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Vine v. PLS Financial Services, Inc.

United States District Court, W.D. Texas, El Paso Division

January 16, 2018

LUCINDA VINE, KRISTY POND, on behalf themselves and for all others similarly situated, Plaintiffs,
v.
PLS FINANCIAL SERVICES, INC., and PLS LOAN STORE OF TEXAS, INC., Defendants.

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

          PHILIP MARTINEZ, UNITED STATES DISTRICT JUDGE.

         On this day, the Court considered Defendants PLS Financial Services, Inc. and PLS Loan Store of Texas, Inc.'s [hereinafter “Defendants”] “Motion for Summary Judgment” (ECF No. 83) [hereinafter “Motion”], filed on October 13, 2017, Plaintiffs Lucinda Vine and Kristy Pond's [hereinafter “Plaintiffs”] “Response to Defendants' Motion for Summary Judgment” (ECF No. 86) [hereinafter “Response”], filed on October 27, 2017, and Defendants' “Reply in Support of Their Motion for Summary Judgment” (ECF No. 87) [hereinafter “Reply”], filed on November 3, 2017, in the above-captioned cause. After due consideration, the Court is of the opinion that Defendants' Motion should be granted in part and denied in part for the reasons that follow.

         I. FACTUAL BACKGROUND

         This case arises out of a dispute concerning Plaintiffs' default on payday loans they acquired through Defendants. Defendants are “loan brokers” that connect customers with lenders who can provide short-term loans. Reply 13. Both Plaintiffs applied for and obtained short-term loans through Defendants in 2012.[1] Mot. 3-4. In connection with those loans, both Plaintiffs executed Credit Services Agreements (“CSAs”) and related loan documentation. Id. Additionally, both Plaintiffs provided Defendants with a signed, postdated check for the amount of their loan plus interest and loan fees, as is customary. Id. at 4-5. According to Plaintiffs, Defendants assured them that they would not ever deposit the postdated checks. Pls.' Second Am. Class Action Compl. 4, Sep. 26, 2017, ECF No. 76 [hereinafter “Complaint”]. Rather, Defendants informed them that they secured the postdated checks solely to verify that the borrowers had functional bank accounts. Id.

         Both Plaintiffs defaulted on the loan payments shortly after receiving the loans. Mot. 7. Despite allegedly knowing that Plaintiffs' bank accounts had insufficient funds, Defendants cashed the postdated checks they had been provided, which “bounced.”[2] Id. at 7-8. Defendants thereafter submitted “Worthless Check Affidavits” to the Collin County District Attorney's Office [hereinafter “DA”].[3] The DA requires that merchants who were the victims of “theft arising from the passing of worthless checks” submit these affidavits in order to utilize the County's “Hot Check Loss Prevention Program” [hereinafter “Program”]. See Hot Checks, CollinCountyDA.com/hot-check/ (last visited Jan. 16, 2018). The Program's “primary purpose is to receive complaints of theft arising from the passing of worthless checks and to develop those complaints into prosecutable cases.” Id. Plaintiffs claim that Defendants' use of the Program was a fraudulent and improper attempt to collect on Plaintiffs' debt obligations. This is because Defendants allegedly knew that providing a postdated check as security for a loan does not constitute “theft arising from the passing of worthless checks.” See Id. (informing those who wish to utilize the Program that the “DA's Office cannot accept the following kinds of checks for prosecution: Post-dated or ‘hold' checks” . . . [or] Checks given to pay a pre-existing debt”); Resp. Ex. A. (affiant in Worthless Check Affidavit swearing and affirming “that said check(s) was not postdated or a hold check(s)”). Further, despite the borrowers' undisputed innocence of any criminal misconduct, Defendants allegedly knew that the DA would send letters threatening those borrowers with arrest and criminal prosecution if they did not pay restitution. See Resp. Ex. B (ledger information provided by Defendants indicating that other borrowers had been sent letters by the DA in early 2012).

         After Defendants submitted the affidavits, Plaintiffs each received letters from the DA claiming that checks “have been presented to this office for criminal prosecution[ ]” and demanding Plaintiffs pay the “amount of the check[s], [the] statutory merchant's fees, and [the] statutory DA service fees.” See Mot. 9 (confirming that both plaintiffs received letters); Resp. Ex. H (DA's letter to Plaintiff Pond). The letters also warn that if “you do not pay the check(s) and fees within ten (10) days of the date of this letter, we will refer the matter for criminal prosecution, in which case a warrant will be issued for your arrest.” Resp. Ex. H. Plaintiffs thereafter made full payments to the DA's office and neither of their cases was ever referred for criminal prosecution. Mot. 10. Plaintiffs object to Defendants' practice because, they claim, it misused the Hot Check Program as a means of debt collection by indirectly threatening borrowers with arrest and prosecution if they did not pay.

         II. PROCEDURAL BACKGROUND

         Plaintiffs filed their original complaint on December 17, 2015. Mot. 11. Plaintiffs, on behalf of themselves and others similarly situated, allege (1) malicious prosecution, (2) violations of the Texas Deceptive Trade Practices Act (“DTPA”), (3) fraud, and (4) violations of Texas Finance Code § 392.301 (Texas Debt Collection Act-“TDCA”). Compl. 5─7. Defendants removed the case on January 26, 2016, based on diversity jurisdiction. Not. Removal, ECF No. 1. On March 23, 2016, Defendants filed a “Motion to Dismiss and to Compel Lucinda Vine to Arbitration” (ECF No. 19). The Court denied that motion. Order, June 6, 2016, ECF No. 37. Defendants moved for reconsideration, which the Court also denied, Order, Aug. 11, 2016, ECF No. 53, and Defendants filed an interlocutory appeal. See Mot. to Stay Proceedings Pending Mot. to Reconsider and Interlocutory Appeal, July 1, 2016, ECF No. 44.

         The Fifth Circuit upheld the Court's denial of Defendants' motion to compel arbitration on May 19, 2017. See Vine v. PLS Fin. Servs., Inc., 689 F. App'x 800 (5th Cir. 2017). The Court thereafter held a status conference to discuss class action certification and how to proceed with discovery. After the conference, the Court granted the parties sixty days to conduct limited discovery “for matters relating to class certification[.]” Preliminary Scheduling Order, June 26, 2017, ECF No. 64. Shortly after Plaintiffs filed a motion for class certification on September 12, 2017, Defendants filed the instant Motion requesting summary judgment on October 13, 2017. In the Motion, Defendants argue that all of Plaintiffs' claims are either legally invalid or unsupported by the evidence adduced during the limited discovery phase. The Court will address each argument raised in the Motion in turn.

         III. LEGAL STANDARD

         Pursuant to Federal Rule of Civil Procedure 56(a), a court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” A genuine dispute will be found to exist “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Rogers v. Bromac Title Servs., LLC, 755 F.3d 347, 350 (5th Cir. 2014) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         “Under Federal Rule of Civil Procedure 56(c), the party moving for summary judgment bears the initial burden of . . . ‘identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.'” Norman v. Apache Corp., 19 F.3d 1017, 1023 (5th Cir. 1994) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)).

         “Rule 56(c) mandates the entry of summary judgment . . . upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322. Where this is the case, “there can be ‘no genuine issue as to any material fact, ' since complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Id. at 323 (quoting Rule 56(c)).

         In adjudicating a motion for summary judgment, a court “consider[s] evidence in the record in the light most favorable to the non-moving party and draw[s] all reasonable inferences in favor of that party.” Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014).

         IV. ANALYSIS

         A. Whether PLS Financial is a Proper Defendant

         As an initial matter, the Court must address whether PLS Financial is a proper defendant in this case. Defendants aver that PLS Financial and PLS Loan Store are “distinct entities” and that “PLS Financial is entitled to summary judgment on all claims because it was not involved in any way in the conduct alleged in this lawsuit.” Mot. 13. Defendants claim PLS Financial is an Illinois corporation with no offices or operations in Texas and that it “was never involved in the process by which PLS Loan Store arranged, approved, or denied any loan[.]” Id. Accordingly, they request that the Court grant summary judgment on all claims in favor of PLS Financial. Mot. 13.

         Plaintiffs do not distinguish PLS Financial and PLS Loan Store at all in their Complaint, and simply refer to both Defendants jointly as “PLS.” Id. However, Plaintiffs counter that they have not had an opportunity to discover facts that might allow them to contest Defendants' claim that PLS Financial was never involved in the alleged conduct. Resp. 19. While Plaintiffs admit that they “cannot verify or refute” this claim, they “request this Court allow Plaintiffs to conduct written discovery into this issue and take all necessary depositions before this Court rules on whether PLS [Financial] is a proper party[.]” Id.

         “[S]ummary judgment [should] be refused where the nonmoving party has not had the opportunity to discover information that is essential to his opposition.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.5 (1986); see also Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1267 (5th Cir. 1991) (“[W]e believe that the district court in this case should have deferred ruling on the motion for summary judgment until the necessary discovery was complete.”). Federal Rule of Civil Procedure 56(e) provides that “[i]f a party fails to properly support an assertion of fact . . . the court may: (1) give an opportunity to support or address that fact . . . [or] (4) issue any other appropriate order.”

         Here, the Court concludes that summary judgment regarding PLS Financial's involvement in any alleged wrongdoing is premature at this time. As Plaintiffs highlight, the only discovery that the Court has allowed thus far is a two-month period to complete limited discovery “for matters relating to class certification[.]” Preliminary Scheduling Order, June 26, 2017, ECF No. 64. Thus, the Court will allow Plaintiffs an opportunity to support their claim that PLS Financial is involved in the alleged wrongdoing and deny without prejudice Defendants' request for summary judgment on this ground.[4]

         B. Malicious Prosecution

         Plaintiffs first claim that “PLS wrongfully initiated criminal proceedings against Lucinda Vine, Kristy Pond and the remaining class members.” Compl. 6. Defendants argue that Plaintiffs cannot legally satisfy the elements of a malicious prosecution claim. Mot. 14. The Court agrees with Defendants, and will therefore grant summary judgment in their favor on Plaintiffs' malicious prosecution claim.

         Competing interests motivate the law of malicious prosecution in the State of Texas.

The first is the interest of society in the efficient enforcement of the criminal law, which requires that private persons who aid in the enforcement of the law should be given an effective protection against the prejudice that is likely to arise from the termination of the prosecution in favor of the accused. The second is the interest that the individual citizen has in being protected against unjustifiable and oppressive litigation of criminal charges, which not only involve pecuniary loss but also distress and loss of reputation.

Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 290 (Tex. 1994) (quoting RESTATEMENT (SECOND) OF TORTS SEVEN ch. 29 intro. note (1977)). “These interests are balanced by carefully defining the elements of an action for malicious prosecution, and the balance is maintained by strictly adhering to these elements.” Id. at 291. “To prevail on a malicious-prosecution claim, a plaintiff must establish the following elements: (1) the commencement of a criminal prosecution against the plaintiff; (2) causation (initiation or procurement) of the action by the defendant; (3) termination of the prosecution in the plaintiff's favor; (4) the plaintiff's innocence; (5) the absence of probable cause for the proceedings; (6) malice in filing the charge; and (7) damage to the plaintiff.” Vine v. PLS Fin. Servs., Inc., 226 F.Supp.3d 719, 728 (W.D. Tex. June 6, 2016), reconsideration denied, 226 F.Supp.3d 708 (W.D. Tex. Aug. 11, 2016), and aff'd, 689 F. App'x 800 (5th Cir. 2017) (citing Davis v. Prosperity Bank, 383 S.W.3d 795, 802 (Tex. App.- Houston [14th Dist.] 2012, no pet.)).

         Pursuant to Texas Law, a “criminal prosecution is initiated when a formal charge is made to law enforcement authorities, that is, when the charging instrument which goes before the magistrate is executed.” Fishman v. C.O.D. Capital Corp., No. 05-16-00581-CV, 2017 WL 3033314, at *5 (Tex. App.-Dallas 2017, no pet.). A criminal investigation, without any subsequent prosecution, is insufficient to support a malicious prosecution claim. Id. at *17; see also Thompson v. City of Galveston, 979 F.Supp. 504, 509 (S.D. Tex. 1997), aff'd, 158 F.3d 583 (5th Cir. 1998) (“Mere interrogation or announcing the confession of a suspect does not constitute ‘prosecution' for that crime.”).

         Here, Plaintiffs allege that “after the check[s] bounced, PLS contacted the District Attorney's Office” and informed them that “the members of the [putative] Class wrote bad checks and committed theft by check.” Compl. 5. They allege that “PLS had the District Attorney's Office send demand letters threatening criminal prosecution.” Id. Further, they claim that “PLS[5] knowingly, fraudulently, and falsely threatened and/or filed criminal charges against borrowers.” Id. Finally, they allege “PLS agents pursued criminal actions against more than 600 of its customers[.]” Resp. 2.

         However, Plaintiffs do not allege that the State of Texas ever initiated any formal criminal proceedings against any PLS customers. While the demand letters that Plaintiffs received threatened future prosecution, Plaintiffs point to no precedent supporting a malicious prosecution claim where the prerequisite criminal charges are merely hypothetical. Further, Plaintiffs all but admit that such a claim is insufficient in their Response by acknowledging that “they may not meet the requirements of a malicious prosecution claim at this time[.]” Resp. 19. Accordingly, the Court concludes that Plaintiffs' malicious prosecution claim fails as a matter of law and that Defendants' Motion should be granted with respect to this claim.

         C. Texas Deceptive Trade Practices Act (“DTPA”)

         Plaintiffs next claim that Defendants' practices violated the DTPA. Compl. 6. The DTPA protects consumers against “false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty[.]” Tex. Bus. & Com. Code Ann. § 17.44 (West). Claims brought pursuant to the DTPA are subject to a two-year statute of limitations, which accrues on the date the plaintiff discovers, or reasonably should have discovered, the alleged false, misleading, or deceptive act or practice giving rise to the claim. Id. at § 17.565. Plaintiffs bring multiple causes of action pursuant to the DTPA. First, they bring DTPA claims “[p]ursuant to Chapters 392 and 393 of the Texas Finance Code” which are “actionable under” the DTPA. Compl. 6; see Tex. Fin. Code Ann. § 392.404 (West) (“A violation of this chapter is a deceptive trade practice actionable under [the DTPA]”); id. at § 393.504 (same). These are referred to as “tied-in” claims. Second, they claim that Defendants' alleged actions violate “numerous provisions” of the DTPA itself, specifically including § 17.46, which concerns failure to disclose material information about a transaction in order to induce a consumer into making the transaction. Id.

         1. Whether Plaintiffs are DTPA “Consumers”

         Defendants argue that Plaintiffs are not “consumers” within the meaning of the DTPA, and thus are prohibited from filing suit pursuant to that statute. Mot. 18. “As a general rule, only consumers have standing to file DTPA claims.” Wicker v. Bank of Am., N.A., No. EP-14-CV-91-PRM, 2014 WL 10186157, at *4 (W.D. Tex. Aug. 27, 2014) (citing Riverside Nat. Bank v. Lewis, 603 S.W.2d 169, 173 (Tex.1980)). To qualify as a consumer, “a person must have sought or acquired goods or services by purchase or lease.” Id. (citing Cameron v. Terrell & Gerrett, Inc., 618 S.W.2d 535, 539 (Tex. 1981)). “‘Goods' are defined as ‘tangible chattels or real property purchased or leased for use.'” Knight v. Int'l Harvester Credit Corp., 627 S.W.2d 382, 388 (Tex. 1982) (quoting Tex. Bus. & Com. Code Ann. § 17.45(1) (West)). “‘Services' include ‘work, labor, or service purchased or leased for use, including services furnished in connection with the sale or repair of goods.'” Id. (citing Tex. Bus. & Com. Code Ann. § 17.45(2) (West)). Further, “the goods or services purchased or leased must form the basis of the complaint.” Hopkins v. Green Dot Corporation, No. 5:16-CV-365-DAE, 2016 WL 4468272, at *4 (W.D. Tex. Aug. 24, 2016) (citing Cameron, 618 S.W.2d at 539).

         In Riverside Nat. Bank v. Lewis, the Texas Supreme Court considered “the question whether one who seeks a loan from a bank in order to refinance a car qualifies as a ‘consumer' under the Deceptive Trade Practices Act.” 603 S.W.2d 169, 170 (Tex. 1980). The court rejected the notion that money was a “good” and held that a lender does not provide a “service” under the DTPA. Id. at 174-75. Thus, a borrower typically cannot bring a DTPA claim against a lender.

         Defendants initially argue that since Plaintiffs here “only sought to borrow money, ” they are not DTPA consumers because money is not a good and lending is not a service. Mot. 19. However, the issue is not so simple. Defendants are “loan brokers” rather than lenders-they act as a middleman between the borrower and lender and charge a fee to connect the two entities.[6] Riverside explicitly refused to decide whether collateral services incidental to obtaining a loan, including loan brokerage services, constitute actionable “services” under the DTPA. 603 S.W.2d at 175 n.5.

         Shortly after Riverside, a Texas court of appeals allowed DTPA claims against a loan brokerage service where the complaint was directed at the “characteristics, uses, benefits and standards” of that service. Lubbock Mortg. & Inv. Co. v. Thomas, 626 S.W.2d 611, 613 (Tex. App.-El Paso 1981, no writ) (“Thus, in consideration for the value it received, [the loan broker] could and did offer only a ‘service' as that term is used in Riverside.”).

         Following Thomas, Texas courts have consistently reaffirmed the validity of DTPA claims against loan brokers. See Lubbock, E.F. Hutton & Co. v. Youngblood, 708 S.W.2d 865, 868 (Tex. App.-Corpus Christi 1986, writ granted), aff'd, 741 S.W.2d 363 (Tex. 1987) (holding that “services” under the DTPA includes “services of a ‘loan broker' in attempting to obtain a loan for a borrower”); Mercantile Mort. Co. v. Univ. Homes, 663 S.W.2d 45, 47-48 (Tex. App.-Houston [14th Dist.] 1983, no writ) (“[B]rokers of loans, unlike lenders, are subject to the provisions of the DTPA.”); see also Montalvo v. Bank of Am. Corp., 864 F.Supp.2d 567, 575-77 (W.D. Tex. Mar. 30, 2012) (reaffirming that “loan broker” customers are consumers pursuant to the DTPA). Thus, the Court concludes that Texas state law dictates that loan brokerage services, like those at issue in this case, are actionable under the DTPA.

         Despite the clear language in these cases, Defendants argue that subsequent decisions have eroded their legal foundation. They claim that while the loan-broker cases have never been explicitly overruled, they are “contrary to the established law in both Texas and the Fifth Circuit that incidental services do not suffice” to create DTPA standing. Reply 3. In support of this counter-argument, Defendants cite an unpublished Fifth Circuit opinion, a ...


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