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Morgan Drexen, Inc. v. Consumer Financial Protection Bureau

United States Court of Appeals, District of Columbia Circuit

May 1, 2015

MORGAN DREXEN, INC. AND KIMBERLY A. PISINSKI, APPELLANTS
v.
CONSUMER FINANCIAL PROTECTION BUREAU, APPELLEE

Argued: November 19, 2014.

Page 685

Appeal from the United States District Court for the District of Columbia. (No. 1:13-cv-01112).

Randall K. Miller argued the cause for appellants. With him on the briefs were Nicholas M. DePalma and Randal M. Shaheen. David D. Conway entered an appearance.

John R. Coleman, Senior Litigation Counsel, Consumer Financial Protection Bureau, argued the cause for appellee. With him on the brief was Meredith Fuchs, General Counsel. Nandan M. Joshi, Counsel, entered an appearance.

Before: ROGERS, KAVANAUGH and PILLARD, Circuit Judges. OPINION filed by Circuit Judge ROGERS. Dissenting opinion filed by Circuit Judge KAVANAUGH.

OPINION

Page 686

Rogers, Circuit Judge :

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § § 5481 et seq., established the Consumer Financial Protection Bureau to " regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws." Id. § 5491(a). The Bureau is to " implement and . . . enforce Federal consumer financial law," id. § 5511(a), including eighteen pre-existing statutes and Title X itself,

Page 687

see id. § § 5481(12), (14). To carry out these duties, the Bureau has rulemaking, supervisory, investigatory, adjudicatory, and enforcement authority, id. § § 5512(b), 5514-5516, 5562-5564, including the authority to file civil enforcement actions against regulated parties, id. § 5564; see also 15 U.S.C. § 6105(d).

The district court, without reaching the merits of appellants' constitutional challenge to Title X as a violation of the separation of powers, dismissed appellants' complaint for injunctive and declaratory relief. It ruled that Morgan Drexen, Inc., had an adequate remedy at law in an enforcement action filed by the Bureau in the Central District of California, where Morgan Drexen could raise the constitutional challenge as a defense. The district court ruled that the other plaintiff, Kimberly Pisinski, an attorney who contracts with Morgan Drexen for paralegal services, lacked standing under Article III of the Constitution. They appeal, and we affirm. Pisinski has failed to proffer evidence of an injury in fact at the time she filed the complaint, and Morgan Drexen fails to show the district court abused its discretion in dismissing the complaint. Notwithstanding Morgan Drexen's objection that it filed the complaint before the Bureau filed its enforcement action, the same issues involving the same parties were pending before two federal district courts. The Bureau filed its enforcement action fewer than thirty days after Morgan Drexen filed its complaint. Once the Bureau did so, Morgan Drexen no longer faced the dilemma of whether to change its behavior or risk continued violation of the law in order to get a hearing. Without prejudice to its constitutional challenge, Morgan Drexen was also relieved, as was the judicial system, of the burdens of litigating overlapping claims in two federal district courts.

I.

Morgan Drexen, a Nevada corporation headquartered in California, " is in the business of licensing its proprietary software to law firms and providing these firms with live paraprofessional and support services," including support for bankruptcy and debt-relief legal practices. Decl. of Walter Ledda, Chief Exec. Offr., Morgan Drexen ¶ ¶ 2-3 (July 21, 2013). Pisinski, an attorney licensed to practice in the State of Connecticut whose law practice includes bankruptcy matters, contracts with Morgan Drexen for paralegal services. Decl. of Kimberly A. Pisinski, Esq. ¶ ¶ 1-3 (July 21, 2013).

On April 22, 2013, after an investigation lasting more than a year, the Bureau notified Morgan Drexen that its enforcement office was " considering recommending that the Bureau take legal action" against Morgan Drexen and its Chief Executive Officer Walter Ledda for violations of the Consumer Financial Protection Act, 12 U.S.C. § 5536, and the Telemarketing Sales Rule, 16 C.F.R. § 310. See Ltr. from Wendy Weinberg, Enforcement Att'y, Consumer Fin. Prot. Bureau, to Randal Shaheen, Esq., Counsel for Morgan Drexen 1 (Apr. 22, 2013). Morgan Drexen was offered an opportunity to explain why legal action should not be taken. On May 8, 2013, Morgan Drexen responded and proposed a settlement. See Ltr. from Randal M. Shaheen, Esq., to Lucy Morris, Esq., Consumer Fin. Prot. Bureau 6 (May 8, 2013). Following a May 29, 2013, meeting, the enforcement office inquired about certain data and sought further document production from Morgan Drexen by June 30, in response to a March 13, 2012, civil investigative demand (" CID" ). See Ltr. from Gabriel O'Malley, Enforcement Att'y, Consumer Fin. Prot. Bureau, to Randal M. Shaheen, Esq. (June

Page 688

12, 2013). A further written communication indicates that Morgan Drexen represented to the Bureau that it did not intend to respond to all of the Bureau's production requests until the Bureau engaged in settlement discussions but that it would produce certain documents over the course of the month of July. See Email from Gabriel O'Malley, Enforcement Att'y, Consumer Fin. Prot. Bureau, to Randal M. Shaheen, Esq. (July 8, 2013).

On July 22, 2013, Morgan Drexen and Pisinski sued the Bureau in the U.S. District Court for the District of Columbia. Their complaint sought declaratory and injunctive relief, alleging that the independent structure of the Bureau under Title X of the Dodd-Frank Act is unconstitutional because the powers delegated to the Bureau are overbroad, the Bureau is headed by a single director removable only for cause, it is funded outside the normal appropriations process, and judicial review of its actions is limited, all in violation of the constitutional separation of powers. Compl. ¶ 120. With the complaint, Morgan Drexen and Pisinski filed a motion for a preliminary injunction. Three days later the district court and the parties agreed to proceed with expedited briefing; the motion for a preliminary injunction was withdrawn and the parties filed cross motions for summary judgment.

On August 20, 2013, the Bureau filed an enforcement action against Morgan Drexen and CEO Ledda in the U.S. District Court for the Central District of California, alleging violations of the Telemarketing Sales Rule and the Consumer Financial Protection Act. Specifically, the Bureau alleged that Morgan Drexen had violated the Telemarketing Sales Rule by, among other things, charging consumers illegal up-front fees for debt-relief services disguised as fees for bankruptcy services that most consumers do not need and that are not performed. Complaint ¶ ¶ 74-83, Consumer Fin. Prot. Bureau v. Morgan Drexen, Inc., 60 F.Supp.3d 1082, No. SACV 13-1267-JLS, 2014 WL 5785615 (C.D. Cal. Jan. 10, 2014). The Bureau also alleged that Morgan Drexen's representations to consumers are misleading, in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act, see id. ¶ ¶ 84-87, 91-97, and that although Morgan Drexen claims only to support attorneys in the provision of debt-relief and bankruptcy services, in fact, " [i]n numerous instances, . . . Morgan Drexen . . . performs virtually all of the debt resolution work," id. ¶ 42. Neither Pisinski nor any other lawyer contracting with Morgan Drexen was named in the enforcement action. On August 22, 2013, Morgan Drexen and Pisinski moved in the D.C. district court for a temporary restraining order and a preliminary injunction to enjoin the Bureau from prosecution.

On October 13, 2013, the D.C. district court granted the Bureau's motion to dismiss the complaint, or in the alternative for summary judgment, without reaching the merits of the constitutional challenge to Title X. The district court found that Morgan Drexen had an adequate remedy at law in the enforcement action and would suffer no irreparable injury from the denial of relief. It found that Pisinski lacked standing under Article III of the Constitution, and it dismissed as moot plaintiffs' requests for a temporary ...


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