Titlemax of Tex., Inc. v. City of Austin & Rondella Hawkins

• Decision Date: 18 November 2021
• Docket Number: NO. 01-20-00071-CV,01-20-00071-CV
• Citation: 639 S.W.3d 240
• Parties: TITLEMAX OF TEXAS, INC., Appellant v. CITY OF AUSTIN and Rondella Hawkins, Officer, City of Austin Office of Telecommunications and Regulatory Affairs, in Her Official and Individual Capacity, Appellees
• Court: Texas Court of Appeals

639 S.W.3d 240

TITLEMAX OF TEXAS, INC., Appellant

v.CITY OF AUSTIN and Rondella Hawkins, Officer, City of Austin Office of Telecommunications and Regulatory Affairs, in Her Official and Individual Capacity, Appellees

NO. 01-20-00071-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued November 18, 2021

Marcy Hogan Greer, Houston, William J. Boyce, Anna Meredith Baker, Houston, for Appellant.

Adam Lichtenberger, Hannah Vahl, Chase Gomillion, for Appellee.

Panel consists of Chief Justice Radack and Justices Rivas-Molloy and Guerra.

OPINION

Sherry Radack, Chief Justice

Appellant, TitleMax of Texas, Inc. ["TitleMax"], sought declaratory and injunctive relief against appellee, the City of Austin ["the City"], relating to a city ordinance intended to regulate payday lending practices. The City filed a plea to the jurisdiction, asserting that, because the specific ordinance at issue was penal in nature, the civil district court lacked jurisdiction to declare it unconstitutional or to enjoin a prosecution filed thereunder. The trial court granted the City's plea to the jurisdiction and dismissed TitleMax's case. This appeal followed. We reverse and remand.

BACKGROUND

Before considering TitleMax's issues on appeal, it is necessary to review the ordinance at issue and documents filed in the case.

The Ordinances

The City of Austin has payday lending ordinances ("the Ordinances"), first enacted in 2011 and amended in 2015, which regulate credit access businesses such as TitleMax. The Ordinances provides as follows:

A credit services organization or credit access business that obtains for a consumer or advises or assists a consumer in obtaining an extension of consumer credit shall by the terms of the extension of consumer credit transaction:

(1) require payment of the total amount of the extension of consumer credit transaction, including any principal, interest, fees, valuable consideration, credit access business fees, and any other charges or costs, in four or fewer payments; and

(2) reduce by at least 25 percent per payment the total amount of the extension of consumer credit transaction, including any principal, interest, fees, valuable consideration, credit access business fees, and any other charges or costs.

Austin, Tex. Code § 4-12-22(D). The Ordinances further provide in relevant part:

(A) A person who violates any section of this chapter commits a Class C misdemeanor punishable by a fine not to exceed $500.

(B) Except as provided in Subsection (C), each day that a violation occurs is a separate offense.

(C) Each extension of consumer credit transaction is a separate offense if the extension of consumer credit transaction violates:

(1) Section 4-12-22 (Restrictions on Extensions of Consumer Credit Transactions)[.]

....

(D) The penalties provided for in Subsection (A) are in addition to any other remedies available under City ordinance or state law.

(E) ... [A] culpable mental state is not required for a violation of this chapter and need not be proved.

Austin, Tex. Code § 4-12-26.

In February 2019, the City audited two TitleMax stores in Austin for compliance and concluded that two loans (Loan No. 22289-148-35407272 and Loan No. 21189-1678-35508202) were made in violation of the above-referenced Ordinances.

Petition for Declaratory Relief and Application for Permanent Injunction

On May 10, 2019, TitleMax filed suit against the City, seeking a declaration that (1) the Ordinances do not apply to TitleMax's activities, (2) section 4-12-22(D) of the Ordinances is preempted by section 393.062(b) of the Texas Finance Code, (3) section 4-12-26 is preempted by section 393.224 of the Texas Finance Code and § 6.02 of the Texas Penal Code, and (4) the Ordinances are unconstitutionally void for vagueness and excessive fines. TitleMax's petition also sought to permanently enjoin the City "from any attempts to seek criminal enforcement of the Ordinance and City Code Provisions against Plaintiff."

The City files Criminal Complaints Against TitleMax

On May 30, 2019, after TitleMax had filed its petition, the City filed two criminal complaints against TitleMax in Travis County Municipal Court, alleging that the two loans that it had previously identified during its February 2019 audit violated the section 4-12-22(D) by exceeding the number of installments permitted for such loans.

The Amended Petitions

On July 12, 2019, TitleMax filed its First Amended Petition, which added a cause of action seeking a temporary injunction to "prohibit[ ] the City from any attempts to seek criminal enforcement of the Ordinance and City Code Provisions against Plaintiff pending trial of this matter."

On September 10, 2019, TitleMax filed its Second Amended Petition, which added claims against Anne Morgan, Austin's City Attorney, and Rondella Hawkins, of the City's Office of Telecommunications and Regulatory Affairs.²

Pleas to the Jurisdiction

On September 20, 2019, the City filed a Plea to the Jurisdiction, alleging that, because the Ordinances are penal in nature, a civil equity court has no jurisdiction to declare them invalid or to enjoin a prosecution arising therefrom unless "(1) there is evidence that the statute at issue is unconstitutionally applied by a rule, policy, or other noncriminal means subject to a civil court's equity powers and irreparable injury to property or personal rights is threatened; or (2) the enforcement of an unconstitutional statute threatens irreparable injury to vested property rights."

On September 30, 2019, Hawkins also filed a Plea to the Jurisdiction, alleging that she acted "well within her discretion in enforcing the Ordinance against Plaintiff, which defeats Plaintiff's ultra vires allegation against her and deprives [the trial court] of subject-matter jurisdiction."

Both the City and Hawkins requested that the claims against them be dismissed; the City further requested that "because Plaintiff cannot cure the [jurisdictional] defect through amendment, the City asks that [TitleMax's live pleading] be dismissed without leave to amend."

The Trial Court's Ruling

After a two-day hearing, the trial court, on November 27, 2019, signed an Order Granting Pleas to the Jurisdiction, stating as follows:

Defendant City of Austin's Plea to the Jurisdiction is GRANTED. The City has initiated two Municipal Court prosecutions. Plaintiff may argue that the underlying ordinance is unconstitutional in the criminal proceedings. The Court also notes that plaintiff is not a small local business.

Defendants Anne Morgan's and Rondella Hawkins's First Amendment Pleas to the Jurisdiction is [sic] GRANTED. Defendant Morgan is protected by absolute immunity. As discussed above, this Court has no jurisdiction to determine the meaning and validity of this penal ordinance on this procedural record. This Court should not, therefore, exercise jurisdiction to determine the scope of Defendant Hawkins’ authority under the ordinance and whether she acted outside the bounds of her granted authority.

This is a final order disposing of all claims and all parties and is appealable.

Findings of Fact and Conclusions of Law

Upon TitleMax's request, the trial court made the following findings of fact, which are relevant to this appeal:

TitleMax of Texas, Inc. is not a small, local business. It is part of the TMX Finance Family of Companies, which collectively do business in at least 16 different states. TitleMax has nearly 275 locations across Texas, including nine locations in Austin.

The City of Austin audited two TitleMax stores in February 2019 for compliance with the Ordinance. Two loans were referred for prosecution: Loan No. 2289-1948-3540272 ("7272 loan") and Loan No. 21189-1678-35508202 ("8202 Loan"). These prosecutions are currently pending in Municipal Court.

TitleMax has not shown that it is currently facing a threat of irreparable injury to vested property rights, or that such a threat is reasonably foreseeable.

The Supreme Court of Texas found a threat of irreparable injury to vested property rights when an ordinance "imposes a substantial per violation fine that effectively precludes small local businesses from testing the ban's constitutionality in defense to a criminal prosecution." City of Laredo v. Laredo Merchants Association , 550 S.W.3d 586, 592 fn. 28 (Tex. 2018). While the Ordinance here arguably could impose substantial fines, TitleMax is not a small local business that is effectively precluded from testing the Ordinance's constitutionality in defense to a criminal prosecution.

The trial court also made the following conclusions of law:

The Ordinance is a penal ordinance.

Civil courts have jurisdiction to enjoin or declare void an unconstitutional penal ordinance when there is a threat of irreparable injury to vested property rights.

Because there is no jurisdiction for the Court to hear TitleMax's claims against the City, the Court declines to exercise jurisdiction to determine TitleMax's ultra vires claims against Rondella Hawkins.

TitleMax timely appealed the trial court's granting of the City's and Hawkins's pleas to the jurisdiction and judgment dismissing its claims against both.

PROPRIETY OF ORDER GRANTING PLEAS TO THE JURISDICTION

In its sole issue on appeal, TitleMax contends that "[t]he district court erred in granting the City's and Hawkins's pleas to the jurisdiction." Specifically, TitleMax argues that, "[t]hrough the guise of a preempted and unconstitutional Ordinance, the City seeks to regulate TitleMax and similarly situated businesses despite licensing requirements and comprehensive statutory and regulatory requirements already imposed by the State of Texas" and that, because TitleMax has shown a threat of irreparable injury to vested property rights, the civil district court has jurisdiction to enjoin or declare void the Ordinance at issue in this case.

Standard of Review

Subject-matter jurisdiction is essential to a court's power to decide a case. Tex. Ass'n of Bus. v. Tex. Air Control Bd. , 852 S.W.2d 440, 443 (Tex. 1993). The plaintiff...