IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

Transcription

1 USCA Case # Document # Filed: 07/06/2015 Page 1 of 30 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT ) PHH CORPORATION, PHH MORTGAGE ) CORPORATION, PHH HOME LOANS, LLC, ) ATRIUM INSURANCE CORPORATION, AND ) ATRIUM REINSURANCE CORPORATION, ) ) Petitioners, ) ) v. ) No ) CONSUMER FINANCIAL PROTECTION ) BUREAU, ) ) Respondent. ) ) RESPONDENT CONSUMER FINANCIAL PROTECTION BUREAU S OPPOSITION TO PETITIONERS MOTION FOR A STAY PENDING JUDICIAL REVIEW Meredith Fuchs General Counsel To-Quyen Truong Deputy General Counsel John R. Coleman Assistant General Counsel Lawrence DeMille-Wagman Senior Litigation Counsel Consumer Financial Protection Bureau 1700 G Street, NW Washington, D.C (202) (telephone) (202) (facsimile) lawrence.wagman@cfpb.gov Counsel for Respondent Consumer Financial Protection Bureau

2 USCA Case # Document # Filed: 07/06/2015 Page 2 of 30 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES A. Parties and Amici In addition to the parties listed in the Certificate supplied by petitioners in their Motion for Stay Pending Judicial Review, the following parties appeared as intervenors in the administrative proceeding before the Consumer Financial Protection Bureau: United Guaranty Residential Mortgage Co., Genworth Mortgage Insurance Corp., Radian Guaranty Inc., Mortgage Guaranty Insurance Co., and Republic Mortgage Insurance Co. B. Ruling Under Review The ruling under review is listed in the Certificate supplied by petitioners in their Motion for Stay Pending Judicial Review. The decision and order that are under review are attached as Exhibits A and B to petitioners motion. There is no official citation for the decision and order. C. Related Cases This matter has not been previously before this Court or any other court. There are no related cases before this Court or any other court. i

3 USCA Case # Document # Filed: 07/06/2015 Page 3 of 30 TABLE OF CONTENTS PAGE CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES... i A. Parties and Amici... i B. Ruling Under Review... i C. Related Cases... i TABLE OF CONTENTS... TABLE OF AUTHORITIES... GLOSSARY... ii iv vii INTRODUCTION... 1 BACKGROUND RESPA Mortgage insurance, reinsurance, and PHH s kickbacks Proceedings before the Bureau... 4 ARGUMENT PHH is not likely to succeed on the merits... 8 a. Arguments regarding liability... 8 b. Arguments regarding sanctions PHH has failed to show irreparable harm The balance of equities do not favor a stay ii

4 USCA Case # Document # Filed: 07/06/2015 Page 4 of 30 CONCLUSION iii

5 USCA Case # Document # Filed: 07/06/2015 Page 5 of 30 TABLE OF AUTHORITIES CASES PAGE * Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290 (D.C. Cir. 2006)... 8, 17, 18 Clark-Cowlitz Joint Operating Agency v. FERC, 826 F.2d 1074 (D.C. Cir. 1987) Coal. for Common Sense in Gov t Procurement v. United States, 576 F. Supp. 2d 162 (D.D.C. 2008) Cobell v. Norton, 391 F.3d 251 (D.C. Cir. 2004)... 7 CFPB v. Morgan Drexen, Inc., 60 F. Supp. 3d 1082 (C.D. Cal. 2014) CFPB v. ITT Educ. Servs., Inc., No. 1:14-cv SEB-TAB, 2015 WL (S.D. Ind. Mar. 6, 2015) * FTC v. Nat l Lead Co., 352 U.S. 419 (1957)... 15, 18 * Humphrey s Executor v. United States, 295 U.S. 602 (1935) Kay v. Wells Fargo & Co., 247 F.R.D. 572 (N.D. Cal. 2007) Maracich v. Spears, 133 S. Ct (2013) McCarn v. HSBC USA, Inc., No. 12-cv-375, 2012 WL (E.D. Cal. May 29, 2012) Mills v. District of Columbia, 571 F.3d 1304 (D.C. Cir. 2009) Mullinax v. Radian Guaranty, Inc., 199 F. Supp. 2d 311 (M.D.N.C. 2002) Munoz v. PHH Corp., No. 08-cv-759, 2013 WL (E.D. Cal. May 15, 2013)... 10, 13 iv

6 USCA Case # Document # Filed: 07/06/2015 Page 6 of 30 Nat l Telecomm. Ass n v. Brand X Internet Servs., 545 U.S. 967 (2005) Snow v. First Am. Title Ins. Co., 322 F.3d 356 (5th Cir. 2003) Sterling Commercial Credit-Mich., LLC v. Phoenix Indus. I, LLC, 762 F. Supp. 2d 8 (D.D.C. 2011) United States v. Philip Morris, Inc., 566 F.3d 1095 (D.C. Cir. 2009)... 14, 15 Wisconsin Gas Co. v. FERC, 758 F.2d 669 (D.C. Cir. 1985)... 8, 19 STATUTES 12 U.S.C. 1055(a)(2)(D) Real Estate Settlement Procedures Act 12 U.S.C. 2601(a) U.S.C. 2601(b)(2)... 2, U.S.C. 2607(a)... 2, 4, 6, 11, U.S.C. 2607(c)(2)... 6, 11, 12, U.S.C. 2617(b) U.S.C. 5581(b)(7)... 5 MISCELLANEOUS 12 C.F.R (b) C.F.R (a) (2013) C.F.R (b) (2013)... 9 v

7 USCA Case # Document # Filed: 07/06/2015 Page 7 of C.F.R (a) (1997) C.F.R (b) (1997) Fed. Reg (July 21, 2011) vi

8 USCA Case # Document # Filed: 07/06/2015 Page 8 of 30 GLOSSARY 1) ALJ Administrative Law Judge 2) Atrium Petitioners Atrium Insurance Corp. and Atrium Reinsurance Corp. 3) CFPB Consumer Financial Protection Bureau 4) CFPA Consumer Financial Protection Act 5) Dec. In the Matter of PHH Corporation, et al., Decision of the Director, File No CFPB-0002, Dkt. 226 (June 4, 2015) (Attached as Exhibit A to petitioners motion) 6) FTC Federal Trade Commission 7) HUD United States Department of Housing and Urban Development 8) HUD Letter Letter from N. Retsinas, Ass t Sec y for Hous. Fed. Hous. Comm r, HUD, to S. Samuels, Countrywide Funding Corp. (Aug ) (Attached as Exhibit C to petitioner s motion) 9) Mot. Motion of Petitioners for Stay Pending Judicial Review 10) Order In the Matter of PHH Corporation, et al., Final Order, File No CFPB-0002, Dkt. 227 (June 4, 2015) (Attached as Exhibit B to petitioners motion) 11) PHH Petitioners PHH Corp., PHH Mortgage Corp., PHH Home Loans, LLC, Atrium Insurance Corp., and Atrium Reinsurance Corp. 12) RESPA Real Estate Settlement Procedures Act of 1974 vii

9 USCA Case # Document # Filed: 07/06/2015 Page 9 of 30 INTRODUCTION The Director of the Consumer Financial Protection Bureau (Bureau or CFPB), after an administrative hearing and appeal, held that respondents PHH Corp., PHH Mortgage Corp., PHH Home Loans, LLC, Atrium Insurance Corp., and Atrium Reinsurance Corp. (PHH) received illegal kickbacks from mortgage insurers to whom they had referred borrowers. These kickbacks violated the Real Estate Settlement Procedures Act (RESPA). The Director s order imposed injunctive relief and also required it to disgorge $109 million, approximately one fourth of the illegal kickbacks it received. (Pending this Court s review, it may pay that amount into escrow.) PHH seeks review of that order, and has moved this Court for a stay. But PHH s motion does not satisfy even one, let alone all, of the relevant criteria. Most crucial, PHH fails to make any showing that any actual harm is likely, relying instead on speculation and hyperbole. And although it claims economic harm, it never shows that this harm will have any significant impact on its business. PHH also alleges constitutional injury, but its allegations are merely those of a party subject to a decision that is not to its liking. Nor is PHH likely to succeed on the merits it seeks to relitigate the Director s carefully considered interpretation of RESPA, an interpretation that is entitled to deference. Finally, the equities balance heavily in favor of enforcement of the Bureau s order, an order that protects consumers. 1

10 USCA Case # Document # Filed: 07/06/2015 Page 10 of RESPA BACKGROUND Congress passed RESPA in 1974 because significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country. 12 U.S.C. 2601(a). A primary purpose of RESPA is to eliminat[e] kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services[.] 12 U.S.C. 2601(b)(2). Section 8(a) of RESPA, 12 U.S.C. 2607(a), captioned Prohibition against kickbacks and unearned fees, goes right to that purpose: No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. The term settlement service is defined in RESPA s implementing regulation, and includes the [p]rovision of services involving mortgage insurance. 12 C.F.R (b). 2. Mortgage insurance, reinsurance, and PHH s kickbacks Mortgage insurance provides protection for mortgage lenders when borrowers default. Lenders normally require borrowers to obtain mortgage 2

11 USCA Case # Document # Filed: 07/06/2015 Page 11 of 30 insurance if they are financing more than 80% of the value of a home because Fannie Mae and Freddie Mac will not purchase a loan with a loan-to-value ratio greater than 80% unless there is mortgage insurance. Decision of the Director ( Dec. ) at 3. (The decision is attached to PHH s motion as Exhibit A.) Although mortgage insurance provides protection for creditors, it is paid for by borrowers. But borrowers do not shop for mortgage insurance. Id. Instead, lenders pick the mortgage insurance company for the borrower, and a portion of the borrower s monthly payment goes to pay the mortgage insurance premium. Id. Thus, the market for mortgage insurance is quite distorted: borrowers do not collect on mortgage insurance even though they pay for it, and mortgage insurance companies do not market to borrowers even though they depend on borrowers to purchase their product. Throughout the 1990s, and until the collapse of housing prices in 2008, mortgage insurance was very lucrative because home prices were climbing if the borrower defaulted, sale of the home was normally sufficient to compensate the creditor. Id. To capture a portion of the profits that mortgage insurers had been reaping, PHH created a wholly-owned subsidiary, Atrium Insurance Corp. as a mortgage reinsurance company. Id. A mortgage reinsurance company is supposed to assume some of the risk that would otherwise be borne by a mortgage insurer in return for a portion of the premiums that borrowers pay to the mortgage insurer. 3

12 USCA Case # Document # Filed: 07/06/2015 Page 12 of 30 Id. Beginning in the mid-1990s, Atrium entered into contracts with mortgage insurers to provide them with reinsurance on loans originated by PHH. In return for this reinsurance, the mortgage insurers paid Atrium a portion of the mortgage insurance premium paid by the borrower. Id. Atrium was a captive reinsurer that is, it provided reinsurance only in connection with loans that PHH originated (or loans that PHH purchased from other lenders). Id. Indeed, during this period, the only companies offering reinsurance to mortgage insurers were captive reinsurers mortgage insurers had no need for reinsurance unless it was linked to referrals. Id. at 13. Consistent with this, beginning in the mid-1990s, PHH referred nearly all borrowers needing mortgage insurance to mortgage insurers that had entered into captive reinsurance contracts with Atrium. Id. at Proceedings before the Bureau The Bureau filed its notice of charges on January 29, Id. at 7. The notice alleged that PHH referred borrowers to mortgage insurers based on whether the mortgage insurer had entered into a captive reinsurance arrangement with PHH. This violated section 8(a) of RESPA because the reinsurance premiums paid by the mortgage insurers to PHH through Atrium were kickbacks. The notice alleged that these kickbacks were at borrowers expense PHH steered mortgage insurance referrals to mortgage insurers that purchased reinsurance from Atrium even when PHH knew that other mortgage insurers offered lower prices for 4

13 USCA Case # Document # Filed: 07/06/2015 Page 13 of 30 mortgage insurance. The notice sought a permanent injunction, monetary equitable relief, and civil penalties. After a nine-day hearing, the ALJ issued his recommended decision, and concluded that PHH violated RESPA. 1 He based his interpretation of RESPA on an unpublished 1997 letter (addressed to a mortgage originator that is not a party to this proceeding) in which HUD discussed captive reinsurance agreements (HUD Letter). The ALJ also concluded that PHH violated RESPA only as to loans that closed on or after July 21, The ALJ recommended that PHH disgorge the reinsurance premiums that Atrium received in connection with those loans $6.4 million. He also recommended injunctive relief. Both PHH and the Bureau s enforcement counsel appealed to the Bureau s Director, and on June 4, 2015, the Director issued his decision and order. (The order is attached as Exhibit B to PHH s motion.) The decision first holds that no statute of limitations applies to the Bureau s administrative proceedings. Dec. at But it also recognizes that there is a presumption against retroactive application of statutes, and this limits the Bureau s authority with respect to conduct that occurred prior to its effective date, July 21, However, HUD enforced RESPA prior to the Bureau s effective date, and the Consumer Financial Protection Act (CFPA) transferred HUD s enforcement authority to the Bureau The ALJ s recommended decision is available at f/201411_cfpb_recommend-decision-final_205.pdf (last visited 7/1/2015). 5

14 USCA Case # Document # Filed: 07/06/2015 Page 14 of 30 U.S.C. 5581(b)(7). Because, as of the transfer date, HUD could enforce RESPA as to conduct that occurred on or after July 21, 2008, the decision holds that the Bureau may enforce RESPA as to conduct that occurred on or after that date. The decision then holds that PHH s conduct satisfied all the elements of a violation of section 8(a) of RESPA the mortgage reinsurance premiums were payments of things of value ; PHH agreed to, and did in fact, refer borrowers to mortgage insurers in exchange for these payments; and the borrowers mortgage loans were federally related mortgage loans. Dec. at Next, the decision rejects PHH s contention that section 8(c)(2) of RESPA shields its conduct. Dec. at Section 8(c)(2), 12 U.S.C. 2706(c)(2), should be interpreted not as an exemption but as a clarification explaining the scope of section 8(a), and is relevant only when there is a question as to whether PHH had entered into an agreement to refer settlement service business. Because the evidence established that PHH had entered into such agreements, section 8(c)(2) is irrelevant. The decision also addresses the HUD Letter, which discussed captive reinsurance. (That Letter is attached to PHH s motion as Exhibit C.) The decision holds that the Letter is not binding on the Bureau, that its meaning is unclear, and that it does not provide PHH with a defense. Dec. at The decision also holds that PHH violated RESPA every time it accepted a reinsurance premium on or after July 21, 6

15 USCA Case # Document # Filed: 07/06/2015 Page 15 of , because each premium was a kickback, even if the loan that gave rise to the reinsurance closed before July 21, Dec. at Having concluded that PHH violated RESPA, the Director entered an order that included both injunctive and monetary equitable relief. The order has four injunctive provisions. The injunctive provisions prohibit PHH from committing the sorts of violations that it committed in the past (order provision 1), and fence in PHH so that it cannot commit similar violations in the future (order provisions 2-4). The order also requires PHH to disgorge all the kickbacks that it received from mortgage insurers on or after July 21, 2008, approximately $109 million. However, the order permits PHH, pending judicial review, to pay the disgorgement into escrow. The order was originally set to take effect on July 6, PHH moved the Bureau for a stay, and the Director stayed the order until August 5, ARGUMENT A stay is an extraordinary remedy that should be granted only when the party seeking the relief, by a clear showing, carries the burden of persuasion. Cobell v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004). PHH comes nowhere close to carrying that burden. To warrant a stay, PHH must show that it is likely to succeed on the merits, and that it will be irreparably harmed if a stay is not entered. PHH makes neither of these showings. PHH must also address the impact of a stay 7

16 USCA Case # Document # Filed: 07/06/2015 Page 16 of 30 on others, and where the public interest lies (i.e. the balance of the equities). Wisconsin Gas Co. v. FERC, 758 F.2d 669, (D.C. Cir. 1985). But this balance tips strongly in the direction of the public s interest in having the order, a consumer protection order, enforced. 1. PHH is not likely to succeed on the merits To satisfy this factor, PHH must show that it is substantially likely to succeed on the merits. Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 304 (D.C. Cir. 2006). PHH s showing falls far short of that mark. a. Arguments regarding liability First, PHH invokes the HUD Letter, which it describes as a well-settled rule that the Bureau cannot modify retrospectively. Mot. at 9. The problem for PHH is that its interpretation of the Letter is not well-settled, and the Letter is most certainly not a rule. The portions of the Letter on which PHH relies are not well-settled because they are contradicted by other statements in the Letter. Dec. at The Letter indicates that payments by a mortgage insurer for captive reinsurance will violate RESPA if they are compensation for referrals. As the decision finds, that is what happened here because the evidence indicated that the mortgage insurers would not have purchased the reinsurance if it had not been linked to receiving referrals. But the decision recognizes that other parts of the Letter could be interpreted to suggest that even if the purchase of reinsurance is 8

17 USCA Case # Document # Filed: 07/06/2015 Page 17 of 30 compensation for referrals, it would not violate RESPA so long as the captive reinsurer actually performs reinsurance services, and the reinsurance premiums do not exceed the value of the reinsurance. The decision concludes that, if this is what the Letter means, it is inconsistent with section 8 of RESPA. In any event, the Letter is not a rule. To be sure, RESPA provides that no one shall be liable for any act done or omitted in good faith in conformity with any rule, regulation, or interpretation [of RESPA]. 12 U.S.C. 2617(b). However, the rules implementing RESPA that were in effect both when the HUD Letter was written, and at all times relevant here, provide that letters such as the 1997 HUD Letter are not rules, regulations, or interpretations that shield a party from liability. 2 Indeed, those rules go even further, specifically cautioning that letters such as the HUD Letter, which are not designated as rules or published in the Federal Register, provide no protection from RESPA liability. 24 C.F.R (a), (b) (1997); 12 C.F.R (a), (b) (2013). But that is what PHH is trying to do hide behind a letter that provides no protection at all. 2 PHH also refers to a 2004 HUD letter, which it calls the Confirmation Letter. Mot. at 4, 10. (The 2004 letter is attached as Exhibit D to PHH s motion.) Like the HUD Letter, HUD did not publish the 2004 letter, and it does nothing to resolve the inconsistencies in the 1997 Letter. 9

18 USCA Case # Document # Filed: 07/06/2015 Page 18 of 30 PHH also contends that courts have relied on the HUD Letter. 3 Mot. at It cites three district court decisions, two of which are unpublished: Munoz v. PHH Corp., No. 08-cv-759, 2013 WL (E.D. Cal. May 15, 2013); McCarn v. HSBC USA, Inc., No. 12-cv-375, 2012 WL (E.D. Cal. May 29, 2012); Kay v. Wells Fargo & Co., 247 F.R.D. 572 (N.D. Cal. 2007). But in Munoz, the parties conceded the central issue here: they agreed that there was no RESPA violation when a mortgage insurer pays for referrals by purchasing reinsurance from the lender WL , at *11. The only issue that remained for the court was whether the lender actually provided reinsurance. In McCarn, the court referred to the HUD Letter but did not rely on it WL , at *1. And, although the court in Wells Fargo described some of the issues discussed in the HUD Letter (without ever mentioning the Letter directly), it does so only in the context of reciting issues alleged in the complaint. 245 F.R.D. at The Director s decision holds that PHH violated RESPA every time it accepted a payment for mortgage reinsurance from a mortgage reinsurer. PHH contends that this is at odds with what courts have consistently held. Mot. at PHH mistakenly contends that the Bureau stated it would adhere to letters such as the HUD Letter. Mot. 10, citing 76 Fed. Reg , (July 21, 2011). In fact, what that Federal Register notice actually said was that the official commentary, guidance, and policy statements of agencies that transferred law enforcement authority to the Bureau will be applied by the CFPB pending further CFPB action. Id. As the Bureau s regulations implementing RESPA demonstrate, letters such as the HUD letter are not official commentary, guidance, or policy statements. 12 C.F.R (a), (b) (2013). 10

19 USCA Case # Document # Filed: 07/06/2015 Page 19 of 30 PHH cites only two decisions: Snow v. First Am. Title Ins. Co., 322 F.3d 356 (5th Cir. 2003), and Mullinax v. Radian Guaranty, Inc., 199 F. Supp. 2d 311 (M.D.N.C. 2002). The Director s decision explains why Snow is distinguishable, and why any reading of Snow that suggests that a violation of section 8(a) can occur only at closing is not compatible with the language of the statute. Dec. at The Director s decision also explains why Mullinax is wrong: section 8(a) of RESPA prohibits a party from giving or accepting a kickback, but does not limit violations to kickbacks given or accepted at closing. So a party violates section 8(a) whenever it gives or accepts a kickback. Dec. at See Nat l Telecomm. Ass n v. Brand X Internet Servs., 545 U.S. 967, 982 (2005) (court decisions do not foreclose an agency from interpreting a statute it implements). The Director s decision explains that, because section 8(a) prohibits a party from accepting kickbacks, PHH engaged in separate violations of RESPA every time it accepted a separate kickback in the form of a mortgage reinsurance premium. Dec. at 22. Thus, PHH is simply mistaken when it suggests that the decision adopt[s] a theory of continuing violations that is somehow at odds with section 8(a). See Mot. at 12. Nor is PHH correct when it cites section 8(c)(2) and suggests that it was obvious that Congress intended to permit the sorts of kickbacks it accepted. See Mot. at 13. As the decision explains, section 8(c)(2) is not an exemption from section 8(a). Instead, it clarifies the meaning of section 11

20 USCA Case # Document # Filed: 07/06/2015 Page 20 of 30 8(a). Dec. at PHH conflates the requirements of section 8(c)(2) and interprets it in a manner that is at odds with the central purpose of RESPA the elimination of kickbacks that tend to increase the costs of settlements services. 12 U.S.C. 2601(b)(2). PHH s captive reinsurance agreements involved quintessential kickbacks PHH referred mortgage insurance business to the mortgage insurers, and in return, the mortgage insurers sent mortgage reinsurance business to PHH. Nor must this Court apply the rule of lenity and accept PHH s interpretation of RESPA. See Mot. at Even if the rule of lenity applies in civil cases, it only applies if, after considering text, structure, history, and purpose, there remains a grievous ambiguity or uncertainty in the statute such that the Court must simply guess as to what Congress intended. Maracich v. Spears, 133 S. Ct. 2191, 2209 (2013). The decision explains how its interpretation is consistent with the text, structure, and purpose of RESPA. Thus, the rule of lenity has no application. PHH contends that the Director s decision departs from a long-established and widely accepted interpretation of RESPA, and thus cannot apply retrospectively to parties that acted in good-faith reliance on the prior interpretation. Mot. at 9, 11. Of course, as explained above, PHH did not act in good faith reliance on prior agency pronouncements because HUD s rules cautioned parties not to rely on letters such as the 1997 Letter. Nor was PHH s interpretation widely accepted (except among those who chose to take advantage 12

21 USCA Case # Document # Filed: 07/06/2015 Page 21 of 30 of HUD s inaction). 4 And the cases cited by PHH invoke a standard that does not apply here. See cases cited at Mot. at 9. Those cases involve regulatory, not statutory, interpretations. As this Court, sitting en banc, explained in Clark-Cowlitz Joint Operating Agency v. FERC, 826 F.2d 1074, 1081 (D.C. Cir. 1987) (en banc), the general principle is that when as an incident of its adjudicatory function an agency interprets a statute, it may apply that new interpretation in the proceeding before it. In this circumstance, PHH must show manifest injustice to overturn the Bureau s order. It makes no such showing. PHH makes a sweeping challenge to the Bureau s constitutionality, Mot. at 11-12, but this argument has been tried before, has failed twice, and is no more likely to succeed this time. See CFPB v. Morgan Drexen, Inc., 60 F. Supp. 3d 1082 (C.D. Cal. 2014); CFPB v. ITT Educ. Servs., Inc., No. 1:14-cv SEB-TAB, 2015 WL (S.D. Ind. Mar. 6, 2015). PHH contends that the Bureau is unconstitutional because it is headed by a single director, because the director is removable by the president solely for cause, and because it is funded from the earnings of the Federal Reserve system. But in Humphrey s Executor v. United States, 295 U.S. 602 (1935), the Court upheld identical for-cause protections for Federal Trade Commission commissioners. Nor is the president s ability to 4 In Munoz, PHH argued that it would be an error for the court to rely on the HUD letter because that letter does not constitute formal agency guidance and, as such, it is not entitled to any deference. Defendants Objections to Magistrate Judge s Findings and Recommendations at 17-18, Munoz, supra, (May 30, 2013). 13

22 USCA Case # Document # Filed: 07/06/2015 Page 22 of 30 perform his duties impeded merely because the Bureau is headed by one director instead of five commissioners. Morgan Drexen, 60 F. Supp. 3d at 1088 (observing that it is easier to oversee the leadership of an agency headed by a single director than it is to oversee five commissioners). And the Constitution is not offended merely because the Bureau is funded with money that is not appropriated from the Treasury. Id. at 1089, and cases cited therein. 5 b. Arguments regarding sanctions PHH is not likely to show that the first injunctive provision of the order is an invalid obey-the-law injunction. That provision enjoins PHH from violating section 8(a) in connection with the referral of any borrower to a mortgage insurer. The provision sufficiently specifies the conduct that is restricted, particularly in the context of the Bureau s decision, and gives PHH fair notice of the conduct that is prohibited. United States v. Philip Morris, Inc., 566 F.3d 1095, 1137 (D.C. Cir. 2009). Even when an injunction tracks statutory language, a general injunction is not too vague if it relates the enjoined violations to the context of the case. Id. The 5 PHH contends that the Bureau fundamentally and structurally erred by imposing the burden on it to show that its conduct was exempt from liability under section 8(c)(2). Mot. at 14, citing Dec. at 20. In fact, as explained in the decision (and above), section 8(c)(2) does not provide an exemption, and has no relevance to this proceeding. See Dec. at The discussion of burden to which PHH refers appears in a section of the decision that addresses an alternative theory of liability, a theory that was relied on by the ALJ, but that did not form the basis of the Director s decision. Dec. at

23 USCA Case # Document # Filed: 07/06/2015 Page 23 of 30 provision applies only to referrals that PHH makes to mortgage insurers. 6 It is hardly limitless, see Mot. at 15. The second injunctive provision prohibits PHH for 15 years from entering into any captive reinsurance agreements. PHH complains that this provision is overbroad and prohibits it from engaging in conduct not forbidden by RESPA. Mot. at 16. In particular, it contends (without any support) that affiliated reinsurance is used in connection with life insurance and property insurance. But there is no evidence that PHH is involved in the life or property insurance business. In any event, a party that has been held to have violated the law must expect some fencing in. FTC v. Nat l Lead Co., 352 U.S. 419, 431 (1957). Further, because PHH has a record of continuing and persistent violations of a statute, a general decree [is] wholly warranted. Philip Morris, 566 F.3d at The third injunctive provision prohibits PHH for 15 years from referring any borrower to a settlement service provider if that provider has agreed to purchase any service from PHH and that purchase is triggered by the referral. PHH contends that the provision is flawed because it does not define the term triggered. In the context of the Bureau s decision, the meaning of triggered is not too vague the decision discusses in great detail how PHH s referral of borrowers to mortgage 6 Although the provision does refer to section 8 of RESPA, the specific citation at the end of the provision shows that the provision forbids PHH from violating section 8(a) in connection with the referral of any borrower to a mortgage insurer. 15

24 USCA Case # Document # Filed: 07/06/2015 Page 24 of 30 insurers caused, i.e., triggered, the mortgage insurers to purchase reinsurance. The third provision prohibits the same sort of arrangement in a broader context it applies regardless of the type of settlement service to which PHH refers the borrower, and it applies regardless of the service that the settlement service provider has agreed to purchase from PHH. Again, even though this provision applies to referrals that do not involve mortgage insurance, this sort of fencing in is appropriate, given the nature of PHH s past violations. PHH complains that the fourth injunctive provision is overbroad. That provision requires PHH to maintain records of any payment of a thing of value that it receives from a mortgage service provider to which it refers borrowers. Again, PHH s history of past violations merits this recordkeeping requirement. And, although PHH complains, again without any support, that the provision would impose massive burdens, Mot. at 16, it is hard to fathom that PHH does not already keep records of payments it receives from mortgage service providers to which it refers borrowers. The fifth provision of the order requires PHH to disgorge the kickbacks that it received on or after July 21, PHH contends that the Bureau lacks inherent authority to order disgorgement. Mot. at But the Bureau did not rely on inherent authority, or on authority from RESPA, because the CFPA gives it specific authority to order disgorgement in its administrative proceedings

25 USCA Case # Document # Filed: 07/06/2015 Page 25 of 30 U.S.C. 1055(a)(2)(D). And, as explained in the decision, even before the Bureau took over RESPA enforcement, HUD had authority to obtain disgorgement because, when a statute such as RESPA provides an agency with authority to obtain injunctive relief from a court, the court may award the full range of equitable remedies, including disgorgement. See Dec. at 12. PHH also contends that the Bureau lacks any evidentiary or factual foundation for its calculation of disgorgement. In fact, the Bureau relied on evidence that the ALJ admitted into the record, and that evidence is discussed in great detail in the Bureau s decision. Dec PHH has failed to show irreparable harm A failure to show irreparable harm is grounds for denying a stay, even if the other three factors favor such relief. Chaplaincy of Full Gospel Churches, 454 F.3d at 297. The harm must be both certain and great; it must be actual and not theoretical. Id. In addition, the injury must be of such imminence that there is a clear and present need for equitable relief to prevent irreparable harm. Id. (emphasis in original). The injury must also really be irreparable. Id. PHH s showing is wholly inadequate. PHH seems to believe that, by invoking the Constitution, it has automatically satisfied its burden of showing irreparable harm. See Mot. at 17. But even if the alleged harm consists of a deprivation of a constitutional right, PHH 17

26 USCA Case # Document # Filed: 07/06/2015 Page 26 of 30 must still show that the deprivation of that right is likely. See Mills v. District of Columbia, 571 F.3d 1304, 1312 (D.C. Cir. 2009); Chaplaincy of Full Gospel Churches, 454 F.3d at 301. Although it contends that its due process rights were violated because it was denied fair notice, as explained above, PHH has not shown that it is likely to succeed on that claim. Nor is it likely to succeed in showing that the structure of the Bureau is unconstitutional. That argument has failed before the other courts that have considered it, and PHH has not shown that it is any more likely to succeed here. PHH contends that it will be irreparably harmed by the second and third provisions of the order because they are impermissibly vague. But, in fact, it is PHH s allegations of harm that are vague. It complains that it will be prohibited from engaging in conduct that is not expressly prohibited by RESPA, and that its competitors are free to engage in. Mot. at 18. But those caught violating the law must expect some fencing in. Nat l Lead, 352 U.S. at 431. That is what the order does: it fences in PHH so that it will be less likely to violate the law in the future. And, although PHH complains that this fencing in will cause it significant yet unquantifiable loss of business opportunities, see Mot. at 18, the only support PHH provides for this claim comes from the declaration of its chief compliance officer, Eric Sadow. (Mr. Sadow s declaration is attached to PHH s motion as Exhibit F.) But Mr. Sadow merely speculates as to the sorts of business 18

27 USCA Case # Document # Filed: 07/06/2015 Page 27 of 30 opportunities the provisions might preclude PHH from entering into; he never says that PHH is presently engaging in conduct that would be blocked by the provisions, nor does he state that the order would impose any costs on PHH. Bare allegations of what is likely to occur are of no value since the court must decide whether the harm will in fact occur. Wisconsin Gas, 758 F.2d at The fourth injunctive provision requires PHH to maintain records of any thing of value that it receives from any real estate settlement service provider. Again, PHH relies on Mr. Sadow s declaration and contends that compliance would cost a vast amount of time and resources. See Mot. at 19. But PHH has overstated the declaration because Mr. Sadow merely estimates that PHH would need six to twelve new employees to perform the monitoring. He never states that hiring these employees would cause the sort of irreparable harm justifying extraordinary relief. Finally, PHH claims that, if it pays the $109 million into escrow (which the order permits it to do), it will have to borrow funds to originate mortgages, at a cost of $1,250,000 per year. But PHH fails to provide any evidence as to the impact of this expense, and that is the critical consideration the impact of the 7 PHH complains that it has been stigmatized by the order, and that it will sufferer irreparable harm to its good name. Mot. at 19. If this even constitutes harm, it is speculation. Moreover, it is harm that would be suffered by any party that has been held to have violated the law. Further, since the Bureau s decision and order, which describe PHH s violations, are already public, PHH has not showed how staying the order would, in any way, ameliorate any stigma. 19

28 USCA Case # Document # Filed: 07/06/2015 Page 28 of 30 purported economic harm on PHH s business, not the monetary amount per se. See Sterling Commercial Credit-Mich., LLC v. Phoenix Indus. I, LLC, 762 F. Supp. 2d 8, (D.D.C. 2011); Coal. for Common Sense in Gov t Procurement v. United States, 576 F. Supp. 2d 162, 168 (D.D.C. 2008). Thus, PHH has failed to show that the order will cause it any irreparable harm. 3. The balance of equities do not favor a stay There is a strong public interest in enforcing an order that prevents PHH from engaging in the sort of illegal conduct it committed in the past, conduct that violated a statute intended to protect consumers. Although PHH claims that it no longer has captive reinsurance agreements with mortgage insurers, see Mot. at 20, there is no assurance that it would not resume the conduct in the future, particularly since, as the Bureau found, PHH apparently ceased accepting kickbacks not because they were illegal, but because, at the time, they were unprofitable. Dec. at 32. PHH also ignores that, even if it pays the disgorgement into an escrow account, that payment, just like a supersedeas bond, will protect the public from the possibility that, at the conclusion of judicial review, PHH will not have funds available to pay the award. CONCLUSION For the reasons set forth above, this Court should deny PHH s motion for a stay pending judicial review. 20

29 USCA Case # Document # Filed: 07/06/2015 Page 29 of 30 Respectfully submitted, Meredith Fuchs General Counsel To-Quyen Truong Deputy General Counsel John R. Coleman Assistant General Counsel /s/lawrence DeMille-Wagman Lawrence DeMille-Wagman Senior Litigation Counsel Consumer Financial Protection Bureau 1700 G Street, NW Washington, D.C (202) (telephone) (202) (facsimile) lawrence.wagman@cfpb.gov Counsel for Respondent Consumer Financial Protection Bureau

30 USCA Case # Document # Filed: 07/06/2015 Page 30 of 30 CERTIFICATE OF SERVICE I hereby certify that on July 6, 2015, I electronically filed Respondent Consumer Financial Protection Bureau s Opposition to Petitioners Motion for a Stay Pending Judicial Review with the Clerk of the Court of the United States Court of Appeals for the District Columbia Circuit by using the appellate CM/ECF system. I certify that all participants in the case (listed below) are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. Theodore B. Olson Helgi C. Walker Scott P. Martin Gibson, Dunn & Crutcher LLP 1050 Connecticut Ave., N.W. Washington, D.C Mitchel Kider David M. Souders Sandra B. Vipond Michael S. Trabon Weiner Brodsky Kider PC th Street, N.W., Fifth Floor Washington, D.C Thomas M. Hefferon William M. Jay Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C /s/ Lawrence DeMille-Wagman