440 F.Supp.3d 111
D. Mass.2020Background
- Borrowers Ramanjeet Kaur and Kulwinder Singh Uppal took a $175,000 business loan in March 2018 secured by their Somerville, MA home; the loan carried a ~92% APR and daily ACH payments.
- Loan origin involved broker Atlantis, marketplace lender World Business Lenders (WBL), and BofI Federal Bank (now Axos); loan documents listed bank branding and WBL servicing; WBL later held the mortgage and began foreclosure after default.
- Plaintiffs sued in Massachusetts state court for usury (Mass. Gen. Laws ch. 271 §49), aiding usury, and unfair/deceptive practices under Mass. Gen. Laws ch. 93A (claims that the loan was "doomed to fail" and a "rent‑a‑bank" scheme); defendants removed the case and moved to dismiss.
- The loan agreement contained a Nevada choice‑of‑law clause; plaintiffs challenged its enforceability as attacking contract validity and unconscionability.
- Defendants produced evidence that WBL filed a §49(d) notification with the Massachusetts Attorney General (an exemption/registration that allows exceeding the 20% statutory cap).
- Court: dismissed usury and related counts based on WBL's §49(d) registration and failure to plead a separate injury for the deception claim; allowed the 93A "doomed to fail" claim to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Mass. usury law / "true lender" question | WBL was the "true lender" and charged >20% APR, so Massachusetts usury law applies | Federal preemption protects nationally chartered bank; assignment/"valid when made" doctrine and bank involvement shield defendants | Court avoided deciding the novel true‑lender question and dismissed usury counts because WBL had properly notified the AG under §49(d), negating usury claims |
| Choice of law (Nevada clause) | Nevada clause unenforceable because contract is adhesive/deceptive and plaintiffs attack contract validity | Enforce Nevada choice‑of‑law provision | Court applied Massachusetts law to claims that attack contract validity and to usury/consumer‑protection issues as a matter of Massachusetts public policy; choice clause not dispositive for those counts |
| Chapter 93A — rent‑a‑bank / deception theory | Concealment of the true lender and document labeling was deceptive and injured plaintiffs | Any labeling deception did not cause a separate cognizable injury; plaintiffs received the contract they bargained for | Dismissed: plaintiffs failed to allege a distinct, causal injury from the alleged deception, so the 93A deception claim fails |
| Chapter 93A — "doomed to fail" underwriting theory | The loan’s extraordinariliy high APR, minimal underwriting, and security in the home show the loan was likely to fail and thus unfair/deceptive | Allegations insufficient to show lender knew or should have foreseen likely failure | Denied dismissal: plaintiffs plausibly alleged facts from which a jury could infer the loan was "doomed to fail," so the 93A underwriting claim survives |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (federal courts apply forum state choice‑of‑law rules)
- Beneficial Nat'l Bank v. Anderson, 539 U.S. 1 (national banks not subject to state usury law)
- Barnett Bank of Marion County v. Nelson, 517 U.S. 25 (federal preemption of state regulation of national banks)
- Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. decision rejecting broad preemption for assignees; key circuit split on rent‑a‑bank)
- Commonwealth v. Fremont Inv. & Loan, 452 Mass. 733 (Massachusetts doctrine on loans "doomed to fail" and 93A unfairness)
- Gaither v. Farmers' & Mechs. Bank of Georgetown, 26 U.S. (1 Pet.) 37 (assignment does not retroactively make a valid loan usurious)
- Shaulis v. Nordstrom, Inc., 865 F.3d 1 (under Mass. 93A, deception claim requires a separate, identifiable injury)