GMI Grp., Inc. v. Unique Funding Solutions, LLC (In re GMI Grp., Inc.), CASE NO. 19-52577-PMB
| Decision Date | 09 August 2019 |
| Docket Number | CASE NO. 19-52577-PMB,ADVERSARY PROCEEDING NO. 19-5138 |
| Citation | 606 B.R. 467 |
| Parties | IN RE: GMI GROUP, INC., Debtor. GMI Group, Inc., Plaintiff, v. Unique Funding Solutions, LLC, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Shayna M. Steinfeld, Steinfeld & Steinfeld PC, Atlanta, GA, for Plaintiff.
Mathew A. Schuh, Mathew A. Schuh, P.C., Atlanta, GA, for Defendant.
This matter (the "Adversary Proceeding") comes before the Court on the following: (i) a Motion to Dismiss Adversary Proceeding, or in the Alternative, Summary Judgment (Docket No. 6)(the "UFS Motion") filed by the above-referenced Defendant ("Defendant") on March 26, 2019; and (ii) a Cross-Motion for Summary Judgment on Counts I and III, and Response to Defendant's Motion to Dismiss and Motion for Summary Judgment of Adversary Proceeding (Docket No. 13)(the "Motion for Summary Judgment") filed by the Plaintiff-Debtor (the "Debtor") on April 22, 2019.1 The UFS Motion appears to seek both dismissal of the complaint of the Debtor that commenced this Adversary Proceeding (Docket No. 1-1)(the "Complaint") as well as summary judgment as to all of the counts asserted in the Complaint. Further, the UFS Motion requests a judgment in Defendant's favor in the amount of $136,967.62. For the reasons set forth below, the UFC Motion is granted in part and denied in part, and the Motion for Summary Judgment is granted in part and denied in part.
The genesis of this Adversary Proceeding is an "Agreement for the Purchase and Sale of Future Receipts" (the "Agreement")(Ex. A, Docket No. 1-2, pp. 1-10) dated October 3, 2018 in which the Debtor agreed to a sale of its future receipts to Defendant in exchange for an immediate cash advance (such an agreement is known generally as a "merchant cash advance agreement"). Pursuant to the Agreement, the Debtor sold $111,750.00 (the "Purchased Amount") of its future receipts (the "Future Receipts") to Defendant in exchange for a purchase price of $75,000.00 (the "Purchase Price"). In exchange for Defendant's payment of the Purchase Price, the Debtor agreed to allow Defendant to collect the Purchased Amount through daily debits from a specified bank account of the Debtor in the amount of $1,117.00 (the "Daily Amount"), which is 17 percent (the "Specified Percentage") of the Debtor's anticipated daily Future Receipts, until the Purchased Amount is paid in full. The Debtor's principal, Kayla Dang ("Ms. Dang"), personally guaranteed the Debtor's performance under the Agreement (the "Guaranty")(Ex. A, Docket No. 1-2, pp. 11-13). Defendant was also granted a security interest in the collateral enumerated in the Agreement and was authorized to file a UCC-1 financing statement evidencing its security interest therein. Id. at 5. The filed financing statement is included as Ex. A to Docket No. 1-2 at p. 14.
The Agreement provides that the transaction is not a loan, but merely a sale of a portion of the Debtor's future receipts at a discount to Defendant:
[Debtor] is selling a portion of a future revenue stream to [Defendant] at a discount, not borrowing money from [Defendant]. There is no interest rate or payment schedule and no time period during which the Purchased Amount must be collected by [Defendant].
Id. at 3. The Agreement further states that Defendant's purchase of the Future Receipts is with the risk that the Debtor's business may decline, fail, or end up in bankruptcy, and that Defendant assumes such risk based on the Debtor's representations, warranties, and covenants contained in the Agreement:
If Future Receipts are remitted more slowly than [Defendant] may have anticipated or projected because [Debtor's] business has slowed down, or if the full Purchased Amount is never remitted because [Debtor's] business went bankrupt or otherwise ceased operations in the ordinary course of business, and [Debtor] has not breached this Agreement, [Debtor] would not owe anything to [Defendant] and would not be in breach of or default under this Agreement.
Id. The Agreement also allows both parties to reconcile the Daily Amount that Defendant can debit from the Debtor's bank account to more accurately reflect the Debtor's actual Future Receipts:
Events of Default, as defined in the Agreement, occur if: (i) the Debtor takes any actions to interfere with Defendant's collection of the Purchased Amount; (ii) the Debtor violates any representations, warranties, or covenants contained in the Agreement; (iii) the Debtor enters into any other form of financing without the written consent of Defendant; (iv) the Debtor interferes with Defendant's access to bank information; (v) the Debtor defaults under any terms or conditions of any other agreements with Defendant; (vi) the Debtor fails to provide timely notice to Defendant resulting in two or more rejected debits attempted by Defendant in any given calendar month; (vii) the Debtor changes the control of its business; (viii) the Debtor becomes subject to any judgment, garnishment, or tax lien after the execution of the Agreement; (ix) the Debtor defaults under any other material agreement or contract; (x) the Debtor fails to maintain twice the amount of the Daily Amount in its bank account at any time during the Agreement. Id. at 6.
If an Event of Default occurs, the following remedies apply:
The Complaint contains the following counts: (i) Count I for criminal usury under New York law regarding the Agreement ("Count I"); (ii) Count II for unjust enrichment ("Count II"); (iii) Count III for avoidance and recovery of preferential transfers under 11 U.S.C. §§ 547 and 550 ("Count III"); (iv) Count IV for avoidance and recovery of fraudulent transfers under 11 U.S.C. §§ 548(a)(1)(B) and 550 ("Count IV"); (v) Count V for declaratory judgment as to the validity, priority, or extent of security interests ("Count V"); (vi) Count VI for claims issues related a claim filed by Defendant in the underlying bankruptcy case; and (vii) Count VII for unconscionability ("Count VII").
The Debtor contends in the Complaint that Defendant obtained a confession of judgment against the Debtor on November 16, 2018 in a New York state court (the "Confessed Judgment")(Ex. A, Docket No. 1-2, pp. 15-19). The Debtor asserts that, in conjunction with executing the Agreement, Ms. Dang executed an affidavit of confession of judgment that was then used by Defendant to obtain the Confessed Judgment. This affidavit is attached to an Affidavit of Kayla Dang (Docket No. 15)(the "Dang Affidavit") at page five (5).
The Confessed Judgment is in the amount of $136,967.62 and is comprised of the Purchased Amount ($111,750.00) minus payments received ($8,936.00); attorney's fees in the amount of $33,928.62; and miscellaneous fees and costs in the amount of $225.00. Ex. A, p. 16. The Debtor contends that, in addition to the $8,936.00 in payments set forth in the Confessed Judgment, it also made additional payments in the amount of $7,819.00, totaling $16,755.00 in payments made under the Agreement. The Debtor asserts that Defendant attempted to use the Confessed Judgment to initiate garnishment proceedings against the Debtor and Ms. Dang. The...
To continue reading
Request your trial
-
Kapitus Servicing v. Polk (In re Polk)
...and September Contracts were actually contracts of sale or disguised loans. In the case of GMI Group, Inc. v. Unique Funding Solutions, LLC (In re GMI Group, Inc.), 606 B.R. 467 (Bankr. N.D. Ga 2019), the court considered a financing agreement similar to the one in the instant case to deter......
- McGregor v. McGregor (In re McGregor)