Gibbs v. Haynes Invs., LLC

967 F.3d 332

Darlene GIBBS; Stephanie Edwards; Lula Williams; Patrick Inscho; Lawrence Mwethuku, on behalf of themselves and all individuals similarly situated, Plaintiffs – Appellees,

v.HAYNES INVESTMENTS, LLC; L. Stephen Haynes; Sovereign Business Solutions, LLC, Defendants – Appellants,andVictory Park Capital Advisors, LLC; Victory Park Management, LLC ; Scott Zemnick; Jeffrey Schneider; Thomas Welch, Defendants.

Native American Financial Services Association, Amicus Supporting Appellants,

American Association for Justice, Amicus Supporting Appellees.

No. 19-1434

United States Court of Appeals, Fourth Circuit.

Submitted: May 29, 2020

Decided: July 21, 2020

David N. Anthony, Timothy St. George, TROUTMAN SANDERS LLP, Richmond, Virginia; Richard L. Scheff, David F. Herman, ARMSTRONG TEASDALE, LLP, Philadelphia, Pennsylvania, for Appellants. Kristi C. Kelly, Andrew J. Guzzo, KELLY GUZZO, PLC, Fairfax, Virginia; Matthew W.H. Wessler, GUPTA WESSLER PLLC, Washington, D.C.; Leonard A. Bennett, Craig C. Marchiando, Elizabeth W. Hanes, CONSUMER LITIGATION ASSOCIATES, P.C., Newport News, Virginia; Anna C. Haac, TYCKO & ZAVAREEI LLP, Washington, D.C., for Appellees. Patrick O. Daugherty, Frances B. Morris, VAN NESS FELDMAN LLP, Washington, D.C., for Amicus Curiae. Bruce Stern, Jeffrey R. White, AMERICAN ASSOCIATION FOR JUSTICE, Washington, D.C., for Amicus Curiae.

Before GREGORY, Chief Judge, MOTZ, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge Agee wrote the opinion, in which Chief Judge Gregory and Judge Motz joined.

AGEE, Circuit Judge:

This appeal considers the enforceability of arbitration agreements included within the terms of payday loans issued by two online lenders. After a group of borrowers filed suit against the entities and others (collectively, the "Haynes Defendants") that invested in these lenders, challenging the legality of the loans issued, the Haynes Defendants filed a motion to compel arbitration. The district court denied the motion on the basis that the arbitration agreements operated as prospective waivers. The Haynes Defendants now appeal. For the reasons set forth below, we affirm the judgment of the district court.

I.

The plaintiffs are Virginia consumers who borrowed money between 2013 and 2016 from one of two online lenders owned by a sovereign Native American tribe.¹ The first lender, Plain Green, LLC, is owned and operated by the Chippewa Cree Tribe of the Rocky Boy's Reservation in Montana. The second, Great Plains Lending, LLC, is owned and operated by the Otoe-Missouria Tribe of Oklahoma.² Although Virginia usury law generally prohibits interest rates in excess of twelve percent, Va. Code Ann. § 6.2-303, the laws of both Tribes permit higher rates. As a result, the interest rates on the loans—which varied in principal amounts from $500 to $1,700—ranged from 219.38% to 373.97%. J.A. 439.

In order to obtain the loans, each borrower electronically signed a contract that contained (1) the terms governing the loan (the "loan agreement") as well as (2) an agreement to arbitrate any disputes (the "arbitration agreement"). Both agreements contained choice-of-law provisions requiring the application of tribal law. For example, a choice-of-law provision in Gibbs's 2016 Plain Green loan agreement stipulated that "[t]his Agreement and the Agreement to Arbitrate are governed by Tribal Law." J.A. 341. Further, the arbitration agreement included provisions stating the agreement "shall be governed by Tribal Law" and the "arbitrator shall apply Tribal Law." J.A. 343. Similarly, Mwethuku's older 2013 Plain Green loan provided that both the loan and arbitration agreements "are governed by ... the laws of the Chippewa Cree Tribe," and that the arbitrator "will apply the laws of the Chippewa Cree Tribe[.]" J.A. 384.

Likewise, all three 2015 and 2016 Great Plains loan agreements indicated the lender could choose to voluntarily use federal laws as guidance, but that the agreements ultimately would be governed by tribal law: "This Agreement and the Agreement to Arbitrate are governed by Tribal law and such federal law as is applicable under the Indian Commerce Clause," but "[s]uch voluntary use [of federal laws as guidelines for the provision of services] does not represent acquiescence of the Otoe-Missouria Tribe to any federal law unless found expressly applicable to the operations of the Otoe-Missouria Tribe[.]" J.A. 352; see also J.A. 362–63, 373. Similarly, the Great Plains arbitration agreement specified that "[t]his agreement to arbitrate shall be governed by Tribal Law"; "[t]he arbitrator shall apply Tribal Law"; and the arbitration award "must be consistent with this Agreement and Tribal Law[.]" J.A. 354; see also J.A. 364, 375. Finally, a number of other provisions in both lenders’ loan agreements—such as those requiring borrowers who chose to opt out of arbitration to resolve any disputes through tribal court systems in accordance with tribal law—also stipulated the application of tribal law.

After receiving the loans from the two online lenders, the borrowers brought a putative class action complaint alleging, among other claims, that the lenders’ loans were unlawful under Virginia's usury laws and that the Haynes Defendants’ receipt of "income derived ... through collection of unlawful debt" and reinvestment of such income to further the lending scheme violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962. J.A. 38. In response, the Haynes Defendants moved to compel arbitration under 9 U.S.C. § 4 or, alternatively, to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). The district court denied both motions.

As relevant to the motion to compel arbitration, the district court relied upon two Fourth Circuit cases— Hayes v. Delbert Services Corporation , 811 F.3d 666, 671 (4th Cir. 2016), and Dillon v. BMO Harris Bank, N.A. , 856 F.3d 330, 332 (4th Cir. 2017) —both of which considered similar tribal loan and arbitration agreements with choice-of-law clauses providing for the nearly exclusive application of tribal law, to the exclusion of state and federal law. As in those cases, the district court here found that because the choice-of-law provisions in the arbitration agreements "sought to prospectively exclude the application of federal law"—including the assertion of any federal statutory claims by the borrowers—the agreements "[ran] afoul of the prospective waiver doctrine[.]" J.A. 461. And because, the court concluded, "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," J.A. 454 (internal quotation marks omitted), the arbitration agreements at issue were likewise unenforceable.

The Haynes Defendants timely appealed, arguing that: (1) the district court ignored the arbitration agreements’ delegation provisions requiring an arbitrator to resolve all threshold issues of arbitrability, including whether the choice-of-law clauses amounted to a prospective waiver; and (2) even if the court was correct to consider the effect of the provisions, they did not operate as a prospective waiver. We address each issue in turn, mindful of the "strong federal policy in favor of enforcing arbitration agreements[.]" Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 217, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).

II.

We turn first to the delegation clauses. Each of the arbitration agreements contained a delegation clause stipulating that the parties would arbitrate "any issue concerning the validity, enforceability, or scope of this Agreement or this Agreement to Arbitrate." J.A. 342; see also J.A. 353, 363, 374, 383. As a result, the Haynes Defendants argue, any threshold questions as to the enforceability of the arbitration agreements should have first been sent to an arbitrator. We disagree. Because the borrowers sufficiently challenged the validity of the delegation clauses, the district court was correct to consider the enforceability of the arbitration agreements.

A.

The question of who decides arbitrability—the court or the arbitrator—is one we review de novo. Of course, parties to an arbitration agreement can "agree to arbitrate gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (internal quotation marks omitted). Thus, when an agreement "clearly and unmistakably" delegates the threshold issue of arbitrability to the arbitrator, a court must enforce that delegation clause and send that question to arbitration. Id. at 67, 130 S.Ct. 2772 (internal citation omitted). However, if the claimant specifically attacks the validity of the delegation clause itself, a court may consider that clause's enforceability. Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc. , 867 F.3d 449, 455 (4th Cir. 2017).

In Rent-A-Center , the Supreme Court held that when a litigant specifically challenges the enforceability of an arbitration agreement with a delegation clause, the challenge must be submitted to the arbitrator unless the plaintiff has lodged a specific objection to the delegation clause (which a court may consider). There, the plaintiff had signed as a condition of his employment an arbitration agreement that contained a broad delegation clause requiring arbitration of any issue "relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable." Rent-A-Center , 561 U.S. at 66, 130 S.Ct. 2772 (internal quotation marks omitted). After the plaintiff filed an employment lawsuit, his employer sought to compel arbitration. The plaintiff opposed the motion on the grounds that the arbitration...