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Community Financial Services Association of America, Ltd. v. Federal Deposit Insurance Corp.

United States District Court, D. Columbia

September 25, 2015


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          For COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA, LTD., ADVANCE AMERICA, CASH ADVANCE CENTERS, INC., Plaintiffs: David Henry Thompson, Harold Smith Reeves, Howard C. Nielson, Jr., Charles John Cooper, COOPER & KIRK, PLLC, Washington, DC.

         For FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant: Duncan Norman Stevens, LEAD ATTORNEY, FEDERAL DEPOSIT INSURANCE CORPORATION, Legal Division, Professional Liability Unit, Arlington, VA; Erik Bond, LEAD ATTORNEY, FEDERAL DEPOSIT INSURANCE CORPORATION, Corporate Litigation Unit, Arlington, VA.


         For OFFICE OF THE COMPTROLLER OF THE CURRENCY, THOMAS J. CURRY, in his official capacity as the Comptroller of the Currency, Defendants: Peter Chadwell Koch, LEAD ATTORNEY, OFFICE OF THE COMPTROLLER OF THE CURRENCY, Litigation Division, Washington, DC.


         For LIBRE INITIATIVE INSTITUTE, Amicus: Daniel Zachary Epstein, LEAD ATTORNEY, CAUSE OF ACTION, Washington, DC.


         For WILLIAM ISAAC, Amicus: Michelle Ann Scott, LEAD ATTORNEY, Washington, DC.



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         Gladys Kessler, United States District Judge.

         In June 2014, Plaintiffs Community Financial Services Association of America, Ltd. (" CFSA" ) and Advance America, Cash Advance Centers, Inc. (" Advance America" ) filed a Complaint against Defendants the Federal Deposit Insurance Corporation (" the FDIC" ), the Board of Governors of the Federal Reserve System (" the Board" ), and the Office of the Comptroller of the Currency and Thomas J. Curry, in his official capacity as the Comptroller of the Currency (" the OCC" ). Plaintiffs seek declaratory and injunctive relief to set aside certain informal guidance documents and other actions by the FDIC, the Board, and the OCC on the grounds that they exceed the agencies' statutory authority, are arbitrary and capricious, were promulgated without following the procedures required by law, and deprive Plaintiffs of liberty interests without due process of law.

         This matter is before the Court on Defendants' Motions to Dismiss for Lack of Jurisdiction and for Failure to State a Claim (collectively, " Motions to Dismiss" ) [Dkt. Nos. 16, 17, 18], Plaintiffs' Motion for Jurisdictional Discovery (" Motion for Discovery" ) [Dkt. No. 25], and Plaintiffs' Motion for Leave to File a Second Amended Complaint [Dkt. No. 56]. Upon consideration of the motions,[1] oppositions, replies, surreplies, notices of support, response, the entire record herein, and for the reasons stated below, the Motions to Dismiss are granted in part and denied in part, the Motion for Discovery is denied, and the Motion for Leave to File a Second Amended Complaint is granted.

         I. Background

         A. Factual Overview[2]

         Plaintiff CFSA is a national trade organization that represents payday lenders and Plaintiff Advance America is a payday lender and member of CFSA. SAC ¶ ¶ 14-16. Payday lenders are by and large licensed and regulated by the states, as well as some federal consumer protection laws. Board Mot. at 3. The Dodd-Frank Act gave the Consumer Financial Protection Bureau (" CFPB" ) authority to supervise payday lenders and promulgate

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regulations pertaining to payday lending. See SAC ¶ ¶ 39-41; Dodd-Frank Act Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5491(a). CFPB is not a party in this case.

         Defendant FDIC is an independent agency and acts as the primary federal regulator for certain state-chartered banks. In that capacity, the FDIC prescribes standards to promote banks' safety and soundness, and may do so by regulation or guideline. The FDIC also examines banks, prepares examination reports, and brings enforcement actions. See FDIC Mot. at 2; FDIC, Who is the FDIC?, available at .

         Defendant OCC is an independent bureau within the U.S. Department of the Treasury that functions as the primary supervisor of federally chartered (national) banks and savings and loan associations. The OCC administers statutory provisions governing most aspects of the federal banking system and has broad authority to examine the safety and soundness of the banks it supervises. See OCC Mot. at 5; OCC, About the OCC, available at .

         Defendant Board of Governors of the Federal Reserve System is a federal agency authorized to regulate and examine bank holding companies and state-chartered banks that are members of the Federal Reserve System. State member banks that are regulated by the Board are also regulated by state banking agencies. See Board Mot. at 2-3.

         Payday lenders utilize the services of banks as part of their business. For example, " [w]hen a prospective borrower applies for the loan . . . he or she typically provides a post-dated check or an electronic debit authorization for the value of the loan, plus a fee. The lender immediately advances the customer funds, then after a specified period of time, usually determined by the customer's next payday, the borrower returns to repay the loan and fee. But if the customer does not return, the terms of the transaction permit the lender to deposit the post-dated check or to execute the debit authorization. In order to have that security, the lender must have a deposit account with a bank and/or access to the Automated Clearing House (ACH) network." SAC ¶ 28; see also OCC Motion to Dismiss (" OCC Mot." ) [Dkt. No. 18-1] at 1 (" a payday lender typically must submit checks provided by its borrowers through the payment system by causing the checks to be d-eposited at a bank." )

         Plaintiffs allege that Defendants participated and continue to participate in a campaign initiated by the United States Department of Justice (" DOJ" ), known as " Operation Choke Point," to force banks to terminate their business relationships with payday lenders. Operation Choke Point has recently been the subject of a House Committee Investigation and reports. See SAC ¶ ¶ 56-58; STAFF OF H. COMM. ON OVERSIGHT & GOV'T REFORM, 113TH CONG., REP. ON THE DEP'T OF JUSTICE'S " OPERATION CHOKE POINT" : ILLEGALLY CHOKING OFF LEGITIMATE BUSINESSES? (Comm. Print 2014) (" Comm. Report" ); STAFF OF H. COMM. ON OVERSIGHT AND GOV'T REFORM, 113TH CONG., FEDERAL DEPOSIT INSURANCE CORPORATION'S INVOLVEMENT IN " OPERATION CHOKE POINT" (Comm. Print 2014) (" Comm. FDIC Report" ).

         Defendants allegedly forced banks to terminate relationships with Plaintiffs and Plaintiffs' members by first promulgating regulatory guidance regarding " reputation risk," and by later relying on the reputation risk guidance " as the fulcrum for a

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campaign of backroom regulatory pressure seeking to coerce banks to terminate longstanding, mutually beneficial relationships with all payday lenders." Pls.' Opp'n at 9.

         B. Procedural Background

         On June 5, 2014, Plaintiffs filed their original Complaint against Defendants asserting violations of the APA and due process [Dkt. No. 1]. The First Amended Complaint was filed on July 30, 2014 (" FAC" ) [Dkt. No. 12]. On August 18, 2014, the Board filed its Motion to Dismiss for Lack of Jurisdiction, or Alternatively for Failure to State a Claim [Dkt. No. 16] (" Board Mot." ). The FDIC filed a similar Motion [Dkt. No. 17] (" FDIC Mot." ), as did the OCC [Dkt. No. 18] (" OCC Mot." ). On October 2, 2014, Plaintiffs filed their Opposition to Motions to Dismiss [Dkt. No. 23] (" Pls.' Opp'n" ).

         The following day, Plaintiffs filed a Motion for Discovery [Dkt. No. 25] (" Discovery Mot." ). On October 31, 2014, the Board filed its Reply in support of its Motion to Dismiss [Dkt. No. 41] (" Board Reply" ) and its Opposition to Plaintiffs' Motion for Discovery [Dkt. No. 42] (" Board Discovery Opp'n" ); the FDIC filed its Reply [Dkt. No. 46] (" FDIC Reply" ) and Opposition [Dkt. No. 45] (" FDIC Discovery Opp'n" ); and the OCC filed its Reply [Dkt. No. 44] (" OCC Reply" ) and Opposition [Dkt. No. 43] (" OCC Discovery Opp'n" ). Plaintiffs filed their Reply in support of their Motion for Discovery [Dkt. No. 49] (" Pls.' Discovery Reply" ) on November 10, 2014. Plaintiffs also filed a Surreply to Defendants' Replies in Support of the Motions to Dismiss [Dkt. No. 50] (" Pls.' Surreply" ) the same day. In response, the FDIC filed a Surreply [Dkt. No. 51] (" FDIC Surreply" ) on November 14, 2014.

         On October 23, 2014, prior to the filing of Defendants' Replies and Discovery Oppositions, Plaintiffs filed a Notice of Supplemental Support [Dkt. No. 35] (" Pls.' First Supp." ) notifying the Court of a letter from an FDIC official to a depository institution. On December 12, 2014, after briefing was complete on the Motions to Dismiss and the Motion for Discovery, Plaintiffs filed a Second Notice of Supplemental Support [Dkt. No. 52] (" Pls.' Second Supp." ) to notify the Court of a U.S. House of Representatives Committee Report on the FDIC's involvement in Operation Choke Point. On December 23, 2014, the FDIC filed a Response to Plaintiffs' Second Supplemental Notice [Dkt. No. 53] (" FDIC Supp. Resp." ).

         II. Second Amended Complaint

         After briefing was complete on the Motions to Dismiss and the Motion for Jurisdictional Discovery, Plaintiffs filed a Motion for Leave to File a Second Amended Complaint on April 10, 2015 [Dkt. No. 56]. Defendants' only opposition to the Motion to Amend is that the proposed Second Amended Complaint is futile because it does not overcome the alleged deficiencies in the First Amended Complaint with regard to standing and/or failure to state a claim. Consequently, Defendants argue that the Motion to Amend should be denied as futile. See Opp'ns to Motion to Amend. Because this Court finds, infra, that Plaintiffs have standing and some claims survive the Motions to Dismiss, and are therefore not futile, Plaintiffs' Motion to Amend will be granted. For purposes of deciding the Motions to Dismiss, the Court will rely on the Second Amended Complaint [Dkt. No. 56-1] (" SAC" ) in this Memorandum Opinion.

         III. Jurisdiction

         A. Standard of Review Under Fed.R.Civ.P. 12(b)(1)

         As courts of limited jurisdiction, federal courts possess only those powers

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specifically granted to them by Congress or directly by the United States Constitution. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). The plaintiff bears the burden of establishing by a preponderance of the evidence that the Court has subject matter jurisdiction to hear the case. See Shuler v. United States, 531 F.3d 930, 932, 382 U.S.App.D.C. 201 (D.C. Cir. 2008). In deciding whether to grant a motion to dismiss for lack of jurisdiction under Rule 12(b)(1), the court must " accept all of the factual allegations in [the] complaint as true." Jerome Stevens Pharmaceuticals, Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253-54, 365 U.S.App.D.C. 270 (D.C. Cir. 2005) (quoting United States v. Gaubert, 499 U.S. 315, 327, 111 S.Ct. 1267, 113 L.Ed.2d 335 (1991)). The Court may also consider matters outside the pleadings, and may rest its decision on its own resolution of disputed facts. See Herbert v. Nat'l Acad, of Sci., 974 F.2d 192, 197, 297 U.S.App.D.C. 406 (D.C. Cir. 1992).

         B. Standing

         As a threshold matter, Defendants argue that Plaintiffs do not have standing. Article III of the Constitution limits the jurisdiction of federal courts to certain " Cases" and " Controversies." See U.S. Const. art. 3, § 2. " [N]o principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies." Clapper v. Amnesty Int'l USA, 133 S.Ct. 1138, 1146, 185 L.Ed.2d 264 (2013) (quoting DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 341, 126 S.Ct. 1854, 164 L.Ed.2d 589, (2006)). " One element of the case-or-controversy requirement is that plaintiffs must establish that they have standing to sue." Id. (internal quotation marks and citation omitted).

         " [T]he irreducible constitutional minimum of standing contains three elements. First, the plaintiff must have suffered an injury in fact . . . which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of . . . Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks, citations, and footnote omitted).

         " A plaintiff's burden to demonstrate standing grows heavier at each stage of the litigation." Osborn v. Visa Inc., No. 14-7004, 797 F.3d 1057, 2015 WL 4619874, at *5 (D.C. Cir. Aug. 4, 2015) (citing Lujan, 504 U.S. at 561). " At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we 'presume that the general allegations embrace those specific facts which are necessary to support the claim.'" Lujan, 504 U.S. at 561 (quoting Lujan v. National Wildlife Federation, 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).

         Our Court of Appeals recently reiterated and emphasized the requirement that courts must " accept as true all material allegations of the complaint" at the pleadings stage. Osborn, 2015 WL 4619874, at *5 (internal citation omitted). In Osborn, the Court of Appeals found that the plaintiffs' alleged facts were " specific, plausible, and susceptible to proof at trial," and therefore they " pass[ed] muster for standing purposes at the pleadings stage." Id. at *6.

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          " When a plaintiff's asserted injury arises from the Government's regulation of a third party that is not before the court, it becomes 'substantially more difficult' to establish standing." Nat'l Wrestling Coaches Ass'n v. Dep't of Educ, 366 F.3d 930, 938, 361 U.S.App.D.C. 257 (D.C. Cir. 2004) (quoting Lujan, 504 U.S. at 562). Where standing has been found on the basis of third-party conduct, " the record presented substantial evidence of a causal relationship between the government policy and the third-party conduct, leaving little doubt as to causation and the likelihood of redress." Id. at 941. Therefore, while the Court accepts as true all material allegations made by Plaintiffs, Plaintiffs bear a greater burden of what they must allege in order to show standing on the basis of third-party conduct.

         In this case, the elements of causation and redressability " hinge on the independent choices of the regulated third party," namely the banks. Id. at 938. While it is Plaintiffs' burden to " adduce facts showing that' those choices have been or will be made in such a manner as to produce causation and permit redressability of injury," Id. (quoting Lujan, 504 U.S. at 562) (emphasis added), at the motion to dismiss stage, Plaintiffs need only allege facts that are " specific, plausible, and susceptible to proof at trial." Osborn, 2015 WL 4619874 at *14.

         1. Injury in Fact

         Defendants do not dispute that Plaintiffs have suffered an injury in fact. CFSA's members, including Plaintiff Advance America, have lost beneficial banking relationships, causing them on short notice to lose business and expend resources to locate new banking partners. Pls.' Opp'n at 11. Many payday lenders have not been able to replace the terminated bank relationships. Id. Plaintiffs have also alleged that Defendants' actions have deprived them of their ability to compete for banks' resources and have stigmatized them. Id. at 12-13.

         In sum, it is clear that Plaintiffs have alleged facts sufficient to show an injury in fact at the pleadings stage.

         2. Causation

         Defendants argue that Plaintiffs do not meet the causation prong of standing because their injuries are not " fairly traceable" to any acts by the Defendants, and that it was the independent decisions of the respective banks to terminate their relationships with Plaintiffs' members. See Board Mot. at 10-11; FDIC Mot. at 12, 15.

         To show causation, Plaintiffs must show that the Defendants' actions were a " substantial factor motivating the decisions of the third parties that were the direct source of the [P]laintiff [s'] injuries." National Wrestling Coaches, 366 F.3d at 940-41. Thus the key issue is the degree of Defendants' alleged involvement or ...

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