The DOJ has filed a response to the emergency motion filed by Leandra English with the U.S. Court of Appeals for the D. C. Circuit requesting expedited briefing and oral argument in her appeal from the district court’s denial of her preliminary injunction motion.

In her motion, Ms. English argued that even without the “special circumstances” presented by her case, her appeal is entitled to expedited consideration under federal law (28 U.S.C. section 1657(a)) and D.C. Circuit rules.  While agreeing that the authorities cited by Ms. English provide for expedited consideration of her appeal and stating that it has no objection to the Court scheduling oral argument “as expeditiously as possible,” the DOJ asserts in its response that “expedited consideration does not require an abbreviated briefing schedule.”

Under the briefing schedule proposed by Ms. English in her motion, the DOJ would have 14 days to respond to her opening appellate brief.  The DOJ opposes her proposed schedule, arguing that it should be allowed the normal 30-day period to respond to her opening brief.

It further argues that even if there is reason to shorten the DOJ’s briefing time, it should not have less than 20 days because Ms. English proposes that she be given 20 days [after the district court issued its decision] to file her opening brief.  (The district court issued its decision denying Ms. English’s preliminary injunction motion on January 10.  Under her proposed briefing schedule, she would be required to file her opening brief by January 30.)

 

 

Mick Mulvaney, President Trump’s appointee as CFPB Acting Director, has sent a letter to Fed Chair Janet Yellen “to inform [her] that for the Second Quarter of Fiscal Year 2018, the Bureau is requesting $0.” (emphasis included).

Pursuant to Section 1017(a)(1) of the Dodd-Frank Act, subject to the Act’s funding cap, the Fed is required to transfer to the CFPB on a quarterly basis “the amount determined by the [CFPB] Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year.)”

In his letter, Mr. Mulvaney states that he has been assured that the current balance of the CFPB’s fund at the Federal Reserve Bank of New York is sufficient for the CFPB “to carry out its statutory mandates for the next fiscal quarter while striving to be efficient, effective, and accountable.”  Mr. Mulvaney indicates that the CFPB’s projected second quarter expenses are approximately $145 million and its current balance at the New York Fed is $177.1 million.

Mr. Mulvaney suggests that there is no statutory support for the CFPB’s practice under former Director Cordray of maintaining a “reserve fund” for possible financial contingencies.  He states further that he sees “no practical reason for such a large reserve, since I have been informed that the Board has never denied a Bureau request for funding and has always delivered requested funds in a timely fashion” and that he intends “to spend down the reserve until it is of a much smaller size.”

Mr. Mulvaney concludes his letter with the observation that while the approximately $145 million in CFPB expenses he plans to pay from the CFPB’s reserve rather than seek new funding for “may not make much of a dent in the deficit, the men and women at the Bureau are proud to do their part to be responsible stewards of taxpayer dollars.”

 

 

 

The U.S. District Court for the Southern District of New York recently held oral argument regarding the pending motions in the Lower East Side People’s Federal Credit Union v. Trump and Mulvaney.  Pending before the Court are the credit union’s motion for a preliminary injunction, and the government’s motion to dismiss.  As we’ve reported previously, this is the second lawsuit challenging the appointment of Mick Mulvaney as CFPB Acting Director.

At the beginning of the proceeding, Judge Paul G. Gardephe indicated that he would like the parties to focus on the standing issue.  Standing is, of course, a threshold issue because the judicial power under Article III of the U.S. Constitution extends only to a “case or controversy” involving an alleged “injury-in-fact” that is “fairly traceable to the challenged action” and redressable by a favorable decision.  According to the brief filed by the DOJ, “[a]ll Plaintiff’s [opening] brief offers on standing is six words in a footnote: ‘Plaintiff is regulated by the CFPB.’”  The DOJ’s brief and the credit union’s reply brief devoted significant attention to the standing issue.

Ilann M. Maazell, arguing on behalf of the credit union, asserted that the primary source of standing was the credit union’s status as an entity regulated by the CFPB.  He relied, in part, on State National Bank of Big Spring v. Lew, a 2015 decision of the D.C. Circuit involving, inter alia, a constitutional challenge by State National Bank to the CFPB’s structure and Richard Cordray’s recess appointment as CFPB Director.  In State National Bank, the D.C. Circuit observed that “[t]he Supreme Court has stated that ‘there is ordinarily little question’ that a regulated individual or entity has standing to challenge an allegedly illegal statute or rule under which it is regulated.”  The Court inquired, however, whether the D.C. Circuit had subsequently “walked that back” in John Doe Co. v. CFPB, 849 F.3d 1129 (D.C. Cir. 2017).

In John Doe, the recipient of a CFPB non-self-executing civil investigative demand sought to challenge the constitutionality of the Bureau’s structure without objecting to any regulatory measure taken by the Bureau or identifying other regulatory burdens to which it objected.  The district court denied John Doe’s request for a preliminary injunction, holding that the plaintiff had not met its burden of demonstrating a likelihood of success on the merits or irreparable harm.  John Doe then filed with the D.C. Circuit an emergency motion for an injunction pending appeal.  In John Doe, the D.C. Circuit quoted Supreme Court precedent for the proposition that standing is not dispensed “in gross” but, rather, a plaintiff “must demonstrate standing for each claim he seeks to press and for each form of relief that is sought.”  It stated that the plaintiff had failed “to demonstrate that the action of merely requesting information from private entities subject to regulation is . . . exclusively confined to the Executive Branch, and thus that issuance of this CID by the Bureau violates separation of powers.”

Plaintiff’s counsel asserted that it was not clear that the plaintiff in John Doe, a company engaged in the business of purchasing and selling income streams, was a regulated entity.  He further argued that John Doe involved a pre-enforcement challenge in which the question presented was whether the district court had abused its discretion in determining that the plaintiff had not demonstrated a likelihood of success on the merits and irreparable harm.  With respect to the notion that “standing is not dispensed in gross,” Plaintiff’s counsel asserted that this is not the case with respect to a regulated entity, and suggested that the holding in John Doe was not based upon a lack of standing.  He further argued that the credit union was not required to violate the law in order to create standing.

The other decisions cited by Plaintiff’s counsel were Olympic Fed. Savs. & Loan Ass’n v. Dir., Office of Thrift Supervision, 732 F. Supp. 1183 (D.D.C.), appeal dismissed and remanded, 903 F.3d 837 (D.C. Cir. 1990), and Free Enter. Fund v. Pub. Co. Accounting Oversight Board, 561 U.S. 447 (2010).  In its reply brief, the credit union had cited Olympic Fed. Savs. & Loan Ass’n for the proposition that a regulated entity was directly harmed by the assertedly unconstitutional appointment of an Acting Director of the Office of Thrift Supervision (OTS).  According to the credit union’s reply brief, the district court awarded injunctive relief that “was rendered moot by the subsequent constitutional appointment of the OTS Director.”

Free Enterprise Fund involved a challenge to the constitutionality of the Sarbanes-Oxley Act provision that created the Public Company Accounting Oversight Board and, in particular, the issue of whether the district court had jurisdiction over the proceeding notwithstanding a Securities Exchange Act provision that only allowed aggrieved parties to challenge a final SEC order or rule in a court of appeals.  In its reply brief, the credit union cited Free Enterprise Fund for the proposition that it need not select and challenge a rule at random while simultaneously noting that Free Enterprise Fund involved a general challenge that was collateral to any agency rules from which review might be sought.  Its reply brief also argued that John Doe had distinguished Free Enterprise Funding as a case where “denying standing would ‘foreclose all meaningful judicial review,’ as it would here, where plaintiff has no other forum.”

Plaintiff’s counsel also referred to another source of standing, namely amendments to Regulation C, the implementing regulation for the Home Mortgage Disclosure Act, that became effective on January 1, 2018.  Although the  Regulation C amendments were not adopted under Acting Director Mulvaney, Plaintiff’s counsel stated that they are being implemented by the Acting Director and would cause the credit union to incur additional compliance costs.  In response to a question from the Court, Plaintiff’s counsel indicated that the credit union did not object to the regulation.  He asserted, however, that a regulated entity does not need to object to a regulation in order to have standing.  The credit union was granted permission to submit a declaration regarding its standing allegations relating to Regulation C.

Finally, in its reply brief, the credit union had argued that it was unable to engage in long-range planning concerning its HMDA reporting obligations due to uncertainty stemming from the Bureau’s recent announcement that it intends to reconsider various aspects of  Regulation C.  Plaintiff’s counsel asserted that none of the cases cited by the DOJ for the proposition that uncertainty does not confer standing involved a regulated entity.

Matthew J. Berns, arguing for the DOJ, asserted that no case cited by the credit union supports the proposition that uncertainty confers standing and, in response to the Plaintiff’s contrary assertion, noted that one of the cases cited by the defendant, New England Power Generators Ass’n, Inc. v. FERC, 707 F.3d 364 (D.C. Cir. 2013), did, in fact, involve a regulated entity.  He also disputed the assertion that State National Bank was predicated solely on the status of the bank as a regulated entity.  Defense counsel asserted, rather, that the decision acknowledged that the bank incurred compliance costs as a result of the CFPB Remittance Rule.  (State National Bank noted that “[t]he Bank indeed alleged that it must now monitor its remittances to stay within the safe harbor [under the CFPB Remittance Rule], and the monitoring program causes it to incur costs.”)

Defense counsel also noted that the plaintiff in John Doe had not objected to any CFPB regulation.  (In John Doe, the D.C. Circuit appears to distinguished State Bank on the basis that John Doe did not object to any regulatory action or identify any regulatory burdens other than “the harm occasioned by having to respond to a non-self-executing CID.”)   Finally, he emphasized that Supreme Court standing jurisprudence requires that an injury-in-fact that is concrete and particularized, and actual or imminent.  Whereas plaintiff’s counsel had characterized this as a quintessential standing case in which the injury consisted of being regulated by a person without the authority to regulate the credit union, defense counsel argued that this type of asserted injury was too generalized to constitute an “injury-in-fact.”

The Court asked defense counsel who would have standing to challenge the appointment of Mulvaney as Acting Director if the credit union did not have standing.  Defense counsel responded by noting that the defendants had not asserted a lack of standing in the counterpart challenge filed by Leandra English in the District of Columbia.  He further noted that a proper party could litigate the issue in a pre-enforcement challenge to a regulation or regulatory action.

Although the Court did not hear argument on the merits issues, the credit union was granted permission to submit a short letter addressing the decision by Judge Timothy J. Kelly denying the motion for a preliminary injunction by Leandra English in the D.C. lawsuit.  This submission, and the credit union’s supplemental standing declaration relating to the HMDA regulation, are due to be filed by January 19, 2018; the Defendants’ reply is due to be filed on January 24, 2018.  The Court indicated that it would rule as expeditiously as possible once the record closes.

 

 

The CFPB announced that, in coming weeks, it plans to publish in the Federal Register a series of Requests for Information (RFIs) seeking comment on its enforcement, supervisory, rulemaking, market monitoring, and educational activities.

Describing its plans as “a call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers,” the CFPB stated that the RFIs are intended to provide “an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.”

The CFPB also announced that its first RFI will seek comment on Civil Investigative Demands (CIDs), and the comments received will be used to evaluate current CID processes and procedures and determine whether any changes are needed.

According to Mick Mulvaney, President Trump’s appointee as Acting Director, the RFIs are part of the CFPB’s efforts “under new leadership…to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate.”  Mr. Mulvaney also stated that “[m]uch can be done to facilitate greater consumer choice and efficient markets, while vigorously enforcing consumer financial law in a way that guarantees due process.”

 

Leandra English has filed an emergency motion with the U.S. Court of Appeals for the D. C. Circuit requesting expedited briefing and oral argument in her appeal from the district court’s denial of her preliminary injunction motion in her action seeking a declaration that she, and not Mick Mulvaney, is the lawful CFPB Acting Director.

Ms. English argues that even without the “special circumstances” presented by her case, her appeal is entitled to expedited consideration because she is appealing from the denial of a preliminary injunction.  In support, Ms. English cites to 28 U.S.C. section 1657(a) which requires a federal court to “expedite the consideration of any action…for temporary or preliminary injunctive relief,” and to D.C. Circuit Rule 47.2(a), which directs the clerk of the court, in an action seeking such relief, to ” prepare an expedited schedule for briefing and argument” after docketing the appeal.

Ms. English also points to language in 28 U.S.C. section 1657(a) requiring expedited review when “good cause is shown” and asserts that, pursuant to the D.C. Circuit’s Handbook of Practice and Internal Procedures, “good cause” exists where a delay in hearing an appeal will cause irreparable injury and the decision under review is subject to “substantial challenge,” or if the public has “an unusual interest in prompt disposition.”

According to Ms. English, there is an “urgent public need for clarity” as to who is the lawful Acting Director because “doubt over who is the legitimate Acting Director hurts the public by casting a pall over the validity of the agency’s actions, since actions taken by an illegally appointed Director may themselves be unlawful.”  She also claims that as a result of the freeze imposed by Mr. Mulvaney on significant CFPB actions, “the public is deprived of the protections and guidelines that Congress intended the CFPB to provide.”

Ms. English also argues that the district court’s ruling is subject to substantial challenge, as proven by the “bevy of amicus briefs filed below” in her support.  She claims that she has suffered irreparable injury by virtue of “the usurpation of her statutorily-conferred position at the fore of a major federal agency” and that such injury “will continue every day that Mr. Mulvaney claims to hold the office of Acting Director.”  She further claims that a finding that her injury does not qualify as irreparable harm “would also have the pernicious result of rewarding and encouraging illegal temporary appointments.”

Ms. English proposes the following briefing schedule:

  • Appellant’s opening brief: January 30, 2018
  • Amicus briefs supporting appellant: February 6, 2018
  • Appellees’ brief: February 13, 2018
  • Amicus briefs supporting appellees: February 20, 2018
  • Appellant’s reply brief: February 22, 2018

 

 

Despite the CFPB’s change in position after Mick Mulvaney’s appointment regarding the need for Nationwide Biweekly Administration to post a bond to stay execution of the $7.9 million judgment obtained by the CFPB, the CFPB has opposed Nationwide’s motion to alter, amend, or vacate the judgment.

In its action against Nationwide, another related company, and the companies’ individual owner, the CFPB alleged that the defendants engaged in abusive and deceptive acts or practices in violation of the CFPA UDAAP prohibition by making false representations regarding the costs of a biweekly mortgage payment program and the savings consumers could achieve through the program.  A California federal district court refused to award restitution sought by the CFPB but did award the CFPB approximately $7.9 in civil money penalties.

Although it had initially filed a response opposing the defendants’ motion to stay execution of the judgment without posting a bond, the CFPB filed a notice following Mr. Mulvaney’s appointment as Acting Director stating that it was withdrawing its response and took “no position on whether the court should require a bond pending the disposition of the defendants’ anticipated post-trial motions.”

In its opposition to the defendants’ post-trial motion to alter, amend, or vacate the judgment, the CFPB rejected the defendants’ argument that the CFPB was required to establish rules interpreting what constitutes deceptive acts or practices before bringing an enforcement action.  The CFPB stated that “nothing the CFPA mandates that the Bureau engage in rulemaking prior to commencing a lawsuit against entities engaged in violations of Federal consumer financial law.”  It also rejected the defendants’ argument that the deception standard in the CFPA is unconstitutionally vague, asserting that the defendants “cannot credibly argue that they were not on notice that the CFPA prohibited deceptive and abusive acts or practices in connection with the sale or offering of consumer financial  products or services like [the defendants’ biweekly payment program].”

Also rejected by the CFPB was the defendants’ argument that they were entitled to relief from the judgment based on their current inability to pay.  The CFPB  stated that the court “appropriately imposed a $7.93 million penalty commensurate with the size of the business as it was during the lawful conduct.”

It seems likely that, in deciding to defend its judgment, the CFPB deemed the case one that involved garden-variety deception claims rather than one in which the CFPB had taken aggressive positions regarding its jurisdiction or in its theory of liability.  The CFPB’s approach also appears to be consistent with statements made by Mr. Mulvaney that he planned to review pending CFPB litigation on a case-by-case basis.

 

 

 

On January 12, 2018, the U.S. Supreme Court agreed to hear the Lucia case in which Raymond J. Lucia is challenging how the SEC appoints administrative law judges (“ALJs”). He argues that ALJs are “inferior officers” who must be appointed by the President, the courts, or a department head in accordance with the Constitution’s appointments clause. Lucia filed a petition for certiorari with the Supreme Court after the D.C. Circuit rejected his argument. A circuit split was created when the 10th Circuit reached the opposite conclusion in another case making a similar appointments clause challenge. The Supreme Court’s decision in Lucia may impact numerous past and pending ALJ decisions, including cases involving the CFPB, most notably the PHH case. We’ve discussed the potential impact of Lucia and the related 10th Circuit case before and will continue to follow them closely.

Earlier today, Leandra English filed a notice of appeal with the D.C. District Court. She is appealing the Court’s denial of her preliminary injunction motion through which she sought to block Mick Mulvaney from serving as the CFPB’s Acting Director. The notice of appeal indicates that she is seeking expedited review by the D.C. Circuit. While the appeal is no surprise, it indicates that this case is far from over.

Yesterday, U.S. District Court Judge Timothy J. Kelly denied Leandra English’s motion for a preliminary injunction in a 46-page opinion. English had sought to block President Trump’s appointment of Mick Mulvaney to serve as the CFPB’s Acting Director. The Court denied that request and held that English failed to satisfy  any of the four elements of her preliminary injunction claim.

The Court found that English was unlikely to ultimately succeed on the merits of her claim. It held that the Vacancies Reform Act (“VRA”) gave President Trump the right to appoint a CFPB Acting Director and that the Dodd-Frank Act did not displace the President’s VRA authority. In reaching that conclusion, the Court relied on language in Dodd-Frank providing that all federal laws relating to federal employees or officers – such as the VRA – apply to the CFPB “except as otherwise provided expressly by law.” It found that Dodd-Frank’s reference to the Deputy Director’s service as the Acting Director in the Director’s “absence or unavailability” did not constitute an “express” provision of law overriding the VRA.

English had argued, under the canon of statutory construction that specific statutes trump general ones, that the Dodd-Frank provision was more specific than the VRA, and thus controlled. The Court soundly rejected this argument, finding that the VRA’s reference to “vacancies” was more specific to this situation than Dodd-Frank’s reference to the Director’s “absence or unavailability.”

The Court also rejected English’s argument that a different result was required because Dodd-Frank used the word “shall” in reference to the Deputy Director’s service as Acting Director. It relied on the commonsense notion that, while the word “shall” is generally mandatory, it is not necessarily unqualified. The court recognized that this very notion is embedded in Dodd-Frank itself. Dodd-Frank says that the Director “shall serve as the head of the [CFPB].” If “shall” were unqualified in that context, then the provision stating that the President “may” remove the Director for cause would be meaningless (and the statute nonsensical).

Further, relying on the doctrine of constitutional avoidance, the Court rejected English’s position because it would create serious constitutional problems. “Under English’s reading, the CFPB Director has unchecked authority to decide who will inherit the potent regulatory and enforcement powers of that office, as well as the privilege of insulation from direct presidential control, in the event he resigns. Such authority appears to lack any precedent, even among other independent agencies.”

If the CFPB Director had that much control over his successor, it would severely diminish the President’s control over Executive officers and thus his constitutional duty to “take care that the laws be faithfully executed,” the Court held. It also acknowledged that a panel of the D.C. Circuit has already found that the CFPB’s structure is unconstitutional. It held that English’s reading of the statutes would only exacerbate those problems.

English had equal difficulty convincing the Court that she would suffer irreparable harm if an injunction were not issued. The only harm she proffered was the intangible harm she would suffer from being unable to perform the duties of the Acting Director. The Court declined to adopt the reasoning of the only authority supporting the proposition that such harm was irreparable harm — an unpublished district court decision from 1983 involving the termination of officers of an agency that would automatically cease to exist under its implementing statute thus precluding their later reinstatement. The Court found that English “utterly failed to describe any [irreparable] harm.”

On the third and final elements of English’s claim – balance of the equities and public interest – the Court found her claim equally wanting. English said that the need for clarity meant that an injunction should issue. The Court held that, “There is little question that there is a public interest in clarity here, but it is hard to see how granting English an injunction would bring any more of it. . . . The President has designated Mulvaney the CFPB’s acting Director, the CFPB has recognized him as the acting Director, and it is operating with him as the acting Director. Granting English an injunction . . . would only serve to muddy the waters.”

Finding that English failed to meet her burden on even one element of her preliminary injunction claim, the Court denied her motion. The Court’s decision does not ultimately resolve the merits of the case and English will doubtless file an appeal with the D.C. Circuit. Because of the cloud that the ongoing litigation casts on the legality of any of Mulvaney’s actions, President Trump should appoint a permanent Director without delay.

On December 29, 2017, the Lower East Side People’s Credit Union (“People’s”) filed a reply brief in support of its preliminary injunction motion in which it seeks to block the appointment of Mick Mulvaney as the Acting CFPB Director. The arguments were largely the same as those advanced in its motion.

The one exception is that People’s spent considerable time arguing that Mulvaney’s decision to pause HMDA-related enforcement actions was causing People’s concrete harm. Banks know that regulators use HMDA data to evaluate Community Reinvestment Act (“CRA”) compliance. People’s claims that, to satisfy their CRA obligations, Banks often make deposits at People’s that pay no or low interest. People’s uses those deposits to make loans in the community.  People’s argued that Mulvaney’s policy with respect to HMDA enforcement will give banks an incentive to falsify their HMDA data to appear compliant with the CRA without actually making the deposits. This, People’s argues, will have an adverse interest on its bottom line. To call the argument “strained” is beyond generous.