Merchant Funding Servs., LLC v Realtime Carriers, LLC

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Merchant Funding Servs., LLC v Realtime Carriers, LLC 2017 NY Slip Op 33542(U) July 7, 2017 Supreme Court, Rockland County Docket Number: Index No. 033639/2016 Judge: Gerald E. Loehr Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 033639/2016 FILED: ROCKLAND COUNTY CLERK 07/25/2017 07:41 AM NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 07/24/2017 commence the statutory time To commence of appeals appeals as ofright of right period of (CPLR 5513 55 13 [a]), you are advised advised (CPLR to serve serve a copy copy of of this this order order with notice of of entry, entry, upon all with parties. parties. SUPREME COURT COURT OF THE THE STATE STATE OF NEW NEW YORK YORK SUPREME COUNTY OF ROCKLAND ROCKLAND COUNTY --------------------------------------------------------------------)( --------------------------------------------------------------------X MERCHANT FUNDING FUNDING SERVICES, SERVICES, LLC, MERCHANT Plaintiff, Plaintiff, DECISION AND AND ORDER ORDER DECISION Index No.: No,: 033639/16 033639/16 Index -against-against- REALTIME CARRJERS, CARRIERS, LLC d/b/a d/b/a REALTIME REALTIME CARRIERS CARRIERS REALTIME and ROBERT ROBERT L. L WILLIAMS WILLIAMS III,, III" Defendants, Defendants. ---------------------------------------------------------------------------)( ---------------------------------------------------------------------------X LOEHR, J. J, LOEHR, following papers papers numbered numbered 1- 7 were read on the Defendants' Defendants' motion motion to vacate vacate a The following confession of of judgment judgment. confession Papers Numbered Numbered Papers Notice of Motion Motion - Affidavit Affidavit - Exhibits Exhibits Notice of 1I Memorandum of of Law_ Law in Support Support Memorandum 2 Affidavit in Opposition Opposition - Exhibits Exhibits Affidavit 3 Memorandum of of Law Law in Opposition Opposition Memorandum 4 Memorandum of of Law Law in Reply Reply Memorandum 5 Proposed Prder Prder To Show Show Cause Cause - Affinnation Affirmation - Affidavit Affidavit - Exhibits Exhibits Proposed 6 Memorandum of of Law Law in Support Support Memorandum 7 Upon the foregoing foregoing papers, papers, it appears appears that that on August August 16, 16,2016, Plaintiff, apparently apparently an Upon 2016, Plaintiff, offices in New York and New New Jersey, Jersey, entered entered into a Secured Secured Merchant Merchant Agreement Agreement with with LLC with offices New York Defendant Real RealTime Carriers, a Georgia Georgia LLC. LLc' The The nature nature of of the Agreement Agreement is far from clear. clear, On Defendant Time Carriers, [* 1] 1 of 5 FILED: ROCKLAND COUNTY CLERK 07/25/2017 07:41 AM NYSCEF DOC. NO. 38 INDEX NO. 033639/2016 RECEIVED NYSCEF: 07/24/2017 hand, it states states that "purchase and and sale sale of of future future receivables," receivables," specifically, specifically, the the one hand, that it is for the "purchase purchase of $31,900 $31 ,900 (the "Purchased "Purchased Amount") future receivables front Amount") in future receivables for an up front purchase and sale of payment of $22,000 $22,000 (the "Purchase "Purchase Price"), Price"), and that that it shall not be construed loan, although construed as a loan, although payment of the Purchase "paid" by the Defendants Defendants remitting (the Purchase Amount Amount was to be "paid" remitting to Plaintiff Plaintiff 15% (the "Specified Percentage") Percentage") of of its future future receivables received. Simultaneously Simultaneously with execution of of receivables as received. with the execution "Specified the Secured Secured Merchant Merchant Agreement, Agreement, Defendant executed an Addendum Addendum that provided: Defendant executed that provided: "By signing signing below, below, the the Merchant Merchant hereby hereby requests requests and acknowledges acknowledges that that the the Specified Specified "By Percentage shall be revised business day (the "Daily Percentage revised to $398.75 $398.75 per per business "Daily Payment) Payment) which which the the parties parties agree agree is a good-faith good-faith approximation approximation of of the Specified Specified Percentage, Percentage, based based on the Merchant's receipts due to [Plaintiff] [Plaintiff] pursuant pursuant to the Agreement. Merchant's receipts Agreement. ** ** ** "At the Merchant's option, within within five (5) business following the end end of of a calendar calendar "At Merchant's option, business days following month, request a reconciliation [Plaintiff] may month, the Merchant Merchant may may request reconciliation to take take place, place, whereby whereby [Plaintiff] ensure that that the cumulative cumulative amount amount remitted remitted for the subject subject month ensure month via via the Daily Daily Payment Payment is equal to the amount amount of of the Specified Specified Percentage. Percentage. However, However, in order order to effectuate effectuate this this equal reconciliation, upon upon submitting submitting the request [Plaintiff] - but event reconciliation, request for reconciliation reconciliation to [Plaintiff] but in no event later than than five (5) business business days following following the end end of of the calendar calendar month the Merchant Merchant later month - the must produce evidence and documentation documentation requested requested by [Plaintiff] [Plaintiff] in it sole sole and must produce any and all evidence absolute discretion, discretion, necessary appropriate amount amount of of the the Specified Specified . absolute necessary to identify identify the appropriate Percentage, the foregoing foregoing includes includes without limitation, any and all bank statements, Percentage, without limitation, bank statements, merchant statements statements or other other documents documents necessary ascertain the the amounts amounts of of the Specified Specified merchant necessary to ascertain Percentage, including login login to the Merchant's Merchant's bankaccout(s). bankaccout(s). Percentage, including "The Merchant Merchant specifically specifically acknowledges acknowledges that: and the potential potential "The that : (Ii) the Daily Daily Payment Payment and reconciliation discussed discussed above above are being being provided courtesy, and that reconciliation provided to the Merchant Merchant as a courtesy, that [Plaintiff] is under obligation to provide provide same, same, and (ii) if if the the Merchant Merchant fails to furnish furnish [Plaintiff] under no obligation the requested requested documentation within five (5) business documentation within business days following following the end of of a calendar calendar month, the the [Plaintiff] [Plaintiff] shall not effectuate effectuate the reconciliation reconciliation discussed discussed above." above." month, Defendant Williams, Defendant Defendant RealTime's Guaranteed RealTime's Defendant Williams, RealTime's principal, principal, Guaranteed RealTime's performance performance under under executed an Affidavit of Confession Confession of of Judgment Judgment on behalf behalf of of RealTime RealTime and the Agreement Agreement and executed Affidavit of himself in the amount amount of of $3 $31I ,900 (less (less any payments together with attorney's fees himself payments made), made), together with attorney's calculated to be 25% 25% of of such such amount, amount, and authorized authorized the filing filing of of same same in this County - as well calculated this County well as 2 [* 2] 2 of 5 FILED: ROCKLAND COUNTY CLERK 07/25/2017 07:41 AM NYSCEF DOC. NO. 38 INDEX NO. 033639/2016 RECEIVED NYSCEF: 07/24/2017 in other other counties. counties.' 1 On September September 1, I, 2016, 2016, Plaintiff Plaintiff filed the Affidavit Affidavit of of Confession Confession of of Judgment Judgment in this this Court, Court, supported supported by Plaintiffs Defendants breached breached the Secured Secured Merchant Merchant Plaintiffs Affidavit Affidavit that that the Defendants Agreement Percentage of Agreement by failing failing to remit remit the Specified Specified Percentage of receivables, except one one payment of receivables, except payment of $398.75, $398.75, although although Defendants Defendants were still in business business and generating generating receivables. receivables. On the next next day, the Clerk Clerk entered entered Judgment Judgment in the amount amount of$31,500.75 of $31 ,500.75 plus $7,875.31 in attorney's attorney's fees, with with plus $7,875.31 interest, interest, costs costs and and disbursements disbursements totaling totaling $39,725.76. $39,725.76. Defendants Defendants now now move move to vacate vacate the Judgment, Judgment, first and foremost, foremost, on the basis basis that the Secured Secured Merchant Merchant Agreement Agreement is a usurious usurious loan.'2 loan. Corporations Corporations may not assert assert a civil usury defense, but rather, rather, may may only only assert assert a criminal criminal usury defense, usury usury defense defense (Professional (Professional Merchant advance Capital, Capital. LLC Services, LLC, 2015 2015 WL Merchant advance LLC v C Care Services, 4392081 [SONY 4392081 [SONY 2015]). Penal Law Law §9 190 prohibits entity from knowingly knowingly charging 2015]). Penal prohibits any entity charging interest interest on a loan at a rate exceeding exceeding 25%. Criminal usury usury can be a defense defense to a corporation corporation - or to an 25%. Criminal individual individual who has guarantied debt - in a civil Penal Law Law has been guarantied a corporate corporate debt civil action action where where the Penal been violated violated (id.). (id.). The defense of of criminal criminal usury requires proof that the lender knowingly charged, charged, The defense usury requires proof that lender ((I) 1) knowingly took took or received received (2) annual annual interest interest exceeding exceeding 25% 25% (3) on a loan loan or forbearance forbearance (id.). There There is a strong presumption against of usury usury under under New New York York law, and the party strong presumption against a finding finding of seeking to assert party seeking assert defense bears bears a heavy burden as to all three it as a defense heavy burden elements (id.). However, However, in assessing assessing the three elements defense, defense, the Court Court must must look to the substance substance of of the transaction transaction and not just form (id.). just to its form In the last few years, years, in over over 20 cases York metropolitan Courts have cases in the New New York metropolitan area, Courts have addressed the issues Agreement, or similar addressed issues of of whether whether this this specific specific Agreement, similar ones, ones, were loans, and and if if loans, were loans, loans, whether they were were usurious. While the majority whether usurious. While majority have have found them loans, or not usurious them not not to be loans, usurious (see, eg, K9 Bytes, Inc. v Arch Arch Capital Capital Funding, West Co]; Co]; Funding, LLC, 2017 2017 WL 2219916 2219916 [Sup Ct, West Merchant Cash And Capital, Merchant Cash And Capital, LLC Well Plumbing, Misc3d 1220(A) 1220(A) [Sup Ct, Nassau LLC v Wett Plumbing, LLC, 55 Misc3d Nassau Co 2017]), have found 2017]), a significant significant minority minority have found them them to be loans, loans, and usurious, possibly so (see usurious, or possibly Professional Merchant Merchant Advance Professional Capital. LLC 2015 WL 4392081 4392081 Advance Capital. LLC v C Care Services, Services, LLC, 2015 Plaintiff also filed a Financing Statement with with respect Defendant's receivables. receivables. Plaintiff Financing Statement respect to the Defendant's While While this might might be considered considered evidence evidence that Plaintiff Plaintiff considered considered it a secured secured loan, loan, the Court Court notes notes that that under DCC even even absolute absolute sales sales of of accounts accounts come scope of of Article under the UCC come under under the scope Article 9 in order third parties order to protect protect third parties (see DCC 9-109[a][3]). Therefore Therefore the filing filing of ofthe Financing UCC 9-109[a][3]). the Financing Statement is not evidence evidence that that the transaction transaction here was a loan. Statement 1 I As a procedural of judgment can only procedural matter, matter, Plaintiff Plaintiff argues argues that that a confession confession of judgment can only be vacated plenary action, vacated by a plenary action, where where the Inasmuch as the the defense defense is usury, usury, and not not by a motion. motion. Inasmuch Court Court is denying denying the motion motion on the merits, merits, it will not address address this this procedural issue. procedural issue. 2, 3 [* 3] 3 of 5 INDEX NO. 033639/2016 FILED: ROCKLAND COUNTY CLERK 07/25/2017 07:41 AM NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 07/24/2017 [SDNY]; Merchant Funding [SDNY]; Merchant Funding Services, Services, LLC Volunteer Pharmacy, Misc3d 316 [Sup Ct, West West LLC v Volunteer Pharmacy, 55 Misc3d Co 2016]). 2016]). In deciding whether the transaction deciding whether transaction was a loan, probably probably the most most significant significant factor factor is whether the Defendant whether Defendant is absolutely absolutely required Purchased Amount. Here, while while on the required to pay the Purchased Amount. Here, surface, surface, it appears appears that the Defendants Defendants only had to remit remit 15% of of their their receivables, receivables, implying implying that that if if they had no receivable, receivable, there there would nothing to remit, would be nothing remit, this suggests suggests that that it was was not a loan. Moreover, were a loan, since Moreover, even even if if it were since there there is no time limit within which the Purchase time limit within which Purchase Amount Amount had to be paid, the calculation calculation of of an annual annual interest interest rate, the sine qua qua non non for finding finding usury, usury, becomes impossible. becomes impossible. Looking Looking deeper, deeper, however, Secured Merchant Merchant Agreement, Agreement, in addition addition to its however, the Secured name, provided that name, provided that the Purchased Purchased Amount Amount "shall "shall be paid [Plaintiff] by [Defendant]." [Defendant]." Moreover, Moreover, paid to [Plaintiff] the Agreement provided that Agreement provided that the Specified Specified Percentage Percentage shall shall be revised revised to $398.75 $398.75 per per business business day." were required day." At this rate, Defendants Defendants were required to pay the Purchased Purchased Amount Amount in approximately approximately 10 weeks, resulting resulting in an effective weeks, effective annual annual interest interest rate rate of of approximately approximately 40%. 40%. And Defendant's And Defendant's principal principal was required required to guaranty guaranty the Agreement Agreement and to execute execute an Affidavit Affidavit of Confession of of of Confession Judgment. specified amount amount which which the Defendants Judgment. If the Agreement Agreement was not a loan with a specified Defendants were were absolutely absolutely required required to repay, repay, what what were were the Defendants Defendants confessing? confessing? (See Professional Professional Merchant Merchant Advance Capital, LLC v C Care Services, Advance Capital, LLC Services, LLC, 2015 2015 WL 4392081 4392081 [SDNY]). [SDNY]). Based thereon, Based thereon, it appears appears to this Court that secured loan this Court that this was a secured loan and not a purchase purchase and sale of of receivables. receivables. Be that that as it may, Defendants Defendants confessed confessed judgment. judgment. While While usurious usurious contracts contracts have been declared have been declared void by statute statute since since at least least 1838, since since at least least 1853, it has been that the the been held held that defense usury is personal defense of of usury defendant and may be waived such as by confessing confessing judgment personal to the defendant waived such judgment (see Murray Murray v Judson Judson and Sands, 9 NY 73 [1853]; and Sands, [1853]; Lipedes & Globe Globe Ins. Lipedes v Liverpool Liverpool & London London & Co., 184 AD 332 [4 thth Dept Dept 1918]; 1918]; Barrett Barrett v Conley, 35 Misced Misced 47 [Sup Ct, Erie Erie Co 1962]; 1962]; accord, accord, Professional Merchant Merchant Advance Advance capital, Professional capital, LLC 2015 WL 4392081 LLC v C Care Services, Services, LLC, 2015 4392081 [SONY]). [SDNY]). Accordingly, Accordingly, this Court Court finds finds that that which which the Agreement loan, the Agreement here here was a usurious usurious loan, Defendants Defendants have have waived waived this defense defense by confessingjudgment. confessingjudgment.3 3 During pendency of During the pendency of this motion, motion, Defendants Defendants submitted submitted a proposed Order To Show Show proposed Order Cause Cause to also vacate vacate the Judgment, Confession of of Judgment Judgment, but now now because because the Affidavit Affidavit of of Confession Judgment authorized authorized its entry entry in more more than county. Defendants Defendants have have provided authority for that than one county. provided no authority that proposition. have provided proposition. What What they have provided is conjecture conjecture that that the Plaintiffs Plaintiffs have been forum shopping have been forum shopping these confessions confessions of of judgment. Plaintiff had submitted submitted this another court court these judgment. Now, Now, it the Plaintiff this Judgment Judgment to another which had rejected which filing it here, that that might vacating this this rejected it before before filing might well provide provide a basis basis for vacating Judgment. But in the absence Judgment. absence of of any evidence evidence that had been rejected by that the Judgment Judgment here had been rejected another another court, court, this Court Court has decided decided not to sign the proposed Order To Show Show Cause. Cause. proposed Order 3 3 4 [* 4] 4 of 5 INDEX NO. 033639/2016 FILED: ROCKLAND COUNTY CLERK 07/25/2017 07:41 AM NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 07/24/2017 That That brings brings us to the issue of of the attorney's attorney's fee. While While the Secured Secured Merchant Merchant Agreement Agreement provided provided for reasonable reasonable attorney's attorney's fees on default, default, the inclusion inclusion of of a percentage percentage in the the Affidavit Affidavit of of Confession Confession of of Judgment Judgment means means a maximum maximum and it is for the Court Court to determine determine what what is reasonable reasonable based based on the work work actually actually done done (see, eg, Prince Schacher, 125 AD3d AD3d 626 [2d Dept Dept 2015]; 2015]; Fleet Fleet Prince v Schacher, Credit Harvey Hutter Hutter & Co., Inc., 207 AD2d Credit Corporation Corporation v Harvey Dept l1994]). AD2d 380 [2d Dept 994]). Accordingly, Accordingly, the the Judgment Judgment is vacated vacated as to the attorney's attorney's fees and, within within 30 days hereof, hereof, Plaintiff shall efile efile proof Plaintiff shal1 proof of of its reasonable reasonable attorney's attorney's fees, which which shall include include time time and billing billing records. records. This This constitutes constitutes the decision decision and order order of of the Court. Court. Dated: New City, New Dated: New New York York July -, ,,2017 2017 or Hon. G J.S.C. J.S.C. V ADIM SERABRO, VADIM SERABRO, ESQ. Attorney Attorney for Plaintiff Plaintiff 17 State Street, Street, Suite Suite 4000 4000 New York, York, NY New NY 10004 AMOS AMOS WEINBERG WEINBERG Attorney Attorney for Defendants Defendants 49 Somerset Somerset Drive Drive South South Great Neck, NY 11020 Great Neck, 5 [* 5] 5 of 5

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