Ncsplus Inc. v. WBR Mgmt. Corp.

• Decision Date: 31 May 2012
• Citation: 2012 N.Y. Slip Op. 22202,949 N.Y.S.2d 317,37 Misc.3d 227
• Parties: NCSPLUS INCORPORATED, Plaintiff, v. WBR MANAGEMENT CORP., Defendants.
• Court: New York Supreme Court

37 Misc.3d 227

949 N.Y.S.2d 317

2012 N.Y. Slip Op. 22202

NCSPLUS INCORPORATED, Plaintiff,

v.WBR MANAGEMENT CORP., Defendants.

Supreme Court, New York County, New York.

May 31, 2012.

Cohen & Krassner by Mark Krassner, New York, for Plaintiff.

Daniels Norelli Scully & Cecere, P.C., by Ira R Sitzer, Carle Place, for Defendant.

CAROL R. EDMEAD, J.

In this breach of contract action, defendant WBR Management Corp. (“defendant”) moves for summary judgment dismissing the complaint of the plaintiff, NCSPlus Incorporated (“plaintiff”) and for a trial on defendant's counterclaims for breach of the same contract, conversion, and misrepresentation.¹

Factual Background

According to the complaint, plaintiff, a collection agency, entered into a “Service Contract” with defendant to collect money on defendant's behalf on defendant's account receivables (the “Contract”). Plaintiff claims that defendant withdrew its account receivables and failed to pay plaintiff monies due under the contract in the amount of $46,550.96 since November 13, 2009.

In support of dismissal, defendant argues that because plaintiff, a debt collection agency, failed to allege that it is duly licensed pursuant to Administrative Code of the City of New York (“Adm. Code”) § 20–489(a), and failed to allege its licensing information as required pursuant to CPLR 3015(e), the complaint should be dismissed.

Defendant also contends the “withdrawal fee” upon which plaintiff's claim is based is an unenforceable penalty. If defendant should withdraw any of its accounts for any reason, the contract awards plaintiff with a withdrawal fee, or liquidated damages, amounting to plaintiff's full fee that it would receive under the Contract had plaintiff fully performed and collected 100% of the account withdrawn. Defendant paid plaintiff $1000 upon signing the Contract to collect on 20 open accounts constituting a total debt of $149,701.89, only to receive $750 in return over a two-year period. The 20 accounts represented rent monies owned by former tenants of buildings managed by defendant. Thus, such withdrawal fee is an unenforceable penalty as it bears no relation to the probable loss and is disproportionate to the probable loss plaintiff would sustain upon defendant's withdrawal of an account from plaintiff's collection service. The penal nature of the withdrawal fee is further established given that the Contract has no expiration term. Thus, defendant must either leave its account receivables with plaintiff, regardless of whether plaintiff performs under the Contract or whether plaintiff withdraws the accounts and pay plaintiff its full fee as if all accounts had been fully collected.

Defendant also argues that the Contract is unenforceable because it lacks consideration. There is no term after which it expires, and the withdrawal fee penalizes defendant for withdrawing any account from plaintiff. Thus, plaintiff can make no effort to collect the debts referred by defendant, and still earn all possible fees, as if plaintiff collected 100% of every outstanding dollar on one of defendant's accounts. Thus, the Contract is more of a financial benefit to plaintiff to do nothing and wait for plaintiff to withdraw its accounts, demonstrating the lack of any quid pro quo.

Further, plaintiff breached the implied covenant of good faith and fair dealing. At the time defendant withdrew its accounts from plaintiff, many of them were nearing the statute of limitations deadline. Plaintiff had not forwarded any of defendant's accounts to any attorney for processing, and such failure placed defendant in a position to choose between doing nothing and allowing the statute of limitations to run, or to withdraw the account and trigger the withdrawal fee clause. Plaintiff's failure to actively collect on the accounts and wait for defendant to withdraw its accounts constitutes a breach of the implied covenant of good faith and fair dealing.

Defendant argues that all of the above factors render the Contract unconscionable. Defendant notes that only the front page of the double-sided Contract was faxed to defendant for signature, and thus, defendant was unaware of the withdrawal fee until this action was commenced. Therefore, defendant did not have the benefit of reviewing the Contract's withdrawal fee clause.

In opposition, plaintiff argues that even though plaintiff is a licensed a debt collection agency, “this is not a consumer credit transaction,” but a commercial claim, and thus, there is no requirement that licensing information be included in the complaint.

Further, the withdrawal fee clause is appropriate to protect the plaintiff in the event defendant unilaterally withdraws the claims after collection services are performed and/or monies received by the client prior to the withdrawal without plaintiff's knowledge. Thus, the fee is not a penalty, but a reasonable and bargained for condition of plaintiff's collection work. It just obligates defendant to pay the fee that would have been earned if the claim were collected; it does not add, assess or charge any additional monies.

Defendant's interpretation is unreasonable, because if plaintiff does not perform or collect monies, no fee will be earned by plaintiff. It is irrational to assume that plaintiff would withhold performing the collection activities upon the hope that defendant will eventually withdraw its accounts. In any event, plaintiff performed collection services for defendant.

Further, the Contract is supported by consideration, such consideration being the plaintiff's attempts to collect monies owed to defendant from third parties. Plaintiff undertook collection efforts and defendant compensated plaintiff for such efforts. Whether the defendant entered into a good deal is not for the Court to determine.

And, the breach of covenant of good faith and fair dealing and unconscionability lack merit and are irrelevant to this standard collection agreement.

Plaintiff also points out that the defendant's signature on the first page is beneath an acknowledgment that says that it read the reverse side of the Contract and understood its terms and conditions. As a manager of properties for landlords, defendant cannot claim ignorance of straightforward terms in a two-page agreement. And, defendant paid $750 pursuant to the second page of the Contract.

Discussion

To succeed on a summary judgment motion, a movant must establish its cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in its favor (CPLR § 3212[b] ), and to demonstrate, by advancing sufficient “evidentiary proof in admissible form,” the absence of any material issues of fact ( Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 [1985];Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ). Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action ( Vermette v. Kenworth Truck Co., 68 N.Y.2d 714, 717, 506 N.Y.S.2d 313, 497 N.E.2d 680 [1986];Zuckerman, supra, 49 N.Y.2d at 560, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718).

Like the proponent of the motion, the party opposing the motion must set forth evidentiary proof in admissible form in support of his or her claim that material triable issues of fact exist, requiring a trial of the action ( Zuckerman, supra at 562, 427 N.Y.S.2d 595, 404 N.E.2d 718).

First, the Court finds that defendant's argument based on plaintiff's alleged failure to allege that it is licensed and failure to allege its licensing information lacks merit. It is undisputed that plaintiff is a debt collection agency, and required to be licensed as such pursuant to Administrative Code of the City of New York § 20–489(a). CPLR 3015(e) provides:

License to do business. Where the plaintiff's cause of action against a consumer arises from the plaintiff's conduct of a business which is required by state or local law to be licensed by the department of consumer affairs of the city of New York ... the complaint shall allege, as part of the cause of action, that plaintiff is duly licensed and shall contain the name and number, if any, of such license and the governmental agency which issued such license; provided, however, that where the plaintiff does not have a license at the commencement of the action the plaintiff may, subject to the provisions of rule thirty hundred twenty-five of this article, amend the complaint with the name and number of an after-acquired license and the name of the governmental agency which issued such license or move for leave to amend the complaint in accordance with such provisions. The failure of the plaintiff to comply with this subdivision will permit the defendant to move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter. (Emphasis added).

While CPLR 3015(e) does not define “consumer,” it is noted that CPLR 105 provides that “The term consumer credit transaction' means a transaction wherein credit is extended to an individual and the money, property, or service which is the subject of the transaction is primarily for personal, family or household purposes.” Thus, a “consumer credit transaction” is a transaction that involves a purchase or loan for “personal, family or household purposes” (PRACTICE COMMENTARIES, by Patrick M. Connors McKinney's CPLR Rule 3015citing Migdal Plumbing & Heating Corp. v. Dakar Developers, Inc., 232 A.D.2d 62, 65–66, 662 N.Y.S.2d 106, 108 [1st Dept. 1997] (noting that while the term “consumer” is undefined in the statute, it “may reasonably be construed to apply to a person, family or household”; Bayonne Block Co. v. Porco, 171 Misc.2d 684, 654 N.Y.S.2d 961 [N.Y. City Civil Ct. 1996] (declining to permit another...