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Nationwide Biweekly Administration, Inc. v. Owen

United States District Court, N.D. California, San Jose Division

March 18, 2015

NATIONWIDE BIWEEKLY ADMINISTRATION, INC., Plaintiff,
v.
JAN LYNN OWEN, in her official capacity as Commissioner of the Department of Business Oversight for the State of California, Defendant.

ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION Re: Dkt. No. 5

LUCY H. KOH, District Judge.

Before the Court is a motion for preliminary injunction filed by Plaintiff Nationwide Biweekly Administration, Inc. ("Nationwide"). ECF No. 5 ("Motion"). Nationwide requests that the Court issue a preliminary injunction prohibiting Defendant Jan Owen ("Defendant"), in her official capacity as Commissioner of the Department of Business Oversight for the State of California ("DBO"), from enforcing California Financial Code § 12200.1, which regulates proraters in California. Having considered the submissions of the parties and the relevant law, the Court hereby DENIES Nationwide's Motion, for the reasons stated below.

I. BACKGROUND

A. Factual Background

Nationwide is an Ohio Corporation with its headquarters in Xenia, Ohio. ECF No. 1 ("Compl."), ¶ 3. Defendant is the Commissioner of the DBO for the State of California. Id. ¶ 4.

Nationwide is an administrator of biweekly loan repayment programs. Id. ¶ 8. 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. ¶ 10. 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. ¶¶ 9, 12-13. Nationwide claims that the extra payment per year saves its customers money by allowing Nationwide's customers to pay off their mortgage loans faster than they otherwise would. Id. ¶ 12-13.

1. Investigation of Nationwide's Business Practices in California

The instant litigation stems from an investigation initiated by the Monterey County and Marin County District Attorneys' Offices into Nationwide's business practices in California.[1] On July 30, 2013, Nationwide received a letter from the Monterey County District Attorney's Office. ECF No. 5-1, at 14 ("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 subject of the consumer complaints were solicitation letters Nationwide mailed to homeowners asking them to participate in Nationwide's "Interest Minimizer" program. Id. These solicitation letters used the names of the homeowners' mortgage lenders-including in the headers of the letters and multiple times throughout the letters' text-as well as homeowners' loan information, such as their loan amounts. Id. at 14-16. According to the Enforcement Letter, Nationwide's use of lenders' names and consumer loan information "[has] 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. at 15. The Enforcement Letter also stated that Nationwide's use of lenders' names and consumers' loan information violated state consumer fraud statutes as well as the state's prohibition on unlawful business practices. Id. at 14-16.

The Enforcement Letter then stated that Nationwide "may [also] be in violation of California's Check Sellers, Bill Payers and Proraters Law (California Finance Code section 12000 et. seq. )." Id. at 16. According to the Enforcement Letter, based on Nationwide's offer to California customers of the company's "Interest Minimizer" service, "it would appear Nationwide is acting as a prorater and therefore required to obtain a prorater license."[2] Id. The Enforcement Letter stated that neither Nationwide nor its affiliate, Loan Payment Administration, had obtained a prorater license from the DBO. Id. In a subsequent email between an attorney for Nationwide a deputy district attorney with the Monterey County District Attorney's Office, the deputy district attorney stated that the DBO "has joined the prosecution team" and was "now a signatory on the tolling agreement" between Nationwide and the Monterey and Marin County District Attorneys' Offices. ECF No. 5-1, at 18.

On October 21, 2014, Nationwide received a letter from the DBO. ECF No. 5-1, at 21. The letter stated that it "serves to notify Nationwide that an investigation is currently underway by the Department's Enforcement Division regarding possible unlicensed business activity by Nationwide in California." Id. The letter requested that Nationwide make several disclosures, including "[a] comprehensive description of all past and current services offered by Nationwide in California, " "[t]he dates that Nationwide has done business in California, " and "[t]he revenue generated by Nationwide by year since it has conducted business in California." Id. The letter concluded by saying that the "above information is needed to begin the Department's review and may not reflect the full extent of information that the Department may require in the future to complete its investigation." Id.

2. Investigations of Nationwide in Other States

Whether Nationwide conducts certain business activities without a license has been the subject of investigations in states other than California. For instance, on October 21, 2011, Nationwide entered into a consent order with the State of New Hampshire Banking Department. ECF No. 32-2. That consent order provided, among other things, that "Nationwide has conducted money transmitter activity for New Hampshire consumers without a valid Money Transmitter license issued by the Department."[3] Id. at 3. Similarly on December 29, 2012, Nationwide entered into a consent order with the Georgia Department of Banking and Finance. ECF No. 32-3. That consent order provided that Nationwide "shall strictly comply with the terms of this Consent Order, the Georgia Residential Mortgage Act, including but not limited to O.C.G.A. § 7-1-1002." Id. at 2. Section 7-1-1002 prohibits, inter alia, "any person to transact business in this state directly or indirectly as a mortgage broker, a mortgage lender, or a mortgage loan originator" without a license, or to "purchase, sell, or transfer one or more mortgage loans or loan applications" from or to an unlicensed mortgage originator, broker, or lender. Ga. Code. § 7-1-1002(a)-(b).

B. Procedural History

On November 21, 2014, Nationwide filed the instant lawsuit in this Court. See Compl. Nationwide asserts four causes of action. First, Nationwide alleges that California Financial Code § 12200.1, as applied to Nationwide, is per se invalid under the dormant Commerce Clause of the U.S. Constitution because the statute "prevent[s] Nationwide from doing business in California strictly on the basis of its incorporation outside the state of California." Id. ¶ 34. Second, Nationwide alleges that enforcement of the state's prorater law against Nationwide would violate Nationwide's right to substantive due process in violation of the Fourteenth Amendment of the U.S. Constitution. Id. ¶ 39. Third, Nationwide alleges that the DBO's threatened enforcement of the state prorater law against Nationwide would treat Nationwide differently from other similarly-situated companies and therefore violates Nationwide's right to equal protection of the laws in contravention of the Fourteenth Amendment of the U.S. Constitution. Id. ¶¶ 45-47. Fourth, Nationwide alleges that the state's prorater law is unconstitutional because it is void for vagueness. Id. ¶¶ 52-54.

Also on November 21, 2014, Nationwide filed the instant Motion. Nationwide argues that it is entitled to a preliminary injunction based on its claim that Financial Code § 12200.1, as applied to Nationwide, violates the dormant Commerce Clause of the U.S. Constitution. See Mot. at 2. Nationwide also filed a supporting declaration with attached exhibits. ECF Nos. 5-1 & 5-2.

On January 9, 2015, Defendant filed an opposition, as well as a request for judicial notice.[4] ECF Nos. 31 ("Opp'n") & 32. On February 6, 2015, Nationwide filed a reply, as well as a supporting declaration ...


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