The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:24-CV-710-BO-BM
A&C GAMING, LLC, ALEXI CLAUDIO, )
and CINNAMON CLAUDIO, )
)
Plaintiffs, )
)
V. ) ORDER
)
BHG FINANCIAL, LLC f/k/a BANKERS )
HEALTHCARE GROUP, LLC, )
)
)
Defendant. )
This cause comes before the Court on defendant’s partial motion to dismiss [DE 19] and
defendant’s motion for partial judgment on the pleadings [DE 27]. The appropriate responses and
replies have been filed, and a hearing on the motions was held before the undersigned on August
8, 2025, at Elizabeth City, North Carolina. In this posture, the motions are ripe for ruling. For the
following reasons, the partial motion to dismiss is denied and the motion for partial judgment on
the pleadings is granted.
BACKGROUND
Plaintiff A&C Gaming sought financing to open a gaming café. [DE 1-5, 4 15]. On A&C’s
dehal f, plaintiff Alexi Claudio, sole mernser and officer of A&C, submitted a credit application to
defendant, BHG Financial. at §§ 6, 19. BHG required a guarantor on the loan. /d. at □ 28.
Therefore, plaintiff Cinnamon Claudio, Alexi’s wife, cosigned the loan. /d. at 7 30. The financing
agreement contained a choice of law provision naming Florida. /d. at § 39. Plaintiffs’ claims are
(1) a declaratory judgment establishing the original loan agreement as usurious, (2) an Equal Credit
Opportunity Act claim for discrimination on the basis of marital status, and (3) violation of North
Carolina Unfair and Deceptive Trade Practices Act. BHG’s motion to dismiss [DE 10] attempts to
dispose of plaintiffs’ first and third claims, for declaratory judgment and violation of the North
Carolina Unfair and Deceptive Trade Practices Act, which plaintiffs bring on the theory that certain
withheld fees associated with the loan should be construed to push the interest rate above the rate
constituting usury. The motion for judgment on the pleadings [DE 27] attempts to dispose of the
second claim, brought under the Equal Credit Opportunity Act on the theory that BHG, by
requiring Cinnamon to cosign the loan, discriminated unlawfully based on marital status. In BHG’s
answer, it counterclaims breach of loan agreement against A&C and breach of personal guaranty
against Alexi and Cinnamon. [DE 12].
ANALYSIS
I. Partial Motion to Dismiss
A 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted
tests the complaint’s legal and factual sufficiency. See Fed. R. Civ. P. 12(b)(6). The focus is on
the pleading requirements under the Federal Rules, not the proof needed to succeed on a claim.
“Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim
showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the
... claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007). This standard does not require detailed factual allegations, ACA Fin. Guar. Corp. v. City
of Buena Vista, Virginia, 917 F.3d 206, 212 (4th Cir. 2019), but it “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Nadendla v. WakeMed, 24 F.4th
299, 305 (4th Cir. 2022). “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 Twombly, 550 U.S. at 570). For a claim to be plausible,
its factual content must allow the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.
The parties agree that because of the financing agreement’s choice of law provision,
Florida law applies to this dispute. [DE 12, 75].
a. Declaratory Judgment Claim
The four elements of a usurious transaction are
1. A loan, either express or implied.
2. An understanding between the lender and the borrower that the money must be
repaid.
3. For such loan a greater rate of interest than is allowed by law shall be paid or
agreed to be paid.
4. There must be a corrupt intent on the part of the lender to take more than the
legal rate of interest for the use of the money loaned.
Rebman y. Flagship First Nat. Bank of Highlands Cnty., 472 So. 2d 1360, 1362 (Fla. Dist. Ct.
App. 1985). Florida’s usury statutes further clarify,
“the rate of interest on any loan . . . shall be determined and computed upon the
assumption that the debt will be paid according to the agreed terms . . . and any
payment or property charged, reserved, or taken as an advance or forbearance,
which is in the nature of, and taken into account in the calculation of, interest shall
be valued as of the date received and shall be spread over the stated term of the
loan.”
Fla. Stat. § 687.03(3). St. Petersburg Bank & Trust Co. v. Hamm, 414 So. 2d 1071, (Fla. 1982)
explains how to calculate a loan’s effective interest rate given a qualifying withholding of principal
that is in the nature of interest under Fla. Stat. § 687.03(3). First, the withheld amount is divided
by the stated principal amount of the loan and the quotient is expressed as a percentage. In the
present case, $20,050 in transaction fees divided by a $267,050 principal amount yields a rounded
7.5%. That figure is then divided by the number of years in the term — here, 10 years. 7.5% divided
by 10 is 0.75%. This figure is added to the annual interest rate on the face of the note. Hamm, 414
So. 2d at 1073.
Plaintiffs, correctly applying Hamm’s construction of the statutory methodology, arrived
at an effective interest rate of 18.24%. The issue is whether this kind of alternative calculation for
an effective interest rate is appropriate in the first place. Not every withholding of loan proceeds
triggers interest rate recalculation for usury purposes. For example, Rebman v. Flagship First Nat.
Bank of Highlands Cnty., 472 So. 2d 1360 (Fla. Dist. Ct. App. 1985), involved an optional deposit
of loan proceeds into a non-interest-bearing escrow account. The court reasoned,
“any amounts advanced by a lender which directly or indirectly benefit the
borrower—as well as any amounts directly received by a borrower—should be a
part of the principal used for calculating interest under our usury law. That being
so, although the escrowed monies never passed through Rebman's hands, they were
used exclusively to benefit her in the payment of her monthly principal and interest
obligation. Consequently, we find appellant's argument that the escrow accounts
were in fact compensating balance or interest reserve accounts established for the
bank's benefit is without merit.”
472 So. 2d at 1363.
The fact that the withholding was voluntary and the fact that it benefitted exclusively the
debtor appear essential to the Rebman court’s decision not to recalculate the interest rate. /d.
Contrastingly, in Velletri v. Dixon, the court recalculated the interest rate where a creditor’s
retention of significant loan proceeds was mandatory, and the withholding sought to incentivize
the debtor to perform proposed renovations. 44 So. 3d 187, 189 (Fla. Dist. Ct. App. 2010).
Plaintiffs have met the burden of alleging facts that make an inference of usury plausible.
They allege that the withholding was accompanied by no abatement in interest, [DE 1-5, § 47] and
it is plain that at least some of the withheld amount was intended “to ensure that BHG Financial
has a perfected lien in the assets of the Debtor’s business.” [DE 1-5, Ex. 6]. Since the withholding
was not “exclusively to benefit” the debtor, it is at least plausible that it should escape the non-
interest characterization of the withheld amounts in Rebman.
Because the element of “corrupt intent does not require . . . a specific intention” to violate
usury statutes, see Saralegui v. Sacher, Zelman, Van Sant Paul, Beily, Hartman & Waldman, P.A.,
19 So. 3d 1048, 1051 (Fla. Distr. Ct. App. 2009), but rather a general intent to charge an effective
interest rate that exceeds the statutory limit, and given that plaintiffs have plausibly alleged the
loan at issue charged a usurious effective rate, they have satisfied their pleading standard as to the
latter two elements of usury. The parties agree that the first two are satisfied.
b. North Carolina Unfair and Deceptive Trade Practices Act
North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), codified at N.C.G.S.
§ 75-1.1, makes unfair methods of competition in or affecting commerce unlawful. “The elements
for a claim for unfair or deceptive trade practices are: ‘(1) an unfair or deceptive act or practice, or
an unfair method of competition, (2) in or affective commerce, (3) which proximately caused
actual injury to the plaintiff or to his business.’” Noble v. Hooters of Greenville (NC), LLC, 199
N.C. App. 163, 166 (2009). What constitutes an unfair or deceptive trade practice is a question of
law. Gray v. N.C. Ins. Underwriting Ass'n, 352 N.C. 61, 68 (2000). “Either unfairness or deception
can bring conduct within the purview of the statute” and, as a result, act need not be beth unfair
and deceptive.” Gilbane Bldg. Co. v. Fed. Rsrv. Bank of Richmond, Charlotte Branch, 80 F.3d
895, 903 (4th Cir. 1996) (citing Rucker v. Huffman, 99 N.C. App. 137 (1990)). Violations of the
North Carlina usury statute constitute unfair trade practices. See, e.g., State ex rel. Cooper v. NCCS
Loans, Inc., 174 N.C. App. 630, 641 (2005); Gilbert v. Residential Funding LLC, 678 F.3d 271
(4th Cir. 2012).
Plaintiffs argue their UDTPA claim on three theories. First, by alleging usury, they have
alleged a UDTPA violation because usury is unfair. Second, by alleging discrimination based on
marital status in violation of the ECOA, they have alleged an unfair trade practice. Third, those
same allegations of discrimination based on marital status are sufficient to establish a North
Carolina claim prohibiting the use of any discriminatory practices associated with the extension of
credit to North Carolina citizens, which could similarly be a per se basis for finding a UDTPA
violation. As discussed below, the facts pled do not raise a plausible inference of unlawful
discrimination based on marital status, and so only plaintiffs’ first theory need be discussed.
BHG contends that its alleged violation of Florida’s usury statute escapes designation as
an unfair trade practice in North Carolina because it is not a violation of North Carolina law. The
Court of Appeals of North Carolina, in Wall v. Automoney, Inc., 284 N.C. App. 514, (2022),
encountered the question of whether a choice of law provision allows a transaction to circumvent
the application of the UDTPA. There, because the legislature intended that the UDTPA be
construed broadly to protect the citizens of North Carolina, and because the choice of law provision
would deprive the plaintiffs of protection by North Carolina’s usury law, the Court of Appeals
found sufficient allegations for the UDTPA claim to survive a 12(b)(6) motion to dismiss. Jd. at
526-28.
BHG argues, because the loan at issue would not violate North Carolina’s usury statute if
that law were applicable, that the choice of law provision naming Florida does not deprive
plaintiffs of any protection to which they would otherwise be entitled. Moreover, applying the
UDTPA to violations of other states’ laws would expand its scope beyond what the legislature
intended. This is a compelling argument with respect to the choice of law issue. It does not follow,
however, that a violation of a contract’s governing law is unfair for the UDTPA’s purposes only
when that discrete violation is also proscribed by North Carolina law. The parties attempted to
benefit from their choice of law provision. Along with the benefits of Florida’s law comes a usury
statute which, as applied to the loan at issue, is more stringent than North Carolina’s. When Florida
law governs an instrument, Florida law is also best suited to determine what practices make the
instrument unfair. Usury is a practice sufficiently unfair to support a claim under the UDTPA, and
plaintiffs have alleged usury sufficiently to survive a 12(b)(6) motion to dismiss. Therefore, their
UDTPA claim based on usury is also pled sufficiently to survive defendant’s motion to dismiss.
II. Partial Motion for Judgment on the Pleadings
A motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) allows for a party to
move for entry of judgment after the close of the pleadings stage, but early enough so as not to
delay trial. Fed. R. Civ. P. 12(c). Courts apply the Rule 12(b)(6) standard when reviewing a motion
under Rule 12(c). Mayfield v. Nat’ 1 Ass’ n for Stock Car Auto Racing, Inc., 674 F.3d 369, 375 (4th
Cir. 2012). “Judgment on the pleadings is not properly granted unless the moving party has clearly
established that no material issue of fact remains to be resolved and the party is entitled to judgment
as a matter of law.” United States v. Any & all Radio Station Transmission Equip., 207 F.3d 458,
462 (8th Cir. 2000).
Plaintiffs assert a claim under the Equal Credit Opportunity Act, ECOA, alleging that BHG
required a cosigner on Alexi’s loan because he was married. The ECOA makes it unlawful for
“any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction
...on the basis of... marital status.” 15 U.S.C. § 1691(a)(1). Regulation B, codified in 12 C.F.R.
§ 202, et seg., contains a “spouse-guarantor rule,” prohibiting credlitors from requiring an
applicant’s spouse to cosign the applicant’s credit instrument when the applicant is independently
creditworthy. To make out an ECOA claim under the spouse-guarantor rule,
a spouse-guarantor need only prove that [his or] her spouse applied for credit, and
either the creditor “require[d] the signature of [the] applicant’s spouse” if the
applicant was individually creditworthy, or the creditor “required[d] that the spouse
be the additional party” when it determined that the applicant was not
independently creditworthy and would need the support of an additional party.
RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC, 754 F.3d 380, 389 (6"
Cir. 2014) (internal citations omitted).
Plaintiffs have not met the pleading standard as to this claim, and defendants are entitled
to a judgment as a matter of law. To support their allegation that defendant discriminated against
the applicants based on marital status, plaintiffs assert that BHG did not even investigate Alexi’s
independent creditworthiness. [DE 1-5, § 32]. This is no support, but another conclusory
allegation. BHG offers, attached to its answer [DE 12-3], information included in the credit
application, which is relevant to determining applicants’ creditworthiness. BHG provides sound
and lawful reasoning to support denying the loan individually, and requiring a cosigner is a sensible
counteroffer. Furthermore, plaintiffs allege nothing to indicate that BHG would accept only
Cinnamon as a guarantor on the proposed credit. Even if BHG requested that Cinnamon cosign
the loan, to allege that BHG would therefore accept only her guaranty is conclusory. Especially in
light that Alexi did default on the loan, there can be no plausible inference on the pleadings that
the counteroffer to have Cinnamon cosign was discrimination based on marital status.
CONCLUSION
Defendant’s partial motion to dismiss [DE 10] is DENIED. Defendant’s motion for partial
judgment on the pleadings [DE 27] is GRANTED.
SO ORDERED, this y day of September 2025.
TERRENCE W. BOYLE /
UNITED STATES DISTRICT JUDGE