No. 14-51326 THE UNITED STATES COURT OF APPEALS FOR … · No. 14-51326 . IN THE UNITED STATES ......

No. 14-51326

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

DAVID BILLINGS; TRESSA BILLINGS,

Plaintiffs-Appellants, v.

PROPEL FINANCIAL SERVICES, LLC, Defendant-Appellee,

CONSOLIDATED WITH 15-50199

BLANCA TORRES, Plaintiff-Appellee,

v. PROPEL FINANCIAL SERVICES, LLC,

Defendant-Appellant,

CONSOLIDATED WITH 15-50340 CHERYL L. THIERY,

Plaintiff-Appellee, v.

TEXAS TAX SOLUTION, L.L.C., Defendant-Appellant,


DAVID LEONARD OROSCO, Plaintiff-Appellee,

v. OVATION LENDING, L.L.C.,

Defendant-Appellant.

On Appeal from the United States District Court for the Western District of Texas, No. 5:14-CV-764-OLG

REPLY BRIEF OF APPELLANTS PROPEL FINANCIAL SERVICES, LLC AND OVATION LENDING, LLC

Jonathan D. Pauerstein Stephen K. Lecholop II ROSENTHAL PAUERSTEIN SANDOLOSKY AGATHER LLP 755 E. Mulbery Ave., Suite 200 San Antonio, TX 78212 Attorneys for Ovation Lending, LLC

Pratik A. Shah Hyland Hunt AKIN GUMP STRAUSS HAUER & FELD LLP 1333 New Hampshire Ave., NW Washington, DC 20036 Attorneys for Propel Financial Services, LLC

(Additional Counsel on Inside Cover)

Case: 15-50199 Document: 00513198301 Page: 1 Date Filed: 09/17/2015

J. Christopher Creel THE LAW FIRM OF DANIEL J. YOUNG, PLLC 4301 Westbank Dr., Bldg. B, Suite 220 Austin, TX 78746 Attorney for Ovation Lending, LLC

Daniel McNeel Lane, Jr. Manuel Mungia, Jr. AKIN GUMP STRAUSS HAUER & FELD LLP 300 Convent St., Suite 1600 San Antonio, TX 78205 Matthew A. Scarola AKIN GUMP STRAUSS HAUER & FELD LLP 580 California St., Suite 1500 San Francisco, CA 94104 Attorneys for Propel Financial Services, LLC


i

CERTIFICATE OF INTERESTED PERSONS

No. 15-50199, Blanca Torres v. Propel Financial Services, LLC

Consolidated with:

No. 14-51326, Billings v. Propel Financial Services, LLC No. 15-50340, Cheryl L. Thiery v. Texas Tax Solutions, L.L.C. No. 15-50437, David Leonard Orosco v. Ovation Lending, L.L.C.

The undersigned counsel of record certifies that the following listed persons

and entities as described in the fourth sentence of Rule 28.2.1 have an interest in

the outcome of this case. These representations are made in order that the Judges

of this Court may evaluate possible disqualification or recusal.

PLAINTIFFS:

No. 14-51326: David and Tressa Billings (Appellants) No. 15-50199: Blanca Torres (Appellee) No. 15-50340: Cheryl L. Thiery (Appellee) No. 15-50437: David Leonard Orosco (Appellee)

COUNSEL FOR PLAINTIFFS-APPELLANTS/APPELLEES: Nos. 14-51326, 15-50199, 15-50340, 15-50437: Bernie Martinez Law Office of Bernie Martinez 300 Convent St., Suite 2500 San Antonio, TX 78205 Jon D. Lowe Martin & Drought, P.C. 300 Convent St., 25th floor San Antonio, TX 78205


ii

DEFENDANTS: Nos. 14-51326, 15-50199: Propel Financial Services, LLC Propel Acquisition, LLC Encore Capital Group No. 15-50340: Texas Tax Solutions, L.L.C. No. 15-50437: Ovation Lending, LLC

COUNSEL FOR DEFENDANTS-APPELLANTS/APPELLEES:

Nos. 14-51326, 15-50199:

Pratik A. Shah (Appellate counsel) Hyland Hunt (Appellate counsel) Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Ave. NW Washington, DC 20036 Daniel McNeel Lane, Jr. (Trial and appellate counsel) Manuel Mungia, Jr. (Trial and appellate counsel) Akin Gump Strauss Hauer & Feld LLP 300 Convent St., Suite 1600 San Antonio, TX 78205 Matthew A. Scarola (Appellate counsel) Akin Gump Strauss Hauer & Feld LLP 580 California St., Suite 1500 San Francisco, CA 94104

No. 15-50340: Lamont Jefferson Haynes and Boone, LLP 112 E. Pecan St., Suite 1200 San Antonio, TX 78205


iii

Polly Fohn Haynes and Boone, LLP 1221 McKinney St., Suite 2100 Houston, TX 77010 No. 15-50437: Jonathan D. Pauerstein Stephen K. Lecholop II Rosenthal Pauerstein Sandoloski Agather LLP 755 E. Mulbery Ave., Suite 200 San Antonio, TX 78212 J. Christopher Creel The Law Firm of Daniel J. Young, PLLC 4301 Westbank Dr., Bldg. B, Suite 220 Austin, TX 78746

Dated: September 17, 2015 AKIN GUMP STRAUSS HAUER & FELD LLP By: s/ Pratik A. Shah Pratik A. Shah Attorney for Defendant-Appellant Propel Financial Services, LLC

ROSENTHAL PAUERSTEIN SANDOLOSKI AGATHER LLP By: s/ Jonathan D. Pauerstein Jonathan D. Pauerstein Attorney for Defendant-Appellant Ovation Lending, L.L.C.


iv

TABLE OF CONTENTS INTRODUCTION ..................................................................................................... 1

ARGUMENT ............................................................................................................. 3

I. DEFERRING PAYMENT OF A TAX OBLIGATION BY A PAYMENT AGREEMENT DOES NOT SUBSTITUTE A NEW “DEBT” FOR THE TAX OBLIGATION ........................................................ 3

A. Kizzee-Jordan Forecloses Both Of Plaintiff’s Main Arguments ........... 3

B. Plaintiff’s Criticisms Of Kizzee-Jordan Are Mistaken ......................... 5

C. Plaintiff’s Other Arguments Lack Merit ............................................. 12

D. The CFPB’s View Cannot Be Divorced From Its Misunderstanding Of Texas Law ........................................................ 14

II. TILA LACKS THE CLEAR STATEMENT REQUIRED FOR FEDERAL INTERFERENCE WITH A STATE TAX SYSTEM ................. 15

A. The Clear Statement Rule Applies Here ............................................. 15

B. Congress Did Not Make TILA Clearly Applicable To Texas Tax Lien Transfers ...................................................................................... 22

CONCLUSION ........................................................................................................ 24


v

TABLE OF AUTHORITIES

CASES:

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) ................................................................................... 4

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................. 8

BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) ................................................................................ 16, 17, 19

Castro v. Collecto, Inc., 634 F.3d 779 (5th Cir. 2011) ............................................................................... 19

Clark v. Martinez, 543 U.S. 371 (2005) ............................................................................................ 21

Cooper Grocery Co. v. Strange, 18 S.W.2d 609 (Tex. Comm’n App. 1929) .......................................................... 8

Corpus v. Estelle, 605 F.2d 175 (5th Cir. 1979) ................................................................................ 4

Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006) .............................................................................. 15

Gregory v. Ashcroft, 501 U.S. 452 (1991) ................................................................................ 15, 19, 20

Groome Res. Ltd. v. Parish of Jefferson, 234 F.3d 192 (5th Cir. 2000) ................................................................................ 4

In re Erlewine, 349 F.3d 205 (5th Cir. 2003) ......................................................................... 16, 17

In re Kizzee-Jordan, 626 F.3d 239 (5th Cir. 2010) ................................................................... 2, 3, 5, 10

In re Prevo, 393 B.R. 464 (Bankr. S.D. Tex. 2008) .................................................................. 5


vi

In re T.F. Stone Co., 72 F.3d 466 (5th Cir. 1995) ........................................................................... 16, 17

Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556 (6th Cir. 2013) ......................................................................... 17, 19

K.P. v. LeBlanc, 729 F.3d 427 (5th Cir. 2013) ................................................................................ 4

Pollice v. National Tax Funding, L.P., 225 F.3d 379 (3d Cir. 2000) ........................................................................... 2, 12

Simmons v. Sabine River Auth. La., 732 F.3d 469 (5th Cir. 2013) ............................................................................... 19

Solid Waste Agency of N. Cook Cnty. v. United States Army Corps of Eng’rs, 531 U.S. 159 (2001) ............................................................................................ 21

Texas Bank & Trust Co. v. Custom Leasing, Inc., 402 S.W.2d 926 (Tex. Civ. App. 1966) ................................................................ 6

Texas Dep’t of Ins. v. American Nat’l Ins. Co., 410 S.W.3d 843 (Tex. 2012) .............................................................................. 15

Texas v. EPA, 690 F.3d 670 (5th Cir. 2012) ............................................................................... 14

Tijani v. Holder, 628 F.3d 1071 (9th Cir. 2010) ............................................................................. 14

United States v. Serafini, 167 F.3d 812 (3d Cir. 1999) ................................................................................. 4

STATUTES:

15 U.S.C. § 1602(bb)(1)(A) ................................................................................................... 1 § 1602(f) ................................................................................................................ 1 § 1638(a) ............................................................................................................... 1 § 1639(a) ............................................................................................................... 1


vii

TEX. FIN. CODE § 351.002(2) .......................................................................................................... 9

TEX. TAX CODE § 32.06(b) .............................................................................................................. 9 § 32.06(d-1) ..................................................................................................... 9, 13 § 32.06(f-3) ........................................................................................................... 9 § 32.065(c) ............................................................................................................ 9 § 33.02(a) .............................................................................................................. 8 § 33.41 ................................................................................................................... 9 § 34.02(e) ............................................................................................................ 11

RULES AND REGULATIONS:

7 TEX. ADMIN. CODE § 89.208(h) .......................................................................................................... 15 § 89.702(a)(10) .................................................................................................... 7

12 C.F.R. § 1026.2(b)(3) ................................................................................................. 1, 13 § 1026.23 ............................................................................................................. 13


1

INTRODUCTION1

No matter how much Plaintiff and her amici would prefer it as a policy

matter, they cannot re-write Texas law in a way that would bring Texas tax lien

transfers within the federal regulatory regime of the Truth in Lending Act (TILA).

As Propel’s opening brief explains, TILA applies only to a “consumer credit

transaction.” E.g., 15 U.S.C. §§ 1638(a), 1639(a), 1602(bb)(1)(A). A transaction

does not involve “credit” unless it defers the payment of “debt” (as defined by

state law). Id. § 1602(f); see 12 C.F.R. § 1026.2(b)(3). Because a tax obligation is

not “debt” under Texas law, the agreement between Propel and Plaintiff to defer

payment of her tax obligation does not defer payment of “debt”—and thus does not

involve the extension of “credit.”

Plaintiff concedes nearly every step of that analysis. She concedes (Br. 10-

11) that a tax obligation is not debt. She concedes (Br. 27-29) that a tax obligation

may be transferred to a private party without transforming the obligation into debt.

And she concedes (Br. 16-17) that if the transferee of a tax obligation offers a

payment plan to defer payment of a tax obligation, that payment plan does not

necessarily defer payment of “debt.” Those concessions, consistent with the Third

1 Appellant Ovation Lending, LLC joins this reply brief in full in lieu of

filing a separate reply brief in its consolidated appeal (No. 15-50437). Unless otherwise noted, all references to the briefs herein are to those filed in the Torres v. Propel appeal (No. 15-50199).


2

Circuit’s decision in Pollice v. National Tax Funding, L.P., 225 F.3d 379, 410 (3d

Cir. 2000), all but require a conclusion that Texas tax lien transfers do not extend

“credit.”

Plaintiff nevertheless insists that TILA applies for two main reasons. First,

Plaintiff contends (Br. 15-16) that although a tax obligation can be transferred to a

private party, “[i]n Texas only the tax lien is transferred and assigned, not the tax

claim that the tax lien secures.” Second, Plaintiff contends (Br. 19-21) that the

payment agreement she entered into with Propel worked a novation, extinguishing

any tax claim and replacing it with a new debt. Both arguments are foreclosed by

this Court’s decision in In re Kizzee-Jordan, 626 F.3d 239 (5th Cir. 2010), and are

wrong as a matter of Texas law. By acknowledging that a Texas tax lien transferee

holds a tax claim unless or until it enters into a payment agreement (Br. 28),

Plaintiff rebuts her own contention that the tax claim is not assigned under Texas

law. And novation occurs only when the parties make clear their intent to

extinguish the original obligation; nothing of the sort occurred here. Rather, Propel

and Plaintiff exercised the option under Texas law to restructure the payments on

the tax obligation without replacing that obligation with a new “debt.”

To the extent any doubt remains, Plaintiff does not identify the requisite

clear statement by Congress that it intended for TILA to impinge on Texas’s

sovereign interests. Plaintiff instead responds (Br. 42) that TILA does not “pre-


3

empt” state law. But the clear statement rule is not merely a presumption against

preemption; it applies when federal law regulates areas of traditional state

sovereignty, including the terms on which Texas taxing units may transfer tax

claims. Congress in TILA did not even define the term “debt,” let alone do so in a

way that applies unambiguously to the transactions at issue. Accordingly,

Plaintiff’s interpretation of TILA as governing here violates the clear statement

rule.

ARGUMENT

I. DEFERRING PAYMENT OF A TAX OBLIGATION BY A PAYMENT AGREEMENT DOES NOT SUBSTITUTE A NEW “DEBT” FOR THE TAX OBLIGATION

A. Kizzee-Jordan Forecloses Both Of Plaintiff’s Main Arguments

In In re Kizzee-Jordan, this Court considered two arguments—rehashed by

Plaintiff here—in support of the view that a Texas tax lien transferee “does not

hold a tax claim”: (1) “only a tax lien is transferred under state law,” and (2) any

“tax claim was extinguished and was replaced by a new debt owed under [a]

promissory note.” 626 F.3d at 244 (emphasis omitted). Interpreting “Texas law,”

id. at 246, this Court squarely rejected both arguments in holding that the tax claim

survived the transfer, see id. at 244-246. Plaintiff’s two main arguments are thus

foreclosed.


4

Plaintiff asserts (Br. 18), however, that because Kizzee-Jordan “is not a

TILA case,” this panel is free to discard the “various rationales adopted by this

Court in its opinion.” Plaintiff is wrong. Although Kizzee-Jordan ultimately

determined how a transferred tax claim should be treated for purposes of the

federal Bankruptcy Code, it did so based on this Court’s interpretation of Texas law

on the same critical issue underlying TILA’s applicability. The “rule of

orderliness” thus “compels” this Court to “abide the interpretation of state law”

announced in that case. K.P. v. LeBlanc, 729 F.3d 427, 438 & n.70 (5th Cir. 2013)

(holding that panel was bound by an earlier panel’s interpretation of state law,

made to determine whether plaintiffs had standing under federal law, despite the

fact that state officers “vigorously dispute[d]” that interpretation); see also, e.g.,

Groome Res. Ltd. v. Parish of Jefferson, 234 F.3d 192, 215 (5th Cir. 2000)

(explaining that panel was “bound by the logic of” earlier cases); Corpus v. Estelle,

605 F.2d 175, 179 (5th Cir. 1979) (reasoning binding); ATSI Commc’ns, Inc. v.

Shaar Fund, Ltd., 493 F.3d 87, 98 n.2 (2d Cir. 2007) (rationale part of holding);

United States v. Serafini, 167 F.3d 812, 815 (3d Cir. 1999) (same).2

2 The reliance by Plaintiff (Br. 10, 12) and the National Association of

Consumer Advocates (“NACA”) (Br. 16) on references in Kizzee-Jordan to “debt” or “lender” is of no moment. Kizzee-Jordan held that a tax lien transferee holds a tax claim under Texas law, and all agree that the obligation to pay a tax claim is not “debt” within the meaning of TILA.


5

Accordingly, as a matter of Texas law, a tax lien transferee holds a claim to

payment of taxes even when a homeowner “execute[s] a promissory note” agreeing

to pay the tax lien transferee. Kizzee-Jordan, 626 F.3d at 241. That ends this

dispute: Plaintiff owes Propel payment of a tax obligation; a tax obligation is not

debt; and deferring payment of that obligation via a “promissory note” does not

involve the extension of “credit” required to trigger TILA.

B. Plaintiff’s Criticisms Of Kizzee-Jordan Are Mistaken

Proceeding on the incorrect understanding that Kizzee-Jordan is not binding,

Plaintiff spends more than a dozen pages (Br. 18-32, 33-35) criticizing this Court’s

rationale. See, e.g., Pl. Br. 24 (“This Court’s assertion *** does not withstand

closer scrutiny.”). Those criticisms are irrelevant because, as discussed, a panel of

this Court may not overrule Kizzee-Jordan’s interpretation of Texas law. In any

event, Plaintiff’s criticisms are mistaken.

First, Plaintiff’s contention that the tax claim is not assigned to a tax lien

transferee (Br. 15-16) relies upon authority that was expressly disclaimed in

Kizzee-Jordan. See 626 F.3d at 244 & n.23 (listing In re Prevo, 393 B.R. 464

(Bankr. S.D. Tex. 2008), among the decisions concluding that a tax lien transferee

“holds a new, non-tax claim based on the property owner’s promissory note,” by

which this Court was “not persuaded”). Moreover, it runs headlong into Plaintiff’s

concession (Br. 28) that when no payment agreement is signed, the tax claim is


6

“not *** extinguished” but is “payable to the [tax lien transferee] rather than the

taxing units.” Because Plaintiff agrees that a Texas tax lien transferee can collect

on the tax claim in at least some circumstances, it cannot be that the tax claim is

automatically extinguished upon a transfer.

Plaintiff attacks (Br. 23-26) Kizzee-Jordan’s premise that a lien could not be

assigned without the debt or obligation it secures. Plaintiff acknowledges that

Texas Bank & Trust Co. v. Custom Leasing, Inc., 402 S.W.2d 926 (Tex. Civ. App.

1966), cited by this Court, explained that “[a] lien in itself is neither property nor a

debt, but a right to have a satisfaction out of property to secure the payment of the

debt; and therefore is not subject to assignment without the debt.” Id. at 930. She

assumes (Br. 24-25) “arguendo that this is a correct statement of Texas law,” but

argues by analogy to refinancing transactions that it is “possible for a tax lien to be

transferred” even “if the tax debt is extinguished.” There are two problems with

that argument.

As an initial matter, the refinancing transactions Plaintiff describes do not

involve a lien being transferred without a debt. They involve a lien and debt being

transferred together, see Pl. Br. 24-25 (“[T]he original creditor commonly will ***

transfer the original promissory note and the lien securing the same to the third-

party creditor.”), followed by later replacement of the debt with a new promissory

note; the original note is expressly “marked ‘paid’ or ‘paid in full,’” id. at 25.


7

Those transactions evidence plain intent to discharge the transferred obligation and

replace it with a new debt. Plaintiff’s example thus bolsters, rather than

undermines, Kizzee-Jordan’s rationale. Whether a transferred payment obligation

is later extinguished turns on whether the transferee and the obligor agree to a

novation of the original debt. As described below, that does not occur in tax lien

transfers under the Texas statute, and it did not occur here.

More fundamentally, Plaintiff’s analogy fails to grapple with any provision

of the tax lien transfer statute. There is no reason to suppose that tax lien transfers

operate like refinancings under Texas law, and every reason to presume otherwise,

because the Texas Tax Code and regulations do not prescribe the refinancing steps

that Plaintiff invokes. The Code provides no basis to deem the original tax

obligation “paid in full.” Rather, the taxing unit’s issuance of a receipt to the

transferee evidences “payment for the transfer in the amount of taxes” in

“consideration for a transfer of the tax lien(s).” 7 TEX. ADMIN. CODE

§ 89.702(a)(10) (hereinafter “ADMIN.”) (emphasis added).

Second, Plaintiff contends that “the doctrine of novation” “firmly

establish[es]” that even if the tax claim were initially transferred, that tax

obligation was replaced with a new “debt” when Plaintiff entered into a payment

agreement with Propel. But the very cases Plaintiff quotes (Br. 20) explain that a

novation occurs only when it is the parties’ intention to extinguish an existing


8

obligation and replace it with a new one. Indeed, execution of a new agreement “is

presumed not to extinguish the debt.” Cooper Grocery Co. v. Strange, 18 S.W.2d

609, 613 (Tex. Comm’n App. 1929) (emphasis added). Rather, a new payment

agreement may represent “mere renewal of the indebtedness,” under which “the

old debt is merely changed in form but not discharged.” Id. Plaintiff did not plead

that Propel intended to discharge the transferred tax obligation by entering into the

payment agreement—and could not “plausibl[y]” do so. Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007). No such intent appears anywhere in the

agreement itself. See ROA.15-50199.19-22.

Nor does Plaintiff’s repeated description of the payment agreement as a

“promissory note” establish any intent to extinguish the tax obligation and replace

it with a new debt. If an agreement including a promise to pay were sufficient to

indicate intent to extinguish the underlying tax obligation, then any installment

agreement with a taxing unit would likewise extinguish that obligation. See TEX.

TAX CODE § 33.02(a) (hereinafter “TAX”) (requiring an installment agreement with

a taxing unit to “be in writing,” specify “payments to be made in equal monthly

installments,” and constitute “an irrevocable admission of liability for all taxes,

penalties, and interest that are subject to the agreement”). Plaintiff concedes (Br.

16), however, that a transferee can enter into an installment payment agreement

under section 33.02 without creating a new debt. That concession is at odds with


9

Plaintiff’s assertion that a payment agreement under section 32.065 must always

create a new debt.

In any event, tax lien transfers are governed primarily by Texas statute, not

common-law doctrines. Plaintiff does not point to a single provision of the tax lien

transfer statute indicating that entry into a payment agreement extinguishes the

transferred tax obligation. In contrast, Propel has identified numerous statutory

provisions confirming that an authorized agreement to defer payment of a

transferred tax obligation does not replace that obligation with “debt.” See

Opening Br. 24-29. Those provisions include the issuance of the tax receipt to the

transferee, TAX § 32.06(b); the Texas Legislature’s express incorporation of some

TILA provisions and not others, id. § 32.06(d-1), (f-3); the definition of “property

tax loan,” which applies equally to tax lien transfers with and without payment

agreements, TEX. FIN. CODE § 351.002(2); and subrogation to every remedy

possessed by the taxing unit, including the right to sue in personam to collect the

tax, TAX §§ 32.065(c), 33.41.3

3 Plaintiff insists (Br. 29) that this Court must interpret the subrogation

provision to be narrower than it “expressly provides” to avoid purportedly absurd results. But Plaintiff’s narrower construction—that subrogation extends only to the right “to collect the debt” (Br. 30)—is no different than Propel’s. It simply underscores that, by subrogation, Propel has the right to collect the original obligation—i.e., the tax obligation.


10

Third, Plaintiff (Br. 20, 27-29) and her amicus (NACA Br. 21-23) insist that

the agreement between Propel and Plaintiff must have created a new debt subject

to TILA because the agreement was required for Propel to collect fees and interest

different from those imposed by the taxing unit. That does not follow. The fact

that Propel and Plaintiff agreed to change the terms on which payment of her tax

obligation is deferred says nothing about changing the obligation itself. Moreover,

as this Court has already held, Kizzee-Jordan, 626 F.3d at 245-246, the statutory

authorization to negotiate a different set of fees for deferring payment of taxes does

not alter the nature of the underlying tax obligation. The Texas tax lien statute

does not make tax lien transferees choose between subrogation based on the

original obligation and entering into a payment agreement: transferees are both

subrogated to the taxing unit’s rights and may charge different fees by agreement.

Neither the tax lien transfer statute nor background principles of Texas law

mandate that the original obligation must be extinguished for the payment terms to

be altered. On the contrary, as described above, Plaintiff’s own cases establish just

the opposite: it is presumed a new agreement only reforms the payment terms and

does not replace the underlying obligation, unless a contrary intent is clearly

expressed.4

4 The NACA amicus contends (Br. 23-24) that because tax lien transferees

that enter into payment agreements may charge additional fees in Texas, they


11

Plaintiff also seeks (Br. 34) to minimize the significance of the fact that

Texas law defines these additional fees owed to a tax lien transferee to be “taxes,”

even though they could never be owed to a taxing unit. See TAX § 34.02(e).

Plaintiff complains that those fees are defined to be “taxes” only for distribution of

tax sale proceeds to tax lien transferees. But Plaintiff points to no competing

definition that would exclude such fees for relevant purposes—i.e., with respect to

the remedies available to tax lien transferees. That definition is consistent with the

entire statutory scheme, which makes clear that Plaintiff owes Propel payment of a

tax obligation (inclusive of any authorized fees). That means that Plaintiff does not

owe Propel a “debt” within the meaning of TILA, even if the Texas Legislature did

not take the redundant step of defining the ancillary fees charged by tax lien

transferees as taxes “for purposes of TILA” (Pl. Br. 34).

In the end, none of these arguments can support affirmance. Each seeks to

convince this Court that Kizzee-Jordan was wrongly decided. That binding

precedent was correct then, it remains correct now, and it forecloses Plaintiff’s

position here.

should be treated differently under TILA. But TILA coverage turns on a specific question—whether the underlying obligation that is deferred is “debt.” The ability to charge interest or fees for the privilege of deferring payment of an obligation is irrelevant to the question of whether the obligation itself is to pay taxes or to pay a new “debt.”


12

C. Plaintiff’s Other Arguments Lack Merit

Plaintiff’s other arguments, which (inter alia) seek to displace the integral

role of state law in informing the scope of TILA, all fail.

1. Plaintiff contends (Br. 11, 32-33) that taxing units have no right to make

property tax loans that are exempt from TILA. True enough, but irrelevant. The

point is not that a taxing unit can extend third-party “credit” to defer the payment

of “debt” and deem TILA inapplicable; it is that if a tax claim holder defers

payment of a tax obligation, then there is no “debt” and TILA does not apply in the

first place. Tellingly, Plaintiff acknowledges (Br. 16) that when “the outright

assignee of [a] tax obligation[]” grants “the right to defer payment thereof,” it is

“no[t] *** an extension of ‘credit’ under TILA.” See also Pollice, 225 F.3d at 410

(“Simply put, the payment plans with respect to the tax obligations do not involve

the granting of a right to defer payment of ‘debts,’ but rather the granting of a right

to defer payment of tax obligations, which are not ‘debts.’”).5

2. Plaintiff also argues (Br. 35) that “[t]he Texas Legislature *** has no say

whatsoever in what transactions do or do not constitute ‘consumer credit’

transactions for purposes of TILA,” so “the statutory subrogation provision”

should receive essentially “no *** weight.” Plaintiff’s premise is false: because

5 Plaintiff’s attempt to distinguish Pollice (Br. 14-18) depends upon its (incorrect) position that, under Texas law, the tax claim is not assigned to the tax lien transferee. As discussed above, Kizzee-Jordan forecloses that position.


13

the meaning of “credit” depends on the meaning of “debt,” and the meaning of

“debt” is a question of state law, see 12 C.F.R. § 1026.2(b)(3), the laws passed by

the Texas Legislature do matter. Indeed, both Plaintiff (Br. 15-16) and the

Consumer Financial Protection Bureau (CFPB Br. 26) attempt (futilely) to

distinguish Pollice on purported differences between Pennsylvania and Texas law.

In addition, the myriad “consumer protection provisions applicable to” tax lien

transfers shed light on the Texas Legislature’s understanding that TILA’s

regulations do not apply of their own force. See, e.g., TAX § 32.06(d-1)

(incorporating 12 C.F.R. § 1026.23 by reference); contra Pl. Br. 38.

Plaintiff concedes (Br. 16-17), moreover, that had Propel “opted to rely on

[its] statutory subrogation rights, [it] would have been able to enter into the same

deferred payment plans with [Plaintiff] that the City of San Antonio could,”

without triggering application of TILA. It follows a fortiori that Congress has

permitted the State of Texas (i) to define a set of permissible payment plans for tax

obligations and (ii) to permit tax lien transferees to enter into those plans with

private parties, free from TILA’s requirements. Plaintiff’s attempt to draw the line

at only a subset of those authorized payment plans—and no further—lacks any

basis in TILA or Texas law.

3. Plaintiff further contends (Br. 13-14, 36-37) that deferred tax obligations

are not only credit, they are “consumer” credit. Propel has addressed that issue


14

elsewhere, see Propel Br. 32-33, No. 14-51326 (incorporated by reference), and in

any event, this Court can reverse without reaching the question. Because this case

does not involve “credit” at all, there is no need to characterize any “credit” as

“consumer” or otherwise. See Pl. Br. 9 (“The first level of analysis *** is whether

[the transfers] constitute ‘credit’ under TILA.”).

D. The CFPB’s View Cannot Be Divorced From Its Misunderstanding Of Texas Law

Plaintiff concedes (Br. 38-39) that “[t]he CFPB’s conclusion that Texas” tax

lien transfers “are subject to TILA rests on the agency’s *** understanding of

applicable *** state law”: namely, the CFPB’s assumption that a tax lien transfer

extinguishes the underlying tax obligation by operation of Texas law. And Plaintiff

nowhere disputes that the CFPB’s interpretation of Texas law is not entitled to

deference. See Texas v. EPA, 690 F.3d 670, 677 (5th Cir. 2012) (holding the Court

need not accept the federal agency’s position “based solely on deference to the

EPA’s interpretation of the [relevant] Texas law” for which “the EPA’s

interpretation is not authoritative”); Tijani v. Holder, 628 F.3d 1071, 1079 (9th Cir.

2010) (“Deference is not due the [federal] agency in construing state law.”).

Because this Court has already held (per Kizzee-Jordan) that a tax lien transfer


15

does not in fact extinguish the tax obligation, the CFPB’s amicus brief rests on a

mistaken state-law premise and lends no support to Plaintiff’s arguments.6

II. TILA LACKS THE CLEAR STATEMENT REQUIRED FOR FEDERAL INTERFERENCE WITH A STATE TAX SYSTEM

A. The Clear Statement Rule Applies Here

1. In Gregory v. Ashcroft, the Supreme Court explained that a federal law

may be construed in a way that would “upset the usual constitutional balance of

federal and state powers” only if Congress’s intention for the law to do so is

“unmistakably clear in the language of the statute.” 501 U.S. 452, 460 (1991)

(citation omitted). Plaintiff does not dispute that a state’s control over its property

tax system is a core component of its sovereignty. See Opening Br. 33. Nor does

she dispute that a federal law can interfere with a state’s sovereign power even

6 The letter from a staff member for the Office of Consumer Credit

Commissioner on which the NACA amicus relies (Br. 15-16) suffers from a similar defect: in it, a state official expresses his view on the proper interpretation of federal law, specifically the CFPB’s staff commentary on Regulation Z. The letter does not interpret whether a tax lien transfer also transfers the tax claim under Texas law, or whether the tax obligation is extinguished under Texas law when a tax lien transferee enters into a payment agreement. In any event, the letter lacks the formality required for the letter to receive even “some deference” under Texas law. Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006) (“some deference” only available for “formal opinions adopted after formal proceedings”); Texas Dep’t of Ins. v. American Nat’l Ins. Co., 410 S.W.3d 843, 853-854 (Tex. 2012) (“formally adopted”). The state agency has never issued an authoritative opinion on the relevant Texas law questions. When it has acted with the requisite formality, by rulemaking, it has required tax lien transferees to comply with only select aspects of TILA. See, e.g., 7 ADMIN. § 89.208(h).


16

when the law does not regulate the state’s conduct directly. See id. Instead,

Plaintiff suggests that the clear statement rule does not apply because (Br. 42) the

rule requires a threat of “pre-emption,” and because (Br. 44) “[n]o court” has held

that “[merely] ‘impinging’ on some state function” can trigger it.

Plaintiff is incorrect. This Court has expressly recognized “the presumption

against reading federal laws to impinge on traditional areas of state regulation.” In

re T.F. Stone Co., 72 F.3d 466, 471 (5th Cir. 1995); see also In re Erlewine, 349

F.3d 205, 212 (5th Cir. 2003) (“impinging upon important state interests” (citation

omitted)). The NACA amicus (Br. 25) likewise acknowledges that preemption is

not required.

Plaintiff contends that a key Supreme Court case cautioning against

impingement involved “a direct and unequivocal pre-emption of pre-existing state

law.” Pl. Br. 41-42 (citing BFP v. Resolution Trust Corp., 511 U.S. 531, 544-545

(1994)). Not so. In Resolution Trust, the Supreme Court held that the Bankruptcy

Code’s phrase “reasonably equivalent value” should be construed in a way that

“assume[s] the validity of [the] state-law regulatory background and take[s] due

account of its effect.” 511 U.S. at 539. The Court was concerned that if the price

received at a state-law-compliant foreclosure sale could be deemed not “reasonably

equivalent” to the value of the property, the title of realty purchased at foreclosure

would be clouded. See id. at 539, 544-546. The Court thus construed the Code in


17

a way that would avoid “impinging upon important state interests” or “displac[ing]

traditional state regulation,” even though the Code left states free to conduct

foreclosure sales as they saw fit. Id. at 544; see also In re Erlewine, 349 F.3d at

212 (state-court divorce decree’s division of marital property); In re T.F. Stone Co.,

72 F.3d at 471 (foreclosure sale initiated to satisfy property tax obligations).

Unsurprisingly, the Court’s opinion in Resolution Trust makes no mention of

preemption. Nor do this Court’s opinions in In re Erlewine or In re T.F. Stone Co.

The Sixth Circuit has likewise recognized that federal law may interfere with

the operation of state law even if the federal law does not deem the state law

invalid. See Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556 (6th Cir.

2013) (en banc). The Racketeer Influenced and Corrupt Organizations Act (RICO)

protects against injuries to “business or property.” Id. at 558. The Sixth Circuit

held that the phrase cannot be construed to include claimed workers’ compensation

benefits absent a clear statement of congressional intent. Id. at 567-569. To

include such benefits within RICO’s meaning of “property,” the court explained,

would “throw[] the viability of [workers’ compensation] schemes into doubt by

allowing any employee who believes an employer denied his workers’

compensation claim through fraud to recast [the] dispute as a RICO claim.” Id. at

568. The problem was not, in other words, that federal law would render any part


18

of the state workers’ compensation scheme invalid; it was that the proposed

interpretation of federal law would intrude on the operation of that state scheme.

So too here. The “impingement” on Texas’s scheme of property tax

collection is not abstract. Plaintiff’s TILA claim is that tax-lien transfer

transactions, even when in full compliance with Texas law, can and do still violate

federal law. Moreover, as described in Propel’s opening brief (at 35-37), given the

time constraints that apply to Texas tax lien foreclosures and the circumstances

under which property owners may seek tax lien transfers, certain TILA

requirements would (at a minimum) make it more difficult for taxing units to

obtain funds through tax lien transfers. 7 Because application of TILA would

circumscribe the circumstances in which those transactions can occur, so too would

it circumscribe the circumstances in which taxing units may quickly collect needed

revenue.

2. Plaintiff complains (Br. 42) that Propel is merely “speculat[ing]” about

the consequences of applying TILA to tax lien transfers. Rather than grant a

motion to dismiss, Plaintiff suggests (Br. 43), this Court should “reject the

argument” and leave Propel to “offer evidence” “[i]f this case goes to trial.”

7 For example, the additional days required to complete a transaction under TILA could preclude a tax lien transfer from being completed in time to avoid foreclosure, Opening Br. 36-37, which not only impairs the ability of taxing units to obtain needed funds without the time and expense of a court proceeding but also harms the property owners subject to foreclosure.


19

Plaintiff, it seems, would let a jury decide whether TILA’s intrusion on state

sovereignty is adequate to trigger application of the clear statement rule—a “day in

court” (Pl. Br. 43) that would be most unusual.

Suffice it to say that whether the clear statement rule applies is a question of

law. The Sixth Circuit applied that rule in Jackson while considering a motion to

dismiss. See 731 F.3d at 561. So did the Supreme Court in Gregory. See 501 U.S.

at 456. The Resolution Trust decision was made on summary judgment, but the

Court’s analysis does not depend on evidence “in the record.” Pl. Br. 43; see 511

U.S. at 544. Nor could it: whether a federal law is subject to the clear statement

rule does not change from case to case or record to record.

Further, although the clear statement rule is not merely an anti-preemption

presumption, it is instructive that even conflict preemption arguments can be

resolved on a motion to dismiss. See, e.g., Simmons v. Sabine River Auth. La., 732

F.3d 469, 476 (5th Cir. 2013); cf. Castro v. Collecto, Inc., 634 F.3d 779, 785 (5th

Cir. 2011) (determining that construction of statute would entail conflict

preemption, if adopted, “because the Texas statute of limitations would be in

conflict with the balancing of interests expressed in the federal statute of

limitations,” and construing statute to avoid that result).

Tellingly, Plaintiff offers no other response to Propel’s illustrations of how

TILA’s application would be burdensome even if this Court considers only current


20

TILA requirements: Plaintiff asks Propel to put on evidence, but makes no effort

to refute Propel’s analysis of the law. See Opening Br. 35-37 (providing examples

of impingement). In any event, it is perfectly clear that applying TILA “would

upset the usual constitutional balance of federal and state powers,” Gregory, 501

U.S. at 460, because it would mean that the federal government gets to set the

rules—with or without a clear statement—for Texas’s system of property tax

transfers. That goes well beyond “mere[] *** consumer protection” statutes (Pl.

Br. 8): it directly interferes with the manner in which Texas taxing units raise

revenue.

3. The NACA amicus contends (Br. 27-35) that current TILA regulations do

not impose a “significant[]” enough burden on the Texas tax lien transfer system to

trigger the clear statement rule. In addition to the points just made refuting that

contention, the cases on which NACA relies do not support its argument. Those

cases focus not on the actual exercise of federal authority but on “the balance of

state and national authority”; whether there is “significant impingement of the

States’ traditional and primary power”; and whether there has been an expansion

“of federal *** jurisdiction.” Id. at 26-27 (second and third emphasis added;

citations and internal quotation marks omitted). It is enough, in other words, for

Plaintiff to claim that TILA gives the CFPB the power to regulate tax lien transfers.


21

The Supreme Court’s decision in Solid Waste Agency of Northern Cook

County v. United States Army Corps of Engineers illustrates the point. See 531

U.S. 159 (2001). The agency involved there had “interpreted [a statute] to confer

federal authority over an abandoned sand and gravel pit.” Id. at 162. The Court

applied the clear statement rule not because it was particularly important for the

state’s overall land use regime to control the use of the pit, but because “the

administrative interpretation alter[ed] the federal-state framework by permitting

federal encroachment upon a traditional state power.” Id. at 173 (emphasis added).

Here, Plaintiff’s interpretation of TILA would do the same thing: permit federal

encroachment upon Texas’s power to regulate its tax lien transfer system.

NACA’s focus on whether the CFPB’s exercise of power is “significant”

enough is flawed for another reason. Presumably an even more intrusive exercise

of CFPB power—say, by future regulation or enforcement—would be sufficient to

trigger the clear statement rule. Because the meaning of the statutory term “debt”

in that case would depend on whether Congress had spoken clearly, and the

meaning of “debt” cannot change from case to case, see Clark v. Martinez, 543

U.S. 371, 380 (2005), whether “debt” includes deferred Texas tax obligations must

be determined, here and in general, with the clear statement rule in mind. “The

lowest common denominator, as it were, must govern.” Id.; see also id. (“It is not

at all unusual to give a statute’s ambiguous language a limiting construction called


22

for by one of the statute’s applications, even though other of the statute’s

applications, standing alone, would not support the same limitation.”). NACA’s

approach runs headlong into that rule of statutory construction. If it were only the

agency’s exercise of power that triggers a clear statement requirement, rather than

the scope of the claimed power itself, then the meaning of a statutory term would

vary impermissibly from case to case.

4. Finally, Plaintiff seems (Br. 41) to fault Propel for arguing that Plaintiff’s

interpretation of TILA violates the clear statement rule, rather than arguing “that

the statutory language of TILA” does so. But a statute cannot violate the clear

statement rule. Rather, the rule is one of statutory construction: it guides this

Court’s choice between the interpretations advanced by Plaintiff and Propel. As

explained below, applying that rule to TILA in this context compels rejection of

Plaintiff’s interpretation.

B. Congress Did Not Make TILA Clearly Applicable To Texas Tax Lien Transfers

Even the district court acknowledged “substantial ground for difference of

opinion” concerning its conclusion that TILA applies to tax lien transfers.

ROA.15-50199.216. When viewed through a clear-statement lens, that room for

disagreement implies that TILA does not reach Texas’s tax lien transfer system.

Plaintiff’s argument to the contrary (Br. 44-46) lacks merit because, inter

alia, (i) Congress did not define “debt” for TILA purposes; and (ii) an agency may


23

not provide the clear statement that Congress omitted. See Opening Br. 38-39.

Because it is not at all clear that Congress intended for “debt” to include

obligations transferred and deferred under Texas’s “unique” “statutory regime” (Pl.

Br. 15), TILA lacks the clear statement required to regulate the tax lien transfer

transactions at issue. That provides an independent ground for reversal in this

case.


24

CONCLUSION

This Court should reverse the judgment of the district court.

Respectfully submitted, /s Pratik A. Shah

Daniel McNeel Lane, Jr. Manuel Mungia, Jr. AKIN GUMP STRAUSS HAUER & FELD LLP 300 Convent St., Suite 1600 San Antonio, TX 78205 210-281-7000 Matthew A. Scarola AKIN GUMP STRAUSS HAUER & FELD LLP 580 California St., Suite 1500 San Francisco, CA 94104 415-765-9500

Pratik A. Shah Hyland Hunt AKIN GUMP STRAUSS HAUER & FELD LLP 1333 New Hampshire Ave., NW Washington, DC 20036 202-887-4000 [email protected]

Attorneys for Propel Financial Services, LLC

/s Jonathan D. Pauerstein J. Christopher Creel THE LAW FIRM OF DANIEL J. YOUNG, PLLC 4301 Westbank Dr., Bldg. B, Suite 220 Austin, TX 78746 512-666-3490

Jonathan D. Pauerstein Stephen K. Lecholop II ROSENTHAL PAUERSTEIN SANDOLSKI AGATHER LLP 755 E. Mulbery Ave., Suite 200 San Antonio, TX 78212 210-225-5000 [email protected]

Attorneys for Ovation Lending, LLC September 17, 2015


CERTIFICATE OF SERVICE

I hereby certify that all parties listed on this certificate of service will receive

a copy of the foregoing document filed electronically with the United States Court

of Appeals for the Fifth Circuit, on this 17th day of September, 2015, with notice

of case activity to be generated and ECF notice to be sent electronically by the

Clerk of the Court. I further certify that on this same date, a copy of this document

was served via overnight delivery to the following:

COUNSEL FOR ALL PLAINTIFFS-APPELLEES/APPELLANTS:

Bernie Martinez Law Office of Bernie Martinez 300 Convent St., Suite 2500 San Antonio, TX 78205 [email protected]

Jon D. Lowe Marin & Drought, P.C. 300 Convent St., 25th floor San Antonio, TX 78205 [email protected]

COUNSEL FOR DEFENDANT-APPELLANT (NO. 15-50340):

Lamont Jefferson Haynes and Boone, LLP 112 E. Pecan St., Suite 1200 San Antonio, TX 78205

Polly Fohn Haynes and Boone, LLP 1221 McKinney St., Suite 2100 Houston, TX 77010

s/Pratik A. Shah

Pratik A. Shah

s/Jonathan D. Pauerstein Jonathan D. Pauerstein


CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of Federal Rules of

Appellate Procedure 32(a)(7)(B) because it contains 5,539 words, excluding the

parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because it was

prepared in a proportionally spaced typeface using Microsoft Office Word 2010 in

14-point Times New Roman font.

s/Pratik A. Shah Pratik A. Shah

s/Jonathan D. Pauerstein

Jonathan D. Pauerstein September 17, 2015


United States Court of Appeals FIFTH CIRCUIT

OFFICE OF THE CLERK LYLE W. CAYCE

CLERK

TEL. 504-310-7700

600 S. MAESTRI PLACE

NEW ORLEANS, LA 70130

September 23, 2015

Mr. Jonathan D. Pauerstein Rosenthal Pauerstein Sandoloski Agather, L.L.P. 755 E. Mulberry Avenue Suite 200 San Antonio, TX 78212 Mr. Pratik A. Shah Akin Gump Strauss Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Washington, DC 20036-1564 No. 15-50199; et al Blanca Torres v. Propel Financial Svc, LLC USDC No. 5:14-CV-1040 USDC No. 5:14-CV-897 Dear Mr. Pauerstein and Mr. Shah, The following pertains to your reply brief electronically filed on September 17, 2015. We filed your brief. However, you must make the following corrections within the next 14 days. You need to correct or add: Caption on the brief does not agree with the caption of the case in compliance with FED R. APP. P. 32(a)(2)(C). It must exactly match our caption in the lead case 14-51326. (See attached caption below) Once you have prepared your sufficient brief, you must email it to: [email protected] for review. If the brief is in compliance, you will receive a notice of docket activity advising you that the sufficient brief has been filed.


Sincerely, LYLE W. CAYCE, Clerk

By: _________________________ Shawn D. Henderson, Deputy Clerk 504-310-7668 cc: Mr. Jack Christopher Creel Ms. Jessica Rank Divine Mr. Stephen Gardner Ms. Hyland Hunt Mr. Nandan M. Joshi Mr. David Alfred Kahne Mr. Daniel McNeel Lane Jr. Mr. Steve K. Lecholop Mr. Jon Dale Lowe Mr. Bernie Martinez Mr. Manuel Mungia Mr. Matthew A. Scarola Caption to Use:

14-51326

DAVID BILLINGS; TRESSA BILLINGS,

Plaintiffs - Appellants

v.

PROPEL FINANCIAL SERVICES, L.L.C.,

Defendant - Appellee

---------------------


Consolidated with 15-50199

BLANCA TORRES,

Plaintiff - Appellee

v.

PROPEL FINANCIAL SERVICES, L.L.C.,

Defendant - Appellant

-------------------


CHERYL L. THIERY,


v.

TEXAS TAX SOLUTIONS, L.L.C.,


------------------------

Consolidated with 15-50437

DAVID LEONARD OROSCO,


v.

OVATION LENDING, L.L.C.,



No. 14-51326 THE UNITED STATES COURT OF APPEALS FOR … · No. 14-51326 . IN THE UNITED STATES ......

Documents

Transcript of No. 14-51326 THE UNITED STATES COURT OF APPEALS FOR … · No. 14-51326 . IN THE UNITED STATES ......