Complaint gainst Dodd-Frank’s orderly liquidation authority

 

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

STATE NATIONAL BANK OF BIG SPRING SPR ING 901 South Main Street Big Spring, TX 79720; STATE OF ALABAMA, by and through LUTHER STRANGE, in his official capacity as Attorney General of Alabama 501 Washington Avenue Montgomery, Montg omery, AL 36130; STATE OF GEORGIA, by and through SAMUEL S. OLENS, ATTORNEY GENERAL OF THE STATE OF GEORGIA 40 Capitol Square SW Atlanta, GA 30334;

Case No. 1:12-cv-01032

STATE OF KANSAS ex rel . DEREK SCHMIDT, in his official capacity as Attorney General of Kansas 120 SW SW 10t 10th h Ave Avenue nue,, 2nd Flo Floor  or  Topeka, KS 66612;

Judge: Hon. Ellen S. Huvell Huvellee

BILL SCHUETTE, ATTORNEY GENERAL OF THE STATE OF MICHIGAN, ON BEHALF OF THE PEOPLE OF MICHIGAN; G. Mennen Williams Building, 7th Floor  525 W. Ottawa St. P.O. Box 30212 Lansing, MI 48909; STATE OF MONTANA, MONTANA, by and through TIMOTHY TIMOTHY C. FOX, ATTORNEY GENERAL OF THE STATE OF MONTANA 215 North Sanders P.O. Box 201401 Helena, MT 59620; STATE OF NEBRASKA, NEBRASKA, by and through through JON C. BRUNING, ATTORNEY GENERAL OF THE STATE OF NEBRASKA 2115 State Capitol

 

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P.O. Box 98920 Lincoln, NE 68509; STATE OF OHIO, by and through MICHAEL DeWINE, ATTORNEY GENERAL OF OHIO 30 East East Broad Broad Street Street,, 14th Flo Floor  or  Columbus, OH 43215; STATE OF OKLAHOMA EX REL. SCOTT PRUITT in his official capacity as Attorney General of Oklahoma 313 NE 21st Street Oklahoma City, OK 73105; STATE OF SOUTH CAROLINA EX REL. ALAN WILSON in his official capacity as Attorney General of South Carolina Rembert Dennis Building 1000 Assembly Street, Room 519 Columbia, SC 29201; STATE OF TEXAS, by and through GREG ABBOTT, ATTORNEY GENERAL OF THE STATE OF TEXAS 300 W. 15th Street Austin Aus tin,, TX 7870 78701; 1; STATE OF WEST VIRGINIA EX REL. PATRICK MORRISEY in his official capacity as Attorney General of West Virginia State Capitol Complex, Building 1 Room 26-E Charleston, WV 25305; THE 60 PLUS ASSOCIATION, INC 515 King Street Suite 315 Alexandria, VA 22314; and THE COMPETITIVE ENTERPRISE INSTITUTE 2

 

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1899 L Street Floor 12 Washington, DC 20036,  Plaintiffs,

v.  NEIL S. WOLIN, 1 in his official capacity as Acting United States Secretary of the Treasury and ex officio Chairman of the Financial Stability Oversight Council 1500 Pennsylvania Avenue, NW Washington, DC 20220; U.S. DEPARTMENT OF THE TREASURY 1500 Pennsylvania Avenue, NW Washington, DC 20220; RICHARD CORDRAY, in his official capacity as Director of the Consumer Financial Protection Bureau, in his official capacity as ex officio Director of the Federal Deposit Insurance Corporation, and in his official capacity as ex officio member of the Financial Stability Oversight Council 1700 G Street NW Washington, DC 20552; THE CONSUMER FINANCIAL PROTECTION BUREAU 1700 G Street NW Washington, DC 20552; BENJAMIN BERNANKE, in his official capacity as Chairman of the Board of Governors of the Federal Federal Reserve System, and in his official capacity as ex officio Member of the Financial Stability Oversight Council 1

Pursuant to Federal Pursuant Federal Rule of Civil Civil Procedure Procedure 25(d), 25(d), Acting U.S. U.S. Secretary of the Treasury Treasury Wolin Wolin has been substituted as a defendant for former Secretary Geithner, and Chairman of the U.S. Securities and Exchange Commission Walter has been substituted as a defendant for former Chairman Schapiro. Additionally, the caption has been revised to reflect reflect Mr. Gruenberg’s new office as Chairman of the Board of Directors of the Federal Deposit Insurance Corporation. Corresponding conforming changes have been made to paragraphs 45, 57, 62, and 150. 3

 

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20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; JANET YELLEN, in her official capacity as Vice Chairman of the Board of Governors of the Federal Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; ELIZABETH DUKE, in her official capacity as Member of the Board of Governors of the Federal Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; JEROME POWELL, in his official capacity as Member of the Board of Governors of the Federal Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; SARAH BLOOM RASKIN, in her official capacity as Member of the Board of Governors of the Federal Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; JEREMY STEIN, in his official capacity as Member of the Board of Governors of the Federal Fed eral Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; DANIEL TARULLO, in his official capacity as Member of the Board of Governors of the Federal Reserve System 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 20th Stree Streett and Constitution Constitution Avenue Avenue NW Washington, DC 20551; MARTIN GRUENBERG, in his official capacity as Chairman of the Board of Directors of the Federal Deposit Insurance Corporation, and in his official 4

 

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capacity as ex officio Member of the Financial Stability Oversight Council 550 17th Street NW Washington, DC 20429; THOMAS HOENIG, in his official capacity as Director of the Federal Deposit Insurance Corporation 550 17th Street NW Washington, DC 20429; JEREMIAH NORTON, in his official capacity as Director of the Federal Deposit Insurance Corporation 550 17th Street NW Washington, DC 20429; THOMAS CURRY, in his official capacity as U.S. Comptroller of the Currency, in his official capacity as ex officio Director of the Federal Deposit Insurance Corporation, Corpor ation, and in his official official capacity as ex officio member of the Financial Stability Oversight Council Comptroller of the Currency Administrator of National Banks Washington, DC 20219; THE FEDERAL DEPOSIT INSURANCE CORPORATION 550 17th Street NW Washington, DC 20429; ELISSE B. WALTER, in her official capacity capa city as Chairman Chair man of the U.S. Securities Securities and Exchange Exchange Commission and ex officio member of the Financial Stability Oversight 100 F Street NE Council Washington, DC 20549; GARY GENSLER, in his official capacity as Chairman Cha irman of the U.S. Commodity Futures Trading Commission Co mmission and ex officio member of the Financial Stability Oversight Council Three Lafayette Center  1155 21st 21st Str Street eet Washington, DC 20581; DEBBIE MATZ, in her official capacity as Chairman of 5

 

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the National Credit Union Administration Board and ex officio Member of the Financial Stability Oversight Council 1775 Duke Street Alexandria, VA 22314; S. ROY WOODALL, in his official capacity as Member M ember of the Financial Stability Oversight Council 1500 Pennsylvania Avenue, NW Washington, DC 20220; and THE FINANCIAL STABILITY OVERSIGHT COUNCIL 1500 Pennsylvania Avenue, NW Washington, DC 20220,  Defendants.

SECOND AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

The above-captioned plaintiffs, by and through their undersigned attorneys, 2 allege as follows: INTRODUCTION

1.

By th this is act actio ion, n, the the Pri Privat vatee Plai Plaint ntif iffs fs cha chall lleng engee th thee unco uncons nsti titu tuti tiona onall for forma mati tion on and and

operation of the Consumer Financial Protection Bureau (“CFPB”), an agency created by Title X 2

This action consists of two groups of plaintiffs: the “Private Plaintiffs,” consisting of State  National Bank of Big Spring, the 60 Plus Association, Inc., and the Competitive Enterprise Institute; and the “State Plaintiffs,” consisting of the State of Alabama, the State of Georgia, the State of Kansas, the State of Michigan, Michigan, the State of Montana, the State of Nebraska, Nebraska, the State of Ohio, the State State of Oklahom Oklahoma, a, the the State of South South Carolina, Carolina, the State State of Texas, and the the State of West Virginia. As specified in the signature signature block, they are represented represented by separate counsel. The State Plaintiffs’ allegations and claims are limited to Title II of the Dodd-Frank Act, as described below. 6

 

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of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (July 21, 2010) (“Dodd-Frank Act”). 2.

By thi thiss actio action, n, the the Privat Privatee Plain Plainti tiff ffss chall challeng engee the unco uncons nsti titu tuti tion onal al appoi appoint ntmen mentt of

CFPB Director Richard Cordray, appointed to office neither with the Senate’s advice and consent, nor during a Senate recess. 3.

By thi thiss acti action on,, the the Priv Privat atee Plai Plaint ntif iffs fs cha chall lleng engee the the uncon unconst stit itut utio iona nall crea creati tion on and and

operation of the Financial Financia l Stability Oversight Council (“FSOC”), an inter-agency “council” created by Title I of the Dodd-Frank Act. 4.

By thi thiss actio action, n, the the Plain Plainti tiff ffss chall challeng engee the unc uncon onst stit itut utio iona nall creat creatio ion n and oper operat atio ion n

of a new authority for the “orderly liquidation” of financial institutions under Title II of the Dodd-Frank Act (“Orderly Liquidation Authority”). 5.

Thes Th esee Tit Title less of of the the Do Dodddd- Fr Fran ank k Act Act vi viol olat atee the the Con Const stit itut utio ion n in in seve severa rall way ways: s:

6.

Firs Fi rst, t, the the CFPB’ CFPB’ss form format ation ion and and oper operat atio ion n viol violat ates es the the Cons Consti titu tuti tion’ on’ss sepa separa rati tion on

of powers. Title X of the Dodd-Frank Act Act delegates effectively unbounded power to the CFPB, and couples that power with w ith provisions insulating the CFPB against meaningful checks by b y the Legislative, Executive, and Judicial Branches, as described described in ¶¶ 51-107, below. Taken together, these provisions remove all effective limits on the CFPB Director’s discretion, a violation of the separation of powers. 7.

Secon Se cond, d, the the Pre Presi siden dentt unco uncons nsti titu tuti tion onal ally ly app appoi oint nted ed Ric Richar hard d Cord Cordray ray to be be CFPB CFPB

Director by refusing to secure the Senate’s advice and consent while the Senate was in session, one of the few constitutional checks and balances on the CFPB left in place by the Dodd-Frank Act, as described in ¶¶ 108-118, below.

7

 

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8.

Thir Th ird, d, the the FSOC FSOC’s ’s for format matio ion n and and opera operati tion on viol violat ates es the the Cons Consti titu tuti tion’ on’ss sepa separa rati tion on

of powers. The FSOC has sweeping and unprecedented discretion to choose which nonbank financial companies to designate as “systemically important” (or, “too big to fail”). fail”). That designation signals that the selected companies have the implicit backing of the federal government—and, accordingly, an unfair advantage over competitors in attracting scarce, fungible investment capital. Yet the FSOC’s sweeping powers and discretion are not limited limited by any meaningful statutory directives. And the FSOC, whose members include nonvoting state officials appointed by state regulators rather than the President, is insulated from meaningful mea ningful  judicial review—indeed, from all judicial review brought by third parties injured by an FSOC designation—as described in ¶¶ 119-141, below. Taken together, these provisions provide the FSOC virtually boundless discretion in making its highly consequential consequ ential designations, a violation of the separation of powers. 9.

Four Fo urth th,, the the “Ord “Order erly ly Liqu Liquid idat atio ion n Auth Author orit ity” y” vi viol olat ates es the the sepa separa rati tion on of of powe powers rs..

Title II of the Dodd-Frank Act empowers the Treasury Secretary to order the liquidation of a financial company with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive, ex ecutive, or judicial oversight. Moreover, Title II empowers the FDIC to unilaterally violate the rights of financial companies’ creditors (and unilaterally choose favorites among similarly situated creditors) while carrying out that “liquidation.” All of this occurs without meaningful judicial review, as described in ¶¶ 142-178, below. 10.

Fifth, Fif th, the Orde Orderly rly Liq Liquid uidati ation on Auth Authori ority ty vio violat lates es the the mand mandate ate of the the Fift Fifth h

Amendment to the United States Constitution that “[n]o person shall . . . be deprived of life, liberty, or property, without without due process of law.” The forced liquidation of a company with little 8

 

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or no advance warning, wa rning, in combination with the FDIC’s virtually unlimited power to choose favorites among similarly situated creditors in implementing the liquidation, denies the subject company and its creditors constitutionally required notice and a meaningful opportunity to be heard before their property is taken—and likely becomes unrecoverable, as described in ¶¶ 142178, below. 11.

Sixth, Six th, the Ord Orderl erly y Liqui Liquidati dation on Autho Authorit rity y viol violate atess the the requi requirem rement ent in Arti Article cle I, I,

Section 8, Clause 4 of the United States Constitution, that any “Laws on the th e subject of Bankruptcies throughout the United States” be “uniform.” With no meaningful limits limits on the discretion conferred on the Treasury Secretary or on o n the FDIC, Title II not only empowers empow ers the FDIC to choose which companies will be subject subject to liquidation under Title Title II, but also confers on the FDIC unilateral authority to provide special special treatment to whatever creditors the FDIC, in its sole and unbounded discretion, discretion, decides to favor, as described in ¶¶ 142-178, below. JURISDICTION AND VENUE

12.

Thiss Cour Thi Courtt has has juri jurisdi sdicti ction on over over thi thiss case case purs pursuant uant to 28 28 U.S.C U.S.C.. §§ 1331 and 220 2201. 1.

13.

Venu Ve nuee is pro proper per in thi thiss Cour Courtt purs pursuan uantt to 28 U.S. U.S.C. C. § 1391 1391(b (b)) and and (e). (e). PARTIES

14.

Plaint Pla intiff iff Sta State te Nati National onal Ban Bank k of Big Spr Spring ing (“B (“Bank” ank”)) is is a Texa Texass corpo corporat ration ion and

federally-chartered bank headquartered in in Big Spring, Texas. The Bank opened in 1909 and currently has three locations in Big Spring, Lamesa, and O’Donnell, Texas. The Bank is a local community bank with less than $275 million in deposits and offers customers access to checking accounts, savings accounts, certificates of deposit, and individual retirement accounts. 15.

Titl Ti tlee X of the the Dod Dodd-F d-Fra rank nk Act, Act, and and CFP CFPB B Dire Direct ctor or Ric Richa hard rd Cor Cordr dray ay’s ’s

unconstitutional appointment to direct that agency, injure the Bank. As a result of the the CFPB’s 9

 

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 promulgation of a Final Rule regulating international remittance transfers imposing burdensome requirements on financial institutions and other providers of those services, the Bank has stopped offering those services to its customers. 16.

Thee Ban Th Bank k is is fur furth ther er in inju jure red d becau because se Ti Titl tlee X req requi uire ress the the Ban Bank k to to con condu duct ct it itss

 business, and make decisions about what kinds of business to conduct, without knowing whether the CFPB will retroactively announce that one or more of the Bank’s consumer lending practices is “unfair,” “deceptive,” or “abusive” and enforce that interpretation through supervision, investigation, or enforcement activities. activities. Title X’s open-ended grant of power to the CFPB, combined with the absence of checks and balances limiting the CFPB from expansively interpreting that grant of power, creates a cloud of regulatory uncertainty that forces banks to censor their own offerings—a chilling effect that, for example, left the Bank with no safe choice  but to exit the consumer mortgage business and not return until the CFPB’s authority and discretion are defined with greater specificity, transparency, and accountability. 17.

Indeed Ind eed,, stat statemen ements ts of of CFPB CFPB Dir Direct ector or Cord Cordray ray and oth other er off offici icials als con connect nected ed to to the the

CFPB heighten the likelihood that the Bank’s mortgage products could be deemed unlawful, after the fact, by the CFPB—as described in ¶¶ 51-107, below. 18.

Plaint Pla intiff iff 60 Plus Plus Ass Associ ociati ation, on, Inc. Inc. (“As (“Assoc sociat iation ion”) ”) is a sevenseven-mil millio lion n member member,,

non-profit, non-partisan seniors advocacy group that is tax-exempt tax-ex empt under Section 501(c)(4) of the Internal Revenue Code. It is devoted to advancing advancing free markets and strengthening limits limits on government regulation. One of its goals is to preserve access to credit and financial products for seniors, such as mortgages mortgages and reverse mortgages. Founded in 1992, it is based in Alexandria, Virginia.

10

 

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19.

Thee Dod Th Doddd-Fr Fran ank k Ac Actt har harms ms th thee mem membe bers rs of th thee 60 60 Plu Pluss Ass Assoc ocia iati tion on in th that at it has

reduced, and will further reduce, the range and affordability of banking, credit, investment, and savings options available to them. For example, provisions enforced by the CFPB have reduced the availability of free checking, and the number of banks offering it; they have reduced the number of companies offering mortgages; and they have increased mortgage fees. 20.

The 60 Plus Plus Asso Associa ciatio tion n survey surveyss its its member memberss regar regardin ding g their their int intere erest st in in a varie variety ty

of financial products that it might might offer to them as benefits. benefits. These products range from from investment programs programs and bank accounts to credit cards and insurance. The Dodd-Frank Act harms both the Association and its members by increasing the cost and reducing the availability of such products, both currently and in the near future. 21.

Plaint Pla intiff iff Com Compet petiti itive ve Ente Enterpr rpris isee Insti Institut tutee (“CEI (“CEI”) ”) is a tax-ex tax-exemp empt, t, nonpr nonprofi ofitt

 public interest organization under Section 501(c)(3) of the Internal Revenue Code. It is dedicated to advancing the principles of individual individual liberty and limited government. government. To those ends, CEI engages in research, education, and advocacy efforts involving a broad range of regulatory and legal issues. It also participates in cases involving financial regulation regulation and constitutional checks and balances, such as the separation of powers and federalism: e.g., Free  Enter. Fund v. Pub. Co. Accounting Oversight Bd., 130 S. Ct. 3138 (2010); Florida v. U.S. Dep’t  of Health & Human Servs., 648 F.3d 1235 (11th Cir. 2011); and Watters v. Wachovia Bank,  N.A., 550 U.S. 1 (2007). Founded in 1984, it is based in Washington, Washington, D.C.

22.

CEI has chec checkin king g and and broke brokerag ragee account accountss and and certi certific ficate atess of of depos deposit it (“C (“CDs” Ds”)) in in

 banks and brokerage firms regulated by the CFPB that qualify as systemically important under the Dodd-Frank Dodd-Frank Act as enforced enforced by FSOC. FSOC. For example, example, it has checking checking accounts accounts and CDs at Wells Fargo, and CDs at Merrill Lynch. It also has credit cards with terms subject to regulation regulation 11

 

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 by the CFPB under Dodd-Frank. The nature and cost of these accounts are jeopardized by the CFPB’s sweeping regulatory authority over them and over o ver the institutions in which they are  based. 23.

Plainti Plai ntiff ff Sta State te of of Alab Alabama, ama, by and and thro through ugh Luth Luther er Stra Strange nge,, Attor Attorney ney Gene General ral of

the State of Alabama, is a sovereign State of the United States of America. 24.

Alabam Ala bama’s a’s pens pension ion fun funds ds have have inves investme tments nts in a vari variety ety of inst institu itutio tions ns that that qua qualif lify y

as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created create d by Title II of the Dodd-Frank Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit A, and is incorporated into this complaint by reference. The State of Alabama is ultimately liable for the payment of pensions that have been promised to State employees, and thus any loss of  property rights or investment value suffered by the State’s pension funds directly harms the State of Alabama. The terms “Alabama” and “State of Alabama” are accordingly used interchangeably throughout this Complaint with the term “Alabama’s pension funds.” 25.

Plaint Pla intiff iff Sta State te of of Georg Georgia, ia, by and and throu through gh Samu Samuel el S. S. Olens Olens,, Attor Attorney ney Gen General eral of

the State of Georgia, is a sovereign State of the United States of America. 26.

Georgi Geo rgiaa has has invest investmen ments ts in in a vari variety ety of inst institu itutio tions ns that that qua qualif lify y as fin financi ancial al

companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidat Liquidation ion Authority Authority created created by Title II of the Dodd-Frank Dodd-Frank Act. A nonexhaustive list of those investments investments is attached to to this Complaint as Exhibit B, and is incorporate incor porated d into this complaint complaint by reference. reference. The State of Georgia Georgia is directly harmed harmed by any loss of property rights or investment value in those assets.

12

 

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27.

Plaint Pla intiff iff Sta State te of of Kans Kansas, as, by and thr through ough Der Derek ek Schm Schmidt idt,, Attor Attorney ney Gen General eral of the the

State of Kansas, is a sovereign State of o f the United States of America. 28.

Kansas Kan sas’s ’s pens pension ion fun funds ds have have inve investm stment entss in a variety variety of inst institu itutio tions ns that that qual qualify ify

as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created by Title II of the Dodd-Frank Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit C, and is incorporated into this complaint by reference. reference. The State of Kansas is ultimately ultimately liable for for the  payment of pensions that have been promised to State employees, and thus any loss of property rights or investment value suffered by the State’s pension funds directly directl y harms the State of Kansas. The terms “Kansas” and “State of Kansas” are accordingly used interchangeably throughout this Complaint with the term “Kansas’s pension funds.” 29.

Billl Schuet Bil Schuette, te, Att Attorn orney ey Gener General al of of Michi Michigan gan,, is bri bringi nging ng this this acti action on on beh behalf alf of

the People of Michigan under Mich. Comp. Law Law § 14.28, which provides that the Michigan Attorney General may “appear for the people of [Michigan] in any other court or tribunal, in any cause or matter, civil or criminal, in which the people of [Michigan] may be a party or interested.” Under Michigan’s constitution, the people are sovereign. sovereign. Mich. Const. art. I, § 1 (“All political power is inherent in the people. Government is instituted for their equal benefit, security, and protection.”). The State of Michigan is a sovereign State of the United States States of America. 30.

Michig Mic higan’s an’s pens pension ion funds funds hav havee invest investmen ments ts in in a variety variety of insti institut tutions ions tha thatt qualif qualify y

as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created create d by Title II of the Dodd-Frank  Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit D, and 13

 

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is incorporated into this complaint by reference. The State of Michigan is ultimately liable for the payment of pensions that have been promised to State employees, and thus any loss of  property rights or investment value suffered by the State’s pension funds directly harms the State of Michigan. The terms “Michigan” and “State of Michigan” Michigan” are accordingly used interchangeably throughout this Complaint with the term “Michigan’s “Michigan’s pension funds.” 31.

Plai Pl aint ntif ifff Stat Statee of Mo Mont ntan ana, a, by by and and thr throug ough h Timo Timoth thy y C. Fo Fox, x, At Atto torn rney ey Gene Genera rall of

the State of Montana, is a sovereign State of the United States of America. 32.

Montan Mon tana’s a’s pen pensio sion n funds funds have have inv invest estmen ments ts in in a varie variety ty of of insti institut tution ionss that that qual qualify ify

as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created create d by Title II of the Dodd-Frank Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit E, and is incorporated into this complaint by reference. The State of Montana is ultimately liable for the  payment of pensions that have been promised to State employees, and thus any loss of property rights or investment value suffered by the State’s pension funds directly d irectly harms the State of Montana. The terms “Montana” and “State of Montana” are accordingly used interchangeably interchangeably throughout this Complaint with the term “Montana’s pension funds.” 33.

Plaint Pla intiff iff Sta State te of of Nebra Nebraska ska,, by and thr throug ough h Jon Jon C. Bru Bruning ning,, Attor Attorney ney Gene General ral of

the State of Nebraska, is a sovereign State of the United States of America. 34.

Nebras Neb raska’s ka’s pens pension ion funds funds hav havee invest investmen ments ts in in a variety variety of inst institu itutio tions ns that that qual qualify ify

as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created create d by Title II of the Dodd-Frank Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit F, and is incorporated into this complaint by reference. The State of Nebraska is ultimately ultimately liable for the 14

 

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 payment of pensions that have been promised to State employees, and thus any loss of property rights or investment value suffered by the State’s pension funds directly directl y harms the State of  Nebraska. The terms “Nebraska” and “State of Nebraska” are accordingly used interchangeably throughout this Complaint with the term “Nebraska’s pension funds.” 35.

Plaint Pla intiff iff Sta State te of Ohi Ohio, o, by by and and throug through h its its Attor Attorney ney Gene General ral Mic Michae haell DeWin DeWine, e, is is a

sovereign State of the United States of America. 36.

Variou Var iouss gover governmen nmental tal enti entitie tiess in in Ohio, Ohio, inc includ luding ing the Ohi Ohio o Attor Attorney ney Gen Genera eral’s l’s

Office, have public monies in public investment pools that hold commercial paper and/or bonds issued by financial companies as defined by Section 210 of the Dodd-Frank Act and thereby subject to the Orderly Liquidation Liquidation Authority created by Title Title II of the Dodd-Frank Act. A nonexhaustive list of those investments is attached to this Complaint as Exhibit G, and is incorporated into this complaint by reference. The State of Ohio is directly harmed by any loss loss of property rights or investment value suffered in connection conn ection with such holdings. 37.

Plaint Pla intiff iff Sta State te of of Oklah Oklahoma, oma, by and and throug through h E. Scot Scottt Pruit Pruitt, t, Atto Attorne rney y Gener General al of of

the State of Oklahoma, is a sovereign State of the United States S tates of America. 38.

Oklaho Okl ahoma’ ma’ss pensi pension on funds funds have inv invest estmen ments ts in a var variety iety of inst institu itutio tions ns that that

qualify as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created by Title II of the Dodd-Frank Act. A non-exhaustive list of those those investments is attached to this Complaint as Exhibit H, and is incorporated into this complaint by reference. The State of Oklahoma is ultimately ultimately liable for the payment of pensions that have been promised to State employees, and thus any loss of  property rights or investment value suffered by the State’s pension funds directly harms the State

15

 

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of Oklahoma. The terms “Oklahoma” and “State of Oklahoma” are accordingly used interchangeably throughout this Complaint with the term “Oklahoma’s “Oklahom a’s pension funds.” 39.

Plaint Pla intiff iff Sta State te of of South South Car Caroli olina, na, by and and throug through h Alan Alan Wilso Wilson, n, Atto Attorney rney Gene General ral

of the State of South Carolina, is a sovereign State of the United States of o f America. 40.

South Sou th Caro Carolin lina’s a’s pen pensio sion n funds funds have inv invest estmen ments ts in in a varie variety ty of of insti institut tution ionss that that

qualify as financial companies as defined by Section 210 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created create d by Title II of the Dodd-Frank Act. A non-exhaustive list of those investments is attached to this Complaint as Exhibit I, I, and is incorporated into this complaint by reference. The State of South Carolina is ultimately ultimately liable for the payment of pensions that have been promised to State employees, and thus any loss of  property rights or investment value suffered by the State’s pension funds directly harms the State of South Carolina. The terms “South Carolina” and “State of South Carolina” are accordingly used interchangeably throughout this Complaint with the term “South Carolina’s pension funds.” 41.

Plaint Pla intiff iff Sta State te of of Texas, Texas, by and thr through ough Gre Greg g Abbot Abbott, t, Atto Attorney rney Gene General ral of Texas Texas,,

is a sovereign State of the United States of America. 42.

Texas, Texa s, thr throug ough h the the Texas Texas Tre Treasu asury ry Safe Safekeep keeping ing Tru Trust st Comp Company any,, has has inves investme tments nts

in a variety of institutions that qualify as financial companies as defined by Section 210 21 0 of the Dodd-Frank Act, rendering those companies subject to the Orderly Liquidation Authority created  by Title II of the Dodd-Frank Act. A non-exhaustive list of those investments is attached to this Complaint as Exhibit J, and is incorporated into this complaint by reference. The State of Texas is directly harmed by any loss of property rights or investment value suffered by the Texas Treasury Safekeeping Trust Company. The terms “Texas” and “State of Texas” are accordingly

16

 

!"#$ &'&()*+),&,-()./0 12*34$56 (7 89:$; ,(<&=<&- >"?$ &C 2@ A-

used interchangeably throughout this Complaint with the term “Texas Treasury Safekeeping Trust Company.” 43.

Plaint Pla intiff iff Sta State te of of West West Vir Virgin ginia, ia, by and and throug through h Patri Patrick ck Morr Morrisey isey,, Attor Attorney ney

General of the State of West Virginia, is a sovereign State of the United States of America. 44.

The Sta State te of of West West Virg Virgini iniaa has publ public ic moni monies, es, inc includ luding ing moni monies es in in publi publicc pensio pension n

funds, in investment pools that hold commercial paper p aper and/or bonds issued by b y financial companies as defined by Section 210 of the Dodd-Frank Act and thereby subject to the Orderly Liquidation Authority created by Title Title II of the Dodd-Frank Act. Act. A non-exhaustive list of those investments is attached to this Complaint as Exhibit K, and is incorporated into this complaint by reference. The State of West Virginia Virginia is directly harmed by any loss of property rights rights or investment value suffered in connection with such holdings. With regard to monies in public public  pension funds in particular, the State of West Virginia is liable for the payment of pensions to qualifying State employees, and thus any an y loss of property rights or investment value suffered by the State’s pension funds directly harms the State of o f West Virginia. 45.

Defe De fenda ndant nt Neil Neil S. Wol Wolin in is the the Acti Acting ng Uni Unite ted d States States Sec Secre reta tary ry of the the Treas Treasur ury, y,

and the ex officio Chairman of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named in his official capacity. 46.

Defenda Def endant nt U.S U.S.. Depar Departme tment nt of the Tr Treas easury ury is loca located ted in Was Washin hingto gton, n, D.C. D.C.

47.

Defenda Def endant nt Ric Richar hard d Cordr Cordray ay is Dir Direct ector or of the the Cons Consume umerr Fina Financia nciall Prote Protectio ction n

Bureau, an ex officio Director of the Federal Deposit Insurance Corporation, and an ex officio member of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named in his official capacity. 48.

Defenda Def endant nt Cons Consume umerr Finan Financia ciall Prote Protecti ction on Bure Bureau au is is locat located ed in in Washi Washingt ngton, on, D.C. D.C. 17

 

!"#$ &'&()*+),&,-()./0 12*34$56 (7 89:$; ,(<&=<&- >"?$ &D 2@ A-

49.

Defenda Def endant nt Ben Benjam jamin in Ber Bernank nankee is is Chai Chairma rman n of the Boa Board rd of Gover Governor norss of of the the

Federal Reserve System, and an ex officio member of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named in his official capacity. 50.

Defenda Def endant nt Jane Janett Yell Yellen en is Vic Vicee Chair Chairman man of the Boa Board rd of Gove Governo rnors rs of the

Federal Reserve System; she is located located in Washington, D.C., and she is named in her official official capacity. 51.

Defenda Def endant nt Eli Elizabe zabeth th Duke Duke is a membe memberr of the Boar Board d of Gov Govern ernors ors of the the Feder Federal al

Reserve System; she is located in Washington, D.C., and she is named in her official capacity. 52.

Defenda Def endant nt Jero Jerome me Powe Powell ll is a mem member ber of the Boa Board rd of of Gover Governors nors of the the Feder Federal al

Reserve System; he is located in Washington, D.C., and he is named in his official capacity. cap acity. 53.

Defenda Def endant nt Sar Sarah ah Bloo Bloom m Rask Raskin in is a memb member er of the Boar Board d of of Gover Governor norss of of the the

Federal Reserve System; she is located in Washington, D.C., and she is named in her official capacity. 54.

Defenda Def endant nt Jer Jeremy emy Ste Stein in is is a mem member ber of the Boa Board rd of of Gove Governor rnorss of the Fed Federa erall

Reserve System; he is located in Washington, D.C., and he is named in his official capacity. 55.

Defenda Def endant nt Dani Daniel el Taru Tarullo llo is a membe memberr of the Boa Board rd of of Gover Governor norss of the Fede Federal ral

Reserve System; he is located in Washington, D.C., and he is named in his official capacity. cap acity. 56.

Defenda Def endant nt the the Board Board of Gove Governo rnors rs of the the Fede Federal ral Res Reserv ervee Syste System m is an agenc agency y of of

the United States, located in Washington, D.C. 57.

Defenda Def endant nt Mart Martin in Grue Gruenber nberg g is is Chair Chairman man of the Boa Board rd of of Dire Directo ctors rs of the the Feder Federal al

Deposit Insurance Corporation, and an ex officio member of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named in his official capacity.

18

 

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58.

Defenda Def endant nt Thom Thomas as Hoe Hoenig nig is a Dire Directo ctorr of of the the Feder Federal al Dep Deposi ositt Insur Insurance ance

Corporation; he is located in Washington, D.C., and he is named in his h is official capacity. 59.

Defe De fenda ndant nt Jer Jerem emia iah h Nort Norton on is is a Di Dire rect ctor or of th thee Feder Federal al Depo Deposi sitt Insu Insura rance nce

Corporation; he is located in Washington, D.C., and he is named in his h is official capacity. 60.

Defe De fenda ndant nt Tho Thoma mass Curry Curry is U.S U.S.. Comp Comptr trol olle lerr of th thee Curr Curren ency, cy, an an ex officio

Director of the Federal Deposit Insurance Corporation, and an ex officio member of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named in his official capacity. 61.

Defenda Def endant nt Feder Federal al Depos Deposit it Insu Insuranc rancee Corpo Corporat ration ion is locat located ed in in Washi Washingt ngton, on, D.C. D.C.

62.

Defe De fenda ndant nt Eli Eliss ssee B. Wal Walte terr is Chai Chairm rman an of th thee U.S. U.S. Secu Securi riti ties es and and Exch Exchang angee

Commission, and an ex officio member of the Financial Stability Oversight Council; she is located in Washington, D.C., and she is named in her official capacity. capacit y. 63.

Defenda Def endant nt Gary Gen Gensl sler er is is Chai Chairma rman n of of the the U.S. U.S. Com Commod modity ity Fut Futures ures Trad Trading ing

Commission, and an ex officio member of the Financial Stability Oversight Council; he is located in Washington, D.C., and he is named na med in his official capacity. 64.

Defenda Def endant nt Debb Debbie ie Matz Matz is Cha Chairm irman an of of the the Nati National onal Cre Credit dit Uni Union on Admi Adminis nistr trati ation on

Board, and an ex officio member of the Financial Stability Oversight Council; she is located loca ted in Washington, D.C., and she is named in her official capacity. 65.

Defenda Def endant nt S. Roy Woo Woodal dalll is is a mem member ber of the Fin Financi ancial al Sta Stabil bility ity Over Oversig sight ht

Council; he is located in Washington, D.C., and he is named in his official capacity. 66.

Defenda Def endant nt Finan Financia ciall Stabi Stabilit lity y Over Oversig sight ht Coun Council cil is locat located ed in in Washi Washingt ngton, on, D.C D.C.. THE CONSUMER FINANCIAL PROTECTION BUREAU

67.

Thee Priv Th Privat atee Plai Plaint ntif iffs fs al alle lege ge as as fol follo lows ws,, with with res respec pectt to to the the CF CFPB PB:: 19

 

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68.

Sectio Sec tion n 1011( 1011(a) a) of the Dodd Dodd-Fr -Frank ank Act est establ ablish ishes es a new new Cons Consume umerr Fina Financia nciall

Protection Bureau to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.” law s.” 69.

Sectio Sec tion n 1011( 1011(a) a) decl declares ares the CFP CFPB B to to be be an “Exe “Executi cutive ve agenc agency” y” wit within hin the

meaning of 5 U.S.C. § 105. But the same provision also also declares the CFPB to be an “independent bureau” that tha t is “established in the Federal Reserve System,” which is in turn led by the Board of Governors of the Federal Reserve System (“FRB”), an “independent regulatory agency” under 44 U.S.C. § 3502(5). Title X Delegates Effectively Unlimited Power To The CFPB To Litigate, Investigate, Investigate,  Regulate, and and Enforce Against Against Practices Practices That The CFPB Deems Deems To Be “Unfair,” “Unfair,” “Deceptive,” or “Abusive” 

70.

The Dodd Dodd-Fr -Frank ank Act gr grants ants the CFP CFPB B vast vast aut author hority ity ove overr consu consumer mer fin financi ancial al

 product and service firms, including Plaintiff State National Bank of Big Spring. 71.

Sectio Sec tion n 1031( 1031(a) a) of the Dod Dodd-F d-Fran rank k Act Act aut authori horizes zes the CFP CFPB B to to take take any of

several enumerated actions, including direct enforcement action, to prevent a covered person or service provider from committing or engaging in “unfair,” “un fair,” “deceptive,” or “abusive” practices p ractices in connection with the provision or offering of a consumer financial financial product or service. 72.

And Sec Sectio tion n 1031( 1031(b) b) of of the the Act aut author horizes izes the CFPB to pres prescri cribe be rules rules iden identif tifyin ying g

unfair, deceptive, or abusive acts or practices under Federal law in connection with any transaction with a consumer for a consumer financial product or service. 73.

But the Act provides no definition for “unfair” or “deceptive” acts or practices, p ractices,

leaving those terms to the CFPB to interpret and enforce, either through ad hoc litigation or through regulation. Nor is the CFPB bound by prior agencies’ interpretation of similar similar statutory terms. 20

 

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74.

Norr does No does the the Act Act pro provi vide de mea meani ningf ngful ul lim limit itss on wha whatt the the CFPB CFPB can can dee deem m an

“abusive” act or practice. Section 1031(d) leaves that term to be defined by the CFPB, subject only to the requirement that the CFPB not define an act or practice to be “abusive” unless it “(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; service; or (2) takes unreasonable unreasonable advantage of — (A) a lack of understanding on the part of the consumer of the material material risks, costs, or conditions of the  product or service; (B) the inability of the consumer to protect the interests interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance reliance by the consumer on a covered person to act in in the interests of the consumer.” Sec. 1031(d). 3 Those nominal limits offer no transparency or certainty for lenders, because the limits consist exclusively of subjective factors that can only onl y be ascertained on a case-by-case, case-b y-case, borrower-by borrower, ex post facto basis, and can be interpreted broadly by the CFPB because the agency agenc y is subject to no effective checks or balances by the other branches. 75.

In fac fact, t, the CFP CFPB B Dire Director ctor has him himsel selff ackno acknowle wledge dged d this this.. In a Janu January ary 24, 201 2012 2

hearing before a subcommittee of the U.S. House Committee on Oversight and Government Reform, CFPB Director Cordray stated that the Act’s use of the term “abusive” is “a little bit of a  puzzle because it is a new term”; the CFPB has “been looking at it, trying to understand it, and we have determined that that is going to have to be a fact and circumstances issue; it is not something we are likely to be able to define in the abstract. Probably not useful to try to define a term like that in the abstract; we are going going to have to see what kind of situations may arise arise where that would seem to fit the bill under the prongs.”

3

All “Sec.” citations refer to the sections of the Dodd-Frank Act. 21

 

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76.

The Act Act’s ’s open open-en -ended ded grant grant of powe powerr over over what the CFP CFPB B deems deems to be be “unfa “unfair, ir,””

“deceptive,” or “abusive” lending practices is further exacerbated by the CFPB’s discretion to unilaterally exempt any class of covered persons, service providers, or consumer financial  products or services from the scope of any rule promulgated under Title X. Sec. 1022(b)(3). 77.

While Whi le the the Act Act allo allows ws the the CFPB CFPB to defi define ne and and enfo enforce rce tho those se openopen-ende ended d standa standards rds

through rulemaking, CFPB Director Cordray already announced (as noted above) his intention to define and enforce them primarily through ad hoc, ex post facto enforcement activities. That leaves regulated entities, such as State National Bank of Big Spring, at substantial risk that the CFPB will define or re-define what is legal and illegal, likely on a case-by-case, ex post facto  basis, only after the bank has executed a mortgage or other consumer lending transaction. 78.

The CFP CFPB’s B’s unbr unbridl idled ed auth authori ority ty to newly newly def define ine wha whatt const constitu itutes tes an “unf “unfair air,” ,”

“deceptive,” or “abusive” lending practice on a case-by-case, ex post facto basis, imposes severe regulatory risk upon lenders, including Plaintiff State National Bank of Big Spring, which cannot cann ot know in advance, with reasonable certainty, whether longstanding or new financial services will open them to retroactive liability according to the CFPB. 79.

In purs pursuin uing g pract practices ices it deems deems to be be “unfai “unfair,” r,” “dece “decepti ptive, ve,”” or “abu “abusiv sive,” e,” the the CFPB CFPB

is further empowered to require insured depository institutions, including Plaintiff State National Bank of Big Spring, to provide reports to the CFPB containing “information owned or under the control of [the institution], regardless of whether such information is maintained, stored or  processed by another person,” for the purpose of “assess[ing] and detect[ing] risks to consumers and consumer financial markets.” markets.” Sec. 1026(b). 80.

Thee CFPB Th CFPB is is also also emp empowe owere red d to ref refer er act activ ivit itie iess it de deem emss to be be “a mat mater eria iall

violation of a Federal consumer financial law” to the prudential regulator of an insured 22

 

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depository institution—in the case of Plaintiff State National Bank of Big Spring, the Office of the Comptroller of the Currency—“and Currency—“and recommend appropriate action to to respond.” Sec. 1026(d)(2)(A). When the CFPB makes such a referral referral to a prudential regulator, the prudential regulator is required to “provide a written response to the Bureau not later than 60 days thereafter.” Sec. 1026(d)(2)(B). 81.

Thee CFPB Th CFPB can can also also int inter erven venee dire direct ctly ly in in exami examina nati tions ons co condu nduct cted ed by the the

 prudential regulators of insured depository institutions such such as Plaintiff State National Bank of Big Spring. Specifically, the CFPB can include CFPB examiners on a sample sample basis in examinations conducted by the prudential regulator. Sec. 1026(c)(1). When the CFPB includes includes one of its examiners in an examination ex amination conducted by a prudential p rudential regulator, the regulator is required to “involve such Bureau examiner in the entire examination process,” “provide all reports, records, and documentation related to the examination process … to the Bureau on a timely and continual basis,” and “consider input of the Bureau concerning the scope of an examination, conduct of the examination, the contents of the examination report, the designation of matters requiring attention, and examination ratings.” Sec. 1026(c)(2). 82.

Thee CFPB Th CFPB thus thus not not only only ha hass dire direct ct enf enfor orcem cemen entt auth author orit itie iess of its its own own,, but als also o

substantially influences and effectively directs and controls the enforcement and examination activities of prudential regulators, by defining the terms “unfair,” “deceptive,” “deceptiv e,” and “abusive” in ways that bind prudential regulators, both through formal regulations and through informal directives and guidance; by referring insured depository d epository institutions to prudential regulators for investigation and requiring the prudential regulators to provide a written response to such referrals; and by inserting the CFPB and its examiners ex aminers directly into the examinations conducted  by prudential regulators. 23

 

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83.

The resu resulti lting ng chill chilling ing eff effect ect of of the dir direct ect and and indir indirect ect inve investi stigat gative ive,, enforc enforcemen ement, t,

and referral authorities vested in the CFPB by b y Title X forces lenders such as the Bank to either risk burdensome federal investigation or prosecution or curtail their own services se rvices and products. 84.

For exam example ple,, Title Title X’s bro broad ad term terms, s, as as admi adminis nister tered ed by the CFPB CFPB,, alrea already dy have have

forced Plaintiff Big Spring National Bank to discontinue disco ntinue its own mortgage lending, because its mortgage lending practices are within the CFPB’s jurisdiction (i.e., they are consumer financial  products or services) yet the Bank cannot be reasonably certain, ex ante, whether the CFPB and/or the Office of the Comptroller of the Currency (influenced and directed by the CFPB, and subject to the CFPB’s interpretation of the consumer financial laws) will investigate or litigate against them, deeming those practices to be “unfair,” “deceptive,” or “abusive” pursuant to an ex  post facto CFPB interpretation of the law.

85.

The Ban Bank’s k’s mor mortgag tgagee servic services es and and produc products ts trad traditi itional onally ly focus focused ed on on real real esta estate te in in

the Bank’s geographic area where real estate is generally bought and sold at relatively low  prices, and where mortgage borrowers traditionally pay relatively large down payments; rather than charging their customers “points” for the mortgages, the Bank structured its mortgages to feature a five-year “balloon payment.” 86.

The Ban Bank’s k’s mor mortgag tgagee busin business ess was reg regular ularly ly prof profita itable ble,, and and was was deeme deemed d by the

Bank to be one of the best and most prudent ways to invest and make a return on the Bank’s deposits. 87.

Unfort Unf ortunat unately ely,, due due to to Titl Titlee X’s X’s lac lack k of of mean meaning ingful ful lim limits its on wha whatt cons constit titute utess an an

“unfair,” “deceptive,” or “abusive” practice, combined with the lack of checks and balances guiding and limiting the CFPB’s discretion in administering those open-ended grants of power, the Bank could not be reasonably certain that continued lending on these terms would not expose 24

 

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the Bank to sudden enforcement actions by the CFPB or, at the influence and direction of the CFPB, by the Office of the Comptroller of the Currency. 88.

The over overwhel whelmin ming g uncer uncertai tainty nty inhe inheren rentt in Tit Title le X’s X’s ope open-e n-ended nded gra grant nt of of power power to

the CFPB and the lack of checks and balances limiting the CFPB’s exercise of that power has  been exemplified and amplified by statements from various officials stressing stressing the breadth of the CFPB’s power and the CFPB’s intent to define consumer finance law on a case-by-case basis. 89.

Forr exam Fo exampl ple, e, on on Sept Septemb ember er 17, 17, 201 2010, 0, Pre Presi side dent nt Oba Obama ma anno announ unced ced th thee

appointment of Elizabeth Warren as his “Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau” (i.e., the initial organizer and leader of the CFPB, prior to the appointment of a CFPB Director); in making that announcement, President Obama asserted that the CFPB would “crack down on the abusive practice pra ctice of unscrupulous mortgage lenders,” and that “[b]asically, the Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing e nforcing the toughest financial protections in history.” 90.

Simila Sim ilarly rly,, on the the very very day day after after the Pres Preside ident’ nt’ss announ announcem cement ent of his his appo appoint intment ment,,

CFPB Director Cordray gave a press conference at a think-tank in Washington, D.C., announcing that “[o]ur team is taking complaints about credit cards and mortgages, with other  products to be added as we move forward,” and that to act upon “outrageous” stories from mortgage borrowers and other named and unnamed members of the public “is exactly what the consumer bureau is here to do.” 91.

Simila Sim ilarly rly,, in a March March 14, 14, 2012 2012 addres addresss Direc Director tor Cord Cordray ray rei reiter terated ated tha thatt the the CFPB CFPB

would continue to “address the origination of mortgages, including loan originator compensation and the origination of high-priced mortgages.”

25

 

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92.

In each each of thes thesee statem statements ents,, and and other others, s, CFP CFPB B Direct Director or Cord Cordray ray and oth other er CFPB CFPB

officials have validated and reinforced reinforced responsible lenders’ reasonable reasonable fears that Title X empowers the CFPB to aggressively interpret its its open-ended statutory mandate to retroactively  punish good-faith consumer lending practices—which the CFPB can do because of the lack of checks and balances limiting the agency’s discretion. 93.

These The se and and othe otherr stat stateme ements nts jus justif tify y the the Bank’ Bank’ss reaso reasonab nable, le, goo good-f d-fait aith h concer concerns ns

about the threat of liability established by the CFPB CFP B on a case-by-case, ex post facto basis. 94.

Accord Acc ording ingly, ly, in ligh lightt of Tit Title le X’s X’s gra grant nt of of effec effectiv tively ely unl unlimi imited ted pow power er to to the

CFPB, the Bank ceased its consumer mortgage lending operations on or about October 2010, and it continues to decline to re-enter the market for offering consumer mortgages, including mortgages with “balloon payments,” as well as “character loans”—loans based not only on quantitative estimates of the borrower’s ability to pay and the resale value of collateral property  but also the borrower’s known credibility and character—in light of the risks and uncertainty imposed by CFPB’s unlimited powers and lack of checks and balances. 95.

To re-e re-ente nterr the the mort mortgage gage mar market ket wou would ld ent entail ail not jus justt the the afor aforemen ementio tioned ned

assumption of risk by the Bank, given the uncertain nature of CFPB enforcement and investigation under Title X, as well as the CFPB’s C FPB’s ability directly and indirectly to influence the examinations and enforcement activities of the Office of the Comptroller Co mptroller of the Currency, but also the burdens of substantially increased compliance costs, as State National Bank of Big Spring—a small community bank—would be forced to constantly monitor and predict the CFPB’s regulatory priorities and legal interpretations. 96.

Furthe Fur thermo rmore, re, the Ban Bank k would would be requi required red to comp comply ly wit with h the the exten extensiv sivee mortg mortgage age

disclosure rules the CFPB CFPB is poised to adopt. The CFPB recently promulgated a set of proposed 26

 

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rules on mortgage disclosures. See Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z), 77 Fed. Reg. 51,116 (Aug. 23, 2012). The CFPB’s Other Substantive Powers

97.

In addi additio tion n to to the the CFP CFPB’s B’s open open-en -ended ded powe powerr to to defin definee and and pros prosecut ecutee what what it

deems to be “unfair,” “deceptive,” or “abusive” practices, the CFPB also is empowered under Title X to enforce myriad pre-existing statutes, and to “supervise” certain classes of banks. The CFPB’s Authority To Administer Pre-Existing Statutes 98.

The Act com commit mitss to to the the CFPB CFPB’s ’s jur jurisd isdict iction ion myr myriad iad pre pre-exi -existi sting ng “Fe “Federa derall

consumer financial laws” heretofore administered by other executive or independent agencies. 99.

Specifi Spec ifical cally, ly, the Act auth authori orizes zes the CFP CFPB B to “reg “regulat ulatee the the offer offering ing and pro provis vision ion

of consumer financial products or services under the Federal consumer financial laws,” including the power to promulgate rules “necessary or appropriate app ropriate to enable the [CFPB] to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” Sec. 1011(a), 1022(b)(1). 100.

Accord Acc ording ing to to Section Section 1002( 1002(12) 12) & (14) (14) of the the Act, Act, the “Feder “Federal al consum consumer er financ financial ial

laws” include: the Alternative Mortgage Transaction Parity Act, of 1982, 12 U.S.C. § 3801 et  seq.; the Consumer Leasing Act of 1976, 15 U.S.C. § 1667, et seq.; the Electronic Fund Transfer

Act, 15 U.S.C. § 1693 et seq. (except with respect to section 920); the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq.; the Fair Credit Billing Act, 15 U.S.C. § 1666 et seq.; the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (except with respect to sections 615(e) and 628); the Home Owners Protection Act of 1998, 12 U.S.C. § 4901 et seq.; the Fair Debt Collections Practices Act, 15 U.S.C. § 1692 et seq.; subsections (b) through (f) of section 43 of the Federal 27

 

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Deposit Insurance Act, 12 U.S.C. § 1831t(c)-(f); sections 502 through 509 of the Gramm-LeachBliley Act, 15 U.S.C. § 6802-6809 (except section 505 as it applies a pplies to section 501(b)); the Home Mortgage Disclosure Act of 1975, 12 U.S.C. § 2801 et seq; the Homeownership and Equity Protection Act of 1994, 15 U.S.C. § 1601; the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2601 et seq.; the S.A.F.E. Mortgage Licensing Act of 2008, 12 U.S.C. § 5101 et seq.; the Truth in Lending Act, 15 U.S.C. § 1601 et seq.; the Truth in Savings Act, 12 U.S.C. § 4301 et seq.; section 626 of the Omnibus Appropriations Act, 2009 (Public Law 111-8); the Interstate Interstate

Land Sales Full Disclosure Act, 15 U.S.C. § 1701; and several laws for which whi ch authority of enforcement is transferred to the CFPB, and rules or orders prescribed by the CFPB under its statutory authority. 101.

Accordingly, Accord ingly, the Dodd-Fr Dodd-Frank ank Act Act transf transfers ers to the the CFPB CFPB author authority ity over aspects of

consumer financial products and services previously exercised by a range of other federal agencies—including the FRB, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the FDIC, the Federal Trade T rade Commission, the National Credit Union Administration, and the Department of Housing and Urban Development. 102.

The CFPB’ CFPB’ss interpr interpretati etation on of these existi existing ng statu statutes tes has already caused injury to

State National Bank of Big Spring. On February 7, 2012, the CFPB published in the Federal  Register its Final Rule with respect to international remittance transfers, pursuant to which the

Bank’s customers in the United States could send money to family members overseas. See Electronic Fund Transfers, 77 Fed. Reg. 6194 (Feb. 7, 2012) (to be codified at 12 C.F.R. pt. 1005). The Final Rule imposed substantial substantial new disclosure and compliance requirements requirements on the Bank, which increase the cost of providing providing these services to the Bank’s customers to an unsustainable level. On May 23, 2012, the Bank’s Board of Directors instituted instituted a policy to cease 28

 

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 providing these remittance transfer services to its consumers because of the increased costs arising arisi ng out of the CFPB’s Final Rule. Rule. 103.

The CFPB CFPB thus thus asse asserte rted d and exerci exercised sed auth authori ority ty to regul regulate ate the the Bank's Bank's

international wire transfers. The CFPB’s Supervisory Authority 104.

Sectio Sec tion n 1024 of the the Dodd-Fr Dodd-Frank ank Act Act vests vests the CFPB CFPB with with exclusi exclusive ve author authority ity to to

 prescribe rules, issue guidance, conduct examinations, require reports or issue exemptions with respect to covered non-depository institutions institutions under the Federal consumer financial laws. Sec. 1024(d). 105.

Sectio Sec tion n 1025 vests vests the the CFPB CFPB with with exclusiv exclusivee authorit authority y to requir requiree reports reports and and

conduct periodic examinations of insured depository d epository institutions or credit unions with total assets of more than $10 billion billion and any affiliate thereof or service service provider thereto. Sec. 1025(b), (d). Likewise, the Act vests the CFPB with primary authority to enforce Federal consumer financial laws with respect to insured depository institutions or credit unions with total assets of more than $10 billion and any affiliate affiliate thereof or service provider thereto. thereto. Sec. 1025(c). 106.

The DoddDodd-Fr Frank ank Act Act grants grants the the FRB FRB author authority ity to to delegat delegatee to the the CFPB its its

authority to examine persons subject to the jurisdiction of the FRB for compliance with Federal Fed eral consumer financial laws. Sec. 1012(c)(1). Once the FRB has delegated examination authority to the CFPB, the FRB may not intervene in any matter or proceeding before the Director, including examinations or enforcement actions, or appoint, direct, or remove any officer or employee employee of the CFPB, including the Director.  Id . 107.

Titlee X also Titl also gives the CFPB CFPB the the authority authority to supervi supervise se an entity that: (1) offers offers or

 provides origination, brokerage, or servicing of consumer loans secured by real estate: (2) is a 29

 

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“larger participant of a market for other consumer financial products or services;” (3) the CFPB determines after notice to the entity and opportunity for response may be engaging in conduct that poses risks to consumers with regard to the provision p rovision of consumer financial products or services; (4) offers to any consumer a private education edu cation loan; or (5) offers to a consumer a  payday loan. Sec. 1024(a)(1). Title X Grants The CFPB Aggressive Investigation Investigation And Enforcement Powers

108.

Subtit Sub title le E of Title Title X of the the Dodd-F Dodd-Fran rank k Act sets sets forth forth the CFPB CFPB’s ’s enforc enforcemen ementt

authority. Section 1052 authorizes the CFPB to engage in investigations, investigations, to issue subpoenas subpoenas for the attendance and testimony of witnesses and production of documents and materials, to issue civil investigative demands, and to commence judicial proceedings to compel compliance with those demands. 109.

Sectio Sec tion n 1053 of the the Dodd-Fr Dodd-Frank ank Act Act authori authorizes zes the the CFPB to to conduct conduct hearin hearings gs and and

adjudicative proceedings to ensure or enforce compliance with the Act, any rules promulgated thereunder, or any other Federal law the CFPB is authorized to enforce. 110.

Subject Sub ject to to limita limitatio tions ns descri described bed in other other provi provisio sions ns of Title Title X, Sect Section ion 1054 1054

authorizes the CFPB to commence a civil action against any person whom it deems to have violated a Federal consumer financial law, and to seek all legal and equitable relief, including a  permanent or temporary injunction, as permitted by law. The Dodd-Frank Act Eliminates The Checks And Balances That Could Otherwise  Limit The CFPB’s Exercise Exercise of Those Those Broad, Undefined Undefined Powers

111.

As noted noted above, above, in in additio addition n to grant granting ing the the CFPB CFPB effect effective ively ly unlimi unlimited ted

rulemaking, enforcement, and supervisory powers over “unfair,” “deceptive,” or “abusive” lending practices, Title X of the Dodd-Frank Act also eliminates the Constitution’s fundamental checks and balances that would ordinarily limit or channel the agency’s use of that power. 30

 

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Those checks and balances are necessary to prevent the CFPB from from expansively and aggressively interpreting its open-ended mandate; the absence of those checks and balances, combined with the open-ended grant of power, constitutes a violation of the separation of of  powers. 112.

First, Fir st, Cong Congres resss has no no “power “power of the the purse” purse” over over the the CFPB, CFPB, becaus becausee the Act Act

authorizes the CFPB to fund itself by unilaterally claiming funds from the FRB. 113.

Specif Spe cifica ically lly,, the Direc Director tor of the the CFPB, CFPB, who who cannot cannot be removed removed at at the pleasu pleasure re of

the President, determines for himself the amount of funding the CFPB receives from the FRB; then the FRB must transfer transfer those funds to the the CFPB. Sec. 1017(a)(1). 114.

The Act Act autho authoriz rizes es the the CFPB to to claim claim an incr increas easing ing perce percentag ntagee of the the Federal Federal

Reserve System’s 2009 operating expenses, beginning in fiscal year 2011 at up to 10 percent of those expense expenses, s, and reachin reaching g up to 12 percent percent in in fiscal fiscal year year 2013 and thereaft thereafter. er. This amount will be adjusted adjusted for inflation. inflation. Sec. 1017(a)(2)(B). 115.

Because Beca use the the Federa Federall Reserv Reservee System System’s ’s 2009 2009 operat operating ing expen expenses ses were were

$4,980,000,000, the CFPB Director will be empowered to unilaterally requisition up to $597,600,000 in 2013 and thereafter, adjusted for inflation. See Board of Governors of the Federal Reserve System, 96th Annual Report 491 (2009), available at  http://www.federalreserve.gov/boarddocs/rptcongress/annual09/pdf/ar09.pdf; see also CFPB, FY 2013 Budget Justification 7 (2012), available at  http://files.consumerfinance.gov/f/2012/02/budget-justification.pdf. 116.

In other other words words,, the CFPB’ CFPB’ss automat automatic ic budget budget author authority ity is is nearly nearly double double the the

Federal Trade Commission’s entire budget request to Congress for fiscal year 2013 (i.e., $300

31

 

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million). See FTC, Fiscal Year 2013 Congressional Budget Justification (2012), available at http://www.ftc.gov/ftc/oed/fmo/2013_CBJ.pdf. 117.

In additio addition n to allow allowing ing the the CFPB CFPB to fund itsel itself, f, Title Title X goes so so far as to to explicitly explicitly

 prohibit the House and Senate Appropriations Committees from even attempting to “review” the

CFPB’s self-funded budget. Sec. 1017(a)(2)(C). 1017(a)(2)(C). 118.

Second, Sec ond, in in additio addition n to the Act’s Act’s elim elimina inatio tion n of Congres Congress’ s’ss “power “power of the the purse,” purse,”

the Act also insulates the CFPB Director from presidential oversight. 119.

Specif Spe cifica ically lly,, once the the CFPB Dire Director ctor is is appoin appointed ted by the the Preside President nt with with the

advice and consent of the Senate, Sec. 1011(b)(1)-(2), he receives a five-year term in office and may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.” Sec. 1011(c)(2), (3). 120.

The absence absence of this this check is is particul particularly arly sign significant ificant becaus becausee all of the the powers powers of of

the Bureau are vested solely in the CFPB Director, without the moderating influence of other oth er commissioners, officials, or governors on the decisions of the CFPB, as is the case with other administrative agencies that are vested with quasi-legislative and quasi-judicial qua si-judicial powers. 121.

The judic judicial ial bran branch’s ch’s overs oversigh ightt power power is also also reduced reduced,, because because the the Dodd-Fr Dodd-Frank ank

Act requires the courts to grant the same deference to the CFPB’s interpretation of Federal Fede ral consumer financial laws that they would “if the Bureau were the only agency authorized to apply, enforce, interpret, or administer the provisions of such Federal Fed eral consumer financial law.” Sec. 1022(b)(4)(B). 122.

The CFPB’ CFPB’ss regulat regulatory ory authori authority ty is furth further er insula insulated ted from from account accountabili ability ty to the the

very agency in which it is housed. Section 1012(c) provides that no rule or order promulgated by

32

 

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the CFPB shall be subject to approval or review by the FRB, and that the FRB shall not delay or  prevent the issuance of any rule or order promulgated by the CFPB. 123.

In sum, sum, Titl Titlee X elimin eliminates ates the fund fundame amenta ntall checks checks and bala balances nces tha thatt would would

ordinarily serve to limit the CFPB’s expansive interpretation of its open-ended statutory mandate against State National Bank of Big Spring and other responsible lenders. lenders. This violates the Constitution’s separation of powers. RICHARD CORDRAY’S APPOINTMENT AS CFPB DIRECTOR 

124.

The Privat Privatee Plaintif Plaintiffs fs allege allege as follows follows,, with with respect respect to to the appoint appointment ment of CFPB CFPB

Director Richard Cordray: 125.

Richar Ric hard d Cordray Cordray was was appoint appointed ed CFPB CFPB Direct Director or withou withoutt the Senat Senate’s e’s advi advice ce and

consent, and without a Senate recess. 126.

Specif Spe cifica ically lly,, on January January 4, 2012, 2012, Presi President dent Obama Obama announ announced ced that that he was usi using ng

his “recess appointment” power to appoint Richard Cordray as the Director of the CFPB, an an unconstitutional act that circumvented one of the only few remaining (and minimal) checks on the CFPB’s formation and operation. 127.

The appoi appointm ntment ent of Mr. Mr. Cordray Cordray is is unconst unconstitu itutio tional nal becaus becausee the Senate Senate was not not in

“recess,” as required to give effect to the President’s President’s power to make recess appointments. This is so for at least three reasons: 128.

First, Firs t, the the Constit Constitution ution gives the Senate Senate the the exclusive exclusive power to determi determine ne its its rules, rules,

and the Senate declared itself to be in session; 129.

Second, Seco nd, the the House House of Represe Representa ntativ tives es had not not consent consented ed to a Senate Senate adjour adjournmen nmentt

of longer than three days, as it must to effect a recess; recess;

33

 

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130.

And thir third, d, the the Senate Senate passed signi significant ficant economi economicc policy policy legis legislation lation during the

session that the executive branch alleged to be a recess. 131.

The Const Constitu itutio tion n gives gives the Senat Senatee the sole sole author authority ity to to declare declare when when it is, is, and is

not, in session, subject only to House consent. The Constitution expressly vests in each House of Congress the exclusive power to “determine the rules of its Proceedings.” U.S. Const. C onst. art. I, § 5, cl. 2. 132.

As Senat Senator or Ron Ron Wyden Wyden stated stated on on the floo floorr of the the Senate Senate on on Decembe Decemberr 17, 2011, 2011,

the Senate agreed by unanimous consent to continue its 111th Session from December 20, 2011 through January 3, 2012; and to begin its 112th Session on January 3, as required by Section 2 of the Twentieth Amendment to the United States Constitution, and continue that session at least through January 23, 2012. 157 Cong. Rec. S8783-8784 (Dec. (Dec. 17, 2011). 133.

These sessi sessions ons were substa substantive. ntive. For example, during these sess sessions ions Congre Congress ss

 passed a major piece of economic policy legislation, perhaps President Obama’s most significant legislative priority of the fall of 2011, the Temporary Payroll Pa yroll Tax Cut Continuation Act of 2011,  by unanimous consent. See 157 Cong. Rec. S8789 (Dec. 23, 2011) (Sen. Reid). The President signed the bill into law the next day. This decision to continue in session, session, rather than recess, was necessary to discharge the Senate’s obligations under both the Twentieth Amendment and Article I, Section 5, Clause Clause 4 of the Constitution, which prohibits one House of Congress from adjourning for more than three days da ys without the consent of the other. The House of Representatives had not consented to adjournment. 134.

The Presi President dent’s ’s attemp attemptt to “recess” “recess”-ap -appoi point nt CFPB CFPB Directo Directorr Cordray Cordray in this this

context was unprecedented and unconstitutiona unconstitutional. l.

34

 

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THE FINANCIAL STABILITY OVERSIGHT COUNCIL

135.

The Priv Private ate Plai Plainti ntiffs ffs all allege ege as foll follows ows,, with with respect respect to to the FSOC FSOC::

136.

Title Tit le I of the the Dodd-Fr Dodd-Frank ank Act esta establi blishe shess the FSOC, FSOC, an inter interage agency ncy “counci “council” l”

with sweeping sweeping power and effectively unbridled discretion. The Organization of FSOC 

137.

The FSO FSOC C is is a 1515-mem member ber body wit with h broad broad exec executi utive ve power powers. s. The FSO FSOC C is is

chaired by the Secretary of the Treasury. Treasury. Its other nine voting members, under Section 111(b)(1), are: 

the Chairman of the Securities & Exchange Exchan ge Commission;



the Chairman of the Commodities Futures Trading Commission;



the Chairman of the FRB;



the Chairman of the FDIC;



the Comptroller of the Currency;



the Director of the CFPB;



the Director of the Federal Housing Finance Agency;



the Chairman of the National Credit Union Administration Board; and



an independent member appointed by the President having “insurance expertise.”

138.

In addit addition ion to to the ten ten voting voting membe members rs,, the FSOC FSOC also also has has five five nonvoti nonvoting ng

members: the Director of the Office of Financial Research (a newly created office within the Department of the Treasury); the Director of the Federal Fede ral Insurance Office; a state insurance commissioner; a state banking supervisor; and a state securities commissioner. 139.

Of the the non-vo non-votin ting g member members, s, no memb member er of the the Execut Executive ive Branc Branch h of the the federal federal

government has a role in appointing the three state officials to the FSOC; rather, the state 35

 

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officials are to be “designated” for two-year terms “by “b y a selection process determined by the State insurance commissioners,” “State banking supervisors,” or “State securities secu rities commissioners,” respectively. Sec. 111(b)(2), 111(c)(1). 140.

Non-vot Nonvoting ing mem member berss of the the FSOC FSOC cannot cannot be exclud excluded ed from from any of the the

 proceedings, meetings, discussions, or deliberations of the FSOC unless necessary to protect confidential supervisory information submitted by financial institutions to regulatory agencies. Sec. 111(b)(3). The FSOC Has Effectively Unlimited Discretion To Pick Which Nonbank Financial Companies Are “Systemically Important” 

141.

By a twotwo-third thirdss vote vote of the FSOC’s FSOC’s voting member memberss (with (with the the affirmat affirmative ive vote vote of

the Treasury Secretary), the FSOC may determine that a “U.S. nonbank financial company” could, if in distress, distress, “pose a threat to the financial stability of the United States.” Sec. 113(a). 142.

As the the FSOC (lik (likee countles countlesss comment commentator atorss and analys analysts) ts) recog recogniz nizes, es, thos thosee

determinations by the FSOC announce, in substance, that the designated nonbank financial companies “are, or are likely to become, systemically important .” .” See 76 Fed. Reg. 64,264, 64,267 (Oct. 18, 2011) (emphasis added). 143.

By design designati ating ng a nonbank nonbank financi financial al company company as “sys “system temica ically lly impor importan tant,” t,” the the

FSOC subjects the company to the possibility of heightened federal oversight. See Sec. 115. But the designation also confers a substantial competitive advantage upon the selected company—and it imposes concomitant competitive disadvantage upon the company’s competitors. 144.

Specif Spe cifica ically lly,, fin financi ancial al compa companie niess that that recei receive ve a “syst “systemi emicc impor importan tance” ce”

designation will be seen by the investing public as less risky (because they are seen see n as having the

36

 

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implicit backing of the government), and therefore th erefore those companies will be able to attract capital—in terms of both debt and equity investment—at an artificially low rate. 145.

The benefi benefits ts awaiti awaiting ng FSOC-de FSOC-desig signate nated d systemi systemicall cally y importa important nt financi financial al

institutions (“SIFIs”) (“SIFIs”) are well documented in economic literature. Banks perceived by the public as “systemically important” (or, “too big to fail”) enjoy a substantial advantage over their competitors in terms of their respective cost-of-capital. See, e.g., David A. Price, “Sifting for SIFIs,” Region Focus, Federal Reserve Bank of Richmond (2011), available at www.richmondfed.org/publications/research/region_focus/2011/q2/pdf/federal_reserve.pdf; Joseph Noss Noss & Rhianno Rhiannon n Sowerbutts, Sowerbutts, The Implicit Subsidy of Banks 6 (Ba (Bank nk of England England Financial Stability Paper No. 15, May 2012), available at  http://www.bankofengland.co.uk/publications/Documents/fsr/fs_paper15.pdf. 146.

Furthe Fur thermo rmore, re, this this dyn dynami amicc was ill illust ustrat rated ed by Defen Defendan dantt Ber Bernan nanke ke in a Mar March ch

2010 speech. Noting that “one of the greatest threats to the diversity diversity and efficiency of our financial system is the pernicious problem of financial institutions that are deemed ‘too big to fail,’” he warned that “if a firm is publicly perceived as too big, or interconnected, or systemically critical for the authorities to permit its failure, its creditors and counterparties have less incentive to evaluate the quality of the firm’s business model, its management, and its risktaking behavior. As a result, such firms firms face limited market discipline, allowing them to obtain funding on better terms than the quality or riskiness of their business would merit and giving them incentives to take on excessive risks.” 147.

Finally, Final ly, Bernan Bernanke ke added added that that “[h]avin “[h]aving g instit institution utionss that that are too big to to fail fail also

creates competitive inequities that may prevent our most productive and innovative firms from  prospering.” 37

 

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148.

The FSOC FSOC’s ’s power power to to formal formally ly desig designat natee nonbank nonbank SIFI SIFIss will will do for for nonbank nonbankss

what unofficial SIFI status long has done for unofficial SIFIs: give them a direct cost-of-capital subsidy not enjoyed by the other companies competing for scarce, fungible capital—such as Plaintiff State National Bank Bank of Big Spring. Indeed, formal SIFI designations promulgated by the FSOC will enhance any a ny direct cost-of-capital subsidy previously enjoyed by institutions considered by some in capital markets markets to enjoy unofficial SIFI status, by removing uncertainty as to the government’s views on their SIFI status, and will extend this direct cost-of-capital subsidy to institutions not previously considered by those in capital markets to enjoy unofficial SIFI status. 149.

Accordingly, Accord ingly, Plaint Plaintiff iff State Nation National al Bank Bank of Big Spring Spring is injured injured by the the FSOC’s FSOC’s

official designation of “systemically important” nonbank financial companies, because each additional designation will require the Bank to compete co mpete with yet another financial company—  compan y—  i.e., a newly designated nonbank financial company—that is able to attract scarce, fungible

investment capital at artificially low cost. 150.

By forme formerr Treas Treasury ury Secr Secreta etary ry and and Def Defenda endant nt Geith Geithner ner’s ’s own own admis admissi sion, on, the the

FSOC’s nonbank SIFI designations are imminent: imminent: On February 2, 2012, Secretary Geithner announced that, “[t]his year, the Council will make the first of these designations.” 151.

Despit Des pitee all of the the consequ consequence encess riding riding upon upon the FSOC’ FSOC’ss determi determinat nation ion,, the DoddDodd-

Frank Act gives the FSOC unlimited discretion in making those determinations. 152.

After Aft er listi listing ng severa severall broad broad standar standards ds for the the FSOC to cons conside iderr in making making its its

determinations (e.g., that the company’s “scope, size, scale, concentration, interconnectedness, or mix of activities . . . could pose a threat to the financial stability of the United States,” Sec. 113(a)(1)), Title I opens the door to unlimited other considerations c onsiderations by authorizing the FSOC to 38

 

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consider “any other risk-related factors that [the FSOC] deems appropriate” a ppropriate” in subjecting a company to this this stringent stringent oversight. Sec. 113(a)(2)(K). 153.

Accord Acc ording ingly, ly, the the nomina nominall standa standards rds pres prescri cribed bed by Title Title I of of the Dodd-F Dodd-Fran rank k Act

impose no limits on the FSOC’s designation of nonbank no nbank financial companies as “systemically “s ystemically important.” The FSOC’s Determinations Are Not Subject To Meaningful Judicial Review

154.

Because Beca use the the FSOC FSOC has open-e open-ended nded disc discret retion ion to to designa designate te nonbank nonbank financ financial ial

companies as systemically important, it is all the more important that the courts be available to review the FSOC’s conclusions and analysis. But instead, Title I closes the courthouse doors to those who object to the FSOC’s legal interpretations. 155.

Specifi Spec ifical cally, ly, a party party design designated ated by the the FSOC FSOC as system systemica ically lly impor importan tantt may

appeal to federal district court, but its appeal is limited to the question of whether the FSOC’s determination is “arbitrary and capricious.” Sec. 113(h). Whereas courts are normally permitted to review administrative agency decisions to determine whether they are “in accordance with law,” cf. 5 U.S.C. 706(2)(A), Section 113 eliminates this important judicial review criterion. 156.. 156

And An d even even more more imp impor orta tantl ntly, y, Tit Title le I pro provi vides des no right of judicial review for a third

i.e., State National Bank of Big Spring, or other market participants—to challenge the  party— i.e.

FSOC’s systemic-importance designation of another company, even if the FSOC designation  puts that third-party at a competitive disadvantage in terms of relative cost-of-capital. cost-of-capital. 157.

Accordi Acco rdingly ngly,, even thoug though h the FSOC’s FSOC’s dete determi rminati nations ons that that certai certain n nonbank nonbank

financial companies are systemically important will place Plaintiff State National Bank of o f Big Spring at yet further competitive disadvantage, Title I denies it the right to challenge any an y aspect of the nonbanks’ FSOC designation. 39

 

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ORDERLY LIQUIDATION AUTHORITY

158.

Title Tit le II of of the DoddDodd-Fra Frank nk Act empow empowers ers the the Treasu Treasury ry Secre Secretary tary and and the FDIC FDIC to to

entirely liquidate a financial company and to pick and choose favorites among creditors in the liquidation process. 159.

Upon a two-t two-thir hirds ds vote vote of the the FRB FRB and and the the FDIC FDIC Boa Board, rd, the these se two two agenc agencies ies may

recommend to the Secretary of the Treasury that the Secretary initiate a process through which wh ich a financial company is entered into FDIC FDIC receivership and ultimately ultimately liquidated. 160.

The Secret Secretary ary may may initia initiate te the Order Orderly ly Liqui Liquidati dation on Author Authority ity if if he finds: finds: (1) the fina financi ncial al company company is “in default or in danger of default ”; ”; (2) the company’s company’s failur failuree and resolution resolution would would “have serious adverse effects on  financial stability in the United States”;

(3) “no viable private sector alternative is available to prevent the default of” the company; (4) the effects effects of this action on the interests interests of creditor creditors, s, counterpartie counterparties, s, and shareholders are “appropriate” given the impact any action taken under the Act would have on financial stability in the United States;  (5) actio action n taken under Title Title II would would avoid or mitigate mitigate adverse adverse effects effects on creditors;  (6) a Federal regulato regulatory ry agency has ordered ordered the financial financial company company to convert convert all of its convertible debt instruments that are subject to regulatory regulator y order; and (7) the company company is a financial financial company company as defined defined in in § 201 of the Act. Act. Sec. 203(b) (emphasis added).

40

 

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161.

Thesee standa Thes standards rds off offer er no no meanin meaningfu gfull or enf enforce orceable able lim limits its or dire directi ction. on. Non Nonee of

the italicized terms in the previous paragraph is defined de fined in the Dodd-Frank Act. 162.

The Treas Treasury ury Secre Secretary tary can can liqui liquidat datee a financia financiall company company under under Title Title II II even if

the company was not previously designated by the FSOC as “systemically important.” See Sec. 201(a)(11)(A) (defining “financial company” for purposes of Sec. 203(b) liquidation determination). 163.

While Title II speaks of “orderly “orderly liqui liquidation dation,” ,” the the FDIC’s FDIC’s powers and discret discretion ion

are vastly broader than simply winding down the company: 164.

First, Fir st, the FDI FDIC C may mer merge ge the com company pany wit with h anothe anotherr comp company, any, or sell sell

substantially all of the company’s assets, “without obtaining any approval, ap proval, assignment, or consent[.]” Sec. 210(a)(1)(G). 165.

Second, Seco nd, the the FDIC FDIC can also also trans transfer fer asse assets ts and and claims claims to to a “bridge “bridge fina financia nciall

company” owned and controlled by the FDIC, with virtually virtually unlimited discretion. Sec. 210(h)(1)(A). 166.

Third, Thi rd, the the FDIC FDIC is permit permitted ted to repu repudia diate te any contr contract act it view viewss as “burde “burdensom nsome.” e.”

Sec. 210(c)(1). 167.

Finally Fin ally,, the FDIC FDIC is given given blanke blankett author authority ity to “take “take any any act action ion”” it choo chooses ses to to

treat similarly-situated creditors differently, if the FDIC determines that disparate treatment is necessary to “initiate and continue operations essential to implementation of the receivership or any bridge financial company,” to maximize the value value of the liquidated company’s assets, to “maximize the present value return from the sale or other disposition of the assets of the covered financial company,” or to “minimize the amount of any loss realized upon the sale or other disposition of” the liquidated company’s assets. Sec. 210(b)(4). 41

 

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168.

As such, such, the the Orderly Orderly Liqui Liquidat dation ion Autho Authorit rity y involv involves es the the “adjust “adjustmen mentt of a

[potentially] failing debtor’s obligations,” “includes the power to discharge the debtor from his contracts and legal liabilities,” and governs the relations between a potentially insolvent debtor and his creditors.  Ry. Labor Executives’ Ass’n v. Gibbons, 455 U.S. 457, 466 (1982) (internal quotation marks omitted). Title II thus constitutes an exercise of Congress’s power under the Bankruptcy Clause. 169.

Each Eac h of the plai plainti ntiff ff Sta States tes has inv invest ested ed in, in, and and is is a credi creditor tor of, eit either her dir directl ectly y or or

through the State’s pension fund(s), financial companies that are subject to resolution under the Orderly Liquidation Authority. See Exhibits A-K. 170.

On its its face, face, Sectio Section n 210(b) 210(b)(4) (4) of of the Act Act abroga abrogates tes the the right rightss under under the the U.S.

Bankruptcy Code of creditors of institutions that could be liquidated, destroying a valuable  property right held by creditors—including the State Plaintiffs—under bankruptcy law, contract law, and other laws, prior to to the Dodd-Frank Act. Section 210(b)(4) exposes those creditors creditors to the risk that their credit holdings could be arbitrarily and discriminatorily extinguished in a Title II liquidation, and without notice or input. Title II’s destruction of a property right held by each of the State Plaintiffs harms each State, and is itself a significant, judicially cognizable injury that would be remedied remedied by a judicial judicial order declaring Title II unconstitutional. 171.

In additi addition on to destro destroyi ying ng the State State Plaint Plaintiff iffs’ s’ valua valuable ble prope property rty righ rights, ts, Titl Titlee II

exposes the State Plaintiffs to a present and ongoing substantial risk of direct economic harm, in the event of the Treasury Secretary’s and FDIC’s liquidation of a financial company compan y for which a State Plaintiff is a creditor. Such a liquidation can happen at any time, and would happen without advance warning; indeed, the State Plaintiffs would be barred, as a matter of law, from  being told of the liquidation until after the Treasury Secretary’s liquidation order goes into effect. effect. 42

 

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Thus, the State Plaintiffs would not have any an y adequate opportunity to raise a constitutional challenge to protect their interests in the event an orderly liquidation occurred. 172.

For cre credit ditors ors who, who, like like the State State Plain Plaintif tiffs fs,, invest invest in the the debt of mult multipl iplee financi financial al

institutions, the Dodd-Frank Act’s elimination elimination of creditor rights is all the more injurious, as it multiplies the risk that a creditor will realize actual financial loss in a liquidation under Title X: Even Eve n ass assumi uming ng arguendo that there is a relatively relatively low risk that any single single financial company will someday be liquidated, States invested in the debt of many financial companies face the aggregate risk that any one of those companies could be liquidated.  Judicial Review Review of The Treasury Treasury Secretary’s Secretary’s Liquidation Liquidation Decision Decision Is Subject Subject to  Draconian Limits Limits

173.

Despite Despi te Title Title II’ II’ss grant grant of vast author authority ity to the the Treasury Treasury Secret Secretary, ary, Title II

severely limits judicial oversight oversight of the Secretary’s exercise of his powers under the Orderly Liquidation Authority. 174.

When the the target targeted ed company company refus refuses es to acqui acquiesce esce to to the Treas Treasury ury Secre Secretar tary’s y’s

determination that the company shall be liquidated under Title II, the Treasury Secretary enforces his decision by petitioning the U.S. District Court for the District of Columbia for an order affirming his decision. 175.

This judici judicial al review review is subject subject to draconi draconian an limitat limitations ions that render it little little more

than a rubber stamp: 176.

First, Firs t, upon upon the fili filing ng of the petiti petition on by the Treasury Treasury Secretary Secretary,, the Dist District rict Court

must conduct a hearing and issue a final decision on the merits “within 24 hours of receipt of the  petition.” Sec. 202(a)(1)(A)(v) (emphasis added). 177.

Second, Seco nd, the the hearing hearing must must be condu conducte cted d “[o]n a stric strictly tly confi confident dential ial basi basis, s, and

without any prior public disclosure,” depriving the public (including (including creditors) of the the 43

 

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transparency of the judicial system and the ability to participate in the limited judicial process  provided for in Title II. Sec. 202(a)(1)(A)(iii). 178.

Third, Thi rd, Tit Title le II II of the Dodd Dodd-Fr -Frank ank Act sev severe erely ly limi limits ts the the scope of judicial review

available. The District Court deciding the Treasury Treasury Secretary’s Title II II liquidation petition may review only the Secretary’s findings that (1) the company is a “financial company” and (2) the company “is in default or in danger of default.” Sec. 202(a)(1)(A)(iii). The Court is accordingly  prohibited from reviewing five of the seven factors upon which the lawfulness of the Secretary’s

decision turns. A company subject to the Secretary’s Secretary’s Title II liquidation decision has no right to to mount any challenge to the Secretary’s determination that its default would “have serious se rious adverse effects on financial stability in the United States,” that “no viable private sector alternative is available to prevent the default of” the company; or that the effects of the Secretary’s decision on the interests of creditors, counterparties, and shareholders are “appropriate.” See Sec. 203(b). Thus, a company challenging the Secretary of the Treasury’s decision cannot argue that the Secretary’s decision violated or misinterpreted the law. 179.

Fourth, Fourt h, with with respect respect to the the only two determ determinatio inations ns that that the the District District Court may

review, the Court is limited to considering whether the Secretary’s decision was arbitrary and capricious. Sec. 202(a)(1)(A)(iii). 180.

Fifth, Fift h, if the Distr District ict Court fails to overtur overturn n the Secret Secretary’s ary’s decisi decision on within within the

limited 24-hour period provided for in the Act, the Secretary’s petition is “granted by operation of law.” Sec. 202(a)(1)(A)(v). 202(a)(1)(A)(v). 181.

Sixth, appell appellate ate review is limi limited. ted. The U.S. Court of Appeal Appealss for the Distr District ict of

Columbia Circuit is confined to the same narrow arbitrary and capricious review that binds the District Court’s review of the Secretary’s liquidation decision. 44

 

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182.

Sevent Sev enth, h, the the company company to to be liquid liquidate ated d may not not secure secure a stay stay of of the Secre Secretar tary’ y’ss

decision, or the FDIC’s receivership activities, while the the appeal is pending. It is entirely  possible, perhaps even likely, that the FDIC will complete liquidation of the company, thereby mooting the appellate court’s review, before the D.C. Circuit can reach a decision on the merits. Sec. 202(a)(1)(B). 183.

Furthe Fur thermo rmore, re, the the draconian draconian limit limitss on a liquidat liquidated ed company company’s ’s right right of judici judicial al

review pale in comparison to the limits imposed on the creditors’ right to judicial-review: creditors enjoy no right to judicial review of the Treasury Secretary’s Se cretary’s liquidation determination under Title II. 184.

Indeed In deed,, Local Local Civil Civil Rule Rule 85 of of the U.S. U.S. Dist Distric rictt Court Court for for the the Distr District ict of of

Columbia, promulgated for the specific purpose of governing gove rning judicial review of Title II liquidation determinations, makes no allowance for participation by third parties in contested Title II proceedings; rather, the District Court will adjudicate the matter matter “on a confidential basis and without public disclosure” as prescribed by the Dodd-Frank Act. Local Civ. R. 85(g). 185.

Because Beca use a Title Title II pro proceed ceeding ing is sub subjec jectt to to manda mandatory tory sec secrecy recy,, Sec. Sec.

202(a)(1)(A)(iii), creditors will not know of a contested liquidation determination until the 24hour district court proceedings are complete. 186.

And becaus becausee a company company may may simpl simply y choose choose to to accept accept the the Treasur Treasury y Secreta Secretary’ ry’ss

Title II liquidation determination—indeed, a company may ma y in fact request liquidation—that company’s creditors will have no opportunity to contest a “friendly” liquidation, even e ven if that liquidation subjects the creditor to the immediate risk of financial loss. 187.

Accordi Acco rdingly ngly,, as creditor creditors, s, the State Statess of Alabam Alabama, a, Georgia Georgia,, Kansas, Kansas, Michig Michigan, an,

Montana, Montan a, Nebraska, Nebraska, Ohio, Oklahoma Oklahoma,, South Carolin Carolina, a, Texas, and West Virgi Virginia nia would have have no 45

 

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right or opportunity to intervene in the 24-hour 24 -hour district court review of a Treasury Secretary’s Secretar y’s contested liquidation determination, nor any right or opportunity o pportunity to file their own judicial challenges to a liquidation. 188.

Moreover, Moreov er, Titl Titlee II elimi eliminates nates the remedy ordin ordinarily arily availab available le to to persons persons whose

 property rights are confiscated by the Government— i.e. i.e., the Tucker Act, 28 U.S.C. § 1491. Title II caps the possible possible compensation available to to aggrieved parties at artificially low levels. levels. Sec. 210(d)-(e). 189.

In sum, sum, by authori authorizing zing the the Treasu Treasury ry Secret Secretary ary to to order order the liqui liquidat dation ion of a

company not in default, yet requiring the courts to calculate compensation in light of a purely hypothetical default scenario, Title II presents a substantial likelihood that the aggrieved creditors’ ultimate cash recovery will not be “the full and perfect equivalent in money of the  property taken,” Blanchette v. Conn. Gen. Ins. Corp., 419 U.S. 102, 150 (1973) (1973) (quot (quotation ation omitted), but rather a cash recovery “close to zero,” Douglas G. Baird & Edward R. Morrison, Morrison,  Dodd-Frank for Bankruptcy Lawyers, 19 Am. Bankr. Inst Inst.. L. Rev. 287, 316 (2011). (2011). Orderly Liquidation Is Not Subject To Congress’s “Power of the Purse” 

190.

The DoddDodd-Fra Frank nk Act estab establis lishes hes an “Ord “Orderly erly Liqu Liquidat idation ion Fund” Fund” (“OLF (“OLF”) ”) to fund fund

the FDIC’s operations as receiver—including orderly liquidation of covered financial companies,  payment of administrative expenses, and the payment of principal and interest by the FDIC on debt it issues issues to cover shortfalls. Sec. 210(n). 191.

Oncee the Treas Onc Treasury ury Secret Secretary ary has has designa designated ted a company company for for FDIC FDIC receiver receivershi ship, p, the

FDIC funds its support and management of the company through the the OLF. Sec. 210(n). 192.

The DoddDodd-Fra Frank nk Act insul insulate atess the Order Orderly ly Liqui Liquidati dation on Author Authority ity from from the the

appropriations process by providing that “[a]ll funds expended expend ed in the liquidation of a financial 46

 

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company under this title shall be recovered from the disposition of assets of such financial company,” or shall be recouped via assessments assessments on other financial companies. Sec. 212(b). 193.

The Dodd Dodd-Fr -Frank ank Act Act cont contemp emplat lates es that that if if the the assets assets of of a compa company ny being being liqui liquidat dated ed

are insufficient to cover the costs of the company’s compan y’s liquidation, the FDIC can incur debt obligations, which it would later repay through assessments on the financial-services industry. Specifically, the FDIC is authorized to borrow money from the Treasury, but must repay that amount by levying “assessments” on the company’s creditors, and, if necessary, bank holding companies and nonbank financial companies designated by the FSOC as systemically risky. Sec. 210(n), (o). Neither the issuance of debt nor the levy of assessment requires Congressional approval. Sec. 210(o). 194.

By fundi funding ng the the Orderly Orderly Liqu Liquida idatio tion n Author Authority ity out outsid sidee of the the normal normal

appropriations process, the Dodd-Frank Act limits legislative oversight of the liquidation authority. COUNT I (Violation (Violatio n of the Separation Separation of Powers Powers – Title X)

195.

The Privat Privatee Plainti Plaintiffs ffs realle reallege ge and incor incorporate porate by referen reference ce the the allega allegations tions

contained in all of the preceding paragraphs. 196.

The Cons Constit tituti ution on provid provides es tha thatt all “leg “legisl islati ative ve Powers Powers herei herein n grante granted d shall shall be

vested in a Congress of the United States, which shall consist of a Senate and a nd House of Representatives.” U.S. Const. art. I, § 1. 197.

The Cons Constit tituti ution on furth further er provi provides des that that “[n] “[n]o o Money Money shal shalll be drawn drawn from from the

Treasury, but in Consequence of Appropriations Appropriations made by Law…” U.S. Const. art. I, § 9. 198.

Furthermor Furt hermore, e, the the Constit Constitution ution provid provides es that that the the “executiv “executivee Power Power shall be vested vested

in a President,” U.S. Const. art. II, § 1, and that “he “h e shall take Care that the Laws be faithfully 47

 

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executed,” U.S. Const. art. II, § 3. Those provisions vest all executive power, including the  power to enforce the law, in the President of the United States. 199.

By deleg delegati ating ng effec effectiv tively ely unlim unlimite ited d power power to the the CFPB, CFPB, by elimin eliminati ating ng

Congress’s own “power of the purse” over o ver the CFPB, by eliminating the President’s power to remove the CFPB Director at will, and an d by limiting the courts’ judicial review of the CFPB’s actions and legal interpretations, Title X of the Dodd-Frank Act violates the Constitution’s separation of powers. 200.

Neithe Nei therr Congres Congresss nor the Presid President ent can negat negatee those stru structu ctural ral const constitu itutio tional nal

requirements by signing or enacting enacting (and thereby acceding to) Title X. “Perhaps an individual President”—or Congress—“might find advantages in tying his own hands,” the Supreme Court recently noted, “[b]ut the separation of powers does not depend on the views of individual Presidents”—or particular Congresses.  Free Enter. Fund v. Pub. Co. Accounting Oversight Bd. , 130 S. Ct. 3138, 3155 (2010). The Constitution’s separation of powers does not depend “on whether ‘the encroached-upon branch approves the encroachment.’”  Id. (quoting New York v. United States, 505 U.S. 144, 182 (1992)).

201.

Neithe Nei therr the Presi Presiden dentt nor Congre Congress ss may “choo “choose se to bind bind [their [their]] success successors ors by

diminishing their powers, nor can [they] escape responsibility for [their] choices by pretending that they are not [their] own.”  Id. 202.

“Thee diffus “Th diffusion ion of of power” power” away fro from m Congre Congress ss and and the Presi Presiden dent, t, to the the

independent CFPB, “carries with it a diffusion diffusion of accountability. accountability. . . . Without a clear and effective chain of command, the public cannot ‘determine on whom the blame or the punishment of a pernicious measure, or series of pernicious measures ought ou ght really to fall.”  Id. (quoting The Federalist No. 70, p. 476 (J. Cooke ed. 1961) (A. Hamilton). 48

 

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203.

While Whi le the Suprem Supremee Court Court has approved approved the the constitu constitutio tional nality ity of cert certain ain remova removals ls

of checks or balances in isolation — e.g. e.g., a limit on the President’s power to remove certain officers—the Court has never held that it is constitutional to remove all of the checks and  balances that Title X removes, and to combine that lack of checks and balances with the openended statutory powers that Title X provides the CFPB—thereby effectively granting unlimited discretion discr etion to the agency. agency. 204.

And so whil whilee the Suprem Supremee Court Court has “previ “previous ously ly upheld upheld limit limited ed restri restricti ctions ons on” on”

individual checks and balances, the CFPB’s “novel structure does not merely add to the [CFPB’s] independence, but transforms it.”  Free Enter. Fund , 130 S. Ct. Ct. at 3154. 3154. 205.

Accordingly, Accord ingly, Title X’s delegat delegation ion of unlimi unlimited ted power to the the CFPB, CFPB, together together with

the Title X’s elimination of the necessary checks and balances upon the CFPB’s exercise of that  power, is unconstitutional, must be declared unconstitutional, and must be enjoined. 206.

Becausee the Bank is directly Becaus directly subjec subjectt to the CFPB’s CFPB’s author authority, ity, Titl Titlee X’s violati violation on

of the separation of powers creates a “here-and-now” “here-and -now” injury entitling the Bank to judicial review to ensure that the standards to which it is subject “will be enforced only by b y a constitutional agency accountable to the Executive.”  Free Enter. Fund , 130 S. Ct. at 3164 (quoting (quoting Bowsher v. Synar , 478 U.S. 714, 727 n.5 (1986)). COUNT II (Appointments (Appointm ents Clause Clause - CFPB)

207.

The Priv Private ate Plai Plainti ntiffs ffs real realleg legee and incor incorpor porate ate by ref refere erence nce the the allega allegatio tions ns

contained in all of the preceding paragraphs. 208.

Presi Pre sident dent Obam Obama’s a’s appoi appointm ntment ent of of Defenda Defendant nt Cordray Cordray as as directo directorr of the CFPB CFPB

violates the Appointments Clause of the Constitution. The Constitution provides that the President “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint 49

 

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Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United United States, whose appointments are not herein otherwise provided for.” U.S. Const. art. II, § 2, cl. 2. 209.

The CFPB CFPB posses possesses ses signi signific ficant ant power powerss over the the market market for consum consumer er financ financial ial

 products and services and participants in that market including (but not limited to) issuing issuing rules, orders and guidance implementing federal consumer financial law and supervising covered  persons for compliance with federal consumer financial law. The CFPB Director is authorized to employ personnel as may be deemed necessary to carry out the business of the CFPB. CFPB. It is the the Director of the CFPB who has ultimate authority to exercise any power vested in the CFPB under law, and the Director may delegate such authority to any duly authorized employee, representative, or agent. The CFPB Director is an Officer of the United United States and, indeed, a  principal Officer of the United States. 210.

The Const Constitu itutio tion n express expressly ly vests vests in each each House House of Congress Congress the the exclusi exclusive ve power power

to “determine the rules of its Proceedings.” U.S. Const. art. I, § 5, cl. 2. 211.

As discu discusse ssed d above, above, on on Decembe Decemberr 17, 2011 2011,, the Sena Senate te voted voted by una unanim nimous ous

consent to remain in session during the period between December 20, 2011 and January 23, 2012. The Senate’s schedule provided for a series series of sessions, and the Congressional Record indicates that those sessions actually occurred. See 153 Cong. Rec. S1 (Jan. 3, 2012), S3 (Jan. 6, 2012), S5 (Jan. 10, 2012), S7 (Jan. 13, 2012), S9 (Jan. 17, 2012), S11 (Jan. 20, 2012). 212.

During Dur ing these these sess session ions, s, Congr Congress ess pass passed ed the Tempo Temporar rary y Payrol Payrolll Tax Cut Cut

Continuation Act of 2011 on December 23, 2011. President Obama signed that legislation, legislation, never  protesting that it was invalidly enacted due to a congressional recess.

50

 

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213.

The Consti Constitutio tution n requires requires that “[n]eit “[n]either her House, House, during the [s]essi [s]ession on of Congr Congress, ess,

shall, without the Consent of the other, adjourn for more than three days.” U.S. Const. art. I, § 5, cl. 4. The House of Representatives never consented to to a Senate adjournment of longer than three days, as it must to effect a recess. 214.

Becaus Bec ausee the Senate Senate,, by its own vote, vote, purs pursuan uantt to its its own acti actions ons,, and based based on the the

inaction of the House of Representatives, was in session when President Obama nominated Mr. Cordray to the position of CFPB Director, and because the President nonetheless did not secure its “advice and consent” for the Cordray nomination, Mr. Cordray’s appointment to the CFPB is unconstitutional. 215.

Becaus Bec ausee the Bank Bank is directl directly y subjec subjectt to the CFPB CFPB Direct Director’ or’ss authori authority, ty, the the

unconstitutional appointment of the CFPB Director creates a “here-and-now” injury entitling the Bank to judicial review to ensure that the standards to which it is subject “will be enforced only  by a constitutional agency accountable to the Executive.”  Free Enter. Fund , 130 S. S. Ct. Ct. at 316 3164 4 (quoting Bowsher , 478 U.S. at 727 n.5). n.5). COUNT III (Separation (Separat ion of Powers Powers – Title I)

216.

The Priv Private ate Plai Plainti ntiffs ffs real realleg legee and incor incorpora porate te by refer reference ence the the alleg allegati ations ons

contained in all of the preceding paragraphs. 217.

The Consti Constitutio tution n provides provides that all “legi “legislati slative ve Powers Powers herein grant granted ed shall shall be

vested in a Congress of the United States, which shall consist of a Senate and a nd House of Representatives.” U.S. Const. art. 1, § 1. 218.

Furthermor Furt hermore, e, the the Constit Constitution ution provid provides es that that the the “executiv “executivee Power Power shall be vested vested

in a President,” U.S. Const. art. II, § 1, and that “he “h e shall take Care that the Laws be faithfully

51

 

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executed,” U.S. Const. art. II, § 3. Those provisions vest all executive power, including the  power to enforce the law, in the President of the United States. 219.

Titlee I of the Titl the Dodd-Fra Dodd-Frank nk Act Act grants grants the FSOC effect effectively ively unlim unlimited ited power, and

eliminates the judiciary’s ability to exercise meaningful judicial review of the FSOC’s execution ex ecution of that power—especially in cases where a competitor of the FSOC-designated company compan y seeks to challenge the designation. 220.

In additi addition on to vestin vesting g executiv executivee power power in the Presi Presiden dent, t, the Cons Constit tituti ution on also also

mandates that he, or the heads of executive departments, “shall appoint” all “Officers of the United States.” U.S. Const. art. II, II, § 2, cl. 2. But the FSOC includes non-voting members, such as insurance and banking officials, who are not appointed by the President or anyone in the executive branch, yet participate in its deliberations and proceedings. See Sec. 111(b)(2),(c)(1);  ¶¶ 122-124, supra. For all of these reasons, reasons, Title I of the Dodd-Frank Act violates the Constitution’s separation of powers. 221. 22 1.

As se sett fo fort rth h in ¶¶ 11 1199-14 141, 1, supra, Congress cannot negate those structural

constitutional requirements by enacting (and (and thereby acceding to) Title I. “The [Constitution’s] separation of powers does not depend” on whether “‘the encroached-upon branch approves the encroachment.’”  Free Enter. Fund , 130 S. Ct. Ct. at 3155 (quoti (quoting ng New York , 505 U.S. at 182). Congress may not “choose to bind [its] successors by diminishing their powers, nor can [it] escape responsibility for [its] choices by pretending that they are not [its] own.” Id. 222.

“Thee diffus “Th diffusion ion of power power”” away from from Congr Congress ess,, to the indep independ endent ent FSOC, FSOC, “carri “carries es

with it a diffusion of accountability. . . . Without a clear clear and effective chain of command, the  public cannot ‘determine on whom the blame or the punishment of a pernicious measure, or

52

 

!"#$ &'&()*+),&,-()./0 12*34$56 (7 89:$; ,(<&=<&- >"?$ B- 2@ A-

series of pernicious measures ought really to fall .”  Id. (quoting The Federalist No. 70, p. 476 (J. Cooke ed. 1961) (A. Hamilton)). 223.

Title Tit le I’s I’s open-en open-ended ded grant grant of power power and and discret discretion ion to the the FSOC, FSOC, combin combined ed with with

the elimination of the indispensable indispensable check of judicial review on the FSOC’s FSOC’s judgments, and the inclusion of members who are neither appointed by the President nor confirmed by b y the Senate, gives the FSOC unfettered discretion in determining which nonbank nonb ank financial companies will be designated “systemically important.” That structure “does not merely add to the [FSOC’s] independence, but transforms it.”  Free Enter. Fund , 130 S. Ct. at 3154. 224.

Accord Acc ording ingly, ly, Title Title I of the the Dodd-F Dodd-Fran rank k Act, viol violate atess the Const Constitu itutio tion’s n’s separ separati ation on

of powers, must be declared unconstitutional, and must be enjoined. 225.

Judicial Judici al review review is necessary necessary to prevent prevent imminen imminentt injury injury to the the Bank, Bank, which which suffers suffers

competitive harm each time the FSOC designates any institution that competes with it for capital as “systemically important.” COUNT IV (Separation (Separat ion of Powers Powers – Title II)

226.

The Privat Privatee Plainti Plaintiffs ffs realle reallege ge and incor incorporate porate by referen reference ce the the allega allegations tions

contained in all of the preceding precedin g paragraphs; the State Plaintiffs reallege and incorporate by by reference the allegations contained in ¶¶ 4, 9-13, 23-50, and 142-178, with respect to Title Title II of the Dodd-Frank Act. 227.

The Consti Constitutio tution n provides provides that all “legi “legislati slative ve Powers Powers herein grant granted ed shall shall be

vested in a Congress of the United States, which shall consist consist of a Senate and House of Representatives.” U.S. Const. art. 1, § 1. 228.

The Const Constitu itutio tion n further further provi provides des that that “[n]o “[n]o Money Money shal shalll be drawn drawn from from the

Treasury, but in Consequence of Appropriations Appropriations made by Law.” U.S. Const., art. I, § 9, cl. 7. 53

 

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229.

The Cons Constit tituti ution on also also pro provid vides es that that the the “execu “executiv tivee Power Power shal shalll be vest vested ed in a

President,” U.S. Const. art. II, § 1, and that “he shall take Care C are that the Laws be faithfully executed,” U.S. Const. art. II, § 3. Those provisions vest all executive power, including the  power to enforce the law, in the President of the United States. 230.

In additi addition, on, the the Constit Constituti ution on provid provides es that that the “judic “judicial ial Power Power of of the Unite United d

States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” U.S. Const. art. art. III, III, § 1. 231.

As set set forth forth above, Titl Titlee II of the the Dodd-Fran Dodd-Frank k Act delega delegates tes effect effectively ively unlimi unlimited ted

 power to the Treasury Secretary to determine that a company should be liquidated under the Orderly Liquidation Authority and to the FDIC in carrying out that liquidation. 232.

Furthermor Furt hermore, e, Title Title II II eliminat eliminates es all all meanin meaningful gful checks upon and balances balances agains againstt

the power granted to the Treasury Treasury Secretary and the FDIC. Congress wields no power of the  purse over Title II proceedings, and the President cannot terminate the FDIC’s proceedings. 233.

In additi addition, on, judici judicial al review review of the the Treasury Treasury Secretary Secretary’s ’s determ determinati inations ons either is

subject to draconian limitations (in the case of the 24-hour proceedings available for a company compan y contesting its own liquidation) or is prohibited altogether (with respect to five of the seven factors on which the lawfulness of the Secretary’s action turns and in the case of a creditor seeking to intervene in a contested liquidation determination or to protest a “friendly” liquidation). 234.

With respe respect ct to the creditor creditorss of liquid liquidated ated companie companies, s, Title Title II not only only prohibi prohibits ts

 judicial review of the Treasury Secretary’s liquidation determination; it also also restricts judicial review of the FDIC’s compensation determination.

54

 

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235.

Accordingly, Accor dingly, Titl Titlee II’s II’s delegati delegation on of author authority ity to the the Treasury Treasury Secret Secretary ary and and

FDIC, with the accompanying elimination of checks and balances, violates the Constitution’s separation of powers. 236. As se 236. sett fo fort rth h in ¶¶ 14 1422-17 178, 8, supra, Congress cannot negate those structural constitutional requirements by enacting (and (and thereby acceding to) Title II. II. The Constitution’s separation of powers does not depend “on whether ‘the encroached-upon branch approves the encroachment.’”  Free Enter. Fund , 130 S. Ct. Ct. at 3155 3155.. 237.

Congress Congr ess may not “choose “choose to bind bind [its [its]] success successors ors by dimini diminishing shing their powers powers,,

nor can [they] escape responsibility for [its] choices by pretending that they are not [its] own.”  Id.

238.

“The diff diffusi usion on of power” power” away away from from Congre Congress, ss, to to the Treas Treasury ury Secre Secretary tary and and

independent FDIC, “carries with with it a diffusion of accountability. . . . Without a clear and effective chain of command, the public cannot ‘determine on whom the blame or the punishment of a pernicious measure, or series of pernicious measures ought ou ght really to fall.”  Id. (quoting The Federalist No. 70, p. 476 (J. Cooke ed. 1961) (A. Hamilton). 239.

While Whi le the Supre Supreme me Court Court may may have appro approved ved the the constit constituti utional onality ity of of any singl singlee

e.g., a limit on the Congress’s removal of a check or balance in isolation— e.g. C ongress’s power of the purse— 

the Court has never approved all of Title II’s II’s delegations, and eliminations eliminations of checks and  balances, in a single law. In particular, the Supreme Court has never sustained the constitutionality of a statute that prohibits any meaningful judicial review of the Government’s action in the manner of Title Title II of the Dodd-Frank Act. Title II’s combinations of delegations, and eliminations of checks and balances, is unprecedented and unconstitutional. Cf. Fre Freee Enter. Enter.  Fund , 130 S. Ct. at 3153 (“we have previously upheld uphe ld limited restrictions on the President’s

55

 

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removal power. In those cases, however, only one level of protected tenure separated the President from an officer exercising executive power. . . . This novel structure structure does not merely add to the the Board’s independence, but transforms transforms it.”) 240. Accord Acc ording ingly, ly, Titl Titlee II’s II’s delega delegatio tion n of unlim unlimite ited d power power to the the Treasu Treasury ry Secret Secretary ary and FDIC, with the elimination of meaningful judicial review of o f the execution of that power, violates the separation of powers, must be declared de clared unconstitutional, and must be enjoined. 241.

Judicial Judici al review review is necessa necessary ry to to restore restore the rights rights of the the State State Plaintif Plaintiffs fs and and other other

creditors that previously existed under bankruptcy law and other laws but that were nullified by by Title II. 242.

Review is also necess necessary ary to to prevent prevent the States from suffe suffering ring sudden financi financial al

losses in liquidation for which they would not receive prior notice. 243.

The State Plaint Plaintiffs iffs are entitl entitled ed to to “special “special solic solicitude” itude” with respect to their their

standing to challenge Title II’s nullification of their rights.  Massachusetts v. EPA, 549 U.S. 497, 520 (2007). COUNT V (Due Process – Title II)

244.

The Priva Private te Plaint Plaintiff iffss realleg reallegee and incorpor incorporate ate by refer reference ence the the allegat allegation ionss

contained in all of the preceding paragraphs; the State Plaintiffs reallege reallege and incorporate by reference the allegations contained in ¶¶ 4, 9-13, 23-50, 142-178, and 210-227, with respect to Title II of the Dodd-Frank Act. 245.

As set set forth forth above, Titl Titlee II of the the Dodd-Fran Dodd-Frank k Act delega delegates tes effect effectively ively unlimi unlimited ted

 power to the Treasury Secretary to determine that a company should be liquidated under the Orderly Liquidation Authority, and to the FDIC to t o choose favorites among similarly situated creditors in carrying out that liquidation. 56

 

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246.

In additi addition, on, judici judicial al review review of the the Treasury Treasury Secretary Secretary’s ’s determ determinati inations ons either is

subject to draconian limitations (in the case of the 24-hour proceedings available for a company compan y contesting its own liquidation) or is prohibited altogether (with respect to five of the seven factors on which the lawfulness of the Secretary’s action turns and in the case of a creditor seeking to intervene in a contested liquidation determination or to protest a “friendly” liquidation). 247.

With respe respect ct to the creditor creditorss of liquid liquidated ated companie companies, s, Title Title II not only only prohibi prohibits ts

 judicial review of the Treasury Secretary’s liquidation determination; it also also restricts judicial review of the FDIC’s compensation determination. 248.

Titlee II thus fails to provide Titl provide both compani companies es facing facing liqui liquidation dation and their their credito creditors, rs,

all of whom are likely to have their property taken during the course of o f a liquidation, the “notice and a meaningful opportunity to be heard” that is the “core of due process.”  LaChance v.  Erickson, 522 U.S. 262, 266 (1998).

249.

Accord Acc ording ingly, ly, Titl Titlee II’s II’s delega delegatio tion n of unlim unlimite ited d power power to the the Treasu Treasury ry Secret Secretary ary

and FDIC, without meaningful judicial review of the execution of that power, violates the Due Process Clause, must be declared unconstitutional, and must be enjoined. COUNT VI (Bankruptcy (Bankrupt cy Uniformity Uniformity – Title II)

250.

The Privat Privatee Plainti Plaintiffs ffs realle reallege ge and incor incorporate porate by referen reference ce the the allega allegations tions

contained in all of the preceding precedin g paragraphs; the State Plaintiffs reallege and incorporate by by reference refer ence the allegations allegations contained contained in ¶¶ 4, 9-13, 23-50, 142-17 142-178, 8, and 210-232, with with respect to Title II of the Dodd-Frank Act. 251.

As set set forth forth above, Titl Titlee II of the the Dodd-Fran Dodd-Frank k Act delega delegates tes effect effectively ively unlimi unlimited ted

 power to the Treasury Secretary to determine that a company should be liquidated under the 57

 

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Orderly Liquidation Authority, and to the FDIC to t o choose favorites among similarly situated creditors in carrying out that that liquidation. Title II constitutes an exercise of Congress’s Congress’s power under the Bankruptcy Clause. 252.

Furthermor Furt hermore, e, Title Title II II eliminat eliminates es all all meanin meaningful gful checks upon and balances balances agains againstt

the Treasury Secretary’s determinations determinations and the FDIC’s actions. actions. Congress wields no power of the purse over Title II proceedings; the President cannot terminate terminate the FDIC’s proceedings. In addition, judicial review of the Treasury Secretary’s determinations either is subject to draconian limitations (in the case of the 24-hour proceedings available av ailable for a company contesting its own liquidation) or is prohibited altogether (with respect to five of the seven factors on which the lawfulness of the Secretary’s action turns and in the case of a creditor seeking to intervene in a contested liquidation determination or to protest a “friendly” liquidation). 253.

Title Tit le II II thus thus autho authoriz rizes es the the Treasu Treasury ry Secret Secretary ary and and the the FDIC FDIC to cra craft ft from from whol wholee

cloth a new regime for liquidating each company subjected to the Orderly Liquidation Authority. Title II empowers the executive to decide not only whether a company will be subjected to that authority in the first instance but also which creditors will be favored among others in the liquidation process, and it provides for no meaningful limits on, or review of, the executive’s exercise of discretion in either regard. The “orderly liquidation” authority thereby allows allows similarly situated creditors to be treated completely differently based on the whim of the executive, without any advance warning or meaningful constraints. 254.

With respe respect ct to the creditor creditorss of liquid liquidated ated companie companies, s, Title Title II not only only prohibi prohibits ts

 judicial review of the Treasury Secretary’s liquidation determination; it also also restricts judicial review of the FDIC’s compensation determination.

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255.

Title II II’s ’s delegatio delegation n of unlimi unlimited ted power power to the the Treasury Treasury Secret Secretary ary and and the FDIC,

without meaningful judicial review of the execution exe cution of that power, constitutes a non-uniform law of bankruptcy that must be declared unconstitutional and must be enjoined. PRAYER FOR RELIEF

Wherefore, Plaintiffs pray for the following relief: 256.. 256

The Pr Priv ivat atee Plai Plaint ntif iffs fs pra pray y for for an orde orderr and and judg judgmen mentt decl declar aring ing unc uncon onst stit itut utio iona nall

the provisions of the Act creating and empowering the CFPB, and enjoining Defendants Cordray and the CFPB from exercising any powers delegated to them by Title X of the Act; 257.. 257

The Pr Priv ivat atee Plai Plaint ntif iffs fs pra pray y for for an orde orderr and and judg judgmen mentt decl declar aring ing unc uncon onst stit itut utio iona nall

Richard Cordray’s appointment as CFPB director, and an d enjoining Cordray from carrying out any of the powers delegated to the office of CFPB Director by the Act; 258.. 258

The Pr Priv ivat atee Plai Plaint ntif iffs fs pra pray y for for an orde orderr and and judg judgmen mentt decl declar aring ing unc uncon onst stit itut utio iona nall

the provisions of the Act creating and empowering the FSOC, and enjoining Defendants from exercising any powers delegated to them by Title I of the Act; 259.. 259

Plai Pl aint ntif iffs fs pra pray y for for an order order and and judg judgme ment nt decl declar aring ing unc uncon onst stit itut utio ional nal th thee provi provisi sion onss

of the Act creating and empowering the Orderly Liquidation Authority, and enjoining Defendants from exercising any powers delegated to them by Title II of the Act; 260.. 260

Plai Pl aint ntif iffs fs pra pray y for for cost costss and and atto attorn rney eys’ s’ fee feess purs pursuan uantt to any app appli licab cable le sta statut tutee or

authority; and 261.. 261

Plai Pl aint ntif iffs fs pr pray ay for for any any othe otherr rel relie ieff thi thiss Cour Courtt deem deemss just just an and d appr appropr opria iate te,, to

remedy the Plaintiffs’ respective claims.

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Dated: February 13 1 3, 2013

Respectfully submitted,

s/Gregory Jacob ________ s/Gregory _______________ _____________  ______  Gregory Jacob (D.C. Bar 474639) O’MELVENY & MYERS LLP 1625 I St. NW Washington, DC 20006 (202) 383-5110 (202) 383-5413 (fax) [email protected] C. Boyden Gray (D.C. Bar 122663) Adam J. White (D.C. Bar 502007) BOYDEN GRAY & ASSOCIATES P.L.L.C. 1627 I St. NW, Suite 950 Washington, DC 20006 (202) 955-0620 (202) 955-0621 (fax) [email protected] Counsel for Plaintiffs State National Bank of Big Spring, the 60-Plus Association,  Inc., and the Competitive Competitive Enterprise Enterprise  Institute

s/Luther Strange______________________  Luther Strange Attorney General of Alabama Office of the Attorney General 501 Washington Avenue Montgomery Montg omery,, AL 36130 (334) 242-7300 (334) 353-84 353-8440 40 (fax) Counsel for Plaintiff the State of Alabama

s/Samuel S. Olens_____________________  Samuel S. Olens Attorney General of Georgia Georgia Department of Law 40 Capitol Square SW Atlant Atl anta, a, GA 303 30334 34 (404) 656-3300 (404) 463-15 463-1519 19 (fax) 60

 

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Counsel for Plaintiff the State of Georgia

s/Derek Schmidt______________________  Derek Schmidt Attorney General of Kansas Office of the Attorney General 120 SW KS 10th66612 10th Avenue,, 2nd Floor  Avenue Floor  Topeka, (785) 296-2215 (785) 291-3767 (fax) Counsel for Plaintiff the State of Kansas

s/Bill Schuette________________________  Bill Schuette Attorney General of Michigan G. Mennen Williams Building, 7th Floor  525 W. Ottawa St. P.O. Box 30212 Lansing, MI 48909 (517) 373-1110 (517) 373-3042 (fax) [email protected]  Plaintiff on Behalf of the the People of  Michigan

s/Timothy C. Fox_____ s/Timothy Fox______________ ________________  _______  Timothy Tim othy C. Fox Attorney Attor ney General General of Montana Montana Office of the Attorney General Department of Justice 215 North Sanders P.O. Box 201401 Helena, MT 59620 (406) 444-2026 (406) 444-35 444-3549 49 (fax) Counsel for Plaintiff the State of Montana

s/ Jon C. Bruning_____________________  Jon C. Bruning Attorney General of Nebraska Office of the Attorney General 2115 State Capitol 61

 

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P.O. Box 98920 Lincoln, NE 68509 (402) 471-2683 (402) 471-3297 (fax) Counsel for Plaintiff the the State of Nebraska Nebraska

s/Michael DeWine____________________  Michael DeWine Attorney General of Ohio Office of the Attorney General 30 East Broad Broad Street, Street, 14th Floor  Columbus, OH 43215 (614) 728-4948 (866) 452-02 452-0269 69 (fax) Counsel for Plaintiff the State of Ohio

s/E. Scott Pruitt _______ _______________ _______________  _______  E. Scott Pruitt Attorney General of Oklahoma Office of the Attorney General 313 NE 21st Street Oklahoma Oklaho ma City, City, OK 73105 (405) 521-3921 (405) 522-0669 (fax) [email protected] Counsel for Plaintiff the State of Oklahoma

s/Alan Wilson________________________  Alan Wilson Attorney General of South Carolina Rembert Dennis Building 1000 Assembly Street, Room 519 Columbia, SC 29201 (803) 734-3970 (803) 734-4323 (fax) [email protected] Counsel for Plaintiff the State of South Carolina

s/Greg Abbott________________________  62

 

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Greg Abbott Attorney General of Texas Office of the Attorney General 300 W. 15th Street Aust Au stin in,, TX 787 78701 01 (512) 936-1342 (512) 936-0545 (fax) Counsel for Plaintiff the State of Texas

s/ Patrick Morrisey__________________  Patrick Morrisey Attorney General of West Virginia State Capitol Complex Building 1 Room 26-E Charleston, WV 25305 (304) 558-2021 (304) 558-0140 (fax) Counsel for Plaintiff the State of West Virginia

Sam Kazman (D.C. Bar 946376) Hans Bader (D.C. Bar. 466545) COMPETITIVE E NTERPRISE I NSTITUTE 1899 L St. NW, NW, Floo Floorr 12 Washington, DC 20036 (202) 331-1010 (202) 331-0640 (fax) [email protected] Co-counsel for Plaintiff Competitive Enterprise Institute

63