Community Financial Services Association of America, Ltd. v. Federal Deposit Insurance Corporation ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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COMMUNITY FINANCIAL SERVICES }
ASSOCATION OF AMERICA, LTD., }
et al., }
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Plaintiffs, }
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v. } Case No. 14-CV-953 (GK}
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FEDERAL DEPOSIT INSURANCE }
CORPORATION, et al., }
}
Defendants. }
~~~~~~~~~~~~~~~~~
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MEMORANDUM OPINION
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 Off ice 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
1
..
("Motion.to Dismiss"), in which Defendants seek dismissal of CFSA
as a party to this case. [Dkt . No. 7 5] . 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
1 See Section I.B, Procedural Background, infra, for a detailed
history of the relevant briefs.
2
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 withall payday lenders.'" Id.
B. Procedural Background
On June 5, 2014, Plaintiffs filed their original Complaint,
[Dkt. No. l], 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 Cons ti tut ion. 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 intere~t in liberty or property. Id. at 123-
3
24 (citing Paul v. Davis, 424 US 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].
2 Despite the Court's dismissal of Plaintiffs' APA claims,
Plaintiffs again included them in their Second Amended
Complaint. See SAC , , 116-197 (Counts I-III, V-VII, IX-XI all
brought pursuant to the APA). As those claims were dismissed,
they are no longer before the Court and are not the subject of
this motion. Only Plaintiffs' due process claims, claims IV,
VIII, and XII, are properly before the Court.
4
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'l Acad. of Sci.,
974 F.2d 192, 197 (D.C. Cir. 1992).
5
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 a'llegations 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
6
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. III, § 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, (2013) (internal citations omitted). "One element of
the case-or-controversy requirement is that plaintiffs must
3 In ruling on Defendants' first Motion to Dismiss, this Court
held that the Plaintiffs collectively had standing to raise
these due process claims. CFSA, 132 F. Supp. 3d at 108-115.
However, in doing so, the Court did not expressly distinguish
between CFSA's and Advance America's respective standing to
raise these claims, nor did the parties themselves raise the
issue. See id. and [Dkt. Nos. 16, 17, 18, 23, 41, 44 & 46].
7
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
I opposed to merely speculative, that the injury will be redressed
I
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
8
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 members' 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).
9
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.
at708).
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
10
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 stigmatiz.ed 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("stigma alone is insufficient to invoke due process
protections").
Instead, to show that they had actually lost banking
relationships and those losses were caused by Operation Choke Point
would require significant and extensive participation by CFSA's
members. First, member-specific evidence is necessary to show
that CFSA' s members have, in fact, lost banking relationships.
For example, members would have to present individualized
"documentation regarding the allegedly lost accounts, including
the deposit agreements." Mot. to Dismiss at 16.
Second, in order to establish that it was the stigma generated
by Operation Choke Point that caused those losses, rather than
4
For example, Plaintiffs could attempt to show· that Operation
Choke Point had stigmatized the entire payday lending industry
relying primarily on evidence of the words and actions of
Defendants.
11
some other cause, individual banks would almost certainly be
required to provide evidence regarding their reasons for
terminating banking relationships with CFSA's members. This might
include communications between the banks and CFSA's members, see
id., along with the evidence of the banks' own reasoning, such as
internal memoranda or emails. Both require CFSA' s members to
introduce individualized evidence of their lost banking
relationships.
Furthermore, establishing that CFSA's members can no longer
pursue their chosen line of business will also almost certainly
require individualized evidence of their respective business
activity before and after Operation Choke Point, along with
evidence as to the myriad factors relevant to the success or
failure of their business. 5 Mot. to Dismiss at 7.
It is impossible to see how any of this could be accomplished
without significant member participation. See Friends for
American Free Enterprise Ass'n v. Wal-Mart Stores, Inc., 284 F.3d
575, 577 (5th Cir. 2002) (association's claims regarding
defendants' interference in bilateral relationships between
5 Defendants also point out that testing Plaintiffs' claims may
require "documentation of each member's finances over the past
several years . . interrogatories about any other lost
relationships or business opportunities that could have affected
[members'] financial prospects, and notice depositions to adduce
each member's present ability to do business." Mot. to Dismiss
at 15-16.
12
association members and third parties not involved in the lawsuit
are too fact-specific to be resolved without individual member
participation) .6
b. CFSA's request for injunctive, rather than
monetary, relief is insufficient to establish
that member participation is not required
In spite of this, Plaintiffs argue that because they seek
injunctive relief, rather than monetary damages, member
participation is not required. Opp'n at 11-12. For this
proposition Plaintiffs cite United Food and Commercial Works Union
Local 751 v. Brown Group, Inc., in which the Court noted that in
6 Indeed, the facts of Friends for American Free Enterprise seem
directly on point. In that case an association of "manufacturers'
representatives" sued Sam's Club for tortious interference. The
manufacturers' representatives were quintessential middlemen,
selling the goods produced by the manufacturers to third parties,
such as Sam's Club. The representatives' contracts with the
manufacturers had exclusivity clauses that prevented the
manufacturers from selling their products directly to others.
Sam's Club decided it would no longer purchase goods from the
representatives, but would instead purchase them directly from the
manufacturers. An association of manufacturers' representatives
then sued on their behalf, in part to keep the members' identities
secret. 284 F.3d at 576.
The court held that the association lacked associational
standing because member participation was required to prove the
underlying claims. Just as here, the associational plaintiff
claimed that the defendant, Sam's Club, was exerting pressure on
a third party not before the court, the manufacturers, in order to
get the third party to terminate a bilateral relationship with the
association's members, the manufacturers' representatives. The
court held that resolution of the tortious interference claims
required member participation because the defendant would need to
be able to obtain information regarding the business relationship
between the association's members and the third-party
manufacturers. Id. at 576-77.
13
all prior cases where the Court had found that associational
standing existed, plaintiffs had only sought injunctive relief.
517 U.S. 544, 554 (1996) ("Brown Group").
The logical fallacy inherent in Plaintiffs' argument is
evident on its face. The fact that all cases in which
associational standing has been found to exist involved a request
for injunctive relief, does not mean that associational standing
exists in all cases where an association seeks injunctive relief.
Indeed, such a rule is plainly precluded by the Court's
holding in Hunt, which requires the Court to look not only at the
type of relief requested but also at the nature of "the claim
asserted" to determine whether member participation is required,
a requirement repeatedly confirmed since Hunt was decided. Hunt,
433 U.S. at 343; see also Rent Stabilization Ass'n v. Dinkins, 5
F.3d 591, 596 (2d Cir. 1993) ("the relief sought is only half of
the story . . . we must also examine the claims asserted to determine
whether they require indi victual participation.") ; Friends for
American Free Enterprise, 284 F.3d at 577 (no associational
standing even though plaintiffs only sought injunctive relief);
Kansas Heal th Care Ass' n v. Kansas Dep' t of Social and Rehab.
Servs., 958 F. 2d 1018, 1022 (10th Cir. 1992) (no associational
standing even though plaintiffs only sought injunctive relief) .
14
Thus, the mere fact that Plaintiffs seek injunctive rather
than monetary relief does not mean that member participation is
not required in this lawsuit.
c. This defect cannot be cured through sampling
Plaintiffs argue that this defect can be overcome by sampling
--i.e. by taking evidence from a representative sample of CFSA's
members without violating Hunt's third prong. Opp' n at 17
(arguing that "courts have repeatedly upheld associational
standing where, as here, 'an association plaintiff can prove its
case with a sampling of evidence from its members'" (quoting
Association of American Physicians & Surgeons, Inc. v. Texas
Medical Bd., 627 F.3d 547, 551-552 (5th Cir. 2010))).
Plaintiffs are correct that numerous courts have held that
the third prong of Hunt may be satisfied even though some minimal
degree of member participation is necessary. See e.g. Hospital
Council v. Pittsburg, 949 F;2d 83, 89 (3d Cir. 1991); Retired
Chicago Police Ass'n v. City of Chicago, 7 F.3d 584 (7th Cir.
19 93) ; see also Association of American Physicians & Surgeons,
Inc., 627 F.3d at 551-52 (providing an overview of various
Circuits' approaches to allowing sampling) . Those courts have
held that a representative sample of members could provide evidence
without violating Hunt's third prong. See Association of American
Physicians & Surgeons, Inc., 627 F.3d at 551-52.
15
There does not appear to be any bright-line rule regarding at
what point sampling violates Hunt's third prong. See id. at 552(differences in various Circuits' approaches "are more of degree
than kind"). Instead, it is a discretionary inquiry as to whether
it would be more efficient to allow sampling, rather than require
each member to bring a claim individually. See Alliance for Open
Society International v. U.S. Agency for International
Development, 651 F.3d 218, 229 (2d Cir. 2011). A number of factors
are relevant to this inquiry.
Typically, sampling is appropriate where only "minimal
participation from individual members" is required to prove the
claim. Id. (internal· quotation marks and citations omitted).
Thus, sampling is appropriate in a case where a "discrete pattern
of conduct . [is] alleged to have applied equally against a
large number of association members," such that "once proved as to
some, the violations would be proved as to all." Id.A related factor is whether the claims present "pure questions
of law" or, instead, are "fact-specific." See Friends for American
Free Enterprise Ass'n, 284 F.3d at 577. Thus, Courts have
repeatedly held that the third prong of Hunt is not violated where
the claim involves a question of law. 7 Id.; Playboy Enterprises,
7 Another parallel is the difference between facial and as-applied
challenges. Facial challenges do not ordinarily require
individual member participation but as-applied challenges
16
Inc. v. Public Service Com'n of Puerto Rico, 906 F.2d 25, 35 (1st
Cir. 1990) (member participation is not required where the case
involves a "question of law which is not particular to each member
of the Association"); Bano v. Union Carbide Corp., 361 F.3d 696,
714 (2d Cir. 2004) (member participation is not required where
"organization seeks a purely legal ruling") ; but see Retired
Chicago Police Ass'n v. Chicago, 7 F.3d 584, 601 (third prong of
Hunt satisfied even though claims "were not premised on pure
questions of law") . In contrast, Courts have concluded that member
participation is required - and thus the third prong of Hunt is
violated - where a fact-specific inquiry is necessary to establish
a violation. Friends for American Free Enterprise Ass' n, 284
F.3d at 577.
Finally, courts have concluded that sampling does not violate
Hunt's prohibition on member participation where the sample
evidence focuses on the conduct of the defendant to establish a
ordinarily do. See Kansas Health Care Ass' n, 958 F. 2d at 1022(individual participation not required where violation can be
adduced solely by looking at terms of agency policy or practice
(discussing AMISUB (PSL), Inc. v. Colorado Dep't of Social Servs.,
879 F.2d 789 (10th Cir. 1989)) but individual participation is
required where violation cannot be determined from reviewing
policies "on their face"); Bano v. Union Carbide Corp, 361 F. 3d
696, 714 (2d Cir. 2004) (member participation required in "as-
applied" challenge (discussing Rent Stabilization Ass'n, 5 F.3d at
596)); Free Speech Coalition, Inc. v. Attorney General, 787 F.3d
142, 153-54 (3d Cir.) (as-applied challenge under First Amendment
requires member participation to establish violation), rev'd on
other grounds by 825 F.3d 149 (3d Cir. 2016).
17
violation of law, rather than on the extent of plaintiff's
injuries. Pennsylvania Psychiatric Soc. v. Green Spring Health
Services, Inc., 280 F.3d 278, 286 (3d Cir 2002) (limited member
participation does not defeat standing where sample evidence 'is
about "methods" employed by Defendants and used to prove "systemic"
conduct by Defendants); Alliance for Open Society, 651 F.3d at 229(finding associational standing where "it is the conduct of
Defendants . . that will be the primary subject of inquiry") ;
Retired Chicago Policy Ass'n v. Chicago, 7 F.3d 584, 602-03 (7th
Cir.) (limited member participation does not defeat associational
standing where sample evidence focuses on whether defendants
engaged in alleged conduct) .
Even Hospital Council of Western Pennsylvania v. Pittsburgh,
949 F.2d 83 (3d Cir. 1991), the case on which Plaintiffs rely so
heavily, is understood to allow for limited member participation
where the sample evidence was used to prove the conduct of the
defendant. See Retired Chicago Policy Ass'n, 7 F.3d at 603 ("In
that case, at issue was whether the defendant governmental entities
had pursued the policy of which the plaintiffs complained; the
court believed that issue could be answered through the evidence
submitted by, among others, some of the parties.").
The Court concludes that sampling is inappropriate in this
case, as all of the relevant factors suggest that no efficiencies
18
will be gained by allowing CFSA to litigate this matter, rather
than having individual members litigate their own claims.
Fir$t, Plaintiffs' stigma-plus claims do not involve pure
questions of law, but instead, are highly fact-sensitive. Whether
any individual member has suffered a loss of banking relationships
and whether that loss was caused by Operation Choke Point turns on
unique facts that are specific to that member, such as what reasons
the individual bank gives for terminating the relationship.
Second, this is not a case where sample evidence can be
limited to the conduct of the Defendants. As the Court has already
explained, the Defendants' conduct is only one of the elements in
establishing a due process violation under the stigma-plus test.
Indeed, CFSA's own pleadings confirm that individual
participation is required in this case. See SAC ~ 14 ("numerous
CFSA members have lost their business relationships with banks"
(emphasis added)). By stating that not all of its members have
lost banking relationship CFSA has clearly demonstrated that
Operation Choke Point did not have a uniform ef feet on CFSA' s
members. Therefore, this is not a case where sample evidence can
establish violations that "once proved as to some [members]
would be proved as to all." See Association of American Physicians
& Surgeons, Inc., 627 F.3d at 552.
19
Finally, the Court believes that sampling is likely to be
inappropriate where an organization's membership is as small as
CFSA's. Where an organization contains only 41 members, as CFSA
does, a statistically significant sample size includes virtually
all members. Indeed, any smaller sub-sample of members raises the
risk of choosing an unrepresentative sample, either through
inadvertence or cherry-picking by the plaintiff. Thus, a sample
of sufficient size to be representative will not be significantly
more efficient than bringing the case individually, and any smaller
sample is likely to be unrepresentative and misleading.
Consequently, all of the relevant factors suggest that it
will be no more efficient to have CFSA litigate this case than to
have members pursue their claims individually. Association of
American Physicians & Surgeons, Inc., 627 F.3d at 552-53 (third
prong of Hunt is concerned with "whether an association or its
individual members are better positioned to present a case" and
judicial efficiency) . Therefore, as CFSA' s claims so clearly
"require[] the participation of individual members in the
lawsuit," the Court concludes that CFSA lacks associational
standing. See Hunt, 432 U.S. at 343.
iii. CFSA Lacks Organizational Standing
Additionally, rather than suing on behalf of its members, an
organization may sue on its own behalf to protect against alleged
20
violations of its own interests. Nat'l Treasury Employees Union
v. United States, 101 F.3d 1423, 1427-28. (D.C. Cir. 1996) (citing
Havens Realty Corp. v. Coleman, 455 U.S. 363, 378, (1982)). To do
so, the organization must satisfy each of the traditional three
prongs of the standing inquiry - injury in fact, causation, and
redressability. Id. at 1427. However, the alleged injury cannot
simply be an injury to its members' interests. Instead, it must
be a "concrete and demonstrable injury to [the organization's]
activities." Id.
CFSA alleges two distinct injuries which it argues satisfy
the first prong of injury in fact. First, CFSA alleges that it is
receiving fewer dues payments from members as a result of Operation
Choke Point. Opp'n at 28, n.8. Second, CFSA alleges that, as a
result of Operation Choke Point, it has had to divert significant
resources from its traditional activities to assist members who
have been adversely affected. Opp'n at 27.
a. CFSA's allegations that it has lost membership
dues are too speculative to establish causation
or redressability
The parties dispute whether Plaintiffs' loss of membership
dues, caused by the Defendants' actions, constitutes a cognizable
injury in fact. See Opp'n at 28; Mot. to Dismiss at 19-20. Each
21
party musters a number of cases seeking to show that it is correct. 8
Yet, neither cites to a decision of this Circuit's Court of Appeals
that conclusively resolves the issue.
Even if the Court were to assume that a loss of membership
dues was a cognizable injury in fact, it is evident that Plaintiffs
cannot show that this injury was caused by Operation Choke Point
or that an order from this Court would redress it.
"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. Because the necessary elements of causation and
redressability in such a case hinge on the independent choices of
the regulated third party, it becomes the burden of the plaintiff
to adduce facts showing that those choices have been or will be
made in such manner as to produce causation and permit
8
Opp'n at 28 n.8 (citing Taxation with Representation of
Washington v.Regan, 676 F.2d 715, 722-23 (D.C. Cir. 1982), rev'd
on other grounds, 461 U.S. 540 (1983); Construction Indus. Ass'n
of Sonoma Cnty. v. City of Petaluma, 522 F.2d 897, 903 (9th Cir.
1975); National Treasury Emps. Union v. IRS, 2006 WL 416161, at *2
(D.D.C. Feb. 22,_2006); NAACP v. Acusport Corp., 210 F.R.D. 446,
457 (E.D.N.Y. 2002); Tiano v. County of Santa Clara, 1994 WL
618467, at *6 (N.D. Cal. Oct. 19, 1994) Richards v. New York State
Dep't of Corr. Servs., 572 F. Supp. 1168, 1179 (S.D.N.Y. 1983));
Mot. to Dismiss at 19 (asserting that loss of dues is a
"derivative" harm and therefore non-cognizable as an Article III
injury (citing Petro-Chem Processing, Inc. v. EPA, 866 F.2d 433,
435 n.2 (D.C. Cir. 1989); Bensman v. United States Forest Serv.,
408 F.3d 945, 948 n.2 (7th Cir. 2005); Delta Air Lines, Inc. v.
Export-Import Bank, 85 F. Supp. 3d 250, 262 (D.D.C. 2015)).
22
redressability of injury. In other words, mere unadorned
speculation as to the existence of a relationship between the
challenged government action and the third-party conduct will not
suffice to invoke the federal judicial power." National Wrestling
Coaches Assn' v. Dept. of Education, 366 F.3d 930, 938 (D.C. Cir.
2004); see also Clapper v. Amnesty Intern. USA, 133 S. Ct. 1138,
1150 (2013) (expressing a "reluctan[ce] to endorse standing
theories that require guesswork as to how independent
decisionmakers will exercise their judgment.").
Previously, this Court held in its Memorandum Opinion that
Plaintiffs' allegations were sufficient to establish standing.
CFSA, 132 F. Supp. 3d at 111-15. The Court held that Plaintiffs'
allegations established causation, by alleging that Defendants'
actions had caused third-party banks, who are not parties to this
litigation, to terminate their business relationships with CFSA's
members. Id. The Court also found that a decision in Plaintiffs'
favor could redress this injury by enabling Plaintiffs to once
again access the banking system, even if their original banks did
not restore the terminated banking relationships. Id.
Plaintiffs now ask that the Court go even further and find
that the increased costs CFSA's members suffered because of the
alleged loss of banking relationships in turn caused those members
to either withdraw from CFSA or to reduce their membership level
23
•.
within the association, resulting in lower dues. See Opp'n at 28-
29, n. 8. Plaintiffs' argument fails because they cannot show
either causation or redressability.
First, CFSA has failed to allege any facts tending to show a
causal relationship between Operation Choke Point and its
decreased membership revenue. CFSA names multiple members who
allegedly have lost banking relationships as a result of Operation
Choke Point, but fails to name a single member who has reduced its
dues payments as a result of such losses. See SAC. Similarly,
CFSA has submitted numerous declarations from members who allege
that they have lost banking relationships as a result of Operation
Choke Point, but not one alleges that Operation Choke Point caused
it to reduce its dues payments to CFSA. See various declarations
[Dkt. Nos. 23-1, 23-2, 23-3, 23-4, 23-5, 23-6, 23-8].
Indeed, it appears just as plausible that CFSA' s members,
faced with the allegedly existential threat of Operation Choke
Point, would maintain or increase their contributions to CFSA
because CFSA's very mission is to defend them from harmful
regulatory actions. Absent any tangible evidence, it is "mere
unadorned speculation" to inf er a causal link between Operation
Choke Point and the alleged reduction in members' dues payments.
See National Wrestling Coaches Ass'n, 366 F.3d at 838; Food and
Water Watch v. Vilsack, 808 F.3d 905, 913 (D.C .. Cir. 2015) (a court
24
need not "accept inferences that are unsupported by facts set out
in the complaint" (internal citations and quotation marks
omitted))
Unable to show that Operation Choke Point has caused a
reduction in membership dues, it is essentially impossible for
CFSA to establish redressability. Furthermore, even if CFSA could
establish causation, it is entirely unclear that a court order,
ending Operation Choke Point, would cause CFSA's members to return
to paying their previous level of dues. Indeed, just as with
Plaintiff's arguments regarding causation, the Court can imagine
an equally plausible scenario in which the Court orders a
termination of Operation Choke Point and CFSA's members decline to
resume their prior dues payments because the danger has passed. 9
9 This absence of causation and redressability distinguishes the
present case from many of those that Plaintiffs cite for the
proposition that a loss of membership dues constitutes an Article
III injury. See Opp'n at 28, n.8 (citing National Treasury
Employees Union v. IRS, 2006 WL 416161, *2 (D.D.C. Feb. 22, 2006)
("NTEU"); Construction Industry Ass'n of Sonoma v. Petaluma, 522
F.3d 897, 903-04 (9th Cir. 1975)).
For example, in NTEU the Plaintiff union challenged the
firing of union members and the court found standing on the
basis of a loss of union dues. 2006 WL 416161 at *2. The
court held that the loss was necessarily caused by the firing of
union members and was redressable because if the members were
reinstated they would be required to begin paying dues once
again. Id.Similarly, in Petaluma the Plaintiff Construction association
challenged a regulation capping the number of dwellings that could
be built annually and the court found standing on the basis of a
25
The Court is mindful of the Supreme Court's and the Circuit
Court of Appeals' repeated admonitions not to speculate as to how
third parties might respond to a court order in order to
manufacture standing. See Food and Water Watch, 808 F.3d at 931
("when considering any chain of allegations for standing purposes,
we may reject as overly speculative those links which are
predictions of future events (especially future actions to be taken
by third pa~ties)"); National Wrestling Coaches Ass'n, 366 F.3d at
838; Clapper, 133 S. Ct. at 1150. In this case, it is entirely
speculative as to whether the alleged reduced membership dues were
caused by Operation Choke Point or could be redressed by an order
of this Court. Therefore, CFSA cannot establish organizational
standing on the basis of that alleged injury.
b. CFSA' s alleged reprogramming of organizational
resources in response to Operation Choke Point
is not a cognizable Article III injury
CFSA also alleges that it has standing because Operation Choke
Point frustrates CFSA's mission and CFSA has had to expend
resources to combat that harm. Opp'n at 25-27 (citing National
loss of membership dues. Petaluma, 522 F.3d at 903-04. Because
membership dues were a fixed percentage of revenues, the cap on
building activity necessarily caused a reduction in dues and
lifting the cap would necessarily redress that harm. Id.
26
Treasury Emps. Union v. United States, 101 F.3d 1423, 1430 (D.C.
Cir. 1996)).
In assessing an organization's standing it is insufficient to
show that the organization's "mission has been compromised" by the
challenged action. Food and Water Watch, 808 F.3d at 919.
Instead, it must show the challenged action has "impeded" the
organization's own activities. Id. In other words, a showing of
injury requires "more than simply a setback to the organization's
abstract social interests." Nat'l Ass'n of Home Builders v. EPA,
667 F.3d 6, 11 (D.C. Cir. 2011).
This requires a "two-part inquiry-'we ask, first, whether the
agency's action or omission to act injured the organization's
interest and, second, whether the organization used its resources
to counteract that harm.'" Food and Water Watch, 808 F.3d at 919
(quoting PETA v. USDA, 797 F.3d 1087, 1093 (D.C. Cir. 2015)). "To
allege an injury to its interest, an organization must allege that
the defendant's conduct perceptibly impaired the organization's
ability to provide services in order to establish injury in fact.
An organization's ability to provide services has been perceptibly
impaired when the defendant's conduct causes an inhibition of the
organization's daily operations." Id. (internal quotations and
citations omitted) .
27
"[A]n organization's use of resources for . . advocacy is
not sufficient to give rise to an Article III injury." See Food
i'
I & Water Watch, 808 F. 3d at 920. "Furthermore, an organization
does not suffer an injury in fact where it expends resources to
educate its members and others unless doing so subjects the
organization to operational costs beyond those normally expended."
Id. at 920 (internal citations and quotations omitted) .
The harms asserted by CFSA are not cognizable Article III
injuries. First, CFSA notes that its mission is to advocate on
behalf of payday lenders in the legislative and regulatory arena,
while Operation Choke Point is allegedly designed to put an end to
payday lending, the very activity CFSA advocates on behalf of.
Opp'n at 27. CFSA contends that if that is not a direct conflict
with its mission, then nothing ever would be. Id. While CFSA
tries to characterize this as a unique organizational harm, it is
nothing more than a "generalized grievance about the conduct of
the Government." Food and Water Watch, 808 F.3d at 926. Reduced
to its essence, CFSA believes that payday lending is good and,
necessarily, that this effort to allegedly eliminate payday
lending is bad. That is not an Article III injury. Id.
Additionally, CFSA alleges that it has been forced to divert
resources from its traditional lobbying activities and instead
spend its resources advising its members on how to respond to
28
Operation Choke Point and negotiating with the banks on behalf of
members. Id. Essentially, CFSA argues that it has been forced to
curtail its traditional issue advocacy and engage in a new type of
advocacy to respond to the threat posed by Operation Choke Point.
Yet, the Court of Appeals has repeatedly rejected the argument
that impairment of an organization's ability to engage in issue-
advocacy is a cognizable injury. See Center for Law and Educ. V.
Dep't of Educ., 396 F.3d 1152, 1161-62 (D.C. Cir. 2005) (impairment
of organization's ability to engage in "pure issue-advocacy" is
not cognizable injury for standing purposes) i National Taxpayers
Union, Inc. v. U.S., 68 F.3d 1428, 1433i PETA, 797 F.3d at 1093-
94. The courts have reasoned that an organization's interest in
lobbying on behalf of its members is ordinarily indistinguishable
from and identical to its abstract interest in having "a social
goal furthered." National Taxpayers Union, Inc. v. U.S., 68 F.3d
1428, 1433. Harms to such a generalized interest are
insufficiently concrete to rise to the level of a cognizable
Article III injury. 10 Id. i PETA, 797 F.3d at 1094.
10 Indeed,· in some instances, government actions that hinder the
policy objectives of an organization may help, rather than harm,
the organization as an institution, by energizing its members or
by giving it new opportunities to carry out its mission. See Elec.
Privacy Info. Ctr. v. Dep't of Educ., 48 F. Supp. 3d 1, 23 (D.D.C.
2014) ("Here, the Final Rule has not impeded EPIC's programmatic
concerns and activities, but fueled them. And the expenditures
that EPIC has made in response to the Final Rule have not kept it
from pursuing its true purpose as an organization but have
29
Consequently, CFSA has failed to establish that it has
organizational standing.
iv. CFSA lacks Third Party (Jus Tetrii} Standing
Defendants argue that even if Plaintiffs can establish
organizational standing they still fail to satisfy the
requirements of third party standing, also known as jus tetrii
standing. CFSA asserts that it has satisfied the requirements for
third party standing.
The doctrine of third party standing is a prudential
limitation on the ability of third parties to challenge actions
that injure others who are not before the court. Lepelletier v.
FDIC, 164 F.3d 37, 43 (D.C. Cir. 1999). It reflects the principle
that, ordinarily, "a litigant must assert his or her own legal
rights and interests, and cannot rest a claim to relief on the
legal rights or interests of third parties." Powers v. Ohio, 499
U.S. 400, 410 (1991).
A party seeking to clear the prudential hurdle of third party
standing must first establish that it has Article III standing.
See Sands v. NLRB, 825 F.3d 778, 784 (D.C. Cir. 2016) ("[plaintiff]
contributed to its pursuit of its purpose.") ; Nat' 1 Consumers
League v. Gen. Mills, Inc., 680 F. Supp. 2d 132, 136 (D.D.C.2010)
("Challenging conduct like General Mills' alleged mislabeling is
the very purpose of consumer advocacy organizations. As such,
General Mills' alleged conduct does not hamper NCL' s advocacy
effort; if anything it gives NCL an opportunity to carry out its
mission.") .
30
•.
must show that he has standing under Article III, and that he
satisfies third party, or jus tertii, standing requirements. 11
) •
Assuming she has done so, there are three factors that must be
considered in "determining whether an individual may assert the
rights of others: (1) 'the litigant must have suffered an injury
in fact, thus giving him or her a sufficiently concrete interest
in the outcome of the issue in dispute, ' ( 2) 'the litigant must
have a close relation to the third party,' and (3) 'there must
exist some hindrance to the third party's ability to protect his
or her own interests. ' 11
Lepelletier, 164 F. 3d at 43 (quoting
Powers, 499 U.S. at 411) (emphasis added).
As the foregoing analysis makes clear, CFSA lacks Article III
standing, and therefore, it does CFSA no good to establish third
party standing. Furthermore, even if CFSA could establish Article
III standing, CFSA's alleged hindrance to its members is
insufficient to find that it has third party standing.
As the Court has already concluded, many if not all of CFSA's
members would be required to participate in this lawsuit and to
disclose information regarding their banking relationships. Thus,
CFSA's members will be forced to disclose their identities and
business practices in order to prove the claims in this lawsuit
and the claimed hindrance will exist regardless of whether. CFSA
litigates these claims on behalf of its members or whether the
31
members are forced to bring them individually. Indeed, one of
CFSA' s members, Advance America, is already a party to this
lawsuit, suggesting that this fear is not a hindrance to member
participation at all. See Hodak v. Peters, 535 F.3d 899, 905 (8th
Cir. 2008).
Additionally, CFSA fails to cite a single case holding that
fear of future regulatory activity alone constitutes a cognizable
hindrance. 11 As third-party standing is an exception to the rule
that litigants must bring their own claims, it is looked on with
disfavor, Kowalski v. Tesmer, 543 U.S. 125, 130 (2004), and the
Court will not extend this exception.
Thus, the Court concludes that CFSA cannot meet the test for
third party standing.
v. Therefore CFSA cannot establish standing under any
theory
In sum, the Court concludes that CFSA lacks either
associational standing or organizational standing. Furthermore,
the Court concludes that even if CFSA had organizational standing,
11 Plaintiffs rely on Members of the City Council of L.A. v.
Taxpayers for Vincent, 466 U.S. 789, 798 (1984). That case makes
clear that fear is a hindrance unique to the context of a facial
challenge under the First Amendment to a criminal statute. Id.The other case on which Plaintiffs rely did not hold that
fear alone constitutes a hindrance. See Pennsylvania Psychiatric
Soc., Inc., 280 F.3d at 290 (concluding that fear "coupled with
[the third parties'] potential incapacity to pursue legal
remedies" constituted a hindrance) .
32
it cannot satisfy the prudential requirements of third party
standing, and therefore should not be allowed to litigate the due
process claims of its members. These conclusions rest on the
standard of review for a motion to dismiss, pursuant to Rule
12(b) (1), or a motion for judgment on the pleadings, pursuant to
Rule 12 (c).
B. Defendants Did not Waive their Standing Arguments
Finally, Plaintiffs argue that even if CFSA cannot satisfy
either the third prong of the Hunt test for associational standing
or the third prong of the test for third party standing, Defendants
waived these arguments by failing to raise them in their original
Motions to Dismiss. Opp'n at 9-11, 29. Plaintiffs argue that
these prongs are merely prudential limits on standing, and
therefore, that they do not survive the Supreme Court's decision
in Lexmark International, Inc. v Static Control Components, Inc.,
134 S. Ct. 1377 (2014). Opp'n at 9-11, 29.
In Lexmark the Court held that the "zone of interests" test
is not a standing requirement imposed by Article III and is
therefore non-jurisdictional. 134 S. Ct. at 1386-88. In doing
so, the Court suggested that the entire doctrine of prudential
standing may be illegitimate, noting that it "is in some tension
with . . the principle that a federal court's obligation to hear
and decide cases within its jurisdiction is virtually unflagging."
33
Id. at 1386 (quoting Sprint Communications, Inc. v. Jacobs, 134
S.Ct. 584, 591 (2013) (internal quotation marks omitted)); see
also 15 Moore's Federal Practice 3d § 101.50 (describing Lexmark
as "herald[ing] the demise of the prudential strand of standing").
Plaintiffs are correct that the tests for both associational
and third party standing contain prudential elements. See Brown
Group, 517 U.S. at 555 ("the associational standing test's third
prong is a prudential one"); Kowalski, 543 U.S. at 129-30(describing third party standing doctrine as prudential and not
derived from limits of constitutional standing) . Plaintiffs argue
that in light of Lexmark, such prudential limits on standing are
no longer jurisdictional. Opp'n at 9-11, 29. Plaintiffs contend
that such non-jurisdictional arguments can be waived, and that
Defendants did in fact waive them in this case, by failing to raise
their associational standing and organizational standing arguments
in their first set of Motions to Dismiss. Id.Plaintiffs are also correct that Lexmark casts doubt on the
vitality of prudential standing doctrines. See 15 Moore's Federal
Practice 3d § 101.50; Sheet Metal, Air, Rail, and Transportation
Workers Local Union 20 v. Van's Industrial Inc., 2015 WL 8180287(N.D. In. December 7, 2015) (reviewing decisions in the Sixth,
Seventh, Eleventh Circuits, all stating that Lexmark has cast doubt
on the vitality of prudential standing) .
34
However, just because a doctrine was labelled as a form of
prudential standing prior to Lexmark, does not mean that it is
necessarily non-jurisdictional after Lexmark. For example, in
Lexmark the Court held that while the prohibition on suits raising
"generalized grievances" had previously been treated as a form of
prudential standing, it is actually a form of constitutional
standing. Lexmark, 134 s. Ct. at 1387, n.3.
Most importantly, the Court in Lexmark expressly reserved the
question of whether third-party standing is a form of prudential
standing or is instead a form of constitutional standing.
see also United States v. TDC Management Corporation, Inc., 827
F.3d 1127, 1133 (D.C. Cir. 2016) (declining to decide whether,
after Lexmark, the limitations on third-party standing are
prudential) . And the Court of Appeals for the D. C. Circuit
continues to treat associational standing as jurisdictional after
Lexmark. 12 See Sierra Club v. FERC, 827 F.3d 69, 65 (D.C. Cir.
2016) . Thus, the fact that both associational and third party
· standing have been labelled prudential in the past, does not
establish what will happen in the future, post-Lexmark.
12 This alone would seem to foreclose Plaintiffs' argument with
regard to associational standing. However, in Sierra Club, it was
"unchallenged and clear" that plaintiffs had satisfied the third
prong of the Hunt associational standing test. Therefore, the
question of whether the third prong of Hunt is prudential was not
before the Court of Appeals. 827 F.3d at 65.
35
Fortunately, the Court need not enter this thicket. Implicit
in Plaintiffs' contention that these def ens es are non-
jurisdictional and therefore waivable, is the assumption that
Defendants could have and should have raised them in their Motions
to Dismiss for Lack of Subject Matter Jurisdiction or, in the
Alternative, for Failure to State a Claim (emphasis added) .
However, Rule 12(h) (2) unambiguously provides that an
argument that is not raised in an initial Rule 12(b) (6) motion is
not waived prior to the conclusion of the case. See Fed. R. Civ.
P. 12(h) (2) (explaining that Rule 12(b) (6) arguments may be raised
as late as trial). Indeed, Rule 12(h) (2) expressly provides that
any defense that could be brought under Rule 12(b) (6) can later be
raised in a Rule 12 (c) motion for judgment on the pleadings.
Defendants' present motion is just that - a Motion to Dismiss for
Lack of Associational or Organizational Standing, or in the
Alternative, A Motion for Judgment on the Pleadings. [Dkt. No.
75] (emphasis added) .
Thus, Plaintiffs find themselves in a Catch-22 of their own
making. Either the absence of associational and third party
standing is jurisdictional, and therefore not waivable, or it is
non-jurisdictional and therefore preserved according to Rule
12 (h) (2). Either way, Plaintiffs' argument that Defendants have
waived their arguments regarding CFSA's lack of associational and
36
third party standing are without merit. See Washington Alliance
of Technology Works v. Dep't of Homeland Sec., 156 F. Supp. 3d
123, n.1 (D.D.C. 2015) (holding that, after Lexmark, failure to
raise in a motion to dismiss what was formerly considered a
prudential standing argument does not waive the issue, may be
decided on the merits at summary judgment), vacated as moot 650
Fed. Appx. 13 (D.C. Cir. 2016).
IV. Conclusion
For the foregoing reasons, Defendants Motion to Dismiss is
granted and Plaintiff CFSA is dismissed.
December 19, 2016
Gladys Kessler
United States District Judge
37