United States District Court, E.D. Virginia, Newport News Division
ROYCE SOLOMON, et al., individually and on behalf of all others similarly situated, Plaintiffs,
AMERICAN WEB LOAN, et al., Defendants.
OPINION & ORDER II
COKE MORGAN, JR. SENIOR UNITED STATES DISTRICT JUDGE
Opinion & Order I, this Court addressed motions
concerning subject matter jurisdiction, arbitration, and
venue. In this Opinion and Order II, the Court addresses the
remaining bases of Defendants' Motions to
matters come before the Court on Motions to Dismiss filed by
American Web Loan, Inc. AWL, Inc., MacFarlane Group
(collectively, "AWL Defendants" or
"AWL"), joined by Defendants Mark Curry
("Curry"); Sol Partners ("Sol"); Medley
Management, Inc., Medley Group, LLC, Medley LLC, Medley
Capital Corp., and Medley Opportunity Fund II, LP
(collectively, "Medley Defendants" or
"Medley"); Brook and Seth Taube (collectively,
"the Taubes"); Middlemarch Partners LLC
("Middlemarch"); and DHI Computing Service, Inc.
d/b/a GOLDPoint ("GOLDPoints"), Docs. 62, 76, 77,
81, and 87, and Medley Defendants' Motion to Dismiss for
Lack of Personal Jurisdiction, Improper Venue, and Failure to
Join a Necessary Party, Docs. 62, 64. The Court held a
hearing regarding each of these motions and for the reasons
stated herein, and on the bench the Court
RULES as set forth below.
are four individuals who obtained loans from American Web
Loan. Doc. 41 ("Am. Compl.") ¶¶ 10-13.
The interest rates for each of Plaintiffs' loans are
alleged to be more than two times the rate allowed under the
laws of each of Plaintiffs' respective states.
Id. ¶¶ 145, 158, 168, 184 (describing
interest rate for each loan). Accordingly, Plaintiffs allege
that Defendant Curry, with the assistance of Defendants AWL,
Medley, the Taubes, Middlemarch, GOLDPoint, Sol, and John Doe
Defendants (1-100), has used the sovereignty of the
Otoe-Missouria Indian Tribe (the "Tribe") to
personally profit from allegedly usurious interest rates on
short-term loans issued to individuals throughout the United
States. Am. Compl. ¶¶ 1, 6.
Plaintiffs' complaint alleges nine (9) different causes
of action against the various defendants. In Count One,
Plaintiffs allege that AWL, Curry, Sol, Medley, and the
Taubes engaged in the collection of unlawful debt in
violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"). Id.
¶¶ 209-22. In Count Two, Plaintiffs allege that the
AWL, Curry, Sol, Medley Defendants, the Taubes, GOLDPoint,
and Middlemarch engaged in a RICO conspiracy. Id.
¶¶ 223-27. In Count Three, Plaintiffs allege that
the AWL Defendants, Curry, Sol, Medley, the Taubes, and
GOLDPoint violated the Electronic Funds Transfer Act
("EFTA"). Id. ¶¶ 228-43. In
Counts Four through Eight, Plaintiffs allege that Defendant
AWL, Inc. committed several violations of the Truth in
Lending Act ("TIL A"). Id. ¶¶
244-73. In Count Nine, Plaintiffs allege that all defendants
have been unjustly enriched by their continued possession of
funds illegally taken from Plaintiffs and members of the
class. Id. ¶¶ 274-276. Plaintiffs define
the class of individuals as:
All persons who took out loans from American Web Loan.
Included in the Class are any persons who took out loans
through the American Web Loan d/b/a entity known as Clear
Creek Lending. The Class period begins on February 10, 2010
and continues through the present.
Am. Compl.¶ 198.
initially filed their complaint on December 15, 2017. Doc. 1.
Plaintiffs filed an Amended Complaint on March 9, 2018. Am.
Compl. On April 9, 2018, the following motions were filed:
(1) Medley Defendants and the Taubes' Motion to Dismiss
for Failure to State a Claim and Failure to Join a necessary
party, Doc. 62;
(2) Medley Defendants and the Taubes' Motion to Dismiss
for Lack of Personal Jurisdiction and Improper Venue, Doc.
(3) AWL Defendants' Motion to Transfer, Doc. 70;
(4) AWL Defendants' Motion to Dismiss for Lack of Subject
Matter Jurisdiction, Doc. 72;
(5) AWL Defendants' Motion to Compel Arbitration, Doc.
(6) AWL Defendants' Motion to Dismiss for Failure to
State a Claim, Doc. 76;
(7) Middlemarch's Motion to Dismiss for Failure to State
a Claim, Doc. 77;
(8) GOLDPoint's Motion to Dismiss for Failure to State a
Claim, Doc. 81;
(9) Defendants Curry and Sol's Motion to Transfer Case,
(10) Defendants Curry and Sol's Motion to Compel
Arbitration, Doc. 84;
(11) Defendant Curry's Motion to Dismiss for Lack of
Subject Matter Jurisdiction, Doc. 85;
(12) Defendant Sol's Motion to Dismiss for Lack of
Subject Matter Jurisdiction, Doc. 86; and
(13) Defendants Curry and Sol's Motion to Dismiss for
Failure to State a Claim, Doc. 87.
8, 2018, Plaintiffs opposed each of the defendants'
motions. Docs. 109-115. On July 9, 2018, each
defendant replied. Docs. 133-145.
August 2, 2018, the Court held a status conference regarding
this matter and then consolidated this case with the matter
Hengle v. Curry, which had recently been transferred
from the Richmond Division. Doc. 160. The Court ORDERED the
parties to complete jurisdictional discovery on the matters
of sovereign immunity and venue and propose a scheduling
order for supplemental briefings. Id. On September
7, 2018, the Parties' submitted a Proposed Schedule,
which the Court approved by separate Order. See Docs. 187,
201. On November 6, 2018, Plaintiffs filed a supplemental
brief opposing AWL Defendants' and Defendants Curry and
Sol's Motions to Transfer. Docs. 221, 222. On November
13, 2018, AWL Defendants and Defendants Curry and Sol filed a
supplemental brief in support of their Motion to Transfer.
Docs. 231, 232, 235. On November 20, 2018, AWL Defendants and
Defendants Curry and Sol each filed supplemental briefs in
support of their Motions to Dismiss for Lack of Subject
Matter Jurisdiction and Plaintiffs filed a supplemental
opposition to Defendants' Motions. Docs. 245, 246, 256,
257, 264, 265, 272, 273. On November 29, 2018, Plaintiffs
filed a corrected supplemental opposition without
objection. Doc. 298-1. On December 11, 2018, AWL
Defendants, Defendants Curry and Sol, and Plaintiffs each
replied to their respective supplemental briefs regarding
subject matter jurisdiction. Docs. 309, 310, 314, 315, 316,
317, 318, 319. These matters are now ripe for review.
Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss
tests the sufficiency of a complaint; it does not resolve
contests surrounding the facts, the merits of a claim, or the
applicability of defenses. Republican Party of N.C. v.
Martin. 980 F.2d 943, 952 (4th Cir. 1992). "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) (citing
Bell Atl. Corp. v. Twomblv. 550 U.S. 544, 570
(2007)); see also Venkatraman v. REI Svs.. Inc.. 417
F.3d 418, 420 (4th Cir. 2005) ("In considering a motion
to dismiss, we accept as true all well-pleaded allegations
and view the complaint [or counterclaim] in the light most
favorable to the plaintiff [or counterclaim
plaintiff].") (citing Mylan Labs.. Inc. v.
Matkari. 7 F.3d 1130, 1134 (4th Cir. 1993)). A complaint
establishes facial plausibility "once the factual
content of a complaint allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Nemet Chevrolet. Ltd. v.
Consumeraffairs.com. Inc.. 591 F.3d 250, 256 (4th Cir.
2009) (quoting Iqbal. 556 U.S. at 678). Therefore,
the complaint need not include "detailed factual
allegations" as long as it pleads "sufficient facts
to allow a court, drawing on judicial experience and common
sense, to infer more than the mere possibility of
misconduct." Id. Although a court must accept
as true all well-pleaded factual allegations, the same is not
true for legal conclusions. "Threadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements, do not suffice." Iqbal. 556 U.S. at
deciding the motion, a court may consider the facts alleged
on the face of the complaint as well as "'matters of
public record, orders, items appearing in the record of the
case, and exhibits attached to the complaint.'"
Moore v. Flasstar Bank. 6 F.Supp.2d 496, 500 (E.D.
Va. 1997) (quoting 5A Charles A. Wright & Arthur R.
Miller, Federal Practice & Procedure § 1357 (1990)).
The court may look to documents attached to the complaint and
those incorporated by reference without converting a Rule
12(b)(6) motion into a Rule 56 motion for summary judgment.
See Pueschel v. United States. 369 F.3d 345, 353 n.3
(4th Cir. 2004) (citations omitted); see also Goines v.
Valley Cmty. Servs. Bd.. 822 F.3d 159, 166 (4th Cir.
2016) (observing that the court may consider a document
attached to a motion to dismiss "that was not attached
to or expressly incorporated in a complaint, so long as the
document was integral to the complaint and there is no
dispute about the document's authenticity.").
MOTIONS TO DISMISS BASED ON RICO VIOLATIONS
Factual Allegations 
allege that a conspiracy began in or around 2009 when Curry
began working with the Tribe to perpetuate a
"rent-a-tribe" scheme. Am. Compl. ¶ 81.
Plaintiffs claim that the "rent-a-tribe" scheme
arose as federal regulators began cracking down on
"rent-a-bank" schemes, in which payday lenders
would associate with federal banks to charge higher interest
rates on loans issued to out of state borrowers. Id.
¶¶ 78-80. While the bank would be listed as the
"lender" the payday lender would control all
substantive lending functions. Id. ¶ 79.
MacFarlane Group, American Web Loan, Inc., AWL, Inc. and Sol
alleged in the complaint, MacFarlane Group is an entity that
was wholly owned by Mark Curry until it was
"acquired" by a tribal entity named Red Rock.
Id. ¶ 18, 20. Sol Partners is a Puerto Rican
company owned by Curry that provided "the necessary
funding for the operation [of AWL] with their own capital and
capital raised from other investors that were unaffiliated
with the Tribe." Id. ¶ 21. Curry used a
slide show (the "Geneva Roth Presentation") to
illustrate the rent-a-tribe structure to potential Native
American tribes and investors. Id. ¶ 85. At the
top of a slide titled "Proposed Corporate
Structure" is a heading that says "Mark Curry, CEO
100% Ownership or Control" beneath which is a structure
listing several Curry owned entities as providing funding for
the American Web Loan Tribal entity, who sells loans back to
the Curry entities after 14 days. Id. ¶¶
86-87. An exact date for the Geneva Roth Presentation is not
given; however, Plaintiffs cite to an article by Bloomberg
News (the "Bloomberg Report") which indicates that
the slide show was shown to the Tribe in 2009. Id.
Medley's Funding of MacFarlane Group and Other
Medley Defendants are comprised of five (5) separate
corporate entities: (1) Medley Opportunity Fund II, LP (the
"Medley Fund" or the "Fund"), a Delaware
limited partnership, Id. ¶ 25; (2) Medley LLC,
a Delaware corporation, id ¶ 26; (3) Medley Capital
Corp. ("MCC"), a Delaware corporation, id, ¶
27; (4) Medley Management, Inc. ("MMI"), a Delaware
corporation, Id. ¶28; and (5) Medley Group, LLC
("Medley Group"), a Delaware limited liability
company, Id. ¶2.
allege that Defendant Brook Taube, a resident of New York,
and Defendant Seth Taube, a resident of California,
co-founded Medley and exercise ownership and control over the
Medley Defendants as "officer[s], director[s], and/or
other controlling part[ies]." Id. ¶¶
35-37.Plaintiffs further claim that the Medley
Defendants "share significantly overlapping management
personnel . . . hold themselves out as part of a common
corporate family or as otherwise functionally and
operationally indistinguishable from one another."
Id. ¶ 30.
2011, the Medley Fund provided an initial $22.9 million loan
to MacFarlane Group and has continued to provide backing for
Curry's entities. Id. ¶ 96. According to
state filings, Medley Defendants have a secured interest in
most of the Curry entities (the "Geneva Roth
Entities") listed in the Geneva Roth
Presentation. Id. ¶¶ 43-49, 86. Each
of the Geneva Roth Entities also shared the same principle
place of business as MacFarlane Group before it was purchased
and merged into AWL, Inc. in 2016. Id. ¶¶
Alleged Control Exercised by Medley
allege that Medley Defendants identified its $22.9 million
investment in MacFarlane Group as an investment in an
"Online Consumer Finance Platform" in a
presentation to Medley Fund investors. Id.
¶¶ 98-99. Plaintiffs claim that the presentation
shows that Medley's investment process begins with
"extensive evaluation, monitoring, and oversight"
and "gaining a full understanding of the investment
through the underwriting process, which includes review of
business plans, financial, industry, legal, credit and
regulatory analysis." Id. ¶ 100. They also
allege that Medley engages in "extensive ongoing
monitoring" for risk management purposes. Id.
¶ 101. This risk management includes "weekly calls
with its borrowers, review of financial statements and cash
reconciliation on a monthly bases and quarterly on-site
visits." Id. Plaintiffs provide a copy of a
slide from the personation illustrating Medley Fund's
account management process. Id. ¶ 103. The
slide indicates that Medley's account monitoring process
employs a "hands-on" approach which includes
"frequent interaction with management, attending board
of directors' meetings, consulting with industry experts,
working with third-party consultants and developing portfolio
company strategy with equity investors." Id.
Medley 's Alleged Knowledge of the Illegal Nature of
the process of obtaining funding from investors, Plaintiffs
allege that one investor walked away from a deal with
MacFarlane Group because of "concerns about the nature
of the loans being made by MacFarlane Group through American
Web Loan," after which time "Medley Defendants
stepped in to provide the necessary financing to MacFarlane
Group and/or [AWL]." Id. ¶109. In 2013, a
Medley Fund investor sent an e-mail requesting an explanation
as to why it appeared Medley was "giving a reasonable
loan to [AWL] which is charging an unreasonable rate [to the
customer]," to which Seth Taube responded. Id.
Involvement of GOLDPoint Systems
2014, GOLDPoint entered into a contract to provide website
services to AWL. Id. ¶ 111-12. The contract
states that website content "shall be subject to
approval by [GOLDPoint] and "allows potential customers
to apply for loans and submit information in connection with
the loan application process . . . [and] an account portal
for customers to review their loan balances, make payments,
and perform other loan-related functions." Id.
In addition to setting up the website, GOLDPoint's
systems generate reports and loan-related data for MacFarlane
Group. Id. ¶ 112. According to the contract,
the pricing schedule for GOLDPoint's services depends on
the "volume of loans originated and the number of active
loan accounts, including per application and per-closed loan
fees, monthly fees based on the numbers of accounts."
Id. After the 2016 merger of MacFarlane Group into
Red Stone, the contract was reassigned to AWL, Inc.
Id. ¶ 113. Plaintiffs allege that GOLDPoint is
guilty of "providing the technology, systems, and
services necessary to enable the [AWL] online payday lending
scheme to collect unlawful debts through, among other things,
the online interfaces and payment systems used by
consumers." Id. ¶ 114.
Middlemarch Partners Involvement
is a merchant banking firm. Id. ¶ 23. In 2013,
Middlemarch helped MacFarlane Group prepare a slide show
MacFarlane Group showed to potential investors (the
"Middlemarch Presentation"). Id. ¶
93. The Middlemarch Presentation was provided to various
hedge funds, private equity firms, and other potential
investors to raise funding for the lending scheme.
Id. ¶¶ 92-95. The slide show showed that
loans between $500 and $1400 had to repaid within zero to six
(0-6) months at an interest rate of 500-700%, and loans
greater than $1400 had to be repaid within six to eighteen
(6-18) months at an interest rate of 200-600%. Id.
¶ 94. Middlemarch is alleged to have assisted Curry in
preparing another solicitation in 2017, which sought
investments of up to $90 million to "refinance and
expand [the American Web Loan payday lending scheme's]
$45 million debt facility" to "double or triple its
loan portfolio size over the next three to four years."
Id. ¶ 108.
Count One: Collection of Unlawful Debt Under RICO
Racketeer Influenced and Corrupt Organizations Act
("RICO") makes it unlawful for any person
"employed by or associated with any enterprise engaged
in . . . interstate or foreign commerce to conduct or
participate ... in the conduct of such enterprise's
affairs through a pattern of... collection of unlawful
debt." 18 U.S.C. § 1962(c). RICO also makes it
unlawful to conspire with a person "employed by or
associated with an enterprise" to participate in the
enterprise's affairs through the collection of unlawful
debt. 18 U.S.C. § 1962(d). To establish a claim under
RICO, a plaintiff must allege:
[T]here was a RICO enterprise, (2) its activities affected
interstate commerce, (3) the individual defendants were
employed by or associated with the enterprise, (4) the
[defendants] used, in the operation of the enterprise, income
derived from the collection of unlawful debt, ... (5) the
individual defendants participated in the conduct of the
affairs of the enterprise through collection of unlawful
debt... within the meaning of RICO, ... (6) the debt was
unenforceable in whole or in part because of state or federal
laws relating to usury, (7) the debt was incurred in
connection with the business of lending money at a usurious
rate, and (8) the usurious rate was at least twice the
Dillon v. BMP Harris Bank. N. A.. 16 F.Supp.3d 605,
618 (M.D. N.C. 2014) (alteration in original) (quoting
Durante Bros. & Sons. Inc. v. Flushing Nat'l
Bank. 755 F.2d 239, 248 (2d Cir. 1985)). Before the
Court addresses whether any defendants have conspired with an
individual to participate in a RICO enterprise, there must
first be an underlying violation of RICO. In Count One
Plaintiffs allege that AWL, Curry, Sol,  Medley and the
Taubes directly engaged in the collection of unlawful debt in
violation of the RICO. Id. ¶¶ 209-22.
Defendants and AWL make the following arguments in support of
their Motions to Dismiss Count One of the Amended Complaint:
1) Medley Defendants and AWL argue that Plaintiffs have
failed to allege a separate RICO enterprise; 2) AWL
Defendants argue that Plaintiffs have failed to allege that
there was an unlawful debt; and 3) Medley Defendants argue
that Plaintiffs have failed to show that Medley associated
with the RICO enterprise, participated in the conduct or
affairs of the enterprise, or were the proximate cause of
Plaintiffs' alleged injuries.
The RICO Enterprise
establish liability under § 1962(c) one must allege and
prove the existence of two distinct entities: (1) a
'person'; and (2) an 'enterprise' that is not
simply the same 'person' referred to by a different
name." Cedric Kushner Promotions. Ltd. v. King,
533 U.S. 158, 161 (2001). Thus, "liability depends on
showing that the defendants conducted or participated in the
conduct of the 'enterprise's affairs.'
not just their own affairs." Myers v.
Lee. 2010 WL 3745632, at *3 (E.D. Va. Sept. 21, 2010)
(citing Reves v. Ernst & Young. 507 U.S. 170,
185 (1993)) (emphasis in original). Under RICO a
"person" is defined as "any individual or
entity capable of holding a legal or beneficial interest in
property." 18 U.S.C. § 1961. And, an
"enterprise" is defined as an "individual,
partnership, corporation, association, or other legal entity,
and any union or group of individuals associated in fact
although not a legal entity." 18 U.S.C. § 1961(4).
An association-in-fact enterprise "is simply a
continuing unit that functions with a common purpose."
Boyle v. United States. 556 U.S. 938, 948 (2009);
see also Chambers v. King Buick GMC. LLC. 43
F.Supp.3d 575, 589 (D. Md. 2014) (citing United States v.
Turkette. 452 U.S. 576, 583 (1981)). The term
"association in fact" is broad and has a wide
reach, encompassing "any ... group of
individuals associated in fact." Id. at 944
(internal quotations and citations omitted) (emphasis in
original). "[A] defendant can ... be a person under the
statute and also be part of the enterprise. The
prohibition against the unity of person and enterprise
applies only when the singular person or entity is defined as
both the person and the only entity comprising the
enterprise." United States v. Goldin Indus..
Inc.. 219 F.3d 1271, 1275 (11th Cir. 2000) (emphasis in
original); see also Cednc Kushner Promotions. Ltd..
533 U.S. at 164 (noting that it is difficult to speak of a
corporation as "employed by" or "associated
with" an enterprise where "a corporation [is] the
'person' and the corporation, together with all its
employees and agents, were the 'enterprise.').
argue that the Amended Complaint alleges "an
association-in-fact enterprise comprised of the RICO
Defendants [those individuals named in Counts One and Two],
other Defendants in this action, and a number of
non-Defendant individuals and entities." Doc. 110 at 32.
Further, Plaintiffs contend that each entity is a separate
person who "participate[s] in the affairs of the
associated-in-fact enterprise, which itself is not a legal
entity." Id. at 32-33 (citing Bovle v.
United States. 556 U.S. 938, 953 (2009)) (internal
AWL and Medley Defendants claim that Plaintiff has failed to
allege facts sufficient to support "showing an
enterprise as a continuous unit that operates or functions in
a way distinct from the defendants themselves." Doc. 63
at 16 (citing Myers. 2010 WL 3745632 (E.D. Va. Sept.
21, 2010). In Myers, the plaintiff alleged that "[the
organizations'] component entities share officers and
directors and are otherwise interrelated,"
Myers. 2010 WL 3745632, at *3, and that the
organization operated in a "top-down command and
control... accomplished by defendants' acting through a
series of interconnecting agency relationships, including . .
. nonparty participants." Id. Under those
circumstances, the Court found that plaintiff failed to
allege a distinct RICO enterprise because "[t]here [was]
a complete overlap between the defendants, their alleged
agents, and the enterprise" and there were no factual
allegations in the complaint "that the affairs of the
enterprise [were] any different from the affairs of the
defendants." Id. at *4.
aver that their case is distinguishable from Myers,
as "there is not complete overlap between the
[defendants named in Counts One and Two] and the alleged
enterprise." Doc. 110 at 35. Plaintiffs point to the
non-defendant entities and individuals and argues that the
actions of each defendant show they were not simply engaged
in "their own affairs" but were separately engaged
specifically to associate with the RICO enterprise. Doc. 110
at 35. In support, Plaintiffs cite Chambers v. King Buick
GMS. LLC. 43 F.Supp.3d 575, 590 (D. Md. 2014). The court
in Chambers found that its case was distinguishable
from Myers because each defendant in its case was a
separate incorporated entity, had its own business location
and employees, and engaged in contractual or joint management
activities. Id. at 590.
Court FINDS that the enterprise alleged in
this case is more analogous to the enterprise alleged in
Chambers and is distinguishable from the enterprise
alleged in Myers. Here, Plaintiffs have alleged that
each of the defendants, as distinct entities, associated with
each other and nonparties for the common purpose of
exploiting the sovereignty of the Tribe to engage in the
practice of issuing usurious loans. Plaintiffs cite several
facts from their Amended Complaint that support this
American Web Loan Inc. and/or AWL, Inc. serves as the nominal
lender of the illegal loans taken out by Plaintiffs and Class
members and was created for the purpose of facilitating the
illegal lending scheme and shielding it from state and
federal law. Am. Compl. ¶¶ 16, 82, 85-86, 90, 93.
Curry is the mastermind of the illegal lending scheme and
continues to be in de facto control of the scheme's
lending operations. Id. ¶¶ 17, 82, 84-86.
The Medley Defendants provided, and continue to provide,
financial backing to grow the illegal lending scheme.
Id. ¶¶ 25, 30, 96. The Medley Defendants
also control and direct the scheme through weekly calls with
MacFarlane, American Web Loan, Inc., and/or AWL, Inc.,
quarterly on-site visits, frequent interaction with
management, and board meeting attendance. Id.
¶¶ 97, 100-103. Moreover, as discussed in detail in
connection with the Medley Defendants' participation in
the affairs of the alleged enterprise ... the Medley
Defendants' own exhibits attached to their motion papers
make clear that the Medley Defendants (1) made their
financing contingent on the existence, validity, and
enforceability of critical agreements underlying the illegal
lending scheme; (2) had authority over changes to any of
those agreements; (3) restricted ...