State National Bank of Big Spring v. GeithnerState National Bank of Big Spring v. Geithner
dure 23(e). An Order consistent with this decision accompanies this Memorandum Opinion.
1. Pursuant to
Bradley Heath Cohen, Ethan Price Davis, Jonathan Gordon Cooper, U.S. Department of Justice, Washington, DC, for Defendants.
MEMORANDUM OPINION
ELLEN SEGAL HUVELLE, District Judge.
Plaintiffs State National Bank of Big Spring (“SNB” or the “Bank“), the 60 Plus Association (“60 Plus“), the Competitive
BACKGROUND
On July 21, 2010, Congress enacted the Dodd-Frank Act as “a direct and comprehensive response to the financial crisis that nearly crippled the U.S. economy beginning in 2008.” S.Rep. No. 111-176, at 2 (2010). The purpose of the Act was to “promote the financial stability of the United States ... through multiple measures designed to improve accountability, resiliency, and transparency in the financial system[.]” Id. Those measures included “establishing an early warning system to detect and address emerging threats to financial stability and the economy, enhancing consumer and investor protections, strengthening the supervision of large complex financial organizations and providing a mechanism to liquidate such companies should they fail without any losses to the taxpayer, and regulating the massive over-the-counter derivatives market.” Id. The Act “creat[ed] several new governmental entities, [ ] eliminate[ed] others, and [ ] transferr[ed] regulatory authority among the agencies.” (See Defendants’ Motion to Dismiss [ECF No. 26-1] (“Def. Mot.“) at 6.)
In this suit, plaintiffs challenge Title I of Dodd-Frank, which established the Financial Stability Oversight Council (“FSOC” or the “Council“), see
All plaintiffs challenge Title II on three separate grounds. In Count IV, they allege that Title II violates the separation of powers because it “empowers the Treasury Secretary to order the liquidation of a financial company with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive, or judicial oversight.” (Second Am. Compl. ¶ 9.) In Count V, they allege that Title II violates the due process clause of the Fifth Amendment, because the “[t]he forced liquidation of a company with little or no advance warning, in combination with the FDIC‘s virtually unlimited power to choose favorites among similarly situated creditors in implementing the liquidation, denies the subject company and its creditors constitutionally required notice and a meaningful opportunity to be heard before their property is taken—and likely becomes unrecoverable[.]” (Id. ¶ 10.) And, in Count VI, they allege that Title II violates the constitutional requirement of uniformity in bankruptcy because “[w]ith no meaningful limits on the discretion conferred on the Treasury Secretary or on the FDIC, Title II not only empowers the FDIC to choose which companies will be subject to liquidation under Title II, but also confers on the FDIC unilateral authority to provide special treatment to whatever creditors the FDIC, in its sole and unbounded discretion, decides to favor[.]” (Id. ¶ 11.)
Defendants have moved to dismiss the complaint on the grounds that plaintiffs lack Article III standing to pursue their claims, or, in the alternative, that their claims are not ripe for review. (See Def. Mot. at 4-5.) This is an unusual case, as plaintiffs have not faced any adverse rulings nor has agency action been directed at them. Most significantly, no enforcement action—“the paradigm of direct governmental authority“—has been taken against plaintiffs. FEC v. NRA Political Victory Fund, 6 F.3d 821, 824 (D.C.Cir.1993). As a result, plaintiffs’ standing is more difficult to parse here than in the typical case. See, e.g., Noel Canning v. NLRB, 705 F.3d 490, 492-93 (D.C.Cir.2013) (employer challenged NLRB decision finding that it had violated the National Labor Relations Act). Furthermore, while the Bank is a regulated party under Title X, none of the plaintiffs is subject to regulation under Titles I or II. Nonetheless, plaintiffs maintain that they have standing to pursue their Title I and II claims, based, respectively, on their status as competitors and as creditors of the regulated entities.
ANALYSIS
I. LEGAL STANDARDS
Plaintiffs bear the burden of establishing that the Court has jurisdiction over their claims. See Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 104, 118 (1998). Nonetheless, “[f]or purposes of ruling on a motion to dismiss for want of standing, [the court] must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.” Warth v. Seldin, 422 U.S. 490, 501 (1975). “While the burden of production to establish standing is more relaxed at the pleading stage than at summary judgment, a plaintiff must nonetheless allege ‘general factual allegations of injury resulting from the defendant‘s conduct’ (notwithstanding ‘the court presumes that general allegations embrace the specific facts that are necessary to support the claim‘).”5 Nat‘l Ass‘n of Home Builders v. EPA, 667 F.3d 6, 12 (D.C.Cir.2011). Moreover, where a court‘s subject matter jurisdiction is called into question, the court may, as it has done here, consider matters outside the pleadings to ensure that it has jurisdiction over the case. See Teva Pharms., USA, Inc. v. U.S. Food & Drug Admin., 182 F.3d 1003, 1006 (D.C.Cir.1999). “For each claim, if constitutional and prudential standing can be shown for at least one plaintiff, [the court] need not consider the standing of the other plaintiffs to raise that claim.” Mountain States Legal Found. v. Glickman, 92 F.3d 1228, 1232 (D.C.Cir.1996).
A. Standing
“[T]o establish cоnstitutional standing, plaintiffs must satisfy three elements: (1) they must have suffered an injury in fact that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical‘; (2) the injury must be ‘fairly traceable to the challenged action of the defendant‘; and (3) ‘it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.‘” NB ex rel. Peacock v. Dist. of Columbia, 682 F.3d 77, 81 (D.C.Cir.2012) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). Where a plaintiff is seeking declaratory or injunctive relief, he “must show he is suffering an ongoing injury or faces an immediate threat of injury.” Dearth v. Holder, 641 F.3d 499, 501 (D.C.Cir.2011).
It is well-established that where “the challenged regulations ‘neither require nor forbid any action on the part of [the challenging party],‘-i.e., where that party is not ‘the object of the government action or inaction‘-‘standing is not precluded, but it is ordinarily substantially more difficult to establish.‘” Ass‘n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 457-58 (D.C.Cir.2012) (quoting Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009)). “In that circumstance, causation and redressability ordinarily hinge on the re-sponse of the regulated (or regulable) third party to the government action or inaction—and perhaps on the response
B. Ripeness
“‘Ripeness is a justiciability doctrine’ that is ‘drawn both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.‘” Devia v. Nuclear Regulatory Comm‘n, 492 F.3d 421, 424 (D.C.Cir.2007) (quoting Nat‘l Park Hospitality Ass‘n v. Dep‘t of the Interior, 538 U.S. 803, 807-08 (2003)). “In assessing the prudential ripeness of a case,” courts consider two factors: “the ‘fitness of the issues for judicial decision’ and the extent to which withholding a decision will cause ‘hardship to the parties.‘” Am. Petroleum Inst. v. EPA, 683 F.3d 382, 387 (D.C.Cir.2012) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967), overruled on other grounds by Califano v. Sanders, 430 U.S. 99 (1977)). The underlying purpose of ripeness in the administrative context “is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties.” Devia, 492 F.3d at 424 (quoting Abbott Labs., 387 U.S. at 148-49). Ripeness also prevents a court from making a decision unless it absolutely has to, underpinned by the idea that if the court does not decide the claim now, it may never have to. Id.
I. TITLE I: FINANCIAL STABILITY OVERSIGHT COUNCIL (“FSOC“)
A. The Statutory Provision
Title I of Dodd-Frank established the FSOC. See
to identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace; [ ] to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure; and [ ] to respond to emerging threats to the stability of the United States financial system.
Title I authorizes the Council, upon a two-thirds vote of its voting members, including the affirmative vote of the Treasury Secretary, to designate certain “nonbank financial companies” as “systematically important financial institutions” or SIFIs.6
On April 11, 2012, following a notice-and-comment period, the Council published a “final rule and interpretive guidance ... describ[ing] the manner in which the Council intends to apply the statutory standards and considerations, and the processes and procedures that the Council intends to follow, in making determinations under section 113 of the Dodd-Frank Act.” Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies, 77 Fed.Reg. 21637 (Apr. 11, 2012). On June 3, 2013, while this motion was pending, the Council voted to make proposed determinations regarding a set of nonbank financial companies but did not release the names of the designated companies. (See Second Supplemental Declaration of Gregory Jacob [ECF No. 34-1] (“Second Jacob Decl.“) ¶ 5; id., Exs. 3-4.) Those companies then had thirty days to request a hearing before a final determination would be made. (See Second Jacob Decl. ¶ 5.) American International Group, Inc. (“AIG“), Prudential Financial Inc., and the GE Capital Unit of General Electric have confirmed that they are among the designated companies. (See id. ¶ 6; id., Ex. 4.) AIG and GE Capital have chosen not to contest their designations, but Prudential has an-nounced
B. Count III
1. Injury-in-Fact
The Bank claims to have standing to challenge the creation and operation of the FSOC as a violation of the Constitution‘s separation of powers. The Bank is not a regulated party under Title I and so, while “standing is not precluded, it is ... substantially more difficult to establish” under these circumstances. Duncan, 681 F.3d at 457-58. The Bank‘s theory of standing relies on an allegation of “competitor injury” arising out of the “illegal structuring of a competitive environment.” Shays v. Fed. Election Com‘n, 414 F.3d 76, 85 (D.C.Cir.2005). The D.C. Circuit has “recogniz[ed] that economic actors ‘suffer [an] injury in fact when agencies lift regulatory restrictiоns on their competitors or otherwise allow increased competition’ against them.” Sherley v. Sebelius, 610 F.3d 69, 72 (D.C.Cir.2010) (quoting La. Energy & Power Auth. v. FERC, 141 F.3d 364, 367 (D.C.Cir.1998)). The Court has also applied this principle to evaluate how campaign finance regulations affect the political “market,” generalizing that “any one competing for a governmental benefit should [ ] be able to assert competitor standing when the Government takes a step that benefits his rival and therefore injures him economically.” Id.
Importantly, however, the plaintiff must allege that it is “a direct and current competitor whose bottom line may be adversely affected by the challenged government action.” New World Radio, Inc. v. FCC, 294 F.3d 164, 170 (D.C.Cir.2002) (emphasis in the original). A plaintiff‘s “‘chain of events’ injury is too remote to confer standing” where the plaintiff has not stated a “concrete, economic interest that has been perceptibly damaged” by the agency action. Id. at 172 (internal quotation marks and citation omitted) (emphasis in the original). See also KERM, Inc. v. FCC, 353 F.3d 57, 60-61 (D.C.Cir.2004) (“party must make a concrete showing that it is in fact likely to suffer financial injury as a result of the challenged action“) (emphasis added). The Supreme Court has likewise made clear that there are limits to the competitor standing doctrine. For instance, in Already, LLC v. Nike, Inc., --- U.S. ---, 133 S.Ct. 721, 731, 184 L.Ed.2d 553 (2013), the Court rejected plaintiff‘s “boundless theory of standing,” remarking, “[t]aken to its logical conclusion, [plaintiff‘s] theory seems to be that a market participant is injured for Article III purposes whenever a competitor benefits from something allegedly unlawful—whether a trademark, the awarding of a contract, a landlord-tenant arrangement, or so on.” Id. at 731.
The Bank relies on just such a “boundless theory.” Id. The assumption underlying the Bank‘s assertion of injury is that the FSOC‘s designation of GE Capital as a SIFI will confer a competitive advantage on GE and a corresponding disadvantage on the Bank. (See Private Plaintiffs’ Opposition to Defendants’ Motion to Dismiss [ECF No. 27] (“Pvt. Pl. Opp.“) at 36.)7
In support of the Bank‘s allegation that GE is a direct and current competitor in the consumer loan market, Chairman and former President of SNB Jim Purcell asserts in a recent declaration that “approximately 37% of the Bank‘s outstanding loans are agricultural loans” and “[a]ccording to publicly available information, GE Capital and its subsidiaries offer numerous loans in the agricultural sector, including in markets that are served by the Bank.” (Second Declaration of Jim R. Purcell [ECF No. 35-1] (“Second Purcell Decl.“) ¶¶ 4, 11.) Purcell indicates that there are two farm equipment dealerships within a 100-mile radius of the Bank that provide financing through GE Capital or its subsidiaries. (See id. ¶ 11.) With respect to the market to raise capital, Purcell indicates that “[t]he Bank competes with a wide variety of bank and non-bank financial institutions for deposits,” and offers interest rates ranging from .05% on checking account deposits to .40% on 1-year CDs as of May 31, 2013. (See id. ¶¶ 13, 15.) Based on publicly available data, Purcell represents that GE Capital offers accounts that pay as much as 1.10% as of June 13, 2013. (See id. ¶ 17.) He asserts that “[c]ustomers can apply for these accounts and fund them online through the GE Capital website from anywhere in the United States, including the geographic areas in which the Bank does its business.” (Id.)
While these assertions lend some plausibility to the Bank‘s allegation that GE is a “direct and current” competitor at least in the agricultural loan business, the Bank relies on conjecture to argue that the SIFI designation will benefit GE and harm the Bank.8 The Bank speculates that the designation will cause investors to flock to the designees because they will be perceived as safer investments due to the possibility of government backing. (See 6/11/13 Motions Hearing Transcript (“Tr.“) at 72-73, 82.) Of course, SIFI designation does not, in fact, mean that the federal government is “backing” the SIFI or that the government will not allow the company to fail. Instead, it means that the SIFI will be subject to more stringent regulation and government oversight. See
The ambiguous consequences of SIFI designation are underscored by David Price, the very source cited by the Bank:
The precise implications of being designated as a SIFI are not known yet because the new regulatory regime has not yet been defined.... On the plus side, SIFI designation may confer benefits on a company by reducing its cost of capital. Creditors may believe that enhanced supervision lowers an institution‘s credit risk.... The extent of this benefit to creditors, if any, is not clear at this point however.... So far, institutions appear to believe that they would be worse off as SIFIs. In public comments filed with FSOC and in public statements, large nonbanks and their trade associations have argued that they should not be considered systematically
important.... The institutions’ concerns about the regulatory regime for SIFIs may be heightened by a fear that the as-yet-unwritten rules will turn out to be overly restrictive.
David A. Price, “Sifting for SIFIs,” Region Focus, Federal Reserve Bank of Richmond (2011), at www.richmondfed.org/publications/research/region_focus/20110q2/pdf/federal_reserve.pdf (cited in Second Am. ¶ 145).
Indeed, one of the proposed SIFIs, Prudential Financial, is appealing its designation, which indicates that at least one nonbank perceives the designation more as a detriment than a benefit. On the other hand, GE Capital has declined to appeal, because it “is already supervised by the Fed and as a result has strong liquidity and capital.” (Third Supplemental Declaration of Gregory Jacob [ECF No. 36-1] (“Third Jacob Decl.“), Ex. 1, Daniel Wilson, GE Capital, AIG Accept SIFI Label While Prudential Protests, LAW 360, July 2, 2013.) Since the SIFIs themselves are far from unanimous as to the consequences of being designated, it is difficult to prophesize that the designation confers a clear benefit on them, much less a corresponding disadvantage on non-SIFI institutions like SNB. See Already, LLC, 133 S.Ct. at 731. In short, the Bank has not come close to a “concrete showing that it is in fact likely to suffer financial injury as a result of the challenged action.” KERM, Inc., 353 F.3d at 60-61 (emphasis in original).
The Bank objects to defendants’ suggestion that the burden of being designated a SIFI may outweigh the advantages, arguing that “the Government cites no authority for the novel proposition that the benefits flowing from a statute should be netted against its harms for purposes of determining whether a party has been injured.” (Pvt. Pl. Opp. at 38-39.) But standing requires a showing of “certainly impending” injury, Clapper, 133 S.Ct. at 1151, and at this stage, nothing is certainly impending. The Bank‘s theory of injury “require[s] guesswork as to how independent decisionmakers will exercise their judgment,” id. at 1150, and consequently, guesswork as to whether the Bank will suffer an injury-in-fact from the designation of GE Capital or any other alleged competitor. Here the need for such guesswork defeats the Bank‘s attempt to demonstrate that it faces an “imminent” injury. Lujan, 504 U.S. at 560-61.
2. Causation and Redressability
Furthermore, the Bank has not made an adequate showing with regard to the causation and redressability prongs of the standing requirement. See Lujan, 504 U.S. at 560-61. The Bank‘s attenuated claim of causation is highlighted by its admission that large financial companies already enjoy a cost-of-capital advantage, even without a formal SIFI designation, because these institutions have been perceived by the public as “too big to fail.” (See Second Am. ¶ 146 (Federal Reserve Chairman Bernanke describing benefits that businesses enjoyed of being perceived as “too big to fail” before Dodd-Frank granted designation authority to FSOC).) The Bank asserts that the
formal SIFI designations promulgated by the FSOC will enhance any direct cost-of-capital subsidy previously enjoyed by institutions considered by some in capital markets to enjoy unofficial SIFI status, by removing uncertainty as to the government‘s views on their SIFI status, and will extend this direct cost-of-capital subsidy to institutions not previously considered by those in capital markets to enjoy unofficial SIFI status.
(See id. ¶ 148.) Indeed, GE Capital already offers interest rates between 2.75 and 22 times greater than those offered by the Bank. (See Second Purcell Decl. ¶¶ 13,
3. Ripeness
For the same reason that the Bank lacks standing, the Bank‘s claim under Count III is not ripe: the lack of a “certainly impending” injury caused by Title I. See Coal. for Responsible Regulation, Inc. v. EPA, 684 F.3d 102, 130 (D.C.Cir.2012) (“Ripeness ... shares the constitutional requirement of standing that an injury in fact be certainly impending.“) Therefore, in the absence of a concrete and particularized injury, Count III will be dismissed under
II. TITLE II: THE ORDERLY LIQUIDATION AUTHORITY (“OLA“)
A. The Statutory Provision
Pursuant to the OLA of Title II, the Treasury Secretary may appoint the FDIC as receiver of a failing “financial company.”9 The purpose of Title II of Dodd-Frank is “to provide the necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard.”
shall be exercised in the manner that best fulfills such purpose, so that [ ] creditors and shareholders will bear the losses of the financial company; [ ] management responsible for the condition of the financial company will not be retained; and [ ] the [FDIC] and other appropriate agencies will take all steps necessary and appropriate to assure that all parties ... having responsibility for the condition of the financial company bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of compensation and other gains not compatible with such responsibility.
The OLA replaces, in limited instances, the liquidation and reorganization mechanisms of Chapters 7 and 11 of the Bank-ruptcy
“There is a strong presumption that the bankruptcy process will continue to be used to close and unwind failing financial companies, including large, complex ones,” as the “orderly liquidation authority could be used if and only if the failure of the financial company would threaten U.S. financial stability.” S.Reр. No. 111-176, at 4. “Therefore the threshold for triggering the [O]rderly [L]iquidation [A]uthority is very high.” Id. In order to activate the OLA, two-thirds of the Federal Reserve Board and two-thirds of the FDIC Board provide a written recommendation to the Treasury Secretary. See
Before the Treasury Secretary can authorize use of the OLA, he must make seven findings: [1] that the company is “in default or in danger of default“; [2] that “the failure of the financial company ... would have serious adverse effects on financial stability in the United States“; [3] that “no viable private sector alternative is available to prevent the default“; [4] that “any effect on the claims or interests of creditors, counterparties, and shareholders of the financial company and other market participants ... is appropriate“; [5] that “any action taken [under this authority] would avoid or mitigate such adverse effects“; [6] that “a Federal regulatory agency has ordered the financial company to convert all of its convertible debt instruments that are subject to the regulatory order“; and [7] that “the company satisfies the definition of a financial company” under the statute. Id. § 5383(b).
If the financial company “does not acquiesce or consent to the appointment of the [FDIC] as receiver, the Secretary shall petition the United States District Court for the District of Columbia for an order authorizing the Secretary to appoint the [FDIC] as receiver.” Id. § 5382(a)(1). The Secretary‘s petition is filed under seal. See id. The Court “[o]n a strictly confidential basis, and without any prior public disclosure ... after notice to the covered financial company and a hearing in which
A court must make a decision within twenty-four hours of receiving the Secretary‘s petition; if it does not, the government wins by default. See
After the FDIC is appointed as receiver, it “succeed[s] to ... all rights, titles, powers, and privileges of the covered financial company and its assets, and of any stockholder, member, officer, or director[.]”
Once appointed as receiver, the FDIC must provide notice to the failing company‘s creditors. See
B. Counts IV, V, and VI
1. Standing
Plaintiffs challenge Title II on three separate legal grounds. For all three, they assert standing based on the States’ status as creditors, in that the States or their pension funds hold investments in institutions that qualify as “financial companies” under Section 210 of the Dodd-Frank Act, which renders those companies potentially subject to Title II‘s
a. Present Injury
The State Plaintiffs insist that their standing is based on the existence of a present injury caused by “Dodd-Frank‘s express abrogation of the statutory rights that the State Plaintiffs previously retained under the Bankruptcy Code.” (States’ Opp. at 14 (citing Second Am. Compl. ¶ 70).) They maintain that “[a]s investors in the unsecured debt of financial companies, the State Plaintiffs were protected by the federal bankruptcy laws’ guarantee of equal treatment of similarly situated creditors. By abridging that guarantee, Title II invades the State Plaintiffs’ legally protected interests, injuring them and giving them standing to challenge Title II‘s constitutionality.” (Id.)
The States suggest that their “property rights in their investments [are] a bundle of sticks, [and] one of the ‘sticks’ that [they] held before the Dodd-Frank Act was enacted was the statutory right to equal treatment in bankruptcy.” (Id. at 19.) They argue that “[w]hen the Act became law ... that ‘stick’ was removed from the States’ bundle,” which constitutes an injury because “a rational investor would prefer an investment that includes a guarantee of equal treatment in bankruptcy to an investment that does not include such a guarаntee.” (Id.) By casting their claim in this manner, the States attempt to escape the obvious conclusion that any future injury is too conjectural and remote. However, the Court is unconvinced that the States have a present injury because the States’ underlying premise that they have a “property right” in the configuration of the Bankruptcy Code is flawed. Simply put, the States’ holding of certain statutory rights does not amount to an inalienable property right under the Bankruptcy Code.
Nor is the Court persuaded by the States’ argument that the loss of a right in the abstract is sufficient to confer standing. The States cite Lujan for the proposition that an “injury” is “an invasion of a legally protected interest[,]” and the injury “may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing.” (Id. at 20 (quoting Lujan, 504 U.S. at 560, 578).) But the States misinterpret Lujan. In the passage that the States cite, the Supreme Court clarified its holding in an earlier case by reiterating that the “[statutory] broadening [of] the categories of injury that may be alleged in support of standing is a different matter from abandoning the requirement that the party seeking review must himself have suffered an injury.” Lujan, 504 U.S. at 578-79. As to the latter requirement, the Supreme Court affirmed that “the concrete injury requirement must remain” in suits against the government.
The cases cited by the States are not to the contrary. The States rely primarily on Zivotofsky, where the Court of Appeals stated:
Although it is natural to think of an injury in terms of some economic, physical, or psychological damage, a concrete and particular injury for standing purposes can also consist of the violation of an individual right conferred on a person by statute. Such an injury is concrete because it is of a form traditionally capable of judicial resolution, ... and it is particular because, as the violation of an individual right, it affects the plaintiff in a personal and individual way.
444 F.3d at 619. Significantly, however, the injury in Zivotofsky was not an abstract, hypothetical loss of a statutory right. Rather, it was the actual, concrete loss of a right granted by statute to have Israel listed as the place of birth on the pаssport of a child born in Jerusalem. See Foreign Relations Authorization Act, Fiscal Year 2003, Pub.L. No. 107-228, § 214(d), 116 Stat. 1350, 1365-66 (2002). Despite the clear right granted by statute, the U.S. Embassy in Israel denied the request of the child‘s American parents. Zivotofsky, 444 F.3d at 615-16. The States’ claims here are not remotely similar to the concrete loss in Zivotofsky, since in this case no violation of any statutory right has occurred and it may never occur in the future.
The States represent that “the scholarship is virtually unanimous” that “as a rational creditor you are harmed now by having the certainty that you had under the Bankruptcy Code and the knowledge of what would happen in the event of a default taken away” (see Tr. at 92-93), but a review of their citations does not support this assertion. One author, highlighted by the States at the oral argument on this motion (see id. at 93), cautions that there could be adverse impacts for creditors, but concludes that the ultimate effects are far from clear:
One of the challenging aspects of considering the potential impact of Title II on creditors and other stakeholders of nonbank financial companies that are eligible to be a debtor under the Bankruptcy Code is that many provisions of Title II are subject to the enactment of rules and regulations that are necessary for implementing and clarifying its terms. Since most of those regulations have yet to be promulgated, the impact of Title II on creditors and other stakeholders will continue to evolve. It is possible that many regulations may further “harmonize” certain provisions of Title II with the provisions of the Bankruptcy Code. It is also possible that the very significant differences between the provisions of Title II and those of the Bankruptcy Code will cause creditors of nonbank financial companies that face future financial crises to be more amenable to finding private sector alternatives, including restructuring of debt and consent to sales of assets, in order to avoid the uncertainties posed by this new and as yet untested insolvency regime.
Hollace T. Cohen, Orderly Liquidation Authority: A New Insolvency Regime to Address Systemic Risk, 45 U. Rich. L.Rev. 1143, 1153 (2011) (cited in States’ Opp. at 5, 7, 12, 18).
While it may be true that the OLA could generate some uncertainty, which could affect the behavior of investors and others, this type of market uncertainty is insufficient to constitute an injury, either present or future, that is fairly traceable to Title II.11 In this regard, the D.C. Circuit‘s rea-soning
[i]t is entirely speculative whether the influence of the Reserve Bank members is responsible for the FOMC‘s alleged pursuit of restrictive or erratic monetary policies. Moreover, in light of the complexity of the modern economy, it is also highly uncertain whether and to what extent such policies were responsible for the adverse economic conditions that allegedly resulted in harm to the appellants. Similarly, the appellants have given no indication as to how they can succeed in establishing that an overly broad delegation of power to the Federal Reserve System has had the consequence of undermining economic certainty and thereby increasing interest rates.
The injuries asserted here are even more speculative, for the States have not claimed any actual damage resulting from increased economic uncertainty. Moreover, they have not presented evidence that any harm is fairly traceable to the OLA, nor could they since the OLA exists only on paper at this point in time. While it may be true that certain economic actors have already adjusted their behavior in response to Title II, “[t]he fact that some individuals may base decisions on ‘conjectural or hypothetical’ speculation does not give rise to the sort of ‘concrete’ and ‘actual’ injury necessary to establish Article III standing.” Already, LLC, 133 S.Ct. at 730 (quoting Lujan, 504 U.S. at 560).
b. Future Injury
Nor can the States prevail on an allegation of future injury. There are a series of contingencies that must occur before they would suffer any actual harm. It is true that Dodd-Frank empowers the FDIC to treat creditors’ claims somewhat differently than they are treated in traditional bankruptcy proceedings, but no one can know if this will ever happen. Thus, the States do not face a future harm that is “certainly impending.” Clapper, 133 S.Ct. at 1151.
The D.C. Circuit‘s recent decision in Deutsche Bank Nat‘l Trust Co. v. FDIC, 717 F.3d 189 (D.C.Cir.2013), is instructive. There, the Court of Appeals agreed that appellants’ economic interest in receivership funds constituted a legally protected interest, but found that they were “not persuasive in showing that their economic interest faces an imminent, threatened in-vasion
at least two major contingencies must occur before Deutsche Bank‘s suit could result in economic harm to appellants: (1) the district court must interpret the Agreement to find that FDIC did not transfer the relevant liability to J.P. Morgan; and (2) Deutsche Bank must prevail on the merits against FDIC in its breach-of-contract claims ... Under such circumstances, where a threshold legal interpretation must come out a specific way before a party‘s interests are even at risk, it seems unlikely that the prospect of harm is actual or imminent.
Id. Here, too, there are a host of contingencies that must occur before the States could arguably suffer economic harm under Title II, and “because [the statute] at most authorizes--but does not mandate or direct--the [enforcement] that respondents fear, respondents’ allegations are necessarily conjectural.” Clapper, 133 S.Ct. at 1149 (emphasis in original).12
First, “[a] systematically important financial company in which the States are invested would have to be in default or in danger of default.” (Defendants’ Reply [ECF No. 30] (“Def. Reply“) at 30.) Second, “[t]he Secretary of the Treasury would have to exercise his discretion to seek the appointment of a receiver under Title II‘s [O]rderly [L]iquidation [A]uthority, and he could do so only if numerous statutory prerequisites were met, including consultation with the President of the United States, and a written recommendation from the Federal Reserve Board and the FDIC, or another agency.” (Id.) Third, “the States as creditors would have to suffer a greater loss in a Title II liquidation than they would have in bankruptcy, and this would have to happen despite Title II‘s requirement that each creditor will receive no less than it would have under a liquidation pursuant to chapter 7 of the Bankruptcy Code.” (Id.)13
In some instances, when and if the OLA is ever invoked, a given creditor may find itself worse off than it would have been had the debtor company been subject to a Chapter 11 proceeding. Other creditors
2. Ripeness
The States’ claims are also not ripe because they are not “fit for judicial review.” See, e.g., Seegars v. Gonzales, 396 F.3d 1248, 1253 (D.C.Cir.2005). In such an instance, the issues would be much clearer for judicial review with further factual development, and “denial of immediate review would [not] inflict a hardship on the challenger typically in the form of its being forced either to expend non-recoverable resources in complying with a potentially invalid regulation or to risk subjection to costly enforcement processes.” Id. Even a “pure legal issue,” such as a facial challenge, may not be ripe. See, e.g., Nat‘l Park Hospitality Ass‘n v. Dep‘t of the Interior, 538 U.S. 803, 812 (2003) (even a “purely legal” “facial challenge” is unripe if “further factual development would significantly advance [the court‘s] ability to deal with the legal issues presented.“). Of particular relevance here, “a claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.” CTIA-The Wireless Ass‘n v. FCC, 530 F.3d 984, 987 (D.C.Cir.2008) (quoting Texas v. United States, 523 U.S. 296, 300 (1998)). As the D.C. Circuit has noted, in rejecting a separation-of-powers claim on ripeness grounds:
In the instant case, as in Buckley [v. Valeo, 424 U.S. 1 (1976)], appellant asks this court to pass on the constitutionality of an entire Act of Congress that vests in an entity a host of powers, most of which have not been invoked and many of which may never be invoked in the proceedings concerning appellant. To decide the legitimacy of powers whose exercise is the antithesis of “all but certain” would clearly contravene the principle of constitutional avoidance underlying both this court‘s and the Supreme Court‘s decisions in Buckley, the principle that “the quarrel must be with the official and not the statute book.” ... In the course of time we may have a more concrete application of the Act as a whole. Then, and only then, will we be justified in deciding the facial constitutionality of the Act.
Hastings v. Judicial Conference, 770 F.2d 1093, 1101-03 (D.C.Cir.1985). Similarly, the States ask the Court to invalidate all of Title II, despite the fact that none of the OLA powers “have [ ] been invoked and many of which may never be invoked” in matters concerning the States. Id. at 1101. For the Court to do so would be the height of imprudence. Therefore, even if the States could survive a challenge to their standing,
For these reasons, the Court finds that the States lack standing on Counts IV, V, and VI, or in the alternative, that their claims are not ripe, and will accordingly dismiss these counts pursuant to
III. TITLE X: CONSUMER FINANCIAL PROTECTION BUREAU
A. The Statutory Provision
Title X established the Consumer Financial Protection Bureau in order to “implement and ... enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”
Title X transferred regulatory authority to the Bureau over consumer financial products and services that had previously been exercised by other federal agencies. See
1. UDAAP Authority
In addition to granting existing regulatory authority to the Bureau, Title X also authorizes the Bureau to issue new regulations to implement the provisions of Title X, including its prohibition against any “unfair, deceptive, or abusive act or practice” by a “covered person” or “service provider.”
The Bureau also has the authority to “supervis[e] covered persons for compliance with Federal consumer financial law, and tak[e] appropriate enforcement action to address violations of Federal consumer financial law.”
The Bureau may also recommend to the prudential regulator that it take action when there is reason to believe that one of the smaller institutions has violated Federal consumer financial law. See
2. Remittance Rule
Dodd-Frank amended the EFTA to establish greater consumer protections for remittance transfers from consumers in the United States to businesses and individuals abroad. (See Def. Mot. at 7 (citing
3. Rules Relating to Mortgages
The Bureau has also promulgated two rules regarding mortgages that are relevant to SNB‘s claim of standing.
a. RESPA Servicing Rule
On February 14, 2013, the Bureau issued a final rule governing mortgage servicing under RESPA,
b. ATR-QM Rule
On January 10, 2013, the Bureau issued a final rule implementing Title XIV of the Dodd-Frank Act and amending Regulation Z, which implements the Truth in Lending Act,
[r]aising the threshold defining which qualified mortgages receive a safe harbor under the ability-to-repay rules for loans that are made by small creditors under the balloon-loan or small creditor portfolio categories of qualified mortgages. Because small creditors often have higher cost of funds, the final rule shifts the threshold separating qualified mortgages that receive a safe harbor from those that receive a rebuttable presumption of compliance with the ability-to-repay rules from 1.5 percentage points above the average prime offer rate (APOR) on first-lien loans to 3.5 percentage points above APOR.
78 Fed. Reg. 35430, 35431 (June 12, 2013).16
B. Counts I and II
In its Opposition, the Bank bases its claim of standing as to Count I on “four here-and-now financial injuries directly caused by the unconstitutional formation and operation of the Bureau.” (Pvt. Pl. Opp. at 12.) First, it alleges that it “has incurred and will continue to incur substantial compliance costs to ensure it acts consistently with the Bureau‘s regulations and interpretations of Federal consumer financial law.” (Id.) Second, it alleges that the Bureau‘s Remittance Rule caused the Bank initially to “cease[] offering profitable remittance transfers” and subsequently to resume offering the transfers on a limited basis. (Id.) Third, it alleges that “the Bureau‘s new rules governing mortgage foreclosure increase the Bank‘s costs of doing business with respect to mortgage loans it has already made.” (Id.) Fourth, it alleges that as of October 2010, it “discontinued a profitable mortgage practice to avoid prosecution pursuant to the Bureau‘s UDAAP authority.”
As an initial matter, the Bank errs to the extent that it suggests that it need only show that it is “directly subject to the authority of the agency” without meeting the basic standing requirements of injury-in-fact, causation, and redressability. (Pvt. Pl. Opp. at 30 (quoting Comm. for Monetary Reform, 766 F.2d at 543).)17 The Bank claims to be relying on D.C. Circuit precedent for this proposition, but it has misinterpreted that precedent. In Committee for Monetary Reform, the Court held that “litigants have standing to challenge the authority of an agency on separation-of-powers grounds only where they are directly subject to the authority of the agenсy, whether such authority is regulatory, administrative, or adjudicative in nature.” 766 F.2d at 543. Ultimately, the Court found no standing because plaintiffs did not allege that “they are directly subject to the governmental authority they seek to challenge, but merely assert[ed] that they are substantially affected by the exercise of that authority.” Id. The Court did not conclude, however, that being subject to the challenged governmental authority was sufficient. Lest there be any doubt, the Court later cited this holding in NRA Political Victory Fund, where it stated, “[b]ecause an enforcement action is the paradigm of ‘direct governmental authority,’ appellants have standing[.]” 6 F.3d at 824. While the parameters of direct governmental authority have yet to be established, no case stands for the proposition that standing can be established merely by being subject to governmental regulatory authority in the absence of any agency action that causes injury.18
The Bank‘s claim of standing with respect to Count II is based on the same factual allegations as it relies on for Count I.19 (See Pvt. Pl. Opp. at 31.) It is settled that the Bank need not show that the results of any agency action would have been different without an unconstitutional appointment. In other words, the Bank need not present “precise proof of what the [Bureau]‘s policies might have been in that counterfactual world.” Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 513 (2010). See also Comm. for Monetary Reform, 766 F.2d at 543 (“a party is not required to show that he has received less favorable treatment than he would have if the agency were lawfully constituted and otherwise authorized to discharge its functions“).
Nevertheless, while the Bank does not have to demonstrate that a constitutionally-appointed director would have made different decisions than Cordray has, it must demonstrate that it has been harmed by some decisions made by Cordray or under his direction. Thus, it cannot complain in
We have no power per se to review and annul acts of Congress on the ground that they are unconstitutional. That question may be considered only when the justification for some direct injury suffered or threatened, presenting a justiciable issue, is made to rest upon such an act.... The party who invokes the [court‘s jurisdiction] must be able to show, not only that the statute is invalid, but that he has sustained or is immediately in danger of sustaining some direct injury as the result of its enforcement, and not merely that he suffers in some indefinite way in common with people generally.
Massachusetts v. Mellon, 262 U.S. 447, 488 (1923). The Court will turn to the four grounds upon which the Bank relies to satisfy its burden as to standing.
1. Compliance Costs
The Bank argues that it has spent money to keep abreast of developments under the Dodd-Frank Act and that these expenditures are subsumed under the heading of “compliance costs.”21 In particular, it asserts that it spent over $230,000 in compliance costs in 2012, including “over $2,500 to send a representative to ‘Compliance School’ that offered classes on, among other things, CFPB regulations.” (Pvt. Pl. Opp. at 8 (citing Declaration of Jim R. Purcell [ECF No. 27-2] (“First Purcell Decl.“) ¶¶ 5, 6) (emphasis added).) The Bank also began subscribing, at a cost of $9,900 annually, to a service called the “Compliance Alliance” created by the Texas Bankers Association in response to the passage of the Dodd-Frank Act.” (Id.) In the Bank‘s careful phrasing, the “[s]ervice provides notification and counsel regarding new and proposed regulations, interpretations, and enforcement actions that would affect the Bank‘s business, and was specifically marketed to SNB and other banks as necessary to stay up-to-date with (among other things) the activities of the CFPB.” (Id. (emphasis added).) In 2011, prior to Cordray‘s appointment, the Bank also subscribed to a second compliance service, TriNovus, at a cost of $2,300. (See
In proposing this novel and overly broad interpretation of the term “compliance costs,” the Bank would have this Court adopt a theory of standing that goes beyond any decision in this jurisdiction. Certainly, courts in this jurisdiction have found standing based on expenditures that
A compliance cost has also been interpreted to include the cost of complying with statutory reporting requirements. See, e.g., Cellco P‘ship v. FCC, 357 F.3d 88, 100 (D.C. Cir. 2004) (in assessing a challenge to two regulations involving extensive reporting requirements, the Court held that “[a]s an entity continuously burdened by the costs of complying with what it contends are ‘unnecessary’ regulations[,] ... [plaintiff‘s] injuries are concrete and actual“); Inv. Co. Inst. v. CFTC, 891 F. Supp. 2d 162, 177, 185 (D.D.C. 2012) (in assessing challenge to regulations issued pursuant to Dodd-Frank involving reporting and registration requirements, Court found standing based on “relative increased regulatory burden and ... associated costs“). But, while the Bureau has the authority to demand the production of reports from covered entities, the Bank has not been required to submit any reports, nor is it clear that it will be required to do so in the future.24
Because the Bank‘s overly broad conception of “compliance costs” has never been recognized in this jurisdiction, the Bank resorts to reliance on two cases from the Fourth Circuit. In addition to not being binding on this Court, both of the cases cited by the Bank are distinguishable. In Chambers Med. Techs. of S.C., Inc. v. Bryant, 52 F.3d 1252 (4th Cir. 1995), the plaintiff challenged a blacklisting provision under South Carolina state law that prohibited an owner or operator of a waste treatment facility within South Carolina from accepting infectious waste generated in a jurisdiction that prohibits the treatment, storage, or disposal of the waste in that jurisdiction. See id. at 1265. The plaintiff was found to have standing because it “would incur costs associated with monitoring the laws of [sixteen] states to ensure that they did not enact ... legislation” that would automatically trigger the blacklisting provision. Id. Importantly, in Chambers, the costs of monitoring the other states’ laws were necessarily incurred in order to avoid violating South Carolina law. By contrast, the expenditures that SNB includes as “compliance costs” are ones that it has voluntarily incurred to keep track of the CFPB‘s activities, not to actually comply with any regulations.
Similarly, in Pac. Legal Found. v. Goyan, 664 F.2d 1221 (4th Cir. 1981), a funding program that the plaintiff was challenging would have expanded public participation in FDA rulemaking proceedings in which the plaintiff frequently participated, necessitating
Nevertheless, to the extent that the Fourth Circuit cases can be read to justify the Bank‘s theory of standing and survive Clapper, this Court is unwilling to accept their rationale. The logical extension of the Bank‘s expansive definition of compliance costs would be that any time a party spends money or uses its resources (including its in-house counsel) to identify its statutory obligations, or indeed to determine if it even has any, it would then have standing to challenge that statute. That cannot be the law. Just as “a plaintiff cannot achieve standing to litigate a substantive issue by bringing suit for the cost of bringing suit,” Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 107 (1998), a plaintiff should not be able to achieve standing to litigate an injury based on the cost of figuring out whether it has an injury. To accept the Bank‘s definition of compliance costs would amount to an evisceration of the requirement of injury-in-fact, and would grant standing to a party that is merely a subject of a regulation or statute. (See supra Section III.B.)
But even if these costs could be construed to constitute an injury, it is a self-inflicted injury, neither caused by Title X nor redressable by this Court. As the Supreme Court recently held, plaintiffs “cannot manufacture standing merely by inflicting harm on themselves based on thеir fears of hypothetical future harm that is not certainly impending.” Clapper, 568 U.S. at 416. The Bank‘s assertion that it was forced to expend these costs
In short, these expenditures are not “a reasonable reaction to a risk of harm,” but rather expenditures that the Bank would make in the normal course of business irrespective of Title X, or, to the extent that they are costs unique to Title X, they are an injury that the Bank has inflicted on itself “based on [its] fears of hypothetical future harm that is not certainly impending.” Clapper, 568 U.S. at 416.
2. Remittance Rule
The Bank claims that the Bureau‘s Remittance Rule has constrained its remittance business, thereby causing it Article III injury. Importantly, on the day the Bureau issued the rule, it also issued a notice of proposed rulemaking indicating that the Bureau was considering the establishment of a safe harbor. (See Def. Reply at 8.) Although the safe harbor, as initially contemplated, would have covered only institutions that providеd 25 or fewer remittances, the safe harbor that was ultimately adopted in August 2012 protects institutions that provide 100 or fewer remittances. (See 77 Fed. Reg. at 6203; EFT, 77 Fed. Reg. at 50244.)
The Bank stopped offering remittances when the initial rule was promulgated — despite the fact that the rule had not come into effect and there was a notice of proposed rulemaking — and it began offering remittances again after the safe harbor provision was adopted. (See First Purcell Decl. ¶¶ 15, 18, 20.) The Bank now argues that its “inability to cost-effectively comply with the Rule has caused it to adopt a policy pursuant to which it has limited its business opportunities by mandating that it will never perform more than 99 covered transfers in any given year.” (Pvt. Pl. Opp. at 17 n.8.) However, the Bank has never come close to 100 remittances, as it “regularly offered more than 25 transfers a year,” but it has never offered more than 70 transfers in a year. (See First Purcell Decl. ¶ 11.) Thus, it falls comfortably within the safe harbor that was ultimately adopted, and its assertion that it would issue more than 100 remittances annually in the future were it not subject to the regulation lacks plausibility. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). For, as the Supreme Court has held, “‘some day’ intentions — without any description of concrete
The Bank also argues that even if the Court does not accept its proposition that the rule as currently configured causes it injury, it has standing because when it filed suit, the final Remittance Rule had been issued but the final rule regarding the safe harbor had not yet been formally promulgated. Of course, “standing is assessed at the time of filing.” Wheaton Coll. v. Sebelius, 703 F.3d 551, 552 (D.C. Cir. 2012). Nonetheless, the Court disagrees with the Bank‘s premise. At the time that the suit was filed, the Remittance Rule had not taken effect, and the Bureau had made it clear that it was still in the midst of drafting a rule to provide for a safe harbor. Furthermore, as defendants have noted, further amendment was not only contemplated at the time the rule was issued, it was all but inevitable. (See Tr. at 64.) The statute and the rule specified that the rule would apply only to entities that provide remittance transfers “in the normal course of business,” but that phrase was left undefined. (Id.) Ultimately, the safe harbor amendment defined “in the normal course of business” as the issuance of 100 or more remittances annually, thereby limiting the application of the Remittance Rule to institutions that have a far more active remittance business than the Bank. While a plaintiff need not necessarily wait until the effective date of a regulation to challenge it, see Pierce v. Soc‘y of Sisters, 268 U.S. 510, 536 (1925), where it is clear that the administrative process is ongoing to the extent that the regulation‘s application to the plaintiff is unclear, there is no “certainly impending” injury. Clapper, 568 U.S. at 409.
In addition, considerations of prudential ripeness will sometimes lead courts to refrain from interfering with an agency‘s ongoing decision-making process. See Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43, 58 n.18 (1993) (“Even when a ripeness question in a particular case is prudential, we may raise it on our own motion, and cannot be bound by the wishes of the parties.“) (internal quotation marks and citation omitted). As the Court of Appeals recently noted, “[i]n the context of agency decision making, letting the administrative process run its course before binding parties to a judicial decision prevents courts from ‘entangling themselves in abstract disagreements over administrative policies, and ... protect[s] the agencies from judicial interference’ in an ongoing decision-making process.” Am. Petroleum Inst. v. EPA, 683 F.3d 382, 386 (D.C. Cir. 2012). Of course, the Bank is not challenging a specific agency decision, but rather the existence of the agency itself. Nonetheless, in the context of this Court‘s attempts to assess its jurisdiction over the Bank‘s claims, similar reasoning applies, for the Bank‘s claims remain abstract until there is some regulation that actually causes harm or will plausibly harm in the near future.
Furthermore, the Bank‘s claim is not ripe because the Bank has no imminent injury based on the Remittance Rule as presently promulgated. The Bank alleges that the Bureau could alter the rule at any time to make it applicable to the Bank, “[g]iven the CFPB‘s constantly changing positions on remittances.”26 But the promulgation of a handful of amendments
3. Mortgage Foreclosure Rules
The Bank also relies on the RESPA Servicing Rule and the ATR-QM Rule, both issued by the CFPB under Cordray‘s direction, as evidence of injury. As a threshold matter, it is significant that neither rule had been issued at the time of the filing of the suit. As defendants point out, although the Second Amended Complaint was filed subsequent to the rules’ promulgation, the Bank added no allegations about the rules, mentioning them for the first time in its Opposition to defendants’ Motion to Dismiss. (See Def. Reply at 13, 15, 16 (citing Arbitraje Casa de Cambio, S.A. de C.V. v. U.S. Postal Serv., 297 F. Supp. 2d 165, 170 (D.D.C. 2003) (“It is axiomatic that a complaint may not be amended by the briefs in opposition to a motion to dismiss.“)).) Moreover, “federal jurisdiction depends on the facts as they exist when the complaint is filed.” Com. Union Ins. Co. v. United States, 999 F.2d 581, 585 (D.C. Cir. 1993) (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830 (1989)). Otherwise stated, “[t]o satisfy Article III, an injury in fact must be both ‘concrete and particularized’ and ‘actual or imminent’ at the time the plaintiff files suit.” Equal Rights Ctr. v. Post Props., Inc., 633 F.3d 1136, 1141 (D.C. Cir. 2011) (quoting Lujan, 504 U.S. at 560 and citing Worth v. Jackson, 451 F.3d 854, 860 (D.C. Cir. 2006)) (emphasis added). See also Lujan, 504 U.S. at 571 n.5 (“standing is to be determined as of the commencement of suit“). Because these two rules did not exist at the time the suit was filed, they cannot form the basis of the Bank‘s standing. But even if they could, the Bank‘s alleged injuries based on the two rules are far too speculative.
a. RESPA Servicing Rule
The RESPA Servicing Rule has numerous requirements, most of which exempt SNB as a small servicer. (See Tr. at 59.) The Bank is not exempt, however, from
There is substantial doubt, however, whether the Bank would ever run afoul of this rule. Defendants have cited to public records showing that the Bank has not initiated a single foreclosure from the beginning of 2008 through the end of 2012 — a time during which foreclosures were rampant nationwide — and indeed, that no mortgage has gone into default from the beginning of 2007 through the end of 2012. (See Def. Reply at 17-18; id., Exs. 3, 4.)27 Because the Bank chose to exit the mortgage lending business in 2010, it holds a dwindling number of mortgages, which will total only $577,000 when this rule takes effect in January 2014. (See Def. Reply at 17.)28 Furthermore, loans secured by property of 25 acres or more are exempt from RESPA‘s requirements (see id. at 18 (citing
In sum, given the scant record before the Court, it is simply too speculative to suggest that the Bank would ever wish to issue a notice in less than 120 days; that it would be prevented from doing so by
b. ATR-QM Rule
The Bank also alleges injury based on the ATR-QM Rule, which implements the Truth in Lending Act, as well as provisions of Title XIV of the Dodd-Frank Act. (See Pvt. Pl. Opp. at 14, 23; Def. Reply at 12.) But the Bank cannot base Article III standing on the rule nor does the rule satisfy the prudential ripeness standard. First, as noted above, the rule did not exist at the time the suit was filed, but rather was promulgated seven months later on January 10, 2013. Thus, to the extent that standing is based on injury “at the time the plaintiff files suit,” Equal Rights Ctr., 633 F.3d at 1141, the rule cannot give rise to standing.
Furthermore, since its initial promulgation on January 10, 2013, the rule has included several provisions that significantly limit the scope of its application. The rule has always provided that a qualified mortgage that is not “higher-priced” falls within a safe harbor, meaning that the lender is conclusively presumed to have complied with the rule‘s requirements. See 78 Fed. Reg. at 6408. The Bank has not stated whеther it holds any mortgages that fall into this category, or if it would hold any if it chose to re-enter the consumer mortgage market. The rule has also always included a rebuttable presumption for “higher-priced” mortgage loans that do not qualify for the safe harbor. Id. at 6510. When the rule was first issued in January 2013, “higher-priced” mortgages were defined as “having an APR that exceeds APOR by 1.5 percentage points for first liens[.]”30 Id. Accordingly, on February 12, 2013, SNB Chairman Jim Purcell stated that “[b]efore leaving the market, the Bank offered several loans at interest rates that were at least 1.5% higher than the Average Prime Offer Rate.... Had it continued to offer consumer mortgage loans, it would have expected many of them to be of this character.” (First Purcell Decl. ¶ 25 (emphasis added).)
Importantly, however, on the same day the rule was issued, the agency proposed raising the safe harbor ceiling for small creditors from 1.5% to 3.5% APR over APOR, see 78 Fed. Reg. 6621, 6624 (to be codified at
[b]ecause small creditors often have higher cost of funds, the final rule shifts the threshold separating qualified mortgages that receive a safe harbor from those that receive a rebuttable presumption
of compliance with the ability-to-repay rules from 1.5 percentage points above the average prime offer rate (APOR) on first-lien loans to 3.5 percentage points above APOR.
Id. In response, on June 13, 2013, SNB Chairman Purcell submitted a supplemental declaration indicating that the Bank currently holds only three loans that exceed the prime rate by 3.5% (see Second Purcell Decl. ¶ 10), and thus, these loans, if they still exist when the rule becomes effective on January 10, 2014, will be entitled to the rebuttable presumption, not the safe harbor, in the event that a mortgagee sues or raises a defense based on the rule. See 78 Fed. Reg. at 35429.
But whether this rule will be invoked by a litigant is sheer conjecture since the Bank has had no mortgages in default, nor has it initiated any foreclosures or become involved in litigation over foreclosures since 2008. (See Def. Reply, Ex. 4.) Furthermore, there is a three-year statute of limitations for affirmative cases brought under the rule; after three years, the rule can be invoked only as a defense to foreclosure. (See 78 Fed. Reg. 6416.) For these same reasons, the Bank‘s claim that it is being prevented from re-entering the mortgage market because the rule “would impose an additional risk factor that would affect the costs and structure of the loan if the Bank were to offer it” lacks plausibility. (First Purcell Decl. ¶ 32. See also Pvt. Pl. Opp. at 23; Tr. at 25-26.)31
As noted above, the Supreme Court is reluctant to find standing based on theories that “require guesswork as to how independent decisionmakers will exercise their judgment,” Clapper, 568 U.S. at 413, and it is “the burden of the plaintiff to adduce facts showing that ... choices [of the independent actors] have been or will be made in such a manner as to produce causation and redressability of injury.” Lujan, 504 U.S. at 562. See also Nat‘l Wrestling Coaches Ass‘n v. Dep‘t of Educ., 366 F.3d 930, 940 (D.C. Cir. 2004). The Bank has failed to carry this burden here. For even if the Bank were to offer mortgages that exceed the prime rate by 3.5%, its past record indicates that this would be a small number of mortgages; the rate of defaults would be low even among this class of borrowers; and no one can know if any of the defaulting borrowers would choose to raise the ATR-QM Rule as a defense to foreclosure.
It should also be noted that the Bank‘s claim of injury based on the ATR-QM Rule faces a redressability problem, insofar as the Bank has not challenged Title XIV, nor asked that the rule be set aside under the Administrative Procedure Act,
Moreover, it is obvious that the rule is still a work in progress. The agency is clearly taking seriously public comments that it has received, as it has already made adjustments to the rule based on concern that “small creditors operating in rural and underserved areas may reduce the number of mortgage loans they make or stop making mortgage loans altogether, limiting the availability of nonconforming mortgage credit and of mortgage credit in rural and underserved areas.” 78 Fed. Reg. at 35478. So again, considerations of prudential ripeness strongly counsel against the Court‘s intervention. See Devia v. NRC, 492 F.3d 421, 424 (D.C. Cir. 2007) (the purpose of ripeness “is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties” (quoting Abbott Labs., 387 U.S. at 148-49)).
4. UDAAP Authority
Finally, the Bank contends that it has standing to attack Title X based on the Bureau‘s UDAAP authority. Its challenge rests on a two-prong attack. First, the Bank claims that in October 2010, several months after the passage of the Dodd-Frank Act, it decided to exit the consumer mortgage business “to avoid the likelihood of a Bureau-driven prosecution, and to avoid the certainty that it would have been required to alter its mortgage lending practices had it stayed in the market.” (Pvt. Pl. Opp. at 20 (emphasis in original); see also First Purcell Decl. ¶ 30 (“The Bank did so due to fear that those loans would be subject to enforcement action under the Dodd-Frank Act because they might be deemed to violate the prohibition against unfair, deceptive and abusive practices.“)). Second, the Bank claims that “[b]ut for the Bureau, its rules, and its enforcement authority, the Bank would reenter the consumer mortgage and remittance markets without limitation.” (First Purcell Decl. ¶ 38.) Neither of these claims can withstand scrutiny as a matter of law or fact.
As an initial matter, one must place the Bank‘s claims in context in order to understand whether either its decision to get out of the mortgage business or its decision to stay out of that business constitutes a concrete injury-in-fact caused by Title X of the Dodd-Frank Act and redressable by this Court. At the time the Bank ceased offering new mortgages in October 2010, the Bureau was barely in operation; it had not used its UDAAP authority to regulate mortgages or any other consumer products; it had not enacted any regulations; and it had not undertaken any enforcement actions.33 In fact, the only event
Thereafter, the Bank filed suit on June 21, 2012, complaining about the lack of certainty as to “whether the CFPB will investigate or litigate against them, deeming [the Bank‘s mortgage lending] practices to be ‘unfair,’ ‘deceptive’ or ‘abusive’ pursuant to an ex post facto CFPB interpretation of the law” (Original Complaint [ECF No. 1] (“Compl.“) ¶ 43), and adding allegations in 2013 when it amended the complaint about “[t]he resulting chilling effect ... [that] forces lenders such as the Bank to either risk federal prosecution or curtail their own services and products.” (Second Am. Compl. ¶ 83.) Yet, even at the time that suit was filed — two years after the enactment of Dodd-Frank — the Bureau still had not enacted any rule that impacted the Bank‘s mortgage lending practices. In fact, the only mortgage rules that the Bank complains about — the ATR-QM Rule and the RESPA Servicing Rule — were promulgated on January 10, 2013 and February 14, 2013, respectively, and neither was even mentioned in the Second Amended Complaint, which was filed on February 19, 2013.35 Moreover, neither rule was promulgated under the Bureau‘s dreaded UDAPP authority, but rather under preexisting laws for which the regulatory authority had been transferred to the Bureau.36
Nonetheless, in opposing the motion to dismiss, the Bank raised the two mortgage rules for the first time and argued that “but for the Bureau, its rules, and its enforcement authority, the Bank would reenter the consumer mortgage and remittance markets without limitation.” (First Purcell Decl. ¶ 38.) Of course, as of the filing of this lawsuit, neither the mortgage rules nor the Remittance Rule had become effective, and they still have not become effective. Furthermore, each rule has been amended multiple times with the addition of significant safe harbors, which further blunt any possible future impact on either the Bank‘s present mortgage holdings or its future holdings should it chose to reenter the market.37 For instance, at the time that Purcell executed his first
As this chronology demonstrates, the Bank left the mortgage market three months after the law was enacted and long before the adoption of any rule governing residential mortgages so one can only infer that the Bank‘s generalized fear (or dislike) of the law, and not the mere possibility of increased costs associated with the rules governing mortgages, provides the primary motivation for the Bank to stay out of this business. According to the Bank, its fear arises from the “cloud of regulatory uncertainty” (Compl. ¶ 12), which cannot, by definition satisfy Clapper‘s requirement of “clearly impending” injury. Clapper, 568 U.S. at 409.38
In addition, defendants argue persuasively that the Bank‘s decision to withdraw from the consumer mortgage market as of October 10, 2010, and to remain out of that market, as well as its decision to limit the number of remittance transfers to under 100, constitute “self-inflicted” injuries, in contravention of the Supreme Court‘s admonition that plaintiffs “cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending.” Clapper, 568 U.S. at 416. As argued by defendants, the Bureau has not barred the Bank from reentering the consumer mortgage market nor limited the number of remittance transfers it can issue. (See Tr. at 63.) Rather, the Bank has chosen this route because of its fears of a possible hypothetical harm created by the mere existence of the Bureau‘s looming regulatory and enforcement powers. Standing cannot be based on this type of voluntary act by a plaintiff. See, e.g., Nat‘l Family Planning & Reprod. Health Ass‘n v. Gonzales, 468 F.3d 826, 831 (D.C. Cir. 2006) (association lacked standing because its injury was “self-inflicted” insofar as it “ha[d] within its grasp an easy means for alleviating the alleged uncertainty“); Rodos v. Michaelson, 527 F.2d 582, 584-85 (1st Cir. 1975) (doctors lacked standing to challenge statute restricting abortions after they ceased performing abortions based on purely speculative “fear of prosecution“); Nova Health Sys. v. Gandy, 416 F.3d 1149, 1157 n.8 (10th Cir. 2005) (abortion provider‘s injury
To rebut this argument, the Bank tries to argue, based on several D.C. Circuit cases, that even though the law has yet to be enforced against it, it has standing because “it is ‘reasonably certain’ that the company‘s ‘business decisions will be affected’ by it.” (Pvt. Pl. Opp. at 20-21 (quoting Sabre, Inc. v. DOT, 429 F.3d 1113 (D.C. Cir. 2005))). But these cases are factually distinguishable because we are nowhere near the preenforcement point found sufficient in those cases, and to the extent that they hold that standing may be based on “incurring costs in anticipation of non-imminent harm,” they cannot survive Clapper, 568 U.S. at 415.
Most notably, the Bank relies on Sabre, 429 F.3d 1113, and Chamber of Commerce v. FEC, 69 F.3d 600 (D.C. Cir. 1995). In Sabre, the Court of Appeals held that the plaintiff had standing “[a]lthough no regulations promulgated by the Department currently constrain [its] business activity and no relevant enforcement aсtions are pending against any” entity in plaintiff‘s line of business. 429 F.3d at 1115. However, the Court made clear that its holding was based on a combination of three particular circumstances: “[1] in the Final Rule, the Department claims that it has jurisdiction over independent CRSs under section 411; [2] its statements indicate a very high probability that it will act against a practice that Sabre would otherwise find financially attractive; and [3] it has statutory authority to impose daily civil penalties on Sabre for violation of section 411, which the Department plausibly asserts it may enforce without prior warning by rulemaking or cease-and-desist order.” Id.
Comparable circumstances do not exist here. First, it is the OCC, rather than the Bureau, that has jurisdiction to enforce the UDAAP prohibition against the Bank, although the CFPB will undoubtedly wield significant influence over the OCC‘s interpretation and enforcement of the statute. (See Mot. to Dismiss at 18 (citing
With respect to the third factor in Sabre (the possibility of enforcement through civil penalties without prior notice), the Bank makes vague allegations about “ex post facto enforcement activities” (Pvt. Pl. Opp. at 9 (citing Second Am. Compl. ¶¶ 16-17, 77, 91)), but the Bureau denies that it has any such power or intent (see Tr. at 66), and the Bank has failed to provide any legal support for its allegations. (See id. at 71.) Thus, unlike Sabre, the Bank cannot claim the Bureau‘s actions to date give “rise to a significant risk” that plaintiffs’ business interests will be injured in the future. Clapper, 568 U.S. at 414.
Nor are the facts in Chamber of Commerce v. FEC, 69 F.3d 600, similar to those presented here. There, the Court based its decision in part on its conclusion that although “appellants are not faced with any present danger of an enforcement proceeding ... [n]othing ... prevents the Commission from enforcing its rule at any time.” 69 F.3d at 603. In the specific context of the plaintiff‘s First Amendment challenge, the Court treated its cessation of the scrutinized political activity as evidence of the challenged regulation‘s chilling effect. See id. The question of whether a regulation has a “chilling effect” has little application beyond the First Amendment context. See id. (“A party has standing to challenge, pre-enforcement, even the constitutionality of a statute if First Amendment rights are arguably chilled, so long as there is a credible threat of prosecution.” (original emphasis removed, emphasis added)); Nat‘l Rifle Ass‘n of Am. v. Magaw, 132 F.3d 272, 294 (6th Cir. 1997) (“Except for cases involving core First Amendment rights, the existence of a chilling effect has never been considered a sufficient basis, in and of itself, for prohibiting government action.” (internal quotation marks and citation omitted)). Furthermore, the Court also considered that the plaintiff was particularly at risk of facing future litigation challenges to its activity because of an unusual feature of the statute in question that “permits a private party to challenge the FEC‘s decision not to enforce.” Id. In this case, even though the Bank invokes the First Amendment doctrine of “chilling effect” (Second Am. Compl. ¶ 16), it has not substantiated its allegations by putting forward a credible “claim of specific present objective harm.” Bigelow v. Virginia, 421 U.S. 809, 816-17 (1975).
The Bank also relies on two D.C. Circuit cаses suggesting that an injury can be based on an agency action that causes a plaintiff to be exposed to additional risks, which in turn affect the plaintiff‘s business decisions. See Rio Grande Pipeline Co. v. FERC, 178 F.3d 533 (D.C. Cir. 1999); Great Lakes Gas Transmission Ltd. P‘ship v. FERC, 984 F.2d 426 (D.C. Cir. 1993). Both of these cases are readily distinguishable.
In sum, the Bank‘s claim that “[b]ut for the Bureau, its rules, and its enforcement authority, the Bank would reenter the consumer mortgage and remittance markets without limitation” (First Purcell Decl. ¶ 38) does not establish that the Bank has suffered an injury-in-fact caused by the Bureau and Cordray, and redressable by this Court. Therefore, the Bank lacks standing on Counts One and Two.43
For the reasons stated above, the Court will grant Defendants’ Motion to Dismiss in its entirety. A separate Order accompanies this Memorandum Opinion.
SERVICE EMPLOYEES INTERNATIONAL UNION LOCAL 32BJ, Plaintiff, v. DIVERSIFIED SERVICES GROUP, INC., Defendant.
Civil Action No. 12-cv-1608 (RLW).
United States District Court, District of Columbia.
Aug. 1, 2013.
Notes
(Second Am. Compl. ¶ 170 (emphasis added).)On its face, Section 210(b)(4) of the Act abrogates the rights under the U.S. Bankruptcy Code of creditors of institutions that could be liquidated, destroying a valuable property right held by creditors—including the State Plaintiffs—under bankruptcy law, contract law, and other laws, prior to the Dodd-Frank Act.
Section 210(b)(4) exposes those creditors to the risk that their credit holdings could be arbitrarily and discriminatorily extinguished in a Title II liquidation, and without notice or input. Title II‘s destruсtion of a property right held by each of the State Plaintiffs harms each State, and is itself a significant, judicially cognizable injury that would be remedied by a judicial order declaring Title II unconstitutional.
78 Fed. Reg. 6407, 6512 (Jan. 30, 2013).even without the benefit of any presumption of compliance, the actual increase in costs from the litigation risk associated with ability-to-repay requirements would be quite modest. This is a function of the relatively small number of potential claims, the relatively small size of those claims, and the relatively low likelihood of claims being filed and successfully prosecuted. The Bureau notes that litigation likely would arise only when a consumer in fact was unable to repay the loan (i.e. was seriously delinquent or had defaulted), and even then only if the consumer elects to assert a claim and is able to secure a lawyer to provide representation; the consumer can prevail only upon proving that the creditor lacked a reasonable and good faith belief in the consumer‘s ability to repay at consummation or failed to consider the statutory factors in arriving at that belief. The rebuttable presumption of compliance being afforded to qualified mortgages that are higher-priced reduces the litigation risk, and hence the potential transaction costs, still further.
984 F.2d at 430-31.Because of the condition [imposed by the agency], Great Lakes has the present burden of trying to lock in future shipping contracts and NEB export licenses so that it will not be placed at risk for millions of dollars in construction costs should its expansion facility be underutilized in 2005. In the likely event that Great Lakes cannot arrange shipping contracts that far in advance, it will have to adjust its finances and investment strategy to prepare for the risk of underutilization. The at-risk condition also injures Great Lakes’ competitiveness in the industry. The anticipation of a risk of lower future earnings lowers Great Lakes’ creditworthiness, affecting its ability to raise capital by taking on debt.