Blackburn v. A.C. Isr. Enters.
| Docket Number | CIVIL 3:22cv146 (DJN) |
| Decision Date | 24 July 2023 |
| Parties | SHERRY BLACKBURN, et al., individually and behalf of all others similarly situated Plaintiffs, v. A.C. ISRAEL ENTERPRISES, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Virginia |
This matter comes before the Court on nine motions:
(1) The Kellner Defendants'[1] Motion to Dismiss Pursuant to Rules 12(b)(2) and 12(b)(6) (ECF No. 95);[2]
(2) The LP Investor Defendants'[3] and Signal Light Defendants'[4] joint Motion to Dismiss Pursuant to Rule 12(b)(2) (ECF No. 96);[5]
(3) The LP Investor Defendants' Motion to Dismiss Pursuant to Rule 12(b)(6) (ECF No. 98);[6] (4) The Signal Light Defendants' Motion to Dismiss Pursuant to Rule 12(b)(6) (ECF No. 101);[7]
(5) Defendant Cabbage City, LLC's (“Cabbage City”) Motion to Dismiss Pursuant to Rules 12(b)(2) and 12(b)(6) (ECF No. 116);[8]'[9]
(6) The Raizada Defendants'[10] Motion to Dismiss Pursuant to Rule 12(b)(2) (ECF No. 145);[11]
(7) Defendant Spectrum Business Ventures Inc.'s Motion to Dismiss Pursuant to Rule 12(b)(6) (ECF No. 147)[12]
(8) Defendant Amit Raizada's Motion to Dismiss Pursuant to Rule 12(b)(6) (ECF No. 149);[13] and, (9) The Raizada Group LLLP's Motion to Dismiss Pursuant to Rule 12(b)(6) (ECF No. 150).[14] (Collectively, the “Motions” or the “Motions to Dismiss.”)
The Motions now stand ripe for disposition. The Court dispenses with oral argument because the materials before it sufficiently address the facts and legal positions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331[15] and 1367(a).[16] For the reasons set forth below, the Court will deny all nine Motions in their entirety.
I. BACKGROUND
This suit arises out of Defendants' participation in an allegedly unlawful short-term, payday lending operation elements of which were the subject of earlier litigation before this Court. See Hengle v. Asner, 433 F.Supp.3d 825, 839-44 (E.D. Va. 2020), aff'd sub nom. Hengle v. Treppa, 19 F.4th 324 (4th Cir. 2021) (summarizing factual allegations). Plaintiffs describe the lending operation as a “rent-a-tribe” scheme, whereby “non-tribal payday lenders and their business partners use[] Native American tribes to originate illegal loans” that victimize “financially vulnerable consumers” by skirting state usury laws. (Am. Compl. ¶¶ 2, 73, 76.)
In Hengle, four of the plaintiffs to this action, alongside others, brought suit against tribal officials of the Habematolel Porno of Upper Lake (the “Tribe” or “Habematolel Porno Tribe”) and two of the Tribe's non-tribal business partners - Scott Asner (“Asner”) and Joshua Landy (“Landy”). 433 F.Supp.3d at 840-43. There, the plaintiffs alleged that the Tribe, through its consumer-facing lending entities, and Asner and Landy, through their ownership and operation of various non-tribal businesses created to support those tribal entities, violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., Virginia's usury and consumer finance statutes, and Virginia common law. Hengle, 433 F.Supp.3d at 839. That suit culminated in a nationwide class action settlement agreement, to which this Court granted its final approval on October 25, 2022.
Plaintiffs to this action now bring suit against several individuals and entities whom Plaintiffs allege “knowingly aided, funded, facilitated and participated in the usurious lending scheme” at the heart of the Hengle case. (Am. Compl. ¶ 3.) Plaintiffs allege that these “business partners and investors,” whose identities and involvement Plaintiffs failed to uncover until nearly two years into the Hengle litigation, also committed RICO and Virginia common law violations through their contributions to the Habematolel Porno Tribe's payday lending enterprise. (Am. Compl. ¶¶ 3-4.) In that vein, Plaintiffs allege the following facts.
Between the early 1990s and 2010, Joshua Landy, an entrepreneur in the consumer lending industry, formed “several successful consumer finance companies” that “offered short term micro-finance consumer loans to customers.” (Am. Compl. ¶ 93, Ex. 1 at 2688.) Landy's companies enjoyed “extreme[] success[],” and by the end of this roughly twenty-year period, Landy's companies boasted an approximately $4 million combined loan portfolio with aggregated annual revenues exceeding $30 million. (Am. Compl. ¶ 94, Ex. 1 at 2688.)
In October 2011, Landy sold a seventy percent interest in his lending businesses to a group of private investors. (Am. Compl. ¶ 96.) Defendant Spectrum Business Ventures (“SBV”), a private equity firm “primarily owned and managed” by Defendant Amit Raizada (“Raizada”), spearheaded the sale effort by recruiting many of those investors in exchange for a five percent finder's fee. (Am. Compl. ¶¶ 35, 96-97.) The closely held “successor” company that emerged on the other side of this sale took on the name of National Performance Agency, LLC (“NPA”). (Am. Compl. ¶ 91, Ex. 1 at 2688.) Notably, though SBV did not itself purchase an ownership interest in NPA during this sale process, Raizada owned a significant interest in NPA through his wholly-owned affiliate, the Raizada Group. (Am. Compl. ¶¶ 36,127,132.)
“To facilitate the sale” of Landy's lending businesses, Landy and Raizada, among others, formed a limited partnership - NPA Investors, LP (“NPA Limited Partnership”). (Am. Compl. ¶ 98.) The private investors that SBV recruited to undertake the partial acquisition of Landy's companies - Defendants Ingleside Investors, Richard Investors, LLC, Ferrell Capital, LLC, Seville, Ltd., E-Opportunities, LLC,[18] Skye, LLC, and Cabbage City, LLC, among others - invested in NPA Limited Partnership. (LP Investors MTD Mem. (ECF No. 99) at 3.) NPA Limited Partnership in turn invested those parties' funds in NPA. (Am. Compl. ¶ 96, 98; LP Investors MTD Mem. at 3.) Thus, Raizada and the bulk of his codefendants,[19] whom this Opinion refers to collectively as the “LP Investor Defendants,” became partial owners, through their interests in NPA Limited Partnership, of NPA - an entity that, as discussed in detail below, would go on to provide much of the financial capital and technical infrastructure backing the Habematolel Porno Tribe's consumer-facing lending operation. (Am. Compl. ¶¶ 96-106.) NPA Limited Partnership would also later serve as the vehicle through which the LP Investor Defendants “received the proceeds generated by the usurious loans” at issue in this suit. (Am. Compl. ¶ 98.)
Within two years of its formation, and “after consultation with, input from, and agreement by” the LP Investor Defendants, NPA “adjusted its business model” away from the structure under which Landy's consumer lending businesses had historically operated. (Am. Compl. ¶ 99, Ex. 1 at 2688.) Rather than originate loans through consumer-facing entities incorporated in Delaware, i.e., through the “Delaware lending model,” NPA resolved to partner with a Native American tribe and originate loans through consumer-facing entities incorporated under tribal law, i.e., through the “tribal lending model.” (Am. Compl. ¶¶ 99-102; Pls.' Resp. LP Investors MTD at 5.) To consecrate this change, and “after consultation with and input from” the LP Investor Defendants, Landy and Raizada “‘assessed numerous tribes' to serve as the conduit for [NPA's] high-interest loans.” (Am. Compl. ¶ 103, Ex. 1 at 2689.) “Ultimately, NPA initiated a partnership with the Habematolel Porno of Upper Lake” in the summer of 2012. (Am. Compl. ¶ 104.)
In furtherance of its agreement with NPA, the Habematolel Porno Tribe established three Tribal Lending Entities (“TLEs”) to serve as the consumer-facing vehicle for NPA's high-interest loans. (Am. Compl. ¶¶ 106-14.) By August 2012, two of these TLEs - Golden Valley and Silver Cloud - were issuing payday loans to consumers via their websites. (Am. Compl. ¶¶ 107-12.) A third TLE, Mountain Summit, began issuing loans via its website no later than January 2014. (Am. Compl. ¶ 113.) The interest rates charged on these loans “were more than 40 to 75 times the amount permitted by state usury” laws, and the websites of all three TLEs represented to customers that the TLEs were “‘wholly owned and operated' by the Tribe” from “‘within the Tribe's reservation.'” (Am. Compl. ¶¶ 109, 112, 114, 208.)
Notwithstanding these representations, however, “the Tribe's role was a front.” (Am. Compl. ¶ 115.) In exchange for the Tribe's willingness to “serve as the conduit” for NPA's high-interest loans, “NPA provided the Tribe with a turnkey lending operation.” (Am. Compl. ¶ 106.) Indeed, “non-tribal outsiders handled every material aspect of the [Tribe's] lending activities.” (Am. Compl. ¶ 115.) Among the resources and services that NPA provided to the Tribe were “(1) funding for the loans; (2) management and servicing of the loans; (3) a call center for customer support and processing of the loans; and (4) marketing for the loans.” (Am. Compl. ¶ 105.) NPA provided the bulk of these services from Overland Park, Kansas - “thousands of miles away from the Tribe's reservation” in Upper Lake, California. (Am. Compl. ¶¶ 115, 177.)
Consistent with this “rent-a-tribe” structure, “nearly all of the revenue” generated by the payday loans that the TLEs originated accrued to “non-tribal outsiders.” (Am. Compl. ¶ 123.) Under the “participation model” that NPA negotiated with the Tribe, NPA enjoyed the right to acquire “participation agreements” in the TLE-issued loans. (Am. Compl. ¶¶ 123-24.) At a high level these...
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