D.C. Circuit Court Decision Calls Into Question the Constitutionality of the Appointment of the Director of the CFPB

On January 25, 2013, the D.C. Circuit issued its decision in the case of Canning v. National Labor Relations Board, No. 12-1115, which challenged the authority of the President of the United States to exercise his “recess appointment” authority to appoint members of the NLRB during a time period in which Congress was not “in session.” The significance of the Canning decision is that, simultaneously with the putative recess appointments of three members of the NLRB, the President also utilized the same recess appointment authority to appoint Richard Cordray as the first Director of the CFPB. Hence, because Director Cordray’s appointment occurred simultaneously with the NLRB appointments, the validity of Director Cordray’s appointment is directly linked to the NLRB appointments because the identical constitutional argument (e.g., the use of the recess appointment power) was the basis for Director Cordray’s appointment. A case is currently being litigated in the Federal District Court for the District of Columbia directly challenging the appointment of Mr. Cordray; as a result of the Canning decision now being controlling authority on the issue, it is possible that Mr. Cordray’s appointment as Director of the CFPB may be found to be defective.

In the Canning case the D.C. Circuit determined that the recess appointment authority was more limited in scope than was being advocated by the Administration, and could only be used in the “intersession” context in which Congress was adjourned “sine die.” As a practical matter, the Court easily concluded that short, intrasession adjournments (e.g., namely gaveling open and adjourning for a few days by the U.S. Senate without formally recessing over the 2011 Holiday season), did not constitute a “recess,” and the use of the recess authority during intrasession adjournments denied Congress its constitutionally mandated duty to approve or disapprove the nominations of senior officials requiring Senate approval. As summarized wryly by a commentator in the area, the D.C. Circuit determined that the recess appointment power is not available during Congressional lunch breaks. (Although not necessary for its decision, but extremely important for future use of the recess appointment power by the President, the D.C. Circuit also held that a vacancy had to occur during the period of a recess rather than merely to exist within the period that Congress was in recess.)

The implications of the Canning decision are potentially significant as applied to the operational authority of the CFPB. This is because the authorization provisions for the CFPB that are set forth in Title X of the Dodd-Frank Act distinguish between certain powers and authorities exercisable by the CFPB prior to the appointment of a Director and the exercise of all authorities statutorily given to the CFPB following the appointment of a Director.

By means of example, in a report provided to the Inspectors General of several agencies in July of 2011, the designated Treasury official charged with the “standing up” of the CFPB identified categories of authority that did not require an appointed Director and those that first required that a Director be validly appointed.

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