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Gibbs v. Stinson

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

September 30, 2019

DARLENE GIBBS, et al., on behalf of themselves and all individuals similarly situated, Plaintiffs,
v.
MICHAEL STINSON, et al., Defendants.

          MEMORANDUM OPINION

         This matter comes before the Court on ten motions:

(1) Defendants'[1] Motion to Transfer, (ECF No. 61);[2]
(2) Sequoia's[3] Motion to Dismiss, (ECF No. 63);[4]
(3) Sequoia's Motion to Stay Pending Arbitration (“Sequoia's Motion to Compel Arbitration”), (ECF No. 65);[5]
(4) Defendants Michael C. Stinson;[6] 7HBF NO. 2;[7] Linda Stinson; The Stinson 2009 Grantor Retained Annuity Trust; Startup Capital Ventures, L.P.; and, Stephen Shaper's[8] Motion to Compel Arbitration, (ECF No. 59);[9]
(5) The 7HBF Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, (ECF No. 53);[10]
(6) The 7HBF Defendants' Motion to Dismiss for Failure to State a Claim, (ECF No. 54);[11]
(7) The Shaper Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, (ECF No. 56);[12]
(8) The Shaper Defendants' Motion to Dismiss for Failure to State a Claim, (ECF No. 57);[13]
(9) Plaintiffs' “Motion for Leave to File Supplemental Authority In Support of Their Opposition to Defendants' Motions to Compel A[rb]itration and Stay Proceedings Pending Arbitration, ” (the “First Motion for Leave to File Supplemental Authority”), (ECF No. 101);[14] and,
(10) Plaintiffs' “Motion for Leave to File Supplemental Authority Related to Defendants' Motion to Transfer, ” (the “Second Motion for Leave to File Supplemental Authority”), (ECF No. 110).[15]

         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[16] and 1367(a).[17] For the reasons that follow, the Court will grant Plaintiffs' First Motion for Leave to File Supplemental Authority and Plaintiffs' Second Motion for Leave to File Supplemental Authority. The Court will also grant in part and deny in part Sequoia's Motion to Compel Arbitration. The Court will deny the remaining motions.

         I. Factual and Procedural Background

         A. Summary of Allegations in the Amended Complaint[18]

         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, allegedly offered loans to Plaintiffs and charged interest rates ranging from 118% to 448%. (Am. Compl. ¶¶ 1, 118-20, ECF No. 43.)

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

         In this case, [19] 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[20] spearheaded efforts to establish and control the three Native American-owned lending companies at the heart of the allegedly unlawful lending operation.[21] “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 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 online loans with the Tribal lending entities, including Great Plains, Plain Green, and Mobiloans.

         Here, Plaintiffs aver that each Defendant represents an owner or investor of Think Finance. “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. The Loans

         The Gibbs and Mwethuku Contracts purport to be subject to the laws of the Chippewa Cree Tribe of the Rocky Boy's Indian Reservation, as the tribal owner of Plain Green. The Williams Contract, Edwards Contract, and Inscho Contract purport to be subject to the laws of the Otoe-Missouria Tribe of Indians, as the tribal owner of Great Plains. The Price, Hengle, and Blackburn Contracts[22] purport to be subject to the laws of the Tunica-Biloxi Tribe of Louisiana, as the tribal owner of Mobiloans.

         The annual interest rates on these loans ranged from “between 118% and 448%, if not higher.” (Am Compl. ¶ 118.) Plaintiffs state that Defendants received at least $711.02 from Gibbs “as a result of the illegal loans to her-most of which was credited as payment for interest or other fees.” (Am. Compl. ¶ 123.) Similarly, Defendants allegedly received at least $15, 369.15 from Edwards; $1, 858.67 from Williams; $6, 042.19 from Mwethuku; $16, 210.84 from Inscho; $9, 009.00 from Price; $12, 940.00 from Hengle; and $2, 451.00 from Blackburn. (Am. Compl. ¶¶ 124-30.)

         C. Procedural Background

         On February 1, 2019, Plaintiffs filed a putative class action Amended Complaint[23] against Defendants, asserting numerous 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 as follows:

Count I: 18 U.S.C. § 1962(a). [24] Plaintiffs allege that 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.” (Am. Compl. ¶ 145.) (The RICO “Income Derived Claim.”)
Count II: 18 U.S.C. § 1962(b). Plaintiffs allege that Defendants acquired and maintained “interests in and control of the enterprise involved in the unlawful collection of debt.” (Am. Compl. ¶ 156.) (The RICO “Enterprise Interest and Control Claim.”)
Count III: 18 U.S.C. § 1962(c). Plaintiffs allege that Defendants violated § 1962(c) through the “collection of unlawful debt.” (Am. Compl. ¶ 168.) (The RICO “Collection of Unlawful Debt Claim.”)
Count IV: 18 U.S.C. § 1962(d). Plaintiffs allege Defendants entered into several agreements to violate §§ 1962(a)-(c). (Am. Compl. ¶ 179.) (The RICO “Conspiracy Claim.”)
Count V: Virginia Usury Laws. [25] Plaintiffs allege the loans violate Virginia's usury laws because the interest rates exceed 12%. Plaintiffs allege that Defendants unlawfully “received revenues collected on the loans.” (Am. Compl. ¶¶ 188-89.)
Count VI: Unjust Enrichment. [26] Plaintiffs allege they conferred a benefit on Defendants when they repaid the allegedly unlawful loans; that Defendants knew or should have known about the benefit; and that the Defendants “have been unjustly enriched through their receipt of any amounts in connection with the unlawful loans.” (Am. Compl. ¶ 200.)

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

         Defendants moved to transfer this case to the United States District Court for the Northern District of Texas. The 7HBF Defendants filed their Motion to Dismiss for Lack of Personal Jurisdiction and their Motion to Dismiss for Failure to State a Claim. The Shaper Defendants filed their Motion to Dismiss for Lack of Personal Jurisdiction and their Motion to Dismiss for Failure to State a Claim. The 7HBF Defendants and the Shaper Defendants also jointly filed a Motion to Compel Arbitration. Sequoia filed its Motion to Compel Arbitration. Additionally, Sequoia moved to dismiss for lack of jurisdiction pursuant to Rule 12(b)(3)[27] and Rule 12(b)(6).[28] The motions are ripe.

         Plaintiffs later filed the First Motion for Leave to File Supplemental Authority and the Second Motion for Leave to File Supplemental Authority, which the Court will grant.[29]

         II. Analysis: Motion to Transfer

         The Court first addresses the Motion to Transfer, as the disposition of this motion could affect the other pending motions. In their Motion to Transfer, Defendants seek transfer to the United States Court for the Northern District of Texas (the “Texas Court”) on two separate grounds: first, pursuant to 28 U.S.C. § 1412; and, alternatively, pursuant to the first-to-file rule. For the reasons below, the Court will deny the Motion to Transfer.

         A. The Court Declines to Transfer the Case Pursuant to § 1412

         In their Motion to Transfer, Defendants argue that this Court should transfer this case to the Texas Court for the same reason the Court transferred Rees to the Texas Court in 2018: this case is related to[30] the bankruptcy proceeding currently underway in Texas. Assuming, without deciding, that the cases are related pursuant to § 1412, neither the interests of justice nor party convenience favor transfer.[31] Accordingly, the Court will deny the Motion to Transfer.

         1. Legal Standard: Transfers Pursuant to § 1412

         “A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.” 28 U.S.C. § 1412. In general,

[a] civil case filed in a district court is related to a case in bankruptcy if the outcome in the civil case “could conceivably have any effect on the estate being administered in bankruptcy . . . if the out-come could alter the debtor's rights, liabilities, options, or freedom of action (positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.”

New Horizon of NY LLC v. Jacobs, 231 F.3d 143, 151 (4th Cir. 2000) (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 308 n.6 (1995)). Importantly, this test “does not require certain or likely alteration of the debtor's rights, liabilities, options[, ] or freedom of action, nor does it require certain or likely impact upon the handling and administration of the bankruptcy estate. The possibility of such alteration or impact is sufficient” for a case to be “related to” a bankruptcy case. In re Celotex Corp., 124 F.3d 619, 626 (4th Cir. 1997) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). This broad interpretation of “related to” is consistent with congressional intent in enacting § 1334 “to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.” Celotex, 514 U.S. at 308 (internal quotation marks and citation omitted); see also New Horizon, 231 F.3d at 150.

         Under § 1412, transfer is appropriate either in the interest of justice or for the convenience of the parties-a court need not find that both prongs are met to order a transfer. See 28 U.S.C. § 1412; see also Hilton Worldwide, Inc. v. Glob. Benefits Admin. Comm. V. Caesars Entm't Corp., 532 B.R. 259, 274 (E.D. Va. 2015) (“[Section] 1412 is a disjunctive provision, allowing for transfer in the interest of justice or for the convenience of the parties . . .”).

         “The ‘“interest of justice” component of § 1412 is a broad and flexible standard which must be applied on a case-by-case basis.'” Id. (quoting In re Manville Forest Prods., Corp., 896 F.2d 1384, 1391 (2d Cir.1990)). In evaluating whether the interest of justice weighs in favor of transfer under § 1412, courts look to several factors, including: (1) the economic and efficient administration of the bankruptcy estate; (2) the so-called “home court” rule-the presumption that the district hearing the bankruptcy case is the proper venue for related actions; (3) judicial efficiency; (4) the ability to receive a fair trial; (5) the state's interest in having the controversy decided within its borders; (6) the enforceability of any judgment; and, (7) the plaintiff's original choice of forum. Id. (citing Blanton v. IMN Fin. Corp., 260 B.R. 257, 266 (M.D. N.C. 2001); see also Coffey Creek Assocs. Ltd. P'ship v. Guardian Prot. Servs., Inc., No. 3:09cv295, 2010 WL 1849023, at *5 (W.D. N.C. May 7, 2010) (citations omitted) (listing the same factors). All factors do not receive equal weight, however, and the most important factor is “the economic and efficient administration of the estate.” Dunlap, 331 B.R. at 680. “The party seeking transfer has the burden of showing by a preponderance of the evidence that either the interest of justice or the convenience of the parties would be served by the requested transfer.” Yolo Capital, Inc. v. Normand, No. 1:17cv180, 2018 WL 576316, at *2 (W.D. N.C. Jan. 26, 2018) (citing Garlock Sealing Techs., LLC v. Waters & Kraus, LLP, No. 3:14-cv-130, 2015 WL 1022291, at *1 (W.D. N.C. Mar. 9, 2015)).

         2. Neither the Interests of Justice Nor Party Convenience Favor Transfer of this Case

         Assuming, without deciding, that the cases are related under the meaning of § 1412, the Court readily finds that neither the interests of justice nor party convenience favor transfer to the Texas Court. The Court addresses each component below.

         a. The Interests of Justice Do Not Favor Transfer

         A court evaluating whether the interests of justice favor transfer weighs seven factors. Hilton, 532 B.R. at 274. The Court discusses each factor in turn. See id.; see also Coffey Creek, 2010 WL 1849023, at *5 (listing the same factors).

         First, as to the economic and efficient administration of the bankruptcy estate, this factor weighs against transfer because the Texas Court has preliminarily approved a settlement in that case. This Court has also preliminarily approved a related class action settlement to settle cases pending before it. In support of the Second Motion for Leave to File Supplemental Authority, [32]Plaintiffs aver that “the pertinent parties executed the attached 81-page Global Settlement and Restructuring Term Sheet. . . . [i]n connection with the settlement . . . Plaintiffs filed their Motion for Preliminary Approval of Class Action Settlement” in the Texas Court. (Mem. Supp. Second Mot. Leave File Suppl. Auth. 2, ECF No. 111.) Since this filing, the Bankruptcy Court has preliminarily approved the class action settlement.

         On July 17, 2019, this Court granted a motion to preliminarily approve the intertwined class action settlement in Plain Green. (See No. 3:17cv495, ECF No. 123.) The Court has scheduled a Final Approval Hearing for November 1, 2019, near the date the Bankruptcy Court expects to finalize the settlement pending before that court. Given the procedural posture of the Think Finance Bankruptcy proceeding and the related settlement before this Court, and given the especially complex negotiations and coordination that have led to these settlements, the Court concludes that transferring this case to the Texas Court, with the expectation but no guarantee that the Texas Court will then transfer the matter to the Bankruptcy Court, will create inefficiencies in the administration of the bankruptcy estate. As required, the Court weighs this factor more heavily than the others it discusses below. See Dunlap, 331 B.R. at 680.

         The second factor, the so-called “home court” rule, favors transfer-assuming, only for purposes of this analysis, that this matter relates to the Think Finance Bankruptcy Proceeding in the Bankruptcy Court.

         The third factor, judicial efficiency, weighs in favor of proceeding in this Court. As stated above, adding these parties and claims to the Think Finance Bankruptcy Proceeding would complicate that proceeding and create judicial inefficiencies at a time when the proceeding is nearing its final resolution. Defendants point out that the Court previously found, in Rees, that this factor weighed in favor of transfer, and that the reasoning in the Court's ruling remains sound. (See Rees, Mar. 23, 2018 Mem. Op. 27-28, No. 3:17cv386, ECF No. 131.) At the time the Court decided Rees, it concluded that the Bankruptcy Court would have to resolve several legal issues and claims, meaning judicial efficiency favored “a single court making those determinations one time, rather than multiple courts ruling on the issues at different times.” (Id. 28.)

         Because the Bankruptcy proceeding has now settled, the factors which the Court considers are meaningfully different. As all parties recognize, several other actions pending before this Court are closely related to this case. Many of these cases were filed after the Court transferred the Rees action.[33] The Court has familiarized itself with the factual allegations, legal claims, and defenses across these cases, many of which overlap with the allegations, claims, and defenses included in this case at bar. Any potential gain in judicial efficiency from transferring this case to the Texas Court seems overborne because this Court will have to consider the same underlying facts and claims to address other cases pending before it. See, e.g., Wenzel v. Knight, Case No. 3:14cv432, 2015 WL 222179, at *1, *4, *6 (E.D. Va. Jan. 14, 2015) (refusing to grant transfer pursuant to 28 U.S.C. § 1404(a) where the Court has developed familiarity with “underlying key players and legal doctrines” necessary to resolve the case.) As in Wenzel, the interests of justice do not favor transfer where this Court's “familiarity with the facts, claims, and underlying law suggests that the overarching dispute might be more efficiently resolved in Virginia.” Id. at *4.

         The fourth factor, the ability to receive a fair trial, and the sixth factor, the enforceability of any judgment, do not weigh in favor of or against transfer. Both the Texas Court and this Court are equipoised to oversee this matter. Nothing indicates that a judgment from either Court would have less effect or weight than that of the other.

         Finally, the fifth factor, the state's interest in having the controversy decided within its borders, and the seventh factor, the plaintiff's original choice of forum, both favor proceeding in this Court. As the Court noted in its Rees decision, “Plaintiffs chose this forum, and Virginia clearly has an interest in protecting its citizens from conduct like that alleged in the [Amended] Complaint.” (Rees, Mar. 23, 2018 Mem. Op. 28.)

         Having reviewed all seven factors, four weigh in favor of proceeding in this Court, including the most weighty factor, the economic and efficient administration of the bankruptcy estate. See Dunlap, 331 B.R. at 680. Only one weighs in favor of transfer; and two are neutral. Accordingly, the Court concludes that the interests of justice do not favor transfer and will deny the Motion to Transfer on that basis under 28 U.S.C. § 1412.

         b. The Convenience of the Parties Does Not Favor Transfer

         As to party convenience, Defendants argue that none of the Defendants reside in this venue, and that Plaintiffs already must appear in the Texas Court due to other pending litigation. Plaintiffs, who each reside in Virginia, counter that transfer would inconvenience them and create hardship, attaching affidavits in support. (Resp. Mot. Transfer Exs. 1-8 “Plaintiffs Declarations” ¶ 4, ECF Nos. 106-1-106-8; see, e.g., Resp. Mot. Transfer Ex. 8 “Declaration of Lula Williams” ¶¶ 5-6, ECF 106-8 (“I am on disability and have a limited income, so I would be unable to incur the expense of travel . . . [and] I am 71 years old and have high blood pressure, COPD, and diabetes. . . . [which] make it difficult for me to travel long distances.”).) While Defendants underplay the inconvenience of travelling for additional cases, this Court considers these factors meaningful.

         Defendants place the Herman Declaration and its attachments[34] before the Court to establish the inconvenience they would experience. (ECF No. 90.) Even considering the documents attached, this declaration does not compel a different finding. The Court finds that Defendants fail to meet their burden of proof to establish by a preponderance of the evidence that the Texas Court is more convenient to parties; because merely shifting the inconvenience from Defendants to Plaintiffs cannot suffice. Koh v. Microtek Intern., Inc., 250 F.Supp.2d 627, 637 (E.D. Va. 2003) (stating that when “the original forum is convenient for plaintiff's witness, but inconvenient for defendant's witnesses, and the reverse is true for the transferee forum . . . transfer is inappropriate because the result of transfer would serve only to shift the balance of inconvenience” (citation omitted)). The Court will deny the Motion to Transfer based on the party convenience aspect of § 1412 as well.

         B. The Court Declines to Transfer the Case Pursuant to the First-to-File Rule

         Having reviewed the matter, the Court concludes that the first-to-file rule likely applies.[35] Assuming, without deciding, that the first-to-file rule applies, the Court concludes that the interests of justice amply justify an exception to applying the first-to-file rule in the instant case. The Court will deny the Motion to Transfer under the first-to-file rule.

         1. Legal Standard: the First-to-File Rule

         “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 (4th Cir. 1995)). 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. 2004). 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-00077, 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. (quoting Harris, 2013 WL 5720355, at *3).

         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 Ctrs-Se, 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. 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 Elecs. 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.” Id. (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.”[36] 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 (citation omitted).

         2. The Court Will Decline to Transfer This Case Because Special Circumstances Justify Proceeding In This Court

         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, [37] the progress of both actions, and the balance of convenience. Id. (collecting cases); see Koh, 250 F.Supp.2d at 630. Here, even assuming that substantial overlap exists between the parties and claims in the Think Finance Bankruptcy Proceeding and this action (meaning that Defendants could properly invoke the first-to-file rule), special circumstances readily persuade the Court that this action should remain, and proceed, in this Court.

         First, the progress of the Think Finance Bankruptcy Proceeding counsels against transfer. As the Court discussed above, adding the parties and claims at this late stage would create judicial inefficiencies. More importantly, 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, 2015 WL 222179, at *1. Plaintiffs, in their opposition to the Motion to Transfer, raise legitimate concerns about personal jurisdiction over the Defendants in the District of Texas as it pertains to Plaintiffs' claims, which stem from acts that took place in Virginia, not Texas.[38]

         Even setting 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 (quoting Pragmatus AV, LLC v. Facebook, Inc., 769 F.Supp.2d 991, 994-95 (E.D. Va. 2011)). “In some cases, the interest of justice trumps the other factors, even when they suggest a different outcome.” Id. at *3 (citing Byerson v. Equifax Info. Servs., LLC, 467 F.Supp.2d 627, 635 (E.D. Va. 2006)). Under this analysis, Defendants cannot meet their burden to “clearly establish[] that these factors favor transfer.” Victaulic, 2013 WL 6388761, at *3 (citations omitted).

         Remarkably, none of the factors favor transfer. First, as to the plaintiff's choice of forum, no question exists that Plaintiffs prefer this forum to the Texas Court, given their opposition to the transfer and their decision to file in this Court. Second, as to party convenience, Plaintiffs, all of whom reside in Virginia, each filed declarations giving credible reasons detailing the inconvenience and expense that transfer to the Texas Court would produce.[39] (See Plaintiffs Decls. ¶ 4, ECF Nos. 106-1-106-8.) And although Defendants may prefer to litigate claims in one venue, based on their contentions in the Motion to Transfer, they have not sufficiently established that requiring them to proceed in this venue would be inconvenient.[40] Finally, as to the third factor, Plaintiffs' declarations indicate that all eight Plaintiffs live in Virginia and that none of the Plaintiffs know of any person in Texas who could act as a witness in this case. (See Plaintiffs' Decls.) 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 Defendants recognize, several other actions pending here appear closely related to this case. Any potential gain in judicial efficiency from transferring this case to the Texas Court 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 *1, *4, *6 (declining to transfer case where the district court's familiarity with “underlying key players and legal doctrines” would increase judicial efficiency).

         In sum, even assuming the first-to-file rule applies to this matter, the Court concludes that ample “special circumstances” commend proceeding in this forum and denying Defendants' Motion to Transfer. Elderberry, 2013 WL 1164835, at *4 (quotation omitted).

         III. Analysis: Motions to Compel Arbitration

         A. Applicable Law

         Pursuant to the Federal Arbitration Act (“FAA”), “arbitration is a matter of contract and courts must enforce arbitration contracts according to their terms.Schein v. Archer & White Sails, Inc., 139 S.Ct. 524, 529 (2019). Accordingly, 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.” Id. (quoting 9 U.S.C. § 2.) A “strong federal policy in favor of enforcing arbitration agreements” exists. Hayes v. Delbert Servs. Corp., 811 F.3d 666, 671 (4th Cir. 2016) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)). However, “before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.” Schein, 139 S.Ct. at 530 (emphasis added).

         Under the FAA, “federal law applies to all questions of interpretation, construction, validity, revocability, and enforceability [of arbitration agreements].” Smith Barney, Inc. v. Critical Health Sys. of N.C. , 212 F.4d 858, 860-61 (4th Cir. 2000). The FAA also 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). Arbitration agreements that constitute an “integrated scheme to contravene public policy” are invalid, and “severance should not be used” to save the contract as a whole. Hayes, 811 F.3d at 676.

         B. The Court Finds the Plain Green and Great Plains Arbitration Agreements Unenforceable and the Mobiloans Arbitration Agreement Enforceable

         1. Schein Does Not Prevent the Court From Determining the Validity of the Delegation Provisions in the Arbitration Agreements

         In their respective motions, Defendants argue that the Court cannot evaluate the validity of the Arbitration Agreements. In particular, the Defendants contend that the Supreme Court's recent decision in Schein requires a district court to “enforce a valid delegation provision and inquire no further into the arbitrability of a dispute that falls within the scope of the agreement to arbitrate . . .” (Sequoia Mot. Comp. Arb. 14, ECF No. 66.) Because the delegation clauses in the arbitration agreements here reserve to the arbitrator “any dispute” concerning the “validity, enforceability, or scope” of the arbitration agreements, defendants assert that the provisions mandate the dispute reach arbitration without interference from a federal court. (Id. 8.) According to Defendants, “a court may not decide for itself that the Agreements to Arbitrate are not enforceable, period.” (Id. at 15)

         Defendants misread Schein. In that case, the Supreme Court abrogated the judge-made “wholly groundless” exception to the gateway arbitrability decision. 139 S.Ct. at 524. The “wholly groundless” exception allowed courts to consider whether the issues in dispute were “subject to arbitration” even where the “contract delegate[d] the arbitrability question to an arbitrator.” Id. at 529. But that doctrine does not apply here. In this case, Plaintiffs challenge both the validity of the arbitration agreement and the validity of the delegation clause, not the arbitrability or non-arbitrability of issues within the agreement. Indeed, Schein directly contravenes Defendants' position when it reaffirms that “[t]o be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.” Id. at 530 (emphasis added). The Court's task is not to determine whether certain issues are arbitrable, but whether a valid delegation provision exists.

         A delegation provision cannot be “valid” if it resides in a contract that disclaims federal law, as that would place “an arbitrator in the impossible position of deciding the enforceability of the agreement without authority to apply any applicable federal or state law.” Smith v. W. Sky Fin., LLC, 168 F.Supp.3d 778, 786 (E.D. Pa. 2016); see also Dillon, 856 F.3d at 334-35 (refusing to “defer consideration of the prospective waiver doctrine . . . because that provision effects an unambiguous and categorical waiver of federal statutory rights”); Ryan v. Delbert Servs. Corp., 2016 WL 4702352, at *6 (E.D. Pa. Sept. 8, 2016) (finding delegation invalid since “wholesale waiver of federal and state law” would effectively allowing the defendant “to insulate an unenforceable arbitration clause from attack”); MacDonald v. CashCall, 2017 WL 1536427, at *4 (D.N.J. Apr. 28, 2017) (“[e]ven if the question of the enforceability of the arbitration clause were sent to an arbitrator, he or she would be categorically prohibited from applying any federal or state law to arrive at an answer.”). Defendants' approach would require an arbitrator to determine whether a valid and enforceable arbitration agreement exists absent the federal or state law tools necessary to do so. As a plethora of Courts have rightly concluded, “[t]he just and efficient system of arbitration intended by Congress when it passed the FAA may not play host to this sort of farce.” Hayes, 811 F.3d at 674.

         Because invalid choice-of-law provisions in an arbitration agreement infect the validity of the delegation clause, the Court turns to a review of the choice-of-law provisions in the Plain Green, Great Plains, and Mobiloans Arbitration Agreements.

         2. Fourth Circuit Precedent: Hayes and Dillon

         Two recent Fourth Circuit cases control the Motion to Compel Arbitration and warrant thorough summaries: Hayes v. Delbert Services 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.[41] 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. See id. at 669. 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, 525.00” Id. at 668-69. Hayes brought suit to obtain relief from the allegedly unlawful debt collection, and the defendants sought to compel arbitration pursuant to the terms of the Hayes Contract. Id.

         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, saying: “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 trial courts, and closely reviewing other provisions in the Hayes Contract related to applicable law, the Hayes court concluded that “[t]his arbitration agreement fails for the fundamental reason that it purports to renounce wholesale the application of any federal law to the plaintiffs' federal claims.” Id. at 673. The Hayes court explained:

With one hand, the arbitration agreement offers an alternative dispute resolution procedure in which aggrieved persons may bring their claims, and with the other, it proceeds to take those very claims away. The just and efficient system of arbitration intended by Congress when it passed the FAA may not play host to this sort of farce.

Id. at 673-74. The Fourth Circuit concluded that “a party may not underhandedly convert a choice-of-law clause into a choice of no law clause-it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject.” Id. at 675. The Fourth Circuit described the Hayes Contract's attempt to prospectively waive Hayes's federal rights as “plainly forbidden” and held it “invalid and unenforceable.” Id.

         The Hayes court considered, without deciding, an important secondary issue: the effect of a recently-added provision of the Hayes Contract which allowed “the borrower to select either AAA [American Arbitration Association] or JAMS-both well respected arbitral organizations-to administer the arbitration.” Id. at 673. The Fourth Circuit wrestled with this portion of the arbitration agreement, noting

[that] how one might reconcile the lately added AAA or JAMS provision with the rest of the arbitration agreement presents a “conundrum.” It is not immediately clear, for instance, whether an AAA- or JAMS-appointed arbitrator would still need to be an authorized representative of the Tribe, or when and how the Tribe's law or the various convoluted provisions in the agreement would override the AAA or JAMS default rules. But institutions like AAA and JAMS excel at solving these sorts of conundrums, and once the court finds that the parties agreed to assign their dispute to arbitration, it typically is for the arbitral authority to sort out both the major and minor details of how the arbitration will proceed. It is likely for this reason that the FAA largely leaves judicial review of questions concerning the basic fairness and function of an arbitral mechanism for the award enforcement stage.

Id. (citations omitted). The Fourth Circuit declined to resolve this “conundrum, ” instead concluding that the Hayes Contract's “outright rejection of the application of federal law” plainly rendered the agreement invalid. Id.

         Finally, the Hayes court declined to sever the arbitration agreement's “errant provisions.” Id. at 675. “It is a basic principle of contract law that an unenforceable provision cannot be severed when it goes [to] the ‘essence' of the contract.” Id. at 675-76 (quoting 8 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 19:73 (4th ed. 1993)). The Hayes court considered the arbitration agreement in the context of the entire Hayes Contract, critiquing the “brazen nature” of provisions attempting to evade federal law. Declaring these attempts “the animating purposes” of the arbitration agreements, id. at 676, the Fourth Circuit concluded that “[g]ood authority counsels that severance should not be used when an agreement represents an ‘integrated scheme to contravene public policy, '” id. (citations omitted).

         Just over a year after deciding Hayes, the Fourth Circuit again considered the enforceability of an arbitration agreement in the context of an online lending contract. See generally Dillon, 856 F.3d 330. Plaintiff Dillon entered into a loan agreement (the “Dillon Contract”) with Great Plains through Great Plains's website. Id. at 332. The Dillon Contract included choice-of-law provisions and an arbitration agreement similar to those in Plaintiffs' Contracts. Although Dillon resided in North Carolina, which prohibits interest rates in excess of 16%, Great Plains charged an interest rate of 440.18% for Dillon's loan. Id. Dillon brought suit, alleging the debt violated ...


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