By Hailey Konnath

Law360 (May 17, 2021, 8:19 PM EDT) -- A Tennessee federal judge on Friday declined to issue an emergency order blocking the Consumer Financial Protection Bureau's rule requiring landlords to inform tenants about federal protections put in place amid the pandemic, finding that the rule doesn't apply to the Sixth Circuit and the landlords' theory is "internally inconsistent."

The group of landlords was seeking a temporary restraining order blocking the CFPB rule, which would require debt collectors seeking to evict tenants to disclose that the tenants may be eligible for eviction protection under a Centers for Disease Control and Prevention order.

The Property Management Connection LLC, the National Association of Residential Property Managers and Gordon J. Schoeffler had argued that the CFPB rule would force landlords to make "untrue statements to tenants who have been sued for unpaid rent, and are subject to eviction." The landlords claim that the rule violates the First Amendment because it requires false speech.

Meanwhile, the CFPB has argued that the rule does not require false speech, saying that requiring debt collectors to provide routine, factual notification of rights or legal protections that consumers may have "plainly passes First Amendment muster."

U.S. District Judge Eli J. Richardson agreed with the CFPB in Friday's order, which he issued without holding oral arguments. Notably, the judge held that the rule itself takes care of the exact alleged problem the landlords were challenging, noting that, by its own provisions, the rule has no application where the CDC order doesn't apply.

"By its very terms, the rule compels nothing at all — including disclosure of false speech — in jurisdictions where the CDC order does not apply (whether due to a court order declaring the rule invalid, or to something else)," Judge Richardson said.

The landlords, therefore, haven't shown a likelihood of success on the merits of their claim that the rule violates the First Amendment, he said.

Their First Amendment theory also doesn't suggest that the landlords would suffer irreparable harm without a temporary restraining order, the judge said.

"To the contrary, because the rule does not apply to plaintiffs in the jurisdictions (such as the Sixth Circuit) within the scope of plaintiffs' theory, the rule cannot and does not create irreparable harm by its (non-existent) application in such jurisdictions," Judge Richardson said. "Plaintiffs cannot be harmed by a rule where it does not apply."

The landlords are represented by the New Civil Liberties Alliance, which on Monday called the decision "a partial win for housing providers in Kentucky, Michigan, Ohio and Tennessee." Because Judge Richardson held that the CFPB rule doesn't apply in the Sixth Circuit, housing providers in those states are effectively shielded from the measure, the NCLA said in a statement.

The group said it planned to move for summary judgment and seek a final declaratory ruling to protect all housing providers from the edict. 

Caleb Kruckenberg, an NCLA attorney, said in the statement that the CFPB has insisted that housing providers within the Sixth Circuit are bound to make false statements to tenants about an invalid eviction moratorium, but the district court "resoundingly rejected that idea and declared the rule inapplicable within this jurisdiction." 

The landlords lodged their suit on May 3, accusing the CFPB of having "doubled down on an unlawful policy of its fellow agency," referring to the CDC. According to the complaint, the Sixth Circuit found that the CDC "lacked the statutory authority to issue the eviction moratorium." As such, the CDC's eviction edict cannot apply to tenants in that jurisdiction.

Kruckenberg told Law360 last week that the CFPB "therefore expects our clients to mislead tenants about an eviction moratorium that has already been invalidated."

In its May 10 opposition, the CFPB told the court that the landlords had failed to "demonstrate that they are entitled to the extraordinary relief they seek."

CFPB representatives and counsel for the landlords didn't immediately return requests for comment Monday.

The plaintiffs in the case are represented by John J. Vecchione and Caleb Kruckenberg of the New Civil Liberties Alliance and Ben M. Rose of RoseFirm PLLC.

The CFPB is represented in-house by Karen S. Bloom and Kevin E. Fried.

The case is The Property Management Connection LLC et al. v. The Consumer Financial Protection Bureau et al., case number 3:21-cv-00359, in the U.S. District Court for the Middle District of Tennessee.

--Additional reporting by Emilie Ruscoe, Al Barbarino and Jon Hill. Editing by Jay Jackson Jr.

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