Opinion
Index No. 130145-2021
01-07-2022
AMERICAN WATER RESTORATION, INC., and Ernesto Escamilla, Plaintiffs, v. AKF INC., dba Fundkite, Defendant.
David Bowles, Esq., Attorney for Plaintiffs Steven Wells, Esq., Attorney for Defendant
David Bowles, Esq., Attorney for Plaintiffs
Steven Wells, Esq., Attorney for Defendant
J. Scott Odorisi, J.
This plenary action attacks a confession of judgment ("COJ") entered on a merchant cash advance agreement. Pending before this Court are: (1) Plaintiffs’ motion for a preliminary injunction to stop collection measures [NYSCEF Docket # 21 - Motion # 1]; and, (2) Defendant's cross-motion to dismiss, or in the alternative, for summary judgment [Docket # 24 - Motion # 2]. For the reasons set forth hereinafter: (1) Plaintiffs’ motion is DENIED ; and, (2) Defendant's cross-motion to dismiss is GRANTED .
LEGAL DISCUSSION
Plaintiffs cannot receive a preliminary injunction, and Defendant is afforded a dismissal.
Plaintiff's Motion
Plaintiffs are not entitled to a preliminary injunction. See e.g. AH Wines, Inc. v. C6 Capital Funding, LLC , 199 AD3d 1328 (4th Dept 2021) (reversing this Court's issuance of a preliminary injunction in plenary action assailing a factoring agreement). As in the very recent AH Wines, Inc. case, a preliminary injunction also does not lie in this matter. See also Nobu Next Door, LLC v. Fine Arts Hous., Inc. , 4 NY3d 839, 840 (2005) (court considered appropriate factors in determining that they did not warrant a preliminary injunction); Mangovski v. DiMarco , 175 AD3d 947 (4th Dept 2019) (a preliminary injunction was unwarranted).
Preliminary Injunction Standard
Preliminary injunctions can be used to maintain the status quo while a case proceeds to a determination on the merits (see Young v. Crosby , 87 AD3d 1308, 1309 (4th Dept 2011) ), but it is "a drastic remedy [that] is not routinely granted." Sutherland Glob. Services, Inc. v. Stuewe , 73 AD3d 1473, 1474 (4th Dept 2010) (emphasis added). See also Uniformed Firefighters Ass'n of Greater New York v. City of New York , 79 NY2d 236, 241 (1992) (preliminary injunctions should be "issued cautiously "). A party can receive a preliminary injunction only if they demonstrate - by clear and convincing evidence: (1) a likelihood of success on the merits; (2) irreparable injury in the absence of provisional relief; and, (3) a balancing of equities in the movant's favor. See CPLR 6301 & 6313 (a) ; Doe v. Axelrod , 73 NY2d 748, 750 (1988) (preliminary injunction should not have been issued); Robinson Home Products, Inc. v. Oneida, Ltd. , 163 AD3d 1455, 1456 (4th Dept 2018) ; Time Sq. Books, Inc. v. City of Rochester , 223 AD2d 270, 272 (4th Dept 1996). When the facts necessary to establish the cause of action are in sharp dispute, a preliminary injunction should not issue. See Sutton, DeLeeuw, Clark & Darcy v. Beck , 155 AD2d 962, 963 (4th Dept 1989). A motion for a preliminary injunction is addressed to the sound discretion of the trial court. See Destiny USA Holdings, LLC v. Citigroup Global Markets Realty Corp. , 69 AD3d 212, 216 (4th Dept 2009) (denying preliminary injunction).
The above standard will next be applied to Plaintiffs’ motion contentions. See e.g. Aetna Ins. Co. v. Capasso , 75 NY2d 860, 862 (1990) (affirming denial of preliminary injunction); Sutton, DeLeeuw, Clark & Darcy v. Beck , 155 AD2d 962 (4th Dept 1989) (granting of preliminary injunction was abuse of discretion where the plaintiffs failed to prove likelihood of success, irreparable injury, or that equities weighed in their favor).
Likelihood of Success
First, and besides the issues flushed out below with the dismissal cross-motion, Plaintiffs did not prove a clear and convincing likelihood of success. See e.g. W. T. Grant Co. v. Srogi , 52 NY2d 496, 518 (1981) (reversing and denying motion for preliminary injunction); Dwyer v. Citizens United Bank, N.A. , 98 AD2d 954, 955 (4th Dept 1983) (the plaintiff did not make the required showing of probable success necessary to entitle her to a preliminary injunction).
Plaintiffs’ case is premised on two distinct grounds, namely CPLR 3218 and usury. To start with Section 3218, it governs judgments by confession, and provides in pertinent part that:
(a) Affidavit of defendant . Except as provided in section thirty-two hundred one, a judgment by confession may be entered, without an action, either for money due or to become due, or to secure the plaintiff against a contingent liability in behalf of the defendant, or both, upon an affidavit executed by the defendant ;
1. stating the sum for which judgment may be entered, authorizing the entry of judgment, and stating the county where the defendant resides ;
2. if the judgment to be confessed is for money due or to become due, stating concisely the facts out of which the debt arose and showing that the sum confessed is justly due or to become due...
CPLR 3218 (a) (emphasis added).
A CPLR 3218 COJ " ‘is intended to protect creditors of a defendant,’ not the defendant itself.’ " Cash and Carry Filing Serv., LLC v. Perveez , 149 AD3d 578 (1st Dept 2017).
Here, and even assuming Plaintiffs’ standing, Defendant's application to the Ontario County Clerk complied with Section 3218 (a). See e.g. Giryluk v. Giryluk , 23 NY2d 894, 895 (1969) (COJ sufficiently complied with CPLR 3218 ); Spires v. Mihou , 273 AD2d 844, 844 (4th Dept 2000) (rejecting contention that COJ was facially insufficient). The COJ referenced Plaintiffs’ residences, the sum borrowed, and stated the agreement's main terms and date [Docket # 13]. Although the COJ incorporated a party affidavit which contained inaccurate purchase amount information, this mistake did not affect the actual judgment amount, so it is of no legal consequence. Thus, Plaintiffs cannot invoke Section 3218 (a) for any relief. See e.g. Eastman Kodak Co. v. Carmosino , 77 AD3d 1434, 1435 (4th Dept 2010) (Supreme Court did not abuse its discretion in refusing to issue a preliminary injunction).
Plaintiffs’ request to apply CPLR 3218 ’s 2019 New York residence amendment retroactively is erroneous. See Dillon, Practice Commentaries, McKinney's Laws of NY, Book 7B, CPLR 3218, C3218:1, 2019 Supplement.
Plaintiffs’ other relief ground - an alleged usurious loan - does not support an injunction. See e.g. Delphi Hospitalist Services LLC v. Patrick , 163 AD3d 1441 (4th Dept 2018) (affirming order denying preliminary injunction motion). See also General Obligations Law § 5-501 ; Penal Law § 190.40. "Purchases and sales of future receivables and sales proceeds are common commercial transactions expressly contemplated by the Uniform Commercial Code." IBIS Capital Group, LLC v. Four Paws Orlando LLC , 2017 WL 1065071, *2 (Nassau Co Sup Ct 2017). Plaintiffs’ case hinges on the true nature of the transaction as:
’The question in each case is, and necessarily must be, whether the agreement be fair and reasonable , or a mere device to evade the usury statutes "what we have to find in the transaction is the intention of the parties. *** It was early recognized by the courts than if the form of the contract were to be controlling, the statute against usury would be substantially unenforceable, and thus it was made the duty of the court in each case presented to examine into the substance of the transaction between the parties and determine whether the intent which pervaded it was one which violated the statute.’
Hartley v. Eagle Ins. Co. of London, England , 222 NY 178, 185 (1918). See also Archer Motor Co. v. Relin , 255 AD 333, 335 (4th Dept 1938).
Where merchant funding agreements are deemed to actually be "usurious loans disguised a purchases of accounts receivable", the court:
typically found no provisions for forgiveness or modification of the loans, such as viable and enforceable reconciliation provisions , in the event that the funding companies would not collect the daily amounts required...
Focusing on the reconciliation provision in a given merchant agreement is appropriate because it often determines the risk to the funding company. If the funding company truly is collecting a specified percentage of accounts receivable, then the funding company bears the risk of a downturn in the merchant's business. If, however, the merchant is unable to adjust fixed payments in the event of a reduction of its accounts receivable, and the funding company can collect the amount due and owing by way of a personal guarantee and confession of judgment, there is far less risk to the funding company. Therefore, whether the merchant may reconcile its fixed payment amount when there is a reduction of accounts receivable is often determinative of whether repayment is absolute or contingent . If repayment is absolute, then the arrangement must be considered a loan as opposed to a purchase of accounts receivable.
McNider Marine, LLC v. Yellowstone Capital, LLC , 2019 WL 6257463, *3-4 (Erie Co Sup Ct 2019) (emphasis added).
In this case, the Revenue Purchase Agreement is not shown to be a usurious loan by clear and convincing evidence. The Agreement has the following reconciliation provision:
Merchant has elected to have FUNDER debit the Alternative Daily Amount each business day. The Alternative Daily Amount is intended to represent the Specified Percentage of Merchant's Receipts. For as long as no Event of Default has occurred, once each calendar month Merchant or FUNDER may request a reconciliation. Merchant agrees to provide FUNDER with Merchant's monthly bank statements and any other information requested by FUNDER to assist in this reconciliation. Upon receipt and reasonable verification of the Merchant's monthly bank statements and any additional requested information , FUNDER shall reconcile the Merchant's account by either crediting or debiting the difference from or back to the Merchant's bank account so that the amount debited in the immediately preceding calendar month equals the Specified Percentage of Merchant's actual Receipts for that calendar month. FUNDER also shall adjust the Alternative Daily Amount on a going-forward basis to more closely reflect the Merchant's actual Receipts times the Specified Percentage. FUNDER will give Merchant notice five business days prior to any such adjustment. After each adjustment made pursuant to this paragraph, the new dollar amount shall be deemed the Alternative Daily Amount until any subsequent adjustment.
[Docket # 10, p. 7 {emphasis added}].
Contrary to the discretionary reconciliation provision in AH Wines, Inc. , the present one is worded as mandatory with "shall" dictates. This negates Plaintiffs’ usurious loan contention. See e.g. Abramo v. HealthNow New York , 305 AD2d 1009 (4th Dept 2003) (affirming the denial of the plaintiff's motion for a preliminary injunction). Without a usurious loan, Adar Bays, LLC v. GeneSYS ID, Inc. , ––– NY3d ––––, 2021 NY Slip Op 05616 (10/12/21) is wholly inapplicable [Docket # 51, pp. 2-5]. Therefore, this other avenue of likelihood of success is missing.
Irreparable Injury
Second, and as found on appeal in AH Wines, Inc. , various economic impacts flowing from the COJ collection efforts do not suffice as irreparable injury. See also John G. Ullman & Assoc., Inc. v. BCK Partners, Inc. , 139 AD3d 1358, 1359 (4th Dept 2016) (vacating preliminary injunction because the alleged harm did not suffice as irreparable harm), lv dismissed , ––– NY3d ––––, 2016 NY Slip Op 84845 (9-8-16) ; White v. F.F. Thompson Health Sys., Inc. , 75 AD3d 1075, 1077 (4th Dept 2010) (same). This Court declines to disregard AH Wines, Inc. , and also notes the conjectural and conclusory nature of the present Plaintiffs’ goodwill claim - which is less that what was laid out in AH Wines, Inc. [Docket # 51, pp. 7-9; Docket # 62, p. 5]. Accordingly, Plaintiffs are not sufficiently aggrieved to justify continued court intervention to block the proceedings in California. See e.g. Emerald Enterprises of Rochester, Inc. v. Chili Plaza Assoc. , 237 AD2d 912 (4th Dept 1997) (Supreme Court properly denied the plaintiff's motion for a preliminary injunction), op amended on rearg , 237 AD2d 912.
Equities
Third, the overall equities do not clearly favor Plaintiffs. See e.g. Eastview Mall, LLC v. Grace Holmes, Inc. , 182 AD3d 1057 (4th Dept 2020) (balance of equities precluded preliminary injunction); Watmet, Inc. v. Robinson , 116 AD2d 998, 999 (4th Dept 1986) (lower court did not abuse its discretion in denying preliminary injunction).
In sum, Plaintiffs are not awarded a preliminary injunction. See e.g. City of Buffalo v. Mangan , 49 AD2d 697 (4th Dept 1975) (affirming denial of preliminary injunction).
Defendant's Cross-Motion
Defendant is entitled to a CPLR 3211 (a) dismissal. See e.g. Kennard Law P.C. v. High Speed Capital LLC , 199 AD3d 1406 (4th Dept 11/12/21) (unanimously affirmed order dismissing action challenging factoring agreement COJ). Pursuant to Kennard Law P.C. , this case must also be dismissed for various reasons. See also Ezeh v. Condon , 162 AD3d 1596 (4th Dept 2018) (affirming this Court's dismissal based partly on the statute of limitations); Liberty Affordable Hous., Inc. v. Maple Ct. Apartments , 125 AD3d 85, 93 (4th Dept 2015) (lower court properly granted that the defendant's motion seeking a dismissal).
Dismissal Motion Standards of Review
Defendant relies on various CPLR 3211 (a) subdivisions to procure a dismissal, and they are discussed below.
In order for documentary evidence submitted in support of a CPLR 3211 (a) (1) motion to warrant a dismissal it must "utterly refute[ ] plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v. Mut. Life Ins. Co. of New York , 98 NY2d 314, 326 (2002). See also Rainey v. Bonanno , 178 AD3d 1394 (4th Dept 2019) ; Higgitt, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3211, C3211:10. "In order for evidence submitted in support of a CPLR 3211 (a) (1) motion to qualify as ‘documentary evidence,’ it must be ‘unambiguous, authentic, and undeniable ’ " Eisner v. Cusumano Const., Inc. , 132 AD3d 940, 941 (2d Dept 2015) (emphasis added). See also Baumann Realtors, Inc. v. First Columbia Century-30, LLC , 113 AD3d 1091, 1092 (4th Dept 2014).
On a CPLR 3211 (a) (5) motion to dismiss on the ground that the action is barred by the statute of limitations, "a defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired." Collins v. Davirro , 160 AD3d 1343, 1343-1344 (4th Dept 2018) (affirming denied dismissal motion). When a defendant meets the initial burden, the burden shifts to the plaintiff to raise a question of fact as to whether time accrued, or whether plaintiff timely filed the cause of action. See U.S. Bank National Association v. Brown , 186 AD3d 1038, 1039 (4th Dept 2020). "Statutes of Limitation are ‘statutes of repose’ representing ‘ "a legislative judgment that ... occasional hardship ... is outweighed by the advantage of barring stale claims" ’ ".... By their nature, they are somewhat harsh and seemingly unjust." Ely-Cruikshank Co., Inc. v. Bank of Montreal , 81 NY2d 399, 400 (1993) (dismissing untimely complaint).
As to determining a CPLR 3211 (a) (7) motion, the subject pleading is to be afforded a liberal construction. See CPLR 3026 ; Leon v. Martinez , 84 NY2d 83, 87 (1994) ; 190 Murray St. Assoc., LLC. v. City of Rochester , 19 AD3d 1116 (4th Dept 2005). Under this construction, "[t]he facts pleaded are to be presumed to be true and are to be accorded every favorable inference" in a plaintiff's favor to see if they fit within any cognizable legal theory. Younis v. Martin , 60 AD3d 1373 (4th Dept 2009). See also 511 West 232nd Owners Corp. v. Jennifer Realty Co. , 98 NY2d 144, 152 (2002). However, "bare legal conclusions and factual claims which are flatly contradicted by the evidence are not presumed to be true on a motion to dismiss for failure to state a cause of action." Olszewski v. Waters of Orchard Park , 303 AD2d 995 (4th Dept 2003). Therefore, even if everything that is pleaded is true, a complaint can still be dismissed if those pleadings do not give rise to an action cognizable under the law. See Rosner v. Paley , 65 NY2d 736, 738 (1985) ; New York State AFL-CIO v. Stimmel , 105 Misc 2d 545, 546 (Albany Co Sup Ct 1980).
The above standards will be applied to Defendant's dismissal cross-motion grounds. See e.g. Tellier-Wolfe v. Viacom Broadcasting Inc. , 134 AD2d 860, 861 (4th Dept 1987) (reversing and granting motion to dismiss).
Merits Review
This case first falters under both subdivision (1) and (7), because documentary proof disproves usury, and the Complaint is facially infirm. See e.g. Champion Auto Sales, LLC v. Pearl Beta Funding, LLC , 159 AD3d 507 (1st Dept 2018) (evidence demonstrated that the underlying agreement leading to the COJ was not a usurious transaction). See also Beal Sav. Bank v. Sommer , 8 NY3d 318, 332 (2007) (affirming CPLR 3211 (a) (1) dismissal); Buchovecky v. S & J Morrell, Inc. , 175 AD3d 945 (4th Dept 2019) (Supreme Court properly granted dismissal motion per CPLR 3211 (a) (1) ).
As explained already, the Agreement's mandatory reconciliation provision undeniably refutes Plaintiffs criminal usury loan allegations. See Kennard Law P.C. , 199 AD3d 1406. This Court does not accept Plaintiff's invitation to ignore Kennard Law P.C. [Docket # 51, pp. 10-11]. Furthermore, the Plaintiffs are precluded from using usury as an offensive tool to escape the COJ. Id. See also Schneider v. Phelps , 41 NY2d 238 (1977) (individual guarantor of a corporate obligation also cannot claim usury); Paycation Travel, Inc. v. Glob. Merchant Cash, Inc. , 192 AD3d 1040, 1041 (2d Dept 2021) ; Intima-Eighteen, Inc. v. A.H. Schreiber Co., Inc. , 172 AD2d 456, 457-58 (1st Dept 1991) ; Klein v. On Deck Capital, Inc. , 48 Misc 3d 1204(A) (Westchester Co Sup Ct 2015).
Lastly, and perhaps most importantly, the case also fails under subdivision (5) due to an expired 1-year limitations period. See Kennard Law P.C. , 199 AD3d 1406. See also Wendover Fin. Services v. Ridgeway , 137 AD3d 1718, 1719 (4th Dept 2016) (Supreme Court properly granted motion to dismiss pursuant to CPLR 3211 (a) (5) as the action was barred by the statute of limitations), lv denied , 140 AD3d 1715. Defendant invokes the 1-year time-frame per CPLR 215 (6) - "[a]n action to recover any overcharge of interest ..." - to say that the imitations period lapsed in February 2020. This exact statute of limitations position was adopted and affirmed in Kennard Law P.C. , so this Court is bound to adhere to the same. Consequently, this matter - which was commenced on August 2, 2021 - is time-barred. See e.g. Stamp v. Schenk , 267 AD2d 1017 (4th Dept 1999) (affirming statute of limitations dismissal).
Plaintiffs’ effort to expand the statute of limitations via CPLR 5015 (a) (3) is misplaced. To begin, the Complaint does not cite Section 5015 (a) (3) - a motion provision not a substantive legal cause of action [Docket # 26]. The Section allows a motion to set aside a judgment if it was procured by "fraud, misrepresentation, or other misconduct of an adverse party." CPLR 5015 (a) (3). See also Tonawanda School Employees Fed. Credit Union v. Zack , 242 AD2d 894 (4th Dept 1997). Besides not mentioning Section 5015 (a) (3), the Complaint also does not plead fraud with specificity as required by CPLR 3016 (b). See also Eurycleia Partners, LP v. Seward & Kissel, LLP , 12 NY3d 553, 559 (2009) ; Morrow v. MetLife Inv'rs Ins. Co. , 177 AD3d 1288, 1289 (4th Dept 2019). Due to this, there is no basis to invoke CPLR 213 (8) ’s six-year limitations period, or even the more nebulous "reasonable time" as noted in NRO Boston LLC v. Yellowstone Capital LLC , 72 Misc 3d 267, 277 (Rockland Co Sup Ct 2021).
In all, Defendant is awarded a Section 3211 (a) dismissal. See e.g. Burton v. Sciano , 110 AD3d 1435, 1436 (4th Dept 2013) (Supreme Court properly granted motion to dismiss).
CONCLUSION
Based upon all of the foregoing, it is the Decision of this Court that:
1. Plaintiffs’ motion is DENIED .
2. Defendant's cross-motion to dismiss is GRANTED .
Any relief requested, but not specifically granted, is denied.
As the prevailing party, Defendant is directed to E-file a Proposed Order within thirty (30) days.