Cohen v. Capital One Funding, LLC
| Decision Date | 28 September 2020 |
| Docket Number | 19-cv-3479(KAM)(RLM) |
| Citation | 489 F.Supp.3d 33 |
| Parties | William COHEN, Sue Paivanas, and Christy Ogrodoski, individually and on behalf of all others similarly situated, Plaintiffs, v. CAPITAL ONE FUNDING, LLC ; Capital One Master Trust ; Capital One Multi-Asset Execution Trust ; and the Bank of New York Mellon Corporation, as Trustee of Capital One Master Trust, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Shanon J. Carson, Pro Hac Vice, Glen L. Abramson, Pro Hac Vice, Berger & Montague, P.C., Philadelphia, PA, Charles William Frick, Pro Hac Vice, Daniel Cohen, Pro Hac Vice, Cuneo Gilbert & LaDuca, LLP, Washington, DC, Christian Edward Hudson, Cuneo, Gilbert & Laduca LLP, Brooklyn, NY, for Plaintiff William Cohen.
Charles William Frick, Daniel Cohen, Pro Hac Vice, Cuneo Gilbert & LaDuca, LLP, Washington, DC, Shanon J. Carson, Pro Hac Vice, Glen L. Abramson, Pro Hac Vice, Berger & Montague, P.C., Philadelphia, PA, Christian Edward Hudson, Cuneo, Gilbert & Laduca LLP, Brooklyn, NY, for Plaintiffs Sue Paivanas, Christy Ogrodoski.
James A. Murphy, Cameron Scott Matheson, Murphy & McGonigle, P.C., Glen Allen, VA, Theodore Snyder, Murphy & McGonigle, P.C., New York, NY, for Defendants Capital One Funding, LLC, Capital One Master Trust, Capital One Multi-Asset Execution Trust.
Christopher James Houpt, Matthew D. Ingber, Mayer Brown LLP, New York, NY, Debra Bogo-Ernst, Pro Hac Vice, Mayer Brown, Chicago, IL, for Defendants Bank of New York Mellon Corp., Deutsche Bank Trust Company Delaware.
Cameron Scott Matheson, Murphy & McGonigle, P.C., Glen Allen, VA, for Defendant The Bank of New York Mellon.
Plaintiffs William Cohen, Sue Paivanas, and Christy Ogrodoski (collectively, "Plaintiffs"), individually, and on behalf of others similarly situated, bring this action against Capital One Funding, LLC ("CO Funding"), Capital One Multi-Asset Execution Trust ("COMET"), and the Bank Of New York Mellon Corporation ("BONY"), solely in its capacity as Trustee of Capital One Master Trust ("COMT") (collectively, "Defendants"), alleging violations of New York usury and banking law, as well as unjust enrichment. Plaintiffs are New York residents with outstanding loan balances on credit cards that were issued by non-party Capital One Bank (USA) National Association ("Capital One"). (Id. ¶¶ 9-22.) Defendants, but notably, not Capital One, are alleged to have charged and received payments from Plaintiffs and other New York consumers at interest rates exceeding New York's 16% usury limit, in violation of New York General Obligation Law § 5–501 and Banking Law § 14-a. (Id. ¶¶ 5, 29.) Plaintiffs seek compensatory damages, injunctive relief, and disgorgement of sums paid in excess of the usury limit. (Id. ¶ 88.)
Presently before the court is Defendants’ motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The court has considered the submissions of the parties and amici. For the reasons set forth below, Defendants’ motion is GRANTED, and the Amended Complaint is DISMISSED in its entirety.
The background information is derived from the well-pleaded factual allegations of the Amended Complaint and other information the court may consider in determining whether the pleading is legally sufficient.
Plaintiffs represent a putative class of New York residents who, at any time since June 12, 2013, have paid credit card interest to Defendants at a rate exceeding 16%. (Compl. ¶ 77.) Plaintiffs have paid Defendants interest rates ranging from 22.5 to 27.74% on their outstanding Capital One credit card balances. (Id. ¶¶ 11, 16, 21.) Defendants are primarily entities affiliated with Capital One, as discussed further below. CO Funding is a Virginia Limited Liability Company. (Id. ¶ 24.) COMT is a common law trust, with BONY serving as its Trustee. (Id. ¶ 25.) COMET is a Delaware Statutory Trust, with Deutsche Bank Trust Company as Trustee, and CO Funding as the beneficiary. (Id. ) CO Funding, COMT, and COMET are not banks. (Id. ¶ 26.)
Credit card securitization can be summarized as follows: first, a financial institution, such as a bank, designates select credit card accounts;1 the bank then pools the accounts’ receivables, which generally include all payments owed by accountholders, such as principal and interest payments, and payments for all fees, including late fees, over limit fees, and annual fees; finally, the bank sells the receivables to and through shell-company intermediaries, with the receivables ultimately serving as a collateral base to secure bond-like, fixed-income securities issued to investors. (Compl. ¶¶ 31, 43.) The bank ultimately receives the sales proceeds from investors’ purchases of the securities. In essence, the securitization allows the bank to transform a pool of credit card receivables into cash. (Id. ¶ 35 n.4.)
The "sponsor," usually a bank, initiates securitization by selling the entire balance of receivables arising from select credit card accounts, along with rights to purchase future receivables generated therefrom, to its wholly-owned, special-purpose subsidiary. (Compl. ¶ 32.) The subsidiary, or "depositor," has no assets or liabilities. (Id. ) It exists to shield the receivables if the sponsor's assets fall under the control of a bankruptcy trustee or FDIC receivership. (Id. ¶ 33.) By making the receivables "bankruptcy remote," prospective investors can assess the pooled assets based on their intrinsic value, without regard to the sponsor firm's general operating risks. (Id. ¶¶ 33, 37.)
After the initial sale of receivables from sponsor to depositor, the latter sells the pooled receivables and associated rights to a passive, single-purpose entity ("SPE"), typically a trust. (Compl. ¶ 34.) The SPE is legally independent of the sponsor. (Id. ) The attenuated relationship between the SPE and sponsor further protects the receivables from consolidation into a bankruptcy or FDIC receivership estate. (Id. ) After the SPE acquires the receivables, it issues certificated securities to the depositor. (Id. ¶ 35.) These securities are collateralized, or backed, by the pooled receivables. (Id. ) The depositor now holds "asset-backed" securities, or ABS. The depositor then sells the ABS to investors, either through various underwriting affiliates, or by transferring ABS to the sponsor, which, in turn, sells them directly to investors or through underwriters. (Id. ) The depositor pays the sponsor for the initial sale of the receivables with the proceeds from ABS sales. (Id. )
Because the SPE acquires the right to purchase any new receivables, as cardholders’ subsequent purchase activity generates more receivables on designated accounts, new receivables are likewise purchased by the SPE through the series of transactions described above. (Compl. ¶ 36.) The SPE pays for new receivables with funds from cardholders’ principal payments; credit card interest and fees fund the SPE's operating expenses and coupons due to ABS investors. (Id. ) As a passive entity, however, the SPE lacks significant operational capacity—its sole purpose is to purchase receivables and issue securities. Therefore, a servicing agent, or "servicer," is engaged to manage the receivables on the SPE's behalf, and for the benefit of the ABS investors. (Id. ¶ 37.) For instance, the servicer sends cardholders their billing statements, and collects their outstanding debt payments. (Id. ) Where, as here, the SPE is a common law trust, the trustee holds legal title to the receivables, whereas beneficial ownership of the receivables resides with ABS investors. (Id. ¶ 38.)
Plaintiffs opened credit card accounts with Capital One, the ABS sponsor. (Compl. ¶¶ 40-42; see also ECF No. 43-4, Prospectus for Class A(2019-1) Notes, dated February 20, 2019 ("Prospectus").)2 Capital One is a national bank located in Virginia. (ECF No. 43-3, Comptroller of the Currency: Corporate Decision #2007-09 Approving Decision to Convert to National Bank ("OCC Decision"); Prospectus 73,75.)3
Pursuant to a Receivables Purchase Agreement, dated August 1, 2002 ("RPA"), Capital One sold credit card receivables to CO Funding. (Compl. ¶¶ 40-45; see also ECF No. 43-2, RPA, p. 1 – Recitals ("Capital One desires to sell and assign, from time to time, certain Receivables to [CO] Funding upon the terms and conditions hereinafter set forth[.]").) CO Funding, a wholly-owned, operating subsidiary of Capital One, acquired all "right, title and interest, whether now or hereafter acquired, in, to and under [the credit card receivables]." (Compl. ¶ 44; RPA §§ 2.01(a), (d); Prospectus 21.) CO Funding and Capital One additionally agreed that the transfers of receivables "constitute an absolute sale, conveying good title, free and clear of any liens, claims, encumbrances or rights of others, from Capital One to [CO] Funding." (Compl. ¶ 45; RPA § 2.01(d).)
Once CO Funding acquired the receivables from Capital One, it sold them to COMT pursuant to an Amended and Restated Pooling and Servicing Agreement, originally dated as of September 30, 1993 ("PSA"). (Compl. ¶¶ 47-50; see also 43-5, PSA § 2.01(a) ().) COMT issued a collateral certificate to COMET, representing an undivided interest in the credit card receivables owned by COMT. The collateral certificate did not, and does not, effect a transfer of the credit card receivables themselves. (Id. ) Rather, the collateral certificate secures the investors’ notes, and also conveys payments from Plaintiffs and other class members from COMT to COMET. (Compl. ¶ 55.)...
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