CFPB moves to dismiss Morgan Drexen’s D.C. lawsuit; Morgan Drexen moves to enjoin CFPB’s CA action


In response to the motion for summary judgment filed by Morgan Drexen in its Washington, D.C. lawsuit against the CFPB, the CFPB has filed a motion to dismiss. After it was sued by Morgan Drexen, the CFPB filed an enforcement action against Morgan Drexen in a California federal district court. However, rather than asking the CA court to stay the CFPB’s action, Morgan Drexen is asking the D. C. court to enjoin the CFPB from prosecuting that action until the D.C. case is resolved.

In its motion to dismiss or, in the alternative, for summary judgment, the CFPB argues that Morgan Drexen should be required to raise its constitutional challenge as a defense to the CFPB’s enforcement action and since doing so will not cause it irreparable harm, Morgan Drexen is not entitled to injunctive relief. The CFPB also asserts that since Morgan Drexen could prevail in the CA action on its non-constitutional defenses, the need for a court to address Morgan Drexen’s constitutional claim could be avoided. The CFPB contends that Morgan Drexen’s “only conceivable purpose for bringing [the D.C.] action is an inappropriate one,” namely to deprive the CFPB of its choice of forum.

While urging the D.C. court to dismiss the case without addressing the merits of Morgan Drexen’s constitutional challenge, the CFPB nevertheless defends the constitutionality of its structure. According to the CFPB, the Dodd-Frank Act preserves the ability of the President, Congress and the judiciary to oversee the CFPB, consistent with separation of powers principles. The CFPB argues that it has no unique features that make ordinary checks on its authority constitutionally insufficient or require the CFPB to have a multimember commission as Morgan Drexen contends. Morgan Drexen has until September 13 to  respond to the CFPB’s motion.

In support of its motion seeking to enjoin the CFPB’s enforcement action, Morgan Drexen argues that the D.C. court should use its authority under the “first-to-file rule.” According to Morgan Drexen, equitable considerations favor enjoining the CFPB. Those considerations include the expedited briefing schedule entered by the D.C. court and avoiding the need for duplicative briefing in the CA court on Morgan Drexen’s constitutional challenge.

In its opposition to the injunction motion, the CFPB labels Morgan Drexen’s lawsuit a “preemptive declaratory judgment action.” According to the CFPB, application of the first-to-file rule to such a lawsuit “would seriously impede the efficient operation of both the government’s enforcement agencies and the courts” because it would allow the subject of an enforcement action to “delay the government’s prosecution of a pending enforcement action simply by filing a preemptive declaratory judgment action seeking a ruling on some potential defense (however meritless).”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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