Brice v. Plain Green, LLC.

• Decision Date: 12 March 2019
• Docket Number: Case No. 18-cv-01200-WHO
• Parties: Kimetra BRICE, et al., Plaintiffs, v. PLAIN GREEN, LLC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

372 F.Supp.3d 955

Kimetra BRICE, et al., Plaintiffs,

v.PLAIN GREEN, LLC., et al., Defendants.

Case No. 18-cv-01200-WHO

United States District Court, N.D. California.

Signed March 12, 2019

Leonard Anthony Bennett, Consumer Litigation Associates, P.C., Newport News, VA, Andrew Joseph Guzzo, Kelly and Crandall PLC, Fairfax, VA, Anna C. Haac, Pro Hac Vice, Andrew J. Silver, Tycko & Zavareei LLP, Washington, DC, Annick Marie Persinger, Tanya Susan Koshy, Tycko & Zavareei LLP, Oakland, CA, Kristi Cahoon Kelly, Kelly and Crandall PLC, Fairfax, VA, Craig Carley Marchiando, Consumer Litigation Associates, Newport News, VA, for Plaintiffs.

Colleen Roh Sinzdak, Pro Hac Vice, Hogan Lovells, Washington, DC, Jeffrey Michael Goldman, Pepper Hamilton LLP, Irvine, CA, Kendyl Elizabeth Keesey, Pro Hac Vice, Virginia A. Gibson, Hogan Lovells US LLP, Jonathan P. Boughrum, Pro Hac Vice, Richard L. Scheff, Pro Hac Vice, David F. Herman, Armstrong Teasdale LLP, Philadelphia, PA, Robert Gregory Marasco, Dinsmore and Shohl LLP, Anna S. McLean, Sheppard Mullin Richter & Hampton LLP A Limited Liability Partnership, Including Professional Corp, Daniel R. Fong, Jacqueline Melissa Simonovich, Sheppard Mullin Richter & Hampton LLP, Michael J. Shepard, King & Spalding, LLP, San Francisco, CA, Joseph Fredericks Halloran, Pro Hac Vice, The Jacobson Law Group, Benjamin Nashoba Pachito, Saint Paul, MN, Kyle Mitchell Druding, Pro Hac Vice, Washington, DC, for Defendants.

ORDER DENYING PENDING MOTIONS

Re: Dkt. Nos. 84, 85, 86, 111

William H. Orrick, United States District JudgePlaintiffs seek to hold defendants L. Stephen Haynes ("Haynes") and Haynes Investments, LLC. (collectively, "Haynes defendants") liable for their direct involvement in internet loan businesses that allegedly used Native American tribes to avoid state usury laws. Currently before me are three motions brought by the Haynes defendants: to compel arbitration of the named plaintiffs' claims; to stay in light of a case with some overlap pending in the District Court of Vermont; and to dismiss for lack of personal jurisdiction over the Haynes defendants and for failure to state a claim. I DENY each motion. The Plain Green and GPL arbitration agreements are unenforceable because they are prospective waivers of plaintiffs' rights and remedies. A stay is not warranted because there is not significant overlap between this case and the Gingras case and equity does not support it. There is an adequate basis to assert personal jurisdiction over the Haynes defendants and plaintiffs have sufficiently stated their claims. Consistent with the analyses of numerous courts who have addressed similar arguments, I will allow plaintiffs' claims to proceed in this court.

BACKGROUND

Haynes Investments is a private equity firm, owned and managed by Haynes. Complaint ("Compl") ¶ 5 [Dkt. No. 1]. Plaintiffs allege that the Haynes defendants participated in a "rent-a-tribe" loan scheme involving Plain Green Lending, LLC, owned by the Chippewa Cree Tribe of the Rocky Boy's Indian Reservation ("Chippewa Cree Tribe") in Montana, and Great Plains Lending, LLC ("GPL"), a tribal entity owned by the Otoe-Missouria tribe (collectively the "Tribes"), Id. ¶¶ 16, 17, The Haynes defendants, along with other parties, allegedly helped design, fluid, and run this "rent-a-tribe" scheme using the two "Native American tribal entities as the conduit to ostensibly cloak the loans in tribal sovereign immunity ... established with the intent of evading state usury laws," Id. ¶¶ 1, 2. Under the scheme, the Tribal Entities – Plain Green and GPL – marketed, offered, issued, and then collected on high-interest loans over the internet, and thereby avoided interest-rate caps imposed under California law.

The inception of the scheme started in early 2011, when Haynes signed an agreement between Haynes Investments, the Chippewa Cree Tribe in Montana, Think Finance¹ ("Think"), and Victory Park Capital Advisors, LLC for the creation of a lending institution wholly owned by the Chippewa Cree Tribe, Plain Green, LLC. Term Sheet for Think Finance-Chippewa Cree Transaction ("Term Sheet") [Dkt. No. 1-2]. Haynes Investments agreed to provide the initial funds for the creation of Plain Green and to fund loans issued by Plain Green.² Id. at 2. Haynes Investment provided ongoing funding for Plain Green loans via Think. Compl. ¶¶ 49, 51. Plaintiffs specifically allege that "Haynes Investment increased its investment in Plain Green on multiple occasions from April 2011 through February 2015." Id. ¶¶ 85, 86. The Haynes defendants are not alleged to have funded loans for GPL – which is alleged to have had the same essential structure and purpose as Plain Green – but instead are alleged to have provided consulting services, including as mentioned above, securing necessary ACH processors and other services. Id. ¶¶ 62, 96.

With respect to both Plain Green and GPL, Haynes "played an integral role in helping the [scheme] obtain a bank willing to process payments through the Automated Clearing House Network ... an electronic payment processing system regulated by the National Automated Clearing House Association." Id. ¶ 88. In addition, Haynes "played a critical role in finding a new bank to partner with Plain Green and [GPL]" once the original partnering banks were targeted by state and federal regulators and ceased processing the debits and credits on Plain Green's and GPL's loans. Id. ¶¶ 95, 96. Finally, Haynes "acted as the liaison between Think Finance and the Tribes." Id. ¶¶ 88, 97.

Two days after the loans were originated by Plain Green or GPL, GPL Servicing, Ltd. ("GPLS")³ purchased 99% of them. Id. ¶¶ 52, 100. GPLS also refunded Haynes Investments 99% of the funds it invested in Plain Green, plus five percent interest on loans issued and a referral fee. Id. ¶ 53. By comparison, GPLS paid the Chippewa Cree tribe only 4.5% of revenue from the loans, as well as reimbursement for costs and expenses. Id. ¶ 54.⁴

On February 23, 2018, Kimetra Brice, Earle Browne, and Jill Novorot, on behalf of themselves and a class of California consumers, filed this putative class action against the Haynes defendants and others for allegedly violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 - 68, by: (i) collecting unlawful debt; (ii) using and reinvesting this income into the "rent-a-tribe" enterprise; (iii) acquiring and maintaining an interest in the "rent-a-tribe" enterprises; and (iv) conspiring with co-defendants "to repeatedly violate state lending statutes resulting in the collection of an unlawful debt,"⁵ Id. ¶ 7. Plaintiffs also assert claims for unjust enrichment and violation of California's usury laws. Id. ¶ 8.⁶

On October 10, 2018, the Haynes defendants filed motions to: (i) compel arbitration under the Federal Arbitration Act: (ii) stay this proceeding under the first-to-file rule pending a decision on class certification in Gingras et al. v. Victory Park Capital Advisors, LLC, et al. , No, 5:17-cv-233 (D. Vt.); and (iii) dismiss the complaint for lack of personal jurisdiction and for failure to state a claim. Motion to Compel Arbitration ("MTC") [Dkt. No. 85]; Motion to Stay ("MTS") [Dkt. No. 84]; Motion to Dismiss ("MTD") [Dkt. No. 86]. I consider each motion below.

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. 9 U.S.C. §§ 1 et seq. Under the FAA, a district court determines: (i) whether a valid agreement to arbitrate exists and, if it does, (ii) whether the agreement encompasses the dispute at issue. Lifescan, Inc. v. Premier Diabetic Servs., Inc. , 363 F.3d 1010, 1012 (9th Cir. 2004). "To evaluate the validity of an arbitration agreement, federal courts should apply ordinary state-law principles that govern the formation of contracts," Ingle v. Circuit City Stores, Inc. , 328 F.3d 1165, 1170 (9th Cir. 2003) (internal quotation marks and citation omitted). If the court is satisfied "that the making of the arbitration agreement or the failure to comply with the agreement is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4. "Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

The question of whether the arbitration agreement is valid is itself arbitrable. Rent-A-Center, West Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). Where a party seeks to challenge arbitrability in court, the party must specifically challenge the validity of the delegation provision, rather than "the validity of the contract as a whole." Id. at 72, 130 S.Ct. 2772. Although arbitration agreements are generally enforceable under the FAA, they must not contravene public policy.

M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). Two grounds for unenforceability are when (i) the arbitration agreement acts as a prospective waiver of statutory rights and remedies and (ii) the arbitration agreement is...