1:22-cv-02170
S.D.N.Y.Sep 27, 2024Background
- Defendant Joseph Isaacoff ("Isaacoff") is the sole owner/manager of Funderz.net, LLC (d/b/a HOP Capital, Business Merchant Funding, etc.), which arranged merchant cash advance–style transactions with FTE Networks, Inc. in Oct–Nov 2018. Six separate "Secured Merchant Agreements" (SMAs) were executed.
- The October SMAs provided fixed daily ACH debits stated as a percentage of receivables but contained discretionary or illusory reconciliation terms, one-year (auto-renewing) terms, and bankruptcy/default protections favoring Funderz. The court found these four October agreements to be loans in substance and thus usurious.
- The November SMAs had different terms (adjustable "Remittance," indefinite term, bankruptcy not an Event of Default) and on their face resembled purchases of receivables; extrinsic evidence, however, created a factual dispute whether they were a cover for usury.
- The largest agreement (Third HOP) stated a funding amount above $2.5 million; under New York law that contract is exempt from usury limits.
- Lateral Recovery LLC received assignments of FTE’s litigation claims in a foreclosure-related transaction; defendants challenged that assignment as champertous. Plaintiffs assert RICO claims (18 U.S.C. § 1962(c), (d)) for collection of unlawful debt and for a pattern/conspiracy of racketeering activity; discovery and cross-motions for summary judgment followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Isaacoff/Funderz constitute a RICO person/enterprise | Isaacoff (person) ran Funderz (enterprise) and thus may be liable under §1962(c) | Funderz is not distinct from Isaacoff or from the alleged unlawful activity | Held for Plaintiffs: Isaacoff is a person and Funderz an enterprise distinct enough for RICO liability under Cedric Kushner/Turkette principles |
| Whether the October SMAs are loans (thus usurious unlawful debt) | Transactions were loans in substance (fixed daily payments, sham reconciliation, default/recourse provisions) | Characterization as purchases of receivables; daily amounts were estimates | Held for Plaintiffs: Four October agreements are loans and collectible amounts unlawful debt under RICO (usury implied on face) |
| Whether the November SMAs are loans or legitimate receivables purchases | November SMAs are in substance loans (extrinsic evidence shows sham risk-shifting) | November SMAs facially allow adjustment and shift risk to Funderz, so not usurious | Held: Genuine dispute of material fact—neither side gets summary judgment on November SMAs |
| Whether the Third HOP Agreement is subject to usury law | Plaintiff: counts the transaction as usurious despite rollovers/payoffs | Defendant: contract funding exceeds $2.5M exemption from NY usury statute | Held for Defendants: Third HOP Agreement exempt from usury because stated amount exceeds $2.5M |
| Mens rea required for RICO unlawful-debt claim | Plaintiff: intent for usury can be implied where contract facially usurious; civil RICO borrows predicate mens rea | Defendant: RICO requires specific knowledge/willfulness (per Grote concerns) | Held for Plaintiffs: No additional willfulness requirement imposed; mens rea drawn from predicate (usury) — implied for October loans; November mens rea is factual issue |
| Pattern/conspiracy (wire fraud / racketeering pattern and §1962(d)) | Double debits and fraudulent contract labeling form a scheme and continuity | Debits were not wire fraud (no material misrepresentations); intracorporate conspiracy doctrine bars conspiracy | Held: No pattern of racketeering (wire fraud) proved — summary judgment for Defendants on pattern claim; conspiracy claim survives factual disputes and possible external-investor agreement (intracorporate doctrine declined) |
| Champerty and standing of Lateral Recovery | Assignment in foreclosure was a legitimate commercial transfer; Lateral can sue as assignee | Assignment was champertous (illegal) and thus void; some named plaintiffs lack standing | Held: Champerty is a disputed fact (no summary judgment); Lateral Recovery’s standing not finally decided here; Benchmark, Jus-Com, Focus Wireless lack RICO standing and are dismissed |
Key Cases Cited
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (corporate employee/owner may be RICO "person" distinct from corporate "enterprise")
- Boyle v. United States, 556 U.S. 938 (2009) (association‑in‑fact enterprise requires a continuing unit with common purpose)
- United States v. Turkette, 452 U.S. 576 (1981) (RICO enterprise may be lawful or unlawful; illegal activity does not defeat enterprise finding)
- DeFalco v. Bernas, 244 F.3d 286 (2d Cir. 2001) (elements of civil RICO claim)
- Durante Bros. & Sons v. Flushing Nat. Bank, 755 F.2d 239 (2d Cir. 1985) (elements of "unlawful debt" under RICO/usury analysis)
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (person must have part in directing enterprise affairs for §1962(c))
- Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (proximate causation standard for RICO injury)
- United States v. Biasucci, 786 F.2d 504 (2d Cir. 1986) (RICO mens rea derives from predicate offenses)