Legal Briefs
MCA Funder Says Debt Settlement Company Operating Illegally Without a Budget Planning License
July 11, 2018
Merchant Cash Advance companies are on the warpath against debt settlement companies. In the latest legal offensive, High Speed Capital alleges that Corporate Debt Advisors’ debt settlement business is really just an unlicensed Budget Planning operation, a misdemeanor criminal offense in New York.
High Speed’s petition cites New York General Business Law § 455. “So-called ‘debt negotiation’ and ‘debt settlement’ companies that negotiate settlements between debtors and creditors on behalf of the debtors and which may coordinate or supervise payment by the debtors to the creditors in exchange for fees from the debtor are engaged in Budget Planning,” they say. “Budget Planning agreements with unlicensed entities are void for illegality and cannot be upheld by the Court.”
At issue in this action is that the transfer of funds from the merchant to Corporate Debt Advisors is allegedly fraudulent. High Speed won a judgment against the merchant in October 2017 and believes those funds belong to it. Corporate Debt Advisors has refused to send the funds in its possession to High Speed and has instead tried to negotiate. High Speed’s petition before the Court asks that Corporate Debt Advisors turn over the funds immediately to High Speed.
The case can be found in the New York Supreme Court, Erie County under Index #: 810673/2018. You can view the petition here.
Usury Argument in Merchant Cash Advance Suit Backfires Horribly
June 25, 2018
A New York Supreme Court judge in Erie County, New York has had enough with attorneys trying to argue that merchant cash advances are loans. In Yellowstone Capital, LLC v. Central USA Wireless, LLC et al (Index No: 811837-2017), the Honorable Timothy J. Walker balked at the defendants’ argument that the MCA agreement was usurious.
“The only ‘proof’ that Defendants submit in support of their usury claim are self-serving misconstructions of cherry-picked provisions of the merchant agreement, and an outright disregard for contrary provisions contained in that document,” he opined.
Citing dozens of trial court decisions in merchant cash advance cases and binding precedent established by Champion Auto Sales, the judge not only shot the usury argument down but also awarded the recovery of attorney fees to the MCA company for having to defend themselves against something so frivolous.
“The Court determines, in light of the history of these litigated matters and known binding precedent, Plaintiff is entitled to recover reasonable attorneys’ fees and costs incurred in defending the Motion [..],” he ordered.
Lawyers Weigh in on Federal Decision That CFPB is Unconstitutional
June 22, 2018In light of a federal court ruling yesterday that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional, deBanked spoke with some lawyers to get their perspective on what this decision could mean.
Alan Kaplinsky, Partner, Ballard Spahr
“I think it will sow more confusion related to the CFPB. I think it’s important to note that this opinion – while it is precedent that could be cited in other cases…it’s not binding on any other court anywhere in the country, including in the Southern District of New York. That being said, I anticipate that the CFPB will appeal [the decision] if for no other reason than because they have other cases. Ultimately, I would anticipate that the case will end up in the U.S. Supreme Court.”
Lucy Morris, Partner, Hudson Cook (previously a Deputy Enforcement Director at the CFPB)
“The bottom line is that it creates yet more uncertainty for the bureau, for industry and for consumers. Is this bureau legitimate or not? And if not, what does that mean for all of the many decisions and actions taken by the former [CFPB] director Cordray and the current acting director, Mulvaney.
Maybe this can add to a momentum to create a bipartisan commission to finally resolve this, and to give everyone a commission that…avoids the wide pendulum swings that have been happening. This requires a legislative fix, which is challenging of course.”
Lawrence Kaplan, Of Counsel, Paul Hastings
“Typically, in a case like this, you would have a circuit split, where now you have one circuit saying yes and one circuit saying no. And ultimately that would go up to the supreme court. But you could have the administration saying ‘We’re not going to defend this.’ [Given the administration’s unfavorable attitude toward the CFPB], it’s likely that you’re not going to see anyone vigorously defend the agency.
As for alternative lenders, [these] are state issues. And as a result, [lenders] are not off the hook…At the end of the day, everyone will still have to comply with a patchwork of state laws. You’re really taking away the federal hammer. So, [certain cases] may no longer be a federal case. Now, in some ways, be careful what you wish for, because now you have to face 50 executioners [because] a lot of the states would defer to and join with the feds.”
Stacking Lawsuit Results in Settlement Before Trial
June 19, 2018A lawsuit between RapidAdvance and Pearl Capital over tortious interference will not be going to trial after all, deBanked has learned. Originally scheduled to begin on June 25th, the parties have reportedly reached a settlement.
Neither party would respond for comment.
RapidAdvance filed its lawsuit against Pearl in November 2015 with the hope that they could set a precedent against “stacking.”
The suit was filed in the Circuit Court of Maryland under Small Business Financial Solutions, LLC v. Pearl Beta Funding, LLC, Case No. 411478-V.
Lawyers in LendingClub Class Action Case Defend Fee That ‘Shocked’ a Judge
June 14, 2018
Lawyers from Robbins Geller Rudman & Dowd represented clients in a class action suit against LendingClub and reached a settlement with the company for $125 million. The law firm, which was working on contingency, requested a 13.1 percent cut of the winnings, or $16 million, which a California Federal judge said “shocked” him.
Earlier in the week, Robbins Geller filed a 30-page motion in defense of its fee. Among the law firm’s arguments are that they carried a significant financial burden with this as a contingency case and that the firm succeeded in reaching an uncommonly high settlement. “A settlement that Wall Street analysts have described as ‘far exceed[ing] our expectations’ and ‘coming in at the high end of the historical range of settlements,’” the motion read.
Robbins Geller also compared its success to the results (or lack thereof) of government agencies, like the SEC and the DOJ, which have presumably tried to represent the investor clients against LendingClub and have failed.
“The DOJ lawyers do not even have to deal with counsel for witnesses whom they question before a grand jury, nor do they have to ask for documents – they can seize them through search warrants….Yet, despite all these advantages, the government has not brought a single civil or criminal charge in connection with these same facts. Nor has the government recovered a single penny for investors. Relative to the government’s results, a $125 million recovery is astounding.”
The motion also acknowledged that they were up against a defendant whose resources were far greater than theirs. And it further asserts that the firm’s effective research and skill ought to be rewarded – for obtaining the right documents and being prepared to depose the right witnesses that adequately scared LendingClub into paying a very generous settlement.
There will be a court hearing to address Robbins Geller’s motion on July 19 in the Northern District of California.
Eaglewood Not Happy About World Global Financing Bankruptcy
May 21, 2018A new complaint filed by Eaglewood SPV I LP suggests they’re not happy with ailing merchant cash advance company World Global Financing (WGF). Eaglewood originally sued WGF on March 28th in the New York Supreme Court and secured an injunction on May 2nd to turn over the cash and proceeds from receivables owed to Eaglewood. According to Eaglewood, WGF proceeded to ignore the court’s order and Eaglewood hasn’t been receiving anything. On May 8th, WGF filed Chapter 11.
The new complaint alleges that WGF and the company’s owner have engaged in fraud and that Eaglewood has been damaged to the tune of $6.5 million.
Sneaky Debt Settlement Company Temporarily Restrained by Judge
May 20, 2018
A debt settlement company has sunk to new lows, according to a petition filed by Yellowstone Capital in Nassau County. Defendants SMCA, Inc. DBA Settle My Cash Advance, Thassos.com Corp DBA Thassos.com, and George Alexander, have been accused of fraudulently transferring funds owed to Yellowstone Capital to themselves while trying to mask the evidence in the process.
Unlike other purported debt settlement schemes, the Settle My Cash Advance defendants are alleged to have first actively coached a merchant to hide his money in new bank accounts rather than pay his judgment. This, according to emails attached as exhibits, included instructions by the defendants on how to cover up the paper trail so that the money could not be traced. Once this was successfully carried out, the defendants then absconded with the merchant’s money, leaving him broke and the judgment still unpaid.
According to the merchant’s sworn affidavit, Settle My Cash Advance lured him into believing that they not only had a relationship with Yellowstone but that they would also reduce the judgment entered against his business by 25% – 70%.
“SMCA (Settle My Cash Advance) told me to transfer all funds, as my business and I earned them, to SMCA to hold them for us so that Yellowstone could not collect on its judgment,” the merchant wrote. “The deal that SMCA represented to me was that SMCA would take the funds, hold them in trust, and use them to settle our obligations with Yellowstone for a small contingency fee.”
What happened instead is that the defendants ran off with the money held in trust and did nothing to help with Yellowstone, the documents say.
Presented with the facts laid out before it, the Court ordered that the funds held by Settle My Cash Advance be restrained pending a May 30th hearing.
Merchant Cash Advances Are Not “Masked” Usury or Loans
May 17, 2018
A New York Supreme Court judge cited the decision rendered in Champion Auto Sales, LLC et al. v Pearl Beta Funding, LLC on Wednesday, when she dismissed usury claims brought against four merchant cash advance companies.
The case at issue was Wilkinson Floor covering, Inc., Stephen Wilkinson v Cap Call, LLC, TVT Capital, LLC, Yellowstone Capital, LLC, Ace Funding Source, LLC (Index #160256/2016)
Champion set forth the general principle that the underlying agreement in that case was not a usurious transaction, she opined. Beside the plaintiff’s claim being procedurally deficient, the judge said that the plaintiffs had not established usury because a rudimentary element of usury is the existence of a loan or forbearance of money and when there is neither, there can be no usury.
Per the Honorable Carmen Victoria St. George:
In New York, there is a predisposition in this State against declaring that contracts are usurious. This is especially true with respect to commercial agreements, where “usurious agreement[s] will not be presumed from facts equally consistent with a lawful purpose.”
Additionally, because plaintiffs’ obligation to pay them future receivables is conditioned on plaintiffs’ receipt of such, the agreements at issue are not loans.
