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In re Liberty Refund Anticipation Loan Litigation

United States District Court, N.D. Illinois, Eastern Division

July 23, 2014



JOAN B. GOTTSCHALL, District Judge.

This case concerns Liberty Tax Service's practice of offering "refund anticipation loans" to its customers. The plaintiffs allege that Liberty's practice violates various state laws by failing to adequately disclose loan fees, charging unreasonably high interest rates, and deceiving customers about the loans. Liberty moves to compel arbitration and stay further proceedings until arbitration has been completed. For the reasons explained below, the motion is granted in part and denied in part. Specifically, the motion is granted as to the plaintiffs who signed arbitration agreements with Santa Barbara Bank & Trust Company or JTH Financial, LLC, but denied as to the plaintiffs who signed arbitration agreements only with Republic Bank and Trust Company.


Refund anticipation loans allow tax filers to receive their refund sooner than if they wait for a mailed check from the IRS. The plaintiffs allege that these loans "include exorbitant finance charges that, when properly calculated in accordance with the Truth in Lending Act (TILA') and relevant state laws, often exceed 100% APR." (Compl. ¶ 23, ECF No. 18.) They allege that the loans "provide little to no value to consumers at predatory interest rates and fees, often in conjunction with exorbitant tax preparation fees for straightforward tax filings." (Compl. ¶ 24.)

Each of the fourteen plaintiffs in this case originally sued Liberty in his or her home state. After the Judicial Panel on Multidistrict Litigation consolidated their cases before this court, the plaintiffs filed a thirty-five count consolidated amended complaint. They sue on behalf of themselves, a national class, nine state-specific classes, and a multistate class.

The claims applicable to all of the proposed classes fall into three general categories. First, the plaintiffs bring claims under state statutes requiring tax preparers such as Liberty to disclose information about the fees associated with refund anticipation loans. Second, the plaintiffs allege that Liberty violated state usury laws because the annual percentage rate charged for the loans exceeded the statutory limit. Third, the plaintiffs contend that Liberty violated state consumer-protection laws by (1) violating state statutes concerning refund anticipation loans; (2) violating the Truth in Lending Act, 15 U.S.C. §§ 1601-1667f and (3) deceiving customers about the nature of the loans.

Although the complaint alleges that Liberty "facilitated" the transaction between the customer and the bank issuing the loan, Liberty itself did not issue any loans. The loans were issued by JTH Financial, LLC; Santa Barbara Bank & Trust (SBBT); and Republic Bank and Trust. When customers applied for a loan at one of these banks, they were required to sign a loan agreement. Each bank had its own loan agreement, and each bank's agreement contained a different arbitration clause. Liberty moves to compel arbitration pursuant to these arbitration clauses.


The Supreme Court has stated that the "principal purpose" of the Federal Arbitration Act (FAA) is "to ensur[e] that private arbitration agreements are enforced according to their terms." AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S.Ct. 1740, 1748 (2011). As the Court explained in Concepcion:

This purpose is readily apparent from the FAA's text. Section 2 makes arbitration agreements "valid, irrevocable, and enforceable" as written...; § 3 requires courts to stay litigation of arbitral claims pending arbitration of those claims "in accordance with the terms of the agreement"; and § 4 requires courts to compel arbitration "in accordance with the terms of the agreement" upon the motion of either party to the agreement....

Id. at 1748. In light of these provisions, the Court has held that "parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes...." Id. at 1748-49 (internal citations omitted).

The Court has stated that § 2 of the FAA reflects a "liberal federal policy favoring arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Thus, "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitrations." Id. "Notwithstanding this strong federal policy, however, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999) (quoting AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986)), abrogated on other grounds by Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009). "As a general rule, therefore, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.'" MS Dealer, 177 F.3d at 947 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)).

In certain circumstances, a nonparty to an arbitration agreement may seek to enforce the agreement against a party. See Arthur Andersen, 556 U.S. at 631. As the Court recognized in Arthur Andersen, "traditional principles of state law allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel....'" Id. (quoting 21 WILLISTON ON CONTRACTS § 57.19 (4th ed. 2001)). State law governs the question of whether a nonparty may enforce an arbitration agreement against a party. See id. at 630-31 ("[S]tate law... is applicable to determine which contracts are binding under § 2 and enforceable under § 3 if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." (alteration in original) (internal quotation marks omitted)).


A. The JTH Financial Arbitration Clause

The plaintiffs who applied for refund anticipation loans through JTH Financial signed an arbitration agreement that states:


(Piper Decl. Ex. A (JTH Financial Agreement) § 6, ECF No. 28-1.) The agreement defines "claim" as "any claim, dispute or controversy between you and us that in any way arises from or relates to this Application/Agreement or any you request, including disputes arising from actions or omissions on or prior to the date of this Application/Agreement." ( Id. ) It defines "we" and "us" to mean "not just JTH Financial but also Transmitter and Bank; their parent companies, wholly or majorly-owned subsidiaries, affiliates, commonly-owned companies, successors and assigns; and any of their employees, officers, directors and agents." ( Id. ) It defines "Transmitter" as "JTH Tax, Inc., d/b/a Liberty Tax Service." ( Id. § 4(c).)

The plaintiffs raise no argument against enforcing the JTH Financial agreements. The plaintiffs who signed those agreements agreed that they would arbitrate any claim between them and Liberty. Accordingly, Liberty's motion to compel arbitration is granted insofar as it seeks to enforce these agreements.

B. The SBBT Arbitration Clause

The plaintiffs who applied for refund anticipation loans through SBBT signed an arbitration agreement that states:

You agree that any and all disputes among your Tax Preparer, transmitter, SBBT, other RAL lenders and yourself which in any way arise out of or relate to this agreement or any of the dealings between or among any of these parties, shall be resolved solely by binding arbitration before the National Arbitration Forum ("NAF") before a ...

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