Banking and Finance Law Daily Payday lenders’ contract provisions unenforceable under Georgia law; borrowers’ class action advances
Thursday, August 29, 2019

Payday lenders’ contract provisions unenforceable under Georgia law; borrowers’ class action advances

By Thomas G. Wolfe, J.D.

A forum-selection clause and a class-action waiver clause, used by lenders in their loan agreements with borrowers, were deemed unenforceable as against Georgia public policy.

Rejecting lenders’ efforts to strike borrowers’ class-action claims for alleged violations of Georgia’s Payday Lending Act, Georgia Industrial Loan Act, and state usury laws, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit ruled that the forum-selection and class-action waiver provisions in the underlying loan agreements were unenforceable as against Georgia public policy. Determining that the pertinent Georgia laws evince the "Georgia Legislature’s intent to preserve class actions as a remedy for those aggrieved by payday lenders," the Eleventh Circuit panel ruled that the federal trial court did not err by denying the lenders’ motion to dismiss the borrowers’ complaint and motion to strike their class claims. "If Georgia’s public policy regarding payday lenders is a horse, it carries these borrowers safely to a Georgia courthouse," the panel stated (Davis v. Oasis Legal Finance Operating Company, LLC, Aug. 28, 2019, Jordan, A.).

As depicted by the panel’s opinion, the plaintiff borrowers entered into the same type of loan agreements with Oasis Legal Finance, LLC, Oasis Legal Finance Operating Company, LLC, and Oasis Legal Finance Holding Company, LLC (collectively, the Oasis lenders). Generally, the loans amounted to less than $3,000 and were to be repaid from recoveries that the borrowers received in their separate personal injury lawsuits. Accordingly, the borrowers’ obligations to repay the loans were contingent on the success of these personal injury lawsuits.

Borrowers’ claims; lenders’ stance. In February 2017, the borrowers filed a class-action complaint against the Oasis lenders in Georgia state court, claiming that the loan agreements violated Georgia’s Payday Lending Act, Industrial Loan Act, and usury laws.

After the Oasis lenders successfully removed the action to federal district court in southern Georgia, they requested—under federal procedural rules—that the court dismiss the complaint and strike the borrowers’ class allegations. Particularly, the Oasis lenders contended that the loan agreements’ forum-selection clause required the borrowers to bring their lawsuit in Illinois, and that the class-action waiver provision in the agreements prevented the borrowers from being able to file any class action against them.

In response to the Oasis lenders’ efforts to extinguish their claims, the borrowers maintained that the loan agreement provisions violated Georgia public policy and, therefore, were unenforceable. Ultimately, the federal trial court agreed, and the Oasis lenders appealed the decision to the Eleventh Circuit.

Appellate panel’s decision. First, the Eleventh Circuit panel reviewed the enforceability of the forum-selection clause in the loan agreements, noting that, under Georgia law, "a contractual provision generally does not violate public policy unless the Legislature has declared it so or enforcement of the provision would flout the very purpose of the law."

Based on its examination of Georgia’s Payday Lending Act (O.C.G.A. §16-17-1, et seq.), its legislative history, and Georgia case law, the panel concluded that "Georgia statutes establish a clear public policy against out-of-state lenders using forum selection clauses to avoid litigation in Georgia courts." Ruling that the federal trial court correctly denied the Oasis lenders’ motion to dismiss on this ground, the panel determined that enforcing the forum-selection clause would "contravene a strong public policy of the forum in which suit is brought."

Next, the panel reviewed the enforceability of the class-action waiver clause. The Oasis lenders argued that the lower court erred by not considering whether the provision was procedurally or substantively unconscionable. Further, the lenders contended that neither the Georgia Payday Lending Act nor the Georgia Industrial Loan Act (O.C.G.A. §7-3-1, et seq.), prohibits class-action waivers or creates a statutory right to pursue a class action.

Rejecting the Oasis lenders’ arguments, the panel explained that the lower court’s ruling "flowed from its conclusion that enforcing class action waivers in this context would allow payday lenders to eliminate a remedy that was expressly contemplated by the Georgia Legislature, and thereby undermine the purpose of the statutory scheme." Consequently, the class-action waiver was found to be unenforceable under Georgia law on that ground, "regardless of whether the provision is also procedurally or substantively unconscionable."

In the Eleventh circuit panel’s view, even though the Oasis lenders may have legitimately argued that Georgia courts typically address whether a contractual provision is unconscionable, "commercially reasonable," and so forth, those considerations provide "an independent basis to hold a contractual provision unenforceable" as a public policy bar. Likewise, the federal trial court was not required to determine whether Georgia’s Payday Lending Act or Industrial Loan Act expressly prohibited class-action waivers or created a statutory right to pursue a class action. Rather, the lower court did not err in ruling that the class-action waiver in the loan agreements was unenforceable because both the Payday Lending Act and the Industrial Loan Act in Georgia "establish the Georgia Legislature’s intent to preserve class actions as a remedy for those aggrieved by payday lenders."

Asserting that the enforcement of the class-action waiver "would undermine the purpose and spirit of Georgia’s statutory scheme," the panel determined that the federal district court "did not err in denying the Oasis lenders’ motion to strike the plaintiffs’ class allegations."

The case is No. 18-10526.

Attorneys: James Darren Summerville (The Summerville Firm, LLC) for Lizzie Davis. William M. McElean and Christine Skoczylas (Barnes & Thornburg, LLP) for Oasis Legal Finance Operating Co., LLC, Oasis Legal Finance, LLC, and Oasis Legal Finance Holding Co., LLC.

Companies: Oasis Legal Finance Operating Co., LLC; Oasis Legal Finance, LLC; Oasis Legal Finance Holding Co., LLC

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