JAMES HAYES; DEBERA GRANT; HERBERT WHITE, on behalf of themselves and others similarly situated, Plaintiffs - Appellants,
DELBERT SERVICES CORPORATION, Defendant - Appellee. NATIONAL CONSUMER LAW CENTER; NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS; CENTER FOR RESPONSIBLE LENDING, Amici Supporting Appellants. JAMES HAYES; DEBERA GRANT; HERBERT WHITE, Plaintiffs - Appellees,
DELBERT SERVICES CORPORATION, Defendant - Appellant. NATIONAL CONSUMER LAW CENTER; NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS; CENTER FOR RESPONSIBLE LENDING, Amici Supporting Appellees
Argued: December 9, 2015.
Appeals from the United States District Court for the Eastern District of Virginia, at Richmond. (3:14-cv-00258-JAG). John A. Gibney, Jr., District Judge.
REVERSED AND REMANDED.
ARGUED: Matthew W.H. Wessler, GUPTA WESSLER PLLC, Washington, D.C., for Appellants/Cross-Appellees.
Brian Jason Fischer, JENNER & BLOCK LLP, New York, New York, for Appellee/Cross-Appellant.
ON BRIEF: Deepak Gupta, Jonathan E. Taylor, GUPTA BECK PLLC, Washington, D.C.; Jennifer D. Bennett, Leah M. Nicholls, PUBLIC JUSTICE, P.C., Washington, D.C.; James W. Speer, VIRGINIA POVERTY LAW CENTER, Richmond, Virginia; Dale W. Pittman, THE LAW OFFICE OF DALE W. PITTMAN, P.C., Petersburg, Virginia; Leonard A. Bennett, Susan M. Rotkis, CONSUMER LITIGATION ASSOCIATES, P.C., Newport News, Virginia; Kristi C. Kelly, Andrew J. Guzzo, KELLY & CRANDALL, PLC, Fairfax, Virginia, for Appellants/Cross-Appellees.
Barry Levenstam, Daniel T. Fenske, Chicago, Illinois, Katya Jestin, Neil M. Barofsky, New York, New York, Julie M. Carpenter, R. Trent McCotter, JENNER & BLOCK LLP, Washington, D.C., for Appellee/Cross-Appellant.
Tara Twomey, NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS, San Jose, California; Geoff Walsh, NATIONAL CONSUMER LAW CENTER, Boston, Massachusetts; Ellen Harnick, CENTER FOR RESPONSIBLE LENDING, Durham, North Carolina, for Amici Curiae.
Before WILKINSON, KEENAN, and HARRIS, Circuit Judges. Judge Wilkinson wrote the opinion, in which Judge Keenan and Judge Harris joined.
WILKINSON, Circuit Judge:
James Hayes, the lead plaintiff-appellant in this case, received a payday loan from a lender called Western Sky Financial, LLC. Defendant-appellee Delbert Services Corporation later became the servicing agent for Hayes's loan. Because Delbert's debt collection practices allegedly violated federal law, Hayes initiated a putative class action against Delbert. Claiming that Hayes and his fellow plaintiffs agreed to arbitrate any disputes related to their loans, Delbert moved to compel arbitration under the Federal Arbitration Act (" FAA" ), 9 U.S.C. § 4. The district court granted Delbert's motion.
We both respect and appreciate the support of Congress and the Supreme Court for an arbitration procedure that reduces the costs and delays of civil litigation. Our review of the record leads us to conclude, however, that the arbitration agreement in this case is unenforceable. The agreement purportedly fashions a system of alternative dispute resolution while simultaneously rendering that system all but impotent through a categorical rejection of the requirements of state and federal law. The FAA does not protect the sort of arbitration agreement that unambiguously forbids an arbitrator from even applying the applicable law. We therefore reverse the district court's order compelling arbitration and remand for further proceedings.
This case originates with the lending practices of Western Sky. Western Sky was an online lender owned by Martin Webb. Webb was a member of the Cheyenne River Sioux Tribe, and Western Sky's offices were located on the Cheyenne River Indian Reservation in South Dakota. From its base on the Reservation, Western Sky issued payday loans to consumers across the country.
Hayes's loan typifies Western Sky's lending scheme. Western Sky issued Hayes a $2,600.00 loan, $75.00 of which consisted of an origination fee. Hayes thus received $2,525.00 in cash. Western Sky charged interest on the $2,525.00 at an annual rate of 139.12%. This rate compelled Hayes to make monthly payments of $294.46 over the four-year life of the loan. All told, Hayes was set to pay
$14,093.12 for his $2,525.00. J.A. 152-53. The other named plaintiffs in this case received loans with terms that were just as bad or worse -- one of the loans came with an annual interest rate of 233.84%. J.A. 159, 166.
No one appears to seriously dispute that Western Sky's payday loans violated a host of state and federal lending laws. Indeed, a quick glance at Western Sky's loan agreement suggests that Western Sky was keenly aware of the dubious nature of its trade. The agreement provides that it is " subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe." J.A. 152 (emphasis in original). It later states that " no other state or federal law or regulation shall apply to this Loan Agreement." J.A. 152.
Despite Western Sky's best efforts, the law -- or at least the threat of the law -- caught up with it. A stream of private litigation and public enforcement actions seems to have led Western Sky to stop issuing new loans in 2013.
Unfortunately, however, the financial and legal problems wrought by Western Sky persisted. After issuing a loan, Western Sky's practice was to transfer the loan to an assortment of allied servicing and collection firms. In this case, Western Sky transferred Hayes's loan to WS Funding, LLC, which then named its corporate parent, CashCall, Inc., as the servicing agent. Sometime later, WS Funding transferred Hayes's loan to an entity called Consumer Loan Trust, which in turn named Delbert as the servicing agent. The loans issued to the other named ...