We are pleased to announce the webinar “Hot Topics and Trends in California Consumer Class Actions” is now available as a webinar recording.

On Wednesday, August 7, 2019, Seyfarth partners Robert Milligan and Joseph Escarez reviewed the latest consumer class action law developments affecting companies that do business in California. It is no secret that resourceful plaintiff’s attorneys target companies conducting business in California with expensive and time-consuming putative class actions alleging violations of federal or state consumer statutes. Specifically, Robert and Joe provided a summary of recent key decisions, identified trends for companies to watch for in 2019 and beyond, and provided practical “best practices” and risk management advice for the future.

As a conclusion to this well-received webinar, we compiled a summary of key takeaways:

  1. Companies that record or monitor outbound or inbound calls with California residents need to ensure that they have adequate disclaimers at the inception of the call that alert the other party that they call may be monitored or recorded, otherwise they face exposure under California’s call recording/monitoring statute.
  2. Companies that use a subscription or renewal based system for the sale of goods or services with California residents need to strictly comply with California’s auto-renewal statute to ensure they avoid costly claims by regulators and class action attorneys.
  3. Companies with consumer arbitration agreements and class action waivers should review and revise those agreements to address potential claims for public injunctive relief and comply with McGill v. Citibank and Blair v. Rent-A-Center.
  4. The FCC is expected to issue new rules defining “Automated Telephone Dialing System” under the TCPA.  In the meantime, companies that make calls or send text messages to consumers should ensure that they have first obtained the call or text recipients’ prior express consent (or prior express written consent for telemarketing calls or texts).
  5. Companies faced with a consumer class action in California state court should know that plaintiffs are NOT required to establish ascertainability to certify a class.  A named plaintiff need only describe a class that might in the future be identified by reference to objective criteria.
  6. The Court of Appeal recently held that Cal. Bus. & Prof. Code section 17501 is NOT unconstitutional for vagueness and does not restrict speech.  But defendants facing false pricing lawsuit may still prevail by challenging the plaintiff’s damages model.

For more information, please contact your Seyfarth Shaw attorney, Robert B. Milligan at rmilligan@seyfarth.com or Joseph Escarez at jescarez@seyfarth.com.

On Thursday, July 11, 2019, a diverse group of trade associations spanning numerous industries, including retail, telecom, manufacturing, and food and beverage, urged Congress to enact a consumer privacy law.  In a letter to the Senate and House commerce committees, the coalition of 27 industry groups asked Congress “to act quickly to adopt a robust and meaningful national consumer privacy bill to provide uniform privacy protections for all Americans.”  The coalition said that a “comprehensive federal privacy law that establishes a single technology and industry-neutral framework for our economy” is necessary because “consumers’ privacy protections should not vary state by state.”  The coalition noted that “a uniform federal framework” would “provide certainty for businesses and consumers alike.”

The coalition’s letter was likely spurred by congressional hearings on data privacy and the growing number of states considering data privacy legislation following the European Union’s implementation of the GDPR.  California Maine, Nevada, and Vermont recently enacted laws governing collection, use, or sharing of consumer data, and similar legislation is pending in Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Rhode Island, Texas, and Washington.  Privacy bills introduced in Louisiana, Maryland, Mississippi, Montana, New Mexico, and North Dakota failed to pass but could be reintroduced in upcoming legislative sessions.

To keep abreast of developments and for compliance webinars, sign up at the links below.

Consumer Class Defense Blog

The Global Privacy Watch

On Wednesday, August 7, 2019, at 12 p.m. CT, Seyfarth attorneys will review the latest consumer class action law developments affecting companies that do business in California. It is no secret that resourceful plaintiff’s attorneys target companies conducting business in California with expensive and time-consuming putative class actions alleging violations of federal or state consumer statutes. Specifically, Seyfarth attorneys will provide a summary of recent key decisions, identify trends for companies to watch for in 2019 and beyond, and provide practical “best practices” and risk management advice for the future. This webinar will provide insight on the following areas:

  • Latest TCPA decisions and trends
  • Eavesdropper and call recording claims under CIPA
  • Recent developments in privacy/data breach
  • False advertising based on pricing and Made in America claims
  • Latest developments concerning arbitration and class waivers

 

Cross-Posted from ADA Title III Blog

Seyfarth Synopsis:  Courts in the Fourth Circuit are taking a hard look at a plaintiffs’ standing in website accessibility cases.

In a small but potentially important victory for defendants facing website accessibility lawsuits, the Fourth Circuit has issued two decisions upholding dismissal of lawsuits for lack of standing with a well-reasoned analysis that can be applied to the defense of other lawsuits.

The blind plaintiff in Griffin v. Dept. of Labor Credit Union sued the credit union under Title III of the ADA alleging its website was not accessible to him through his screen reader software.  Reviewing the district court’s dismissal of the case for lack of standing, the Fourth Circuit held that the plaintiff did not have standing to bring his claim because he had not suffered an injury in fact and was not facing an imminent injury in the future.  The Court cited to the fact that the plaintiff could never become a member of the defendant credit union whose membership was limited to current and former employees of the Department of Labor and their immediate families and households.  This position contradicts a few decisions from judges in other jurisdictions who concluded that the inability obtain information about a business that a plaintiff could never actually patronize is an injury in fact sufficient to establish standing.  Although the Fourth Circuit said its holding was intended to apply narrowly to the scenario before it, its thoughtful elaboration of the standing requirements still provides support for defendants seeking to dismiss cases where the complaint fails to plead a credible desire or need to obtain goods or services from the defendant’s website. Continue Reading Fourth Circuit Says Inability to Get Information from Website, Without More, is Not Enough to Establish Standing to Sue

Seyfarth Synopsis:  Following Delaware’s lead in Trulia, an Illinois District Court judge refused to approve a mootness fee settlement as “worthless to the shareholders.”  The judge noted that such settlements amounted to a plaintiffs’ bar “racket” with the goal of obtaining fees in cases that should be “dismissed out of hand.”  Specifically, Judge Thomas M. Durkin exercised his “inherent authority” to abrogate the settlement of shareholder litigation arising out of the proposed acquisition of Akorn, Inc.  In ordering Plaintiffs’ counsel to return the $322,000 mootness fee paid in connection with the settlement, the Court signaled that this decision should mark the beginning of the end for the merger objection litigation “racket,” which recently shifted from Delaware Chancery Court to federal court following Delaware’s 2016 Trulia decision, which cracked down on merger litigation in Delaware.  A recent study1 about mootness fees found that in 2018 alone at least 65% of federal merger litigation filings resulted in a settlement after supplemental disclosures were made accompanied by the payment of a mootness fee to Plaintiffs’ attorneys.  These mootness fee settlements generally occur without meaningful judicial oversight, and the negotiated supplemental disclosures often provide little or no value to shareholders.

Presumably, the decision in Akorn will further deter the filing of merger litigation now that several courts have reprimanded plaintiffs’ counsel for bringing meritless claims in order to obtain a quick pay day.  Indeed, based on Judge Durkin’s ruling, plaintiffs’ counsel should no longer assume they can avoid judicial review of mootness fee settlements or assume they can keep fees paid pursuant to those settlements.  If the case is appealed, it will be closely watched and if upheld could have important effects in the Seventh Circuit and elsewhere.  Moreover, as a policy matter this decision should further raise the profile of this issue and hopefully result in legislation which will curb the abuse present here.
Background
Plaintiff shareholders sued Akorn, Inc. and its board of directors in connection with its proposed acquisition.  After Akorn revised its proxy statement and issued a Form 8-K, Plaintiffs voluntarily dismissed their lawsuits and settled for a $322,000 mootness fee.  Following the settlement, one shareholder filed a motion to intervene to object to the settlement.  The Court denied that motion, but in light of the shareholder’s arguments ordered the parties to brief the issue of whether the Court should abrogate the settlement agreements in light of a recent Seventh Circuit’s decision, Judge Richard Posner overturned the district court’s approval of a disclosure only settlement and referenced Chancellor Bouchard’s decision in Trulia, wherein the Chancery Court held that disclosures made in this context must be “plainly material . . . mean[ing] that it should not be a close call that the . . . information is material.”  In re Trulia, Inc. Stockholder Litig., 129 A.3d 884, 894 (Del. Ch. 2016).  Because no class was certified in this case and no class claims were released in the settlement, the Court determined that it must assess whether “a class action that seeks only worthless benefits for the class should be dismissed out of hand.”  The Court then reviewed each of the disclosures that Plaintiffs sought in their complaints and ruled that they were not “plainly material” and instead were “worthless to the shareholders” and “caused the company in which they hold an interest to lose money.”  Because “[t]he quick settlements obviously took place in an effort to avoid the judicial review this decision imposes,” the Court declared that “this sharp practice ‘must end.’”
Takeaways

1. Other Federal Judges May Start Scrutinizing Mootness Fee Settlements.

Judge Durkin’s decision has paved the way for other judges, particularly in the Seventh Circuit, to exercise their inherent authority to abrogate mootness fee settlements that they in the past may have concluded they don’t have the authority to review.
2. Reaffirms High Bar To Finding That Supplemental Disclosures Are Plainly Material.
The Court deemed all of Plaintiffs’ additional sought-after disclosures as “not ‘plainly material’” and “worthless to the shareholders.”  These included the following:
  • GAAP reconciliation of the proxy’s projections because the applicable SEC regulation requiring GAAP reconciliation does “not apply to . . . a disclosure relating to a proposed business combination.”
  • Certain components of financial advisor’s analysis because (i) the information was already provided in the original proxy; (ii) shareholders can make their own determination as to whether a growth rate range is reasonable in light of prior performance; and (iii) courts find that only a “fair summary” of data underlying a financial advisor’s opinion must be disclosed.
  • Financial advisor’s compensation from Akorn because (i) that information was disclosed in the original proxy, and (ii) the fact that the fee was contingent on consummation of the merger could be inferred from other language in the proxy and, moreover, is plainly not material.
  • Financial advisor’s compensation from the buyer because the exact historical payments were deemed not material and the proxy, in any event, did not indicate that the financial advisor was continuing to receive payments from the buyer.
  • Potential upside in stand-alone strategic plan because the “upside” was readily apparent in that avoiding the merger means avoiding the costs and the relinquishment of control inherent to the merger and that it was sufficient to disclose in the proxy that the plan involved significant risks in light of the industry and competitive pressures the Company faced.  The Board additionally translated those concerns into financial projections that were provided in the proxy. Moreover, Plaintiff settled the case without receiving this information, which cast significant doubt on whether information was truly material.
  • Substance of the March 2017 projections because (i) “completeness” is not the standard for disclosure; (ii) Plaintiff did not identify what information in particular was necessary to evaluate the merger; and (iii) Plaintiff settled without receiving this information, which again cast doubt on its materiality.
  • Other potential buyers and the reason for their rejection because the Board had disclosed that it determined “it was highly unlikely that any of those counterparties would be interested in an acquisition of the Company at that time due to competing strategic priorities and recent acquisitions in the industry” and detailed information about potential buyers that weren’t actually considered is not material.
  • Pending litigation because (i) the lawsuits were public record prior to issuance of the original proxy, and (ii) the allegation that the Board had ulterior motives related to absolving themselves of liability arising from pending litigation is unfounded speculation and, moreover, does not seek information relevant to the merger.
For a copy of the opinion, click here.
1 Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon & Randall S. Thomas, Mootness Fees, Vanderbilt Law Review, Forthcoming; U of Penn, Inst. for Law & Econ. Research Paper No.
19-26 (May 29, 2019).

The Fair Credit Reporting Act (“FCRA”) bars consumer reporting agencies from reporting civil suits, civil judgments, records of arrest, and other “adverse items” more than seven years after they occur. In a recent decision in Moran v. The Screening Pros, the Ninth Circuit held that the later dismissal of criminal indictments or charges was not a new adverse event and did not restart the seven-year clock for reporting. Judge Kleinfeld, dissenting, argued that dismissals often are evidence of an “adverse event,” such as a guilty plea followed by deferred sentencing, and should be considered a separate event that restarts the clock. Because Moran opens the door to additional lawsuits based on the reporting of dismissals, other circuits are likely to consider the same question. Judge Kleinfeld’s dissent is a potential roadmap for both defendant consumer reporting agencies litigating in other jurisdictions and other courts considering the issue anew.

The Ninth Circuit majority made a two-step analysis. First, it considered whether the starting date of the seven year period, as to an indictment or other filing of charges, should begin at the “date of entry” of the charge or the “date of disposition.” (Because convictions are always reportable, “disposition” here will generally mean dismissal by the court.) The district court had determined that the starting date was the date of disposition, but the panel majority reversed. While noting that the statute was “silent” on this question as to “other adverse items,” including indictments, the court noted that “[a] charge is an adverse event upon entry so it follows that the date of entry begins the reporting window.”

The majority then tackled the question of whether the dismissal of a charge itself constituted an adverse event, so that it would have its own seven-year reporting window separate from the window that begins to run when the charge is entered. The majority concluded that it did not, reasoning that a dismissal could not be adverse because it “indicates that the consumer no longer faces an indictment, an overall positive—but at least neutral—development.”

This was confirmed, in the majority’s view, by the fact that Congress had amended the FCRA in 1998 to remove the section pertaining to arrests, indictments, and convictions, lumping arrests in with civil suits and civil judgments (whose clock starts running at “date of entry”), and leaving just the “other adverse item” section to cover indictments. Congress did not change the wording of the “other adverse item” section, which refers to neither the date of entry nor the date of disposition, but simply refers to items that “antedate[] the report by more than seven years.” The majority conceded that ordinarily where a term is included in one section of a statute but not another, “it is generally presumed that Congress acts intentionally.” Thus, one might think that if “date of entry” is used as to suits, judgments, and arrests, but not as to “other adverse items,” that difference must be significant. Nonetheless, the majority here found that maxim “inappropriate,” because the thrust of the amendment was to limit reportable events, which suggested that the “other adverse item” section, like the suits, judgments, and arrests section, should be read as incorporating a date-of-entry rule.

Judge Kleinfeld dissented from these holdings and, in doing so, charted a course for defendants in other circuits to try to obtain a different result. The dissent argued that the statute must be read in light of how the criminal justice system actually works. While the majority saw a dismissal as a positive or neutral event that should not be reported because it might unfairly and untimely bring to light an adverse indictment, Judge Kleinfeld argued that a dismissal itself frequently indicates an outcome that at least does not rule out guilt and in many cases involves an actual admission of guilt.

For example, charges are commonly dismissed after a period of deferred sentencing: the defendant often pleads guilty and serves a certain term of probation or jail time. While the defendant actually receives some punishment (or at least monitoring), the actual sentence is “suspended,” and, if the defendant does not breach the terms of sentencing, he may withdraw the guilty plea and have the charge dismissed. “Such a dismissal,” the dissent argued, “means that the defendant behaved himself after sentencing, and not that he was found innocent or ‘cleared.’”

In other cases, a prosecutor may obtain a guilty plea for some charges in exchange for dropping other related charges. “The prosecutor dismisses the lesser charges because they would likely lead to in-custody time concurrent with and less than the prison time already assured. Far from ‘clearing’ the defendant, the dismissal means that the defendant pleaded guilty to other crimes generating an adequate sentence.”

The dissent also noted that dismissals can occur for other reasons that, while they do not involve an admission of guilt, also do not per se exonerate the defendant—for example, when a police officer or other key witness fails to appear for trial.

For all these reasons, the dissent reasoned, Congress allowed landlords, employers, and other users of background checks to consider dismissals as “adverse events” that signal, or at least flag the potential for, possible criminal behavior on the part of the consumer. The dissent found this conclusion bolstered by the fact while Congress’s 1998 amendments increased restrictions on the reporting of civil lawsuits/judgments (and arrests that never led to charges), it lifted the seven year limitation on reporting criminal convictions. In other words, while Congress tightened the requirements as to events that do not tend to confirm the possibility of criminal behavior, it allowed more reporting of events that do tend to confirm such behavior.

(Moreover, while the dissent only sidles up to this point, it should be noted that Congress saw fit to move arrests to the civil group while relegating indictments (by implication) to the “other adverse items” section. If Congress had wanted to impose the “date of entry” standard on indictments, it would presumably have placed indictments in the section applying that standard, as Congress did with arrests. The actual structure of the amended statute, on the other hand, seems to imply the opposite—that Congress was intentionally omitting indictments from the “date of entry” standard that Congress now saw fit to apply to arrests.)

Finally, although the Consumer Financial Protection Bureau and the Federal Trade Commission had submitted amicus briefing urging the majority’s position, Judge Kleinfeld noted that such briefing was not entitled to Chevron deference, especially when the agencies’ position contradicted prior agency practice and commentary that businesses had long depended on in shaping their policies.

In short, the dissent lays out a map of compelling, arguable ideas that undermine the majority’s simple position that a dismissal of an indictment is not a new adverse event. While the ship has sailed on these arguments in the Ninth Circuit, it seems likely that litigants will be navigating these issues in other circuits. Thus, consumer reporting agencies may want to carefully study these ideas and marshal the dissent’s more complex and nuanced view of the criminal justice system and the function of a dismissal.

Seyfarth Synopsis: On June 5, 2019, the Ninth Circuit issued an opinion in NEI Contr. & Eng’g, Inc. v. Hanson Aggregates Pac. Sw., Inc., 2019 U.S. App. LEXIS 16885 (9th Cir. June 5, 2019), upholding the district court’s decertification of a class whose class representative lacked standing on its individual claims.

NEI Contracting and Engineering, Inc. (“NEI”) sought to bring a class action based on allegations that Hanson Aggregates, Inc. (“Hanson”) violated California Civil Code section 632.7 for recording phone calls without the consent of the individuals placing the calls. The district court, after initial certification, decertified the class, observing that the individualized inquiries required to determine if each class member consented to the recording would predominate over questions of fact common to all class members. The court also found that NEI did not have standing to bring its individual claims. Continue Reading Ninth Circuit Upholds Decertification of Class in Unauthorized Customer Call Recording Suit Where the Class Representative Did Not Have Standing

From Seyfarth’s Workplace Class Action Blog

Seyfarth Synopsis: Satisfying Rule 23(b)(3)’s predominance requirement is undoubtedly a challenge when it comes to a nationwide class. Among the many issues that arise is the extent to which varying state laws can impact whether questions of law or fact common to class members predominate over any questions affecting only individual members.  In In Re Hyundai & Kia Fuel Econ. Litig., No. 15-56014, 2019 WL 2376831 (9th Cir. June 6, 2019), after an en banc rehearing, the Ninth Circuit ruled that a district court did not abuse its discretion by failing to address varying state laws when granting class certification for settlement purposes. Drawing a distinction between class certification for litigation purposes and class certification for settlement purposes, the Ninth Circuit held that the variations in state law across the nationwide class did not defeat predominance.

In many respects, this decision – which rescinds the panel’s previous and controversial ruling that courts must address varying state consumer laws when certifying a settlement class – restores the standard for approval of class action settlements to what it has historically been in federal courts. Employers facing nationwide class claims in the Ninth Circuit now have an easier path to settlement, as it is less likely that varying state law will be an obstacle to satisfying predominance.

Background

In Re Hyundai arises out of an EPA investigation into Hyundai and Kia’s representations regarding the fuel efficiency of certain car models. After the EPA began its investigation, a number of plaintiffs filed a class action in California state court, seeking to represent a nationwide class of car purchasers who were allegedly misled by defendants’ fuel efficiency marketing.

Follow-on class action lawsuits were filed across the country and the MDL panel consolidated the cases in the Central District of California. Eventually, the parties informed the district court that they had reached a class settlement on a nationwide basis.

After winding through the approval process, the district court granted final approval of the nationwide class settlement, but did so over objections to the settlement. The objectors appealed, and a divided Ninth Circuit panel reversed, holding that by failing to analyze the variations in state law, the district court abused its discretion in certifying the settlement class. The Ninth Circuit voted to rehear the case en banc.

The Decision

The key issue on appeal was the extent to which a district court must address varying state laws when certifying a nationwide class for settlement purposes and, to what extent those varying laws impact the predominance analysis under Rule 23(b)(3). The predominance inquiry tests whether proposed classes are sufficiently cohesive and focuses on whether common questions present a significant aspect of the case that can be resolved for all members of the class in a single adjudication.

Quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997), the Ninth Circuit noted that the predominance inquiry is different depending on whether certification is for litigation or settlement purposes. “[I]n deciding whether to certify a settlement-only class,” the Ninth Circuit explained, ‘“a district court need not inquire whether the case, if tried, would present intractable management problems.’” Id. (citation omitted).

Against this backdrop, the Ninth Circuit rejected the objectors’ argument that the district court was required to address variations in state law. The Ninth Circuit began by explaining that “[s]ubject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” Id. at *9. Because no party argued that California’s’ choice-of-law rule should not apply or that differences in consumer protection laws precluded certification, the Ninth Circuit concluded that the district court was not required to address these issues.

In further support of this conclusion, the Ninth Circuit cited its decision Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998). There, in rejecting the objectors’ argument that “the idiosyncratic differences between state consumer protection laws” defeated predominance, the Ninth Circuit reasoned that the claims revolved around a “common nucleus of facts” and applied the longstanding rule that “differing remedies” do not preclude class certification. Id. at 1022–23.

Based on this reasoning, the Ninth Circuit ultimately concluded that the district court did not abuse its discretion in finding that common issues predominated, notwithstanding varying state consumer protection laws.

Implications for Employers

In Re Hyundai highlights the potential challenges posed by nationwide classes given the Rule 23(b)(3) predominance requirement for certification, even in the context of a settlement class. By ruling that the district court is not required to analyze varying state laws when certifying a settlement class, the Ninth Circuit created an easier path to settlements involving nationwide classes. But employers should keep in mind this result was driven by, in part, the objectors’ failure to demonstrate that California law should not apply.  In other words, the issue of varying state laws is not wholly irrelevant to the predominance inquiry and employers should nevertheless be prepared to address such arguments if objectors adequately raise them.

An Oregon federal jury reached a verdict in a Telephone Consumer Protection Act (“TCPA”) class action in April that exposes the defendant to a potential judgment in excess of $2.7 billion.

The TCPA makes unlawful certain telecommunications including telemarketing calls without consent to cell phones and residential land lines using an artificial or prerecorded voice and telemarketing calls without consent to cell phones using an automatic dialing system, among others. It creates a private right of action in which plaintiffs may recover actual damages or $500 for each violation, whichever is greater. A court may enhance the damages amount up to three times for any violation it finds to be willful or knowing.

In Wakefield v. ViSalus, Inc., Plaintiff Lori Wakefield filed a class action complaint in the U.S. District Court for the District of Oregon (3:15-cv-1857-SI), alleging ViSalus, Inc. (“ViSalus”), a multilevel marketing company, engaged in unlawful telemarketing by promoting its products and services through telephone calls using an artificial or prerecorded voice. After a three day trial, the jury concluded that ViSalus made 1,850,440 calls in violation of the TCPA, for which Ms. Wakefield requests statutory damages of $500 per call plus an enhancement of at least 20 percent. Although ViSalus opposes Ms. Wakefield’s request on a number of grounds, including that it would violate due process, ViSalus now faces a possible judgment of more than $925 million in statutory damages, and more than $2.7 billion if trebled. The issue has not yet been decided.

ViSalus also filed a motion to decertify the class. In its motion, ViSalus argues class treatment is not appropriate for a number reasons. Among other arguments, ViSalus contends that Ms. Wakefield failed to present common evidence at trial that absent class members were called in common ways that are unlawful under the TCPA. ViSalus emphasizes that the jury was unable to determine whether the calls it concluded were improper were made to mobile phones or residential land lines. As a result, ViSalus argued, individualized inquiries would be needed to determine whether those absent class members were called on a mobile or land line and, if called on a land line whether the land line qualified as a “residential” phone line for purposes of the TCPA. As support, ViSalus pointed to individualized evidence Ms. Wakefield presented at trial to demonstrate that her land line qualified as “residential” phone line. ViSalus’ motion has not yet been decided, either.

While significant issues remain in the case, the jury’s verdict will no doubt embolden TCPA plaintiffs in settlement negotiations and encourage them to take similar cases to trial. It also reinforces the continued importance of TCPA compliance in light of the potential exposure the law creates.

Although Congress created the Consumer Financial Protection Bureau (“CFPB”) nearly a decade ago, constitutional challenges to its leadership structure remain ongoing.  Until recently, only the D.C. Circuit had ruled on the constitutionality of the CFPB structure at the appellate level in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) (en banc), and did so approvingly.  The D.C. Circuit rejected the notion that an agency headed by a single director who can only be removed for cause is unconstitutional.  Early this month, the Ninth Circuit concurred with the D.C. Circuit in CFPB v. Seila, LLC.

For background, the CFPB is led by a single director appointed by the President and confirmed by the Senate for a period of five years, unless extended.  The director may be removed from her position only for “inefficiency, neglect of duty, or malfeasance in office” – commonly known as a “for cause” restriction.  The Seila plaintiff argued that the CFPB Director exercises substantial law enforcement powers similar to the leaders of other Executive Branch departments, many of whom can be removed at the President’s will.  Therefore, according to the plaintiff, the CFPB structure violated the separate of powers doctrine.

The Ninth Circuit observed that the Supreme Court had previously upheld for-cause restrictions as a means to “maintain an attitude of independence” from the President’s control.  Under that reasoning, the Ninth Circuit held that, by having a for-cause restriction,  Congress sought to ensure that the agency discharged its quasi-legislative and quasi-judicial powers independently of the President’s will.

There is enhanced interest in this case stemming from Justice Brett Kavanaugh’s  appointment to the United States Supreme Court because he dissented in PHH, opining that the CPFB structure was “overwhelmingly” unconstitutional.  Justice Kavanaugh, however, may not have a chance to revisit this issue unless there is a circuit split, which is less likely after the Ninth Circuit’s ruling in Seila.  That said, the Second Circuit is set to rule on the agency’s constitutionality in CFPB et al. v. RD Legal Funding LLC et al. and the Fifth Circuit is set to do so in CFPB v. All American Check Cashing Inc. et al.  A finding that the CFPB’s structure is unconstitutional could upend a decade’s worth of CFPB’s actions and decisions, which is why legal observers continue to watch these cases as we will.