McIntosh v. Global Trust Management, LLC

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

AMI DUNN,

Plaintiff,

v. Case No. 8:19-cv-2223-WFJ-AEP

GLOBAL TRUST MANAGEMENT, LLC, and

FRANK TORRES,

Defendants.

__________________________________

ASHANTI MCINTOSH,

Plaintiff,

v. Case No. 8:19-cv-2532-WFJ-AEP

GLOBAL TRUST MANAGEMENT, LLC, and

FRANK TORRES,

Defendants.

__________________________________/

ORDER

The Tunica-Biloxi Tribe of Louisiana (“Tribe”) was federally recognized in

1981. Their reservation consists of 1,717 acres sited mainly in Avoyelles Parish,

Louisiana. The Tribe has 1,226 enrolled members. According to the Tribe,

“Avoyelles Parish was among the poorest in Louisiana, with an unemployment rate

higher than the state and national averages.” Tunica-Biloxi Tribe of Louisiana

Official Website, https://www.tunicabiloxi.org/history (last visited Nov. 12, 2020).

This plight started to change in 1994 when the Tribe opened a casino. Id.

The Tribal Center has now expanded and boasts of a museum exhibit hall,

conservation and restoration laboratory, gift shop, library, auditorium, class and

meeting rooms, and tribal government offices. “Traditions of crafts, music,

folklore and dance are shared at the annual inter-tribal pow wow and dance

competition.” Id.

The Tribe has embraced other ancient traditions, albeit ones that are new to

the Tribe: loansharking and usury. Usury is an ancient crime by which the

powerful exploit the most poor and desperate. This act is made all the more

unsavory when done, as here, with utter cynicism cloaked in legal camouflage that

seeks to enforce loans with annual interest rates of up to 440%.

Usury has been forbidden for millennia by civilized society. The strong

victimize the weak. It makes the rich richer and the poor poorer.1

1 Usury indeed pays. From 2011 to 2018, the lending company owned by the Tribe (Mobiloans,

Inc.) and two other tribal-affiliated lending companies received more than $325 million in fees

over the principal amount borrowed on loans these lenders issued in 17 different states, only a

fraction of the states in which the lenders operate. This amount does not even include fees the

lenders received on loans where the total fees repaid did not exceed the loan principal. See

Stipulated Final Consent Order, CFPB v. Think Fin., LLC, No. 17-cv-127-BMM (D. Mont. Feb.

6, 2020), ECF No. 107.

The Code of Hammurabi (circa 1750 B.C.) barred usury. Both Plato and

Aristotle noted it is immoral and unjust. The Roman Code of Justinian barred

usury, as did the Abrahamic religions.2 The prophet Ezekiel listed usury among

abominations like violence and rape. See Ezekiel 18:8–21. In The Inferno, Dante

placed usurers in the seventh circle of hell—below murderers. Shakespeare of

course illustrated its corrosive traits in the notorious The Merchant of

Venice. Usury and loansharking were outlawed in all the American colonies,

following English common law practice. And usury is a crime in Florida, see Fla.

Stat. § 687.071 (2019), as well as the State of Louisiana where the Tribe is located,

see La. Stat. § 14:511 (2019).

As ancient as the practice of usury and loansharking may be, equally old are

circumvention schemes to avoid its prohibition. That is what we have here, plain

and simple. To permit this conduct to continue will simply eviscerate usury laws in

every state where operators, hiding behind the cloak of tribal immunity, seek to

go.

2 See Leviticus 25:36–37 (“Take thou no interest of him, or increase: but fear thy God; that thy

brother may live with thee. /Thou shalt not give him thy money upon interest, nor give him thy

victuals for increase.”); The Qur’an, Al-Baqarah 2:278–79 (Sahih Int’l Translation) (“O you who

have believed, fear Allah and give up what remains [due to you] of interest, if you should be

believers./ And if you do not, then be informed of a war [against you] from Allah and His

Messenger. But if you repent, you may have your principal—[thus] you do no wrong, nor are

you wronged.”).

Plaintiffs Ami Dunn and Ashanti McIntosh, both Florida residents, received

lines of credit from Mobiloans, Inc., an online lending company purportedly

owned by the Tunica-Biloxi Tribe. Plaintiffs eventually defaulted on their

payments. Defendants Global Trust Management, LLC (“GTM”) and Frank

Torres, GTM’s chief operations officer, purchased the past-due accounts from

Mobiloans and tried to collect what Plaintiffs owed. In response, Plaintiffs filed

this lawsuit, alleging that Defendants’ collection efforts violated the Fair Debt

Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., and the Florida

Consumer Collection Practices Act (“FCCPA”), Fla. Stat. § 559.55, et seq. D.Dkt.

1; M.Dkt. 1.3

Now before the Court are Defendants’ Motions to Compel Arbitration

according to the Mobiloans account terms, and Motions, in the Alternative, for

Judgment on the Pleadings, D.Dkt. 13; M.Dkt. 24, along with Plaintiffs’ responses,

D.Dkt. 18; M.Dkt. 31, and Defendants’ replies thereto, D.Dkt. 23; M.Dkt. 34.

Plaintiffs have also moved in limine to exclude from the Court’s consideration

what they claim are unauthenticated copies of the Mobiloans account terms that

Defendants have produced to support arbitration. D.Dkt. 30; M.Dkt. 43.

Defendants have also responded to these motions. D.Dkt. 34; M.Dkt. 44.

3 “D.Dkt.” denotes citations to the record in Case No. 8:19-cv-2223-WFJ-AEP, and “M.Dkt.”

citations to the record in Case No. 8:19-cv-2532-WFJ-AEP.

After reviewing the parties’ submissions and with the benefit of oral

argument, the Court denies Plaintiffs’ Motions in Limine; denies Defendants’

Motions to Compel Arbitration; and grants in part and denies in part Defendants’

Motions for Judgment on the Pleadings. As explained below, the Court finds

Plaintiffs, by applying for internet payday loans and clicking boxes, did click the

agreement to arbitrate all disputes related to their credit accounts. But the proposed

arbitration proceeding strips Plaintiffs of the ability to vindicate any of their

substantive state-law claims or rights. This renders any agreement to arbitrate

unconscionable and unenforceable on these unique facts. In truth, the setup is a

scheme to hide behind tribal immunity and commit illegal usury in violation of

Florida and Louisiana law.

BACKGROUND

This tribal payday lending business model

Before getting to the details of the arbitration agreement, an overview of the

tribal payday lending model will afford some useful context.

A payday loan provides a cash advance for people to cover unforeseen

expenses. The loan is usually for a small amount, often $500 or so. The borrower

must repay the principal plus a finance charge (around 10% of the principal) before

the next payday. If the loan is not paid in full, the borrower incurs another finance

charge, which is added to the past-due amount. This new balance then becomes

due on the borrower’s next payday. This process continues until the borrower pays

the loan balance. As a result, the costs associated with a payday loan can be

astronomical, with interest rates that can top 1,000% when calculated on an annual

percentage basis. See Nathalie Martin, 1,000% Interest—Good While Supplies

Last: A Study of Payday Loan Practices and Solutions, 52 Ariz. L. Rev. 563, 565

(2010).

The combination of high interest rates and a vulnerable borrower population

provides a ripe target for predatory lenders. Because of this risk, the payday loan

industry has also become a target of legislators and regulators at both the federal

and state levels.

At the federal level, Congress has passed legislation to protect borrowers

from deceptive and abusive lending practices. The Truth in Lending Act, 15 U.S.C.

§ 1601, et seq., requires lenders to clearly disclose the true costs of a loan,

specifically the finance charges and the annual percentage rate (APR). The Dodd-

Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5301, et seq.,

established the Consumer Financial Protection Bureau (“CFPB”). The CFPB has

authority to bring enforcement actions against lenders for abusive practices that

“materially interfere” with consumers’ ability to understand the conditions of a

consumer finance product, 12 U.S.C. § 5531(d)(1), or that take “unreasonable

advantage” of consumers’ lack of understanding of material risks associated with

these products, 12 U.S.C § 5531(d)(2)(A).

States have enacted more comprehensive and direct restrictions. Many states

require lenders to obtain a state license to issue low-dollar consumer loans and

have capped interest rates on these loans. Florida, the Plaintiffs’ home state, does

both. Lenders must obtain a license from the Florida Office of Financial

Regulation to issue consumer loans (those under $25,000) within the state. Fla.

Stat. § 516.02(1) (2019).4 Florida also caps interest on consumer loans at 30% per

year. § 516.031(1). Loans that charge excessive interest are unenforceable.5 §

516.02(2)(c).

Enter the tribes. Native American tribes occupy a unique space in American

law. They are “domestic dependent nations that exercise inherent sovereign

authority over their members and territories.” Okla. Tax Comm’n v. Citizen Band

Potawatomi Tribe of Okla., 498 U.S. 505, 509 (1991). As dependent nations,

federally recognized tribes are “subject to plenary control by Congress.” Michigan

v. Bay Mills Indian Cmty., 572 U.S. 782, 788 (2014). With their sovereign status,

4 All citations to the Florida Statutes refer to the 2019 version unless otherwise stated.

5 Florida law delineates between consumer loans and traditional payday loans, also called

“deferred presentment transactions,” in which the borrower provides the lender with a post-dated

personal check to receive funds. Section 560.404 of the Florida Statutes sets the rules for

deferred presentment transactions and allows for annualized interest rates higher than those

allowed for consumer loans. Internet-generated loans and lines of credit, however, are treated

like regular consumer loans, and so their interest rates are capped at 30%.

tribes enjoy common law immunity from suit, absent congressional authorization

to the contrary or waiver. Id. at 789. This immunity applies equally to suits based

on a tribe’s commercial activities, “even when [the activities] take place off Indian

lands.” Id. at 790.

Thus, the tribes’ unique status offers a path around state regulatory regimes.

Leveraging their sovereign status, tribes have created payday lending companies,

which, as “arms of the tribe,” share in the tribe’s sovereign immunity. See Williams

v. Big Picture Loans, LLC, 929 F.3d 170, 176 (4th Cir. 2019). This cloak of

immunity allows tribal lending companies and lenders who partner with them to

attempt to avoid state interest caps and licensing requirements.6 If this attempt

succeeds, the tribal-affiliated lenders are subject only to more indirect federal

regulations.

The rise of internet consumer lending has made the tribal lending model

immensely profitable and has spurred an increase in the number of tribal-affiliated

6 Partnerships between payday lenders and the tribes are colloquially referred to as “rent-a-tribe”

agreements because the payday lenders will frequently “offer[] tribes compensation to allow the

[lenders] to organize under the tribe’s name, while the lenders maintain functional control of the

entity. Typically, a payday lender will reorganize an existing company under a tribe’s name in

exchange for monthly payments to the tribe—usually a percentage of monthly profits.” Gibbs v.

Rees, No. 17-cv-386, 2018 WL 1460705, at *1 n.2 (E.D. Va. Mar. 23, 2018) (quoting Heather L

Petrovich, Comment, Circumventing State Consumer Protection Laws: Tribal Immunity and

Internet Payday Lending, 91 N.C. L. Rev. 326, 342 (2012)).

lenders.7 Through the internet, these lenders can now reach borrowers across the

country, thousands of miles from the reservation.

The internet also allows these lenders to shed the old deferred-presentment

model that required a borrower to provide a post-dated check to receive funds.

Borrowers can now open “lines of credit” by clicking through a loan agreement

offered through a lender’s website. The borrowers then give the lender direct

access to their bank accounts to deposit funds and withdraw payments. The loan

agreement often requires the borrowers to acknowledge the lender’s connection to

a sovereign tribe and to accept that a specific tribe’s laws will govern the loan. And

relevant to our purposes here, the borrowers also agree to arbitrate any claims

related to the loan according to the laws of the tribe.

The tribal lending model has not escaped criticism. In fact, it has been

roundly condemned. As Justice Thomas opined, the use of tribal immunity to skirt

state payday loan regulations is just part of the growing trend of exploiting tribal

immunity as a form of de facto deregulation that “often extinguishes[] the States’

ability to protect their citizens and enforce the law against tribal businesses.” Bay

Mills, 572 U.S. at 823–25 (Thomas, J., dissenting). This gaming of the system

7 Jessica Silver-Greenberg, Payday Lenders Join with Indian Tribes, Wall St. J. (Feb. 10, 2011),

http://online.wsj.com/article /SB10001424052748703716904576134304155106320.html (noting

that in 2010, 35 of the 300 companies making payday loans through the internet were owned by

American Indian tribes, and these tribal lenders generated $420 million in payday loans that

year).

hurts not only consumers but tribes as well. As scholars have explained, the

continued perception that tribal immunity is being exploited to victimize non-

Indians otherwise protected under state law invites congressional action and could

spell the end for tribal immunity. See Alex Tallchief Skibine, The Indian Gaming

Regulatory Act at 25: Successes, Shortcomings, and Dilemmas, 60 The Federal

Lawyer 35, 40 (Apr. 2013); Nathalie Martin & Joshua Schwartz, The Alliance

Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and Consumer

Protection at Risk?, 69 Wash. & Lee L. Rev. 751, 787–88 (2012).

On the enforcement front, attorneys general across the country have cracked

down on unlicensed tribal-affiliated lenders seeking to avoid state usury laws. For

example, several states, including Florida, have sued and reached multi-million-

dollar settlements with CashCall, Inc. and Western Sky Financial, LLC—two

online payday lenders that issued usurious loans while claiming tribal affiliation

but lacked a connection to a tribe sufficient to confer immunity.8

The CFPB has also brought enforcement actions against tribal-owned

lenders and companies servicing loans on their behalf. Just this year, the CFPB

8 See, e.g., Press Release, Minn. Com. Dep’t, Minnesota Commerce Department and Attorney

General Reach $4.5 Million Settlement with California Company over Illegal, High-Interest

Online Loans (Aug. 18, 2016), https://mn.gov/commerce/media/news/?id=17-253055; Press

Release, Office of the Att’y Gen., Attorney General Chris Carr Announces $40 Million Plus

Settlement with Online Payday Lender (Feb. 08, 2017), https://law.georgia.gov/press-

releases/2017-02-08/attorney-general-chris-carr-announces-40-million-plus-settlement; Melissa

Daniels, CashCall, Western Sky Reach $1.25M Deal With Fla. AG, Law360 (Jan. 13, 2017),

https://www.law360.com/articles/881067/cashcall-western-sky-reach-1-25m-deal-with-fla-ag.

reached a settlement with Think Finance, LLC, a loan servicer for several tribal

lenders including Mobiloans. See Stipulated Final Consent Order, CFPB v. Think

Fin., LLC, No. 17-cv-127-BMM (D. Mont. Feb. 6, 2020), ECF. No. 107. In that

case, the CFPB alleged that Think Finance and its subsidiaries operated a common

enterprise with tribal lenders to offer and collect on online installment loans that

violated state usury laws. See Compl., CFPB v. Think Fin., LLC, No. 17-cv-127-

BMM (D. Mont. Nov. 15, 2017), ECF. No. 1. The CFPB alleged that Think

Finance made deceptive demands and illegally took money from borrowers’ bank

accounts for debts the borrowers did not actually owe because the loans were

partially or completely void under the laws of the borrowers’ home states. Id. The

settlement bars Think Finance from assisting tribal lenders in offering or collecting

on loans in 17 different states if the loan terms violate state lending laws.

Stipulated Final Consent Order, ECF No. 107. In a related nationwide class action,

Mobiloans agreed to cancel loans it originated in conjunction with services

provided by Think Finance. Order Granting Final Approval of Class Action

Settlement, Certifying Settlement Class, and Entering Final Judgment, Gibbs v.

Plain Green, LLC, No. 17-cv-495 (E.D. Va. Dec. 13, 2019), ECF. No. 141.

Finally, on the arbitration front, courts have invalidated arbitration

agreements entered into with tribal-affiliated lenders. One line of decisions has

struck down agreements that, through deftly crafted choice-of-law provisions,

waived the application of any federal substantive law to the borrowers’ claims in

favor of tribal law. This prospective waiver of federal rights rendered the

agreements unenforceable on public policy grounds.9 See, e.g., Hayes v. Delbert

Servs. Corp., 811 F.3d 666, 675–76 (4th Cir. 2016); Dillon v. BMO Harris Bank,

N.A., 856 F.3d 330, 333–37 (4th Cir. 2017); Gingras v. Think Fin., Inc., 922 F.3d

112, 125–28 (2d Cir. 2019); Williams v. Medley Opportunity Fund II, LP, 965 F.3d

229, 240–44 (3d Cir. 2020); Gibbs v. Haynes Invs., LLC, 967 F.3d 332, 340–45

(4th Cir. 2020). Courts have also struck down agreements when the arbitral forum

provided for was illusory because either it did not exist, see Jackson v. Payday

Fin., LLC, 764 F.3d 765, 776 (7th Cir. 2014); Inetianbor v. CashCall, Inc., 768

F.3d 1346, 1354 (11th Cir. 2014), or the forum was completely skewed in the

tribe’s favor, leaving the borrowers without a fair chance to prevail, Gingras, 922

F.3d at 128.

Plaintiffs’ Mobiloans accounts and the agreements to arbitrate

Plaintiffs opened line-of-credit accounts with Mobiloans in 2015—Dunn in

July and McIntosh in October. D.Dkt. 31 at 2; M.Dkt. 44-1 at 1. Mobiloans follows

the typical tribal lending model. The company is owned (purportedly) by the

9 The prospective-waiver doctrine holds that an arbitration agreement that waives the ability to

vindicate federally protected rights will not be upheld. 14 Penn Plaza LLC v. Pyett, 556 U.S.

247, 273 (2009); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637

n.19 (1985) (“We merely note that in the event the choice-of-forum and choice-of-law clauses

operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies . . . we

would have little hesitation in condemning the agreement as against public policy.”).

Tunica-Biloxi Tribe. D.Dkt. 13-2 at 3. Mobiloans operates strictly online and

offers lines of credit to borrowers in Florida and 28 other states. D.Dkt. 18 at 9;

M.Dkt. 31 at 10. Although advancing usurious loans to Floridians, Mobiloans is

not licensed to make loans in the state. In fact, it disavows any contact with Florida

and claims immunity from Florida laws.

Mobiloans pitches its line-of-credit accounts as a “new, more flexible way to

borrow emergency cash” and a way to avoid costly payday loans. Mobiloans Home

Page, http://www.mobiloans.com (last visited Oct. 26, 2020). But a Mobiloans line

of credit is basically a payday loan without the need for the borrower to present a

personal check to receive payment. Borrowers who open an account can receive an

initial loan of $200 to $2,500. Id. Like a traditional payday loan, the borrower has

14 days to repay the balance. See D.Dkt. 31-1 at 3; M.Dkt. 44-2 at 3. If the

borrower fails to pay the balance in that time, the borrower incurs a finance charge

of around 8 to 10% of the remaining loan principal. See D.Dkt. 31-1 at 2–3;

M.Dkt. 44-2 at 2–3. At the end of each 14-day billing cycle, the borrower incurs a

finance charge based on the remaining principal balance. Id. As the billing cycles

add up, so do Mobiloans’s finance charges, resulting in a loan with interest rates

that can soar above 440% on an annual percentage basis. See Mobiloans Home

Page, https://www.mobiloans.com.

The interest rates Mobiloans charges violate virtually all state usury laws.

Indeed, Mobiloans’ rates are more than ten-times higher than those Florida allows

for consumer loans.10 See Fla. Stat. § 516.031(1) (capping annual interest rates on

consumer loans at 30% for loans under $3,000). Mobiloans avoids state usury laws

through its connection to the Tribe and by inserting in both its account application

and account terms choice-of-law provisions that disclaim all state law in favor of

the Tribe’s laws, which contain no interest rate caps.11 See D.Dkts. 13-2 at 4; 31-1

at 2; M.Dkts. 24-2 at 4; 44-2 at 2. At the final step of the credit account

application, borrowers must check a box stating that they “further understand,

10 The specific interest rate Plaintiffs were asked to pay is not clear. But based on the length of

the loans and the balance owed, the rate well exceeded the 30% cap. Counsel for Defendants

conceded as much during oral argument:

THE COURT: [S]ome of these loans are 200% or 400% that your client’s affiliate

the tribe has, right? You are talking about 200% loans, right?

MR. LITTLE (COUNSEL FOR DEFENDANTS): Yeah, the interest rates are

much higher than what Florida law would permit.

THE COURT: Yeah, 200%, right? 200%.

MR. LITTLE: Right. Correct.

Mot. Hr’g Tr. 9–10, see D.Dkt. 35; M.Dkt. 45.

11 The Tribe’s laws consist of the Tunica-Biloxi Tribe of Louisiana Arbitration Code, the Tunica-

Biloxi Tribe of Louisiana Fairness in Lending Code, the Tribe’s Constitution, and Tribal Court

opinions. The Codes can be accessed on the Tribe’s website. See Tunica-Biloxi Tribe of

Louisiana Official Website, https://www.tunicabiloxi.org/resources/ (last visited Oct. 21, 2020).

The Court could not locate the Tribal Constitution and found the Tribal Court has issued only 13

short opinions between 1997 and 2003. See National Indian Law Library: Tribal Law Gateway,

https://narf.org/nill/tribes/tunica_biloxi.html (last visited Oct. 21, 2020). The Tribe’s Lending

Code incorporates federal consumer protection laws, but it does not include caps on interest rates

for consumer loans or usury restrictions more generally. The other sources of tribal law contain

no such restrictions either.

acknowledge and agree that the line of credit account is governed by the laws of

the Tunica-Biloxi Tribe and that the account may not have any limitations on the

terms of the account that the laws of my state may provide.” D.Dkt. 13-2 at 3;

M.Dkt. 24-2 at 3. At this final stage, borrowers must also acknowledge that they

consent to and have read and understand the “Mobiloans Line of Credit Terms and

Conditions,” which can be accessed through the Mobiloans home page. D.Dkt. 31-

1 at 2; M.Dkt. 44-2 at 3. Plaintiffs accepted the loan terms.

According to these terms, Plaintiffs consented to the following “Waiver of

Jury Trial and Arbitration Agreement,” which provides that any dispute related to a

borrower’s Mobiloans account will be decided in arbitration in accordance with

tribal law:

WAIVER OF JURY TRIAL AND ARBITRATION

AGREEMENT

In this Waiver of Jury Trial and Arbitration Agreement (this

“Arbitration Agreement”), “Tribe” or “Tribal” refers to the Tunica-

Biloxi Tribe of Louisiana, a sovereign nation located within the

United States of America, and “Tribal Law” means any law or

regulation duly enacted by the Tunica-Biloxi Tribe of Louisiana.

. . . .

Agreement to Arbitrate. You agree that any Dispute (defined below)

will be resolved by arbitration in accordance with Tribal Law.

Arbitration Defined. Arbitration is a means of having an independent

third party resolve a Dispute. A “Dispute” is any controversy or claim

related in any way to your Mobiloans Credit Account or your

application for a Mobiloans Credit Account, involving you and Lender,

its marketing agent, collection agent, any subsequent holder of your

Mobiloans Credit Account, or any of their respective agents, affiliates,

assigns, employees, officers, managers, members or shareholders (each

considered a “Holder” for purposes of this Agreement). The term

Dispute is to be given its broadest possible meaning and includes,

without limitation, all claims or demands (whether past, present, or

future, including events that occurred prior to the opening of your

Account), based on any legal or equitable theory (tort, contract, or

otherwise), and regardless of the type of relief sought (i.e., money,

injunctive relief, or declaratory relief). A Dispute includes, by way of

example and without limitation, any claim arising from, related to or

based upon marketing or solicitations to obtain the Mobiloans Credit

Account and the handling or servicing of your Account whether such

Dispute is based on a Tribal, federal or state constitution, statute,

ordinance, regulation, or common law, and including any issue

concerning the validity, enforceability, or scope of this Account or the

Arbitration Agreement.

D.Dkt. 31-1 at 11–12; M.Dkt. 44-2 at 11–12.12

Mobiloans avoids the notable pitfalls that have doomed the agreements of

other tribal lenders. First, Mobiloans avoids the prospective-waiver doctrine

because the Tribe’s Lending Code expressly incorporates all federal consumer

protection laws. See M.Dkt. 34-6 at 4–6, 8–9, 18–19. Thus borrowers can, in

theory, pursue federal statutory claims in arbitration, including FDCPA claims.

Second, the arbitration agreement provides for an unbiased forum—at least on its

face. The agreement allows the borrower to select JAMS or AAA to administer the

12 These were the terms when Plaintiffs opened their accounts in 2015. Mobiloans has since

updated the “Agreement to Arbitrate” to state: “You agree that any Dispute (defined below) will

be resolved by arbitration in accordance with Tribal Law and applicable federal law.” Dkt. 13-3

at 17 (emphasis added). However, the updated terms do not materially alter the Court’s analysis.

The Court will therefore apply the terms in place when Plaintiffs opened their accounts.

arbitration, provided the chosen organization’s rules do not conflict with tribal law

or the Federal Arbitration Act (“FAA”). D.Dkt. 31-1 at 12; M.Dkt. 44-2 at 12. The

arbitration can also take place within thirty miles of the borrower’s residence,

“provided that this accommodation . . . shall not be construed in any way (a) as a

relinquishment or waiver of the Tribe’s sovereign status or immunity, or (b) to

allow for the application of any law other than Tribal Law or applicable federal

law.” D.Dkt. 31-1 at 12; M.Dkt. 44-2 at 12. The borrower can also opt out of

arbitration by submitting a written request within 60 days of establishing a

Mobiloans account. D.Dkt. 31-1 at 11; M.Dkt. 44-2 at 11. But by opting out, the

borrower agrees to bring all legal claims related to the account in Tunica-Biloxi

Tribal Court. D.Dkt. 31-1 at 11; M.Dkt. 44-2 at 11. Here, Plaintiffs did not opt out

of arbitration.

Defendants’ collection efforts and this action

After opening their accounts, both Plaintiffs received funds from Mobiloans,

incurred finance charges, made payments to Mobiloans, and eventually defaulted.

D.Dkt. 23-3 at 1–9; M.Dkt. 34-3 at 2–11. After their respective defaults, Defendant

GTM bought Plaintiffs’ accounts from Mobiloans. D.Dkt. 13-1 at 2; M.Dkt. at 44-

1 at 2. At the time of purchase, Dunn’s account had an outstanding balance of

$1,198.76, and McIntosh’s a balance of $1,319.73. Id. GTM tried to collect the

outstanding balance of the accounts to no avail.13 GTM then enlisted third-party

collection agencies, Summit Receivables for Dunn’s account and Direct Recovery

Services, LLC for McIntosh’s account, to collect what Plaintiffs owed. D.Dkt. 1 at

5–10; M.Dkt. 1 at 5–11. The third parties’ efforts also failed.

Following these failed collection efforts, Plaintiffs each filed a two-count

complaint asserting causes of action under the FCDPA (Count I) and FCCPA

(Count II). D.Dkt. 1; M.Dkt. 1.The gist of their claims is that Defendants violated

both statutes by trying to collect on loans they knew to be usurious and

unenforceable under Florida law. D.Dkt. 1 at 11–14; M.Dkt. 1 at 11–14. Under

Count I, Plaintiffs also contend Defendants violated the FDCPA by communicating

information about the debts to the third-party collection agencies without first

receiving Plaintiffs’ permission. D.Dkt. 1 at 12; M.Dkt. 1 at 11; see 15 U.S.C. §

1692c(b).

Defendants answered the complaints, denying Plaintiffs’ claims. D.Dkt. 7;

M.Dkt. 16. Defendants now move to compel arbitration in each case based on the

arbitration provision in the Mobiloans line-of-credit agreement and, in the

alternative, for judgment on the pleadings. D.Dkt. 13; M.Dkt. 24. The Court will

address the merits of Defendants’ motions in turn.

13 GTM is licensed with the Florida Office of Financial Regulation as a consumer collection

agency. D.Dkt. 1-4.

DISCUSSION

I. The Motions to Compel Arbitration

The FAA, 9 U.S.C §§ 1–16, governs the enforcement of arbitration

agreements and establishes “a liberal federal policy favoring arbitration.” Epic Sys.

Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018) (quoting Moses H. Cone Mem’l

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Under the FAA, a written

agreement to arbitrate is “valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. §

2. Thus, the FAA commands a district court to either stay or dismiss a lawsuit and

to compel arbitration upon a showing that (1) a plaintiff entered into a valid

“written arbitration agreement that is enforceable ‘under ordinary state-law’

contract principles,” and (2) “the claims before the court fall within the scope of

that agreement.” Lambert v. Austin Ind., 544 F.3d 1192, 1195 (11th Cir. 2008)

(citing 9 U.S.C. §§ 2–4).

The parties do not dispute that Plaintiffs’ claims fall within the alleged

agreement’s scope. The quarrel here focuses on the first requirement—validity and

enforceability. Plaintiffs make what amounts to a two-pronged attack on this front.

First, through their motions in limine, they argue that Defendants have not proven

an agreement to arbitrate because the account terms that Defendants have produced

to support arbitration are not authenticated. Second, Plaintiffs submit that, even if

proven, the agreement is unenforceable because the arbitral mechanism it provides

for is a “sham.” As Plaintiffs argue, borrowers must submit to arbitration all claims

related to their Mobiloans accounts, including those arising under state law. But

once in arbitration, the arbitrator is limited to the Tribe’s substantive law, stripping

the borrowers of their ability to vindicate potential state-law claims. This, Plaintiffs

suggest, violates public policy and renders the arbitration agreement

unconscionable and unenforceable.

A. The delegation clause in the arbitration agreement is

unenforceable.

Before deciding the validity or enforceability of the agreement, the Court

must find that it has the authority to make this determination. Typically, the

validity or enforceability of an arbitration agreement is a judicial determination.

Wiles v. Palm Springs Grill, LLC, No. 15-CV-81597-KAM, 2016 WL 4248315, at

*2 (S.D. Fla. Aug. 11, 2016). But the agreement here contains a delegation clause

that defers this determination to the arbitrator. D.Dkt. 31-1 at 12; M.Dkt. 44-2 at

12.

Parties can elect to have an arbitrator decide questions of validity and

arbitrability. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010). When

an agreement “clearly and unmistakably” delegates these threshold issues to the

arbitrator, the court’s work is done—the case must go to the arbitrator. See id. at 69

n.1 (citing AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649

(1986)). To avoid this fate, the party opposing arbitration must “challenge[ ] the

delegation provision specifically,” and establish that it is invalid. Id. at 70, 72;

Parm v. Nat’l Bank of Cal., N.A., 835 F.3d 1331, 1335 (11th Cir. 2016) (“Only if

we determine that the delegation clause is itself invalid or unenforceable may we

review the enforceability of the arbitration agreement as a whole.”). The Plaintiffs

have carried their burden.

First, Plaintiffs have directly challenged the delegation clause in their

respective motions. D.Dkt. 18 at 13–14; M.Dkt. 31 at 14–15. They argue

specifically that the delegation clause is unenforceable because the arbitration

agreement disclaims state contract law in favor of the law from a distant and

substantively irrelevant Indian tribe, whose law includes no substantive contract

law. This leaves the arbitrator to decide the enforceability of the arbitration

agreement—a contract—while unable to apply any contract law. This direct

challenge to the delegation clause is specific enough. See Gingras, 922 F.3d at 126

(tribal lending case: holding that complaint’s allegation that delegation provision

was induced by fraud was specific challenge “sufficient to make the issue of

arbitrability one for a federal court”).

Second, the Plaintiffs’ assessment of the delegation clause is correct—it is

unworkable. While the arbitration agreement gives the borrower the option to

choose a reputable organization (JAMS or AAA) to administer the arbitration, it

restricts the arbitrator to applying the Tribe’s substantive law—which is limited to

an arbitration code and lending code but includes no substantive contract law, or

any other identifiable common law for that matter. In practical terms, enforcing the

delegation clause would put the arbitrator in the “impossible position” of deciding

the validity/enforceability of the agreement without a body of contract law to draw

from. See Smith v. W. Sky Fin., LLC, 168 F. Supp. 3d 778, 786 (E.D. Pa. 2016).

This also leaves Plaintiffs unable to raise contract defenses to challenge the

agreement as the FAA explicitly allows. See 9 U.S.C. § 2. For those reasons, the

delegation clause fails, and the Court will decide the validity and enforceability of

the agreement pursuant to lex loci actus.

B. Florida contract law governs the formation of the arbitration

agreement.

The first step in assessing the validity of an arbitration agreement is to

determine which state’s contract law should govern its formation. Larsen v.

Citibank FSB, 871 F.3d 1295, 1303 (11th Cir. 2017). The loan and arbitration

agreements state they are governed by Tunica-Biloxi law, which, again, lacks a

body of contract law.

With no tribal law to apply, the Court must identify another source of

substantive law. Given the Court is exercising federal question jurisdiction, federal

common law choice-of-law rules provide the answer. See Chau Kieu Nguyen v. JP

Morgan Chase Bank, NA, 709 F.3d 1342, 1345 (11th Cir. 2013). Federal common

law follows the approach set forth in the Restatement (Second) of Conflict of

Laws. Id. With no effective choice by the parties, the Restatement instructs that

“[t]he rights and duties of the parties with respect to an issue in contract are

determined by the local law of the state which, with respect to that issue, has the

most significant relationship to the transaction and the parties.” Restatement

(Second) of Conflict of Laws § 188(1) (1971).

Here, that state is Florida, the state where all the relevant activity occurred.

Plaintiffs, both Florida residents, opened their Mobiloans accounts from a

computer or mobile device in Florida. Disbursements were made to and payments

electronically withdrawn from Plaintiffs’ bank accounts in Florida. See D.Dkts. 1

at 2, 5; 18-1 at 1–2; M.Dkts. 1 at 2, 5; 43-1 at 18. In fact, Plaintiffs never left

Florida for any business related to their accounts. Id. The parties also agree that

Florida law applies as evidenced by the Florida-law-based arguments they make in

their respective briefs. D.Dkts. 18 at 9–11; 23 at 2–3, 7–8; M.Dkts. 31 at 9–11; 43

at 7–8. The Court will therefore apply Florida contract law to evaluate the

agreement.

C. Defendants have proven an agreement to arbitrate.

Next, the inquiry turns to the existence of an agreement to arbitrate, a

question of contract formation. See First Options of Chi., Inc. v. Kaplan, 514 U.S.

938, 944 (1995). Under Florida law, a valid contract requires an “offer, [an]

acceptance, consideration,” St. Joe Corp. v. McIver, 875 So. 2d 375, 381 (Fla.

2004), and mutual assent as to sufficiently definite essential terms, Gibson v.

Courtois, 539 So. 2d 459, 460 (Fla. 1989). The party seeking to enforce a contract

bears the burden to prove these elements by a preponderance of the evidence.

Knowles v. C.I.T. Corp., 346 So. 2d 1042, 1043 (Fla. 1st DCA 1977).

The existence of a contract is a question of fact. See Consolo v. A.M.K.

Corp., 344 So. 2d 1285, 1286 (Fla. 3d DCA 1977) (per curiam). But in the

arbitration context, a court can decide an agreement exists as a matter of law if

there is no dispute as to any material fact over its formation. See Bazemore v.

Jefferson Cap. Sys., LLC, 827 F.3d 1325, 1333 (11th Cir. 2016).14

To prove Plaintiffs agreed to arbitrate their claims, Defendants have

produced copies of Plaintiffs’ loan applications showing they agreed to the

Mobiloans account terms; copies of the Mobiloans account terms, which include

the arbitration provision; and Defendant Torres’s affidavit authenticating these

documents. D.Dkts. 13-1; 13-2; 13-3; 31; 31-1; M.Dkts. 24-1; 24-2; 24-3; 44-1;

44-2.

14 At the motion hearing, the parties agreed to forgo a bench trial in favor of having the Court

decide the existence of the arbitration agreement based on the affidavits of the Plaintiffs and

Defendant Torres. Mot. Hr’g Tr. 3–4, see D.Dkt. 35; M.Dkt. 45.

Plaintiffs challenge the arbitration agreements by moving to exclude the

documents Defendants have produced to prove them as inadmissible hearsay.15

D.Dkt. 30; M.Dkt. 43. But as Defendants rightly point out, the documents are

admissible according to the business records exception to the hearsay rule. See

Fed. R. Evid. 803(6); D.Dkt. 34; M.Dkt. 44. Under the Federal Rules, a document

is admissible as a business record if: (1) it was “made at or near the time by—or

from information transmitted by—someone with knowledge”; (2) it was “kept in

the course of a regularly conducted activity”; (3) “making the record was a regular

practice of that activity”; (4) “all these conditions are shown by the custodian or

another qualified witness”; and (5) “the opponent does not show that the source of

the information or method or circumstances of preparation suggest a lack of

trustworthiness.” Fed. R. Evid. 803(6)(A)–(E). Even with these requirements, the

Eleventh Circuit instructs that “[t]he touchstone of admissibility under [Rule

803(6)] is reliability, and a trial judge has broad discretion to determine the

admissibility of such evidence.” United States v. Arias-Izquierdo, 449 F.3d 1168,

1183 (11th Cir. 2006) (quoting United States v. Bueno–Sierra, 99 F.3d 375, 378–

79 (11th Cir. 1996)).

15 The Plaintiffs sought to subpoena the originator of the documents, Mobiloans, to verify the

documents’ authenticity. Mobiloans declined to participate in the lawsuit or the subpoena,

asserting tribal immunity. D.Dkt. 30-1, Ex. E; M.Dkt. 43-1, Ex. B.

Plaintiffs’ attack focuses on the first element. They assert Defendant Torres

lacked the requisite personal knowledge to verify the account terms and arbitration

provisions because he was not an employee of Mobiloans or familiar with its

business practices. D.Dkt. 30 at 3–7; M.Dkt. 43 at 3–7. But Plaintiffs construe this

element too narrowly. To satisfy the knowledge requirement, Rule 803(6) requires

only that a person who can explain the record-keeping procedure must testify.

United States v. Garnett, 122 F.3d 1016, 1018–19 (11th Cir. 1997). This is not

limited to one who has direct personal knowledge of the records’ contents, their

authors, or even their preparation. In re Int’l Mgmt. Assocs., LLC, 781 F.3d 1262,

1268 (11th Cir. 2015). In fact, this does not require first- or even secondhand

knowledge of the records’ creation. Id. at 1268–69; see, e.g., Allen v. Safeco Ins.

Co. of Am., 782 F.2d 1517, 1519 (11th Cir. 1986).

Records of one business can also become the business records of another. A

successor business, like GTM here, can admit the records it obtains from another if

the “successor business integrates them within its own records . . . [,] regularly

relies upon those records[,] and the circumstances indicate the records are

trustworthy.” Wilmington Sav. Fund Soc’y, FSB v. Bus. Law Grp., P.A., No. 15-

CV-2831-T-36TGW, 2017 WL 10276172, at *2 (M.D. Fla. Feb. 15, 2017).

In his affidavit, Defendant Torres states that as chief operations officer he

has personal knowledge of GTM’s business practices and how the company

maintains and oversees the accounts it purchases. D.Dkt. 31 at 1; M.Dkt. 44-1 at 1.

He confirmed that GTM obtained and integrated into its records Plaintiffs’

Mobiloans credit agreements and account information upon purchasing Plaintiffs’

accounts. Id. GTM then relied on the account documents as evidenced by their

collection efforts that spawned this lawsuit. This is enough.

Plaintiffs offer no other meaningful challenge to the agreements other than

to say they do not remember agreeing to the arbitration provision. D.Dkt. 18-1;

M.Dkt. 43-1, Ex. C. No doubt this is true given the “computer screen click-

through” nature of the application. But mere denials and conclusory statements

without evidentiary support will not rebut a written agreement. See Larsen, 871

F.3d at 1307.

In short, the Court believes Torres has produced the authentic internet

records that Plaintiffs filled out for the loans. That the records are likely bona fide

does not mean the scheme that produced them is. Torres and his company subject

themselves to Florida law to collect usury from Florida debtors. The source of the

debt, whom Torres pays for this right, remains at all times untouchable and

uncooperative behind sovereign tribal immunity. In any case, Defendants have

sufficiently proven the existence of an agreement to arbitrate, and Plaintiffs’

Motions in Limine are denied. The inquiry now turns to whether the arbitration

agreement is enforceable.

D. The arbitration agreement is unconscionable and thus

unenforceable.

Section 2 of the FAA provides that a written agreement to submit disputes to

arbitration “shall be valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.” It follows that any

“generally applicable contract defenses, such as fraud, duress, or

unconscionability” can defeat an arbitration agreement. Dr.’s Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687 (1996). Plaintiffs have chosen to assert

unconscionability. D.Dkt. 18 at 6–13; M.Dkt. 31 at 6–14.

Unconscionability is a common law doctrine that courts have traditionally

invoked to prevent overreaches by one party who seeks to gain “an unjust and

undeserved advantage which it would be inequitable to permit him to enforce.”

Steinhardt v. Rudolph, 422 So. 2d 884, 889 (Fla. 3d DCA 1982) (quoting Peacock

Hotel, Inc. v. Shipman, 138 So. 44, 46 (Fla. 1931)). When such an overreach has

occurred, a court “will not hesitate to interfere,” even though the victimized parties

owe their predicament largely to their own credulity. See id. In Florida, to be

unenforceable an agreement or a contractual provision must be both procedurally

and substantively unconscionable. Basulto v. Hialeah Auto., 141 So. 3d 1145, 1157

(Fla. 2014).

Procedural unconscionability contemplates the conditions under which the

contract was formed. It looks to the “circumstances surrounding the transaction to

determine whether the complaining party had a meaningful choice at the time the

contract was entered.” Gainesville Health Care Ctr., Inc. v. Weston, 857 So. 2d

278, 284 (Fla. 1st DCA 2003) (internal quotation marks omitted). Factors

informing the analysis include “whether the complaining party had a realistic

opportunity to bargain regarding the terms of the contract, or whether the terms

were merely presented on a ‘take-it-or-leave-it’ basis; and whether [the

complaining party] had a reasonable opportunity to understand the terms of the

contract.” Id. As one Florida court has explained, while this usually “requires an

examination into a myriad of details including [the complaining party’s]

experience and education and the sales practices that were employed by the [other

party] . . . , the basic concept is ‘an absence of meaningful choice.’” Kohl v. Bay

Colony Club Condo., Inc., 398 So. 2d 865, 869 (Fla. 4th DCA 1981).

Substantive unconscionability, on the other hand, relates to the terms of the

agreement itself. Basulto, 141 So. 3d at 1159. It requires a showing that the terms

are not only unreasonable but “amount to an outrageous degree of unfairness.”

Steinhardt, 422 So. 2d at 889. Put another way, the agreement is one that “no man

in his senses and not under delusion would make on the one hand, and as no honest

and fair man would accept on the other.” Hume v. United States, 132 U.S. 406, 411

(1889). An example of such an agreement in the arbitration context “is one that

deprives a claimant of an effective way to vindicate a statutory cause of action in

the arbitral forum.” AMS Staff Leasing, Inc. v. Taylor, 158 So. 3d 682, 688 (Fla.

4th DCA 2015); see, e.g., Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d

59, 61–64 (Fla. 4th DCA 2003) (finding that an arbitration agreement was

substantively unfair because it did not provide adequate mechanisms for patients to

vindicate their statutory rights under Florida’s Nursing Home Resident’s Rights

Act).

Though unconscionability requires a plaintiff to establish both procedural

and substantive unconscionability, these factors “should be evaluated

interdependently rather than as independent elements.” Basulto, 141 So. 3d at

1161. The court should take something of a “balancing, or sliding scale, approach”

to the analysis. Id. at 1159. “In other words, the more substantively oppressive the

contract term, the less evidence of procedural unconscionability is required to

come to the conclusion that the term is unenforceable, and vice versa.” Id. (quoting

Romano, 861 So. 2d at 62). Under this approach, the Court may give greater

weight to one prong “provided that there is at least a modicum of the weaker

prong.” VoiceStream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So. 2d 34, 39

(Fla. 4th DCA 2005). Applying this framework, the arbitration provision here is

both procedurally and substantively unconscionable.

1. Procedural unconscionability.

The conditions under which Plaintiffs agreed to arbitrate their claims reflect

a lack of meaningful choice. For starters, the Mobiloans application is a classic

adhesion contract16—a “strong indicator” of procedural unconscionability.

Gainesville Health, 857 So. 2d at 285. The account terms are nonnegotiable.

Borrowers either agree to them or they do not receive funds.17

These types of loans are designed for, and cater to, unsophisticated people.

In an adhesion contract, the consumer lacks bargaining power, but this is especially

true in the payday loan context. Prospective payday loan borrowers are often in

dire straits. Outfits like Mobiloans are usually lenders of last resort that borrowers

turn to only after failing to obtain a credit card or low-interest personal loan from a

chartered bank. This puts the prospective borrowers in a position to accept any

terms offered to them.

Compounding these pressures is how the arbitration agreement was

presented. Plaintiffs were directed to the line-of-credit terms at the last step of their

Mobiloans account application. To view the agreement, Plaintiffs had to open the

16 “An adhesion contract” is a “standardized contract form offered to consumers of goods and

services on essentially [a] ‘take it or leave it’ basis without affording [the] consumer [a] realistic

opportunity to bargain and under such conditions that [the] consumer cannot obtain [the] desired

product or services except by acquiescing in the form contract.” Powertel, Inc. v. Bexley, 743 So.

2d 570, 574 (Fla. 1st DCA 1999) (quoting Black’s Law Dictionary (6th ed. 1990)).

17 The opt-out provision does not change things, as will be explained in the discussion of

substantive unconscionability.

account terms using a separate link on the Mobiloans home page. Assuming

Plaintiffs opened the link, the arbitration provision is on page twelve of the account

terms and itself consists of two pages of dense legalese—a lot for unsophisticated

consumers to digest, particularly on their own. Presenting the arbitration provision

in this way—especially given the take-or-leave-it context of the whole application

process—ensures borrowers have little choice but to accept it, just as Plaintiffs did

here.

2. Substantive unconscionability.

Plaintiffs argue the agreement is unconscionable in substance because it

deprives them of the chance to vindicate their state-law rights. D.Dkt. 18 at 6–13;

M.Dkt. 31 at 6–14. The agreement forces all disputes related to the Mobiloans

credit account into arbitration, including potential state-law claims, while requiring

the arbitrator to apply tribal law to the exclusion of all other state law. By doing so,

Plaintiffs contend “Mobiloans makes clear the intent of the arbitration provision at

issue is not to provide an alternative means of dispute resolution in which

aggrieved persons may bring their claims, but rather to take those claims away.”

D.Dkt. 18 at 8; M.Dkt. 31 at 8 (citing Hayes, 811 F.3d at 673–74). Plaintiffs say

this effective waiver of state-law claims renders the arbitration provision

unenforceable. D.Dkt. 18 at 7–8; M.Dkt. 31 at 8–9.

Choosing to apply one jurisdiction’s laws over another’s does not by itself

invalidate an arbitration agreement. Parties are generally free to agree that a

specific jurisdiction’s laws will govern a transaction. See Interface Kanner, LLC v.

JPMorgan Chase Bank, N.A., 704 F.3d 927, 932 (11th Cir. 2013). Plaintiffs cite

the Fourth Circuit’s opinion in Hayes, and other cases relying on it, as establishing

the proposition that arbitration agreements applying tribal law to the exclusion of

all state law are unenforceable as a matter of public policy. See D.Dkt. 18 at 8–11;

M.Dkt. 31 at 8–11. But Hayes does not stretch that far. There, the court held that

the arbitration agreement was unenforceable because it exclusively applied tribal

law and disclaimed all federal substantive law, which violated the so-called

prospective-waiver doctrine established by the U.S. Supreme Court. Hayes, 811

F.3d at 673–74. True, Hayes and some decisions applying its holding mention that

the waiver of federal and state substantive rights made the arbitration agreements

in those cases unenforceable. Id. at 676; Gingras, 922 F.3d at 127. But the waiver

of federal rights was the precedential hook those courts relied on to strike down the

agreements.

For this reason, Hayes and its progeny cannot carry Plaintiffs to the finish

line because there is no prospective waiver of federal rights here. The Tribe’s laws

explicitly incorporate the FAA and federal consumer protection laws, probably at

the advice of lawyers to avoid the Hayes opinion.

But prospective-waiver doctrine aside, the arbitration agreement abrogates

Plaintiffs’ state-law claims in a way that is equally unjust. The reason for this is

two-fold. First, the choice to apply tribal law to Plaintiffs’ potential claims is

unenforceable. It undermines fundamental consumer protection policies of

Plaintiffs’ home state—Florida—the jurisdiction with the strongest material

connection to the agreement. Second, the dubious choice-of-law provision

becomes particularly problematic in arbitration. The Tribe’s Arbitration Code

governs the arbitration proceeding and precludes borrowers from challenging the

waiver of their state law rights in favor of tribal law. The Code then bars outside

judicial review of the arbitrator’s decision. D.Dkts. 31-1 at 11–13; M.Dkt. 44-2 at

11–13; 34-5 at 3, 8.

In short, the arbitration agreement provides a one-two combination that

knocks out Plaintiffs’ potential state-law claims. One—the agreement’s choice-of-

law provision waives substantive Florida-law protections in exchange for the

Tribe’s laws, which allow interest rates more than ten-times what would be

permitted otherwise. Two—that waiver becomes unchallengeable and

unreviewable once the Plaintiffs are forced into arbitration. Simply put, this

scheme seeks to abuse the arbitral forum by using it to evade state consumer

finance protections and usury laws that Mobiloans (now Defendants) could not

otherwise avoid. This sort of charade is not what Congress had in mind when it

passed the FAA.

a. The choice-of-law provision is invalid and Florida law

applies to the agreement.

The first step in invalidating the agreement requires a showing that the

election to apply tribal law to Plaintiffs’ claims is invalid. To make this

assessment, the Court will again turn to the Restatement. The Restatement

(Second) of Conflict of Laws provides that courts will apply the law of the state

chosen by the parties to govern their contractual rights and duties unless the

“application of the law of the chosen state would be contrary to a fundamental

policy of a state which has a materially greater interest than the chosen state in the

determination of the particular issue and which . . . would be the state of the

applicable law in the absence of an effective choice of law by the parties.”

Restatement (Second) of Conflict of Laws § 187(2)(b).

The arbitration agreement’s selection of tribal law fails this test—it flouts

Florida’s fundamental policy protecting consumer borrowers. As the Restatement

instructs, “[t]o be ‘fundamental,’ a policy must in any event be a substantial one.”

Id. § 187, cmt. g. The “policy may be embodied in a statute which makes one or

more kinds of contracts illegal or which is designed to protect a person against the

oppressive use of superior bargaining power.” Id.

The Florida Legislature has enacted such a statute—the Florida Consumer

Finance Act (“FCFA”)18—to protect consumer borrowers from lenders like

Mobiloans. As noted, the Act first imposes a licensing requirement for lenders. All

lenders issuing consumer loans (less than $25,000) in Florida must first register

with and obtain a license from the Florida Office of Financial Regulation (FOFR).

Fla. Stat. § 516.02(1). Licensed lenders must keep records related to the loans they

issue and are subject to FOFR oversight and investigation. See § 516.11–516.12.

The FCFA also strictly limits interest rates on consumer loans. As already

noted, interest rates on loans for under $3,000 cannot exceed 30% on an annual

percentage basis. § 516.031(1). Loans exceeding this rate are unenforceable. See §

516.02(2)(c). In fact, lenders imposing excessive or illegal charges are subject to

disciplinary action by the FOFR, see § 516.07(e)1., and can even face criminal

charges, see Fla. Stat. § 687.071(3) (establishing that charging interest rates

exceeding 45% is a third-degree felony).

Florida actively enforces the FCFA as well. Indeed, as noted in the overview

of the tribal lending model, Florida’s Attorney General has sought to enjoin

unlicensed tribal-affiliated payday lenders from using practices like those used by

Mobiloans. See Off. of Att’y Gen., Dep’t of Legal Affs. v. W. Sky Fin., LLC, No. 13-

CA-15462, (Fla. 13th Cir. Ct.).

18 Fla. Stat. §§ 516.01–516.36.

To the second part of the Restatement inquiry, Florida has a “materially

greater” interest than the Tunica-Biloxi Tribe in applying its laws in this case. The

lines of credit extended here were issued in Florida to Florida residents, and, as

noted already, all activity related to the accounts occurred in Florida. D.Dkts. 1 at

2, 5; 18-1 at 1–2; M.Dkts. 1 at 2, 5; 43-1 at 18.

By contrast, no material interest supports applying the Tribe’s laws. First,

“[t]ribal law is generally unavailable outside of the reservation.” Gingras, 922 F.3d

at 127. Tribal sovereignty and the applicability of a tribe’s laws center “on the land

held by the tribe and on tribal members within the reservation.” Plains Com. Bank

v. Long Fam. Land & Cattle Co., 554 U.S. 316, 327 (2008). Outside the

reservation, particularly when non-members are involved, the tribe’s sovereign

authority gives way to the state’s regulatory power, and tribal actors must conform

their conduct to state law. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148–49

(1973) (holding that state could collect sales tax from ski resort owned by tribe that

was located outside reservation’s borders). The Court finds even less incentive to

apply the Tribe’s laws here when the reason for doing so would be to short circuit

state consumer protection laws and advance a usurious lending scheme for the

Defendants’ financial benefit—especially when Defendants have no visible

connection to the Tribe. This is an unworthy purpose. Otoe-Missouria Tribe of

Indians v. N.Y. State Dep’t of Fin. Servs., 769 F.3d 105, 114 (2d Cir. 2014) (“[A]

tribe has no legitimate interest in selling an opportunity to evade state law.”).

Defendants counter that Florida does not recognize a strong public policy to

justify applying its usury laws under the circumstances. At least, they argue, the

policy is not strong enough to trump the freedom to contract when parties have

agreed to apply another jurisdiction’s laws. M.Dkt. 34 at 7–8; see, e.g., Cont’l

Mortg. Invs. v. Sailboat Key, Inc., 395 So. 2d 507, 508, 513 (Fla. 1981); Morgan

Walton Props., Inc. v. Int’l City Bank & Tr. Co., 404 So. 2d 1059, 1062–63 (Fla.

1981). Defendants point to cases which state that when parties have agreed to

apply a foreign jurisdiction’s laws, Florida courts will typically enforce that choice,

even when it is plainly intended to avoid Florida’s usury laws, so long as the

chosen jurisdiction bears a “normal relation” to the transaction. M.Dkt. 34 at 7–8;

see, e.g., Cont’l Mortg., 395 So. 2d at 513; Morgan, 404 So. 2d at 1062–63;

L’Arbalete, Inc. v. Zaczac, 474 F. Supp. 2d 1314, 1321 (S.D. Fla. 2007).

Defendants contend that the arbitration agreement’s choice-of-law provision bears

a normal relation to Mobiloans, the original party to the agreement, making it

enforceable. M.Dkt. 34 at 8.

Defendants’ general point is true in the commercial context as between

sophisticated parties—the context for the cases cited in the preceding paragraph

that Defendants rely on. But Florida courts have not applied this same rationale in

the consumer context. See F. T. Hawkes, The Conflict of Laws and the Florida

Usury Case, 9 Fla. St. U. L. Rev. 543, 568–573 (1981). And for good reason. The

same interests and considerations are not at play in a consumer transaction.

Consumers lack the sophistication of a commercial entity, and the concern for

protecting the freedom to contract gives way to the need to protect a vulnerable

party. The state legislature understood the difference between the two contexts,

which is likely why it passed the FCFA to regulate consumer lenders and protect

those in Plaintiffs’ exact position. Accordingly, Florida has a material interest in

regulating loans issued within its borders to its residents. The choice to apply the

Tribe’s laws is therefore unenforceable.

b. The arbitration scheme locks in the invalid choice-of-law

provision and excludes outside judicial review.

An unenforceable choice-of-law clause does not necessarily doom the whole

arbitration agreement. See Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432

F.3d 1327, 1331 (11th Cir. 2005) (noting that if “offensive terms are severable,

then the court must compel arbitration according to the remaining, valid terms of

the parties’ agreement”). But the clincher for the Plaintiffs here is that once in

arbitration the invalid choice of law becomes unassailable.

According to the Tribe’s Arbitration Code, which the arbitrator must abide

by, the choice to apply tribal law to the substantive claims arising from the

Mobiloans line of credit:

[S]hall be valid and enforceable, and not subject to revocation by one

Party without the consent of the other Party or parties thereto, provided

that the subject matter of the agreement or claim, dispute or controversy

arising thereunder, or at least one of the parties thereto, shall have

sufficient contact with the jurisdiction so selected.

M.Dkt. 34-5 at 3.

This provision of the Arbitration Code is designed to lock in the waiver of

all state-law claims. Likely, the only arbitration agreements that will find their way

within this provision’s scope will be the Mobiloans agreements. All these

agreements will contain a clause electing to apply tribal law exclusively, and one

of the parties to the agreement (Mobiloans) will always have “sufficient contact”

with the Tribe to make the choice-of-law provision enforceable. Tribal law will

therefore always apply to the arbitration proceeding—excluding any other state’s

law and any related claims.

The borrower is then effectively unable to appeal this waiver. The Tribe’s

Arbitration Code and the Mobiloans agreement both provide that the Tribal Court

has sole power to review the arbitrator’s decision. Also applying tribal law, the

Tribal Court will almost certainly uphold the improper choice-of-law provision.

The arbitration agreement and the Arbitration Code then prohibit the borrower

from seeking outside judicial review—a prohibition that itself is unlawful. See

Alterra Healthcare Corp. v. Bryant, 937 So. 2d 263, 267 (Fla. 4th DCA 2006)

(“The complete waiver of a right to appeal any arbitration decision . . . is

unenforceable as contrary to public policy.”). And so, the very entity that profits

from the usury is the final adjudicator of a borrower’s claims.

The errant choice-of-law provision is not severable from the agreement. It is

a basic principle of contract law that “an unenforceable provision cannot be

severed when it goes to the ‘essence’ of the contract.” Hayes, 811 F.3d at 675–76

(citing 8 Samuel Williston & Richard A. Lord, A Treatise on the Law of

Contracts § 19:73 (4th ed. 1993)). The animating purpose of the arbitration

agreement here is to use the selection of tribal law and insular review process to

allow Mobiloans to engage in lending practices off the reservation that otherwise

would be illegal. Severance should not be used to condone such an “integrated

scheme to contravene public policy.” Id. at 676 (quoting Graham Oil Co. v. ARCO

Prods. Co., a Div. of Atl. Richfield Co., 43 F.3d 1244, 1249 (9th Cir. 1994), as

amended (Mar. 13, 1995)). And the Court will not apply the doctrine here.

The opt-out provision does not save the agreement either. It provides only

the illusion of choice. Had Plaintiffs opted out of arbitration, they would have

found themselves in front of the Tribal Court—still subject to tribal law and unable

to raise Florida-law claims, only in a distant and more unfriendly forum. Gingras,

922 F.3d at 128 (finding that similar opt-out provision did not save an arbitration

agreement because it “merely put[] plaintiffs in tribal court—the same hostile

forum in which they would end up after arbitration.”).

In sum, all roads lead to tribal law with no way out. As a result, Plaintiffs

cannot vindicate the rights provided to them under Florida law and, further, are cut

off from seeking realistic appellate review. This is substantively unfair.

3. The arbitration agreement is unconscionable under the applicable

sliding-scale framework.

Applying Florida’s sliding-scale framework, the arbitration agreement is

unconscionable. If viewed independently, the terms of the agreement or the

conditions under which it was entered, standing alone, might not render the

agreement unenforceable. For example, an adhesion contract that would allow for

state law claims or an agreement that applies tribal law between two sophisticated,

commercial parties might be permissible. But the combination of the procedural

and substantive factors at play here simply proves to be too much.

As the preceding analysis makes clear, the entire arbitration scheme

provided for here is a sham. It is a thinly veiled effort to avoid state usury laws and

statutes that states have enacted to protect their most vulnerable residents from

high-interest lenders like Mobiloans. Even more troubling is that the scheme here

has been carefully crafted to sidestep the pitfalls that have doomed similar

arbitration agreements. Though more cleverly disguised, the arbitration mechanism

envisioned by the Mobiloans agreement still does not provide the fair and just

alternative forum envisioned by the FAA. The Motions to Compel Arbitration are

denied.19

II. The Motions for Judgment on the Pleadings

Defendants move in the alternative for judgment on the pleadings for

Plaintiffs’ FDCPA and FCCPA claims. “Judgment on the pleadings is appropriate

where there are no material facts in dispute and the moving party is entitled to

judgment as a matter of law.” Cannon v. City of W. Palm Beach, 250 F.3d 1299,

1301 (11th Cir. 2001). In determining whether a party is entitled to judgment on

the pleadings, the Court accepts as true all material facts alleged in the

nonmovant’s pleadings and views those facts in the light most favorable to the

nonmovant. Perez v. Wells Fargo N.A., 774 F.3d 1329, 1335 (11th Cir. 2014). If a

comparison of the averments in the competing pleadings reveals a dispute of

material fact, judgment on the pleadings must be denied. Id. (citing Stanton v.

Larsh, 239 F.2d 104, 106 (5th Cir. 1956)).20

The FDCPA and FCCPA both seek to protect consumers from abusive debt

collection practices. To this end, the FDCPA prohibits debt collectors from using

19 Because the Court denies Defendants’ Motions to Compel Arbitration based on the

unconscionability of the arbitration agreement, it will not consider Plaintiffs’ alternative

argument that Defendants waived the right to arbitrate through their substantial participation in

litigation. D.Dkt. 18 at 14–17; M.Dkt. 31 at 15–17.

20 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981), the Eleventh Circuit

adopted as precedent all decisions of the former Fifth Circuit before October 1, 1981.

“any false, deceptive, or misleading representation or means in connection with the

collection of any debt” and any “unfair or unconscionable” means of collection. 15

U.S.C. § 1692e and § 1692f. The FCCPA bans similar practices. See Fla. Stat. §

559.72.

To prevail on an FDCPA claim, a plaintiff must prove that: “(1)

the plaintiff has been the object of collection activity arising from consumer debt,

(2) the defendant is a debt collector as defined by the FDCPA, and (3)

the defendant has engaged in an act or omission prohibited by the FDCPA.” Lima

v. Bank of Am., N.A., 249 F. Supp. 3d 1308, 1312 (S.D. Fla. 2017) (quoting Kaplan

v. Assetcare, Inc., 88 F. Supp. 2d 1355, 1360–61 (S.D. Fla. 2000)). An FCCPA

claim requires a showing that the defendant asserted a legal right that did not exist,

and the defendant knew the right did not exist. See Fla. Stat. § 559.72(9).

Here, Plaintiffs’ theory for each count turns on the unenforceability of their

debts under Florida law. Plaintiffs assert that Defendants in their collection efforts

knowingly misrepresented the validity of the debts, which they knew were

usurious and unenforceable, thereby violating both the federal and state collection

statutes. D.Dkt. 1 at 11–14; M.Dkt. 1 at 11–15. As a second theory for the FDCPA

count, Plaintiffs claim that Defendants’ communication of information about the

debts to the third-party collectors without Plaintiffs’ prior consent violated 15

U.S.C. § 1692c(b).

Defendants counter that they are entitled to judgment as a matter of law on

all claims. First, they maintain that the loan agreement’s tribal choice-of-law

provision defeats the claims arising under § 1692e, § 1692f, and the FCCPA.

D.Dkt. 13 at 12–14; 23 at 10; M.Dkt. 24 at 12–14; 34 at 10. Second, they argue the

§ 1692c(b) claims fail because the communications to the third-party collectors

were not made in “connection with the collection of any debt” as the Eleventh

Circuit has construed this phrase. D.Dkt. 13 at 14–15; M.Dkt. 24 at 19–20.

Defendants’ first argument can be quickly dispensed with; it fails for the

reasons already explained. Like the provision in the arbitration agreement, the

tribal choice-of-law provision in the Mobiloans account terms is invalid, and so

Plaintiffs’ accounts are subject to Florida law.

Because Florida law applies to the accounts, Plaintiffs state valid causes of

action under the FDCPA (§ 1692e and § 1692f) and FCCPA. Their debts resulted

from usurious contracts, rendering the debts unenforceable. See Fla. Stat. §§

516.02(2)(c), 687.071(7). Efforts to collect debts unenforceable under state law can

be the basis for an FDCPA or FCCPA action. See Gerstle v. Nat’l Credit Adjusters,

LLC, 76 F. Supp. 3d 503, 512 (S.D.N.Y. 2015) (holding that attempt to collect a

debt considered usurious under New York law “constitute[d] an unlawful threat

under the FDCPA”); Chulsky v. Hudson Law Offs., P.C., 777 F. Supp. 2d 811, 821

(D.N.J. 2011), amended in part, 777 F. Supp. 2d 823 (D.N.J. 2011) (holding

allegation that lender misrepresented its ability to collect a debt under state law

was enough to plead a § 1692e claim). Thus, judgment on the pleadings is not

appropriate.21

That said, Plaintiffs’ FDCPA claims premised on § 1692c(b) fail. To state an

FDCPA claim under this provision, a debt collector must make a communication to

a third party in connection with the collection of the debt. In the Eleventh Circuit,

courts read communication “in connection with the collection of any debt” to mean

a statement that makes an express or implied demand for payment and warns of

additional fees or actions if payment is not tendered. See Farquharson v. Citibank,

N.A., 664 F. App’x 793, 801 (11th Cir. 2016).

Here, the communications to the collection agencies made no demand for

payment. Plaintiffs instead seem to conflate Defendants’ communications to

facilitate the collection of the outstanding debts with a communication demanding

payment. Section 1692c(b) punishes only the latter, which does not include

communications to a third-party collection agency. Hunstein v. Preferred

Collection & Mgmt. Servs., Inc., No. 19-CV-983-T-60SPF, 2019 WL 5578878, at

*3 (M.D. Fla. Oct. 29, 2019) (dismissing § 1692c(b) claim because defendant’s

communication to collection agency was not a “communication in connection with

21 McIntosh’s individual allegation that Defendants violated § 1692e(11) based on DRS’s failure

to identify itself as a debt collector in its email containing the “hardship letter” cannot stand. In

the email, DRS clearly identified itself as a debt collector. M.Dkt. 1-1 at 21.

the collection of a debt” but “simply . . . a communication with a third party”).

Accordingly, Plaintiffs’ § 1692c(b) claims alleged in Count I fail. See Genord v.

Blue Cross & Blue Shield of Mich., No. 07-21688-CIV, 2008 WL 5070149, at *5

(S.D. Fla. Nov. 24, 2008) (granting judgment on the pleadings and dismissing

claims without prejudice).

CONCLUSION

For the reasons provided above, the Court ORDERS the following:

In Case No. 19-cv-2223:

• Plaintiff Dunn’s Motion in Limine (Dkt. 30) is DENIED.

• Defendants’ Motion to Compel Arbitration (Dkt. 13) is DENIED.

• Defendants’ Motion for Judgment on the Pleadings (Dkt. 13) is

GRANTED without prejudice on Count I as to the claim stated under §

1692c(b) and DENIED as to Count I for the claims stated under § 1692e,

§ 1692f and Count II: Violation of Florida’s Consumer Collection

Practices Act.

In Case No. 19-cv-2532:

• Plaintiff McIntosh’s Motion in Limine (Dkt. 43) is DENIED.

• Defendants’ Motion to Compel Arbitration (Dkt. 24) is DENIED.

• Defendants’ Motion for Judgment on the Pleadings (Dkt. 24) is

GRANTED without prejudice on Count I as to the claim stated under §

1692c(b) and DENIED as to Count I for the claims stated under § 1692e,

§ 1692f and Count II: Violation of Florida’s Consumer Collection

Practices Act.

Plaintiffs may file amended complaints within fourteen days.

DONE AND ORDERED at Tampa, Florida, on December 10, 2020.

/s/ William F. Jung

WILLIAM F. JUNG

UNITED STATES DISTRICT JUDGE

COPIES FURNISHED TO:

Counsel of Record