## Facts

- Active-duty servicemembers Jason Cox, Estevan Castillo, and Leo Thomas Tookes Jr. entered vehicle-title pawn agreements with Community Loans of America, Inc., Alabama Title Loans, Inc., and Georgia Auto Pawn, Inc.
- Under the agreements, each plaintiff provided a vehicle title in exchange for cash and could recover the title by repaying the advanced amount plus charges by a specified date.
- The written agreements used credit-oriented terms, including references to the cost of credit, interest/finance charges, and the vehicle title as a security interest (with language allowing lien registration).
- Each agreement contained an arbitration clause.
- After plaintiffs were unable to redeem the titles, defendants repossessed the vehicles held as collateral.
- Plaintiffs filed a putative class action alleging the transactions violated the Military Lending Act (MLA), 10 U.S.C. § 987, and were void from inception, including the arbitration provisions.
- Defendants moved to dismiss under Rule 12(b)(6), relying on the arbitration clauses and arguing the transactions were sales/pawn transactions under state law, not MLA-covered loans.
- Plaintiffs also sought a preliminary injunction to stop repossessions during the litigation; defendants represented they would refrain from action against the named plaintiffs, and plaintiffs withdrew the request as to absent putative class members.

## Issues

1. Whether, taking the complaint and attached agreements as true at the Rule 12(b)(6) stage, plaintiffs plausibly alleged the vehicle-title pawn transactions were MLA-covered consumer credit such that the arbitration clauses could not be enforced on a facial challenge.
2. Whether preliminary injunctive relief should issue to prevent repossession during the case, and if so, whether it should extend beyond the named plaintiffs to absent putative class members.

## Decision

- The court denied defendants’ Rule 12(b)(6) motion to dismiss premised on enforcing the arbitration clauses.
- Construing the pleadings and attached agreements in plaintiffs’ favor, the court found plaintiffs adequately alleged the transactions were credit transactions within the MLA’s reach, rather than non-credit sales/pawn arrangements as defendants characterized them.
- Because plaintiffs plausibly alleged the MLA prohibited the transactions and rendered the agreements (including disputed terms) void or unenforceable, the court declined to compel arbitration at the pleadings stage.
- The court granted plaintiffs’ motion for a preliminary injunction as to the named plaintiffs based on defendants’ agreement not to repossess their vehicles during the litigation.
- The court denied preliminary injunctive relief as to absent putative class members after plaintiffs withdrew that portion of the request.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded allegations as true, considers the complaint and attached exhibits, and draws reasonable inferences for the plaintiff when assessing plausibility under Twombly/Iqbal.
- In evaluating whether a transaction falls within a federal consumer-credit statute, the court may consider the substance shown by the agreement’s terms (e.g., references to borrowing, credit cost, and security interests), not only state-law labels urged by a defendant.
- When a plaintiff plausibly alleges a federal statute bars a credit arrangement and treats the agreement or challenged terms as void or unlawful, a court may decline to enforce an arbitration clause on a motion seeking dismissal based solely on the face of the pleadings.
- Preliminary injunctive relief may be limited to the named parties where the record and requests support only that narrower relief, particularly when broader class-wide relief is not pursued at the time.

## Conclusion

In Cox, the Middle District of Georgia held that servicemember plaintiffs plausibly alleged their vehicle-title pawn agreements functioned as MLA-covered credit transactions prohibited by 10 U.S.C. § 987, so defendants were not entitled to dismissal based on the agreements’ arbitration clauses at the Rule 12(b)(6) stage; the court also entered a limited preliminary injunction protecting the named plaintiffs from repossession during the litigation and denied relief for absent putative class members.


Cox v. Community Loans of America, 2012 U.S. Dist. LEXIS 31448 (2012)