John Doe Company v. CFPB

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
1:17-cv-00049-RC
Filed On: March 3, 2017
John Doe Company,
Appellant
v.
Consumer Financial Protection Bureau and
Richard Cordray, in his official capacity as
Director of the Consumer Financial Protection
Bureau,
Appellees
BEFORE: Kavanaugh,* Millett, and Wilkins, Circuit Judges
ORDER
Upon consideration of the emergency motion for injunction pending appeal, the
response thereto, and the reply, it is
ORDERED that the motion for injunction be denied.
Appellant John Doe Company is a California limited liability company with its
principal place of business in the Philippines. The Company is in the business of
purchasing and selling income streams. A recent Government Accountability Office
study explained that income-stream-marketing businesses often target vulnerable
clients such as our military veterans and the elderly, charging effective interest rates far
in excess of state usury laws (up to 87% in some cases) and providing lump sum pay-
outs that are roughly half the minimum required under federal law governing pensions.
See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-15-846T, PENSION ADVANCE
TRANSACTIONS: QUESTIONABLE BUSINESS PRACTICES IDENTIFIED 20–22, 23–26, 27
(2015). The GAO Report recommended that the Federal Trade Commission and the
Consumer Financial Protection Bureau investigate income-stream marketers. The
*
Circuit Judge Kavanaugh would grant the motion for injunction pending appeal
for the reasons set forth in the attached statement.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
Company itself has been the subject of regulatory proceedings by at least six States
under their consumer protection laws. As the district court found, “neither side seems
to dispute that John Doe Co. has been the subject of considerable negative publicity
throughout the past few years.” Dist. Ct. Op. Denying Prelim. Inj. 7.
In November 2016, the Consumer Financial Protection Bureau issued a Civil
Investigative Demand (“CID”) to the Company pursuant to its statutory authority, 12
U.S.C. § 5562(c)(1). Congress authorized the Bureau to issue CIDs to collect
information relevant to the enforcement of specified consumer protection laws. Id.; see
also 12 U.S.C. § 5511. The issuance of a CID is purely investigatory. It does not
initiate a law-enforcement proceeding or even signify that any violation of law has been
committed. See 12 U.S.C. § 5562(e).
CIDs are not self-enforcing, and non-compliance triggers no fine or penalty. 12
U.S.C. § 5562(e)(1); Morgan Drexen, Inc. v. Consumer Fin. Prot. Bureau, 979 F. Supp.
2d 104, 108 (D.D.C. 2013), aff’d, 785 F.3d 684 (D.C. Cir. 2015). The Company thus
needed to do nothing in response to the CID it received. If a recipient declines to
respond to the CID, the Bureau must obtain a court order to enforce it. 12 U.S.C.
§ 5562(e). In that court proceeding, the recipient can raise any relevant legal objection
to enforcement of the CID.
In this case, the Company did not wait for the Bureau to seek enforcement of the
CID, but instead filed a pre-enforcement suit in district court challenging the
constitutionality of the Bureau’s structure and seeking to halt any and all Bureau action
“adverse” to the company, Mot. for Prelim. Inj. 26, including enjoining enforcement of
the CID and forbidding the disclosure of the Company’s identity. The district court
denied Doe’s request for a preliminary injunction, concluding that the Company had not
met its burden of establishing either a likelihood of success or irreparable harm. The
Company now requests an emergency injunction pending appeal.
A preliminary injunction is “an extraordinary remedy that may only be awarded
upon a clear showing that the [movant] is entitled to such relief.” Winter v. Natural Res.
Def. Council, Inc., 555 U.S. 7, 22 (2008). “A plaintiff seeking a preliminary injunction
must establish that he is likely to succeed on the merits, that he is likely to suffer
irreparable harm in the absence of preliminary relief, that the balance of equities tips in
his favor, and that an injunction is in the public interest.” Id. at 20. Because the
Company seeks the exceptional remedy of an injunction pending appeal, the Company
Page 2
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
faces the difficult task of coming forward with evidence and argument showing that it is
“likel[y]” that the district court “abused its discretion” in denying a preliminary injunction.
See, e.g., Washington Metro. Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d
841, 844 (D.C. Cir. 1977); Chaplaincy of Full Gospel Churches v. England, 454 F.3d
290, 297 (D.C. Cir. 2006).
The Company’s sole argument regarding likelihood of success on the merits
before this court and the district court has been to point to the now-vacated majority
opinion in PHH Corporation v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C.
Cir. 2016), vacated, reh’g en banc granted, No. 15-1177 (D.C. Cir. Feb. 16, 2017). But
remember: the Company has to show not just that there is potentially persuasive
authority for its legal position, but that the district court abused its discretion in not
sufficiently crediting that showing in the balancing of equities that preliminary injunctive
relief requires. Pointing to PHH is not enough for four reasons.
First, the PHH decision on which the Company relies has been vacated. And
even within that decision, panel members differed on the appropriateness or necessity
of issuing the separation-of-powers ruling given predicate statutory issues in the case.
PHH, 839 F.3d at 56 (Henderson, J., concurring in part and dissenting in part)
(declining to reach the constitutional question because an adequate remedy could be
provided on the statutory ground); see also id. at 55 (Randolph, J., concurring) (also
finding constitutional error in the ALJ who heard the proceeding). Without suggesting
anything one way or the other about how the en banc court might ultimately resolve the
PHH case and with all due respect to its panel members, the district court did not abuse
its discretion in determining that simply pointing to the vacated majority opinion in PHH
did not establish the likelihood of an identical constitutional ruling by the en banc court
in PHH or the court in this case.
Second, even assuming for purposes of this motion that the en banc court were
to reach the same constitutional ruling as the majority opinion in PHH, the Company is
not remotely in the same constitutional position as PHH. PHH, remember, was on the
receiving end of a completed law enforcement proceeding by the Bureau, and had been
ordered to pay a $109 million fine. PHH, 839 F.3d at 7. In finding a separation-of-
powers violation, the majority opinion repeatedly emphasized its view of the
Constitution’s assignment of “law enforcement” authority to the Executive Branch. See,
e.g., id. at 18 (discussing “the core Article II executive power of bringing law
enforcement actions”); id. at 19 (Social Security Administrator distinguishable because
Page 3
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
he “does not possess unilateral authority to bring law enforcement actions against
private citizens, which is the core of the executive power and the primary threat to
individual liberty posed by executive power”); id. at 20 n.5 (court’s holding would not
invalidate other single-director independent agencies because they “do not exercise the
core executive power of bringing law enforcement actions”).
The Company, by contrast, filed a pre-enforcement suit to stop a non-self-
executing investigative demand for regulatory information. The Company voices no
objection here to the scope or content of the CID and does not argue that it falls beyond
the Bureau’s statutory authority. The Company’s sole argument is that the Bureau’s
single-Director structure is unconstitutional. And the sole injury it asserts on appeal is
the harm occasioned by having to respond to a non-self-executing CID.1
Standing is determined on a claim-by-claim basis. See, e.g., Davis v. FEC, 554
U.S. 724, 734 (2008) (explaining that standing is not “dispensed in gross” but a plaintiff
“must demonstrate standing for each claim he seeks to press and for each form of relief
that is sought”) (quotation marks and citations omitted). And the only thing that
happened prior to the Company filing its pre-enforcement suit was the Bureau’s
issuance of an investigative demand for information relevant to the Company’s
adherence to federal law. The Company accordingly has to demonstrate that the action
of merely requesting information from private entities subject to regulation is by itself
exclusively confined to the Executive Branch, and thus that issuance of this CID by the
Bureau violates the separation of powers.
The Company has utterly failed that task. Nowhere in its arguments has it even
acknowledged the distinct posture of its preemptive proceeding or the nature of the
governmental action it seeks to halt. That failure to even attempt to discharge its
particularized burden of proof is fatal. To obtain an injunction pending appeal on the
ground that the Bureau transgresses the separation of powers just by issuing a
CID—just by investigating a regulated entity’s compliance with federal law—the
Company would have to show that only the Executive Branch can demand information
from regulated businesses or take such investigative steps. That is, to say the least, far
from constitutionally self-evident. Congress issues subpoenas for information. And in
Buckley v. Valeo, 414 U.S. 1 (1976), the Supreme Court specifically carved out such
1
Nor does the Company object to any other regulatory measure taken by the
Bureau, or identify in its injunction papers other regulatory burdens to which it objects.
Cf. State Nat’l Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015).
Page 4
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
investigative measures from its holding that the Commission there was exercising
powers forbidden by the Constitution, id. at 137–138.
That the Company frames its argument as a facial challenge to the Bureau’s ability
to take any “action adverse to Plaintiff” does not save it, even assuming it has standing to
seek such sweeping relief at this pre-enforcement juncture on the basis of nothing other
than the issuance of a CID. A statute is not facially unconstitutional unless it is
unconstitutional in all of its applications. See, e.g., United States v. Salerno, 481 U.S. 739,
745 (1987) (“A facial challenge to a legislative Act is, of course, the most difficult challenge
to mount successfully, since the challenger must establish that no set of circumstances
exists under which the Act would be valid.”). Given that, the district court certainly did not
abuse its discretion in concluding that the Company’s failure to even argue its own alleged
constitutional injury (rather than PHH’s) meant it had not established a likelihood of
success on appeal.
Third, the Company’s argument that the alleged separation-of-powers violation
requires that the Bureau be stopped in its tracks ignores traditional constraints on
separation-of-powers remedies. Often in separation-of-powers cases, severance of the
unconstitutional provision is the chosen remedy. That is what the now-vacated majority
opinion in PHH did—the decision just severed the Director’s for-cause removal provision,
making him removable by the President at will. As the opinion repeatedly stated, the
Bureau could continue its work apace. See, e.g., PHH, 839 F.3d at 8 (declining to “shut
down the entire CFPB”); see also Free Enter. Fund v. Public Co. Accounting Oversight Bd.,
561 U.S. 477, 509 (2010) (severing unconstitutional provision requiring for-cause removal
of officers); Buckley, 424 U.S. at 142 (allowing the FEC to continue its investigations and
administrative actions even though it was unconstitutionally structured).
In addition, vacatur of past actions is not routine. The PHH decision did not undo
the Bureau enforcement action and make it start over from scratch. The court simply
remanded for the Bureau to address specified matters. See PHH, 839 F.3d at 8. Indeed,
the Supreme Court and this court have often accorded validity to past acts of
unconstitutionally structured governmental agencies. See, e.g., Buckley, 424 U.S. at 142;
Citizens for Abatement of Aircraft Noise, Inc. v. Metropolitan Wash. Airports Auth., 917
F.2d 48, 57 (D.C. Cir. 1990) (“We direct, however, that actions taken by the Board to this
date not be invalidated automatically on the basis of our decision.”), aff’d, 501 U.S. 252(1991); see also In re Application of President’s Comm’n on Organized Crime, 763 F.2d
1191, 1202 (11th Cir. 1985) (Fay, J., writing separately) (“[O]ur holding regarding the
Page 5
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
separation of powers doctrine does not require the voiding” of a Commission subpoena);
id. (Roney, J., specially concurring) (agreeing with decision to enforce the subpoena
despite constitutional infirmity).
Given all of that, the Company failed to make any relevant showing at all that it has
a likelihood of succeeding on its effort to prevent the Bureau from investigating the
company via a CID or taking any other unspecified adverse action. Or at least the district
court did not abuse its discretion in so concluding.
Fourth, the Company’s prospects of success stumble in yet another respect: this
court is not the proper forum for the Company to press its separation of powers claim. We
have held on multiple occasions that, even if a party is the subject of an arguably
unconstitutional regulatory action, that constitutional argument should be raised within the
context of an administrative enforcement proceeding. See, e.g., Jarkesy v. SEC, 803 F.3d
9, 12 (D.C. Cir. 2015); Morgan Drexen, 785 F.3d at 694; cf. Thunder Basin Coal Co. v.
Reich, 510 U.S. 200, 215–216 (1994) (holding that petitioner’s constitutional claims could
first be brought before the agency).
The Company notes that, in Free Enterprise, the Supreme Court permitted a stand-
alone, pre-enforcement constitutional challenge. True enough. But the Supreme Court
did so there because, to do otherwise, could have “foreclose[d] all meaningful judicial
review[.]” Free Enterprise, 561 U.S. at 489 (quoting Thunder Basin, 510 U.S. at 212–213).
The Company, by contrast, has immediate access to another forum in which it can raise
its constitutional claim: the enforcement action pending in the United States District Court
for the Central District of California. The Company has made no argument whatsoever that
requiring it to raise its claim in an actual enforcement proceeding would somehow
“foreclose all meaningful judicial review,” id.Also, unlike the plaintiffs in Abbott Laboratories v. Gardner, 387 U.S. 136 (1967),
the Company has not identified any exceptional measures it must undertake in response
to the CID. In fact, as noted, no action at all is required unless and until the CID is
enforced. Thus, unlike Abbott Laboratories or State Street, the Company has come to this
court to halt an agency action that requires nothing on its part, and certainly does not force
it to “bet the farm,” Free Enterprise, 561 U.S. at 490.
With respect to its obligation to demonstrate irreparable harm, the Company started
with the entirely unsubstantiated and conclusory assertions that its customers and
Page 6
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
employees will flee and its reputation will be materially harmed if word of the Bureau’s
investigation gets out. Tellingly, the Company does not suggest that customers or
employees defected after six state regulatory investigations, an adverse GAO report, and
the “considerable negative publicity” that has already surrounded the Company, Dist. Ct.
Op. Denying Prelim. Inj. 7. The district court thus did not abuse its discretion in finding that
the Company’s conclusory assertions of reputational and economic harm, unaccompanied
by any relevant declarations, did not establish an injury that is “both certain and great; * *
* actual and not theoretical.” Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir.
1985). In any event, it is “well settled that economic loss does not, in and of itself,
constitute irreparable harm,” id. at 674, especially when it is nothing more than speculation
about how third parties might respond to routine regulatory investigations. For those same
reasons, the Company has failed to demonstrate why the district court abused its discretion
in holding that its name need not be kept confidential in public court proceedings. Indeed,
the Company has offered this court no answer to the point that its identity could readily be
obtained through a Freedom of Information Act, 5 U.S.C. § 552, request.
By its reply brief in this court (see Reply Br. 10 & n.2), the Company abandoned any
further defense of those asserted reputational and economic harms, putting all of its eggs
in the per se basket: the Company insists that any alleged separation-of-powers injury is
by its very nature irreparable. The short answer is that this Court has held otherwise. In
the absence of “immediate or ongoing harm stemming from the [Bureau’s] alleged
constitutional defects,” the “violation of separation of powers” by itself is not invariably an
irreparable injury. In re al-Nashiri, 791 F.3d 71, 79–80 (D.C. Cir. 2015); see also Morgan
Drexen, 785 F.3d at 695 n.3 (being forced to await an enforcement proceeding and to
litigate in another forum where no greater burden is imposed is not irreparable injury);
Tilton v. SEC, 824 F.3d 276, 286 (2d Cir. 2016) (holding, in Appointments Clause
challenge to SEC judges, that the injury of “‘being subjected to an unconstitutional
adjudicative procedure,’ with the attendant ‘embarrassment, expense, * * * ordeal, * * *
[and] state of anxiety and insecurity’” was not an “irremediable harm”) (alterations in
original; citation omitted).
That is doubly so here where the only consequence of denying an injunction
pending appeal in the Company’s pre-enforcement suit is that it must raise its separation-
of-powers arguments in the pending CID enforcement action in district court. As the
Supreme Court has explained, “the expense and disruption of defending [oneself] in
protracted adjudicatory proceedings” is not an irreparable harm. FTC v. Standard Oil Co.
of Cal., 449 U.S. 232, 244 (1980); see also Renegotiation Bd. v. Bannercraft Clothing Co.,
Page 7
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
415 U.S. 1, 24 (1980) (“Mere litigation expense, even substantial and unrecoupable cost,
does not constitute irreparable injury.”). That is because, if found to be constitutionally
warranted, “[v]acatur, even at the appeal-from-final-judgment stage, would fully vindicate”
the separation-of-powers rights of the Company. In re al-Nashiri, 791 F.3d at 801. The
Company has offered this court no argument as to why such precedent does not apply
here, or more to the point, why it was not an abuse of discretion for the district court to find
no irreparable harm under these special circumstances.
Given the Company’s failure to establish a likelihood of success on the merits of its
pre-enforcement challenge and irreparable harm, the balance of equities—especially when
it comes to consumer protection—weighs against granting an injunction pending appeal.
For the foregoing reasons, the motion for an injunction pending appeal is denied.
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
BY: /s/
Amy Yacisin
Deputy Clerk
Page 8
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
KAVANAUGH, Circuit Judge, dissenting:
I would grant the motion for an injunction pending appeal.
Petitioner John Doe Company claims that it is being regulated by an
unconstitutionally structured agency, the Consumer Financial Protection Bureau. The
CFPB has issued binding rules that govern the Company’s conduct, and the CFPB can
bring enforcement actions against the Company for violations of those rules (or of
statutes). Under the Supreme Court’s and this Court’s precedents, the Company as a
regulated entity has standing to raise its free-standing constitutional claim, and the
claim is ripe. The Company need not wait for a CFPB enforcement action in order to
raise the constitutional challenge. See Free Enterprise Fund v. Public Company
Accounting Oversight Board, 561 U.S. 477, 490 (2010); Abbott Laboratories v. Gardner,
387 U.S. 136, 152-53 (1967); State National Bank of Big Spring v. Lew, 795 F.3d 48,
53-54 (D.C. Cir. 2015). “To use the Supreme Court’s words, we ‘normally do not require
plaintiffs to bet the farm’ by violating the law in order to challenge the constitutionality of
the regulating agency.” State National Bank of Big Spring, 795 F.3d at 54 (quoting Free
Enterprise Fund, 561 U.S. at 490 (internal quotation marks omitted)). Indeed, this Court
has already held that a business may bring a stand-alone constitutional challenge to the
structure of the CFPB – and that case is now pending in the U.S. District Court for the
District of Columbia. See id. at 53-54.
In order to obtain a preliminary injunction or injunction pending appeal, the
Company must show, as relevant here, (i) a likelihood of success on the merits and (ii)
irreparable harm.
In my view, the Company has shown a likelihood of success on the merits of its
constitutional claim, for reasons fully explained in this Court’s opinion in PHH Corp. v.
CFPB, 839 F.3d 1 (D.C. Cir. 2016). The “CFPB’s structure violates Article II of the
Constitution because the CFPB operates as an independent agency headed by a single
Director.” Id. at 12. The CFPB’s structure as a single-Director independent agency with
vast rulemaking and enforcement authority is unprecedented in American history. To be
sure, the PHH case will soon be reheard by this Court en banc. But in my view, the
CFPB’s structure is unconstitutional. And given the Supreme Court’s Article II
precedents, I believe that the CFPB’s structure is likely to be ruled unconstitutional,
whether by this Court sitting en banc or by the Supreme Court. The Company has
shown a likelihood of success on the merits.
Page 9
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
The Company also has shown irreparable harm. Irreparable harm occurs almost
by definition when a person or entity demonstrates a likelihood that it is being regulated
on an ongoing basis by an unconstitutionally structured agency that has issued binding
rules governing the plaintiff’s conduct and that has authority to bring enforcement
actions against the plaintiff. See Gordon v. Holder, 721 F.3d 638, 653 (D.C. Cir. 2013)
(“Although a plaintiff seeking equitable relief must show a threat of substantial and
immediate irreparable injury, a prospective violation of a constitutional right constitutes
irreparable injury for these purposes.”) (alteration and internal quotation marks omitted)
(quoting Davis v. District of Columbia, 158 F.3d 1342, 1346 (D.C. Cir. 1998)); see also
National Federation of Federal Employees-IAM v. Vilsack, 681 F.3d 483, 499 (D.C. Cir.
2012); Mills v. District of Columbia, 571 F.3d 1304, 1312 (D.C. Cir. 2009); Chaplaincy of
Full Gospel Churches v. England, 454 F.3d 290, 303-04 (D.C. Cir. 2006); cf. Free
Enterprise Fund, 561 U.S. at 490-91; Correctional Services Corp. v. Malesko, 534 U.S.
61, 74 (2001).
The CFPB argues that, even if the agency is unconstitutionally structured under
Article II, the remedy for the Article II violation would be to sever the for-cause removal
provision, as PHH held. In that scenario, the CFPB would continue to regulate the
Company, although the CFPB would do so as an executive agency instead of an
independent agency. According to the CFPB, the Company therefore is not entitled to a
preliminary injunction or injunction pending appeal to prevent the CFPB in its current
form from regulating the Company now. The CFPB’s analysis on this point is badly
mistaken. Unless and until that remedy is put in place and the for-cause removal
provision is actually severed from the statute, the Company will continue to be
regulated on an ongoing basis by an unconstitutional agency. What the Company
objects to is not merely regulation by the CFPB, but rather regulation by the CFPB in its
current unconstitutional and unprecedented structure – namely, an independent agency
headed by a single Director who is unaccountable to the President or to any fellow
commissioners. A preliminary injunction would alleviate that ongoing harm.
The CFPB’s primary strategy to defeat the Company’s irreparable harm
argument is deflection. The CFPB says there is no irreparable harm because other
courts (the Central District of California and ultimately the Ninth Circuit) can entertain
the Company’s constitutional arguments in a challenge to the civil investigative demand
issued to the Company by the CFPB. The CFPB’s argument makes little sense, in my
view. A party seeking a preliminary injunction in one court is not barred from obtaining
the preliminary injunction simply because some other court might someday grant relief
Page 10
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5026 September Term, 2016
to that party. To be sure, if this Court lacked jurisdiction or statutory authority to hear
this case at this time, we could not grant a preliminary injunction. But if this Court has
jurisdiction and statutory authority to hear a case (as we do here, see Free Enterprise
Fund, 561 U.S. at 489-91), then a party’s claim of irreparable harm in the preliminary
injunction context is not defeated by the mere fact that the party’s constitutional claims
could also eventually be raised in another court.
Finally, the other two factors also support a preliminary injunction. The Company
has shown that an injunction “is in the public interest” and that the “balance of equities
tips” in its favor. Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20
(2008). The public interest is not served by letting an unconstitutionally structured
agency continue to operate until the constitutional flaw is fixed. And in this
circumstance, the equities favor the people whose liberties are being infringed, not the
unconstitutionally structured agency.
I respectfully dissent from the Court’s denial of the motion for an injunction
pending appeal.
Page 11