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Monday Morning Cup of Coffee: Trump tapping familiar face to lead DOJ's civil division?

What will become of False Claims Act charges under new leader?

March 20, 2017

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

It look as though President Donald Trump is about to install a familiar face as the leader of the Department of Justice’s civil division, which handles the DOJ’s much-disputed False Claims Act charges and other significant mortgage-related cases.

According to this report from the Wall Street Journal, Trump is likely to nominate George Conway to serve as the head of the DOJ’s civil division. Conway is the husband of Kellyanne Conway, Trump’s senior advisor.

The WSJ report has more details:

George Conway, the husband of senior White House adviser Kellyanne Conway, is set to be nominated to run the Justice Department’s civil division, according to people familiar with the matter, a job that would put him at the forefront defending the controversial immigration executive order and other lawsuits against the Trump administration.

Mr. Conway, a partner at Wall Street law firm Wachtell, Lipton, Rosen & Katz, had also been in the running for other jobs at the Justice Department.

He has worked on major securities law cases and deal litigation, according to his law firm biography.

Conway would replace Benjamin Mizer, who served as Principal Deputy Assistant Attorney General for the civil division, and stepped down earlier this year.

According to Mizer’s DOJ bio, the civil division is the “largest litigating division” in the DOJ.

Here’s more on the Civil Division, from Mizer’s bio:

Each year, the Civil Division represents some 200 client agencies in approximately 50,000 different matters. The Civil Division represents the United States in a wide array of civil litigation, including challenges to Congressional statutes, Administration policies, and federal agency actions as well as federal benefit programs; commercial disputes including contract disputes, banking, insurance, patents, and debt collection; international trade matters; and enforcement of immigration laws.

The Civil Division also led the way on many of the massive (in some cases, multi-billion dollar) settlements paid out by banks, credit rating agencies, and others for their crisis-era mortgage practices.

The Civil Division also oversees the DOJ’s False Claims Act actions.

In recent years, the False Claims Act became the DOJ’s weapon of choice against the mortgage industry, using the law, which is designed to prosecute vendors the government feels fraudulently represented themselves while doing business with the nation, to extract settlements from lenders for supposedly misrepresenting the quality of loans to the Federal Housing Administration.

In just the last few years, Wells Fargo agreed to a $1.2 billion settlement, Franklin American settled with the government for $70 millionWalter Investment settled for $29.6 millionFirst Tennessee, the regional bank for First Horizon National, settled for $212.5 millionM&T Bank settled for $64 millionFreedom Mortgage agreed to pay $113 millionRegions Bank settled for $52.4 million, and BB&T settled for $83 million – all for alleged violations of the False Claims Act.

That list does not include two lenders – Quicken Loans and Guild Mortgage – that are fighting back against False Claims Act allegations.

And that’s just a sample. Click here for more of HousingWire’s coverage of the False Claims Act and the DOJ’s use of it.

So, the question becomes, what will become of the False Claims Act under Conway? Inquiring minds want to know.

One clue as to how the DOJ will function under Attorney General Jeff Sessions came Friday, when the DOJ flipped sides in the landmark case between PHH Corporation and the Consumer Financial Protection Bureau.

Previously, under the Obama administration, the DOJ acted in support of the CFPB, but the Trump administration’s DOJ appears set to take a different tact.

On Friday, the DOJ asked the Court of Appeals to rule the CFPB’s structure unconstitutional and grant President Donald Trump the authority to fire CFPB Director Richard Cordray.

The shift should have significant ramifications on both the case at hand, and the CFPB’s continued existence, according to Ari Karen, a banking and financial services regulatory attorney at Offit Kurman.

“The DOJ’s position in the PHH case is a sign of bigger things to come. Even absent any other legislative reform impacting the CFPB’s structure, the Bureau’s enforcement authority could be significantly curtailed if the DOJ’s priorities do not align with those of the CFPB,” Karen said Friday.

“Without support from the DOJ, the CFPB’s assets and resources are substantially limited in areas such as fair lending and false claims act cases,” Karen continued. 

“The DOJ’s position urges the Court to rule on the constitutionality of the CFPB’s structure, rather than sidestepping the issue based on other technicalities,” Karen concluded. “This administration wants to give the President the power to remove the Director, which the President would likely act on immediately.”

Another attorney, Joseph Lynyak III, a partner at the international law firm Dorsey & Whitney, said that the question of the constitutionality of the CFPB could remain even after the Court of Appeals makes it decision.

“The Department of Justice argues that an independent agency with one sole individual at its head who can only be removed for cause is unconstitutional—and the exception permitted by the Supreme Court for independent agencies with a commission form of governance should not be extended to agencies with only one agency head,” Lynyak said of the DOJ’s argument.

“Unlike the legal position taken by PHH (which strongly argues that nothing can correct the constitutional defects inherent in the structure of the CFPB), the Department of Justice argues in its brief that the remedy adopted by the three-judge panel (i.e., striking the “for cause” provision and allowing the president to fire the Director of the CFPB without cause) is correct,” Lynyak continued.

“Importantly, this remedy was the focal point of a Supreme Court case written by the Chief Justice in 2010,” Lynyak adds. “In addition, while the DOJ concedes that the PHH case could be decided without addressing the constitutional issues, it correctly indicates that at some point in the immediate future the constitutionality of the CFPB will have to be addressed.”

In a bit of irony or perhaps fortuitous timing, the constitutionality (or lack thereof) of the CFPB is set to be discussed on Capitol Hill this week during a hearing of the House Financial Services Committee.

On Tuesday morning, the House Financial Services Committee’s Subcommittee on Oversight and Investigations will hold a hearing presumptively titled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.”

According to the Republican arm of the House Financial Services Committee, the hearing will examine “whether the structure of the Bureau of Consumer Financial Protection violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.”

Scheduled to testify are:

  • Theodore Olson, partner at Gibson, Dunn & Crutcher. Olson also served as Solicitor General of the United States from 2001-2004 under President George W. Bush
  • Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
  • Adam White, Research Fellow, Hoover Institution
  • Brianne Gorod, Chief Counsel, Constitution Accountability Center

Absent from the speakers list: Anyone from the CFPB.

Given the title of the hearing, that probably shouldn’t come as a surprise.

Finally, in case you missed it, HousingWire’s Sarah Wheeler (our esteemed magazine editor) landed an exclusive interview late last week with Julián Castro, the recently departed secretary of the Department of Housing and Urban Development.

In the interview, Castro, who led HUD from 2014 to 2017 under former President Barack Obama, shares his thoughts on the budget proposal released last week by the Trump administration.

The budget calls for a $6.2 billon cut to HUD’s funding, cuts that Castro said will “severely limit the ability of local communities and states to meet the needs of the middle class and poor when it comes to housing.”

Castro also said, of the budget as a whole: “There’s no vision here. It’s almost like a cartoon cutout of an ideologue’s conception of the budget: just spend more money on defense and tear apart social programs. It’s very short-sighted on housing, education, health.”

For the full interview, click here.

And with that, have a great week everyone!

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