DarkPulse, Inc. v. Crown Bridge Partners LLC

Background

Crown Bridge Partners LLC is a limited liability company based in and organized under New York law. Soheil Ahdoot and Sepas Ahdoot are its principal owners and members and its sole employees. Crown Bridge purchases convertible notes from microcap securities issuers, converts those notes into newly issued stock, and sells the stock on the public market.

The plaintiffs—DarkPulse, Inc., Social Life Network, Inc., and Redhawk Holdings Corp.—entered into convertible-note transactions with Crown Bridge between 2017 and 2019. The notes contained New York forum-selection clauses and Nevada choice-of-law clauses. Redhawk also issued Crown Bridge a stock-purchase warrant with a Nevada choice-of-law clause.

The complaint alleged that the notes imposed minimum effective annual interest rates between 51% and 75%, and that the rates could reach between 118% and 251% annually when additional interest, discounts, fees, and penalties were included. These figures were allegations considered under the motion-to-dismiss standard, not findings after a trial.

Claims and Procedural History

Count One alleged that the defendants violated 18 U.S.C. § 1962(c) by collecting unlawful debt. The plaintiffs alleged that the notes were unlawful debt under 18 U.S.C. § 1961(6) because they violated New York’s criminal-usury laws and imposed interest at least twice New York’s stated 25% limit. Count Two alleged a conspiracy to collect unlawful debt under 18 U.S.C. § 1962(d).

The complaint also alleged a pattern of racketeering activity based on wire fraud. The plaintiffs agreed to dismissal of that claim and the class allegations in their opposition. Before ruling on the defendants’ motion, the court denied the plaintiffs’ request to file an amended complaint, concluding that amendment would prejudice the defendants and that justice did not require leave to amend.

Legal Standard

On a motion under Federal Rule of Civil Procedure 12(b)(6), the court decides whether the complaint alleges enough facts to state a legally plausible claim. The court accepts factual allegations as true and draws reasonable inferences for the plaintiffs, but it does not accept legal conclusions as facts.

Court’s Analysis

The court held that the plaintiffs’ unlawful-debt claims required the court to disregard the notes’ Nevada choice-of-law clauses and apply New York law. Under New York law, courts generally enforce clear choice-of-law provisions unless the chosen state has no reasonable connection to the parties or contract, the agreement was obtained through fraud, or applying the chosen law would violate a fundamental New York public policy.

The court found that the plaintiffs did not satisfy those conditions. Social Life and Redhawk were organized under Nevada law, giving Nevada a reasonable connection to those transactions. The court also noted that the complaint did not allege that the notes were obtained through fraud. As to public policy, the court distinguished protections for individual consumers from transactions by corporations. It concluded that the plaintiffs had not shown that applying Nevada law to these corporate transactions would violate a fundamental New York policy.

Because Nevada does not have a criminal-usury statute, the court concluded that the complaint did not sufficiently allege that the defendants collected unlawful debt under 18 U.S.C. § 1962(c). For the same reasons, it concluded that the complaint did not state a conspiracy claim under § 1962(d).

Disposition

The court granted the defendants’ motion to dismiss Count One. It also granted the defendants’ motion to dismiss Count Two. The court’s order granted the defendants’ motion to dismiss the complaint under Rule 12(b)(6) and, in the alternative, to strike the class allegations under Rules 12(f) and 23(c)(1)(A). The Clerk’s Office was directed to close the case and terminate pending motions.