Judge Paul Watford of the U.S. Court of Appeals for the Ninth Circuit. Courtesy photo

The U.S. Court of Appeals for the Ninth Circuit, ruling that a law firm under investigation for allegedly violating telemarketing rules must comply with the Consumer Financial Protection Bureau's demands, has turned back a challenge to the constitutionality of the agency's structure.

The court affirmed a district court's ruling ordering Seila Law's compliance with the CFPB's civil investigative demand (CID), rejecting the law firm's arguments that the bureau is unconstitutionally structured and that it had no authority to issue the CID.

According to Ninth Circuit Judge Paul J. Watford's opinion, the CFPB issued Seila seven interrogatories and four requests for documents, which it refused to answer. The CFPB subsequently filed a petition in the Central District of California to enforce compliance, which U.S. District Judge Josephine L. Staton granted, subject to one modification.

Seila argued that the CFPB's structure violates the Constitution's separation-of-powers doctrine because it is run by a director who exercises executive power but can only be removed by the president for cause—“inefficiency, neglect of duty, or malfeasance in office.”

Citing two U.S. Supreme Court cases, Humphrey's Executor v. United States and Morrison v. Olson, Watford said the CFPB's structure is constitutionally permissible.

Watford said the arguments in Humphrey's were similar to the case at hand, only Humphrey's involved the Federal Trade Commission. The court in that case held that the FTC exercised mostly quasi-legislative and quasi-judicial powers, rather than purely executive powers and maintained independence from the president's control.

“Like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the president's will,” Watford said, adding that the Supreme Court has noted “the CFPB acts in part as a financial regulator, a role that has historically been viewed as calling for a measure of independence from executive branch control.”

Citing Morrison, Watford said there were still differences between the FTC and the CFPB.

“The most prominent difference between the two agencies is that, while both exercise quasi-legislative and quasi-judicial powers, the CFPB possesses substantially more executive power than the FTC did back in 1935,” Watford said. “But Congress has since conferred executive functions of similar scope upon the FTC, and the court in Morrison suggested that this change in the mix of agency powers has not undermined the constitutionality of the FTC. Indeed, in Morrison the court upheld the constitutionality of a for-cause removal restriction for an official exercising one of the most significant forms of executive authority: the power to investigate and prosecute criminal wrongdoing.”

Anthony Bisconti of Bienert Katzman in San Clemente represents Seila and did not respond to a request for comment.

The CFPB also did not respond to a request for comment.