White Oak Commercial Fin. v. Eia Inc.

Docket NumberINDEX Nos. 650346/2023,05/18/2023,MOTION SEQ. Nos. (MS) 003,004,NYSCEF DOC. No. 157
Decision Date12 June 2023
Citation2023 NY Slip Op 31973 (U)
PartiesWHITE OAK COMMERCIAL FINANCE, LLC, Plaintiff, v. EIA INC., ELECTRONIC INTERFACE ASSOCIATES, INC., EIA DATACOM, INC, EIA ELECTRIC, INC, GEORGE ENGEL LIC, LLC, YOLANDA DELPRADO, ALEXANDRA ENGEL, DAVID ENGEL, GEORGE ENGEL, MATTHEW ORENT, ANDREEA ORENT, CHARLES SCHWAB &CO, INC. (A NOMINAL DEFENDANT), ADP TOTALSOURCE, INC. (A NOMINAL DEFENDANT), 1861 ACQUISITION LLC (A NOMINAL DEFENDANT), GREAT MIDWEST INSURANCE COMPANY (A NOMINAL DEFENDANT), and SOFIA ENGEL, Defendants.
CourtNew York Supreme Court

Unpublished Opinion

MOTION DATE: 05/08/2023

DECISION + ORDER ON MOTION

MARGARET CHAN, J.S.C.

HON MARGARET CHAN:

The following e-filed documents, listed by NYSCEF document number (MS 003) 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58 59, 60, 61, 62, 120, 121, 122, 123, 124, 125, 126, 127, 128 129, 132, 133, 134, 138, 139, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155 were read on this motion to/for ORDER OF ATTACHMENT

The following e-filed documents, listed by NYSCEF document number (MS 004) 94, 95, 96, 97, 98, 99, 100, 119, 130, 137 were read on this motion to/for MISCELLANEOUS

Plaintiff White Oak Commercial Finance, LLC (White Oak) brings this action against defendants EIA Inc., Electronic Interface Associates, Inc., EIA Datacom, Inc., EIA Electric, Inc. (collectively, Borrowers), Yolanda V. DelPrado, Alexandra Engel, George Engel, Matthew Orent (Matthew, with DelPrado, Alexandra Engel, and George Engel, collectively, the Individual Guarantors), George Engel LIC, LLC (George Engel LIC, with the Individual Guarantors, collectively, Guarantors), AnDreea Orent (AnDreea, with Borrowers and Guarantors, collectively, the EIA Defendants), and Sofia Engel, alleging causes of action for, inter alia, breach of contract, replevin, conversion, negligent misrepresentation, fraudulent misrepresentation, and fraudulent conveyance.

Presently before the court is White Oak's motion (MS003) seeking (1) a preliminary injunction enjoining and retraining Matthew and AnDreea (together, the Orents) from using, transferring, selling, pledging, assigning, or disposing of any of the their property and identifiable proceeds to any person, corporation, or entity other than White Oak, or permitting such assets to become subject to a security interest or lien other than in favor of White Oak; and (2) an order of attachment against the Orents' property up to the amount due and owning by the EIA Defendants to White Oak in the sum of $9,720,545.09 (NYSCEF #120).[1] The Orents oppose the motion.

Also before the court is the Orents' motion (MS004) for an order directing Charles Schwab &Co. (Charles Schwab or Schwab)[2] to remove restrictions on certain individual brokerage, joint brokerage, and Individual Retirement Account (IRA) accounts owned by Matthew and AnDreea (NYSCEF # 94). Both White Oak and Charles Schwab oppose the motion.

BACKGROUND

The following facts are derived from (1) the parties' submissions filed in connection with MS 003 and 004 (NYSCEF # 96-100; NYSCEF # 120-129; NYSCEF # 144-155); (2) the Affidavit of Robert L. Dean and its accompanying exhibits which were submitted in support of White Oak's January 18, 2023 Order to Show Cause (NYSCEF # 41-62) and relied upon and referenced by White Oak in MS 003; and (3) the Verified Amended Complaint (NYSCEF # 102).

EIA Defendants Enter into Credit Agreement with White Oak

On November 12, 2020, White Oak's predecessor in interest, White Oak Business Capital, Inc., entered into with Borrowers a Revolving Credit and Security Agreement (the Credit Agreement) (NYSCEF #41 - Dean Aff.; NYSCEF # 42 -Credit Agreement; NYSCEF # 48). Under the Credit Agreement, White Oak extended to Borrowers a $10 million revolving secured line of credit (Credit Agreement §§ 1.1, 2.1, 2.9). The Credit Agreement makes it clear that "[t]he aggregate outstanding Obligations shall not exceed the Credit Limit," as those terms are defined therein (id. §§ 1.1, 2.9).

Together with the Credit Agreement, Borrowers executed a promissory note, dated November 12, 2020, under which Borrowers covenanted and agreed to pay the lesser of $10 million or "the aggregate unpaid principal amount of all Advances made or extended to Borrowers under [the Credit Agreement]" (NYSCEF # 50). As a condition to White Oak extending the credit line to Borrowers, each Individual Guarantor, including Matthew,[3] executed unconditional and absolute personal guarantees of Borrowers' Obligations on November 12, 2020 (NYSCEF # 51).

The Credit Agreement sets forth various occurrences constituting an "Event of Default" (Credit Agreement § 8.1). This includes, inter alia, Borrower "fail [mg] to pay any Obligation or failing] to perform or observe any term, covenant or agreement contained in this Agreement" (id. § 8.1(a)). In the event of a default, White Oak's obligations to make advances terminate and all Obligations under the Credit Agreement become immediately due and payable (id. Article IX). White Oak could also exercise certain enumerated rights and remedies under the Credit Agreement (id. § 9.1).

The Credit Agreement also provides that "[a]s security for the payment of all Obligations, and satisfaction by Borrowers of all covenants and undertakings contained in" the Credit Agreement, Borrowers granted a "first Lien on and security interest in" Borrowers' assets, including, among other items, inventory, equipment, books, records, and accounts receivable (the Collateral) (Dean Aff. ¶ 7; Credit Agreement § 4.1). And Borrowers represented and warranted in the Credit Agreement that White Oak would have a "valid, perfected security interest in the Accounts and the other Collateral, subject to no other Liens, claims or encumbrances . . ." (Credit Agreement § 5.10). White Oak perfected its security interest in the Collateral by filing Uniform Commercial Code (UCC) financing statements with appropriate authorities (NYSCEF # 49).

Borrowers' Purported Default and Matthew's Pledge of the Brokerage Account

White Oak agreed to advance up to 85% of Borrowers' eligible accounts receivable delineated in the Credit Agreement (Dean Aff. ¶ 19; Credit Agreement § 2.3). In exchange, Borrowers were required to submit to White Oak an Accounts Reporting Certificate (ARC) that certified the total calculation of eligible accounts receivable (Dean Aff. ¶195 Credit Agreement §§ 1.1, 2.2-2.3). White Oak alleges that it relies upon ARCs when determining whether to extend loans to Borrowers (Am. Compl. ¶ 45). While White Oak claims that AnDreea was involved in preparing ARCs (id. ¶¶ 44, 46), DelPrado affirms that AnDreea made no decisions regarding their contents and only provided certain information discerned from her collection activities on behalf of Borrowers (NYSCEF # 151 - DelPrado Aff. ¶¶ 5'9).

Beginning in August 2022, Borrowers apparently began experiencing collection issues on their accounts receivable (Dean Aff. ¶ 21; Am. Compl. ¶ 48). Consequently, on September 13, 2022, Borrowers submitted to White Oak an ARC that removed approximately $1.72 million from the borrowing base, purportedly without adequate explanation (Dean Aff. ¶ 21; Am. Compl. ¶ 48; NYSCEF # 53 [reflecting adjustments to the "Other Adjustments to A/R" line item]). White Oak contends that this apparent write-off caused Borrowers' outstanding Obligations to exceed the Credit Limit in breach of Section 2.9 of the Credit Agreement (Dean Aff. ¶ 22; Am. Compl. ¶ 49).

Because of these purported defaults, on September 16, 2022, White Oak issued a Reservation of Rights letter to Borrowers (Am. Compl. ¶ 52; NYSCEF # 54). Nevertheless, that same month, White Oak agreed to advance $6.8 million in additional funds to Borrowers pursuant to the Credit Agreement (Dean Aff. ¶ 24; Am. Compl. ¶¶ 53, 63). As a condition to advancing these funds, White Oak required Guarantors, including Matthew, to pledge additional security as Collateral (Dean Aff. ¶ 26).[4] Thus, on October 7, 2022, Matthew entered into a Securities Account Pledge and Security Agreement (the Pledge Agreement), pursuant to which Matthew pledged, assigned, and granted White Oak a security interest in all his rights, title, and interest in and to his Charles Schwab cash brokerage account (the Brokerage Account) (NYSCEF # 55 - Pledge Agreement).[5] White Oak duly perfected its security interest in and to the Brokerage Account by filing a UCC financing statement with the appropriate authorities (NYSCEF # 56).

In connection with the Pledge Agreement, Matthew transferred $201,210.60 from the Orents' joint brokerage account (the Joint Account) to the Brokerage Account in September 2022 (Matthew Unfreeze Aff. ¶¶ 9-11). For her part, AnDreea was aware that Matthew had set up the Brokerage Account and pledged its funds as Collateral to White Oak (NYSCEF # 100 - AnDreea Unfreeze Aff. ¶ 9).

White Oak Ceases Funding and Issues Demand Letter

Borrowers' financial struggles continued into November 2022 (Dean Aff ¶ 35; Am. Compl. ¶ 67; see also NYSCEF ## 58, 59, 123).[6] Evidently, on December 5, 2022 Borrowers submitted to White Oak an ARC that allegedly wrote off an additional $1.63 million of accounts receivables, purportedly without adequate explanation (NYSCEF #57 [reflecting adjustments to "New Sales Since Last BBC"]). White Oak alleges that Borrowers were unwilling or unable to provide it with requested financial information, or to pledge sufficient collateral to satisfy White Oak that Borrowers had the ability to repay the outstanding indebtedness (Am. Compl. ¶ 65). As a result, White Oak ceased making any further funding available under the Credit Agreement, and Borrowers ceased operations and...

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