Judge Preska has entered an order granting the CFPB’s request for entry of a Rule 54(b) judgment to allow the CFPB to appeal her June 21 constitutionality ruling to the Second Circuit. Although Judge Preska’s order denies RD Legal’s request that she certify the remainder of her ruling for interlocutory appeal, it grants RD Legal’s request to stay the district court proceedings pending the outcome of the CFPB’s appeal.
In her June 21 ruling, Judge Preska held that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional, struck the CFPA (Title X of Dodd-Frank) in its entirety, dismissed the CFPB from the case, and allowed the New York Attorney General to proceed with its CFPA and state law claims. RD Legal had argued that Judge Preska’s dismissal of the CFPB from the case and striking of Dodd-Frank Title X necessitated her dismissal of the NYAG’s CFPA claims against RD Legal. Accordingly, it had asked Judge Preska to dismiss the NYAG’s federal claims with prejudice and dismiss the NYAG’s state law claims for lack of federal subject matter jurisdiction without prejudice to their being refiled in state court.
While denying RD Legal’s request to certify her ruling on the NYAG’s claims for interlocutory appeal, Judge Preska’s order appears to implicitly accept RD Legal’s argument that her constitutionality ruling, if upheld by the Second Circuit, would require dismissal of the NYAG’s CFPA claims. She stated that “[t]he controlling question of law as to the Court’s subject matter jurisdiction, and thus to the order dismissing the CFPB, relates to the constitutionality of the CFPB’s structure….Assuming that the CFPB proceeds with its stated intention of appealing this Court’s June 21, 2018 Order dismissing its claims against the RD Legal Parties, the final disposition of that appeal alone will ‘materially advance the ultimate termination of the litigation’ because it will bring certainty to the parties in their litigation of the federal issues presented. The same cannot be said for the state law issues. By and large, they are well-settled.” (As discussed in a prior blog post, we think the logic used by the court in concluding that the transactions at issue were disguised loans was erroneous.)
The NYAG had opposed RD Legal’s request for a stay of the district court proceedings pending the outcome of the CFPB’s appeal. In explaining her rationale for granting a stay, Judge Preska stated that “[a] stay will avoid the possibility of prejudice to the parties and will mitigate the expense and practical difficulties Defendants would face if tasked with defending two overlapping trials at once.”
A CFPB appeal of Judge Preska’s constitutionality ruling to the Second Circuit means that two circuits will be actively considering the CFPB’s constitutionality, thereby increasing the likelihood of this issue coming before the U.S. Supreme Court in the next year or so. The issue of the CFPB’s constitutionality is currently before the Fifth Circuit in the interlocutory appeal of All American Check Cashing from the district court’s ruling upholding the CFPB’s constitutionality. American Check Cashing has filed a petition asking the Fifth Circuit to hear its interlocutory appeal en banc as an initial matter. A third circuit, the D.C. Circuit, held in its January 2018 en banc PHH decision that the CFPB’s structure is constitutional.