Lenders were barred from enforcing out-of-state forum selection clauses and class action waivers in loan agreements because such provisions violate Georgia’s public policy, the Eleventh Circuit held in Davis v. Oasis Legal Finance Operating Co., 2019 WL 4051592 (11th Cir. Aug. 28, 2019). A class of borrowers who entered into identical loan agreements sued their lenders, alleging that the agreements violated Georgia’s Payday Lending Act, O.C.G.A. § 16-17-1 et seq., Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., and usury laws, O.C.G.A. § 7-4-18. The lenders moved to dismiss the complaint and strike the borrowers’ class allegations, arguing that the loan agreements’ forum selection clauses required the borrowers to sue them in Illinois and that the class action waivers barred a class action. Siding with the borrowers, the district court denied the lenders’ motions, holding that both clauses violated Georgia’s public policy and were unenforceable.
On interlocutory appeal and in an opinion by Judge Adalberto Jordan, the Eleventh Circuit affirmed. As for the forum selection clause, the court reasoned that according to Georgia Supreme Court precedent, the Payday Lending Act establishes a clear public policy that prohibits lenders from using out-of-state forum selection clauses: the Act expressly bars lenders from designating a court for the resolution of disputes “other than a court of competent jurisdiction in and for the county in which the borrower resides or the loan office is located.” Further, the statute explains that lenders had used forum selection clauses to avoid Georgia courts and that “the General Assembly has determined that such practices are unconscionable and should be prohibited.”
The lenders argued that the Payday Lending Act could be interpreted to permit non-Georgia forum selection clauses because the Act did not specifically require disputes to be brought in a Georgia county, it merely provided that disputes must be resolved in a “county in which the borrower resides or the loan office is located.” (emphasis added). The court disposed of this argument, reasoning that Georgia venue provisions often use the general term “county” when referring to Georgia counties. And the lenders’ argument made little sense based on the Act’s clear prohibition on out-of-state forum selection clauses.
For several reasons, the court also rejected the lenders’ argument that the Payday Lending Act does not apply to loans by out-of-state lenders. First, the Georgia Supreme Court has already rejected this argument. Second, the statute broadly applies to “any business” that “consists in whole or in part of making . . . loans of $3,000.00 or less.” Third, if this argument held water, it would render the Act’s prohibition on out-of-state forum selection clauses meaningless.
Next, the court addressed the class action waiver. It agreed with the district court’s conclusion that the Georgia Legislature intended to preserve class actions as a remedy against payday lenders—both statutes expressly permit class actions. Enforcing the class action waiver would undermine the purpose and spirit of Georgia’s statutory scheme. This, alone, was sufficient to render the class action waiver unenforceable under Georgia law.
In an attempt to persuade the court otherwise, the lenders pointed to prior Eleventh Circuit cases—Jenkins v. First American Cash Advance of Georgia, LLC, 400 F.3d 868 (11th Cir. 2005), and Bowen v. First Family Financial Services, Inc., 233 F.3d 1331 (11th Cir. 2000)—which held that class action waivers in arbitration clauses were not void as against public policy. The court was not convinced, emphasizing that Jenkins and Bowen involved class action waivers in arbitration agreements. Therefore, the Federal Arbitration Act applied and created a strong federal policy in favor of arbitration. Moreover, Supreme Court precedent establishes that section 2 of the Federal Arbitration Act overrides a state statute or common-law doctrine that attempts to undercut the enforceability of an arbitration agreement. Because an arbitration agreement was not at issue here, the court explained, Jenkins and Bowen are distinguishable and the Federal Arbitration Act does not apply.