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Hunter v. Nhcash.Com, LLC

United States District Court, E.D. Virginia, Richmond Division

September 12, 2017

TINA HUNTER, Plaintiffs,
v.
NHCASH.COM, LLC, Defendants.

          MEMORANDUM OPINION (DENYING IN PART AND GRANTING IN PART DEFENDANTS' MOTION TO DISMISS)

          Henry E. Hudson United States District Judge.

         THIS MATTER is before the Court on Defendants NHCash.com, LLC ("NHCash"), NHCash SPV, LLC ("SPV"), NHCash Holdings, Inc. ("Holdings"), and Steven Mello's (collectively, "Defendants") Motion to Dismiss. (ECF No. 14.) Defendants seek dismissal on two grounds, both stemming from the Open-end Credit Account Agreement ("Agreement") each Plaintiff executed with NHCash. First, Defendants argue that venue is improper because Plaintiffs waived their right to bring suit in any forum other than small claims court. Second, Defendants contend that, to the extent Plaintiffs seek to bring claims inappropriate for the jurisdictional limit of small claims court, Plaintiffs agreed to resolve any such claims through individualized and binding arbitration. (Br. Supp. Mot. Dismiss 1, ECF No. 15.)

         The issues have been fully briefed, and the matter is ripe for decision. The Court dispenses with oral argument because the facts and legal contentions are adequately presented in the materials before the Court, and oral argument would not aid in the decisional process. E.D. Va. Local Civ. R. 7(J). For the reasons stated herein, the Court will deny in part and grant in part Defendants' Motion to Dismiss.

         I. BACKGROUND

         On May 5, 2017, Plaintiffs filed a Class Action Complaint in this Court, alleging, inter alia, that Defendants violated the RICO Act, 18 U.S.C. § 1962(c) and (d), and Virginia's anti-usury statute, Va. Code § 6.2-305(A). (Compl. ¶¶ 104, 114, 124, ECF No. 1.) Defendants constitute a joint enterprise involved in the origination and funding of short term loans. (Id. ¶¶ 2, 13-16, 20-21.) NHCash operates a website through which borrowers apply for loans. (Id. ¶ 13.) After NHCash receives an application it originates a loan, which it then assigns to SPV. (Id. ¶ 14.) SPV's role is to secure third-party financing for the loans. (Id.) Holdings is the parent corporation of NHCash. (Id. ¶ 15.) Steven Mello is the founder, owner, and sole operator of all three entities, and in that capacity he "participated in the underwriting, servicing, marketing, and collection" of Plaintiffs' loans. (Id. ¶ 16.)

         At the center of this dispute are the Agreements that Plaintiffs executed with NHCash when taking out their respective loans. Plaintiffs, as borrowers, each filled out and electronically signed a form Agreement over the internet. (Id. ¶ 44.) The Agreements set the interest rate for Plaintiffs' loans at or around thirty-six percent (36%). (Id. ¶ 46; Compl. Ex. 1, at 1.) The Agreements all contained a provision entitled "Arbitration, " which primarily provided that "[a]ny claim or dispute arising from or in any way related to the Agreement must be resolved by binding arbitration. . . ." (Compl. Ex. 1, at 5.) The arbitration provision also established that "[n]othing in our agreement to arbitrate is intended to prevent either of us from filing a lawsuit in an appropriate small claims court for an amount that does not exceed that courts jurisdictional limit; however all other disputes must be arbitrated." (Id.)

         II. STANDARD OF REVIEW

         "[A] motion to dismiss based on a forum-selection clause should be properly treated under Rule 12(b)(3) as a motion to dismiss on the basis of improper venue." Sucampo Pharms., Inc. v. Astellas Pharma, Inc., 471 F.3d 544, 550 (4th Cir. 2006). Similarly, because "the Supreme Court has characterized an arbitration clause as 4a specialized kind of forum-selection clause[, ]'" the Court must analyze the Agreements' disputed arbitration provision under Rule 12(b)(3) as well.[1] Aggarao v. MOL Ship Mgmt. Co., Ltd., 675 F.3d 355, 365 n.9 (4th Cir. 2012) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519(1974)).

         "On a motion to dismiss under Rule 12(b)(3), the court is permitted to consider evidence outside the pleadings." Aggarao, 675 F.3d at 365-66 (citing Sucampo Pharms., 471 F.3d at 550). To survive a motion to dismiss for improper venue, a plaintiff must make a prima facie showing of proper venue-in this case, a showing that the arbitration provision does not control Plaintiffs' claims against Defendants. Id. (citing Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004)). In resolving disputes over venue, a court must view the facts in the light most favorable to the plaintiff. Id. (citing Global Seafood, Inc. v. Bantry Bay Mussels, Ltd., 659 F.3d 221, 224 (2d Cir. 2011). However, "as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

         III. ANALYSIS

         The first issue for the Court to determine is whether the Agreements' purported forum selection clause limiting litigation to small claims court is enforceable. Because the Court finds that it is not, the Court must additionally determine whether the remainder of the arbitration provision is enforceable in this instance, such that the Court must stay the case and compel arbitration.[2]

         A. Forum Selection: Small Claims Court

         The Agreements provide that "[n]othing in our agreement to arbitrate is intended to prevent either of us from filing a lawsuit in an appropriate small claims court for an amount that does not exceed that courts [sic] jurisdictional limit; however all other disputes must be arbitrated." (Compl. Ex. 1, at 5.) Defendants argue that, to the extent Plaintiffs wish to litigate their claims instead of submitting the dispute to arbitration, Plaintiffs must file such claims in General District Court. (Br. Supp. Mot. Dismiss 8.) Plaintiffs argue that the forum selection clause is unenforceable. (Opp. Mot. Dismiss 2-4, ECF No. 22.) For the reasons stated below, the Court agrees with Plaintiffs.

         "[T]he Supreme Court has consistently accorded choice of forum and choice of law provisions presumptive validity, rejecting the 'parochial concept' that 'notwithstanding solemn contracts ... all disputes must be resolved under our laws and in our courts.'" Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996) (quoting The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972)) (collecting cases). "But the presumption of enforceability that forum selection and choice of law provisions enjoy is not absolute and, therefore, may be overcome by a clear showing that they are 'unreasonable under the circumstances.'" Id. (quoting The Bremen, 407 U.S. at 10). "Choice of forum and law provisions may be found unreasonable if (1) their formation was induced by fraud or overreaching; (2) the complaining party will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) their enforcement would contravene a strong public policy of the forum state." Id. (internal quotations omitted) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); The Bremen, 407 U.S. at 12-13, 15, 18).

         The Court finds that the forum selection clause in the Agreements is unreasonable in this case because, among other things, its enforcement would deprive Plaintiffs of the remedies available under the RICO Act. Pursuant to that Act, "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit...." 18 U.S.C. § 1964 (emphasis added). In contrast, the forum selection clause in the Agreements limits signatories to "filing a lawsuit in an appropriate small claims court for an amount that does not exceed that courts [sic] jurisdictional limit." (Compl. Ex. 1, at 5.)

         Because Plaintiffs can only file suit in a United States district court to obtain the remedies created by the RICO Act, the Court finds that the forum selection clause in this case deprives Plaintiffs of remedies that they are entitled by law to pursue. As a result, the forum selection clause is unreasonable and therefore unenforceable. See Lloyd's of London, 94 F.3d at 928. Accordingly, to the extent that Defendants seek dismissal of the Amended Complaint on the basis of the forum selection clause, the Motion to Dismiss will be denied.[3]

         B. Forum Selection: Arbitration

         The parties additionally dispute the controlling effect of the Agreements' arbitration provision. The provision provides, in relevant part, as follows:

Any claim or dispute arising from or in any way related to the Agreement must be resolved by binding arbitration in the state where you live instead of a lawsuit. ... Agreeing to arbitration means that you are waiving your right to a trial by jury and your right to have a court resolve your dispute. You are waiving your right to participate in a class action lawsuit.... We both agree that neither you nor we will request the arbitration to be conducted as a class-wide arbitration. We both agree that no arbitrator will have authority to certify a class in the arbitration or conduct class-wide arbitration and that the arbitrator can only decide disputes between you and us. If any part of this arbitration agreement ...

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