Judge Sandra Ikuta, U.S. Court of Appeals for the Ninth Circuit
Judge Sandra Ikuta, U.S. Court of Appeals for the Ninth Circuit (Shelley Eades / The Recorder)

SACRAMENTO – A California attorney will have to cough up millions of dollars he collected in a mortgage relief scheme despite his argument that the federal agency that fined him had no authority to do so, a federal appellate panel said Thursday.

The federal Consumer Financial Protection Bureau in July 2012 filed a civil enforcement action against Chance Gordon, seeking to disgorge $11.4 million he received between January 2010 and July 2012 from underwater homeowners seeking help saving their homes from foreclosure. The CFPB found that Gordon had engaged in a misleading ad campaign that, among other things, erroneously suggested he could help his clients and that he had a government affiliation.

U.S. District Judge Percy Anderson of the Central District of California granted summary judgment in favor of the CFPB in June 2013. Gordon appealed and was joined by an amicus curiae brief from the Judicial Education Project. Both argued that the bureau had no authority to fine him because its director, Robert Cordray, who signed off on the action against Gordon, received an invalid recess appointment to lead the agency in January 2012. The appellant also said that, because of the improper appointment, the court lacked Article III jurisdiction to hear the case.

Writing for a 2-1 majority for the U.S. Court of Appeals for the Ninth Circuit, Judge John Owens said that both sides agreed Cordray’s initial appointment was faulty. President Barack Obama renominated him in January 2013, and he was confirmed by the U.S. Senate six months later.

Neither Gordon nor the Judicial Education Project cited a valid case showing that Cordray’s first appointment problem stripped the court of its Article III jurisdiction, Owens wrote. Moreover, the executive branch retained an interest in seeing federal laws enforced, he continued.

And “because the CFPB had the authority to bring the action at the time Gordon was charged, Cordray’s August 2013 ratification [of the charging decision], done after he was properly appointed as director, resolves any Appointments Clause deficiencies,” Owens wrote.

Owens was joined in his opinion by U.S. District Judge William Sessions of the District of Vermont, who was sitting by assignment.

The majority did remand part of the case to the district court, asking Anderson to consider whether Gordon should have to repay money he collected before relevant portions of the Consumer Financial Protection Act and related rules were enacted.

The California State Bar placed Gordon on involuntary inactive status in November 2012. His attorney, Gary Kurtz, did not return a message left Thursday.

In her dissent, Judge Sandra Segal Ikuta said the majority’s reasoning amounted to “a power grab” that “I decline to participate in.”

“Who was exercising the executive power of the United States needed to bring this civil enforcement action?” Ikuta wrote. “Not Richard Cordray—he was not properly appointed by the President and so was not an Officer of the United States at the time the action was filed. Not the Consumer Financial Protection Bureau—without an Officer of the United States, it was a mere Congressional creation that could not exercise executive power. In fact, no one had the executive power necessary to prosecute this civil enforcement action in the district court.”

Ikuta said numerous other bureau actions taken during Cordray’s invalid appointment period should be in doubt.

The CFPB, a political football ever since it was created in the wake of the national financial crisis, is also under scrutiny in the U.S. Court of Appeals for the D.C. Circuit, where a panel seems poised to restructure the single-director agency amid a constitutional challenge brought by a home-mortgage corporation targeted by the bureau.

Contact the reporter at cmiller@alm.com.