Lovick v. Ritemoney Ltd.

• Decision Date: 14 July 2004
• Docket Number: No. 03-20917.,03-20917.
• Citation: 378 F.3d 433
• Parties: Betty R. LOVICK, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. RITEMONEY LTD.; SNM Inc.; CPCWA Company Ltd., doing business as Power Financial; GE & CE LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

378 F.3d 433

Betty R. LOVICK, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. RITEMONEY LTD.; SNM Inc.; CPCWA Company Ltd., doing business as Power Financial; GE & CE LLC, Defendants-Appellees.

No. 03-20917.

United States Court of Appeals, Fifth Circuit.

July 14, 2004.

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Richard Tomlinson, Houston, TX, Daniel A. Edelman (argued), Edelman, Combs & Latturner, Chicago, IL, for Plaintiff-Appellant.

Joseph Alan Callier, Callier & Garza, Houston, TX, for Ritemoney Ltd. and SNM Inc.

Michael H. Rubin (argued), McGlinchey Stafford, Baton Rouge, LA, Juliann Hale Panagos, J. Scott Sheehan, McGlinchey Stafford, Houston, TX, John Steven Dwyre, John Dwyre & Associates, San Antonio, TX, for CPCWA Co. Ltd. and GE & CE LLC.

Stacy Jane Canan, American Ass'n of Retired Persons, Washington, DC, Stephen Henry Gardner, Law Office of Stephen Gardner, Dallas, TX, Robert F. Schneider, Consumers Union of U.S., Austin, TX, for American Ass'n of Retired Persons, Nat. Ass'n of Consumer Advocates, Consumer Federation of America and Consumers Union, Amici Curiae.

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

Before JOLLY, JONES and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Betty R. Lovick's putative class action claims a RICO violation, premised on the collection of a claimed unlawful (usurious) debt. The action was dismissed under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Lovick claims the fee charged by an automobile title loan broker amounts to disguised interest that, when attributed to the lender, causes the loan to be usurious. The Credit Services Organization Act (CSOA), Tex. Fin.Code § 393 et seq., permits brokers, however, to engage in the activities alleged in the complaint without attributing those fees to lenders. None of Lovick's allegations involve activities proscribed by either CSOA or Texas usury law, Tex. Fin.Code § 301.001 et seq. Accordingly, she cannot state a claim for usury. As a result, her RICO claim fails as well. AFFIRMED.

I.

As alleged in her operative second amended complaint, in responding in January 2002 to an advertisement for loans secured by automobile title, Lovick requested a $2000 title loan from CPCWA Company, Ltd. (d/b/a "Power Financial" and "Texas Jewelry & Financial Services"). The loan was to originate from Ritemoney Ltd. as lender, with CPCWA as broker. Lovick signed with Ritemoney a Loan Disclosure, Promissory Note and Security Agreement (the Note), which provided, inter alia: the amount financed was $2013 ($2000 to Lovick and $13 filing fee for asserting a lien on her vehicle); Lovick would pay a $1500 fee to CPCWA for "loan brokerage or other credit services"; and, for state law purposes, the interest rate was ten percent. (The federal truth-in-lending disclosures, reflecting a much higher rate of approximately 131 percent, are not in issue. Lovick does not present a claim under the Truth in Lending Act, 15 U.S.C. § 1606(a)(1)(A).)

The Note stated, in relevant part:

Payment of third-party fees: In connection with any third-party fees such as fees for loan brokerage or other credit services, I acknowledge the following: I separately contracted with another company or person to receive brokerage or other credit services and agreed to pay for those services; I am responsible for such fees; I am voluntarily using part of this loan to pay for those fees; and I understand that this loan is made by lender [Ritemoney] under Section 302.001 of the Texas Finance Code at a rate of interest not greater than 10% per annum and that a fee paid to a third-person [CPCWA] for arranging this loan (though required to be treated as finance charge for purposes of federal law disclosures) is for a separate service and not interest for purposes of Texas law.

(Emphasis added.) Upon signing the Note, Lovick received a $2000 check, which she cashed at the CPCWA office. Subsequently, she made all of the required payments to, and through, CPCWA.

In 2003, Lovick filed her complaint against Ritemoney, CPCWA, and their respective general partners (SNM, Inc. and GE & CE L.L.C.) (collectively, defendants), claiming a Racketeer Influenced and Corrupt Organizations Act (RICO) violation, premised on collection of an unlawful (usurious) debt. 18 U.S.C. § 1962(c); Tex. Fin.Code §§ 342.004, 342.005, 342.051, and 349.403. Essentially, Lovick claimed CPCWA's $1500 fee was "disguised interest" attributable to Ritemoney; when combined with the ten percent interest rate charged by Ritemoney, the fee caused interest exceeding the ten percent authorized by Texas law. See Tex. Fin.Code § 342.004(a). This putative class action was on behalf of all persons who signed a Note with Ritemoney from 1 September 2002 through the 2003 filing date of this action.

After Lovick filed an amended complaint, defendants moved to dismiss under Rule 12(b)(6), claiming, inter alia, that Lovick failed to state a claim for usury and, therefore, for the RICO claim premised on it. The district court agreed, holding that, because "no improper relationship is presented by the facts in [Lovick's] pleadings [, the brokerage fee cannot be usurious interest, and] no cause of action is alleged". It granted Lovick 30 days, however, to plead a factual basis for an improper relationship among defendants. After the second amended complaint was filed, the court ruled that Lovick still failed to state a claim and dismissed this action.

II.

"[A] complaint should not be dismissed [under Rule 12(b)(6)] for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief". Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Such a dismissal is reviewed de novo. E.g., Herrmann Holdings Ltd. v. Lucent Tech. Inc., 302 F.3d 552, 557-58 (5th Cir.2002). For that review, the complaint is construed in the light most favorable to plaintiff, accepting as true all well-pleaded factual allegations and drawing all reasonable inferences in plaintiff's favor. Id. at 558. On the other hand, "we may not rely upon conclusional allegations or legal conclusions disguised as factual allegations". Jeanmarie v. United States, 242 F.3d 600, 602-03 (5th Cir.2001).

Lovick contends the district court erroneously applied Federal Rule of Civil Procedure 9(b)'s heightened pleading standard, applicable to allegations of fraud, instead of Rule 8(a)'s notice pleading standard. Rule 8(a) does not require pleading specific facts in support of each element of plaintiff's prima facie case; instead, plaintiff must "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests". Swierkiewicz v. Sorema N.A., 534 U.S. 506, 507, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (quoting Conley, 355 U.S. at 47, 78 S.Ct. 99). It appears that in dismissing the operative second amended complaint, the district court applied Rule 8(a), not Rule 9(b). See Lovick v. Ritemoney, No. H-03-0218 (Order of Dismissal, 28 August 2003) ("The Court finds and holds that the plaintiff has failed to state a cause of action and the facts as pled do not support the view that a cause of action can be asserted."). In any event, Rule 12(b)(6) dismissals are reviewed de novo; in so doing, we will apply Rule 8(a).

For the claimed usury, Lovick alleges: (1) CPCWA handled all the usual tasks of the lender, including arranging advertising, credit review, collateral inspection, approval decision, paperwork preparation, issuance and cashing of checks, collection of payment, and deciding when to repossess collateral, and, in this way, Ritemoney shifted substantially all of its overhead to CPCWA; (2) CPCWA acted as an agent of, or joint participant with, Ritemoney, as evidenced by CPCWA's brokering all of its title loans to Ritemoney as lender and Ritemoney's making all of its title loans through CPCWA, and CPCWA was authorized to act as Ritemoney's agent for the purposes of disbursing cash advances by signing checks on Ritemoney's account and collecting loan payments; (3) because all borrowers were expected to pay a brokerage fee to CPCWA to obtain a loan from Ritemoney, payment of the fee was effectively a prerequisite for a Ritemoney loan, and Ritemoney was aware from the Note and payment of the fees from loan proceeds that borrowers were expected to pay those fees to obtain a loan; and (4) these facts demonstrate a scheme both to evade the ten percent Texas usury ceiling for unlicensed lenders and to falsely suggest that CPCWA is separate from Ritemoney.

In the light of these allegations, Lovick contends: this alleged relationship between Ritemoney, as lender, and CPCWA, as broker, is sufficient under Texas law to impute CPCWA's brokerage fee to Ritemoney; and, because Ritemoney is already charging ten percent, the addition of the fee raises the interest rate above the ten percent limit.

Interest is compensation "for the use, forbearance, or detention of money". Tex. Fin.Code § 301.002(a)(4). In the absence of other law, interest greater than ten percent is usurious. Tex. Fin.Code §§ 302.001(b); 342.004(a). Under Texas law, the elements for a usury claim are: "(1) a loan of money; (2) an absolute obligation to repay the principal; and (3) the exaction of a greater compensation than allowed by law for the use of the money by the borrower". First Bank v. Tony's Tortilla Factory, 877 S.W.2d 285, 287 (Tex.1994). The third element for usury is at issue: whether the allegations are sufficient to withstand a Rule 12(b)(6) challenge on whether the fee paid to CPCWA is interest.

To say the least, a $1500 fee for a $2000 loan is more than questionable. And, Texas caselaw describes circumstances under which brokerage fees may be...