CashCall, Inc. and related consumer-lending companies have been the subject of significant individual and regulatory litigation, including a consolidated action by the Consumer Financial Protection Bureau commenced in 2013 and tried in late 2017. The court previously had found CashCall liable for various regulatory breaches under the Consumer Protection Act of 2010, see 2016 U.S. Dist. LEXIS 130584 (C.D. Cal. Aug. 31, 2016). Ultimately, it entered judgment against CashCall for more than $10 million. Consumer Fin. Prot. Bureau v. CashCall, Inc., No. 15-7522, 2018 U.S. Dist. LEXIS 9057, 2018 WL 485963 (C.D. Cal. Jan. 19, 2018).
The ADR world has seen significant litigation regarding CashCall because of its unique business model and the bizarre arbitration clauses that it included in its consumer loan agreements. New Jersey’s federal court considered that history and the CashCall arbitration clause in 2017, and found the arbitration clause wanting in several respects. See MacDonald v. CashCall, Inc., No. 16-2781, 2017 U.S. Dist. LEXIS 64761 (D.N.J. Apr. 28, 2017). After describing what it termed CashCall’s “controversial lending practices” involving interest rates so high that many states did not permit its operations, the court denied a motion to compel arbitration and allowed various usury, consumer, and RICO claims to proceed against CashCall.
To avoid state usury and other consumer protection laws, CashCall provided that any disputes under its agreements would be arbitrated in accordance with the substantive and arbitration law of the Cheyenne River Sioux Tribe. However, the tribe, which had nothing to do with CashCall’s loans, had no arbitration law, no arbitration representatives, and no arbitration procedures. As a result, the district court held that CashCall’s arbitration clause was unenforceable.
CashCall fared no better when it appealed the denial of its motion to compel arbitration to the Third Circuit. See MacDonald v. CashCall, Inc., No. 17-2161, 2018 U.S. App. LEXIS 4795 (3d Cir. Feb. 27, 2018). CashCall’s arbitration clause, which made multiple references to tribal law, stated that disputes should be “resolved by Arbitration, which shall be conducted by the [Tribe] by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.” The clause stated that the parties had the “right” to select either AAA or JAMS “to administer the arbitration,” whose rules would then apply to the extent they did not contradict the tribe’s rules.
The fundamental problem for CashCall was that the tribal arbitration representative and rules did not exist. Offering the AAA and/or JAMS as administrators did not cure this problem. CashCall had selected a nonexistent person as arbitrator and non-existent arbitration rules to govern the arbitration. Under those circumstances, providing an administrator was meaningless.
The Third Circuit has held that the unavailability of an arbitration forum will not defeat arbitration unless that forum was an integral part of the parties’ agreement. See Khan v. Dell, Inc., 669 F.3d 350 (3d Cir. 2012). Here, the Third Circuit essentially said that CashCall was hoisted on its own petard – by making nonexistent Tribal law such an integral part of the agreement, CashCall practically required the Court to deny CashCall’s motion to compel arbitration.
CashCall argued that the delegation clause in its loan agreement required the court to defer to an arbitrator to decide these issues, but the Third Circuit had no difficulty in rejecting this position. It held that delegation to an illusory and nonexistent arbitration forum made no sense.