A three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit recently ruled that President Obama exceeded his authority on January 4, 2012 when he made three recess appointments to the National Labor Relations Board (“NLRB”). On January 23, 2013, the D.C. Circuit issued its opinion in Canning v. National Labor Relations Board, No. 12-1115, a copy of which is available here. Canning, a Washington state soft drink distributor, had sought review of an NLRB decision finding that he had violated the National Labor Relations Act (“NLRA”) by refusing to enter into a collective bargaining agreement with a labor union.

Rather than address the appeal on the merits of Canning’s obligations under the NLRA, the D.C. Circuit held that three of the members of the NLRB that ruled against Canning lacked the authority to serve because they had been improperly appointed by President Obama as “recess appointments” pursuant to the Recess Appointments Clause of the U.S. Constitution. This Clause provides that “[t]he President shall have the Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of the their next Session.” U.S. Const. art. II, sec. 2, cl. 3. At the time President Obama made the recess appointments to the NLRB, the Senate was operating under a unanimous consent agreement, which provided that the Senate would meet in pro forma sessions every three business days from December 1, 2011 through January 23, 2012. The agreement provided that no business would be conducted during these pro forma sessions. The D.C. Circuit held that the term “Recess” as it is used in the Constitution is limited to intersession recesses, or the period of time when the Senate is by definition not in session and therefore unavailable to receive and act upon nominations from the President. Accordingly, the court held that President Obama’s appointments to the NLRB, which were not during an intersession recess, were unconstitutional because they were not approved by the Senate. Because their appointments were improper, the court held that the NLRB did not act pursuant to a quorum and the decision as to Canning was overturned.

Although further appellate review of the decision in Canning is likely, the impact of the decision is potentially far-reaching. The Canning decision is significant because its reasoning could impact the “recess appointment” of Richard Cordray as Director of the Consumer Finance Protection Bureau (“CFPB”), the consumer watchdog agency charged with the regulation of consumer financial products and services, as well as the enforcement of consumer finance laws. The President appointed Mr. Cordray as the Director of the CFPB on the same day that the three members of the NLRB at issue in Canning were appointed. Mr. Cordray’s nomination for the position previously had been blocked by Senate Republicans under the threat of a filibuster.

If Mr. Cordray’s appointment is invalidated based on the reasoning in Canning, such a decision could impact the regulatory powers of the CFPB. Although the CFPB began operation in July 2011, by statute the agency was not empowered with rule-making authority until a Director was appointed. Since Mr. Cordray’s recess appointment, the CFPB has issued comprehensive rules in a variety of consumer areas, including mortgages, credit cards, and student loans. These rules, and any enforcement authority undertaken pursuant to those rules, could now be challenged or called into question. Mr. Cordray’s appointment, and other aspects of the CFPB, is currently the subject of a lawsuit pending in the U.S. District Court for the District of Columbia, which was filed by a Texas bank and later joined by several state attorneys general.