Three things to watch as CFPB leadership case goes to court

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The Trump administration and acting Consumer Financial Protection Bureau chief Mick Mulvaney won round one in a legal battle challenging Mulvaney's leadership. His critics will have a tall order trying to win round two.

The lawyer for CFPB Deputy Director Leandra English, who claims she is the rightful acting director, will face off against the Justice Department in a court hearing where key questions about the CFPB's independence and the president's authority to appoint an interim director are sure to be raised.

English, who is represented by a former CFPB attorney, is still a long shot to unseat Mulvaney — as evidenced by the judge's denial last month of English's request to have Mulvaney immediately removed.

Andrew Harrer/Bloomberg

But the oral arguments could delve into questions over Mulvaney's early moves as CFPB director, including a freeze on new regulations and his decision to bring more political appointees into the agency, which critics say threaten the CFPB's independence.

English was named deputy director last month by former CFPB Director Richard Cordray, right before he abruptly resigned, which her supporters say catapulted her to the top job. But that prompted President Trump to immediately name Mulvaney as acting director.

English then filed a lawsuit against both Trump and Mulvaney in a bizarre showdown in which two people were claiming to be the lawful head of the CFPB.

Here are three things to watch for in Friday's hearing:

Does English actually have a case?

Many lawyers think English has little chance of succeeding given that U.S. District Court Judge Timothy J. Kelly declined to grant her request for a temporary restraining order against Mulvaney, which would have forced him to leave his position while the case played out.

English is now seeking a preliminary injunction, but the odds are still stacked in Mulvaney's favor. Many legal observers believe Kelly's denial of the initial request indicates that he sides with the administration's legal argument — that the 1998 Federal Vacancies Reform Act supersedes the Dodd-Frank Act in determining who runs the bureau in the absence of a Senate-confirmed director.

Although Cordray and English have claimed that they have the backing of Dodd-Frank's succession provision, the CFPB's own general counsel, Mary McLeod, disagreed and sided with the Justice Department.

The case centers on which statute, the Dodd-Frank Act or the FVRA, governs the appointment of an acting director. The specific Dodd-Frank language states that the agency's deputy director shall serve in the "absence or unavailability" of the director.

English's lawsuit says she has a clear legal claim to the job.

"The President may not, consistent with the statutory requirement of independence, install a still-serving White House staffer as the acting head of an independent agency — particularly when doing so would displace an acting head who has a clear legal entitlement to the position," English's lawsuit says.

But Mulvaney's backers say that that does not cover instances when the CFPB's director has actually left the agency, which was the case with Cordray, and that the FVRA's authority for the president to name interim heads of executive agencies takes precedence.

"Even when the Vacancies Reform Act is not the 'exclusive' means for filling a vacancy, the statute remains an available option, and the president may rely upon it in designating an acting official in a manner that differs from the order of succession otherwise provided by an office-specific statute," the Justice Department stated in a legal brief.

The case may really be about CFPB's independence

While the lawsuit is principally about who serves as acting director when there is a vacancy at the CFPB, the hearing Friday could further the debate over whether the agency operates independently from the White House.

English's supporters say Dodd-Frank sought to compel the president to have to nominate a full-time director rather than just getting to appoint someone on an acting basis, which would compromise the agency's independence.

"When Congress was structuring the CFPB, they wanted to ensure that the bureau was independent and one of the things they did was include this mandatory succession provision to ensure that when the director position was vacant it wasn’t filled by the president without the check of Senate confirmation," said Brianne Gorod, chief counsel at the Constitutional Accountability Center, who filed a brief on behalf of current and former Democratic lawmakers. "That mandatory language is important to the case."

Because Dodd-Frank was passed after the Vacancies Act "Congress' position to provide mandatory language supplants FVRA under all normal methods of statutory interpretation," she added.

But Republicans have countered that Dodd-Frank itself is on shaky constituional ground.

While the statutory issues will dominate oral arguments, constitutional questions could also take center stage, experts said.

The Justice Department and Republican attorneys general have cited a ruling by Judge Brett Kavanaugh, of the U.S. Court of Appeals for D.C., in October 2016 that the CFPB was unconstitutional because the agency's independent single director was not removable by the president except for cause.

Kavanaugh's decision in that case, PHH Corp. v CFPB, was vacated and the full D.C. Circuit is expected to rule soon on the CFPB's appeal.

English's "interpretation of the Dodd-Frank Act ... raises a grave constitutional question of whether Congress can ... give an unelected federal bureaucrat the sole, unchecked power to bestow extraordinary executive power on another individual without regard to the President’s views," Republican state attorneys general said in a legal brief.

But on the other side, Deepak Gupta, of the law firm Gupta Wessler, who represents English, is expected to argue that Mulvaney's appointment is problematic because his other role as head of the White House Office of Management and Budget threatens the CFPB's status as an independent agency.

It is perhaps a testament to the significance of the legal issues that Kelly scheduled the hearing before Christmas,
and that a large number of amicus briefs were filed in the case.

Five briefs were filed supporting English by consumer advocates, Democratic lawmakers and Democratic attorneys general while two were in favor of Mulvaney, by the U.S. Chamber of Commerce and Republican attorneys general. Amicus briefs are less common at the district court level.

English could be eyeing an appeals court showdown

Some legal experts think the case is really about Democrats trying to keep the issue of the CFPB's independence alive with the goal of appealing any decision to the D.C. Circuit, but that type of strategy might spark its own backlash.

"Richard Cordray is no longer the director, the president gets to appoint an acting director, and eventually the president will appoint a new director and that director will be confirmed," said Scott Pearson, a partner at Ballard Spahr. "They're trying to delay change at the agency as a result of the election."

If the district court or a higher court ultimately rules in English’s favor, then Mulvaney would no longer be the acting director of the CFPB and English would take the helm. Such a scenario would call into question any of Mulvaney's actions up to that point.

But the whole issue would become moot once the president appointed a CFPB director who is confirmed by the Senate.