Macdonald v. Cashcall, Inc.
| Decision Date | 28 April 2017 |
| Docket Number | Civil Action No. 16-2781 |
| Parties | JOHN S. MACDONALD, Plaintiff, v. CASHCALL, INC, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
FOR PUBLICATION
THIS MATTER comes before the Court by way of Defendants CashCall, Inc. ("CashCall"), WS Funding, LLC ("WS Funding"), Delbert Services Corp. ("Delbert"), and J. Paul Reddam's ("Reddam") (collectively, "Defendants") motion to compel arbitration, or alternatively, to dismiss Plaintiff John S. MacDonald's ("Plaintiff") Complaint. Dkt. No. 11. For the reasons set forth below, the motion to compel arbitration is DENIED and the motion to dismiss is GRANTED in part and DENIED in part.
The instant case concerns the controversial lending practices of Defendants and non-party Western Sky Financial, LLC ("Western Sky"), which work together to issue high-interest payday loans to customers across the United States. Western Sky, the entity that initially issues the loans, is owned by Martin Webb, a member of the Cheyenne River Sioux Tribe of South Dakota("CRST"). Based in large part on this tribal affiliation, Defendants seek to enforce numerous provisions in borrowers' loan agreements that attempt to, among other things, restrict borrowers' remedies to arbitration, compel the adjudication of disputes before the CRST, mandate the application of CRST law, and waive any application of state or federal law. Yet Plaintiff argues that Defendants' claims of tribal affiliation are a sham, and nothing more than a front to enable Defendants to circumvent the application of state and federal laws. He urges the Court not to enforce these provisions.
Plaintiff's experience epitomizes Defendants' lending scheme. On December 18, 2012, Plaintiff borrowed $5,000 from Western Sky's website, which he accessed from a computer located in New Jersey. Compl. ¶ 38. As part of that process, Plaintiff executed the "Western Sky Consumer Loan Agreement" (the "Loan Agreement"). Id. Pursuant to the Loan Agreement, Plaintiff would receive the loan subject to certain fees and an Annual Percentage Rate of 116.73%. Id. ¶ 39. Over the seven-year life of the loan, the finance charge would be $35,994.28. Id.
On December 26, 2012, Plaintiff was notified that Western Sky had assigned his loan to WS Funding, and that CashCall would handle the servicing of the loan and collect the first payment. Id. ¶ 40. On August 13, 2013, Plaintiff was informed that Delbert would take over servicing of the loan. Id. ¶ 41. As of April 2016, Defendants had collected a total of $15,493.00 from Plaintiff on his $5,000 loan. Id. ¶ 42. This included $38.50 in principal, $15,256.65 in interest, and $197.85 in fees. Id. At the time of the filing of the Complaint, Plaintiff still owed more than $7,833.91. Id.
If Plaintiff wished to challenge any aspect of the Loan Agreement, he would have to comply with a number of important provisions. Most notably, the Loan Agreement contained anarbitration clause, which provided as follows:
You agree that any Dispute, except as provided below, will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.
Loan Agreement at 8.2 The Loan Agreement also featured a forum selection clause, which stated, among other things, that the contract was "subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation." Id. at 2. In addition, a choice-of-law clause provided that the Loan Agreement "shall be subject to and construed in accordance only with the provisions of the laws of the Cheyenne River Sioux Tribe, and that no United States state or federal law applies to this Agreement." Id. at 7.
None of the Defendants have a connection to the CRST. CashCall is a Delaware corporation with its principal place of business located in Orange, California. Compl. ¶ 7. Reddam is its President, CEO, sole director, and sole owner. Id. WS Funding is a wholly owned subsidiary of CashCall, and Reddam serves as its president. Id. ¶ 8. Delbert is a Nevada corporation with its principal place of business located in Las Vegas, and Reddam serves as its sole director and owner. Id. ¶ 9. Reddam is a resident of California. Id. ¶ 6.
On May 17, 2016, Plaintiff filed the instant Complaint. Plaintiff's primary contention is that the loans at issue are void because the collection of a usurious rate of interest violates New Jersey law, and that Defendants' attempts to contractually circumvent the application of federal and state law should not be enforced. To that end, the Complaint asserts a variety of federal and state claims, including under: (1) New Jersey usury laws, see N.J. Stat. Ann. § 31:1-1; (2) the NewJersey Consumer Finance Licensing Act ("CFLA"), N.J. Stat. Ann. §§ 17:11C-1, et seq.; (3) the New Jersey Consumer Fraud Act ("CFA"), N.J. Stat. Ann. §§ 56:8-1, et seq.; (4) restitution and unjust enrichment; (5) a declaration that the forum selection and choice of law clauses do not apply, that the arbitration clause is void, and that any purported class waiver is void; and (6) the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq.3 See Compl. ¶¶ 55-91.
On September 9, 2016, Defendants moved to compel arbitration, or alternatively, to dismiss. Defendants argue that: (1) the Loan Agreement's arbitration provisions, including a delegation clause that requires that the issue of arbitrability be submitted to an arbitrator, should be enforced, and all of Plaintiff's claims submitted to arbitration; (2) the Complaint should be dismissed for improper venue because the Agreement's forum selection clause requires adjudication in the CRST Tribal Court or, in the alternative, the Court should abstain from hearing Plaintiff's claims until the CRST Court has had an opportunity to consider the venue question; (3) Plaintiff's state law claims must be dismissed because the Agreement's choice-of-law provision requires the application of CRST law; (4) Counts I, II, III, IV, and VI of the Complaint should be dismissed for failure to state a claim; and (5) Defendant Reddam should be dismissed because the Court lacks personal jurisdiction over him. Each will be discussed in turn.
Because the instant case is just the latest iteration in an ongoing saga concerning Defendants' business practices, it is helpful to first put this case in some broader context. Over the last few years, Defendants have become enmeshed in a spate of civil lawsuits and other proceedings across the country. At first, Defendants and related entities prevailed before variouscourts with many of the same arguments advanced in the instant motion. See Banks v. CashCall, Inc., No. 14-488, 2016 WL 3021749 (M.D. Fla. May 26, 2016); Yaroma v. Cashcall, Inc., 130 F. Supp. 3d 1055 (E.D. Ky. 2015); Kemph v. Reddam, No. 13-6785, 2015 WL 1510797 (N.D. Ill. Mar. 27, 2015); Williams v. CashCall, Inc., 92 F. Supp. 3d 847 (E.D. Wis. 2015); Chitoff v. CashCall, Inc., No. 14-60292, 2014 WL 6603987 (S.D. Fla. Nov. 17, 2014); Chitoff v. CashCall, Inc., No. 14-60292, 2014 WL 6603985 (S.D. Fla. Nov. 7, 2014); Narula v. Delbert Servs. Corp., No. 13-15065, 2014 WL 3752797 (E.D. Mich. July 30, 2014); Heldt v. Payday Fin., LLC, 12 F. Supp. 3d 1170 (D.S.D. 2014).
Yet the recent trend has tilted decidedly in favor of parties challenging Defendants' questionable business practices. Numerous courts, including two within this circuit and several Courts of Appeals, have rejected Defendants' arguments and refused to compel arbitration, tribal exhaustion, litigation in the CRST Court, or the application of tribal law. See Parnell v. W. Sky Fin., LLC, 664 F. App'x 841 (11th Cir. 2016); Parm v. Nat'l Bank of California, N.A., 835 F.3d 1331 (11th Cir. 2016); Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016); Inetianbor v. CashCall, Inc., 768 F.3d 1346 (11th Cir. 2014); Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir. 2014); Ryan v. Delbert Servs. Corp., 15-05044, 2016 WL 4702352 (E.D. Pa. Sept. 8, 2016); Consumer Fin. Prot. Bureau v. CashCall, Inc., No. 15-7522, 2016 WL 4820635 (C.D. Cal. Aug. 31, 2016); Inetianbor v. Cashcall, Inc., No. 13-60066, 2016 WL 4702370 (S.D. Fla. Aug. 18, 2016); Inetianbor v. Cashcall, Inc., No. 13-60066, 2016 WL 4250644 (S.D. Fla. Apr. 5, 2016); Smith v. W. Sky Fin., LLC, 168 F. Supp. 3d 778 (E.D. Pa. 2016), appeal dismissed (Apr. 19, 2016); Parnell v. CashCall, Inc., 181 F. Supp. 3d 1025 (N.D. Ga.), aff'd sub nom., Parnell v. W. Sky Fin., LLC, 664 F. App'x 841 (11th Cir. 2016); Inetianbor v. CashCall, Inc., No. 13-60066, 2015 WL 11438192, at *3 (S.D. Fla. Dec. 8, 2015), reconsideration denied, No. 13-60066, 2016WL 4249938 (S.D. Fla. Jan. 26, 2016); Parm v. Nat'l Bank of California, N.A., No. 14-0320, 2015 WL 11605748 (N.D. Ga. May 20, 2015), aff'd, 835 F.3d 1331 (11th Cir. 2016); Inetianbor v. CashCall, Inc., 962 F. Supp. 2d 1303, 1309 (S.D. Fla. 2013), aff'd, 768 F.3d 1346 (11th Cir. 2014); W. Sky Fin., LLC v. State ex rel. Olens, 300 Ga. 340, 348 (2016); State ex rel. Cooper v. W. Sky Fin., LLC, No. 13-16487, 2015 WL 5091229, at *10 (N.C. Super. Aug. 27, 2015).4 The Court finds the latter line of cases persuasive, and their analysis undergirds the Court's holding here.
Defendants first argue that the Court may not assess the enforceability of the arbitration clause because pursuant to the Agreement's delegation provision, issues concerning the validity, enforceability, and scope of the arbitration clause must be determined by an arbitrator. The Court disagrees.
The Loan Agreement provides, in relevant part, that issues "concerning the validity, enforceability, or scope of this loan or the Arbitration agreement" must be submitted to arbitration....
To continue reading
Request your trial