US Information Group LLC v. EBF Holdings, LLC

Background

US Information Group LLC and its owner and chief executive officer, Vasiliy Fomin, sued EBF Holdings, LLC, doing business as Everest Business Funding, along with Cast Capital Lending Corp., BMV Equities, LLC, Prosperitas Capital, LLC, and five individuals. US Information Group entered into two agreements with Everest in March and May 2021. The agreements were titled “Payment Rights Purchase and Sale Agreement” and described the sale of a specified percentage of future receipts. Fomin alleged that he believed they were merchant cash advance agreements, but that they were actually loans with interest rates exceeding New York’s usury limits.

The plaintiffs brought two substantive claims under the Racketeer Influenced and Corrupt Organizations Act, or RICO, and one RICO conspiracy claim. They alleged that the defendants formed an enterprise to collect unlawful debt through agreements disguised as merchant cash advances. The defendants filed three motions to dismiss for failure to state a claim.

Why the Court Dismissed the Claims

The court explained that, under New York law, whether a transaction is a loan depends on its substance rather than its label. The court focused on whether Everest was entitled to repayment in all circumstances or instead assumed the risk that US Information Group’s future receipts might decline or stop. New York courts commonly consider whether an agreement contains a reconciliation provision, whether it has a fixed repayment term, and whether the purchaser has recourse if the merchant declares bankruptcy.

The court concluded that the complaint did not plausibly allege that the agreements were loans. Both agreements contained a reconciliation provision requiring Everest to adjust payments based on US Information Group’s actual receipts. The plaintiffs did not allege that they invoked the procedure, that it was ineffective, or that it was difficult to use. The agreements also stated that there was no payment schedule or fixed period for collecting the purchased amount. In addition, they stated that Everest assumed the risk that the business might slow down, stop operating, or enter bankruptcy, and that bankruptcy alone would not constitute a breach.

The court rejected the plaintiffs’ other allegations as vague, conclusory, or contradicted by the agreements. For example, the complaint did not explain why the daily payment amounts were not good-faith estimates based on US Information Group’s projected sales. The court also concluded that the agreements did not automatically create a default merely because an account lacked sufficient funds; the relevant provision required five consecutive rejected withdrawals and a failure to provide notice and documentation. The court further found that the agreements granted Everest a security interest in future receipts, not in a broader category of the company’s assets.

Because the complaint did not plausibly allege that Everest made a usurious loan, it also did not plausibly allege the unlawful debt required for the RICO claims. The court therefore granted Everest’s motion and dismissed the complaint in its entirety on that ground.

Claims Against Six Defendants

The court separately held that the complaint failed to plausibly allege that Scott Crockett, Saadia Shapiro, Vadim Leybel, Boris Leybel, BMV Equities, LLC, and Prosperitas Capital, LLC participated in a RICO enterprise or conspiracy. The allegations against the individuals largely relied on their alleged titles and generalized responsibilities, while the allegations against BMV and Prosperitas were made on information and belief without supporting facts. The complaint also repeatedly referred to the defendants collectively rather than identifying each defendant’s conduct. The court dismissed the complaint as to those six defendants on this additional ground.

The court noted that Eric Peremen was in a different position because the complaint included text messages he sent to Fomin. However, because the complaint did not plausibly allege the collection of unlawful debt, the court did not decide whether the allegations about Peremen’s personal involvement adequately supported an enterprise allegation.

Disposition

The court dismissed the Third Amended Complaint because it failed to plausibly allege collection of unlawful debt. It also dismissed the complaint as to Crockett, Shapiro, Vadim Leybel, Boris Leybel, BMV Equities, LLC, and Prosperitas Capital, LLC, on the alternative ground that it did not plausibly allege participation in a RICO enterprise or conspiracy. The Clerk was directed to enter judgment for the defendants, terminate the motions, and close the case.