Consumer Fin. Prot. Bureau v. Gordon

819 F.3d 1179

CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff–Appellee,

v.Chance Edward GORDON, dba Gordon and Associates, dba National Legal Source, dba Resource Law Center, dba Resource Law Group, dba Resource Legal Group, dba the C E G Law Firm, dba the Law Offices of C. Edward Gordon, dba the Law Offices of Chance E. Gordon, Defendant–Appellant.

No. 13–56484.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 20, 2015.

Filed April 14, 2016.

Gary Kurtz, Law Office of Gary Kurtz, PLC, Woodland Hills, CA, for Defendant–Appellant.

Meredith Fuchs, General Counsel; To–Quyen Truong, Deputy General Counsel; John R. Coleman, Assistant General Counsel; Nandan M. Joshi and Kristin Bateman (argued), Attorneys, Consumer Financial Protection Bureau, Washington, D.C., for Plaintiff–Appellee.

Charles J. Cooper (argued), David H. Thompson, Howard C. Nielson, Jr., and John D. Ohlendorf, Cooper & Kirk, PLLC, Washington, D.C., for Amicus Curiae Judicial Education Project.

Before: SANDRA S. IKUTA and JOHN B. OWENS, Circuit Judges, and WILLIAM K. SESSIONS,^* District Judge.

Opinion by Judge OWENS

; Dissent by Judge IKUTA.

OPINION

OWENS, Circuit Judge:

Appellant Chance Gordon appeals from the district court's order of summary judgment in favor of the Consumer Financial Protection Bureau (CFPB) on its enforcement action for violations of the Consumer Financial Protection Act and Regulation O. We affirm in part, and vacate and remand in part, for reconsideration of the monetary judgment in accordance with this opinion.

I. BACKGROUND

A. Gordon's Loan Modification Program

Gordon, a licensed California attorney, was the sole owner and officer of the Gordon Law Firm (collectively Gordon), and provided home loan modification services. Due to changes in the law that prohibited charging up-front for these services, Gordon created the "Pre–Litigation Monetary Claims Program" (Program). In the Program, Gordon, for a flat fee, would prepare certain legal "products" advertised to help purchasers in their disputes with the lenders that owned their mortgages.

Gordon also created an attorney-client "pro bono" legal agreement, where he promised to provide certain legal services free of charge, including negotiating with the lenders to modify mortgages. Clients could receive these "pro bono" services only if they paid for the Program. Previously, Gordon charged clients for these same legal services.

To attract clients, Gordon hired Abraham Pessar to perform marketing and advertising services.¹ Pessar sent direct mail marketing pieces to financially distressed homeowners. In early 2010, Pessar and his team began sending out a mailer titled "Notice of HUD Rights," which bore a Washington, D.C. return address to which neither Gordon nor Pessar had any personal or business connection. The mailer stated that it was provided "[c]ourtesy of the Qualification Intake Department," and that the recipient could have the right to participate in a repayment program that could prevent future foreclosure proceedings.

In June 2011, Pessar and his team created a new mailer labeled "Program: Making Homes Affordable," which closely resembled the federal government's "Making Home Affordable Program" (though the mailer disclaimed any affiliation with the government). Pessar's team also used websites and telephone calls to solicit consumers. Pessar claimed that Gordon reviewed and approved all marketing materials, while Gordon disputed his involvement and control over the mailers, websites, and telephone calls.

B. The Appointment (and Eventual Confirmation) of Richard Cordray as Director of the CFPB, and His Ratification of Past Acts

On January 4, 2012, President Obama, relying on his recess-appointment power, named Richard Cordray as the CFPB's initial Director. See U.S. Const. art. II, § 2, cl. 3.² That same day, he appointed three individuals to the National Labor Relations Board (NLRB) in similar fashion. See NLRB v. Noel Canning, ––– U.S. ––––, 134 S.Ct. 2550, 2556–57, 189 L.Ed.2d 538 (2014). In Noel Canning, the Supreme Court held that the NLRB appointments did not satisfy Article II's Appointment Clause requirements, as they did not occur when the Senate was out of session. Id. at 2574–77.

President Obama renominated Cordray as Director on January 24, 2013. See White House Office of the Press Secretary, Remarks by the President at a Personnel Announcement (Jan. 24, 2013), https://www.whitehouse.gov/the-press-office/2013/01/24/remarks-president-personnel-announcement. On July 16, 2013, the Senate confirmed Cordray as Director.

159 Cong. Rec. D704 (daily ed. July 16, 2013). On August 30, 2013, the CFPB issued the following Notice of Ratification, signed by Cordray:

The President appointed me as Director of the Bureau of Consumer Financial Protection on January 4, 2012, pursuant to his authority under the Recess Appointments Clause, U.S. Const. art. II, § 2, cl. 3. The President subsequently appointed me as Director on July 17, 2013, following confirmation by the Senate, pursuant to the Appointments Clause, U.S. Const. art. II, § 2, cl. 2. I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper. To avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period.

Notice of Ratification, 78 Fed.Reg. 53734–02 (Aug. 30, 2013). The parties agree that while Cordray's initial January 2012 recess appointment was invalid, his July 2013 confirmation was valid. They disagree as to the significance of these events and the August 2013 ratification.

C. The CFPB Litigation Against Gordon

In July 2012, the CFPB filed a civil enforcement action against Gordon, alleging that he violated two sections of the Consumer Financial Protection Act (CFPA) (12 U.S.C. §§ 5531, 5536 ) through unfair and deceptive practices—namely, suggesting that consumers would likely receive mortgage relief and that his operation was affiliated with the government. It also alleged that Gordon violated Regulation O (12 C.F.R. §§ 1015.1 –11 ) by (i) receiving up-front payments for mortgage relief services before consumers entered into loan modification agreements with their lenders, (ii) failing to make the proper disclosures while communicating with consumers, (iii) advising consumers not to communicate with their lenders, and (iv) misrepresenting material aspects of his services. As relief, the CFPB sought a permanent injunction to prevent future violations, restitution, and disgorgement of compensation. The CFPB also filed an ex parte application for a temporary restraining order that would (a) prohibit Gordon from operating his business, (b) appoint a receiver, and (c) freeze his assets. The district court issued the TRO and later a preliminary injunction.

After receiving cross-motions for summary judgment, the district court in June 2013 ruled in the CFPB's favor. It concluded that Gordon violated the CFPA in numerous ways, including by representing that the Program would benefit his clients (it actually left them in a far worse position), and that his business was somehow affiliated with the government (it was not). It held that Gordon violated Regulation O for the reasons that the CFPB alleged. It also ordered $11,403,338.63 in disgorgement and restitution against Gordon and the Gordon entities, jointly and severally. This represents the amount that Gordon and Pessar collected from consumers from January 2010 through July 2012.

The district court chose not to address the merits of Gordon's argument that the CFPB lacked authority to bring the action because its director, Cordray, was unconstitutionally appointed per Noel Canning. The district court concluded that Gordon had waived it by failing to articulate how Cordray's invalid appointment would prevent the CFPB from prosecuting civil enforcement actions. Gordon then appealed, and amicus Judicial Education Project (JEP) filed a brief that more extensively discussed the possible Article II and III consequences of Cordray's failed recess appointment.

II. STANDARD OF REVIEW

This court reviews questions of constitutional law de novo. Bojnoordi v. Holder, 757 F.3d 1075, 1077 (9th Cir.2014). We review a district court's grant of summary judgment de novo and may affirm on any ground supported by the record. Dietrich v. John Ascuaga's Nugget, 548 F.3d 892, 896 (9th Cir.2008). A district court's determination that a party waived an issue is reviewed for an abuse of discretion. L.A. News Serv. v. Reuters Television Int'l, Ltd., 149 F.3d 987, 996 (9th Cir.1998). We review for an abuse of discretion a district court's grant of equitable monetary and injunctive relief. FTC v. Grant Connect, LLC, 763 F.3d 1094, 1101 (9th Cir.2014).

III. ANALYSIS

A. Article III Standing

We begin by addressing whether we have jurisdiction to hear this case. Although Gordon did not argue Article III standing to the district court, we have the obligation to ensure that it exists. See WildEarth Guardians v. EPA, 759 F.3d 1064, 1070 (9th Cir.2014) (citing Summers v. Earth Island Inst., 555 U.S. 488, 499, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009) ).

"[T]he Constitution's central mechanism of separation of powers depends largely upon common understanding of what activities are appropriate to legislatures, to executives, and to courts." Lujan v. Defs. of Wildlife, 504 U.S. 555, 559–60, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). "No principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies." Raines v. Byrd, 521 U.S. 811, 818, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997) (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 37, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976) ). Consistent with this checks and balances principle, a private party can bring a "case" only if it has standing—"a concrete and particularized injury that is fairly traceable to the challenged...