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Gibbs v. Stinson

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

May 7, 2019

DARLENE GIBBS, et al., Plaintiffs,
MIKE STINSON, et al., Defendants.


          M. Hannah Lauek United States District Judge.

         This matter comes before the Court on Plaintiffs'[1] "Motion for Enlargement of Time and Motion for Jurisdictional and Venue Discovery" (the "Motion for Extension and Discovery"), (ECF No. 70), [2] and Plaintiffs' Motion to Strike (collectively with the Motion for Extension and Discovery, the "Motions"), (ECF No. 80). Defendants[3] responded to the Motion for Extension and Discovery, and Plaintiffs replied. (ECF Nos. 74, 76.) Defendants responded to the Motion to Strike, and Plaintiffs replied. (ECF Nos. 89, 97.)

         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[4] and 1367.[5] For the reasons that follow, the Court will grant in part and deny in part the Motion for Extension and Discovery and will grant the Motion to Strike.

         I. Background

         A. Summary of Allegations in the Amended Complaint[6]

         This controversy arises out of Defendants' involvement in an allegedly unlawful lending operation. The lending operation, which Plaintiffs describe as a "rent-a-tribe" scheme, [7] allegedly offered loans to Plaintiffs and charged interest rates ranging from 118% to 448%. (Am. Compl. ¶¶ 118-20.)

         In this case, [8] Plaintiffs bring claims against individuals and entities that owned and invested in Think Finance and its subsidiaries (collectively, "Think Finance"). According to Plaintiffs, non-party Think Finance[9] spearheaded efforts to establish and control the three Native American-owned lending companies at the heart of the allegedly unlawful lending operation.[10]"For more than seven years, Think Finance ... operated a rent-a-tribe scheme, which sought to evade the usury laws of certain states by using [the Tribes] as the conduit for their loans." (Am. Compl. ¶ 2.) Plaintiffs aver that Think Finance proposed the formation of the lending operation, asking the Tribes to establish the lending companies in their respective names. In exchange, "Think Finance agreed to provide the infrastructure to run the lending operations, including the software, 'risk management, application processing, underwriting assistance, payment processing, and ongoing service support' for [the] consumer loans." (Id. ¶ 80 (quoting Am. Compl. Ex. 6 "Chippewa Cree Term Sheet" 1, ECF No. 43-6).) Through this business arrangement, Think Finance maintained control over, and derived "the vast majority of the profits" from, the lending operation. (Id. ¶ 85.) Plaintiffs represent consumers who took out loans with the Tribal lending entities, including Great Plains, Plain Green, and MobiLoans.[11]

         Here, Plaintiffs aver that each Defendant, in an attempt to avoid liability, either performed a role in the lending scheme or served as a holding company for one of the other companies. "Through their ownership of Think Finance, Defendants participated in the business's key decisions, strategies, and objectives and, in return, generated large profits from their ownership interest in Think Finance." (Id. ¶ 4.) Plaintiffs claim that "Defendants personally participated in and oversaw the illegal lending enterprise rendering them personally liable to consumers." (Id.)

         B. Procedural History

         On February 1, 2019, Plaintiffs filed a putative class action Amended Complaint[12] against Defendants, asserting various federal and state violations associated with the allegedly unlawful lending operation. Plaintiffs pursue this suit on behalf of Virginia residents who entered into loan agreements with the Tribal lending entities Plain Green, Great Plains, or MobiLoans. They bring six class counts, including four RICO claims, a claim for violation of Virginia usury law, and a common law claim for unjust enrichment. Plaintiffs seek: (1) class certification; (2) declaratory and injunctive relief and damages; and, (3) attorney's fees, litigation expenses, and costs of suit.

         C. The Instant Motions: Background and Procedure

         On February 15, 2019, Defendants filed a Motion to Transfer this Action to the Northern District of Texas (the "Motion to Transfer").[13] (ECF No. 61.) Defendants ask the Court to transfer this case to the United States District Court for the Northern District of Texas, so that this case may then be transferred to the United States Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court"). Defendants aver that this case relates to In re Think Finance, an ongoing bankruptcy proceeding in the Bankruptcy Court.[14] In the alternative, Defendants argue that this Court should transfer this matter based on the first-to-file rule.[15]

         In support of the Motion to Transfer, Defendants attached a declaration by Mr. Richard L. Scheff (the "Scheff Declaration"). (ECF No. 62-1.) Scheff self-identifies as an attorney of record in this matter, [16] as well as an attorney for Kenneth Rees, a former executive of Think Finance. (Scheff Decl. 1.) Scheff states that, through his representation of various defendants across these related cases, he has become familiar with the allegations and proceedings in this matter, in Rees, and in In re Think Finance. Scheff states that, "[t]o the best of [his] knowledge," Think Finance's offices, employees, and operations are in Texas, as well as documents and witnesses related to Think Finance. (Scheff Decl. ¶¶ 10-20.)

         In response to the Motion to Transfer, Plaintiffs filed the Motion for Extension and Discovery, asking the Court for venue-related discovery. Specifically, Plaintiffs seek to depose Scheff and "obtain discovery as to what he knows and how he knows it regarding" the assertions in the Scheff Declaration. (Mem. Supp. Mot. Extension & Disc. 2, ECF No. 71.) Plaintiffs also seek an extension of time to respond to the Motion to Transfer until fourteen days after the deposition and discovery take place, or, if the Court denies the request for discovery, for thirty days. Plaintiffs also stated that they would move to strike Scheff s declaration, citing Virginia Rule of Professional Conduct 3.7(a)(1)[17] because "Mr. Scheff cannot serve as both contested fact witness and counsel in this case." (Mem. Supp. Mot. Extension 1 n.2, ECF No. 71.) Defendants opposed the Motion for Extension and Discovery, (ECF No. 74), and Plaintiffs replied, (ECF No. 76).

         On March 18, 2019, the Court ordered expedited briefing "on the issue of the propriety of the Scheff Declaration" and suspended further briefing on the Motion to Transfer. (Mar. 18, 2019 Order 2, ECF No. 79.)

         On March 28, 2019, Plaintiffs filed the Motion to Strike. In the Motion to Strike, Plaintiffs ask the Court to strike the Scheff Declaration, or in the alternative, to disqualify Scheff as counsel for Defendants. On April 4, 2019, Defendants responded in opposition to the Motion to Strike, (ECF No. 89), and filed a declaration by David F. Herman (the "Herman Declaration"), (ECF No. 90), as well as several attachments, (ECF No. 90). On April 11, 2019, Plaintiffs replied to Defendants' Response opposing the Motion to Strike. (ECF No. 97.)

         II. The Court Will Strike the Scheff Declaration Pursuant to Its Inherent Authority

         Plaintiffs argue in their Motion to Strike that, pursuant to Virginia Rule of Professional Conduct 3.7 ("VRPC 3.7" or "Rule 3.7"), "one cannot act as fact witness and attorney in the same case." (Mem. Supp. Mot. Strike 1, ECF No. 81.) Although the Court finds that Rule 3.7 does not compel disqualification, it provides an appropriate guiding principle because the Scheff Declaration raises the same concerns that Rule 3.7 seeks to guard against. Accordingly, the Court will exercise its inherent authority to strike the Scheff Declaration. The Court will also deny Plaintiffs' request to depose Scheff and grant Plaintiffs an extension of time to respond to the Motion to Transfer.

         A. Relevant Legal ...

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