UNIQUE FUNDING SOLUTIONS LLC v. IMPORTS EXPORTS LLC (2023)

The following papers were read on this motion DOCS NUMBERED

Notice of Motion, Affidavits, Affirmations, Exhibits, Memos 7-18

Opposition Papers 20

Reply Papers 23

BACKGROUND

The parties herein entered into a “Standard Merchant Cash Advance Agreement” (“MCA”) whereby the defendant A-Z Imports Exports LLC sold its future receivables having a value of $209,850.00 for the purchase price of $150,000.00, to be collected at a specified percentage of 21% until the Receivables Purchased Amount was paid in full. At the same time, individual defendant Kwesi Amos Snyper executed a personal guaranty of the performance of A-Z Imports Exports.

Plaintiff commenced this action seeking to recover damages for breach of contract, alleging that defendants breached the agreement by intentionally impeding and preventing plaintiff from receiving the specified percentage despite continuing to conduct regular business operations and collect revenue.

Presently, plaintiff moves pursuant to CPLR 3212 for an order granting summary judgment on the complaint and dismissing defendants’ affirmative defenses. In support of its motion, plaintiff submits the affidavit of Yaakov Winograd, an “authorized representative” of Unique Funding Solutions LLC, who states that on April 11, 2022, plaintiff “honored its end of the bargain and paid Company Defendant the Purchase Price, minus agreed to fees and less the payoff to [other entities], for the future receivables.” Mr. Winograd further indicates that payments were initially made pursuant to the agreement but promptly stopped on or about August 17, 2022, amounting to a breach of the agreement. He states that the corporate defendant made payments totaling $119,914.40, leaving a balance of $89,935.60 of the purchase amount, together with the default fee provided for in the agreement. Mr. Winograd also submits a business record affidavit whereby he submits the MCA, what purports to be a funding confirmation, and a “pay run” listing payments that were collected.

Defendants oppose the motion by memorandum of law, arguing that the plaintiff has failed to present sufficient evidence to make a prima facie showing of its entitlement to summary judgment. In particular, defendants assert that the plaintiff's motion is not supported by adequate documentary evidence such as cancelled checks, wire transfers, or acknowledgments. In addition, by their opposition, defendants argue that the MCA appended to the complaint is “an unlawful loan in violation of New York State's usury laws.”

DISCUSSION

“The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.” (Alvarez v. Prospect Hosp., 68 NY2d 320, 324 [1986]). Upon a prima facie showing, “the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action.” (Alvarez, 68 NY2d at 324). Significantly, “[t]he facts must be viewed in the light most favorable to the non-moving party [but] bald, conclusory assertions or speculation and a shadowy semblance of an issue are insufficient to defeat summary judgment.” (Stonehill Capital Management, LLC v. Bank of the West, 28 NY3d 439 [2016] [internal quotations omitted]; see also Fairlane Financial Corp. v. Longspaugh, 144 AD3d 858 [2d Dept 2016]; Phillip v. D & D Carting Co., Inc., 136 AD3d 18 [2d Dept 2015]).

In an action for breach of contract, a plaintiff moving for summary judgment must demonstrate the existence of the agreement, performance by the plaintiff, breach but the defendant, and damages resulting from the breach. (JP Morgan Chase v. JH Elec. Of New York, Inc., 69 AD3d 802,803 [2d Dept 2010]; Key Bank of Maine v. Lisi, 225 AD2d 669 [2d Dept 1996]).

With regard to revenue purchase agreements, there can be no loan, and thus no usury, “unless the principal sum is repayable absolutely.” (Merchant Funding Services, LLC v. Volunteer Pharmacy Inc., 55 Misc 3d 316 [Sup. Ct. Westchester County 2016]; see also LG Funding, LLC v. United Senior Props. of Olathe, 181 AD3d 664 [2d Dept 2020]). To determine whether a revenue purchase agreement constitutes a usurious loan, the court must consider the agreement in its totality and not be swayed by the “name, color, or form which the parties have seen fit to give it.” (United Senior Props. of Olathe, 181 AD3d at 665-666 [quotations omitted]). The Second Department has distilled the primary factors to be considered in determining whether such a revenue purchase agreement is a loan in disguise to the three: “(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 merchant declare bankruptcy.” (Principis Capital, LLC v. I Do, Inc., 201 AD3d 752 [2d Dept 2022] [quoting United Senior Props. of Olathe, LLC, 181 AD3d at 665-666]).

In this case, the MCA expressly provides at Paragraph 15 that “[e]ach Merchant and UFS agree that the Purchase Price under this Agreement is in exchange for the Receivables Purchased Amount and that such Purchase Price is not intended to be, nor shall it be construed as a loan from UFS to any Merchant. UFS is entering into this Agreement knowing the risks that each Merchant's business may decline or fail, resulting int UFS not receiving the Receivables Purchased Amount․” The MCA lists “Events of Default” in Paragraph 34, which include suspension, dissolution or termination of the business but specifically excludes a bankruptcy filing.

In addition, the MCA contains a provision providing for “Reconciliations” as follows:

Any Merchant may give written notice to UFS requesting that UFS conduct a reconciliation in order to ensure that the amount that UFS has collected equals the Specified Percentage of Merchant(s)’s Receivables under this Agreement. Any Merchant may give written notice requesting a reconciliation by email to [designated address]. If such reconciliation determines that UFS collected more than it was entitled to, then UFS will credit to the Account all amounts to which UFS was not entitled within seven days thereafter․ UFS will complete each such reconciliation within two business days after receipt of a written request for one accompanied by the information and documents required for it. Nothing herein limits the amount of time that such a reconciliation may be requested.

Also executed by the parties was an “Addendum,” which provides that “[t]he terms of this Addendum will control to the extent they conflict with any of the terms in the Agreement.” The Addendum seems to contain a somewhat different reconciliation clause, stating that

Any Merchant may give written notice to UFS requesting that UFS conduct a reconciliation in order to ensure that the amount that UFS has collected equals the Specified Percentage of Merchant's Receivables under this Agreement. Any Merchant may give written notice requesting a reconciliation by email to [designated address] and such notice will be deemed to have been received if and when UFS sends a reply email (but not a read receipt) ․ UFS will complete each such reconciliation within two business days after receipt of a written request for one accompanied by the information and documents required for it. Nothing herein limits the amount of time that such a reconciliation may be requested.

Although the MCA contains a reconciliation provision indicating that plaintiff “will” reconcile upon receipt of the request and the necessary documentation, the court finds alarming the addition in the Addendum that receipt of a reconciliation request, from which the time to reconcile is counted, will only be effectuated “if and when” plaintiff sends a responding email. The concern here is whether such language makes reconciliation discretionary and brings the MCA within the confines of a finite term to repayment. (See United Senior Props. of Olathe, LLC, 181 AD3d at 665-666 [denying summary judgment where the agreement “suggested that the plaintiff did not assume the risk that [the merchant] would have less-than-expected or no revenues”]).

Nonetheless, viewing the MCA as a whole, the court finds that it is not a loan repayable “absolutely.” As it appears that the amount of the monthly payments could change upon a proper request, the MCA is not a loan of finite duration. Additionally, there is no provision making a declaration of bankruptcy an event of default. (Principas Capital, 201 AD3d at 754).

Upon the supporting documents, including the MCA and the affidavit of Yaakov Winograd, the court finds that the plaintiff has established a prima facie entitlement to judgment as a matter of law by demonstrating the existence of the agreement and a breach thereof. It is incumbent upon defendants to submit competent evidence demonstrating the existence of a material issue of fact. In this case, defendants have submitted only a memorandum of law by counsel, who does not have personal knowledge of the facts surrounding the alleged breach of the agreement. Such submission, although disputing plaintiff's prima facie case, carries no probative evidentiary weight and cannot raise a triable issue. (See McCovey v. Williams, 105 AD3d 819 [2d Dept 2013]; Morissaint v. Raemar Corp., 271 AD2d 586 [2d Dept 2000]; Johnson v. Phillips, 261 AD2d 269 [1st Dept 1999]; Key Bank of Maine, 225 AD2d at 669 [“The defendant's submission of only an affirmation of his attorney who had no personal knowledge of the facts was patently inadequate to oppose the motion, inasmuch as it did not constitute proof in admissible form.”]).

Accordingly, as the plaintiff has otherwise established entitlement to judgment as a matter of law and the defendants have failed to raise a triable issue of fact in opposition, the motion will be granted.

For these reasons, it is hereby:

ORDERED, that plaintiff's motion for summary judgment and to strike the affirmative defenses is granted and plaintiff is awarded a judgment in the amount of $92,435.60; and it is further

ORDERED, that the Petitioner shall submit to the Judgment Clerk for review a proposed money judgment in the amount of $92,435.60, together with statutory costs and disbursements of this proceeding, on notice to all parties.

The foregoing constitutes the decision and order of this court. All applications not specifically addressed herein are denied.

Lisa A. Cairo, J.