ACM MCC VI LLC v. ABLE LIQUIDATION THREE (2021)

The following e-filed documents, listed by NYSCEF document number (Motion 004) 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67 were read on this motion to/for JUDGMENT - DEFAULT.

Plaintiff ACM MCC VI LLC moves, pursuant to CPLR 3215, for leave to enter a default judgment against defendants Able Liquidation Three (Able) and Thomas Rossi (Rossi) (together, defendants). Defendants have submitted no opposition.

Background

According to the complaint, nonparty Merchant Cash and Capital, LLC d/b/a BizFi Funding (MCC) was a specialty finance company engaged in the business of making cash advances to merchants in exchange for future revenue streams from those merchants (the Advances) (NY St Cts Elec Filing [NYSCEF] Doc No. 46, Howard J. Kaplan [Kaplan] affirmation, exhibit A, ¶¶ 2 and 16). In April 2017, MCC hired Able and its principal, Rossi, as collection agents to recover Advances from merchants who were delinquent or in default of their obligations (id., ¶ 18). Any funds defendants collected were to be turned over directly to MCC (id.).

Plaintiff was a secured lender and the administrative agent for a secured credit facility extended to MCC (id., ¶¶ 2 and 4). When MCC's financial condition began to deteriorate, it engaged nonparty Specialty Asset Servicing, LLC (SAS) to assist and oversee collections on the Advances (id., ¶¶ 4 and 19). At that time, defendants were the collection agents on 12 merchant cash accounts for MCC and were required to remit any collection proceeds to SAS (id., ¶ 19). By May 25, 2018, MCC was in default on the credit facility (id., ¶ 20). At a public foreclosure sale of MCC's assets held on June 29, 2018, plaintiff's credit bid of $12,116,000 was deemed the prevailing bid, and plaintiff received MCC's assets, including the Advances and any cash collections generated by such accounts (id., ¶¶ 22-23).

Defendants, purporting to act on behalf of MCC or plaintiff, entered into nine settlement agreements for $992,000 with merchants who were delinquent on their Advances (id., ¶ 26). Defendants have collected $841,665 pursuant to these settlements but have remitted only $34,000 to SAS (id.). Rossi has allegedly refused to furnish plaintiffs with any records, such as bank records and a reconciliation of the collections received and distributed, or provide them with an accounting (id., ¶¶ 38-39). It is alleged that defendants obtained funding for these merchants from third-party investors to pay off the merchants’ obligations to MCC and plaintiff, and that defendants diverted the funds they collected from these merchants on behalf of MCC and plaintiff to their investors (id., ¶ 40). It is claimed that defendants then paid themselves “fees” for these transactions from the funds they had collected on behalf of MCC and plaintiff (id.).

Plaintiff commenced this action on December 6, 2019 by filing a summons and complaint for (1) breach of fiduciary duty and aiding and abetting breach of fiduciary duty; (2) breach of contract; (3) unjust enrichment; (4) conversion; and (5) an accounting. Plaintiff had previously moved for a default judgment (NYSCEF Doc No. 13). The motion was denied without prejudice to renewal. The court (Sherwood, J.) had determined that the motion lacked sufficient proof of the facts constituting the claim, including a copy of the alleged collection agreement between MCC and defendants, and lacked proof of additional service of the summons and complaint as required by CPLR 3215 (g) (4) (i). Plaintiff now moves for a default judgment for a second time. Defendants have submitted no opposition.

Discussion

It is well settled that an application for a default judgment must be supported with “proof of service of the summons and the complaint[,] proof of the facts constituting the claim, [and] the default” (CPLR 3215 [f]). “[A] complaint verified by someone or an affidavit executed by a party with personal knowledge of the merits of the claim” satisfies this statutory requirement (Beltre v Babu, 32 AD3d 722, 723 [1st Dept 2006]).

Plaintiff has demonstrated that defendants were served with the summons and complaint and that their time to answer or otherwise appear in the action has since expired. Able is a New York limited liability company owned and controlled by Rossi (NYSCEF Doc No. 46, ¶ 11), and CPLR 311-a governs service upon a domestic limited liability company. The statute partially reads:

“Service of process on any domestic or foreign limited liability company shall be made by delivering a copy personally to (i) any member of the limited liability company in this state, if the management of the limited liability company is vested in its members, (ii) any manager of the limited liability company in this state, if the management of the limited liability company is vested in one or more managers, (iii) to any other agent authorized by appointment to receive process, or (iv) to any other person designated by the limited liability company to receive process, in the manner provided by law for service of a summons as if such person was a defendant”

(CPLR 311-a [a]). Pursuant to CPLR 302 (a) and (b) (1), a domestic limited liability company may designate a natural person who is a resident of this state as a registered agent upon whom process on behalf of the company may be served. Strict compliance is required to obtain jurisdiction over a limited liability company (see Persaud v Teaneck Nursing Ctr., 290 AD2d 350, 351 [1st Dept 2002] [discussing service upon a corporation pursuant to CPLR 311]). An affidavit of service sworn to on December 14, 2019 shows that plaintiff served Able by delivering the summons and complaint to Rossi, Able's registered agent, on December 13, 2019 at 2 Indian Hill Court, Dix Hills, New York 11746 (NYSCEF Doc No. 47, Kaplan affirmation, exhibit B at 1).

An affidavit of service sworn to on December 14, 2019 reveals that plaintiff served Rossi pursuant to CPLR 308 (1) by personally delivering the summons and complaint to him on December 13, 2019 at the Dix Hills address, above (NYSCEF Doc No. 48, Kaplan affirmation, exhibit C at 1). A search of the Department of Defense Manpower Data Center for Rossi's name, social security number and date of birth reveals that, as of July 12, 2021, Rossi was not on active duty in the military (NYSCEF Doc No. 49, Kaplan affirmation, exhibit D; NYSCEF Doc No. 45, Kaplan affirmation, ¶ 8).

As to the merits, plaintiff argues that it has established a prima facie case on its second cause of action for breach of contract, its third cause of action for unjust enrichment and its fourth cause of action for conversion. A cause of action for breach of contract requires the plaintiff to plead the existence of a contract, the plaintiff's performance, the defendant's breach and damages (see Alloy Advisory, LLC v 503 W. 33rd St. Assoc., Inc., 195 AD3d 436, 436 [1st Dept 2021]). To state a claim for unjust enrichment, the “plaintiff must show that (1) the other party was enriched; (2) at that party's expense; and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered” (Kramer v Greene, 142 AD3d 438, 442 [1st Dept 2016] [internal quotation marks and citation omitted]). “A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession” (Colavito v New York Organ Donor Network, Inc., 8 NY3d 43, 49-50 [2006]). To state a cause of action for conversion, the plaintiff must plead its possessory right or interest in the property and the defendant's dominion over the property or interference with it, in derogation of the plaintiff's rights (id.).

Plaintiff relies on an affidavit from Everett Indart (Indart), a Principal at Atalaya Capital Management LP, a firm which manages plaintiff (NYSCEF Doc No. 20, Indart aff, ¶ 1), deposition testimony from nonparty Joseph R. Boninfante (Boninfante), a former MCC and SAS employee, and the exhibits marked at Boninfante's deposition. Boninfante testified that he managed MCC's portfolio of receivables from March 2017 to August 2017 before he transitioned to SAS where he performed the same tasks through September 2018 (NYSCEF Doc No. 51, Kaplan affirmation, exhibit F at 7-8 and 11). A spreadsheet he prepared while employed by SAS lists the amounts received on the settlements negotiated by defendants (NYSCEF Doc No. 52, Kaplan affirmation, exhibit G).

Boninfante explained that he first became aware of defendants when Rossi or one of his associates approached MCC and offered to settle an underperforming merchant advance (NYSCEF Doc No. 51 at 13-14). Boninfante added that it was “not unusual to have different parties reach out to try and pay an underperforming advance, no” (id. at 14). He stated that he was unaware of a formal collection agreement between MCC and Able at that time (id.), and that he was not aware of any formal contract between MCC and Rossi as a collection agent (id. at 16). Boninfante explained that he did not know how others learned of delinquent merchant advances but it was his understanding that people “would check on UCC 19 filings and find, you know, businesses that maybe they felt were viable but for this UCC lien in their way, they could, you know, they could work with them on funding” (id. at 15).

Boninfante testified that many of the early transactions between MCC and defendants settling delinquent Advances were not documented in any formal written agreements (id. at 39). Rather, the agreements to “settle” these delinquent accounts appeared in email correspondence between MCC and Rossi (id. at 39-41). At least one settlement for $300,000 was not recorded on the spreadsheet (id. at 79-80). MCC and Able later entered into more formal written agreements settling other merchant Advances (id. at 80). Boninfante never discussed paying Rossi a fee on the settlements, as that was a matter between Rossi and the merchants (id. at 42 and 44). It was Boninfante's understanding that defendants would extend loans or credit to merchants, and that defendants would pay the settlements with MCC from those loan proceeds (id. at 55 and 60). He testified, “I had an impression that [Rossi] was collecting money and then forwarding it” (id. at 55). Any monies defendants received on the settlements should have been forwarded to plaintiff, MCC or SAS (id. at 48 and 53). Boninfante stated that he would not have released a merchant from its obligations to MCC or assigned those obligations to Able if MCC or SAS had not received the total amount agreed to in the settlement (id. at 59). Plaintiff has demonstrated the merits of its second, third and fourth causes of action.

“ ‘[B]y defaulting, a defendant admits all traversable allegations contained in the complaint, and thus concedes liability, although not damages’ ” (HF Mgt. Servs. LLC v Dependable Care, LLC, ––– AD3d ––––, 2021 NY Slip Op 05459, *1 [1st Dept 2021] [citation omitted]; Rokina Opt. Co. v Camera King, 63 NY2d 728, 730 [1984]). Plaintiff has demonstrated its entitlement to entry of a default judgment against Able, but not as against Rossi. CPLR 3215 (g) (3) (i) provides, in pertinent part, that “[w]hen a default judgment based upon nonappearance is sought against a natural person in an action based upon nonpayment of a contractual obligation an affidavit shall be submitted that additional notice has been given by or on behalf of the plaintiff at least twenty days before the entry of such judgment, by mailing a copy of the summons by first-class mail to the defendant at his place of residence.” Plaintiff has not demonstrated its compliance with the statute (see 231st Riverdale LLC v 7 Star Home Furniture Inc., ––– AD3d ––––, 2021 NY Slip Op 05769, *1 [1st Dept 2021]).

Accordingly, it is

ORDERED that the motion brought by plaintiff ACM MCC VI LLC for entry of a default judgment against defendants Able Liquidation Three and Thomas Rossi (motion sequence no. 004) is granted to the extent of granting plaintiff judgment on the issue of the liability of defendant Able Liquidation Three on the second, third and fourth causes of action, and the motion against defendant Thomas Rossi is denied without prejudice to renewal; and it is further

ORDERED that, following the filing of the note of issue, this matter is to be set down for an inquest on damages in favor of plaintiff ACM MCC VI LLC against defendant Able Liquidation Three, with said inquest to take place at the time of trial, or other disposition, of the action against defendant Thomas Rossi.

Robert R. Reed, J.