Tender Loving Care Homes Inc. v. Reliable Fast Cash, LLC.

• Decision Date: 22 June 2022
• Docket Number: Index No. 152109/2021
• Parties: TENDER LOVING CARE HOMES INC. and Frederick A. Baker, Plaintiff v. RELIABLE FAST CASH, LLC., Defendants.
• Court: New York Supreme Court

76 Misc.3d 314

172 N.Y.S.3d 335

TENDER LOVING CARE HOMES INC. and Frederick A. Baker, Plaintiff

v.RELIABLE FAST CASH, LLC., Defendants.

Index No. 152109/2021

Supreme Court, Richmond County, New York.

Decided on June 22, 2022

Plaintiff is represented by Brandon Schwartz Esq. (11 Broadway Ste. 615, NY NY 100004)

Defendants are represented by Jeffrey S. Zachter Esq. (2 University Plaza, Suite 205, Hackensack NJ 07601)

Catherine M. DiDomenico, J.

The Decision and Order is as follows:

Procedural History/ Present Motion

Plaintiffs Tender Loving Care Homes Inc. ("Tender") and its Principal Frederick A. Baker commenced the present plenary action by filing a Summons and Complaint on or about November 10, 2021. Plaintiffs subsequently filed an Amended Complaint on November 12, 2021, which corrected certain procedural errors but did not assert any additional causes of action. Plaintiffs assert four causes of action in their pleading. Plaintiffs’ main cause of action seeks a declaratory judgment that the contract entered into between Tender and Defendant Reliable Fast Cash LLC ("Reliable"), and the personal guaranty signed by Plaintiff Baker, are "criminally usurious loans" disguised as "receivables purchase agreements." Plaintiffs’ second cause of action seeks a declaratory judgment that the Confession of Judgment signed by Plaintiffs is invalid as it is a product of the allegedly illegal contract. Plaintiffs’ third cause of action seeks a declaratory judgment that the forum selection clause of the contract is invalid and thus that this Court does not have jurisdiction over the matter. Finally, Plaintiffs assert a cause of action for unjust enrichment.

Frederick Baker is the owner of Plaintiff Tender Loving Care Home Inc. Tender entered into a contract dated September 13, 2018 with Defendant Reliable. Under the terms of the agreement, Reliable purchased the rights to Tender's future receivables, having a face value of $356,762 for the purchase price of $238,000 . In exchange for the purchase price, Tender authorized Reliable to debit $2,744 daily from an agreed upon bank account, which was intended to represent an estimate of 42% of Tender's daily revenue, until the purchase amount was paid in full. This agreed upon amount was based upon an estimation that Tender's average monthly sales amounted to $153,000 at the time of signing. In addition to signing the agreement in his corporate capacity, Mr. Baker also signed a personal guarantee and an Affidavit of Confession of Judgment, which Reliable would hold in escrow pending a default by Tender. In sum and substance, the Confession of Judgment stated that in the event of a default Defendant would file the Judgment in the amount of $356,762 less any receivables not yet purchased plus interest at a rate of 16%, plus attorney's fees. It is undisputed that in or around October of 2018 Tender blocked payments from the specified bank account resulting in a breach of the contract. Reliable thereafter filed the Judgment in the amount of $73,318.48 representing the contractual balance owed at the time of breach, to wit , $54,833.82 plus attorneys’ fees and costs. Reliable waived prejudgment interest.

Defendant Reliable now moves by Notice of Motion (Seq. No. 001) for an order dismissing the Plaintiffs’ case pursuant to CPLR § 3211(a)(1) and (a)(7). In sum and substance Defendant argues that the documentary evidence supporting their motion clearly establishes that the underling contract at issue is a valid agreement to purchase future receivables and is not a loan from which a finding of usury could be made. Defendant further argues that the Confession of Judgment that resulted from Plaintiffs’ breach of the underlying contract is also enforceable, as it is simply a stipulated remedy for that breach. Finally, Defendant argues that this Court has jurisdiction over the matter as the parties agreed to a valid forum selection clause, and the Defendants are located within New York State.

Oral argument of the present motion was held on March 21, 2022. During that argument Plaintiffs withdrew their causes of action relating to the jurisdiction of this Court and conceded that the matter could be legally adjudicated in this forum (Tr. 3/21/22 pg. 10). Plaintiffs further argued that even if the Court determines that the contract is a valid agreement to purchase accounts receivable, and not a loan, their Complaint is still viable as it asserts causes of action sounding in fraud and breach of contract that would apply regardless of the nature of their loan. However, as a preliminary matter, Plaintiffs have only asserted four causes of action in this matter, none of which sound in breach of contract.

Applicable Law

When considering a motion to dismiss pursuant to CPLR § 3211 a pleading is to be afforded a liberal construction. The Court must generally accept the facts alleged as true and afford them every possible favorable inference. See Rushaid v. Pictet & Cie , 28 N.Y.3d 316, 45 N.Y.S.3d 276, 68 N.E.3d 1 (2016) . On a motion pursuant to CPLR § 3211(a)(7) to dismiss for a failure to state a cause of action, the Court must only determine whether the facts as alleged fit within a cognizable legal theory. See Edelman v. Berman, 195 A.D.3d 995, 151 N.Y.S.3d 123 (2d Dept. 2021) . Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining an (a)(7) motion to dismiss. See Kaufman v. Kaufman, 206 A.D.3d 805, 170 N.Y.S.3d 577 (2d Dept. 2022) . A motion to dismiss pursuant to CPLR § 3211(a)(1) on that ground that a defense is founded on documentary evidence may be appropriately granted only where the documentary evidence offered utterly refutes the plaintiff's factual allegations, conclusively establishing a defense as a matter of law. See Ruffino v. Serio , 206 A.D.3d 775167 N.Y.S.3d 823 (2d Dept. 2022) ; Goshen v. Mut. Life Ins. Co. , 98 N.Y.2d 314, 746 N.Y.S.2d 858, 774 N.E.2d 1190 (2002) .

Decision

Declaratory Judgment

Defendant initially moves pursuant to CPLR § 3211(a)(1) to dismiss Plaintiffs’ primary cause of action seeking a finding that the contract at issue is an unlawful usurious loan. In support of their motion Defendant offers the contract at issue together with an Affidavit from Reliable's Manager, Mendel Chanin. When considering a motion to dismiss pursuant to CPLR § 3211(a)(1) the Court is constrained to only consider documentary evidence that utterly refutes the Plaintiffs’ factual assertions as a matter of law. See Minzer v. Rauch , 206 A.D.3d 721 , 170 N.Y.S.3d 567 (2d Dept. 2022) . Here, Plaintiffs assert that the contract at issue is not what it appears to be, an agreement to purchase future accounts receivable, but rather is a disguised loan which contains a hidden provision charging usurious interest far in excess of New York State's permitted civil rate of 16% and criminal rate of 25%. See Adler v. Marzario , 200 A.D.3d 829, 155 N.Y.S.3d 337 (2d Dept. 2021) ; Bakhash v. Winston , 134 A.D.3d 468, 19 N.Y.S.3d 887 (1st Dept. 2015) . If this assertion is found to be correct, a usurious loan is void on its face and relieves the borrower of the obligation to pay both principal and interest thereon. See General Obligations Law § 5-511 ; Abraham v. American Gardens Co. , 189 A.D.3d 741, 136 N.Y.S.3d 148 (2d Dept. 2020) . However, "the rudimentary element of usury is the existence of a loan and where there is no loan, there can be no usury, however unconscionable the contract may be." Principis Capital, LLC v. I Do, Inc. , 201 A.D.3d 752, 160 N.Y.S.3d 325 (2d Dept. 2022) .

In support of their motion to dismiss, Defendant argues that the contract is exactly what it purports to be, a legal agreement to purchase accounts receivable, and not a loan. In fact, clause four of the contact, entitled "Sale of Future Receipts" begins with the words "THIS IS NOT A LOAN. "¹ When determining the nature of an agreement to purchase receivables, language purporting to state its nature is not conclusive, rather, the contract "must be considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it." See L.G. Funding, LLC v. United Senior Props. Of Olathe, LLC, 181 A.D.3d 664, 122 N.Y.S.3d 309 (2d Dept. 2020) . When considering such an agreement Courts are primarily charged with determining whether the party purchasing the receivables is entitled to repayment under all circumstances, as unless a principal sum advanced is repayable absolutely, the transaction cannot be a loan. See Rubenstein v. Small , 273 A.D.102, 75 N.Y.S.2d 483 (1st Dept. 1947) . Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy." See L.G. Funding , Supra . In New York, there is a presumption that an arm's length transaction between negotiating parties is not usurious. See Giventer v. Arnow , 37 N.Y.2d 305, 372 N.Y.S.2d 63, 333 N.E.2d 366 (1975) ; see also K9 Bytes, Inc. v. Arch Capital Funding, LLC , 56 Misc.3d 807, 57 N.Y.S.3d 625 (Sup. Ct. West. Cty. 2017).

Clause 23 of the contract asserts that both parties reviewed the contract with an attorney of their choosing and relied upon that attorney's guidance and advice. Clause 14.12 of the contract reiterates that the Plaintiff was represented by counsel and asserts that Plaintiff "is a sophisticated business entity familiar with the kind of transaction covered by the agreement." Throughout the contract there are multiple assertions that the agreement is not a loan and is an agreement to purchase a percentage of Tender's accounts receivable. Regarding the three factors above, the agreement does not set a finite term for repayment. Rather, it indicates that Reliable would withdraw 42% of Tender's accounts receivable until the...