ORDER DENYING DEFENDANTS’ MOTION TO DISMISS
Before the Court is a Motion to Dismiss (“Motion”) filed by Defendants Morgan Drexen, Inc. (“Morgan Drexen”) and Walter Ledda. (Doc. 22.) Plaintiff Consumer Financial Protection Bureau (“CFPB”) filed an Opposition, and Defendants replied. (Opp’n, Doc. 25; Reply, Doc. 27.) Having considered the papers and supporting documentation submitted by the parties, heard oral argument, and taken the matter under submission, the Court DENIES Defendants’ Motion.
I. BACKGROUND
A. The CFPB
In 2010, Congress passed and the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Pub.L. No. 111-203, July 21, 2010. The Dodd-Frank Act created the CFPB as an independent agency in the Federal Reserve System, and tasked the agency with “regulatfing] the offering and provision of consumer financial products or services under the Federal consumer financial laws.” 12 U.S.C. § 5491(a). Those laws include 18 pre-existing consumer-protection statutes and Title X of the Dodd-Frank Act. Id. § 5481(14), (12). Title X prohibits a “covered person” or “service provider” from engaging in any “unfair, deceptive, or abu
The CFPB is led by a Director, who is appointed to a five-year term by the President with the advice and consent of the Senate. Id. § 5491(a)-(b). The President may remove the Director only “for inefficiency, neglect of duty, or malfeasance in office.” Id. § 5491(c)(3). The CFPB receives its funding from the earnings of the Federal Reserve System. Id. § 5497(a)(1). Each year, the CFPB receives the amount the Director determines to be reasonably necessary to carry out the responsibilities of the CFPB. Id. § 5497(a)(1). The allocation is capped at a percentage of the total operating expenses of the Federal Reserve in 2009 — 12% for 2013 and thereafter, adjusted for inflation. Id. § 5497(a)(2).
The CFPB is empowered to promulgate rules to implement the federal consumer financial laws, and to enforce those laws through ’ investigation, adjudication, and the commencement of civil litigation. Id. §§ 5512, 5531(b), 5561-5565. Pursuant to its enforcement powers, the CFPB commenced the present action against Defendants on August 20, 2018. (Compl., Doc. 1.)
B. The Complaint
Defendant Morgan Drexen is a Nevada corporation offering debt relief services. (Id. ¶ 5.)
Morgan Drexen advertises debt relief services through television commercials, radio advertisements, and the internet. (Id. ¶ 15.) In its commercials, Morgan Drexen claims it can help consumers eliminate their debt through debt relief programs supported by attorneys. (Id. ¶ 17.) Morgan Drexen’s commercials also claim that the advertised services require no upfront fees, and are a way for consumers to avoid bankruptcy. (Id. ¶¶ 19-20.)
When a consumer calls Morgan Drexen, the consumer often hears a recorded testimonial that emphasizes the benefits of avoiding bankruptcy. (Id. ¶ 27.) One testimonial recites, “I thought I was going to have to claim bankruptcy, but I really didn’t want to do that, so I decided to take a chance on the. program I saw advertised .... I’m debt free now.” (Id ¶ 27.) After Morgan Drexen obtains information about a consumer’s income and debt, the consumer is transferred to a “Legal Intake Specialist.”. (Id ¶ 29.) The Legal Intake Specialist follows a script when speaking with the consumer. (Id. ■ ¶ 29.) The script states that Morgan Drexen will work with an attorney to allow the consumer “to pay back the debt at a reduced amount, without the scar of filing for bankruptcy.” (Id.)
As the final step of an intake call, a Morgan Drexen employee asks the consumer to access a web portal and electronically sign two contracts, an Attorney/Client Agreement — Debt Resolution Representation (“Debt Relief Contract”) and an Attorney/Client Bankruptcy Fee Agreement (“Bankruptcy Contract”). (Id ¶ 34.) Most consumers contact Morgan Drexen to inquire about debt relief services, not bankruptcy related services.
These contracts are four or five pages long, contain many legal terms, and are written in small, single spaced font. '(Id. ¶ 35.) The Debt Relief Contract does not require the payment of up-front fees, but the Bankruptcy Contract requires an engagement fee of between $1,000 and $1,500, a $450 bankruptcy filing fee, and a flat monthly servicing fee of $50. (Id. ¶¶ 41, 48.) The Debt Relief Contract commits an attorney affiliated with Morgan Drexen to represent the consumer in attempting to settle the consumer’s debt. However, Morgan Drexen, not an attorney, “performs virtually all of the debt resolution work.” (Id. ¶ 42.) When Morgan Drexen reaches a settlement with a creditor, it emails an attorney, who must choose one of four options, “cancel,” “accept,” “accept without comments,” or “deny.” (Id. ¶ 45.) If the attorney does not respond within 24 hours, the proposal is automatically deemed approved. (Id. ¶ 45.)
The Bankruptcy Contract limits an attorney affiliated with Morgan Drexen to counseling the consumer with respect to preparation for possibly filing a bankruptcy petition, and with respect to pre- and post-filing claims by creditors. (Id. ¶ 50.) Morgan Drexen and affiliated attorneys rarely perform any bankruptcy-related work for consumers. (Id. ¶ 60.)
Based on these and other allegations, the Complaint asserts six counts, four for violations of both the Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310, and the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. §§ 5531, 5536(a)(1) (counts 1-4), and two solely for 'violations of the CFPA (counts 5-6). (Compl. at 15-19.)
II. DISCUSSION
A. Whether the CFPB is Constitutional
Defendants argue that the Complaint must be dismissed because the CFPB is unconstitutional. (Defs’ Mem. at 3-4, Doc. 22-1.) Specifically, Defendants argue that five structural features of the CFPB, in combination, render the agency unconstitutional under the separation of powers principles of Articles I, II, and III:
(1) The President may remove the Director of the CFPB only for cause (12 U.S.C. § 5491(c)(3));
(2) The CFPB is led by a Director, not a multi-member commission (id. § 5491(b)(1));
(3) The CFPB is funded from the earnings of the Federal Reserve System, and not by regular congressional appropriations (id. § 5497(a)(1));
(4) The CFPB may take action to prevent “unfair, deceptive, or abusive act[s] or practice^] under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service” (id. § 5531(a)); and
(5) The CFPB’s interpretations of federal consumer financial laws are afforded deference as if the CFPB were the only agency authorized to interpret those laws (id. § 5512(b)(4)(B)). (See Defs’ Mem. at 6-21.)
“Our Constitution divided the ‘powers of the new Federal Government into three defined categories, Legislative, Executive, and Judicial.’ ” Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.,
1. Executive Power
Article II provides that “executive Power shall be vested in a President,” who “shall take Care that the Laws be faithfully executed.” U.S. Const, art. II, § 1, cl. 1, § 3. “[T]he Constitution provides for executive officers to ‘assist the supreme Magistrate in discharging . the duties of his trust,’ ” and also “empower[s] the President to keep these officers accountable — by removing them from office, if necessary.” Free Enter. Fund,
Defendants assert that the Dodd-Frank Act impermissibly restricts the President’s executive power by providing for removal of the Director of the CFPB only for cause. (Defs’ Mem. at 8.) Defendants rely principally on Myers v. United States,
Not long after Myers, however, the Court revisited congressional restrictions on the President’s removal power in Humphrey’s Executor v. United States,
Defendants argue that Humphrey’s Executor is distinguishable because the case concerned removal of FTC commissioners. (Reply at 13.) Courts, Defendants contend, “only tolerate[ ] the incursion on the President’s removal power ... where there is a multimember commission.” (Defs’ Mem. at 17.)
In a footnote, Defendants argue that two other provisions of the Dodd-Frank Act interfere with the President’s executive power. (Defs’ Mem. at 8-9.) First, Defendants argue that Section 1012(b) allows the Director to “simply delegate all of his massive powers to any one he chooses,” and thereby “undermines the President’s power to appoint and remove executive officials.” (Id.) Defendants, however, fail to identify any actual delegation by the Director that purportedly interferes with the President’s executive power. Section 1012(b), moreover, does not allow the Director to delegate his leadership role, but only allows the Director to “delegate ... any power vested in the Bureau by law.” 12 U.S.C. § 5492(b) (emphasis added). This section neither alters the Director’s role as head the CFPB, nor lessens the President’s authority to assure, by removing the Director for cause if necessary, that the CFPB is competently accomplishing its statutory mission.
Second, Defendants argue that Congress has improperly appointed officers to the Financial Stability Oversight Council (“FSOC”) by providing that certain existing executive branch officers are members
In sum, the Court concludes that the structure of the CFPB, considered as a whole, does not impermissibly interfere with the President’s executive power.
2. Congressional Power
i. Appropriations Power
The Constitution provides that “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” U.S. Const, art. I, § 9, cl. 7. According to Defendants, the Dodd-Frank Act impermissibly “exempts CFPB from the congressional appropriations power.” (Defs’ Mem. at 9.) Defendants are mistaken. The Supreme Court has “underseore[d] the straightforward and explicit command of the Appropriations Clause. ‘It means simply that no money can be paid out of the Treasury unless it has been appropriated by an act Qf Congress.’ ” Office of Pers. Mgmt. v. Richmond,
Here, no funds have been appropriated from the Treasury, as the CFPB is funded from the earnings of the Federal Reserve System. See 12 U.S.C. § 5497. The Appropriations Clause “does not in any way circumscribe Congress from creating self-financing programs .... without first appropriating the funds as it does in typical appropriation and supplement appropriation acts.” AINS, Inc. v. United States,
ii. Legislative Power
“Article I, § 1, of the Constitution vests ‘[a]ll legislative Powers herein granted ... in a Congress of the United States.’ This text permits no delegation of those powers.” Whitman v. Am. Trucking Associations,
Defendants raise concerns with the CFPB’s authority to enforce the prohibí
Defendants contend that the “CFPB’s lack of structural protection cannot be reconciled with its broad delegation of power.” (Defs’ Mem. at 20.) It is true that “the degree of agency discretion that is acceptable varies according to the scope of the power congressionally conferred.” Whitman,
3. Judicial Power
“The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” U.S. Const, art. Ill, § 1. Defendants contend that the Dodd-Frank
The Dodd-Frank Act provides that where the authority of the CFPB and another agency to prescribe rules under the federal consumer financial laws overlap, the CFPB “shall have the exclusive authority to prescribe rules.” 12 U.S.C. § 5512(b)(4)(A). The Dodd-Frank Act further provides that “the deference that a court affords to the [CFPB] with respect to a determination by the [CFPB] regarding the meaning or interpretation of any provision of a Federal consumer financial law shall be applied as if the [CFPB] were the only agency authorized to apply, enforce, interpret, or administer the provisions of such Federal consumer financial law.” Id. § 5512(b)(4)(B). Defendants argue that the latter provision impermissibly provides a rule of decision to the federal, courts by requiring Chevron deference to CFPB rulemaking even where the CFPB is not entitled to such deference. (Defs’ Mem. at 19.)
Under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc, “[i]f Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.”
Defendants are mistaken. There is no contradiction between Rapaport and the Dodd-Frank Act’s requirement that CFPB interpretations of federal consumer financial laws be granted deference as if the CFPB was the only agency authorized to interpret those laws. As noted above, the CFPB’s rulemaking authority under the federal consumer financial laws is exclusive, and therefore there is no interagency responsibility. Moreover, Chevron deference is inappropriate in cases of inter-agency responsibility only because there is no “reason to believe that the congressional delegation of administrative authority contemplates” the sort of contradictory results that could arise if Chevron deference were accorded in such cases. Id. at 217. In other words, deference is not owed in such cases only because Congress did not “explicitly le[ave] a gap for the agency to fill.” Chevron,
Defendants raise other concerns with the structure of the CFPB, but their concerns are not tied to any particular constitutional provision. Defendants, for example, contend that Congress’ decision to put one person rather than a multi-member commission at the head of the CFPB places too much power in the hands of single individual. (Defs’ Mem. at 14.) In support, Defendants cite to Hamdan v. Rumsfeld for the proposition that ‘“[t]he accumulation of all powers legislative, executive and judiciary in the same hands ... may justly be pronounced the very definition of tyranny.’ ”
Defendants also argue that multi-mem-ber commissions allow for “collegial deci-sionmaking,” open public meetings, and “expert” decisions, and are therefore better equipped to head agencies with substantial responsibilities such as the CFPB. (Defs’ Mem. atT4-18.) However, absent some constitutional basis, this Court simply does not have the authority to second guess Congress’ policy determination that a single director, rather than a commission, is the best choice to head the CFPB.
Finally, Defendants point out, correctly, 'that “ ‘[j]ust because two structural features raise no constitutional concerns independently does not mean Congress may combine them in a single statute.’ ” (Defs’ Mem. at 5 (quoting Ass’n of Am. Railroads v. U.S. Dep’t of Transp.,
B. Whether the CFPB Has Stated a Claim
1. Legal Standard
When evaluating a motion to dismiss under Federal Rule of Civil Procedure
In considering a motion to dismiss, the Court is limited to the allegations on the face of the complaint (including documents attached thereto), matters which are properly judicially noticeable, and “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading.” Branch v. Tunnell,
2. Counts I and III for Violation of the TSR
The TSR prohibits a seller or telemarketer from “[requesting or receiving payment of any fee or consideration for any debt relief service until ... [t]he seller or telemarketer has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement, debt management plan, or other such valid contractual agreement executed by the customer” and “[t]he customer has made at least one payment” pursuant to such agreement, plan, or contract.. 16 C.F.R. § 310.4(a)(5)(i). The TSR also prohibits a seller or telemarketer from “[misrepresenting, directly or by implication, in the sale of goods or services ... [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer” or “[a]ny material aspect of any debt relief service.” Id. § 310.3(a)(2).
Count I of the Complaint asserts that Defendants requested and received payment for debt relief services before renegotiating, settling, reducing, or otherwise altering the terms of a consumer’s debt. (Compl. ¶ 75.) Count III asserts that Defendants represented that consumers are not charged any advance fee for debt relief services, but in fact charged advance fees. (Compl. ¶¶ 81-82.) Defendants move to dismiss both counts for violation of the TSR on the basis that the Debt Relief Contract does not require the payment of up-front fees. (Defs’ Mem. at 22.)
In its Complaint] Plaintiff does allege that consumers are not obligated to pay any up-front fees under the Debt Relief Contract. (Compl. ¶ 41.) Consumers are, however, obligated to pay up-front fees under the Bankruptcy Contract. (Id. ¶ 48.) According to the Complaint, by using both contracts, Defendants “disguise consumers’ up-front payments for debt relief services provided by Morgan Drexen as payments for bankruptcy-related work
The FTC, which promulgated the Telemarketing Sales Rule, justified the ban on advance fees for debt relief services in part on the context in which debt relief services are often offered. See 75 FR 48458. The FTC noted that debt relief services “frequently take place in the context of high pressure sales tactics, contracts of adhesion, and deception.” Id. Moreover, some “telemarketers of debt relief services have exhorted consumers to fill out the enrollment documents and return the papers as quickly as possible,” despite the inclusion of contractual provisions that were potentially detrimental to the interests of consumers. Id. Given these concerns, the TSR cannot be so narrowly construed as to allow a debt relief service to disguise upfront fees using deceptive sales techniques and complicated contractual arrangements. The Court, therefore, will look at the transactions alleged in the Complaint in their entirety in determining whether the Complaint plausibly suggests that Defendants requested and received up-front fees for debt relief work.
According to the Complaint, Morgan Drexen advertises debt relief services, and specifically touts its services as a method for avoiding filing for bankruptcy. (Compl. ¶¶ 15-22.) When consumers call Morgan Drexen, they are again told of the benefits of debt relief services over bankruptcy. (Id. ¶¶ 23-30.) Nevertheless, when consumers' sign up for debt relief services, they are asked to access a web portal and sign the Debt Relief Contract and' the Bankruptcy Contract, both of which are four or five pages long, written in small font, and single spaced. (Id. ¶¶ 34-35.) The vast majority of consumers sign both contracts. (Id. ¶ 37.) Though Morgan Drexen performs debt relief work for consumers, little or no bankruptcy work is performed. (Id. ¶¶ 42, 49-50.) Nevertheless, the Bankruptcy Contract requires an engagement fee of between $1,000 and $1,500 and a flat monthly servicing charge of $50. (Id. ¶ 48.) Drawing all inferences in Plaintiffs favor, these allegations plausibly suggest that Defendants request and receive up-front payments not for bankruptcy work, but for debt relief work. Defendants’ challenge to ■ counts I and III for violation of the TSR must therefore be rejected.
3. Counts I, III, IV, V, and VI for Violation of the CFPA
The CFPB is not authorized, subject to certain exceptions, to “exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law.” 12 U.S.C. § 5517(e)(1). This limitation does not apply to the “offering or provision of a consumer financial product or service ... that is not offered or provided as part of, or incidental to, the practice of law, occurring exclusively within the scope of the attorney-client relationship” or “that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service.” Id. § 5517(e)(2). An exception also exists “with respect to any attorney, to the extent that such attorney is otherwise subject to any of the enumerated consumer laws or the authorities transferred under subtitle F or H.” Id. § 5517(e)(3). Defendants admit that Plaintiffs alleged TSR violations fit under this last exception. (Defs’ Mem. at 23.)
Defendants contend that the CFPB has no authority to assert counts I, III, IV, V, and VI to the extent they are based on the CFPA because Morgan Drexen offers ser--
According to the Complaint, “Morgan Drexen, not [an attorney], performs virtually all of the debt resolution work” for a consumer. (Compl. ¶ 42.) Morgan Drexen, moreover, directs creditors not to communicate with those attorneys associated with Morgan Drexen. (Id.) When Morgan Drexen has negotiated a settlement on behalf of a consumer, an attorney need not even respond to the settlement proposal before it is automatically deemed approved. (Id. ¶ 45.) Construing all inferences in Plaintiffs favor, these allegations plausibly suggest that Morgan Drexen does not actually support attorneys in the practice of law. At the very least, these allegations plausibly suggest that Morgan Drexen’s services are not offered as part of, or incidental to, the practice of law. The Court therefore concludes that the CFPB has the authority to assert counts I, III, IV, V, and VI.
4. Tenth Amendment
Defendants contend that this action should be dismissed because the CFPB is attempting to intrude upon the practice of law in violation of the Tenth Amendment. (Reply at 25.)
The Tenth Amendment provides that “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” U.S. Const, amend. X. As the Supreme Court has explained, “the Tenth Amendment ‘states but a truism that all is retained which has not been surrendered.’ ” New York v. United States,
The Tenth Amendment ... restrains the power of Congress, but this limit is not derived from the text of the Tenth Amendment itself, which ... is essentially a tautology. Instead, the Tenth Amendment confirms that the power of the Federal Government is subject to limits that may, in a given instance, reserve power to the States. The Tenth Amendment thus directs [a court] to determine ... whether an incident of state sovereignty is protected by a limitation on an Article I power.
Id. at 156-57,
III. CONCLUSION
For the reasons discussed above, the Court DENIES Defendants’.Motion.
Notes
. When ruling on a motion to dismiss, the Court accepts as true the factual allegations in the complaint. Hemi Grp., LLC v. City of New York,
. Defendants also argue that it is historically unprecedented for an agency with as much responsibility as the CFPB to be led by a director removable only for cause. (Defs’ Mem. at 11.) The CFPB, however, is not the first instance in which Congress has placed an agency with substantial responsibilities under the leadership of a single individual re
. Then as now, the FTC was led by five members, each of which could be removed only for good cause. Humphrey’s Executor,
. In their Reply, Defendants contend that the "novel structure” of the CFPB requires a "renewed analysis” of the principle of non-delegation. (Reply at 19.) To the extent Defendants are arguing that more than an "intelligible principle” is required with respect to the CFPB, the Court simply notes that it is bound to apply the standard articulated by the Supreme Court in Whitman.
. Defendants also contend that Congress’ decision to place a director, rather than a multi-member commission, at the head of the CFPB impedes judicial review. (Defs’ Mem. at 15.) Commissions, Defendants contend, allow for minority viewpoints, which aid in the process of judicial review. (Id.) Defendants, however, have no authority for the proposition that Congress was required to place a commission at the head of the CFPB in order to facilitate judicial review, particularly since Congress has the authority to entirely preclude judicial