United States District Court, D. New Jersey
JOHN S. MACDONALD, Plaintiff,
CASHCALL, INC, et al., Defendants.
MADELINE COX ARLEO, UNITED STATES DISTRICT JUDGE
MATTER comes before the Court by way of Defendants CashCall,
Inc. (“CashCall”), WS Funding, LLC (“WS
Funding”), Delbert Services Corp.
(“Delbert”), and J. Paul Reddam's
“Defendants”) motion to compel arbitration, or
alternatively, to dismiss Plaintiff John S. MacDonald's
(“Plaintiff”) Complaint. Dkt. No. 11. For the
reasons set forth below, the motion to compel arbitration is
DENIED and the motion to dismiss is GRANTED in part and
DENIED in part.
instant case concerns the controversial lending practices of
Defendants and non-party Western Sky Financial, LLC
(“Western Sky”), which work together to issue
high-interest payday loans to customers across the United
States. Western Sky, the entity that initially issues the
loans, is owned by Martin Webb, a member of the Cheyenne
River Sioux Tribe of South Dakota (“CRST”). Based
in large part on this tribal affiliation, Defendants seek to
enforce numerous provisions in borrowers' loan agreements
that attempt to, among other things, restrict borrowers'
remedies to arbitration, compel the adjudication of disputes
before the CRST, mandate the application of CRST law, and
waive any application of state or federal law. Yet Plaintiff
argues that Defendants' claims of tribal affiliation are
a sham, and nothing more than a front to enable Defendants to
circumvent the application of state and federal laws. He
urges the Court not to enforce these provisions.
Facts of the Case
experience epitomizes Defendants' lending scheme. On
December 18, 2012, Plaintiff borrowed $5, 000 from Western
Sky's website, which he accessed from a computer located
in New Jersey. Compl. ¶ 38. As part of that process,
Plaintiff executed the “Western Sky Consumer Loan
Agreement” (the “Loan Agreement”).
Id. Pursuant to the Loan Agreement, Plaintiff would
receive the loan subject to certain fees and an Annual
Percentage Rate of 116.73%. Id. ¶ 39. Over the
seven-year life of the loan, the finance charge would be $35,
December 26, 2012, Plaintiff was notified that Western Sky
had assigned his loan to WS Funding, and that CashCall would
handle the servicing of the loan and collect the first
payment. Id. ¶ 40. On August 13, 2013,
Plaintiff was informed that Delbert would take over servicing
of the loan. Id. ¶ 41. As of April 2016,
Defendants had collected a total of $15, 493.00 from
Plaintiff on his $5, 000 loan. Id. ¶ 42. This
included $38.50 in principal, $15, 256.65 in interest, and
$197.85 in fees. Id. At the time of the filing of
the Complaint, Plaintiff still owed more than $7, 833.91.
Plaintiff wished to challenge any aspect of the Loan
Agreement, he would have to comply with a number of important
provisions. Most notably, the Loan Agreement contained an
arbitration clause, which provided as follows:
You agree that any Dispute, except as provided below, will be
resolved by Arbitration, which shall be conducted by the
Cheyenne River Sioux Tribal Nation by an authorized
representative in accordance with its consumer dispute rules
and the terms of this Agreement.
Agreement at 8. The Loan Agreement also featured a forum
selection clause, which stated, among other things, that the
contract was “subject solely to the exclusive laws and
jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne
River Indian Reservation.” Id. at 2. In
addition, a choice-of-law clause provided that the Loan
Agreement “shall be subject to and construed in
accordance only with the provisions of the laws of the
Cheyenne River Sioux Tribe, and that no United States state
or federal law applies to this Agreement.” Id.
the Defendants have a connection to the CRST. CashCall is a
Delaware corporation with its principal place of business
located in Orange, California. Compl. ¶ 7. Reddam is its
President, CEO, sole director, and sole owner. Id.
WS Funding is a wholly owned subsidiary of CashCall, and
Reddam serves as its president. Id. ¶ 8.
Delbert is a Nevada corporation with its principal place of
business located in Las Vegas, and Reddam serves as its sole
director and owner. Id. ¶ 9. Reddam is a
resident of California. Id. ¶ 6.
17, 2016, Plaintiff filed the instant Complaint.
Plaintiff's primary contention is that the loans at issue
are void because the collection of a usurious rate of
interest violates New Jersey law, and that Defendants'
attempts to contractually circumvent the application of
federal and state law should not be enforced. To that end,
the Complaint asserts a variety of federal and state claims,
including under: (1) New Jersey usury laws, see N.J.
Stat. Ann. § 31:1-1; (2) the New Jersey Consumer Finance
Licensing Act (“CFLA”), N.J. Stat. Ann.
§§ 17:11C-1, et seq.; (3) the New Jersey
Consumer Fraud Act (“CFA”), N.J. Stat. Ann.
§§ 56:8-1, et seq.; (4) restitution and
unjust enrichment; (5) a declaration that the forum selection
and choice of law clauses do not apply, that the arbitration
clause is void, and that any purported class waiver is void;
and (6) the federal Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. §
1961, et seq. See Compl. ¶¶ 55-91.
September 9, 2016, Defendants moved to compel arbitration, or
alternatively, to dismiss. Defendants argue that: (1) the
Loan Agreement's arbitration provisions, including a
delegation clause that requires that the issue of
arbitrability be submitted to an arbitrator, should be
enforced, and all of Plaintiff's claims submitted to
arbitration; (2) the Complaint should be dismissed for
improper venue because the Agreement's forum selection
clause requires adjudication in the CRST Tribal Court or, in
the alternative, the Court should abstain from hearing
Plaintiff's claims until the CRST Court has had an
opportunity to consider the venue question; (3)
Plaintiff's state law claims must be dismissed because
the Agreement's choice-of-law provision requires the
application of CRST law; (4) Counts I, II, III, IV, and VI of
the Complaint should be dismissed for failure to state a
claim; and (5) Defendant Reddam should be dismissed because
the Court lacks personal jurisdiction over him. Each will be
discussed in turn.
Defendants' Litigation History
the instant case is just the latest iteration in an ongoing
saga concerning Defendants' business practices, it is
helpful to first put this case in some broader context. Over
the last few years, Defendants have become enmeshed in a
spate of civil lawsuits and other proceedings across the
country. At first, Defendants and related entities prevailed
before various courts with many of the same arguments
advanced in the instant motion. See Banks v. CashCall,
Inc., No. 14-488, 2016 WL 3021749 (M.D. Fla. May 26,
2016); Yaroma v. Cashcall, Inc., 130 F.Supp.3d 1055
(E.D. Ky. 2015); Kemph v. Reddam, No. 13-6785, 2015
WL 1510797 (N.D. Ill. Mar. 27, 2015); Williams v.
CashCall, Inc., 92 F.Supp.3d 847 (E.D. Wis. 2015);
Chitoff v. CashCall, Inc., No. 14-60292, 2014 WL
6603987 (S.D. Fla. Nov. 17, 2014); Chitoff v. CashCall,
Inc., No. 14-60292, 2014 WL 6603985 (S.D. Fla. Nov. 7,
2014); Narula v. Delbert Servs. Corp., No. 13-15065,
2014 WL 3752797 (E.D. Mich. July 30, 2014); Heldt v.
Payday Fin., LLC, 12 F.Supp.3d 1170 (D.S.D. 2014).
recent trend has tilted decidedly in favor of parties
challenging Defendants' questionable business practices.
Numerous courts, including two within this circuit and
several Courts of Appeals, have rejected Defendants'
arguments and refused to compel arbitration, tribal
exhaustion, litigation in the CRST Court, or the application
of tribal law. See Parnell v. W. Sky Fin., LLC, 664
F. App'x 841 (11th Cir. 2016); Parm v. Nat'l Bank
of California, N.A., 835 F.3d 1331 (11th Cir. 2016);
Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th
Cir. 2016); Inetianbor v. CashCall, Inc., 768 F.3d
1346 (11th Cir. 2014); Jackson v. Payday Fin., LLC,
764 F.3d 765 (7th Cir. 2014); Ryan v. Delbert Servs.
Corp., 15-05044, 2016 WL 4702352 (E.D. Pa. Sept. 8,
2016); Consumer Fin. Prot. Bureau v. CashCall, Inc.,
No. 15-7522, 2016 WL 4820635 (C.D. Cal. Aug. 31, 2016);
Inetianbor v. Cashcall, Inc., No. 13-60066, 2016 WL
4702370 (S.D. Fla. Aug. 18, 2016); Inetianbor v.
Cashcall, Inc., No. 13-60066, 2016 WL 4250644 (S.D. Fla.
Apr. 5, 2016); Smith v. W. Sky Fin., LLC, 168
F.Supp.3d 778 (E.D. Pa. 2016), appeal dismissed
(Apr. 19, 2016); Parnell v. CashCall, Inc., 181
F.Supp.3d 1025 (N.D.Ga.), aff'd sub nom.,
Parnell v. W. Sky Fin., LLC, 664 F. App'x 841
(11th Cir. 2016); Inetianbor v. CashCall, Inc., No.
13-60066, 2015 WL 11438192, at *3 (S.D. Fla. Dec. 8, 2015),
reconsideration denied, No. 13-60066, 2016 WL
4249938 (S.D. Fla. Jan. 26, 2016); Parm v. Nat'l Bank
of California, N.A., No. 14-0320, 2015 WL 11605748
(N.D.Ga. May 20, 2015), aff'd, 835 F.3d 1331
(11th Cir. 2016); Inetianbor v. CashCall, Inc., 962
F.Supp.2d 1303, 1309 (S.D. Fla. 2013), aff'd,
768 F.3d 1346 (11th Cir. 2014); W. Sky Fin., LLC v. State
ex rel. Olens, 300 Ga. 340, 348 (2016); State ex
rel. Cooper v. W. Sky Fin., LLC, No. 13-16487, 2015 WL
5091229, at *10 ( N.C. Super. Aug. 27, 2015). The Court finds
the latter line of cases persuasive, and their analysis
undergirds the Court's holding here.
Enforceability of the Delegation Provision
first argue that the Court may not assess the enforceability
of the arbitration clause because pursuant to the
Agreement's delegation provision, issues concerning the
validity, enforceability, and scope of the arbitration clause
must be determined by an arbitrator. The Court disagrees.
Loan Agreement provides, in relevant part, that issues
“concerning the validity, enforceability, or scope of
this loan or the Arbitration agreement” must be
submitted to arbitration. Loan Agreement at 9, Compl. Ex. 3,
Dkt. No. 1-3. Under this so-called delegation provision,
parties must submit even threshold disputes concerning the
validity or scope of an arbitration clause to the arbitrator.
See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63,
68-69 (2010) (holding that “parties can agree to
arbitrate ‘gateway' questions of
‘arbitrability, ' such as whether the parties have
agreed to arbitrate or whether their agreement covers a
particular controversy”) (quotations omitted). Such
delegation clauses are simply “an additional,
antecedent agreement the party seeking arbitration asks the
federal court to enforce.” Id. at 70. For this
reason, if a plaintiff wishes to challenge a delegation
provision, he must do so specifically. Id. at 72;
see also Ryan, 2016 WL 4702352, at *4. If the
plaintiff fails to challenge the delegation provision itself,
“the federal courts must treat the delegation
provision” as valid, and “leav[e] any challenge
to the validity of the Agreement as a whole for the
arbitrator.” Parnell v. CashCall, Inc., 804
F.3d 1142, 1146-47 (11th Cir. 2015) (quotation omitted).
maintain that Plaintiff has not asserted a challenge to the
delegation clause itself. But the Complaint specifically
states that “[b]ecause the arbitration procedure
described in the agreement is fabricated and illusory, any
provision requiring that the enforceability of the
arbitration procedure must be decided through arbitration is
also illusory and unenforceable.” Compl. ¶ 32. In
addition, Plaintiff dedicated a section of his opposition
brief to an argument against enforcement of the delegation
clause. Opp'n at 14-15. This is more than sufficient to
challenge the delegation provision. See Parm, 835
F.3d at 1335 n.1 (holding that a challenge to the delegation
clause raised in an opposition brief is sufficient);
Smith, 168 F.Supp.3d at 785-86 (same);
Ryan, 2016 WL 4702352, at *5 n.8 (holding that by
urging the Court in a notice of supplemental authority to
follow Smith, which had refused to enforce the
delegation provision, the plaintiff had sufficiently
challenged the delegation clause).
delegation clause is unenforceable for virtually the same
reason as the underlying arbitration agreement-the Loan
Agreement's wholesale waiver of the application of
federal and state law makes it invalid. As further explained
below, even 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. In other words,
“enforcing the delegation provision 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, 168 F.Supp.3d at 786. This prohibition
renders the clause invalid. See id. (holding that
because there would be “no benchmark for JAMS or any
other arbitrator to follow, ” the delegation clause was
“illusory” and unenforceable); Ryan,
2016 WL 4702352, at *4-6 (holding that the delegation
provision was unenforceable due to the agreement's
“wholesale waiver of federal and state law, ”
which would prohibit the arbitrator from determining whether
the arbitration clause violated federal or state law, and
effectively allow Defendants “to insulate an
unenforceable arbitration clause from attack”); cf.
Parm, 835 F.3d at 1335 (affirming the district
court's conclusion that “the delegation clause is
unenforceable because the arbitration agreement provides no
available forum for an arbitrator to decide threshold issues
of arbitrability”). Therefore, the Court will deny
Defendants' motion to compel on this basis, and will
proceed to address the enforceability of the arbitration
Enforceability of the Arbitration Clause
Defendants contend that the Loan Agreement mandates
arbitration of all of Plaintiff's claims. The Court
disagrees, and holds that the arbitration agreement is
Federal Arbitration Act, 9 U.S.C. §§ 1, et
seq. (“FAA”), provides that “[a]
written provision . . . to settle by arbitration a
controversy . . . 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. This provision reflects “a strong federal
policy in favor of resolving disputes through
arbitration.” Century Indem. Co. v. Certain
Underwriters at Lloyd's, London, 584 F.3d 513, 522
(3d Cir. 2009). Thus, “any doubts concerning the scope
of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction
of the contract language itself or any allegation of waiver,
delay, or a like defense to arbitrability.” Moses
H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24-25 (1983).
Defendants' loan agreements stated that any dispute would
be resolved by arbitration, which “shall be conducted
by the Cheyenne River Sioux Tribal Nation by an authorized
representative in accordance with its consumer dispute rules
and the terms of this Agreement.” Loan Agreement at 8.
Several courts interpreting this provision held that it was
unenforceable because it was illusory, in that the CRST did
not actually conduct arbitrations and had no rules for the
conduct of the arbitration. See Jackson, 764 F.3d at
779; Inetianbor, 962 F.Supp.2d at 1307;
Inetianbor, 768 F.3d at 1354.
aware of this shortcoming, Defendants added an additional
provision to their loan agreements, which purports to allow
the borrower to select AAA, JAMS, or any other organization
agreed to by all parties to administer the arbitration. Loan
Agreement at 9; see Hayes, 811 F.3d at 672-73;
Smith, 168 F.Supp.3d at 785. Based on this clause,
Defendants argue that an arbitral forum is available for
Plaintiff, and that the agreement is therefore enforceable.
This clause, however, does not save it.
the Loan Agreement categorically prohibits the arbitrator
from applying any federal or state law to Plaintiff's
claims. It states that: “no other state or federal law
or regulation shall apply”; “[n]either this
Agreement nor Lender is subject to the laws of any state of
the United States of America”; “this Agreement
shall be subject to and construed in accordance only with the
provisions of the laws of the Cheyenne River Sioux Tribe and
. . . no United States state or federal law applies to this
Agreement”; the arbitration may be governed by the
arbitral organization's rules only “to the extent
that those rules and procedures do not contradict either the
law of the Cheyenne River Sioux Tribe”; and
“[t]he arbitrator will apply the laws of the Cheyenne
River Sioux Tribal Nation and the terms of this
Agreement.” Loan Agreement at 2, 7, 9, 10. The Loan
Agreement also provides that while the arbitration may be
conducted within thirty miles of the plaintiff's
residence, such an accommodation should “not be
construed in any way . . . to allow for the application of
any law other than the law of the Cheyenne River Sioux Tribe
of Indians to this Agreement.” Id. at 9-10. In
other words, the Loan Agreement ensures that no matter who
the arbitrator is or where the arbitration occurs (including
if a plaintiff selects AAA or JAMS), federal and state law
may not be applied.
difficult to imagine a more transparent attempt to hijack the
FAA to deprive aggrieved parties of an opportunity to
meaningfully adjudicate their claims. Although the FAA has a
broad reach, “courts will not enforce a prospective
waiver” of statutory rights, “whether in an
arbitration agreement or any other contract.” Am.
Exp. Co. v. Italian Colors Rest., 133 S.Ct. 2304,
2313-14 (2013); see also Vimar Seguros y Reaseguros, S.A.
v. M/V Sky Reefer, 515 U.S. 528, 540 (1995) (noting that
if an arbitration provision operated as a “prospective
waiver of a party's right to pursue statutory remedies,
” the Court would have “little hesitation in
condemning the agreement as against public policy”)
(quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985)).
Accordingly, numerous courts have held that the Loan
Agreement's wholesale renunciation of federal and state
law renders the arbitration agreement unenforceable. See
Hayes, 811 F.3d at 673 (holding that the arbitration
agreement is unenforceable “for the fundamental reason
that it purports to renounce wholesale the application of any
federal law to the plaintiffs' federal claims”);
Smith, 168 F.Supp.3d at 785 (“The purpose of
the arbitration agreement at issue here is not to create a
fair and efficient means of adjudicating Plaintiff's
claims, but to manufacture a parallel universe in which state
and federal law claims are avoided entirely.”);
Ryan, 2016 WL 4702352, at *5 (holding that
“[t]he wholesale waiver of federal and state law . . .
dooms both the delegation provision and the arbitration
clause”); Parnell, 181 F.Supp.3d at 1044
(agreeing with the Fourth Circuit that the “Loan
Agreement has attempted to ‘convert a choice of law
clause into a choice of no law clause'”) (quoting
Hayes, 811 F.3d at 675). As the Fourth Circuit
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.
Hayes, 811 F.3d at 673-74. The Court agrees, and
likewise declines to endorse the Loan Agreement's sham
dispute resolution procedures. Defendants' motion to compel
arbitration is denied.
Forum Selection Clause and Tribal Exhaustion
Loan Agreement provides that it “is subject solely to
the exclusive laws and jurisdiction of the Cheyenne River
Sioux Tribe, Cheyenne River Indian Reservation, ” and
that the borrower consents to “the sole subject matter
and personal jurisdiction of the Cheyenne River Sioux Tribal
Court.” Loan Agreement at 2. Defendants argue that,
pursuant to this forum selection clause, Plaintiff should be
required to proceed in the CRST Court. The Court disagrees.
American “tribes do not, as a general matter, possess
authority over non-Indians who come within their borders:
‘[T]he inherent sovereign powers of an Indian tribe do
not extend to the activities of nonmembers of the
tribe.'” Plains Commerce Bank v. Long Family
Land & Cattle Co., 554 U.S. 316, 328 (2008) (quoting
Montana v. United States, 450 U.S. 544, 565 (1981)).
Pursuant to two limited exceptions under Montana,
tribes may exercise subject matter jurisdiction over
non-Indians on their reservations: (1) “A tribe may
regulate, through taxation, licensing, or other means, the
activities of nonmembers who enter consensual relationships
with the tribe or its members, through commercial dealing,
contracts, leases, or other arrangements”; and (2)
“[a] tribe may also retain inherent power to exercise
civil authority over the ...