United States District Court, District of Columbia
For MORGAN DREXEN, INC., KIMBERLY A. PISINSKI, Plaintiffs: Randall K. Miller, LEAD ATTORNEY, VENABLE LLP, Tysons Corner, VA; Nicholas Martin DePalma, VENABLE LLP, Vienna, VA.
For CONSUMER FINANCIAL PROTECTION BUREAU, Defendant: John R. Coleman, LEAD ATTORNEY, CONSUMER FINANCIAL PROTECTION BUREAU, Legal Division, Washington, DC; Nandan M. Joshi, LEAD ATTORNEY, Kristin Lee Bateman, Consumer Financial Protection Bureau, Washington, DC.
COLLEEN KOLLAR-KOTELLY, United States District Judge.
Plaintiffs Morgan Drexen, Inc. (" Morgan Drexen" ) and Kimberly Pisinski (" Pisinski" ) bring this action against Defendant Consumer Financial Protection Bureau (" CFPB" or " Bureau" ) alleging that Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. § § 5481 et seq. ) is unconstitutional as a violation of separation of powers principles. Presently before the Court are Plaintiffs'  Motion for Summary Judgment, Plaintiffs'  Motion for a Temporary Restraining Order and Preliminary Injunction Enjoining CFPB From Prosecuting its Second-Filed Action, and Defendant's  Motion to Dismiss or, in the Alternative, for Summary Judgment. Upon consideration of the pleadings, the
relevant legal authorities, and the record as a whole, the Court GRANTS Defendant's  Motion to Dismiss or, in the Alternative, for Summary Judgment. Because this Court dismisses this action without reaching the merits of Plaintiffs' constitutional challenge, Plaintiffs'  Motion for Summary Judgment is DENIED WITHOUT PREJUDICE. Similarly, because this action is dismissed without prejudice in its entirety, Plaintiffs'  Motion for a Temporary Restraining Order and Preliminary Injunction Enjoining CFPB From Prosecuting its Second-Filed Action is DENIED AS MOOT.
A. Factual Background
1. The Consumer Financial Protection Bureau and its Enforcement Powers
On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). Title X of the Dodd-Frank Act established the Consumer Financial Protection Bureau as an " independent bureau" within the Federal Reserve System, 12 U.S.C. § 5491(a). The Bureau is tasked with the responsibility for " ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive," id. § 5511(a).
Pursuant to Title X, the Bureau bears the responsibility for " regulat[ing] the offering and provision of consumer financial products or services under the Federal consumer financial laws," 12 U.S.C. § 5491(a), a corpus of law that includes 18 pre-existing statutes, which are collectively referred to as " enumerated consumer laws," as well as Title X itself. Id. § 5481(12), (14). Title X prohibits " covered persons" (generally, providers of consumer financial products and services, see id. § 5481(6)) from " engag[ing] in any unfair, deceptive, or abusive act or practice" in violation of Title X or from violating, or offering or providing consumers with a financial product or service not in conformity with federal consumer financial law. Id. § § 5531(a), 5536(a)(1). The Bureau also has the authority to enforce the Telemarketing and Consumer Fraud and Abuse Prevention Act (" Telemarketing Act" ) " with respect to the offering or provision of a consumer financial product or service." 15 U.S.C. § 6105(d). The Telemarketing Act generally prohibits " deceptive telemarketing acts or practices and other abusive telemarketing acts or practices," id. § 6102(a)(1), and has been implemented by the Federal Trade Commission through the Telemarketing Sales Rule (" TSR" ), 16 C.F.R. Part 310, which the Bureau is also authorized to enforce. See 15 U.S.C. § 6102(c)(2).
Pursuant to the Dodd-Frank Act, the Bureau is empowered to engage in investigations and bring enforcement actions. 12 U.S.C. § 5562. When conducting investigations, the Bureau may issue civil investigative demands (" CIDs" ), a form of administrative subpoena that may direct the recipient to produce documents or other materials or to provide information or oral testimony. Id. § 5562(c). A CID recipient may petition the Director of the CFPB to modify or set aside the CID, and the CID is unenforceable while such a petition
is pending. Id. § 5562(f). Materials submitted in response to a CID are considered confidential, id. § 5562(d), and a recipient may withhold responsive material based on a " claim of privilege," 12 C.F.R. § 1080.8(a). CIDs are not self-enforcing, and Title X does not impose a fine or penalty for failure to comply with a CID. Instead, in the event of noncompliance with a CID, the Bureau may file a petition in federal district court seeking enforcement of the CID. 12 U.S.C. § 5562(e).
The Bureau may bring enforcement actions in either of two forums. First, the Bureau may bring an administrative proceeding before an administrative law judge. Id. § 5563. The administrative law judge's recommended decision in the proceeding is subject to review by the Director of the CFPB, whose final decision is subject to judicial review. Id. Alternatively the CFPB is empowered to commence a civil enforcement action in federal district court. Id. § 5564.
2. Plaintiffs and the Bureau's Investigation
Plaintiff Morgan Drexen is a Nevada corporation with its principal place of business in Costa Mesa, California. Compl. ¶ 5. According to Morgan Drexen, its business consists of licensing proprietary software to law firms and providing these firms with live support services. Ledda Decl. ¶ 2. In the words of its Chief Executive Officer, Walter Ledda, " Morgan Drexen provides non-attorney paralegal support services to attorneys in the areas of debt resolution, bankruptcy, personal injury, mass tort litigation, and tax preparation." Id. at ¶ 3. Plaintiff Kimberly Pisinski is an attorney admitted to practice law in Connecticut. Pisinski Decl. ¶ 1. Pisinski describes herself as an attorney-client of Morgan Drexen and claims that she contracts with Morgan Drexen to provide " non-attorney/paralegal services" for her clients as part of her bankruptcy practice. Id. at ¶ 3.
In early 2012, the Bureau began investigating Morgan Drexen for possible violations of the TSR, the Dodd-Frank Act, and other laws. Compl. ¶ ¶ 39. On March 13, 2012, CFPB issued a CID to Morgan Drexen seeking records related to its debt settlement business. Id; Shaheen Decl. ¶ 4, Ex. 1 (Civil Investigative Demand). The information requested included communications between Morgan Drexen and associated attorneys concerning attorney clients, and various personal financial data. Shaheen Decl., Ex. 1. Morgan Drexen responded to the CID on April 13, 2012. Id. at ¶ 6, Ex. 3 (First Response of Morgan Drexen, Inc. to Civil Investigative Demand). As the investigation proceeded, the CFPB sought records from third parties and deposed various officers of Morgan Drexen, including Ledda. Id. at ¶ ¶ 34-37. In addition, as part of the investigative process, the Bureau sought documents from Morgan Drexen relating to Pisinski's clients. Pisinski Decl. ¶ 4. Pisinski asserts that she has not authorized Morgan Drexen to produce these documents, which she believes are subject to the attorney-client privilege. Id. at ¶ ¶ 4-5.
On April 22, 2013, upon the conclusion of its investigation, the Bureau advised Morgan Drexen's counsel via letter that it was considering bringing an enforcement action against the company and Ledda. Shaheen Decl. ¶ 38, Ex. 32 (Letter from Wendy Weinberg to Randal Shaheen). Specifically, the letter stated that " the CFPB's Office of Enforcement is considering recommending that the Bureau take legal action against your clients Morgan Drexen, Inc., and Walter Ledda . . . the staff expects to allege that your clients violated Sections 1031 and 1036 of the Consumer Financial Protection Act, 12 U.S.C. § 5536 and the Telemarketing
Sales Rule, 16 C.F.R. § 310. In connection with the contemplated action, the staff may seek injunctive and monetary relief against your clients." Id. On May 8, 2013, Morgan Drexen responded with a written submission making factual, statutory, and First Amendment arguments for why the Bureau should not file an enforcement action against it. Id. at ¶ 39, Ex. 33 (Letter from Randal Sheehan to Lucy Morris).
B. Procedural History
On July 22, 2013, Morgan Drexen and Pisinski filed this lawsuit, alleging that " Title X of the Dodd-Frank Act violates the Constitution's separation of powers." Compl. ¶ 120. Plaintiffs seek permanent injunctive relief as well as a declaration that " the provisions of the Dodd-Frank Act creating and empowering the CFPB" are unconstitutional. Compl. at 20. Plaintiffs initially accompanied their Complaint with a Motion for a Preliminary Injunction. See Motion for Preliminary Injunction and Request for Oral Argument Pursuant to LCvR 7(f) and LCvR 78.1 and a Hearing Pursuant to LCvR 65.1(d), ECF No. . However, after on-the-record telephone hearings with the Court on July 24 and July 25, 2013, Plaintiffs agreed to withdraw their motion for preliminary injunctive relief and instead elected to proceed with expedited briefing on the merits of their complaint. See Order (July 25, 2013), ECF No. . During the July 25, 2013 telephone hearing, the following exchange occurred between the Court and counsel for the Bureau:
THE COURT: . . . Can I make an assumption that from the defendant's perspective, since you indicate that [the civil investigative demands] were not self-enforcing, that during this period of time you would not be filing an enforcement action?
MR. COLEMAN: Your Honor, that determination is not mine to make.
THE COURT: Okay.
MR. COLEMAN: I don't know the answer to that.
THE COURT: It would be helpful to obviously have some sense of whether you're doing it in terms of the context of how long a period of time. I indicated that this would be an expedited schedule and I would make an expedited decision. It would be helpful, probably, not to have an enforcement action, which they're claiming is unconstitutional, going on at the same time. That was my question.
MR. COLEMAN: Your Honor, I understand your concern. . . . We have not yet determined whether or not to file an enforcement action, and I can't commit to what we will do in that ...