Fleetwood Servs., LLC v. Complete Bus. Solutions Grp., Inc.

• Decision Date: 10 April 2019
• Docket Number: CIVIL ACTION No. 18-268
• Citation: 374 F.Supp.3d 361
• Parties: FLEETWOOD SERVICES, LLC, et al. v. COMPLETE BUSINESS SOLUTIONS GROUP, INC. doing business as PAR Funding
• Court: U.S. District Court — Eastern District of Pennsylvania

374 F.Supp.3d 361

FLEETWOOD SERVICES, LLC, et al.

v.COMPLETE BUSINESS SOLUTIONS GROUP, INC. doing business as PAR Funding

CIVIL ACTION No. 18-268

United States District Court, E.D. Pennsylvania.

Filed April 10, 2019

Matthew K. Davis, Wendy D. Dawer, Jones David & Jackson PC, Dallas, TX, Justin E. Proper, Shane R. Heskin, White & Williams LLP, Philadelphia, PA, Luke E. McDaniels, Buchanan Ingersoll & Rooney PC, Philadelphia, PA, for Plaintiff.

Norman M. Valz, Law Offices of Norman M. Valz, P.C., Blue Bell, PA, Cynthia A. Clark, PAR Funding, Philadelphia, PA, for Defendant.

MEMORANDUM

Juan R. Sánchez, C.J.

Plaintiffs Fleetwood Services, LLC (Fleetwood Services), Robert L. Fleetwood, and Pamela A. Fleetwood (collectively, Plaintiffs), on their own behalf and on behalf of those similarly situated, bring claims for violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and Texas law against Defendants Complete Business Solutions Group, Inc. (CBSG), Prime Time Funding, LLC (PTF), and unnamed John and Jane Does (the Investor Defendants). Plaintiffs assert the Defendants worked together to exploit cash-strapped small businesses by luring them into endless cycles of usurious debt under the guise of false promises of consulting services and debt reduction. CBSG and PTF each moved to dismiss the claims against them. For the reasons explained below, the Court denied their motions to dismiss in its order of March 29, 2019.

FACTS¹

Robert and Pamela Fleetwood are the owners of Fleetwood Services, a Texas limited liability company, which provides golf course construction, development, renovation, and remodeling services. CBSG is a Delaware corporation headquartered in Philadelphia, Pennsylvania. PTF is a Pennsylvania entity also headquartered in Pennsylvania.

CBSG and PTF are engaged in the merchant cash advance industry, which is the merchant-to-merchant equivalent of consumer pay-day lending—an industry allegedly notorious for its predatory practices and extremely high interest rates. PTF and CBSG, along with the unidentified Investor Defendants, work together to fund, originate, underwrite, and service loans, which, like their consumer analogs, feature exorbitant annualized interest rates. Defendants have been engaged in this business—mostly through their online presence—since at least 2015.

In late 2016 or early 2017, Fleetwood Services experienced a cash shortage, but was ineligible for conventional financing. As a result, it entered into several merchant cash advance agreements, which ultimately encumbered the business with an obligation to make daily payments of $ 6,667.00 to its lenders. In January 2017, Fleetwood Services was approached by PTF and CBSG, who, through various email exchanges, offered to provide it with financial consulting and a debt consolidation program that would "provide capital for paying off existing debt as well as capital with which to grow the business." Am. Compl. ¶ 31. More specifically, PTF and CBSG claimed their assistance would reduce Fleetwood Services's daily payments by $ 1,666.75.

Defendants' promises, according to the Amended Complaint, were lies manufactured to conceal the true purpose behind CBSG and PTF's offer, which was to "worsen [ ] Fleetwood Services's cash flow and thereby increase its dependence on further loans exclusively from [ ] CBSG." Am. Compl. ¶ 41. And, this is exactly what is alleged to have happened to Fleetwood Services. After the funds provided at the beginning of the relationship were exhausted, Fleetwood Services was left "paying thousands of dollars more to [ ] CBSG than it had been paying prior to the debt consolidation program." Am. Compl. ¶ 40. Moreover, at around the time Fleetwood Services experienced cash flow issues created by its obligation to Defendants, CBSG offered Fleetwood Services the "opportunity" to restructure its agreement with CBSG by spreading the amount owed over a larger number of smaller payments. As part of this supposed accommodation, CBSG charged Fleetwood Services $ 11,000 in "Finance Charges," which were not provided for in the parties' agreement. Am. Compl. ¶ 44. Ultimately, Fleetwood Services escaped its relationship with Defendants on July 5, 2017, after receiving a traditional small business loan that it used to repay Defendants in full, including what Plaintiffs' characterize as an undisclosed annualized percentage rate of interest at 114.07%.

The relationship between Plaintiffs and CBSG was governed by the terms of the "Factoring Agreement," which was executed on or about January 4, 2016.² SeeCBSG Mot. to Dismiss Ex. A at 2.³ The Factoring Agreement obligated CBSG to provide Fleetwood Services with $ 370,000 (the Purchase Price) allegedly in exchange for $ 547,000 worth of Fleetwood Services accounts receivables (the Receipts Purchased Amount).Id. at 2. However, allegedly unlike a traditional factoring agreement, the fair market value of the accounts receivable (i.e., the Receipts Purchased Amount) was unilaterally dictated by CBSG and based upon the creditworthiness of Fleetwood Services —not the creditworthiness of the customers who were to pay the accounts receivable or any appraisal of the actual value of Fleetwood Services' accounts receivable. Am. Compl. ¶ 34. The Factoring Agreement obligated Fleetwood Services to repay the Receipts Purchased Amount in 110 daily installments of $ 5,000.25, which were effectuated by electronic automated clearing house debits from Fleetwood Services's Texas-based bank accounts. These daily payments were, like the Receipts Purchased Amount, also divorced from Fleetwood Services's actual accounts receivable because the Factoring Agreement made "any and all receivables from any customer in any amount based on any sale subject to Defendant CBSG for payment of the daily fixed debit." Id. ¶ 35.

The Factoring Agreement contained several other terms material to the instant motions. These additional terms include: (1) a declaration the money provided by CBSG to Fleetwood Services "is not intended to be, nor shall it be construed as a loan;"; (2) CBSG's promise to refund Fleetwood Services any amount greater than the maximum lawful interest rate, in the event "a court determines that [CBSG] has charged or received interest" under the Agreement; and (3) a Pennsylvania choice of law provision. CBSG Mot. to Dismiss Ex. A at 2.⁴ Along with the Factoring Agreement, the Defendants also required Fleetwood Services to ensure repayment by granting CBSG security interests in "all accounts, chattel paper, documents, equipment, general intangibles, instruments and inventory ... now or hereafter owned or acquired by [Fleetwood Services] and (b) all proceeds, as that term is defined in Article 9 of the UCC," and obligating Pamela and Robert Fleetwood to personally guarantee Fleetwood Services paid CBSG the Receipts Purchased Amount ($ 547,000). CBSG Mot. to Dismiss Ex. A at 5-6.

Based on the forgoing, Plaintiffs filed an Amended Complaint asserting claims for breach of Texas Business & Commercial Code § 17.44(a) (Count I); the Texas Usury Statute (Count II); common law fraud (Count III); RICO (Count IV); common law civil conspiracy (Count VI); and common law negligent misrepresentation (Count VII). In addition, the Amended Complaint seeks specific performance of paragraph 1.10 of the Factoring Agreement (Count V). CBSG and PTF moved to dismiss the Amended Complaint on February 16, 2018, and March 27, 2018, respectively. Although Defendants seek to dismiss Counts IV, V, and VII specifically, they claim the Factoring Agreements were not usurious loans under governing Pennsylvania law, an argument which, if credited, all parties agreed would require the dismissal of all but a few of Plaintiffs' claims.

The Court held oral argument on the motions on November 2, 2018, and on March 29, 2019, it issued an order granting CBSG's motion as to Count V and denying it in all other respects. This order also denied PTF's motion to dismiss in its entirety. The Court writes now to supplement the order with the basis for its ruling.

DISCUSSION

Counts IV, V, and VII allege violations of RICO, seek specific performance, and allege negligent misrepresentation, respectively. The Defendants move to dismiss these counts pursuant to Federal Rule of Civil Procedure 12(b)(6). To survive a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible when the facts pleaded "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

In evaluating a Rule 12(b)(6) motion, a court first must separate the legal and factual elements of the plaintiff's claims. See Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir. 2009). The court "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Id. at 210-11. The court must then "determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a ‘plausible claim for relief.’ " Id. at 211 (quoting Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ).

Before the Court can address the Defendants' arguments, it must first characterize the Factoring Agreement. If the Factoring Agreement is in substance a factoring agreement, i.e., a purchase of accounts receivable below their face value, then there can be no usury—and thus the Amended Complaint must be dismissed to the extent it relies on illegality of the alleged interest rates charged. See Equip. Fin., Inc. v. Grannas , 207 Pa.Super. 363, 218 A.2d 81, 82 (1966) (noting usury is not at issue where "there is no loan or use of money on the part of the buyer"); Stedman...