Ninth Circuit Poised to Close Out Seila Law, CFPB Legal Battle

A California debt collection firm that successfully challenged the constitutionality of the Consumer Financial Protection Bureau faced tough questions from the Ninth Circuit about its bid to escape an agency investigation.

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held oral arguments on the CFPB’s 2017 civil investigative demand against the Seila Law firm. All three judges asked pointed questions to Seila Law’s counsel, Bienert Katzman PC partner Tony Bisconti, about why the CFPB’s probe shouldn’t continue after the Supreme Court’s June ruling in the case cured constitutional defects at the bureau.

The high court’s ruling in Seila Law v. CFPB said the bureau’s leadership structure was unconstitutional and made its director an at-will appointee of the president. After the court’s remedy, CFPB Director Kathleen Kraninger ratified most of the agency’s past policies and enforcement actions, including the Seila Law investigation, to ensure that “the same rules continue to govern the consumer financial marketplace.”

The Supreme Court remanded the Seila case back to the Ninth Circuit to deal with the ratification issue.

Bisconti argued that the ratification wasn’t sufficient for the CFPB’s civil investigative demand to survive, because the agency never had the authority to bring the action in the first place. If the CFPB’s document request to Seila wasn’t quashed, the agency wouldn’t face any consequences for its constitutional defects, he said.

Judges Susan P. Graber, Paul J. Watford, and Jack Zouhary—a district court judge from the U.S. District Court for the Northern District of Ohio who was sitting on the panel—all seemed skeptical of that reasoning.

“The fact that there isn’t the quashing of this document that you request doesn’t necessarily cause a problem,” Graber said.

Watford went further, saying “I don’t think that’s enough to carry the day.”

The CFPB’s document request to Seila Law grew out of its successful lawsuit against debt relief firm Morgan Drexen that saw the company hit with more than $170 million in restitution and penalties in 2016.

The U.S. Court of Appeals for the Second Circuit and other judges have in recent months said that Kraninger’s ratification was sufficient for past CFPB enforcement actions to continue.

The case is Consumer Financial Protection Bureau v. Seila Law LLC, 9th Cir., No. 17-56324, oral arguments 11/19/20.