Collins v. MCA Receivables, LLC

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CHRISTINE D. COLLINS, A PROFESSIONAL CORPORATION and CHRISTINE DEANNE COLLINS, individually, Plaintiffs, v. MCA RECEIVABLES, LLC D/B/A ALLY FUNDING TEMPORARY GROUP, YISROEL C. GETTER; MARTIN MILLER; PARAGON CAPITAL SOURCE, LLC; JOHN DOES 1-10; and JOHN DOE INVESTORS 1-10, Defendants.

No. 23 Civ. 353 (AT)

United States District Court, S.D. New York

January 23, 2024

ORDER

ANALISA TORRES, UNITED STATES DISTRICT JUDGE

Plaintiffs-Christine D. Collins, a Professional Corporation, and Christine Deanne Collins- filed this action against MCA Receivables, LLC d/b/a Ally Funding Group (“Ally”), Yisroel Getter, and various others, bringing claims for declaratory relief fraud, breach of contract, and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.; the Fourteenth Amendment; and the Computer Fraud and Abuse Act of 1986 (the “CFAA”), 18 U.S.C. § 1030 Compl., ECF No. 1. Ally and Getter (together “Defendants”) move to partially dismiss the complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). ECF No. 49. For the reasons stated below, the motion is GRANTED in part and DENIED in part.

BACKGROUND

I. Factual Background^[1]

Ally is a Connecticut company that offers “merchant cash advances” (“MCAs”); Getter is its principal. Compl. ¶¶ 1, 24, 27. The MCA industry is “essentially payday lending for small businesses.” Id. ¶ 49.^[2] An MCA is styled as a discounted purchase of a business's future receivables, “usually to be repaid through a fixed daily or weekly payment that purportedly represents a percentage of the merchant's receipts.” Id. ¶ 50. In exchange, the business receives an immediate cash infusion. The industry has come under regulatory scrutiny for the high interest rates charged- some exceeding 500 percent per year-and the “high-pressure boiler room tactics” of its salespeople. Id. ¶¶ 48-49.

Plaintiff Christine Collins is a California physician who owns and operates Christine D. Collins, PC (the “PC”), a women's health center in the Los Angeles area. Id. ¶¶ 76-77. On September 19, 2022, Plaintiffs received a call from Defendant Martin Miller, who said he was a broker for Ally. Id. ¶ 78. Miller offered Plaintiffs “a short-term loan of $250,000,” representing “that the loan would carry 20% interest and could be paid back in no less than 6 months through monthly payments, and that there would be a processing fee of $1,000 and an underwriting fee of $1,000.” Id. ¶¶ 79-81. Plaintiffs agreed to enter into the MCA on those terms. Id. ¶ 82.

When Plaintiffs received the paperwork, however, “the amounts seemed different than had been discussed and agreed.” Id. ¶ 83. Plaintiffs called Miller, who said that “this was the standard documentation that had to be entered into, and once the loan was funded, the contract would be redrawn to reflect the numbers that they had discussed.” Id. ¶ 84. Miller also stated that “Plaintiff would only have to pay back $5,000 every two weeks.” Id.

Several days later, Collins signed the agreement (the “Agreement”) as a guarantor on behalf of the PC. Id. ¶ 85; see Agreement, ECF No. 5-3.^[3] The Agreement states that Ally is purchasing $349,750.00 (the “Purchased Amount”) of the PC's future receivables in exchange for $250,000 (the “Purchase Price”). Agreement at 1; Compl. ¶ 86. Plaintiffs would repay the Purchased Amount through daily ACH bank withdrawals of $7,500. Agreement at 1; Compl. ¶ 87. The Agreement claims that the $7,500 figure is a “good faith estimate” of thirty-nine percent of Plaintiffs' daily revenues. Agreement at 1; Compl. ¶ 88. At that rate, Plaintiff would repay the Purchased Amount in forty-seven days, “which, on its face, translates to an annual interest rate of more than 310% per annum.” Compl. ¶ 87.

Appendix A of the Agreement, a fee schedule, provides that several “upfront fees” would be deducted from the Purchase Price before it was distributed to Plaintiffs. One is an “Underwriting Fee,” a “[m]inimum of $1,000.00 or up to 15% of the [P]urchase [P]rice for underwriting fees, broker fees and related expenses.” Agreement at 8. Another is an “Origination Fee,” also a “[m]inimum of $1,000.00 or up to 15% of the [P]urchase [P]rice to cover cost of Origination and ACH Setup.” Id.

The Agreement also states that Ally “will require viewing access [] to your bank account, each business day, in order to verify the amount of your daily payment,” as well as “prior to funding, as part of our underwriting process.” Agreement at 10. Plaintiffs provided their bank login information. Id.

The Agreement provides Ally with various “protections against default,” which “may be invoked by [Ally] immediately and without notice to” Plaintiffs should certain listed events occur- for example, if the PC “transfers, moves, sells, disposes, or otherwise conveys its business and/or assets” without Ally's written consent, or “changes its arrangements” with its bank “in any way that is adverse or unacceptable to [Ally].” Agreement at 2-3. If a listed event occurs, the Agreement permits Ally to collect the full Purchased Amount “plus all fees (including reasonable attorney's fees) . . . immediately.” Id. at 3. Ally may also “enforce the provisions of the Limited Personal Guarantee of Performance against” Collins, making her “jointly and several liable for all amounts owed to [Ally].” Id. at 3, 6-7. Plus, Ally can “proceed to protect and enforce its right and remedies by lawsuit,” and, if Ally recovers a judgment, the business “shall be liable for all of [Ally's] costs.” Id.

The Agreement also includes a “prejudgment remedy waiver,” which provides that Ally can use Connecticut's “confession of judgment” process to attach Plaintiffs' accounts and assets without a judicial hearing. It states, that “to the extent allowed under Connecticut General Statutes sections 52-278a to 52-278m, inclusive, or by other applicable law”:

[E]ach and every merchant and guarantor of this Agreement hereby waive (a) all rights to notice and prior court hearing or court order in connection with any and all prejudgment remedies to which [Ally] may become entitled by virtue of any default or provision of this Agreement or security agreement securing this Agreement and (b) all rights to request that [Ally] post a bond ....

Id. at 4-5. By signing the Agreement, Plaintiffs “consent[ed] that [Ally] may attach or garnish any and all of [their] money held in any bank account at any banking institution” with a branch or office located in Connecticut, or authorized to conduct business there. Id. at 5.

The Agreement also includes a security agreement granting Ally a lien on all of the PC's accounts, assets, funds, and other property (the “Collateral”). Id. at 6. Ally may exercise its security interest “without notice or demand or any kind by making an immediate withdrawal or freezing the Collateral.” Id.

On September 29, 2022, a week after Collins signed the Agreement, Ally wired Plaintiffs $178,500 and withdrew $7,500 from the PC's Chase bank account. Compl. ¶¶ 89-90. Collins called Miller “and stated that this was not had been discussed or agreed.” Id. ¶ 92. Miller said he would investigate “and get back to Plaintiffs in about 5 minutes,” but “never returned the call.” Id. ¶¶ 9394. Wary “that she was being scammed,” Collins instructed Chase to deny any attempted withdrawals by Ally, and “moved her money to a different bank account at Bank of America.” Id. ¶ 95.

On October 6, 2022, Collins discovered that $392,250 had been withdrawn from the Bank of America account. Id. ¶ 100. Bank of America informed her that on October 4, 2022, Defendants had served it with a Connecticut legal order “attaching and asserting a lien against the [] bank account for $392,250,” a sum which included “an anticipated $50,000 in legal fees.” Id. ¶¶ 101-02, 106. Plaintiffs allege that Defendants accessed the Chase bank account in order to discover that Plaintiffs had moved funds to Bank of America. Id. ¶ 107.

Getter “and/or ‘Brandon,'” another purported Ally associate, called Collins and told her that Ally had frozen the bank account. Id. ¶ 108. They said “that the only way to get the account released was to sign an agreement . . . allow[ing] Ally to take the $392,250 and waiving and releasing any claims.” Id. They also offered her another loan for $850,000. Id. Collins refused. Id. ¶ 109. On October 17, 2022, Collins discovered that another $65,000 had been frozen in her personal account. Id. ¶ 112.

II. Procedural History

Plaintiffs filed this action on January 14, 2023, asserting seven claims: (1) RICO, based on collection of an unlawful debt, interstate transport of stolen property, and wire fraud; (2) racketeering conspiracy, based on an alleged conspiracy to commit the substantive RICO scheme; (3) declaratory judgment, seeking a declaration that the Agreement is void ab initio under New York law; (4) common law fraud, related to the imposition of excessive fees; (5) breach of contract, based on Defendants' alleged failure to advance promised amounts; (6) section 1983, related to allegedly abusive use of the Connecticut pre-judgment relief statute; and (7) violation of the CFAA, related to Defendants' alleged access to the PC's bank account. See Compl. ¶¶ 117-224. On February 14, 2023, the Court granted Plaintiffs' motion for a preliminary injunction, prohibiting Defendants from continuing to debit unauthorized funds from Plaintiffs' accounts and from freezing Plaintiffs' assets and receivables. ECF Nos. 32, 44.

Defendants now move to dismiss Plaintiffs' claims for declaratory judgment, fraud, breach of contract, and violation of the CFAA.^[4] ECF No. 49; Def. Mem., ECF No. 50.

LEGAL STANDARD

To withstand a Rule 12(b)(6) motion to dismiss, “a...