Stone v. Advance America, Cash Advance Centers Inc. et al

Filing 178

ORDER on Summary Judgment Motions. The Court grants 127 Motion for Partial Summary Judgment; denies 133 Motion for Partial Summary Judgment; denies 134 Motion for Partial Summary Judgment; denies 141 Motion to add new Class Representative; denies 149 Motion to Strike. Signed by Judge Anthony J. Battaglia on 11/07/11. (cge)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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KERRIE STONE, JUSTINA
RODRIGUEZ, and FRANK
BRIGHTWELL, individually and on
behalf of all others similarly situated,,

CASE NO. 08-CV-1549-AJB (WMc)
ORDER ON SUMMARY
JUDGMENT MOTIONS

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Plaintiffs,
vs.
ADVANCE AMERICA, CASH
ADVANCE CENTERS INC., et al.,
Defendants.

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This is a consumer class action suit concerning payday lending practices as

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regulated by California law. Now before the Court are several motions that were pending

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prior to their transfer to the under-signed judge. (The Court has scheduled a hearing on

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Plaintiffs’ motion to certify a class on the Spanish language claims for November 14,

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2011.) The parties did not request oral argument on the motions for summary judgment

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and to add a class representative and the Court finds these motions suitable for decision on

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the written briefs. As explained below, the Court GRANTS Defendants’ motion for partial

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summary judgment on Plaintiffs’ claims that they were not given written notice of their

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rights before entering into the loan agreement as measured by the time the customer

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became contractually obligated. The Court DENIES Defendants’ motion for partial

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summary judgment on the Spanish-language claims arising out of transactions prior to

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August 2005 because the amended pleading relates back to the original complaint. The
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Court DENIES Defendants’ motion for partial summary judgment on the request for

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prospective injunctive relief on the Spanish language claims because there is a factual

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dispute as to whether Plaintiff Rodriguez has standing. Finally, the Court DENIES as moot

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Plaintiffs’ motion to add a new class representative on the Spanish language claims request

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for an injunction.

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Background

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Plaintiffs Kerrie Stone, Justina Rodriguez, and Frank Brightwell are customers of

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Defendants Advance America, Cash Advance Centers of California, LLC, and its parent,

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Advance America, Cash Advance Centers Inc.

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Defendants are in the business of providing short-term cash advances – commonly

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known as payday loans. In California, the Commissioner of the Department of

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Corporations oversees the industry and requires each business to obtain a license. Cal. Fin.

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Code § 23005. For example, the licensee must post a “complete, detailed, and

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unambiguous schedule of fees.” Id. § 23019. The licensee is required to keep certain

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financial records and the Commissioner may audit the licensee. Id. §§ 23024, 23046; see

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id. § 23045 (authorizing suspension of license). The statute also regulates the content of

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the notice of rights and the terms of the agreement. For example, the agreement must be in

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writing and clearly describe the customer’s obligations. Id. § 23035.

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Plaintiffs allege that Defendants violated the California Deferred Deposit

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Transaction Law (“CDDTL”) and that their misconduct constitutes unfair competition.

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Cal. Fin. Code § 23000; Cal. Bus. & Prof. Code § 17200.

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One of Plaintiff Rodriguez’s transactions illustrates the process. Defs.’ Ex. A. On

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October 21, 2004, Rodriguez gave Defendants a personal check for $300, but Defendants

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agreed not to cash it until November 5, 2004. Defendants immediately gave Rodriguez

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$255 in cash and retained the $45 difference as a fee. Although the interest on her fourteen

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day loan exceeds an annual percentage rate of 460%, the high interest is exempt from the

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usury provisions of the California Constitution. Cal. Fin. Code § 23106 (Cal. Const. art.

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15, § 1); id. § 23036(a) (“A fee for a deferred deposit transaction shall not exceed 15
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percent of the face amount of the check.”). The CDDTL protects the customer from the

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ordinary penalties of writing a check on insufficient funds, including treble damages and

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possible criminal prosecution. Id. § 23035; Cal. Civ. Code § 1719. Instead, the statute

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limits the fee to $15 for the return of a dishonored check. Cal. Fin. Code § 23036(e).

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Remedies for violations include equitable relief (e.g., injunction, disgorgement,

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restitution); compensatory damages; treble damages; if willful, punitive damages; and

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attorney’s fees. Id. § 23064.

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Both parties have waived a jury so there will be a bench trial.

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Discussion

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I. Defendants’ Motions for Summary Judgment

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Summary judgment is appropriate when the "pleadings, depositions, answers to

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interrogatories, and admissions on file, together with the affidavits, if any, show that there

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is no genuine issue as to any material fact and that the moving party is entitled to judgment

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as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322

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(1986).

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A. Motion on Written Notice of Rights

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Each individual Plaintiff claims Defendants violated the CDDTL by failing to give

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written notice of the rights and duties before entering into the deferred deposit transaction.

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TAC ¶¶ 10, 12; Defs.’ Ex. G (Rodriguez’s responses to interrogatory no. 11).1

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The statute provides, in relevant part, “[b]efore entering into a deferred deposit

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transaction, licensees [Defendants] shall distribute to customers a notice” of their rights.

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Cal. Fin. Code § 23035(c) (emphasis added). This notice must contain information about

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the charges on the transaction, a warning of the possibility that a $15 additional fee will be

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charged if the check bounces, a toll-free number to call the Defendants with complaints,

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and other rights. Id. The notice must be in writing and in the customer’s language. Id. §

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23035(f).

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Plaintiff Rodriguez obtained dozens of payday advances. At times, she spoke Spanish.
This motion does not involve the transactions in which she spoke Spanish.
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In a separate subsection, the statute lists the items that must be disclosed in the

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written agreement. Id. § 23035(e). These include terms such as the total amount of fees

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and the due date. Id. The agreement must be in writing and in the customer’s language.

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Id. § 23035(g).

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The testimony of Jean Newman shows the sequence of events. When a customer

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first enters the store, Defendants ask for the customer’s personal information and then ask

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how much she wants to borrow. Pls.’ Ex. 1 (Newman Depo. at 97). Defendants receive a

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check for the amount of the advance plus the fee, and enter that information into the

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computer. Id. Defendants then print the two-page agreement and give it to the customer.

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Id. The agreement contains the notice of rights. E.g., Defs.’ Ex. A. The rights are

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incorporated into other language on the front of the agreement. Id. Then the customer

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signs the agreement, Defendants sign it, and Defendants give the customer her money.

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Pls.’ Ex. 1 (Newman Depo. at 97).

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Plaintiffs contend that the sequence violates the statute because Defendants provide

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a single document containing both the notice and the agreement. Plaintiffs argue that the

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statute is structured to recognize two separate subsections, therefore, Defendants should

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first give the customer the notice, and then if the transaction continues, Defendants can

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print the agreement for the customer to sign. Plaintiffs argue that the sequence used by the

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Defendants improperly collapses the two steps. By the time the agreement is printed,

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Defendants have already input the customer’s name and contact information, the amount of

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the loan, the due date, and the check number. “In other words, before the customer

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agreement is even printed out, the customer has made the decision to get a loan for a certain

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amount, has written his or her personal check, and has handed it to the employee.” Pls.’

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Opp. Br. at 5.

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The Court concludes that Defendants are entitled to summary judgment on this

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issue. See People v. McCaskey, 170 Cal. App. 3d 411, 415-16 (1985) (“Statutes must be

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given a reasonable and common sense construction in accordance with the apparent

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purpose and intention of lawmakers – one that is practical rather than technical . . . .”)
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(internal quotation marks and citation omitted). The record shows that each Plaintiff

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received timely notice of the rights before he or she became legally bound by the terms of

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the agreement. E.g., Defs.’ Exs. H-I (admission No. 3). Defendants’ two-page form

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satisfies the purpose of the statute to ensure the customer is informed of her rights before

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she becomes liable for the fee. When the customer is handed the form that has been

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personalized with the details of the current loan, she still has an opportunity to ask

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questions or reject the offer. The customer has not entered into a binding agreement until

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both parties have signed the contract.

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The Court has in mind cases from an analogous consumer credit statute, the federal

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Truth-in-Lending Act. Bissette v. Colonial Mortg. Corp. of D.C., 477 F.2d 1245, 1246-47

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(D.C. Cir. 1973) (interpreting act to require disclosures at a time when customer can

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compare offers); James H. Pannabecker, Truth-in-Lending Manual, vol. I at 3-13 to 3-15

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(rev. ed. 2011) (citing Official Staff Commentary 5(b)(1)) (concluding that disclosures

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must be delivered to customer before he “becomes obligated”). One provision in that

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statute gives the borrower a right to rescind the agreement within three days as measured

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from the “consummation” of the transaction. 15 U.S.C. § 1635. The regulation defines

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consummation as “the time a consumer becomes contractually obligated on a credit

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transaction.” 12 C.F.R. § 226.2. The Ninth Circuit used California law to define the

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elements of a contract and concluded the statute referred to the time when the lender and

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the borrower sign the agreement that creates mutual obligations. Jackson v. Grant, 890

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F.2d 118, 121-22 (9th Cir. 1989).

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The Court therefore GRANTS Defendants’ motion for partial summary judgment on
Plaintiffs’ claim concerning the timing of the disclosure of the notice.

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B. Motion on Spanish Language Transactions Prior to August 2005

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Defendants move for partial summary judgment on the Spanish language

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transactions that occurred before August 2005. They argue that the Spanish language

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claims were first added to the lawsuit when the Second Amended Complaint (“SAC”) was

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filed in August 2009; therefore, the four-year statute of limitations bars recovery on
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transactions that occurred prior to August 2005.

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Plaintiffs filed the original complaint in State Court in July 2008. Plaintiff Stone

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was the only named class representative. Among other violations, the complaint alleged

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that Defendants violated subsections (c) and (f) of § 23035 by failing to give customers a

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written notice “in the language principally used by the customer.” Compl. ¶ 7B; see id. ¶¶

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8, 19. Plaintiffs defined subclass A as those customers “who were not given a written

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notice, in the language principally used by that customer” as required by the CDDTL. Id. ¶

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10A.

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In August 2009, Plaintiffs filed their SAC which added Rodriguez as a named

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representative. SAC ¶ 1. Plaintiffs added a paragraph describing Rodriguez’s transactions

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with Defendants and stating that she principally spoke Spanish. Id. ¶ 11.

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Federal Rule of Civil Procedure 15(c) states that a claim “relates back to the date of

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the original pleading” if it “arose out of the conduct, transaction, or occurrence set out – or

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attempted to be set out – in the original pleading.” An amendment that adds a plaintiff

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relates back to the date of the original pleading when the defendant had adequate notice of

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the claim, the defendant is not unfairly prejudiced, and there is an identity of interests

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between the original and new plaintiffs. Immigrant Assistance Project of L.A. Cty Fed’n of

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Labor v. INS, 306 F.3d 842, 857 (9th Cir. 2002).

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Applying these rules to the instant case, the Court finds that the amended pleading

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relates back to the date of the original complaint. The CDDTL claims in the original and

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amended pleading arise out of the same conduct – whether Defendants provided notice in

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the customer’s principal language. The original complaint alerted Defendants that

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Plaintiffs were relying on subsection (f), which requires the notice to be “written and

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available in the same language principally used in any oral discussions or negotiations

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leading to the execution of the deferred deposit agreement.” Cal. Fin. Code § 23035(f).

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The SAC did not add a new cause of action or change the legal theory, rather, it relied on

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the same statutory provision cited in the original pleading. Moreover, the original

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complaint proposed a class of customers affected by that requirement and Rodriguez would
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be a member of that subclass. The statute specifically contemplates that customers may not

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speak English as their primary language, thereby recognizing the large number of

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California residents who speak Spanish. Given the express provision that requires

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Defendants to use forms in the customer’s language, they had reasonable notice of the

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Spanish language claims. The consumers protected by the CDDTL share a common

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interest in enforcing the statute. Importantly, Defendants have not been prejudiced in

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preparing or maintaining a defense to the merits of the Spanish language claims. The SAC

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was filed before the parties commenced discovery, which allowed Defendants a full and

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fair opportunity to investigate the issue.

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Accordingly, the Court DENIES Defendants’ motion for partial summary judgment
on the Spanish language claims arising out of transactions prior to August 2005.

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C. Motion on Standing to Seek Prospective Injunctive Relief

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Defendants seek partial summary judgment on Plaintiff Rodriguez’s standing to seek

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injunctive relief because she is no longer a customer.2 Rodriguez’s last transaction with

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Defendants occurred in February 2009. Defs.’ Ex. A.

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The case-or-controversy requirement of Article III of the United States Constitution

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requires that a party have standing at the outset of litigation brought in federal court.

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Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., 528 U.S. 167, 180 (2000). “Standing

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doctrine functions to ensure, among other things, that the scarce resources of the federal

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courts are devoted to those disputes in which the parties have a concrete stake.” Id. at 191

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A plaintiff must demonstrate standing “separately for each form of relief sought.”

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Id. at 185. When a plaintiff seeks an injunction, she must demonstrate that she is

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“realistically threatened by a repetition of the violation.” Gest v. Bradbury, 443 F.3d 1177,

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1181 (9th Cir. 2006) (internal quotation marks and citations omitted); City of Los Angeles

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v. Lyons, 461 U.S. 95, 111 (1983) (no standing to seek injunction when no showing “that

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Defendants submitted a declaration to authenticate the proposed Fourth Amended
Complaint. Defs.’ Ex. C. Plaintiffs moved to strike the declaration on the ground that it
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does not contain any such communications.
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the plaintiff will be wronged again”). Here, Defendants contend that Rodriguez’s

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deposition testimony establishes that it is not “‘likely,’ as opposed to merely ‘speculative,’

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that the injury will be redressed” by a prospective injunction. See generally Lujan v.

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Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (setting out elements of standing).

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Plaintiffs bear the burden of proof. Id. at 561. When a defendant challenges

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standing in a summary judgment motion, the plaintiff must set forth specific facts showing

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a genuine issue of material fact. Id. If the facts are controverted, then the issue is resolved

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at trial. Id. Standing is determined on the facts as they existed when the complaint was

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filed. Id. at 570 n.4.

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Standing is not established by a “mere profession of an intent, some day, to return”

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to Defendants’ business, particularly when the conduct is within the plaintiff’s own control.

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Lujan, 504 U.S. at 564 n.2.

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If the named plaintiff lacks standing, then “system-wide injunctive relief is not

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available based on alleged injuries to unnamed members of a proposed class.” Hodgers-

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Durgin v. de la Vina, 199 F.3d 1037, 1045 (9th Cir. 1999) (en banc) (citing Lewis v. Casey,

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518 U.S. 343, 357 (1996)).

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Defendants rely on Rodriguez’s testimony during her deposition. She testified that

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if she had known the charges, interest rate, and $15 bounced check fee, “then I would

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stopped . . . getting all those loans.” Defs.’ Ex. C (Rodriguez Depo. at 119); id. (Depo. at

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121) (“If they had explained [the $15 bounced check fee], I could have stopped getting

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more loans.”). Defendants interpret this testimony as showing that Rodriguez has no

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concrete plans to return to Defendants’ centers and she therefore lacks standing to seek an

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injunction. Cattie v. Wal-Mart Stores, Inc., 504 F. Supp. 2d 939, 951 (S.D. Cal. 2007) (sua

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sponte raising lack of standing for injunction on false advertising claim as plaintiff now

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knew the truth about defendant’s products); see Wilson v. Costco Wholesale Corp., 426 F.

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Supp. 2d 1115, 1119 (S.D. Cal. 2006) (evaluating disabled plaintiff’s plan to return in an

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accommodations case).

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The Court denies the motion because there is a triable issue of fact concerning
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Rodriguez’s plan to obtain payday loans from Defendants in the future. Rodriguez’s

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deposition testimony does not categorically state that she will never do business with

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Defendants again; instead, she said that, had she known about the $15 fee, she would have

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paid it and “wouldn’t have gotten any more loans.” Defs. Ex. C (Rodriguez Depo. at 122).

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While Defendants offer one interpretation of the cited testimony, Rodriguez’s testimony is

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ambiguous. To oppose the motion, Rodriguez submitted a declaration to explain her

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answers in the deposition. In her declaration, Rodriguez states “I was not aware that I

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could be charged only $15 if I bounced a check to Advance America. Instead, I was afraid

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that if I bounced a check to Advance America, Advance America might file criminal

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charges against me or it might contact my employer about the bounced check.” Rodriguez

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Decl. ¶ 2. As Plaintiffs observe, the maximum fee of $15 for a bounced check protects the

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consumer because she is not liable for treble damages or possible criminal prosecution.

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Thus, it could have been more economical for Rodriguez to let her personal check bounce

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and pay the $15 fee. Instead, Rodriguez states that she feared the consequences of letting

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her check bounce and entered into a cycle of debt in which a second loan was taken to

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repay the first loan. Id. ¶ 3 (“I felt trapped”). She explains that “I felt like I needed to

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renew my loans over and over again.” Id. Often she would pay one loan by taking out

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another loan from a different payday company (or from Defendants). Id.

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Rodriguez further states that she continues to be a regular payday loan customer, but

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did not return to Defendants’ centers once she became a plaintiff in this lawsuit. Id. ¶ 5. If

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she prevails and Defendants provide her with a contract and notice in Spanish, then

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“[s]ometime in the future, it is probable that I will try to take out another loan from

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Advance America.” Id.

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Defendants argue that Rodriguez is attempting to manufacture a disputed fact by

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filing a contradictory declaration, and the Court is sensitive to that possibility.

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Nonetheless, the Court finds that Rodriguez’s declaration properly explains and clarifies

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her deposition testimony. Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266 (9th Cir.

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1991). She has offered a reasonable explanation of her deposition testimony, and that
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question of fact defeats the summary judgment motion. E.g., Gladstone Realtors v. Village

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of Bellwood, 441 U.S 91, 115 & n.31 (1979) (defendant may contest standing at trial);

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Truth v. Kent Sch. Dist., 542 F.3d 634, 642 (9th Cir. 2008) (finding genuine issue of

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material fact on standing issue), overruled on other grounds by, Los Angeles Cty. v.

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Humphries, 131 S.Ct. 447 (2010).

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The Court DENIES Defendants’ motion for partial summary judgment on Plaintiffs’

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claim for prospective injunctive relief.

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II. Plaintiffs’ Motion to Add New Class Representative

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As a precaution, in the event the Court determined that Plaintiff Rodriguez did not,

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as a matter of law, have standing to seek injunctive relief on the Spanish language claims,

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Plaintiffs filed a motion to add a new class representative. Plaintiffs stated they would

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withdraw the motion if the Court denied Defendants’ motion on standing. The Court did

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not grant that summary judgment motion, consequently, the Court DENIES as moot

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Plaintiffs’ motion to add a new class representative.

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III. Remaining Pretrial Dates

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Discovery closed in this case in July 2010. In December 2010, the Court vacated

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the remaining pretrial dates until the Court reached a decision on these pending motions.

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[# 92, 117, & 124] Now that the dispositive motions have been resolved and a hearing has

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been set on the class certification motion, a schedule for the remaining pretrial dates must

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be scheduled. Within seven days of the filing of this Order, the parties shall contact

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Magistrate Judge McCurine and request a Third Amended Scheduling Order that will

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include a mandatory settlement conference and the dates necessary to prepare for a pretrial

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conference before the bench trial.
Conclusion

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Upon due consideration of the memoranda and exhibits, and for the reasons set forth
above, the Court:
(1) GRANTS Defendants’ motion for partial summary judgment on Plaintiffs’
claims that they were not given written notice of their rights [ # 127];
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(2) DENIES Defendants’ motion for partial summary judgment on the Spanishlanguage claims arising out of transactions prior to August 2005 [ # 133];

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(3) DENIES Plaintiffs’ motion to strike the declaration of Steuart Thomsen [# 149];

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(4) DENIES Defendants’ motion for partial summary judgment on Plaintiffs’ claim

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for prospective injunctive relief [# 134];

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(5) DENIES as moot Plaintiffs’ motion to add a new class representative [ #141]; &

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(6) instructs the parties to promptly contact the magistrate judge to establish a Third

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Amended Scheduling Order for the remaining pretrial dates.

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IT IS SO ORDERED.

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DATED: November 7, 2011

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Hon. Anthony J. Battaglia
U.S. District Judge

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