DAVIS II v. LLC LLC (2021)

Engoron, J.), entered on or about September 18, 2019, which, insofar as appealed from as limited by the briefs, denied defendant Jonathan Braun's and defendants Influx Capital Group, LLC a/k/a Influx Capital, LLC (Influx), GTR Source, LLC, Addy Source, LLC (Addy), Tsvi Reich a/k/a Steve Reich, and Tzvi Davis a/k/a Steven Davis's motions to dismiss the the law, to grant the motions as to the constructive trust, accounting, and General Business Law (GBL) § 349 claims, the contractual claims insofar as asserted against Braun, Reich, and Steven Davis, the RICO claim insofar as premised on a pattern of racketeering activity, and the GBL 130 and 133 claim insofar as directed at Influx and Addy, and Braun's request to strike allegations contained at ¶¶ 29–30, 133, 241, 257–58, 265–66, 301 and Ex. A of the amended complaint, and otherwise affirmed, without costs.

The contract causes of action (first and seventh) should be dismissed as against the individual defendants (Braun, Reich, and Steven Davis), because they are not parties to the subject Merchant Cash Advance (MCA) agreements and plaintiffs failed to allege facts sufficient to support piercing the corporate veil (see East Hampton Union Free Sch. Dist. v. Sandpebble Bldrs., Inc., 66 A.D.3d 122, 126–127, 884 N.Y.S.2d 94 [2d Dept. 2009], affd 16 N.Y.3d 775, 919 N.Y.S.2d 496, 944 N.E.2d 1135 [2011]).  The contract claims were otherwise correctly sustained.

Plaintiffs allege sufficiently that defendants breached the MCA agreements by failing to pay the amounts promised, withdrawing unauthorized amounts, and refusing to permit reconciliation.

Plaintiffs also allege sufficiently that the subject agreements were loans subject to usury laws, to wit, the discretionary nature of the reconciliation provisions, the allegations that defendants refused to permit reconciliation, the selection of daily payment rates that did not appear to represent a good faith estimate of receivables, provisions making rejection of an automated debit on two or three occasions without prior notice an event of default entitling defendants to immediate repayment of the full uncollected purchased amount, and provisions authorizing defendants to collect on the personal guaranty in the event of plaintiff business's inability to pay or bankruptcy (see LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 665–666, 122 N.Y.S.3d 309 [2d Dept. 2020]).  If the agreements are found to be loans, criminal usury will be a defense to their enforcement, rendering them void (see General Obligations Law § 5–521[3];  Blue Wolf Capital Fund II, L.P. v. American Stevedoring, Inc., 105 A.D.3d 178, 182–183, 961 N.Y.S.2d 86 [1st Dept. 2013]).

The RICO cause of action (third) was correctly sustained for the same reasons, insofar as it was premised on collection of an unlawful debt.  It should be dismissed, however, insofar as it was premised on a pattern of racketeering activity.  The alleged racketeering activity – collection of an extension of credit by extortionate means – requires a showing that defendants used or threatened to use violence (see 18 USC §§ 891[7];  894;  United States v. Pacione, 738 F.2d 567, 571–72 [2d Cir. 1984]).  The only threats specifically alleged do not rise to this level.

The GBL 130 and 133 fictitious names cause of action (fifth) should be dismissed as against Influx and Addy, as documentary evidence establishes that these entities were not fictitious.  It was correctly sustained, however, as against Yes Capital Funding Group, LLC d/b/a Yes Funding Services, LLC, as there is no documentary evidence to refute plaintiffs’ allegations with respect to that entity.

The remaining causes of action should be dismissed.  The constructive trust cause of action (second) fails because plaintiffs have an adequate remedy at law (see AQ Asset Mgt. LLC v. Levine, 154 A.D.3d 430, 431, 62 N.Y.S.3d 321 [1st Dept. 2017];  Evans v. Winston & Strawn, 303 A.D.2d 331, 333, 757 N.Y.S.2d 532 [1st Dept. 2003]).  The equitable accounting cause of action (fourth) is inappropriate because plaintiffs know (or can easily ascertain) how much money was withdrawn from their bank accounts.  The GBL 349 cause of action (sixth) cannot stand because there are no allegations of consumer-oriented conduct (see generally Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 [1995]).

We grant Braun's request to strike allegations regarding his criminal history, prior bad acts, and ties to organized crime as scandalous and prejudicial, as these allegations are not relevant to plaintiffs’ claims (see CPLR 3024[b];  Chowaiki & Co. Fine Art Ltd. v. Lacher, 115 A.D.3d 600, 601, 982 N.Y.S.2d 474 [1st Dept. 2014]), and plaintiffs have not raised the question of appealability (see Chowaiki, 115 A.D.3d at 601, 982 N.Y.S.2d 474).