Giuliano McDonnell & PerroneNicholas Giuliano and Christopher Murray are attorneys in Giuliano McDonnell & Perrone, LLP’s merchant cash advance litigation group. Nicholas can be reached by e-mail at Christopher can be reached by e-mail at They can both be reached by phone at Giuliano McDonnell & Perrone, LLP’s New York office at 646-328-0120.

Articles by Nicholas P. Giuliano, Esq. and Christopher R. Murray, Esq.

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Legal Brief: Kalamata v. Biz2Credit and Itria Ventures

October 20, 2015

Stacking lawsuitThe typical merchant cash advance contract contains language that prohibits the merchant from stacking multiple merchant cash advances. Some cash advance companies, however, induce merchants to stack. This is where the legal concept of “tortious interference with contract” comes in. Tortious interference places legal liability on a person who wrongfully causes another person to breach an existing contract. In the merchant cash advance industry, these lawsuits usually involve disputes over whether a stacking cash advance company intentionally caused a merchant to stack additional cash advances, thereby breaching an existing contract. This is an evolving area of the law and what conduct constitutes tortious interference is a hot topic in the legal field.

Tortious interference is one of several claims that came up in Kalamata Capital’s recent lawsuit against Biz2Credit Inc. and Itria Ventures, LLC, and the court has already issued its first ruling on what conduct might constitute tortious interference with cash advance agreements.

Kalamata sued Biz2Credit and Itria for, among other things, stacking. One of Kalamata’s arguments was that Biz2Credit and Itria tortiously interfered with Kalamata’s contract. Biz2Credit and Itria filed a motion to dismiss. They argued that Kalamata failed to allege facts that would support a claim of tortious interference with contract. The court denied their motion because Kalamata alleged that 1) it had a business relationship with a merchant, 2) that Biz2Credit and Itria knew of that relationship and intentionally interfered with it, 3) that Biz2Credit and Itria acted solely out of malice, used improper means, illegal means, or means amounting to an independent tort, and 4) that the interference caused injury to Kalamata.

Kalamata alleged that, under its contract with Biz2Credit, Kalamata paid Biz2Credit commissions for referrals and for managing all of Kalamata’s accounts, including the referrals, on Biz2Credit’s online platform. Kalamata also alleged that the contract with Biz2Credit prohibited Biz2Credit from soliciting Kalamata’s merchants. The crux of the lawsuit is Kalamata’s claim that Biz2Credit secretly referred Kalamata’s merchants to Biz2Credit’s closely related company, Itria, and intentionally induced those merchants to stack additional cash advances in breach of the merchants’ contracts with Kalamata, despite an alleged agreement between Kalamata and Biz2Credit that prohibited Biz2Credit from doing so. Biz2Credit and Itria disputed Kalamata’s claims and argued that they were permitted to solicit any account that Biz2Credit referred to Kalamata or serviced for Kalamata.

Ultimately, the court found that if Biz2Credit was, solely for malicious purposes, sharing Kalamata’s confidential customer information with Itria, Kalamata’s competitor, and, if Itria and Biz2Credit were knowingly inducing Kalamata’s customers to breach their merchant agreements with Kalamata, then such conduct would rise to the level of tortious interference.

As this was a decision on a motion to dismiss, the motion focused on the legal sufficiency of Kalamata’s claims and did not address the merits of either party’s factual assertions.

Legal Brief: Madden v. Midland Funding

June 11, 2015

Madden v. Midland Funding, 2015 U.S. App. LEXIS 8483 (2nd Cir. May 22, 2015).

legal briefThis is an interesting case for the alternative lending industry that deals with the interplay between the National Banking Act and New York State’s usury laws.

The plaintiff borrower opened a credit card account with a national bank, Bank of America (“BoA”). BoA sold the account to another national bank, FIA. FIA subsequently sent a change of terms notice stating that, going forward, the plaintiff’s account agreement would be governed by the law of Delaware, FIA’s home state. FIA later charged off the account and sold it to a third-party debt purchasing company, Midland. FIA did not retain any interest in the account after selling it to Midland and Midland was not a national bank.

Midland attempted to collect on the account and sent the plaintiff a demand letter indicating that there was a 27% interest rate on the account. Plaintiff sued Midland, alleging violations of the Fair Debt Collection Practices Act and New York’s criminal usury laws. New York law limits effective interest rates to 25 percent per year. The parties agreed that FIA had assigned plaintiff’s account to Midland and that the plaintiff had received FIA’s change in terms notice. Based on the agreement, the trial court held that the plaintiff’s state law usury claims were invalid because they were preempted by the National Bank Act.

The National Bank Act supersedes all state usury laws and allows national banks to charge interest at the rate allowed by the law of the bank’s home state. Midland argued that, as FIA’s assignee, it was permitted to charge the plaintiff interest at a rate permitted under Delaware law. FIA was incorporated in Delaware and Delaware permits interest rates that would be usurious under New York law.

On appeal, The Second Circuit Court of Appeals noted that some non-national banks, such as subsidiaries and agents of national banks, might enjoy the same usury-protection benefit as a national bank. However, third-party debt buyers, such as Midland, are not subsidiaries or agents of national banks. Midland was not acting for BoA or FIA when it attempted to collect from the plaintiff. Midland was acting for itself as the sole owner of the debt. For this reason, the Second Circuit held that Midland could not rely upon National Bank Act preemption of New York State’s usury laws.