COLONIAL FUNDING NETWORK INC v. EAST COAST BROTHERS AUTO BODY REPAIR INC (2025)

Recitation, as required by CPLR 2219(a), of the papers considered in review of this motion:

Papers Numbered

Orders to Show Cause / Notice of Motion 1, 2

Affidavits/Affirmations annexed 3

Answering Affidavits/Affirmations 4

Reply Affidavits/Affirmations

Memoranda of Law

Other

Upon the foregoing cited papers, the motions of defendants Yadwinder Singh and Gurvinder Singh to vacate the default as against them is granted as detailed herein:

This action arises out of a merchant cash agreement wherein defendant agreed to sell future receivables to plaintiff in exchange for an advance of funds. A judgment was entered against defendants on default on January 29, 2020.

Defendants Yadwinder Singh and Gurvinder Singh now each move to vacate the default. As an initial matter, as plaintiff correctly points out, the Singh defendants cannot move on behalf of the corporate defendant, who must be represented by counsel. Accordingly, any relief sought with respect to defendant East Coast Brothers Auto Body & Repair Inc. is denied.

Pursuant to CPLR 5015, the court may relieve a party from a default order if the party demonstrates a reasonable excuse for not appearing and a meritorious claim or defense. TWU Counseling Ctr. Inc. v New York City Tax Comm'n, 24 AD3d 483, 483-84 (1st Dept 2022). The Court also acknowledges that defendants are self-represented and that self-represented litigants are permitted some leeway in the presentation of their case. 2215-75 Cruger Apartments, Inc. v Stovel, 196 Misc 2d 346 (App Term, 1st Dept 2003).

Although defendants make this application more than a year after the judgment against them was entered, the Court notes that defendants initially moved by orders to show cause to vacate the judgment before the COVID-19 pandemic, within one year of the judgment being entered; it appears that defendants’ 2020 orders to show cause were administratively adjourned by the court from May 22, 2020 to October 17, 2024, at which point defendants failed to appear and the motions were denied. Upon notice of the denials, defendants promptly filed and served the instant orders to show cause.

The COVID-19 pandemic caused major disruptions throughout the world. As a result, the courts of New York State temporarily suspended document filing deadlines from March 20, 2020 through November 4, 2020. Executive Order 202.8-202.72. This is the time frame during which defendants’ initial orders to show cause were returnable. Given that, and the court's strong public policy of deciding cases on the merits, the court will consider the instant orders to show cause as timely. Sanford v 27-29 W. 181st St. Ass'n, Inc., 300 AD2d 250, 251 (1st Dept 2002) (“there is a preference that disputes be resolved on their merits, and a ‘liberal policy is adopted with respect to opening default judgments in furtherance of justice to the end that the parties may have their day in court to litigate the issues’ ”); Luna Baking Co. v Myerwold, 69 AD2d 832, 833 (2d Dept 1979) (“the one-year period set out in CPLR 5015(a) is not a Statute of Limitations and a court may exercise its inherent discretionary power to vacate a default judgment upon a motion made after one year”).

Defendants state that they did not receive the court date notification for the January 27, 2020 appearance that led to the inquest marking and subsequent default judgment. As defendants are self-represented and afforded some leeway as a result, this Court finds that defendants provided a reasonable excuse for their failure to appear on January 27, 2020.

To establish a meritorious defense, the movant must merely demonstrate a “substantial possibility of success in the action.” Federal Natl. Mtge. Assn. v Rosenberg, 180 AD3d 401 (1st Dept 2020).

In its moving papers, defendants assert that they paid off this debt and that they closed the business entity that borrowed the money due to the high interest rates charged by plaintiff. See Affirmations annexed to Defendants’ Orders to Show Cause.

In opposition to the motion, plaintiff submitted proof of an executed written contract and proof of defendants’ breach, which defendants do not dispute. However, defendants assert high interest rates as a defense. If the agreement is found to be a loan, criminal usury would be a defense to its enforcement, rendering it void. Davis v Richmond Capital Group, LLC, 194 AD3d 516, 517 (1st Dept 2021). Further, “[t]o determine whether a transaction constitutes a usurious loan: ‘The Court must examine whether the plaintiff is absolutely entitled to repayment under all circumstances. Unless a principal sum advanced is repayable absolutely, the transaction is not a loan.’ ” Id. at 327.

“[C]ourts 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.” LG Funding, LLC v United Senior Properties of Olathe, LLC, 122 NYS3d 309, 312 (2d Dept 2020). Here, not only did plaintiff enter into an agreement with the corporate entity, but plaintiff required the individual defendants to execute personal guarantees.

Section 2.8 of the agreement specifies that: “In the event that the Merchant files for bankruptcy protection or is placed under an involuntary filing Protections 2 and 3 are immediately invoked.” Plaintiff's Exhibit A. “Protections 2 and 3” permit plaintiff to immediately enforce the provisions of the personal guarantees. Plaintiff's Exhibit A.

Accordingly, plaintiff did not assume the risk defendants would have no future receivables, indicating that repayment was absolute. If payment is absolute, this agreement must be treated as a loan, for which defendants’ defense of criminal usury applies. Advance Servs. Grp. LLC v Acadian Properties Austin LLC, 141 NYS3d 834 (Sup Ct. Kings County 2021) (plaintiff “did not assume the risk that [defendant] would have no future receivables and repayment was absolutely, not contingent, and weighs in favor of treating this transaction as a loan rather than a purchase of receivables”).

Thus, defendants have demonstrated both a reasonable excuse and a meritorious defense sufficient to vacate the judgments as against them.

Accordingly, it is hereby

ORDERED that defendants Yadwinder Singh and Gurvinder Singh motions to vacate the judgment as against them are granted; and it is further

ORDERED that the judgment entered on default on January 29, 2020 be vacated as against defendants Yadwinder Singh and Gurvinder Singh only and the Clerk of the Court is to modify the judgment accordingly; and it is further

ORDERED that all parties are directed to appear for a pre-trial conference on April 23, 2025 in Part: SRL, Room 428, New York County Civil Court, 111 Centre Street, New York, New York.

Allison R. Greenfield, J.