People of the State of New York, by Letitia James, Attorney General for the State of New York, Plaintiff-Appellant-Cross Appellee, v. RD LEGAL FUNDING LLC RD LP RD LLC (2020)

SUMMARY ORDER

Plaintiffs-appellants Consumer Financial Protection Bureau (the “CFPB”) and the State of New York (the “State”) appeal from a judgment of the United States District Court for the Southern District of New York entered October 29, 2018 dismissing their federal and state law claims against defendants-appellees RD Legal Funding, LLC; RD Legal Finance, LLC; RD Legal Funding Partners, LP (collectively, “RD”); and Roni Dersovitz (together with RD, “defendants”). By memorandum opinion and order entered June 21, 2018, as amended by its September 12, 2018 Order, the district court granted defendants' motion to dismiss. We assume the parties' familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.

We review de novo a district court's grant of a motion to dismiss. See Hernandez v. United States, 939 F.3d 191, 198 (2d Cir. 2019). The CFPB is headed by a Director, who is appointed by the President with the advice and consent of the Senate for a five-year term, during which time “[t]he President may remove the Director for inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C § 5491(b)-(c) (the “for-cause removal provision”). The district court held that this for-cause removal provision is unconstitutional, and that the removal provision is not severable from the remainder of the Consumer Financial Protection Act (the “CFPA”) or Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). Accordingly, the district court struck the entirety of the CFPA. The district court also held that then-acting CFPB Director Mick Mulvaney's May 11, 2018 ratification of the CFPB's enforcement action against defendants failed to cure the constitutional deficiencies in the CFPB's structure or otherwise render defendants' arguments moot.

On June 29, 2020, the Supreme Court struck down the for-cause removal provision on the basis that it violates the separation of powers, but additionally held that the removal provision is severable from the remainder of the CFPA. See Seila L. LLC v. Consumer Fin. Prot. Bureau, ––– U.S. ––––, 140 S.Ct. 2183, 2192, 207 L.Ed.2d 494 (2020). Following Seila, now-acting CFPB Director Kathleen L. Kraninger ratified the enforcement action on July 8, 2020.

In light of these developments, we affirm the district court's holding that the for-cause removal provision is unconstitutional, we reverse the district court's holding that the for-cause removal provision is not severable from the remainder of the CFPA, and we remand for the district court to consider in the first instance the validity of Director Kraninger's ratification of this enforcement action. See Seila, 140 S. Ct. at 2208 n.12.  ¹

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For the foregoing reasons, we VACATE the judgment of the district court and REMAND the case for further proceedings.

FOOTNOTES

1.   We do not reach defendants' other arguments, including, for example, that RD Legal does not qualify as a “covered person” under the Dodd-Frank Act.