State National Bank of Big Spring v. Lew

Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in response to the 2008 financial crisis. Dodd-Frank Title I established the Financial Stability Oversight Council (FSOC). With the approval of two-thirds of its voting members (including the Treasury secretary’s affirmative vote), the FSOC could designate a nonbank financial company as a systematically important financial institution (SIFI) based on 11 enumerated factors. SIFIs were more stringently regulated than otherwise similar institutions. A SIFI-designated entity was entitled to a hearing to challenge its designation and to judicial review. In April 2012, the FSOC issued a final rule and guidance regarding how it would make SIFI determinations. In June 2013, the FSOC voted to make proposed SIFI designations but did not identify the potentially designated entities, which had 30 days to contest their designations. Dodd-Frank Title II established the Orderly Liquidation Authority (OLA), pursuant to which the Treasury secretary could appoint the Federal Deposit Insurance Corporation (FDIC) as a failing financial company’s receiver. The OLA was intended to aid the liquidation of failing financial companies in a way that mitigated risk and minimized moral hazard by replacing certain liquidation and reorganization provisions of the Bankruptcy Code in appropriate cases. The Treasury secretary had to make seven specific findings before authorizing the use of the OLA. If a financial company objected to the FDIC’s appointment, the Treasury secretary could seek the FDIC’s judicial appointment, which the affected company had the right to oppose. The district court had to decide whether to appoint the FDIC within 24 hours; the court of appeals had to decide any appeal under an arbitrary-and-capricious standard. Upon being appointed as receiver, the FDIC had to notify the company’s creditors and could, in its discretion, pay creditor claims if there was sufficient money to do so. The FDIC had to treat similarly situated creditors similarly unless not doing so would maximize the company’s assets or otherwise facilitate the liquidation process in statutorily specified ways. A creditor could not receive less than it would have received in a liquidation under the Bankruptcy Code, and creditors were entitled to judicially challenge any disallowed claims. As of August 1, 2013, the Treasury secretary had not invoked the OLA. Dodd-Frank Title X established the Consumer Protection Financial Bureau. The State National Bank of Big Spring, the 60 Plus Association, and the Competitive Enterprise Institute (collectively, the private challengers) (plaintiffs), along with 11 states (plaintiffs), sued Jacob Lew, the Treasury secretary, and others (collectively, Lew) (defendants). The private challengers alleged, among other things, that Titles I, II, and X were unconstitutional. Specifically, the private challengers and the states argued that Title I violated the constitutional separation-of-powers doctrine because it gave the FSOC too much unconstrained power. The private challengers attacked Title X on similar grounds. The private challengers and the states argued, among other things, that Title II violated the separation of powers because it gave the Treasury secretary too much unchecked power and violated the Fifth Amendment’s Due Process Clause by denying affected companies and creditors their rights to notice and meaningful opportunities to be heard. Lew moved to dismiss the complaint for failing to state a claim or, in the alternative, due to a lack of standing.