Mendez v. City of Chicago, 2023 IL App (1st) 211513-U

The City of Chicago’s Ordinance Code regulates the rental of “shared dwellings units” (“Units”) within the City through websites like Airbnb, requiring hosts to register and pay annual fees to the City’s Department of Business Affairs and Consumer Protection. A Unit is any “dwelling unit” with 6 or less “sleeping rooms,” or any portion thereof, rented for “transient occupancy by guests.”

The ordinance regulates a range of issues, from what is required on the advertising website listing, to ensuring guests have clean towels and utensils, in addition to mandating hosts notify police of any criminal activity, egregious condition, or nuisance taking place within the Unit. The ordinance prohibits guests from making “excessive noise” during the evening and early morning hours, and from committing illegal acts, in the Unit. The ordinance subjects Units to inspection every two (2) years; City’s building commissioner (“Commissioner”) has yet to issue any related rules and regulations. The ordinance also generally requires Units consisting of single family homes and duplexes or row houses to be the owner-host’s “primary residence,” or where the owner-host lives most of the calendar year. The ordinance provides the Commissioner with the power to grant adjustments when the “primary residence” requirement is an “extraordinary burden” to the owner, and granting the adjustment does not “adversely impact” surrounding property owners or the public.

Plaintiffs (“Unit Owners”) filed a complaint against City, raising several state constitutional claims, including: (i) the inspection provision violated Unit Owners’ right to be free from “unreasonable searches and seizures” and right to privacy, because City authorized those searches; (ii) the “primary residence” rule violated substantive due process because it was not “reasonably related to a legitimate government interest,” and its exception was “impermissibly vague”; and (iii) the excessive noise prohibition also violated substantive due process insofar as it was vague, and violated Unit Owners’ equal protection rights by arbitrarily discriminating against Units by subjecting them to harsher restrictions than like entities, such as hotels or bed-and-breakfasts. City filed a motion to dismiss, which the trial court granted; after a series of amended complaints and cross-motions for summary judgment, Unit Owners appealed to the First District. One of the amended complaints added a challenge to the ordinance’s general ban on single-night rentals.

The First District noted that the Unit Owners faced a high burden on appeal, as Illinois law required Unit Owner’s facial challenges to the ordinance’s constitutionality to provide evidence that there are “no set of circumstances” where the ordinance would be valid – the “most difficult challenge to mount successfully.”

The Illinois Constitution provides its people with the general right to be from unreasonable searches, seizures, [or] invasions of privacy,” absent a warrant issued pursuant to a finding of “probable cause” supported by an affidavit specifically describing the place to be searched and/or the persons and/or things to be seized. The court found Unit Owners lacked standing to bring this “unreasonable searches” claim for two reasons. First, the ordinance defined those subject to searches as those persons registered more than one (1) Unit; neither Unit Owner owned more than one (1) Unit. Second, Commissioner had yet to promulgate any rules and/or regulations for these searches, so even if Unit Owners did qualify as subject to inspection under any rules/procedures so promulgated, Unit Owners were not currently subject to inspection under the ordinance.

The Illinois Constitution further provides that “[n]o person shall be deprived of life, liberty or property without due process of law nor be denied the equal protection of the laws.”  Unit Owners argued that the ordinance providing the Commissioner with “unconstrained” authority to make exceptions to the “primary residence” rule, thus violating their rights to equal protection, as the ordinance was vague, and failed to provide the Commissioner with any objective criteria on which to base a decision. City responded that Unit Owners lacked standing to challenge this provision, as it was “severable” from the remaining provisions, and Unit Owners failed to specifically challenge the provision, but rather challenged the ordinance, as a whole, based on this provision. Reviewing the language of the ordinance, the facts and circumstances surrounding its passage, and case law speaking to similar ordinances, the court found that the “primary residence” rule was severable from the rest of the ordinance, and because Unit Owners could not meet the procedural requirements to sustaining either a facial or substantive challenge, the court affirmed the trial court’s dismissal.

Unit Owners asserted that the ordinance’s ban on single-night rentals violated the Illinois Constitution because it “improperly delegated” to the Commissioner and City’s police superintendent the decision whether, when and under what conditions, the single-night rental would be unlawful. The ban made it  unlawful to rent any Unit for less than two (2) consecutive nights, until the Commissioner and superintendent of police determined that such rentals could be conducted safely under rules jointly and duly promulgated by the Commissioner and superintendent. City, like above, argued that Unit Owners lacked standing, as this provision was severable. In finding the provision severable, the court noted the specific provision passed in 2020, during the COVID-19 pandemic due to the “proliferation of party houses” within the City, and that even before the pandemic, City found that Units presented problems by attracting parties and disturbances and affirmed the trial court.

An ordinance will survive a due process challenge if it bears a rational relationship to a legitimate governmental interest and conveys a sufficiently definite warning and fair notice as to what conduct is proscribed. The ordinance specifically prohibited “excessive loud noise,” or “any noise, generated from within or having a nexus to the rental of the [Unit] between 8:00 P.M. and 8:00 A.M., that is louder than average conversational level at a distance of 100 feet or more, measured from the property line of the [Unit].”  The current ordinance provides that if the Unit was the site of “excessive noise” violations on two (2) or more occasions, its owner’s registration was subject to suspension or revocation; in 2016 (when Unit Owners filed their complaint), the ordinance required three (3) violations. The court first found that the definition of “louder than average conversational level,” read together with the prescribed time limits and distance measurements was adequate notice to a reasonable person as to what conduct was prohibited. Moreover, the ordinance is “clearly aimed” to proscribe yelling, screaming, and loud laughter often found at parties, disturbing surrounding property owners. Even if taking Unit Owner’s allegations pertaining to unequal protection as to the difference in treatment between Units and other like entities, such as hotels, as true, the court found that City has a rational basis for the different treatment, as those other like entities often feature on-site personnel to address any such issues, whereas Units don’t have these protections. Additionally, other like entities, such as hotels, are generally zoned in business and/or business/residential, whereas Units are generally found in residential zones.

For these reasons, the court affirmed all motions to dismiss Unit Owners constitutional challenges. The court concluded its opinion by dismissing Unit Owners’ argument that their status as City taxpayers gave them standing to challenge the ordinance. Taxpayer standing is a narrow doctrine, providing taxpayers standing to challenge a municipality’s misappropriation of funds. However, as clearly explained here, the key to the doctrine’s application is the theory of liability to replenish public revenues otherwise depleted by an alleged unlawful governmental action. However, Unit Owners argued in error of law that they had sufficient taxpayer standing because they pay sales and property taxes to City; this is a clear misunderstanding and misapplication of the doctrine, as explained by the court.

Lakeview East Cooperative v. Ohiku, 2023 IL App (1st) 220130-U

The Lakeview East Cooperative (“Lakeview East”), a cooperative housing association located in Chicago, sought to evict its board president (“Ohiku”), on grounds that Ohiku violated her occupancy agreement by failing to continuously use her unit within Lakeview East’s building as her “primary residence.”

Lakeview East owns and operates its building through a land-grant agreement with the Federal Government’s Department of Housing and Urban Development (“HUD”). Ohiku had lived in the building since the 1970s, when it was operated by HUD as subsidized housing, and served in several capacities on Lakeview East’s board, including most recently as president. In February 2019, Lakeview East filed an eviction action against Ohiku, her son, and any other unknown occupants of her unit, alleging among other things, that her failure to maintain the unit as her “primary residence” constituted grounds for eviction under Ohiku’s occupancy agreement.

The occupancy agreement provided that as a condition of possession of her unit, Ohiku agreed to occupy the unit “at all times as a primary residence” until expiration of her membership to Lakeview East, and that Ohiku would sign a certified statement attesting that the unit would be “used and occupied” by Ohiku as her “principal residence.” To support its allegation that Ohiku failed to maintain the unit as her “primary residence,” Lakeview East attached as evidence to its Complaint a report prepared by HUD Office of Inspector General, including an audit to determine whether Lakeview East operated the building in accordance with its land-grant agreement, which stated that Ohiku confirmed that she failed to maintain the unit as a “primary residence” since purchase of a separate property in 2006, and that her son no longer lived at the unit. Lakeview East also included mortgage documents as evidence of the 2006 real property transaction.

Ohiku did not contest that her son no longer resided at the residence, or the fact that she executed a mortgage relating to another property in 2006. However, Ohiku did contest that she no longer continued to use her Lakeview East unit as her “primary residence.” Ohiku included relevant tax documents and voter registration documents from 1994-2010, listing the Lakeview East unit as her primary residence; several affidavits from Lakeview unit owners confirming Ohiku’s regular and continued use of her unit, during relevant periods; an affidavit from a unit owner at the other property attesting that Ohiku never lived at the other property; and publicly available information from the Cook County Assessor and Treasurer’s offices confirming that no homeowner’s exception had ever been taken for the other property. The parties filed cross-motions for summary judgment.

The trial court granted summary judgment for Ohiku, finding no genuine issue of material fact that Ohiku’s continued to use her unit at Lakeview East as her “primary residence.” Lakeview East submitted no evidence authenticating the HUD OIG report or the mortgage documents, and even if authenticated, the report contained contradictory information and that within those mortgage documents, Ohiku had only promised to make the other property her permanent residence and that Lakeview failed to provide any evidence that Ohiku actually did make such use of the other. Further, the trial court rejected Lakeview East’s argument that by simply executing the mortgage documents for the other property, Ohiku held that property out as her legal primary residence, thus violating the occupancy agreement. The court construed the occupancy agreement to only require physical occupancy, noting that it was silent to any reference to mortgages on other properties. After being denied a motion for reconsideration based on procedural and evidentiary issues, Lakeview East appealed.

The First District began by reviewing the language of the parties’ occupancy agreement. In Illinois, the principal objective of courts in interpreting a contract, is to determine and give effect to the parties’ intentions at the time they entered the agreement. In doing so, an Illinois court looks specifically to the contract, its purpose, and the surrounding circumstances of its execution and performance. Terms not specifically defined are given their ordinary meaning, considering the context of the contract, as a whole.

The First District rejected Lakeview East’s argument that the occupancy agreement required physical occupancy. First, the paragraph speaking to occupancy requirements provided that Lakeview East members were required to “occupy the [a]partment at all times as a primary residence.”  Second, Lakeview’s bylaws only restricted membership to persons having “occup[ied] their units in accordance with the occupancy agreement, and that the surrounding sentences made “clear” to the court that physical occupancy and use is what the document referred to.

Moreover, Ohiku provided the court with unrebutted affidavits, as well as the voting and tax records, all establishing that she continuously lived in the Lakeview East unit during relevant times and has never lived at the other property, notwithstanding the proffered mortgage documents. Specifically, the court found that “at best” those documents indicated that Ohiku made a promise to a third party conflicting with the promise made to Lakeview East. After disposing of a secondary appellate issue pertaining to evidence in favor of Ohiku, the First District affirmed.

Young v. ERA Advantage Realty, 513 P.3d 505 (Mont. 2022)

In the summer of 2018, Jodie Young (“Young”), looking for a new home, hired an ERA Advantage Realty (“Advantage”) agent (“Dea”). Young told Dea that she wanted to enclose any future yard with a “tall” fence for her service dog. When hiring Dea, Young executed a buyer broker agreement (“Buyer-Broker Agreement”). The Buyer-Broker Agreement provided, “[Young] understand[s] and acknowledge[s] that [Dea] does not and cannot assure that any house and/or buildings will be satisfactory to [Young] in all respects…or that any property and/or improvements thereon that [Young is] considering purchasing or leasing compl[ies] with the current building and zoning codes.” Dea provided Young with a buyer due diligence checklist, advising her, in part, to consult applicable local building and zoning codes for considering any future intended improvements.

Young made an offer on a home in Great Falls, Montana (the “Property”), which was accepted. The Property’s former occupant owned the Property until his death in 2016; thereafter, the Property was owned by the former occupant’s estate (“Estate”). The former occupant’s daughter/estate representative listed the Property for sale, with daughter’s husband (“Wutzke”) acting as the Property’s real estate agent; Wutzke was a licensed real estate broker, and listed the Property with Advantage. When accepting Young’s offer, the Estate delivered a buy-sell agreement (“Buy-Sell Agreement”) to Young that included an owner’s property disclosure and a mold disclosure (“Property Disclosure” and “Mold Disclosure”). The Property Disclosure informed Young that the Property had been vacant since 2016; no references were made of any prior water damage to the Property. The Mold Disclosure provided, “The undersigned are not representing that a significant mold problem exists or does not exist on the [P]roperty, as such a determination may only be made by a qualified inspector.”  Young executed both Disclosure forms, later alleging that Dea “rushed her through the information.”

Young hired a property inspector (“Inspector”), who advised Young that the Property’s north and west sides had negative drainage and needed backfill, and that the Property’s foundation featured moisture stains – a common sign of water intrusion. The next day, Young offered an amendment to the Buy-Sell Agreement providing for a remedy to the newly discovered drainage issue; the Estate accepted the amendment. Young chose not to otherwise test the Property for mold.

Young’s lender arranged for the Property’s appraisal, which indicated negative drainage along the Property’s west side, and that Wutzke’s representation that no water had ever entered the Property’s basement from the exterior in the last 38 years; Wutkze later denied ever making such a representation or having any personal knowledge of fact to make the same. Young later testified that she was unaware of Wutzke’s alleged representation until after the Property’s Closing in September 2018, and that Wutzke never made any such direct representation to her.

Young later learned she would be unable to erect an enclosed fence due to applicable municipal zoning setback requirements and height limitations. The governing zoning department informed Young that only ten feet (10’) of the Property’s perimeter could be enclosed by a fence, and that any fence would have to be at least twenty-two feet (22’) back from the curb, and no more than four feet (4’) high on the Property’s front side. Adding to Young’s frustration, she removed wood paneling in the Property’s basement, several months after taking possession, to discover mold. Young had the mold inspected by a local contractor, who later testified that he believed the Property’s basement had been flooding for “quite some time,” and that any flooding would have been known to any occupant or other person familiar with the Property’s history of flooding.

Young sued Advantage in a Montana state trial court, alleging: (i) one count of negligence for Dea’s failure to disclose the Property’s water damage and applicable zoning limitations for fences; (ii) one violation of the State of Montana’s Consumer Protection Act (“MCPA”); and (iii) one count of constructive fraud for Dea’s failure to disclose the Property’s water damage. The trial court granted Advantage’s summary judgment motion, holding that Young could not sustain her negligence and constructive fraud claims, as a matter of Montana law, because she failed to submit notice of any real estate expert who could establish the applicable standard of care to real estate agents. The court also held that Advantage did not owe Young a duty to disclose information regarding the fence, thus did not breach any duty or cause Young to suffer any damages. Young appealed the trial court’s decision to the Montana State Supreme Court (“Court”).

The Court first reviewed Young’s negligence and constructive fraud claims by looking to Montana state law (“MCA”), which governs the duty of care owed by “real estate professionals” operating in Montana. Specifically, the MCA provides that a “buyer agent” is a “broker or salesperson,” pursuant to a Buyer-Seller Agreement, “acting as the agent of the buyer in a real estate transaction,” who must act “solely in the best interests of the buyer…disclose all relevant and material information that concerns the real estate transaction…known to the buyer agent and not known or discoverable by the buyer.” Additionally, the MCA requires a “buyer agent” to “exercise reasonable care, skill, and diligence in pursuing the buyer’s objectives and in complying with the terms established in the [Buyer-Broker Agreement.]” There was no dispute that Dea acted as Young’s “buyer agent,” however, the trial court granted Advantage’s summary judgment motion because Young failed to establish that Dea owed any duty to disclose material information related to applicable zoning codes and water intrusion, “not known or discoverable by [Young.]”

Because Dea had prior knowledge that Young wished to erect an enclosure fence for her service dog, Young argued to the Court that the zoning ordinance was “material information” Dea was obligation to disclose. However, the Court found that the applicable zoning ordinance was “clearly” discoverable by Young, as a matter of public record, as the parties’ Buyer-Broker Agreement specifically advised Young to consult applicable zoning codes prior to purchasing the Property, therefore, Dea had no other duty to disclose the zoning ordinances.

The Court in reviewing Young’s argument that Dea affirmatively misrepresented that Young could erect an enclosure fence, was unable to determine what “duty” Young claiming Dea breached; Young’s court filings failed to link Dea’s conduct in this context to any statute or judicially-recognized elements of negligence. The Court assumed Young was making a “causation” argument, or that there existed a question of material fact whether her damages were caused by Dea’s misrepresentation or Young’s failure to consult applicable zoning codes. Young offered no evidence to dispute this, except the mere assertion that Dea told her she could build a fence.

Young’s claims related to water intrusion involved Wutzke’s conduct, which is governed by the MCA’s statutes regulating “seller agents,” or “a broker or sales person who, pursuant to a written listing agreement, acts as the agent of the seller. A “seller agent” must disclose to the buyer “any adverse material facts that concern the property…known to the seller agent, except that the seller agent is not required to inspect the property or verify any statements made by the seller.” The MCA defines an “adverse material fact” as facts “that should be recognized by a broker or salesperson as being of enough significance as to affect [the buyer’s] decision to enter into a contract to buy or sell real property…materially affecting the value, affect[ing] the structural integrity, or present[ing] a documented health risk to occupants.” There was no dispute that Wutzke acted as Young’s “seller agent,” however the trial court found that Young could not establish several elements of her negligence and constructive fraud claims related to Wutzke, as a matter of law, because there was no genuine issue of fact regarding Wutzke’s personal knowledge, if any, of the Property’s prior water damage. Even if Wutzke did have prior personal knowledge, the trial court further added that Wutzke was not obligated to inspect the property to verify any statements made, and that Young failed to show that Wutzke’s conduct caused any damages, because the inspection prior to purchasing the home should have placed Young on notice of potential water damage.

The Court next looked to Young’s Consumer Protection Act claims. The MCPA prohibits “unfair trade practices,” or those contrary to established state public policy and either immoral, unethical, oppressive, or substantially injurious to consumers. “Deceptive acts” are generally considered those likely to mislead consumers, and false representations relating to the characteristics, use, or benefits of what is being sold may constitute such. Neither the defendant’s intent to deceive nor prior knowledge of a statement’s falsity is required to establish a deceptive act or practice under the MCPA. However, MCPA does require proof that the unfair or deceptive practice caused the plaintiff to suffer an “ascertainable financial or property loss.”

Young’s MCPA claim only related to Wutzke’s failure to disclose the property’s history of water intrusion, and that Wutzke “deceived her” by making representations to the appraiser that the property had no history of water intrusion. However, Young did not read this appraisal report until after filing the lawsuit, and Wutzke never made any such or like representation to her, personally or otherwise in her presence, thus any statement had no effect on Young’s decision whether to purchase the property and could not have resulted in her damages.

The court concluded its opinion by finding it unnecessary to examine Young’s issue with the trial court’s decision that her claims failed because she failed to disclose a real estate expert, specifically, that the exercise of reasonable care, skill, and diligence by a realtor on behalf of a client requires expert testimony. By applying the MCPA’s “clear articulation” of the duties owed by buyer and seller agents, Young was unable – with or without expert testimony – to establish either Dea or Wutzke owed any duties arising under the claims alleged.

Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., (2d Cir. 2023) 

In response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which included the Consumer Financial Protection Act (“CFPA”) which created the Consumer Financial Protection Bureau (“CFPB”) to consolidate federal regulation of consumer financial products and services. Among its responsibilities, CFPB is charged with enforcement of federal laws involving debt-collection practices. CFPB is an Executive agency funded through its enabling statute rather than annual appropriations legislation. Congress has authorized CFPB to draw funds from the combined earnings of the Federal Reserve System up to a specific cap – since 2013, CFPB has been authorized to draw up to no more than twelve percent (12%) of the Federal Reserve System’s 2009 operating expenses, adjusted annually for labor. CFPB may otherwise seek additional funding through traditional Congressional appropriations. 

CFPB is head by a single (1) director, appointed for a five-year term by the President of the United States with the advice and consent of the U.S. Senate. Originally, the President could only remove CFPB’s Director for “inefficiency, neglect of duty, or malfeasance in office.”  However, in 2020 the United States Supreme Court (“Supreme Court”) held in Seila Law LLC v. CFPB, that the President’s removal power was a constitutional violation, violating the separation of powers between the Legislative and Executive branches by Congress limiting the President’s authority to remove an Executive officer. However, the Court found the removal provision severable from the remainder of the CFPA and permitted CFPB to continue to operate so long as the Director is removable by the President, at will. 

Like many law enforcement agencies across the country, CFPB is authorized to issue administrative subpoenas, called civil investigative demands (“CIDs”). CFPB rules and regulations relating to CIDs permit individuals and entities receiving CIDs to negotiate appropriate modifications to CIDs through a meet-and-confer process with CFPB staff, and provide for a procedure similar to discovery found in traditional civil litigation where CID recipients may assert claims of attorney-client privilege. If CFPB and recipients are unable to agree as to terms of a CID, CFPB may petition a federal district court to enforce the recipient’s compliance, as written. 

In 2017, CFPB issued a CID (“2017 CID”) to the Law Offices of Crystal Moroney, P.C. (“Moroney”), which Moroney complied with by producing thousands of pages of documents and other data; Moroney withheld a subset of documents, claiming that production thereof would compromise the firm’s ethical obligations to its clients under an attorney-client privilege theory. CFPB and Moroney attempted to resolve the production dispute through the CFPB’s meet-and-confer process, which ultimately proved futile. In November 2019, CFPB petitioned the Southern District Court of New York (“District Court”) to enforce the 2017 CID, but withdrew its petition just four (4) days prior to the parties’ scheduled hearing and issued a second CID (“2019 CID”) demanding substantially similar documents and information as the 2017 CID. 

When CFPB petitioned the District Court to enforce the 2019 CID in April 2020, the Supreme Court issued its Seila Law opinion. Shortly thereafter, CFPB filed a Notice of Ratification to ratify the enforcement authority of the 2019 CID, which the District Court granted; Moroney appealed to the United States Second Circuit Court of Appeals (“2d Circuit”). Moroney had four (4) appellate arguments against the 2019 CID’s enforceability: (i) the 2019 CID was void ab initio, or “from its beginning,” under  Seila Law; (ii) CFPB’s funding structure was an unconstitutional violation of Article I’s Appropriations Clause; (iii) Congress violated the “nondelegation doctrine” by creating CFPB; and (iv) a CID is an “unduly burdensome” administrative subpoena. 

Moroney argued that the 2019 CID was void ab initio, or when it was issued, because the then-acting CFPB Director was shielded by the removal provision held unconstitutional in Seila Law. The 2d Circuit rejected this argument because the CFPB Director was properly appointed when the 2019 CID was issued. The 2d Circuit did so by looking to the Supreme Court’s decision in Collins v. Yellen, which provides that the relevant question in whether an executive officer lacks constitutional authority and thus any actions are void are whether the officer was properly appointed at the time of acting, not whether the officer was properly removable at the time of the action. However, a party may be entitled to invalidate an officer’s action ab initio where the challenged provision inflicts “compensable harm.”  There was no dispute whether CFPB’s Director had been properly appointed, and the 2d Circuit found nothing in the record to indicate that the Director’s unconstitutional removal protection affected the 2019 CID’s issuance. 

Article I of the U.S. Constitution’s Appropriations Clause (“Clause”) has been interpreted by the Supreme Court to mean that any money paid by the federal government must have prior Congressional authorization via statute, signed into law by the President. Moroney argued that CFPB’s funding structure violated the Clause because the CFPA enables the Executive Branch to decide how much funding is “reasonably necessary” to carry out CFPB’s mission absent “any meaningful guidance, limitation or control” by Congress. The 2d Circuit rejected Moroney’s argument, finding Moroney’s description of CFPB’s funding structure “inaccurate” because: a) CFPA is the legislative product of Congress (Congressional approval); and b) CFPA limits the amount which CFPB may draw upon to a specific amount – 12% of the Federal Reserve System’s 2009 operating expenses, subject to adjustments. 

In doing so, the 2d Circuit specifically rejected the Fifth Circuit’s  2022 decision in Community Financial Services Association of America, Ltd. v. CFPB, which held that CFPB’s funding structure was a “ceding” of “direct control” of CFPB’s budget by Congress, by “insulating [CFPB] from annual or other time limited appropriations” and created a “double insulation from Congress’s purse strings,” running “afoul of the separation of powers.”  In its review of Supreme Court decisions interpreting the Clause, the 2d Circuit found that the Supreme Court has consistently interpreted the Clause to simply mean that the federal government must have prior statutory authority to spend money before doing so; merely a “straightforward and explicit command.”  In all prior Supreme Court cases involving the Clause and CFPA, the Court has found that Congress expressly authorized CFPB’s funding structure by enacting CFPA. Moreover, the Clause’s history supported a finding of constitutionality, as Congress specified five (5) CFPB objectives identifying CFPB’s purpose, and Congress specifically limited the fund and amount of appropriation as to 12% of the Federal Reserve System, subject to additional funding requests authorized by Congress. 

Article I of the U.S Constitution, in part, provides that “all legislative [p]owers herein granted shall be vested in a Congress of the United States,” which has been interpreted by the Supreme Court to prohibit Congress from transferring its Constitutional powers that are “strictly and exclusively legislative” to another Branch. However, Congress may still “obtain the assistance” of other Branches, including their agencies, so long as Congress provides an “intelligible principle” which the individual or entity authorized to exercise the delegated authority is directed to conform. The Supreme Court has only found that Congress has improperly delegated its Constitutional powers twice, with both cases decided in 1935. For nearly eighty (80) years, the Supreme Court has uniformly rejected nondelegation arguments, upholding those challenged provisions pursuant to even “extraordinarily capacious standards.”  Because CFPA expressly provides how CFPB’s budget is to be used, and further explains CFPB’s purpose, five (5) objectives and six (6) “primary functions,” the 2d Circuit found CFPB’s funding structure did not violate the nondelegation doctrine. 

Generally, the federal district courts’ role in enforcing CIDs are “extremely limited,” and to seek judicial enforcement of a CID, CFPB must show: (i) its investigation will be conducted pursuant to a “legitimate purpose”; (ii) its inquiry is relevant to the “legitimate purpose”; (iii) the information sought is not already within CFPB’s possession; and (iv) CFPB followed its required administrative steps. A party seeking to avoid compliance with a CID otherwise meeting these four (4) elements must show that the CID is “unreasonable” – a high burden to meet. 

Moroney first argued that the 2019 CID was not issued for a “legitimate purpose” because it sought information within the scope of the attorney-client privilege. The 2d Circuit rejected this argument, finding that while Moroney was engaged in both debt collection services and the practice of law, the 2019 CID addressed only Moroney’s debt collection practices and potential violations of the federal Fair Debt Collections Practices Act and federal Fair Credit Reporting Act. Additionally, Moroney failed to identify any specific documents claiming subject to the attorney-client privilege, instead, making “broad declarations” of the privilege’s application. The 2d Circuit requires CID recipients to address privilege claims by submitting a privilege log and provide “sufficient detail” demonstrating fulfillment of all legal requirements for the privilege to apply; otherwise, any privilege claim is rejected. 

The 2d Circuit concluded by rejecting Moroney’s argument that it already responded to the 2019 CID when responding to the 2017 CID, claiming that a majority of information requested pursuant to the 2019 CID was duplicative of the 2017 CID. Again, where Moroney made these broad declarations, it failed to demonstrate or explain how the 2019 CID was in fact duplicated, or which “duplicative” documents subject it already produced.