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Advance America, Cash Advance Centers, Inc. v. FDIC

United States District Court, District of Columbia

February 23, 2017

ADVANCE AMERICA, CASH ADVANCE CENTERS, INC., et al. Plaintiff,
v.
FDIC, et al. Defendant.

          MEMORANDUM OPINION

          Gladys Kessler United States District Judge

         Plaintiffs, Advance America, Cash Advance Centers, Inc. ("Advance America"), Check Into Cash, Inc. ("Check Into Cash"), NCP Finance Limited Partnership and NCP Finance Ohio, LLC (collectively "NCP"), Northstate Check Exchange ("Northstate"), PH Financial Services, LLC ("PHFS"), and Richard Naumann, bring this action against the Federal Deposit Insurance Corporation ("the FDIC"), the Board of Governors of the Federal Reserve System, and both the Office of the Comptroller of the Currency and Thomas J. Curry, in his official capacity as the Comptroller of the Currency ("the OCC") (collectively "Federal Defendants"), alleging violations of their right to due process under the Fifth Amendment of the United States Constitution.

         The matter is now before the Court on the Plaintiffs' Motions for Preliminary Injunction. [Dkt. Nos. 87 & 107]. Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons set forth below, the Motions shall be denied.

         I. BACKGROUND

         The Court has related the background of this case in two previous opinions. Community Fin. Services Assoc, of America v. FDIC, 132 F.Supp.3d 98 (D.D.C. 2015) ("CFSA I") and Community Fin. Services Assoc, of America v. FDIC, 2016 WL 7376847 (D.D.C. December 19, 2016) ("CFSA II"). The original plaintiffs in this case were CFSA, an association of payday lenders, and Advance America, a payday lender and member of CFSA. CFSA I, 132 F.Supp.3d at 105. Federal 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.

         CFSA and Advance America alleged that the Federal Defendants participated and continue to participate in a campaign, known as "Operation Choke Point" and initiated by the United States Department of Justice, to force banks to terminate their business relationships with payday lenders. Id. at 106-107. They allege that Operation Choke Point forced banks supervised by Federal Defendants to terminate relationships with payday lenders, "'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.; see also Plaintiffs' Second Amended Complaint ¶¶ 4-11 [Dkt. No. 64] .

         After this Court's decision in CFSA I dismissing some of the claims brought by CFSA and Advance America, the Federal Defendants moved on October 29, 2015, to dismiss CFSA for lack of standing. Mot. to Dismiss [Dkt. No. 73] . While that Motion was pending, CFSA and Advance America filed a Motion for Preliminary Injunction on November 23, 2016. ("Advance America Mot.") [Dkt. No. 87] . On December 19, 2016, the Court granted the Federal Defendants' Motion to Dismiss CFSA, leaving Advance America as the only remaining plaintiff. See CFSA II, 2016 WL 7376847.

         Subsequently, on January 11, 2011, Advance America filed a Motion to Amend its Complaint for a second time, in order to add additional plaintiffs, all of whom are current or former payday lenders allegedly affected by Operation Chokepoint. [Dkt. No. 102]. The Court granted the Motion, thereby adding the following additional plaintiffs: Check Into Cash, Inc., NCP Finance Limited Partnership, NCP Finance Ohio, LLC, Northstate Check Exchange, PH Financial Services, LLC, and Richard Naumann (collectively "New Plaintiffs"). [Dkt. No. 120]. These New Plaintiffs also filed a Motion for Preliminary Injunction, essentially joining in all of the same arguments presented by Advance America. ("New Plaintiffs' Mot.")[Dkt. No. 107-1].

         The proposed injunctions ask the Court to enjoin Federal Defendants "from: 1) harming Plaintiffs' reputations; 2) applying informal pressure to banks to encourage them to terminate business relationships with Plaintiffs because Plaintiffs are members of the payday lending industry; 3) seeking to deny Plaintiffs of access to financial services on account of their being members of the payday lending industry; and 4) seeking to deprive Plaintiffs of their ability to pursue their chosen line of lawful business." New Plaintiffs' Proposed Order [Dkt. No. 107-8]; see also Advance America's Proposed Order [Dkt. No. 87-5].

         The Federal Defendants filed Oppositions to both Motions for Preliminary Injunction. Opp'n to Advance America's Mot. [Dkt. No. 90] & Opp'n to New Plaintiff's Mot. [Dkt. No. 125] . Advance America and the new Plaintiffs each filed a Reply. Advance America's Reply [Dkt. No. 95] & New Plaintiffs' Reply [Dkt. No. 127].

         II. Standard of Review

         The Court may issue interim injunctive relief only when the movant demonstrates "[1] that [they are] likely to succeed on the merits, [2] that [they are] likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in [his or her] favor, and [4] that an injunction is in the public interest." Winter v. Natural Res. Def. Council, 555 U.S. 7, 20 (2008) .

         It is particularly important that the movant demonstrate a likelihood of success on the merits. Cf. Benten v. Kessler, 505 U.S. 1084, 1085 (1992) (per curiam). Indeed, absent a "substantial indication" of likely success on the merits, "there would be no justification for the court's intrusion into the ordinary processes of administration and judicial review." Am. Bankers Ass'n v. Nat'l Credit Union Admin., 38 F.Supp.2d 114, 140 (D.D.C. 1999) (internal citations and quotation marks omitted).

         The other critical factor in the injunctive relief analysis is irreparable injury. A movant must "demonstrate that irreparable injury is likely in the absence of an injunction." Winter, 555 U.S. at 22 (citing Los Angeles v. Lyons, 461 U.S. 95, 103 (1983)) . If the plaintiff demonstrates a likelihood of success on the merits and irreparable injury, the court "must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Prod. Co. v. Gambell, 480 U.S. 531, 542 (1987).

         "The four factors have typically been evaluated on a "'sliding scale.'" Davis v. PBGC, 571 F.3d 1288, 1291-92 (D.C. Cir. 2009). Under this approach, " [i]f the movant makes an unusually strong showing on one of the factors, then it does not necessarily have to make as strong a showing on another factor." Id. While there is some doubt as to whether the sliding scale approach is still appropriate after the Supreme Court's decision in Winter, it remains good law in this Circuit. See League of Women Voters v. Newby, 838 F.3d 1, 7 (D.C. Cir. 2016).

         Because a preliminary injunction is an extraordinary remedy, courts should grant such relief sparingly. Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). The Supreme Court has observed "that a preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Id. Therefore, although the trial court has the discretion to issue or deny a preliminary injunction, it is not a form of relief to be granted lightly. In addition, any injunction that the court issues must be carefully circumscribed and "tailored to remedy the harm shown." Nat' l Treasury Employees Union v. Yeutter, 918 F.2d 968, 977 (D.C. Cir. 1990).

         III. ANALYSIS

         A. Likelihood of Success on the Merits

         A movant may show a likelihood of success on the merits by demonstrating that it is "more likely than not" that she will prevail. Sherley v. Sebelius, 644 F.3d 388, 398 (D.C. Cir. 2011). However, under the sliding scale approach, if the other preliminary injunction factors strongly favor the movant, the movant need only show the existence of a "serious legal question" on the merits. Id. at 398.

         1. Legal Requirements to Successfully Establish a Due Process Violation Under the Stigma-Plus Rule of Davis

         In CFSA I, the Court expressly laid out the necessary elements of Plaintiffs' due process claims, brought under the so-called "stigma-plus rule" of Paul v. Davis. 132 F.Supp.3d at 123 (citing Paul v. Davis, 424 U.S. 693, 708 (1976) and Gen. Elec. Co. v. Jackson, 610 F.3d 110, 121 (D.C. Cir. 2010)). Under the stigma-plus rule there is a due process violation if 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).

         As the Court will explain, Plaintiffs' submissions do not establish a likelihood of success on the merits - or even a "serious legal question" on the merits. First, Plaintiffs have not demonstrated that they are likely to prove that they have or will suffer harms that rise to the level of a due process violation under either prong of Davis. Second, they have failed to demonstrate that they are likely to prove the existence of a vast backroom pressure campaign by Federal Defendants that is causing the termination of their bank accounts and banking relationships.

         2. Plaintiffs' Are Unable to Demonstrate that they Are Likely to Suffer the Level of Injury that Is Necessary to Succeed on the Merits Under Either Prong of Davis

         Plaintiffs can succeed under the first prong of Davis by showing that Federal Defendants deprived Plaintiffs of their right to hold a bank account. CFSA I, 132 F.Supp.3d at 123-24 (citing National Council of Resistance of Iran v. Department of State, 2 51 F.3d 192, 204 (D.C. Cir. 2001) ("NCRI"), and Wisconsin v. Constantineau, 400 U.S. 433, 437 (1971)). In order to show the deprivation of that right, it is insufficient for Plaintiffs to show that they have merely had some bank accounts terminated. The loss of some discrete number of bank accounts does not constitute a "change in legal status." Kartseva v. Department of State, 37 F.3d 1524, 1527-28 (D.C. Cir. 1994). Thus, in order to demonstrate a change in legal status, each Plaintiff must show that it has had so many bank accounts and banking relationships terminated it has effectively been cut off from the banking system.[1]

         Plaintiffs do not contend that Federal Defendants have established a de jure, blanket prohibition on banks transacting with payday lenders. Instead, they allege that Federal Defendants have applied pressure to regulated banks to stop transacting with Plaintiffs, and so many of those banks have succumbed to that pressure that the result is a de facto ban that constitutes a change in legal status. See Third Amended Complaint ("TAC") ¶¶ 8, 18, 19 [Dkt. No. 124] . That is the theory on which the Court allowed them to proceed, and that is what they ultimately must prove to succeed under the first prong of Davis. See CFSA I, 132 F.Supp.3d at 123.

         Alternatively, Plaintiffs can succeed under the second-prong of Davis by showing that "the continued loss of banking relationships, " caused by Operation Choke Point, "may preclude them from pursuing their chosen line of business." CFSA I, 132 F.Supp.3d at 123-24 (citing NCRI, 251 F.3d 192 & Constantineau, 400 U.S. 433). To do so, Plaintiffs must show that Operation Choke Point "broadly precludes plaintiffs from pursuing" the payday lending business. Id. at 123 (quoting Gen. Elec. Co., 610 F.3d at 121); see also Trifax Corp. v. District of Columbia, 314 F.3d 641, 644 (D.C. Cir. 2003) ("government stigmatization that broadly precludes individuals or corporations from a chosen trade or business deprives them of liberty in violation of the Due Process Clause."). Plaintiffs can show broad preclusion from the payday lending business by proving that Federal Defendants' actions have or will "effectively put [them] out of business." Trifax Corp., 314 F.3d at 644.

         Plaintiffs' submissions to the Court do not establish that they have a raised a "serious legal question, " let alone that they are likely to succeed, on either prong of Davis. To date, they have not been cut off from the banking system or been put out of business, and their evidence that those harms will befall them in the future is speculative and conclusory.

         a. Plaintiffs' evidence of past injury fails to ...


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