Top Notch Funding II, LLC, Rory Donadio, and John “Gene” Cavalli
Documents in this case
- Complaint · · 9 p.
- Stipulation · · 7 p.
Case summary
On Sept. 19, 2017, the Consumer Financial Protection Bureau (CFPB) sued Top Notch Funding and two individuals associated with the company for lying in loan offerings to consumers who were awaiting payment from settlements in legal cases or from victim-compensation funds. These consumers included former National Football League (NFL) players suffering from neurological disorders, victims of the Deepwater Horizon oil-rig disaster, and 9/11 first responders. On Jan. 30, 2018, the court approved a consent order that bans Top Notch, its owner Rory Donadio, and his business associate John “Gene” Cavalli from offering or providing such products in the future. The order further requires them to pay $75,000 in civil money penalties to the CFPB’s Civil Penalty Fund. The penalties take into account the defendants’ inability to pay more.
Complaint ()
PDF of this document (9 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK Consumer Financial Protection Bureau, Plaintiff, v.
Top Notch Funding II, LLC, Rory Donadio, and John “Gene” Cavalli, Case No.
Defendants.
COMPLAINT Plaintiff, the Consumer Financial Protection Bureau, alleges as follows: INTRODUCTION 1.
The Bureau brings this action against Top Notch Funding II, LLC, Rory Donadio, and John “Gene” Cavalli under § 1054 of the Consumer Financial Protection Act of 2010 (“CFPA”) to address deceptive practices in connection with their offering credit to consumers who have been awarded payouts from a settlement or a statutorycompensation fund, but who are awaiting payment from the defendant in the underlying suit or the claims administrator.
JURISDICTION AND VENUE 2.
This Court has subject-matter jurisdiction because this action is “brought under Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345.
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3.
This Court has personal jurisdiction over Defendants because the causes of action arise from Defendants’ conduct of business in this district. 12 U.S.C. § 5564(f). 4.
Venue is proper in this district because Defendants do business in this district. Id.
PARTIES 5.
The Bureau is an agency of the United States charged with regulating the offering and providing of consumer-financial products and services under “Federal consumer financial laws,” 12 U.S.C. § 5491(a), including the CFPA. 12 U.S.C. § 5481(14). The Bureau has independent litigating authority, including the authority to enforce the CFPA. 12 U.S.C. § 5564(a)-(b).
6.
Top Notch Funding II, LLC, is a limited-liability company. Its principal place of business is at 450 Bloomfield Ave., 2nd Floor, Verona, NJ 07044. 7.
Donadio is the owner and CEO of Top Notch. He has substantial control over and involvement in the establishment of Top Notch’s business policies and practices.
8.
Cavalli worked with Donadio to provide marketing services for Top Notch, and to broker loans for its customers. His principal place of business is at 201 East 87th Street, Suite 17K, New York, NY 10128.
9.
Donadio authorized Cavalli to provide marketing services and to run a website for Top Notch.
10.
As described below, Defendants offer loans to consumers that are to be repaid from settlement proceeds or statutory-compensation funds once the consumers receive payouts from those sources. These are offers to extend credit to consumers for Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 2 of 9
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purposes of the Consumer Financial Protection Act of 2010. Defendants therefore offer or provide consumer-financial products or services under § 1002 of the CFPA. 12 U.S.C. §§ 5481(5), 5481(15)(A)(i) and Defendants are therefore “covered persons” under § 1002 the CFPA. 12 U.S.C. § 5481(6). Additionally, given his status as an officer or managerial employee, Donadio is a “related person” to Top Notch under the CFPA, 12 U.S.C. §5481(25), and is therefore a “covered person.”
FACTS A.
Background 11.
Defendants purport to offer loans to consumers who have been awarded payouts from a settlement or a statutory-compensation fund, but who are awaiting payment from the defendant in the underlying suit or the claims administrator. 12.
Donadio is Top Notch’s owner and CEO. He is responsible for all of its decisions and operations.
13.
Donadio authorized Cavalli to recruit consumers on Top Notch’s behalf, including through websites and on social media. Cavalli did so by offering consumers loans on websites that he owned and operated, but that were presented as websites of the company, Top Notch. Cavalli also recruited customers for Top Notch through phone calls and social media.
14.
Cavalli operated a number of websites, including topnotchlawsuitloans.com, to recruit consumers. The websites marketed loans to consumers entitled to payouts from legal settlements or victim-compensation funds. These consumers included former NFL players entitled to payments from the concussion settlement with the league, consumers entitled to payments under Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 3 of 9
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settlements related to the Deepwater Horizon disaster, and 9/11 first responders entitled to payouts from the Zadroga Fund, established by Congress through the James Zadroga 9/11 Health and Compensation Act 0f 2010.
15.
Cavalli also created videos touting Top Notch’s loan offers. These videos were hosted on YouTube and were shared with consumers through social-media accounts controlled by Cavalli.
16.
Many of the consumers to whom Defendants offered loans have severe injuries, including neurological disorders.
17.
Defendants offered loans to consumers who are beneficiaries of settlements or funds after the settlements or funds had been finally approved, including through final judgment in the case of settlements, and after the consumers had been formally approved to receive payment.
18.
Defendants offered to provide consumers advances equal to a small portion of their expected payouts, with a larger amount to be repaid once the consumers received full payment of their awards.
19.
Although Defendants held out Top Notch as the “Direct Lender” – i.e., the entity that would make the loans— Top Notch did not actually make loans. Rather, it acted only as a broker of transactions executed and funded by other entities. 20.
When consumers expressed interest in a loan offer, Cavalli, Donadio, or both followed up with the consumer to provide more information, sign him up as a customer of Top Notch, and to broker a transaction from a third party. 21.
In the instances in which Top Notch successfully brokered a transaction, Donadio and Cavalli typically split the commission. Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 4 of 9
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22.
Defendants stated in their marketing materials that they provided “loans.” In fact, Defendants did not intend to directly provide to consumers either a loan or an assignment.
23.
The annual percentage rate (“APR”) is a measure of the cost of credit, expressed as a yearly rate.
24.
Defendants represented in their marketing materials and in other communications with consumers that they offered loans with “2% APR,” and a “1%” interest rate.
25.
In reality, the transactions brokered by Defendants (but provided by others) were in all cases more expensive for the consumers than a 2% APR or 1% interest rate loan would have been.
26.
Defendants also represented in their marketing materials and in other communications with consumers that consumers could receive transaction proceeds in as little as 1 hour.
27.
In reality, consumers would not, and could not, receive funds that quickly. Indeed, when Defendants successfully brokered a transaction, it often took weeks for the consumer to receive the proceeds.
28.
Top Notch’s website claimed that Top Notch had offices in all 50 states, and that it had a staff of accounting, financial, and legal professionals. 29.
In actuality, Top Notch had no offices and employed no accounting, financial, or legal professionals. Defendants simply copied these statements from the websites of other companies in the industry.
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30.
Top Notch’s website, which Defendants operated and from which they benefitted, contained statements indicating that Top Notch was a direct lender, including explicit statements that it was a lender, as well as claims that it had an underwriting department that approved loan applications. 31.
Donadio also directly represented to consumers that Top Notch was a direct lender.
32.
In reality, Top Notch was not a lender and did not have an underwriting department. Consumers who dealt with Defendants to obtain an advance on their settlement proceeds were obligated to enter into a contract with a third party on terms that Defendants did not control or have knowledge of. CAUSE OF ACTION—DECEPTION UNDER THE CFPA 33.
Under the CFPA, a practice is deceptive if (1) there is a representation or omission of information that is likely to mislead consumers acting reasonably under the circumstances; and (2) that information is material to consumers. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B).
34.
Defendants represented Top Notch as a direct lender—that is, an entity that would provide loans to consumers.
35.
In fact, Top Notch did not provide loans to consumers; rather, it brokered transactions, connecting consumers with third parties and charging a commission for its service.
36.
Defendants’ misrepresentations that Top Notch was a direct lender are material because that misrepresentation would influence a consumer acting reasonably in deciding whether to deal with Top Notch at all. After consumers interact with Top Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 6 of 9
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Notch, they must enter into separate contractual agreements with third parties to obtain their funds, and they must do so on terms that Top Notch does not control. 37.
Defendants represented in numerous instances that the APR or interest rates on the loans it offered were as little as 1-2%. 38.
In fact, the transactions consumers actually received from third parties were far more expensive than a loan with an APR or interest rate of 1-2% would have been.
39.
Defendants’ misrepresentations about the APR and interest rate are material because the APR and interest rate are central characteristics of a loan that consumers use to evaluate the costs of the transaction, and to compare those costs to potential alternatives.
40.
Defendants represented in Top Notch’s marketing materials that it was a business with offices in all 50 states and that it employed accounting, financial, and legal professionals.
41.
In fact, Top Notch had only two employees, one of whom was Donadio, and its website and social-media marketing were conducted primarily by Cavalli. Top Notch did not have offices, and did not employ any professional staff. 42.
Defendants’ misrepresentations regarding the scope of their business and its professional staff are material because they would influence a consumer acting reasonably in deciding whether to do business with Top Notch and Defendants. 43.
Defendants represented in their marketing materials that consumers could receive cash proceeds from Top Notch’s loans within as little as one hour. Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 7 of 9
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44.
In fact, there was no reasonable prospect that consumers would or could receive funds that fast through a transaction brokered by Defendants. 45.
Theses misrepresentations were material. A reasonable consumer might well consider when he or she would receive funds in determining whether to pursue or use the credit product Defendants offered. 46.
Indeed, consumers considering transactions with Defendants were those with more immediate needs for cash than could be met by the payouts they were eventually due.
47.
Defendants therefore engaged in deceptive acts and practices, in violation of the CFPA. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B). DEMAND FOR RELIEF Plaintiff requests that the Court:
a.
enjoin Defendants from committing future violations of the CFPA; b.
award damages or other monetary relief against Defendants; c.
order Defendants to pay redress to consumers; d.
offer disgorgement of ill-gotten revenues by Defendants; e.
impose civil money penalties on Defendants under the CFPA; f.
order Defendants to pay the costs incurred in connection with prosecuting this action; and g.
award additional relief as the Court may determine to be just and proper. Respectfully submitted, ANTHONY ALEXIS Enforcement Director JEFFREY PAUL EHRLICH Deputy Enforcement Director Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 8 of 9
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JOHN C. WELLS Assistant Litigation Deputy s/Benjamin Konop BENJAMIN KONOP (Ohio Bar No. 0073458) Enforcement Attorney Consumer Financial Protection Bureau 1700 G Street, NW Washington, D.C. 20552 Telephone: 202-435-7265 Facsimile: 202-435-7722 e-mail: [email protected] Attorneys for Plaintiff Consumer Financial Protection Bureau Case 1:17-cv-07114 Document 1 Filed 09/19/17 Page 9 of 9
Stipulation ()
PDF of this document (7 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK CONSUMER FINANCIAL PROTECTION BUREAU, Case No. 1:17-cv-7114-GHW Plaintiff, v.
TOP NOTCH FUNDING II, LLC , RORY DONADIO, AND JAMES “GENE” CAVALLI, Defendants.
Stipulated Final Judgment and Order The Consumer Financial Protection Bureau (“Bureau”) commenced this civil action against Defendants on September 19, 2017, to obtain injunctive and other relief. The Complaint alleges deceptive acts and practices in violation of § 1036(a)(1)(B) of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5536(a)(1)(B). The Bureau and Defendants Rory Donadio, James “Gene” Cavalli, and Top Notch Funding II, LLC, have requested that the Court enter this Stipulated Final Judgment and Order (“Order”). Introduction 1.
The Bureau and Defendants consent that this Court has jurisdiction over the parties and the subject matter of this action.
2.
The Bureau and Defendants agree to entry of this Order, without adjudication of any issue of fact or law, to settle and resolve all matters in this dispute arising from the conduct alleged in the Complaint to the date this Order is entered. 3.
Defendants neither admit nor deny any allegations in the Complaint, except as specifically stated in this Order.
1/30/18 USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #:
DATE FILED:
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4.
Defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Defendants also waive any claim they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each party will bear its own costs and expenses, including without limitation attorneys’ fees. 5.
The Bureau and Defendants waive findings of fact and conclusions of law. Definitions
6.
The following definitions apply to this Order: a.
“Complaint” means the Complaint filed in this action. b.
“Defendants” means Donadio, Cavalli, and Top Notch Funding II, LLC, or any of them individually or together.
c.
“Effective Date” means the date on which the Order is entered on the docket.
d.
“Post-Settlement Litigation Funding” means advancing funds to consumers who are awaiting payment from settled litigation. e.
“Victim Compensation Fund Funding” means advancing funds to consumers who are awaiting payment from a governmentally created victim-compensation fund.
f.
“Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Defendants based on substantially the same facts as described in this Order or the Complaint.
Order I.
Conduct Prohibition 7.
Defendants and their officers, agents, servants, and employees who have actual notice Case 1:17-cv-07114-GHW Document 21 Filed 01/30/18 Page 2 of 7
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of this Order, whether acting directly or indirectly, may not violate §§ 1031 and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531, 5536(a)(1)(B). 8.
Defendants shall be permanently banned from any participation, whether direct or indirect, in Post-Settlement Litigation Funding and Victim Compensation Fund Funding, including but not limited to offering, brokering, or providing credit or advances of funds to consumers entitled to payments from settlements or victim-compensation funds that forbid assignments of proceeds. II.
Monetary Provisions 9.
Defendant Cavalli must pay a civil money penalty of $12,500 by wire transfer to the Bureau or the Bureau’s agent in compliance with the Bureau’s wiring instructions within 30 days of the Effective Date.
10.
Defendants Donadio and Top Notch Funding II, LLC, jointly and severally, must pay a civil money penalty of $62,500 by wire transfer to the Bureau or the Bureau’s agent in compliance with the Bureau’s wiring instructions. Of this amount, Defendants Donadio and Top Notch Funding II, LLC, must pay $20,000 within 30 days of the Effective Date and the remaining $42,500 within 120 days of the Effective Date.
11.
The penalties imposed in this Order take into account Defendants’ limited financial resources, which is a mitigating factor under § 1055(c)(3)(A) of the CFPA. 12.
Defendants must treat the civil money penalties paid under this Order as penalties paid to the government for all purposes. Defendants may not: a.
claim, assert or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or b.
seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order. Case 1:17-cv-07114-GHW Document 21 Filed 01/30/18 Page 3 of 7
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III.
Additional Monetary Provisions 13.
In the event of any default on Defendants’ obligations to make payments under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment and will immediately become due and payable.
14.
Defendants must relinquish all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Defendants.
15.
Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Defendants must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that Defendants paid or are required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.
IV.
Reporting Requirements 16.
Defendants must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to the filing of any bankruptcy or insolvency proceeding by or against Defendants; or a change in Defendants’ name or address. Defendants must provide this notice, if practicable, before the development, but in any event no later than 14 days after the development.
17.
Within 10 days of the Effective Date, each Defendant shall notify the Bureau of Defendant’s: (a) current residence, postal address, email address, and telephone number; and (b) current role in any business activity, including any business for which they provide services, whether as an employee, officer, or otherwise, and any entity in which Defendant has any ownership interest, identifying for each its name, physical address, and internet address. Case 1:17-cv-07114-GHW Document 21 Filed 01/30/18 Page 4 of 7
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18.
For 2 years from the Effective Date, each Defendant shall notify the Bureau of (a) any change in name, including aliases or fictitious names; (b) any change in residence, postal address, email address, or telephone number; or (c) any change in title or role in any business activity, including any business for which Defendant provides services, whether as an employee, officer, or any otherwise, and (d) any entity in which Defendant has any ownership interest, identifying for each its name, physical address, and internet address. V.
Notices
19.
Unless otherwise directed in writing by the Bureau, respectively, Defendants must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “In re Top Notch Funding II, LLC” and send them to the following address:
a.
By overnight courier (not the U.S. Postal Service), as follows: Assistant Director for Enforcement Consumer Financial Protection Bureau ATTN: Office of Enforcement 1700 G St., NW Washington, D.C. 20552
b.
By first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTN: Office of Enforcement 1700 G St., NW Washington, D.C. 20552
VI.
Cooperation with the Bureau
20.
Defendants must cooperate fully with the Bureau in this matter and in any investigation related to or associated with the conduct described in the Complaint. Defendants must Case 1:17-cv-07114-GHW Document 21 Filed 01/30/18 Page 5 of 7
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provide to the Bureau truthful and complete information, evidence, and testimony. Defendants must appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 5 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process. VII.
Compliance Monitoring 21.
Within 14 days of receipt of a written request from the Bureau, Defendants must submit compliance reports or other requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents.
22.
Nothing in this Order will limit the Bureau’s lawful use of compulsory process under 12 C.F.R. § 1080.6.
VIII. Administrative Provisions 23.
The provisions of this Consent Order do not bar, estop, or otherwise prevent the Bureau, or any other governmental agency, from taking any other action against Defendants, except as described in Paragraph 24.
24.
The Bureau releases and discharges Defendants from all potential liability for law violations that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. The Bureau may use the practices described in the Complaint in future enforcement actions against Defendants, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau to determine and ensure compliance with this Order, or to seek penalties for any violations of this Order.
25.
Calculation of time limitations will run from the Effective Date and will be based on Case 1:17-cv-07114-GHW Document 21 Filed 01/30/18 Page 6 of 7
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calendar days, unless otherwise noted.
26.
Should Defendants seek to transfer or assign all or part of their operations that are subject to this Order, Defendants must, as a condition of sale, obtain the written agreement of the transferee or assignee to comply with all applicable provisions of this Order. 27.
This Order contains the complete agreement between the parties. The parties have made no promises, representations, or warranties other than what is contained in this Order. This Order supersedes any prior oral or written communications, discussions, or understandings. 28.
Nothing in this Order may be construed as allowing Defendants or their officers or employees to violate any law, rule, or regulation. IX.
Retention of Jurisdiction 29.
The Court will retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
IT IS SO ORDERED.
Dated: January 30, 2018 New York, New York
____________________________________
GREGORY H. WOODS
United States District Judge
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