John MacDonald v. Cashcall Inc
883 F.3d 220
3rd Cir.2018Background
- John MacDonald (NJ) signed a Western Sky loan agreement and received $5,000; he paid over $15,000 back; the Agreement fixed choice-of-law and jurisdiction exclusively to the Cheyenne River Sioux Tribe (CRST) and prohibited application of state or federal law.
- The Agreement required disputes to be resolved by arbitration “conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative” and included a delegation clause sending threshold questions of arbitrability to the arbitrator; it also allowed AAA or JAMS to “administer” arbitration only to the extent their rules did not conflict with CRST law.
- MacDonald sued Defendants (CashCall, WS Funding, Delbert Services, J. Paul Reddam) alleging RICO and New Jersey usury/consumer claims and sought to void the arbitration, choice-of-law, and class-waiver clauses; Defendants moved to compel arbitration.
- The District Court denied the motion to compel, finding the Agreement’s attempt to disclaim state and federal law rendered arbitration an unenforceable prospective waiver of statutory rights; Defendants appealed that denial.
- The Third Circuit reviewed de novo and focused on whether the Agreement’s CRST-directed arbitral forum actually existed, whether the delegation clause was specifically challenged, and whether the forum-selection clause was severable from the arbitration agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff properly challenged the delegation clause | MacDonald specifically alleged the delegation clause was illusory and unenforceable because it requires arbitration in a fabricated CRST forum | Defendants contended MacDonald failed to specifically challenge the delegation clause and thus the arbitrator should decide arbitrability | Held that MacDonald specifically challenged the delegation clause, so the court could decide its enforceability |
| Whether the CRST arbitral forum exists | MacDonald argued the CRST forum is nonexistent/illusory and thus arbitration cannot proceed there or via delegation | Defendants argued AAA or JAMS could provide a real arbitral forum (administration or substitution) | Held the CRST forum does not exist and the Choice of Arbitrator clause only permits AAA/JAMS to administer subject to CRST law, so no alternate forum exists |
| Whether the arbitration and delegation clauses are enforceable when the selected forum is illusory | MacDonald argued an illusory forum invalidates the entire arbitration agreement, including delegation | Defendants argued unenforceable parts could be severed and arbitration compelled under FAA §§4–5 with a court-appointed arbitrator | Held the CRST forum was integral and pervasive; severance would rewrite the contract, so the entire arbitration agreement (including delegation) is unenforceable |
| Whether enforcement would be unreasonable because the Agreement waives statutory rights | MacDonald (and a concurring judge) argued the Agreement prospectively waived federal/state statutory protections by disavowing state and federal law | Defendants relied on federal policy favoring arbitration and severability to save arbitration | Held enforcement would be unreasonable; District Court correctly denied the motion to compel—arbitration unenforceable (alternate ground endorsed by concurrence) |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (party must specifically challenge a delegation clause to prevent arbitrator from deciding arbitrability)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (common-law contract principles apply to arbitration agreements)
- Hall St. Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008) (FAA reflects national policy favoring enforcement of arbitration agreements)
- Inetianbor v. CashCall, Inc., 768 F.3d 1346 (11th Cir. 2014) (Cheyenne River Sioux Tribe arbitral forum held nonexistent/illusory)
- Parm v. National Bank of California, N.A., 835 F.3d 1331 (11th Cir. 2016) (CRST forum references can render arbitration agreement nonseverable and unenforceable)
- M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) (forum-selection clauses presumptively valid but enforceability is unreasonable if procured by fraud/overreaching or the forum is gravely inconvenient)