Notice of Motion and Motion to Dismiss First Amended Complaint re [23] by State Defendants; Memorandum of Points and Authorities in Support filed by Jacob A Appelsmith, Edmund Brown, Jr, William Haraf, Kamala Harris, Traci Stevens, Robert Venchiarutti. Motion Hearing set for 3/27/2012 10:00 AM in Courtroom 2, 5th Floor, San Jose before Magistrate Judge Howard R. Lloyd. Responses due by 2/28/2012. Replies due by 3/6/2012. (Attachments: # (1) (Proposed) Order Granting State Defendants' Motion to Dismiss)(Marcroft, Ryan) (Filed on 2/14/2012) Modified on 2/14/2012 (bw, COURT STAFF).
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Page 1 Case5:11-cv-05496-HRL Document24 Filed02/14/12 Page1 of 31
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KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
RYAN MARCROFT
Deputy Attorney General
State Bar No. 230952
1300 I Street, Suite 125
P.O. Box 944255
Sacramento, CA 94244-2550
Telephone: (916) 323-5313
Fax: (916) 324-8835
E-mail: Ryan.Marcroft@doj.ca.gov
Attorneys for All Defendants
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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THINK COMPUTER CORPORATION,
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Plaintiff, NOTICE OF MOTION AND MOTION
TO DISMISS FIRST AMENDED
v.
COMPLAINT BY STATE
DEFENDANTS; MEMORANDUM OF
ROBERT VENCHIARUTTI, in his official
POINTS AND AUTHORITIES IN
capacity as Deputy Commissioner of the
SUPPORT
California Department of Financial
Institutions; WILLIAM HARAF, in his
Date:
March 27, 2012
official capacity as Commissioner of the
Time:
10:00 a.m.
California Department of Financial
Courtroom: 2
Institutions; TRACI STEVENS, in her
Judge
The Honorable Howard R. Lloyd
official capacity as Acting Secretary of the
Trial Date: None Set
California Business, Transportation and
Action Filed: 11/14/2011
Housing Agency; JACOB A.
APPELSMITH, in his official capacity as
Senior Advisor to the Governor of the State
of California; EDMUND G. BROWN, JR.,
in his official capacity as Governor of the
State of California; and KAMALA
HARRIS, in her official capacity as
Attorney General of the State of California,
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5:11-cv-05496-HRL
Defendants.
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TO PLAINTIFF AND ITS COUNSEL OF RECORD:
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PLEASE TAKE NOTICE that on March 27, 2012, at 10:00 a.m., or as soon thereafter as
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the matter may be heard, in Courtroom Two of the above-entitled court, located at 280 South 1st
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Street, San Jose, California, Defendants ROBERT VENCHIARUTTI, in his official capacity as
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Deputy Commissioner of the California Department of Financial Institutions, WILLIAM
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HARAF, in his official capacity as Commissioner of the California Department of Financial
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Institutions, TRACI STEVENS, in her official capacity as Acting Secretary of the California
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Business, Transportation and Housing Agency (hereafter, “Acting Secretary Stevens”), JACOB
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A. APPELSMITH, in his official capacity as Senior Advisor to the Governor of the State of
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California (hereafter, “Senior Advisor Appelsmith”), EDMUND G. BROWN, JR., in his official
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capacity as Governor of the State of California (hereafter, “Governor”), and KAMALA HARRIS,
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in her official capacity as Attorney General of the State of California (hereafter, “Attorney
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General” and collectively, the “State Defendants”) hereby move this Court pursuant to Federal
14
Rules of Civil Procedure 12(b)(1) and 12(b)(6) for an order dismissing this action.
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Defendants Governor, Senior Advisor Appelsmith, Attorney General, and Acting Secretary
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Stevens move to dismiss the Complaint as to them on the ground that it fails to state a claim upon
17
which relief may be granted, because the claims against them are barred by the Eleventh
18
Amendment.
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The State Defendants move to dismiss the Complaint on the ground that this Court lacks
jurisdiction over the subject matter because the claims are not ripe for review.
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The State Defendants also move to dismiss the first claim for relief, brought under the
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Fourteenth Amendment’s Due Process and Equal Protection Clauses, on the ground that it fails to
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state a claim upon which relief may be granted, because the Plaintiff has not identified a protected
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property right, and because the challenged state law is rationally related to legitimate government
25
interests.
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The State Defendants move to dismiss the second and third claims in the Complaint,
brought under the Commerce Clause, on the ground that they fail to state a claim upon which
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relief may be granted, because Congress has authorized the states to license and regulate the
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Plaintiff’s business activities.
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Said motion is based upon this notice of motion and motion, the memorandum of points and
4
authorities, as well as the pleadings, orders, memoranda, exhibits and other documents already on
5
file in this action.
6
Dated: February 14, 2012
Respectfully Submitted,
7
KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
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/s/ Ryan Marcroft
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RYAN MARCROFT
Deputy Attorney General
Attorneys for All Defendants
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TABLE OF CONTENTS
2
Page
3
Memorandum of Points and Authorities
In Support of Defendants’ Motion to Dismiss ................................................................................ 1
Introduction ........................................................................................................................
1
Statement of Issues to be Decided .................................................................................................. 2
Statement of Facts ........................................................................................................................
2
Argument ........................................................................................................................
4
I.
Legal Standards Applicable to Rule 12(b) Motions................................................ 4
A. Rule 12(b)(1) ............................................................................................... 4
B. Rule 12(b)(6) ............................................................................................... 4
II.
The Governor, Senior Advisor Appelsmith, Attorney General, and Acting
Secretary of the Business, Transportation and Housing Agency Must Be
Dismissed because they Are Immune From Suit Pursuant to the Eleventh
Amendment ............................................................................................................. 5
III.
The Action Must Be Dismissed Because It Is Not Ripe for Review ...................... 9
IV.
The Plaintiff Does Not Have a Due Process or Equal Protection Claim .............. 14
A.
The Plaintiff Does Not Have a Property Right Protected Under the
Due Process Clause ................................................................................... 14
B.
The Money Transmission Act’s Licensing Requirements Are
Rationally Related to a Legitimate State Purpose ..................................... 16
V.
The Money Transmission Act is Invulnerable to a Dormant Commerce
Clause Challenge................................................................................................... 18
Conclusion ........................................................................................................................
21
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TABLE OF AUTHORITIES
2
Page
3
CASES
4
Agua Caliente Band of Cahuilla Indians v. Hardin 223 F.3d 1041 (9th Cir. 2000)................................................................................................... 6
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Almond Hill Sch. v. U.S. Dep’t of Agric. 768 F.2d 1030 (9th Cir. 1985)................................................................................................... 5
Armendariz v. Penman 31 F.3d 860 (9th Cir. 1994), rev’d in part en banc, Armendariz v. Penman, 75 F.3d
1311 (9th Cir. 1996) ................................................................................................................ 11
Atascadero State Hosp. v. Scanlon 473 U.S. 234 (1985) .................................................................................................................. 5
Balistreri v. Pacifica Police Dep’t 901 F.2d 696 (9th Cir. 1990)..................................................................................................... 4
Bd. of Regents of State Colls. v. Roth 408 U.S. 564 (1972) ................................................................................................................ 15
Cardenas v. Anzai 311 F.3d 929 (9th Cir. 2002)..................................................................................................... 9
City of New Orleans v. Dukes 427 U.S. 297 (1976) ................................................................................................................ 17
Colwell v. Dep’t of Health and Human Servs. 558 F.3d 1112 (9th Cir. 2009)................................................................................................. 10
Ex parte Young 209 U.S. 123 (1908) .......................................................................................................... 5, 6, 8
F.C.C. v. Beach Commc’ns, Inc. 508 U.S. 307 (1993) ................................................................................................................ 17
Guatay Christian Fellowship v. Cnty. of San Diego
___F.3d ___, 2011 WL 6450742 (9th Cir. 2011) ................................................................... 10
Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc. 896 F.2d 1542 (9th Cir. 1990)................................................................................................... 5
Halverson v. Skagit Cnty. 42 F.3d 1257 (9th Cir. 1994)............................................................................................. 16, 17
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
Himes v. Johnson 772 F.Supp. 678 (D. Me. 1991) ........................................................................................ 11, 12
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Hishon v. King & Spalding 467 U.S. 69 (1984) .................................................................................................................... 5
Hotel & Motel Ass’n of Oakland v. City of Oakland 344 F.3d 959 (9th Cir. 2003)................................................................................................... 15
In the Matter of: Mex. Money Transfer Litig. 267 F.3d 743, 747 (7th Cir. 2001)......................................................................................... 6, 7
Int’l Shoe Co. v. State of Wash. 326 U.S. 310 (1945) .......................................................................................................... 18, 19
Jacobson v. Hannifin 627 F.2d 177 (9th Cir. 1980)................................................................................................... 16
James Clark Distilling Co. v. W. Md. Ry. Co. 242 U.S. 311 (1917) ................................................................................................................ 19
Johnson v. Rancho Santiago Cmty. Coll. Dist. 623 F.3d 1011 (9th Cir. 2010)........................................................................................... 15, 17
Kawaoka v. City of Arroyo Grande 17 F.3d 1227 (9th Cir. 1994)................................................................................................... 17
Kinzli v. City of Santa Cruz 818 F.2d 1449 (9th Cir. 1987)........................................................................................... 10, 11
Kokkonen v. Guardian Life Ins. Co. of Am. 511 U.S. 375 (1994) .................................................................................................................. 4
Ky. Whip & Collar Co. v. Ill. Cent. R.R. Co. 299 U.S. 334 (1937) ................................................................................................................ 19
L.A. Branch NAACP v. L.A. Unified Sch. Dist. 714 F.2d 946 (9th Cir. 1983)..................................................................................................... 6
L.A. Cnty. Bar Ass’n v. Eu 979 F.2d 697 (9th Cir. 1992)..................................................................................................... 6
Lewis v. B.T. Inv. Managers, Inc. 447 U.S. 27 (1980) .................................................................................................................. 18
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TABLE OF AUTHORITIES
(continued)
2
Page
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CASES (CONT.)
4
Lewis v. Cont’l Bank Corp. 494 U.S. 472 (1990) .................................................................................................... 11, 12, 13
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Long v. Van de Kamp 772 F. Supp. 1141 (C.D. Cal. 1991) ......................................................................................... 7
Long v. Van de Kamp 961 F.2d 151 (9th Cir. 1992)............................................................................................. 6, 7, 8
Love v. United States 915 F.2d 1242 (9th Cir. 1989)................................................................................................... 5
Manufactured Home Communities v. City of San Jose 420 F.3d 1022 (9th Cir. 2005)................................................................................................. 16
N. Star Int’l. v. Arizona Corp. Comm’n. 720 F.2d 578 (9th Cir. 1983)..................................................................................................... 4
Nat’l Park Hospitality Ass’n v. Dep’t of the Interior 538 U.S. 803 (2003) ................................................................................................................ 10
National Audubon Society, Inc. v. Davis 307 F.3d 835 (2002) .............................................................................................................. 7, 9
Ne. Bancorp, Inc. v. Bd. of Governors 472 U.S. 159 (1985) ................................................................................................................ 18
Nixon v. Phillipoff 615 F.Supp. 890 (N.D. Ind. 1985)........................................................................................... 19
Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n 461 U.S. 190 (1983) ................................................................................................................ 12
Papasan v. Allain 478 U.S. 265 (1986) .................................................................................................................. 5
Pennhurst State Sch. & Hosp. v. Halderman 465 U.S. 89 (1984) .................................................................................................................... 5
Principal Life Ins. Co. v. Robinson 394 F.3d 665 (9th Cir. 2005)................................................................................................... 13
Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc. 344 U.S. 237 (1952) ................................................................................................................ 10
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
Quern v. Jordan 440 U.S. 332 (1979) .................................................................................................................. 5
5
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10
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12
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15
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17
18
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20
21
22
23
24
25
26
27
28
Quik Payday, Inc. v. Stork 549 F.3d 1302 (10th Cir. 2008)............................................................................................... 18
Rea v. Matteucci 121 F.3d 483 (9th Cir. 1997)................................................................................................... 15
Robertson v. Dean Witter Reynolds, Inc. 749 F.2d 530 (9th Cir. 1984)..................................................................................................... 4
S. Pac. Transp. Co. v. Brown 651 F.2d 613 (9th Cir. 1981)..................................................................................................... 8
S. Pac. Transp. Co. v. City of Los Angeles 922 F.2d 498 (9th Cir. 1990)................................................................................................... 10
Safe Air for Everyone v. Meyer 373 F.3d 1035 (9th Cir. 2004)................................................................................................... 4
Schutz v. Thorne 415 F.3d 1128 (10th Cir. 2005)............................................................................................... 18
Snoeck v. Brussa 153 F.3d 984 (9th Cir. 1998)................................................................................................. 6, 8
Soto v. Tu Phuoc Nguyen 634 F.Supp.2d 1096, 1100 (E.D. Cal. 2009) ........................................................................... 20
Spoklie v. Mont. 411 F.3d 1051 (9th Cir. 2005)........................................................................................... 15, 16
Thomas v. Union Carbide Agric. Prods. Co. 473 U.S. 568 (1985) .................................................................................................................. 9
Thornhill Publ’g. Co. v. Gen. Tel. & Elecs. 594 F.2d 730 (9th Cir. 1979)..................................................................................................... 4
Thornton v. City of St. Helens 425 F.3d 1158 (9th Cir. 2005)........................................................................................... 15, 16
U.S. v. Rifen 577 F.2d 1111 (8th Cir. 1978)................................................................................................. 19
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
U.S. v. Sacco 491 F.2d 995 (9th Cir. 1989)................................................................................................... 19
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
US W. Commc’n v. MFS Intelenet, Inc. 193 F.3d 1112 (9th Cir. 1999)..................................................................................... 10, 11, 13
W. Mining Council v. Watt 643 F.2d 618 (9th Cir. 1981)........................................................................................... 5, 6, 14
White v. Mass. Council of Constr. Emp’rs, Inc. 460 U.S. 204 (1983) .................................................................................................... 18, 20, 21
STATUTES
California Financial Code
§§ 1800-1872 ........................................................................................................................
3
§§ 2000-2172 ........................................................................................................................ 3, 4
§ 2000 et seq. ........................................................................................................................ 2, 3
§ 2001(d) ........................................................................................................................
18
§ 2002 ........................................................................................................................
17
§ 2033 ........................................................................................................................
16
§ 2033 ........................................................................................................................
6
§ 2033(b) ........................................................................................................................
13
§ 2033(c) ........................................................................................................................
16
§ 2033(c) ........................................................................................................................
11, 13
§ 2036 ........................................................................................................................
16
§ 2037 ........................................................................................................................
18
§ 2040 ........................................................................................................................
18
§ 2152(b) ........................................................................................................................
19
§ 2172 ........................................................................................................................
13, 14, 16 Federal Rule of Civil Procedure
12(b)(1) ........................................................................................................................
4
12(b)(6) ........................................................................................................................
4, 6
United States Code
18 U.S.C. § 1960 ......................................................................................................... 19, 20, 21
18 U.S.C. § 1960(a) ................................................................................................................ 19
18 U.S.C. § 1960(b)(1)(A) ...................................................................................................... 19
27
28
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TABLE OF AUTHORITIES
(continued)
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Page
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CONSTITUTIONAL PROVISIONS
4
California Constitution
Article V , § 1 ........................................................................................................................
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5
6
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9
California Constitution
Article V, § 13 ........................................................................................................................
6
United States Constitution
Article I, § 8 ........................................................................................................................
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Article 1, § 10......................................................................................................................
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MEMORANDUM OF POINTS AND AUTHORITIES
IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS
3
INTRODUCTION
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Plaintiff Think Computer Corporation seeks to bring down the State of California’s entire
5
regulatory framework for money transmission activities without even bothering to apply for a
6
license and obtain a final agency decision. It does so by suing not only the state department
7
officials actually responsible for enforcing the law, but also a number of high-ranking state
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officials who have no business in this lawsuit because they have little connection to the law’s
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enforcement. Moreover, the Plaintiff’s constitutional claims are meritless. This action must be
10
dismissed.
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Plaintiff’s proposed business enterprise is governed by a newly-enacted state law,
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California’s Money Transmission Act (hereafter, “Money Transmission Act”), which is
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administered by the California Department of Financial Institutions. For some reason, however,
14
in addition to the state department officials that are actually responsible for enforcing that law, the
15
Plaintiff also sued the Governor, the Attorney General, the Acting Secretary of the California
16
Business, Transportation and Housing Agency, and (though it is not clear), a Senior Advisor to
17
the Governor. But these defendants have an insufficient role in administering and enforcing the
18
Money Transmission Act to abrogate their Eleventh Amendment immunity.
19
Even removing these defendants from the equation, however, the Plaintiff has bigger
20
problems. First, Think Computer Corporation’s claims are not ripe for review. The First
21
Amended Complaint carries on at length about California’s “onerous” licensing provisions, and
22
how officials at the Department of Financial Institutions purportedly frustrated its efforts to obtain
23
a license. But despite the Plaintiff’s claims that it raised sufficient start-up capital to satisfy
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statutory licensure requirements -- purportedly, more than $500,000 -- the Plaintiff did not satisfy
25
the most basic licensure prerequisite -- actually applying for a license. Instead, the Plaintiff took
26
the extreme step of shutting down its business nationwide and suing the state. Having never
27
applied for a license, particularly where the law requires notice and a hearing before the state
28
department can deny a license, the Plaintiff’s claims are simply not ripe for review at this time.
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Second, its Due Process and Equal Protection claims are meritless, because the Plaintiff has
2
not identified a property interest protected under the Due Process Clause, and because the Money
3
Transmission Act is rationally related to the state’s legitimate interests in licensing and regulating
4
consumer financial transactions. Lastly, the Plaintiff’s Commerce Clause claims fail at the outset,
5
because Congress expressly provided the states the ability to license money transmission
6
activities.
7
8
In the end, it is evident that the Plaintiff cannot maintain any of its claims for relief.
Accordingly, the complaint should be dismissed entirely.
9
STATEMENT OF ISSUES TO BE DECIDED
10
Whether the Governor, Senior Advisor Appelsmith, Attorney General, and Acting
11
Secretary Stevens must be dismissed from this action because they do not administer or enforce
12
the California Money Transmission Act, Cal. Fin. Code, section 2000 et seq.
13
Whether Plaintiff can challenge California’s entire money transmission business licensing
14
and regulatory scheme, where the Plaintiff did not even apply for state licensure, and instead
15
elected to scuttle its business entirely and sue the state.
16
Whether the first claim for relief under the Fourteenth Amendment’s Due Process and
17
Equal Protection Clauses must be dismissed because the Plaintiff alleges no protected property
18
interest, and because the challenged state statute is rationally related to the state’s legitimate
19
interest in regulating financial institutions and transactions.
20
Whether the second and third claims for relief under the dormant component of the
21
Commerce Clause must be dismissed because Congress has authorized state licensing of money
22
transmission activities.
23
STATEMENT OF FACTS
24
Plaintiff Think Computer Corporation is a privately-held Delaware Corporation (FAC,
25
¶ 17)1 that reportedly developed a system to provide money transmission services on a limited
26
scale prior to June 30, 2011, but then ceased when it had to comply with California’s Money
27
28
1
The operative pleading is the First Amended Complaint, Docket No. 23, hereafter
designated “FAC”.
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Transmission Act. (Id. ¶¶ 4, 8, 40-44; see Cal. Fin. Code, §§ 2000-2172.)2 The California
2
Department of Financial Institutions, which administers and enforces that law, allegedly
3
frustrated the Plaintiff’s attempts to obtain a state license, and then threatened to refer Plaintiff to
4
law enforcement for violations of the law. (FAC, ¶¶ 4, 46-58.) Nonetheless, the state department
5
exempted the Plaintiff’s business operations from the provisions of the Money Transmission Act
6
to the extent that the Plaintiff operated outside of California. (Id. ¶ 56.) The Plaintiff, however,
7
was still required to comply with the law to the extent it operated within California. (Id.) The
8
Plaintiff also avers that it filed tens of complaints with the Department of Financial Institutions
9
that colleges, universities, and other companies were not complying with the Money
10
Transmission Act, to purportedly highlight that the state department was arbitrarily singling out
11
Think Computer Corporation for enforcement. (Id. ¶¶ 9-10, 59-72, Sched. A.) Think Computer
12
Corporation further alleges a “non-evenhanded and discriminatory” nationwide financial
13
regulatory structure that hinders the ability of smaller financial institutions to compete against
14
larger entities and banks in providing money transfer services. (Id. ¶¶ 11, 24, 28-39, Sched. B.)
15
The State Defendants include the Governor, the Attorney General of the State of California,
16
the Acting Secretary of the California Business, Transportation and Housing Agency, and the
17
Commissioner and a Deputy Commissioner of the California Department of Financial
18
Institutions. (FAC, ¶¶ 18-22.) Jacob Appelsmith, a Senior Advisor to the Governor, is named in
19
the caption of the complaint, but not included in the allegations naming defendants. (Cf id. (FAC
20
¶¶ 18-22).) The Governor, Senior Advisor Appelsmith, and Acting Secretary Stevens purportedly
21
dismissed complaints about the Department of Financial Institutions’ treatment of Think
22
Computer Corporation. (Id. ¶ 6.)
23
In three claims for relief, all defendants are being sued for federal constitutional violations,
24
including: (1) violations of the United States Constitution’s Due Process and Equal Protection
25
Clauses for allegedly extinguishing the Plaintiff’s right to use property and frustrating its efforts
26
at state licensure; and, (2) violations of the Commerce Clause for allegedly regulating interstate
27
28
2
The Money Transmission Act was originally codified at Cal. Fin. Code, §§ 1800-1872,
but was recently reorganized and renumbered at Cal. Fin. Code, §§ 2000-2172.
3
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and foreign commerce and burdening interstate commerce. (FAC, ¶¶ 73-108.) For these myriad
2
federal claims, the Plaintiff seeks declaratory and injunctive relief as to the California Money
3
Transmission Act. (Id. p. 28.)
4
5
6
ARGUMENT
I.
LEGAL STANDARDS APPLICABLE TO RULE 12(B) MOTIONS
This motion is brought pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
7 Rule 12(b)(1) authorizes dismissal for lack of subject matter jurisdiction. Rule 12(b)(6)
8
authorizes dismissal for the failure to state a claim upon which relief can be granted.
9
10
A. Rule 12(b)(1) Rule 12(b)(1) allows a party to raise the defense that a court lacks jurisdiction over the
11
subject matter of a claim. “A motion to dismiss for lack of subject matter jurisdiction may either
12
attack the allegations of the complaint or may be made as a ‘speaking motion’ attacking the
13
existence of subject matter jurisdiction in fact.” Thornhill Publ’g. Co. v. Gen. Tel. & Elecs.,
14 594 F.2d 730, 733 (9th Cir. 1979). The instant Rule 12(b)(1) motion attacks the allegations of the
15
complaint, so the district court must accept the allegations of the complaint as true. See Safe Air
16
for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). But the burden of proof on a Rule
17
12(b)(1) motion is on the party seeking to invoke the court’s subject matter jurisdiction.
18
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); Thornhill Publ’g. Co.,
19
594 F.2d at 733.
20
B.
21
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the complaint. Rule 12(b)(6)
22
N. Star Int’l. v. Arizona Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983). Dismissal of the
23
complaint or of any claim within it “can be based on the lack of a cognizable legal theory or the
24
absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police
25
Dep’t, 901 F.2d 696, 699 (9th Cir. 1990) (citing Robertson v. Dean Witter Reynolds, Inc.,
26 749 F.2d 530, 533-34 (9th Cir. 1984)).
27
28
In considering a motion to dismiss for failure to state a claim, the court accepts as true all
material allegations in the complaint and the reasonable inferences that can be drawn from them.
4
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1
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245
2
(9th Cir. 1989). However, the court need not accept as true unreasonable inferences, unwarranted
3
deductions of fact, or conclusory legal allegations cast in the form of factual allegations. W.
4
Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). A court generally cannot consider
5
materials outside of the complaint, except for materials submitted as part of the complaint or the
6
contents of which are alleged in the complaint. Hal Roach Studios, Inc. v. Richard Feiner & Co.,
7
Inc., 896 F.2d 1542, 1555, n. 19 (9th Cir. 1990).
8
II.
9
10
THE GOVERNOR, SENIOR ADVISOR APPELSMITH, ATTORNEY
GENERAL, AND ACTING SECRETARY OF THE BUSINESS,
TRANSPORTATION AND HOUSING AGENCY MUST BE DISMISSED
BECAUSE THEY ARE IMMUNE FROM SUIT PURSUANT TO THE
ELEVENTH AMENDMENT
11
12
The Eleventh Amendment bars suit against a state or its instrumentalities for all types of
13
legal or equitable relief in the absence of consent by the state or an abrogation of that immunity
14
by Congress. Papasan v. Allain, 478 U.S. 265, 276-77 (1986); Pennhurst State Sch. & Hosp. v.
15
Halderman, 465 U.S. 89, 100 (1984). Section 1983 does not abrogate a state’s Eleventh
16
Amendment immunity. Quern v. Jordan, 440 U.S. 332, 341 (1979). Nor has the State of
17
California waived that immunity with respect to claims brought under section 1983 in federal
18
court. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 241 (1985).
19
“The Eleventh Amendment [also] bars a suit against state officials when ‘the state is the
20
real, substantial party in interest.’” Pennhurst, 465 U.S. at 101 (citations omitted); see Almond
21
Hill Sch. v. U.S. Dep’t of Agric., 768 F.2d 1030, 1033 (9th Cir. 1985). The “general rule is that
22
relief sought nominally against an officer is in fact against the sovereign if the decree would
23
operate against the latter.” Pennhurst, 465 U.S. at 101 (citation omitted). “[A]s when the State
24
itself is named as the defendant, a suit against state officials that is in fact a suit against a State is
25
barred regardless of whether it seeks damages or injunctive relief.” Id. at 101-02 (citation
26
omitted).
27
28
The Supreme Court has recognized a limited exception to Eleventh Amendment immunity
in Ex parte Young, 209 U.S. 123 (1908). The Ex parte Young exception allows “suits for
5
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1
prospective declaratory and injunctive relief against state officers, sued in their official capacities,
2
to enjoin an alleged ongoing violation of federal law.” Agua Caliente Band of Cahuilla Indians v.
3
Hardin, 223 F.3d 1041, 1045 (9th Cir. 2000). Additionally, however, for the Ex parte Young
4
exception to apply, “it is plain that such officer must have some connection with the enforcement
5
of the act, or else it is merely making him a party as a representative of the State, and thereby
6
attempting to make the State a party.” Snoeck v. Brussa, 153 F.3d 984, 986 (9th Cir. 1998)
7
(quoting Ex parte Young, 209 U.S. at 157). “This connection must be fairly direct; a generalized
8
duty to enforce state law or general supervisory power over the persons responsible for enforcing
9
the challenged provision will not subject an official to suit.” L.A. Cnty. Bar Ass’n v. Eu, 979 F.2d
10
697, 704 (9th Cir. 1992) (citing Long v. Van de Kamp, 961 F.2d 151, 152 (9th Cir. 1992)); L.A.
11
Branch NAACP v. L.A. Unified Sch. Dist., 714 F.2d 946, 953 (9th Cir. 1983).
12
Here, with respect to the Governor and Attorney General, the allegations of the complaint
13
indicate that they are named as defendants merely because of their general law enforcement
14
duties and supervisory roles. See Cal. Const., art. V, §§ 1, 13 (Governor “shall see that the law is
15
faithfully executed” and Attorney General shall “see that the laws of the State are uniformly and
16
adequately enforced”). The Governor is sued in his official capacity as the supervisor of the
17
Business, Transportation and Housing Agency, which, in turn, oversees the Department of
18
Financial Institutions, and he is allegedly responsible for enforcing the California Money
19
Transmission Act. (FAC, ¶¶ 6, 22.) The Attorney General is also sued in her official capacity
20
“[a]s the chief law enforcement officer of the State,” and is allegedly responsible for the Act’s
21
enforcement. (Id. ¶ 21.) The Money Transmission Act, however, belies these conclusory
22
allegations, and they are insufficient to defeat sovereign immunity in any event. See W. Mining
23
Council, 643 F.2d at 624 (court may disregard legal conclusions in a complaint in ruling on a
24 Rule 12(b)(6) motion).
25
The Plaintiff’s chief complaint regarding the Money Transmission Act’s administration and
26
enforcement relates to the imposition of statutory licensing requirements on corporations like the
27
Plaintiff. (See, e.g., FAC, ¶ 4.) But those acts are regulated by the Department of Financial
28
Institutions. See, e.g., Cal. Fin. Code, § 2033; In the Matter of: Mex. Money Transfer Litig.,
6
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1 267 F.3d 743, 747 (7th Cir. 2001) (enforcement of California’s money transfer statutes “is
2
committed to the California Department of Financial Institutions”). The Legislature did not give
3
the Governor or Attorney General any special role in administering or enforcing the Money
4
Transmission Act. There are no specific allegations indicating any enforcement connection
5
between the Governor and Attorney General and the Money Transmission Act. Indeed, unlike
6
the Department of Financial Institutions defendants, about whom the complaint details numerous
7
explicit allegations involving the Money Transmission Act’s administration, there are no such
8
allegations that the Governor or Attorney General are “responsible for the policies and procedures
9
carried out by the DFI relating to money transmission and stored value.” (FAC, ¶¶ 18-19.) Thus,
10
11
their dismissal from this action is warranted.
The allegations as to Senior Advisor Appelsmith and Acting Secretary Stevens are equally
12
tenuous, and they too must be dismissed from this action. Like the Governor and Attorney
13
General, they have no special role in administering the Money Transmission Act, and they are not
14
specifically alleged to have any role in carrying out the policies and procedures of the Department
15
of Financial Institutions.
16
Dismissing the Governor, Attorney General, Senior Advisor Appelsmith, and Acting
17
Secretary Stevens on Eleventh Amendment grounds is firmly supported by Ninth Circuit
18
authority, including the cases of Long v. Van de Kamp, 961 F.2d 151 (1992) (per curiam) and
19
National Audubon Society, Inc. v. Davis, 307 F.3d 835 (2002). Long arose from warrantless
20
surprise searches of a motorcycle repair shop pursuant to a statutory provision. Long v. Van de
21
Kamp, 772 F. Supp. 1141, 1142 (C.D. Cal. 1991).3 The operators challenged the
22
constitutionality of the law, named the Attorney General, and sought to enjoin him from
23
enforcing the statute. Id. at 1143.
24
In directing the district court to dismiss the Attorney General on Eleventh Amendment
25
grounds, the Ninth Circuit stated that “there must be a connection between the official sued and
26
enforcement of the allegedly unconstitutional statute, and there must be a threat of enforcement.”
27
28
3
The Court of Appeals’ decision incorporated by reference the facts of the case as set
forth in the district court’s opinion. See Long, 961 F.2d at 152.
7
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1
Long, 961 F.2d at 152. The Ninth Circuit found that the “general supervisory powers of the
2
California Attorney General” did not establish the connection with enforcement required by Ex
3
parte Young. Id. (citing S. Pac. Transp. Co. v. Brown, 651 F.2d 613, 614 (9th Cir. 1981) (as
4
amended)).4 There also was no threat that the statute would be enforced by the Attorney
5
General, who “ha[d] not in any way indicated that he intend[ed] to enforce [the provision].” Id.
6
“In addition, the searches of plaintiffs’ premises were not the result of any action attributable or
7
traceable to the Attorney General.” Id. The Ninth Circuit held that “[a]bsent a real likelihood
8
that the state official will employ his supervisory powers against plaintiffs’ interests, the Eleventh
9
Amendment bars federal court jurisdiction.” Id. (Emphasis added).
10
The circumstances here are analogous to those in Long. The Plaintiff alleges no connection
11
between, on one hand, the Governor, Senior Advisor Appelsmith, the Attorney General, and
12
Acting Secretary Stevens, and, on the other hand, administration and enforcement of the Money
13
Transmission Act. In fact, the complaint suggests that these defendants are named because of
14
their conspicuous lack of activity. (FAC, ¶¶ 6, 58, 80.) The alleged enforcement here, if any, has
15
allegedly come from the Department of Financial Institutions defendants. None of the alleged
16
actions are sufficiently attributable or traceable to the other, higher-level state defendants to
17
abrogate those officials’ Eleventh Amendment immunity. Nor has Plaintiff alleged a “real
18
likelihood” that the Attorney General or executive officials overseeing the Department of
19
Financial Institutions are using their supervisory powers to directly apply the Money
20
Transmission Act in any way to Plaintiff. Long, 961 F.2d at 152. Accordingly, the Ex parte
21
Young exception does not apply in this case. See id. at 152; see also Snoeck v. Brussa, 153 F.3d
22
at 987 (“As Ex Parte Young explains, the officers of the state must be cloaked with a duty to
23
enforce the laws of the state and must threaten or be about to commence civil or criminal
24
25
26
27
28
4
In Southern Pacific Transp. Co., several railroads sued the Oregon Attorney General to
enjoin enforcement of a statute limiting employers’ abilities to negotiate settlements with
employees injured on the job. 651 F.2d at 614. The Ninth Circuit held that “[t]he attorney
general’s power to direct and advise [district attorneys] does not make the alleged injury fairly
traceable to his action, nor does it establish sufficient connection with enforcement to satisfy Ex
Parte Young.” Id. at 615.
8
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1
proceedings to enforce an unconstitutional act”). Plaintiff cannot allege facts to meet these
2
requirements and the Governor, Senior Advisor Appelsmith, Attorney General, and Acting
3
Secretary Stevens must therefore be dismissed.
4
Dismissal is also supported by National Audubon Society, Inc. v. Davis, 307 F.3d 835 (9th
5
Cir. 2002). There, the Ninth Circuit considered a challenge to provisions of the California Fish
6
and Game Code, enacted when California voters passed Proposition 4. Id. at 843. The Ninth
7
Circuit considered whether defendants Governor and Secretary of Resources “ha[d] direct
8
authority and practical ability to enforce the challenged statute[,]” id. at 846, and concluded that
9
they did not. The court held that suit seeking injunctive and declaratory relief was “barred against
10
the Governor and the state Secretary of Resources, as there is no showing that they have the
11
requisite enforcement connection to Proposition 4.” Id. at 847. In contrast, the court permitted
12
the suit to go forward as to the Director of the California Department of Fish and Game, “who has
13
direct authority over and principal responsibility for enforcing Proposition 4.” Id.
14
Like the Governor and Secretary of Resources in National Audubon Society, the Governor,
15
Senior Advisor Appelsmith, Attorney General, and Acting Secretary Stevens do not have any
16
administration or enforcement connection to the Money Transmission Act, much less “direct
17
authority over” or “principal responsibility” for enforcing that law. Id. at 846. Accordingly,
18
these defendants must be dismissed from this action.
19
III. THE ACTION MUST BE DISMISSED BECAUSE IT IS NOT RIPE FOR
REVIEW
20
21
A district court’s role is neither to issue advisory opinions nor to declare rights in
22
hypothetical cases, but to adjudicate live “cases or controversies” consistent with the powers
23
granted the judiciary in Article III of the Constitution. The basic rationale of the ripeness doctrine
24
“is to prevent the courts, through premature adjudication, from entangling themselves in abstract
25
disagreements.” Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580 (1985). Courts
26
must avoid making decisions that depend on uncertain or contingent future events that may not
27
occur as anticipated, or may not occur at all. Cardenas v. Anzai, 311 F.3d 929, 934 (9th Cir.
28
2002). In the context of reviewing state administrative actions, “a regulation is not ordinarily
9
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1
considered the type of agency action ‘ripe’ for judicial review . . . until the scope of the
2
controversy has been reduced to more manageable proportions, and its factual components
3
fleshed out, by some concrete action applying the regulation to the claimant’s situation in a
4
fashion that harms or threatens to harm him.” Nat’l Park Hospitality Ass’n v. Dep’t of the
5
Interior, 538 U.S. 803, 807 (2003). Principles of federalism lend the ripeness doctrine additional
6
force where “a federal court is reviewing a state agency decision at an interim stage in an
7
evolving process.” US W. Commc’n v. MFS Intelenet, Inc., 193 F.3d 1112, 1118 (9th Cir. 1999);
8
see also Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc., 344 U.S. 237, 247 (1952) (“State
9
administrative bodies have the initial right to reduce the general policies of state regulatory
10
11
statutes into concrete orders and the primary right to take evidence and make findings of fact”).
Inquiries into ripeness often address two factors: (1) the fitness of the issues for judicial
12
decision; and, (2) the hardship to the parties of withholding the court’s consideration. Colwell v.
13
Dep’t of Health and Human Servs., 558 F.3d 1112, 1123-1124 (9th Cir. 2009). Courts have long
14
recognized the importance of final agency action when reviewing state administrative decisions.
15
The rules applicable in land-use cases are particularly instructive and, as will be shown, their
16
principles apply in other permitting contexts. In land-use permitting cases involving various
17
constitutional and statutory claims, the Ninth Circuit applies a categorical rule that such claims
18
are not ripe until the government has made a final decision applying its regulations to the
19
claimant’s property. Guatay Christian Fellowship v. Cnty. of San Diego, ___F.3d ___, 2011 WL
20
6450742 (9th Cir. 2011). Because the government cannot make such a decision until the claimant
21
submits an application for land use, the Ninth Circuit requires a claimant to complete at least one
22
meaningful land-use application before filing suit. Id. at *20 (Religious Land Use and
23
Institutionalized Persons Act claim not ripe where plaintiff “fail[ed] to complete even one full
24
Use Permit application”); Kinzli v. City of Santa Cruz, 818 F.2d 1449, 1453-1456 (9th Cir. 1987)
25
(Takings, Due Process and Equal Protection claims not ripe where plaintiff never submitted a
26
single complete application for property development); S. Pac. Transp. Co. v. City of Los
27
Angeles, 922 F.2d 498, 507 (9th Cir. 1990) (“All as-applied challenges to regulatory takings,
28
whether based on the just compensation clause, the due process clause or the equal protection
10
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1
clause, possess the same ripeness requirement: a final determination by the relevant governmental
2
body”). A claimant cannot even complain that submitting an application would be a futile act
3
unless it actually completed at least one application attempt. Kinzli, 818 F.2d at 1455.
4
The final decision rule is not limited to the land-use context. The Ninth Circuit has also
5
applied the rule to other claims of government restrictions. US W. Commc’n, 193 F.3d at 1126
6
(rate setting); see also Armendariz v. Penman, 31 F.3d 860, 868 (9th Cir. 1994) (loan
7
applications), rev’d in part en banc, Armendariz v. Penman, 75 F.3d 1311 (9th Cir. 1996). And
8
in other contexts as well, courts have required a completed licensing application and final
9
decision before a plaintiff’s challenges become ripe for review. See Lewis v. Cont’l Bank Corp.,
10
11 494 U.S. 472 (1990); Himes v. Johnson, 772 F.Supp. 678 (D. Me. 1991).
Here, the Plaintiff’s constitutional claims arise out of its decision not to pursue licensure
12
under the Money Transmission Act, and to instead shutter its business entirely and sue the state.
13
(See FAC, ¶ 52) (Plaintiff “opted to shut down FaceCash in California and nationwide.”) The
14
Plaintiff seeks to bring down the state’s entire regulatory framework for money transmission
15
activities, and yet the Plaintiff has not submitted even a single application for licensure under the
16
Money Transmission Act -- even though the law requires notice and a hearing before any license
17
may be denied, and even though the Plaintiff repeatedly claimed that it had sufficient capital to
18
satisfy statutory licensure requirements.5 (Cal. Fin. Code, § 2033(c); FAC, ¶ 50.)
19
These circumstances are akin to the Supreme Court’s rejection of a similar challenge in
20
Lewis v. Continental Bank Corp., 494 U.S. 472 (1990), where the court rejected a bank’s
21
Commerce Clause challenge to a state statute that prohibited the bank from operating in the state,
22
because the bank failed to apply to the state for a bank charter. In Lewis, Florida law prohibited
23
out-of-state bank holding companies from operating both FDIC-insured and uninsured banks in
24
Florida. Id. at 475. The Plaintiff was an Illinois bank holding company that applied for a Florida
25
charter to operate an FDIC-insured bank in Florida. Id. Florida officials refused to process the
26
27
28
5
The Plaintiff complains that although it purportedly raised more than $500,000 in
support of its application for licensure, it nonetheless refused to even apply for a license, citing in
part the $5,000 application fee. (FAC, ¶ 54.)
11
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1
application on the ground that it was prohibited under state law, and the plaintiff sued, claiming
2
that Florida law violated the Commerce Clause. Id. Thereafter, Congress amended federal law,
3
and authorized states to ban out-of-state holding companies from owning FDIC-insured in-state
4
banks. Id. at 476. Recognizing that Congress essentially ratified Florida’s ban on FDIC-insured
5
banks, the plaintiff tried to claim that it intended to apply for an uninsured bank charter. Id. at
6
478. But the Court rejected this argument, noting that the plaintiff never applied to operate such a
7
bank in Florida: Plaintiff’s “challenge to the constitutionality of the Florida statute’s application
8
to an uninsured bank that it has neither applied for nor expressed any intent to apply for amounts
9
to a request for advice as to ‘what the law would be upon a hypothetical state of facts,’ . . . or with
10
respect to ‘“contingent future events that may not occur as anticipated, or indeed may not occur at
11
all.”’” Id. at 479-480.
12
Similarly, in Himes v. Johnson, 772 F.Supp. 678 (D. Me. 1991), the owner of a massage
13
parlor challenged the constitutionality of a municipal ordinance regulating massage
14
establishments. The ordinance required that the plaintiff apply for a business license, but the
15
plaintiff had not done so. Id. at 679. In finding that the plaintiff’s claims were not ripe for
16
review, the court noted that “because he has not yet applied for a license . . . any potential action
17
by the Defendants is theoretical, not actual.” Id. at 680; see also Pac. Gas & Elec. Co. v. State
18
Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 203 (1983) (preemption challenge to
19
state statute requiring a case-by-case evaluation of nuclear power plants was not ripe where state
20
agency had not ruled).
21
As in Lewis and Himes, and consistent with the law in this circuit requiring a final
22
application decision, this Court should not allow Plaintiff to simply skip the state application
23
process (including the noticed hearing process) and seek review of a hypothetical business plan
24
that Plaintiff purportedly believes the Department of Financial Institutions will deny. Federal
25
courts are not in the business of issuing such advisory opinions. Prudential considerations also
26
support this approach. In light of the broad constitutional attack on virtually every aspect of the
27
Money Transmission Act, and because of the Plaintiff’s unusual business model, the Department
28
of Financial Institutions should be given a concrete opportunity to apply the newly-enacted law to
12
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1
the Plaintiff’s business, and to create a record in the event it ultimately denies the Plaintiff’s
2
license application after notice and a hearing. Indeed, despite the Plaintiff’s allegations that its
3
application would be denied, it never actually submitted an application, and its claim is only
4
speculation about an event that never occurred. The plaintiff in Lewis made a similar claim that it
5
would apply for an uninsured bank charter. Lewis, 494 U.S. at 480. And there, Florida officials
6
had already refused to process the plaintiff’s application for a bank charter. Id. at 475. But that
7
did not prevent the Supreme Court from rejecting the claim: “If [the holding company] applies for
8
and is denied a charter for an uninsured bank in Florida, there will be ample time to obtain
9
judicial review of the denial.” Id. at 482. Moreover, the Department has broad discretion in
10
approving or denying licenses. Cal. Fin. Code, § 2033(b). The Department may deny a license
11
for inadequate shareholder equity, or because the applicant’s directors and officers have poor
12
financial standing. Id. But such action cannot occur without notice and a hearing. Cal. Fin.
13
Code, § 2033(c). On the other hand, to be sure, the Department could approve the Plaintiff’s
14
application, permitting it to engage in its money transmission activities and avoiding the need for
15
this Court to rule on the varied constitutional issues in the complaint. Principal Life Ins. Co. v.
16
Robinson, 394 F.3d 665, 670 (9th Cir. 2005) (noting that the “value[] of avoiding unnecessary
17
constitutional determinations . . . lie[s] at the core of ripeness policies”). Absent a completed
18
application and ruling by the Department of Financial Institutions, however, any review of the
19
Money Transmission Act to the Plaintiff’s business is premature.
20
Additionally, the Plaintiff will not undergo future hardship by requiring that it complete the
21
application process before this Court evaluates its constitutional challenges. To establish a
22
sufficient hardship, the Plaintiff must show that withholding review would result in a direct and
23
immediate hardship and would entail more than possible financial loss. US W. Commc’n, 193
24
F.3d at 1118. The Plaintiff’s purported injury here -- its inability to take part in money
25
transmission activities within California -- was sustained, if at all, when the Plaintiff “opted” to
26
cease conducting its business instead of applying for a money transmission license. FAC, ¶ 52.
27
Indeed, Plaintiff could have continued operation after the effective date of the Money
28
Transmission Act, had it applied for a license. See Cal. Fin. Code, § 2172.
13
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1
Considering the scope of the constitutional questions at issue, the factual uncertainty
2
surrounding the Plaintiff’s business and the multitude of state laws governing money transmission
3
activities generally, and giving deference to the state agency charged with applying this new state
4
regulatory law, the Plaintiff should be required to complete the minimal effort of applying for a
5
state license. Having failed to do so, the Court should dismiss the constitutional claims as not yet
6
ripe for review.6
7
IV.
8
9
THE PLAINTIFF DOES NOT HAVE A DUE PROCESS OR EQUAL
PROTECTION CLAIM
In its first claim for relief, the Plaintiff alleges that the Money Transmission Act is facially
10
invalid because it deprived Plaintiff of a “legally valid, vested right to use of property in interstate
11
commerce.” (FAC, ¶ 75.) The Plaintiff also alleges that the State Defendants frustrated
12
Plaintiff’s efforts at licensure, somehow denying its due process rights. (Id. ¶¶ 77-82.) Further,
13
the Plaintiff alleges that the law violates its equal protection rights by arbitrarily singling out
14
smaller, newer, financial entities. (Id. ¶ 76.) None of these claims states a valid claim for relief. 15
A.
16
17
The Plaintiff Does Not Have A Property Right Protected Under The Due
Process Clause
It is not clear if the plaintiff is attempting to assert a violation of substantive or procedural
18
due process here, but in either case, to obtain relief on a due process claim based on an alleged
19
deprivation of a property right, the plaintiff must first establish the existence of a protected
20
21
22
23
24
25
26
27
28
6
Additionally, to the extent the Plaintiff challenges the Money Transmission Act on the
ground that it regulates commerce occurring entirely outside California, this claim presents no
ripe case or controversy for a separate reason. The Plaintiff acknowledged that the Department of
Financial Institutions specifically waived application of the Money Transmission Act to the
extent it purportedly regulated the Plaintiff’s money transmission activities occurring entirely out
of state. (FAC, ¶ 56.) The Plaintiff seeks to avoid this fatal defect to its claim by baldly asserting
that “the California DFI intended and still intends to enforce the MTA beyond the State of
California’s borders on transactions originating and existing in interstate commerce.” (FAC, ¶
56.) But this conclusory allegation is mere speculation and wholly unsupported by any factual
allegations. Accordingly, it should be disregarded. W. Mining Council, 643 F.2d at 624.
Because the Department of Financial Institutions will not enforce the Money Transmission Act
against the Plaintiff for its out-of-state activities, the Plaintiff cannot make out a ripe Commerce
Clause claim that the Money Transmission Act impermissibly regulates commerce occurring
solely out of state, and this claim must be dismissed.
14
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property interest. Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1029 (9th Cir.
2
2010). Protected property interests “are not created by the Constitution[, but r]ather they are
3
created and their dimensions are defined by existing rules or understandings that stem from an
4
independent source such as state law-rules or understandings that secure certain benefits.” Bd. of
5
Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972). State law creates a property interest
6
protected by the Due Process Clause where it creates a “legitimate claim of entitlement” to a
7
particular benefit. Id. “[A] person clearly must have more than an abstract need or desire for it.
8
He must have more than a unilateral expectation of it.” Id. A legitimate claim of entitlement “is
9
determined largely by the language of the statute and the extent to which the entitlement is
10
couched in mandatory terms.” Johnson, 623 F.3d at 1030.
11
Here, the Plaintiff has not alleged that any California law protected its property interest in
12
continuing to operate as a domestic money transmitter free of state regulation. Spoklie v. Mont.,
13 411 F.3d 1051, 1058 (9th Cir. 2005) (“A state may outlaw a formerly legal business even if it
14
causes hardship to those who relied on the earlier law”). There is certainly no California statute
15
or caselaw stating “in mandatory terms” that the plaintiff be allowed to continue engaging in this
16
business activity without regulation. Thus, the Plaintiff did not identify a property interest
17
protected under the Due Process Clause that was impaired by the Money Transmission Act.7
18
Further, once the Money Transmission Act was enacted, the Plaintiff could claim no state-created
19
right to continue operating as a money transmitter without a license. Many of the allegations in
20
the first claim for relief assert that the Plaintiff was denied due process in its efforts to obtain a
21
money transmission license. (FAC, ¶¶ 77-82.) The Ninth Circuit has recognized a protected
22
property interest in a business license where the licensing body has no discretion in granting or
23
denying a license. See Thornton v. City of St. Helens, 425 F.3d 1158, 1164 (9th Cir. 2005). But
24
where, as here, the reviewing body has discretion to deny the license or to impose licensing
25
26
27
28
7
Nor could the Plaintiff assert a viable procedural due process challenge to the enactment
of the Money Transmission Act, because the legislative process provided all of the procedural
process due. Rea v. Matteucci, 121 F.3d 483, 485 (9th Cir. 1997) (“When a state alters a stateconferred property right through the legislative process, the legislative determination provides all
the process that is due”) (internal quotation marks omitted); Hotel & Motel Ass’n of Oakland v.
City of Oakland, 344 F.3d 959, 969 (9th Cir. 2003).
15
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criteria of its own creation, the licensure applicant does not have a protected property interest in
2
the license. Id. at 1165 (“an applicant does not have a property interest in the renewal of a license
3
if the reviewing body has discretion to deny renewal or to impose licensing criteria of its own
4
creation”); Jacobson v. Hannifin, 627 F.2d 177 (9th Cir. 1980) (first time license applicant had no
5
protected property interest in state license where state had discretion to deny license). The
6
California Department of Financial Institutions has discretion under the Money Transmission Act
7
to approve or deny money transmission licenses, and to impose licensing conditions upon any
8
money transmission license. Cal. Fin. Code, §§ 2033, 2036. Thus, Plaintiff can claim no
9
protected property interest in licensure under the Money Transmission Act. Absent a protected
10
11
property interest, the Plaintiff’s due process claim fails.8
B.
12
13
The Money Transmission Act’s Licensing Requirements Are Rationally
Related To A Legitimate State Purpose
Even assuming that the Plaintiff identified a protected property interest, the Plaintiff still
14
cannot proceed on its due process or equal protection claims, because the Act’s licensing
15
requirements are rationally related to legitimate government interests.9
16
Plaintiff’s first claim for relief, asserting a facial substantive due process challenge to the
17
Money Transmission Act, fails as long as the law has any conceivable legitimate government
18
purpose. Halverson v. Skagit Cnty., 42 F.3d 1257, 1262 (9th Cir. 1994). The Plaintiff carries a
19
“heavy burden” because “[i]f it is ‘at least fairly debatable’ that the [government’s] conduct is
20
rationally related to a legitimate governmental interest, there has been no violation of substantive
21
22
23
24
25
26
27
28
8
And like a procedural challenge to the Legislature’s adoption of the Money
Transmission Act, the Plaintiff cannot claim that there was a violation of its procedural due
process rights to obtain a license where it did not pursue the procedural safeguards explicitly
provided under the Money Transmission Act. Manufactured Home Communities v. City of San
Jose, 420 F.3d 1022, 1033 (9th Cir. 2005) (due process challenge not ripe where plaintiff never
engaged in administrative hearing process: “Due process has not been denied because no process
was pursued”). The Money Transmission Act provided the Plaintiff an opportunity to apply for a
license (and continue its business operations during the application process), and required the
Department of Financial Institutions to provide notice and a hearing before denying any license
application. Cal. Fin. Code, §§ 2033(c), 2172. The Plaintiff concedes that it never filed an
application for licensure. (FAC, ¶ 72.)
9
The Court may decide this issue on a motion to dismiss. See Spoklie v. Mont., 411 F.3d
1051 (9th Cir. 2005).
16
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1
due process.” Id. As such, the Legislature’s motives are irrelevant. The court’s focus is not
2
whether the legislative act “actually advance[s] its stated purposes, but instead . . . whether the
3
governmental body could have had no legitimate reason for its decision.” Kawaoka v. City of
4
Arroyo Grande, 17 F.3d 1227, 1234 (9th Cir. 1994) (internal quotations omitted).
5
Comparable standards govern the Plaintiff’s equal protection claim. The complaint
6
essentially alleges that the Money Transmission Act violates the Equal Protection Clause because
7
it “illegitimately and arbitrarily” discriminates against smaller, newer, businesses. (FAC, ¶ 76.)
8
To the extent these allegations even remotely sketch out a protectable class of businesses, it is not
9
a suspect class, nor do money transmission laws touch on fundamental rights. Thus, as the
10
Supreme Court has said, “[i]n areas of social and economic policy, a statutory classification that
11
neither proceeds along suspect lines nor infringes fundamental constitutional rights must be
12
upheld against equal protection challenge if there is any reasonably conceivable state of facts that
13
could provide a rational basis for the classification.” F.C.C. v. Beach Commc’ns, Inc.,
14 508 U.S. 307, 313 (1993); see City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976). In
15
making this determination, the court does not evaluate the “wisdom, fairness, or logic of
16
legislative choices,” and the Plaintiff bears the burden to “negative every conceivable basis”
17
which might support the class distinction. F.C.C., 508 U.S. at 313, 315; Johnson, 623 F.3d at
18
1031. Even “rational speculation unsupported by evidence or empirical data” will pass
19
constitutional muster. F.C.C., 508 U.S. at 315. Moreover, to survive rational basis scrutiny, the
20
state action “need not actually further a legitimate interest; it is enough that the governing body
21
could have rationally decided that the action would further that interest.” Johnson, 623 F.3d at
22
1031 (internal quotations omitted).
23
The Money Transmission Act’s stated -- and hence conceivable -- purposes promote a
24
legitimate government interest. In adopting the law, the Legislature stated its intent to “[p]rotect
25
the interests of persons in this state who use money transmission,” “[p]rovide for the safe and
26
sound conduct of the business of licensees,” and to “[m]aintain public confidence in licensees.”
27
Cal. Fin. Code, § 2002. The Legislature also declared the necessity of regulating money
28
transmission businesses in the state in order to preserve the health, safety, and general welfare of
17
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the people of this state. Cal. Fin. Code, § 2001(d). The state’s interest in licensing and regulating
2
the activities of money transmission businesses to ensure that such businesses are financially
3
stable and reliable to state citizens is a legitimate basis for the Money Transmission Act, and is
4
certainly not irrational on its face. See Ne. Bancorp, Inc. v. Bd. of Governors, 472 U.S. 159, 177
5
(1985) (noting that “banking and related financial activities are of profound local concern”)
6
(quoting Lewis v. B.T. Inv. Managers, Inc., 447 U.S. 27, 38 (1980)); Quik Payday, Inc. v. Stork,
7 549 F.3d 1302, 1310 (10th Cir. 2008) (noting the “significant benefits” that criminal-background
8
checks and surety-bond requirements provide to state consumers engaged in Internet borrowing).
9
For instance, the requirement that money transmitters -- non-bank corporations that take citizens’
10
money and hold it or transmit it to others -- maintain minimal levels of equity and security is
11
entirely rational in light of the type of financial activity involved. See Cal. Fin. Code, §§ 2037,
12
2040. Such regulation is both reasonable and rational -- and good for the State and its citizens.
13
That is all that is required, and thus the Plaintiff’s first claim for relief has no merit.10
14
V.
15
THE MONEY TRANSMISSION ACT IS INVULNERABLE TO A DORMANT
COMMERCE CLAUSE CHALLENGE
16
The Commerce Clause provides that “The Congress shall have Power . . . [t]o regulate
17
Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” U.S.
18
Const., art. I, § 8. The courts have read into this language a dormant component that grants courts
19
the power to restrict state laws that may impede Congressional regulation of interstate commerce.
20
Schutz v. Thorne, 415 F.3d 1128, 1137 (10th Cir. 2005). But the “essential element of a
21
successful dormant Commerce Clause claim is congressional inaction, so when Congress does
22
act, the dormancy ends, thus leaving the courts obliged to follow congressional will.” Id.
23
“Where state or local government action is specifically authorized by Congress, it is not subject to
24
the Commerce Clause, even if it interferes with interstate commerce.” White v. Mass. Council of
25
Constr. Emp’rs, Inc., 460 U.S. 204, 213 (1983); Int’l Shoe Co. v. State of Wash., 326 U.S. 310,
26
27
28
10
The Plaintiff has acknowledged the Money Transmission Act’s “nominal goals of
consumer protection,” but alleges that consumers are actually harmed by money transmission
laws. (FAC, ¶ 37.) This assertion merely constitutes an impermissible disagreement with the
Legislature’s judgment in enacting the Money Transmission Act that the Court should disregard.
18
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315 (1945) (“It is no longer debatable that Congress, in the exercise of the commerce power, may
2
authorize the states, in specified ways, to regulate interstate commerce or impose burdens upon
3
it.”)11
4
Congress has unambiguously allowed the various states to impose licensing requirements
5
and regulate money transmission activities by expressly incorporating state licensing laws into
6
federal law. As the Plaintiff alleges (FAC, ¶¶ 27-28), section 1960 of title 18 of the United States
7
Code incorporates state money transmission laws, and penalizes those who knowingly operate
8
money transmission businesses in violation of state licensing laws: “Whoever knowingly
9
conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money
10
transmitting business, shall be fined in accordance with this title or imprisoned not more than 5
11
years, or both.” 18 U.S.C. § 1960(a). For purposes of section 1960, an “unlicensed money
12
transmitting business” includes a money transmitting business “which affects interstate or foreign
13
commerce in any manner or degree” and “is operated without an appropriate money transmitting
14
license” in a State where such operation is punishable as a felony. 18 U.S.C. § 1960(b)(1)(A).
15
California is such a state. Cal. Fin. Code, § 2152(b).
16
In penalizing those who operate in violation of the various state licensing laws, Congress
17
affirmatively recognized that such businesses affect interstate commerce, and necessarily
18
endorsed the various states’ licensing and regulation of those business activities. This is nothing
19
new. Congress has long incorporated state laws into federal law as an appropriate exercise of its
20
commerce power. Int’l Shoe Co., 326 U.S. at 315; Ky. Whip & Collar Co. v. Ill. Cent. R.R. Co.,
21 299 U.S. 334 (1937); James Clark Distilling Co. v. W. Md. Ry. Co., 242 U.S. 311 (1917); U.S. v.
22
23
24
25
26
27
28
11
Interspersed with the Plaintiff’s dormant Commerce Clause claims are a few passing
references to article 1, section 10 of the United States Constitution, alleging that the differing
requirements of state Money Transmission Laws “have an effect equivalent to that of establishing
unconstitutional intangible currencies on a state-by-state basis” in a “hypothetical purely digital
society, one that the United States is quickly moving toward.” (See FAC, ¶¶ 7, 13, 36, 105.)
Article 1, section 10 prohibits states from coining money or creating legal tender: “No State shall
. . . coin Money . . . [or] make any Thing but gold and silver Coin a Tender in Payment of Debts.”
“Courts have uniformly interpreted § 10 as prohibiting states from declaring anything other than
gold or silver coin as legal tender.” Nixon v. Phillipoff, 615 F.Supp. 890, 893 (N.D. Ind. 1985);
U.S. v. Rifen, 577 F.2d 1111, 1113 (8th Cir. 1978). The Money Transmission Act does not
purport to declare anything to be legal tender, nor does it purport to establish legal tender.
Plaintiff’s claim, to the extent it is actually (and not hypothetically) being asserted, is meritless.
19
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Sacco, 491 F.2d 995 (9th Cir. 1989). Moreover, the authorization in section 1960 is clearer even
2
than that provided under the National Traffic and Motor Vehicle Safety Act (“Safety Act”), which
3
the court in Soto v. Tu Phuoc Nguyen considered when it rejected a challenge based on the
4
Commerce Clause. Soto, 634 F.Supp.2d 1096, 1100 (E.D. Cal. 2009). Soto arose out of a bus
5
accident, where the plaintiffs alleged that defendant Greyhound bus company negligently failed to
6
provide passenger seat belts on the bus. Id. at 1099. The Safety Act prohibited states from
7
implementing motor vehicle safety standards that differed from those adopted under the statute.
8
Id. at 1100. The law, however, also contained a savings clause that expressly preserved state
9
common law claims. Id. Greyhound asserted that the state negligence claims, premised on a
10
failure to provide passenger seat belts, violated the dormant Commerce Clause. Id. at 1098. The
11
court, however, quickly rejected this argument, noting that there were no federal safety standards
12
governing passenger seat belts on busses, and thus, “[a]s a threshold matter, . . . the presence of
13
the savings clause in the applicable statutory regime itself indicates an express delegation of
14
power to the states.” Id. at 1106-1107.
15
Congressional intent to permit state licensing of money transmission activities is
16
substantially more explicit than the savings clause is at issue in Soto. There, Congress said
17
nothing at all about whether the Safety Act preserved a state tort cause of action based on a
18
failure to provide seat belts. Nonetheless, the court concluded that a generic savings clause
19
“indicates an express delegation” of Congressional power to the states and that the state claim
20
“falls within that delegation of power.” Id. at 1107. In contrast here, Congress has affirmatively
21
recognized the states’ authority to independently license and regulate money transmission
22
activities, by enforcing such state licensing requirements and regulation via section 1960.
23
Similarly, the Supreme Court upheld a local executive order against a dormant Commerce
24
Clause challenge on the ground that the order was consistent with Congressional intent in
25
authorizing federal grant funding programs. White v. Mass. Council of Constr. Emp’rs, Inc.,
26
460 U.S. at 213. There, the mayor of Boston issued an executive order requiring that at least 50%
27
of the worker hours on city construction projects, funded in part by federal grant money, be
28
performed by Boston residents. Id. at 206. The court noted that the federal programs were
20
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intended to encourage economic revitalization, including improved opportunities for the poor,
2
minorities, and the unemployed. Id. at 213. And although Congress had apparently not
3
affirmatively spoken on the subject, the court also pointed out that federal regulations
4
implementing the programs specifically mentioned creating opportunities for persons in the area
5
of the projects. Id. at 213. Accordingly, the court concluded that the mayor’s executive order --
6
requiring that workers be from the Boston area -- “sounds a harmonious note” with those
7
regulations, and that the order “was affirmatively sanctioned by the pertinent regulations of those
8
programs.” Id. at 213, 215.
9
Again, even greater than the authorization recognized in White is Congress’ statement in
10
section 1960, expressly endorsing state-by-state licensing requirements and regulation of money
11
transmission activities by enforcing state licensing provisions through that federal law. In light of
12
the express authorization to the states to license money transmission businesses, the Plaintiff’s
13
Commerce Clause claims must fail.
14
15
CONCLUSION
For the foregoing reasons, the State Defendants respectfully request that the Court grant its
16
motion to dismiss the complaint in its entirety. Defendants Governor, Senior Advisor
17
Appelsmith, the Attorney General, and Acting Secretary Stevens additionally and respectfully
18
request that the Court dismiss them from this action pursuant to the Eleventh Admendment.
19
Dated: February 14, 2012
Respectfully Submitted,
20
KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
21
22
23
/s/ Ryan Marcroft
24
RYAN MARCROFT
Deputy Attorney General
Attorneys for All Defendants
25
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27
28
SA2011103690
31408271.doc
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Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
RYAN MARCROFT
Deputy Attorney General
State Bar No. 230952
1300 I Street, Suite 125
P.O. Box 944255
Sacramento, CA 94244-2550
Telephone: (916) 323-5313
Fax: (916) 324-8835
E-mail: Ryan.Marcroft@doj.ca.gov
Attorneys for All Defendants
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IN THE UNITED STATES DISTRICT COURT
10
FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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THINK COMPUTER CORPORATION,
15
Plaintiff, NOTICE OF MOTION AND MOTION
TO DISMISS FIRST AMENDED
v.
COMPLAINT BY STATE
DEFENDANTS; MEMORANDUM OF
ROBERT VENCHIARUTTI, in his official
POINTS AND AUTHORITIES IN
capacity as Deputy Commissioner of the
SUPPORT
California Department of Financial
Institutions; WILLIAM HARAF, in his
Date:
March 27, 2012
official capacity as Commissioner of the
Time:
10:00 a.m.
California Department of Financial
Courtroom: 2
Institutions; TRACI STEVENS, in her
Judge
The Honorable Howard R. Lloyd
official capacity as Acting Secretary of the
Trial Date: None Set
California Business, Transportation and
Action Filed: 11/14/2011
Housing Agency; JACOB A.
APPELSMITH, in his official capacity as
Senior Advisor to the Governor of the State
of California; EDMUND G. BROWN, JR.,
in his official capacity as Governor of the
State of California; and KAMALA
HARRIS, in her official capacity as
Attorney General of the State of California,
16
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25
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5:11-cv-05496-HRL
Defendants.
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Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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TO PLAINTIFF AND ITS COUNSEL OF RECORD:
2
PLEASE TAKE NOTICE that on March 27, 2012, at 10:00 a.m., or as soon thereafter as
3
the matter may be heard, in Courtroom Two of the above-entitled court, located at 280 South 1st
4
Street, San Jose, California, Defendants ROBERT VENCHIARUTTI, in his official capacity as
5
Deputy Commissioner of the California Department of Financial Institutions, WILLIAM
6
HARAF, in his official capacity as Commissioner of the California Department of Financial
7
Institutions, TRACI STEVENS, in her official capacity as Acting Secretary of the California
8
Business, Transportation and Housing Agency (hereafter, “Acting Secretary Stevens”), JACOB
9
A. APPELSMITH, in his official capacity as Senior Advisor to the Governor of the State of
10
California (hereafter, “Senior Advisor Appelsmith”), EDMUND G. BROWN, JR., in his official
11
capacity as Governor of the State of California (hereafter, “Governor”), and KAMALA HARRIS,
12
in her official capacity as Attorney General of the State of California (hereafter, “Attorney
13
General” and collectively, the “State Defendants”) hereby move this Court pursuant to Federal
14
Rules of Civil Procedure 12(b)(1) and 12(b)(6) for an order dismissing this action.
15
Defendants Governor, Senior Advisor Appelsmith, Attorney General, and Acting Secretary
16
Stevens move to dismiss the Complaint as to them on the ground that it fails to state a claim upon
17
which relief may be granted, because the claims against them are barred by the Eleventh
18
Amendment.
19
20
The State Defendants move to dismiss the Complaint on the ground that this Court lacks
jurisdiction over the subject matter because the claims are not ripe for review.
21
The State Defendants also move to dismiss the first claim for relief, brought under the
22
Fourteenth Amendment’s Due Process and Equal Protection Clauses, on the ground that it fails to
23
state a claim upon which relief may be granted, because the Plaintiff has not identified a protected
24
property right, and because the challenged state law is rationally related to legitimate government
25
interests.
26
27
28
The State Defendants move to dismiss the second and third claims in the Complaint,
brought under the Commerce Clause, on the ground that they fail to state a claim upon which
1
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Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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relief may be granted, because Congress has authorized the states to license and regulate the
2
Plaintiff’s business activities.
3
Said motion is based upon this notice of motion and motion, the memorandum of points and
4
authorities, as well as the pleadings, orders, memoranda, exhibits and other documents already on
5
file in this action.
6
Dated: February 14, 2012
Respectfully Submitted,
7
KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
8
9
10
/s/ Ryan Marcroft
11
RYAN MARCROFT
Deputy Attorney General
Attorneys for All Defendants
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TABLE OF CONTENTS
2
Page
3
Memorandum of Points and Authorities
In Support of Defendants’ Motion to Dismiss ................................................................................ 1
Introduction ..................................................................................................................................... 1
Statement of Issues to be Decided .................................................................................................. 2
Statement of Facts ........................................................................................................................... 2
Argument ........................................................................................................................................ 4
I.
Legal Standards Applicable to Rule 12(b) Motions................................................ 4
A.
Rule 12(b)(1) ............................................................................................... 4
B.
Rule 12(b)(6) ............................................................................................... 4
II.
The Governor, Senior Advisor Appelsmith, Attorney General, and Acting
Secretary of the Business, Transportation and Housing Agency Must Be
Dismissed because they Are Immune From Suit Pursuant to the Eleventh
Amendment ............................................................................................................. 5
III.
The Action Must Be Dismissed Because It Is Not Ripe for Review ...................... 9
IV.
The Plaintiff Does Not Have a Due Process or Equal Protection Claim .............. 14
A.
The Plaintiff Does Not Have a Property Right Protected Under the
Due Process Clause ................................................................................... 14
B.
The Money Transmission Act’s Licensing Requirements Are
Rationally Related to a Legitimate State Purpose ..................................... 16
V.
The Money Transmission Act is Invulnerable to a Dormant Commerce
Clause Challenge................................................................................................... 18
Conclusion .................................................................................................................................... 21
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TABLE OF AUTHORITIES
2
Page
3
CASES
4
Agua Caliente Band of Cahuilla Indians v. Hardin
223 F.3d 1041 (9th Cir. 2000)................................................................................................... 6
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Almond Hill Sch. v. U.S. Dep’t of Agric.
768 F.2d 1030 (9th Cir. 1985)................................................................................................... 5
Armendariz v. Penman
31 F.3d 860 (9th Cir. 1994), rev’d in part en banc, Armendariz v. Penman, 75 F.3d
1311 (9th Cir. 1996) ................................................................................................................ 11
Atascadero State Hosp. v. Scanlon
473 U.S. 234 (1985) .................................................................................................................. 5
Balistreri v. Pacifica Police Dep’t
901 F.2d 696 (9th Cir. 1990)..................................................................................................... 4
Bd. of Regents of State Colls. v. Roth
408 U.S. 564 (1972) ................................................................................................................ 15
Cardenas v. Anzai
311 F.3d 929 (9th Cir. 2002)..................................................................................................... 9
City of New Orleans v. Dukes
427 U.S. 297 (1976) ................................................................................................................ 17
Colwell v. Dep’t of Health and Human Servs.
558 F.3d 1112 (9th Cir. 2009)................................................................................................. 10
Ex parte Young
209 U.S. 123 (1908) .......................................................................................................... 5, 6, 8
F.C.C. v. Beach Commc’ns, Inc.
508 U.S. 307 (1993) ................................................................................................................ 17
Guatay Christian Fellowship v. Cnty. of San Diego
___F.3d ___, 2011 WL 6450742 (9th Cir. 2011) ................................................................... 10
Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.
896 F.2d 1542 (9th Cir. 1990)................................................................................................... 5
Halverson v. Skagit Cnty.
42 F.3d 1257 (9th Cir. 1994)............................................................................................. 16, 17
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
Himes v. Johnson
772 F.Supp. 678 (D. Me. 1991) ........................................................................................ 11, 12
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Hishon v. King & Spalding
467 U.S. 69 (1984) .................................................................................................................... 5
Hotel & Motel Ass’n of Oakland v. City of Oakland
344 F.3d 959 (9th Cir. 2003)................................................................................................... 15
In the Matter of: Mex. Money Transfer Litig.
267 F.3d 743, 747 (7th Cir. 2001)......................................................................................... 6, 7
Int’l Shoe Co. v. State of Wash.
326 U.S. 310 (1945) .......................................................................................................... 18, 19
Jacobson v. Hannifin
627 F.2d 177 (9th Cir. 1980)................................................................................................... 16
James Clark Distilling Co. v. W. Md. Ry. Co.
242 U.S. 311 (1917) ................................................................................................................ 19
Johnson v. Rancho Santiago Cmty. Coll. Dist.
623 F.3d 1011 (9th Cir. 2010)........................................................................................... 15, 17
Kawaoka v. City of Arroyo Grande
17 F.3d 1227 (9th Cir. 1994)................................................................................................... 17
Kinzli v. City of Santa Cruz
818 F.2d 1449 (9th Cir. 1987)........................................................................................... 10, 11
Kokkonen v. Guardian Life Ins. Co. of Am.
511 U.S. 375 (1994) .................................................................................................................. 4
Ky. Whip & Collar Co. v. Ill. Cent. R.R. Co.
299 U.S. 334 (1937) ................................................................................................................ 19
L.A. Branch NAACP v. L.A. Unified Sch. Dist.
714 F.2d 946 (9th Cir. 1983)..................................................................................................... 6
L.A. Cnty. Bar Ass’n v. Eu
979 F.2d 697 (9th Cir. 1992)..................................................................................................... 6
Lewis v. B.T. Inv. Managers, Inc.
447 U.S. 27 (1980) .................................................................................................................. 18
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
Lewis v. Cont’l Bank Corp.
494 U.S. 472 (1990) .................................................................................................... 11, 12, 13
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Long v. Van de Kamp
772 F. Supp. 1141 (C.D. Cal. 1991) ......................................................................................... 7
Long v. Van de Kamp
961 F.2d 151 (9th Cir. 1992)............................................................................................. 6, 7, 8
Love v. United States
915 F.2d 1242 (9th Cir. 1989)................................................................................................... 5
Manufactured Home Communities v. City of San Jose
420 F.3d 1022 (9th Cir. 2005)................................................................................................. 16
N. Star Int’l. v. Arizona Corp. Comm’n.
720 F.2d 578 (9th Cir. 1983)..................................................................................................... 4
Nat’l Park Hospitality Ass’n v. Dep’t of the Interior
538 U.S. 803 (2003) ................................................................................................................ 10
National Audubon Society, Inc. v. Davis
307 F.3d 835 (2002) .............................................................................................................. 7, 9
Ne. Bancorp, Inc. v. Bd. of Governors
472 U.S. 159 (1985) ................................................................................................................ 18
Nixon v. Phillipoff
615 F.Supp. 890 (N.D. Ind. 1985)........................................................................................... 19
Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n
461 U.S. 190 (1983) ................................................................................................................ 12
Papasan v. Allain
478 U.S. 265 (1986) .................................................................................................................. 5
Pennhurst State Sch. & Hosp. v. Halderman
465 U.S. 89 (1984) .................................................................................................................... 5
Principal Life Ins. Co. v. Robinson
394 F.3d 665 (9th Cir. 2005)................................................................................................... 13
Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc.
344 U.S. 237 (1952) ................................................................................................................ 10
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
Quern v. Jordan
440 U.S. 332 (1979) .................................................................................................................. 5
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Quik Payday, Inc. v. Stork
549 F.3d 1302 (10th Cir. 2008)............................................................................................... 18
Rea v. Matteucci
121 F.3d 483 (9th Cir. 1997)................................................................................................... 15
Robertson v. Dean Witter Reynolds, Inc.
749 F.2d 530 (9th Cir. 1984)..................................................................................................... 4
S. Pac. Transp. Co. v. Brown
651 F.2d 613 (9th Cir. 1981)..................................................................................................... 8
S. Pac. Transp. Co. v. City of Los Angeles
922 F.2d 498 (9th Cir. 1990)................................................................................................... 10
Safe Air for Everyone v. Meyer
373 F.3d 1035 (9th Cir. 2004)................................................................................................... 4
Schutz v. Thorne
415 F.3d 1128 (10th Cir. 2005)............................................................................................... 18
Snoeck v. Brussa
153 F.3d 984 (9th Cir. 1998)................................................................................................. 6, 8
Soto v. Tu Phuoc Nguyen
634 F.Supp.2d 1096, 1100 (E.D. Cal. 2009) ........................................................................... 20
Spoklie v. Mont.
411 F.3d 1051 (9th Cir. 2005)........................................................................................... 15, 16
Thomas v. Union Carbide Agric. Prods. Co.
473 U.S. 568 (1985) .................................................................................................................. 9
Thornhill Publ’g. Co. v. Gen. Tel. & Elecs.
594 F.2d 730 (9th Cir. 1979)..................................................................................................... 4
Thornton v. City of St. Helens
425 F.3d 1158 (9th Cir. 2005)........................................................................................... 15, 16
U.S. v. Rifen
577 F.2d 1111 (8th Cir. 1978)................................................................................................. 19
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1
TABLE OF AUTHORITIES
(continued)
2
Page
3
CASES (CONT.)
4
U.S. v. Sacco
491 F.2d 995 (9th Cir. 1989)................................................................................................... 19
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
US W. Commc’n v. MFS Intelenet, Inc.
193 F.3d 1112 (9th Cir. 1999)..................................................................................... 10, 11, 13
W. Mining Council v. Watt
643 F.2d 618 (9th Cir. 1981)........................................................................................... 5, 6, 14
White v. Mass. Council of Constr. Emp’rs, Inc.
460 U.S. 204 (1983) .................................................................................................... 18, 20, 21
STATUTES
California Financial Code
§§ 1800-1872 ............................................................................................................................ 3
§§ 2000-2172 ........................................................................................................................ 3, 4
§ 2000 et seq. ........................................................................................................................ 2, 3
§ 2001(d) ................................................................................................................................. 18
§ 2002 ...................................................................................................................................... 17
§ 2033 ...................................................................................................................................... 16
§ 2033 ........................................................................................................................................ 6
§ 2033(b) ................................................................................................................................. 13
§ 2033(c) ................................................................................................................................. 16
§ 2033(c) ........................................................................................................................... 11, 13
§ 2036 ...................................................................................................................................... 16
§ 2037 ...................................................................................................................................... 18
§ 2040 ...................................................................................................................................... 18
§ 2152(b) ................................................................................................................................. 19
§ 2172 .......................................................................................................................... 13, 14, 16
Federal Rule of Civil Procedure
12(b)(1) ..................................................................................................................................... 4
12(b)(6) ................................................................................................................................. 4, 6
United States Code
18 U.S.C. § 1960 ......................................................................................................... 19, 20, 21
18 U.S.C. § 1960(a) ................................................................................................................ 19
18 U.S.C. § 1960(b)(1)(A) ...................................................................................................... 19
27
28
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TABLE OF AUTHORITIES
(continued)
2
Page
3
CONSTITUTIONAL PROVISIONS
4
California Constitution
Article V , § 1 ............................................................................................................................ 6
5
6
7
8
9
California Constitution
Article V, § 13 ........................................................................................................................... 6
United States Constitution
Article I, § 8 ............................................................................................................................ 18
Article 1, § 10.......................................................................................................................... 19
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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1
2
MEMORANDUM OF POINTS AND AUTHORITIES
IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS
3
INTRODUCTION
4
Plaintiff Think Computer Corporation seeks to bring down the State of California’s entire
5
regulatory framework for money transmission activities without even bothering to apply for a
6
license and obtain a final agency decision. It does so by suing not only the state department
7
officials actually responsible for enforcing the law, but also a number of high-ranking state
8
officials who have no business in this lawsuit because they have little connection to the law’s
9
enforcement. Moreover, the Plaintiff’s constitutional claims are meritless. This action must be
10
dismissed.
11
Plaintiff’s proposed business enterprise is governed by a newly-enacted state law,
12
California’s Money Transmission Act (hereafter, “Money Transmission Act”), which is
13
administered by the California Department of Financial Institutions. For some reason, however,
14
in addition to the state department officials that are actually responsible for enforcing that law, the
15
Plaintiff also sued the Governor, the Attorney General, the Acting Secretary of the California
16
Business, Transportation and Housing Agency, and (though it is not clear), a Senior Advisor to
17
the Governor. But these defendants have an insufficient role in administering and enforcing the
18
Money Transmission Act to abrogate their Eleventh Amendment immunity.
19
Even removing these defendants from the equation, however, the Plaintiff has bigger
20
problems. First, Think Computer Corporation’s claims are not ripe for review. The First
21
Amended Complaint carries on at length about California’s “onerous” licensing provisions, and
22
how officials at the Department of Financial Institutions purportedly frustrated its efforts to obtain
23
a license. But despite the Plaintiff’s claims that it raised sufficient start-up capital to satisfy
24
statutory licensure requirements -- purportedly, more than $500,000 -- the Plaintiff did not satisfy
25
the most basic licensure prerequisite -- actually applying for a license. Instead, the Plaintiff took
26
the extreme step of shutting down its business nationwide and suing the state. Having never
27
applied for a license, particularly where the law requires notice and a hearing before the state
28
department can deny a license, the Plaintiff’s claims are simply not ripe for review at this time.
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Second, its Due Process and Equal Protection claims are meritless, because the Plaintiff has
2
not identified a property interest protected under the Due Process Clause, and because the Money
3
Transmission Act is rationally related to the state’s legitimate interests in licensing and regulating
4
consumer financial transactions. Lastly, the Plaintiff’s Commerce Clause claims fail at the outset,
5
because Congress expressly provided the states the ability to license money transmission
6
activities.
7
8
In the end, it is evident that the Plaintiff cannot maintain any of its claims for relief.
Accordingly, the complaint should be dismissed entirely.
9
STATEMENT OF ISSUES TO BE DECIDED
10
Whether the Governor, Senior Advisor Appelsmith, Attorney General, and Acting
11
Secretary Stevens must be dismissed from this action because they do not administer or enforce
12
the California Money Transmission Act, Cal. Fin. Code, section 2000 et seq.
13
Whether Plaintiff can challenge California’s entire money transmission business licensing
14
and regulatory scheme, where the Plaintiff did not even apply for state licensure, and instead
15
elected to scuttle its business entirely and sue the state.
16
Whether the first claim for relief under the Fourteenth Amendment’s Due Process and
17
Equal Protection Clauses must be dismissed because the Plaintiff alleges no protected property
18
interest, and because the challenged state statute is rationally related to the state’s legitimate
19
interest in regulating financial institutions and transactions.
20
Whether the second and third claims for relief under the dormant component of the
21
Commerce Clause must be dismissed because Congress has authorized state licensing of money
22
transmission activities.
23
STATEMENT OF FACTS
24
Plaintiff Think Computer Corporation is a privately-held Delaware Corporation (FAC,
25
¶ 17)1 that reportedly developed a system to provide money transmission services on a limited
26
scale prior to June 30, 2011, but then ceased when it had to comply with California’s Money
27
28
1
The operative pleading is the First Amended Complaint, Docket No. 23, hereafter
designated “FAC”.
2
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1
Transmission Act. (Id. ¶¶ 4, 8, 40-44; see Cal. Fin. Code, §§ 2000-2172.)2 The California
2
Department of Financial Institutions, which administers and enforces that law, allegedly
3
frustrated the Plaintiff’s attempts to obtain a state license, and then threatened to refer Plaintiff to
4
law enforcement for violations of the law. (FAC, ¶¶ 4, 46-58.) Nonetheless, the state department
5
exempted the Plaintiff’s business operations from the provisions of the Money Transmission Act
6
to the extent that the Plaintiff operated outside of California. (Id. ¶ 56.) The Plaintiff, however,
7
was still required to comply with the law to the extent it operated within California. (Id.) The
8
Plaintiff also avers that it filed tens of complaints with the Department of Financial Institutions
9
that colleges, universities, and other companies were not complying with the Money
10
Transmission Act, to purportedly highlight that the state department was arbitrarily singling out
11
Think Computer Corporation for enforcement. (Id. ¶¶ 9-10, 59-72, Sched. A.) Think Computer
12
Corporation further alleges a “non-evenhanded and discriminatory” nationwide financial
13
regulatory structure that hinders the ability of smaller financial institutions to compete against
14
larger entities and banks in providing money transfer services. (Id. ¶¶ 11, 24, 28-39, Sched. B.)
15
The State Defendants include the Governor, the Attorney General of the State of California,
16
the Acting Secretary of the California Business, Transportation and Housing Agency, and the
17
Commissioner and a Deputy Commissioner of the California Department of Financial
18
Institutions. (FAC, ¶¶ 18-22.) Jacob Appelsmith, a Senior Advisor to the Governor, is named in
19
the caption of the complaint, but not included in the allegations naming defendants. (Cf id. (FAC
20
¶¶ 18-22).) The Governor, Senior Advisor Appelsmith, and Acting Secretary Stevens purportedly
21
dismissed complaints about the Department of Financial Institutions’ treatment of Think
22
Computer Corporation. (Id. ¶ 6.)
23
In three claims for relief, all defendants are being sued for federal constitutional violations,
24
including: (1) violations of the United States Constitution’s Due Process and Equal Protection
25
Clauses for allegedly extinguishing the Plaintiff’s right to use property and frustrating its efforts
26
at state licensure; and, (2) violations of the Commerce Clause for allegedly regulating interstate
27
28
2
The Money Transmission Act was originally codified at Cal. Fin. Code, §§ 1800-1872,
but was recently reorganized and renumbered at Cal. Fin. Code, §§ 2000-2172.
3
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and foreign commerce and burdening interstate commerce. (FAC, ¶¶ 73-108.) For these myriad
2
federal claims, the Plaintiff seeks declaratory and injunctive relief as to the California Money
3
Transmission Act. (Id. p. 28.)
4
5
6
ARGUMENT
I.
LEGAL STANDARDS APPLICABLE TO RULE 12(B) MOTIONS
This motion is brought pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
7
Rule 12(b)(1) authorizes dismissal for lack of subject matter jurisdiction. Rule 12(b)(6)
8
authorizes dismissal for the failure to state a claim upon which relief can be granted.
9
10
A.
Rule 12(b)(1)
Rule 12(b)(1) allows a party to raise the defense that a court lacks jurisdiction over the
11
subject matter of a claim. “A motion to dismiss for lack of subject matter jurisdiction may either
12
attack the allegations of the complaint or may be made as a ‘speaking motion’ attacking the
13
existence of subject matter jurisdiction in fact.” Thornhill Publ’g. Co. v. Gen. Tel. & Elecs.,
14
594 F.2d 730, 733 (9th Cir. 1979). The instant Rule 12(b)(1) motion attacks the allegations of the
15
complaint, so the district court must accept the allegations of the complaint as true. See Safe Air
16
for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). But the burden of proof on a Rule
17
12(b)(1) motion is on the party seeking to invoke the court’s subject matter jurisdiction.
18
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); Thornhill Publ’g. Co.,
19
594 F.2d at 733.
20
B.
21
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the complaint.
Rule 12(b)(6)
22
N. Star Int’l. v. Arizona Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983). Dismissal of the
23
complaint or of any claim within it “can be based on the lack of a cognizable legal theory or the
24
absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police
25
Dep’t, 901 F.2d 696, 699 (9th Cir. 1990) (citing Robertson v. Dean Witter Reynolds, Inc.,
26
749 F.2d 530, 533-34 (9th Cir. 1984)).
27
28
In considering a motion to dismiss for failure to state a claim, the court accepts as true all
material allegations in the complaint and the reasonable inferences that can be drawn from them.
4
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1
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245
2
(9th Cir. 1989). However, the court need not accept as true unreasonable inferences, unwarranted
3
deductions of fact, or conclusory legal allegations cast in the form of factual allegations. W.
4
Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). A court generally cannot consider
5
materials outside of the complaint, except for materials submitted as part of the complaint or the
6
contents of which are alleged in the complaint. Hal Roach Studios, Inc. v. Richard Feiner & Co.,
7
Inc., 896 F.2d 1542, 1555, n. 19 (9th Cir. 1990).
8
II.
9
10
THE GOVERNOR, SENIOR ADVISOR APPELSMITH, ATTORNEY
GENERAL, AND ACTING SECRETARY OF THE BUSINESS,
TRANSPORTATION AND HOUSING AGENCY MUST BE DISMISSED
BECAUSE THEY ARE IMMUNE FROM SUIT PURSUANT TO THE
ELEVENTH AMENDMENT
11
12
The Eleventh Amendment bars suit against a state or its instrumentalities for all types of
13
legal or equitable relief in the absence of consent by the state or an abrogation of that immunity
14
by Congress. Papasan v. Allain, 478 U.S. 265, 276-77 (1986); Pennhurst State Sch. & Hosp. v.
15
Halderman, 465 U.S. 89, 100 (1984). Section 1983 does not abrogate a state’s Eleventh
16
Amendment immunity. Quern v. Jordan, 440 U.S. 332, 341 (1979). Nor has the State of
17
California waived that immunity with respect to claims brought under section 1983 in federal
18
court. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 241 (1985).
19
“The Eleventh Amendment [also] bars a suit against state officials when ‘the state is the
20
real, substantial party in interest.’” Pennhurst, 465 U.S. at 101 (citations omitted); see Almond
21
Hill Sch. v. U.S. Dep’t of Agric., 768 F.2d 1030, 1033 (9th Cir. 1985). The “general rule is that
22
relief sought nominally against an officer is in fact against the sovereign if the decree would
23
operate against the latter.” Pennhurst, 465 U.S. at 101 (citation omitted). “[A]s when the State
24
itself is named as the defendant, a suit against state officials that is in fact a suit against a State is
25
barred regardless of whether it seeks damages or injunctive relief.” Id. at 101-02 (citation
26
omitted).
27
28
The Supreme Court has recognized a limited exception to Eleventh Amendment immunity
in Ex parte Young, 209 U.S. 123 (1908). The Ex parte Young exception allows “suits for
5
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1
prospective declaratory and injunctive relief against state officers, sued in their official capacities,
2
to enjoin an alleged ongoing violation of federal law.” Agua Caliente Band of Cahuilla Indians v.
3
Hardin, 223 F.3d 1041, 1045 (9th Cir. 2000). Additionally, however, for the Ex parte Young
4
exception to apply, “it is plain that such officer must have some connection with the enforcement
5
of the act, or else it is merely making him a party as a representative of the State, and thereby
6
attempting to make the State a party.” Snoeck v. Brussa, 153 F.3d 984, 986 (9th Cir. 1998)
7
(quoting Ex parte Young, 209 U.S. at 157). “This connection must be fairly direct; a generalized
8
duty to enforce state law or general supervisory power over the persons responsible for enforcing
9
the challenged provision will not subject an official to suit.” L.A. Cnty. Bar Ass’n v. Eu, 979 F.2d
10
697, 704 (9th Cir. 1992) (citing Long v. Van de Kamp, 961 F.2d 151, 152 (9th Cir. 1992)); L.A.
11
Branch NAACP v. L.A. Unified Sch. Dist., 714 F.2d 946, 953 (9th Cir. 1983).
12
Here, with respect to the Governor and Attorney General, the allegations of the complaint
13
indicate that they are named as defendants merely because of their general law enforcement
14
duties and supervisory roles. See Cal. Const., art. V, §§ 1, 13 (Governor “shall see that the law is
15
faithfully executed” and Attorney General shall “see that the laws of the State are uniformly and
16
adequately enforced”). The Governor is sued in his official capacity as the supervisor of the
17
Business, Transportation and Housing Agency, which, in turn, oversees the Department of
18
Financial Institutions, and he is allegedly responsible for enforcing the California Money
19
Transmission Act. (FAC, ¶¶ 6, 22.) The Attorney General is also sued in her official capacity
20
“[a]s the chief law enforcement officer of the State,” and is allegedly responsible for the Act’s
21
enforcement. (Id. ¶ 21.) The Money Transmission Act, however, belies these conclusory
22
allegations, and they are insufficient to defeat sovereign immunity in any event. See W. Mining
23
Council, 643 F.2d at 624 (court may disregard legal conclusions in a complaint in ruling on a
24
Rule 12(b)(6) motion).
25
The Plaintiff’s chief complaint regarding the Money Transmission Act’s administration and
26
enforcement relates to the imposition of statutory licensing requirements on corporations like the
27
Plaintiff. (See, e.g., FAC, ¶ 4.) But those acts are regulated by the Department of Financial
28
Institutions. See, e.g., Cal. Fin. Code, § 2033; In the Matter of: Mex. Money Transfer Litig.,
6
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1
267 F.3d 743, 747 (7th Cir. 2001) (enforcement of California’s money transfer statutes “is
2
committed to the California Department of Financial Institutions”). The Legislature did not give
3
the Governor or Attorney General any special role in administering or enforcing the Money
4
Transmission Act. There are no specific allegations indicating any enforcement connection
5
between the Governor and Attorney General and the Money Transmission Act. Indeed, unlike
6
the Department of Financial Institutions defendants, about whom the complaint details numerous
7
explicit allegations involving the Money Transmission Act’s administration, there are no such
8
allegations that the Governor or Attorney General are “responsible for the policies and procedures
9
carried out by the DFI relating to money transmission and stored value.” (FAC, ¶¶ 18-19.) Thus,
10
11
their dismissal from this action is warranted.
The allegations as to Senior Advisor Appelsmith and Acting Secretary Stevens are equally
12
tenuous, and they too must be dismissed from this action. Like the Governor and Attorney
13
General, they have no special role in administering the Money Transmission Act, and they are not
14
specifically alleged to have any role in carrying out the policies and procedures of the Department
15
of Financial Institutions.
16
Dismissing the Governor, Attorney General, Senior Advisor Appelsmith, and Acting
17
Secretary Stevens on Eleventh Amendment grounds is firmly supported by Ninth Circuit
18
authority, including the cases of Long v. Van de Kamp, 961 F.2d 151 (1992) (per curiam) and
19
National Audubon Society, Inc. v. Davis, 307 F.3d 835 (2002). Long arose from warrantless
20
surprise searches of a motorcycle repair shop pursuant to a statutory provision. Long v. Van de
21
Kamp, 772 F. Supp. 1141, 1142 (C.D. Cal. 1991).3 The operators challenged the
22
constitutionality of the law, named the Attorney General, and sought to enjoin him from
23
enforcing the statute. Id. at 1143.
24
In directing the district court to dismiss the Attorney General on Eleventh Amendment
25
grounds, the Ninth Circuit stated that “there must be a connection between the official sued and
26
enforcement of the allegedly unconstitutional statute, and there must be a threat of enforcement.”
27
28
3
The Court of Appeals’ decision incorporated by reference the facts of the case as set
forth in the district court’s opinion. See Long, 961 F.2d at 152.
7
Notice of Motion, Motion to Dismiss First Amended Complaint,
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1
Long, 961 F.2d at 152. The Ninth Circuit found that the “general supervisory powers of the
2
California Attorney General” did not establish the connection with enforcement required by Ex
3
parte Young. Id. (citing S. Pac. Transp. Co. v. Brown, 651 F.2d 613, 614 (9th Cir. 1981) (as
4
amended)).4 There also was no threat that the statute would be enforced by the Attorney
5
General, who “ha[d] not in any way indicated that he intend[ed] to enforce [the provision].” Id.
6
“In addition, the searches of plaintiffs’ premises were not the result of any action attributable or
7
traceable to the Attorney General.” Id. The Ninth Circuit held that “[a]bsent a real likelihood
8
that the state official will employ his supervisory powers against plaintiffs’ interests, the Eleventh
9
Amendment bars federal court jurisdiction.” Id. (Emphasis added).
10
The circumstances here are analogous to those in Long. The Plaintiff alleges no connection
11
between, on one hand, the Governor, Senior Advisor Appelsmith, the Attorney General, and
12
Acting Secretary Stevens, and, on the other hand, administration and enforcement of the Money
13
Transmission Act. In fact, the complaint suggests that these defendants are named because of
14
their conspicuous lack of activity. (FAC, ¶¶ 6, 58, 80.) The alleged enforcement here, if any, has
15
allegedly come from the Department of Financial Institutions defendants. None of the alleged
16
actions are sufficiently attributable or traceable to the other, higher-level state defendants to
17
abrogate those officials’ Eleventh Amendment immunity. Nor has Plaintiff alleged a “real
18
likelihood” that the Attorney General or executive officials overseeing the Department of
19
Financial Institutions are using their supervisory powers to directly apply the Money
20
Transmission Act in any way to Plaintiff. Long, 961 F.2d at 152. Accordingly, the Ex parte
21
Young exception does not apply in this case. See id. at 152; see also Snoeck v. Brussa, 153 F.3d
22
at 987 (“As Ex Parte Young explains, the officers of the state must be cloaked with a duty to
23
enforce the laws of the state and must threaten or be about to commence civil or criminal
24
25
26
27
28
4
In Southern Pacific Transp. Co., several railroads sued the Oregon Attorney General to
enjoin enforcement of a statute limiting employers’ abilities to negotiate settlements with
employees injured on the job. 651 F.2d at 614. The Ninth Circuit held that “[t]he attorney
general’s power to direct and advise [district attorneys] does not make the alleged injury fairly
traceable to his action, nor does it establish sufficient connection with enforcement to satisfy Ex
Parte Young.” Id. at 615.
8
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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1
proceedings to enforce an unconstitutional act”). Plaintiff cannot allege facts to meet these
2
requirements and the Governor, Senior Advisor Appelsmith, Attorney General, and Acting
3
Secretary Stevens must therefore be dismissed.
4
Dismissal is also supported by National Audubon Society, Inc. v. Davis, 307 F.3d 835 (9th
5
Cir. 2002). There, the Ninth Circuit considered a challenge to provisions of the California Fish
6
and Game Code, enacted when California voters passed Proposition 4. Id. at 843. The Ninth
7
Circuit considered whether defendants Governor and Secretary of Resources “ha[d] direct
8
authority and practical ability to enforce the challenged statute[,]” id. at 846, and concluded that
9
they did not. The court held that suit seeking injunctive and declaratory relief was “barred against
10
the Governor and the state Secretary of Resources, as there is no showing that they have the
11
requisite enforcement connection to Proposition 4.” Id. at 847. In contrast, the court permitted
12
the suit to go forward as to the Director of the California Department of Fish and Game, “who has
13
direct authority over and principal responsibility for enforcing Proposition 4.” Id.
14
Like the Governor and Secretary of Resources in National Audubon Society, the Governor,
15
Senior Advisor Appelsmith, Attorney General, and Acting Secretary Stevens do not have any
16
administration or enforcement connection to the Money Transmission Act, much less “direct
17
authority over” or “principal responsibility” for enforcing that law. Id. at 846. Accordingly,
18
these defendants must be dismissed from this action.
19
III. THE ACTION MUST BE DISMISSED BECAUSE IT IS NOT RIPE FOR
REVIEW
20
21
A district court’s role is neither to issue advisory opinions nor to declare rights in
22
hypothetical cases, but to adjudicate live “cases or controversies” consistent with the powers
23
granted the judiciary in Article III of the Constitution. The basic rationale of the ripeness doctrine
24
“is to prevent the courts, through premature adjudication, from entangling themselves in abstract
25
disagreements.” Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580 (1985). Courts
26
must avoid making decisions that depend on uncertain or contingent future events that may not
27
occur as anticipated, or may not occur at all. Cardenas v. Anzai, 311 F.3d 929, 934 (9th Cir.
28
2002). In the context of reviewing state administrative actions, “a regulation is not ordinarily
9
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1
considered the type of agency action ‘ripe’ for judicial review . . . until the scope of the
2
controversy has been reduced to more manageable proportions, and its factual components
3
fleshed out, by some concrete action applying the regulation to the claimant’s situation in a
4
fashion that harms or threatens to harm him.” Nat’l Park Hospitality Ass’n v. Dep’t of the
5
Interior, 538 U.S. 803, 807 (2003). Principles of federalism lend the ripeness doctrine additional
6
force where “a federal court is reviewing a state agency decision at an interim stage in an
7
evolving process.” US W. Commc’n v. MFS Intelenet, Inc., 193 F.3d 1112, 1118 (9th Cir. 1999);
8
see also Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc., 344 U.S. 237, 247 (1952) (“State
9
administrative bodies have the initial right to reduce the general policies of state regulatory
10
11
statutes into concrete orders and the primary right to take evidence and make findings of fact”).
Inquiries into ripeness often address two factors: (1) the fitness of the issues for judicial
12
decision; and, (2) the hardship to the parties of withholding the court’s consideration. Colwell v.
13
Dep’t of Health and Human Servs., 558 F.3d 1112, 1123-1124 (9th Cir. 2009). Courts have long
14
recognized the importance of final agency action when reviewing state administrative decisions.
15
The rules applicable in land-use cases are particularly instructive and, as will be shown, their
16
principles apply in other permitting contexts. In land-use permitting cases involving various
17
constitutional and statutory claims, the Ninth Circuit applies a categorical rule that such claims
18
are not ripe until the government has made a final decision applying its regulations to the
19
claimant’s property. Guatay Christian Fellowship v. Cnty. of San Diego, ___F.3d ___, 2011 WL
20
6450742 (9th Cir. 2011). Because the government cannot make such a decision until the claimant
21
submits an application for land use, the Ninth Circuit requires a claimant to complete at least one
22
meaningful land-use application before filing suit. Id. at *20 (Religious Land Use and
23
Institutionalized Persons Act claim not ripe where plaintiff “fail[ed] to complete even one full
24
Use Permit application”); Kinzli v. City of Santa Cruz, 818 F.2d 1449, 1453-1456 (9th Cir. 1987)
25
(Takings, Due Process and Equal Protection claims not ripe where plaintiff never submitted a
26
single complete application for property development); S. Pac. Transp. Co. v. City of Los
27
Angeles, 922 F.2d 498, 507 (9th Cir. 1990) (“All as-applied challenges to regulatory takings,
28
whether based on the just compensation clause, the due process clause or the equal protection
10
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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1
clause, possess the same ripeness requirement: a final determination by the relevant governmental
2
body”). A claimant cannot even complain that submitting an application would be a futile act
3
unless it actually completed at least one application attempt. Kinzli, 818 F.2d at 1455.
4
The final decision rule is not limited to the land-use context. The Ninth Circuit has also
5
applied the rule to other claims of government restrictions. US W. Commc’n, 193 F.3d at 1126
6
(rate setting); see also Armendariz v. Penman, 31 F.3d 860, 868 (9th Cir. 1994) (loan
7
applications), rev’d in part en banc, Armendariz v. Penman, 75 F.3d 1311 (9th Cir. 1996). And
8
in other contexts as well, courts have required a completed licensing application and final
9
decision before a plaintiff’s challenges become ripe for review. See Lewis v. Cont’l Bank Corp.,
10
11
494 U.S. 472 (1990); Himes v. Johnson, 772 F.Supp. 678 (D. Me. 1991).
Here, the Plaintiff’s constitutional claims arise out of its decision not to pursue licensure
12
under the Money Transmission Act, and to instead shutter its business entirely and sue the state.
13
(See FAC, ¶ 52) (Plaintiff “opted to shut down FaceCash in California and nationwide.”) The
14
Plaintiff seeks to bring down the state’s entire regulatory framework for money transmission
15
activities, and yet the Plaintiff has not submitted even a single application for licensure under the
16
Money Transmission Act -- even though the law requires notice and a hearing before any license
17
may be denied, and even though the Plaintiff repeatedly claimed that it had sufficient capital to
18
satisfy statutory licensure requirements.5 (Cal. Fin. Code, § 2033(c); FAC, ¶ 50.)
19
These circumstances are akin to the Supreme Court’s rejection of a similar challenge in
20
Lewis v. Continental Bank Corp., 494 U.S. 472 (1990), where the court rejected a bank’s
21
Commerce Clause challenge to a state statute that prohibited the bank from operating in the state,
22
because the bank failed to apply to the state for a bank charter. In Lewis, Florida law prohibited
23
out-of-state bank holding companies from operating both FDIC-insured and uninsured banks in
24
Florida. Id. at 475. The Plaintiff was an Illinois bank holding company that applied for a Florida
25
charter to operate an FDIC-insured bank in Florida. Id. Florida officials refused to process the
26
27
28
5
The Plaintiff complains that although it purportedly raised more than $500,000 in
support of its application for licensure, it nonetheless refused to even apply for a license, citing in
part the $5,000 application fee. (FAC, ¶ 54.)
11
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1
application on the ground that it was prohibited under state law, and the plaintiff sued, claiming
2
that Florida law violated the Commerce Clause. Id. Thereafter, Congress amended federal law,
3
and authorized states to ban out-of-state holding companies from owning FDIC-insured in-state
4
banks. Id. at 476. Recognizing that Congress essentially ratified Florida’s ban on FDIC-insured
5
banks, the plaintiff tried to claim that it intended to apply for an uninsured bank charter. Id. at
6
478. But the Court rejected this argument, noting that the plaintiff never applied to operate such a
7
bank in Florida: Plaintiff’s “challenge to the constitutionality of the Florida statute’s application
8
to an uninsured bank that it has neither applied for nor expressed any intent to apply for amounts
9
to a request for advice as to ‘what the law would be upon a hypothetical state of facts,’ . . . or with
10
respect to ‘“contingent future events that may not occur as anticipated, or indeed may not occur at
11
all.”’” Id. at 479-480.
12
Similarly, in Himes v. Johnson, 772 F.Supp. 678 (D. Me. 1991), the owner of a massage
13
parlor challenged the constitutionality of a municipal ordinance regulating massage
14
establishments. The ordinance required that the plaintiff apply for a business license, but the
15
plaintiff had not done so. Id. at 679. In finding that the plaintiff’s claims were not ripe for
16
review, the court noted that “because he has not yet applied for a license . . . any potential action
17
by the Defendants is theoretical, not actual.” Id. at 680; see also Pac. Gas & Elec. Co. v. State
18
Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 203 (1983) (preemption challenge to
19
state statute requiring a case-by-case evaluation of nuclear power plants was not ripe where state
20
agency had not ruled).
21
As in Lewis and Himes, and consistent with the law in this circuit requiring a final
22
application decision, this Court should not allow Plaintiff to simply skip the state application
23
process (including the noticed hearing process) and seek review of a hypothetical business plan
24
that Plaintiff purportedly believes the Department of Financial Institutions will deny. Federal
25
courts are not in the business of issuing such advisory opinions. Prudential considerations also
26
support this approach. In light of the broad constitutional attack on virtually every aspect of the
27
Money Transmission Act, and because of the Plaintiff’s unusual business model, the Department
28
of Financial Institutions should be given a concrete opportunity to apply the newly-enacted law to
12
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1
the Plaintiff’s business, and to create a record in the event it ultimately denies the Plaintiff’s
2
license application after notice and a hearing. Indeed, despite the Plaintiff’s allegations that its
3
application would be denied, it never actually submitted an application, and its claim is only
4
speculation about an event that never occurred. The plaintiff in Lewis made a similar claim that it
5
would apply for an uninsured bank charter. Lewis, 494 U.S. at 480. And there, Florida officials
6
had already refused to process the plaintiff’s application for a bank charter. Id. at 475. But that
7
did not prevent the Supreme Court from rejecting the claim: “If [the holding company] applies for
8
and is denied a charter for an uninsured bank in Florida, there will be ample time to obtain
9
judicial review of the denial.” Id. at 482. Moreover, the Department has broad discretion in
10
approving or denying licenses. Cal. Fin. Code, § 2033(b). The Department may deny a license
11
for inadequate shareholder equity, or because the applicant’s directors and officers have poor
12
financial standing. Id. But such action cannot occur without notice and a hearing. Cal. Fin.
13
Code, § 2033(c). On the other hand, to be sure, the Department could approve the Plaintiff’s
14
application, permitting it to engage in its money transmission activities and avoiding the need for
15
this Court to rule on the varied constitutional issues in the complaint. Principal Life Ins. Co. v.
16
Robinson, 394 F.3d 665, 670 (9th Cir. 2005) (noting that the “value[] of avoiding unnecessary
17
constitutional determinations . . . lie[s] at the core of ripeness policies”). Absent a completed
18
application and ruling by the Department of Financial Institutions, however, any review of the
19
Money Transmission Act to the Plaintiff’s business is premature.
20
Additionally, the Plaintiff will not undergo future hardship by requiring that it complete the
21
application process before this Court evaluates its constitutional challenges. To establish a
22
sufficient hardship, the Plaintiff must show that withholding review would result in a direct and
23
immediate hardship and would entail more than possible financial loss. US W. Commc’n, 193
24
F.3d at 1118. The Plaintiff’s purported injury here -- its inability to take part in money
25
transmission activities within California -- was sustained, if at all, when the Plaintiff “opted” to
26
cease conducting its business instead of applying for a money transmission license. FAC, ¶ 52.
27
Indeed, Plaintiff could have continued operation after the effective date of the Money
28
Transmission Act, had it applied for a license. See Cal. Fin. Code, § 2172.
13
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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1
Considering the scope of the constitutional questions at issue, the factual uncertainty
2
surrounding the Plaintiff’s business and the multitude of state laws governing money transmission
3
activities generally, and giving deference to the state agency charged with applying this new state
4
regulatory law, the Plaintiff should be required to complete the minimal effort of applying for a
5
state license. Having failed to do so, the Court should dismiss the constitutional claims as not yet
6
ripe for review.6
7
IV.
8
9
THE PLAINTIFF DOES NOT HAVE A DUE PROCESS OR EQUAL
PROTECTION CLAIM
In its first claim for relief, the Plaintiff alleges that the Money Transmission Act is facially
10
invalid because it deprived Plaintiff of a “legally valid, vested right to use of property in interstate
11
commerce.” (FAC, ¶ 75.) The Plaintiff also alleges that the State Defendants frustrated
12
Plaintiff’s efforts at licensure, somehow denying its due process rights. (Id. ¶¶ 77-82.) Further,
13
the Plaintiff alleges that the law violates its equal protection rights by arbitrarily singling out
14
smaller, newer, financial entities. (Id. ¶ 76.) None of these claims states a valid claim for relief.
15
A.
16
17
The Plaintiff Does Not Have A Property Right Protected Under The Due
Process Clause
It is not clear if the plaintiff is attempting to assert a violation of substantive or procedural
18
due process here, but in either case, to obtain relief on a due process claim based on an alleged
19
deprivation of a property right, the plaintiff must first establish the existence of a protected
20
21
22
23
24
25
26
27
28
6
Additionally, to the extent the Plaintiff challenges the Money Transmission Act on the
ground that it regulates commerce occurring entirely outside California, this claim presents no
ripe case or controversy for a separate reason. The Plaintiff acknowledged that the Department of
Financial Institutions specifically waived application of the Money Transmission Act to the
extent it purportedly regulated the Plaintiff’s money transmission activities occurring entirely out
of state. (FAC, ¶ 56.) The Plaintiff seeks to avoid this fatal defect to its claim by baldly asserting
that “the California DFI intended and still intends to enforce the MTA beyond the State of
California’s borders on transactions originating and existing in interstate commerce.” (FAC, ¶
56.) But this conclusory allegation is mere speculation and wholly unsupported by any factual
allegations. Accordingly, it should be disregarded. W. Mining Council, 643 F.2d at 624.
Because the Department of Financial Institutions will not enforce the Money Transmission Act
against the Plaintiff for its out-of-state activities, the Plaintiff cannot make out a ripe Commerce
Clause claim that the Money Transmission Act impermissibly regulates commerce occurring
solely out of state, and this claim must be dismissed.
14
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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1
property interest. Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1029 (9th Cir.
2
2010). Protected property interests “are not created by the Constitution[, but r]ather they are
3
created and their dimensions are defined by existing rules or understandings that stem from an
4
independent source such as state law-rules or understandings that secure certain benefits.” Bd. of
5
Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972). State law creates a property interest
6
protected by the Due Process Clause where it creates a “legitimate claim of entitlement” to a
7
particular benefit. Id. “[A] person clearly must have more than an abstract need or desire for it.
8
He must have more than a unilateral expectation of it.” Id. A legitimate claim of entitlement “is
9
determined largely by the language of the statute and the extent to which the entitlement is
10
couched in mandatory terms.” Johnson, 623 F.3d at 1030.
11
Here, the Plaintiff has not alleged that any California law protected its property interest in
12
continuing to operate as a domestic money transmitter free of state regulation. Spoklie v. Mont.,
13
411 F.3d 1051, 1058 (9th Cir. 2005) (“A state may outlaw a formerly legal business even if it
14
causes hardship to those who relied on the earlier law”). There is certainly no California statute
15
or caselaw stating “in mandatory terms” that the plaintiff be allowed to continue engaging in this
16
business activity without regulation. Thus, the Plaintiff did not identify a property interest
17
protected under the Due Process Clause that was impaired by the Money Transmission Act.7
18
Further, once the Money Transmission Act was enacted, the Plaintiff could claim no state-created
19
right to continue operating as a money transmitter without a license. Many of the allegations in
20
the first claim for relief assert that the Plaintiff was denied due process in its efforts to obtain a
21
money transmission license. (FAC, ¶¶ 77-82.) The Ninth Circuit has recognized a protected
22
property interest in a business license where the licensing body has no discretion in granting or
23
denying a license. See Thornton v. City of St. Helens, 425 F.3d 1158, 1164 (9th Cir. 2005). But
24
where, as here, the reviewing body has discretion to deny the license or to impose licensing
25
26
27
28
7
Nor could the Plaintiff assert a viable procedural due process challenge to the enactment
of the Money Transmission Act, because the legislative process provided all of the procedural
process due. Rea v. Matteucci, 121 F.3d 483, 485 (9th Cir. 1997) (“When a state alters a stateconferred property right through the legislative process, the legislative determination provides all
the process that is due”) (internal quotation marks omitted); Hotel & Motel Ass’n of Oakland v.
City of Oakland, 344 F.3d 959, 969 (9th Cir. 2003).
15
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
PDF Page 27
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1
criteria of its own creation, the licensure applicant does not have a protected property interest in
2
the license. Id. at 1165 (“an applicant does not have a property interest in the renewal of a license
3
if the reviewing body has discretion to deny renewal or to impose licensing criteria of its own
4
creation”); Jacobson v. Hannifin, 627 F.2d 177 (9th Cir. 1980) (first time license applicant had no
5
protected property interest in state license where state had discretion to deny license). The
6
California Department of Financial Institutions has discretion under the Money Transmission Act
7
to approve or deny money transmission licenses, and to impose licensing conditions upon any
8
money transmission license. Cal. Fin. Code, §§ 2033, 2036. Thus, Plaintiff can claim no
9
protected property interest in licensure under the Money Transmission Act. Absent a protected
10
11
property interest, the Plaintiff’s due process claim fails.8
B.
12
13
The Money Transmission Act’s Licensing Requirements Are Rationally
Related To A Legitimate State Purpose
Even assuming that the Plaintiff identified a protected property interest, the Plaintiff still
14
cannot proceed on its due process or equal protection claims, because the Act’s licensing
15
requirements are rationally related to legitimate government interests.9
16
Plaintiff’s first claim for relief, asserting a facial substantive due process challenge to the
17
Money Transmission Act, fails as long as the law has any conceivable legitimate government
18
purpose. Halverson v. Skagit Cnty., 42 F.3d 1257, 1262 (9th Cir. 1994). The Plaintiff carries a
19
“heavy burden” because “[i]f it is ‘at least fairly debatable’ that the [government’s] conduct is
20
rationally related to a legitimate governmental interest, there has been no violation of substantive
21
22
23
24
25
26
27
28
8
And like a procedural challenge to the Legislature’s adoption of the Money
Transmission Act, the Plaintiff cannot claim that there was a violation of its procedural due
process rights to obtain a license where it did not pursue the procedural safeguards explicitly
provided under the Money Transmission Act. Manufactured Home Communities v. City of San
Jose, 420 F.3d 1022, 1033 (9th Cir. 2005) (due process challenge not ripe where plaintiff never
engaged in administrative hearing process: “Due process has not been denied because no process
was pursued”). The Money Transmission Act provided the Plaintiff an opportunity to apply for a
license (and continue its business operations during the application process), and required the
Department of Financial Institutions to provide notice and a hearing before denying any license
application. Cal. Fin. Code, §§ 2033(c), 2172. The Plaintiff concedes that it never filed an
application for licensure. (FAC, ¶ 72.)
9
The Court may decide this issue on a motion to dismiss. See Spoklie v. Mont., 411 F.3d
1051 (9th Cir. 2005).
16
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
PDF Page 28
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1
due process.” Id. As such, the Legislature’s motives are irrelevant. The court’s focus is not
2
whether the legislative act “actually advance[s] its stated purposes, but instead . . . whether the
3
governmental body could have had no legitimate reason for its decision.” Kawaoka v. City of
4
Arroyo Grande, 17 F.3d 1227, 1234 (9th Cir. 1994) (internal quotations omitted).
5
Comparable standards govern the Plaintiff’s equal protection claim. The complaint
6
essentially alleges that the Money Transmission Act violates the Equal Protection Clause because
7
it “illegitimately and arbitrarily” discriminates against smaller, newer, businesses. (FAC, ¶ 76.)
8
To the extent these allegations even remotely sketch out a protectable class of businesses, it is not
9
a suspect class, nor do money transmission laws touch on fundamental rights. Thus, as the
10
Supreme Court has said, “[i]n areas of social and economic policy, a statutory classification that
11
neither proceeds along suspect lines nor infringes fundamental constitutional rights must be
12
upheld against equal protection challenge if there is any reasonably conceivable state of facts that
13
could provide a rational basis for the classification.” F.C.C. v. Beach Commc’ns, Inc.,
14
508 U.S. 307, 313 (1993); see City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976). In
15
making this determination, the court does not evaluate the “wisdom, fairness, or logic of
16
legislative choices,” and the Plaintiff bears the burden to “negative every conceivable basis”
17
which might support the class distinction. F.C.C., 508 U.S. at 313, 315; Johnson, 623 F.3d at
18
1031. Even “rational speculation unsupported by evidence or empirical data” will pass
19
constitutional muster. F.C.C., 508 U.S. at 315. Moreover, to survive rational basis scrutiny, the
20
state action “need not actually further a legitimate interest; it is enough that the governing body
21
could have rationally decided that the action would further that interest.” Johnson, 623 F.3d at
22
1031 (internal quotations omitted).
23
The Money Transmission Act’s stated -- and hence conceivable -- purposes promote a
24
legitimate government interest. In adopting the law, the Legislature stated its intent to “[p]rotect
25
the interests of persons in this state who use money transmission,” “[p]rovide for the safe and
26
sound conduct of the business of licensees,” and to “[m]aintain public confidence in licensees.”
27
Cal. Fin. Code, § 2002. The Legislature also declared the necessity of regulating money
28
transmission businesses in the state in order to preserve the health, safety, and general welfare of
17
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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1
the people of this state. Cal. Fin. Code, § 2001(d). The state’s interest in licensing and regulating
2
the activities of money transmission businesses to ensure that such businesses are financially
3
stable and reliable to state citizens is a legitimate basis for the Money Transmission Act, and is
4
certainly not irrational on its face. See Ne. Bancorp, Inc. v. Bd. of Governors, 472 U.S. 159, 177
5
(1985) (noting that “banking and related financial activities are of profound local concern”)
6
(quoting Lewis v. B.T. Inv. Managers, Inc., 447 U.S. 27, 38 (1980)); Quik Payday, Inc. v. Stork,
7
549 F.3d 1302, 1310 (10th Cir. 2008) (noting the “significant benefits” that criminal-background
8
checks and surety-bond requirements provide to state consumers engaged in Internet borrowing).
9
For instance, the requirement that money transmitters -- non-bank corporations that take citizens’
10
money and hold it or transmit it to others -- maintain minimal levels of equity and security is
11
entirely rational in light of the type of financial activity involved. See Cal. Fin. Code, §§ 2037,
12
2040. Such regulation is both reasonable and rational -- and good for the State and its citizens.
13
That is all that is required, and thus the Plaintiff’s first claim for relief has no merit.10
14
V.
15
THE MONEY TRANSMISSION ACT IS INVULNERABLE TO A DORMANT
COMMERCE CLAUSE CHALLENGE
16
The Commerce Clause provides that “The Congress shall have Power . . . [t]o regulate
17
Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” U.S.
18
Const., art. I, § 8. The courts have read into this language a dormant component that grants courts
19
the power to restrict state laws that may impede Congressional regulation of interstate commerce.
20
Schutz v. Thorne, 415 F.3d 1128, 1137 (10th Cir. 2005). But the “essential element of a
21
successful dormant Commerce Clause claim is congressional inaction, so when Congress does
22
act, the dormancy ends, thus leaving the courts obliged to follow congressional will.” Id.
23
“Where state or local government action is specifically authorized by Congress, it is not subject to
24
the Commerce Clause, even if it interferes with interstate commerce.” White v. Mass. Council of
25
Constr. Emp’rs, Inc., 460 U.S. 204, 213 (1983); Int’l Shoe Co. v. State of Wash., 326 U.S. 310,
26
27
28
10
The Plaintiff has acknowledged the Money Transmission Act’s “nominal goals of
consumer protection,” but alleges that consumers are actually harmed by money transmission
laws. (FAC, ¶ 37.) This assertion merely constitutes an impermissible disagreement with the
Legislature’s judgment in enacting the Money Transmission Act that the Court should disregard.
18
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
PDF Page 30
Case5:11-cv-05496-HRL Document24 Filed02/14/12 Page29 of 31
1
315 (1945) (“It is no longer debatable that Congress, in the exercise of the commerce power, may
2
authorize the states, in specified ways, to regulate interstate commerce or impose burdens upon
3
it.”)11
4
Congress has unambiguously allowed the various states to impose licensing requirements
5
and regulate money transmission activities by expressly incorporating state licensing laws into
6
federal law. As the Plaintiff alleges (FAC, ¶¶ 27-28), section 1960 of title 18 of the United States
7
Code incorporates state money transmission laws, and penalizes those who knowingly operate
8
money transmission businesses in violation of state licensing laws: “Whoever knowingly
9
conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money
10
transmitting business, shall be fined in accordance with this title or imprisoned not more than 5
11
years, or both.” 18 U.S.C. § 1960(a). For purposes of section 1960, an “unlicensed money
12
transmitting business” includes a money transmitting business “which affects interstate or foreign
13
commerce in any manner or degree” and “is operated without an appropriate money transmitting
14
license” in a State where such operation is punishable as a felony. 18 U.S.C. § 1960(b)(1)(A).
15
California is such a state. Cal. Fin. Code, § 2152(b).
16
In penalizing those who operate in violation of the various state licensing laws, Congress
17
affirmatively recognized that such businesses affect interstate commerce, and necessarily
18
endorsed the various states’ licensing and regulation of those business activities. This is nothing
19
new. Congress has long incorporated state laws into federal law as an appropriate exercise of its
20
commerce power. Int’l Shoe Co., 326 U.S. at 315; Ky. Whip & Collar Co. v. Ill. Cent. R.R. Co.,
21
299 U.S. 334 (1937); James Clark Distilling Co. v. W. Md. Ry. Co., 242 U.S. 311 (1917); U.S. v.
22
23
24
25
26
27
28
11
Interspersed with the Plaintiff’s dormant Commerce Clause claims are a few passing
references to article 1, section 10 of the United States Constitution, alleging that the differing
requirements of state Money Transmission Laws “have an effect equivalent to that of establishing
unconstitutional intangible currencies on a state-by-state basis” in a “hypothetical purely digital
society, one that the United States is quickly moving toward.” (See FAC, ¶¶ 7, 13, 36, 105.)
Article 1, section 10 prohibits states from coining money or creating legal tender: “No State shall
. . . coin Money . . . [or] make any Thing but gold and silver Coin a Tender in Payment of Debts.”
“Courts have uniformly interpreted § 10 as prohibiting states from declaring anything other than
gold or silver coin as legal tender.” Nixon v. Phillipoff, 615 F.Supp. 890, 893 (N.D. Ind. 1985);
U.S. v. Rifen, 577 F.2d 1111, 1113 (8th Cir. 1978). The Money Transmission Act does not
purport to declare anything to be legal tender, nor does it purport to establish legal tender.
Plaintiff’s claim, to the extent it is actually (and not hypothetically) being asserted, is meritless.
19
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
PDF Page 31
Case5:11-cv-05496-HRL Document24 Filed02/14/12 Page30 of 31
1
Sacco, 491 F.2d 995 (9th Cir. 1989). Moreover, the authorization in section 1960 is clearer even
2
than that provided under the National Traffic and Motor Vehicle Safety Act (“Safety Act”), which
3
the court in Soto v. Tu Phuoc Nguyen considered when it rejected a challenge based on the
4
Commerce Clause. Soto, 634 F.Supp.2d 1096, 1100 (E.D. Cal. 2009). Soto arose out of a bus
5
accident, where the plaintiffs alleged that defendant Greyhound bus company negligently failed to
6
provide passenger seat belts on the bus. Id. at 1099. The Safety Act prohibited states from
7
implementing motor vehicle safety standards that differed from those adopted under the statute.
8
Id. at 1100. The law, however, also contained a savings clause that expressly preserved state
9
common law claims. Id. Greyhound asserted that the state negligence claims, premised on a
10
failure to provide passenger seat belts, violated the dormant Commerce Clause. Id. at 1098. The
11
court, however, quickly rejected this argument, noting that there were no federal safety standards
12
governing passenger seat belts on busses, and thus, “[a]s a threshold matter, . . . the presence of
13
the savings clause in the applicable statutory regime itself indicates an express delegation of
14
power to the states.” Id. at 1106-1107.
15
Congressional intent to permit state licensing of money transmission activities is
16
substantially more explicit than the savings clause is at issue in Soto. There, Congress said
17
nothing at all about whether the Safety Act preserved a state tort cause of action based on a
18
failure to provide seat belts. Nonetheless, the court concluded that a generic savings clause
19
“indicates an express delegation” of Congressional power to the states and that the state claim
20
“falls within that delegation of power.” Id. at 1107. In contrast here, Congress has affirmatively
21
recognized the states’ authority to independently license and regulate money transmission
22
activities, by enforcing such state licensing requirements and regulation via section 1960.
23
Similarly, the Supreme Court upheld a local executive order against a dormant Commerce
24
Clause challenge on the ground that the order was consistent with Congressional intent in
25
authorizing federal grant funding programs. White v. Mass. Council of Constr. Emp’rs, Inc.,
26
460 U.S. at 213. There, the mayor of Boston issued an executive order requiring that at least 50%
27
of the worker hours on city construction projects, funded in part by federal grant money, be
28
performed by Boston residents. Id. at 206. The court noted that the federal programs were
20
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
PDF Page 32
Case5:11-cv-05496-HRL Document24 Filed02/14/12 Page31 of 31
1
intended to encourage economic revitalization, including improved opportunities for the poor,
2
minorities, and the unemployed. Id. at 213. And although Congress had apparently not
3
affirmatively spoken on the subject, the court also pointed out that federal regulations
4
implementing the programs specifically mentioned creating opportunities for persons in the area
5
of the projects. Id. at 213. Accordingly, the court concluded that the mayor’s executive order --
6
requiring that workers be from the Boston area -- “sounds a harmonious note” with those
7
regulations, and that the order “was affirmatively sanctioned by the pertinent regulations of those
8
programs.” Id. at 213, 215.
9
Again, even greater than the authorization recognized in White is Congress’ statement in
10
section 1960, expressly endorsing state-by-state licensing requirements and regulation of money
11
transmission activities by enforcing state licensing provisions through that federal law. In light of
12
the express authorization to the states to license money transmission businesses, the Plaintiff’s
13
Commerce Clause claims must fail.
14
15
CONCLUSION
For the foregoing reasons, the State Defendants respectfully request that the Court grant its
16
motion to dismiss the complaint in its entirety. Defendants Governor, Senior Advisor
17
Appelsmith, the Attorney General, and Acting Secretary Stevens additionally and respectfully
18
request that the Court dismiss them from this action pursuant to the Eleventh Admendment.
19
Dated: February 14, 2012
Respectfully Submitted,
20
KAMALA D. HARRIS
Attorney General of California
PETER SOUTHWORTH
Supervising Deputy Attorney General
21
22
23
/s/ Ryan Marcroft
24
RYAN MARCROFT
Deputy Attorney General
Attorneys for All Defendants
25
26
27
28
SA2011103690
31408271.doc
21
Notice of Motion, Motion to Dismiss First Amended Complaint,
Memorandum of Points and Authorities in Support (5:11-cv-05496-HRL)
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