Last Wednesday, the U.S. District Court for the District of Columbia terminated on its docket the case challenging the CFPB’s final credit card late fee rule (Rule) which had been transferred to D.D.C. by the Texas federal district court.  The termination occurred after the Texas court entered an order reopening the case and providing notice to D.D.C. that “the transfer was without jurisdiction and should be disregarded.”  The Texas federal court’s order followed the decision issued by a divided panel of the U.S. Court of Appeals for the Fifth Circuit that vacated the district court’s order transferring the case.  The Fifth Circuit also issued a writ of mandamus directing the district court “to reopen the case and give notice to D.D.C. that its transfer was without jurisdiction and should be disregarded.”

The termination by D.D.C. was set forth in the following order entered on April 10 and signed by Judge Amy Berman Jackson to whom the case had been assigned:

This case was received from the U.S. District Court in the Northern District of Texas on March 29, 2024. On April 8, 2024, the Court received a copy of the Order Reopening Case and Providing Notice to the United States District Court of the District of Columbia (“Notice and Order”), which was issued by the Texas district court in accordance with In re Fort Worth Chamber of Commerce, No. 24-10266 (5th Cir. Apr. 5, 2024) (attached to Notice and Order).  The Fifth Circuit found that the district court lacked jurisdiction to transfer the case while an appeal was pending before the Court of Appeals, and it ordered the district court to “reopen the case and to give notice to D.D.C. that its transfer was without jurisdiction and should be disregarded.”  While the Court is not inclined to “disregard” a case on its docket, and it has considerable discretion to supervise its own cases, a review of the Notice and Order, as well as the docket in the Northern District of Texas, reflects that the case is now proceeding there under the supervision of another district court.  Therefore, the case will be terminated on this court’s docket at this time without prejudice.  This order should not be read to express any view on the transfer question, which has not been presented to this Court to decide.  The Clerk of Court is directed to terminate this case on the docket of the District Court for the District of Columbia.

Last Friday, the trade group plaintiffs and the CFPB filed letter briefs with the Fifth Circuit regarding whether an ownership interest in a nonparty large credit card issuer would be substantially affected by the outcome of this litigation.  The parties were directed to file the letter briefs by the Clerk of the Fifth Circuit following press reports that Fifth Circuit Judge Willett or a family member owns shares in a large credit card issuer that would be covered by the Rule and the filing of a letter by the CFPB with the Fifth Circuit stating that, “in addition to the party associations listed in the Chamber, et al.’s Certificates [of Interested Persons filed with the court], large credit card issuers—those that, together with their affiliates, have one million or more open credit card accounts—have a financial interest in the outcome of the litigation.”  Judge Willett authored the Fifth Circuit decision vacating the district court’s transfer order.

The Code of Conduct for U.S. Judges provides that a judge should recuse if the judge or certain family members “has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.”

In its letter brief, the CFPB argues:

  • The outcome of the case could substantially affect an ownership interest in one of the large credit card issuers directly affected by the Rule.  While it is difficult to predict how the Rule or the litigation challenging it would affect card issuers’ revenue and thus profitability, which could in turn affect share prices, industry analysts have predicted a possible substantial effect.  Also, issuers themselves have made statements suggesting they expect a possible substantial effect on revenues.  In addition, the CFPB’s analysis of the Rule’s impact, based on projections incorporated in the Rule, also suggests that the outcome of the case could affect large issuers’ profits. “[T]he predicted reduction in revenue—an estimated $10 billion across all affected issuers—means a direct hit to profits cannot be ruled out.” (citation omitted).
  • Ownership of stock in a large card issuer would trigger recusal obligations regardless of whether the litigation could substantially affect that ownership interest.  Under the Code of Conduct, “a financial interest in the subject matter in controversy or in a party to the proceeding” is disqualifying regardless of whether it would be substantially affected by the outcome of the case.  A straightforward interpretation of the text indicates that the phrase “substantially affected by the outcome of the proceeding” modifies only “any other interest “ and not the financial interests referenced in the preceding clause.  A judge who owns stock in a non-party large issuer “has a financial interest in the subject matter in controversy” (i.e. whether the Rule violated the Administrative Procedure Act and should be vacated) because the plaintiffs seek an order vacating the Rule in its entirety.  As a result, the litigation will have a direct effect on all large card issuers.  A non-party large card issuer will benefit from a judgment favorable to the plaintiffs as much as it would if it were a party to the lawsuit.
  • The Code of Conduct separately provides that a “judge shall disqualify himself or herself in a proceeding in which the judge’s impartiality might reasonably be questioned.”  A reasonable person might question the impartiality of a judge who has an ownership interest in a large card issuer whose interests are both being represented in the case and will be affected by the outcome.

In their letter brief, the plaintiffs argue:

  • This is not a case in which a judge could have a financial interest “in the subject matter in controversy or in a party to the proceeding.”  The plaintiffs seek an injunction, not damages, and they do not issue credit cards.  In a case involving a judge’s ownership of stock in a non-party company, relevant authorities indicate that recusal would only be required if a judge knows that the outcome of the case could substantially affect the value of the company’s stock.
  • The effect of a judge’s ownership interest in a non-party is not easily ascertainable in most, if not all, challenges to agency rules.  It is not readily ascertainable whether the outcome of this case will substantially affect an ownership interest in a large credit card issuer.  The CFPB has stated in a variety of ways that the Rule is likely to have a limited effect on the bottom line of issuers which is “quite the contrary of an easily ascertainable substantial effect on any, much less all, of their stock prices.” (emphasis included).  The CFPB has also stated that large card issuers have options to offset, at least partially, the impact of the Rule on their revenues.
  • An argument by the CFPB that the plaintiffs’ showing of irreparable harm from the Rule suggests that the outcome of the case will have a “substantial effect” on the stock price of credit card issuers or their parent companies would be legally and economically flawed. As a legal matter, a showing of irreparable harm based on compliance costs, risk of enforcement, or lost revenues is a showing that the challengers will suffer harms that cannot be recovered from the government through ordinary litigation, not that the challengers will see a decrease in their stock price.  As an economic matter, the fact that issuers will incur costs or have reduced revenues from a regulation does not mean with any certainty that their stock price will be affected.
  • It would create an unworkable system if recusal were required in regulatory challenges based on a judge’s ownership interest in the stock of a non-party.  Judges are not financial analysts equipped to forecast how any particular regulation will affect the stock price of corporations operating in complex regulatory environments.  Also, questions would arise as to how far the Rule would extend.  For example, non-parties other than large issuers could be impacted by the Rule, such as retailers that partner with issuers to offer store-branded cards to customers or small card issuers that face competitive pressures to lower their late fees.  This raises the question whether judges would be required to analyze how their ownerships interests in such non-parties may be affected by the outcome of the case.  “The uncertainty of such a system would introduce needless complexity into routine litigation, incentive gamesmanship, and undermine the integrity of the judicial system.”

We expect there will soon be a determination as to whether Judge Willett must recuse and, if so, whether his recusal must be retroactive so that it would cover the Fifth Circuit’s writ of mandamus and order vacating the district court’s transfer order or can be prospective only.  If the former, another Fifth Circuit judge would need to consider whether a writ should be issued, a development that could alter the outcome were the new judge to agree with the dissenting Fifth Circuit judge that the district court had properly transferred the case to D.D.C.  The new judge would also be involved in the appeal from the “effective denial” of the plaintiffs’ preliminary injunction motion.

On March 25, the date on which the plaintiffs filed their Notice of Appeal, the plaintiffs also filed an emergency motion with the Fifth Circuit seeking an administrative stay of the Rule “and, ultimately, an injunction [to enjoin the Rule] pending appeal.”  The CFPB has opposed the emergency motion.  On March 26, the Fifth Circuit entered a briefing schedule that requires the plaintiffs to file their brief in the appeal by May 6.  (The CFPB’s brief will be due 21 days thereafter.)  The plaintiffs are likely to either seek a ruling on their emergency motion or seek to accelerate the briefing schedule on their appeal so that a decision on a preliminary injunction can be issued before the Rule’s May 14 effective date.