Nationwide Biweekly Administration, Inc. v. Owen

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

NATIONWIDE BIWEEKLY No. 15-16220
ADMINISTRATION, INC., an Ohio
corporation, D.C. No.
Plaintiff-Appellant, 5:14-cv-05166-
LHK
v.

JAN LYNN OWEN, in her official
capacity as Commissioner of the
Department of Business Oversight
for the State of California,
Defendant-Appellee.
2 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

LOAN PAYMENT ADMINISTRATION No. 15-16253
LLC; DANIEL LIPSKY; NATIONWIDE
BIWEEKLY ADMINISTRATION, INC., D.C. No.
Plaintiffs-Appellants, 5:14-cv-04420-
LHK
v.

JOHN F. HUBANKS, Deputy District OPINION
Attorney, Monterey County District
Attorney’s Office, in his official
capacity; ANDRES H. PEREZ, Deputy
District Attorney, Marin County
District Attorney’s Office, in his
official capacity; MONTEREY
COUNTY DISTRICT ATTORNEY’S
OFFICE, a County agency; MARIN
COUNTY DISTRICT ATTORNEY’S
OFFICE, a County agency,
Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of California
Lucy H. Koh, District Judge, Presiding

Argued and Submitted April 17, 2017
San Francisco, California

Filed October 10, 2017
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 3

Before: Stephen Reinhardt and Marsha S. Berzon, Circuit
Judges, and Ann D. Montgomery,* District Judge.

Opinion by Judge Reinhardt;
Dissent by Judge Montgomery

SUMMARY**

Civil Rights

The panel reversed the district court’s orders dismissing
two related actions pursuant to Younger v. Harris, 401 U.S.
37 (1971), affirmed the district court’s order denying a
preliminary injunction in appeal No. 15-16253, and vacated
the district court’s order denying a preliminary injunction in
appeal No. 15-16220, and remanded.

In appeal No. 15-16253, Plaintiff Nationwide Biweekly
Administration, an administrator of biweekly mortgage loan
repayment programs, sought a preliminary injunction against
Monterey and Marin County district attorneys to preclude
enforcement of California statutes, California Business &
Professions Code § 14701(a) and 14702, which required
Nationwide to disclose in its mail solicitations to
homeowners that it lacked authorization from lenders.
Nationwide alleged that enforcement of the statutes would

*
The Honorable Ann D. Montgomery, United States District Judge
for the District of Minnesota, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

violate its First Amendment rights. In 15-16220, Loan
Payment Administration, a subsidiary of Nationwide, sought
to enjoin the enforcement of Cal. Fin. Code § 12200, et seq.
(the “Prorater Law”), which required that it obtain a prorater
license in order to operate in California. Plaintiffs alleged
that limiting prorater licenses to California corporations
violated the Dormant Commerce Clause.

After the district court denied the preliminary injunctions
in each case and while the appeals from the denials were
pending in this court, defendants filed a joint enforcement
suit in California Superior Court against plaintiffs. The
district court subsequently dismissed both cases under
Younger v. Harris, 401 U.S. 37 (1971), and plaintiffs filed
new notices of appeals from the dismissals in each case.

The panel first held that the district court erred by
abstaining under Younger because the cases had proceeded
beyond the “embryonic stage” in the district court before the
corresponding state cases were filed. The panel stated that
the district court had spent a substantial amount of time
evaluating the merits of the cases in considering and denying
Nationwide’s motions for preliminary injunctions.

Turning to the merits of the preliminary injunction orders,
the panel held that Nationwide was unlikely to succeed on its
claim that the First Amendment precluded California from
requiring it to make certain truthful disclosures in its mail
solicitations. The panel held that the required disclosures are
meant to protect against consumer confusion, and are
therefore permissible under Zauderer v. Office of Disciplinary
Counsel of Supreme Court of Ohio, 471 U.S. 626, 651 (1985).
The panel therefore affirmed the district court’s order
denying a preliminary injunction in appeal No. 15-16253.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 5

The panel held that Nationwide was likely to succeed on
its claim that the Dormant Commerce Clause precludes
California from making in-state incorporation a prerequisite
of licensure to engage in interstate commerce. The panel held
that this form of discrimination between in-state and out-of-
state economic interests was incompatible with a functioning
national economy, and the prospect of each corporation being
required to create a subsidiary in each state was precisely the
sort of “Balkanization” that the Dormant Commerce Clause
exists to prevent. The panel vacated the district court’s order
denying the preliminary injunction in 15-16220 and
remanded both cases for further proceedings.

Dissenting, Judge Montgomery disagreed with the
majority’s conclusion that the first element of Younger
abstention—ongoing state proceedings—was not satisfied in
the two cases. Judge Montgomery stated that at the time the
state case was filed, no proceedings of substance on the
merits had taken place in either of the federal lawsuits, and
that the cases remained in an embryonic stage.
6 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

COUNSEL

Benjamin M. Flowers (argued), Jones Day, Columbus,
Ohio, for Plaintiff-Appellant Nationwide Biweekley
Administration, Inc.

Amanda R. Parker (argued), Jones Day, Cleveland, Ohio;
Bruce E. H. Johnson, Davis Wright Tremaine LLP, Seattle,
Washington; Thomas R. Burke, Nicolas A. Jampol, and
Diana Palacios, Davis Wright Tremaine LLP, San Francisco,
California; for Plaintiffs-Appellants Loan Payment
Administration LLC, Daniel Lipsky, and Nationwide
Biweekly Administration, Inc.

Lucy F. Wang (argued), Assistant Attorney General; Joyce E.
Hee, Supervising Deputy Attorney General; Diane S. Shaw,
Senior Assistant Attorney General; Xavier Becerra, Attorney
General; Office of the Attorney General, San Francisco,
California; for Defendant-Appellee Jan Lynn Owen.

Brian Charles Case (argued), Deputy County Counsel, Office
of County Counsel, County of Marin, San Rafael, California;
William M. Litt, Deputy County Counsel; Charles J. McKee,
County Counsel; Office of County Counsel, County of
Monterey, Salinas, California; for Defendants-Appellees John
F. Hubanks, Andres H. Perez, Monterey County District
Attorney’s Office, and Marin County District Attorney’s
Office.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 7

OPINION

REINHARDT, Circuit Judge:

In these cases, we reaffirm the obligation of the federal
courts to exercise their jurisdiction in the absence of a valid
justification for not doing so. Specifically, we find that the
cases had proceeded beyond the “embryonic stage” in the
District Court before the corresponding state cases were filed,
and therefore abstention under Younger v. Harris, 401 U.S.
37 (1971), was inappropriate.

Turning to the merits of the preliminary injunction
motions in the cases, we conclude that Nationwide is unlikely
to succeed on its claim that the First Amendment precludes
California from requiring it to make certain truthful
disclosures in its mail solicitations. The required disclosures
are meant to protect against consumer confusion, and are
therefore permissible under Zauderer v. Office of Disciplinary
Counsel of Supreme Court of Ohio, 471 U.S. 626, 651 (1985).
The First Amendment does not generally protect corporations
from being required to tell prospective customers the truth.

However, Nationwide is likely to succeed on its claim that
the Dormant Commerce Clause precludes California from
making in-state incorporation a prerequisite of licensure to
engage in interstate commerce. This form of discrimination
between in-state and out-of-state economic interests is
incompatible with a functioning national economy, and the
prospect of each corporation being required to create a
subsidiary in each state is precisely the sort of
8 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

“Balkanization” that the Dormant Commerce Clause exists to
prevent.1

BACKGROUND

I. Nationwide’s Business Model

Nationwide (which is incorporated in Ohio) and Loan
Payment, as its subsidiary, advertise a product they call
“biweekly interest savings” to homeowners with mortgages.
Under this program, Nationwide debits half of a customer’s
monthly mortgage bill from his or her account every two
weeks, and then sends payments to the lender on a monthly
basis. Because months are slightly longer than four weeks,
the effect of this is that the customer pays more on his
mortgage each year than he would under a traditional
monthly payment plan (approximately the equivalent of one
extra monthly payment each year, or an 8% increase in yearly
payments).

The portion of this extra payment that is sent to the lender
goes to paying down the principal on the loan, which means
that the mortgage is paid off faster than it otherwise would be.
As a result, the customer pays less in total interest over the
course of the loan. Nationwide characterizes this reduction in
interest payments as “savings,” and in fact states in one

1
Loan Payment Administration LLC is a wholly owned subsidiary of
Nationwide Biweekly Administration, Inc., and Daniel S. Lipsky is the
sole shareholder of Nationwide. Following the approach of the parties, we
refer to the plaintiffs in both cases collectively as “Nationwide.” Jan Lynn
Owen is sued in her official capacity as the Commissioner of the
California Department of Business Oversight, and we refer to her as “the
Commissioner.” We refer to the defendants in 15-16253 (both individuals
and entities) collectively as “the district attorneys.”
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 9

solicitation letter that it “provide[s] a 100% SAVINGS
GUARANTEE.” However, the effect of Nationwide’s
program is more accurately understood as a reallocation of
money across time: the customer pays more in the present in
order to pay less in the future. In other words, Nationwide’s
calculation of the customer’s “savings” simply compares the
nominal total amount paid under the alternative payment
plans without accounting for the customer’s “discount
rate”—that is, the extent to which having $10 today is more
valuable than having $10 a year from today.

In effect, then, the product that Nationwide sells is a
refinancing transaction that converts a standard 30-year
mortgage into a slightly shorter mortgage. For instance, to use
an example Nationwide cites in its brief, it might convert a
30-year mortgage into a 23.9-year mortgage. As always
happens when the term of a mortgage is reduced, monthly
payments increase and total interest payments decrease—just
as, taking the math to the extreme, a “0-year mortgage” (that
is, paying in cash) involves the highest possible initial
payment but zero interest costs.

In exchange for providing what is effectively a
refinancing service, Nationwide charges its customers various
fees. According to the district attorneys, these include a
“debit fee” of $3.50 (charged once every two weeks) as well
as a “set-up” fee equal to half of the customer’s monthly
mortgage payment.2 Thus, despite Nationwide’s claims in its
solicitation letters that “[t]he savings gained from the
biweekly program goes entirely to you the customer and not

2
The district attorneys allege that the set-up fee is significantly higher
than is allowed under Cal. Fin. Code § 12314(a). That allegation is not
before us in this case.
10 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

to the lender,” and that “[p]artnering with you the customer,
and not your lender, ensures that you receive 100% of the
savings benefit,” in fact a portion of each payment (and thus
a portion of the “savings benefit”) goes to paying
Nationwide’s debit fee and the entirety of the first extra
biweekly payment (half of the “savings benefit” for the first
year) goes to paying Nationwide’s “set-up fee.”

Nationwide’s solicitation letters do not disclose the fee
structure, and in fact only mention fees in a fine-print
disclaimer that “savings is net of all fees.” Even the longer
version of Nationwide’s solicitation letter, which includes an
entire page of “commonly asked questions and answers,”
does not include any further details about the fees and in fact
claims that the “two extra biweekly debits every year” are
“directed 100% towards the principal of the loan” without
mentioning that the first such extra debit is in fact kept by
Nationwide as its “set-up fee.”

II. The Investigation

On July 30, 2013, Nationwide received a letter from the
Monterey County District Attorney’s Office. According to the
letter, the District Attorney’s Offices for Marin and Monterey
Counties were “in receipt of numerous complaints about the
marketing and business practices of Nationwide Bi-Weekly
Administration, Inc.”3 The letter then stated that the

3
According to a sworn declaration from Lipsky, relied on in
Nationwide’s briefing in connection with the bad-faith exception to
Younger abstention both in the district court and before us, the only
complaint received directly by either district attorney’s office was made
by the spouse of a deputy district attorney in the Monterey County District
Attorney’s Office. Despite Nationwide raising the issue repeatedly, the
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 11

“complaints indicate a pattern of deceptive business practices
having an adverse impact on California consumers.” The
letter went on to allege or suggest that Nationwide was
violating several California laws, including (as relevant to
this appeal), California Business and Professions Code
§§ 14701(a) and 14702, and California Finance Code
§ 12200.

The first provision prohibits:

includ[ing] the name, trade name, logo, or
tagline of a lender in a written solicitation for
financial services directed to a consumer who
has obtained a loan from the lender without
the consent of the lender, unless the
solicitation clearly and conspicuously states
that the person is not sponsored by or
affiliated with the lender and that the

district attorneys have never responded to or disputed the claim. We
therefore assume for purposes of this opinion that it is true.

Monterey County Deputy District Attorney John F. Hubanks’s
decision to characterize the spouse of an attorney in his office as simply
“a Monterey County homeowner” in a sworn declaration submitted to the
district court, while failing to disclose the close connection between that
homeowner and his office, is certainly troubling. Although Hubanks’s
declaration is, strictly speaking, true, it omits facts material to the district
attorneys’ arguments in the district court that the “numerous complaints
filed against Nationwide Biweekly” were “evidence that the solicitations
and marketing of Nationwide Biweekly is misleading to consumers.” As
the district attorneys note, they are “officers of the court.” In light of that
position, we expect them to be candid and forthcoming with material facts,
particularly because they are prosecutors whose jobs are to “protect[] the
public.” However, the bad faith issue does not ultimately affect our
resolution of this case.
12 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

solicitation is not authorized by the lender,
which shall be identified by name. This
statement shall be made in close proximity to,
and in the same or larger font size as, the first
and the most prominent use or uses of the
name, trade name, logo, or tagline in the
solicitation, including on an envelope or
through an envelope window containing the
solicitation.

Cal. Bus. & Prof. Code § 14701(a).

The second provision prohibits

includ[ing] a consumer’s loan number or loan
amount, whether or not publicly available, in
a solicitation for services or products without
the consent of the consumer, unless the
solicitation clearly and conspicuously states,
when applicable, that the person is not
sponsored by or affiliated with the lender and
that the solicitation is not authorized by the
lender, and states that the consumer’s loan
information was not provided to that person
by that lender. This statement shall be made in
close proximity to, and in the same or larger
font as, the first and the most prominent use
or uses of the consumer’s loan information in
the solicitation, including on an envelope or
through an envelope window containing the
solicitation.

Id. § 14702. With regard to both these provisions, the district
attorneys accused Nationwide of including lenders’ names
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 13

and the consumers’ loan numbers and loan amounts in its
solicitations without the required disclosures.

The third provision prohibits (in relevant part) “acting as
a prorater . . . without first obtaining a license from the
commissioner.” Cal. Fin. Code § 12200. A “prorater” is
defined as “a person who, for compensation, engages in
whole or in part in the business of receiving money or
evidences thereof for the purpose of distributing the money
or evidences thereof among creditors in payment or partial
payment of the obligations of the debtor.” Id. § 12002.1. The
district attorneys’ letter indicated that “Nationwide may be in
violation” of the prohibition by acting as a prorater without a
license. However, a license to engage in this activity is
available to a corporation only if the corporation is
“organized under the laws of this State for that purpose.” Id.
§ 12200.1. Thus, the statute requires that corporations seeking
a California prorater license be both (1) incorporated in
California and (2) organized for the purpose of offering
prorating services.

Over the ensuing months, Nationwide provided
documents to the district attorneys and met with them twice.
The negotiations broke down, and on October 1, 2014, the
Monterey County District Attorney emailed Nationwide’s
attorneys that “Nationwide and Mr. Lipsky have had ample
opportunity to meet and communicate with us about their
defenses and explanations,” and that accordingly the district
attorneys were “done with the games.” The district attorneys
then asked Nationwide’s attorneys if they were “still
authorized to accept service of process on behalf of Mr.
Lipsky and Nationwide.”
14 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

Three weeks later, on October 21, 2014, the
Commissioner (who had been notified of Nationwide’s
activities by the district attorneys) sent a letter to
Nationwide’s counsel “notify[ing] Nationwide that an
investigation is currently underway by the Department’s
Enforcement Division regarding possible unlicensed business
activity by Nationwide in California.”

III. The Federal Proceedings

On October 2, 2014—the day after receiving the email
from the district attorneys regarding service of process—
Nationwide filed suit in the Northern District of California
seeking declaratory and injunctive relief to prevent the
district attorneys from enforcing California Business &
Professions Code §§ 14701(a) and 14702 against Nationwide.
According to the complaint, enforcement of the statutes
would violate Nationwide’s First Amendment rights and, in
the alternative, Nationwide qualified for a state-law
exemption from the statutes.4

On November 21, 2014—one month after receiving the
Commissioner’s letter—Nationwide filed another federal
complaint, also in the Northern District of California, seeking
injunctive and declaratory relief to prevent the Commissioner
from enforcing California Financial Code § 12200 against
Nationwide. The complaint alleged that limiting prorater

4
The complaint also alleged a cause of action under the California
Constitution. Nationwide did not raise its state constitutional claim on
appeal.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 15

licenses to California corporations violates the Dormant
Commerce Clause.5

In both cases (which were assigned to the same district
judge), Nationwide filed motions for preliminary injunctions
on the day the complaints were filed. The details of the
procedural history of each case then diverged slightly, though
each case involved the same general steps: the filing of
various motions to dismiss; the briefing of the motions for
preliminary injunctions and non-Younger-related motions to
dismiss; the denial of the preliminary injunctions; the appeal
of those denials; and then dismissal under Younger after the
state case was filed.6

A. The First Amendment Case

On October 22, 2014—three weeks after the complaint in
the First Amendment case was filed—the district attorneys
filed a motion to dismiss based on a deficiency in service of
process. The parties reached an agreement regarding service
(in exchange for a stipulated extension of time), and the
motion was denied as moot.

Then, on December 30, 2014, the district attorneys filed
(1) their opposition to the motion for a preliminary
injunction, (2) an anti-SLAPP motion to dismiss the case, and

5
The complaint also alleged causes of action under the Fourteenth
Amendment based on substantive due process, vagueness, and equal
protection. Nationwide did not rely on any of these claims in its motion for
a preliminary injunction; they are therefore irrelevant to this appeal.
6
We refer to the first case filed by Nationwide (that is now before us
as 15-16253) as the “First Amendment case” and the second case (that is
now before us as 15-16220) as the “Dormant Commerce Clause case.”
16 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

(3) a motion to dismiss for (a) failure to join a necessary party
(the State of California), (b) joinder of improper parties,
(c) prudential ripeness, (d) Pullman abstention, and (e) failure
to state a claim. Together with these motions the district
attorneys submitted declarations, documentary evidence, and
a request for judicial notice. In late January and early
February Nationwide responded to the district attorneys’
motions and replied to their opposition to the motion for a
preliminary injunction, including submitting further
declarations and evidence. The district attorneys filed replies
in support of their motions to dismiss in February as well. In
early March, the parties filed a joint case management
statement.

On March 17, 2015, the district court denied
Nationwide’s motion for a preliminary injunction. The
district court’s written order addressed each of the factors
under Winter v. Natural Resources Defense Council, Inc.,
555 U.S. 7, 20 (2008): (1) likelihood of success on the merits,
(2) likelihood of irreparable harm, (3) the balance of the
equities, and (4) the public interest.

The district court started by considering the merits of
Nationwide’s claims. First, the district court determined that
Zauderer applies because the California statute “require[s] a
party to disclose additional factual information” and “has the
goal of dissipat[ing] the possibility of consumer confusion or
deception,” and because the required disclosures related to
Nationwide’s own business, not its competitors. Thus, the
district court held, the statute would survive as long as it was
“reasonably related to the State’s interest in preventing
deception of consumers.” Zauderer, 471 U.S. at 651.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 17

Second, the district court concluded that the California
statute is likely to survive Zauderer review because (a) the
statute was “passed with the goal of prevent[ing] the
deceptive use of lenders’ trade names in consumer
solicitations” and “bears a reasonable relationship to” that
goal, and (b) the statute is not “unduly burdensome.” The
district court also considered and rejected Nationwide’s
argument that the statute prohibits the publication of publicly-
available information, finding instead that it merely requires
additional disclosures.

Third, the district court considered and rejected, after a
detailed discussion, Nationwide’s arguments that it qualified
for an exemption from the statute under state law.

Having concluded that Nationwide was unlikely to
succeed on the merits of any of its claims, the district court
quickly disposed of Nationwide’s arguments regarding
irreparable harm, balance of the equities, and the public
interest, all of which depended on the premise that the statute
infringed on Nationwide’s constitutional rights.

Nationwide filed a Notice of Appeal from the denial of
the preliminary injunction the very next day, and filed its
initial appellate brief the next month.

B. The Dormant Commerce Clause Case

On January 9, 2015, the Commissioner responded to
Nationwide’s motion for a preliminary injunction in the
Dormant Commerce Clause case, filed evidentiary objections,
and moved to dismiss the case based on (a) standing,
(b) ripeness, and (c) failure to state a claim. These filings
were accompanied by a request for judicial notice. In
18 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

February and early March, the parties filed further responses
and replies. On March 5, 2015, the parties filed a joint case
management statement.

On March 18, 2015—the day after its order denying the
preliminary injunction in the First Amendment case—the
district court issued a detailed order denying the preliminary
injunction in the Dormant Commerce Clause case as well. In
this order, the district court again addressed each of the
Winter factors.

The district court again started by considering the merits
of Nationwide’s Dormant Commerce Clause claim. First, the
district court concluded that the California statute does not
facially discriminate against interstate commerce because “an
out-of-state corporation could comply with Financial Code
§ 12200.1 by incorporating an in-state subsidiary to apply for
a prorater license” and “any company, regardless of where
that company is based, that wishes to apply for a prorater
license must first organize a corporation or subsidiary that has
the purpose of being a prorater under the laws of California.”

Second, the district court concluded that the statute did
not have the practical effect of discriminating against
interstate commerce because “Nationwide has not adduced
‘substantial evidence’—or any evidence—that Financial
Code § 12200.1” has a distorting effect on the share of the
market controlled by in-state versus out-of-state corporations.

Having found that Nationwide was unlikely to succeed on
the merits of its Dormant Commerce Clause claim, the
district court again quickly disposed of the irreparable harm,
balance of the equities, and public interest factors on that
basis.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 19

Nationwide filed a Notice of Appeal two days after the
district court’s order, and filed its initial appellate brief the
following month.

IV. The State Case and the Younger Dismissals

About a month after the opening appellate briefs were
filed, on May 15, 2015 (approximately seven months after
Nationwide filed the First Amendment case against the
district attorneys and almost six months after Nationwide
filed the Dormant Commerce Clause case against the
Commissioner), the district attorneys and the Commissioner
filed a joint enforcement suit in California Superior Court
against Nationwide.7

That same day, the district attorneys moved to dismiss the
First Amendment case on Younger grounds. The district court
then requested additional briefing regarding whether the
Dormant Commerce Clause case should also be dismissed
under Younger. On June 17, 2015, the district court dismissed
both cases under Younger.8 The district court reasoned that
both cases were still in their “infancy” because the district
court “ha[d] not granted injunctive relief, conducted

7
The joint enforcement suit was brought in the name of the People of
the State of California. In addition to the Commissioner and the district
attorneys, the Alameda County District Attorney (who is not named in
either of the federal cases) is listed as counsel for the State.
8
At the same time, in the First Amendment case, the district court
denied as moot the district attorneys’ anti-SLAPP motion and their initial
motion to dismiss on other grounds. In the Dormant Commerce Clause
case, the district court treated the Younger argument as part of the initial
motion to dismiss and did not address the other grounds for dismissal
raised by the Commissioner.
20 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

evidentiary hearings, held case management conferences, or
even set a case schedule.” The district court also rejected
Nationwide’s arguments that an exception to Younger should
apply based on the district attorneys’ and Commissioner’s
alleged bad faith.

Nationwide filed new Notices of Appeal from the
dismissals in each case. In light of the dismissals and the
merger of all issues into the appeals from the final judgments,
this court dismissed the preliminary injunction appeals, in one
instance as “merged” and in the other as moot.

STANDARD OF REVIEW

We review a district court’s decision to abstain under
Younger de novo and do not defer to the view of the district
judge. Gilbertson v. Albright, 381 F.3d 965, 982 n.19 (9th
Cir. 2004) (en banc). “We review [a] district court’s denial of
a preliminary injunction for abuse of discretion.” Planned
Parenthood Ariz., Inc. v. Humble, 753 F.3d 905, 911 (9th Cir.
2014). “Reliance on an erroneous legal standard is an abuse
of discretion.” Id. (quotation marks omitted).

DISCUSSION

I. Younger Abstention

Federal courts have a “virtually unflagging obligation” to
exercise the jurisdiction vested in them by Congress. Colo.
River Water Conservation Dist. v. United States, 424 U.S.
800, 817 (1976). However, interests of comity and federalism
instruct us to abstain from exercising our jurisdiction in
certain circumstances when we are asked to enjoin ongoing
state enforcement proceedings. See Younger, 401 U.S. at
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 21

43–45. Younger “abstention remains an extraordinary and
narrow exception to the general rule that federal courts ‘have
no more right to decline the exercise of jurisdiction which is
given, than to usurp that which is not given.’” Potrero Hills
Landfill, Inc. v. Cty. of Solano, 657 F.3d 876, 882 (9th Cir.
2011) (quoting New Orleans Pub. Serv., Inc. v. Council of
City of New Orleans, 491 U.S. 350, 358 (1989)).

Specifically, we must abstain in deference to state civil
enforcement proceedings that: “(1) are ongoing, (2) are quasi-
criminal enforcement actions or involve a state’s interest in
enforcing the orders and judgments of its courts, (3) implicate
an important state interest, and (4) allow litigants to raise
federal challenges.” ReadyLink Healthcare, Inc. v. State
Comp. Ins. Fund, 754 F.3d 754, 759 (9th Cir. 2014). In this
case, Nationwide concedes that the second, third, and fourth
Younger requirements are satisfied and disputes only whether
state proceedings were “ongoing” within the meaning of
Younger. Nationwide is correct that the state proceedings
were not “ongoing” at the relevant time, and that the district
court therefore erred in dismissing both cases under Younger.9

State proceedings are “ongoing” if they are initiated
“before any proceedings of substance on the merits have
taken place in the federal court.” Hicks v. Miranda, 422 U.S.
332, 349 (1975). Put another way, “[t]he commencement of
state proceedings only ceases to require federal abstention
after the federal court proceedings have moved beyond an
‘embryonic stage.’” Hoye v. City of Oakland, 653 F.3d 835,
844 (9th Cir. 2011) (quoting Doran v. Salem Inn, Inc.,

9
Nationwide also argues that certain exceptions to Younger
abstention should apply. Because we conclude that the “ongoing” prong
is not met, we do not reach the possible exceptions.
22 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

422 U.S. 922, 929 (1975)). If, however, proceedings of
substance on the merits have occurred in federal court,
abstention is inappropriate because “[w]here a federal
plaintiff seeks relief not from past state actions but merely
from prospective enforcement of state law, federal court
adjudication would not interfere with the state’s basic
executive functions in a way Younger disapproves.” Potrero
Hills Landfill, 657 F.3d at 885. In such cases, “considerations
of economy, equity, and federalism counsel against Younger
abstention.” Haw. Hous. Auth. v. Midkiff, 467 U.S. 229, 238
(1984).

The Supreme Court’s cases, as well as our own, have
created some bright-line rules regarding what proceedings are
“substantial” and “on the merits” for Younger purposes. For
instance, denial of a temporary restraining order is not a
proceeding of substance on the merits. See Hicks, 422 U.S. at
337, 349;10 Fresh Int’l Corp. v. Agric. Labor Relations Bd.,
805 F.2d 1353, 1358 n.5 (9th Cir. 1986). On the other hand,
the grant of a preliminary injunction is always a proceeding
of substance on the merits. See Midkiff, 467 U.S. at 238.

When such a bright-line rule does not apply, we must
conduct a fact-specific assessment of the circumstances in
individual cases. In particular, when the proceedings involve
something more than a cursory denial of a temporary
restraining order, but less than a grant of a preliminary
injunction, we have considered in detail the history of the
specific case. For instance, we have held that an “extended
evidentiary hearing on the question of a preliminary

10
Contrary to the dissent’s contention, there is a substantial functional
distinction between the denial of a temporary restraining order and the
denial of a preliminary injunction.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 23

injunction constituted a substantive proceeding on the
merits,” even though the preliminary injunction was not
ultimately granted. Adultworld Bookstore v. City of Fresno,
758 F.2d 1348, 1350–51 (9th Cir. 1985).

The relevant inquiry, in examining the history of the case,
is the extent of the district court’s involvement in the merits.
Among the factors that we have considered in this fact-
specific inquiry are the time that the district court has spent
considering the case, any motions ruled on, any discovery, the
number of conferences held, and any change in the parties’
positions as a result of the federal litigation. For example, in
Hoye, we held that proceedings of substance on the merits
had occurred when the federal case “had begun nearly six
months before the commencement of criminal proceedings in
state court,” the district court “had denied Hoye’s motion for
a temporary restraining order, it had held four status
conferences and hearings in [the] case,” and the district
court’s skepticism regarding the constitutionality of the
defendant city’s statute “had resulted in a significant change
in the relative positions of the parties.” Hoye, 653 F.3d at
844. In Fresh International, we held that no proceedings of
substance on the merits had occurred because “[n]o discovery
took place, no hearings were held, and no motions were
filed.” Fresh Int’l, 805 F.2d at 1358 n.5.

In the two cases before us, Younger abstention is
inappropriate because, before the date that the state case was
filed, the district court had already conducted proceedings of
substance on the merits. First, and most important, the district
court spent a substantial amount of time evaluating the merits
of the cases in considering and denying (in a detailed and
reasoned order) Nationwide’s motions for preliminary
injunctions. Rather than denying the motions on a non-merits
24 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

ground—such as ripeness, standing, or one of the non-merits
Winter factors—the district court devoted a substantial part of
its reasoning to the likelihood of Nationwide’s success on the
merits. The district court issued a twenty-nine page order
denying the preliminary injunction in the First Amendment
case (thirteen pages of which were devoted to the legal
discussion of the merits) and a twenty-page order in the
Dormant Commerce Clause case (eight pages of which were
devoted to the legal discussion of the merits). In addition, the
district court considered the allegations and evidence
submitted in each case and discussed the facts relevant to the
merits of the claims.

To rule on the motions for preliminary injunctions, the
district court “considered the submissions of the parties and
the relevant law.” Those submissions included more than
100 pages of briefing and more than 250 pages of
declarations, affidavits, and exhibits in support of the
motions. In its orders, the district court cited nineteen cases
related to the merits of the First Amendment case and twenty-
two cases related to the merits of the Dormant Commerce
Clause case. This significant expenditure of effort by the
federal court counsels against abstaining in deference to
subsequently-initiated state cases.

In addition to the motions for preliminary injunctions, the
record also demonstrates that the district court had spent time
considering the Commissioner’s non-Younger-related motion
to dismiss in the Dormant Commerce Clause case. The
motion to dismiss raised issues relating to the merits: namely
whether Nationwide had raised cognizable claims under the
Commerce Clause, substantive due process, equal protection,
or the doctrine of vagueness. Although the district court had
not yet ruled on the motion, it had informed the parties that it
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 25

was prepared to issue an order on the motion without a
hearing. This indicates that the district court had already
considered the approximately 61 pages of briefing on that
motion. This additional involvement by the district court in
the merits of the Dormant Commerce Clause case further
weighs against Younger abstention.11

The amount of time the federal cases had been pending
prior to the state case being filed (approximately seven
months in the First Amendment case and six months in the
Dormant Commerce Clause case) also weighs against
Younger abstention. Although a case may remain in the
“embryonic stage” for a long time in certain circumstances,
see Forty One News, Inc. v. Cty. of Lake, 491 F.3d 662, 666
(7th Cir. 2007), we still consider the length of time (together
with the rest of the facts) in determining whether Younger
abstention is appropriate, see Hoye, 653 F.3d at 844 (holding
that abstention was inappropriate in part because six months
elapsed between filing of the federal case and filing of the
state case).

We also note, although it does not affect our decision, that
appeals to our court had already been filed in these cases, and
briefing had already begun, before the state cases were filed.
The fact that denials of preliminary injunctions, unlike
denials of temporary restraining orders, are appealable
indicates that Congress and the federal courts treat denials of
preliminary injunctions as significant decisions. See

11
The Commissioner argues that pleadings filed by the parties are
irrelevant, because what matters is the district court’s involvement in the
case. However, the district court’s review of pleadings is a form of
involvement by the court in the merits, even when the district court has
not yet issued an order resolving the motions.
26 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

28 U.S.C. § 1292; Bennett v. Medtronic, Inc., 285 F.3d 801,
804 (9th Cir. 2002); Washington v. Trump, 847 F.3d 1151,
1158 (9th Cir. 2017). It would be at least odd to label a case
“embryonic” when it has already progressed to a second level
of the federal judiciary.

Considering all of these factors, and particularly the
district court’s detailed engagement with the merits of the
cases during its consideration of the motions for preliminary
injunctions, we conclude that proceedings of substance on the
merits had occurred in each federal case prior to the state case
being filed. Therefore, the district court’s decisions to abstain
under Younger were erroneous.

II. Denials of the Preliminary Injunctions

We now address the district court’s denials of the motions
for preliminary injunctions. In order to obtain a preliminary
injunction, a party must establish (1) “that [it] is likely to
succeed on the merits,” (2) “that [it] is likely to suffer
irreparable harm in the absence of preliminary relief,”
(3) “that the balance of equities tips in [its] favor,” and
(4) “that an injunction is in the public interest.” Winter,
555 U.S. at 20.

As an initial matter, we conclude that the denials are
properly before us in these appeals. We then conclude that the
district court properly denied the preliminary injunction in the
First Amendment case on the primary ground that Nationwide
is unlikely to succeed on the merits of its First Amendment
claim. However, the district court erred in denying the
preliminary injunction in the Dormant Commerce Clause case
because it rested its decision on an erroneous interpretation of
the relevant law.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 27

A. Merger of the Appeals

When a case is dismissed while an appeal of an order on
a preliminary injunction is pending, the preliminary
injunction order “merges” into the final judgment. See SEC
v. Mount Vernon Memorial Park, 664 F.2d 1358, 1361–62
(9th Cir. 1982). We originally applied the merger doctrine
when the final judgment was on the merits and in favor of the
same party that prevailed on the preliminary injunction
motion, because “[t]o attempt to review the district court’s
advance assessment of probabilities of plaintiff’s success
when the district court has now found in favor of plaintiffs on
the merits seems a futile exercise.” Id. at 1361 (quoting
United States v. City of Chicago, 534 F.2d 708, 712 (7th Cir.
1976)). However, we have since applied it in situations
analogous to the one before us, when the district court denied
a preliminary injunction and also dismissed the case on a non-
merits ground. See Evans v. Shoshone-Bannock Land Use
Policy Comm’n, 736 F.3d 1298, 1301 & n.4 (9th Cir. 2013)
(holding that the denial of the preliminary injunction merged
into the final judgment when the district court granted a
motion to dismiss based on a failure to exhaust tribal
remedies).

Applying the merger doctrine in this circumstance makes
sense. If the cases had been properly dismissed on Younger
grounds, there would be no need to reach the merits of the
preliminary injunctions. In that case, any decisions on the
preliminary injunction appeals would have been merely
advisory. Those appeals were therefore properly dismissed at
the time they were considered. However, now that we have
decided that Younger abstention was inappropriate, we must
decide whether the preliminary injunctions were properly
denied or else the district court’s decisions would be insulated
28 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

from any appellate review. Remand to the district court would
serve no purpose as the district court would simply re-issue
the decisions it had already reached. The merger doctrine
established by our precedent effectively avoids this
redundancy. We therefore turn to the merits of the denials of
the preliminary injunctions.12

B. The First Amendment Case

In the First Amendment case, Nationwide sought a
preliminary injunction against the district attorneys to
preclude enforcement of the statutes requiring it to disclose
its lack of authorization from lenders. Nationwide based its
motion on the First Amendment and exemptions in the
statute. We agree with the district court that a preliminary
injunction was not warranted under either of those claims.

1. The First Amendment

“The First Amendment, as applied to the States through
the Fourteenth Amendment, protects commercial speech from
unwarranted governmental regulation.” Cent. Hudson Gas &
Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561
(1980). However, as the Supreme Court has repeatedly
affirmed, “[t]he Constitution . . . accords a lesser protection
to commercial speech than to other constitutionally
guaranteed expression.” Id. at 562–63. As a result, the Court

12
The district attorneys argue that the appeal of the denial of the
preliminary injunction is moot because Nationwide has “changed the form
of preliminary relief that [it is] seeking.” However, Nationwide sought
below to enjoin the defendants “from enforcing, attempting to enforce, or
threatening to enforce” the statutes. Nationwide’s requested relief below
clearly encompasses an injunction against continuing enforcement, not
just against initiating enforcement.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 29

has held that states can restrict commercial speech if (1) the
state has “a substantial interest to be achieved by restrictions
on commercial speech,” (2) “the regulatory technique [is] in
proportion to that interest,” and (3) the “limitation on
expression” is “designed carefully to achieve the State’s
goal.” Id. at 564.

Compelled disclosures to counteract potentially
misleading commercial speech are subjected to even less
scrutiny. “[T]he government may compel truthful disclosure
in commercial speech as long as the compelled disclosure is
‘reasonably related’ to a substantial governmental interest.”
CTIA—The Wireless Ass’n v. City of Berkeley, 854 F.3d
1105, 1115 (9th Cir. 2017); see also Zauderer, 471 U.S. at
651. One such governmental interest—the one that applies in
this case—is “preventing deception of consumers.” Milavetz,
Gallop & Milavetz v. United States, 559 U.S. 229, 250 (2010)
(quotation marks omitted). Mandatory disclosures must
also be “purely factual and uncontroversial” and not
“unduly burdensome.” Zauderer, 471 U.S. at 651.
“‘[U]ncontroversial’ in this context refers to the factual
accuracy of the compelled disclosure, not to its subjective
impact on the audience.” CTIA, 854 F.3d at 1117. Thus, a
disclosure may be “purely factual and uncontroversial”
although it disturbs the party being compelled to make the
disclosure or disturbs its customers, including if it
“discourag[es] [the latter] from” purchasing the product or
service at issue or “harm[s] the reputation” of the entity that
previously benefitted from the misleading advertising. Id. at
1118.

Nationwide argues that the Supreme Court’s recent
decision in Reed v.Town of Gilbert, 135 S. Ct. 2218 (2015),
undermines both Central Hudson intermediate scrutiny and
30 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

Zauderer rational basis review, and that all content-based
restrictions (or compelled disclosures) of commercial speech
are now subject to strict scrutiny.13 Nationwide is incorrect.
Cf. Retail Dig. Network, LLC v. Prieto, No. 13-56069, 861
F.3d 839, 846 (9th Cir. 2017) (en banc) (“[T]he Supreme
Court repeatedly has declined to . . . fundamentally alter
Central Hudson’s intermediate scrutiny standard.”).

Reed involved challenges to three categories of
exemptions from a municipal sign code: ideological signs,
political signs, and signs directing people to any “assembly,
gathering, activity, or meeting sponsored, arranged, or
promoted by a religious, charitable, community service,
educational, or other similar non-profit organization.” Id. at
2224–25. Reed did not relate to commercial speech, or
mandatory disclosures as a part of commercial speech, and
therefore did not have occasion to consider those doctrines.
Further, Justice Breyer’s concurrence assumed that the
Court’s “subcategories and exceptions” to the strict scrutiny
rule, including commercial speech doctrine, would survive
Reed, and the majority said nothing to dispute that point. Id.
at 2235 (Breyer, J., concurring in the judgment). Confucius
once said, “[t]he hardest thing of all is to find a black cat in
a dark room, especially if there is no cat.” Although
Nationwide struggles mightily to find a new First

13
In its supplementary briefing, Nationwide appears to abandon the
argument that Reed requires us to subject the statute to strict scrutiny.
However, because Nationwide does not do so explicitly, we still consider
the argument out of an abundance of caution.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 31

Amendment principle between the lines of Reed, there is
simply nothing there to find.14

We must therefore determine whether to scrutinize the
California disclosure statutes under Central Hudson or
Zauderer. Nationwide offers two arguments for why
Zauderer does not apply: (1) the required “disclosures” are,
in essence, free advertising for Nationwide’s competitors’
products; and (2) the required disclosures are deceptive and
misleading and hence not “purely factual and
uncontroversial.” We reject both of these arguments.

First, Nationwide argues that we should not apply
Zauderer because the required disclosures are about the
lenders’ products and thus “are highly likely to further
convey protectionist, rather than consumer information,
goals.” Safelite Group, Inc. v. Jepsen, 764 F.3d 258, 264 (2d
Cir. 2014). Safelite is not relevant to this case. The law at
issue in Safelite required insurance representatives to identify
a non-affiliated repair shop whenever they provided
customers with the name of a repair shop owned by the
insurance company. Id. at 260. The law, in other words,

14
The one district court case that Nationwide identified as applying
Reed to commercial speech nevertheless proceeded to analyze the relevant
restriction under Central Hudson’s intermediate scrutiny test rather than
applying strict scrutiny. See Centro de la Comunidad Hispana de Locust
Valley v. Town of Oyster Bay, 128 F. Supp. 3d 597, 613–15 (E.D.N.Y.
2015). On appeal, the Second Circuit took the same approach. See Centro
de la Comunidad Hispana de Locust Valley v. Town of Oyster Bay,
868 F.3d 104, 112 (2d Cir. 2017). The Second Circuit’s decision to apply
Central Hudson does not conflict with our decision to apply Zauderer
because the Second Circuit’s case involved a restriction of commercial
speech, id. at 112–13, while the present case involves a compelled
disclosure rather than a restriction.
32 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

required certain businesses to provide free advertising for
their competitors. In contrast, the disclosures at issue in this
case cannot be construed as advertising the lenders’ services.
All that they say is that the lenders have not authorized
Nationwide’s solicitation, which conveys no information
about services the lender may or may not offer.15 The district
court therefore correctly concluded that the statutes “do not
require Nationwide to disclose any information about a
competitor.”

Second, Nationwide argues that the required disclosures
are not purely factual and uncontroversial and that they are
instead misleading. According to Nationwide, requiring it to
“state multiple times on its Offer Letters and envelopes that
its services were not ‘authorized by the lender’ . . . suggests
that lenders have some authority to permit or not permit the
Offer Letters or Nationwide’s competing services, which they
do not.” Nationwide’s argument mischaracterizes the statutes,
which require it to disclose that its solicitations are not
authorized by the lender, not that its services are not
authorized. See Cal. Bus. & Prof. Code §§ 14701(a), 14702.
Moreover, the required disclosures do not bear the
interpretation Nationwide attempts to place on them. Saying
that a solicitation is not authorized by a particular person does
not imply that the solicitation is therefore unlawful or
improper. The mere fact that a corporation can conjure up a
possibly negative connotation of a word in a disclosure does
not make the disclosure nonfactual. See CTIA, 854 F.3d at

15
In fact, the California statutes do not require Nationwide to say
anything about the lender. On the contrary, Nationwide’s obligation to
disclose the lack of authorization for its solicitations is only triggered by
Nationwide’s choice to mention the lender’s name or details about the
loan. See Cal. Bus. & Prof. Code §§ 14701(a), 14702.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 33

1120 (rejecting argument that disclosure was nonfactual
because “the phrase ‘RF radiation’ is ‘fraught with negative
associations’”).16

In fact, despite complaining about the term “authorized,”
Nationwide admits in its brief that it already uses almost
identical language: “At the bottom of every version of the
Offer Letters, Nationwide states that it is ‘not affiliated,
connected, or associated with, sponsored, or approved by the
lender listed above,’ or equivalent language.” Nationwide
cannot credibly hold out this disclaimer as evidence that it is
already providing potential customers with accurate
information while also claiming that the required disclosures
are misleading. We cannot discern any meaningful difference
between not being “approved” by a lender and not being
“authorized” by one that would make the former accurate and
the latter misleading.17

16
We recently held that a required disclosure regarding the alleged
health risks of sugary soda was “controversial” under Zauderer because
it “convey[ed] the message that sugar-sweetened beverages contribute to
[certain] health conditions regardless of the quantity consumed or other
lifestyle choices,” which was “contrary to statements by the FDA.” Am.
Beverage Ass’n v. City and County of San Francisco, No. 16-16072, __
F.3d __, 2017 WL 4126944, *7 (9th Cir. Sept. 19, 2017). In contrast, as
we explain, the required disclosures here are not contrary to any
established facts or applicable governmental policies and thus do not
convey any controversial or inaccurate message.
17
Nationwide argues that “authorized” implies a grant of formal
authority while “approved” merely means informal affirmation, relying on
two district court opinions. See Fox Broad. Co. v. Dish Network LLC,
160 F. Supp. 3d 1139, 1179 (C.D. Cal. 2015); McCollester v. Keene,
514 F. Supp. 1046, 1049 (D.N.H. 1981), rev’d on other grounds, 668 F.2d
617 (1st Cir. 1982). Nationwide’s attempt to parse the words so finely
based on two non-binding opinions is not convincing, particularly because
we are concerned here with how the words would be interpreted by
34 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

Nationwide next argues that even if Zauderer applies, the
statutes are unconstitutional because they are unduly
burdensome and “effectively prevent the Offer Letters from
conveying their message.” Nationwide offers little more than
conclusory statements to that effect. We cannot, on that basis,
conclude that the district court erred when it found that the
law required Nationwide to make only “relatively brief
disclosures” in letters that “span one to two full pages of
text.” All mandatory disclosures impose some burden on
commercial speech. A disclosure is “unduly burdensome”
when the burden “effectively rules out” the speech it
accompanies. Ibanez v. Fla. Dep’t of Bus. & Prof’l
Regulation, Bd. of Accountancy, 512 U.S. 136, 146 (1994). In
this case, the required disclosures are reasonable and not
disproportionate. They clearly do not rule out Nationwide’s
ability to send its solicitation letters, effectively or otherwise.
They are therefore not unduly burdensome.

Finally, Nationwide argues that the disclosure
requirements fail Zauderer review because “they are not
reasonably related to the asserted interest in preventing

ordinary people. Nor does Nationwide’s citation to the MacMillan
Dictionary for the proposition that “unauthorized” means “not officially
or legally allowed” support its case once one notices the example usage
that dictionary provides: “the new unauthorized biography of the
president.” See http://www.macmillandictionary.com/us/dictionary/ame
rican/unauthorized. An “unauthorized biography” is obviously not
“disreputable or even illegal.” It is true that some unauthorized acts are
unlawful by reason of the lack of authorization. But then again,
unapproved can also mean unlawful or unallowed, as with unapproved
transactions and unapproved drugs. As is so often true with language,
context is crucial. In the context of the solicitations and the required
disclosures, we discern no risk of consumers being led to believe that the
solicitations are unlawful or inappropriate merely because they are
“unauthorized” by the lenders.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 35

consumer deception.”18 However, we have no difficulty in
concluding that the disclosure requirements have a
relationship to preventing deception. Including a lender’s
name or a loan number or amount in a solicitation to provide
financial services relating to the loan could, in many
circumstances, lead a consumer to believe that the
solicitation relates to a service offered by the lender or an
affiliated party rather than an entirely separate entity. For
instance, consumers may not realize that information about
their loan and lender is publicly available, and thus assume
that the lender has provided the information to the solicitor.
In addition, when the solicitation does not clearly explain
the additional charges for the service (as Nationwide’s
solicitations do not), a reasonable consumer might think that
free financial services must be coming from the existing
lender rather than a third party with nothing to gain.

Nationwide also argues that the disclosure requirements
are not reasonably related to preventing deception because the
other disclosures Nationwide already includes are adequate.
Even if it were true that Nationwide’s alternative disclosures
were sufficient to prevent deception, that would not mean that
the statute fails Zauderer review. It is not necessary to show
that any particular solicitation is actually deceptive before
disclosure is required. Rather, in the interest of administrative
simplicity, the state may reasonably decide to require
disclosure for a class of solicitations that it determines pose
a risk of deception. Nationwide’s proposed rule would require
a more costly and uncertain adjudication of the deceptiveness

18
As noted above, compelled disclosures may relate to “any
governmental interest . . . so long as it is substantial.” CTIA, 854 F.3d at
1117. The relevant interest the district attorneys have relied on in this case
is the interest in preventing consumer deception.
36 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

of particular advertisements in each case before disclosure
could be required. California reasonably rejected such an
unwieldy case-by-case approach in favor of a bright-line
rule.19

It was reasonable for California to determine that use of
a lender’s name in solicitations of this type poses a risk of
consumer deception. The required disclaimers—short,
accurate, and to the point—are reasonably related to
California’s interest in preventing that deception. Therefore,
the district court correctly concluded that Nationwide was
unlikely to succeed on the merits of its First Amendment
challenge.

2. Exemptions under State Law

In addition to its First Amendment claim, Nationwide
argues that it is exempt from the disclosure requirements
under exemptions written into the statute for (1) “comparison
of like services or products” and (2) “nominative fair use.”
Cal. Bus. & Prof. Code § 14703.

The district court found that Nationwide was unlikely to
succeed on the merits of its statutory argument and denied the
request for an injunction primarily on that basis. We need not
and do not reach Nationwide’s likelihood of success on the
merits of this claim. Although the statutory argument is

19
Nationwide also argues for the first time in its supplementary
briefing that the statute’s requirements relating to font size and the
location of the disclaimers independently fail to be reasonably related to
preventing deception. Nationwide did not raise these arguments below; so
they are waived. See In re Mercury Interactive Corp. Sec. Litig., 618 F.3d
988, 992 (9th Cir. 2010).
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 37

entirely distinct from the First Amendment theory,
Nationwide addresses it in conjunction with the constitutional
claim. Most important, Nationwide’s arguments for the
remaining three prongs of injunctive relief—irreparable harm,
the balance of the equities, and the public interest—are all
based, illogically, entirely on the premise that enforcing the
statute against Nationwide would infringe on its
constitutionally protected speech.20 Nationwide offers no
explanation for doing so and offers no independent argument
that it should otherwise prevail on the three latter prongs.
Accordingly, given our conclusion that Nationwide is
unlikely to succeed on the merits of its First Amendment
claim, it is not entitled to a preliminary injunction on the
basis of its statutory claim whether or not it is likely to
succeed on the merits of that argument.

We therefore affirm the district court’s denial of the
preliminary injunction in the First Amendment case.

C. The Dormant Commerce Clause Case

In the Dormant Commerce Clause case, Nationwide
sought an injunction against the Commissioner to preclude
enforcement of the statute requiring it to obtain a California
prorater’s license. Nationwide alleged that the statute violates
the Dormant Commerce Clause because it makes licenses

20
To the extent Nationwide also suggests that it will suffer irreparable
harm because it must “spend resources to defend against the District
Attorneys’ meritless claims,” we note that “[m]ere litigation expense, even
substantial and unrecoupable cost, does not constitute irreparable injury.”
Renegotiation Bd. v. Bannercraft Clothing Co., Inc., 415 U.S. 1, 24
(1974).
38 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

available only to corporations incorporated under the laws of
California. Nationwide is correct.

“[I]n all but the narrowest circumstances, state laws
violate the [Dormant] Commerce Clause if they mandate
‘differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter.’”
Granholm v. Heald, 544 U.S. 460, 472 (2005) (quoting Or.
Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99
(1994)). Thus, in general, states “cannot require an out-of-
state firm ‘to become a resident in order to compete on equal
terms.’” Heald, 544 U.S. at 475 (quoting Halliburton Oil
Well Cementing Co. v. Reily, 373 U.S. 64, 72 (1963)). State
laws that directly discriminate against out-of-state entities can
survive only if the state “demonstrate[s] both that the statute
‘serves a legitimate local purpose,’ and that this purpose
could not be served as well by available nondiscriminatory
means.” Maine v. Taylor, 477 U.S. 131, 138 (1986) (quoting
Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)).21 This rule
reflects the Framers’ concern “that in order to succeed, the
new Union would have to avoid the tendencies toward
economic Balkanization that had plagued relations among the
Colonies and later among the States under the Articles of
Confederation.” Hughes, 441 U.S. at 325.

California’s prorater law discriminates on its face against
out-of-state economic interests. Anyone acting as a prorater

21
State laws that “burden interstate transactions only incidentally”
may also violate the Dormant Commerce Clause “if the burdens they
impose on interstate trade are ‘clearly excessive in relation to the putative
local benefits.’” Taylor, 477 U.S. at 138 (quoting Pike v. Bruce Church,
Inc., 397 U.S. 137, 142 (1970)). Because the statute at issue here directly
discriminates against interstate commerce, rather than doing so only
incidentally, we need not further consider this alternative test.
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 39

in California must first obtain a prorater license from
California. Cal. Fin. Code § 12200. On its own, the
requirement of state licensure is legitimate, as Nationwide
concedes. California prorater licenses, however, “shall only
be issued to a corporation organized under the laws of this
State for that purpose.” Cal. Fin. Code § 12200.1 (emphasis
added). A corporation’s state of incorporation is one of its
states of residency, even if its operations are physically
located elsewhere. See 28 U.S.C. § 1332(c)(1). Thus,
California’s statute does precisely what the Supreme Court
says cannot be done except in the “narrowest circumstances,”
Heald, 544 U.S. at 472: it requires any corporation that wants
to engage in a certain kind of business within the state to
become a resident.

If states were allowed to require local incorporation as a
condition of engaging in interstate commerce, then national
corporations could be required to incorporate in all 50 states
in order to do business—either by creating an individual
subsidiary for each state or by some similar means. No matter
the specific approach taken, requiring incorporation under the
laws of each individual state in order to operate a national
business would contribute toward precisely the
“Balkanization” the Dormant Commerce Clause is meant to
prevent.

The Commissioner argues that the statute is
nondiscriminatory because California corporations that are
not “organized . . . for [the] purpose” of being a prorater must
also create a subsidiary that is organized for that purpose in
order to offer prorating services. The correct comparison,
however, is between California corporations that are
organized for the purpose of being proraters and out-of-state
corporations that are organized for the purpose of being
40 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

proraters. The in-state corporation may obtain a license
directly, while the out-of-state corporation must either
incorporate in California or create a subsidiary incorporated
in California. The statute therefore discriminates against out-
of-state economic interests.

The district court’s contrary conclusion is based on a
misinterpretation of Alliant Energy Corp. v. Bie, 330 F.3d
904 (7th Cir. 2003). The district court interpreted Alliant
Energy as distinguishing between “the requirement that an
out-of-state corporation incorporate an in-state subsidiary to
obtain a license” and the requirement “that an out-of-state
public utility holding company reincorporate its parent
corporation in Wisconsin.” In fact, Alliant Energy turned on
a more basic distinction: the statute it upheld required in-state
incorporation in order to engage in intrastate commerce,
while the statute it struck down required in-state
incorporation in order to engage in interstate commerce. Id.
at 912. The Seventh Circuit explicitly noted that interstate
commerce was “presumably exempted by the terms of” the
statute it upheld and “in any event” any application of the
statute to interstate commerce was “beyond the scope of this
appeal.” Id. at 912 n.5.

The requirement that an out-of-state corporation
incorporate an in-state subsidiary in order to engage in
intrastate commerce is permissible because intrastate
commerce is beyond the scope of the Dormant Commerce
Clause, not because requirements to incorporate in-state
subsidiaries are always permissible. When a statute regulates
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 41

interstate, rather than intrastate, commerce,22 a requirement of
in-state incorporation (even of a subsidiary) is facial
discrimination against out-of-state corporations.

The Commissioner does not argue that the statute is a
permissible form of discrimination under Taylor—that is, the
Commissioner does not argue “that the statute ‘serves a
legitimate local purpose,’ and that this purpose could not be
served as well by available nondiscriminatory means.”
Taylor, 477 U.S. at 138. We therefore hold that Nationwide
is likely to succeed on the merits of its Dormant Commerce
Clause challenge to California’s prorater licensure law.
Because the district court’s consideration of irreparable harm,
the balance of the equities, and the public interest depended
upon its erroneous analysis of the merits of the claim, we
vacate the district court’s order and remand for consideration
of the latter three Winter factors and—if they are
satisfied—imposition of an appropriate preliminary
injunction.

22
We find entirely unpersuasive the Commissioner’s suggestion that
the California statute affects only intrastate commerce. The California
statute seeks to regulate anyone offering prorater services to California
residents, even if the prorater (including the personnel and facilities the
prorater uses to provide its services) is located outside of the state—and
indeed even if the lender to whom the prorater sends the funds is also
located outside the state. That is interstate commerce. Cf. Alliant Energy,
330 F.3d at 912 n.5 (“Of course, if a utility were provided to Wisconsin
users from an out-of-state source—by this we mean that the generation
facilities are located out-of-state, not the corporate entity—that would be
interstate commerce.”).
42 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

CONCLUSION

The district court’s orders dismissing both cases under
Younger are REVERSED. The district court’s order denying
the preliminary injunction in 15-16253 (the First Amendment
case) is AFFIRMED. The district court’s order denying the
preliminary injunction in 15-16220 (the Dormant Commerce
Clause case) is VACATED. Both cases are REMANDED
for further proceedings.

MONTGOMERY, District Judge, dissenting:

I respectfully dissent from the majority’s conclusion that
the first element of Younger abstention—ongoing state
proceedings—is not satisfied in the two cases before us. At
the time the state case was filed, no proceedings of substance
on the merits had taken place in either of the federal lawsuits,
and those cases remained in an embryonic stage. In this
factual context, “the principles of Younger v. Harris should
apply in full force.” Hicks v. Miranda, 422 U.S. 332, 349
(1975); see also Younger v. Harris, 401 U.S. 37, 39 (1971)
(reaffirming the “national policy forbidding federal courts to
stay or enjoin pending state court proceedings except under
special circumstances”).

A case has proceeded beyond the embryonic stage when
“proceedings of substance on the merits have taken place in
the federal court.” Hicks, 422 U.S. at 349. The Ninth Circuit
has identified factors to consider when determining if a case
remains embryonic. Factors include when multiple hearings
have occurred or when “the District Court’s intervention in
the case had resulted in a significant change in the relative
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 43

position of the parties” Hoye v. City of Oakland, 653 F.3d
835, 844 (9th Cir. 2011). None of these factors are present
here.

Both of these cases arrived in federal court as a
preemptive strike by Nationwide to enjoin state district
attorneys from enforcing state statutes in state court. No
substantial court action occurred in federal court in either
case. The district court did not hold any hearings, conduct
any case management conferences, or set any discovery
schedule in either case. In both cases, the only federal court
action had been the denial of injunctive relief.

The denials of the preliminary injunction motions were
not proceedings of substance on the merits. The district judge
considered the likelihood of success on the merits as required
by Winter v. Natural Resources Defense Council, Inc,
555 U.S. 7, 20 (2008). Based on the preliminary nature of the
rulings and the denials of injunctive relief, no party’s position
was significantly changed by the rulings. The cases are
functionally indistinguishable from Hicks. There, the district
judge denied injunctive relief after “finding the proof of
irreparable injury to be lacking and an insufficient likelihood
of prevailing on the merits to warrant an injunction.”
422 U.S. at 338.

The majority applies a quantitative analysis to the number
of pages written and the number of cases cited in the district
judge’s orders denying the motions for preliminary
injunctions. The majority views this evidence as the “most
important” in concluding the cases were no longer
embryonic. Ante, at 23. However, the length and
thoroughness of a judge’s order should not be determinative
of whether the proceeding is one of substance on the merits.
44 NATIONWIDE BIWEEKLY ADMIN. V. OWEN

The rulings here were not “substantial federal court action”
that moved the case beyond Younger’s reach. Haw. Hous.
Auth. v. Midkiff, 467 U.S. 229, 238 (1984). After the denials
of the preliminary injunctions, the cases were no further
advanced in federal court than they had been before the
rulings.

In addition to ignoring the absence of court proceedings
or lack of substantial court action that advanced the stage of
these cases, the majority fails to credit that the district judge,
who was in the best position to determine the status of each
case, concluded that both cases remained in the embryonic
stage. Although abstention is not discretionary, the district
court judge’s view of the development of the case should be
considered in determining whether a case is embryonic.

The cases relied on by the majority to conclude that the
cases were no longer embryonic are materially
distinguishable. In Adultworld Bookstores v. City of Fresno,
no state court action had been commenced and thus
abstention did not turn on the proceedings in federal court.
758 F.2d 1348, 1350–51 (9th Cir. 1985).

Additionally, Circuit precedent holds that the time
between when the federal and state cases were filed is of no
consequence. See Polykoff v. Collins, 816 F.2d 1326, 1332
(9th Cir. 1987) (“Whether the state proceedings are ‘pending’
is not determined by comparing the commencement dates of
the federal and state proceedings.”); M&A Gabaee v. Cmty.
Redevelopment Agency of City of L.A., 419 F.3d 1036,
1041–42 (9th Cir. 2005) (citing Polykoff and rejecting
 NATIONWIDE BIWEEKLY ADMIN. V. OWEN 45

argument that the commencement dates of the state and
federal case are to be considered when deciding if federal
case is still embryonic).

I would affirm the judgment of the District Court.