Heldt v. PayDay Fin., LLC

12 F.Supp.3d 1170

Chad Martin HELDT, Christi W. Jones, Sonja Curtis, and Cheryl A. Martin, Individually and on behalf of all similarly situated individuals, Plaintiffs

v.PAYDAY FINANCIAL, LLC, d/b/a Lakota Cash and Big Sky Cash; Western Sky Financial, LLC, d/b/a Western Sky Funding and Western Sky and Westernsky.com; Martin A. Webb, a/k/a “Butch,” and Cashcall, Inc., Defendants.

No. CIV 13–3023–RAL.

United States District Court, D. South Dakota, Central Division.

Signed March 31, 2014.

Patrick R. Burns, Lockridge, Grindal, Nauen P.L.L.P., Christopher D. Jozwiak, Shawn J. Wanta, Baillon Thome Jozwiak & Wanta LLP, Minneapolis, MN, for Plaintiffs.

Brian J. Fischer, Katya Jestin, Neil M. Barofsky, Jenner & Block LLP, New York, NY, Cheryl F. Laurenz–Bogue, Bogue & Bogue, LLP, Faith, SD, Claudia Callaway, Katten Muchin Rosenman LLP, Washington, DC, for Defendants.

OPINION AND ORDER ON PENDING MOTIONS

ROBERTO A. LANGE, District Judge.

There are three pending motions in this case—Defendants' Motion to Stay Proceedings and Compel Arbitration, Doc. 23; Plaintiffs' Motion to Stay Defendants' Motion to Compel Arbitration and to Take Discovery on Arbitration Issues, Doc. 26; and Defendants' Motion to Dismiss Amended Complaint, Doc. 34. Those three pending motions present issues of tribal court exhaustion, tribal court jurisdiction over non-Indians, enforceability of an arbitration clause when the arbitration forum allegedly fails to exist, and personal jurisdiction. This Court has written extensively and recently on many of these topics. See, e.g., FTC v. PayDay Fin. LLC (“PayDay I”), 935 F.Supp.2d 926 (D.S.D.2013) (addressing tribal court jurisdiction over non-Indians and commenting on arbitration clause similar to ones at issue here); Plains Commerce Bank v. Long Family Land & Cattle, 910 F.Supp.2d 1188 (D.S.D.2012) (addressing tribal court exhaustion and jurisdiction over non-Indians in tribal court); Dakota Foundry, Inc. v. Tromley Indust. Holdings, Inc., 891 F.Supp.2d 1088 (D.S.D.2012) (addressing factual issue regarding enforceability of arbitration clause); Colombe v. Rosebud Sioux Tribe, 835 F.Supp.2d 736 (D.S.D.2011) (discussing tribal court exhaustion); Jones v. GGNSC Pierre LLC, 684 F.Supp.2d 1161 (D.S.D.2010) (discussing situation where arbitration forum designated no longer exists). Moreover, the parties raise these issues in the context of a subprime lending business with which this Court is familiar based on another case resulting in two lengthy opinions on related issues. FTC v. PayDay Fin. LLC (“PayDay II”), 989 F.Supp.2d 799, No. CIV 11–3017–RAL, 2013 WL 5442387 (D.S.D. Sept. 30, 2013) ; PayDay I, 935 F.Supp.2d 926. This Court's rulings on the pending motions are designed to allow tribal court exhaustion to occur within the boundaries and under the principles discussed herein.

I. Facts Relevant to Pending Motions

Defendants initially filed a Motion to Dismiss Amended Complaint, Doc. 34, under Rule 12(b)(3) of the Federal Rules of Civil Procedure. As explained more fully herein, Defendants have since asked this Court to construe their motion to dismiss as one under the doctrine of forum non conveniens. Doc. 56 at 4–5. Defendants have also filed a motion to compel arbitration. Doc. 23. The Court thus takes the facts from the well-pleaded allegations of the Amended Complaint, as well as from materials attached thereto or referenced therein. Where appropriate, this Court draws additional facts from affidavits, items accompanying those motions, and facts that appear to be not subject to dispute. See Martinez v. Bloomberg LP, 740 F.3d 211, 216–17 (2nd Cir.2014) (explaining that a district court considering a motion to dismiss for forum non conveniens or a motion to dismiss based on a forum selection clause generally relies on the pleadings and affidavits); Ireland v. Lear Capital, Civil No. 12–2467 (RHK/TNL), 2012 WL 6021551, at *1 n. 3 (D.Minn. Dec. 4, 2012) (“Motions to stay pending arbitration, like motions to compel arbitration, are treated as motions to dismiss for lack of subject-matter jurisdiction, and hence the Court may consider matters beyond the pleadings in resolving such motions.”) (citation omitted).

Plaintiffs Chad Martin Heldt, Christi W. Jones, Sonja Curtis, and Cheryl A. Martin (collectively Plaintiffs) have brought an amended class action complaint invoking jurisdiction under 28 U.S.C. § 1332(d), asserting that the vast majority of class members are citizens of states different than the home state of the Defendants, and alleging that the amount in controversy exceeds $5 million. Doc. 30 at ¶ 41. Plaintiff Heldt is a resident of Minnesota, Plaintiffs Jones and Curtis are residents of Texas, and Plaintiff Martin is a resident of Virginia. Doc. 30 at ¶¶ 7–10. Plaintiffs seek to have a national class certified with three subclasses consisting of a Minnesota subclass, a Texas subclass, and a Virginia subclass. Doc. 30 at ¶ 44.

Each of the four named Plaintiffs obtained high-interest loans, with annual interest rates ranging from 89.68 percent to 233.91 percent from Defendant Western Sky Financial LLC. Doc. 30 at ¶¶ 7–10. Western Sky Financial LLC is a South Dakota limited liability corporation with its principal place of business in Timber Lake, South Dakota, within the exterior boundaries of the Cheyenne River Sioux Tribe Reservation. Doc. 30 at ¶ 12; PayDay I, 935 F.Supp.2d at 929–30. Western Sky Financial LLC has a license from the Cheyenne River Sioux Tribe to do business. PayDay I, 935 F.Supp.2d at 929. Western Sky Financial LLC uses various trade names to advertise and offer loans by television and through the internet to consumers outside of South Dakota. Doc. 30 at ¶ 12; PayDay II, 989 F.Supp.2d at 806–07, 2013 WL 5442387, at *3.

Defendant PayDay Financial LLC likewise is a South Dakota limited liability corporation with its principal place of business in Timber Lake, South Dakota. Doc. 30 at ¶ 11; PayDay I, 935 F.Supp.2d at 929–30. PayDay Financial LLC was the entity that incorporated Western Sky Financial LLC. Doc. 30 at ¶ 11; PayDay II, 989 F.Supp.2d at 806–07, 2013 WL 5442387, at *3. PayDay Financial LLC has a license to do business from the Cheyenne River Sioux Tribe. PayDay I, 935 F.Supp.2d at 929. Defendant Martin A. “Butch” Webb (Webb) is a South Dakota resident, is the registered agent for PayDay Financial LLC and Western Sky Financial LLC, and is the owner and president of PayDay Financial LLC. Doc. 30 at ¶ 13; PayDay II, 989 F.Supp.2d at 808–09, 2013 WL 5442387, at *5. Webb is an enrolled member of the Cheyenne River Sioux Tribe. PayDay II, 989 F.Supp.2d at 805–06, 2013 WL 5442387, at *2.

Defendant CashCall, Inc., is a California corporation with its principal place of business in Anaheim, California. Doc. 30 at ¶ 14. According to the Complaint, CashCall, Inc. has arranged with Western Sky Financial LLC and PayDay Financial LLC (or affiliates of those entities) to process the loans from their inception, to purchase the loans shortly after they are made, and/or to receive the loans for collecting and servicing. Doc. 30 at ¶ 14. CashCall, Inc. allegedly is aware of the terms of the loan agreements, approved those terms, and owns and operates the web servers used by Western Sky Financial LLC and PayDay Financial LLC to operate their lending business. Doc. 30 at ¶ 14.

Defendant WS Funding LLC is a wholly-owned subsidiary of CashCall, Inc. Doc. 30 at ¶ 15. According to the Complaint, CashCall, Inc. uses WS Funding LLC as the entity to provide money to PayDay Financial LLC and Western Sky Financial LLC that in turn is used for the consumer loans. Doc. 30 at ¶ 14. An agreement exists between Western Sky Financial LLC and WS Funding LLC, under which CashCall, Inc. allegedly provides website hosting and support services for Western Sky Financial LLC, reimburses Western Sky Financial LLC for all costs associated with the server, reimburses Western Sky Financial LLC for operating expenses, provides an array of marketing services to Western Sky Financial LLC and reviews applications for Western Sky Financial LLC loans applying underwriting requirements. Doc. 30 at ¶¶ 19–23. If a loan is approved, Western Sky Financial LLC executes a promissory note and debits a “reserve account” to fund the loan. Doc. 30 at ¶ 24. The reserve account allegedly was set up, funded and maintained by CashCall, Inc. Doc. 30 at ¶ 26. CashCall, Inc. then purchases the promissory note from Western Sky Financial LLC, such that CashCall, Inc.—and not Western Sky Financial LLC—accepts payment from consumers. Doc. 30 at ¶¶ 28, 31. According to the Complaint, CashCall, Inc. pays Western Sky Financial LLC 5.145 percent of the face value of each approved and executed loan or renewal of loan. Doc. 30 at ¶ 33. CashCall, Inc. allegedly has agreed to indemnify Western Sky Financial LLC for all costs arising or resulting from any and all civil, criminal, or administrative claims or actions. Doc. 30 at ¶ 35. The Complaint further alleges that the Defendants have taken substantial steps to conceal this business scheme from consumers and regulators. Doc. 30 at ¶ 37.

The Agreement for Assignment and Purchase of Promissory Notes between Western Sky Financial LLC and WS Financial LLC, a subsidiary of CashCall, Inc., was filed in the record. Doc. 51–1. That agreement has a “Law Governing” provision stating:

This Agreement shall be construed in accordance with and governed solely by the laws and jurisdiction of the Cheyenne River Sioux Tribe, and by executing this Agreement, all parties consent to the sole jurisdiction of the courts of the Cheyenne River Sioux Tribe exclusively.

Doc. 51–1 at 6.

As concerns the Defendants' motion to dismiss for lack of personal jurisdiction over CashCall, Inc. and WS Funding LLC (collectively “the California Defendants”), those Defendants aver that neither entity has a physical presence in the state of South Dakota, neither has ever offered consumer installment loans in the state of South Dakota, and neither has...