Pennsylvania v. Think Fin., Inc.

CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
PartiesCOMMONWEALTH OF PENNSYLVANIA, by Attorney General KATHLEEN G. KANE, Plaintiff, v. THINK FINANCE, INC., et al., Defendants.
Docket NumberCIVIL ACTION NO. 14-cv-7139
Decision Date14 January 2016

by Attorney General KATHLEEN G. KANE, Plaintiff,
THINK FINANCE, INC., et al., Defendants.

CIVIL ACTION NO. 14-cv-7139


January 14, 2016


Joyner, J.

Before the Court are Defendants' Motions to Dismiss (Doc. Nos. 67, 68, 69, 70, 71, 73), Plaintiff's Response in Opposition thereto (Doc. No. 75), and Defendants' Replies in Further Support thereof (Doc. Nos. 81, 82, 83, 84). For the reasons below, the Motions to Dismiss are DENIED in part, and GRANTED in part. An Order follows.

I. Factual and Procedural Background

This action concerns high-interest rate, short-term loans made to Pennsylvania citizens over the Internet. The Plaintiff, the Office of the Attorney General ("OAG"), alleges that the Defendants Think Finance, Inc.; TC Loan Service, LLC; Tailwind Marketing, LLC; TC Decision Sciences, LLC; Financial U, LLC (hereinafter "Think

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Defendants")1 and Kenneth Rees violated Pennsylvania and federal laws prohibiting usurious and otherwise illegal lending practices. FAC ¶ 2. The OAG also alleges that various debt buyers and collectors, including Defendant National Credit Adjusters, LLC ("NCA"), and affiliated marketing companies, Defendants Selling Source, LLC and PartnerWeekly, LLC, participated in this scheme by referring Pennsylvania residents to the Think Defendants' products and by collecting or attempting to collect these loans. FAC ¶¶ 3, 4. These loans allegedly violated the Loan Interest and Protection Law ("LIPL"), which limits the rate of interest for loans under $50,000 issued by unlicensed lenders to six percent per year. FAC ¶¶ 25, 26; 41 P.S. § 201(a). The OAG alleges that the Defendants partnered with an out-of-state bank and with Native American tribes, in schemes known colloquially as "rent-a-bank" and "rent-a-tribe."

In the alleged "rent-a-bank" scheme, the Think Defendants and Mr. Rees partnered with First Bank of Delaware ("FBD"), an out-of-state bank. FAC ¶¶ 33, 37. FBD acted as the nominal lender while the non-bank entity was the de facto lender - marketing, funding, and collecting the loan. Id. This partnership took advantage of

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federal bank preemption doctrines to insulate the Defendants from state regulations. FAC ¶ 34.

The OAG alleges that the "rent-a-tribe" scheme similarly avoided state laws by issuing loans in partnership with Native American tribes. FAC ¶¶ 43, 46. In this alleged scheme the tribe acts as the nominal lender and the Defendants benefit from the tribe's immunity. FAC ¶ 43. The Think Defendants and Mr. Rees provide services, including education, marketing, technology, funding, and collection. FAC ¶¶ 47-50. The Defendants maintain that they are merely service providers and as such have violated no laws. The OAG alleges that the Think Defendants and Mr. Rees are themselves the de facto lenders and that their partnership with the tribes, as the partnership with FBD previously, is meant to provide cover as the Defendants violate Pennsylvania and federal law. FAC ¶ 43.

The FAC alleges the Think Defendants and Mr. Rees partnered with three tribes: Chippewa Cree, Otoe-Missouria, and Tunica-Biloxi. FAC ¶¶ 46, 53, 60, 63. As evidence that Think Finance is the true lender in this scheme, the OAG points to the "take-it-or-leave-it" terms of the partnership with Chippewa Cree, which details, among other things, the name of the tribal entity that will issue the loans, the limits of the amount and interest rates

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of the loans themselves, and the percentage the tribe would receive on each loan. FAC ¶¶ 53, 54. The contract with Otoe-Missouria contains similar provisions. FAC ¶ 62. Think Finance (previously known as ThinkCash) customers visiting the Think Cash website were directed to the Chippewa Cree's LLC's website, the FAQ page of which promised the customers would receive "the same" service as previously provided by Think Finance. FAC ¶ 56. The OAG notes that the loans provided by the tribal companies are similar to those provided directly by the Think Defendants in states where such loans are legal. FAC ¶¶ 70, 71. The Think Defendants and Mr. Rees allegedly transferred their portfolio of customers and loan balances, as well as their pre-existing customer database, over to Plain Green, one of the tribal lending enterprises. FAC ¶ 55. Additionally, Think Finance has listed the tribal websites as its own products. FAC ¶ 72. The Defendants made most of the revenue from these loans. FAC ¶ 44. The loan agreements all include provisions indicating the loans will be governed by tribal law. FAC ¶¶ 59, 61, 68.

The OAG acknowledges that the tribal lenders stopped accepting loans from new Pennsylvania consumers sometime in mid-2013. FAC ¶ 77. Collection on pre-existing loans, however, continues, and preexisting costumers have been able to apply for new loans. FAC ¶¶

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78, 79. Additionally, the OAG alleges that the loan companies continue to take personal information from prospective new lenders from Pennsylvania. FAC ¶ 80.

The Plaintiff filed this action on November 13, 2014 in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania. Doc. No. 1-1. On December 17, 2014, various Defendants removed the case to the United States District Court for the Eastern District of Pennsylvania. Doc. No. 1. On March 11, 2015, Plaintiff filed a motion to remand to state court. Doc. No. 42. This Court denied the Plaintiff's motion on May 28, 2015. Doc. No. 53.

On July 6, 2015, Plaintiff filed her First Amended Complaint ("FAC"). Doc. No. 57. In it, the OAG alleges various violations of state and federal law by the Defendants:

1) Count One: Violations of Corrupt Organizations Act ("COA"), 18 Pa. C.S.A. § 911(b)(1), by the Think Defendants and Mr. Rees.

2) Count Two: Violations of COA, 18 Pa. C.S.A. § 911(b)(3), by the Think Defendants and Mr. Rees.

3) Count Three: Violations of COA, 18 Pa. C.S.A. § 911(b)(4), by all Defendants.

4) Count Four: Violations of the Fair Credit Extension Uniformity Act, 73 P.S. § 2270.1, by the Think Defendants, Mr.

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Rees, and NCA.

5) Count Five: Violations of the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq., by all Defendants.

6) Count Six: Violations of the Dodd-Frank Act, 12 U.S.C. § 5536(a)(1)(B), by the Think Defendants and Mr. Rees.

On August 28, 2015 Defendants filed seven different motions to dismiss. Doc. Nos. 67-73. Since then, claims against Defendant PayDay One have been dismissed, so PayDay One's Motion to Dismiss was denied as moot. Doc. No. 80. The remaining motions are:

1) Motion to Dismiss for Failure to Join Indispensable Parties, filed by the Think Defendants. Doc. No. 67.

2) Motion to Dismiss for Lack of Capacity to Sue and Failure to State a Claim, filed by the Think Defendants. Doc. No. 68.

3) Motion to Dismiss for Lack of Personal Jurisdiction, filed by Partnerweekly, LLC and Selling Source, LLC. Doc No. 69.

4) Motion to Dismiss for Failure to State a Claim, filed by the Think Defendants. Doc. No. 70.

5) Motion to Dismiss for Failure to State a Claim, filed by NCA. Doc. No. 71.

6) Motion to Dismiss for Failure to State a Claim, filed by Kenneth E. Rees. Doc. No. 73.

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Plaintiff filed a joint response in opposition to the various motions to dismiss on October 9, 2015. Doc. No. 75. Defendants filed four separate replies on October 23, 2015. Doc. No. 81-84. We will address the various motions to dismiss.

II. Jurisdiction

This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1331. It has supplemental jurisdiction under 28 U.S.C. § 1367 for the state law claims.

III. Legal Issues

A. Whether the Tribes are Indispensable Under Rule 19

Federal Rule 12(b)(7) allows for a party to move to dismiss a case for failure to join a party under Rule 19. Fed. R. Civ. P. 12(b)(7). Defendants argue that the tribes and tribal lending enterprises2 are indispensable parties under Rule 19. To decide this motion, we first look to whether the parties are considered "necessary" or "required" under Rule 19(a).3 Gen. Refractories Co. v. First State Ins. Co., 500 F.3d 306, 312 (3d Cir. 2007). If they

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are, then we look to whether it is feasible that they be joined. If not, we turn to Rule 19(b) and evaluate whether the court should "in equity and good conscience," dismiss the action or proceed with the existing parties. Fed. R. Civ. P. 19(b). The Court need not turn to Rule 19(b) if it determines the absent parties are not required under Rule 19(a). See Abel v. Am. Art Analog, Inc., 838 F.2d 691, 695 (3d Cir. 1988).

Rule 19(a)(1) provides:

(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. P. 19(a)(1). The 19(a) inquiry "is not a matter of per se rules; instead it is determined on a case-by-case basis." Cont'l Cas. Co. v. Diversified Indus., Inc., 884 F.Supp. 937, 943 n.2 (E.D. Pa. 1995) (internal citations omitted). The Defendants argue the tribes are required parties under both prongs of Rule 19(a)(1). We will address each in turn.

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1. Complete Relief Among Existing Parties

Under Rule 19(a)(1), "we ask first whether complete relief can be accorded to the parties to the action in the absence of the joined party." Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 405 (3d Cir. 1993) (citing...

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