The California federal district court judge who is presiding over the CFPB’s lawsuit against CashCall and several related companies that funded, purchased, serviced, and collected online installment loans has granted the defendants’ motion to certify an interlocutory appeal of the district court’s August 31, 2016 order to the Ninth Circuit.  That order granted the CFPB’s motion for partial summary judgment and denied the defendants’ motion for summary judgment.  The district court judge also stayed the case pending the appeal.  

Originally filed in December 2013 in federal district court in Massachusetts, the lawsuit broke new ground by asserting CFPA  violations based on the defendants’ efforts to collect loans that were purportedly void in whole or in part under state law.  The CFPB’s complaint alleged that the loans in question, which were made by a tribally-affiliated lender the CFPB did not sue, were void in whole or in part as a matter of state law because the lender charged excessive interest and/or failed to obtain a required license.  The CFPB claimed that the defendants’ effort to collect amounts in excess of the amounts lawfully due under state law was “unfair,” “deceptive” and “abusive” under the CFPA as a matter of federal law.  Also named as a defendant in the CFPB’s lawsuit was J. Paul Reddam, the president and sole owner of CashCall and the president or director and sole owner of the other two defendant companies.  The case was subsequently transferred to a California federal district court.

In its August 31 decision, the California federal district court ruled that: CashCall, rather than the tribally-affiliated lender, was the “true lender”;  the laws of the borrowers’ home states should apply rather than the tribal choice-of-law provision in the loan agreements; the loans were void or uncollectible under the laws of most of the relevant states; a CFPA violation could be predicated on a violation of state law; and the individual defendant could be held liable for the companies’ alleged CFPA violations.  The district court also rejected the defendants’ challenge to the constitutionality of the CFPB’s structure.

In his Statement of Decision, Judge John F. Walter concluded that his August 31 order met the standard for interlocutory appeal in 28 U.S.C. Section 1292(b) because it presented “a controlling question of law” as to which there is “a substantial ground for difference of opinion” and an immediate appeal would “materially advance the ultimate termination of the litigation.”  Judge Walter identified the following four controlling questions of law:

  • Whether, under the CFPA, an individual can be held liable for a “knowing misrepresentation” based on a corporation’s attempts to collect unenforceable loans where the individual obtained legal advice that the loans were enforceable
  • Whether the CFPB’s structure is unconstitutional because it violates separation of powers
  • Whether CFPA violations can be predicated on state law
  • Whether the proper test for determining the “true lender” under a loan agreement allows the court to look past the contract and its parties and investigate related transactions

Judge Walter noted in his Statement of Decision that “a substantial ground for difference of opinion” under Section 1292(b) does not require another court to have reached a different conclusion but can exist where there is a novel and difficult question of first impression.  Under Section 1292(b), the decision to permit an interlocutory appeal is within a circuit court’s discretion.  As a result, the questions identified by Judge Walter will only be reviewed by the Ninth Circuit if it decides to permit the defendants’ interlocutory appeal.