United States District Court, D. New Jersey
JOHN S. MACDONALD, et. al., Plaintiffs,
CASHCALL, INC., et al. Defendants.
MADELINE COX ARLEO UNITED STATES DISTRICT JUDGE
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
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.
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
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,  Plaintiffs claim that Cashcall has now
attempted to use the sovereignty of an Indian tribe to evade
those same limits.
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. 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
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.
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.
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.
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.
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.
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.
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
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).
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.
February 8, 2019, Plaintiffs filed this Motion for Class
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).
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).
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
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.
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
Rule 23(a) Requirements
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.
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)).
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.