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May 5, 2015
  Morgan Drexen v. Consumer Financial Protection Bureau
Headline: Split panel rules that regulated party lacks standing to bring a facial constitutional challenge to the composition of a the Consumer Financial Protection Bureau in absence of an enforcement action.

Area of Law: Standing, Declaratory Judgment, Consumer Protection

Issue(s) Presented: Whether a lawyer who contracts with a legal software firm has standing to challenge the constitutionality of the CFPB in the absence of an enforcement action against her directly; whether a declaratory judgment regarding the constitutionality of the CFPB is appropriate when an enforcement action is pending in another forum.

Brief Summary: In April 2013, the Consumer Financial Protection Bureau ("CFPB") notified Appellant Morgan Drexen, a Nevada corporation headquartered in California that provides software and legal support services to law firms, that CFPB was considering an enforcement action against it and its CEO. The CFPB, established under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enforces federal consumer financial laws. It has rulemaking, supervisory, investigatory, adjudicatory, and enforcement authority. In July 2013 Morgan Drexen and Appellant Kimberley Pisinski, a lawyer who contracted with it for support services, sued the CFPB in federal court in the District of Columbia challenging the constitutionality of the CFPB on separation of powers grounds. Appellants sought declaratory and injunctive relief.

In August 2013, CFPB filed an enforcement action against Morgan Drexen only in federal court in California. That action alleged that Morgan Drexen violated the Telemarketing Sales Rule and made misleading representations to consumers. Two days later, Morgan Drexen and Pisinski moved in the D.C. court for a temporary restraining order and a preliminary injunction to enjoin the California enforcement action.

In October 2013, the U.S. District Court for the District of Columbia granted CFPB's motion to dismiss Morgan Drexen and Pisinski's suit. Without reaching the merits of the constitutional challenge, the court found that Morgan Drexen would have an adequate remedy for its constitutional claims in the California enforcement action and that Pisinski lacked Article III standing to assert a claim.

A divided panel of the U.S. Court of Appeals for the District of Columbia Circuit affirmed the decision. The D.C. Circuit agreed with the district court that Morgan Drexen could raise its constitutional challenges to the composition and authority of the CFPB as defenses in the enforcement action and that doing so would have the advantage of avoiding piecemeal litigation and resolving all issues in a single case. Further, emphasizing that the California enforcement action had been filed fewer than thirty days after Appellants filed their suit in the District of Columbia, the court concluded that Morgan Drexen had not been subject to a an extended period of uncertainty about the legality of its actions and thus had suffered no irreparable injury from the denial of its request for declaratory judgment. Finally, the court determined that the district court's action had relieved Morgan Drexen of the inconvenience of litigating overlapping issues in two federal forums.

The majority was unpersuaded by Pisinski's argument that she had Article III standing to pursue the constitutional challenge on the theory that the enforcement action against Morgan Drexen was inherently an enforcement action against her because it could disrupt her law practice or injure her professional reputation by implying that she was responsible for, or participated in, the alleged illegal conduct. The court determined that Pisinski had failed to proffer sufficient evidence in support of her theory. She was not the subject of the enforcement action, and the court found no evidence in the record that CFPB had ever threatened action against Pisinski or any other lawyers with whom Morgan Drexen contracted. Further, the court found that Pisinski had not shown that the services for which she contracted with Morgan Drexen were targeted in the enforcement action and that any economic or reputational injury to her practice as a result of the action were speculative. Rather, the court held that she had a consumer-services contractual relationship with Morgan Drexen that, without more, did not suffice to confer standing.

In dissent, Judge Kavanaugh argued that Pisinski had standing. He reasoned that CFPB regulates a business in which Pisinski engages, which is enough to confer standing.

The full text of this opinion may be found at$file/13-5342.pdf

Panel: Rogers, Kavanaugh, Pillard

Argument Date: 11/19/2014

Date of Issued Opinion: 5/1/ 2015

Docket Number: 13-5342

Decided: Affirmed

Counsel (if known): Randall K. Miller, Nicholas M. DePalma, and Randal M.
Shaheen for Appellants.

John R. Coleman and Meredith Fuchs for Appellee.

Author of Opinion: Rogers

Dissent: Kavanaugh

Case Alert Author: Ripple Weistling

Case Alert Circuit Supervisor: Elizabeth Beske, Ripple Weistling

    Posted By: Ripple Weistling @ 05/05/2015 08:24 AM     DC Circuit  

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