Patrick v. Eastern Specialty Finance Inc.
MEMORANDUM. Signed by Judge Sue L. Robinson on 7/22/2014. (nmfn)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
on behalf of himself and all
others similarly situated,
Civ. No. 13-1770-SLR
d/b/a CHECK 'N GO,
this~day of July, 2014, having reviewed defendant Eastern
Specialty Finance's ("defendant") motion to dismiss for failure to state a claim (D.I. 5),
as well as the papers submitted in connection therewith; the court issues its decision
based on the following analysis:
1. Background. On October 29, 2013, Raymond Patrick ("plaintiff") filed a
complaint alleging breach of duty of fair dealing and violation of the Delaware
Consumer Fraud Act (6 Del. C. § 2513) by defendant. (D.I. 1) Plaintiff borrowed
$1,260 from the defendant on September 6, 2013. (D.I. 11 at 2) The parties agreed to
the loan by signing a 3-page Installment Loan Agreement ("I LA"). /d. The ILA
disclosed (1) the amount plaintiff was borrowing, (2) the interest plaintiff would have to
pay, (3) the total amount plaintiff would pay pursuant to the schedule of payments, and
(4) the annual percentage rate. (0.1 6 at 3-4) Plaintiff's complaint alleges that he did
not fully understand the financial or legal terms of the ILA and that he had no
knowledge of his legal rights or statutory obligations. (0.1. 11 at 2)
2. On November 27, 2013, defendant filed a motion to dismiss for failure to state
a claim. (0.1. 5) On the same day, defendant filed a motion to strike class allegations.
(0.1. 7) The court has jurisdiction overt matter pursuant to 28 U.S.C. §1332(d)(2).
3. Standard of Review. A motion filed under Federal Rule of Civil Procedure
12(b )(6) tests the sufficiency of a complaint's factual allegations. Bell At/. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.
1993). A complaint must contain "a short and plain statement of the claim showing that
the pleader is entitled to relief, in order to give the defendant fair notice of what the ...
claim is and the grounds upon which it rests." Twombly, 550 U.S. at 545 (internal
quotation marks omitted) (interpreting Fed. R. Civ. P. 8(a)). Consistent with the
Supreme Court's rulings in Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the
Third Circuit requires a two-part analysis when reviewing a Rule 12(b )(6) motion.
Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217,219 (3d Cir. 2010); Fowlerv. UPMC
Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, a court should separate the factual
and legal elements of a claim, accepting the facts and disregarding the legal
conclusions. Fowler, 578 F.3d. at 210-11. Second, a court should determine whether
the remaining well-pled facts sufficiently show that the plaintiff "has a 'plausible claim
for relief."' /d. at 211 (quoting Iqbal, 556 U.S. at 679). As part of the analysis, a court
must accept all well-pleaded factual allegations in the complaint as true, and view them
in the light most favorable to the plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94
(2007); Christopher v. Harbury, 536 U.S. 403, 406 (2002); Phillips v. Cnty. of Allegheny,
515 F.3d 224, 231 (3d Cir. 2008). In this regard, a court may consider the pleadings,
public record, orders, exhibits attached to the complaint, and documents incorporated
into the complaint by reference. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 322 (2007); Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384-85
n.2 (3d Cir. 1994 ).
4. The court's determination is not whether the non-moving party "will ultimately
prevail" but whether that party is "entitled to offer evidence to support the claims."
United States ex ref. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir.
2011 ). This "does not impose a probability requirement at the pleading stage," but
instead "simply calls for enough facts to raise a reasonable expectation that discovery
will reveal evidence of [the necessary element]." Phillips, 515 F.3d at 234 (quoting
Twombly, 550 U.S. at 556). The court's analysis is a context-specific task requiring the
court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 66364.
5. Analysis. Plaintiff alleges that defendant breached an implied duty of fair
dealing. (D.I. 1 at ,-r 55) However, an implied duty of fair dealing is "not a free-floating
duty unattached to the underlying legal documents." Gerber v. Enter. Products
Holdings, LLC, 67 A.3d 400, 418-19 (Del. 2013), overruled on other grounds by
Winsha/1 v. Viacom lnt'l, Inc., 76 A.3d 808 (Del. 2013) (holding that a claim under the
implied covenant was supported in that case because the claim was attached to the
defendant's underlying fiduciary duty to his financial stake holders). Fair dealing "is
rather a commitment to deal 'fairly' in the sense of consistently with the terms of the
parties' agreement and its purpose." Gerber at 418-19 (emphasis added).
Delaware law permits licensed lenders to charge any rate agreed to by the parties and
provided for in the loan agreement. See 5 Del. C. § 2229 ("A licensee may charge and
collect interest in respect of a loan at such daily, weekly, monthly, annual or other
periodic percentage rate or rates as the agreement governing the loan provides or as
established in the manner provided in such agreement .... ").
6. Regarding the implied duty of fair dealing, a decision from this district in Kyle
v. Apollomax, LLC, Civ. No. 12-152-RGA, 2013 WL 5913693 (D. Del. Nov. 1, 2013),
contains the following explanation:
Applying the implied covenant is a "cautious enterprise" where the Court
infers contractual terms to span gaps in a contract that the moving party
pleads were not anticipated by either party. . . . It follows that "[g]eneral
allegations of bad faith conduct are not sufficient. Rather, the plaintiff
must allege a specific implied contractual obligation and allege how the
violation of that obligation denied the plaintiff the fruits of the contract."
Arbitrary or unreasonable conduct frustrating the "fruits of the bargain that
the asserting party reasonably expected" is a prerequisite for the Court to
rely on the implied covenant. Given this narrow purpose, it should come
as no surprise that the implied covenant "is only rarely invoked
/d. at *6 (citing Nemec v. Shrader, 991 A.2d 1120, 1125-26 (Del. 201 0); Dunlap v.
State Farm Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005) (noting that "[e]xisting
contract terms control ... such that [the implied covenant] cannot be used to
circumvent the parties' bargain"); Kuroda v SPJS Holdings, L.L.C., 971 A.2d 872, 888
(Del. Ch. 2009)). Plaintiff at bar simply alleges that defendant is "engaged in
unconscionable acts" and that defendant's business model "is to prey on poor and
unsophisticated borrowers" causing them to become entrapped in ongoing cycles of
debt. (D.I. 11 at 1) Plaintiff has provided the court with independent and government
agencies' evaluations of the overall "payday" loan industry. (See generally, D.l. 11)
However, plaintiff's claim here fails because plaintiff does not identify a specific implied
contractual obligation. This dispute falls outside the narrow purpose of the implied duty
of fair dealing that prohibits arbitrary or unreasonable conduct frustrating the fruits of
7. Plaintiff also alleges that defendant violated the Delaware Consumer Fraud
Act ("DCFA") by actions that constitute an aspect of fraud, deceit, or misrepresentation.
See 6 Del. C. § 2513; (D.I. 11 at 10-11) The claims under the DCFA must be pled with
the heightened pleading standard of particularity under Federal Rule of Civil Procedure
9(b). See Coleman Dupont Homsey v. Vigilant Ins. Co., 496 F. Supp. 2d 433, 439 (D.
Del. 2007) (holding that Rule 9(b) applies to private causes of action under the DCFA).
While plaintiff attacks defendant's business model and practices generally, plaintiff fails
to show that defendant "misrepresented or lied by omission regarding a material fact in
a communication directed to [p]laintiffs .... " Bromwhich v Hanby, 2010 WL 8250796,
at *7 (Del. Super. July 1, 201 0) (emphasis omitted).
8. Conclusion. For the foregoing reasons, the court grants defendant's motion
to dismiss. 1 (0.1. 5) An appropriate order shall issue.
The court denies defendant's motion to strike class allegations without prejudice
to renew should plaintiff file an amended complaint. (0.1. 7)
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