PEB, Inc. v. Premium Merchant Funding 26, LLC
1:24-cv-08791
S.D.N.Y.Jul 1, 2025Background
- PEB, Inc. (“PEB”), a California-based industrial contractor, entered into eight merchant cash advance (MCA) agreements with Premium Merchant Funding 26, LLC (“PMF”), receiving $2.4 million in funds during 2023–2024.
- PEB alleges these MCAs were actually disguised usurious loans with effective interest far exceeding legal caps, leading to $3 million in interest payments.
- In August 2024, PMF sued PEB in New York State court to recover on the agreements. PEB answered and engaged in discovery.
- PEB then filed this federal action alleging PMF and its employees committed RICO violations by collecting on unlawful loans.
- Defendants moved to compel arbitration based on broad clauses in the MCAs requiring arbitration of all disputes.
- PEB opposed, claiming defendants waived arbitration by litigating in state court, and argued non-signatory individual defendants could not compel arbitration.
Issues
| Issue | Plaintiff’s Argument | Defendant’s Argument | Held |
|---|---|---|---|
| Did the parties agree to arbitrate the dispute? | PEB claims the arbitration agreement should not apply to RICO claims or claims of loan illegality. | PMF says the arbitration clause is broad and covers all claims including RICO. | The court finds the arbitration clause governs the dispute. |
| Has PMF/defendants waived arbitration by state court action? | PMF waived arbitration by first suing to enforce contracts in state court. | Filing in state court was allowed by the contract; did not waive arbitration in this case. | Waiver is for the arbitrator to decide; no judicial estoppel applies. |
| Can individual, non-signatory defendants compel arbitration? | Individuals cannot compel arbitration; not signatories, and estoppel is inapplicable. | MCAs expressly make company employees third-party beneficiaries; agency doctrine applies. | Individuals entitled to enforce arbitration clause as beneficiaries/agents. |
| Are RICO claims arbitrable despite alleged illegality of underlying agreements? | RICO claims based on illegality of contracts; arbitration clause invalid if contracts are void. | Arbitration clause survives even if main agreement challenged; only fraud re: clause itself prevents arbitration. | RICO claims are arbitrable; alleged contract illegality is for arbitrator. |
Key Cases Cited
- Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (RICO claims are arbitrable)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (claim that contract is void for illegality is for arbitrator if arbitration clause is not specifically challenged)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (courts may adjudicate fraud only as to arbitration clause, not whole contract)
- Rent–A–Center, W., Inc. v. Jackson, 561 U.S. 63 (arbitration agreements stand on equal footing with contracts and must be enforced according to terms)
- Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16 (broad arbitration clause creates presumption of arbitrability)
- United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574 (no duty to arbitrate absent clear agreement)