Agency Data-Mining Case|Shifts to California

(CN) - A company's claim that the Consumer Financial Protection Bureau unconstitutionally tries to mine protected attorney-client and financial data should be argued in a pending California case, a federal judge in Washington, D.C. ruled.

California-based legal support firm Morgan Drexen and Connecticut bankruptcy attorney Kimberly Pisinksi sued the government agency in July, claiming its structure "insulates it from political accountability and internal checks and balances in violation of the United States Constitution."

It accused the agency of trying to collect protected attorney-client material as well as personal financial information, triggering an investigation by the Government Accountability Office in July.

But U.S. District Judge Colleen Kollar-Kotelly dismissed the lawsuit Thursday, finding that Morgan Drexen can "obtain complete relief on its constitutional claim in the currently pending enforcement action in the Central District of California."

In August -- one month after Morgan Drexen filed suit -- the bureau filed an enforcement action against Morgan Drexen in California. The agency claimed Morgan Drexen violated the Telemarketing Sales Rule and the Consumer Financial Protection Act by requiring consumers to place upfront fee payments in an account despite claiming no upfront fees and failing to hold these payments or allow consumers to exit the debt relief program without penalty.

Kollar-Kotelly rejected Morgan Drexen's claim that dismissal would mean that anyone challenging the bureau's constitutionality "must do so as a defense in a Bureau enforcement action."

"Constitutional challenges can (and likely will) be brought in myriad other situations, such as where the agency does not bring an enforcement action or in a challenge to agency rulemaking," she wrote. (Parentheses in original.)

Kollar-Kotelly further ruled that Pisinski, a Morgan Drexen client, lacks standing to sue.

The agency never sought her privileged legal communications and "could never have compelled Morgan Drexen to provide Pisinski's information without a court proceeding in which a claim of privilege could be asserted," Kollar-Kotelly wrote.

And Pisinski never claimed that the bureau was regulating her practice or that she was harmed by any direct regulation, the judge added, dismissing the complaint without prejudice.

On Friday, Morgan Drexen announced it has established a legal defense fund to collect donations for its "David vs. Goliath battle" against the Consumer Financial Protection Bureau. Its website, StopGovernmentDataMining.org, implores visitors to donate to its "Stop the CFPB Fund."

"Taking on a mammoth federal agency guarded by an army of lawyers is an intense and expensive undertaking," CEO Walter Ledda said in a statement released Friday.

"Our battle against the CFPB has already cost our company millions of dollars -- both in lost revenue and in attorneys fees," he said. "We believe we are fighting the good fight against an unconstitutional agency that has been data mining Morgan Drexen for personal and sensitive financial information on millions of Americans. The CFPB has been acting with impunity and malice. We hope citizens who are outraged at the bully tactics being employed by this bloated, runaway agency will join us in this fight."

Follow @jamierossCNS

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