On August 26, 2024, Chief Judge Randy Crane in the E.D. Texas granted summary judgment to the CFPB, denied summary judgment to the trade groups and upheld the validity of the CFPB’s small business data collection rule. However, the Judge still needs to rule on a motion to amend the complaint and a motion for judgment on the pleadings.
On August 2, 2024, the Farm Credit Intervenors (three organizations who long ago intervened as plaintiffs in order to take advantage of a preliminary injunction against the CFPB granted to the original plaintiffs based on the Fifth Circuit’s opinion in CFSA v. CFPB) filed a motion to amend their Complaint in Intervention. On that same date, the Farm Credit Intervenors filed a motion for judgment on the pleadings. Both the Amended Complaint and the motion for judgment on the pleadings argue that the 1071 Rule is invalid because the development and promulgation of the Rule was funded from the Federal Reserve Board unlawfully because there was no “combined earnings of the Federal Reserve System” and the CFPB must, under the Dodd-Frank Act be funded out of such “combined earnings.” On August 16, 2024, the CFPB filed in the District Court a motion to extend the time for responding to the motion for judgment on the pleadings until after the Court adjudicates the Farm Credit Intervenors pending motion to amend their complaint and the CFPB has answered the docketed amended complaint. The Court subsequently entered an indefinite stay and scheduled a status conference on September 24, 2024.
Recently, the CFPB submitted its brief in opposition to the motion to amend the complaint. In its brief, the CFPB accuses the plaintiff-intervenors of undue delay in amending their complaint and, accordingly, urges the Court to deny the motion to amend the complaint. The CFPB argues that the plaintiff-intervenors knew about the “new” CFPB funding argument well before they sought to intervene in the case and should have included the claim in their original complaint.
The plaintiff-intervenors submitted their reply brief where they made the following persuasive points:
- Motions to amend a complaint should be liberally granted unless there is prejudice to the CFPB. The CFPB neither argues nor could argue that it would be prejudiced. The plaintiff-intervenors point out that the CFPB has already responded to a motion to dismiss raising the “new” funding issue in an enforcement action filed by the CFPB and will soon be responding to the same argument in several other enforcement actions.
- There was no need for the plaintiff-intervenors to consider the claim they have asserted in their amended complaint until May 16, 2024 when the Supreme Court decided the CFSA case. Until that happened, the plaintiff-intervenors were relying on the Fifth Circuit opinion in the CFSA case which had held that the CFPB’s funding structure ran afoul of the Appropriations Clause of the U.S. Constitution. It would have made no sense for the plaintiff-intervenors to include the “new” claim in their original complaint. At a status conference with the District Court held in July, the plaintiff-intervenors announced that they would be filing a motion to amend the complaint which they did a few days later. That span of time from May 16 when the Supreme Court issued its CFSA opinion reversing the Fifth Circuit and the filing of the amended complaint was just 2-3 months.
The ball is now in Judge Crane’s court (literally and figuratively) and I would expect him to grant the motion to amend. It is less certain whether he will rule at this juncture on whether to grant or deny the motion for judgment on the pleadings or, instead, allow the CFPB to file a motion to dismiss the amended complaint. Regardless of what happens, the “new” funding issue is likely to be decided by Judge Crane before the end of the year and the losing party will then take an appeal. In the meantime, we would expect that one or more of the judges presiding over the enforcement cases will also rule on this issue.
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