We are involved in several
active lawsuits, including lawsuits arising out of actions taken by state
regulatory authorities, and are involved in various other legal proceedings
with state and federal regulators.
Betts
and Reuter v. McKenzie Check Advance of Florida, LLC et al.
We, our subsidiary,
McKenzie Check Advance of Florida, LLC (“McKenzie”), and certain officers,
directors and employees are defendants in a putative class-action lawsuit
commenced by former customers, Wendy Betts and Donna Reuter, in Florida. This
putative class action was filed by Ms. Betts and Ms. Reuter in
February 2001 in the Circuit Court of Palm Beach County and alleges that
McKenzie, by and through the actions of certain officers, directors and
employees, engaged in unfair and deceptive trade practices and violated
Florida’s criminal usury statute, the Florida Consumer Finance Act and the
Florida Racketeer Influenced and Corrupt Organizations Act. The suit seeks
unspecified damages, and McKenzie or the other defendants could be required to
refund fees and/or interest collected, refund the principal amount of payday
cash advances, pay multiple damages and pay other monetary penalties.
Defendants’ motion for
summary judgment was originally granted as to Ms. Betts’ claims but later
reversed by a Florida appellate court. On appeal, the Florida Supreme Court
issued an opinion in April 2006, holding that the deferred presentment transactions
between Betts and us were governed by Florida’s usury laws and not governed by
the Florida Money Transmitters’ Code as we asserted. The case has been remanded
to the Circuit Court by the Fourth District Court of Appeals where discovery is
now ongoing. Although this ruling by the Florida Supreme Court was adverse to
us, it is too early in this proceeding to identify the amount of potential
losses to us, if any, since the case is still in its early stages and several
material issues have yet to be addressed by the courts.
Ms. Reuter’s claims were
subject to an arbitration agreement contained in the contract; defendants’
motion to compel arbitration was granted by the state trial court, upheld by
the state appeals court and
29
affirmed
by the Florida Supreme Court declining to accept certiorari. Thus, the order to
compel arbitration is final as to Ms. Reuter. The arbitration and
litigation will likely proceed in parallel.
Reuter
and Betts v. Advance America, Cash Advance Centers of Florida, Inc. et al.
A second Florida lawsuit
was filed in August 2004 in the Circuit Court of Palm Beach County by
former customers Gerald Betts and Ms. Reuter against us, our subsidiary,
Advance America, Cash Advance Centers of Florida, Inc., and certain
officers and directors. The allegations are nearly identical to those alleged
in the first Betts and Reuter lawsuit. We filed motions to dismiss, to stay the
proceedings pending determination of dispositive actions by the Florida Supreme
Court in the original Betts and Reuter case and to compel arbitration.
Proceedings in this case were stayed pending the disposition of the appeals in
the original Betts and Reuter case. Now that those appeals have been resolved,
the stay of proceedings has been lifted and we will proceed with defending this
second lawsuit. Discovery is now ongoing.
Pennsylvania
Department of Banking v. NCAS of Delaware, LLC
In September 2006, the
Pennsylvania Department of Banking filed a lawsuit in the Commonwealth Court of
Pennsylvania alleging that our Delaware subsidiary is providing lines of credit
to borrowers in Pennsylvania without a license required under Pennsylvania law
and with interest and fees in excess of the amounts permitted by Pennsylvania
law. The Pennsylvania Department of Banking has filed a Motion for Judgment on
the Pleadings for Declaratory Relief and Permanent Injunction, seeking:
(1) a declaration as a matter of law that our Delaware subsidiary is
violating Pennsylvania lending laws and (2) a permanent injunction
enjoining the Delaware subsidiary from issuing new lines of credit and from
collecting on or enforcing currently outstanding lines of credit or other loan
products in Pennsylvania. We filed a brief in opposition and a cross motion for
judgment on the pleadings. Further briefing has been scheduled and oral
argument for both parties’ motions is scheduled for April 2007.
Raymond
King v. Advance America, Cash Advance Centers of Pennsylvania, Inc.
In April 2006, Raymond
King, who was a customer of the lending bank in Pennsylvania, filed a
declaratory judgment action in the Court of Common Pleas in Philadelphia County
against our Pennsylvania subsidiary. The parties have mutually agreed to end
this lawsuit because the plaintiff (and another party) filed another separate
putative class action lawsuit in the United States District Court for the
Eastern District of Pennsylvania. The parties notified the court of their
mutual agreement and the Court of Commons Pleas discontinued this action in
February 2007.
Raymond
King and Sandra Coates v. Advance America, Cash Advance Centers of
Pennsylvania, LLC
In January
2007, Raymond King and Sandra Coates, who were customers of BankWest, the
lending bank for which we marketed, processed and serviced payday cash advances
in Pennsylvania, filed a putative class action lawsuit in the United States
District Court, Eastern District of Pennsylvania against us alleging various
causes of action, including that the Pennsylvania subsidiary made illegal
payday loans in Pennsylvania in violation of Pennsylvania’s usury law, the
Pennsylvania Consumer Discount Company Act, the Pennsylvania Unfair Trade
Practices and Consumer Protection Law, the Pennsylvania Fair Credit Extension
Uniformity Act and the Pennsylvania Credit Services Act. The complaint alleges
that BankWest was not the “true lender” on the advances that we marketed,
processed and serviced for BankWest in Pennsylvania and that we were the
“lender in fact.” The complaint seeks compensatory damages, attorneys’ fees,
punitive damages and the trebling of any compensatory damages. We intend to
file our response to the Complaint in March 2007.
30
King and Strong v. Advance America, Cash Advance
Centers of Georgia, Inc. et al.
In August 2004, Tahisha
King and James E. Strong, who were customers of BankWest, the lending bank for
which we marketed, processed and serviced payday cash advances in Georgia,
filed a putative class action lawsuit in the State Court of Cobb County,
Georgia against us, William M. Webster IV, our Vice Chairman, and other unnamed
officers, directors, owners and “stakeholders,” alleging various causes of
action including that the Georgia subsidiary made illegal payday loans in
Georgia in violation of Georgia’s usury law, the Georgia Industrial Loan Act
and Georgia’s Racketeer Influenced and Corrupt Organizations Act. The complaint
alleges that BankWest was not the “true lender” on the advances that we
marketed, processed and serviced for BankWest in Georgia and that we were the
“de facto” lender. The complaint seeks compensatory damages, attorneys’ fees,
punitive damages and the trebling of any compensatory damages. We and the other
defendants denied the plaintiffs’ claims and asserted that all of the claims
are subject to mandatory and binding individual arbitration pursuant to
arbitration agreements signed by each plaintiff. In April 2006, the State
Court of Cobb County entered a consent order, which was jointly submitted by
the parties, whereby the parties agreed and consented to arbitration of all
claims raised by plaintiffs in this action and to stay all proceedings pending
the outcome of arbitration on plaintiffs’ claims. The plaintiffs filed a demand
for arbitration seeking to arbitrate their claims in a class action or
representative status. An arbitrator was appointed, initial briefs were filed,
and oral arguments were held regarding the enforceability of the arbitration
provision and the class action waiver contained in the bank’s consumer loan
agreement. We intend to continue to deny plaintiffs’ claims and resist
plaintiffs’ efforts to conduct class arbitration.
Glasscock v. Advance America, Cash Advance Centers of
Georgia, Inc. et al.
Our Georgia subsidiary is
involved in another case in Georgia that, although not a class action lawsuit,
contains essentially the same allegations as the King and Strong case. In March
2003, Angela Glasscock, a customer of BankWest, filed an adversary proceeding
in the U.S. Bankruptcy Court for the Southern District of Georgia alleging that
the Georgia subsidiary was making payday cash advances in Georgia in violation
of the Georgia Industrial Loan Act. BankWest intervened into the case and
subsequently both the subsidiary and BankWest filed a motion for summary
judgment which was granted in September 2005. In its holding, the court
ruled that BankWest was the “true lender.” Plaintiffs have appealed this ruling
to the United States District Court where it is now pending. Although the
amount in controversy in the case is only $350, the underlying claims of
Ms. Glasscock, if validated by the appellate court, could serve as a basis
for future claims against us.
Kucan et al. v. Advance America, Cash Advance Centers
of North Carolina, Inc. et al.
In July 2004, John Kucan, Welsie Torrence and Terry
Coates, each of whom was a customer of Republic Bank & Trust Company
(“Republic”), the lending bank for which we marketed, processed and serviced
payday cash advances in North Carolina, filed a putative class action lawsuit
in the General Court of Justice for the Superior Court Division for New Hanover
County, North Carolina against us and Mr. Webster, alleging, among other
things, that the relationship between our North Carolina subsidiary and
Republic was a “rent a charter” relationship and therefore Republic was not the
“true lender” on the payday cash advances it offered. The lawsuit also claims
that the payday cash advances were made, administered and collected in
violation of numerous North Carolina consumer protection laws. The lawsuit
seeks an injunction barring the subsidiary from continuing to do business in
North Carolina, the return of the principal amount of the payday cash advances
made to the plaintiff class since August 2001, the return of any interest
or fees associated with those advances, treble damages, attorneys’ fees and
other unspecified costs. In December 2005, the court issued an Order granting
defendants’ motion for arbitration, staying the proceedings and denying class
certification. The plaintiffs have appealed this Order to the North Carolina
Court of Appeals. The plaintiffs in this case and two other North Carolina
cases
31
currently before the Court
of Appeals filed a petition, which we have opposed, for discretionary review
and consolidation of the cases. The Court of Appeals heard oral argument on the
consolidated cases in January 2007. We are awaiting a ruling from the
Court of Appeals.
North Carolina Commissioner of Banks Order
In August 2004, the
North Carolina Attorney General’s Office, in conjunction with the Commissioner
of Banks for North Carolina, issued a subpoena to us to produce documents,
respond to written questions and have a corporate representative appear for a
deposition regarding the relationship between our North Carolina subsidiary and
the lending bank in North Carolina, Republic, to determine whether our
operations in North Carolina were in compliance with North Carolina law. In
February 2005, the Commissioner of Banks initiated a contested case
against our North Carolina subsidiary for alleged violations of the North
Carolina Consumer Finance Act. In December 2005, at the conclusion of the
contested case, the Commissioner of Banks ordered that our North Carolina
subsidiary immediately cease and desist operating. In accordance with the
Commissioner of Banks’ Order, our North Carolina subsidiary ceased all business
operations on December 22, 2005. The full North Carolina State Banking Commission
has since affirmed the Commissioner of Banks’ Order and we filed an appeal with
the North Carolina Superior Court. The appeal was dismissed and we are
currently appealing the dismissal to the North Carolina Court of Appeals.
New Mexico Proposed Rules and Regulations
Governing the Extension of Credit For Small Loans
In February 2006, we
joined four other payday lenders in a lawsuit against the New Mexico Attorney
General requesting immediate injunctive relief from the enforcement of the
Attorney General’s Proposed Rules and Regulations Governing the Extension
of Credit for Small Loans, which would have severely limited the payday loan
industry in New Mexico. The parties mutually agreed to stay any further
proceedings pending the adoption of new proposed regulations published by the
Financial Institutions Division of the New Mexico Regulation and Licensing
Department (“FID”) in June 2006. In August 2006, in a lawsuit filed
by several other payday loan companies, the second judicial district court of New
Mexico issued a preliminary injunction enjoining the enforcement of the FID
proposed regulations. As a result of the Court’s order, we have not made any
changes in our New Mexico operations and are monitoring the litigation to
determine what, if any, changes may be required to our New Mexico operations in
the future.
Department of Labor Investigations
The United States
Department of Labor has periodically initiated investigations of our practices
regarding the payment of overtime wages to certain employees. The Department of
Labor recently concluded some of these investigations and we are cooperating
with the ongoing investigations, any of which could result in the payment of
back wages, civil monetary penalties and other enforcement action.
Other Matters
We are also involved in
other litigation and administrative proceedings. This litigation includes
contractual disputes, employee claims for workers’ compensation, wrongful
termination, harassment, discrimination, payment of wages due and customer
claims relating to collection practices and violations of state and/or federal
consumer protections laws.
Next Section
Previous Section