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Hengle v. Curry

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

June 15, 2018

GEORGE HENGLE and LULA WILLIAMS, on behalf of themselves and all individuals similarly situated, Plaintiffs,
v.
MARK CURRY, et al., Defendants.

          MEMORANDUM OPINION

          ROBERT E. PAYNE, SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the MOTION TO TRANSFER TO THE NEWPORT NEWS DIVISION BY AWL, INC., AMERICAN WEB LOAN, INC. AND RED STONE, INC. (ECF No. 3) and NATIONWIDE AWL CLASS PLAINTIFFS' MOTION FOR LIMITED INTERVENTION (ECF No. 77) to join the motion to transfer. AWL, Inc., American Web Loan, Inc. (collectively, "AWL") and Red Stone, Inc. ("Red Stone"; with AWL, collectively, "the AWL Defendants")[1] move to transfer this action to the Newport News Division, where an action brought by the putative intervenor plaintiffs-Royce Solomon, et al. v. American Web Loan, Inc., et al., No. 4:17-cv-145 ("Solomon")-is currently pending. For the reasons set forth below, both motions will be granted.

         BACKGROUND

         A. Factual Background

         As alleged in the Complaint, Mark Curry ("Curry") was the "architect of [a] rent-a-tribe lending scheme" involving the Otoe-Missouria Tribe ("the Tribe") and an entity for which Curry was the chief executive officer, the MacFarlane Group. Compl. ¶ 12. At some point after 2009, Curry created the MacFarlane Group and associated with the Tribe in order to form AWL. Although the Tribe characterized AWL as an independent tribal lending entity, the Tribe allegedly had no control over AWL's income or expenses, and simply allowed Curry and the MacFarlane Group to use the entities as a front to offer illegal high-interest loans, in return for which the Tribe received a 1% flat fee of AWL's revenue. The money loaned was transferred from a bank account controlled by the MacFarlane Group, which tribal officials could not access. Then, after the loan agreements were executed, the MacFarlane Group accepted consumer payments directly, and the only funds that AWL or the Tribe ever received or handled was the specified revenue percentage. Id. ¶¶ 31-37, 40-41. The Tribe was similarly uninvolved in AWL's day-to-day operations, which were mostly conducted by MacFarlane Group employees located outside the Tribe's reservation. Id. ¶¶ 38-39.

         After AWL began operating, federal regulators began "cracking down" on lending entities connected with other tribes, and the New York Department of Financial Services issued a cease-and-desist letter regarding the Tribe's lending activities in New York. Curry subsequently sold the MacFarlane Group to Red Stone, a tribal entity, to insulate himself from any potential liability. Nonetheless, the Complaint alleges, Red Stone still operates in the same way as the MacFarlane Group-that is, with no role for the Tribe, and with substantial involvement by Curry. Id. ¶¶ 42-57.

         The funding for AWL's scheme comes from Medley Capital Corporation ("Medley Capital") and its subsidiary, Medley Opportunity Fund II, LP ("Medley Fund"). Medley Capital allegedly created Medley Fund to allow investors to purchase interests in AWL's loans. Medley Capital then solicited third-party investments, and invested its own funds, in Medley Fund, which in turn provided the MacFarlane Group with the substantial capital underlying AWL's loans. Medley Fund continues to fund AWL today. Id. ¶¶ 59-67.

         Curry intentionally chose Virginia as a place where AWL would offer loans and collect payments, notwithstanding his knowledge that the loans would be illegal under Virginia's usury laws. The MacFarlane Group, through AWL, then began marketing, initiating, and collecting loans in Virginia. Consumers were required to electronically sign a form loan agreement created by Curry and the MacFarlane Group. Under the terms of that contract, the loans were subject to an annual percentage rate ("APR") that was much higher than 12%. However, neither the Tribe nor any of the defendants had a consumer finance license permitting them to charge interest at such a high rate, and they never attempted to obtain such a license. Id. ¶¶ 68-71, 74.

         George Hengle ("Hengle") and Lula Williams ("Williams"; with Hengle, collectively, "Plaintiffs")-residents of the Richmond Division-both obtained loans from AWL. Hengle's loan was subject to an APR of 737.97%, and Williams' loan was subject to an APR of 593.12%. Because of those interest rates, Hengle and Williams paid $4, 397.20 and $2, 718.87, respectively, to AWL. Id. ¶¶ 72-73, 76-77.

         B. Procedural Background

         On February 13, 2018, Plaintiffs brought suit against Curry, the AWL Defendants, Medley Fund, and Medley Capital. See Compl. (ECF No. 1). They asserted six class claims:

(1) COUNT ONE, Violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a), against Medley Fund and Medley Capital;
(2) COUNT TWO, Violations of RICO, 18 U.S.C. § 1962(b), against all defendants;
(3) COUNT THREE, Violations of RICO, 18 U.S.C. § 1962(c), against Curry and the AWL Defendants;
(4) COUNT FOUR, Violations of RICO, 18 U.S.C. § 1962(d), against all defendants;
(5) COUNT FIVE, Violations of Virginia Usury Laws, against all defendants; and
(6) COUNT SIX, Unjust Enrichment, against all defendants.

Id. ¶¶ 84-153. In the Civil Cover Sheet attached to the Complaint, Plaintiffs indicated that this case was related to another action pending before this Court, Lula Williams, et al. v. Big Picture Loans, LLC, et al., No. 3:17-cv-461 ("Williams"). ECF No. 1-4 at 1.

         The AWL Defendants moved to transfer this action to the Newport News Division on February 21, 2018. ECF No. 3. Shortly thereafter, the Court requested statements from Plaintiffs and the AWL Defendants about why this case is related to Williams and Solomon, respectively. ECF Nos. 10, 11. After the parties had given their positions, the Court found that the case was related to Williams, but did not express any conclusion about its relation to Solomon. See ECF No. 75 at 2. The next day, Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio (collectively, "the Solomon Plaintiffs") moved to intervene in support of the AWL Defendants' motion to transfer. ECF No. 77. The Court then granted Plaintiffs' request for jurisdictional discovery because some defendants had moved to dismiss the Complaint on grounds that implicated the Court's subject matter jurisdiction. ECF No. 76. Nonetheless, given the AWL Defendants' and Curry's subsequent motions to stay jurisdictional discovery, ECF Nos. 96, 98, it is unclear how much progress has been made in that regard. Finally, Plaintiffs recently moved to have their attorneys appointed as interim class counsel, which the AWL Defendants have responded to but not formally opposed. ECF Nos. 99, 102.

         C. Factual and Procedural Background in Solomon

         The Solomon Plaintiffs filed suit against AWL, Curry, the MacFarlane Group, Medley Fund, Medley Capital, and eight other entities[2] in the Newport News Division on December 15, 2017. See ECF No. 1 (Docket No. 4:17-cv-145). They filed an amended complaint against AWL, Curry, the MacFarlane Group, Medley Fund, Medley Capital and eight other entities and individuals[3] on March 9, 2018. See Solomon Am. Compl. (ECF No. 41, Docket No. 4:17-cv-145) . That litigation is predicated on the same facts as this action. Specifically, the Solomon Plaintiffs allege that: (1) Curry worked with the Tribe to create AWL as a front to offer illegal high-interest loans; (2) AWL's lending process was almost entirely controlled by entities managed by Curry, including the MacFarlane Group, and the Tribe had little involvement in AWL's operations; (3) the Tribe received only 1% of the substantial revenues from AWL's lending scheme; (4) the Tribe's acquisition of the MacFarlane Group through Red Stone was a sham, as Curry continues to be heavily involved in AWL's lending operation; and (5) Medley Fund is primarily responsible for financing AWL's lending. See id. ¶¶ 81-126. AWL's lending process is also described in the same general terms as in this case, although the Solomon Amended Complaint focuses on the substance of AWL's loan agreements in much more detail, including their truth-in-lending disclosures and choice of law and arbitration provisions. See id. ¶¶ 127-37, 185-97. Although the Solomon Amended Complaint names eight defendants that are not defendants in this case, those defendants either provide services in support of AWL's lending operation or help Medley Capital and Medley Fund raise lending capital for AWL. See id. ¶¶ 21-23, 26, 28-37. In other words, their inclusion as defendants is more reflective of the greater detail in the Solomon Amended Complaint than of any difference between the key parties in Solomon and this case.

         The only significant factual contrast between the Solomon Amended Complaint and the Complaint here is the composition of the proposed classes. Like Plaintiffs, the Solomon Plaintiffs obtained loans from AWL and made payments in connection with those loans. Solomon also resides in Virginia, albeit in the Newport News Division, and the interest rate on his loan was 726.13%, well in excess of the maximum 12% APR permitted by Virginia law. Id. ¶¶ 10, 145. Belleci, however, is a Nebraska resident, and her interest rate of 595.06% exceeded the maximum 16% APR that Nebraska permits. Id. ¶¶ 11, 154-58. Littlejohn is a South Carolina resident who was charged an interest rate, 597.35%, above the relevant maximum of 12%. Id. ¶¶ 12, 166-68. Finally, Lomaglio is a California resident, and her 481.60% interest rate was higher than California's maximum 10% APR. Id. ¶¶ 13, 182-84. As a result, the Solomon Plaintiffs allege their class claims on behalf of a putative nationwide class, instead of the limited Virginia classes claimed by Plaintiffs here. Compare id. ¶ 198 with Compl. ¶¶ 85-86.

         The number and type of claims in Solomon are also different. The Solomon Plaintiffs assert nine class claims:

(1) COUNT ONE, Violations of RICO, 18 U.S.C. § 1962(c), against American Web Loan, Curry, the MacFarlane Group, SOL, the Medley Defendants, and the Taubes;
(2) COUNT TWO, Violations of RICO, 18 U.S.C. § 1962(d), against American Web Loan, Curry, the MacFarlane Group, SOL, the Medley Defendants, the Taubes, GOLDPoint, and Middlemarch;
(3) COUNT THREE, Violations of the Electronic Funds Transfer Act ("EFTA"), against American Web Loan, Curry, the MacFarlane Group, SOL, the Medley Defendants, the Taubes, and GOLDPoint;
(4) COUNT FOUR, Violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1638(a)(3), Failure to Disclose Finance Charge, against AWL, Inc.;
(5) COUNT FIVE, Violations of TILA, 15 U.S.C. § 1638(a)(4), Failure to Disclose Finance Charge Expressed as an Annual Percentage Rate, against AWL, Inc.;
(6) COUNT SIX, Violations of TILA, 15 U.S.C. § 1638(a)(5), Failure to Disclose the Total of Payments, against AWL, Inc.;
(7) COUNT SEVEN, Violations of TILA, 15 U.S.C. § 1638(a)(6), Failure to Disclose Number, Amount, and Due Dates or Period Payment Scheduled to Repay the Total of Payments, against AWL, Inc.;
(8) COUNT EIGHT, Violations of TILA, 15 U.S.C. § 1638(a)(1), Failure to Disclose the Identity of the Creditor, against AWL, Inc.;
(9) COUNT NINE, Unjust Enrichment, against all defendants.

Id. ¶¶ 209-76.

         After the filing of the Solomon Amended Complaint on March 9, responsive motions were filed on April 8 and 9, and the Solomon Plaintiffs' responses are not due until June 8. ECF No. 92 (Docket No. 4:17-cv-145). No jurisdictional discovery has been conducted or, apparently, even requested. However, like Plaintiffs in this case, the Solomon Plaintiffs recently moved for the appointment of their attorneys as interim class counsel. ECF No. 100 (Docket No. 4:17-cv-145).

         DISCUSSION

         I. Solomon Plaintiffs' Motion to Intervene

         As noted, the Solomon Plaintiffs have moved to intervene for the limited purpose of joining the AWL Defendants' motion to transfer this action to the Newport News Division. Although Plaintiffs consent to the Solomon Plaintiffs' intervention, Pis. Intervention Resp. (ECF No. 91) at 1-2, the ...


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