Lenders sued for civil RICO

Where individuals that received loans alleged the defendants associated for the purpose of collecting unlawful debt, and that the members of the alleged association-in-fact were distinct from the enterprise itself, their claims under the Racketeer Influenced and Corrupt Organization Act, or RICO, survived a motion to dismiss. Because the plaintiffs did not sufficiently allege an agreement to participate in the enterprise or that the participants had knowledge of the plan of the conspiracy, however, their RICO conspiracy claim was dismissed.

Background

Plaintiffs and the putative class members are individuals that received loans from American Web Loan or AWL, defaulted on the AWL loans and were subject to debt collection efforts. In this suit, plaintiffs allege claims under the Fair Debt Collection Practices Act or FDCPA, and RICO against a variety of defendants. Defendants have filed motions to dismiss.

Statute of limitations

Defendants argue that the FDCPA claims are subject to a one-year statute of limitations period and that the omission of relevant dates is fatal to the claims. The court finds that plaintiffs have alleged several violations that occurred within the FDCPA’s one-year statute of limitations.

Section 1692e claim

Efforts to collect debt that is unenforceable under state law can serve as the basis for a claim under the FDCPA. The central issue for Count One is whether plaintiffs have alleged facts that make it plausible that the debt was unlawful.

Plaintiffs use three theories of illegality: (1) general usury statutes, (2) unlicensed small loans statutes and (3) licensing statutes. However, there are deficiencies in their pleading that prevent each of those three theories from being sufficient. Thus, the court dismisses Count One without prejudice.

Section 1692f claim

The Fourth Circuit has not ruled on whether a claim under the FDCPA can be based on vicarious liability. In cases allowing vicarious liability for FDCPA claims, however, the complaints allege that a specific debt buyer contracted with a specific debt collector to collect a specific debt. Here, for most of the debt buyer defendants, there are insufficient allegations to hold them vicariously liable for the actions of the downstream debt collectors.

While plaintiffs have not termed it as such, the amended complaint’s theory of recovery is more akin to common enterprise liability. However, the amended complaint does not plead sufficient facts to establish liability for several defendants, whether under theories of direct liability, vicarious liability or common enterprise liability.

Section 1692c claim

This claim suffers the same defect as Count Two. It relies on the debt buyer defendants being vicariously liable for the actions of downstream debt collectors, but the amended complaint does not allege facts sufficient to make that relationship plausible. C0unt Three is dismissed without prejudice.

RICO claims

Defendants make three primary arguments against the allegation of a RICO enterprise. First, they argue that the “purpose” element is not met as there are no allegations to support an inference that the defendants knew the debt was illegal. Second, defendants argue that the amended complaint does not describe an enterprise that is distinct from the defendants. Third, they argue that the alleged enterprise is based on allegations of fraud, so it must meet the specificity pleading standard of Rule 9(b).

Regarding the first argument, plaintiffs do not have to allege knowledge of illegality. The purpose may be that defendants associated for the purpose of collecting unlawful debt, whether they knew that debt was unlawful or not. Regarding the second argument, there are sufficient allegations to support an inference that the members of the alleged association-in-fact are distinct from the enterprise itself.

Finally, the non-fraud elements of a RICO claim are assessed using Rule 8, not Rule 9(b). The court thus concludes that plaintiffs have adequately alleged the existence of a RICO enterprise.

Next, “to prove a RICO conspiracy, two things must be established: ‘(1) that two or more people agreed to commit a substantive RICO offense and (2) that the defendant knew of and agreed to the overall objective of the RICO offense.’” The amended complaint does not sufficiently allege an agreement to participate in the enterprise or that the participants had knowledge of the plan of the conspiracy. Count Five is dismissed without prejudice.

State law claims

Plaintiffs have alleged an overarching scheme to collect unlawful debt for the benefit of all parties to the scheme, so the court will allow conspiracy liability to an unjust enrichment claim to proceed. Count Seven alleges violations of licensing and usury laws. The court agrees with the defendants that plaintiffs have not plead this claim with enough specificity. This count is dismissed without prejudice. The count for violation of California’s unfair competition law survives the motion to dismiss because the amended complaint alleges a plausible claim for the violation of California’s usury law.

Motion to amend

Plaintiffs explicitly requested leave to amend if the court found that the amended complaint was deficient. The deficiencies in the amended complaint can likely be cured, and plaintiffs will be given an opportunity to do so.

Defendants’ motions to dismiss granted in part, denied in part.

Mao v. Global Trust Management LLC, Case No. 4:21-cv-65, March 31, 2022. EDVA at Newport News (Young). VLW 022-3-149. 32 pp.