Updated 10:09 a.m.
The plaintiffs that are challenging the constitutionality of the Wall Street reform law and the leadership of the Obama administration's new consumer protection agency are fighting to keep alive a suit in Washington federal district court.
The private plaintiffs, including the advocacy group Competitive Enterprise Institute and Texas-based State National Bank of Big Spring, late Wednesday responded to the U.S. Justice Department's effort to end the litigation. The eleven states that have joined the suit include Texas, South Carolina, Oklahoma, Michigan, Oklahoma and Ohio. (The states' response is here.)
The attorneys for the private plaintiffs, including O'Melveny & Myers partner Gregory Jacob and C. Boyden Gray, said in their court papers that the plaintiffs have presented sufficient evidence that the Dodd-Frank Wall Street Reform and Consumer Protection Act gave "unchecked and unprecedented powers" to federal agencies, including the newly created Consumer Financial Protection Bureau.
"[T]he government has manufactured a jurisdictional challenge by mischaracterizing, fabricating and ignoring" the plaintiffs' evidence, the lawyers for the private plaintiffs said in their response to DOJ's insistence the suit should be thrown out. The states that joined the lawsuit are only challenging the government's ability to liquidate the largest banks. The states are not challenging the composition of the consumer protection bureau.
The CFPB, the plaintiffs' attorneys claimed in their papers, lacks oversight and accountability and has no internal constraints. "All of the powers of the bureau are vested solely in a single director, without the moderating influence of other commissioners or officials as are present in other agencies vested with quasi-legislative and quasi-judicial power," the attorneys said.
The suit also challenges the merits of the appointment of Richard Cordray as the director of the consumer protection bureau. President Barack Obama in January 2012 used his recess appointment power to install Cordray as the head of the bureau. Republicans were opposed to Cordray's nomination. The plaintiffs' lawyers said they're confident the presiding trial judge, Ellen Segal Huvelle, will find Cordray's appointment unconstitutional based on the recent decision in a Washington federal appeals court that invalidated the recess appointment of three people to the National Labor Relations Board.
DOJ and the NLRB haven't announced whether the government will ask the full appeals court to hear the labor board case. That decision is expected to be announced by the end of next week.
"Less than two months ago, a federal appeals court invalidated several NLRB recess appointments as unconstitutional," Sam Kazman, general counsel of the Competitive Enterprise Institute, said in a statement. "This effectively resolves one of the major issues in our constitutional challenge to Dodd-Frank."
The hurdle for the plaintiffs is to convince the trial judge that there's been legal "injury"—the threshold to sue. The plaintiffs' attorneys said in their papers that the harm for State National Bank is increased compliance costs "caused by the Bureau's vast regulatory and enforcement authority."
State National Bank, for instance, according to the bank's lawyers, last year spent $230,000 on legal compliance, including more than $2,500 to send a representative to "compliance school." Earlier this month, the government's legal team, including Bradley Cohen of DOJ's federal programs branch, said the "roving allegations" fail to create the necessary legal "standing" to sue in the first place. "[N]ot one of the statutorily authorized actions that plaintiffs speculate might someday cause them harm has yet occurred," DOJ lawyers said in a motion to dismiss. State National Bank's "purported fear of future enforcement does not constitute an injury in fact," the DOJ team said. DOJ's defense of the Cordray recess appointment focuses on standing issues and not presidential authority. The government said State National Bank "has failed to allege an injury flowing from the President's recess appointment." The consumer protection bureau, DOJ said, hasn't taken an enforcement action against the bank. The government also said that State National Bank made a voluntary decision in 2010 to leave the mortgage lending industry. "A decision by this court declaring Director Cordray’s appointment invalid would not alter the circumstances that SNB claims caused it to exit the mortgage lending industry at that time," DOJ said.
This post was updated to clarify what portion of the lawsuit the states joined.