United States District Court, M.D. North Carolina
THOMAS BROWN, MONICA JOHNSON, MELINDA LONG, RENEE HOLMES, KEVIN HAYES, LESLIE JAN LYDON, and ELIZABETH JACKSON, on behalf of themselves and a class of persons similarly situated, Plaintiffs,
WESTERN SKY FINANCIAL, LLC, PAYDAY FINANCIAL, LLC, CASHCALL, INC., JOHN PAUL REDDAM, WS FUNDING, LLC, and DELBERT SERVICES CORPORATION, Defendants
For THOMAS BROWN, on behalf of himself and a class of persons similarly situated, MONICA JOHNSON, on behalf of herself and a class of persons similarly situated, Plaintiffs: JOHN S. HUGHES, MONA LISA WALLACE, AARON F. GOSS, WALLACE AND GRAHAM, P.A., SALISBURY, NC.
For LESLIE JAN LYDON, ELIZABETH JACKSON, MELINDA LONG, RENEE HOLMES, Kevin Hayes, Plaintiffs: JOHN S. HUGHES, LEAD ATTORNEY, AARON F. GOSS, WALLACE AND GRAHAM, P.A., SALISBURY, NC.
For WESTERN SKY FINANCIAL, LLC, PAYDAY FINANCIAL, LLC, CASHCALL, INC., JOHN PAUL REDDAM, WS FUNDING, LLC, DELBERT SERVICES CORPORATION, Defendants: HAYDEN J. SILVER, III, LEAD ATTORNEY, RAYMOND M. BENNETT, WOMBLE CARLYLE SANDRIDGE & RICE, PLLC, RALEIGH, NC; BRIAN J. FISCHER, KATYA JESTIN, NEIL M. BAROFSKY, JENNER & BLOCK, LLP, NEW YORK, NY.
WESTERN SKY DAKOTA HOLDING COMPANY, Defendant, Pro se.
MEMORANDUM OPINION AND ORDER
William L. Osteen, Jr., United States District Judge.
Plaintiffs Thomas Brown and Monica Johnson initially filed this lawsuit on March 28, 2013, against Defendants Western Sky Financial, LLC; 24 Seven Solution, LLC; 24-7 Cash Direct, LLC; Advance Wireless, LLC; Dekake Ranch, LLC; Financial Solutions, LLC; Great Plains Lending, LLC; Great Sky Finance, LLC; Green Billow, LLC; High Country Ventures, LLC; Horizons Consulting, LLC; Interim Holding Company; Management Systems, LLC; Native Imagination, LLC; New Holding Company; Payday Financial, LLC; Red River Ventures, LLC; Red Stone Financial, LLC; Webb Ranch, LLC; Western Capital, LLC; Western Sky Dakota Holding Company; Martin A. Webb; and CashCall, Inc. (Complaint (Doc. 1).)
On August 13, 2013, Plaintiffs Brown and Johnson filed their First Amended Complaint, removing Defendant Western Sky Dakota Holding Company as a Defendant and adding Defendants John Paul Reddam, WS Funding, LLC, and Delbert Services Corporation. (First. Am. Complaint (Doc. 47).)
Pursuant to a stipulated order (Doc. 88), Plaintiffs Brown and Johnson, joined by Plaintiffs Melinda Long, Renee Holmes, Kevin Hayes, Leslie Jan Lydon, and Elizabeth Jackson, (collectively " Plaintiffs" ) filed their Second Amended Complaint on January 23, 2014, against Defendants Western Sky Financial, LLC (" Western Sky" ); Payday Financial, LLC (" Payday" ); CashCall, Inc. (" CashCall" ); John Paul Reddam (" Reddam" ); WS Funding, LLC (" WS Funding" ); and Delbert Services Corporation (" Delbert" ). (Doc. 89.) On February 10, 2014, Defendants Payday and Reddam filed their Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 91) and all Defendants filed their Omnibus Motion to Dismiss (Doc. 93).
Presently, there are four pending motions before the court: (1) Motion to Dismiss for Lack of Jurisdiction by Defendants Payday and Reddam (Doc. 91); (2) all Defendants' Omnibus Motion to Dismiss (" Omnibus Motion" ) (Doc. 93); Plaintiffs' Motion Requesting Discovery on Preliminary Issues (Doc. 98); and (4) Defendants' Cross-Motion to Stay Discovery (Doc. 104).
In order to rule on the pending motions, this court must first address the forum selection clauses included in all of Plaintiffs' loan agreements. This is a threshold issue, because it determines proper venue for the current action. Variations of the forum selection clauses, granting almost exclusive jurisdiction to the Cheyenne River Sioux Tribe (" CRST" ), have been the subject of litigation throughout the United States. Analysis of this litigation suggests that courts have addressed the forum selection clause in three ways: (1) the forum selection clause has been found unenforceable;  (2) the forum selection clause has been enforced;  or (3) the CRST has been provided an initial opportunity to determine the enforceability of the forum selection clause using the tribal exhaustion doctrine.
For the reasons described in detail in this Memorandum Opinion and in order to ensure that this matter is before the proper tribunal, this court finds most persuasive the cases holding tribal court exhaustion appropriate on the threshold issue of tribal court jurisdiction. Therefore, Defendants' Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 91) will be denied without prejudice pending the determination of tribal court jurisdiction. Defendants' Omnibus Motion (Doc. 93) will be granted in part in light of this court dismissing current proceedings without prejudice pending tribal court exhaustion and denied in part in that this court will not compel arbitration at this time. Finally, Plaintiffs' Motion for Discovery on Preliminary Issues (Doc. 98) and Defendants' Cross-Motion to Stay Discovery (Doc. 104) will be denied without prejudice.
Plaintiffs filed the present action, a class action lawsuit, on behalf of North Carolina residents who have borrowed money from Defendants using " payday loans." Plaintiffs allege these loans are unlawful under North Carolina law forbidding " payday loan" arrangements, i.e., loans of relatively small amounts with high interest rates. Plaintiffs also allege putative class action claims on behalf of consumers in other states whose rights were allegedly violated by these loans. (Second Am. Complaint (" Compl." ) (Doc. 89) at 1.)
Each named Plaintiff is a citizen and resident of North Carolina and each named Plaintiff entered into a loan agreement with Defendant Western Sky and related entities. (Id. at 4-5.) Western Sky advertised primarily on television and any resulting loans were procured through internet and telephone transactions. (Id. at 5.) No loans were made in person. (Id. at 15.) Western Sky no longer offers such loans. (Id. at 19 n.7.) Plaintiffs filed the present action to recover monies collected by Defendants that Plaintiffs claim was in violation of both North Carolina and federal law.
At issue in the present action is whether or not this court has jurisdiction over these proceedings or, in the alternative, whether the contracts between the parties conferred jurisdiction on the CRST, and which court should make the initial determination. Western Sky is a limited liability company chartered under the law of South Dakota. (Id. at 5.) Its principal place of business is in South Dakota. (Id.) Non-party Martin Webb (" Webb" ) is the owner and president of Western Sky and a resident of South Dakota. (Id. at 5.) Western Sky holds that it is owned by a member of the CRST. (Id. Ex. 3 at 2.)
The other Defendants are entities or individuals allegedly related to Western Sky's lending practice. Payday is a limited liability company chartered under the law of South Dakota with its principal place of business there. (Id. at 5.) Payday was the sole member of Western Sky during the time the Plaintiffs' loans were made and maintained. (Id.) CashCall is a California corporation with its principal place of business in California. CashCall was assigned many of Western Sky's loans. (Id. at 6.) Reddam is the President and CEO of CashCall and is CashCall's sole stock owner. (Id.) WS Funding, LLC is a wholly-owned subsidiary of CashCall. (Id.) WS Funding is a Delaware LLC and has a registered agent in Delaware. Reddam is the president of WS Funding. (Id.) Delbert is a Nevada corporation and Reddam is the sole director and owner. (Id. at 7.)
Plaintiffs allege that each Defendant had a specific role in the issuance and servicing of Plaintiffs' payday loans. Generally, to obtain a loan, a potential borrower would contact Western Sky via the internet or over the telephone. Plaintiffs applied for and received loans from Western Sky. When the loan was approved, funds were directly transferred from Western Sky to the borrower's bank account. (Id. at 17.) Following the execution of the loan agreement, loans were immediately transferred from Western Sky to CashCall. All Plaintiffs' payments were made to CashCall. If any Plaintiff defaulted on a loan, CashCall and Delbert made collection efforts. (Id. at 14-15.)
The loans ranged in amounts from $300 to $3,000 and were payable in monthly installments. The terms ranged from 12 to 84 months. (Id. at 16.) According to the Complaint, the annual percentage rates ranged from 90 percent to over 300 percent. (Id.) For example, Plaintiff Thomas Brown (" Brown" ) obtained a loan for $2,600 from Western Sky. Western Sky retained $75, so Brown received $2,525 in the form of a loan. In exchange, Brown agreed to make 40 monthly payments at a nominal APR of 139 percent/effective APR of 273 percent, resulting in total payments of $14,102.87 to Western Sky. (Id. at 22.)
Defendants' pending motions to dismiss argue that Plaintiffs' loan agreements all contain enforceable forum selection and arbitration clauses rendering jurisdiction in this court inappropriate. Illustrative of the forum selection clauses and arbitration agreements, Plaintiff Monica Johnson's (" Johnson" ) August 17, 2011 loan agreement contained the following provision:
Agreement to Arbitrate. You agree that any Dispute, except as provided below, will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.
(Compl., Ex. 2, Monica Johnson Loan Agreement & Declaration (Doc. 89-2) at 4.) In addition, Johnson's loan agreement contains a choice of arbitrator:
Arbitration shall be conducted in the Cheyenne River Sioux Tribal Nation by a panel of three Tribal Elders and shall be conducted in accordance with the Cheyenne River Sioux Tribal Nation's consumer rules and the terms of this Agreement.
(Id. at 5.) Except for Brown's loan agreement, all of the loan agreements for the named Plaintiffs are similar to Johnson's in regard to the forum selection and arbitration agreements.
Brown's loan agreement (Id., Ex. 1, Thomas Brown Loan Agreement & Affidavit (Doc. 89-1)) is the most recent and contained different language. In Brown's agreement, dated July 5, 2012, the paragraph entitled, " Agreement to Arbitrate," states that, " You agree that any Dispute, except as provided below, will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement." (Id. at 4.) Another paragraph in Brown's arbitration agreement, entitled " Choice of Arbitrator" states that, " you shall have the right to select any of the following arbitration organizations to administer the arbitration" and lists the American Arbitration Association (AAA), the Judicial Arbitration and Mediation Services (JAMS), or an arbitration organization agreed to by the parties. (Id.)
Defendants posit three theories to compel this court to grant their Omnibus Motion. First, Defendants suggest that the loan agreements include a valid and enforceable forum selection clause which mandates that the laws of the CRST govern this dispute, and thus the doctrine of forum non conveniens requires dismissal. (Omnibus Motion (Doc. 93) at 3.) Next, Defendants argue that Plaintiffs' claims implicate tribal court jurisdiction, requiring dismissal under the tribal exhaustion doctrine. (Id.) Finally, Defendants claim that the loan agreements contain an arbitration provision requiring all disputes arising from the loan agreements to be arbitrated, and as required by the Federal Arbitration Act (" FAA" ), this court should either stay or dismiss this action. (Id. at 4.)
Because this court finds the forum selection clause and tribal exhaustion issues controlling at this stage of the proceedings, this order addresses only those two issues.
II. FORUM SELECTION CLAUSE
All Plaintiffs' loan agreements contain language stipulating that disputes and arbitration shall be conducted in accordance with the rules and law of the CRST, and that the CRST has jurisdiction over such matters. This pre-selection of governing law and jurisdiction is a forum selection clause. The enforceability of the forum selection clause is the threshold question for this court.
A. Legal Standard
Generally, the Supreme Court requires that forum selection clauses be enforced.
When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business together in the first place. In all but the ...