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FILED: ONTARIO COUNTY CLERK 04/28/2023 07:21 AM INDEX NO. 135394-2023
NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 04/28/2023
Ontario County Clerk Recording Page
Return To Pamela Keefe, Acting County Clerk
GABRIEL MENDELBERG Ontario County Clerk
75 Maiden Lane Suite 603 20 Ontario Street
New York, NY 10038 Canandaigua, New York 14424
(585) 396-4200
Document Type: STATEMENT OF MATERIAL Receipt Number: 673528
FACTS
Plaintiff Defendant
VELOCITY CAPITAL GROUP LLC ZOTHEX FLOORING INC
Fees
Control #: 202304280228
Total Fees Paid: $0.00
Index #: 135394-2023
State of New York
County of Ontario
EFiling through NYSCEF with a total page count of
7.
Acting Ontario County Clerk
This sheet constitutes the Clerk’s endorsement required by section 319 of the Real Property Law of the State of New York
SL
Do Not Detach
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INDEX # : 135394-2023
135394-2023
FILED: ONTARIO COUNTY CLERK 04/28/2023 07:21 AM
NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 04/28/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ONTARIO
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VELOCITY CAPITAL GROUP LLC,
Index No. 135394-2023
Plaintiff,
- against -
ZOTHEX FLOORING INC., CABINETS & MORE,
LLC, and CLAYTON FERREIRA RODRIGUES,
Defendants.
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STATEMENT OF MATERIAL UNDISPUTED FACTS
PURSUANT TO UNIFORM RULE 202.8-g
The Merchant Agreement
1. As established by the accompanying Affidavit of Jacob Avigdor (the “Avigdor
Aff.”), defendants Zothex Flooring Inc. (“Merchant”), Cabinets & More, LLC and Clayton
Ferreira Rodrigues (“Rodrigues,” and with Cabinets, the “Guarantors”) have breached a Revenue
Purchase Agreement dated November 1, 2022 (the “Merchant Agreement”), a true and accurate
copy of which, kept in the ordinary course of business by Velocity, is annexed to the Avigor Aff.
as Exhibit 1.
2. Pursuant to the Merchant Agreement, Merchant sold $695,000.00 (the “Purchased
Amount”) of Future Receipts to Velocity for $500,000.00 less disclosed fees and open balance
transfers (the “Purchase Price”). Id. at p. 1.1
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“Receipts” are defined in the agreement as “all of Merchant’s future receipts, contract rights and
other entitlements arising from or relating to the payment of monies from Merchant’s customers and/or
other third party payors … for the payments to Merchant as a result of Merchant’s sale of goods and/or
services….” Id. at p. 1.
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3. Upon receiving the Purchase Price, Merchant was required to remit 20% (the
“Purchased Percent”) of its Receipts until the Purchased Amount was remitted to Velocity in
full. Id. at p. 1.
4. The Merchant Agreement required an initial weekly “Remittance” from
Merchant of $21,719.00. Merchant Agreement at p. 1. However, the Remittance was an initial
estimate of what the Purchased Percent would generate and was arrived at by Velocity and the
Merchant based, in part, on Merchant’s representations concerning its typical revenue stream.
Id. (“The Remittance is a good faith estimate of (a) Purchased Percentage multiplied by (b) the
daily average revenues of Seller during the previous calendar month divided by (c) the number
of business days in the calendar month.”).
5. To this end, Paragraphs 1.4 of the Merchant Agreement provides:
If an Event of Default has not occurred, every two (2) calendar weeks after the
funding of the Purchase Price to Merchant, Merchant may give notice to VCG to
request a decrease in the Remittance. The amount shall be decreased if the
amount received by VCG was more than the Purchased Percentage of all revenue
of the Merchant since the date of this Revenue Purchase Agreement. The
Remittance shall be modified to more closely reflect the Merchant’s actual
receipts by multiplying the Merchant’s actual receipts by the Purchased
Percentage divided by the number of business days in the previous (2) calendar
weeks. Seller shall provide VCG with viewing access to their bank account as
well as all information reasonably requested by VCG to properly calculate the
Merchant’s Remittance. At the end of the two (2) calendar weeks the Merchant
may request another adjustment pursuant to this paragraph or it is agreed that the
Merchant’s Remittance shall return to the Remittance as agreed upon on Page 1 of
this Agreement.
Id.
6. The Merchant Agreement repeatedly makes clear that it is not a loan, but rather, is
a risk-based purchase of future receipts on a percentage basis at a discount with no fixed term for
repayment:
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Merchant is selling a portion of a future revenue stream to VCG at a discount, not
borrowing money from VCG; therefore, there is no interest rate or payment
schedule and no time period during which the Purchased Amount must be
collected by VCG. …. VCG is entering this Agreement knowing the risks that
Merchant’s business may slow down or fail, and VCG assumes these risks based
on Merchant’s representations, warranties and covenants in this Agreement,
which are designed to give VCG a reasonable and fair opportunity to receive the
benefit of its bargain. Merchant and Guarantor are only guaranteeing their
performance of the terms of this Revenue Purchase Agreement and are not
guaranteeing the payment of the Purchased Amount. The initial Remittance shall
be as described above. The Remittance is subject to adjustments as set forth in
Paragraph 1.4.
Id. at p. 1 (emphasis added).2
7. Central to the Merchant Agreement was the requirement that Merchant use only
one bank account to deposit all its Future Receipts (the “Account”). Velocity was authorized to
ACH auto-debit the amounts owed under the Merchant Agreement from the Account. Id. at p. 1,
§ 1.01, and p. 8 (Authorization Agreement For Direct Deposit (ACH Credit) and Direct
Payments (ACH Debits). The authorization was “irrevocable.” Id. at § 1.01 and p. 8 (“This
Authorization Agreement is to remain in full force and effect.”).
8. In the Merchant Agreement, Merchant and Guarantors agreed, represented,
warrantied and covenanted that:
• Merchant has a continuing, affirmative obligation to advise Velocity of any
material adverse change in their financial condition, operation or ownership and
its failure to do so is a material breach. Id. at § 2.01;
• Merchant will not change its Processors, add terminals, change its financial
institution or bank account(s), or take any other action that could have an adverse
2 Section 1.10 of the Merchant Agreement similarly provides: “Merchant and VCG agree that the
Purchase Price under this Agreement is in exchange for the Purchased Amount, and that such Purchase
Price is not intended to be, nor shall it be construed as a loan from VCG to Merchant. Merchant agrees
that the Purchase Price is in exchange for the Receipts pursuant to this Agreement, and that it equals the
fair market value of such Receipts. VCG has purchased and shall own all the Receipts described in this
Agreement up to the full Purchased Amount as the Receipts are created. Payments made to VCG in
respect to the full amount of the Receipts shall be conditioned on Merchant sale of products and services,
and the payment therefore by Merchant’s customers.”
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effect upon Merchant’s obligations under the Merchant Agreement. Its failure to
do so is a material breach. Id. at § 2.05; and,
• The Receipts are not encumbered or liened by a third party and Merchant will not
“create, incur, assume or permit to exist, directly or indirectly, any lien on or with
respect to any of the Collateral or the Additional Collateral securing Merchant’s
performance.” Id. at §§ 2.10 and p. 5 (Negative Pledge in Security Agreement).
• Merchant diverts its Receipts from the Account or conveys its business or assets
to third parties. Id. at § 1.12.
9. Section 3.01 of the Merchant Agreement defines Events of Default as including:
• Merchant’s violation of any term or covenant in the Merchant Agreement;
• a representation made by Merchant in the Agreement is false, incorrect, or
misleading;
• Merchant fails to give Velocity twenty-four (24) hours advance notice that there
will be insufficient funds in the account such that the ACH of the Remittance
amount will not be honored by Merchant’s bank, and the Merchant fails to supply
all requested documentation and allow for daily and/or real time monitoring of its
bank account;
• Merchant stops payment to Velocity, or returns a code other than NSF cutting
VCG from its collections;
• Merchant uses multiple deposit accounts, changes deposit accounts, or closes the
designated Account without prior written consent of Velocity.
10. If an Event of Default occurs, the full undelivered Purchased Amount plus all fees
and charges assessed under the Merchant Agreement become due and payable in full
immediately, along with Velocity’s attorney’s fees. Id. at §§ 1.12 (Protection 5), 3.3-3.4, and P.
1. Such fees are fully disclosed in Appendix A – Fee Structure, and include, in the event of a
rejected ACH/Blocked ACH/Default, “$10,000.00 or 10% of the funded amount, or 25% of the
unpaid purchased amount, whichever is greater.” Id. at p. 7, Section F.
11. The Merchant Agreement provides that is governed by New York law.
Furthermore, Merchant expressly agreed that any suit to enforce the agreement may be brought
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in “any court sitting in New York,” that Merchant submits to the jurisdiction of such forums, and
that they are convenient. Id. at § 4.5.
12. Merchant also waived personal service of process and agreed to accept service by
e-mail or by certified mail to the addresses set forth on Page 1 of the Merchant Agreement. Id.
The Personal Guaranty of Performance
13. The Merchant Agreement includes a Guaranty of Performance (the “Guaranty”)
which provides that defendants Cabinets Rodrigues (heretofore, the “Guarantors”) are liable to
Velocity for all amounts owed by Merchant in the Event of Default. Id. at p. 6. The Guaranty
incorporates all the terms, conditions and information set forth in the Merchant Agreement,
including the consent to New York jurisdiction and alternative service of process set forth in
Section 4.05 of the Merchant Agreement.
Velocity’s Performance and Merchant’s Default
14. The performance history under the Merchant Agreement is annexed to the
Avigdor Aff. as Exhibit 2 (the “Remittance History”). The Remittance History is a business
record maintained in the ordinary course of business by Velocity and it was Velocity’s regular
course of business to maintain such records at the time of the remittances made under the
Merchant Agreement. I have personal knowledge of its contents.
15. On November 1, 2022, Velocity performed its obligations under the Merchant
Agreement by remitting the Purchase Price to Merchant. Avigdor Aff. ¶ 18.
16. Upon receiving the Purchase Price, Merchant remitted $282,347.00 in Receipts to
Velocity. Avigdor Aff. ¶ 19.
17. After February 7, 2023, Merchant remitted no further Receipts to Velocity. All
attempts to auto-debit the Purchased Percent from the Account were unsuccessful and rejected
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by Merchant’s bank. In addition, Merchant placed a stop payment on Velocity’s auto-debits of
the Purchased Percentage, as reflected by the “R08” code on the Remittance History. Avigdor
Aff. ¶ 20.
18. Merchant never requested a reconciliation under the Merchant Agreement.
Merchant never provided Velocity with Merchant’s bank account statements, credit card
processing statements, and accounts receivable reports. Merchant never advised Velocity that
any Remittances would be rejected for insufficient funds. Merchant also never notified Velocity
of any adverse changes to its financial condition or demonstrated such adverse changes with
account statements or other business records. Avigdor Aff. ¶ 21.
19. Merchant also “stacked” the Receipts by selling them, and providing lien rights,
to competing creditors who purchased the same Receipts, as is evidenced by the contracts and
UCC-1 publicly available histories annexed to the Avigdor Aff. as Ex. 3. Avigdor Aff. ¶ 22.
22. Crediting the $282,347.00 in payments made towards the $695,000.000
Purchased Amount prior to the default, there is a balance due and owing of $412,653.00. The
25% default fee due under Appendix (Section F) of the agreement amounts to $103,163.25,
resulting in a total amount due of $515,816.25.
WHEREFORE, Plaintiff respectfully requests entry of judgment in its favor, and against
the Defendants, jointly and severally, in the amount of $515,816.25, with statutory interest
thereon at the rate of 9% per annum from February 7, 2023.
Dated: New York, New York
April 27, 2023
/s/Gabriel Mendelberg
GABRIEL MENDELBERG
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