Bureau of Consumer Fin. Prot. v. Ctr. for Excellence in Higher Educ.

Decision Date13 September 2022
Docket Number2:19-cv-00877-RJS-CMR
PartiesBUREAU OF CONSUMER FINANCIAL PROTECTION, Petitioner, v. CENTER FOR EXCELLENCE IN HIGHER EDUCATION, Respondent.
CourtU.S. District Court — District of Utah

Cecilia M. Romero Magistrate Judge

MEMORANDUM DECISION AND ORDER OVERRULING OBJECTION TO REPORT AND RECOMMENDATION
ROBERT J. SHELBY UNITED STATES CHIEF DISTRICT JUDGE

This matter arises from a Petition by the Bureau of Consumer Financial Protection (the Bureau) to enforce a Civil Investigative Demand (CID) against Respondent, the Center for Excellence in Higher Education (the Center) for potential violations of the Consumer Financial Protection Act.[1] The Center objected to the CID, and this case was referred to Magistrate Judge Cecilia M. Romero pursuant to 28 U.S.C § 636(b)(1)(B).[2] Judge Romero issued a Report and Recommendation in which she recommends granting the Bureau's Petition to Enforce the CID as to information concerning the Center's private student loan program, and denying the CID as to information regarding previous litigation in which the Center has been a party.[3] Now before the court is the Center's Objection to the Report and Recommendation.[4] For the reasons explained below, the Center's Objection is OVERRULED.

FACTUAL BACKGROUND

The Bureau is an executive agency charged with “regulat[ing] the offering and provision of consumer financial products or services under the Federal consumer financial laws.”[5] The Bureau has the power to issue a CID-essentially a subpoena-whenever it “has reason to believe that any person may be in possession, custody, or control of any documentary material or tangible things, or may have information, relevant to a violation.”[6] The Bureau is funded through multiple mechanisms. Annually, the Bureau's Director requests an amount from the Federal Reserve, not to exceed twelve percent of the Federal Reserve's total operating expenses.[7]Additionally, the Bureau collects penalties in a separate fund called the “Consumer Financial Civil Penalty Fund,” which is used to compensate victims of prohibited activities or, if not practicable, for consumer education and financial literacy programs.[8] At any point, if the Bureau needs funds beyond these amounts, it must seek them through congressional appropriation.[9]

The Center is a private, non-profit organization that previously operated multiple institutions of higher education across fifteen physical campuses and one online college.[10] As a function of its education services the Center offered private financing, referred to as an EduPlan loan, to students who were unable to afford the full projected tuition costs.[11] In April 2019, when the Bureau issued the CID, the Center employed approximately 1,900 people.[12] But in August 2021, the Center closed all of its colleges and it currently has approximately fifteen employees.[13]

In December 2012 and September 2013, the Colorado Attorney General (Colorado AG) served two subpoenas on the Center seeking records pertaining to: (1) the Center's educational programs, (2) financial aid availability, (3) private financing options, and (4) other aspects of the Center's school program dating back to 2006.[14] The Colorado AG eventually filed a complaint in Colorado state court against the Center in December 2014, alleging violations of Colorado's Consumer Protection Act and the Colorado Uniform Consumer Credit Code.[15] During the ensuing litigation, the Center produced “hundreds of thousands of pages of documents in discovery.”[16] During the course of that litigation, the Colorado AG was sanctioned by the Colorado state court for sharing documents with the Bureau in violation of a sealing order.[17]

On April 12, 2019, the Bureau issued a CID to the Center, seeking the testimony of a Center representative about: (1) the Center's private student loan program and (2) litigation involving the Center's student loan program in which it had been a party since the beginning of 2012.[18] The Bureau initially set an investigational hearing for May 21, 2019.[19] After the Bureau denied the Center's administrative petition to modify or set aside the CID, the hearing was rescheduled for October 11, 2019.[20] The Center then informed the Bureau that it would not appear for the hearing without a court order.[21]

PROCEDURAL HISTORY

The Bureau filed the instant Petition to Enforce the CID on November 11, 2019.[22] It brough this action pursuant to 12 U.S.C. § 5562(e)(1), which authorizes the Bureau to petition the district court in “any judicial district in which [the respondent] resides, is found, or transacts business” for an order to enforce a CID.[23] In the petition, the Bureau claimed it was seeking relevant information regarding the Center's EduPlan student loan program to assess whether the program constituted unfair, deceptive, or abusive acts or practices that potentially violated the Consumer Financial Protection Act (CFPA).[24] The Bureau asked the court to order the Center to show cause why it should not be required to comply with the CID and to order the Center to fully comply.[25]

After the case was referred to Judge Romero,[26] the Center filed its Response to the Petition, claiming the CID was unenforceable for several reasons.[27] First, the Center argued the Bureau is unconstitutionally structured because the CFPA “violates the separation of powers by conferring substantial executive powers on the Bureau's director without subjecting the director to presidential control.”[28] This leadership structure, the Center argued, renders the Bureau unconstitutional and therefore lacking authority to enforce the CID.[29] At the very least, the Center noted the Bureau's constitutionality was a question pending before the Supreme Court, and argued this court should stay its ruling until the Court issued a decision.[30] Second, the Center argued the CID was unreasonably oppressive because it covered a seven-year period, from 2012 until the date it was issued, and the legality of the EduPlan program had already been fully litigated in an action brought by the Colorado AG.[31] Last, the Center argued the CID was “issued for an improper purpose,” namely to create a “perjury trap” because the Bureau refused to provide the Center further elaboration on what it was seeking testimony about.[32]

The Bureau filed a brief in support of its Petition on January 15, 2020.[33] On June 16, 2020, Judge Romero heard oral argument and took the matter under advisement.[34]

On April 20, 2022, Judge Romero issued a Report and Recommendation in which she recommended that the Petition to Enforce the CID be granted in part and denied in part.[35] Judge Romero recommended granting the CID with respect to questions regarding the Center's private student loan program, but found that requiring the Center to testify about all prior litigation it had been involved in would be overly burdensome.[36] Judge Romero considered the Center's other arguments concerning the constitutionality of the Bureau and whether the CID was issued for an improper purpose, and rejected both.[37] The Center filed a timely Objection to Judge Romero's Report and Recommendation on May 4, 2022.[38]

LEGAL STANDARDS

Under Federal Rule of Civil Procedure 72(b)(3), when a party objects to a magistrate judge's recommended disposition, [t]he district judge must determine de novo any part of the magistrate judge's disposition that has been properly objected to.”[39] “The district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions.”[40]

Concerning unobjected-to portions of a report and recommendation, the Supreme Court has suggested no further review by the district court is required, but neither is it precluded.[41] Accordingly, this court reviews the unobjected-to portions of Judge Romero's Report and Recommendation for clear error.[42]

ANALYSIS

At the outset, it is helpful to establish which parts of the Report and Recommendation the Center has objected to-and as such must be reviewed de novo. The court notes three specific objections:[43] (1) the Bureau's structure violates the Constitution by shielding it from the congressional appropriations process,[44] (2) the CID was issued for an improper purpose and is unreasonably oppressive,[45] and (3) if a response is required, the court should permit ninety days where Judge Romero's recommendation to order a response within thirty days provides insufficient time for the Center to prepare testimony.[46] The court considers each objection in turn.

I. The CID is Within the Authority of the Bureau

In the intervening period between Judge Romero hearing oral argument and releasing her Report and Recommendation, the Supreme Court issued an opinion deeming the appointment and removal mechanism for the Bureau Director unconstitutional.[47] But the Court also held the appointment mechanism severable from the rest of the CFPA, allowing the Bureau to continue to exist and operate.[48] The Supreme Court has also held that an agency director, whose for-cause removal protections are held unconstitutional, can ratify prior decisions after the agency has been restructured.[49] Thus, actions taken by the director, while subject to unconstitutional removal protections, are not irredeemably void.[50] The Bureau's Director, now removable by the President at will, has reconsidered and decided to ratify the CID issued to the Center.[51]

The Center does not contest the effect of these holdings.[52] Rather, the Center now argues the Bureau is unconstitutionally structured for another reason contending that [e]xempting the [Bureau] from the appropriations process improperly frees it from...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT