Morgan Drexen Hits Speed Bump in Suit Against the CFPB

Previously the somewhat debt settlement, social media, call center, software developing, reputation defending company Morgan Drexen in California sued the CFPB and challenged its constitutionality. I’ve written about that here, here, and here.

On October 17th the United States District Court for the District of Columbia issued an opinion in the case.

In the 29 page opinion, Judge Kollar-Kotelly had the following points to share. But first she stated the suit by the CFPB could continue and she did not issue a Temporary Restraining Order against the CFPB. You can read the full opinion here.

“”The CFPB argues that this Court should decline to exercise jurisdiction in this case. First, it argues that because Morgan Drexen can obtain complete relief on its constitutional claim in the currently pending enforcement action in the Central District of California, injunctive and declaratory relief in this Court would be inappropriate.

Second, the Bureau contends that Pisinski lacks Article III standing to press her claims in this Court. The Court finds both of these contentions persuasive, and Plaintiffs’ arguments to the contrary unavailing. Accordingly, this Court dismisses this matter without prejudice in the Bureau’s favor without addressing the merits of Plaintiffs’ constitutional challenge to the CFPB.”

But the issue is not over. The Court noted, “Yet, while denying Morgan Drexen a declaratory judgment will postpone the resolution of this dispute, the delay is not severe. Upon this ruling, Morgan Drexen can file a motion to dismiss in the California action, asserting its constitutional challenge to the CFPB under Federal Rule of Civil Procedure 12(b). Such a motion would be fully briefed and ripe for decision in a matter of weeks. Accordingly, balancing this moderate delay against the numerous factors counseling against providing declaratory relief here, this Court declines to exercise its permissive jurisdiction over this declaratory judgment action.”

However on the matter of Attorney Pisinski into the case as a co-Plantiff resulted in this statement from the Court, “Although the Court concludes that Plaintiff Morgan Drexen is not entitled to injunctive or declaratory relief because it may raise its claims as defenses in the pending California enforcement action, Plaintiff Pisinski is not a party to the enforcement action. Nevertheless, the Court concludes that Pisinski’s claims in this Court are also inappropriate because she lacks standing to bring this constitutional challenge to the Bureau’s existence.”

“Plaintiff Pisinski makes two arguments in favor of her standing. First, she argues that she would suffer injury if Morgan Drexen were forced to comply fully with the Bureau’s CIDs, which she alleges seek information that is protected by the attorney-client privilege.

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On this issue, Pisinski claims that Morgan Drexen’s provision of the information sought by the Bureau would interfere with her confidential relationships with her clients.

Yet, as the Bureau points out, this injury is illusory.

The Bureau never sought Pisinski’s privileged communications, as it informed Morgan Drexen of its right to assert any applicable privilege in response to the CID.

Moreover, because the CIDs issued by the Bureau are not self-enforcing, see 12 U.S.C. § 5562(e), the Bureau could never have compelled Morgan Drexen to provide Pisinski’s information without a court proceeding in which a claim of privilege could be asserted. Furthermore, the Court must consider the timing of Pisinski’s allegation. Having now brought its enforcement action against Morgan Drexen, the Bureau has no reason to seek to compel Morgan Drexen to produce the allegedly privileged information by petitioning a court to enforce its CID.”

The Court appears to have taken a closer look at the relationship between Pisinski and Morgan Drexen.

“In his declaration, Walter Ledda, the CEO of Morgan Drexen states his concern that if the CFPB continues to take action against his company, “[a]ttorneys who contract with Morgan Drexen will potentially terminate their contracts in favor of other companies that are not being requested to produce their clients’ personal financial information to CFPB.”

Moreover, Pisinski has not even made the basic allegation that her business will suffer or that her costs will increase in the absence of Morgan Drexen’s services. She only alleges that her business will be “disrupted” if she is forced to turn over privileged material in response to a CFPB CID – a distinct and as discussed, supra, unavailing basis for her injury.

Lacking the most basic allegations of injury, Pisinski’s declaration provides an inadequate basis for standing. Moreover, as the Bureau points out, granting Pisinski standing on the basis of these limited allegations would effectively provide standing to any contractual counterparty of a regulated entity. In light of the Supreme Court’s warning that establishing standing is “substantially more difficult” in the context of a non-regulated entity, Lujan, 504 U.S. at 562, this Court will not premise a drastic expansion of standing doctrine on three unelaborated sentences in Pisinski’s declaration.

Indeed, these allegations of injury are so bare that even if Pisinski is correct that she is “effectively regulated” by the CFPB’s regulation of Morgan Drexen, her declaration still fails to show any injury resulting from this regulation. Pisinski makes no claim of the harm that would befall her from the regulation of her “paralegal.” As noted, she has not stated that she would be unable to find an alternative source for Morgan Drexen’s services or that the loss of Morgan Drexen’s services would increase her costs or hurt her business. Furthermore, there is no allegation that the CFPB is planning to proceed against her, unsubstantiated statements about the Bureau’s “concerns” notwithstanding.

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In fact, it bears noting that nothing in the record beyond the conclusory statements contained in Plaintiffs’ declarations even establishes that the relationship between Morgan Drexen and the attorneys it contracts with is akin to that between a paralegal and an attorney. Aside from the mere invocation of the term “paralegal”, Pisinski never even describes the services for which she relies on Morgan Drexen for assistance, much less the injury that would be inflicted upon her from the deprivation of these services. In the absence of a more significant factual showing or legal support for this extension of standing doctrine, the Court is reluctant to accept Pisinski’s argument. Accordingly, the Court concludes that her claims must be dismissed.”

So the story continues and the question still unanswered is if Morgan Drexen’s efforts to challenge the constitutionality of the CFPB will result in blocking the enforcement action brought by the CFPB.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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