Antitrust Law Daily Wrap Up, RICO—M.D. Ga.: Vehicle title loan companies entitled to summary judgment on loan participants’ RICO claims, (Mar 26, 2014)

By Linda O’Brien, J.D., LL.M.

In a proposed class action against vehicle title loan companies for allegedly engaging in an enterprise to collect unlawful debts pursuant to vehicle title loan transactions, active duty military service members who had entered into the loan transactions failed to state claims under RICO, the federal district court in Columbus, Georgia has decided. Accordingly, the service members’ motion for class certification was denied and the companies’ motion for partial summary judgment was granted (Cox v. Community Loans of America, Inc., March 24, 2014, Land, C.).

Active duty military service members Jason Cox, Estevan Castillo, and Leo Tookes, Jr. entered into vehicle title loan transactions with Community Loans of America, Inc., or its subsidiaries, Alabama Title Loans, Inc. and Georgia Auto Pawn, Inc. When the service members were unable to redeem their car titles, the vehicles were either repossessed or subject to repossession. The service members filed a putative class action suit against the vehicle title loan companies, alleging, among other claims, that the companies and their officers constituted an enterprise and participated in the collection of an unlawful debt under the Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiffs moved for class certification and the defendants moved for partial summary judgment.

The court found that the plaintiffs failed to state claims under RICO. The plaintiffs alleged that the title loan companies constituted an “enterprise” within the meaning of RICO and their officers were persons who associated with the enterprise and participated in the enterprise’s affairs through the collection of the unlawful debts. According to the court, under the “investment rule” of 18 U.S.C. §1962(a), the plaintiff must show that he was injured by the use or investment of racketeering income. The reinvestment of proceeds from the alleged racketeering activity back into the enterprise to continue its activity is insufficient to show proximate cause. Although the plaintiffs contend that the defendants received income from the collection of unlawful debts, they presented no evidence that the defendants did anything other than reinvest the proceeds back into the enterprise. Thus, there was no evidence that a reasonable finder of fact could conclude that the investment of illegal income was the proximate cause of their injury.

Additionally, under §1962(c), the RICO “person” must be separate and distinct from the RICO enterprise. Under this requirement, a corporation may not be liable for participating in the affairs of an enterprise that consists only of its subdivisions, agents, or members. The plaintiffs alleged that the enterprise comprised of the two subsidiaries -Alabama Title Loans and George Auto Pawn—that engaged in the collection of unlawful debts within the meaning of RICO. However, the plaintiffs cited no authority to support a conclusion that the “enterprise” consisting of the two subsidiaries was sufficiently distinct from the “persons”—the parent company and its officers—to establish RICO liability, the court determined.

The case is No. 4:11-CV-177.

Attorneys: John R. Bevis (Barnes Law Group) for Jason M. Cox. Colin R. P. Delaney (Smith, Gambrell & Russell, LLP) for Community Loans Of America Inc., Georgia Auto Pawn Inc., Fast Auto Loans Inc., and Delaware Title Loans Inc.

Companies: Community Loans of America, Inc.; Georgia Auto Pawn Inc.; Fast Auto Loans Inc.; Delaware Title Loans Inc.

Cases: RICO GeorgiaNews