Opinion
Index No. 034916/2023
03-25-2024
Newco Capital Group VI LLC, Plaintiff, v. K Transco Inc. DBA TRANSCO; FASHION ADCT LLC AND KIRSTIN KORNIJENKO, Defendants.
Unpublished Opinion
David Fried, J.
The papers filed electronically via NYSCEF numbered 44-53, 57-61, and 63 ("Motion") were read and considered herein. Upon such reading and consideration, the Motion is disposed as follows:
BACKGROUND
This action was commenced by way of the filing of a Summons and Complaint on October 4, 2023. The underlying action seeks damages based on an alleged breach of a purported Merchant Cash Advance Agreement ("Agreement") entered into between the parties on or about June 7, 2023. Plaintiff alleges that pursuant to the Agreement, Defendants K Transco Inc. DBA Transco and Fashion ADCT LLC (collectively, "Defendant Company") agreed to sell to Plaintiff NEWCO Capital Group VI LLC ("Plaintiff") $72,000.00 of their future receivables, to be remitted to Plaintiff at a rate of 4% of the weekly collected receivables of Defendant Company. Additionally, Defendant Kristin Kornijenko ("Guarantor" and, together with Defendant Company, "Defendants") agreed to personally guaranty Defendant Company's performance pursuant to the Agreement. The Agreement purportedly further provides that in the event that Defendant Company sought a reconciliation, and was entitled to one pursuant to the Agreements, Plaintiff was required to perform such a reconciliation.
Defendants have filed an Answer with affirmative defenses to the Complaint. Plaintiff now moves for summary judgment against all Defendants. Defendants oppose said motion. While Defendants initially cross-moved for additional relief, they have since withdrawn their cross-motion. As such, this Court will only address that portion of NYSCEF Doc. No. 57, and its exhibits, which pertains to Defendants' opposition to Plaintiff's Motion for Summary Judgment (Motion Sequence No. 2).
PARTIES' CONTENTIONS
Plaintiff, in support of its summary judgment motion, submits the Agreement (NYSCEF Doc. 48). Plaintiff also submits the Affidavit of Phillip Scaglione ("Scaglione"), the manager of Plaintiff, who asserts the following: that his job duties include the maintenance of the relevant account records; that on June 7, 2023, Defendant Company and Plaintiff entered into the Agreement, which provided that Defendant Company would sell future receivables and sale proceeds, with a face value of $72,000.00, for the sum of $50,000.00 to Plaintiff; that pursuant to the Agreement, Defendant Company would pay Plaintiff by ensuring that its sale proceeds and receivables were deposited into a designated bank account, permitting Plaintiff to electronically debit from said account 4% of their weekly sales proceeds until Plaintiff collected the $72,000.00; that on June 7, 2023, Plaintiff deposited $50,000.00, less applicable fees, into Defendant Company's account, as evidenced by the proof of funding attached to the Scaglione affidavit (NYSCEF Doc. 46).
Subsequently, Scaglione contends that Defendant Company performed some of its obligations, by having remitted $44,400.00 of the sale proceeds to Plaintiff between June 7, 2023 and September 27, 2023. Mr. Scaglione further contends that on September 27, 2023, Plaintiff was denied access to the authorized account. Plaintiff alleges that Defendants still owe Plaintiff the balance of $27,600.00 and that Defendants have incurred, as per the terms of their Agreement, a default fee of $3,000.00, NSF fee of $140.00, plus $8,280.00 in attorneys' fees; thus totaling $39,020.00. The Agreement is signed by Defendants. Based on the foregoing, Plaintiff contends that it has established its prima facie entitlement to summary judgment on its causes of action for breach of contract and breach of the personal guarantee.
In opposition to Plaintiff's Motion for Summary Judgment, Defendants contend that Scaglione does not have personal knowledge of the Plaintiff's business, that his affidavit is hearsay, and that Scaglione does not provide detailed testimony of Plaintiff's routine and regular business conduct. Defendants further contend that Scaglione does not testify to the following: that Plaintiff has a habitual and systemic routine to make the records attached to Plaintiff's motion; that Plaintiff has a habit or routine to ensure that the records were made at or near the time of the event.; that Scaglione has a business duty to maintain these records; whether any third parties are involved in this case; to the identity of third parties that transmit information; and what information was transmitted to Plaintiff.
Defendants also argue that the agreement at issue has all indicia of being a loan. Defendants also argue that the transaction between the parties was not a purchase of receivables but, rather, it was disguised to conceal that it was a criminally usurious and unenforceable loan that charged interest at rates in excess of twenty-five percent (25%) in violation of NY Penal Law §190.40 and that the transaction is criminally usurious per se and unconscionable as a matter of law.
In reply, Plaintiff contends that Scaglione's affidavit demonstrates the following: that Scaglione maintained personal knowledge of the records and the contents therein; that the record reflects a regularly conducted business activity; that the record was made in the regular course of business; and that the record states that it was made at the time of said business activity. Plaintiff also contends the following: that Defendants are operating making and selling food; that they are generating revenue, and in fact have collected hundreds of thousands of dollars in revenue since the breach, and failed to remit a single dollar to Plaintiff; that there is no dispute that Defendants earned revenue and failed to remit the specified percentage of receivables to Plaintiff, and thereby breached the Agreement; and that the Agreement is not a loan.
DISCUSSION
The remedy of summary judgment is a drastic one and it should only be granted when it is clear no triable issue of material fact exists. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 508 N.Y.S.2d 923 (1986); Andre v. Pomeroy, 35 N.Y.2d 361, 362 N.Y.S.2d 131 (1974). On a motion for summary judgment, the proponent "must make prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case." Winegrad v. New York Univ. Med. Center, 64 N.Y.2d 851, 852, 487 N.Y.S.2d 316, 317 (1985); Zuckerman v. City of New York, 49 N.Y.2d 557, 427 N.Y.S.2d 595 (1980). Once such a showing has been made, the burden of proof shifts such that an opponent to a motion for summary judgment must demonstrate the existence of a genuine triable issue of fact. Alvarez, supra.
The papers submitted in support of and in opposition to a summary judgment motion should be scrutinized in a light most favorable to the party opposing the motion. Dowsey v. Megerlan, 121 A.D.2d 497, 503 N.Y.S.2d 591 (2d Dept. 1986); Gitlin v. Chirkin, 98 A.D.3d 561, 949 N.Y.S.2d 712 (2d Dept. 2012). As summary judgment is the procedural equivalent of a trial, if there is any doubt as to the existence of a triable issue of fact, or where a material issue of fact is even "arguable", the motion must be denied. Phillips v. Kantok & Co., 31 N.Y.2d 307, 338 N.Y.S.2d 882 (1982); Andre, supra. However, mere conclusions or unsubstantiated allegations unsupported by competent evidence are insufficient to raise a triable issue. Gilbert Frank Corp. v. Federal Ins. Co., 70 N.Y.2d 966, 525 N.Y.S.2d 793 (1988).
The essential elements of a breach of contract cause of action are "the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of that contract, and resulting damages." Liberty Equity Restoration Corporation v. Park, 160 A.D.3d 628, 630, 75 N.Y.S.3d 47 (2d Dept. 2018). Here, Plaintiff has established its prima facie entitlement to summary judgment on its breach of contract cause of action. There is no dispute that the parties entered into a contract; Plaintiff deposited the initial monies into Defendants' account; Defendants failed to pay the full amount of monies owed pursuant to the contract and or otherwise comply with the notice provisions; and Plaintiff was damaged as a result of the breach. Plaintiff demonstrated its entitlement to summary judgment by virtue of the contract, Affidavit of Scaglione, and the account statement.
In opposition thereto, Defendants have not demonstrated a triable issue of fact sufficient to deny summary judgment. Defendants have made no showing that the transaction was entered into due to fraud or duress; Nor is the Agreement considered to be a loan. In New York, there is a presumption that a transaction is not usurious and as a result, claims of usury must be proven by clear and convincing evidence, a much higher standard than the usual preponderance. Giventer v. Arnow, 37 N.Y.2d 305, 372 N.Y.S.2d 63, 67 (1975). Significantly, usury laws apply only to loans or forbearance, not investments. NY Capital Asset Corp., v. F & B Fuel Oil Co., Inc., 58 Misc.3d 1229 (A), 2018 NY Slip Op. 50310(u) (Sup Ct. Westchester County 2018). Thus, if the transaction is not a loan, there can be no usury, however unconscionable the contract may be. Id.; Seidel v. 18 E. 17th St. Owners, 79 N.Y.2d 735, 744, 586 N.Y.2d 240 (1992). See also LG Funding, LLC v. United Senior Props of Olathe, LLC, 181 A.D.3d 664, 665, 122 N.Y.S.3d 309 (2d Dept. 2020).
Whether a transaction constitutes a usurious loan requires the agreement to be "considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it." Ujueta v. Euro-Quest Corp., 29 A.D.3d 895, 814 N.Y.S.2d 551 (2d Dept. 2006). In determining whether a transaction is a loan or not, the Court must examine whether or not defendant is absolutely entitled to repayment under all circumstances. K9 Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc.3d 807, 57 N.Y.S.3d 625, 632 (Sup. Ct. Westchester County 2017). "For a true loan it is essential to provide for repayment absolutely and at all events or that the principal in some way be secured as distinguished from being put in hazard." Id.; Rubenstein v. Small, 273 App.Div. 102, 104, 75 N.Y.S.2d 483 (1st Dept. 1947). Hence, there can be no usury unless the principal sum advanced is repayable absolutely. Capital Asset Corp., v. F & B Fuel Oil Co., Inc., 58 Misc.3d 1229 (A), 2018 NY Slip Op. 50310(u)(Sup Ct. Westchester County 2018). When payment or enforcement rests on a contingency, the agreement is valid though it provides for a return in excess of the legal rate of interest. Id.
Purchases and sales of future receivables and sales proceeds are common commercial transactions expressly contemplated by the Uniform Commercial Code. NY Capital Asset Corp., v. F & B Fuel Oil Co., Inc., 58 Misc.3d 1229 (A), 2018 NY Slip Op. 50310(u)(Sup. Ct. Westchester County 2018). Id. Other courts addressing such agreements have considered and rejected similar arguments as have been made here and found that the agreements to purchase receivables were not loans. See Ibis Capital Group, LLC v. Four Paws Orlando LLC, 2017 WL 1065071, 2017 N.Y.Slip Op. 30477(u)(Sup. Court, Nassau County 2017); Capital Asset Corp., v. F & B Fuel Oil Co., Inc., 58 Misc.3d 1229 (A), 2018 NY Slip Op. 50310(u)(Sup Ct. Westchester County 2018); Rapid Capital Finance, LLC v. Natures Market Corp., 66 N.Y.S.3d 797, 2017 N.Y.Slip Op. 27340 (Sup. Ct. Westchester Co. 2017); K9 Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc.3d 807, 57 N.Y.S.3d 625, 632 (Sup. Ct. Westchester County 2017).
Here, the Agreement does not have a specified time for repayment and the daily amounts to be received are contingent in nature. (See, Principis Capital, LLC v. I Do, Inc., 201 A.D.3d 752, 160 N.Y.S.3d 325[(2d Dept. 2022]). Therefore, considering the Agreement itself, and the factors which various courts have considered when determining whether an agreement is a loan, this Court finds that the Agreement at issue is not a loan subject to charges of usury.
Defendants also have not demonstrated a triable issue of fact sufficient to deny summary judgment relating to Scaglione's affidavit. Scaglione attested to, among other things, being a manager of the Plaintiff and that in said capacity has access to the records relating to the Defendants which were maintained in the ordinary course of regularly conducted business activity. Scaglione also attested to the following: to making his affidavit based upon his review of said records relating to the Defendants and from his own personal knowledge of how they are kept and maintained; and that said records are maintained by Plaintiff during its regularly conducted business activities and are made at or near the time of the event, by or from information transmitted by a person with knowledge.
Accordingly, Defendant is entitled to $27,600.00 (the balance remaining on the contract) and the NSF fee of $140.00, totaling $27,740.00.
"The Default Fee, however, is an unenforceable penalty. Here, the amount of damages upon a breach is readily ascertainable: it is the sum remaining due on the factoring agreement. Plaintiffs in this industry are unquestionably capable and able to calculate the amount due on a default, as continuously illustrated by the plethora of cases of this type filed in the [Ninth] Judicial District." See, Byzfunder NY LLC v. Holy City Collision LLC, 80 Misc.3d 1208 (A), 194 N.Y.S.3d 924 (Sup Ct Ontario Cty, 2023)
Plaintiff is also requesting a fixed attorney's fee award of 30% of the balance of the amount due. However, the Supreme Court is not bound by the fixed percentage set forth in the contract but has the inherent authority to determine reasonable attorneys' fees. Orix Credit Alliance Inc. v. Grace Industries, Inc., 261 A.D.2d 521, 521-522, 690 N.Y.S.2d 651 (2d Dept. 1999); Prince v. Schacher, 125 A.D.3d 626, 628, 2 N.Y.S.3d 585 (2d Dept. 2015). Thus, an award of attorneys' fees pursuant to a contractual provision may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered. Kamco Supply Corp. v. Annex Contracting Inc. 261 A.D.2d 363, 689 N.Y.S.2d 189 (2d Dept. 1999); Lupo v. Anna's Lullaby Café, LLC, 189 A.D.3d 1205, 138 N.Y.S.3d 103 (2d Dept. 2020); Coffey v. Tretola, 179 A.D.3d 889, 890, 119 N.Y.S.3d 179 (2d Dept. 2020).
Accordingly, "a fixed percentage fee, as requested here, is viewed only as a maximum fee, limiting the amount of reasonable attorney's fees which the plaintiff may charge upon proving the extent of the necessary services." Mead v. First Trust & Deposit Co., 60 A.D.2d 71, 78, 400 N.Y.S.2d 936 (4th Dept. 1977). An award of reasonable attorneys' fees is within the sound discretion of the court, based upon such factors as the time and labor required, the difficulty of the issues involved, and the skill and effectiveness of counsel. SO/Bluestar LLC v. Canarsie Hotel Corp., 33 A.D.3d 986, 825 N.Y.S.2d 80, 82 (2d Dept. 2006).
Plaintiff may be entitled to recover an attorney's fee of a fixed percentage if it can demonstrate that the quality and quantity of the legal services rendered were such as to warrant, on a quantum meruit basis, that full percentage . Industrial Equipment Credit Corp. v. Green, 92 A.D.2d 838, 460 N.Y.S.2d 337 (1st Dept. 1983). If the plaintiff does not make that demonstration, then a reasonable attorney's fee should be set by the court upon a quantum meruit basis. Id. Where the value of the legal services rendered by Plaintiff's counsel is not evident from the record, the matter may be remanded for an assessment of those damages. Id. Here, Plaintiff has offered absolutely no evidence, by way of billing statements or otherwise, the amount of time expended by counsel related to its pursuit of this debt.
Since a quantum meruit award cannot be issued on this record, Plaintiff is accorded thirty (30) days from today's date to provide an affirmation and billing statements to this Court as proof of the time spent to litigate this action if it intends to seek attorney's fees. Otherwise, Plaintiff may enter judgment against Defendants in the amount of $27,740.00, plus pre-judgment interest at 9% from the September 27, 2023, to the date of entry of judgment, post-judgment interest, costs and disbursements as taxed by the Rockland County Clerk.
In light of the foregoing, it is hereby
ORDERED, that Motion Sequence No. 2 for Summary Judgment against Defendants is GRANTED; and it is further
ORDERED, that Plaintiff may submit an affirmation and billing statements as proof of time spent in connection with its request for an award of attorney's fees within thirty (30) days from the date of this Order and, upon failure to do so, the request for an award of attorney's fees will be deemed to be waived; and it is further
ORDERED, that Plaintiff may enter judgment against Defendants jointly and severally in the amount of $27,740.00 plus pre-judgment interest at 9% from September 27, 2023, to the date of entry of judgment, with costs and expenses as taxed by the Rockland County Clerk, without further leave of Court.
The foregoing constitutes the Decision and Order of this Court.