Titlemax of Del., Inc. v. Weissmann

• Decision Date: 24 January 2022
• Docket Number: No. 21-1020,21-1020
• Citation: 24 F.4th 230
• Parties: TITLEMAX OF DELAWARE, INC., d/b/a TitleMax; TitleMax of Ohio, Inc., d/b/a TitleMax; TitleMax of Virginia, Inc., d/b/a TitleMax; TMX Finance of Virginia, Inc. v. Robin L. WEISSMANN, in Her Official Capacity as Secretary of the Pennsylvania Department of Banking and Securities, Appellant
• Court: U.S. Court of Appeals — Third Circuit

24 F.4th 230

TITLEMAX OF DELAWARE, INC., d/b/a TitleMax; TitleMax of Ohio, Inc., d/b/a TitleMax; TitleMax of Virginia, Inc., d/b/a TitleMax; TMX Finance of Virginia, Inc.

v.Robin L. WEISSMANN, in Her Official Capacity as Secretary of the Pennsylvania Department of Banking and Securities, Appellant

No. 21-1020

United States Court of Appeals, Third Circuit.

Argued December 8, 2021

Filed: January 24, 2022

Douglas D. Herrman, Troutman Pepper Hamilton Sanders LLP, Hercules Plaza, Suite 5100, 1313 N. Market Street, P.O. Box 1709, Wilmington, DE 19899, Richard J. Zack[ARGUED], Troutman Pepper Hamilton Sanders LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA 19103, Counsel for Plaintiffs-Appellees

Sean A. Kirkpatrick, Office of Attorney General of Pennsylvania, Strawberry Square, Harrisburg, PA 17120, Claudia M. Tesoro[ARGUED], Office of Attorney General of Pennsylvania, 1600 Arch Street, Suite 300, Philadelphia, PA 19103, Counsel for Defendant-Appellant

Before: SHWARTZ, PORTER, and FISHER, Circuit Judges.

OPINION OF THE COURT

SHWARTZ, Circuit Judge.

In this case, we are required to determine whether applying Pennsylvania usury laws to an out-of-state lender violates the dormant Commerce Clause.We conclude that it does not.

I

A

TitleMax Delaware, TitleMax Virginia, TitleMax Ohio, and TMX Finance Virginia (collectively "TitleMax") provide motor vehicle loans.When any customer, including a Pennsylvanian, seeks a loan from TitleMax, "[t]he entire loan process—from the application to the disbursement of funds— takes place ... at one of TitleMax's brick-and-mortar locations ....If a loan is approved and TitleMax is the lender, TitleMax and the borrower execute a loan agreement ... and the borrower receives the loan proceeds,"App. 19, in the form of "a check drawn on a bank outside of Pennsylvania,"App. 96.The loan agreement sets forth an interest rate as high as 180% and terms to secure the loan.

Under the agreement, the borrower grants TitleMax a security interest in the vehicle.To perfect the lien, the borrower provides TitleMax with the vehicle identification number, license plate number, and title certificate number.TitleMax then records its lien on the motor vehicle with the appropriate state authority, such as the Pennsylvania Department of Transportation("PennDOT").

In addition to perfecting the lien in the borrower's state, TitleMax conducts servicing activities there, such as collecting payments, sending "phone calls[ ] or text messages," and "repossess[ing vehicles]."App. 326, 337.Borrowers can make payments while physically present in their home state in a variety of ways, including mailing, calling TitleMax to use a debit card, or visiting a "local money transmitter ... to have fees transmitted to a TitleMax location."App. 181, 339.

TitleMax does not dispute that, prior to 2017, it engaged in these activities with Pennsylvania residents and repossessed vehicles located in Pennsylvania when a Pennsylvania-resident borrower defaulted.

TitleMax does not have any offices, employees, agents, or brick-and-mortar stores in Pennsylvania and is not licensed as a lender in the Commonwealth.TitleMax claims that it has never used employees or agents to solicit Pennsylvania business, and it does not run television ads within Pennsylvania, but its advertisements may reach Pennsylvania residents.

B

Two statutes, the Consumer Discount Company Act ("CDCA"), 7 Pa. Stat. §§ 6201-6221, and the Loan Interest and Protection Law ("LIPL"), 41 Pa. Stat. §§ 101-605, address lending activity.For example, the CDCA provides that "no person shall ... make[ ] loans or advance[ ] money on credit, in the amount or value of ... [ ]$25,000[ ] or less, and charge, collect, contract for or receive interest ... which aggregate in excess of the interest that the lender would otherwise be permitted by law to charge."7 Pa. Stat. § 6203(A).The LIPL sets forth a maximum interest rate of 6% for most loans below $50,000.41 Pa. Stat. § 201(a).

Pursuant to its authority to enforce these laws, Pennsylvania's Department of Banking and Securities(the "Department") issued a subpoena requesting documents regarding TitleMax's interactions with Pennsylvania residents.7 Pa. Stat. § 6212,41 Pa. Stat. § 506.The subpoena sought loan agreements between TitleMax and Pennsylvania consumers, information presented to Pennsylvania consumers through the mail or internet, solicitations or offerings circulated or aired in Pennsylvania, records of TitleMax employees who traveled to Pennsylvania, a list of vehicles repossessed in Pennsylvania, a record of complaints from Pennsylvania consumers, a record of invoices or bills sent to Pennsylvania consumers, and any electronic transfers of funds from Pennsylvania consumer bank accounts.¹

TitleMax stopped making loans to Pennsylvania residents after receiving the subpoena and asserts that it has lost revenue as a result.

C

TitleMax filed this action in the United States District Court for the District of Delaware, seeking injunctive and declaratory relief for, among other things, violations of the Commerce Clause.Separately, the Department filed a petition to enforce the subpoena in the Pennsylvania Commonwealth Court(the "Petition Action").²

In this action, the parties conducted discovery and filed cross-motions for summary judgment based on Younger abstention and the dormant Commerce Clause.The District Court granted TitleMax's motion and denied the Department's.The Court held that Younger abstention did not apply but found that, because TitleMax's loans are "completely made and executed outside Pennsylvania and inside TitleMax [brick-and-mortar] locations in Delaware, Ohio, or Virginia," the Department's subpoena's effect is to apply Pennsylvania's usury laws extraterritorially in violation of the Commerce Clause.TitleMax of Del., Inc. v. Weissmann, 505 F. Supp. 3d 353, 357-60(D. Del.2020).

The Department appeals.

II³

We agree with the District Court that Younger abstention does not bar us from hearing this case but hold that applying⁴ the CDCA and LIPL to TitleMax's conduct does not violate the Commerce Clause.⁵

A

In general, federal courts are "obliged to decide cases within the scope of federal jurisdiction."Sprint Commc'ns, Inc. v. Jacobs, 571 U.S. 69, 72, 134 S.Ct. 584, 187 L.Ed.2d 505(2013).In certain limited circumstances, however, "the prospect of undue interference with state proceedings counsels against federal relief."Id.Under the Younger abstention doctrine, federal courts must refrain from interfering with three types of state proceedings.One of these is civil enforcement proceedings.Id. at 78, 134 S.Ct. 584.

A "civil enforcement proceeding" warrants Younger abstention where the proceeding is "akin to a criminal prosecution" in "important respects."Id. at 79, 134 S.Ct. 584(citation omitted).To determine if a civil enforcement proceeding is quasi-criminal in nature, we consider whether (1) the action "was commenced by the state in its sovereign capacity,"(2) the action was "initiated to sanction the federal plaintiff for some wrongful act,"(3) there are "other similarities to criminal actions, such as a preliminary investigation that culminated with the filing of formal charges," and (4)"the State could have alternatively sought to enforce a parallel criminal statute."ACRA Turf Club, LLC v. Zanzuccki, 748 F.3d 127, 138(3d Cir.2014);see alsoSprint, 571 U.S. at 79, 134 S.Ct. 584("Investigations are commonly involved.").

The Petition Action is not a "civil enforcement proceeding[ ]."Sprint, 571 U.S. at 73, 134 S.Ct. 584;ACRA Turf Club, 748 F.3d at 138.Although the Petition Action was commenced by the Department, a state agency, it was filed to enforce a subpoena, not to sanction TitleMax.SeePa. Dep't of Banking & Sec. v. TitleMax of Del., Inc., 1:17-cv-02112-JPW(M.D. Pa. Nov. 16, 2017), ECF No. 1-2(Petition to Enforce an Investigative Subpoena and Enjoin Respondents), at 10("In the event that a person fails to comply with a subpoena for documents or testimony issued by the [D]epartment, the [D]epartment may request an order from the Commonwealth Court requiring the person to produce the requested information."), 13 (requesting relief of an "Order against [TitleMax] requiring them to provide the information or documents required by the investigative subpoena, to enjoin them from further refusing any future requests for information made by the department, and to require Respondents to pay costs associated with bringing this action and conducting this investigation").While enforcement of the subpoena may require TitleMax to produce information, it is not "retributive in nature" or "imposed to punish ... some wrongful act."ACRA Turf Club, 748 F.3d at 140(citation and quotation marks omitted).Indeed, no activity has occurred in the Petition Action, and the threat of contempt of court for noncompliance with an order that the state court may enter in the future is insufficient to convert the Petition Action as it currently stands into a quasi-criminal case.See alsoMalhan v. Sec'y U.S. Dep't of State, 938 F.3d 453, 464(3d Cir.2019)(holding that an unfiled state proceeding cannot be part of an abstention analysis).Finally, while Pennsylvania has a parallel statute that make usury a crime, see, e.g., 18 Pa. Stat. § 4806.3("Whoever engages in criminal usury ... is guilty of a felony"), the existence of that criminal statute does not outweigh the other facts that show that the Petition Action here is not quasi-criminal.

Another type of case in which Younger abstention may apply is one that furthers the state court's ability to perform its judicial function.Sprint, 571 U.S. at 78, 134 S.Ct. 584.The Department relies on Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376(1977), to argue that the threat of contempt for noncompliance with the subpoena invokes a unique judicial function.In Juidice, the Supreme Court held that federal-court...