Banking and Finance Law Daily Wrap Up, CONSUMER FINANCIAL PROTECTION BUREAU—11th Cir.: CFPB appeals dismissal of debt collection claims, (Mar 21, 2022)

By Justin Marcus Smith, J.D.

The district court found fault with the CFPB’s privilege objections, lack of exculpatory evidence, and witness reliance on memory aids, but this was a civil matter, and the witness had no personal knowledge of the facts.

The Consumer Financial Protection Bureau has filed an appellant brief in the U.S. Court of Appeals for the Eleventh Circuit, challenging the district court’s dismissal of all of its claims against five defendants in a “fraudulent debt collection scheme” involving a total of eighteen defendants. On appeal, the Bureau argued that the district court abused its discretion because dismissal of its claims was wholly unwarranted, and asked the Eleventh Circuit to reverse and remand for the CFPB to prosecute the defendants on the merits.

The CFPB asserted in its brief that the dismissed five “enabling” defendants “were never held accountable” as a result of the district court dismissing them from the civil case after a series of disagreements about the deposition of a single CFPB witness. The defendants had noticed the CFPB for “all facts relevant to the CFPB claims against them.” The defendants objected to privilege objections the CFPB raised when they asked the witness to testify “about facts supporting knowledge versus recklessness.” The CFPB contended that this called for “a legal distinction.” The defendants objected to the witness’ use of memory aids, and, after the court sua sponte ordered the witness to testify to exculpatory facts, the defendants objected to the witness testifying that there were no exculpatory facts. On the defendants’ motion, the district court elected to dismiss the CFPB claims against the five defendants in lieu of reopening the depositions.

The CFPB argues that the district court abused its discretion because dismissal of its claims was wholly unwarranted where it produced the requested witness who sat and answered the defendants questions to the extent it could, whereas, the defendants suffered no prejudice in the preparation of their defense.

Background. In 2015, the CFPB filed a complaint against eighteen defendants in connection with what it called a “fraudulent debt collection scheme.” The debt collectors allegedly threatened and harassed consumers enough to cause some to even pay “phantom debt” they did not owe or which the collectors had no authority to collect. After years of litigation, the CFPB ultimately obtained judgments totaling $5 million; however, CFPB said that five “enabling” defendants “were never held accountable” because the district court dismissed the CFPB case against them as a discovery sanction.

The discovery sanction arose after the five enabling defendants each noticed a Fed. R. Civ. P. 30(b)(6) CFPB deposition “seeking testimony about all facts relevant to the CFPB claims against them.” The CFPB recounted that it initially attempted to quash the depositions on the basis that it had already produced its entire investigative file, apart from attorney work product, and that it had otherwise already responded to all of the defendants questions by way of its responses to interrogatories.

The district court overruled the CFPB’s objections and ordered the depositions with some protective orders to strike or limit the scope of some of noticed topics “due to specific objections of overbreadth, privilege, and other concerns.” The district court also permitted, sua sponte, each defendant to question the CFPB about “all facts that [CFPB] could reasonably identify as exculpatory,” even though the CFPB contends now that none of the defendants had raised a concern about availability of exculpatory evidence.

The CFPB recounted in its appellate brief that it had spent “over 1,000 hours” and its witness had spent “over 300 hours” preparing for the depositions, but the defendants raised privilege objections when the CFPB objected to questions it said “called for attorney work product” and objections about the use of memory aids and lack of testimony about exculpatory facts. The defendants moved for a discovery sanction under Fed. R. Civ. P. 37. In August 2017, the district court granted dismissal in lieu of reopening the depositions as to all of the CFPB’s claims against the five defendants. The Bureau argues that the district court’s dismissal was an abuse of discretion. The CFPB said no sanctions were warranted, let alone the “most drastic sanction available.”

As to the debate over privileged work product objections, the CFPB highlighted its disagreement with the district court over whether the defendants’ deposition notice was “about facts supporting knowledge versus recklessness.” The CFPB maintained on appeal that its “counsel reasonably believed that questions asking the witness to distinguish between those facts improperly called for attorney work product and required legal analysis that the fact witness was not qualified or prepared to do on the spot.” The CFPB likewise maintained that the district court had improperly intruded on its attorney work product privilege by ordering CFPB to identify exculpatory evidence in a civil matter.

As to the use of memory aids, the CFPB argued that the court’s statements, delivered only during an emergency teleconference, “did not give clear guidance.” The sheer breadth of facts made memorization impossible, and perhaps paradoxically, the CFPB briefed here that its witness lacked personal knowledge of any of the facts. The CFPB said that the district court had even said memory aids were “permissible” as well as part of a “good faith effort” to give the five defendants what the CFPB had.

The CFPB argued further that the district court never made a finding that the CFPB or its witness acted willfully or in bad faith on the basis of the memory aids or otherwise and that the defendants were not prejudiced in any way. The CFPB prayed that the Eleventh Circuit will reverse and remand the district court’s dismissal of its claims so the CFPB can prosecute the defendants on the merits.

The case is No. 21-14468

Companies: Check & Credit Recovery, LLC; Credit Power, LLC; Francis David Corporation d/b/a Electronic Merchant Systems, Inc.; Frontline Processing Corporation; Global Connect LLC; Global Payments, Inc.; Pathfinder Payment Solutions, Inc; S Payment Processing & Solutions, LLC; Universal Debt & Payment Solutions, LLC; Universal Debt Solutions, LLC; WNY Account Solutions, LLC; WNY Solutions Group, LLC

LitigationEnforcement: CFPB DebtCollection