Reserve Funding Group LLC v JL Capital Holdings LLC

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[*1] Reserve Funding Group LLC v JL Capital Holdings LLC 2022 NY Slip Op 51322(U) Decided on October 17, 2022 Supreme Court, Kings County Rivera, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 17, 2022
Supreme Court, Kings County

Reserve Funding Group LLC, Plaintiff,

against

JL Capital Holdings LLC and JEREMY W. TUCKER, Defendant



Index No. 514245/2022

Attorney for Plaintiff Reserve Funding Group LLC
Gabriel Mendelberg, Esq.
Mendelberg PC
75 Maiden Lane, Ste 603
New York, NY 10038

Attorney for Defendants JL Capital Holdings LLC and Jeremy W. Tucker
Charles Wallshein, Esq.
The Law Offices of Charles Wallshein
35 Pinelawn Road Suite 106e
Melville, NY 11747


Francois A. Rivera, J.

Recitation in accordance with CPLR 2219 (a) of the papers considered on the order to show cause filed on July30, 2022, under motion sequence number one by defendants JL Capital Holdings LLC and Jeremy W. Tucker for an order pursuant to CPLR 5015(a)(4) to vacating the judgment of the Clerk of the New York State Supreme Court for the County of Kings, entered on the 29th Day of June 2022 in the amount of $3,071,716.02 and other relief. Plaintiff Reserve Funding Group LLC has opposed the motion.

-Order to Show Cause
-Affirmation in Support
-Affidavit in Support
-Affirmation in Opposition
-Exhibits 1-7[*2]


BACKGROUND

On May 16, 2022, the plaintiff commenced the instant action by filing a summons and verified complaint (hereinafter the commencement papers) with the Kings County Clerk's office (KCCO). On May 16, 2022, plaintiff filed an affirmation by Isaac H. Greenfield, Esq. (hereinafter Greenfield) pertaining to service of the commencement papers. Greenfield declared therein that on May 16, 2022, he served the summons and complaint on the defendants by delivery via Certified Mail, pursuant to Section 4.3 of the Revenue Purchase Agreement (hereinafter RPA) between the parties. The RPA is not part of the commencement papers and is not annexed to Greenfield's affirmation of service (hereinafter the Greenfield AOS).

The verified complaint alleges twenty-four allegations of fact in support of two causes of action. The first is for breach of contract and the second is for a personal guarantee.

On June 23, 2022, the plaintiff applied for and obtained a default judgment with the KCCO. The application for the judgment from the KCCO included the following documents: an affirmation of default which referenced three attached exhibits labeled A through C; an affirmation of mailing pursuant to CPLR 3215(g)(3)(i) and CPLR 3215(g)(4)(i); and an affirmation of non-military service of defendant Jeremy W. Tucker.

Exhibit A to the affirmation of default contains two documents denominated as Revenue Purchase Agreements (RPA), one has an agreement date of January 26, 2021, the other has an agreement date of March 2, 2021. Exhibit B to the affirmation of default was a copy of the commencement papers. Exhibit C to the affirmation of default was a copy of the Greenfield AOS.

LAW AND APPLICATION

On May 16, 2022, the plaintiff commenced the instant action by filing a summons and verified complaint. The plaintiff filed an affirmation of service attesting to service of the commencement papers on the defendants by certified mail in accordance section 4.3 of a Revenue Purchase Agreement purportedly signed by the parties. Parties to a contract are free to contractually waive service of process; such waivers render inapplicable the statutes that normally direct and limit the acceptable means of serving process on a defendant (Alfred E. Mann Living Tr. v. ETIRC Aviation S.a.r.l., 78 AD3d 137 [1st Dept 2010]). The Court recognizes the right of contracting parties to waive the protections of statutory methods of service of process and to designate alternative methods of service. In the case at bar, the plaintiff contends that the defendants did exactly that and consented to service of the commencement papers by certified mail pursuant to the RPA. The defendants directly dispute this claim.

It is noted that the Greenfield AOS averred service of the commencement papers by certified mail. An examination of section 4.3 of each of the RPAs that were filed with the plaintiff's request for a default judgment only spoke of certified mail return receipt requested.

The defendants seek, inter alia, an order vacating the clerk default judgment entered against them. The first thing the Court noticed was that the plaintiff moved for a clerk default judgment pursuant to CPLR 3215(a) on June 22, 2022, less than six weeks after the Greenfield AOS was filed.

Assuming for the sake of argument that service of the commencement papers by certified mail return receipt requested was proper, the next obvious question is when was service deemed complete. CPLR 308, pertaining to service on an individual provides no guidance. Limited Liability Company Law 301, the statutes pertaining to service on a domestic limited liability company, provides no guidance. Business Corporation Law 304, the statute pertaining to service [*3]of process on domestic corporations or authorized foreign corporation also provides no guidance.

The Court could find no New York State case law decisions addressing this specific issue. However, there are many statutes addressing the effective date of notices sent by certified mail return receipt requested. Business Corporation Law § 307 provides for service of process on unauthorized foreign corporations. "[P]rocess against a foreign corporation not authorized to do business in New York may be served upon the secretary of state as its agent" (Business Corporation Law § 307[a]). Such service shall be sufficient if notice therefor and a copy of the process are delivered personally to the foreign corporation in the manner by which service of process is authorized by the law of the jurisdiction where the service is made (see Business Corporation Law § 307[b][1]), or "[s]ent by ... registered mail with return receipt requested, at the post office address specified for the purpose of mailing process, on file in the department of state, or with any official ... in the jurisdiction of its incorporation, or if no such address is there specified, to its registered or other office there specified, or if no such office is there specified, to the last address ... known to the plaintiff" (Business Corporation Law § 307[b][2]). Finally, an affidavit of compliance, together with the process and the return receipt or other official proof of delivery, must be filed with the clerk of the court within a specified time period (see Business Corporation Law § 307[c][2]). Service is not deemed complete until 10 days after such papers are filed (see Business Corporation Law § 307[c][2]; see also Flick v Stewart—Warner Corp., 76 NY2d 50, 55[1990]).

Another statute dealing with service by certified mail is CPLR 3216. At its simplest, CPLR 3216 is designed to permit a defendant or a court to rid themselves of actions which the plaintiff is not prosecuting, prior to their placement upon a trial calendar (Hon. Mark C. Dillon, Practice Commentaries, McKinney's Cons Laws of NY, CPLR C3216:1). CPLR 3216(b)(3) requires that the 90-day demand be served by registered or certified mail. It provides in pertinent part as follows.

"The court or party seeking such relief, as the case may be, shall have served a written demand by registered or certified mail requiring the party against whom such relief is sought to resume prosecution of the action and to serve and file a note of issue within ninety days after receipt of such demand, and further stating that the default by the party upon whom such notice is served in complying with such demand within said ninety day period will serve as a basis for a motion by the party serving said demand for dismissal as against him or her for unreasonably neglecting to proceed."

Notably, the time within which the plaintiff must act runs from the receipt, and not the service of the demand (Friedman v Goldstein, 189 AD3d 1183, 1185—86 [2nd Dept 2020], citing Vasquez v City of New York, 5 AD3d 672 [2nd Dept 2004]).

Another example is Vehicle and Traffic Law § 253. It provides, inter alia, that the operation by a non-resident of a vehicle in this state shall be deemed equivalent to the appointment of the Secretary of State for the purpose of acceptance of process in connection with a motor vehicle accident involving the operation by that non-resident of said vehicle (see Vehicle and Traffic Law § 253 [1]). It sets forth the steps which shall be taken to complete the service on such a non-resident defendant, commenced by service upon the Secretary of State. Notice of such service and a copy of the summons and complaint must be sent forthwith to the defendant by certified or registered mail, return receipt requested (see Vehicle and Traffic Law § 253 [2]). The plaintiff must then file an affidavit of compliance, a copy of the summons and [*4]complaint, and either a signed return receipt or the original envelope with a postal notation that receipt was refused, or the letter was returned to the post office unclaimed (id.).

Each one of these statutory examples have one thing in common, they all calculate notice to the recipient from the date of the recipient's actual receipt. They also require proof of the receipt.

The Court finds this approach to be reasonable, appropriate, and consistent with notions of fairness. Applying it here, the plaintiff not only failed to aver service by certified mail return receipt requested, it also did not show proof of the date that the defendants actually received the commencement papers.

CPLR 3215 (a) provides in pertinent part as follows:

"Default and entry. When a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, or when the court orders a dismissal for any other neglect to proceed, the plaintiff may seek a default judgment against him. If the plaintiff's claim is for a sum certain or for a sum which can by computation be made certain, application may be made to the clerk within one year after the default. The clerk, upon submission of the requisite proof, shall enter judgment for the amount demanded in the complaint or stated in the notice served pursuant to subdivision (b) of rule 305, plus costs and interest. Where the case is not one in which the clerk can enter judgment, the plaintiff shall apply to the court for judgment."

CPLR 320 (a) provides in pertinent part as follows:

"Requirement of appearance. The defendant appears by serving an answer or a notice of appearance, or by making a motion which has the effect of extending the time to answer. An appearance shall be made within twenty days after service of the summons, except that if the summons was served on the defendant by delivering it to an official of the state authorized to receive service in his behalf or if it was served pursuant to section 303, subdivision two, three, four or five of section 308, or sections 313, 314 or 315, the appearance shall be made within thirty days after service is complete."

A party is not required to appear in an action until it is properly served with a summons. The time in which a defendant is required to appear depends on the manner which the summons was served upon them. In an action such as the case at bar, it is twenty days from personal delivery and thirty days from completion of service by any other method. The plaintiff has conceded at oral argument of the motion that in the instant action, the time to appear would be thirty days from service of the commencement papers. By not providing proof of the date that each of the defendants received the commencement papers, the plaintiff failed to establish that the defendants time to appear in the action was ever triggered. Moreover, when the plaintiff applied for a clerk default judgment pursuant to CPLR 3215(a), it did not establish that the defendants' time to interpose an answer had expired.

The decision as to the setting aside of a default in answering is generally left to the sound discretion of the Supreme Court, the exercise of which will generally not be disturbed if there is support in the record therefor (U.S. Bank N.A. v Losner, 145 AD3d 935, 936 [2nd Dept 2016]). Where a defendant seeking to vacate a default raises a jurisdictional objection pursuant to CPLR 5015(a)(4), the court is required to resolve the jurisdictional question before determining whether it is appropriate to grant a discretionary vacatur of the default (Rattner v Fessler, 202 [*5]AD3d 1011, 1015 [2nd Dept 2022]).

The defendants have moved to vacate the clerk default judgment pursuant to CPLR 5015(a)(4). Pursuant to CPLR 5015[a][4], the court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person ... upon the ground of ... lack of jurisdiction to render the judgment or order (Hudson Valley Bank, N.A. v. Eagle Trading, 208 AD3d 648, 649 [2nd Dept 2020]). It is the plaintiff's burden of proving that personal jurisdiction has been acquired over a defendant (Wells Fargo Bank, N.A. v. Singh, 204 AD3d 732, 733 [2nd Dept 2022]).

Here, the plaintiff has not established that it acquired personal jurisdiction over the defendants. The plaintiff has not proffered the certified mail return receipts of service over the defendants. Without them, the plaintiff cannot establish when and if the defendants received service of the commencement papers. There remains an open and yet unresolved question regarding whether the Court has personal jurisdiction over the defendants. Until the question is resolved, the defendants should not be under the yoke of an unsupported clerk default judgment.

Accordingly, the clerk judgment entered against the defendants is hereby vacated. All collection activity conducted pursuant to the clerk default judgment must immediately cease and all funds obtained by such collection activity must be returned. If the plaintiff again seeks a default judgment it must do so by a notice of motion.

CONCLUSION

The motion by the defendants for an order pursuant to CPLR 5015(a)(4) vacating the judgment of the Clerk of the New York State Supreme Court for the County of Kings, entered on the 29th Day of June 2022 in the amount of $3,071,716.02 is granted.

The foregoing constitutes the decision and order of this Court.

ENTER:

_____________________________________
J. S.C.

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