Antitrust Law Daily Wrap Up, RICO—M.D. N.C.: Arbitration not required for consumer's RICO claim against payday loan originating bank, (Mar 25, 2016)

By Edward L. Puzzo, J.D.

In a consumer's RICO and UDTPA claims against originating banks associated with payday lenders, the consumer was not required to arbitrate the claims against Bay Cities Bank because there was insufficient evidence that arbitration provisions had been included in the loan agreements he had agreed to, the federal district court in Greensboro, North Carolina has ruled (Dillon v. BMO Harris Bank, N.A., March 23, 2016, Eagles, C).

Consumer James Dillon obtained five loans over the Internet from lenders that were based offshore or on Indian reservations. The loans carried significantly high interest rates and incurred thousands of dollars in interest charges. BMO Harris Bank, N.A., Bay Cities Bank, Four Oaks Bank & Trust, and Generations Community Federal Credit Union served as Originating Depository Financial Institutions (ODFIs) in connection with transactions for the loans. The ODFIs provided access on the Automated Clearing House (ACH) Network for lenders so they could electronically deposit loan proceeds and debit Dillon’s account for repayments.

Dillon filed suit against the ODFIs, alleging violations of Racketeer Influenced and Corrupt Organizations Act (RICO) and the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), among other claims. Dillon alleged that the financial institutions knowingly facilitated the collection of usurious loans through the ACH Network and knew or should have known that the lenders were engaged in making unlawful payday loans under state law. The ODFIs moved for dismissal for failure to state a claim, but in April 2014, the court ruled that Dillon had sufficiently pleaded RICO and UDTPA claims based on the collection of unlawful debt.

Arbitration sought. At this juncture in the litigation, one of the defendant banks, Bay Cities Bank, moved to compel Dillon to arbitrate his claims against them. Bay Cities alleged that Dillon was bound by arbitration provisions contained in his loan agreements with non-party payday lenders USFastCash and VIN Capital.

The parties agreed that Dillon had entered into the loan contracts online using a click-through process on websites. The question at hand was whether an arbitration provision was included in the documents Dillon agreed to by clicking through.

Evidence of agreement to arbitration. To evaluate the claim that Dillon agreed to arbitration for the loan from USFastCash, the court reviewed the document itself; deposition testimony from an employee of AMG Services, a company that provided certain services to USFastCash; and Dillon's deposition testimony.

The court found that the document itself did not contain Dillon's signature or any other indictor of assent. The AMG employee's testimony was insufficiently credible to establish that the document was as purported, especially given AMG's history of dishonesty in court proceedings. The court noted that click-wrap contracts like the one at issue here posed special risks of fraud and error. When one of the contracting parties has exclusive control of the electronic record, which is the case in many consumer online transactions, that party is in a position to produce a document that meets its current preferences and needs, the court stated. Even absent fraud, there is risk of error in the production of a document within an electronic record-keeping system that may include agreements whose terms and electronic click-through procedures varied over time.

Dillon testified that he did not read the loan terms online and could not recall seeing an arbitration provision. The court stated that while it is black letter law that consumers are bound by the fine print whether they read it or not, it is equally obvious that online sellers cannot insert terms and conditions the consumer did not have an opportunity to review. Mr. Dillon’s testimony did not show he had an opportunity to review, and thereafter agreed to, any arbitration provision. Mr. Dillon’s failure to read or remember the terms did not excuse the proponent from its burden of proof, the court found.

The evidence that the loan agreement agreed to by Dillon contained an arbitration provision was not straightforward or credible, and there were numerous gaps in the foundation going directly to the trustworthiness of the purported record. The court stated that it was not required to admit and accept the proffered agreement merely because the proponent obtained a purported electronic copy from an entity neither a party to the loan agreement nor the litigation or because Mr. Dillon did not remember what terms and conditions he accepted when he borrowed money from USFastCash.

For similar reasons, the court found insufficient the evidence that Dillon had agreed to arbitration for his loan from VIN Capital. The testimony of an employee of BillingTree Payment Solutions, an entity with an electronic payment origination agreement with VIN Capital, showed that the employee lacked personal knowledge of VIN Capital’s online loan application process and document retention practices. The employee was unable to provide any information as to whether the arbitration provision in the proffered document was presented to Dillon during the loan application process. The testimony provided an insufficient basis to conclude that the document produced was an accurate copy of the loan agreement between Mr. Dillon and VIN Capital, the court found.

In the absence of trustworthy evidence that Dillon was presented with an arbitration provision when he applied online for loans from USFastCash or VIN Capital, the court was not satisfied there was mutual assent to the proffered arbitration provisions. The court therefore denied Bay Cities Bank's motions to compel arbitration.

The case is Civil Action No. 1:13-cv-00897-CCE-LPA.

Attorneys: Darren T. Kaplan (Darren Kaplan Law Firm, PC) for James Dillon. Debra Bogo-Ernst (Mayer Brown, LLP) for BMO Harris Bank, N.A.

Companies: BMO Harris Bank, N.A.

Cases: RICO StateUnfairTradePractices NorthCarolinaNews