The New York Attorney General has submitted a letter to Judge Preska that responds to RD Legal Funding’s letter asking her to dismiss all of the NYAG’s federal and state claims.

In its letter, RD Legal Funding asserted that the NYAG’s federal claims should be dismissed because they are brought pursuant to Dodd-Frank Section 1042, which authorizes state attorneys general to file civil actions in federal court to enforce the provisions of the CFPA, and Judge Preska struck all of Title X in its entirety in her June 21 decision, including Section 1042.  In addition to asking the court to dismiss the NYAG’s federal claims with prejudice, RD Legal Funding asked the court to dismiss the NYAG’s state law claims without prejudice to their being refiled in state court.

The NYAG, in its letter to Judge Preska, takes the position that her “termination of the CFPB [from the case] does not necessitate the invalidity of the prohibited conduct provisions of the CFPA or the NYAG’s enforcement authority.”  The NYAG appears to argue that in striking Title X, Judge Preska was only “striking down the CFPB” because of its unconstitutional structure and left in place the CFPA’s substantive provisions (e.g. its UDAAP prohibition) and the right of state AGs to bring CFPA claims.

The NYAG also argues that even if the court were to reverse itself and hold that the NYAG cannot bring CFPA claims, the court would still have subject matter jurisdiction “based upon the embedded federal questions in the NYAG’s state law claims.” According to the NYAG, the embedded federal issue is whether the transactions that RD Legal Funding entered into with consumers entitled to benefits under the September 11th Victim Compensation Fund of 2001 were void under the federal Anti-Assignment Act and therefore loans subject to New York usury law.  (We previously observed that the court, after concluding that the assignments before it were void, leaped to the conclusion that, as a result, the transactions were necessarily disguised loans.  The basis for this conclusion was never articulated by the court.  Just because the underlying transactions are problematic does not mean that they meet the New York definition of usurious loans.)

Finally, the NYAG argues that even if the court finds there is no basis for original jurisdiction over the NYAG’s federal or state law claims, it should nevertheless use its discretion to decide the NYAG’s state law claims because “[b]alancing judicial economy, convenience, fairness, and comity argues for retaining jurisdiction of the state law claims.”  The NYAG asserts that dismissal of its state law claims “would require the NYAG to refile in state court and would unnecessarily delay the proceedings, to the detriment of the consumers harmed by RD Legal, particularly those in poor health.”  The NYAG also points to the district court’s familiarity with the issues in the case and observes that “the state laws at issue are not novel and thus concerns of comity are not implicated.”

The NYAG takes no position in its letter as to whether the court should enter judgment against the CFPB pursuant to Rule 54(b) of the Federal Rules of Civil Procedure so the CFPB can file an immediate appeal with the Second Circuit of Judge Preska’s constitutionality ruling.  However, the NYAG restates its opposition to the court’s issuance of a stay of the proceeding if it enters a Rule 54(b) judgment. The CFPB has sent a letter to Judge Preska indicating that it plans to file a motion for entry of a judgment pursuant to Rule 54(b).