48 F.4th 1161
10th Cir.2022Background
- Integrity Advance, LLC (run by CEO James Carnes) operated a nationwide payday-lending business that marketed short-term, high‑cost loans with disclosures that misleadingly implied single‑payment loans but in practice auto‑renewed into multi‑payment installment plans.
- CFPB investigated after consumer complaints and issued a civil investigative demand in 2013; Carnes was deposed and Integrity produced loan documents showing automatic renewals, ACH authorizations, and use of remotely created checks.
- CFPB’s Notice of Charges (Nov. 2015) alleged violations of TILA, EFTA, and multiple CFPA counts against Integrity and Carnes; initial ALJ McKenna found liability and recommended large restitution and penalties.
- Following Lucia, the Director remanded for a hearing before a constitutionally appointed ALJ (Kirby); Kirby adopted most findings on de novo review and recommended substantial restitution and penalties; the Director adopted liability, ratified the Notice of Charges, and set restitution at $38.4 million (limited to post‑July 21, 2011 harms) plus civil penalties.
- Petitioners appealed, arguing (1) CFPB’s unconstitutional structure at the time of filing voids the action, (2) due‑process violations including entitlement to a broader “new hearing” under Lucia, and (3) the restitution/disgorgement award was improper (must account for business expenses under Liu).
- The Tenth Circuit affirmed: it rejected the structural‑void theory (Collins controls), held de novo review satisfied Lucia, found no abuse in evidentiary/discovery rulings, upheld findings of individual liability for Carnes, and rejected Petitioners’ Liu‑based offset argument (and deemed some objections waived).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CFPB’s unconstitutional removal‑for‑cause structure when Notice filed voids enforcement | CFPB was unconstitutionally structured in 2015, so the enforcement action must be set aside | Collins: prior actions need not be voided absent compensable harm; ratification or Collins resolves defect | Rejected; Collins controls; no compensable harm alleged, action stands |
| Scope of the "new hearing" required by Lucia | Lucia requires a full new hearing permitting new evidence, live testimony, further discovery | De novo review by a properly appointed ALJ of the existing record (with opportunity to challenge) suffices | De novo review adequate; no due‑process violation |
| Evidentiary/discovery exclusions (advice‑of‑counsel, expenses, witness credibility, statute of limitations discovery) | ALJ improperly excluded evidence and denied discovery, prejudicing Petitioners | ALJ acted within discretion; CFPB produced relevant materials; advice‑of‑counsel not a defense to CFPA liability/restitution | No abuse of discretion; exclusions upheld; limitations timely and discovery adequate |
| Restitution/disgorgement: must director deduct legitimate business expenses under Liu; joint & several liability | Liu requires deducting legitimate expenses from disgorgement/net profits; joint/several liability here is improper without showing Carnes received profits | Director treated award as legal and equitable restitution under §5565; Liu addressed SEC disgorgement and does not control; Petitioners waived some objections | Rejected: court affirms restitution as ordered, declines Liu offset, and deems some objections waived |
Key Cases Cited
- Lucia v. SEC, 138 S. Ct. 2044 (2018) (Appointments Clause; remedy requires a hearing before a properly appointed adjudicator)
- Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020) (CFPB director’s for‑cause removal protection violated separation of powers)
- Liu v. SEC, 140 S. Ct. 1936 (2020) (disgorgement limited to net profits; legitimate expenses must be deducted for equitable disgorgement)
- Collins v. Yellen, 141 S. Ct. 1761 (2021) (removal‑for‑cause defect does not automatically void past agency actions; relief requires showing compensable harm)
- Merck & Co. v. Reynolds, 559 U.S. 633 (2010) (accrual and discovery rules for limitations: claim accrues on actual discovery or when reasonable diligence would have discovered the violation)
- Ryder v. United States, 515 U.S. 177 (1995) (remedy for appointment defect includes a new hearing before a properly appointed tribunal)
- CFPB v. Gordon, 819 F.3d 1179 (9th Cir. 2016) (standard for individual liability under CFPA: participation/control plus knowledge or reckless indifference)
- CFPB v. CashCall, 35 F.4th 734 (9th Cir. 2022) (reliance on counsel is not a basis to deny CFPA liability or restitution)
- Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, 796 F.3d 111 (D.C. Cir. 2015) (de novo review by a different adjudicator can satisfy the ‘‘new hearing’’ requirement)