Haymount Urgent Care PC v. GoFund Advance, LLC

635 F.Supp.3d 238

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

22-CV-1245 (JSR)

United States District Court, S.D. New York

Signed October 12, 2022

David S. Almeida, Benesch Friedlander Coplan & Aronoff, 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, Edward John Normand, Jordana Lauren Haviv, Kyle William Roche, Roche Freedman LLP, New York, NY, Devin Freedman, Roche Freedman LLP, Miami, FL, Richard Cipolla, Roche Freedman, LLP, Boston, MA, Conor Eric Brownell, Lippes Mathias Wexler Friedman LLP, Albany, NY, John Albert Mueller, Lippes Mathias LLP, Buffalo, NY, for Defendants GoFund Advance, LLC, Funding 123 LLC, Merchant Capital LLC, Alpha Recovery Partners, LLC, Joseph Kroen, Josef Brezel.

Devin Freedman, Roche Freedman LLP, Miami, FL, Edward John Normand, Kyle William Roche, Roche Freedman LLP, New York, NY, Paul Scott Hugel, Wayne Ervin Gosnell, Jr., Clayman Rosenberg Kirshner & Linder LLP, New York, NY, Richard Cipolla, Roche Freedman, LLP, Boston, MA, Conor Eric Brownell, Lippes Mathias Wexler Friedman LLP, Albany, NY, John Albert Mueller, Lippes Mathias LLP, Buffalo, NY, for Defendant Yisroel C. Getter.

Daniel Martin Stone, Edward John Normand, Jordana Lauren Haviv, Roche Freedman LLP, New York, NY, Devin Freedman, Roche Freedman LLP, Miami, FL, Richard Cipolla, Roche Freedman, LLP, Boston, MA, Conor Eric Brownell, Lippes Mathias Wexler Friedman LLP, Albany, NY, John Albert Mueller, Lippes Mathias LLP, Buffalo, NY, for Defendant Yitzchok Wolf.

OPINION AND ORDER

JED S. RAKOFF, UNITED STATES DISTRICT JUDGE:

Defendants collectively move to strike the class allegations from plaintiffs' First Amended Complaint (Dkt. 28) ("FAC")¹, pointing to a class action waiver provision included in various merchant cash advance ("MCA") agreements that plaintiffs allege are unlawfully usurious loans. See Mem. Supp. Defs. Mot. Strike Class Allegations ("Defs. Mem."), Dkt. 104. The Court denies defendants' motion. As explained in greater detail below, plaintiffs have plausibly alleged that the MCA agreements are entirely void under New York law, which would mean that none of their provisions -- including the class action waivers -- can be enforced. As such, defendants cannot enforce the MCA agreements' class action waivers against plaintiffs at this preliminary stage based solely on the pleadings.

I. Legal Standard

Courts "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Invoking this authority, defendants named in putative class action complaints will sometimes seek to strike class allegations early in a case where there is some barrier to plaintiffs' ability to successfully certify a class. Cf. Rule 23(c)(1)(A) (stating that courts should decide whether to certify a class "[a]t an early practicable time after a person sues . . . .").

Besides general statements that motions to strike class allegations are "disfavored," Kassman v. KPMG, 925 F. Supp. 2d 453, 462 (S.D.N.Y. 2013), there is surprisingly little authority that describes the actual standard courts should apply in deciding such motions. As such motions are decided on the basis of the pleadings and without the benefit of any factual record, the standard that makes the most sense is something akin to the plausibility standard applied in deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim: has a plaintiff plausibly alleged sufficient facts to support a reasonable inference that she could meet the requirements of Rule 23, should her claim proceed to discovery? Cf. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (discussing the plausibility standard in the motion-to-dismiss context). And, although they have not always put it in precisely those terms, courts have generally applied this plausibility standard in deciding motions to strike. See Kassman, 925 F. Supp. 2d at 463-64 (S.D.N.Y. 2013) (stating that "the relevant question" in deciding a motion to strike class allegations "is whether, based on the allegations in the [complaint,] it is plausible that plaintiffs will come forth with sufficient evidence at the class certification stage" to meet Rule 23's class certification requirements); Calibuso v. Bank of America Corp., 893 F. Supp. 2d 374, 383 (E.D.N.Y. 2012) (similar). As such, the Court's inquiry here is whether plaintiffs have plausibly alleged that they can certify a class.

In evaluating the plausibility of class allegations at the pleading stage, courts must bear in mind that granting such a motion would "preemptively terminate the class aspects of litigation solely on the basis of what is alleged in the complaint and before plaintiffs are permitted to complete the discovery to which they would otherwise be entitled on questions relevant to class certification." Chen-Oster v. Goldman & Sachs Co., 877 F. Supp. 2d 113, 117 (S.D.N.Y. 2012). But one circumstance where striking the class allegations may be appropriate is where a contractual waiver clearly precludes the possibility that a plaintiff's claim may be brought on a class-wide basis. See, e.g., Camilo v. Uber Techs., Inc., No. 17-cv-9508, 2018 WL 2464507, at *3 (S.D.N.Y. May 31, 2018). Defendants contend this is the case here.

II. Analysis

A. Plaintiffs have plausibly alleged that the MCA Agreements -- including their class action waiver provisions -- are void under New York law.

It is undisputed that the MCA agreements at issue in this case contain broadly worded class action waiver provisions purporting to "waive any right to assert any claims against the other party as a representative or member in any class representative action . . . ." See Brezel Aff. Ex. 1, Revenue Purchase Agreement § 4.11, Dkt. 69-1. Defendants contend that these provisions require striking plaintiffs' class allegations before plaintiffs move for class certification. Plaintiffs respond that, at least at the pleading stage, they have plausibly alleged that the MCA agreements are void in their entirety, meaning that their class action waivers cannot be enforced against them.

Unpacking this dispute requires some discussion of plaintiffs' claims. As explained in this Court's prior opinion and order denying in significant part defendants' motion to dismiss, plaintiffs' principal theory of liability alleges that defendants collectively participate in an enterprise that makes and collects usurious loans. Opinion and Order ("Opinion") at 10, Dkt. 86. The cause of action underlying this claim comes from the federal RICO statute, which 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 debt." 18 U.S.C. § 1962(c). "[U]nlawful debt" is defined in relevant part as any "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).

Since RICO's definition of unlawful debt, as applied to this case, turns in part on state laws regulating usury, this theory of RICO liability requires demonstrating, among other things, that the MCA agreements are "unenforceable . . . in whole or in part" under New York's usury laws (at least assuming New York's law is the applicable state law, an assumption discussed further below). Opinion at 12. Under New York law, "criminal usury" involves making and collecting on loans at a greater than 25% interest rate, N.Y. Penal L. § 190.40, and plaintiffs here allege that the effective interest rates charged by the MCA agreements were more than twice that, Opinion at 12. As such, as this Court has already held, plaintiffs have adequately alleged that the MCA agreements, although styled as purchases of accounts receivable, in fact operate as and would be considered usurious loans under New York law. Opinion at 13-20.

If the MCA agreements are usurious loans under New York law, then New York law would also consider them void. N.Y. Gen. Oblig. § 5-511 (stating that all loans that exceed the statutorily prescribed interest rates "shall be void"); Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 157 N.Y.S.3d 800, 179 N.E.3d 612, 621 (2021) ("[L]oans proven to violate the criminal usury statute are subject to the same consequences as to any other usurious loans: complete invalidity of the loan instrument.") And this is just as true of loans made to corporations as to loans made to individuals. Id. ("The statutory authority, coupled with the legislative intent . . . [behind the relevant usury laws] requires the conclusion that the legislature intended for criminally usurious loans made to corporate borrowers to be void when a successful usury defense, based on the criminal usury rate, is raised."). As such, if the MCA agreements are in fact usurious loans under New York law as plaintiffs have alleged, then the class action waiver provisions contained therein -- like all aspects of the agreements -- are and were void from the outset. Id.

Defendants concede that "New York law regards usurious loan contracts as void in certain circumstances," but they contend that "those circumstances don't apply to this case where the alleged 'borrower' is a corporation and is not defending a claim to recover a note." Def. Mem. 5 (...