Legal Briefs
Judge Okays Leave to Add Additional Defendants in Kalamata Capital / Biz2Credit Lawsuit
December 12, 2017A three-year-old lawsuit pending in the New York Supreme Court has experienced a flurry of motion practice, according to the docket. The latest order issued by the Honorable Kelly O’Neill Levy granted Kalamata Capital leave to amend the complaint to include both Direct Lending Investments, LLC and Direct Lending Income Fund LP as defendants.
A key claim in this case is the allegation of tortious interference. A previous legal brief on the matter can be read here.
The case can be found in the New York Supreme Court under index number 653749/2014.
MCA Funder Asks Court to Set Aside Default Judgment in Usury Case
November 10, 2017If it wasn’t for the Usury Law Blog, an MCA company may never have known about the default judgment entered against it in Florida for usury, according to documents filed in the case.
On Wednesday, the funding company filed a motion to set aside the default judgment and reopen the case on the basis that the in-house attorney handling the case for them left the company in September. The company had no way of receiving case notices after he left, they say, because the attorney had used a non-company email address as the email of record with the Court.
The funding company’s new attorney only became aware of the case when the Usury Law Blog published an analysis of it, they say.
The Court has initially denied their motion without prejudice on the basis that procedure requires that they certify that they have conferred, or describe a reasonable effort to confer, with the parties affected in good faith effort to resolve the dispute. Presumably, the funder can refile the motion once the defect has been cured.
ISO Alleged to Have Forged a Confession of Judgment
November 6, 2017
Underwriters, keep your eyes on the notary stamps.
A lawsuit filed in the New York Supreme Court last week by a merchant cash advance company against an ISO and several co-defendants, alleges that an ISO was partially responsible for damages when a merchant defaulted.
And they make a compelling argument. In this case where a Confession of Judgment (COJ) was required to approve the deal, the merchant, who defaulted within 30 days of being funded, claims to have never signed one, despite the ISO having delivered a signed one to the funder.
Well then who signed it?
Upon inspection, the notary stamp on the COJ belonged to a notary in Nassau County, NY, where the contract logically would’ve been notarized. But the merchant is based in Florida and claims to have been in Florida at the time the COJ was allegedly signed.
So who would’ve been in Nassau County that day?
According to the funder, it was the ISO, since the ISO is based on Long Island and the ISO is the one that delivered the signed COJ to them.
These are just the allegations at this point, of course, since the defendants have not even yet had a chance to respond.
The complaint, however, adds another twist, that after the ISO got the deal funded, they then referred it to a debt settlement company, who assisted the merchant in defaulting.
As you might imagine, the debt settlement company is a named co-defendant.
The case is filed under Index Number: 656692/2017 in the New York Supreme Court. You can view the entire complaint here.
Stacking Lawsuit Could Go to Trial
October 18, 2017A lawsuit between RapidAdvance and Pearl Capital that has been making its way through the Maryland state court system for two years may be heading to trial.
In this case, plaintiff Small Business Financial Solutions, LLC (SBFS AKA RapidAdvance) alleged that Pearl Beta Funding, LLC (AKA Pearl Capital) interfered with a loan agreement it had with a merchant when Pearl “stacked” financial obligations to Pearl on top of the obligations the customer owed to SBFS. Ultimately the merchant defaulted and SBFS wants to hold Pearl responsible for the damages it incurred.
Pearl originally moved to dismiss the suit but was unsuccessful. Later, Pearl filed a motion for summary judgment. On September 29th, that motion was denied, with the judge opining that issues of fact remained that were best left for a jury.
Unless Pearl appeals the decision or the parties settle, the case will go to a jury.
A representative for Pearl Capital declined to comment on the decision, citing ongoing litigation.
Patrick Siegfried, Assistant General Counsel for RapidAdvance, opted to tell deBanked the following:
“The court’s decision from many months ago to reject Pearl’s motion to dismiss and its more recent decision to reject the motion for summary judgment and permit this case to go to trial confirms the anti-stacking position RapidAdvance has consistently taken. The court’s rulings make it clear that when a funding company funds a merchant knowing that doing so is a breach of the customer’s agreement with another funder and the stacker’s funding is a substantial cause of the merchant defaulting with the other funder, its actions constitute tortious interference. As a result, the company that stacked can be held liable for the losses the original funder incurs. While the outcome at trial is impossible to predict as the court will need [to] decide whether there are sufficient facts to satisfy each element, RapidAdvance is pleased that its legal reasoning on stacking has been confirmed in a written opinion and that we now have the roadmap for pursuing others that tortiously interfere with our contracts by stacking.”
Of note, is that RapidAdvance brought this case in The Circuit Court for Montgomery County, Maryland. Few other players in the industry may be able to designate Maryland as the proper venue. The standards for tortious interference may not be the same in other states. There are many circumstances in the case not discussed in this synopsis. Consult an attorney before drawing any conclusions. YOU CAN DOWNLOAD THE FULL DECISION HERE.
The case is Small Business Financial Solutions, LLC v. Pearl Beta Funding, LLC Case No. 411478-V in the Circuit Court for Montgomery County, Maryland.
Payday Lending King Scott Tucker Convicted
October 14, 2017
One year after a federal judge awarded a record-setting $1.3 billion judgment to the FTC against Scott Tucker for damages caused by his payday lending empire, a jury in the Southern District of New York found him guilty on criminal charges that include participating in a racketeering enterprise through the collection of unlawful debt, wire fraud, money laundering, and violations of the Truth In Lending Act.
Tucker and another defendant, who happened to be his attorney in the scheme, are set to be sentenced on January 5th. He will remain on house arrest until then. Tucker is facing more than 20 years in prison. He is 55.
Among the luxuries Tucker spent his ill-gotten gains on were his professional racing hobby. His auto racing team, Level 5 Motorsports, participated in international tournaments and won 4 championships. The feds auctioned off his race cars that included two Ferraris and a Porsche earlier this year.
According to the DOJ:
TUCKER devised a scheme to claim that his lending businesses were protected by sovereign immunity, a legal doctrine that, among other things, generally prevents states from enforcing their laws against Native American tribes. Beginning in 2003, TUCKER entered into agreements with several Native American tribes (the “Tribes”), including the Santee Sioux Tribe of Nebraska, the Miami Tribe of Oklahoma, and the Modoc Tribe of Oklahoma. The purpose of these agreements was to cause the Tribes to claim they owned and operated parts of TUCKER’s payday lending enterprise, so that when states sought to enforce laws prohibiting TUCKER’s loans, TUCKER’s lending businesses would claim to be protected by sovereign immunity.
At trial, the jury wasn’t fooled. Read the full DOJ report here.
Updates On Several Industry Court Cases
October 4, 2017Curious to know the status of industry court cases we’ve reported on? Here’s an update on several:
| Case | When filed | Where pending | Status |
| Yellowstone Capital LLC and EBF Partners, LLC v. Corporate Bailout, LLC, Mark D. Guidubaldi & Associates, LLC dba Protection Legal Group, PLG Servicing, LLC, American Funding Group, Coast to Coast Funding, LLC, ROC Funding Group, LLC, ROC South LLC, and Mark Mancino. | 9/27/17 | New York State Supreme Court | Complaint filed. No anwswer filed yet |
| Sean Pullen, Christina Cane, Michael Cane, Michael Carrera, Matthew Taylor, and Yulia Zamaora v Social Finance, Inc. and Does 1-50 | 8/14/17 | Superior Court of California | SoFi filed an answer to the complaint on 9/15 |
| Craig Cunningham v. Mark D. Guidubaldi & Associates, LLC dba Protection Legal Group, and Corporate Bailout, LLC, Sanford J. Feder Esq, Mark D. Guidubaldi, Esq, Cashflow Care, LLC | 5/10/17 | Northern District of Texas | Motion for default judgment filed against Corporate Bailout on 9/12/17. Defendant never responded |
| Natures Market Corp v. Creditors Relief | 4/28/17 | New York State Supreme Court | Creditors Relief’s motion to dismiss and sanctions are still pending |
| Pearl Gamma Funding, LLC and Pearl Beta Funding, LLC v. Creditors Relief, LLC | 11/16/16 | New York State Supreme Court | Pearl has moved to dismiss Creditors Relief’s counterclaims |
| United States v. Sergiy Bezrukov | 10/26/16 | Western District of New York | The criminal indictment was amended on 8/3/17 to add more charges. Bezrukov is facing up to 30 years in prison |
| Ronald Bethune, on behalf of himself and all others similarly situated v. Lendingclub Corporation;WebBank, Steel Partners Holdings, L.P.; The Lending Club Members Trust; and does 1 through 10, inclusive | 4/6/16 | Southern District of New York | The judge granted the defendants motion to compel arbitration on Jan 30, 2017 |
| Kalamata Capital LLC v. Biz2Credit, Inc. and Itria Ventures, LLC | 12/8/14 | New York State Supreme Court | Kalamata plans to amend the complaint and the Court is scheduled to decide on the debate over whether certain documents should be sealed from public view |
| Federal Trade Commission v. AMG Services, Inc., et al. | 4/2/12 | District of Nevada | $1.3 billion judgment entered. Company owner Scott Tucker is also currently being tried criminally in the Southern District of New York for ill-gotten profits related to his payday lending empire. The jury is expected to decide the outcome this month |
ISOs Alleged to Be Partners in Debt Settlement “Scam” in Explosive Lawsuit
September 28, 2017
ISOs and brokers referring deals to debt settlement companies should pay attention to a lawsuit that was filed in the New York Supreme Court on Wednesday. In it, plaintiffs Yellowstone Capital and EBF Partners (“Everest Business Funding”) allege that certain ISOs are culpable partners in a scam that nefarious debt settlement companies are perpetrating on small businesses.
The debt settlement companies “mislead the merchants as to the services they will perform and the cost to the merchant, and they also conceal their relationships with the ISO Defendants and the fact that they or their affiliates are introducing these same merchants to merchant cash advance providers like Plaintiffs only to later induce those merchants to breach their agreements with their cash advance providers,” the complaint states.
Among the named defendants are:
- Corporate Bailout, LLC
- Mark D. Guidubaldi & Associates, LLC dba Protection Legal Group
- PLG Servicing LLC
- American Funding Group
- Coast to Coast Funding, LLC
- ROC South, LLC
- Mark Mancino
Several defendants are already best known for running an office “so sexually aggressive, morally repulsive, and unlawfully hostile that it is rivaled only by the businesses portrayed in the films ‘Boiler Room’ and ‘The Wolf of Wall Street,’” according to a salacious story that graced the back cover of the New York Post last month.
One paragraph of the complaint summarizes the allegedly collaborative scheme like this:
American Funding, Coast to Coast, […] (the “ISO Defendants”) are independent sales organizations (“ISOs”), companies that ostensibly support the merchant cash advance industry by brokering merchant agreements for companies like Plaintiffs. The ISO Defendants are anything but the proverbial “honest brokers.” As alleged below, they have partnered with companies that purport to offer debt relief services to merchants who have agreements with merchant cash advance companies like Plaintiffs. In practice, for these companies, “debt relief” is a code word for deceiving merchants to breach their existing agreements with Plaintiffs and to instead pay fees to these debt relief entities. In short, they scam merchants into believing that they can save them money when, in fact, they leave these merchants in financial shambles, while causing Plaintiffs to suffer millions of dollars in losses and future los[t] profits.
“’DEBT RELIEF’ IS A CODE WORD FOR DECEIVING MERCHANTS TO BREACH THEIR EXISTING AGREEMENTS”
Central to the plaintiffs’ claim is that they have ISO agreements with the defendants and that the defendants’ conduct is a breach of those agreements. The three causes of action alleged are tortious interference with contract, conversion, and breach of contract. Plaintiffs claim that 100 merchants with more than $3 million in outstanding balances are in breach of their contracts because of the defendants’ conduct.
The complaint was prepared and filed by attorneys at Proskauer, a 142-year old law firm founded in New York City.
Debt Relief Under Fire
The small business debt relief industry has been marred by scandal in recent years. In an unrelated criminal matter being handled in the Western District of New York, the owner of Corporate Restructure Inc. (no ties to Corporate Bailout) is currently residing in the Niagara County Jail awaiting trial on charges of conspiracy to commit mail fraud, wire fraud, bank fraud and money laundering for failing to deliver the debt relief services it charged for. In that case, United States vs. Sergiy Bezrukov, Bezrukov advertised that he could reduce a merchant’s short term debt by up to 75%. He is facing up to 30 years in prison. He was also previously a merchant cash advance ISO.
Two other MCA funding companies, Pearl Gamma Funding and Pearl Beta Funding, filed a lawsuit last November against another debt relief company that calls itself Creditors Relief. The complaint in that case also alleges tortious interference with contract and is still pending.
Meanwhile, a lawsuit filed in May by famous TCPA litigant Craig Cunningham against Corporate Bailout and Mark D Guidubaldi & Associates LLC went unanswered, according to court records. Cunningham, who alleged violations of telemarketing laws, filed for a default judgment against Corporate Bailout on September 12th.
Taking Advantage
Both Yellowstone Capital and Everest would not comment on the lawsuit they filed, citing pending litigation. Sources close to them, however, contend that both companies take matters that involve merchants being taken advantage of very seriously.
“When our own ISOs work directly in concert with companies that induce merchants to breach our contracts, that’s a problem,” said one source who did not wish to be named and was speaking generally about the recent introduction of debt relief service companies to the industry. “They’re taking advantage of businesses that can’t afford to be taken advantage of.”
An email sent by deBanked to Mark Mancino early Thursday afternoon, an individually-named defendant alleged to be affiliated with the other defendants, has not yet received a response. This story may be updated if a reply is received.
A COPY OF THE COMPLAINT CAN BE VIEWED HERE.
Alternative Finance Bar Association Event is Wednesday
September 10, 2017If you’re interested in going, the Alternative Finance Bar Association event on Wednesday is open to both funding company executives and industry attorneys. The New Regulatory Challenges Facing Small Business Lending: Navigating the New Frontier will feature Joann Needleman, Esq., Jane Luxton, Esq. & Tommy Brooks, Esq. from Clark Hill PLC in the NYC Bar Association Offices on 42 West 44th Street in New York City.
To register or for more information, contact Tiffany Diaz at Tiffany@LRohanlaw.com.
The original announcement can be accessed here.
