In a follow-up to the RESPA News’ coverage on the motions filed in Consumer Financial Protection Bureau v. Townstone Financial, Inc., et al., the two parties provided further arguments for their motions to compel.
The present briefs follow the previous filings where each party argued as to why the opposition’s motions should not be granted. Among other documentation, the Consumer Financial Protection Bureau (CFPB) is seeking access to some of Townstone owner Barry Sturner’s personal communications, and Townstone is seeking documentation of bureau employees’ interpretations of the company’s alleged discouraging statements that violated the Equal Credit Opportunity Act (ECOA) and Regulation B.
In its previous opposition to the bureau’s motion, Townstone stated the regulations the CFPB is citing only apply to statements and not other acts and practices. In its responding brief, the CFPB asserted the mortgage broker misinterpreted the law with this construction, because the interpretation of Regulation B does prohibit acts or practices directed at prospective applicants. This includes not only statements, but also general business practices. The list of exemplary conduct in the official interpretation also is not exhaustive, and therefore Regulation B can apply to other acts not included on the list.
The CFPB further argued against Townstone’s assertion that intent is irrelevant in the present case. The bureau referred to Townstone’s citation to Regulation B’s prohibition of discrimination against applicants under 12 CFR §1002.4(a), which states “[d]isparate treatment on a prohibited basis is illegal whether or not it results from a conscious intent to discriminate.”
“This provision makes clear that discriminatory intent is not necessary for the disparate treatment to be illegal,” the bureau stated. “However, such evidence can still be relevant, and the interpretations do not state otherwise….
“Defendants also ignore that, consistent with case law from this circuit, all evidence – whether direct, indirect, or otherwise – can be relevant when judging intent or motive in discrimination cases.”
The bureau went on to state evidence showing Sturner intended his statements or other business practices to have an effect would make it more likely that those practices would be perceived by others to do so. His personal text messages or other communications, the CFPB argued, could provide that evidence.
The CFPB also pointed to Sturner’s statement that his communications with family and friends informed and influenced the radio show where the allegedly discouraging statements were aired, informed said specific, discouraging statements, and formed a source of referral of prospective applicants and employees.
“Claiming that the requested communications are not ‘transformed’ into business communications simply because Sturner does business with personal acquaintances and family members misses the point: these communications are relevant because, according to Sturner’s own testimony, these very communications were the basis for his public comments on The Townstone Financial Show and contributed to the unlawful practices alleged in the amended complaint.”
The bureau also disagreed with Townstone’s and Sturner’s argument that its request for these communications was overbroad and unduly burdensome. The CFPB stated is it seeking a limited search of Sturner’s communications generalizing neighborhoods and particular groups of people, and because this request is specific, its intrusion into Sturner’s personal life is “minimal and tailored to the needs of the case.”
Townstone’s First Amendment argument that the bureau’s request has an unconstitutional chilling effect on his speech is inapplicable, the brief further stated. The privilege Townstone seeks, according to the CFPB, is a narrow one tailored to associational rights. In the present case, no association is affected, and no documents are sought that might induce members to withdraw from an organization.
Townstone’s and Sturner’s argument should also fail because it did not provide prima facie proof of a chilling effect on Sturner’s associational rights, the bureau wrote.
“Defendants conflate the supposed impact of the bureau’s investigation, this litigation, and the requests on Sturner’s speech,” the bureau stated. “In his declaration, Sturner also asserts that his speech has been chilled as a result of the bureau’s pre-litigation investigation of Townstone and the threat of having to produce personal text messages. More specifically, Sturner appears to have self-censored out of fear that the bureau would ‘misconstrue’ his texts and may interpret his statements to be an ECOA violation.
“Putting aside fears of whether the specific communications would be used as evidence, Sturner does not provide proof in his declaration of concerns about an effect on his business, social ostracism, an impact on the development of an association’s political strategy, etc.,” the CFPB added. “As such, defendants’ associational rights have not been implicated, much less proven to have been chilled, in this single, self-serving declaration.”
Even if the court would find Townstone and Sturner to have made a sufficient prima facie showing, the bureau asserted the relevance and necessity of these communications outweighs the potential chilling effect.
Lastly, the CFPB also reminded the court it could allay any concerns with the information request by issuing tailored orders rather than denying the request in its entirety.
Townstone’s and Sturner’s brief supporting its motion to compel bureau employees’ interpretations of the allegedly discouraging statements and the defendants’ political viewpoints is relevant to the proceedings because understanding how the CFPB interpreted the relevant statements is necessary in light of the offered First Amendment defense, the defendants asserted.
“As the sole plaintiff in this case, CFPB relies entirely on its own assumptions, evaluations, and interpretations of Townstone’s statements to allege that those statements violate Regulation B,” Townstone and Sturner stated. “These interpretations are therefore plainly relevant to the most critical allegations in this case.”
The statements with which the bureau has taken issue are not similar to those offered in the bureau’s official interpretation of Regulation B, they argued. The statements at issue instead are about crime and homebuying – it is the CFPB claiming they are disparaging to African Americans and would discourage African Americans from applying.
“To reach those conclusions, the CFPB had to interpret the statements against the backdrop of its own views and assumptions about crime, race, and what a ‘reasonable person’ would find ‘discouraging,’” Townstone and Sturner wrote. “Townstone is entitled to understand what those views and assumptions were. Put simply, anything that CFPB thought relevant in deciding the statements violated Regulation B must necessarily be relevant in assessing whether the statements violated Regulation B.”
Townstone and Sturner further stated it was crucial they understand the entire context in which the bureau believes the statements are discouraging to prospective applicants to appropriately defend themselves against the CFPB’s allegations.
“If the agency with authority to interpret and enforce Regulation B believes its own interpretation is relevant to regulated parties’ assessing their own actions and statements under the law, it is scarcely understandable how those interpretations would not be relevant to someone whom the CFPB has sued alleging a violation of the law,” the defendants stated.
Under the First Amendment, it is a violation for the government to discriminate against speech based on its content or viewpoint. Townstone’s and Sturner’s defense alleges Regulation B, both on its face and in the current action, is this type of discrimination. Whether the enforcement action is because of Townstone’s or Sturner’s alleged specific motivating ideology, opinions or perspectives is relevant for the defense.
“Consider again Regulation B’s standard: ‘statements’ ‘to prospective applicants’ that ‘would discourage’ a ‘reasonable’ person,” Townstone and Sturner wrote. “To bring a claim based on that standard, CFPB necessarily must first determine the meaning of the words and their effect on a listener. And where, as here, there is ample room to interpret both the statements and the relevant standard, there is every reason to think CFPB would consider things like the views of the speakers in interpreting whether the statements ‘would discourage’ a ‘reasonable person.’”
To determine whether the Regulation B and/or the CFPB’s application of Regulation B in this specific instance is content- or view-based, and therefore in violation of the First Amendment, Townstone and Sturner argued, they must know specifically how the bureau came to its conclusions.
Townstone and Sturner also disagreed with the bureau’s argument the request for documents were not proportional to the needs of the case, or it is privileged information. It is difficult to accept the CFPB’s claims of burden and proportionality because it failed to previously assert these objections, or even try to determine how burdensome the production would be. This was in reference to the bureau’s statement in the previous brief that it had considered these documents to be irrelevant in the initial request and as a result did not attempt to search for them.
Finally, the CFPB’s attempted assertion all the relevant documents would be protected by different privileges (attorney-client privilege, work product doctrine, etc.) was likewise “unavailing.” Because the bureau did not attempt to search for the documents, it is impossible to say whether any of them are privileged, or whether the assertion of privilege would supersede Townstone’s and Sturner’s needs, the defendants stated.
“CFPB’s broad claim of privilege is thus premature, at best,” the defendants argued.
Townstone and Sturner concluded their brief by requesting the court, at a minimum, order the CFPB to search for responsive documents before asserting proportionality or privilege defenses.