People of the State of New York v. Richmond Capital Group LLC, et al.
Attorneys and Parties
Brief Summary
Merchant cash advance (MCA) financing structured as loans-in-disguise with criminally usurious rates and abusive collection practices.
Granted summary determination for the Attorney General under Executive Law § 63(12) [authorizes the Attorney General to bring enforcement actions against New York-based businesses for repeated or persistent fraudulent or illegal acts in New York, even if victims are out of state], denied respondents' cross-motions, and entered a joint and several judgment of $77,289,631 plus interest.
The monetary aspect of the judgment was vacated and remanded for recalculation; a separate appeal from an order denying a motion to amend the judgment was dismissed as moot.
The People failed to exclude principal repayments and to account for offsets (including settlements), risking double recovery; disgorgement was not warranted on these facts. Liability findings for usury, fraud, and unconscionability were otherwise supported.
Background
The Attorney General alleged that respondents funded more than 3,000 transactions styled as merchant cash advances (MCAs) that were in substance usurious loans. Although the MCAs purported to tie remittances to receivables with a reconciliation mechanism, in practice no monthly reconciliation occurred, daily payments were fixed (not a good-faith estimate of receivables), and merchants faced default and acceleration based on nonpayment, bankruptcy, or interruption of business. Respondents required personal guarantees and filed affidavits in court to obtain judgments that included material misrepresentations. Evidence showed that RAM Capital Funding LLC and Tzvi Reich participated beyond mere brokering, and that Robert Giardina personally directed funding, collections (including withdrawals on holidays), and litigation affidavits; an adverse inference was drawn from Giardina’s invocation of the Fifth Amendment.
Lower Court Decision
Supreme Court, New York County (Borrok, J.) granted the People summary determination under Executive Law § 63(12), finding repeated or persistent illegality (usury) and fraud, and that the MCAs were procedurally and substantively unconscionable. The court imposed joint and several liability (including for RAM Capital Funding LLC, Tzvi Reich, and Robert Giardina) and entered a judgment of $77,289,631 plus interest, denying respondents’ cross-motions to dismiss.
Appellate Division Reversal
The Appellate Division affirmed liability: the MCAs functioned as loans with usurious rates; reconciliation was illusory; defaults and guarantees showed loan characteristics; and usurious intent was evident from the contracts. Repeated or persistent fraud was shown, and Noerr-Pennington did not protect sham litigation affidavits. The MCAs were unconscionable; joint and several liability for RAM/Tzvi Reich and personal liability for Giardina were sustained. However, the court vacated the monetary judgment and remanded because the damages failed to net out principal repayments and did not account for offsets (including settlements), and the People were not entitled to disgorgement. A separate appeal from an order denying a motion to amend the judgment was dismissed as moot.
Legal Significance
The decision reinforces that under Executive Law § 63(12), the Attorney General may pursue New York-based MCA providers for repeated or persistent illegality and fraud affecting out-of-state merchants, and that MCA agreements lacking genuine reconciliation and featuring fixed daily payments, acceleration, and guarantees will be treated as loans subject to usury limits. It also clarifies remedial limits: restitution must make victims whole without windfalls, principal must be excluded from recovery, offsets must be applied to avoid double recovery, and disgorgement is unavailable on these facts. The ruling affirms personal liability for individuals who participate in or direct the wrongful conduct and recognizes the sham-litigation exception to Noerr-Pennington for fraudulent court filings.
MCAs that operate as fixed-payment, non-reconciling arrangements are usurious loans under New York law and actionable under Executive Law § 63(12); liability can be joint, several, and personal. Monetary relief must be restitutionary—net of principal and adjusted for settlements—to prevent double recovery; broad disgorgement is not automatically available.