Moss v. Bmo Harris Bank, N.A.

• Decision Date: 07 July 2017
• Docket Number: No 13-CV-5438 (JFB) (GRB).,13-CV-5438 (JFB) (GRB).
• Parties: Deborah MOSS, on behalf of herself and all others similarly situated, Plaintiff, v. BMO HARRIS BANK, N.A., First Premier Bank, and Bay Cities Bank, Defendants.
• Court: U.S. District Court — Eastern District of New York

258 F.Supp.3d 289

Deborah MOSS, on behalf of herself and all others similarly situated, Plaintiff,

v.BMO HARRIS BANK, N.A., First Premier Bank, and Bay Cities Bank, Defendants.

No 13-CV-5438 (JFB) (GRB).

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

Signed July 7, 2017

Plaintiff is represented by Darren T. Kaplan of Darren Kaplan Law Firm, P.C., 1359 Broadway, Suite 2001, New York, New York 10018; Jeffrey Ostrow of Kopelowitz Ostrow P.A., 200 SW 1st Avenue, Fort Lauderdale, Florida 33301; Hassan Zavareei and Jeffrey D. Kaliel of Tycko & Zavareei LLP, 2000 L Street NW, Suite 808, Washington, DC 20036; and John A. Moore, Norman Siegel, and Stephen N. Six of Stueve Siegel Hanson LLP, 460 Nichols Road, Suite 200, Kansas City, Missouri 64112.

Defendant is represented by Barry Werbin of Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016; and John C. Elkman, Bryan Freeman, and James P. McCarthy of Lindquist & Vennum, 4200 Ids Center, 80 South 8th Street, Minneapolis, Minnesota 55402.

MEMORANDUM AND ORDER

Joseph F. Bianco, District Judge:

Plaintiff Deborah Moss ("Moss" or "plaintiff") brings this putative class action against defendant First Premier Bank¹ ("First Premier" or "defendant") alleging (1) a substantive violation of the Racketeer Influenced and Corrupt Organizations ("RICO") Act pursuant to 18 U.S.C. § 1962(c) and conspiracy to violate RICO pursuant to 18 U.S.C. § 1962(d) ; and (2) New York State law claims for a violation of the General Business Law (the "GBL"), N.Y. Gen. Bus. Law § 349, and for unjust enrichment.² Defendant now moves to dismiss plaintiff's Second Amended Complaint ("SAC") pursuant to Federal Rule of Civil Procedure 12(b)(6).

For the reasons set forth below, the Court dismisses plaintiff's substantive RICO claim because plaintiff has not adequately alleged (1) the existence of an association-in-fact enterprise; and (2) that defendant conducted or participated in the affairs of a RICO enterprise. As a result, the RICO conspiracy claim must also be dismissed because there is no plausible underlying substantive violation.

With respect to plaintiff's state law claims, the Court agrees with defendant that plaintiff has failed to state a cause of action under the GBL because there are no allegations that defendant engaged in consumer-oriented, misleading conduct. However, defendant's motion is denied with respect to the unjust enrichment claim because the Court concludes that plaintiff has adequately alleged that she conferred a benefit on defendant.

Finally, in an abundance of caution, the Court will permit plaintiff to amend her pleading one final time to attempt to allege plausible RICO and GBL claims.

I. BACKGROUND

A. Factual Background

The Court takes the following facts from the SAC. (ECF No. 123.) The Court assumes these facts to be true for purposes of deciding this motion and construes them in the light most favorable to plaintiff as the non-moving party.

1. The Parties

Plaintiff Deborah Moss is a citizen and resident of New York and resides in the hamlet of Bay Shore, Town of Islip, County of Suffolk. (SAC ¶ 13.) Defendant First Premier is a South Dakota state-chartered bank with main offices in Sioux Falls, South Dakota. (Id. ¶ 14.)

2. Nature of the Action

This case arises out of online payday loans, which are "short-term (typically a matter of weeks) high fee, closed-end loan[s], traditionally made to consumers to provide funds in anticipation of an upcoming paycheck." (Id. ¶ 26.) They "feature exorbitant interest rates (sometimes misleadingly referred to as ‘fees') and require ‘balloon’ repayments shortly after the loan is made." (Id. ¶ 29.) Several states, including New York, have banned payday loans. (Id. ¶¶ 2, 4, 32.) However, certain payday lenders "make use of the Internet to circumvent these prohibitions and offer payday loans to consumers residing in these states" through the Automated Clearing House ("ACH") Network, a payment "processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing." (Id. ¶¶ 5, 34.)

3. The ACH Network

ACH transactions are the debits and credits necessary for an exchange between a payday creditor and lender, and they are performed by entities known as Originating Depository Financial Institutions ("ODFIs"), which are banks belonging to the ACH Network that transmit the funds from one party to the other party's bank, which is the Receiving Depository Financial Institution ("RDFI"). (Id. ¶¶ 8, 26–27, 40.) Plaintiff alleges that ODFIs allow payday lenders to access the ACH Network and electronically debit a borrower's deposit account for the loan payment amounts and associated fees. (Id. ¶ 27.) Without the participation of OFDIs to "initiate" debit entries and "originate" those entries into the ACH Network, a payday lender cannot reach a borrower's account. (Id. )

The National Automated Clearing House Association ("NACHA"), which is the organization that provides governing rules for the ACH Network, refers to ODFIs as "the gatekeepers of the ACH Network." (Id. ¶ 45.) The NACHA Operating Rules govern ACH Network participants and provide a legal framework for the ACH Network. (Id. ¶ 37.) They require ODFIs to perform due diligence so as to ensure that entities, like payday lenders, that seek to introduce a debit into the ACH Network (known as "Originators") comply with federal and state law. (Id. ¶¶ 39, 42–43.) In addition, the NACHA Operating Rules require ODFIs to enter into agreements with Originators, and when an ODFI transmits a debit over the ACH Network, it must warrant that the entry has been properly authorized by the Originator. (Id. ¶¶ 7, 49.)

Plaintiff also alleges that NACHA and other financial regulatory bodies have specifically warned ODFIs about the risk of processing ACH transactions related to payday loans. (See generally id. ¶¶ 57–77.) In addition, NACHA has identified two high-risk entry codes—ACH WEB and ACH TEL—for entries into the ACH Network that are often used by payday lenders. (Id. ¶ 57.) When requesting a WEB entry, NACHA requires that an ODFI certify that it has implemented fraud detection systems, verified the identity of the receiver, and verified the routing number. (Id. ¶¶ 58–60.)

4. Plaintiff's Payday Loans

Plaintiff applied for and received two payday loans: one for $350 on June 17, 2010; and one for $400 on October 15, 2010. (Id. ¶¶ 92–96.) SFS, Inc. ("SFS"), a Nebraska-based entity, was the lender for these transactions. (Id. ¶¶ 16, 92–96.) Defendant was the ODFI for the June 2010 loan. (Id. ¶ 94.) Plaintiff asserts that defendant received a benefit from processing this loan in the form of an origination fee paid from plaintiff's account. (Id. ¶ 97.)

5. Defendant's Business

Plaintiff alleges that defendant "was one of only thirty ‘Direct Financial Institution Members of NACHA’ [that] influences the governance and direction of the ACH Network and the NACHA Operating Rules ...." (Id. ¶ 36.) As a result, defendant "is eligible to serve on the NACHA Board of Directors and further shape regulatory, legislative, and ACH Network policies." (Id. )

In addition, plaintiff asserts that defendant knew that it processed unlawful ACH transactions on behalf of payday lenders, including SFS. (Id. ¶¶ 78, 81, 84–87.) Plaintiff contends that defendant did so and ignored certain warning signs, such as high return rates for those transactions, in return for fees paid by the payday lenders, and she claims that defendant was able to charge the lenders higher fees than for other ACH transactions because of the risks inherent in online payday lending. (Id. ¶¶ 81–82, 85–87, 89.) Further, according to plaintiff, 99% of financial institutions on the ACH Network have never originated entries at the request of unlicensed, online payday lenders; in contrast, however, defendant was purportedly one of the most active originators of ACH WEB and ACH TEL entries on the ACH Network. (Id. ¶¶ 80–81.)

B. Procedural Background

Plaintiff commenced this action on November 30, 2013 and filed an amended complaint on January 3, 2014. (ECF Nos. 1, 38.) On June 9, 2014, the Court granted defendant's motion to compel arbitration and stayed this action. See Moss v. BMO Harris Bank, N.A. , 24 F.Supp.3d 281, 284 (E.D.N.Y. 2014). Thereafter, on July 16, 2015, the Court vacated its arbitration order and lifted the stay after plaintiff informed the Court that the designated forum had declined to arbitrate the case. See Moss v. BMO Harris Bank, N.A. , 114 F.Supp.3d 61, 63 (E.D.N.Y. 2015). Following an interlocutory appeal, the Second Circuit affirmed that decision. See Moss v. First Premier Bank , 835 F.3d 260 (2d Cir. 2016).

Plaintiff then filed the SAC on October 4, 2016. (ECF No. 123.) Defendant moved to dismiss on November 17, 2016 (ECF No. 125); plaintiff filed her opposition on January 4, 2017 (ECF No. 127); and defendant replied on January 24, 2017 (ECF No. 130). The Court heard oral argument on February 13, 2017, and defendant subsequently filed letters providing additional, unpublished legal authority in support of its motion on March 7, 2017 and June 7, 2017 (ECF Nos. 131, 134). The Court has fully considered the parties' submissions.

II. STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Cleveland v. Caplaw Enters. , 448 F.3d 518, 521 (2d Cir. 2006) ; Nechis v. Oxford Health Plans, Inc. , 421 F.3d 96, 100 (2d Cir. 2005). "In order to survive a motion to dismiss under Rule 12(b)(6), a complaint must allege a plausible set of facts sufficient ‘to raise a right to relief above the speculative level.’ " Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC , 595 F.3d 86, 91 (2d Cir. 2010) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). This standard does...