As we noted in a recent client alert, a panel of the D.C. Circuit Court of Appeals ruled earlier this year that the provision of the Dodd-Frank Act that established that the CFPB Director could be fired only “for cause” was unconstitutional.  The Bureau filed a petition on November 18 asking the Court of Appeals to reconsider that ruling en banc.  The petition is here.

The Bureau’s petition characterizes the panel’s constitutional holding as “dramatic and unprecedented,” creating “what may be the most important separation-of-powers case in a generation.” In short, the Bureau notes that the Supreme Court has allowed Congress to establish independent agencies with leaders who may only be fired “for cause,” and argues that a single-director independent agency deserves the same treatment.

The Bureau also takes vigorous exception to the Court of Appeal’s ruling on the Real Estate Settlement Procedures Act (RESPA) issues that formed the basis of its substantive claims against PHH.  The Bureau repeatedly characterizes captive reinsurance agreements as kickbacks, and argues that they may violate RESPA even if the mortgage insurers pay only fair market value for the reinsurance.

If the Court of Appeals is considering granting the petition, it will give PHH an opportunity to file a response.  There is no schedule for the Court’s resolution of the petition.  The petition will be granted if a majority of the D.C. Circuit’s judges who are in regular active service and who are not disqualified order that the case be reheard en banc.  Until such time as the Court of Appeals rules on the petition, the mandate that would normally issue from the panel’s ruling is stayed.

While the PHH litigation continues, another federal court, in the Central District of California, has already found the D.C. Circuit’s opinion persuasive, and ruled in the CFPB’s lawsuit against D&D Marketing that the Director is subject to direct removal by the President.