posted on 2015-11-04 by Ethan G. Ostroff, Keith J. Barnett and Ashley L. Taylor, Jr
In July 2015, several companies that were the targets of non-public
Consumer Financial Protection Bureau investigations sued the Bureau
after it refused to allow their current counsel to attend the Bureau’s
investigative testimony of one of the companies’ former attorneys. The
companies wanted one of their current attorneys to attend the testimony
and assert the attorney-client privilege when necessary. The companies
sought an injunction to prevent their former counsel’s testimony and
claimed that the Bureau’s refusal to allow their current counsel to
attend violated the Administrative Procedures Act. The plaintiffs and
the Bureau appeared to work out their differences with respect to the
testimony before the Court reached a decision on the
injunction. Notwithstanding the apparent agreement, targets of CFPB
investigations should be cognizant of the possibility that the Bureau
will likely try to prevent counsel for the targets from attending third
party testimony even when there is a serious possibility that the
attorney-client privilege will be compromised.
The plaintiffs, who filed all of their pleadings under seal, asked
the district court to issue an order directing that the filed documents
remain under seal and inaccessible to the public because they did not
want the public to know that they were the targets of the CFPB’s
investigation. The Bureau opposed plaintiffs’ request. The United States District Court for the District of Columbia issued an Order
that required the Clerk of the Court to re-caption the case as a John
Doe lawsuit, and directed the plaintiffs to redact identifying
information from the pleadings that they had previously filed under
seal. The balance of the information in the pleadings would be
available to the public.
In its analysis, the Court considered the following:
(1) the need for public access to the documents;
(2) the extent to which the public had access to the documents prior to the sealing order;
(3) the fact that a party has objected to disclosure and the identity of that party;
(4) the strength of the property and privacy interests involved;
(5) the possibility of prejudice to those opposing disclosure; and
(6) the purpose for which the documents were introduced.
The first and sixth factors weighed in favor of denying the
plaintiffs’ request. With respect to the first factor, the Court stated
that “[t]here is a ‘strong presumption in favor of public access to
judicial proceedings’” especially when the government is a party. The
fact that the Bureau’s investigation was non-public did not change this
analysis because “judicial proceedings are normally open to the public”
and sealing the entire proceeding “would thus deny the public even the
most basic knowledge of its subject matter.” The fifth factor weighed
in favor of denying the request because the plaintiffs did not file
documents containing privileged information and they did not identify “a
risk that attorney-client privileged information would be made public
if this case were unsealed.”
The second and fifth factors weighed in favor of granting the
plaintiffs’ request. With respect to the second factor, the public
never had access to documents publicly identifying the plaintiffs as
targets of the Bureau’s investigation. Although the plaintiffs had
filed petitions to modify or set aside the Bureau’s Civil Investigative
Demand (CID) and the Bureau usually makes the petitions available to the
public through its website, the Bureau had not publicly disclosed
plaintiffs’ petitions as of the date of the district court’s Order. The
fifth factor weighed in favor of sealing the record because “it is not
difficult to see how disclosure of the fact that an entity is subject to
investigation by federal authorities would inflict non-trivial
reputational and, possibly, associated financial, harm on that entity.”
The third factor was not an issue. The fourth factor did not favor
either side because although the Bureau’s investigations are non-public,
there are circumstances under which a CFPB investigation could be
disclosed to the public.
The Doe case epitomizes the paradoxical situation that targets
of CFPB investigations face when they—or their agents and service
providers—are confronted with a CID. Because the Bureau itself decides
whether to grant a petition to quash or modify a CID—and the Bureau has
denied every petition that has been filed—investigatory targets
know that they have a better chance at prevailing in a courtroom.
Although the plaintiffs understandably wanted to make sure that their
former counsel was not left to himself to protect the attorney-client
privilege, their act of filing a public lawsuit against the Bureau,
which presumably facilitated the compromise between plaintiffs and the
Bureau, potentially exposed plaintiffs to the public as targets of the
CFPB’s investigation. Query whether the outcome of this case would have
been different if the Bureau had publicly filed the plaintiffs’
petition to modify or quash the subpoena before the Court rendered its
decision. Going forward, parties must weigh the risks of allowing the
Bureau to obtain potentially privileged information versus the public
knowing that they are the target of a CFPB investigation.
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