Moses v. CashCall, Inc., 14–1195.
Decision Date | 16 March 2015 |
Docket Number | No. 14–1195.,14–1195. |
Citation | 781 F.3d 63 |
Parties | Oteria Q. MOSES, Plaintiff–Appellee, v. CASHCALL, INC., Defendant–Appellant. National Association of Chapter 13 Trustees; National Association of Consumer Bankruptcy Attorneys, Amici Supporting Appellee. |
Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED:Hayden J. Silver, III, Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina, for Appellant. Matthew W.H. Wessler, Public Justice, P.C., Washington, D.C., for Appellee. ON BRIEF:Raymond M. Bennett, Jesse A. Schaefer, Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina, for Appellant. Adrian M. Lapas, Strickland, Lapas, Agner & Associates, Goldsboro, North Carolina; Leah M. Nicholls, Public Justice, P.C., Washington, D.C., for Appellee. John Fletcher Logan, Chapter 13 Standing Trustee, Eastern District of North Carolina, Office of the Chapter 13 Trustee, Raleigh, North Carolina, for Amicus National Association of Chapter 13 Trustees. Tara Twomey, Geoff Walsh, National Consumer Bankruptcy Rights Center, San Jose, California, for Amicus National Association of Consumer Bankruptcy Attorneys.
Before NIEMEYER and GREGORY, Circuit Judges, and DAVIS, Senior Circuit Judge.
Affirmed in part and reversed in part and remanded by PER CURIAM opinion.
Judge NIEMEYER Wrote the opinion for the court in Parts I, II.A, and III, in which Judge GREGORY joined. Judge NIEMEYER wrote a separate opinion in Part II.B dissenting from the judgment in part. Judge GREGORY wrote a separate opinion, concurring in the judgment. Judge DAVIS wrote a separate opinion, concurring in the judgment in part and dissenting in part.
This bankruptcy appeal presents the issue of whether two claims, one for declaratory relief and one for money damages, asserted by debtor Oteria Moses in an adversary proceeding, are subject to arbitration. The bankruptcy court retained jurisdiction over the first claim and denied the motion of CashCall, Inc. to compel arbitration. With respect to the second claim, it made recommended findings of fact and conclusions of law, likewise to retain jurisdiction over the claim and deny the motion to compel arbitration. On appeal from the bankruptcy court, the district court affirmed the bankruptcy court's denial of the motion to compel arbitration as to the first claim and, itself, denied the motion to compel arbitration with respect to the second claim.
On appeal, we hold, for the reasons given by Judge Niemeyer in Parts I, II.A, and III of his opinion, in which Judge Gregory joined, that the district court did not err in affirming the bankruptcy court's exercise of discretion to retain in bankruptcy Moses' first claim for declaratory relief. We also hold, however, that the district court erred in retaining in bankruptcy Moses' claim for damages under the North Carolina Debt Collection Act and denying CashCall's motion to compel arbitration of that claim. Judge Gregory and Judge Davis wrote separate opinions concurring in that judgment. Judge Niemeyer wrote a separate opinion on that issue, dissenting.
Accordingly, the judgment of the district court is affirmed in part and reversed in part, and this matter is remanded to the district court with instructions to grant CashCall's motion to compel arbitration on Moses' second claim for damages.
NIEMEYER, Circuit Judge, writing for the court in Parts I, II.A, and III; and writing separately in Part II.B dissenting from the judgment in part.
To overcome financial difficulties, Oteria Moses of Goldsboro, North Carolina, borrowed $1,000 from Western Sky Financial, LLC, signing a consumer loan agreement in which she promised to repay Western Sky $1,500 and 149% interest, for an effective interest rate of 233.10% per annum. In signing the loan agreement, she agreed to make payments totaling $4,893.
While such a loan agreement was clearly illegal under North Carolina law, as it provided for an interest rate nearly 15 times the maximum allowable rate, Western Sky specified in the agreement that Indian tribal law would apply and that any dispute under the agreement would be resolved by arbitration conducted by a representative of the Cheyenne River Sioux Tribe.
When Moses sought protection in a Chapter 13 bankruptcy proceeding, CashCall, Inc., the loan servicer, filed a proof of claim, which Moses opposed on the ground that the loan was illegal and void. Moses also filed an adversary proceeding against CashCall (1) to declare the loan illegal and void and (2) to obtain damages for CashCall's allegedly illegal debt collection activities. In a strategic attempt to avoid the bankruptcy court's adjudication of Moses' claims, CashCall sought to withdraw its proof of claim, but the bankruptcy court denied its request. CashCall simultaneously sought to dismiss the adversary action or to stay the proceeding and compel arbitration, which the bankruptcy court also denied. The district court refused to review the bankruptcy court's interlocutory order denying CashCall's motion to withdraw its proof of claim but agreed to review the bankruptcy court's order denying CashCall's motion to dismiss or compel arbitration. From the district court's order affirming, CashCall filed this appeal.
We conclude that resolution of Moses' claim for a declaratory judgment that the loan is illegal under North Carolina law could directly impact the claims against her estate and that sending this claim to tribal arbitration would substantially interferewith Moses' efforts to reorganize. Thus, we hold that the district court did not err in affirming the bankruptcy's court's exercise of discretion to retain in bankruptcy Moses' claim for a declaratory judgment.
Writing separately for myself in Part II.B, I would also affirm the district court's exercise of discretion to retain in bankruptcy Moses' claim to obtain damages for CashCall's efforts to collect an allegedly illegal debt. That claim presents the exact same question as Moses' claim for a declaratory judgment—namely, whether the loan agreement is invalid. Consequently, splitting the damages claim from the declaratory judgment claim and sending it to arbitration will be extremely inefficient, will present collateral estoppel concerns, and will waste resources that Moses could otherwise use to repay her debts. Such concerns are heightened in light of the fact that courts have called the tribal arbitration procedure specified in the loan agreement “illusory,” “a sham,” and “unconscionable.” See, e.g., Jackson v. Payday Fin., LLC, 764 F.3d 765, 768, 778–79 (7th Cir.2014). Therefore, I believe that the district court did not abuse its discretion in declining to send Moses' damages claim to arbitration.
Facing financial difficulties, Moses signed a Western Sky Consumer Loan Agreement (the “Loan Agreement”) on May 10, 2012, promising to pay Western Sky “or any subsequent holder” $1,500, together with 149% interest. Upon signing the Loan Agreement, Western Sky gave her $1,000 in cash and “retained” $500 as a “prepaid finance charge/origination fee.” In the Loan Agreement's “Truth in Lending Act Disclosure Statement,” Western Sky stated that the annual percentage rate for the loan was 233.10% and that the amount of all payments that would be made “as scheduled” would be $4,893.14. The 233.10% interest rate disclosed in the Loan Agreement far exceeded the 16% maximum rate allowed by North Carolina law.
Western Sky, which gave its address in the Loan Agreement as a post office box in Timber Lake, South Dakota, was not licensed to make loans in North Carolina, as required by North Carolina law. The Loan Agreement provided, however, that it was “governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Cheyenne River Sioux Tribe” and that “no United States state or federal law applies to this Agreement.”
The Loan Agreement also provided that any disputes relating to it were to be resolved by arbitration, “which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative” (emphasis added), and it gave Moses the right to designate either the American Arbitration Association or JAMS “to administer the arbitration” in accordance with its rules and procedures “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.” In signing the Agreement, Moses also agreed that she could elect to have the arbitration take place either on tribal land or within 30 miles of her residence, but she agreed that if she elected the latter, this “accommodation” would not “relinquish[ ] or waive[ ] ... the Cheyenne River Sioux Tribe's sovereign status or immunity.” Courts that have considered loan agreements similar to the one at issue here have found that the Cheyenne River Sioux Tribe has no laws or facilities for arbitration and that the arbitration procedure specified is a “sham from stem to stern.”
Jackson, 764 F.3d at 779 ; see also Inetianbor v. CashCall, Inc., 768 F.3d 1346, 1354 (11th Cir.2014) ; Heldt v. Payday Fin., LLC, 12 F.Supp.3d 1170, 1191 (D.S.D.2014).
Three days after signing the Loan Agreement, Moses received a notice from Western Sky that the Agreement had been sold to WS Funding, LLC, a subsidiary of CashCall, Inc., and would be serviced by CashCall.
On August 1, 2012, less than three months after signing the Loan Agreement and after having made only one payment on it, Moses filed a Chapter 13 bankruptcy petition in the Eastern District of North Carolina to reorganize her financial affairs. One week later, CashCall filed a proof of claim in the bankruptcy proceeding, asserting that Moses owed it $1,929.02 as of August 1. Moses objected to the proof of claim, contending that “the loan obligation was void and not enforceable in North Carolina” pursuant to two North Carolina statutes that...
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