Turner et al v. ZestFinance, Inc. et al

Complaint filed by Dianne Turner, Lula Williams, Renee Galloway, Marketa Bass, John Glatt, Gwendolyn Beck, Anastasia Sherman, Sheila Burns, Stanie Haggins, Keisha Hamm, David Hawkins, Sheila Simmons, Faith Thomas, Dashawn Hunter, Tonekia Showell, Sonji Grandy, Reginald Jones and Susie Allen against Zestfinance, Inc., Bluechip Financial and Douglas Merrill. (Filing Fee Paid: $400.00, Receipt Number: 0422-6596419). (Attachment: # 1 Civil Cover Sheet). Modified docket entry on 04/17/2019 and regenerated NEF. (walk,). Modified docket entry on 10/16/2019. (walk,).

Eastern District of Virginia, vaed-3:2019-cv-00293

Current View

Full Text

4 PageID# 56 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division DIANNE TURNER, LULA WILLIAMS, RENEE GALLOWAY, MARKETA BASS, Case No. 3:19-cv-00293-REP JOHN GLATT, GWENDOLYN BECK, ANASTASIA SHERMAN, SHEILA BURNS, STANIE HAGGINS, KEISHA HAMM, DAVID HAWKINS, SHEILA SIMMONS, CLASS ACTION COMPLAINT FAITH THOMAS, DASHAWN HUNTER, TONEKIA SHOWELL, SONJI GRANDY, REGINALD JONES, AND SUSIE ALLEN, JURY TRIAL DEMANDED individually and on behalf of all others similarly situated, Plaintiffs, v. ZESTFINANCE, INC., BLUECHIP FINANCIAL d/b/a Spotloan, and DOUGLAS MERRILL, Defendants. CLASS ACTION COMPLAINT COME NOW Plaintiffs Diane Turner, Lula Williams, Renee Galloway, Marketa Bass, Gwendolyn Beck, Anastasia Sherman, Sheila Burns, Stanie Haggins, Keisha Hamm, David Hawkins, Sheila Simmons, Faith Thomas, Dashawn Hunter, Tonekia Showell, Sonji Grandy, Reginald Jones, Susie Allen, and John Glatt, on behalf of themselves and all individuals similarly situated ("Plaintiffs"), by counsel, and for their Class Action Complaint against Defendants, allege as follows: -1- 4 PageID# 57 GENERAL ALLEGATIONS 1. This is a case about a scheme to make online short-term loans (commonly called "payday loans") that carry triple-digit interest rates, often exceeding 400%, and that are illegal in many states. 2. Payday loans often target vulnerable borrowers and, left unregulated, can economically devastate borrowers and their communities. Consumers often renew the loans or take out new loans when they are unable to pay their original loans off, creating a cycle of mounting debt. 3. In recent years, payday lenders have concocted various schemes to make high- interest loans over the internet while avoiding state usury laws. 4. In one scheme—the so-called "rent-a-bank" strategy—payday lenders convinced banks headquartered in states with high (or nonexistent) usury limits to form a lending venture in order to capitalize on the fact that the bank was obligated to comply only with the usury law of its home state, even for loans made elsewhere. 5. Federal banking regulators shut down these "rent-a-bank" schemes. Michael A. Stegman, Payday Lending, 21 JOURNAL OF ECONOMIC PERSPECTIVES 169, 178-9 (2007) (describing rent-a-bank scheme and regulatory reaction). 6. Some payday lenders have since developed a new method to attempt to avoid state usury laws—the "rent-a-tribe" scheme. 7. In a rent-a-tribe scheme, the payday lender—which does most of its lending over the internet—affiliates with a Native American tribe to attempt to insulate itself from federal and state law by piggy-backing on the tribe's sovereign legal status and its general immunity from suit under federal and state laws. -2- 4 PageID# 58 8. Like its predecessors, this scheme is doomed to fail because even a cursory examination of the underlying relationship between the payday lender and the tribe demonstrates that the relationship is insufficient to permit the lender to avail itself of the tribe's immunity. 9. Rent-a-tribe schemes are not designed to promote tribal business but instead are contrivances aimed at avoiding state usury law, with the vast majority of the revenues going to non-tribal entities. 10. In recent years, these rent-a-tribe schemes have come under increasing scrutiny from regulators, with one prominent perpetrator convicted and sentenced to 16 years in prison related to federal racketeering and truth-in-lending laws.1 11. This case is about such a rent-a-tribe scheme. In this case, non-tribal entities ZestFinance and Douglas Merrill provided the capital, marketing, underwriting, and other resources for BlueChip Financial dba Spotloan ("BlueChip"), a purportedly tribal entity in North Dakota that makes usurious loans to persons located throughout the United States. 12. Plaintiffs, on behalf of themselves and the Classes set forth below, seek to recover damages and penalties under state and federal law for the usurious interest and fees charged by Defendants. JURISDICTION AND VENUE 13. This Court has original jurisdiction over Plaintiffs' Racketeer Influenced and Corrupt Organizations ("RICO") claims under 18 U.S.C. § 1962, and 28 U.S.C. § 1331, and supplemental jurisdiction over Plaintiffs' state law claims under 28 U.S.C. § 1367. 1 See The United States Attorney's Office, Southern District of New York, Scott Tucker Sentenced To More than 16 Years In Prison For Running $3.5 Billion Unlawful Internet Payday Lending Enterprise (Jan. 8, 2018), https://www.justice.gov/usao-sdny/pr/scott-tucker-sentenced-more-16- years-prison-running-35-billion-unlawful-internet-payday. -3- 4 PageID# 59 14. This Court also has jurisdiction under the Class Action Fairness Act because Plaintiffs are citizens of Virginia, Florida, Georgia, Illinois, Maryland, New Jersey, North Carolina, and Texas, at least one Defendant is not a citizen of any of those states, the matter in controversy exceeds $5,000,000, and there are at least 100 members of each Class. 15. Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b) because a substantial part of the events giving rise to Plaintiffs' claims occurred in Virginia, including in this District and Division. Additionally, venue is proper in this Court pursuant to 18 U.S.C. § 1965(a) because Defendants transacted their affairs in this District and Division. THE PARTIES 16. Plaintiff Dianne Turner is a natural person and resident of Roanoke, Virginia. 17. Plaintiff Lula Williams is a natural person and resident of this Division. 18. Plaintiff Renee Galloway is a natural person and resident of this Division. 19. Plaintiff Marketa Bass is a natural person and resident of Danville, Virginia. 20. Plaintiff John Glatt is a natural person and resident of this Division. 21. Plaintiff Anastasia Sherman is a natural person and a resident of Tampa, Florida. 22. Plaintiff Sheila Burns is a natural person and a resident of Macon, Georgia. 23. Plaintiff Stanie Haggins is a natural person and a resident of Decatur, Georgia. 24. Plaintiff Keisha Hamm is a natural person and a resident of Conyers, Georgia. 25. Plaintiff David Hawkins is a natural person and a resident of Lithonia, Georgia. 26. Plaintiff Sheila Simmons is a natural person and a resident of Albany, Georgia. 27. Plaintiff Faith Thomas is a natural person and a resident of Snellville, Georgia. 28. Plaintiff Dashawn Hunter is a natural person and a resident of Homewood, Illinois. 29. Plaintiff Tonekia Showell is a natural person and a resident of Seaford, Maryland. 30. Plaintiff Sonji Grandy is a natural person and a resident of Bayonne, New Jersey. -4- 4 PageID# 60 31. Plaintiff Reginald Jones is a natural person and a resident of Greensboro, North Carolina. 32. Plaintiff Susie Allen is a natural person and a resident of Dallas, Texas. 33. Plaintiff Gwendolyn Beck is a natural person and a resident of Houston, Texas. 34. Defendant Douglas Merrill is a natural person residing in California. 35. Defendant ZestFinance, Inc. is a Delaware corporation headquartered in Los Angeles, California. 36. Defendant BlueChip Financial dba Spotloan is a purportedly tribal corporation located in Belcourt, North Dakota, and incorporated under the laws of the Turtle Mountain Band of Chippewa Indians. SERVICE ON THE ATTORNEY GENERAL 37. Counsel for Plaintiffs are causing a copy of this pleading to be served contemporaneously with this filing on the Attorney General of Illinois in accordance with 815 ILCS 505/10a(d). STATE USURY AND CONSUMER PROTECTION LAWS2 A. Virginia 38. Virginia's "usury laws serve a beneficial public purpose and are to be liberally construed with a view to advance the remedy and suppress the mischief." Radford v. Cmty. Mortg. & Inv. Corp., 226 Va. 596, 601 (1984). The Supreme Court of Virginia has repeatedly 2 Usury laws are not unique to the United States of America. Indeed, about "a dozen Biblical passages suggest that usurious lending, especially to the poor, is a grave sin." Christopher L. Peterson, "Warning: Predatory Lender"—A Proposal for Candid Predatory Small Loan Ordinances, 69 Wash & Lee L. Rev. 893, 896 n.9 (2012). Echoing these sentiments, Pope Francis recently explained that "Usury is a serious sin: it kills life, tramples on the dignity of people, is a vehicle for corruption and hampers the common good. It also weakens the social and economic foundations of a country." Pope Francis, Address to National Anti-Usury Council (Feb. 3, 2018), available at https://zenit.org/articles/pope-francis-usury-humiliates-and-kills. -5- 4 PageID# 61 acknowledged that Virginia's "usury statutes represent a clarification of the public policy of the state that usury is not to be tolerated, and the court should therefore be chary in permitting this policy to be thwarted." Id. at 601-02 (quoting Heubusch & Reynolds v. Boone, 213 Va. 414 (1972)). 39. In accordance with this longstanding public policy, Virginia's Consumer Finance Act prohibits a person from charging an annual percentage rate ("APR") exceeding 12% without first obtaining a consumer finance license from the Commonwealth. Va. Code §§ 6.2-1501(A), 6.2-303(A). The consumer finance licensing requirements are designed to protect Virginia consumers from predatory lenders like Defendants. 40. The Virginia General Assembly has expressly declared that any attempt to circumvent usury laws is "against public policy and void." Va. Code. § 6.2-306(A) ("Any agreement or contract in which the borrower waives the benefits of this chapter or releases any rights he may have acquired under this chapter shall be deemed to be against public policy and void."). This includes attempts to evade the application "by any device, subterfuge, or pretense whatsoever," including "procurement of a loan through any use or activity of a third person, whether real or fictitious." Va. Code. § 6.2-1541(C). 41. Any loan made in violation of Virginia's usury laws "shall be void" and "any principal or interest paid on the loan shall be recoverable by the person by or for whom payment was made." Va. Code § 6.2-1541(A)-(B). 42. Defendants were never licensed to make consumer loans in Virginia. B. Texas 43. Subject to limited exceptions, the maximum rate of interest allowed in Texas is 10%. Tex. Fin. Code § 302.001. -6- 4 PageID# 62 44. Texas law requires persons issuing consumer loans to obtain a license. Tex. Fin. Code § 342.051. Under certain conditions, licensees may exceed the 10% maximum interest rate for consumer loans not secured by real property, depending on the type of loan and subject to calculations made by the Consumer Credit Commissioner. Id. § 342.201. 45. Creditors who charge more than 10% in interest in violation of Texas's Finance Code are liable for the greater of (1) three times the amount of interest charged in excess of 10%, or (2) the lesser of $2,000 or 20 percent of the principal. Tex. Fin. Code § 305.001. 46. Additionally, if the interest charged and received is more than twice the permissible amount, the creditor will be held liable for the principal amount, the interest, and any other charges or fees. Tex. Fin. Code § 305.002. 47. Defendants were never licensed to make loans to Texas consumers. C. Florida 48. In Florida, the maximum allowable rate of interest on loans of $500,000 or less is eighteen percent (18%). Fla. Stat. § 687.03. 49. Florida makes it either a misdemeanor or felony—depending on the interest rate— to charge usurious interest in excess of twenty-five percent (25%). Fla. Stat. § 687.071. Loan contracts in excess of the 25% threshold triggering criminal liability for usury are "therefore void as against the public policy of the state as established by its Legislature." Richter Jewelry Co. v. Schweinert, 169 So. 750, 758-59 (Fla. 1935). 50. Lenders must be licensed by the Office of Financial Regulation, and loans of $25,000 or less with interest exceeding 18% per annum are void and unenforceable. Fla. Stat. § 516.02(1-2). 51. Under Florid