at least still

Page 44 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

45
accountable to his or her fellow commissioners and needs the
assent of a majority of commissioners to take significant
action.
In addition, unlike single-Director independent agencies,
multi-member independent agencies “can foster more
deliberative decision making.” Kirti Datla & Richard L.
Revesz, Deconstructing Independent Agencies (and Executive
Agencies), 98 Cornell L. Rev. 769, 794 (2013). Relatedly,
multi-member independent agencies benefit from diverse
perspectives and different points of view among the
commissioners and board members. The multiple voices and
perspectives make it more likely that the costs and downsides
of proposed decisions will be more fully ventilated. See
Marshall J. Breger & Gary J. Edles, Established by Practice:
The Theory and Operation of Independent Federal Agencies,
52 Admin. L. Rev. 1111, 1113 (2000) (independent agencies
“are also multi-member organizations, a fact that tends toward
accommodation of diverse or extreme views through the
compromise inherent in the process of collegial
decisionmaking”); Jacob E. Gersen, Administrative Law Goes
to Wall Street: The New Administrative Process, 65 Admin. L.
Rev. 689, 696 (2013) (“[A] multimember board allows for a
representation of divergent interests in a way that a single
decisionmaker simply cannot.”); Glen O. Robinson, On
Reorganizing the Independent Regulatory Agencies, 57 Va. L.
Rev. 947, 963 (1971) (“It is not bipartisanship as such that is
important; it is rather the safeguards and balanced viewpoint
that can be provided by plural membership.”); cf. Harry T.
Edwards, The Effects of Collegiality on Judicial Decision
Making, 151 U. Pa. L. Rev. 1639, 1645 (2003) (“[C]ollegiality
plays an important part in mitigating the role of partisan
politics and personal ideology by allowing judges of differing
perspectives and philosophies to communicate with, listen to,

Page 45 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

46
and ultimately influence one another in constructive and
law-abiding ways.”).
In short, the deliberative process and multiple viewpoints
in a multi-member independent agency can help ensure that an
agency does not wrongly bring an enforcement action or adopt
rules that unduly infringe individual liberty.
As compared to a single-Director structure, a
multi-member independent agency also helps to avoid
arbitrary decisionmaking and to protect individual liberty
because the multi-member structure – and its inherent
requirement for compromise and consensus – will tend to lead
to decisions that are not as extreme, idiosyncratic, or otherwise
off the rails. Cf. Stephen M. Bainbridge, Why a Board?
Group Decisionmaking in Corporate Governance, 55 Vand. L.
Rev. 1, 12-19 (2002) (summarizing experimental evidence
finding group decisionmaking to be superior to individual
decisionmaking). A multi-member independent agency can
only go as far as the middle vote is willing to go. Conversely,
under a single-Director structure, an agency’s policy goals
“will be subject to the whims and idiosyncratic views of a
single
individual.”
Joshua
D.
Wright,
The
Antitrust/Consumer Protection Paradox: Two Policies at War
with Each Other, 121 Yale L.J. 2216, 2260 (2012) (internal
quotation marks omitted); cf. Recent Legislation, Dodd-Frank
Act Creates the Consumer Financial Protection Bureau, 124
Harv. L. Rev. 2123, 2128 (2011) (multi-member commission
structure “reduces the variance of policy and improves
accuracy through aggregation”); Michael B. Rappaport, Essay,
Replacing Independent Counsels with Congressional
Investigations, 148 U. Pa. L. Rev. 1595, 1601 n.17 (2000)
(“[I]ndependent agencies tend to be headed by multimember
commissions, which function to prevent aberrant
actions . . . .”).

Page 46 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

47
Relatedly, as compared to a single-Director independent
agency, a multi-member independent agency provides the
added benefit of “a built-in monitoring system for interests on
both sides because that type of body is more likely to produce a
dissent if the agency goes too far in one direction.” Rachel E.
Barkow, Insulating Agencies: Avoiding Capture Through
Institutional Design, 89 Tex. L. Rev. 15, 41 (2010). A
dissent, in turn, can serve “as a ‘fire alarm’ that alerts Congress
and the public at large that the agency’s decision might merit
closer scrutiny.” Id.; see also Dodd-Frank Act Creates the
Consumer Financial Protection Bureau, 124 Harv. L. Rev. at
2128 (the “presence of dissenters” in agency proceedings
“provides new information and forces the proponent to
articulate a coherent rationale, thus acting as a constraining
force”).
Moreover, multi-member independent agencies are better
structured than single-Director independent agencies to guard
against “capture” of – that is, undue influence over – the
independent agencies by regulated entities or interest groups,
for example. As then-Professor Elizabeth Warren noted in
her original proposal for a multi-member consumer protection
agency: “With every agency, the fear of regulatory capture is
ever-present.” Elizabeth Warren, Unsafe at Any Rate: If It’s
Good Enough for Microwaves, It’s Good Enough for
Mortgages. Why We Need a Financial Product Safety
Commission, Democracy, Summer 2007, at 8, 18. Capture
can infringe individual liberty because capture can prevent a
neutral, impartial agency assessment of what rules to issue and
what enforcement actions to undertake. In a multi-member
agency, however, the capturing parties “must capture a
majority of the membership rather than just one individual.”
Lisa Schultz Bressman & Robert B. Thompson, The Future of
Agency Independence, 63 Vand. L. Rev. 599, 611 (2010); see

Page 47 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

48
also ROBERT E. CUSHMAN, THE INDEPENDENT REGULATORY
COMMISSIONS 153 (Octagon Books 1972) (1941) (noting, in
reference to Federal Reserve Act of 1913, that it “seemed
easier to protect a board from political control than to protect a
single appointed official”); Barkow, Insulating Agencies, 89
Tex. L. Rev. at 38 (“[O]nly one person at the apex can also
mean that the agency is more easily captured.”); Robinson, On
Reorganizing the Independent Regulatory Agencies, 57 Va. L.
Rev. at 962 (“[T]he single administrator may be more
vulnerable” to interest group pressures “because he provides a
sharper focus for the concentration of special interest power
and influence.”).
Importantly, all of those features and benefits of
multi-member independent agencies are not merely accidental
or coincidental byproducts. Those points were in the minds of
the Members of Congress who helped launch independent
agencies. For example, Senator Newlands, the sponsor of the
legislation creating the Federal Trade Commission,
emphasized the need for a commission rather than a single
Director: “If only powers of investigation and publicity are
given[,] a single-headed organization, like the Bureau of
Corporations, might be the best for the work; but if judgment
and discretion are to be exercised, or if we have in
contemplation the exercise of any corrective power hereafter,
or if the broad ends above outlined are to be attained, it seems
to me that a commission is required.” 51 Cong. Rec. 11,092
(1914). In his leading study of independent commissions,
Robert Cushman, former staff member of President Franklin
Roosevelt’s Committee on Administrative Management,
analyzed the creation of the Federal Trade Commission and
explained: “The two ideas, a commission and independence
for the commission, were inextricably bound together. At no
point was it proposed that a commission ought to be set up
unless it be independent or that an independent officer should

Page 48 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

49
be created rather than a commission.” CUSHMAN, THE
INDEPENDENT REGULATORY COMMISSIONS, at 188; see also
THE PRESIDENT’S COMMITTEE ON ADMINISTRATIVE
MANAGEMENT, REPORT OF THE COMMITTEE WITH STUDIES OF
ADMINISTRATIVE
MANAGEMENT
IN
THE
FEDERAL
GOVERNMENT 216 (1937) (noting “popular belief that
important rule-making functions ought to be performed by a
group rather than by a single officer, by a commission rather
than by a department head” as one reason “for the
establishment of independent regulatory agencies”).
Examining the consistent historical practice here, we can
see, moreover, that the consistent historical practice reflects the
deep values of the Constitution. The Constitution as a whole
embodies the bedrock principle that dividing power among
multiple entities and persons helps protect individual liberty.
The Framers created a federal system with the national power
divided among three branches. The Framers “viewed the
principle of separation of powers as the absolutely central
guarantee of a just Government.” Morrison v. Olson, 487
U.S. at 697 (Scalia, J., dissenting).
And to protect liberty, the same kind of checks and
balances principle also influenced how the Framers allocated
power within the three national branches. For example, the
Framers divided the Legislative Branch into two houses, each
with multiple members. No one person operates as the
Legislator-in-Chief. Rather, 535 Members of Congress do so,
divided among two Houses.
Likewise, the Framers
established “one supreme Court” composed of multiple
“Judges” rather than a single judge. No one person operates
as the lone Justice of the Supreme Court. Rather, the Court
consists of one Chief Justice and several Associate Justices, all
of whom have equal votes on cases. “Even a cursory
examination of the Constitution reveals the influence of

Page 49 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

50
Montesquieu’s thesis that checks and balances were the
foundation of a structure of government that would protect
liberty.” Bowsher, 478 U.S. at 722.
Of course, the one exception to the Constitution’s division
of power among multiple parties within the branches is the
President, who is the lone head of the entire Executive Branch.
But the President is the exception that proves the rule. For
starters, the Framers were concerned that dividing the
executive power among multiple individuals would render the
Executive Branch too weak as compared to the more
formidable Legislative Branch. See THE FEDERALIST NO. 48,
at 309-10 (James Madison) (Clinton Rossiter ed., 1961) (“[I]t
is against the enterprising ambition” of the Legislative Branch
“that the people ought to indulge all their jealousy and exhaust
all their precautions. The legislative department derives a
superiority in our governments . . . .”). The Framers sought
“energy in the executive.” THE FEDERALIST NO. 70, at 424
(Alexander Hamilton).
At the same time, the Framers certainly recognized the
risk that a single President could lead to tyranny or arbitrary
decisionmaking. To mitigate the risk to liberty from a single
President, the Framers ensured that the President had “a due
dependence on the people.” Id. The President is nationally
elected by the people. In choosing the President, “the whole
Nation has a part, making him the focus of public hopes and
expectations.” Youngstown, 343 U.S. at 653 (Jackson, J.,
concurring). Presidential candidates are put through the
wringer precisely because of the power they may someday
wield. In other words, the Framers concentrated executive
power in a single President on the condition that the President
would be nationally elected and nationally accountable.

Page 50 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

51
The President is therefore the exception to the ordinary
constitutional practice of dividing power among multiple
entities and persons.
Apart from the President, the
Constitution reflects the basic commonsense principle that
multi-member bodies – the House, the Senate, the Supreme
Court – do better than single-member bodies in avoiding
arbitrary decisionmaking and abuses of power, and thereby
protecting individual liberty. That background constitutional
principle further supports the conclusion here that a
single-Director independent agency lies outside the norm and
poses a risk to individual liberty. After all, the Director of the
CFPB is not elected by the people and is of course not remotely
comparable to the President in terms of accountability to the
people.
Having identified the ways in which multi-member
independent agencies surpass single-Director independent
agencies in protecting liberty, we must acknowledge that
multi-member independent agencies do not always meet that
potential. For example, some members of multi-member
independent agencies may occasionally move in lockstep,
thereby diminishing the benefits of multi-member bodies. It
can be harder to find five highly qualified commissioners than
just one highly qualified commissioner.
Moreover,
multi-member bodies are often not as efficient as
single-headed agencies and can be beset by contentious
relations among the members.
See Breger & Edles,
Established by Practice, 52 Admin. L. Rev. at 1181 (“even a
single member” can throw a wrench into the works); Datla &
Revesz, Deconstructing Independent Agencies, 98 Cornell L.
Rev. at 794 (“The downside that accompanies increased
deliberation is the slowness inherent in group action.”)
(internal quotation marks omitted). That said, “[c]onvenience
and efficiency are not the primary objectives – or the hallmarks
– of democratic government.” Bowsher, 478 U.S. at 736

Page 51 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

52
(internal quotation marks omitted). Indeed, so as to avoid
falling back into the kind of tyranny that they had declared
independence from, the Framers often made trade-offs against
efficiency in the interest of enhancing liberty.
In any event, notwithstanding some failings and
downsides, multi-member independent agencies are superior
to single-Director independent agencies in preventing arbitrary
decisionmaking and abuse of power, and thereby protecting
individual liberty.
For that reason and others, both before and after
Humphrey’s Executor, Congress has structured independent
agencies as multi-member agencies.
Indeed, the
multi-member agency form has become “synonymous with
independence.” Breger & Edles, Established by Practice, 52
Admin. L. Rev. at 1137. As Justice Breyer noted in Free
Enterprise Fund: “Agency independence is a function of
several different factors . . . includ[ing] . . . its composition as
a multimember bipartisan board . . . .” Free Enterprise Fund
v. Public Company Accounting Oversight Board, 561 U.S.
477, 547 (2010) (Breyer, J., dissenting). Likewise, Professor
Barkow has explained that “multimember design” is one of the
“[t]raditional [l]odestars” of agency independence. Barkow,
Insulating Agencies, 89 Tex. L. Rev. at 26; see also PETER L.
STRAUSS, AN INTRODUCTION TO ADMINISTRATIVE JUSTICE IN
THE UNITED STATES 15 (1989) (defining “independent
regulatory commission[s]” as “governmental agencies headed
by multi-member boards acting collegially on the regulatory
matters within their jurisdiction”) (internal quotation marks
omitted); Bressman & Thompson, The Future of Agency
Independence, 63 Vand. L. Rev. at 610 (independent agencies,
unlike Executive Branch agencies, are “generally run by
multi-member commissions or boards”); Dodd-Frank Act
Creates the Consumer Financial Protection Bureau, 124 Harv.

Page 52 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

53
L. Rev. at 2128 (“Most independent agencies have
multimember boards . . . .”); Paperwork Reduction Act of
1980, Pub. L. No. 96-511, 94 Stat. 2812, 2814 (defining
“independent regulatory agency” by reference to 17
multi-member agencies) (internal quotation marks omitted).
E
To sum up so far: In order to preserve individual liberty
and ensure accountability, Article II of the Constitution assigns
the executive power to the President. The President operates
with the assistance of subordinates, but the President acts as a
critical check on those subordinates. That check provides
accountability and protects against arbitrary decisionmaking
by executive agencies, thereby helping to safeguard individual
liberty. Article II has been interpreted by the Supreme Court
to allow independent agencies in certain circumstances.
Independent agencies lack the ordinary constitutional checks
and balances that come from Presidential supervision and
direction. But to ensure some check against arbitrary
decisionmaking and to help preserve individual liberty,
independent agencies have traditionally been structured as
multi-member bodies where the commissioners or board
members can check one another. The check from other
commissioners or board members substitutes for the check by
the President. As an independent agency with just a single
Director, the CFPB represents a sharp break from historical
practice, lacks the critical internal check on arbitrary
decisionmaking, and poses a far greater threat to individual
liberty than does a multi-member independent agency. All of
that raises grave constitutional doubts about the CFPB’s
single-Director structure. 12
12

In identifying and cataloging the problems with a
single-Director independent agency, we do not in any way question

Page 53 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

54
Before rendering a final conclusion on the CFPB’s
constitutionality as currently structured, however, we must
address several other arguments.
First, in considering precedents for the single-Director
structure of the CFPB, one might wonder about all of the
executive departments and agencies headed by a single person.
Why don’t they provide a precedent for the CFPB? Consider
for example the Department of Justice, the Department of the
Treasury, the Department of State, the Department of Defense,
and the EPA, all headed by a single person.
As should be clear by now, the distinction, of course, is
that those departments and agencies are executive agencies.
They operate within the Executive Branch chain of command
under the supervision and direction of the President, and those
agency heads are removable at will by the President. The
President is a check on those agencies. Those agencies are
accountable to the President. The President in turn is
accountable to the people of the United States for the exercise
of executive power in the executive agencies. So a single
person at the helm of an executive agency is perfectly
constitutional. 13
the integrity of the current Director, a man of substantial
accomplishment and of longstanding and dedicated devotion to
public service and the public good. Cf. Morrison v. Olson, 487 U.S.
654, 731 (1988) (Scalia, J., dissenting) (similarly describing the
Special Division judges and independent counsel at issue in that
case). But the constitutionality of an agency structure “must be
adjudged on the basis of what it permits to happen.” Id.
13
Congress may of course establish executive agencies that are
headed by multiple individuals (although it rarely does so), but each
member must be removable at will by the President for the agency to
maintain its status as an executive agency.

Page 54 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

55
By contrast, independent agencies are unaccountable to
the President and pose a greater threat to individual liberty
because they operate free of the President’s supervision and
direction. Therefore, they traditionally have been headed by
multiple members who check one another. An independent
agency operates as “a body of experts appointed by law and
informed by experience.” Humphrey’s Executor v. United
States, 295 U.S. 602, 624 (1935) (internal quotation marks
omitted).
Second, some may say that Congress’s creation of the
single-Director structure is unlikely to give Congress any
greater influence over the CFPB than Congress possesses over
a multi-member independent agency. That is perhaps true,
although perhaps not. Either way, however, the Supreme
Court has emphasized that congressional aggrandizement is
not a necessary feature of a separation of powers violation in
this context. The Court squarely said as much in Free
Enterprise Fund. See Free Enterprise Fund v. Public
Company Accounting Oversight Board, 561 U.S. 477, 500
(2010) (“Even when a branch does not arrogate power to itself,
therefore, it must not impair another in the performance of its
constitutional duties.”) (internal quotation marks omitted).
And to take an obvious example of the point, if Congress
enacted legislation converting the Department of Justice into
an independent agency, there would be no formal
congressional aggrandizement. But there is little doubt that
such legislation would violate Article II. See Morrison v.
Olson, 487 U.S. 654, 695 (1988) (Congress may not impair the
President in performance of constitutionally assigned
functions). Congressional aggrandizement is not a necessary
condition for an Article II violation in this context.

Page 55 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

56
Relatedly, one might think that a single head of an
independent agency might actually be more responsive to the
President than multiple heads of an independent agency are,
thereby reducing the risk of arbitrary decisionmaking and
mitigating the Article II concern with a novel single-Director
independent agency. But there is no meaningful difference in
responsiveness and accountability to the President. Whether
headed by one, three, or five members, an independent agency
is not supervised or directed by the President, and its heads are
not removable at will by the President. With independent
agencies, the President is limited in essence to indirect
cajoling. Cf. Elena Kagan, Presidential Administration, 114
Harv. L. Rev. 2245, 2323 (2001) (“[A] for-cause removal
provision would buy little substantive independence if the
President, though unable to fire an official, could command or,
if necessary, supplant his every decision.”). 14 As Justice
14

The for-cause removal restrictions attached to independent
agencies ordinarily prohibit removal except in cases of inefficiency,
neglect of duty, or malfeasance. Those restrictions have significant
impact both in law and in practice. See Free Enterprise Fund, 561
U.S. at 502 (for-cause restrictions “mean what they say”); Freytag v.
Commissioner of Internal Revenue, 501 U.S. 868, 916 (1991)
(Scalia, J., concurring in part and concurring in the judgment)
(“independent regulatory agencies such as the Federal Trade
Commission and the Securities and Exchange Commission” are
“specifically designed not to have the quality . . . of being subject to
the exercise of political oversight and sharing the President’s
accountability to the people”) (internal quotation marks and
alteration omitted); Mistretta v. United States, 488 U.S. 361, 411
(1989) (for-cause provisions are “specifically crafted to prevent the
President from exercising coercive influence over independent
agencies”) (internal quotation marks omitted).
Humphrey’s
Executor and Wiener v. United States show, for example, that
for-cause removal requirements prohibit dismissal by the President
due to lack of trust in the administrator, see Humphrey’s Executor,
295 U.S. at 625-26, differences in policy outlook, id., or the mere

Page 56 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

57
Scalia once memorably noted, an attempt by the President to
direct (or threaten to remove) the head of an independent
agency with respect to a particular substantive decision is
statutorily impermissible and likely to trigger “an
impeachment motion in Congress.” Tr. of Oral Arg. at 60,
Free Enterprise Fund, 561 U.S. 477. That is true whether
there are one, three, or five heads of the independent agency.
The independent status of an independent agency erects a high
barrier between the President and the independent agency,
regardless of how many people head the independent agency
on the other side of the barrier. So a structure with a single
independent agency head entails no meaningful benefit over a
multi-member independent agency in terms of Presidential
control over the independent agency.
Although the single-Director structure does not
necessarily give more control to the President over an
independent agency, one might say from the other direction
that the structure at least does not diminish the President’s
power beyond the diminishment already caused by
Humphrey’s Executor, and thus should not form the basis of an
Article II violation. In other words, some might say that
desire to install administrators of the President’s choosing, Wiener,
357 U.S. 349, 356 (1958). In Morrison v. Olson, the Court
therefore took it as a given that “the degree of control exercised by
the Executive Branch over an independent counsel is clearly
diminished in relation to that exercised over other prosecutors, such
as the United States Attorneys, who are appointed by the President
and subject to termination at will.” 487 U.S. at 696 n.34; see also
Buckley v. Valeo, 424 U.S. 1, 133 (1976) (“The Court in
[Humphrey’s Executor] carefully emphasized that . . . the members
of such agencies were to be independent of the Executive in their
day-to-day operations . . . .”); Humphrey’s Executor, 295 U.S. at 628
(independent agencies “cannot in any proper sense be characterized
as an arm or an eye of the executive”).

Page 57 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

58
Humphrey’s Executor already greatly reduced Presidential
power, and this novel structure is merely a variation on
Humphrey’s Executor rather than a further diminishment of
Presidential power. To begin with, that may not be true. A
President may be stuck for his or her entire four-year term with
a single Director appointed by a prior President with different
views. Generally, the members of multi-member agencies
serve staggered terms, and the President will at least have an
opportunity to appoint some new commissioners over the
course of his or her first term.
In any event, although it is true that Article II violations
often involve diminishment of Presidential power, neither
Humphrey’s Executor nor any later case gave Congress a free
pass, without any boundaries, to create independent agencies
that depart from history and threaten individual liberty.
Humphrey’s Executor does not mean that anything goes. See
Free Enterprise Fund, 561 U.S. at 514. In that respect, keep
in mind (in case we have not mentioned it enough already) that
the Constitution’s separation of powers is not solely or even
primarily concerned with preserving the powers of the
branches. The separation of powers is primarily designed to
protect individual liberty. See Stern v. Marshall, 564 U.S.
462, 483 (2011) (“Yet the dynamic between and among the
branches is not the only object of the Constitution’s concern.
The structural principles secured by the separation of powers
protect the individual as well.”) (internal quotation marks
omitted) (quoting Bond v. United States, 564 U.S. 211, 222
(2011)); Bowsher v. Synar, 478 U.S. 714, 721 (1986) (“The
declared purpose of separating and dividing the powers of
government, of course, was to ‘diffus[e] power the better to
secure liberty.’”) (quoting Youngstown Sheet & Tube Co. v.
Sawyer, 343 U.S. 579, 635 (1952) (Jackson, J., concurring));
Clinton v. City of New York, 524 U.S. 417, 450 (1998)
(Kennedy, J., concurring) (“Liberty is always at stake when

Page 58 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

59
one or more of the branches seek to transgress the separation of
powers.”). As with the broader separation of powers,
moreover, a key purpose of Article II is to preserve individual
liberty. See Morrison v. Olson, 487 U.S. at 727 (Scalia, J.,
dissenting) (“The purpose of the separation and equilibration
of powers in general, and of the unitary Executive in particular,
was not merely to assure effective government but to preserve
individual freedom.”).
So the single-Director independent agency – which, as we
have explained, is a structure that departs from settled
historical practice and threatens individual liberty far more
than a multi-member independent agency does – poses a
constitutional problem even if it does not occasion any
additional diminishment of Presidential power beyond the
significant diminishment already caused by Humphrey’s
Executor itself. 15
15

In its brief, PHH has expressly preserved the argument that
Humphrey’s Executor should be overruled. The reasoning of
Humphrey’s Executor of course was inconsistent with the reasoning
in the Court’s prior decision in Myers. See Humphrey’s Executor,
295 U.S. at 626 (“In so far as” the expressions in Myers are “out of
harmony with the views here set forth, these expressions are
disapproved.”). The Humphrey’s Executor decision subsequently
has received significant criticism. See Geoffrey P. Miller,
Independent Agencies, 1986 Sup. Ct. Rev. 41, 93 (“Humphrey’s
Executor, as commentators have noted, is one of the more egregious
opinions to be found on pages of the United States Supreme Court
Reports.”); Peter L. Strauss, The Place of Agencies in Government:
Separation of Powers and the Fourth Branch, 84 Colum. L. Rev.
573, 611-12 (1984) (“Remarkably, the Court did not pause to
examine how a purpose to create a body ‘subject only to the people
of the United States’ – that is, apparently, beyond control of the
constitutionally defined branches of government – could itself be
sustained under the Constitution.”). Moreover, the reasoning of
Humphrey’s Executor is in tension with some of the reasoning of the

Page 59 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

60
Third, in considering the constitutionality of the CFPB’s
structure, some might speak of the CFPB as a one-off
congressional experiment and say we should let it go as a
matter of judicial restraint. But even apart from the
fundamental point that our job as judges is to enforce the law,
not abdicate to the political branches, cf. Boumediene v. Bush,
553 U.S. 723, 765-66 (2008), we cannot think of this as a
one-off case because we could not cabin the consequences in
any principled manner if we were to uphold the CFPB’s
single-Director structure. As the Supreme Court has warned:
“Slight encroachments create new boundaries from which
legions of power can seek new territory to capture.” Stern,
564 U.S. at 503 (internal quotation marks omitted). Justice
Frankfurter captured it well in his opinion in Youngstown:
“The accretion of dangerous power does not come in a day. It
does come, however slowly, from the generative force of
unchecked disregard of the restrictions that fence in even the
most disinterested assertion of authority.” 343 U.S. at 594
(Frankfurter, J., concurring). That fairly describes what a
Supreme Court’s recent decision in Free Enterprise Fund. See In re
Aiken County, 645 F.3d 428, 444-46 (D.C. Cir. 2011) (Kavanaugh,
J., concurring); Neomi Rao, Removal: Necessary and Sufficient for
Presidential Control, 65 Ala. L. Rev. 1205, 1208 (2014). Of
course, overruling Humphrey’s Executor would not mean the end of
the agencies that are now independent. The agencies would simply
transform into executive agencies supervised and directed by the
President. So the question is not the existence of the agencies; the
question is the President’s control over the agencies and the resulting
accountability of those agencies to the people. In any event, as a
lower court, we of course must follow Supreme Court precedent. It
is not our job to decide whether to overrule Humphrey’s Executor.
But it is emphatically our job to make sure that Humphrey’s
Executor is applied in a manner consistent with settled historical
practice and the Constitution’s protection of individual liberty.

Page 60 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

61
ruling upholding the CFPB’s single-Director structure would
mean. As the CFPB acknowledged at oral argument, a ruling
in its favor would necessarily allow all extant independent
agencies to be headed by one person. Tr. of Oral Arg. at
18-19. We would be green-lighting Congress to make other
heads of independent agencies a single Director rather than a
multi-member commission. A single-Director SEC, with the
power to unilaterally impose $500 million penalties? A
single-Director FCC, with the power to unilaterally require
“net neutrality”? A single-Director NLRB, with the power to
unilaterally
supervise
employer-employee
relations
nationwide? That’s what we would be ushering in with a
ruling upholding the CFPB’s single-Director structure.
At a more general level, however, some might think that
judges should simply defer to the elected branches’ design of
the administrative state. But that hands-off attitude would
flout a long, long line of Supreme Court precedent.
Agreement by the two elected branches at a particular moment
or period in time has never been a ground for the courts to
simply defer regardless of whether the legislation violates the
Constitution’s separation of powers. Far from it. See Free
Enterprise Fund, 561 U.S. at 497, 508 (invalidating structure
of Public Company Accounting Oversight Board);
Boumediene, 553 U.S. at 765-66, 792 (invalidating provision
of Military Commissions Act); Clinton, 524 U.S. at 448-49
(invalidating Line Item Veto Act); Metropolitan Washington
Airports Authority v. Citizens for the Abatement of Aircraft
Noise, Inc., 501 U.S. 252, 266-69 (1991) (invalidating
structure of Metropolitan Washington Airports Authority
Board of Review); Bowsher, 478 U.S. at 733-34 (invalidating
Comptroller General’s powers under “reporting provisions” of
Balanced Budget and Emergency Deficit Control Act); INS v.
Chadha, 462 U.S. 919, 942 n.13, 957 (1983) (invalidating
legislative veto provision of Immigration and Nationality Act);

Page 61 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

62
Buckley v. Valeo, 424 U.S. 1, 134-35, 140 (1976) (invalidating
structure of Federal Election Commission); Myers v. United
States, 272 U.S. 52 (1926) (invalidating provision requiring
Senate consent to President’s removal of executive officer).
In that same vein, even though a particular President might
accept a novel practice that violates Article II, “the separation
of powers does not depend on the views of individual
Presidents, nor on whether the encroached-upon branch
approves the encroachment.” Free Enterprise Fund, 561 U.S.
at 497 (internal quotation marks and citation omitted). A
President cannot “choose to bind his successors by diminishing
their powers.” Id.
In this case, moreover, it bears mention that Congress’s
choice of a single-Director CFPB was not an especially
considered legislative decision. There are no committee
reports, nor substantial legislative history, delving into the
benefits of single-Director independent agencies versus
multi-member independent agencies.
The CFPB has
identified no congressional hearings studying the question.
Congress apparently stumbled into this single-Director
structure as a compromise or landing point between the
original Warren multi-member independent agency proposal
and a traditional executive agency headed by a single person.
Fourth, one might argue that the CFPB’s decisions are
checked by the courts, so we should not worry about the
single-Director structure. But much of what an agency does –
determining what rules to issue within a broad statutory
authorization and when, how, and against whom to bring
enforcement actions to enforce the law – occurs in the twilight
of judicially unreviewable discretion. Those discretionary
actions have a critical impact on individual liberty. And
courts do not review or only deferentially review such
exercises of agency discretion. See Chevron U.S.A. Inc. v.

Page 62 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

63
Natural Resources Defense Council, Inc., 467 U.S. 837,
844-45 (1984); Motor Vehicle Manufacturers Association of
U.S., Inc. v. State Farm Mutual Automobile Insurance Co., 463
U.S. 29, 41-43 (1983); Heckler v. Chaney, 470 U.S. 821,
831-33 (1985). Therefore, the probability of judicial review
of some agency action has never excused or mitigated an
otherwise extant Article II problem in the structure of the
agency. See, e.g., Free Enterprise Fund, 561 U.S. 477;
Buckley, 424 U.S. 1.
From another direction, one might argue that the CFPB is
checked by Congress through Congress’s oversight and
ultimate control over appropriations. To begin with, Congress
does not have the power to direct the Director or to remove the
Director at will. Congress cannot supervise or direct the
Director regarding what rules to issue, what enforcement
actions to bring (or decline to bring), or how to resolve
adjudications. More to the point, by further impairing the
President’s control over the Executive Branch, day-to-day
congressional control over an executive or independent agency
generally would exacerbate, rather than mitigate, any Article II
problem with the structure of the agency. To satisfy Article II,
the check on an agency must come from the President or from
other internal Executive Branch or agency checks, not from
Congress. The bottom line, as the Supreme Court said in
Bowsher, is that the “separated powers of our Government
cannot be permitted to turn on judicial assessment of whether
an officer exercising executive power is on good terms with
Congress.” 478 U.S. at 730. “The Framers did not rest our
liberties on such bureaucratic minutiae.” Free Enterprise
Fund, 561 U.S. at 500. 16
16

On top of the Director’s unilateral power to issue rules and
take enforcement actions to enforce 19 separate consumer protection
statutes, the CFPB is not subject to the ordinary annual

Page 63 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

64
In sum, the CFPB departs from settled historical practice
regarding the structure of independent agencies. And that
departure makes a significant difference for the individual
liberty protected by the Constitution’s separation of powers.
Applying the Supreme Court’s separation of powers
precedents, we therefore conclude that the CFPB is
unconstitutionally structured because it is an independent
agency headed by a single Director. 17
appropriations process. Instead, the Dodd-Frank Act requires the
Board of Governors of the Federal Reserve to transfer “from the
combined earnings of the Federal Reserve System” the amount
“determined by the Director,” not to exceed 12 percent of the “total
operating expenses of the Federal Reserve System.” 12 U.S.C.
§ 5497(a)(1)-(2). As those who have labored in Washington well
understand, the appropriations process brings at least some measure
of oversight by Congress. According to PHH, the CFPB’s
exemption from that process enhances the concern in this case about
the massive power lodged in a single, unaccountable Director. That
said, the single Director would constitute a constitutional problem
even if the CFPB were subject to the usual appropriations process.
The CFPB’s exemption from the ordinary appropriations process is
at most just “extra icing on” an unconstitutional “cake already
frosted.” Yates v. United States, 135 S. Ct. 1074, 1093, slip op. at 6
(2015) (Kagan, J., dissenting). In any event, Congress can always
alter the CFPB’s funding in any appropriations cycle (or at any other
time). Section 5497 is not an entrenched statute shielded from
future congressional alteration, nor could it be. See, e.g., Manigault
v. Springs, 199 U.S. 473, 487 (1905).
17
Nothing in our opinion casts any doubt on traditional
structures under which Congress may establish a process for
designating the Chair of an independent board or independent
commission, and for assigning the Chair various additional
administrative responsibilities. Those responsibilities are distinct
from substantive authority. A Chair may not unilaterally issue a
rule, unilaterally bring an enforcement action, or unilaterally decide

Page 64 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

65
III
Having concluded that the CFPB is unconstitutionally
structured because it is an independent agency headed by a
single Director, we must decide on the appropriate remedy.
When the constitutional problem involves a provision of a
statute, the legal term for that question is severability. In light
of this one specific constitutional flaw in the Dodd-Frank Act,
must we strike down that whole Act? Or must we strike down
at least those statutory provisions creating the CFPB and
defining the CFPB’s duties and authorities? Or do we just
narrowly strike down and sever the one for-cause removal
provision that is the source of the constitutional problem?
Not surprisingly, PHH wants us, at a minimum, to strike
down the CFPB and prevent its continued operation, if not
strike down the entire Dodd-Frank Act. But Supreme Court
precedent on severability demands a narrower remedy for the
CFPB’s constitutional flaw.
an adjudication. See Marshall J. Breger & Gary J. Edles,
Established by Practice: The Theory and Operation of Independent
Federal Agencies, 52 Admin. L. Rev. 1111, 1166-67 (2000) (“As our
survey of some thirty federal multi-member agencies suggests, all of
the reorganization statutes and their progeny fundamentally assign
substantive authority to the agency as a whole and administrative
authority to the chairman.”). We note, moreover, that many Chairs
traditionally are removable at will by the President from their
position as Chair, albeit not from the commission. See Rachel E.
Barkow, Insulating Agencies: Avoiding Capture Through
Institutional Design, 89 Tex. L. Rev. 15, 38 & n.124 (2010).
Nor does our decision cast any doubt on the independent status
of administrative law judges who are protected by for-cause
provisions. Those judges conduct only adjudications (of a sort) and
are not covered or affected in any way by our decision here.

Page 65 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

66
“Generally speaking, when confronting a constitutional
flaw in a statute, we try to limit the solution to the problem,
severing any problematic portions while leaving the remainder
intact.” Free Enterprise Fund v. Public Company Accounting
Oversight Board, 561 U.S. 477, 508 (2010) (internal quotation
marks omitted). The “normal rule is that partial, rather than
facial, invalidation is the required course.” Id. (internal
quotation marks omitted). That is true so long as we conclude
that (i) Congress would have preferred the law with the
offending provision severed over no law at all; and (ii) the law
with the offending provision severed would remain “fully
operative as a law.” Id. at 509 (internal quotation marks
omitted).
First, in considering Congress’s intent with respect to
severability, courts must decide – or often speculate, truth be
told – whether Congress would “have preferred what is left of
its statute to no statute at all.” Ayotte v. Planned Parenthood
of Northern New England, 546 U.S. 320, 330 (2006); see also
Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 685 (1987)
(“[T]he unconstitutional provision must be severed unless the
statute created in its absence is legislation that Congress would
not have enacted.”). Importantly, courts need not speculate
and can presume that Congress wanted to retain the
constitutional remainder of the statute when “Congress has
explicitly provided for severance by including a severability
clause in the statute.” Alaska Airlines, 480 U.S. at 686; see
also id. (“[T]he inclusion of such a clause creates a
presumption that Congress did not intend the validity of the
statute in question to depend on the validity of the
constitutionally offensive provision.”).
In this case, as was the case in Free Enterprise Fund,
“nothing in the statute’s text or historical context makes it

Page 66 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

67
evident that Congress, faced with the limitations imposed by
the Constitution, would have preferred no” CFPB at all (or no
Dodd-Frank Act at all) to a CFPB whose Director is removable
at will. 561 U.S. at 509 (internal quotation marks omitted).
Indeed, the Dodd-Frank Act itself all but answers the question
of presumed congressional intent through its express
severability clause, which instructs: “If any provision” of the
Act “is held to be unconstitutional, the remainder of” the Act
“shall not be affected thereby.” 12 U.S.C. § 5302. It will be
the rare case when a court may ignore a severability provision
set forth in the text of the relevant statute. See Alaska
Airlines, 480 U.S. at 686. We have no reason or basis to tilt at
that windmill in this case.
Second, we also must look at “the balance of the
legislation” to assess whether the statute is capable “of
functioning” without the offending provisions “in a manner
consistent with the intent of Congress.” Id. at 684-85
(emphasis omitted); see also United States v. Booker, 543 U.S.
220, 227 (2005) (“[T]wo provisions . . . must be invalidated in
order to allow the statute to operate in a manner consistent with
congressional intent.”). That prong of the severability
analysis in essence turns on whether the truncated statute is
“fully operative as a law.” Free Enterprise Fund, 561 U.S. at
509 (internal quotation marks omitted). To take just one
example, in Marbury v. Madison, the Court concluded that
Section 13 of the Judiciary Act of 1789 was unconstitutional in
part. 5 U.S. 137, 148, 179-80 (1803). But the Court did not
disturb the remainder of the Judiciary Act. Id. at 179-80.
Here, the Dodd-Frank Act and its CFPB-related
provisions will remain “fully operative as a law” without the
for-cause removal restriction. Free Enterprise Fund, 561
U.S. at 509 (internal quotation marks omitted). Operating
without the for-cause removal provision and under the

Page 67 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

68
supervision and direction of the President, the CFPB may still
“regulate the offering and provision of consumer financial
products or services under the Federal consumer financial
laws,” 12 U.S.C. § 5491(a), much as the Accounting Oversight
Board has continued fulfilling its regulatory mission in the
wake of the Supreme Court’s decision in Free Enterprise
Fund. 18 Moreover, the CFPB’s operation as an executive
agency will not in any way prevent the overall Dodd-Frank Act
from remaining operative as a law.
To be sure, one might ask whether, instead of severing the
for-cause removal provision, we should rewrite and add to the
Dodd-Frank Act by restructuring the CFPB as a multi-member
independent agency. But doing so would require us to create
a variety of new offices, designate one of the offices as Chair,
and specify various administrative details of the reconstituted
agency. All of that “editorial freedom” would take us far
beyond our judicial capacity. Free Enterprise Fund, 561 U.S.
at 510. In addition, that approach would thwart the ongoing
operations of the CFPB unless and until the President
nominated and the Senate confirmed new members, potentially
18

The Dodd-Frank Act contains a five-year tenure provision
for the Director, see 12 U.S.C. § 5491(c)(1), akin to the similar
10-year tenure provision for the Director of the FBI and the 5-year
tenure provision for the Commissioner of the IRS. See Crime
Control Act of 1976, § 203, reprinted in 28 U.S.C. § 532 note (FBI
Director “may not serve more than one ten-year term”); 26 U.S.C.
§ 7803(a)(1)(B) (term of the IRS Commissioner “shall be a 5-year
term”). But under Supreme Court precedent, such tenure provisions
do not prevent the President from removing at will a Director at any
time during the Director’s tenure. See Parsons v. United States, 167
U.S. 324, 343 (1897). Therefore, we need not invalidate and sever
the tenure provision. If such a provision did impair the President’s
ability to remove the Director at will, then it too would be
unconstitutional, and it would be invalidated and severed.

Page 68 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

69
shutting the agency down for months if not years. No
Supreme Court case in comparable circumstances has adopted
such an approach. We may not do so here. Of course, if
Congress prefers to restructure the CFPB as a multi-member
independent agency rather than as a single-Director executive
agency, Congress may enact new legislation that creates a
Bureau headed by multiple members instead of a single
Director. Cf. id. (“Congress of course remains free to pursue
any of these options going forward.”).
In similar circumstances, the Supreme Court in Free
Enterprise Fund severed the unconstitutional for-cause
provision but did not otherwise disturb the Sarbanes-Oxley Act
or the operation of the new Accounting Oversight Board
created by that Act. See id. at 508-10. Similarly, in a recent
case involving the Copyright Royalty Board, we severed the
for-cause provision that rendered that Board unconstitutional,
but did not otherwise disturb the copyright laws or the
operation of the Copyright Royalty Board.
See
Intercollegiate Broadcasting System, Inc. v. Copyright Royalty
Board, 684 F.3d 1332, 1340-41 (D.C. Cir. 2012). We do the
same here.
In light of Congress’s clear textual expression of its intent
regarding severability, and because the Dodd-Frank Act and
the CFPB may function without the CFPB’s for-cause removal
provision, we remedy the constitutional violation here by
severing the for-cause removal provision from the statute. As
a result, the CFPB now will operate as an executive agency.
The President of the United States now has the power to
supervise and direct the Director of the CFPB, and may remove
the Director at will at any time. 19
19

We need not here consider the legal ramifications of our
decision for past CFPB rules or for past agency enforcement actions.

Page 69 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

70
IV
Because our constitutional ruling will not halt the CFPB’s
ongoing operations or the CFPB’s ability to uphold the $109
million order against PHH, we must also consider PHH’s
statutory objections to the CFPB enforcement action in this
case.
In its enforcement action against PHH, the CFPB alleged
that PHH violated Section 8 of the Real Estate Settlement
Procedures Act. Passed by Congress and signed by President
Ford in 1974, the Act dramatically reformed the real estate
industry. One of the textually stated purposes of the Act was
“the elimination of kickbacks or referral fees that tend to
increase unnecessarily the costs of certain settlement services.”
12 U.S.C. § 2601(b)(2).

We note, however, that this is not an uncommon situation. For
example, in just the last few years, the NLRB, the Public Company
Accounting Oversight Board, and the Copyright Royalty Board have
all been on the receiving end of successful constitutional and
statutory challenges to their structure and legality. See NLRB v.
Noel Canning, 134 S. Ct. 2550 (2014); New Process Steel, L.P. v.
NLRB, 560 U.S. 674 (2010); Free Enterprise Fund, 561 U.S. 477;
Intercollegiate Broadcasting System, Inc., 684 F.3d 1332. Without
major tumult, the agencies and courts have subsequently worked
through the resulting issues regarding the legality of past rules and of
past or current enforcement actions. See, e.g., Noel Canning v.
NLRB, 823 F.3d 76, 78-80 (D.C. Cir. 2016); Intercollegiate
Broadcasting System, Inc. v. Copyright Royalty Board, 796 F.3d
111, 118-19 (D.C. Cir. 2015). Because, as we will explain in the
next section, the CFPB’s enforcement action against PHH in this
case must be vacated in any event, we need not consider any such
issues at this time.

Page 70 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

71
To further that purpose, Section 8(a) of the Act bans
payments for referrals in the real estate settlement process.
Section 8(a) provides: “No person shall give and no person
shall accept any fee, kickback, or thing of value pursuant to any
agreement or understanding, oral or otherwise, that business
incident to or a part of a real estate settlement service involving
a federally related mortgage loan shall be referred to any
person.” Id. § 2607(a). 20
Importantly for this case, however, Section 8(c) contains a
series of qualifications, exceptions, and safe harbors. Of
relevance here, Section 8(c) carves out a safe harbor against
overly broad interpretations of Section 8(a): “Nothing in this
section shall be construed as prohibiting . . . (2) the payment to
any person of a bona fide salary or compensation or other
payment for goods or facilities actually furnished or for
services actually performed.” Id. § 2607(c)(2).
In 1995, PHH, a mortgage lender, began participating in
so-called captive reinsurance agreements. PHH would refer
borrowers to certain mortgage insurers. Those mortgage
insurers, in turn, would purchase mortgage reinsurance from
Atrium, a wholly owned subsidiary of PHH. According to
PHH, this was not a problem under Section 8 because the
mortgage insurers would pay no more than reasonable market
value to Atrium for the reinsurance they purchased. PHH
argues that the mortgage insurers were thus paying reasonable
market value for reinsurance from Atrium, as allowed by the
statute’s safe harbor, and were not paying anything for the
referrals made by PHH, which would have been unlawful. 21
20

Section 8 of the Act is codified at 12 U.S.C. § 2607. For
consistency, we refer to Section 8 rather than Section 2607.
21
It is worth noting that Sections 8(a) and 8(c), as relevant here,
do not speak directly to transactions between mortgage lenders and
homebuyers.
Instead, those two provisions speak to the

Page 71 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

72
Many other mortgage lenders did the same thing as PHH.
They did so in part because the U.S. Department of Housing
and Urban Development, known as HUD, the federal
government agency responsible for enforcing this real estate
law, repeatedly said (beginning in 1997) that captive
reinsurance arrangements were permissible under Section 8 so
long as the mortgage insurer paid no more than reasonable
market value for the reinsurance.
In this action against PHH, however, the CFPB changed
course and, for the first time, interpreted Section 8 to prohibit
captive reinsurance agreements even if the mortgage insurers
pay no more than reasonable market value to the reinsurers.
The CFPB then retroactively applied that new interpretation
against PHH based on conduct that PHH engaged in before the
CFPB issued its new interpretation.
PHH advances two alternative and independent arguments
on the statutory issue. First, PHH argues that the CFPB
misinterpreted Section 8(c). Second, in the alternative, PHH
argues that the CFPB violated bedrock due process principles
by retroactively applying its new interpretation of the statute
against PHH. We agree with PHH on both points.

transactions between the mortgage lender and mortgage insurer.
The sections prohibit one specific kind of activity in that market:
payment to the lender by the mortgage insurer for the lender’s
referral of a customer to the mortgage insurer.
Although not required by Section 8(c)(2), PHH nonetheless
typically provided its borrowers with a disclosure. The disclosure
said that if a borrower selected a mortgage insurer with which PHH
had a referral arrangement, the insurer would pay a reinsurance fee
to Atrium, which was affiliated with PHH. See J.A. 332.

Page 72 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

73
A
The basic statutory question in this case is not a close call.
The text of Section 8(c) permits captive reinsurance
arrangements where mortgage insurers pay no more than
reasonable market value for the reinsurance. Section 8(c)
contains a broad range of exceptions, qualifications, and safe
harbors to Section 8(a). As relevant here, Section 8(c) creates
a safe harbor, stating: “Nothing” in Section 8 “shall be
construed as prohibiting” the “payment to any person of a bona
fide salary or compensation or other payment for goods or
facilities actually furnished or for services actually
performed.” See 12 U.S.C. § 2607(c)(2). Nothing means
nothing.
Section 8(a) prohibits, in this context, payment by a
mortgage insurer to a lender for the lender’s referral of a
customer to the mortgage insurer. But Section 8(a) and 8(c)
do not prohibit bona fide payments by the mortgage insurer to
the lender for other services that the lender (or the lender’s
subsidiary or affiliate) actually provides to the mortgage
insurer.
How do we determine whether the mortgage insurer’s
payment to the lender was a bona fide payment for the
reinsurance rather than a disguised payment for the lender’s
referral of a customer to the insurer? As HUD had long
explained, the answer is commonsensical: If the payment to
the lender-affiliated reinsurer is more than the reasonable
market value of the reinsurance, then we may presume that the
excess payment above reasonable market value was not a bona
fide payment for the reinsurance but was a disguised payment
for a referral. Otherwise, there is no basis to treat payment of
reasonable market value for the reinsurance as a prohibited
payment for the referral – assuming, of course, that the

Page 73 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

74
reinsurance was actually provided. In other words, in the text
and context of this statute, a bona fide payment means a
payment of reasonable market value. 22
To be sure, one might say that the mortgage insurer –
although paying reasonable market value for the reinsurance –
would have preferred not to purchase reinsurance at all or to
purchase it from a different reinsurer. In that sense, the
lender’s actions create a kind of tying arrangement in which the
lender says to the mortgage insurer: We will refer customers
to you, but only if you purchase another service from our
affiliated reinsurer, albeit at reasonable market value. But the
statute does not proscribe that kind of arrangement. As
relevant here, Section 8(a) proscribes payments for referrals.
Period. It does not proscribe other transactions between the
lender and mortgage insurer. Nor does it proscribe a tying
arrangement, so long as the only payments exchanged are bona
fide payments for services and not payments for referrals.
The CFPB says, however, that the mortgage insurer’s
payment for the reinsurance is not “bona fide” if it was part of a
tying arrangement.
That makes little sense.
Tying
arrangements are ubiquitous in the U.S. economy. To be sure,
tying arrangements are outlawed in certain circumstances, but
they were not outlawed by Section 8 in the circumstances at
issue here. 23 A payment for a service pursuant to a tying
22

When we use the phrase “reasonable market value” in this
opinion, we use that phrase as shorthand for a payment that bears a
reasonable relationship to the market value of the services performed
or products provided, as HUD has long explained it. We do not
opine on what constituted reasonable market value for the
reinsurance at issue in this case. That factual question is not before
us.
23
Tying arrangements are rarely prohibited in the American
economy, unless the party doing the tying has market power.

Page 74 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

75
arrangement does not make the payment any less bona fide, so
long as the payment for the service reflects reasonable market
value. A bona fide payment means a payment of reasonable
market value.
Recognizing, however, that an aggressive government
enforcement agency or court might interpret other transactions
between businesses in the real estate market as connected to,
conditioned on, or tied to referrals, and might try to sweep such
transactions within the scope of Section 8(a)’s prohibition,
Congress explicitly made clear in Section 8(c) that those other
transactions were lawful so long as reasonable market value
was paid and the services were actually performed. In other
words, Section 8(c) specifically bars the aggressive
interpretation of Section 8(a) advanced by the CFPB in this
case. Section 8(c) was designed to provide certainty to
businesses in the mortgage lending process. The CFPB’s
interpretation flouts that statutory goal and upends the entire
system of unpaid referrals that has been part of the market for
real estate settlement services.
Our interpretation of the text accords with the
longstanding interpretation of the Department of Housing and
Otherwise, tying arrangements can be beneficial to consumers and
the economy by enhancing efficiencies and lowering costs. As the
Supreme Court has stated, “Many tying arrangements . . . are fully
consistent with a free, competitive market.” Illinois Tool Works,
Inc. v. Independent Ink, Inc., 547 U.S. 28, 45 (2006); see also
National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 840 (D.C.
Cir. 2006). In this context, moreover, the Real Estate Settlement
Procedures Act allows vertical integration of lenders and other
settlement service providers under its affiliated business provisions.
If such vertical integration is allowed, it would not make much sense
to conclude that similar vertical contractual relationships are
proscribed.

Page 75 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

76
Urban Development.
For decades, HUD explained to
mortgage lenders that captive reinsurance arrangements where
reasonable market value was paid were entirely permissible
under Section 8. Indeed, HUD adopted a rule, Regulation X,
under which captive reinsurance arrangements were permitted
so long as the insurer paid reasonable market value for the
reinsurance. See 24 C.F.R. § 3500.14(g) (2011); see also 24
C.F.R. § 3500.14(e)-(f) (1992). That regulation remains in
place as a CFPB regulation. See 12 C.F.R. § 1024.14 (2016).
Yet in its decision here and its argument to this Court, the
CFPB has not adhered to the regulation. On the contrary, the
CFPB now says the opposite of what HUD’s prior
interpretations and Regulation X all say. In the next section,
we will consider the due process implications of the CFPB’s
retroactive application of its about-face. For now, we simply
note that the CFPB’s interpretation flouts not only the text of
the statute but also decades of carefully and repeatedly
considered official government interpretations.
Our interpretation of the text also accords with the
statute’s multiple purposes, as revealed by the text. One goal
of the statute was to eliminate payments for referrals because
“referral fees . . . tend to increase unnecessarily the costs of
certain settlement services.”
12 U.S.C. § 2601(b)(2).
Another purpose of the statute, as the text shows, was to allow
market participants to refer customers to other service
providers, albeit without demanding or receiving payment for
the referral. Id. § 2607(a). After all, such referrals often
enhance the efficiency of the homebuying process. Another
purpose was to assure market participants that they could
engage in transactions – other than payments for referrals – so
long as reasonable payments were made for services actually
performed. Id. § 2607(c); see also Glover v. Standard
Federal Bank, 283 F.3d 953, 964 (8th Cir. 2002); Geraci v.
Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003). If

Page 76 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

77
payments for services actually performed reflect the
reasonable market value of the services, as they must to fall
within Section 8(c), then they square with the Act’s various
purposes.
Our interpretation of the text also aligns with how key
Members of Congress intended Sections 8(a) and 8(c) to work
together. When the Real Estate Settlement Procedures Act
was reported out of the Senate Committee on Banking,
Housing and Urban Affairs in 1974, the accompanying
committee report stated: “Reasonable payments in return for
services actually performed or goods actually furnished are not
intended to be prohibited.” S. Rep. No. 93-866, at 6 (1974).
Note the Senate Committee’s use of the word “reasonable.”
Here, the CFPB has argued that the phrase “bona fide
payment” in the statute somehow means something different
from “reasonable payment.” CFPB Br. 29 & n.18. But the
Senate Committee, following the commonsense meaning,
expressly equated the two terms. Contrary to the CFPB’s
strained interpretation, the committee report indicates that
those Members of Congress intended Sections 8(a) and 8(c) to
mean what they say and to say what they mean: Payments for
referrals are proscribed, but payments for other services
actually performed are permitted, so long as the payments
reflect reasonable market value.
In seeking to defend its interpretation, the CFPB argues
that its interpretation of the Real Estate Settlement Procedures
Act is entitled to Chevron deference. But Chevron instructs
us at step one to first employ all of the traditional tools of
statutory interpretation, as we have done. See Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837,
843 n.9 (1984). After we employ those tools, only if an
ambiguity remains do we defer to the agency, if its
interpretation is at least reasonable. Here, we conclude at

Page 77 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

78
Chevron step one that the statute permits captive reinsurance
arrangements. Indeed, Section 8(c) eliminates any potential
ambiguity that might have existed if all we had were Section
8(a) alone. Section 8(c) clearly permits captive reinsurance
arrangements so long as the mortgage insurer pays reasonable
market value for reinsurance actually provided. So the
CFPB’s interpretation fails at Chevron step one.
Cf.
Kingdomware Technologies, Inc. v. United States, 136 S. Ct.
1969, 1979, slip op. at 12 (2016); FERC v. Electric Power
Supply Association, 136 S. Ct. 760, 773 n.5, slip op. at 14 n.5
(2016); Adams Fruit Co. v. Barrett, 494 U.S. 638, 642 (1990);
Loving v. IRS, 742 F.3d 1013, 1021-22 (D.C. Cir. 2014). For
those same reasons, if we reached Chevron step two, we would
conclude that the CFPB’s interpretation is not a reasonable
interpretation of the statute in light of the statute’s text, history,
context, and purposes.
The policy and ethics of captive reinsurance arrangements
no doubt can be debated, as can the policy and ethics of the
wide variety of similar tying and referral arrangements that are
ubiquitous in the American economy. But the initial question
before us (and that was before the CFPB) is not one of policy or
ethics. The question is one of law. Under Section 8(a) and
Section 8(c), the relevant questions are whether the payment
from the mortgage insurer to the lender-affiliated reinsurer is
bona fide – that is, commensurate with the reasonable market
value of the reinsurance – and whether the services were
actually performed. If so, then the payment is permissible, as
HUD had long stated.
The CFPB obviously believes that captive reinsurance
arrangements are harmful and should be illegal. But the
decision whether to adopt a new prohibition on captive
reinsurance arrangements is for Congress and the President
when exercising the legislative authority. It is not a decision

Page 78 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

79
for the CFPB to make unilaterally. See King v. Burwell, 135
S. Ct. 2480, 2496, slip op. at 21 (2015) (“In a democracy, the
power to make the law rests with those chosen by the people.”).
We hold that Sections 8(a) and 8(c) of the Real Estate
Settlement Procedures Act allow captive reinsurance
arrangements so long as the mortgage insurance companies
pay no more than reasonable market value to the reinsurers for
services actually provided. On remand, the CFPB may
determine whether the relevant mortgage insurers in fact paid
more than reasonable market value to the reinsurer Atrium for
the reinsurance. 24
B
Even if the CFPB’s interpretation of Section 8 were
permissible, it nonetheless represented a complete about-face
from the Federal Government’s longstanding prior
interpretation of Section 8. Agency change is not a fatal flaw
in and of itself, so long as the change is reasonably explained
and so long as the new interpretation is consistent with the
statute. See FCC v. Fox Television Stations, Inc., 556 U.S.
502, 514-16 (2009). But change becomes a problem – a fatal
one – when the Government decides to turn around and
retroactively apply that new interpretation to proscribe conduct
that occurred before the new interpretation was issued.
Therefore, even if the CFPB’s new interpretation were
consistent with the statute (which it is not), the CFPB violated
due process by retroactively applying that new interpretation to
PHH’s conduct that occurred before the date of the CFPB’s
new interpretation.
24

If a mortgage insurer did pay more than reasonable market
value for reinsurance, the disgorgement remedy is the amount that
was paid above reasonable market value.

Page 79 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

80
Before the creation of the CFPB in 2010, the Department
of Housing and Urban Development administered the Real
Estate Settlement Procedures Act. In 1997, HUD sent a letter
to a mortgage company. The mortgage company had
requested that HUD clarify the application of Section 8 of the
Real Estate Settlement Procedures Act to captive reinsurance
arrangements.
In the letter, HUD analyzed the relationship between
Sections 8(a) and 8(c). HUD said that “Subsection 8(c) of
RESPA sets forth various exemptions from these
prohibitions.” Letter from Nicolas P. Retsinas, Assistant
Secretary for Housing, Department of Housing and Urban
Development, to Countrywide Funding Corporation 3 (Aug. 6,
1997) (J.A. 251-58). HUD further stated that its “view of
captive reinsurance” was that “the arrangements are
permissible” if “the payments to the reinsurer: (1) are for
reinsurance services ‘actually furnished or for services
performed’ and (2) are bona fide compensation that does not
exceed the value of such services.” Id. (J.A. 253).
The 1997 HUD letter was widely disseminated and relied
on in the industry. In 2004, a title association again asked
HUD about the legality of captive reinsurance programs under
the Real Estate Settlement Procedures Act. HUD restated the
position it had taken in 1997 with respect to captive mortgage
reinsurance. As it had in 1997, HUD wrote that captive
reinsurance agreements are permissible if the payments made
to the reinsurer (1) are “for reinsurance services actually
furnished or for services performed” and (2) are “bona fide
compensation that does not exceed the value of such services.”
Letter from John P. Kennedy, Associate General Counsel for
Finance and Regulatory Compliance, Department of Housing

Page 80 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

81
and Urban Development, to American Land Title Association
1 (Aug. 12, 2004) (J.A. 259).
In accord with those letters, HUD’s Real Estate Settlement
Procedures Act regulations were set forth in Regulation X,
which was first issued in 1976 and updated, as relevant here, in
1992. See 24 C.F.R. §§ 3500.01-3500.14 (1977); see also 24
C.F.R. § 3500.14 (1993). As it initially read, Regulation X
stated: “The payment and receipt of a thing of value that bears
a reasonable relationship to the value of the goods or services
received by the person or company making the payment is not
prohibited by RESPA section 8. To the extent the thing of
value is in excess of the reasonable value of the goods provided
or services performed, the excess is not for services actually
rendered and may be considered a kickback or referral fee
proscribed by RESPA section 8.” 24 C.F.R. § 3500.14(e)
(1977). Regulation X was slightly reworded in 1992: “If the
payment of a thing of value bears no reasonable relationship to
the market value of the goods or services provided, then the
excess is not for services or goods actually performed or
provided.” 24 C.F.R. § 3500.14(g)(3) (1993). Regulation X
described “bona fide” payments for services actually
performed as payments that “Section 8 of RESPA permits.”
Id. § 3500.14(g)(1). After the CFPB inherited HUD’s
enforcement and rulemaking authority under the Act, the
CFPB itself codified HUD’s Regulation X provisions
governing Section 8. See 12 C.F.R. § 1024.14(g) (2012).
In our Court, the CFPB acknowledges that, at the time of
PHH’s conduct, Regulation X stated “that, if a payment bears
no reasonable relationship to the value of the services
provided, then the excess may be a payment for a referral.”
CFPB Br. 31 n.23. But the CFPB argues that “this does not
mean that, if the payment does bear a reasonable relationship to
the value of the services provided, then those payments are

Page 81 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

82
never for referrals.” Id. The CFPB’s interpretation is a
facially nonsensical reading of Regulation X. As Regulation
X made clear, if an insurer makes a payment at reasonable
market value for services actually provided, that payment is not
a payment for a referral.
HUD’s consistent and repeated interpretation of Section 8
was widely known and relied on in the mortgage lending
industry. It was reflected in the leading treatise on the Act.
See JAMES H. PANNABECKER & DAVID STEMLER, THE RESPA
MANUAL: A COMPLETE GUIDE TO THE REAL ESTATE
SETTLEMENT PROCEDURES ACT § 8.04[6][a] (2013). And
courts had acknowledged and approved HUD’s interpretation.
See, e.g., Glover v. Standard Federal Bank, 283 F.3d 953, 964
(8th Cir. 2002) (the “permissive language of Section 8(c) . . .
clearly states that reasonable payments for goods, facilities or
services actually furnished are not prohibited by RESPA, even
when done in connection with the referral of a particular loan
to a particular lender”); cf. Carter v. Welles-Bowen Realty,
Inc., 736 F.3d 722, 728 (6th Cir. 2013) (Section 8(c)(2) is a
“safe harbor[]” from Section 8(a)’s “ban on referral fees”);
Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003)
(describing Section 8(c)(2) as a “safe harbor” and noting that
HUD, when evaluating whether payments from mortgage
lenders to mortgage brokers fall within Section 8(c), considers
whether the payments for services “are reasonably related to
the value of the . . . services that were actually performed”).
At the time PHH engaged in its captive reinsurance
arrangements, everyone knew the deal: Captive reinsurance
arrangements were lawful under Section 8 so long as the
mortgage insurer paid no more than reasonable market value to
the reinsurer for reinsurance actually furnished.

Page 82 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

83
In 2015, however, the CFPB decided that captive
reinsurance agreements were prohibited by Section 8. The
CFPB then applied its new interpretation of Section 8
retroactively against PHH, ruling against PHH based on
conduct that had occurred as far back as 2008. The
retroactive application of the CFPB’s new interpretation
violated the Due Process Clause.
The Due Process Clause limits the extent to which the
Government may retroactively alter the legal consequences of
an entity’s or person’s past conduct. That anti-retroactivity
principle “is deeply rooted in our jurisprudence, and embodies
a legal doctrine centuries older than our Republic.” Landgraf
v. USI Film Products, 511 U.S. 244, 265 (1994); see also
Eastern Enterprises v. Apfel, 524 U.S. 498, 547 (1998)
(Kennedy, J., concurring in the judgment and dissenting in
part) (“[F]or centuries our law has harbored a singular distrust
of retroactive statutes.”).
Retroactivity – in particular, a new agency interpretation
that is retroactively applied to proscribe past conduct –
contravenes the bedrock due process principle that the people
should have fair notice of what conduct is prohibited. As the
Supreme Court has emphasized, “individuals should have an
opportunity to know what the law is and to conform their
conduct accordingly.” Landgraf, 511 U.S. at 265. Due
process therefore requires agencies to “provide regulated
parties fair warning of the conduct a regulation prohibits or
requires.” Christopher v. SmithKline Beecham Corp., 132 S.
Ct. 2156, 2167, slip op. at 10-11 (2012) (internal quotation
marks and alteration omitted); see also FCC v. Fox Television
Stations, Inc., 132 S. Ct. 2307, 2317, slip op. at 11 (2012) (“A
fundamental principle in our legal system is that laws which
regulate persons or entities must give fair notice of conduct that
is forbidden or required.”); cf. United States v. Pennsylvania

Page 83 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

84
Industrial Chemical Corp., 411 U.S. 655, 674 (1973) (“Thus,
to the extent that the regulations deprived PICCO of fair
warning as to what conduct the Government intended to make
criminal, we think there can be no doubt that traditional notions
of fairness inherent in our system of criminal justice prevent
the Government from proceeding with the prosecution.”); Cox
v. Louisiana, 379 U.S. 559, 571 (1965) (“[U]nder all the
circumstances of this case, after the public officials acted as
they did, to sustain appellant’s later conviction for
demonstrating where they told him he could would be to
sanction an indefensible sort of entrapment by the State –
convicting a citizen for exercising a privilege which the State
had clearly told him was available to him. The Due Process
Clause does not permit convictions to be obtained under such
circumstances.”) (internal quotation marks and citation
omitted); Bouie v. City of Columbia, 378 U.S. 347, 350-51
(1964) (Due Process Clause violated when state punished
defendants “for conduct that was not criminal at the time they
committed it” because the “underlying principle” of fair
warning dictates that “no man shall be held criminally
responsible for conduct which he could not reasonably
understand to be proscribed”) (internal quotation marks
omitted); Raley v. Ohio, 360 U.S. 423, 438-39 (1959) (“There
was active misleading. The State Supreme Court dismissed
the statements of the Commission as legally erroneous, but the
fact remains that at the inquiry they were the voice of the State
most presently speaking to the appellants. We cannot hold
that the Due Process Clause permits convictions to be obtained
under such circumstances.”) (internal citation omitted). 25
25

In the criminal context, Article I’s two Ex Post Facto Clauses
bar retroactive criminal statutes. That principle is so fundamental to
the protection of individual liberty that the Framers included it in the
original Constitution, and made it applicable against both the
National and State governments. See U.S. CONST. art. I, § 9, cl. 3;
id. art. I, § 10, cl. 1. The Framers well understood that a free society

Page 84 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

85
In SmithKline, for example, the Supreme Court refused to
defer to the Department of Labor’s changed interpretation of a
regulation because the regulated industry “had little reason to
suspect that its longstanding practice” violated the law. 132
S. Ct. at 2167, slip op. at 12. Neither the relevant statute nor
any regulations provided clear notice of the Department of
Labor’s new interpretation. “Even more important,” the
Court said, was that “despite the industry’s decades-long
practice,” the “DOL never initiated any enforcement actions”
or “otherwise suggested that it thought the industry was acting
unlawfully.” Id. at 2168, slip op. at 12.
In SmithKline, in a sentence that all but decides the case
before us, the Supreme Court further stated: An “agency
should not change an interpretation in an adjudicative
proceeding where doing so would impose new liability on
individuals for past actions which were taken in good-faith
reliance on agency pronouncements.” Id. at 2167, slip op. at
11-12 (internal quotation marks and alterations omitted)
(quoting NLRB v. Bell Aerospace Co., 416 U.S. 267, 295
(1974)). The Court elaborated: “It is one thing to expect
regulated parties to conform their conduct to an agency’s
interpretations once the agency announces them; it is quite
could not function if retroactive punishment were tolerated. See id.;
see also Landgraf v. USI Film Products, 511 U.S. 244, 266-67
(1994); THE FEDERALIST NO. 84, at 511-12 (Alexander Hamilton)
(Clinton Rossiter ed., 1961) (“[T]he subjecting of men to
punishment for things which, when they were done, were breaches
of no law, and the practice of arbitrary imprisonments, have been, in
all ages, the favorite and most formidable instruments of tyranny.”);
cf. GEORGE ORWELL, 1984, at 40 (1949) (“Day by day and almost
minute by minute the past was brought up to date. . . . [N]or was
any item of news, or any expression of opinion, which conflicted
with the needs of the moment, ever allowed to remain on record.”).

Page 85 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

86
another to require regulated parties to divine the agency’s
interpretations in advance or else be held liable when the
agency announces its interpretations for the first time in an
enforcement proceeding and demands deference.” Id. at
2168, slip op. at 14. Because automatically accepting the
Department of Labor’s new interpretation “would result in
precisely the kind of unfair surprise against which our cases
have long warned,” the Supreme Court refused to defer to the
Department of Labor’s retroactive application of a changed
interpretation of its own regulations. Id. at 2167, slip op. at 11
(internal quotation marks omitted).
All of those fundamental anti-retroactivity principles are
Rule of Law 101.
And all of those fundamental
anti-retroactivity principles fit this case precisely. PHH did
not have fair notice of the CFPB’s interpretation of Section 8 at
the time PHH engaged in the conduct at issue here. PHH
participated in captive reinsurance arrangements in justifiable
reliance on the interpretation stated by HUD in 1997 and
restated in 2004. The CFPB therefore violated due process by
retroactively applying its changed interpretation to PHH’s past
conduct and requiring PHH to pay $109 million for that
conduct.
The CFPB retorts that there is a presumption in favor of
retroactive application of agencies’ interpretations of
ambiguous statutes. CFPB Br. 42-43. But here, the CFPB
was changing the Government’s longstanding interpretation of
that statute and then applying that changed interpretation
retroactively. The CFPB’s decision was a reversal of position
– an “abrupt departure” from a consistent, longstanding
position. Clark-Cowlitz Joint Operating Agency v. FERC,
826 F.2d 1074, 1081 (D.C. Cir. 1987) (en banc) (internal
quotation marks omitted). The Due Process Clause does not
allow retroactive application of such a change.

Page 86 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

87
The CFPB responds that nothing, including the 1997
letter, gave regulated entities such as PHH a reason to rely on
HUD’s interpretation. CFPB Br. 44-45. But in the 1997
letter, the Presidentially appointed and Senate-confirmed
Assistant Secretary of HUD stated: “I trust that this guidance
will assist you to conduct your business in accordance with
RESPA.”
Letter from Nicolas P. Retsinas, Assistant
Secretary for Housing, Department of Housing and Urban
Development, to Countrywide Funding Corporation 8 (Aug. 6,
1997) (J.A. 258). We therefore find this particular CFPB
argument deeply unsettling in a Nation built on the Rule of
Law. When a government agency officially and expressly
tells you that you are legally allowed to do something, but later
tells you “just kidding” and enforces the law retroactively
against you and sanctions you for actions you took in reliance
on the government’s assurances, that amounts to a serious due
process violation. The rule of law constrains the governors as
well as the governed.
The CFPB protests that the HUD pronouncements were
not reflected in a binding HUD rule. To begin with, that is
wrong.
As discussed, Regulation X reflected HUD’s
longstanding interpretation that Section 8(c) allowed payments
of reasonable market value for services actually performed.
See 12 C.F.R. § 1024.14 (2012) (CFPB codification of
Regulation X Section 8 provisions); 24 C.F.R. § 3500.14
(2011) (HUD Regulation X Section 8 provisions). In any
event, the CFPB is confusing (i) the administrative law issue of
whether an agency rule is sufficiently authoritative to obtain
Chevron deference or to constitute a norm of proscribed
conduct that the agency may enforce and (ii) the due process
issue of whether an agency statement pronouncing the legality
of certain conduct was sufficiently official for citizens to rely
on it as the citizens arranged their conduct. To trigger the

Page 87 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

88
latter due process protection, an agency pronouncement about
the legality of proposed private conduct need not have been set
forth in a rule preceded by notice and comment rulemaking, or
the like. Here, the agency guidance was provided by top HUD
officials and was given repeatedly. Although we do not imply
that those two conditions are necessary to justify citizens’
reliance for purposes of the Due Process Clause, they are
surely sufficient. Here, the regulated industry reasonably
relied on those agency pronouncements.
Put aside all the legalese for a moment. Imagine that a
police officer tells a pedestrian that the pedestrian can lawfully
cross the street at a certain place. The pedestrian carefully and
precisely follows the officer’s direction. After the pedestrian
arrives at the other side of the street, however, the officer hands
the pedestrian a $1,000 jaywalking ticket. No one would
seriously contend that the officer had acted fairly or in a
manner consistent with basic due process in that situation.
See Cox v. Louisiana, 379 U.S. 559, 571 (1965). Yet that’s
precisely this case. Here, the CFPB is arguing that it has the
authority to order PHH to pay $109 million even though PHH
acted in reliance upon numerous government pronouncements
authorizing precisely the conduct in which PHH engaged.
The Due Process Clause does not countenance the CFPB’s
gamesmanship. As Justice Kennedy eloquently explained in a
related scenario: “If retroactive laws change the legal
consequences of transactions long closed, the change can
destroy the reasonable certainty and security which are the
very objects of property ownership. . . . Groups targeted by
retroactive laws, were they to be denied all protection, would
have a justified fear that a government once formed to protect
expectations now can destroy them. Both stability of
investment and confidence in the constitutional system, then,
are secured by due process restrictions against severe

Page 88 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

89
retroactive legislation.” Eastern Enterprises, 524 U.S. at
548-49 (Kennedy, J., concurring in the judgment and
dissenting in part); see also General Electric Co. v. EPA, 53
F.3d 1324, 1328-29 (D.C. Cir. 1995) (“In the absence of notice
– for example, where the regulation is not sufficiently clear to
warn a party about what is expected of it – an agency may not
deprive a party of property by imposing civil or criminal
liability.”); Satellite Broadcasting Co. v. FCC, 824 F.2d 1, 3-4
(D.C. Cir. 1987) (“Traditional concepts of due process . . .
preclude an agency from penalizing a private party for
violating a rule without first providing adequate notice of the
substance of the rule. . . . Otherwise the practice of
administrative law would come to resemble ‘Russian
Roulette.’).
In sum, even if the CFPB’s new interpretation of Section 8
were a permissible interpretation of the statute, which it is not,
the CFPB’s interpretation could not constitutionally be applied
retroactively to PHH’s conduct that occurred before that new
interpretation. 26 On remand, to reiterate, the CFPB may
determine whether the relevant mortgage insurers paid more
than reasonable market value to the reinsurer Atrium, which is
what the statute proscribes and what HUD’s longstanding
pronouncements provided. 27
26

To be clear, Section IV-A and Section IV-B of this opinion
represent alternative holdings on the question of whether the CFPB
permissibly determined that PHH violated Section 8. As alternative
holdings, both holdings constitute binding precedent of the Court.
See Association of Battery Recyclers, Inc. v. EPA, 716 F.3d 667, 673
(D.C. Cir. 2013).
27
Proving that the mortgage insurer paid more than reasonable
market value – and thus made a disguised payment for the referral –
is an element of the Section 8 offense that the CFPB has the burden
of proving by a preponderance of the evidence. See 12 C.F.R.
§ 1081.303(a) (2016); see also Director, Office of Workers’

Page 89 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

90
V
In order to hold PHH liable, the CFPB must therefore
show that the relevant mortgage insurers paid more than
reasonable market value to Atrium for the reinsurance. On
remand, the CFPB may attempt to make that showing,
assuming that any relevant conduct by PHH occurred within
the applicable statute of limitations period. That in turn brings
us to the statute of limitations issue. PHH contends that most
of its relevant activity occurred outside of the three-year statute
of limitations applicable in this case.
“Statutes of limitations are intended to promote justice by
preventing surprises through the revival of claims that have
been allowed to slumber until evidence has been lost,
memories have faded, and witnesses have disappeared.”
Gabelli v. SEC, 133 S. Ct. 1216, 1221, slip op. at 5 (2013)
(internal quotation marks omitted). Statutes of limitations
Compensation Programs, Department of Labor v. Greenwich
Collieries, 512 U.S. 267, 271, 276 (1994) (APA’s use of “burden of
proof” in 5 U.S.C. § 556 places both burden of persuasion and
burden of production on proponent of order); 12 U.S.C. § 5563(a)
(CFPB is authorized to conduct adjudication proceedings “in the
manner prescribed by chapter 5 of title 5,” which includes
Administrative Procedure Act burden of proof requirements in 5
U.S.C. § 556). The CFPB characterizes this issue as an affirmative
defense. That is wrong. If there were express payments in
exchange for referrals in this case, and PHH was trying to argue that
the payments nonetheless were justified under some exception, that
might potentially fit within the affirmative defense box. But here,
there were no such express payments in exchange for referrals. It is
the CFPB’s burden to prove that the payments for reinsurance were
more than reasonable market value and were disguised payments for
referrals.

Page 90 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

91
also “provide security and stability to human affairs” by
affording “certainty” about “a defendant’s potential liabilities.”
Id. (internal quotation marks omitted).
The general working presumption in federal civil and
criminal cases is that a federal civil cause of action or criminal
offense must have some statute of limitations and must not
allow suits to be brought forever and ever after the acts in
question. See 28 U.S.C § 2462; 18 U.S.C. § 3282. As Chief
Justice Marshall stated, allowing parties to sue “at any distance
of time” would be “ utterly repugnant to the genius of our laws.
In a country where not even treason can be prosecuted after a
lapse of three years, it could scarcely be supposed that an
individual would remain forever liable to a pecuniary
forfeiture.” Adams v. Woods, 6 U.S. 336, 342 (1805).
The Dodd-Frank Act authorizes the CFPB to “conduct
hearings and adjudication proceedings” to enforce the Real
Estate Settlement Procedures Act. 12 U.S.C. § 5563(a). The
Real Estate Settlement Procedures Act, in turn, provides that
the CFPB may “bring an action to enjoin violations” of Section
8. Id. § 2607(d)(4). As it now reads, the Real Estate
Settlement Procedures Act also provides that “actions” brought
by various government agencies, including the CFPB, to
enforce Section 8 “may be brought within 3 years from the date
of the occurrence of the violation.” Id. § 2614.
The CFPB says that no statute of limitations applies to its
case against PHH. CFPB Br. 38. The CFPB advances two
primary arguments. First, the CFPB contends it is broadly
authorized to bring enforcement actions under the Dodd-Frank
Act, and the CFPB says that the Dodd-Frank Act contains no
statute of limitations on CFPB enforcement actions brought in
an administrative proceeding, as opposed to in court.
Notably, that broad argument would apply to all 19 of the

Page 91 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

92
consumer protection statutes that the CFPB enforces, and
would mean that no statute of limitations applies to CFPB
administrative actions enforcing any of those statutes.
Second, if the Dodd-Frank Act does not override the
statutes of limitations in all of the underlying statutes enforced
by the CFPB, meaning that the CFPB must abide by the
statutes of limitations in the underlying statutes, the CFPB
contends that the statute at issue here – the Real Estate
Settlement Procedures Act – imposes a three-year statute of
limitations only on those enforcement actions that the CFPB
brings in court. According to the CFPB, the Real Estate
Settlement Procedures Act does not impose any statute of
limitations for those enforcement actions that the CFPB brings
in administrative proceedings.
Neither of the CFPB’s arguments is correct.
First, the CFPB argues that we should ignore any statute
of limitations contained in the Real Estate Settlement
Procedures Act. Instead, the CFPB claims that we should
look to the general enforcement provisions of the Dodd-Frank
Act because those Dodd-Frank provisions, according to the
CFPB, trump the statutes of limitations in the underlying
statutes enforced by the CFPB.
Under the Dodd-Frank Act, the CFPB may bring an
enforcement action either in an administrative action or in
court. See 12 U.S.C. §§ 5563-5564. According to the CFPB,
that choice matters for statute of limitations purposes. The
CFPB says that the Dodd-Frank “provision that authorizes
court actions includes a statute of limitations,” but the
“provision authorizing administrative enforcement does not.”
CFPB Br. 38 (emphasis added).
Because the CFPB
challenged PHH’s conduct through an administrative action

Page 92 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

93
rather than in court, the CFPB concludes that there is no
applicable statute of limitations.
Importantly, the CFPB’s Dodd-Frank-based argument – if
accepted here – would apply not only to actions to enforce
Section 8 of the Real Estate Settlement Procedures Act. The
CFPB’s argument that it is not bound by any statute of
limitations in administrative proceedings would extend to all
19 of the consumer protection laws that Congress empowered
the CFPB to enforce.
Cf. Integrity Advance, LLC,
2015-CFPB-0029, Doc. No. 33, CFPB Opposition to Motion to
Dismiss, at 12 (arguing no statute of limitations applies to
CFPB administrative action to enforce the Truth in Lending
Act and the Electronic Fund Transfer Act).
The CFPB’s argument misreads the enforcement
provisions of the Dodd-Frank Act. Section 5563 authorizes
the CFPB “to conduct hearings and adjudication proceedings
. . . in order to ensure or enforce compliance with” 19 federal
consumer protection laws, in addition to other rules,
regulations, and orders. 12 U.S.C. § 5563(a). But Congress
limited the enforcement power granted in Section 5563. The
CFPB may enforce those federal laws “unless such Federal law
specifically limits the Bureau from conducting a hearing or
adjudication proceeding.” Id. § 5563(a)(2) (emphasis added).
Obviously, one such “limit” is a statute of limitations. By its
terms, then, Section 5563 ties the CFPB’s administrative
adjudications to the statutes of limitations of the various
federal consumer protection laws it is charged with
enforcing. 28 The Dodd-Frank Act therefore makes clear that
28

Similarly, for actions the CFPB brings in court under any of
the 18 pre-existing consumer protection statutes, the CFPB may only
“commence, defend, or intervene in the action in accordance with the
requirements of that provision of law, as applicable.” 12 U.S.C.
§ 5564(g)(2)(B).

Page 93 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

94
in its enforcement action against PHH, the CFPB was bound by
any statute of limitations located in the Real Estate Settlement
Procedures Act.
Second, as to the Real Estate Settlement Procedures Act
itself, the CFPB argues that the three-year limitations period in
Section 2614 of that Act applies only to CFPB actions to
enforce Section 8 in court, not to CFPB administrative actions
to enforce Section 8 before the agency. We again disagree.
Section 2614 supplies the appropriate statute of limitations
period not only for CFPB actions to enforce Section 8 that are
brought in court, but also for CFPB actions to enforce Section
8 that are brought administratively. 29
The first part of Section 2614 specifies a general one-year
statute of limitations for any “action pursuant to” Section 8
“brought in the United States district court or in any other court
of competent jurisdiction.” Id. § 2614.
The second part of Section 2614 supplies a longer,
three-year statute of limitations for “actions” to enforce
Section 8 “brought by the Bureau, the Secretary, the Attorney
29

In full, Section 2614 provides: “Any action pursuant to the
provisions of section 2605, 2607, or 2608 of this title may be brought
in the United States district court or in any other court of competent
jurisdiction, for the district in which the property involved is located,
or where the violation is alleged to have occurred, within 3 years in
the case of a violation of section 2605 of this title and 1 year in the
case of a violation of section 2607 or 2608 of this title from the date
of the occurrence of the violation, except that actions brought by the
Bureau, the Secretary, the Attorney General of any State, or the
insurance commissioner of any State may be brought within 3 years
from the date of the occurrence of the violation.” 12 U.S.C. § 2614.
Note that the referenced Section 2607 of Title 12 is Section 8 of the
Real Estate Settlement Procedures Act.

Page 94 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

95
General of any State, or the insurance commissioner of any
State.” Id. In this second part of Section 2614, the term
“actions” is not limited to actions brought in court. Section
2614 does not specify a jurisdiction or forum for actions by the
Bureau, the Secretary, the Attorney General of any State, or the
insurance commissioner of any State. Section 2614 simply
requires that those actions be brought within a three-year
limitations period.
On its face, the statute of limitations for actions under
Section 8 is therefore straightforward: Private plaintiffs can
bring actions under Section 8 only in court. Private plaintiffs
cannot bring administrative actions. For those private-party
suits, a one-year statute of limitations applies. The relevant
government enforcement agencies – including the CFPB – may
bring actions to enforce Section 8 in courts or in administrative
proceedings.
For those cases, a three-year statute of
limitations applies.
In response, the CFPB claims that the term “actions” in
Section 2614 refers only to court actions, not to administrative
actions. The CFPB argues that Congress uses the word
“proceedings” rather than “actions” when it wants to refer to
administrative actions. That is flatly wrong. Indeed, the
Dodd-Frank Act itself, which amended Section 2614 to its
current form, directly contradicts the CFPB’s assertion about
the meaning of the term “action.” The Dodd-Frank Act
repeatedly uses the term “action” to encompass court actions
and administrative proceedings. See, e.g., id. § 5497(d)(1)
(“If the Bureau obtains a civil penalty against any person in any
judicial or administrative action under Federal consumer
financial laws . . . .”); id. § 5537(b)(1) (establishing grant
program for States “to hire staff to identify, investigate, and
prosecute (through civil, administrative, or criminal
enforcement actions) cases involving misleading or fraudulent

Page 95 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

96
marketing”); id. § 5538(b)(6) (“Whenever a civil action or an
administrative action has been instituted by or on behalf of the
Bureau . . . .”); id. § 5565(c) (subsection entitled “Civil money
penalty in court and administrative actions”). The same can
be said for various provisions scattered throughout the U.S.
Code. See, e.g., 7 U.S.C. § 2279d (“Such liability shall apply
to any administrative action brought before October 21, 1998,
but only if the action is brought within the applicable statute of
limitations . . . .”); 15 U.S.C. § 78u-6(a)(1) (“The term
‘covered judicial or administrative action’ means any judicial
or administrative action brought by the Commission under the
securities laws that results in monetary sanctions exceeding
$1,000,000.”); 42 U.S.C. § 9628(b)(1)(B) (“The President may
bring an administrative or judicial enforcement action under
this chapter . . . .”); 49 U.S.C. § 60120(a)(1) (“The maximum
amount of civil penalties for administrative enforcement
actions under section 60122 shall not apply to enforcement
actions under this section.”).
The CFPB also cites BP America Production Co. v.
Burton, 549 U.S. 84 (2006). There, the Supreme Court ruled
that 28 U.S.C. § 2415(a) – a civil statute of limitations
provision for “every action for money damages” brought by
the Government – encompassed only court actions, and not
agency enforcement actions. BP America, 549 U.S. at 89, 101
(internal quotation marks and emphasis omitted). To arrive at
that conclusion, the Court looked to a wide array of textual and
structural clues in that statutory scheme. For example, the
Court noted that the “key terms in th[e] provision – ‘action’
and ‘complaint’ – are ordinarily used in connection with
judicial, not administrative, proceedings.” Id. at 91. That
conclusion was reinforced by Congress’s use of the word
“action” as part of the term “action for money damages,”
which is “generally used to mean pecuniary compensation or
indemnity, which may be recovered in the courts.” Id. at

Page 96 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

97
91-92 (internal quotation marks omitted). The Supreme Court
also noted Congress’s use of the term “right of action” in the
same provision, which is defined as the “right to bring suit; a
legal right to maintain an action, with suit meaning any
proceeding . . . in a court of justice.” Id. at 91 (internal
quotation marks omitted) (quoting BLACK’S LAW DICTIONARY
1488, 1603 (4th ed. 1951)).
At the very most, BP America articulated a presumption
that the term “action” means court proceedings. But it is at
most a presumption. BP America certainly never said that the
term “actions” always means actions in court. Far from it.
Indeed, Supreme Court cases interpret the term “actions” to
encompass administrative actions. See West v. Gibson, 527
U.S. 212, 220-21 (1999); Pennsylvania v. Delaware Valley
Citizens’ Council for Clean Air, 478 U.S. 546, 557-60 (1986).
The question of whether the term “actions” in a particular
statute encompasses administrative actions thus turns on the
overall text, context, purpose, and history of the statute. Here,
the textual and contextual clues convincingly demonstrate that
administrative actions are covered. Unlike in BP America,
the key part of Section 2614 – which refers to “actions”
brought by the CFPB – speaks of an “action” generically and is
not limited to an “action for money damages.” Section 2614
also lacks other “key terms” like “complaint” or “right of
action” that were present in the statute at issue in BP America.
The broader purpose and history of the Dodd-Frank Act
strongly reinforce the conclusion that the CFPB is bound by a
three-year statute of limitations in its administrative actions to
enforce Section 8. Before 2010, HUD could not bring
administrative enforcement actions to enforce Section 8.
HUD could sue only in court. The CFPB acknowledges that a
three-year statute of limitations applied to all of those HUD

Page 97 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

98
actions to enforce Section 8. When passing the Dodd-Frank
Act in 2010, Congress empowered the CFPB (taking over for
HUD) to enforce Section 8 not just in courts, but also in
administrative actions. Importantly, the CFPB has complete
discretion to institute enforcement actions in courts or through
administrative actions. See 12 U.S.C. §§ 5563-5564. And
the CFPB can obtain administratively all of the remedies that it
could obtain in court. Id. § 5565(a)(2). The CFPB’s theory
is that Congress – for some unstated reason – did not carry
forward the three-year statute of limitations for CFPB
administrative actions to enforce Section 8. Under the
CFPB’s theory, the agency therefore can always circumvent
the three-year statute of limitations simply by bringing the
enforcement action administratively rather than in court. But
Congress did not suggest that by transferring authority from
HUD to the CFPB, it intended to relax the longstanding
three-year statute of limitations.
Moreover, “Congress ‘does not, one might say, hide
elephants in mouseholes.’”
Puerto Rico v. Franklin
California Tax-Free Trust, 136 S. Ct. 1938, 1947, slip op. at 11
(2016) (quoting Whitman v. American Trucking Associations,
Inc., 531 U.S. 457, 468 (2001)). If by means of the
Dodd-Frank Act, “Congress intended to alter” the fundamental
details of the statutes of limitations for enforcement of this
critical consumer protection law, “we would expect the text of
the amended” statute “to say so.” Id. (internal quotation
marks omitted). In other words, we would expect Congress to
actually say that there is no statute of limitations for CFPB
administrative actions to enforce Section 8, especially given
that the CFPB has full discretion to pursue administrative
actions instead of court proceedings and can obtain all of the
same remedies through administrative actions that it can obtain
in court. But the text of Dodd-Frank says no such thing.

Page 98 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

99
Nor, moreover, has the CFPB cited any legislative history that
says anything like that.
Of course, there is good reason Congress did not say that
the CFPB need not comply with any statutes of limitations
when enforcing the Real Estate Settlement Procedures Act
administratively. That would be absurd. Why would
Congress allow the CFPB to bring administrative actions for an
indefinite period, years or even decades after the fact? Why
would Congress create such a nonsensical dichotomy between
CFPB court actions and CFPB administrative actions? The
CFPB has articulated no remotely plausible reason why
Congress would have done so. See Griffin v. Oceanic
Contractors, Inc., 458 U.S. 564, 575 (1982) (“absurd results
are to be avoided” where “alternative interpretations consistent
with the legislative purpose are available”). The CFPB’s
interpretation is especially alarming because the agency can
seek civil penalties in these administrative actions. 12 U.S.C.
§ 5565(a)(2). But the Supreme Court has emphatically
stressed the importance of statutes of limitations in civil
penalty provisions. As the Supreme Court stated in Gabelli:
“Chief Justice Marshall used particularly forceful language in
emphasizing the importance of time limits on penalty actions,
stating that it ‘would be utterly repugnant to the genius of our
laws’ if actions for penalties could ‘be brought at any distance
of time.’” 133 S. Ct. at 1223, slip op. at 9 (quoting Adams, 6
U.S. at 342); see also 3M Co. v. Browner, 17 F.3d 1453, 1457
(D.C. Cir. 1994) (“Justice Story, sitting as a circuit justice in a
civil penalty case, made the same point as Chief Justice
Marshall: ‘it would be utterly repugnant to the genius of our
laws, to allow such prosecutions a perpetuity of existence.’”)
(quoting United States v. Mayo, 26 F. Cas. 1230, 1231 (No.
15,754) (C.C.D. Mass. 1813)).

Page 99 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

100
The absurdity of the CFPB’s position is illustrated by its
response to a hypothetical question about the CFPB’s bringing
an administrative enforcement action 100 years after the
allegedly unlawful conduct. Presented with that question, the
CFPB referenced its prosecutorial discretion. But “trust us” is
ordinarily not good enough. Cf. McDonnell v. United States,
136 S. Ct. 2355, 2372-73, slip op. at 23 (2016) (declining to
construe a statute “on the assumption that the Government will
use it responsibly”) (internal quotation marks omitted). The
CFPB also suggested that the equitable defense of laches might
apply to such a case, and that “a court would look askance at a
proceeding” initiated 100 years after the challenged conduct
occurred. CFPB Br. 38 n.28. We need not wait for an
enforcement action 100 years after the fact. This Court looks
askance now at the idea that the CFPB is free to pursue an
administrative enforcement action for an indefinite period of
time after the relevant conduct took place. A much more
logical, predictable interpretation of the agency’s authority is
that the three-year limitations period in Section 2614 applies
equally to CFPB court actions and CFPB administrative
actions. And most importantly for our purposes, that is what
the relevant statutes actually say. 30
***
We grant PHH’s petition for review, vacate the CFPB’s
order, and remand for further proceedings consistent with this
opinion. On remand, the CFPB may determine, among other
things, whether, consistent with the applicable three-year
30

We do not here decide whether each alleged
above-reasonable-market value payment from the mortgage insurer
to the reinsurer triggers a new three-year statute of limitations for
that payment. We leave that question for the CFPB on remand and
any future court proceedings.

Page 100 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

101
statute of limitations, the relevant mortgage insurers paid more
than reasonable market value to Atrium.
So ordered.

Page 101 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

RANDOLPH, Senior Circuit Judge, concurring: After the
enforcement unit of the Consumer Financial Protection Bureau
filed a Notice of Charges against petitioners, an Administrative
Law Judge held a nine-day hearing and issued a recommended
decision, concluding that petitioners had violated the Real Estate
Settlement Procedures Act of 1974. In the administrative
appeal, the Director “affirm[ed]” the ALJ’s conclusion that
petitioners violated the Act.
I believe that the ALJ who presided over the hearing was an
“inferior Officer” within the meaning of Article II, section 2,
clause 2 of the Constitution. That constitutional provision
requires “inferior Officers” to be appointed by the President, the
“Courts of Law,” or the “Heads of Departments.” This ALJ
was not so appointed. Pursuant to an agreement between the
Bureau and the Securities and Exchange Commission, the SEC’s
Chief Administrative Law Judge assigned him to the case. This
in itself rendered the proceedings against petitioners
unconstitutional.
To me, the case is indistinguishable from Freytag v.
Commissioner of Internal Revenue, 501 U.S. 868 (1991). My
reasoning is set forth in Landry v. Federal Deposit Insurance
Corp., 204 F.3d 1125, 1140-44 (D.C. Cir. 2000) (Randolph, J.,
concurring in part and concurring in the judgment). There is no
need to repeat what I wrote there. The majority opinion in
Landry disagreed with my position, but petitioners have
preserved the issue for review by this court en banc or by the
Supreme Court on certiorari. Pet. Br. 51 n.8. The Bureau, in its
brief, argues that petitioners waived the issue because they did
not raise it before the ALJ or on appeal to the Bureau’s Director.
But the Freytag petitioners also raised their constitutional
objection to the appointment of the special trial judge for the
first time on appeal. See Freytag, 501 U.S. at 892-95 (Scalia, J.,
concurring). There is no difference between this case and
Freytag, except that in light of Landry it would have been futile
to object, a point that cuts in petitioners’ favor.

Page 102 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

KAREN LECRAFT HENDERSON, Circuit Judge, concurring
in part and dissenting in part:
In no uncertain terms, PHH has asked this Court to vacate
the CFPB’s order, outlining three distinct reasons why it is
entitled to that relief. As my colleagues ably demonstrate,
PHH’s statutory arguments are sufficient to accomplish its
goal—I agree that: (1) the Bureau’s interpretation of section
8(c)(2) contravenes the language of the statute; (2) “action” in
12 U.S.C. § 2614 includes enforcement proceedings brought
by the Bureau for a violation of section 8(a) and a three-year
statute of limitations applies to those proceedings; (3) the
Bureau’s interpretation of section 8(c)(2) is a new
interpretation retroactively applied against PHH without fair
notice; and (4) although the Bureau has the authority to order
disgorgement as a sanction under 12 U.S.C. § 5565(a)(2)(D),
the amount of any disgorgement award must be reduced by
the amount the captive reinsurer paid the insurers for their
reinsurance claims. 1 But my colleagues don’t stop there.
Instead, they unnecessarily reach PHH’s constitutional
challenge, thereby rejecting one of the most fundamental
tenets of judicial decisionmaking. With respect, I cannot join
them in this departure from longstanding precedent.
Although courts remain resolute in “our duty as the
bulwar[k] of a limited constitution against legislative
encroachments,” at the same time we recognize “a wellestablished principle governing the prudent exercise of this
Court’s jurisdiction that normally the Court will not decide a
constitutional question if there is some other ground upon
which to dispose of the case.” Nw. Austin Mun. Util. Dist. No.
One v. Holder, 557 U.S. 193, 205 (2009) (quoting THE
FEDERALIST No. 78, p. 526 (J. Cooke ed. 1961) (A.
Hamilton); Rostker v. Goldberg, 453 U.S. 57, 64 (1981))
1

Accordingly, I concur in Parts I, IV and V of the majority
opinion.

Page 103 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

2
(internal quotations omitted). An unbroken line of Supreme
Court cases teaches that “[i]t is not the habit of the court to
decide questions of a constitutional nature unless absolutely
necessary to a decision of the case.” Ashwander v. Tenn.
Valley Auth., 297 U.S. 288, 347 (1936) (Brandeis, J.,
concurring); accord Bond v. United States, 134 S. Ct. 2077,
2087 (2014); Union Pac. R. Co. v. Bhd. of Locomotive
Engineers & Trainmen Gen. Comm. of Adjustment, Cent.
Region, 558 U.S. 67, 80 (2009); Greater New Orleans Broad.
Ass’n, Inc. v. United States, 527 U.S. 173, 184 (1999); Dep’t
of Commerce v. U.S. House of Representatives, 525 U.S. 316,
343 (1999); Blum v. Bacon, 457 U.S. 132, 137 (1982).
Determining the applicability of this judicial restraint
principle is not a difficult task; indeed, a two-step inquiry
decides whether constitutional analysis is necessary. First, we
ask what relief a party seeks. See Nw. Austin Mun. Util. Dist.
No. One, 557 U.S. at 205 (determining whether statutory
remedy affords aggrieved party “all the relief it seeks”).
Federal Rule of Appellate Procedure 28(a)(9) makes this
simple, as it requires that the party’s brief include “a short
conclusion stating the precise relief sought.” Fed. R. App.
Pro. 28(a)(9) (emphasis added). PHH makes its requested
relief quite clear: “the appropriate remedy . . . is vacatur.” 2
Petitioners’ Br. at 61.

2

My colleagues state that “PHH wants us, at a minimum, to
strike down the CFPB and prevent its continued operation.” Maj.
Op. at 65. Besides describing, if anything, the maximum relief
available, they stray from the relief requested in PHH’s brief—
vacatur. Petitioners’ Br. at 61. To the extent PHH changed its
requested relief at oral argument, I believe we are to choose its
writing over its speech. See, e.g., Whitehead v. Food Max of
Mississippi, Inc., 163 F.3d 265, 270 (5th Cir. 1998) (citing Fed. R.

Page 104 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

3
The next question, then, is whether the court can provide
the requested relief—to its fullest extent—on statutory
grounds. See Nw. Austin Mun. Util. Dist. No. One, 557 U.S. at
205. If so, we are to leave any constitutional question for
another day. See Ashwander, 297 U.S. at 347 (Brandeis, J.,
concurring) (“The Court will not pass upon a constitutional
question although properly presented by the record, if there is
also present some other ground upon which the case may be
disposed of.”). Indeed, my colleagues conclude that vacatur is
warranted on statutory grounds. Maj. Op. at Parts IV, V.
Because the statutory holding is sufficient, I believe our
analysis should begin and end there. United States v. Wells
Fargo Bank, 485 U.S. 351, 354 (1988) (“[O]ur established
practice is to resolve statutory questions at the outset where to
do so might obviate the need to consider a constitutional
issue.”).
My colleagues, however, insist that the constitutional
issues be addressed before the statutory ones because
resolution of the former could afford PHH broader relief. Maj.
Op. at 10 n. 1. Notwithstanding their approach turns on its
head the “fundamental rule of judicial restraint” that “[p]rior
to reaching any constitutional questions, federal courts must
consider nonconstitutional grounds for decision,” Jean v.
Nelson, 472 U.S. 846, 854 (1985); Gulf Oil Co. v. Bernard,
452 U.S. 89, 99 (1981); Mobile v. Bolden, 446 U.S. 55, 60
(1980); Kolender v. Lawson, 461 U.S. 352, 361, n. 10 (1983),
it misses the point—our focus should be on providing the full
relief requested by the prevailing party, not the broadest relief
implicated by its claim. See Nw. Austin Mun. Util. Dist. No.
One, 557 U.S. at 205. Granted, in Nw. Austin Mun. Util. Dist.
No. One, the Supreme Court rejected the argument that
App. Pro. 28) (limiting relief to that requested in appellate brief
rather than alternate relief first proposed at oral argument).

Page 105 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

4
resolving the case solely on statutory grounds “would not
afford [a plaintiff] all the relief it seeks”—even though the
plaintiff’s constitutional challenge, if successful, would
provide broader relief—because the plaintiff had “expressly
describe[d] its constitutional challenge . . . as ‘being in the
alternative’ to its statutory argument.” Id. at 205–06; cf.
Zobrest v. Catalina Foothills School Dist., 509 U.S. 1, 7–8
(1993) (reaching Establishment Clause argument despite
statutory ground because “[r]espondent did not urge any
statutory grounds for affirmance upon the Court of
Appeals . . . [and] [i]n the District Court, too, the parties
chose to litigate the case on the federal constitutional issues
alone”). Similarly, PHH has expressly relied on “three
independent reasons” why vacatur is appropriate, treating its
constitutional arguments as alternatives to its statutory
counterparts. Petitioners’ Br. at 23. Thus, our duty is quite
clear: “[A] federal court should not decide federal
constitutional questions where a dispositive nonconstitutional
ground is available.” Jean v. Nelson, 472 U.S. at 854 (1985);
Spector Motor Serv. v. McLaughlin, 323 U.S. 101, 105 (1944)
(“If there is one doctrine more deeply rooted than any other in
the process of constitutional adjudication, it is that we ought
not to pass on questions of constitutionality . . . unless such
adjudication is unavoidable.”).
Nevertheless, my colleagues conclude that we must
decide the constitutional issue because it involves “a
fundamental constitutional challenge to the very structure or
existence of an agency enforcing the law against it.” Maj. Op.
at 10 n. 1. I again believe prudential considerations counsel
against our reaching out to invalidate the for cause removal
provision. See Spector Motor Serv., 323 U.S. at 105.
First, the Supreme Court’s leading removal caselaw is
distinguishable. In both Myers v. United States, 272 U.S. 52,

Page 106 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

5
106–07 (1926), and Humphrey’s Executor v. United States,
295 U.S. 602, 618–19 (1935), the suit was brought by the
officer removable for cause only and only after he had been
removed from office. In Myers, the President, through the
Postmaster General, removed a postmaster (Myers). 272 U.S.
at 106. Myers protested the removal and eventually brought
suit for back pay. Id. After determining that laches did not
prevent Myers from challenging his removal, the Court had to
resolve whether the President had lawfully removed him. Id.
at 106–07. Humphrey’s Executor presented a similar
question—the President removed a member (Humphrey) of
the Federal Trade Commission (FTC) before his seven-year
term concluded and without cause. 295 U.S. at 618–19.
Humphrey then sought back pay. Id. The Court could not
decide his back pay claim without first addressing the validity
of Humphrey’s for-cause only removal restriction on the
President’s Article II removal power. Id. at 626–31.
The holdings in Morrison v. Olson, 487 U.S. 654 (1988),
and Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.,
561 U.S. 477 (2010), are equally inapposite. In Morrison, the
appellees sought to quash subpoenas issued on behalf of the
independent counsel by challenging the constitutionality of
the legislation providing for appointment of an independent
counsel removable by the Attorney General for cause only.
487 U.S. at 668–69. Other than the collateral issue of the
proper scope of review of a contempt order, id. at 669–70, the
only challenges the appellees made throughout the litigation
were constitutional in nature. Id. at 668–70. Accordingly,
although there were several grounds on which the appellees
could have won their requested relief (quashing the
subpoenas), each required consideration of a constitutional
issue.

Page 107 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

6
Free Enterprise Fund is perhaps the closest precedent yet
it too is distinguishable. The Public Company Accounting
Oversight Board (PCAOB) investigated an accounting firm
for potential violations of statutes and regulations relating to
the auditing of public companies. Free Enterprise Fund v.
Pub. Co. Accounting Oversight Bd., No. 06–0217, 2007 WL
891675, at *2 (D.D.C. March 21, 2007). The PCAOB issued a
report detailing the result of its preliminary investigation and
plaintiffs Free Enterprise Fund and its accounting-firm
member brought suit to enjoin the ongoing disciplinary
proceedings. Id. They sought a declaratory judgment “that the
provisions of the Act establishing the PCAOB are
unconstitutional” and “an order enjoining the Board from
taking any further action against [the accounting firm].” Id.
Thus, the only challenge was a facial one to the
constitutionality of the PCAOB—there was no statutory
ground on which to reverse any PCAOB action because it had
not yet taken action against the firm. Id. at *6. On review,
we addressed the “facial challenge” that “Title I of the
Sarbanes-Oxley Act of 2002 . . . violates the Appointments
Clause of the Constitution and separation of powers because it
does not permit adequate Presidential control of the
[PCAOB].” Free Enterprise Fund v. Pub. Co. Accounting
Oversight Bd., 537 F.3d 667, 668 (D.C. Cir. 2008). Likewise,
the Supreme Court granted relief on the constitutional
removal power ground. 3 561 U.S. at 510–14.
This case does not fit the Court’s removal precedents.
Myers and Humphrey’s Executor raised only constitutional
questions. And unlike the challenges in Morrison and in Free
Enterprise Fund, PHH has challenged—successfully—the
3

The Court separately affirmed the district court’s jurisdiction
based on a direct review provision of the Sarbanes-Oxley Act. 561
U.S. at 489–90.

Page 108 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

7
Bureau’s exercise of its statutory authority. Again, PHH can
obtain full relief without our addressing the Bureau’s
challenged structure. 4 Although I agree that “[w]hen
constitutional questions are ‘indispensably necessary’ to
resolving the case at hand, ‘the court must meet and decide
them.’” Citizens United v. FEC, 558 U.S. 310, 375 (Roberts,
C.J., concurring) (quoting Ex parte Randolph, 20 F. Cas. 242,
254 (No. 11, 558) (C.C.Va. 1833) (Marshall, C.J.)), I do not
believe that it is “indispensably necessary” to resolve the forcause removal issue here.
To the extent the majority concludes that judicial restraint
is irrelevant because PHH raises a structural constitutional
issue, Supreme Court precedent on waiver of structural
constitutional arguments advises otherwise. It is settled that a
nonjurisdictional constitutional argument, including an Article
III structural claim, can be waived. See, e.g., Plaut v.
Spendthrift Farm, Inc., 514 U.S. 211, 231–32 (1995) (“[T]he
proposition that legal defenses based upon doctrines central to
the courts’ structural independence can never be waived
simply does not accord with our cases.”); see also Al Bahlul v.
United States, 792 F.3d 1, 33 (D.C. Cir. 2015) (Henderson, J.,
dissenting) (“[T]he only nonforfeitable argument is subjectmatter jurisdiction.”). Although waiver of an Article III
structural challenge “cannot be dispositive,” Commodity
4

I do not suggest that the Bureau is immune from challenge.
A deposed director or a regulated party could challenge the
constitutionality of the Bureau, either in a stand-alone constitutional
challenge as in Free Enterprise Fund or as part of an appeal of a
Bureau enforcement proceeding if the statutory remedy did not
provide full relief. And in all likelihood, that challenge will be
before this Court relatively quickly. See, e.g., State Nat’l Bank of
Big Spring v. Lew, No. CV 12-1032 (ESH), 2016 WL 3812637, at
*1 (D.D.C. July 12, 2016) (holding in abeyance resolution of
challenge to CFPB’s constitutionality until the decision here).

Page 109 of 110

USCA Case #15-1177

Document #1640101

Filed: 10/11/2016

8
Future Trading Commission v. Schor, 478 U.S. 833, 851
(1986), the Supreme Court has recently clarified that it
remains within our discretion whether to reach such a
challenge. See B&B Hardware, Inc. v. Hargis Industries, Inc.,
135 S. Ct. 1293, 1304, 1305 n.2 (2015) (declining to consider
Article III structure challenge not properly briefed); Wellness
International Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1942,
1948–49 (2015) (reversing Seventh Circuit decision holding
that Article III structural challenge could not be forfeited and
remanding to determine forfeiture vel non); Plaut, 514 U.S. at
231–32 (noting Schor Court “cho[se] to consider [Schor’s]
Article III challenge” notwithstanding [his] consent to
jurisdiction in the Article I tribunal and waiver of that
challenge). Because resolution of the constitutionality of the
Bureau’s structure is unnecessary in providing PHH full relief
and because the Supreme Court’s removal jurisprudence does
not lead to a contrary result, I believe we should stay our
hand. Greater New Orleans Broad. Ass’n, Inc. v. United
States, 527 U.S. 173, 184 (1999) (“It is . . . an established part
of our constitutional jurisprudence that we do not ordinarily
reach out to make novel or unnecessarily broad
pronouncements on constitutional issues when a case can be
fully resolved on a narrower ground.”).
Accordingly, I respectfully dissent from Parts II and III
of the majority opinion. In addition, I do not join the
Introduction and Summary to the extent it “hold[s] that the
CFPB is unconstitutionally structured.” Maj. Op. at 10.

Page 110 of 110