Sequeira v. United States Department of Homeland Security

Opinion

1 2 3 6 7 NELSON SEQUEIRA, et al., Case No. 22-cv-07996-HSG

8 Plaintiffs, ORDER GRANTING MONEY TRANSFER DEFENDANTS’ MOTION 9 v. TO DISMISS SECOND AMENDED COMPLAINT HOMELAND SECURITY, et al., Re: Dkt. No. 157 11 Defendants. 12 13 Pending before the Court is the motion to dismiss filed by Defendants Western Union 14 Financial Services, Inc.; Continental Exchange Solutions, Inc., d/b/a Ria Financial Services and 15 AFEX Money Express; Viamericas Corporation; and DolEx Dollar Express, Inc. Dkt. No. 157. 16 The Court held a hearing on the motion. For the reasons detailed below, the Court GRANTS the 17 motion. 19 Plaintiffs Nelson Sequeira, Ismael Cordero, Maria Hernandez, and Jose Antonio Manjarrez 20 bring claims individually and on behalf of proposed classes, alleging violations of the Right to 21 Financial Privacy Act (“RFPA”) and California’s Unfair Competition Law (“UCL”) by two 22 groups of Defendants: (1) the “Federal Government Defendants,” which include the U.S. 23 Department of Homeland Security (“DHS”) and U.S. Immigration and Customs Enforcement 24 (“ICE”); and (2) the “Money Transfer Defendants,” which include Western Union Financial 25 Services, Inc. (“Western Union”), Continental Exchange Solutions, Inc., d/b/a Ria Financial 26 Services and AFEX Money Express (“Continental”), DolEx Dollar Express, Inc. (“DolEx”), and 27 Viamericas Corporation (“Viamericas”). See Dkt. No. 138 (“SAC”) ¶¶ 1–10. 1 personal records with various law enforcement agencies, including the Federal Government 2 Defendants, in violation of RFPA and the California Financial Information Privacy Act (“Cal. 3 FIPA”). Specifically, Plaintiffs allege that the financial records are collected and shared through 4 the Transaction Record Analysis Center (“TRAC”), which was founded in 2014 by the Arizona 5 Financial Crimes Task Force—comprising the Arizona Attorney General’s Office, Phoenix Police 6 Department, and Arizona Department of Public Safety, with the participation of DHS. SAC ¶ 14– 7 28. Plaintiffs allege that this program, which has existed since approximately 2014 but was only 8 recently made public, targets immigrants and communities of color. Id. at ¶¶ 14, 48–51. TRAC 9 gathers and makes available consumer financial records from money transfer companies for 10 money transfers greater than $500 sent to or from the Southwest border region, including Arizona, 11 California, New Mexico, Texas, and Mexico. Id. at ¶¶ 15, 17, 31, 36. According to the SAC, the 12 information gathered is sweeping, and not intended to focus on particular individuals suspected of 13 criminal activity. See id. at ¶¶ 36–37. Plaintiffs raise concerns that TRAC can be “weaponized 14 against vulnerable groups based on improper criteria, such as race, religion, or national origin.” 15 Id. at ¶¶ 37, 48–51. Plaintiffs further allege that the Money Transfer Defendants were aware that 16 multiple federal government agencies could access and obtain the information produced to TRAC. 17 See id. at ¶¶ 45–47. 18 In the First Amended Complaint, Plaintiffs alleged that the Money Transfer Defendants 19 violated RFPA by sharing Plaintiffs’ private financial and personal records with law enforcement 20 agencies, including the Federal Government Defendants, and that the Federal Government 21 Defendants in turn violated RFPA by collecting and obtaining these private financial and personal 22 records. See Dkt. No. 38 (“FAC”) ¶¶ 70–74. The Court partially granted Defendants’ motions to 23 dismiss this claim, holding that Continental and Viamericas were not subject to RFPA because 24 they were not “consumer finance institutions,” which the Court defined as companies “for which 25 the provision of financing and cash loans to consumers is a core function and purpose of its 26 business.” Dkt. 116 at 9. The Court further found that Plaintiffs had failed to adequately allege 27 that they were “customers” of any of the Money Transfer Defendants under RFPA, which would 1 In the Second Amended Complaint, Plaintiff Manjarro alleges that he was a customer of 2 DolEx, which maintained an account in his name, that DolEx violated RFPA by sharing his 3 private financial and personal records with law enforcement agencies, including the Federal 4 Government Defendants, and that the Federal Government Defendants in turn violated RFPA by 5 collecting and obtaining these private financial and personal records. See id. ¶¶ 65–77. Plaintiffs 6 also preserve their RFPA claims as to other Money Transfer Defendants for purposes of appeal. 7 See id. ¶ 67 n.3. Finally, Plaintiffs allege that the Money Transfer Defendants’ sharing of their 8 private financial and personal records is in violation of the Cal. FIPA and therefore constitutes an 9 unlawful business practice under the UCL. See id. at ¶¶ 78–90. 10 Defendants now move to dismiss the SAC under Rule 12(b)(6), for many of the same 11 reasons raised in their previous motions to dismiss. Dkt. Nos. 144-1 (“Federal Mot.”), 157 (“MTB 12 Mot.”). Money Transfer Defendants also bring a motion to dismiss under Rule 12(b)(7), arguing 13 that the entire case must be dismissed because under Rule 19, the State of Arizona and Arizona 14 Attorney General are necessary parties that cannot feasibly be joined, and that this case cannot 15 proceed in equity and good conscience without them. See MTB Mot. at 6–12. 17 A. Rule 12(b)(6) 18 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 19 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 20 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 21 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 22 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 23 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 24 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 25 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 26 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 27 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 1 true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. 2 St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, courts do not 3 “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or 4 unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 5 (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)); see also 6 Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295–96 (9th Cir. 1998) (“[W]e are not required 7 to accept as true conclusory allegations which are contradicted by documents referred to in the 8 complaint.”). Similarly, “a plaintiff can . . . plead himself out of a claim by including unnecessary 9 details contrary to his claims.” Sprewell, 266 F. 3d 988–89. 10 B. Rule 12(b)(7) 11 A party may move to dismiss a complaint for “failure to join a party under Rule 19.” Fed. 12 R. Civ. P. 12(b)(7). This rule is designed “to protect the interests of absent parties, as well as 13 those ordered before the court, from multiple litigation, inconsistent judicial determinations or the 14 impairment of interests or rights.” CP Nat’l Corp. v. Bonneville Power Admin., 928 F.2d 905, 911 15 (9th Cir. 1991). Rule 19 requires a three-step inquiry: (1) determining whether the absent party is 16 a “required party” and “must be joined” if feasible; (2) determining whether the “required party” 17 can feasibly be joined; and (3) if the party “who is required to be joined if feasible cannot be 18 joined, the court must determine whether, in equity and good conscience, the action should 19 proceed among the existing parties or should be dismissed.” Dine Citizens Against Ruining Our 20 Env’'t v. Bureau of Indian Affs., 932 F.3d 843, 851 (9th Cir. 2019) (quoting Fed. R. Civ. P. 21 19(a)(1)); see also Salt River Project Agr. Imp. & Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th 22 Cir. 2012). 24 A. 12(b)(7) Motion 25 The Money Transfer Defendants first argue that the case should be dismissed under 26 Federal Rule of Civil Procedure 12(b)(7), because the State of Arizona and Arizona Attorney 27 General (collectively, “Arizona”) are required and indispensable parties who cannot feasibly be i. The State of Arizona and Arizona Attorney General Are Required Parties 1 Under Rule 19(a)(1) 2 Under Rule 19, a party is required to be joined if feasible under two conditions: (1) if “in 3 that person’s absence, the court cannot accord complete relief among the existing parties[,]” Fed. 4 R. Civ. P. 19(a)(1)(A); or (2) if “that person claims an interest relating to the subject of the action 5 and is so situated that disposing of the action in the person’s absence may: (i) as a practical matter 6 impair or impede the person’s ability to protect the interest; or (ii) leave an existing party subject 7 to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of 8 the interest.” Fed. R. Civ. P. 19(a)(1)(B). Money Transfer Defendants argue that joinder of 9 Arizona is required under both conditions. See MTB Mot. at 8–9. 10 First, the Court is not convinced by Money Transfer Defendants’ argument under Rule 11 19(a)(1)(A), as it is not clear why it could not “accord complete relief among the existing parties” 12 in Arizona’s absence. Ultimately however, the Court need not decide this point, as it finds Money 13 Transfer Defendants’ argument under Rule 19(a)(1)(B) persuasive. 14 Turning to that argument, Plaintiffs, for the first time at the hearing, raised the threshold 15 issue that Arizona could not be a necessary party because it had not affirmatively claimed an 16 interest in this litigation. See Dkt. No. 176 (“Hearing Tr.”) at 6:24–8:4; 12:11–23. Joinder under 17 Rule 19(a)(1)(B) “is ‘contingent . . . upon an initial requirement that the absent party claim a 18 legally protected interest relating to the subject matter of the action.’ ” United States v. Bowen, 19 172 F.3d 682, 689 (9th Cir. 1999) (quoting Northrop Corp. v. McDonnell Douglas Corp., 705 20 F.2d 1030, 1043 (9th Cir. 1983) (emphasis in Bowen)). Therefore, joinder is not necessary if the 21 absent party “was aware of [the] action and chose not to claim an interest.” Bowen, 172 F.3d 689. 22 Because this argument was not briefed in the parties’ papers, the Court granted the parties 23 an opportunity to submit supplemental briefs on the issue. See Dkt. Nos. 179, 180. In response, 24 the Arizona Attorney General submitted a letter to inform the Court that “the State of Arizona and 25 [she], in [her] official capacity as the Arizona Attorney General, are highly vested in the outcome 26 of this matter.” Dkt. No. 181 at 1. In light of these statements, the Court finds that Arizona has 27 now claimed an interest in the subject matter of this litigation, such that Rule 19(b)(1)(B) applies. 1 Attorney General is “not a legally protected interest, but general policy interests, which do not 2 qualify under Rule 19.” Dkt. No. 183 at 2. The Court is not persuaded: the interest claimed by the 3 Arizona Attorney General relates to Arizona’s “ability to issue and enforce the subpoenas and 4 obtain the requested transactional records which are at the crux of the present matter . . . .” Dkt. 5 No. 181 at 2. Plaintiffs’ entire theory of this case is that compliance with those subpoenas violates 6 federal and California law. Similarly, Plaintiffs’ primary argument against Money Transfer 7 Defendants’ Annunzio-Wylie Act and Cal. FIPA affirmative defenses is that those subpoenas are 8 overbroad and not “properly authorized” under the law. See e.g., Dkt. No. 168 (“Opp.”) at 14–22. 9 As such, any possible remedy that this Court could craft in favor of Plaintiffs would necessarily 10 require resolution of those issues, and any finding that the existing subpoenas are unlawful would 11 necessarily impair Arizona’s ability to issue and such enforce subpoenas to obtain records. See 12 E.E.O.C. v. Peabody Western Coal Co., 610 F.3d 1070, 1082 (9th Cir. 2010) (“A public entity has 13 an [legally protected] interest in a lawsuit that could result in the invalidation or modification of 14 one of its ordinances, rules, regulations, or practices.”). 15 Plaintiffs’ other arguments are likewise unpersuasive. Plaintiffs argue that “the AG only 16 has a legally protected interest in obtaining records if the subpoenas are properly authorized. . . . 17 [and] [t]he AG cannot have a legally protected interest in obtaining records with no reasonable 18 connection to conduct indictable in Arizona.” Dkt. No. 183 at 2 (emphasis in original). But this 19 argument puts the cart before the horse in requiring a substantive determination of the merits of 20 Arizona’s claim to that interest before determining whether it is entitled to defend that claim in 21 this case. Put another way, it cannot be the case that an interest claimed under Rule 19 by an 22 absent party is only legally protected if the Court first finds that interest substantively meritorious. 23 Otherwise, any Rule 19 motion would either (1) never conclude that the absent party had claimed 24 a legally protected interest, or (2) devolve into a mini-trial on the merits as to the substance of that 25 party’s interest in the action. Neither comports with the purpose of Rule 19, which exists to 26 ensure that the absent party be given the opportunity to defend its interest in court. See Peabody, 27 610 F.3d at 1081–82 (finding Secretary of the Interior a required party because if he “is not joined, 1 a legally protected interest in defending the validity and enforceability of its subpoenas. 2 Having resolved the threshold issue, the Court next turns to whether proceeding with this 3 case in Arizona’s absence would “(i) as a practical matter impair or impede” its ability to protect 4 its interest, or “(ii) leave an existing party subject to a substantial risk of incurring double, 5 multiple, or otherwise inconsistent obligations because of the interest.” Fed. R. Civ. P. 6 19(a)(1)(B). Money Transfer Defendants first argue that joinder of Arizona is required, since 7 otherwise they would be subject to a substantial risk of inconsistent obligations if this Court rules 8 in favor of Plaintiffs on their RFPA and/or Cal. FIPA claims. See MTB Mot. at 8–9. 9 In response, Plaintiffs argue that the concern of “ ‘inconsistent obligations’ only arises if 10 certain forms of injunctive relief are granted[,]” seemingly conceding that the injunctive relief they 11 seek could implicate Rule 19. Opp. at 12. Plaintiffs argue that the Court could avoid this result by 12 simply awarding monetary damages pursuant to RFPA and/or Cal. FIPA, thereby permitting the 13 Money Transfer Defendants to “simply continue to comply with [Arizona’s] order to produce 14 subject records and also pay whatever damages or restitution are ordered under the RFPA or Cal. 15 FIPA.” Id. at 13. Additionally, Plaintiffs argue that the Court could award limited injunctive 16 relief, such as requiring the Money Transfer Defendants to comply with the notification 17 requirements of RFPA when producing records to Arizona and/or TRAC, which they say would 18 avoid the risk of subjecting Money Transfer Defendants to inconsistent obligations. 19 The Court is not persuaded by either argument. First, as to a hypothetical award of money 20 damages, Plaintiffs argue that Rule 19 “guards against litigants incurring inconsistent legal 21 obligations and duties . . . [but] it is unconcerned with the possibility of inconsistent adjudications 22 or results.” Opp. at 12 (emphasis in original) (citation omitted). While it is true that the Ninth 23 Circuit has adopted the First Circuit’s approach that Rule 19 is not implicated simply by the 24 prospect of inconsistent adjudications or results, see Cachil Dehe Band of Wintun Indians of the 25 Colusa Indian Cmty. v. California, 547 F.3d 962, 976 (9th Cir. 2008), the risks facing Money 26 Transfer Defendants in this case go beyond just inconsistent results. “Inconsistent obligations 27 occur when a party is unable to comply with one court’s order without breaching another court’s 1 a defendant successfully defends a claim in one forum, yet loses on another claim arising from the 2 same incident in another forum.” Id. (quoting Delgado v. Plaza Las Americas, Inc., 139 F.3d. 1, 3 3 (1st Cir. 1998) (per curiam)). Here, if this Court were to award money damages to Plaintiffs, it 4 would be doing so based on a finding that Money Transfer Defendants’ conduct in producing 5 financial records was illegal under RFPA and/or Cal. FIPA. If that happened, going forward, 6 Money Transfer Defendants would be forced either to refuse to comply with further subpoenas 7 from Arizona, or to continue to engage in conduct that this Court had found to violate RFPA 8 and/or Cal. FIPA. This is plainly more than just “successfully defend[ing] a claim in one forum, 9 [but] los[ing] on another claim arising from the same incident in another forum.” Id. Instead, 10 Money Transfer Defendants would be stuck “between the proverbial rock and a hard place” of 11 either refusing to comply with Arizona’s subpoenas or violating RFPA and/or Cal. FIPA. 12 Dawavendewa v. Salt River Project Agr. Imp. & Power Dist., 276 F.3d 1150, 1156 (9th Cir. 13 2002); see also Peabody, 610 F.3d at 1082 (“If the Secretary is not made a party and if EEOC 14 prevails, . . . . the Secretary may choose to continue the leases in their current form, ignoring the 15 judgment in the case to which he has not been made a party. If the Secretary chooses to do this, he 16 will put both Peabody and the Nation between the proverbial rock and a hard place[.]” (internal 17 quotations and citations omitted)). 18 As to Plaintiffs’ second argument that the Court could grant limited injunctive relief such 19 as requiring notification of Money Transfer Defendants’ customers whose records were being 20 produced, such relief would still run afoul of Rule 19(a)(1)(B), as it would practically impair 21 Arizona’s legal interest in the enforcement of its subpoenas. Arizona has a legally protected 22 interest in Money Transfer Defendants’ full compliance with its subpoenas, including regulating 23 disclosures about the investigations in which they are issued. See e.g., Dkt. No. 158-6 at 2–3 24 (subpoena to Continental stating “NOTICE: This is a felony investigation. Either warning another 25 person of impending felony prosecution or suppressing physical evidence by concealment, 26 alteration or destruction in a felony investigation are each separate felonies.”); Dkt. No. 162 at 5 27 1 (subpoena to DolEx stating same).1 If this Court were to award Plaintiffs injunctive relief in the 2 form of mandatory disclosures, it would materially impact that interest. Plaintiffs may argue that 3 the impact is minimal, but Arizona is nonetheless entitled to defend that interest. Again, the fact 4 that Plaintiffs base their entire argument against Money Transfer Defendants’ Annunzio-Wylie 5 Act and Cal. FIPA defenses on arguments that the Arizona subpoenas and orders are overbroad 6 and “invalid” only further confirms that any ruling for Plaintiffs on the merits in this case will 7 necessarily implicate and impair Arizona’s legally protected interests. 8 Plaintiffs also argue that the question of injunctive relief is still undecided, and “the Court 9 will be able to fashion meaningful relief that addresses Plaintiffs’ injuries without subjecting 10 [Money Transfer Defendants] to inconsistent obligations.” Opp. at 14. But Plaintiffs tacitly 11 acknowledge that the majority of the injunctive relief they seek in the SAC would run afoul of 12 Rule 19, and it is not apparent to the Court that any relief that would not impose inconsistent 13 obligations exists, given the nature of Plaintiffs’ theory. 14 Accordingly, the Court finds Arizona is a “required party” that must be joined if feasible 15 under Rule 19(a)(1)(B). 16 ii. Feasibility of Joining the State of Arizona and Arizona Attorney General 17 Plaintiffs do not dispute that Arizona cannot be feasibly joined in this case, because it has 18 sovereign immunity under the Eleventh Amendment. See Pennhurst State School & Hosp. v. 19 Halderman, 465 U.S. 89, 100 (1984). Accordingly, the Court concludes joinder of Arizona is not 20 feasible in this action. 21 iii. Dismissal of the Action “In Equity and Good Conscience” 22 Money Transfer Defendants argue that because Arizona cannot be feasibly joined, 23 dismissal is appropriate in equity and good conscience. The Court agrees: any ruling in Plaintiffs’ 24 1 The Court takes judicial notice of the representations on the face of Arizona’s subpoenas to 25 Money Transfer Defendants, as those subpoenas are documents whose “authenticity is not in question and there are no disputed issues as to the document’s relevance.” Coto Settlement v. 26 Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010); see also Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (a court may take judicial notice of such documents even if “the plaintiff does not 27 explicitly allege the contents of that document in the complaint.”). The Court need not and does 1 favor in this action would either (1) be inequitable for Money Transfer Defendants as it would 2 require them to comply with future Arizona subpoenas and orders while simultaneously paying 3 money damages in perpetuity, (2) materially impair Arizona’s legally-protected interests in the 4 enforcement of subpoenas and court orders, or (3) both. Plaintiffs present no argument here 5 except as to speculate that the Court could fashion some hypothetical form of limited injunctive 6 relief to avoid prejudice, but as the Court has already found, no such relief is apparent. 7 Accordingly, because joinder of Arizona is both necessary and not feasible, and this case 8 cannot proceed in equity and good conscience without Arizona, this Court must dismiss it under 9 Rule 12(b)(7). Further, such a fatal flaw is not curable by amendment and supports dismissal with 10 prejudice. See Dawavendewa, 276 F.3d at 1153 (affirming dismissal of complaint with prejudice 11 where district court properly ruled that indispensable party could not feasibly be joined under Rule 12 19). Finally, Plaintiffs’ “request [for] an opportunity to file a motion for leave to file an amended 13 complaint attempting to state a claim against such absent parties and/or their adequate 14 representatives,” Dkt. No. 183 at 4 n.4, is denied. It is uncontroverted that Arizona cannot be 15 joined based on the Eleventh Amendment, and Plaintiffs identify no other “absent parties” against 16 whom they could state an amended claim that would avoid or remedy this defect. 17 B. 12(b)(6) Motion 18 Because the Court grants Money Transfer Defendants’ Rule 12(b)(7) motion to dismiss 19 with prejudice, it need not reach the issues raised in Money Transfer Defendants’ Rule 12(b)(6) 20 motion. See Dkt. No. 157.

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27 // IV. CONCLUSION Because the Court finds that the State of Arizona and Arizona Attorney General are 2 required parties that must be joined and that such joinder is not feasible, the Court GRANTS 3 Money Transfer Defendants’ motion to dismiss. Dkt. No. 157. Because this defect cannot be 4 cured by amendment, dismissal shall be WITH PREJUDICE. All other pending motions are 5 TERMINATED AS MOOT. The Clerk is directed to enter judgment in favor of Defendants and 6 against Plaintiffs and close the file. 7 IT IS SO ORDERED. 8 Dated: 9/30/2024

10 Kawo? S. GILLIAM, JR. i United States District Judge

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