Consumer Financial Protection Bureau building in Washington, D.C. Photo Credit: Diego M. Radzinschi/ALM

In a superseding order issued late Wednesday, U.S. District Judge Loretta Preska of the Southern District of New York tossed claims brought against a litigation funding company under authority of the Consumer Financial Protection Act—authority she had previously struck down as unconstitutional.

But in the updated order, Preska said any claims brought by New York Attorney General Barbara Underwood, the remaining plaintiff in the suit, could be better handled under state law, in state court.

Previously, Preska found that the AG's Office did, in fact, have the authority to pursue claims under the Consumer Financial Protection Act, also known as Title X of the Dodd-Frank financial system reform legislation.

Preska overruled herself on Wednesday, finding that, since the CFPA's grant of authority was unconstitutional, “it follows that there is not statute for the NYAG to proceed under and no grant of authority to proceed.”

“In sum, there is no basis for federal jurisdiction over NYAG's CFPA claims,” the judge wrote in dismissing the claims.

Preska also dismissed the AG's argument that state law claims raises issues involving the federal Anti-Assignment Act. Preska had previously found the “assignments” the company, RD Legal Funding, entered into with the individuals receiving compensation funds could rightly be viewed as loans, despite the defendant's attempts to argue they were some other kind of arrangement.

In her latest order, Preska said there are no substantial federal issues inside the state law claims to give rise to federal question jurisdiction. These questions, she said, didn't breach the “broad consequences to the federal system or the nation” threshold requiring the court to intervene. Rather, the assignments issue was a “particularized” one “that involves a discrete pool of individuals.”

To avoid an upset over the state and federal jurisdiction divisions, “[p]rinciples of comity” insist the state courts should resolve the state law questions at issue in the remaining claims brought by the AG. Preska declined to exercise supplemental jurisdiction. The remaining state law claims were dismissed without prejudice to refile in state court.

Attorneys for RD Legal hailed the order as a win.

“We are pleased with the court's ruling. As we have always believed, this case never should have been brought in the first place and today's order provides for the full relief we originally requested in our motion to dismiss,” Boies Schiller Flexner partner Michael Roth, who represents RD Legal, said in a statement.

A spokeswoman for the AG's Office said options are being reviewed.

“As the judge stated, our office has alleged clear violations of the law; the decision itself hinged on the judge's interpretation of the constitutionality of specific provisions of the Consumer Financial Protection Act,” the spokeswoman said.

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