Richard Cordray was appointed consumer chief by President Obama while… (KEVIN DIETSCH / POOL, EPA )
WASHINGTON — A federal appeals court, in a far-reaching decision that could cripple operations at two agencies, sharply limited the president's power to bypass Senate confirmation and make so-called recess appointments.
A three-judge panel decided that President Obama violated the Constitution last year by appointing three members to the National Labor Relations Board while the Senate was not meeting.
But the broader implications of Friday's ruling mean the Senate's Republican minority can all but halt the work of the new Consumer Financial Protection Bureau and the NLRB by preventing the president from appointing its leaders or board members.
The decision also leaves in doubt the legal status of regulations and enforcement actions made by those agencies in the last year.
The panel for the U.S. Court of Appeals for the District of Columbia ruled that "recess appointments" can be made by the president only when Congress has formally adjourned, not when lawmakers leave Washington for a break that lasts a few days or few weeks.
The Senate has recently held brief "pro forma" sessions when members are away, and the appeals court agreed with Senate Republicans that these breaks do not count as a recess.
The Constitution's check on presidential appointments would be "turned upside down if the president could make appointments any time the Senate so much as broke for lunch," said Chief Judge David B. Sentelle.
Obama's lawyers are almost certain to appeal to the Supreme Court. White House Press Secretary Jay Carney called Friday's decision "novel and unprecedented. It contradicts 150 years of practice by Democratic and Republican administrations."
Republicans and some business lawyers were jubilant, calling the decision a vital check on presidential power.
The decision is "good news for checks and balances, an essential factor in our system of government that safeguards 'we the people' against unchecked power," said Sen. Charles E. Grassley (R-Iowa).
Union officials and liberal advocates said the decision enables a conservative minority in the Senate to block the work of agencies set up to protect consumers and to enforce the laws that protect a worker's right to join a union.
AFL-CIO President Richard Trumka called the decision "radical" and "shocking," noting that all three judges were Republican appointees.
At the same time he made the NLRB appointments, Obama nominated Richard Cordray to head the Consumer Financial Protection Bureau, an agency overseeing the financial industry to police any abuses by Wall Street and big banks. A challenge to that appointment remains pending in a separate case at the trial court level.
"We think it's likely his recess appointment is going to meet the same fate," said Sam Kazman, general counsel of the Competitive Enterprise Institute, a conservative think tank challenging the appointment. "I think there's a good argument to be made, though by no means is it a slam dunk, that it may well invalidate some of the CFPB's actions during the time he's been there."
The bureau, created by the 2010 Dodd-Frank financial overhaul law in response to the financial crisis that fed into the Great Recession of 2007-09, was not able to use authority granted to it by Congress until it had a full-time director.
Since Obama's recess appointment of Cordray as the bureau's first director, the agency has been very active. It has issued sweeping new rules for mortgages, begun overseeing large credit-reporting and debt-collection companies and required mortgage servicers to take steps to help keep delinquent borrowers in their homes.
The agency also has been involved in several high-profile enforcement actions with other regulators. Those include settlements in which Discover agreed to refund $200 million to credit card customers and Capital One agreed to refund $150 million to its credit card customers, as well as pay $60 million in civil penalties to the government.
Now many of those actions, if not all of them, could be in jeopardy because of the NLRB ruling.
Todd Zywicki, a law professor at George Mason University, said Cordray's fate was tied to that of the NLRB appointees: "This clearly affects Cordray's appointment."
But the White House's Carney said the NLRB ruling, which he criticized, did not affect the consumer bureau and has "no bearing on Richard Cordray."
A spokeswoman for the consumer bureau did not comment on the decision.
Rep. Patrick McHenry (R-N.C.), who has been highly critical of Cordray's appointment, said the court ruling creates problems in the financial industry.
"When President Obama made the decision to ignore the advice and consent authority of the U.S. Senate and allow Mr. Cordray to sit atop the powerful CFPB, he created a situation in which any actions taken by the agency would be open to legal threats," McHenry said.
"Now their actions and authority leave even greater uncertainty for consumers and businesses alike," he said.