Title lenders seek dismissal of attorney general's lawsuit

By John O'Brien | Jul 19, 2013

The Fast Auto Loans location in Annandale, Va. (Photo by Ellie Ashford)

CHARLES TOWN – Virginia companies making title loans to West Virginia customers are moving to dismiss state Attorney General Patrick Morrisey’s lawsuit against them.

On July 9, the four defendants in the case, which Morrisey inherited from former AG Darrell McGraw, filed their motions to dismiss. The lawsuit was filed in June 2012 in Jefferson County Circuit Court and spent some months in federal court before being remanded back to Jefferson.

Morrisey’s office filed an amended complaint in May to add Virginia Auto Loans as a party. The other defendants are Fast Auto Loans, Community Loans of America and Robert I. Reich, the president and CEO of both.

Reich and Community Loans filed a joint motion to dismiss.

“The amended complaint cures none of the deficiencies of the original pleading,” it says.

“WVAG has filed suit against Community, a non-resident parent company, and Mr. Reich, an individual, in a jurisdiction where it is not alleged that either resides or transacts business and where WVAG cannot even attribute a single contact between these defendants and West Virginia.”

The defendants are making the claim that they are not in violation of state law because they do not operate in the state. Though they make loans to West Virginians, they do so from their offices in Virginia.

In the original complaint, McGraw wrote that the companies have placed liens on 512 West Virginia vehicles in 24 different counties worth a total of $371,883.48.

The amended complaint says Virginia Auto Loans made loans to 120 West Virginia consumers from Nov. 18, 2010, to June 25, 2011, for a total of $329,008. The majority of the customers are from Berkeley, Hampshire, Jefferson, Morgan and Mercer counties and are forced to pay interest rates of up to 300 percent, the amended complaint says.

“WVAG does not allege that either Community or Mr. Reich was ever involved in the loans issued to West Virginia consumers or that they engaged in collection activities for such loans,” the motion to dismiss says.

“In fact, the complaint lacks any allegations that either of these defendants engaged in or conducted business (lending or otherwise) in West Virginia or Virginia.”

Christopher K. Robertson of Jackson Kelly, who is representing the defendants, added that none of the affidavits contain a single reference to those two defendants.

The other two defendants – Fast Auto Loans and Virginia Auto Loans – filed a separate motion to dismiss. It attacks four of the 10 causes of action laid out in the amended complaint.

The motion says the West Virginia Consumer Credit and Protection Act does not permit a court to cancel debts secured by a security interest – as the amended complaint seeks to do.

It is the second time the defendants have moved to dismiss. The first came while the case was in federal court, but U.S. District Judge Gina Groh remanded the case before ruling.

“(T)he court finds that to the extent the defendants seek to argue that the relief sought by the plaintiff conflicts with the Commerce Clause, such an argument merely constitutes a federal defense to the plaintiff’s complaint, which is not grounds for removal,” Groh wrote, citing a 2009 decision in McGraw’s case against CashCall.

“A defense to the plaintiff’s sought-after injunction, even a defense which is based upon federal law, is an issue that can and should ordinarily be raised in state court. After all, state courts ‘are presumed competent to resolve federal issues,’ and ‘ when a state proceeding presents a federal issue, even a preemption issue, the proper course is to seek resolution of that issue by the state court.’”

Former Attorney General Darrell McGraw’s first lawsuit against Fast Auto Loans sought to enforce a subpoena sent to the company. He filed it in April 2011.

Kanawha County Circuit Court Judge Charles King ruled the subpoena was procedurally defective after Fast Auto Loans argued McGraw ignored procedural requirements for the issuance of an out-of-state subpoena.

McGraw did not directly appeal to the state Supreme Court. Instead, he filed a petition for writ of prohibition.

The court denied the request and said McGraw should have filed a direct appeal. His lawsuit followed months later.

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.

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