JOHN DOE COMPANY v. CONSUMER FINANCE PROTECTION BUREAU, еt al.
Civil Action No.: 17-0049 (RC)
United States District Court, District of Columbia.
Signed 02/17/2017
RUDOLPH CONTRERAS, United States District Judge
Christopher John Deal, Steven Y. Bressler, Office of General Counsel, Consumer Financial Protection Bureau, Washington, DC, for Defendants.
MEMORANDUM OPINION
DENYING PLAINTIFF‘S MOTION FOR A TEMPORARY RESTRAINING ORDER; DENYING PLAINTIFF‘S MOTION FOR A PRELIMINARY INJUNCTION; GRANTING IN PART PLAINTIFF‘S MOTION FOR AN INJUNCTION PENDING AN OPPORTUNITY TO PETITION THE COURT OF APPEALS FOR A STAY
RUDOLPH CONTRERAS, United States District Judge
I. INTRODUCTION
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 cirсuit 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 cоmpany. 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 irrepara-
II. LEGAL BACKGROUND
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 mortgagе 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 departurе 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 (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) (“Operating without the for-cause removal provision and under the supervision and direction of the President, the CFPB may
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 panеl‘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
Recipients of CIDs may petition for the demand to be set aside and may raise constitutional “right[s]” in their petitions.
CIDs are not self-enforcing. Under
III. FACTUAL BACKGROUND
A. John Doe Co.
Plaintiff John Doe Co. is a California limited liability comрany with its principal place of business in the Philippines. See Verified Compl. (“Compl.“) ¶ 10.1 John Doe Co. “is in the business of purchasing and selling the right to certain income streams.”
B. The CFPB‘s Investigation
In November 2016—a month after a panel of the D.C. Circuit ruled that the CFPB is unconstitutionally structured—the CFPB served a Civil Investigative Demand (“CID“) on John Doe Co.
Plaintiff maintains that such publication would “irreparabl[y] harm” its business and goodwill by “irreversibly branding Plaintiff‘s business as unfair, deceptive, abusive, and illegal.”
Plaintiff asks the Court to enjoin the CFPB from taking any “action adverse to Plaintiff—including any action in furtherance of the civil investigative demand served on Plaintiff, such as publishing Plaintiff‘s petition to set aside or modify the demand or initiating any enforcement action against Plaintiff” until the Court has made a final determination. See Proposed Order, Pl.‘s Mot. Prelim. Inj. at 7, ECF No. 7. “[T]he decision tо grant injunctive relief is a discretionary exercise of the district court‘s equitable powers . . . .” Sea Containers Ltd. v. Stena AB, 890 F.2d 1205, 1209 (D.C. Cir. 1989). In general, courts grant preliminary injunctions only when the moving party shows “(1) a substantial likelihood of success on the merits, (2) that it would suffer irreparable injury if the injunction were not granted, (3) that an injunction would not substantially injure other interested parties, and (4) that the public interest would be furthered by the injunction.” Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006). The moving party must show some level of irreparable injury to prevail on a motion for a preliminary injunction. See id. (“A movant‘s failure to show any irreparable harm is therefore grounds for refusing to issue a preliminary injunction, even if the other three factors entering the calculus merit such relief.“); see also Winter v. NRDC, 555 U.S. 7, 20 (2008) (“Our frequently reiterated standard requires plaintiffs seeking preliminary relief to demonstrate that irreparable injury is likely in the absence of an injunction.“).
The Court finds that, in light of the D.C. Circuit‘s recent vacatur of the PHH Corporation decision and because even the remedy in PHH Corporation would not provide Plaintiff‘s requested relief, Plaintiff is unlikely to succeed on the merits. The Court further finds that John Doe Co. is unlikely to suffer irreparable harm in the absence of a preliminary injunction. Because Plaintiff does not make a strong showing on either of these factors, the Court will deny its request for a preliminary injunction. Hоwever, because significant portions of Plaintiff‘s sought-after remedy would become moot if the CFPB were allowed to publish John Doe Co.‘s identity, the Court will narrowly enjoin the CFPB from publicizing its identity until Plaintiff has an opportunity to petition the Court of Appeals for a stay of the Court‘s order.
A. Likelihood of Success on the Merits
John Doe Co. argues that it is substantially likely to succeed on the merits of this action, because a panel of the D.C. Circuit held that the CFPB is unconstitutionally structured, yet a mandate curing the constitutional deficiency has not taken effect. See Pl.‘s Mem. Supp. Mot. T.R.O. & Prelim. Inj. (“Pl.‘s Mot.“) at 11-12, 14-15, ECF No. 7-1. Notably, although Plaintiff maintains that the vacatur of the D.C. Circuit‘s panel opinion does not affect its motion, Plaintiff has not provided briefing on the constitutional question, instead relying wholesale on Judge Kavanaugh‘s opinion.
The Court is not bound by the vacated D.C. Circuit panel opinion in PHH Corporation. Ass‘n of Civilian Technicians, Montana Air Chapter v. Fed. Labor Relations Auth., 756 F.2d 172, 176 (D.C. Cir. 1985) (quoting Brewster v. Comm‘r, 607 F.2d 1369, 1373 (D.C. Cir.) (per curiam), cert. denied, 444 U.S. 991 (1979)). Without briefing on the constitutional questions surrounding the structure of the CFPB, the Court is not in a position to find that John Doe Co. has a high likelihood of succeeding on an eventual adjudication of those constitutional claims. See, e.g. Washington v. Gov‘t Employees Ins. Co., 769 F.Supp. 383, 388 (D.D.C. 1991). Thus, the Court is disinclined to exercise its equitable, discretionary power to grant the extrаordinary relief of a preliminary injunction.
But even if the Court were to adopt Judge Kavanaugh‘s reasoning based merely on the panel‘s decision in PHH Corporation, Plaintiff would be unlikely to obtain the relief it seeks. This is because, in that situation, the Court would also be likely to adopt Judge Kavanaugh‘s narrow remedy. Cf. US JVC Corp. v. United States, 184 F.3d 1362, 1365 (Fed. Cir. 1999) (noting that in cases when courts are bound by another court‘s reasoning, the court must
Thus, assuming that the Court were to agree with Judge Kavanaugh, that agreement would also likely doom John Doe Co.‘s prospect for its sought-after remedy. As the panel held, the proper remedy for the constitutional infirmity is to excise the for-cause removal provision, not gut the CFPB or Dodd-Frank Act altogether. See 839 F.3d at 39. Thus, the Court would likely grant the same narrow relief that the panel did in PHH Corporation, which would still allow the CFPB to pursue enforcement actions against John Doe Co. It follows that, even assuming John Doe Co. is correct about the CFPB‘s unconstitutional structure, Plaintiff‘s likelihood of success with respect to obtaining its sought-after remedy is low. For the same reason, the Court is not inclined to use its equitable powers to afford Plaintiff the extraordinary remedy of a preliminary injunction, let alone the dramatic preliminary injunction Plaintiff seeks.
B. Likelihood of Irreparable Harm
Plaintiff argues that without a preliminary injunction it will incur irreparable harm in three ways. First, John Doe Co. claims that its liberty will be infringed upon by the existence of an entity wielding unchecked executive powers. See Compl. ¶ 7. Second, it contends that compliance with the allegedly unconstitutionally-issued CID “would be . . . expensive, time-consuming, and exceptionally disruptive to Plaintiff‘s business.” Compl. ¶ 54. Third, Plaintiff claims that the publication of the CID would irreparably harm its business interests. Compl. ¶ 60.
The D.C. Circuit “has set a high standard for irreparable injury,” requiring that the injury “be both certain and great,” and “actual and not theoretical.” Chaplaincy of Full Gospel Churches, 454 F.3d at 297 (internal citations and quotations omitted). “The moving party must show [t]he injury complained of is of such imminence that there is a ‘clear and present’ need for equitable relief to prevent irreparable harm.”
First, the prospect that its liberty will be infringed upon—separate from the issuance of the CID and impending publication—could be remedied if and when the CFPB brings an enforcement action against John Doe Co. Plaintiff‘s argument aрpears to be that, as an entity regulated by the CFPB, it is being harmed by the CFPB‘s allegedly unconstitutional structure even if the CFPB does nothing further. But this formulation of alleged irreparable harm is inconsistent with this Circuit‘s handling of cases involving enforcement actions pursued in an unconstitutional manner or by
Moreover, Plaintiff has not produced any evidence that the President wishes to remove the Director of the CFPB (for reasons other than those permitted under the statute) but is restrained from doing so simply because the full D.C. Circuit has not resolved the issue. Absent any further evidence that Plaintiff is being concretely harmed by the current state of affairs caused by the vacatur of the PHH Corporation panel decision, the Court will follow the D.C. Circuit‘s lead and allow thе legal wrangling to play out.5
Second, there is little risk of irreparable harm with respect to the CID in the absence of a preliminary injunction. CFPB CIDs are not self-enforcing, and accordingly do not subject the recipient to civil or criminal penalties for non-compliance. See, e.g., Morgan Drexen, Inc., 979 F.Supp.2d at 108. In the absence of an injunction, John Doe Co. need not do anything. If the CFPB decides to bring an enforcement action against John Doe Co., Plaintiff will have an adequate federal forum in which to raise its constitutional arguments wherever the CFPB brings suit. See
Third, Plaintiff has not made a strong showing that it will suffer irreparable harm from the CFPB‘s impending publication of the CID and order denying the petition to set the CID aside. Plaintiff‘s claims fail because they are both incremental and conclusory.
Plaintiff‘s publication claims are incremental because the public is already well aware that John Doe Co. has been the subject of state-level investigations and that the entire industry is under scrutiny from the GAO, CFPB, and FTC. See Defs.’ Opp‘n at 14; Pl.‘s Reply at 19; T.R.O. Tr. at 16. Plaintiff does not dispute that the GAO, FTC, and CFPB have all publicly suggested that Plaintiff‘s entire industry was subject to investigation. See Pl.‘s Reply. In fact, Plaintiff concedes that the publicity surrounding these investigations
Plaintiff‘s publication claims are conclusory because they are supported only by overgeneralized statements rather than empirical examples or, for that matter, any data. The conclusory assertion by the manager of John Doe Co. that, if the CID-related documents are published, most of its 100 employees would immediately begin looking for new employment is far from self-evident, and Plaintiff does not provide any factual support for that assertion. See Compl. Moreover, there is no evidence in the record demonstrating how the existence of a CID—which, again, may be issued to “any person . . . in possession, custody, or control of any . . . information[] relevant to a violation,” see
Because Plaintiff has shown neither a substantial likelihood of success on the merits nor a likelihood that it will suffer irreparable harm absеnt the issuance of a preliminary injunction, the Court need not consider the interests of other interested parties or the public. But suffice it to say that the public has a strong interest in the vigorous enforcement of consumer protection laws. The Court will deny Plaintiff‘s motion for a temporary restraining order and preliminary injunction.
Having denied Plaintiff‘s motion for a preliminary injunction, the Court next considers Plaintiff‘s motion for an injunction pending appeal. See Pl.‘s Mot. T.R.O. & Inj. Pending Appeal, ECF No. 25. The Court specifically considers whether to preserve John Doe Co.‘s rights so that it has time to petition the D.C. Circuit for a stay of this ruling insofar as it allows the CFPB to publicize its identity. Under
Although the Court believes its holding correct, as Judge Kavanaugh‘s opinion makes clear, the constitutionality of the CFPB‘s structure does present a serious legal question. It appears from how the D.C. Circuit panel treated the CFPB in PHH Corporation that the Director‘s ac-
The second factor—a strong showing of which can obviate the need for a strong showing in the first factor, see People for the Am. Way Found., 518 F.Supp.2d at 177—also weighs heavily in favor of John Doe Co. In addition to weighing the likelihood that the irreparable injury will occur, “[t]he Court must consider the significance of the change from the status quo which would arise in the absence of a stay.” CREW, 593 F.Supp.2d at 162 (quoting Judicial Watch, Inc. v. Nat‘l Energy Policy Dev. Grp., 230 F.Supp.2d 12, 15 (D.D.C. 2002)). The Court may also consider the irreparable harm that would be present under the appellant‘s competing legal interpretatiоn. See Judicial Watch, 230 F.Supp.2d at 15. Courts routinely issue injunctions to stay the status quo when the trial court‘s order would otherwise allow the prevailing party to engage in actions that would moot the losing party‘s right to appeal. See People for the Am. Way Found., 518 F.Supp.2d at 177 (citing John Doe Agency, et al. v. John Doe Corp., 488 U.S. 1306, 1308-09 (1989) (Marshall, J., in chambers)). Like in Judicial Watch, “[t]here is no doubt that, if [plaintiff‘s] premise” that the Director cannot constitutionally release its identity is correct, “defendants would suffer irreparable harm if the proceedings before this Court were not stayed to enable them to seek appellate review.” See 230 F.Supp.2d at 15. Absent today‘s order, the CFPB would no longer have had any legal obligation to refrain from publicly disclosing Plaintiff‘s identity or the CID-relаted documents. If it were to do so, neither this Court nor the Court of Appeals could unring the bell, and significant portions of Plaintiff‘s sought-after remedy would become moot. Thus, the second factor weighs heavily in favor of John Doe Co.
The third factor may weigh in favor of the CFPB, but not significantly. As noted above, the Court queries just how harmful publication of Plaintiff‘s identity would be to John Doe Co. The company has already been the subject of, at least, six state-level investigatory proceedings and at least three federal agencies have publicly criticized the industry as a whole. Although the CFPB‘s goals may be somewhat frustrated in the interim, the order will not enjoin it from continuing its investigation, so long as it does so without publicly disclosing the name of the company for a short, additional period of time.
Finally, for similar reasons, the public would not be significantly affected by an order temporarily preserving the status quo. The injunction will not interfere with the CFPB‘s investigatory powers outside the context of the disclosure of John Doe Co.‘s identity. Moreover, the public has already been warned about this company—and, indeed, the broader industry—by governmental agencies at both the state and federal levels.
Weighing all four factors, the Court concludes that a narrow injunction preserving John Doe Co.‘s ability to petition the D.C. Circuit for a stay is warranted. Although the Court believes its conclusion is correct, John Doe Co. raises a novel legal question. Once the CID-related documents are published, aspects of Plaintiff‘s sought-after remedy will become moot, leaving Plaintiff irreparably injured if indeed the CFPB‘s actions were not constitutionally permissible. Because these factors weigh strongly
V. CONCLUSION
For the foregoing reasons, Plaintiff‘s motion for a temporary restraining order and a preliminary injunction is denied, and Plaintiff‘s motion for an injunction pending appeal is granted in part. An order consistent with this Memorandum Opinion is separately issued.
RUDOLPH CONTRERAS
United States District Judge