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Harold Higginbottom Dba v. U.S. Bancorp

April 25, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


Plaintiff Harold Higginbottom dba Higginbottom Floor Covering ("Higginbottom") filed a complaint on behalf of himself and all similarly situated individuals against Defendants U.S. 22 Bancorp, U.S. Bank National Association ("U.S. Bank"), and Lyon Financial Services, Inc. dba U.S. Bancorp Manifest Funding Services ("Lyon") for charging him an illegally high interest rate 24 on a small business loan. Dkt. No. 1 ("Compl."). Defendants move to dismiss Higginbottom‟s 25 complaint. Dkt. No. 18 ("Mot."); see also Dkt. No. 27 ("Reply"). Higginbottom opposes. Dkt. 26 No. 18 ("Opp‟n").*fn1 The Court held a hearing on this matter on April 7, 2011. After considering

Defendants did not oppose. The Court GRANTS Higginbottom‟s administrative motion and will consider Higginbottom‟s sur-reply. Dkt. No. 30 ("Sur-Reply").

the parties‟ submissions, the relevant legal authorities, and parties‟ arguments at the hearing, the Court hereby GRANTS Defendants‟ motion to dismiss with leave to amend.


Higginbottom is a sole proprietor based in Morgan Hill, California. Compl. ¶ 8. He alleges

5 that on September 19, 2005, he entered into a lease agreement with Americorp Financial, LLC to 6 finance a trailer for his business. Id. ¶ 21. Americorp Financial, LLC then assigned the lease 7 agreement to Defendant Lyon, a Minnesota corporation based in Marshall, Minnesota.*fn2 Id. ¶ 21. 8

Higginbottom claims that the principal amount of his September 19, 2005 lease agreement was 9

$26,100, the purchase price of the trailer. Id. ¶ 22. Under the lease agreement, Higginbottom was 10 to make 48 monthly payments of $780.07. Id. According to Higginbottom, this meant that he was paying an interest rate of 18.98 percent. Id. Higginbottom claims that this interest rate was not disclosed in the lease agreement. Id. 13

Higginbottom further claims that the 18.98 percent interest rate that Lyon charged him pursuant to the lease agreement violates federal and state usury laws. Accordingly, Higginbottom 15 seeks relief against Lyon, U.S. Bank, and U.S. Bancorp for the following: (1) Charging usurious 16 rates of interest in violation of the National Bank Act; (2) Charging usurious interest in violation of 17

Minnesota state law; and (3) Violating California Business and Professions Code § 17200. 18

Although Higginbottom‟s complaint does not contain specific allegations related to the conduct of 19

U.S. Bank or U.S. Bancorp, Higginbottom‟s complaint does allege that all Defendants are agents of 20 each other, aided and abetted each other in breaching their obligations to Higginbottom, and each 21 acted as the alter ego of the others. Id. ¶¶ 12-14. 22


"Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief,‟ in order to "give the defendant fair notice of 25 what the claim is and the grounds upon which it rests.‟" Bell Atl. Corp. v. Twombly, 550 U.S. 544,

Defendant U.S. Bancorp. Id. ¶ 10. U.S. Bancorp is a Delaware corporation that Higginbottom alleges is headquartered in Marshall, Minnesota. Id. ¶ 9.

555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). "All 2 allegations of material fact are taken as true and construed in the light most favorable to the 3 nonmoving party." Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1003 (9th Cir. 2008) (citation 4 omitted). "A Rule 12(b)(6) dismissal may be based on either a "lack of a cognizable legal theory‟ 5 or "the absence of sufficient facts alleged under a cognizable legal theory.‟" Johnson v. Riverside 6

Healthcare Sys., 534 F.3d 1116, 1121-22 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)). "To survive a motion to dismiss, a complaint must 8 contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its 9 face.‟" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quotation omitted). "A 10 claim has facial plausibility 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. (citation omitted). "[I]n dismissing for failure to state a claim under Rule 12(b)(6), "a district court should 13 grant leave to amend even if no request to amend the pleading was made, unless it determines that 14 the pleading could not possibly be cured by the allegation of other facts.‟" Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)).

"As a general rule, "a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion.‟" Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). 18

Two exceptions to this rule exist. Id. "First, a court may consider "material which is properly 19 submitted as part of the complaint‟ . . . ." Id. (citation omitted). "If the documents are not 20 physically attached to the complaint, they may be considered if the documents‟ authenticity is not 21 contested and the plaintiff‟s complaint necessarily relies on them." Id. (quoting Parrino v. FHP, 22

Inc., 146 F.3d 699, 705-06 (9th Cir. 1998)) (quotation marks and alterations omitted). "Second, 23 under Fed. R. Evid. 201, a court may take judicial notice of "matters of public record.‟" Id. at 688-24 89 (quoting Mack v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)). 25


Higginbottom brings three causes of action in his complaint. Higginbottom‟s first cause of action arises from Defendants‟ alleged violation of the National Bank Act, 12 U.S.C. § 1 et seq.

(the "NBA"). Compl. ¶¶ 33-37. Specifically, Higginbottom claims that Defendants charged him interest greater than that allowed by 12 U.S.C. § 85.*fn3 Id. ¶ 35. Higginbottom‟s second cause of 2 action arises from Defendants‟ alleged violation of Minnesota state usury law. Id. ¶¶ 38-42. 3

Finally, Higginbottom‟s third cause of action arises from Defendants‟ alleged violation of 4

California‟s Unfair Competition Law, CAL. BUS. & PROF. CODE § 17200 et seq. ("UCL"). Id. ¶¶ 5

43-51. At the hearing, Higginbottom represented that his NBA claim and Minnesota state usury 6 law claim are pled in the alternative. The Court will consider whether Higginbottom has stated a 7 claim under any of these legal theories. 8

A.National Banking Act Congress enacted the NBA in 1864 to establish "the system of national banking still in place today." Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10, 127 S. Ct. 1559, 167 L. Ed. 2d 389 (2007) (citations omitted). The NBA is meant "to protect national banks against intrusive regulation by the States." Bank of Am. v. City & County of S.F., 309 F.3d 551, 561 (9th Cir. 2002) 13

(citation omitted). Under the NBA, national banks have "authority to exercise "all such incidental 14 powers as shall be necessary to carry on the business of banking.‟" Martinez v. Wells Fargo Home 15

Mortg., Inc., 598 F.3d 549, 554-55 (9th Cir. 2010) (quoting 12 U.S.C. § 24 (Seventh)). "[T]he 16

Office of the Comptroller of the Currency ("OCC‟) has the primary responsibility for the 17 surveillance of the "business of banking‟ authorized by the [NBA]." Id. at 555 (quoting 18

Nationsbank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256, 115 S. Ct. 810, 130 19

L. Ed. 2d 740 (1995)). "To carry out this responsibility, the OCC has the power to promulgate 20 regulations and to use its rulemaking authority to define the "incidental powers‟ of national banks 21 beyond those specifically enumerated in the statute." Id. (citations omitted). 22

Section 85 of the NBA "sets forth the substantive limits on the rates of interest that national

23 banks may charge." Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 9, 123 S. Ct. 2058, 156 L. Ed. 24

[12 USCS § 85], when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. 2d 1 (2003). Pursuant to § 85, national banks "may take, receive, reserve, and charge on any loan . 2

. . interest at the rate allowed by the laws of the State, Territory, or District where the bank is 3 located." 12 U.S.C. § 85.*fn4 According to the Supreme Court, "[t]he congressional debates 4 surrounding the enactment of" the precursor section to § 85 "were conducted on the assumption 5 that a national bank was "located‟ for purposes of the section in the State named in its organization 6 certificate."*fn5 Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 310, 99 S. Ct. 7

540, 58 L. Ed. 2d 534 (1978) (citation omitted). In Marquette, the Supreme Court held that a 8 national bank, with a charter address in Nebraska, was located in Nebraska even though the bank 9 was extending credit to residents of Minnesota. Id. at 309-13. This meant that the bank was 10 allowed to charge Minnesota residents interest rates permitted under Nebraska state law, even if


those interest rates were prohibited under Minnesota state law. Id.; see also Smiley v. Citibank (S.D.), N.A, 517 U.S. 735, 737, 116 S. Ct. 1730, 135 L. Ed. 2d 25 (1996) (recognizing that the Supreme Court‟s holding in Marquette "authorizes a national bank to charge out-of-state credit-14 card customers an interest rate allowed by the bank‟s home State, even when that rate is higher 15 than what is permitted by the States in which the cardholders reside"). 16

Omaha Serv. Corp., 439 U.S. 299, 309, 99 S. Ct. 540, 58 L. Ed. 2d 534 (1978) (alterations omitted).

The parties do not dispute that U.S. Bank is a national bank located in Ohio.*fn6 Thus, U.S. Bank could charge Higginbottom any interest rate allowed by Ohio state law. Americorp Financial, LLC, however, assigned the lease agreement to Lyon, not U.S. Bank. As alleged in Higginbottom‟s complaint, Lyon is a wholly owned operating subsidiary of U.S. Bank and is 5 headquartered in Marshall, Minnesota. Compl. ¶ 11. The question is then whether the NBA 6 permits a national bank‟s operating subsidiary to charge any interest rate that is permissible under 7 the law of the national bank‟s home state or whether the NBA restricts such a subsidiary to 8 charging only interest rates that are permissible under the law of the state where the operating 9 subsidiary is located. 10

Both parties agree that the NBA, and not state law, governs the actions of a national bank‟s operating subsidiary. See Watters v. Wachovia Bank, N.A., 550 U.S. 1, 7, 127 S. Ct. 1559, 167 L. Ed. 2d 389 (2007) (holding that a national bank‟s "mortgage business, whether conducted by the 13 bank itself or through the bank‟s operating subsidiary, is subject to OCC‟s superintendence, and 14 not to the licensing, reporting, and visitorial regimes of the several States in which the subsidiary 15 operates"). Both parties also agree that the NBA applies to a national bank‟s operating subsidiary 16 in the same manner that the NBA applies to national banks. See 12 C.F.R. § 7.4006 ("Unless 17 otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating 18 subsidiaries to the same extent that those laws apply to the parent national bank.").*fn7 Where the 19 parties disagree is in the way that § 85 of the NBA applies to operating subsidiaries. 20 21

U.S. Bank‟s home state and headquarters is in Ohio. See Dkt. No. 19 ("Defs.‟ RJN"), Exs. A, B. Courts can take judicial notice of information provided ...

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