Eleventh Circuit Finds Forum Selection Clause and Class Action Waiver in Payday Loan Agreements Unenforceable as against Georgia Public Policy

In Davis v. Oasis Legal Fin. Operating Co., LLC, 18-10526, 2019 WL 4051592 (11th Cir. Aug. 28, 2019), the U.S. Court of Appeals for the Eleventh Circuit (“Eleventh Circuit”) affirmed a decision in the U.S. District Court for the Southern District of Georgia (“District Court”) that denied the defendant payday loan lenders’ motions to dismiss and motion to strike class allegations.  The plaintiffs, a class of borrowers, sued the defendant lenders, three entities operating as “Oasis Legal Finance,” in Georgia for violating the state’s usury laws.  The Eleventh Circuit found that Georgia’s Payday Lending Act and Industrial Loan Act “articulate a clear public policy against enforcing forum selection clauses in payday loan agreements and in favor of preserving class actions as a remedy for those aggrieved by predatory lenders.”

In this case, the plaintiff borrowers entered into identical payday loan agreements with the defendant lenders for amounts generally less than $3,000 that were to be repaid from any recoveries from the plaintiffs' borrowers’ separate personal injury trials.  In the subsequent class action complaint at issue, the plaintiff borrowers alleged that these loan agreements violated Georgia’s Payday Lending Act, O.C.G.A. § 16-17-1 et seq. (“PLA”), Industrial Loan Act, O.C.G.A. § 7-3-1 et seq. (“GILA”), and Georgia’s usury laws, O.C.G.A. § 7-4-18.  The defendant lenders argued that these loan agreements had a forum selection clause that required the plaintiff borrowers to bring suit in Illinois, and that there was a class action waiver that barred such a class action lawsuit.  The District Court, in agreeing with the plaintiff borrowers, found that the PLA determined that such forum selection clauses are against public policy as unconscionable, and that such class action waivers are against public policy because they are expressly included as remedies under the PLA and GILA.

The District Court had found that two provisions of the PLA, O.C.G.A. § 16-17-1(d) and § 16-17-2(c)(1), were conclusive in determining that the defendant lenders’ loan agreements were against public policy in attempting to skirt the laws of Georgia through the forum selection clauses.  On appeal, the Eleventh Circuit discussed how courts can refuse to enforce otherwise valid forum selection clauses on public policy grounds and that, though public policy grounds are amorphous and used cautiously, Georgia’s Constitution and state statutes provide a solid foundation for such analysis.  The court found that “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” and that courts could look to other Georgia statutes if the ones at issue did not specifically address their contested provisions.

In their appeal as to the enforceability of the loan agreements’ forum selection clauses, the defendant lenders argued that the PLA provisions supported the opposite conclusion from the District Court’s ruling because: 1) the word “county” in § 16-17-2(c)(1) is unqualified which meant that the PLA would allow the forum selection of a county outside of Georgia (Cook County, Illinois for the defendant lenders); and 2) that § 16-17-1(d), which states that “[p]ayday lending involves relatively small loans and does not encompass loans that involve interstate commerce,” does not apply to loan agreements between Georgia borrowers and out-of-state lenders.  The Eleventh Circuit rejected both arguments.  In rejecting the first argument, the court cited to other statutory and constitutional venue provisions that refer to “counties” as Georgia counties, without explicitly saying so.  Further, the Eleventh Circuit found the defendant lenders’ interpretation of the PLA would render the statute’s prohibition on forum selection clauses meaningless.  In rejecting the second argument, which the court noted was contradictory of the first, the Eleventh Circuit found that such an interpretation would also render the PLA meaningless and that the legislature clearly would not mean the statute to create such a limitation.

Next, the Eleventh Circuit addressed defendant lenders’ argument that the District Court erred by not considering whether the provision was procedurally or substantively unconscionable and that neither PLA nor GILA prohibit class action waivers or create a statutory right to class action lawsuits.  The court stated, per the District Court’s ruling, that the defendant lenders’ argument would allow payday lenders to undermine the statutory scheme at issue by eliminating a remedy expressly offered by the Georgia Legislature.  Such a conclusion renders the class action waivers at issue “unenforceable under Georgia law regardless of whether the provision is also procedurally or substantively unconscionable.” Further, the Eleventh Circuit stated that “[a] hornbook example of the public policy defense is that a court will not enforce a contractual provision that is illegal regardless of whether its obligations are mutual, its terms are conspicuous, and the parties are well represented.”

Finally, the Eleventh Circuit addressed the defendant lenders’ argument that “the PLA’s fee-shifting provision eliminates the risk that enforcing the class action waiver would effectively prevent the plaintiffs from litigating their claims” in which they cited cases upholding class action waivers because fee-shifting provisions permitted plaintiffs to pursue individual claims.  However, as the court had noted, the District Court did not consider whether the class action waivers were procedurally or substantively unconscionable, but that such provisions in the payday loan agreements were undercut by Georgia’s public policy as expressed in PLA and GILA.  The Eleventh Circuit also rejected the comparison to the defendant lenders’ cited cases because those cases, unlike this situation, dealt with class action waivers within arbitration agreements whereby the Federal Arbitration Act overrode state statute and common law.

Overall, this case serves as a warning shot to payday lenders attempting to enforce forum selection clauses and class action waivers as to Georgia borrowers.  As the Eleventh Circuit discussed, Georgia statutes such as PLA and GILA can be used to prevent such provisions from being enforced on public policy grounds when they contradict statutory text and purpose.  Even though public policy is cautiously used by courts in finding otherwise valid agreements to be unenforceable, lenders should be aware of these situations where state statutes will be successfully used by plaintiffs on such grounds.

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