United States District Court, N.D. California, San Jose Division
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION Re: Dkt. Nos. 5, 17
LUCY H. KOH, District Judge.
Before the Court is a motion for preliminary injunction filed by Plaintiffs Nationwide Biweekly Administration, Inc., Loan Payment Administration LLC, and Daniel S. Lipsky (collectively, "Nationwide"). ECF No. 5 ("Motion"). Nationwide requests that the Court issue a preliminary injunction prohibiting Defendants John F. Hubanks, Andres H. Perez, Monterey County District Attorney's Office, and Marin County District Attorney's Office (collectively, "Defendants") from enforcing certain consumer fraud provisions of the California Business and Professions Code against Nationwide. Having considered the submissions of the parties and the relevant law, the Court hereby DENIES Nationwide's Motion, for the reasons stated below.
A. Factual Background
Nationwide Biweekly Administration, Inc. is an Ohio Corporation with its headquarters in Xenia, Ohio. ECF No. 1 ("Compl."), ¶ 2. Loan Payment Administration LLC is a subsidiary of Nationwide Biweekly Administration, Inc., also with its headquarters in Xenia, Ohio. Id. ¶¶ 3, 15. Daniel S. Lipsky is the sole shareholder of Nationwide Biweekly Administration, Inc. Id. ¶ 4.
Defendant John F. Hubanks ("Hubanks") is a deputy district attorney with the Monterey County District Attorney's Office. Id. ¶ 5. Andres H. Perez is a deputy district attorney with the Marin County District Attorney's Office. Id. ¶ 6. The Monterey County District Attorney's Office and the Marin County District Attorney's Office are the local district attorney offices for the County of Monterey and County of Marin, respectively. Id. ¶¶ 7-8.
Nationwide is an administrator of biweekly loan repayment programs. Id. ¶ 12. Nationwide has approximately 125, 000 customers around the country, including over 10, 000 in California. Id. At issue in the instant litigation is a Nationwide program called the "Interest Minimizer" biweekly program, which is targeted at borrowers with home mortgages. Id. ¶ 13. According to Nationwide, most mortgage servicers debit a borrower's mortgage payments on a monthly basis. Id. Under Nationwide's "Interest Minimizer" program, Nationwide acts as an intermediary between the borrower and the mortgage servicer. Specifically, Nationwide arranges with the borrower to debit one-half of the borrower's monthly mortgage payment from the borrower's checking account every other week. Id. Nationwide then remits the mortgage payments to the mortgage servicer once per month, as required by the servicer. Id. However, because Nationwide debits the mortgage payments on a bi-weekly (as opposed to monthly) basis, Nationwide debits 26 times over the course of the year, effectively resulting in the creation of a 13th annual payment (as opposed to 12 annual payments under a traditional monthly repayment plan). Id. Nationwide claims that the extra payment per year saves its customers money by helping Nationwide's customers to pay off their mortgage loans faster than they otherwise would. Id.
According to Defendants, Nationwide charges customers of the "Interest Minimizer" program a "deferred enrollment fee." Declaration of John F. Hubanks, ECF No. 35 ("Hubanks Decl."), ¶ 13. This fee is equivalent to one biweekly debit, or half of a homeowner's usual monthly mortgage payment, and is charged six months after enrollment in the "Interest Minimizer" program. Id. Nationwide's written solicitations do not disclose the existence of this fee. See Hubanks Decl., Exs. A & B. Defendants allege that Nationwide employees "responding to calls from borrowers are carefully trained to obscure the existence or amount of this fee." Opp'n at 2.
In conjunction with their opposition, Defendants submitted three consumer complaints filed with the Better Business Bureau about Nationwide's business practices. See Hubanks Decl., Ex. J. In one of those complaints dated August 24, 2011, the consumer, an enrollee in the "Interest Minimizer" program, complained that Nationwide "never told [the consumer] that there will be [a] deferred enrollment fee and I am sure of it because if they ever mentioned a fee I would immediate[ely] drop discussion and wouldn't proceed to this program." Id. at 2. The fee at issue in the consumer's complaint was $1, 588.37. Id. According to the consumer's complaint, Nationwide's investigation of the consumer complaint determined that although the Nationwide employee who handled the consumer's call "did disclose the fact that there was a deferred fee' that would be collected in 6 months, the manner in which the fee was disclosed was not compliant with [Nationwide's] policies and procedures." Id. at 3.
1. Nationwide's Practice of Customer Solicitation
To solicit customers to participate in its "Interest Minimizer" program, Nationwide (sometimes through Loan Payment Administration LLC, the subsidiary of Nationwide Biweekly Administration, Inc.) mails letters to borrowers. Because Nationwide's solicitation letters are relevant to the instant Motion, the Court summarizes the content of these letters here.
In March 2013, a homeowner in Monterey County received a solicitation from Nationwide. Hubanks Decl. ¶ 3. The solicitation arrived in an envelope with the return address of Nationwide Biweekly Administration, Inc. Hubanks Decl. Ex. A, at 4. Above the window where the homeowner's address appears, the letter stated in large bold font: "Loan Payment Change Request." Id. To the far right of the address window, the letter stated in smaller, non-bolded font: "Nationwide Biweekly Administration is not affiliated with the lender." Id. The solicitation letter itself used the name of the homeowner's mortgage servicer, Provident Savings Bank Fsb, at the top of the letter, in the first sentence of the letter, and at least two other times in the letter. Id. at 2. The letter also referred to the specific amount of the homeowner's loan several times, often in connection with explicit references to the mortgage servicer. See id. ("Since your $348, 000 loan with Provident Savings Bank Fsb is one of the largest bills you have to pay, it makes sense to use an easier and faster way to pay it off.") (emphasis in original); id. ("To change your payment to a smaller weekly or bi-weekly debit amount for your $348, 000 loan with Provident Savings Bank Fsb..."). The letter also included a "Sample Comparison" chart comparing the amount of the borrower's monthly mortgage payments with the hypothetical payments the homeowner would make on a bi-weekly or weekly basis, as well as the interest savings the homeowner could realize by paying his or her loan on a bi-weekly or weekly basis. Id. There is a disclaimer at the very bottom of the letter which stated, in what appears to be somewhat smaller font than the font used throughout the letter, that Nationwide "is not affiliated, connected, associated with, sponsored, or approved by the lender listed above." Id. (emphasis in original).
The solicitation letter also referred the homeowner to an attached document with questions and answers about the "Interest Minimizer" program. Id. at 3. In response to the first question ("Does my Lender or loan change?"), the soliciting letter stated: "No. The bi-weekly program is administered to your current lender. There is no change in your interest rate or the terms of your loan." Id. In response to the eighth question ("Who is Nationwide Biweekly Administration?"), the soliciting letter states that Nationwide is "one of the nation's largest and most recognized Independent processors." Id.
Also in March 2013, the same Monterey County homeowner received a second solicitation letter from Nationwide. Hubanks Decl. ¶ 3. This letter arrived in an envelope with the return address of Loan Payment Administration. Hubanks Decl. Ex. B, at 3. Above the window where the homeowner's address appears, the letter stated in large bold font: "Mortgage Payment Information Enclosed." Id. To the far right of the address window, the letter stated in smaller font: "Loan Payment Administration is not affiliated with the lender." Id. The second solicitation letter also used the name of the homeowner's mortgage servicer, Provident Savings Bank Fsb, at the very top of the letter, in the first sentence of the letter, and in the letter's third paragraph. Id. As with the first solicitation letter, the second solicitation letter also referenced the homeowner's specific loan amount. See id. ("Contact us by May 10, 2013 to inform us if you want to change to the biweekly option for your $348, 000 loan with Provident Savings Bank Fsb..."). The letter also advised the homeowner that "[i]f you waive the biweekly option, you will be asked to confirm that you understand that you are voluntarily waiving the interest savings and loan term reduction achieved through the biweekly option." Id. (emphasis in original). The letter also contained a comparison chart of the loan term, approximate interest savings, and loan term reduction under the homeowner's "Current Monthly Payment, " referred to elsewhere as a "$348, 000, 30 year fixed term, $2, 595 monthly payment, " compared to the "NEW BIWEEKLY Option." Id. At the bottom of the letter, in font that appears to be roughly equivalent in size to the non-bolded font used in the second solicitation letter, there is a disclaimer which stated that Loan Payment Administration LLC " is not affiliated, connected, or associated with, sponsored or approved by the lender listed above." Id. (emphasis in original).
According to another consumer complaint filed with the Better Business Bureau on December 9, 2013 and submitted by Defendants in conjunction with their opposition, one consumer claimed that he "received a letter from Nationwide Biweekly Administration featuring my lender's name, Mountain West Financial Inc., above my name and address on the top left corner and assumed wrongly that it was coming from my lender." Hubanks Decl., Ex. J, at 8. The consumer further stated that when he called Nationwide, Nationwide did not disclose the existence of the deferred enrollment fee equivalent to one-half of the consumer's monthly mortgage payment. Id. Rather, the consumer stated that "[s]ince I still thought they were affiliated [with] my mortgage company, I assumed no fees were involved and cooperated with them." Id. The consumer further stated that he is a "[n]ative French speaker" and "I am not comfortable speaking in English, especially on the phone where I may not properly understand and interpret what I am being told." Id.
2. The Investigations of the Defendant Deputy District Attorneys
On July 30, 2013, Nationwide received a letter from Hubanks, a deputy district attorney in the Consumer Protection Unit of the Monterey County District Attorney's Office. Exhibit E to the Declaration of Daniel Lipsky in Support of Motion for Preliminary Injunction ("Lipsky Decl."), ECF No. 6 ("Enforcement Letter"). The Enforcement Letter stated that the District Attorneys for Marin and Monterey County "are in receipt of numerous complaints about the marketing and business practices of Nationwide Bi-Weekly Administration, Inc." Id. The Enforcement Letter further stated that these consumer complaints "indicate a pattern of deceptive business practices having an adverse impact on California consumers, " based on Nationwide's practice of referencing the names of consumers' lenders and the consumers' loan information in Nationwide's solicitation letters. Id.
The Enforcement Letter also stated that Nationwide's solicitation letters violate two state statutes. First, the Enforcement Letter stated that Nationwide's use of lenders' names violates Business and Professions Code § 14701(a), which prohibits a person from using the "name, trade name, logo, or tagline of a lender in a written solicitation... without the consent of the lender, " unless the letter is accompanied by a statutorily-prescribed disclaimer. Id. (quoting California Business and Professions Code § 14701(a)). Second, the Enforcement Letter stated that Nationwide's use of consumers' loan amounts in Nationwide's solicitation letters violates Business and Professions Code § 14702, which prohibits a person from using a consumer's "loan amount, whether or not publicly available, in a solicitation for services or products without the consent of the consumer, " unless the solicitation contains a statutorily-prescribed disclaimer. Id. at 2.
The Enforcement Letter then stated that, because of Nationwide's alleged violations of Business and Professions Code §§ 14701(a) and 14702, "Nationwide's solicitations have the capacity to deceive and mislead consumers into believing Nationwide is sponsored by or affiliated with the lender, the solicitation is authorized by the lender, or the consumer's loan information was provided by the lender." Id. The Enforcement Letter also stated that "the placement of the lender's name in the header of the letter may lead the consumer to believe their lender is, in fact, the originator of the correspondence or affiliated with Nationwide." Id. The Enforcement Letter concluded by stating in part that the Monterey and Marin County District Attorneys "are now determining what formal legal action, if any, will be taken." Id. at 3.
The Enforcement Letter also stated that Nationwide "may be in violation of California's Check Sellers, Bill Payers and Proraters Law" because "it would appear Nationwide is acting as a prorater and therefore required to obtain a prorater license" from the state's Department of Business Oversight. Id. Nationwide has filed a related lawsuit against Jan Owen, in her official capacity as Commissioner of the Department of Business Oversight for the State of California, in which Nationwide has sought an injunction prohibiting the state from enforcing California's prorater laws against Nationwide. See Nationwide Biweekly Administration, Inc. v. Jan Lynn Owen, Case No. 14-CV-05166-LHK, ECF No. 5.
3. Nationwide Changes the Solicitation Letters
In December 2013, Nationwide stopped using actual consumer loan information in its solicitation letters. Lipsky Decl. ¶ 6. Nationwide also changed the comparison chart in Nationwide's solicitation letters such that, instead of comparing Nationwide's "Interest Minimizer" program to the borrower's actual current mortgage payments, the chart uses the "typical monthly repayment plan" of the borrower's lender. Id.
According to sample letters provided by Nationwide in connection with the instant Motion, some current template solicitation letters also contain the following two sentences: "As always we work for you and not the lender. Partnering only with you the customer who we provide all the savings benefit to, is why we do not contract or partner with the lender." Lipsky Decl., Ex. A. These two sentences did not appear in either of ...