United States: Challenging A CFPB Civil Investigative Demand Can Be Done Without Revealing A Company Is Being Investigated

Last Updated: December 14 2015
Article by Wm. Grayson Lambert and Joshua D. Davey

One of the Consumer Financial Protection Bureau's (CFPB) key investigative and enforcement tools is to issue Civil Investigative Demands (CIDs), a form of an administrative subpoena that requires the recipient to produce documents or provide testimony.  The Bureau's authority to issue CIDs is one of its most powerful weapons in its arsenal, and often a CID alone is enough to force target companies to submit to a settlement in light of the costs and potential adverse publicity of fighting back.

But a recent decision of the United States District Court for the District of Columbia opens the door to allow target companies to challenge Bureau CIDs without having to reveal to the world that they are under investigation, giving targets a bit more leverage in resisting burdensome CIDs.  In a decision issued on October 16, 2015, the Court in John Doe Company 1 v. CFPB held that the identities of several companies who challenged Bureau-issued CIDs in court would remain sealed, keeping the identities of those entities secret.

The dispute began in late in 2014, when the CFPB sent a CID to certain unnamed credit-counseling businesses, focusing on their relationship with a California-licensed attorney.  These companies learned that this former lawyer would be voluntarily providing testimony to the CFPB in July 2015.  The companies' counsel asked the CFPB attorney for permission to attend this hearing at which the former lawyer would give testimony in order to protect the companies' attorney-client privilege, but the CFPB attorney refused.  The companies' counsel then petitioned the CFPB for permission to attend, but this petition was denied.

The companies then filed suit against the Bureau in the United States District Court for the District of Columbia, arguing that the CFPB's denial of their petition violated the Administrative Procedure Act.  See John Doe Co. 1 v. CFPB, No. 15-cv-1177 (D.D.C.).   Along with the complaint, the companies filed a motion for a temporary restraining order and a motion to seal the entire proceeding.  The case was temporarily sealed, and the dispute giving rise to the lawsuit was resolved the day after the suit was filed.  The case was therefore voluntarily dismissed without prejudice.

However, the district court was left with the question of whether the case should remain under seal.  The companies sought to keep the case sealed, while the CFPB maintained that sealing the case was improper.  The court applied the D.C. Circuit's six-part test to determine whether sealing the case was appropriate:

(1) the need for public access to the documents at issue; (2) the extent to which the public had access to the documents prior to the sealing order; (3) the fact that a party has objected to disclosure and the identity of that party; (4) the strength of the property and privacy interests involved; (5) the possibility of prejudice to those opposing disclosure; and (6) the purpose for which the documents were introduced.

Am. Mem. Op. and Order 3, John Doe Co. 1 v. CFPB, No. 15-cv-1177 (D.D.C.), ECF No. 16 (Oct. 16, 2015).

Weighing these factors, the court the court first determined that even if the information in the case was nonpublic as part of the CFPB investigation, the information in the lawsuit was presumptively public.  Second, the court recognized that the information in the case had not been public before the sealing order, and the CFPB had not made the companies' petition public as of the date of the court's order.  This factor weighed in favor of continued sealing of the case.  AS for the third factor, the fact that the parties took opposite positions meant that this factor was in equipoise.  With respect to the fourth factor, the court determined that the companies' privacy interests in having the entire case sealed were relatively weak, as they relied solely on CFPB regulations rather than acts of Congress and those regulations already contemplated that the confidentiality of investigations was not absolute.  Fifth, the court noted that the companies faced reputational and financial harm if the fact of the CFPB's investigation of them was disclosed.  As to the sixth factor, the court reasoned that the purpose of sealing the case (protecting the attorney-client privilege) was not served by sealing the entire case.

Ultimately, the court focused most heavily on the public's interest in access to judicial information and the companies' interest in keeping the existence of the investigation against them private.  Balancing these interests, the court ordered that the case would be unsealed but that all documents would be filed in redacted form, removing the companies' names and other identifying information.

This case generally provides good news for companies that challenge a CID issued by the CFPB, giving them a path to avoid revealing the fact that an investigation is ongoing despite litigation challenging the CID.  Although that challenge may not be permitted to proceed entirely under seal – and of course, whether a particular case should be sealed will depend on its unique facts – not having to disclose the existence of the investigation allows a company to protect its reputational and financial interests.  The CFPB may still possess strong investigative powers that leave companies at a disadvantage, but this decision from the District of Columbia is now a weapon that companies can wield in challenging a CFPB investigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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