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Fares Pawn, LLC v. Indiana Department of Financial Institutions

United States Court of Appeals, Seventh Circuit

June 20, 2014

FARES PAWN, LLC, and WILLIAM K. SAALWAECHTER, Plaintiffs-Appellants,
v.
INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS, et al., Defendants-Appellees

 Argued April 3, 2014

Page 840

Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. 11-cv-136 -- Richard L. Young, Chief Judge.

For FARES PAWN, LLC, WILLIAM K. SAALWAECHTER, Plaintiffs - Appellants: James D. Johnson, Attorney, RUDOLPH, FINE, PORTER, & JOHNSON, Evansville, IN.

For STATE OF INDIANA, DEPARTMENT OF FINANCIAL INSTITUTIONS, CONSUMER CREDIT DIVISION, JOHN SCHROEDER, in his individual and official capacity as an employee with the Department of Financial Institutions, MARK TARPEY, in his individual and official capacity as an employee with the Consumer Credit Division of the Department of Financial Institutions, DAVID H. MILLS, in his individual and official capacity as an employee with the Consumer Credit Division of the Department of Financial Institutions, Defendants - Appellees: Kristin Garn, Attorney, OFFICE OF THE ATTORNEY GENERAL, Indianapolis, IN.

Before POSNER, FLAUM, and ROVNER, Circuit Judges.

OPINION

Page 841

Flaum, Circuit Judge

Indiana businesses that engage in pawnbroking activity must get a license from the state's Department of Financial Institutions (DFI). The plaintiff in this case, William Saalwaechter, owns Fares Pawn LLC, a pawn shop in Evansville, Indiana. He applied for a license in March 2009, but DFI denied his application, citing concerns about previous pawnbroking on the property and about his store manager's criminal history. Saalwaechter brought an administrative action challenging the denial. He eventually received a license after he signed a memorandum of understanding agreeing to comply with certain conditions, in particular not employing the worrisome manager.

Saalwaechter is convinced that the license-application process should have gone much more smoothly than it did. After getting his license, he sued DFI in federal court for violating the Equal Protection Clause of the Fourteenth Amendment. Saalwaechter did not contend that DFI treated him unfavorably on account of some identifiable characteristic, such as age, sex, or race. He simply argued that the state had singled him out for disparate treatment without a rational basis. This is a so-called " class-of-one" theory, which rests on the premise that " [w]hen those who appear similarly situated are nevertheless treated differently, the Equal Protection Clause requires at least a rational reason for the difference, to ensure that all persons subject to legislation or regulation are indeed being treated alike, under like circumstances and conditions." Engquist v. Oregon Dep't of Agriculture, 553 U.S. 591, 602, 128 S.Ct. 2146, 170 L.Ed.2d 975 (2008) (internal quotation marks omitted).

The district court granted summary judgment in favor of the defendants, finding that no reasonable jury could conclude that DFI treated Saalwaechter differently from similarly situated applicants without a rational reason. We agree, and therefore affirm the judgment of the district court.

I. Background

For many years, 1432 North Fares Avenue in Evansville has been home to a pawn shop. Three different businesses have occupied the property during the past two decades: Fares Loan, Evansville Pawn, and Fares Pawn. The names of these entities blend together. As we shall see, their owners overlapped, too.

Terry and Linda Duke owned Fares Loan, the original pawn shop on Fares Avenue. In 1998, DFI ordered the Dukes to remove a store manager, who was allegedly engaged in criminal activity, and also to comply with all applicable law. Six years later, DFI learned that federal authorities were investigating the Dukes' son, who worked at the shop, for receipt of stolen goods and firearms violations. DFI agreed to postpone any licensing proceedings against Fares Loan until the federal investigation was complete. By that time, though, the Dukes had decided to quit the pawn business and sell the store, so DFI opted to let the matter lie.

The Dukes sold to Tom Carroll and William Saalwaechter, two men who lived just across the border from Evansville in Owensboro, Kentucky. Carroll, an attorney, structured the deal and drew up the pertinent documents; Saalwaechter, who had recently sold his petroleum distribution business, provided the capital. The precise terms of the transaction were murky, however. Later, government regulators

Page 842

would have trouble understanding the deal, and some of the particulars remain unclear even on appeal. Apparently, even Saalwaechter did not know exactly what was going on; he would later sue Carroll as the deal fell apart.

As best we can tell, Saalwaechter expected that he would purchase the property and pawn business from the Dukes; lease everything back to a third party, Ryan McDaniel; and eventually, after giving McDaniel time to put together financing, sell to him at a small profit. While they put together financing, McDaniel and the former manager of Fares Loan, Jeremy Kamuf, would continue to operate the shop and make regular payments to Saalwaechter in exchange for the repurchase option. In essence, Saalwaechter would extend a short-term bridge loan to be paid back, with interest, within just a few months.

The plan hit a snag when Kamuf failed to make the required monthly payments. Saalwaechter investigated, only to find out that McDaniel did not know about the deal at all--what Saalwaechter had thought to be McDaniel's guarantee of the loan turned out to be a forgery. Saalwaechter evicted Kamuf from the premises but, without a functioning pawn shop on the property, worried that his real estate investment would quickly lose value.

Saalwaechter therefore decided his best course was to operate the pawn business himself. To his surprise, he discovered that he had never purchased the pawn business or its inventory, just the underlying real estate. It later became clear that Tom Carroll had purchased the Fares Loan assets himself. Carroll had also set up a new company, Evansville Pawn LLC, obtained a pawn license, and retained someone named John Jones to manage it (alongside Kamuf, it seems). Carroll showed Saalwaechter documents describing the deal and containing Saalwaechter's signature, but Saalwaechter claimed that he had never seen them before.

The plot further thickened when DFI received materials indicating that Carroll had procured the Evansville Pawn license on behalf of Kamuf, who was paying Carroll a monthly fee for the business (separate from the fee Kamuf was paying Saalwaechter for the real estate). Such " straw licensing" is prohibited under Indiana law. Ind. Code ยง 28-7-5-10.5. DFI refused ...


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