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Allied Title Lending, LLC v. Taylor

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

October 22, 2019

ALLIED TITLE LENDING, LLC, d/b/a ALLIED CASH ADVANCE, Appellant,
v.
SHIRLEY DEAN TAYLOR, et al. 9 Appellees.

          MEMORANDUM OPINION

          DAVID J. NOVAK UNITED STATES DISTRICT JUDGE

         On January 15, 2018, Appellee Shirley Dean Taylor ("Taylor") initiated an adversary proceeding against Appellant Allied Title Lending, LLC ("Allied"), objecting to Allied's unsecured proof of claim against her bankruptcy estate. On March 29, 2018, Allied moved to compel arbitration of Counts II and III of Taylor's Amended Complaint, stay the adversary proceeding and declare Counts II and III as non-core claims pursuant to 28 U.S.C. § 157(b)(3). On November 20, 2018, the United States Bankruptcy Court for the Eastern District of Virginia (the "Bankruptcy Court") issued an order denying Allied's Motion, which Allied now appeals. Allied further appeals the Bankruptcy Court's December 6, 2018 Order granting the Motion to Intervene filed by Appellee the Commonwealth of Virginia (the "Commonwealth"). On January 28, 2019, Senior United States District Judge Henry E. Hudson consolidated Allied's appeals into the present action. (ECF No. 8.) This matter now comes before the Court on Allied's consolidated appeal and Taylor's Motion for Leave to File Supplemental Authority (ECF No. 18). For the reasons set forth below, the Court AFFIRMS the judgment of the Bankruptcy Court as to both Allied's Motion to Compel and the Commonwealth's Motion to Intervene and DENIES AS MOOT Taylor's Motion to File Supplemental Authority (ECF No. 18).[1]

         I. BACKGROUND

         The Court reviews the factual findings of the Bankruptcy Court for clear error. Mar-Bow Value Partners, LLC v. McKinsey Recovery & Transformation Servs. US, LLC, 578 B.R. 325, 328 (E.D. Va. 2017) (citations omitted). Based on this standard, the Court accepts the following facts.

         A. Allied Line of Credit

         In July 2016, Taylor applied for a $1, 500.00 loan from Allied, an issuer of short-term, small-dollar, open-end credit plans that resemble payday loans. Taylor v. Allied Title Lending, LLC (In re Taylor) (Allied I), 594 B.R. 643, 645 (Bankr. E.D. Va. 2018). Subsequently, on July 25, 2016, Taylor executed a line of credit agreement with Allied (the "Credit Agreement"), agreeing to repay a $1, 500.00 line of credit with interest accruing at a rate of 0.75 percent per day, for an annualized interest rate of 273.75 percent. Id. at 645-46. The Credit Agreement provided an interest-free grace period of twenty-eight days and required a $100.00 origination fee, to which the grace period did not apply. Id. at 646.

         Relevant here, the Credit Agreement also contained an arbitration provision (the "Arbitration Provision"), which provided that:

Before signing this Agreement, you should carefully review the Arbitration Agreement located on pages 5 and 6. The Arbitration Agreement provides that all Claims arising from or relating to this Agreement or any other agreement that you and we have ever entered into must be resolved by binding arbitration if the person or entity against whom a Claim is asserted elects to arbitrate the Claim. Thus, if the person or entity against whom you assert a Claim elects to arbitrate the Claim, then you will not have the following important rights:
• You may not file or maintain a lawsuit in any court except small claims court.
• You may not join or participate in a class action, act as a class representative or a private attorney general, or consolidate your Claim with the claims of others.
• You will have to pay the arbitration firm certain fees in order to commence an arbitration proceeding, unless you ask us to pay those fees to the arbitration firm for you.
• You give up your right to have a jury decide your Claim.
• You will not be afforded the procedural, pre-trial discovery and appellate rights in an arbitration proceeding.
If you do not want to arbitrate all Claims as provided in the Arbitration Agreement, then you have the right to reject the Arbitration Agreement. To reject arbitration, you must deliver written notice to us at the following address within 30 days following the date of this Agreement: Allied Cash Advance, Attn: Arbitration Opt-Out, P.O. Box 36381, Cincinnati, Ohio 45236. Nobody else can reject arbitration for you; this method is the only way you can reject the Arbitration Agreement. Your rejection of the Arbitration Agreement will not affect your right to credit, how much credit you receive, or any contract term other than the Arbitration Agreement.

Id.

         B. Bankruptcy Proceeding

         On January 17, 2017 (the "Petition Date"), Taylor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code (the "Bankruptcy Case"). Allied /, 594 B.R. at 646. On March 21, 2017, Allied filed proof of claim 8-1 ("Claim 8-1") in the Bankruptcy Case, asserting an unsecured claim totaling $2, 756.92 against Taylor's bankruptcy estate. Id. In response, on August 29, 2017, Taylor filed her initial objection to Claim 8-1, alleging that Allied had "'neither attached a copy of the writing upon which the claim is based nor a statement of the circumstances of the loss or destruction of such writing' in contravention of Rule 3001 of the Federal Rules of Bankruptcy Procedure." Id. (quoting (Obj. to Claim No. 8-1 & Mem. in Supp. Thereof ¶ 13, In re Taylor, No. 17-30142-KRH, ECF No. 29)). Thereafter, on September 1, 2017, the Bankruptcy Court entered an order confirming Taylor's Chapter 13 plan. Id. (citing (Order Confirming Plan (No. 17-30142-KRH, ECF No. 31))).

         On September 28, 2017, Cerastes, LLC ("Cerastes"), filed a transfer of claim, indicating that Allied had transferred Claim 8-1 to Cerastes. Id. at 647 (citing (Transfer of Claim Other Than Security (No. 17-30142-KRH, ECF No. 38))). Cerastes also filed both an amended proof of claim ("Claim 8-2"), which included the writing upon which Claim 8-1 was based, and a response to Taylor's initial objection, arguing that Claim 8-2 mooted Taylor's objection to Claim 8-1. Id. (citing (Resp. to Obj. to Claim No. 8-1 (No. 17-30142-KRH, ECF No. 40) ¶ 11)).

         C. Adversary Proceeding

         On January 15, 2018, Taylor filed a complaint against Allied and Cerastes. Allied I, 594 B.R. at 647 (citing (Compl. Objecting to Claim No. 8-1 & 8-2 (Taylor v. Allied Title Lending, LLC, Adv. Pro. No. 18-03003-KRH, ECF No. 1))). In response, on January 25, 2018, Allied filed notice that Cerastes had transferred Claim 8-2 back to Allied. Id. (citing (Transfer Claim Other Than Security (17-30142-KRH, ECF No. 57))). Allied and Cerastes also filed motions to dismiss or, in the alternative, to stay the adversary proceeding. Id. (citations omitted).

         On March 15, 2018, Taylor filed her Amended Complaint, setting forth five counts for relief against Allied and Cerastes. Id.; (Am. Compl. Objecting to Claim No. 8-1 & No. 8-2 ("Am. Compl.") (Adv. Pro. No. 18-03003-KRH, ECF No. 23).) In Count I, Taylor objected to Claims 8-1 and 8-2 (the "Claims"), because: (1) Allied charged fees and interest on Taylor's credit line after the Petition Date; (2) Allied failed to identify the Claims as open-end credit lines; and, (3) Claim 8-2 falsely asserted that no interest or fees had been assessed on the credit line after the Petition Date. (Am. Compl. ¶ 77.)

         In Count II, Taylor argued that the Claims should be disallowed pursuant to 11 U.S.C. § 502(b)(1), because Allied and Cerastes "knowingly filed Proofs of Claim on null and void loans, or loans on which interest cannot be charged." (Am. Compl. ¶ 87.) Specifically, Taylor alleged that the Credit Agreement violated Virginia's usury statute, voiding the Agreement and precluding Allied or Cerastes from collecting on the debt underlying their Claims. (Am. Compl. ¶¶ 89-101.) Taylor further alleged that the Claims violated Bankruptcy Rule 3001, because Allied failed to provide the writing or the information required for a claim based on open-end credit. (Am. Compl. ¶ 102.) Taylor raised her objection in Count II on behalf of herself and a putative class of "[a]ll debtors in the Bankruptcy Court... who, before filing bankruptcy, entered into a credit agreement with Allied based upon a purportedly open-end credit basis, and a claim was filed regarding that agreement." (Am. Compl. ¶ 79.)

         In Count III, Taylor brought a claim against Allied on behalf of herself and a putative class of debtors who, before filing for bankruptcy in the Bankruptcy Court, "entered into a credit agreement with Allied based upon a purportedly open-end basis," alleging that Allied's open-end credit plans violated Virginia's usury and consumer finance statutes. (Am. Compl. ¶ 105-16.) In Count IV, Taylor alleged that Cerastes violated the Fair Debt Collection Practices Act by using false, misleading and deceptive representations in the collection of a debt. (Am. Compl. ¶ 129.) Taylor raised Count IV on behalf of herself and a putative class of debtors in the Bankruptcy Court in whose bankruptcy case Cerastes asserted that "it was the assignee of a claim based on an Allied extension of credit." (Am. Compl. ¶ 118.) Finally, in Count V, Taylor requested equitable relief pursuant to 11 U.S.C. § 105 and Bankruptcy Rule 3001. (Am. Compl. ¶ 138-49.)

         Based on these Counts, Taylor asked the Bankruptcy Court to: (1) disallow the Claims; (2) certify the classes in her three class claims (Counts II, III and IV) and appoint her and her counsel as representatives of the classes; (3) disgorge any amounts paid to Allied by the classes in Counts II and III; (4) award monetary damages pursuant to Va. Code § 6.2-304 and the FDCPA; (5) award fees and costs; and, (5) grant declaratory and injunctive relief. (Am. Compl. at 31-32, Demand for Relief.)

         In response to Taylor's Amended Complaint, on March 29, 2018, Allied filed a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Allied I, 594 B.R. at 647; (Mot. to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(1) & 12(b)(6) & Mem. of P. & A. (Adv. Pro. No. 18-03003-KRH, ECF No. 35).) The same day, Allied also filed its Motion to Compel, moving the Bankruptcy Court to compel arbitration pursuant to the Arbitration Provision of the Credit Agreement, stay the adversary proceeding and declare that Counts II and III of the Amended Complaint constitute non-core claims. Allied I, 594 B.R. at 647; (Mot. for Entry of Orders (I) Staying Adv. Pro. & Compelling Arb. & (II) Determining Class Action Claims in this Pro. Are Non-Core Pursuant to 28 U.S.C. § 157(b)(3) (Adv. Pro. No. 18-03003-KRH, ECF No. 35).) After receiving Taylor's filings in response, the Bankruptcy Court scheduled a hearing on Allied's Motions for July 24, 2018. Id.

         Before the July 24, 2018 hearing, Allied filed a motion asking the Bankruptcy Court to certify the questions of state law raised in Counts II and III to the Supreme Court of Virginia. Id. During the July 24, 2018 hearing, the Bankruptcy Court granted Allied's Motion for Certification, entering an Order of Certification on August 20, 2018. Id. at 648-49 (citing (Order of Certif. to Supreme Ct. of Va. (Adv. Pro. No. 18-03003-KRH, ECF No. 78).) On August 31, 2018, the Supreme Court of Virginia declined to consider the certified questions; accordingly, the Bankruptcy Court scheduled a second hearing on Allied's Motions for November 15, 2018. Id. at 649.

         In the meantime, on November 8, 2018, the Virginia Attorney General on behalf of the Commonwealth filed a motion to intervene in the adversary proceeding, alleging that the Commonwealth met the criteria for intervention under Federal Rule of Civil Procedure 24(b) as incorporated by Bankruptcy Rule 7024. Id. (citing (Commonwealth's Mot. for Leave to File Pleadings in Intervention ("Mot. to Intervene") (Adv. Pro. No. 18-03003-KRH, ECF No. 108))). In support of its Motion to Intervene, the Commonwealth filed its Proposed Complaint, seeking to prevent Allied from collecting on its open-end credit plans in bankruptcy court, because those plans violated Virginia's consumer finance and usury statutes. Id. (citing (Ex. A to Mot. to Intervene ("Proposed Compl.") (Adv. Pro. No. 18-03003-KRH, ECF No. 108-1) at 2)). The Commonwealth also sought restitution of any principal, interest or other costs paid to Allied from its allegedly unlawful credit plans. (Proposed Compl. at 12.) Allied filed a preliminary objection to the Commonwealth's Motion to Intervene on November 13, 2018. Id. (citing (Allied's Prelim. Obj. & Reserv. of Rights Regarding the Commonwealth's Mot. for Leave to File Pleadings in Intervention ("Prelim. Obj.") (Adv. Pro. No. 18-03003-KRH, ECF No. 109))).

         During the November 15, 2018 hearing, after entertaining the arguments from all parties, the Bankruptcy Court granted the Commonwealth's Motion to Intervene and denied Allied's Motion to Compel, taking Allied's Motion to Dismiss under advisement and granting Cerastes's Motion to Dismiss as to Count V of the Amended Complaint. Id. The Bankruptcy Court thereafter issued two memorandum opinions explaining its decisions on Allied's Motion to Compel, Allied I, 594 B.R. at 649-55, and the Commonwealth's Motion to Intervene, Taylor v. Allied Title Lending, LLC (In re Taylor) (Allied IT), 2019 WL 103775, at * 1-3 (Bankr. E.D. Va. Jan. 3, 2019), both of which Allied now appeals to this Court.

         D. Allied I: Motion to Compel

         In Allied I, the Bankruptcy Court denied Allied's Motion to Compel, because referring Counts II and III of Taylor's Amended Complaint to arbitration "would conflict with the essential purpose of the bankruptcy process to quickly and effectively resolve claims against [Taylor's] estate and also would undermine the Virginia Attorney General's statutory prerogative to intervene in this Adversary Proceeding." 594 B.R. at 649-50.

         In support this conclusion, the Bankruptcy Court relied primarily on Moses v. CashCall, in which the Fourth Circuit recognized that sending a constitutionally core claim to arbitration would "'inherently conflict with the purposes of the Bankruptcy Code.'" Id. (quoting 781 F.3d 63, 72 (4th Cir. 2015)). The Bankruptcy Court found the facts in CashCall "strikingly similar" to Taylor's claims, noting that the debtor in CashCall also challenged the loan agreement underpinning the creditor's claim as illegal and void under state law. Id. at 651 (citing CashCall, 781 F.3d at 68). Based on the Fourth Circuit's holding that the CashCall debtor's challenge to the loan's validity under state law constituted a constitutionally core claim, the Bankruptcy Court held that Taylor's challenge in Counts II and III to the validity of the Credit Agreement under Virginia's consumer rights and usury statutes likewise constituted constitutionally core claims, the referral of which to arbitration would inherently conflict with the purposes of the Bankruptcy Code. Id. at 653-54.

         The Bankruptcy Court further denied Allied's Motion to Compel, because referring Counts II and III to arbitration "would hinder the ability of [the Virginia Attorney General] to pursue the relief it is statutorily charged with seeking." Id. at 654. Specifically, because the Bankruptcy Court granted the Commonwealth's Motion to Intervene, the Bankruptcy Court reasoned that referring Counts II and III to arbitration would "undermine the Virginia Attorney General's statutory function and infringe upon the Virginia Attorney General's right to pursue the remedies afforded to it by law." Id. at 654-55.

         E. Allied II: ...


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