Consumer Financial Protection Bureau v. Think Finance

Filing 78

ORDER: IT IS HEREBY ORDERED that Defendants' 50 Motion to Dismiss is DENIED. SEE ORDER FOR FULL DETAILS. Signed by Judge Brian Morris on 8/3/2018. (SLR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
GREAT FALLS DIVISION

CONSUMER FINANCIAL
PROTECTION BUREAU,

No. CV-17-127-GF-BMM

Plaintiff,
v.
ORDER
THINK FINANCE, LLC, formerly
known as Think Finance, Inc., et al.,
Defendants.

INTRODUCTION
Plaintiff Consumer Financial Protection Bureau (“CFPB”) commenced this
action on November 15, 2017. (Doc. 1.) CFPB filed an Amended Complaint on
March 28, 2018. (Doc. 38.) The Amended Complaint alleges four violations of the
Consumer Financial Protection Act. (Doc. 38 at 37-42.) Defendants Think Finance,
LLC (“Think Finance”), Think Finance SPV, LLC, Financial U, LLC, TC Loan
Service, LLC, Tailwind Marketing, LLC, TC Administrative Services, LLC, and
TC Decision Sciences, LLC (collectively “Subsidiaries”) filed the instant Motion
to Dismiss on April 24, 2018. (Doc. 50.) The Native American Financial Services
Association and the State of Oklahoma filed a joint amicus brief in support of the

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Motion to Dismiss on June 19, 2018. (Doc. 65.) The Court held a hearing on the
motion on June 21, 2018. (Doc. 66.)
BACKGROUND
Think Finance operates a lending business that extends credit, services
loans, and collects debt throughout the United States. (Doc. 38 at 4.) Think Finance
SPV, Financial U, and TC Loan Service constitute wholly-owned subsidiaries of
Think Finance. (Doc. 38 at 5-6.) Tailwind Marketing, TC Administrative Services,
and TC Decision Sciences represent wholly-owned subsidiaries of TC Loan
Service. (Doc. 38 at 6-8.) CFPB operates as an independent agency of the United
States Government created under the Consumer Financial Protection Act of 2010
(CFPA), 12 U.S.C. § 5491(a). (Doc. 38 at 3.)
CFPB’s Amended Complaint concerns three lending businesses owned by
Indian tribes (“Tribal Lenders”) for which Think Finance provided critical
services. (Doc. 38 at 4, 9.) The Tribal Lenders are not party to this action.
The Amended Complaint alleges that Think Finance, through the Tribal
Lenders, collected loan payments that customers did not owe, as the loans issued to
those customers were void ab initio due to violations of state law. (Doc. 38 at 29,
34, 37-39.) CFPB alleges that Think Finance used unfair and abusive practices to
collect on these void loans. (Doc. 38 at 39-41.) Finally, CFPB alleges that Think
Finance provided substantial assistance to Tribal Lenders and other entities who, in
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turn, committed deceptive, unfair, and abuse acts or practices by demanding
payment for and collecting void debts. (Doc. 38 at 41-42.)
DISCUSSION
Defendants raise multiple grounds for dismissal, including: 1) that the
structure of the CFPB is unconstitutional; 2) that the CFPB’s claims are not
permitted by the CFPA; 3) that the Complaint fails to, and cannot, join
indispensable parties; 4) that the Court lacks personal jurisdiction over Think SPV;
5) that the Complaint fails to state cognizable claims under the CFPA; and 6) that
certain claims against the Subsidiaries are time-barred. (Doc. 51 at 2.)
I.

The Structure of the CFPB
Defendants argue that the structure of the CFPB violates the Constitution

because the President may remove the Director of the CFPB only for cause. (Doc.
51 at 16.) Defendants argue additionally that the CFPB’s ability to control its own
budget—subject to a statutory cap—unconstitutionally interferes with Congress’s
power to direct federal spending pursuant to the Appropriations Clause, U.S.
Const. art. I, § 8, cl 1. Defendants point out that the Acting Director of the CFPB
and the Department of Justice now question the constitutionality of the CFPB’s
structure. (Doc. 51 at 17 n.7)
Nine district court orders have determined that Congress did not violate the
constitution in structuring the CFPB. CFPB v. All American Check Cashing, Inc.,
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No. 16-356 (S.D. Miss. Mar. 21, 2018) (ECF No. 236); CFPB v. Future Income
Payments, LLC, 252 F. Supp. 3d 961 (C.D. Cal. 2017); CFPB v. Nationwide
Biweekly Admin., Inc., No. 15-2106, 2017 WL 3948396 (N.D. Cal. Sept. 8, 2017);
CFPB v. TCF Nat’l Bank, No. 17-0166 (D. Minn. Sept. 8, 2017) (ECF No. 89);
CFPB v. Seila Law, LLC, No. 17-01081, 2017 WL 6536586 (C.D. Cal. Aug. 25,
2017); CFPB v. Navient Corp., No 17-101, 2017 WL 3380530 (M.D. Penn. Aug.
4, 2017); CFPB v. Cashcall, Inc., CV15-7522, 2016 WL 4820635 (C.D. Cal. Aug.
31, 2016); CFPB v. ITT Educ. Servs., 219 F. Supp. 3d 878 (S.D. Ind. 2015); CFPB
v. Morgan Drexen, Inc., 60 F. Supp. 3d 1082 (C.D. Cal. 2014). Only one circuit
Court that has considered the issue has determined the CFPB to be
unconstitutionally structured.1 PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir. 2016).
The D.C. Circuit subsequently reversed that decision upon en banc consideration.
PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018) (en banc).
The D.C. Circuit determined ultimately that the for-cause removal
requirement does not “impair[] the President’s ability to assure the faithful
execution of the law.” Id. at 90 (citing Morrison v. Olson, 487 U.S. 654, 691-92
(1988), and Free Enterprise Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S.
477, 495-96 (2010)). Similarly, Humphrey’s Executor v. United States, 295 U.S.

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One district court did rely on the now-vacated panel decision to hold that the for-cause removal
provision violated the Constitution. CFPB v. D&D Mktg., No. 2:15-09692, 2016 WL 8849698
(C.D. Cal. Nov. 17, 2016).
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602, 619-20 (1935), upheld an identical for-cause removal provision for the
Federal Trade Commission. Aspects of this argument currently remain pending
before the Ninth Circuit. (Doc. 51 at 18 n.8.)
Elections certainly have consequences, and the CFPB’s director and the
Department of Justice’s shifting position on this issue seem to reflect those
consequences. The Defendants present no argument, however, that has not already
been rejected by several district courts within the Ninth Circuit, and by the en banc
panel of the D.C. Circuit. The Court deems it appropriate to follow these
precedents to determine that the structure of the CFPB comports with the
Constitution.
II.

The Nature of the Claims and the CFPA
Defendants argue that CFPB’s claims are not permitted by the CFPA.

Defendants first argue that the CFPA does not allow the CFPB to bring claims
regarding unfair, deceptive, and abusive practices (“UDAAP”) based on state law,
or to declare violations of “Federal law” without prior rulemaking. Second,
Defendants argue that Congress has explicitly prohibited the CFPB from imposing
interest rate limits.

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A.

State Law and Usury Limits

The Amended Complaint alleges that Defendants engaged in deceptive
(Count I), unfair (Count II), and abusive (Count III) practices when collecting on
loans made by the Tribal Lenders. (Doc. 38 at 37-44.) CFPB alleges that the law of
the states in which the Tribal Lenders’ consumers resided operated to void the
loans due to local usury limits or licensing rules. Defendants’ subsequent
collection on those void loans constituted the UDAAPs that comprise the subject
of the complaint.
Defendants contend that the CFPB exceeds its statutory authorization to
prevent “unfair, deceptive, or abusive act[s] or practices under Federal law” and
upsets the balance of state-federal relations by enforcing state law through the
CFPA. (Doc. 51 at 21.) Defendants further contend that the CFPB attempts to
subvert Congress’s explicit prohibition on the CFPB establishing a usury limit.
(Doc. 51 at 25); 12 U.S.C. § 5517(o).
Two district courts have considered similar arguments that the CFPB seeks
to enforce a usury limit by prohibiting the collection of void loans. Both courts
have determined that “enforc[ing] a prohibition on collecting amounts that
consumers do not owe” differs from “establish[ing] a usury limit.” CFPB v.
CashCall, Inc., No. 15-7522, 2015 WL 9591569, at *2 (C.D. Cal. Dec. 30, 2015);

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see also CFPB v. NDG Fin. Corp., No. 15-5211, 2016 WL 7188792, at *18
(S.D.N.Y. Dec. 2, 2016). The Court agrees.
The argument that CFPB seeks to enforce state law fails for similar reasons.
The CFPA declares it unlawful for “any covered person or service provider . . . to
engage in any unfair, deceptive, or abusive act or practice.” 12 U.S.C. §
5536(a)(1)(B). The fact that state law may underlie the violation—for example, to
operate to void a loan, as alleged here—does not relieve Defendants, or any other
covered person or service provider, of their obligation to comply with the CFPA.
B.

Rulemaking and Declaring

The CFPA authorizes the CFPB to take action to prevent a covered person or
service provider from committing or engaging in UDAAPs. 12 U.S.C. § 5531(a).
The CFPA further authorizes the CFPB to “prescribe rules” that “identify[] as
unlawful” UDAAPs. 12 U.S.C. § 5531(b). The CFPA finally limits the types of
conduct that the CFPB may declare unfair or abusive. 12 U.S.C. § 5531(c), (d).
Defendants argue that “this structure necessarily contemplates” that the CFPB will
“make such declarations before suing under new theories” of purported UDAAPs.
(Doc. 51 at 20.)
Two district courts to have considered this statute have determined that the
CFPA imposes no requirement that the CFPB engage in rulemaking before
bringing an enforcement action. Navient Corp., 2017 WL 3380530, at *7 (M.D.
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Penn. Aug. 4, 2017); CFPB v. D&D Mktg., No. 15-9692, 2017 WL 5974248, at *5
(C. D. Cal. Mar. 21, 2017). The United States Supreme Court long has recognized
that “the choice made between proceeding by general rule or by individual, ad hoc
litigation is one that lies primarily in the informed discretion of the administrative
agency.” N.L.R.B. v. Bell Aerospace Co. Div. of Textron, Inc., 416 U.S. 267, 293
(1974) (quoting SEC v. Chenery Corp., 332 U.S. 194, 203 (1947)).
“[D]ue process requires fair notice of what conduct is prohibited.” Newell v.
Sauser, 79 F.3d 115, 117 (9th Cir. 1996). The CFPA provides fair notice that it
prohibits “unfair, deceptive, or abusive act[s] or practice[s].” As other district
courts have noted, other consumer protection statutes and regulations use these
terms, and their meaning provides “the minimal level of clarity that the due process
provision demands of non-criminal economic regulation.” CFPB v. Cashcall, Inc.,
CV15-7522, 2016 WL 4820635, at *12 (C.D. Cal. Aug. 31, 2016) (quoting CFPB
v. ITT Educ. Servs., Inc., 2015 WL 1013508, at *20 (S.D. Ind. Mar. 6, 2015)); see
also CFPB v. Gordon, 819 F.3d 1179, 1193 n.7 (9th Cir. 2016).
III.

Tribal Lenders as Indispensable Parties
The Court must join parties that “claim[] an interest relating to the subject of

the action” and are “so situated that disposing of the action in the person’s
absence” may “impair or impede the person’s ability to protect the interest.” Fed.
R. Civ. P. 19(a)(1)(B). Where such a party cannot be joined, the court must
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consider “whether, in equity and good conscience, the action should proceed.” Fed.
R. Civ. P. 19(b). To determine whether a complaint should be dismissed for failure
to join an indispensable party, the Ninth Circuit asks: 1) whether the absent parties
are necessary; 2) whether they cannot be joined; and 3) whether the absent parties
are indispensable. Dawavendewa v. Salt River Project Agric. Improvement and
Power Dist., 276 F.3d 1150, 1155 (9th Cir. 2002).
Defendants argue that the Tribal Lenders constitute indispensable parties
that cannot be joined due to principles of tribal sovereign immunity and immunity
under the CFPA. (Doc. 51 at 26.) Defendants first argue that Tribal Lenders’
contractual interests would be impaired by resolution of the instant matter if the
Court should determine that state law operates to void loans whose contracts
contain choice of law provisions. (Doc. 51 at 26.) Defendants next argue that the
Tribal Lenders may not be joined because tribes are immune from suit under the
CFPA. (Doc. 51 at 27.) Finally, Defendants argue that the Tribal Lenders are
indispensable because this action could impair the Tribal Lenders’ ability to select
tribal law to govern their contracts, and “would not address the Tribal Lenders’
contention that they are not ‘covered persons’ under the CFPA.” (Doc. 51 at 28.)
CFPB first asserts that the Tribal Lenders do not represent necessary parties
because they have not “actually claimed [they] ha[ve] a legally protected interest”
in this litigation. (Doc. 59 at 29 (quoting Lopez v. Fed Nat. Mortg. Ass’n, No. 139

4782, 2013 WL 7098634, at *6 (C.D. Cal. Oct. 8, 2013).) Had the Tribal Lenders
claimed an interest, CFPB asserts that the Tribal Lenders still would not be
necessary parties as CFPB does not seek rescission of the contracts, contractual
remedies, or any relief from the tribe, but instead seeks tort remedies that they may
recover from Defendants as joint tortfeasors. (Doc. 59 at 30.) Finally, CFPB argues
that the Tribal Lenders are not necessary parties because Defendants adequately
can represent the Tribal Lenders’ arguments and interests. (Doc. 59 at 30.)
CFPB further asserts that, even if the Tribal Lenders constitute necessary
parties, dismissal remains unwarranted because the Tribal Lenders may be joined.
(Doc. 59 at 31.) CFPB relies upon CFPB v. Great Plains Lending, LLC, 846 F.3d
1049, 1050 (9th Cir. 2017), cert. denied, 138 S.Ct. 555 (2017), for the proposition
that Tribal Lenders qualify as “persons” subject to the Bureau’s investigative
authority. CFPB additionally highlights that the Tribal Lenders’ status as “arms of
the tribes” remains unclear, and that tribal sovereign immunity does not apply in
suits brought by a federal agency. (Doc. 59 at 31 n.11-12.)
The Great Plains decision relied on Donovan v. Coeur d’Alene Tribal Farm,
751 F.2d 1113 (9th Cir. 1985), in which the Ninth Circuit determined that the
Occupational Safety and Health Act (“OSHA”) applied to tribal entities. OSHA
represents a law of general applicability and Congress has not explicitly provided
otherwise. Id. Where a law of general applicability remains silent as to Indian
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tribes, the law will apply to tribes unless: “(1) the law touches exclusive rights of
self-governance in purely intramural matters; (2) the application of the law to the
tribe would abrogate rights guaranteed by Indian treaties; or (3) there is proof by
legislative history or some other means that Congress intended the law not to apply
to Indians or their reservations.” Coeur d’Alene, 751 F.2d at 1116. The Court notes
that the standard upon which the Ninth Circuit based its decision in Great Plains
asked whether the CFPB “plainly lacked jurisdiction” to issue investigative
demands to tribal entities. Id. at 1058.
Alternatively, CFPB raises the “public rights” exception to Rule 19
dismissal. The burden on the contractual rights of nonparties proves acceptable
where public rights are “vindicated by restraining the unlawful actions of the
defendant even though the restraint prevent[s] [] performance of [] contracts,”
“because such adjudications do not destroy the legal entitlements of the absent
parties.” Conner v. Burford, 848 F.2d 1441, 1459 (9th Cir. 1988). CFPB claims
that it falls within the public rights exception. (Doc. 59 at 32.) It seeks relief solely
from Defendants, and does not seek to destroy the Tribal Lenders’ legal rights. Id.
The Court acknowledges the gravity of the tribal interests potentially put at
stake by tribes and other actors engaging in the conduct alleged by the CFPB’s
complaint. The Court remains keenly aware of the tribal sovereign immunity
doctrine and sensitive to the doctrine’s implications for litigation in federal court.
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See Cain v. Salish Kootenai College, CV-12-181-M-BMM, 2018 WL 2272792 (D.
Mont. May 17, 2018). The Court notes, however, that the extent of the remedies
sought by the CFPB arguably will not impede the Tribal Lenders’ ability to collect
on their contracts or enforce their choice of law provisions directly. Under these
circumstances, the Court will not create a means for businesses to avoid regulation
by hiding behind the sovereign immunity of tribes when the tribes themselves have
failed to claim an interest in the litigation. The same Tribal Lenders notably have
claimed an interest in the ongoing Pennsylvania litigation by providing
declarations in support of Think Finance and Subsidiaries’ Motion to Dismiss for
Failure to Join Indispensable Parties. Cf. Pennsylvania v. Think Finance, No. 14cv-7139 (E.D. Pa. Jan. 14, 2016) (ECF No. 67-2, 67-3, 67-4) (declarations of
representatives of Tribal Lenders).
IV.

Personal Jurisdiction over Think SPV
Defendants contend that the CFPB’s claims against Think SPV must be

dismissed as the court lacks personal jurisdiction over SPV. (Doc. 51 at 29.)
Defendants argue that SPV lacks the requisite continuous and systematic contacts
that would render it “essentially at home” for purposes of general jurisdiction.
(Doc. 51 at 29.) Defendants further argue that CFPB has failed to allege that SPV
purposely has directed activities at Montana from which this case arises or to
which this case relates. (Doc. 51 at 30.) Defendants liken SPV to an investor, and
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highlight the unfairness of haling investors into Court in each state where a
plaintiff experienced an injury regardless of the effect of the defendant’s conduct.
(Doc. 51 at 31.)
CFPB counters that SPV’s status as an alter ego of Think Finance subjects
SPV to personal jurisdiction in this Court. Personal jurisdiction is imputed to alter
egos. Ranza v. Nike, Inc., 793 F.3d 1059, 1071 (9th Cir. 2015). The alter ego test
requires a prima facie showing: (1) of “such unity of interest and ownership that
the separate [entities] . . . no longer exist,” and (2) that “failure to disregard [the
entities’ separateness] would result in fraud or injustice.” Id. at 1073. “Pervasive
control over the subsidiary” where the parent company “dictates every facet of the
subsidiary’s business” sufficiently demonstrates unity of interest and ownership.
Id.
The Amended Complaint describes Think SPV as a wholly-owned
subsidiary of Think Finance, lacking its own office or infrastructure. (Doc. 38 at
5.) The Amended Complaint alleges that Think Finance management controls and
manages SPV. (Doc. 38 at 13.) The Amended Complaint further alleges that SPV
conducts no business without the “involvement and control” of Think Finance,
such that Think Finance remains responsible for SPV’s debts, benefits from SPV’s
operations, performs all of SPV’s contractual obligations, makes all of SPV’s
business decisions, and conducts all of SPV’s operations. (Doc. 38 at 13.) The
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CFPB asserts that SPV’s sole purpose was to invest in GPL Servicing, Ltd., the
investment fund that financed the tribal lenders. (Docs. 38 at 5; 59 at 23.)
Think Finance has emphasized the relatedness of its subsidiaries in the
ongoing bankruptcy action. Think Finance, in the bankruptcy action, describes all
of the Think entities’ “financial affairs and business operations” as “closely
related.” (Doc. 59 at 24 n.7.) SPV in particular serves as the sole remaining holder
of $50 million worth of shares in GPL Servicing, while other subsidiaries remain
undercapitalized. (Doc. 59 at 24.)
CFPB additionally argues that, even if the Court determines that SPV is not
the alter ego of Think Finance, SPV’s participation in Think Finance’s activities
constitutes purposeful direction and availment. (Doc. 59 at 25.) These allegations
prove sufficient at this stage of the proceedings. As the Ninth Circuit noted in
Ranza, the United States Supreme Court in Daimler AG v. Bauman, ___ U.S. ___,
134 S.Ct. 746, (2014), left intact the Ninth Circuit’s alter ego test for “imputed”
general jurisdiction. 793 F.3d at 1071. The alter ego test analyzes whether the
parent and subsidiary are “not really separate entities,” such that one entity’s
contacts with the forum state can fairly be attributed to the other. Doe v. Unocal
Corp., 248 F.3d 915, 926 (9th Cir. 2001). Parental control of the subsidiary’s
internal affairs or daily operations typifies the “alter ego” relationship. Id.

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The combination of the allegations in the Amended Complaint and Think
Finance’s representations in its bankruptcy proceeding satisfies the alter ego test
for purposes of establishing general jurisdiction at this stage of the proceedings.
SPV holds the remaining $50 million worth of shares in GPL. All of Think’s
entities, including SPV, retain “closely related” financial affairs and business
operations. Further discovery will reveal how closely related these operations
remain. Discovery also will determine whether CFPB can establish whether Think
Finance’s conduct imputes to SPV. Further discovery also will determine whether
CFPB can establish that Think Finance stands responsible for SPV’s debts,
whether Think finance stands as the beneficiary of SPV’s operations, and whether
Think Finance performs all of SPV’s contractual obligations, makes all of SPV’s
business decisions, and controls all of SPV’s operations. Defendants remain free to
pursue this claim at summary judgment.
V.

Failure to State a Claim Arguments
Defendants claim that the CFPB has engaged in improper group pleading by

failing to identify which Subsidiaries were involved in what conduct giving rise to
the Complaint. (Doc. 51 at 32.) Defendants further allege that the CFPB has failed
to plead the statutory elements to support its four claims. (Doc. 51 at 31.)
A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the
Federal Rules of Civil Procedure tests the legal sufficiency of a complaint.
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Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In evaluating a 12(b)(6)
motion, the Court “must take all allegations of material fact as true and construe
them in the light most favorable to the nonmoving party.” Kwan v. Sanmedica
Int’l, 854 F.3d 1088, 1096 (9th Cir. 2017) (quoting Turner v. City and County of
San Francisco, 788 F.3d 1206, 1210 (9th Cir. 2015)). To survive a motion to
dismiss, the complaint must allege sufficient facts to state a plausible claim for
relief. Taylor v. Yee, 780 F.3d 928, 935 (9th Cir. 2015).
Federal courts generally view “with disfavor” Rule 12(b)(6) dismissals.
Rennie & Laughlin, Inc. v. Chrysler Corp., 242 F.3d 208, 213 (9th Cir. 1957). “A
case should be tried on the proofs rather than the pleadings.” Id. Such dismissals
are “especially disfavored” where the plaintiff bases the complaint on “a novel
legal theory that can best be assessed after factual development.” McGary v. City
of Portland, 386 F.3d 1259, 1270 (9th Cir. 2004) (citations omitted). New legal
theories should “be explored and assayed in the light of actual facts rather than a
pleader’s suppositions.” Id.
A.

Group Pleading

Defendants contend that CFPB’s lack of specificity regarding actions taken
by Think Finance and each of its Subsidiaries requires dismissal of the Amended
Complaint because the allegations fail to put each defendant on notice of its
alleged wrongdoing. (Doc. 51 at 32.) Defendants further contend that the CFPB
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may not state a claim based on common enterprise liability because Congress did
not expressly reference such liability within the statute. (Doc. 51 at 32.)
Defendants rely on the district court order in Pennsylvania v. Think Finance,
No. 14-cv-7139, 2016 WL 183289, at *26 (E.D. Pa. Jan. 14, 2016), for the
proposition that the CFPA fails to support such a theory of liability. At least one
other district court explicitly has rejected the holding of Pennsylvania, however,
and determined that common enterprise liability applies under the CFPA based on
an analogous reading of the Federal Trade Commission Act (“FTCA”). NDG, 2016
WL 7188792, at *16.
The Ninth Circuit has yet to consider directly whether common enterprise
liability exists under the CFPA. The Ninth Circuit has determined that the FTCA
may inform a court’s interpretation of the CFPA because Congress used similar
language in constructing the two statutes. See Gordon, 819 F.3d at 1192-93 n. 7-8.
The FTCA likewise fails to specifically provide common enterprise liability. The
Ninth Circuit nevertheless has recognized that such liability exists under the
statute. FTC v. Network Servs. Depot, Inc., 617 F.3d 1127, 1142-43 (9th Cir. 2010).
The Court thus concludes that common enterprise liability presents a plausible
means by which the CFPB may state a claim against Defendants alleging violation
of the CFPA.

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B.

Count I: Deceptive Conduct

An act or practice proves deceptive if it makes: (1) material
misrepresentations that are (2) likely to mislead consumers, who are (3) acting
reasonably under the circumstances. Gordon, 819 F.3d 1179, 1192 (9th Cir. 2016).
Defendants argue that the CFPA requires claims for deceptive conduct to meet the
heightened pleading standards of Federal Rule of Civil Procedure 9(b). (Doc. 51 at
33.) Rule 9(b) requires a party to “state with particularity the circumstances
constituting” allegations of fraud or mistake. Fed. R. Civ. P. 9(b).
Under this standard, Defendants argue, the CFPB has failed to plead that
Defendants made specific statements or specific omissions that were deceptive.
(Doc. 51 at 33.) Defendants argue additionally that even if CFPB had met the Rule
9(b) standard, it has failed to demonstrate that Defendants made statements “likely
to mislead consumers acting reasonably under the circumstances . . . in a way that
is material.” (Doc. 51 at 35) (quoting Davis v. HSBC Bank Nev., N.A., 691 F.3d
1152, 1168 (9th Cir. 2012)). Defendants argue that the Amended Complaint
acknowledges that borrowers’ loan agreements contained choice of law provisions.
As a result, Defendants contend that CFPB has failed to allege misrepresentation of
fact. (Doc. 51 at 35.)
CFPB urges the Court to hold that Rule 9(b) does not apply to deception
claims because fraud claims require different elements than deception claims and
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because consumer protection statutes bear particular remedial purposes. (Doc. 59
at 15.) CFPB identified one district court that held that 9(b) does apply to CFPA
deception claims. CFPB v. Prime Mktg. Holdings, LLC, No. 16-07111, 2016 WL
10516097, at *6 (C.D. Cal. Nov. 15, 2016).
CFPB also highlighted three district court orders that declined to apply Rule
9(b) to claims arising under the CFPA. CFPB v. D&D Mktg., No. 2:15-09692,
2016 WL 8849698, at *10-11 (C.D. Cal. Nov. 17, 2016); CFPB v. All American
Check Cashing, Inc., No. 3:16-CV-00356-WHB-JCG at 6 (S.D. Miss. July 15,
2016) (ECF No. 24); CFPB v. Frederick J. Hanna, 114 F. Supp. 3d 1342, 1373
(N.D. Ga. 2015). Other courts have determined that Rule 9(b) does not apply to
consumer protection claims arising under other statutes. See Neild v. Wolpoff &
Abramson, LLP, 453 F. Supp. 2d 918, 923–24 (E.D. Va. 2006) (a § 1692e(8)
violation of the Fair Debt Collection Practices Act is not fraud so Rule 9(b) does
not apply); FTC v. Freecom Commc'ns, Inc., 410 F.3d 1192, 1204 n.7 (10th Cir.
2005) (declining to apply Rule 9(b) to the FTCA); Le Blanc v. Unifund CCR
Partners, 601 F.3d 1185, 1190 (11th Cir. 2010) (declining to apply Rule 9(b) to the
FDCPA).
These decisions rely primarily on Leatherman v. Tarrant County Narcotics
Intelligence & Coordination Unit, 507 U.S. 163 (1993). The United States
Supreme Court in Leatherman cautioned against extending the heightened pleading
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standard beyond claims for fraud of mistake. Id. at 164. Other courts have
recognized the “remedial nature” of consumer protection statutes which Congress
enacted to facilitate a consumer's ability to enforce their rights. See Frederick J.
Hanna & Assoc., 114 F. Supp. 3d at 1371–74.
The Court recognizes the overwhelming weight of precedent in favor of the
CFPB’s position. The Court declines to apply the Rule 9(b) heightened pleading
standard to the CFPA. CFPB has alleged that material misrepresentations occurred
when Defendants informed consumers, impliedly and explicitly, that they
possessed a legal obligation to pay. (Doc. 59 at 13-14.) CFPB’s allegations
sufficiently state a claim for deceptive practices under the CFPA at this stage.
C.

Count II: Unfair Conduct

The CFPA defines “unfair” as an act or practice that “causes or is likely to
cause substantial injury to consumers which is not reasonably avoidable by
consumers” and “not outweighed by countervailing benefits to consumers or to
competition.” 12 U.S.C. §§ 5531(c)(1)(A)-(B). Defendants contend that consumers
could have “reasonably avoided” the harm alleged by not accepting the terms of
the loans when the lenders disclosed the terms before the signing. (Doc. 51 at 36.)
Defendants further allege that Count II must be dismissed because CFPB failed to
quantify or identify the benefits that the loans provided to their borrowers. (Doc.
51 at 37.)
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Defendants’ motion focuses on the wrong part of the loan transaction.
Customers could not have avoided the alleged injury—Defendants’ attempted
collection of amounts that the consumer allegedly did not owe—by declining the
loan. The customer’s contract already had been made at the time that Defendants
collected on the loans. The Court further determines that Defendants’ argument
regarding quantification of the benefits of the products should be raised at the
merits stage of the litigation.
D.

Count III: Abusive Conduct

The CFPA defines abusive conduct as an act that “materially interferes with
the ability of a consumer to understand a term or condition of a consumer financial
product or service,” or “takes unreasonable advantage of:” 1) the consumer’s “lack
of understanding. . . of the material risks, costs, or conditions of the product or
service,” 2) the consumer’s “inability to protect [their] interests . . . in selecting or
using a consumer financial product or service,” or 3) the consumer’s “reasonable
reliance . . . on a covered person to act in the [consumer’s] interest.” 12 U.S.C. §
5531(d). Defendants argue that CFPB does not allege that Defendants failed to
disclose any material terms of the loan to the subject borrowers or did anything to
interfere with the borrowers’ understanding of the relevant terms. (Doc. 51 at 38.)
The Amended Complaint alleges that borrowers lacked an understanding of
the law applicable to Defendants’ loans and how those laws affected repayment
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obligations. (Doc. 59 at 17.) The statute provides liability for acts that “take
unreasonable advantage of” this kind of lack of understanding. 12 U.S.C. §
5531(d)(2). At this stage of the litigation, with all facts taken as true as required by
the 12(b)(6) standard, this allegation sufficiently states a claim for abusive conduct
under the CPFA.
E.

Count IV: Substantial Assistance

Defendants argue that the substantial assistance claim is “wholly derivative”
and must be dismissed with Counts I-III. (Doc. 51 at 36.) For the reasons stated
above, the Court determines that such dismissal remains unwarranted at this stage
of the litigation.
Defendants also argue that Tribal Lenders do not qualify as “persons” or
“covered persons” under the CFPA. (Doc. 51 at 37.) The Court declines to decide
at this juncture whether Tribal Lenders qualify as “persons” or “covered persons”
within the meaning of the statute. The Ninth Circuit determined in Great Plains
Lending, however, that the CFPB did not “plainly lack[ ] jurisdiction” to issue
investigative subpoenas to tribal entities. 846 F.3d at 1050. As 12(b)(6) dismissals
remain disfavored, the Court will allow the CFPB to proceed on the substantial
assistance claim. Defendants remain free to further develop this defense at
summary judgment.

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VI.

Statute of Limitations
Defendants argue that the statute of limitations bars claims against the

Subsidiaries for conduct arising before March 28, 2015. (Doc. 51 at 39.) The
CFPA bars the CFPB from bringing an action relating to conduct that occurred
“more than 3 years after the date of discovery of the violation to which an action
relates.” 12 U.S.C. § 5564(g).
CFPB began investigating potential violations of the CFPA by Think
Finance, the Subsidiaries, and the Tribal Lenders, on approximately June 12, 2012.
(Doc. 51 at 39.) Defendants argue that these investigations, therefore, put CFPB on
notice of potential violations “by then or shortly afterward.” (Doc. 51 at 39.)
CFPB filed its Amended Complaint on March 28, 2018. (Doc. 38.)
Consequently, Defendants argue, the Court must dismiss allegations regarding
conduct undertaken before March 28, 2015. CFPB entered into a tolling agreement
with Think Finance, LLC (formerly Think Finance, Inc.). (Doc. 51 at 40.) CFPB
argues that this tolling agreement binds the Subsidiaries as alter egos of Think
Finance. (Doc. 59 at 27.) Defendants argue that only Think Finance remains
bound. (Doc. 51 at 40.)
The running of the statute must be apparent on the face of the complaint to
permit dismissal based on the statute of limitations. Von Saher v. Norton Simon
Museum of Art at Pasadena, 592 F.3d 954, 960, 969 (9th Cir. 2010). The
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defendant bears the burden of proving that an action is time-barred. Cal. Sansome
Co. v. U.S. Gypsum, 55 F.3d 1402, 1406 (9th Cir. 1995).
Defendants’ arguments fail for three related reasons. First, Defendants have
failed even to attempt to establish when CFPB discovered the Subsidiaries’ alleged
violations. Without such showing, Defendants cannot meet their burden to
demonstrate that this action is time-barred.
Second, the statute refers to the date of discovery. Defendants request
dismissal of all claims related to conduct occurring before March 28, 2015.
Defendants’ request confuses the date of the conduct with the date of CFPB’s
discovery of the alleged violation. Absent tolling, discussed below, the Amended
Complaint properly could encompass any violations that CFPB discovered on or
after March 28, 2015, regardless of the date of the underlying conduct.
Third, at this stage, the Court must take as true the allegations pleaded in the
Amended Complaint. See Ashcroft v. Iqbal, 556 U.S. 662, 696 (2009). CFPB has
pleaded that the Subsidiaries exist as alter egos of Think Finance. See Part IV,
supra. This theory of liability thus logically imputes the tolling agreement to the
alter egos. SOS Co. v. –Collar Techs., Inc., No. 16-9667, 2017 WL 5714716, at *5
(C.D. Cal. Oct 17, 2017).

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ORDER
Accordingly, IT IS HEREBY ORDERED, that Defendants’ Motion to
Dismiss (Doc. 50) is DENIED.
DATED this 3rd day of August, 2018.

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