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From Banking and Finance Law Daily, May 17, 2013

Recess Appointment Ruling Jeopardizes CFPB’s Actions

By John M. Pachkowski, J.D.

A divided panel of the United States Court of Appeals for the Third Circuit has ruled that an NLRB panel lacked the requisite number of members to exercise the NLRB’s authority because one panel member was invalidly appointed during an intrasession break (National Labor Relations Board v. New Vista Nursing and Rehabilitation, May 16, 2013, Smith, Circuit Judge).

This latest ruling, along with the United States Court of Appeals for the District of Columbia’s ruling in Noel Canning v. National Labor Relations Board and the decision by the Obama Administration to file a petition for certiorari with the Supreme Court seeking reversal of the Canning decision, further clouds the January 2012 recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau and the actions taken by the bureau during Cordray’s recess appointment.

The majority—D. Brooks Smith and Franklin S. Van Antwerpen—in New Vista noted, “[t]he central question in this case is the meaning of ‘the Recess of the Senate,’ which is the only time in which the president may use his power to recess appoint officers” and added “[t]hree definitions have been offered: (1) breaks between sessions of the Senate (i.e., ‘intersession breaks’); (2) these intersession breaks as well as breaks within a session (i.e., ‘intrasession breaks’) that last for a non-negligible time, or (3) any break in Senate business that makes the body unavailable to provide advice and consent on the president‘s nominations.”

Lacks natural meaning. The bulk of the majority’s 102-page decision provided a detailed analysis of the recess-appointment issue. Specifically, the majority examined: the literal meaning of “recess,” noting the “word ‘recess’ lacks a natural meaning that clearly identifies whether it includes only intersession breaks or also includes intrasession breaks, whether they be of a certain duration or a period of unavailability;” the historical use of recess with a detailed survey of its use by American colonial legislatures; and a historical review of recess appointments.

“Clear distinctions”. Finally, the majority noted, “Our conclusion that recess includes only intersession breaks is supported by the Supreme Court’s direction that ‘the doctrine of separation of powers is a structural safeguard’ which has as one of ‘its major feature[s]’ the ‘establish[ment] [of] high walls and clear distinctions because low walls and vague distinctions will not be judicially defensible in the heat of interbranch conflict.’”

Defies common sense. On the other hand, the dissenting judge—Joseph A. Greenaway Jr.—wrote, “The Majority’s rationale undoes an appointments process that has successfully operated within our separation of powers regime for over 220 years. Judge Greenaway noted, “Under the Majority’s rationale, the President could make a recess appointment during any intersession recess, even if it only lasted a nanosecond, yet could not make a recess appointment during a six-month intrasession recess. This defies common sense and common logic.”

Implications. Following the Canning decision, the Congressional Research Service released a report examining the practical implications of that decision on the NLRB and the CFPB. The report was prepared by David H. Carpenter and Todd Garvey, Legislative Attorneys at the CRS. The authors also prepared a companion report, The Recess Appointment Power After Noel Canning v. NLRB: Constitutional Implications, which focused on the ramifications that the Noel Canning decision might have on the President’s authority to make a recess appointment by providing a legal analysis of Noel Canning and the applicable case law that existed prior to that decision.

In the report entitled Practical Implications of Noel Canning on the NLRB and CFPB, the authors noted if a court invalidated Cordray’s recess appointment and determined that every rulemaking and enforcement action conducted under the direction of Cordray was done without proper legal authority, that does not necessarily mean those actions are void. The report went on to say that "many of the substantive actions taken while Cordray was at the helm were exercises of transferred authorities that the [Treasury] Secretary could have authorized had he been serving as interim director pursuant to [Dodd-Frank Act] section 1066(a)" and the Treasury Secretary may be permitted to validate some of bureau’s past actions through the doctrine of ratification.

The case is No. 11-3440.

Attorneys: Beth S. Brinkmann, Sarang V. Damle, Scott R. McIntosh, Melissa N. Patterson, and Benjamin M. Shultz (United States Department of Justice), Julie B. Broido, Linda Dreeben, and Milakshmi V. Rajapakse (National Labor Relations Board) for National Labor Relations Board. Louis J. Capozzi Jr. (Capozzi & Associates) and Morris Tuchman (Law Offices of Morris Tuchman) for New Vista Nursing and Rehabilitation.

Companies: New Vista Nursing and Rehabilitation; Noel Canning Corporation

MainStory: TopStory ConsumerCredit CFPB DebtCollection DoddFrankAct EnforcementActions EqualCreditOpportunity FairCreditReporting Loans Mortgages RESPA TruthInLending UDAAP

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