Fitzgerald v. Wildcat

687 F.Supp.3d 756

Lori FITZGERALD, et al., Plaintiffs, v. Joseph WILDCAT, Sr., et al., Defendants.

Case No. 3:20-cv-00044

United States District Court, W.D. Virginia, Charlottesville Division

Signed August 18, 2023

Andrew Joseph Guzzo, Casey Shannon Nash, Kristi Cahoon Kelly, Kelly Guzzo, PLC, Fairfax, VA, for Plaintiffs Lori Fitzgerald, Aaron Fitzgerald, Kevin Williams.

Kristi Cahoon Kelly, Kelly Guzzo, PLC, Fairfax, VA, for Plaintiffs Jade Singleton, Angela Maville.

Alan Durrum Wingfield, John Edward Komisin, Troutman Pepper Hamilton Sanders LLP, Richmond, VA, Andrew Adams, III, Pro Hac Vice, Hogen Adams PLLC, St. Paul, MN, for Defendant Joseph Wildcat, Sr.

Alan Durrum Wingfield, John Edward Komisin, Troutman Pepper Hamilton Sanders LLP, Richmond, VA, Shilee Mullin, Spencer Fane LLP, Omaha, NE, for Defendants Nicole Chapman-Reynolds, Jessi Phillips Lorenzo.

Alan Durrum Wingfield, John Edward Komisin, Troutman Pepper Hamilton Sanders LLP, Richmond, VA, for Defendants John Johnson, George Thompson, Jamie Ann Allen, Jeffrey Bauman, Sr., Louis St. Germaine, Eric Chapman, Sr., Racquel Bell, Gloria Cobb, William Graveen, Sarah Pyawasit, William Stone, Sr.

David Neal Anthony, Troutman Pepper Hamilton Sanders LLP, Richmond, VA, for Defendants William Cheney Pruett, Skytrail Servicing Group, LLC.

MEMORANDUM OPINION

NORMAN K. MOON, SENIOR UNITED STATES DISTRICT JUDGE

Plaintiffs Lori Fitzgerald, Aaron Fitzgerald, Kevin Williams, Jade Singleton, and Angela Maville have filed a class action complaint against Tribal officials, Tribal employees, and a non-tribal payday lender and its owner,¹ claiming they participated in an illegal tribal lending operation involving short-term, high interest loans. They seek damages and prospective relief for Defendants' alleged RICO and state law violations for issuing, and collecting on, their high-interest loans. Defendants move to compel arbitration of Plaintiffs Singleton, Williams, and Maville's claims. They also move to dismiss Plaintiffs' claims for lack of subject matter jurisdiction, for failure to join a necessary party, for failure to state a claim for relief, and for lack of personal jurisdiction.

The Court will deny Defendants' motions to compel arbitration of Plaintiffs Singleton, Williams, and Maville's claims because their loan agreements prospectively waive all state substantive rights and remedies in violation of public policy. The Court will also deny Defendants' motions to dismiss. At this stage of the litigation, the Court has jurisdiction over Plaintiffs' claims, and Plaintiffs have sufficiently stated claims under RICO and state law.

Background²

A. Overview of the Tribal Lending Scheme

Around 2012 or 2013, the Lac du Flambeau Band of Lake Superior Chippewa Indians ("Tribe"), a federally recognized Native American tribe, began partnering with non-tribal payday lenders that allegedly "wished to skirt state and federal lending laws." Dkt. 135 ¶ 3. Through these partnerships, non-tribal payday lenders have entered into agreements, allowing them to oversee and collect on loans issued by lending entities owned by the Tribe ("Tribal Lending Entities"). Id. ¶¶ 3, 119, 145. The Tribal Lending Entities have issued short-term, high interest loans to Virginia, Georgia, Maryland, and Florida residents and others over the internet. Id. ¶ 2.

Non-tribal payday lenders allegedly believe this arrangement "circumvents otherwise applicable protections deriving from state usury and licensing laws" through tribal sovereign immunity. Id. ¶ 2 (cleaned up). In exchange for helping them circumvent liability, non-tribal payday lenders provide the Tribe with a percentage of their revenue from the high interest loans. Id. ¶ 3. Plaintiffs allege that Defendants and other unnamed parties "collected millions of dollars in unlawful debts and conspired with each other and others to repeatedly violate state lending laws resulting in the collection of unlawful debts from Plaintiffs and the class members." Id. ¶ 9.

B. The Tribal Council and Tribal Employee Defendants' Involvement in the Scheme

The Tribe is governed by the Tribal Council. Id. ¶ 4. According to the Tribe's Bylaws, the Tribal Council (1) regulates the use and disposition of tribal property; (2) manages, controls, and oversees " 'all economic affairs and enterprises of the Tribe,' including its lending activities;" and (3) passes " 'legislation, statutes, codes and ordinances,' including those related to lending activities." Id. (quoting Dkt. 135-2 at Art. VI(a), (f), (i)).

Most of the named Defendants—Wildcat, Johnson, Thompson, Allen, Stone, Bauman, Germaine, Chapman, Bell, Cobb, Graveen, and Pyawasit—serve on the Tribal Council (collectively, the "Tribal Council Defendants").³ The Tribal Council Defendants meet twice a month "to review, perform, and implement high-level management of" the Tribal Lending Entities.⁴ Id. ¶¶ 18-29. They approve the creation of the Tribal Lending Entities and " 'servicing agreements' or similar documents delegating nearly all responsibilities over the day-to-day operations to non-tribal members." Id. They also review the Tribal Lending Entities' activities, including "their marketing, origination, collections, and complaints from borrowers." Id. ¶ 133.

To help with management of the Tribal Lending Entities, the Tribal Council created LDF Holdings, a subsidiary of the LDF Business Development Corporation. Id. ¶¶ 134-35. While the Tribal Council "retains the ultimate[ ] authority over management of all economic affairs and enterprises of the Tribe," it "has delegated some of this authority to the [LDF] Business Development Corporation," and in turn, the LDF Business Development Corporation and the Tribal Council have delegated some responsibility to LDF Holdings. Id. ¶¶ 136-37.

The Tribal Council appointed Defendants Nicole Chapman-Reynolds and Jessi Phillips Lorenzo (collectively, the "Tribal Employee Defendants") to oversee and direct the Tribe's involvement in the lending scheme. Id. ¶ 5. Chapman-Reynolds and Lorenzo are "non-tribal members." Id. Chapman-Reynolds is the former president of the LDF Business Development Corporation, the parent company of LDF Holdings. Id. Lorenzo is the president of LDF Holdings, the parent company for "more than a dozen" Tribal Lending Entities. Id.

Chapman-Reynolds and Lorenzo serve as liaisons between the Tribe and non-tribal payday lenders. Id. ¶ 6. Lorenzo is "the primary point of contact for non-tribal individuals who want to engage in a lending scheme with" the Tribe. Id. ¶ 138. For the past decade, she has assisted with identifying potential payday lending partners, negotiating servicing agreements, signing "necessary documents for the [alleged] scheme," "securing key operational components," and identifying potential banking partners for the Tribal Lending Entities to debit and credit payments. Id. ¶¶ 146, 148.

C. Servicing Agreements

The Tribe has relinquished the right to control its lending entities to non-tribal payday lenders through servicing agreements. Id. ¶¶ 80, 119. While LDF Holdings is the parent company for the Tribal Lending Entities, each Tribal Lending Entity has entered into "servicing agreements that outsource the operations and revenue to non-tribal payday lenders." Id. ¶ 119. Because of these agreements, the Tribe allegedly "has no control over the income or expenses of" the Tribal Lending Entities. Id. ¶ 113. Non-tribal payday lenders "handle and control all aspects of the lending businesses, including the marketing, underwriting, risk assessment, compliance, accounting, lead generation, collections, and website management for the businesses." Id. ¶ 145.

Defendant Pruett is the owner of Defendant Skytrail Servicing, a non-tribal payday lender. Id. ¶¶ 32-33. Skytrail Servicing entered into a servicing agreement with Ningodwaaswi, LLC, a Tribal Lending Entity. The agreement provided Skytrail Servicing the right to market, originate, renew, service, and collect loans made in the name of Ningodwaaswi. Dkt. 138 ¶¶ 6-7, 102-05, 110.⁵ The Tribe allegedly permits Pruett and Skytrail Servicing "to use its name as a front and, in return, receives a nominal flat fee." Dkt. 135 ¶ 111.

Skytrail Servicing is the alleged "de facto lender of loans originated in the name of" Ningodwaaswi. Id. ¶ 33. The money loaned to borrowers, including Plaintiff Maville, by Ningodwaaswi was transferred from a bank account owned and operated by Pruett and Skytrail Servicing. Id. ¶ 117. The Tribe and the Tribal Council were not given access to these accounts. Id.

D. Plaintiffs' Loans

Plaintiffs allege that Defendants, along with other unknown parties, marketed and collected usurious loans, despite knowing these loans were illegal under state usury and licensing laws. Id. ¶¶ 149-50. Between 2014 and 2016, Plaintiff Aaron Fitzgerald applied for and received five loans from Ishwaaski, LLC, a Tribal Lending Entity. Id. ¶ 154. Under each of his loan agreements, he borrowed about $200 to $1,000 at an annual interest rate ranging from about 400% to 700%. Id. ¶¶ 155-65. He used his Virginia address on his loan applications and his Virginia bank account with a Virginia ABA routing number to receive the loans. Id. ¶ 166. He still has an outstanding balance on his loans. Id. ¶¶ 156-65.

Plaintiff Lori Fitzgerald borrowed $400 at an interest rate of 756% from Niizhwaaswi LLC, a Tribal Lending Entity. Id. ¶¶ 167-68. She has repaid $104.88 on her loan. Id. ¶ 169. She used her Virginia address on her loan application and her Virginia bank account with a Virginia ABA routing number to receive the loan. Id. ¶ 170.

Between 2018 and 2019, Plaintiff Williams took out eight loans from Niizhwaaswi. Id. 171. He also received five additional loans from other Tribal Lending Entities. Id. ¶¶ 172-73. Some of his loans had a 300% interest rate. Id. ¶¶ 174-76. In total, he borrowed about $12,695, repaid about $17,825.39, and has an outstanding balance on some of his loans. Id. ¶¶ 177-79. For each loan, he used...