Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_14-cv-05166/USCOURTS-cand-5_14-cv-05166-5/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 28:1331 Federal Question: Other Civil Rights

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Case No. 14-CV-05166-LHK 

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

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Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

NATIONWIDE BIWEEKLY 

ADMINISTRATION, INC., et al.,

Plaintiffs,

v.

JAN LYNN OWEN,

Defendant.

Case No. 14-CV-05166-LHK 

ORDER GRANTING DEFENDANT'S 

MOTION TO DISMISS

Re: Dkt. Nos. 30, 55

Before the Court is a motion to dismiss filed by Defendant Jan Owen (“Defendant”), in her 

official capacity as Commissioner of the Department of Business Oversight for the State of 

California (“DBO”). ECF No. 30 (“Motion”); ECF No. 55 (“Supplemental Brief”). Defendant 

requests that the Court dismiss Plaintiff Nationwide Biweekly Administration, Inc.’s (“Plaintiff” 

or “Nationwide”) complaint pursuant to Federal Rule of Civil Procedure 12. 

The Court finds this matter suitable for decision without oral argument under Civil Local 

Rule 7-1(b) and hereby vacates the motion hearing set for June 25, 2015, at 1:30 p.m. Having 

considered the submissions of the parties, the record in this case, and the relevant law, the Court 

hereby GRANTS Defendant’s Motion, for the reasons stated herein.

I. BACKGROUND

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A. Factual Background

Nationwide is an Ohio corporation with its headquarters in Xenia, Ohio. ECF No. 1 

(“Compl.”), ¶ 3. Defendant is the Commissioner of the DBO for the State of California. Id. ¶ 4.

Nationwide is an administrator of biweekly loan repayment programs. Id. ¶ 8. Nationwide 

has approximately 125,000 customers around the country, including over 10,000 in California. Id. 

At issue in the instant litigation is a Nationwide program called the “Interest Minimizer” biweekly 

program, which is targeted at borrowers with home mortgages. Id. ¶ 10. According to 

Nationwide, most mortgage servicers debit a borrower’s mortgage payments on a monthly basis. 

Id. Under Nationwide’s “Interest Minimizer” program, Nationwide acts as an intermediary 

between the borrower and the mortgage servicer. Specifically, Nationwide arranges with the 

borrower to debit one-half of the borrower’s monthly mortgage payment from the borrower’s 

checking account every other week. Id. Nationwide then remits the mortgage payments to the 

mortgage servicer once per month, as required by the servicer. Id. However, because Nationwide 

debits the mortgage payments on a bi-weekly (as opposed to monthly) basis, Nationwide debits 26 

times over the course of the year, effectively resulting in the creation of a 13th annual payment (as 

opposed to 12 annual payments under a traditional monthly repayment plan). Id. ¶¶ 9, 12-13. 

Nationwide claims that the extra payment per year saves its customers money by allowing 

Nationwide’s customers to pay off their mortgage loans faster than they otherwise would. Id. ¶ 

12-13.

1. Investigation of Nationwide’s Business Practices in California

The instant litigation stems from an investigation initiated by the Monterey County and 

Marin County District Attorneys’ Offices into Nationwide’s business practices in California. 1 On 

July 30, 2013, Nationwide received a letter from the Monterey County District Attorney’s Office.

 

1 Nationwide has filed a separate related lawsuit against the Monterey County and Marin County 

District Attorneys’ Offices, as well as two deputy district attorneys from those offices. See Loan 

Payment Administration LLC et al. v. Hubanks et al., Case No. 14-CV-05166-LHK. In that case, 

Nationwide filed a motion for preliminary injunction seeking to prohibit the District Attorneys 

from enforcing certain state statutes against Nationwide. See Case No. 14-CV-05166-LHK, ECF 

No. 5. This Court denied Nationwide’s motion for a preliminary injunction on March 17, 2015. 

See ECF No. 50.

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ECF No. 5-1, at 14 (“Enforcement Letter”). The Enforcement Letter stated that the District 

Attorneys for Marin and Monterey County “are in receipt of numerous complaints about the 

marketing and business practices of Nationwide Bi-Weekly Administration, Inc.” Id. The subject 

of the consumer complaints were solicitation letters Nationwide mailed to homeowners asking 

them to participate in Nationwide’s “Interest Minimizer” program. Id. These solicitation letters 

used the names of the homeowners’ mortgage lenders—including in the headers of the letters and 

multiple times throughout the letters’ text—as well as homeowners’ loan information, such as 

their loan amounts. Id. at 14-16. According to the Enforcement Letter, Nationwide’s use of 

lenders’ names and consumer loan information “[has] the capacity to deceive and mislead 

consumers into believing Nationwide is sponsored by or affiliated with the lender, the solicitation 

is authorized by the lender, or the consumer’s loan information was provided by the lender.” Id. at 

15. The Enforcement Letter also stated that Nationwide’s use of lenders’ names and consumers’ 

loan information violated state consumer fraud statutes as well as the state’s prohibition on 

unlawful business practices. Id. at 14-16. 

The Enforcement Letter then stated that Nationwide “may [also] be in violation of 

California’s Check Sellers, Bill Payers and Proraters Law (California Finance Code section 12000 

et. seq.).” Id. at 16. According to the Enforcement Letter, based on Nationwide’s offer to 

California customers of the company’s “Interest Minimizer” service, “it would appear Nationwide 

is acting as a prorater and therefore required to obtain a prorater license.”

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Id. The Enforcement 

Letter stated that neither Nationwide nor its affiliate, Loan Payment Administration, had obtained 

a prorater license from the DBO. Id. In a subsequent email between an attorney for Nationwide 

and a deputy district attorney with the Monterey County District Attorney’s Office, the deputy 

district attorney stated that the DBO “has joined the prosecution team” and was “now a signatory 

on the tolling agreement” between Nationwide and the Monterey and Marin County District 

 

2 California law defines a prorater as a person “who, for compensation, engages in whole or in part 

in the business of receiving money or evidences thereof for the purpose of distributing the money 

or evidences thereof among creditors in payment or partial payment of the obligations of the 

debtor.” Cal. Fin. Code § 12002.1.

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Attorneys’ Offices. ECF No. 5-1, at 18.

On October 21, 2014, Nationwide received a letter from the DBO. ECF No. 5-1, at 21. 

The letter stated that it “serves to notify Nationwide that an investigation is currently underway by 

the Department’s Enforcement Division regarding possible unlicensed business activity by 

Nationwide in California.” Id. The letter requested that Nationwide make several disclosures, 

including “[a] comprehensive description of all past and current services offered by Nationwide in 

California,” “[t]he dates that Nationwide has done business in California,” and “[t]he revenue 

generated by Nationwide by year since it has conducted business in California.” Id. The letter 

concluded by saying that the “above information is needed to begin the Department’s review and 

may not reflect the full extent of information that the Department may require in the future to 

complete its investigation.” Id.

2. The Relevant Provisions of California’s Financial Code

The relevant provisions of the Check Sellers, Bill Payers and Proraters Law (“Proraters 

Law”) are contained in sections 12000-404. Section 12200 prohibits a person from “acting as a 

prorater” “without first obtaining a license from the commissioner.” Cal. Fin. Code § 12200. A 

“prorater” is defined as “a person who, for compensation, engages in whole or in part in the 

business of receiving money or evidences thereof for the purpose of distributing the money or 

evidences thereof among creditors in payment or partial payment of the obligations of the debtor.”

Id. § 12002.1. The prohibition on “acting as a prorater” without a license, however, is subject to 

various exceptions. See, e.g., id. § 12100. For example, the Proraters Law does not apply to 

persons possessing a real estate license, “when acting in any capacity for which he or she is 

licensed.” See id. § 12100(g); Cal. Bus. & Prof. Code, Division 4, Part 1. The burden of proving 

an exception from the Proraters Law is upon the person claiming the exception. Cal. Fin. Code §

12101.5.

Only if an individual is a prorater, and not subject to an exception, would that individual 

need a prorater’s license from California to comply with the Proraters Law. See, e.g., id. §§

12200, 12002.1, 12100. In such circumstances, the code provides that a prorater’s license shall 

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only be issued to corporations “organized under the laws of this State for that purpose.” Id. §

12200.1.

3. Investigations of Nationwide in Other States

Whether Nationwide conducts certain unlicensed business activities has been the subject of 

investigations in states other than California. For instance, on October 21, 2011, Nationwide 

entered into a consent order with the State of New Hampshire Banking Department. ECF No. 32-

2. That consent order provided, among other things, that “Nationwide has conducted money 

transmitter activity for New Hampshire consumers without a valid Money Transmitter license 

issued by the Department.”3Id. at 3. Similarly on December 29, 2012, Nationwide entered into a 

consent order with the Georgia Department of Banking and Finance. ECF No. 32-3. That consent 

order provided that Nationwide “shall strictly comply with the terms of this Consent Order, the 

Georgia Residential Mortgage Act, including but not limited to O.C.G.A. § 7-1-1002.” Id. at 2. 

Section 7-1-1002 prohibits, inter alia, “any person to transact business in this state directly or 

indirectly as a mortgage broker, a mortgage lender, or a mortgage loan originator” without a 

license, or to “purchase, sell, or transfer one or more mortgage loans or loan applications” from or 

to an unlicensed mortgage originator, broker, or lender. Ga. Code. § 7-1-1002(a)-(b).

B. Procedural History

On November 21, 2014, Nationwide filed the instant lawsuit in this Court. See Compl. 

Nationwide asserts four causes of action. First, Nationwide alleges that § 12200.1, as applied to 

Nationwide, is per se invalid under the dormant Commerce Clause of the U.S. Constitution 

because the statute “prevent[s] Nationwide from doing business in California strictly on the basis 

of its incorporation outside the state of California.” Id. ¶ 34. Second, Nationwide alleges that 

enforcement of the state’s Proraters Law against Nationwide would violate Nationwide’s right to 

substantive due process in violation of the Fourteenth Amendment of the U.S. Constitution. Id. ¶ 

 

3 New Hampshire law provides in relevant part that “[a]ny person [who] . . . in its own name or on 

behalf of other persons, transmits money from this state or to persons within this state, shall obtain 

a license from the banking department.” N.H. Rev. Stat. § 399-G:3.

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39. Third, Nationwide alleges that the DBO’s threatened enforcement of the state’s Proraters Law 

against Nationwide would treat Nationwide differently from other similarly-situated companies 

and therefore violates Nationwide’s right to equal protection of the laws in contravention of the 

Fourteenth Amendment of the U.S. Constitution. Id. ¶¶ 45-47. Fourth, Nationwide alleges that 

the state’s Proraters Law is unconstitutional because it is void for vagueness. Id. ¶¶ 52-54.

Also on November 21, 2014, Nationwide filed a motion for a preliminary injunction 

arguing that it is entitled to a preliminary injunction based on its claim that Financial Code 

§ 12200.1, as applied to Nationwide, violates the dormant Commerce Clause of the U.S. 

Constitution. See ECF No. 5 at 2. Defendant filed an opposition (ECF No. 31) that argued, inter 

alia, that Nationwide failed to establish that Nationwide had Article III standing or that its claim is 

ripe (id. at 12-19). On March 18, 2015, after considering the submissions of the parties and the 

relevant law, this Court denied Nationwide’s motion for a preliminary injunction. ECF No. 45. 

Specifically, this Court found that Nationwide failed to satisfy its burden to establish that 

Nationwide would likely prevail on the merits of its dormant Commerce Clause claim (id. at 15) 

or that Nationwide would likely face irreparable harm absent an injunction (id. at 18). The Court 

further noted that because “Nationwide’s injury is too speculative to warrant injunctive relief, the 

Court does not need to address Defendant’s argument in the alternative [regarding lack of 

ripeness] at this time.” Id. at 18 n.6.4

On January 9, 2015, Defendant filed the instant Motion. ECF No. 30. Defendant argues 

that this Court should dismiss each count of Nationwide’s four-count complaint under Rule 

12(b)(1), because Nationwide lacks standing, or under Rule 12(b)(6), because Nationwide fails to 

plead claims for which relief can be granted. Nationwide filed an opposition (ECF No. 39), and 

Defendant filed a reply (ECF No. 41). 

On May 15, 2015, the DBO and the District Attorneys of Monterey, Marin, and Alameda 

 

4 On March 20, 2015, Nationwide filed a Notice of Appeal from this Court’s Order denying a 

preliminary injunction. ECF No. 46. This Court retains jurisdiction over the action on the merits 

notwithstanding Nationwide’s appeal. See, e.g., Phelan v. Taitano, 233 F.2d 117, 119 (9th Cir. 

1956) (citing Ex parte Nat’l Enameling & Stamping Co., 201 U.S. 156 (1906)).

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Counties filed a civil enforcement action against Nationwide in Alameda County Superior Court. 

California v. Nationwide Biweekly Admin., Case No. RG15770490; see also ECF No. 56-1.5 The 

complaint in the civil enforcement action contains six causes of action and contends that 

Nationwide’s practices constitute: (1) Unlicensed Business Activities in violation of California 

Financial Code § 12200; (2) Fee Overcharges and Unauthorized Charges in violation of California 

Financial Code §§ 12314, 12314.1; (3) Unlawful Use of Lender’s Name in violation of California 

Business and Professions Code §§ 17200, 14701; (4) Unlawful Use of Consumer’s Loan 

Information in Violation of California Business and Professions Code §§ 17200, 14702; (5) False 

Advertising in violation of California Business and Professions Code § 17500; and (6) Unfair 

Competition in violation of California Business and Professions Code § 17200. See generally 

ECF No. 56-1.

On June 3, 2015, Defendant filed a supplemental brief, arguing that this Court should 

abstain under Younger v. Harris, 401 U.S. 37 (1971). ECF No. 55. Nationwide filed an 

opposition (ECF No. 57), and Defendant filed a reply (ECF No. 58). 

II. LEGAL STANDARD

“In Younger v. Harris, [401 U.S. 37 (1971)], the Supreme Court reaffirmed the longstanding principle that federal courts sitting in equity cannot, absent exceptional circumstances, 

enjoin pending state criminal proceedings.” ReadyLink Healthcare, Inc. v. State Comp. Ins. Fund, 

754 F.3d 754, 758 (9th Cir. 2014). The Supreme Court later extended the Younger principle to 

civil enforcement actions “akin to” criminal proceedings. Huffman v. Pursue, Ltd., 420 U.S. 592, 

604 (1975). “Younger abstention is appropriate only when the state proceedings: (1) are ongoing, 

(2) are quasi-criminal enforcement actions or involve a state’s interest in enforcing the orders and 

judgments of its courts, (3) implicate an important state interest, and (4) allow litigants to raise 

federal challenges.” ReadyLink, 754 F.3d at 759 (citing Sprint Commc’ns, Inc. v. Jacobs, 134 S.

 

5 Defendant’s unopposed request for judicial notice of the state court proceeding (ECF No. 56) is 

hereby GRANTED. See also Holder v. Holder, 305 F.3d 854, 866 (9th Cir. 2002) (taking judicial 

notice of filings in the public record from a California state court proceeding).

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Ct. 584, 593-94 (2013)). If these “threshold elements” are met, the Court then considers whether 

the federal action would have the practical effect of enjoining the state proceedings and whether 

an exception to Younger applies. ReadyLink, 754 F.3d at 759. If the threshold elements are met, 

and no exception applies, the Court should dismiss actions involving injunctive or declaratory 

relief, and stay actions where damages are at issue until the state proceedings are completed. 

Gilbertson v. Albright, 381 F.3d 965, 968-69 (9th Cir. 2004) (en banc).

III. DISCUSSION

A. The Younger Threshold Elements

Defendant argues that each of the Younger threshold elements is satisfied in this case. 

ECF No. 55. Nationwide’s opposition only disputes the first threshold element, that the state 

enforcement action is “ongoing” pursuant to Younger. ECF No. 57 at 2-5. Moreover, there is no 

dispute that the instant action challenges the Proraters Law, which is also asserted against 

Nationwide in the state enforcement action. Because each of the Younger threshold elements must 

be satisfied, this Court will address each element in turn. See ReadyLink, 754 F.3d at 759 (“[e]ach 

element must be satisfied”).

1. Ongoing state proceeding

Defendant argues that the state enforcement action is ongoing because, although the state 

enforcement action was filed about six months after Nationwide filed the instant action, the state 

proceeding is now pending, and there have been no proceedings on the substance of the merits in 

this instant action. ECF No. 55 at 2-3. Nationwide responds that because the case has been 

pending in this Court for more than six months, Younger abstention is inappropriate because the 

length of pendency in federal court serves as a proxy for whether the case has progressed beyond 

an embryonic stage. ECF No. 57 at 2-5. For the reasons stated below, the Court agrees with 

Defendant. The Court will first address the timing issue, before addressing the status of the instant 

action.

a. Timing

In Hicks v. Miranda, 422 U.S. 332 (1975), the U.S. Supreme Court held that “Younger v. 

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Harris could not be avoided on the ground that no criminal prosecution was pending against the 

[federal plaintiffs] on the date the federal complaint was filed.” Id. at 349. Moreover, the Court 

observed that none of the Court’s prior decisions “has held that for Younger v. Harris to apply, the 

state criminal proceedings must be pending on the day the federal case is filed.” Id. Instead, 

“where state criminal proceedings are begun against the federal plaintiffs after the federal 

complaint is filed but before any proceedings of substance on the merits have taken place in the 

federal court, the principles of Younger v. Harris should apply in full force.” Id. Thus, the critical 

issue is whether “any proceedings of substance on the merits have taken place in the federal 

court.” Id. The Ninth Circuit is in accord: “Whether the state proceedings are ‘pending’ is not 

determined by comparing the commencement dates of the federal and state proceedings. Rather, 

abstention under Younger may be required if the state proceedings have been initiated before any 

proceedings of substance on the merits have taken place in the federal court.” Polykoff v. Collins, 

816 F.2d 1326, 1332 (9th Cir. 1987).

Nationwide argues that because this case has been pending for slightly longer than six 

months, the case has necessarily progressed beyond an embryonic stage. ECF No. 57 and 3. 

Nationwide then compares this six-month period to the lengths of time in other cases where courts 

have refused to abstain under Younger. See id. at 3. But Nationwide cites no authority for the 

proposition that this Court may place a myopic focus on the length of time a case has been 

pending, rather than analyzing how far the case has progressed on the merits in federal district 

court. Nor can this Court disregard Ninth Circuit authority that the critical issue is whether “any 

proceedings of substance on the merits have taken place in the federal court.” Polykoff, 816 F.2d 

at 1332. The mere length of pendency is not dispositive of that issue and, accordingly, the Court 

will now address whether any proceedings of substance on the merits have taken place in this 

Court.

b. Status of instant litigation

Nationwide argues that this case has progressed beyond an embryonic stage because the 

Court has already denied Nationwide’s motion for preliminary injunction, and the parties have 

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briefed a motion to dismiss, submitted a joint case management statement, and Nationwide filed 

its opening appellate brief in the Ninth Circuit from this Court’s denial of a preliminary injunction. 

ECF No. 57 at 3. The Court does not agree with Nationwide’s conclusion.

Although the grant of a preliminary injunction is considered to be a proceeding of 

substance for Younger purposes, the denial of a preliminary injunction is not. Haw. Hous. Auth. v. 

Midkiff, 467 U.S. 229, 238 (1984) (holding issuance of a preliminary injunction to be “a 

substantial federal court action” pursuant to Younger); Polykoff, 816 F.2d at 1332 (“denial of a 

temporary restraining order is not considered a proceeding of substance on the merits”); see also 

Fresh Int’l Corp. v. Agric. Labor Relations Bd., 805 F.2d 1353, 1358 n.5 (9th Cir. 1986) (“It may 

be that issuance of a temporary restraining order, as opposed to denial of one, is a proceeding of 

substance on the merits.”). Moreover, the mere fact that Nationwide decided to appeal this 

Court’s denial of a preliminary injunction similarly fails to advance this case beyond an 

embryonic stage. Any such appeal is not a proceeding of substance on the merits in this Court,

and Nationwide cites no authority to the contrary.

The Ninth Circuit authorities cited by Nationwide are inapposite. ECF No. 57 at 2-3

(citing Hoye v. Oakland, 653 F.3d 835 (9th Cir. 2011), and Adultworld Bookstore v. Fresno, 758 

F.2d 1348 (9th Cir. 1985)). In both Hoye and Adultworld, the Ninth Circuit reversed decisions of 

district courts that had abstained under Younger. In Hoye, although the district court denied a 

temporary restraining order, the case continued to progress as the Court conducted four status 

conferences with the parties and the Court’s on-the-record expression of its deep reservations 

about the constitutionality of the City Council’s actions resulted in a change in policy by the City 

Council. 653 F.3d at 844. In other words, it was not the mere denial of injunctive relief that led 

the Ninth Circuit to conclude that the case had progressed beyond an embryonic stage. It was, 

instead, that “the District Court’s intervention in the case had resulted in a significant change in 

the relative positions of the parties.” Id.

Similarly, in Adultworld, although the district court denied the preliminary injunction, the 

district court previously granted a temporary restraining order. 758 F.2d at 1349. Moreover, the 

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district court conducted an “extended evidentiary hearing” on plaintiff’s motion for a preliminary 

injunction and denied the motion for preliminary injunction as moot when it abstained under 

Younger. Id. at 1350-51 (“Because the district court should not have abstained, the court also 

erred in not reaching the merits of Adultworld’s motion for a preliminary injunction.”).

In the instant case, unlike in Hoye or Adultworld, the Court has not granted injunctive 

relief, conducted evidentiary hearings, held case management conferences, or even set a case 

schedule. Although Nationwide filed the instant case in November 2014, this case has not 

progressed beyond an embryonic stage. The parties have briefed a motion for preliminary 

injunction (ECF No. 5) and a motion to dismiss (ECF Nos. 30, 55). Of these, the Court denied 

Nationwide’s motion for preliminary injunction on March 18, 2015, without an evidentiary 

hearing, determining that Nationwide failed to demonstrate a likelihood of success on the merits 

and failed to carry its burden to show that real and immediate harm would result absent a 

preliminary injunction. See generally ECF No. 45. Moreover, Defendant has not answered 

Nationwide’s Complaint, nor has the Court held an initial case management conference in this 

case. ECF No. 53. Accordingly, the Court has neither set a case schedule nor approved a 

discovery plan. See Fed. R. Civ. P. 26. This case remains in its infancy and, because the state 

enforcement proceeding is currently pending, the “ongoing state proceeding” element of Younger

is satisfied.

2. Quasi-criminal enforcement action

Neither party disputes that the state enforcement proceeding is a quasi-criminal 

enforcement action. The Court agrees. The state enforcement proceeding was filed against 

Nationwide by the DBO and District Attorneys on behalf of the People of the State of California 

to enforce various provisions of California’s Business and Professions and Financial Codes, 

including the Proraters Law. For civil enforcement actions that are akin to criminal proceedings 

for Younger, “a state actor is routinely a party to the state proceeding and often initiates the action, 

the proceedings are characteristically initiated to sanction the federal plaintiff for some wrongful 

act, and investigations are commonly involved, often culminating in the filing of a formal 

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complaint or charges.” ReadyLink, 754 F.3d at 759 (citing Sprint, 134 S. Ct. at 592). Each of 

those facts is present here. Accordingly, the “quasi-criminal enforcement action” element of 

Younger is satisfied.

3. Implicates an important state interest

Neither party disputes that the state enforcement proceeding “implicates an important state 

interest.” The Court agrees. The state enforcement proceeding implicates the important 

California interest of protecting consumers from protecting California’s consumers from alleged 

abuse and fraud, and ensuring that entities who handle other people’s money, such as proraters, are 

regulated and licensed. See also Middlesex County Ethics Comm. v. Garden State Bar Ass’n, 457 

U.S. 423, 434 (1982) (recognizing state’s “extremely important interest” in maintaining and 

assuring licensees’ professional conduct). This is further evidenced by the state enforcement 

action having been filed in state court on behalf of the people of the state of California. 

Accordingly, the “implicates an important state interest” element of Younger is satisfied. Id. at

432 (“The importance of the state interest may be demonstrated by the fact that the noncriminal 

proceedings bear a close relationship to proceedings criminal in nature.” (citing Huffman, 420 U.S. 

592)).

4. Allows Nationwide to raise federal challenges

Neither party disputes that Nationwide will be allowed to raise federal challenges in the 

state enforcement proceeding. The Court agrees. State courts are presumed to be an adequate 

venue in which to assert federal challenges “in the absence of unambiguous authority to the 

contrary.” Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 15 (1987); Hirsh v. Justices of the Supreme 

Court of California, 67 F.3d 708, 713 (9th Cir. 1995). In the instant case, there is no such 

unambiguous authority suggesting otherwise. Kenneally v. Lungren, 967 F.2d 329, 333 n.3 (9th 

Cir. 1992) (finding California’s superior courts are “fully capable of adjudicating and protecting [a 

litigant]’s constitutional rights.”). Accordingly, the final element of Younger is satisfied.

For the reasons explained above, each of the Younger threshold elements has been 

established. Accordingly, the Court will next consider whether the federal action would have the 

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practical effect of enjoining the state proceedings and whether any exceptions to Younger apply. 

ReadyLink, 754 F.3d at 759.

B. Remaining Considerations

1. Practical effect of enjoining state proceedings 

Neither party disputes that the practical effect of Nationwide’s federal complaint is to 

enjoin the state proceedings. The Court agrees. Nationwide’s complaint seeks declaratory and 

injunctive relief, including, for example, a “permanent injunction against Defendant prohibiting 

Defendant from enforcing the Prorater Law against Nationwide.” Compl. 9. Were the Court to 

grant such relief, it would enjoin the ongoing state enforcement action. Accordingly, this 

additional predicate for Younger abstention is met. ReadyLink, 754 F.3d at 759.

2. Exception for bad faith

Nationwide argues that even if the elements for Younger abstention are met, the instant 

case is excepted from the doctrine because the state enforcement action was brought in bad faith 

and because this case presents a patent constitutional violation. ECF No. 57 at 4-5. Defendant 

responds that Nationwide has fallen far short of establishing bad faith, which “generally means 

that a prosecution has been brought without a reasonable expectation of obtaining a valid 

conviction.” ECF No. 58 at 2 (quoting Baffert v. California Horse Racing Board, 332 F.3d 613, 

621 (9th Cir. 2003)). Upon review of the parties’ arguments, the Court agrees with Defendant. 

The Court is not left with the impression that the state enforcement action was brought in bad 

faith. First, each of Nationwide’s contentions is based on pure speculation without support, and 

the Court denies Nationwide’s request to conduct discovery into the alleged bad faith motives of 

Defendant in this case (ECF No. 57 at 5) when these issues may be further explored in state court. 

Second, for the reasons explained above, the instant case remains in its infancy. Although the 

parties have made numerous filings in this Court, and Nationwide has already appealed this 

Court’s denial of Nationwide’s motion for a preliminary injunction, the Court’s involvement to 

date has been minimal, this being the second motion resolved in the case to date. Finally, 

Nationwide filed the instant action and its motion for a preliminary injunction based on the 

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premise that Defendant would, in fact, file a state enforcement action. Nationwide’s argument that 

Defendant’s actual filing of the state enforcement action demonstrates bad faith is not persuasive.

Moreover, Nationwide’s argument that its case presents a patent constitutional violation 

also fails to convince this Court that Younger abstention is inapplicable. First, this Court has 

already rejected Nationwide’s constitutional argument when it denied Nationwide’s motion for 

preliminary injunction. See ECF No. 45. That decision is law of the case. Second, Nationwide 

cites no authority indicating that an alleged patent constitutional violation serves as an exception 

to Younger. Finally, Nationwide will have ample opportunity to present its constitutional 

challenge to the California Superior Court. 

Accordingly, Nationwide has failed to persuade the Court that any exception to Younger is 

applicable here.

C. Dismissal Is Warranted

Having concluded that abstention under Younger is the appropriate course, the Court must 

determine how to dispose of the case. Defendant’s motion seeks dismissal under Younger (ECF 

No. 55 at 5), and Nationwide’s opposition does not argue for a stay (see generally ECF No. 57). 

In the instant case, because Nationwide seeks only declaratory and injunctive relief, not damages, 

the Court agrees that dismissal is the proper course. See Gilbertson, 381 F.3d at 968 (under 

Younger, “federal courts should not dismiss actions where damages are at issue; rather, damages 

actions should be stayed until the state proceedings are completed”). Accordingly, dismissal is 

appropriate here.

IV. CONCLUSION

For the foregoing reasons, Defendant’s Motion to Dismiss is GRANTED. The instant 

action is DISMISSED without prejudice. The Clerk shall close the file.

IT IS SO ORDERED.

Dated: June 17, 2015 ______________________________________

LUCY H. KOH

United States District Judge

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