Opinion
Index No. 616358/2022
05-23-2023
Pearl Delta Funding, LLC, Plaintiff, v. ABC Auto LLC and Sandra M., Defendants.
Counsel for Plaintiff: Christopher Ryan Murray Murray Legal, PLLC Counsel for Defendants Amos Weinberg
Unpublished Opinion
Counsel for Plaintiff:
Christopher Ryan Murray
Murray Legal, PLLC
Counsel for Defendants
Amos Weinberg
Sarika Kapoor, J.
NYSCEF Entries No.9 through #14 and #17 through #20 were read and considered in deciding this motion.
Plaintiff, Pearl Delta Funding, LLC ("Plaintiff") moves, for an Order: 1) pursuant to CPLR 3211(a)(1) and (b) dismissing the Defendants', ABC Auto LLC and Sandra M. ("Defendants") affirmative defense; and 2) pursuant to CPLR 3211(a)(1) and (a)(7), dismissing the Defendants' counterclaim for failure to state a cause of action and based upon documentary evidence and settled law. Defendants oppose the motion.
In this action, Plaintiff seeks to recover from Defendants for an alleged breach of a Merchant Agreement entered into between Plaintiff and Defendants on June 8, 2022. Pursuant to the terms of the agreement, Defendant ABC Auto LLC, sold and Plaintiff purchased certain accounts receivable of ABC Auto LLC for a sum of $75,000. In exchange for the purchase, Defendants agreed to pay Plaintiff 8% of its weekly revenue until Plaintiff received $108,000.00. The Agreement provided that if: (a) Defendants, without Plaintiff's prior authorization, used a bank account other than the specified account or closed the specified account; (b) Defendants failed to give Plaintiff the required advance notice to prevent an ACH withdrawal from being dishonored for insufficient funds; and/or, (c) Plaintiff is otherwise prevented from making any agreed upon ACH withdrawal, Merchant would be in default of the agreement. The individual Defendant, Sandra M., guaranteed performance of ABC Auto LLC.
Plaintiff contends that it performed under the contract, but Defendants breached its agreement by failing to pay amounts due. Plaintiff seeks $25,315.00 plus interest at the statutory rate, costs, disbursements and attorneys' fees.
Plaintiff commenced this action with the filing of the Summons and Verified Complaint on November 21, 2022. Defendants appeared in the action and asserted various affirmative defenses and the sole counterclaim of criminal usury. Defendants contend, inter alia, that the Merchant Agreement at issue is a usurious loan. Plaintiff now seeks to dismiss Defendants' usury counterclaim as well as all affirmative defenses raised.
The law is clear. Pursuant to CPLR 3211(a)(1) a party may move for dismissal of one or more causes action asserted against him on the ground that "a defense is founded upon documentary evidence." Further, on a motion to dismiss for failure to state a cause of action, pursuant to CPLR 3211(a)(7), the Court must determine whether, from the four corners of the pleading "factual allegations are discerned, which taken together, manifest any cause of action cognizable at law" (Morad v. Morad, 27 A.D.3d 626 [2nd Dept 2006]). Further, the pleading is to be afforded a liberal construction, the facts alleged in the complaint accepted as true, and the plaintiffs accorded the benefit of every possible favorable inference (Leon v. Martinez, 84 N.Y.2d 83 [1994]). However, while the allegations in the complaint are to be accepted as true when considering a motion to dismiss "allegations consisting of bare legal conclusions as well as factual claims flatly contradicted by documentary evidence are not entitled to any such consideration" (Maas v. Cornell Univ., 94 N.Y.2d 87 [1999]).
Moreover, on a motion to dismiss, a party is not obligated to demonstrate evidentiary facts to support the allegations contained in the pleadings (Aurora Loan Services, LLC v. Cambridge Home Capital, LLC, 12 Misc.3d 1152 [A][Supreme Ct. Nassau 2006]). That is, "[w]hether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" (EBC I, Inc. v. Goldman Sachs & Co., 5 N.Y.3d 11, 19 [2005]).
Here, Defendants raised a claim of usury as a counterclaim and affirmative defense. However, "[u]sury arguments are not favored as '[t]here is a strong presumption against the finding of usury'" (Transmedia Rest. Co., Inc. v. 33 E. 61 Street Rest. Corp., 184 Misc.2d 706, 710 [Sup. Ct. New York 2000]). Indeed, "court[s] will not assume that the parties entered into an unlawful agreement" (Giventer v. Arnow, 37 N.Y.2d 305 [1975]). Nevertheless, "[u]sury laws apply only to loans or forbearances....If the transaction is not a loan, there can be no usury, however unconscionable the contract may be" (Seidel v. 18 E. 17th St. Owners, Inc., 79 N.Y.2d 735, 744 [1992]). Where the underlying transaction was not a loan, usury should be dismissed as a matter of law (Citipostal, Inc. v Unistar Leasing, 283 A.D.2d 916, 918-19 [4th Dept. 2001]).
When considering whether an agreement is a loan or an ordinary agreement, Courts look at the totality of the facts-including whether a party is entitled to repayment under all circumstances unless a principal sum advance is payable absolutely, the transaction cannot be a loan (Rubenstein v. Small, 273 AD 102 [1st Dept. 1947]).
Generally, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy" (Principis Cap., LLC v. I Do, Inc., 201 A.D.3d 752, 754 [2nd Dept. 2022]).
Here, after a review of the agreement at hand, and as correctly cited by Plaintiff, this Court finds that the Merchant Agreement agreed to by the parties is not a loan as it satisfies all three factors, making the usury claim ripe for dismissal as a matter of law.
First, there was a provision for reconciliation. Indeed, the Merchant Agreement reads in pertinent part as follows:
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1.4 Adjustments to the Remittance. If an Event of Default has not occurred, every two (2) calendar weeks after the funding of the Purchase Price to Merchant, Merchant may give notice to Purchaser to request a decrease in the Remittance. The amount shall be decreased if the amount received by Purchaser was more than the Purchased Percentage of all revenue of Merchant since the date of this Revenue Purchase Agreement. The Remittance shall be modified to more closely reflect the Merchant's actual receipts by multiplying the Merchant's actual receipts by the Purchased Percentage divided by the number of business days in the previous (2) calendar weeks. Seller shall provide Purchaser with viewing access to their bank account as well as all information reasonably requested by Purchaser to properly calculate the Merchant's Remittance. At the end of the two (2) calendar weeks the Merchant may request another adjustment pursuant to this paragraph or it is agreed that the Merchant's Remittance shall return to the Remittance as agreed upon on Page 1 of this Agreement.
***
(NYSCEF Doc. 12).
Second, the Merchant Agreement did not impose a finite term as evidenced where it states, "Merchant is selling a portion of a future revenue stream to Purchaser at a discount, not borrowing money from Purchaser; therefore[,] there is no interest rate or payment schedule and no time period during which the Purchased Amount must be collected" (Id.).
Thirdly, the agreement did not provide for any recourse in the event of bankruptcy or business failure. This was evident where it reads in pertinent part:
***
Merchant going bankrupt or going out of business, or experiencing a slowdown in business, or a delay in collecting its receivables, in and of itself, will not constitute a breach of this Agreement. Purchaser is entering this Agreement knowing the risks that Merchant's business may slow down or fail, and Purchaser assumes these risks based on Merchant's representations, warranties and covenants in this Agreement, which are designed to give Purchaser a reasonable and fair opportunity to Purchaser to receive the benefit of its bargain.***
(Id.).
Under these circumstances and consistent with precedent cases not only of this County as cited by Plaintiff, but of the State, this Court finds that, despite Defendants attempt to convince this Court otherwise, it is clear that there is no basis to deem the Merchant Agreement a loan. As such, dismissal of Defendants' counterclaim and affirmative defense of usury is granted.
Plaintiff further argues that "any and all arguments contained in Defendants' Answer should be dismissed because the pleading is facially defective and does not satisfy CPLR 3014." More specifically, Plaintiff asserts that the Defendants did not separately plead affirmative defenses and instead submitted "nine pages of meandering argument." Moreover, Plaintiff argues that all defenses should be dismissed as the Defendants failed to plead any facts sufficient to allege affirmative defenses. According to Plaintiff, the Answer only consists of bare legal conclusions wholly unsupported by specific facts.
Defendants do not provide any opposition to Plaintiff's arguments for dismissal of any and all remaining defenses raised within their Answer.
Pursuant to CPLR 3014:
Every pleading shall consist of plain and concise statements in consecutively numbered paragraphs. Each paragraph shall contain, as far as practicable, a single allegation. Reference to and incorporation of allegations may subsequently be by number. Prior statements in a pleading shall be deemed repeated or adopted subsequently in the same pleading whenever express repetition or adoption is unnecessary for a clear presentation of the subsequent matters. Separate causes of action or defenses shall be separately stated and numbered and may be stated regardless of consistency. Causes of action or defenses may be stated alternatively or hypothetically.***
"While pleadings are to be liberally construed, it is not intended to change the basic requirement that a complaint should contain such plain and concise statement as the afore-mentioned rule provides" (Safer Beef Co. v. N. Boneless Beef Inc., 15 A.D.2d 479 [1st Dept. 1961]). "The purpose of pleadings is to present and define the issues to be tried and determined, and not to confound and befog them. * * * The court should not be compelled to wade through a mass of verbiage and superfluous matter, in order to pick out an allegation here and there which, pieced together with other statements taken from another part of the complaint, will state a cause of action" (Joseph v. Ervolina, 285 AD 1218, 1218 [4th Dept. 1955]).
Moreover, critical facts are necessary to give notice of a claim or defense and must generally appear on the face of the pleadings (DiMauro v. Metropolitan Suburban Bus Auth., 105 A.D.2d 236 [2nd Dept. 1984]). "[D]efenses which merely plead conclusions of law without supporting facts are insufficient" (Bentivegna v. Meenan Oil Co., 126 A.D.2d 506, 508 [2nd Dept. 1987]).
Here, based upon a review of Defendants' Answer with Counterclaim, this Court finds that Defendants failed to meet the minimum requirements of CPLR 3014. Even when allowing for wide latitude in answering, this Court finds it difficult to ascertain the separate claims and defenses that were raised within their Answer. None of the paragraphs contained within Defendants' Answer actually respond to the number allegations contained within Plaintiff's Complaint.
Furthermore, pursuant to CPLR 3211(b) "where a party may move for Judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit" this Court finds that, where it could ascertain a separate claim and defense, it was stated as a mere conclusion of law; for instance, "The contract being void for lack of mutuality and for vagueness, there is no basis for jurisdiction over defendants The plaintiff lacks standing to recover under the agreement." Given that basic statements are not supported or substantiated with factual allegations, dismissal of them is therefore warranted.
Accordingly, it is hereby, ORDERED that Defendants' counterclaim of usury is DISMISSED as a matter of law pursuant to CPLR 3211(a)(7); and it is further, ORDERED that all of Defendants' affirmative defenses are DISMISSED pursuant to CPLR 3211(b) with leave to replead those defenses in proper form.
The parties' remaining arguments have been considered and do not warrant discussion.
This shall constitute the Decision and Order of this Court.