Kaur v. World Bus. Lenders, LLC

Decision Date24 February 2020
Docket NumberCIVIL ACTION NO. 19-11364-WGY
Citation440 F.Supp.3d 111
Parties Ramanjeet KAUR, Kulwinder Singh Uppal, and New England Distributors, Inc., Plaintiffs, v. WORLD BUSINESS LENDERS, LLC, WBO SPL I, LLC, Axos Bank, and Atlantis Capital, LLC, Defendants
CourtU.S. District Court — District of Massachusetts

Rachel J. Eisenhaure, Shane R. Heskin, White and Williams LLP, Boston, MA, for Plaintiffs.

Erika L. Todd, Patrick P. Dinardo, Sullivan & Worcester LLP, Boston, MA, for Defendants.

MEMORANDUM & ORDER

Young, D.J.

I. INTRODUCTION

As the plaintiff borrowers frame this case:

This case stands at the intersection of two dangerous trends in the marketing of financial products: (1) placing a home at risk by issuing a financial product doomed to fail; and (2) "rent-a-bank" or "rent-a-charter" schemes in which the identity of a true lender is obscured, and a loan placed in the name of a federally chartered bank, as a dodge around state usury laws or other state law requirements.

Notice Removal, Ex. A, Compl. ¶ 2, ECF No. 1-1.

In essence, the defendant lenders say, "So what?" Nationally chartered banks are exempt from state usury laws and can assign their loans (for a fee) to private lenders who can thus avoid state usury laws as well. Moreover, here in Massachusetts, our usury laws are essentially meaningless, because they need not be followed by registered predatory lenders. See Mem. Supp. Mot. Dismiss ("Defs.' Mem.") 3, 5, ECF No. 11. The difficulty in this case is that both characterizations are correct. What, then, is left for this Court to do in ruling on this motion to dismiss?

Let's see.

A married couple, Ramanjeet Kaur and Kulwinder Singh Uppal, took out a loan for Uppal's small business, New England Distributors, Inc. (collectively "Borrowers"), from World Business Lenders, LLC ("World Business") and Axos Bank, formerly known as "Bank of the Internet" ("BofI Federal Bank") (collectively "Lenders"), with an annual percentage rate interest in excess of 92%. Kaur and Uppal used their residence at 9-11 Upland Park, Somerville, Massachusetts, as collateral for the personal guaranty-backed business loan. After the couple fell into arrears on the business loan payments, World Business initiated foreclosure proceedings on their home. Borrowers allege that World Business engaged in usury in a business loan transaction in violation of Massachusetts General Laws chapter 271, section 49(a). Borrowers also claim that BofI Federal Bank aided in World Business's usury in violation of section 49(a). Finally, the Borrowers claim that World Business and BofI Federal Bank engaged in two forms of unfair and deceptive business practices: (1) issuing a business loan to the Borrowers that was "doomed to fail" in violation of Massachusetts General Laws chapter 93A and (2) a "rent-a-bank" scheme. In light of the alleged counts, Borrowers request a permanent injunction against foreclosure proceedings upon the Kaur-Uppal home. World Business seeks to dismiss the complaint.

A. Procedural History

On April 12, 2019, the Borrowers filed a complaint and demand for jury trial (the "Complaint") in the Superior Court sitting in and for the County of Middlesex, Massachusetts (the "Superior Court"). State Ct R. 23-48 ("Compl."), ECF No. 6. On June 19, 2019, Lenders removed the case to federal court. 28 U.S.C. §§ 1331, 1332, 1441, 1446 ; Notice Removal 2, 4, ECF No. 1.

On August 16, 2019, Lenders filed a motion to dismiss for failure to state a claim. Mot. Dismiss, ECF No. 10 ; Defs.' Mem. 1, 4-5. The parties fully briefed the issue. Pls.' Opp'n Mot. Dismiss ("Pls.' Opp'n"), ECF No. 15 ; Reply Resp. Mot. Dismiss (Defs.' Reply), ECF No. 19.

A hearing on the motion to dismiss was held on October 17, 2019, after which the Court took the matter under advisement. Electronic Clerk's Notes, ECF No. 21.

B. Alleged Facts

The Plaintiffs, Uppal and Kaur, reside at 9-11 Upland Park, Somerville, Massachusetts. Compl. ¶¶ 6-7. Uppal owns a business, New England Distributors, Inc. ("New England Distributors"), which is located at 12 Linscott Road, Unit F, Woburn, Massachusetts. Id. ¶¶ 7, 8. In February and March of 2018, Uppal and Kaur contacted Atlantis Capital, LLC ("Atlantis"), a New York City-based broker that refers clients to loan agencies, to inquire about a business loan for New England Distributors. Id. ¶¶ 1, 13, 23. Atlantis requested several months of New England Distributors' bank statements, New England Distributors' merchant processing statements, and information from New England Distributors concerning outstanding company debt. Id. ¶¶ 25-29. Atlantis then referred the Borrowers to World Business. Id.

Uppal and Kaur submitted additional documentation to World Business, followed by a business loan application on March 13, 2018. Id. ¶¶ 30, 34. They agreed to borrow $175,000 at World Business's lending terms of 92.5867% annual percentage rate ("APR"), which amounts to a daily interest rate of 0.250136986301%, to be paid every business day over a period of nine months. Id. ¶¶ 33, 43-45.

The loan application that Borrowers signed had letterhead that included the names and business logos of both World Business and BofI Federal Bank. Id. ¶ 99. Lenders informed Borrowers that either World Business or BofI Federal Bank (currently known as Axos Bank, an FDIC lending institution located in Las Vegas, Nevada), would act as the final lender. Id. ¶¶ 11-12, 37. BofI Federal Bank then provided a "Business Loan Application" and "Business Loan Authorization Agreement for Direct Deposit (ACH Credit) and Direct Payments (ACH Debits)," to Borrowers listing. Both forms have the BofI Federal Bank logo at the top, though the Application also has the World Business Lenders logo. Id. ¶¶ 99, 106.

Dispersal of the loan occurred on March 16, 2018. Id. ¶ 51. Starting on March 19, 2018, automatic withdrawals began from the account. Id. ¶¶ 54-55. On the first day, this automatic withdrawal was sent to "CCD DEBIT, BOFI AUTOPAY," but beginning on March 20, and on all subsequent days, this automatic withdrawal listed "WBL" or "WORLD BUSINESS" as the source. Id. ¶¶ 55-58.

Borrowers eventually defaulted on the loan and received a "Notice of Default and Intent to Foreclose" on their residence dated October 1, 2018. Id. ¶ 136. World Business was the holder of their mortgage as of October 1, 2018. Id. ¶¶ 132-133.

Based on these facts, Borrowers allege that World Business was the "true lender" of the loan, Id. ¶¶ 60-95, and that World Business and BofI Federal Bank were together engaged in a "rent-a-bank" scheme. Id. ¶¶ 156-162.

In addition to the facts in the complaint, Borrowers point to complaints filed in the Southern District of New York and the Middle District of Florida against World Business alleging similar arrangements with other banks. See Id. ¶¶ 96-127 (citing Complaint, B & S Medical Supply, Inc., N.Y. v. World Business Lenders, LLC, Civ. A. No. 17-03234-RMB (S.D.N.Y. 2017), ECF No. 9 ; Complaint, DeRamo v. World Business Lenders, LLC, Civ. A. No. 17-01435-RAL-MAP (M.D. Fla. 2017), ECF No. 2 ).

Borrowers brought legal action against World Business Lenders and BofI Federal Bank in the Superior Court on April 12, 2019. Compl., Ex. 1, Civil Action Cover Sheet, ECF No. 1-3. Atlantis was not served in this action. Borrowers seek permanent injunctive relief from World Business and BofI Federal Bank to prevent foreclosure against Kaur's and Uppal's home. Id. ¶ 139 (count I). Furthermore, Borrowers request that the Court order all Defendants to repay the principal, interest, and related fees connected with the allegedly usurious loans, as well as threefold damages, attorneys' fees, and punitive damages pursuant to the Massachusetts consumer protection law, Mass. Gen. L. ch. 93A, § 2(a), and the Massachusetts usury law, Mass. Gen. L. ch. 271, § 49(a). Id. ¶ 176.

II. LEGAL FRAMEWORK
A. Standard of Review

In order to survive a motion to dismiss, a complaint must "state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A claim must contain sufficient factual allegations, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Court must "draw every reasonable inference" in favor of the plaintiff. Berezin v. Regency Sav. Bank, 234 F.3d 68, 70 (1st Cir. 2000). "If the facts in the complaint are sufficient to state a cause of action, a motion to dismiss the complaint must be denied." Kozaryn v. Ocwen Loan Servicing, LLC, 784 F. Supp. 2d 100, 101-02 (D. Mass. 2011) (Gorton, J.).

B. Choice of Law

Massachusetts choice-of-law rules apply because this Court sits in Massachusetts. See, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Where the parties entering into a loan transaction "have expressed a specific intent as to the governing law, Massachusetts courts will uphold the parties' choice as long as the result is not contrary to public policy." Oxford Global Res., LLC v. Hernandez, 480 Mass. 462, 468, 106 N.E.3d 556 (2018) (quoting Hodas v. Morin, 442 Mass. 544, 549-50, 814 N.E.2d 320 (2004) ). Massachusetts policy reflects the choice of law principals of the Restatement (Second) of Conflict of Laws § 187(2), which presumes that the parties' choice of law applies unless:

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
(b) where application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

Restatement § 187(2). Even when a contract includes a choice of law provision, that provision controls only claims based on the terms of the contract, not the underlying validity of...

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