DISCUSSION
I. MOTION TO COMPEL ARBITRATION
The Haynes defendants move to compel arbitration, arguing that I should enforce arbitration agreements that each of the named plaintiffs signed as part of their loan agreements. In addition, to the extent plaintiffs challenge the enforceability of their arbitration agreements, the Haynes defendants argue those challenges should be decided by the arbitrator because the arbitration agreements clearly delegate all disputes concerning the loan agreements to the arbitrator and plaintiffs fail to challenge the delegation provision. Plaintiffs oppose, arguing that the arbitration agreements are not enforceable because they are impermissible prospective waivers of statutory rights and remedies and are unconscionable under California law.
A. Legal Standard
The Federal Arbitration Act ("FAA") governs the motion to compel arbitration.
The question of whether the arbitration agreement is valid is itself arbitrable. Rent-A-Center, West Inc. v. Jackson ,
1. Prospective Waiver
An arbitration agreement that is a "prospective waiver of a party's right to pursue statutory remedies" is unenforceable as it is against public policy. Mitsubishi ,
2. Unconscionability
Whether a contract is unconscionable is a question of law. Patterson v. ITT Consumer Fin. Corp. ,
Procedural unconscionability occurs where a contract or clause involves oppression, consisting of a lack of negotiation and meaningful choice, or surprise, such as where the term at issue is hidden within a wordy document.
Substantive unconscionability occurs where the provision at issue "reallocates risks in an objectively unreasonable or unexpected manner." Lhotka ,
Both the procedural and substantive elements must be met before a provision will be deemed unconscionable, but both need not be present to the same degree. Rather, "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." Armendariz v. Found. Health Psychcare Services, Inc. ,
B. Loan Agreements at Issue
The loan agreements between Brice and Novorot and GPL required borrowers to
1. "Governing Law" Sections
In its "Governing Law" section, which appears before the Arbitration Agreements in the document, the GPL Agreement states:
GOVERNING LAW; NON-APPLICABILITY OF STATE LAW; INTERSTATE COMMERCE: This Agreement and the Agreement to Arbitrate are governed by Tribal Law and such federal law as is applicable under the Indian Commerce Clause of the Constitution of the United States of America. We do not have a presence in Oklahoma or any other state of the United States of America. Neither this Agreement nor the Lender is subject to the laws of any state of the United States. The Lender may choose to voluntarily use certain federal laws as guidelines for the provision of services. Such voluntary use does not represent acquiescence of the Otoe-Missouria Tribe to any federal law unless found expressly applicable to the operations of the Otoe-Missouria Tribe. You and we agree that the transaction represented by this Agreement involves interstate commerce for all purposes.
GPL Agreement 6 (emphasis in original).
The Agreement with Plain Green contains similar terms, but omits reference to the Indian Commerce Clause. The Plain Green Agreement also provides that: "This Agreement and the Agreement to Arbitrate are governed by Tribal Law. The Agreement to Arbitrate also comprehends the application of the Federal Arbitration Act as provided below." Plain Green Agreement 15. The Plain Green Agreement also discloses: "Plain Green does not have a presence in Montana or any other state of the United States of America."
2. Arbitration Agreements
The GPL Arbitration Agreement states that "IF YOU DO NOT AGREE TO ARBITRATE ALL DISPUTES (DEFINED BELOW) IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT TO ARBITRATE YOU MUST ADVISE US IN WRITING" either by mail or by email. GPL Agreement 6. The GPL Arbitration Agreement also states: "IN THE EVENT YOU OPT OUT OF THE AGREEMENT TO ARBITRATE, ANY DISPUTES SHALL NONETHELESS BE GOVERNED UNDER TRIBAL LAW AND MUST BE BROUGHT WITHIN THE COURT SYSTEM OF THE OTOE-MISSOURIA TRIBE."
The Plain Green Agreement contains nearly identical terms, with nominal differences in language: "IF YOU DO NOT AGREE TO ARBITRATE ALL DISPUTES (DEFINED BELOW) IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT TO ARBITRATE YOU MUST ADVISE PLAIN GREEN IN WRITING," and "ANY DISPUTES SHALL BE GOVERNED UNDER TRIBAL LAW AND MUST BE BROUGHT WITHIN THE CHIPPEWA CREE TRIBAL COURT," Plain Green Agreement 16.
The GPL Arbitration Agreement defines "Arbitration" and addresses the breadth of disputes to be resolved in arbitration:
WHAT ARBITRATION IS: Arbitration is having an independent third-party resolve a Dispute. A "Dispute" is any claim or controversy of any kind between you and [the lender] or otherwise involving this Agreement or the Loan. The term Dispute is to be given its broadest possible meaning and includes, without limitation, all federal, state or Tribal Law claims or demands (whether past, present, or future), based on any legal or equitable theory and regardless of the type of relief sought (i.e., money, injunctive relief, or declaratory relief). A Dispute includes any issue concerning the validity, enforceability, or scope of this Agreement or this Agreement to Arbitrate.
GPL Agreement 6 (emphasis in original). The Plain Green Arbitration Agreement is essentially identical aside from defining "Arbitration" as "a form of alternative dispute resolution where Disputes are presented to an independent third party for resolution." Plain Green Agreement 16, Although the GPL agreement allow parties to use independent arbitration firms CPR or JAMS and the Plain Green agreement allows for parties to use JAMS or AAA, both loan agreements provide:
The policies and procedures of the selected arbitration firm will apply provided such policies and procedures do not contradict this Agreement to Arbitrate or Tribal Law. To the extent the arbitration firm's rules or procedures are different than the terms of this Agreement to Arbitrate, the terms of this Agreement to Arbitrate will apply.
GPL Agreement 6; Plain Green Agreement 16.
The Arbitration Agreements also make clear that arbitrators are to apply tribal law. Both Arbitration Agreements state that "[t]he arbitrator has the ability to award all remedies available under Tribal Law, whether at law or in equity, to the prevailing party, except that you and we agree that the arbitrator has no authority to conduct class-wide proceedings and will be restricted to resolving individual disputes." GPL Agreement 7; Plain Green Agreement 17. The GPL Agreement states: "APPLICABLE LAW AND JUDICIAL REVIEW OF ARBITRATOR'S AWARD. THIS AGREEMENT TO ARBITRATE SHALL BE GOVERNED BY TRIBAL LAW. The arbitrator shall apply Tribal Law and the terms of this Agreement, including this Agreement to Arbitrate and the waivers included herein." GPL Agreement 7 (emphasis in original). The Plain Green Agreement similarly provides:
APPLICABLE LAW AND JUDICIAL REVIEW OF ARBITRATOR'S AWARD: THIS AGREEMENT TO ARBITRATE IS MADE PURSUANT TO A TRANSACTION INVOLVING INTERSTATE COMMERCE AND SHALL BE GOVERNED BY TRIBAL LAW, THE PARTIES ADDITIONALLY AGREE TO LOOK TO THE FEDERAL ARBITRATION ACT AND THE JUDICIAL INTERPRETATIONS THEREOF FOR GUIDANCE IN ANY ARBITRATION THAT MAY BE CONDUCTED HEREUNDER. The arbitrator shall apply Tribal Law and the terms of this Agreement, including the Agreement to Arbitrate and the waivers included herein.
Plain Green Agreement 17 (emphasis in original). Finally, both Agreements provide that parties have the right to judicial review of arbitration award in Tribal court and in accordance with Tribal law. GPL Agreement 7; Plain Green Agreement 17.
C. The Arbitration Agreements are Unenforceable
In two recent decisions, the Fourth Circuit concluded that arbitration agreements
In Dillon v. BMO Harris, N.A. ,
Defendants argue that the analysis and result here should be different from that in the Dillon and Hayes cases. First, the Haynes defendants assert there is a clear and unmistakable delegation provision that plaintiffs fail to challenge, so the question of enforceability must be decided by the arbitrator in the first instance. Defendants also assert that the arbitration agreements here are not prospective waivers for three reasons: (i) unlike the agreements in Dillon and Hayes , the arbitration agreements signed by plaintiffs expressly "invoke" federal law; (ii) plaintiffs have not carried their burden of showing more than a mere risk that the agreements will prospectively waive plaintiffs' statutory rights and remedies; and (iii) tribal law of both the Chippewa Cree and the Otoe-Missouria tribes provide remedies.
The issue of whether there are clear and unmistakable delegation provisions in the Agreements is secondary to the determination of whether the agreements are unenforceable prospective waivers.
Further, although the Court in Rent-A-Center held that challenges to an arbitration agreement generally do not suffice to supersede a valid delegation provision, it recognized that the plaintiff may challenge the general arbitration procedures "as applied to the delegation clause" to show that they rendered the delegation clause unenforceable.
2. The Agreements Do Not Expressly Invoke Federal Law and, Instead, Disclaim It
The Haynes defendants argue that the arbitration agreements do not constitute prospective waivers because, unlike the agreements considered in Dillon and Hayes , the agreements "expressly invoke the application of federal law." MTC 20. In Hayes v. Delbert Servs. Corp , the terms of the loan agreements stated that the agreements were "subject solely to the exclusive laws and jurisdiction of the [tribe]" and that "no other state or federal law or regulation shall apply to this loan or Agreement."
The choice-of-law provisions of the loan agreements at issue here contain some different language from that in Hayes and Dillon. Defendants point to the following difference. First, neither choice-of-law provision
Second, both loan agreements state that "[the lender] may choose to voluntarily use certain federal laws as guidelines for the provisions of services," GPL Agreement 6; Plain Green Agreement 15. Regarding the GPL loan agreement, the defendants point to an Otoe-Missouria ordinance that ostensibly requires licensed consumer financial services entities to abide by "all applicable federal and Tribal consumer protection law...."
Those differences in language do not alter the ultimate effect of the choice-of-law provisions. Under the choice-of-law provision for both the GPL and Plain Green loan agreements, the lender "may choose to voluntarily use certain federal laws as guidelines," but "such voluntary does not represent acquiescence of the [tribe] to any federal law unless found expressly applicable to the operations of the [tribe]." GPL Agreement 6; Plain Green Agreement 15. The defendants do not identify what federal law would be applicable. Nor do they explain how the arbitrator would apply that law, given that the other more express terms of the agreements that prohibit them from doing so.
Defendants also argue that the reference to the Indian Commerce Clause in the GPL loan agreement clearly invokes federal law. MTC 20. The actual language states that the Loan Agreement is governed by "such federal law as is applicable under the Indian Commerce Clause." GPL Agreement 6. Inclusion of the Indian Commerce Clause amounts to "invocation of an irrelevant constitutional provision." Jackson v. Payday Fin., LLC ,
Finally, defendants argue that the arbitration agreements do not call for the exclusion of federal law because they are separate from the choice-of-law provisions. Defendants cite Mastrobuono v. Shearson Lehman Hutton, Inc. ,
3. The Choice-of-Law Provisions Unambiguously Waive Statutory Rights and Remedies
Next, the Haynes defendants characterize the choice-of-law provisions as presumptively valid under federal precedent because plaintiffs have not shown that there is more than a "mere risk" that these provisions will prospectively waive plaintiffs' statutory rights and remedies. MTC 5-6; Reply MTC 8; relying on Green Tree Fin. Corporation-Alabama v. Randolph ,
The loan agreements at issue are readily distinguishable because they present more than mere risk that the plaintiffs may be unable to effectively vindicate their statutory rights. As repeatedly noted by courts in analogous cases, the arbitration agreements at hand "purport[ ] to renounce wholesale the application of any federal law to the plaintiffs' federal claims." Hayes ,
According to the Haynes defendants, risk of waiver should not make the agreements unenforceable because if this issue is submitted to an arbitrator, the arbitrator may decide not to enforce the tribal choice-of-law provision. Reply MTC 8. According to defendants, the arbitrator will be free to "conduct a choice-of-law analysis identical to the one this Court would be called upon to perform." But this strains credulity. The very terms of the arbitration agreements state that the arbitrator "shall apply Tribal Law and the terms of this Agreement, including this Agreement to Arbitrate and the waivers included herein." GPL Agreement 7; Plain Green Agreement 17. The defendants do not explain how an arbitrator might conduct a choice-of-law analysis that would result in a decision not to apply tribal law or what source of law would then be applied.
Relatedly, defendants argue that while the Court recognized the prospective waiver doctrine, it has "always declined" to apply it to invalidate the arbitration agreement at issue. MTC 5. As noted, numerous circuit courts and district court have persuasively applied the doctrine with respect to materially similar tribal loan agreements. Defendants note that choice-of-law provisions have been upheld, even where provisions mandated the application of foreign law to the exclusion of domestic law. MTC 7; see Roby v. Corp. of Lloyd's ,
Finally, defendants allege that the arbitration agreements cannot be a prospective waiver because "this court will retain jurisdiction over this case and will be the ultimate arbiter of whether the arbitration complies with the [FAA]." Reply MTC 9. But
In short, defendants have not distinguished the materially similar language in the GPL and Plain Green choice-of-law and arbitration agreements from the language addressed by the numerous courts identified above that have struck down the arbitration agreements as unenforceable prospective waivers. I will follow them and refuse to enforce the accompanying delegation clauses.
4. Tribal Laws Do Not Provide Remedies for Plaintiffs' Statutory Claims
Finally, defendants maintain that the Chippewa Cree
In Rideout v. CashCall, Inc. , the defendant acknowledged that the federal statutory rights that plaintiff sought to enforce did not exist under Cheyenne Sioux tribal law and "it could not identify analogous rights that would exist."
In conclusion, the choice-of-law provisions regarding the lenders and the loan agreements, in conjunction with arbitration agreement provisions restricting the law the arbitrator may apply, create an unambiguous waiver of rights and the agreements and are therefore unenforceable. I do not reach whether there is a clear and unmistakable delegation clause because that would not change the fact that the arbitration agreement is unenforceable as an unambiguous prospective waiver.
Accordingly, the motion to compel arbitration is DENIED. The arbitration agreements are unenforceable prospective waivers.
The Haynes defendants move to stay in light of a first-filed case, Gingras v. Victory Pork Capital Advisors, LLC, et al. , No. 5:17-cv-233 (D. Vt.) ("Gingras "), arguing that the parties and claims at issue in the two actions are substantially the same and that equitable considerations support a stay, at least until the issue of class certification is decided in Gingras. MTS 1; Reply MTS 6. Plaintiffs respond that the cases are not sufficiently similar and that even if they were, equitable considerations militate against granting a stay because Gingras has been repeatedly and is presently stayed and there is no current schedule to determine class certification. Oppo. MTS 1.
A. Legal Standard
The first-to-file rule promotes judicial efficiency by allowing a district court to transfer, stay, or dismiss a case when a complaint involving the same parties and the same issues has already been filed in another district. Alltrade, Inc. v. Uniweld Products, Inc. ,
B. Chronology
Gingras, et al. v. Victory Park Capital Advisors, et al. , No. 5-17-cv-233 (D. Vt.), is a putative class action on behalf of consumers who took out loans through Plain Green. Oppo. MTS, Exh. A ("Gingras Compl.") at ¶ 2 [Docket 101-1]. The Gingras Complaint names Haynes Investments, but not Haynes personally, as a defendant. Id. at ¶ 13. The loan agreements at issue contain arbitration agreements with the same terms as those at issue here. Id. at ¶¶ 173-190. Plaintiffs in Gingras allege violations of (1) Electronic Funds Transfer Act, 15 U.S.C. § 1693k ; (2) Vermont Consumer Fraud Act, 8 V.S.A. § 2201 ; (3) RICO; and (4) unjust enrichment. ¶¶ 214-267.
The parties do not dispute that Gingras v. Victory Park Capital Advisors, LLC, et al. , No. 5:17-cv-233 (D. Vt.) ("Gingras ") was filed on November 21, 2017, approximately three months before this action was filed. The chronology requirement of the first-to-file rule is met.
C. Similarity of Parties
Only "substantial similarity"-not "exact identity of the parties"-is needed to apply the first-to-file rule. Kohn Law Grp., Inc. v. Auto Parts Mfg. Mississippi, Inc. ,
There is some overlap in the putative classes because prospective plaintiffs in Gingras include California consumers who obtained loans from Plain Green, like Browne here. But the class of California consumers who obtained loans from GPL, like Brice and Novorot, are not included in and would not be represented in the putative class of national consumers in Gingras
The majority of cases on which defendants rely are inapposite because they concern situations where "the proposed class and claims [were] essentially identical to those in the [first-filed complaint]." Ortiz v. Panera Bread Co. , Civil Action No. 1:10CV1424,
As to the defendants, while Haynes Investments is a defendant in this suit as well as in Gingras , Haynes as an individual is not. Gingras Compl. ¶¶ 20-33. This is significant because here plaintiffs advance two theories of Haynes' involvement with the rent-a-tribe scheme: (i) that "Haynes played a critical role in finding a new bank to partner with Plain Green and Great Plains," and (ii) that Haynes "also acted as the liaison between Think Finance and the Tribes." Compl. ¶¶ 96-97. These allegations, implicating Haynes personally, are missing from Gingras .
Relatedly, Gingras concerns only loans received through Plain Green, whereas this suit concerns loans received through Plain Green and GPL. The Haynes defendants highlight that plaintiffs voluntarily dismissed GPL from this suit to show that this suit, like Gingras , chiefly concerns loans made by Plain Green. Reply MTS 4. According to them, "[t]he idea that Plaintiffs can still prosecute claims pertaining to Great Plains is without merit and thus is not a valid basis to distinguish this case from Gingras."
Finally, defendants imply that plaintiffs are attempting to game the system by "selectively add[ing] or subtrac[ting] defendants from second-filed actions so as to avoid the first-to-file doctrine." Reply MTS 4. They rely on Kohn Law Group, Inc. v. Auto Parts Mfg. Mississippi. Inc. ,
D. Similarity of Issues
Under this prong, "[t]he issues in both cases also need not be identical." Kohn Law Grp., Inc. v. Auto Parts Mfg. Mississippi, Inc. ,
The most significant potential for overlap between the claims is the RICO claim alleged in both cases. The RICO claims require determining whether the defendants collected unlawful debt, which RICO defines as debt "which is unenforceable under state or federal law ... because of the laws relating to usury ... [and] which is incurred in connection with" usurious lending.
In sum, as to similarity of parties and issues, there is some overlap between the putative classes and defendants, and there may be some overlap (class certification dependent) on at least the RICO claim based on California law. However, this similarity is not so significant that a stay in this action is warranted, especially considering the equitable considerations discussed below.
E. Equitable Exceptions
"The most basic aspect of the first-to-file rule is that it is discretionary," and a court may decide not to apply it based on "reasons of equity." Alltrade, Inc. v. Uniweld Products, Inc. ,
The most significant consideration weighing against a stay in this case is that the Gingras case has itself been stayed, without a concrete timeframe for that case resuming and with no class certification schedule. Given the differences between these cases and that there is no concrete timeframe (much less a reliable estimate) for how long defendants' requested stay will last, equitable considerations merit proceeding with this case.
The Haynes defendants' Motion to Stay is DENIED.
The Haynes defendants also move to dismiss. They argue that the allegations in the Complaint do not establish this court's personal jurisdiction over them. They also contend that plaintiffs have not or cannot state their claims and those claims must be dismissed.
A. Legal Standard
1. Personal Jurisdiction
Under Rule 12(b)(2) of the Federal Rules of Civil Procedure, a defendant may move to dismiss for lack of personal jurisdiction. The plaintiff then bears the burden of demonstrating that jurisdiction exists. Schwarzenegger v. Fred Martin Motor Co. ,
There are two types of personal jurisdiction, general and specific. Fields ,
(1) the non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant's forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.
Schwarzenegger ,
The first prong may be satisfied by "purposeful availment of the privilege of doing business in the forum; by purposeful
The plaintiff bears the burden of satisfying the first two prongs of the test. Schwarzenegger ,
2. Failure to State a Claim
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly ,
In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court accepts the plaintiff's allegations as true and draws all reasonable inferences in favor of the plaintiff. Usher v. City of Los Angeles ,
B. Personal Jurisdiction
The Haynes defendants argue that the allegations in the Complaint do not support a "prima facie showing" of personal jurisdiction over Haynes (a resident of Texas) individually and over Haynes Investments (a Texas limited liability company). While contending that their allegations alone were sufficient, plaintiffs also sought and I granted their request for access to discovery from other related proceedings regarding the Haynes defendants' activities. Dkt. No. 104. Plaintiffs argue that their allegations supplemented by this new evidence demonstrate that specific jurisdiction exists over both Haynes and Haynes Investments. Dkt. No. 107.
The essence of the Haynes defendants' jurisdiction challenge - made solely in the motion to dismiss and not supported by any declaration - is that plaintiffs have not alleged facts sufficient to convey specific jurisdiction in California over both Haynes individually as well as Haynes' investments. MTD (Dkt. No. 86) at 4-8. The Haynes defendants argue generally that the only acts complained of are acts by others; namely the acts taken by the Native American lenders (Plain Green and GPL) who made and collected on the loans and service providers, such as Think Finance, who were controlling the lenders.
To the contrary, the Complaint makes numerous allegations - which are uncontested - about the Haynes defendants being responsible for the inception, direction, initial funding, operations (at least with respect to arranging for critical components of the loan process), and ongoing consulting necessary to the continued operation of the loan process. Those allegations include, with respect to the company: (1) Haynes Investments provided the initial capital to fund the operations of Plain Green-it has claimed its "Native American investments have successfully monetized the tribal advantages of sovereignty to enhance yield while substantially reducing risk," Compl. ¶ 18; (2) Haynes Investments "provided substantial capital used to make high interest loans to consumers and participated in the affairs of the enterprise," id. ¶ 5; (3) Haynes Investments agreed to "provide funding to the Tribe to enable it to make each of the Loans" and to fund Plain Green's bank account with "sufficient monies to fund one business day of Loans based upon the average Loan volumes for the preceding month," id. ¶ 50; (4) Haynes Investments provided funds to Think Finance which could only be used to fund loans originated in the name of Plain Green, id. ¶ 51;
As to Haynes personally, plaintiffs plead that: (1) he participated in the loan enterprise and signed each of the agreements used to fund the illegal loans, id. ¶ 19; (2) he personally made "the decision to invest and reinvest in the enterprise" and "actively participated in the affairs of the enterprise and helped design the financial and operational structure of the rent-a-tribe scheme," id. ¶ 5; (3) "Haynes used his connections to assist the enterprise's efforts to collect unlawful debt," by helping the enterprise obtain a bank willing to process payments through the Automated Clearing House Network (the "ACH Network"), an electronic payment processing system regulated by the National Automated Clearing House Association ("NACHA"), id. ¶ 88; (4) after Plain Green and GPL were targeted by state and federal regulators (and banks ceased processing the debits and credits on their loans), "Haynes played a critical role in finding a new bank to partner with Plain Green and Great Plains," id. ¶¶ 96-97; and, (5) "based on his rapport with the Tribes through prior transactions, Mr. Haynes also acted as the liaison between Think Finance and the Tribes." Id. ¶ 98.
The discovery plaintiffs have confirms that: (1) Haynes took credit for connecting Think Finance to the Chippewa Cree; (2) that the Haynes defendants agreed to provide "ongoing consulting services" defined as services "in connection with implementing and operating the" loan processes; (3) Haynes reviewed a recommended tribal code forwarded by Think Finance; (4) the Haynes defendants assisted the Chippewa Cree tribe with the purchase of the Plain Green website; (5) Haynes Investments funded 100% of all Plain Green loans; (6) Haynes actively helped secure ACH processors for the lending process in 2013 and 2014, as well as debit/credit card processors; (7) and Haynes was intimately involved with creating the "complete business ready package" to enable tribes to carry out the scheme. See MTD Oppo. (Dkt. No. 111-4) at 4-6.
As to loans allegedly "funded" (or more perhaps more aptly, "enabled") by the Haynes defendants in California, plaintiffs do not rely on any hard figures showing how many California loans were funded by Plain Green and GPL during the relevant time period. That is presumably because that information has been marked confidential by non-party Think Finance. Instead, using figures from a similar lawsuit, plaintiffs assert that the Haynes defendants can be assumed to have funded or enabled the funding of loans in California far in excess of the $ 22 million dollars of loans they funded in the much-less populous state of Virginia, MTD Oppo. 4, n.2.
These allegations, as supplemented by the evidence, are adequate to make a prima facie case for exercising personal jurisdiction over the Haynes defendants, who are alleged to be responsible for the creation and implementation of the allegedly fraudulent and illegal scheme as well as funders of millions of dollars in loans in California. These allegations suffice to make a prima facie showing of "intentional acts" "expressly aimed" at California sufficient to establish both the "purposeful direction" and "purposeful availment" tests for specific jurisdiction.
Absent evidence to the contrary produced by Haynes defendants, I find plaintiffs' allegations sufficient to establish personal jurisdiction in California over the Haynes defendants. The personal role of Haynes and the corporate role of Haynes Investments in the scheme are alleged in detail. While the specific connection of those intentional acts to California is weaker, given that defendants have come forward with no evidence regarding the actual number of loans generated by Plain Green or GPL in. California, and the apparently reliable source (discovery in another case regarding loans in Virginia) for plaintiffs' unrebutted estimate (far in excess of $ 22 million in loans), there is a basis to find that the Haynes defendants both directed their activities to California and purposefully availed themselves of the large market for loans in California. The purpose of the loan schemes allegedly orchestrated by the Haynes defendants and others was to avoid usury laws, like California's, in order to make more money off of consumer loans, like the ones secured by Brice, Browne, and Novorot.
As to the third prong of the specific jurisdiction test, the Haynes defendants argue it would be unreasonable to exercise jurisdiction over them in California because the making and direct funding of the loans in California were not undertaken by the Haynes defendants and Texas, where the Haynes defendants are located, is more convenient for them and not inconvenient to plaintiffs, as plaintiff Browne instituted an adversary proceeding against Think Finance in Texas mere months before filing this suit. However, the interests of California in protecting low income consumers (as plaintiffs assert they are) and in applying its usury laws far outweigh the interests of Texas as the residence of the defendants. It is not unreasonable to require defendants to litigate this case here.
For the forgoing reasons, I DENY the Haynes defendants' motion to dismiss for lack of personal jurisdiction.
C. Failure to State a Claim
The Haynes defendants also move to dismiss for failure to state a claim. They assert that tribal law applies (undermining both the asserted state law claims as well as the RICO claim) and that plaintiffs have failed to state their RICO, usury, and unjust enrichment claims.
1. Choice of Law
The Haynes defendants argue that the choice-of-law provisions in the Plain Green and GPL loan contacts govern, meaning that tribal law must be applied to plaintiffs' claims. Under that theory, the Haynes defendants contend that the California usury and unjust enrichment claims cannot be stated and the RICO claim fails because the interest rate charged by the tribes was not "at least
Plaintiffs raise several good reasons why the tribal choice-of-law provisions should not be enforced. First, similar to the arguments made in opposing the motion to compel arbitration, plaintiffs assert that the choice-of-law provisions mandating tribal law effectively deprive plaintiffs of their statutory rights and remedies and are therefore unenforceable. In support, plaintiffs rely on numerous decisions from other circuits and district courts interpreting internet loan agreements with materially similar language requiring application of tribal law and concluding - mostly in the context of holding the arbitration agreements unenforceable because the choice-of-law provisions were unacceptable prospective waivers - that the tribal choice-of-law provisions are an impermissible prospective waiver,
Defendants do not address or distinguish those opinions or otherwise argue why the tribal choice-of-law provisions are enforceable despite their attempt to effect a waiver of statutory rights and remedies in their motion to dismiss. instead, they argue only that plaintiffs have failed to identify any "specific" federal right or remedy that they are precluded from pursuing. That alleged failure does not save an otherwise wholly unenforceable choice-of-law provision. I see no reason to depart from the cases discussed above.
The choice-of-law provisions in the agreements at issue are unenforceable prospective waivers. Therefore, the Haynes defendants' motion to dismiss based on choice-of-law is DENIED.
The Haynes defendants next move to dismiss plaintiffs' RICO claim. They argue that plaintiffs fail to plead proximate causation between the Haynes defendants' conduct and plaintiffs' damages and fail to allege a substantive violation under RICO, resulting in plaintiffs' inability to allege conspiracy under RICO.
a. Standing
The Haynes defendants argue that plaintiffs' RICO claim fails because plaintiffs have not alleged that the Haynes defendants, as opposed to the RICO enterprise, has proximately caused them harm. Essentially, the Haynes defendants contend that because their conduct was several steps removed from the conduct that caused the actual harm - the allegedly usurious rates and fees charged under the loans and received first by the Tribes (Plain Green and GPL) and then processed by Think Finance - plaintiffs cannot plead proximate causation under RICO as to them.
As explained by the Supreme Court in Hemi Group, LLC v. City of New York, N.Y. ,
In Reply, the Haynes defendants make a more nuanced argument, complaining that there is no proximate cause between the Haynes defendants' actions allegedly taken in 2011-2015 and the harms suffered by plaintiffs in 2016-2018. MTD Reply at 11. However, at the motion to dismiss stage, plaintiffs have sufficiently alleged how the Haynes defendants helped create, fund, and run the loan scheme that directly caused plaintiffs' injuries. The outer boundaries of proximately caused damages is better determined on a full evidentiary record.
The motion to dismiss the RICO claim for failure to plead proximate causation is DENIED.
Plaintiffs allege that the Haynes defendants violated three separate RICO provisions. I will discuss each below.
i. Section 1962(a)
Section 1962(a) prohibits a person who receives income derived from a pattern of racketeering activity from using or investing such income in an enterprise engaged in interstate commerce. Sybersound Records, Inc. v. UAV Corp. ,
The activity alleged by plaintiffs here is the collection of unlawful debt, not racketeering. While defendants argue that plaintiffs have failed to allege a "connection" between the funds the Haynes defendants received from the scheme (the enterprise) to the funds that the Haynes defendants invested in the enterprise, this hinges in large part on the Haynes defendants' contention that they were not the ones that collected the unlawful debts. However, plaintiffs' allegations regarding the structure of profits from the scheme paid to the Hayes defendants, plus allegations that the Haynes defendants reinvested in the scheme as late as 2013, is sufficient at this juncture.
ii. Section 1962(b)
Section 1962(b) prohibits "any person through a pattern of racketeering activity ... to acquire ... control of any enterprise" engaged in or affecting interstate or foreign commerce. The "control" required is "is best determined by the circumstances of each case and does not require formal control such as the holding of majority stock or actual designation as an officer or director." Ikuno v. Yip ,
The Complaint repeatedly alleges that the Haynes defendants' role went beyond mere investing and included helping create the scheme, setting up the entities involved, and providing consulting services and key components (ACH transfer houses) that were needed to run the enterprise.
iii. Section 1962(c)
Section 1962(c) prohibits a person employed by or associated with any enterprise engaged in interstate commerce to conduct or participate in the conduct of the enterprise through a pattern of racketeering activity. Similar to their challenges to (a) and (b), the Haynes defendants argue that the failure to allege that they personally
c. Conspiracy
Finally, the Haynes defendants assert that because plaintiffs cannot allege a substantive RICO claim (as the loans are neither illegal nor usurious under tribal law and there is no proximate causation alleged between the Haynes defendants and plaintiffs' injuries), no conspiracy claim can be alleged under Section 1962(d). However, as plaintiffs have adequately alleged substantive violations of RICO, their conspiracy claim also survives.
3. Usury
The Haynes defendants argue that the usury claim under California law fails for two reasons. First, the statute only holds liable a defendant who received the usurious interest; here it is undisputed that the tribes received the loan payments. Second, the statute of limitations is two years; because the complaint was filed on February 23, 2018 and there are no allegations that the Haynes defendants had any involvement with either Plain Green or GPL since February 2015, this claim is barred. Neither argument has merit.
To the first one, plaintiffs respond that because the defendants indirectly received part of the usurious interest payments made by plaintiffs and other loan holders, defendants can be liable under California's usury laws even if they were not the direct payor. Plaintiffs rely on Creative Ventures, LLC v. Jim Word Associates ,
The Haynes defendants counter that because they never held a "fractional" interest in the loans and never received interest payments directly from plaintiffs, Creative Ventures is inapposite and they cannot be held liable, But as alleged, the Haynes defendants received "interest" on the loans they made to Plain Green as well as a 1% referral fee that was based on the amount of money collected from the debtors. Compl. ¶ 53. These allegations support plaintiffs' assertions that the Haynes defendants actually received some of the usurious interest payments, albeit indirectly. That is sufficient to state the usury claim
As to the statute of limitations, plaintiffs do not dispute the two-year statute applies but argue that because class members paid interest that flowed to Haynes defendants within the two years prior to filing the suit, plaintiffs are entitled to recover that from the Haynes defendants. Specifically, plaintiffs pleaded that they each made payments on their loans within the year prior to salt, the majority of which were credited towards interest and fees. Compl. ¶¶ 138-140. Those allegations, plus recently secured evidence showing that the Haynes defendants continued to receive payments for their funding of Plain Green and involvement in the loan scheme through at least June 2018, suffice at this juncture. MTD Oppo. 34.
The California usury claims are adequately alleged and will not be dismissed. The motion to dismiss this cause of action is DENIED.
4. Unjust Enrichment
Finally, the Haynes defendants argue that the unjust enrichment claim must be dismissed, if not under the choice-of-law analysis then because unjust enrichment cannot be stated on the facts here as an independent claim. As with usury, this claim will not be dismissed at this juncture. The choice-of-law arguments have been rejected, unjust enrichment can be an independent claim under California law,
IV. MOTIONS TO SEAL
In support of their Opposition to the Motion to Dismiss, plaintiffs submit and rely on various documents produced by the Haynes defendants that were marked as confidential under the Protective Order by defendants. As a result, plaintiffs filed an administrative motion to seal [Dkt. No. 111], conditionally filed those exhibits under seal, and filed a redacted version of their Opposition brief.
In support of the administrative motion to file under seal, the Haynes defendants
Because the motion to dismiss is more than tangentially related to the merits - both as to the disputes over the role the Haynes defendants played and the viability of plaintiffs' claims - defendants must show compelling justification overcoming the public's right of access. Ctr. for Auto Safety v. Chrysler Group , LLC ,
The administrative motion to seal is DENIED, In his declaration, Haynes fails to provide facts showing the existence of a compelling justification to seal this information. As an initial matter, Haynes fails to even describe or identify the categories of information at issue and link those categories to specific harms that would likely result from its public disclosure.
The administration motion to file under seal is DENIED and these exhibits will be unsealed.
CONCLUSION
Accordingly, the Haynes defendants' Motion to Compel Arbitration, Motion to Stay, and Motion to Dismiss are DENIED. They shall answer the Complaint in ten days.
IT IS SO ORDERED.
Notes
See Titus v. Zest Finance, Inc. , 18-5373 RJB,
Defendants' contention in their MTC that because plaintiffs had not directly or specifically challenged the delegation provision in the Complaint, the motion must be granted and the matter submitted to the arbitrator, is incorrect. MTC 13. Generally, as long as the plaintiff's challenge to the validity of an arbitration clause is a distinct question from the validity of the contract as a whole, the question of arbitrability is for the court to decide regardless of whether the specific challenge to the arbitration clause is raised as a distinct claim in the complaint. See, e.g., Smith, v. Jem Grp. ,
The ordinance referenced claims that licensees must comply with "all applicable federal and Tribal consumer protection law," thereafter listing numerous federal consumer protection acts and providing a URL link to the ordinance. Mot. 20, n.7. But, this ordinance was passed on May 3, 2018, months after this suit was filed and years after the relevant agreements were entered. Otoe Missourie Tribal Consumer Financial Services Ordinance, § 5.2(a), available online at http.//www.omtribe.org./useruploads/files/approved_ordinance_2018_pdf.pdf. (last accessed Feb. 13, 2019). In addition, the next subsection of the Ordinance states that "[t]his Ordinance does not waive any Licensee defenses, legal position, or serve as consent by any Licensee related to the applicability of federal laws to the Tribe, the Commission[,] any Licensee, or any Consumer Financial Services."
Available online at http://www.plaingreensloans.com/constent/asserts/Uploads/title10.pdf (last visited Feb. 13, 2019).
The Haynes defendants further attempt to distinguish this case from Dillon and Hayes because those cases referenced Inetianbor v. CashCall, Inc. ,
The Chippewa provide remedies for violation by consumer financial service licensees of the Chippewa lending code. As noted earlier, the code required licensees to abide by all "applicable" federal consumer protection laws but also states that the code dose not serve as consent by any licensee to the application of federal law. Chippewa Cree Tribal Lending and Regulatory Code §§ 10-5.2-(a)-(b); 10-6-201(a)(1)-(2), available online at http://www.plaingreenloans.com/content /assest/uploads/titles10.pdf.
The Otoe-Missouria provide a "Consumer Complaint Procedure" but no remedies. Tribal Consumer Financial Services Ordinance § 8.2, available online at http://www.omtribe.org/useruploads/files/approved_ordinance_2018_pdf.
Defendants also cites Ceramic Crop. of America v. Inka Maritime Corp., Inc. ,
As such, I do not need to reach plaintiffs' other arguments, including unconscionability.
"Because California's long-arm jurisdictional statute is coextensive with federal due process requirements, the jurisdictional analyses under state law and federal due process are the same." Schwarzenegger ,
However, as the Supreme Court reemphasized in Walden v. Fiore ,
The factors to be considered in determining reasonableness include: "(1) the extent of the defendant's purposeful interjection into the forum state, (2) the burden on the defendant in defending in the forum, (3) the extent of the conflict with the sovereignty of the defendant's state, (4) the forum state's interest in adjudicating the dispute, (5) the most efficient judicial resolution of the controversy, (6) the importance of the forum to the plaintiff's interest in convenient and effective relief, and (7) the existence of an alternative forum." In re W. States Wholesale Nat. Gas Antitrust Litig. ,
I note plaintiffs' subsequent communication to this Court (Dkt. No. 113, January 11, 2019 letter), explaining that they believed they would be able to use a discovery response that non-party Think Finance issued in related litigation in support of their assertion of jurisdiction, but that Think Finance reversed course at the last minute and now asserts that plaintiffs cannot use the response given a protective order in the related litigation.
Defendants dispute many of these assertions in their reply to the MTD, contending that the interest they received was only on their unsecured line of credit to Plain Green and the 1% referral fee was a "finder's fee" paid by Think Finance, MTD Reply at 1-2. Those assertions are not supported by any declaration or other evidence. Moreover, the relationship between what and how much the Haynes defendants received directly from Plain Green or through Think Finance and the interest and fees collected by the Tribes from consumers is better explored on a full evidentiary record.
Because I find that the allegations of the Complaint, supplemented by the discovery evidence, satisfy the prima facie case for specific personal jurisdiction. I need not reach the alternative ground for jurisdiction under RICO,
Here, the choice-of-law provisions seek to impose Chippewa Cree tribal law on the Plain Green loans and Otoe-Missouria tribal law on the GPL loans.
Because I conclude the choice of law provisions are unenforceable prospective waivers I need not reach plaintiffs' alternate arguments that the choice of law provisions must be set aside because of the lack of a substantial relationship between the Tribes and the end-consumers and that application of the Tribal choice of law violates California's strong public policy protecting consumers against usury. However, I note the persuasive analysis of district courts who have refused to enforce materially similar choice of law provisions. See Consumer Financial Protection Bureau v. CashCall, Inc. , CV-157522-JFWRAOX,
The fact that consumers (represented by plaintiffs' counsel here) have sued other parties to recover for their injuries, including ACH providers (MTD Reply 13), does not mean plaintiffs injuries were not also proximately caused by the Haynes' defendants' role in the scheme.
See, e.g., Constellation Bank, N.A, v. C.L.A. Mgt. Co. , 94 CIV. 0989 (RPP),
The Haynes defendants' cases are inapposite. In Liebelt v. Carney ,
See Bruton v. Gerber Products Co. ,
That declaration was not timely filed, Dkt. No. 122, but will be fully considered.
For example, Haynes does not explain that disclosure of the referral agreement between the Haynes defendants and Think Finance [Ex. 2] or the Promissory Note between Plain Green LLC and Haynes Investments [Ex. 34] would likely cause any specifically identified competitive harms to Haynes because specific terms in either document are relevant to Haynes' current or future business plans.
As explained in this Court's Civil Local Rule 79-5, simply because the information is considered confidential or is marked confidential under a Protective Order, does not mean that information should be sealed. Civ. L.R. 79-5(d)(1)(A). I note that the Haynes defendants have also failed to comply with my Standing Order on Administrative Motions to Seal