District of Columbia v. Elevate Credit, Inc. ( 2021 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DISTRICT OF COLUMBIA
Plaintiff,
Civ. Action No. 20-1809 (EGS)
v.
ELEVATE CREDIT, INC.
Defendant.
MEMORANDUM OPINION
The District of Columbia (“Plaintiff” or “the District”)
filed this consumer protection enforcement action against
Elevate Credit, Inc. (“Defendant” or “Elevate”) in the Superior
Court of the District of Columbia (“Superior Court”) for alleged
violations of the District of Columbia Consumer Protection Act
(“CPPA”), D.C. Code §§ 28-3901 et seq. The District alleges that
Elevate, an unlicensed online money lender, operates what is
commonly referred to as a “rent-a-bank” scheme whereby a lender
markets and sells high-interest loans to consumers in one state,
where interest rate caps are low, using a partnership with a
bank chartered in a different state, where interest rate caps
are much higher, in an attempt to skirt the lower interest rate
caps in the state where the loans are being made. This suit
seeks to prevent Elevate from using this alleged rent-a-bank
arrangement as an end run around the District’s consumer
protection laws. The District alleges that Elevate is the “true
lender” of loans it markets and sells to District residents that
contain interest rates of up to 149% for one of its products and
251% for another of its products—well in excess of the 24% and
6% caps in the District’s usury statutes—and that Elevate
misrepresents material characteristics of these loans when
marketing them to consumers, all in violation of the CPPA. See
generally Compl., ECF No. 1-2.
Elevate removed the case to this Court, asserting that
jurisdiction exists here pursuant to 28 U.S.C. §§ 1331 and 1441
because the District’s claims: (1) are completely preempted by
federal banking law; and (2) they implicate significant federal
issues and invoke serious federal interests. Notice of Removal,
ECF No. 1 at 12. 1 Pending before the Court is the District’s
Motion to Remand to the Superior Court for lack of subject
matter jurisdiction. See Pl.’s Mot. Remand (“Pl.’s Mot.”), ECF
No. 15. Upon careful consideration of the motion, opposition,
and reply thereto, the notice of supplemental authority and the
response thereto, the applicable law, and the entire record
herein, Plaintiff’s Motion to Remand is GRANTED.
1 When citing electronic filings throughout this Opinion, the
Court cites to the ECF page number, not the page number of the
filed document.
2
I. Background
1. Factual Background
The following facts—drawn from the Complaint and documents
incorporated by reference therein—are assumed to be true. See
Colon v. Ashby, 314 F. Supp. 3d 116, 120 (D.D.C. 2018) (quoting
Walter E. Campbell Co. v. Hartford Fin. Servs. Grp., Inc., 48 F.
Supp. 3d 53, 55 (D.D.C. 2014) (“When assessing a remand motion,
. . . the court ‘must assume all of the facts set forth by
plaintiff to be true and resolve all uncertainties as to state
substantive law in favor of the plaintiff.’”).
Elevate, a Delaware corporation, is an “online lender that
operates through several websites . . . to provide predatory,
high-interest, short-term loans to consumers that it describes
as individuals ‘with little to no savings, urgent credit needs
and limited options.’” Compl., ECF No. 1-2 ¶¶ 1, 10. Elevate
describes its business model in its 2019 annual report filed
with the Securities and Exchange Commission (“2019 10-K”) as
“provid[ing] convenient, competitively priced financial
solutions to our customers, who are not well-served by either
banks or legacy non-prime lenders, by using our advanced
technology platform and proprietary risk analytics.” Id. ¶ 4.
Elevate has “offered, provided, serviced, and advertised loans
to District residents in conjunction with FinWise Bank
(‘FinWise’), a Utah-chartered bank, for its Rise brand, and
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Republic Bank & Trust Company (‘Republic’), a Kentucky-chartered
bank, for its Elastic brand.” Id. ¶ 10. Elevate’s Rise brand is
an installment loan that offers “fast approval for loans between
$500 and $5,000,” id. ¶ 24; and its Elastic brand is “a line of
credit in amounts between $500 and $4,500,” id. ¶ 49. Elevate
has provided at least 871 Rise loans and 1,680 Elastic loans to
District consumers. Id. ¶ 15. The District alleges Elevate
deceptively markets these loans and charges illegal interest
rates—between 99% and 149% on its Rise loans and between 129%
and 251% on its Elastic loans, “well in excess of the District’s
usury caps.” Id. ¶¶ 23, 48.
According to the District, Elevate is the true lender of
the Rise and Elastic loans. Id. ¶¶ 36-47, 68-79. The District
alleges that Elevate provides the marketing for the Rise and
Elastic products “through direct mail, E-mails, and via banner
ads on the Internet that were either accessible to or directed
at District residents.” Id. ¶¶ 17, 18. Elevate “prepares product
offerings and associated marketing materials; develops and
places internet, print media, radio and television advertising;
designs and develops websites; and delivers all notices and
disclosures to consumers.” Id. ¶¶ 25, 52. Elevate is solely
responsible for “all costs and expenses associated with
advertising and developing promotional materials” for Rise and
Elastic loans. Id. ¶¶ 26, 53.
4
The District also alleges that Elevate “has the predominant
economic interest in the loans it provides to District consumers
via FinWise and Republic.” Id. ¶ 22. For the Rise loans, the
District contends Elevate funds the loans, reaps the profits of
good loans, takes on the risk of bad loans, and acts as the
servicer of the loans. Id. ¶ 36. The District contends Elevate
“in essence rents FinWise to provide the loan,” but “it is
Elevate that directs and controls the funding of the loan.” Id.
¶ 37. Elevate “funds Rise loans through its captive credit
financing relationship with Victory Park Management, LLC
(‘VPC’),” which provides debt financing for Elevate, without
which Elevate would “have to secure other sources of debt
financing or potentially reduce loan originations.” Id. ¶ 38.
Elevate also “reaps most of the profits” from the Rise brand
loans. Id. ¶ 39. In 2019, Elevate’s revenue from the Rise brand
loans totaled approximately $390,354,000. Id. ¶ 40. Elevate EE
SPV (“EE SPV”)—"a Cayman Islands special purpose vehicle that
operates for the financial benefit of Elevate”—has allegedly
purchased a 96% interest in the receivables for the Rise loans,
including the principal and interest due on the loans. Id. ¶ 41.
The District contends that EE SPV is thus the “legal and
equitable owner of the receivables from the loans,” and these
receivables generate income for Elevate, “the primary
beneficiary of EE SPV.” Id. Indeed, Elevate’s financial
5
statements include “revenue, losses and loans receivable related
to the 96% of Rise installment loans originated by FinWise Bank
and sold to EE SPV.” Id. ¶ 42. Elevate also “takes the risk of
bad loans.” Id. ¶ 44. Specifically, “Elevate provides credit
protections to EE SPV against Rise loan losses,” which “places
the risk of losses on Elevate.” Id. ¶ 45. Furthermore,
“FinWise’s interests are protected in its agreement with EE SPV
by a requirement that EE SPV maintain cash collateral in a
FinWise account in specified amounts to secure its obligations
to purchase the loans.” Id. ¶ 46.
Similarly, for the Elastic brand loans, the District
alleges Elevate reaps the profits of good loans and takes the
risk of bad loans. Id. ¶ 68. Again, the District contends
“Elevate, in essence[,] rents Republic to originate the loans
that it ultimately controls and profits from through Elevate SPV
(‘ESPV’).” Id. ¶ 69. According to the District, Elevate’s 2019
10-K explains that Elevate needs a bank (i.e., Republic) to
provide access to the Automated Clearing House (“ACH”) system to
deposit the loans into consumers’ accounts and to withdraw the
repayments, and “if these banks cease to provide ACH processing
services or are not allowed to do so, [Elevate] would have to
materially alter, or possibly discontinue, some or all of [its]
business if alternative ACH processors or other payment
mechanisms are not available.” Id. ¶¶ 70-71. Elevate also
6
profits from the Elastic loans, having brought in approximately
$248,518,000 in revenue in 2019 from those loans. Id. ¶ 72.
ESPV—another Cayman Islands special purpose vehicle “that
operates for the financial benefit of Elevate”—has allegedly
purchased a 90% interest in the receivables for the Elastic
brand loans, including the principal and interest due on the
loans. Id. ¶ 73. ESPV is therefore, according to the District,
the legal and equitable owner of the receivables of the loans,
and those receivables generate income for Elevate. Id. As was
true with respect to the Rise loans, Elevate’s financial
statements include “revenue, losses and loans receivable related
to the 90% of Elastic loans originated by Republic and sold to
ESPV.” Id. ¶ 75. Elevate also “takes the risk of bad Elastic
loans.” Id. ¶ 76. “Elevate provides credit protection to ESPV
against Elastic loan losses,” meaning “Elevate holds the risk
for loan losses.” Id. ¶ 77. “Republic’s interests are protected
in its agreement with ESPV by a requirement that ESPV maintain
cash collateral in a Republic account in specified amounts to
secure its obligations to purchase the loans.” Id. ¶ 78.
The District also alleges that Elevate, “through one of its
subsidiaries, also acts as the servicer for” the Rise and
Elastic loans, which includes reconciling the accounts, posting
payments and other credits to the accounts, and providing
periodic billing statements. Id. ¶¶ 47, 79. In addition, Elevate
7
has “either registered trademarks or has pending applications in
the United States for the marks Rise and Elastic” and “holds the
intellectual property rights to its proprietary analytics,
predictive underwriting models, and software systems,” and it
“provides the analytics, software, and underwriting models to
FinWise and Republic for the provision of the Rise and Elastic
loans.” Id. ¶¶ 20-21.
2. The District’s Claims Under the District of Columbia
Consumer Protection Procedures Act
The District alleges that Elevate violated the CPPA by: (1)
providing high-interest loans to residents of the District with
interest rates that exceed the permissible amount under District
law; (2) not registering as a money lender in the District; and
(3) misrepresenting material characteristics of loans when
marketing them to consumers. See Compl., ECF No. 1-2. As
relevant here, the CPPA: (1) establishes a right to truthful
information from merchants about consumer goods; (2) prohibits
any person from engaging in unfair trade practices; (3)
prohibits any person from violating the District’s usury laws;
and (4) prohibits any person from engaging in the business of
lending money without obtaining a license as a money lender. Id.
at 12-16.
The Complaint contains the following claims against Elevate
for violations of Section 28-3904 of the CPPA: (1)
8
Misrepresentations and Omissions, in violation of D.C. Code §§
28-3904(b), (e), (f), and (f-1); (2) Unfair and Unconscionable
Practices, in violation of D.C. Code §§ 28-3904 and 3904(r); (3)
Violations of the District Usury Laws, in violation of D.C. Code
§§ 28-3904(ff); and (4) Violations of the District of Columbia
Municipal Regulation (“DCMR”), in violation of D.C. Code § 28-
3904(dd). Id. As relevant to Count III, it is a violation of
Chapter 33 of the D.C. Code—the District’s usury laws—for a
licensed money lender to contract for an interest rate above
24%, or for a licensed money lender to charge an interest rate
above 6% if no interest rate is expressed in the contract. See
28-3301(a), 28-3308(a), and 28-3302(a). As relevant to Count IV,
it is a violation of the DCMR to engage in the business of
loaning money in the District without obtaining a license as a
money lender. See 16 DCMR §§ 201.1 and 200.4.
3. Elevate’s Assertions in Support of Removal Under
Section 27 of the Federal Deposit Insurance Act
Elevate asserts that the Complaint “challenges interest
rates lawfully charged by state-chartered banks under a federal
statutory and regulatory scheme administered by the [FDIC].” See
Notice of Removal, ECF No. 1 at 1. Central to the removal
dispute is Elevate’s contention that the state-chartered banks,
FinWise and Republic, are responsible for the Rise and Elastic
loans and interest rates, and Elevate’s only role is as a
9
servicer provider. Id. ¶¶ 15-30. Unlike non-bank entities like
Elevate, state-chartered banks are “regulated under a statutory
structure enacted by Congress and administered by the FDIC.” Id.
¶ 17.
Two federal statutes establish the maximum amounts of
interest that national and state-chartered banks may charge
their customers: (1) Section 85 the National Bank Act (“NBA”),
12 U.S.C. § 85, for national banks; and (2) Section 27 the
Federal Deposit Insurance Act (“FDIA”), 12 U.S.C. §§ 1831d, for
state-chartered banks. 2
The NBA was created during the Civil War era to facilitate
a national banking system, and it “constitutes a complete system
for the establishment and government of national banks.” See 10
Am. Jur. 2d Banks and Financial Institutions § 119. Section 85
of the NBA “authoriz[es] national banks to charge or receive
interest on loans and discounts at the rate allowed by the laws
of the state, territory, or district in which the bank is
located, or at a rate based on the rate in effect at the Federal
Reserve bank in the Federal Reserve district where the national
2 Section 27 was added to the FDIA in 1980 by Section 521 of the
Depository Institutions Deregulation and Monetary Control Act
(“DIDA” or “DIDMCA”), Pub. L. No. 96-221, 94 Stat. 132 (1980).
Some decisions cited in this Memorandum Opinion refer to the
relevant statutory provision as Section 521 of DIDA or DIDMCA,
while others refer to it as Section 27 of the FDIA. The Court
uses “Section 27,” “Section 27 of the FDIA,” or “12 U.S.C. §
1831d” in this Memorandum Opinion.
10
bank is located.” Id. § 983. The Supreme Court has explained
that Section 85 “sets forth the substantive limits on the rates
of interest that national banks may charge,” and “if . . . the
interest that [a] bank charge[s] . . . [does] not violate § 85
limits, the statute unquestionably pre-empts any common-law or
[state] statutory rule that would treat those rates as
usurious.” Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 9
(2003). Section 85 works in parallel with Section 86, which
“sets forth the elements of a usury claim against a national
bank, provides for a 2-year statute of limitations for such a
claim, and prescribes the remedies available to borrowers who
are charged higher rates and the procedures governing such a
claim.” Id.Before Congress passed Section 27 of the FDIA in 1980,
national banks held a favored lending position vis-à-vis state-
chartered banks because the NBA preempted state law to allow
national banks to charge as much or more interest than the
state-chartered banks against which they competed. See Greenwood
Trust Co. v. Massachusetts, 971 F. 2d 818, 826 (1st Cir. 1992)
(explaining that “state institutions were at an almost
insuperable competitive disadvantage” to national banks during
the credit crunch of the late 1970s when interest rates were
soaring but state institutions were constrained in the interest
they could charge by state usury laws in ways national banks
11
were not). To remedy that disparity, Congress passed Section 27
for the express purpose of “prevent[ing] discrimination against
State-chartered insured depository institutions, including
insured savings bank.” See 12 U.S.C. § 1831d.
Section 27 of the FDIA provides as follows:
In order to prevent discrimination against
State-chartered insured depository
institutions, including insured savings
banks, or insured branches of foreign banks
with respect to interest rates, if the
applicable rate prescribed in this subsection
exceeds the rate such State bank or insured
branch of a foreign bank would be permitted to
charge in the absence of this subsection, such
State bank or such insured branch of a foreign
bank may, notwithstanding any State
constitution or statute which is hereby
preempted for the purposes of this section,
take, receive, reserve, and charge on any loan
or discount made, or upon any note, bill of
exchange, or other evidence of debt, interest
at a rate of not more than 1 per centum in
excess of the discount rate on ninety-day
commercial paper in effect at the Federal
Reserve bank in the Federal Reserve district
where such State bank or such insured branch
of a foreign bank is located or at the rate
allowed by the laws of the State, territory,
or district where the bank is located,
whichever may be greater.
12 U.S.C. § 1831d(a). What Section 27 does is allow state-
chartered banks to charge the maximum interest rates allowed in
their home states or a prescribed federal interest rate, even to
borrowers in states that set lower interest rate caps. And like
Section 86 of the NBA, Section 27 subsection (b) provides for
12
the remedies available against a state-chartered bank charging
excessive interest rates. See 12 U.S.C. §1831d(b).
4. Elevate’s Additional Assertions in Support of Removal
Elevate also asserts that the Complaint “challenges
Elevate’s lawful role as a service provider for state-chartered
banks, a role also regulated by the FDIC.” See Notice of
Removal, ECF No. 1 at 1. Elevate asserts that the FDIC requires
state-chartered banks to “monitor and oversee Elevate in its
role as a service provider.” Id. ¶ 34 (citing 12 U.S.C. §
1802(d)(1); 12 C.F.R. § 337.12(a)). Elevate also contends that
the Bank Service Company Act “allows the state-chartered banks
to engage service providers like Elevate, by contract or
otherwise, to perform bank-related function on behalf of the
bank,” and service providers are “subject to regulation and
examination by the FDIC as if the services were provided by the
bank itself.” Id. ¶ 35 (citing 12 U.S.C. § 1867(c)). Elevate
characterizes the FDIC as “establish[ing] the requirements and
responsibilities concerning the state-charted banks’ risk-
management procedures and due diligence in monitoring their
third party service providers,” and “hold[ing] the state-
chartered banks responsible for their relationships with third
party providers, including service providers like Elevate.” Id.
¶ 36 (citing 12 U.S.C. §§ 1813(q), 1813 (u); 12 U.S.C. §
1867(c)(1)). Elevate further assets that the FDIC has issued
13
guidance that addresses a number of the actions at issue in the
District’s complaint. See id. ¶¶ 38-44.
Accordingly, Elevate removed this case to federal court on
the basis that jurisdiction exists here based on “the preemptive
effect of Section 27 . . . , on the one hand, and the need to
interpret FDIC statutes, regulations, and guidance, on the
other.” Def.’s Opp’n, ECF No. 23 at 2.
II. Legal Standard
A civil action may be removed from state court to a federal
district court only if the federal district court has original
subject-matter jurisdiction over the case. 28 U.S.C. § 1441(a).
The Superior Court is considered a state court for removal
purposes. Id. § 1451(a). “When it appears that a district court
lacks subject matter jurisdiction over a case that has been
removed from a state court, the district court must remand the
case . . . , and the court’s order remanding the case to the
state court whence it came ‘is not reviewable on appeal or
otherwise.’” Republic of Venezuela v. Philip Morrris, Inc., 287
F.3d 192, 196 (D.C. Cir. 2002) (citing 28 U.S.C. § 1447(c);
quoting id. § 1447(d)). “Because of the significant federalism
concerns involved, this Court strictly construes the scope of
its removal jurisdiction.” Downey v. Ambassador Dev., LLC, 568
F. Supp. 2d 28, 30 (D.D.C. 2008). “The party seeking removal of
14
an action bears the burden of proving that jurisdiction exists
in federal court.” Id.The subject matter jurisdiction of federal district courts
is limited and is set forth generally at 28 U.S.C. §§ 1331 and
1332. Section 1331 confers jurisdiction on district courts over
all civil actions arising under the Constitution, laws or
treaties of the United States, or where the controversy presents
a “federal question.” 28 U.S.C. § 1331. Absent diversity of
citizenship, federal question jurisdiction is required to
establish that the case could have originally been filed in
federal court. Caterpillar Inc. v. Williams, 482 U.S. 386, 392
(1987). “The presence or absence of federal-question
jurisdiction is governed by the ‘well-pleaded complaint rule,’
which provides that federal jurisdiction exists only when a
federal question is presented on the face of the plaintiff’s
properly pleaded complaint.” Id. “[I]t is now settled law that a
case may not be removed to federal court on the basis of a
federal defense of pre-emption, even if the defense is
anticipated in the plaintiff’s complaint, and even if both
parties concede that the federal defense is the only question
truly at issue.” Id. at 393.
There are two situations in which federal question
jurisdiction may exist even where, as here, a complaint alleges
only state law claims. First, Congress may “so completely pre-
15
empt a particular area that any civil complaint raising [a]
select group of claims is necessarily federal in character.”
Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987). This
doctrine of “complete preemption” is an “independent corollary”
to the well-pleaded complaint rule that “converts an ordinary
state common-law complaint into one stating a federal claim for
purposes of the well-pleaded complaint rule.” Caterpillar Inc.,
482 U.S. at 392. “Once an area of state law has been completely
preempted, any claim purportedly based on that pre-empted state
law is considered, from its inception, a federal claim, and
therefore arises under federal law.” Id. Second, in a “special
and small category of cases[,] . . . federal jurisdiction over a
state law claim will lie if a federal issue is: (1) necessarily
raised, (2) actually disputed, (3) substantial, and (4) capable
of resolution in federal court without disrupting the federal-
state balance approved by Congress.” Gunn v. Minton, 568 U.S.
251, 258 (2013) (citing Grable & Sons Metal Prods., Inc. v.
Darue Eng’g & Mfg., 545 U.S. 308 (2005)).
III. Analysis
Elevate, which bears the burden of showing the Court has
jurisdiction, maintains that removal to federal court is proper
in this case because: (1) Section 27 of the FDIA completely
preempts state law claims involving loans originated by a state-
chartered bank; and (2) the significant federal issues doctrine
16
provides an independent ground for removal because federal law
must be interpreted and considered to determine the validity of
the District’s claims. See Def.’s Opp’n, ECF No. 23 at 6-23.
The Court disagrees, and, for the reasons set forth below,
concludes that this Court does not have jurisdiction to hear
this case. The case shall be remanded to the Superior Court.
A. The FDIA Does Not Completely Preempt the District’s State
Law Claims Against Elevate, a Non-Bank Entity
Complete preemption exists only when a federal statute’s
“pre-emptive force is so ‘extraordinary’ that it ‘converts an
ordinary state common-law complaint into one stating a federal
claim for purposes of the well-pleaded complaint rule.’”
(quoting Metro. Life Ins. Co., 481 U.S. at 65). It is “not . . .
a crude measure of the breadth of the preemption (in the
ordinary sense) . . . but rather . . . a description of the
specific situation in which a federal law . . . substitutes a
federal cause of action for a state cause of action, thereby
manifesting Congress’s intent to permit removal.” Schmeling v.
NORDAM, 97 F.3d 1336, 1339 (10th Cir. 1996).
The Supreme Court has found only three statutes have the
requisite extraordinary preemptive force to support complete
preemption: (1) Section 301 of the Labor Management Relations
Act, 29 U.S.C. § 185, see Avco Corp. v. Machinists, 390 U.S. 557(1968); (2) the Employee Retirement Income Security Act of 1947,
17
29 U.S.C. § 1001 et seq., see Metro. Life Ins. Co. v. Taylor,
481 U.S. 58 (1987); and, as relevant here, (3) Sections 85 and
86 of the NBA, 12 U.S.C. §§ 85-86, see Beneficial Nat. Bank v.
Anderson, 539 U.S. 1 (2003). In Beneficial, the Supreme Court
held that Sections 85 and 86 of the NBA provide the exclusive
cause of action for usury claims against national banks, and
there is no such thing as a state law claim of usury against a
national bank; thus, the NBA completely preempts such state law
claims. 539 U.S. at 11.
Elevate argues that just as Sections 85 and 86 of the NBA
provide the exclusive cause of action for usury claims against
national banks, Section 27 of the FDIA provides the exclusive
cause of action for usury claims against state-chartered banks.
See Notice of Removal, ECF No. 1 ¶ 60. Section 85 of the NBA and
Section 27 of the FDIA allow national and state-chartered banks,
respectively, to charge interest at rates set by the banks’ home
states, even if those rates are illegal in the states in which
the loans are made. See 12 U.S.C. §§ 85-86; 12 U.S.C. § 1831d.
Elevate reasons that because Section 27 was “enacted to create
parity and fair competition between state-chartered and national
banks” and it “mirror[s] the language of Sections 85 and 86,”
the Supreme Court’s complete preemption analysis in Beneficial
is “equally applicable to claims against federally-insured,
state-chartered banks arising under Section 27.” Def.’s Opp’n,
18
ECF No. 23 at 14-15. Therefore, because the usury claims in the
District’s complaint relate to loans originated by FinWise, a
Utah-chartered bank, and Republic, a Kentucky-chartered bank,
Elevate argues Section 27 provides the exclusive cause of action
for those claims. See id. at 13.
For the reasons set forth below, the Court concludes that
even if Section 27 of the FDIA completely preempts state law
usury claims against state-chartered banks, it does not
completely preempt the District’s claims against Elevate, a non-
bank entity. Accordingly, Section 27 does not provide a basis
for removal of this action to federal court.
1. If Section 27 Completely Preempts State Law Usury
Claims, It Only Applies to Claims Against State-
Chartered Banks
The Supreme Court has not addressed whether Congress
intended Section 27 of the FDIA to completely preempt state law
usury claims against state-chartered banks insured by the FDIC,
as Sections 85 and 86 of the NBA do for state law usury claims
against national banks. To date the Supreme Court has chosen not
to address this issue, see Vaden v. Discover Bank, 556 U.S. 49,
56 n.4 (2009) (citing Beneficial by way of comparison) (“Our
disposition of this case makes it unnecessary to take up the
question of § 27(a)’s preemptive force generally or in the
particular context of Discover’s finance charges. We therefore
express no opinion on those issues.”); and a split currently
19
exists among circuit courts that have addressed the issue,
compare In re Cmty. Bank of N. Va., 418 F.3d 277, 295 (3d Cir.
2005) (holding complete preemption exists with respect to
Section 27, and state law usury claims against state-chartered
bank were appropriately removed to federal court) and Discover
Bank v. Vaden, 489 F.3d 594, 606-07 (4th Cir. 2007) (same),
rev’d on other grounds, 556 U.S. 49 (2009), with Thomas v. U.S.
Bank N.A., 575 F.3d 794, 797-800 (8th Cir. 2009) (holding
Section 27 does not completely preempt the field of state law
usury claims against state-chartered banks, and such claims are
not appropriate for removal to federal court).
The Court need not reach whether Congress intended Section
27 to provide the exclusive cause of action for usury claims
against state-chartered banks because, even if it does, Elevate
is not a state-chartered bank. Indeed, the District is not the
first plaintiff to bring a state law consumer protection
enforcement action against a non-bank entity that allegedly
“rents” a bank to provide predatory, high-interest loans to
consumers, nor is Elevate the first defendant to try to remove
this type of case to federal court on a jurisdictional theory of
complete preemption. The vast majority of courts that have been
confronted with the issue have concluded that the NBA and FDIA
do not completely preempt state law usury claims against a non-
20
bank. 3 The Court concludes the same here: because the only usury
claims in this case are against a non-bank entity, Section 27 is
not implicated and cannot provide a basis for removal
3 See Cmty. State Bank v. Knox, 523 F. App’x 925, 929-30 (4th
Cir. 2014) (finding that “claims against the non-bank loan
servicers fall squarely outside the scope of the FDIA” and thus
“no federal subject-matter jurisdiction exists” over the
claims); In re Cmty. Bank of N. Va., 418 F.3d 277, 297 (3d Cir.
2005) (finding that “removal was improper” where the complaint
asserted no claims against a national or state-chartered
federally insured institution); Meade v. Marlette Funding LLC,
Civ. Action No. 17-cv-00575-PAB-MJW, 2018 WL 1417706, at *2 (D.
Colo. Mar. 21, 2018) (remanding case after noting that “[c]ourts
in this Circuit and others have repeatedly held that when claims
are asserted against a non-bank entity, complete preemption does
not apply and remand to state court is warranted, even if the
non-bank defendant has a close relationship with a state or
national bank”); Meade v. Avant of Colorado, LLC, 307 F. Supp.
3d 1134, 1142-43 (D. Colo. 2018) (adopting and affirming a
magistrate’s recommendation to remand the case to state court
where the plaintiff “ha[d] not asserted a claim against a state
bank”); West Virginia v. CashCall, Inc., 605 F. Supp. 2d 781,
783 (S.D. W. Va. 2009) (“[B]ecause the State only asserts state
law claims against CashCall, a non-bank entity, the claims do
not implicate the FDIA, the FDIA does not completely preempt the
state-law claims, and there are no federal questions on the face
of the Complaint.”); Flowers v. EZPawn Okla., Inc., 307 F. Supp.
2d 1191, 1196, 1204 (N.D. Okla. 2004) (denying removal in a case
involving state law usury claims against defendants alleged to
have “enter[ed] into a ‘sham’ relationship” with state-chartered
banks “for the purpose of claiming federal preemption and
evading state usury, fraud and consumer protection laws” because
“[n]o claims have been brought against [the state-chartered
bank] in this lawsuit”); Colorado ex rel. Salazar v. ACE Cash
Express, Inc., 188 F. Supp. 2d 1282, 1285 (D. Colo. 2002) (“The
Complaint strictly is about a non-bank’s violations of state
law. It alleges no claims against a national bank under the
NBA.”).
21
jurisdiction. 4 Elevate’s arguments to the contrary are
unavailing, for the reasons set forth below.
2. The District’s Claims Are Directed at Elevate, a Non-
Bank Entity, Not the State-Chartered Banks
Although the sole defendant is Elevate, and the Complaint
contains no usury claims against FinWise or Republic, Elevate
nonetheless urges the Court to find that Section 27 completely
preempts the District’s claims because the claims are all “based
on or aimed at” high interest rates charged on loans originated
by state-chartered banks. Def.’s Opp’n, ECF No. 23 at 17.
Elevate maintains that it is merely a service provider used by
FinWise and Republic and that the District’s decision to bring
this suit against it, rather than the banks, is a “creative
pleading artifice” that “cannot [be used] to avoid the
preemptive effect of Section 27 on removal.” Id.a. The Complaint Adequately Alleges that
Elevate is the True Lender
Courts that have addressed the complete preemption question
in rent-a-bank cases like this one have wrestled with similar
arguments, which non-bank entity defendants routinely make. In
response, courts “have found it necessary to determine whether
4 Because Section 27 is not implicated by the District’s
Complaint that includes state law usury claims against only a
non-bank entity, Elevate’s argument that the District could have
“opt[ed] out of the preemptive effect[] of Section 27” is
irrelevant. See Def.’s Opp’n, ECF No. 23 at 15.
22
the claims were actually directed against a federally or state-
chartered bank,” such that the preemptive force of federal
banking law applies to the claims despite the fact that the
claims were only brought against non-bank entities. See
CashCall, 605 F. Supp. 2d at 785 (citing cases). Numerous courts
have concluded that where a complaint “sufficiently allege[s]” a
non-bank entity is the true lender of the allegedly usurious
loans, the claims are properly directed at the non-bank entity
rather than the state-chartered banks that originated the loans.
See Marlette, 2018 WL 1417706, at *3 (“In circumstances where a
plaintiff has sufficiently alleged that the non-bank entity is
the true lender, courts have consistently come to the conclusion
that complete preemption does not apply, ‘even if the non-bank
entity worked closely with the bank to administer loans.’”); see
also CashCall, 605 F. Supp. 2d at 787 & n.9 (remanding case
where “the State alleges that CashCall is the de facto lender,”
even though “there [wa]s a factual question as to the identity
of the true lender”); Flowers, 307 F. Supp. 2d at 1206(remanding case where “the Court has only the petition which
. . . alleges throughout that EZCorp through EZPawn is the true
lender."). Because the allegations in the Complaint govern, and
as these cases persuasively demonstrate, the Court cannot
exercise removal jurisdiction if “the allegations are
insufficient for the undersigned to conclude as a matter of law
23
that [FinWise and Republic] and not [Elevate] [are] the true
lender[s].” See Flowers, 307 F. Supp. 2d at 1206 (observing that
“the Court must take the allegations as true for purposes of the
motion to remand”); see also Colon v. Ashby, 314 F. Supp. 3d
116, 120 (D.D.C. 2018).
Upon careful review of the alleged facts, and in
consideration of the relevant persuasive case law, the Court is
satisfied that the District’s claims are directed at Elevate,
not FinWise and Republic. The Court cannot conclude, as a matter
of law based on the allegations in the Complaint, that FinWise
and Republic are the true lenders of the allegedly usurious
loans marketed by Elevate and sold by Elevate to District
residents. See Flowers, 307 F. Supp. 2d at 1206. 5 Moreover, the
5 Elevate’s argument that the “true lender rule” issued by the
Office of the Comptroller of the Currency (“OCC”) in October
2020 is relevant to the Court’s analysis of this issue, see
Pl.’s Notice of Supp. Authority, ECF No. 27 at 1; is now moot.
The rule, which pertained only to loans issued by national
banks, purported “to determine when a national bank or Federal
savings association (bank) makes a loan and is the ‘true
lender,’ including in the context of a partnership between a
bank and a third party, such as a marketplace lender.” See
National Banks and Federal Savings Association as Lenders, 85
Fed. Reg. 68742 (Oct. 30, 2020), ECF No. 27-1 at 2. “Under this
rule, a bank makes a loan if, as of the date of origination, it
is named as the lender in the loan agreement or funds the loan.”
Id. However, Congress passed a Congressional Review Act
resolution rescinding the rule, and President Biden signed the
resolution into law on June 30, 2021, noting that repealing the
“true lender rule” would “protect borrowers against predatory
lenders” that operated “so called ‘rent-a-bank’ schemes” to
“prey on veterans, seniors, and other unsuspecting borrowers.
White House, Remarks by President Biden Signing Three
24
District’s suit targets several of Elevate’s practices—such as
deceptive marketing, misrepresentations, and failure to obtain a
money lending license—and not just the provision of loans with
interest rates that exceed the District’s usury caps. This
further convinces the Court that the District’s suit aims to
enforce the District’s consumer protection laws against, and
protect District residents from, Elevate specifically. See Knox,
523 F. App’x at 929-30.
Here, the District alleges that Elevate not only provides
the website, marketing, analytics, software, and underwriting
models for the Rise and Elastic loans—for which it holds the
intellectual property rights—but it also “has the predominant
economic interest in the loans it provides to District consumers
via FinWise and Republic.” Compl., ECF No. 1-2 ¶¶ 1, 17, 20, 21,
22. The District alleges Elevate receives revenue through two
Cayman Islands special purpose vehicles—EE SPV and ESPV—that
purchase a 96% interest in the receivables for the Rise loans
and a 90% interest in the receivables for the Elastic loans,
respectively. Id. ¶¶ 41, 42, 73, 75. According to the District,
Congressional Review Act Bills into Law: S.J.Res.13; S.J.Res.14;
and S.J.Res.15 (June 30, 2021 17:37),
https://www.whitehouse.gov/briefing-room/speeches-
remarks/2021/06/30/remarks-by-president-biden-signing-three-
congressional-review-act-bills-into-law-s-j-res-13-s-j-res-14-
and-s-j-res-15/. Accordingly, the OCC’s “true lender rule” no
longer has force or effect, and the Court need not consider it.
25
in 2019, Elevate’s revenue from the Rise loans totaled over $390
million and its revenue from the Elastic loans totaled over $248
million. Id. ¶¶ 40, 72. The District alleges that Elevate: (1)
directs and controls the funding of the Rise and Elastic loans,
id. ¶¶ 37, 38, 69, 70, 71; (2) takes the risk of bad loans,
including by providing credit protections to EE SPV and ESPV,
id. ¶¶ 44, 45, 76, 77; and (3) acts as a servicer for the Rise
and Elastic loans, through its subsidiaries, including by
reconciling the accounts, posting payments and other credits to
the accounts, and providing periodic billing statements, id. ¶¶
47, 79.
There are many similarities between the rent-a-bank scheme
that the District alleges Elevate orchestrated and the schemes
allegedly perpetuated by non-bank defendants in the cases where
courts have found that complaints sufficiently alleged that non-
bank entities were the true lenders of the loans at issue. Each
of these alleged rent-a-bank schemes is unique, but the Court is
persuaded that the allegations in the Complaint are similar
enough for the Court to conclude that the District has
sufficiently alleged that Elevate is the true lender of the Rise
and Elastic loans.
For example, in Avant and Marlette, the State of Colorado’s
banking administrator alleged that non-bank entities “provide[d]
the website through which customers appl[ied] for [state-
26
chartered bank] Loans, . . . develop[ed] the criteria for making
loans, . . . decide[d] which applicants w[ould] receive the
loans, and [defendant] (or its affiliates) purchase[d] the loans
within two days after they [we]re made.” Marlette, 2018 WL
1417706, at *3 (quoting Avant, 307 F. Supp. 3d at 1147). The
Avant decision also points out that the non-bank entity in that
case “service[d] and administere[d] the loans, [bore] all the
risk on the loans in the event of default, pa[id] all the legal
fees and expenses related to the lending program, retain[ed] 99%
of the profits on the loans, and indemnifie[d] [the bank]
against all claims arising from [the bank’s] involvement in the
loan program.” Avant, 307 F. Supp. at 1147. In both cases, the
district court found that “plaintiff sufficiently alleges that
defendant is the ‘true lender.’” Marlette, 2018 WL 1417706, at
*3 (citing Avant, 307 F. Supp. 3d at 1147).
Furthermore, in Flowers, the plaintiff alleged that
defendant EZPawn made payday loans through checks drawn from a
bank, but EZPawn and its affiliate EZCorp, not the bank,
together “carrie[d] out all interaction with the borrowers,
accept[ed] the ultimate credit risk, collect[ed] and pocket[ed]
virtually all of the finance charges and fees, and own[ed] and
control[led] the branding of the loans which [we]re available
only at its pawnshops.” 307 F. Supp. 2d at 1205. Despite the
defendants’ argument that they merely acted as servicers for
27
loans made by a state-chartered and federally insured bank, the
court concluded that the allegations did not support a finding
that the bank was the true lender and the petition’s state law
claims were directed against the non-bank defendants. Id.Finally, in CashCall, the State of West Virginia alleged
that defendant CashCall, Inc. marketed loans to consumers as an
agent of a South Dakota-chartered bank, the bank approved and
directly funded the loans, and CashCall would purchase the loans
three days later pursuant to the terms of an agreement with the
bank. 605 F. Supp. 2d at 783. Based on these facts, the court
found that the usury claims in the complaint were directed only
against CashCall. Id. at 786.
The Court is unpersuaded by Elevate’s argument that the
“lending program arrangements at issue [in Avant and Marlette]
are inapposite to the service provider structure that exists
between Elevate and the Banks.” See Def.’s Opp’n, ECF No. 23 at
20-21. Though Elevate contends it is only a service provider,
the scheme alleged in the Complaint is similar to the “lending
program arrangements” in Avant and Meade (as well as the other
cases discussed above). Compare Avant, 307 F. Supp. 3d at 1147
(“Avant develops the criteria for making the loans”), with
Compl. ¶ 20 (“Elevate also provides the analytics, software, and
underwriting models to FinWise and Republic for the provision of
Rise and Elastic loans”); compare Avant, 307 F. Supp. 3d at 1147
28
(“Avant (or its affiliates) purchases the loans within two days
after they are made by WebBank . . . [and] retains 99% of the
profits on the loans”), with Compl. ¶¶ 41, 73 (“[A] Cayman
Islands special purpose vehicle that operates for the financial
benefit of Elevate[] has purchased a 96% interest in the
receivables for the [Rise] loans . . . [and] a [different]
Cayman Islands special purpose vehicle that operates for the
financial benefit of Elevate[] has purchased a 90% interest in
the receivables from the {Elastic] loans . . . . These
receivables generate income for Elevate.”); compare Avant, 307
F. Supp. 3d at 1147 (“[Avant] services and administers the
loans”), with Compl. ¶¶ 47, 79 (“Elevate, through one of its
subsidiaries, acts as the servicer for the {Rise and Elastic}
loans. Its duties as a servicer include reconciling the
accounts, posting payments and other credits to the accounts,
and providing periodic billing statements.”); compare 307 F.
Supp. 3d at 1147 (“[Avant] bears all the risk on the loans in
the event of default”), with Compl. ¶¶ 45, 77 (“Elevate provides
credit protection to [the Cayman Islands special purpose
vehicles] against [Rise and Elastic] loan losses. This credit
protection places the risk of losses on Elevate.”).
29
b. The Court Need Not Resolve Factual Disputes
at This Juncture
The Court acknowledges that Elevate disputes a number of
the District’s factual allegations and presents additional facts
to counter the District’s true-lender allegations. See Def.’s
Opp’n, ECF No. 23 at 9-10. 6 But the Court need not resolve those
factual disputes on a motion for remand. See Colon v. Ashby, 314
F. Supp. 3d 116, 120 (D.D.C. 2018) (“[T]he court must assume all
of the facts set forth by plaintiff to be true and resolve all
uncertainties as to the state substantive law in favor of the
plaintiff” on a motion for remand); see also Flowers, 307 F.
Supp. 2d at 1206 (stating that “the Court must take the
allegations as true for purposes of the motion to remand,” and
noting that the court had before it only the plaintiff’s
6 Elevate submits the following: (1) FinWise and Republic
“review[] and approve[] all marketing materials and campaigns
and determine[] the underwriting strategies and score cutoffs
used in processing applications”; (2) FinWise and Republic
“define all program parameters and provide full compliance
oversight over all aspects of their respective programs as
required by federal law”; (3) Elevate does not own or purchase
any interest in the Rise or Elastic loans after the banks
originate them; (4) the banks retains ownership of the accounts
associated with their respective credit products at all times;
(5) EE SPV and ESPV purchase participation interest in the loans
after origination, which it explains is “distinct from”
purchasing the loan itself because it “grants the purchaser the
right to receive amounts derived from repayment of the loan,”
but “ownership of the loan and the customer account remain with
the originating bank”; (6) an Elevate subsidiary provides credit
protection to investors in EE SPV and ESPV; and (7) Elevate does
not have an ownership interest in EE SPV or Elastic SPV. Def.’s
Opp’n, ECF No. 23 at 9-10.
30
petition and not all relevant agreements between the non-bank
entity and bank); Dandy v. Wilmington Fin., Inc., Civ. No. 08-
1027 JCH/GBW, 2010 WL 11493721, at *7 (D.N.M. May 3, 2010)
(where a non-bank entity argued it merely facilitated allegedly
illegal residential mortgage loans on behalf of a federal
savings bank, the court observed that “this contention merely
raises a factual question and cannot create federal
jurisdiction”). This is consistent with precedent in this
circuit that holds “federal jurisdiction is disfavored for cases
that are ‘fact-bound and situation-specific’.” Bender v. Jordan,
623 F.3d 1128, 1130 (D.C. Cir. 2010). 7
The Court is also unpersuaded by Elevate’s suggestion that
Krispin v. May Department Stores, 218 F.3d 919 (8th Cir. 2000)
and Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), rev’d
on other grounds, 556 U.S. 49 (2009), direct the Court to
conduct a searching factual analysis that looks beyond the face
of the Complaint to determine the real party in interest in this
case. See Def.’s Opp’n, ECF No. 23 at 23. In Krispin, the Court
7 Elevate’s reference to this Court’s decision in State Farm
Bank, F.S.B. v. District of Columbia, 640 F. Supp. 2d 17, 24
(D.D.C. 2009)—in support of its argument that the Court must
conduct a real party interest analysis that looks beyond the
face of the pleadings—is misplaced. See Def.’s Opp’n, ECF No. 23
at 19 & n.9. That case had nothing to do with whether the Court
had jurisdiction over the case upon removal from Superior Court;
instead, the Court was analyzing whether federal law preempted
the District’s mortgage regulations when ruling on cross-motions
for summary judgment. See State Farm, 640 F. Supp. 2d at 18.
31
of Appeals for the Eighth Circuit (“Eighth Circuit”) considered
whether state law usury claims against a department store that
entered credit agreements with customers but later assigned
those accounts to a bank, while still maintaining a role in the
collection process and purchasing the receivables from the bank
on a daily basis, were claims directed at the bank rather than
the defendant store. 218 F.3d at 923-24. The court found that
the bank was the real party in interest, having determined that
“in these circumstances . . .. it makes sense to look to the
originating entity (the bank), and not the ongoing assignee (the
store), in determining whether the NBA applies” and completely
preempts the state law usury claims. Id. at 924. Courts have
since correctly questioned whether “this factual determination
based on state law should be made in the first instance by a
federal court on removal rather than the state court.” Flowers,
307 F. Supp. 2d at 1206. Relatedly, Krispin was decided in a
different procedural posture, as the Flowers court noted: “the
Eighth Circuit and the district court decided the issue on a
motion for summary judgment, finding there was no genuine issue
of material fact that the bank was the real party in interest.”
Id. Finally, as the District correctly points out, numerous
courts have distinguished Krispin on its facts, noting that
there was no dispute that the bank was a wholly-owned subsidiary
32
of the department store. See Pl.’s Reply, ECF No. 25 at 13-14 &
n.9 (citing cases).
Vaden is likewise unpersuasive. There, the Court of Appeals
for the Fourth Circuit (“Fourth Circuit”) held that a bank was
the real party in interest to a counterclaim in a lawsuit where
a loan servicer sued to collect credit card debt and the debtor
filed counterclaims asserting violations of state usury laws
against the loan servicer. 489 F.3d at 603. The Fourth Circuit
observed that an analysis of the real party in interest was
necessary given the “unique and complex relationship among the
parties” and to prevent plaintiffs from “artfully plead[ing]
state law claims against a non-bank defendant and thus frustrate
Congress’ intent that certain causes of action are always
federal.” Id. at 601 & n.5.
Elevate fails to address a subsequent Fourth Circuit
decision in a case that more closely resembles this case than
Vaden does. See Knox, 523 F. App’x 925. In Knox, the Fourth
Circuit called into question whether its own decision in Vaden
remains good law and, in any event, found Vaden unpersuasive
based on the distinguishing facts evident on the face of the
complaint. See Knox, 523 F. App’x at 929-30 (“Even if [the real
party in interest analysis] remains intact after the Supreme
Court’s reversal, see Vaden II, 556 U.S. 49, 129 S. Ct. 1262, we
would not reach the same result in the present case.”). The
33
Fourth Circuit concluded that “determination of which party
controlled the loan terms is far less integral here than in
Vaden,” noting that the claims in the complaint “specifically
target several practices of the loan servicers” and “unpaid
debts are not at issue.” Id.For the same reasons the Fourth Circuit in Knox found its
earlier decision in Vaden unpersuasive when evaluating whether a
non-bank entity could claim protection from state law consumer
protection and usury claims by invoking Section 27’s preemptive
force, so too does this Court. As in Knox, the District’s claims
“do not merely challenge certain terms of the loans, but instead
specifically target several practices of the loan servicers.”
Id. at 929. As the District points out, of the four counts in
the District’s Complaint, three “do not turn on usury at all.”
Pl.’s Reply, ECF No. 25 at 9-10. 8 Where, as here, a state targets
several of a non-bank entities’ practices in a consumer
8 Count I concerns Elevate’s alleged deceptive marketing of the
Rise and Elastic loans, alleging that Elevate violated the CPPA
by “misrepresenting the cost and legality of the loans and
failing to disclose the interest rates of its loans.” Id. at 10(citing Compl., ECF No. 1-2 ¶¶ 80-88). Count II concerns
Elevate’s alleged failure to disclose the true costs of the Rise
and Elastic loans, in violation of the CPPA’s prohibition on
unfair and unconscionable practices. Id. (citing Compl., ECF No.
1-2 ¶¶ 89-92). Count IV concerns Elevate’s alleged failure to
obtain a money lending license in the District, and whether
Elevate is in violation of the CPPA even if it is not the true
lender of the Rise and Elastic loans. Id. at 10-11 (citing
Compl., ECF No. 1-2 ¶¶ 100-103).
34
protection enforcement action, “[t]he totality of the Complaint
shows that the State’s suit is directed against a single,
specific entity violating a host of state laws including the
usury law,” and that entity is the non-bank, not the bank. See
CashCall, 605 F. Supp. 2d at 786. Indeed, in contrast to Vaden
and Krispin, where customers sought money damages caused by
specific usurious fees, when a state brings a consumer
protection enforcement action it is “seeking relief from the
harmful conduct of a specific entity . . . that does not benefit
from the privileges conferred by the FDIA, [and thus] the fact
that a state-chartered bank might be the true lender responsible
for alleged usurious loans is less significant . . . . [T]he
bank is not the targeted entity and cannot provide the sought
relief even if it turns out to be the real lender; the non-bank
entity would remain the target.” Id. at 788; see also Knox, 523
F. App’x at 930. That is the situation here—the District’s suit
seeks to protect District residents from Elevate based on
several practices that are allegedly harmful to its consumers,
and that remains true even if Elevate is not in fact the true
lender of the Rise and Elastic loans. See Pl.s Reply, ECF No. 25
at 9-11.
Further counseling against conducting a fact-intensive
analysis at this stage to determine the true lender of the Rise
and Elastic loans is that even if the Superior Court were to
35
conclude on remand that Elevate is not, in fact, the true
lender, that “will not result in [FinWise’s or Republic’s]
liability or regulation under state laws, but will merely
relieve [Elevate] of liability under those laws.” CashCall, 605
F. Supp. 2d at 787. If the Superior Court instead concludes that
Elevate is the true lender, as the District alleges, Elevate may
be liable under the District’s usury laws. But in either
situation, the state-chartered banks’ rights to make loans and
charge FDIA-permitted interest rates in the District will not be
affected. Id.Accordingly, based on the facts alleged in the Complaint,
the Court rejects Elevate’s argument that the District’s state
law claims amount to claims against FinWise and Republic that
are completely preempted by Section 27 of the FDIA. While the
Superior Court may conclude on remand that FinWise and Republic
are in fact the true lenders of the Rise and Elastic loans, that
factual dispute does not create federal jurisdiction here.
3. The FDIC’s “Pervasive” Regulatory Oversight of State-
Chartered Banks Does Not Give Rise to Complete
Preemption Jurisdiction
In arguing that Section 27 completely preempts the
District’s state law claims, Elevate repeatedly invokes the
FDIC’s “pervasive regulatory scheme” and “detailed framework for
“overseeing the relationship between regulated state banks and
their third-party service providers.” See Notice of Removal, ECF
36
No. 1 at 1; Def.’s Opp’n, ECF No. 23 at 18, 20, 21-22. Elevate
points to the Bank Service Company Act, which “allows state-
chartered banks to engage service providers like Elevate, by
contract or otherwise, to perform bank-related function on
behalf of the bank” and “subject[s] [service providers] to
regulation and examination by the FDIC as if the services were
provided by the bank itself.” Id. ¶ 35 (citing 12 U.S.C. §
1867(c)). Elevate also points to formal and informal guidance
issued by the FDIC relevant to the relationship between state-
chartered banks and their service providers, including for
“services performed in connection with a bank lending program by
technology-enabled service providers like Elevate.” See Def.’s
Opp’n, ECF No. 23 at 17-18 (citing Notice of Removal, ECF No. 1
¶¶ 34-42). Finally, Elevate points to final rules issued by the
FDIC and OCC in June 2020 “formalizing the valid-when-made
doctrine, which holds that a loan that was valid when made will
not be rendered usurious by a subsequent transfer.” Id. at 21-22
& n.11 (citing Federal Interest Authority, 85 Fed. Reg. 44146
(July 22, 2020); Permissible Interest on Loans That Are Sold,
Assigned, or Otherwise Transferred, 85 Fed. Reg. 33530 (June 2,
2020)). Elevate argues that this “federal banking scheme
encompasses and encourages Elevate’s activities as a service
provider and allows Elevate to enable banking operations under
the purview of the FDIA and FDIC’s supervision without regard to
37
state usury laws.” Id. (citing Notice of Removal, ECF No. 1 ¶¶
34-44, 62-67).
The District, on the other hand, invokes the Dodd-Frank
Wall Street Reform and Consumer Protection Act (“Dodd-Frank
Act”) to argue that Section 27 should not be interpreted as
completely preempting state law usury claims against non-bank
entities. See Pl.’s Mot., ECF No. 15 at 20 & n.6. The District
contends that the Dodd-Frank Act clarified that the statute
should not “be construed as preempting, annulling, or affecting
the applicability of State law to any subsidiary, affiliate, or
agent of a national bank.” Id. (citing 12 U.S.C. §§ 25b(b)(2),
€, (h)(2)). Elevate disagrees. See Def.’s Opp’n, ECF No. 23 at
17 n.7.
These arguments, however, are not particularly relevant to
the issue of complete preemption, pursuant to which the Court
determines whether it can exercise removal jurisdiction because
Congress intended for a law’s preemptive force to be “so
extraordinary” that it replaces state law entirely and permits
removal, not whether federal law preempts state law in the
ordinary sense. See Caterpillar Inc., 482 U.S. at 392-93(distinguishing ordinary federal preemption, which is raised as
a defense to allegations in a plaintiff’s complaint and cannot
serve as the basis for removal, from the “complete pre-emption”
doctrine); see also Lehmann v. Brown, 230 F.3d 916, 919-920 (7th
38
Cir. 2000) (“[T[he phrase ‘complete preemption’ has caused
confusion . . . by implying that preemption sometimes permits
removal. Unfortunately, ‘complete preemption’ is a misnomer,
having nothing to do with preemption and everything to do with
federal occupation of a field . . . . State law is ‘completely
preempted’ in the sense that it has been replaced by federal
law—but this happens because federal law takes over all similar
claims, not because there is a preemption defense.”).
While Section 27 may have the requisite preemptive force to
permit removal of state law usury claims against state-chartered
banks, neither the District nor Elevate has cited any cases that
would support a conclusion that Congress intended Section 27 of
the FDIA to completely preempt state law claims against non-bank
entities that are nowhere mentioned in the plain language of the
statue simply because a “detailed regulatory framework”
addresses the relationship between state-chartered banks and
non-bank entities. Elevate’s discussion of Marquette National
Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S.
299, 304-05 (1978) and related cases is inapposite. See Notice
of Removal, ECF No. 1 at ¶¶ 63-67. Marquette is not a removal
case and does not address complete preemption. Likewise, Sawyer
v. Bill Me Later, Inc., 23 F. Supp. 3d 1359 (D. Utah 2014) did
not discuss complete preemption or removal jurisdiction, despite
Elevate’s claim that it “appl[ied] complete preemption to claims
39
involving agents of state-chartered banks.” See Notice of
Removal, ECF No. 1 ¶ 67. In fact, the court in Sawyer explicitly
distinguished that case from removal cases, noting that “a case
relevant to questions of complete preemption in which a court
must consider whether a case can be properly removed to federal
court based on federal question jurisdiction [is] inapposite
here where the case is already properly in federal court.”
Sawyer, 23 F. Supp. 3d at 1369.
Accordingly, the Court concludes that Elevate’s arguments
concerning the FDIC’s “pervasive regulatory scheme” governing
state-chartered banks and their service providers do not affect
the Court’s finding that Section 27 of the FDIA does not
completely preempt the District’s state law usury claims against
Elevate. 9 As such, the Court holds that Section 27 of the FDIA
does not completely preempt the District’s state law claims
against Elevate, a non-bank entity, and it does not provide a
basis for this Court to exercise removal jurisdiction.
9 That is not to say that ordinary preemption is not a viable
defense under the FDIA—Elevate is “free to raise preemption as a
defense to this action in Superior Court, and ultimately seek
federal-court review by petitioning the Supreme Court for
certiorari if [Elevate] lose[s] in Superior Court.” See U.S.
Airways Master Exec., Council, Air Line Pilots Ass’n, Int’l. v.
Am. W. Master Exec. Council, 525 F. Supp. 2d 127, 135 (D.D.C.
2007).
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B. The Significant Federal Issue Doctrine Is Not A Basis For
Removal
Having concluded that federal law does not completely
preempt the District’s state law claims against Elevate in this
consumer protection enforcement action, the Court now turns to
Elevate’s second asserted basis for removal: the significant
federal issues doctrine. See Notice of Removal, ECF No. 1 ¶¶ 76-
90. For the Court to exercise removal jurisdiction over a purely
state law claim under this narrow exception to the well-pleaded
complaint rule, a federal issue would have to be “(1)
necessarily raised, (2) actually disputed, (3) substantial, and
(4) capable of resolution without disrupting the federal-state
balance approved by Congress.” Gunn v. Minton, 568 U.S. 251, 258
(2013) (citing Grable, 545 U.S. 308). This so-called Grable
exception is extremely rare and only creates federal subject-
matter jurisdiction in a “special and small” category of cases.
See Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S.
677, 701 (2006). As courts in this district have observed, “[i]t
takes more than a federal element to establish federal question
jurisdiction under the Grable framework, . . . and courts have
confined Grable to those rare state-law claims posing a context-
free inquiry into the meaning of federal law.” Flavell v. Int’l
Bank for Reconstruction and Dev., Civ. Action No. 20-623 (CKK),
2021 WL 1146301, at *7 (D.D.C. Mar. 25, 2021) (quoting
41
Washington Consulting Grp., Inc. v. Raytheon Tech. Servs. Co.,
LLC, 760 F. Supp. 2d 94, 101-102 (D.D.C. 2011)).
Elevate contends that the Court may exercise federal-
question subject-matter jurisdiction over this case because of
the “significant issues of federal law that must be resolved to
determine the viability of the Complaint’s state law claims.”
Notice of Removal, ECF No. 1 ¶ 80. Elevate seems to contend that
the “significant issues of federal law” the require resolution
here are “the federal statutes, regulations and regulatory
guidance applied to state-chartered banks and their service
providers.” Id. ¶ 80. “Whether the fact pattern in this case is
subject to the ‘true lender’ analysis set forth in the
Complaint,” Elevate argues, ”and whether that analysis can
displace the longstanding and robust federal regulatory scheme
that authorizes the exportation of interest rates and the use of
service providers by state-chartered banks will involve, in the
words of Grable, the ‘validity,’ ‘construction’ and ‘effect’ of
federal law.” Id.Elevate’s arguments are a misapplication of Grable because
the District’s claims do not “necessarily raise a stated federal
issue.” Grable, 545 U.S. at 314. In Grable, the plaintiff
asserted that because a federal statue requiring notice of the
seizure of property was not complied with, plaintiff should have
good title to certain seized land. Id. at 311. That is, the
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plaintiff’s action was based on a federal statute. The same is
true of the D.C. Circuit case on which Elevate relies. See
Bender v. Jordan, 623 F.3d 1128, 1130 (D.C. Cir. 2010) (federal
stock savings association asserted that because a federal
regulation did not entitle two former directors and the former
CEO to indemnification of expenses arising from a shareholder
securities law suit, the individuals were in breach of contract
for their failure to repay legal fees). Conversely, the District
does not rely on any federal statute or regulation to bring its
claims. Instead, the District’s action has been brought despite
Elevate’s assertion that the FDIA, FDIC, and federal regulation
permit the conduct that the District alleges Elevate undertook
in violation of the District’s laws. See, e.g., Notice of
Removal, ECF No. 1 ¶ 81 (“The Complaint alleges that the
structure of the loan transactions and the interest rate they
implement are unlawful under state law without regard to the
federal statutes, regulations or guidance, or the FDIC’s
regulatory oversight.” (emphasis added)). Elevate’s arguments
are properly understood as an assertion of a federal preemption
defense, which cannot serve as the basis for federal subject-
matter jurisdiction. See Animal Legal Def. Fund v. Hormel Foods
Corp., 249 F. Supp. 3d 53, 58 (D.D.C. 2017) (citing Caterpillar
Inc., 482 U.S. at 393) (a federal preemption defense “by its
very nature is not ‘necessarily raised’ by Plaintiff’s
43
Complaint, and indeed it is black letter law that ‘a case may
not be removed to federal court on the basis of a federal
defense, including the defense of pre-emption”).
Moreover, the main issue in this case is the identity of
the true lender of the Rise and Elastic loans. The true-lender
question is substantially factual, and the Superior Court is
well equipped to handle it, as many state courts have done in
the similar rent-a-bank cases cited throughout this Memorandum
Opinion. Conversely, substantial and necessarily raised federal
issues warranting federal subject-matter jurisdiction are ones
“posing a context-free inquiry into the meaning of federal law.”
See Flavell, 2021 WL 1146301, at *7. They are not “fact-bound
and situation-specific.” See McVeigh, 547 U.S. at 701. In the
only case the parties identified that involves both an alleged
rent-a-bank scheme and an assertion of federal jurisdiction
under the Grable exception, the district court concluded that
the issues surrounding the alleged true lender and whether
preemption would apply merely raised a factual question, rather
than a legal question that called for the interpretation of
federal statutes, making removal on this basis improper. See
Dandy, 2010 WL 11493721, at *7. The same is true here.
Because no substantial federal issues are necessarily
raised by the District’s Complaint, the Court concludes that the
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significant federal issues doctrine does not provide a basis for
federal subject-matter jurisdiction in this case.
IV. Conclusion
Accordingly, for the reasons set forth above, the Court
GRANTS the District’s Motion to Remand to State Court. This case
shall be remanded to Superior Court. An appropriate order
accompanies this Memorandum Opinion.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
July 15, 2021
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