Williams v. Medley Opportunity Fund Ii, LP

• Decision Date: 14 July 2020
• Docket Number: 19-2082,Nos. 19-2058,s. 19-2058
• Citation: 965 F.3d 229
• Parties: Christina WILLIAMS; Michael Stermel, on behalf of themselves and all others similarly situated v. MEDLEY OPPORTUNITY FUND II, LP ; Mark Curry; Brian McGowan ; Vincent Ney; Other John Doe Persons or Entities; Red Stone Inc, as Successor in Interest to MacFarlane Group, Inc. Red Stone, Inc., Appellant in No. 19-2058 Christina Williams; Michael Stermel, on behalf of themselves and all others similarly situated v. Medley Opportunity Fund II, LP ; Mark Curry; Brian McGowan ; Vincent Ney; Other John Doe Persons or Entities; Red Stone, Inc., as Successor in Interest to MacFarlane Group, Inc. Mark Curry, Brian McGowan, Vincent Ney, Appellants in No. 19-2082
• Court: U.S. Court of Appeals — Third Circuit

965 F.3d 229

Christina WILLIAMS; Michael Stermel, on behalf of themselves and all others similarly situated

v.MEDLEY OPPORTUNITY FUND II, LP ; Mark Curry; Brian McGowan ; Vincent Ney; Other John Doe Persons or Entities; Red Stone Inc, as Successor in Interest to MacFarlane Group, Inc.

Red Stone, Inc., Appellant in No. 19-2058

Christina Williams; Michael Stermel, on behalf of themselves and all others similarly situated

v.Medley Opportunity Fund II, LP ; Mark Curry; Brian McGowan ; Vincent Ney; Other John Doe Persons or Entities; Red Stone, Inc., as Successor in Interest to MacFarlane Group, Inc.

Mark Curry, Brian McGowan, Vincent Ney, Appellants in No. 19-2082

Nos. 19-2058

19-2082

United States Court of Appeals, Third Circuit.

Argued February 5, 2020

Filed: July 14, 2020

Arpit K. Garg, Tamara S. Grimm, Molly M. Jennings, Jonathan E. Paikin, Thomas L. Strickland, Daniel Volchok [ARGUED], Seth P. Waxman, WilmerHale, 1875 Pennsylvania Avenue, N.W., Washington, DC 20006, Charles K. Seyfarth, O'Hagan Meyer, 411 East Franklin Street, Suite 500, Richmond, VA 23219, Counsel for Appellant Red Stone, Inc.

Robert M. Cary, Sarah M. Harris [ARGUED], Michael J. Mestitz, Christopher Yeager, Williams & Connolly, 725 12th Street, N.W., Washington, DC 20005, Counsel for Appellant Mark Curry

David F. Herman, Richard L. Scheff, Armstrong Teasdale, One Commerce Square, 2005 Market Street, 29th Floor, Philadelphia, PA 19103, Counsel for Appellants Brian McGowan and Vincent Ney

Michael J. Quirk, Motley Rice, 40 West Evergreen Avenue, Suite 104, Philadelphia, PA 19118, Matthew W.H. Wessler [ARGUED], Gupta Wessler, 1900 L Street, N.W., Suite 312, Washington, DC 20036, Counsel for Appellees Christina Williams and Michael Stermel, On Behalf of Themselves and All Others Similarly Situated

Stephen F. Raiola, Covington & Burling, 850 10th Street, N.W., One City Center, Washington, DC 20001, Counsel for Amicus Curiae Online Lenders Alliance in Support of Appellants

Patrick O. Daugherty, Van Ness Feldman, 1050 Thomas Jefferson Street, N.W., Seventh Floor, Washington, DC 20007, Counsel for Amicus Curiae Native American Financial Services Association in Support of Appellants

Anthony M. Sabino, 2nd Floor, 92 Willis Avenue, Mineola, NY 11501, Counsel for Amicus Curiae Anthony Michael Sabino in Support of Appellant Red Stone, Inc.

Mark C. Stephenson, Ward Law, 1617 John F. Kennedy Boulevard, Suite 500, Philadelphia, PA 19103, Counsel for Amici Curiae American Legislative Exchange Council, The Center for Individual Freedom, and the American Consumer Institute in Support of Appellant Red Stone, Inc.

Jeffrey R. White, American Association for Justice, 777 6th Street, N.W., Suite 200, Washington, DC 20001, Counsel for Amicus Curiae American Association for Justice in Support of Appellees

Before: SHWARTZ, SCIRICA, and COWEN, Circuit Judges.

OPINION

SHWARTZ, Circuit Judge.

Christina Williams and Michael Stermel ("Plaintiffs") obtained loans from AWL, Inc., an online entity owned by the Otoe-Missouria Tribe of Indians ("Tribe"). Plaintiffs assert that AWL charged unlawfully high interest rates and sued AWL's holding company, Red Stone, Inc., and three members of AWL's board of directors, Mark Curry, Vincent Ney, and Brian McGowan (collectively, "Defendants") for violations of federal and Pennsylvania law. Defendants moved to compel arbitration. The District Court denied their motion, holding that the loan agreements—which provided that only tribal law would apply in arbitration—stripped Plaintiffs of their right to assert statutory claims and were therefore unenforceable. Because AWL permits borrowers to raise disputes in arbitration only under tribal law, and such a limitation constitutes a prospective waiver of statutory rights, its arbitration agreement violates public policy and is therefore unenforceable. As a result, the District Court correctly denied Defendants’ motion to compel arbitration.

I¹

A

Plaintiffs entered into payday loan agreements with AWL. "Payday loans are ostensibly short-term cash advances for people who face unexpected obligations or emergencies," "typically for small sums" and "to be repaid quickly." Gingras v. Think Fin., Inc., 922 F.3d 112, 117 (2d Cir. 2019), cert. denied, ––– U.S. ––––, 140 S. Ct. 856, 205 L.Ed.2d 458 (2020).

To obtain loans from AWL, Plaintiffs had to sign a loan agreement that set forth the interest rates, payment terms, and other provisions.² The loan agreement states that it "is between you, as borrower/debtor, and AWL, Inc., an arm of [the Tribe], as lender," J.A. 280, and includes the following "IMPORTANT DISCLOSURE" to the borrower:

YOU AGREE THAT THIS LOAN IS MADE WITHIN THE TRIBE'S JURISDICTION AND IS SUBJECT TO AND GOVERNED BY TRIBAL LAW^{[3 ]} AND NOT THE LAW OF YOUR RESIDENT STATE. IN MAKING THIS LOAN, YOU CONSENT TO TRIBAL JURISDICTION FOR THIS LOAN. YOUR RESIDENT STATE LAW MAY HAVE INTEREST RATE LIMITS AND OTHER CONSUMER PROTECTION PROVISIONS THAT ARE MORE FAVORABLE. IF YOU WISH TO HAVE YOUR RESIDENT STATE LAW APPLY TO ANY LOAN THAT YOU TAKE OUT, YOU SHOULD CONSIDER TAKING A LOAN FROM A LICENSED LENDER IN YOUR STATE.

J.A. 280 (capitalization in original).⁴ The loan agreement also makes disclosures pursuant to the Truth in Lending Act, but states that "we do not concede that the Truth in Lending Act applies to this transaction." J.A. 283. The loan agreement further informs the borrower that "[o]ur inclusion of any disclosures does not mean that Lender consents to the application of federal law to any Loan or to this [Loan] Agreement." J.A. 281.

Following these disclosures, the loan agreement contains twenty-five numbered sections. One section is titled "WAIVER OF JURY TRIAL AND AGREEMENT TO ARBITRATE." J.A. 289 (capitalization in original). This section of the loan agreement is defined in the contract as "the Agreement to Arbitrate." Compare J.A. 289 (defining the "Waiver of Jury Trial and Agreement to Arbitrate" as the "Agreement to Arbitrate"), with J.A. 280 (defining "this loan agreement" as the "Agreement" (capitalization omitted)). We refer to this section as the "arbitration agreement."

The arbitration agreement: (1) provides that "any dispute you have related to this agreement will be resolved by binding arbitration," J.A. 289 (capitalization omitted); (2) defines "[d]ispute" as "any claim or controversy of any kind between you and us or otherwise involving this [Loan] Agreement or the Loan ... includ[ing], without limitation, all federal, state or Tribal Law claims or demands" and "any issue concerning the validity, enforceability, or scope of this [Loan] Agreement" or arbitration agreement, J.A. 289-90; and (3) allows the party requesting arbitration to select either the American Arbitration Association ("AAA") or JAMS "for initiating and pursuing arbitration," J.A. 290.

In a subsection called "APPLICABLE LAW AND JUDICIAL REVIEW OF ARBITRATOR'S AWARD," the arbitration agreement states: "THIS [LOAN] AGREEMENT SHALL BE GOVERNED BY TRIBAL LAW." J.A. 291 (capitalization in original). The subsection then specifies that "[t]he arbitrator shall apply Tribal Law and the terms of this [Loan] Agreement, including [the arbitration agreement]." J.A. 291. The subsection further provides that

[t]he arbitrator shall make written findings and the arbitrator's award may be filed with a Tribal court. The arbitration award shall be supported by substantial evidence and must be consistent with this [Loan] Agreement and Tribal Law, and if it is not, it may be set aside by a Tribal court upon judicial review.

J.A. 291. The tribal court may confirm an arbitration award "only if" the court "determines that the award is supported by substantial evidence and is not based on legal error under Tribal Law." J.A. 291.

The arbitration agreement makes numerous other references to tribal law:

• "The policies and procedures of the selected arbitration firm applicable to consumer transactions will apply provided such policies and procedures do not contradict this [arbitration agreement] or Tribal Law." J.A. 290.

• "Unless prohibited by Tribal Law, the arbitrator may award fees, costs, and reasonable attorneys’ fees to you if you substantially prevail in the arbitration." J.A. 290.

• "Any arbitration under this [Loan] Agreement may be conducted either on Tribal land or within thirty (30) miles of your then current residence, at your choice, provided that this accommodation for you shall not be construed in any way ... to allow for the application of any law other than Tribal Law ...." J.A. 291.

• "The arbitrator has the ability to award all remedies available under Tribal Law ...." J.A. 291.

• "As an integral component of accepting this [Loan] Agreement, you irrevocably consent to the exclusive jurisdiction of the Tribal courts for purposes of this [Loan] Agreement." J.A. 291.

• "In the event you opt out of the [arbitration agreement], any disputes shall nonetheless be governed under tribal law and must be brought within the court system of [the Tribe]." J.A. 289 (capitalization omitted).

Separate from the arbitration agreement is another section of the loan agreement, titled "ACKNOWLEDGEMENT AND CERTIFICATION." J.A. 292 (capitalization in original). That section also discusses both arbitration and tribal law and notifies the borrower that "[b]y signing below, you also consent to the dispute resolution provision including the provision consenting and limiting disputes to tribal law and to tribal courts, to arbitration and to the provision not to bring, join or participate in any class action." J.A. 292.

Another section of the loan agreement, titled "GOVERNING LAW," mentions federal law and its application to the loan agreement and the Tribe. J.A. 292 (capitalization in original). It provides, in relevant part:

You understand and agree that this [Loan] Agreement is governed only by Tribal Law and such federal law as is applicable under the Indian Commerce Clause of the United States Constitution .... [N]either we nor this [Loan] Agreement are subject to

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