U.S. District Court Blocks CFPB Shutdown; Trump Administration Seeks Immediate Stay

On Friday, March 28, U.S. District Judge Amy Berman Jackson took the “extraordinary step” of broadly enjoining the newly installed leadership of the CFPB from “eliminat[ing] the agency before the Court has the opportunity to decide whether the law permits them to do it.” The government promptly appealed her order, and the fate of the agency and its employees now rests with the D.C. Circuit.

What is Happening in NTEU v. CFPB?

Judge Jackson’s Factual Findings

Judge Jackson’s preliminary injunction was premised on a factual finding that the new leadership of the CFPB had been “engaged in a concerted, expedited effort to shut the agency down entirely when the motion for injunctive relief was filed,” that “while the effort to do so was stalled by the Court’s intervention, the plan remains unchanged,” and “the defendants have absolutely no intention of operating the CFPB at all.” (Mem. Op. at 65). This finding was based on a voluminous record compiled in the case, including over a dozen declarations, hundreds of pages of internal CFPB emails, and over a day and a half of live testimony from current CFPB employees. Judge Jackson’s opinion details this evidence, laying out chronologically the events that transpired at the agency from the time of former Director Chopra’s removal to mid-March.

Specifically, the Court found that by February 10, days after Acting Director Vought’s designation as the Acting Director of the CFPB, the agency’s new leadership “was barreling full speed ahead in an effort to dismantle the agency completely by the end of the week.” (Mem. Op. at 66). This effort was arrested, the Court found, by a consent order entered into by the parties during a February 14 hearing that prohibited further terminations of employees, but the planning for the eventual shutdown of the CFPB continued. Judge Jackson did not credit evidence submitted by the government suggesting that, notwithstanding earlier plans to dismantle the agency, the agency’s leadership now intends to carry out the statutory functions of the agency. She found testimony by the government’s witness that there were now “adults in the room” engaged in a more methodical process of “right sizing” the agency to be “not persuasive,” as he later admitted that he had “no idea” of what the administration’s plans were for the agency.

Judge Jackson’s Legal Holdings

In response to the government’s arguments that the Court lacked jurisdiction to review the plaintiffs’ claims, Judge Jackson held that the Court has inherent authority to enjoin alleged unconstitutional acts by the government, including acts that violate the separation of powers. In the alternative, she held that she had jurisdiction to review the claims brought under the Administrative Procedures Act as those claims are premised on discrete, final agency actions — including either Acting Director Vought’s February 10 “stop work order” or the “decision to shut down the agency entirely.” Judge Jackson also found that several of the plaintiffs — including both the National Treasury Employees Association and the CFPB Employees Association — had standing to bring the case.

Having dispensed with the government’s jurisdictional arguments, the Court turned to the factors for granting preliminary injunctive relief when the government is a defendant: (1) that the plaintiffs are likely to succeed on the merits of their claims; (2) that they will suffer irreparable harm in the absence of preliminary injunctive relief; and (3) that the balance of the equities and the public interest would be served by entry of a preliminary injunction.

First, based on the factual finding that the defendants intended to dismantle the agency, Judge Jackson held that the plaintiffs were likely to succeed on the merits of their Constitutional separation-of-powers claim. As the Court pointed out: “While the President is free to propose legislation to Congress to [shut down the CFPB], the defendants are not free to eliminate an agency created by statute on their own.” For essentially the same reason, the Court held that the February 10 “stop work order” likely violated the APA because it had “no rational basis to support it.”

Second, Judge Jackson held that the plaintiffs will suffer irreparable harm in the absence of preliminary relief. According to the Court, the planned “shutdown will take little more than a month, if that,” and “[o]nce the agency is gone, there will be no opportunity to afford relief at a later point in the litigation.”

Finally, Judge Jackson held that the public interest favors entry of a preliminary injunction. The government had argued that this factor favored denial of the motion due to “the public’s interest in the democratically-elected President’s prerogative to pursue his policy objectives.” However, Judge Jackson was not persuaded by this argument, observing that the “case is not about how the executive exercises his discretion,” but about an effort to usurp Congress’s legislative authority.

Judge Jackson’s Order

The separately-issued order grants plaintiffs’ motion for a preliminary injunction and orders defendants to:

• Maintain and not delete CFPB records, except in accordance with the Federal Records Act
• Reinstate all probationary and term employees
• Refrain from terminating any CFPB employee (including through a reduction-in-force), except for cause
• Not enforce the “stop work order” or require employees to take administrative leave
• Provide employees with fully-equipped offices or software that enables remote work
• Carry out the consumer complaint function
• Rescind all notices of contract termination issued on or after February 11, and do not reinstate the wholesale cancellation of contracts
• Report to the Court by Friday, April 4 that all individuals who can be bound by the injunction have received notice of it

The Government’s Immediate Appeal

Approximately 24 hours after entry of this order, the government filed a notice of appeal to the U.S. Court of Appeals for the D.C. Circuit. The government has asked the D.C. Circuit to stay the injunction pending appeal. To prevail, the government must show (1) that it is likely to succeed on the merits; (2) that it would suffer irreparable harm if Judge Jackson’s order is not stayed; (3) that a stay will not injure other parties, and (4) that a stay of the injunction would be in the public interest. Nken v. Holder, 556 U.S. 418, 434 (2009).

The government’s principal argument is that the injunction is overbroad, as it exceeds what is necessary to preserve the agency and encroaches upon personnel and other matters that the law subjects to the discretion of the agency’s leadership. Similarly, the government asks (in the alternative) for a partial stay, requesting, in effect, that the D.C. Circuit narrow the scope of the injunction to allow the agency to terminate employees and place employees on administrative leave. Finally, the government protests that the injunction is unnecessary because the new leadership “made clear by early March that CFPB would continue to perform all functions required by law.” In this respect, while Judge Jackson’s legal findings — including the jurisdictional holdings — are reviewed “de novo,” her detailed factual findings will not be disturbed unless “clearly erroneous.” Should the D.C. Circuit refuse to grant a stay, the government may apply to the Supreme Court for relief, as it has in other cases recently.

What Does This Mean for Regulated Entities?

At least while any litigation over a stay pending appeal plays out, the CFPB will likely continue to operate at less than full speed. Significantly, while Judge Jackson’s order — should it remain in place — prevents reductions-in-force and precludes the CFPB from placing its own employees on administrative leave, it does not direct how the CFPB should exercise its statutory authorities; it does not require the CFPB to issue any particular rule, conduct any examination, or pursue any investigation. Those remain policy decisions entrusted to the agency’s political leadership, and because any significant agency action depends on having sufficient staff, a clear picture of the agency’s policy direction under the Trump administration may not fully emerge until the fate of Judge Jackson’s preliminary injunction becomes clear.