Summary:
Dillon, a North Carolina resident, obtained five loans over the internet from lenders based offshore or on Indian reservations (“internet lenders”) with interest rates ranging from 139% to over 700% and, in some cases, thousands of dollars in finance charges. Mr. Dillon asserted that these loans violated North Carolina’s usury statute and various other state laws. He did not, however, sue the internet lenders themselves, but instead brought suit against the banks that served as the Originating Depository Financial Institutions (“ODFIs”) in connection with transactions related to the loans, alleging that the defendant ODFIs knew or should have known that the internet lenders were engaged in making payday loans in states where the loans were unlawful and that the ODFIs violated RICO by knowingly facilitating the collection of usurious loans.
The ODFIs moved to dismiss, contending that the internet lenders were indispensable parties under Rule 19. To show that the internet lenders were indispensable parties under Rule 19, the district court held that the ODFIs must meet the “high burden” of showing the following:
1. That the internet lenders are “required” parties as defined by Rule 19(a):
a. In the absence of the internet lenders, the court cannot accord complete relief among existing parties; or
b. That internet lenders claim an interest relating to the subject of the action and is so situated that disposing of the action in absence of the internet lenders may as a practical matter impair or impede the ability of the internet lenders to protect the interest; or
c. The internet lenders claim an interest relating to the subject of the action and is so situated that disposing of the action in absence of the internet lenders may leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
2. That the internet lenders cannot be joined; and
3. That the action should not, “in equity and good conscience,” proceed without the internet lenders, considering the factors set forth in Rule 19(b)
Because Dillon abandoned at oral argument any claim that he should be released from the underlying obligations to the internet lenders, the district court held it need not address the impact Dillon’s suit had on such lenders. Continuing, the district court held that since this suit did not seek to set aside the contracts, but instead pursue the ODFIs as joint tortfeasors and co-conspirators, the internet lenders were not necessary parties to the UDTPA and RICO claims. Further, this action did not impinge on the sovereign rights of the Indian reservation internet lenders, as successful suit might deter ODFIs from assisting in transactions, it would not prohibit lending or relying on other mechanism for collection.
As to the Motions to Dismiss, the district court held that there is no mental state requirement “beyond that found in the predicate crimes” to establish a successful claim under RICO and accordingly allowed that cause of action to proceed. Additionally, the UDTPA and unjust enrichment claims were found to apply to all of the ODFIs. The court did find, however, that the North Carolina usury statute explicitly applied to “parties to the loan” and, accordingly, did not allow for a cause of action for aiding and abetting usury. The Consumer Finance Act was found not to apply to 3 of the 4 ODFIs as they were either a North Carolina state-chartered bank, a national banking institution, or a federal credit union. Bay Cities, as a Florida state-chartered bank, however did fall under the CFA. Dillon’s claim against the ODFIs failed as that requires that the defendants actually had the funds collected “in hand”, where here the ODFIs were only a conduit for funds.
Commentary:
The district court here, albeit perhaps in dicta, recognizes that UDTPA claims are a tort remedy, which has implications in bankruptcy court for exemptions.
For a copy of the opinion, please see:
Dillon v. BMO Harris Bank, N.A.- Internet Payday Lenders not required parties to action; Claims against facilitators of Internet Payday Loans
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