Consumer Financial Protection Bureau et al v. RD Legal Funding LLC et al

Filing 80

OPINION & ORDER re: #39 MOTION to Dismiss: For the foregoing reasons, Defendants' motion (ECF No. 39) is DENIED. Because Plaintiff Consumer Financial Protection Bureau is unconstitutionally structured and lacks authority to bring claims under the CFPA, the Clerk of Court shall terminate Plaintiff Consumer Financial Protection Bureau as a party to this action. Counsel shall confer and inform the Court by letter no later than July 9 how they propose to proceed. (Consumer Financial Protection Bureau terminated.) (Signed by Judge Loretta A. Preska on 6/21/2018) (jwh)

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Table of Contents
I. Factual Background ......................................... 2
a. The NFL Class Members..................................... 4
b. September 11, 2001 James Zadroga Victims Compensation Fund
Eligible Claimants ........................................... 5
c. The Purchase Agreements................................... 6
d. Claims Against the RD Entities............................ 7
i. CFPA Claims ............................................. 7
ii. Claims Arising Under New York Law ....................... 9
II. Procedural History ........................................ 10
III. Legal Standard........................................... 15
IV.

Discussion............................................... 16

a. Federal Jurisdiction..................................... 17
i. The RD Entities as “Covered Persons” Under the CFPA .... 17
1. The NFL Concussion Litigation Settlement Agreement
Claims................................................... 19
a.

The NCLSA’s Anti-Assignment Provision .............. 20

b. Legal Standard Regarding the Scope of the AntiAssignment Provision ................................... 21
c. Assignability of “Settlement Proceeds” Versus
“Monetary Claims” ...................................... 24
d.

Interpretation of the New York UCC ................. 27

e.

The NFL-related Purchase Agreements Are Void ....... 29

2. 31 U.S.C. § 3727 Invalidates the Assignment of
Compensation Awards from the VCF......................... 29
a.
i.

The Anti-Assignment Act, 31 U.S.C.

§ 3727 ........ 30

“Claim Against the United States” ................ 31

ii. Statutory Purpose ................................ 36
iii. .. The VCF-related Purchase Agreements Do Not Comply
With the Anti-Assignment Act’s Requirements .......... 40
3. Eligible Claimants and NFL Class Members “Incur[red]
Debt” Through the Purchase Agreements.................... 41
a. The RD Entities Extend “Credit” and “Service[]
Loans” ................................................. 54
4. The RD Entities Are “Covered Persons” Under the CFPA . 56
ii

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b. Failure to State a Claim Fed. R. Civ. P. 12(b)(6)........ 56
i. Rule 9(b)’s Heightened Pleading Standard Does Not Apply to
Non-Fraud Claims .......................................... 57
1. “Substantial Assistance” Claims Under the CFPA ....... 62
2. Specificity of Allegations Against Each Defendant Under
Rule 8(a)................................................ 63
ii. “Substantial Assistance” Liability Under the CFPA ...... 67
iii. Deceptive and Abusive Conduct Under the CFPA ......... 70
1. Counts I, III, IV, V: Deceptive Acts or Practices Under
the CFPA................................................. 70
a.

Count I ............................................ 71

i. “Substantial Assistance” Claim Against Roni
Dersovitz Under Count I .............................. 72
b.

Count III .......................................... 75

i. “Substantial Assistance” Claim Against Roni
Dersovitz Under Count III ........................... 76
c.

Count IV ........................................... 77

i. “Substantial Assistance” Claim Against Roni
Dersovitz Under Count IV ............................ 79
d.

Count V ............................................ 80

i. “Substantial Assistance” Claim Against Roni
Dersovitz Under Count V ............................. 81
2. Count II: Abusive Acts or Practices Under the CFPA ... 83
a. “Substantial Assistance” Claim Against Roni Dersovitz
Under Count II ......................................... 85
iv. State Law Claims ....................................... 86
1. NYAG’s Jurisdiction Over the Purchase Agreements ..... 88
2. Count VI: Claims Under New York Civil and Criminal Usury
Laws..................................................... 89
3. Count VIII: Violation of New York General Obligations
Law § 13-101............................................. 91
4. Count IX: Violation of New York General Business Law
§ 349.................................................... 93
5. Count X: Violation of New York General Business Law
§ 350.................................................... 96
6. Count XI: New York Executive Law § 63(12) Fraud ...... 98
c. Constitutional Claims.................................... 99
i. History, Liberty, and Presidential Authority ........... 99
iii

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ii. CFPB’s Notice of Ratification ......................... 100
d. Conclusion.............................................. 104

iv

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Loretta A. Preska, Senior United States District Judge:
This is an action by Plaintiffs Consumer Financial
Protection Bureau (the “CFPB”) and the People of the State of
New York, by Eric T. Schneiderman, Attorney General for the
State of New York (“NYAG” or the “Attorney General”)
(collectively, the “Government”), against Defendants RD Legal
Funding, LLC; RD Legal Finance, LLC; RD Legal Funding Partners,
LP (collectively, the “RD Entities”); and Roni Dersovitz, the
founder and owner of the RD Entities (together with the RD
Entities, the “Defendants”).

The Government asserts that the

Defendants violated certain provisions of the Consumer Financial
Protection Act (“CFPA” or the “Act”).

NYAG independently

asserts that the RD Entities are liable under New York law for
the same actions and events that form the basis of the CFPA
claims.

Defendants move to dismiss the Complaint (ECF No. 1) on

three principal grounds.

First, Defendants argue that the CFPB

is unconstitutionally structured and therefore lacks the
authority to bring claims under the CFPA.

Second, Defendants

contend that the Court lacks federal jurisdiction because the RD
Entities are not “covered persons” under the CFPA and therefore
do not come within the Act’s jurisdictional purview.

Third and

finally, the RD Entities move to dismiss the Complaint pursuant
to Rule 12(b)(6) of the Federal Rules of Civil Procedure for
failure to state a claim for relief.
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As set out below, because the CFPB’s structure is
unconstitutional, it lacks the authority to bring claims under
the CFPA and is hereby terminated as a party to this action.
The NYAG, however, has independent authority to bring claims
under the CFPA.

The Court concludes that NYAG has alleged

plausibly claims under the CFPA and under New York law.
Accordingly, Defendants’ motion to dismiss the Complaint is
denied.
I.

(ECF No. 39.)
Factual Background

The following facts are drawn from the Complaint,
(Complaint (“Compl.”), ECF No. 1), the Assignment and Sale
Agreements (hereinafter the “Purchase Agreements”) attached as
exhibits to the Affidavit of Roni Dersovitz, (Affidavit of Roni
Dersovitz (“Dersovitz Aff.”), Exs. A-1 to A-20, B-1 to B-5, ECF
No. 41-1), and the National Football League (“NFL”) Concussion
Litigation Settlement Agreement (“NCLSA”), (Dersovitz Aff. Ex.
6), which Defendants attached to their motion to dismiss.

The

allegations in the Complaint are accepted as true for purposes
of the instant motion.1

1

As Defendants note in their motion to dismiss, “[t]he Court may
consider the Zadroga Fund agreements [(Dersovitz Aff. Exs. A-1
to A-20)], and the NFL Settlement Fund agreements [(Dersovitz
Aff. B-1 to B-5)], because the Complaint refers to them
extensively and ‘relies heavily upon [their] terms and effect,
which renders the document[s] integral to the complaint.’”
Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir.
2002) (citation and some internal quotation marks omitted);
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The CFPB and NYAG bring this action against the RD Entities
and their founder and owner, Roni Dersovitz.

(Compl. ¶¶ 15-19.)

The RD Entities are companies that offer cash advances to
consumers waiting on payouts from settlement agreements or
judgments entered in their favor.

The Government alleges that

Defendants misled these consumers into entering cash advance
agreements that the Defendants represented as valid and
enforceable sales but, in reality, functioned as usurious loans
that were void under state law.

(Compl. ¶ 19.)

At issue in this case are two specific groups of consumers
(collectively, the “Consumers”) with which the RD Entities
transacted: (1) class members in the National Football League
(“NFL”) Concussion Litigation class action (“NFL Class Members”
or “Class Members”) and (2) individuals (“Eligible Claimants”)

accord Capela v. J.G. Wentworth, LLC, No. CV09-882, 2009 WL
3128003, at *1 n.2 (E.D.N.Y. Sept. 24, 2009). Furthermore,
according to Defendants, the Purchase Agreements attached as
exhibits to Defendants’ motion to dismiss were among the 218
contracts that Defendants produced to the CFPB pursuant to a
civil investigative demand (“CID”). (Defendants’ Mot. to
Dismiss (“Def. Br.”) 6, ECF No. 49.) Therefore, it is
reasonable to assume that the CFPB relied on these Purchase
Agreements in drafting the Complaint. The Court also notes
that, all at once, the Government objects to the inclusion of
the Purchase Agreements in deciding the instant motion to
dismiss (Plaintiff’s Opp’n (“Pl. Opp.”) 36 n.13, ECF No. 36) but
in the same breath relies on the Purchase Agreement exhibits in
support of its arguments in its opposition briefing. (Pl. Opp.
35-36.) For these reasons, the Court concludes that the
Purchase Agreements are “integral” to the Complaint and
therefore may be considered for purposes of deciding the instant
motion. Chambers, 282 F.3d at 152-53.
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who qualify for compensation under the September 11th Victim
Compensation Fund of 2001 (“VCF”).

49 U.S.C. § 40101.

a. The NFL Class Members
On January 31, 2012, a federal multidistrict litigation was
created in United States District Court for the Eastern District
of Pennsylvania for lawsuits on behalf of former NFL players who
suffer from mild traumatic brain injury due to playing
professional football.

See Settlement Agreement (hereinafter

“Settlement Agreement”) Preamble, In re NFL Players’ Concussion
Injury Litig., MDL No. 2323 (E.D. Pa. Feb. 13, 2015) (ECF No.
6481-1).

Defendants in that case, the NFL and NFL Properties

LLC, ultimately agreed that settlement of the claims in that
complex putative class action was appropriate.
(K).

Id. Recitals

Accordingly, on February 13, 2015, a federal district

court in the Eastern District of Pennsylvania approved the NFL
Concussion Litigation Settlement Agreement (“NCLSA”) between the
Class Members, by and through class counsel, and defendants NFL
and NFL Properties LLC.

Id. Preamble.

The NFL Class Members at issue in this case are former NFL
players who have been diagnosed with neurogenerative diseases
such as chronic traumatic encephalopathy (“CTE”), Alzheimer’s,
or Parkinson’s disease and who have received notification of
their entitlement to a settlement award under the NCLSA for
these injuries. (Compl. ¶¶ 22-23.)
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b. September 11, 2001 James Zadroga Victims Compensation Fund
Eligible Claimants
In January 2011, President Obama signed the James Zadroga
9/11 Health and Compensation Act of 2010 (“Zadroga Act”), which
served to renew the September 11th Victim Compensation Fund of
2001 (the “VCF”).

49 U.S.C. § 40101.

Congress created the VCF

to provide compensation to individuals and personal
representatives of deceased individuals who suffered physical
injury or were killed as a result of the September 11, 2001
terrorist attacks or were harmed during the removal of debris
immediately following those attacks.

Proposed Rule, Federal

Register, Vol. 76 No. 119 (Jun. 21, 2011).

The Zadroga Act

authorizes a Special Master appointed by the Attorney General to
carry out the administration of the VCF by enacting substantive
and procedural rules, including making determinations as to what
award amount an eligible individual (“Eligible Claimant”) is
entitled to under the VCF.

28 C.F.R. § 104.51.

According to the Complaint, the Eligible Claimants with
whom the RD Entities transact have received an award letter from
the VCF’s Special Master indicating the amount of compensation
to which they are entitled under the VCF.
U.S.C. §§ 405(b)(1), 405(c), 406(a).

(Compl. ¶¶ 22-23); 49

Eligible Claimants who are

entitled to compensation include individuals who suffer from
respiratory illnesses and cancers related to their exposure to
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dust and debris at the World Trade Center site as well as from
post-traumatic stress disorder, depression, anxiety disorder,
and memory loss following the September 11th, 2001 terrorist
attacks.

(Compl. ¶ 22.)

c. The Purchase Agreements
According to the Complaint, after a Consumer has received
final approval and a notice of the award amount to which he or
she is entitled, the RD Entities offer to take a security
interest in the Consumer’s settlement award or a portion thereof
(the “Property” or “Property Amount”).

(Compl. ¶ 20.)

In the

contracts that Defendants enter into with Consumers, the RD
Entities purport to “acquire the full risks and benefits of
ownership of the Property and acquire the full right, title and
interest in the Property.”

(Def. Br. Ex. 1.)

In exchange, the

RD Entities offer Consumers an immediate “lump sum” cash payment
that represents a portion of the total award to which the
Consumer is entitled.

(Compl. ¶ 24.)

In return, the Consumer

agrees to repay a larger amount, i.e., the Property Amount, to
the RD Entities after receiving its settlement payment.

(Id.)

The Purchase Agreements contain a no recourse provision that
relieves the Consumer of his or her obligation to repay the RD
Entities in the event that the RD Entities are unable to recover
the settlement award from the Consumer’s third-party obligor,
i.e., the NFL Settlement Fund or the VCF.
6

(Def. Br. Ex. 1.)

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The RD Entities enter into two types of contracts with
Consumers.

Under the first, the RD Entities advance a lump sum

of cash to the Consumer.

The repayment amount that the Consumer

owes to RD remains the same, regardless of when the Consumer
receives the award from the VCF or the NFL Settlement Fund.
(Compl. ¶ 31.)

Under the second type of contract, the amount

the Consumer repays turns on when the claims administrator
disburses the Consumer’s award.

The longer it takes for the

Consumer to receive his or her settlement payment, the more the
Consumer owes to the RD Entities.

(Id.)

After entering into the Purchase Agreement, Consumers are
obligated immediately to forward any monies received from the
NFL Claims Administrator or the VCF to the RD Entities until the
Consumer has paid off the agreed-upon amount.

(Compl. ¶ 26.)

After the amount due under the agreement has been paid to the RD
Entities, the Consumer is entitled to keep any balance in excess
of that amount that he or she receives from the NFL Settlement
Fund or VCF Claims Administrator.

(Id.)

d. Claims Against the RD Entities
i.

CFPA Claims

The Complaint alleges five CFPA claims against the RD
Entities: (1) Count I alleges that the RD Entities engaged in
deceptive acts or practices, 12 U.S.C. §§ 5531(a),
5536(a)(1)(B), by misrepresenting that the Purchase Agreements
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constituted valid and enforceable assignments and that Dersovitz
knowingly or recklessly provided substantial assistance to the
RD Entities in carrying out these violations, 12 U.S.C.
§ 5536(a)(3) (Compl. ¶ 63); (2) Count II alleges that the RD
Entities engaged in abusive acts or practices, 12 U.S.C.
§§ 5531(d), 5536(a)(1)(B), by misrepresenting that the Purchase
Agreements constituted valid and enforceable assignments and
that Dersovitz knowingly or recklessly provided substantial
assistance to the RD Entities in carrying out these violations,
12 U.S.C. § 5536(a)(3) (Compl. ¶¶ 72-73); (3) Count III alleges
that the RD Entities engaged in deceptive acts or practices, 12
U.S.C. §§ 5531(a), 5536(a)(1)(B), by misrepresenting that they
could “cut through red tape” and expedite a Consumer’s award
payment when in fact they could not and that Dersovitz knowingly
or recklessly provided substantial assistance to the RD Entities
in carrying out these violations, 12 U.S.C. § 5536(a)(3) (Compl.
¶ 79); (4) Count IV alleges that the RD Entities engaged in
deceptive acts or practices, 12 U.S.C. §§ 5531(a),
5536(a)(1)(B), by misrepresenting when the RD Entities would
deliver Consumers’ cash payments because, in some instances, the
RD Entities made payment after the promised payment date, and
that Dersovitz knowingly or recklessly provided substantial
assistance to the RD Entities in carrying out these violations,
12 U.S.C. § 5536(a)(3), (Compl. ¶ 86); and (5) Count V alleges
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that the RD Entities engaged in deceptive acts or practices, 12
U.S.C. §§ 5531(a), 5536(a)(1)(B), by collecting on contracts
that functioned as loans with usurious interest rates under
state law and on which no payment was due, and that Dersovitz
knowingly or recklessly provided substantial assistance to the
RD Entities in carrying out these violations, 12 U.S.C.
§ 5536(a)(3).
ii.

(Compl. ¶ 93.)
Claims Arising Under New York Law

The NYAG brings independently various claims arising under
New York law, each of which is asserted against each of the
named Defendants:

Count IX asserts a claim of deceptive

practices under New York General Business Law (“NY GBL”) § 349
against all of the named Defendants based on the same alleged
deceptive conduct underlying Counts I, III, IV, and V of the
Complaint, (Compl. ¶¶ 119-22); Count X asserts a claim of false
advertising against all of the named Defendants under NY GBL
§ 350 based on the RD Entities’ alleged misrepresentations that
the transactions at issue were sales, not loans, and that the RD
Entities had the ability to expedite payment of Consumers’
awards when in fact they did not, (Compl. ¶¶ 123-26); Count XI
asserts a claim under New York Executive Law § 63(12) for
fraudulent conduct based on the same factual allegations
underlying Counts I-V of the Complaint (Compl. ¶¶ 127-30);
Counts VI and VII allege that, through the Purchase Agreements,
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Defendants charged Consumers rates of interest that violated New
York’s civil and criminal usury laws, N.Y. Banking Law § 14-a,
and N.Y. Penal Law §§ 190.40 and 190.42, respectively (Compl.
¶¶ 99-105, 106-10); and finally, Count VIII alleges that
Defendants violated New York General Obligations Law (“NY GOL”)
§ 13-101 because they entered into contracts that constituted an
unlawful assignment of individual claims to recover for personal
injuries under New York law.

N.Y. Gen. Oblig. Law § 13-101;

(Compl. ¶¶ 111-18.)
II.

Procedural History

The instant case has a circuitous history in this Court.
In January 2017, RD Legal Funding, LLC filed a complaint against
the CFPB in the Southern District of New York seeking relief in
the form of, inter alia, a declaration that the purchase of
legal receivables from customers are true sales and that,
therefore, RD Legal Funding, LLC’s business is not within the
CFPB’s jurisdiction.

RD Legal Funding, LLC v. Consumer Fin.

Prot. Bureau, No. 17-cv-00010 (LAP) (S.D.N.Y.) (ECF No. 1);
(Def. Br. 7.)

According to Defendants, RD Legal Funding, LLC

filed that action in response to civil investigative demands
(“CID”) that the CFPB served on RD Legal Funding, LLC as well as
a formal request from the CFPB to depose an RD Legal Funding,
LLC representative in connection with the CFPB’s investigation
of the RD Entities.

(Def. Br. 6.)
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Two days after filing suit in federal court against the
CFPB, RD Legal Funding Partners, LP and RD Legal Funding, LLC
filed a similar suit in New York state court against NYAG
seeking a declaration that the VCF Purchase Agreements are true
sales.

RD Legal Funding, LLC, et al. v. Schneiderman, et al.,

No. 17-cv-00681 (LAP) (S.D.N.Y.) (ECF No. 1).
Following RD Legal Funding, LLC and RD Legal Funding
Partners, LP’s actions against the CFPB and NYAG in this Court
and New York state court, the CFPB and NYAG filed this
enforcement action against the RD Entities on February 7, 2017.
(ECF No. 1.)

On May 15, 2017, the RD Entities moved to dismiss

the Complaint on several grounds, including lack of federal
jurisdiction due to the CFPB’s unconstitutional structure, the
CFPB’s lack of jurisdiction over the RD Entities as “covered
persons” under the CFPA, and for failure to state a claim on
which relief can be granted pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure.

(ECF No. 39.)

In July 2017, class counsel for the NFL Class Members
requested that this Court allow it to file an amicus brief in
opposition to the RD Entities’ motion to dismiss or, in the
alternative, that determination of the validity of the
assignment provisions in the NFL Purchase Agreements be referred
to United States District Court for the Eastern District of
Pennsylvania.

(ECF No. 45.)

Class counsel stated that it
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believed referral of this question to the Eastern District of
Pennsylvania would be appropriate because that court has
continuing jurisdiction over the administration and
interpretation of the NCLSA.

(Id.); see also Settlement

Agreement § 27.1 (“The Court retains continuing and exclusive
jurisdiction over this action including jurisdiction over . . .
all Settlement Class Members . . . .”).

Class counsel explained

that referral of this question would ensure uniformity of
adjudication through “a single up-or-down ruling that [would]
apply not only to Defendants in this action but also to other
potential lenders to class members who might assert the same
defense.”

(Id.) Because interpretation of the NCLSA’s terms

falls squarely within “the administration and interpretation of
the [NCLSA]” and referral would promote judicial economy, this
Court concluded that referral of the anti-assignment clause
question to the Eastern District of Pennsylvania was
appropriate.

(ECF No. 59.)

On September 15, 2017, this Court

referred the assignment question to the Honorable Anita B. Brody
in the Eastern District of Pennsylvania, who was presiding over
the NFL Concussion Litigation. (ECF No. 60.)
On December 8, 2017, Judge Brody issued an Explanation and
Order which concluded that the anti-assignment clause in the NFL
Concussion Litigation Settlement Agreement “unambiguously
prohibits” NFL class members “from assigning or attempting to
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assign any monetary claims [under the NFL Settlement
Agreement],” thereby rendering “any such purported assignment
. . . void, invalid and of no force and effect” under New York
law.

See Explanation and Order (hereinafter, “Explanation and

Order”), In re NFL Players’ Concussion Injury Litig., No. 2:12md-2323-AB (E.D. Pa. Dec. 8, 2017) (ECF No. 9517) (citing
Neuroaxis Neurosurgical Assocs., P.C. v. Costco Wholesale Co.,
919 F. Supp. 2d 345, 352 (S.D.N.Y. 2013)).

In New York, an

anti-assignment clause is enforceable only if it contains
“clear, definite and appropriate language” restricting the
assignment of money due under the contract.

Allhusen v. Caristo

Constr. Corp., 103 N.E.2d 891, 893 (N.Y. 1952); Neuroaxis
Neurosurgical, 919 F. Supp. 2d at 352.

Under this framework,

Judge Brody concluded that the term “relating to” in the NCLSA’s
anti-assignment clause, which prohibits Class Members from
assigning claims “relating to the subject matter of the Class
Action Complaint,” encompassed assignment of Class Members’
claims to settlement awards under the NCLSA.
and Order at 3, 4 n.6.

See Explanation

In reaching this conclusion, Judge

Brody concluded that the phrase “relating to” in the NCLSA’s
anti-assignment clause was “sufficiently express” under New York
law to include assignment of Class Members’ claims to settlement
awards under the NCLSA.

Explanation and Order at 3-4.

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As a result of this finding, Judge Brody held that Class
Members’ Purchase Agreements with the RD Entities were void.
Explanation and Order at 5-6.

Accordingly, she ordered the NFL

Class Members to return to the RD Entities any amount that the
RD Entities had already paid them.

Id.

On August 1, 2017, after Defendants filed the instant
motion to dismiss, the American Legal Finance Association
(“ALFA”) moved for leave to file an amicus curiae brief in
opposition to Defendants’ motion to dismiss.

The Court granted

ALFA’s request, and ALFA filed its amicus curiae brief on August
15, 2017.

(See Br. for ALFA as Amicus Curiae (“ALFA Br.”), ECF

No. 56.)
After receiving briefing from all parties on Defendants’
instant motion to dismiss, the Court requested supplemental
briefing from the parties on February 23 and 28, 2018, on two
legal questions pertaining to the VCF Purchase Agreements.
Nos. 71, 72.)

(ECF

The first question asked what the effect of the

underlying agreement between the Defendants and Eligible
Claimants would be if the Court were to conclude that the
assignments in the VCF Purchase Agreements were impermissible
pursuant to the Anti-Assignment Act, 31 U.S.C. § 3727.

As a

follow-on to the first inquiry, the Court also asked how the
effect of any such underlying agreement between Defendants and
Eligible Claimants would impact the Government’s assertion of
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jurisdiction over the RD Entities as “covered persons” under the
CFPA.

(ECF No. 72.)
On March 5, 2018, the Government filed a letter in response

to the Court’s February 23 and 28 orders.

(ECF No. 73.)

On

March 12, 2018, Defendants filed a letter in response to the
Government’s March 5, 2018 letter addressing these issues.

(ECF

No. 74.)
III. Legal Standard
In considering a motion to dismiss pursuant to Fed. R. Civ.
P. 12(b)(6), a court must “accept the material facts alleged in
the complaint as true and construe all reasonable inferences in
the plaintiff’s favor.”

Phelps v. Kapnolas, 308 F.3d 180, 184

(2d Cir. 2002) (citation and internal quotation marks omitted).
Though a court must accept all factual allegations as true, it
gives no effect to “legal conclusions couched as factual
allegations.”

Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 35

(2d Cir. 2017) (quoting Starr v. Sony BMG Music Entm’t, 592 F.3d
314, 321 (2d Cir. 2010)).

“To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its
face.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“A claim

has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
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that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678.

This “plausibility standard is not akin

to a ‘probability requirement,’ but it asks for more than a
sheer possibility that a defendant has acted unlawfully.”
(citations omitted).

Id.

Deciding whether a complaint states a

claim upon which relief can be granted is “a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense.”

Rahman v. Schriro, 22 F. Supp. 3d

305, 310 (S.D.N.Y. 2014) (quoting Iqbal, 556 U.S. at 679).
In certain circumstances, the court may permissibly
consider documents other than the complaint in ruling on a
motion under Rule 12(b)(6). Documents that are attached to
the complaint or incorporated in it by reference are deemed
part of the pleading and may be considered. In addition,
even if not attached or incorporated by reference, a
document "upon which [the complaint] solely relies and
which is integral to the complaint" may be considered by
the court in ruling on such a motion.
Tolliver v. Lilley, No. 12-cv-971, 2014 U.S. Dist. LEXIS 184770,
at *21–*22 (S.D.N.Y. Oct. 24, 2014) (citing Roth v. Jennings,
489 F.3d 499, 509 (2d Cir. 2007)).
IV.

Discussion

In addressing the various arguments that Defendants assert
in support of dismissal, the Court first addresses Defendants’
contention that this Court lacks federal jurisdiction to hear
the CFPA claims because the RD Entities are not “covered
persons” and thus do not come within the CFPA’s jurisdictional
reach.

Next, the Court addresses Defendants’ argument that the
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Complaint fails to state a claim on which relief can be granted
pursuant to Rule 12(b)(6).

In line with the doctrine of

constitutional avoidance, the Court addresses Defendants’
constitutionality argument last.
a. Federal Jurisdiction
i.

The RD Entities as “Covered Persons” Under the
CFPA

The CFPA regulates “covered person[s] or service
provider[s]” who are engaged in “unfair, deceptive, or abusive
act[s] or practice[s] under Federal law.” 12 U.S.C. §§ 5531(a),
5536(a).

The Act defines “covered person” as “any person that

engages in offering or providing a consumer financial product or
service.” 12 U.S.C. § 5481(6)(A).

The term “financial product

or service” is defined in relevant part as “extending credit and
servicing loans.”

Id. § 5481(15)(A)(i).

The CFPA defines

“credit” as “the right granted by a person to a consumer to [1]
defer payment of a debt, [2] incur debt and defer its payment,
or [3] purchase property or services and defer payment for such
purchase.”

Id. § 5481(7).

The Government asserts four claims of deceptive acts or
practices and one claim of abusive acts or practices under the
CFPA against the RD Entities.
Id. § 5531(d)(1), (2)(B).

Id. §§ 5531(a), 5536(a)(1)(B);

Defendants move to dismiss the CFPA

deceptive and abusive acts or practices claims on the grounds
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that the RD Entities are not “covered person[s]” under the CFPA,
Id. § 5481(6)(A), and therefore do not come within the Act’s
jurisdictional reach.

(Def. Br. 17.)

The Government asserts that the RD Entities are “covered
persons” under the CFPA because they extend “credit” and service
loans.

The Government alleges that the RD Entities engage in

this activity because the assignments in the Purchase Agreements
are void.

See N.Y. U.C.C. § 9-408(d)(1); 31 U.S.C. § 3727;

(Compl. ¶¶ 19, 43, 52-54, 61-69, 70-77.)

In turn, these

agreements do not constitute valid sales of Consumers’ interest
in their settlement awards.

(Compl. ¶¶ 19, 43, 61-69, 70-77.)

The Government argues that the effect of this is to encumber
Consumers with “debt” and an obligation to repay the RD Entities
in spite of what the Purchase Agreements say.

(Compl. ¶¶ 19,

34-43.)
The RD Entities reject this characterization.

They argue

that the assignments are legally permissible and therefore
effectuate true sales of Consumers’ interest in their settlement
awards.

(Def. Reply 5-6.)

Under this approach, the Consumer

incurs no repayment obligation in the event that the RD Entities
are unable to collect the purchased receivable.

(Def. Br. 19.)

Therefore, the RD Entities assert that the consumer incurs “no
debt,” “no repayment obligation,” and that “[t]here is certainly

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no right granted to defer payment of a debt” to the Consumer.
(Id.)
Both parties’ arguments as to the Government’s jurisdiction
over Defendants as “covered persons” turns on the validity of
the assignments.

If the assignments are valid, as Defendants

suggest, the entire basis of the Government’s jurisdictional
theory under the CFPA would fall apart.
Accordingly, in deciding whether the RD Entities are
“covered persons” under the CFPA, the Court must first determine
whether the assignments embodied in the NFL Purchase Agreements
and the VCF Purchase Agreements are valid.

12 U.S.C.

§ 5481(6)(A).
1. The NFL Concussion Litigation Settlement
Agreement Claims
Following the issuance of Judge Brody’s Explanation and
Order that found the assignments in the NFL Purchase Agreement
void based on the NCLSA’s anti-assignment provision, Defendants
filed a letter in this Court objecting to Judge Brody’s
conclusion.

(See ECF No. 62.)

As explained below, the Court

rejects Defendants’ arguments in support of these objections in
all respects.

Accordingly, the Court adopts the Explanation and

Order’s finding that the NCLSA’s anti-assignment provision is
valid, thereby rendering the assignments in the NFL-related
Purchase Agreements void.
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a. The NCLSA’s Anti-Assignment Provision
The express terms of the NCLSA restrict Class Members’
ability to assign their rights or claims “relating to the
subject matter of the Class Action Complaint,” Explanation and
Order at 2 (citing Settlement Agreement (hereinafter “Settlement
Agreement”) § 30.1, In re NFL Players’ Concussion Injury Litig.,
MDL No. 2323 (E.D. Pa. Feb. 13, 2015) (ECF No. 6481-1)):
Section 30.1
No Assignment of Claims. Neither the
Settlement Class nor any Class or Subclass Representative
or Settlement Class Member has assigned, will assign, or
will attempt to assign, to any person or entity other than
the NFL Parties any rights or claims relating to the
subject matter of the Class Action Complaint. Any such
assignment, or attempt to assign, to any person or entity
other than the NFL Parties any rights or claims relating to
the subject matter of the Class Action Complaint will be
void, invalid, and of no force and effect and the Claims
Administrator shall not recognize any such action.
Settlement Agreement § 30.1 (emphasis added).
The Government asserts that the assignments in the NFL
Purchase Agreements are void because the NCLSA’s express terms
prohibit class members from assigning “any rights or claims
relating to the subject matter of the Class Action Complaint,”
which include their interest in their settlement award (or a
portion thereof) under the NCLSA.
added).

(Compl. ¶ 35) (emphasis

In response, the RD Entities contend that the NCLSA’s

anti-assignment provision violates New York’s general

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prohibition of contractual anti-assignment clauses2 and,
therefore, does not prevent the NFL Class Members from assigning
their rights to settlement compensation under the NCLSA.

(Def.

Br. 18-21.)
b. Legal Standard Regarding the Scope of
the Anti-Assignment Provision
First, Defendants contend that Judge Brody did not construe
the anti-assignment language “narrowly” when interpreting the
phrase “relating to” as required under New York law.

In

particular, they note that the anti-assignment provision does
not specifically prohibit Class Members from assigning their
right to a settlement award under the NCLSA, and therefore is
not “sufficiently express” to be upheld under New York law.
(ECF No. 62-4 at 10-17); C.U. Annuity Serv. Corp. v. Young, 722
N.Y.S.2d 236, 236 (N.Y. App. Div. 2001). Defendants also assert
that the anti-assignment provision’s reference to “the subject
matter of the Class Action Complaint” limits assignment only of
Class Members’ personal injury claims, not Class Members’ rights
to settlement awards stemming from a later-dated settlement
agreement.

(ECF No. 62-1 at 10; ECF No. 62-4 at 12-15; ECF No.

62.)

2

The NFL Concussion Litigation Settlement Agreement contains a
New York choice-of-law provision.
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As a matter of policy, New York generally permits parties
to assign their interests unless “the relevant provision of the
contract contains ‘clear, definite, and appropriate language
declaring an assignment invalid.’”

Au New Haven, LLC v. YKK

Corp., 210 F. Supp. 3d 549, 554 (S.D.N.Y. 2016) (quoting
Purchase Partners, LLC v. Carver Fed. Sav. Bank, 914 F. Supp. 2d
480, 505 (S.D.N.Y. 2012)).

To this end, New York law requires

that courts construe contractual anti-assignment language
“narrowly.”

(ECF No. 62) (quoting Au New Haven, 210 F. Supp. 3d

at 556).
It is well-settled that, in interpreting a contract’s
terms, courts must give effect to the plain meaning of its words
or terms.

This basic principle encompasses phrases, including

“relating to.”

State v. Philip Morris Inc., 813 N.Y.S.2d 71, 75

(N.Y. App. Div. 2006) (“The terms ‘arising out of,’ and most
particularly ‘relating to,’ certainly evince a broad arbitration
clause”), aff’d, 869 N.E.2d 636 (N.Y. 2007).
In relevant part, the term “relate to” is defined as “to
have relationship or connection.”

Relate, Merriam Webster (May

24, 2018), https://www.merriam-webster.com/dictionary/relate.
In accord with its dictionary definition, courts in New York
have given effect to the plain meaning of the phrase “relating
to” when interpreting contracts in the past.

See, e.g., Coregis

Ins. Co. v. Amer. Health Found., Inc., 241 F.3d 123, 128–29 (2d
22

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Cir. 2001) (“The term ‘related to’ is typically defined more
broadly.”); Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58
F.3d 16, 20 (2d Cir. 1995) (discussing that, in the context of
arbitration clauses, the phrase “‘arising out of or relating to
th[e] agreement,’ is the paradigm of a broad clause”).
Rights to settlement awards under the NCLSA indisputably
“relat[e] to the subject matter of the Class Action Complaint.”
As the Explanation and Order correctly notes, monetary awards
under the NCLSA would not exist but for the events giving rise
to the Class Action Complaint.

Explanation and Order at 3-4.

The “relationship” or “connection” between rights to settlement
awards under the NCLSA and the “subject matter of the Class
Action Complaint” is straightforward.
Defendants’ repeated reliance on Au New Haven, LLC v. YKK
Corp., 210 F. Supp. 3d 549 (S.D.N.Y. 2016), does not help them.
There, the Court analyzed the term “hereunder” in interpreting
the scope of a contractual anti-assignment provision.
554-56.

Id. at

In conclusion, the Court gave effect to the “plain-

language definition” of the word “hereunder” in finding that a
patent, though the subject of the licensing agreement at issue,
did not originate from the licensing agreement and therefore was
not subject to the bar on assignments of any interest
“hereunder.”

Id. 554-55.

Similarly here, the Explanation and

Order gives effect to the plain meaning of the term “relating
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to” by employing the same “narrow” interpretation that the Court
invoked in Au New Haven.

No incongruity exists between the

standard that Judge Brody used in interpreting the term
“relating to” and the standard in Au New Haven.
In sum, Judge Brody’s interpretation of the term “relating
to” complies with New York contract law and basic principles of
contract interpretation by giving meaning to the plain meaning
of the phrase.

Accordingly, the Court agrees with the

Explanation and Order’s conclusion.

The NCLSA’s terms state

clearly that the anti-assignment provision validly applies to
the assignment of Class Members’ claims to settlement awards
under the NCLSA.
c. Assignability of “Settlement
Proceeds” Versus “Monetary Claims”
Defendants also assert that Judge Brody’s Explanation and
Order refers to the assignment of “monetary claims,” while the
Purchase Agreements at issue purport to assign Class Members’
right to “settlement proceeds.”

(ECF No. 62.)

Defendants argue

that the Explanation and Order’s use of the term “monetary
claims” rather than “settlement proceeds” shows that Judge Brody
conflated legally distinct concepts under New York law.
Specifically, Defendants note that although New York law
prohibits the assignment of claims, it does not similarly
prohibit the assignment of settlement proceeds.
24

For this

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 29 of 108

reason, Defendants argue that the Explanation and Order’s
findings, which use the term “monetary claims,” are inapplicable
to the assignment of “settlement proceeds” at issue in the NFLrelated Purchase Agreements.

(ECF No. 62); Explanation and

Order at 3-4.
Defendants’ argument is a combination of mere word mincing
and misconstruction of the law.

As to misconstruction of the

law, the assignments in the NFL-related Purchase Agreements
purport to effectuate a transfer of Class Members’ full
ownership rights and interest in the Property Amount to RD Legal
Finance, LLC.

(Dersovitz Aff. Exs. B-1 to B-7.)

Through these

Purchase Agreements, RD Legal Finance, LLC purports to “step
into the shoes of the assignor” and obtain the full right to
demand direct payment of the Property Amount from NFL Monetary
Award Fund through a limited irrevocable power of attorney.
(See Dersovitz Aff. Ex. B-5 at 12.)

Defendants fail to note

that the right to demand direct payment from the NFL Monetary
Award Fund in itself is a “claim” that “clearly encompasses a
cause of action for nonpayment.”

Renfrew Ctr. v. Blue Cross

Blue Shield of Central N.Y., Inc., No. 94-cv-1527 (RSP/GJD),
1997 WL 204309, at *4 (N.D.N.Y. Apr. 10, 1997).

Although the

NCLSA does not define the word “claim,” the assignment attempts
to transfer all of the Class Members’ rights and interests in
the Property Amount to RD Legal Funding, LLC.
25

(See, e.g.,

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 30 of 108

Dersovitz Aff. Ex. B-5.)

The RD Entities provide no basis for

believing that this bundle of ownership rights includes anything
less than the full benefits of ownership, and that includes the
right to sue the NFL Monetary Award Fund in the event of
nonpayment.

Accordingly, Judge Brody’s Explanation and Order

addresses squarely the scenario at issue in the NFL Purchase
Agreements by analyzing the assignment of “monetary claims”
under it.
Defendants’ assertion that the NFL Purchase Agreements are
assignments of the “right to settlement proceeds” under the
NCLSA is unavailing.

Defendants cite Grossman v. Schlosser, 244

N.Y.S.2d 749, 749-50 (N.Y. App. Div. 1963), in an attempt to
illustrate that the NFL Purchase Agreements involve the
assignment of “settlement proceeds,” a concept that is legally
distinct from the assignment of a “claim” for settlement
proceeds in New York.

In Grossman, the court held that the

“assignment of proceeds of a [cause of action for personal
injury], prior to its settlement or adjudication, [is] valid and
effectual as an equitable assignment against the assignor and
his attaching creditor.”

Id. (emphasis added).

This

arrangement gives an equitable assignee “no legal estate or
interest in the fund” but rather “constitute[s] an equitable
lien on the property.”

Matter of Hoffman, 435 N.Y.S.2d 235, 237

(N.Y. Surr. Ct. 1980); see also In re Mucelli, 21 B.R. 601, 603
26

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(S.D.N.Y. 1982); United States v. Colby Academy, 524 F. Supp.
931, 934 (E.D.N.Y. 1981) (holding that settlement proceeds are
assignable as “an equitable interest only” and “d[o] not become
a legal assignment until the proceeds have come into existence”)
(applying New York law).
Thus, New York law permits, at most, the creation of an
equitable lien on future settlement proceeds.

Id.

“An

equitable lien is ‘a right . . . to have a fund, specific
property, or its proceeds, applied in whole or in part to the
payment of a particular debt.’”

Bank of India v. Weg & Myers,

691 N.Y.S.2d 439, 445 (N.Y. App. Div. 1999).

This framework,

however, still does not permit the transfer of an individual’s
present ownership interest in future receivables for damages to
recover for personal injury, which is what the NFL Purchase
Agreements attempt to do, albeit unsuccessfully.

Id.

In sum, Defendants’ arguments that assignments of claims to
settlement award funds under the NCLSA are valid are without
merit.
d. Interpretation of the New York UCC3
New York Uniform Commercial Code (“NY UCC”) § 9-408(d)(1)
establishes a general bar on anti-assignment clauses limiting

3

The Court notes that this argument was raised for the first
time in Defendants’ letter objecting to the Explanation and
Order’s findings, after the instant motion to dismiss was fully
briefed. (ECF No. 62.)
27

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the transfer of “general intangibles.”
§ 9-408(d)(1).

N.Y. U.C.C.

This provision also enumerates certain

exceptions to the general rule against such clauses.

Id.

One

such exception applies to “the right to receive compensation for
injuries or sickness as described in 26 U.S.C. § 104(a)(1) and
(2), as amended from time to time.”

Id.

Section 104(a) of the

Internal Revenue Code excludes certain types of compensation
from gross income, including “the amount of any damages (other
than punitive damages) received (whether by suit or agreement
and whether as lump sums or as periodic payments) on account of
personal physical injuries or physical sickness[.]”

26 U.S.C.

§ 104(a)(2).
The RD Entities contend that because the NCLSA does not
specify whether compensation from it qualifies as excludable
income under Section 104, the NY UCC’s exception for
restrictions on assignments of monetary claims for personal
injury settlements does not save the anti-assignment provision
as it relates to “proceeds” from settlement of personal injury
claims.

Id. § 104(a); (ECF No. 62.)

It is beyond peradventure that compensation from the NFL
Settlement Agreement constitutes “damages . . . received . . .
on account of personal physical injuries” under Section 104 of
the Internal Revenue Code.

Id. § 104(a)(2).

The NCLSA is

rooted in the physical injuries resulting from repeated brain
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injuries that retired NFL players experienced while active in
professional football.

See Explanation and Order at 4 n.6.

Accordingly, the NY UCC does not invalidate the NFL
Settlement Agreement’s anti-assignment provision.
e. The NFL-related Purchase Agreements
Are Void
In sum, the NCLSA validly prohibits the assignment of NFL
Class Members’ monetary claims.

Therefore, the assignments in

the NFL Purchase Agreements are void.
2. 31 U.S.C. § 3727 Invalidates the
Assignment of Compensation Awards from the
VCF
The RD Entities and the Government disagree over whether
federal law prohibits the assignment of compensation that the
VCF awards to an Eligible Claimant.

On the one hand, the

Government argues that the Anti-Assignment Act, 31 U.S.C.
§ 3727, prohibits assignment of Eligible Claimants’ rights to
their award amount under the VCF.

See 31 U.S.C. § 3727

(“Section 3727” or the “Anti-Assignment Act”); (Pl. Opp. 13-14.)
On the other hand, the RD Entities assert that because the AntiAssignment Act bars only the assignment of a substantive claim
against the United States, not the assignment of settlement
proceeds, the assignments in the Purchase Agreements are
permissible.

(Def. Reply 5-6.)
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Neither of the parties has cited to, and this Court has not
been able to identify, a case addressing whether the AntiAssignment Act applies to the VCF structure instituted by the
Air Transportation Safety and System Stabilization Act, codified
at 49 U.S.C. § 40101.

For the reasons that follow, the Court

concludes that it does.
a. The Anti-Assignment Act, 31 U.S.C.
§ 3727
Congress initially enacted the Assignment of Claims Act,
now known as the Anti-Assignment Act, in 1853.
Kim, 806 F.3d 1161, 1169 (9th Cir. 2015).

United States v.

The Anti-Assignment

Act was intended to:
“(1) [T]o prevent persons of influence from buying up
claims against the United States, which might then be
improperly urged upon officers of the Government, (2) to
prevent possible multiple payment of claims, to make
unnecessary the investigation of alleged assignments, and
to enable the Government to deal only with the original
claimant, and (3) to save to the United States defenses
which it has to claims by an assignor by way of set-off,
counter claim, etc., which might not be applicable to an
assignee.”
In re Ideal Mercantile Corp., 244 F.2d 828, 831 (2d Cir. 1951)
(quoting United States v. Shannon, 342 U.S. 288, 291-92 (1952)).
To this end, the Anti-Assignment Act, 31 U.S.C. § 3727,
imposes restrictions on the assignment of claims against the
United States Government.

The statute defines an assignment as

“a transfer or assignment of any part of a claim against the

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Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 35 of 108

United States Government or of an interest in the claim” or “the
authorization to receive payment for any part of the claim.”
Id.

Section 3727 permits assignments of a claim against the

United States only after “[1] [the] claim is allowed, [2] the
amount of the claim is decided, and [3] a warrant for payment of
the claim has been issued.”

Id.
i.

“Claim Against the United
States”

The Anti-Assignment Act restricts the assignment of “claims
against the United States.”

Id.

As an initial matter,

therefore, the Court must determine whether an Eligible
Claimant’s entitlement to a monetary award from the VCF is a
“claim against the United States.” Kim, 806 F.3d at 1170.
Although the Anti-Assignment Act does not define the term
explicitly, “[w]hat is a claim against the United Stated is well
understood.
States.”

It is a right to demand money from the United

Hobbs v. McLean, 117 U.S. 567, 575 (1886).

This

interpretation accords with the term’s dictionary definition,
which is “[t]he assertion of an existing right; any right to
payment or to an equitable remedy, even if contingent or
provisional . . . [a] demand for money, property, or a legal
remedy to which one asserts a right.”
Dictionary (10th ed. 2014).

31

Claim, Black’s Law

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 36 of 108

Applying this definition here, an Eligible Claimant’s
monetary award from the VCF is a “claim against the United
States” because it creates a “right to demand money from the
United States” upon Eligible Claimants’ receipt of their award
letter.

Hobbs, 117 U.S. at 575; see also Kim, 806 F.3d at 1171

(“An award of statutory attorney’s fees is, at base, a right to
demand money from the United States.”).

Although the VCF is a

unique, if not unprecedented, legal creature, the Court sees no
reason why a monetary award under the VCF is not a “claim
against the United States.”

Hobbs, 117 U.S. at 575; see also

Kim, 806 F.3d at 1171 (quoting United States v. Gillis, 95 U.S.
407, 413 (1877)) (“No language could be broader or more emphatic
than these enactments.

The words embrace every claim against

the United States, however arising, of whatever nature it may
be, and wherever and whenever presented”) (internal quotation
marks omitted).
Defendants argue that the Anti-Assignment Act only
restricts the assignment of substantive claims against the
United States.

(Def. Rep. 5.)

Applying this principle here,

the RD Entities contend that the VCF Purchase Agreements assign
Eligible Claimants’ right to proceeds from the VCF rather than
Eligible Claimants’ substantive claims.

Therefore, they say,

Section 3727 does not bar these assignments.
(ECF No. 74.)
32

(Def. Reply 5);

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 37 of 108

In the same way that the RD Entities misconstrue the legal
distinction between the assignment of “claims” and the
assignment of “proceeds from claims” with the NFL-related
Purchase Agreements, they do so once more here.

Courts have

held uniformly that an individual’s right to receive payment
directly from the United States Government is a substantive
claim that may not be assigned under the Anti-Assignment Act.
See Kim, 806 F.3d at 1170-71 (citing United States v. Transocean
Air Lines, Inc., 386 F.2d 79, 81 (5th Cir. 1967); Kearney v.
United States, 285 F.2d 797, 800 (Ct. Cl. 1961); Pittman v.
United States, 116 F. Supp. 576, 580 (Ct. Cl. 1953)).
Consistent with this interpretation, the Anti-Assignment
Act does not restrict a would-be assignor’s ability to create a
legal obligation to pay a would-be assignee after the United
States Government has paid the would-be assignor.

In this

situation, the would-be assignee could then “enforce[]” the
agreement “by suit” if the would-be assignor did not “recognize”
this agreement “after collection of the money.”
200 U.S. 12, 20 (1906) (emphasis added).

Nutt v. Knut,

Anti-Assignment Act

jurisprudence establishes clearly that a party is free to enter
into an agreement that legally obligates it with respect to a
future payment from the United States Government after the party
has received the funds.

See, e.g., Martin v. Nat’l Sur. Co.,

300 U.S. 588, 595 (1937) (emphasis added) (“After payments have
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been collected and are in the hands of the contractor or
subsequent payees with notice, assignments may be heeded, at all
events in equity, if they will not frustrate the ends to which
the [statute] was directed.”); First Fed. Sav. & Loan Ass’n of
Rochester v. United States, 58 Fed. Cl. 139, 157-58 (Ct. Cl.
2003) (“The assignee has no claim against the government. The
assignments were of a right to proceeds – a contractual
arrangement between private parties.”); Saint John Marine Co. v.
United States, 92 F.3d 39 (2d Cir. 1996) (holding contractual
obligations between private parties regarding proceeds from the
United States Government enforceable but assignment as against
the United States void); In re Ideal Mercantile Corp., 244 F.2d
at 832 (citing McKenzie v. Irving Tr. Co., 323 U.S. 365, 369
(1945)) (emphasis added) (“[I]t seems clear that an assignment
of a claim against the United States is enforceable in many
cases as between parties to that assignment, or their successors
in interest, after the Government has paid the claim.”).
Defendants cite to Saint John Marine for the proposition
that the Purchase Agreements are valid because while “the AntiAssignment Act ‘voids the assignment as against the United
States, the assignment remains enforceable as between the
parties to the contract.”

(ECF No. 74) (citing Saint John

Marine, 92 F.3d at 45)) (emphasis added).

It is nose-on-the-

face plain that the Court of Appeals did not mean that
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assignments like the ones at issue here, which purport to
transfer all of Eligible Claimants’ present rights and interests
in a portion of their VCF award, including the right to demand
payment directly from the United States Government, are
permissible under the Anti-Assignment Act.

(See Def. Br. Sec.

III(A)(1)(b)) (“The Assignments Give the RD Entities the Right
to Demand Direct Payment from the Holder of the Funds.”).
Rather, the Court of Appeals was reiterating a well-established
legal principle in Anti-Assignment Act case law:

an assignment

that is void as against the United States under the AntiAssignment Act “may amount to the creation of an equitable lien
when the subject matter of the assignment has been reduced to
possession and is in the hands of the assignor.”
U.S. at 597.

Martin, 300

This general principle comports with the Anti-

Assignment Act’s underlying purpose.

“The United States has no

need to worry about fraud or any of the other evils associated
with the assignment of claims against it once the proceeds of
the claims have been reduced to the possession of the purported
assignor.”

Kim, 806 F.3d at 1176-77.

After the United States

Government has remitted payment to the purported assignor, the
Act’s protective purpose “is not implicated.”

Id. at 1177.

Therefore, an equitable lien on funds to be received in the
future from the United States Government is permissible, but

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assignment of a right to collect payment directly from the
United States Government is not.
In sum, the RD Entities’ argument shows too much by arguing
that Defendants purport to contract for a full ownership
interest in a portion of Eligible Claimants’ award, which
plainly includes the right to demand payment for that portion
directly from the United States Government.

(Dersovitz Aff. Ex.

A-1 at 16) (letter from RD Entities to VCF Claims Processing
Center demanding payment be made directly to RD Entities
pursuant to Purchase Agreement); (Def. Br. Sec. III(A)(1)(b))
(“The Assignments Give the RD Entities the Right to Demand
Direct Payment from the Holder of the Funds.”).

“From the

beginning . . . the Anti-Assignment Act has been concerned with
direct payment of claims.”

Kim, 806 F.3d at 1176.

The Purchase

Agreements purport to transfer Eligible Claimants’ right to
receive payment directly from the United States Government to
the RD Entities.

This is precisely what the statute governs,

and this is not allowed.
ii.

Statutory Purpose

Having concluded that an award of compensation under the
September 11th VCF constitutes a “claim” within the meaning of
the Anti-Assignment Act, the Court must next determine whether
application of the Anti-Assignment Act to the VCF’s enabling
statute would advance the statute’s stated objectives before
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applying it.

Saint John Marine, 92 F.3d at 49; See N.Y.

Guardian Mortgagee Corp. v. Cleland, 473 F. Supp. 422, 434
(S.D.N.Y. 1979) (“[T]here must be some congruence between the
Act and its purposes before it is applied.”).
In passing the Anti-Assignment Act, Congress sought to
protect the United States Government by restricting the
assignment of claims against it.

See Martin, 300 U.S. at 594

(“The provisions of the statute making void an assignment or
power of attorney by a Government contractor are for the
protection of the Government.”).

As noted above, Congress

sought to limit the United States Government’s exposure to three
potential liabilities:
“(1) [T]o prevent persons of influence from buying up
claims against the United States, which might then be
improperly urged upon officers of the Government, (2) to
prevent possible multiple payment of claims, to make
unnecessary the investigation of alleged assignments, and
to enable the Government to deal only with the original
claimant, and (3) to save to the United States defenses
which it has to claims by an assignor by way of set-off,
counter claim, etc., which might not be applicable to an
assignee.”
In re Ideal Mercantile Corp., 244 F.2d at 831 (quoting Shannon,
342 U.S. at 291-92).
In spite of the Anti-Assignment Act’s broad language,
courts have held the statute inapplicable where enforcement
would not advance its underlying purposes.

See N.Y. Guardian,

473 F. Supp. at 433-34 (“Despite the broad language of the Act,
numerous exceptions to it have been recognized when [its]
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purposes would not be served.”).

For example, the Anti-

Assignment Act does not bar involuntary assignments that occur
by operation of law, Saint John Marine, 92 F.3d at 48, which
courts have interpreted to include “corporate mergers,
consolidations, and reorganizations,” First Fed. Sav. & Loan
Ass’n of Rochester, 58 Fed. Cl. at 158.

Voluntary assignments

for the benefit of creditors, transfers imposed by judicial
order, subrogation, and corporate reorganizations that result in
a transfer of assets are also situations in which courts have
found the Anti-Assignment Act to be inapplicable.

Saint John

Marine, 92 F.3d at 49 (citing Goodman v. Niblack, 102 U.S. 556
(1880); Keydata Corp. v. United States, 504 F.2d 1115 (Ct. Cl.
1974); United States v. Aetna Cas. & Sur. Co., 338 U.S. 366
(1949)).
After weighing the relevant factors, the Court concludes
that application of the Anti-Assignment Act to 49 U.S.C. § 40101
would further Congress’s intent in passing the Act.

See N.Y.

Guardian, 473 F. Supp. at 434.
First, applying the Anti-Assignment Act to awards under the
VCF would allow the United States Government the opportunity, if
ever necessary, to set off an Eligible Claimant’s award amount
against preexisting debts owed to the United States.
Shannon, 342 U.S. at 291-92; Kim, 806 F.3d at 1172.

38

See

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 43 of 108

More significantly, however, application of the AntiAssignment Act to 49 U.S.C. § 40101 limits the possibility of
multiple payments of claims, preserves United States Government
resources by eliminating the need for diligence to validate an
alleged assignment, and streamlines the VCF’s administration by
requiring the United States Government to interact with only the
original claimant.
at 831.

See In re Ideal Mercantile Corp., 244 F.2d

The Special Master of the VCF has previously stated

that the potential for fraud is a primary concern in the
administration of the Fund.

See September 11th Victim

Compensation Fund, First Annual Status Report, at 4 (Oct. 2012),
https://www.vcf.gov/pdf/VCFStatusReportOct2012.pdf (“As with any
government program involving compensation, it is crucial that we
implement key protocols to prevent fraud.”).

As the Special

Master has noted, “[t]hese efforts are particularly important
given the cap on the total amount of money available for the
Fund.”

Id.

Limiting the number of individuals to whom the

United States Government makes award payments under the VCF
would undoubtedly minimize the potential for fraud.
Accordingly, application of the Anti-Assignment Act to 49
U.S.C. § 40101 and, more specifically, to monetary awards issued
under the VCF would further the purposes of the Act.

Therefore,

the Anti-Assignment Act applies to claims arising under 49
U.S.C. § 40101.
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iii.

The VCF-related Purchase
Agreements Do Not Comply With
the Anti-Assignment Act’s
Requirements

The Anti-Assignment Act allows a party to assign a claim
against the United States only if it is made after “[1] a claim
is allowed, [2] the amount of the claim is decided, and [3] a
warrant for payment of the claim has been issued.”

31 U.S.C. §

3727(b).
The RD Entities appear to argue that because they entered
into the Purchase Agreements with Eligible Claimants only “after
the Special Master’s determination of the amount due to the
seller, i.e., after the claim had been allowed,” (Def. Rep. 6),
Defendants have complied with Section 3727’s requirements and
the assignment is therefore permissible.
Oddly, the RD Entities do not address their compliance with
the Anti-Assignment Act’s two other technical requirements.
U.S.C. § 3727(b); Kim, 806 F.3d at 1176.
event.

31

However, this is of no

The Court of Appeals for the Ninth Circuit has noted

that compliance with Section 3727’s third requirement, which
allows for assignment of claims only after “a warrant for
payment of the claim has been issued,” is almost impossible
given that “the Treasury no longer uses warrants.”
U.S.C. § 3727(b); Kim, 806 F.3d at 1169.
40

See 31

Because the Government

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 45 of 108

may, at its choosing, “waive coverage of the Anti-Assignment
Acts,” Kim, 806 F.3d at 1169 (quoting Riviera Fin. of Tex., Inc.
v. United States, 58 Fed. Cl. 528, 530 (2003)), the warrant’s
anachronistic character, coupled with Congress’s inaction in
updating the statute’s language, gives the Government “the power
to pick and choose which assignments it will accept and which it
will not.”

Kim, 806 F.3d at 1169-70.

Here, there is no

indication that the United States Government has waived coverage
of the Anti-Assignment Act to 49 U.S.C. § 40101.

In addition,

neither party has argued that the RD Entities complied with the
Anti-Assignment Act’s three requirements under Section 3727(b).
Accordingly, because neither the RD Entities nor the
Government have argued or alleged facts that the VCF Purchase
Agreements comply with Section 3727’s requirements, these
assignments are void as against the United States under 31
U.S.C. § 3727.
3. Eligible Claimants and NFL Class Members
“Incur[red] Debt” Through the Purchase
Agreements
After addressing the preliminary issue of whether the VCF
and NCLSA permit the assignment of Consumers’ claims to
settlement awards, which they do not, the Court is able to turn
to the crux of the jurisdictional question presented here:
whether the Purchase Agreements cause Consumers to incur “debt”
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such that the RD Entities “extend[] credit” within the meaning
of a “covered person” under the CFPA.

12 U.S.C. §§ 5481(6)-(7).

The RD Entities argue that, even if the assignments are invalid,
this fact merely renders the Purchase Agreements void and would
not “transform” the Purchase Agreements into extensions of
“credit.”

(Def. Br. 18-21.)

In its rather sparse response to

this contention, the Government asserts that because the
Purchase Agreements are invalid, Defendants functionally offer
or provide a credit transaction in which consumers incur debt
and defer the right to repay.

(Compl. ¶ 19.)

In spite of the puzzling paucity of case law addressing
facts similar to those at issue here, the Court agrees
ultimately that the assignments in the Purchase Agreements are
void as against the third-party obligors, i.e., the VCF Claims
Administrator and the NFL Settlement Fund, but give rise to a
relationship between Defendants and Consumers in which the RD
Entities “extend[] credit” and the Consumer incurs “debt” within
the meaning of 12 U.S.C. § 5481(6)-(7).
The CFPA defines “credit” as “the right granted by a person
to a consumer to [1] defer payment of a debt, [2] incur debt and
defer its payment, or [3] purchase property or services and
defer payment for such purchase.”

12 U.S.C. § 5481(7).

Although the CFPA does not define the term “debt,” Black’s Law
Dictionary defines debt, in relevant part, as “a specific sum of
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money due by agreement or otherwise.”
Dictionary (10th ed. 2014).

Debt, Black’s Law

Both parties rely on case law

interpreting whether a transaction constitutes an extension of
“credit” under the CFPA or other statutes that have
substantially similar definitions of the term “credit.”

See 15

U.S.C. § 1602(f) (Truth in Lending Act (“TILA”)); 15 U.S.C. §
1691(d) (Equal Credit Opportunity Act (“ECOA”)).

None of those

cases, however, involves an assignment that a court has declared
invalid as a matter of law, as is the situation here.
In Capela v. J.G. Wentworth, LLC, the court held that a
transaction involving a party’s sale and assignment of its right
to structured settlement payments for a personal injury claim
from Allstate Settlement Corporation in exchange for an upfront,
lump sum cash payment from a structured settlement company was a
sale, not an extension of “credit” under TILA.

No. CV09-882,

2009 WL 3128003, at *9, 10 (E.D.N.Y. Sept. 24, 2009) (citing 15
U.S.C. § 1601 et seq.).

The court found that the transaction

was not properly classified as a loan because the assignor
“ha[d] no obligation at all to pay the settlement installments
if Allstate fail[ed] to do so” under the terms of the agreement.
Id.

Similarly, in Reed v. Val-Chris Invs., Inc., the court

found that a party’s assignment of his future interest in his
father’s estate to a company called Advance Inheritance, LLC
(“AI”) in exchange for an immediate lump sum cash payment from
43

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AI was not an extension of “credit” under TILA because, under
the transaction’s terms, AI “had no recourse against Plaintiff
if his potential inheritance was not sufficient to cover his
assignment.”

No. 11cv371, 2011 WL 6028001, at *2-3 (S.D. Cal.

Dec. 5, 2011).
Capela and Reed present facts that are fundamentally
different from those at issue here because the assignments in
those cases were not declared invalid as a matter of law.

In

Capela, the purchaser of the receivables petitioned for and
obtained judicial approval of the transaction pursuant to New
York’s Structured Settlement Protection Act, N.Y. Gen. Oblig.
Law § 5-1701, et seq., in New York Supreme Court, Suffolk
County.

Id. at *1.

Similarly, in Reed, the assignment

agreement was “filed with the state probate court” and, although
not mentioned specifically in the case, would have been subject
to judicial approval pursuant to California Probate Code §
11604.5(d)(1)-(h)(1) (West) (amended 2015).

Unlike here, a

court reviewed and approved the assignments at issue in Capela
and Reed prior to those plaintiffs filing suit against the
structured settlement companies.

Rather, plaintiffs in Capela

and Reed sought to have the disclosure and protection
requirements of TILA and ECOA applied to their structured
settlement agreements by having them classified as extensions of
“credit” without challenging the validity of the underlying
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assignment.

Capela, 2009 WL 3128003, at *2; Reed, 2011 WL

6028001, at *2.

Because the assignments at issue in the NFL and

VCF purchase agreements are invalid as a matter of law, the
analyses in Capela and Reed have limited transferability to this
case.
Here, the Court has concluded that the assignments in the
VCF Purchase Agreements and the NFL Purchase Agreements are void
as against the third-party obligors.4

The relevant question thus

becomes whether, looking beyond the gloss of the “assignment and
sale” label that the RD Entities have affixed to the Purchase
Agreements, these transactions constitute an extension of
“credit” under the CFPA as between the Consumers and the RD
Entities.
It is well-established that contract interpretation is the
domain of state law.

See Capela, 2009 WL 3128003, at *10

(looking to state law to determine nature of agreement between
parties); Kim, 806 F.3d at 1175 (applying California law to
determine nature of underlying agreement between parties).
Therefore, the Court looks to New York law in interpreting the

4

The assignability of an individual’s future interest in an
estate is an evolving area of law in both California and New
York. See David Horton & Andrea Cann Chandrasekher, Probate
Lending, 126 Yale L. J. 102, 108 (2016) (analyzing empirical
evidence on 594 probate lending transactions in California and
concluding in part that the practice “raise[s] serious fairness
concerns” and “violat[es] . . . [California’s] usury laws on a
massive scale”).
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nature of the agreement between Consumers and the RD Entities
after peeling away the invalid assignments and the “assignment
and sale” labels from these transactions.5

Id.

Under New York law, an assignment of litigation proceeds
takes effect as an equitable lien in favor of the “assignee.”
In re Minor, 482 B.R. 80, 84 (Bankr. W.D.N.Y. 2012) (quoting
Williams v. Ingersoll, 89 N.Y. 508, 519 (N.Y. 1882)).

“An

equitable lien is ‘a right . . . to have a fund, specific
property, or its proceeds, applied in whole or in part to the
payment of a particular debt.’”

Arbor Realty Funding, LLC v.

East 51st St. Dev. Co., 907 N.Y.S.2d 98 (Sup. Ct. 2009) (quoting
Bank of India v. Weg & Myers, 691 N.Y.S.2d 439, 445 (N.Y. App.
Div. 1999)) (emphasis added).
Here, because the assignments are void, no ownership rights
are transferred to the RD Entities under the Purchase
Agreements.

Rather, the RD Entities are creditors with a

security interest in Consumers’ future – but already determined
– settlement award amounts under the VCF or NCLSA.
482 B.R. at 85.

In re Minor,

By any measure, therefore, the lump sum cash

advance that the RD Entities provide causes Consumers to “incur
a debt and defer its payment” because it is a specific sum of

5

Defendants accept for purposes of this motion only that New
York law applies for purposes of characterizing the transactions
as sales or loans. (Def. Br. 26 n.10.)
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money due by agreement.
ed. 2014).

See Debt, Black’s Law Dictionary (10th

The idea that the Consumer’s repayment obligation is

legally “triggered” only upon receipt of settlement funds from
the settlement administrator is illusory.

(Def. Br. 19.)

The

repayment obligation is always with the Consumer from the moment
the RD Entities disburse the lump sum cash payment to the
Consumer.

To that end, the Consumer “defers” payment of this

debt unilaterally, in spite of Defendants’ contentions to the
contrary.

(Def. Br. 19) (“Cases interpreting analogous federal

statutory definitions of ‘credit’ confirm that, the ‘hallmark of
credit . . . is the right of one party to make deferred
payment.’”) (quoting Reithman v. Berry, 287 F.3d 274, 277-79 (3d
Cir. 2002)).

The RD Entities’ lump sum cash advance is “‘an

extension of credit, an advance, or loan . . . with the
assignment held over the [Consumer] as a sort of club or
collateral security’” regardless of whether the third-party
obligor remits payment to the Consumer or not.

Missouri ex rel.

Taylor v. Salary Purchasing Co. Inc., 358 Mo. 1022, 1028 (1949)
(quoting McWhite v. State, 226 S.W. 542, 543 (Tenn. 1921)).
Bankruptcy courts frequently face the question of whether a
transaction is properly characterized as a loan or a sale where
the purchaser of a receivable must defend its rights against
other creditors in the seller’s bankruptcy proceeding.

Peter V.

Pantaleo et al., Rethinking the Role of Recourse in the Sale of
47

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Financial Assets, 52 Bus. Law. 159, 160 (1996).

To that end,

bankruptcy courts weigh the presence or absence of certain
factors in determining whether a transaction is a sale or a loan
under New York law.

(Def. Br. 19, 27.)

Among the factors that

these courts consider in this analysis is the existence of
recourse.

If a buyer retains recourse against the seller, this

indicates that the buyer has assumed less than all of the
ownership rights in a purported sale, thereby indicating that
the transaction is more likely a loan.

See In re Dryden

Advisory Group, LLC v. Beneficial Mut. Sav. Bank, 534 B.R.612,
620-23 (Bankr. M.D. Pa. 2015) (applying New York law); Pantaleo,
52 Bus. Law. at 159 (explaining that “an issue can arise over
whether to view [a] transaction as a sale or a secured loan”
where recourse against the seller exists because it indicates
that “less than all the risks of ownership [have been]
transferred” from seller to buyer).
Courts also look to other factors in making this
determination.

For example, an assignee’s right to demand

direct payment from the seller’s account debtor tends to
indicate that a true sale has taken place.
Advisory Grp., 534 B.R. at 622.

See In re Dryden

Conversely, a seller’s right of

repurchase from the buyer tends to weigh in favor of classifying
the transaction as a loan because it indicates that the seller
has not fully alienated his ownership rights in the property.
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See In re Joseph Kanner Hat Co., 482 F.2d 937, 940 (2d Cir.
1973) (finding pledge of security rather than true sale where
underlying asset serving as security was returned upon repayment
of the advanced funds).

In addition, courts may also look to

the intent of the parties in effectuating a sale or a loan as
indicated by the language of the contract.

See Platinum Rapid

Funding Grp. Ltd. v. VIP Limousine Servs., Inc., No. 604613-15,
2016 WL 4478807 (N.Y. Sup. Ct. June 8, 2016).
Bearing all of these factors in mind, Defendants urge that
the paramount factor in determining whether a transaction is a
sale or a loan under New York law is whether the “risk of nonpayment is transferred from the seller to the buyer, not the
degree of risk borne by the buyer.”

(Def. Rep. 11-12.)

Because

the RD Entities purport to assume all of the risks of nonpayment
in the Purchase Agreements, they argue that the Agreements are
non-recourse and therefore are true sales.

(Id.)

Contrary to the RD Entities’ assertions, the instant case
is not a line-drawing exercise.

The assignments in the Purchase

Agreements are void and thus do not transfer a single right of
ownership from Consumers to the RD Entities in their monetary
claims.

This constitutes the beginning and end of the story.

Because the assignments are invalid, the RD Entities retain
recourse against the Consumer in the event of nonpayment.

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In spite of the lack of case law classifying structured
settlement transactions as loans or sales where a court deems
the assignment void as a matter of law against the third-party
obligor, a single Missouri state court case contains significant
factual parallels to the case at hand.

In Missouri ex rel.

Taylor v. Salary Purchasing Co. Inc., the Missouri Attorney
General brought charges against a salary advance company that
offered consumers a cash advance on their unearned wages.
Mo. 1022, 1024-25 (1949).

358

At that time, the Missouri

legislature had made transactions amounting to “payday loans”
illegal.

Id. (citing Mo. Rev. Stat. §§ 3226, 3227 (1939)

(capping allowable interest rate at six percent if no rate
specific and eight percent if stated in contract,
respectively)).

To circumvent this prohibition, the salary

advance company structured the transactions as “sales” in which
consumers would “assign” their future unearned wages to the
salary advance company.

Id.

The assignment agreements

contained exorbitant repayment terms that dictated repayment of
the amount advanced plus fees that, in reality, functioned as
usurious interest rates.

Id.

Additionally, although the salary

advance company was authorized to notify and collect from the
consumer’s employer, it never attempted to do this.

Id.

Ultimately, the Missouri Attorney General brought charges under
state civil and criminal usury laws against the salary advance
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company, arguing that the assignments were actually loans with
usurious interest rates.

Id.

In response, the salary advance

company argued that the assignments were not loans subject to
state usury laws, but valid sales.

Id. In the alternative, the

salary advance company asserted that the effect of a state
statute invalidating assignments of unearned wages would not
convert the assignments into loans but would only render the
assignments null and void.

Id. at 1026.

In rejecting the salary advance company’s argument, the
Supreme Court of Missouri, sitting en banc, noted that the void
assignments “could be nothing but loans” because they
“transferred no right or title in the unearned wages which they
purported to assign.”

Id.

In spite of the assignments’ terms

to the contrary, the transactions imposed a repayment obligation
on the consumer because the salary advance company “did not
intend to donate to the applicants the money which it advanced
on such void assignments.

It intended to create the

relationship of debtor and creditor.”

Id.

“The assignment was

. . . taken as a security for the money advanced, and as
something to be held over a customer who did not make prompt
settlement. . . . this is clearly an extension of credit, an
advance, or loan, to the employee, with the assignment held over
the employee as a sort of club or collateral security.”

Id. at

1028 (quoting McWhite v. State, 226 S.W. 542, 543 (Tenn. 1921)).
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In sum, because the assignments in the Purchase Agreements
are void, the RD Entities obtain, at most, an equitable lien on
Consumers’ future settlement award proceeds that establishes a
creditor-debtor relationship.

Id.

Accordingly, Defendants

“extend[] credit,” and Consumers “incur[] debt” under the
Purchase Agreements, and the RD Entities are therefore “covered
persons” under the CFPA.
Defendants argue that the legal effect of invalidating an
assignment is to “render the agreement null and void.”

(Def.

Rep. 7) (citing Singer Asset Fin. Co. v. Bachus, 741 N.Y.S.2d
618, 621 (N.Y. App. Div. 2002)).

As discussed, the Court has

determined that the assignment is void as against the thirdparty obligors in this case, i.e., the NFL Settlement Fund and
the VCF Claims Administration.

However, the remaining

contractual arrangement between the RD Entities and Consumers
created a creditor-debtor relationship separate and apart from
the void assignments.

To that end, although the assignment is

“null and void” as against the third-party obligors, the Court
refuses to look the other way when evaluating the true nature of
the transactions.

Therefore, to the extent these extensions of

credit did not comply with state regulatory requirements
governing loans at the time they were offered, the RD Entities
will not be allowed simply to return to their pre-agreement
positions without any penalties.
52

See, e.g., Bouffard v. Befese,

Case 1:17-cv-00890-LAP Document 80 Filed 06/21/18 Page 57 of 108

LLC, 976 N.Y.S.2d 510, 514 (N.Y. App. Div. 2013) (explaining
that transaction must be “considered in its totality and judged
by its real character, rather than by the name, color, or form
which the parties have seen fit to give it” in determining
whether it is a usurious loan).
The pre-settlement legal funding transactions referenced in
ALFA’s amicus curiae brief differ in a crucial respect.
ALFA Br.)

(See

In those transactions, the pre-settlement legal

funding agreements are entered into before the claim is
resolved.

The ALFA Member’s right to repayment is contingent on

the consumer’s ultimate success on his or her claim.
5.)

(ALFA Br.

ALFA notes that Regulation Z’s definition of “credit”

expressly excludes “[i]nvestment plans in which the party
extending capital to the consumer risks the loss of the capital
advanced.”

12 C.F.R. § 1026.2(a)(14) (Supp. I 2017).

The

transactions that the RD Entities offer present no such risk of
loss because, as a prerequisite, the RD Entities require
Consumers to have a settlement award letter stating the amount
to which they are entitled from their respective settlement
fund.

(Compl. ¶¶ 20, 24-26.)
Applying this framework here, the Court concludes that the

Government has alleged plausibly that the transactions at issue
here functioned as extensions of “credit” in practice.

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a. The RD Entities Extend “Credit” and
“Service[] Loans”
Under the CFPA, a “covered person” is one who “extend[s]
credit and servic[es] loans.”
5481(15)(A)(1).

12 U.S.C. §§ 5481(6)(A);

Having established that the Complaint alleges

adequately that the Purchase Agreements at issue extend
“credit,” the issue remains whether the RD Entities also
“servic[e] loans.”

The RD Entities argue that even if they

extend “credit,” the Government has not alleged plausibly that
they also “servic[e] loans.”

12 U.S.C. § 5481(15)(A)(1); (Def.

Reply 8.)
Under 12 U.S.C. § 5481(6), a “covered person” is “any
person that engages in offering or providing a consumer
financial product or service.”

Id. (emphasis added).

Adoption

of the RD Entities’ interpretation of “financial product or
service” to cover only entities that both “extend[] credit and
servic[e] loans” would result in rendering the “or” in
“financial product or service” inconsistent with the term’s
definition because it would ascribe the same definition,
“extend[ing] credit and servic[ing] loans,” to two distinct
concepts that are separated by the term “or.”

12 U.S.C.

§§ 5481(6)(A), 5481(15)(A)(1).
It is well-established that courts may interpret the term
“and” to have a disjunctive effect in interpreting a statute’s
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meaning.

See Peacock v. Lubbock Compress Co., 252 F.2d 892, 894

(5th Cir. 1958) (holding that “and” was disjunctive in the
context of a statute that required an employer to pay overtime
wages to employees “engaged in the ginning and compressing of
cotton”).

Here, interpreting the term “and” disjunctively does

not defy common sense.

Not infrequently, the party that

originates or makes a loan is different from the party that
services that loan.

Given this fact, it would make little sense

for Congress to grant the CFPA jurisdiction only over loan
originators that service their own loans.

Such an

interpretation would not capture a large section of the market
that the CFPA expressly seeks to regulate.
Even if Congress did not intend the term “and” to be
interpreted disjunctively, the Government has adequately pleaded
that the RD Entities “servic[e] loans.”

The CFPA defines the

term “service provider” as one who “provides a material service
to a covered person in connection with the offering or provision
by such covered person of a consumer financial product or
service.”

12 U.S.C. § 5481(26)(A).

Drawing from this

statutory definition of the term “service,” which appears in the
same section as the term “financial product or service,” the
Court concludes that the Government has alleged adequately that
the RD Entities “servic[e] loans” because they carry out
“material service[s] . . . in connection with the offering or
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provision . . . of a consumer financial product or service.”
U.S.C. § 5481(26)(A).

12

For one, the Complaint alleges that Roni

Dersovitz has made phone calls to collect from Consumers and
that Dersovitz has authority to determine whether RD should
collect.

(Compl. ¶ 54.)

Collection on loans is a “material

service” relating to the provision of a loan because, without
collection, the loan would be a nullity.
Accordingly, the Government need only plead that the RD
Entities “extend[ed] credit” or “servic[ed] loans” to allege
plausibly that they are “covered persons” under the CFPA.

In

the alternative, the Court concludes that, even if the
Government had to allege that the RD Entities also “servic[e]
loans,” the Complaint also alleges adequately that the RD
Entities, by and through their founder and owner Roni Dersovitz,
engaged in such activities by collecting on loans and making the
decision to collect on loans.
4. The RD Entities Are “Covered Persons”
Under the CFPA
For the reasons stated above, the Court concludes that the
Government has pleaded adequately that the RD Entities are
“covered persons” under the CFPA.

12 U.S.C. § 5481(6)(a).

b. Failure to State a Claim Fed. R. Civ. P. 12(b)(6)
Defendants next argue that, even if the RD Entities are
“covered persons” within the meaning of the CFPA, the Complaint
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should be dismissed for failure to state a claim under Rule
12(b)(6).
i.

Rule 9(b)’s Heightened Pleading Standard Does Not
Apply to Non-Fraud Claims

Before addressing the substantive allegations in the
Complaint, Defendants argue that because the Government’s claims
are all premised on an alleged unified course of fraudulent
conduct and the Complaint fails to distinguish between fraud and
non-fraudulent claims, Rule 9(b)’s heightened pleading standard
should apply to all of the claims alleged in the Complaint.
(See Def. Br. 24.)

Proceeding under this assertion, the RD

Entities argue that the Government’s claims fail under Rule
9(b)’s heightened pleading standard and should be dismissed.
(Id.)

In response, the Government asserts that fraud and

deception are separate legal concepts and that Rule 9(b)’s
heightened pleading standard does not apply to the Government’s
deceptive conduct claims.

(Pl. Opp. 19-21.)

Rule 9(b) of the Federal Rules of Civil Procedure imposes a
heightened pleading standard and requires that “[i]n all
averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.”
Civ. P. 9(b).

Fed. R.

Specifically, Rule 9(b)’s heightened pleading

standard requires pleadings to “(1) specify the statements that
the plaintiff contends were fraudulent, (2) identify the
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speaker, (3) state where and when the statements were made, and
(4) explain why the statements were fraudulent.”

Rombach v.

Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar
Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)) (internal
quotation marks omitted).
At least two courts addressing this specific issue have
concluded that Rule 9(b)’s heightened pleading standard does not
apply to claims of unfair, deceptive, or abusive acts or
practices under the CFPA for three reasons.

See CFPB v.

Frederick J. Hanna & Assocs., P.C., 114 F. Supp. 3d 1342, 1372
(N.D. Ga. 2015) (concluding that claims for deception under the
Fair Debt Collection Practices Act (“FDCPA”) and the CFPA should
not be subject to Rule 9(b)); CFPB v. Navient Corp., 17-CV-101,
2017 WL 3380530, at *24 (M.D. Pa. Aug. 4, 2017) (same).

First,

“Rule 9(b) expressly applies only to claims alleging ‘fraud or
mistake,’ and as the Tenth Circuit and several district courts
have reasoned, consumer protection claims are not claims of
fraud, even if there is a deceptive dimension to them.”
Navient, 2017 WL 3380530, at *24 (quoting Frederick J. Hanna,
114 F. Supp. 3d at 1372).

“Second, ‘the United States Supreme

Court has consistently cautioned against extending this
heightened pleading standard beyond claims for fraud or
mistake.’”

Id.

Finally, application of Rule 9(b) “to consumer

protection claims is not only inconsistent with some of the
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policy reasons for applying Rule 9(b) in the first place, but is
also inconsistent with the remedial nature of consumer
protection statutes.”

Navient Corp., 2017 WL 3380530, at *24

(quoting Frederick J. Hanna & Assocs., 114 F. Supp. 3d at 137374).

In Navient, the court elaborated on this last reason by

explaining that “unlike a fraud claim, the [CFPA] does not have
an intent element” such that “requiring the CFPB to plead in
conformity with Rule 9(b) would graft an intent requirement onto
the claims under the FDCPA and [CFPA] that is not otherwise
present.”

Navient Corp., 2017 WL 3380530, at *25.

The Court has identified no case in which this Court or the
Court of Appeals has applied Rule 9(b)’s heightened pleading
standard to claims of deceptive or abusive acts or practices
under the CFPA.

See, e.g., CFPB v. NDG Fin. Corp., No. 15-cv-

5211 (CM), 2016 WL 7188792, at *14-15 (S.D.N.Y. Dec. 2, 2016)
(applying Rule 8 to claims under CFPA).

Furthermore, the Court

finds the Navient court’s reasoning as to why Rule 9(b)’s
heightened pleading standard should not be applied to deceptive
acts or practices claims under the CFPA to be persuasive.
Navient, 2017 WL 3380530, at *24-25.

Accordingly, the Court

declines to apply Rule 9(b)’s heightened pleading standard to
deceptive or abusive acts or practices claims under the CFPA.
12 U.S.C. §§ 5531(a), 5536(a)(1)(B); Fed. R. Civ. P. 9(b).

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Similarly, the Court of Appeals has stated clearly that
Rule 9(b)’s heightened pleading standard does not apply to New
York General Business Law § 349.

In so holding, the Court of

Appeals has noted that “[Section] 349 extends well beyond
common-law fraud to cover a broad range of deceptive practices”
and that Section 349 claims “[do] not require proof of the same
essential elements (such as reliance) as common-law fraud.”
Pelman ex rel. Pelman v. McDonald’s Corp., 396 F.3d 508, 511 (2d
Cir. 2005).

Accordingly, Rule 8(a)’s less stringent pleading

standard applies to NYAG’s claim under N.Y. Gen. Bus. Law § 349.
The question of what pleading standard should apply to the
NYAG’s claim under N.Y. Executive Law § 63(12) is less clear
cut.

New York Executive Law § 63(12) empowers the New York

Attorney General to seek injunctive relief and other remedies
against persons or entities that “engage in repeated fraudulent
or illegal acts or otherwise demonstrate persistent fraud or
illegality in the carrying on, conducting or transaction of
business” in New York.

N.Y. Exec. Law § 63(12).

The statute

defines the word “fraudulent” as including “any device, scheme
or artifice to defraud and any deception, misrepresentation,
concealment, suppression, false pretense, false promise or
unconscionable contractual provisions.”

Id.

The terms

“persistent fraud” or “illegality” are defined to “include
continuance or carrying on of any fraudulent or illegal act or
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conduct.”

Id.

Thus, while a claim under Section 63(12) may

allege fraud and necessitate a showing of knowledge or reliance
as an element of the claim, the NYAG may equally assert a cause
of action under Section 63(12) that alleges “deception” or some
other non-fraudulent conduct that does not include scienter as
an element.

See People v. Am. Motor Club, 582 N.Y.S.2d 688, 692

(N.Y. App. Div. 1992) (explaining that, under statute, “scienter
is not required and false promises are sufficient” where
pleadings amount to illegality under § 63(12), not fraud under
§ 63(12)).
Applying the same logic that the Court of Appeals has
employed in determining that claims under N.Y. GBL § 349 are not
subject to Rule 9(b)’s heightened pleading standards where the
underlying conduct is not premised on a fraudulent scheme, the
Court concludes that NYAG’s claim under N.Y. Executive Law
§ 63(12) is also not subject to this heightened pleading
standard because the underlying conduct is premised on deceptive
acts or practices that do not include intent or reliance as an
element of those claims.

12 U.S.C. §§ 5531(a), 5536(a)(1)(B).

Accordingly, the Court applies Rule 8(a) in evaluating the
Government’s pleading of its claim under N.Y. GBL § 349.

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1. “Substantial Assistance” Claims Under the
CFPA
In each of the CFPA deceptive or abusive acts or practices
claims brought against Defendants, the Government alleges that
Roni Dersovitz, the RD Entities’ owner and founder, is liable
for substantially assisting the RD Entities in carrying out
these purported acts.
Under 12 U.S.C. § 5536(a)(3), it is unlawful for “any
person to knowingly or recklessly provide substantial assistance
to a covered person or service provider in violation of the
provisions of section 5531 of this title [including unfair,
deceptive or abusive acts or practices].”

Defendants argue that

Rule 9(b)’s heightened pleading standard should apply to all of
the Government’s claims because they are all “premised on an
alleged scheme to defraud consumers.”

(Def. Br. 24.)

The Court concludes that the knowledge requirement for
individual liability under the CFPA does not trigger Rule 9(b)’s
heightened pleading requirement.

As discussed, the primary

violation of unfair, deceptive, or abusive acts or practices
underlying the CFPA claims against Dersovitz in his individual
capacity do not constitute fraud claims.

See Navient, 2017 WL

3380530, at *24 (“[C]onsumer protection claims are not claims of
fraud, even if there is a deceptive dimension to them”).

In

addition, the scienter requirements of “knowingly or recklessly”
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do not implicate automatically Rule 9(b)’s heightened pleading
requirements.

Courts in this Circuit have defined “reckless” as

behavior that is “highly unreasonable” or represents “an
egregious refusal to see the obvious, or to investigate the
doubtful.”

SEC v. Yorkville Advisors, LLC, ___ F. Supp. 3d ___,

2018 WL 1725555, at *14 (S.D.N.Y. Mar. 29, 2018).

Such standard

is distinguishable from the scienter associated with fraud,
which “encompasses a particular state of mind, an element of
intent or deception” that is lacking in the Complaint’s
allegations.

Lenartz v. Am. Superconductor Corp., 879 F. Supp.

2d 167, 191-92 (D. Mass. 2012) (internal quotation marks and
citation omitted).

Furthermore, the one other case that the

Court has identified evaluating “substantial assistance” claims
under the CFPA, 12 U.S.C. 5536(a)(3), applied Rule 8(a) in
evaluating those claims on a motion to dismiss.

CFPB v.

Universal Debt & Payment Solutions, LLC, 15-cv-00859-RWS, 2015
WL 11439178 (N.D. Ga. Sept. 1, 2015).
Accordingly, the claims for individual liability against
Dersovitz pursuant to 12 U.S.C. 5536(a)(3) are not subject to
Rule 9(b)’s heightened pleading standard.
2. Specificity of Allegations Against Each
Defendant Under Rule 8(a)
Rule 8(a) requires that a defendant be given “fair notice
of what the . . . claim is and the grounds upon which it rests.”
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Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

This

threshold requirement allows an adverse party to “‘answer the
complaint and prepare for trial.’”

Lazarek v. Ambit Energy

Holdings, LLC, 15-CV-6361-FPG, 2017 WL 4344557, at *3 (W.D.N.Y.
Sept. 28, 2017) (quoting Strunk v. U.S. House of
Representatives, 68 F. App’x 233, 235 (2d Cir. 2003)).
The RD Entities contend that the Complaint fails to comply
with Rule 8(a) because its allegations “lump” the three
corporate Defendants together without adequately differentiating
between and among them.

(Def. Br. 38.)

Defendants argue that

the Government’s failure to parse the factual basis for each
claim as to each corporate Defendant deprives the RD Entities of
fair notice of the claims against each of them.

Id.; see Ochre

LLC v. Rockwell Architecture Planning & Design, P.C., No. 12
Civ. 2837, 2012 WL 6082387, at *6 (S.D.N.Y. Dec. 3, 2012).

In

response, Plaintiffs assert that they refer to the Defendants
collectively because each Defendant engaged in the wrongdoing
alleged in the Complaint.

(Pl. Opp. 35.)

Although the Complaint is hardly a model of best pleading
practices, the Court concludes that its shortcomings do not
amount to fatal “lumping” together of Defendants such that the
Complaint warrants dismissal for failure to comply with Rule
8(a)’s pleading requirements.

First, the Court of Appeals has

held that dismissal pursuant to Rule 8 is proper when a
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complaint is “unintelligible” and does not “explain[] what
conduct constituted the violations, which defendants violated
which statutes . . . or how the alleged violations harmed [the
plaintiff].”

Vantone Grp. LLC v. Yangpu NGT Indus. Co., Ltd.,

No. 13-cv-7639 (LTS), 2015 WL 4040882, at *4 (S.D.N.Y. July 2,
2015) (quoting Strunk, 68 F. App’x. at 235) (internal quotation
marks omitted).
Here, the Complaint states the nature of the various types
of claims brought against the corporate defendants, including
alleged violations of state and federal consumer protection
statutes, and the conduct underlying those claims.
2015 WL 4040882, at *4.

Vantone,

At this stage of the proceedings, the

Government is not required to plead specific details as to which
entity did what during the alleged course of misconduct.

See

id. (quoting Hudak v. Berkley Grp., Inc., No. 13CV0089-WWE, 2014
WL 354676, at *4 (D. Conn. Jan. 23, 2014)) (“[P]rior to
discovery, plaintiff need not explain the details of each
defendant’s role in the planning, funding, and executing [of]
defendant’s alleged joint [] scheme”).

The Complaint also

states adequately which Defendants are accused of violating
which statutes because the Complaint avers that all three of the
corporate Defendants engaged in each of the alleged violations.
(Pl. Opp. 35) (“The three RD Defendants are referred to
collectively because each engaged in the wrongdoing alleged in
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the Complaint”).

“Nothing in Rule 8 prohibits collectively

referring to multiple defendants where the complaint alerts
defendants that identical claims are asserted against each
defendant.”

Vantone, 2015 WL 4040882, at *4 (quoting Hudak,

2014 WL 354676, at *4).

Therefore, the Complaint does not

warrant dismissal under Rule 8(a) for impermissibly “lumping”
together Defendants.
Defendants rely on Ochre LLC v. Rockwell Architecture
Planning & Design, P.C., in arguing that the Complaint
“impermissibly” lumps the corporate Defendants together.

No. 12

Civ. 2837, 2012 WL6082387, at *6 (S.D.N.Y. Dec. 3, 2012).

In

Ochre, the court concluded that the complaint failed to state a
copyright-infringement claim where the plaintiff brought claims
against four entirely separate entities, “a design firm, an
architect, a hotel, and a procurement agent,” and failed to
separate out “the key allegations against each defendant.”
Aghaeepour v. N. Leasing Sys., Inc., No. 14-CV-5449 (NSR), 2015
WL 7758894, at *3 (S.D.N.Y. Dec. 1, 2015) (quoting Ochre, 2012
WL 6082387, at *6).

Unlike in Ochre, where the defendants were

entirely separate entities, the Complaint here avers that the
three corporate defendants’ share significant characteristics:
the corporate defendants share a principal places of business at
the same address, (Compl. ¶¶ 15-17), Roni Dersovitz is the
founder and owner of each corporate defendant, (Compl. ¶ 18),
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all three corporate defendants acted in “swoop[ing] in with a
‘deal’” while the Class Members and Eligible Claimants awaited
payment of their settlement awards (Compl. ¶ 5), and that, based
on the information in the Purchase Agreements, the ABA account
number for wiring money is the same on all of the Purchase
Agreements regardless of the corporate defendant named in the
Purchase Agreement, (Pl. Opp. 36.)

For these reasons, Ochre has

limited applicability to the instant situation.
Accordingly, because the Complaint provides each corporate
defendant with “fair notice of what the . . . claim is and the
grounds upon which it rests,” dismissal under Rule 8 is not
warranted here.
ii.

Erickson v. Pardus, 551 U.S. 89, 93 (2007).
“Substantial Assistance” Liability Under the CFPA

In its Complaint, the Government brings five claims of
individual liability against Roni Dersovitz for “knowingly or
recklessly providing substantial assistance” to a “covered
person” under the CFPA – here, the RD Entities.

12 U.S.C.

§ 5536(a)(3); (Compl. ¶¶ 8, 69, 77, 84, 91, 98.)
The Court has identified only one case interpreting 12
U.S.C. § 5536(a)(3), and that decision does not bind this Court.
See CFPB v. Univ. Debt & Payment Solutions, LLC, et al., 15-CV00859-RWS, 2015 WL 11439178 (N.D. Ga. Sept. 1, 2015).
Nevertheless, the Court finds the Universal Debt & Payment
Solutions court’s analysis pertaining to the scienter
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requirement under 12 U.S.C. § 5536(a)(3) instructive for its own
analysis.
In Universal Debt & Payment Solutions, the court drew on
the substantially similar requirements of individual aiding and
abetting liability under federal securities laws and individual
liability for providing “substantial assistance” under the CFPA,
12 U.S.C. § 5536(a)(3), in interpreting the CFPA’s individual
liability statute.

15 U.S.C. § 78t(e); 2015 WL 11439178, at *6.

Section 20(e) imposes liability on “any person that knowingly or
recklessly provides substantial assistance to another person in
violation of [the securities laws].”

15 U.S.C. § 78t(e).6

The Court of Appeals has interpreted aiding and abetting
liability under § 20(e) to require the Government to show “(1)
the existence of a securities law violation by the primary (as
opposed to the aiding and abetting) party; (2) ‘knowledge’ of
this violation on the part of the aider and abettor; and (3)

6

Although the Federal Trade Commission Act (“FTCA”) and the CFPA
share structural characteristics that facilitate statutory
interpretation under other CFPA provisions, the FTCA’s
substantial assistance provision does not contain an analogous
scienter requirement and therefore has limited relevance here.
See NDG Corp., 2016 WL 7188792, at *16 (noting that “courts have
adopted the established meaning of other words in § 5536 [of the
CFPA] from the FTCA, in acknowledgment of the two provisions’
similarity” and that “the FTCA and CFPA were . . . enacted for
similar purposes”). Under the FTCA, the Federal Trade
Commission (“FTC”) is authorized to prevent “persons,
partnerships, or corporations . . . from using . . . unfair or
deceptive acts or practices in or affecting commerce.” 15
U.S.C. § 45(a)(2).
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‘substantial assistance’ by the aider and abettor in the
achievement of the primary violation.”

SEC v. DiBella, 587 F.3d

553, 566 (2d Cir. 2009) (internal quotation marks and citation
omitted).
To plead adequately the “substantial assistance” element,
the Government must “establish that the aider and abettor ‘in
some sort associated himself with the venture, that he
participated in it as something he wished to bring about, and
that he sought by his action to make it succeed.’”

SEC v.

DiMaria, 207 F. Supp. 3d 343, 359 (S.D.N.Y. 2016) (quoting SEC
v. DiBella, 587 F.3d 553, 566 (2d Cir. 2009)).

Courts have

recognized that “although ‘a high degree of knowledge may lessen
the [Government’s] burden in proving substantial assistance,’
awareness and approval, without more, do not constitute
substantial assistance.”

DiMaria, 207 F. Supp. 3d at 359

(quoting SEC v. Apuzzo, 689 F.3d 204, 215 (2d Cir. 2012)).
As to § 20(e)’s knowledge requirement, “the plaintiff must
at least demonstrate recklessness” to satisfy it.
Advisors, LLC 2018 WL 1725555 at *14.
suffice.”

Id.

Yorkville

“Mere negligence does not

“Recklessness sufficient to establish scienter

involves conduct that is highly unreasonable and represents an
extreme departure from the standards of ordinary care.”

SEC v.

China N.E. Petroleum Holdings Ltd., 27 F. Supp. 3d 379, 389
(S.D.N.Y. 2014) (internal quotation marks and citation omitted).
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iii.

Deceptive and Abusive Conduct Under the CFPA
1. Counts I, III, IV, V:

Deceptive Acts or

Practices Under the CFPA
The Complaint includes four claims of deceptive acts or
practices under the CFPA against all of the named Defendants.
To make a prima facie case of deceptive acts or practices under
the CFPA, the Complaint must allege adequately “(1) a
representation, omission or practice that, (2) is likely to
mislead consumers acting reasonably under the circumstances, and
(3), [that] the representation, omission, or practice is
material.”

CFPB v. NDG Fin. Corp., 15-cv-5211 (CM), 2016 WL

7188792, at *14 (S.D.N.Y. Dec. 2, 2016) (quoting FTC v. Med.
Billers Network, Inc., 543 F. Supp. 2d 283, 303 (S.D.N.Y. 2008))
(alteration in original).
In essence, the RD Entities argue that each of the
Complaint’s deceptive acts or practices claims under the CFPA
must fail because each is based on the conclusory allegation
that the transactions at issue are loans, not sales.
26.)

(Def. Br.

Because, as a matter of law, the Purchase Agreements were

void and functioned plausibly as extensions of credit, the Court
rejects this defense and finds that the Complaint plausibly
alleges that Defendants engaged in deceptive acts or practices
in violation of the CFPA.

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a. Count I
Count I avers that the RD Entities violated the CFPA by
deceptively marketing the Purchase Agreements as sales when in
fact these transactions were properly characterized as loans.
(Def. Br. 25.)
As discussed earlier, federal and state law, as well as the
NCLSA’s express terms, prohibit consumers from assigning any of
their interest in their settlement awards from the VCF and
NCLSA, respectively.

According to the Complaint, Defendants

made false representations to Consumers that its products were
valid assignments of Consumers’ interests in their anticipated
settlement awards.

(Compl. ¶ 38-39.)

Defendants also labeled

the Purchase Agreements as “assignment and sale” agreements
when, in fact, the Purchase Agreements were not true sales.

See

FTC v. Verity Int’l, Ltd., 443 F.3d 48, 64 (2d Cir. 2006)
(holding that making a representation to consumers that is false
is sufficient to show that representation would likely mislead
consumers acting reasonably in alleging claim under Section
5(a)(1) of the Federal Trade Act, 15 U.S.C. § 45(a)(1)).

Such

statements, which are false, could objectively mislead a
consumer acting reasonably under the circumstances, thus
satisfying the claim’s second element.
Finally, the Government also alleges adequately that the
misleading representation was material.
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representations that are shown to be false are presumed
material.”

Med. Billers Network, 543 F. Supp. 2d at 304 (citing

FTC v. Patriot Alcohol Testers, Inc., 798 F. Supp. 851, 856
(D. Mass. 1992)).

Because the Complaint alleges adequately that

the Purchase Agreements were not valid sales, representations to
the contrary would be material.
Accordingly, the Government alleges adequately that
Defendants engaged in deceptive acts or practices in violation
of the CFPA.
i.

“Substantial Assistance” Claim
Against Roni Dersovitz Under
Count I

The Court concludes that the Government has pleaded facts
sufficient to show that Dersovitz had the requisite scienter to
state a claim for individual liability under 12 U.S.C.
§ 5536(a)(3).

As to the first element and as already

established, the Government has alleged plausibly that the RD
Entities engaged in deceptive acts or practices in violation of
12 U.S.C. §§ 5531(a), 5536(a)(1)(B), which in turn alleges
adequately an “actual violation” of § 5531(a), by
misrepresenting that it is entering into contracts with
Consumers for valid and enforceable assignments.

(Compl. ¶ 63.)

Turning to the scienter requirement, the Court concludes
that the Complaint pleads facts sufficient to allege that
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Dersovitz exhibited an “extreme departure from the standards of
ordinary care” in offering to enter into the Purchase Agreements
with Consumers that Dersovitz must have known were likely not
valid.
The Complaint alleges that Dersovitz has “significant
responsibility for establishing RD’s policies and practices,”
“substantial control over RD’s operations,” and “responsibility
to [sic] dictate all the terms of [C]onsumer contracts.”
(Compl. ¶¶ 18, 27.)

In addition, Dersovitz is the founder and

owner of each RD Entity named as a Defendant in this action.
(Compl. ¶ 18.)

Given Dersovitz’s role as founder and owner of

the RD Entities and his authority to “dictate the terms of
[C]onsumer contracts,” his conduct is at least “reckless” with
respect to the NFL Settlement Agreement’s anti-assignment clause
and the Anti-Assignment Act’s potential applicability to the VCF
Purchase Agreements.

(Compl. ¶¶ 34-36.)

As to the NFL Purchase Agreements, the NCLSA contains clear
and unambiguous anti-assignment language.

Dersovitz’s failure

to inform Class Members that this existed exhibits “highly
unreasonable” conduct that “represents an extreme departure from
the standards of ordinary care.”

Furthermore, the allegations

suggest that Dersovitz was aware of the possibility that the
assignments were impermissible but decided to go ahead with the
transaction in spite of this.

The Purchase Agreements address
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specifically the possibility that the assignments in the
Purchase Agreements will be classified as loans by a court.
Similarly with the VCF Purchase Agreements, Dersovitz
encountered several warning signs indicating a high risk that
the RD Entities were misrepresenting the nature of these
agreements to Consumers, specifically, that the VCF Claims
Administrator refused to make payment directly to the RD
Entities, in spite of its demands that it do so pursuant to the
assignments, and the general disclaimer in the VCF Purchase
Agreements that a court may find the sale to be a loan. In sum,
the Complaint adequately alleges that Dersovitz acted recklessly
in knowing that the assignments may well be invalid but holding
them out as enforceable.
Finally, Dersovitz provided “substantial assistance” to the
RD Entities in carrying out these CFPA violations.

Dersovitz

“associated himself” with the RD Entities as their founder and
owner and “participated in [the enterprise] as something he
wished to bring about” by continuing to craft the RD Entities’
policies and procedures and exercising authority over those
Entities.

Furthermore, Dersovitz “sought by his action to make

[the RD Entities] succeed” by making offers to enter into
Purchase Agreements to Consumers, (Compl. ¶ 54), being
responsible for “solicit[ing] funds from investors” for cash
advance payments to Consumers, (Compl. ¶ 51), and “[making]
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phone calls to at least one New York consumer to collect from
that consumer,” (Compl. ¶ 54).
Accordingly, the Complaint alleges adequately a claim of
“substantial assistance” liability against Roni Dersovitz in his
individual capacity.

12 U.S.C. § 5536(a)(3).
b. Count III

Count III of the Complaint avers that Defendants violated
the CFPA’s prohibition on deceptive acts or practices by making
representations that Defendants could “cut through red tape” and
expedite payment of Consumers’ settlement awards.
¶¶ 44-48.)

(Compl.

Defendants argue that this statement is not

misleading because, read in the context of the entire
advertisement or transaction, a reasonable Consumer would
understand this to mean that the RD Entities would disburse
funds more quickly than the settlement fund or claims
administrator would, not that the RD Entities would actually
expedite disbursements from the fund or the administrator.
(Def. Br. 34.)

The Court concludes that such a representation,

“without appropriate disclosures . . . could deceive reasonable
consumers” who are navigating a complex settlement landscape
with limited knowledge of the inner workings of a settlement
fund.

CFPB v. Siringoringo, SACV 14-01155 JVS (AJWx), 2016 WL

102435, at *5 (C.D. Cal. Jan. 7, 2016).

Such representation is

also material because it could “inform the consumer’s decision
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to engage” the Defendants in securing expedited payment.
(citing 12 C.F.R. § 1015.3(b)(2)).

Id.

Given that Defendants target

individuals who may be suffering financial hardship due to
delays in payment of their settlement award, representations
regarding the timing of procuring settlement award payments
would undoubtedly be material to Consumers’ engaging Defendants’
services.
In sum, the Complaint alleges adequately a claim of
deceptive acts or practices under the CFPA for the
representations described in Count III regarding the timing of
payments.
i.

“Substantial Assistance” Claim
Against Roni Dersovitz Under
Count III

The Government alleges that Roni Dersovitz is individually
liable under 12 U.S.C. § 5536(a)(3) for providing “substantial
assistance” to the RD Entities in engaging in deceptive acts or
practices,

12 U.S.C. §§ 5531(a), 5536(a)(1)(B), by

misrepresenting on the RD Entities’ website that Defendants
could “speed[] up” disbursement of a Consumer’s award and “cut
through red tape” to get payment from the settlement
administrator sooner.

(Compl. ¶¶ 79, 84.)

Here, the Court has already determined that the Government
alleged adequately that the RD Entities made material
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misrepresentations to Consumers in violation of 12 U.S.C.
§ 5536(a)(1)(B).

Turning to the “knowing” or “reckless”

requirement of 12 U.S.C. § 5536(a)(3), the Court also concludes
that, based on the knowledge that Dersovitz had through his
authority over the RD Entities and Dersovitz’s approval of the
contents of RD’s website shows that he at least “recklessly”
made material misrepresentations that were likely to mislead a
reasonable consumer.

(Compl. ¶ 46.)

Futhermore, Dersovitz’s

approval of a website intended to draw in business for the RD
Entities alleges adequately that he provided “substantial
assistance” to the RD Entities’ venture by maximizing their
prospects for new business through their websites.
Accordingly, the Complaint alleges adequately facts
demonstrating that Dersovitz substantially assisted the RD
Entities in engaging in deceptive acts or practices in violation
of the CFPA.
c. Count IV
Count IV, which alleges that the RD Entities acted
deceptively in violation of the CFPA by making misleading
statements as to when RD would pay Consumers, pleads adequately
facts demonstrating that the RD Entities engaged in deceptive
conduct under the CFPA.

(Compl. ¶¶ 86-89.)

“A claim is considered material if it involves information
important to consumers and, hence, is likely to affect their
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choice of, or conduct regarding a product.”

Med. Billers

Network, 543 F. Supp. 2d at 304 (internal quotation marks and
citation omitted).

One of Consumers’ main motivations in

entering into contracts with the RD Entities was to get their
money sooner than they otherwise would from their third-party
obligors.

(Compl. ¶¶ 86-88.)

Accordingly, the RD Entities’

failure to provide money to Consumers on certain dates as agreed
is misleading insofar as the RD Entities made statements that
turned out to be false, and those statements are also material
in that they “would influence the Consumer’s decision” as to
whether to enter into the Purchase Agreement or not.

Med.

Billers Network, 543 F. Supp. 2d at 313.
The RD Entities’ argument that such grievances amount only
to a breach of contract claim is undercut by the fact that the
contracts do not speak to the timing of payment.
(Pl. Opp. 27.)

(Def. Br. 36);

Therefore, the Government need not “identify[]

which of the 27 contracts the RD Entities allegedly breached by
failing to make timely payment.”

(Def. Br. 36.)

As previously

noted, Rule 9(b)’s heightened pleading standard does not apply
to deceptive conduct claims under the CFPA, and therefore the
Government need not aver the “who,” “what,” “where,” and “when”
that 9(b) requires at this stage.

The Complaint avers

adequately that Defendants made misleading statements, outside
the four corners of the Purchase Agreements, as to the timing of
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payments that misled consumers.

Accordingly, the Government has

alleged plausibly that the RD Entities engaged in deceptive acts
or conduct under Count IV.
i.

“Substantial Assistance” Claim
Against Roni Dersovitz Under
Count IV

The Court concludes that the Complaint alleges adequately a
claim against Roni Dersovitz for “substantially assisting” the
RD Entities in carrying out deceptive acts or practices by
making misstatements about when Consumers would receive payments
from the RD Entities.
(Compl. ¶¶ 51, 90-91.)

12 U.S.C. §§ 5531(a), 5536(a)(1)(B);
Having established that the Complaint

alleges adequately a claim for the underlying violation, the
Court also concludes that the Complaint alleges adequately that
Dersovitz at least “recklessly” provided substantial assistance
to the RD Entities in misrepresenting to Consumers when their
funds would be disbursed.

(Compl. ¶ 86.)

The Complaint alleges

that Dersovitz “has authority and responsibility to . . .
determine when funds for [C]onsumers would arrive.”
¶ 51.)

(Compl.

As noted above, the timing of payments was crucial to

Consumers, who entered into these transactions for the sole
purpose of receiving expedited access to liquidity in the form
of a lump sum cash payment.

Incorrect statements as to the

timing of disbursement of Consumers’ payments, if made, would
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constitute an “extreme departure from the standards of ordinary
care” given that Dersovitz had some element of authority over
when funds would arrive and given the importance of the timing
to payments to these particular Consumers.

(Compl. ¶ 51.)

Finally, for the reasons stated earlier, including
Dersovitz’s responsibility for the RD Entities’ policies and
practices and his role as founder and CEO of the RD Entities,
the Complaint alleges adequately that Dersovitz sought
ostensibly through these misstatements “to make [the RD
Entities] succeed” by drawing in Consumers who were primarily
concerned with the timing of their settlement payments.
DiMaria, 207 F. Supp. 3d 343, 359 (S.D.N.Y. 2016) (quoting SEC
v. DiBella, 587 F.3d 553, 566 (2d Cir. 2009)).

Accordingly, the

Complaint alleges adequately a claim for “substantial
assistance” liability against Dersovitz in his individual
capacity.
d. Count V
Under Count V, the Government alleges that the RD Entities
engaged in deceptive acts or practices by “collecting on
contracts that are void under state laws or, in the alternative,
that function as loans with interest rates that exceed usury
limits under state laws, and on which no payment is due.”
(Compl. ¶¶ 93-94.)

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For the same reasons that the Court found the Government’s
factual allegations to plead adequately a claim of deceptive
conduct under Count I, so too here.

Informing Consumers that

they have an obligation to repay under a transaction in which
the assignment is void or unenforceable clearly meets the
materially misleading threshold under the CFPA.

Collecting on

loans that are void is materially misleading because it gives
Consumers the impression that “borrowers were obligated to
repay” the RD Entities when in reality the loan agreements were
void and the borrowers were not legally obligated to pay.

CFPB

v. CashCall, Inc., CV 15-7522-JFW (RAOx), 2016 WL 4820635, at
*10 (C.D. Cal. Aug. 31, 2016), appeal filed, No. 18-55479 (9th
Cir. Apr. 12, 2018).

Accordingly, the Government has alleged

plausibly that Defendants engaged in deceptive acts or conduct
under Count V.
i.

“Substantial Assistance” Claim
Against Roni Dersovitz Under
Count V

As explained above, the Court concludes that the Complaint
alleges adequately that the RD Entities engaged in deceptive
acts or practices in violation of the CFPA by indicating to
Consumers that they had an obligation to repay the RD Entities
when, in fact, the loans were usurious and therefore void under
state law.

12 U.S.C. §§ 5531(a), 5536(a)(1)(B).
81

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Government has also alleged adequately that Dersovitz
substantially assisted the RD Entities in carrying out these
deceptive acts and practices.

12 U.S.C. § 5536(a)(3).

At a

minimum, the Complaint and the Purchase Agreements themselves
contain facts adequate to allege that Dersovitz acted
“recklessly” in providing this assistance.

The entire premise

of the RD Entities’ business model is labeling transactions that
look and function like loans as “sales” to circumvent the
regulatory restrictions that would otherwise govern these
transactions if they were loans.
According to the Complaint, Dersovitz “has authority and
responsibility to dictate all the terms of consumer contracts”
and “makes decisions on the terms of the offers or extensions of
credit.”

(Compl. ¶ 27.)

These allegations, coupled with the

fact that the Purchase Agreements reserve the right to file a
UCC Financing Statement in the event a court deems the
transaction a loan and Dersovitz’s position as CEO and founder
of the RD Entities, allege facts sufficient to find that
Dersovitz exhibited “highly unreasonable” conduct in failing to
determine whether the assignments were valid before offering
Purchase Agreements to Consumers. The allegations, viewed
collectively, indicate that Dersovitz knew that the transactions
might not be valid assignments but proceeded with them in any
event in an “extreme departure from the standard of ordinary
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care.”

Finally, the Complaint alleges that Dersovitz

“substantially assisted” the RD Entities in carrying out this
deceptive conduct in light of his role as founder and CEO of the
RD Entities and his substantial involvement in the business,
such as collecting on loans, drafting policies, and having the
final word on the terms of the Purchase Agreements.
Accordingly, the Complaint pleads facts sufficient to state a
claim of individual liability against Dersovitz for
substantially assisting a “covered person” under the CFPA.
2. Count II: Abusive Acts or Practices Under
the CFPA
The Government alleges that the RD Entities engaged in
abusive conduct by undermining Consumers’ understanding of the
Purchase Agreements through their misrepresentations that the
contracts are for valid and enforceable assignments.
¶¶ 72-73.)

(Compl.

Under the CFPA, conduct is “abusive” where it

“materially interferes with the ability of a consumer to
understand a term or condition of a consumer financial product
or service,” “takes unreasonable advantage of . . . a lack of
understanding on the part of the consumer of the material risks,
costs, or conditions of the product or service,” “takes
unreasonable advantage of . . . the inability of the consumer to
protect the interests of the consumer in selecting or using a
consumer financial product or service,” or “takes unreasonable
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advantage of . . . the reasonable reliance by the consumer on a
covered person to act in the interests of the consumer.”

12

U.S.C. § 5531(d).
Here, the Government has pleaded sufficient facts to state
a claim for abusive acts or practices under the CFPA.
Representations that a transaction is a sale when it does not,
in fact, transfer validly any rights of ownership from the
consumer to the RD Entities are materially misleading because
such representations are false.

To that end, the Government is

correct that these false representations prevent Consumers from
evaluating accurately whether this transaction is in their best
interest.

Defendants’ contention that they disclose adequately

the risks involved in the Purchase Agreements by labeling them
“complex financial transaction[s]” does not neutralize other
materially misleading information.

The repeated

misrepresentations alleged, assuming they were made, would
“create[] the ‘net impression’ that the [Purchase Agreements]
were enforceable” even though that impression is “patently
false” because the Purchase Agreements “were void.”

CashCall,

2016 WL 4820635, at *10.
Accordingly, the Government has alleged plausibly that the
RD Entities engaged in abusive practices under the CFPA.

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a. “Substantial Assistance” Claim
Against Roni Dersovitz Under Count II
The Government alleges plausibly that Dersovitz knowingly
or recklessly provided substantial assistance to the RD Entities
in carrying out abusive acts or practices in violation of the
CFPA.

12 U.S.C. § 5536(a)(3); 12 U.S.C. § 5531(d).
Aside from alleging plausibly that the RD Entities engaged

in conduct sufficient to state a claim for abusive acts or
practices under 12 U.S.C. § 5531(d), the Government also alleges
plausibly that Dersovitz was “reckless” and provided
“substantial assistance” to the RD Entities by enabling them to
engage in this conduct.
As to the scienter requirement, the Complaint alleges
adequately that Dersovitz knew, would have known, or acted
recklessly with a high risk that the assignments in the Purchase
Agreements were prohibited.
2015 WL 11439178, at *10.

Universal Debt & Payment Solutions,

At a minimum, a business premised on

purchasing rights to structured settlement payments should know
whether the future receivables are, in fact, assignable.
According to the Complaint, Dersovitz has considerable control
over the terms of the consumer contracts, (Compl. ¶ 27), and
exercises considerable control over the RD Entities’ practices
and policies.

Given all of this, failure to conduct proper due

diligence on whether the assignments in the Purchase Agreements
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are permissible is “highly unreasonable” and amounts to an “an
extreme departure from ordinary standards of care.”

Id. at *9.

For the reasons stated earlier, Dersovitz also substantially
assisted the RD Entities through this conduct given his role as
CEO and founder of the RD Entities, (Compl. ¶ 18), his
involvement in dictating the terms of the Purchase Agreements,
(Comnpl. ¶ 27), and determining when to collect from Consumers,
(Compl. ¶ 54).

Such allegations taken together are adequate to

assert that Dersovitz “associate[d] himself with the venture”
and “participate[d] in it as something [he] wished to bring
about,” and “[sought] to make it succeed” by taking unreasonable
advantage of the reasonable reliance by Consumers on the RD
Entities.

Id. at *13.
iv.

State Law Claims

Defendants devote significant space in arguing that the
Complaint’s CFPA claims should be dismissed because the CFPB is
unconstitutionally structured and thus lacks authority to bring
such claims.

(Def. Br. 9-14.)

Vexingly, Defendants do not

address the NYAG’s independent authority to bring claims in
federal district court under the CFPA, without regard to the
constitutionality of the CFPB’s structure.

12 U.S.C.

§ 5552(a)(1) (authorizing state attorneys general to bring
claims under the CFPA); (Pl. Opp. 7.)

The Government has

alleged adequately claims for deceptive and abusive acts or
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practices under the CFPA, and therefore federal question subject
matter jurisdiction over the CFPA claims exists regardless of
the constitutionality of the CFPB’s structure.
A federal district court may exercise “supplemental
jurisdiction over all other claims that are so related to claims
in the action within [the court’s] original jurisdiction that
they form part of the same case or controversy . . . .”
U.S.C. § 1367(a).

28

“Federal-law and state-law claims form part

of the same case or controversy where they ‘derive from a common
nucleus of operative fact’ and are ‘such that [a plaintiff]
would ordinarily be expected to try them all in one judicial
proceeding.’”

Nguyen v. Am. Express Co., 282 F. Supp. 3d 677,

683 (S.D.N.Y. 2017) (quoting Carnegie-Mellon Univ. v. Cohill,
484 U.S. 343, 349 (1988)).

Review of the factual allegations in

the Complaint makes clear that both the federal- and state-law
claims derive from the same underlying conduct and transactions,
namely, Defendants’ conduct towards Consumers in offering the
Purchase Agreements.

These facts establish that the federal-

and state-law claims “arise out of the same common nucleus of
operative fact” such that the exercise of supplemental
jurisdiction over the NYAG’s state-law claims would be
appropriate.

28 U.S.C. § 1367(a).

Accordingly, the Court will

exercise supplemental jurisdiction over the NYAG’s New York
state law claims for violations of civil and criminal usury
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laws, New York General Obligations Law, deceptive practices,
false advertising, and fraud.

28 U.S.C. § 1367(a).

1. NYAG’s Jurisdiction Over the Purchase
Agreements
In a single footnote, Defendants argue that the Complaint
pleads insufficiently NYAG’s jurisdiction over the transactions
at issue in this case because “the RD Entities’ principal place
of business is New Jersey” and “NYAG has not made any
allegations regarding the residences of the customers who
entered the transactions at issue.”

(Def. Br. 38 n.14.)

As a preliminary matter, the Court pays minimal credence to
an argument raised in a two-sentence footnote of a forty-page
motion to dismiss regarding the NYAG’s jurisdiction over certain
Consumers.

See Gramercy Advisors, LLC v. Ripley, 13-cv-9070

(VEC), 2014 WL 5847444, at *3 (S.D.N.Y. Nov. 12, 2014) (“Issues
adverted to in a perfunctory manner, unaccompanied by some
effort at developed argumentation, are deemed waived.”)
(internal quotation marks and citation omitted).

To the extent

that Defendants challenge NYAG’s assertion of jurisdiction over
the transactions under New York General Business Law § 349 - the
statute at issue in the two cases that they cite in support of
this argument - NYAG has alleged adequately that the
transactions have a sufficient nexus to New York under New York
General Business Law § 349, because the Complaint makes
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reference to “New York consumers,” (Compl. ¶¶ 54) and loans made
“in New York,” (Compl. ¶ 57).

In addition, several of the

contracts themselves indicate that the Consumer has a New York
address,

(See, e.g., Dersovitz Aff. Ex. A-2 at 20) (listing

consumer as having New York residence), and that certain of the
Consumers used a New York agent to seek legal advice regarding
the Purchase Agreement before entering into it, (Dersovitz Aff.
Ex. A-1 at 18-19) (showing New York attorney sending letters on
behalf of Consumer client to RD Legal Funding Partners, LP).
For purposes of New York General Business Law § 349, the
relevant inquiry is whether there are New York transactions that
are deceptive or that occur as a result of out-of-state
deceptive conduct.

New York v. Feldman, 210 F. Supp. 2d 294,

303 (S.D.N.Y. 2003).
Accordingly, the information in the Purchase Agreements as
well as the allegations in the Complaint allege adequately that
deceptive transactions took place in New York and, in the
alternative, that these transactions took place in New York as a
result of out-of-state deceptive conduct.
2. Count VI: Claims Under New York Civil and
Criminal Usury Laws
The Complaint alleges adequately that Defendants have
charged more than the maximum usury rate under New York Banking
Law § 14-a, with respect to New York’s civil usury laws, and
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under New York Penal Law §§ 190.40 and 190.42, with respect to
New York’s criminal usury laws.

(Compl. ¶¶ 99-105, 106-110.)

Defendants’ sole argument in response to the Government’s usury
claims is that the transactions at issues are sales, not loans,
and therefore are not subject to state usury laws.

(Def. Br.

37.)
As discussed supra, the Court has concluded that Plaintiffs
have alleged adequately that the transactions at issue
constitute loans, not sales, and therefore Defendants’ argument
here is without effect.

“In New York, the civil usury statute

provides that ‘[t]he maximum interest rate permissible on a loan
is 16% per annum, and any interest rate in excess of that amount
is usurious.’”

Roopchand v. Mohammed, 62 N.Y.S.3d 514, 516

(N.Y. App. Div. 2017) (internal quotation marks and citation
omitted) (citing N.Y. Gen. Oblig. Law § 5-501[a]; N.Y. Banking
Law § 14(a)).

Under New York’s criminal usury law, it is a

felony to “knowingly charge or collect interest on a ‘loan or
forbearance’ at a rate above 25% annually.”

Madden v. Midland

Funding, LLC, 237 F. Supp. 3d 130, 141 (S.D.N.Y. 2017) (quoting
N.Y. Penal Law § 190.40).

Furthermore, it is unlawful to

collect interest on loans or forbearances that exceed the
maximum allowable interest rate because such loans are void.
(Compl. ¶¶ 101-03); N.Y. Gen. Oblig. Law § 5-501; N.Y. Banking
Law § 14-a.
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Accepting the allegations in the Complaint as true and in
the light most favorable to the NYAG at this stage of the
proceedings, NYAG alleges facts demonstrating plausibly that at
least certain of the Purchase Agreements functioned as loans
that charged usurious interest rates in excess of New York’s
civil and criminal usury caps, respectively.
32.)

(Compl.

¶¶ 29,

Accordingly, NYAG’s state law claims alleging violations

of civil and criminal usury laws survive the instant motion.
3. Count VIII: Violation of New York General
Obligations Law § 13-101
Defendants argue that the NYAG fails to state a claim under
New York General Obligations Law § 13-101, which prohibits the
sale or assignment of claims or demands to recover for personal
injury, because the transactions transfer the rights to proceeds
from claims for personal injury, not the personal injury claims
themselves.

N.Y. Gen. Oblig. Law § 13-101; (Def. Br. 37-38.)

Under N.Y. Gen. Oblig. Law § 13-101(1), a party may not
transfer a “claim or demand” to “recover damages for a personal
injury.”

With respect to the VCF Purchase Agreements, as

discussed supra, Section IV(a)(i)(2), those transactions purport
to transfer Eligible Claimants’ claims for settlement proceeds
under the VCF.
As discussed supra, the term “claim” is defined as “[t]he
assertion of an existing right; any right to payment or to an
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equitable remedy, even if contingent or provisional . . . [a]
demand for money, property, or a legal remedy to which one
asserts a right.”
2014).

Claim, Black’s Law Dictionary (10th ed.

The plain language of the Purchase Agreements indicates

that Defendants sought to obtain ownership of Eligible
Claimants’ “claims” to damages for injuries that they suffered
following the September 11, 2001 terrorist attacks in that they
sought to obtain the right to receive payment directly from the
VCF.

In sum, the Complaint alleges adequately facts

demonstrating that the Purchase Agreements transferred a “claim
or demand” to “damages for personal injury” in violation of N.Y.
GBL § 13-101(1).
Similarly, the NYAG has alleged facts sufficient to state a
claim under Section 13-101(1) of N.Y. GBL as to the NFL Purchase
Agreements.

For the reasons already explained supra, Section

IV(a)(i)(1), the NFL Purchase Agreements purport to assign Class
Members’ full interest in a portion of their settlement
proceeds, including the right to demand payment directly from
the NFL Settlement Administrator.

As such, the Purchase

Agreements purport to transfer a “claim or demand” to “recover
damages for personal injury.”

Accordingly, the NYAG has alleged

facts sufficient to state a claim under N.Y. GBL § 13-101(a)
regarding the NFL Purchase Agreements.

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4. Count IX: Violation of New York General
Business Law § 349
“To state a claim for deceptive practices under
section 349, a plaintiff must show: (1) that the act, practice,
or advertisement was consumer-oriented; (2) that the act,
practice, or advertisement was misleading in a material respect;
and (3) that the plaintiff was injured as a result of the
deceptive act, practice, or advertisement.”

Pelman ex rel.

Pelman v. McDonald's Corp., 396 F. Supp. 2d 439, 444 (S.D.N.Y.
2005).
Under the first prong, “consumer oriented” conduct is that
which “has a broad impact on consumers at large.”

Bennett v.

State Farm Fire and Casualty Co., -- N.Y.S.3d --, 2018 WL
2225321, at *2 (N.Y. App Div. May 16, 2018) (citing Nafash v.
Allstate Ins. Co., 28 N.Y.S.3d 381, 384 (N.Y. App. Div. 2016);
JPMorgan Chase Bank, N.A. v. Hall, 996 N.Y.S.2d 309, 315 (N.Y.
App. Div. 2014); Vescon Constr., Inc. v. Gerelli Ins. Agency,
Inc., 948 N.Y.S.2d 636, 638 (N.Y. App. Div. 2012); Flax v.
Lincoln Natl. Life Ins. Co., 864 N.Y.S.2d 559, 561 (N.Y. App.
Div. 2008)).

A “single shot transaction” that is customized to

meet the specific demands of a particular consumer is
insufficient to show that the conduct had a “broad impact on
consumers.”

Hall, 996 N.Y.S.2d at 315 (quoting N. State

Autobahn, Inc. v. Progressive Ins. Grp. Co., 953 N.Y.S.2d 96,
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102 (N.Y. App. Div. 2012)).

Rather, the conduct must amount to

a “standard practice that was [or is] routinely applied to all
[consumers]” who engaged with the defendant.

N. State Autobahn,

953 N.Y.S.2d at 102.
Under the second prong, the New York Court of Appeals has
defined the term “materially misleading” conduct using an
objective standard under which “the alleged act must be ‘likely
to mislead a reasonable consumer acting reasonably under the
circumstances.’”

Orlander v. Staples Inc., 802 F.3d 289, 300

(2d Cir. 2015) (quoting Cohen v. JP Morgan Chase & Co., 498 F.3d
111, 126 (2d Cir. 2007) (quoting Oswego Laborers’ Local 214
Pension Fund v. Marine Midland Bank, N.A., 647 N.E. at 745
(“Such a test . . . may be determined as a matter of law or fact
(as individual cases require).”

Koenig v. Boulder Brands, Inc.,

995 F. Supp. 2d 274, 287 (S.D.N.Y. 2014) (quoting Oswego
Laborers’ Local 214 Pension Fund, 647 N.E.2d at 745).
Applying this framework to the facts of this case, NYAG has
alleged facts sufficient to demonstrate that Defendants engaged
in deceptive practices in violation of N.Y. GBL § 349.

As to

the first element, the averments in the Complaint indicate that
Defendants’ conduct was “consumer-oriented” in that Defendants
made similar statements and representations to all of the
Consumers targeted.

Oswego Laborers’ Local 214 Pension Fund,

623 N.Y.S.2d at 745 (holding conduct to be “consumer-oriented”
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where defendant Bank interacted with plaintiffs’ representative
the same as any other customer opening a savings account).
According to the Complaint, the RD Entities represent to
Consumers that the Purchase Agreements are assignments of
Consumers’ interests in their anticipated settlement payments
and are not an offer of credit, (Compl. ¶ 38); label all of the
Purchase Agreements as “assignment and sale” agreements, (Compl.
¶ 39-40); and do not disclose interest rates for transactions to
Consumers, (Compl. ¶ 42).

These allegations show that

Defendants’ conduct was not limited to any particular single
Consumer but rather was how Defendants interacted with all
Consumers.

Oswego Laborers’ Local 214 Pension Fund, 623

N.Y.S.2d at 745 (citing Genesco Entm’t v. Koch, 593 F. Supp.
743, 752 (S.D.N.Y. 1984) (finding that conduct was “consumeroriented” because it was “not unique” to the plaintiffs, was not
“private in nature” and not a “single shot transaction”).
Accordingly, NYAG has pled adequately facts indicating the
conduct at issue was “consumer-oriented.”
Turning to the second element of a claim under N.Y. GBL
§ 349, NYAG has also alleged adequately that the RD Entities
made misrepresentations that would be “materially misleading” to
a reasonable consumer.

All of the Purchase Agreements contain

numerous statements that the transaction is a “sale” that
transfers all of the rights of ownership in the Property Amount
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to the RD Entities, but in reality, the Consumer is not entitled
to assign title and ownership over the Property Amount to
another.

Furthermore, the Purchase Agreements entail a rate of

interest that would violate New York civil and criminal usury
laws in some instances, rendering the transactions void under
New York law.

Such allegations, if true, are likely to mislead

a reasonable consumer as to the nature, terms, and obligations
of the contractual arrangement in front of him or her.
Accordingly, the NYAG has pleaded facts sufficient to state a
claim under N.Y. GBL § 349.
5. Count X: Violation of New York General
Business Law § 350
“The standard for recovery under General Business Law
§ 350, while specific to false advertising, is otherwise
identical to Section 349.” Austin v. Albany Law School of Union
Univ., 957 N.Y.S.2d 833, 843 (N.Y. Sup. Ct. 2013) (citing
Denenberg v. Rosen, 897 N.Y.S.2d 391, 394 (N.Y. App. Div. 2010),
lv. dismissed, 930 N.E.2d 762 (N.Y. 2010)).

N.Y. GBL § 350

makes unlawful false advertising “in the conduct of any
business, trade or commerce or in the furnishing of any service”
in New York.

N.Y. Gen. Bus. Law § 350.

Because of the

commonality in the elements of a claim under N.Y. GBL § 349 and
§ 350, the Court draws on its analysis of NYAG’s Section 349

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claim in concluding that the NYAG has alleged facts sufficient
to state a claim under N.Y. GBL § 350 for false advertising.
In this Complaint, the NYAG alleges that Defendants falsely
advertised their agreements as sales rather than loans and
falsely advertised that they would be able to expedite
Consumers’ payment of their settlement awards.

As discussed

earlier, such advertising is “consumer-oriented” in that the
Complaint alleges that these representations were made to all
those who visited Defendants’ website or transacted with
Defendants through a Purchase Agreement.

(Compl. ¶¶ 125-26.)

Such statements are also material because they are likely to
mislead a reasonable consumer into believing that the
transactions are true sales or that Defendants had the ability
to expedite payment from the settlement fund administrators when
neither statement is true.

Defendants also argue that these

alleged statements pertain to the “source” of the payments,
which is distinct from the timing of payments and would not be
material to consumers.

(Def. Br. 34.)

The Court disagrees.

Consumers are individuals who want their settlement awards
quickly because they need access to liquidity.

It does not take

a grand leap of imagination to envision that Consumers may have
strained relations with the claims administrators in seeking
access to their settlement awards.

Therefore, if Consumers were

misled into believing that RD would act as a type of third-party
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facilitator between the Consumer and the claims administrator,
this information would be material to the Consumer.

Therefore,

the Court concludes that Defendants’ argument is without merit.
Accordingly, the NYAG alleges adequately facts
demonstrating a claim under N.Y. GBL § 350.
6. Count XI: New York Executive Law § 63(12)
Fraud
Executive Law § 63(12) empowers the Attorney General to
seek injunctive and other relief whenever a person or business
engages in “repeated . . . or . . . persistent fraud or
illegality.”

“Fraud” under § 63(12) is not common-law fraud but

is statutorily defined broadly as “any device, scheme or
artifice to defraud and any deception, misrepresentation,
concealment, suppression, false pretense, false promise or
unconscionable contractual provisions.”

Conduct violates

Executive Law § 63(12) if it “has the capacity or tendency to
deceive” both the average consumer and “the ignorant, the
unthinking, and the credulous.”

Matter of People v. Applied

Card Sys., Inc., 805 N.Y.S.2d 175, 176 (N.Y. App. Div. 2005)
(internal quotation marks and citation omitted).

Several cases

have also held that proof of intent to deceive or reliance are
not required to state a claim under N.Y. Executive Law § 63(12).
Here, because the elements of a claim under Section 63(12)
are entirely encompassed by the elements of deceptive acts or
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practices under the CFPA or NY GOL § 349 that the Government has
already pled adequately, the Complaint contains sufficient
allegations to state a claim under N.Y. Executive Law § 63(12)
as well.
c. Constitutional Claims
i.

History, Liberty, and Presidential Authority

In reaching the question of the constitutionality of Title
X of Dodd-Frank, which established the CFPB as an “independent
bureau” within the Federal Reserve System, 12 U.S.C. § 5491(a),
the Court acknowledges the en banc holding of the Court of
Appeals for the District of Columbia Circuit in PHH Corp. v.
CFPB, 881 F.3d 75 (D.C. Cir. 2018), upholding the statute.

Of

course, that decision is not binding on this Court.7

7

Other courts have also addressed this question. CFPB v. TCF
Nat’l Bank, No. 17-166 (RHK/DTS), 2017 WL 6211033 (D. Minn.
Sept. 8, 2017); CFPB v. Seila Law, LLC, No. 17-CV-01081-JLS-JEM,
2017 WL 6536586 (C.D. Cal. Aug. 25, 2017), appeal filed, No. 1756324 (9th Cir.); CFPB v. Navient Corp., No. 3:17-CV-101, 2017
WL 3380530 (M.D. Pa. Aug. 4, 2017); CFPB v. Future Income
Payments, LLC, 252 F. Supp. 3d 961 (C.D. Cal. 2017), appeal
filed, No. 17-55721 (9th Cir.); CFPB v. D & D Mktg., Inc., No.
CV 15-9692 PSG (EX), 2017 WL 5974248 (C.D. Cal. Mar. 21, 2017),
interlocutory appeal granted, No. 17-55709 (9th Cir.); CFPB v.
CashCall, Inc., No. CV-15-7522-JFW-RAOx, 2016 WL 4820635 (C.D.
Cal. Aug. 31, 2016), appeal filed, 18-55479 (9th Cir.); CFPB v.
NDG Fin. Corp., No. 15-CV-5211 (CM), 2016 WL 7188792 (S.D.N.Y.
Dec. 2, 2016), mot. reconsideration denied, No. 15-CV-5211 (CM),
2016 WL 7742784 (S.D.N.Y. Dec. 19, 2016); CFPB v. ITT Educ.
Servs., Inc., 219 F. Supp. 3d 878 (S.D. Ind. 2015), appeal
dismissed for lack of jurisdiction, 15-1761 (7th Cir. 2016);
CFPB v. Frederick J. Hanna & Assocs., P.C., 114 F. Supp. 3d 1342
(N.D. Ga. 2015); CFPB v. Morgan Drexen, Inc., 60 F. Supp. 3d
1082 (C.D. Cal. 2014).
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Respectfully, the Court disagrees with the holding of the en
banc court and instead adopts Sections I-IV of Judge Brett
Kavanaugh’s dissent (joined in by Senior Circuit Judge A.
Raymond Randolph), where, based on considerations of history,
liberty, and presidential authority, Judge Kavanaugh concluded
that the CFPB “is unconstitutionally structured because it is an
independent agency that exercises substantial executive power
and is headed by a single Director.”

Id. at 198.

Also most respectfully, the Court disagrees with Section V
of Judge Kavanaugh’s opinion wherein he determined the remedy to
be to “invalidate and sever the for-cause removal provision and
hold that the Director of the CFPB may be supervised, directed,
and removed at will by the President.”

Id. at 200.

Instead,

the Court adopts Section II of Judge Karen LeCraft Henderson’s
dissent wherein she opined that “the presumption of severability
is rebutted here.

A severability clause ‘does not give the

court power to amend’ a statute.
the ‘heart’ of a statute.

Nor is it a license to cut out

Because section 5491(c)(3) is at the

heart of Title X [Dodd Frank], I would strike Title X in its
entirety.”

Id. at 163-64 (citations omitted).
ii.

CFPB’s Notice of Ratification

On May 11, 2018, the CFPB filed a Notice of Ratification
(“Ratification”) with the Court in response to Defendants’
constitutional challenge to the for-cause removal provision of
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the CFPB’s enabling statute.

In the Ratification, the CFPB

attempts to ratify its decision to file this enforcement
decision prior to the appointment of the CFPB’s Acting Director,
Mick Mulvaney, on November 24, 2017.
(hereinafter, Ratification) 1.)

(Notice of Ratification

Because the President may

remove Mr. Mulvaney at will, the CFPB asserts that Defendants
may not obtain dismissal on the grounds that the instant action
was initially filed by a Director at the CFPB removable only for
cause.

(Ratification 3.)

As Defendants note, ratification is a principle of agency
law.

(Defendants’ Opp’n to Ratification (“Ratif. Opp’n”) 2, ECF

No. 79.)

Ratification addresses situations in which an agent

was without authority at the time he or she acted and the
principal later approved of the agent’s prior unauthorized acts.
See GDG Acquisitions LLC v. Government of Belize, 849 F.3d 1299,
1310 (11th Cir. 2017) (noting that ratification assumes that the
agent “did not have actual authority at the time he acted”);
Wilkes-Barre Hosp. Co. v. NLRB, 857 F.3d 364, 371 (D.C. Cir.
2017) (explaining role of principal that ratifies prior
unauthorized acts of agent).
The Court agrees with Defendants that the CFPB’s
Ratification does not address accurately the constitutional
issue raised in this case, which concerns the structure and
authority of the CFPB itself, not the authority of an agent to
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make decisions on the CFPB’s behalf.

See CFPB v. Gordon, 819

F.3d 1179, 1192 (9th Cir. 2016) (holding, after invalidation of
CFPB Director’s recess appointment, that the Director’s
“ratification, done after he was properly appointed as Director,
resolves any Appointments Clause deficiencies”); Wilkes-Barre
Hosp. Co. v. NLRB, 857 F.3d 364, 371 (D.C. Cir. 2017) (holding,
after invalidation of Board members’ recess appointments, that
NLRB properly ratified the appointment of its Regional Director
who, in turn, ratified his prior unauthorized actions); Advanced
Disposal Servs. East, Inc. v. NLRB, 820 F.3d 592, 605-06 (3d
Cir. 2016) (same).
Here, the constitutional issues presented by the structure
of the CFPB are not cured by the appointment of Mr. Mulvaney.
As Defendants point out, the relevant provisions of the DoddFrank Act that render the CFPB’s structure unconstitutional
remain intact.

(Ratification 4.)

Furthermore, Mr. Mulvaney

cannot serve past June 22, 2018 (210 days after the vacancy
arose), unless the President nominates a new Director, and then
only until the new Director is appointed.

Thus, there will

likely be a new Director appointed in the coming months who will
be subject to the for-cause removal provision.

Therefore, the

Ratification does not cure the constitutional deficiencies with
the CFPB’s structure as the CFPB argues.

Accordingly, the Court

rejects the Notice of Ratification (ECF No. 78) to the extent
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the CFPB argues that the Ratification renders Defendants’
constitutional arguments moot.
Accordingly, the Court finds that the CFPB “lacks authority
to bring this enforcement action because its composition
violates the Constitution’s separation of powers,” and thus the
CFPB’s claims are dismissed.

Fed. Election Comm’n v. NRA

Political Victory Fund, 6 F.3d 821, 822 (D.C. Cir. 1993).

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d. Conclusion
For the foregoing reasons, Defendants’ motion (ECF No. 39)
is DENIED.

Because Plaintiff Consumer Financial Protection

Bureau is unconstitutionally structured and lacks authority to
bring claims under the CFPA, the Clerk of Court shall terminate
Plaintiff Consumer Financial Protection Bureau as a party to
this action.
Counsel shall confer and inform the Court by letter no
later than July 9 how they propose to proceed.

SO ORDERED.
Dated:

New York, New York
June 21, 2018

_____________________________
LORETTA A. PRESKA
Senior United States District Judge

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