Antitrust Law Daily Wrap Up, RICO—11th Cir.: Bank unable to avoid payday lending suit; arbitration clause unenforceable, (Feb 25, 2016)

By Linda O’Brien, J.D., LL.M.

A consumer could pursue Racketeer Influenced and Corrupt Organizations Act (RICO) claims against First Premier Bank, alleging that the bank enabled the illegal transactions of online payday lenders, because an arbitration agreement signed by the consumer was unenforceable, the U.S. Court of Appeals in Atlanta has ruled in an unpublished opinion. Thus, the district court’s denial of the bank’s motion to compel arbitration was affirmed (Flagg v. First Premier Bank, February 23, 2016, Per Curiam).

In January 2015, consumer Lisa Flagg filed a putative class action lawsuit against First Premier Bank, alleging that the bank violated RICO by facilitating the illegal transactions of online payday lenders. Specifically, Flagg claimed that First Premier engaged in a scheme to allow payday lenders to make illegal payday loan debits and credits using the Automated Clearing House (ACH) network and profited from its participation in the scheme by charging payday lenders higher than customary fees to originate transaction on the ACH network.

Flagg’s payday loan agreement, which she signed in August 2012, contained an arbitration provision that all disputes would be resolved by the code of procedure of the National Arbitration Forum (NAF). The NAF had ceased accepting consumer arbitration claims in 2009. Flagg filed her suit after the NAF declined her request to arbitrate her claim against First Premier. The district court denied First Premier’s motion to compel arbitration, appoint a substitute for NAF, and stay or dismiss the proceedings. First Premier appealed.

The appellate court determined that the district court correctly found that the designation of the NAF was an integral part of the arbitration agreement, which made the agreement unenforceable. First, the text of the arbitration provision did not appear to contemplate arbitration in any other forum. Second, although the NAF had stopped accepting consumer arbitration cases more than three years before Flagg applied for her loan, the lender continued to use arbitration agreements designating the NAF and made no provision for the appointment of an alternate arbitrator.

Finally, NAF’s code of procedure provided that if the parties were denied the opportunity to arbitrate before the NAF, they could seek legal remedies “in accord with applicable law.” Therefore, the district court did not err in concluding that the specific references to the NAF and its code of procedure indicated that the NAF was integral to the arbitration agreement.

The case is No. 15-14052.

Attorneys: Darren T. Kaplan (Darren Kaplan Law Firm, PC) for Lisa Flagg. James P. McCarthy (Lindquist & Vennum, LLP) and William James Holley, II (Parker Hudson Rainer & Dobbs, LLP) for First Premier Bank.

Companies: First Premier Bank

Cases: RICO AlabamaNews FloridaNews GeorgiaNews