Consumer Financial Protection Bureau v. National Collegiate Master Student Loan Trust et al
Filing
397
MEMORANDUM OPINION. Signed by Judge Stephanos Bibas on 2/11/2022. (nmg)
Case 1:17-cv-01323-SB Document 397 Filed 02/11/22 Page 1 of 9 PageID #: 10838
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CONSUMER FINANCIAL
PROTECTION BUREAU,
Plaintiff,
v.
No. 1:17-cv-1323-SB
NATIONAL COLLEGIATE MASTER
STUDENT LOAN TRUST et al.
Defendants.
Colin
T.
Reardon,
Gabriel
S.H.
Hopkins,
Jane
M.E.
Peterson,
Stephen C. Jacques, Tiffany Hardy, CONSUMER FINANCIAL PROTECTION BUREAU,
Washington, D.C.
Counsel for Plaintiff.
Megan Ix Brison, Michael A. Weidinger, PINCKNEY, WEIDINGER, URBAN & JOYCE
LLC, Wilmington, DE.
Counsel for Defendants.
MEMORANDUM OPINION
February 11, 2022
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BIBAS, Circuit Judge, sitting by designation.
Ordinarily, parties cannot appeal until a district court enters a final judgment.
But if their case raises important and dispositive legal issues, they may seek permission to appeal early. This enforcement action falls into that rare category.
The parties’ dispute raises two novel questions: What is the scope of the Consumer
Financial Protection Bureau’s enforcement authority? And is ratification required if
a federal agency files suit while it is unconstitutionally structured? I answered both
questions in denying a motion to dismiss, finding that the Bureau had authority to
bring this suit and that it did not need to ratify. But the stakes are high—if I am
wrong about either issue, this litigation must end now. So I certify both questions for
interlocutory appeal.
I. BACKGROUND
In 2017, the Bureau sued the National Collegiate Loan Trusts for engaging in
forbidden debt-collection and litigation practices. D.I. 362 ¶¶ 1–2. Late last year, I
denied the Trusts’ motion to dismiss that enforcement action. Mem. Op., D.I. 380.
Back then, the Trusts argued that the Bureau lacked authority to sue them under
the Consumer Financial Protection Act. And even if it had that authority, the Trusts
claimed, the suit was untimely: the Bureau had filed its complaint while it was unconstitutionally structured, so it needed to ratify the suit after it was restructured
and before the statute-of-limitations clock ran out. Yet it failed to do so. See D.I. 367.
I rejected those arguments. But now the Trusts ask me to certify both issues to
the Third Circuit for an interlocutory appeal. Certification is appropriate only if “exceptional circumstances justify a departure from the basic policy of postponing
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appellate review until after entry of a final judgment.” Coopers & Lybrand v. Livesay,
437 U.S. 463, 475 (1978). Thus, I may not grant the Trusts’ request unless they meet
three requirements:
•
they seek to appeal from an order that “involves a controlling question of
law”
•
about which there is “substantial ground for difference of opinion,” and
•
their appeal would “advance the ultimate termination of the litigation.”
28 U.S.C. § 1292(b). “The burden is on the [Trusts] to demonstrate that all three
requirements are met.” Litgo N.J., Inc. v. Martin, 2011 WL 1134676, at *2 (D.N.J.
Mar. 25, 2011).
That is a high bar. But the Trusts meet it, so I certify two questions to the Third
Circuit for an interlocutory appeal.
II. I CERTIFY THE STATUTORY QUESTION
The first question that the Trusts ask me to certify is whether they are “covered
persons” subject to the Bureau’s enforcement authority. D.I. 384, at 16. In other
words, were they “engage[d] in offering or providing … consumer financial product[s]
or service[s],” including “servicing loans” and “collecting debt”? 12 U.S.C. § 5481(6),
(15)(A)(i), (x).
In denying the Trusts’ motion to dismiss, I found that they were. Mem. Op., D.I.
380, at 7−10. The Trusts own a large tranche of student debt. And to collect that debt,
they “engaged in” loan servicing and debt collection through third-party servicers.
True, third parties, not the Trusts, collected the debt and serviced the loans. But the
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loan servicing and debt collection were crucial to the Trusts’ business and could not
have happened without their say-so. Id. at 8–9. And the statutory language is “broad
enough to encompass actions taken on a person’s behalf by another, at least where
that action is central to his enterprise.” Id. at 8.
But there is room for reasonable disagreement. Plus, a contrary reading of the
statute would change the outcome of this lawsuit. So I find that the § 1292(b) factors
favor certifying the issue for an interlocutory appeal.
1. Controlling question of law. “[C]ontrolling question[s] of law” are important to
the case and include those issues that “if erroneous, would be reversible error on final
appeal.” Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974). Here, the
statutory-interpretation question is key: It determines whether this lawsuit may proceed against the Trusts. If the Trusts did not “engage in” collecting debt or servicing
loans, the Bureau cannot sue them.
2. Substantial ground for difference of opinion. There is “substantial ground” for a
difference of opinion if there is “genuine doubt … as to the correct legal standard.”
N.J. Dep’t of Treasury v. Fuld, 2009 WL 2905432, at *2 (D.N.J. Sept. 8, 2009). That
doubt may be caused by “the absence of controlling law on a particular issue,” including where there are “statutory interpretation” questions that are “novel and complex.”
Id. (quotation marks omitted).
Here, the statutory-interpretation question is “novel” and there is no controlling
precedent. I was the first judge to decide whether the Bureau may bring enforcement
actions against creditors like the Trusts who contract out debt collection and loan
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servicing. And earlier in this litigation, before the case was assigned to me, Judge
Noreika expressed “some doubt” that the Trusts are covered persons “under the plain
language of the statute.” D.I. 359, at 6.
3. Advancing termination of the litigation. An appeal “materially advance[s]” the
litigation if it would “eliminate the need for a trial.” Orson, Inc. v. Miramax Film
Corp., 867 F. Supp. 319, 322 (E.D. Pa. 1994). That is so here. If the Third Circuit
reverses on appeal and the Supreme Court does not intervene, this suit would stop
there.
III. I ALSO CERTIFY THE CONSTITUTIONAL QUESTION
The Trusts ask me to certify a second question: whether the Bureau needed to
ratify this suit before the statute of limitations ran out, having first filed it while the
agency director was improperly insulated from presidential removal.
In denying the Trust’s motion to dismiss, I held that there was no need for the
Bureau to ratify its suit. D.I. 380, at 5. Though the suit was filed while the agency’s
director was unconstitutionally insulated, that did not mean the filing was invalid.
My holding relied on the Supreme Court’s recent decision in Collins v. Yellen, 141
S. Ct. 1761 (2021). There, the Court held that an unconstitutional removal restriction
does not invalidate agency action so long as the agency head was properly appointed.
Id. at 1787. And if agency action is valid, it need not need be ratified. Id. at 1788.
Thus, because the Bureau’s director was properly appointed, its filing of this suit was
enough to stop the limitations clock. See Mem. Op., D.I. 380, at 5 (applying Collins to
this case in more detail).
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Still, Collins is a very recent Supreme Court decision and lower courts have not
yet hashed out its scope. If my reading is mistaken, I must dismiss this suit as untimely. Thus, the § 1292(b) factors support certifying the question for interlocutory
appeal.
1. Controlling question of law. Reading Collins correctly is important to this case.
Katz, 496 F.2d at 755. If I am wrong and the Bureau’s initial filing of this suit was
invalid, then it did not sue the Trusts before the statute of limitations ran out. See
Mem. Op., D.I. 359, at 10−14 (holding that any ratification came too late to save this
suit). That would make the Bureau’s suit untimely, ending this case.
2. Substantial ground for difference of opinion. Plus, one can reasonably disagree
about the scope of Collins. That case clarified the law. Before it was decided, courts
saw actions brought by improperly insulated agency heads as “ultra vires” and so
void. 141 S. Ct. at 1795 (Gorsuch, J., concurring in part). To give those actions legal
force, agencies had to ratify them. See, e.g., CFPB v. Navient Corp., 522 F. Supp. 3d
107, 111 (M.D. Pa. 2021) (requiring ratification for a suit to proceed because the Bureau had filed it while the agency was unconstitutionally structured). But Collins
rejected that prevailing view. The Court explained that actions taken by an improperly insulated director are not “void” and do not need to be “ratified” unless a plaintiff
can show that the removal provision harmed him. 141 S. Ct. at 1787–88.
The Trusts read Collins more narrowly. They say it is distinguishable because
there the agency action was initiated “by an acting director” who was removable at
will by the President; only later was it implemented by his improperly insulated
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successors. D.I. 384, at 12. By contrast, this case was “marred by a constitutional
defect from its inception.” Id. Because Collins is distinguishable, they claim that the
Supreme Court’s decision in Seila Law should apply instead. Id. at 10 (citing Seila
Law LLC v. CFPB, 140 S. Ct. 2183, 2220 (2020)). And that case, they contend, demands ratification.
Yet the Trust’s argument fails to persuade. True, in Collins the agency action was
initiated by a constitutionally structured agency. 141 S. Ct. at 1787. But there, the
harm caused by the agency action “continued … [under] a succession of [improperly
insulated] Directors.” So the Court considered whether their subsequent acts, implementing the initial action, should be set aside. And because all the directors “were
properly appointed” it concluded there was “no reason to regard any [of their] actions
… as void.” So too here: all of the Bureau’s directors were correctly appointed.
In any case, Collins was clear that Seila Law does not always demand ratification
where an agency director is insulated from presidential removal. Id. (clarifying that
the Court said “no such thing” in that case).
Still, one can reasonably disagree about the scope of Collins. Justice Gorsuch’s
concurrence said as much, noting that the Court’s opinion raised an “important question” about how lower courts should resolve “the next” agency-insulation suit. Id. at
1799 (flagging that the Court’s ruling may be a “product of its unique context”).
Plus, the need for ratification after Collins is an issue in ongoing appeals across
the country. See Appellant’s Supp. Letter Br., CFPB v. All Am. Check Cashing, Inc.,
No. 18-60302, (5th Cir. Dec. 17, 2021) (en banc) (“Collins … held that a party
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demonstrates remediable injury whenever ‘the President might have replaced the Director absent the removal restriction.’ ”); Appellant’s Reply Br., Integrity Advance,
LLC v. CFPB, No. 21-9521 (10th Cir. Sept. 3, 2021) (relying on Justice Gorsuch’s
Collins concurrence to limit the decision’s scope). That litigation suggests that there
is room for reasonable disagreement and thus supports an interlocutory appeal here.
3. Advancing termination of the litigation. Finally, certifying an appeal would materially advance this case by potentially “eliminat[ing] the need for a trial.” Orson,
Inc., 867 F. Supp. at 322. If the Third Circuit disagrees with my reading of Collins, I
must dismiss this suit as untimely, ending this case.
IV. I STAY THIS CASE PENDING APPEAL
Having certified an appeal to the Third Circuit, I may stay this case pending that
appeal. 28 U.S.C. § 1292(b). That discretion is part of my “inherent” authority to manage my docket to preserve “time and effort for [myself], for counsel, and for litigants.”
Landis v. N. Am. Co., 299 U.S. 248, 254−55 (1936).
Here, I exercise that discretion and stay this case. A stay ensures that the parties
will not waste their resources on discovery. Plus, it guards against government overreach: If the Trusts are right that the Bureau lacks authority to bring this enforcement action, it may not bring the judicial process to bear on them. That protection
would be undercut if the Bureau could subject the Trusts to months of discovery while
their appeal is pending.
*****
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This case raises two novel, important, and dispositive issues. So I certify both for
interlocutory appeal to the Third Circuit. And to avoid needless expense in the meantime, I stay this case.
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