Nationwide Biweekly Administration, Inc. v.Jan Lynn Owen

Filing 45

ORDER by Judge Lucy Koh denying 5 Motion for Preliminary Injunction (lhklc2S, COURT STAFF) (Filed on 3/18/2015)

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

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United States District Court
Northern District of California

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NATIONWIDE BIWEEKLY
ADMINISTRATION, INC.,

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Case No.:14-CV-05166-LHK
ORDER DENYING MOTION FOR
PRELIMINARY INJUNCTION

Plaintiff,
v.

Re: Dkt. No. 5

JAN LYNN OWEN, in her official capacity
as Commissioner of the Department of
Business Oversight for the State of
California,
Defendant.

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Before the Court is a motion for preliminary injunction filed by Plaintiff Nationwide
Biweekly Administration, Inc. (“Nationwide”). ECF No. 5 (“Motion”). Nationwide requests that
the Court issue a preliminary injunction prohibiting Defendant Jan Owen (“Defendant”), in her
official capacity as Commissioner of the Department of Business Oversight for the State of
California ( “DBO”), from enforcing California Financial Code § 12200.1, which regulates
proraters in California. Having considered the submissions of the parties and the relevant law, the
Court hereby DENIES Nationwide’s Motion, for the reasons stated below.
I. BACKGROUND

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Case No.: 14-CV-05166-LHK
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

A. Factual Background

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Nationwide is an Ohio Corporation with its headquarters in Xenia, Ohio. ECF No. 1

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(“Compl.”), ¶ 3. Defendant is the Commissioner of the DBO for the State of California. Id. ¶ 4.
Nationwide is an administrator of biweekly loan repayment programs. Id. ¶ 8. Nationwide

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United States District Court
Northern District of California

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has approximately 125,000 customers around the country, including over 10,000 in California. Id.
At issue in the instant litigation is a Nationwide program called the “Interest Minimizer” biweekly
program, which is targeted at borrowers with home mortgages. Id. ¶ 10. According to Nationwide,
most mortgage servicers debit a borrower’s mortgage payments on a monthly basis. Id. Under
Nationwide’s “Interest Minimizer” program, Nationwide acts as an intermediary between the
borrower and the mortgage servicer. Specifically, Nationwide arranges with the borrower to debit
one-half of the borrower’s monthly mortgage payment from the borrower’s checking account
every other week. Id. Nationwide then remits the mortgage payments to the mortgage servicer
once per month, as required by the servicer. Id. However, because Nationwide debits the mortgage
payments on a bi-weekly (as opposed to monthly) basis, Nationwide debits 26 times over the
course of the year, effectively resulting in the creation of a 13th annual payment (as opposed to 12
annual payments under a traditional monthly repayment plan). Id. ¶¶ 9, 12-13. Nationwide claims
that the extra payment per year saves its customers money by allowing Nationwide’s customers to
pay off their mortgage loans faster than they otherwise would. Id. ¶ 12-13.
1. Investigation of Nationwide’s Business Practices in California

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The instant litigation stems from an investigation initiated by the Monterey County and

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Marin County District Attorneys’ Offices into Nationwide’s business practices in California. 1 On
July 30, 2013, Nationwide received a letter from the Monterey County District Attorney’s Office.

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Nationwide has filed a separate related lawsuit against the Monterey County and Marin County
District Attorneys’ Offices, as well as two deputy district attorneys from those offices. See Loan
Payment Administration LLC et al. v. Hubanks et al., Case No. 14-CV-05166-LHK. In that case,
Nationwide also filed a motion for preliminary injunction seeking to prohibit the District
Attorneys from enforcing certain state statutes against Nationwide. See Case No. 14-CV-05166LHK, ECF No. 5. This Court denied Nationwide’s motion for a preliminary injunction on March
17, 2015. See ECF No. 50.
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ECF No. 5-1, at 14 (“Enforcement Letter”). The Enforcement Letter stated that the District

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Attorneys for Marin and Monterey County “are in receipt of numerous complaints about the

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marketing and business practices of Nationwide Bi-Weekly Administration, Inc.” Id. The subject

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of the consumer complaints were solicitation letters Nationwide mailed to homeowners asking

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them to participate in Nationwide’s “Interest Minimizer” program. Id. These solicitation letters

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used the names of the homeowners’ mortgage lenders—including in the headers of the letters and

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multiple times throughout the letters’ text—as well as homeowners’ loan information, such as

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their loan amounts. Id. at 14-16. According to the Enforcement Letter, Nationwide’s use of

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lenders’ names and consumer loan information “[has] the capacity to deceive and mislead
consumers into believing Nationwide is sponsored by or affiliated with the lender, the solicitation

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is authorized by the lender, or the consumer’s loan information was provided by the lender.” Id. at

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15. The Enforcement Letter also stated that Nationwide’s use of lenders’ names and consumers’

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loan information violated state consumer fraud statutes as well as the state’s prohibition on

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unlawful business practices. Id. at 14-16.

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The Enforcement Letter then stated that Nationwide “may [also] be in violation of

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California’s Check Sellers, Bill Payers and Proraters Law (California Finance Code section 12000

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et. seq.).” Id. at 16. According to the Enforcement Letter, based on Nationwide’s offer to

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California customers of the company’s “Interest Minimizer” service, “it would appear Nationwide

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is acting as a prorater and therefore required to obtain a prorater license.”2 Id. The Enforcement

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Letter stated that neither Nationwide nor its affiliate, Loan Payment Administration, had obtained

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a prorater license from the DBO. Id. In a subsequent email between an attorney for Nationwide a

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deputy district attorney with the Monterey County District Attorney’s Office, the deputy district

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attorney stated that the DBO “has joined the prosecution team” and was “now a signatory on the

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California law defines a prorater as a person “who, for compensation, engages in whole or in part
in the business of receiving money or evidences thereof for the purpose of distributing the money
or evidences thereof among creditors in payment or partial payment of the obligations of the
debtor.” Cal. Fin. Code § 12002.1.
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ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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tolling agreement” between Nationwide and the Monterey and Marin County District Attorneys’

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Offices. ECF No. 5-1, at 18.

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On October 21, 2014, Nationwide received a letter from the DBO. ECF No. 5-1, at 21. The

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letter stated that it “serves to notify Nationwide that an investigation is currently underway by the

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Department’s Enforcement Division regarding possible unlicensed business activity by

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Nationwide in California.” Id. The letter requested that Nationwide make several disclosures,

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including “[a] comprehensive description of all past and current services offered by Nationwide in

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California,” “[t]he dates that Nationwide has done business in California,” and “[t]he revenue

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generated by Nationwide by year since it has conducted business in California.” Id. The letter
concluded by saying that the “above information is needed to begin the Department’s review and

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Northern District of California

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may not reflect the full extent of information that the Department may require in the future to

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complete its investigation.” Id.

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2. Investigations of Nationwide in Other States

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Whether Nationwide conducts certain business activities without a license has been the

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subject of investigations in states other than California. For instance, on October 21, 2011,

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Nationwide entered into a consent order with the State of New Hampshire Banking Department.

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ECF No. 32-2. That consent order provided, among other things, that “Nationwide has conducted

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money transmitter activity for New Hampshire consumers without a valid Money Transmitter

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license issued by the Department.”3 Id. at 3. Similarly on December 29, 2012, Nationwide entered

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into a consent order with the Georgia Department of Banking and Finance. ECF No. 32-3. That

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consent order provided that Nationwide “shall strictly comply with the terms of this Consent

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Order, the Georgia Residential Mortgage Act, including but not limited to O.C.G.A. § 7-1-1002.”

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Id. at 2. Section 7-1-1002 prohibits, inter alia, “any person to transact business in this state

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directly or indirectly as a mortgage broker, a mortgage lender, or a mortgage loan originator”

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New Hampshire law provides in relevant part that “[a]ny person [who] . . . in its own name or on
behalf of other persons, transmits money from this state or to persons within this state, shall obtain
a license from the banking department.” N.H. Rev. Stat. § 399-G:3.
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ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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without a license, or to “purchase, sell, or transfer one or more mortgage loans or loan

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applications” from or to an unlicensed mortgage originator, broker, or lender. Ga. Code. § 7-1-

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1002(a)-(b).

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B. Procedural History

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On November 21, 2014, Nationwide filed the instant lawsuit in this Court. See Compl.

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Nationwide asserts four causes of action. First, Nationwide alleges that California Financial Code

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§ 12200.1, as applied to Nationwide, is per se invalid under the dormant Commerce Clause of the

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U.S. Constitution because the statute “prevent[s] Nationwide from doing business in California

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strictly on the basis of its incorporation outside the state of California.” Id. ¶ 34. Second,
Nationwide alleges that enforcement of the state’s prorater law against Nationwide would violate

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Nationwide’s right to substantive due process in violation of the Fourteenth Amendment of the

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U.S. Constitution. Id. ¶ 39. Third, Nationwide alleges that the DBO’s threatened enforcement of

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the state prorater law against Nationwide would treat Nationwide differently from other similarly-

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situated companies and therefore violates Nationwide’s right to equal protection of the laws in

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contravention of the Fourteenth Amendment of the U.S. Constitution. Id. ¶¶ 45-47. Fourth,

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Nationwide alleges that the state’s prorater law is unconstitutional because it is void for

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vagueness. Id. ¶¶ 52-54.

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Also on November 21, 2014, Nationwide filed the instant Motion. Nationwide argues that

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it is entitled to a preliminary injunction based on its claim that Financial Code § 12200.1, as

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applied to Nationwide, violates the dormant Commerce Clause of the U.S. Constitution. See Mot.

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at 2. Nationwide also filed a supporting declaration with attached exhibits. ECF Nos. 5-1 & 5-2.
On January 9, 2015, Defendant filed an opposition, as well as a request for judicial notice.4

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On January 9, 2015, Defendant also filed evidentiary objections to statements in the declaration
of Daniel S. Lipsky in support of Nationwide’s motion for preliminary injunction (“Lipsky
Declaration”). ECF No. 33. Defendant objects to certain statements made in the Lipsky
Declaration on the grounds that they are hearsay, made without personal knowledge, or constitute
improper opinion testimony, all in violation of the Federal Rules of Evidence. Id. at 2. In ruling on
a motion for preliminary injunction, a court may consider evidence that would normally be
inadmissible. See Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984) (in deciding
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ECF Nos. 31 (“Opp’n”) & 32. On February 6, 2015, Nationwide filed a reply, as well as a

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supporting declaration with attached exhibits. ECF Nos. 38 (“Reply”), 38-1 & 38-2.

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II. LEGAL STANDARD

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Preliminary relief is an “extraordinary remedy that may only be awarded upon a clear

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showing that the plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, 555 U.S.

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7, 22 (2008). “A plaintiff seeking a preliminary injunction must establish that he is likely to

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succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary

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relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.”

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Id. at 20. Where, as here, a “plaintiff seeks to enjoin the activity of a government agency . . . his
case must contend with the well-established rule that the Government has traditionally been

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granted the widest latitude in the dispatch of its own internal affairs.” Rizzo v. Goode, 423 U.S.

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362, 378-79 (1976) (internal quotation marks omitted). The party seeking the injunction bears the

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burden of proving the requisite elements. Klein v. City of San Clemente, 584 F.3d 1196, 1201 (9th

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Cir. 2009). The issuance of a preliminary injunction is at the discretion of the district court.

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Gibson v. Schwarzenegger, 638 F.3d 1101, 1105 (9th Cir. 2010).

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III. ANALYSIS

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A. Defendant’s Request for Judicial Notice

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The Court first addresses Defendant’s request for judicial notice. ECF No. 32. In general, a

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court may take judicial notice of matters that are either “generally known within the trial court’s

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territorial jurisdiction” or “can be accurately and readily determined from sources whose accuracy

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cannot reasonably be questioned.” Fed. R. Evid. 201(b). Matters which are appropriate subjects of

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judicial notice include “matters of public record.” Lee v. City of Los Angeles, 250 F.3d 668, 689

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(9th Cir. 2001). Here, Defendant requests judicial notice of publicly-available court and consent

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orders filed in Ohio, New Hampshire, Georgia, and Washington, as well as publicly-available

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motion for preliminary injunction, “[t]he trial court may give even inadmissible evidence some
weight” because “[t]he urgency of obtaining a preliminary injunction . . . makes it difficult to
obtain affidavits from persons who would be competent to testify at trial.”). Therefore, the Court
DENIES Defendants’ objections as moot.
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press releases issued by the Georgia Department of Banking and Finance and the Washington

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State Department of Financial Institutions. ECF Nos. 32-1, 32-2, 32-3, & 32-4. These are matters

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of public record, and Nationwide does not dispute their authenticity. In addition, Defendant

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requests judicial notice of an order issued by the U.S. District Court, Eastern District of Michigan,

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in Quicken Loans, Inc. v. Nationwide Biweekly Administration, Inc., et al., Case No. 13-13431.

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ECF No. 32-5. Proper subjects of judicial notice include the orders of another court. See Holder v.

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Holder, 305 F.3d 854, 866 (9th Cir. 2002) (taking judicial notice of opinion and briefs filed in

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another proceeding). Accordingly, Defendant’s request for judicial notice is GRANTED.

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The Court now turns to Nationwide’s Motion. The Court will address each required
element in turn. See Winter, 555 U.S. at 20 (a plaintiff seeking a preliminary injunction must

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establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the

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absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is

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in the public interest).

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B. Likelihood of Success on the Merits

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The Court first addresses whether Nationwide has demonstrated a likelihood of success on

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the merits of Nationwide’s dormant Commerce Clause claim. The Commerce Clause of the U.S.

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Constitution provides: “The Congress shall have Power . . . [t]o regulate Commerce . . . among the

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several States.” U.S. Const. Art. I, § 8, cl. 3. The Supreme Court has interpreted the Commerce

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Clause “to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate

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against or burden the interstate flow of articles of commerce.” Or. Waste Sys., Inc. v. Dep’t of

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Envtl. Quality, 511 U.S. 93, 98 (1994). “Courts have sometimes referred to this doctrine as the

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‘dormant Commerce Clause.’” Black Star Farms LLC v. Oliver, 600 F.3d 1225, 1230 (9th Cir.

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2010) (quoting United Haulers Ass’n v. Oneida–Herkimer Solid Waste Mgmt. Auth., 550 U.S.

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330, 338 (2007)). Under the dormant Commerce Clause, a state may not impede the flow of goods

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between the states and engage in “economic protectionism,” which includes enacting regulations

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“designed to benefit in-state economic interests by burdening out-of-state competitors.” New

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Energy Co. v. Limbach, 486 U.S. 269, 273 (1988). However, the dormant Commerce Clause does

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not protect the particular structure or methods of operation in a retail market, nor does it protect

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any particular interstate business. Exxon Corp. v. Governor of Md., 437 U.S. 117, 127-28 (1978).

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Two levels of scrutiny exist for analyzing statutes challenged under the dormant

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Commerce Clause. Maine v. Taylor, 477 U.S. 131, 138 (1986). The higher level of scrutiny

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applies to a statute that “discriminate[s] against interstate commerce ‘either on its face or in

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practical effect.’” Id. (quoting Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)). For the purposes

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of the dormant Commerce Clause analysis, “discrimination” means “differential treatment of in-

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state and out-of-state economic interests that benefits the former and burdens the latter.” Or.
Waste, 511 U.S. at 99. The “differential treatment” must be as between persons or entities who are

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similarly situated. See Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298-99 (1997); Nat’l Ass'n of

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Optometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 525, 527 (9th Cir. 2009). A

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court must analyze such a statute under the “strictest scrutiny.” Hughes, 441 U.S. at 337. That is,

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such a statute is unconstitutional unless it “‘serves a legitimate local purpose,’ and . . . this purpose

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could not be served as well by available nondiscriminatory means.” Taylor, 477 U.S. at 138

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(quoting Hughes, 441 U.S. at 336). The party challenging the statute bears the burden of showing

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discrimination. Hughes, 441 U.S. at 336. In its Motion, Nationwide argues that only this higher

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level of scrutiny applies to the California statute at issue.5 Mot. at 8-10.

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1. Whether § 12200.1 Facially Discriminates Against Interstate Commerce

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A state law which does not discriminate against interstate commerce on its face or in practical
effect may still violate the dormant Commerce Clause if the law fails the so-called Pike balancing
test. See Pike v. Bruce Church, 397 U.S. 137, 142 (1970). Under the Pike balancing test, a law that
applies evenhandedly to in-state and out-of-state entities and only incidentally burdens interstate
commerce is valid unless it burdens commerce in a way that is “clearly excessive in relation to the
putative local benefits” to be derived therefrom. Id. The party challenging the constitutionality of
the statute has the burden of showing that the statute fails the Pike balancing test. Kleenwell
Biohazard Waste & Gen. Ecology Consultants v. Nelson, 48 F.3d 391, 399 (9th Cir. 1995). Here,
Nationwide does not argue in the alternative that the Pike balancing test applies. See Mot. at 8-10
(arguing that the “higher level of scrutiny” in dormant Commerce Clause analysis “is relevant
here”); Reply at 6 (arguing that Financial Code § 12200.1 is “per se invalid.”). Because
Nationwide, as the party challenging the statute, would have the burden of establishing that the
Pike balancing test weighs in Nationwide’s favor, see Nelson, 48 F.3d at 399, the Court does not
address application of the Pike balancing test to Financial Code § 12200.1 at this time.
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Here, Nationwide challenges California Financial Code § 12200.1 on the grounds that it

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violates the dormant Commerce Clause. Financial Code § 12200.1, which was enacted in 1955

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and most recently amended in 1959, provides:

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A license to engage in the business of selling checks, drafts, or
money orders, or of receiving money as agent of an obligor for the
purpose of paying bills, invoices, or accounts of such obligor
(except a business agent or special prorater), or to accept, without
direct compensation, money for the purpose of forwarding it to
others in payment of utility bills, shall only be issued to a
corporation organized under the laws of this State for that purpose.
Cal. Fin. Code § 12200.1.
First, the Court examines Financial Code § 12200.1 to see whether it discriminates against
interstate commerce “on its face.” Taylor, 477 U.S. at 138. To determine whether a regulation

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facially discriminates against interstate commerce, a court looks to the regulation’s language. See

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Birth Hope Adoption Agency v. Ariz. Health Care Costs Containment Sys., 218 F.3d 1040, 1044

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(9th Cir. 2000) (analyzing language of statute to determine if it facially discriminates against

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interstate commerce). A law which facially discriminates against interstate commerce is “virtually

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per se” invalid. Camps Newfound/Owatonna, Inc. v. Torn of Harrison, Me., 520 U.S. 564, 576

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(1997); see also Citicorp. Servs., Inc. v. Gillespie, 712 F. Supp. 749, 751-55 (N.D. Cal. 1989)

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(statutory scheme which provided that an escrow account could distribute proceeds of an in-state

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check immediately upon deposit, but had to wait as long as seven days to distribute the proceeds

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from an out-of-state check, facially discriminated against interstate commerce).

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In its Motion, Nationwide argues that a state “‘cannot require an out-of-state firm to

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become a resident in order to compete on equal terms.’” Mot. at 9 (quoting Granholm v. Heald,

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544 U.S. 460, 475 (2005)). Nationwide contends that because Financial Code § 12200.1 would

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require Nationwide to re-incorporate in California, or open a subsidiary in California, to obtain a

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prorater license, the statute facially discriminates against interstate commerce. Id.; Reply at 8-9.

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Although the “Supreme Court has left unanswered the question of whether . . . a State
[may] require local incorporation as a condition of doing business in local markets,” the Seventh

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Circuit in Alliant Energy Corporation. v. Bie addressed a statute analogous to the statute at issue

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here. 330 F.3d 904, 915 (7th Cir. 2003). At issue in Alliant Energy was a Wisconsin law which

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provided in relevant part that “[n]o license, permit or franchise to own, operate, manage or

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control” a utility plant “may be granted or transferred to a foreign corporation.” Id. at 908. The

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statute effectively required an out-of-state corporation that wished to obtain a utility license in

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Wisconsin to first incorporate an in-state subsidiary in order to apply for or obtain such a license.

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Id. at 912. The Seventh Circuit held that this statute did not facially violate the dormant

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Commerce Clause. Id. In so doing, the Seventh Circuit distinguished between the requirement that

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an out-of-state corporation incorporate an in-state subsidiary to obtain a license, and another,
related statute which required that an out-of-state public utility holding company reincorporate its

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parent corporation in Wisconsin. Id. The Seventh Circuit held that requiring a parent corporation

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to reincorporate in-state facially violated the dormant Commerce Clause, because if every state

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adopted such a rule it would effectively prohibit a corporation from owning a utility company in

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more than one state and thereby adversely affect interstate commerce. Id. at 912. In contrast, the

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Seventh Circuit found that merely requiring an out-of-state corporation to create an in-state

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subsidiary “does not create this balkanization between the States” because “a foreign company

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that wants to get involved in Wisconsin utility provision need only create a subsidiary and

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incorporate it in Wisconsin.” Id.

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Here, similar to Alliant Energy, an out-of-state corporation could comply with Financial

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Code § 12200.1 by incorporating an in-state subsidiary to apply for a prorater license. See Cal.

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Fin. Code § 12200.1; Opp’n at 7 (noting that an out-of-state entity, like an in-state entity, could

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comply with Financial Code § 12200.1 by “form[ing] a subsidiary under California law for the

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purpose of being a prorater, and thus would be able to apply for a license under Section

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12200.1.”). The requirement that a corporation create an in-state subsidiary to apply for a license

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to do business in the state is commensurate with the general rule that states may require a person

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or company to obtain a license to do business in-state without violating the dormant Commerce

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Clause. See, e.g., Ctr. for Legal Studies, Inc. v. Lindley, 1 Fed. App’x 662, 664-65 (9th Cir. 2001)

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(Oregon statute which required that a person may not open, conduct, or do business as a career

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school in the state without first obtaining a license did not violate dormant Commerce Clause).

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States may similarly limit the types of entities eligible to receive a license without violating the

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dormant Commerce Clause. See, e.g., Brown v. Hovatter, 561 F.3d 357, 363-68 (4th Cir. 2009)

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(Maryland statute which prohibited corporations from obtaining a mortician license did not violate

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the dormant Commerce Clause). Accordingly, Nationwide has not shown it is likely to succeed on

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the merits of its dormant Commerce Clause claim simply because Financial Code § 12200.1

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restricts prorater licenses to, inter alia, corporations that have in-state subsidiaries.

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Nationwide has also not shown a likelihood of success on the merits for the additional

United States District Court
Northern District of California

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reason that Financial Code § 12200.1 facially treats in-state and out-of-state persons or

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corporations the same. For a statute to discriminate against interstate commerce, it must result in

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“differential treatment of in-state and out-of-state economic interests that benefits the former and

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burdens the latter.” Or. Waste, 511 U.S. at 99. To determine whether a statute results in

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“differential treatment,” the statute must treat “similarly situated” entities or persons differently.

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Black Star, 600 F.3d at 1230. According to the plain language of Financial Code § 12200.1, a

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license to engage in the business of, inter alia, “receiving money as agent of an obligor for the

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purpose of paying bills, invoices, or accounts of such obligor” may only be issued to a

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“corporation organized under the laws of this State for that purpose.” Cal. Fin. Code § 12200.1.

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Put another way, any company, regardless of where that company is based, that wishes to apply

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for a prorater license must first organize a corporation or subsidiary that has the purpose of being a

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prorater under the laws of California. See id. “[A] statute that treats all private companies exactly

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the same does not discriminate against interstate commerce.” Ass’n des Eleveurs de Canards et

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d’Oies du Quebec v. Harris, 729 F.3d 937, 948 (9th Cir. 2013) (internal quotation marks and

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alterations omitted). Therefore, Financial Code § 12200.1 does not, on its face, appear to

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discriminate against interstate commerce.

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Nationwide cites no case that holds a statute requiring an out-of-state corporation to

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incorporate an in-state subsidiary for the purpose of obtaining a business license facially violates

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the dormant Commerce Clause. Moreover, the cases that Nationwide cites in support of its

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argument are distinguishable. At issue in Lewis v. BT Investment Managers, Inc. was a Florida

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statute which categorically prohibited an out-of-state bank holding company from owning or

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controlling a business within the state that sold investment advisory services to any customer. 447

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U.S. 27, 31-32 (1980). In that case, there was also evidence in the record that the Florida

8

legislature passed the statute specifically in response to an out-of-state bank qualifying to do

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business in the state. Id. The U.S. Supreme Court held that the statute violated the dormant
Commerce Clause because the only businesses affected were “banks, bank holding companies,

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Northern District of California

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and trust companies with principal operations outside Florida.” Id. at 42 (emphasis in original).

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Here, in contrast, by its plain terms Financial Code § 12200.1 mandates that both businesses

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outside and inside California which do not have a prorater license but wish to obtain one must first

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organize a corporation or subsidiary for the purpose of obtaining a prorater license, and do so

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under state law. Cal. Fin. Code § 12200.1.

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Similarly, at issue in Granholm v. Heald was a New York statutory scheme that (1)

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required out-of-state wineries that wished to ship product directly to consumers to open physical

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distribution operations in-state, (2) denied out-of-state wineries a certain license that provided the

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most direct means of shipping product to in-state consumers, and (3) barred out-of-state wineries

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that did not have direct shipping licenses to distribute product through other licensed wineries, a

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privilege given to in-state wineries. 544 U.S. at 473-76. Given this statutory scheme, the U.S.

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Supreme Court had “no difficulty” in concluding that it “discriminates against interstate

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commerce.” Id. at 476. In other words, what was dispositive in Granholm was the fact that the

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statutory scheme at issue “in effect allowed only in-state wineries, to the exclusion of all out-of-

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state wineries, to bypass the states’ three-tiered distribution system and ship directly to

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consumers.” Black Star, 600 F.3d at 1234 (internal quotation marks omitted). Here, again,

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Case No.: 14-CV-05166-LHK
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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Financial Code § 12200.1 treats in-state and out-of-state corporations equally by requiring them to

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organize a corporation or subsidiary for the purpose of obtaining a prorater license, and to do so

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under state law. Cal. Fin. Code § 12200.1. Because “the statute . . . treats all private companies

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exactly the same,” it “does not discriminate against interstate commerce.” Harris, 729 F.3d at 948.

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In its reply, Nationwide for the first time cites to Tri-M Group, LLC v. Sharp, 638 F.3d 406

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(3d Cir. 2011). At issue in Tri-M was a Delaware law which required out-of-state contractors to

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maintain a place of business in Delaware “that is not a site, trailer, temporary structure, or post

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office box” in order to take advantage of favorable wage laws. Id. at 427. The law at issue

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inherently favored in-state contractors or those that already “possess[ed] a permanent place of
business in Delaware.” Id. at 427. The Tri-M court ultimately affirmed the district court’s holding

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United States District Court
Northern District of California

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that the statute violated the dormant Commerce Clause. See id. at 428. However, the Tri-M court

12

based its holding in part on the fact that there was evidence in the record that the Delaware statute

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was passed for the explicit purpose of protecting local economic interests to the detriment of out-

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of-state ones. Id. at 428-29. Specifically, the Tri-M court found that “[t]he evidence and testimony

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adduced by the parties demonstrated the retaliatory motivations underlying the amendment of the

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Delaware regulations in 1999 to include the permanent place of business requirement. . . . As the

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District Court discussed, the State added the discriminatory residency requirement to the

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regulatory regime in response to similar legislative enactments by Pennsylvania and Maryland.”

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Therefore, the Tri-M court found that the plaintiff challenging the statute showed the statute had a

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“discriminatory design or effect,” which triggered strict scrutiny. Id. at 428. Here, in contrast,

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Nationwide has not adduced any evidence of a “discriminatory design or effect” behind Financial

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Code § 12200.1.

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For the reasons stated above, the Court concludes that Nationwide has not carried its

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burden to show that Nationwide is likely to succeed on the merits of its claim that Financial Code

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§ 12200.1 facially discriminates against interstate commerce. See Hughes, 441 U.S. at 336 (party

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challenging the statute bears the burden of showing discrimination).

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2. Whether the Practical Effect of § 12200.1 is to Discriminate Against Interstate
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ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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Northern District of California

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Commerce
If a statute does not discriminate against interstate commerce on its face, the statute may
still run afoul of the dormant Commerce Clause if it discriminates against interstate commerce “in
practical effect.” Hughes, 441 U.S. at 138. To determine whether the “practical effect” of a
regulation is that it discriminates against interstate commerce, a court considers “the direct
consequences of the statute itself.” Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 1101
(9th Cir. 2013); Healy v. Beer Inst., 491 U.S. 324, 336 (1989) (the “critical inquiry is whether the
practical effect of the regulation is to control conduct beyond the boundary of the State.”). Again,
the party challenging the statute bears the burden of showing discrimination based on practical
effect. Hughes, 441 U.S. at 336.
Here, the only argument Nationwide appears to make that the practical effect of Financial
Code § 12200.1 is to discriminate against interstate commerce is that the statute categorically bars
Nationwide from obtaining a prorater license because of Nationwide’s status as an out-of-state
corporation. See Mot. at 1 (“Nationwide has always been statutorily prohibited from obtaining a
prorater license, which is available only to California corporations”). However, as Defendant notes
in its opposition, Nationwide could form a California subsidiary and thereby apply for a license
pursuant to Financial Code § 12200.1. Opp’n at 7. The fact that Nationwide would have to
incorporate a California subsidiary to obtain a prorater license does not, on its own, show that
Financial Code § 12200.1 discriminates against interstate commerce in practical effect. See Alliant
Energy, 330 F.3d at 915-16 (statute which restricted the granting of licenses, permits, or franchises
to own or operate utility businesses to in-state corporations, or in-state subsidiaries of out-of-state
corporations, did not violate dormant Commerce Clause).
In its Reply, Nationwide argues that having to form a California subsidiary “would impose
significant burdens on Nationwide.” Reply at 8-9. However, to show that a statute’s practical
effect is to discriminate against interstate commerce, the challenging party must adduce
“substantial evidence” that the law has an “actual discriminatory effect” on interstate commerce.
Rocky Mountain, 730 F.3d at 1100. “[D]iscrimination” in the context of a dormant Commerce
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Case No.: 14-CV-05166-LHK
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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Clause challenge means “differential treatment of in-state and out-of-state economic interests that

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benefits the former and burdens the latter.” Or. Waste, 511 U.S. at 99. Accordingly, substantial

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evidence of a discriminatory effect may consist of evidence that a law erects barriers to entry “that

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in effect creates a burden that alters the proportional share of the [relevant] market in favor of in-

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state [businesses],” or that the law has an “effect on the flow of interstate commerce,” or that the

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law “creates a system under which local goods constitute a larger share, and goods with an out-of-

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state source constitute a smaller share, of the total sales in the market.” Black Star, 600 F.3d at

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1231. At this stage of the litigation, Nationwide has not adduced “substantial evidence”—or any

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evidence—that Financial Code § 12200.1 “alters the proportional share” of the prorater market in
favor of in-state economic interests, or that the law creates a system whereby local proraters

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Northern District of California

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constitute a larger share of the market than proraters with their principle place of business outside

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of the state. See id. Accordingly, Nationwide has not adduced the substantial evidence required to

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show that the practical effect of Financial Code § 12200.1 is to discriminate against interstate

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commerce.

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In sum, at this juncture Nationwide has not satisfied its burden to show that Nationwide is

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likely to succeed on the merits of its claim that Financial Code § 12200.1 has an actual

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discriminatory effect on interstate commerce. See Hughes, 441 U.S. at 336 (party challenging the

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statute bears the burden of showing discrimination based). Moreover, because Nationwide has also

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not shown that Financial Code § 12200.1 discriminates against interstate commerce on its face,

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Nationwide has not shown that it is likely to succeed on the merits of its dormant Commerce

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Clause claim. Winter, 555 U.S. at 22 (a party seeking a preliminary injunction must establish, inter

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alia, “that he is likely to succeed on the merits”).

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C. Likelihood of Suffering Irreparable Harm

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A party seeking a preliminary injunction must also establish that “he is likely to suffer

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irreparable harm in the absence of preliminary relief.” Winter, 555 U.S. at 20. “Speculative injury

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does not constitute irreparable injury sufficient to warrant granting a preliminary injunction.”

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Goldie’s Bookstore, Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir. 1984). Rather, “a plaintiff

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must demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief.”

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Caribbean Marine Servs. Co. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988) (emphasis omitted).

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Where, as here, a plaintiff seeks an injunction against a state, “[t]he U.S. Supreme Court has

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repeatedly cautioned that, absent a threat of immediate and irreparable harm, the federal courts

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should not enjoin a state to conduct its business in a particular way.” Hodgers-Durgin v. de la

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Vina, 199 F.3d 1037, 1042 (9th Cir. 1999).

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Here, Nationwide argues it has shown that it is likely that Nationwide will suffer

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irreparable harm absent injunctive relief because Nationwide “has demonstrated a likely
deprivation of constitutional rights.” Mot. at 11. However, because the Court herein concludes that

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United States District Court
Northern District of California

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Nationwide has not carried its burden to show a likelihood of success on the merits of

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Nationwide’s dormant Commerce Clause claim, the Court accords this argument little weight. See

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Dex Media W., Inc. v. City of Seattle, 790 F. Supp. 2d 1276, 1289 (W.D. Wash. 2011) (“Because

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the court finds that Plaintiffs have failed to establish that they are likely to succeed on the merits of

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their [constitutional] claim . . . the court cannot find that Plaintiffs have established that they are

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likely to suffer irreparable [constitutional] injury in the absence of a preliminary injunction.”).

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Nationwide also argues that it is likely Nationwide will suffer irreparable injury because

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the DBO is “likely” to issue a “cease and desist” order which “would end Nationwide’s entire

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business in California.” Mot. at 11. Nationwide contends this is the case because a cease and desist

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order from the DBO would, among other things, jeopardize Nationwide’s relationships with its

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banking partners, could lead to regulators in other states suspending or revoking Nationwide’s

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licenses to operate there, and lead to consumers demanding refunds from Nationwide. Declaration

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of Daniel S. Lipsky in Support of Motion for Preliminary Injunction (“Lipsky Decl.”), ECF No. 5-

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1, ¶ 23. However, Nationwide’s statement that the DBO is “likely” to issue a “cease and desist”

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order is unsupported by the evidence. Correspondence between Nationwide and the DBO does not

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mention the possibility of a cease-and-desist order. See ECF No. 5-1, at 21 (October 21, 2014

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Case No.: 14-CV-05166-LHK
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letter from the DBO to Nationwide “notify[ing] Nationwide that an investigation is currently

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underway” and requesting information from Nationwide). Indeed, according to the Defendant, the

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DBO’s investigation of Nationwide has not yet concluded, and therefore the DBO has not yet

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decided whether to take any action against Nationwide. Opp’n at 3-4. The fact that the DBO’s

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investigation is ongoing and that the agency has not yet made a determination as to Nationwide’s

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conduct weighs against finding irreparable harm. See Ctr. for Food Safety v. Vilsack, 636 F.3d

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1166, 1174 (9th Cir. 2011) (plaintiff failed to show irreparable harm where such harm “hinged on

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future . . . decision” of an administrative agency); Baldrige, 844 F.2d at 674 (plaintiff seeking

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preliminary injunction “must demonstrate immediate threatened injury as a prerequisite”)

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United States District Court
Northern District of California

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(emphasis added).
Moreover, even if the DBO takes action against Nationwide, such action need not take the

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form of a cease-and-desist order. For instance, the DBO could issue a written citation without a

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cease and desist order. See Cal. Fin. Code § 12107 (if party is found to be engaging in business

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without a license, the DBO “may issue a citation to that person in writing describing with

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particularity the basis of the citation,” which “may contain an order to desist and refrain”)

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(emphasis added). The DBO could also file a civil enforcement action pursuant to Financial Code

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§ 12105, which does not provide for a cease and desist order. See Cal. Fin. Code § 12105

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(providing that penalties for a civil enforcement action include, inter alia, disgorgement,

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restitution, or damages). Given that the DBO could choose among alternative means of

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enforcement, Nationwide offers no evidence to explain why it is “likely” the DBO would issue a

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cease-and-desist order.

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Where a party seeking a preliminary injunction fails to put forward “credible evidence” of

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irreparable injury, that party fails to carry its burden. See, e.g., Dotster, Inc. v. Internet Corp. For

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Assigned Names & Numbers, 296 F. Supp. 2d 1159, 1163-64 (C.D. Cal. 2003) (“Although the loss

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of goodwill and reputation are important considerations in determining the existence of irreparable

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injury, there must be credible . . . evidence that such damage threatens Plaintiffs’ businesses with

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Case No.: 14-CV-05166-LHK
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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termination.”). Here, Nationwide’s claim that the DBO is “likely” to issue a cease and desist order

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is a speculative assertion unsupported by credible evidence, and “[s]peculative injury does not

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constitute irreparable injury sufficient to warrant granting a preliminary injunction.” Goldie’s

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Bookstore, 739 F.2d at 472.
Finally, Nationwide’s argument that it is likely to suffer irreparable harm absent injunctive

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relief is not persuasive for the additional reason that Nationwide has previously entered into

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consent orders with enforcement agencies of other states without an apparent adverse impact on

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Nationwide’s business. For instance, on October 21, 2011, Nationwide entered into a consent

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order with the State of New Hampshire Banking Department that stated “Nationwide has
conducted money transmitter activity for New Hampshire consumers without a valid Money

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United States District Court
Northern District of California

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Transmitter license.” ECF No. 32-2, at 3. Similarly, on December 29, 2012, Nationwide entered

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into a consent order with the Georgia Department of Banking and Finance that provided that

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Nationwide shall “strictly comply” with Georgia law that prohibited any person to transact

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business directly or indirectly as a mortgage broker, lender, or loan originator without a license.

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ECF No. 32-3, at 2. The fact that Nationwide was the subject of these consent orders without an

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apparent adverse effect on Nationwide’s relationship with its banking partners, regulators, and

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customers undermines Nationwide’s argument that a possible enforcement action by the DBO

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could destroy those relationships here. See Lipsky Decl. ¶ 23.

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For the reasons stated above, the Court concludes that Nationwide has not demonstrated a
likelihood of irreparable harm such that a preliminary injunction is warranted.6 Winter, 555 U.S. at

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In Defendant’s opposition, Defendant contends that Nationwide has not shown it is likely to
suffer irreparable harm for the additional reason that Nationwide has not demonstrated that
Nationwide has Article III standing or that its claim is ripe. See Opp’n at 12-19. Defendant has
raised a similar argument in Defendant’s pending motion to dismiss, which is set for hearing on
April 16, 2015. See ECF No. 30. Because the Court determines that Nationwide’s injury is too
speculative to warrant injunctive relief, the Court does not address Defendant’s argument in the
alternative at this time. See Hodgers-Durgin v. de la Vina, 199 F.3d 1037, 1044 (9th Cir. 1999)
(finding that plaintiffs’ claimed injury was too speculative to warrant injunctive or declaratory
relief, and therefore not reaching “whether plaintiffs’ declaratory relief claim is ripe in the Article
III sense.”).
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ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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20.

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D. Balance of the Equities and the Public Interest

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With respect to the balance of the equities and the public interest, these two factors merge

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into one inquiry—whether an injunction is in the public interest—where, as here, the government

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is the opposing party. Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1092 (9th Cir. 2013); Nken

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v. Holder, 556 U.S. 418, 435-36 (2009). Again, the party seeking the injunction bears the burden

7

of proving the requisite elements. Klein, 584 F.3d at 1201

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Here, the only argument Nationwide advances as to why an injunction would be in the
public interest is that the “Defendant’s threatened enforcement of the Prorater Law violates

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Nationwide’s constitutional rights.” Mot. at 12. However, where a plaintiff has not shown a

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United States District Court
Northern District of California

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likelihood of success on the merits of his constitutional claim, this fact weighs against finding the

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public interest favors an injunction. Preminger v. Principi, 422 F.3d 815, 826 (9th Cir. 2005).

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Furthermore, in addressing whether an injunction is in the public interest, a court looks to the

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impact an injunction would have on non-parties. Sammartano v. First Judicial Dist. Court, Cnty.

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of Carson City, 303 F.3d 959, 974 (9th Cir. 2002), abrogated in part on other grounds by Winter,

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555 U.S. at 24. Here, an injunction would essentially permit Nationwide “to evade the [prorater

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law’s] salutary requirement of subjecting [Nationwide’s] practices to defendant’s licensing

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oversight for the protection of consumers.” Nationwide Asset Servs., Inc. v. DuFauchard, 164 Cal.

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App. 4th 1121, 1126 (2008) (describing Financial Code § 12200 et seq.). Enjoining enforcement

20

of a statute that has the goal of “protection of consumers” would not be in the public interest.

21

Accordingly, Nationwide has not carried its burden to show that issuing an injunction would be in

22

the public interest.

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IV. CONCLUSION

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For the reasons stated above, Nationwide’s Motion is DENIED.

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Case No.: 14-CV-05166-LHK
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

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IT IS SO ORDERED.

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Dated: March 18, 2015

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______________________________________
LUCY H. KOH
United States District Judge

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United States District Court
Northern District of California

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