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Gibbs v. Plain Green, LLC

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

July 27, 2018

DARLENE GIBBS, et al., Plaintiffs,
PLAIN GREEN, LLC, et al., Defendants.



         This matter comes before the Court on Plaintiffs Darlene Gibbs, Stephanie Edwards, Lula Williams, Patrick Inscho, and Lawrence Mwethuku's ("Plaintiffs") Motion to Permit Jurisdictional Discovery (the "Motion for Discovery"), (ECF No. 34), and Defendant Great Plains Lending, LLC's ("Great Plains") Motion to Stay Proceedings (the "Motion to Stay"), (ECF No. 64). Defendants Plain Green, LLC ("Plain Green") and Great Plains (collectively, "Defendants") responded to the Motion for Discovery, (ECF Nos. 43, 45), and Plaintiffs replied, (ECF Nos. 51, 55). Plaintiffs responded to Great Plains's Motion to Stay, (ECF No. 67), and Great Plains replied, (ECF No. 69).

         Accordingly, the matters are ripe for disposition. 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. The Court exercises jurisdiction pursuant to 28 U.S.C. §§ 1332[1] and 1367.[2] For the reasons that follow, the Court granted the Motion for Discovery and denied the Motion to Stay.[3]

         I. Procedural and Factual Background

         A. Summary of Allegations in the Complaint [4]

         Defendants operate internet lending websites offering short-term loans to consumers. Allegedly, Defendants offered loans to Plaintiffs in amounts ranging from $300 to $3, 000, charging interest rates ranging from 118% to 448%. Plaintiffs bring this suit on behalf of themselves and all individuals similarly situated, alleging that Defendants' lending enterprises violate state and federal lending laws.

         Specifically, Plaintiffs allege that Defendants structured their businesses to benefit from the protections of tribal sovereign immunity even though they do not constitute tribal entities. Defendants did so, Plaintiffs contend, in order to evade state and federal lending laws. Plaintiffs contend that Defendants' fraudulent posture as tribal entities eradicates any potential claim to the protection of tribal sovereign immunity.

         According to Plaintiffs, Kenneth Rees, [5] not a tribal member, orchestrated the so-called "rent-a-tribe" scheme at issue in this case. (Compl. ¶ 26-27, ECF No. 1.) Under a "rent-a-tribe" model, a non-tribal entity and a tribe agree to establish a lending company in the tribe's name. The tribe nominally establishes the company, ostensibly extending its sovereign immunity to the new tribal entity, in exchange for a small percentage of the revenue. This is designed to allow the company to evade compliance with state usury laws because, as an arm of the tribe, it cannot be sued by consumers or prosecuted by the government. See, e.g., Thomas v. Dugan, 168 F.3d 483 (4th Cir. 1998) ("Tribal entities and individual tribal officers acting within their representative capacity within the scope of their authority are also shielded by sovereign immunity.") The non-tribal entity retains the majority of the profits and controls the lending entity, from major business decisions to day-to-day operations.

         Plaintiffs allege that in early 2011, Rees sent a letter to the Chippewa Cree Tribe proposing a joint lending venture with a company owned by Rees. Plaintiffs contend the tribe agreed to participate in the lending scheme within two weeks of receiving this letter, and subsequently formed Plain Green. Shortly thereafter, Rees allegedly contacted the Otoe-Missouria Tribe in Oklahoma with a similar proposal, and that tribe formed Great Plains.

         Plain Green and Great Plains are structured almost identically. According to Plaintiffs, the Chippewa Cree Tribe and the Otoe-Missouria Tribe (collectively, the "Tribes") were paid a nominal fee for establishing the entities under their names, but "otherwise had no control over the income, expenses, or day-to-day operations of the entities." (Compl. ¶ 35.) Plaintiffs state that third parties who were not members of the tribes or located on the reservations performed nearly all activities associated with the companies, including processing payments, maintaining the call centers, and servicing the loans.

         Specifically, Plaintiffs claim Rees controls multiple companies that actually operate the lending businesses and reap the profits. For example, GPL Servicing, Ltd. ("GPLS"), owned by Rees, accepted consumer payments on behalf of the Tribes after loan agreements were executed rather than either Plain Green or Great Plains. GPLS, according to Plaintiffs, transferred no more than 4.5% of the revenue to the Tribes, though Plaintiffs allege the actual amount is even lower because "most of this money was siphoned for the personal benefit of certain tribal members." (Compl. ¶ 46.) Furthermore, Plaintiffs contend, the money lent to Plaintiffs was transferred from a bank account owned and operated by Think Finance, LLC, another company Rees owned. Allegedly, Tailwind Marketing, LLC, also owned by Rees, generated leads to identify potential consumers to solicit. Plaintiffs further contend that Rees's company TC Decision Sciences operated Defendants' websites, served as the administrator of their software, and handled customer service responsibilities at a monthly cost to Defendants. Although Defendants present themselves as the lenders of the loans they issued, Plaintiffs assert that Rees and the companies he formed control day-to-day operations and major business decisions on behalf of Defendants.

         B. Procedural Background

         Plaintiffs filed a five-count putative class action Complaint against Defendants alleging various state and federal violations associated with an illegally usurious loan enterprise.[6] Plaintiffs seek: (1) a declaratory judgment that the loan agreements are void and unenforceable; (2) injunctive relief ordering the defendants to divest themselves of any interest in the enterprise pled in the complaint, including the receipt of racketeering profits, prohibiting the defendants from continuing to engage in the enterprise, and ordering the dissolution of each defendant that has engaged in the enterprise; (3) compensatory damages; and, (4) costs and attorney's fees.

         Plain Green filed a Motion to Dismiss without Leave to Amend or, in the Alternative, to Compel Arbitration. (ECF No. 26.) Great Plains filed three separate motions: (1) a Motion to Dismiss for Lack of Jurisdiction, (ECF No. 28); (2) a Motion to Compel Arbitration, (ECF No. 30); and, (3) a Motion to Transfer Case, (ECF No. 32). Defendants each moved to dismiss based on a claim of sovereign immunity under Rule 12(b)(1). (ECF Nos. 26, 28).

         Plaintiffs filed the Motion for Discovery, seeking jurisdictional discovery on the issue of Defendants' claim of sovereign immunity. (ECF No. 34.) Defendants each opposed the Motion for Discovery. (ECF Nos. 43, 45.) The Court suspended briefing on Defendants' Motions to Dismiss pending its ruling on the Motion for Discovery. (ECF No. 42.) On May 9, 2018, Plaintiffs filed a Motion for Leave to File Supplemental Authority ("Plaintiffs' Motion to File Supplemental Authority"), (ECF No. 62) requesting leave to submit a recent court order in a case they allege is similar to the one at bar.[7]

         On May 9, 2018, Great Plains filed the Motion to Stay based on a case development. (ECF No. 64.) Specifically, Great Plains has moved to consolidate and transfer this case in the Judicial Panel on Multidistrict Litigation ("JPML"). (ECF No. 64.) Great Plains seeks to consolidate three cases in a multi-district litigation ("MDL").[8] Great Plains requests a stay of these proceedings pending the JPML ruling on Defendants' pending Motion for Consolidation and Transfer filed in In Re: Great Plains Lending, LLC Litigation, MDL No. 2851. The JPML was scheduled to hear the motion on July 26, 2018. No. MDL exists until the JPML rules on the Motion for Consolidation and Transfer. On June 13, 2018, Great Plains filed a Motion for Leave to File Supplemental Authority ("Great Plains's Motion to File Supplemental Authority"), (ECF No. 71), requesting leave to submit a recent court order granting a stay in one of the two other cases that is part of its JPML request.[9]

         II. Great Plains's Motion to Stay

         A. Legal Standard for a Motion to Stay Proceedings

         The decision of whether to stay proceedings is entrusted to the discretion of the district court. See Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936). "[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Id. at 254.

         "The party seeking a stay must justify it by clear and convincing circumstances outweighing potential harm to the party against whom it is operative." Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 127 (4th Cir. 1983). "In considering a motion to stay, a district court must 'weigh competing interests and maintain an even balance.'" Sehler v. Prospect Mortg, LLC, No. 1:13-CV-473 (JCC/TRJ), 2013 WL 5184216, at *2 (E.D. Va. Sept. 16, 2013) (quoting Yearwood v. Johnson & Johnson, Civil Action No. RDB-12-1374, 2012 WL 2520865, at *3 (D. Md. June 27, 2012)).

         Specifically, a district court should consider three factors: "(1)me interests of judicial economy; (2) hardship and equity to the moving party if the action is not stayed; [and, ] (3) potential prejudice to the non-moving party." Buzzell v. JP Morgan Chase Bank, No. 3:13- CV-668, 2015 WL 5254768, at *2 (E.D. Va. Sept. 9, 2015) (quoting Meyers v. Bayer AG, 143 F.Supp.2d 1044, 1049 (E.D. Wis. 2001)).

         B. The Court Finds that Balancing the Interests at Stake Weighs Against Granting a Stay

         Great Plains asserts that Plaintiffs provide "no sound basis to deny the requested stay." (Reply Mot. Stay 1, ECF No. 69.) Great Plains mischaracterizes the applicable standard: the burden is on Great Plains, the party requesting a stay, to show "clear and convincing circumstances" justifying it. Williford, 715 F.2d at 127. Because Great Plains fails to meet its burden, the Court denied the Motion to Stay.

         1. The Interest of Judicial Economy Does Not Justify a Stay

         Because the district court can resolve preliminary matters while the JPML deliberates, general delays are "rarely ... advisable." Weisman v. Se. Hotel Props. Ltd. P'ship, No. 91 Civ. 6232, 1992 WL 131080 at *6 (S.D.N.Y. 1992) (quoting Manual for Complex Litigation, Second § 31.121 (1986)). Furthermore, the JPML has expressly stated: "the use of stay orders by the district courts, particularly in the area of discovery, is usually undesirable." Sehler, 2013 WL 5184216, at *2 (quoting In re Penn Cent. Sec. Litig, 333 F.Supp. 382, 384 n.4 (J.P.M.L. 1971)). Great Plains fails to show clear or convincing circumstances showing that the interest of judicial economy justifies granting a stay.

         Because Great Plains seeks to consolidate only three cases in the JPML, the risk of needless duplication of work and waste of judicial resources is low. In the context of the motions to consolidate and transfer actions before the JPML, Defendants' three pending actions pale in comparison to the typical number of actions consolidated to MDL. This Court need not make any conclusion regarding the likelihood that the JPML will grant Great Plains's Motion for Consolidation and Transfer to conclude that judicial resources would not be wasted if the case at bar is allowed to proceed. The exceptionally low volume of actions that Great Plains seeks to consolidate and transfer to an MDL by itself evinces a very low risk of duplicative work and judicial waste, even if the ...

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