Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_11-cv-05496/USCOURTS-cand-5_11-cv-05496-4/pdf.json

Nature of Suit Code: 950
Nature of Suit: Constitutionality of State Statutes
Cause of Action: 28:1331 Fed. Question

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ORDER GRANTING MOTION TO DISMISS

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

THINK COMPUTER CORPORATION,

Plaintiff,

v.

ROBERT VENCHIARUTTI, et al.,

Defendants.

Case No. 11-cv-05496-HRL

ORDER GRANTING MOTION TO 

DISMISS

Re: Dkt. No. 24

Plaintiff Think Computer Corp. (“Think”) brings this action against two California state 

officials for federal constitutional violations arising out of California’s Money Transmission Act 

(“MTA”), and application of the MTA to Plaintiff’s proposed money transmission business. See

Dkt. No. 23. Plaintiff seeks declaratory and injunctive relief. Id. Defendants have moved to 

dismiss Plaintiff’s first amended complaint (“FAC”), Dkt. No. 24. Plaintiff filed an opposition, 

Dkt. No. 30,1 and Defendants filed a reply, Dkt. No. 31. On April 17, 2012, the court held a 

hearing on this motion. Dkt. No. 40. Following amendments to the MTA, the court ordered 

supplemental briefing. Dkt. No. 59. Plaintiff and Defendants each filed a supplemental brief, see

Dkt. Nos. 62, 63, and a response, see Dkt. Nos. 64, 65.

 1 Plaintiff filed an opposition to Defendants’ motion to dismiss the FAC on February 28, 2012, 

Dkt. No. 25, and filed a corrected version on March 3, 2012. See Dkt. No. 30. Plaintiff also asks 

the court to take judicial notice of several documents in connection with Plaintiff’s opposition. See

Dkt. Nos. 28, 43, 47. However, because the Court relied on none of these documents in reaching 

its decision on Defendants’ motion to dismiss, the Court denies Plaintiff’s request for judicial 

notice as moot.

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ORDER GRANTING MOTION TO DISMISS

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I. BACKGROUND

Plaintiff Think Computer Corporation is a privately-held Delaware Corporation that 

developed a money transmission system, “FaceCash,” as an alternative to traditional plastic 

payment cards. FAC ¶¶ 2, 17. Plaintiff brings this suit against Defendants Robert Venchiarutti, in 

his official capacity as the Deputy Commissioner of the California Department of Financial 

Institutions (“DFI”) and William Haraf, in his official capacity as the Commissioner of the DFI.2

Id. ¶¶ 18–19.

The FAC describes the FaceCash system as an in-person payment system which operates 

by using a barcode and a digital image of the consumer’s face. Id. ¶ 2. To make a purchase, a 

consumer supplies his or her barcode to a merchant, either on a smartphone or piece of paper, and 

after scanning the barcode, the merchant’s FaceCash-enabled cash register would display an image 

of the consumer’s face for the merchant to confirm the consumer’s identity. Id. FaceCash would 

then debit funds from the consumer’s pre-paid account and transfer the funds to the merchant. Id.

The FAC alleges that Think began designing and investing in the FaceCash system in late 

2008, before the adoption of a money transmission licensing statute in California, and officially 

launched FaceCash in May 2010. Id. ¶ 40. Around that time, Plaintiff contacted the DFI to ensure 

it was in compliance with applicable state laws, and was informed that, as of that time, no license 

was necessary for domestic money transmission. Id. ¶ 44. However, as Plaintiff continued to 

develop FaceCash over the next year, California enacted the Money Transmission Act, which 

implemented a licensing scheme for domestic money transmission in the state. The MTA went 

into effect on January 1, 2011. Id. ¶ 26.

 2 The FAC also names the following Defendants: Traci Stevens, the Acting Secretary of the 

California Business, Transportation and Housing Agency, Kamala Harris, the Attorney General of 

California, Edmund G. Brown, Jr., the Governor of California, and Jacob A. Appelsmith, a Senior 

Advisor to Governor Brown. FAC ¶¶ 20–22. In its opposition, Plaintiff agrees to the dismissal 

without prejudice of Acting Secretary Stevens, Attorney General Harris, and Governor Brown. 

Dkt. No. 30, at 1 n.2. The court therefore GRANTS the motion to dismiss as to these three 

Defendants. Furthermore, Plaintiff asserts that Mr. Appelsmith was removed from the charging 

allegations in the FAC and was thereby dropped as a Defendant. Id. The motion to dismiss is 

therefore moot as to Mr. Appelsmith.

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ORDER GRANTING MOTION TO DISMISS

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As enacted, the MTA imposed the following minimum requirements on applicants for a 

money transmission license in California: (1) applicants were required to hold at least $500,000 in 

“tangible net worth,” or shareholder equity, at all times; (2) a $250,000 surety bond for companies 

engaging in money transmission, or a $500,000 surety bond for companies providing stored value 

products; (3) a non-refundable $5,000 application fee; (4) a criminal background check; (5) a 

business plan; (6) pro-forma financial statements for three years and audited past financial 

statements; (7) a formal application; and (8) a pre-application interview. Id. The FAC alleges that 

many other states have less onerous requirements. Id. ¶ 33. According to the FAC, the MTA 

requires all entities wishing to do business in California and with California residents to obtain a 

license. Id. ¶ 39. The MTA provided existing, unlicensed money transmitters with a 180-day grace 

period through July 1, 2011, after which time they would need to apply for a license with the DFI 

to continue to operate legally in California. Id. ¶ 26.

Following the enactment of the MTA, Plaintiff again contacted the DFI and was told a 

license was now required for domestic money transmission in California, and DFI scheduled a 

pre-filing interview for June 14, 2011. Id. ¶ 45. At around the time of Plaintiff’s pre-filing 

interview, Plaintiff’s average daily money transmission volume was “close to zero,” and Plaintiff 

only finished development of the merchant side of FaceCash at the end of June, 2011. Id. ¶ 42.

In advance of its pre-filing meeting with DFI, Plaintiff provided the DFI with its audited 

2010 financial statements. Id. ¶ 48. The FAC alleges that the statements contained an inadvertent 

error which made it appear that FaceCash had $145,000 less in tangible shareholder equity than it 

should have. Id. Plaintiff provided the DFI with corrected set of statements three months later, on 

September 12, 2011. Id. 

The FAC alleges that at Plaintiff’s pre-filing interview, Defendant Venchiarutti expressed 

hostility toward Plaintiff and Plaintiff’s business. Id. ¶ 49. The FAC alleges that at the meeting,

Defendant Venchiarutti: (1) informed Plaintiff that he would likely need to raise twenty million 

dollars of venture capital given that in his experience money transmitters required at least three 

years of business to achieve profitability; (2) expressed his opinion that Plaintiff had indicated an 

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ORDER GRANTING MOTION TO DISMISS

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intent to violate the MTA, and allegedly informed Plaintiff that he would “call the Sheriff;” (3) 

expressed the opinion that Plaintiff was already insolvent and unable to control its rate of 

spending; (4) highlighted the MTA’s power to audit and the MTA’s requirement that the 

reasonable cost of DFI audit examinations be borne by audited companies; (5) stated that the DFI 

had an unwritten policy of not approving applications filed by money transmission entities with 

tangible net worth less than one million dollars; (6) when asked if the DFI had received any 

complaints about FaceCash, told Plaintiff that he thought he had received a complaint about 

FaceCash from Plaintiff’s competitors; and (7) informed Plaintiff at the conclusion of the meeting

that he was still welcome to apply for a license in a way that Plaintiff interpreted as indicating that 

his application would be denied. Id.

The FAC alleges that Plaintiff attempted to establish the “true minimum net worth required 

by the DFI” but was rebuffed by Defendant Venchiarutti. Id. ¶ 51. On June 30, 2011, Plaintiff

elected to shut down FaceCash in California and nationwide. Id. ¶ 52. The FAC alleges that a 

primary reason for the shutdown was Plaintiff’s perception that FaceCash’s application would be 

denied by the DFI. Id. Although Plaintiff never submitted an application for a license in California 

(and was consequently was never rejected), the FAC alleges that Plaintiff feared nationwide 

rejection because money license applications in other states generally require applicants to indicate 

if it has ever had a license application rejected. Id. 

Following the June 14, 2011 meeting and the June 30, 2011 shutdown of FaceCash, 

Plaintiff raised approximately $500,000 in additional funding, placing Plaintiff’s tangible 

shareholder equity well above the $500,000 statutory minimum at the time. Id. ¶ 50.

On October 13, 2011, in response to Plaintiff’s “repeated requests,” Defendant 

Venchiarutti issued an order on behalf of the DFI exempting Plaintiff from having to comply with 

the provisions of the MTA outside of California. Id. ¶ 56. According to the FAC, the order was 

“conditional on Think not providing money transmission services to persons, consumers, 

merchants and anyone located in California and Plaintiff not advertising, soliciting or holding 

itself out as providing money transmission services to persons, consumers, merchants and anyone 

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ORDER GRANTING MOTION TO DISMISS

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located in California.” Id. The FAC alleges that this order indicates that the DFI intends to enforce 

the MTA beyond the state of California on transactions “originating and existing in interstate 

commerce.” Id. Plaintiff alleges that further attempts at communication with the DFI were 

unsuccessful and Plaintiff concluded that the October order was final. Id. ¶ 57. Plaintiff alleges 

that he was left with no further recourse except to apply for a license without knowing the funding 

requirements in advance. Id. ¶ 57.

Plaintiff alleges that as a result of the shutdown of FaceCash, Plaintiff lost actual and 

potential revenue streams from established FaceCash merchants, and the ability to sign up 

California consumers for the service. Id. ¶ 62. The FAC also alleges that “at least once prospective 

merchant cancelled his agreement to use Think software for purposes aside from FaceCash.” Id. 

Furthermore, Plaintiff alleges that FaseCash’s shutdown “badly damaged Think’s and [FaceCash 

CEO] Mr. Greenspan’s reputation, and many individuals who learned of the events blamed Think 

and its management for the interruption in service.”3 Id. Finally, FAC alleges that “[d]irectly due 

to the regulatory uncertainty surrounding the MTA and other MTLs, Plaintiff was subsequently 

rejected as an investment opportunity by several prominent venture capital firms, eliminating 

virtually the only source of funding large enough to realistically allow Plaintiff to comply with the 

MTA.” Id. ¶ 64. 

According to Plaintiff, following the FaceCash shutdown, its competitors were able to 

conduct money transmission illegally and gain an advantage over Plaintiff. Id. ¶ 66. According to 

the FAC, the DFI has turned a blind eye to the illegal money transmission activities of other 

entities, and has enforced the MTA arbitrarily. Id. ¶¶ 69–70. Plaintiff filed a separate lawsuit 

against its purported competitors on May 6, 2013, alleging that dozens of technology companies, 

venture capital firms, and other entities were violating the MTA. See Think Computer Corp. v. 

Dwolla, Inc., et al., Case No. 13-02054, 2014 WL 1266213 (N.D. Cal. Mar. 24, 2014). Judge 

Davila dismissed the action on March 24, 2014, finding that Plaintiff lacked standing to pursue its 

 3 However, it is unclear how service was interrupted given that FaceCash never began operations. 

See FAC ¶ 42.

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ORDER GRANTING MOTION TO DISMISS

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federal law claims and that the court did not have jurisdiction over Plaintiff’s state law claims. Id.

Following the filing of this lawsuit, the MTA was amended in several respects relevant to 

this case. See A.B. 786, 2013 Reg. Sess. (Ca. 2013). The provision governing the required

minimum tangible shareholder equity was extensively amended. See Cal. Fin. Code § 2040. 

Whereas previously the MTA required a minimum of $500,000 in tangible shareholder equity, the 

new version of the law provides that:

(a) An applicant shall possess, and a licensee shall maintain at all 

times, tangible shareholder’s equity of two hundred fifty thousand 

dollars ($250,000) to five hundred thousand dollars ($500,000), depending on estimated or actual transaction volume, as determined 

by the commissioner based on the factors described in subdivision 

(c).

(b) The commissioner may increase the amount of net worth 

required of an applicant or licensee if the commissioner determines, 

with respect to the applicant or licensee, that a higher net worth is 

necessary to achieve the purposes of this division based on the 

factors described in subdivision (c).

(c) When making a determination pursuant to subdivision (a) or (b), 

the commissioner shall consider the following factors:

(1) The nature and volume of the projected or established 

business.

(2) The number of locations at or through which money 

transmission is or will be conducted.

(3) The amount, nature, quality, and liquidity of its assets.

(4) The amount and nature of its liabilities.

(5) The history of its operations and prospects for earning 

and retaining income.

(6) The quality of its operations.

(7) The quality of its management.

(8) The nature and quality of its principals.

(9) The nature and quality of the persons in control.

(10) The history of its compliance with applicable state and 

federal law.

(11) Any other factor the commissioner considers relevant.

Cal. Fin. Code § 2040. 

The 2013 amendments to the MTA also abolished the DFI and the office of the 

Commissioner of Financial Institutions. Cal. Fin. Code, § 321(b). The DFI’s powers, duties, 

responsibilities, and functions were transferred to the newly-formed Department of Business 

Oversight (“DBO”), led by the Commissioner of Business Oversight. Cal. Fin. Code, §§ 300(b), 

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ORDER GRANTING MOTION TO DISMISS

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320(a), 321(b). Jan Lynn Owen is the current Commissioner of Business Oversight, Dkt. No. 58,

at 4, and the public officer responsible for issuing money transmission licenses. Cal. Fin. Code, §§ 

2003(g), 2033(b). According to Plaintiff, Defendant Venchiarutti is now Deputy Commissioner of 

Money Transmission at the DBO’s “Division of Financial Institutions.” Dkt. No. 65, at 1 n.1. 

Finally, the MTA was amended to add § 2010(l), which exempts certain goods or services 

payment activities from the MTA, including its licensure requirements. See Cal. Fin. Code § 2040. 

In particular, the MTA now does not apply to:

(l) A transaction in which the recipient of the money or other 

monetary value is an agent of the payee pursuant to a preexisting 

written contract and delivery of the money or other monetary value 

to the agent satisfies the payor’s obligation to the payee.

Cal. Fin. Code § 2010(l). “Payee” and “payor” are defined as follows”:

(2) For purposes of this subdivision, “payee” means the provider of 

goods or services, who is owed payment of money or other 

monetary value from the payor for the goods or services.

(3) For purposes of this subdivision, “payor” means the recipient of 

goods or services, who owes payment of money or monetary value 

to the payee for the goods or services.

Id.

The amendments to the MTA went into effect on January 1, 2014. See A.B. 786, 2013 

Reg. Sess. (Ca. 2013).

II. ANALYSIS

The FAC alleges three claims for relief. The first claim is for violations of the United 

States Constitution’s Due Process and Equal Protection Clauses for allegedly extinguishing 

Plaintiff’s right to use property and frustrating its efforts at state licensure. FAC, ¶¶ 73–85. The 

second and third causes of action are for violations of the Commerce Clause for allegedly 

regulating interstate and foreign commerce and burdening interstate commerce. Id. ¶¶ 86–108. 

Plaintiff seeks declaratory and injunctive relief as to the California MTA, as well as attorneys’ fees 

under 42 U.S.C. § 1988. Id. at 28.

The MTA has undergone significant amendment since the filing of this lawsuit. Most 

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ORDER GRANTING MOTION TO DISMISS

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importantly for purposes of this motion, the MTA was amended to exempt “transaction[s] in 

which the recipient of the money or other monetary value is an agent of the payee pursuant to a 

preexisting written contract and delivery of the money or other monetary value to the agent 

satisfies the payor’s obligation to the payee.” Cal. Fin. Code § 2010(l). In its supplemental brief,

Plaintiff states that “[a]ccording to the plain language of § 2010(l), a payment processor, like 

Plaintiff, acting as an agent for a retailer (or any person or entity, frankly) pursuant to a written 

agency agreement that transmits money from a customer (or any person or entity) to the retailer is 

exempt from the MTA.” Dkt. No. 63, at 3. Plaintiff concludes that under this reading of § 2010(l), 

FaceCash does not need to apply for an MTA license to continue money transmission activities in 

California. Id.

If this reading is correct, and Plaintiff is now exempt from the MTA’s requirements, this

case is moot. Plaintiff seeks only injunctive and declaratory relief,4 and “[w]here intervening 

legislation has settled a controversy involving only injunctive or declaratory relief, the controversy 

has become moot.” Matter of Bunker Ltd. P’ship, 820 F.2d 308, 311 (9th Cir. 1987); see also 

Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 911 F.2d 1331, 1335 (9th Cir. 

1990) (“It would be pointless to enjoin enforcement of a regional plan that is no longer in effect; 

claims for such relief have been rendered moot by adoption of the [new] Plan. It would be equally 

pointless to render a declaratory judgment that the [former] Plan is null and void.”) (internal 

quotation marks omitted).

However, to either find this case moot or reach the merits of Plaintiff’s claims, the Court 

would be required to decide in the first instance both the scope of § 2010(l) generally and whether 

it applies to Plaintiff in particular. Whether this preliminary determination is now ripe for 

 4 Plaintiff also seeks attorneys’ fees and costs under 42 U.S.C. § 1988. Section 1988 allows for the 

recovery of attorneys’ fees by the prevailing party. However, Plaintiff has received no relief on the 

merits of its claim, and at least one court has held that in cases where a claim is mooted by 

legislative amendments following the filing of a plaintiff’s lawsuit, the plaintiff must show some 

causal link between the lawsuit and the amendments to recover fees under § 1988. See Shipman v. 

Missouri Dept. of Family Services, 877 F.2d 678, 681-682 (8th Cir. 1989). Plaintiff has alleged no 

such link, and so has no claim for attorneys’ fees under § 1988. 

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ORDER GRANTING MOTION TO DISMISS

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adjudication by this court depends on both “the fitness of the issues for judicial decision” and “the 

hardship to the parties of withholding court consideration.” Pac. Gas & Elec. Co. v. State Energy 

Res. Conservation & Dev. Comm’n, 461 U.S. 190, 200 (1983). “The basic rationale of the ripeness 

doctrine 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.” Id. at 201 (citing Abbott Laboratories v. Gardner, 

387 U.S. 136, 148–149 (1967)). 

Several factors suggest that the question of whether FaceCash is exempt from the MTA 

under § 2010(l) is not fit for judicial decision at this stage.

First, Plaintiff has not applied for a license under the new law, so the DBO has undertaken 

no factual findings, and the law has yet to be applied to Plaintiff. Nor has the DBO yet 

promulgated regulations interpreting § 2010(l).5 

Second, Plaintiff’s complaint largely centers on complaints about the opacity and 

arbitrariness of the $500,000 minimum shareholder equity requirement for MTA licensure in the 

former version of the law. The former version of § 2040 set no upper bound, and gave the DFI 

Commissioner authority to increase the equity required for a license at his discretion. The FAC 

alleges that while $500,000 was ostensibly the minimum, the DFI operated according to a set of 

unwritten rules that led the DFI to require far more equity than the statutory minimum. However, 

§ 2040 was also amended in 2013. Section 2040 now requires that applicants for MTA licensure 

have between $250,000 and $500,000 in shareholder equity, and the statute contains detailed 

criteria by which the Commissioner of the DBO is to determine what amount within that range a 

particular applicant must hold. Cal. Fin. Code § 2040(a), (c). While the statute apparently still

authorizes the Commissioner to require shareholder equity above $500,000 under subsection (b),

6

 5 According to Defendants, the DBO is scheduled to issue regulations on the amendments to the 

MTA in July, 2015. Dkt. No. 58, at 7–8. 6 The parties appear to agree that the effect of § 2040(b) is to provide the Commissioner authority 

to increase the amount of tangible shareholder equity required for a license beyond $500,000, the 

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such a determination is to be made according to the same enumerated criteria in § 2040(c).

7 While 

the FAC contains factual allegations regarding the DFI’s enforcement of the prior version of the 

law, these allegations have little bearing on how the new version of the law will be interpreted, 

particularly in light of the fact that the MTA is now administered by a new agency, the DBO, with 

a new Commissioner, Jan Lynn Owen. See Dkt. No. 88, at 4.

Third, while Plaintiff’s Due Process and Equal Protection claims are best characterized as 

as-applied challenges to the constitutionality of the MTA, Plaintiff’s second and third causes of 

action mount facial attacks under the Commerce Clause. As facial attacks, they rely less on the 

application of the standards under § 2040 to Plaintiff and its business. However, the uncertainty 

regarding the proper construction of § 2010(l) weighs against adjudicating Plaintiff’s Commerce 

Clause claims as well. Based on the record before the court, including Plaintiff’s description of the 

FaceCash system, which closely resembles § 2010(l), the court is inclined to agree with Plaintiff 

that § 2010(l) does indeed exempt FaceCash from licensure under the MTA. In such case, Plaintiff 

would seem to lack standing to challenge the constitutionality of the MTA. Furthermore, 

Plaintiff’s assertion that even if § 2010(l) should be read to exempt FaceCash, Plaintiff still retains 

a viable claim through the effective date of the amendments is unavailing. Dkt. No. 63, at 3–4.

Plaintiff seeks only declaratory and injunctive relief enjoining Defendants from enforcing the 

MTA against Plaintiff. FAC, at 28. If FaceCash is exempt from the requirements of the MTA, 

such relief “is not only worthless to [Plaintiff], it is seemingly worthless to all the world.” Steel 

Co. v. Citizens for a Better Env’t, 523 U.S. 83, 106 (1998).

Regarding the second question under the ripeness analysis—hardship to the parties—the 

Court finds that while Plaintiff may suffer some additional hardship by virtue of the court 

 

initial cap set forth in subsection (a). See Dkt. Nos. 62, at 9, 63, at 1–2

7 Plaintiff argues that because one of the enumerated criteria for increasing the required amount of 

equity includes “any other factor the commissioner considers relevant,” the amount may be 

increased “for no reason at all.” Dkt. No. 63, at 2. The court disagrees that this one factor renders 

the equity requirement “illusory.” Plaintiff has alleged no facts suggesting this is the case, and as 

Plaintiff has yet to apply for a license under the newly-amended MTA, there appears to be no basis 

for Plaintiff’s conclusion.

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ORDER GRANTING MOTION TO DISMISS

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withholding consideration of its claims, such hardship is unlikely to be significant. Plaintiff 

already voluntarily shut down FaceCash, not only in California but nationwide. Furthermore, 

Plaintiff now appears to believe that FaceCash may resume operations without seeking a license 

under the MTA, and Plaintiff’s complaints about the opacity of the minimum equity requirement 

were largely addressed by amendments to § 2040. On the other hand, the Court’s premature 

construction of §2010(l) and application to Plaintiff’s business would preempt the ability of the 

DBO to interpret the law and render an administrative decision in Plaintiff’s case. The Court is 

mindful that the ripeness doctrine exists, in part, “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.” Pac. Gas & Elec. Co., 461 U.S. at 200.

In sum, the Court finds that the issues presented by Plaintiff’s claims are not fit for judicial 

decision, and that withholding consideration of Plaintiff’s claims would not subject Plaintiff to 

undue hardship. The Court therefore concludes that Plaintiff’s claims are not ripe for review and 

that Defendants’ motion to dismiss should be granted.

III.CONCLUSION

The Court finds Plaintiff’s claims unripe for judicial review, and therefore GRANTS 

Defendants’ motion to dismiss in its entirety. Because Plaintiff may yet be able to amend its 

complaint to allege facts indicating that its claims are ripe, the Court dismisses the FAC without 

prejudice. The Court grants Plaintiff 20 days leave to amend the complaint. Plaintiff must file a 

first amended complaint no later than May 27, 2015.

IT IS SO ORDERED.

Dated: May 7, 2015

______________________________________

HOWARD R. LLOYD

United States Magistrate Judge

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5:11-cv-05496-HRL Notice has been electronically mailed to:

Michael Brooks Carroll carroll_law@sbcglobal.net

Michael James Aschenbrener mja@aschenbrenerlaw.com, legal@thinkcomputer.com

Peter Keller Southworth Peter.southworth@doj.ca.gov

Ryan Marcroft Ryan.Marcroft@doj.ca.gov, janice.titgen@doj.ca.gov, 

marc.leforestier@doj.ca.gov

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