Emmet G. Sullivan, United States District Judge.
The District of Columbia ("Plaintiff" or "the District") filed this consumer protection
Elevate removed the case to this Court, asserting that jurisdiction exists here pursuant to 28 U.S.C. §§ 1331 and 1441 because the District's claims: (1) are completely preempted by federal banking law; and (2) they implicate significant federal issues and invoke serious federal interests. Notice of Removal, ECF No. 1 at 12.
1. Factual Background
The following facts—drawn from the Complaint and documents incorporated by reference therein—are assumed to be true. See Colon v. Ashby, 314 F.Supp.3d 116, 120 (D.D.C. 2018) (quoting Walter E. Campbell Co. v. Hartford Fin. Servs. Grp., Inc., 48 F.Supp.3d 53, 55 (D.D.C. 2014)) ("When assessing a remand motion, ... the court `must assume all of the facts set forth by plaintiff to be true and resolve all uncertainties as to state substantive law in favor of the plaintiff.'").
Elevate, a Delaware corporation, is an "online lender that operates through several websites ... to provide predatory, high-interest, short-term loans to consumers that it describes as individuals `with little to no savings, urgent credit needs and limited options.'" Compl., ECF No. 1-2 ¶¶ 1, 10. Elevate describes its business model in its 2019 annual report filed with the Securities and Exchange Commission ("2019 10-K") as "provid[ing] convenient, competitively priced financial solutions to our customers, who are not well-served by either banks or legacy non-prime lenders, by using our advanced technology platform and proprietary risk analytics." Id. ¶ 4. Elevate has "offered, provided, serviced, and advertised loans to District residents in conjunction with FinWise Bank (`FinWise'), a Utah-chartered bank, for its Rise brand, and Republic Bank & Trust Company
According to the District, Elevate is the true lender of the Rise and Elastic loans. Id. ¶¶ 36-47, 68-79. The District alleges that Elevate provides the marketing for the Rise and Elastic products "through direct mail, E-mails, and via banner ads on the Internet that were either accessible to or directed at District residents." Id. ¶¶ 17, 18. Elevate "prepares product offerings and associated marketing materials; develops and places internet, print media, radio and television advertising; designs and develops websites; and delivers all notices and disclosures to consumers." Id. ¶¶ 25, 52. Elevate is solely responsible for "all costs and expenses associated with advertising and developing promotional materials" for Rise and Elastic loans. Id. ¶¶ 26, 53.
The District also alleges that Elevate "has the predominant economic interest in the loans it provides to District consumers via FinWise and Republic." Id. ¶ 22. For the Rise loans, the District contends Elevate funds the loans, reaps the profits of good loans, takes on the risk of bad loans, and acts as the servicer of the loans. Id. ¶ 36. The District contends Elevate "in essence rents FinWise to provide the loan," but "it is Elevate that directs and controls the funding of the loan." Id. ¶ 37. Elevate "funds Rise loans through its captive credit financing relationship with Victory Park Management, LLC (`VPC')," which provides debt financing for Elevate, without which Elevate would "have to secure other sources of debt financing or potentially reduce loan originations." Id. ¶ 38. Elevate also "reaps most of the profits" from the Rise brand loans. Id. ¶ 39. In 2019, Elevate's revenue from the Rise brand loans totaled approximately $390,354,000. Id. ¶ 40. Elevate EE SPV ("EE SPV")—"a Cayman Islands special purpose vehicle that operates for the financial benefit of Elevate"—has allegedly purchased a 96% interest in the receivables for the Rise loans, including the principal and interest due on the loans. Id. ¶ 41. The District contends that EE SPV is thus the "legal and equitable owner of the receivables from the loans," and these receivables generate income for Elevate, "the primary beneficiary of EE SPV." Id. Indeed, Elevate's financial statements include "revenue, losses and loans receivable related to the 96% of Rise installment loans originated by FinWise Bank and sold to EE SPV." Id. ¶ 42. Elevate also "takes the risk of bad loans." Id. ¶ 44. Specifically, "Elevate provides credit protections to EE SPV against Rise loan losses," which "places the risk of losses on Elevate." Id. ¶ 45. Furthermore, "FinWise's interests are protected in its agreement with EE SPV by a requirement that EE SPV maintain cash collateral in a FinWise account in specified amounts to secure its obligations to purchase the loans." Id. ¶ 46.
Similarly, for the Elastic brand loans, the District alleges Elevate reaps the profits of good loans and takes the risk of bad loans. Id. ¶ 68. Again, the District contends "Elevate, in essence[,] rents Republic to originate the loans that it ultimately controls and profits from through Elevate SPV (`ESPV')." Id. ¶ 69. According to the
The District also alleges that Elevate, "through one of its subsidiaries, also acts as the servicer for" the Rise and Elastic loans, which includes reconciling the accounts, posting payments and other credits to the accounts, and providing periodic billing statements. Id. ¶¶ 47, 79. In addition, Elevate has "either registered trademarks or has pending applications in the United States for the marks Rise and Elastic" and "holds the intellectual property rights to its proprietary analytics, predictive underwriting models, and software systems," and it "provides the analytics, software, and underwriting models to FinWise and Republic for the provision of the Rise and Elastic loans." Id. ¶¶ 20-21.
2. The District's Claims Under the District of Columbia Consumer Protection Procedures Act
The District alleges that Elevate violated the CPPA by: (1) providing high-interest loans to residents of the District with interest rates that exceed the permissible amount under District law; (2) not registering as a money lender in the District; and (3) misrepresenting material characteristics of loans when marketing them to consumers. See Compl., ECF No. 1-2. As relevant here, the CPPA: (1) establishes a right to truthful information from merchants about consumer goods; (2) prohibits any person from engaging in unfair trade practices; (3) prohibits any person from violating the District's usury laws; and (4) prohibits any person from engaging in the business of lending money without obtaining a license as a money lender. Id. at 12-16.
The Complaint contains the following claims against Elevate for violations of Section 28-3904 of the CPPA: (1) Misrepresentations and Omissions, in violation of D.C. Code §§ 28-3904(b), (e), (f), and (f-1); (2) Unfair and Unconscionable Practices, in violation of D.C. Code §§ 28-3904 and 3904(r); (3) Violations of the District Usury Laws, in violation of D.C. Code §§ 28-3904(ff); and (4) Violations of the District of Columbia Municipal Regulation ("DCMR"), in violation of D.C. Code § 28-3904(dd).
3. Elevate's Assertions in Support of Removal Under Section 27 of the Federal Deposit Insurance Act
Elevate asserts that the Complaint "challenges interest rates lawfully charged by state-chartered banks under a federal statutory and regulatory scheme administered by the [FDIC]." See Notice of Removal, ECF No. 1 at 1. Central to the removal dispute is Elevate's contention that the state-chartered banks, FinWise and Republic, are responsible for the Rise and Elastic loans and interest rates, and Elevate's only role is as a servicer provider. Id. ¶¶ 15-30. Unlike non-bank entities like Elevate, state-chartered banks are "regulated under a statutory structure enacted by Congress and administered by the FDIC." Id. ¶ 17.
Two federal statutes establish the maximum amounts of interest that national and state-chartered banks may charge their customers: (1) Section 85 the National Bank Act ("NBA"), 12 U.S.C. § 85, for national banks; and (2) Section 27 the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. §§ 1831d, for state-chartered banks.
The NBA was created during the Civil War era to facilitate a national banking system, and it "constitutes a complete system for the establishment and government of national banks." See 10 Am. Jur. 2d Banks and Financial Institutions § 119. Section 85 of the NBA "authoriz[es] national banks to charge or receive interest on loans and discounts at the rate allowed by the laws of the state, territory, or district in which the bank is located, or at a rate based on the rate in effect at the Federal Reserve bank in the Federal Reserve district where the national bank is located." Id. § 983. The Supreme Court has explained that Section 85 "sets forth the substantive limits on the rates of interest that national banks may charge," and "if ... the interest that [a] bank charge[s]... [does] not violate § 85 limits, the statute unquestionably pre-empts any common-law or [state] statutory rule that would treat those rates as usurious." Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 9, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003). Section 85 works in parallel with Section 86, which "sets forth the elements of a usury claim against a national bank, provides for a 2-year statute of limitations for such a claim, and prescribes the remedies available to borrowers who are charged higher rates and the procedures governing such a claim." Id.
Before Congress passed Section 27 of the FDIA in 1980, national banks held a favored lending position vis-à-vis state-chartered banks because the NBA preempted state law to allow national banks to charge as much or more interest
Section 27 of the FDIA provides as follows:
12 U.S.C. § 1831d(a). What Section 27 does is allow state-chartered banks to charge the maximum interest rates allowed in their home states or a prescribed federal interest rate, even to borrowers in states that set lower interest rate caps. And like Section 86 of the NBA, Section 27 subsection (b) provides for the remedies available against a state-chartered bank charging excessive interest rates. See 12 U.S.C. § 1831d(b).
4. Elevate's Additional Assertions in Support of Removal
Elevate also asserts that the Complaint "challenges Elevate's lawful role as a service provider for state-chartered banks, a role also regulated by the FDIC." See Notice of Removal, ECF No. 1 at 1. Elevate asserts that the FDIC requires state-chartered banks to "monitor and oversee Elevate in its role as a service provider." Id. ¶ 34 (citing 12 U.S.C. § 1802(d)(1); 12 C.F.R. § 337.12(a)). Elevate also contends that the Bank Service Company Act "allows the state-chartered banks to engage service providers like Elevate, by contract or otherwise, to perform bank-related function on behalf of the bank," and service providers are "subject to regulation and examination by the FDIC as if the services were provided by the bank itself." Id. ¶ 35 (citing 12 U.S.C. § 1867(c)). Elevate characterizes the FDIC as "establish[ing] the requirements and responsibilities concerning the state-charted banks' risk-management procedures and due diligence in monitoring their third party service providers," and "hold[ing] the state-chartered banks responsible for their relationships with third party providers, including service providers like Elevate." Id. ¶ 36 (citing 12 U.S.C. §§ 1813(q), 1813(u); 12 U.S.C. § 1867(c)(1)). Elevate further assets that the FDIC has issued guidance that addresses a number of the actions at
Accordingly, Elevate removed this case to federal court on the basis that jurisdiction exists here based on "the pre-emptive effect of Section 27 ..., on the one hand, and the need to interpret FDIC statutes, regulations, and guidance, on the other." Def.'s Opp'n, ECF No. 23 at 2.
II. Legal Standard
A civil action may be removed from state court to a federal district court only if the federal district court has original subject-matter jurisdiction over the case. 28 U.S.C. § 1441(a). The Superior Court is considered a state court for removal purposes. Id. § 1451(a). "When it appears that a district court lacks subject matter jurisdiction over a case that has been removed from a state court, the district court must remand the case ..., and the court's order remanding the case to the state court whence it came `is not reviewable on appeal or otherwise.'" Republic of Venezuela v. Philip Morris Inc., 287 F.3d 192, 196 (D.C. Cir. 2002) (citing 28 U.S.C. § 1447(c); quoting id. § 1447(d)). "Because of the significant federalism concerns involved, this Court strictly construes the scope of its removal jurisdiction." Downey v. Ambassador Dev., LLC, 568 F.Supp.2d 28, 30 (D.D.C. 2008). "The party seeking removal of an action bears the burden of proving that jurisdiction exists in federal court." Id.
The subject matter jurisdiction of federal district courts is limited and is set forth generally at 28 U.S.C. §§ 1331 and 1332. Section 1331 confers jurisdiction on district courts over all civil actions arising under the Constitution, laws or treaties of the United States, or where the controversy presents a "federal question." 28 U.S.C. § 1331. Absent diversity of citizenship, federal question jurisdiction is required to establish that the case could have originally been filed in federal court. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). "The presence or absence of federal-question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Id. "[I]t is now settled law that a case may not be removed to federal court on the basis of a federal defense of pre-emption, even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue." Id. at 393, 107 S.Ct. 2425.
There are two situations in which federal question jurisdiction may exist even where, as here, a complaint alleges only state law claims. First, Congress may "so completely pre-empt a particular area that any civil complaint raising [a] select group of claims is necessarily federal in character." Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). This doctrine of "complete preemption" is an "independent corollary" to the well-pleaded complaint rule that "converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule." Caterpillar Inc., 482 U.S. at 392, 107 S.Ct. 2425. "Once an area of state law has been completely preempted, any claim purportedly based on that pre-empted state law is considered, from its inception, a federal claim, and therefore arises under federal law." Id. Second, in a "special and small category of cases[,] ... federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state
Elevate, which bears the burden of showing the Court has jurisdiction, maintains that removal to federal court is proper in this case because: (1) Section 27 of the FDIA completely preempts state law claims involving loans originated by a state-chartered bank; and (2) the significant federal issues doctrine provides an independent ground for removal because federal law must be interpreted and considered to determine the validity of the District's claims. See Def.'s Opp'n, ECF No. 23 at 6-23.
The Court disagrees, and, for the reasons set forth below, concludes that this Court does not have jurisdiction to hear this case. The case shall be remanded to the Superior Court.
A. The FDIA Does Not Completely Preempt the District's State Law Claims Against Elevate, a Non-Bank Entity
Complete preemption exists only when a federal statute's "pre-emptive force is so `extraordinary' that it `converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.'" (quoting Metro. Life Ins. Co., 481 U.S. at 65, 107 S.Ct. 1542). It is "not ... a crude measure of the breadth of the preemption (in the ordinary sense) ... but rather ... a description of the specific situation in which a federal law ... substitutes a federal cause of action for a state cause of action, thereby manifesting Congress's intent to permit removal." Schmeling v. NORDAM, 97 F.3d 1336, 1339 (10th Cir. 1996).
The Supreme Court has found only three statutes have the requisite extraordinary preemptive force to support complete preemption: (1) Section 301 of the Labor Management Relations Act, 29 U.S.C. § 185, See Avco Corp. v. Machinists, 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968); (2) the Employee Retirement Income Security Act of 1947, 29 U.S.C. § 1001 et seq., See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987); and, as relevant here, (3) Sections 85 and 86 of the NBA, 12 U.S.C. §§ 85-86, See Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003). In Beneficial, the Supreme Court held that Sections 85 and 86 of the NBA provide the exclusive cause of action for usury claims against national banks, and there is no such thing as a state law claim of usury against a national bank; thus, the NBA completely preempts such state law claims. 539 U.S. at 11, 123 S.Ct. 2058.
Elevate argues that just as Sections 85 and 86 of the NBA provide the exclusive cause of action for usury claims against national banks, Section 27 of the FDIA provides the exclusive cause of action for usury claims against state-chartered banks. See Notice of Removal, ECF No. 1 ¶ 60. Section 85 of the NBA and Section 27 of the FDIA allow national and state-chartered banks, respectively, to charge interest at rates set by the banks' home states, even if those rates are illegal in the states in which the loans are made. See 12 U.S.C. §§ 85-86; 12 U.S.C. § 1831d. Elevate reasons that because Section 27 was "enacted to create parity and fair competition between state-chartered and national banks" and it "mirror[s] the language of Sections 85 and 86," the Supreme Court's complete preemption analysis in Beneficial is
For the reasons set forth below, the Court concludes that even if Section 27 of the FDIA completely preempts state law usury claims against state-chartered banks, it does not completely preempt the District's claims against Elevate, a non-bank entity. Accordingly, Section 27 does not provide a basis for removal of this action to federal court.
1. If Section 27 Completely Preempts State Law Usury Claims, It Only Applies to Claims Against State-Chartered Banks
The Supreme Court has not addressed whether Congress intended Section 27 of the FDIA to completely preempt state law usury claims against state-chartered banks insured by the FDIC, as Sections 85 and 86 of the NBA do for state law usury claims against national banks. To date the Supreme Court has chosen not to address this issue, See Vaden v. Discover Bank, 556 U.S. 49, 56 n.4, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009) (citing Beneficial by way of comparison) ("Our disposition of this case makes it unnecessary to take up the question of § 27(a)'s preemptive force generally or in the particular context of Discover's finance charges. We therefore express no opinion on those issues."); and a split currently exists among circuit courts that have addressed the issue, compare In re Cmty. Bank of N. Va., 418 F.3d 277, 295 (3d Cir. 2005) (holding complete preemption exists with respect to Section 27, and state law usury claims against state-chartered bank were appropriately removed to federal court) and Discover Bank v. Vaden, 489 F.3d 594, 606-07 (4th Cir. 2007) (same), rev'd on other grounds, 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), with Thomas v. U.S. Bank N.A., 575 F.3d 794, 797-800 (8th Cir. 2009) (holding Section 27 does not completely preempt the field of state law usury claims against state-chartered banks, and such claims are not appropriate for removal to federal court).
The Court need not reach whether Congress intended Section 27 to provide the exclusive cause of action for usury claims against state-chartered banks because, even if it does, Elevate is not a state-chartered bank. Indeed, the District is not the first plaintiff to bring a state law consumer protection enforcement action against a non-bank entity that allegedly "rents" a bank to provide predatory, high-interest loans to consumers, nor is Elevate the first defendant to try to remove this type of case to federal court on a jurisdictional theory of complete preemption. The vast majority of courts that have been confronted with the issue have concluded that the NBA and FDIA do not completely preempt state law usury claims against a non-bank.
2. The District's Claims Are Directed at Elevate, a Non-Bank Entity, Not the State-Chartered Banks
Although the sole defendant is Elevate, and the Complaint contains no usury claims against FinWise or Republic, Elevate nonetheless urges the Court to find that Section 27 completely preempts the District's claims because the claims are all "based on or aimed at" high interest rates charged on loans originated by state-chartered banks. Def.'s Opp'n, ECF No. 23 at 17. Elevate maintains that it is merely a service provider used by FinWise and Republic and that the District's decision to bring this suit against it, rather than the banks, is a "creative pleading artifice" that "cannot [be used] to avoid the preemptive effect of Section 27 on removal." Id.
a. The Complaint Adequately Alleges that Elevate is the True Lender
Courts that have addressed the complete preemption question in rent-a-bank cases like this one have wrestled with similar arguments, which non-bank entity defendants routinely make. In response, courts "have found it necessary to determine whether the claims were actually directed against a federally or state-chartered bank," such that the preemptive force of federal banking law applies to the claims despite the fact that the claims were only brought against non-bank entities. See CashCall, 605 F. Supp. 2d at 785 (citing cases). Numerous courts have concluded that where a complaint "sufficiently allege[s]" a non-bank entity is the true lender of the allegedly usurious loans, the claims are properly directed at the non-bank entity rather than the state-chartered banks that originated the loans. See Marlette, 2018 WL 1417706, at *3 ("In circumstances where a plaintiff has sufficiently alleged that the non-bank entity is the true lender, courts have consistently come to the conclusion that complete preemption does not apply, `even if the non-bank entity worked closely with the bank to administer loans.'"); see also CashCall, 605 F. Supp. 2d at 787 & n.9 (remanding case where "the State alleges that Cash-Call is the de facto lender," even though
Upon careful review of the alleged facts, and in consideration of the relevant persuasive case law, the Court is satisfied that the District's claims are directed at Elevate, not FinWise and Republic. The Court cannot conclude, as a matter of law based on the allegations in the Complaint, that FinWise and Republic are the true lenders of the allegedly usurious loans marketed by Elevate and sold by Elevate to District residents. See Flowers, 307 F. Supp. 2d at 1206.
Here, the District alleges that Elevate not only provides the website, marketing, analytics, software, and underwriting models for the Rise and Elastic loans—for which it holds the intellectual property rights—but it also "has the predominant economic interest in the loans it provides to District consumers via FinWise and Republic." Compl., ECF No. 1-2 ¶¶ 1, 17, 20, 21, 22. The District alleges Elevate receives revenue through two Cayman Islands special purpose vehicles—EE SPV and ESPV—that purchase a 96% interest in the receivables for the Rise loans and a 90% interest in the receivables for the Elastic loans, respectively. Id. ¶¶ 41, 42, 73, 75. According to the District, in 2019, Elevate's revenue from the Rise loans totaled over $390 million and its revenue
There are many similarities between the rent-a-bank scheme that the District alleges Elevate orchestrated and the schemes allegedly perpetuated by non-bank defendants in the cases where courts have found that complaints sufficiently alleged that non-bank entities were the true lenders of the loans at issue. Each of these alleged rent-a-bank schemes is unique, but the Court is persuaded that the allegations in the Complaint are similar enough for the Court to conclude that the District has sufficiently alleged that Elevate is the true lender of the Rise and Elastic loans.
For example, in Avant and Marlette, the State of Colorado's banking administrator alleged that non-bank entities "provide[d] the website through which customers appl[ied] for [state-chartered bank] Loans,... develop[ed] the criteria for making loans, ... decide[d] which applicants w[ould] receive the loans, and [defendant] (or its affiliates) purchase[d] the loans within two days after they [we]re made." Marlette, 2018 WL 1417706, at *3 (quoting Avant, 307 F. Supp. 3d at 1147). The Avant decision also points out that the non-bank entity in that case "service[d] and administere[d] the loans, [bore] all the risk on the loans in the event of default, pa[id] all the legal fees and expenses related to the lending program, retain[ed] 99% of the profits on the loans, and indemnifie[d] [the bank] against all claims arising from [the bank's] involvement in the loan program." Avant, 307 F. Supp. 3d at 1147. In both cases, the district court found that "plaintiff sufficiently alleges that defendant is the `true lender.'" Marlette, 2018 WL 1417706, at *3 (citing Avant, 307 F. Supp. 3d at 1147).
Furthermore, in Flowers, the plaintiff alleged that defendant EZPawn made payday loans through checks drawn from a bank, but EZPawn and its affiliate EZCorp, not the bank, together "carrie[d] out all interaction with the borrowers, accept[ed] the ultimate credit risk, collect[ed] and pocket[ed] virtually all of the finance charges and fees, and own[ed] and control[led] the branding of the loans which [we]re available only at its pawnshops." 307 F. Supp. 2d at 1205. Despite the defendants' argument that they merely acted as servicers for loans made by a state-chartered and federally insured bank, the court concluded that the allegations did not support a finding that the bank was the true lender and the petition's state law claims were directed against the non-bank defendants. Id.
Finally, in CashCall, the State of West Virginia alleged that defendant CashCall, Inc. marketed loans to consumers as an agent of a South Dakota-chartered bank, the bank approved and directly funded the loans, and CashCall would purchase the loans three days later pursuant to the terms of an agreement with the bank. 605 F. Supp. 2d at 783. Based on these facts, the court found that the usury claims in the complaint were directed only against CashCall. Id. at 786.
The Court is unpersuaded by Elevate's argument that the "lending program arrangements at issue [in Avant and Marlette] are inapposite to the service provider structure that exists between Elevate and the Banks." See Def.'s Opp'n, ECF No. 23
b. The Court Need Not Resolve Factual Disputes at This Juncture
The Court acknowledges that Elevate disputes a number of the District's factual allegations and presents additional facts to counter the District's true-lender allegations. See Def.'s Opp'n, ECF No. 23 at 9-10.
The Court is also unpersuaded by Elevate's suggestion that Krispin v. May Department Stores, 218 F.3d 919 (8th Cir. 2000) and Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), rev'd on other grounds, 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), direct the Court to conduct a searching factual analysis that looks beyond the face of the Complaint to determine the real party in interest in this case. See Def.'s Opp'n, ECF No. 23 at 23. In Krispin, the Court of Appeals for the Eighth Circuit ("Eighth Circuit") considered whether state law usury claims against a department store that entered credit agreements with customers but later assigned those accounts to a bank, while still maintaining a role in the collection process and purchasing the receivables from the bank on a daily basis, were claims directed at the bank rather than the defendant store. 218 F.3d at 923-24. The court found that the bank was the real party in interest, having determined that "in these circumstances.... it makes sense to look to the originating entity (the bank), and not the ongoing assignee (the store), in determining whether the NBA applies" and completely preempts the state law usury claims. Id. at 924. Courts have since correctly questioned whether "this factual determination based on state law should be made in the first instance by a federal court on removal rather than the state court." Flowers, 307 F. Supp. 2d at 1206. Relatedly, Krispin was decided in a different procedural posture, as the Flowers court noted: "the Eighth Circuit and the district court decided the issue on a motion for summary judgment, finding there was no genuine issue of material fact that the bank was the real party in interest." Id. Finally, as the District correctly points out, numerous courts have distinguished Krispin on its facts, noting that there was no dispute that the bank was a wholly-owned subsidiary of the department store. See Pl.'s Reply, ECF No. 25 at 13-14 & n.9 (citing cases).
Vaden is likewise unpersuasive. There, the Court of Appeals for the Fourth Circuit ("Fourth Circuit") held that a bank was the real party in interest to a counterclaim in a lawsuit where a loan servicer sued to collect credit card debt and the debtor filed counterclaims asserting violations of state usury laws against the loan servicer. 489 F.3d at 603. The Fourth Circuit observed that an analysis of the real party in interest was necessary given the "unique and complex relationship among the parties" and to prevent plaintiffs from "artfully plead[ing] state law claims against a non-bank defendant and thus frustrate Congress' intent that certain causes of action are always federal." Id. at 601 & n.5.
Elevate fails to address a subsequent Fourth Circuit decision in a case that more
For the same reasons the Fourth Circuit in Knox found its earlier decision in Vaden unpersuasive when evaluating whether a non-bank entity could claim protection from state law consumer protection and usury claims by invoking Section 27's preemptive force, so too does this Court. As in Knox, the District's claims "do not merely challenge certain terms of the loans, but instead specifically target several practices of the loan servicers." Id. at 929. As the District points out, of the four counts in the District's Complaint, three "do not turn on usury at all." Pl.'s Reply, ECF No. 25 at 9-10.
Further counseling against conducting a fact-intensive analysis at this stage to determine the true lender of the Rise and Elastic loans is that even if the Superior Court were to conclude on remand that Elevate is not, in fact, the true lender, that "will not result in [FinWise's or Republic's] liability or regulation under state laws, but will merely relieve [Elevate] of liability
Accordingly, based on the facts alleged in the Complaint, the Court rejects Elevate's argument that the District's state law claims amount to claims against FinWise and Republic that are completely preempted by Section 27 of the FDIA. While the Superior Court may conclude on remand that FinWise and Republic are in fact the true lenders of the Rise and Elastic loans, that factual dispute does not create federal jurisdiction here.
3. The FDIC's "Pervasive" Regulatory Oversight of State-Chartered Banks Does Not Give Rise to Complete Preemption Jurisdiction
In arguing that Section 27 completely preempts the District's state law claims, Elevate repeatedly invokes the FDIC's "pervasive regulatory scheme" and "detailed framework for "overseeing the relationship between regulated state banks and their third-party service providers." See Notice of Removal, ECF No. 1 at 1; Def.'s Opp'n, ECF No. 23 at 18, 20, 21-22. Elevate points to the Bank Service Company Act, which "allows state-chartered banks to engage service providers like Elevate, by contract or otherwise, to perform bank-related function on behalf of the bank" and "subject[s] [service providers] to regulation and examination by the FDIC as if the services were provided by the bank itself." Id. ¶ 35 (citing 12 U.S.C. § 1867(c)). Elevate also points to formal and informal guidance issued by the FDIC relevant to the relationship between state-chartered banks and their service providers, including for "services performed in connection with a bank lending program by technology-enabled service providers like Elevate." See Def.'s Opp'n, ECF No. 23 at 17-18 (citing Notice of Removal, ECF No. 1 ¶¶ 34-42). Finally, Elevate points to final rules issued by the FDIC and OCC in June 2020 "formalizing the valid-when-made doctrine, which holds that a loan that was valid when made will not be rendered usurious by a subsequent transfer." Id. at 21-22 & n.11 (citing Federal Interest Authority, 85 Fed. Reg. 44146 (July 22, 2020); Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred, 85 Fed. Reg. 33530 (June 2, 2020)). Elevate argues that this "federal banking scheme encompasses and encourages Elevate's activities as a service provider and allows Elevate to enable banking operations under the purview of the FDIA and FDIC's supervision without regard to state usury laws." Id. (citing Notice of Removal, ECF No. 1 ¶¶ 34-44, 62-67).
The District, on the other hand, invokes the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") to argue that Section 27 should not be interpreted as completely preempting state law usury claims against non-bank entities. See Pl.'s Mot., ECF No. 15 at 20 & n.6. The District contends that the Dodd-Frank Act clarified that the statute should not "be construed as preempting, annulling, or affecting the applicability of State law to any subsidiary, affiliate, or agent of a national bank." Id. (citing 12 U.S.C. §§ 25b(b)(2), €, (h)(2)). Elevate disagrees. See Def.'s Opp'n, ECF No. 23 at 17 n.7.
These arguments, however, are not particularly relevant to the issue of complete preemption, pursuant to which the Court determines whether it can exercise removal jurisdiction because Congress intended for a law's preemptive force to be
While Section 27 may have the requisite preemptive force to permit removal of state law usury claims against state-chartered banks, neither the District nor Elevate has cited any cases that would support a conclusion that Congress intended Section 27 of the FDIA to completely preempt state law claims against non-bank entities that are nowhere mentioned in the plain language of the Statute simply because a "detailed regulatory framework" addresses the relationship between state-chartered banks and non-bank entities. Elevate's discussion of Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 304-05, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978) and related cases is inapposite. See Notice of Removal, ECF No. 1 at ¶¶ 63-67. Marquette is not a removal case and does not address complete preemption. Likewise, Sawyer v. Bill Me Later, Inc., 23 F.Supp.3d 1359 (D. Utah 2014) did not discuss complete preemption or removal jurisdiction, despite Elevate's claim that it "appl[ied] complete preemption to claims involving agents of state-chartered banks." See Notice of Removal, ECF No. 1 ¶ 67. In fact, the court in Sawyer explicitly distinguished that case from removal cases, noting that "a case relevant to questions of complete preemption in which a court must consider whether a case can be properly removed to federal court based on federal question jurisdiction [is] inapposite here where the case is already properly in federal court." Sawyer, 23 F. Supp. 3d at 1369.
Accordingly, the Court concludes that Elevate's arguments concerning the FDIC's "pervasive regulatory scheme" governing state-chartered banks and their service providers do not affect the Court's finding that Section 27 of the FDIA does not completely preempt the District's state law usury claims against Elevate.
B. The Significant Federal Issue Doctrine Is Not A Basis For Removal
Having concluded that federal law does not completely preempt the District's state law claims against Elevate in this consumer protection enforcement action, the Court now turns to Elevate's
Elevate contends that the Court may exercise federal-question subject-matter jurisdiction over this case because of the "significant issues of federal law that must be resolved to determine the viability of the Complaint's state law claims." Notice of Removal, ECF No. 1 ¶ 80. Elevate seems to contend that the "significant issues of federal law" the require resolution here are "the federal statutes, regulations and regulatory guidance applied to state-chartered banks and their service providers." Id. ¶ 80. "Whether the fact pattern in this case is subject to the `true lender' analysis set forth in the Complaint," Elevate argues, "and whether that analysis can displace the longstanding and robust federal regulatory scheme that authorizes the exportation of interest rates and the use of service providers by state-chartered banks will involve, in the words of Grable, the `validity,' `construction' and `effect' of federal law." Id.
Elevate's arguments are a misapplication of Grable because the District's claims do not "necessarily raise a stated federal issue." Grable, 545 U.S. at 314, 125 S.Ct. 2363. In Grable, the plaintiff asserted that because a federal Statute requiring notice of the seizure of property was not complied with, plaintiff should have good title to certain seized land. Id. at 311, 125 S.Ct. 2363. That is, the plaintiff's action was based on a federal statute. The same is true of the D.C. Circuit case on which Elevate relies. See Bender v. Jordan, 623 F.3d 1128, 1130 (D.C. Cir. 2010) (federal stock savings association asserted that because a federal regulation did not entitle two former directors and the former CEO to indemnification of expenses arising from a shareholder securities law suit, the individuals were in breach of contract for their failure to repay legal fees). Conversely, the District does not rely on any federal statute or regulation to bring its claims. Instead, the District's action has been brought despite Elevate's assertion that the FDIA, FDIC, and federal regulation permit the conduct that the District alleges Elevate undertook in violation of the District's laws. See, e.g., Notice of Removal, ECF No. 1 ¶ 81 ("The Complaint alleges that the structure of the loan transactions and the interest rate they implement are unlawful under state law without regard to the federal statutes, regulations or guidance, or the FDIC's regulatory oversight." (emphasis added)). Elevate's arguments are properly understood as an assertion
Moreover, the main issue in this case is the identity of the true lender of the Rise and Elastic loans. The true-lender question is substantially factual, and the Superior Court is well equipped to handle it, as many state courts have done in the similar rent-a-bank cases cited throughout this Memorandum Opinion. Conversely, substantial and necessarily raised federal issues warranting federal subject-matter jurisdiction are ones "posing a context-free inquiry into the meaning of federal law." See Flavell, 2021 WL 1146301, at *7. They are not "fact-bound and situation-specific." See McVeigh, 547 U.S. at 701, 126 S.Ct. 2121. In the only case the parties identified that involves both an alleged rent-a-bank scheme and an assertion of federal jurisdiction under the Grable exception, the district court concluded that the issues surrounding the alleged true lender and whether preemption would apply merely raised a factual question, rather than a legal question that called for the interpretation of federal statutes, making removal on this basis improper. See Dandy, 2010 WL 11493721, at *7. The same is true here.
Because no substantial federal issues are necessarily raised by the District's Complaint, the Court concludes that the significant federal issues doctrine does not provide a basis for federal subject-matter jurisdiction in this case.
Accordingly, for the reasons set forth above, the Court