Williams v. Big Picture Loans, LLC

693 F.Supp.3d 610

Lula WILLIAMS, et al., Plaintiffs, v. BIG PICTURE LOANS, LLC, et al., Defendants.

Case No. 3:17cv461

United States District Court, E.D. Virginia, Richmond Division

Signed September 22, 2023

Craig Carley Marchiando, Leonard Anthony Bennett, Consumer Litigation Associates, Newport News, VA, Kristi Cahoon Kelly, Andrew Joseph Guzzo, Casey Shannon Nash, James Patrick McNichol, Matthew G. Rosendahl, Kelly Guzzo PLC, Fairfax, VA, Beth Ellen Terrell, Pro Hac Vice, Elizabeth Anne Adams, Pro Hac Vice, Jennifer Rust Murray, Pro Hac Vice, Terrell Marshall Law Group PLLC, Seattle, WA, Drew David Sarrett, Consumer Litigation Associates, PC, Richmond, VA, James Wilson Speer, Virginia Proverty Law Center, Richmond, VA, Eleanor Michelle Drake, Pro Hac Vice, John Albanese, Pro Hac Vice, Berger Montague PC, Minneapolis, MN, Matthew William Wessler, Pro Hac Vice, Gupta Wessler PLLC, Washington, DC, Michael Allen Caddell, Caddell & Chapman, Houston, TX, for Plaintiffs Lula Williams, George Hengle, Dowin Coffy, Marcella P. Singh.

Craig Carley Marchiando, Leonard Anthony Bennett, Consumer Litigation Associates, Newport News, VA, Kristi Cahoon Kelly, Andrew Joseph Guzzo, Casey Shannon Nash, James Patrick McNichol, Matthew G. Rosendahl, Kelly Guzzo PLC, Fairfax, VA, Beth Ellen Terrell, Pro Hac Vice, Elizabeth Anne Adams, Pro Hac Vice, Jennifer Rust Murray, Pro Hac Vice, Terrell Marshall Law Group PLLC, Seattle, WA, Drew David Sarrett, Consumer Litigation Associates, PC, Richmond, VA, James Wilson Speer, Virginia Proverty Law Center, Richmond, VA, Eleanor Michelle Drake, Pro Hac Vice, John Albanese, Pro Hac Vice, Berger Montague PC, Minneapolis, MN, Michael Allen Caddell, Caddell & Chapman, Houston, TX, for Plaintiff Gloria Turnage.

David Neal Anthony, Timothy James St. George, Troutman Sanders LLP, Richmond, VA, John David Taliaferro, Loeb & Loeb LLP, Washington, DC, Steven D. Gordon, Pro Hac Vice, Holland & Knight, Washington, DC, Alicia Marie Clough, Pro Hac Vice, Bernard Robert Given, II, Pro Hac Vice, Loeb & Loeb LLP, Los Angeles, CA, Bethany Danielle Simmons, Pro Hac Vice, Loeb & Loeb LLP, New York, NY, John B. Rottenborn, Woods Rogers Vandeventer Black PLC, Roanoke, VA, Karen M. Stemland, Woods Rogers PLC, Charlottesville, VA, for Defendant Matt Martorello.

AMENDED MEMORANDUM OPINION

Robert E. Payne, Senior United States District Judge

This matter is before the Court on the PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT ("Plaintiffs' Motion") (ECF No. 1165). By ORDER entered on June 16, 2023 (ECF No. 1328), Plaintiffs' Motion was granted in part. This MEMORANDUM OPINION further explains the reasons for so doing.¹

BACKGROUND

A. Factual Background

This class action proceeding concerns a "lending scheme allegedly designed to circumvent state usury laws." Williams v. Martorello, 59 F.4th 68, 72 (4th Cir. 2023) [hereinafter Williams II]. Plaintiffs, representing a class of borrowers,² allege that the defendant, Matt Martorello ("Martorello"), conspired with the Lac Vieux Desert Band of Chippewa Indians ("the Tribe") and various other entities and individuals to issue high-interest loans through the internet to consumers within the Commonwealth of Virginia. Plaintiffs brought a five count CLASS ACTION COMPLAINT ("Compl.") (ECF No. 1) against Martorello. COUNT ONE seeks a Declaratory Judgment that "the choice of law and forum-selection provisions are void and unenforceable under Va. Code § 62-1541(A) and as a matter of Virginia's well-established public policy." Compl. at ¶ 94.³ COUNT TWO seeks relief under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), COUNT THREE seeks relief under RICO, 18 U.S.C. § 1962(d). COUNT FOUR is based on violations of Virginia Usury Laws. COUNT FIVE presents a claim for unjust enrichment under Virginia law. Compl. at 20-31.

The Plaintiffs Motion seeks summary judgment on COUNT THREE, the RICO conspiracy claim⁴ based on 18 U.S.C. § 1962(d) which provides that:

It shall be unlawful for any person to conspire to violate any of the provisions of subsection . . . (c) of this section.

18 U.S.C. § 1962(d).

The Plaintiffs' Motion also seeks summary judgment on certain elements of COUNT TWO based on 18 U.S.C. § 1962(c): participation in the affairs of the RICO enterprise. Section 1962(c) provides that:

It shall be unlawful for any person employed by or associated with an enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c).

Section 1962(c) is also the RICO section that is charged as that which was violated by the conspiracy that is alleged in COUNT THREE. A brief summary of the factual underpinnings of Plaintiffs' RICO claims is necessary to an understanding of the issues that are the subject of this MEMORANDUM OPINION.

According to Plaintiffs and supported by the record offered in support of Plaintiffs' Motion, and not much materially disputed, Martorello began engaging in the online lending business in 2008. In 2011, Martorello, working with Robert Rosette, a well-known lawyer in the tribal lending business, established a relationship with the Tribe. The alleged purpose of this relationship was to establish a so-called "rent-a-tribe" online lending operation. The online lending operation was conducted by the alleged RICO enterprise, which was comprised of Martorello, several entities created and controlled by Martorello, several of his friends and relatives, the Tribe, and several entities created by the Tribe.

The purpose to be served by the relationship Martorello sought with the Tribe was to imbue a forthcoming online lending operation with the Tribe's sovereign immunity. If that could be accomplished, Martorello envisioned that he (and entities that he would control and use to make high interest, usurious loans that violated the laws of most states and RICO) would be immune from civil and criminal liability for such violations.

There is undisputed evidence that, through the alleged RICO enterprise, the alleged RICO conspiracy made high interest loans.⁵ First, under the name of Red Rock Tribal Lending, LLC ("Red Rock"), and then in the name of Big Picture Loans, LLC ("Big Picture Loans"). Both of those entities are considered arms-of-the-tribe. Williams v. Big Picture, 929 F.3d 170 (4th Cir. 2019) [hereinafter Williams I].

However, the loans were funded by Martorello's company, Bellicose VI and then Bellicose Capital, LLC ("Bellicose Capital"). The record shows that Bellicose VI and then SourcePoint VI, LLC ("SourcePoint") (Bellicose VI's subsidiary), which were owned and controlled by Martorello, handled the day-to-day operation of the business of the tribal entities and, for all practical purposes, underwrote, issued, and serviced the loans made online by the alleged RICO enterprise. For most of the time at issue, the Tribe received approximately 2% of the net revenue from loan payments.⁶ Martorello's companies received the rest. And, ultimately, those companies sent the money to Martorello and his family through offshore trusts that Martorello established to receive the proceeds of the unlawful loans.

The undisputed evidence shows that Martorello was the founder and Chief Executive Officer of Bellicose Capital. There is no material dispute that Martorello created Bellicose VI and Bellicose for the purpose of funding, making, and collecting the alleged unlawful loans made by the alleged RICO enterprise.

Nor is it disputed that, in 2014 and 2015, Martorello knew about enforcement actions taken by various state agencies against unrelated, but similar, rent-a-tribe operations engaged in online lending operations such as the one being operated by Martorello's entities and the Tribe. So, in January 2016, Martorello arranged a restructuring of the online lending operation in which Martorello, his entities, and the Tribe were involved. As part of that restructuring, the Tribe acquired Bellicose Capital, and Martorello's entities and the Tribe entered into several related contracts that facilitated the continuation of their allegedly illegal online lending activities.⁷

After the restructuring, most of the proceeds from the online lending enterprise continued to flow to Martorello and his family through a series of companies and trusts. Throughout the entire course of the alleged RICO enterprise, its purpose was to make and collect unlawful debts (i.e., loans on which the interest rate exceeded the usury rate permitted under Virginia law and which met the definition of "unlawful debt" in 18 U.S.C. § 1961(6)). There is substantial evidence to support that Martorello was extensively involved in the affairs of the alleged RICO enterprise.

It is important to keep in mind that the Tribe enjoyed sovereign immunity. Therefore, even if it made loans that exceeded permissible usury rates, it could not be sued. The same is true of entities organized by the Tribe to participate in the RICO enterprise's online lending scheme. See Williams I, 929 F.3d at 185. The record contains substantial, undisputed evidence, that Martorello's purpose in making online loans under the so-called "rent-a-tribe model" was to attempt to clothe the alleged RICO enterprise with the sovereign immunity which the Tribe and its entities possessed.

There is evidence to show that Martorello (the alleged mastermind and principal beneficiary of the rent-a-tribe scheme), the entities that make and collect the usurious loans and that distribute the loan payments, and the people who run these various entities comprise the alleged RICO enterprise. The present action focuses on Martorello because he is said to have conceived of, and set up, the unlawful online lending arrangements, and spearheaded efforts to make them appear to be of tribal origin. But allegedly, in fact, it was his...