Haymount Urgent Care PC v. GoFund Advance, LLC

Background

Haymount Urgent Care PC and its principal, Robert A. Clinton Jr., moved to certify a nationwide class of people and entities that had received funding from one or more defendants under merchant cash advance agreements with an effective interest rate exceeding 25%. The opinion states that Haymount received more than $2.5 million under several such agreements. Haymount is identified as a primary and urgent care facility in North Carolina, and the defendants are described as being in the merchant cash advance business.

The plaintiffs alleged that the agreements were not genuine purchases of future revenue but were loans carrying interest rates above limits imposed by state law. Their complaint included claims under the Racketeer Influenced and Corrupt Organizations Act. In an earlier ruling, the court held that the plaintiffs had plausibly alleged two RICO theories: collection of unlawful debt based on usury laws, and a pattern of wire fraud involving alleged unauthorized withdrawals and misleading efforts to evade bank-account blocks. For class certification, however, the plaintiffs relied only on the unlawful-debt theory.

Class-certification standard

Federal Rule of Civil Procedure 23 requires a proposed class to satisfy requirements including numerosity, commonality, typicality, and adequacy, plus at least one additional requirement under Rule 23(b). The court focused on commonality: whether the proposed class proceeding could produce common answers that would help resolve the case.

Choice of law and commonality

The court identified the central question as whether the defendants’ merchant cash advance agreements operated as unlawfully usurious loans. That question depended on state usury law. Although the agreements contained provisions selecting New York law, the court explained that those provisions might themselves be unenforceable if applying New York law would make the entire agreements void. The plaintiffs’ counsel also argued at the class-certification hearing that New York law applied under ordinary choice-of-law principles rather than because of the contractual provisions.

Applying New York’s “center-of-gravity” approach would require examining contacts such as the place of contracting, negotiation, and performance; the location of the contract’s subject matter; and the parties’ domiciles. The court emphasized that the borrower’s location could be especially important because state usury laws are intended to protect borrowers in the states that enacted them. The court therefore concluded that it could not determine categorically that New York law applied to every member of a nationwide class without individualized analyses.

The court also noted that state usury laws differ. The opinion gives North Carolina’s treatment of loans over $25,000 and other states’ treatment of corporate borrowers or receivables purchases as examples. Thus, the same agreement might be an unlawful loan under one state’s law but not under another state’s law.

The proposed class could not be narrowed to solve the problem. Haymount and Clinton were North Carolina-based, but the plaintiffs did not show that they could satisfy Rule 23 for a class limited to North Carolina borrowers. They also could not represent a class limited to New York borrowers. Because the proposed class’s central issue would vary from member to member, the plaintiffs failed to establish Rule 23(a)(2) commonality.

The court did not decide other questions concerning commonality, predominance, or the defendants’ other challenges to certification. It also did not decide whether the agreements were in fact unlawful loans. The opinion observed that the plaintiffs might have pursued the wire-fraud RICO theory on a class basis, but they did not argue that the defendants systematically made unauthorized withdrawals from other proposed class members’ accounts.

Disposition

Judge Rakoff denied the plaintiffs’ motion to certify a class, docket entry 136, and directed the clerk to close the motion. The court stated that summary-judgment briefing and a final pretrial conference would proceed under the schedule described in the opinion.