Consumer Financial Protection Bureau v. Morgan Drexen, Inc.
60 F. Supp. 3d 1082
C.D. Cal.2014Background
- CFPB was created by the Dodd-Frank Act as an independent agency within the Federal Reserve System to regulate consumer financial laws.
- Plaintiff CFPB filed this enforcement action against Defendants Morgan Drexen, Inc. and Walter Ledda on August 20, 2018, alleging debt-relief services under the TSR and CFPA.
- Morgan Drexen operates an Attorney Model where it performs debt-relief work but the attorney-affiliates provide legal services; Ledda is the company’s President and CEO.
- Consumers sign two contracts—Debt Relief Contract and Bankruptcy Contract—where upfront fees are charged under the Bankruptcy Contract, while the Debt Relief Contract itself purports no upfront fees.
- Contractual arrangements and intake procedures show Morgan Drexen advertises debt-relief as a bankruptcy-avoidance option, with sign-ups followed by web-based signing of contracts and scripted intake.
- Plaintiff alleges six counts: four under TSR and CFPA (Counts I–IV) and two CFPA-only counts (Counts V–VI).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constitutionality of the CFPB structure | CFPB structure is consistent with separation of powers. | For-cause removal, single director, and funding from Fed raise constitutional concerns. | CFPB structure is constitutional. |
| Sufficiency of TSR claims over upfront fees | Complaint plausibly shows upfront debt-relief fees disguised as bankruptcy-related payments. | Debt Relief Contract does not require upfront fees; challenged counts fail. | Counts I and III plausibly alleged under the TSR; not dismissed. |
| CFPA counts based on attorney services | Morgan Drexen’s activities plausibly fall outside the practice-of-law exemption, supporting CFPA claims. | Activities fall within attorney-related exemption or are ancillary to law practice. | CFPB has authority to plead counts I, III, IV, V, VI; claims viable. |
| Tenth Amendment challenge | No federal-state sovereignty issue presented; CFPB actions within federal commerce power. | CFPB intrudes on state law/practice of law. | Tenth Amendment challenge rejected. |
Key Cases Cited
- Humphrey’s Executor v. United States, 295 U.S. 602 (1935) (upheld removal for cause for executive officers like FTC commissioners)
- Myers v. United States, 272 U.S. 52 (1926) (invalidated for-cause removal for postmasters; important for executive power limits)
- Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477 (2010) (for-cause removal considerations within independent agencies)
- Whitman v. American Trucking Associations, 531 U.S. 457 (2001) (intelligible principle governs delegation of legislative power)
- Yakus v. United States, 321 U.S. 414 (1944) (illustrates intelligible principle in delegation)
- Am. Power & Light Co. v. S.E.C., 329 U.S. 90 (1946) (delegation authority in regulatory schemes)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (deference to agency interpretations where statute grants regulatory authority)
- Campbell v. Office of Personnel Management, 694 F.2d 305 (1982) (court review of agency actions; non-constitutional challenge limits)