Am. Water Restoration, Inc. v. AKF Inc.
Decision Date | 07 January 2022 |
Docket Number | Index No. 130145-2021 |
Citation | 74 Misc.3d 1203 (A),157 N.Y.S.3d 919 (Table) |
Parties | AMERICAN WATER RESTORATION, INC., and Ernesto Escamilla, Plaintiffs, v. AKF INC., dba Fundkite, Defendant. |
Court | New York Supreme Court |
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 .
Plaintiffs cannot receive a preliminary injunction, and Defendant is afforded a dismissal.
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) ( ). 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) ( ); Mangovski v. DiMarco , 175 AD3d 947 (4th Dept 2019) ( ).
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) ( ). 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) ( ); 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) ( ); Sutton, DeLeeuw, Clark & Darcy v. Beck , 155 AD2d 962 (4th Dept 1989) ( ).
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) ( ); Dwyer v. Citizens United Bank, N.A. , 98 AD2d 954, 955 (4th Dept 1983) ( ).
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:
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) ( ); Spires v. Mihou , 273 AD2d 844, 844 (4th Dept 2000) ( ). 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.1 See e.g. Eastman Kodak Co. v. Carmosino , 77 AD3d 1434, 1435 (4th Dept 2010) ( ).
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) ( ). 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...
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