Specfin Mgmt. LLC v. Elhadidy

• Decision Date: 24 November 2021
• Docket Number: 530082
• Parties: SPECFIN MANAGEMENT LLC, as Assignee of GTA Asset Based Fund, a Segregated Series of Ifunds LLC, Respondent, v. Nabil Ahmed ELHADIDY et al., Appellants, et al., Defendant.
• Court: New York Supreme Court — Appellate Division

201 A.D.3d 31
158 N.Y.S.3d 366

SPECFIN MANAGEMENT LLC, as Assignee of GTA Asset Based Fund, a Segregated Series of Ifunds LLC, Respondent,
v.
Nabil Ahmed ELHADIDY et al., Appellants, et al., Defendant.

530082

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

Calendar Date: October 19, 2021
Decided and Entered: November 24, 2021

158 N.Y.S.3d 368

Mandelbaum Salsburg PC, Roseland, New Jersey (Boris Peyzner of counsel), for appellants.

McLaughlin & Stern LLP, New York City (Chester R. Ostrowski of counsel), for respondent.

Before: Garry, P.J., Lynch, Clark, Reynolds Fitzgerald and Colangelo, JJ.

OPINION AND ORDER

Lynch, J.

201 A.D.3d 33

(1) Appeal from a judgment of the Supreme Court (Crowell, J.), entered August 12, 2019 in Saratoga County, upon a decision of the court in favor of plaintiff, and (2) motion to file a supplemental record.

158 N.Y.S.3d 369

Defendant Nabil Ahmed Elhadidy is a medical doctor and president of defendant Heliopolis Medical, P.C., a professional corporation that provided no-fault medical examinations in connection with motor vehicle accidents. In May 2014, Heliopolis

201 A.D.3d 34

entered into a "No Fault Medical Claim Flow Funding and Security Agreement" (hereinafter the security agreement) with GTA Asset Based Fund (hereinafter GTA), under which GTA agreed to provide Heliopolis with up to $2,500,000 in funding for its operating expenses, using Heliopolis’ accounts receivables as both collateral and the basis on which funds would be loaned. Correspondingly, Heliopolis and GTA executed an "Assignment Agreement" which, in part, authorized GTA to recover expenses and counsel fees in the event of a breach of contract.

In accordance with the security agreement, GTA advanced a gross total of $370,472.13 to Heliopolis between June and July 2014.¹ Heliopolis, in turn, assigned to GTA all of its rights to the proceeds of certain no-fault insurance medical receivables (hereinafter the medical receivables), which had a total face value of $756,065.58. In or around August 2014, Heliopolis ceased its operations. Taking the position that the business cessation constituted a breach of the security agreement, GTA terminated the agreement and gave Heliopolis and Elhadidy (hereinafter collectively referred to as defendants) notice of its intent to foreclose on the collateral – i.e., the outstanding medical receivables – by holding a public auction pursuant to the Uniform Commercial Code (see UCC 9–611 ). GTA was the only bidder at the public auction and purchased the collateral by way of a $50,000 credit bid, which it then credited against the outstanding balance of the loan.

GTA thereafter assigned its rights under the security agreement to plaintiff.² In April 2015, plaintiff filed an amended verified complaint against defendants³ asserting, as relevant here, two causes of action for breach of contract⁴ and seeking $279,479.92 in damages, plus statutory interest and counsel

201 A.D.3d 35

fees, on each breach of contract claim. Defendants answered, raised various affirmative defenses and interposed three counterclaims, including that GTA had breached the security agreement by wrongfully diverting ownership of the medical receivables to itself (hereinafter the third counterclaim).⁵

Following the exchange of discovery, plaintiff moved for partial summary judgment on its breach of contract claims and also sought dismissal of defendants’ third counterclaim. Plaintiff emphasized that, under the security agreement, Heliopolis represented that it expected to generate

158 N.Y.S.3d 370

medical receivables equal to at least $2,500,000 and would "not deviate from providing the stated scope of medical services ... without prior notification to [l]ender." Notwithstanding such assurances, Heliopolis ceased operation of the business only a few months later. Plaintiff further alleged that defendants failed to pay the deficiency amount owed following the foreclosure sale that ensued. Defendants opposed the motion and cross-moved for summary judgment seeking dismissal of the amended complaint and a judgment in their favor on the third counterclaim to recover the surplus on medical receivables obtained by plaintiff.

By order entered October 24, 2017, Supreme Court granted plaintiff's motion on the breach of contract claims, denied plaintiff's motion seeking dismissal of the third counterclaim and denied defendants’ cross motion in its entirety. As to the breach of contract claims, Supreme Court found that cessation of Heliopolis’ business constituted a breach of the security agreement under the "clear and unambiguous" events of default enumerated therein. With respect to the third counterclaim, the court found that triable issues of fact existed, precluding judgment as a matter of law.

At the beginning of the ensuing bench trial, the parties represented that the third counterclaim had been discontinued in a written stipulation executed a week prior. Supreme Court acknowledged as much and began a bench trial solely on the issue of damages, at which the parties submitted evidence regarding the commercial reasonableness of the sale of the collateral and the amount of the credit bid submitted by GTA. Following the trial, Supreme Court, as relevant here, found

201 A.D.3d 36

that the foreclosure sale and the $50,000 credit bid were commercially reasonable under the Uniform Commercial Code, and that defendants were jointly and severally liable for contractual damages in the amount of $201,104.25 (representing the uncollected principal balance on the total advance amount under the security agreement, less the $50,000 credit bid), plus prejudgment interest at a rate of 9% per annum from September 19, 2014 – the date of the foreclosure sale – until entry of a final judgment. The court also found that plaintiff was entitled to counsel fees and litigation expenses in the amount of $240,000, with prejudgment interest at a rate of 9% per annum from the first day of the trial until entry of the final judgment. A judgment memorializing the awards was entered on August 12, 2019. Defendants appeal from the judgment⁶ and seek leave to supplement the record on appeal.

With respect to defendants’ motion to supplement the record, they argue that they should be allowed to include a written copy of the stipulation discontinuing the third counterclaim. Plaintiff opposes the motion on the ground that the stipulation was never "so-ordered" by the trial court or otherwise duly entered. Although "[d]ocuments or information that were not before [the trial court] cannot be considered by this Court on appeal" ( Xiaoling Shirley He v. Xiaokang Xu, 130 A.D.3d 1386, 1387, 16 N.Y.S.3d 90 [2015] [internal quotation marks and citations omitted], lv denied 26 N.Y.3d 904, 2015 WL 5149899 [2015] ; see CPLR 5526 ), the record demonstrates that the stipulation resulted from a mutual accord between the parties, contained all of the material terms of the agreement, and was submitted to and approved by Supreme Court (see generally

158 N.Y.S.3d 371

Hallock v. State of New York, 64 N.Y.2d 224, 230–231, 485 N.Y.S.2d 510, 474 N.E.2d 1178 [1984] ; Birches at Schoharie, L.P. v. Schoharie Senior Gen. Partner LLC, 169 A.D.3d 1192, 1194, 94 N.Y.S.3d 412 [2019] ).

To that end, the copy of the stipulation that defendants seek to include in the record was signed by counsel for both parties on March 26, 2019. It provides that the third counterclaim "shall be, and hereby is, discontinued pursuant to [ CPLR 3217(a)(2) ] ... without prejudice to any right of [d]efendants to appeal the determination [of Supreme Court] that Heliopolis ... breached the relevant [security agreement] and to reinstate

201 A.D.3d 37

the [t]hird [c]ounterclaim in the event that such determination is reversed on appeal." Plaintiff's counsel sent an email to Supreme Court that same day advising that the parties had "agreed to discontinuance of [the][t]hird [c]ounterclaim, subject to the conditions set forth in the attached stipulation." During a court appearance on April 1, 2019, Supreme Court noted that the third counterclaim had been withdrawn and plaintiff's counsel reiterated that he had submitted a stipulation the week prior discontinuing the counterclaim. Moreover, in its posttrial order entered in July 2019, Supreme Court stated that the third counterclaim "was discontinued by and through a[j]oint [s]tipulation approved by the [c]ourt, on the record, on April 1, 2019." As the stipulation was signed by counsel for both parties, contained all of the material terms of the agreement, and was provided to and approved by the trial court, we conclude that it is valid and enforceable and grant defendants’ request to supplement the record to include this document (see generally CPLR 5526 ).

As to the merits, we find no basis to disturb Supreme Court's determination that...