United States District Court, D. Vermont
JESSICA GINGRAS and ANGELA C. GIVEN, on behalf of themselves and all others similarly situated, Plaintiffs,
JOEL ROSETTE, TED WHITFORD, TIM MCINERNEY, THINK FINANCE, INC., TC LOAN SERVICE, LLC, KENNETH E. REES, TC DECISION SCIENCES, LLC, TAILWIND MARKETING, LLC, SEQUOIA CAPITAL OPERATIONS, LLC and TECHNOLOGY CROSSOVER VENTURES, Defendants.
OPINION AND ORDER RE: CROSS MOTION FOR JURISDICTIONAL
DISCOVERY AND MOTIONS TO DISMISS AND TO COMPEL ARBITRATION
(Docs. 43, 64, 65, 66, 67, 76, 77)
Geoffrey W. Crawford, Judge
have filed a class action against individuals and companies
involved in an online lending venture operated by the
Chippewa Cree Tribe of the Rocky Boy's Indian Reservation
in Montana (the Tribe). They claim that the
"payday" loans offered by Plain Green, LLC violate
federal and state law because of the usurious interest rates
(between 198 and 376% annually) and other unlawful features
of the loans such as the lender's automatic access to the
consumer's bank account to facilitate repayment.
Defendants have filed motions to dismiss or to compel
arbitration. (Docs. 64, 65, 66, 67, 76, 77.) Also pending is
Plaintiffs' Motion for Jurisdictional Discovery on the
issues of subject-matter jurisdiction and arbitration. (Doc.
43.) The court heard argument on all of the pending motions
on December 16, 2015. Plaintiffs filed Supplemental Authority
and Supplemental Documents on January 18, 2016 (Doc. 107) and
April 8, 2016 (Doc. 114), at which time the court took the
motions under advisement.
facts as they appear in Plaintiffs 43-page First Amended
Complaint ("FAC") (Doc. 18) may be summarized as
are Vermont residents who have borrowed money from Plain
Green, LLC. Plain Green holds itself out as a "tribal
lending entity wholly owned by the Chippewa Cree Tribe of the
Rocky Boy's Indian Reservation." (Doc. 18 ¶ 2.)
The reservation is located in Montana.
Green operates its lending business over the internet. It has
no physical place of business in Vermont or any property or
employees in Vermont. Instead, borrowers reply to an internet
site and apply for credit through an online application
process. (Id. ¶ 21.) Within the banking
industry, these loans are commonly called "payday
loans" because they are frequently marketed as loans
sufficient to tide the borrower over until the next paycheck.
Plain Green employs subsidiaries of Think Finance, Inc. to
market, administer, and collect its loans. (Id.
borrowed relatively small sums of money from Plain Green for
periods of up to one year. Frequently one loan would follow
close on the heels of the repayment of the previous loan.
2011, Plaintiff Jessica Gingras borrowed $1, 050 from Plain
Green at a rate of 198.17%. She repaid this loan with
interest. During July and August 2012, she borrowed a total
of $2, 900 at a rate of 371.82%. She has not repaid the
second loan. (Id. ¶¶ 48-50.)
Angela Given borrowed $1, 250 from Plain Green in July 2011.
She completed repayment a year later. The annual interest
rate was 198.45%. (Id. ¶ 60.) Within a few
days, in July 2012, she borrowed $2, 000. She completed
repayment a year later in July 2013 at an annual interest
rate of 159.46%. (Id. ¶ 61.) She also borrowed
$250 in May 2013 which she repaid within a few weeks at an
annual interest rate of 376.13%. In July 2013, she borrowed
$3, 000 at 59.83%. She has not completed repayment of the
most recent loan.
allege that the high interest rates violate Vermont's
usury laws which permit a maximum rate of interest of 24%.
See 9 V.S.A. § 41a. The loan agreements contain
other provisions which Plaintiffs say violate state and
federal law, including the provision for automatic access to
the borrower's bank account in violation of the
Electronic Funds Transfer Act, 15 U.S.C. § 1693k(l).
(Doc. 18 ¶¶ 181-195.)
have not sued Plain Green. Instead, they have sued Joel
Rosette, who is the Chief Executive Officer of Plain Green,
and Ted Whitford and Tim Mclnerney (the "Tribal
Defendants"), who are members of Plain Green's Board
of Directors. All three are sued in their official capacity
for declaratory and injunctive relief only pursuant to the
authority expressed in Ex Parte Young, 209 U.S. 123
have also sued Think Finance, Inc. ("Think Finance"
or "TF") and its former President, Chief Executive
Officer, and Chairman of the Board Kenneth Rees. Think
Finance is a Delaware corporation. Kenneth Rees is a citizen
of Texas. The FAC alleges that these defendants developed a
plan to make loans through a tribal entity in order to take
advantage of tribal immunity from state banking laws. (Doc.
18 ¶ 80.) They control the operations of Plain Green.
They dictated the terms of the Tribe's finance code. In
Plaintiffs' view, Plain Green is a shell company created
by Think Finance and Mr. Rees in order to provide a layer of
legal protection for a lending business which the Federal
Trade Commission and state banking regulators have determined
to be illegal. (See Id. ¶ 3; see also Id.
¶ 37 ("Plain Green's very existence is an
effort to avoid liability.").) Plaintiffs allege that
the tribal law relevant to this lending business and the
tribal courts with potential jurisdiction over any dispute
have been subverted by the money generated by Plain Green.
next group of defendants are subsidiaries of Think Finance
which perform various tasks in connection with the payday
lending operation. These include TC Decision Sciences, LLC,
Tailwind Marketing, LLC, and TC Loan Service, LLC. (These
defendants, together with Think Finance, Inc., are referred
to as the "Think Defendants.")
Plaintiffs have sued two of the financial institutions which
they claim provide the funding for loans made by Plain Green.
These are Sequoia Capital Operations, LLC (Sequoia) and
Technology Crossover Ventures (TCV).
the loan agreements between Plain Green and Plaintiffs
contain arbitration clauses. The clauses are detailed and
cover several pages of the parties' loan
agreements. The arbitration provisions require the
borrowers to submit any dispute to binding arbitration,
including disputes with "related third parties."
(Doc. 13-5 at 50.) The borrower may opt out of the
arbitration provision within 60 days of the receipt of loan
funds. (Id. at 49.) The borrower may select the
procedures of the American Arbitration Association or JAMS
and the arbitration may occur on the reservation or within 30
miles of the borrower's residence at the choice of the
borrower. Plain Green will bear the cost of the arbitration
including the filing fee and the arbitrator's costs. Each
side pays its own attorneys fees. The arbitrator may award
attorneys fees to the prevailing party.
arbitrator is required to apply Chippewa Cree tribal law to
the dispute. He or she is not authorized to hear class-wide
claims. He or she must refer any dispute over class
arbitration to a tribal court of the Chippewa Cree Tribe. The
arbitrator must make written findings to support an award.
Any award must be supported by substantial evidence and must
be consistent with the loan agreement. The tribal court has
authority to aside an award if these conditions are not met.
The arbitration agreement and the loan agreement as a whole
are subject to tribal law and are not subject to the laws of
pending motions to dismiss or to compel arbitration invoke
almost all of the categories of defenses outlined in
Fed.R.Civ.P. 12(b). The court begins with Rule 12(b)(1)- the
defense of lack of subject-matter jurisdiction. "A district
court properly dismisses an action under Fed.R.Civ.P.
12(b)(1) for lack of subject matter jurisdiction if the court
'lacks the statutory or constitutional power to
adjudicate it. . . .'" Cortlandt St. Recovery
Corp. v. Hellas Telecomms., S.A.R.L., 790 F.3d 411, 417
(2d Cir. 2015) (quoting Makarova v. United States,
201 F.3d 110, 113 (2d Cir. 2000)). A court lacks
constitutional power to adjudicate a case where "the
plaintiff lacks constitutional standing to bring the
plaintiff bears the burden of 'alleging] facts that
affirmatively and plausibly suggest that it has standing to
sue.'" Id. (alteration in original)
(quoting Amidax Trading Grp. v. S. W.I.F.T. SCRL,
671 F.3d 140, 145 (2d Cir. 2011)). "In resisting a
motion to dismiss under Rule 12(b)(1), plaintiffs are
permitted to present evidence (by affidavit or otherwise) of
the facts on which jurisdiction rests." Gualandi v.
Adams, 385 F.3d 236, 244 (2d Cir. 2004). "[C]ourts
generally require that plaintiffs be given an opportunity to
conduct discovery on these jurisdictional facts, at least
where the facts, for which discovery is sought, are
peculiarly within the knowledge of the opposing party."
assert the following five bases for federal subject-matter
jurisdiction: (1) federal question jurisdiction under 28
U.S.C. § 1331; (2) diversity jurisdiction under 28
U.S.C. § 1332; (3) class action jurisdiction under 28
U.S.C. § 1332; (4) jurisdiction under RICO, 18 U.S.C.
§ 1965; and (5) jurisdiction under the Federal Consumer
Financial Law, 12 U.S.C. § 5481. (Doc. 85 at 28.)
Plaintiffs assert federal-question jurisdiction on the basis
of claims arising under the Consumer Financial Protection Act
of 2010 ("CFPA"), 12 U.S.C. §§ 5531(a)
and 5536(a), the Federal Trade Commission Act
("FTCA"), 15 U.S.C. § 45, and the Electronic
Funds Transfer Act ("EFTA"), 15 U.S.C. §
1693k(l). They also assert a civil RICO claim pursuant to 18
U.S.C. § 1962(c).
Tribal Defendants seek dismissal under Rule 12(b)(1)
asserting that: (1) the action is barred by tribal sovereign
immunity, and (2) the Plaintiffs lack Article III standing.
Plaintiffs argue that tribal immunity and subject-matter
jurisdiction are distinct concepts. They also assert that
they have Article III standing.
Tribal Sovereign Immunity
first issue is whether tribal sovereign immunity is a
jurisdictional question at all. Plaintiffs assert that
Michigan v. Bay Mills Indian Community, 134 S.Ct.
2024 (2014), stands for the proposition that tribal immunity
and federal subject-matter jurisdiction are entirely separate
concepts. The court disagrees. In Bay Mills, the
Supreme Court obseived that no provision of the Indian Gaming
Regulatory Act, 25 U.S.C. § 2701 et seq., limited the
grant of jurisdiction under the general federal-question
statute, 28 U.S.C. § 1331. Bay Mills, 134 S.Ct.
at 2029 n.2. But that observation related to the initial
question of whether federal-question jurisdiction existed,
not the subsequent question of whether tribal sovereign
immunity might destroy subject-matter jurisdiction. See
Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck Hons.
Auth., 207 F.3d 21, 28 (1st Cir. 2000) (noting that a
federal court can address tribal sovereign immunity only
after it confirms that subject-matter jurisdiction exists).
in the Second Circuit have held that Rule 12(b)(1) is a
proper vehicle for invoking tribal sovereign immunity.
See Garcia v. Akwesasne Hons. Auth., 268 F.3d 76, 84
(2d Cir. 2001) (analyzing tribal sovereign immunity as an
issue of subject-matter jurisdiction); City of New York
v. Golden Feather Smoke Shop, Inc., No. 08-CV-3966(CBA),
2009 WL 705815, at *2 (E.D.N.Y. Mar. 16, 2009)
('"[A] motion to dismiss based on tribal immunity is
appropriately examined under Fed.R.Civ.P.
12(b)(1).'" (quoting Bassett v. Mashantucket
Pequot Museum & Research Ctr. Inc., 221 F.Supp.2d
271, 276 (D. Conn. 2002))). Decisions from outside the Second
Circuit-some post-dating Bay Mills-are in
accord. The court therefore analyzes the Tribal
Defendants' sovereign-immunity claim in the Rule 12(b)(1)
tribes are domestic dependent nations that exercise inherent
sovereign authority." Bay Mills, 134 S.Ct. at
2030 (internal quotation marks omitted). "Among the core
aspects of sovereignty that tribes possess ... is the
'common-law immunity from suit traditionally enjoyed by
sovereign powers.'" Id. (quoting Santa
Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978)).
Tribal immunity applies to suits brought by States as well as
those brought by individuals. Id. at 2031. Tribal
immunity also applies "for suits arising from a
tribe's commercial activities, even when they take place
off Indian lands." Id. (citing Kiowa Tribe
of Okla. v. Mfg. Techs., Inc., 523 U.S. 751
(1998)). Generally, a plaintiff "cannot
circumvent tribal immunity by merely naming officers or
employees of the Tribe when the complaint concerns actions
taken in defendants' official or representative
capacities and the complaint does not allege they acted
outside the scope of their authority." Chayoon v.
Chao, 355 F.3d 141, 143 (2d Cir. 2004) (per curiam).
answer to the Tribal Defendants' sovereign-immunity claim
stems from an exception to the general rule stated in
Chayoon. As individuals sued for injunctive and
declaratory relief in their official capacity, the Tribal
Defendants are subject to suit by analogy to Ex Parte
Young. The Supreme Court has recognized the application
of the doctrine to tribe members. See Bay Mills, 134
S.Ct. at 2035 (under analogy to Ex Parte Young,
tribal immunity does not bar suit "for injunctive relief
against individuals, including tribal officers,
responsible for unlawful conduct"); Santa Clara
Pueblo, 436 U.S. at 59.
Second Circuit in Garcia noted two important
"qualifications" limiting a plaintiffs ability to
obtain injunctive relief when she invokes the Ex Parte
Young-type exception. First, any law under which a
plaintiff seeks injunctive relief "must apply
substantively" to the tribe. Garcia, 268 F.3d
at 88. An example of a circumstance in which a law does not
"apply substantively" to a tribe is when the law
specifically exempts "an Indian tribe" from its
prohibitions. See Id. (citing 42 U.S.C. §
2000e(b)). Second, a plaintiff "must have a private
cause of action to enforce the substantive rule."
Id. The Tribal Defendants assert that
Plaintiffs' federal claims fail on both counts. However,
the court does not read the "qualifications"
articulated in Garcia as components of the
jurisdictional analysis. The court treats the Tribal
Defendants' arguments on these points as necessary
Tribal Defendants argue that Plaintiffs seek more than
prospective injunctive or declaratory relief, and actually
seek money damages from the Tribal Defendants-a remedy not
available under the Ex Parte Young-type exception.
(See Doc. 66 at 19 n.5.) The FAC does indeed assert
(apparently without excepting the Tribal Defendants) that
"funds should be returned to the people who fell victim
to Defendants' illegal scheme"; and further requests
an "[e]quitable surcharge seeking return of all interest
charged above a reasonable rate and any financial charges
associated with the loan" and also "[a]
constructive trust over funds obtained illegally." (Doc.
18 at 42-43.) The court concludes that, to the extent the FAC
seeks money damages against the Tribal Defendants, that
relief is unavailable.
the Tribal Defendants assert that the Ex Parte
Young-type exception applies only to violations of
federal law, and that as a result all of
Plaintiffs' state-law claims fail. (Doc. 66 at 23.)
Ex Parte Young is itself "inapplicable in a
suit against state officials on the basis of state law."
Pennhurst State Sch. & Hosp. v. Halderman, 465
U.S. 89, 106 (1984). Thus under the Ex Parte Young
doctrine, "a federal court's grant of injunctive
relief against a state official may not be based on
violations of state law." Dube v. State Univ. of
N.Y, 900 F.2d 587, 595 (2d Cir. 1990) (citing
Pennhurst, 465 U.S. at 106). Extending that
reasoning to tribal cases, the court in Frazier v.
Turning Stone Casino held that Ex Parte Young
"only allows an official acting in his official capacity
to be sued in a federal forum to enjoin conduct that
violates federal law." 254 F.Supp.2d 295, 310
(N.D.N.Y. 2003) (emphasis added).
might have been persuasive authority prior to the Supreme
Court's decision in Bay Mills. But in Bay
Mills the Supreme Court stated that, if a tribe were to
set up an off-reservation casino, the state "could bring
suit against tribal officials or employees (rather than the
Tribe itself) seeking an injunction for, say, gambling
without a license." 134 S.Ct. at 2035. That is because
"a State, on its own lands, has many other powers over
tribal gaming that it does not possess (absent consent) in
Indian territory, " and because, when not on Indian
lands, tribal officials "are subject to any generally
applicable state law." Id. at 2034. Thus, as
other courts have recognized, Bay Mills establishes
that "tribal officials may be subject to suit in federal
court for violations of state law under the fiction of Ex
Parte Young when their conduct occurs outside of Indian
lands." Alabama v. PCI Gaming Auth., 801 F.3d
1278, 1290 (11th Cir. 2015).
assert that "the activities of the Plain Green
enterprise occurred outside the reservation." (Doc. 85
at 32.) The Tribal Defendants disagree (at least in part),
maintaining that the loan agreements at issue were formed on
the Tribe's reservation. (Doc. 66 at 32.) In support of
that argument, the Tribal Defendants cite 2 Williston on
Contracts § 6:62 (4th ed.): "[I]f the
acceptance is not made simultaneously with the offer, and is
made in a different place, ... the place of the contract is
the place where the last act necessary to the completion of
the contract is done . . . ." The Tribal Defendants then
rely on the following assertion in Joel Rosette's
affidavit: "The act triggering the release of a loan to
a borrower is Plain Green's final assessment of the
consumer's loan application. Plain Green undertakes this
final determination from its office, " which is on the
Tribe's Reservation. (Doc. 66-1 ¶¶ 6, 9.)
Tribal Defendants do not explain why the "final
assessment" of a consumer's loan application is an
"acceptance" in the language of contract-formation.
In any case, even if the contract was formed on the
Tribe's reservation, a substantial part of the events
giving rise to Plaintiffs' claims occurred outside the
reservation. The Second Circuit made a similar
observation in Otoe-Missouria Tribe of Indians v. New
York State Department of Financial Services, concluding
that the plaintiff-tribes in that case (which were also
involved in making short-term internet loans) had
"provided insufficient evidence to establish that they
are likely to succeed in showing that the internet loans
should be treated as on-reservation activity." 769 F.3d
105, 115 (2d Cir. 2014).
court observed in Otoe-Missonria:
Much of the commercial activity at issue takes place in New
York. That is where the borrower is located; the borrower
seeks the loan without ever leaving the state, and certainly
without traveling to the reservation. Even if we concluded
that the loan is made where it is approved, the transaction .
. . involves the collection as well as the extension of
credit, and that collection clearly takes place in New York.
The loan agreements permit the lenders to reach into the
borrowers' accounts, most or all of them presumably
located in New York ....
Id. Here, the circumstances are similar and the
Tribal Defendants have presented no more evidence than the
tribes in Otoe-Missouria. Thus, at least for the
purposes of the motions to dismiss, the result predicted in
that case is the same in this one: the relevant conduct
occurred outside of Indian lands. The Tribal Defendants may
thus be subject to suit under the Ex Parte
the Tribal Defendants assert that nothing in Bay
Mills authorizes suits by private
citizens based on violations of state law. (Doc. 92
at 16.) It is true that Plaintiffs in this case are private
citizens, whereas in Bay Mills and PCI
Gaming the plaintiffs were States. But Bay
Mills does not explicitly limit the application of the
Ex Parte Young analogy to suits brought by States.
In fact, the Court stated that, "[u]nless federal law
provides differently, Indians going beyond reservation
boundaries are subject to any generally applicable state
law." Bay Mills, 134 S.Ct. at 2035 (internal
quotation marks omitted; emphasis added). That plain language
includes state laws that may be enforced by private citizens.
See Am. Indian Law Deskbook § 7:4 (noting that
tribal officer-capacity suits under Bay Mills are a
"potential remedy for states and other
parties" (emphasis added)).
tribal sovereign immunity may limit the shape and nature of
the relief against the Tribal Defendants, but it is not a
complete bar to a lawsuit against them.
Tribal Defendants, joined by the Think Defendants and TCV,
contend that Plaintiffs lack standing because they have not
yet incurred injury or damages and because they do not seek
redress for injuries they have sustained personally. (Doc 66
at 24-27.) Plaintiffs respond that they continue to
owe money on unlawful loans and suffer reputational harm
through credit reporting of non-payment. The court agrees
with Plaintiffs that the FAC contains sufficient allegations
to support individualized standing for each Plaintiff. There
is little dispute that both borrowed money on terms which
would violate Vermont's usury laws. (See Doc. 91
at 12, Amicus brief filed by the Office of the Vermont
Attorney General.) Whether Plain Green is subject to these
laws is in dispute, but Plaintiffs' status as people
alleging injury through violations of state law is not.
arguments that no injury is sustained because a person has an
outstanding loan balance which has not been reduced to
judgment or otherwise affected her interests is contrary to
the allegations of the FAC, which the court accepts as true
at this stage of the case. The specific relief sought by
Plaintiffs demonstrates their direct, personal stake in the
dispute. They seek declaratory relief under statutes
including the Vermont Consumer Fraud Act. Such relief could
relieve them of any future repayment obligation. They seek
repayment of any interest collected above a legal rate. And
they seek an injunction shielding them from future collection
efforts. (Doc. 18 at 43.) As these claims make clear,
Plaintiffs' interest in the subject matter of this
lawsuit and the clear potential for relief in their
individual cases confers standing for purposes of Article
next step is to consider Rule 12(b)(2): whether the court has
personal jurisdiction over each of the Defendants. The Tribal
Defendants, Mr. Rees, Sequoia, and TCV all assert that the
court lacks personal jurisdiction over them. (Doc. 66 at 32;
Doc. 67-2 at 16; Doc. 77-1 at 4; Doc. 76 at 14.) As with the
subject-matter jurisdiction issues, the personal-jurisdiction
issues require some relatively extensive analysis.
a motion to dismiss for lack of personal jurisdiction, the
plaintiff bears the burden of showing that the court has
jurisdiction over the defendants." Dodge v.
Manchester Police Dep't No. 5T3-CV-228, 2014 WL
4825632, at *4 (D. Vt. Sept. 25, 2014). "In the absence
of jurisdictional discovery, the court presumes the truth of
the complaint's allegations and construes the complaint
in the light most favorable to the plaintiff."
Id. "A plaintiff must make a prima
facie showing of jurisdiction." Id.
jurisdiction may be either general or specific in nature.
Plaintiffs do not contend that any of the defendants has a
presence in Vermont which would support general jurisdiction
for all purposes. They argue that the specific acts alleged
in the FAC give rise to personal jurisdiction for purposes of
claims arising out of those acts.
exercise of personal jurisdiction over non-resident
defendants raises issues of due process because of the
potential unfairness of compelling these parties to defend
actions in distant jurisdictions. The Due Process Clause of
the Fourteenth Amendment limits the assertion of personal
jurisdiction in diversity cases. In federal question cases,
similar protection is afforded by the Due Process Clause of
the Fifth Amendment. Omni Capital Int'l, Ltd. v.
Rudolf Wolff & Co., 484 U.S. 97, 104 (1987).
the structure of the Federal Rules of Civil Procedure, the
permissible scope of effective service is co-extensive with
the limits of personal jurisdiction. As amended in 1993,
Fed.R.Civ.P. 4(k) provides for service and therefore the
exercise of personal jurisdiction over persons subject to the
jurisdiction of state courts of general jurisdiction and
"when authorized by a federal statute." A variety
of federal statutes, including the RICO statute, provide for
nationwide service of process. See 18 U.S.C. §
1965. The extension of personal jurisdiction in these federal
question cases remains subject to the constitutional limits
of due process.
this background in mind, the questions the court must answer
in resolving the personal jurisdiction issues in this case
1. Would Defendants be subject to personal jurisdiction in
the courts of general jurisdiction in Vermont under
principles of due process expressed in International Shoe
Co. v. Washington, 326 U.S. 310 (1945)?
2. Alternatively, does the provision for nationwide service
of process in the RICO statute support the court's
exercise of personal jurisdiction over Defendants?
3. Does the exercise of the jurisdiction over the state-law
claims fall within the doctrine of pendent personal
Officials of Plain Green-the Tribal
have sued three tribal members who play important roles in
Plain Green. These are Mr. Rosette, the chief executive
officer, and Ted Whitford and Tim Mclnerney, two board
members. All three are residents of Montana. They serve as
proxies in this case for Plain Green, and suit is filed
against them in their official capacity to avoid the defense
of tribal sovereign immunity. See supra; see also Bay
Mills, 134 S.Ct. at 2035 (recognizing the application of
Ex Parte Young to suits against tribal leaders).
alleges that Mr. Rosette is "responsible for all
operations of Plain Green." (Doc. 18 ¶ 6.) As CEO,
he "is responsible for and can stop the illegal activity
described in this Complaint." (Id.) Mr.
Whitford and Mr. Mclnerney are board members. The FAC alleges
that the board of directors "has the power to fire the
CEO of Plain Green and appoint a new CEO who will comply with
the law." (Id. ¶¶ 7, 8.)
jurisdiction over state or tribal officials in an Ex
Parte Young case raises special issues in "minimum
contacts" analysis. Is the court considering the
contacts between Vermont and the individuals, or the contacts
between the state and Tribe and Vermont? See Tracy
O. Appleton, Note, The Line Between Liberty and Union:
Exercising Personal Jurisdiction Over Officials From Other
States, 107 Colum. L. Rev. 1944 (Dec. 2007). The lower
courts have differed on this issue, and it has not been
resolved by the Supreme Court. See Leroy v. Great W.
United Corp., 443 U.S. 173, 180-81 (1979) (by-passing
issue in order to resolve case on non-constitutional
line of authority looks to contacts between the forum and the
defendant state or tribe. In Great Western United Corp.
v. Kidwell, the Fifth Circuit held that specific
jurisdiction existed in Texas over an Idaho official because
of the effects of Idaho regulations on business conducted in
Texas. 577 F.2d 1256, 1267-68 (5th Cir. 1978), rev 'd
on other grounds sub nom., Leroy v. Great W. United
Corp., 443 U.S. 173 (1979); see also Ass 'n for
Molecular Pathology v. U.S. Patent and Trademark Office,
669 F.Supp.2d 365 (S.D.N.Y. 2009), aff'd in part,
rev'd in part, 653 F.3d 1329 (Fed. Cir. 2011)
(holding that state university officials in Utah were subject
to suit in New York due to the actions of a university
foundation in seeking to enforce patents in the forum state).
In these cases, whether an individual official had personal
contact with the forum state was not necessary to a
determination that the court had jurisdiction. Personal
jurisdiction for officials sued in a representative capacity
arose from the conduct of their state or agency.
Second Circuit considered these issues in Grand River
Enterprises Six Nations, Ltd. v. Pryor, 425 F.3d 158 (2d
Cir. 2005), cert, denied, 549 U.S. 951 (2006). In
Pryor, parties challenging the action of 30 state
attorneys general in reaching a master settlement in the
nationwide cigarette litigation of the 1990s filed suit in
New York. The Second Circuit held that personal jurisdiction
over state officials was present as a result of the trips
they or their representatives made to New York City to
negotiate the settlement. The decision followed traditional
"minimum contacts" analysis in predicating personal
jurisdiction on physical presence of the named defendants
within the forum state. Had the master settlement agreement
been negotiated in Chicago, the federal courts in New York
State would have had no basis for jurisdiction over the state
attorneys general from other states. Although the effects of
the master settlement agreement would still have been felt in
New York State (and every other state which joined in the
settlement), personal jurisdiction over state officials would
not be present except as a result of the contacts of
individuals with the forum state.
make no claim that the Tribal Defendants ever visited Vermont
or communicated with anyone in Vermont. Instead, they rely on
Plain Green's contacts with Vermont. They allege that
Plain Green operated a website which advertised loans across
the United States, including Vermont. Once Plaintiffs replied
to the advertisement from their homes in Vermont, Plain Green
sent them a series of emails and a loan application.
Following approval of the loan, Plain Green transferred the
loan principal to their bank accounts in Vermont. These
frequent contacts would have been sufficient to subject Plain
Green to personal jurisdiction in Vermont at least for causes
of action, like this one, which arise out of the particular
contacts and resulting loan transaction. See Chloe v.
Queen Bee of Beverly Hills, LLC, 616 F.3d 158 (2d Cir.
2010) (internet sales of handbags from California to New York
residents satisfies minimum contacts requirements); Blue
Compass Corp. v. Polish Masters of Am., 777 F.Supp. 4, 5
(D. Vt. 1991) (California defendant who advertised his
business in at least one national magazine and obtained one
Vermont customer had sufficient contacts with Vermont to
support personal jurisdiction).
Plain Green's contacts with Vermont are not vicariously
attributed to its officials any more than directors of a
corporation are subject to suit personally in any forum where
the actions of the corporation satisfy the minimum contacts
test. See Dumont v. Corr. Corp. of Am., No.
2:14-cv-209, 2015 WL 3791407, at *5 (D. Vt. June 17, 2015)
(citing cases). In following Pryor, the court rules
that the absence of contacts between Vermont and the Tribal
Defendants means that these Defendants would not be subject
to suit in a Vermont state court of general jurisdiction. The
first of the two potential bases for personal jurisdiction is
court turns now to the question of whether the grant of
nationwide service within the RICO statute provides a second
basis for personal jurisdiction. Section 1965(a) of Title 18
provides for suit in any district court in which a defendant
"resides, is found, has an agent, or transacts his
affairs." Section 1965(b) permits a suit for civil
remedies to be filed in "any district court of the
United States in which it is shown that ends of justice
require that other parties residing in any other district be
brought before the court . . . ."
Second Circuit has never interpreted these provisions to
provide for nationwide personal jurisdiction over any
defendant named in a RICO complaint. In PT United Can Co.
Ltd. v. Crown Cork & Seal Co., Inc., 138 F.3d 65 (2d
Cir. 1998), the court held that § 1965(a) by its express
terms required traditional "minimum contacts"
within the forum state for at least one defendant. Section
1965(b) permits other defendants to be brought in from
distant jurisdictions upon a showing of necessity despite the
absence of minimum contacts. "There is no impediment to
prosecution of a civil RICO action in a court foreign to some
defendants if it is necessary, but the first preference, as
set forth in § 1965(a), is to bring the action where
suits are normally expected to be brought." PT
United, 138 F.3d at 71-72. This restrictive reading has
withstood the test of time, and is still the law in this
Circuit. See Pincione v. D 'Alfonso, 506
Fed.App'x 22 (2d Cir. 2012).
context of this case, § 1965(a) and (b) require that at
least one Defendant meet the minimum contacts test before
parties not otherwise subject to suit in Vermont can be sued
here. None of the three Tribal Defendants meet "minimum
contacts" tests in Vermont. Unless the presence of other
defendants triggers the "ends of justice" provision
of § 1965(b), the absence of contact between the Tribal
Defendants and Vermont places them outside the scope of the
nationwide jurisdiction permitted under certain circumstances
by the RICO statute.
Kenneth Rees and the Think Defendants
allege that Mr. Rees and the companies which he controls
performed the actual work of Plain Green, including making
the loans provided to Plaintiffs. Assuming this to be true
for purposes of the motions to dismiss, the role of Rees and
the Think Defendants in providing the leadership,
underwriting, marketing, and servicing for the Plain Green
loans subjects them to personal jurisdiction. They cannot
avoid personal jurisdiction for these actions by acting in
the name of Plain Green. If, as Plaintiffs allege, these
Defendants were the critical actors in making loans on
illegal terms to Vermont residents, then they are subject to
personal jurisdiction for claims arising out of the acts they
of the internet is an important factor in analyzing the
minimum contacts test for Rees and the Think Defendants.
Although Mr. Rees has visited Vermont rarely and never for
reasons related to Plain Green, (see Doc. 67-1
¶ 9), the Think Defendants have entered the Vermont
marketplace by creating a website which is accessible to any
Vermont consumer with an internet connection. The Second
Circuit has recognized that this degree of
"interactivity"- the direct connection between an
internet business located at a great remove from the forum
state and its customers within the forum state-is a factor
which supports a finding of minimum contacts. See Best
Van Lines, Inc. v. Walker, 490 F.3d 239, 252 (2d Cir.
2007) (citing Zippo Mfg. Co. v. Zippo Dot Com, Inc.,
952 F.Supp. 1119 (W.D. Pa. 1997)).
to the specific allegations, the FAC alleges that Mr. Rees
"personally designed and directed the business activity
described in the Complaint." (Doc. 18 ¶ 10.) After
federal regulators shut down his former business known as
ThinkCash, Inc., Mr. Rees renamed the business Think Finance,
Inc. With a new identity in hand, he approached the Tribe and
offered to "provide everything the Tribe needed to ran a
successful payday loan enterprise if the Tribe would let them
use the concept of tribal immunity to stymie state and
federal regulators." (Id. ¶ 23.) The Tribe
created Plain Green in order to join with Mr. Rees and Think
Finance in the payday lending business. (Doc. 18-1 (Term
Sheet for Think Finance-Chippewa Cree Transaction).)
charges Rees and the Think Defendants with using their
control over Plain Green to violate state and federal law.
These include seeking to avoid state usury limits; blocking
access to information about borrowers' accounts; and
misrepresenting the nature of the Plain Green loans to credit
reporting agencies. (Doc. 18 ¶¶ 32-35.) In
Plaintiffs' words, "[defendants Rees and Think
Finance intentionally and willfully dominated and still
dominate the operations of Plain Green. Other than the
sovereignty that they attempted to purchase, Rees and Think
Finance provided everything that the enterprise needed to
operate." (Id. ¶ 80.)
allegations are neither conclusory nor implausible. They are
factually detailed-at least as detailed as is possible
without the advantages of discovery. They include a
description of a similar business venture involving Mr. Rees
and the First Bank of Delaware which was dissolved following
an FDIC enforcement action and consent decree concerning
similar practices. (Id. ¶¶ 38-40.) They
are consistent with similar allegations in a case brought by
the Pennsylvania Attorney General's office against Think
Finance, Inc. and other parties in the Eastern District of
Pennsylvania. See Pennsylvania v. Think Finance,
Inc., No. 14-cv-7139, 2016 WL 183289 (E.D. Pa. Jan. 14,
critical issue for a determination of the court's
personal jurisdiction over Rees and the Think Defendants is
whether their activities satisfy the minimum contacts test.
Defendants assert that Mr. Rees has had few personal contacts
with Vermont, owns no property in the state, and has not
visited since 1999 and then for non-business reasons. But a
personal, physical presence in the state is not required to
satisfy the minimum contacts test. Plaintiffs allege that Mr.
Rees and the companies which he controls developed a
nationwide, illegal lending scheme which resulted in
predatory loans to Vermont residents. According to the FAC,
the actions he took in other states led to predictable
results in Vermont and other states where borrowers responded
to the website and took out loans. This is typical of
jurisdiction based on "minimum contacts" arising
from activities in one state which is directed into others.
See Colder v. Jones, 465 U.S. 783 (1984) (employees
of a national publication subject to personal jurisdiction
for libel claim in the forum where the results of targeted
intentional conduct were felt).
same analysis applies to the Think Defendants. According to
the FAC, all of these companies joined in developing,
marketing, and operating the loan operation. As designed by
Mr. Rees and as executed by his companies, the loans were
made over the internet to residents of many states, including
Vermont. They were marketed through Plain Green in order to
skirt state consumer protections. The affiliated corporations
which provided specific services such as marketing and
underwriting expected their efforts to result in loans made
in states including Vermont. The misconduct alleged by
Plaintiffs is entirely intentional and directed into Vermont
(as well as many other states). That Rees and the Think
Defendants might have to respond in court to defend their
practices in a state like Vermont where they enabled Plain
Green to lend money is hardly surprising or unfair.
court concludes that Plaintiffs have made plausible
allegations sufficient to support a determination of minimum
contacts for purposes of personal jurisdiction for the
specific claims made in this case against Rees and the Think
Defendants. As the court's discussion indicates, they
could have been sued on these claims in the Vermont state
courts on the basis of their actions in developing the payday
loan which they operated through Plain Green and which they
directed into Vermont. Such conduct satisfies both the
minimum contacts test and the related requirement of due
process that the exercise of personal jurisdiction meet
general standards of fairness.
Sequoia Capital and Technology Crossover Ventures
court has an insufficient basis for making a ruling about
minimum contacts and due process requirements with respect to
Sequoia and TCV because Plaintiffs allege very little about
their respective roles in the Plain Green operation. As the
following discussion of personal jurisdiction under RICO
makes clear, however, they are potentially subject to suit as
additional defendants subject to the court's jurisdiction
in the interests of justice. See 18 U.S.C. §
1965(b). The court returns to the question of personal
jurisdiction over Sequoia and TCV in the course of its RICO
Nationwide Jurisdiction Under RICO
the court has determined that Rees and the Think Defendants
are subject to personal jurisdiction, it returns to the
question of whether 18 U.S.C. § 1965(b) permits the
Tribal Defendants to be sued in Vermont. The Second Circuit
has interpreted § 1965(b) to permit the exercise of
jurisdiction over parties who do not meet the minimum
contacts test so long as at least one other defendant meets
the test and the exercise of jurisdiction is required by the
"ends of justice." PT United, 138 F.3d at
71 n.5. The standard is one of necessity and of last resort.
"There is no impediment to prosecution of a civil RICO
action in a court foreign to some defendants if it is
necessary, but the first preference, as set forth in §
1965(a), is to bring the action where suits are normally
expected to be brought. Congress has expressed a preference
in § 1965 to avoid, where possible, haling defendants
into far flung fora." Id. at 71-72.
court concludes that the ends of justice fairly require
jurisdiction in Vermont against the Tribal Defendants
pursuant to 18 U.S.C. § 1965(b). Several reasons support
this conclusion. First, the impact of this lawsuit on the
Tribal Defendants is modest. There is no claim against them
for money damages. They are being asked only to cease
violating federal and state consumer protections. This court
has no jurisdiction over Plain Green and understands that
Plaintiffs seek only injunctive relief against its officials
in the form of an order requiring them to obey state and
federal laws that regulate lending in Vermont.
it is not clear that there is another forum in which all
defendants can be sued (except pursuant to § 1965(b)).
Only the Tribal Defendants are citizens of Montana. The other
parties and Mr. Rees are from different states. While the
record is not fully developed on this point, no party has
offered an alternative forum in which personal jurisdiction
is present for all parties.
there is nothing inherently unfair or unjust about requiring
representatives of a lender doing business in Vermont to
appear to defend their practices in this state. These
Defendants are already ably represented by highly qualified
counsel. The payday lending business gives every indication
of being a highly lucrative business which can afford to
appear through counsel in the states in which it operates.
there is the issue of the viability of the RICO claims.
"Ends of justice" RICO jurisdiction can only be
exercised if the allegations state a viable RICO claim.
See 7 W. 57th St. Realty Co., LLC v. Citigroup,
Inc., No. 13 Civ. 981(PGG), 2015 WL 1514539, at *7 n.2
(S.D.N.Y. Mar. 31, 2015) (citing cases). For the reasons
discussed in detail below, the court concludes that the FAC
states viable RICO claims against the Tribal Defendants. This
case qualifies as one in which 18 U.S.C. § 1965(b)
extends the personal jurisdiction of the federal court to
RICO claims against the Tribal Defendants, who would not
otherwise be subject to suit in Vermont. Once the Tribal
Defendants are before the court on this basis, the doctrine
of pendent personal jurisdiction permits the court to hear
the other claims against them which arise from state law or
federal statutes other than RICO.
court cannot reach the same conclusion as to Sequoia and TCV.
For the reasons discussed below, the court concludes that the
FAC fails to state a viable RICO claim against those
Defendants. Absent RICO jurisdiction over those Defendants,
the court reiterates its observation that there is an
insufficient basis for making a ruling about minimum contacts
and due process requirements with respect to them because
Plaintiffs allege very little about their respective roles in
the Plain Green operation. The court, will, however, exercise
its discretion to permit discovery on the question of
personal jurisdiction over Sequoia and TCV. See
Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d
81, 84 (2d Cir. 2013) (per curiam) (court may permit
discovery in aid of Rule 12(b)(2) motion).
Arbitration and Arbitrability
court comes now to the question raised by all Defendants:
does this dispute belong in arbitration instead of in court?
Each Defendant asserts that the dispute must go to
arbitration. (Doc. 64 at 2; Doc. 66 at 27-31; Doc. 67-2 at
23; Doc. 77-1 at 8-10; Doc. 76 at 26-30.) Plaintiffs maintain
that the purported arbitration agreement is unenforceable as,
among other things, "unconscionable" and
"fraudulent." (See Doc. 85 at 48-78.)
Plaintiff made use of the "opt out" provision
during the first 60 days following receipt of her loan. Both
seek to apply state and federal consumer loan protections to
this case. Neither wishes to go to arbitration. And both seek
to serve as class representatives. For these reasons, the
first issue for the court is to determine whether Plaintiffs
are bound by the arbitration clause and the related
choice-of-law clause. The questions which must be answered
1. What law governs the issue of arbitrability?
2. Does tribal law govern the enforceability of the
arbitration clause with respect to issues of
3. Can individual borrowers in Vermont who are not normally
subject to tribal law become subject to tribal law through
their consent to an arbitration clause?
4. Is the tribal law, including its enforcement through the
arbitration clause, unenforceable on grounds of
5. Are there other reasons raised by Plaintiffs which prevent
enforcement of the arbitration clause?
6. Are all Defendants subject to the arbitration clause? The
court begins with the question of ...