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MacDonald v. Cashcall, Inc.

United States District Court, D. New Jersey

October 31, 2019

JOHN S. MACDONALD, et. al., Plaintiffs,
CASHCALL, INC., et al. Defendants.



         THIS MATTER comes before the Court by way of Plaintiffs John S. MacDonald's (“MacDonald”) and Jessica C. Spearman's (“Spearman, ” and together with MacDonald “Plaintiffs”) Motion for Class Certification pursuant to Federal Rule of Civil Procedure 23. Defendants Cashcall, Inc. (“Cashcall”), WS Funding, LLC (“WS Funding”), Delbert Services Corp. (“Delbert”) and J. Paul Reddam (“Reddam, ” and collectively with Cashcall, WS Funding and Delbert, “Defendants”) oppose the motion. ECF No. 96. For the reasons that follow, Plaintiffs' Motion is granted, and the class is certified.

         I. Background

         A. Factual Background

         This action seeks to recover damages for unlawfully originated short term loans. In brief, Plaintiffs allege that Defendants lent them money at exorbitant interest rates, in violation of state and federal law. They seek to represent a class of plaintiffs who made payments on those loans.

         Cashcall is a California corporation with its principal place of business in Orange, California. Cashcall 30(b)(6) Dep. at 18:20-23, ECF No. 93.4. WS Funding is a wholly-owned subsidiary of Cashcall. Id. at 77:17-20. Reddam is Cashcall's President, Chief Executive Officer, sole director and sole shareholder. Id. at 22:2-9. He is also president and Chief Executive Officer of WS Funding and the sole owner of Delbert. Id. at 163:18-23. Cashcall is in the business of originating and servicing short-term, unsecured loans to consumers. Id. at 20:12-21:4.

         Plaintiffs claim that Cashcall has been attempting to evade state law usury limits and lend money at extremely high interest rates. After previously attempting to evade such laws by having state-chartered but federally regulated banks originate such loans, [1] Plaintiffs claim that Cashcall has now attempted to use the sovereignty of an Indian tribe to evade those same limits.

         In December 2009, Cashcall entered into an agreement with nonparty Western Sky Financial, LLC (“Western Sky”). Under this arrangement, Cashcall agreed to purchase consumer loans that Western Sky originated.[2] Western Sky is a South Dakota limited liability company run by Martin “Butch” Webb, a member of the Cheyenne River Sioux Tribe (“CRST”). Id. at 60:4-23. Most Western Sky loans carried an annual percentage interest rate of 139%, but ranged from approximately 79% to 200%, depending on the principal amount borrowed. Reddam Dep. at 73:18-74:2, ECF No. 93.5. The loan agreements included an arbitration clause and a choice of law provision claiming that the notes were governed exclusively by CRST law, and would not be subject to either state or federal law. See, e.g. Standard Form Loan Agreements, ECF No. 93.15-16 (“This Loan Agreement is subject solely to the exclusive laws and jurisdiction of the [CRST]” and including arbitration provision). Any disputes between the borrower and lender were to be resolved by a CRST-affiliated arbitrator. Id. (the borrower “agree[s] that any Dispute . . . will be resolved by arbitration, which shall be conducted by the [CRST] Nation by an authorized representative”). All Western Sky-originated loans were assigned to Cashcall, normally within three days of origination. Cashcall 30(b)(6) Dep. at

         Plaintiffs contend that this arrangement was little more than Cashcall operating under another name. They argue that what appeared to be Western Sky originating loans that were subsequently purchased and serviced by Cashcall was in fact a scheme to deceive consumers into believing they were taking out loans associated with an Indian tribe, allowing Cashcall to avoid state law usury limits.

         In support of this argument, Plaintiffs have submitted agreements between Cashcall and Western Sky showing that Cashcall was deeply engaged in Western Sky's affairs. Under the terms of the agreements between Western Sky and Cashcall, Cashcall would purchase all loans that Western Sky originated, generally “within three days of origination.” Id. at 79:5-9, 79:10-80:1, 125:2-3. Cashcall paid a premium for each loan Western Sky originated. Id. at 80:20-81:12; see also supra, n. 2. Cashcall devised underwriting standards in conjunction with Western Sky for Western Sky's loans, and Cashcall employees reviewed each loan application to determine whether it met those guidelines. Id. at 99:21-100:21. Cashcall would collect all payments on the loans. Id. at 80:3-7.

         Cashcall also funded much of Western Sky's operations: it provided Western Sky financing to enable it to make loans to consumers and shouldered a significant portion of the administrative costs associated with the origination process. Id. at 150:21-25; see also Promissory Note dated December 28, 2009 (Cashcall subsidiary WS Financial lending $500, 000 to “operate its business” which is described as “the business of lending money.”). Cashcall paid Western Sky at least $10, 000 per month in administrative fees to cover Western Sky's operating expenses, and agreed to reimburse Western Sky for “any and all fees associated with [the] assignment and purchase” of the loans, including “additional office or personnel cost, ” and wiring and bank fees. Cashcall 30(b)(6) Dep. at 83:5-84:14.

         Western Sky found potential borrowers by through advertising, primarily on basic cable television, and would encourage customers to either call a toll-free telephone number or to visit their website. Id. at 170:2-11. Cashcall paid for some of Western Sky's advertising and marketing expenses and “drafted a lot of the advertising” for Western Sky loans. Id. at 85:25-86:5. It helped Western Sky construct and maintain its website, and provided “dozens” of toll free telephone and fax numbers to enable Western Sky to communicate with potential borrowers. Id. at 102:2-4, 129:13-16.

         Cashcall's counsel was also responsible for drafting the loan agreements that borrowers were required to sign to obtain their loans. Id. at 177:19-22. Cashcall's 30(b)(6) deponent, General Counsel Daniel Baren testified that it was Cashcall's counsel who suggested and implemented changes to the terms of these notes, while Western Sky's counsel suggested only changes that related to Indian Law aspects of the loan agreements. Id. at 179:2-81:17. If a borrower on a Western Sky-originated loan defaulted, Cashcall would assign the loan to Delbert, which generally collected on delinquent loans for Cashcall, among other companies. Id. at 164:11-13.

         Plaintiffs in this action are two New Jersey residents, both of whom took out short term consumer loans from Western Sky. On December 18, 2012, Macdonald borrowed $5, 000 from Western Sky. MacDonald Western Sky Consumer Loan Agreement at 1, ECF No. 94.2. The loan bore a 116.73% annual percentage interest rate, resulting in a finance charge of $35, 944.28. Id. As of April 2016, Cashcall had collected more than $15, 000 on his loan. MacDonald Dep. Ex. 12, ECF No. 93.21.

         Spearman obtained three separate loans from Western Sky. On October 16, 2012, and again on January 15, 2013, Spearman borrowed $2, 525, each time at an annual percentage rate of 138.13%. Spearman Western Sky Loan Agreements at 2, 8, ECF No. 93.7. On August 26, 2013, Spearman borrowed $5, 000 from Western Sky, at an annual percentage rate of 116.57%, resulting in a finance charge of $35, 864.59. Id. at 14. She paid off each of her loans in full. Spearman Dep. at 66:9-12, ECF No. 96.2.

         B. Procedural History

         MacDonald filed this action on May 17, 2016. Compl. ECF No. 1. Defendants responded by moving to compel arbitration under the terms of MacDonald's Western Sky loan agreement, arguing that his claims were subject arbitration, and that CRST law governed this action. ECF No. 11. On April 28, 2017, this Court found that the arbitration provision in the promissory note was unenforceable, that New Jersey law governed, and largely denied Defendants' motion to dismiss, dismissing only a single cause of action under New Jersey's Consumer Finance Licensing Act (“NJCFLA”). ECF No. 24. On February 27, 2018, the Court of Appeals for the Third Circuit affirmed that order. See MacDonald v. CashCall, Inc, 883 F.3d 220, 232 (3d Cir. 2018).

         On September 6, 2018, Plaintiffs amended their complaint pursuant to a stipulation with Defendants, eliminating the dismissed NJCFLA claim and adding Spearman as a named plaintiff. ECF Nos. 69, 70. The Amended Complaint asserts claims of: (1) usury in violation of N.J.S.A. §§ 13:1-1(a) and 2C:21-19 (Count I), Am. Compl. ¶¶ 73-75; (2) violation of the New Jersey Consumer Fraud Act (“CFA”), N.J.S.A. § 56:8-2, Am. Compl. ¶¶ 76-82 (Count II); (3) common law restitution and unjust enrichment (Count III), Am. Compl. ¶¶ 83-85; (4) a declaration that tribal law does not apply to the Classes' loans and that the arbitration provision and class waiver are unenforceable (Count IV), Am. Compl. ¶¶ 86-91; and (5) violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., (Count V), Am. Compl. ¶¶ 92-101. Defendants answered the Amended Complaint on October 9, 2018. ECF No. 76.

         On February 8, 2019, Plaintiffs filed this Motion for Class Certification.

         II. Legal Standard

         Every putative class action must satisfy the four requirements of Federal Rule of Civil Procedure 23(a): numerosity, commonality, typicality, and adequacy. City Select Auto Sales Inc. v. BMW Bank of N. Am. Inc., 867 F.3d 434, 438 (3d Cir. 2017) (citations omitted). In addition to the Rule 23(a) requirements, a class action must be one of the types recognized by Rule 23(b). Boyle v. Progressive Specialty Ins. Co., No. 09-5515, 2018 WL 2770166, at *4 (E.D. Pa. June 7, 2018). Here, Plaintiff has moved for certification under subsections (b)(2) and (b)(3).

         The Rule 23 requirements are “not mere pleading standards;” rather, “[p]roper analysis under Rule 23 requires rigorous consideration of all the evidence and arguments offered by the parties.” In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 316, 321 (3d Cir.2008). A district court must “consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class.” Id. at 320. Additionally, “the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits ... [and] [f]actual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence.” Id. at 307, 320. “Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.” Id. at 323. See also In re Thalomid & Revlimid Antitrust Litig., No. 14-6997, 2018 WL 6573118, at *78 (D.N.J. Oct. 30, 2018).

         III. Proposed Classes

         Plaintiffs seek certification of two classes, a “four-year class” and a “six-year class.” Other than the date on which each class period begins, the two classes are identically defined as:

All individuals who, on or after [May 17, 2010 or May 17, 2012], made payments to one or more Defendants on loans originated by the Western Sky Enterprise where the borrower was located in the State of New Jersey at the time the loan was originated.

Pl. Mem. at 14-15, ECF No. 94. For the purposes of this motion, Plaintiffs define “Western Sky Enterprise” to include each Defendant and Western Sky Financial. Pl. Mem. at 3, 14-15, ECF No.


         IV. Analysis

         Defendants raise several arguments as to why the classes should not be certified, focusing on Rule 23(b)(3)'s predominance and superiority requirements. The Court concludes that Plaintiffs have carried their burden of affirmatively demonstrating compliance with Rule 23(a)'s and (b)(3)'s requirements, and that the putative classes is sufficiently ascertainable.

         A. Rule 23(a) Requirements

         1. Numerosity

         Rule 23(a)(1) requires that a class be “so numerous that joinder of all members is impracticable.” Fed.R.Civ.P. 23(a)(1). There is no minimum number of plaintiffs required to show that a class is sufficiently numerous, but generally, where a plaintiff can demonstrate that there are more than 40 potential plaintiffs, they have met their burden of demonstrating numerosity. Mielo v. Steak ‘n Shake Operations, Inc., 897 F.3d 467, 486 (3d Cir. 2018) (citing Stewart v. Abraham, 275 F.3d 220, 226-27 (3d Cir. 2001)). Here, Defendants have stipulated that 11, 158 individuals provided a New Jersey address on loan agreements executed on or after May 17, 2010 (the Six Year Class), and that 7, 520 individuals listed a New Jersey address on loan agreements executed on or after May 17, 2012 (the Four Year Class). ECF No. 93.18 ¶¶ 1-2. Defendants do not dispute that these figures show the class is sufficiently numerous. The Court therefore finds that Plaintiffs have satisfied the numerosity requirement.

         2. Commonality

         Rule 23(a)(2) requires a finding that “there are questions of law or fact common to the class.” Fed.R.Civ.P. 23(a)(2). Unlike the more searching predominance inquiry under Rule 23(b)(3), “[e]ven a single question of law or fact common to the members of the class will satisfy the commonality requirement, ” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 369 (2011) (quoting Nagareda, The Preexistence Principle and the Structure of the Class Action, 103 Colum. L.Rev. 149, 176, n.110 (2003)) (internal quotation marks omitted). In this Circuit, “Rule 23(b)'s predominance requirement incorporates Rule 23(a)'s commonality requirement because the former, although similar, is ‘far more demanding' than the latter.” Reinig v. RBS Citizens, N.A., 912 F.3d 115, 127 (3d Cir. 2018) (quoting In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 528 (3d Cir. 2004)). Courts may therefore analyze commonality and predominance together, and where a plaintiff demonstrates predominance, they necessarily show commonality. Id. (citing In re LifeUSA Holding Inc., 242 F.3d 136, 144 (3d Cir. 2001)).

         As noted in Section II.B.3 infra, the Court finds that common questions predominate over individual ones, and for that reason, Plaintiffs have satisfied Rule 23(a)(2)'s less demanding commonality requirement. For the sake of completeness, the Court also finds that there are common questions of law and fact. As to each class, the questions of whether Defendants charged interest at rates in excess of those permitted by New Jersey law will be common, as will questions of whether Defendants and Western Sky together formed an enterprise sufficient for liability under RICO.

         3. ...

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