W. Sky Fin., LLC v. State ex rel. Olens

300 Ga. 340

793 S.E.2d 357

WESTERN SKY FINANCIAL, LLC et al.

v.STATE of Georgia, EX REL., Samuel S. OLENS, Attorney General

State of Georgia, ex rel., Samuel S. Olens, Attorney General

v.Western Sky Financial, LLC

S16A1011

S16X1012

Supreme Court of Georgia.

Decided: October 31, 2016

R. Lawrence Ashe Jr., Nancy Haynes Baughan, Parker Hudson Rainer & Dobbs, LLP, 1500 Marquis Two Tower 285 Peachtree, Center Avenue, Atlanta, Georgia 30303, William James Holley II, Scott Eric Zweigel, Parker, Hudson, Rainer & Dobbs LLP, 303 Peachtree Street, NE Suite 3600, Atlanta, Georgia 30308, Joseph L. Barloon, Austin K. Brown, Jennifer Z. Gindin, Clifford M. Soan, Skadden, Arps, Slate, Meagher & Flom, LLP, 1440 New York Avenue, NW, Washington, DC 20005, Thomas J. Nolan, Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue Suite 3400, Los Angeles, California 90071, for Appellant in S16A1011.

Isaac Byrd, Deputy Attorney General, Samuel S. Olens, Charlene R. Swartz, Daniel S. Walsh, A.A.G., Monica Sullivan, Timothy Allen Butler, Department of Law, 40 Capitol Square, SW, Atlanta, Georgia 30334, Andrew Donald Chesser, Department of Law, Consumer Protection Unit 2, Martin Luther King, Jr. Drive, Suite 356, Atlanta, Georgia 30334, for Appellee in S16A1011.

Isaac Byrd, Deputy Attorney General, Samuel S. Olens, Charlene R. Swartz, Daniel S. Walsh, A.A.G., Monica Sullivan, Timothy Allen Butler, Department of Law, 40 Capitol Square, SW, Atlanta, Georgia 30334, Thomas J. Nolan, Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue Suite 3400, Los Angeles, California 90071, Clifford M. Soan, Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, NW, Washington, DC 20005, Andrew Donald Chesser, Department of Law, Consumer Protection Unit 2, Martin Luther King, Jr. Drive, Suite 356, Atlanta, Georgia 30334, for Appellant in S16X1012.

R. Lawrence Ashe Jr., Nancy Haynes Baughan, Parker, Hudson, Rainer & Dobbs, LLP, 1500 Marquis Two Tower 285, Peachtree Center Avenue, N.E., Atlanta, Georgia 30303, William James Holley II, Scott Eric Zweigel, Parker, Hudson, Rainer & Dobbs LLP, 303 Peachtree Street, NE Suite 3600, Atlanta, Georgia 30308, Jennifer Z. Gindin, Austin K. Brown, Joseph L. Barloon, Skadden, Arps, Slate, Meagher & Flom, LLP, 1440 New York Avenue, NW, Washington, DC 20005, for Appellee in S16X1012.

Benham, Justice.

These cases involve the scope of the State's authority to regulate so-called "payday loans" pursuant to OCGA § 16-17-1 et seq., which has come to be known as the Payday Lending Act. Pursuant to OCGA § 16-17-4 (b), the State of Georgia, acting through the Attorney General ("State") filed a complaint in Fulton County Superior Court alleging that CashCall, Inc. ("CashCall"), Delbert Services Corporation ("Delbert Services"), Western Sky Financial, LLC ("Western Sky"), and Martin A. Webb (collectively "Defendants") have violated OCGA § 16-17-2 (a) by engaging in a small-dollar lending enterprise that collects illegal usurious interest from Georgia borrowers. Defendants operate outside the State of Georgia and their dealings with Georgia borrowers occurred telephonically or over the Internet, and when a loan is funded, the funds are transferred to the borrower via electronic transfer to the borrower's bank account. The State seeks civil penalties and injunctive and other equitable relief.

Initially, the trial court entered a temporary restraining order prohibiting Defendants from making loans in violation of the Act and from servicing such loans or collecting payments from borrowers. Defendants asserted that prohibiting them from servicing existing loans was beyond the purview of the Act. At a hearing addressing Defendants' motion to dissolve or modify the temporary restraining order, the court engaged in a discussion with the parties regarding a compromise that would permit the servicing and collection of already existing loans to continue but would require Defendants to place into escrow an amount estimated to be the funds Defendants expected to collect from Georgia borrowers during the pendency of the litigation. At that hearing, a representative of Defendants stated to the judge that Defendants expected to make a "few hundred-thousand-dollars" per month during the pendency of the litigation. Accordingly, the trial court entered an interlocutory injunction prohibiting Defendants from making new loans or assigning existing loans to any third party, but not prohibiting them from servicing existing loans. The State and CashCall then entered into a joint agreement and consent order whereby CashCall was required to deposit $200,000 into an escrow account and provide quarterly summaries of all payments collected from Georgia borrowers until the claim was resolved. The order expressly contemplated a future motion to modify the amount of the escrow deposit.

Shortly thereafter, Defendants filed motions to compel arbitration and to dismiss the action. The trial court referred the case to a special master who recommended the case be dismissed, but the trial court rejected the special master's recommendation and denied Defendants' motion to dismiss, finding that the State's claim was not barred by the language of OCGA § 16-17-1 (d) indicating that "[p]ayday lending ... does not encompass loans that involve interstate commerce." Instead, the trial court found the State's claim against Defendants was proper under OCGA § 16-17-2 (a), which states: "It shall be unlawful for any person to engage in any business [which involves] ... the making of loans of $3,000.00 or less" except under certain circumstances that do not apply in this case. The trial court also: (1) rejected Defendants' assertion that the claim is barred by operation of the Indian Commerce Clause because neither Mr. Webb nor Western Sky is entitled to tribal sovereign immunity simply because Webb claims to be a member of the Cheyenne River Sioux Tribe ("CRST"); (2) rejected the assertion that the application of the Payday Lending Act to Defendants' conduct violates the Dormant Commerce Clause of the United States Constitution because the conduct does not occur wholly outside Georgia's borders; (3) rejected Defendant's assertion that the State's claims must be arbitrated pursuant to the terms of the loan agreements with Georgia borrowers that are subject to the action because the State is not a party to the underlying loan agreements; and (4) found the trial court has personal jurisdiction over defendant Webb.¹

Upon learning through discovery that Defendants had actually collected millions of dollars from Georgia borrowers since the time the complaint was filed, the State filed a motion for modification of the injunction order and the consent order. After conducting a hearing, the trial court granted the State's motion to modify the interlocutory injunction, finding that the amount Defendants had collected from Georgia borrowers during the pendency of the litigation to the date of the order to be approximately $15,279,872.95.² Because the trial court found a substantial likelihood that the State will prevail on the merits of the claim at trial, and found a substantial threat exists that the State will suffer irreparable injury in that there might not be sufficient funds available to satisfy a judgment should the State prevail at trial, the trial court ordered Defendants to deposit the $15 million sum into the court's registry and to make quarterly deposits of any additional amounts that may be collected from Georgia borrowers in the future. The trial court, however, agreed to stay the granted relief during an appeal, upon the Defendants' deposit of an additional $1 million into the escrow account created following entry of the consent order requiring the deposit of $200,000. In a separate order, the trial court denied the State's motion to add as defendants J. Paul Reddam and WS Funding, LLC ("WS Funding"). Defendants filed a notice of appeal and the State filed a notice of cross-appeal, and each appeal was docketed by this Court. For the reasons set forth below, we affirm the order denying Defendants' motion to dismiss, affirm the modification of the injunction order, and reverse the order denying the State's motion to add defendants.

Defendants' appeal, Case No. S16A1011.

1. (a) First, we address Defendants' argument that the loans at issue in this case involve interstate commerce³ and are thus expressly excluded by the plain language of the Act: "Payday lending involves relatively small loans and does not encompass loans that involve interstate commerce." OCGA § 16-17-1 (d). We reject the notion that this phrase was meant to exclude loans that involve interstate commerce from the scope of the Act. If that were so, the Act would be virtually meaningless because it would prohibit nothing. Instead, we are persuaded that this language is simply a legislative finding of fact that is obviously factually inaccurate. In any event, it does not define the scope of the Act and is not determinative of whether Defendants are liable to the State for the civil penalties sought in the complaint.

Title 16 of the Georgia Code is the State's Criminal Code, and we note that, unlike some legislative chapters, the legislature did not give Chapter 17 of that Title a name.⁴ Instead, Chapter 17, OCGA §§ 16-17-1 through 16-17-10, has come to be known as the "Payday Lending Act" simply as a convenient nickname, and that is how we refer to it here. Clearly, the Act applies not only to what is commonly referred to payday lending,⁵ but to any business that involves the lending of amounts of $3,000 or less unless the loan falls within the exceptions set forth in OCGA § 16-17-2 (a), none of which apply in this case. OCGA § 16-17-1 includes a number of legislative findings that, inter alia, explain the reasons the General Assembly enacted this chapter. For example, OCGA § 16-17-1 (b) notes that the General Assembly found this chapter to be necessary despite the fact that the type of lending...