LLC v. SANTE FE MEATS NAHIL SALMU MANHAL HERMIZ (2022)

In this action on a merchant-cash-advance agreement and guarantees, plaintiff, Forever Funding LLC, moves without opposition under CPLR 3213 for summary judgment in lieu of complaint against defendants S.F. Meats, Inc. (Merchant) and defendants Nahil Salmu and Manhal Hermiz (Guarantors). The motion is denied, and this motion-action converted into a plenary action.

CPLR 3213 applies only if the movant's claim is based on an "instrument for the payment of money only." As a result, "where the instrument" relied on by the movant "requires something in addition to defendant's explicit promise to pay a sum of money, CPLR 3213 is unavailable." (Weissman v Sinorm Deli, Inc., 88 NY2d 437, 444 [1996].) For example, "if outside proof is needed" of the entitlement to relief beyond the instrument itself and "simple proof of nonpayment or a similar de minimis deviation from the face of the document" (such as referring to a commonly available interest rate), a movant may not rely on CPLR 3213. (Id.)

Here, the merchant-cash-advance agreement between plaintiff and Merchant is not an instrument for the payment of money only: It imposes many performance obligations on Merchant, not merely an unconditional promise to pay money. (See e.g. NYSCEF No. 5 at 1 ¶ 1, 2 ¶ 6, 3 ¶ 17, 6 ¶¶ 29-30, 7 ¶ 34.) Nor is the guarantee executed by Guarantors an instrument for the payment of money only. Guarantees qualify for CPLR 3213 treatment only if they are unconditional guarantees of payment, not also guarantees of performance. (See iPayment, Inc. v Silverman, 192 AD3d 586, 587 [1st Dept 2021].) The guarantee in this case states in its very first sentence that it is "a personal guaranty of performance" of Merchant's obligations under the agreement. (Id. at 12 ¶ G1.)

Upon denial of a CPLR 3213 motion, the motion court typically converts the motion-action into an ordinary plenary action (deeming the moving and answering papers the complaint and answer, respectively); but it has the discretion, under the statute, to direct another appropriate disposition. In this case, treating plaintiff's motion papers was a complaint-plus-exhibits would be slightly anomalous, because those papers do not, as they stand, demonstrate that plaintiff has a cause of action. (See Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977] [explaining that when the motion court considers evidentiary material submitted in support of the complaint, "the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one"] [emphasis added].)

The event of default relied on by plaintiff is Merchant's "failing to make payments to Plaintiff due thereunder," and the ensuing failures by Guarantors to make those payments, either. (NYSCEF No. 4 at 2 ¶ 5.) But the underlying merchant agreement does not, as this court understands it, require Merchant to make any particular payment. Rather, Merchant must take steps to enable plaintiff to debit a specified percentage of Merchant's receivables, up to a maximum amount per day. (See NYSCEF No. 5 at 1 ¶ 1, 2 ¶ 3.) Actions by Merchant to block or hinder that debiting process, or failure to notify plaintiff that the transfers from Merchant's receivables account will be returned for insufficient funds, or failure to notify plaintiff of a material change in Merchant's financial condition, constitute events of default under ¶ 34 of the agreement. (See id. at 7 ¶ 34 [3], [8], [9], [10], [12], [14], [15], [16], [17].) Simple nonpayment, however, standing alone, does not. (See id. at 7 ¶ 34.) And neither plaintiff's affidavit of facts (NYSCEF No. 4), nor the (somewhat cryptic) transaction history attached to that affidavit (NYSCEF No. 6), provide evidence of anything else.

Additionally, plaintiff is seeking $34,840 in damages: $22,000 in outstanding receivables, $5,140 in fees (default-related and otherwise), and "Collection Costs of 35%" of the outstanding balance, or $7,700. (NYSCEF No. 4 at ¶¶ 9-10.) Plaintiff's affidavit says that these percentage-based collection costs are provided for in the agreement. (Id. at ¶ 10.) They are not. The agreement entitles plaintiff to collection-related costs, but does not specify a percentage or dollar amount for those costs.¹ Even if the agreement were to provide for collection costs fixed at 35% of the outstanding receivables balance, though, that provision would likely constitute an impermissible penalty: It would not represent a reasonable advance estimate of difficult-to-determine damages, as required for a liquidated-damages provision to be valid and enforceable. (See LeRoy v Sayers, 217 AD2d 63, 69-70 [1st Dept 1995].)

That said, although plaintiff's papers do not show that plaintiff has a cause of action for breach of the cash-advance agreement and guarantees, they do not rule out that possibility. And plaintiff is entitled under the agreement to its reasonable attorney fees and costs to enforce its contractual rights. If this court were to dismiss this motion-action outright based on plaintiff's current failures of proof, it would, in effect, be granting summary judgment to the nonmoving party—a final judgment on the merits entitled to claim-preclusive effect. (See Schulz v Barrows, 263 AD2d 565, 571 [3d Dept 1999], affd 94 NY2d 624, 628 [2000].) The court concludes that this result would be too drastic, given the possibility that plaintiff can still show it has a cause of action. Instead, plaintiff's moving papers shall be deemed a complaint with exhibits, with any defects in that complaint remediable through a meritorious motion for leave to amend. Defendants shall be afforded the opportunity to file an answer upon service of a copy of this order with notice of its entry. (See BS Fin. Group Inc. v Carmichael, 2022 NY Slip Op. 50014[U], at *3-4 [Sup Ct, NY County Jan. 11, 2022 [taking this approach].)

Accordingly, it is

ORDERED that plaintiff's motion under CPLR 3213 for summary judgment in lieu of complaint is denied; and it is further

ORDERED that the motion is converted into a plenary action, and plaintiff's motion papers are deemed a complaint with supporting exhibits; and it is further

ORDERED that plaintiff shall serve (i) a copy of this order with notice of entry, and (ii) another copy of its motion papers, on defendants at their respective last-known addresses by certified mail, return receipt requested; and it is further

ORDERED that defendants shall within 30 days of service answer or otherwise respond to the complaint.

12/22/2022

FOOTNOTES

1.   It appears that ¶ 44 of the agreement, addressing collection costs and related matters, was accidentally cut off in the middle at some point in the drafting or execution process. (See NYSCEF No. 5 at 8 ¶ 44.) That might account for plaintiff's mistaken description of the terms of the as-executed agreement.

Gerald Lebovits, J.