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

United States District Court, District of Columbia

December 19, 2016

COMMUNITY FINANCIAL SERVICES ASSOCATION OF AMERICA, LTD., et al., Plaintiffs,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.

          MEMORANDUM OPINION

          Gladys Kessler, United States District Judge.

         Plaintiffs, Community Financial Services Association of America, Ltd. ("CFSA") and Advance America, Cash Advance Centers, Inc. ("Advance America"), allege that the Defendants, the Federal Deposit Insurance Corporation ("the FDIC"), the Board of Governors of the Federal Reserve System, 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"), have violated the due process rights of CFSA's members. Plaintiffs seek declaratory and injunctive relief to prevent these alleged violations from continuing.

         This matter is before the Court on Defendants' Corrected Motion to Dismiss for Lack of Associational or Organizational Standing or, in the Alternative, for Judgment on the Pleadings ("Motion to Dismiss"), in which Defendants seek dismissal of CFSA as a party to this case. [Dkt. No. 75]. Upon consideration of the Motion, Opposition, Reply, and the entire record herein, the Motion to Dismiss is granted.[1]

         I. Background

         A. Factual Background

         The basic facts of this case were fully discussed in the Court's prior Memorandum Opinion on Defendants' Motions to Dismiss for Lack of Subject Matter Jurisdiction or, in the Alternative, for Failure to State a Claim. CFSA v. FDIC, 132 F.Supp.3d 98, 105-107 (D.D.C. 2015). Consequently, an abbreviated discussion of the facts follows.

         Plaintiffs are CFSA, an association of payday lenders, and Advance America, a payday lender and member of CFSA. Id., 132 F.Supp.3d at 105. Defendants are agencies of the United States Government that have been delegated regulatory authority over various parts of the United States banking system. Id. at 106.

         Plaintiffs allege that Defendants participated and continue to participate in a campaign to force banks to terminate their business relationships with payday lenders, known as. "Operation Choke Point" and initiated by the United States Department of Justice. Id. at 106-107. Defendants allegedly forced banks that they supervise to terminate relationships with CFSA's members, "by-first promulgating regulatory guidance regarding reputation risk, ' and by later relying on the reputation risk guidance 'as the fulcrum for a campaign of backroom regulatory pressure seeking to coerce banks to terminate longstanding, mutually beneficial relationships with all payday lenders.'" Id.

         B. Procedural Background

         On June 5, 2014, Plaintiffs filed their original Complaint, [Dkt. No. 1], which they amended on July 30, 2014, [Dkt. No. 12], alleging that Defendants had violated the Administrative Procedure Act ("APA") and CFSA's members' right to procedural due process under the Fifth Amendment to the United States Constitution. CFSA, 132 F.Supp.3d at 107. Defendants then filed Motions to Dismiss for Lack of Subject Matter Jurisdiction or, in the Alternative, for Failure to State a Claim, [Dkt. Nos. 16, 17, & 18]. Id.

         On September 25, 2015, the Court issued a Memorandum Opinion ("Memorandum Opinion"), granting in part and denying in part Defendants' Motions. CFSA, 132 F.Supp.3d 98. The Court held that Plaintiffs had failed to state a claim under the APA, and dismissed all claims brought pursuant to it. However, Plaintiffs could continue litigating their due process claims, see id., under the theory that the stigma caused by Operation Choke Point deprived them of a protected interest in liberty or property. Id. at 123- 24 (citing Paul v. Davis, 424 U.S. 693, 708 (1976) & Gen. Elec. Co. v. Jackson, 610 F.3d 110, 121 (D.C. Cir. 2010)).

         Plaintiffs then filed a Second Amended Complaint ("SAC"), alleging facts and claims essentially indistinguishable from those contained in their earlier complaints.[2] [Dkt. No. 64]. Each Defendant filed an Answer to the Second Amended Complaint. [Dkt. Nos. 65, 66, & 67].

         On October 29, 2015, Defendants filed a Motion to Dismiss Plaintiff CFSA for Lack of Associational and Organizational Standing or, in the Alternative, a Motion for Judgment on the Pleadings, [Dkt. No. 73], which they corrected on November 6, 2015. [Dkt. No. 75]. Defendants seek dismissal only of Plaintiff CFSA for lack of standing, and do not challenge the standing or seek dismissal of Plaintiff Advance America. Plaintiffs filed an Opposition on November 12, 2015, [Dkt. No. 76] and Defendants filed their Reply on November 19, 2015. [Dkt. No. 77].

         II. Standard of Review A. Motion to Dismiss Under Fed.R.Civ.P. 12(b)(1)

         As courts of limited jurisdiction, federal courts possess only those powers 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 (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 (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 (D.C. Cir. 2005) (quoting United States v. Gaubert, 499 U.S. 315, 327 (1991)).

         Nonetheless, "[t]he plaintiff's factual allegations in the complaint will bear closer scrutiny in resolving a 12(b)(1) motion than in resolving a 12(b)(6) motion for failure to state a claim." Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13-14 (D.D.C. 2001) . 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'1 Acad, of Sci., 974 F.2d 192, 197 (D.C. Cir. 1992).

         B. Motion for Judgment on the Pleadings Under Fed.R.Civ.P. 12(c)

         "After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). "Under Rule 12(c), the court must accept the nonmovant's allegations as true and should view the facts in the light most favorable to the nonmovant." Bowman v. District of Columbia, 562 F.Supp.2d 30, 32 (D.D.C. 2008) (internal citations and quotation marks omitted). As with a motion to dismiss for lack of subject-matter jurisdiction, "the court may consider the motion based on the complaint standing alone or, where necessary, on the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Id. at 32-33 (internal citations and quotation marks omitted).

         "The court should grant a motion for judgment on the pleadings if the movant is entitled to judgment as a matter of law." Id. at 32.

         III. Analysis

         Defendants challenge the standing of Plaintiff CFSA, arguing that it no longer has Article III standing following this Court's dismissal of the Plaintiffs' APA claims. Mot. to Dismiss at 1. Defendants argue that CFSA cannot establish that it has standing to pursue any of the due process claims that remain. Mot. to Dismiss at 1-2. Specifically, Defendants contend that CFSA lacks associational standing, organizational standing, or third party standing.[3] Id.

         CFSA counters that it satisfies the requirements for all three types of standing. Furthermore, CFSA argues that Defendants waived these arguments by failing to raise them in their original Motions to Dismiss for Lack of Subject Matter Jurisdiction or, in the Alternative, for Failure to State a Claim.

         A. CFSA Lacks Standing

         i. CFSA Must Establish that It Has Article III Standing

         Article III of the Constitution limits the jurisdiction of federal courts to certain "Cases" and "Controversies." See U.S. Const, art. Ill. § 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'1 USA, 133 S.Ct. 1138, 1146, (2013) (internal citations omitted). "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, (1992) (internal quotation marks, citations, and footnotes omitted).

         ii. CFSA Lacks Associational Standing

         Under the theory of associational standing, an organization may sue as a representative of its members even if it lacks standing to sue in its own right. See Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 343 (1977). Three elements are required to establish associational standing: 1) at least one of the organization's members has standing to sue in her own right; 2) the interests the organization seeks to protect in its lawsuit are germane to the organization's purpose; and 3) "neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit." Id., at 343; Air Transp. Ass'n v. Reno, 80 F.3d 477, 483 (D.C. Cir. 1996).

         The Court has already ruled that CFSA's members have standing to pursue the due process claims remaining in this lawsuit. CFSA, 132 F.Supp.3d at 108-15. Furthermore, it is self-evident that the interest CFSA seeks to protect--the continued viability of payday lending--is germane to its organizational purpose, advocacy on behalf of payday lenders. Thus, to establish associational standing under Hunt, CFSA need only show that participation of its members in this lawsuit is not required. As discussed below, it fails to do so.

         a. CFSA's claims that its members7 due process rights have been violated cannot be litigated without the participation of its members

         To satisfy the third prong of Hunt CFSA must show that "neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit." 432 U.S. at 343. Accordingly, Plaintiffs' claims are the starting point for determining whether member participation is required.

         Plaintiffs allege that Operation Choke Point violates the due process rights of CFSA's members. See SAC ¶¶ 141-47, 173-79, 198-204 (Claims IV, VIII, XII) . These due process claims are brought under the so-called "stigma-plus rule." General Elec. Co. v. Jackson, 610 F.3d at 121 (citing Paul v. Davis, 424 U.S. at 708).

         Under the stigma-plus rule a due process violation exists where the plaintiff can show, "in addition to reputational harm, that (1) the government has deprived them of some benefit to which they have a legal right . . . or (2) the government-imposed stigma is so severe that it 'broadly precludes' plaintiffs from pursuing 'a chosen trade or business.'" Id. (quoting Paul v. Davis, 424 U.S. at 708).

         In its Memorandum Opinion the Court held that Plaintiffs could succeed under the first prong of the stigma-plus test by showing that Operation Choke Point deprived CFSA's members of a right to hold a bank account. CFSA, 132 F.Supp.3d at 123-24 (citing National Council of Resistance of Iran v. Department of State, 251 F.3d 192, 204 (D.C. Cir. 2001); Wisconsin v. Constantineau, 400 U.S. 433, 437 (1971)). Alternatively, the Court held that Plaintiffs could succeed under the second-prong by showing that "the continued loss of banking relationships, " caused by Operation Choke Point, "may preclude them from pursuing their chosen line of business." Id.

         It is quite evident that significant participation by CFSA's members is required under either theory. Central to both of CFSA's theories of the case is that its members have lost banking relationships as a result of Operation Choke Point. Thus, to prove its claims CFSA must provide evidence that: 1) Operation Choke Point stigmatized CFSA's members; 2) that CFSA's members lost banking relationships; and 3) that the loss of those banking relationships was caused by the stigma generated by Operation Choke Point.

         Even if it is possible that Plaintiffs could show that Operation Choke Point had stigmatized CFSA's members without significant member participation, [4] that alone would be insufficient to prove their claims. See General Electric, 610 F.3d at 121 ...


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