CFPB’s Constitutionality Problem: Who’s Afraid of the Big Bad Wolf?

Who’s Afraid of the Big Bad Wolf?

Could a dispute over the constitutionality of the Consumer Finance Protection Bureau (“CFPB”) overturn a thirty-year-old Supreme Court precedent and vindicate the late Justice Antonin Scalia in one of his most famous dissents?  On the last day of January, the D.C. Circuit issued an opinion on the structure of that controversial independent agency:  PHH Corporation, et. al., v. CFPB, No. 15-1177 (D.C. Cir., January 31, 2018) en banc.   This opinion, with concurrences and dissents, is two hundred fifty pages long.  There is an awful lot to unpack, but this post will only focus on one glaring precedent that jumps out from the Opinion and every concurrence and dissent:  Morrison v. Olson, 487 U.S. 654 (1988)

In a quick review, I counted 43 citations of it in the Opinion, 12 in a concurrence and 40 times in the dissents (many of these were to Scalia’s lone dissent).  There is only one Justice now on the Court who was on the Court when Morrison was decided.  But Justice Kennedy took no part in consideration of the case.  Of all the protagonists, only Kennedy and Ted Olson (the Olson in the caption and also counsel for PHH) are still in the picture.

In a nutshell, the majority and the concurrences rely on Morrison v. Olson for the proposition that the “independent” nature of the head of the CFPB is constitutional.  Not unreasonably, Judge Pillard and her majority believe that case is binding and it allows a single administrator insulated from at-will dismissal by the President.  The dissents believe they have distinguished that case and another older precedent, and the combination of insulation from Congress and from the Executive makes the CFPB different and worse from other agencies whose structures have been upheld in the past.  Judge Kavanaugh puts his finger on the shaky foundation upon which the majority builds. In footnote 3 of his dissent he notes:

Recall, moreover, that the independent counsel experiment ended with nearly universal consensus that the experiment had been a mistake and that Justice Scalia had been right back in 1988 to view the independent counsel system as an unwise and unconstitutional departure from historical practice and a serious threat to individual liberty. See Morrison v. Olson, 487 U.S. 654, 699 (1988) (Scalia, J., dissenting) (“this wolf comes as a wolf”); see also Stanford Lawyer 4 (Spring 2015) (quoting Justice Kagan’s statement that Justice Scalia’s dissent in Morrison is “one of the greatest dissents ever written and every year it gets better”). The independent counsel experience strongly counsels against single-Director independent agencies.

Scalia’s famous “called shot” of the trouble such a statute would cause has echoed down the years and is one reason why the Independent Counsel statute was not renewed.  It is also telling that when Morrison was decided the renaissance of originalism, textualism and the focus on separation of powers were in their infancy.  Now, a generation and a half of scholars and judges have grown up reading Scalia’s dissent.  Its most famous passage is:

Frequently an issue of this sort will come before the Court clad, so to speak, in sheep’s clothing: the potential of the asserted principle to effect important change in the equilibrium of power is not immediately evident, and must be discerned by a careful and perceptive analysis. But this wolf comes as a wolf.

I have little doubt this case will be before the Supreme Court before long, and Scalia (and Olson) might at long last be vindicated on the nature of the Executive and on separation of powers in the Constitution.

John J. Vecchione is president and CEO at Cause of Action Institute.

SCOTUS Oral Arguments Rundown: Marinello v. United States

Today the Supreme Court heard argument in Marinello v. United States No. 16-1144.  As we’ve noted before here and at the Federalist Society blog this case considers what level of knowledge a tax payer has to have to be subject to the omnibus felony penalties of 26 U.S.C. § 7212(a) .  Petitioner (Marinello) was represented by Matthew S. Hellman, Esq. and the government by Robert Parker.  From my perch, the Court showed enormous skepticism towards the Government’s position that virtually any act or omission, no matter how slight, could subject one to felony conviction, even though the particular tax code penalties for those actions are misdemeanors.  Justice Sottomayor, an active questioner in this case, seemed open to the view that the Government’s case was overcriminalizing acts that Congress had set out lesser penalties for but she seemed equally hesitant to adopt Petitioner’s solution-there can be no “corrupt” obstruction without knowledge by the Defendant that there is an IRS investigation.  She and Justice Gorsuch teamed up to offer Petitioner another way out, that there must be some affirmative interaction with the IRS.  Mr. Hellman appeared to resist this at first but, upon reflection, and most clearly in rebuttal, stated such a ruling would be acceptable (while continuing to press Petitioner’s view).

The Justices, including Justice Kagan, seemed troubled by the Petitioner’s proposed “fix” of the Government’s overreach on the statute because they could not square it with the text of Section 7212(a).  Even so, Justice Kagan, unprompted, called the statute “ungodly borad.”  Justices Breyer, Alito and Roberts, pressed the Government on the danger of common behaviors, such as using cash, that could become felonies under the Government’s construction.  Justice Breyer was concerned that paying a gardener or snow shoveler in cash could be felonious.  Justice Alito posited that a lower price for services if cash was paid is “known” to be for the purposes of not reporting income, and Justice Kagan agreed.  (This universal interpretation among the Justices is belied by what a small business owner once told me “Cash don’t bounce.”).  Justice Gorsuch took issue with the IRS position that it is a “brooding omnipresence” always collecting taxes and so a taxpayer should know throwing out receipts or keeping sloppy records will, as Justice Alito noted “impede” the IRS in administering the tax code.

Mr. Parker for the Government attempted to convince the Justices that the IRS and the Government were circumspect in the use of the omnibus provision.  Justice Kagan pounced.  Attorney General Sessions has famously issued a directive that the Justice Department charge the highest crime, with the most penalties possible in every case.  Mr. Parker’s attempt to lean on prosecutorial discretion was undermined as he had to admit the Justice Department policy to both Justices Kagan and Roberts who were concerned about it and obviously eager to make sure that policy was in the record and admitted by the Government.  Justice Ginsberg, whose late husband, Martin was a tax Professor at Georgetown, worried that any code violation could be charged as being done corruptly and thus subject to the extra three-year penalty and felony conviction.  Justices Gorsuch posited that the statutory language seemed to point to having to “corruptly” impede something other than just make the IRS’s job harder somewhere someday.  Justice Breyer insisted the Government agree with his definition of the mens rea requirement, which Mr. Parker eventually gamely did.

Upon rebuttal Petitioner made clear his position that any cabining of the statute the Court arrived at that recognized Mr. Marinello’s actions did not fall within the statute would be acceptable to Petitioner.  He and Justice Gorsuch agreed that “a win’s a win.”  Having picked up the signal from the Chief and Justice Kagan, Mr. Hellman finished noting that whether not giving everything to your accountant, using cash or keeping meticulous records would be criminalized rested on prosecutorial discretion that was obviated by the Justice Department’s “charge the highest crime” mandate.

At least from oral argument it appears the Government’s overbroad interpretation of the statute and its play for unrestrained prosecutorial power regarding it, is likely to doom its case despite a well-argued defense of that policy.  It also appears that the bright line rule that Marinello sought (and that we also pressed in our amicus) does not have the full support of the Court.  Nonetheless, today in this case it was a good day to be the Petitioner.

To learn more about this case, watch the short SCOTUSbrief video below, via The Federalist Society

John J. Vecchione is president and CEO at Cause of Action Institute, amicus


CoA Institute Urges Supreme Court to Hold EPA to Task

Section 321(a) of the Clean Air Act contains an explicit requirement that the Environmental Protection Agency (“EPA”) conduct “continuing employment evaluations” related to Clean Air Act implementation or enforcement.  What this means is that the EPA needs to continually do an analysis of how many jobs will be lost, if any, including whenever it considers new regulations.  This allows the EPA, Congress, and the public as a whole to evaluate whether the loss in American jobs is worth the overall benefit to American lives.  If a regulation, for example, has virtually no impact on environmental well-being, but would cost 30,000 jobs, a rational person would conclude the benefits of the regulation simply aren’t worth the cost.

Of course, most analyses are never this clear cut, which is why we need solid science and transparency from the EPA.  And that’s why Congress required it.  As we detail in our brief, EPA administrations past and present have confessed to not conducting these studies.  Similar requirements extend to a number of other environmental statutes and, to the knowledge of Cause of Action Institute, the EPA has only conducted one such study in the past three decades.  Very recently, the EPA publicly admitted this and indicated its willingness to finally comply, but hasn’t yet released any specifics.

The Murray Energy case centers on employment evaluations required under the Clean Air Act.  A federal court in West Virginia ordered the EPA to comply with the statutory mandates of Congress, castigating the agency for its willful disobedience.  The Fourth Circuit, however, sided with the EPA and ruled that Congress’ edict was too murky to be viewed as “mandatory” and was thus “discretionary.”

Murray Energy has asked the Supreme Court to reverse the court below, and Cause of Action submitted an amicus brief supporting this effort.  Our brief makes the following point: Congress specifically said that the EPA shall conduct the continuing employment evaluations.  Not may, or if something happens, or if the EPA deems it expedient, but shall.  The Fourth Circuit effectively read the mandatory language out of the statute, denying Murray Energy relief because the Circuit court believed it was too complicated to enforce.   That’s not how mandates work. We’re hopeful the Supreme Court will agree, grant review of the case, and reverse the Fourth Circuit’s error.

Eric Bolinder is Counsel at Cause of Action Institute

Supreme Court Denies Petition to Review Job-Killing Fishery Rule

Washington, D.C. — The U.S. Supreme Court today denied the petition for writ of certiorari filed by Cause of Action Institute (“CoA Institute”) on behalf of its clients, groundfisherman David Goethel and Northeast Fishery Sector 13. Mr. Goethel and Sector 13 sued the U.S. Department of Commerce in December 2015 after the agency announced that it would begin shifting the costs for at-sea monitoring onto fishermen.  That transition was anticipated as early as 2010, but the government delayed its implementation for over five years.  Both the U.S. District Court for New Hampshire and the First Circuit Court of Appeals dismissed the lawsuit, ruling that the fishermen had filed their legal challenge too late. 

CoA Institute Vice President Julie Smith: “We are disappointed that the Supreme Court declined to hear the case.  Our clients deserved an opportunity for their challenge to be heard on the merits. The Department of Commerce has gone beyond the bounds of the law in putting this financial burden of more than $700 per day on small-scale fishing businesses in the Northeast. Because the New England Fishery Management Council has announced its intention to extend this unlawful requirement to other fishermen, we will continue to look for ways to challenge that and to require the Department of Commerce to follow the law. This fight is not over.”

The Supreme Court’s refusal to review the First Circuit’s opinion on pre-enforcement review and its interpretation of certain provisions in the Magnuson-Stevens Act allow a dangerous precedent to stand. As argued in the petition, the First Circuit decision “effectively eliminate[s] the doctrine of pre-enforcement review and the possibility of meaningful judicial review of delayed agency implanting actions.” Moreover, “it rewards agencies that delay implementation of regulations by making their later actions immune to challenge.”

David Goethel: “The Supreme Court was our last judicial hope to save a centuries-old New England industry. I’ve been fishing my entire adult life, and I will try to continue, but the costs associated with at-sea monitoring will be crushing. We may have lost the battle, but the war to save the fishing industry from overregulation is far from over.”

Sector 13 Manager John Haran: “This is a sad day for the New England fishing industry. The high court’s decision to allow the First Circuit’s decision to stand puts the full brunt of at-sea monitoring costs on industry. Many fishermen in my sector will likely be put out of business. It may be too late for judicial relief, but we hope the regional Councils and our legislators act quickly to remove this job-killing mandate.”

Case Background

In November 2015, the Department of Commerce finally announced a date by which sector fishermen who fish for cod, flounder, and other groundfish, must not only carry third-party contractors known as “at-sea monitors” on their vessels during fishing trips, but also pay out-of-pocket for the cost of those monitors.  CoA Institute’s clients filed suit to challenge this industry funding requirement, which will devastate the New England fishing industry.

In July 2016, the U.S. District Court for the District of New Hampshire dismissed the lawsuit.  CoA Institute appealed the decision and, in April 2017, the First Circuit Court of Appeals upheld the District Court’s ruling, but without addressing the merits of the case. The First Circuit held that the fishermen’s suit was untimely and must have been filed within thirty days of the original agency rule that mandated industry-funding, even though this requirement was never enforced for half-a-decade. Interestingly, while the First Circuit did not address the merits of the case, it emphasized the devastating economic impacts of the regulation and, in a rare move, urged congressional action to clarify the Magnuson-Stevens Act regarding the payment of monitors.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute:


CoAI Seeks Supreme Court Review of Job-Killing Fishing Regulation

High Court may be last hope to halt regulation that will put 60 percent of New England ground fishermen out of business

Washington, D.C. – Cause of Action Institute (“CoA Institute”) has filed a petition for writ of certiorari urging the U.S. Supreme Court to review the legal arguments of our clients, groundfisherman David Goethel and a group of Northeast fishermen, who sued the U.S. Department of Commerce after the agency shifted the costs for at-sea monitors onto industry. At more than $700 per day at sea, these costs are more than double what many small-boat fishermen take home from an average day of fishing.

Both the U.S. District Court for New Hampshire and the First Circuit Court of Appeals dismissed the case, ruling that the fishermen’s suit was untimely based on when the rule was first disseminated, even though the regulatory costs were not shifted to industry until several years later.

CoA Institute Vice President Julie Smith: “Our clients deserve an opportunity to be heard on the merits. Fishermen who have done nothing wrong should not be put out of business by an unlawful regulation.”

The petition states:

“The First Circuit, in defiance of this Court’s precedents, refused to reach the merits of the fishermen’s challenge, holding that even though the fishermen would certainly face enforcement action for failure to comply with the Government’s unlawful monitoring requirement, they missed any opportunity to seek preenforcement review of that regulation. By requiring Petitioners to, quite literally, ‘bet the boat,’ the First Circuit has committed clear error in ignoring this Court’s precedents on pre-enforcement review…

“Here, the Government waited five years before deciding to implement the industry-funding requirement for the groundfish At-Sea Monitoring Program. Petitioners promptly filed suit, but, so far, have been denied a decision on the merits of their case. This Court should grant review to settle these . . . important questions of law and vindicate its own precedents, which will give the New England fishing industry a second chance at life.”

David Goethel: “After 30 years of fishing, I can’t afford to fish any longer if I’m forced to pay for at-sea monitors. These regulatory costs will devastate small boat fishermen like myself. The Supreme Court may be our last hope to save an industry that for centuries has provided a living for fishermen in New England.”

Northeast Fishery Sector 13 Manager John Haran: “The fishermen in my sector can’t sustain this industry funding requirement and many will be put out of business if this mandate remains in place. The livelihoods of generations of proud fishermen in New England are at stake.”

Case Background:

In November 2015, the Department of Commerce finally announced the date by which sector fishermen, who fish for cod, flounder and certain other ground fish, must not only carry third-party contractors known as “at-sea monitors” on their vessels during fishing trips, but also pay out-of-pocket for the cost of those monitors.  CoA Institute’s clients filed suit to challenge this “industry funding” requirement, which will devastate the Northeast fishing industry, at the price of many jobs and family livelihoods.

In July 2016, the U.S. District Court for the District of New Hampshire dismissed the lawsuit. CoA Institute appealed the decision and in April 2017, the First Circuit Court of Appeals upheld the District Court’s ruling, but without addressing the merits of the case. The Circuit Court held that the fishermen’s suit was untimely, and must have been filed within thirty days of the original agency rule that mandated industry-funding, despite the fact that the requirement never enforced for nearly half a decade.  Interestingly, while the First Circuit did not address the merits of the case, it did emphasize the devastating economic impacts of the regulation and, in a rare move, urged congressional action to clarify the law regarding who should pay for the at-sea monitors.

To learn more, visit the Cause of Action Institute website.

For information regarding this press release, please contact Zachary Kurz, Director of Communications:

Supreme Court to Hear Case on Obstruction of the Tax Code

The Supreme Court this week announced that it will hear the case of Carlo Marinello, II v. United States next fall.  The Supreme Court granted Mr. Marinello’s petition for a writ of certiorari after considering it in conference on June 26, 2017, the Court’s last day of the summer session.  Cause of Action Institute filed an amicus curiae brief in support of Mr. Marinello’s petition, urging the Supreme Court to hear the case to address the Second Circuit’s expansive reading of a tax statute that could be interpreted to criminalize routine conduct of everyday American taxpayers and business owners.

Mr. Marinello owned a small courier service in New York. In 2012, the United States obtained an indictment against him under 26 U.S.C. 7212(a)’s “omnibus clause” of the criminal tax code, which makes it a felony to “in any other way corruptly…obstruct [] or impede [] or endeavor to obstruct or impede, the due administration” of the tax code.  The government argued that Mr. Marinello could be guilty of corruptly obstructing or impeding the administration of the tax code by performing acts as common as failing to maintain books and records for his small business, failing to provide his accountant with complete information, and discarding business records, all because he did these acts with the goal of not paying taxes.  However, the tax code already outlaws tax evasion, and it requires that the government prove a heightened criminal intent—that the defendant acted “willfully.”  The Sixth Circuit, in order to cabin its expansive language, has held that an individual must have knowledge that his or her conduct is obstructing an ongoing IRS investigation in order to be found guilty under the omnibus provision.  The Second Circuit and other courts of appeals have interpreted the language much more broadly, however, causing a circuit split.

Cause of Action’s amicus curiae brief highlighted the importance of preserving mens rea, or “guilty mind” requirements and the need for our criminal code to clearly inform people about what is, or is not, illegal.  As Judge Jacobs wrote in his dissent from the rest of the judges on the Second Circuit, “if this is the law, nobody is safe.”  Cause of Action hopes that the Supreme Court will cabin the omnibus clause as the Sixth Circuit has done and intends to file a new amicus curiae brief at the merits stage.  You can check out our prior blog post on this case here.

Erica Marshall is counsel at Cause of Action Institute.

Criminal Forfeiture Protects Property Owners More Than Civil Forfeiture

In two months, the Supreme Court of the United States has issued two opinions about forfeiture, the set of legal rules by which ownership in seized property is transferred to the State. Civil asset forfeiture is currently much in the news and recent opinions may obliquely portend some broad changes to that area of law, although the rulings do not expressly say so.  What the rulings do show is the shocking lack of protections available to property owners whose property is divested through civil forfeiture proceedings compared to when property is divested through criminal forfeiture.  In civil forfeiture, owners frequently have lower protections against losing their rights and face higher thresholds to recover their property than convicts whose property is forfeited as part of sentencing for their criminal acts.  Injustices arising out of criminal forfeiture, at least, are now under repair.  The Supreme Court may now be in a position to address civil forfeiture.

In Honeycutt v. United States, 581 U.S. ___, No. 16-142, slip op. (June 5, 2017), the Court limited the ability of prosecutors to use conspiracy and joint and severable liability doctrines to extend the effects of criminal forfeiture, defined as the statutory power of the “Government to confiscate property derived from or used to facilitate criminal activity.” Honeycutt, slip op. at 3.  A hardware store owner sold $400,000 of a product used to make methamphetamine.  The owner and his brother were both indicted and the Government sought forfeiture of about $269,000 profit from those sales.  As an hourly employee of the store owner, the convicted brother “never obtained tainted property,” Honeycutt, slip op. at 11, but rather had only been paid his wages.  The owner pleaded guilty and agreed to forfeit $200,000 as part of the sentence; a jury acquitted the brother of some counts but convicted him on some conspiracy charges; and the government sought to hold him jointly liable for the remaining $69,000 of profit by seeking criminal forfeiture from him.  The question, therefore, was whether the applicable statute allows conspiracy-related or joint and several liability for forfeiture judgments against convicted defendants who did not acquire “tainted property.”

The Court answered No. Criminal forfeiture may only be applied in judgment against persons actually convicted of a crime, only to the convicted person’s (and no other person’s) interest in the forfeited property, and only as a judgment arising from the counts on which the defendant was actually convicted.  Moreover, the statute at issue limits forfeiture “to the person’s property obtained directly or indirectly as a result of the crime,” and to property “acquired … during the period of the violation” for which there “was no likely source for such property other than” the crime. Honeycutt, slip op. at 4—5, 8.  Given those limitations, the Court ruled that

“Congress did not authorize the Government to confiscate substitute property from other defendants or coconspirators; it authorized the Government to confiscate assets only from the defendant who initially acquired the property and who bears responsibility for its dissipation. Permitting the Government to force other co-conspirators to turn over untainted substitute property would allow the Government to circumvent Congress’ carefully constructed statutory scheme….”   Honeycutt, slip op. at 9.

The Court ruled that the text of the statute at issue showed Congress had imported some in personam (literally, against the person) aspects into criminal forfeiture sentencing, but had retained the focus on “tainted property” that is included in purely in rem (literally, against the thing) civil forfeiture proceedings. Honeycutt, slip op. at 10.

By requiring some nexus between personal irresponsibility of the owner and the penalty of transferring ownership to the State, criminal forfeiture is more protective of property rights than civil forfeiture. As civil forfeiture law now stands, prior to eliciting evidence in the record of the brother having earned only an hourly wage, the government could have seized property of that value from the brother based on probable cause that it was “related” to a crime (based on evidence from the owner’s guilty plea) and likely forfeited it successfully.  At the very least, in that scenario, the burden of proving that the brother had innocently earned the $69,000 would have shifted to the brother before the money was ordered to be returned.

Indeed, civil asset forfeiture requires no nexus between any person’s individual responsibility and a proven crime, but rather only a nexus between the property at issue and a suspected crime.   This difference arises out of the distinction between in personam and in rem jurisdiction.  In effect, that doctrinal distinction has been carried so far that civil asset forfeiture can divest even innocent owners of property on the basis of mere probable cause to believe property is connected with a suspected crime, even if no crime is ever proved, even if there is not enough evidence to charge anyone with a crime, and even if the property was involved only through a third-party unknown to the owner.  Some procedures allow an innocent owner to recover property, but they are expensive and require legal involvement and provide no assurance that the property will be returned.

The injustice that can be worked against criminal defendants by these latter kinds of hurdles were displayed in Nelson v. Colorado, 581 U.S. ___, No. 15-1256, slip op. (April 19, 2017). After conviction, the State of Colorado sets up inmate accounts for defendants, and money they earn in jail is allocated from those accounts to pay costs, fees, and restitution.  When convictions are reversed, some defendants can seek refunds under Colorado’s Exoneration Act.  But under the Exoneration Act, a defendant must “prove her innocence by clear and convincing evidence….” Nelson, slip op. at 12.   The Supreme Court held that the Exoneration Act refund scheme did not comport with procedural due process requirements.

According to the Court, a state “may not presume a person, adjudged guilty of no crime, nonetheless guilty enough for monetary exactions;” instead, “[t]o comport with due process, a State may not impose anything more than minimal procedures on the refund of exactions dependent upon a conviction subsequently invalidated.” Nelson, slip op. at 7, 10.  But to most outside observers, that is exactly what often happens in civil asset forfeiture.  In civil forfeiture, no crime need be proved or even charged against the owner or, indeed, anyone else.   In fact, the guilt or innocence of the owner whose property is forfeited is irrelevant to an underlying civil forfeiture action, and a separate action or affirmative defense of remission or other mitigation must be initiated by an innocent owner.

If the Court’s limitation to nothing “more than minimal procedures” for a wrongfully convicted defendant to recoup criminal exactions is correct, then why should anyone, particularly an innocent owner in a civil asset forfeiture matter where no crime need be proved, still be required to participate in any action, even civil, where they might have to show by a preponderance or higher burden that they were innocent or otherwise entitled to maintain their property? The situation is even more egregious where civilly forfeited property was used by someone else without the owner’s knowledge.  The Supreme Court’s work in reforming the law governing forfeiture is only half done, at best.

Mike Geske is counsel at Cause of Action Institute