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Jackson Hewitt Tax Service Inc. v. Kirkland

August 26, 2010


The opinion of the court was delivered by: John G. Koeltl, District Judge


The plaintiffs, Jackson Hewitt Tax Service Inc. and Jackson Hewitt Inc. (collectively, "Jackson Hewitt"), brought this action against the defendant, Galen D. Kirkland, in his official capacity as the Commissioner of the New York State Division of Human Rights (the "Division"). Jackson Hewitt seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 that the New York State Human Rights Law, N.Y. Exec. Law Art. 15, is preempted by the National Bank Act of 1864, 12 U.S.C. § 21 et seq., with respect to the Division's administrative proceeding against Jackson Hewitt regarding its marketing of tax refund anticipation loans ("RALs"). Jackson Hewitt also seeks a preliminary and permanent injunction enjoining the Division from continuing its administrative proceeding against Jackson Hewitt.

The Division moves to dismiss Jackson Hewitt's complaint pursuant to Federal Rule of Civil Procedure 12(b) on the ground that Younger v. Harris, 401 U.S. 37 (1971), prohibits this Court from enjoining the Division's ongoing administrative proceeding. The Division also moves to dismiss the complaint pursuant to Rule 12(b)(6) on the ground that any enforcement action by the Division against Jackson Hewitt is not preempted by the National Bank Act. Jackson Hewitt, in turn, moves for summary judgment pursuant to Rule 56 on the grounds that the National Bank Act preempts the Division's administrative action and that an injunction is necessary to prevent irreparable harm to Jackson Hewitt.


In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d 556, 566 (S.D.N.Y. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id.; see also SEC v. Rorech, 673 F. Supp. 2d 217, 221 (S.D.N.Y. 2009).

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Rorech, 673 F. Supp. 2d at 221.


The following facts are undisputed, unless otherwise indicated.

The Division of Human Rights is a New York State agency tasked with enforcing the New York State Human Rights Law ("NYSHRL"), N.Y. Exec. Law Art. 15. The Division has the authority to file administrative complaints alleging violations of the NYSHRL and to initiate investigations, subpoena witnesses, and, after a finding of probable cause, direct respondents to answer complaints and appear at public hearings. N.Y. Exec. Law §§ 295, 297.2(a), 297.4(a). The Division's hearings are conducted by hearing examiners or by Administrative Law Judges ("ALJs") who make final recommendations to the Commissioner of the Division. Id. § 297.4(c); N.Y. Comp. Codes R. & Regs. tit. 9, § 465.12, 465.17(c). The Commissioner's adjudication after a hearing is issued in an order that is enforceable by the Division, and appealable by the respondent, in New York State courts. N.Y. Exec. Law § 298.

Jackson Hewitt provides income tax return preparation services and has a network of offices throughout the United States, including more than 330 offices in New York State. (Moore Decl. ¶¶ 3, 4.) National banks, including Pacific Capital National Bank, N.A., d/b/a Santa Barbara Bank & Trust ("Pacific Capital"), have contracted with Jackson Hewitt to offer RALs to Jackson Hewitt's customers during income tax seasons. (Moore Decl. ¶¶ 6, 13.) A RAL is a short-term loan secured by an individual's anticipated income tax refund.

(Moore Decl. ¶ 6.) Jackson Hewitt offers the RALs to customers after their tax returns are prepared in Jackson Hewitt's offices. (Moore Decl. ¶ 14.) If customers apply for the loans and are approved by the lending banks, the loan proceeds can be available to customers as soon as the next day. (Moore Decl. ¶ 12.) The national banks set the terms and conditions of the RALs. (Moore Decl. ¶ 13.)

The Division alleges that RALs often include "exorbitant fees and costs," at annualized interest rates up to 700%, and that they "strip[] New Yorkers of millions of dollars each year, even though taxpayers can receive their refunds from the IRS, at no cost, usually within a week to ten days of filing." (Sanders Decl. Ex. A-6, at ¶ 3.)

In a press release dated March 15, 2007, Kumiki Gibson, who was then the Commissioner of the Division, announced that the Division would investigate three tax preparation firms that offered RALs, including Jackson Hewitt, for targeting "low-income individuals, primarily in communities of color, and military families for these loans." (Klubes Decl. Ex. 1.) In a letter dated March 16, 2007, the Division informed Jackson Hewitt of its investigation and sought certain documents and information from Jackson Hewitt. (Sanders Decl. Ex. A-4.) The Division issued an administrative subpoena to Jackson Hewitt dated April 9, 2007, demanding the same information and documents. (Sanders Decl. Ex. A-5.) In an administrative complaint dated January 17, 2008, the Division charged Jackson Hewitt with violating section 296 of the NYSHRL "by marketing to, targeting, and selling abusive, high-interest loan products to individuals based on their race and military status." (Sanders Decl. Ex. A-6.) The complaint alleged that Jackson Hewitt's RAL marketing efforts, including its store placement, billboards, television and radio advertisements, and sports sponsorships, are "disproportionately target[ed]" at "Blacks and Latinos and military families . . . in violation of the New York State Human Rights Law § 296." (Sanders Decl. Ex. A-6, at ¶ 27.) The Division subsequently issued a Determination After Investigation dated June 30, 2008, which stated that the Division found sufficient probable cause to believe that Jackson Hewitt had engaged in or was engaging in the unlawful discriminatory practice alleged and recommended a public hearing. (Sanders Decl. Ex. A-12.)

On October 14, 2008, Pacific Capital and Jackson Hewitt separately filed lawsuits in this Court to enjoin the Division's investigation of Jackson Hewitt. The cases were consolidated; however, Pacific Capital's case has now been voluntarily dismissed pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). The Division now moves ...

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