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Gibbs v. Rees

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

March 23, 2018

DARLENE GIBBS, et al, individually and on behalf of a class of similarly situated persons, Plaintiffs,
v.
KENNETH REES, et al., Defendants.

          MEMORANDUM OPINION

          M. HANNAH LAUCK, UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Defendant Kenneth Rees's Motion to Transfer Case Under 28 U.S.C. § 1412 ("Rees's Motion to Transfer"), (ECF No. 92), and Defendant GPL Servicing's ("GPL") Motion to Transfer Case Under 28 U.S.C. § 1412 ("GPL's Motion to Transfer"), (ECF No. 111). All responses and replies have been filed. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. Accordingly, all matters are ripe for disposition. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331.[1] For the reasons that follow, the Court will grant Rees's Motion to Transfer and GPL's Motion to Transfer. The Court will transfer this case to the District Court for the Northern District of Texas.

         I. Factual and Procedural Background

         A. Summary of Allegations in the Complaint

         In their four-count class complaint, Plaintiffs challenge an allegedly predatory lending scheme developed and implemented by Defendants. According to Plaintiffs, in an effort to circumvent Virginia and federal lending laws, Rees contacted members of two Native American tribes-the Chippewa Cree Tribe and the Otoe-Missouria Tribe (collectively, the "Tribes")-in order to establish "rent-a-tribe" enterprises.[2] Plaintiffs contend that, through his rent-a-tribe schemes, Rees sought to "disguise Rees and his companies' roles and to ostensibly shield the scheme from liability" based on the Tribes' sovereign immunity. (Compl. ¶ 2, ECF No. 1.) Through these activities, Plaintiffs aver that Defendants made payday loans to people in Virginia with annual percentage rates that exceeded 400%.

         1. The Parties

         All named plaintiffs are residents of Virginia who obtained loans online from Plain Green, LLC ("Plain Green") or Great Plains, LLC ("Great Plains"). Defendants' identities and relationships are slightly complex, but, according to Plaintiffs, "although Plain Green and Great Plains held themselves out as the actual lenders of these internet payday loans, Defendants marketed, funded, collected the loans, and controlled the day-to-day operations and major business decisions of Plain Green and Great Plains." (Id. ¶ 48.) Plaintiffs assert that Rees and others created Defendant Think Finance, Inc., ("Think Finance") "to locate, arrange[, ] and funnel the lending capital to the Tribes." (Id. ¶ 14.) According to Plaintiffs, Think Finance "procured the investment capital for Plain Green and Great Plains, " and "initially performed the application processing, underwriting, and customer service support for the loans." (Id.)

         Defendants Think Finance SPV, LLC ("Think Finance SPV"), TC Decision Sciences, LLC ("TC Decision"), TC Loan Services, LLC ("TC Loan"), and Tailwind Marketing, LLC ("Tailwind Marketing") are all limited liability companies with principal places of business at the same address in Texas. Plaintiffs allege that each of these companies either performed some role in the lending scheme or served as a holding company for one of the other companies in an attempt to avoid liability. Specifically, Plaintiffs claim that, after several lawsuits, Rees conveyed all of Think Finance's assets and responsibilities to Think Finance SPV "in an effort to avoid liability for the illegal loans made to consumers." (Id.)

         Tailwind Marketing was the "marketing and solicitation arm to disguise the involvement of Rees and Think Finance." (Id. ¶ 52.) Tailwind Marketing received $100 for every borrower provided to Plain Green and Great Plains. Plaintiffs assert that "this money ended up back in the pocket of Rees through his ownership interest in Tailwind." (Id. ¶ 55.) TC Loan was "the controlling member of Tailwind Marketing, " and, according to Plaintiffs, its purpose was to "insulate Defendants from liability by adding an extra layer of corporate protection to the misconduct of Tailwind Marketing." (Id. ¶ 17.)

         TC Decision was the "website operator and software administrator for Plain Green and Great Plains, " and "handled customer service responsibilities, such as communications with consumers under the guise of Plain Green and Great Plains." (Id. ¶¶ 56-57.) TC Decision was paid five dollars per month for each active account with Plain Green and Great Plains. This money, too, "ended up back in the pocket of Rees through his ownership interest in TC Decision." (Id. ¶ 58.)

         Defendant GPL Servicing ("GPL") is a corporation incorporated under the laws of the Cayman Islands. (Compl. ¶ 19.) Plaintiffs aver that all loans were assigned to GPL "within two days ... for the purpose of servicing and collection." (Id. ¶ 19.) All payments for loans from Plain Green or Great Plains were made to GPL. Plaintiffs allege upon information and belief that Rees, Think Finance, "and several other individuals" own GPL and "incorporated the collection arm of the operation in the Cayman Islands in further attempts to avoid legal liability." (Id.)

         Plaintiffs contend that Rees "was the architect of the lending scheme, participated in the day-to-day operations of the scheme, and controlled the businesses." (Id. ¶ 97.) According to Plaintiffs, Rees "established the plan and strategy" to create each of the defendant companies, and "established their role in the making, marketing, and collection" of the high-interest online loans. (Id. ¶ 30.) Further, Plaintiffs assert that "[a]s chief executive officer of Think Finance and the sole member of several other affiliated entities, Rees intentionally directed and personally participated in the creation, management, and operations of the tribal lending enterprises." (Id. ¶ 31.)

         2. The Loans

         Each of Plaintiffs' loans ranged in amounts from $300 to $3, 000, and had interest rates from 118% to 448% and higher.[3] Each of the named Plaintiffs paid amounts on their loans ranging from $566.82 to $15, 399.04, "most of which Defendants credited as payment for interest or other fees."[4] (Id. ¶¶ 76-80.) Plaintiffs declare that these loans are "null and void" under Virginia law because the interest rates vastly exceeded the twelve percent APR limit Virginia law places on contracts.[5] (Id. ¶ 75.)

         3. The Class Claims

         Plaintiffs assert the following four class claims, each against all Defendants:

Count One: Violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) - Defendants collected "unlawful debts" from the Plaintiffs because the Defendants collected debts on loans that included an interest rate "far in excess of twice the enforceable rate in Virginia." Plaintiffs seek "treble their actual damages, which would include any interest, fees, or other sums collected by Defendants." (Id. ¶¶ 114-18.)
Count Two: Violations of RICO, 18 U.S.C. § 1962(d) - Defendants "enter[ed] into a series of agreements to violate § 1962(c)." Plaintiffs seek actual damages, treble damages, costs, and attorneys' fees. (Id. ¶¶ 126-27.)
Count Three: Violations of Virginia Usury Laws - Every loan Defendants made to the Plaintiffs used an interest rate over Virginia's statutorily permissible rate of twelve percent. Plaintiffs seek "an amount equal to the total amount of interest paid" over twelve percent interest, "twice the amount of such usurious interest that was paid in the two years preceding the filing of this action, " costs, and attorneys' fees. (Id. ¶¶ 136-37.)
Count Four: Declaratory Judgment - Defendants violated Virginia's usury law, Virginia Code § 6.2-1541(A), and all loan agreements are therefore "void and unenforceable." Plaintiffs seek a "declaratory judgment that the loan agreements are void and unenforceable pursuant to § 6.2-1541(A)." In the alternative, Plaintiffs seek a declaratory judgment that the loan agreements' choice-of-law, forum-selection, and arbitration provisions are "void and unenforceable as a matter of public policy." (Id. ¶¶ 145-50.)

         For Counts One and Two, Plaintiffs seek to certify a class that includes "[a]ll Virginia residents who executed a loan with Plain Green or Great Plains where the loan was originated and/or any payment was made on or after May 19, 2013." (Id. ¶¶ 107, 120.) For Count Three, Plaintiffs seek to certify a class of "[a]ll Virginia residents who executed a loan with Plain Green or Great Plains where any interest was paid, " and a subclass consisting of "[a]ll Virginia residents who executed a loan with Plain Green or Great Plains where any interest was paid on or after May 17, 2015." (Id. ¶ 129 (emphases added).) Finally, for Count Four, Plaintiffs seek to certify a class of "[a]ll persons who ... executed a loan with Plain Green or Great Plains [] when they resided or were located in Virginia, [] which contained an interest rate greater than 12%, ” and a subclass consisting of "[a]ll persons who ... executed a loan with Plain Green or Great Plains [] when they resided or were located in Virginia, [] which contained a choice-of-law provision, arbitration provision, or forum selection clause similar or identical to Plaintiffs[']." (Id. ¶ 139 (emphases added).)

         B. Procedural Background

         Plaintiffs filed their Complaint on May 19, 2017. After several extensions of time, the defendants filed a slew of motions seeking the dismissal, stay, or transfer of the entire action. Defendants Think Finance, Think Finance SPV, TC Decision, TC Loan, and Tailwind Marketing (collectively, the "Think Finance Defendants") and Rees each filed a Motion to Compel Arbitration, (ECF Nos. 16, 26), a Motion to Dismiss for Failure to Join Indispensable Parties, (ECF Nos. 18, 28), a Motion to Dismiss for Lack of Jurisdiction and Failure to State a Claim, (ECF Nos. 20, 22), and a Motion to Transfer or Stay Pursuant to the First-to-File Rule, (ECF Nos. 30, 24).[6] GPL filed a Motion to Dismiss for Lack of Jurisdiction and Failure to State a Claim, or, Alternatively, to Stay Proceedings and Compel Arbitration. (ECF No. 47.)

         On October 25, 2017, the Think Finance Defendants filed a Suggestion of Bankruptcy. (ECF No. 87.) The Think Finance Defendants stated that, on October 23, 2017, they had each "filed voluntary petitions for relief pursuant to chapter 11 of Title 11[7] of the United States Code, " (the "Bankruptcy Case") in the United States Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court"). (Sugg. Bankr. 1, ECF No. 87.) The Think Finance Defendants stated that they had "requested joint administration of the Bankruptcy Cases" in the Bankruptcy Court. (Id.) Pursuant to 11 U.S.C. § 362(a), [8] the proceedings in this case against the Think Finance Defendants were automatically stayed.[9]

         In the month of February 2018, the parties again filed numerous motions. (See ECF Nos. 89, 92, 94, 98, 100, 106, 111, 121.) Most relevant here, Rees and GPL each filed a Motion to Transfer Pursuant to 28 U.S.C. § 1412.[10] All pending motions are fully briefed and ripe for decision. On February 28, 2018, the Court held a status conference at which the parties apprised the Court, generally, of the proceedings in the Bankruptcy Court. At the status conference, the Court informed the parties of its intent to rule on the motions without hearing argument.

         II. Motions to Transfer Pursuant to 28 U.S.C. S 1412[11]

         The Court will first address Rees's and GPL's Motions to Transfer Pursuant to 28 U.S.C. § 1412 (collectively, the "Motions to Transfer") because the Motions to Transfer could affect the relevance of many other motions. The Court finds that § 1412 applies in this case because Plaintiffs' claims against Rees and GPL are "related to" the Think Finance Defendants' pending petitions for bankruptcy. Further, despite the significant progress of this case and Virginia's strong interest in protecting its citizens from conduct such as that alleged in the Complaint, the Court concludes that transfer of this case to the Northern District of Texas is in the interest of justice.

         A. The Parties' Arguments

         1. Rees's Motion to Transfer

         Rees filed his Motion to Transfer one week before GPL filed its similar motion. Rees requests this Court to transfer this action to the United States District Court for the Northern District of Texas (the "Texas District Court"), "where that court will refer the action to the Bankruptcy Court, " to be consolidated with the Think Finance Defendants' pending bankruptcy petition.[12] (Rees Mem. Supp. Mot. Transfer 2, ECF No. 93.) According to Rees, Plaintiffs have already intervened in the bankruptcy cases by filing an adversary proceeding seeking relief against the Think Finance Defendants. Therefore, Rees argues, "obvious inefficiencies" would result from litigating the case both here and in the Bankruptcy Court. (Id. at 4.)

         Rees further argues that transfer is appropriate because Plaintiffs' allegations against the Think Finance Defendants "are inextricably intertwined" with Plaintiffs' allegations against Rees, and because Plaintiffs' "theory of liability as against Rees [in this case] is the same as that as against Think Finance in the Bankruptcy Court." (Id. at 4, 5.) Finally, Rees contends that "a predecessor-in-interest to Debtor Think Finance, LLC[, ] and Rees are parties to a Director Indemnification Agreement, " and because of this agreement, all of Rees's legal fees, liability, or settlement "may ultimately end up back in front of the Bankruptcy Court for the purposes of indemnification and advancement." (Id. at 6, 7.) According to Rees, the indemnification agreement alone makes this case sufficiently "related to" the Bankruptcy Case to necessitate transfer.

         In response, Plaintiffs contend that Rees's arguments regarding the indemnification agreements do not establish that this case is sufficiently "related to" the Bankruptcy Case to justify transfer to the Bankruptcy Court. (Pis.' Resp. Rees Mot. Transfer 5-6, ECF No. 110.) Plaintiffs further assert that, even if the matters sufficiently relate, neither the interest of justice nor the convenience of the parties favors transfer to the Bankruptcy Court.

         First, Plaintiffs argue that the transfer Rees requests "does not guarantee that the case finds its way into bankruptcy court." (Id. at 6.) Plaintiffs argue that, because Rees requests a transfer to the district court, this case would only ultimately land in the Bankruptcy Court after a subsequent transfer from the district court. Further, Plaintiffs aver that judicial efficiency favors keeping the case in this Court. In support, Plaintiffs state that: (1) the Think Finance Defendants have moved to dismiss the Plaintiffs' adversary complaint in the Bankruptcy Court, so there is no certainty that this case would even be decided on the merits in that court; (2) the parties have briefed numerous motions and conducted voluminous discovery in this case, which would be disrupted by a transfer; and, (3) a transfer threatens to disrupt Plaintiffs' motion for class certification already filed in the Bankruptcy Court because "Rees will no doubt expect to have some role in the bankruptcy court's decision" of that motion. (Id. at 8-10.) Plaintiffs also argue that Virginia's interest in enforcing its citizens' rights and Plaintiffs' entitlement to deference to their choice of Virginia as a forum weigh against transferring the case. Finally, Plaintiffs contend that Rees has offered no evidence demonstrating that the convenience of the parties weighs in favor of a transfer, and assert that Plaintiffs would suffer inconvenience if the Court transferred the case.

         2. GPL's Motion to Transfer

         One week later, GPL also moved the Court to transfer this action to the Texas District Court pursuant to 28 U.S.C. § 1412. GPL largely joins Rees's arguments in support of transfer under § 1412. GPL also attaches a copy of a "Guaranty and Security Agreement" (the "GSA") to which it and the Think Finance Defendants are parties. GPL contends that, pursuant to the GSA, GPL is entitled to indemnification from Think Finance and Think Finance SPV. Therefore, GPL argues that transfer under § 1412 is appropriate because this case sufficiently relates to the Bankruptcy Case and transfer serves the interest of justice and the convenience of the parties.

         Plaintiffs advance different arguments in response to GPL's Motion to Transfer than they did in response to Rees's Motion to Transfer. Most notably, Plaintiffs argue for the first time[13] that § 1412 does not apply to this case because § 1412 applies only to cases "arising under chapter 11, " which this case is not. Plaintiffs contend that principles of statutory interpretation require the Court to apply the statute's plain language because the language of § 1412 is unambiguous. Plaintiffs assert that this case does not "arise under" chapter 11, because it is brought under RICO and Virginia state law. Therefore, Plaintiffs assert, based on its plain language, § 1412 does not apply to this action. Plaintiffs urge the Court to reject Rees's and GPL's arguments that § 1412 allows transfer of all cases "related to" bankruptcy cases, and assert that the Court should evaluate the propriety of transfer under the general change of venue provision governing all civil actions, 28 U.S.C. § 1404.[14]

         In the alternative, if the Court finds that § 1412 does apply here, Plaintiffs assert that GPL has not established that this case is sufficiently "related to" the Bankruptcy Case to warrant a transfer. Plaintiffs also argue that GPL has not established that the case could have been brought in the Northern District of Texas, a finding the Court must necessarily make to order transfer.[15]In either situation-whether the Court finds that § 1404 governs or that § 1412 governs- Plaintiffs aver that the ...


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