ConstitutionOn May 1, 2015, the U.S. Court of Appeals for the D.C. Circuit rejected a constitutional challenge to the Consumer Financial Protection Bureau’s (CFPB’s) authority.

In Morgan Drexen, Inc. v. CFPB, Morgan Drexen, Inc., which licenses its proprietary software to law firms and provides “live paraprofessional and support services,” and one of its attorney customers, Kimberly Pisinski, sued the CFPB in the U.S. District Court for the District of Columbia after the CFPB had notified Morgan Drexen that it was considering taking action against the company and its CEO for violations of the Consumer Financial Protection Act, 12 U.S.C. § 5536, and the Telemaketing Sales Rules, 16 C.F.R. § 310. The plaintiffs alleged that the CFPB’s independent structure under Title X of the Dodd-Frank Act is unconstitutional because the CFPB’s powers are too broad, the CFPB is headed by a single director removable only for cause, the CFPB is funded outside the normal appropriations process, and judicial review of the CFPB’s actions is extremely limited.

Affirming the U.S. District Court, the D.C. Circuit concluded that Pisinski lacked standing to assert her claims. Despite her assertions that the CFPB’s enforcement action against Morgan Drexen threatened her law practice and professional standing, the D.C. Circuit held that Pisinski could not show any injury. Specifically, the D.C. Circuit found that: (1) the CFPB had never threatened an enforcement action against Pisinski; (2) the CFPB’s enforcement action did not target an aspect of Morgan Drexen’s business that Pisinksi engages and supervises; (3) the CFPB’s enforcement action would not “terminate” or “enjoin” any part of Pisinski’s law practice; (4) there was no evidence showing that Morgan Drexen, despite the enforcement action, would not be able to provide paralegal services to Pisinski in the future; (5) concerns regarding the privacy of information received from Pisinski’s clients were unfounded; and (6) the CFPB’s enforcement action against Morgan Drexen had not inspired the Connecticut State Bar or any other organization to take disciplinary action against her. Accordingly, the D.C. Circuit found that Pisinski lacked the injury necessary for Article III standing, and it upheld the District Court’s decision to dismiss her claims.

The D.C. Circuit also affirmed the District Court in rejecting Morgan Drexen’s arguments. The court first found that, since Morgan Drexen could, and did, raise its constitutional challenges to the CFPB in the enforcement action, the District Court did not abuse its discretion when it dismissed Morgan Drexen’s claims. (In fact, the court noted that, since Morgan Drexen could not point to any inconvenience associated with litigating in California, the District Court properly “relieved it of litigating overlapping issues in two federal forums” and “fostered” judicial economy.) The D.C. Circuit also upheld the District Court’s rejection of Morgan Drexen’s declaratory judgment claim, holding that the District Court reasonably concluded that the importance of Morgan Drexen’s constitutional challenge “was counterbalanced by the importance of avoiding unnecessary constitutional decision-making.”

While the D.C. Circuit did not reach the merits of the plaintiffs’ claims, it did set forth a few of the challenges that anyone seeking to challenge the CFPB’s authority will have to overcome before mounting an attack. Its decision makes clear that third parties to an enforcement action will have a particularly difficult time challenging the CFPB’s authority, and it also makes clear that the CFPB likely will have its choice of forum regardless of who wins the race to the courthouse.