We recently reported that the Kentucky Bankers Association and several Kentucky banks filed a lawsuit against the CFPB in the U.S. District Court for the Eastern District of Kentucky alleging that the CFPB’s final small business lending rule (Rule) is invalid because, among other reasons, the CFPB is unconstitutionally funded. We expressed surprise that the plaintiffs chose that path instead of seeking leave to intervene in the lawsuit challenging the Rule that was filed by the American Bankers Association (ABA), Texas Bankers Association (TBA) and Rio Grande Bank and is pending in the U.S. District Court for the Northern District of Texas.
In the Texas lawsuit, the court issued an order preliminarily enjoining the CFPB from implementing and enforcing the Rule pending the outcome in the Supreme Court of Community Financial Services Association of America Ltd. v. CFPB. At the CFPB’s urging, the court unfortunately denied the nationwide relief requested by the plaintiffs and only granted relief to the plaintiffs and their members. As a result, trade associations for community banks nationally and in Texas filed a motion to intervene in the Texas case which was soon followed by a motion to intervene filed by a national and regional trade association for credit unions. In our view, the intervention motions were the right strategy for entities subject to the Rule but not covered by the preliminary relief granted by the Texas federal court because the Texas federal court had already concluded that the plaintiffs had satisfied the requirements for a preliminary injunction and sits in the Fifth Circuit which has already ruled that the CFPB is unconstitutionally funded.
Given the favorable setting provided by the Texas federal court, I questioned why the Kentucky plaintiffs decided to take an entirely different path by filing a new lawsuit in a Kentucky federal court that sits in the Sixth Circuit which has not previously addressed the constitutional issue and in front of a judge who is unlikely to have experience with the Rule or the constitutional issue. In discussing this question with my colleagues, some thought that perhaps the Kentucky plaintiffs would not have been able to establish venue in the Texas federal court because they lacked Texas contacts. However, my colleague Burt Rublin found clear authority on which the Kentucky plaintiffs could have relied if they had sought to intervene in the Texas federal court. That authority provides that because venue has already been established in the Texas federal court by the ABA, TBA, and Rio Grande Bank, proposed intervenors such as the Kentucky plaintiffs would not be required to separately establish venue in the Texas federal court. In East Tex. Bapist Univ. v. Sebelius, No. 12-cv-3009, 2013 U.S. Dist. LEXIS 124347, 2013 WL 4678016 (S.D. Tex. Aug. 30, 2013), the Texas federal district court allowed a Pennsylvania graduate theological seminary to intervene in an action against U.S. Dept. of Health and Human Services and HHS Secretary Sebelius even though the intervenor “has no evident connection to the Southern District of Texas.” In rejecting the government’s venue objection, the court stated that “[b]ecause venue in the Southern District of Texas is proper for the existing plaintiffs, it is also proper for [the seminary].”
Thus, my question regarding why the Kentucky plaintiffs chose to file a new lawsuit in Kentucky rather than seek to intervene in the Texas lawsuit remains unanswered. Hopefully, other banks, credit unions, and non-banks that are not covered by the preliminary relief granted by the Texas federal court will file motions seeking leave to intervene in the Texas lawsuit rather than file separate lawsuits elsewhere. The situation is already complicated enough. Filing separate lawsuits will only create further, unnecessary complications.
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