- What's at stake: The appeals court judges questioned whether various actions taken by the CFPB last year constituted a final agency action that is reviewable by a district court.
- Key insight: The Department of Justice claims the executive branch has broad authority of personnel issues and that employee disputes must be resolved administratively through the Merit Systems Protection Board.
- Forward look: The appeals court is likely to remand the issue back to the district court for re-litigation.
A federal appeals court grappled with whether to uphold an injunction that has kept the Consumer Financial Protection Bureau from widespread reductions-in-force, a question that hinges on whether the judges believe firings represent downsizing by the Trump administration or an attempt to shut down the agency in its entirety.
On Tuesday, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in an appeal by the National Treasury Employees Union, which is fighting to maintain an preliminary injunction that has blocked acting CFPB Director Russell Vought from laying off up to 90% of the bureau's employees.
The court is weighing whether the injunction was a necessary "stop-gap" measure to prevent the permanent erasure of the CFPB, before the courts could decide if the firings were even legal. During three hours of oral arguments, the judges focused, in part, on whether the executive branch has the authority to dismantle a congressionally-mandated agency and if the courts have the power to stop it.
"I think we have quite an extreme case here where the president is claiming the power to create or destroy an agency," said Jennifer Bennett, a principal at Gupta Wessler LLP who argued for the NTEU. "There is no statutory authority to shut down the CFPB."
A significant debate erupted near the end of the three-hour hearing over whether a constitutional violation only exists if the President uses "magic words," by claiming explicit constitutional authority, or if simply acting without any authority is enough to trigger a separation of powers crisis.
The Department of Justice, representing Vought and the CFPB, claims the district court erred in issuing an injunction to stop mass firings, saying the courts lack jurisdiction over personnel matters. Vought's efforts to downsize the CFPB last year did not constitute a "final agency action," as defined by the Administrative Procedure Act, the DOJ argued.
"The injunction entered by the district court in this case last March prevents the bureau's new leadership from exercising their lawful discretion," said Eric McArthur, a DOJ deputy assistant attorney general. He claimed the courts cannot review the CFPB's actions at all under the APA.
McArthur argued that CFPB employees are governed by the
But Bennett called that route a "futile exercise," claiming federal employees would be seeking reinstatement to an agency that might not exist by the time their claims were heard.
Many of the judges questioned the DOJ's arguments closely. But the judges also appeared to struggle to find any resolution, suggesting the case could be remanded back to the district court for re-litigation. Despite several of the judges asking both sides how an order could be tailored to resolve the issues, neither side provided clear guidance.
"You want everything and they want nothing," said Judge Cornelia Pillard, who was in the minority last year when an
Several judges expressed skepticism toward the DOJ's argument and struggled with the notion that a district court would be powerless to stop the abolition of an entire agency.
"Can the court issue some order that ensures there will be an agency to which employees can be returned?" Judge Patricia Millet said. "There's no capacity for them to get due process or due relief unless there is an agency for them to go back to."
McArthur maintained that the administration is not seeking to shut down the CFPB, and said it would be unlawful to do so.
"There's no fair reading of this record that there was a decision by the acting director to completely close this agency," McArthur said, referencing a number of emails put into the record by the DOJ that tell employees to continue doing their statutorily mandated duties, the importance of which has been strongly challenged by both the lower court judge and the CFPB employees.
The union claims the CFPB's leadership "manufactured" emails just days before court hearings last year in order to claim that the agency was still functioning. Bennett argued that a
Evidence showed that while leadership sent emails claiming statutory duties would be performed, they simultaneously cut the teams responsible for those duties, terminated all physical office leases, and even set up a "tip line" to report employees who were still working.
"This is a fundamental separation of powers claim about the structure or the very existence of an agency," Bennett said.
McArthur countered by saying: "There was never any agency approved plan to RIF the entire workforce."
Still, the judges noted the "breathtaking" pace at which the administration moved to dismantle the CFPB last year, and that district court issued an injunction due to testimony suggesting the agency would have been eliminated within 30 days without judicial intervention.
Judge Florence Y. Pan suggested the scale of the alleged shutdown "sounds very much like something that should be before district court." The arguments also focused on the limits of a court's equitable power to provide full relief to the injured parties.
"What you want us to hold is that the CSRA has tentacles that reach across the entire litigation system to prevent courts from even ordering the government to comply with the Constitution by keeping functioning the offices that Congress has created and funded," Judge Pan said to McArthur.
Several of the judges asked several times how the parties wanted an order to be written, but got no definitive response, said Joann Needleman, a member and leader of the financial services regulatory and compliance group at the law firm Clark Hill.
"The judges are really struggling with what the path is going forward," Needeman said after the hearing. "My sense is they don't want this case at all. They are going to punt [back to the district court] because they couldn't get a handle on what the legal issues are in the case."
