Forgetting Appointments—Can the CFPB director appoint the deputy director in the first place?, by Kent Barnett

by Guest Blogger — Monday, Nov. 27, 2017

Who’s the legal acting director of the Consumer Financial Protection Bureau? Is it Leandra English, whom former director Richard Cordray appointed under his statutory authority as deputy director? Or is Mick Mulvaney, whom President Trump has appointed under the Federal Vacancies Reform Act (FVRA)? It’s a difficult legal question that only administrative-law scholars could love. And, as the numerous posts on this blog reveal (by Nina Mendelson, Dan Hemel, and Adam White), they do.

But courts may not be so enamored with the issue. They can avoid the tricky question of how the CFPB’s organic act interacts with the FVRA if Mr. Cordray’s appointment of Ms. English (or any deputy director, for that matter) was unconstitutional in the first instance.

Under the Appointments Clause of the Constitution, an inferior officer may be appointed, as relevant here, by the “head of a department” when Congress so provides. Here, Congress gave the director statutory authority to appoint the deputy director. But does the CFPB qualify as a “department” whose head can appoint inferior officers? In other words, is the statutory grant of authority constitutional?

More than five years ago, I wrote a symposium essay (and a condensed version for Bloomberg) specifically on whether the director of the CFPB could appoint the deputy director. (Incidentally, Mr. Cordray was the keynote speaker for the symposium. And Deepak Gupta, counsel for Ms. English and former counsel for the CFPB, is aware of my essay.) As is typical for my scholarship, my policy preferences and my legal analysis diverge. I argued that the Bureau should be deemed a “department” as a normative matter, but, as a doctrinal matter, the CFPB was likely not a department under the Court’s new definition in Free Enterprise Fund v. PCAOB. I argued that Congress should take remedial action before the appointment became problematic.

Here, I’ll set my normative argument aside and concentrate on what I perceive as the winning doctrinal one. Please see my fully developed arguments in the essay for more detail.

In Free Enterprise Fund, the Court defined a department for the first time as a “freestanding component of the Executive Branch, not subordinate to or contained within any other component.” This definition, announced only about two weeks before Congress created the CFPB in 2010, was a slightly altered restatement of a definition that Justice Scalia (joined by three other Justices, including Justice Kennedy) provided in a concurring opinion to Freytag v. Commissioner (1991): “free-standing, self-contained entity.” Although we have almost no guidance on this definition, the CFPB likely does not qualify as a department. Although the CFPB is unquestionably independent, its organic act expressly states that it “is established in the Federal Reserve System.” Accordingly, it is “contained within [another executive] component.”

The “subordination” and “containment” criteria are not likely disjunctive, meaning that only one would be required for an agency to have departmental status. The Freytag concurring opinion, at times, stated the definition in terms of independence alone, and thus the Free Enterprise Fund Court could have easily done the same if that criterion alone mattered as to the SEC. But it did not do so. Moreover, in his Freytag concurrence, Justice Scalia expressly held that the now-defunct Board of Tax Appeals was not a department. This is noteworthy because the Board was not subordinate to any other executive entity, but it was contained within the Treasury Department. Likewise, the CFPB is independent in numerous ways, but it is contained within the Federal Reserve expressly by statute. (FERC provides another example of an independent agency within another executive entity, the Department of Energy.) In other words, the concurring opinion’s treatment of the Board of Tax Appeals makes sense only if both criteria are necessary for departmental status.

To be sure, despite the Freytag concurring opinion’s treatment of the Board of Tax Appeals, the Court has never squarely held that an executive entity can be a department even if it is contained within another entity. The SEC, the agency at issue in Free Enterprise Fund, was both independent and standalone. But the Court would appear to have to disavow the concurring opinion’s discussion of the Board of Tax Appeals (where the distinction appears to make the difference), despite expressly adopting the concurring opinion’s reasoning. The Court would also have to explain why a disjunctive reading makes sense. Would it really make sense to say that a standalone entity that is subordinate to another executive entity should be treated as a department? It’s certainly odd if nothing else, and it would permit Congress to disperse the appointment power by simply placing subordinate entities outside of all other entities.

If there were any residual doubt, the current Court’s penchant for formalism strongly suggests that it will gladly use a formal criterion like containment to cabin the appointment power. All of the Justices in Freytag argued that the appointment power was intended to be limited to improve transparency and accountability, and the containment criterion is likely best understood as providing a formal limit on the ever-expanding appointment power. (The “subordination” criterion is more functional.) To be sure, the Federal Reserve is a unique entity, and the CFPB has significant independence from the Fed. But I don’t think that these features matter for constitutional purposes. The fact that the Federal Reserve looks different than other independent entities does not, without some further doctrinal development, effect the “containment” analysis or the Fed’s status as a “component” under Free Enterprise Fund’s nomenclature. Simply pointing to the CFPB’s independence from the Federal Reserve doesn’t do much; it implicates the subordination criterion, not containment.

Might courts create a more nuanced view of “departments”? Of course, it’s possible. But for lower courts that may want to avoid the tricky vacancy issue, they have little incentive to do so. And for a conservative Supreme Court that is probably hesitant to give the CFPB even more power, it, too, has little incentive to do so.

Kent Barnett is an Associate Professor of Law at the University of Georgia School of Law.

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