Community Financial Services Association of America, Ltd. v. Federal Deposit Insurance Corporation , 132 F. Supp. 3d 98 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
COMMUNITY FINANCIAL SERVICES )
ASSOCATION OF AMERICA, LTD., )
et al., )
)
Plaintiffs, )
)
v. ) Case No. 14-CV-953 (GK)
)
FEDERAL DEPOSIT INSURANCE )
CORPORATION, et al., )
)
Defendants. )
````````````````->
MEMORANDUM OPINION
In June 2014, Plaintiffs· Community Financial Services
·Association of America, Ltd. ("CFSA") and Advance America, Cash
Advance Centers, Inc. ("Advance America") filed a Complaint
against Defendants the Federal Deposit Insurance Corporation ("the
FDIC") , the Board of Governors of the Federal Reserve System ("the
Board") , and the Office of the Comptroller of the Currency and
Thomas J. Curry, in his official capacity as the Comptroller of
the Currency ("the OCC"). Plaintiffs seek declaratory and
injunctive relief to set aside certain informal guidance documents
and other actions by the FDIC, the Board, and the OCC on the
grounds that they exceed the agencies' statutory authority, are
arbitrary and capricious, were promulgated without following the
procedures required by law, and deprive Plaintiffs of liberty
interests without due process of law.
This matter is before the Court on Defendants' Motions to
Dismiss for Lack of Jurisdiction and for Failure to State a Claim
(collectively, "Motions to Dismiss") [Dkt. Nos. 16, 17, 18],
Plaintiffs' Motion for Jurisdictional Discovery ("Motion for
Discovery") [ Dkt. No. 25], and Plaintiffs' Motion for Leave to
File a Second Amended Complaint [Dkt. No. 56]. Upon consideration
of the motions, 1 oppositions, replies, surreplies, notices of
support, response, the entire record herein, and for the reasons
stated below, the Motions to Dismiss are granted in part and denied
in part, the Motion for Discovery is denied, and the Motion for
Leave to File a Second Amended Complaint is granted.
I . Background
A. Factual Overview2
Plaintiff CFSA is a national trade organization that
represents payday lenders and Plaintiff Advance America is a payday
1 See Section I. B, Procedural Background, infra, for a detailed
history of the relevant briefs and their shorthand citations.
2 Forpurposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat'l Rifle Ass'n of Am., 60u F.2d 1251, 1253 (D.C.
Cir. 1979). Therefore, the facts set forth herein are taken from
the First Amended Complaint. The Court is not required though, to
accept "a legal conclusion couched as a factual allegation" or
2
lender and member of CFSA. SAC `` 14-16. Payday lenders are by and
large licensed and regulated by the states, as well as some federal
consumer protection laws. Board Mot. at 3. The Dodd-Frank Act gave
the Consumer Financial Protection Bureau ("CFPB") authority to
supervise payday lenders and promulgate regulations pertaining to
payday lending. See SAC`` 39-41; Dodd-Frank Act Wall Street Reform
and Consumer Protection Act, 12 U.S.C. § 549l(a). CFPB is not a
party in this case.
Defendant FDIC is an independent agency and acts as the
primary federal regulator for certain state-chartered banks. In
that capacity, the FDIC prescribes standards to promote banks'
safety and soundness, and may do so by regulation or guideline.
The FDIC also examines banks, prepares examination reports, and
brings enforcement actions. See FDIC Mot. at 2; FDIC, Who is the
FDIC?, available at www.fdic.gov/about/learn/symbol.
Defendant OCC is an independent bureau within the U.S.
Department of the Treasury that functions as the primary supervisor
of federally chartered (national) banks and savings and loan
associations. The OCC administers statutory provisions governing
most aspects of the federal banking system and has broad authority
to examine the safety and soundness of the banks it supervises.
inferences unsupported by the facts set forth in the complaint.
Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006).
3
See OCC Mot. at 5; OCC, About the OCC, available at
http://www.occ.gov/about.
Defendant Board of Governors of the Federal Reserve System is
a federal agency authorized to regulate and examine bank holding
companies and state-chartered banks that are members of the Federal
Reserve System. State member banks that are regulated by the Board
are also regulated by state banking agencies. See Board Mot.
at 2-3.
Payday lenders utilize the services of banks as part of their
business. For example, "[w]hen a prospective borrower applies for
the loan . . . he or she typically provides a post-dated check or
an electronic debit authorization for the value of the loan, plus
a fee. The lender immediately advances the customer funds, then
after a specified period of time, usually determined by the
customer's next payday, the borrower returns to repay the loan and
fee. But if the customer does not return, the terms of the
transaction permit the lender to deposit the post-dated check or
to execute the debit authorization. In order to have that security,
the lender must have a deposit account with a bank and/or access
to the Automated Clearing House (ACH) network." SAC 'II 28; see also
OCC Motion to Dismiss ("OCC Mot.") [Dkt. No. 18-1] at 1 ("a payday
lender typically must submit checks provided by its borrowers
through the payment system by causing the checks to be deposited
at a bank.")
4
Plaintiffs allege that Defendants participated and continue
to participate in a campaign initiated by the United States
Department of Justice ("DOJ"), known as "Operation Choke Point,"
to force banks to terminate their business relationships with
payday lenders. Operation Choke Point has recently been the subject
of a House Committee Investigation and reports. See SAC `` 56-58;
STAFF OF H. COMM. ON OVERSIGHT & GOV'T REFORM, 113TH CONG., REP.
ON THE DEP' T OF JUSTICE'S "OPERATION CHOKE POINT": ILLEGALLY
CHOKING OFF LEGITIMATE BUSINESSES? (Comm. Print 2014) ("Comm.
Report"); STAFF OF H. COMM. ON OVERSIGHT AND GOV'T REFORM, 113TH
CONG., FEDERAL DEPOSIT INSURANCE CORPORATION'S INVOLVEMENT IN
"OPERATION CHOKE POINT" (Comm. Pri,nt 2014) ("Comm. FDIC Report").
Defendants allegedly forced banks to terminate relationships
with Plaintiffs and Plaintiffs' 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 with
all payday lenders." Pls.' Opp'n at 9.
B. Procedural Background
On June 5, 2014, Plaintiffs fil.ed their original Complaint
against Defendants asserting violations of the APA and due process
[Dkt. No. 1]. The First Amended Complaint was filed on July 30,
2014 ("FAC") [Dkt. No. 12]. On August 18, 2014, the Board filed
5
.
its Motion to Dismiss for Lack of Jurisdiction, or Alternatively
for Failure to State a Claim [Dkt. No. 16] ("Board Mot."). The
FDIC filed a similar Motion [ Dkt. No. 1 7] ("FDIC Mot.") , as did
the OCC [Dkt. No. 18] ("OCC Mot."). On October 2, 2014, Plaintiffs
filed their Opposition to Motions to Dismiss [Dkt. No. 23] ("Pls.'
Opp' n") .
The following day, Plaintiffs filed a Motion for Discovery
[Dkt. No. 25] ("Discovery Mot."). On October 31, 2014, the Board
filed its Reply in support of its Motion to Dismiss [Dkt. No. 41]
("Board Reply") and its Opposition to Plaintiffs' Motion for
Discovery [ Dkt. No. 42] ("Board Discovery Opp' n") ; the FDIC filed
its Reply [Dkt. No. 46] ("FDIC Reply") and Opposition [Dkt. No.
4 5] ("FDIC Discovery Opp' n") ; and the OCC filed its Reply [ Dkt.
No. 44] ("OCC Reply") and Opposition [Dkt. No. 43] ("OCC Discovery
Opp'n"). Plaintiffs filed their Reply in support of their Motion
for Discovery [ Dkt. No. 4 9] ( "Pls.' Discovery Reply") on November
10, 2014. Plaintiffs also filed a Surreply to Defendants' Replies
in Support of the Motions to Dismiss [Dkt. No. 50] ("Pls.'
Surreply") the same day. In response, the FDIC filed a Surreply
[Dkt. No. 51] ("FDIC Surreply") on November 14, 2014.
On October 23, 2014, prior to the filing of Defendants'
Replies and Discovery Oppositions, Plaintiffs filed a Notice of
Supplemental Support [Dkt. No. 35] ("Pls.' First Supp.") notifying
the Court of a letter from an FDIC official to a depository
6
institution. On December 12, 2014, after briefing was complete on
the Motions to Dismiss and the Motion for Discovery, Plaintiffs
filed a Second Notice of Supplemental Support [Dkt. No. 52] ("Pls.'
Second Supp. ") to notify the Court of a U.S. House of
Representatives Committee Report on the FDIC' s involvement in
Operation Choke Point. On December 23, 2014, the FDIC filed a
Response to Plaintiffs' Second Supplemental Notice [Dkt. No. 53]
("FDIC Supp. Resp.").
II. Second Amended Complaint
After briefing was complete on the Motions to Dismiss and the
Motion for Jurisdictional Discovery, Plaintiffs filed a Motion for
Leave to File a Second Amended Complaint on April 10, 2015 [Dkt.
No. 56]. Defendants' only opposition to the Motion to Amend is
that the proposed Second Amended Complaint is futile because it
does not overcome the alleged deficiencies in the First Amended
Complaint with regard to standing and/or failure to state a claim.
Consequently, Defendants argue that the Motion to Amend should be
denied as futile. See Opp'ns to Motion to Amend. Because this Court
finds, infra, that Plaintiffs have standing and some claims survive
the Motions to Dismiss, and are therefore not futile, Plaintiffs'
Motion to Amend will be granted. For purposes of deciding the
7
Motions to Dismiss, the Court will rely on the Second Amended
Complaint [Dkt. No. 56-1] ("SAC") in this Memorandum Opinion.
III. Jurisdiction
A. Standard of Review 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)). 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).
B. Standing
As a threshold matter, Defendants argue that Plaintiffs do
not have standing. Article III of the Constitution limits the
jurisdiction of federal courts to certain "Cases" and
8
"Controversies." See U.S. Const. art. 3, § 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) (quoting DaimlerChrysler
Corp. v. Cuno, 547 U.S. 332, 341, (2006)). "One element of the
case-or-controversy requirement is that plaintiffs must 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
opposed to merely speculative, that the injury will be redressed
by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-61 (1992) (internal quotation marks, citations, and
footnote omitted) .
"A plaintiff's burden to demonstrate standing grows heavier
at each stage of the litigation." Osborn v. Visa Inc., No. 14-
7 004 , 2 0 15 WL 4 619 8 7 4 , at * 5 ( D. C . Cir . Aug . 4 , 2 0 15 ) ( citing
Lujan, 504 U.S. at 561). "At the pleading stage, general factual
allegations of injury resulting from the defendant's conduct may
9
suffice, for on a motion to dismiss we 'presume that the general
allegations embrace those specific facts which are necessary to
support the claim.'" Lujan, 504 U.S. at 5 61 (quoting Lujan v.
National Wildlife Federation, 497 U.S. 871, 889 (1990)).
Our Court of Appeals recently reiterated and emphasized the
requirement that courts must "accept as true all material
allegations of the complaint" at the pleadings stage. Osborn, 2015
WL 4619874, at *5 (internal citation omitted). In Osborn, the Court
of Appeals found that the plaintiffs' alleged facts were "specific,
plausible, and susceptible to proof at trial," and therefore they
"pass[ed] muster for standing purposes at the pleadings stage."
Id. at *6.
"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." Nat'l Wrestling Coaches Ass'n v. Dep't of Educ., 366
F.3d 930, 938 (D.C. Cir. 2004) (quoting Lujan, 504 U.S. at 562).
Where standing has been found on the basis of third-party conduct,
"the record presented substantial evidence of a causal
relationship between the government policy and the third-party
conduct, leaving little doubt as to causation and the likelihood
of redress." Id. at 941. Therefore, while the Court accepts as
true all material allegations made by Plaintiffs, Plaintiffs bear
10
a greater burden of what they must allege in order to show standing
on the basis of third-party conduct.
In this case, the elements of causation and redressability
"hinge on the independent choices of the regulated third party,"
namely the banks. Id. at 938. While it is Plaintiffs' burden to
"adduce facts showing that· those choices have been or will be made
in such a manner as to produce causation and permit redressability
of injury," Id. (quoting Lujan, 504 U.S. at 562) (emphasis added) ,
at the motion to dismiss stage, Plaintiffs need only allege facts
that are "specific, plausible, and susceptible to proof at trial."
Osborn, 2015 WL 4619874 at *14.
1. Injury in Fact
Defendants do not dispute that Plaintiffs have suffered an
injury in fact. CFSA's members, including Plaintiff Advance
America, have lost beneficial banking relationships, causing them
on short notice to lose business and expend resources to locate
new banking partners. Pls.' Opp'n at 11. Many payday lenders have
not been able to replace the terminated bank relationships. Id.
Plaintiffs have also alleged that Defendants' actions have
11
deprived them of their ability to compete for banks' resources and
have stigmatized them. Id. at 12-13.
In sum, it is clear that Plaintiffs have alleged facts
sufficient to show an injury in fact at the pleadings stage.
2. Causation
Defendants argue that Plaintiffs do not meet the causation
prong of standing because their injuries are not "fairly traceable"
to any acts by the Defendants, and that it was the independent
decisions of the respective banks to terminate their relationships
with Plaintiffs' members. See Board Mot. at 10-11; FDIC Mot. at
12 f 15 •
To show causation, Plaintiffs must show that the Defendants'
actions were a "substantial factor motivating the decisions of the
third parties that were the direct source of the [P]laintiff[s']
injuries." National Wrestling Coaches, 366 F.3d at 940-41. Thus
the key issue is the degree of Defendants' alleged involvement or
influence on the banks' decisions to terminate relationships with
payday lenders.
Plaintiffs allege that the Defendants undertook a "two-stage
regulatory campaign designed to cripple and ultimately eliminate
the payday lending industry." Pls.' Opp'n at 9. The first stage
involved Defendants issuing informal regulatory guidance regarding
"reputation risk." Plaintiffs allege that the Defendant agencies
expanded the definition of "reputation risk" beyond its
12
...
traditional understanding to include bad publicity due to the
actions of third parties, even when the actions were unrelated to
work done on behalf of the bank. SAC ~ 5, 47-51.
Plaintiffs cite to several documents issued by the FDIC, as
well as one by the OCC, as examples of the expansion of "reputation
risk." See e.g., OCC, Third-Party Relationships: Risk Management
Guidance, OCC Bulletin 2013-29 (Oct. 30, 2013); FDIC, Financial
Institution Letter: Guidance for Managing Third-Party Risk, FIL-
44-2008 (June 6, 2008); FDIC, Financial Institution Letter:
Guidance on Payment Processor Relationships, FIL-127-2008 (Nov. 7,
2008); FDIC, Financial Institution Letter: Payment Processor
Relationships, FIL-3-2012 (Jan. 31, 2012); FDIC, Managing Risks in
Third-Party Payment Processor Relationships, 8 SUPERVISORY
INSIGHTS (Summer 2011) . The Supervisory Insights article included
a list of merchant categories--including payday loans--"that have
been associated with high-risk activity." Managing Risks in Third-
Party Payment Processor Relationships, 8 SUPERVISORY INSIGHTS at
7; Pls. Second Supp., Ex. B at 157 (collectively, "Agency
Documents") .
The second stage, according to Plaintiffs' theory, is that
Defendants relied on the expanded definition qf "reputation risk,"
as . outlined in the regulatory guidance, "as the fulcrum for a
campaign of backroom regulatory pressure" to coerce banks into
terminating relationships with payday lenders. Pls.' Opp'n at 9.
13
Defendants allegedly acted in concert with DOJ in Operation Choke
Point and "used their prudential 'safety and soundness' regulatory
authority" to pressure banks. SAC ! 5; see also SAC !! 56-60.
Plaintiffs further allege that, as part of Operation Choke
Point, Defendants privately threatened banks with adverse
regulatory action if they continued doing business with payday
lenders. See id. In support of their theory, Plaintiffs cite to an
internal DOJ memo titled "Operation Choke Point: Eight-Week Status
Report," in which meetings with the FDIC and the possibility of
the FDIC assigning agents to work on DOJ cases were discussed.
Pls.' Opp'n at 25 (citing Memorandum from Michael S. Blume, Dir.,
DOJ Consumer Prot. Branch, to Stuart F. Delery, Principal Deputy
Ass't Att'y Gen., DOJ Civil Div. at 6 (Apr. 17, 2013), in Comm.
Report app. at HOGR-3PPP000048.
Plaintiffs also refer to a February 15, 2013 letter from FDIC
Regional Director M. Anthony Lowe to an unidentified bank regarding
that bank's involvement in payday lending. See Pls.' Supp. Support,
Ex. A [Dkt. No. 35-1]. In the letter, Lowe states, "we have
generally found that activities related to payday lending are
unacceptable for an insured depository institution." Id. at 2.
Lowe also states that members of the Region's Senior Management
will be contacting the bank in the near future "to further discuss
[its] concerns relative to the aforementioned [payday lender]
relationship." Id. Similarly, Plaintiffs cite to an internal email
14
from Marguerite Sagatelian, Senior Counsel with the FDIC Consumer
Enforcement Unit, stating that FDiC Legal was "looking into avenues
by which the FDIC can potentially prevent [its] banks from
facilitating payday lending." Pls. Second Supp., Ex.Bat 118 [Dkt.
No. 52-2].
Plaintiffs bolster their allegations by noting that the
Federal Reserve Board of Governors is the prudential regulator for
three banks that have already terminated relationships with
Plaintiffs and their members, the OCC is the prudential regulator
for seven banks that terminated relationships with Plaintiffs and
their members, and that the FDIC is the prudential regulator for
four banks that terminated relationships with Plaintiffs and their
members. SAC ~ 84.
Plaintiffs also point to a DOJ memo indicating that it had
been in contact with "several state attorneys general, FTC, FDIC,
the Federal Reserve Bank of Atlanta, and [they] hope to begin
working with the OCC soon," in "an attempt to increase their
knowledge and attention to the roles banks and payment processors
play in facilitating fraud." Memorandum from Michael S. Blume,
Dir., DOJ Consumer Prot. Branch, to Stuart F. Delery, Ass't Att'y
Gen., DOJ Civil Division at 14 (Sept. 9, 2013), in Comm. Report
app. at HOGR-3PPP000339. Finally, Plaintiffs claim that
Defendants undertook the actions they did with the express purpose
15
of pressuring banks to terminate relationships with payday
lenders.
In sum, Plaintiffs have alleged sufficient facts, that, if
proven true, could show that the Defendants' conduct was a
"substantial factor motivating the decisions of third parties that
were the direct source of [ P] laintiff [ s' ] injuries." National
Wrestling Coaches, 366 F.3d at 940-41. Because the "facts alleged
by the Plaintiffs are specific, plausible, and susceptible to proof
at trial, they pass muster for standing purposes at the pleadings
stage." Osborn, 2015 WL 4619874 at *6.
3. Redressability
Next, Defendants argue that Plaintiffs lack standing because
their injuries are not redressable by the Court. Redressability
requires that Plaintiffs demonstrate "a substantial likelihood 3
that the requested relief will remedy the alleged injury in fact."
Teton Historic Aviation Found. v. U.S. Dep' t of Def., 7 8 5 F.3d
719, 724 (D.C. Cir. 2015) (quoting Vermont Agency of Natural Res.
3 Plaintiffs argue that they need only allege that the relief
requested would result in a "significant increase in the
likelihood" that their banking relationships will be reinstated."
Pls.' Opp'n at 19-20 {citing Utah v. Evans, 536 U.S. 452, 464
(2002)). Both phrasings are used in our Circuit and are essentially
the same in practice. See, e.g., Town of Barnstable, Mass. v. Fed.
Aviation. Admin., 659 F.3d 28, 31 (D.C. Cir. 2011) (stating
"significant increase in the likelihood" and "substantial
probability" are synonymous); Spectrum Five LLC v. Fed. Commc'ns
Comm'n, 758 F.3d 254, 261 (D.C. Cir. 2014) (utilizing "significant
increase in the likelihood" standard) .
16
v. U.S. ex rel. Stevens, 529 U.S. 765, 771 (2000)). A "substantial
likelihood" requires "more than a remote possibility . . that
[Plaintiffs'] situation might improve were the court to
afford relief," Warth v. Seldin, 422 U.S. 490, 491 (1975), but is
not so demanding as to require Plaintiffs to "show to a certainty
that a favorable decision will redress [their] injury." Teton, 785
F.3d at 726 (quoting Nat'l Wildlife Fed'n v. Hodel, 839 F.2d 694,
705 (D.C. Cir. 1988)).
Plaintiffs' prayer for relief includes: (1) declaring various
Agency Documents to be unlawful, ( 2) declaring that Defendants
significantly changed the definition of reputation risk without
notice and comment rulemaking; (3) declaring that Defendants
deprived Plaintiffs of liberty without due process of law; ( 4)
enjoining Defendants, "as well as those acting in concert with
them," from implementing the aforementioned Agency Documents, from
relying on the revised definition of "reputation risk," and from
applying informal pressure to banks to encourage them to terminate
relationships with payday lenders; (5) enjoining Defendants, "as
well as those acting in concert with them," from harming the
reputations of Plaintiffs and from seeking to deprive them of
access to financial services; and (6) other such relief as the
Court deems just and proper. SAC ~ 205.
Defendants focus their redressability arguments primarily on
the invalidation of the Agency Documents, offering little
17
discussion about Plaintiffs' other requested relief. They also
argue that 12 U.S.C. § 1818(i) (1) prevents this Court from
providing any injunctive relief that interferes with "the issuance
or enforcement of any notice or order." Board Mot. at 15-16; FDIC
Mot. at 43-44; OCC Mot. at 18-19. The nature of any injunctive
relief the Court is able to provide is extremely relevant to
standing, as "Plaintiffs cannot establish standing by requesting
relief that the Court lacks the authority to grant." Long Term
Care Pharmacy All. v. Leavitt, 530 F. Supp. 2d 173, 185 (D.D.C.
2008) .
Therefore, the Court will address the parties' redressability
arguments regarding the invalidation of the Agency Documents and
injunctive relief separately, and will then assess the
"substantial likelihood" of redressability. Teton Historic
Aviation Found., 785 F.3d at 724.
i. Invalidation of Agency Documents
Defendants argue that, even if the Court were to invalidate
the Agency Documents that allegedly redefine reputation risk and
enjoin Defendants' actions, it does not necessarily follow that
the banks will re-establish relationships with the Plaintiffs. See
FDIC Mot. at 16-20; OCC Mot. at 13-14; Board Mot. at 14.
Defendants explain that the Agency Documents do not require
banks to sever relationships with any third parties, but only
provide guidance on risk management. For that reason, Defendants
18
argue that the documents could not have been the impetus for the
termination of the bank relationships, and invalidation of them
will not necessarily be the catalyst for reinstatement of the bank
relationships. See FDIC Mot. at 17; OCC Mot. at 14-15. The Board
argues that this is particularly true for it, because Plaintiffs
are not even seeking to invalidate any Board documents. See Board
Mot. at 14.
Defendants argue further that invalidation of the Agency
Documents would not provide prospective relief to Plaintiffs.
Banks would still be required to abide by safety and soundness
standards, and independently determine whether they can adequately
manage risks. See OCC Mot. at 14-15; Board Mot. at 14.
Defendants also point out that the Agency Documents do permit
banks to have relationships with payday lenders. Moreover, the
FDIC notes that it recently promulgated two Financial Institution
Letters ("FILs") explicitly stating that banks "that properly
manage" relationships with customers engaged in higher-risk
activities, and the associated risks, "are neither prohibited nor
discouraged from providing" services to those customers. FDIC Mot.
at 18-19 (quoting FIL-43-2013) . Thus, the FDIC argues that
invalidating the Agency Documents is unlikely to provide
prospective relief, as there would be no change in the FDIC' s
official position, which already permits relationships with payday
lenders. Id. at 19.
19
Although invalidation of the Agency Documents would not
necessarily lead to restoration of banking relationships, it may
certainly affect Defendants' ability to pressure banks in the
future. Plaintiffs have argued that Defendants relied on the
definition of "reputation risk" contained in the Agency Documents
as the "fulcrum" of their campaign pressuring banks to terminate
relationships with payday lenders. Pls.' Opp'n at 9. Under
Plaintiffs' theory, it is likely that the invalidation of the
Agency Documents could deprive Defendants of this "fulcrum."
Plaintiffs are not required to "show to a certainty that a
favorable decision will redress [their] injury." Teton Historic
Aviation Found., 785 F.3d at 726 (internal citation omitted).
ii. Section 1818(i) and Injunctive Relief
Defendants argue that Section 1818 of the Federal Deposit
Insurance Act ("FDI Act") divests the Court of jurisdiction to
grant Plaintiffs most of the injunctive relief they seek. See Board
Mot. at 15; OCC Mot. at 18-20; FDIC Mot. at 44-45; 12 U.S.C.
§ 1818 (i) (1). Section 1818 (i) (1) states that "no court shall have
jurisdiction to affect by injunction or otherwis~" any ongoing or
future enforcement action by Defendants, or to "review, modify,
suspend, terminate, or set aside" such actions. 12 U.S.C.
§ 1818 (i) (1).
As an initial matter, Plaintiffs correctly point out that
there is no enforcement action at issue here, nor are they asking
20
the Court to enjoin future enforcement actions. See Pls.' Opp'n at
25.
Defendants argue that any injunction the Court might enter is
likely to interfere with or effectively enjoin future enforcement
actions, and is therefore precluded by Section 1818 (i) (1). See
Board Mot. at 15-17;, OCC Mot. at 20; FDIC Reply at 22-23. The FDIC
further argues that the limitation imposed by Section 1818 ( i) ( 1)
extends ~o supervisory actions as well, such as examination
findings and notices of undercapi tali zed status. See FDIC Mot.
at 44-45; FDIC Reply at 22-23.
While it is true that Section 1818 (i) (1) precludes this
Court's jurisdiction to issue an injunction that interferes with
an enforcement action or an order under Sections 1818, 18310, or
1831p-1, that does not preclude the Court's ability to grant any
injunctive relief against Defendants. The exact contours of any
injunctive relief this Court might grant would depend on the
specific facts that are proven. Mere speculation that an injunction
"might" interfere with "any notice or order" does not necessarily
mean that the Court has no authority to grant Plaintiffs' claims
for injunctive relief that do not cover Sections 1818, 18130,or
1831p-1.
Moreover, all the cases cited by Defendants involve
challenges to specific enforcement actions or orders. See, e.g.,
Board of Governors of Fed. Reserve Sys. v. MCorp Fin., Inc., ·502
21
U.S. 32, 39 ( 1991) (court lacked jurisdiction to enforce automatic
stay in bankruptcy against agency enforcement proceeding); Ridder
v. Office of Thrift Supervision, 146 F.3d 1035, 1039 (D.C. Cir.
1998) (no jurisdiction under 1818 (i) (1) to enjoin provision in
consent order); Groos Nat'l Bank v. Comptroller of the Currency,
573 F.2d 889, 895 (5th Cir. 1978) (court cannot issue declaratory
judgment that would prevent agency from pursuing enforcement).
That is simply not the case here. Section 1818(i) does not
necessarily prevent the Court from granting Plaintiffs' requests
for injunctive relief . 4
iii. Likelihood of Redressability
Even if some injunctive relief might be available to
Plaintiffs, the Court must also. determine if injunctive relief
and/or the invalidation of the Agency Documents will result in a
"substantial likelihood" that Plaintiffs' injuries will be
redressed.
Defendants point out that other reasons unrelated to the
challenged Agency Documents and actions by Defendants may affect
banks' individual decisions on whether to reinstate relationships
with payday lenders. See Board Mot. at 15 (citing National
4
The FDIC also argues that Plaintiffs' requested injunctions
are overbroad and improper. FDIC Mot. at 45. While the FDIC may
turn.out to be correct, that alone does not, at this time, defeat
jurisdiction to provide injunctive relief.
22
Wrestling Coaches, 3 66 F. 3d at 93 9) ; FDIC Mot. at 14. Such
factors include safety and soundness standards, bank capacity and
systems to effectively manage risk, DOJ' s continued activities
under Operation Choke Point, etc. See OCC Mot. at 14; Board Mot.
at 14. Due to these factors, Defendants contend, it is not clear
that a decision by this Court would change the outcome of banks'
decisions.
Plaintiffs believe that, because some banks regretted
terminating payday lenders, "they presumably would reverse those
decisions if the coercive regulatory influence was removed." Pls.'
Opp'n at 20. Plaintiffs support this assumption with letters from
banks indicating that the banks were "very sorry" to terminate the
relationship, were "frustrated and disappointed" with the
situation, and, in the case of one bank, expressing the "hope [that
they could] find a way to work together again soon." Id. (citations
omitted). These letters do suggest that some banks would likely
consider re-establishing relationships.
Although they believe banks would resume relationships with
them should the Court order relief, Plaintiffs argue that it is
not necessary to show that even a single bank would restore service
to payday lenders in order to establish redressability. Pls.' Opp'n
at 19. Instead, Plaintiffs argue that, to the extent Defendants
deprived them of "the ability to compete for banks' limited
compliance and risk management resources on an equal footing," and
23
therefore Plaintiffs need only demonstrate that they are "able and
ready" to compete for banking services should the Court provide
relief. Pls.' Opp' n at 19 (citing Northeastern Fla. Chapter of
Associated Gen. Contractors of Am. v. City of Jacksonville, Fla.,
508 U.S. 656, 666 (1993).
City of Jacksonville, and the redressability standard
Plaintiffs cite it for, do not support Plaintiffs' argument. City
of Jacksonville involved a challenge to a minority business
program that required 10% of the amount spent on city contracts be
set aside for "Minority Business Enterprises." Id. at 659. The
Supreme Court found that, in order to establish standing, the
plaintiff did not need to show that it would have won the
contracts, but rather only needed to demonstrate that the policy
prevented it from competing for the contracts on an equal basis.
Id. at 666. Unlike City of Jacksonville, this case does not involve
any sort of set-aside or quota program. Nor was City of
Jacksonville a third-party standing case, which is "substantially
more difficult." Lujan v. Defenders of Wildlife, 504 U.S. 555, 562
(1992). Moreover, Plaintiffs do not even allege that bank
relationships were terminated because Plaintiffs were at a
competitive disadvantage due to· Defendants' actions.
Plaintiffs argue that the injunctive relief they request
would "restrain Defendants from inflicting additional injury by
continuing to pressure banks to terminate [Plaintiffs'] accounts,"
24
thereby providing meaningful prospective relief and
redressability. Pls.' Opp'n at 19 (emphasis omitted).
However, Defendants provide little in the way of
counterargument as to why injunctive relief would not redress
Plaintiffs' injuries. The FDIC and OCC do not address the issue at
all, and instead rely wholly on their belief that injunctive relief
is not available because of Section 1818(i) (1). See FDIC Reply at
3-4; OCC Reply at 9-13. The Board responds that, even if the Court
enjoined Defendants from exerting regulatory pressure, it does not
necessarily· follow that banks would restore any relationships and
"banks still could terminate these relationships" with payday
lenders for a multitude of lawful business reasons. See Board Reply
at 10-11 (emphasis in original) .
While the Board is correct that banks could still terminate
payday lenders even if Plaintiffs received injunctive relief,
Plaintiffs are not required to show that banks could not, under
any circumstances, terminate relationships in order to show
redressability. If Plaintiffs are able to prove that injunctive
relief would result in a substantial likelihood that banks will
restore relationships or not terminate relationships in the
future, they have sufficiently established.
Assuming for now the truth of Plaintiffs' allegations that
Defendants expanded the definition of reputation risk and relied
on that expanded definition to pressure banks into terminating
25
relationships with payday lenders, it is reasonable to conclude
that a Court order invalidating the guidance documents and
enjoining Defendants would redress Plaintiffs' injuries. In the
absence of such pressure, some banks may well choose to reestablish
relationships with Plaintiffs. Finally, the absence of such
pressure is also likely to prevent additional banks from
terminating relationships with Plaintiffs in the future.
In sum, Plaintiffs have alleged facts sufficient to show that
there is a "substantial likelihood" that a favorable ruling by
this Court would redress their injuries.
C. Mootness
The FDIC argues that the two guidance documents it has issued
render Plaintiffs' case moot, FDIC Mot. at 22, because, to the
extent the FDIC Agency Documents may have previously led banks to
terminate relationships with payday lenders, the two more recent
FILs they have issued expressly clarified that termination of
relationships is not required.
The two new guidance documents, as noted previously, are FILs
issued in September 2013 and July 2014. The FILs state that banks,
with appropriate controls in place, may continue to do business
with "merchant customers engaged in higher risk activities," and
those who properly manage such relationships "are neither
prohibited nor discouraged" from doing business with payday
lenders (among others). FIL-43-2013 at 2; FIL-41-2014 at 2. The
26
July 2014 FIL also removed the list of high-risk merchant
categories, due to "the misperception that the listed examples of
merchant categories were prohibited or discouraged." FIL-41-2014
at 2. Therefore, the FDIC concludes, even if the FDIC Agency
Documents did force banks to terminate their relationships with
payday lenders, the two FILS negate any such action now.
The doctrine of mootness is premised upon the notion that
"[a] federal court is constitutionally forbidden to render
advisory opinions or 'to decide questions that cannot affect the
rights of litigants in the case before them.' "Better Gov't Assoc.
v. Dep't of State, 780 F.2d 86, 90-91 (D.C. Cir. 1986) (quoting
North Carolina v. Rice, 404 U.S. 244, 246 (1971)). Plaintiffs state
that under the two-pronged test established by the Supreme Court,
Defendants bear the burden of showing that " ( 1) there is no
reasonable expectation that the alleged violation will recur and
( 2) interim relief or events have completely and irrevocably
eradicated the effects of the alleged violation." Pls.' Opp'n. at
22 (quoting Reeve Aleutian Airways, Inc. v. United States, 889
F.2d 1139, 1142-43 (D.C. Cir. 1989)); see also County of Los
Angeles v. Davis, 440 U.S. 625, 631 (1979). This burden "is a heavy
one." Reeve Aleutian Airways, 889 F.2d at 1143).
The FDIC has not met this heavy burden. The invalidation of
the Agency Documents is only one facet of the relief Plaintiffs'
seek - Plaintiffs' other alleged harms and requested relief are
27
not mooted by the FDIC's clarification of the Agency Documents.
Furthermore, in addition to the allegation that the Agency
Documents forced banks to terminate relationships with them,
Plaintiffs also allege that the Agency Documents improperly
redefine "reputation risk" and violate the APA. SAC ! ! 137, 169,
195. The September 2013 and July 2014 FILs do not change the
definition of or even mention ~reputation risk." See. FIL-43-2013;
FIL-41-2014; see also Pls.' Opp'n at 23. Nor do the FILs remedy
the alleged APA violations of the previous FILs.
Therefore, while the September 2013 and July 2014 FILs may
have addressed a portion of Plaintiffs' allegations, they have not
resolved the entirety of Plaintiffs' claims. Therefore Plaintiffs'
claims are not moot.
· D. Plaintiffs' Motion for Jurisdictional Discovery
In response to Defendants' contention that the Court has no
jurisdiction, Plaintiffs have filed a Motion for Jurisdictional
Discovery in order to further support their Complaint. Because the
Court has found that it has jurisdiction, Plaintiffs' Motion for
Jurisdictional discovery is moot and is therefore denied.
E. Prudential Standing
Defendant FDIC argues that, even if Plaintiffs have Article III
standing, Plaintiffs fail to meet prudential standing requirements
because they are not within the zone of interests protected by the
relevant statutes. FDIC Mot. at 20. The principle of prudential
28
standing "denies a right of review if the plaintiff's interests
are so marginally related to or inconsistent with the purposes
implicit in the statute that it cannot reasonably be assumed that
Congress intended to permit the suit." Clarke v. Sec. Indus. Ass'n,
479 U.S. 388, 399 (1987).
The FDIC states that the statutes giving it the authority to
promulgate guidelines, as well as the FDIC Agency Documents, are
focused on promoting the safety and soundness of banks, and that
those interests are not implicated by Plaintiffs' claims. FDIC
Mot. at 21.
Plaintiffs failed to respond to this argument in their
Opposition, and the FDIC argues that Plaintiffs have therefore
conceded this point. See Pls.' Opp'n; FDIC Reply at 5; see also
Clifton Power Corp. v. Fed. Energy Reg. Comm'n, 88 F.3d 1258, 1267
(D.C. Cir. 1996) (taking as conceded a seemingly sound argument
that was not opposed); Rosenblatt v. Fenty, 734 F. Supp. 2d 21, 22
(D.D.C. 2010) ("an argument in a dispositive motion that the
opponent fails to address in an opposition may be deemed
conceded") .
It was only after the FDIC stated that Plaintiffs had conceded
this argument that Plaintiffs filed a Surreply addressing
prudential standing. Plaintiffs counter that "inherent in all of
Plaintiffs' arguments that are based upon the [FDI] Act . is
29
the proposition that Plaintiffs' injuries fall within the zone of
interest protected by the [FDI] Act." Pls.' Surreply at 2-3.
How~ver, the Supreme Court's recent decision in Lexmark Int'l,
Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014),
"makes plain the zone of interests test no longer falls under the
prudential standing umbrella." Crossroads Grassroots Policy
Strategies v. Fed. Election Comm'n, 788 F.3d 312, 319 (D.C. Cir.
2015) (citing Lexmark, 134 S. Ct. at 1387 n. 4). Nor is the zone
of interests test a jurisdictional requirement. Id. Instead, the
Supreme Court ruled that the zone of interests test is now
considered a merits issue, in which the "court asks whether the
plaintiff 'has a cause of action under the statute.'" Id. (quoting
Lexmark, · 134 S. Ct. at 1387) .
Given the clear holdings from the Supreme Court and our Court
of Appeals' clear rulings that the zone of interests test is not
related to jurisdiction or standing, the FDIC' s argument that
Plaintiffs lack prudential standing necessarily must be denied.
IV. Failure to State a Claim
A. Standard of Review Under Fed. R. Civ. P. 12(b) (6)
To survive a motion to dismiss under Rule 12(b) (6) for failure
to state a claim upon which relief can be granted, a plaintiff
need only plead "enough facts to state a claim to relief that is
plausible on its face" and to "nudge[ ] [his or her] claims across
the line from conceivable to plausible." Bell Atlantic Corp. v.
30
Twombly, 550 U.S. 544, 570 (2007). "[O]nce a claim has been stated
adequately, it may be supported by showing any set of facts
consistent with the allegations in the complaint." Id. at 563.
Under the Twombly standard, a "court deciding a motion to
dismiss must not make any judgment about the probability of the
plaintiffs' success . [,] must assume all the allegations in
the complaint are true (even if doubtful in fact) [, and]
must give the plaintiff the benefit of all reasonable inferences
derived from the facts alleged." Aktieselskabet AF 21. November
2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C. Cir. 2008) (internal
quotation marks 'and citations omitted). The court does not,
however, accept as true "legal conclusions or inferences that are
unsupported by the facts alleged." Ralls Corp. v. Comm. on Foreign
Inv. in U.S., 758 F.3d 296, 315 (D.C. Cir. 2014) (citation
omitted). Furthermore, a complaint which "tenders 'naked
assertion[s]' devoid of 'further factual enhancement'" will not
suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 55 7) (alteration in Iqbal) .
B. APA Claims
Plaintiffs allege that Defendants violated the APA in a number
of ways. The APA requires that the Court "hold unlawful and set
aside agency action, findings, and conclusions" that are, inter
alia: "arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law"; "contrary to constitutional right,
31
power, privilege, or immunity"; "in excess of statutory
jurisdiction, authority, or limitations"; or "without observance
of procedure required by law." 5 U.S.C. § 706(2).
Plaintiffs allege that Defendants: ( 1) promulgated binding
rules without providing notice and comment, as required by law,
see SAC, Counts 1, 5, and 9; (2) exceeded their authority conferred
by 12 U.S.C. § 1831p-1 to set standards for safety and soundness,
see SAC, Counts 2, 6, and 10; ( 3) acted arbitrarily and
capriciously, see SAC, Counts 3, 7, and 11; and (4) deprived them
of protected liberty interests without due process of law, see
SAC, Counts 4, 8, and 12.
1. Final Agency Action Requirement
Before the Court can evaluate the merits of Plaintiffs' APA
claims, it must first determine whether Defendants' actions are
considered final agency actions. The APA authorizes judicial
review only of "[a] gency action made reviewable by statute and
final agency action for which there is no other adequate remedy in
a court." 5 U.S.C. § 704. Plaintiffs have cited no provision of
the FDI Act authorizing judicial review beyond that which is
provided for in the APA. Therefore, the alleged agency actions by
Defendants must be final agency actions in orde.r to be judicially
reviewable. 5 Nat'l Ass'n of Home Builders v. Norton, 415 F.3d 8,
5An alternate way of viewing the final agency act·ion question is
whether the action constitutes "a de facto rule or binding norm
32
13 (D.C. Cir. 2005); see also Lujan v. Nat'l Wildlife Fed'n, 497
U.S. 871, 882 (1990) ("When . . . review is sought not pursuant to
specific authorization in the substantive statute, but only under
the general review provisions of the APA, the 'agency action' in
question must be 'final agency action.'") (citing 5 U.S.C. § 704).
"The Supreme Court has established a two-part test to
determine when an agency action is reviewable as final." Nat' 1
Ass'n of Home Builders, 415 F.3d at 13. First, the action under
review "must mark the 'consummation' of the agency's
decisionmaking process--it must not be of a merely tentative or
interlocutory nature." Id. (quoting Bennett v. Spear, 520 U.S.
154, 177-78 (1997)). Second, the action must "be one by which
'rights or obligations have been determined,' or from which 'legal
consequences will flow.'" Id. (quoting Bennett, 520 U.S. at 178).
Final agency action may be comprised of "a series of agency
pronouncements rather than a single edict." Ciba-Geigy Corp. v.
Envtl. Prot. Agency, 801 F.2d 430, 435 n. 7 (D.C. Cir. 1986).
Our Court of Appeals has also given guidance for evaluating
whether legal consequences flow from an action. One line of
analysis "considers the effects of an agency's action, inquiring
that could not properly be promulgated absent" the requirements of
the APA. Ctr. for Auto Safety v. Nat' 1 Highway Traffic Safety
Admin., 452 F.3d 798, 806 (D.C. Cir. 2006). By demonstrating the
latter, a party implicitly proves the former, "because the agency's
adoption of a binding norm obviously would reflect final agency
action." Id.
33
whether the agency has '(l) impose[d] any rights and obligations,
or (2) genuinely [left] the agency and its decisionmakers free to
exercise discretion.'" Id. (quoting CropLife Am. v. Envtl. Prot.
Agency, 329 F.3d 876, 883 (D.C. Cir. 2003)). "The language used by
an agency is an important consideration in such determinations."
Id. "The second line of analysis looks to the agency's expressed
intentions. This entails a consideration of three factors: (1) the
agency's own characterization of the action; (2) whether the action
was published in the Federal Register or the Code of Federal
Regulations; and (3) whether the action has binding effects on
private parties or on the agency." Id. at 806-07 (internal
quotation marks and citation omitted).
2. Defendants' Actions Constitute Neither Final Agency
Actions Nor Binding Norms
Plaintiffs point to two actions by each of the Defendants
that they consider final agency actions: 1) the promulgation of
the Agency Documents; and 2) coercive back-room communications and
the creation of a de facto rule against providing financial
services to all payday lenders. See SAC `` 116-22, 127, 148-54,
159, 180-184, 189. The FDIC and OCC argue that the Agency Documents
do not constitute final agency action, see FDIC Mot. at 23-24; OCC
Mot. at 21-29, while the Board notes that Plaintiffs do not even
allege that any guidance documents issued by the Board violate the
APA, see Board Mot. at 18. In addition, Defendants argue that the
34
communications Plaintiffs cite in support of their argument of a
de facto rule .do not constitute final agency action. Board Mot. at
19; FDIC Mot. at 36-37.
As noted above, under Bennett, Defendants' actions cannot be
viewed as "final agency action" under § 704 of the APA unless they
"mark the consummation of the agency's decisionmaking process" and
either determine "rights or obligations" or result in "leg.al
consequences." Bennett, 520 U.S. at 178 (citations and internal
quotation marks omitted).
After setting forth the two-step Bennett analysis, Plaintiffs
inexplicably fail to discuss the first Bennett step and make no
argument as to how the Agency Documents or the alleged de facto
rules "mark the consummation of [Defendants'] decisionmaking
processes." See Pls.' Opp'n at 27-28. The closest Plaintiffs come
to addressing the first Bennett step is a passing reference
stating, without further explanation, that the Agency Documents
"purport to reflect the agencies' expertise, experience, and
reasoned reflection." Pls.' Qpp'n at 29. Plaintiffs continue that
"[n]othing in the guidelines suggests that they are 'tentative,
open to further consideration, or conditional on future agency
action."' Id. (quoting City of Dania Beach, Fla. v. F.A.A., 485
F.3d 1181, 1188 (D.C. Cir. 2007)).
Plaintiffs' statement sufficiently alleges that the Agency
Documents reflect the consummation of the agencies decision-making
35
process, rather than a tentative or interlocutory step in that
process. Given that the documents were published and widely
distributed by the FDIC and OCC, it is reasonable to view them as
the consummation of the agencies' decision-making processes.
Therefore, the Court finds that the first Bennett prong has been
met with regard to the Agency Documents.
Plaintiffs have alleged that Defendants created a de facto
rule--in other words, Defendants' alleged "coercive communications
with banks," taken together, have effectively created a rule
against providing financial services to payday lenders.
It is not readily apparent how the amorphous de facto rule
against payday lenders alleged by Plaintiffs is the consummation
of the Defendants' decision-making processes. 6 In the absence of
any explanation by Plaintiffs, the Court concludes that the alleged
de facto rule fails to meet the first step of the Bennett test.
Having failed the first prong of the Bennett test, any alleged de
facto rule created by Defendants is not a final agency action and
therefore not subject to review under the APA. 7
6Plaintiffs' allegation of a de facto rule is not to be confused
with a legal conclusion that Defendants created a de facto rule
sufficient for purposes of § 704.
7 In the SAC, Plaintiffs also allege that Defendants coerced Early
Warning Services ( "EWS") , a credit reporting company, "directly
and indirectly through its five parent banks" to set an effective
Annual Percentage Rate cap of 36% and cease providing its services
to payday lenders. SAC ~ 112. EWS is not regulated by Defendants.
Plaintiffs fail to allege in the SAC any facts that could support
36
Turning to the second prong of the Bennett test, Plaintiffs
make several arguments regarding the legal consequences of the
Agency Documents. Plaintiffs characterize them as "filled with
obligatory language and threats of enforcement actions." Pls.'
Opp'n at 31. Such characterizations are clearly unsupported by the
facts on which Plaintiffs rely. Plaintiffs excerpt phrases from
the Agency Documents such as "it is essential that," "it is
imperative that," and "the FDIC expects," as examples of obligatory
language. Id. Read in context, it is clear that the language does
not create new legal obligations. Instead, the language is used
with regard to banks' overall responsibility to manage risks and
third-party risks 8 - obligations that existed pri9r to the Agency
Documents. In addition, the documents consistently use non-
mandatory language such as "should," rather than "shall" or "must."
See e.g., FIL-127-2008; OCC Bulletin 2013-29; see also Holistic
Candlers & Consumers Ass'n v. F.D.A., 664 F.3d 940, 944 (D.C. Cir.
an argument that Defendants' alleged coercion was the consummation
of the Defendants' decision-making processes.
8 For example: "The FDIC expects a financial ins ti tut ion to
adequately oversee all transactions and activities that it
processes and to appropriately manage . and mitigate operational
risks, Bank Secrecy Act (BSA) compliance, fraud risks, and consumer
protection risks,·among others." FIL-3-2012 at 2 (emphasis added);
"Financial institutions that do not adequately manage these
relationships may be viewed as facilitating fraudulent or unlawful
activity by a payment processor or merchant client. Therefore, it
is imperative that financial institutions recognize and understand
the businesses with which they are involved." FIL-127-2008 at 1
(emphasis added) .
37
2012) (use of "should" and "may" make plain that "there has been
no order compelling the appellants to do anything") (internal
citation omitted).
Indeed, Plaintiffs actually acknowledge the advisory nature
of the Agency Documents, stating that "[a] lthough the banks'
failure to follow the agencies' informal guidance may not directly
trigger civil liability, these guidance documents set a standard
for risk management that may also be used indirectly in other civil
enforcement actions," Pls.' Opp'n at 33, and alleging that some
"letters encourage banks to cut off relations . . if the risks
are too great." Id. at 32 (emphasis added) . Al though the Agency
Documents provide guidance on the FDIC and OCC's views regarding
risk management, they do not impose any obligations or prohibitions
on banks. Guidance that "does not tell regulated parties what
they must do or may not do in order to avoid liability" is merely
a general statement of policy. National Mining Ass'n., 2014 WL
3377245 *6 (July 11, 2014).
Furthermore, the Agency Documents expressly state that they
are not obligatory and are meant only to serve as guidance. See
e.g., FIL-44-2008 at 2 ("[t]he guidelines should not be considered
a set of mandatory procedures"); OCC Bulletin 2013-29 at 1 ("[t]his
bulletin provides guidance to national banks and federal savings
associations") . While this alone does not totally insulate the
documents from having legal consequences, the agency's
38
characterization of the documents is one of the relevant factors
for consideration. Ctr. for Auto Safety, 452 F.3d at 806-07.
Guidance documents must establish a "new substantive rule" before
they can be characterized as final action under the APA.
Broadgate, Inc. v. USCIS, 730 F. Supp. 2d 240, 245 (D.D.C. 2010).
The Court need not limit its analysis to the four corners of
the Agency Documents. Our Circuit has "looked to post-guidance
events to determine whether the agency has applied the guidance as
if it were binding on regulated parties." Nat'l Min. Ass'n v.
McCarthy, 758 F.3d 243,. 253 (D.C. Cir. 2014).
Plaintiffs allege that Defendants engaged in a campaign of
backroom pressure against banks and payday lenders, relying on the
definition of "reputation risk" outlined in the Agency Documents.
See Pls.' Opp'n at 29. Specifically, Plaintiffs argue that the use
of "reputation risk" in many termination letters from banks
indicates that the redefinition of "reputation risk" has been
actively enforced. Id. However, these letters are from banks, not
Defendants, and do not indicate any legal consequences or
enforcement stemming from the Agency Documents or Defendants.
In a similar vein, Plaintiffs argue that DOJ's attachment of
an FDIC guidance document to subpoenas is indicative of the legal
effect of the guidance document. Pls.' Opp' n at 33. Plaintiffs
cite to Barrick Goldstrike Mines Inc. for the proposition that an
informal action stating an agency's position, along with the threat
39
of enforcement action, may constitute final agency action. See
Pls.' Opp' n at 2 9-30 (citing Barrick Golds trike Mines Inc. v.
Browner, 215 F.3d 45, 48 (D.C. Cir. 2000).
While an enforcement action may be sufficient to show legal
consequences, it is not per se indicative of final agency action.
The enforcement action must still be evaluated within the Bennett
rubric of "rights or obligations" or "legal consequences."
In Barrick, an enforcement letter from the guidance-issuing
agency, relying on the guidance document as the basis for
enforcement, caused the guidance document to have legal
consequences. In this case however, none of the Defendants have
issued any enforcement letters and Barrick is not relevant.
DOJ's use of an FDIC guidance document does not necessarily
reflect the FDIC's views, nor do any legal consequences flow from
the document itself; any legal consequences flow from the actions
of DOJ. Plaintiffs point to no case law to support the contention
that DOJ' s use of the FDIC' s document constitutes enforcement
action--and therefore final agency action--by the FDIC.
Plaintiffs also allege that the guidelines provide the
Defendant agencies with a justification for requiring a bank to
submit a safety and soundness plan, which is "an initial step
toward exercising their enforcement powers." Pls.' Opp'n at 32.
Obviously, there is an important distinction between an initial
step toward an enforcement action, and an actual enforcement
40
action. See Reliable Automatic Sprinkler Co. v. Consumer Prod.
Safety Comm'n, 324 F.3d 726, 731-32 (D.C. Cir. 2003) (no final
agency action where agency issued preliminary determination of
violation of law, but was required by statute to bring a formal
action before it could make a legally binding determination) .
Plaintiffs are not alleging that the Agency Documents commit the
FDIG or OCC to a particular course of action. It remains within
the FDIC and OCC's discretion to determine whether an enforcement
action is warranted.
For all the foregoing reasons, the Court concludes that the
Agency Documents are not final agency actions for purposes of § 704
review because they do not determine any rights or obligations.
Consequently, they are not subject to judicial review under the
APA and all of Plaintiffs claims under the APA fail to state a
claim. Therefore, Defendants' Motions to Dismiss shall be granted
with regard to Counts 1, 2, 3, 5, 6, 7, 9, 10, and 11, as well as
the portions of Counts 4, 8, and 12 that plead violations of the
APA.
C. Violation of Fifth Amendment Due Process
In Counts 4, 8, and 12 of the Second Amended Complaint,
Plaintiffs allege that Defendants stigmatized them, deprived them
of their bank accounts, and threatened their ability to engage in
their chosen line of business, all without notice and opportunity
to be heard, in violation of their procedural due process rights
41
·.
under the Fifth Amendment to the United States Constitution. See
SAC `` 141-47, 173-79, 198-204; U.S. Const. amend. V.
The Fifth Amendment's due process clause protects the
indi victual citizen from the arbitrary exercise of power by the
government. Mathews v. Eldridge, 424 U.S. 319, 332 (1976). For a
plaintiff to establish a procedural due process claim, it must
show that (1) it has a protected interest, (2) the government
deprived it of this interest, and (3) the deprivation occurred
without proper procedural protections. See Indus. Safety Equip.
Ass'n, Inc. v. Envtl. Prot. Agency, 837 F.2d 1115, 1122 (D.C. Cir.
1988).
1. Applicability of Due Process Protections
Defendants argue that the Supreme Court has held that due
process protections are not applicable to legislative activities
of an administrative agency that are generalized in nature and
affect a large number of parties. See Board Mot. at 28-29 (citing
Natural Res. Def. Council, Inc. v. Envtl. Prot. Agency, 859 F.2d
156, 194 (D.C. Cir. 1988); Bi-Metallic Inv. Co. v. State Bd. Of
Equalization Colorado, 239 U.S. 441 (1915)); OCC Mt. at 37-38. In
Bi-Metallic, the Supreme Court held that no hearing was
constitutionally required prior to a decision by Colorado to
increase the valuation of taxable property. Bi-Metallic Inv. Co.,
239 U.S. at 445-46.
42
However, the Supreme Court has recognized a distinction in
administrative law "between proceedings for the purpose of
promulgating policy-type rules or standards, on the one hand, and
proceedings designed to adjudicate disputed facts in particular
cases on the other." United States v. Florida E. Coast Ry. Co.,
410 U.S. 224, 245 (1973). Adjudicative proceedings require more
individualized process than rule-making decisions. See id.
at 244-45.
Plaintiffs' allegations fall somewhere in between the Court's
two opposing poles. Plaintiffs first allege that Defendants'
promulgated guidelines, which are akin to "policy-type rules or
standards." Plaintiffs also allege that Defendants engaged in
coercive backroom communications aimed at payday lenders and
targeted specific payday lenders. See Pls.' Opp'n at 43 n. 17.
Plaintiffs allege that Defendants took these actions for the direct
purpose of putting them out of business, which is more akin to an
informal adjudication.
The FDIC also argues that the Due Process Clause does not
apply to the indirect adverse effects of government action. See
FDIC Mot. at 43 (citing O'Bannon v. Town Court Nursing Ctr., 447
U.S. 773, 789 (1980)). While the O'Bannon court distinguished
"between government acti?n that directly affects a citizen's legal
rights, or imposes a direct restraint on his liberty, and action
that is directed against a third party and affects the citizen
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only indirectly or incidentally," this case fits into neither
category. O'Bannon, 447 U.S. at 788. Though Defendants' alleged
actions were directed at the banks, Plaintiffs argue that they
were the intended targets - that Defendants undertook the actions
with the express purpose of affecting Plaintiffs. Taking
Plaintiffs' allegations as true, the impact was neither "indirect"
nor "incidental," and therefore O'Bannon is inapplicable.
Defendants' actions, as alleged by Plaintiffs, are not
legislative in nature and are more analogous to an adjudication of
payday lenders right to do business. Nor are the effects of
Defendants' alleged actions indirect or incidental. Therefore, the
Court concludes that Plaintiffs have sufficiently stated a claim
for which due process protections apply.
2. Interests Protected by Due Process
Turning to the merits of Plaintiffs' alleged due process
claim, "[t] he first inquiry in every due process challenge is
whether the plaintiff has been deprived of a protected interest in
'property' or 'liberty.'" American Mfrs. Mut. Ins. Co. v. Sullivan,
526 U.S. 40, 59 (1999) (U.S. Const. amend. 14). In order to have
a life, liberty, or property interest, a party must have more than
an abstract need or desire - the party must have "a legitimate
claim of entitlement to it." Board of Regents of State Colleges v.
Roth, 4 08 U.S. 564, 5 77 ( 197 2) . Interests afforded due process
protection are not created by the Constitution, but are defined by
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existing "rules or understandings that secure certain benefits and
that support claims of entitlement to these benefits." Id.
Plaintiffs allege that the stigma resulting from Defendants'
actions have affected two of their protected interests: 1) an
interest in their bank accounts; and 2) an interest in their
ability to engage in their chosen line of business. Pls.' Opp'n at
42-43.
While a company may have a "liberty interest in avoiding the
damage to its reputation and business" caused by stigma, Reeve
Aleutian Airways, Inc. v. United States, 982 F.2d 594, 598 (D.C.
Cir. 1993), the Supreme Court has held that stigma alone is
insufficient to implicate due process interests, see Gen. Elec.
Co. v. Jackson, 610 F.3d 110, 121 (D.C. Cir. 2010) (citing Paul v.
Davis, 424 U.S. 693, 7.08 (1976). In addition to stigma or
reputational harm, the plaintiff must be able to show "that ( 1)
the government has deprived them of some benefit to which they
have a legal right, e.g., the right to be considered for government
contracts in common with all other persons; or (2) the government-
imposed stigma is so severe that it broadly precludes plaintiffs
from pursuing a chosen trade or business." Id. at 121 (internal
quotation marks and citations omitted).
Plaintiffs have alleged that the stigma promulgated by
Defendants has resulted in lost banking relationships, and that
the continued loss of banking relationships ~ay preclude them from
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pursuing their chosen line of business. Pls. Opp'n at 42-43. This
is sufficient to constitute a "tangible change in status" and
implicate a protected liberty interest. O'Donnell v. Barry, 148
F.3d 1126, 1141 (D.C. Cir. 1998).
Plaintiffs also argue that the stigma deprived them of their
right to a bank account. Plaintiffs cite to National Council of
Resistance of Iran v. Department of State ("NCRI") for the
proposition that our Court of Appeals has previously held that a
colorable allegation of a property interest in a bank account is
sufficient to support a due process claim. See Pls.' Opp'n at 42-
43 (citing NCRI, 251 F.3d 192, 204 (D.C. Cir. 2001)).
It is important to distinguish between the right to have a
bank account, and the right to the contents of one's bank account.
In NCRI, it was not only the bank account alone, but also the funds
that it contained. NCRI, 251 F.3d at 204. The issue here is not
that Plaintiffs have been denied access to their funds, but that
they have been denied an account at all.
In Wisconsin v. ·Constantineau, the Supreme Court held that
"[w]here a person's good name, reputation, honor, or integrity is
at stake because of what the government is doing to him, notice
and an opportunity to be heard are essential." See 400 U.S. 433,
437 (1971). The Supreme Court elaborated its Constantineau holding
in Paul v. Davis, stating that when an individual is "deprived .
of a right previously held under state law" as a result of
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stigmatization, due process is required. Paul v. Davis, 424 U.S.
693, 708 (1976) The deprivation at issue in Constantineau was
"the right to purchase or obtain liquor in common with the rest of
the citizenry." Id.
Plaintiffs have alleged a similar deprivation here - "the
previously held right to . . hold bank accounts. NCRI, 251 F.3d
at 204. "Many people would consider [this] right[] more
important than the right to purchase liquor." Id. The loss of a
bank account as a result of stigma is sufficient to implicate a
right to due process.
In sum, Plaintiffs have sufficiently alleged that their
liberty interests are implicated by Defendants' alleged actions
and that the alleged stigma has deprived them of their rights to
bank accounts and their chosen line of business, so as to state a
claim for violation of constitutional due process.
V. Conclusion
For all of the foregoing reasons, Defendants' Motions for
Lack of Jurisdiction, or Alternatively for Failure to State a Claim
are granted in part and denied in part. Plaintiffs' Motion for
Jurisdictional Discovery is denied, and Plaintiffs' Motion for
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Leave to File a Second Amended Complaint is granted. An Order shall
accompany this Memorandum Opinion.
September 25, 2015
Copies via ECF to all counsel of record
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