LULA WILLIAMS; GLORIA TURNAGE; GEORGE HENGLE; DOWIN COFFY; MARCELLA P. SINGH, Administrator of the Estate of Felix M. Gillison, Jr., on behalf of themselves and all individuals similarly situated, Plaintiffs - Appellees, v. MATT MARTORELLO, Defendant - Appellant, and BIG PICTURE LOANS, LLC; ASCENSION TECHNOLOGIES, INC.; DANIEL GRAVEL; JAMES WILLIAMS, JR.; GERTRUDE MCGESHICK; SUSAN MCGESHICK; GIIWEGIIZHIGOOKWAY MARTIN, Defendants.
No. 21-2116
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
January 24, 2023
PUBLISHED
Argued: October 28, 2022
Decided: January 24, 2023
Before GREGORY, Chief Judge, and AGEE and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the opinion in which Chief Judge Gregory and Judge Diaz joined.
This class-action proceeding relates to a lending scheme allegedly designed to circumvent state usury laws. Matt Martorello appeals from three district court rulings that (1) reconsidered prior factual findings based on a new finding that Martorello made misrepresentations that substantially impacted the litigation, (2) found that the plaintiffs-appellees—Virginia citizens who took out loans (the “Borrowers“)—did not waive their right to participate in a class-action suit against him, and (3) granted class certification.
In particular, Martorello argues that the district court violated the mandate rule by making factual findings related to the misrepresentations that contradicted this Court‘s holding in the prior appeal and then relying on those factual findings when granting class certification. He also contends that the Borrowers entered into enforceable loan agreements with lending entities in which they waived their right to bring class claims against him. In addition, he asserts that common issues do not predominate so as to permit class treatment in this case.
As explained below, we disagree with Martorello. We conclude that the district court did not violate the mandate rule and that the Borrowers did not waive the right to pursue the resolution of their dispute against him in a class-action proceeding. Finally, we conclude that the district court did not abuse its discretion in granting class certification because common issues predominate. Accordingly, we affirm the rulings of the district court.
I.
A.
As an initial step of this alleged scheme, the Tribe enacted a Tribal Consumer Financial Services Code (the “Code“) to govern a new consumer lending program. The Code created the Tribal Financial Services Regulatory Authority (the “Authority“) to implement the Code. The Authority‘s powers included licensing entities to engage in certain consumer financial services (“Licensees“); determining whether Licensees violated the Code; and disciplining Licensees through possible fines, sanctions, license suspensions, and license revocations.
In addition to complying with the Code, Licensees were to comply with applicable tribal and federal law and to conduct business “in a manner consistent with principles of federal consumer protection law.” J.A. 3090. Nonetheless, the Code stated that the
Section 9 of the Code created the Tribal Dispute Resolution Procedure (“TDRP“) under which a consumer could raise a complaint with a Licensee. If the consumer was dissatisfied with the Licensee‘s response, he or she could request review by the Authority. In turn, the Authority could hold a hearing and issue a written decision “grant[ing] or deny[ing] any relief as [it] determine[d] appropriate.” Id. at 3097. The consumer could then appeal to the Tribal Court which could reverse and remand the Authority‘s decision if that court concluded that the decision “conflict[ed] with Tribal law or the Tribal Constitution[.]” Id. at 3098. But any decision by the Tribal Court could not be appealed: “[u]pon issuance of the Tribal Court‘s opinion and order, a consumer‘s administrative remedies are exhausted.” Id.
B.
After the enactment of the Code, the Tribe and/or Martorello created Red Rock Tribal Lending, LLC (“Red Rock“), which began making consumer loans in January 2012. The facts related to the creation and operation of Red Rock are disputed, but the parties agree that Red Rock contracted with Bellicose VI, LLC (“Bellicose“)—an entity owned by Martorello—to provide services related to the lending in exchange for a portion of Red
In the same time frame, litigation and government enforcement actions against “Rent-a-Tribe” lenders began to increase. The Borrowers allege that Martorello became concerned about his exposure to liability, so the parties restructured the lending operations with a goal that all involved entities would be covered by the Tribe‘s sovereign immunity. To accomplish that goal, the Tribe divided Red Rock into two entities—Big Picture Loans, LLC (“Big Picture“) and Ascension Technologies (“Ascension“) (collectively, the “Entities“)—to operate the lending business. The Tribe then purchased another entity, Bellicose Capital (which was the parent company of SourcePoint), from its parent company, Eventide, in a seller-financed deal in which Eventide provided a loan to the Tribe to be repaid over seven years of variable repayments.3 The Borrowers contend that even after this restructuring, Martorello “continued to keep almost all the profits . . . while retaining substantial control of the lending operation through Eventide.” Response Br. 9.
C.
Consumer loans were made using standardized agreements between the Borrowers and Red Rock or Big Picture (the “Loan Agreement“). The Loan Agreement contained the
This Agreement will be governed by the laws of the [Tribe] (“Tribal law“), including but not limited to the Code as well as applicable federal law. All disputes shall be solely and exclusively resolved pursuant to the [TDRP] set forth in Section 9 of the Code and summarized below for Your convenience.
J.A. 1936 (capitalization in original). Elsewhere, the Loan Agreement reiterated the TDRP‘s general process as outlined in the Code and explained that consumer complaints must “be considered similar in nature to a petition for redress submitted to a sovereign government, without waiver of sovereign immunity and exclusive jurisdiction, and does not create any binding procedural or substantive rights for a petitioner.” Id. at 1937.
The Loan Agreement also contained a waiver provision in which the Borrower agreed that (1) he or she consented to the jurisdiction of the Tribe and agreed to be bound solely by the TDRP; and (2) he or she gave up the right to serve as a representative and to participate as a member of a class of claimants in any lawsuit filed against the lender “AND/OR RELATED THIRD PARTIES.” Id. (capitalization in original). The Borrower acknowledged that all disputes against the lender and related third parties must be resolved by the TDRP “only on an individual basis . . . as provided for pursuant to Tribal law” and that “NO LITIGATION OR ARBITRATION IS AVAILABLE AND NO JUDGE OR ARBITRATOR SHALL CONDUCT CLASS PROCEEDINGS[.]” Id. (capitalization in original). This waiver provision was binding on the lender “and related third parties.” Id.
For the TDRP and waiver provisions, “disputes” were defined as: (1) “all claims, disputes, or controversies involving the parties to this Agreement and Our employees,
The Borrowers acknowledged in signing the Loan Agreement (1) that it was “subject solely and exclusively to the Tribal law and jurisdiction of the [Tribe]“; and (2) that the TDRP was “the sole and exclusive forum for resolving disputes and/or claims arising from or relating to this Agreement.” Id. at 1938. They also acknowledged the waiver provision.
D.
In June 2017, the Borrowers filed a class action complaint against the Entities, Martorello, and other parties not relevant to the current appeal. The Borrowers brought claims for declaratory judgment, violations of federal civil RICO law, violations of Virginia usury law, and unjust enrichment.
The Entities moved to dismiss for lack of subject matter jurisdiction, asserting that they were entitled to tribal sovereign immunity. Following jurisdictional discovery, the district court denied the motion, and the Entities appealed. We reversed the district court‘s decision and remanded with instructions to grant the Entities’ motion to dismiss for lack
After remand, the district court dismissed the Entities for lack of subject matter jurisdiction.4 The district court also ordered briefing on the Borrowers’ claims that Martorello had misrepresented certain facts in an earlier declaration. After an evidentiary hearing on this issue, the district court issued an opinion (the “Misrepresentation Opinion“) in which it found that Martorello made misrepresentations in the declaration. Williams v. Big Picture Loans, LLC, No. 3:17cv461, No. 3:18cv406, 2020 WL 6784352, at *4, *6-7, *9-12 (E.D. Va. Nov. 18, 2020). The court held that the misrepresentations related to several material factors relied on in its earlier decision and in this Court‘s opinion determining that the Entities shared in the Tribe‘s sovereign immunity. Id. at *13-14. The court concluded that the misrepresentations led to “significantly erroneous” findings at the heart of those decisions. Id. at *13. And while the court recognized it could not change the immunity issue decided by this Court‘s prior opinion, it determined that “in analyzing all pending and future motions” in the litigation, it would consider the misrepresentation findings. Id. at *14.
The district court also granted the Borrowers’ motion for class certification.5 Williams v. Big Picture Loans, LLC, 339 F.R.D. 46, 52 (E.D. Va. 2021). In relevant part, the court determined that common issues predominate because the Borrowers’ claims are based on standardized loan contracts and uniform conduct by Martorello. Id. at 61-62. Acknowledging that damages for each class member would need to be calculated individually, the district court noted that the damages could likely be calculated from the loan records rather than requiring extensive evidence for each class member. Id. at 62.
On the usury and unjust enrichment claims, the district court rejected Martorello‘s argument that the Borrowers could not show that he received loan payments from all class members because loan payments went first to the lenders and then funds passed to him only based on the lenders’ total profitability. Id. The court explained that the Borrowers
Martorello petitioned for permission to appeal, which we granted. We have jurisdiction over the grant of class certification pursuant to
II.
First, Martorello contends that the district court violated this Court‘s mandate by making new factual findings in the Misrepresentation Opinion that contradict the record from the prior appeal. We review whether a post-mandate decision of the district court violated the mandate rule de novo. Doe v. Chao, 511 F.3d 461, 464 (4th Cir. 2007). Under the mandate rule, “a lower court generally is bound to carry the mandate of the upper court into execution and may not consider the questions which the mandate laid at rest.” United States v. Bell, 5 F.3d 64, 66 (4th Cir. 1993) (cleaned up). On remand, a district court cannot reconsider “issues expressly or impliedly decided” on appeal. Id. However, if “controlling legal authority has changed dramatically“; “new evidence, not earlier obtainable in the exercise of due diligence, has come to light“; or “a blatant error in the prior decision will, if uncorrected, result in a serious injustice,” then the district court may reopen an issue even if the appellate court‘s mandate did not contemplate relitigating that issue. Id. at 67.
We need not decide whether the district court‘s factual findings in the Misrepresentation Opinion contradicted the facts accepted by this Court in the prior appeal. Even if they did, the new evidence and serious injustice exceptions to the mandate rule apply such that the district court permissibly reconsidered those previous factual findings.
Following this Court‘s mandate, the district court considered the Borrowers’ evidence that Martorello made material misrepresentations to the district court and this Court in the prior proceedings about facts relating to the Entities’ sovereign immunity. The district court found that Martorello made misrepresentations in a declaration he filed in support of the Entities’ motion to dismiss for lack of subject matter jurisdiction. Williams, 2020 WL 6784352, at *4, *6-7, *9-12. When new evidence indicates that a district court previously made erroneous factual findings based on fraud or misrepresentation, the district court may reconsider those findings as needed. See Bell, 5 F.3d at 67 (describing the exceptions to the mandate rule); see also United States v. Aramony, 166 F.3d 655, 661 (4th Cir. 1999) (explaining that when a district court proceeding “produc[es] substantially different evidence,” an exception to the mandate rule applies). Here, the district court found
III.
Turning to the merits, Martorello first contends that the Borrowers waived their right to bring class-action claims against him. He asserts that the district court erred in concluding that the class-action waiver did not apply to disputes between him and the Borrowers and in finding that the waiver was unenforceable due to the prospective waiver doctrine. Because we agree with the district court that the class-action waiver did not bar the Borrowers from bringing class claims and that the waiver is unenforceable, we reject Martorello‘s contentions on each of these separate and independent grounds.
A.
We first address Martorello‘s argument that the district court erred in determining that the class-action waiver did not apply to claims against him. The district court‘s interpretation of the Loan Agreement is a matter of contract interpretation that this Court reviews de novo. Kay Co. v. Equitable Prod. Co., 27 F.4th 252, 258 (4th Cir. 2022).7
“Affiliated entity” is not defined in the Loan Agreement. When a contract does not define a particular term, we look to the “ordinary meaning” of that term. See Bratton v. Selective Ins. Co. of Am., 776 S.E.2d 775, 780 (Va. 2015).
“[A]ffiliated” means “closely associated with another typically in a dependent or subordinate position[.]” Affiliated, Merriam-Webster.com, https://www.merriam-webster.com/dictionary/affiliated (last visited Jan. 3, 2023) (saved as ECF opinion attachment). And an “entity” is typically defined in this context as “an organization (such as a business or governmental unit) that has an identity separate from those of its members[,]” although it also refers more generally to “something that has separate and
Although certain sources define “affiliated entities” to include individuals, see, e.g.,
Therefore, we conclude that the term “affiliated entities” in the Loan Agreement does not refer to individuals. Because Martorello is an individual, he is not a party exempted from class-action claims and liability.
Martorello argues, however, that the Borrowers are estopped from disclaiming the class waiver. In support of this argument, he relies on American Bankers Insurance Group v. Long, 453 F.3d 623 (4th Cir. 2006), and related case law. In American Bankers, a non-signatory to a contract sought to compel arbitration with the plaintiff-signatories based on an arbitration clause in the contract “providing ‘that any dispute, controversy or claim arising out of or in connection with, or relating to, any subscription of the Note, or any breach or alleged breach hereof, . . .’ shall be subject to arbitration.” Id. at 625. The non-signatory argued that the plaintiffs should be estopped from asserting that it was not a signatory to the arbitration clause because the plaintiffs’ claims against the non-signatory relied on the contract. Id. at 626. The non-signatory therefore asserted that the plaintiffs should not be allowed to enforce the duties created by the contract but avoid the contract‘s arbitration provision. Id. at 628. This Court agreed, concluding that because the plaintiffs’ claims relied on the contract‘s terms, “it would be inequitable to allow [the plaintiffs] to seek recovery on their individual claims [but] at the same time deny that [the non-signatory] was a party to the [contract‘s] arbitration clause.” Id. at 630.
In conclusion, we agree with the district court that the class-action waiver does not apply to disputes with Martorello. Therefore, the Borrowers are not barred from bringing the class claims at issue.
B.
Next, we address Martorello‘s contention that the district court improperly concluded that the prospective waiver doctrine applied and rendered the class-action waiver unenforceable.
The prospective waiver doctrine invalidates agreements that prospectively waive a party‘s right to pursue statutory remedies in certain circumstances. See Am. Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 235 (2013); Hengle, 19 F.4th at 335 (“But where
1.
Preliminarily, Martorello asserts that the prospective waiver doctrine only applies to arbitration agreements and cannot be extended to any other agreement so as to apply to the TDRP. Martorello is correct that we have previously only applied this doctrine in the arbitration context. See Dillon v. BMO Harris Bank, N.A., 856 F.3d 330, 334-36 (4th Cir. 2017); Hayes v. Delbert Servs. Corp., 811 F.3d 666, 673-76 (4th Cir. 2016); Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 371-73 (4th Cir. 2012); Sequoia Capital, 966 F.3d at 292-94; Gibbs v. Haynes Invs., LLC, 967 F.3d 332, 339-45 (4th Cir. 2020); Hengle, 19 F.4th at 334, 342. But in discussing this doctrine, we have linked its application to the Supreme Court‘s broader recognition that “courts will invalidate any contract—arbitration or otherwise—that attempts to foreclose ‘the assertion of certain statutory rights’ because such a contract would jeopardize a party‘s ‘right to pursue statutory remedies[.]‘” Haynes, 967 F.3d at 340 (citing and quoting Am. Express, 570 U.S. at 236) (emphasis added); see
The rationale underlying the prospective waiver doctrine supports its application to non-arbitration contracts: a prospective waiver of federal statutory rights is unenforceable because it violates public policy. Sequoia Capital, 966 F.3d at 292; Hengle, 19 F.4th at 334. The violation of public policy is a contract-enforcement defense applicable to various contractual arrangements, not just arbitration agreements. See BP Prods., 669 F.3d at 189 (explaining that under Virginia law, noncompete covenants in employment contracts are enforceable if, inter alia, they do not violate public policy); Elderberry of Weber City, LLC v. Living Ctrs.-Se., Inc., 794 F.3d 406, 412 (4th Cir. 2015) (providing, in the context of a lease, “the prevailing rule is that parties to a contract may provide the remedy that will be available to them in case a breach occurs so long as the remedy provided is not contrary to the law or against public policy” (cleaned up)).
Martorello claims that there is a “critical distinction between arbitration and a tribal forum—the Borrowers may sue in federal court after exhausting the administrative remedies available to them in Tribal Court[.]” Opening Br. 36. He asserts that because the Borrowers could later sue in federal court, the prospective waiver doctrine does not apply. We disagree with Martorello‘s contentions.
First, parties to an arbitration agreement may sue in federal court following an arbitration award, under the procedures in the Federal Arbitration Act.
Second, the tribal exhaustion doctrine that Martorello cites to assert that the Borrowers may later sue in federal court is not applicable here. When the existence and extent of a tribal court‘s jurisdiction is at issue, the tribal court is first allowed to examine the jurisdictional challenge: that is the tribal exhaustion doctrine. See Nat‘l Farmers Union Ins. Co. v. Crow Tribe of Indians, 471 U.S. 845, 855-56 (1985). This doctrine does not provide a right to sue in federal court except in cases involving challenges to the tribal court‘s jurisdiction. See Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 19 (1987) (“Unless a federal court determines that the Tribal Court lacked jurisdiction, however, proper deference to the tribal court system precludes relitigation of issues raised by the [underlying plaintiffs‘] bad-faith claim and resolved in the Tribal Courts.“). That jurisdiction is not at issue here, so the tribal exhaustion doctrine has no application.
Third, while Martorello asserts that the Borrowers will have an absolute right to sue in federal court upon the conclusion of Tribal Court proceedings, the Loan Agreement expressly contradicts that claim. See J.A. 1937 (“Your right to file suit against Us for any claim or dispute arising from or relating to this Agreement is limited by the WAIVER OF JURY TRIAL AND THE TRIBAL DISPUTE RESOLUTION PROCEDURE provisions.” (capitalization in original)); id. (providing, as the final step of the TDRP, that “[a] consumer may appeal an Authority decision and order by filing a written petition for review with the Tribal Court“); id. at 3098 (“The Tribal Court‘s opinion and order may not be appealed.“).
2.
Turning to the application of the prospective waiver doctrine on the merits, we conclude that the doctrine renders the class-action waiver unenforceable because the waiver itself, the Loan Agreement, and the Code provisions incorporated into the Loan Agreement make clear that the waiver does not permit the Borrowers to effectively vindicate their federal rights.10
a.
Our prior application of the prospective waiver doctrine to similar agreements involving tribal law offers informative context as to how this doctrine applies to the current dispute.
First, in 2016, this Court decided Hayes v. Delbert Services Corp. in which the plaintiff—a payday-loan borrower—filed a putative class action against the loan‘s servicer for allegedly using debt collection practices that violated federal law. 811 F.3d at 668. The servicer moved to compel arbitration, and this Court held that the arbitration agreement was unenforceable because “[t]he agreement purportedly fashion[ed] a system of alternative dispute resolution while simultaneously rendering that system all but impotent through a categorical rejection of the requirements of state and federal law.” Id.; see also
The next year, the Court decided Dillon v. BMO Harris Bank, N.A., where we again found an arbitration provision in a payday-loan agreement to be unenforceable. 856 F.3d at 332. The arbitration agreement in Dillon required the application of tribal law, and the underlying loan agreement explicitly disclaimed the application of state and federal law. Id. at 331–32, 335–36.
In 2020, the Court decided Gibbs v. Haynes Investments, LLC, and Gibbs v. Sequoia Capital Operations, LLC. In Haynes, the Court analyzed agreements that differed from the agreements in Hayes and Dillon in that they did not expressly disclaim the application of federal law. 967 F.3d at 341–42. Nonetheless, because the agreements provided that they were governed by tribal law and limited the arbitrator to applying tribal law and deciding the dispute in a way consistent with tribal law, the Court saw “no material distinction” between them, id. at 341, reasoning that “the practical effect is the same [as in Hayes and Dillon] because they do provide that tribal law preempts the application of any contrary law—including contrary federal law,” id. at 342. This conclusion was reinforced by the agreements’ provisions that permitted appeals only through tribal courts and to review whether the conclusions of law were erroneous solely under tribal law. Id. at 343.
Similarly, in Sequoia Capital, an arbitration agreement provided for the application of tribal law, limited remedies to those available under tribal law, and limited appeals to an arbitration award‘s conformity with tribal law. 966 F.3d at 293. We concluded that those provisions “prevent[ed] claimants from vindicating a RICO claim for treble damages” by “mandat[ing] the primacy and effective control of tribal law in resolving any disputes” even though the agreement did not explicitly disclaim the application of federal law. Id. The defendants argued that because the agreements indicated that federal claims would be resolved by arbitration, the borrowers could pursue them. Id. But the Court reasoned that the language did not “counteract the effect” of the above-described provisions providing for the application of tribal law. Id. The Court thus held the arbitration agreement to be unenforceable. Id. at 294.
Finally, in 2021, the Court decided Hengle v. Treppa, in which we concluded that an arbitration agreement and its delegation clause were unenforceable. 19 F.4th at 342. The Court reasoned that the agreement‘s provisions providing for the exclusive application of tribal law operated as prospective waivers, even though they did not “explicitly disclaim the application of federal law,” because the effect of the provisions “demand[ed] exclusive application of tribal law, thereby preempting application of other authority.” Id. at 338–39 (quoting Haynes, 967 F.3d at 342); see id. at 342.
Relatedly, the defendants in Hengle asserted that the tribal code there incorporated federal law such that the agreement‘s invocation of tribal law did not displace federal law. Id. But the Court rejected this argument because, as in Haynes, RICO was absent from the tribal code‘s list of federal statutes with which lenders had to comply. Id. Moreover, the tribal code did not include a private right of action for violations of federal law. Id. Finally, the tribal code‘s consumer-complaint procedure permitted the tribal commission reviewing complaints to “grant or deny any relief as the Commission determine[d] appropriate” and limited the amount of any award. Id. at 343–44. Therefore, the Court concluded that the arbitration agreement was unenforceable. Id. at 344.
Following our precedent, we conclude that the prospective waiver doctrine renders the class-action waiver here unenforceable because it is governed solely by Tribal law. References to federal law in the Loan Agreement and Code do not make the waiver enforceable.
First, the waiver provision and the Loan Agreement in general provide that they are governed exclusively by Tribal law. See J.A. 1934 (“This Loan Agreement . . . is governed by the laws of the [Tribe].“); id. at 1937 (“All disputes . . . shall be resolved by the [TDRP] only on an individual basis with You as provided for pursuant to Tribal law.“); id. at 1938 (“You acknowledge and agree that this Agreement is subject solely and exclusively to the Tribal law[.]“). As in Sequoia Capital, these provisions “mandate the primacy and effective control of tribal law in resolving any disputes arising out of these agreements” and constitute a prospective waiver. 966 F.3d at 293; see also Haynes, 967 F.3d at 342 (“Although these provisions do not explicitly disclaim the application of federal law, the practical effect is the same because they do provide that tribal law preempts the application of any contrary law[.]“); Hengle, 19 F.4th at 338 (explaining that the agreements mandate the exclusive application of tribal law).
Moreover, although Martorello argues that the Governing Law provision incorporates federal law into the definition of “Tribal law,” that reference is not determinative—such a provision must be viewed in context to determine its actual meaning. See Hengle, 19 F.4th at 341.
In addition, while providing that Licensees must comply with federal law, the Code does not clearly provide for a private right of action such that consumers can seek redress for violations of the Code that injure them. See id. at 344 (“Although the Ordinance contains a consumer complaint procedure, it does not provide for or establish any private right of action for violations of any provisions, let alone any federal laws.“); Hengle, 19 F.4th at 343. And even assuming the Code did provide for such a private right of action,
Martorello counters that the TDRP expressly allows claims to be brought under federal law based on its definition of “disputes,” which includes “all Tribal and U.S. federal or state law claims” and “all claims based upon a violation of any Tribal, state or federal constitution, statute, regulation or ordinance[.]” J.A. 1937. But this Court rejected a similar argument in Sequoia Capital, 966 F.3d at 293. As explained above, if the Borrowers attempted to bring claims under such language, the Code and TDRP would prevent vindication of them. See id.; see also Hayes, 811 F.3d at 673–74 (“With one hand, the
For all these reasons, this case is analogous to our recited precedent in which we found the prospective waiver doctrine applies. Although Martorello asserts that there is uncertainty over whether the Authority would apply federal statutory remedies such that the Authority should first be allowed to determine whether the waiver deprives the Borrowers of such remedies, we find no such uncertainty. See Sequoia Capital, 966 F.3d at 294 (declining to find uncertainty). We therefore agree with the district court‘s application of the prospective waiver doctrine and hold the class-action waiver unenforceable.
IV.
Martorello concludes his appeal by arguing that even if the Borrowers did not waive their right to pursue their claims as a class action, the district court nevertheless abused its discretion in granting certification. He contends that individual, not common, questions of fact predominate and thus bar class certification. We disagree.
This Court‘s “review of class certification issues is deferential, cognizant of both the considerable advantages that our district court colleagues possess in managing complex litigation and the need to afford them some latitude in bringing that expertise to bear.”
Martorello does not dispute that the requirements of
A.
Martorello first asserts that to establish that he violated RICO, the Borrowers must prove that he “participated in the direction of the affairs of the alleged enterprise” and that he proximately caused their harm.15 Reply Br. 25. But because his participation in the
As evidence of his diminishing role in the lending business over the class period, Martorello argues that certain facts found by the district court in the class certification opinion—which built on its findings in the Misrepresentation Opinion—were erroneous. He contends the district court improperly made the following factual findings related to his continuing role: (1) “Martorello was the de facto head of the [Tribe‘s] lending operations at all relevant times“; (2) “Martorello was functionally in charge of the lending business and the Tribal ‘managers’ were ‘rather meaningless‘“; and (3) “even after the [Tribe] restructured the lending operations to avoid regulatory scrutiny, the evidence strongly shows that Martorello was still running the show” and that “[e]xcept for a few cosmetic changes . . . , the [Tribe‘s] lending operation by way of Big Picture continued as it had under the Red Rock structure.” Opening Br. 50 (quoting Williams, 339 F.R.D. at 54, 63). He asserts that as Red Rock took over tasks previously handled by SourcePoint, his role correspondingly decreased until it ended after the sale of Bellicose to the Tribe in 2016. As a result, Martorello contends the Borrowers will not be able to prove that he “participated
Having reviewed the record, we conclude the district court‘s findings were not clearly erroneous. Put another way, we are not “left with the definite and firm conviction that a mistake has been committed.” Hall, 664 F.3d at 462 (quoting U.S. Gypsum Co., 333 U.S. at 395).
As to the district court‘s conclusion that Martorello operated as the “de facto head” of the Tribe‘s lending operations during the class period, he argues that the court erroneously discredited his prior statement that Red Rock‘s co-managers were ultimately responsible for decisions about Red Rock‘s operations. The record, however, supports the district court‘s conclusion. For example, a 2011 email from Flint Richardson17 to Martorello stated that the Tribal co-managers were not going to be involved in Red Rock‘s lending business because Bellicose would completely operate it. See J.A. 2489–90 (“THE LLC MANAGERS ARE MANAGERS OF THE LLC ENTITY ON BEHALF OF THE TRIBE BUT ARENT [sic] INVOLVED IN THE BUSINESS. . . . THE SERVICER,
Martorello next asserts that the district court erred by concluding that he demanded, took, or received consumer payments on loans originated by Red Rock. He argues that because he and his companies “never took or received any payments from consumers as part of the Tribe‘s lending business,” that is evidence of his limited involvement in Red Rock‘s lending business. Opening Br. 57. To establish RICO liability, he suggests, the Borrowers would need to individually prove that during each Borrower‘s repayment of his or her loans, Martorello was directing the lending operations—a crucial part of which was receiving loan payments from consumers.
In rejecting this argument, the district court reasoned that because “[c]ollection of the consumer loans was a key component of the lending operation,” Williams, 2020 WL 6784352, at *6, and because the record indicated that Bellicose—a Martorello-owned and controlled entity—received loan payments from consumers, id., “Martorello had de facto control of Red Rock[‘s] . . . lending operations,” Williams, 339 F.R.D. at 54. The district court explained that “money paid by consumers went into the Bellicose bank account over
The district court concluded that Martorello received payments on the consumer loans based, in part, on his own testimony, which the court found not credible: “Martorello‘s demeanor and conduct when answering questions on this topic of the evidentiary hearing compels the conclusion that Martorello was not telling the truth and that, in fact, contrary to the affidavit, Bellicose collected the consumer loans originated by Red Rock.” Williams, 2020 WL 6784352, at *6. The district court‘s determination regarding Martorello‘s credibility deserves “the highest degree of appellate deference.” U.S. Fire Ins. Co. v. Allied Towing Corp., 966 F.2d 820, 824 (4th Cir. 1992); see United States v. Shea, 989 F.3d 271, 278 (4th Cir. 2021) (“[W]hen a factual finding is based on witness credibility, the appellate court gives ‘even greater deference.‘” (quoting Anderson, 470 U.S. at 573)). As this Court has explained:
The trial court is uniquely qualified to determine which witnesses are most credible and to resolve conflicts among witnesses’ testimony, for the simple reason that it has the benefit of observing the witnesses, and is thereby “aware of the variations in demeanor and tone of voice that bear so heavily on the listener‘s understanding of and belief in what is said.”
U.S. Fire Ins., 966 F.2d at 824 (quoting Anderson, 470 U.S. at 575).
In sum, we conclude that the district court did not clearly err in refusing to credit certain portions of Martorello‘s testimony. Nor did it clearly err in determining that Martorello ultimately received consumer loan payments and in finding that this fact supported its conclusion that Martorello was essentially in charge of Red Rock‘s lending operations through the projected class periods. And neither did the court err in reasoning that Martorello‘s substantial involvement in Red Rock‘s lending operations supported the conclusion that common questions predominate because the Borrowers can rely on common proof to show that Martorello participated in and controlled the direction of the lending operations to establish RICO liability.
In sum, the district court did not err in finding that Martorello was the controlling head of the lending operations throughout the class period. Accordingly, the Borrowers can use class-wide proof of Martorello‘s significant and relatively unchanging role in their effort at trial to establish that he “participated in directing the alleged enterprise‘s affairs” and that he proximately caused the Borrowers’ harm under RICO. Reply Br. 25. We thus conclude that the district court did not misapply
B.
Next, we address Martorello‘s argument that the Borrowers’ usury and unjust enrichment claims cannot be established with class-wide proof because individualized tracing would be required to establish Martorello‘s liability to each individual Borrower.
Both theories of liability require the Borrowers to establish that Martorello received some portion of the loan proceeds. Specifically, under Virginia usury laws, “[i]f interest in excess of that permitted by an applicable statute is paid upon any loan, the person paying may bring an action . . . to recover from the person taking or receiving such payments.”
Martorello argues that to establish his liability under either usury laws or for unjust enrichment, each individual Borrower would need to show that he received some portion of their interest payments. Continuing, Martorello posits that because neither he nor the entities he owned directly took or received consumer-loan payments and because they did not receive contractual payments related to the lending operations in some months, the Borrowers would need to individually trace their interest payments through Big Picture or Red Rock to a Martorello-owned entity. In response, the Borrowers assert that the question of Martorello‘s receipt of interest payments is a common question that they can answer through common proof—namely, proof of Martorello‘s receipt of consumer-loan payments through the Bellicose bank account and/or proof of the contracts between the tribal entities and Martorello-owned entities that show that Martorello-owned entities received a percentage of the loan revenue for the class period.
At this stage, we need not decide whether the Borrowers will establish that Martorello in fact received usurious payments or an unjust benefit conferred by the Borrowers through their proffered common evidence. This is because at the class certification stage, courts may not “engage in free-ranging merits inquiries.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013). Instead, courts may consider merits questions “only to the extent necessary to verify that
Therefore, it is unnecessary at this stage of the common-question analysis to
On the merits, the Borrowers may present their common evidence as part of their burden to prove that Martorello received usurious payments or that he received a benefit from the loan payments such that he was unjustly enriched. If the district court finds that the evidence is sufficient, the Borrowers will defeat a summary-judgment motion, for example, as to the entire class. Similarly, if the court determines that proof of the payment arrangements between Big Picture or Red Rock and Martorello is insufficient, then the usury and unjust enrichment claims would fail as to the entire class. Therefore, the Borrowers’ “inability to prove” Martorello‘s liability with their evidence “would not result in individual questions predominating,” but would rather “end the case,” causing the class‘s liability on the usury and unjust enrichment claims to “prevail or fall in unison.” Amgen, 568 U.S. at 459–60; see Stockwell v. City & Cnty. of San Francisco, 749 F.3d 1107, 1115 (9th Cir. 2014) (finding commonality where the class would “rise and fall together” based
Further, while Martorello appears to argue that the fact that the Borrowers could attempt to offer individualized tracing proof renders their claims inappropriate for class certification, he never challenges the district court‘s conclusion that tracing is ultimately “not how Plaintiffs propose to prove that Martorello received payments on usurious loans.” Williams, 339 F.R.D. at 62. Moreover, if the Borrowers attempt to rely on individual evidence to establish Martorello‘s liability, he may move to decertify or modify the class on the basis that the predominance requirement should be reevaluated. See
Therefore, we find that the district court did not misapply
V.
For the reasons given, we affirm the rulings of the district court.