The D.C. Circuit, in a divided decision, denied a motion for an emergency injunction pending appeal filed by a company seeking to halt all CFPB action adverse to the company, including enforcement of a CID and disclosure of the company’s identity.  The company seeking the injunction in John Doe Company v. CFPB is a California limited liability company with its principal place of business in the Philippines that is in the business of purchasing and selling income streams.

To satisfy the requirement of showing a likelihood of success on the merits, the company pointed to the D.C. Circuit’s PHH decision holding that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  In denying the injunction, the D.C. Circuit observed that the company was required to show not only that there is potentially persuasive authority for its legal position but also that the district court abused its discretion by not giving sufficient credit to that showing when it balanced the equities for purposes of deciding whether to grant preliminary injunctive relief.

The D.C. Circuit concluded that pointing to PHH was not enough because:

• The PHH decision has been vacated as a result of the order granting the CFPB’s petition for rehearing en banc.  The D.C. Circuit stated that the district court “did not abuse its discretion in determining that simply pointing to the vacated majority opinion in PHH did not establish the likelihood of an identical constitutional ruling by the en banc court in PHH or the court in this case.” (emphasis provided).
• Even assuming the en banc court were to agree with the majority opinion in PHH, the company is not in the same constitutional position as PHH.  According to the court, PHH was “on the receiving end of a completed law enforcement action by the Bureau” and the majority opinion emphasized the Constitution’s assignment of law enforcement authority to the Executive Branch.  In contrast, the company is seeking to stop “a non-self-executing investigative demand for regulatory action” and had not objected to the scope or content of the CID or argued that it is outside the CFPB’s authority.  To obtain the injunction, the company “would have to show that only the Executive Branch can demand information from regulated businesses or take such investigative steps,” something which the court deemed “far from constitutionally self-evident.” (emphasis provided).
• The company’s argument that the alleged separation of powers violation requires the CFPB to “be stopped in its tracks” ignores that severance of the unconstitutional provision is often the chosen remedy (as it was in PHH) and that vacatur of past actions is not routine.  The court observed that the PHH decision “did not undo the Bureau enforcement action and make it start over from scratch.  The court simply remanded for the Bureau to address specific matters.”
• An administrative proceeding rather than the D.C. Circuit is the proper forum for the company’s separation of powers claim.

The D.C. Circuit also found that the district court had not abused its discretion (1) in finding that the company had failed to show irreparable harm, calling the company’s argument about reputational harm “nothing more than speculation about how third parties might respond to routine regulatory investigations,” and (2) in holding that the company’s name did not need to be kept confidential in public court proceedings.  (On March 7, the date of the D.C. Circuit decision, the CFPB revealed the company’s name by publishing on its website the company’s petition to modify or set aside the CID and the CFPB’s decision and order denying the petition.)

Judge Kavanaugh, who was on the PHH panel and joined the majority decision, issued a dissenting opinion in which he stated that he would grant the company’s injunction motion.  According to Judge Kavanaugh, the company had shown a likelihood of success on the merits because “given the Supreme Court’s Article II precedents, I believe that the CFPB’s structure is likely to be ruled unconstitutional, whether by this Court sitting en banc or by the Supreme Court.”  He also found that the company had shown irreparable harm because “[i]rreparable harm occurs almost by definition when a person or entity demonstrates a likelihood that it is being regulated on an ongoing basis by an unconstitutionally structured agency that has issued binding rules governing the plaintiff’s conduct and that has authority to bring enforcement actions against the plaintiff.”

The CFPB had argued that even if it is unconstitutionally structured, the remedy would be to sever the for-cause removal provision as was done in PHH.  According to the CFPB, because it would continue to regulate the company as an executive agency rather than an independent agency in that scenario, the company is not entitled to a preliminary injunction to prevent the CFPB in its current form from regulating the company.  Calling the CFPB’s analysis “badly mistaken,” Judge Kavanaugh stated that “unless and until” the for-cause removal provision is actually severed, the company “will continue to be regulated on an ongoing basis by an unconstitutional agency.”  In his view, a preliminary injunction “would alleviate that ongoing harm.”