Union says DOJ appeals to wrong court over CFPB injunction

Bloomberg News

The Trump administration's appeal of a ruling stopping the efforts to shut down the Consumer Financial Protection Bureau was taken to the wrong court, plaintiffs argue, complicating an already heated legal challenge to the administration's activities at the beleaguered bureau. 

The Department of Justice filed an emergency motion on Monday with the U.S. Court of Appeals for the District of Columbia Circuit asking for an administrative stay and appeal of a preliminary injunction. The injunction was granted on Friday by U.S. District Judge Amy Berman Jackson after a two-day evidentiary hearing.

The Justice Department said the preliminary injunction had tied President Trump's hands in enacting reforms at the agency.

"In effect, the district court has indefinitely frozen [the] CFPB as it stood before President Trump's inauguration," the DOJ wrote. "There is no legal basis for that relief, which stymies lawful reforms and imposes restrictions on an Executive Branch agency akin to judicial receivership."

The CFPB's union countered with its own motion asking the appeals court to strike down the Justice Department's request. The National Treasury Employees Union, which sued the CFPB's acting Director Russell Vought in February, argued that the government did not follow proper legal procedure. The union claims the DOJ should have first filed its appeal with the the U.S. District Court for the District of Columbia.

The battle over the CFPB is centered on the 112-page preliminary injunction and three-page order from Judge Berman Jackson. She has prohibited the CFPB from firing employees through a reduction in force, and ordered the agency to bring all employees on administrative leave back to work. She also ordered the CFPB to reinstate fired employees, renew contracts that had been cancelled, and preserve data.

The legal wrangling is the latest skirmish in a much larger fight over the future of the agency. 

President Trump has said his goal is to eliminate the agency, which was created by Sen. Elizabeth Warren, D-Mass., in the aftermath of the 2008 financial crisis.

Some legal experts think the DOJ is trying to take the fight to the Supreme Court as quickly as possible. Already there are six pending emergency applications by the Trump administration before the Supreme Court. Since January, more than 158 lawsuits have been filed against the Trump's executive orders and actions, according to legal tracking site Just Security.

"This is lawless. These commands have no anchor in statute. They do not track any specific CFPB duties Congress made obligatory," the Justice Department wrote in its emergency motion for an administrative stay and stay pending appeal.

The government added: "Nothing in any statute requires President Trump to maintain, organize, or administer the Bureau in the same manner as did President Biden. Nor does anything prohibit the Bureau's leadership from using normal tools — including, as appropriate, reductions-in-force and contract terminations — to administer the Bureau as they think the public interest warrants, within the broad parameters established by statute."

The union claims the DOJ ran afoul of the federal rules of civil procedure. Deepak Gupta, who represents the NTEU, wrote that the Trump administration need to first file its appeal with the district court and that it violated Rule 8, which specifically requires that parties "seeking a stay from an appellate court not only 'move first in the district court' but also 'state any reasons given by the district court,' for denying a stay.' "

Instead, the Trump administration filed an appeal directly to the D.C. Circuit, claiming that it had already asked Judge Berman Jackson for a stay, citing a sentence in a legal brief it filed five weeks ago — before the preliminary injunction was granted.

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While the injunction will not stop the Trump administration from reshaping the direction of the CFPB for the next four years, the chaos has been self-inflicted, some experts said.

"We can't help but think that the initiative of Trump 2.0 to "right-size" the CFPB could have been accomplished if the Administration had used a scalpel rather than a meat cleaver to achieve its objective of changing the direction of the CFPB," wrote Alan Kaplinsky, a former longtime attorney at the law firm Ballard Spahr, and Attorney Joseph Schuster, on the firm's blog.

Berman Jackson wrote in the eight-part injunction that Vought and the bureau's Chief Legal Officer Mark Paoletta had planned to gut the agency and fire 1,175 employees even as the DOJ was claiming in court that the CFPB's staff was performing all legally mandated work. Vought and Paoletta both have top jobs at the Office of Management and Budget, with secondary jobs at the CFPB.

Separately, the CFPB's employees received an email Tuesday telling them to comply with the injunction and to "continue performing tasks required by law." The email, obtained by American Banker, was sent by Adam Martinez, the CFPB's chief operating officer, who Martinez has been used by Vought and Paloetta as a go-between with staff. Several CFPB employees, who requested anonymity for fear of retribution, said they have not heard directly from Vought or Paoletta since Feb. 10. 

Though employees were ordered to return to work or to work remotely, the CFPB's headquarters at 1700 G Street remains closed and all regional office leases were terminated by the General Services Administration on Feb. 21.