Cashcall, Inc. v. Morrisey, 12-1274

Decision Date30 May 2014
Docket NumberNo. 12-1274,12-1274
CourtWest Virginia Supreme Court
PartiesCashCall, Inc., and J. Paul Reddam, in his capacity as President and CEO of CashCall, Inc., Defendants, Petitioners v. Patrick Morrisey, Attorney General, Plaintiff, Respondent

(Kanawha County 08-C-1964)


Petitioners CashCall, Inc. and J. Paul Reddam (collectively referred to as "CashCall"), by counsel Charles L. Woody and Bruce M. Jacobs, appeal three orders entered by the Circuit Court of Kanawha County in favor of Respondent Patrick Morrisey, West Virginia's Attorney General,1 following a two-phase trial regarding CashCall's violations of the West Virginia Consumer Credit Protection Act ("WVCCPA"), West Virginia Code §§ 46A-1-101 to 46A-8-102. The first order, entered September 10, 2012, addressed the State's abusive debt collection claims against CashCall. The second order, also entered September 10, 2012, addressed the State's usurious lending claims against CashCall. The third order, entered March 18, 2013, addressed the circuit court's award of attorney's fees as costs in favor of the State. In total, the circuit court ordered CashCall to pay more than $13.8 million in penalties and restitution, and $446,180.00 in fees and costs. The Attorney General, by counsel Norman Googel and Douglas L. Davis, filed a response to which CashCall filed a reply.

This Court has considered the parties' briefs and the record on appeal. The facts and legal arguments are adequately presented, and the decisional process would not be significantly aided by oral argument. Upon consideration of the standard of review, the briefs, and the record presented, the Court finds no substantial question of law and no prejudicial error. For these reasons, a memorandum decision affirming the trial court's orders is appropriate under Rule 21 of the Rules of Appellate Procedure.

Petitioner CashCall, Inc. is a California-based consumer finance company. Petitioner J. Paul Reddam is the President and Chief Executive Officer of CashCall, Inc.2 At issue in this caseis CashCall's marketing agreements with the First Bank and Trust of Millbank, South Dakota ("FB&T"). FB&T was chartered in South Dakota and is supervised and insured by the Federal Deposit Insurance Corporation ("FDIC"). FB&T makes small unsecured loans at high interest rates to consumers in various states. Under CashCall's marketing agreements with FB&T, CashCall purchased FB&T's loans within three days of each loan's origination date.3 Between August of 2006 and February of 2007, CashCall purchased loans made by FB&T to 292 West Virginia residents. Of those loans, ten were for $1,075.00 at an eighty-nine percent annual interest rate; 214 were for $2,600.00 at a ninety-six percent annual interest rate; and the remaining sixty-three loans were for $5,000.00 at a fifty-nine percent annual interest rate. Eventually, 212 of CashCall's 292 West Virginia consumers defaulted on these loans.

In 2007, the Attorney General opened a formal investigation into CashCall's business practices in response to consumer complaints of debt collection abuse. On June 7, 2007, the Attorney General sent CashCall's general counsel, Dan Baren, a letter demanding that CashCall permanently cease its lending program in West Virginia and make restitution to the aggrieved consumers. The State based this demand on its findings that CashCall's agreement with FB&T was essentially a sham that claimed federal preemption as a means of evading West Virginia's licensing and usury laws, and that CashCall's debt collection practices violated the WVCCPA.

CashCall responded to the Attorney General's demand by letter dated June 15, 2007. CashCall claimed that the WVCCPA was preempted by federal law because the loans marketed and serviced by CashCall were properly made under a Federal Deposit Insurance Approved ("FDIA") bank installment loan program. Nevertheless, that same year, CashCall ceased purchasing loans made by FB&T to West Virginia residents.

On August 30, 2007, the Attorney General issued an investigative subpoena, pursuant to West Virginia Code § 46A-7-104(1), that directed CashCall to produce records for all of its lending and debt collection activities in West Virginia. CashCall refused to answer the subpoena based, among other things, on its claim of complete federal preemption. Following considerable litigation regarding the subpoena, CashCall provided various business records including the names and contact information for its West Virginia customers. However, CashCall provided those records primarily in paper format, even though the Attorney General asked for the documents in a searchable electronic format, and CashCall routinely maintained the documents in a searchable electronic format.

On October 8, 2008, the State filed a "Complaint for Injunction, Consumer Restitution, Civil Penalties and Other Appropriate Relief" in the circuit court against CashCall alleging usurious lending and abusive debt collection practices. The Attorney General claimed that CashCall participated in what is commonly called a "rent-a-bank" scheme designed to avoid astate's usury and consumer protection laws by claiming federal preemption under Section 27 of the Federal Deposit Insurance Act ("FDIA").4 In response, CashCall removed the action to the United States District Court for the Southern District of West Virginia on the ground that the State's claims were preempted given that FB&T originated the loans to the 292 West Virginia consumers.

In West Virginia v. CashCall, Inc., 605 F.Supp.2d 781 (S.D.W.Va. 2009), the district court found that the FDIA did not apply to non-bank entities such as CashCall. The district court also ruled that it did not have subject matter jurisdiction over the matter because the Attorney General had raised only state law claims against CashCall that neither invoked, nor were preempted by, the FDIA. The district court noted that "[i]f CashCall is found to be a de facto lender, then CashCall may be liable under West Virginia usury laws." Id. at 787. The district court then dismissed CashCall's action and granted the Attorney General's motion to remand the case to the Circuit Court of Kanawha County.

Following the remand, the Attorney General filed an amended petition against CashCall that included fifteen causes of action. The first cause of action concerned CashCall's failure to comply with the Attorney General's subpoena.5 The State's second through fourth claims alleged unlawful lending and usury. Claims five through fifteen alleged unlawful debt collection practices. Thereafter, the circuit court bifurcated the claims for trial. The "phase one" trial addressed the State's unfair debt collection claims and took place on October 31 and November 1, 2011. The "phase two" trial addressed the State's unlawful lending and usury claims and was held on January 3, 2012. Both trials were bench trials.

Phase One Trial: Unfair Debt Collection Claims

During the phase one trial regarding CashCall's alleged unfair collection claims, the State called twelve witnesses. The first of these witnesses had not obtained a loan purchased by CashCall, but her son had. Therefore, this first witness testified about abusive calls she received from CashCall regarding her son's loan. The next nine witnesses had obtained and then defaulted on loans originated by FB&T and purchased by CashCall. All nine testified to CashCall's abusive debt collection practices, which included CashCall's repeated threats to do "whatever it takes to get our money" including visiting consumers' homes and places of employment; charging fees for field visits; contacting the consumers' employers; disclosing debts to third parties; and initiating arbitration, legal action, wage garnishment, and/or attachment of personal and real property. The State's last two witnesses, Rachel Gray and Angela White, where both long-time paralegals in the Attorney General's Consumer Protection Division. Both testified about their analysis of the records CashCall had produced during discovery and their preparation of the State's summary trial exhibits.

Paralegal Rachel Gray testified about her preparation of "State Summary Exhibit A" ("Exhibit A") regarding letters CashCall had sent to West Virginia consumers. Ms. Gray testified that she searched CashCall's West Virginia's consumers' files page-by-page to determine which of its form letters CashCall had sent to each consumer. Those form letters included an employment verification letter, a breach letter, a forty-eight-hour notice letter, a broken promise letter, an arbitration letter, a field visit letter, and a final demand letter. Ms. Gray testified that she compiled the total number of each type of letter found in each of the 292 West Virginia consumers' files into Exhibit A.

Paralegal Angela White testified regarding her preparation of "State Summary Exhibit B" ("Exhibit B") that summarized the number of phone calls CashCall made to each West Virginia consumer. Ms. White stated that she did not personally review all of the relevant phone logs, but oversaw the eight to ten people who did. Ms. White also testified that four professional data entry personnel entered the data into a comprehensive chart, and that the data entry staff made a second review before a questionable call was counted. After the data was entered, Ms. White prepared Exhibit B which listed the following: the number of calls made by CashCall to each West Virginia consumer, the number of days each consumer was called, the number of calls made to each consumer per day, and the date of the first and last calls to each consumer. The number of calls was also broken down into the number of days that a consumer received twenty or more calls in a day; the number of days that a consumer received fifteen to nineteen calls in a day; the number of days that a consumer received ten to fourteen calls in a day; the number of days that a consumer received five to nine calls...

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