M. Hannah Lauck, United States District Judge.
This matter comes before the Court on Defendants' Haynes Investments, LLC ("Haynes Investments"), Sovereign Business Solutions, LLC ("SBS" or "Sovereign Business Solutions"), and L. Stephen Haynes's (collectively with Haynes Investments and SBS, the "Haynes Defendants") three motions: the Motion to Transfer or, in the Alternative, to Stay Proceedings (the "Motion to Transfer"), (ECF No. 36), the Motion to Compel Arbitration, (ECF No. 34), and the Motion to Dismiss, (ECF No. 32).
Accordingly, the matters are ripe for disposition. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. §§ 1331
This controversy arises out of the Haynes Defendants' involvement in an allegedly
Plaintiffs allege that the lending operation constitutes what they refer to as a "rent-a-tribe." Under this improper business model, actors establish entities to originate internet-based high interest loans so as to evade state and federal usury and lending laws. A non-tribal entity and a Tribe agree to establish a lending company in the Tribe's name. According to Plaintiffs, the Native American Tribe nominally establishes the lending company in order to extend its tribal sovereign immunity to the newly-formed business entity. The tribal company, however, receives capital from a different, non-tribal person or company who seeks to use the tribal lending companies in order to cloak the unlawfully high-interest internet loans with sovereign immunity. The non-tribal entity retains the vast majority of the profits and controls the lending tribal entity, from major business decisions to day-to-day operations. In exchange, the Tribe receives only a small percentage of the revenue.
Here Plaintiffs challenge the formation and operation of two lending entities: Plain Green
As to Plain Green, Plaintiffs allege that the Haynes Defendants, in conjunction with other actors and through a web of entities, actually "funded and partially operated" the so-called "rent-a-tribe" scheme at the heart of this case. (Compl. ¶ 2.) Specifically, the Haynes Defendants and
Once Plain Green originated the loans in its name, another designated third-party entity "purchased" the loans from Plain Green. (Compl. ¶ 37.) As part of this "purchase," the third party entity "refunded [back to Haynes Investments] 99% of the funds provided by Haynes Investments, wh[ich] also received: (1) 5% interest on the money loaned to the Tribe, and (2) 1% of the revenue collected on the loans as a `referral' fee." (Id. ¶ 38.) Plaintiffs allege that Great Plains has a comparable structure, albeit with different entities.
In this way, although Plain Green
On several occasions, Haynes Investments increased its investment in the Tribal lending operation. Between December 2011 and June 2012, "Haynes Investments received a monthly profit between $ 131,555 and $ 166,714" from its participation in the Tribal lending venture. (Id. ¶ 53 (citing Compl. Ex. 7 "ILP Profit Share Breakout Trend" TF-VA0602566).) As of July 12, 2012, Haynes Investments had increased the line of credit it extended to the lending operation to $ 20,000,000, ten
In August 2012, Haynes proposed an additional arrangement "to continue to grow" the improper lending operation. (Id. ¶ 55.) As part of this new financing arrangement, Haynes created Sovereign Business Solutions,
Plaintiffs allege that Haynes "did not merely invest" in this unlawful Tribal lending scheme, (Compl. ¶ 64,) but rather, "played an integral role in helping ... [to] obtain a bank willing to process payments through the Automated Clearing House Network (the `ACH Network')," (id. ¶ 65.) The ACH Network "allows financial institutions to send or take money directly out of a bank account without the requirement of a direct relationship between the financial institution and the borrower." (Compl. ¶ 66.) Plaintiffs quote reports stating that the ACH plays a "vital role" in online lenders' ability to conduct business.
When regulators targeted Plain Green and Great Plains, and banks consequently "ceased processing the debits and credits on their loans,"
Each Contract purports to constitute a loan agreement between the named plaintiff and either Plain Green (two contracts) or Great Plains (three contracts), including the underlying loan terms, choice of law provisions, and arbitration agreements. The principal amounts varied, from as low as $ 500 in a loan through Plain Green, (Mwethuku Agr. 2), to as high as $ 1,700 in a loan through Great Plains, (Inscho Agr. 2). Interest rates
All Contracts purport to be governed by Tribal Law.
All Contracts also include an additional agreement to arbitrate disputes arising from the Contract (the "Arbitration Agreements"). According to the Contracts, the arbitration could take place through a nationally recognized arbitration entity,
All Contracts include a severance clause stating that, should any provision within it—such as the Arbitration Agreement—be found unenforceable, the offensive provision would be severed, meaning that the remainder of the Contract would remain in full force and effect. (Gibbs Agr. 7, Williams Agr. 6; Edwards Agr. 6; Inscho Agr. 7; Mwethuku Agr. 6.) Borrowers can opt out of the Arbitration Agreements, but each Contract provides that borrowers who opt out of the Arbitration Agreements nevertheless agree to bring any disputes within the applicable Tribal court system and according to Tribal law. (Gibbs Agr. 7-8; Williams Agr. 7-8; Edwards Agr. 8; Inscho Agr. 7-8; Mwethuku Agr. 5.)
The Arbitration Agreements require the application of Tribal law, and limit the Arbitrator's authority to remedies and legal claims recognized by Tribal law. (Gibbs Agr. 6, Williams Agr. 9; Edwards Agr. 9; Inscho Agr. 7; Mwethuku Agr. 6.) The Arbitration Agreements provide that either party may appeal the Arbitrator's decision in the Tribal court system. (Gibbs Agr. 8; Williams Agr. 9; Edwards Agr. 8; Inscho Agr. 9; Mwethuku Agr. 6.)
Plaintiffs filed a six-count putative class action Complaint against eight defendants
Plaintiffs seek: (1) class certification; (2) declaratory and injunctive relief and damages; and, (3) attorney's fees, litigation expenses, and costs of suit.
On April 18, 2018, Defendants Victory Park Capital Advisors, LLC; Victory Park Management, LLC; Scott Zemnick; Jeffrey Schneider; and Thomas Welch moved to transfer the case to the United States District Court for the Northern District of Texas. (ECF No. 24.) On April 19, 2018, the Court granted the Motion as to the claims against these defendants, but retained the claims against the Haynes Defendants.
On July 18, 2018, the Haynes Defendants filed the Motion to Transfer, the Motion to Compel Arbitration, and the Motion to Dismiss. Plaintiffs responded in opposition to the Motions, and the Haynes Defendants replied.
In their Motion to Transfer, the Haynes Defendants invoke the "first-to-file" rule, claiming the doctrine warrants transferring the action to the United States District Court for the District of Vermont, where Haynes Investments is currently defending itself in a lawsuit, filed previous to this one, involving its business associations with Plain Green.
"The first-to-file rule provides that `when multiple suits are filed in different Federal courts upon the same factual issue, the first or prior action is permitted to proceed to the exclusion of another subsequently filed.'" Victaulic Co. v. E. Indus. Supplies, Inc., No: 6:13-01939, 2013 WL 6388761, at *2 (D. S.C. Dec. 6, 2013) (quoting Allied-Gen. Nuclear Servs. v. Commonwealth Edison Co., 675 F.2d 610, 611 n.* (4th Cir. 1982)). Courts within the United States Court of Appeals for the Fourth Circuit have observed that the Fourth Circuit "has no unyielding `first-to-file' rule." See, e.g., Victaulic, 2013 WL 6388761 at *2 (quoting CACI Int'l Inc. v. Pentagen Techs. Int'l Ltd., 70 F.3d 111, 1995 WL 679952, at *6 (4th Cir. 1995) (citation omitted)). Generally, "the first suit should have priority, absent the showing of balance of convenience in favor of the second action." Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 594-95 (4th Cir. 1982). But the first-to-file rule "is not absolute and is not to be mechanically applied." Victaulic, 2013 WL 6388761 at *2, (quoting Harris v. McDonnell, No. 5:13-cv-000777, 2013 WL 5720355, at *3 (W.D. Va Oct. 18, 2013)).
In determining whether the two actions come within the scope of the first-to-file rule, courts consider "three factors: (1) the chronology of the filings, (2) the similarity of the parties involved, and (3) the similarity of the issues at stake." Victaulic, 2013 WL 6388761 at *3 (quoting Harris 2013 WL 5720355, at *3). The parties and issues need not be identical, as the first-to-file rule may apply if the parties and issues "are substantively the same or sufficiently similar." Id.
If two actions fall within the scope of the first-to-file rule, the decision to apply the rule "is an equitable determination that is made on a case-by-case, discretionary basis." Elderberry of Weber City, LLC v. Living Centers-Southeast, Inc., No. 6:12cv52, 2013 WL 1164835, at *4 (W.D. Va. Mar. 20, 2013) (quoting Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F.Supp.2d 357, 360 (W.D.N.C. 2003)). Because the first-to-file rule, as a matter of policy, seeks to avoid duplicative litigation and to conserve judicial resources, "exceptions to the rule are common `when justice or expediency requires.'" Id. (quoting Samsung Electronics Co., Ltd. v. Rambus, Inc., 386 F.Supp.2d 708, 724 (E.D. Va. 2005)).
"[A]lthough the Fourth Circuit has not stated explicitly that special circumstances may warrant an exception to the first-to-file rule, it has implicitly recognized a special circumstance exception in cases involving procedural fencing or forum shopping." Elderberry, 2013 WL 1164835, at *4 (quoting Federated Mut. Ins. Co. v. Pactiv Corp., No. 5:09cv00073, 2010 WL 503090, at *3 (W.D. Va. Feb. 9, 2010) (internal citations and quotation marks omitted). When determining whether "special circumstances" exist, courts within the Fourth Circuit have considered
A review of the two actions shows that Gingras and the present action do not fall within the scope of the first-to-file rule. Although Gingras predates the action in this Court, thereby satisfying the first and most obvious factor under the test, the present case fails to sufficiently overlap with Gingras.
As to the second prong of the first-to-file evaluation, the parties do not substantially overlap. Of the eight parties to this case— five named plaintiffs and three defendants —Gingras names only Haynes Investments. Plaintiffs bring this purported class action suit on behalf of Virginia residents. The Gingras plaintiffs, both Vermont residents, seek to bring suit on behalf of a nationwide class. Although the proposed Gingras class may ultimately include some of the named plaintiffs in this suit,
More importantly, as to the third factor, the causes of action in the cases do not constitute substantively identical or similar claims. The Haynes Defendants allege that the theories of the cases overlap, as both sets of plaintiffs allege that "the Haynes Defendants invested in what [the plaintiffs in each case] describe as an illegal lending enterprise involving Native American tribes and various loan servicers... and assisted the servicers in attempting to find a bank to work with the servicers in collecting the loans via the [ACH Network]." (Mem. Supp. Mot. Transfer 3.) Although Gingras raises many of the same factual allegations—a description of how allegedly improper Tribal lending operations work and allegations that Haynes Investments carried out such an operation through Plain Green—the legal claims presented to the United States District Court for the District of Vermont lack sufficient similarity to the current case to justify invoking the first-to-file rule and transferring this suit to Vermont.
Here, Plaintiffs' claims all stem from Virginia's usury laws. Count V of the Complaint states violations of Virginia usury laws, and these alleged violations undergird Plaintiffs' four RICO claims
For example, although the Gingras Complaint brings three RICO claims pursuant to the same provisions Plaintiffs invoke here, the facts underlying each claim differ. The Gingras plaintiffs allege that the "Victory Park Defendants" violated 18 U.S.C. § 1962(c) by engaging in wire fraud and mail fraud, but they do not allege that Haynes Investments violated this RICO provision. (Gingras Compl. ¶ 246.) Also, no allegations of wire or mail fraud stand before this Court. Instead, Plaintiffs allege that the Haynes Defendants violated this RICO provision when they "associated with the enterprise and participated in the affairs of the enterprise, which existed for the purpose of collection of unlawful debt." (Compl. ¶ 175.)
Both the Gingras Complaint and the Complaint filed in this Court raise a claim under § 1962(b). But the Gingras plaintiffs allege that all the Gingras defendants, including Haynes Investments, violated § 1962(b) by engaging in the unlawful collection of debt. The facts undergirding these allegations relate to Vermont consumers and Vermont law. Plaintiffs here, instead, allege that the Haynes Defendants violated § 1962(b) when they acquired and maintained "interests in and control of the enterprise involved in the unlawful collection of debt." (Compl. ¶ 161.) Plaintiffs describe the debt as unlawful because it violates Virginia usury laws. Although the Gingras Complaint refers to "usurious rates of more than twice the legal limit in several states," this general assertion does not suffice, on its own, to support a finding that the cases bring duplicate § 1962(b) claims.
Other important differences among the causes of action also exist. Two of the four claims against Haynes Investments in Gingras do not overlap with this case at all: Count One states violations of the Electronic Funds Transfer Act, and Count II states violations of the Vermont Consumer Fraud Act. Plaintiffs here, meanwhile, bring a claim, completely absent in Gingras, pursuant to § 1962(a) (the "RICO Receipt & Investment Count") against all of the Haynes Defendants.
Thus, the Court finds that the parties and the claims in Gingras and this action do not present as "substantively the same or sufficiently similar." Victaulic, 2013 WL 6388761 at *3. Because neither the parties nor the claims substantially overlap, the first-to-file rule does not commend transfer. Although similarities between the cases exist, the Haynes Defendants themselves recognize that "this case is one of many being litigated in courts across the country," all of which bring similar claims. (Mem. Supp. Mot. Transfer 1, ECF No. 37.)
As articulated earlier, even in circumstances where the first-to-file would suggest transfer, the decision to invoke the rule "is an equitable determination that is made on a case-by-case, discretionary basis." Elderberry, 2013 WL 1164835 at *4 (quoting Nutrition & Fitness, 264 F.Supp.2d at 360). A court may use its broad discretion to determine whether special circumstances exist, such as the existence of forum shopping,
First, the Gingras action has not progressed since its filing. The Gingras plaintiffs filed suit on November 21, 2017. (See Gingras Compl.) On February 20, 2018, before any party filed an answer or responsive pleading, the Gingras court stayed the case.
Second, the "balance of convenience" strongly favors remaining in this Court. See Volvo, 386 F.3d at 594-95; see also Elderberry, 2013 WL 1164835 at *4; Victaulic, 2013 WL 6388761 at *3. When determining the balance of convenience, the Court considers the same factors that a court weighs when ruling on a motion to transfer venue pursuant to 28 U.S.C. § 1404(a).
In analyzing a motion to transfer under 28 U.S.C. § 1404(a), a court must first consider "whether the plaintiff could have brought the action in the transferee forum." Wenzel v. Knight, Case No. 3:14cv432, 2015 WL 222179, at *1 (E.D. Va. 2015). Plaintiffs, in their opposition to the Motion to Transfer, raise legitimate concerns about personal jurisdiction over the Haynes Defendants in the District of Vermont as it pertains to Plaintiffs' claims, which stem from acts that took place in Virginia, not Vermont. Specifically, Plaintiffs
Even putting aside the issue of personal jurisdiction, given the nature of class action suits, other § 1404 factors weigh in favor of remaining in this Court. A court considers: "(1) plaintiffs['] choice of forum, (2) convenience of the parties, (3) witness convenience and access, and (4) the interest of justice." Wenzel, 2015 WL 222179 at *2. "In some cases, the interest of justice trumps the other factors, even when they suggest a different outcome." Id. at *3. Under this analysis, the Haynes Defendants could not meet their burden to "clearly establish[ ] that these factors favor transfer." Victaulic, 2013 WL 6388761 at *3.
Remarkably, these four § 1404 factors also commend a denial of transfer. First, as to the plaintiff's choice of forum, no question exists that Plaintiffs prefer this forum to Vermont, given their opposition to the transfer and legitimate concerns about personal jurisdiction to proceed in Vermont. Second, as to party convenience, Plaintiffs each filed declarations detailing the inconvenience and expense that transfer to Vermont would produce. (See ECF Nos. 43-1, 43-2, 43-3, 43-4, 43-5.) Although the Haynes Defendants may prefer to litigate claims in one venue, party convenience plainly weighs in favor of this venue. Finally, as to the third factor, Plaintiffs' declarations indicate that witnesses familiar with Plaintiffs' claims live in Virginia and that Plaintiffs do not know of any person in Vermont who could act as a witness in this case. For this reason, this factor also weighs in favor of remaining in this Court.
Most importantly, the interest of justice —the fourth consideration under § 1404—justifies proceeding in this venue. As the Haynes Defendants recognize, several other actions pending here appear closely related to this case, perhaps more so than Gingras. (Mem. Supp. Mot. Dismiss 3 ("The instant Complaint alleges identical harms and practically identical theories of liability as those in [other cases before this Court], including as to the Haynes Defendants.").) Any potential gain in judicial efficiency from transferring this case to the District of Vermont seem overborne because this Court will have to consider the same underlying facts and claims to address other cases before it. See, e.g., Wenzel, 2015 WL 222179 at *4 (discussing judicial efficiency when determining whether to grant a transfer).
In sum, even absent the Court's finding that the Haynes Defendants cannot invoke the first-to-file rule to justify transfer, the Court would find that ample "special circumstances" commend proceeding in this forum and denying the Haynes Defendants' Motion to Transfer. Elderberry, 2013 WL 1164835 at *4 (quotation omitted).
The Fourth Circuit reviews de novo "a district court's order compelling arbitration under the [Federal Arbitration Act]." Hayes v. Delbert Servs. Corp., 811 F.3d 666, 671 (4th Cir. 2016). A "strong federal policy in favor of enforcing arbitration agreements" exists. Id. (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985)).
The Supreme Court of the United States "has recognized that arbitration agreements that operate `as a prospective waiver of a party's right to pursue statutory remedies' are not enforceable because they are in violation of public policy." Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). "Under this `prospective waiver doctrine,' courts will not enforce an arbitration agreement if doing so would prevent a litigant from vindicating federal substantive statutory rights." Id. (citations omitted).
Two recent Fourth Circuit cases control the Motion to Compel before the Court and warrant thorough summaries: Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016); and, Dillon v. BMO Harris Bank, N.A., 856 F.3d 330 (4th Cir. 2017).
In 2016, the Fourth Circuit considered an arbitration agreement similar to the Arbitration Agreements at issue here. See generally Hayes, 811 F.3d 666. Plaintiff Hayes entered into a loan contract (the "Hayes Contract") with Western Sky Financial, LLC ("Western Sky"), "an online lender owned by Martin Webb," a member of the Cheyenne River Sioux Tribe. Id. at 668. The Hayes Contract, like the Plaintiffs' Contracts, included underlying loan provisions, choice of law provisions, and an arbitration agreement. Western Sky issued Hayes a $ 2,600 loan (minus a $ 75 origination fee) with an annual interest rate of 139.12%. Id. Over the four-year life cycle of the loan, "Hayes was set to pay $ 14,093.12 for his $ 2,525[ ]." Id. at 668-69. Hayes brought suit to obtain relief from the allegedly unlawful debt collection, and the defendants sought to compel arbitration. Id. at 669.
The Hayes Contract purported to be "subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe." Id. (quoting the Hayes Contract (bold removed)). It expressly disavowed other law: "no other state or federal law or regulation shall apply to this Loan Agreement." Id. (quoting the Hayes Contract).
After discussing the rising trend of challenges to similarly-worded arbitration agreements in lower courts, and closely reviewing other provisions in the Hayes Contract related to applicable law, the Hayes court concluded that "[t]his arbitration agreements fails for the fundamental reason that it purports to renounce wholesale the application of any federal law to the plaintiffs' federal claims." Id. at 673. The Hayes court explained:
Id. at 673-74. The Fourth Circuit concluded that "a party may not underhandedly convert a choice of law clause into a choice of no law clause—it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject." Id. at 675. The Fourth Circuit described the Hayes Contract's attempt to prospectively waive Hayes's federal rights as "plainly forbidden" and held it "invalid and unenforceable." Id.
The Hayes court also highlighted questionable provisions within the arbitration agreement, such as one allowing professional arbiters to "administer" the arbitration without specifying they would "conduct" it. Id. at 673. In Hayes, the Fourth Circuit also pointedly noted that the requirement that an arbiter could rely on traditional rules of arbitration "only to the extent that those rules and procedures do not contradict either the law of the [Tribe or the arbitration agreement]," id., presented a "conundrum," id. (citation and quotation omitted).
Finally, the Fourth Circuit declined to sever the arbitration agreement's "errant provisions." Id. at 675. "It is a basic principle of contract law that an unenforceable provision cannot be severed when it goes [to] the `essence' of the contract." Id. at 675-76 (quoting 8 SAMUEL WILLISTON & RICHARD A. LORD, A Treatise on the Law of Contracts § 19:73 (4th ed. 1993)). The Hayes court considered the arbitration agreement in the context of the entire Hayes Contract, critiquing the "brazen nature" of provisions attempting to evade federal law. Declaring these attempts "the animating purposes" of the arbitration agreements, id. at 676, the Court concluded that "[g]ood authority counsels that severance should not be used when an agreement represents an `integrated scheme to contravene public policy,'" id. at 676 (quoting E. Allan Farnsworth, Farnsworth on Contracts § 5.8, at 70 (1990)).
Just over a year after deciding Hayes, the Fourth Circuit again considered the enforceability of an arbitration agreement in the context of an online lending contract. See generally Dillon, 856 F.3d 330. Dillon presents even closer similarities to the case at bar. Plaintiff Dillon entered into a loan agreement (the "Dillon Contract") with Great Plains through Great Plains's website. Id. at 332. The Dillon Contract included choice of law provisions and an arbitration agreement similar to the ones in Plaintiffs' Contracts. Although Dillon resided in North Carolina, which prohibits interest rates in excess of 16%, Great Plains charged an interest rate of 440.18% for Dillon's loan. Id. Dillon brought suit, alleging RICO violations against defendants involved in the collection on the loan.
The Court found that the arbitration agreement within the Dillon Contract ran afoul of the prospective waiver doctrine.
After finding the choice of law provision unenforceable, the Dillon court declined to sever the unenforceable provisions from the rest of the arbitration agreement, stating that "such a result is untenable. Unlawful portions of a contract may be severed only if: (1) the unlawful provision is not central or essential to the parties' agreement; and (2) the party seeking to enforce the remainder negotiated the agreement in good faith." Id. (citing 9 WILLISTON ON CONTRACTS § 19:70 (4th ed. 1993 & Supp. 2010); Restatement (Second) or Contracts § 184 (1981)). The Dillon court concluded that the arbitration agreement failed to meet either prong of the test for severability. Id. at 336-37.
In sum, the Dillon court thus concluded that the Dillon Contract as a whole contained "unenforceable choice of law provisions, which are not severable from the broader arbitration agreement and render the entire arbitration agreement unenforceable."
The Arbitration Agreements found within Plaintiffs' Contracts with Plain Green and Great Plains run afoul of the prospective waiver doctrine because they "unambiguous[ly] attempt to apply tribal law to the exclusion of federal and state law." Dillon, 856 F.3d at 336 (citing Hayes, 811 F.3d at 675 (emphasis omitted)). First, the Arbitration Agreements purport to apply Tribal law exclusively. Second, the context provided by the Loan Contracts as a whole reinforces this conclusion. Because the choice of law provisions in the Arbitration Agreements cannot be severed from the remainder of the Arbitration Agreements, the Court cannot enforce the Arbitration Agreements. Accordingly, the Court will deny the Haynes Defendants' Motion to Compel Arbitration.
Various provisions in the Arbitration Agreements demonstrate that the Arbitration
For example, the arbitration agreement in Dillon provided that it "shall be governed by the law of the Otoe-Missouria Tribe of Indians. The arbitrator will apply the law of the Otoe-Missouria Tribe of Indians and the terms of this Agreement...." 856 F.3d at 335 (quoting the Dillon Contract (capitalization altered)); Hayes, 811 F.3d at 675 ("The arbitrator will apply the laws of the Cheyenne River Sioux Tribal Nation and the terms of this Agreement." (quoting the Hayes Agreement)). The Fourth Circuit concluded that these provisions "unambiguous[ly] attempt[ed] to apply tribal law to the exclusion of federal and state law." Dillon, 856 F.3d at 336 (citing Hayes, 811 F.3d at 675 (emphasis omitted)).
The Arbitration Agreements at bar fare no better. Just like the arbitration agreements discussed in Dillon and Hayes, the Williams, Edwards, and Inscho Arbitration Agreements state that the arbitrator "shall apply Tribal Law and the terms of this Agreement." (Williams Agr. 9; Edwards Agr. 8; Inscho Agr. 9.) Similarly, the Mwethuku Arbitration Agreement requires the arbitrator to "apply the laws of the Chippewa Cree Tribe and the terms of this Agreement." (Mwethuku Agr. 6.)
The Gibbs Arbitration Agreement, worded slightly differently, states that it "shall be governed by Tribal law. The parties additionally agree to look to the Federal Arbitration Act and judicial interpretations thereof for guidance." (Gibbs Agr. 9.) In contrast to the Haynes Defendants' assertions otherwise, the fact that this agreement merely "look[s]" to the FAA for "guidance" supports the conclusion that the Gibbs Arbitration Agreement attempts to make the FAA optional, rather than mandatory. (Gibbs Agr. 9.) All Arbitration Agreements also allow borrowers some choice of venue to pursue any dispute, "provided that this accommodation ... shall not be construed ... to allow for the application of any law other than [Tribal law]." (Gibbs Agr. 7; Williams Agr. 9; Edwards Agr. 8; Inscho Agr. 9; Mwethuku Agr. 6.) These provisions plainly disavow the application of federal law, running afoul of the prospective waiver doctrine. Hayes, 811 F.3d at 675.
These provisions within the Arbitration Agreements plainly support a finding that the Arbitration Agreements sought to prospectively exclude the application of federal law. Because any such attempt runs afoul of the prospective waiver doctrine,
A review of the Loan Contracts as a whole fortifies the Court's conclusion. As in Dillon and Hayes, the Court considers the context of the Loan Contracts overall to consider the enforceability of the Arbitration Agreements within them.
As in Dillon, the Contracts expressly disavow and sometimes contain purported waivers of the application of any state law. (Gibbs Agr. 1-2; Williams Agr. 1-2, 10; Edwards Agr. 1, 9; Inscho Agr. 1-2, 10; Mwethuku Agr. 1, 7.) As to federal law, several provisions appear to disavow its application. As did the Dillon Contract, all Contracts include a "Truth in Lending Disclosure" but expressly provides that the inclusion of the disclosure does not constitute "consent" to any "application of state or federal law." (Gibbs Agr. 2; Williams Agr. 2; Edwards Agr. 2; Inscho Agr. 2; Mwethuku Agr. 1.)
The Mwethuku Contract expressly requires Mwethuku to "agree that no other state or federal law or regulation shall apply to this Agreement, its enforcement or interpretation." (Mwethuku Agr. 1.)
The "Governing Law" provisions in four Contracts state that Tribal law governs each Contract, and that the lender "may choose to voluntarily use certain federal laws as guidelines for the provision of services. Such voluntary use does not represent acquiescence of the [Tribe] to any federal law." (Gibbs Agr. 7; Williams Agr. 8; Edwards Agr. 7-8; Inscho Agr. 8.) The Governing Law provision in the Mwethuku Agreement states that the Loan Contract is "governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Chippewa Cree Tribe," implicitly disavowing any other aspects of the Constitution or federal or state law. (Mwethuku Agr. 6.)
Other aspects of the Loan Agreements evince an attempt to disavow the application of federal law. While all of the Arbitration Agreements within the Contracts provide an opportunity to opt out of the Arbitration Agreement, a borrower that opts out may only bring claims within the Tribal court system and under Tribal law. (Gibbs Agr. 6-7; Williams Agr. 7-8; Edwards Agr. 7; Inscho Agr. 7-8; Mwethuku Agr. 5.) And though arbitrators would apply the standard policies and procedures of the selected arbitration firm, the Arbitration Agreements state that, should any conflict arise between federal rules and Tribal law, Tribal law controls. (Gibbs Agr. 7; Williams Agr. 8; Edwards Agr. 8; Inscho Agr. 9; Mwethuku Agr. 6.) This language constitutes the kind of "conundrum" the Fourth Circuit found troubling in Hayes. 811 F.3d at 673. Finally, four Contracts provide that any challenge to the arbitration decision must be brought within the Tribal court system, and would be evaluated pursuant to Tribal law, not federal or state law, or even standard arbiter rules. (Gibbs Agr. 8; Williams Agr. 9; Edwards Agr. 8; Inscho Agr. 9-10.) The Mwethuku Arbitration Agreement does not outline any procedure for judicial review of the arbitrator's decision. (See Mwethuku Agr.)
Considering the Arbitration Agreements, the full context of the Loan Contracts, and highly relevant, controlling Fourth Circuit precedent, the Court finds the Arbitration Agreements unenforceable
The Haynes Defendants challenge each of the six class claims that Plaintiffs assert against them as failing to state a claim under Federal Rule of Civil Procedure 12(b)(6).
"A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990)). In considering a motion to dismiss for failure to state a claim, a plaintiff's well-pleaded allegations are taken as true and the complaint is viewed in the light most favorable to the plaintiff. Mylan Labs., 7 F.3d at 1134; see also Martin, 980
The Federal Rules of Civil Procedure "require[ ] only `a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the... claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (omission in original) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Plaintiffs cannot satisfy this standard with complaints containing only "labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Id. (citations omitted). Instead, a plaintiff must assert facts that rise above speculation and conceivability to those that "show" a claim that is "plausible on its face." Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 570, 127 S.Ct. 1955; Fed. R. Civ. P. 8(a)(2)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). Therefore, in order for a claim or complaint to survive dismissal for failure to state a claim, the plaintiff must "allege facts sufficient to state all the elements of [his or] her claim." Bass v. E.I. DuPont de Nemours & Co., 324 F.3d 761, 765 (4th Cir. 2003) (citations omitted).
Plaintiffs allege that the Haynes Defendants violated RICO by engaging in a series of acts to establish and expand on an unlawful lending operation. Specifically, the Haynes Defendants played an instrumental role in designing the improper Tribal lending business structure, provided necessary funding, and reaped profits from the collection of repayments on the Loan Contracts. The Loan Contracts, according to Plaintiffs, violate Virginia usury laws because all Contracts charge an interest rate that exceed Virginia's statutory limit of 12%. For the reasons below, the Court concludes that each claim survives the Rule 12(b)(6) challenge.
The Court first addresses Count V (the Virginia Usury Claim) because it undergirds all the RICO counts. The RICO claims all implicate the "collection of unlawful debt." 18 U.S.C. § 1964. RICO defines "unlawful debt," in relevant part, as:
18 U.S.C. § 1961(6). Plaintiffs allege that the Loan Contracts charge rates unlawful under Virginia law, and this debt constitutes the relevant "unlawful debt" in Counts I-IV, the RICO claims.
Virginia law provides that, in general, "no contract shall be made for the payment of interest on a loan at a rate that exceeds 12 percent per year." Va. Code. Ann. § 6.2-303(A). A lender may not charge interest in excess of this 12% limit unless she or he obtains a consumer finance license. See Va. Code Ann. § 6.2-1501. A loan contract that violates these Virginia provisions "shall be void" and the
Plaintiffs' detailed allegations, sometimes including documentary attachments, amply support their Virginia usury claim. First, Plaintiffs plainly allege that they paid interest on loans in excess of 12%, citing interest rates as high as 448%. Plaintiffs allege that the Haynes Defendants, Plain Green, and Great Plains did not have a "consumer finance license when they made the loans to Plaintiffs; nor did they attempt to obtain such a license." (Compl. ¶ 123.)
The Complaint includes sufficient facts in support of Plaintiffs' contention that the Haynes Defendants collected or received payments on the loans, including interest payments. According to Plaintiffs, Haynes Investments received 1% of the revenue collected on the loans. Sovereign Business Solutions received 15% interest "on the outstanding advances on the line of credit, as well as a security interest in the loans in the event of default." (Compl. ¶ 61.) The Court draws the reasonable inference in Plaintiffs' favor, as it must, that the loan repayments provided the funding to repay the 15% interest due to Sovereign Business Solutions. For purposes of the Motion to Dismiss, the Court readily infers that Haynes, as the owner and managing partner of Haynes Investments and the creator of Sovereign Business Solutions, ultimately received proceeds from these loan repayments through both partnerships. And though these allegations pertain largely to the Haynes Defendants' credit agreements with Plain Green, and not Great Plains, the Court concludes—for purposes of the present Motion to Dismiss —that Plaintiffs adequately plead facts in support of construing the lending operation as a single entity under RICO, meaning the claims may proceed as to both Plain Green and Great Plains.
Plaintiffs plausibly allege that the Haynes Defendants collected or received payments on loans that violated Virginia's statutory limits as part of their involvement with the alleged RICO enterprise, which implicates both Plain Green and Great Plains. Accordingly, Count V, Plaintiffs' Virginia usury claim, survives this Rule 12(b)(6) challenge.
To state a claim under 18 U.S.C. § 1962(a),
At this procedural stage, Plaintiffs easily meet their burden under Rule 12(b)(6). As alleged, Great Plains and Plain Green constitute a so-called enterprise engaged in interstate commerce.
As such, Plaintiffs meet their Rule 12(b)(6) burden to allege plausible facts supporting their contention that the Haynes Defendants derived income through the collection of unlawful debt.
Plaintiffs' allegations satisfy all prongs of the § 1962(a) analysis. They plausibly contend that the Haynes Defendants derived income from an unlawful Tribal lending operation engaged in interstate commerce through the collection of unlawful debt. They also plausibly contend that the Haynes Defendants reinvested these proceeds into the so-called enterprise. Because Plaintiffs meet their burden, Count I, Plaintiffs' § 1962(a) claim, survives the Motion to Dismiss.
To establish a violation of § 1962(b),
Plaintiffs amply state factual allegations in support of their § 1962(b) claim.
And certainly, the Complaint plausibly alleges non-speculative facts that the Haynes Defendants continued to collect revenue, and increase its investment, in order to maintain its interest and control over the enterprise. See 18 U.S.C. § 1962(b); see also Constellation Bank, N.A. v. C.L.A. Mgmt. Co., No. 94 Civ. 0989, 1995 WL 42285, *4 (S.D.N.Y. Feb. 1, 1995) ("Allegations that the acquisition or maintenance of an interest in an enterprise was obtained by arranging financing satisfied the requirements of section 1962(b).") For example, Plaintiffs allege that the Haynes Defendants collected 1% of revenue from the Plain Green loans. The Haynes Defendants reinvested these funds, showing an interest by the Haynes Defendants in increasing their control and interest in the enterprise. Again, Plaintiffs plausibly allege facts that support the same finding as to Great Plains as part of the unlawful Tribal lending operation.
At this procedural stage, the Court readily concludes that these allegations suffice to show that the Haynes Defendants engaged in the collection of the unlawful debt "in order to ... maintain" its interest in and control over the a purportedly unlawful lending operation in violation of RICO. 18 U.S.C. § 1962(b).
To establish a violation of § 1962(c),
The Court readily concludes that Plaintiffs make substantial allegations demonstrating that the Haynes Defendants conducted the affairs of the unlawful Tribal lending operation which engages in interstate commerce. 18 U.S.C. § 1962(c). As discussed at length above, Plaintiffs contend that Haynes helped design and implement the Tribal lending business. And by virtue of funding Plain Green, and increasing its investment in the enterprise, the Haynes Defendants essentially conducted the affairs of the alleged enterprise. Put plainly, the enterprise could not exist or grow without funding. Haynes controlled the amount of funding Plain Green had, thus controlling the size of the business. Finally, Haynes "played an integral role in helping" both Plain Green and Great Plains secure a method, via the ACH network, to collect on the loans. (Compl. ¶ 65.) Haynes acted on behalf of both Plain Green and Great Plains when he met with multiple banks and identifying various potential partners over the course of a year beginning in 2013. This plausibly evinces the Haynes Defendants' involvement in conducting the affairs of the lending operation. 18 U.S.C. § 1962(c).
Further, no question exists that Plaintiffs sufficiently allege that the Haynes Defendants "associated with" the lending operation as a whole when it committed the above acts. 18 U.S.C. § 1962(c). Haynes engaged in the above acts as part of its association with the alleged unlawful lending operation, which includes both Plain Green and Great Plains. Combined, these allegations amply support Plaintiffs' claim that the Haynes Defendants conducted the affairs of the unlawful Tribal lending business. Count III survives the Motion to Dismiss.
Section 1962(d) makes it unlawful "for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section." 18 U.S.C. § 1962(d). Plaintiffs amply allege facts in support of this claim. The Complaint contains detailed and thorough allegations related to the Haynes Defendants' role in the unlawful Tribal lending operation at the heart of the RICO claims. The Complaint describes the formation of the so-called enterprise, detailed negotiations between co-conspirators, and the development and growth of the Tribal lending businesses over time, including subsequent related agreements. The Complaint references attached documents in support of the factual allegations it contains. Because Counts I, II, and III, alleging violations of §§ 1962(a)-(c), survive the Motion to Dismiss, this claim plainly survives the Motion to Dismiss as well.
To state a claim for unjust enrichment, a plaintiff must allege: "(1) a benefit conferred on the defendant by the plaintiff; (2) knowledge on the part of the defendant of the conferring of the benefit; and (3) acceptance or retention of the benefit by the defendant in circumstances that render it inequitable for the defendant to retain the benefit without paying for its value." Integrated Direct, 129 F.Supp.3d at 374. Plaintiffs plausibly plead facts to satisfy each element.
First, the Haynes Defendants benefitted from Plaintiffs' payments on their loans because, as discussed above, the Haynes Defendants derived income from the enterprise based on borrowers entering into loan Contracts with Plain
Finally, Plaintiffs' plausible factual allegations, also delineated above, regarding the illegality of the loans under Virginia law support a finding, at this procedural stage, that "circumstances ... render it inequitable for the defendant to retain the benefit without paying for its value." Integrated Direct, 129 F.Supp.3d at 374. Virginia law limits lenders' ability to charge more than 12% interest on loans to Virginia consumers. See Va Code. § 6.2-303. The interest rates at issue range from between 227.92% to 448%. It appears, certainly at this early stage, that Plaintiffs meet their burden of proof in demonstrating that these circumstances render it inequitable for the Haynes Defendants to retain the benefit they have received from the collection on loans from Virginia consumers. The Court will deny the motion to Dismiss Count VI, the Unjust Enrichment claim.
The Court considers three Motions before it. The Court will deny the Motion to Transfer because the first-to-file doctrine does not commend transfer and, in the alternative, because special circumstances would justify proceeding in this Court even if all three elements of the first-to-file rule were satisfied. The Court will deny the Motion to Compel Arbitration because the prospective waiver doctrine renders the Arbitration Agreements wholly unenforceable. The Court will deny the Motion to Dismiss for two reasons. First, Plaintiffs properly served the Haynes Defendants in accordance with binding Fourth Circuit precedent. Second, Plaintiffs plausibly plead facts in support of each element of each claim they bring against the Haynes Defendants.
Accordingly, the Court will deny the Motions.
An appropriate Order shall issue.
For the reasons stated in the attached Memorandum Opinion, the Court:
By April 22, 2019, the Haynes Defendants SHALL file an Answer in accordance with the Federal Rules of Civil Procedure and the Local Rules for the Eastern District of Virginia.
It is SO ORDERED.
The Court will deny the Motion to File Supplemental Authority as moot. A ruling from a non-binding court provides meager persuasive value. Even more importantly, the Court need not rely on nor refer to any authority beyond those briefed by the parties in order to render its findings here.
On April 19, 2018, the Court transferred all claims against those defendants to the United States District Court for the Northern District of Texas pursuant to 28 U.S.C. § 1412, finding that "related chapter 11 bankruptcy proceedings" were pending in that court. (See Apr. 19, 2018 Order, ECF No. 26.)
Plaintiffs state that they "filed a related case against Think Finance, its chief executive officer (Kenneth Rees), and some of the other companies involved on May 19, 2017." (Compl. 2 n.1 (citing Gibbs et al. v. Rees et al., 3:17-00386 (E.D. Va.).) Plaintiffs also state they "filed a related case against Plain Green and Great Plains." (Id. (citing Gibbs et al. v. Plain Green et al., LLC, 3:17-cv-495 (MHL) (E.D. Va.).)
Through SBS, Haynes increased the amount of the revolving credit in the lending operation and, according to Plaintiffs, his interest in—and therefore, revenue from—the lending operation. (Id. ¶ 61 (citing Compl. Ex. 9 "February 2013 Credit and Security Agreement" §§ 3.3, 3.7).) SBS invested income into the lending operation, received income from unlawful loans, and reinvested in the lending venture. Plaintiffs aver: "Over the next several years, Mr. Haynes and his companies continued to receive proceeds from the enterprise and invest funds in the illegal business." (Compl. ¶ 63.)
The Williams Contract, Edwards Contract, and Inscho Contract purport to be subject to the laws of the Otoe-Missouria Tribe of Indians, as the tribal owner of Great Plains.
The Gingras plaintiffs purport to bring the "class action against the financial and operational backers of an unlawful online payday lending scheme that has taken advantage of people who are struggling financially by charging extortionate interest rates and engaging in illegal lending practices." (Gingras Compl. ¶ 1.) The Gingras Complaint goes on to describe "rent-a-tribe" schemes, contending that the defendants engaged in such a scheme through Great Plains, the same lending entity who issued loans to Williams, Edwards, and Inscho in this suit.
The plaintiffs in Gingras raise six claims. Count One, against all of the defendants, states violations of the Electronic Funds Transfer Act. In Count Two, the plaintiffs allege that all the defendants violated the Vermont Consumer Fraud Act. Counts Three and Four include allegations of wire fraud in violation of RICO against the "Victory Park Defendants." (Gingras Compl. 51, 53.) In Count Five, the plaintiffs allege that all of the defendants "knowingly entered into a series of agreements designed to further the affairs of the Plain Green enterprise and the business of illegal lending that violates RICO § 1962(c)." (Id. ¶ 261.) Finally, Count Six brings an unjust enrichment claim against all of the Gingras defendants.
Second, the court considers the following four factors: "(1) plaintiff's choice of forum, (2) convenience of the parties, (3) witness convenience and access, and (4) the interest of justice." Id. A court's decision to transfer depends on the particular facts of the case because § 1404(a) "provides no guidance as to the weight" that courts should afford each factor. Samsung Elecs. Co., LTD., 386 F.Supp.2d at 716.
The proposed Gingras nationwide class would exclude three of the five named Plaintiffs in this suit. Combined with the lack of substantial similarities between the named defendants in this suit and the named defendants in Gingras, a consideration of the current-party identities weighs against the applicability of the first-to-file rule, even assuming the proposed Gingras class moves forward as currently defined.
And though the Gingras Complaint names several defendants previously named in this case, there exists—at this time—very little overlap between parties.
In Bremen, an admiralty case about a choice-of-forum provision, the Supreme Court considered a contract between an American corporation and a German corporation to tow a drilling rig from the state of Louisiana to Italy. Bremen, 407 U.S. at 2, 92 S.Ct. 1907. The contract provided that the "London Court of Justice" would hear any dispute arising under the contract and, accordingly, apply English law. Id.
In finding the choice-of-forum provision enforceable, the Supreme Court considered several factors inapplicable to the case at bar. For example, "experienced and sophisticated businessmen" entered into the agreements after negotiating terms. Id. at 12, 92 S.Ct. 1907. Additionally, the Supreme Court reasoned that "in an era of expanding world trade and commerce," federal courts sitting in admiralty, specifically, should find choice-of-forum provisions presumptively valid. Id. at 9-10, 92 S.Ct. 1907. The Bremen court also found relevant that an English court "[p]lainly... meet[s] the standards of neutrality and long experience in admiralty litigation." Id. at 12, 92 S.Ct. 1907.
Because this case does not involve the facts the Supreme Court found persuasive, Bremen simply does not compel the Court to enforce the Arbitration Agreements here.
Were the Court to consider severability, Dillon strongly suggests that arbitration agreements like the ones presently before the Court—even with this purported workaround —would not be severable. See Dillon, 856 F.3d at 336-37. "Unlawful portions of a contract may be severed only if: (1) the unlawful provision is not central or essential to the parties' agreement; and (2) the party seeking to enforce the remainder negotiated the agreement in good faith." Id. at 336 (citing 9 WILLISTON ON CONTRACTS § 19:70 (4th ed. 1993 & Supp. 2010); Restatement (Second) of Contracts § 184 (1981)).
The Arbitration Agreements would likely fail to meet either prong of the test for severability. For example, four of the Arbitration Agreements include the following provision: "As an integral component of accepting this [Contract], you irrevocably consent to the exclusive jurisdiction of the Tribal courts for purposes of this [Contract]." (Gibbs Agr. 9 (emphasis added); Williams Agr. 10 (emphasis added); Edwards Agr. 9 (emphasis added); Inscho Agr. 10 (emphasis added).) As in Dillon, the Court would likely find the unlawful choice-of-law provisions integral to the Arbitration Agreements.
Furthermore, the Dillon court identified that Great Plains "obtained the terms in the arbitration agreement through its `dominant bargaining power' in a calculated attempt to avoid the application of state and federal law." Dillon, 856 F.3d at 337 (quoting Restatement (Second) of Contracts § 184 cmt.b). Based on this, the Fourth Circuit concluded that Great Plains did not negotiate the Dillon Contract in good faith, failing the second prong of the severability analysis. Id. Here, the same factors counsel against finding that either Plain Green or Great Plains negotiated in good faith.
As another court in the Eastern District of Virginia recently noted, "[t]his conclusion puts the Fourth Circuit in the clear minority." George Hengle, et al. v. Mark Curry, et al., No: 3:18cv100, 2018 WL 3016289 (E.D.Va. June 15, 2018), Jun. 6, 2018 Order, ECF No. 114 (discussing cases). The Haynes Defendants ask the Court to "apply the well-reasoned interpretations of [§ ] 1965 used by other circuits and decline to apply the Fourth Circuit's decision in ESAB." (Mem. Supp. Mot. Dismiss 8.) The Fourth Circuit has not overruled ESAB and the Court declines to stray from binding precedent here.
Va. Code. Ann. § 6.2-305(A).
Although the Haynes Defendants do not explicitly contest that an enterprise may exist, they nevertheless argue that no allegation states that they collected on unlawful debt through Great Plains, because Plaintiffs do not allege that the Haynes Defendants invested any money into funding the Great Plains Loans. The Haynes Defendants conclude that Williams, Edwards, and Inscho cannot bring claims against them.
But the alleged enterprise at the heart of the scheme encompasses both Great Plains and Plain Green. For instance, Plaintiffs allege that Haynes worked to find a bank for both Great Plains and Plain Green when those entities were targeted by federal and state regulators, as well as the Department of Justice. Especially reading the allegations favorably toward Plaintiffs, as the Court must, the Complaint plausibly alleges that Plain Green and Great Plains together constituted the enterprise, rather than separate enterprises. Plaintiffs' allegations make this plain, and, on the whole, the Haynes Defendants do not contest this characterization.
The Haynes Defendants argue that to decline applying Tribal law here would "degrade the sovereignty of Native American tribes," (Reply Mot. Dismiss 8, ECF No. 44), because "the laws of Native American tribes [are not] entitled to any less deference than the laws of the [states]," (id. 4).
But the Supreme Court of Virginia held only that the trial court erred in concluding that parties failed to present Utah law for the trial court's consideration. Settlement Funding, 274 Va. at 78-80, 645 S.E.2d 436. The Settlement Funding court did not substantively address the enforceability of the loan contract at issue or the merits of any possible contract defenses. See generally id.
Existing Fourth Circuit precedent, and ample federal case law more on point, obliges this Court to give Settlement Funding far less weight than the Haynes Defendants urge. The Court cannot find that Settlement Funding requires application of Tribal choice-of law provisions.
18 U.S.C. § 1962(a).
A plaintiff suing under RICO need not argue that each defendant individually collected the debt. For example, in Proctor v. Metro. Money Store Corp., a plaintiff brought RICO claims against multiple defendants involved in an alleged "mortgage foreclosure rescue scam." 645 F.Supp.2d at 471. Some of the named defendants argued the Complaint did not allege any acts by them related to the collection of unlawful debts. Id. at 482. Instead, the plaintiffs alleged that these defendants acted for a common purpose and with knowledge of each other, receiving "a large number of referrals" and commissions in exchange for their activities related to the enterprise: the collection of an unlawful debt. Id. at 483 (quoting the Second Am. Compl.) When denying the motion to dismiss before it, the United States District Court for the District of Maryland concluded these allegations sufficed to show that these defendants derived income from the enterprise for the purpose of § 1962 liability. Id.
Additionally, co-conspirators remain liable for the actions of fellow co-conspirators. See, e.g., Day, 2011 WL 887554, *9 (D. Md. 2011) ("[W]here a conspiracy has been adequately pleaded, individual members of the conspiracy can be held liable for actions taken by coconspirators.") As discussed below, infra Section IV.B.5, the Court finds that Plaintiffs plausibly pleaded that the Haynes Defendants engaged in a conspiracy to violate RICO provisions.
18 U.S.C. § 1962(b).
18 U.S.C. § 1962(c).
