B & T Supplies, Inc. v. GemJ Chebhear Grat, LLC

Background

Plaintiffs are small businesses and business owners who entered into merchant cash advance agreements with Complete Business Solutions Group, Inc. The agreements described the transactions as purchases of future receivables, but plaintiffs allege that they were actually loans with interest rates of at least 100% to 400% per year. Plaintiffs also allege that the enterprise used methods including automatic withdrawals, confessions of judgment, security interests, and threats of violence to collect the alleged debts.

Plaintiffs brought one claim under 18 U.S.C. § 1962(d), alleging that GemJ Chehebar Grat, LLC, Josef Chehebar, and Isaac Shehebar participated in a conspiracy involving unlawful debt collection and racketeering. Plaintiffs allege that the Chehebars funded the enterprise and provided consulting services to Complete Business Solutions Group.

Motions and Report and Recommendation

The defendants filed two motions to dismiss under Federal Rule of Civil Procedure 12. The first argued that the claims were barred by the statute of limitations, the Private Securities Litigation Reform Act, the absence of adequately alleged racketeering acts, and the Rooker-Feldman doctrine, which can prevent federal courts from reviewing certain state-court judgments. The second argued that collateral estoppel, also called issue preclusion, prevented plaintiffs from relitigating whether the merchant cash advance agreements were usurious loans because that issue had been addressed in a federal receivership proceeding in Florida.

Magistrate Judge Henry J. Ricardo recommended denying the first motion. Judge Woods reviewed the recommendation, considering some portions for clear error and others anew because the defendants objected. The court also considered the second motion.

Collateral Estoppel

The court held that the earlier receivership decision did not preclude this action. Collateral estoppel prevents a party from relitigating an issue of fact or law that was fully and fairly litigated and decided in an earlier proceeding. The court found that it was not clear whether the receivership court applied the same legal standard required to decide whether the agreements were unlawful loans.

The receivership decision said that the receiver’s claim determinations were reasonable and referred to a fair-and-reasonable standard. It did not clearly state that the receivership court decided, under the required standard of proof, that the agreements were not usurious loans. The decision also gave little explanation and did not weigh the evidence in a way that allowed the court to determine whether the issues were identical. The defendants’ second motion to dismiss was therefore denied.

Plausibility of the Loan and Racketeering Allegations

The court held that plaintiffs plausibly alleged that the merchant cash advance agreements were unlawful loans. At the motion-to-dismiss stage, the court accepted the complaint’s factual allegations as true and assessed whether the alleged facts could support a legal claim, rather than weighing evidence. The court found that the complaint plausibly alleged loan characteristics and that the allegations could support violations of the usury laws of New York, Florida, California, New Jersey, and Massachusetts. The court also adopted the recommendation that plaintiffs adequately alleged extortion.

The court corrected the recommendation’s citation concerning the factors used to evaluate whether a merchant cash advance agreement is actually a loan. The court stated that the cited Second Circuit decision identified three factors commonly considered by New York courts: whether the agreement has a reconciliation provision, whether it has a finite term, and whether it provides recourse if the merchant declares bankruptcy. The court said this citation correction did not change the conclusion that the allegations supported treating the agreements as loans at this stage.

Statute of Limitations

The court held that the claims were not clearly time-barred. Civil claims under the Racketeer Influenced and Corrupt Organizations Act generally have a four-year limitations period. The court concluded that the Florida receivership court’s stay order plausibly applied to the Chehebars because the complaint plausibly alleged that they were agents of Complete Business Solutions Group, even though their consulting agreements called them independent contractors. The court explained that an independent contractor can also be an agent.

The stay order took effect on July 31, 2020, and tolled applicable limitations periods while it remained in effect. The court held that each new allegedly unlawful merchant cash advance agreement created a new injury. Plaintiffs who plausibly alleged agreements entered after July 31, 2016 therefore stated timely claims. Although the complaint did not clearly state when TourMappers North America LLC and Julie Katz entered their agreements, the defendants had not shown from the complaint or judicially noticeable materials that those claims were untimely. The court therefore treated all plaintiffs’ claims as timely at this stage.

Securities-Fraud Bar

The court held that the Private Securities Litigation Reform Act did not bar the claims. The statute’s RICO amendment prevents a civil RICO claim from relying on conduct that would have been actionable as fraud in the purchase or sale of securities. The court found that plaintiffs’ allegations concerned unlawful loans, extortionate debt collection, and obstruction of justice—not fraud in the purchase or sale of securities.

The fact that the alleged enterprise also involved securities and a separate securities-fraud receivership did not change the analysis. The court found the alleged connection between the merchant-loan scheme and the securities scheme too attenuated to trigger the RICO amendment.

Required Amendment and Disposition

The court concluded that plaintiffs’ representations during oral argument addressed the defendants’ arguments under the Rooker-Feldman doctrine and claim preclusion. The court ordered plaintiffs to file an amended complaint by March 31, 2025, solely to state that no plaintiff had an outstanding confession of judgment and that any future class would exclude individuals or businesses with an outstanding confession of judgment.

The court adopted the report and recommendation in part and modified it in part. Defendants’ first motion to dismiss was denied. Defendants’ second motion to dismiss based on collateral estoppel was also denied. The court did not make a final determination that the agreements were unlawful loans or that defendants were liable; it ruled only that plaintiffs’ claims could proceed past the motion-to-dismiss stage.