Lizzie Davis v. Oasis Legal Finance Operating Company, LLC

Citation: Not availableDocket: 18-10526

Court: Court of Appeals for the Eleventh Circuit; August 28, 2019; Federal Appellate Court

Original Court Document: View Document

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A class of borrowers, including plaintiffs Lizzie Davis, Dennis Green, Johnny Moody, John Suber, Shirley Williams, and Pamela Davis, filed a lawsuit against Oasis Legal Finance and its affiliates in Georgia, claiming their loan agreements breached state usury laws. The lenders sought to dismiss the case, citing a forum selection clause mandating litigation in Illinois and a class action waiver. The district court ruled that both provisions were unenforceable due to Georgia's public policy, which opposes such clauses in payday loan agreements and supports class actions for victims of predatory lending. The appeals court, comprising Circuit Judges Tjoflat and Jordan, upheld the district court's decision, emphasizing that Georgia’s Payday Lending Act and Industrial Loan Act explicitly discourage enforcing forum selection clauses and promote class actions for aggrieved borrowers. The plaintiffs' loans, generally under $3,000, were contingent on the outcomes of their personal injury lawsuits. The lenders had removed the case to federal court, but the plaintiffs contended the contractual provisions violated public policy and were thus invalid.

The district court applied Georgia law and found the forum selection clause and class action waiver in the Oasis lenders' agreements to be unenforceable. It determined that enforcing such clauses would violate Georgia's public policy, particularly as established by the Payday Lending Act, which prohibits payday lenders from using these clauses to evade Georgia courts. The court noted that the Georgia General Assembly deemed these practices unconscionable. Additionally, it ruled that the class action waiver contradicted public policy because the Georgia Legislature included class actions as a remedy within the Payday Lending Act and the Georgia Installment Loan Act for consumers harmed by payday lenders. The court criticized the notion that lenders could negate this consumer protection through a brief waiver in a lengthy contract.

The court's decision was certified for interlocutory review, and the Oasis lenders sought to challenge the findings. The reviewing court agreed to consider the enforceability of the clauses, affirming the district court's ruling. It noted that the enforceability of a forum selection clause is a legal question reviewed de novo, and similarly applies to class action waivers. It emphasized that such clauses, when legitimately negotiated, uphold parties' expectations and the justice system's integrity. 

While referencing a previous Georgia Supreme Court ruling, the lenders acknowledged they did not contest the loans' classification under the relevant state laws in the district court, thus that argument was not considered. The reviewing court outlined that a forum selection clause should typically be honored unless a strong case is made for its invalidation, particularly if it contravenes significant public policy. Public policy determinations must be made cautiously and only when free of substantial doubt.

In Georgia, a contractual provision is deemed to violate public policy only if explicitly declared by the Legislature or if its enforcement contradicts the law's intent. Contracts that significantly promote outcomes contrary to legal goals are void. Georgia's public policy is grounded in the state's Constitution and statutes, which serve as primary sources for determining enforceability. Notably, O.C.G.A. § 13-8-2 states that contracts against public policy cannot be enforced, and its list of unenforceable agreements is nonexclusive, allowing courts to void additional contracts as necessary.

The Georgia Payday Lending Act (PLA) specifically prohibits payday lenders from including out-of-state forum selection clauses in loan agreements, mandating that disputes be resolved in the borrower's county of residence or where the loan office is located. This provision was enacted to prevent payday lenders from evading Georgia's laws, which the Legislature found to be unconscionable. The Georgia Supreme Court has recognized this as establishing a clear public policy against such clauses.

In the current case, the district court ruled that the forum selection clause was unenforceable based on the PLA's provisions, which were considered conclusive evidence of Georgia's public policy. The Oasis lenders contended that the PLA allows selection of a forum in counties outside Georgia, specifically citing Cook County, Illinois, where their loan office is located. However, the district court countered this argument, interpreting "county" in the PLA as referring solely to counties within Georgia, emphasizing that the intent was to restrict parties to local fora while prohibiting outbound selections.

The Oasis lenders argue that the district court incorrectly interpreted the statute by adding 'Georgia' before 'county' in O.C.G.A. 16-17-2(c)(1). The court counters that the term 'county' in Georgia law typically refers to Georgia counties, as supported by constitutional and statutory examples, including the Georgia Constitution's provision on joint trespassers and relevant case law. The court asserts that venue for a suit is determined by the county where the defendant resides in Georgia, noting that the constitutional venue provision does not apply to nonresidents. The argument from the Oasis lenders that the term 'county' could include counties outside Georgia contradicts the intent of the Georgia Legislature, which aims to prevent out-of-state lenders from using forum selection clauses to evade Georgia courts. The court emphasizes that interpretations should consider the statute's context as a whole to avoid rendering provisions meaningless. 

Further, the Oasis lenders claim that the PLA does not apply to loans between Georgia borrowers and out-of-state lenders, citing that payday lending is not considered interstate commerce. The court disagrees, highlighting that this position is contradictory and that all provisions of the PLA must be interpreted sensibly. The PLA governs businesses making loans of $3,000 or less unless specifically exempted, and out-of-state lenders do not qualify for exemptions. Excluding these loans from the PLA would undermine its prohibitions against out-of-state forum selection clauses.

The Georgia Supreme Court in Western Sky addressed the applicability of the Payday Lending Act (PLA) to loans involving out-of-state lenders, rejecting the argument that the phrase 'interstate commerce' excluded such loans from the PLA's scope. The Court emphasized that excluding these loans would render the PLA meaningless, as it would prohibit nothing. The Court further articulated that this exclusion would undermine the PLA's purpose and demonstrate that the legislature did not intend to create such a limitation. Georgia statutes reflect a public policy against out-of-state lenders using forum selection clauses to evade litigation in Georgia courts, which justifies the district court's denial of the Oasis lenders’ motion to dismiss.

Additionally, the plaintiffs and the district court asserted that class action waivers in loan agreements contradict the PLA and the Georgia Industrial Loan Act (GILA). Both acts explicitly allow for class action remedies for aggrieved borrowers, suggesting that the Georgia Legislature intended to provide such remedies against predatory lending. The district court concluded that enforcing class action waivers would eliminate this legislative remedy, undermining the statutory framework. Although the Oasis lenders claimed the court erred by not addressing the waivers' unconscionability, the district court's ruling focused on the violation of legislative intent, rendering the waivers unenforceable under Georgia law irrespective of their unconscionability status.

A contractual provision may be deemed unenforceable if it conflicts with public policy as articulated in the Georgia Arbitration Code, as established in Accord Atl. Flooring Design Ctrs. Inc. v. R.G. Williams Const. Inc. Courts consider the commercial reasonableness of contract terms, their purpose and effect, risk allocation, and public policy concerns when evaluating substantive unconscionability. However, public policy serves as an independent basis for invalidating a contract, even in the absence of fraud. For instance, any provision that is illegal or against public policy is void, regardless of mutual obligations or the parties' representation. Courts differentiate between contracts that are void due to illegality or immorality and those that are voidable due to fraud or duress. 

In the discussed case, the district court determined that enforcing class action waivers would undermine remedies intended by the Georgia Legislature under the PLA and the GILA, despite the absence of a direct prohibition against such waivers. The Oasis lenders argued that a fee-shifting provision in the PLA mitigated the risk of preventing plaintiffs from pursuing individual claims. Previous rulings found certain waivers not unconscionable when fee-shifting enabled plaintiffs to litigate individually. However, the district court focused on public policy rather than unconscionability in its ruling.

Class action waivers in arbitration clauses have been upheld in previous cases such as Jenkins and Bowen, but those decisions do not apply in this instance. The courts in those cases did not consider the Payday Loan Act (PLA), the Georgia Installment Loan Act (GILA), or Georgia's policy against class action waivers specific to payday loan agreements. Unlike the arbitration agreements discussed in those cases, the class action waiver in question is not part of an arbitration agreement, allowing Georgia's public policy to prevail. The PLA and GILA reflect the Georgia Legislature's intention to allow class actions for individuals harmed by payday lenders. Enforcing the class action waiver would contradict the objectives of Georgia's legal framework. Consequently, the waiver is deemed unenforceable, and the district court's decisions to deny the Oasis lenders’ motions to dismiss and to strike the class allegations are upheld.