Racketeering Lawsuit Against Chargebacks911, Gary Cardone, and Monica Eaton Certified As Class Action

A federal court in Florida has just certified a lawsuit against Chargebacks911, its former CEO Gary Cardone, and its current CEO Monica Eaton as a class action. The lawsuit was filed under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as part of Kneupper & Covey’s ongoing efforts to clean up the payment processing industry. The court’s order is available here.

Damages in the case are expected to exceed $70 million with mandatory RICO trebling, prejudgment interest, and attorney’s fees. This makes the RICO lawsuit a high stakes “bet the company” lawsuit that could recover a large amount for consumers and impose a severe penalty that will make companies in the payments industry think twice about who they do business with.

The lawsuit includes allegations of a fraudulent scheme designed to hide online fraud on consumers by generating large volumes of fake transactions in small dollar amounts. The suit alleges that Chargebacks911 partnered with a man named Johnny DeLuca to offer what it called “VAP” or Value Added Promotions. The Federal Trade Commission and the Florida Attorney General sued Chargebacks911 over this same program last year, resulting in a settlement that banned Chargebacks911 entirely from working with certain kinds of merchants.

Florida Attorney General Ashley Moody called Chargebacks911’s conduct “despicable” and claimed that Chargebacks911 assisted in some of the largest online frauds of the last decade: “Chargebacks911 served numerous companies previously sued by the FTC for deceiving consumers, including Apex Capital, F9 Advertising and AH Media.”

The class certification decision was a pivotal event in the RICO lawsuit. One law professor, Linda Mullenix, who writes textbooks on class actions, has described class certification as follows: “the class certification process is the major, significant litigation event in class litigation, with serious, outcome-determinative effects for everyone. It is the main event.”

Defense attorneys almost universally agree with Professor Mullenix, and for good reason. A case that survives motions to dismiss and gets certified has to be a relatively strong one. And defendants get a preview of their odds on summary judgment – which in this case look especially slim. That’s because when a defendant frontloads their summary judgment arguments into their class certification motion and loses, they’ve essentially lost both motions at once.

That’s especially true in RICO cases. Courts take RICO seriously, and it’s widely known that they “look with particular scrutiny at claims for a civil RICO” because of how powerful the law is. Mackin v. Auberger, 59 F. Supp. 3d 528 (W.D.N.Y. 2014). When a RICO claim gets certified as a class action, it’s not just a warning sign – it’s a flashing emergency siren.

RICO claims can’t be discharged in bankruptcy, so they follow a defendant forever. And even Florida’s famous homestead exemption is no defense to a RICO claim, because the 11th Circuit has ruled it’s preempted by federal law.

Now it’s on to trial, and Kneupper & Covey plans to pursue this case aggressively. The firm’s founders, Kevin Kneupper and Cyclone Covey, both have extensive trial experience. The firm’s associates, recruited from top law schools like Yale and Stanford, are passionate about protecting consumers. As the saying goes, you want your lawyers to be missionaries, not mercenaries. People who care about winning more than billing hours tend to win. And unlike big defense firms, Kneupper & Covey handles a large docket of smaller cases in arbitration specifically to make sure even its younger attorneys get regular experience trying a case to conclusion.

“If you get caught doing something you shouldn’t, the smart move is to accept responsibility and pay a penalty early in the case,” said Kneupper & Covey co-founder Kevin Kneupper. “Getting off on a technicality is what happens on TV shows. It’s almost never reality because everyone sees right through it. If you keep fighting and keep losing, it shows you’re not accepting responsibility, and it shows a higher penalty is needed to deter things. If you’re going to fight a bet the company case, you better be sure you make the right bet.”