Brice v. Stinson

Background

Kimetra Brice, Earl Browne, and Jill Novorot brought a class action against defendants connected to Think Finance, LLC. The plaintiffs allege that Think Finance and its subsidiaries used a lending arrangement involving several tribes to avoid state usury laws. They claim that defendants owned, invested in, or participated in the lending enterprise and received profits from it.

The plaintiffs assert claims on behalf of a proposed class of California consumers who took out similar loans. The opinion identifies claims under the federal Racketeer Influenced and Corrupt Organizations Act, California usury laws, and unjust enrichment.

Motions to Stay and Compel Arbitration

The Sequoia defendants moved to stay the case pending arbitration. The Shareholder Defendants moved to compel arbitration under arbitration agreements in the loan contracts. The court applied the Federal Arbitration Act, which generally requires enforcement of valid arbitration agreements covering the dispute.

The court relied on its earlier ruling involving the same arbitration agreements in a prior related proceeding. In that ruling, it concluded that the agreements were unenforceable because their choice-of-law provisions, together with provisions limiting the law that an arbitrator could apply, operated as an impermissible prospective waiver of the plaintiffs’ legal rights and remedies.

The defendants argued that delegation provisions required an arbitrator to decide the agreements’ scope and enforceability. Judge Orrick rejected that argument. He agreed with the reasoning of the Second Circuit in a materially similar case that the presence of a delegation provision did not require sending the enforceability issue to an arbitrator when the arbitration agreement itself was invalid. He also concluded that the unlawful choice-of-law provisions could not be severed from the rest of the arbitration agreements because they went to the agreements’ core and left nothing meaningful to enforce.

The motions to stay and compel arbitration were DENIED.

Motion to Transfer

The defendants alternatively sought to transfer the case to the Northern District of Texas, where bankruptcy proceedings involving Think Finance were pending. They argued that the claims against the defendants were related to those bankruptcy proceedings. The plaintiffs opposed transfer, noting that a global settlement had been reached and preliminarily approved in the bankruptcy case and disputing that transfer served convenience or the interests of justice.

The court assumed, without deciding, that the claims were sufficiently related to the bankruptcy proceedings for the transfer statute to apply. It nevertheless held that transfer was not warranted. The bankruptcy proceedings were near resolution, so transfer would not promote efficient administration of the bankruptcy estate. Transfer also would not improve judicial efficiency because Judge Orrick was already familiar with this case and a related case involving the same tribal-lending scheme. The court further found that California’s interest in resolving California usury claims there, and the plaintiffs’ choice of a California forum, weighed against transfer.

The court found that discovery from the Texas bankruptcy proceedings would reduce, but not eliminate, the defendants’ burden of litigating in California. On balance, it concluded that convenience did not independently justify transfer. The motion to transfer was DENIED.

Disposition

Judge William H. Orrick’s conclusion was that the defendants’ motions to stay, to compel arbitration, and to transfer were all DENIED. The opinion resolved the arbitration and venue requests; it did not decide whether the plaintiffs would ultimately prevail on their claims concerning the loans.