financial lawA federal district court judge in Atlanta has granted five defendants’ motions for terminating sanctions against the Consumer Financial Protection Bureau for the agency’s conduct in connection with its Rule 30(b)(6) depositions. Venable attorneys represented one of those defendants, and were the principal authors of the briefs leading to the sanctions.

The court agreed with the defendants’ arguments that the claims pleaded against them must be dismissed because of the CFPB’s refusal to produce a knowledgeable and non-evasive Rule 30(b)(6) witness. The court described the refusal as a “pattern of conduct” that “demonstrate[d] a willful disregard of the Court’s instructions.” The court agreed with the defendants that the CFPB’s misconduct warranted striking all counts pleaded against them.

The case, styled as Consumer Financial Protection Bureau v. Universal Debt Solutions, LLC, et al., No. 15-cv-859 (N.D. Ga), was filed in April 2015 against defendants that the CFPB claimed were engaged in a debt-collection scheme to collect “phantom debts” – i.e., consumer debts that were not actually owed. The CFPB sought to hold liable not only the debt collectors that allegedly perpetrated the scheme, but also various service providers such as payment processors, independent sales organizations, and a phone service provider. The CFPB alleged that the service providers were liable for knowingly or recklessly disregarding the debt collectors’ illegal activity.

After more than a year of discovery, several of the service provider defendants noticed the CFPB’s Rule 30(b)(6) deposition. The CFPB refused to provide a witness, arguing that a deposition of a “law enforcement agency” such as the CFPB would necessarily invade various privileges, and that it had already provided all of the information that could be gleaned from a deposition by way of written discovery responses. The court rejected these arguments and ordered the CFPB to sit for a deposition. In doing so, the court explained that factual matters – such as the facts supporting the CFPB’s claims against the service providers, and facts exculpatory to those service providers – were appropriate subjects of inquiry.

The CFPB then filed motions for protective order seeking protection from virtually all of the specific topics noticed by the service providers. The court again ordered the CFPB to provide testimony, and rejected the CFPB’s arguments that the deposition topics were improper. Specifically, the court required the CFPB to educate a witness and provide testimony regarding all relevant facts regarding its claims against the service providers, including all facts that the CFPB could reasonably identify as exculpatory.

When the depositions commenced, the court explained, the defendants were confronted with a witness that was prepared only to read from his “memory aid,” and one that was instructed not to answer various factual questions on the basis of a privilege objection. Notwithstanding an intervening telephone conference with the court, the practices continued throughout each of the defendant’s depositions. The court took the CFPB to task for its conduct.

First, the court agreed with the defendants that the CFPB’s so-called “memory aids” were more properly characterized as “scripts” for the witness to follow. The court described several lengthy nonresponsive answers that thwarted the taking of the deposition, and noted that “[w]hile these are the most egregious examples, similar ones abound throughout the transcripts.” Indeed, the court explained, “the witness was hardly able to offer any testimony at all beyond what he read off the memory aids.”

Second, the court admonished the CFPB for its refusal to educate a witness regarding exculpatory facts, as was required by court order. The court rejected the CFPB’s claims that it could not identify a single exculpatory fact as to any defendant, noting that this “reflect[ed] an unwillingness to comply with the Court’s instructions and a bad faith attempt to frustrate the purpose of Defendants’ depositions.”

Third, the court rejected the CFPB’s work product objections that were lodged in response to questions seeking the factual bases for its contentions. As the court noted, in spite of repeated orders requiring factual information to be disclosed, the CFPB still refused to answer questions that the court held were a proper area of inquiry. This constituted a “blatant disregard for the Court’s instruction” and was reflective of a larger problem: that the CFPB was willfully violating court orders and was unlikely to change its behavior.

Given the breadth and bad faith nature of the CFPB’s conduct, the court agreed with the defendants that the appropriate sanctions were to strike the counts against the movants, and dismiss them from the case.