Haymount Urgent Care PC v. GoFund Advance, LLC

Background

This putative class action concerns allegations that companies and individuals in the merchant-cash-advance industry used fraudulent and usurious loans and abusive collection tactics. The opinion describes merchant cash advances as financial products marketed as purchases of a business’s future receivables. The plaintiffs include two small businesses and their principals. The motion addressed only Haymount Urgent Care PC and its principal, Dr. Robert A. Clinton, Jr., and sought preliminary injunctive relief against GoFund Advance, LLC.

Haymount and GoFund entered a sixth merchant-cash-advance agreement on January 20, 2022. The agreement stated that GoFund would provide a $1 million purchase price in exchange for Haymount’s receipts until Haymount repaid $1.499 million through daily withdrawals of $60,000. GoFund initially deposited $400,000, and after Haymount had paid approximately $785,000 over slightly more than two weeks, GoFund deposited another $400,000. Haymount alleged that GoFund improperly withheld part of the purchase price and withdrew excessive fees. Several withdrawals were later returned for insufficient funds, and the contract required advance notice of such a problem.

Court’s analysis

To obtain a preliminary injunction, Haymount had to show irreparable harm, a likelihood of success on the merits or sufficiently serious questions for litigation combined with a hardship balance favoring it, and that an injunction would serve the public interest.

Contract claim. The court held that Haymount had shown a sufficient likelihood of success on its breach-of-contract claim. The contract’s existence was undisputed. The court found that the available evidence did not establish that GoFund was entitled to pay the purchase price in two installments instead of providing the full advance at the outset. It therefore concluded that Haymount was likely to prove GoFund breached the contract on January 20, 2022 by failing to send the full purchase price, less applicable and properly disclosed fees. Because the insufficient-funds alerts occurred after that likely breach, the court also concluded that Haymount was likely to show adequate performance through the point of GoFund’s breach and likely contract damages. The court expressly did not decide whether GoFund’s fee structure was adequately disclosed to avoid a breach claim.

Racketeering claim. The court found that Haymount had not shown a likelihood of success on its racketeering claim. Haymount alleged an enterprise consisting of all defendants and involving systematic collection of debts that were criminally usurious under New York law. The court explained that proving an enterprise is an essential element of such a claim. At argument, plaintiffs’ counsel conceded that Haymount had not submitted documents or declarations establishing the enterprise and incorrectly argued that it only needed to show that the loans were usurious. The court therefore declined to issue the injunction on that claim.

Irreparable harm and public interest

The court found that GoFund’s lien letters had frozen Haymount’s bank and health-insurance accounts, potentially preventing the urgent-care center from receiving insurance reimbursements, paying workers, and buying medical supplies. The court determined that the resulting risk of the business collapsing could not be adequately repaired later with money damages. It also found that closing the urgent-care center would remove a source of medical care in Fayetteville, North Carolina, and would harm the public interest, particularly because Haymount said it provided substantial testing and treatment during the COVID-19 pandemic.

Order

Judge Rakoff granted Haymount’s motion for a preliminary injunction. While the case remains pending, GoFund is enjoined from continuing to debit unauthorized amounts from bank accounts belonging to Haymount or Dr. Clinton and from freezing their bank accounts, health-insurance accounts, assets, and receivables. GoFund is also enjoined to withdraw and retract any Uniform Commercial Code lien letters sent to third parties and to direct anyone acting on its behalf to do the same. The court directed the clerk to apply the previously posted $5,000 bond from the temporary restraining order to the preliminary injunction.