Capital Bus. Credit LLC v. Tailgate Clothing Co.

• Court: New York Supreme Court — Appellate Division
• Citation: Capital Bus. Credit LLC v. Tailgate Clothing Co., 172 A.D.3d 655, 103 N.Y.S.3d 365 (N.Y. App. Div. 2019)
• Decision Date: 30 May 2019
• Docket Number: Index 655171/16,9502
• Parties: CAPITAL BUSINESS CREDIT LLC, Plaintiff–Appellant–Respondent, v. TAILGATE CLOTHING COMPANY, CORP., Defendant–Respondent–Appellant.

172 A.D.3d 655

103 N.Y.S.3d 365

CAPITAL BUSINESS CREDIT LLC, Plaintiff–Appellant–Respondent,

v.TAILGATE CLOTHING COMPANY, CORP., Defendant–Respondent–Appellant.

9502

Index 655171/16

Supreme Court, Appellate Division, First Department, New York.

ENTERED: MAY 30, 2019

Hahn & Hessen, LLP, New York (John P. Amato of counsel), for appellant-respondent.

Chipman Brown Cicero & Cole, LLP, New York (Adam D. Cole of counsel), for respondent-appellant.

Sweeny, J.P., Renwick, Manzanet–Daniels, Tom, Oing, JJ.

Order, Supreme Court, New York County (Margaret A. Chan, J.), entered on or about July 25, 2018, which, insofar as appealed from as limited by the briefs, denied plaintiff's motion to dismiss defendant's equitable recoupment affirmative defense and for summary judgment on the account stated claim, and denied defendant's cross motion for summary judgment dismissing the complaint, unanimously affirmed, with costs.

Plaintiff purchased the accounts receivable of nonparty Rio Asset (Asset), the assignee of nonparty Rio Garment (Garment), which manufactured clothing under an agreement with defendant, a supplier to retailers under a licensing agreement with nonparty College Licensing Company (CLC). Defendant then paid plaintiff for 33 invoices, leaving an additional 12 outstanding. After Garment closed its factory in Honduras without paying the workers severance pay, contrary to Honduran law, defendant paid a sum of money to the Worker Rights Consortium (WRC) for severance for the workers. Plaintiff seeks damages related to the 12 unpaid invoices. Defendant claims that it is entitled to a credit for the amount it paid to WRC, pursuant to the doctrine of equitable recoupment.

Summary judgment on the account stated claim is precluded by an issue of fact as to the timeliness of defendant's objection to the unpaid invoices (see Peterson v. Schroder Bank & Trust Co., 172 A.D.2d 165, 567 N.Y.S.2d 704 [1st Dept. 1991] ). It is undisputed that Garment did not violate its manufacturing agreement with defendant until August 2016, when it terminated the workers in Honduras. Thus, defendant had no grounds for objecting to the invoices and/or purchase orders until that time. Moreover, plaintiff conceded that 8 of the 12 invoices for which it seeks payment were not yet due at the time of Garment's alleged breach.

The equitable recoupment defense was correctly sustained, as it is based on the same transactions that were subject to defendant's licensing agreement with CLC and its manufacturing agreement with Garment, which required compliance with Honduran law (see CPLR 203[d] ; 182 Franklin St. Holding Corp. v. Franklin Pierrepont Assoc., 217 A.D.2d 508, 509, 630 N.Y.S.2d 64 [1st Dept. 1995] ; see UCC 9–404[a], [b] ). While Asset (Garment's assignee) was not a party to those agreements, as the motion court observed, the transactions could not have...