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WebBank v. Meade

United States District Court, D. Colorado

March 19, 2018

WEBBANK, Plaintiff,
JULIE ANN MEADE, in her official capacity as Administrator of the Uniform Consumer Credit Code for the State of Colorado, Defendant.


          PHILIP A. BRIMMER United States District Judge.

         This matter comes before the Court on Defendant's 12(b)(1) and (6) Motion to Dismiss WebBank's Complaint [Dkt. #1] [Docket No. 17].

         I. BACKGROUND

         This case is related to a separate action captioned Meade v. Avant of Colorado, LLC, No. 17-cv-0620-WJM-STV (“Avant” or the “enforcement action”). In the enforcement action, the defendant here, Julie Ann Meade (the “Administrator”), seeks to enforce Colorado's statutory limits on finance and delinquency charges in her role as the Administrator of the Colorado Uniform Consumer Credit Code. Avant, 2018 WL 1101672, at *1 (D. Colo. Mar. 1, 2018). The defendant in the enforcement action, Avant of Colorado, LLC (“Avant”), is a “servicing partner” that purchases WebBank-originated loans. Docket No. 1 at 2, ¶¶ 3, 5. W ebBank is not a party to the enforcement action. Avant, 2018 WL 1101672, at *1; Docket No. 1 at 2, ¶ 5. On March 9, 2017, Avant removed the enforcement action to federal court in this district. Avant, 2018 WL 1101672, at *1.

         On March 28, 2017, WebBank filed its complaint in this lawsuit. Docket No. 1. WebBank alleges that the enforcement action “directly interferes with WebBank's core lending power and is foreclosed by federal law.” Id. at 1, ¶ 1. WebBank claims that, as a “federally regulated bank, federally insured by the Federal Deposit Insurance Corporation (“FDIC”), . . . WebBank lends to borrowers on a uniform, nationwide basis, using the authority provided by Section 27 of the Federal Deposit Insurance Act (“FDIA”), 12 U.S.C. § 1831d.” Docket No. 1 at 1, ¶ 2. WebBank seeks a declaratory judgment that Colo. Rev. Stat. §§ 5-1-201(8), 5-2-201, and 5-2-203 (collectively “Colorado usury laws”) are “expressly preempted by Section 27 of the Federal Deposit Insurance Act as to loans originated by WebBank.” Docket No. 1 at 31, ¶ 93. WebBank further seeks a permanent injunction against the Administrator to prevent her from enforcing Colorado usury laws against “WebBank, any loans originated by WebBank, or any assignee, partner, program, and/or servicer with respect to their involvement with any loans originated by WebBank.” Id. at 31-32, ¶ 94.

         On March 31, 2017, the Administrator filed a motion to remand the enforcement action. Avant, 2018 WL 1101672, at *1. On April 25, 2017, the Administrator filed the current motion to dismiss this case. Docket No. 17. The Administrator argues that WebBank lacks standing because it alleges only attenuated injury and that WebBank fails to state a claim because Colorado usury laws are not preempted when applied to non-bank entities. Id. at 4-11. The Administrator also argues that, in the event the enforcement action is remanded to state court, the Court must abstain from hearing WebBank's claim pursuant to Younger v. Harris, 401 U.S. 37 (1971), or, in the alternative, that the Court should decline to exercise jurisdiction to issue a declaratory judgment. Docket No. 17 at 12-15.

         On March 1, 2018, Judge William J. Martínez granted the Administrator's motion to remand the enforcement action to state court. Avant, 2018 WL 1101672, at *15.

         II. ANALYSIS

         The Court addresses only the issue of Younger abstention because it is dispositive.

         In Younger, the Supreme Court ruled that a district court's injunction of a pending state court criminal prosecution violated “the national policy forbidding federal courts to stay or enjoin pending state court proceedings except under special circumstances.” 401 U.S. at 41. Younger abstention dictates “that federal courts not interfere with state court proceedings by granting equitable relief - such as injunctions of important state proceedings or declaratory judgments regarding constitutional issues in those proceedings - when such relief could adequately be sought before the state court.” Rienhardt v. Kelly, 164 F.3d 1296, 1302 (10th Cir. 1999). Thus, after Younger, even when a federal court would otherwise have jurisdiction to grant declaratory or equitable relief, the court must abstain from exercising jurisdiction when a judgment on the claim would interfere with ongoing state criminal or civil proceedings. D.L. v. Unified Sch. Dist., 392 F.3d 1223, 1227-28 (10th Cir. 2004); see also Samuels v. Mackell, 401 U.S. 66, 73 (1971) (“[W]here an injunction would be impermissible under these principles, declaratory relief should ordinarily be denied as well.”). The Supreme Court has established a threefold analysis for abstention under Younger. “For Younger abstention to apply, there must be an ongoing state judicial . . . proceeding, the presence of an important state interest, and an adequate opportunity to raise federal claims in the state proceedings.” Planned Parenthood of Kansas v. Andersen, 882 F.3d 1205, 1221 (10th Cir. 2018) (alteration marks and internal quotation marks omitted); see also Middlesex Cty. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 431-32 (1982); Amanatullah v. Colo. Bd. of Med. Exam'rs, 187 F.3d 1160, 1163 (10th Cir. 1999); Crown Point I, LLC v. Intermountain Rural Elec. Ass'n, 319 F.3d 1211, 1215 (10th Cir. 2003). Younger abstention is mandatory, and a district court does not have discretion whether to abstain unless extraordinary circumstances are present. Weitzel v. Div. of Occupational and Prof'l Licensing of Dep't of Commerce, 240 F.3d 871, 875 (10th Cir. 2001) (citing Amanatullah, 187 F.3d at 1163).

         As to the first prong of the Younger analysis, the enforcement action is pending in state court. See Avant, 2018 WL 1101672, at *15. As to the second prong, enforcing laws regulating lending practices implicates an important state interest. See Epes v. Green Tree Servicing, LLC, 2004 WL 5571941, at *10 (E.D. Va. Dec. 14, 2004) (“[T]he state has an important interest in protecting citizens from predatory lending practices and usury.” (citations omitted)). The relief WebBank seeks - an order enjoining the Administrator from enforcing Colorado usury laws against anyone involved with its loans - would have a significant effect on the State's ability to regulate lending. See Docket No. 17 at 13-14; Colo. Rev. Stat. §§ 5-6-114 (empowering the Administrator to enforce Colorado's usury laws by civil action). As to the third prong, WebBank does not argue or allege any facts showing that Avant would be unable to raise preemption challenges in relation to the WebBank-initiated loans that it owns, and the Court finds no basis for so concluding. Cf. Stoorman v. Greenwood Trust Co., 908 P.2d 133 (Colo. 1995) (finding that federal law preempts Colorado's limitations on loan fees and interest charges by a federally-insured, state-chartered bank).

         WebBank presents three arguments that abstention is nevertheless inappropriate here: (1) WebBank is not a party to the enforcement action and is not an alter ego of Avant, (2) the Younger abstention doctrine was narrowed by Sprint Commc'ns, Inc. v. Jacobs, 134 S.Ct. 584 (2013), such that it does not apply to the enforcement action, and (3) preemption under Section 27 of the FDIA is “facially conclusive” such that no state interest would be served by allowing the state court to act. Docket No. 23 at 14.[1] The Court addresses these arguments in turn.

         A. WebBank is Not a Stranger to the Enforcement Action

         WebBank argues that abstention is inappropriate because “WebBank is not a party to the Enforcement Action, and WebBank cannot be characterized as ‘merely an alter ego of a party in state court, ' i.e., Avant.” Docket No. 23 at 14 (quoting D.L., 392 F.3d at 1230). This argument is not persuasive. In D.L., a school district brought a state court action for special education expenses against the mother and cohabiting boyfriend of two disabled students. D.L., 392 F.3d at 1227. The mother, boyfriend, and the students filed a complaint in federal court against the district and its special education administrator. Id. Even though the two lawsuits had different parties, the court found that Younger barred the federal court from hearing claims related to the special education expenses because, if any federal claim succeeded, there would be no merit to the district's state court suit. Id. at 1229. Because a “resolution favorable to Plaintiffs in [the federal] case would foreclose [the state] suit (and might even be enforced by a federal injunction against the suit), ” the federal case presented an “interference with state-court litigation that [was] impermissible under Younger.” Id. (citing Samuels, 401 U.S. at 72-73). Discussing the Supreme Court's decision in Doran v. Salem Inn, Inc., 422 U.S. 922, 928 (1975), the Tenth Circuit explained that it is “proper for a federal court to exercise jurisdiction over the claim of a genuine stranger to an ongoing state proceeding even though a federal decision clearly could influence the state proceeding by resolving legal issues identical to those raised in state court-for example, both proceedings may involve challenges to the same ordinance as an unconstitutional restraint on expressive activity.” D.L., 392 F.3d at 1230. The court, however, found that Younger applied where there ...

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