Elavon, Inc. v. Northeast Advance Technologies Inc., 7:15-cv-07985

Background

Elavon, a credit card processor, sued Northeast Advance Technologies and multiple individual/cardholder defendants alleging a scheme that produced over $2.2 million in chargebacks; Northeast allegedly failed to reimburse Elavon under a Merchant Application and Terms of Service.
Elavon alleges that transactions were sham (no bona fide goods/services), that Northeast and associated entities funneled receipts to other accounts, and that cardholders were instructed to seek chargebacks using cancellation letters.
Exhibits attached to the SAC included the Contract, a transaction/chargeback list, 39 cancellation letters (primarily to the Friedmans), and letters from cardholders to issuing banks (primarily the Friedmans).
Plaintiff asserted RICO claims (18 U.S.C. §§ 1962(a)–(d)) based on mail/wire fraud and financial-institution-fraud predicates, plus common-law fraud, unjust enrichment, breach of contract/guaranty, and conspiracy. Multiple defendants moved to dismiss.
The Court dismissed Counts III–VI (RICO), Count VII (fraud), Count VIII (unjust enrichment), and Count IX (conspiracy) with prejudice, leaving only breach of contract (Count I) and breach of guaranty (Count II) against Northeast and Castillo; all other defendants were terminated.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiff sufficiently pleaded an "enterprise" under RICO	Alleged a coordinated, association-in-fact enterprise among Northeast, cardholders, and other entities that used processing rules to effect chargebacks	The allegations are conclusory and show at most isolated hub-and-spoke transactions without a continuing organization or interrelationships	Dismissed — plaintiff failed to plead an enterprise with factual detail
Whether plaintiff pleaded a RICO "pattern" of racketeering activity	Chargebacks and related acts over 2015–2016 constituted related predicate acts showing continuity	The charged acts span only months (closed-end continuity) and end Jan 2016; no threat of future activity (open-ended continuity)	Dismissed — no sufficient continuity or relationship among predicates
Whether plaintiff alleged predicate mail/wire/financial-institution fraud with Rule 9(b) particularity	Cancellation letters, instructions to cardholders, and letters to issuing banks were fraudulent communications supporting mail/wire fraud and §1344 claims	Allegations are conclusory, lack specifics (who, when, where, content, intent); credit card processor is not a "financial institution" under §1344 definitions	Dismissed — failed Rule 9(b) specificity; §1344 inapplicable to Elavon
Whether common-law fraud and unjust enrichment claims survive apart from contract	Sham transactions and concealment amount to fraud and enrichment at Elavon’s expense, distinct from contract breach	Allegations either merge with contract claims or lack particularized scienter, causal benefit, or relationship to plaintiff	Dismissed — fraud merges with contract or lacks specificity; unjust enrichment inadequately pleaded

Key Cases Cited

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Twombly/Iqbal plausibility standard applied in securities/antifraud context)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient)
Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity for fraud pleading)
Lundy v. Catholic Health Sys., 711 F.3d 106 (2d Cir. 2013) (RICO fraud pleading standards require Rule 9(b) particularity)
RJR Nabisco v. European Cmty., 136 S. Ct. 2090 (2016) (elements of civil RICO and enterprise requirement)
H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229 (1989) (pattern—continuity and relationship analysis)
First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir. 2004) (definition and distinctness of an association-in-fact enterprise)
Boyle v. United States, 556 U.S. 938 (2009) (structural features for association-in-fact enterprise)
Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir. 1993) (specificity required as to fraudulent communications)
Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229 (2d Cir. 1999) (closed-end continuity requiring substantial time)
Spool v. World Child Int’l Adoption Agency, 520 F.3d 178 (2d Cir. 2008) (discussion of time period for RICO continuity)
United States v. Bouchard, 828 F.3d 116 (2d Cir. 2016) (statutory definition and narrow scope of "financial institution" under §1344)