Consumer Fin. Prot. Bureau v. Sprint Corp.
| Decision Date | 20 June 2017 |
| Docket Number | 14cv9931 |
| Parties | CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v. SPRINT CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of New York |
The State Attorneys General of Connecticut, Vermont, Indiana, and Kansas (the ) move to intervene and modify the terms of the Stipulated Final Judgment and Order entered on June 30, 2015 (the "Final Judgment," ECF No. 25). Jointly with the State AGs, Defendant Sprint Corporation ("Sprint") seeks modification of the Final Judgment. For the reasons that follow, the State AGs' motion to intervene is granted, but the motions for modification are denied.
Nearly two years ago, this Court approved a settlement between the Consumer Financial Protection Bureau (the "CFPB") and Sprint, and closed this case. In January 2017, the State AGs sought to revive it by moving to intervene and modify the Final Judgment. Their motion raises an intriguing question: can funds left over from a settlement secured by an agency of the Federal Government in a federal action—and originally destined for the U.S. Treasury—go to the States? It also invokes an ancillary, but related, question: does the States' post-hoc request encroach on the Federal Government's authority to oversee the terms of a federal consent decree?
A fair reading of the Final Judgment's terms leads this Court to conclude that the relief sought by the State AGs was never contemplated by the parties. The Final Judgment and the documents it incorporates cabin relief to Sprint's third-party billing practices. Moreover, allowing nearly thirty percent of the settlement to fund a measure advocated for primarily by the States would supplant the authority and responsibility of the Federal agency—here the CFPB—to make its own determination of how unexpended settlement funds should be distributed in accord with the parties' intentions.
To better understand this Court's conclusion that the proposed modification is improper, some context is necessary. On June 30, 2015, this Court approved and entered the Final Judgment. That judgment memorialized and incorporated by reference the terms of a $50 million settlement between Sprint and the CFPB, a federal agency tasked with protecting consumers from unfair, deceptive, or abusive practices. (See Final Judgment at ¶¶ 35-37.) The CFPB settlement was one of three separate settlements that Sprint reached with government regulators, the others being the Federal Communications Commission ("FCC") and state authorities from all fifty states and the District of Columbia. These other settlements yielded monetary sums of $6,000,000 and $12,000,000, respectively. (See ECF Nos. 18-6 and 18-7.) The CFPB, FCC, and States' settlements addressed largely the same issue—Sprint's third-party billing practices.
Upon entry of the Final Judgment, and pursuant to the terms of the Sprint Consumer Redress Plan (the "Redress Plan") (ECF No. 21-3), Sprint initiated the process of identifying and processing the claims of affected consumers. Thereafter, beginning in January2016, Sprint issued approximately $34.9 million in payments to the claimants. Redress to consumers has been complete since the autumn of 2016.
With nearly $15.1 million hanging in the balance, the parties were prepared to transmit the funds to the U.S. Treasury pursuant to a residual clause in the Redress Plan. (See Response of Sprint Corporation ("Sprint Resp."), ECF No. 45 at 2.) But in December 2016, the transfer was put on hold after the CFPB informed Sprint that "the States had a potential proposal for the use [of] the Remaining Funds." (Sprint Resp. at 2.) Contrary to an express provision of the Redress Plan that required Sprint to transfer the remaining funds to the CFPB by September 2016 (see Redress Plan at ¶ 22), the unexpended funds remain in Sprint's hands to this day—their transfer stalled by the States' attempt to re-write the residual clause.
In January 2017, the State AGs filed their motion to intervene and modify the Final Judgment. .) Their motion seeks to redirect the remaining $15.1 million to finance the completion of the Center for Consumer Protection, an institute operated by the National Attorneys General Training and Research Institute ("NAGTRI"). (State AG Mot. at 4, Ex. B.) In February 2017, the State AGs doubled down on their request, this time in a joint motion with Sprint, seeking to allocate $14 million to NAGTRI and $1.1 million to the 1Million Project, an organization that "provides free devices and service to schools and non-profits to benefit one million low-income high school students." (Joint Submission Regarding Motion to Intervene and Modification of the Proposed Final Order and Judgment ("State AG-Sprint Mot."), ECF No. 40 at 2.) The CFPB, despite being the plaintiff that commenced this action, filed nothing with this Court. It only relayed to the State AGs and Sprint that it would "take[] no position on the proposed modification." (State AG-Sprint Mot. at2.) The FCC also advised the parties "that it would not be responding with any such objections." (State AG-Sprint Mot. at 2.)
In April 2017, confounded by the CFPB's conspicuous silence on this issue, this Court directed the CFPB to respond to the State AGs' motion. This Court also directed the U.S. Department of Justice, acting on behalf of the U.S. Treasury, to weigh in. See Consumer Fin. Prot. Bureau v. Sprint Corp., 2017 WL 1431122, at *2-3 (S.D.N.Y. Apr. 10, 2017) ("April 10 Order").
In May 2017, the CFPB filed a gossamer two-page memorandum, modifying its previous position of indifference to one of steadfast opposition to the State AGs' proposal. (Plaintiff's Memo. on the Joint Motion to Intervene to Modify Stipulated Final Judgment and Order, ECF No. 43.) The DOJ opposed the proposed modification in a thoughtful submission. (Statement of Interest of the United States of America ("DOJ Statement"), ECF No. 42.) In response, Sprint and the State AGs filed separate briefs. Sprint, while still advocating for modification, took a more measured tone, in essence deferring to this Court on the issue. (Sprint Resp. at 5.) The State AGs maintained a full-court press, infusing their brief with a new basis to substantiate their modification request. .)
As an initial matter, the State AGs' request for intervention is treated as a separate issue from their application for modification. The "decision to allow a party to intervene for the limited purpose of modifying a [final judgment] does not automatically mean the court will grantthe motion to modify" the Final Judgment. In re Ethylene Propylene Diene Monomer (EPDM) Antitrust Litig., 255 F.R.D. 308, 314 (D. Conn. 2009).
Permissive intervention is the proper method for a nonparty to seek modification of a judgment. See AT&T Corp. v. Sprint Corp., 407 F.3d 560, 562 (2d Cir. 2005). Rule 24(b)(2) provides that on "timely motion, the court may permit anyone to intervene who . . . has a claim or defense that shares with the main action a common question of law or fact." The decision to grant permissive intervention is "wholly discretionary with the trial court." U.S. Postal Serv. v. Brennan, 579 F.2d 188, 191 (2d Cir. 1978).
To determine whether an intervention request is timely, courts may consider: "(1) how long the applicant had notice of the interest before it made the motion to intervene; (2) prejudice to existing parties resulting from any delay; (3) prejudice to the applicant if the motion is denied; and (4) any unusual circumstances militating for or against a finding of timeliness." In re Bank of N.Y. Deriv. Litig., 320 F.3d 291, 300 (2d Cir. 2003). "Of these factors, the length of time from notice to application is among the most important." Andrews v. Sony/ATV Music Pub., LLC, 2017 WL 770614, at *9 (S.D.N.Y. Feb. 24, 2017) (internal quotation marks and citation omitted). Here, notice of the State AGs' interest is measured from the time they became aware of the remaining funds to the time they sought to intervene.
The Department of Justice contends the State AGs had notice of their interest "long before" the intervention motion was filed—at least as early as June 30, 2015, the date on which the Final Judgment was entered. (DOJ Statement at 2.) At that point in time, however, the State AGs were only aware of the mere possibility that the settlement funds would not be fully distributed. Sprint had until December 31, 2015 to notify potential claimants and process all properly filed claims. (Redress Plan at ¶ 14.) And with the settlement distribution processscheduled to be completed within ninety days of January 1, 2016 (see Redress Plan at ¶ 19), none of the parties could have known whether funds would remain until after March 30, 2016. The Redress Plan further provides that if "there is any balance remaining after nine months from the Claims Deadline (whether by reason of tax refunds, uncashed checks or otherwise), Sprint will pay that amount" to the CFPB. (Redress Plan at ¶ 22.) Throughout the redress period—at least through September 30, 2016—the only parties privy to the settlement process were Sprint and the CFPB.
Other parties, namely the "Participating States" and the FCC, could enter the picture only after "redress has been administered." (Redress Plan at ¶ 28.) The Redress Plan required Sprint to provide the CFPB "aggregate data" regarding settlement information, such as the number of accountholders, the states in which they live, and the total amount of redress. The Redress Plan then directed the CFPB to share that information with the States and the FCC. (Redress Plan at ¶ 28.) At this point, the States presumably had the relevant...
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