Opinion
CIVIL ACTION NO. 00-2949, SECTION "C" (1)
July 17, 2002
ORDER AND REASONS
Before the Court is Defendants' Motion for Reconsideration. By this motion, Defendants seek reconsideration of the Courts' denial of their Motion to Dismiss Plaintiff Johnetta McMahon's ("McMahon") claims pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962 (c) and (d). The Court shall treat the instant motion as one to dismiss the §§ 1962(c) and (d) claims pursuant to Federal Rule of Civil Procedure 12(b)(6). After reviewing the record, the arguments of counsel, and the relevant law, IT IS ORDERED that the motion to dismiss is hereby partially GRANTED and partially DENIED. IT IS FURTHER ORDERED the portion of the Court's May 29, 2002, Order dening Easy Money/LA's motion for summary judgment on the issue of whether the overlapping loans violated §§ 9:3578.6A(7) and 9:3578.6A(6) is hereby VACATED and the motion for summary judgment GRANTED to this extent.
I. BACKGROUND
Defendant Easy Money of Louisiana, Inc. ("Easy Money/LA") is a licensed consumer finance company with locations throughout the State of Louisiana. In procuring its consumer finance license from the Louisiana Office of Financial Institutions, Easy Money represented that it would primarily be engaged in the business of making "payday loans."
The Louisiana legislature passed the Louisiana Small Loan Act ("LSLA") for the purpose of regulating "payday loans," which are defined as "loans designed to tide consumers over until their next payday. They are normally for a term of one to two weeks and are for small dollar amounts. These loans meet a legitimate credit need for many consumers: however, they are ripe for abuse." La.R.S. § 9:3577.2 (1999). Thus, the intent of the LSLA was to "protect consumers" from such abuse. Id. The LSLA, together with the general provisions of the Louisiana Consumer Credit Law ("LCCL"), caps the fees a lender ma\ charge for loans of $500 or less "made to a consumer and which is due and payable within thirty days or less." § 9:3577.3(2) (1999). For instance, on loans from $100.00 to $200.00, a lender may collect an origination fee of no more than $10.00, and on loans from $201.00 to $500.00, the maximum allowable origination fee is $15.00. See § 9:3577.4(2)-(3) (1999). In addition, on loans up to $200.00, the lender is entitled to assess a minimum loan finance charge of $15.00, and on loans above that amount, the lender may include a charge of $25.00. See § 9:3519E 1999). Finally, the lender may charge a $5.00 documentation fee for each loan "as reimbursement for actual costs incurred." § 9:3530C(1) (1999). The LSLA prohibits, inter alia, prior loans made to a consumer from being "rolled over into [a] new loan for which he has applied." § 9:3577.6 (1999). Moreover, the LCCL provides that "[a]n extender of credit shall not divide a consumer credit transaction into multiple agreements for the purpose of obtaining a higher credit service charge, loan finance charge, or any other additional fee or charge permitted by [the LCCL]." § 9:3535.
The LSLA was repealed under Act 1315 of 1999, effective January 1, 2000, and replaced with the Louisiana Deferred Presentment and Small Loan Act ("LDPSLA"). § 9:3578.1, et seq. The intent of the LDPSLA is substantially similar to that of the LSLA, "to protect consumers from excessive charges" on, inter alia, small loans, § 9:3578.2. The LDPSLA defines small loans as consumer loans of $350 or less, "made for a term of sixty days or less." § 9:3578.3(6). The LDPSLA places a fee ceiling of 16.75 percent "of the face amount of the check issued" on these loans, but the charge on loans under the new statute may not exceed $45.00. § 9:3578.4A. The new law also extends additional protections by outlawing, for example, the division of a small loan "into multiple agreements for the purpose of obtaining a higher fee or charge," § 9:3578.6A(4), and the structuring of "the repayment of a loan in such a manner as to attempt to circumvent the provisions of [the LDPSLA]," § 9:3578.6A(6). Furthermore, § 9:3578.6A7 provides, in pertinent part, "Once a . . . small loan has been completed, a consumer may enter into a new transaction or loan with the licensee. A . . . small loan shall be considered completed when the amount advanced has been paid in full by the consumer."
As the Court noted in its May 29, 2002, Order disposing of a number of motions:
Easy Money/LA made a series of short-term loans to Plaintiffs McMahon and Sheila Bellizan ("Bellizan") and, in addition to charging interest, assessed a variety of fees in the course of processing the loan applications. Plaintiffs returned repeatedly to Easy Money/LA for loans, often repaying a loan and then procuring a new one the same day. For instance, on November 6, 1999, Easy Money/LA extended to Bellizan a loan for $201 with a finance charge of $45. See Rec. Doc. 67, Easy Money/LA's Mem. in Supp. of Mot. for Summ. J. at 8. Easy Money/LA alleges that on November 19, 1990. Bellizan repaid the loan and the finance charge, then took out another loan for $201 with a finance charge of $45. See id. at 8-9. It also is uncontroverted that Bellizan repaid and procured loans in these amounts and carrying the same finance charges on December 3, 1999, and December 17, 1999. See id. In each case, loaning Bellizan $201 enabled Easy Money/LA to procure $ 15 extra in fees than the company would have been entitled to had it lent Bellizan only $200. See § 9:3577.4 (1999).
In 2000, Bellizan took out additional loans, for which Plaintiffs do not assert any claims here. See Rec. Doc. 6 at Ex. A. Each agreement pertaining to these loans contained a clause providing for arbitration of "any and all claims, disputes or controversies . . . that may arise out of . . . the Loan Agreement." Id.
In December 2001, Bellizan returned to Easy Money/LA and took out two more loans. See Rec. Doc. 110 at Ex. A. On December 14, 2001, Bellizan procured a loan of $225. See id. On December 28, 2001, Bellizan was loaned $208. See id. Each loan agreement contains a clause providing, in pertinent part: "Borrower agrees that any and all claims, disputes or controversies that . . . Borrower may now and in the future have against Lender, Lender's Agents, Directors, Officers and/or employees, shall be resolved [by] binding individual (and not class) arbitration. . . ." Id. (emphasis added).
Additionally, Easy Money/LA on at least ten different occasions made two loans in rapid succession to McMahon, see Rec. Doc. 67, Easy Money/LA's Mem. in Supp. of Mot. for Summ. J. at 5-6, which would entitle Easy Money/LA to more fees than if Easy Money/LA were to loan the money to McMahon at one time. For example, on January 10, 2000, Easy Money/LA loaned McMahon $225, which, Easy Money/LA claims, entitled the company' to the statutory maximum fee of $45 under the LDPSLA. See Id. at 6, 8. Easy Money/LA then loaned McMahon another $100 four days later, charging McMahon another $20 in fees, a sum to which Easy' Money/LA also claimed it was entitled under the LDPSLA. See id. McMahon testified that when she had tried to take out a loan for $300, she was told by an Easy Money/LA clerk that the company would loan her only $200 in a single day and that she would have to return for the other $100. See Rec. Doc. 82, Ex. 2 at 106-08.
Rec. Doc. 118 at 3-5.
In their Class Action Complaint, filed October 4, 2000, Plaintiffs seek recovery against Defendants for making the above-mentioned loans in violation of the above-mentioned state laws. Sec Rec. Doc. 1. In their Second Amended Class Action Complaint, filed December 31, 2001. Plaintiffs allege that all Defendants except Easy Money/LA used Easy Money/LA and, alternatively. that all Defendant used an association in fact consisting of Easy Money/LA, Easy Money Holdings, Inc. ("EMH"). and Easy Money of Virginia, Inc. ("Easy Money/VA") (together "Easy Money association"), to procure these fees and to conspire to procure these fees in such a way as to violate § 1962. See Rec. Doc. 100 at ¶¶ 59-77.
The Court previously granted two motions that, together, dismissed Plaintiffs' § 1962(a) and (b) claims against Defendants with prejudice. See Rec. Docs. 42, 94. The Court also granted two motions to dismiss — one by Defendants EMH, Easy Money/VA, and David L. Greenberg, and the other by Defendants Tammi Van Gorder and Jerome Greenberg and motion for summary, judgment by Easy Money/LA with respect to Plaintiffs' § 1962(c) and (d) claims without prejudice. Additionally, the Court granted the motions to the extent they sought dismissal of the state claims and denied Plaintiffs' motion for class certification without prejudice. See id. The Court, however, deferred the orders dismissing the §§ 1962(c) and (d) and state claims to allow Plaintiffs to file an amended complaint addressing the deficiencies that necessitated the dismissal of these claims. See id. Plaintiffs then filed their Second Amended Class Action Complaint. See Rec. Doc. 100.
The following motions were then filed: Defendants' Motion to Compel Arbitration of Bellizan's claims, see Rec. Doc. 102; Easy Money/LA's Motion for Summary Judgment, see Rec. Doc. 67; and a Rule 12(b)(6) motion to dismiss of Easy Money/LA, EMH, Easy Money/VA, David Greenberg, Van Gorder, and Jerome Greenberg, see Rec. Doc. 101.
On May 29, 2002, the motion to compel arbitration was granted: the motion for summary judgment partially granted, partially denied, and partially dismissed as moot; and the Rule 12(b)(6) motion to dismiss partially denied and partially dismissed as moot. See Rec. Doc. 118.
Defendants now seek reconsideration of that part of the May 29, 2002, Order denying dismissal of McMahon's §§ 1962(c) and (d) claims.
II. ANALYSIS
As an initial matter, the Court declines to address the instant motion as one for reconsideration of that part of the Court's May 29, 2002, Order denying dismissal of McMahon's §§ 1962(c) and (d) claims. First, Defendants' argument for dismissal of McMahon's § 1962(c) claims is raised for the first time here. Second, Defendants' argument for dismissal of McMahon's § 1962(d) claims is premised on the non-existence of a viable claim under § 1962(c). As the Court previously rejected Defendants' arguments for dismissing the § 1962(c) claim and as Defendants do not challenge here the Court's rationale in the May 29, 2002, Order for rejecting those arguments, there is no portion of that Order to reconsider. Accordingly, as mentioned above, the Court shall treat the instant motion as one to dismiss the § 1962(c) and (d) claims under Rule 12(b)(6).
A. STANDARD OF REVIEW
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, a district court must accept the factual allegations of the complaint as true and resolve all ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. See Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993). Unless it appears "beyond a doubt that the plaintiff can prove no set of facts in support of his claim," the complaint should not be dismissed for failure to state a claim. Id. at 284-285 (quoting Conley v. Gibson, 355 (U.S. 41, 45-46 (1957)). However, conclusory allegations or legal conclusions masquerading as factual conclusions will not defeat a motion to dismiss. See Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995) (citing Fernandez-Montes, 987 F.2d at 284).
B. DISCUSSION
The Court begins by noting the following portion of its May 29, 2002, Order:
. . . the LCCL provides, "[a]n extender of credit shall not divide a consumer credit transaction into multiple agreements for the purpose of obtaining a higher credit service charge, loan finance charge, or any other additional fee or charge permitted by [the LCCL]." § 9:3535. There is evidence that Easy Money/LA repeatedly violated § 9:3535. . . . McMahon testified to the effect that when she sought to borrow $300, she was told by an Easy Money/LA clerk she could borrow only $200 at one time, but could come back after 24 hours for another $100. See Rec. Doc. 82, Ex. 2 at 106-08. There is evidence corroborating McMahon's testimony: on five separate occasions, Easy Money/LA loaned McMahon $201 on one occasion and then $100 several days later. See Rec. Doc. 67. Easy Money/LA's Mem. in Supp. of Mot. for Summ. J. at 5-6. Ignoring for a moment the restriction on such activity' by § 9:3535, such a structuring of the transactions entitled Easy Money/LA to collect $75. Had Easy Money/LA loaned McMahon $301 on one occasion. however, the lender would have been able to collect $45. Thus, there is ample evidence that Easy Money/LA divided McMahon's 1999 loan transactions to collect higher fees than would have been available had it provided larger, requested sums at one time. Thus there is evidence that these transactions violated § 9:3535.
The pattern continued in 2000. On five different occasions, Easy Money/LA loaned McMahon $225 on one occasion, then another $100 several days later, charging her $45 and $20 in fees respectively. See Rec. Doc. 67, Easy Money/LA's Mem. in Supp. of Mot. for Summ. J. at 6. Assuming that the split loan was lawful, Easy Money/LA apparently would have been entitled to collect only $54.44, or 16.75 percent of $325, whereas had the lender loaned the $325 at one time to McMahon, it would have been permitted to charge no more than $45 in fees. There thus is evidence that Easy Money/LA's arrangement with McMahon violated the LDPSLA's specific provision banning such multiple agreements, see § 9:3578.6A(4), as well as the statute's more general prohibition against "[s]tructur[ing] the repayment of a loan in such a manner as to attempt to circumvent the provisions of [the LDPSLA]," § 9:3578.6A(6).
Easy Money/LA also has failed to meet its summary judgment burden under the last part of § 9:3578.6A(7), which provides, "Once a . . . small loan has been completed, a consumer may enter into a new . . . loan with the [lender]. A . . . small loan shall be considered completed when the amount advanced has been paid in full by the consumer." Section 9:3578.6A(6) further provides. "A licensee shall not . . . [s]ructure the repayment of a loan in such a manner as to attempt to circumvent the provisions of [the LCCL]." There is evidence that on five different occasions in 2000, small loans to McMahon were not "completed" under the meaning of § 9:3578.6A(7) before Easy Money/LA entered into a new loan agreement with her. On each occasion, Easy Money/LA extended a loan of $225 to McMahon, followed by another loan of $100 before McMahon had paid off the original $225 loan. See Rec. Doc. 67, Easy Money/LA's Mem. in Supp. of Mot. for Summ. J. at 6[.] Accordingly, summary judgment is denied on Easy Money. LA's assertion that it did not violate the terms of the final part of § 9:3578.6A(7).
The inference is that this testimony relates to loan transactions in 1999. As noted above, Easy Money/LA often made paired loans to McMahon totaling $301 in 1999.
Rec. Doc. 118 at 18-19 (omissions added and in the original).
In sum, for the foregoing reasons, summary judgment was denied to the extent Easy Money/LA argued that it did not violate the substantive provisions of the state statutes discussed in this excerpt of the May 29, 2002, Order. See id. at 20.
Defendants now seek to dismiss McMahon's §§ 1962(c) and (d) claims on the basis that the loans described above did not violate § 1962(c)'s prohibition against making a loan at an interest rate "at least twice the enforceable rate[.]" § 1961(6). Because the loans did not violate § 1962(c), and a violation of § 1962(d) requires a violation of § 1962(c), Defendants argue, McMahon's § 1962(d) claims must be dismissed.
Section 1962(c) provides.
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
Section 1961(6) defines "unlawful" debt, in pertinent part, as "a debt . . . incurred in connection with . . . the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate[.]"
With respect to whether the allegedly split loans run afoul of § 1962(c), Defendants argue, in effect, that each pair of loans must be examined as a single transaction. For example, Easy' Money/LA's 1999 paired loans to McMahon totaling $301 carried total loan finance charges of $40. Had Easy Money/LA made both loans in one transaction, it would have been entitled to a loan finance charge of $25. As $40 is not twice the enforceable rate of $25, Defendants contend, this loan arrangement does not violate § 1962(c). For the same reason, Defendants claim, the 2000 paired loans to McMahon as described above also are not unlawful under § 1962(c). As described above, Easy Money/LA's 2000 paired loans to McMahon totaling $325 carried fees of $65. Had Easy Money/LA made both loans in one transaction. Defendants point out, Easy Money/LA would have been entitled to a loan finance charge of $45. As $65 is not twice the enforceable rate of $45. Defendants' argument goes, this loan arrangement also does not violate § 1962(c). Accordingly, Defendants conclude, McMahon's § 1962(c) claims based on alleged loan splitting must be dismissed.
McMahon appears to argue, on the other hand, that because the split transactions were illegal, the entire amount charged for the second loans in each pair was illegal. Accordingly, McMahon's argument apparently goes, Easy Money/LA was not entitled to charge any fee for each of the second loans. As such, McMahon apparently contends, any fee charged was at least twice the enforceable rate and hence violative of § 1961(6) and thus § 1962(c).
The Court disagrees with this assessment. First, for the Court to conclude that collection of an unlawful debt violates § 1962(c), it must find that a loan carries "twice the enforceable interest rate" pursuant to § 1961(6). See Durante Bros. Sons, Inc. v. Flushing Nat'l Bank, 755 F.2d 239, 249 (2d Cir. 1985) (emphasis added). Accordingly, the Court looks only to whether the loan finance charges collected exceed twice the enforceable rate. Additionally, the paired loans must be considered together in determining whether the loan finance charges exceed twice the enforceable rate, since it is only in being considered together that the second loan arguably becomes improper.
In light of this conclusion, the Court addresses whether the loan-splitting scenario as described above violates § 1962(c). Sections 9:3535 (1999) and 3578.6A(4) both prohibit loan splitting to collect a higher finance charge. Thus, these prohibitions make unenforceable the collection of a loan finance charge, but only to the extent it exceeds what a lender could have collected had it made the loan in one transaction. As Defendants demonstrate, the combined loan finance charges on none of the paired loans described above equals at least twice what Easy Money/LA could have charged had it made both loans in each pair at one time. Thus, the alleged loan splitting does not violate § 1962(c). Accordingly, the motion to dismiss McMahon's § 1962(c) claims is granted to the extent they are based on alleged loan splitting.
Defendants further contend that the only substantive state violations found by the Court were for loan splitting and that, accordingly, any §§ 1962(c) or (d) claims must be based on the underlying loan-splitting claims. The Court notes, however, that it also found substantive state violations of §§ 9:3578.6A(7) and 9:3578.6A(6) for the 2000 loans made to McMahon despite the existence of outstanding, unpaid loans. Sec Rec. Doc. 118 at 19-20. Defendants have not moved here to dismiss the §§ 1962(c) or (d) claims to the extent they are based on violations of §§ 9:3578.6A(7) and 9:3578.6A(6). The Court, however, has reexamined its conclusion that §§ 9:3578.6A(7) and 9:3578.6A(6) were violated by the 2000 loans made to McMahon despite the existence of outstanding, unpaid loans, and now' finds this conclusion clearly erroneous.The Court now concludes that § 9:3578.6A(7) prohibits rollover or renewal loans, not overlapping loans of the kind made to McMahon. Accordingly. the Court vacates the portion of its May 29, 2002, Order denying Easy Money/LA's motion for summary judgment on the issue of whether the overlapping loans violated §§ 9:3578.6A(7) and 9:3578.6A(6) and grants the motion for summary judgment to this extent.
The Court notes may, "sua sponte . . ., correct clear errors of . . . law in an interlocutory order." Young v. Murphy, 161 F.R.D. 61, 62 (N.D. Ill. 1995). In the portion of its May 29, 2002, Order finding that § 9:3578.6A(7) was substantively violated by the 2000 loans made to McMahon despite the existence of outstanding, unpaid loans, the Court left open the possibility that a § 1962(c) claim could be premised on this state-law violation and denied Defendants' motion to dismiss the § 1962(c) claims. Thus, this portion of the Order is interlocutory. Moreover, as noted above, the Court has found that this conclusion was a clear error of law. Accordingly, the Court may, sua sponte, correct that error here.
As these overlapping loans do not violate state law, the Court shall entertain a motion to dismiss McMahon's §§ 1962(c) and (d) claims based on these loans.
As McMahon's § 1962(c) loan-splitting claims have been dismissed, and as "[a]ny [§] 1962(d) claim based on the conspiracy to violate Section 1902(c) fails as a result of this dismissal," Blanchard Co. v. Contursi, 2000 U.S. Dist. LEXIS 6672, at * 12 n. 5 (E.D. La. May 11, 2000), McMahon's § 1962(d) loan-splitting claims also must be dismissed.
The Court acknowledges that in its May 29, 2002, it erroneously applied the criminal RICO case of United States v. Phillips, 664 F.2d 971, 1038 (Former 5th Cir. 1981), overruled on other grounds by United States v. Huntress, 956 F.2d 1309 (5th Cir. 1992), in its discussion of this issue.
III. CONCLUSION
Accordingly,
IT IS ORDERED that:
(1) Defendants' motion to dismiss McMahon's §§ 1962(c) and (d claims is hereby partially GRANTED and partially DENIED, and
(2) the portion of the Court's May 29, 2002, Order denying Easy Money/LA's motion for summary judgment on the issue of whether the above-mentioned overlapping loans violated §§ 9:3578.6A(7) and 9:3578.6A(6) is hereby VACATED and the motion for summary judgment GRANTED to this extent.