TVI, Inc. et al v. Ferguson

Filing 20

ORDER granting Defendant's 12 Motion to Dismiss. All of Plaintiff TVI's claims are DISMISSED with prejudice. This case is CLOSED. Signed by Judge Ricardo S Martinez. (PM)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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TVI Inc. dba SAVERS and VALUE
VILLAGE,

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CASE NO. C17-1845 RSM
ORDER GRANTING
DEFENDANT’S MOTION TO
DISMISS

Plaintiff,
v.
ROBERT W. FERGUSON, in his official
capacity as Attorney General of the State
of Washington,
Defendant.

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I.

INTRODUCTION

This matter comes before the Court on Defendant Washington State Attorney General

18 Robert W. Ferguson (“Attorney General” or “AGO”)’s Motion to Dismiss under Rules 12(b)(1)
19 and 12(b)(6). Dkt. #12. The Attorney General argues that that all of the claims in this case
20 must be dismissed with prejudice based on “Younger abstention and principles of equity,
21 comity, and federalism.” Id. at 2. Plaintiff TVI, Inc. d/b/a Savers and Value Village (“TVI”)
22 opposes this Motion. Dkt. #16. For the reasons stated below, the Court GRANTS Defendant’s
23 Motion and dismisses this case with prejudice.
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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 1

II.

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BACKGROUND1

Plaintiff TVI is a Washington-based for-profit company that operates 20 Value Village
stores in the State and is a registered commercial fundraiser under the Washington Charitable
Solicitation Act (“CSA”), RCW 19.09. TVI’s business is to work with non-profit organizations
to collect used goods from donors and pay charity partners for these goods. Through this
process, TVI has paid roughly $13 million to Washington charities in 2016, and over $120
million in the last ten years.
In December of 2014, the Washington State Attorney General’s Office (“AGO”) began
an investigation into TVI’s business practices as they relate to applicable Washington State law.
In July of 2016, it presented TVI with twelve non-monetary demands regarding practices and
disclosures. TVI agreed to nine of the twelve requests, but rejected the AGO’s demands that it
post signs in stores disclosing TVI’s contractual payment arrangements with charities for the
purchase of goods2 and instruct employees to disclose the “bulk purchase price” paid to
charities.
In August 2017, the AGO made a presentation to TVI contending it is a deceptive
practice that TVI does not disclose to its customers the portion of sales prices paid to charity

17 partners.

TVI continued to try to work with the AGO to resolve this and other issues.

18 However, in a meeting on December 8, 2017, and correspondence thereafter, the AGO indicated
19 it was poised to file suit against TVI.
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In response, TVI brought this action on December 11, 2017, under 42 U.S.C. §1983 and

21 the Declaratory Judgment Act. See Dkt. #1. TVI alleges that the Attorney General has violated
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The following background facts are taken from Plaintiff’s Amended Complaint, Dkt. #9, and accepted as true for
purposes of ruling on Defendant’s Motion to Dismiss.
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Specifically, the AGO demanded that TVI “prominently display in clear and conspicuous signage” that “Value
Village pays [charity] [dollar amount (e.g., 43 cents) for each [unit of measurement (e.g., pound) of the goods you
donate.” Dkt. #9 at 10.

ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 2

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its free speech rights under the First and Fourteenth Amendments by dictating its contractual
relationships with charities and mandating disclosure of its contractual payment terms with
charities. Id. at 10.
After learning that TVI filed this suit, the AGO indicated it would discontinue all efforts
to reach resolution if TVI did not immediately withdraw and dismiss this action and issue a
press statement apologizing that it had “misunderstood” the AGO’s demands. TVI rejected this
request. The Attorney General issued a press release and otherwise began a press campaign to
publicize its position in this case. TVI alleges that the AGO’s claims in press statements were
false or deceptive.
On December 20, 2017, nine days after the instant suit was filed, the AGO filed a
complaint in state court asserting claims against TVI under the state Consumer Protection Act
(“CPA”) and the Washington Charitable Solicitation Act (“CSA”). That suit alleges that TVI
violated the CPA by, inter alia, deceiving donors into thinking that donations of furniture and
household goods to TVI would benefit TVI’s charity partners when in certain circumstances
these charity partners receive nothing. See Dkt. #8-1 at ¶¶ 1.2, 5.8.–5.12, 5.44–5.52, 6.1–6.12.
The suit also alleges that TVI violated the CSA by soliciting donations with false, misleading,

17 or deceptive information. Id. at ¶¶ 7.1-7.8. TVI alleges that this State Complaint is false or
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deceptive.
III.

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DISCUSSION

A. Legal Standard
Under Rule 12(b)(1), a defendant may challenge the plaintiff’s jurisdictional allegations
in one of two ways: (1) a “facial” attack that accepts the truth of the plaintiff’s allegations but
asserts that they are insufficient on their face to invoke federal jurisdiction, or (2) a “factual”
attack that contests the truth of the plaintiff’s factual allegations, usually by introducing
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 3

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evidence outside the pleadings. Leite v. Crane Co., 749 F.3d 1117, 1121-22 (9th Cir. 2014).
When a party raises a facial attack, the court resolves the motion as it would under Rule
12(b)(6), accepting all reasonable inferences in the plaintiff’s favor and determining whether the
allegations are sufficient as a legal matter to invoke the court’s jurisdiction. Id. at 1122.
In making a 12(b)(6) assessment, the court accepts all facts alleged in the complaint as
true, and makes all inferences in the light most favorable to the non-moving party. Baker v.
Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted).
However, the court is not required to accept as true a “legal conclusion couched as a factual
allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). The complaint “must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.” Id. at 678. This requirement is met
when the plaintiff “pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. The complaint need not include
detailed allegations, but it must have “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Absent
facial plausibility, a plaintiff’s claims must be dismissed. Id. at 570.
B. Judicial Notice of Related State Court Suit

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A court may take judicial notice of undisputed matters of public record, including

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documents “on file in federal or state courts.” Harris v. County of Orange, 682 F.3d 1126, 1131

20 (9th Cir.2012). The Attorney General requests that the Court take judicial notice of its State
21 Court Suit, submitted on the docket at Dkt. #8-1. TVI does not oppose this request. The Court
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finds that it can take judicial notice of this suit for purposes of ruling on the instant Motion.

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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 4

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C. Younger Doctrine
The Attorney General argues that this case should be dismissed on its face under the
Younger abstention doctrine. Dkt. #12 (citing Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27
L. Ed. 2d 669 (1971)). This doctrine holds that principles of equity, comity, and federalism
limit the exercise of federal jurisdiction over matters being litigated in an ongoing state
proceeding. Id. at 43–46. As the Supreme Court has noted, “[i]n the main, federal courts are
obliged to decide cases within the scope of federal jurisdiction,” and “[a]bstention is not in
order simply because a pending state-court proceeding involves the same subject matter.”
Sprint Commc’ns, Inc. v. Jacobs, 134 S. Ct. 584, 588 (2013). However, there are “certain
instances in which the prospect of undue interference with state proceedings counsels against
federal relief.” Id. The Younger abstention doctrine is limited to three categories of cases: (1)
parallel, pending state criminal proceedings, (2) particular state civil proceedings that are akin to
criminal prosecutions, and (3) state civil proceedings that implicate a State’s interest in
enforcing the orders and judgments of its courts. Id.
The Ninth Circuit has held that, in civil cases, “Younger abstention is appropriate only

16 when the state proceedings: (1) are ongoing, (2) are quasi-criminal enforcement actions or
17 involve a state’s interest in enforcing the orders and judgments of its courts, (3) implicate an
18 important state interest, and (4) allow litigants to raise federal challenges.”

ReadyLink

19 Healthcare, Inc. v. State Comp. Ins. Fund, 754 F.3d 754, 759 (9th Cir. 2014). If these four
20 threshold elements are met, courts “then consider whether the federal action would have the
21 practical effect of enjoining the state proceedings and whether an exception to Younger
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applies.” Id. If the threshold elements are met, and no exception applies, the Court should
dismiss actions involving injunctive or declaratory relief. Gilbertson v. Albright, 381 F.3d 965,
968–69 (9th Cir. 2004) (en banc).
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 5

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The Attorney General’s Motion walks the Court through the ReadyLink elements. Of
note, the Attorney General argues that the state proceedings are a “quasi-criminal enforcement
action” because a state actor is a party to the action, they were initiated to sanction the federal
plaintiff for some wrongful act, and investigations were involved. Dkt. #12 at 7–8 (citing
ReadyLink, 754 F.3d at 759; Williams v. State of Wash., 554 F.2d 369, 370 (9th Cir. 1977)).
The Attorney General also compares this case to the fact pattern in In re Standard and Poor’s
Rating Agency Litig., 23 F.Supp.3d 378 (S.D.N.Y. 2014) and several other cases. Id. at 9–10.
The Attorney General argues that consumer protection claims like this one deal with a
sufficiently important state interest. Id. at 10–11 (citing cases).
In Response, TVI argues that “Younger abstention is reserved for ‘exceptional
circumstances.’” Dkt. #16 at 2 (citing Sprint, 134 S. Ct. at 591-94). TVI argues that Younger
does not apply for three reasons: 1) because “the AGO can proceed in its action with state-law
claims that do not implicate the constitutional concerns TVI has raised here,” 2) because the
AGO “cannot establish that it is pursuing an important state interest by making unconstitutional
threats or demands,” and 3) because the bad faith exception applies. Id. at 2–3. For the first
point, TVI argues that “The AGO’s state case asserts claims concerning several allegedly false

17 and misleading representations of TVI,” and that “[b]y contrast, TVI’s action in this Court seeks
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injunctive and declaratory relief related to the unconstitutionality of the AGO’s demands and
conduct targeting TVI’s business model and contractual payment arrangements with its charity
partners or seeking to require TVI to disclose information about those arrangements to donors.”
Id. at 11. For the second point, TVI argues that it is not challenging the legality of the CPA or
the CSA, and that “[t]he AGO cannot purport to be furthering an important state interest by
acting unconstitutionally to infringe the protected speech rights of TVI and its charity partners.”
Id. at 15. The third point will be addressed in the section below on the bad faith exception.
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 6

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On Reply, the Attorney General argues, inter alia, that this case would have the practical
effect of enjoining the state court suit, as required for the Younger doctrine to apply, because
TVI has effectively “pled its defenses to the State Court Suit as a cause of action.” Dkt. #17 at
7. The Attorney General argues that “[o]ne of the main issues in the State Court Suit is TVI’s
claim that the State is pursuing consumer protection claims that violate TVI’s First Amendment
rights.” Id. The Attorney General points out that the Amended Complaint in this case pleads
that the State Court Suit itself infringe[s] and chill[s] speech rights.” Id. (citing Dkt. #9 ¶49).
The Attorney General also points out that TVI’s discussion of the facts in this case appear to ask
the Court to “decide the meaning of TVI’s contractual relationships with certain charities and
whether the Attorney General misrepresented the terms of those contracts,” issues that are
clearly central to the State Court Suit. Id. at 8.
The Court finds that this case is one of the few in which “the prospect of undue
interference with state proceedings counsels against federal relief.” Sprint, 134 S. Ct. at 588. In
examining the ReadyLink elements above, the parties appear to agree that state proceedings are
“ongoing.” See Dkt. #12 at 7 (citing Hawaii Housing Auth. v. Midkiff, 467 U.S. 229, 238, 104
S.Ct. 2321, 2328, 81 L.Ed.2d 186 (1984); Hoye v. City of Oakland, 653 F.3d 835, 844 (9th Cir.

17 2011)). This case squarely falls under the category of “state civil proceedings that are akin to
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criminal prosecutions,” as demonstrated by the Attorney General’s numerous citations to similar

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CPA-type cases where Younger applied. See Dkt. #12 at 7–9. Turning to the third ReadyLink

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element, the Court finds an important state interest implicated here, given the large consumer
public that interacts with TVI’s stores and the nature of the Attorney General’s CPA claim.
TVI cannot get around this conclusion by asserting, as it has in other sections of its briefing,
that the Attorney General violated the First Amendment in its investigation and litigation of this
matter. It is clear to the Court, and unopposed by TVI, that TVI may raise its federal challenges
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 7

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in the state court suit. See Huffman v. Pursue, Ltd., 420 U.S. 592, 611 (1975). Accordingly, all
of the ReadyLink elements are met.
The Court disagrees with TVI that the AGO can proceed in its action with state-law
claims that do not implicate the constitutional concerns TVI has raised here. TVI’s claims in
the instant suit either act as a defense to the Attorney General’s state claims, i.e. stating the
AGO cannot seek the relief it is requesting, or serve to challenge the facts as presented by the
AGO, i.e. the factual basis for its claims is unfounded. Either way, this Court is being asked to
rule on facts and legal claims that would have a dispositive effect on the state court action.
Given all of the above, and absent an exception to Younger, this case is properly dismissed.
D. The Bad Faith Exception
If the Younger factors are met, a court must examine whether the state proceeding is
characterized by bias, bad faith, harassment, or some other extraordinary circumstances that
would make abstention inappropriate. Kenneally v. Lungren, 967 F.2d 329, 332 (9th Cir. 1992).
Bad faith typically means that “a prosecution has been brought without a reasonable expectation
of obtaining a valid conviction.” Baffert v. Cal. Horse Racing Bd., 332 F.3d 613, 621 (9th Cir.
2003). The parties focus only on the bad faith exception, but disagree about what qualifies as

17 bad faith under Ninth Circuit law.
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TVI argues that the bad faith exception “generally means that a prosecution has been
brought without a reasonable expectation of obtaining a valid conviction,” but that the Ninth
Circuit also has recognized that evidence of bias against the plaintiff or “a harassing motive”
can demonstrate bad faith. Dkt. #16 at 16 (citing Baffert, 332 F.3d at 621). TVI points to
allegedly disparaging and inaccurate press statements from the AGO, repeated refusals to meet
with TVI during its investigation, and monetary demands. Id. at 16–17. TVI states that the
AGO has also exhibited bad faith “through its repeated threats and unconstitutional attacks on
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 8

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TVI’s contractual arrangements with its charity partners, and its direct and indirect attempts to
require disclosures about those arrangements in excess of what the CSA requires.” Id. at 18.
The Attorney General argues the Ninth Circuit has found that the bad faith exception
was inapplicable where “[t]here was no allegation of repeated harassment by enforcement
authorities with no intention of securing a conclusive resolution by an administrative tribunal or
the courts. . . or of pecuniary bias by the tribunal.” Dkt. #17 at 3 (citing Partington v. Gedan,
961 F.2d 852, 861–62 (9th Cir. 1992)). The Attorney General highlights the absence of pled
facts showing that the Attorney General brought the State Court Suit “without a reasonable
expectation of obtaining a valid conviction.” Dkt. #17 at 3. Instead, TVI seems to rely on a
harassing motive to demonstrate bad faith, but the AGO argues that its actions cannot constitute
harassment and instead demonstrate a good faith effort to pursue this case. Id. at 3–5. For
example, the Attorney General points out that “[t]he parties nearly settled,” and that it cannot be
bad faith to engage in settlement negotiations “that involve a potential voluntary, knowing, and
intelligent waiver of constitutional rights by another.” Id. The Attorney General argues that its
statements to the press were not inaccurate.

Id. at 5.

The Attorney General cites to

Backpage.com, LLC v. Hawley, 2017 WL 5726868 (Nov. 28, 2017, E.D. Mo.) as a recent case

17 with a similar fact pattern where the Eastern District of Missouri found that the bad faith
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exception did not apply. Id. at 6.
The Court agrees that TVI does not assert that the Attorney General brought the State
Court Suit “without a reasonable expectation of obtaining a valid conviction.”

TVI’s

allegations of a harassing motive as pled fail to rise to the standard for bad faith articulated in
Baffert, supra, or discussed in Diamond “D” Constr. Corp. v. McGowan, 282 F.3d 191, 199 (2d
Cir.2002). Accordingly, the Court finds that this exception does not apply, and that this case is
properly dismissed under the Younger doctrine.
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 9

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E. Leave to Amend
Where a complaint is dismissed for failure to state a claim, “leave to amend should be
granted unless the court determines that the allegation of other facts consistent with the
challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. ServWell Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). The Court finds that there is no
significant factual dispute related to the elements of the Younger doctrine.

previous amendment of its Complaint and the legal analysis above, the Court finds that TVI
could not possibly allege facts consistent with the existing Amended Complaint to change the
Court’s ruling under Younger. Leave to amend will therefore not be granted and these claims
will be dismissed with prejudice.
IV.

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Given TVI’s

CONCLUSION

Having reviewed the relevant pleadings and the remainder of the record, the Court
hereby finds and ORDERS:
(1) Defendant Attorney General’s Motion to Dismiss (Dkt. #12) is GRANTED.
(2) All of Plaintiff TVI’s claims are DISMISSED with prejudice.
(3) This case is CLOSED.

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DATED this 3 day of April, 2018.

A

RICARDO S. MARTINEZ
CHIEF UNITED STATES DISTRICT JUDGE

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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS - 10