Parm v. Nat'l Bank of Cal., N.A.

• Decision Date: 06 March 2017
• Docket Number: CIVIL ACTION FILE NO.: 4:14–CV–0320–HLM
• Citation: 242 F.Supp.3d 1321
• Parties: Jessica PARM, on behalf of herself and all others similarly situated, Plaintiff, v. NATIONAL BANK OF CALIFORNIA, N.A., Defendant.
• Court: U.S. District Court — Northern District of Georgia

242 F.Supp.3d 1321

Jessica PARM, on behalf of herself and all others similarly situated, Plaintiff,

v.NATIONAL BANK OF CALIFORNIA, N.A., Defendant.

CIVIL ACTION FILE NO.: 4:14–CV–0320–HLM

United States District Court, N.D. Georgia, Rome Division.

Signed March 6, 2017

Darren T. Kaplan, Darren Kaplan Law Firm, P.C., Atlanta, GA, Hassan A. Zavareei, Jeffrey D. Kaliel, Tycko & Zavareei, LLP, Washington, DC, John Austin Moore, Norman E. Siegel, Stephen N. Six, Stueve Siegel Hanson, LLP, Kansas City, MO, for Plaintiff.

Anand S. Raman, Geoffrey M. Wyatt, Jessica D. Miller, John H. Beisner, Skadden Arps Slate Meagher & Flom LLP, Washington, DC, John F. Friedemann, Kyle M. Fisher, Friedemann Goldberg, LLP, Santa Rosa, CA, Stuart H. Singer, Boies, Schiller & Flexner, LLP, Ft. Lauderdale, FL, Craig G. Kunkes, Richard Lance Robbins, Robbins Ross Alloy Belinfante Littlefield, LLC, John Phillip MacNaughton, Ross A. Albert, Morris Manning & Martin, LLP, Atlanta, GA, for Defendant.

ORDER

Harold Lloyd Murphy, UNITED STATES DISTRICT JUDGE

This case is before the Court on Defendant's Motion for Judgment on the Pleadings [68], on Defendant's Motion to Dismiss for Failure to State a Claim ("Motion to Dismiss") [82], and on Defendant's Motion for Order Setting Status Conference [86].¹

I. Background

A. Procedural Background

The Court incorporates the procedural background portion of its May 20, 2015, Order into this Order as if set forth fully herein, and adds only those procedural background facts that are relevant to the instant Order. (Order of May 20, 2015 (Docket Entry No. 46) at 1–2.) On May 20, 2015, the Court denied Defendant's Motion to Compel Arbitration, and granted in part and denied in part Defendant's Motion to Dismiss, dismissing Plaintiff's claims under the Racketeer Influenced Corrupt Organization Act ("RICO") without prejudice. (See generally id. ) Defendant appealed from the denial of the Motion to Compel Arbitration. (Notice of Appeal (Docket Entry No. 47).) At the Parties' request, the Court stayed the case pending resolution of the appeal. (Consent Mot. Stay (Docket Entry No. 48); Order of June 4, 2015 (Docket Entry No. 51).)

On August 29, 2016, the United States Court of Appeals for the Eleventh Circuit affirmed the Court's denial of the Motion to Compel Arbitration. (Eleventh Circuit Opinion (Docket Entry No. 57).) On September 27, 2016, the Eleventh Circuit issued its mandate. (Mandate (Docket Entry No. 58).)

On October 11, 2016, Defendant filed its Answer. (Answer (Docket Entry No. 63).) On November 8, 2016, Defendant filed its Motion for Judgment on the Pleadings. (Mot. J. Pleadings (Docket Entry No. 68).) The briefing process for the Motion for Judgment on the Pleadings is complete, and the Court finds that the matter is ripe for resolution.²

On December 13, 2016, the Court granted a consent Motion filed by the Parties and permitted Plaintiff to file a First Amended Complaint. (Order of Dec. 13, 2016 (Docket Entry No. 79).) On December 14, 2016, Plaintiff filed her First Amended Complaint. (First Am. Compl. (Docket Entry No. 80).)

On January 13, 2017, Defendant filed its Motion to Dismiss. (Mot. Dismiss (Docket Entry No. 82).) The time period in which Plaintiff could respond to the Motion to Dismiss, as agreed by the Parties, expired without Plaintiff filing a response. (See Order of Dec. 13, 2016, at 2 ("[Defendant] shall file its motion to dismiss Claim 1 and Claim 2 of the First Amended Class Action Complaint within thirty (30) days of the filing of the First Amended Class Action Complaint; [Plaintiff] shall file her response within twenty one (21) days of [Defendant's] motion to dismiss; and [Defendant] shall file its reply within fourteen (14) days of [Plaintiff's] response.").) On February 9, 2017, the Court entered an Order directing Plaintiff to file her response by no later than February 13, 2017. (Order of Feb. 9, 2017 (Docket Entry No. 83).) Plaintiff filed her response on February 13, 2017. (Resp. Mot. Dismiss (Docket Entry No. 84).) Defendant filed a reply in support of its Motion. (Reply Supp. Mot. Dismiss (Docket Entry No. 87).) The Court finds that the briefing process for the Motion to Dismiss is complete, and concludes that the matter is ripe for resolution.

B. Plaintiff's Allegations

1. The Parties

Plaintiff resides in LaFayette, Georgia. (First Am. Compl. (Docket Entry No. 80) ¶ 14.) Defendant is a national banking association incorporated and with its main offices located in the State of California, (Id. ¶ 15.)

2. Payday Lending and Western Sky's Business

Plaintiff alleges that payday loans, which are small loans that become due in full on the borrower's next payday, "have a long and sordid history," and that "[p]ayday lenders operate on the shadowy fringe of the mainstream financial system." (First Am. Compl. ¶¶ 3, 40, 43.) According to Plaintiff, at least seventeen states have either directly banned payday loans or effectively banned payday loans by operation of an interest cap. (Id. ¶ 4.) Plaintiff points out that payday loans are illegal in Georgia and a number of other states, as well as the District of Columbia. (Id. ¶¶ 4, 46, 48.) Plaintiff alleges that certain payday lenders use the Internet to offer payday loans to borrowers who reside in states where payday loans are banned (the "Illegal Payday Lenders"), and the loans (the "Illegal Payday Loans") have exorbitant interest rates varying from 100 percent to 1500 percent. (Id. ¶¶ 5, 43, 48.)

Plaintiff asserts that "[p]ayday loans target the most vulnerable and desperate of borrowers." (First Am. Compl. ¶ 42.) Plaintiff alleges that payday lenders engage in deceptive practices to ensure that a borrower never pays off a loan, including "represent[ing] to borrowers that the total payment for satisfying the payday loan is the sum of the principal borrowed plus a one-time stated finance charge," while, in reality the lenders, "continuously debit purported ‘finance’ charges from borrowers," without applying the funds to the principal of the loan. (Id. ¶ 44.) Plaintiff also complains that, to ensure that the loans are not paid off, "payday lenders routinely ‘roll over’ the borrower's loan balance without first securing affirmative consent to do so," and "[o]ver 75 percent of payday loan volume is the result of ‘churn,’ " in which borrowers must take out additional loans to pay the original debt, resulting in borrowers frequently being "charged substantially higher interest rates than the terms stated in the agreement." (Id. ¶ 45.)

According to Plaintiff, the Illegal Payday Lenders' loan agreements with borrowers often include authorizations that allow the Illegal Payday Lenders to "initiate" Automated Clearing House ("ACH") transactions on behalf of the borrowers. (First Am. Compl. ¶¶ 6, 40.) Notably, the authorization to initiate only permits a lender to make a request to an ACH Network member bank to be allowed entry to the ACH Network. (Id. ¶¶ 6, 53.) A lender cannot initiate entry into the ACH Network on its own, and, to use that network, a "lender must find an ODFI bank that is [a] member of the ACH Network and willing to accept the lender's requests to ‘initiate’ credit and debit entries on the loan." (Id. ¶¶ 6, 40, 53.)

The ACH Network's rules and regulations require that an ACH Network member bank enter into a written agreement with merchants who seek to initiate credits and debits electronically. (First Am. Compl. ¶ 7.) According to Plaintiff, the "agreement describes in detail the scope of the relationship between the parties and has very specific requirements about what each party can and cannot do." (Id. )

Plaintiff alleges that, "[b]ecause the Illegal Payday Lenders cannot introduce credit and debit entries into the network on their own, [their] ability to defy the law of thirteen states rests on the cooperation of financial institutions like [Defendant] that knowingly enter into these written contracts with Illegal Payday Lenders and then ‘originate’ debits and credits from borrowers' bank accounts on the ACH Network." (First Am. Compl. ¶ 8.) According to Plaintiff, those banks, called Originating Depository Financial Institutions ("ODFIs"), serve as the Illegal Payday Lenders' sole access point to the ACH Network. (Id. ) Stated differently, without the small group of ODFIs who are willing to work with the Illegal Payday Lenders, the Illegal Payday Lenders' credit and debit entries could not enter the secure ACH Network. (Id. ) According to Plaintiff, "it would be impossible for Illegal Payday Lenters to deposit payday loan proceeds or debit payday loan payments from customers' bank accounts" in states where the loans are illegal and unenforceable "without [the ODFIs'] willingness to allow the Illegal Payday Lenders to access the ACH Network." (Id. ¶ 9.) Plaintiff alleges that Defendant, as an ODFI, participated actively in this scheme by granting the Illegal Payday Lenders' requests to initiate ACH entries for payday loan credits and debits to and from borrower checking accounts, and by knowingly taking affirmative steps to originate those entries into the ACH Network, thus enforcing debts that Defendant knew were unlawful. (Id. ¶ 10.)

According to Plaintiff, Western Sky Financial, LLC ("Western Sky") is a South Dakota limited liability company that offers payday loans to consumers over the internet. (First Am. Compl. ¶ 16.) The owner of Western Sky is a member of the Cheyenne River Sioux Indian Reservation. (Id. ¶ 17.) Plaintiff claims that CashCall, Inc. ("CashCall"), a California company, marketed high-cost, consumer-installment loans (the "WS Loans"), which were financed by CashCall's wholly owned subsidiary, WS Funding, (Id. ¶¶ 17–19, 23–24.) According to Plaintiff, the WS Loans were made in Western Sky's name and were quickly sold and assigned to WS Funding and serviced and collected by CashCall or an affiliated debt-collection company, Delbert Services Corporation, (Id. ¶¶ 18–21.) Plaintiff alleges that CashCall paid Western Sky...