Opinion
Civil Action No. 00-2949.
February 12, 2001.
ORDER AND REASONS
Before the Court are two Motions filed by the Defendant. First is Defendants' Motion for Judgment on the Pleadings, pursuant to Fed.R.Civ.P. 12(c) (Rec. Doc. 18). While this motion was under submission, Defendant filed a Rule 12(b)(6) Motion to Dismiss (Rec. Doc. 33), to which Plaintiff has also responded. In light of the fact that these two motions are virtually identical, the Court shall consider them together and rule on the motions jointly through this Order. After reviewing the record, the arguments of counsel, and the relevant law, IT IS ORDERED that Defendants' Motions are PARTIALLY GRANTED and PARTIALLY DENIED.
Standard of Review
In reviewing a motion under Rule 12(c), the Court must base its decision solely on the pleadings. The court in Park Center, Inc. v. Champion International Corp., 804 F. Supp. 294, 301 (S.D. Ala. 1992), summarized the standard of review succinctly:
On a motion for judgment on the pleadings, Federal Rule of Civil Procedure 12(c) requires the Court to view the pleading in the light most favorable to, and to draw all reasonable inferences in favor of, the nonmovant. The Court may grant judgment on the pleadings if it appears beyond doubt that the nonmovant can plead or prove no set of facts . . . which would entitle him to relief.
This Court adopts the Park Center standard and applies it to the claims presented in this case. See also Youngblood v. Bender, 2000 WL 1059782 (E.D. La. 2000).
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, a district court must accept the factual allegations of the complaint as true and resolve all ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. See Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993). Unless it appears "beyond a doubt that the plaintiff can prove no set of facts in support of his claim," the complaint should not be dismissed for failure to state a claim. Id. at 284-285 (quoting Conley v. Gibson, 355 U.S. 41, 45-64 1957)). However, conclusory allegations or legal conclusions masquerading as factual conclusions will not defeat a motion to dismiss.See Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995) (citing Fernandez-Montes, 987 F.2d at 284). Background
The Court finds that its ruling would be the same under either standard of review, and therefore shall not dedicate any portion of this opinion to discussing the differences between a Rule 12(c) and a Rule 12(b)(6) motion.
Defendant, Easy Money of Louisiana, Inc. ("Easy Money") is a licensed consumer finance company with locations throughout the State of Louisiana. In procuring its consumer finance license from the Louisiana Office of Financial Institutions, Easy Money represented that it would primarily be engaged in the business of making "payday loans." The Louisiana legislature passed the Louisiana Small Loan Act for the purposes of regulating "payday loans," which are defined as "loans designed to tide consumers over until their next payday. They are normally for a term of one to two weeks and are for small dollar amounts. These loans meet a legitimate credit need for many consumers; however, they are ripe for abuse." La.R.S. 9:3577.2 (1999) (repealed under Act 1315 of 1999, effective January 1, 2000, and replaced with the Louisiana Deferred Presentment and Small Loan Act). Defendants made a series of short-term loans to Plaintiffs and, in addition to charging interest, assessed a variety of fees in the course of processing the loan applications. In their class action complaint filed on October 4, 2000, Plaintiffs allege that Defendants's lending practices are in violation of state and federal law.
State Law Claims
Plaintiffs first maintain that Defendants' lending practices are in contravention of various provisions of Louisiana law. Plaintiffs claim that Defendants violated the Louisiana Deferred Presentment and Small Loan Law by requiring Plaintiffs to enter into split transaction arrangements for the purposes of increasing the total amount of fees Defendant could charge. Specifically. Plaintiffs allege that Defendants refused to lend Plaintiffs more than $201, the lowest amount which Defendants could lend while still obtaining the highest origination fee ($15.00 under La.R.S. 9:3577.4). Plaintiffs would then be required to come back a few days later and borrow the remaining amount that was needed, so that Defendant could exact a second set of fees. These factual allegations suffice to sustain a cause of action under the 1999 provision, La.R.S. 9:3577.6(A)(4), and the current statute, La.R.S. 9:3578.6(A)(4): "A [small loan] licensee shall not . . . [d]ivide a deferred presentment transaction or small loan into multiple agreements for the purpose of obtaining a higher fee or charge." Section 3535 also prohibits such transactions. See La.R.S. 9:3535 ("An extender of credit shall not divide a consumer credit transaction into multiple agreements for the purpose of obtaining a higher credit service charge, loan finance charge, or any other additional fee or charge permitted by this Chapter.") Plaintiffs' allegations are also sufficient to state a claim under La.R.S. 9:3530(A)(2), which provides that an "origination fee may be charged only once in connection with a single loan to one borrower over any consecutive thirty-day period."
The factual allegations presented by Plaintiffs in their complaint and their RICO case statement are also sufficient to suggest that a de facto rollover scheme was in effect, running afoul of the Louisiana Small Loan Law, La.R.S. 9:3577.6, which was controlling at the time the loans were made. Section 3577.6 provides: "No small loan shall be repaid from the proceeds of another loan made by the same lender or an affiliated interest to the same consumer, nor shall a prior loan made to the consumer be rolled over into the new loan for which he has applied." Defendants argue that the loan documents speak for themselves, and that the Court should examine each isolated transaction to determine its content. The Court finds that viewing the record, and considering the transactions in toto, Plaintiffs have alleged sufficient facts to sustain a claim under Section 3577.6. Whether Plaintiffs will be able to prove their allegations is a question for a later date, after discovery has taken place.
Finally, Plaintiffs have alleged that the "cumulative effect" of the rollover and split transactions, which led to excessive charges, is "unconscionable," violating Louisiana Consumer Credit Law, La.R.S. 9:3510 et seq. Section 3551 provides that:
[w]ith respect to a consumer credit transaction, if the court as a matter of law finds the agreement or any clause of the agreement to have been unconscionable at any time it was made the court may refuse to enforce the agreement, or it may enforce the remainder of the agreement without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
Defendants respond by citing to a later provision in that section, which specifically exempts from a finding of unconscionability practices that have been expressly permitted under state law. See id. ("[A]n agreement, clause, charge or practice expressly permitted by this chapter or any other law or regulation of this state . . . is not unconscionable.") Such a determination is premature. A core question in this matter is whether or not Defendants' practices (assuming, as we must, that Defendant engaged in split transactions and de facto rollover loans) were permitted by law, explicitly or by omission. At this stage in the litigation, Plaintiffs' complaint is sufficient to survive a motion to dismiss.
RICO
Defendants' primary defense to Plaintiffs' RICO claims rests on their assertion that their practices did not constitute "the collection of an unlawful debt," or any other predicate act necessary to sustain civil RICO liability. Because the Court has sustained Plaintiffs' state law causes of action, this general defense is insufficient to prevent Plaintiffs from pursuing their federal RICO claims. Therefore, the Court must consider Defendants' specific defenses to Plaintiffs' RICO allegations.
Section 1962(a)
Section 1962(a) of RICO provides in relevant part:
It shall be unlawful for any person who has received income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
Under this section, a plaintiff must prove (1) that there was an enterprise; (2) that the enterprise engaged in or had some effect on interstate commerce; (3) that the defendant derived income, directly or indirectly from a pattern of racketeering activity or through collection of an unlawful debt; and (4) that some part of that income was used in acquiring an interest in or operating the enterprise.
As the Fifth Circuit made clear in Parker Parsley Petroleum Co. v. Dresser Indus., 972 F.2d 580 (5th Cir. 1992), "any injury under section 1962(a) must flow from the use or investment of racketeering income."Id. at 584. Plaintiffs have alleged that they have suffered injury in their property as a result of Defendants' conduct, "which obligated [them] to pay unconscionable, usurious, and unauthorized rates of interest. . . ." Plaintiff's RICO Case Statement at 7. However, Section 1962(a) "does not permit a plaintiff to recover damages suffered as a result of the racketeering activity itself." Ladd v. Equicredit Corp. of America, 2000 WL 1789985 at *2 (E.D. La. 2000); Webster v. N.Y. Life Ins. Co., 1998 WL 28261 at *4 (E.D. La. 1998). The harm experienced by Plaintiffs has resulted from Defendants' collection of payments on the allegedly usurious loans; the fact that Defendants have reinvested their profits in the business for the purposes of expansion does not suffice to sustain a Section 1962(a) claim. Section 1962(b)
Later cases have tended to ignore the "use" prong and focused only on the "investment" prong, leading some courts to suggest that there is an "investment injury requirement." See Crowe, 43 F.3d at 205 ("For subsection (a), this means that the injury must flow from the investment of racketeering income into the enterprise.") (citing Parker, 972 F.2d at 584). But see St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 443 (5th Cir. 2000) (noting both "use" and "investment" prongs). The language of Parker, however, clearly offers "use" or "investment" as alternative bases of liability under RICO. In any case, this distinction is of no moment, because the Court finds that Plaintiffs cannot satisfy either a use or "investment" injury requirement.
Any Section 1962(d) claim based on the conspiracy to violate Section 1962(a) fails as a result of this dismissal.
Section 1962(b) of RICO provides as follows:
It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
Under this section, a plaintiff must prove: (1) that an enterprise existed; (2) that the enterprise engaged in or had some effect on interstate or foreign commerce; (3) that the defendant engaged in a pattern of racketeering activity; and (4) that through the pattern of racketeering activity the defendant acquired or maintained an interest in, or controlled, the alleged enterprise.
Defendants maintain that the Section 1962(b) claim should be dismissed because Plaintiffs fail to allege that (or to detail how) the alleged enterprise was acquired as a result of unlawful lending activities. In order to recover under Section 1962(b), the plaintiff must show "that his injuries were proximately caused by a RICO person gaining an interest in, or control of, the enterprise through a pattern of racketeering activity." Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995); Old Time Enter., Inc. v. International Coffee Corp., 862 F.2d 1213, 1219 (5th Cir. 1989). This "acquisition requirement" requires that the plaintiff's alleged injury be caused by the alleged RICO defendants' acquiring or maintaining an interest or control in the alleged enterprise. See Crowe, 43 F.3d at 205; Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1063 (2d Cir. 1996), vacated on other grounds, 525 U.S. 128 (1998). The injury caused by the acquisition or maintenance must be distinct from the injury caused by the predicate acts under Section 1962(b). See Crowe, 43 F.3d at 205;Discon, 93 F.3d at 1063.
Defendants also challenge the Section 1962(b) claim because the enterprise is not alleged to be different from the RICO person. However, this is not a requirement for a RICO claim under this section. See In re Burzynski, 989 F.2d 733 (5th Cir. 1993); Landry v. Air Line Pilots Ass'n, 901 F.2d 404 (5th Cir. 1990).
The alleged "enterprise" here is Easy Money's lending operation, which consisted of Easy Money and various individual employee defendants. Plaintiffs insist that through the income earned as a result of these illegal lending practices, Easy Money was able further to expand its operations in Louisiana and other states. However, the Court finds that Plaintiffs have not adequately alleged how Defendants' acquiring or maintaining their interest or control in the alleged enterprise caused the plaintiffs alleged injury. Instead, the Court's reading of the pleadings indicates only allegations of injury resulting from the commission of the predicate acts (i.e., the illegal lending practices). The facts alleged do not suggest a distinct injury to the plaintiff by virtue of acquiring or maintaining a lending enterprise. Accordingly, this claim must be dismissed. Section 1962(d)
Any Section 1962(d) claim based on the conspiracy to violate Section 1962(b) fails as a result of this dismissal.
Because Plaintiffs have framed their allegation of conspiracy to violate Section 1962(c) so as to exclude Easy Money of Louisiana, there is no problem concerning a corporation conspiring with itself. Defendants' other complaints regarding a Section 1962(d) conspiracy claim require factual development and are not yet ripe for resolution. Therefore, IT IS ORDERED that Defendants' Motion to Dismiss Plaintiffs' Section 1962(d) conspiracy claim is hereby DENTED.
Defendant has not moved to dismiss Plaintiffs' claim under Section 1962(c). See Defendants' Reply Memo at fn 9. Because a Section 1962(c) count is still viable, there remains the possibility that Plaintiffs can support a conspiracy claim under 1962(d).
Conclusion
Therefore, IT IS ORDERED that Defendants' Motions to Dismiss under Rule 12(c) and Rule 12(b)(6) are DENIED with regard to Plaintiffs' state law claims and GRANTED with regard to the Plaintiffs' RICO claims under Section 1962(a) and (b). Defendants' Motions to Dismiss Plaintiffs' Section 1962(d) claim as it pertains to Section 1962(c) are hereby DENIED.