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Cross River Bank v. Meade

United States District Court, D. Colorado

March 22, 2018

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

          ORDER

          PHILIP A. BRIMMER United States District Judge

         This matter comes before the Court on Defendant's 12(b)(1) and (6) Motion to Dismiss Cross River's Complaint [Dkt. #1] [Docket No. 18].

         I. BACKGROUND

         This case is related to a separate action captioned Meade v. Marlette Funding LLC, No. 17-cv-0575-PAB-MJW (“Marlette” 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. Marlette, Docket No. 5. The defendant in the enforcement action, Marlette Funding LLC (“Marlette”), purchases Cross River Bank-originated loans, Docket No. 1 at 2, ¶ 5, and “has primary responsibility for marketing” such loans, id. at 11, ¶ 50, which is done through Marlette's website. Id. at 2, ¶ 4. Additionally, “Marlette has primary responsibility for overseeing sub-servicers that service and collect on the Loans.” Id. at 14, ¶ 73. Cross River Bank is not a party to the enforcement action. Marlette, Docket No. 5. On March 3, 2017, Marlette removed the enforcement action to federal court in this district. Marlette, Docket No. 1.

         On April 3, 2017, Cross River Bank filed its complaint in this lawsuit. Docket No. 1. Cross River Bank alleges that, through the enforcement action, the Administrator “directly threatens Cross River [Bank's] federally protected rights to extend and freely transfer validly-made loans on a nationwide basis, consistent with the Federal Deposit Insurance Act (“FDIA”).” Id. at 1, ¶ 1. Cross River Bank argues that Section 27 of the FDIA, 12 U.S.C. § 1831d, “expressly preempts individual state lending laws” and allows it to “originate loans nationwide (regardless of the domicile of the borrower) at interest terms permitted by the laws of New Jersey, and interest and fees on such loans can be assessed in accordance with New Jersey law, regardless of where the borrower resides.” Docket No. 1 at 2, ¶ 3. Cross River Bank seeks a declaratory judgment that Colo. Rev. Stat. §§ 5-1-201(8), 5-2-201, 5-2-203, and 5-2-204 (collectively “Colorado usury laws”) are “completely preempted by the FDIA, 12 U.S.C. § 1831d, and/or other provisions of federal law.” Docket No. 1 at 23, ¶ 108(b). Cross River Bank also seeks a permanent injunction “barring the Administrator from enforcing the provisions of the Colorado Uniform Consumer Credit Code against Marlette or Cross River [Bank] . . ., whether in the [enforcement action] or otherwise.” Id., ¶ 108(c).

         On March 27, 2017, the Administrator filed a motion to remand the enforcement action. Marlette, Docket No. 25. On April 25, 2017, the Administrator filed the current motion to dismiss this case. Docket No. 18. The Administrator argues that Cross River Bank lacks standing because it alleges only attenuated injury and that Cross River Bank 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 Cross River Bank'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. 18 at 11-15.

         The Court has granted the Administrator's motion to remand the enforcement action to state court. Marlette, Docket No. 58.

         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 Marlette, Docket No. 58. 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 Cross River Bank seeks - an order enjoining the Administrator from enforcing Colorado usury laws against Marlette - would have a significant effect on the State's ability to regulate lending. See Docket No. 18 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, Cross River Bank does not argue or allege any facts showing that Marlette would be unable to raise preemption challenges in relation to the Cross River Bank-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).

         Cross River Bank presents three arguments that abstention is inappropriate here: (1) Cross River Bank is not a party to the enforcement action, Docket No. 22 at 13-14, (2) the enforcement action does not involve important state interests, id. at 14, and (3) the enforcement action is “not a ‘quasi-criminal' action that can support” Younger abstention. Id. (quoting Sprint Commc'ns, Inc. v. Jacobs, 134 S.Ct. 584 (2013)).[1] The Court addresses these arguments in turn.

         A. Cross River Bank is Not a Stranger to the Enforcement Action

          Cross River Bank argues that it is a “stranger” to the enforcement action because it does not have the type of relationship with Marlette that makes it Marlette's alter ego such that Cross River Bank's claims are subject to Younger abstention. Docket No. 22 at 13-14 (citations omitted). Cross River Bank argues that “entities that are ‘unrelated in terms of ownership, control, and management' - as Marlette and Cross River Bank are here - are distinct for Younger purposes even if they have ‘similar business activities and problems.'” Id. at 14 (quoting Doran v. Salem Inn, Inc., 422 U.S. 922, 928-29 (1975)). This argument is not persuasive for the same reasons that the Court rejected the argument in WebBank v. Meade, No. 17-cv-00786-PAB-MLC, 2018 WL 1399914, at *3 (D. Colo. Mar. 19, 2018), a parallel suit brought against the Administrator by a similarly-situated bank. Younger applies in these circumstances because Cross River Bank “seeks to directly interfere with an ongoing state court proceeding, ” id. (citing Doran, 422 U.S. at 929-30, and because Cross River Bank “has a close business relationship with [Marlette] and has not shown that it is a genuine stranger that has ‘its own distinct claim to pursue.'” Id. (quoting D.L., 392 F.3d at 1230). Cross River Bank and Marlette's “mutual ...


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