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Commonwealth, Department of Banking and Securities v. Titlemax of Delaware, Inc.

United States District Court, M.D. Pennsylvania

January 10, 2020



          Jennifer P. Wilson Judge

         Before the court in this proceeding that was removed from the Commonwealth Court of Pennsylvania are two motions: Plaintiff's motion for remand, Doc. 9, and Defendants' motion to stay proceedings, Doc. 6. As the removing party, Defendants bear the burden of proving this action is properly before this court. The court finds that Defendants fail to establish jurisdiction, because Plaintiff is an arm or alter ego of Pennsylvania, not a citizen; the $75, 000 amount in controversy requirement is not met; and there is no federal question before the court in this action. Accordingly, for the reasons that follow, the court will grant Plaintiff's motion for remand and deny as moot Defendants' motion to stay proceedings. (Docs. 6, 9.)

         Factual Background and Procedural History

         In December 2016, Plaintiff Commonwealth of Pennsylvania Department of Banking and Securities (“the Department”) began an investigation of TitleMax of Delaware, Inc., TitleMax of Ohio, Inc., TitleMax of Virginia, Inc., TitleMax of South Carolina, Inc.,, and TitleMax Funding, Inc. (collectively, “Defendants”). (Doc. 1.) An investigative subpoena was issued on August 22, 2017, using the authority granted to the Department under the Department of Banking and Securities Code, 71 Pa. Stat. § 733-401.F, the Consumer Discount Company Act, 7 Pa. Stat. § 6212 (“CDCA”), and the Loan Interest and Protection Law, 41 Pa. Stat. § 506 (“LIPL”). (Id. at 9.)[1] The subpoena was issued to obtain information to determine whether to charge Defendants with violations of the CDCA and LIPL. (See Doc. 10, p. 6.)

         In September 2017, TitleMax responded by commencing an action in the United States District Court for the District of Delaware challenging the Department's “attempt to regulate commercial activity that takes place wholly outside of the Commonwealth of Pennsylvania, which violates the United States Constitution.” (Doc. 44, p. 3.)

         Thereafter, on September 22, 2017, the Department filed a petition for review to enforce an investigative subpoena and enjoin respondents (“the Petition”) before the Commonwealth Court of Pennsylvania, as it has jurisdiction over original actions brought by an agency of the Commonwealth. (Id. at 8.) The Commonwealth Court required an answer to be filed by Defendants by November 22, 2017, and scheduled a hearing for December 1, 2017. (Doc. 1-3, p. 2.) On November 16, 2017, Defendants removed the Department's Petition from the Commonwealth Court to this court. (Doc. 1.)

         On December 8, 2017, Defendants filed a motion to stay proceedings in this court pending the resolution of the related case in the District of Delaware or, alternatively, transfer this matter to that District. (Doc. 6.) The Department then filed a motion to remand this matter to state court on December 15, 2017, along with a supporting brief. (Docs. 9-10.) The parties subsequently agreed to several extensions of time and an eventual stay of this case pending their attempts to resolve these issues amicably. (Docs. 12, 14, 16, 18, 21, 24, 27, 29, 31, 33.)

         On June 10, 2019, the parties agreed to move forward with this case and requested briefing deadlines for the motion to stay and motion to remand, which the court granted on June 12, 2019. (Docs. 34, 36.) Defendants filed a brief in support of their motion to stay on June 10, 2019, the Department opposed the motion on July 1, 2019, and Defendants filed a reply on July 29, 2019. (Docs. 35, 37, 41.) On November 15, 2019, Defendants filed their brief in opposition to the Department's motion to remand, and the Department replied on December 9, 2019. (Docs. 44, 47.) Accordingly, both motions are now fully briefed and ripe for disposition.

         Standard of Review

         A defendant can remove a case to federal court if the court has original jurisdiction over the civil action. 28 U.S.C. § 1441. However, “removal statutes are to be strictly construed against removal and all doubts resolved in favor of remand.” Boyer v. Snap-on Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006, 1010 (3d Cir. 1987)). Furthermore, “[t]he party asserting jurisdiction bears the burden of showing the action is properly before the federal court.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 219 (3d Cir. 2005).


         In its motion for remand, the Department argues that the court lacks diversity jurisdiction because the Department is a sovereign, not a citizen, and the amount in controversy is not met. (Doc. 10, pp. 10-21.) Defendants argue that Pennsylvania borrowers are the real parties in interest and that the amount in controversy exceeds $75, 000, thus satisfying the diversity jurisdiction requirements. (Doc. 44, pp. 5-7.) Alternatively, Defendants assert that the court has federal question jurisdiction because the Department's actions raise substantial and disputed issues of federal law. (Id. at 7-9.)

         A. The Department is an “Arm or Alter Ego” of the Commonwealth of Pennsylvania

         A state agency, such as the Department, is not a citizen of a state for the purpose of diversity jurisdiction if it is simply an “arm or alter ego of the State.” Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 412 (11th Cir. 1999) (citing Moor v. Alameda Cty., 411 U.S. 693, 717-18 (1973)). To determine whether a state agency is an “arm or alter ego” of the state for establishing diversity jurisdiction, courts apply Eleventh Amendment immunity analysis. Id. The Third Circuit developed a three-part test to determine whether an entity is an “arm of the state” for the purposes of Eleventh Amendment immunity. Karns v. Shanahan, 879 F.3d 504, 513 (3d Cir. 2018) (citing Fitchik v. N.J. Transit Rail Operations, Inc., 873 F.2d 655, 659 (3d Cir. 1989)). The court should examine: “(1) whether the payment of the judgment would come from the state; (2) what status the entity has under state law; and (3) what degree of autonomy the entity has.” Id. (quoting Bowers v. Nat'l Collegiate ...

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