Gibbs v. Stinson

• Decision Date: 30 September 2019
• Docket Number: Civil Action No. 3:18-cv-676
• Citation: 421 F.Supp.3d 267
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Darlene GIBBS, et al., on behalf of themselves and all individuals similarly situated, Plaintiffs, v. Michael STINSON, et al., Defendants.

421 F.Supp.3d 267

Darlene GIBBS, et al., on behalf of themselves and all individuals similarly situated, Plaintiffs,

v.Michael STINSON, et al., Defendants.

Civil Action No. 3:18-cv-676

United States District Court, E.D. Virginia, Richmond Division.

Signed September 30, 2019

Andrew Joseph Guzzo, Casey Shannon Nash, Kristi Cahoon Kelly, Kelly Guzzo PLC, Fairfax, VA, Craig Carley Marchiando, Leonard Anthony Bennett, Consumer Litigation Associates, Newport News, VA, Elizabeth W. Hanes, Consumer Litigation Associates, Richmond, VA, for Plaintiffs.

David Foster Herman, Pro Hac Vice; Jonathan Peter Boughrum, Pro Hac Vice; Richard Lawrence Scheff, Pro Hac Vice; Armstrong Teasdale LLP, Philadelphia, PA, John Michael Erbach, Maurice Francis Mullins, Spotts Fain PC, Richmond, VA, Stephen Douglas Hibbard, Pro Hac Vice; Jones Day, San Francisco, CA, Todd Raymond Geremia, Pro Hac Vice; Jones Day, New York, NY, William George Laxton, William V. O'Reilly, Jones Day, Washington, DC, for Defendants.

TCV V, L.P., pro se.

Sequoia Capital Growth III Principals Fund, LLC, pro se.

Sequoia Capital Growth Fund III, LP, pro se.

MEMORANDUM OPINION

M. Hannah Lauck, United States District Judge

This matter comes before the Court on ten motions:

(1) Defendants'¹ Motion to Transfer, (ECF No. 61);²

(2) Sequoia's³ Motion to Dismiss,

(ECF No. 63);⁴

(3) Sequoia's Motion to Stay Pending Arbitration ("Sequoia's Motion to Compel Arbitration"), (ECF No. 65);⁵

(4) Defendants Michael C. Stinson;⁶ 7HBF NO. 2;⁷ Linda Stinson; The Stinson 2009 Grantor Retained Annuity Trust; Startup Capital Ventures, L.P.; and, Stephen Shaper's⁸ Motion to Compel Arbitration, (ECF No. 59);⁹

(5) The 7HBF Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, (ECF No. 53);¹⁰

(6) The 7HBF Defendants' Motion to Dismiss for Failure to State a Claim, (ECF No. 54);¹¹

(7) The Shaper Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, (ECF No. 56);¹²

(8) The Shaper Defendants' Motion to Dismiss for Failure to State a Claim, (ECF No. 57);¹³

(9) Plaintiffs' "Motion for Leave to File Supplemental Authority In Support of Their Opposition to Defendants' Motions to Compel A[rb]itration and Stay Proceedings Pending Arbitration," (the "First Motion for Leave to File Supplemental Authority"), (ECF No. 101);¹⁴ and,

(10) Plaintiffs' "Motion for Leave to File Supplemental Authority Related to Defendants' Motion to Transfer," (the "Second Motion for Leave to File Supplemental Authority"), (ECF No. 110).¹⁵

The matters are ripe for disposition. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. §§ 1331¹⁶ and 1367(a).¹⁷ For the reasons that follow, the Court will grant Plaintiffs' First Motion for Leave to File Supplemental Authority and Plaintiffs' Second Motion for Leave to File Supplemental Authority. The Court will also grant in part and deny in part Sequoia's Motion to Compel Arbitration. The Court will deny the remaining motions.

I. Factual and Procedural Background

A. Summary of Allegations in the Amended Complaint ¹⁸

This controversy arises out of Defendants' involvement in an allegedly unlawful lending operation. The lending operation, which Plaintiffs describe as a "rent-a-tribe" scheme, allegedly offered loans to Plaintiffs and charged interest rates ranging from 118% to 448%. (Am. Compl. ¶¶ 1, 118–20, ECF No. 43.)

Under this improper so-called "rent-a-tribe" business model, actors establish entities to originate internet-based high interest loans so as to evade state and federal usury and lending laws. To effectuate the scheme, a non-tribal entity and a Native American Tribe agree to establish a lending company in the Tribe's name. According to Plaintiffs, the Native American Tribe nominally establishes the lending company to extend its tribal sovereign immunity to the newly-formed business entity. The tribal lending company, however, receives capital from a different, non-tribal person or company who seeks to use the tribal lending companies to cloak the unlawful high-interest internet loans with sovereign immunity. The non-tribal entity retains the vast majority of the profits and controls the tribal lending entity, from major business decisions to day-to-day operations. In exchange, the Native American Tribe receives only a small percentage of the revenue.

In this case,¹⁹ Plaintiffs bring claims against individuals and entities that owned and invested in Think Finance and its subsidiaries (collectively, "Think Finance"). According to Plaintiffs, non-party Think Finance²⁰ spearheaded efforts to establish and control the three Native American-owned lending companies at the heart of the allegedly unlawful lending operation.²¹ "For more than seven years, Think Finance...operated a rent-a-tribe scheme, which sought to evade the usury laws of certain states by using [the Tribes] as the conduit for their loans." (Am. Compl. ¶ 2.) Plaintiffs aver that Think Finance proposed the formation of the lending operation, asking the Tribes to establish the lending companies in their respective names. In exchange, "Think Finance agreed to provide the infrastructure to run the lending operations, including the software, ‘risk management, application processing, underwriting assistance, payment processing, and ongoing service support’ for [the] consumer loans." (Id. ¶ 80 (quoting Am. Compl. Ex. 6 "Chippewa Cree Term Sheet" 1, ECF No. 43-6).) Through this arrangement, Think Finance maintained control over, and derived "the vast majority of the profits" from, the lending operation. (Id. ¶ 85.) Plaintiffs represent consumers who took out online loans with the Tribal lending entities, including Great Plains, Plain Green, and Mobiloans.

Here, Plaintiffs aver that each Defendant represents an owner or investor of Think Finance. "Through their ownership of Think Finance, Defendants participated in the business's key decisions, strategies, and objectives and, in return, generated large profits from their ownership interest in Think Finance." (Id. ¶ 4.) Plaintiffs claim that "Defendants personally participated in and oversaw the illegal lending enterprise[,] rendering them personally liable to consumers." (Id. )

B. The Loans

The Gibbs and Mwethuku Contracts purport to be subject to the laws of the Chippewa Cree Tribe of the Rocky Boy's Indian Reservation, as the tribal owner of Plain Green. The Williams Contract, Edwards Contract, and Inscho Contract purport to be subject to the laws of the Otoe-Missouria Tribe of Indians, as the tribal owner of Great Plains. The Price, Hengle, and Blackburn Contracts²² purport to be subject to the laws of the Tunica-Biloxi Tribe of Louisiana, as the tribal owner of Mobiloans.

The annual interest rates on these loans ranged from "between 118% and 448%, if not higher." (Am Compl. ¶ 118.) Plaintiffs state that Defendants received at least $711.02 from Gibbs "as a result of the illegal loans to her—most of which was credited as payment for interest or other fees." (Am. Compl. ¶ 123.) Similarly, Defendants allegedly received at least $15,369.15 from Edwards; $1,858.67 from Williams; $6,042.19 from Mwethuku; $16,210.84 from Inscho; $9,009.00 from Price; $12,940.00 from Hengle; and $2,451.00 from Blackburn. (Am. Compl. ¶¶ 124–30.)

C. Procedural Background

On February 1, 2019, Plaintiffs filed a putative class action Amended Complaint ²³ against Defendants, asserting numerous federal and state violations associated with the allegedly unlawful lending operation. Plaintiffs pursue this suit on behalf of Virginia residents who entered into loan agreements with the Tribal lending entities Plain Green, Great Plains, or MobiLoans. They bring six class counts as follows:

Count I: 18 U.S.C. § 1962(a).²⁴ Plaintiffs allege that Defendants received "income derived, directly and indirectly, through collection of unlawful debt," and used and reinvested "parts of such income to acquire interests in and to further establish and assist the operations of the enterprise." (Am. Compl. ¶ 145.) (The RICO "Income Derived Claim.")

Count II: 18 U.S.C. § 1962(b). Plaintiffs allege that Defendants acquired and maintained "interests in and control of the enterprise involved in the unlawful collection of debt." (Am. Compl. ¶ 156.) (The RICO "Enterprise Interest and Control Claim.")

Count III: 18 U.S.C. § 1962(c). Plaintiffs allege that Defendants violated § 1962(c) through the "collection of unlawful debt." (Am. Compl. ¶ 168.) (The RICO "Collection of Unlawful Debt Claim.")

Count IV: 18 U.S.C. § 1962(d). Plaintiffs allege Defendants entered into several agreements to violate §§ 1962(a) – (c). (Am. Compl. ¶ 179.) (The RICO "Conspiracy Claim.")

Count V: Virginia Usury Laws.²⁵ Plaintiffs allege the loans violate Virginia's usury laws because the interest rates exceed 12%. Plaintiffs allege that Defendants unlawfully "received revenues collected on the loans." (Am. Compl. ¶¶ 188–89.)

Count VI: Unjust Enrichment.²⁶ Plaintiffs allege they conferred a benefit on Defendants when they repaid the allegedly unlawful loans; that Defendants knew or should have known about the benefit; and that the Defendants "have been unjustly enriched through their receipt of any amounts in connection with the unlawful loans." (Am. Compl. ¶ 200.)

Plaintiffs seek: (1) class certification; (2) declaratory and injunctive relief and damages; and, (3) attorney's fees, litigation expenses, and costs of suit.

Defendants moved to transfer this case to the United States District Court for the Northern District of Texas. The 7HBF Defendants filed their Motion to Dismiss for Lack of Personal Jurisdiction and their Motion to Dismiss for Failure to State a Claim. The Shaper Defendants filed their Motion to Dismiss for Lack of Personal Jurisdiction and their Motion to Dismiss for Failure to State a Claim. The 7HBF Defendants and the Shaper Defendants also jointly filed...