592 F.Supp.3d 258
S.D.N.Y.2022Background
- CFPB and New York AG sued RD Legal entities and Roni Dersovitz on Feb. 7, 2017, alleging that cash-advance transactions were deceptive and functioned as usurious loans.
- At filing, CFPB Director Richard Cordray was Senate-confirmed and removable only for cause under the CFPA; the CFPB invoked 12 U.S.C. § 5564 to bring the enforcement action.
- This Court (RD Legal I) originally dismissed the CFPB claims based on the CFPA’s for-cause removal provision; the Supreme Court later held that the removal restriction is unconstitutional but severable (Seila Law), and the Second Circuit remanded for a ratification inquiry (RD Legal II).
- Acting Director Mulvaney delegated a ratification in 2018; Director Kathleen Kraninger executed a July 8, 2020 ratification (more than three years after the complaint was filed).
- The Supreme Court’s decision in Collins v. Yellen (2021) held that a properly appointed agency head’s actions are not void merely because a removal restriction was unconstitutional and that relief is available only if the removal restriction caused compensable harm; applying Collins, the district court held the CFPB possessed authority to sue and denied defendants’ motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CFPB’s Feb. 2017 enforcement filing was void because Director Cordray was removable only for cause | Under Collins, proper appointment (not removability) determines whether actions are valid; CFPB had authority to sue | The for-cause removal restriction rendered the CFPB’s action void ab initio | Court: CFPB had authority; action not void; no ratification required |
| Whether Director Kraninger’s July 8, 2020 ratification was necessary and, if necessary, timely under the 3‑year statute of limitations | Ratification unnecessary because the original filing was valid under Collins | Even if ratification doctrine applied, Kraninger’s ratification came after the 3‑year limitations period and therefore cannot save the suit | Court: Ratification unnecessary in light of Collins; did not rely on Kraninger’s ratification |
| Whether defendants are entitled to dismissal as a remedy because the unconstitutional removal provision caused them harm | CFPB: defendants cannot show the unconstitutional removal restriction caused the agency to bring or maintain the suit; subsequent directors continued prosecution | Defendants: but-for the removal restriction, Cordray would have been removed and the suit would not have been filed | Court: No causal nexus shown; enforcement decision was prosecuted continuously under Mulvaney and Kraninger; dismissal not warranted |
Key Cases Cited
- Seila Law LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020) (removal restriction unconstitutional but severable; properly appointed director retains authority)
- Collins v. Yellen, 141 S. Ct. 1761 (2021) (unconstitutional removal restriction does not void actions by properly appointed head; remedy available only if restriction caused compensable harm)
- Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, 332 F. Supp. 3d 729 (S.D.N.Y. 2018) (district court’s earlier opinion dismissing CFPB claims on separation-of-powers grounds)
- Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, [citation="828 F. App'x 68"] (2d Cir. 2020) (summary order remanding for consideration of ratification)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must state a plausible claim)