Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, 17-CV-890 (LAP)

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: Loretta A. Preska, Senior United States District Judge
• Citation: 332 F.Supp.3d 729
• Parties: CONSUMER FINANCIAL PROTECTION BUREAU and The People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York, Plaintiffs, v. RD LEGAL FUNDING, LLC; RD Legal Finance, LLC ; RD Legal Funding Partners, LP ; and Roni Dersovitz, Defendants.
• Docket Number: 17-CV-890 (LAP)
• Decision Date: 21 June 2018

332 F.Supp.3d 729

CONSUMER FINANCIAL PROTECTION BUREAU and The People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York, Plaintiffs,
v.
RD LEGAL FUNDING, LLC; RD Legal Finance, LLC ; RD Legal Funding Partners, LP ; and Roni Dersovitz, Defendants.

17-CV-890 (LAP)

United States District Court, S.D. New York.

Signed June 21, 2018

332 F.Supp.3d 743

BENJAMIN KONOP, HAI BINH T. NGUYEN, JEFFREY PAUL EHRLICH, Deputy Enforcement Director, JOHN C. WELLS, Assistant Litigation Deputy, Bureau of Consumer Financial Protection, Washington, DC, JANE M. AZIA, MELVIN L. GOLDBERG, People of the State of New York by Eric T. Schneiderman, Attorney General for the State of New York, New York, NY, for Plaintiffs.

MICHAEL D. ROTH, JEFFREY M. HAMMER, DAVID K. WILLINGHAM, Boies Schiller Flexner LLP, Los Angeles, CA, ERIC T. KANEFSKY, Calcagni & Kanefsky LLP, Newark, NJ, for Defendants.

CAROLINA A. FORNOS, Pillsbury Winthrop Shaw Pittman, LLP, New York, NY, for Amicus Curiae American Legal Finance Association.

CHRISTOPHER A. SEEGER, TERRIANNE BENEDETTO, Seeger Weiss LLP, New York, NY, DIOGENES P. KEKATOS, Seeger Weiss LLP, Ridgefield Park, NJ, for Proposed Amicus Curiae Plaintiff Settlement Class in In re National Football League Players' Concussion Injury Litigation.

OPINION & ORDER

Loretta A. Preska, Senior United States District Judge

332 F.Supp.3d 744

Table of Contents

I. Factual Background...746

a. The NFL Class Members...746

b. September 11, 2001 James Zadroga Victims Compensation Fund Eligible Claimants...747

c. The Purchase Agreements...747

d. Claims Against the RD Entities...748

i. CFPA Claims...748

ii. Claims Arising Under New York Law...748

II. Procedural History...749

III. Legal Standard...751

IV. Discussion...751

a. Federal Jurisdiction...752

i. The RD Entities as "Covered Persons" Under the CFPA...752

1. The NFL Concussion Litigation Settlement Agreement Claims...752

a. The NCLSA's Anti-Assignment Provision...753

b. Legal Standard Regarding the Scope of the Anti-Assignment Provision...753

c. Assignability of "Settlement Proceeds" Versus "Monetary Claims"...755

d. Interpretation of the New York UCC...756

e. The NFL-related Purchase Agreements Are Void...756

2. 31 U.S.C. § 3727 Invalidates the Assignment of Compensation Awards from the VCF...756

a. The Anti-Assignment Act, 31 U.S.C. § 3727...757

i. "Claim Against the United States"...757

ii. Statutory Purpose...759

iii. .. The VCF-related Purchase Agreements Do Not Comply With the Anti-Assignment Act's Requirements...761

3. Eligible Claimants and NFL Class Members "Incur[red] Debt" Through the Purchase Agreements ...761

a. The RD Entities Extend "Credit" and "Service[ ] Loans"...766

4. The RD Entities Are "Covered Persons" Under the CFPA...766

b. Failure to State a Claim Fed. R. Civ. P. 12(b)(6)...767

i. Rule 9(b)'s Heightened Pleading Standard Does Not Apply to Non-Fraud Claims...767

1. "Substantial Assistance" Claims Under the CFPA...769

2. Specificity of Allegations Against Each Defendant Under Rule 8(a)...770

332 F.Supp.3d 745

ii. "Substantial Assistance" Liability Under the CFPA...771

iii. Deceptive and Abusive Conduct Under the CFPA...772

1. Counts I, III, IV, V: Deceptive Acts or Practices Under the CFPA...772

a. Count I...773

i. "Substantial Assistance" Claim Against Roni Dersovitz Under Count I...773

b. Count III...774

i. "Substantial Assistance" Claim Against Roni Dersovitz Under Count III...775

c. Count IV...775

i. "Substantial Assistance" Claim Against Roni Dersovitz Under Count IV...776

d. Count V...776

i. "Substantial Assistance" Claim Against Roni Dersovitz Under Count V...777

2. Count II: Abusive Acts or Practices Under the CFPA...777

a. "Substantial Assistance" Claim Against Roni Dersovitz Under Count II...778

iv. State Law Claims...779

1. NYAG's Jurisdiction Over the Purchase Agreements...779

2. Count VI: Claims Under New York Civil and Criminal Usury Laws...780

3. Count VIII: Violation of New York General Obligations Law § 13-101...781

4. Count IX: Violation of New York General Business Law § 349...781

5. Count X: Violation of New York General Business Law § 350...783

6. Count XI: New York Executive Law § 63(12) Fraud...783

c. Constitutional Claims...784

i. History, Liberty, and Presidential Authority...784

ii. CFPB's Notice of Ratification...784

d. Conclusion...785

This is an action by Plaintiffs Consumer Financial Protection Bureau (the "CFPB") and the People of the State of New York, by Eric T. Schneiderman, Attorney General for the State of New York ("NYAG" or the "Attorney General") (collectively, the "Government"), against Defendants RD Legal Funding, LLC; RD Legal Finance, LLC; RD Legal Funding Partners, LP (collectively, the "RD Entities"); and Roni Dersovitz, the founder and owner of the RD Entities (together with the RD Entities, the "Defendants"). The Government asserts that the Defendants violated certain provisions of the Consumer Financial Protection Act ("CFPA" or the "Act"). NYAG independently asserts that the RD Entities are liable under New York law for the same actions and events that form the basis of the CFPA claims. Defendants move to dismiss the Complaint (ECF No. 1) on three principal grounds. First, Defendants argue that the CFPB is unconstitutionally structured and therefore lacks the authority to bring claims under the CFPA. Second, Defendants contend that the Court lacks federal jurisdiction because the RD Entities are not "covered persons" under the CFPA and therefore do not come within the Act's jurisdictional purview. Third and finally, the RD Entities move to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim for relief.

As set out below, because the CFPB's structure is unconstitutional, it lacks the authority to bring claims under the CFPA and is hereby terminated as a party to this action. The NYAG, however, has independent

332 F.Supp.3d 746

authority to bring claims under the CFPA. The Court concludes that NYAG has alleged plausibly claims under the CFPA and under New York law. Accordingly, Defendants' motion to dismiss the Complaint is denied. (ECF No. 39.)

I. Factual Background

The following facts are drawn from the Complaint, (Complaint ("Compl."), ECF No. 1), the Assignment and Sale Agreements (hereinafter the "Purchase Agreements") attached as exhibits to the Affidavit of Roni Dersovitz, (Affidavit of Roni Dersovitz ("Dersovitz Aff."), Exs. A-1 to A-20, B-1 to B-5, ECF No. 41-1), and the National Football League ("NFL") Concussion Litigation Settlement Agreement ("NCLSA"), (Dersovitz Aff. Ex. 6), which Defendants attached to their motion to dismiss. The allegations in the Complaint are accepted as true for purposes of the instant motion.¹

The CFPB and NYAG bring this action against the RD Entities and their founder and owner, Roni Dersovitz. (Compl. ¶¶ 15-19.) The RD Entities are companies that offer cash advances to consumers waiting on payouts from settlement agreements or judgments entered in their favor. The Government alleges that Defendants misled these consumers into entering cash advance agreements that the Defendants represented as valid and enforceable sales but, in reality, functioned as usurious loans that were void under state law. (Compl. ¶ 19.)

At issue in this case are two specific groups of consumers (collectively, the "Consumers") with which the RD Entities transacted: (1) class members in the National Football League ("NFL") Concussion Litigation class action ("NFL Class Members" or "Class Members") and (2) individuals ("Eligible Claimants") who qualify for compensation under the September 11th Victim Compensation Fund of 2001 ("VCF"). 49 U.S.C. § 40101.

a. The NFL Class Members

On January 31, 2012, a federal multidistrict litigation was created in United States District Court for the Eastern District of Pennsylvania for lawsuits on behalf of former NFL players who suffer from mild traumatic brain injury due to playing professional football. See Settlement Agreement (hereinafter "Settlement Agreement") Preamble,

332 F.Supp.3d 747

In re NFL Players' Concussion Injury Litig., MDL No. 2323 (E.D. Pa. Feb. 13, 2015) (ECF No. 6481-1). Defendants in that case, the NFL and NFL Properties LLC, ultimately agreed that settlement of the claims in that complex putative class action was appropriate. Id. Recitals (K). Accordingly, on February 13, 2015, a federal district court in the Eastern District of Pennsylvania approved the NFL Concussion Litigation Settlement Agreement ("NCLSA") between the Class Members, by and through class counsel, and defendants NFL and NFL Properties LLC. Id. Preamble.

The NFL Class Members at issue in this case are former NFL players who have been diagnosed with neurogenerative diseases such as chronic traumatic encephalopathy ("CTE"), Alzheimer's, or Parkinson's disease and who have received notification of their entitlement to a settlement award under the NCLSA for these injuries. (Compl. ¶¶ 22-23.)

b. September...