US Government Responds to Federal Court Constitutional Challenge to the Dodd-Frank Act

The US government has responded to a federal court action challenging the constitutionality of the Dodd-Frank Act by arguing that the action is not ripe since the claims of injury by the community bank, three states and various advocacy groups fall far short of the imminent non-conjectural injury needed to confer Article III standing.  Despite the roving allegations of unconstitutionality, said the response, not one of the Dodd-Frank authorized actions that plaintiffs speculate might cause them harm has yet occurred. The government asks the court to dismiss the claims as unripe for judicial resolution. The 52-page response motion and accompanying memorandum was filed by the US Attorney, with Treasury of counsel (Big Springs National Bank of Texas v. Geithner, DC DofC, No 1L12-1032).

The plaintiffs are complaining that the Consumer Financial Protection Bureau and the Financial Stability Oversight Council have been given powers by Dodd-Frank that are not restrained by reasonable checks and balances and thus violate separation of powers provisions of the US Constitution In addition, the orderly liquidation authority set up by Title II of Dodd-Frank is also challenged as violating due process, separation of powers and uniformity of bankruptcy provisions of the Constitution.

The response states that the community bank has not been designated a systemically important financial institution by the FSOC and may never be designated as such. A systemically important financial institution, so designated by FSOC, would be subject to more stringent federal regulation, said the response, but the community bank in this action has not been so designated and is not likely to be and thus any asserted injury is speculative. The bank's argument that SIFI designation is a benefit also falls short since such a contention directly contravenes the intent of Congress in creating the FSOC and conferring it with the power to designate a a financial institution as systemically important. It also falls far short of a concrete injury that would confer federal court standing.

As for the claim that the orderly liquidation authority in Title II, the bank has not even attempted to an injury flowing from the authority and lacks standing to pursue this claim.

The claims of the advocacy organizations are even more attenuated than those of the banks, said the government response. They have alleged only an abstract interest in maintaining the separation of powers, a type of generalized grievance that does not confer standing to challenge federal legislation.

The claim of the states that the Dodd-Frank orderly liquidation authority, which has never been invoked,  may be applied to a financial institution of which their pension funds are creditors is pure conjecture. The states have failed to allege that the liquidation authority has been invoked as to any financial company or is imminently to be invoked, much less to one of which a state pension fund is a creditor.