Atlanta Federal Judge Orders Discovery Sanctions Against CFPB and Dismisses CFPB’s Claims

Last Friday, Judge Richard Story (USDC, N.D. Ga.) entered an order in Consumer Financial Protection Bureau v. Universal Debt Solutions, LLC, et al., granting a defendant’s motion for Rule 37 discovery sanctions and striking Counts 8, 9, 10, and 11 from the Consumer Financial Protection Bureau’s (“CFPB”) complaint. This order is another example of judicial decisions resolving a significant issue for the CFPB in recent years: how to handle Rule 30(b)(6) depositions.

Case background

The CFPB’s complaint—filed on March 26, 2015—alleged in pertinent part that several businesses (including Pathfinder Payment Solutions, Inc., Global Payments, Inc., Frontline Processing Corp., and Global Connect, LLC) had provided “substantial assistance” to the unfair or deceptive conduct of debt collectors and had engaged directly in unfair practices in violation of Sections 1031 and 1036 of the Dodd-Frank Act. Because the August 25, 2017 order had the effect of striking all claims (Counts 8 to 11) asserted against such defendants, they were dismissed from the action outright.

The plaintiff CFPB’s conduct during the CFPB’s Rule 30(b)(6) deposition was at issue in the Court’s order. The Court found that the CFPB had failed to answer deposition questions, used a prewritten script to read (sometimes 45-minute long) answers to deposition questions, and claimed privilege in the CFPB’s refusal to answer questions probing underlying, non-privileged facts.

The case is the culmination of a months-long effort by defendants to challenge both the CFPB’s substantive claims and its conduct in discovery. In January 2017, a defendant had moved for Rule 11 sanctions, contending that the CFPB’s lawsuit lacked merit, was frivolous, and warranted dismissal. On the discovery front, after multiple instances in which the Court (since September 2016) issued specific instructions to the CFPB and defendants to resolve discovery disputes, the Court held that “the CFPB’s pattern of conduct warrants substantial sanctions.”

The Court explained several ways in which the CFPB’s conduct in discovery was in direct contravention of the Court’s prior order. First, during the deposition, the CFPB witness was unable to offer any testimony beyond what he read from prewritten scripts, which were “often unrelated to the questions asked.” But the Court had made clear—months earlier during a telephone conference with the Court—its expectation that “more was expected of the CFPB’s witness than rote answers similar to what was already available to Defendants through contention interrogatories. By relying almost exclusively on the memory aids, the CFPB’s witness failed to abide by the Court’s instructions.”

Second, the Court had instructed the CFPB—in earlier orders deciding the CFPB’s motions for protective orders—that the CFPB should be prepared to testify about any facts that it “could reasonably identify as exculpatory.” Nevertheless, during the deposition, the CFPB testified that it did not identify a single exculpatory fact. The Court held that the “CFPB’s position is not a reasonable one.” The Court also held that the CFPB’s “insistence that it could not [identify exculpatory facts] reflects an unwillingness to comply with the Court’s instructions and a bad faith attempt to frustrate the purpose of Defendants’ depositions” as well as a “failure to present a knowledgeable witness.”

Finally, the defendants had argued in their Rule 37 motion that the CFPB relied on privilege and work-product objections to prevent the witness from answering deposition questions about the factual basis for the CFPB’s claims. The Court pointed to several examples in the deposition transcript and held that the CFPB’s approach was “to bury the Defendants in so much information that it cannot possibly identify, with any reasonable particularity, what supports the CFPB’s claims” and “to assert privilege objections to questions that the Court has repeatedly ordered to be answered.” The Court held that neither of these approaches was proper. Instead, the Court explained, together they demonstrate a willful disregard of the Court’s instructions.”

In doing so, the Court ultimately found that reopening depositions would be futile considering the CFPB’s pattern of conduct, and dismissed the CFPB’s claims against these defendants. The earlier motion for Rule 11 sanctions, though, was denied.

Summary observations

Considering the pending Rule 11 sanctions motion from January, the previous fair warnings given by the Court to the CFPB, and the CFPB’s noncompliance with court orders during depositions, it is not surprising that the Court issued sanctions in the form of substantively striking the CFPB’s claims. Needless to say, this is extraordinary relief. While the CFPB lawyers were not personally sanctioned, the CFPB’s case suffered.

There might be an ordinary explanation for the CFPB witness’s strange conduct. Why the unusual act of reading from a script during a deposition and lodging unsupported privilege objections—and by a government plaintiff? This is possibly a byproduct of the fact that it is not easy for the CFPB to act nimbly as a bureaucratic organization. At the CFPB, in our experience we have noted in many cases that the front line attorneys must obtain advance approvals from supervisors and receive little authorization to speak freely, on the spot. What other scenario exists in the world where it is as critical for a person to be able to think on her feet as in deposition or trial testimony? It is not surprising that the rigidity of the CFPB’s internal processes manifest outwardly in witness testimony that is robotic and incongruent with the requirements of fact-specific responses to deposition questions.

General implications for litigation with the CFPB

The August 25 order is a clear cautionary tale to the CFPB regarding the consequences of allowing overconfidence in the “shock and awe” effect of consumer protection-oriented allegations (found in a complaint) to override disinterested analysis, grit, and fastidiousness in the work of defending a deposition. For many reasons, including the high caliber of several attorneys in the CFPB’s enforcement office, most CFPB matters are not likely to result in the same outcome as what occurred in Universal Debt. In addition, these days in DC, the lobbying efforts continue to churn, seeking to curb CFPB regulation rather than enforcement litigation (at least directly). Meanwhile, companies are increasingly electing to challenge the CFPB’s enforcement program in litigation nationwide.

As a result, CFPB litigation defense strategies are likely to continue evolving. For now, it is quite something to behold: that in civil discovery, district courts are center stage in holding the CFPB accountable to play by the same rules that apply to all federal court litigants. Buckle in, it’s going to be a wild ride.

J.H. Jennifer Lee

J.H. Jennifer Lee

Jenny represents large and regional banks, card issuers, mortgage bankers or mortgage insurance companies, online lenders, Fin Tech firms, private equity firms with consumer-facing specialty finance strategies, or any “covered person” delineated in the Bureau’s statute, title X of the Dodd-Frank Act. As a lawyer who worked inside the Consumer Financial Protection Bureau (Bureau) Office of Enforcement for several years beginning with the Bureau’s founding, Jenny possesses unique experience that she draws upon to provide clients with defense strategies for enforcement by or litigation with the Bureau....

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