O'Donovan v. Cashcall, Inc.

Filing 127

ORDER RE CLASS DEFINITIONS re 110 MOTION filed by Krista O'Donovan, 113 MOTION Regarding Class Definitions filed by Cashcall, Inc.. Signed by Judge Maria-Elena James on 7/2/2012. (cdnS, COURT STAFF) (Filed on 7/2/2012)

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UNITED STATES DISTRICT COURT

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Northern District of California

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KRISTA O'DONOVAN, EDUARDO DE LA
TORRE and LORI SAYSOURIVONG,
individually and on behalf of all others
similarly situated,

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No. C 08-03174 MEJ
ORDER RE: CLASS
NOTICE/DEFINITIONS

Plaintiffs,
v.

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CASHCALL, INC., a California corporation,

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For the Northern District of California

UNITED STATES DISTRICT COURT

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[Docket Nos. 110, 113, 123 and 124]

Defendant.
_____________________________________/

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On November 15, 2011, the Court granted in part and denied in part Plaintiffs’ motion for

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class certification. Dkt. No. 100. Since then, the parties have been meeting and conferring in an

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attempt to agree on specific class definitions as well as a class notice plan. While many issues have

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been resolved through this meet and confer process and the Court’s previous order, several disputes

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remain and the parties have outlined these in the motions currently pending before the Court. Dkt.

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Nos. 110 and 113.1 The Court addresses the pending issues in turn below.

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Plaintiffs’ current proposal is to provide notice to the following two classes:

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(1) The “Loan Unconscionability Class”: “All individuals who, while residing in
California, borrowed from $2,500 to $2,600 at an interest rate of 90% or higher from
CashCall, Inc. for personal, family or household use at any time from June 30, 2004
to the present.”
(2) The “Conditioning Class”: “All individuals who, while residing in California,
borrowed money from CashCall, Inc. for personal, family, or household use at any
time from June 30, 2004 to the present.”

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Dkt. No. 111 at 2. With respect to the Loan Unconscionability Class, Defendant only takes issue

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The Court issued a tentative ruling on these motions on April 23, 2012 and then held a
hearing on April 26. Both parties have filed supplemental briefs with respect to the issues raised in
the tentative ruling and at the hearing. Dkt. Nos. 123 and 124.

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with the end date of the class definition. Rather than providing notice to individuals who obtained

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loans “from June 30, 2004 to the present,” Defendant argues that the class should be limited to only

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those borrowers who obtained loans before July 11, 2011.2 This is because, on July 11, Defendant

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— following the United States Supreme Court decision in AT&T Mobility LLC v. Concepcion —

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changed the terms of its promissory note to include a clause that mandates arbitration for any

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lawsuits outside of small claims court and prohibits borrowers from being members of class action

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lawsuits. According to Defendant, the “most efficient and expeditious procedure to address this

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issue is to exclude CashCall borrowers who signed the [new] arbitration agreement from the class

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definitions” at this stage of the proceedings. Dkt. No. 118 at 14.

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Plaintiffs contend that the above argument “suffers from several flaws and raises a host of
issues that far exceed the scope of providing notice to the certified class.” Dkt. No. 117 at 11.

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For the Northern District of California

UNITED STATES DISTRICT COURT

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Plaintiffs only cursorily address some of these issues and state that if the Court does intend to

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consider Defendant’s argument, they should be entitled to conduct discovery and provide additional

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briefing on whether Defendant’s arbitration clause is valid and enforceable. Id.

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While the Court prefers not to delay class notice, it is concerned about the following

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situation. If borrowers who signed the post-July 11 promissory note receive the proposed notice and

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do not ask to be excluded, they will believe that they are part of this class action lawsuit and have

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given up their rights to individually sue Defendant. If the Court puts off its evaluation of the

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arbitration clause until a later date — as Plaintiffs propose — and then the clause is found to be

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valid, the post-July 11 borrowers would have to be notified that they are no longer members of the

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class. Besides the additional work and expenses this would require, it will also confuse potential

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class members about what is transpiring and the status of their legal rights.

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At the April 26, 2012 hearing on the parties’ motions, Plaintiffs agreed that the Court should

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rule on the arbitration clause issue before notice is given to the class. Both parties submitted further

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briefing on this question, which the Court has now reviewed. Dkt. Nos. 123 and 124. Plaintiffs’

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Defendant also contends that there should be a July 11, 2011 cutoff for the Conditioning

Class.
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supplemental brief provides that in the interest of moving this case forward, they will “not ask the

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Court to allow the discovery and full-scale briefing required to determine whether CashCall’s

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arbitration clause is enforceable.” Dkt. No. 123 at 6. Instead, Plaintiffs ask the Court to rule on only

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one issue: whether Defendant’s new arbitration clause can be enforced against potential class

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members in the absence of any petition to compel arbitration having been filed by Defendant. Id. In

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other words, Plaintiffs believe that Defendant — which may technically waive its right to pursue

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arbitration under its arbitration agreement with borrowers — must first seek an order compelling

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arbitration before the arbitration clause can be enforced, something that Defendant cannot do with

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members of the proposed class because this Court does not yet have jurisdiction over them. Id. at 8-

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9. Plaintiffs do not cite any authority to support this novel theory and argue that it is an issue of first

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impression. Id. at 10.

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For the Northern District of California

UNITED STATES DISTRICT COURT

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While the Court would be willing to entertain arguments with respect to the actual

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enforceability of Defendant’s arbitration clause, the Court is not persuaded by the arguments from

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Plaintiffs on this issue, particularly because it does not appear to be an issue of first impression. In

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Dienese v. McKenzie Check Advance of Wisconsin, the court briefly addressed whether potential

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class members who had signed the defendant’s arbitration agreement should receive class notice.

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2000 WL 34511333, at *8 (E.D. Wis. Dec. 11, 2000). The Dienese court ruled that “[i]n the absence

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of any showing that the Arbitration Agreement is unenforceable or that plaintiffs’ claims are not

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amenable to arbitration, this court will not permit those who have signed the Agreement to

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participate in the class.” Id. This Court finds Dienese instructive. If Plaintiffs’ position was

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adopted, notice will be provided to all potential class members, who will subsequently become a part

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of this class action if they do not ask to be excluded. Defendant will then be forced to file a motion

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to compel arbitration with respect to post-July 11 class members — a motion that Plaintiffs have

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chosen not to contest at this juncture even though they were given the opportunity to do so — and

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the Court will consequently have to dismiss these class members from the class. Such a convoluted

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process does not make sense from a procedural and class manageability perspective. Accordingly,

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Defendant’s motion is GRANTED on this issue, and both class definitions should be limited to

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borrowers who did not sign Defendant’s post-July 11, 2012 promissory note.
With respect to the Conditioning Class, Defendant argues the following: (1) the time period

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for the class definition should be limited to only those borrowers who obtained loans after March 13,

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2006 because the claim stems from the federal Electronic Funds Transfer Act (“EFTA”), which has

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a statute of limitations of one year, and not California’s Unfair Competition Law (“UCL”), which

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has a statute of limitations of four years; (2) if the four-year statute applies, then the relief that

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Plaintiffs seek — a refund of the nonsufficient funds fees they were charged — constitutes

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restitution rather than damages and is not available under the UCL, resulting in there being no basis

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to certify a class; and (3) under any circumstances, individual issues predominate the Conditioning

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The Court only needs to address Defendant’s first argument because it finds, as explained

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For the Northern District of California

UNITED STATES DISTRICT COURT

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Class and therefore the class cannot be certified.

below, that the EFTA’s one-year statute of limitations applies to the Conditioning Class. The Court

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notes that some of Defendant’s third argument with respect to individual issues predominating was

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considered last year when the Court decided to certify what the parties now refer to as the

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Conditioning Class. Dkt. No. 100. Defendant asked the Ninth Circuit for permission to appeal this

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decision, which was denied. Dkt. No. 108. While the Court retains the inherent power to review

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class certification decisions, Defendant has not persuaded the Court that any circumstances have

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changed that would warrant reconsideration at this time.

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The Conditioning Class claim stems from the allegation that Defendant violated the EFTA

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by conditioning the extension of credit on a customer agreeing to electronic payment. This violation

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of a federal statute is also the predicate for Plaintiffs’ UCL claim. Both parties agree that the EFTA

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has a one year statute of limitations while the UCL’s is four years. The issue for the Court is

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whether Plaintiffs’ claim is limited by the EFTA’s statute of limitations or the UCL’s longer

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limitations period may be invoked. Neither of the parties provide authority on this exact question

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and it appears to be an issue of first impression.

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The Court follows the view adopted by other courts that have analyzed a similar issue and
found that UCL claims predicated on other federal law should be governed by that federal law’s

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statute of limitations. In Jordan v. Paul Financial, LLC, the plaintiff brought UCL claims against

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the defendant that were predicated on violations of the federal Truth in Lending Act (TILA). 644

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F.Supp.2d 1156, 1171 (N.D. Cal. 2009). TILA, like the EFTA, requires claimants to file a lawsuit

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within one year of any alleged violation.3 Id. The Jordan Court held that because the plaintiff’s

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“UCL claim is predicated on TILA violations, it may proceed only to the extent that the TILA

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violations are not time barred.” Id. at 1172. Other courts have reached similar decisions. See

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Adams v. SCME Mortg. Bankers Inc., 2009 U.S. Dist. LEXIS 46600, at *28 (E.D. Cal. May 22,

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2009) (holding that if a TILA claim is time barred, a UCL claim based on TILA violations also fails

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because courts should not permit a plaintiff to “plead around an absolute bar to relief simply by

Inc., 714 F.Supp.2d 1000, 1014 (N.D. Cal. 2010) (finding that it is improper for the plaintiffs to

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recasting the cause of action as one for unfair competition”); Newsom v. Countrywide Home Loans,

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UNITED STATES DISTRICT COURT

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attempt to revive an otherwise time-barred TILA claim, which has a one year statute of limitations,

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under the guise of a fraud claim, which has a three year statute of limitations).

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Plaintiffs urge the Court to not follow these cases for two principle reasons. First, they argue

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that the EFTA contains a safe harbor clause that allows states to provide greater protection to

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consumers than under the provisions in the EFTA. See U.S.C. § 1693q (“A State law is not

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inconsistent with this subchapter if the protection such law affords any consumer is greater than the

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protection afforded by this subchapter.”). This argument is misplaced. The issue here is not

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whether California has enacted its own version of the EFTA, but whether Plaintiffs may assert a

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UCL claim predicated on the EFTA and not be required to comply with the EFTA’s statute of

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limitations. Second, Plaintiffs contend that the above TILA decisions are inapplicable because they

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have misinterpreted Silvas v. E*Trade Mortgage Corporation and are consequently based on a

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flawed preemption analysis. 514 F.3d 1001, 1007 n. 3 (9th Cir. 2008). Plaintiffs again miss the

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mark with this argument. While both Adams and Newsom discussed Silvas, they both concluded on

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See also Voeks v. Pilot Travel Centers, 560 F.Supp.2d 718, 723 (E.D. Wisc. 2008) (“this
Court concludes that the cases that hold the TILA to be a useful analogy in analyzing the EFTA are
correct”).
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separate grounds that a federal statute’s limitations period should apply when a state law cause of

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action is based on it. See Newsom, 714 F.Supp.2d at 1014 (“As set forth above, a state law claim

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premised on violations of TILA is preempted. In addition, Plaintiffs impermissibly are attempting to

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revive an otherwise time-barred TILA claim under the guise of a fraud claim.”) (emphasis added).

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In their supplemental brief, Plaintiffs point out for the first time that the California Supreme

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Court has expressly decided this issue by holding that the UCL’s statute of limitations provision

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“admits no exceptions” and applies even if the predicate statute has a shorter limitations period.

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Cortez v. Purolator Air Filtration Prods. Co., 23 Cal.4th 163, 179 (2000). But Cortez — along with

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many of the other cases cited by Plaintiffs in their supplemental brief — is not analogous because it

violations of state law, which is not the question here since Plaintiffs’ UCL claim is based on a

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For the Northern District of California

only holds that the UCL’s longer limitations period applies when the UCL claim is based on

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UNITED STATES DISTRICT COURT

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federal statute that includes a preemption provision similar to TILA’s. As this issue is explained in

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the California Practice Guide on UCL claims, “[n]otwithstanding Cortez and the rule that the longer

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(four-year) limitations period of Section 17208 applies when borrowing a violation of a statute

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carrying a shorter limitations period, the result may be different when the claim at issue is federal

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and the federal law supplies a shorter limitations period.” Stern, Cal. Prac. Guide: Bus. & Prof.

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Code § 17200 Practice, ¶ 5:292.1 (The Rutter Group 2012). Thus, while this is an unsettled issue

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and authorities have been cited to support both views, the Court adheres to the approach taken by

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courts such as Newsom and finds that parties should not be able to predicate their UCL claim on a

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federal statute but then ignore that statute’s limitations period under the circumstances presented

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here. Accordingly, the Court concludes that the EFTA’s one year statute of limitations applies to

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Plaintiffs’ claim. The definition for the Conditioning Class should therefore be limited to only those

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borrowers who obtained loans after March 13, 2006.4

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Plaintiffs have also requested the Court to appoint their current counsel of record (James
Sturdevant, principal of the Sturdevant Law Firm, Arthur Levy, principal of the Law Office of

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Both parties agree that the statute of limitations was tolled when Plaintiffs filed a class
action complaint on these issues in state court on March 13, 2007.
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Arthur D. Levy, and Whitney Stark, associate at Rukin, Hyland, Doria & Tindall) as class counsel.

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Defendants have not objected to this request and the Court finds that counsel of record meet the

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standards outlined for class counsel in FRCP 23(g). Accordingly, they are appointed as class

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counsel.

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Lastly, on January 3, 2012, based on the parties’ request, the Court vacated the deadline for

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the parties to complete mediation in this matter. Dkt. No. 102. The new deadline to complete

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mediation is now set for September 31, 2012.

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of Plaintiff’s motion for approval of class notice plan (Dkt. No. 110), including a proposed order,
reflecting the Court’s decisions in this opinion.
IT IS SO ORDERED.

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For the Northern District of California

UNITED STATES DISTRICT COURT

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The parties are ordered to meet and confer and submit, by July 18, 2012, an updated version

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Dated: July 2, 2012
_______________________________
Maria-Elena James
Chief United States Magistrate Judge

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