Judge Dismisses Federal Suit Accusing Firm of Defrauding 9/11 Responders

NEW YORK — A day after the anniversary of the Sept. 11 terror attacks, a federal judge dismissed a lawsuit, brought by the New York state attorney general’s office, that accused a financial firm of defrauding firefighters and others involved in the response out of funds meant to compensate them for resulting injuries and illnesses.

The attorney general must instead use state courts to pursue any claims it has against the financial firm, RD Legal Funding, Judge Loretta A. Preska of U.S. District Court in Manhattan said Wednesday.

For the moment, the ruling handed a surprising victory to RD Legal, which the attorney general’s office said had used deceptive tactics to ensnare emergency responders and former professional football players in high-interest loans while they awaited settlements.

Preska said there was no basis for state authorities to continue their enforcement action in federal court after she dismissed the Consumer Financial Protection Bureau, a federal agency, from the lawsuit in June. The judge tossed out the bureau’s claims that RD Legal had violated federal law after she determined that the structure of the agency was unconstitutional because of the way its director is appointed.

That decision was at odds with a ruling in January by the U.S. Court of Appeals for the District of Columbia Circuit, which said there was nothing impermissible with the law that created the consumer bureau and allows it to be run by a single director. But the appellate ruling is not binding on federal courts in other districts, including New York.

RD Legal, a New Jersey firm, sparked controversy by entering into financial deals with emergency workers who responded to the attack that destroyed the World Trade Center towers in 2001.

The lawsuit, filed jointly last year by the consumer bureau and state authorities, claimed RD Legal persuaded firefighters, police officers and medical workers to enter into high-interest cash advances. The litigation claimed RD Legal also entered into similar agreements with former football players who were awaiting money from the National Football League concussion litigation.

The high-interest financial deals are an offshoot of the fast-growing consumer litigation market, in which firms compete to provide cash advances to people with pending lawsuits.

Amy Spitalnick, a spokeswoman for Barbara Underwood, the New York state attorney general, said the office was considering its options. But, she added, the decision “hinged on the judge’s interpretation of the constitutionality of specific provisions” of the federal law that established the consumer bureau.

Michael Roth, a lawyer with Boies Schiller Flexner, which represents RD Legal, said in a statement that the case never should have been brought. “Today’s order provides for the full relief we originally requested in our motion to dismiss,” he said.

The consumer bureau has not yet said if it will appeal Preska’s decision dismissing its case, but it has taken steps in that direction. In an order last month, Preska said she “anticipated” that the bureau would file an appeal, based on its actions in the case.

Her finding on the bureau’s constitutionality was notable because it relied heavily on a dissenting opinion written by Judge Brett Kavanaugh, President Donald Trump’s nominee to the U.S. Supreme Court.

In her 108-page ruling in June, Preska quoted Kavanaugh when he said it was unconstitutional for “an independent agency that exercises substantial executive power” to be run by a single director. But she said she disagreed with Kavanaugh’s solution, which would be to give the president more power to supervise and fire the director.

Instead, Preska went further, saying the unconstitutionality of the bureau’s structure effectively rendered it powerless to bring action against RD Legal.

It’s a severe remedy, and one reason that many expect the bureau to appeal the ruling even though it has taken a softer approach to enforcement actions during the Trump administration.