Thursday, May 20, 2021

FYI: 9th Cir Issues Amended Opinion in Seila Law Case, Allows CFPB to Enforce Its CID

A panel of the U.S. Court of Appeals for the Ninth Circuit recently amended its December 29, 2020 opinion on remand from the Supreme Court of the United States in the Consumer Financial Protection Bureau v. Seila Law LLC case.


In its amended ruling, the Ninth Circuit panel reaffirmed the trial court's order granting the Consumer Financial Protection Bureau's (CFPB) petition to enforce a law firm's compliance with the CFPB's civil investigative demand (CID) requiring the firm to produce documents and answer interrogatories.


A copy of the opinion is available at:  Link to Opinion


In 2017, a law firm challenged the constitutionality of the CFPB, an independent agency created in the wake of the 2008 financial crisis. The CFPB had issued a CID to the law firm, requiring the firm to produce documents and answer interrogatories, but the firm argued that the CFPB was unconstitutionally structured since the President could not remove its Director without cause.


The CFPB took the law firm to a federal trial court, filing a petition to enforce the CID, which the court granted. CFPB v. Seila Law, LLC, No. 17-cv-1081, 2017 WL 6536586, at *1 (C.D. Cal. Aug. 25, 2017). The law firm appealed to the Ninth Circuit, and the CFPB prevailed again. CFPB v. Seila Law LLC, 923 F.3d 680 (9th Cir. 2019).


The law firm then appealed to the Supreme Court, which held that the CFPB's structure did violate the Constitution. Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2192 (2020). The SCOTUS did so because Congress improperly shielded the CFPB Director from at-will removal by the President, which rendered the agency "accountable to no one." Id. at 2203.


However, rather than dismiss this action, the SCOTUS severed the CFPB Director's tenure protection and remanded the case to the Ninth Circuit to determine whether the CID was validly ratified by former Acting Director Mick Mulvaney during his one-year stint in that office. Id. at 2211.


Shortly afterward, the CFPB's then-Director, Kathleen Kraninger, ratified both the CID and the petition to enforce the CID against the law firm.


In its amended opinion, the Ninth Circuit panel held that the CID was validly ratified, but that there was no need to decide whether ratification occurred through the actions of Acting Director Mulvaney because then-Director Kraninger expressly ratified the CFPB's earlier decisions to issue the civil investigative demand to the law firm, to deny the firm's request to modify or set aside the CID, and to file a petition requesting that the trial court enforce the CID.


The Ninth Circuit determined that the law firm's only cognizable injury arose from the fact that the CFPB issued the CID and pursued its enforcement while headed by a Director who was improperly insulated from the President's removal authority.


The Ninth Circuit concluded that any concerns that the law firm might have had about being subjected to investigation without adequate presidential oversight had now been resolved because Director Kraninger was well aware that she may be removed by the President at will when she ratified her predecessors' earlier decisions to issue and enforce the CID.


The Ninth Circuit rejected the law firm's contention that Director Kraninger could not validly ratify the CFPB's earlier actions because the agency lacked the authority to take those actions back in 2017. The Court held that the law firm's argument was largely foreclosed by the Ninth Circuit's ruling in CFPB v. Gordon, 819 F.3d 1179 (9th Cir. 2016). Just as in Gordon, the Ninth Circuit concluded that the constitutional defect here related to the Director alone, not to the legality of the agency itself. Id. at 1192.


The Ninth Circuit also rejected the law firm's remaining argument that Director Kraninger's ratification was invalid because it took place outside the limitations period for bringing an enforcement action.


The Court held that the law firm's argument failed because this statutory limitations period pertained solely to the bringing of an enforcement action, 12 U.S.C. § 5564(g)(1), which the CFPB had not yet commenced against the law firm.


The Ninth Circuit observed that the only actions ratified by Director Kraninger were the issuance and enforcement of the CID and concluded that the very purpose of such a demand was to assist the CFPB in determining whether the law firm had engaged in violations that could justify bringing an enforcement action. The Court thus decided that the law firm had raised its statute-of-limitations argument prematurely. Pacific Maritime Association v. Quinn, 491 F.2d 1294, 1296 (9th Cir. 1974).


Accordingly, the Ninth Circuit reaffirmed the trial court's order granting the CFPB's petition to enforce the CID.




Ralph T. Wutscher
Maurice Wutscher LLP
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