Lakeview Fin., Inc. v. Wash. Dep't of Fin. Insts.
| Decision Date | 21 June 2021 |
| Docket Number | CASE NO. 3:21-cv-05267-RJB |
| Court | U.S. District Court — Western District of Washington |
| Parties | LAKEVIEW FINANCIAL, INC., an Idaho Corporation, Plaintiff, v. STATE OF WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS BY AND THROUGH CHARLES E. CLARK, in his official capacity as Director of the Washington State Department of Financial Institutions, a political subdivision of the State of Washington, Defendants. |
THIS MATTER comes before the Court on a Motion to Dismiss brought by defendants Washington State Department of Financial Institutions and its director (collectively "the Department"). Dkt. 14. The Court has considered the pleadings filed in support of an in opposition to the motion and the remaining file.
The Department argues this matter should be dismissed under the abstention doctrine set forth in Younger v. Harris, 401 U.S. 37 (1971), because Lakeview Financial, Inc. ("Lakeview") lacks standing, because the matter is not yet ripe for judicial review, and because Lakeview failed to exhaust administrative remedies. Dkt. 14.
The Department's motion should be denied.
This matter arises out of the Department's investigation into Lakeview for violations of Washington's Consumer Loan Act. Dkt. 6. Lakeview is a corporation based in Idaho whose business is providing loans. Dkt. 6.
According to the Department, it received a complaint against Lakeview by a Washington State consumer on or about January 17, 2020. Dkt. 14 at 3. It then issued Lakeview a Subpoena to Provide Documents and Explanation to determine whether Lakeview violated Washington's Consumer Loan Act, RCW § 31.04. Id. After Lakeview failed to respond to the subpoena, the Department instituted a proceeding in Thurston County Superior Court to enforce the subpoena, which it voluntarily dismissed after Lakeview adequately responded. Id. The Department offered Lakeview a draft Consent Order as part of settlement negotiations, which seeks a fine of $5,000, an investigation fee of $2,146.21, investigation costs of $18,489.50, and refunds to Washington consumers in the amount of $1,124,681.33. Dkt. 15 at 7.
On April 12, 2021, Lakeview filed this action alleging that the Department's enforcement of the Washington Consumer Loan Act against Lakeview violates the Commerce Clause and Due Process Clause and discriminates against interstate commerce. Dkt. 6 at 9-10. Lakeview emphasizes that it is an Idaho corporation that does not maintain stores, employees, or agents inWashington, and its contacts with the State of Washington historically have been extremely limited. Id. The Complaint seeks declaratory and injunctive relief. Id.
In the pending motion, the Department argues that Lakeview's complaint should be dismissed under the Younger doctrine, for lack of standing, because it is not ripe, and because Lakeview failed to exhaust administrative remedies. The Court will discuss the issues in that order.
Fed. R. Civ. P. 12(b) motions to dismiss may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990). Material allegations are taken as admitted and the complaint is construed in the plaintiff's favor. Keniston v. Roberts, 717 F.2d 1295 (9th Cir. 1983). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-55 (2007) (internal citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555. The complaint must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 547.
The Younger abstention doctrine derives from the principles of equity and comity and"the longstanding public policy against federal court interference with state court proceedings." Younger, 401 U.S. at 43-44. Under Younger, federal courts should abstain from exercising jurisdiction when there is an ongoing, state-initiated proceeding against the putative federal plaintiff in state court. Gilbertson v. Albright, 381 F.3d 965, 970-71 (9th Cir. 2004) (quoting Younger, 401 U.S. at 44).
So, for example, if a criminal defendant currently being tried in state court sues the state in federal court and asks the federal court to declare that the state statute he is charged with violating is unconstitutional, the Younger doctrine would compel the federal court to abstain from exercising jurisdiction. Younger, 401 U.S. at 38-39.
Abstention, however, is an exception to a federal court's "virtually unflagging" obligation to hear and decide cases. Sprint Commc'ns, Inc. v. Jacobs, 571 U.S. 69, 77 (2013). Therefore, it only applies to three categories of state proceedings: (1) criminal prosecutions; (2) civil enforcement proceedings including administrative actions; and (3) "civil proceedings involving orders uniquely in furtherance of the state courts' ability to perform their judicial function." Id. at 77; see Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) (); Ohio Civil Rights Comm'n v. Dayton Christian Schools, Inc., 477 U.S. 619 (1986) (); Middlesex Cnty. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423 (1982) ().
If a state proceeding fits into one of those three categories, abstention is warranted when there is: (1) an ongoing, state-initiated judicial proceeding; "(2) the proceeding implicates important state interests; (3) the federal plaintiff is not barred from litigating federal constitutional issues in the state proceeding; and (4) the federal court action would enjoin theproceeding or have the effect of doing so, i.e. would interfere with the state proceeding in a way that Younger disapproves." San Jose Valley Chamber of Commerce Political Action Committee v. City of San Jose, 546 F.3d 1087, 1092 (9th Cir. 2008).
1. STATE PROCEEDING IS NOT ONGOING
Though it appears enforcement of the WCLA by the Department could fall into the second category of covered proceedings as a civil enforcement action, Younger abstention is not appropriate because there is not an ongoing state-initiated judicial proceeding against Lakeview.
The crux of the Department's argument is that an "administrative investigation and adjudicative hearing is considered an 'ongoing proceeding' under Younger." The Department cities Ohio Civil Rights Cmm'n v. Dayton Cristian Schools to support that assertion, but it is a misreading of that case to say that an administrative investigation qualifies as an ongoing proceeding. 477 U.S. at 627 ().
The definition of "proceeding" is more formally linked to the commencement of formal charges against the plaintiff. See id. (). The Supreme Court has allowed some latitude to the rule that formal charges must be pending in state court for Younger to apply by holding that it applies if state proceedings commence before any substance of the merits has taken place in the federal court. Hicks v. Miranda, 422 U.S. 332, 349 (1975). The word "proceeding" in that holding is linked to the filing of charges in municipal court, not an investigation into the federal plaintiff. See id. Lower courts have stated this more clearly: the mere "possibility that a state proceeding may lead to a future prosecution of the federal plaintiff is not enough." Mulholland v. Marion Cnty. Election Bd., 746 F.3d 811, 817 (7th Cir. 2014); see also Google, Inc. v. Hood, 822 F.3d 212 (5th Cir. 2016) ();United States v. South Carolina, 720 F.3d 518, 527 (4th Cir. 2013) (); Guillemard-Ginorio v. Contreras-Gomez, 585 F.3d 508, 519 (1st Cit. 2009) (same); Major League Baseball v. Butterworth, 181 F. Supp. 2d 1316, 1321 n.2 (N.D. Fla. 2001) ().
Requiring the commencement of a more formal judicial or quasi-judicial enforcement also make sense when considered with the principles of equity and comity underlying Younger. With equity, courts consider whether "the moving party has an adequate remedy at law," and aim "to . . . avoid a duplication of legal proceedings and legal sanctions where a single suit would be adequate to protect the rights asserted." Younger, 401 U.S. 37, 43-44. As for comity, which is the "more vital consideration," federal courts should respect the state system and leave state institutions free to perform their functions in their ways. Id. at 44.
The Department admits that it has not decided whether to initiate an enforcement action against Lakeview. Dkt. 14 at 7. This mere possibility of future charges does not give Lakeview a definite opportunity to bring the Constitutional arguments raised here in a state enforcement action, there are no state proceedings to duplicate in federal court, and any disruption in the state system is minimal at this point because the Department has not decided whether to initiate enforcement proceedings for violation of the WCLA.
That the Department issued a subpoena against Lakeview,...
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