MacDonald v. Cashcall, Inc., 17-2161

• Decision Date: 27 February 2018
• Docket Number: No. 17-2161,17-2161
• Citation: 883 F.3d 220
• Parties: John S. MACDONALD v. CASHCALL, INC ; WS Funding, LLC; Delbert Services Corp; and J. Paul Reddam, Appellants
• Court: U.S. Court of Appeals — Third Circuit

883 F.3d 220

John S. MACDONALD

v.CASHCALL, INC ; WS Funding, LLC; Delbert Services Corp; and J. Paul Reddam, Appellants

No. 17-2161

United States Court of Appeals, Third Circuit.

Argued January 24, 2018

Opinion Filed: February 27, 2018

Joseph L. Barloon [ARGUED], Austin K. Brown, Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Ave., NW, Washington, DC 20005, Andrew Muscato, Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, NY 10036, Counsel for Appellant

Matthew W.H. Wessler [ARGUED], Gupta Wessler PLLC, 1900 L Street, NW, Suite 312, Washington, DC 20036, Brock J. Specht, Nichols Kaster, PLLP, 4600 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402, Counsel for Appellee

Before: HARDIMAN, VANASKIE, and SHWARTZ, Circuit Judges.

OPINION OF THE COURT

SHWARTZ, Circuit Judge.

John MacDonald, on behalf of himself and a putative class, sued CashCall, Inc., WS Funding, LLC, Delbert Services Corp., and J. Paul Reddam (collectively "Defendants") over a loan agreement that he contends is usurious and unconscionable. The agreement includes (1) a provision requiring that all disputes be resolved through arbitration conducted by a representative of the Cheyenne River Sioux Tribe ("CRST") and (2) a clause that delegates questions about the arbitration provision’s enforceability to the arbitrator. Defendants moved to compel arbitration, which the District Court denied. Because the parties' agreement directs arbitration to an illusory forum, and the forum selection clause is not severable, the entire agreement to arbitrate, including the delegation clause, is unenforceable, and we will therefore affirm.

I

In 2012, New Jersey resident John MacDonald saw an advertisement for loans from Western Sky. He electronically executed a Western Sky Consumer Loan Agreement (the "Loan Agreement") and obtained a $5,000 loan. He was charged a $75 origination fee and a 116.73% annual interest rate over the seven-year term of the loan, resulting in a $35,994.28 finance charge.

The Loan Agreement stated that it

is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation. By executing this Loan Agreement, you, the borrower, hereby acknowledge and consent to be bound to the terms of this Loan Agreement, consent to the sole subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court, and that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or interpretation.

J.A. 80. In addition, the Agreement included the following choice of law clause:

Governing Law. This Agreement is governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Cheyenne River Sioux Tribe. We do not have a presence in South Dakota or any other states of the United States. Neither this Agreement nor Lender is subject to the laws of any state of the United States of America. By executing this Agreement, you hereby expressly agree that this Agreement is executed and performed solely within the exterior boundaries of the Cheyenne River Indian Reservation, a sovereign Native American Tribal Nation. You also expressly agree that this 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.

J.A. 85. The Loan Agreement also included several arbitration provisions:

Agreement to Arbitrate. 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.

Arbitration Defined. Arbitration is a means of having an independent third party resolve a Dispute. A "Dispute" is any controversy or claim between you and Western Sky or the holder or servicer of the Note. The term Dispute is to be given its broadest possible meaning and includes, without limitation, all claims or demands (whether past, present, or future, including events that occurred prior to the opening of this Account) based on any legal or equitable theory (tort, contract, or otherwise), and regardless of the type of relief sought (i.e. money, injunctive relief, or declaratory relief). A Dispute includes ... any issue concerning the validity, enforceability, or scope of this loan or the Arbitration agreement....

Choice of Arbitrator. Any party to a dispute ... may send the other party written notice ... of their intent to arbitrate and setting forth the subject of the dispute along with the relief requested, even if a lawsuit has been filed. Regardless of who demands arbitration, you shall have the right to select any of the following arbitration organizations to administer the arbitration: the American Arbitration Association ... JAMS [Judicial Arbitration and Mediation Services] ... or an arbitration organization agreed upon by you and the other parties to the Dispute. The arbitration will be governed by the chosen arbitration organization’s rules and procedures applicable to consumer disputes, to the extent that those rules and procedures do not contradict either the law of the Cheyenne River Sioux Tribe or the express terms of this Agreement to Arbitrate....

* * *

Applicable Law and Judicial Review. THIS ARBITRATION PROVISION IS MADE PURSUANT TO A TRANSACTION INVOLVING THE INDIAN COMMERCE CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA, AND SHALL

BE GOVERNED BY THE LAW OF THE CHEYENNE RIVER SIOUX TRIBE. The arbitrator will apply the laws of the Cheyenne River Sioux Tribal Nation and the terms of this Agreement. The arbitrator must apply the terms of this Arbitration agreement, including without limitation the waiver of class-wide Arbitration. The arbitrator will make written findings and the arbitrator’s award may be filed in the Cheyenne River Sioux Tribal Court, which has jurisdiction in this matter.

* * *

If any of this Arbitration Provision is held invalid, the remainder shall remain in effect.

J.A. 86-89 (emphasis in original).

MacDonald subsequently received notice that Western Sky Financial sold the loan to WS Funding and that CashCall and Delbert would service the loan. MacDonald submitted monthly payments to WS Funding, CashCall, or Delbert, and as of April 2016, he had paid Defendants a total of $15,493.00 on his $5,000 loan.¹

MacDonald sued Defendants on behalf of himself and a putative class of those similarly situated,² alleging violations of the federal Racketeering Influenced and Corrupt Organization Act and New Jersey usury, consumer finance, and consumer fraud laws. The Complaint asserted that Western Sky and Defendants' have a long history of unlawful and deceptive lending practices and that federal circuit courts have characterized the arbitration provisions in the loan agreements as "a sham and an illusion." J.A. 56 (Compl. ¶¶ 31, 34). MacDonald requested a declaration voiding the arbitration, choice of law, and class waiver clauses, and sought restitution.

Defendants moved to compel arbitration and, alternatively, to dismiss the Complaint. The District Court declined to compel arbitration because the Loan Agreement’s express disavowal of federal and state law rendered the arbitration agreement invalid as an unenforceable prospective waiver of statutory rights.³ Defendants appeal the District Court’s denial of Defendants' motion to compel arbitration.

II⁴

"Our review of the District Court’s order denying the motion to compel arbitration is plenary." Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 159 (3d Cir. 2009) ; see also Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 177 (3d Cir. 2010) (stating that our Court "exercise[s] plenary review over questions regarding the validity and enforceability of an agreement to arbitrate."). "[B]ecause our review is plenary, ‘we may affirm on any grounds supported by the record.’ " Hassen v. Gov't of V.I., 861 F.3d 108, 114 (3d Cir. 2017) (quoting Maher Terminals, LLC v. Port Auth. of N.Y. & N.J., 805 F.3d 98, 105 n.4 (3d Cir. 2015) ).

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 etseq., reflects the "national policy favoring [arbitration] and place[s] arbitration agreements on equal footing with all other contracts." Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) ; see also 9 U.S.C. § 2 (stating that "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy ... arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."). Thus, generally, courts "must rigorously enforce arbitration agreements according to their terms, including terms that ‘specify with whom the parties choose to arbitrate their disputes,’ and ‘the rules under which that arbitration will be conducted.’ " Am. Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228, 133 S.Ct. 2304, 2309, 186 L.Ed.2d 417 (2013) (internal citations omitted). Parties can seek judicial enforcement of an arbitration agreement under FAA § 4, and courts can appoint an arbitrator if one is not specified in the contract, pursuant to FAA § 5. The common-law rules of contract interpretation apply to arbitration agreements. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995).

III

Defendants assert that the District Court erred in refusing to compel arbitration because, among other things, (1) MacDonald did not specifically challenge the enforceability of the Loan Agreement’s delegation clause, which directs the arbitrator to decide the enforceability of the arbitration agreement, (2) the District Court erroneously construed the arbitration provisions as an impermissible prospective waiver of federal statutory rights, (...