La Torre v. Cashcall, Inc.
| Decision Date | 05 February 2019 |
| Docket Number | Case No. 08-cv-03174-TSH |
| Parties | EDUARDO DE LA TORRE, et al., Plaintiffs, v. CASHCALL, INC., Defendant. |
| Court | U.S. District Court — Northern District of California |
After this class action was recently remanded by the Ninth Circuit, Defendant CashCall, Inc. raised the question of subject matter jurisdiction in the parties' Joint Status Conference Statement. ECF No. 398. Specifically, CashCall noted that Plaintiffs' "unconscionability claim," brought under California's Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.) ("UCL") is the only remaining claim in this case, yet it "is based entirely on California law" and "there is no independent basis for federal jurisdiction over the Unconscionability Claim." ECF No. 398 at 1. Based on CashCall's statement, the Court gave CashCall the option to file a motion to dismiss or for the parties to file a joint motion requesting that the Court retain supplemental jurisdiction over the unconscionability claim. ECF No. 399. The parties have now filed a Joint Memorandum in Support of Continued Federal Jurisdiction. ECF No. 403. The Court finds this matter suitable for disposition without oral argument and VACATES the March 7, 2019 hearing. See Civ. L. R. 7-1(b). For the reasons stated below, the Court declines to exercise supplemental jurisdiction and therefore DISMISSES Plaintiffs' UCL claim WITHOUT PREJUDICE to re-filing in state court.
CashCall is a California corporation that provides high interest unsecured personal loans to qualifying consumers. The operative Fourth Amended Complaint ("FAC") asserts claims on behalf of a putative class of borrowers with loans from CashCall of $2,500 or more with 96% and 135% interest rates.1 FAC ¶¶ 1-2, 20, 24, 28, ECF No. 54. The FAC alleges one federal claim and five state law claims: (1) violation of the Electronic Fund Transfer Act, 15 U.S.C. § 1693, (2) violation of the Consumer Legal Remedies Act, Cal. Civ. Code § 1750, (3) violation of the Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788, (4) unlawful business practices in violation of the UCL, (5) a derivative unlawful business practices claim based on the above violations, and (6) fraudulent and unfair business practices. FAC ¶¶ 41-106.
The unsecured consumer loans at issue in this case are governed by the California Finance Lenders Law ("FLL"). Cal. Fin. Code § 22203. The FLL prescribes maximum interest rates for loans below $2,500, but this interest rate limitation "does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) or more." Id. § 22303. The FLL also incorporates by reference the general Civil Code provision about contract unconscionability, Cal. Civ. Code § 1670.5(a). Cal. Fin. Code § 22302.1. The FLL does not create a private right of action, see Cal. Fin. Code § 22713; Cal. Grocers Assn. v. Bank of Am., 22 Cal. App. 4th 205, 217 (1994), but a private cause of action lies under the UCL for "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. The UCL "borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable." Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 180 (1999) (citations and quotation marks omitted).
On November 15, 2011, Magistrate Judge Maria-Elena James2 certified a "National Class"consisting of "individuals who borrowed money from CashCall, Inc., between June 30, 2004 and February 2007, who signed CashCall's promissory note containing an electronic funds authorization indicating that cancellations of such authorization must be received at least seven days prior to the applicable payment due date." O'Donovan v. CashCall, Inc., 278 F.R.D. 479, 504 (N.D. Cal. 2011). Judge James also certified a "California Class" of "individuals who, while residing in California, borrowed from $2,500 to $2,600 at an interest rate of 90% or higher from CashCall, Inc., for personal, family, or household use at any time from June 30, 2004 to the present." Id. Judge James limited the California Class certification to the claim that making loans at "unconscionable interest rates" gave rise to a cause of action under the UCL. Id.
Since granting class certification, the UCL unconscionability claim is now all that remains pending, as the federal and other state law claims were dismissed or settled.
After CashCall moved for summary judgment on the unconscionability claim, Judge James originally denied the summary judgment motion, finding material factual issues as to whether the loans "shock the conscience." De La Torre v. CashCall, Inc., 56 F. Supp. 3d 1073, 1099 (N.D. Cal. 2014) (quoting Davis v. O'Melveny & Myers, 485 F.3d 1066, 1075 (9th Cir. 2007)). But after reconsideration, Judge James granted the summary judgment motion, finding that determining whether the CashCall interest rates were unconscionable would "impermissibly require the Court to regulate economic policy," because it could not fashion a remedy without "deciding the point at which CashCall's interest rates crossed the line into unconscionability." De La Torre v. CashCall, Inc., 56 F. Supp. 3d 1105, 1107-09 (N.D. Cal. 2014). And, by determining the highest appropriate interest rate, Judge James concluded the court would be improperly substituting its judgment for that of the legislature, which had intentionally removed the interest rate cap. Id. at 1109-10.
On December 22, 2014, Judge James directed the entry of judgment in favor of CashCall on the UCL claim pursuant to Federal Rule of Civil Procedure 54(b). ECF No. 247. Plaintiffs timely appealed on December 30, 2014. ECF No. 248.
On appeal, the Ninth Circuit determined that:
The central issue in this case is whether the interest rates on consumer loans of $2500 or more that are governed by California Finance Code § 22303, which provides no interest rate limitations on such loans, can be deemed unconscionable under California Finance Code § 22302 and thus be the predicate for a private cause of action under the [UCL].
De La Torre v. CashCall, Inc., 854 F.3d 1082, 1084 (9th Cir. 2017). After reviewing the parties' arguments, the court noted the "answer to this question could determine the outcome of this matter and there is no controlling precedent." Id. Thus, on April 21, 2017, the Ninth Circuit requested the California Supreme Court exercise its discretion to decide the following question of state law: "Can the interest rate on consumer loans of $2500 or more governed by California Finance Code § 22303, render the loans unconscionable under California Finance Code § 22302?" Id. at 1085.
On August 13, 2018, the Supreme Court issued its decision finding that the interest rate on consumer loans of $2,500 or more can render the loans unconscionable because "[a]n interest rate on a loan is the price of that loan, and 'it is clear that the price term, like any other term in a contract, may be unconscionable.'" De La Torre v. CashCall, Inc., 5 Cal. 5th 966, 973 (2018) (quoting Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913, 926 (1985)). In reaching this decision, the Court noted that "the doctrine of unconscionability reaches contract terms relating to the price of goods or services exchanged," but "[w]hether the price of a bargain is unreasonably and unexpectedly harsh depends on more than just a single printed number, so we examine not only the price term itself but other provisions and circumstances affecting a transaction's benefits and burdens." Id. at 975 (citations and quotation marks omitted). Thus, "[a]s with any other price term in an agreement governed by California law, an interest rate may be deemed unconscionable." Id. at 976.
At the same time, the Court noted that unconscionability "is a flexible doctrine" that "requires more than just looking at one particular term in a contract, comparing it to a fixed benchmark, and declaring the term unconscionable." Id. at 982. Thus, "[a]n evaluation of unconscionability is highly dependent on context," and "to declare an interest rate unconscionablemeans only that—under the circumstances of the case, taking into account the bargaining process and prevailing market conditions—a particular rate was overly harsh, unduly oppressive, or so one-sided as to shock the conscience." Id. at 976, 984 (citations and quotations marks omitted). The Court further noted that, because of this "inherently nuanced" understanding of unconscionability, "few courts have ever declared contracts unconscionable." Id. at 992. In fact, the Court found only one California court that has ever found a challenged interest rate unconscionable. Id. (citing Carboni v. Arrospide, 2 Cal. App. 4th 76, 81 (1991)).
As to the loans at issue in this case, the Court noted that the Ninth Circuit Id. at 993.
Based on the California Supreme Court's decision, on October 3, 2018, the Ninth Circuit vacated judgment as to the unconscionability claim and remanded for further proceedings consistent with the Supreme Court's opinion. De La Torre v. CashCall, Inc., 904 F.3d 866, 867 (9th Cir. 2018).
After remand, the Court set the matter for a case management conference and directed the parties to file an updated joint case management statement. ECF No. 393. In their subsequent Joint Status Conference Statement, Plaintiffs stated that the Court has supplemental jurisdiction "because those claims are related to Plaintiffs' federal claims...
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