Eduardo De La Torre v. Cashcall, Inc. , 854 F.3d 1082 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
EDUARDO DE LA TORRE; LORI Nos. 14-17571
SAYSOURIVONG, 15-15042
Plaintiffs-Appellants/
Cross-Appellees, D.C. No.
3:08-cv-03174-
v. MEJ
CASHCALL, INC.,
Defendant-Appellee/ ORDER
Cross-Appellants. CERTYING
QUESTION TO
THE
CALIFORNIA
SUPREME
COURT
Appeal from the United States District Court
for the Northern District of California
Maria-Elena James, Magistrate Judge, Presiding
Argued and Submitted February 16, 2017
San Francisco, California
Filed April 21, 2017
2 DE LA TORRE V. CASHCALL
Before: A. Wallace Tashima and Andrew D. Hurwitz,
Circuit Judges, and Lynn S. Adelman, * District Judge.
Order
SUMMARY **
Certification of Question to California Supreme Court
The panel certified the following question to the
California Supreme Court: Can the interest rate on
consumer loans of $2500 or more governed by California
Finance Code § 22303, render the loans unconscionable
under California Finance Code § 22302?
COUNSEL
James C. Sturdevant (argued), The Sturdevant Law Firm,
San Francisco, California; Jessica Riggin and Steven M.
Tindall, Rukin Hyland Doria & Tindall LLP, San Francisco,
California; Arthur D. Levy, Law Office of Arthur D. Levy,
San Francisco, California; for Plaintiffs-Appellants/Cross-
Appellees.
The Honorable Lynn S. Adelman, United States District Judge for
*
the Eastern District of Wisconsin, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
DE LA TORRE V. CASHCALL 3
Brad W. Seiling (argued), Donald R. Brown, and Joanna S.
McCallum, Manatt Phelps & Phillips LLP, Los Angeles,
California, for Defendant-Appellee/Cross-Appellant.
Caryn Becker, Oakland, California, as and for Amicus
Curiae Center for Responsible Lending.
Ted Mermin, Berkeley, California, as and for Amicus Curiae
Public Good Law Center.
Michael J. Quirk, Williams Cuker Berezofsky LLC,
Philadelphia, Pennsylvania, for Amicus Curiae National
Association of Consumer Advocates.
ORDER
The central issue in this case is whether the interest rates
on consumer loans of $2500 or more that are governed by
California Finance Code § 22303, which provides no interest
rate limitations on such loans, can be deemed
unconscionable under California Finance Code § 22302 and
thus be the predicate for a private cause of action under the
California Unfair Competition Law (“UCL”). The answer
to this question could determine the outcome of this matter
and there is no controlling precedent. We therefore
respectfully request that the California Supreme Court
exercise its discretion to decide the certified question
presented below. See Cal. R. Ct. 8.548(a). Absent
certification, we will “predict as best we can what the
California Supreme Court would do in these circumstances.”
Pacheco v. United States, 220 F.3d 1126, 1131 (9th Cir.
2000).
4 DE LA TORRE V. CASHCALL
I. Administrative Information
We provide the following information in accordance
with California Rule of Court 8.548(b)(1).
The title and numbers of this case are:
No. 14-17571, No. 15-15042
EDUARDO DE LA TORRE; LORI SAYSOURIVONG,
Plaintiffs and Appellants, Cross-Appellees,
v.
CASHCALL, INC.,
Defendant and Appellee, Cross-Appellant.
The names and addresses of counsel are:
For Plaintiffs-Appellants De La Torre and
Saysourivong: Steven M. Tindall, Gibbs Law Group,
505 14th Street, Suite 1110, Oakland, CA 94612. Jessica
Riggin, Rukin Hyland Doria & Tindall LLP, 100 Pine Street,
Suite 2150, San Francisco, CA 94111. James C. Sturdevant,
The Sturdevant Law Firm, 354 Pine Street, Fourth Floor, San
Francisco, CA 94104. Arthur D. Levy, Housing and
Economic Rights Advocates, 1814 Franklin Street, Suite
1040, Oakland, CA 94612.
For Defendant-Appellee CashCall, Inc.: Brad W.
Seiling, Donald R. Brown, Joanna S. McCallum, Manatt,
Phelps & Phillips, LLP, 11355 West Olympic Boulevard,
Los Angeles, CA 90064.
DE LA TORRE V. CASHCALL 5
If the request for certification is granted, Plaintiffs-
Appellants De La Torre and Saysourivong should be deemed
the petitioners in the California Supreme Court.
II. Certified Question
Pursuant to California Rule of Court 8.548(b)(2), we
certify the following question of state law to the California
Supreme Court:
Can the interest rate on consumer loans of
$2500 or more governed by California
Finance Code § 22303, render the loans
unconscionable under California Finance
Code § 22302?
Our phrasing of the question should not restrict the
California Supreme Court’s consideration of the issues
involved. See Cal. R. Ct. 8.548(f)(5). We agree to accept
and follow the decision of the California Supreme Court.
See Cal. R. Ct. 8.548(b)(2); Klein v. United States, 537 F.3d
1027, 1029 (9th Cir. 2008).
III. Statement of Facts
This putative class action asserts that CashCall, Inc.
made consumer loans with unconscionably high interest
rates and thus violated the UCL, Cal. Bus. & Prof. Code
§ 17200. The district court granted summary judgment to
CashCall, concluding that because the California legislature
had removed the interest rate cap on the challenged loans in
California Finance Code § 22303, the interest rates were not
illegal.
6 DE LA TORRE V. CASHCALL
A. Regulatory and Statutory Context
The unsecured consumer loans at issue in this case are
governed by the California Finance Lenders Law (“FLL”).
Cal. Fin. Code § 22203. The FLL prescribes maximum
interest rates for loans below $2500, but this interest rate
limitation “does not apply to any loan of a bona fide
principal amount of two thousand five hundred dollars
($2,500) or more.” Id. § 22303. The FLL also incorporates
by reference the general Civil Code provision about contract
unconscionability, Cal. Civ. Code § 1670.5(a). Cal. Fin.
Code § 22302. 1
The current version of the relevant FLL provisions
resulted from the enactment of Senate Bill No. 447 in 1985.
Before then, the FLL set maximum interest rates for
consumer loans of up to $5000. SB 447 removed the caps
on interest rates for loans of $2500 or more and added the
unconscionability language in § 22302.
The FLL does not create a private right of action. See
Cal. Fin. Code § 22713; Cal. Grocers Ass’n, 27 Cal. Rptr. at
403–04. But, a private cause of action lies under the UCL
for “any unlawful, unfair or fraudulent business act or
1
California Civil Code § 1670.5(a), which codifies the common law
unconscionability defense, see Cal. Grocers Ass’n v. Bank of Am.,
27 Cal. Rptr. 2d 396, 401 (Ct. App. 1994), provides:
If the court as a matter of law finds the contract or any
clause of the contract to have been unconscionable at
the time it was made the court may refuse to enforce
the contract, or it may enforce the remainder of the
contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause
as to avoid any unconscionable result.
DE LA TORRE V. CASHCALL 7
practice.” Cal. Bus. & Prof. Code § 17200. The UCL
“borrows violations of other laws and treats them as
unlawful practices that the unfair competition law makes
independently actionable.” Cel-Tech Commc’ns, Inc. v. L.A.
Cellular Tel. Co., 973 P.2d 527, 539–40 (Cal. 1999) (quoting
State Farm Fire & Cas. Co. v. Superior Court, 53 Cal. Rptr.
2d 229, 234 (Ct. App. 1996)).
B. The CashCall Loans Litigation
As the district court found, CashCall’s “signature
product is an unsecured $2,600 loan with a 42-month term,
using only simple interest, and without prepayment penalty.”
In August 2005, CashCall began charging 96% interest on
these loans. In July 2009, CashCall increased the interest
rate on its signature loans to 135%. The rates were fully
disclosed to borrowers.
CashCall is licensed by the California Department of
Business Oversight. The Department has taken no issue with
CashCall’s interest rates.
The operative Fourth Amended Complaint in this case
asserts claims on behalf of a putative class of borrowers with
loans from CashCall of $2500 or more with 96% and 135%
interest rates. 2 The complaint alleges one federal claim and
five state law claims: (1) violation of the Electronic Fund
Transfer Act, 15 U.S.C. § 1693, (2) violation of the
Consumer Legal Remedies Act, Cal. Civ. Code § 1750,
(3) violation of the Rosenthal Fair Debt Collection Practices
Act, Cal. Civ. Code § 1788, (4) unlawful business practices
2
A single named plaintiff, Krista O’Donovan, originally filed this
suit in July 2008. After O’Donovan’s claims were dismissed, Eduardo
De La Torre and Lori Kemply were named as putative class
representatives.
8 DE LA TORRE V. CASHCALL
in violation of the UCL, (5) a derivative unlawful business
practices claim based on the above violations, and
(6) fraudulent and unfair business practices.
C. Class Certification and Summary Judgment
The district court certified a “California Class” of
“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.” The court
limited the California Class certification to the claim that
making loans at “unconscionable interest rates” gave rise to
a cause of action under the UCL.
CashCall moved for summary judgment on the
unconscionability claim, arguing its interest rates were not
illegal under the FLL—and therefore did not violate the
UCL—given the 1985 statutory amendment removing
interest rate limitations on loans of $2500 or more. The
district court originally denied the summary judgment
motion, finding material factual issues as to whether the
loans “shock the conscience.” De La Torre v. CashCall,
Inc., 56 F. Supp. 3d 1073, 1099 (N.D. Cal. 2014) (quoting
Davis v. O’Melveny & Myers, 485 F.3d 1066, 1075 (9th Cir.
2007)).
But after reconsideration, the district court granted the
summary judgment motion. De La Torre v. CashCall, Inc.,
56 F. Supp. 3d 1105, 1110 (N.D. Cal. 2014). The court
found that determining whether the CashCall interest rates
were unconscionable would “impermissibly require the
Court to regulate economic policy,” because it could not
fashion a remedy without “deciding the point at which
CashCall’s interest rates crossed the line into
unconscionability.” Id. at 1107–09. And, by determining
DE LA TORRE V. CASHCALL 9
the highest appropriate interest rate, the court concluded, it
would be improperly substituting its judgment for that of the
legislature, which had intentionally removed the interest rate
cap. Id. at 1109–10.
The district court directed the entry of judgment to
CashCall on the UCL claim pursuant to Federal Rule of Civil
Procedure 54(b). Plaintiffs timely appealed.
IV. Explanation of Certification
The gravamen of the Fourth Amended Complaint is that
consumer loans with interest rates of 90% or above are
unconscionable and that § 22302 of the FLL makes
unconscionable loans unlawful. Therefore, the plaintiffs
claim, they have a cause of action under the UCL.
The plaintiffs argue that if the 1985 legislation were
“intended to exempt loans and interest rates from all judicial
scrutiny under § 1670.5, the Legislature could have done so.
It did not.” Rather, the plaintiffs argue, the FLL prohibits
loans with unconscionable interest rates because § 22302
incorporates the unconscionability provision in § 1607.5.
The plaintiffs rely heavily on Carboni v. Arrospide,
2 Cal. Rptr. 2d 845, 846–47 (Ct. App. 1991), which involved
a $99,346 secured loan with a 200% interest rate. After
default, the lender sought to foreclose, but the trial court
found the “interest rate provisions” unconscionable, and
reduced it to 24%. Id. The Court of Appeal affirmed, noting
that “the parties have not cited, and we have not discovered,
any case which applies the doctrine of unconscionability to
. . . a shockingly high rate of interest.” Id. at 847. But, the
court found the defense applied because “the interest rate is
the ‘price’ of the money lent; at some point the price
becomes so extreme that it is unconscionable.” Id. at 848.
10 DE LA TORRE V. CASHCALL
The plaintiffs also argue that California courts have
broad equitable powers to determine if a contract is
unconscionable. They argue that under California Grocers,
27 Cal. Rptr. 2d at 404, “courts can and should evaluate the
unconscionability of contracts at the time of formation, even
when doing so may involve large-scale economic
consequences.”
In response, CashCall argues that the 1985 amendment
to § 22303 was designed to provide a “safe harbor” against
claims that interest rates on unsecured consumer loans above
$2500 were too high, and that the interest rates on the loans
to plaintiffs were therefore legal. See Cel-Tech, 973 P.2d at
541 (“When specific legislation provides a ‘safe harbor,’
plaintiffs may not use the general unfair competition law to
assault that harbor.”). CashCall also cites a Department of
Business Oversight statement that “a CFLL licensed lender
can charge whatever interest rate it chooses on loans . . . of
$2,500 or more.” Accusation, In re Comm’r of Bus.
Oversight v. CashCall, Inc., No. 603-8780 at 2, available at
http://www.dbo.ca.gov/ENF/pdf/2014/CFL-CashCall_accu
sationrev_redacted.pdf. CashCall argues that the
unconscionability provision in the FLL is not toothless,
because § 22302 applies to “charges” such as “fees, bonuses,
commissions, brokerage, discounts, expenses, and other
forms of costs,” Cal. Fin. Code § 22200, and interest rates
on loans below $2500, which remain regulated after the 1985
amendments, id. § 22303.
CashCall contends that Carboni only recognized
unconscionability as a defense to a suit by a lender, not an
affirmative UCL action for restitution. CashCall also notes
that Carboni did not involve a loan subject to SB 447 nor did
it interpret the unconscionability provision of § 22302.
DE LA TORRE V. CASHCALL 11
CashCall also cites California Grocers in support of its
argument that the interest rate is unrelated. In California
Grocers, the trial court held that a $3 checking fee was
unconscionable, granting an injunction requiring a
“reasonable fee” of $1.73. 27 Cal. Rptr. 2d at 400. The
Court of Appeal reversed, finding the fee legal. Id. at 404.
The court warned that “a question of economic policy” was
outside judicial purview in a UCL action, and because the
federally-chartered bank was not subject to fee limitations
under federal law, granting relief “would be to impose a limit
on the amount Federally chartered banks can charge . . . . a
task more properly left to” the regulator. Id. (quoting Jacobs
v. Citibank, N.A., 462 N.E.2d 1182, 1183 (N.Y. 1984)).
CashCall argues that the district court also correctly
concluded that “any consideration of what a ‘fair’ result
would be in this case would require the Court to decide what
it believes the appropriate interest rate would have been,”
and would require the court to set maximum interest rates
“where the legislative branch expressly chose not to.” De La
Torre, 56 F. Supp. 3d at 1109.
V. Accompanying Materials
The clerk of this court is hereby directed to file in the
California Supreme Court, under official seal of the United
States Court of Appeals for the Ninth Circuit, copies of all
relevant briefs and excerpts of record, and an original and
ten copies of this order and request for certification, along
with a certification of service on the parties, pursuant to
California Rule of Court 8.548(c) and (d).
This case is withdrawn from submission. Further
proceedings are stayed pending final action by the California
Supreme Court. The panel will resume control and
jurisdiction of this case upon receiving a decision from the
California Supreme Court answering the certified question
12 DE LA TORRE V. CASHCALL
or upon that court’s decision to decline our request to answer
the certified question.