Gregory Jacob, a Washington lawyer who served in several posts in the administration of George W. Bush, joined O'Melveny & Myers in April, partly because he was eager to call upon O'Melveny's great litigators in a major constitutional challenge to the Dodd-Frank financial reforms enacted in 2010. In an interview Friday Jacob declined to tell me how he (and C. Boyden Gray of Boyden Gray & Associates) came to represent a small Texas bank, a conservative retirees' advocacy group and the free-enterprise think tank The Competitive Enterprise Institute, but said he was already anticipating their suit asserting that Dodd-Frank's Consumer Financial Protection Bureau violates the constitution's separation of powers doctrine when he came to O'Melveny, which has a renowned appellate department. Jacobs filed a complaint for the bank, State National Bank of Big Spring, and the two groups in federal court in the District of Columbia in June.

Not much happened in the litigation over the summer, but late Thursday the case suddenly got a whole lot bigger and more serious: The state attorneys general from Michigan, Oklahoma and South Carolina joined the suit. In an amended complaint, Jacob's clients and the AGs are claiming three big pieces of Dodd-Frank -- the CFPB, the Financial Stability Oversight Council and the Orderly Liquidation Authority -- are unconstitutional. And according to the Oklahoma and South Carolina AGs, more states are considering jumping into the litigation.

To be precise, Jacob's clients are suing over the CFPB and the Oversight Council, and the AGs are making claims about the Liquidation Authority. That's significant because the challenges rest on distinct, albeit overlapping, grounds. Jacob asserts that Congress didn't build in sufficient checks and balances when it established and enumerated the powers of the consumer group and the FSOC, which is empowered to designate systemically important (or "too big to fail") institutions. Those overly broad executive branch functions, Jacob argues, are a violation of the separation of powers doctrine. The states, meanwhile, allege that as potential creditors of financial institutions, their due process rights (as well as the separation of powers doctrine) are violated by the Orderly Liquidation Authority, which gives the treasury secretary and the Federal Deposit Insurance Corporation broad power to oversee the bankruptcies of major financial institutions.

Jacob, who told me he's very familiar with separation of powers considerations from his stint in the Justice Department's Office of Legal Counsel in the years after the terror attacks of Sept. 11, 2001, likened the case to the U.S. Supreme Court's consideration of the Public Company Accounting Oversight Board, which was created as part of Sarbanes-Oxley in 2002. In the 2010 ruling Free Enterprise Fund v. Public Company Accounting Oversight Board, the justices ruled that certain limitations on the removal of members of the PCAOB were unconstitutional under separation of powers. Jacob said, however, that he believes the Dodd-Frank agencies cited in his amended complaint, unlike the PCAOB, have such fundamental problems that they can't be easily fixed.

I asked whether the AGs have standing to challenge the Liquidation Authority, given that the treasury and FDIC haven't liquidated any institutions. He said they do because the AGs represent state pension funds, w hi ch hold investments at too-big-to-fail institutions. According to Jacob, the pension funds have already lost rights as creditors that they wouldn't be able to recover if they waited until a liquidation to bring suit.

In a press call Friday, the Oklahoma and South Carolina AGs said they've been talking to colleagues in other states about joining the litigation. "The dialogue is active and ongoing," said Oklahoma AG Scott Pruitt.

"There is a real possibility that just as in the Affordable Care Act, this thing has the potential to snowball," added Alan Wilson, the South Carolina AG.

The Justice Department lawyer who signed the government's first procedural filing in the case did not respond to an email request for comment. A Treasury Department spokeswoman toldReuters that the new complaint simply rehashes old arguments. "Independent regulatory agencies have long been part of our regulatory framework, and the Supreme Court has concluded that they are constitutional," she said.

(Reporting by Alison Frankel)

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