Cmty. State Bank v. Strong

• Decision Date: 25 August 2011
• Docket Number: No. 06–11582.,06–11582.
• Citation: 23 Fla. L. Weekly Fed. C 341,651 F.3d 1241
• Parties: COMMUNITY STATE BANK, Cash America Financial Services, Inc., Cash America International, Inc., Georgia Cash America, Inc., Daniel R. Feehan, Petitioners–Appellants,v.James E. STRONG, Respondent–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

651 F.3d 1241

23 Fla. L. Weekly Fed. C 341

COMMUNITY STATE BANK, Cash America Financial Services, Inc., Cash America International, Inc., Georgia Cash America, Inc., Daniel R. Feehan, Petitioners–Appellants,

v.James E. STRONG, Respondent–Appellee.

No. 06–11582.

United States Court of Appeals, Eleventh Circuit.

Aug. 25, 2011.

John G. Parker, Paul, Hastings, Janofsky & Walker, LLP, Christopher J. Willis, Daniel D. Zegura, Richard H. Sinkfield, Rogers & Hardin, LLP, Atlanta, GA, Alan S. Kaplinsky, Ballard, Spahr, Andrews & Ingersoll, LLP, Philadelphia, PA, for Appellants.Roy E. Barnes, John Raymond Bevis, The Barnes Law Group, Marietta, GA, Jennifer Auer Jordan, Pate & Brody, LLP, Imre Stephen Szalai, California Western School of Law, San Diego, CA, for Appellee.Pierre H. Bergeron, Squire, Sanders & Dempsey, L.L.P., Cincinnati, OH, Mark C. Dosker, Squire, Sanders & Dempsey, San Francisco, CA, Amicus Attorneys.Appeal from the United States District Court for the Northern District of Georgia.Before CARNES and MARCUS, Circuit Judges, and JORDAN,^* District Judge.MARCUS, Circuit Judge:

This resilient case has arrived back in our Court after the Supreme Court's opinion in Vaden v. Discover Bank, 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), and following a detour through our en banc Court. Again we are asked to navigate the labyrinth of federal jurisdiction to determine whether the district court had jurisdiction to entertain a petition to compel arbitration, pursuant to Section 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4.

The case arose when the Respondent James Strong (“Strong”) obtained a month-long $200 loan from a storefront in Georgia in 2004. Strong later sought relief from a Georgia state court, arguing that the loan was illegal and usurious under Georgia law, because it carried a finance charge of $36, equivalent to an annual percentage rate of 253%. The Petitioners in this case, Community State Bank, Cash America Financial Services, Inc., Cash America International, Inc., Georgia Cash America, Inc., and Daniel Feehan, counter that the loan was perfectly legal, because federal law permits Community State Bank to charge interest rates without regard to Georgia law. The only issue on appeal is jurisdictional: whether the federal district court has jurisdiction over the petition to compel arbitration of Strong's claims.

In our first opinion in this case, we held that in order to determine whether there is federal jurisdiction over a petition to compel arbitration under § 4 of the FAA, we must “look through” the arbitration petition to the underlying controversy and ask whether the underlying dispute between the parties would have arisen under federal law. Cmty. State Bank v. Strong (“ Strong I ”), 485 F.3d 597, 607 (11th Cir.2007). We concluded that, looking through the § 4 arbitration petition to the underlying controversy, it was apparent that Strong could have filed a coercive action arising under federal law, and therefore the district court had subject matter jurisdiction over the petition to compel arbitration. Id. at 612. Subsequently, this Court vacated Strong I to review the case en banc, Cmty. State Bank v. Strong, 508 F.3d 576 (11th Cir.2007), but stayed its en banc proceedings to await the Supreme Court's decision in Vaden, which raised a substantially similar jurisdictional question.

In Vaden, the Supreme Court adopted the “look through” approach for determining federal jurisdiction over FAA § 4 arbitration petitions, holding that “[a] federal court may ‘look through’ a § 4 petition and order arbitration if, ‘save for [the arbitration] agreement,’ the court would have jurisdiction over ‘the [substantive] controversy between the parties.’ ” Vaden, 129 S.Ct. at 1268 (quoting 9 U.S.C. § 4) (alterations in Vaden ). In light of Vaden, this Court vacated its en banc order and remanded the case back to the panel. Cmty. State Bank v. Strong, 565 F.3d 1305, 1306 (11th Cir.2009).

We now revisit the same question we faced in Strong I, with the benefit of the Supreme Court's guidance in Vaden. Following Vaden's instruction to “look through” the FAA § 4 petition to the substantive controversy between the parties, we remain convinced that Strong's dispute with Community State Bank (“the Bank”) could have arisen under federal law and, therefore, provides a basis for federal jurisdiction over the FAA petition. We therefore continue to endorse the primary thrust of the Strong I holding with respect to the Bank, and conclude that the district court has jurisdiction over the Bank's § 4 petition.

However, we depart from our result in Strong I as to the other petitioners in the case—Cash America Financial Services, Inc., Cash America International, Inc., Georgia Cash America, Inc., and Daniel R. Feehan (collectively “Cash America”). During the long pendency of this appeal, the Cash America parties—who were defendants in a parallel state-court lawsuit brought by Strong—moved to compel arbitration of Strong's claims in state court. Yet, when the state court ordered Cash America to produce discovery on the limited issue of the enforceability of the arbitration agreement between the parties, Cash America repeatedly refused to comply with the state court's orders. Ultimately, the state court struck Cash America's arbitration defenses as a statutorily authorized sanction for its willful discovery abuses. We now conclude that this state-court judgment—which has since been upheld on appeal and now constitutes a final judgment from a court of competent jurisdiction—has preclusive effect, and Cash America is collaterally estopped from petitioning the district court to decide the very same issue that the state court has already decided against it. We, therefore, affirm the district court's dismissal of the FAA petition as to all of the petitioners who were defendants in the state-court lawsuit. Accordingly, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

I.

The essential facts and procedural history are these.¹ On February 6, 2004, James Strong took out a “payday loan” of $200 at a store called Cash America Pawn of Atlanta # 15, located in Cobb County, Georgia. The store was operated by Georgia Cash America, Inc., an affiliate of Cash America Financial Services, Inc. “ ‘Payday loans' are generally small-dollar, short-term, high interest loans secured by a check given to the payday lender in the amount of the cash advance plus interest.” Dale v. Comcast Corp., 498 F.3d 1216, 1221 n. 9 (11th Cir.2007). Banks that provide payday loans generally partner with local institutions to “market” or “service” the small loans.

In exchange for the $200 loan, Strong signed a loan agreement, styled as a promissory note, that required payment of “the principal sum of $200.00, plus a finance charge in the amount of $36.00” by March 3, 2004. The finance charge of $36 for the one month of the loan is equivalent to an annual percentage rate of 253%. Although the loan document identified the “Lender” as Community State Bank, chartered in Milbank, South Dakota, and stated that payment should be made “to the order of COMMUNITY STATE BANK,” it permitted Strong to make his payment in person to the Cash America Pawn of Atlanta # 15 store in Georgia—the same place he had obtained the loan.

In a provision under the heading, “Cash America,” the loan agreement stated that “Lender [the Bank] has entered into a contract with Cash America Financial Services, Inc. to assist with this loan transaction. Neither Cash America Financial Services, Inc., nor any of its affiliates (collectively, ‘Cash America’), is owned by, operated by, or affiliated with Lender.” The loan agreement also contained an arbitration clause. Strong agreed that “[a]ny controversy or claim between me and the Lender, Cash America, or any employees ... arising out of or in any way relating to this Note and my loan relationship with Lender (including this arbitration agreement) shall be settled by binding arbitration.”

On August 6, 2004, Strong filed a lawsuit against Georgia Cash America, Inc., Cash America International, Inc., and Daniel Feehan, the CEO of both companies (collectively, the “Cash America defendants”), in the State Court of Cobb County, in Georgia, alleging that the payday loans made to him and others he purported to represent were illegal and usurious under Georgia law. Strong sought to cast his suit as a class action on behalf of “hundreds, if not thousands” of similarly situated borrowers. Among other claims, Strong alleged that the Cash America defendants violated the Georgia usury statute, Ga.Code Ann. § 7–4–1 et seq., by charging more than 16% per annum on a loan of $3,000 or less, id. § 7–4–2(a)(2),² or more than 5% per month on a loan of any sum, id. § 7–4–18³; the Georgia Industrial Loan Act, Ga.Code Ann. § 7–3–1 et seq., by failing to be licensed under the statute, id. § 7–3–8, ⁴ and charging more than 10% per annum plus an 8% loan fee on a loan of $3,000 or less, id. § 7–3–14⁵; and Georgia's Racketeer Influenced and Corrupt Organizations statute (“Georgia RICO”), Ga.Code Ann. § 16–14–1 et seq., by conducting an enterprise through a pattern of racketeering activity, to wit, payday lending violations, see id. § 16–14–3(9)(A)(xxxviii). ⁶ In an obvious effort to avoid federal jurisdiction, Strong did not sue Community State Bank, and expressly stated in the complaint that he and the putative class members did “not assert any claims under the laws of the United States,” did “not assert any claim against a state or nationally chartered bank,” and did “not seek recovery ... in excess of $75,000.”

On August 31, 2004, the Cash America defendants—together with Community State Bank—served a Notice of Intent to Arbitrate on Strong. Class counsel for Strong rejected the Notice, and informed the Bank and the Cash America defendants that Strong intended to go forward in state court with...