Tag Archives: Supreme Court

Affirmatively Furthering Neighborhood Choice

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Professor Kelly

Professor Kelly

Jim Kelly has posted Affirmatively Furthering Neighborhood Choice: Vacant Property Strategies and Fair Housing to SSRN (forthcoming in the University of Memphis Law Review). He writes,

With the Supreme Court’s Inclusive Cmtys. Project decision in June 2015 and the Obama Administration’s adoption, the following month, of the Final Rule for Affirmatively Furthering Fair Housing, local government accountability for ending segregation and resolving the spatial mismatch between affordable housing and economic opportunity has been placed on a more solid footing. Instead of being responsible only for overt, conscious attempts to harm protected groups, jurisdictions that receive money from HUD will need to take a hard look at their policies that perpetuate the barriers to housing opportunity for economically marginalized protected groups. The duty to Affirmatively Further Fair Housing, although somewhat aspirational in its formulation, requires HUD grant recipients to engage with fair housing issues in a way that the threat of litigation, even disparate impact litigation, never has.

For cities struggling with soft residential real estate markets, HUD’s concerns about land use barriers to affordable housing may seem tone deaf. Advocates challenging exclusionary policies have often focused on cities with high housing costs. Even a city with large vacant problems, such as Baltimore, was sued primarily because of its location with a strong regional housing market. But, concerns about social equity in revitalizing communities make the Final Rule’s universal approach to AFFH very relevant to cities confronting housing abandonment in its older, disinvested neighborhoods. This Articles has shown that attention to the Final Rule’s new Assessment of Fair Housing (AFH) reporting system is warranted both as a protective measure and as an opportunity to advance core goals of creating and sustaining an attractive and inclusive network of residential urban communities. (30-31)

For those of us who have trouble parsing the contemporary state of fair housing law in general and the AFFH rule in particular, the article provides a nice overview. And it offers insight into how fair housing law can help increase “the supply of decent, affordable housing options to members of protected groups . . .” (2) Not a bad twofer for one article.

Testing CFPB’s Constitutionality

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by Junius Brutus Stearns

Law360 quoted me in PHH Case Poised To Test CFPB’s Constitutionality (behind a paywall). It opens,

A battle over the Consumer Financial Protection Bureau’s interpretation of mortgage regulations in assessing a $109 million penalty against a New Jersey-based mortgage firm has morphed into a fight over the authority vested in the bureau’s director that could reshape the consumer finance watchdog, experts say.

The appeal from PHH Corp. to the D.C. Circuit originally centered on CFPB Director Richard Cordray’s decision to dramatically hike a $6 million mortgage insurance kickback penalty issued by an administrative law judge against a company subsidiary, to the final, $109 million figure. But the judges hearing the case warned the bureau to prepare to answer questions at oral arguments Tuesday about language in the Dodd-Frank Act that says the president could remove the CFPB director only for cause, and about how the court should view an administrative agency led by a single director rather than the more typical commission structure.

Those questions have been hanging over the CFPB since its inception in the 2010 law, and if the D.C. Circuit rules against the bureau, that could fundamentally alter the way the bureau operates, said Jonathan Pompan, a partner at Venable LLP.

Cordray “is potentially going to have to address questions that go to the core of his authority, which really hadn’t been at the forefront of the PHH case until now,” he said.

Challenges to the CFPB’s constitutionality are not new. Everything from the bureau’s single-director rather than commission structure to the agency’s funding through the Federal Reserve’s budget rather than the congressional appropriations process have been constant refrains for the CFPB’s opponents.

Those concerns have been addressed through legislation aimed at curtailing the CFPB’s power, and claims challenging the agency’s constitutionality have been an almost pro forma rite of any litigation involving the bureau.

Up until now, however, those complaints and attempts to curb the CFPB have gone nowhere.

So it was a surprise when the D.C. Circuit last Wednesday told the bureau’s attorneys to be prepared to face questions about whether Dodd-Frank’s provision stating that the president can remove the CFPB director only for “inefficiency, neglect of duty, or malfeasance in office” passed constitutional muster.

The panel, made up of three Republican appointees led by U.S. Circuit Judge Brett M. Kavanaugh, is also seeking answers about potential remedies for any problems that that provision brings, including potentially removing it from the statute and allowing the president to remove the CFPB director without any specific cause.

The judges also want to know how any fix to the problem, if they determine there is one, would affect the CFPB director’s authority.

“This is not, by any stretch of the imagination, idle thinking on their part,” said David Reiss, a professor at Brooklyn Law School.

The questions being posed by the D.C. Circuit panel do not pose the same level of threat that the other constitutional challenges the CFPB could potentially face would, but it is certainly a more defining question than what most observers thought the case would be about.

PHH is challenging Cordray’s interpretation of violations under the Real Estate Settlement Procedures Act that allowed him to supersize a $6 million penalty handed down by an administrative law judge, to the $109 million that the CFPB director handed down when PHH appealed.

But the arguments set for Tuesday are expected to go far beyond that issue.

There will be the central question of whether the U.S. Constitution allows Congress to put in restrictions on when the president can fire officials at an administrative agency. The U.S. Supreme Court addressed these issues in the 2010 Free Enterprise Fund v. Public Company Accounting Oversight Board decision, which affirmed a D.C. Circuit ruling that such protections were constitutional.

Judge Kavanaugh cast a dissenting vote in that case, stating that a president should not have to notify Congress as to why the director of an administrative agency is removed.

“If the challenges were going to be taken seriously anywhere, it was probably going to be this panel,” said Brian Simmonds Marshall, policy counsel at Americans for Financial Reform, which seeks tougher banking regulations.

Removing that provision from the statute, should the D.C. Circuit elect to do so, could limit the CFPB’s independence, as well as that of other administrative agencies for which statute requires a reason for the dismissal of officials, he said.

“The CFPB doesn’t have to check with the White House right now before it brings an enforcement action,” Simmonds Marshall said.

Another case that will be heavily scrutinized will be a 1935 Supreme Court decision in Humphrey’s Executor v. U.S., which allowed for restrictions on the removal of Federal Trade Commission commissioners.

The CFPB relied heavily on that case in its filings with the D.C. Circuit, noted Benjamin Saul, a partner at White & Case LLP.

“I’ll be looking for the questions being driven by Judge Kavanaugh and his comments from the bench, particularly on the Humphrey’s case,” Saul said.

Whether the arguments focus mostly on the constitutional questions about the ability to remove the CFPB director or on remedies to fix that could also indicate where the court is headed on these questions, according to Reiss.

“It does sound that they’re searching for remedies that are not earth-shattering remedies,” Reiss said.

Monday’s Adjudication Roundup

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Monday’s Adjudication Roundup

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  • BNY Mellon files a brief on writ for cert with the Supreme Court warning the potential for “warping” the residential mortgage-backed securities market if it overturns the Second Circuit’s decision finding that provisions of the Trust Indenture Act did not apply to the securities at issue.
  • Investors of Citibank file a class action in NY state court claiming that Citibank ignored toxic residential mortgage-backed securities causing $2.3 billion in losses.
  • Investors sue RAIT Financial Trust and its trustees alleging that the trust knew about subsidiary pocketing fees leading to a $21.5 million SEC settlement.

Monday’s Adjudication Roundup

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Debt Collection in Flux

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Until Debt Tear Us Apart

Bloomberg BNA Banking Daily quoted me in Loans in Flux as Appeals Court Rebuffs Midland Funding (behind a paywall). It opens,

Lenders, investors and others are watching to see whether the U.S. Supreme Court is the next stop for a case raising questions about how a host of loans are collected, purchased, structured, and priced (Madden v. Midland Funding LLC, 2015 BL 162010, 2d Cir., No. 14-cv-02131, 5/22/15).

At issue is a May ruling by the U.S. Court of Appeals for the Second Circuit that said a debt collector cannot claim protection from state-law claims under the National Bank Act for loans acquired from a national bank (100 BBD, 5/26/15).

The ruling, which jolted banking lawyers who say the decision upsets expectations that assignees may charge and collect interest at rates that were valid at origination, hit with renewed force Aug. 12, when the Second Circuit turned away a petition to rehear the case (156 BBD, 8/13/15).

New questions about the impact of the case arise almost daily, but for many the main question is whether the debt collector, Midland Credit Management, will take the case to the U.S. Supreme Court.

Many expect the company to seek review by the justices. Midland has until early November to do so.

Brooklyn Law School Professor David Reiss isn’t making a prediction, but ticked off a list of factors that might make the difference, including a possible circuit split, questions raised by the case that have “serious doctrinal consequences” for the National Bank Act and other federal statutes, and the potential for friend-of-the-court briefs by the banking industry to grab the justices’ attention.

“While it is a fool’s game to predict confidently which cases will be picked up by the Supreme Court, this case has a bunch of characteristics that make it a contender,” Reiss said Aug. 17.

Smoldering FIRREA

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Jens Buurgaard Nielsen

American Banker quoted me in Banks Take Losses in MBS Case Appeals; Is Supreme Court Next? (behind a paywall) The story reads, in part,

Banks that sold faulty mortgage-backed securities right before the crisis have suffered a string of legal defeats over the timing of government lawsuits, but some experts believe the industry may still have a shot in the Supreme Court.

Since the crisis regulators have brought a slew of actions against big banks for assets they sold to acquirers that ultimately failed. But in some cases, the parties have tussled over whether the government missed the statutory deadline for bringing a claim.

Appeals courts lately have disagreed with banks that plaintiffs missed court filing deadlines imposed by state law and other regimes, which are stricter than deadlines in federal law. Most recently, the U.S. Court of Appeals for the 5th Circuit ruled in favor of the Federal Deposit Insurance Corp. in the agency’s case against RBS Securities and other issuers related to the 2009 failure of Guaranty Bank.

Still, other cases are pending and some say banks may be emboldened after the Supreme Court last year favored state-mandated timelines in an environmental case.

“I would expect that [banks] would continue to try to pursue the issue and get relief from the Supreme Court,” said Paul Rugani, a partner at Orrick, Herrington & Sutcliffe LLP based in Seattle.

The government has sought billions from MBS issuers that officials say misrepresented the quality of securities leading up to the crisis. The FDIC and National Credit Union Administration sued companies that had sold assets to institutions that ultimately failed, and the Federal Housing Finance Agency brought claims over securities sold to Fannie Mae and Freddie Mac.

But many banks have fought the agencies over whether they could bring the suits in the first place. Defendants seemed to gain ground in the lower courts and when the Supreme Court handed down its decision last year in a North Carolina environmental case.

*     *     *

“The Supreme Court generally does not take a case where there isn’t a split among different circuit appeals courts, and the 5th and 10th circuits are in agreement,” said an attorney familiar with the situation.

But other decisions are still pending. Rulings have yet to come from the 9th circuit as well as a separate case still to be decided in the 2nd circuit. Both involve the FDIC’s extender statute related to MBS losses at the failed Colonial Bank.

“I would think that the parties that lost the case would wait for the 2nd and 9th circuits to decide and then hope that either of them disagrees with the 5th circuit before deciding to take the case up to the Supreme Court,” said Sanford “Sandy” Brown, a partner at Bracewell & Giuliani LLP.

Others said the extender statute in the law at issue in the Supreme Court’s environmental decision – the Comprehensive Environmental Response, Compensation, and Liability Act – is different enough from the extender statute in FIRREA that the justices on the high court may want to weigh in.

The 5th circuit decision “is a well-reasoned opinion, but there is no question that such an interpretation could be challenged in an appeal to the Supreme Court,” said David Reiss, a professor at Brooklyn Law School. “While circuit courts have had a consistent interpretation of the FIRREA extender statute, there is enough interpretation going on that the Supreme Court could come up with a reasonable alternative to the courts of appeal that have ruled on this issue.”