Supplemental Brief in Opposition to ( [24] MOTION to Dismiss First Amended Complaint by State Defendants) filed by Think Computer Corporation. (Aschenbrener, Michael) (Filed on 4/2/2015) Modified text on 4/3/2015 (dhmS, COURT STAFF).
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Page 1 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page1 of 6
1 MICHAEL J. ASCHENBRENER (SBN 277114)
mja@aschenbrenerlaw.com
2 ASCHENBRENER LAW, P.C.
795 Folsom Street, First Floor
3 San Francisco, CA 94107
Telephone: (415) 813-6245
4 Fax: (415) 813-6246
5
6
ATTORNEY FOR PLAINTIFF
UNITED STATES DISTRICT COURT
7
NORTHERN DISTRICT OF CALIFORNIA
8
SAN JOSE DIVISION
9
THINK COMPUTER CORPORATION, a
10 Delaware Corporation,
11
12
Plaintiff,
v.
13 ROBERT VENCHIARUTTI, et al.,
14
Defendants.
15
16
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 11-cv-05496-HRL
SUPPLEMENTAL BRIEF IN
OPPOSITION TO DEFENDANTS’
MOTION TO DISMISS
Before the Honorable Howard R. Lloyd
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SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
Case No: 11-CV-05496-HRLPage 2 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page2 of 6
1 I.
INTRODUCTION
2
Effective January 1, 2015, the California Money Transmission Act (the “MTA”) was
amended in several areas. Potentially relevant to this case are the amendments to §§ 2040 and
4 2010(l). The amended § 2040 purports to reduce the burden for smaller companies to get licensed
under the MTA, but the burden reduction is illusory. In fact, the new § 2040 is actually more
arbitrary and unconstitutional than the former § 2040 for the reasons described below. Meanwhile,
the amended § 2010(l) appears to provide an exemption to the MTA so broad so as to effectively
render the MTA nearly meaningless.
Ultimately, these amendments either increase the viability of Plaintiff’s constitutional
9
claims or have no effect on the case. Thus, Plaintiff respectfully asks this Court to deny
11 Defendants’ motion to dismiss in its entirety.
12 II.
ARGUMENT
13
A.
The amendment to Section 2040 does not eliminate the MTA’s
unconstitutional arbitrariness.
14
At first glance, the amended § 2040 of the MTA appears to reduce the burden for smaller
15
payments companies seeking MTA licensure because § 2040(a) reduces the explicit tangible
shareholder equity requirement from $500,000 to $250,000. Cal. Fin. Code § 2040(a). But because
of other changes to § 2040, the overall effect of the amendment is to increase arbitrariness and
1
unconstitutionality of the MTA. In the end, the amendments to § 2040 either increase the validity
of Plaintiff’s facial or as-applied constitutional challenges to the MTA, or do not alter Plaintiff’s
claims. Section 2040(b) states:
the commissioner may increase the amount of net worth required
of an applicant or licensee if the commissioner determines, with
respect to the applicant or licensee, that a higher net worth is
necessary to achieve the purposes of this division based on the
factors described in subdivision (c).
22
23
24
25 Cal. Fin. Code § 2040(b). In other words, the reduction in the tangible shareholder equity may not
26
1
As former Commissioner Teveia Barnes put it in a committee hearing discussing proposed
changes to the MTA: “Because we don’t treat every applicant — it’s really an art form in the sense
that we don’t treat every applicant exactly the same.” (Dkt. No. 47, p. 46, lines 14-16.)
28
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
1
Case No: 11-CV-05496-HRLPage 3 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page3 of 6
be a reduction at all—in fact, the minimum tangible shareholder equity may be increased at the
commissioner’s discretion. Thus, the reduction is of no benefit to Plaintiff, and little to no
consequence to the Plaintiff’s claims.
4
The final changes to § 2040 confirm that the arbitrary nature of the law increased with the
amendment, thereby either not affecting or perhaps even strengthening Plaintiff’s claims. Section
6 2040(c) provides a list of factors that commissioner “shall consider” when “making a
determination pursuant to subdivision (a) or (b).” These factors are:
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(1) The nature and volume of the projected or established business.
(2) The number of locations at or through which money
transmission is or will be conducted.
(3) The amount, nature, quality, and liquidity of its assets.
(4) The amount and nature of its liabilities.
(5) The history of its operations and prospects for earning and
retaining income.
(6) The quality of its operations.
(7) The quality of its management.
(8) The nature and quality of its principals.
(9) The nature and quality of the persons in control.
(10) The history of its compliance with applicable state and federal
law.
(11) Any other factor the commissioner considers relevant.
Cal. Fin. Code § 2040(c) (emphasis added).
In other words, the reduction in the tangible shareholder equity requirement is
illusory because the commissioner has the legal right to alter the requirement for any
number of patently subjective reasons (factors 1, 3-9) or no reason at all (factor 11). Cal.
Fin. Code § 2040(c). “To allow these illusory ‘constraints’ to constitute the standards
necessary to bound a licensor’s discretion renders the guarantee against censorship little
more than a high-sounding ideal . . . This presumes the mayor will act in good faith and
adhere to standards absent from the ordinance’s face. But this is the very presumption that
the doctrine forbidding unbridled discretion disallows.” City of Lakewood v. Plain Dealer
Publishing Co., 486 U.S. 750, 769 (1988). Thus, the changes to § 2040 either increase the
validity of Plaintiff’s facial and as-applied constitutional challenges to the MTA, or have
no consequence on the proceeding.
28
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
2
Case No: 11-CV-05496-HRLPage 4 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page4 of 6
1
2
3
B.
The Section 2010(l) exemption to the MTA’s applicability is so broad as to
render the Act meaningless.
Except for direct Bitcoin and virtual currency transactions, the MTA appears to have been
amended to render virtually every act of money transmission exempt from the requirements of the
5 MTA, including licensure. If this is the case, then most of the rest of the text of the MTA is
superfluous, a result the California legislature surely did not intend. And even if this is the
intended result, then Plaintiff’s claims remain valid up to and including December 31, 2014,
including Plaintiff’s prayer for attorneys’ fees.
9
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Section 2010(l) states that the MTA does not apply to:
A transaction in which the recipient of the money or other
monetary value is an agent of the payee pursuant to a preexisting
written contract and delivery of the money or other monetary value
to the agent satisfies the payor’s obligation to the payee.
(1) For purposes of this subdivision, “agent” has the same meaning
as that term is defined in Section 2295 of the Civil Code.
(2) For purposes of this subdivision, “payee” means the provider
of goods or services, who is owed payment of money or other
monetary value from the payor for the goods or services.
(3) For purposes of this subdivision, “payor” means the recipient
of goods or services, who owes payment of money or monetary
value to the payee for the goods or services.
Cal. Fin. Code § 2010(l). According to the plain language of § 2010(l), a payment processor, like
Plaintiff, acting as an agent for a retailer (or any person or entity, frankly) pursuant to written
agency agreement that transmits money from a customer (or any person or entity) to the retailer is
exempt from the MTA. In even more concise terms, as long as a money transmitter acts pursuant
to a written agency agreement, its actions are exempt from the MTA. If this is the correct
interpretation, then the § 2010(l) does not merely exempt some actors but effectively renders the
MTA nearly meaningless.
Fortunately, the Court need not determine the breadth and scope of the § 2010(l)
exemption. If the § 2010(l) exemption is as broad as it appears, then Plaintiff likely need not apply
for MTA licensure going forward, but its claims through December 31, 2014 would remain viable.
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
3
Case No: 11-CV-05496-HRLPage 5 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page5 of 6
1 If, on the other hand, the correct interpretation of the § 2010(l) is narrower than suggested herein
to one degree or another, then either Plaintiff’s claims remain viable through December 31, 2014
or through the present day.
Either way, the changes to § 2010(l) have little to no effect on the case, and the case should
4
move forward.
6 III.
CONCLUSION
7
The amendments to §§ 2040 and 2010(l) of the MTA, effective January 1, 2015, should
not alter this Court’s analysis of Plaintiff’s claims. Accordingly, Plaintiff renews its request that
the Court deny Defendants’ motion to dismiss in its entirety and allow this case to proceed.
10
11 Date: April 2, 2015
Respectfully submitted,
12
ASCHENBRENER LAW, P.C.
13
By: s/ Michael Aschenbrener
Michael Aschenbrener
Counsel for Plaintiff Think Computer Corporation
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SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
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Case No: 11-CV-05496-HRLPage 6 Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page6 of 6
CERTIFICATE OF SERVICE
1
2
The undersigned certifies that, on April 2, 2015, he caused this document to be
electronically filed with the Clerk of Court using the CM/ECF system, which will send
notification of filing to counsel of record for each party.
5
6 Dated: April 2, 2015
ASCHENBRENER LAW, P.C.
7
8
By: s/ Michael Aschenbrener
Michael Aschenbrener
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SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
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Case No: 11-CV-05496-HRL
PDF Page 1
PlainSite Cover Page
PDF Page 2
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page1 of 6
1 MICHAEL J. ASCHENBRENER (SBN 277114)
mja@aschenbrenerlaw.com
2 ASCHENBRENER LAW, P.C.
795 Folsom Street, First Floor
3 San Francisco, CA 94107
Telephone: (415) 813-6245
4 Fax: (415) 813-6246
5
6
ATTORNEY FOR PLAINTIFF
UNITED STATES DISTRICT COURT
7
NORTHERN DISTRICT OF CALIFORNIA
8
SAN JOSE DIVISION
9
THINK COMPUTER CORPORATION, a
10 Delaware Corporation,
11
12
Plaintiff,
v.
13 ROBERT VENCHIARUTTI, et al.,
14
Defendants.
15
16
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 11-cv-05496-HRL
SUPPLEMENTAL BRIEF IN
OPPOSITION TO DEFENDANTS’
MOTION TO DISMISS
Before the Honorable Howard R. Lloyd
17
18
19
20
21
22
23
24
25
26
27
28
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
Case No: 11-CV-05496-HRL
PDF Page 3
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page2 of 6
1 I.
INTRODUCTION
2
Effective January 1, 2015, the California Money Transmission Act (the “MTA”) was
3 amended in several areas. Potentially relevant to this case are the amendments to §§ 2040 and
4 2010(l). The amended § 2040 purports to reduce the burden for smaller companies to get licensed
5 under the MTA, but the burden reduction is illusory. In fact, the new § 2040 is actually more
6 arbitrary and unconstitutional than the former § 2040 for the reasons described below. Meanwhile,
7 the amended § 2010(l) appears to provide an exemption to the MTA so broad so as to effectively
8 render the MTA nearly meaningless.
Ultimately, these amendments either increase the viability of Plaintiff’s constitutional
9
10 claims or have no effect on the case. Thus, Plaintiff respectfully asks this Court to deny
11 Defendants’ motion to dismiss in its entirety.
12 II.
ARGUMENT
13
A.
The amendment to Section 2040 does not eliminate the MTA’s
unconstitutional arbitrariness.
14
At first glance, the amended § 2040 of the MTA appears to reduce the burden for smaller
15
16 payments companies seeking MTA licensure because § 2040(a) reduces the explicit tangible
17 shareholder equity requirement from $500,000 to $250,000. Cal. Fin. Code § 2040(a). But because
18 of other changes to § 2040, the overall effect of the amendment is to increase arbitrariness and
1
19 unconstitutionality of the MTA. In the end, the amendments to § 2040 either increase the validity
20 of Plaintiff’s facial or as-applied constitutional challenges to the MTA, or do not alter Plaintiff’s
21 claims. Section 2040(b) states:
the commissioner may increase the amount of net worth required
of an applicant or licensee if the commissioner determines, with
respect to the applicant or licensee, that a higher net worth is
necessary to achieve the purposes of this division based on the
factors described in subdivision (c).
22
23
24
25 Cal. Fin. Code § 2040(b). In other words, the reduction in the tangible shareholder equity may not
26
1
As former Commissioner Teveia Barnes put it in a committee hearing discussing proposed
27 changes to the MTA: “Because we don’t treat every applicant — it’s really an art form in the sense
that we don’t treat every applicant exactly the same.” (Dkt. No. 47, p. 46, lines 14-16.)
28
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
1
Case No: 11-CV-05496-HRL
PDF Page 4
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page3 of 6
1 be a reduction at all—in fact, the minimum tangible shareholder equity may be increased at the
2 commissioner’s discretion. Thus, the reduction is of no benefit to Plaintiff, and little to no
3 consequence to the Plaintiff’s claims.
4
The final changes to § 2040 confirm that the arbitrary nature of the law increased with the
5 amendment, thereby either not affecting or perhaps even strengthening Plaintiff’s claims. Section
6 2040(c) provides a list of factors that commissioner “shall consider” when “making a
7 determination pursuant to subdivision (a) or (b).” These factors are:
8
9
10
11
12
13
14
15
16
17
18
19
20
21
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(1) The nature and volume of the projected or established business.
(2) The number of locations at or through which money
transmission is or will be conducted.
(3) The amount, nature, quality, and liquidity of its assets.
(4) The amount and nature of its liabilities.
(5) The history of its operations and prospects for earning and
retaining income.
(6) The quality of its operations.
(7) The quality of its management.
(8) The nature and quality of its principals.
(9) The nature and quality of the persons in control.
(10) The history of its compliance with applicable state and federal
law.
(11) Any other factor the commissioner considers relevant.
Cal. Fin. Code § 2040(c) (emphasis added).
In other words, the reduction in the tangible shareholder equity requirement is
illusory because the commissioner has the legal right to alter the requirement for any
number of patently subjective reasons (factors 1, 3-9) or no reason at all (factor 11). Cal.
Fin. Code § 2040(c). “To allow these illusory ‘constraints’ to constitute the standards
necessary to bound a licensor’s discretion renders the guarantee against censorship little
more than a high-sounding ideal . . . This presumes the mayor will act in good faith and
adhere to standards absent from the ordinance’s face. But this is the very presumption that
the doctrine forbidding unbridled discretion disallows.” City of Lakewood v. Plain Dealer
Publishing Co., 486 U.S. 750, 769 (1988). Thus, the changes to § 2040 either increase the
validity of Plaintiff’s facial and as-applied constitutional challenges to the MTA, or have
no consequence on the proceeding.
28
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
2
Case No: 11-CV-05496-HRL
PDF Page 5
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page4 of 6
1
2
3
B.
The Section 2010(l) exemption to the MTA’s applicability is so broad as to
render the Act meaningless.
Except for direct Bitcoin and virtual currency transactions, the MTA appears to have been
4 amended to render virtually every act of money transmission exempt from the requirements of the
5 MTA, including licensure. If this is the case, then most of the rest of the text of the MTA is
6 superfluous, a result the California legislature surely did not intend. And even if this is the
7 intended result, then Plaintiff’s claims remain valid up to and including December 31, 2014,
8 including Plaintiff’s prayer for attorneys’ fees.
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Section 2010(l) states that the MTA does not apply to:
A transaction in which the recipient of the money or other
monetary value is an agent of the payee pursuant to a preexisting
written contract and delivery of the money or other monetary value
to the agent satisfies the payor’s obligation to the payee.
(1) For purposes of this subdivision, “agent” has the same meaning
as that term is defined in Section 2295 of the Civil Code.
(2) For purposes of this subdivision, “payee” means the provider
of goods or services, who is owed payment of money or other
monetary value from the payor for the goods or services.
(3) For purposes of this subdivision, “payor” means the recipient
of goods or services, who owes payment of money or monetary
value to the payee for the goods or services.
Cal. Fin. Code § 2010(l). According to the plain language of § 2010(l), a payment processor, like
Plaintiff, acting as an agent for a retailer (or any person or entity, frankly) pursuant to written
agency agreement that transmits money from a customer (or any person or entity) to the retailer is
exempt from the MTA. In even more concise terms, as long as a money transmitter acts pursuant
to a written agency agreement, its actions are exempt from the MTA. If this is the correct
interpretation, then the § 2010(l) does not merely exempt some actors but effectively renders the
MTA nearly meaningless.
Fortunately, the Court need not determine the breadth and scope of the § 2010(l)
exemption. If the § 2010(l) exemption is as broad as it appears, then Plaintiff likely need not apply
for MTA licensure going forward, but its claims through December 31, 2014 would remain viable.
SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
3
Case No: 11-CV-05496-HRL
PDF Page 6
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page5 of 6
1 If, on the other hand, the correct interpretation of the § 2010(l) is narrower than suggested herein
2 to one degree or another, then either Plaintiff’s claims remain viable through December 31, 2014
3 or through the present day.
Either way, the changes to § 2010(l) have little to no effect on the case, and the case should
4
5 move forward.
6 III.
CONCLUSION
7
The amendments to §§ 2040 and 2010(l) of the MTA, effective January 1, 2015, should
8 not alter this Court’s analysis of Plaintiff’s claims. Accordingly, Plaintiff renews its request that
9 the Court deny Defendants’ motion to dismiss in its entirety and allow this case to proceed.
10
11 Date: April 2, 2015
Respectfully submitted,
12
ASCHENBRENER LAW, P.C.
13
By: s/ Michael Aschenbrener
Michael Aschenbrener
Counsel for Plaintiff Think Computer Corporation
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SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
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Case No: 11-CV-05496-HRL
PDF Page 7
Case5:11-cv-05496-HRL Document63 Filed04/02/15 Page6 of 6
CERTIFICATE OF SERVICE
1
2
The undersigned certifies that, on April 2, 2015, he caused this document to be
3 electronically filed with the Clerk of Court using the CM/ECF system, which will send
4 notification of filing to counsel of record for each party.
5
6 Dated: April 2, 2015
ASCHENBRENER LAW, P.C.
7
8
By: s/ Michael Aschenbrener
Michael Aschenbrener
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SUPPLEMENTAL OPPOSITION TO DEFS’
MOT. TO DISMISS
5
Case No: 11-CV-05496-HRL
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