U.S. District Judge James E. Baker on May 18 denied a motion to dismiss filed by Defendants TessPay Services, Inc., TessPay Finance, Inc., and Jeff Mason. The court found that the plaintiff’s Second Amended Complaint sufficiently alleged that the defendants orchestrated the diversion of funds intended for Channel Trade.
Channel Trade Finance 2 SPC, a Cayman Islands company, sued the defendants seeking approximately $14.4 million in damages, plus attorneys’ fees and costs. The core of the dispute centers on a 2022 Factoring Agreement between Channel Trade and the TessPay entities. Under the deal, Channel Trade advanced capital to TessPay Finance to purchase invoices from telecommunications providers, with TessPay Finance agreeing to resell approved invoices back to Channel Trade at a discount.
Channel Trade alleges that TessPay Services personnel, including Mason, breached the agreement by omitting required payment instructions on invoices and by diverting payments to third parties. The complaint alleges that TessPay Services personnel arranged for payments worth about $6.9 million to be diverted away from Channel Trade and into a different company, CPEC Tech Limited.
Additionally, the suit alleges that Mason and other personnel arranged for funds due to Channel Trade to be paid to a different lender, Raisin Bank, to satisfy a separate debt.
Mason, an officer and director of both TessPay entities, signed a Conditional Guaranty in 2021. The guaranty triggered Mason’s personal liability if funds were used for a “fraudulent purpose,” defined as use not approved in an intentionally fraudulent manner.
Mason moved to dismiss Counts 3 and 5, arguing that the complaint failed to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b). He also argued that the guaranty only covered approximately $5.2 million of the total damages claimed.
Judge Baker rejected the argument that Rule 9(b) barred the claims, finding that the complaint identified the individual responsible for the conduct, the transactions involved, the specific amounts diverted, and the entities to which the funds were sent.
The court noted that the complaint alleged Mason knowingly allowed funds to be diverted in a manner not authorized by the agreement, satisfying the particularity requirement.
Regarding TessPay Finance, the court denied the motion to dismiss Counts 1 and 4, which sought to enforce the Limited Repurchase Obligation. This provision required TessPay Finance to buy back uncollected invoices of fraud by TessPay Services personnel or manifest error.
The court found that Channel Trade sufficiently alleged that TessPay Services failed to include required information on invoices and that personnel arranged for payments to be diverted, triggering the repurchase obligation.
TessPay Services also argued that the complaint failed to plausibly allege causation between the omission of payment instructions and the carriers’ non-payment. The court disagreed, finding that the factual allegations were sufficient to withstand dismissal at this stage.
The case is now set for discovery.