Goleta National Bank v. O'Donnell

• Citation: 239 F.Supp.2d 745
• Decision Date: 18 December 2002
• Docket Number: No. C2-01-971.,C2-01-971.
• Parties: GOLETA NATIONAL BANK, Plaintiff, v. F. Scott O'DONNELL, in his official capacity as Superintendent of Financial Institutions of the Ohio Department of Commerce, Defendant.
• Court: United States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio

239 F.Supp.2d 745

GOLETA NATIONAL BANK, Plaintiff, v. F. Scott O'DONNELL, in his official capacity as Superintendent of Financial Institutions of the Ohio Department of Commerce, Defendant.

No. C2-01-971.

United States District Court, S.D. Ohio, Eastern Division.

December 18, 2002.

COPYRIGHT MATERIAL OMITTED

Kevin Robert McDermott, Schottenstein Zox & Dunn, Columbus, OH, Alan S. Kaplinsky, Arthur Makadon, Jeremy T. Rosenblum, Martin C. Bryce, Jr., Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, PA, for Goleta National Bank.

John A. Izzo, Ohio Atty. Gen., columbus, OH, for F. Scott O'Donnell.

Rachel Kimberly Robinson, Equal Justice Foundation, Columbus, OH, Kathleen E. Keest, Iowa Atty. General's Office, Des Moines, IA, Paul Chessin, Colorado Atty. General's Office, Denver, CO, for Attorney Generals of State Consumer Credit Regulator

Chrys D. Lemon, Mclntyre Law Firm, PLLC, Washington, DC, for Community Financial Services, Ass'n.

MEMORANDUM & ORDER

HOLSCHUH, District Judge.

Goleta National Bank ("Goleta") brought suit against F. Scott O'Donnell, Superintendent of Financial Institutions of the Ohio Department of Commerce ("O'Donnell"), seeking to enjoin him from pursuing a regulatory action against ACE Cash Express, Inc. ("ACE"), an Ohio corporation. Goleta and ACE have entered into a contract whereby ACE purportedly acts as Goleta's agent in making loans to Ohio consumers. O'Donnell is seeking to enforce the Ohio Small Loan Act ("OSLA") against ACE, but Goleta claims that the National Bank Act ("NBA") preempts his authority to do so. This matter is currently before the Court on two pending motions: (1) Plaintiffs motion for a preliminary injunction (Record at 4); and (2) Defendant's motion to dismiss (Record at 7).

I. Background

Goleta National Bank operates two fullservice branches in California. Although Goleta has no offices or employees in Ohio, it alleges that it makes short-term small loans available to Ohio consumers through ACE Cash Express, Inc., a check-cashing business. These loans, often called "payday" loans, range in amount from $100 to $500. They must be repaid within fourteen days, but may be renewed up to three times. A fee of $17 is charged for each $100 borrowed. In accordance with the Truth-in-Lending Act, it is disclosed to consumers that this 17% interest rate produces an annual percentage rate of 440%. Goleta contends that it is clearly listed as the lender on the loan documents and that it establishes the underwriting criteria and decides whether to approve the loans. However, Goleta sells a 90% participation interest in each loan to ACE.¹ Pursuant to the Master Loan Agency Agreement, ACE bears 90% of the risk associated with each loan, keeps the loan records, receives the loan payments, and is responsible for expenses related to collection and enforcement of defaulted loans. (Ex. C to Mot. Prelim. Inj.).

On July 16, 2001, Defendant mailed to ACE a formal Notice of Intent to Issue Cease and Desist Order and Notice of Hearing. That notice charges that "[i]n economic reality, [ACE] is the lender on the transactions, not [Goleta]." (Compl.¶12). Defendant alleges that ACE is violating the provisions of the Ohio Small Loan Act ("OSLA"), Ohio Revised Code Chapter 1321, by charging interest on the loans in excess of that permitted by Ohio law. At ACE's request, a hearing concerning the Notice of Intent to Issue Cease and Desist Order was scheduled for October 30, 2001.

On October 9, 2001, Goleta filed the instant lawsuit against O'Donnell, asserting its rights under the National Bank Act ("NBA").² Goleta, which was not—and indeed could not have been—named as a party in the administrative action, contends that O'Donnell is exceeding the scope of his authority in his attempt to enforce the OSLA against ACE. Citing 12 U.S.C. § 85, 12 U.S.C. § 24(Seventh), 12 C.F.R. § 7.1004(a), 12 U.S.C. § 484, 12 C.F.R. § 7.4000, and 42 U.S.C. § 1983, Goleta asks the Court for declaratory and injunctive relief, as well as fees and costs.

The NBA provides that a national bank, like Goleta, is permitted to charge "interest at the rate allowed by the laws of the State ... where the bank is located." 12 U.S.C. § 85. Goleta is located in California, where national banks are not subject to any interest rate limitations at all. See Cal. Const., ch. XV, § 1. Therefore, even though Ohio may have much more restrictive usury laws, Goleta claims not to be bound by them. Goleta further argues that the fact that it uses ACE, an Ohio corporation, as its agent and sells a 90% participation interest in each loan to ACE does not subject ACE to the confines of the OSLA. Federal law authorizes national banks to make loans to consumers in other states, sell participation interests in those loans, and exercise these powers through agents like ACE. See 12 U.S.C. § 24 (Seventh); see also 12 C.F.R. § 7.1004(a)(authorizing national banks to employ agents for originating loans).

Only the United States Office of the Comptroller of the Currency ("OCC") has "visitorial" powers, i.e., regulatory and supervisory powers, over national banks. See 12 U.S.C. § 484. State officials, like Mr. O'Donnell, are expressly prohibited from exercising visitorial powers over national banks. See 12 C.F.R. § 7.4000(a). Goleta therefore objects to Defendant's attempt to recharacterize ACE as the "true lender" so that he can assert authority over ACE and thereby indirectly enforce Ohio's usury law against Goleta. Goleta also seeks relief under 42 U.S.C. § 1983, claiming that O'Donnell, acting under color of state law, violated its rights as guaranteed by the National Bank Act.

On October 12, 2001, Goleta filed a motion for a preliminary injunction seeking to enjoin Defendant from enforcing the OSLA against ACE. The Court held an informal conference on October 23, 2001, during which the parties agreed to a briefing schedule. At that conference, Defendant also represented that, at this Court's request, the administrative hearing against ACE would be stayed pending resolution of the motion for a preliminary injunction. Thereafter, on November 23, 2001, Defendant filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(b)(7), claiming that the Court lacked subject matter jurisdiction, that Plaintiff failed to state a claim upon which relief may be granted, and that Plaintiff had failed to join ACE as an indispensable party to this case.

After the motions were fully briefed, several Attorneys General and state consumer credit regulators requested and received permission to file an amicus brief in opposition to the motion for a preliminary injunction, and in support of Defendant's motion to dismiss.³ Goleta has filed its response to the amicus brief.⁴ On February 15, 2002, Financial Services Centers of America, Inc., which represents professional check cashing companies, filed an amicus brief in support of Goleta's motion for a preliminary injunction and in opposition to Defendant's motion to dismiss.⁵ Defendant filed no response to that particular brief.

II. Motion to Dismiss

In its motion for a preliminary injunction, Goleta argued that Defendant's attempt to apply the OSLA to the loans in question is preempted by the National Bank Act; states cannot significantly impair the rights Congress has granted to national banks. Defendant urges the Court to dismiss Goleta's complaint on several grounds: (1) this Court lacks subject matter jurisdiction because Goleta has suffered no injury-in-fact, there is no immediate controversy, and this action is not ripe for review; (2) this Court should abstain from exercising jurisdiction; (3) the National Bank Act does not pre-empt state agencies from enforcing state laws against private check-cashing companies; and (4) Goleta has failed to join ACE as an indispensable and necessary party to this action.

Whether Goleta has standing to bring this suit is, of course, a threshold issue. See Worth v. Seldin, 422 U.S. 490, 517-18, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). Because the Court concludes that Goleta lacks standing, this Court lacks subject matter jurisdiction over Goleta's claims, and they must be dismissed. The Court need not address the remaining arguments raised by Defendant and does not reach Plaintiffs preemption argument raised in its motion for preliminary injunction.

A. Applicable Law Concerning Standing and Ripeness in a Declaratory Judgment Action

The jurisdiction of the federal courts is limited. Article III § 2 of the United States Constitution grants the federal courts jurisdiction only over specified "cases" or "controversies." Absent a live "case or controversy," a federal court has no subject matter jurisdiction and the case must be dismissed. This "case or controversy" requirement gives rise to the concepts of standing and ripeness. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The concept of standing addresses the question of who is a proper party to litigate a particular suit; the related concept of ripeness addresses the question of when a court should adjudicate a particular dispute. In the context of actions for declaratory judgment and injunctive relief, there is often considerable overlap between the concepts of standing and ripeness.

There are two types of standing constitutional standing and prudential standing. See Warth, 422 U.S. at 498, 95 S.Ct. 2197 (question of standing involves "both constitutional limitations on federalcourt jurisdiction and prudential limitations on its exercise"); Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 456 (6th Cir.2001) ("any inquiry into a litigant's standing to sue involves examination of both constitutional limitations and prudential restrictions"). All plaintiffs must satisfy both the constitutional requirements and the prudential restrictions. See Coyne v. American Tobacco Co., 183 F.3d 488, 494 (6th Cir.1999).

In order...