Jenkins v. First American Cash Advance of Georgia

• Decision Date: 18 February 2005
• Docket Number: No. 03-16329.,03-16329.
• Citation: 400 F.3d 868
• Parties: Charlene JENKINS, And All Other Persons Similarly Situated, Plaintiff-Appellee, v. FIRST AMERICAN CASH ADVANCE OF GEORGIA, LLC, First National Bank in Brookings, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

400 F.3d 868

Charlene JENKINS, And All Other Persons Similarly Situated, Plaintiff-Appellee, v. FIRST AMERICAN CASH ADVANCE OF GEORGIA, LLC, First National Bank in Brookings, Defendants-Appellants.

No. 03-16329.

United States Court of Appeals, Eleventh Circuit.

February 18, 2005.

COPYRIGHT MATERIAL OMITTED

Michael D. Grider, John G. Parker, Paul, Hastings, Jawofsky & Walker, LLP, Patricia Fortune Ammari, Ashe, Rafuse & Hill, LLP, Atlanta, GA, Alan S. Kaplinsky, Mark J. Levin, Ballard, Spahr, Andrews & Ingersoll, LLP, Philadelphia, PA, Harry D. Revell, Burnside, Wall, Daniel, Ellison & Revell, Augusta, GA, for Defendants-Appellants.

James C. Overstreet, Jr., Klosinski Overstreet, LLP, John B. Long, Tucker, Everitt, Long, Brewton & Lanier, PC, Augusta, GA, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Georgia.

Before ANDERSON, DUBINA and BLACK, Circuit Judges.

BLACK, Circuit Judge:

Plaintiff-Appellee Charlene Jenkins entered into several lending transactions with Defendants-Appellants First American Cash Advance of Georgia, LLC (First American) and First National Bank in Brookings (FNB). Each time Jenkins obtained a loan, she signed an Arbitration Agreement, in which she agreed to either arbitrate or assert in a small claims tribunal, any claim she had against Defendants. The Arbitration Agreements also required Jenkins to waive her right to participate in a class action against Defendants. Nonetheless, Jenkins filed a class action lawsuit against First American and FNB in state court, asserting the loan agreements violated Georgia usury laws. After removing the case to federal court, Defendants moved to stay the court proceedings and compel arbitration. The district court denied Defendants' motion, finding the Arbitration Agreements were unconscionable. Pursuant to 9 U.S.C. § 16(a) (2000), Defendants appealed the denial of their motion to this Court. We reverse and remand.

I. BACKGROUND

FNB is a national bank chartered under the National Bank Act, 12 U.S.C. § 21-216(d) (2000), with its principal offices in South Dakota. From September 2001 through January 2003, First American, which is located in Georgia, managed and serviced loans for FNB; however, FNB set the credit scoring criteria for the loans and funded the loans. Customers, like Jenkins, seeking to obtain a loan from FNB would fill out a loan application at First American's offices. First American would electronically transmit the application to FNB for review. FNB would analyze the loan application and make the final decision on whether or not to extend credit. If FNB approved the application, it would send a Consumer Loan Agreement, which included a Promissory Note and an Arbitration Agreement, to First American. To obtain the loan, the customer would have to sign and date both the Promissory Note and the Arbitration Agreement.

The type of lending transactions at issue in this case are commonly referred to as "payday loans." In general, payday loans are small-dollar, short-term loans with high interest rates. In such transactions, a borrower receives a modest cash advance that becomes due for repayment within a short period of time, usually about 14 days. As security for the loan, the borrower gives a check to the payday lender in the amount of the cash advance, plus the interest charged by the lender. The interest rates in payday lending transactions typically range from 20% to 30% for a two-week advance, which computes to an annual percentage rate of about 520% to 780%. If the borrower has not repaid the lender by the due date, the lender can negotiate the check.¹ Alternatively, the borrower may be able to extend the loan's due date by paying a fee. This type of extension is referred to as a renewal or a rollover.

Between June 2002 and September 2002, Jenkins entered into at least eight payday lending transactions with First American and FNB. Each of these loans was for less than $500 and had a maturity date between seven and 14 days. The annual percentage rates charged by Defendants for these loans ranged from a low of 438% to a high of 938.57%. Most of the loans in question charged an interest rate of about 469% annually.

Like other FNB customers, Jenkins signed and dated a Promissory Note and an Arbitration Agreement each time she took out a loan. FNB was explicitly listed as the lender in the loan documents, and First American was listed as the "loan marketer/servicer." Each Promissory Note included a choice-of-law provision, stating the note was "governed by and construed in accordance with the laws of South Dakota." The Arbitration Agreements stipulated that they were governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (2000), because the underlying lending transactions involved interstate commerce. Each Arbitration Agreement further stated if a court found the FAA did not apply to a particular transaction, then the Arbitration Agreement would be governed by the arbitration law of South Dakota.

The Arbitration Agreements signed by Jenkins provided that "all disputes" between the parties would be resolved by binding arbitration. They further stated Jenkins waived her right to participate in a class action against Defendants. Under the Agreements, Jenkins had the right to choose the arbitrator from a list of national arbitration organizations, or Jenkins and Defendants could agree on a local arbitrator. The Agreements required Defendants to advance Jenkins' arbitration costs if she submitted a written request for them to do so. The Arbitration Agreements also permitted the arbitrator to award reasonable attorneys' fees and expenses to the prevailing party "[i]f allowed by statute or applicable law."

The Arbitration Agreements provided only one exception to resolving disputes in arbitration: "All parties ... shall retain the right to seek adjudication in a small claims tribunal for disputes within the scope of such tribunal's jurisdiction." The Agreements did, however, require appeals from the small claims tribunal to be resolved by arbitration. Therefore, by signing the Arbitration Agreements, Jenkins agreed to resolve any claim she had against Defendants by either submitting the claim to arbitration or raising it in a small claims tribunal.

The main provisions of the Arbitration Agreements were conspicuously disclosed in bold-faced capital letters:

You acknowledge and agree that by entering into this Arbitration Provision:

(a) YOU ARE WAIVING YOUR RIGHT TO HAVE A TRIAL BY JURY TO RESOLVE ANY DISPUTE ALLEGED AGAINST US OR RELATED THIRD PARTIES;

(b) YOU ARE WAIVING YOUR RIGHT TO HAVE A COURT, OTHER THAN A SMALL CLAIMS TRIBUNAL, RESOLVE ANY DISPUTE ALLEGED AGAINST US OR RELATED THIRD PARTIES; and

(c) YOU ARE WAIVING YOUR RIGHT TO SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY, AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US AND/OR RELATED THIRD PARTIES.²

In addition, each Promissory Note signed by Jenkins included a clause stating:

Arbitration: You acknowledge that you have read, understand and agree to the terms contained in the Arbitration Agreement you are signing in connection with this Note. By entering into the Arbitration Agreement, you waive certain rights, including the right to go to court, to have the dispute heard by a jury (except as specifically provided in the Arbitration Agreement), and to participate as part of a class of claimants relating to any dispute with Lender, First American or their affiliates.

Jenkins nevertheless filed a class action lawsuit against First American and FNB in the Superior Court of Richmond County, Georgia. In her complaint, Jenkins alleged the payday loan agreements violate Georgia's usury statutes, Ga.Code Ann. §§ 7-4-2, 7-4-18 (2004), and the Georgia Racketeer Influenced and Corrupt Organizations (RICO) Act, Ga.Code Ann. § 16-14-4 (2003).

First American and FNB removed the case to federal district court. In federal court, First American and FNB sought to enforce the Arbitration Agreements signed by Jenkins. Defendants moved pursuant to the FAA to stay the court proceedings and to compel arbitration. Under the FAA, a written arbitration provision in "a contract evidencing a transaction involving [interstate] commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (2000). The FAA explains when a party to such an agreement fails or refuses to arbitrate, the other party may petition a federal district court for an order to compel arbitration. Id. § 4.

The district court found the payday lending transactions involved interstate commerce, and, therefore, the FAA applied. The district court, however, denied Defendants' motion to compel arbitration, finding the Arbitration Agreements were unenforceable because they were unconscionable. Defendants filed a motion to reconsider and to stay the proceedings pending this appeal. The district court denied the motion for reconsideration and granted the motion to stay the proceedings. This appeal followed.

II. JURISDICTION AND STANDARD OF REVIEW

Pursuant to 9 U.S.C. § 16(a) (2000), we have jurisdiction over this appeal. 9 U.S.C. § 16(a) (2000) (authorizing an immediate appeal of any "final decision with respect to an arbitration").³ We review de novo the district court's denial of a motion to compel arbitration. Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1257 (11th Cir.2003).

III. DISCUSSION

The parties raise, inter alia, the following three issues on appeal: (1) whether the district court erred in applying the FAA to the loan agreements in this case; (2) whether the district court erred in finding the Arbitration Agreements are unconscionable; and (3) whether the Arbitration Agreements are unenforceable because the underlying payday loans are illegal and void...