United States District Court, E.D. Virginia, Richmond Division
ALLIED TITLE LENDING, LLC, d/b/a ALLIED CASH ADVANCE, Appellant,
SHIRLEY DEAN TAYLOR, et al. 9 Appellees.
J. NOVAK UNITED STATES DISTRICT JUDGE
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).
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.
Allied Line of Credit
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.
here, the Credit Agreement also contained an arbitration
provision (the "Arbitration Provision"), which
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
• 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
• 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
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))).
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)).
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).
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.)
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.)
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.
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.)
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.
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.
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))).
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.
Allied I: Motion to Compel
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
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
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.
Allied II: ...