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Brice v. 7HBF 2, Ltd.

United States District Court, N.D. California

November 1, 2019

KIMETRA BRICE, et al., Plaintiffs,
v.
7HBF 2, LTD., et al., Defendants.

          ORDER DENYING MOTION TO STAY PENDING ARBITRATION, MOTION TO COMPEL ARBITRATION, AND MOTION TO TRANSFER RE: DKT. NOS. 24, 25, 27

          WILLIAM H. ORRICK, UNITED STATES DISTRICT JUDGE

         Plaintiffs Kimetra Brice, Earl Browne, and Jill Novorot bring this class action case against defendants alleging that the loans they took out from entities controlled, managed, or funded by defendants were usurious and illegal under California and federal law. Defendants have, in response, filed three motions that are pending before me. The first is a motion brought by defendants Sequoia Capital Operations, LLC, Sequoia Capital Franchise Partners, L.P., Sequoia Capital IX, L.P., Sequoia Capital Growth Fund III, L.P., Sequoia Entrepreneurs Annex Fund, L.P., Sequoia Capital Growth III Principals Fund, LLC, Sequoia Capital Franchise Fund, L.P, and Sequoia Capital Growth Partners III (collectively, “Sequoia”) to stay this case pending arbitration. The second is a motion brought by defendants Mike Stinson, Linda Stinson, The Stinson 2009 Grantor Retained Annuity Trust, 7HBF No. 2, Ltd., Startup Capital Ventures, L.P., and Stephen J. Shaper (collectively the “Shareholder Defendants”) to compel arbitration. The third is a motion brought by both the Sequoia and the Shareholder Defendants to transfer to transfer this case to the Northern District of Texas.

         Consistent with my prior ruling in the materially similar case Brice et al. v. Rees et al., Case No. 18-cv-1200-WHO, and consistent with the majority of federal district courts and all circuit courts who have considered materially similar loan agreements, defendants' motions to stay, compel arbitration, and transfer are DENIED.

         BACKGROUND

         Plaintiffs allege that an entity called Think Finance, LLC and its subsidiaries (collectively “Think Finance”) “operated a rent-a-tribe scheme, which sought to evade the usury laws of certain states by using the Chippewa Cree, Otoe-Missouria, and Tunica-Biloxi Tribe (collectively, the ‘Tribes') as the conduit for their loans.” Compl. ¶ 2. “Under the rent-a-tribe model, loans were made in the name of Plain Green, LLC, Great Plains Lending, LLC, and Mobiloans, LLC.” Id. ¶ 3. Plaintiffs allege generally that defendants “are the owners and investors of Think Finance and received the proceeds of its illegal enterprise. Through their ownership of Think Finance, Defendants participated in the business's key decisions, strategies, and objectives and, in return, generated large profits from their ownership interest in Think Finance. Defendants personally participated in and oversaw the illegal lending enterprise rendering them personally liable to consumers.” Id. ¶ 4.

         Shareholder Defendants.

         Defendant Mike Stinson is alleged to be the founder of Think Finance and owner of between 15-25% of the interest in Think Finance. Id. ¶ 13. Linda Stinson is alleged to have “operated and participated in the affairs of the rent-a-tribe lending scheme as a board of director of Think Finance and she received proceeds from the usurious loans through her joint ownership of Think Finance with her husband.” Id. ¶ 14. Defendant The Stinson 2009 Grantor Retained Annuity Trust is alleged to be a trust created for the benefit of the Stinsons and through which the Stinsons “participated in the control of Think Finance and received a large distribution of their profits in Think Finance in the form of shares in Elevate, a publicly traded company that Think Finance spun-off to try to launder the profits of its unlawful enterprise.” Id. ¶ 15. Defendant 7HBF NO. 2, LTD. (“7HBF”) is alleged to have “owned at least 20% of the interest in Think Finance” and through “its ownership of Think Finance, 7HBF operated and participated in the affairs of the rent-a-tribe lending scheme and had direct personal involvement in the creation and day-to-day operations of the illegal enterprise.” Id. ¶ 16. Defendant Startup Capital Ventures, L.P. (“SCV”) is alleged to be a venture capital firm that “owned a material interest in Think Finance” and through “its ownership of Think Finance, SCV operated and participated in the affairs of the rent-a-tribe lending scheme and had direct personal involvement in the creation and day-to-day operations of the illegal enterprise.” Id. ¶ 25. Finally, defendant Stephen J. Shaper is alleged to be a “direct and/or indirect” owner of Think Finance who “operated and participated in the affairs of the rent-a-tribe lending scheme and had direct personal involvement in the creation and day-to-day operations of the illegal enterprise.” Id. ¶ 26.

         Sequoia Defendants.

         Defendant Sequoia Capital Operations, LLC (“SCO”) is alleged to be a venture capital firm that “owned approximately 25% of the interest in Think Finance” and through its ownership of Think Finance “Sequoia operated and participated in the affairs of the rent-a-tribe lending scheme and had direct personal involvement in the creation and day-to-day operations of the illegal enterprise.” Id. ¶ 17. SCO is alleged to have used defendants Sequoia Capital Franchise Partners, L.P., Sequoia Capital IX, L.P., Sequoia Capital Growth Fund III, L.P., Sequoia Entrepreneurs Annex Fund, L.P., Sequoia Capital Growth III Principals Fund, LLC, Sequoia Capital Franchise Fund, L.P., and Sequoia Capital Growth Partners III, L.P. to “to receive a large distribution of its profits in Think Finance in the form of shares in Elevate, a publicly traded company that Think Finance spun-off to try to launder the profits of its unlawful enterprise” and each “would have held shares of Think Finance and participated in its management and control.” Id. ¶¶ 18-24.

         Plaintiff Brice is alleged to have “paid no less than $2, 634.40 on her loans with Great Plains, most of which was credited to interest and fees.” SAC ¶ 117. Plaintiff Browne is alleged to have “paid no less than $10, 250.20 on his loans with Plain Green and Great Plains-most of which was credited to interest and fees.” Id. ¶ 118. Plaintiff Novorot is alleged to have “paid no less than $6, 244 on her loans with Great Plains, including a payment of $65 in the last year, most of which was credited to interest and fees.” Id. ¶ 119.

         Based upon these allegations, plaintiffs assert claims on behalf of a class of California consumers who took out similar loans under: (i) the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968; (ii) California's usury laws; (iii) California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq; and (iv) unjust enrichment. Defendants move to stay and compel arbitration or, in the alternative, transfer this case to the Northern District of Texas where bankruptcy proceedings are pending against Think Finance.

         In the related case, Brice et al. v. Rees et al., Case No. 18-cv-01200, I addressed the enforceability of the same exact arbitration agreements (Arbitration Agreements) in the same loan agreement forms at issue in this case. There, after exhaustively considering the full text of the agreements as well as the relevant case law, I concluded that the “Plain Green and [Great Plains Lending] arbitration agreements are unenforceable because they are prospective waivers of plaintiffs' rights and remedies.” March 2019 Order at 1. In addition to arguing that I reached the wrong conclusion in my prior Order, defendants in this case argue that because I did not consider specific cases or arguments, I should reconsider and conclude that the Arbitration Agreements are enforceable and grant these defendants' motions to stay and compel arbitration. In the alternative, defendants also bring a motion to transfer this case to the Northern District of Texas where bankruptcy proceedings are pending concerning Think Finance. Plaintiffs oppose all three motions.

         DISCUSSION

         I. MOTIONS TO STAY AND COMPEL ARBITRATION

         The Sequoia Defendants move to stay proceedings, arguing that arbitration is required given plaintiffs' agreements to arbitrate disputes regarding the loans they took out. The Shareholder Defendants move to compel arbitration based on those same Arbitration Agreements. For the reasons that I explained in detail in the related case while considering the same exact Arbitration Agreements defendants seek to ...


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