MCA Master Fund (MMF) v Universal Scrap Motors Inc.

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MCA Master Fund (MMF) v Universal Scrap Motors Inc. 2021 NY Slip Op 30097(U) January 14, 2021 Supreme Court, Nassau County Docket Number: 603376/2020 Judge: Leonard D. Steinman 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. [*FILED: 1] NASSAU COUNTY CLERK 01/14/2021 04:29 PM INDEX INDEX NO. NO. 603376/2020 603376/2020 RECEIVED RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 NYSCEF DOC. DOC. NO. NO. 38 38 NYSCEF SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NASSAU -----------------------------,.,....-----.,...-----,._-.X MCAMASTER FUND (MMF), Plaintiff, IASPa:rt12 Index No. 60337612020 Mot. Seq. No; 002 -againstDECISION AND ORDER UNIVERSAL SCRAP MOIORSINC DBA UNIVERSAL SCRAP MOTORS and MARIA Z ALVAREZ, Defendants; -------------,.------,.----------------------.;....-.;.... __ x {.,EONARD D. STEINMAN, J. The following papers were reviewed inpreparing this Decision and Order: Plaintiffs Notice of Motion, Affirtnation, Affidavits &Exhibits ...................... ,, ..1 Defendants'· Affirmation in Opposition&Exhib it.. .............. ,.;, ................................2 Plaintiffs Reply Affinnation ..... ; ........ , ...................................................... ;....... .3 In this action, plaintiff MCA Master Furnt(MMF) seeks to recover the sum of $4&,971.00 owed under an agreement with defendant Universal Scrap Motors Inc (Universal) for the purchase ofreceivables. Universal's obligationsuilderthe Agreement were guaranteed bydefendantMariaZ Alvarez. MMF also seeks $12,2A2.7.5in counsel fees pursuant to the contract and now moves for summary judgment pursuanttoCPLR 3212. Defendants oppose the application on the grounds that the agreement is, in substance, a criminally usurious and unenforceable loan. For the reasons set forth below the motion is granted. .BACKGROUND On February 13 ,2020 MMF and Universal executed an agreement pursuant to which MMF purchased $44,970.00 of Universal 's futurereceivables for$30;000.00 (hereinafter the I _ _11 of o~ __6.§---~-----------··· [*FILED: 2] NASSAU COUNTY CLERK 01/14/2021 04:29 PM INDEX INDEX NO. NO. 603376/2020 603376/2020 RECEIVED RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 NYSCEF DOC. DOC. NO. NO. 38 38 NYSCEF "Agree111enf'} Under theterms of theAgreeinent,MMFwas to be paid 25% ofUnivetsal's daily revenue lip to the" Specific Daily Amount"of$999.3.3 per day,Monday through Friday. MMF was to collectthe receivables from a designated Universal bank aecount. However,accordingto Tiffanie Sabater, a member ofMMF, Universal almost immediately blockedM:tv1F's access to the account, in violationofthe Agreement. Ivil\.1F was only able to de bit Universal' s account once. -Ms. Sabaterattests that MMF attempted to resolve Universal's •default, to no avail, tmdthat Universal never requested any reconciliatitm ofthe payments under the Agre:ernent prior to its default. MMFdaims that it is owed $43,97 LOO of the purchased amount plus a''blocked-(lccounf' fee and "defaultfee," totaling $48,971.00, Universal' s president, defendant A1varez; does not deny that Universal received -the amount due it under the contract. Nor does she deny that Universal has failed to make the requiredpaymentsto MMF. Instead, Alvarezasse1is thatUniversal simply did not have the funds to pay MMF-notthat it "intentionally"-blocked access to its account. And becauseshe guaranteedUniversal's.obligations, Alvarez argues, the transaction was, in truth, a usurious loan that is unenforce:abk Universal contends that the reqliirenientto repay MMF at a rate of $9 9 9 .33 per day essentially imposes an interes trate that far exceeds the atnountallowable underNew York State Penal Law. Because repayment to MMF was not absolute, the transaction was not a disguised loan and MMF is entitled to judgroent. LEGAL ANALYSIS ·The central issue before this court is whether the Agreement constitutes a receivables purchase or a usurious loan. It is the movant who has the burden to establish its entitlementto summary judgroent as a matteroflaw; Ferrante v. American Lwig Assn., 90 N.Y.2d 623 (1997). ''CPLR § 3 212(b}requiresthe proponent of a motion for sunimaryjudgfuent to demonstrate the _absence ofgenuine is sues ofmaterial facts oh every relevant issue raised by the pleadings, including any affinnative defenses~·· Stonev. Continentallns. Co., 234 A.D;2d 282,284 (2d 2 22 of of 6 6 INDEX INDEX NO. NO. 603376/2020 603376/2020 [*FILED: 3] NASSAU COUNTY CLERK 01/14/2021 04:29 PM RECEIVED RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 NYSCEF DOC. DOC. NO. NO. 38 38 NYSCEF Dept. 1996). Where the mo van t fails to meetits initial burden as the mo van t, the motion for summaryjudgmentshouldbe denied. U.S BankN.A. v. Weinman, 123 A.D.3d1l08(2d Dept. 2014). Once a movant has shownaprima facie right to summaryjudgment, the burden shifts to the opposing party to show that a factual dispute exists requiring a trial, and such facts presented by the opposing party1nustbe presented by evidentiary proofin admissible fonn. Zuckermanv. New York, 49 N. Y.2d 557 (1980);. Friends ofAnimals, Inc; v. Associated Fur Mfrs., Inc;, 46 N.Y2d 1065 (1979}. The drasticremedyofsununaryjudgment should be granted only ifthetearenomaterialissues offact. Andrev. Pomeroy, 35 N.Y.2dJ6l,364 (1974). In· analyzingthe usury def~nse raised in revenue purchase cases, courts must consider the transaction "in its totality andjudgedby its realcharacter rather than by the name,.color; or form which the parties have seen fit to give it." LG Funding, LLC v. United SerdorProps. of Olathe, LLC; 181 A.D.3d 664 (2d Dept. 2020). To assess whether a transaction is a Ioanmasked as: a purchase for future receivables, it is necessruy to examine whether the plaintiff is "absolutely entitled torepaymentunder all circumstances." SeeK9Bytes, Inc. v.Arch Capita/Funding, UC, 56 Misc.Jd 807 (Sup. Ct. Westchester County201 7). In LG Funding, the Second Department setforth a threepart test to determine whetherrepayment is absolute or contingent: (l) whether there is a reconciliation provision in the agreement; {2) whether the agreement has a finite term; and(3) Whether there is anytecoutse should the merchant declare bankruptcy. LG Funding, supra at 666 . .·With respect to the ·first factor; the absence ofareconciliation agreement Would point to a loan rather than a purchase of futurereceivables. See id.; K9 Bytes,1nc: v. Arch Capita/Funding, LLC, 56Misc.3d 807 (Sup. CL WestchesterCounty2017); Retail Capital, LLC v. Spicelntentionslnc., 2017 WL 123374 (Sup. Ct. New York 2017). Areconciliationclause is presentintheAgreement. It provides that, 3 ------·····-·····-·-.· ...... of 66 33 of ··---·--·-~------·--·--·--·---·---·-··- INDEX INDEX NO. NO. 603376/2020 603376/2020 [*FILED: 4] NASSAU COUNTY CLERK 01/14/2021 04:29 PM RECEIVED RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 NYSCEF DOC. DOC. NO. NO. 38 38 NYSCEF "[U]ponMerchant's request, and receiptofthe Merchant's monthly bank statements, MMF shall, on or about the fifteenth day of each month, reconcile the Merchant's account by either crediting or debiting the difference between the amount debited and the Specified Percentage, from or back to the Merchant's bank account so thatthe amount debited each month equals the Specified Percentage," Unlike the language of the reconciliation provision undetsctutinyin LG .Funding-which gave sole discretion to the plairttifffor any payment adjustments and was ultimately found to suggest that plaintiffs entitlement to repayment was absqlute rather than contingent-here, MMF did not have discretion whether or notto reconcile. Rather, the Agreement requitedMMF toreconcileifUniversalmade su.ch a request and provided its bank statements. Notably, Universal makes no allegation that itatternpted to exerdse its right to reconcile underthe Agreement by requesting an adjustment of the amounts to be collected to account for the actual amount of its daily receivables~ The second factotis whether the·agreement at issue has a finite term; Ordinarily, a lqan has a face value repayable (with interest) over afinite period thatis defined in the transaction documents. A non-finite term within an agreement suggests that it is one for a purchase of future receivables. See Pirs Capital, LLC v. D&M Truck, Tire & Trailer Repair Inc., 69Misc.3d457 (Sup. Ct. New York2020). Here, the Agreement provides thatithas an "indefinite term" and remains in effect untilUniVersal's obligations are "fully satisfied." The indefiniteness of the Agreement supports the contention that it is contingency based and notabsollite. See IBIS Capital Group, LLC v. Four Paws Orlando LLC, 2017WL1065071 (Sup. Ct. Nassau County 201 7) (finding the agreement's lack of specific ending date was consistent with the.contingentnature of the collection o(future sales proceeds); Lastly, the third factor pertains to whetherthe purchaser, here MMF, has any recourse sho u Id the merchant (Universal) de dare bankruptcy. If the purchas er,does have· recourse, particularly through a personal guaranty, the balance tips towards the 4 44 of of 66 [*FILED: 5] NASSAU COUNTY CLERK 01/14/2021 04:29 PM NYSCEF DOC. DOC. NO. NO. 38 INDEX INDEX NO. NO. 603376/2020 603376/2020 RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 transaction being treated as a loan. Firs Capitq/, LLC v. D&M Truck, Tire & Traifor Repair Inc., 69 Misc.3d 457 (Sup. a. New York 2020). In this case,the Agreement does notindicate thatbankruptcy ofUniversal is an eventofdefault. The Agreement merely provides that Universal "warrants that it does riot anticipate filing any such bankruptcy petition and it does not anticipate that 8cninvoluntarypetitionwill be filed against it." Based on the foregoing, as a matter of law, the Agreement cannot be considered a loan. MMF has established entitlement to suminaryjudgrnenton its claims. Universal failedto createanissueoffact. Therefore,MMF's motion forsl1m1llary judgment is granted. :MMF is entitled to judgment in the amount of $48 ,971.00, plus interest from February 18, 2020. With respect to colU1Sel fees, an inquest is required to determine the amount owed. Accordingly, it is hereby ORDERED; that subjectto the approval of the Justice there presiding and provided a Note ofissuehas beertfiled at I east ten (1 O)days prior thereto, this matter shall appear before theHonorableLeonardD. Steinman on January28, 2021at10:00 a~m. fora virtual Inquest(via Microsoft TEAMS) to determine the amounts owed to plaintifffor counsel fees; and it is further ORDERED, that the failure to file a Note of Issue or appear as directed may be deemed an abandonment of the claims giving rise to the lrtq ue st; and it is further 5 ~~~~--~~··~-~~--~---"·~"~·~--~---------- --- ---- -- 5 of 66 .. . ·- ....... ·- [*FILED: 6] NASSAU COUNTY CLERK 01/14/2021 04:29 PM NYSCEF DOC. DOC. NO. NO. 38 INDEX INDEX NO. NO. 603376/2020 603376/2020 RECEIVED NYSCEF: NYSCEF: 01/04/2021 01/04/2021 ORDERED, that plaintiffs counsel shat 1serve a copy of this prder upon defendant byregularmail within (10) days ofthedate.ofthisorder. Anyreliefrequested not specifically addressed herein is denied. This constitutes-the Decision and Order of this court Dated: December28,2020 Sea Cliff, New York >Tu~ Y. ENTERED . LEONARD D. STEINMAN, J.S.C. Jan 14 2021 NASSAU COUNTY COUNTY CLERK"S OFFICE 6 66 of 66

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