Resnick v. KrunchCash, LLC

• Decision Date: 20 May 2022
• Docket Number: 20-14504
• Citation: 34 F.4th 1028
• Parties: Diane N. RESNICK, Perry A. Resnick, American Wellness and Health Centers, Inc., Jonathan S. Resnick, Plaintiffs-Appellants, v. KRUNCHCASH, LLC, Jeffrey Hackman, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

34 F.4th 1028

Diane N. RESNICK, Perry A. Resnick, American Wellness and Health Centers, Inc., Jonathan S. Resnick, Plaintiffs-Appellants,

v.KRUNCHCASH, LLC, Jeffrey Hackman, Defendants-Appellees.

No. 20-14504

United States Court of Appeals, Eleventh Circuit.

Filed: May 20, 2022

Jesus E. Cuza, Monica V. Castro, Annelise Del Rivero, Holland & Knight, LLP, Miami, FL, Joshua Royas Levenson, Holland & Knight, LLP, Fort Lauderdale, FL, Daniel M. Mahfood, Holland & Knight, LLP, Jacksonville, FL, for Plaintiffs-Appellants.

Gabriel Berg, Kennedy Berg, LLP, New York, NY, Paul A. Avron, Berger Singerman, LLP, Boca Raton, FL, Craig M. Oberweger, Palm Law Partners, PA, Boca Raton, FL, for Defendants-Appellees.

Before Newsom, Marcus, Circuit Judges, and Story, District Judge.^*

Marcus, Circuit Judge, delivered the opinion of the Court.

Newsom, Circuit Judge, filed a concurring opinion, in which Marcus, Circuit Judge, and Story, District Judge, joined.

Marcus, Circuit Judge:

This case arises from a loan deal gone awry. Plaintiffs Jonathan S. Resnick, Diane Resnick, Perry A. Resnick, The Law Offices of Jonathan S. Resnick, LLC, The Law Office of Perry A. Resnick, LLC (collectively, the "Resnicks"), and American Wellness and Health Centers, Inc. ("American Wellness") appeal the district court's dismissal of their constitutional and state law claims against Defendants KrunchCash, LLC ("KrunchCash") and Jeffrey Hackman ("Hackman") for lack of subject matter jurisdiction.

Plaintiffs claim that Defendants violated their right to due process of law by freezing their assets in Maryland, obtaining writs of garnishment based on Maryland law without providing notice and an opportunity to be heard. They also allege violations of state law, including a charge of usury, breach of contract, and tortious interference. The district court concluded, however, that it lacked subject matter jurisdiction because, in its view, Plaintiffs’ federal claim was so utterly frivolous that it robbed the court of federal question jurisdiction.

We disagree. Even if Plaintiffs’ federal claim ultimately fails on the merits, the due process claim was not so wholly insubstantial and frivolous as to deprive the district court of the power to adjudicate. We therefore reverse and remand for further proceedings consistent with this opinion.

I.

A.

The discrete jurisdictional dispute before us begins with a convoluted factual and procedural backdrop. Jonathan and Perry Resnick are legal practitioners who reside in Florida and represent clients in personal-injury cases. Diane Resnick is Jonathan's wife, and Perry is their son. American Wellness is a medical clinic that treats patients injured in auto accidents. KrunchCash is a company owned and run by Jeffrey Hackman, who resides in Florida.

In connection with their professional practices, Plaintiffs entered into five "Funding Agreements" and two "Guaranty and Security Agreements" (the "Guaranty Agreements") -- all seven of which are referred to as "Loan Agreements"¹ with KrunchCash. KrunchCash provided cash advances to Plaintiffs in return for a significant "use fee," or interest rate. The fee was four percent of the loan per month. The Funding Agreements also required the Resnicks to pay at least six months’ worth of the monthly use fee (or 24 percent of the loan), and they required American Wellness to pay at least five months (20 percent of the loan). Thus, each Funding Agreement charged a maximum rate of 48 percent per annum.

All the Loan Agreements contemplated confessions of judgment "without notice" to Plaintiffs, which Defendants could exercise "in any court" and "IN THE SAME OR DIFFERENT JURISDICTIONS AS OFTEN AS [KRUNCHCASH] SHALL DEEM NECESSARY." In addition, Plaintiffs agreed to the following language in four separate Funding Agreements:

THIS AGREEMENT CONTAINS A WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST LAW FIRM. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT, LAW FIRM HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND ON THE ADVICE OF SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY

AND ALL RIGHTS LAW FIRM HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES, THE STATE OF FLORIDA, AND ANY OTHER STATE, PRIOR TO ENTRY OF JUDGMENT AND SEIZURE OF LAW FIRM'S PROPERTY.

(Emphasis added).

KrunchCash was also given the right, "without [giving] notice" or "warning" to Plaintiffs, to "empower any attorney of any court of record" to obtain "confess[ed] judgment[s] ... in favor of [KrunchCash] for any and all amounts payable to [KrunchCash]." The Guaranty Agreements also provide that the Resnicks "agree[ ] that its guaranty is irrevocable, continuing, absolute and unconditional and shall not be discharged or impaired, and [the Resnicks] hereby irrevocably waive[ ] any defenses to enforcement [they] may have now or in the future."

Over time, the Resnicks’ and KrunchCash's relationship broke down. Plaintiffs claim that KrunchCash "wrangle[d] increasing control over the computer systems that the Resnicks used to run their law firms" and "extort[ed]" them into making payments under the Funding Agreements. The Plaintiffs also claim that the Defendants blocked their access to their clients’ records. In response, the Resnicks sued KrunchCash on July 18, 2019, in Florida's Fifteenth Judicial Circuit in Palm Beach County and obtained a temporary injunction, which required KrunchCash to relinquish control over the Resnicks’ computer systems. KrunchCash responded by filing an action in the same court to recover $13.1 million from Plaintiffs for breaching the Loan Agreements.

Purportedly without notifying Plaintiffs or the Florida Circuit Court, KrunchCash filed seven complaints for judgment by confession in the Circuit Court for Baltimore County, Maryland against Plaintiffs (the "Maryland Actions") under Maryland Rule 2-611.² Maryland Rule 2-611 provides:

(b) Action by Court . If the court determines that (1) the complaint complies with the [procedural] requirements of section (a) of this Rule and (2) the pleadings and papers demonstrate a factual and legal basis for entitlement to a confessed judgment, the court shall direct the clerk to enter the judgment. Otherwise, it shall dismiss the complaint.

Md. R. Civ. P. Cir. Ct. 2-611. Because they purportedly did not receive notice of these complaints, Plaintiffs did not initially appear in the Maryland Actions.

The Maryland Circuit Court entered judgment for KrunchCash on December 4, 2019, and KrunchCash, in turn, sought and obtained writs of garnishment in aid of the enforcement of the judgment under Maryland Rules 2-645 and 2-645.1. Plaintiffs moved to vacate those writs in the Maryland Circuit Court in December 2019.³

Plaintiffs alleged that these writs allowed KrunchCash to freeze the personal and business accounts of the Resnicks, and that their accounts remained frozen, at least as of the operative date of their pleading (February 28, 2020).

On March 2, 2020, the Maryland Circuit Court vacated all confessed judgments and writs of garnishments, although it appointed a receiver over the properties and businesses of Plaintiffs The Law Offices of Jonathan S. Resnick, LLC and The Law Offices of Perry A. Resnick, LLC, as well as non-party The Law Offices of Jonathan S. Resnick, PLLC. See KrunchCash, LLC v. The Law Offices of Jonathan Resnick, C-03-CV-004427 (Md. Cir. Ct. March 17, 2020). The Maryland Actions are ongoing.

B.

While the Maryland Actions continued, Plaintiffs sued KrunchCash and Hackman in the Southern District of Florida on February 4, 2020. In their Amended Complaint, Plaintiffs allege, among other state law claims, that the Funding Agreements between Plaintiffs and Defendants are usurious under Fla. Stat. §§ 687.02 et seq. , and that the Maryland rules used to obtain writs of garnishment against Plaintiffs’ assets, without notice and the opportunity to be heard, violated their rights to due process under the Fourteenth Amendment to the U.S. Constitution. Plaintiffs’ due process claim was brought under 42 U.S.C. § 1983. They assert that the district court has subject matter jurisdiction under its federal question jurisdiction ( 28 U.S.C. § 1331 ), and their state law claims of usury, breach of contract, and tortious interference all fall under the court's supplemental jurisdiction. 28 U.S.C. § 1367(a).

Defendants responded by moving to dismiss, claiming, among other things, that the district court lacked subject matter jurisdiction. Defendants also moved to stay the action based on the abstention doctrine the Supreme Court articulated in Colorado River Water Conservation District v. United States . See 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

The district court agreed and dismissed Plaintiffs’ Amended Complaint for lack of subject matter jurisdiction because it concluded that Plaintiffs’ sole federal claim, arising under the Due Process Clause, was so frivolous that it denuded the court of subject matter jurisdiction. The district court reached this conclusion for three reasons. First, the court questioned whether Plaintiffs were even deprived of a constitutionally protected property interest because their assets were only temporarily frozen. Second, it concluded that Plaintiffs’ claim of state action was "questionable at best." Finally, the court determined that the Supreme Court's decision in D.H. Overmyer v. Frick , 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972), foreclosed Plaintiffs’ claim that they were deprived of a constitutionally sufficient process. In the absence of any federal claim, the court explained that it could not exercise supplemental jurisdiction over Plaintiffs’ state law claims. The district court also briefly touched on the abstention issue, but never explicitly ruled on it.

Plaintiffs timely appealed.

II.

The sole issue before us is whether the district court erred in concluding that it lacked subject matter jurisdiction over Plaintiffs’ claims. We review...