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Vine v. PLS Financial Services, Inc.

United States District Court, E.D. Texas, Sherman Division

April 1, 2019

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

          AMENDED MEMORANDUM OPINION AND ORDER [1]

          AMOS L. MAZZANT 0 O UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiffs Lucinda Vine and Kristy Pond's Motion for Class Certification [Dkt. #109], which, after careful consideration, will be granted to the extent described herein.

         BACKGROUND

         Defendants PLS Loan Store of Texas, Inc. and PLS Financial, Inc. (collectively, “PLS”) broker short-term loans (also known as “payday loans”) to borrowers in Texas. Vine and Pond allege that, to secure a PLS-brokered loan, borrowers must present a post-dated or blank personal check for the amount borrowed in addition to a finance charge. PLS allegedly tells borrowers it will not deposit the check and, as reflected in the Credit Service Agreement (the “Standard Loan Agreement”) each borrower must sign, that they will not pursue criminal charges based on the post-dated check (Dkt. #109, Exhibit 2 at p. 2; Dkt. #116, Exhibit 2 at p. 48). But Pond and Vine contend that, when a borrower misses a payment, PLS employees will deposit the check, threaten her with criminal prosecution if it bounces, and send affidavits to the district attorney (the “District Attorney” or “D.A.”) falsely stating that her check was not post-dated or meant to be held (the “Hot Check Affidavits”). This prompts the District Attorney to send the borrower a letter advising that she will face criminal charges if she does not pay off the amount of the bounced check as well as statutory merchant fees and D.A. service fees. The record reflects that just “a few” PLS employees were responsible for referring the checks, and that each of these checks was referred to the Collin County District Attorney's office (Dkt. #109, Exhibit 5 at p. 7; Dkt. #109, Exhibit 6; Dkt. #116, Exhibit 2 at p. 3).

         Vine and Pond subsequently filed a class action against PLS on behalf of borrowers who received such letters for common law fraud and violations of the Texas Deceptive Trade Practices Consumer Protection Act (the “DTPA”).[2] Vine and Pond now move to certify a class comprised of Texas residents who (1) “received a payday loan (as defined by Tex. Fin. Code §393.221) from a PLS Loan Store, ” (2) “failed to timely pay back the payday loan, ” (3) and had a criminal complaint filed against them by PLS “after December 17, 2011 for a bad check to collect or recover this payday loan” (Dkt. #76 at p. 2). Plaintiffs seek actual damages for the merchant and D.A. fees incurred, punitive/fraud damages, reasonable attorney's fees, and court costs (Dkt. #76 at pp. 9- 10; Dkt. #109, at p. 14).

         PLS questions whether such a class can be certified. PLS contends that the Standard Loan Agreement requires borrowers to waive their rights to participate a class action lawsuit. The relevant terms, included as part of the agreement's “Arbitration Provision, ” states that:

Arbitration is a process in which persons with a dispute: (a) waives their rights to file a lawsuit and proceed in a court and to have a jury trial to resolve their disputes; and (b) agree, instead, to submit their disputes to a neutral third party (an “arbitrator”) for a decision . . . Therefore, You acknowledge and agree as follows:
. . .
(c) You are giving up your right to serve as a representative, as a private attorney general, or in any other representative capacity, or to participate as a member of a class of claimants, in any lawsuit filed against us, the Lender and/or our/its related third parties. Your dispute may not be consolidated with the dispute of any other person(s) for any purpose(s).
3. Except as provided in Paragraph 6 below, all disputes including any Representative Claims against us, the Lender and/or our/its related third parties shall be resolved by binding arbitration only on an individual basis with you.
Therefore, the Arbitrator shall not conduct class action arbitration; that is, the arbitrator shall not allow you to serve as a representative, as a private attorney general, or in any other representative capacity for others in the arbitration. Notwithstanding any other provision herein to the contrary, the validity, effect, and enforceability of this waiver of class action lawsuit and class-wide arbitration shall be determined solely by a court of competent jurisdiction and not by the arbitrator. If the arbitrator fails or refuses to abide by the class-action arbitration waiver and the court refuses to enforce the class-wide arbitration waiver, the parties agree that the dispute will proceed in court under applicable court rules and procedures, following all appeals, if any, of the court's decision.

(the “Class Action Clause”) (Dkt. #116, Exhibit 1 at p. 18) (emphasis omitted). PLS also argues that Plaintiffs cannot meet the requirements to certify a class under Federal Rule of Civil Procedure 23.

         Plaintiffs, on the other hand, insist that they have met Rule 23's requirements. They also argue that the Class Action Clause applies only if the dispute is arbitrated and not litigated in federal court. They note that the Class Action Clause is part of the Arbitration Provision, which the Court has found that PLS may not invoke (see Dkt. #37; Dkt. #53; Dkt. #125).[3] See also Vine v. PLS Financial Srvs., Inc., 689 Fed.Appx. 800');">689 Fed.Appx. 800, 802 (5th Cir. 2017) (affirming the order waiving the right to compel arbitration).

         LEGAL STANDARDS

         A class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (quoting Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979)). “The purpose of a class action is to avoid multiple actions and to allow claimants who could not otherwise litigate their claims individually to bring them as a class.” Id. (citing Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 349 (1983)). Class certification is governed by Federal Rule of Civil Procedure 23 and subject to the district court's “great discretion.” See Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 624 (5th Cir. 1999) (citing Montelongo v. Meese, 803 F.2d 1341, 1351 (5th Cir. 1986)) (“[T]he district court maintains great discretion in certifying and managing a class.”).

         To certify a class under Rule 23, plaintiffs must show that the proposed class meets the requirements of Rule 23(a) and at least one of the three criteria for certification under Rule 23(b). See Fed. R. Civ. P. 23. Rule 23(a) imposes four prerequisites on a class seeking certification: “(1) numerosity (a ‘class [so large] that joinder of all members is impracticable'); (2) commonality (‘questions of law or fact common to the class'); (3) typicality (named parties' claims or defenses ‘are typical ... of the class'); and (4) adequacy of representation (representatives ‘will fairly and adequately protect the interests of the class').” Ackal v. Centennial Beauregard Cellular, LLC, 700 F.3d 212, 216 (5th Cir. 2012) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997)) (alterations in original). Because this motion seeks to certify a class action for damages under Rule 23(b)(3), Pond and Vine must also establish (5) predominance (“that the questions of law or fact common to class members predominate over any questions affecting only individual members”); and (6) superiority (“that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy”). Fed.R.Civ.P. 23(b)(3).

         Although the court should “perform a ‘rigorous analysis' to determine whether to certify a class, it may not require a plaintiff to establish his claims at the class certification stage.” See Booth v. Galveston Cty., No. 3:18-cv-00104, 2019 WL1129492, at *1-*2 (S.D. Tex. March 12, 2019) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)); see also Amgen Inc. v. Conn. Ret. Plans and Trust Funds, 568 U.S. 455, 466 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merit questions may be considered to the extent-but only to the extent-that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”) (citation omitted). Simply stated, the certification stage is not a “dress rehearsal for the merits.” In re Deepwater Horizon, 739 F.3d 790, 811 (5th Cir. 2014).

         ANALYSIS

         PLS argues that the proposed class members may not participate in this class action pursuant to the Standard Loan Agreement. PLS further argues that the proposed class cannot be certified under Federal Rule of Civil Procedure 23. The Court addresses these arguments in turn.

         I. Class Action Waiver

         PLS contends that the proposed class may not be certified because the proposed class members waived their rights to participate in a class action pursuant to the Arbitration Provision's Class Action Clause (Dkt. #116, Exhibit 1 at p. 18). This dispute thus turns on whether the Class Action Clause is meant to apply only in arbitration or whether it creates a separate and independent waiver, regardless. See Cash Biz, LP v. Henry, 539 S.W.3d 342, 354 (Tex. Civ. App.-San Antonio 2016); accord In re Rivers, No. 03-05671-NPO, 2010 WL 5375950, at *1 (Bankr. S.D.Miss. Dec. 22, 2010); Meyer v. Kalanick, 185 F.Supp.3d 448, 452-54 (S.D.N.Y. 2016).[4] The Standard Loan Agreement provides that, unlike other terms, those in the Arbitration Provision are governed by the Federal Arbitration Act (Dkt. #109, Exhibit 1 at p. 4). This means that state-law principles apply to decide issues based on general contract principles, and federal law applies as to issues specific to arbitration contracts. See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). Because this question concerns the interpretation of the Arbitration Provision based on general contract principles, Texas law applies. Compare with Vine, 2019 WL 1325895, at 3 (explaining that issues that pertain only to arbitration agreements-such as the waiver of an arbitration provision through substantial invocation of the judicial process-are based on federal common law) (citing Miller Brewing Co. v. Fort Worth Distributing Co., Inc., 781 F.2d 494, 497 & n.4 (5th Cir. 1986)).

         PLS insists that the Class Action Clause was meant to apply whether or not the dispute is being tried in arbitration, noting that:

[The clause] states broadly that each Plaintiff gave up her right to represent or participate in a “class of claimants, in any lawsuit, ” and addresses the enforceability of both “this waiver of class action lawsuit and class-wide arbitration.

(Dkt. #115 at p.7) (emphasis added in PLS's brief). According to PLS, “references to ‘class action' and ‘lawsuit' would be superfluous if the waiver only applied to arbitration” (Dkt. #115 at p. 7).

         But, when reading these terms in context, PLS' interpretation appears to render substantially more language superfluous. See Tenn. Gas Pipeline Co. v. F.E.R.C., 17 F.3d 98, 102 (5th Cir. 1994) (“A cardinal rule of contract interpretation in Texas requires courts to review the entire contract in order to determine its meaning; courts should not consider any single provision in isolation.”). The Arbitration Provision-which is separated from the remainder of the Standard Loan Agreement by a black box (the “Black Box”)-summarizes the arbitration process before asking signatories to “[t]herefore . . . acknowledge and agree” to give up certain rights by agreeing to arbitrate (Dkt. #116, Exhibit 1 at pp.17-19) (emphasis added). The Arbitration Provision's next eight paragraphs discuss the rights given up in arbitration, including the right to class-wide arbitration (Dkt. #116, Exhibit 1 at pp.17-19). PLS's interpretation-which asks the Court to find that terms in the Arbitration Provision are meant to apply outside the arbitration context-would render the Black Box and the introductory paragraph ending with the use of “therefore” superfluous. And the need to interpret the Class Action Clause pursuant to the Federal Arbitration Act-as the Loan Contract requires of all terms in the Arbitration Provision-would make little sense.

         As other courts addressing this issue have recognized, the most plausible way to interpret a class action waiver in the middle of an arbitration provision is as part of the explanation of the rules, rights, and procedures that apply if a dispute is arbitrated-“not as an independently effective waiver of the right to pursue a class action outside the arbitration context.” See Meyer, 185 F.Supp.3d at 453-54 (finding that the class action waiver inapplicable in a dispute in court on these grounds) (emphasis in original); Cash Biz, 539 S.W.3d at 354 (“The class-action waiver provision is not an independent agreement or provision, but is included within the arbitration provision in the Loan Contracts. Therefore applicability of the class action waiver provision is dependent upon the validity and applicability of the arbitration provision.”); Rivers, 2010 WL 5375950, at *3 (“The Court finds that it is not reasonable to read the Purported Class Action Waiver as applicable to litigation since the Arbitration Provision disposed of any right Rivers had to litigate claims ‘arising from or related to [the Contract].' Based on the language in the Arbitration Provision, it is clear that the parties intended the Purported Class Action Waiver to apply only to arbitration.”).

         The Standard Loan Agreement's intent to limit the Class Action Clause to arbitrations is especially evident when considering how the Standard Loan Agreement treats the waiver of the right to a jury trial. The agreement advises borrowers that they waive their right to a jury trial in two separate instances-once as a clause within the Arbitration Provision, and another outside of it (see Dkt. #116, Exhibit 1 at pp. 17-18). By so doing, the agreement makes clear that a borrower has waived her right to have a jury hear her dispute in arbitration or in court. It follows that the Class Action Clause was meant to apply only in arbitration. PLS drafted the Standard Loan Agreement. If it wanted borrowers to waive their right to participate in a class action when litigated in court, it would have made that just as clear. See El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 811 (Tex. 2012) (“[T]hose other contract provisions support our reading of the contract because they show that the parties knew how to state clearly when some risks were not to be assumed by MasTec.”). Any ambiguity stemming from the Standard Loan Agreement's failure to do so must be construed against PLS as the drafter. See Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 737 (Tex. 1990) (“It is well-established law that where an ambiguity exists in a contract, the contract language will be construed strictly against the party who drafted it since the drafter is responsible for the language used.”).

         In short, the proposed class members did not waive their right to participate in a class action in federal court.

         II. Rule ...


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