`
`No. 24-185
`
`In the
`Supreme Court of the United States
`________________
`NATIONAL COLLEGIATE MASTER STUDENT
`LOAN TRUST, ET AL.,
`Petitioners,
`
`v.
`CONSUMER FINANCIAL PROTECTION BUREAU, ET AL.,
`Respondents.
`
`________________
`On Petition for Writ of Certiorari to the
`United States Court of Appeals
`for the Third Circuit
`________________
`REPLY BRIEF OF PETITIONERS
`________________
`
`Nicholas J. Giles
`MCGUIREWOODS LLP
`800 East Canal Street
`Richmond, VA 23219
`(804) 775-1000
`
`
`
`Jonathan Y. Ellis
` Counsel of Record
`Francis J. Aul
`MCGUIREWOODS LLP
`888 16th Street N.W.
`Suite 500
`Washington, DC 20006
`(202) 828-2887
`jellis@mcguirewoods.com
`Counsel for Petitioners
`
`November 26, 2024
`
`
`
`i
`
`TABLE OF CONTENTS
`TABLE OF AUTHORITIES ........................................ ii
`INTRODUCTION ........................................................ 1
`ARGUMENT ................................................................ 1
`I.
`The Remedy Question Warrants Review ......... 1
`A.
`The Bureau Misapprehends the
`Circuit Split on the Assessment of
`Harm Under Collins .............................. 2
`The Bureau Fails to Reconcile the Deci-
`sion Below with Collins ......................... 3
`This Case Is an Ideal Vehicle to
`Address the Remedial Question ............ 7
`The Statutory Question Warrants Review ...... 8
`A.
`The Bureau Fails to Defend the Court
`of Appeals’ Expansive Holding .............. 9
`The Bureau Misjudges the Potential
`Consequences of Leaving the Decision
`Below Undisturbed .............................. 11
`CONCLUSION .......................................................... 13
`
`
`
`II.
`
`B.
`
`B.
`
`C.
`
`
`
`ii
`
`TABLE OF AUTHORITIES
`
`Cases
`Bhatti v. FHFA,
`15 F.4th 848 (8th Cir. 2021) .............................. 2, 3
`Calcutt v. FDIC,
`37 F.4th 293 (6th Cir. 2022) .................................. 6
`
`CFPB v. Nationwide Biweekly Admin.,
`Inc., No. 18-15431, 2023 WL 566112
`(9th Cir. Jan. 27, 2023) .......................................... 2
`Collins v. Yellen,
`141 S. Ct. 1761 (2021) ......................................... 1-6
`DeVillier v. Texas,
`601 U.S. 285 (2024) ................................................ 8
`Free Enter. Fund v. PCAOB,
`561 U.S. 477 (2010) ................................................ 5
`Lucia v. SEC,
`138 S. Ct. 2044 (2018) ............................................ 5
`Rop v. FHFA,
`50 F.4th 562 (6th Cir. 2022) .............................. 2, 7
`Ryder v. United States,
`515 U.S. 177 (1995) ............................................ 4, 5
`Slack Techs., LLC v. Pirani,
`598 U.S. 759 (2023) ................................................ 8
`Warner Chappell Music, Inc. v. Nealy,
`601 U.S. 366 (2024) ................................................ 8
`
`
`
`iii
`
`Statutes
`15 U.S.C. § 1692e ....................................................... 12
`15 U.S.C. §1692f ........................................................ 12
`15 U.S.C. § 45 ............................................................ 12
`
`Other Authorities
`CFPB Brief,
`PHH Corp. v. CFPB,
`No. 15-1177 (D.C. Cir.) (Mar. 31,
`2017) ....................................................................... 7
`Renae Merle, Richard Cordray is
`Stepping Down as Head of Consumer
`Financial Protection Bureau,
`Washington Post (Nov. 15, 2017) .......................... 6
`Restatement (Third) of Agency § 1.01
`(2006) .................................................................... 11
`U.S. Brief,
`Energy Transfer LP v. NLRB,
`No. 24-cv-198 (S.D. Tex. July 12,
`2024) ....................................................................... 6
`U.S. Brief,
`Wright v. Comm’r Internal Rev.,
`No. 24-10563, 2024 WL 3565471
`(11th Cir. July 22, 2024) ........................................ 6
`
`
`
`
`
`1
`
`INTRODUCTION
`of
`target
`case asks whether
`the
`This
`unaccountable executive power can obtain meaningful
`judicial relief and whether the CFPB’s enforcement
`authority over actors in consumer-financial markets is
`subject to meaningful limitation. The Bureau’s
`arguments here—and the government’s arguments to
`lower courts—make clear the Bureau thinks not.
`Absent this Court’s intervention, it may be right.
`But this Court has repeatedly held that remedies
`for separation-of-powers violations must incentivize
`parties to bear the costs of such challenges. In Collins
`v. Yellen, 141 S. Ct. 1761 (2021)—the Bureau’s
`primary authority—the Court went out of its way not
`to foreclose retrospective relief for such unaccountable
`agency actions. And in the CFPA, Congress drew
`careful limits around the actors within consumer-
`financial markets that can be subject to the Bureau’s
`expansive enforcement authority.
`The Court should not permit the lower courts or
`the Bureau to nullify those promises. This case
`presents an ideal vehicle to resolve confusion in the
`lower courts on the meaning of the Collins decision
`and to address, for the first time, the scope of
`enforcement authority for an extremely powerful
`federal agency that appears here to stay. The petition
`for a writ of certiorari should be granted.
`ARGUMENT
`I. The Remedy Question Warrants Review.
`The circuits are divided on how to assess whether
`a party is entitled to a remedy for the separation-of-
`powers violation in this case. Several circuits have
`
`
`
`2
`
`effectively foreclosed any relief. This enforcement
`action initiated by a Director unconstitutionally
`insulated from presidential supervision offers the
`ideal vehicle to clarify this important area of
`constitutional law. Nothing in the Bureau’s response
`suggests otherwise.
`A. The Bureau Misapprehends the Circuit
`Split on the Assessment of Harm Under
`Collins.
`insists that the circuits have
`The Bureau
`uniformly applied Collins because they have required
`the party seeking a remedy to demonstrate “some
`connection” between an unconstitutional removal
`restriction and “the challenged agency action.”
`Opp.14. True enough. But they are divided on how to
`assess whether that connection exists—specifically,
`what opportunity a court must afford a party to
`establish it. Pet.13-15. The Sixth, Eighth, and Ninth
`Circuits have each ensured that parties challenging
`removal restrictions have their day in court. See Rop
`v. FHFA, 50 F.4th 562 (6th Cir. 2022); Bhatti v. FHFA,
`15 F.4th 848 (8th Cir. 2021); CFPB v. Nationwide
`Biweekly Admin., Inc., No. 18-15431, 2023 WL
`566112, (9th Cir. Jan. 27, 2023). The Third Circuit, by
`contrast, held definitively that the Trusts suffered no
`harm before any discovery had taken place, and before
`the Trusts had even filed a pleading. Pet.App.36a.
`The Bureau cannot explain away these divergent
`approaches by noting that Collins was decided while
`Rop, Bhatti, and Nationwide Biweekly were on appeal.
`Contrary to the Bureau’s assertion, the conflict is not
`that those courts remanded cases for “further
`consideration” while the Third Circuit did not.
`
`
`
`3
`
`Opp.15. The conflict is that those courts mandated
`consideration at all that the Trusts have been denied.
`In each case, the party challenging the removal
`restriction was afforded an opportunity to allege and
`prove that the restriction caused harm. The district
`court here never afforded the Trusts that opportunity,
`and the Third Circuit rejected the idea out of hand.
`The “[s]ubsequent developments” on which the
`Bureau relies only underscore the point. Opp.15. The
`Bhatti plaintiff, the Bureau insists, “failed to plausibly
`plead” harm, while the Sixth and Ninth Circuits have
`“declined to remand where … [t]he record
`is
`sufficiently clear.” Id. But the Trusts had not pled
`anything (they had not even filed an answer) when the
`district court ruled and there was no “record” beyond
`the Bureau’s own complaints and briefing that
`accepted those complaints as true. Yet the court below
`concluded that the Trusts could not, as a matter of
`law, prove harm. That approach is inconsistent with
`how other circuits evaluate harm under Collins. That
`conflict warrants review.
`B. The Bureau Fails to Reconcile the
`Decision Below with Collins.
`The Third Circuit
`justified
`its dismissive
`approach by adopting an impossibly high standard for
`showing “compensable harm” under Collins. Pet.15-
`19. The Bureau’s defense falls flat.
`The Bureau emphasizes the court of appeals’
`conclusion that the Trusts “failed to establish ‘any link
`whatsoever between the removal provision and [this]
`case.’” Opp.10 (quoting Pet.App.32a-33a). But
`nothing in Collins requires the causal link between
`the removal provision and the specific agency decision
`
`
`
`4
`
`that the Third Circuit demanded. The Collins
`majority reasoned that harm “would clearly” result if
`an agency acted against a party while led by an
`unconstitutionally insulated official who the President
`wished to remove. 141 S. Ct. at 1789. Demonstrating
`the President’s desire to remove that official is more
`“than ‘a mere allegation that the unconstitutional
`provision inherently caused … harm.’” Opp.10
`(citation omitted). The Third Circuit just ignored it.
`The Collins rule makes perfect sense. After all,
`the actions of an unconstitutionally appointed officer
`are treated as void. See Ryder v. United States, 515
`U.S. 177, 182 (1995). There is no logical distinction
`between an unconstitutionally appointed officer and
`an officer who, although properly appointed, would
`have been removed but for an unconstitutional
`removal restriction. Each is a usurper of the office she
`holds.
` If actions
`taken after
`the office
`is
`unconstitutionally obtained are void, so should be
`actions taken while the office is unconstitutionally
`retained. Pet.19. The Bureau has no answer to this
`straightforward syllogism.
`into Collins an
`The Bureau
`instead reads
`additional requirement drawn from Justice Kagan’s
`partial concurrence: “that the President’s inability to
`remove the relevant officers caused the agency to do
`something to the plaintiff that it would not otherwise
`have done.” Opp.9-10. Those are the Bureau’s words,
`of course, because nothing of the sort appears in the
`Court’s decision—which the Bureau tacitly concedes
`through its reliance on Justice Kagan’s opinion for
`three Justices not necessary to the Collins majority.
`Opp.10.
`
`
`
`5
`
`The Trusts do not suggest that Collins forecloses
`but-for causation, only the version applied by the
`Third Circuit and demanded by the Bureau. This
`Court has never required that a party prove that a
`challenged agency action would not have occurred but
`for the unconstitutional removal restriction. See Free
`Enter. Fund v. PCAOB, 561 U.S. 477, 512 n.12 (2010).
`For good reason. That is an all-but-impossible
`standard, and any theoretical prospect of relief under
`that standard fails to provide any “incentive” to raise
`a separation-of-powers challenge. Ryder, 515 U.S. at
`183; see Lucia v. SEC, 585 U.S. 237, 251 n.5 (2018).
`The Bureau does not deny this. Instead, to
`remedy the constitutional violation in this case and
`encourage separation-of-powers challenges in the
`future, the Bureau relies exclusively on the prospect
`of a ruling that a removal restriction is unenforceable.
`See Opp.13 (citing the “relief that the Court’s ruling in
`Seila Law” provided). But a mere declaration has
`never been thought to provide a sufficient remedy or
`incentive. See Ryder, supra.
`And even that relief may not be available under
`the Bureau’s theory. The Bureau relies on the fortuity
`that Seila Law pre-dated the lower court’s adoption of
`an infeasible standard for treating agency action as
`void. Going forward, if the target of agency action
`cannot meet that standard—as few, if any, could—
`then it is not at all clear there would be any basis for
`seeking a constitutional ruling on the removal
`restriction. See Collins, 141 S. Ct. at 1788 n.24
`(standing in Seila Law was premised on the plaintiff’s
`allegation that the challenged action was “void”).
`
`
`
`6
`
`In Calcutt v. FDIC, 37 F.4th 293 (6th Cir. 2022),
`for example, the Sixth Circuit declined to “delve
`deeply into the Seila Law inquiry” with respect to the
`removal restrictions on the FDIC Board without a
`“showing of harm” under Collins. Id. at 314. And in
`other recent cases concerning removal restrictions, the
`federal government has urged other courts to deny
`relief under Collins, without ever passing on the
`merits. See, e.g., U.S. Br. at 18, Wright v. Comm’r
`Internal Rev., No. 24-10563, 2024 WL 3565471 (11th
`Cir. July 22, 2024); U.S. Br. at 8, Energy Transfer LP
`v. NLRB, No. 24-cv-198 (S.D. Tex. July 12, 2024).
`Finally, the Bureau faults the Trusts for failing to
`identify “any instance in which a President stated that
`he would remove the CFPB’s Director” if the statute
`did not stand in the way. Opp.10. As an initial matter,
`that criticism is premature. The Trusts had neither
`answered the Bureau’s suit nor taken discovery when
`their motion was denied. They had no opportunity to
`“allege—let alone demonstrate—such a causal link,”
`Opp.13. See pp. 2-3, supra.
`Even still, the Trusts have offered more than
`enough for a court to infer both that President Trump
`wanted to remove Director Cordray and that the
`CFPA’s removal provision stood in his way. See Renae
`Merle, Richard Cordray is Stepping Down as Head of
`Consumer Financial Protection Bureau, Washington
`Post (Nov. 15, 2017) (recounting “at least two
`occasions” when President Trump “griped about
`Cordray in private and wondered what to do about his
`tenure” and observing that “under the agency’s
`current structure, Trump could only fire Cordray for
`
`
`
`7
`
`cause”).* More evidence may follow. In other cases,
`parties have discovered correspondence revealing a
`president’s thwarted desire to remove an official. See
`Rop, 50 F.4th at 576. At a minimum, the Trusts
`should be permitted to pursue it.
`C. This Case Is an Ideal Vehicle to Address
`the Remedial Question.
`This case offers an ideal opportunity to answer an
`important
`constitutional question
`of
`ongoing
`significance. Although actions initiated by former
`Director Cordray are finally ending, cases challenging
`for-cause removal provisions will continue as long as
`Congress continues to test the limits of the separation
`of powers. The availability of a remedy for such
`violations was fully considered below and is squarely
`presented here. Pet.19-21.
`Rather than dispute the importance of the
`question or its preservation, the Bureau makes the
`confusing argument that this case is an unsuitable
`vehicle because multiple Directors who were
`removable-at-will have not dismissed this suit.
`Opp.16. The suggestion appears to be that, even if this
`suit was unconstitutionally initiated and should be
`dismissed, the error was harmless, because “the CFPB
`ultimately would have filed a timely complaint even if
`Director Cordray had been removed.” Opp.17.
`
`
`* Whatever the Department of Justice’s litigating position
`when this suit was filed in September 2017, Director Cordray
`certainly did not believe he was removable-at-will. See CFPB Br.
`at 17 (“[T]he Bureau’s structure does not violate Article II[.]”),
`PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir.) (Mar. 31, 2017).
`
`
`
`8
`
`The government’s speculation is not a vehicle
`argument. Even if well-founded, it would present no
`obstacle to resolving the question presented. It is also
`misplaced. There is a fundamental difference between
`initiating an enforcement action and merely
`refraining from dismissing it. That subsequent
`Directors allowed the case to continue is hardly proof
`that Director Cordray’s hypothetical successor would
`have timely brought it. Indeed, the evidence points
`strongly in the other direction. Director Cordray’s
`actual successor—Acting Director Mick Mulvaney—
`timely ratified several pending enforcement actions
`after he took office. See D.Ct.Dkt.348 at 1 & n.1. He
`could have timely ratified this one, but did not. Id.
`In a last-ditch effort to avoid review, the Bureau
`notes the “interlocutory posture of this case.” Opp.22-
`23. But this Court routinely reviews interlocutory
`orders in federal cases. See, e.g., DeVillier v. Texas,
`601 U.S. 285 (2024); Warner Chappell Music, Inc. v.
`Nealy, 601 U.S. 366 (2024); Slack Techs., LLC v.
`Pirani, 598 U.S. 759 (2023). It is appropriate where—
`as here—the very error in the decision below is
`foreclosing relief at the outset of a case.
`II. The Statutory Question Warrants Review.
`The statutory question is no less deserving of
`review. On that question, the court of appeals’
`decision is not only wrong, it threatens to destabilize
`the securitization market by dramatically expanding
`the Bureau’s enforcement authority over it. Pet.21-30.
`The Bureau’s response ignores both the breadth of the
`decision and the potential harm to the market of
`leaving that decision undisturbed.
`
`
`
`9
`
`A. The Bureau Fails to Defend the Court of
`Appeals’ Expansive Holding.
`The text, structure, context, and history of CFPA
`confirm that passive securitization vehicles are not
`“covered persons” under the CFPA. The court of
`appeals’ contrary conclusion ignores the ordinary
`meaning of the term “engage,” the statute’s careful
`delineation of the actors within the Bureau’s
`enforcement authority, and Congress’s intentional
`narrowing of that authority through the drafting
`process. Pet.22-26. The Bureau’s attempt to defend
`that decision fails.
`To begin, the Bureau does not even attempt to
`defend the actual reasoning of the decision below. The
`Bureau contends that “the court of appeals simply
`adopted and applied a dictionary definition” to the
`Trusts’ alleged conduct. Opp.21. By the Bureau’s
`telling, the court’s application of that definition “does
`not address the [CFPA’s] application to third parties
`… involved in ancillary activities ‘in some distant
`sense,’” only the Trusts’ “own governing documents
`and core business function[s].” Id. (citation omitted).
`But that is not a plausible reading of the decision.
`Although the court of appeals described (and misread)
`the Trusts’ governing documents, it did not confine its
`decision to those documents. Instead, the decision
`reads “engage” to reach anyone who is “involved” in or
`“takes part
`in” an
`“enterprise or activity.”
`Pet.App.23a-24a. As for the relevance of the Trusts’
`“core business functions,” the Third Circuit expressly
`declined to rely on the district court’s atextual limit on
`its holding that “engage” was “broad enough to
`encompass actions taken on a person’s behalf by
`
`
`
`10
`
`another, at least where that action is central to his
`enterprise,” Pet.App.45a. See Pet.App.19a n.81.
`The Third Circuit’s expansive interpretation
`allowed the court to reach the surprising conclusion
`that passive securitization trusts with no active
`operations and no employees, officers, or directors are
`themselves “engaged” in servicing and collecting debt.
`It also paves the way for the Bureau to claim authority
`over other ancillary entities in financial markets. If
`the Court denies review, the Third Circuit’s published
`decision will not be confined to its facts.
`The Bureau fares no better in defending the Third
`Circuit’s ultimate conclusion that the Trusts are
`“covered persons.” The Bureau contends that passive
`securitization trusts can “engage”
`in providing
`financial services because “artificial persons can and
`do act” through their “agents.” Opp.18-19 (citing
`Board of Comm’rs of Leavenworth Cnty. v. Sellew, 99
`U.S. 624, 627 (1879)). But neither the Bureau nor the
`lower courts provide a sufficient basis for concluding
`that any entity or person actually engaged in servicing
`and collecting debt act as agents of the Trusts. No
`court has ever assessed whether the complaint
`plausibly alleges an agency relationship.
`The failure to engage in this analysis is fatal to
`the Bureau’s argument. After invoking agency
`principles, the Bureau entirely glosses over the
`distinction between agency and merely “contracting
`with third parties.” Opp.19. The Bureau points to
`lawsuits “brought by parties acting on behalf of and
`for the benefit of” the Trusts, as evidence that the
`Trusts are engaging in those activities. Id. at 18. And
`they emphasize that the Trusts’ governing documents
`
`
`
`11
`
`include among their purposes “providing for” the
`servicing of student loans. Opp.17.
`The economic and practical truth is that the
`Trusts are neither established for nor capable of acting
`on behalf of themselves. See SIFMA/SFA Amici Br. 9
`(“Passive securitization trusts have no legal or
`practical ability to control the functions performed by
`any other participants in the securitization process.”).
`Instead, the Trusts are removed from anyone alleged
`to have done anything here—including
`those
`collection suits—by multiple, complex agreements
`that make securitization possible. And the Bureau
`has failed to demonstrate that those agreements
`provide the Trusts with the control required for an
`agency relationship. See Restatement (Third) of
`Agency § 1.01 (2006). In the absence of such showing,
`the Bureau’s argument that the Trusts “engage in”
`covered-person activity lacks merit.
`B. The Bureau Misjudges the Potential
`Consequences of Leaving the Decision
`Below Undisturbed.
`As leading trade associations for the securities
`industry and securitization market explain, the
`decision below “threatens to destabilize a basic
`building block of the Nation’s credit markets—and
`thereby, the economy.” SIFMA/SFA Amici Br. 3.
`Subjecting passive
`securitization
`vehicles
`to
`enforcement actions for the conduct of third-party
`servicers is inconsistent with investor expectations,
`will hinder the creation of new investment vehicles,
`and ultimately “will harm the very consumers whom
`the CFPB exists to protect, by driving investors away
`
`
`
`12
`
`and making consumer credit less available and less
`affordable.” Id. at 5.
` The Bureau dismisses these concerns based on its
`observation (again) that multiple Directors have
`declined to abandon the Bureau’s position in this case
`and its unsubstantiated suggestion that this litigation
`nevertheless “has had no noticeable market effect to
`date.” Opp.22. It asserts that, in any event, passive
`securitization trusts are subject to other consumer
`protection
`statutes,
`like
`the Federal Trade
`Commission Act, 15 U.S.C. § 45, and the Fair Debt
`Collection Practices Act, 15 U.S.C. §§ 1692e, 1692f.
`Neither assertion should give this Court comfort.
`The theory of this case has been fiercely contested
`since the outset. The case has been dismissed once,
`with the suggestion by Judge Norieka that passive
`securitization trusts were an odd fit for the statutory
`language. See CA3.App.371. Even after the case was
`reassigned and the Trusts’ motion to dismiss the
`Bureau’s amended complaint was denied, Judge Bibas
`certified his order for interlocutory appeal, finding
`“substantial ground” for disagreement with his
`statutory holding. CA3.App.14. And, of course, this
`Court has yet to pass on the question.
`Beyond this case, the Bureau identifies no other
`enforcement action by the Bureau, the Federal Trade
`Commission, or any other state or federal entity
`seeking to impose liability on a passive securitization
`trust for the allegedly unfair acts of third-party
`servicers. The Court should not permit this case to be
`first—and the consequences that may follow for a vital
`part of the U.S. economy—without considering the
`merits itself.
`
`
`
`13
`
`CONCLUSION
`The petition for a writ of certiorari should be
`granted.
`
` Nicholas J. Giles
` MCGUIREWOODS LLP
` 800 East Canal Street
` Richmond, VA 23219
` (804) 775-1000
`
`
`
`Respectfully submitted,
` Jonathan Y. Ellis
` Counsel of Record
` Francis J. Aul
` MCGUIREWOODS LLP
` 888 16th Street N.W.
` Suite 500
` Washington, DC 20006
` (202) 828-2887
` jellis@mcguirewoods.com
`Counsel for Petitioners
`Dated: November 26, 2024
`
`
`
`
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