Victim Services, Inc. v. Consumer Financial Protection Bureau

• Court: District Court, District of Columbia
• Decided: February 7, 2018
• Docket: Misc. No. 2017-3002
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

VICTIM SERVICES, INC., et al.,

Movants,

v. Case No. 1:17-mc-03002 (CRC)

CONSUMER FINANCIAL PROTECTION BUREAU,

Respondent.

OPINION AND ORDER

Before this Court is a motion to compel the Consumer Financial Protection Bureau to

comply with a subpoena to produce documents. For the reasons that follow, the Court will transfer

the motion to the court that issued the subpoena—the U.S. District Court for the Northern District

of California—pursuant to Federal Rule of Civil Procedure 45(f).

The movants (collectively, “Victim Services”) previously contracted with state prosecutors

in California to manage a diversion program for people accused of writing bad checks. In a

putative class action pending in the Northern District of California, several California residents

allege that Victim Services unlawfully collected fees related to that diversion program. See

Breazeale v. Victim Servs., Inc., No. 3:14-cv-5266 (N.D. Cal.); Decl. of Sean M. Hardy Supp. Mot.

Compel (“Hardy Decl.”) Ex. 1, at 1. Specifically, those plaintiffs claim that notices sent to

individuals eligible for the program created a false impression that Victim Services was a law

enforcement entity (as opposed to a mere debt collector) and that the notices falsely suggested that,

without enrollment in the diversion program, criminal charges would be imminent (even if the

chances of prosecution were slim to none). Hardy Decl. Ex. 1 ¶¶ 2–3. The year that class action was filed, the Consumer Financial Protection Bureau brought an

enforcement action against Victim Services based on the same alleged conduct. Hardy Decl. Ex. 2,

at 1. The parties settled that action through a stipulated final judgment and consent order approved

by the District of Maryland in March 2015. Id. Ex. 3. The consent order enjoined Victim Services

from continuing its diversion program and imposed a $50,000 civil penalty. Id. at 4–9. It did not

require Victim Services to pay restitution to individuals who had paid them diversion-program fees.

Several months after entry of the consent decree, however, the Bureau allocated $23.26

million from its Civil Penalty Fund to reimburse people who paid diversion fees to Victim Services.

Decl. Rumana Ahmad Supp. Opp’n Mot. Compel ¶ 3. The Civil Penalty Fund stores fines that the

Bureau has collected in its enforcement actions. 12 U.S.C. § 5497(d)(1). The Bureau may use that

money to pay “the victims of activities for which civil penalties have been imposed under the

Federal consumer financial laws.” Id. § 5497(d)(2).

With the class action still pending in California, Victim Services in October 2016 served a

subpoena on the Bureau that had been issued by the California court. The subpoena requested all

documents and communications related to the Bureau’s payment of individuals after the

enforcement action. Hardy Decl. Ex. 6. The Bureau responded with a letter asserting several

objections to the subpoena. Id. Ex. 7. The parties conferred by telephone but were unable to

resolve their disagreement. See id. Ex. 9.

Victim Services then filed this motion to compel the Bureau’s compliance with the

subpoena. As required by Federal Rule of Civil Procedure 45(c), the motion was filed in this Court,

as the federal district court where compliance with the subpoena is required. In opposing the

motion, the Bureau contends that complying with the subpoena would impose a significant burden

on the Bureau because, under the Privacy Act, 5 U.S.C. § 552a, it would have to issue notices to the

nearly 40,000 individuals whose information would be disclosed. And the Bureau claims that the

2 cost of such notification—somewhere between $40,000 and $82,000, plus staff resources—far

outweighs the minimal relevance of any disclosed information to the California litigation.

After reviewing the parties’ briefs, this Court has determined that this motion should be

transferred to the U.S. District Court for the Northern District of California—the court in which the

putative class action against Victim Services is pending. In subpoena-related disputes, the federal

district court where compliance is required “may transfer a motion . . . to the issuing court . . . if the

court finds exceptional circumstances.” Fed. R. Civ. P. 45(f). Where exceptional circumstances

exist, a court may transfer such a subpoena-related motion sua sponte. See, e.g., Orix USA Corp. v.

Armentrout, 2016 WL 3926507, at *2 (N.D. Tex. July 21, 2016) (“Rule 45(f) does not require that a

motion to transfer be filed . . . .”). The advisory committee note accompanying Rule 45(f) provides

further guidance on what constitutes exceptional circumstances: “transfer may be warranted in

order to avoid disrupting the issuing court's management of the underlying litigation, as when that

court has already ruled on issues presented by the motion or the same issues are likely to arise in

discovery in many districts.” Fed. R. Civ. P. advisory committee’s note to 2013 amendments.

Those interests must, however, be weighed against “burdens on local nonparties subject to

subpoenas” that could result from transfer. Id.

The Court finds that exceptional circumstances warrant transfer of this motion, as this

Court’s resolution of the motion could substantially interfere with the California court’s

management of the underlying class action and that potential interference outweighs any potential

burden on the Bureau.

The decision of whether to order the Bureau’s compliance with the subpoena depends, first

and foremost, on whether the information regarding payment from the Civil Penalty Fund “is

relevant to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1). If the material were irrelevant

as a matter of law—which the Bureau argues is the case—then Victim Services would not be

3 entitled to its production no matter how insignificant the burden on the Bureau. If a court were to

find the material relevant, it would then weigh that relevance against the Bureau’s costs of

compliance (which in turn would require resolving the parties’ dispute over whether the Privacy

Act demands individualized notice to people whose information is shared).

The problem here is that resolving the parties’ dispute over relevance would require the

court to resolve a difficult and contested legal question that may prove central to the underlying

class action. Specifically, Victim Services makes a colorable argument that individuals who

obtained payments from the Bureau’s Civil Penalty Fund are ineligible to obtain full restitution in

the pending class action under the so-called “double recovery rule.” See EEOC v. Waffle House,

Inc., 534 U.S. 279, 297 (2002) (“[I]t goes without saying that the courts can and should preclude

double recovery by an individual.”). If that were true, information about the Bureau’s payment to

individuals—including the identity of payees and the amounts paid—would be highly relevant to

Victim Services’s defense, and perhaps to the certification and composition of the putative class as

well.

Thus, the relevance of the information turns squarely on whether the Bureau’s payments

from the Civil Penalty Fund could implicate the double recovery rule. To support its side of that

debate, Victim Services relies on the Ninth Circuit’s decision in California v. IntelliGender, LLC,

771 F.3d 1169 (9th Cir. 2014), which held that the double recovery rule barred the State of

California from seeking restitution on behalf of its citizens against a private defendant who had

already paid those same individuals restitution through a class-action settlement, id. at 1179–80.

The Bureau responds that IntelliGender is inapposite and that the double recovery rule has no

operation where the government, as opposed to the class-action defendant itself, paid the victims

their initial compensation.

4 Without wading too much into their merits, these arguments show that the question of

whether the double recovery rule forecloses restitution in Victim Services’s case is an open and

debatable question. And, importantly, it is a question that will almost certainly need to be answered

at some point in the pending class action against Victim Services—whether at the class certification

stage, in resolving the case’s merits, or in calculating damages. Thus, beyond resulting in a

redundant resolution of the issue, this Court’s decision on the relevance of the information Victim

Services seeks—particularly if inconsistent with the California court’s own view—could disrupt

that court’s management of the underlying class action.

Moreover, the Court does not find that transferring this motion will significantly burden the

Bureau. The Bureau is a large federal government agency with substantial resources. It regularly

litigates in courts outside the District of Columbia, including those in California. See, e.g., CFPB v.

Morgan Drexen, Inc., 60 F. Supp. 3d 1082 (C.D. Cal. 2014) (Bureau enforcement action). The

parties have formulated their positions in briefs but have not appeared before this Court for a

hearing. And to the extent that the Bureau might be burdened by the distance between the Northern

District of California and its Washington offices, the committee when adopting Rule 45(f)

encouraged judges “to permit telecommunications methods to minimize the burden a transfer

imposes on nonparties.” In any event, the slight burden imposed by transferring this motion is

outweighed by the interest in obtaining an efficient and uniform resolution of a threshold legal

question—one that not only underlies this discovery dispute but also could significantly affect the

merits of the California class action.

Finally, as suggested in the Advisory Committee Note to the 2013 amendments to Rule

45(f), the Court in reaching its decision has consulted with the district judge handling the California

litigation, who agrees that transfer is appropriate. Fed. R. Civ. P. 45(f) advisory committee’s note

5 (“Judges in compliance districts may find it helpful to consult with the judge in the issuing court

presiding over the underlying case while addressing subpoena-related motions.”).

At bottom, the California court is “in a better position to rule on the . . . motion . . . due to

[its] familiarity with the full scope of the issues involved as well as any implications the resolution

of the motion will have on the underlying litigation.” Wultz v. Bank of China, Ltd., 304 F.R.D. 38,

47 (D.D.C. 2014). Under like circumstances, this Court has transferred subpoena-related motions.

See XY, LLC v. Trans Ova Genetics, L.C., 307 F.R.D. 10, 12–13 (D.D.C. 2014) (citing transferee

court’s interest “in maintaining oversight of all aspects of this complex litigation, especially since

the court has already supervised substantial discovery and begun preparations for trial”). It will do

the same here. It is therefore:

ORDERED that the Motion to Compel Consumer Financial Protection Bureau to Comply

with Properly-Served Subpoena (ECF No. 1) shall be transferred to the U.S. District Court for the

Northern District of California.

SO ORDERED.

CHRISTOPHER R. COOPER United States District Judge

Date: February 7, 2018