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Federal Court Rules CFPB Structure Unconstitutional

A federal district judge ruled yesterday that the structure of the Consumer Financial Protection Bureau (CFPB) violates the Constitution, countering a January ruling from a federal appeals court, The Hill reported. Judge Loretta Preska of the Southern District of New York ruled that the CFPB’s creation as an independent agency with a director that could only be dismissed for wrongdoing was unconstitutional. In January, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the CFPB’s structure was constitutional, reversing a 2016 verdict issued by a panel of the court’s judges. The appeals court’s initial opinion, written by Judge Brett Kavanaugh, sought to fix the issue by ruling that the CFPB director could be fired at will. Preska, an appointee of former President George H.W. Bush, concurred with part of the D.C. appellate court’s initial ruling against the CFPB, which held that the agency “is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director.” She ruled that the entire section of the 2010 Dodd-Frank Act that established the CFPB should be stricken, and she dismissed the CFPB from the case, which was filed in May 2017 by then-New York Attorney General Eric Schneiderman (D). Preska did not issue an order to shut down the bureau.

High Court: Online Shoppers Can Be Forced to Pay Sales Tax

States will be able to force more people to pay sales tax when they make online purchases under a Supreme Court decision that will leave shoppers with lighter wallets but is a big financial win for states, The Associated Press reported. Consumers can expect to see sales tax charged on more online purchases — likely over the next year and potentially before the Christmas shopping season — as states and retailers react to the court’s decision, said one attorney involved in the case. The Supreme Court’s 5-4 opinion overruled a pair of decades-old decisions that states said cost them billions of dollars in lost revenue annually. The decisions made it more difficult for states to collect sales tax on certain online purchases, and more than 40 states had asked the high court for action. Five states don’t charge sales tax. The cases the court overturned said that if a business was shipping a customer’s purchase to a state where the business didn’t have a physical presence such as a warehouse or office, the business didn’t have to collect sales tax for the state. Customers were generally responsible for paying the sales tax to the state themselves if they weren’t charged it, but most didn’t realize they owed it and few paid. Justice Anthony Kennedy wrote that the previous decisions were flawed. “Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” he wrote in an opinion joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Justice Kennedy wrote that the rule “limited States’ ability to seek long-term prosperity and has prevented market participants from competing on an even playing field.” The ruling is a victory for big chains with a presence in many states, since they usually collect sales tax on online purchases already. Now, rivals will be charging sales tax where they hadn’t before. Sellers that use eBay and Etsy, which provide platforms for smaller sellers, also haven’t been collecting sales tax nationwide. The case is South Dakota v. Wayfair, 17-494.

Bankruptcy Watchdog Challenges Weinstein Co. Secrecy in Film Settlement

A federal bankruptcy watchdog is challenging an attempt by Weinstein Co. to keep from public view the financial terms of a settlement with producers of the drama “Hotel Mumbai” over rights to the film, WSJ Pro Bankruptcy reported. U.S. Trustee Andrew Vara filed an objection yesterday in the U.S. Bankruptcy Court in Wilmington, Del., opposing the attempt to keep terms of the agreement under seal. The settlement resolves a dispute over the film and calls for the studio and its proposed purchaser, Lantern Capital Partners, to relinquish its rights to the picture. Weinstein Co. lawyers have said Lantern and producer Hotel Mumbai Partners Ltd. “were both very clear in settlement negotiations” that they considered financial terms of the agreement commercial information that should be kept confidential.

Supreme Court Curbs SEC's In-House Judges

The Supreme Court said yesterday that the in-house Securities and Exchange Commission judge who handled the case of investment advisor Raymond Lucia was a constitutional "officer," meaning he should have been directly appointed by the SEC, Bloomberg News reported. Lucia had been fined $300,000 by the SEC judge and barred from working as an investment adviser. Writing for six justices in the majority, Justice Elena Kagan said Lucia was entitled to a new hearing before a different judge or the commission itself. The ruling could affect about 100 cases currently at the SEC, along with a dozen that are on appeal in the federal courts. It also could affect hearing systems at other government agencies, including the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau, which have similar systems for appointing what are known as administrative law judges. The Constitution requires that officers, as opposed to mere employees, be appointed by the president, a department head or a court. The SEC’s judges were selected by the chief judge and approved by the commission’s personnel office. The commission has five administrative law judges, including the chief judge. The Trump administration took the unusual step of backing Lucia at the high court and arguing that the SEC’s appointment process for judges was unconstitutional. That was a shift for the federal government, which had previously contended that agency judges lacked enough authority to be considered officers. The administration, however, disagreed with Lucia about the practical implications of the constitutional issue, saying the commission has retroactively fixed the problem by ratifying the judges’ appointments itself.

Opinion: Bankrupt News Company Wants to Protect Journalists — But Will Judge Let It?

Following its sale to Digital First Media this spring, the Boston Herald’s former parent company appeared to be on track for a relatively smooth path out of bankruptcy — until a judge started asking questions about proposed legal protections for the newspaper’s reporters and editors, according to a Debtwire opinion published by Forbes. Bankruptcy lawyers appeared in court to request approval of a chapter 11 plan that would wind down the remaining shell company, HMH Media, and distribute proceeds of the Digital First sale to creditors. The proposed plan faces no substantial opposition from creditors, and has the support of unions and pension funds. Like many bankruptcy exit plans, the Herald’s includes a provision that effectively shields individuals who could face future legal action related to the company and activity surrounding its bankruptcy. These protections are often included in bankruptcy plans for the benefit of former and current executives of the company, but the Herald’s former parent wants to use what lawyers called “content releases” to protect its editorial staff too, specifically from potential defamation claims that could someday be filed in response to articles published before the sale to the new owner. The editorial staff should be allowed these releases in light of the “inherent risk” of defamation claims that comes with being a member of the media, as well as the protections afforded by the First Amendment. However, the judge overseeing the case has her reservations. Judge Laurie Selber Silverstein, who weighed in on plan releases as recently as October, said those protections would be more appropriate in the form of an insurance policy indemnifying the journalists in the event of such legal action. <em>Herald</em> publisher and former owner Patrick Purcell testified in court that it has such a policy — but it comes with a $1 million deductible.

Energy Future Holdings Asks District Court to Dismiss Appeal by Asbestos Claimants

Energy Future Holdings Corp. (EFH) has asked the U.S. District Court of Delaware to dismiss an appeal filed by a group of asbestos personal-injury claimants, calling it “moot” and an “improper attack,” Reuters reported. The appeal filed last month argued that EFH’s bankruptcy confirmation is unlawful because of its treatment of people who had asbestos exposure before the 2014 bankruptcy filing but had not filed a claim by Dec. 14, 2015, because they were not yet sick.
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