Yaroma v. Cashcall, Inc.

• Decision Date: 16 September 2015
• Docket Number: Civil No: 15–08–GFVT
• Citation: 130 F.Supp.3d 1055
• Parties: Monica Yaroma, Plaintiff, v. Cashcall, Inc. ; Delbert Services Corp.; Experian Information Solutions, Inc.; and Western Sky Financial, LLC, Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

130 F.Supp.3d 1055

Monica Yaroma, Plaintiff,

v.Cashcall, Inc. ; Delbert Services Corp.; Experian Information Solutions, Inc.; and Western Sky Financial, LLC, Defendants.

Civil No: 15–08–GFVT

United States District Court, E.D. Kentucky, Central Division. Frankfort.

Signed September 16, 2015

James Hays Lawson, Lawson at Law, PLLC, Louisville, KY, for Plaintiff.

Auric D. Steele, Lynn M. Watson, Seiller Waterman, LLC, Louisville, KY, Christopher S. Carver, Stacy J. Rodriguez, Akerman LLP, Miami, FL, Heatherann M. Solanka, Akerman LLP, Jacksonville, FL, Clay A. Barkley, Office of Attorney General, Frankfort, KY, Margaret Jane Brannon, Jackson Kelly PLLC, Lexington, KY, Matthew Samberg, Jones Day, Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION & ORDER

Gregory F. Van Tatenhove

, United States District Judge

This matter is before the Court upon the Motion to Dismiss or Compel Arbitration filed by two of the Defendants, CashCall, Inc. (CashCall) and Delbert Services Corporation (Delbert). [R. 3.] These Defendants ask the Court to dismiss the case based on improper venue under Federal Rule of Civil Procedure 12(b)(3)

,¹ or in the alternative, to dismiss the case and compel arbitration pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. [R. 3.] The motion has been fully briefed, and the Court held a hearing to further address certain issues concerning jurisdiction and the interpretation of the arbitration provision at issue. For the reasons explained below, the Defendants' motion will be GRANTED to the extent that the Court will compel arbitration and dismiss Plaintiff Yaroma's claims without prejudice.

I

A

On January 21, 2015, Monica Yaroma, a resident of Shelby County, KY, filed a complaint against Defendants CashCall; Delbert; Experian Information Solutions, Inc. (Experian); and Western Sky Financial, LLC (Western Sky) alleging various violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq.,

and the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., and also requesting declaratory relief in relation to a personal consumer loan she took out with Western Sky. [R. 1.] According to Yaroma's Complaint, Western Sky is a South Dakota limited liability company that offers, originates, and services personal consumer loans to consumers in Kentucky. [Id. at ¶ 11.] According to CashCall and Delbert, Western Sky is owned by Martin Webb, who is a member of the Cheyenne River Sioux Tribe (CRST). [R. 3 at 12.]

Yaroma alleges that she obtained an online loan from Western Sky at an annual interest rate of 138.91%, which is illegal and usurious under Kentucky law, thereby making the entire loan void and unenforceable. [R. 1 at ¶¶ 12–29.] Shortly after making the loan to Yaroma, Western Sky apparently sold the loan to Defendant CashCall, a California corporation. [Id. at ¶¶ 8, 30.] Subsequently, CashCall referred Yaroma's loan to Delbert, a Nevada corporation, for servicing, and Delbert attempted to collect payment from Yaroma. [Id. at ¶¶ 9, 33–46.] After several communications between Yaroma and Delbert, in which Yaroma alleges that Delbert made false representations to her and furnished negative credit information about her loan to consumer reporting agencies, Delbert eventually purchased her account from CashCall. [Id. at ¶¶ 45–57.] In July, 2014, Yaroma sent a dispute letter to Defendant Experian, a consumer reporting agency located in California and registered to do business in Kentucky. [Id. at ¶¶ 10, 58–59.] Yaroma alleges that her letter to Experian disputed the negative credit information, and argued that her loan is unenforceable because the high interest rate was usurious under Kentucky law. [Id . at ¶¶ 58–67.] According to Yaroma, both Experian and Delbert failed to conduct a reasonable investigation of her dispute or assure the accuracy of her credit information. [Id .]

B

Defendants Cashcall and Delbert² move to dismiss Yaroma's complaint based on the doctrine of forum non conveniens because the loan agreement included a forum-selection clause stating that the agreement "is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation." [R. 3 at 4; R 3–1 at 2.] The loan agreement also states that the borrower consents to the terms of the agreement, the "subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court, and that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or interpretation." [Id. ] In addition, the agreement states that "your execution of this Agreement is made as if you were physically present within the exterior boundaries of the Cheyenne River Indian Reservation, a sovereign Native American Tribal Nation." [R. 3–1 at 4.] Based on this language, CashCall and Delbert challenge this Court's jurisdiction over the instant dispute, arguing that the Court should enforce the forum selection clause and dismiss the case because the Cheyenne River Sioux Tribal Court is the appropriate venue. [R. 3 at 2–3, 8–10.] CashCall and Delbert also move for dismissal pursuant to the doctrine of tribal exhaustion, which requires that claims implicating an Indian tribe's jurisdiction be brought in tribal court. [Id. at 3, 11–15.]

In the alternative, CashCall and Delbert request the Court to enforce the arbitration clause in the Loan Agreement and to dismiss Yaroma's claims rather than merely staying them. [Id. at 4, 16–20.] The Loan Agreement contains a broad arbitration provision requiring that any disputes and claims related to the agreement be subject to mandatory arbitration in place of going to court. [R. 3–1 at 4–5.] The arbitration provision in the Loan Agreement waives the right to a jury trial, explicitly states that any dispute will be governed by arbitration, and defines a dispute as "any controversy or claim between [the borrower] and Western Sky or the holder or servicer of the note ... and includes without limitation, all claims or demands, ... based on any legal or equitable theory." [R. 3–1 at 4–5.] Additionally, the Agreement gives the borrower the right to select from any of several listed arbitration organizations or any other organization agreed to by all the parties. [Id. ] The Agreement also states in all capital letters that the arbitration provision "is made pursuant to a transaction involving the Indian Commerce Clause of the Constitution of the United States of America, and shall be governed by the law of the Cheyenne River Sioux Tribe." [Id. at 6.] CashCall and Delbert argue that under the FAA, the Court should enforce the arbitration agreement according to its terms.

In response, Yaroma contends that both the forum selection clause and the arbitration provisions are unenforceable because the entire contract is void under Kentucky law. [R. 20 at 108.] In particular, Yaroma argues that because Western Sky was not registered as a consumer loan company in Kentucky, it had no capacity to enter into the contract with Yaroma, and therefore any agreement is void ab initio due to Western Sky's lack of capacity. [Id. at 1–4.] Yaroma also contends that the tribal courts have no subject matter jurisdiction over her claims because no parties to the case are members of the tribe. [Id. at 5–6.] She also argues, without presenting any sufficiently supporting evidence, that the CRST does not have any set of procedures for arbitration or for resolving her claims, and therefore choosing the CRST as the arbitral forum is "procedurally and substantively unconscionable." [Id . at 6–8, 11–17.]

Thus, Yaroma is attacking the validity of the entire contract, based on lack of capacity and unconscionability. However, courts need not first determine the validity of the underlying contract in order to enforce a forum selection clause or an arbitration clause. See Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1232 (6th Cir.1995)

. As will be further explained herein, this issue is integrally related to the arbitration clause issue, and the questions of improper forum, tribal exhaustion, and even the contract's validity are all secondary considerations after first determining the validity of the arbitration provision itself. When a contract contains an arbitration agreement, "the arbitration provision is severable from the remainder of the contract." Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). "[U]nless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance." Id. at 445–46, 126 S.Ct. 1204. A federal court need not address whether the entire contract is void or voidable before upholding an arbitration provision under the FAA. Id. at 444–46, 126 S.Ct. 1204.

The claims in Yaroma's complaint clearly fall within the scope of the FAA. The FAA applies to contracts "evidencing a transaction involving commerce," and further defines "commerce" as including "commerce among the several States," which the Supreme Court has interpreted "as the functional equivalent of the more familiar term ‘affecting commerce’—words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power," and which includes debt attributable to loans originating out-of-state. 9 U.S.C. §§ 1

, 2 ; Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 55–56, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003). Because of the broad applicability of the FAA, Yaroma's claims must be analyzed in light of its provisions.³ In situations such as this, before reaching substantive issues of the dispute, courts should first decide the threshold "question of arbitrability," that is, whether parties have submitted the dispute to arbitration. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–85, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). This inquiry is of "limited scope," applying to the "narrow circumstance where contracting parties would likely have expected" a...