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Gibbs v. Haynes Investments, LLC

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

March 22, 2019

DARLENE GIBBS, et al., on behalf of themselves and all individuals similarly situated, Plaintiffs,
HAYNES INVESTMENTS, LLC, et al., Defendants.


          M. Hannah United States District Judge.

         This matter comes before the Court on Defendants' Haynes Investments, LLC (“Haynes Investments”), Sovereign Business Solutions, LLC (“SBS” or “Sovereign Business Solutions”), and L. Stephen Haynes's (collectively with Haynes Investments and SBS, the “Haynes Defendants”) three motions: the Motion to Transfer or, in the Alternative, to Stay Proceedings (the “Motion to Transfer”), (ECF No. 36), the Motion to Compel Arbitration, (ECF No. 34), and the Motion to Dismiss, (ECF No. 32).[1] Plaintiffs Darlene Gibbs, Stephanie Edwards, Lula Williams, Patrick Inscho, and Lawrence Mwethuku's (“Plaintiffs”) responded to the Motions, (ECF Nos. 41, 42, 43), and the Haynes Defendants replied, (ECF Nos. 44, 45, 46).[2]

         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. §§ 1331[3] and 1367.[4] For the reasons that follow, the Court will deny the Motions.

         I. Procedural and Factual Background

         A. Summary of Allegations in the Complaint[5]

         This controversy arises out of the Haynes Defendants' involvement in an allegedly unlawful lending operation involving two Native American-owned lending companies[6] and multiple alleged co-conspirators. The lending operation allegedly offered loans to Plaintiffs in amounts ranging from $300 to $3, 000, charging interest rates ranging from 227.92% to 448%. (Compl. ¶¶ 120-21, ECF No. 1.) Plaintiffs bring this suit on behalf of themselves and all individuals similarly situated, alleging that this lending operation violates state and federal lending laws.

         Plaintiffs allege that the lending operation constitutes what they refer to as a “rent-a-tribe.” Under this improper business model, actors establish entities to originate internet-based high interest loans so as to evade state and federal usury and lending laws. A non-tribal entity and a Tribe agree to establish a lending company in the Tribe's name. According to Plaintiffs, the Native American Tribe nominally establishes the lending company in order to extend its tribal sovereign immunity to the newly-formed business entity. The tribal company, however, receives capital from a different, non-tribal person or company who seeks to use the tribal lending companies in order to cloak the unlawfully high-interest internet loans with sovereign immunity. The non-tribal entity retains the vast majority of the profits and controls the lending tribal entity, from major business decisions to day-to-day operations. In exchange, the Tribe receives only a small percentage of the revenue.

         Here Plaintiffs challenge the formation and operation of two lending entities: Plain Green[7] and Great Plains.[8] Plain Green seeks immunity as part of the Chippewa Cree Tribe. Great Plains would claim immunity as part of the Otoe-Missouria Tribe. Because only the Haynes Defendants-who principally ran the Plain Green lending operation-remain in this action, the Court, for clarity, focuses on the factual allegations as to them. Plaintiffs also allege, however, that Haynes played a critical role in finding a new bank to partner with both Plain Green and Great Plains after they had been targeted by state and federal regulators (and the Department of Justice), resulting in some banks ceasing the processing of their loans. As such, some claims regarding Great Plains are interspersed and all five Plaintiffs bring their claims against the Haynes Defendants.

         As to Plain Green, Plaintiffs allege that the Haynes Defendants, in conjunction with other actors and through a web of entities, actually “funded and partially operated” the so-called “rent-a-tribe” scheme at the heart of this case. (Compl. ¶ 2.) Specifically, the Haynes Defendants and several non-tribal actors entered into a term sheet in support of the unlawful tribal lending operation.[9] (See Compl. Ex. 1 “March 2011 Term Sheet” 1, ECF No. 1-1.) Per the March 2011 Term Sheet, a designated non-tribal entity[10] provided “the infrastructure to run the lending operations.” (Compl. ¶ 34 (citing March 2011 Term Sheet 1).) Haynes Investments “provide[d] funding to the Tribe to enable it to make each of the [l]oans.” (Id. ¶ 35 (quoting March 2011 Term Sheet 1-2).) In accordance with the provisions in the 2011 Term Sheet, Haynes Investments provided a principal amount of up to $2, 000, 000 through “a revolving line of credit” to fund the loans. (Compl. ¶ 36 (quoting Compl. Ex. 2 “Credit Agreement” 1, ECF No. 1-2).)

         Once Plain Green originated the loans in its name, another designated third-party entity “purchased” the loans from Plain Green. (Compl. ¶ 37.) As part of this “purchase, ” the third party entity “refunded [back to Haynes Investments] 99% of the funds provided by Haynes Investments, wh[ich] also received: (1) 5% interest on the money loaned to the Tribe, and (2) 1% of the revenue collected on the loans as a ‘referral' fee.” (Id. ¶ 38.) Plaintiffs allege that Great Plains has a comparable structure, albeit with different entities.

         In this way, although Plain Green[11] and Great Plains[12] executed the loan agreements, the Haynes Defendants[13] and other non-tribal entities actually funded and controlled the lending operation. The lending operation issued loans to Virginia residents with interest rates far in excess of Virginia's usury law, which caps interest rates at 12%, with some exceptions not applicable here. See Va. Code. Ann. § 6.2-303. The Haynes Defendants, together with other non-parties, “marketed, initiated, and collected usurious loans in Virginia.” (Compl. ¶ 118, ECF No. 1.)

         On several occasions, Haynes Investments increased its investment in the Tribal lending operation. Between December 2011 and June 2012, “Haynes Investments received a monthly profit between $131, 555 and $166, 714” from its participation in the Tribal lending venture. (Id. ¶ 53 (citing Compl. Ex. 7 “ILP Profit Share Breakout Trend” TF-VA0602566).) As of July 12, 2012, Haynes Investments had increased the line of credit it extended to the lending operation to $20, 000, 000, ten times the amount originally agreed upon in March 2011.

         In August 2012, Haynes proposed an additional arrangement “to continue to grow” the improper lending operation. (Id. ¶ 55.) As part of this new financing arrangement, Haynes created Sovereign Business Solutions, [14] which provided Plain Green a principal amount of up to $15, 000, 000 through a revolving line of credit to fund additional loans. In exchange, “SBS received 15% interest on the outstanding advances on the line of credit, as well as a security interest in the loans in the event of default.” (Id. ¶ 61 (citing Compl. Ex. 9 “February 2013 Credit and Security Agreement” §§ 3.3, 3.7).) Haynes signed the February 2013 Credit and Security Agreement on behalf of SBS.

         Plaintiffs allege that Haynes “did not merely invest” in this unlawful Tribal lending scheme, (Compl. ¶ 64, ) but rather, “played an integral role in helping . . . [to] obtain a bank willing to process payments through the Automated Clearing House Network (the ‘ACH Network'), ” (id. ¶ 65.) The ACH Network “allows financial institutions to send or take money directly out of a bank account without the requirement of a direct relationship between the financial institution and the borrower.” (Compl. ¶ 66.) Plaintiffs quote reports stating that the ACH plays a “vital role” in online lenders' ability to conduct business.[15] (Id. ¶ 68 (citation omitted).) These same financial reports indicate that due to the ACH's vital role, “state and federal regulators, as well as the Department of Justice have, seized on the ACH Network as a means to stop online lending by out-of-state lenders.” (Id. (citation omitted).

         When regulators targeted Plain Green and Great Plains, and banks consequently “ceased processing the debits and credits on their loans, ”[16] (Compl. ¶ 72), Haynes “played a critical role in finding a new bank to partner with Plain Green and Great Plains, ” (id. ¶ 73). To this end, Haynes met with several banks beginning in 2013 and identified several possible partners over the course of a year.

         Plaintiffs in this case all entered into loan agreements (the “Contracts” or the “Loan Contracts”) with either Plain Green or Great Plains. (See Gibbs Agr., ECF No. 35-1; Williams Agr., ECF No. 35-1; Edwards Agr., ECF No. 35-1; Inscho Agr., ECF No. 35-1; Mwethuku Agr., ECF No. 35-1.) Although some variation in wording exists among the Contracts, they essentially include the same terms and the minor differences do not alter the outcome on the Motions. Because the legal analysis requires a detailed evaluation of specific provisions within each Contract, an introductory summary follows.

         Each Contract purports to constitute a loan agreement between the named plaintiff and either Plain Green (two contracts) or Great Plains (three contracts), including the underlying loan terms, choice of law provisions, and arbitration agreements. The principal amounts varied, from as low as $500 in a loan through Plain Green, (Mwethuku Agr. 2), to as high as $1, 700 in a loan through Great Plains, (Inscho Agr. 2). Interest rates[17] also varied, ranging from 219.38%, (Inscho Agr. 3), to 373.97%, (Mwethuku Agr. 2).

         All Contracts purport to be governed by Tribal Law.[18] All Contracts, through both Plain Green and Great Plains, expressly disavow the application of any state law. (Gibbs Agr. 8; Williams Agr. 10; Edwards Agr. 9; Inscho Agr. 10; Mwethuku Agr. 7.) As to federal law, Plaintiffs allege that the provisions make clear the parties' intention to disclaim the application of federal law. For example, the “Governing Law” provision in four[19] of the Contracts states that Tribal law governs each Contract, and that the lender “may choose to voluntarily use certain federal laws as guidelines for the provision of services. Such voluntary use does not represent acquiescence of the [Tribe] to any federal law.” (Gibbs Agr. 6; Williams Agr. 7; Edwards Agr. 6-7; Inscho Agr. 7.) All Contracts include a “Truth in Lending Disclosure” but expressly disavow any conclusion that the inclusion of the disclosure constitutes “consent” to any “application of state or federal law.” (Gibbs Agr. 3; Williams Agr. 3; Edwards Agr. 3; Inscho Agr. 3; Mwethuku Agr. 2.)

         All Contracts also include an additional agreement to arbitrate disputes arising from the Contract (the “Arbitration Agreements”). According to the Contracts, the arbitration could take place through a nationally recognized arbitration entity, [20] on tribal land or within thirty (30) miles of the borrower's current address. The Arbitration Agreements all contain a proviso indicating that, should the chosen arbitration firm's policies and procedures conflict with the Loan Contract or Tribal law, the terms of the Loan Contract will prevail. (Gibbs. Agr. 8; Williams Agr. 7; Edwards Agr. 9; Inscho Agr. 9; Mwethuku Agr. 6.)

         All Contracts include a severance clause stating that, should any provision within it- such as the Arbitration Agreement-be found unenforceable, the offensive provision would be severed, meaning that the remainder of the Contract would remain in full force and effect. (Gibbs Agr. 7, Williams Agr. 6; Edwards Agr. 6; Inscho Agr. 7; Mwethuku Agr. 6.) Borrowers can opt out of the Arbitration Agreements, but each Contract provides that borrowers who opt out of the Arbitration Agreements nevertheless agree to bring any disputes within the applicable Tribal court system and according to Tribal law. (Gibbs Agr. 7-8; Williams Agr. 7-8; Edwards Agr. 8; Inscho Agr. 7-8; Mwethuku Agr. 5.)

         The Arbitration Agreements require the application of Tribal law, and limit the Arbitrator's authority to remedies and legal claims recognized by Tribal law. (Gibbs Agr. 6, Williams Agr. 9; Edwards Agr. 9; Inscho Agr. 7; Mwethuku Agr. 6.) The Arbitration Agreements provide that either party may appeal the Arbitrator's decision in the Tribal court system. (Gibbs Agr. 8; Williams Agr. 9; Edwards Agr. 8; Inscho Agr. 9; Mwethuku Agr. 6.)

         B. Procedural Background

         Plaintiffs filed a six-count putative class action Complaint against eight defendants[21] alleging various federal and state violations associated with the allegedly unlawful loan enterprise. Plaintiffs pursue this suit on behalf of Virginia residents who entered into loan agreements with Plain Green or Great Plains, bringing six class counts as follows:

         Count I: 18 U.S.C. § 1962(a). [22] Plaintiffs allege that the Haynes Defendants received “income derived, directly and indirectly, through collection of unlawful debt, ” and used and reinvested “parts of such income to acquire interests in and to further establish and assist the operations of the enterprise.” (Compl. ¶ 149.)

         Count II: 18 U.S.C. § 1962(b). Plaintiffs allege that the Haynes Defendants acquired and maintained “interests in and control of the enterprise involved in the unlawful collection of debt.” (Compl. ¶ 161.)

         Count III: 18 U.S.C. § 1962(c). Plaintiffs allege that the Haynes Defendants “associated with the enterprise and participated in the affairs of the enterprise, which existed for the purpose of collection of unlawful debt.” (Compl. ¶ 175.)

         Count IV: 18 U.S.C. § 1962(d). Plaintiffs allege the Haynes Defendants entered into several agreements to violate §§ 1962(a)-(c). (Compl. ¶ 187.)

         Count V: Virginia Usury Laws.[23] Plaintiffs allege the loans violate Virginia's usury laws because the interest rates exceed 12%. Plaintiffs allege that the Haynes Defendants unlawfully “received revenues generated on the loans.” (Compl. ¶ 197.)

         Count VI: Unjust Enrichment.[24] Plaintiffs allege they conferred a benefit on the Haynes Defendants when they repaid the allegedly unlawful loans; that the Haynes Defendants knew or should have known about the benefit; and that the Haynes Defendants “have been unjustly enriched through their receipt of any amounts in connection with the unlawful loans.” (Compl. ¶ 207.)

         Plaintiffs seek: (1) class certification; (2) declaratory and injunctive relief and damages; and, (3) attorney's fees, litigation expenses, and costs of suit.

         On April 18, 2018, Defendants Victory Park Capital Advisors, LLC; Victory Park Management, LLC; Scott Zemnick; Jeffrey Schneider; and Thomas Welch moved to transfer the case to the United States District Court for the Northern District of Texas. (ECF No. 24.) On April 19, 2018, the Court granted the Motion as to the claims against these defendants, but retained the claims against the Haynes Defendants.

         On July 18, 2018, the Haynes Defendants filed the Motion to Transfer, the Motion to Compel Arbitration, and the Motion to Dismiss. Plaintiffs responded in opposition to the Motions, and the Haynes Defendants replied.

         II. Analysis: Motion to Transfer

         In their Motion to Transfer, the Haynes Defendants invoke the “first-to-file” rule, claiming the doctrine warrants transferring the action to the United States District Court for the District of Vermont, where Haynes Investments is currently defending itself in a lawsuit, filed previous to this one, involving its business associations with Plain Green.[25] (See Mem. Supp. Mot. Transfer 1-2, ECF No. 37.) Having reviewed the matter, the Court concludes that the first-to-file analysis counsels denying the Motion to Transfer. Even without such a finding, the interests of justice amply justify an exception to transfer to the earlier filed case here.

         A. The First-to-File Rule Generally

         “The first-to-file rule provides that ‘when multiple suits are filed in different Federal courts upon the same factual issue, the first or prior action is permitted to proceed to the exclusion of another subsequently filed.'” Victaulic Co. v. E. Indus. Supplies, Inc., No: 6:13-01939, 2013 WL 6388761, at *2 (D. S.C. Dec. 6, 2013) (quoting Allied-Gen. Nuclear Servs. v. Commonwealth Edison Co., 675 F.2d 610, 611 n.* (4th Cir. 1982)). Courts within the United States Court of Appeals for the Fourth Circuit have observed that the Fourth Circuit “has no unyielding ‘first-to-file' rule.” See, e.g., Victaulic, 2013 WL 6388761 at *2 (quoting CACI Int'l Inc. v. Pentagen Techs. Int'l Ltd., 70 F.3d 111, 1995 WL 679952, at *6 (4th Cir. 1995) (citation omitted)). Generally, “the first suit should have priority, absent the showing of balance of convenience in favor of the second action.” Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 594-95 (4th Cir. 1982). But the first-to-file rule “is not absolute and is not to be mechanically applied.” Victaulic, 2013 WL 6388761 at *2, (quoting Harris v. McDonnell, No. 5:13-cv-000777, 2013 WL 5720355, at *3 (W.D. Va Oct. 18, 2013)).

         In determining whether the two actions come within the scope of the first-to-file rule, courts consider “three factors: (1) the chronology of the filings, (2) the similarity of the parties involved, and (3) the similarity of the issues at stake.” Victaulic, 2013 WL 6388761 at *3 (quoting Harris 2013 WL 5720355, at *3). The parties and issues need not be identical, as the first-to-file rule may apply if the parties and issues “are substantively the same or sufficiently similar.” Id.

         If two actions fall within the scope of the first-to-file rule, the decision to apply the rule “is an equitable determination that is made on a case-by-case, discretionary basis.” Elderberry of Weber City, LLC v. Living Centers-Southeast, Inc., No. 6:12cv52, 2013 WL 1164835, at *4 (W.D. Va. Mar. 20, 2013) (quoting Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F.Supp.2d 357, 360 (W.D. N.C. May 19, 2003)). Because the first-to-file rule, as a matter of policy, seeks to avoid duplicative litigation and to conserve judicial resources, “exceptions to the rule are common ‘when justice or expediency requires.'” Id. (quoting Samsung Electronics Co., Ltd. v. Rambus, Inc., 386 F.Supp.2d 708, 724 (E.D. Va. 2005)).

         “[A]lthough the Fourth Circuit has not stated explicitly that special circumstances may warrant an exception to the first-to-file rule, it has implicitly recognized a special circumstance exception in cases involving procedural fencing or forum shopping.” Elderberry, 2013 WL 1164835, at *4 (quoting Federated Mut. Ins. Co. v. Pactiv Corp., No. 5:09cv00073, 2010 WL 503090, at *3 (W.D. Va. Feb. 9, 2010) (internal citations and quotation marks omitted). When determining whether “special circumstances” exist, courts within the Fourth Circuit have considered a variety of factors: the existence of forum shopping or a “race to the courthouse, ” how far each case has progressed, and the balance of convenience. Id. (collecting cases). In weighing the balance of convenience, “courts consider the same factors relevant to transfer of venue or forum non conveniens.”[26] Id. (citation omitted). Ultimately, “[t]he moving party bears the burden of clearly establishing that these factors favor transfer.” Victaulic, 2013 WL 6388761 at *3.

         B. The Court Will Deny the Motion to Transfer Because the First-to-File Rule Does Not Support Transfer

         A review of the two actions shows that Gingras and the present action do not fall within the scope of the first-to-file rule. Although Gingras predates the action in this Court, thereby satisfying the first and most obvious factor under the test, the present case fails to sufficiently overlap with Gingras.

         As to the second prong of the first-to-file evaluation, the parties do not substantially overlap. Of the eight parties to this case-five named plaintiffs and three defendants-Gingras names only Haynes Investments. Plaintiffs bring this purported class action suit on behalf of Virginia residents. The Gingras plaintiffs, both Vermont residents, seek to bring suit on behalf of a nationwide class. Although the proposed Gingras class may ultimately include some of the named plaintiffs in this suit, [27] the Gingras plaintiffs have not yet moved to certify the class.[28]On this record, it would be premature to conclude that the plaintiffs in each suit would sufficiently overlap.[29] Although the difference in named plaintiffs, on its own, might not defeat the first-to-file rule in a purported class action, the Court also considers the absence of both Haynes and Sovereign Business Solutions highly problematic. The Gingras Complaint names seventeen defendants and fourteen interested parties. It does not name Haynes or Sovereign Business Solutions.[30]

         More importantly, as to the third factor, the causes of action in the cases do not constitute substantively identical or similar claims. The Haynes Defendants allege that the theories of the cases overlap, as both sets of plaintiffs allege that “the Haynes Defendants invested in what [the plaintiffs in each case] describe as an illegal lending enterprise involving Native American tribes and various loan servicers. . . and assisted the servicers in attempting to find a bank to work with the servicers in collecting the loans via the [ACH Network].” (Mem. Supp. Mot. Transfer 3.) Although Gingras raises many of the same factual allegations-a description of how allegedly improper Tribal lending operations work and allegations that Haynes Investments carried out such an operation through Plain Green-the legal claims presented to the United States District Court for the District of Vermont lack sufficient similarity to the current case to justify invoking the first-to-file rule and transferring this suit to Vermont.

         Here, Plaintiffs' claims all stem from Virginia's usury laws. Count V of the Complaint states violations of Virginia usury laws, and these alleged violations undergird Plaintiffs' four RICO claims[31] and their unjust enrichment claim.[32] Gingras does not invoke Virginia law or rely on it to support any of the causes of actions. Even if the District Court for the District of Vermont were to certify the proposed Gingras nationwide class, the Gingras class still might not preclude Plaintiffs from pursuing their claims for relief here because of the different theories of legal liability in each suit.

         For example, although the Gingras Complaint brings three RICO claims pursuant to the same provisions Plaintiffs invoke here, the facts underlying each claim differ. The Gingras plaintiffs allege that the “Victory Park Defendants” violated 18 U.S.C. § 1962(c) by engaging in wire fraud and mail fraud, but they do not allege that Haynes Investments violated this RICO provision. (Gingras Compl. ¶ 246.) Also, no allegations of wire or mail fraud stand before this Court. Instead, Plaintiffs allege that the Haynes Defendants violated this RICO provision when they “associated with the enterprise and participated in the affairs of the enterprise, which existed for the purpose of collection of unlawful debt.” (Compl. ¶ 175.)

         Both the Gingras Complaint and the Complaint filed in this Court raise a claim under § 1962(b). But the Gingras plaintiffs allege that all the Gingras defendants, including Haynes Investments, violated § 1962(b) by engaging in the unlawful collection of debt. The facts undergirding these allegations relate to Vermont consumers and Vermont law. Plaintiffs here, instead, allege that the Haynes Defendants violated § 1962(b) when they acquired and maintained “interests in and control of the enterprise involved in the unlawful collection of debt.” (Compl. ¶ 161.) Plaintiffs describe the debt as unlawful because it violates Virginia usury laws. Although the Gingras Complaint refers to “usurious rates of more than twice the legal limit in several states, ” this general assertion does not suffice, on its own, to support a finding that the cases bring duplicate § 1962(b) claims.[33]

         Other important differences among the causes of action also exist. Two of the four claims against Haynes Investments in Gingras do not overlap with this case at all: Count One states violations of the Electronic Funds Transfer Act, and Count II states violations of the Vermont Consumer Fraud Act. Plaintiffs here, meanwhile, bring a claim, completely absent in Gingras, pursuant to § 1962(a) (the “RICO Receipt & Investment Count”) against all of the Haynes Defendants.

         Thus, the Court finds that the parties and the claims in Gingras and this action do not present as “substantively the same or sufficiently similar.” Victaulic, 2013 WL 6388761 at *3. Because neither the parties nor the claims substantially overlap, the first-to-file rule does not commend transfer. Although similarities between the cases exist, the Haynes Defendants themselves recognize that “this case is one of many being litigated in courts across the country, ” all of which bring similar claims. (Mem. Supp. Mot. Transfer 1, ECF No. 37.)

         In conclusion, assessing the circumstances at bar, the Court will deny the Motion to Transfer under the first-to-file rule. Because the Gingras case and the action here lack a similarity of parties or issues at stake, the final two prongs of the first-to-file rule remain unmet. For these reasons, the Court will deny the Motion to Transfer.

         C. Alternatively, Special Circumstances Would Justify Proceeding In This Court Rather than Ordering Transfer

         As articulated earlier, even in circumstances where the first-to-file would suggest transfer, the decision to invoke the rule “is an equitable determination that is made on a case-by-case, discretionary basis.” Elderberry, 2013 WL 1164835 at *4 (quoting Nutrition & Fitness, 264 F.Supp.2d at 360). A court may use its broad discretion to determine whether special circumstances exist, such as the existence of forum shopping, [34] the progress of both actions, and the balance of convenience. Id. (collecting cases). Here, even were the Court to assume that substantial overlap existed between the parties and claims in Gingras and this action (meaning that the Haynes Defendants could properly invoke the first-to-file rule), special circumstances readily would persuade the Court that this action should remain, and proceed, in this Court.

         First, the Gingras action has not progressed since its filing. The Gingras plaintiffs filed suit on November 21, 2017. (See Gingras Compl.) On February 20, 2018, before any party filed an answer or responsive pleading, the Gingras court stayed the case.[35] (Feb. 20, 2018 Order, Gingras et al. v. Victory Park Capital Advisors, LLC et al., No. 5:17cv233 (D. Vt. Feb. 20, 2018).) The Gingras action remains stayed. (See generally, Gingras et al. v. Victory Park Capital Advisors, LLC et al., No. 5:17cv233 (D. Vt. Filed Nov. 21, 2017).) In contrast, although Plaintiffs filed this action after the Gingras Plaintiffs brought their suit, this case remains active. The Haynes Defendants have filed substantive pretrial motions and the Court, in this Memorandum Opinion, makes substantive rulings on legal issues central to the dispute, including the enforceability of the arbitration agreement clauses.

         Second, the “balance of convenience” strongly favors remaining in this Court. See Volvo, 386 F.3d at 594-95; see also Elderberry, 2013 WL 1164835 at *4; Victaulic, 2013 WL 6388761 at *3. When determining the balance of convenience, the Court considers the same factors that a court weighs when ruling on a motion to transfer venue pursuant to 28 U.S.C. § 1404(a).

         In analyzing a motion to transfer under 28 U.S.C. § 1404(a), a court must first consider “whether the plaintiff could have brought the action in the transferee forum.” Wenzel v. Knight, No. 3:14cv432, 2015 WL 222179, at *1 (E.D. Va. 2015). Plaintiffs, in their opposition to the Motion to Transfer, raise legitimate concerns about personal jurisdiction over the Haynes Defendants in the District of Vermont as it pertains to Plaintiffs' claims, which stem from acts that took place in Virginia, not Vermont. Specifically, Plaintiffs state that “the allegations in Plaintiffs' Complaint would not have established Defendants' minimum contacts with Vermont to satisfy the strictures of due process as applied by the Second Circuit.” (Resp. Mot. Transfer 13.) The Haynes Defendants do not adequately respond to these concerns. It seems unlikely that Plaintiffs could have brought this case in the District of Vermont.

         Even putting aside the issue of personal jurisdiction, given the nature of class action suits, other § 1404 factors weigh in favor of remaining in this Court. A court considers: “(1) plaintiffs['] choice of forum, (2) convenience of the parties, (3) witness convenience and access, and (4) the interest of justice.” Wenzel, 2015 WL 222179 at *2. “In some cases, the interest of justice trumps the other factors, even when they suggest a different outcome.” Id. at *3. Under this analysis, the Haynes Defendants could not meet their burden to “clearly establish[] that these factors favor transfer.” Victaulic, 2013 WL 6388761 at *3.

         Remarkably, these four § 1404 factors also commend a denial of transfer. First, as to the plaintiff's choice of forum, no question exists that Plaintiffs prefer this forum to Vermont, given their opposition to the transfer and legitimate concerns about personal jurisdiction to proceed in Vermont. Second, as to party convenience, Plaintiffs each filed declarations detailing the inconvenience and expense that transfer to Vermont would produce. (See ECF Nos. 43-1, 43-2, 43-3, 43-4, 43-5.) Although the Haynes Defendants may prefer to litigate claims in one venue, party convenience plainly weighs in favor of this venue. Finally, as to the third factor, Plaintiffs' declarations indicate that witnesses familiar with Plaintiffs' claims live in Virginia and that Plaintiffs do not know of any person in Vermont who could act as a witness in this case. For this reason, this factor also weighs in favor of remaining in this Court.

         Most importantly, the interest of justice-the fourth consideration under § 1404- justifies proceeding in this venue. As the Haynes Defendants recognize, several other actions pending here appear closely related to this case, perhaps more so than Gingras. (Mem. Supp. Mot. Dismiss 3 (“The instant Complaint alleges identical harms and practically identical theories of liability as those in [other cases before this Court], including as to the Haynes Defendants.”).) Any potential gain in judicial efficiency from transferring this case to the District of Vermont seem overborne because this Court will have to consider the same underlying facts and claims to address other cases before it. See, e.g., Wenzel, 2015 WL 222179 at *4 (discussing judicial efficiency when determining whether to grant a transfer).

         In sum, even absent the Court's finding that the Haynes Defendants cannot invoke the first-to-file rule to justify transfer, the Court would find that ample “special circumstances” commend proceeding in this forum and denying the Haynes Defendants' Motion to Transfer. Elderberry, 2013 WL 1164835 at *4 (quotation omitted).

         III. Analysis: Motion to Compel Arbitration

         A. Applicable Law

         The Fourth Circuit reviews de novo “a district court's order compelling arbitration under the [Federal Arbitration Act].” Hayes v. Delbert Servs. Corp., 811 F.3d 666, 671 (4th Cir. 2016). A “strong federal policy in favor of enforcing arbitration agreements” exists. Id. (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)).

         Principles of contract law govern the enforceability of arbitration agreements, id., and arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The Federal Arbitration Act (or “FAA”) generally “preserves state law contract defenses unless such defenses ‘rely on the uniqueness of an agreement to arbitrate' and are applied ‘in a fashion that disfavors arbitration.'” Dillon v. BMO Harris Bank, N.A., 856 F.3d 330, 334 (4th Cir. 2017) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341-42 (2011)).

         The Supreme Court of the United States “has recognized that arbitration agreements that operate ‘as a prospective waiver of a party's right to pursue statutory remedies' are not enforceable because they are in violation of public policy.” Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985)). “Under this ‘prospective waiver doctrine,' courts will not enforce an arbitration agreement if doing so would prevent a litigant from vindicating federal substantive statutory rights.” Id. (citations omitted).

         B. The Court Finds the Arbitration Agreements Unenforceable

         1. Fourth Circuit Precedent: Hayes and Dillon

         Two recent Fourth Circuit cases control the Motion to Compel before the Court and warrant thorough summaries: Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016); and, Dillon v. BMO Harris Bank, N.A., 856 F.3d 330 (4th Cir. 2017).

         In 2016, the Fourth Circuit considered an arbitration agreement similar to the Arbitration Agreements at issue here. See generally Hayes, 811 F.3d 666. Plaintiff Hayes entered into a loan contract (the “Hayes Contract”) with Western Sky Financial, LLC (“Western Sky”), “an online lender owned by Martin Webb, ” a member of the Cheyenne River Sioux Tribe. Id. at 668. The Hayes Contract, like the Plaintiffs' Contracts, included underlying loan provisions, choice of law provisions, and an arbitration agreement. Western Sky issued Hayes a $2, 600 loan (minus a $75 origination fee) with an annual interest rate of 139.12%. Id. Over the four-year life cycle of the loan, “Hayes was set to pay $14, 093.12 for his $2, 525[].” Id. at 668-69. Hayes brought suit to obtain relief from the allegedly unlawful debt collection, and the defendants sought to compel arbitration. Id. at 669.

         The Hayes Contract purported to be “subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe.” Id. (quoting the Hayes Contract (bold removed)). It expressly disavowed other law: “no other state or federal law or regulation shall apply to this Loan Agreement.” Id. (quoting the Hayes Contract).

         After discussing the rising trend of challenges to similarly-worded arbitration agreements in lower courts, and closely reviewing other provisions in the Hayes Contract related to applicable law, the Hayes court concluded that “[t]his arbitration agreements fails for the fundamental reason that it purports to renounce wholesale the application of any ...

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