Gibbs v. Plain Green, LLC

Citation: 331 F. Supp. 3d 518Docket: Civil Action No. 3:17cv495

Court: District Court, E.D. Virginia; July 27, 2018; Federal District Court

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Judge M. Hannah Lauck addressed the Plaintiffs' Motion to Permit Jurisdictional Discovery and the Defendant Great Plains Lending, LLC's Motion to Stay Proceedings. The Court granted the Motion for Discovery and denied the Motion to Stay after determining sufficient materials were presented for decision without oral argument. Jurisdiction is established under 28 U.S.C. §§ 1332 and 1367.

The Plaintiffs, including Darlene Gibbs, Stephanie Edwards, Lula Williams, Patrick Inscho, and Lawrence Mwethuku, allege that Defendants, through internet lending websites, offered high-interest short-term loans, violating state and federal lending laws. They argue that the Defendants, while claiming tribal sovereign immunity, are not true tribal entities and structured their business to evade legal compliance. The Plaintiffs assert that Kenneth Rees orchestrated a "rent-a-tribe" scheme, wherein non-tribal entities partner with tribes to operate lending companies under the guise of tribal sovereignty, allowing these entities to bypass state usury laws and avoid legal repercussions. The Plaintiffs contend that the tribes involved, Chippewa Cree and Otoe-Missouria, received minimal compensation and had no control over the operations or profits, which were managed predominantly by non-tribal parties.

Plaintiffs allege that Rees controls various companies that operate lending businesses and profit from them. Specifically, GPL Servicing, Ltd. (GPLS), owned by Rees, processed consumer payments for loans made by the Tribes, transferring only a small percentage (no more than 4.5%) of revenue to the Tribes, with claims that even less reached them due to diversion for personal gain by tribal members. The loans to Plaintiffs were allegedly funded from a bank account of Think Finance, LLC, another of Rees's companies, while Tailwind Marketing, LLC, also owned by Rees, identified potential consumers for solicitation. Plaintiffs assert that TC Decision Sciences, another of Rees's companies, managed the websites, software administration, and customer service for the Defendants, who falsely portray themselves as the lenders. Plaintiffs filed a five-count class action complaint against Defendants for various state and federal violations related to an allegedly usurious loan operation, seeking a declaratory judgment to void the loan agreements, injunctive relief against the enterprise, compensatory damages, and recovery of costs and attorney's fees.

Defendants filed motions to dismiss and compel arbitration, claiming sovereign immunity. Plaintiffs requested jurisdictional discovery regarding this immunity claim, which Defendants opposed. The court paused the dismissal motions while considering the discovery request. Additionally, Great Plains filed a motion to stay proceedings pending a ruling from the Judicial Panel on Multidistrict Litigation (JPML) regarding a request to consolidate this case with others, which was scheduled for hearing on July 26, 2018. Great Plains also sought to submit supplemental authority related to another case's stay.

The decision to grant a stay of proceedings rests with the district court's discretion, emphasizing the need for judicial economy and the management of court resources. The party requesting the stay, in this case, Great Plains, must demonstrate "clear and convincing circumstances" that justify the stay, as opposed to merely arguing against it. The court found that Great Plains failed to meet this burden, leading to the denial of the motion.

In evaluating the interests at stake, the court determined that judicial economy does not support a stay because preliminary matters can be resolved while awaiting the Judicial Panel on Multidistrict Litigation (JPML) deliberation. The JPML has stated that stays, particularly regarding discovery, are usually undesirable, which the court affirmed. The limited number of cases Great Plains seeks to consolidate minimizes the risk of duplicative work, contrasting with typical situations involving many actions consolidated in multidistrict litigation. The court noted that the potential for waste exists both in granting and denying a stay but concluded that not granting the stay would not waste judicial resources, especially given the comprehensive briefing already completed by the parties. Thus, Great Plains's arguments did not satisfactorily demonstrate that a stay was warranted, leading to the denial of their request.

Potential hardship to Great Plains from defending multiple lawsuits is minimal, given only three actions are pending consolidation before the JPML. The other two actions involve small burdens on the defendants, with one case (Brice v. Rees) already stayed pending a JPML decision and another (Granger v. Great Plains Lending) also agreed to a stay during mediation. Great Plains' argument that it faces excessive litigation burdens without a stay is largely unfounded and fails to demonstrate hardship justifying a stay. Previous cases, such as Sehler and Williford, establish that inconvenience alone does not warrant a stay, particularly when the burden on Great Plains is less than in Williford. 

Great Plains claims that discovery demands are a significant hardship due to its sovereign status, referencing Crawford-El v. Britton. However, the core issue in this case challenges the validity of Great Plains’ sovereign immunity, which undermines their argument for a stay. A similar case found that a tribal entity's lending company was not entitled to sovereign immunity, which further weakens Great Plains' position. Consequently, the court concludes that the potential hardship to Great Plains is minimal compared to the interests of judicial economy and the potential prejudice to the plaintiffs if a stay is granted. 

Additionally, courts must assess potential prejudice to non-moving parties in granting a stay, considering factors like delay duration and ongoing harm. In this case, these factors also argue against a stay, and Great Plains has not provided compelling evidence to the contrary.

Awaiting a decision from the JPML (Judicial Panel on Multidistrict Litigation) could result in significant delays, which may prejudice non-moving parties. Previous cases indicate that delays of four to six months are deemed significant. In the current situation, since the JPML has yet to rule on the Motion for Consolidation and Transfer, no MDL exists, and no conditional transfer has been granted, both of which argue against a stay. Courts typically grant stays early in litigation to avoid prejudice, but this case has progressed significantly over a year, unlike earlier cases like Pagliara and Integra, where motions were filed shortly after initiation. Granting a stay now would further delay resolution and potentially harm the Plaintiffs.

Additionally, Plaintiffs claim ongoing harm from Defendants' actions, which weighs against granting a stay. Relevant case law shows that plausible allegations of continuous harm, such as environmental violations or anticompetitive conduct, can influence the decision. While Great Plains contests the assumption of harm from alleged illegal loans, the Court focuses on the potential prejudice to Plaintiffs. They assert that Defendants collected over $18.4 million unlawfully and imposed usurious interest rates of up to 448%. As collection continues, a stay would prolong payments on possibly illegal loans, heavily weighing against granting a stay.

The Court denied Great Plains' Motion to Stay, asserting that Great Plains failed to demonstrate clear and convincing circumstances warranting a stay. The Court emphasized that a stay would not promote judicial economy due to the limited number of related cases and the progress made in the current action. While acknowledging potential inconvenience to Defendants from duplicative litigation, the risk of significant prejudice to Plaintiffs was deemed more compelling, leading to the denial of the stay.

Regarding the Plaintiffs' Motion to Permit Jurisdictional Discovery, the legal standard allows for broad discovery under the Federal Rules of Civil Procedure. Courts have discretion to deny such requests if the plaintiff only presents speculative or conclusory claims. Jurisdictional discovery may be granted when specific, substantive allegations are made or when there are substantial gaps in the jurisdictional record. Plaintiffs provided detailed allegations contesting Defendants' sovereign immunity status, highlighting that the Tribes received minimal profits from Defendants' loans and questioning the extent of jobs purportedly provided to Tribe members, supported by various documents.

Plaintiffs allege that Think Finance, rather than the Tribes, exercised control over Defendants' daily operations, including application requirements, processing timelines, rejection rules, loan reselling, pricing, funding options, payment rules, and fee waiver policies. They provide supporting exhibits to substantiate these claims, raising significant questions about Defendants' assertion of sovereign immunity. Limited jurisdictional discovery is deemed necessary to clarify the relationship between Defendants and the Tribes.

Both parties agree that the Breakthrough factors serve as a framework for determining if an entity qualifies as an arm of a tribe entitled to sovereign immunity. These factors include the creation method, purpose, structure and management, the tribe's intent regarding immunity, financial relationships, and the underlying policies of tribal immunity concerning economic development. Although the Fourth Circuit has not formally adopted this framework, other courts in the circuit have applied it.

Plaintiffs seek information related to four of the six Breakthrough factors to aid in assessing whether Defendants share in the Tribes' sovereign immunity. They argue that understanding the circumstances of Defendants' formation as tribal entities is critical, particularly regarding who initiated relationships with the Tribes, the Tribes' role in contract negotiations, and whether tribal members were consulted or involved in establishing the lending enterprises.

Resolving the Defendants' claim of sovereign immunity requires the Court to assess how well Defendants fulfill their intended purpose of benefiting the Tribes financially and facilitating self-governance. Despite claims that a small percentage of profits are directed to the Tribes, there is insufficient evidence of the economic benefits to the Tribes. Plaintiffs seek discovery on job creation for tribe members, revenue distribution policies, and the beneficiaries of Defendants' lending practices.

To evaluate sovereign immunity claims, the Court will analyze the structure, ownership, and operational control of the Defendants by the Tribes. The Tenth Circuit's decision in Finn v. Great Plains Lending emphasizes the importance of actual control over operations, not just nominal authority. While Defendants assert that the Tribes control daily operations, Plaintiffs contend that third-party companies primarily manage the lending, necessitating a deeper investigation into the Tribes' management and control over Defendants.

Additionally, the financial relationship between Defendants and the Tribes is crucial for determining entitlement to sovereign immunity. The Court will examine whether the Tribes rely on Defendants for essential revenue and how a judgment against the tribal entities would impact the Tribes' financial resources. Plaintiffs have cited documents indicating the Chippewa Cree Tribe’s non-liability for a judgment against Plain Green and seek similar information regarding the Otoe-Missouria Tribe’s liability concerning Great Plains.

Jurisdictional discovery is warranted in this case despite the defendants' claims that it would infringe upon sovereign immunity principles. The defendants, identified as tribal entities, contest the plaintiffs' assertion of jurisdictional discovery based on cited case law; however, the circumstances here differ significantly. Unlike precedents where sovereign immunity was upheld, the defendants' status as arms of the tribes is under serious scrutiny. There is no evidence to suggest that the tribes do not own and control the entities involved, MobiLoans and Riverbend, which supports the need for jurisdictional discovery to assess the scope of their sovereign immunity. The court has granted the plaintiffs' motion for discovery, denied the motion to stay, and dismissed without prejudice other related motions, recognizing that the outcome of the jurisdictional discovery may influence subsequent briefings. The court retains original jurisdiction given the amount in controversy exceeds $75,000 and the parties are from different states. Additionally, the court acknowledges supplemental jurisdiction over the plaintiffs' state usury claims. The court also emphasizes that it will assume the truth of the well-pleaded allegations in the complaint, viewing them favorably toward the plaintiffs, who allege prior misconduct by a defendant in similar financial schemes.

Count I alleges that Defendants breached 18 U.S.C. § 1962(c) of RICO by engaging in the "collection of unlawful debt," as all loans to Virginia residents carried interest rates exceeding twice the legal limit in Virginia. Count II claims Defendants violated 18 U.S.C. § 1962(d) by conspiring to commit the violations outlined in Count I. Count III asserts that Defendants contravened Virginia usury laws by issuing loans with interest rates above 12%, violating Virginia Code § 6.2-303. Count IV contends that the choice of law and arbitration clauses in the lending agreements are void based on public policy. Count V claims unjust enrichment resulting from Defendants' illegal activities. The Court has approved the Plaintiffs' Motion to File Supplemental Authority. Additionally, Great Plains is seeking to consolidate and transfer two related cases, Brice v. Rees and Granger v. Great Plains Lending, LLC, which also address the legality of loans made by Great Plains. The Court likewise granted Great Plains's Motion to File Supplemental Authority. Great Plains argues that the Court should dismiss Plaintiffs' evidence on the basis that it predates the filing of the case; however, this assertion lacks support from relevant case law, including the Breakthrough factors from Breakthrough Management Group, Inc. v. Chukchansi Gold Casino and Resort.