Preview
FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022
NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF KINGS
TRUE BUSINESS FUNDING, LLC, Index No. 514713/2022
Plaintiff, DEFENDANTS’ MEMORANDUM
OF LAW IN SUPPORT OF ORDER
v. TO SHOW CAUSE TO VACATE
DEFAULT JUDGMENT
AMERICAN HVAC SERVICES INC. D/B/A
AMERICAN HVAC SERVICES INC. and
SENGANE D DIENG
Defendants.
Defendants, American HVAC Services Inc. and Sengane D. Dieng, by and through their
attorneys, Thompson & Skrabanek PLLC, respectfully submit this Memorandum of Law in
support of Defendants’ motion to vacate Plaintiff’s default judgement (“Motion to Vacate”)
pursuant to CPLR 317 and 5015(a).
I. PRELIMINARY STATEMENT
The default judgment in this matter should be vacated pursuant to CPLR §§ 317, 5015(a).
Plaintiff obtained the default judgement without ever properly serving Defendants with
notice of the lawsuit. Defendants never had the chance to appear and answer Plaintiff’s complaint.
Defendants have established in the affidavit and exhibits annexed thereto both excusable
default in that Defendants never received service of the summons or any other papers regarding
the above-captioned action. Defendants also possess meritorious defenses. As such, Defendants’
motion to vacate the default judgment should be granted and the underlying default promptly
overturned.
II. RELEVANT FACTS
Plaintiff is a “merchant cash advance” lender who in early 2022 advanced funds to
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Defendants in furtherance of Defendants’ heating and air conditioning business. A copy of the
underlying agreement is available at D.E. 8.
The underlying repayment obligation would likely be considered usurious as a matter of
law but for it being considered a contract for the purchase of future receivables and not a traditional
“loan.”
A. Facts Concerning Service.
Defendants were never personally served with the summons with notice nor any other
process related to Plaintiff’s default judgement. Dieng Aff. ¶ 5. Until Mr. Dieng learned that his
bank accounts had been frozen, Defendants were completely unaware a default judgment had been
entered against them in this matter. Id. ¶ 6.
Plaintiff alleged to have mailed the notice and summons to, and affixed on, a property
located at 263 “Pleasan” [sic] Avenue, Apt 4D, New York, NY 10029. DE Nos. 7, 9. Plaintiff’s
affidavits of service confirm that Plaintiff misspelled Defendants’ street address in the mailings,
which is 263 Pleasant avenue. Id; Dieng Aff. ¶¶ 10-11.
“Pleasan” Avenue does not exist; there is only Pleasant Avenue. Similarly, the proper
address necessarily included Defendants’ apartment, which is listed with the New York Secretary
of State. Dieng Aff. ¶¶ 12-13; Exh. A to Dieng Aff. Assuming Plaintiff’s mailing even arrived, of
which there is no supporting evidence, it was mailed to a large apartment complex with dozens of
units. There is simply no proof of proper service herein prior to rendition of the judgment.
B. Facts Concerning Defenses to Underlying Complaint.
Defendants made a number of payments to the underlying loan but lacked sufficient
receivables to keep up with the gross daily payments required. Dieng Aff. ¶¶ 16-18. Defendants
sought refinancing and retained a debt consolidation company, who they believed were making
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payments on their behalf. Id. ¶¶ 19-20.
III. ARGUMENT
A. THIS COURT LACKED PERSONAL JURISDICTION TO ENTER A DEFAULT
JUDGEMENT AGAINST DEFENDANTS BECAUSE PLAINTIFF DID NOT
PROPERLY SERVE DEFENDANTS.
Defendant did not personally receive notice of the Plaintiff’s summons “in time to defend.”
As set forth in the Affidavit of Dominique S. Dieng, Defendants were not personally served with
summons and complaint under CPLR § 308(1) or with service by mail under CPLR § 3215(g)(3).
Under CPLR 317, “a person served with a summons other than by personal delivery to him
or to his agent for service designated under rule 318…may be allowed to defend the action within
one year after he obtains knowledge of entry of the judgment.” CPLR § 317. New York courts
have recognized that to prevail under CPLR § 317, a defendant need not show excusable default.
“Where, as here, a defendant moves to vacate a judgment entered upon his or her default in
appearing or answering the complaint on the ground of lack of personal jurisdiction, the defendant
is not required to demonstrate a reasonable excuse for the default and a potentially meritorious
defense. Harkless v Reid, 806 N.Y.S.2d 214 (2d Dep’t 2005); see also Steele v Hempstead Pub
Taxi, 760 N.Y.S.2d 188 (2d Dep’t 2003); Prudence v. Wright, 94 A.D.3d 1073 (2d Dep’t 2012);
Fleisher v. Kaba, 78 A.D.3d 1118 (2d Dep’t 2010).
In Zuppa v. Bison Drywall & Insulation Co., 93 A.D.2d 997 (4th Dep’t 1983), the court
held that the defendant was entitled to have the default vacated because it never had actual notice
of the pending lawsuit. In particular, the court stated:
It is irrelevant that defendant failed to demonstrate a reasonable excuse for not filing
a change of address with the Secretary of State, for while such a failure might
preclude relief pursuant to CPLR 5015, it will not preclude relief pursuant to CPLR
317…
Furthermore, as the court in Emigrant Mtge. Co., Inc. v Westervelt, 105 AD3d 896, 896-
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897 (2d Dep’t 2013) stated, “[i]t is axiomatic that the failure to serve process in an action leaves
the court without personal jurisdiction over the defendant, and all subsequent proceedings are
thereby rendered null and void.” Krisilas v Mount Sinai Hosp., 882 N.Y.S.2d 186 (2d Dep’t 2009).
Here, Defendants were never served with the summons with notice supporting Plaintiff’s
action. Nor were they ever personally served with the notice and other process related to the default
judgement. In fact, until on or around December 23, 2022, Defendants were completely unaware
of Plaintiff’s action or that a default judgment has been entered against them.
Plaintiff’s failure to serve Defendant with process leaves the court without personal
jurisdiction. As such, and pursuant to CPLR § 317, this court must promptly vacate the default
judgement entered against Defendants.
B. ALTERNATIVELY, THE DEFAULT JUDGEMENT SHOULD BE VACATED
BECAUSE DEFENDANTS POSSESS A REASONABLE EXCUSE FOR THE
DEFAULT AND A MERITORIOUS DEFENSE.
Defendants proffers sufficient evidence to establish not only that their default was
excusable but also that they possess a meritorious defense to the underlying action.
1. The Standard of Review is Whether Defendants Possess a Reasonable Excuse
for the Default and a Meritorious Defense to the Action.
Under CPLR § 5015(a), a party may be relieved from default judgement upon showing
both a reasonable excuse for the default and a meritorious defense to the action. Improper service
clearly satisfies the “reasonable excuse for default” standard. See, e.g., Ramirez v Romualdo, 25
A.D.3d 680 (2d Dep’t 2006); Vin-Mike Enter. v Grigg, 2015 NY Slip Op 31625(U) (Sup. Ct.
Suffolk County 2015); Matter of Robinson, 2020 NY Slip Op 32779(U) (Sup. Ct. Kings County
2020).
Defendants also possess meritorious defenses to the underlying action, which is the second
requirement under CPLR § 5015(a). Namely, that Defendants did not possess sufficient
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receivables to afford the loan’s daily rates and attempted to refinance the loan and/or make
payments through a third-party debt settlement company. Dieng Aff. ¶¶ 16-20.
2. Defendants’ Lack of Receivables is a Prima Facie Defense.
Merchant cash advance agreements like the one at issue are, by their nature, contingent in
order to comply with New York’s usury laws. See, e.g., LG Funding, LLC v. United Senior Props.
of Olathe, LLC, 181 A.D.3d 664, 666 (2d Dept 2020) (“Unless a principal sum advanced is
repayable absolutely, the transaction is not a loan”); see also K9 Bytes, Inc. v. Arch Capital
Funding, LLC, 2017 NY Slip Op 27166, ¶¶ 5-6, 56 Misc. 3d 807, 816-19, 57 N.Y.S.3d 625, 632-
34 (Sup. Ct., Westchester Co. 2017) (for a putative contract for the sale of future receivables to
avoid being considered a loan, a lender’s “collection of sales proceeds is contingent upon
[borrowers] actually generating sales and those sales actually resulting in the collection of
revenue.”); see also IBIS Capital Grp., LLC v. Four Paws Orlando LLC, 2017 NY Slip Op
30477(U), ¶ 6 (Sup. Ct., Nassau Co. 2017) (“The existence of this uncertainty in the length of the
Agreement is an express recognition by the parties of the wholly contingent nature of this
Agreement. The distinguishing hallmark of a loan is the lender's absolute right to repayment of the
principal.”).
Stated differently, if the future receivables simply do not exist, there is no underlying
default. Because Plaintiff’s right to purchase Defendants’ receivables was contingent in nature, it
cannot be accelerated as a loan would. Thus, to enforce the agreement as Plaintiff seeks to do so
herein, it would impliedly become a loan, but would then be usurious and therefore unenforceable.
See, e.g., K9 Bytes, 56 Misc 3d at 812; Advance Servs. Group LLC v. Acadian Props. Austin LLC,
70 Misc 3d 1225[A], 2021 NY Slip Op 50221[U], *7 (Sup. Ct., Kings Co. 2021) (The record
reflects that Acadian received $50,000.00 from Advance in exchange for $74,500.00, which is
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equivalent to 49% interest if the funds had to be paid back over a year. ‘A transaction is usurious
under civil law when it imposes an annual interest rate exceeding 16%’ [citing authorities]
Consequently, the transaction at issue was a usurious loan, rather than a purchase of future
receivables.”).
Here, Plaintiff has yet to meet its burden of showing its entitlement to any funds, let alone
the entire balance due. Therefore, Defendant has met his burden of showing reasonable excuse for
default and potentially meritorious defense pursuant to CPLR § 5015(a)(1).
IV. CONCLUSION AND PRAYER
In conclusion, the Court should promptly vacate Plaintiff’s improperly acquired default
judgment pursuant to CPLR §§ 317, 5015(a).
THOMPSON & SKRABANEK, PLLC
By:
________________________
J.R. Skrabanek
42 W. 38th Street, Suite 1002
New York, NY 10018
Tel: (646) 568-4280
jrs@ts-firm.com
ATTORNEYS FOR DEFENDANTS
WORD COUNT CERTIFICATION
The above-signed affirms that the foregoing instrument complies with Uniform Civil Rule
202.8-b’s word count limit. The total number of words in the above document, excluding the
caption and signature block, is approximately 1,482.
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Preview
FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS TRUE BUSINESS FUNDING, LLC, Index No. 514713/2022 Plaintiff, DEFENDANTS’ MEMORANDUM OF LAW IN SUPPORT OF ORDER v. TO SHOW CAUSE TO VACATE DEFAULT JUDGMENT AMERICAN HVAC SERVICES INC. D/B/A AMERICAN HVAC SERVICES INC. and SENGANE D DIENG Defendants. Defendants, American HVAC Services Inc. and Sengane D. Dieng, by and through their attorneys, Thompson & Skrabanek PLLC, respectfully submit this Memorandum of Law in support of Defendants’ motion to vacate Plaintiff’s default judgement (“Motion to Vacate”) pursuant to CPLR 317 and 5015(a). I. PRELIMINARY STATEMENT The default judgment in this matter should be vacated pursuant to CPLR §§ 317, 5015(a). Plaintiff obtained the default judgement without ever properly serving Defendants with notice of the lawsuit. Defendants never had the chance to appear and answer Plaintiff’s complaint. Defendants have established in the affidavit and exhibits annexed thereto both excusable default in that Defendants never received service of the summons or any other papers regarding the above-captioned action. Defendants also possess meritorious defenses. As such, Defendants’ motion to vacate the default judgment should be granted and the underlying default promptly overturned. II. RELEVANT FACTS Plaintiff is a “merchant cash advance” lender who in early 2022 advanced funds to 1 of 6 FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 Defendants in furtherance of Defendants’ heating and air conditioning business. A copy of the underlying agreement is available at D.E. 8. The underlying repayment obligation would likely be considered usurious as a matter of law but for it being considered a contract for the purchase of future receivables and not a traditional “loan.” A. Facts Concerning Service. Defendants were never personally served with the summons with notice nor any other process related to Plaintiff’s default judgement. Dieng Aff. ¶ 5. Until Mr. Dieng learned that his bank accounts had been frozen, Defendants were completely unaware a default judgment had been entered against them in this matter. Id. ¶ 6. Plaintiff alleged to have mailed the notice and summons to, and affixed on, a property located at 263 “Pleasan” [sic] Avenue, Apt 4D, New York, NY 10029. DE Nos. 7, 9. Plaintiff’s affidavits of service confirm that Plaintiff misspelled Defendants’ street address in the mailings, which is 263 Pleasant avenue. Id; Dieng Aff. ¶¶ 10-11. “Pleasan” Avenue does not exist; there is only Pleasant Avenue. Similarly, the proper address necessarily included Defendants’ apartment, which is listed with the New York Secretary of State. Dieng Aff. ¶¶ 12-13; Exh. A to Dieng Aff. Assuming Plaintiff’s mailing even arrived, of which there is no supporting evidence, it was mailed to a large apartment complex with dozens of units. There is simply no proof of proper service herein prior to rendition of the judgment. B. Facts Concerning Defenses to Underlying Complaint. Defendants made a number of payments to the underlying loan but lacked sufficient receivables to keep up with the gross daily payments required. Dieng Aff. ¶¶ 16-18. Defendants sought refinancing and retained a debt consolidation company, who they believed were making 2 of 6 FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 payments on their behalf. Id. ¶¶ 19-20. III. ARGUMENT A. THIS COURT LACKED PERSONAL JURISDICTION TO ENTER A DEFAULT JUDGEMENT AGAINST DEFENDANTS BECAUSE PLAINTIFF DID NOT PROPERLY SERVE DEFENDANTS. Defendant did not personally receive notice of the Plaintiff’s summons “in time to defend.” As set forth in the Affidavit of Dominique S. Dieng, Defendants were not personally served with summons and complaint under CPLR § 308(1) or with service by mail under CPLR § 3215(g)(3). Under CPLR 317, “a person served with a summons other than by personal delivery to him or to his agent for service designated under rule 318…may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment.” CPLR § 317. New York courts have recognized that to prevail under CPLR § 317, a defendant need not show excusable default. “Where, as here, a defendant moves to vacate a judgment entered upon his or her default in appearing or answering the complaint on the ground of lack of personal jurisdiction, the defendant is not required to demonstrate a reasonable excuse for the default and a potentially meritorious defense. Harkless v Reid, 806 N.Y.S.2d 214 (2d Dep’t 2005); see also Steele v Hempstead Pub Taxi, 760 N.Y.S.2d 188 (2d Dep’t 2003); Prudence v. Wright, 94 A.D.3d 1073 (2d Dep’t 2012); Fleisher v. Kaba, 78 A.D.3d 1118 (2d Dep’t 2010). In Zuppa v. Bison Drywall & Insulation Co., 93 A.D.2d 997 (4th Dep’t 1983), the court held that the defendant was entitled to have the default vacated because it never had actual notice of the pending lawsuit. In particular, the court stated: It is irrelevant that defendant failed to demonstrate a reasonable excuse for not filing a change of address with the Secretary of State, for while such a failure might preclude relief pursuant to CPLR 5015, it will not preclude relief pursuant to CPLR 317… Furthermore, as the court in Emigrant Mtge. Co., Inc. v Westervelt, 105 AD3d 896, 896- 3 of 6 FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 897 (2d Dep’t 2013) stated, “[i]t is axiomatic that the failure to serve process in an action leaves the court without personal jurisdiction over the defendant, and all subsequent proceedings are thereby rendered null and void.” Krisilas v Mount Sinai Hosp., 882 N.Y.S.2d 186 (2d Dep’t 2009). Here, Defendants were never served with the summons with notice supporting Plaintiff’s action. Nor were they ever personally served with the notice and other process related to the default judgement. In fact, until on or around December 23, 2022, Defendants were completely unaware of Plaintiff’s action or that a default judgment has been entered against them. Plaintiff’s failure to serve Defendant with process leaves the court without personal jurisdiction. As such, and pursuant to CPLR § 317, this court must promptly vacate the default judgement entered against Defendants. B. ALTERNATIVELY, THE DEFAULT JUDGEMENT SHOULD BE VACATED BECAUSE DEFENDANTS POSSESS A REASONABLE EXCUSE FOR THE DEFAULT AND A MERITORIOUS DEFENSE. Defendants proffers sufficient evidence to establish not only that their default was excusable but also that they possess a meritorious defense to the underlying action. 1. The Standard of Review is Whether Defendants Possess a Reasonable Excuse for the Default and a Meritorious Defense to the Action. Under CPLR § 5015(a), a party may be relieved from default judgement upon showing both a reasonable excuse for the default and a meritorious defense to the action. Improper service clearly satisfies the “reasonable excuse for default” standard. See, e.g., Ramirez v Romualdo, 25 A.D.3d 680 (2d Dep’t 2006); Vin-Mike Enter. v Grigg, 2015 NY Slip Op 31625(U) (Sup. Ct. Suffolk County 2015); Matter of Robinson, 2020 NY Slip Op 32779(U) (Sup. Ct. Kings County 2020). Defendants also possess meritorious defenses to the underlying action, which is the second requirement under CPLR § 5015(a). Namely, that Defendants did not possess sufficient 4 of 6 FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 receivables to afford the loan’s daily rates and attempted to refinance the loan and/or make payments through a third-party debt settlement company. Dieng Aff. ¶¶ 16-20. 2. Defendants’ Lack of Receivables is a Prima Facie Defense. Merchant cash advance agreements like the one at issue are, by their nature, contingent in order to comply with New York’s usury laws. See, e.g., LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664, 666 (2d Dept 2020) (“Unless a principal sum advanced is repayable absolutely, the transaction is not a loan”); see also K9 Bytes, Inc. v. Arch Capital Funding, LLC, 2017 NY Slip Op 27166, ¶¶ 5-6, 56 Misc. 3d 807, 816-19, 57 N.Y.S.3d 625, 632- 34 (Sup. Ct., Westchester Co. 2017) (for a putative contract for the sale of future receivables to avoid being considered a loan, a lender’s “collection of sales proceeds is contingent upon [borrowers] actually generating sales and those sales actually resulting in the collection of revenue.”); see also IBIS Capital Grp., LLC v. Four Paws Orlando LLC, 2017 NY Slip Op 30477(U), ¶ 6 (Sup. Ct., Nassau Co. 2017) (“The existence of this uncertainty in the length of the Agreement is an express recognition by the parties of the wholly contingent nature of this Agreement. The distinguishing hallmark of a loan is the lender's absolute right to repayment of the principal.”). Stated differently, if the future receivables simply do not exist, there is no underlying default. Because Plaintiff’s right to purchase Defendants’ receivables was contingent in nature, it cannot be accelerated as a loan would. Thus, to enforce the agreement as Plaintiff seeks to do so herein, it would impliedly become a loan, but would then be usurious and therefore unenforceable. See, e.g., K9 Bytes, 56 Misc 3d at 812; Advance Servs. Group LLC v. Acadian Props. Austin LLC, 70 Misc 3d 1225[A], 2021 NY Slip Op 50221[U], *7 (Sup. Ct., Kings Co. 2021) (The record reflects that Acadian received $50,000.00 from Advance in exchange for $74,500.00, which is 5 of 6 FILED: KINGS COUNTY CLERK 12/28/2022 06:10 PM INDEX NO. 514713/2022 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 12/28/2022 equivalent to 49% interest if the funds had to be paid back over a year. ‘A transaction is usurious under civil law when it imposes an annual interest rate exceeding 16%’ [citing authorities] Consequently, the transaction at issue was a usurious loan, rather than a purchase of future receivables.”). Here, Plaintiff has yet to meet its burden of showing its entitlement to any funds, let alone the entire balance due. Therefore, Defendant has met his burden of showing reasonable excuse for default and potentially meritorious defense pursuant to CPLR § 5015(a)(1). IV. CONCLUSION AND PRAYER In conclusion, the Court should promptly vacate Plaintiff’s improperly acquired default judgment pursuant to CPLR §§ 317, 5015(a). THOMPSON & SKRABANEK, PLLC By: ________________________ J.R. Skrabanek 42 W. 38th Street, Suite 1002 New York, NY 10018 Tel: (646) 568-4280 jrs@ts-firm.com ATTORNEYS FOR DEFENDANTS WORD COUNT CERTIFICATION The above-signed affirms that the foregoing instrument complies with Uniform Civil Rule 202.8-b’s word count limit. The total number of words in the above document, excluding the caption and signature block, is approximately 1,482. 6 of 6