11th Circuit Finds Loan Agreement Venue, Class Waiver Provisions Unenforceable

The U.S. Court of Appeals for the Eleventh Circuit recently held that forum selection and class action waiver provisions in unsecured loan agreements were unenforceable under Georgia law, affirming the district court’s denial of the defendants’ motions to dismiss and to strike class allegations. 

The plaintiffs, a class of borrowers, sued the defendant lenders for violating the state’s usury laws.  The Eleventh Circuit found that Georgia’s Payday Lending Act (PLA) and Industrial Loan Act (GILA) “articulate a clear public policy against enforcing forum selection clauses in payday loan agreements and in favor of preserving class actions as a remedy for those aggrieved by predatory lenders.”

The plaintiffs entered into identical loan agreements with the defendants for amounts generally less than $3,000 that were to be repaid from any recoveries from the plaintiffs’ separate personal injury trials.  The plaintiffs alleged that these loan agreements violated Georgia’s PLA, the GILA, and state usury laws.  The defendants argued that these loan agreements had a forum selection clause that required the plaintiffs to bring suit in Illinois, and that there was a class action waiver that barred class action lawsuits.  The district court found that the PLA determined that such forum selection clauses are against public policy as unconscionable, and that such class action waivers are against public policy because class actions are expressly included as remedies under the PLA and GILA.

In affirming the district court’s decision, the Eleventh Circuit held that the PLA “establish[es] a clear public policy against out-of-state lenders using forum selection clauses to avoid litigation in Georgia courts.”  The court noted that both the PLA and the GILA specifically authorize class action suits.  The court also rejected the defendants’ argument that the district court did not consider whether the waivers were procedurally or substantively unconscionable because the waivers violate public policy, which is an independent basis to hold them unenforceable.  To the defendants’ argument that the statutes did not prohibit class action waivers or create a statutory right to pursue class actions, the court responded that a “contractual provision need not ‘literal[ly] conflict’ with Georgia law to contravene public policy.”  Rather, the court agreed with the district court that “enforcement of the class action waivers in this context would eliminate a remedy contemplated by the Georgia legislature and undermine the purpose of the PLA and the GILA.”