Williams v. Equitable Acceptance Corporation

Background

Vanessa Williams and Kory Turner brought this proposed class action against Equitable Acceptance Corporation (EAC), SLF Center, LLC, Integra Student Solutions, LLC, and unnamed defendants. The opinion addressed only EAC’s motion to dismiss the plaintiffs’ claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), and their RICO-conspiracy claim under § 1962(d). The court noted that the plaintiffs had not yet moved for class certification and therefore focused on allegations concerning Williams and Turner.

The plaintiffs alleged that the defendants marketed student-loan “assistance services” for about $1,300. According to the allegations, the services mainly consisted of submitting applications for federal student-loan consolidation or income-based repayment programs that borrowers could apply for themselves at no cost. The dealers allegedly described the services as providing loan forgiveness, failed to disclose important limitations and possible negative consequences, and referred borrowers to EAC for financing. The resulting EAC loans allegedly carried interest rates generally exceeding 20 percent, and borrowers were told that the arrangement was a payment plan rather than a new loan whose payments included financing charges.

The plaintiffs further alleged that EAC created systems for dealers to submit financing referrals, trained dealers, provided a script for confirming financing, paid dealers for borrowers who obtained financing, and sent borrowers documents including a purchase agreement and an EAC credit plan. The named plaintiffs alleged that SLF or Integra made misleading statements to them, obtained personal information, submitted student-loan applications on their behalf, and caused them to incur obligations to EAC.

Legal standard

On a motion under Federal Rule of Civil Procedure 12(b)(6), the court accepts well-pleaded factual allegations as true and draws reasonable inferences for the plaintiffs. The complaint must contain enough facts to make the claim plausible, rather than merely possible or speculative. When a RICO claim relies on mail or wire fraud, Federal Rule of Civil Procedure 9(b) requires the alleged fraudulent statements and related details to be pleaded with particularity.

To plead a civil RICO claim under § 1962(c), the plaintiffs had to allege, among other things, that EAC participated in an enterprise through at least two related acts of racketeering activity affecting interstate or foreign commerce. The plaintiffs relied on alleged mail and wire fraud as the predicate acts. They also had to allege continuity: either a pattern extending over a substantial period or conduct that threatened to continue into the future.

Court’s analysis

The court held that the amended complaint adequately alleged a scheme to defraud. It concluded that the allegations, viewed in the plaintiffs’ favor, described a scheme in which dealers allegedly misrepresented the value and nature of the services and referred borrowers to EAC for financing, while EAC allegedly helped design and implement the financing process and collected finance charges and other fees.

The court also held that the plaintiffs adequately pleaded at least two wire-fraud violations involving EAC. It rejected EAC’s argument that contractual disclaimers defeated the alleged oral misrepresentations because civil RICO claims based on mail or wire fraud do not require proof of justifiable reliance. The court also rejected EAC’s argument that the plaintiffs had to allege that EAC itself made the misleading statements. The court stated that the complaint could adequately allege EAC’s liability by showing that EAC knowingly and intentionally participated in a scheme containing material misrepresentations.

The court found that the allegations concerning EAC’s agreements with the dealers, the assignment provision in the credit plans, and EAC’s role in financing and collecting payments sufficiently connected EAC to the alleged scheme. It also held that the plaintiffs adequately pleaded open-ended continuity. The complaint alleged conduct spanning at least 17 months and included complaints from other individuals whose experiences were allegedly consistent with the same scheme, supporting an alleged threat that the conduct would continue.

Disposition

Judge Naomi Reice Buchwald denied EAC’s motion to dismiss the plaintiffs’ RICO claim under § 1962(c). Because EAC challenged the RICO-conspiracy claim under § 1962(d) only on the ground that the substantive RICO claim was inadequately pleaded, the court also denied EAC’s motion as to the conspiracy claim. EAC was ordered to answer the amended complaint within 30 days. The ruling addressed the sufficiency of the allegations at the pleading stage; it did not determine whether the alleged scheme ultimately occurred or whether EAC was liable.