Haymount Urgent Care PC v. GoFund Advance, LLC

690 F.Supp.3d 167

HAYMOUNT URGENT CARE PC et ano, Plaintiffs, v. GOFUND ADVANCE, LLC et al., Defendants.

22-cv-1245 (JSR)

United States District Court, S.D. New York

Signed August 28, 2023

David S. Almeida, Almeida Law Group LLC, Chicago, IL, Agatha Christina Mingos, White and Williams LLP, New York, NY, James Jackson Bilsborrow, Weitz & Luxenberg, PC, New York, NY, Alex David Corey, Shane R. Heskin, White and Williams LLP, Philadelphia, PA, Rachel J. Eisenhaure, Kenney & Sams, P.C., Southborough, MA, for Plaintiffs Haymount Urgent Care PC, Robert A. Clinton, Jr.

Daniel Martin Stone, Olshan Frome Wolosky LLP, New York, NY, Jordana Lauren Haviv, Freedman Normand Friedland LLP, New York, NY, Devin Freedman, Freedman Normand Friedland LLP, Miami, FL, Richard Cipolla, Freedman Normand Friedland LLP, Boston, MA, for Defendants GoFund Advance, LLC, Funding 123 LLC, Merchant Capital LLC, Alpha Recovery Partners, LLC, Yitzchok Wolf, Josef Brezel.

Paul Scott Hugel, Wayne Ervin Gosnell, Jr., Clayman Rosenberg Kirshner & Linder LLP, New York, NY, for Defendant Yisroel C. Getter.

OPINION AND ORDER

JED S. RAKOFF, United States District Judge:

On February 13, 2023, defendants GoFund Advance, LLC, Funding 123, LLC, Merchant Capital, LLC, Alpha Recovery Partners, LLC, Yitzchok Wolf, Yosef Brezel, and Joseph Kroen¹ moved for partial summary judgment on Plaintiffs' RICO claims and associated fraud claims. See Defs. Mot. for Partial Summ. J. ("Defs. Mot."), Dkt. No. 175; Defs. Mem. of Law in Supp. of Mot. for Partial Summ. J. ("Defs. Mem."), Dkt. No. 176. Co-defendant Yisroel Getter also separately filed a motion for summary judgment on Plaintiffs' RICO claims and breach of contract claim. Getter Mot. for Summ. J. ("Getter Mot."), Dkt. No. 182; Getter Mem. of Law in Supp. of Mot. for Summ. J. ("Getter Mem."), Dkt. No. 183.² After full briefing and consideration, the Court, for the reasons discussed below, grants summary judgment to defendants on those claims.

I. Factual and Procedural Background

The facts underlying this dispute are laid out in detail in this Court's previous Opinion and Order denying in large part defendants' motion to dismiss. See Haymount Urgent Care PC v. GoFund Advance, LLC, 609 F. Supp. 3d 237 (S.D.N.Y. 2022).³ As relevant here, Haymount is a primary and urgent care facility in North Carolina owned by Dr. Clinton. Id. at 243. Haymount entered six "merchant cash advance" ("MCA") agreements with defendants GoFund Advance, Funding 12 3, and Merchant Capital to fund its operations during a period of economic strain on its business. Id. The parties dispute whether these MCA agreements are usurious loans or purchases of receivables.

Plaintiffs originally asserted six causes of action: (1) a RICO claim premised on the collection of unlawful debts and a pattern of wire fraud; (2) a racketeering conspiracy claim, premised on the same underlying conduct as the substantive RICO claim; (3) a claim seeking a declaratory judgment that the MCA agreements and a settlement agreement were void; (4) a common law fraud claim for charging excessive fees and extracting unauthorized debits using a misleading name to evade a block on Plaintiffs' bank account; (5) a breach of contract claim for over-debiting Plaintiffs' bank accounts; and (6) a Section 1983 claim for violating due process by abusing Connecticut's pre-judgment attachment statute. First Amended Complaint ("FAC"), ¶¶ 225-333, Dkt. No. 28.

At the motion to dismiss stage, the Court permitted the RICO, racketeering conspiracy, breach of contract, and Section 1983 claims to proceed forward; dismissed the declaratory relief claim except for the claim for declaratory relief against GoFund Advance related to the settlement agreement; and dismissed the common law fraud claim except as against GoFund Advance related to extracting unauthorized debits using a misleading name to evade a block on Plaintiffs' bank account. Haymount, 609 F. Supp. 3d at 241, 245-58. At the class certification stage, the Court then denied Plaintiffs' motion to certify a class premised on their first RICO theory -- that the MCA agreements are usurious loans -- finding that the commonality requirement could not be met because of the presence of individualized choice-of-law issues. See Haymount Urgent Care PC v. GoFund Advance, LLC, 22-cv-1245, 650 F.Supp.3d 204 (S.D.N.Y. Jan. 13, 2023).

All defendants then moved for partial summary judgment on Plaintiffs' RICO and associated fraud claims, and Getter also moved for summary judgment on Plaintiffs' breach of contract claim. See Defs. Mot.; Defs. Mem.; Getter Mot.; Getter Mem. After summary judgment briefing and oral argument concluded, Plaintiffs filed a proposed second amended complaint ("SAC"). See Heskin Decl., Ex. A, Dkt. No. 210-1. The SAC removes the declaratory relief and Section 1983 claims in full and amends the RICO and associated fraud claims to add an additional theory of wire fraud based on defendants' debiting a "monthly fee" from plaintiffs' and others' accounts.

II. Legal Standard

The Court must "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact." Fed. R. Civ. P. 56(a). "The moving party bears the burden to demonstrate the absence of any genuine issues of material fact." New York v. Mountain Tobacco Co., 942 F.3d 536, 541 (2d Cir. 2019). "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995). In making its determination on summary judgment, the Court "view[s] the evidence in the light most favorable to the party opposing summary judgment, draw[s] all reasonable inferences in favor of that party, and eschew[s] credibility assessments." Mountain Tobacco Co., 942 F.3d at 541.

III. Discussion

A. RICO Claim Based on the Collection of "Unlawful Debts"

Plaintiffs alleged in the FAC that defendants committed a RICO violation by "illegally operating an enterprise that loans money to small businesses at criminally usurious interest rates." Haymount, 609 F. Supp. 3d at 245. RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in . . . interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through . . . collection of unlawful debts." 18 U.S.C. § 1962(c). The statute specifically defines "unlawful debt" to mean:

[A] debt (A) . . . which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with . . . the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate.

18 U.S.C. § 1961(6). Because "RICO's definition of unlawful debt invokes state as well as federal laws related to usury to provide substance to the concept of unlawfulness, the first question is what state's law applies to the transactions at issue." Haymount, 609 F. Supp. 3d at 246 (cleaned up). See also United States v. Moseley, 980 F.3d 9, 18 (2d Cir. 2020).

Defendants argue they are entitled to summary judgment on this theory of RICO liability for two reasons. First, if Plaintiffs are correct that New York law would consider the MCA agreements usurious loans, the agreements would then be void and thus the agreements' choice-of-law provisions selecting New York law would also be void. That would then require the Court to apply a center-of-gravity test to determine which state's law applies. Under that test, defendants argue, North Carolina's usury law should govern, but North Carolina's law does not apply to loans (like the MCA agreements) that are greater than $25,000. Defs. Mem. at 1, 5-7. Second, defendants argue that they are entitled to summary judgment because the MCA agreements are not usurious loans a matter of law. Id. at 7-14. For the reasons discussed below, the Court finds that defendants' choice-of-law argument is a sufficient basis for granting summary judgment without reaching whether there are fact issues pertaining to the characterization of the MCA agreements as loans or purchases of receivables.

1. The MCA agreements' choice-of-law provision does not apply.

At the motion to dismiss stage, the parties initially assumed that New York's usury laws applied to plaintiff's RICO claim. In particular, defendants contended that this was the case by virtue of a New York choice-of-law provision included in all the relevant agreements stating that "[t]his Agreement shall be governed by and construed exclusively in accordance with the laws of the State of New York, without regards to any applicable principles of conflicts of law." See Defs. Supp. Mem. of Law in Supp. of Partial Mot. to Dismiss at 2-3, Dkt. No. 82; Clinton Decl., Ex. 1, 8/25/21 MCA Agreement, Dkt. No. 162-1, § 4.5; Ex. 2, 8/26/21 MCA Agreement, Dkt. No. 162-2, § 4.5; Ex. 3, 9/27/21 MCA Agreement, Dkt. No. 162-3, § 4.5; Ex. 4, 12/16/21 MCA Agreement, Dkt. No. 162-4, § 4.5; Ex. 5, 12/27/21 MCA Agreement, Dkt. No. 162-5, § 4.5; Ex. 6, 1/20/22 MCA Agreement, Dkt. 162-6, § 4.5. Given this choice-of-law provision and the apparent agreement of the parties that New York law should govern, the Court assumed, for purposes of the motion to dismiss, that New York law applied to the question of whether the MCA agreements are usurious loans. See Haymount, 609 F. Supp. 3d at 246.

However, at the class certification stage, defendants argued -- and the Court agreed -- that the choice-of-law provision would not apply if New York law would consider the MCA agreements usurious. Specifically, the Court held:

[T]he MCA agreements in this case each contain choice-of-law provisions selecting New York law. But, as

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