Red Shield Administration Inc v. Kreidler, No. 3:2021cv05551 - Document 10 (W.D. Wash. 2021)
Court Description: ORDER granting Plaintiff's 2 Ex Parte Motion for Temporary Restraining Order. This Order shall expire on August 18, 2021, unless it is extended by the Court for good cause or by consent of the parties, or is dissolved upon motion by Defendant. No later than August 11, 2021, Defendant must show cause why this Order should not be converted to a preliminary injunction. Plaintiff may file a response no later than August 13, 2021. Signed by Judge Ricardo S. Martinez.(PM)
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Red Shield Administration Inc v. Kreidler Doc. 10 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 1 of 10 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 10 RED SHIELD ADMINISTRATION, INC., ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER Plaintiff, 11 12 Case No. C21-5551-RSM v. 13 MIKE KREIDLER, 14 Defendant. 15 16 I. INTRODUCTION 17 18 This matter comes before the Court on Plaintiff Red Shield Administration, Inc. (“Red 19 Auto”)’s Motion for Temporary Restraining Order. Dkt. #2. Red Shield seeks to enjoin 20 Defendant Mike Kreidler, the Washington State Insurance Commissioner (“Commissioner”), 21 22 23 from entry of a Consent Order that will become final and public on Thursday, August 5, 2021. Having reviewed Red Auto’s complaint, motion, the declaration and exhibits attached thereto, 24 and the relevant law, the Court GRANTS Red Auto’s motion for an ex parte temporary 25 restraining order. 26 // 27 // 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 1 Dockets.Justia.com Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 2 of 10 II. 1 BACKGROUND 2 Red Auto is an auto service contract provider incorporated under the laws of Kansas 3 with a principal place of business in Phoenix, Arizona. Dkt. #3 at ¶ 3. Red Auto is licensed to 4 sell auto service contracts in all states except for Washington, California, and Florida. Id. at 5 6 7 ¶ 4. Red Auto does not sell service contracts, solicit or advertise its business in Washington, nor does it have a place of business, property or employees in Washington. Id. at ¶¶ 5-6. 8 On March 9, 2019, a resident of Washington (“Purchaser”) purchased a used 9 automobile from an automobile dealership in Portland, Oregon, along with a RED Shield 10 Guard Service Contract (“Red Shield Contract”) from Red Auto. Id. The sale occurred in 11 12 Portland and identified Red Auto as the administrator and obligor of the Red Shield Contract. 13 Id. at 5. On or around June 8, 2020, Red Auto denied a claim for vehicle repair made by the 14 Purchaser under the Red Shield Contract. Id. at ¶ 7. The Purchaser did not appeal or otherwise 15 contest denial of her claim, but instead filed a complaint with the Washington Office of the 16 Insurance Commissioner (“OIC”) alleging that Red Auto issued a service contract to a 17 18 Washington resident without being registered as a service contract provider in the state of 19 Washington. Id. 20 21 The OIC conducted an investigation and sent a letter to Red Auto dated May 7, 2021, with an attached Consent Order No. 21-0267. Id. at 23-24. The Consent Order asserted 22 23 violations of RCW Title 48 based on the fact that Red Auto was not registered as an auto 24 service contract provider in Washington. Id. On June 25, 2021, the OIC issued a revised 25 version of Order No. 21-0267 (“the Consent Order”), id. at 25-29, which again asserted that 26 Red Auto violated several provisions of RCW Title 48 by entering into the Red Shield Contract 27 with a Washington resident without a valid registration as a service contract provider. Id. at 32. 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 2 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 3 of 10 1 Pursuant to RCW 48.15.023(5)(a), the Commissioner assessed a $2,000.00 fine against 2 Red Auto and required that Red Auto consent to the laws of Washington and waive all 3 procedural rights or judicial challenges to the Consent Order. 4 5 6 See Dkt. #3 at 34 (“The Company consents to the entry of this Order, waives any and all hearing or other procedural rights, and further administrative or judicial challenges to this Order.”). The OIC further 7 informed Red Auto that if it refused to agree to the Consent Order, the Commissioner could 8 request a hearing and seek sanctions “in the full amount warranted for your particular 9 situation.” Id.; see also RCW 48.15.023(5)(ii). The Consent Order and RCW 48.15.023 10 provide that the Commissioner may assess a civil penalty of “not more than twenty-five 11 12 thousand dollars for each violation” against Red Auto. Id. 13 Red Auto disputes that it is subject to RCW Title 48 such that the Commissioner may 14 levy fines or take disciplinary action against it. Dkt. #2 at 5. However, Red Auto argues that 15 without injunctive relief from this Court, it will be forced to either consent to the 16 Commissioner’s jurisdiction, thereby facing potential disciplinary action in other jurisdictions, 17 18 or refuse to consent and risk a substantial civil penalty. 19 significant risk of harm as a result of potential disciplinary action in other jurisdictions, 20 including New York and Nevada, where Red Auto is required to report any violations of 21 Red Auto claims that it faces applicable insurance codes to the state insurance authority. For this reason, Red Auto seeks a 22 23 24 temporary restraining order enjoining the Commissioner from issuing the Consent Order, imposing a fine, or otherwise enforcing RCW Title 48 until the jurisdictional issue is resolved. 25 Given that Defendant’s Consent Order will become final on August 5, 2021, Plaintiff 26 requests that this motion be noted for August 4, 2021. Dkt. #2. Red Shield’s motion does not 27 expressly request ex parte relief but provides no evidence of service. Given that its requested 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 3 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 4 of 10 1 time frame for consideration is shorter than the 48-hour deadline for a response set forth under 2 LCR 65(b), the Court construes Red Shield’s motion as a request for ex parte relief pursuant to 3 Fed. R. Civ. P. 65(b). 4 III. DISCUSSION 5 6 A. Legal Standard 7 The standard for issuing a TRO is the same as the standard for issuing a preliminary 8 injunction. See New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 434 U.S. 1345, 1347 n.2 9 (1977). A TRO is “an extraordinary remedy that may only be awarded upon a clear showing 10 that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 11 12 (2008). “The proper legal standard for preliminary injunctive relief requires a party to 13 demonstrate (1) ‘that he is likely to succeed on the merits, (2) that he is likely to suffer 14 irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in his 15 favor, and (4) that an injunction is in the public interest.’” Stormans, Inc. v. Selecky, 586 F.3d 16 1109, 1127 (9th Cir. 2009) (citing Winter, 555 U.S. at 20). 17 18 As an alternative to this test, a preliminary injunction is appropriate if “serious 19 questions going to the merits were raised and the balance of the hardships tips sharply” in the 20 moving party’s favor, thereby allowing preservation of the status quo when complex legal 21 22 23 questions require further inspection or deliberation. All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011). However, the “serious questions” approach supports a 24 court’s entry of a TRO only so long as the moving party also shows that there is a likelihood of 25 irreparable injury and that the injunction is in the public interest. Id. at 1135. The moving party 26 bears the burden of persuasion and must make a clear showing that he is entitled to such relief. 27 Winter, 555 U.S. at 22. 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 4 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 5 of 10 1 With respect to Plaintiff’s request for ex parte relief, “[t]he Court may issue a temporary 2 restraining order without written or oral notice to the adverse party or its attorney only if 3 specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable 4 5 6 injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and the movant’s attorney certifies in writing any efforts made to give notice and 7 the reasons why it should not be required.” Fed. R. Civ. P. 65(b)(1). The Court’s Local Rules 8 otherwise allow for the adverse party or parties to file a Response to a TRO. See LCR 65(b)(5). 9 The adverse party must file a notice “indicating whether it plans to oppose the motion within 10 twenty-four hours after service of the motion,” and “file its response, if any, within forty-eight 11 12 hours after the motion is served.” Id. No reply is permitted from Plaintiff. Id. “Unless the 13 requirements of Fed. R. Civ. P. 65(b) for issuance without notice are satisfied, the moving party 14 must serve all motion papers on the opposing party before or contemporaneously with the filing 15 of the motion and include a certificate of service with the motion.” LCR 65(b)(1). 16 B. Plaintiff’s Motion to Enjoin Entry of August 5th Consent Order 17 18 The Court has reviewed Red Auto’s Motion and finds that it satisfies the standard for 19 temporary injunctive relief, and furthermore has demonstrated that immediate and irreparable 20 injury will result before Defendant can be heard in opposition. 21 i. Likelihood of Success or Serious Questions going to the Merits 22 23 The issue before the Court is whether the Due Process Clause of the Fourteenth 24 Amendment renders the Commissioner’s enforcement of Washington insurance laws against 25 Red Auto unconstitutional. While the complexity of the constitutional question makes it 26 difficult to gauge Red Auto’s likelihood of success on the merits, the Court finds that Red Auto 27 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 5 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 6 of 10 1 has raised serious questions going to the merits such that temporary injunctive relief is 2 appropriate. Cottrell, 632 F.3d at 1134–35. 3 The Due Process Clause provides that “[n]o State shall . . . deprive any person of life, 4 liberty, or property, without due process of law.” U.S. Const., Amend. XIV. In the context of 5 6 taxation, courts have determined that a state’s power to enforce its laws against non-resident 7 corporations is limited to those entities with “certain minimum contacts” such that the tax “does 8 not offend ‘traditional notions of fair play and substantial justice.’” N. Carolina Dep’t of 9 Revenue v. The Kimberley Rice Kaestner 1992 Fam. Tr., 139 S. Ct. 2213, 2220 (2019) (quoting 10 Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Red Auto does not cite specific 11 12 authority for its proposition that case law addressing a state’s power to tax out-of-state entities 13 applies in equal force to its power to enforce insurance laws against out-of-state actors— 14 particularly where a state resident has alleged injury. However, the Court finds sufficient 15 support in the case law to raise a serious question of law on the scope of the Commissioner’s 16 enforcement power over out-of-state businesses. 17 18 The Supreme Court has provided that “[u]ltimately, only those who derive ‘benefits and 19 protection’ from associating with a State should have obligations to the State in question.” Id. 20 at 2220 (quoting Int’l Shoe, 326 U.S. at 319). Here, given that Red Auto has no physical 21 22 23 presence in Washington and does not solicit or advertise its services in the state, minimal contacts under Int’l Shoe are not satisfied such that enforcement of Washington insurance laws 24 against Red Auto would offend “traditional notions of fair play and substantial justice.” The 25 fact that Red Auto is registered with the Washington Secretary of State to conduct business in 26 Washington may not alter this analysis given Washington state law holding that registration 27 does not amount to a corporation’s purposeful availment of the benefits and protections of 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 6 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 7 of 10 1 Washington law. See, e.g., Washington Equip. Mfg. Co. v. Concrete Placing Co., 85 Wn. App. 2 240, 245–48, 931 P.2d 170, 173 (1997). 3 Another question is whether Red Auto’s sale of a service contract in Oregon to 4 purchasers residing in Washington subjects it to the Commissioner’s enforcement authority and 5 6 Washington insurance laws. Red Auto concedes that in the course of the OIC’s investigation, 7 Red Auto identified one other auto services contract—also entered into in Portland, Oregon— 8 where the purchaser listed a home address in Washington.1 Dkt. #3 at ¶ 8. However, Red Auto 9 raises a serious question as to whether these two sales subject it to the Commissioner’s 10 enforcement authority in light of Supreme Court law stating that “[t]he unilateral activity of 11 12 those who claim some relationship with a nonresident defendant cannot satisfy the requirement 13 of contact with the forum State.” 357 U.S. 235, 253 (1958). Nor do “random, fortuitous, or 14 attenuated contacts, or . . . the unilateral activity of a third person” suffice. Burger King Corp. 15 v. Rudzewicz, 471 U.S. 462, 475 (1985) (internal quotations and citation omitted). Red Auto’s 16 contract sales in Oregon to two purchasers with Washington addresses may be reasonably 17 18 construed as “random” or “attenuated.” 19 The Court acknowledges that resolving the constitutional question of whether the 20 Commissioner’s enforcement action against Red Auto violates due process implicates a 21 complex area of law. For that reason, while the Court cannot conclude at this point whether 22 23 Red Auto has demonstrated a likelihood of success on the merits, the Court finds that Red 24 Auto’s arguments and the case law cited in support thereof raise a serious question of law 25 warranting temporary injunctive relief under Cottrell. 26 // 27 1 28 Red Auto does not dispute that the Purchaser who filed a complaint with the OIC is a Washington resident, but states that it lacks sufficient information to determine the residence of this other purchaser, Mr. Clarno, who listed an address in Vancouver, Washington at the time of contracting. ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 7 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 8 of 10 1 ii. 2 The Court also finds that Red Auto will suffer irreparable harm absent injunctive relief 3 before the Commissioner has an opportunity to be heard. Because the Consent Order will 4 Irreparable Harm become final on August 5, 2021, Red Auto is faced with either demanding a hearing before a 5 6 Washington administrative hearings officer, thereby waiving its right to challenge the 7 Commissioner’s jurisdiction, or allow the Consent Order and $2,000 fine to become a final 8 order and public record. In the latter scenario, Red Auto will be obligated to report its violation 9 to insurance regulators in states where it continues to serve as an auto service contract provider, 10 thereby risking disciplinary action from other state insurance authorities. Red Auto specifically 11 12 identifies New York and Nevada as two states where it is required to report any violations and 13 where it may be subject to disciplinary action for out-of-state violations. Dkt. #3 at ¶ 13. 14 Should this Court ultimately conclude that the Consent Order is unconstitutional, without a 15 TRO in place, Red Auto will be required to report the violation until the Court renders a final 16 decision. In addition to reputational damage, reporting may result in disciplinary action by 17 18 those state insurance authorities. Id. 19 Considering these imminent harms, regardless of whether Red Auto chooses to waive 20 its right to challenge jurisdiction or allow the Consent Order to become final, the Court 21 concludes that Red Auto has demonstrated a likelihood of irreparable harm absent injunctive 22 23 24 relief. Furthermore, because the Consent Order will become final on August 5, 2021, this injury will occur before the Commissioner has an opportunity to be heard. 25 iii. 26 The balance of the equities tips heavily in favor of Red Auto. If this Court enters the 27 Balance of the Equities TRO and the Commissioner ultimately prevails on the merits, the Commissioner will still be 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 8 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 9 of 10 1 able proceed with enforcement of the Consent Decree through the administrative process set 2 forth under RCW Title 48. However, if the TRO is denied and Red Auto ultimately prevails on 3 the merits, it faces disciplinary action in other states for the pendency of this action so long as 4 the Consent Order remains in place. The temporary delay in enforcement suffered by the 5 6 7 Commissioner is outweighed by the harm faced by Red Auto. The balance of equities therefore tips strongly in favor of Red Auto. 8 iv. Public Interest 9 While Red Auto argues that there is public interest in guarding against overreach by 10 state agencies against non-resident corporations, the Court acknowledges that there is a 11 12 countervailing public interest in timely enforcement of this state’s insurance laws to prevent 13 future harm and to punish violators. However, the risk of a Washington resident purchasing 14 Red Auto’s auto service contract in another state is mitigated by the fact that Red Auto entered 15 into runoff in 2019, meaning that it is no longer selling auto service contracts in any state. Dkt. 16 #3 at ¶ 12. For that reason, the Court finds that the public interest weighs in favor of Red Auto. 17 18 19 20 21 IV. CONCLUSION For the foregoing reasons, the Court GRANTS Plaintiff Red Auto’s Motion for an ex parte temporary restraining order, Dkt. #2. The Court ORDERS as follows: (1) Defendant is hereby prohibited from (i) entering the Consent Order, or any similar 22 23 order, against Plaintiff, (ii) from levying a fine or taking other disciplinary action against 24 Plaintiff for the alleged violations of RCW Title 48 enumerated in the Consent Order, and (iii) 25 from otherwise enforcing RCW Title 48 against Plaintiff for the alleged violations of RCW 26 Title 48 enumerated in the Consent Order. FURTHERMORE, the statutory deadline for 27 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 9 Case 3:21-cv-05551-RSM Document 10 Filed 08/04/21 Page 10 of 10 1 Plaintiff to demand a hearing before a Washington administrative hearings officer relating to 2 the Consent Order under RCW § 48.04.010(1)(b) is HEREBY STAYED; 3 4 (2) This Order shall expire on August 18, 2021, unless it is extended by the Court for good cause or by consent of the parties, or is dissolved upon motion by Defendant. See Fed. R. 5 6 Civ. P. 65(b). No later than August 11, 2021, Defendant must show cause why this Order 7 should not be converted to a preliminary injunction. Plaintiff may file a response no later than 8 August 13, 2021. 9 (3) Upon request by Defendant, the Court may require Plaintiff to provide reasonable 10 security in the event a preliminary injunction is issued, as required by Fed. R. Civ. P. 65(c); 11 12 (4) Plaintiff shall promptly serve Defendant with a copy of this Order. 13 14 DATED this 4th day of August, 2021. 15 16 17 18 A RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28 ORDER GRANTING PLAINTIFF’S MOTION FOR EX PARTE TEMPORARY RESTRAINING ORDER - 10
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