John Doe Co. v. Consumer Fin. Prot. Bureau

Decision Date17 February 2017
Docket NumberCivil Action No.: 17–0049 (RC)
Citation235 F.Supp.3d 194
CourtU.S. District Court — District of Columbia

Cathy A. Hinger, Womble Carlyle Sandridge & Rice, LLP, Washington, DC, Christopher W. Jones, Samuel B. Hartzell, Womble Carlyle Sandridge & Rice, LLP, Raleigh, NC, Eric Epstein, Dorsey & Whitney, LLP, New York, NY, for Plaintiff.

Christopher John Deal, Steven Y. Bressler, Office of General Counsel, Consumer Financial Protection Bureau, Washington, DC, for Defendants.



RUDOLPH CONTRERAS, United States District Judge


In PHH Corporation v. CFPB , a panel of the D.C. Circuit held that that the Consumer Financial Protection Bureau is unconstitutionally structured, because the Director is removable only for cause. Without democratic accountability through at-will termination by the President of the United States, the PHH Corporation panel reasoned, the Director has massive, unchecked power that he can use to infringe upon citizens' liberty. As a remedy, instead of striking the entire CFPB or its enabling statute, the panel simply excised the unconstitutional for-cause removal provision, leaving the CFPB functioning as an executive agency. But because the CFPB predictably petitioned for a rehearing en banc , the panel stayed its mandate until the CFPB's petition is resolved. Thus, after the mandate was stayed the Director continued to be removable only for cause, despite the panel having found that that CFPB was unconstitutionally structured.

Shortly after this limbo period—the time between when a panel of the D.C. Circuit found the CFPB unconstitutional and the issuance of a circuit mandate—began, the CFPB issued a civil investigative demand to John Doe Company, requesting information relevant to its investigation. John Doe Co. petitioned the CFPB to have the CID set aside on the grounds that the CFPB was acting while unconstitutionally structured or, in the alternative, to have the CID treated confidentially, but the Director denied the company's request, informing it that the CFPB would be posting the CID and order to the agency's public website shortly. John Doe Co. raced to court, requesting preliminary injunctive relief that would prevent the allegedly unconstitutionally-structured CFPB from taking further adverse actions against the company. But, on February 16, 2017, the D.C. Circuit granted the CFPB's petition for a rehearing en banc in PHH Corporation , vacating the panel decision and eliminating the state of limbo on which John Doe Co.'s request for injunctive relief was based.

Although at some later point in this case the Court may very well be convinced that, as the PHH Corporation panel held, the CFPB was unconstitutionally structured during the course of its investigation, John Doe's briefing of the preliminary injunction motion was directly undermined by the vacatur of the PHH Corporation opinion. Thus, based on the current briefing, Plaintiff has failed to show that it is substantially likely to succeed in its pursuit of injunctive relief that would prevent the agency from taking any adverse action against John Doe Co. Moreover, Plaintiff has not shown that it faces likely irreparable harm in the absence of a preliminary injunction. Accordingly, the Court denies its motion. However, because of the novel issues presented in this case and the Plaintiff's partial inability to remedy them if the CFPB is permitted to publicize John Doe Co.'s identity, the Court will issue a narrow injunction to preserve John Doe Co.'s rights for a short period of time so that it may seek a stay from the Court of Appeals.

A. PHH Corporation v. CFPB

In October 2016, a panel of the D.C. Circuit held that the CFPB is unconstitutionally structured. See PHH Corp. v. CFPB , 839 F.3d 1, 8 (D.C. Cir. 2016), reh'g en banc granted , D.C. Cir. No. 15–1177, Feb. 17, 2017. In PHH Corporation , a mortgage lender who was subject to a CFPB enforcement action petitioned the D.C. Circuit for review, arguing that the agency's "status as an independent agency headed by a single Director violates Article II of the Constitution." Id. at 7. Judge Kavanaugh, writing for the panel, found that the existence of a single agency director, insulated from democratic accountability by a for-cause removal provision, presented serious separation-of-powers issues. See id. at 7–8. He called "the single-Director structure of the CFPB ... a gross departure from settled historical practice," and reasoned that "[t]he ... concentration of enormous power in a single, unaccountable, unchecked Director ... poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency." Id. at 8. He went so far as to say that the CFPB Director's "enormous power over American business, American consumers, and the overall U.S. economy" gave him "more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the President." Id. at 7.

Judge Randolph, in a short concurrence, did not take issue with Judge Kavanaugh's analysis, but stated that he "believe[d] that the ALJ who presided over the hearing was an ‘Inferior Officer’ " that should have been appointed by the President. Id. at 55 (Randolph, J., concurring). Judge Henderson, in a longer concurrence, would have found for the plaintiff on statutory grounds and avoided the constitutional issues altogether. See id. at 56 (Henderson, J., concurring) ("[M]y colleagues don't stop [at the statutory issue]. Instead, they unnecessarily reach PHH's constitutional challenge, thereby rejecting one of the most fundamental tenets of judicial decisionmaking. With respect, I cannot join them in this departure from longstanding precedent.").

In fashioning a remedy, the panel decided between striking down the entire Dodd–Frank Act, striking down the portions creating the CFPB, and "narrowly strik[ing] down and sever[ing] the one for-cause removal provision that is the source of the constitutional problem." Id. at 37. Judge Kavanaugh favored the latter approach because "[g]enerally speaking, when confronting a constitutional flaw in a statute, [courts] try to limit the solution to the problem, severing any problematic portions while leaving the remainder intact." Id. (quoting Free Enter. Fund v. PCAOB , 561 U.S. 477, 508, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010) ). The court thus held that the Dodd–Frank Act and the CFPB would "remain ‘fully operative as a law’ without the for-cause removal restriction." Id. at 38 (quoting Free Enter. Fund , 561 U.S. at 508, 130 S.Ct. 3138 ) ("Operating without the for-cause removal provision and under the supervision and direction of the President, the CFPB may still ‘regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws[.] "). "The CFPB therefore [was to] continue to operate and to perform its many duties, but ... as an executive agency." Id. at 8. With the CFPB functioning as an executive agency, the D.C. Circuit found no constitutional impediment to the enforcement of the administrative order against PHH Corporation. Id. at 39 ("Because our constitutional ruling will not halt the CFPB's ongoing operations or the CFPB's ability to uphold the $109 million order against PHH, we must also consider PHH's statutory objections to the CFPB enforcement action in this case.").

The D.C. Circuit withheld issuance of the mandate until "seven days after disposition of any timely petition for rehearing or petition for rehearing en banc." Order, Document No. 16410102, USCA Case No. 15–1177, October 11, 2016. The CFBP did indeed timely petition for rehearing en banc, effectively staying the mandate until after the petition is resolved. See CFPB's Pet. Reh'g En Banc, Doc. No. 1646917, USCA No. 15–1177, November 18, 2016. On February 16, 2017, the D.C. Circuit granted the CFPB's petition, vacating the panel's decision. See Order on Pet. for Reh'g en banc, Doc. No. 1661681, USCA No. 15–1177, Feb. 17, 2017. Neither side has provided briefing on the underlying constitutional issue addressed by Judge Kavanaugh's opinion in PHH Corporation .

B. Civil Investigative Demands

Under 12 U.S.C. § 5562, the CFPB has the power to issue civil investigative demands ("CIDs") "[w]henever the Bureau has reason to believe that any person may be in possession, custody, or control of any ... information[ ] relevant to a violation." § 5562(c)(1) ; Laverpool v. Taylor Bean & Whitaker Reo LLC , No. 16-cv-690, 229 F.Supp.3d 5, 20, 2017 WL 90335, at *10 (D.D.C. Jan. 10, 2017) (Kollar–Kotelly, J.) ("The[se] provisions of the Dodd–Frank Act ... relate to the function and powers of [CFPB], including the authority to issue [CIDs] and to seek enforcement of CIDs by the district court."). The CID is required to state the nature of the alleged violation and may require the recipient to produce documents or testimony related to the investigation. See 12 U.S.C. § 5562(c)(2)(3). "CFPB investigations are generally confidential." John Doe Co. No. 1 v. CFPB , 195 F.Supp.3d 9 (D.D.C. 2016) (Moss, J.). Materials received from a CID are "subject to requirements and procedures regarding confidentiality, in accordance with rules established by the [CFPB]." 12 U.S.C. § 5562(d)(1).

Recipients of CIDs may petition for the demand to be set aside and may raise constitutional "right[s]" in their petitions. Id. § 5562(f). CIDs may be set aside if they are issued "outside the scope of the [CFPB]'s authority." C F PB v. Accrediting Council for Indep. Colleges & Sch. , 183 F.Supp.3d 79,...

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