Legal Document: Hfh Capital Llc v. Pierson Automotive Llc DBA PIERSON AUTOMOTIVE LLC PRE OWNED AUTOS, James Arthur Pierson

On July 01, 2021 a MEMORANDUM OF LAW IN OPPOSITION (Motion #1) - Plaintiff's Memo of Law in Opposition to Defendants' Order to Show Cause was filed involving a dispute between Hfh Capital Llc, and James Arthur Pierson, Pierson Automotive Llc Dba Pierson Automotive Llc Pre Owned Autos, Pierson Automotive Llc Dba Pierson Automotive Llc Pre Owned Autos, for Other Matters - Contract - Other in the District Court of Kings County.

Preview
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF KINGS

HFH CAPITAL LLC,
Index No.: 516138/2021
Plaintiff,

-against-

PIERSON AUTOMOTIVE LLC DBA PIERSON
AUTOMOTIVE LLC PRE OWNED AUTOS AND
JAMES ARTHUR PIERSON,

Defendants.

MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ ORDER TO SHOW CAUSE

Zachter PLLC
30 Wall Street, 8th Floor
New York, NY 10005
(646) 779-3294

On the Brief:
Jeffrey Zachter, Esq.

1 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

Plaintiff, MANTIS FUNDING LLC (“Plaintiff”), by its attorneys, Zachter PLLC, hereby

submits this Memorandum of Law in Opposition to Defendants, PIERSON AUTOMOTIVE LLC

DBA PIERSON AUTOMOTIVE LLC PRE OWNED AUTOS (“Company Defendant”), and JAMES

ARTHUR PIERSON (“Guarantor”) (Company Defendant and Guarantor shall be known

collectively herein as, “Defendants”) Order to show Cause to Vacate the Judgment (the

“OSC”). to vacate the Judgment, entered August 11, 2021s (the “Judgment”).

PREMLIMINARY STATEMENT

Defendants’ OSC pursuant to CPLR §5015, and CPLR §317 is severely deficient and

should be denied in its entirety.

The facts of the case are simple. On or about May 6, 2021, Plaintiff and Defendants

entered into an Agreement for the Purchase and Sale of Defendants’ Future Receivables (the

“Agreement”), whereby Plaintiff agreed to buy all rights of Company Defendant’s future

receivables. Plaintiff funded the Agreement having a face value of $27,342. The purchase

amount for those receivables was $18,000 (see Exhibit A). Defendants initially met their

obligation by making payments totaling $4,430.92 leaving a balance owed on the Agreement

in the amount of $22,911.08. As a result, Defendants breached the Agreement.

Pursuant to CPLR § 5015(a)(1), Defendants need to show a reasonable excuse and a

meritorious defense. Defendants have failed to make a showing of either.

Defendants allege that their reasonable excuse is that Defendants did not receive the

mailing of the Summons and Complaint. However, this is a futile argument based on the

explicit language of the Agreement, particularly Section 11.12 which will be parsed out in

greater detail below. Thus, Defendants have failed to provide a reasonable excuse necessary

to vacate the Judgment, pursuant to CPLR §5015(a)(1).

2 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

Assuming arguendo, the Court determines that Defendants provided a reasonable

excuse, Defendants must also show a meritorious defense. Defendants have failed this prong

as well.

Defendants’ purported meritorious defense is that the Agreement is an alleged

usurious loan rather than a purchase of future receivables. As will be discussed in greater

detail below, the explicit language of the Agreement could not be clearer. Based on that

language in the agreement which both parties agreed upon, defendants’ third alleged

meritorious defense fails on its face.

The Appellate Division of New York has formulated three factors, which would

determine whether an Agreement would qualify as a loan or a purchase of future receivables.

As seen below, the three factors weigh heavily in Plaintiff’s favor showing that the Agreement

is, in fact, a purchase of future receivables and not a usurious loan. As such, there is no fraud,

misrepresentation, or misconduct occurred in the execution of the Agreement; thus, the

Judgment cannot be vacated under CPLR §5015(a)(1). Consequently, as Defendants have no

valid defense that MCA Agreements are void as against public policy, Defendants OSC must

be denied.

Accordingly, Defendants’ OSC should be denied in its entirety.

ARGUMENT

POINT I
DEFENDANTS DO NOT HAVE A REASONABLE EXCUSE

Parties to a contract are free to contractually waive service of process. Pohlers v

Exeter Mfg. Co., 293 NY 274, 279 (1944); Alfred E. Mann Living Tr. v ETIRC Aviation S.a.r.l.,

78 AD3d 137, 140 (1st Dept 2010); National Equip. Rental v. DecWood Corp., 51 Misc.2d 999,

3 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

274 N.Y.S.2d 280 [2nd Dept. 1966]; see generally, 86 N.Y. Jur. 2d, Process and Papers § 7. The

failure to accept receipt of process served by mail is insufficient to rebut the inference of

proper mailing which may be drawn from a duly executed affidavit of service. European Am.

Bank v. Abramoff, 201 A.D.2d 611, 612, 608 N.Y.S.2d 233, 234 [2nd Dept. 1994].

Pursuant to CPLR § 5015(a)(1), Defendants need to show a reasonable excuse.

Defendants have failed to do so. Defendants allege that their reasonable excuse is that

Defendants did not receive the mailing of the Summons and Complaint. Defendants even go

so far as to admit that Plaintiff mailed the Summons and Complaint to the correct address

(see NYSCEF Doc. 15 at ¶ 5). However, this is an utterly futile argument based on the explicit

language of the Agreement. Section 18.1 states:

(11.12) Notices. Unless otherwise expressly provided for in this Agreement,
any notice authorized or required by this Agreement to be given to a Party
shall be given in a writing addressed to such Party and delivered via (a) United
States postal service, registered mail, return receipt requested, (b) nationally
recognized overnight courier service, (c) email or facsimile, if a copy thereof is
provided by any other means set forth in this Section 11.12, or (d) hand
delivery with signature acknowledging receipt to such Party at its office at the
address (and person's attention) set forth below, or at such other address (or
to such other person's attention) as may be specified by a written notice given
in accordance with this Section 11.12. Notices given by registered mail shall
be effective five (5) Business Days after mailing, notices given by overnight
courier service shall be effective on the next Business Day and notices given
by email or facsimile shall be given when received.

As is clearly laid out above, Defendants consented to service of process by certified

mail-return return receipt requested (see Exhibit A). Moreover, also pursuant to same,

service was deemed effective and served five (5) business days after mailing/ shipping to

Seller’s address set forth in this Agreement (see Exhibit D). Thereafter, Defendants also

received a copy of the Summons and Complaint upon the CPLR §3215 additional mailing (see

Exhibit E). Further, section 6.11 of the Agreement explicitly states, “Merchant will not

4 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

conduct its business(es) under any name other than as set forth in the heading to this

Agreement or change its name or the location of its incorporation or other organization or

any of its places of business without providing Purchaser express written notification at least

twenty (20) Business Days in advance of any such change.” (see Exhibit A). Based on these

sections of the Agreement, as agreed to by both parties, Plaintiff followed the contractually

agreed upon service of process which was deemed effective and served five (5) business days

after the mailing/ shipping to Defendants’ address as set forth in the Agreement on or about

Thursday, July 8, 2021 (see Exhibits A and D).

Thus, service of the Summons and Complaint was properly effectuated prior to the

entry of the Judgement, and as such, Defendants have failed to provide a reasonable excuse

necessary to vacate the Judgment, pursuant to CPLR §5015(a)(1).

As such, Defendants’ OSC, pursuant to CPLR §5015(a)(1), is wholly without merit and

should be denied.

POINT II
THE AGREEMENT IS NOT A LOAN AND AS SUCH DEFENDANTS’ SECOND MERITORIOUS
DEFENSE FAILS

In their OSC, Defendants argue that the Agreement is a loan and not a purchase of

future receivables; thus, usury laws should apply. The Appellate Division has formulated

three factors to determine whether a merchant cash advance agreement is a purchase of

future receivables or a loan. the contract in question here, very clearly falls in line with that

three-factor test. As such, Defendants’ contention that this agreement is a loan is invalid on

its face.

To determine whether a transaction constitutes a usurious loan, it “must be

‘considered in its totality and judged by its real character, rather than by the name, color, or

5 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

form which the parties have seen fit to give it. (Abir v. Malky, Inc., 59 A.D.3d at 649, 873

N.Y.S.2d 350 (2nd Dept. 2009), quoting Ujueta v. Euro–Quest Corp., 29 A.D.3d 895, 895, 814

N.Y.S.2d 551 2nd Dept. 2006). The court must examine whether the plaintiff “is absolutely

entitled to repayment under all circumstances” (K9 Bytes, Inc. v. Arch Capital Funding, LLC,

56 Misc.3d 807, 816, 57 N.Y.S.3d 625 (Sup. Ct. Westchester County 2017). Unless a principal

sum advanced is repayable absolutely, the transaction is not a loan (Rubenstein v. Small, 273

App.Div. 102, 75 N.Y.S.2d 483 (1st Dept. 1947).

Usually, courts weigh three factors when determining whether repayment is absolute

or contingent: (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 the merchant

declare bankruptcy. LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d

664, 122 N.Y.S.3d 309, 312 (2nd Dept. 2020); K9 Bytes, Inc., 57 N.Y.S.3d 625 (Sup. Ct.

Westchester County 2017); Funding Metrics, LLC v D & V Hospitality, Inc., 62 Misc.3d 966,

91 N.Y.S.3d 678, 970 (Sup. Ct. Westchester County 2019).

A) Whether there is a Reconciliation Provision

As for the first factor above, there is a reconciliation provision listed in Sections 8 and

3 of the Agreement, which states in relevant part:

Section 3 states:

(3.1) Either Party may request a reconciliation of Merchant’s account under
this Agreement (a “Reconciliation Request") by providing written notice to the
other Party. Promptly upon receiving a Reconciliation Request from
Purchaser, and together with any a Reconciliation Request made by Merchant,
Merchant shall provide to Purchaser, true, correct and complete copies of all
bank statements relating to the Specified Account and all monthly statements
of any bank or other financial institution at which Merchant or any of its
Affiliates maintain or have maintained a depositary or other account since the
date of this Agreement through the end of the calendar month immediately
prior to the calendar month in which the Reconciliation Request is made

6 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

(collectively, the "Account Statements"). Any Reconciliation Request shall be
in writing and given in accordance with the notice provisions set forth in
Section 11.12.

(3.2) As soon as reasonably practicable after receipt of all Account Statements,
Purchaser shall provide to Merchant, without charge, a statement (a
"Reconciliation Statement") that sets forth: (a) the total amount of Receipts
that Merchant originated after the date of this Agreement, (b) the amount
equal to the product of the Specified Percentage and the total amount of
Receipts that originated after the date of this Agreement, and (c) the aggregate
amount of ACH Debits effected by Purchaser pursuant to Section 1.2. The
Reconciliation Statement shall provide the foregoing information as of the last
day of the calendar month immediately prior to Purchaser's receipt of the
Reconciliation Request.

The reconciliation provision in the Agreement is in compliance with the first factor as

it does not trigger only at Plaintiff’s sole discretion. Thus, the reconciliation provision weighs

in favor that repayment is contingent rather than absolute.

B) Whether the Agreement has a finite term

Section 1.3 of the Agreement states in relevant part:

(1.3) There is no time period during which the Purchased Amount of Receipts
must be collected by Purchaser and there is no interest rate or required
amortization schedule associated therewith.

This Agreement does not contain a finite term time period during which the

Purchased Amount must be collected by Plaintiff, making the term potentially infinite. This

is due to the fact that if Defendants required a reconciliation of the Daily Remittance Amount,

full repayment of the Purchased Amount obviously would not be completed within the time

period initially presumed at the execution of the Agreement due to the increase and/or

decrease of the Daily Remittance Amount. Since reconciliation provision in the instant

matter is not illusory, but rather, a hard and fast protection that Defendants could have used

at any time, there is no plausible finite term.

Thus, the lack of a finite term of the Agreement also weighs in favor that repayment

7 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

is contingent rather than absolute.

C) Whether there is any recourse should Company Defendant declare bankruptcy

Sections 1.3 and 7 of the Agreement is the full and exhaustive list of Events that would

be deemed as a Nonrecourse Sale of Future Receipts along with the terms that entail a Breach

of Contract on the part of the Defendants. Sections 1.3 and 7.1 of the Agreement state as

follows:

(1.3) There is no time period during which the Purchased Amount of Receipts
must be collected by Purchaser and there is no interest rate or required
amortization schedule associated therewith. If Receipts arise more slowly
than Purchaser anticipates because Merchant's business slows, or if the
Purchased Amount is not collected in full because Merchant becomes
bankrupt or otherwise ceases operations in the ordinary course of business,
Merchant will have no obligation or liability to Purchaser unless Merchant has
breached a representation, warranty, covenant, or other obligation on its part
to be performed under this Agreement. Consequently, Merchant and
Purchaser intend and agree that the transactions provided for in this
Agreement constitute a purchase and sale of future Receipts at a discount for
all purposes and shall in no event constitute, or be deemed or construed to
constitute, a loan transaction.

(7.1) Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default” hereunder:

(a) Merchant breaches or violates any covenant, agreement or other obligation
contained in this Agreement (including any breach or violation of Section 2.1,
Section 2.2 or Section 2.3 or any failure to provide a timely notice of certain
events pursuant to Section 6.12) or any Person other than Purchaser that is a
party to an Ancillary Document breaches or violates any covenant, agreement
or other obligation of such other Person contained in such Ancillary
Document;

(b) Any representation or warranty of Merchant contained in this Agreement,
or any representation or warranty of any Person other than Purchaser in any
Ancillary Document, shall prove to be incorrect, incomplete, false, or
misleading in any material respect when made or at any time thereafter until
all Merchant Obligations shall have been irrevocably satisfied in full.

(c) Merchant sells, assigns, conveys or otherwise transfers all or substantially
all of its assets or makes or sends any notice of an intended bulk sale of its
properties and assets without, in any such case, (i) the prior express written

8 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

consent of Purchaser, which Purchaser may give or withhold in its sole
discretion, and (ii) the written agreement of any purchaser or transferee to the
assumption of all of Merchant's obligations (including all Merchant
Obligations) under this Agreement pursuant to documentation satisfactory to
Purchaser in its sole discretion;

(d) Merchant reorganizes, merges or consolidates with, or otherwise effects a
business combination with, any Person, as a result of which the ownership of
Merchant after such transaction is materially different than such ownership
immediately prior to such transaction, without, in any such case, (i) the prior
express written consent of Purchaser, which Purchaser may give or withhold
in its sole discretion, and (ii) the written agreement of the surviving Person in
such reorganization, merger, consolidation or other business combination, as
the case may be, to the assumption of all of Merchant's obligations (including
all Merchant Obligations) under this Agreement pursuant to documentation
satisfactory to Purchaser in its sole discretion;

(e) Merchant takes any action, or fails to take any action, that could have the
effect of encumbering the cash flow of its business or unduly straining the
viability of its operations; or

(f) Any Owner/Guarantor revokes or otherwise terminates its Guaranty, or
such Guaranty otherwise becomes invalid or unenforceable.

As is codified above, Defendants declaring bankruptcy is not an Event of Default

under the terms of the Agreement. Therefore, assuming that Company Defendant cannot pay

the Daily Remittance Amount and/or have no revenue and is forced to declare bankruptcy,

Plaintiff would have no recourse either against Company Defendant or Guarantor. However,

if Company Defendant performed any action that would be deemed as an Event of Default,

as defined by section 7.1 above, Plaintiff may proceed against Guarantor to enforce the

Guaranteed Obligations even if Company Defendant files for bankruptcy protection.

Here, Defendants were in breach of Section (7.1) of the Agreement, when between the

dates of May 27, 2021 through June 14, 2021, Defendants bank returned payments for

insufficient funds all without reaching out to Plaintiff to reconcile the daily amount.

Therefore, and due Defendants’ failure to simply inform Plaintiff that Plaintiff’s debit of

9 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

Company Defendant’s bank account would not be successful, pursuant to the explicit

language of the Agreement, Company Defendant would not be in default.

Thus, the recourse available to Plaintiff if Company Defendant files for bankruptcy is

only if an event of default occurs, not if Company Defendant has no revenue. Thus, Plaintiff’s

recourse also weighs in favor that repayment is contingent rather than absolute.

As such, Defendants’ arguments are totally devoid of all merit and must be

disregarded in their entirety.

CONCLUSION

Plaintiff graciously requests the Court to deny Defendants’ Order to Show Cause

vacating the Judgment in its entirety and for any other such relief as the Court may deem

just and proper.

Dated: New York, New York
September 14, 2023
ZACHTER PLLC
Attorneys for Plaintiff

By: _________________________
Jeffrey Zachter, Esq.
30 Wall Street, 8th Floor
New York, NY 10005
(646) 779-3294

10 of 11
FILED: KINGS COUNTY CLERK 09/14/2023 03:07 PM INDEX NO. 516138/2021
NYSCEF DOC. NO. 52 RECEIVED NYSCEF: 09/14/2023

AFFIRMATION OF WORD COUNT

Jeffrey Zachter, Esq., an attorney duly admitted to practice law before the Courts of

the State of New York, pursuant to CPLR § 2106, duly affirms the truth of the following: I

hereby certify that the cord Count of this Memorandum of Law complies with the word limits

22 NYCRR 202.8-b(a). According to the word-processing software used to prepare this

affirmation, the total word count for all printed text exclusive of the material omitted under

22 NYCRR 202.8-b(b) is 2,749 words.

By: /s/ Jeffrey Zachter
Jeffrey Zachter, Esq.

11 of 11

Case Info

Judge

Peter P. Sweeney Track Judge’s New Case

Case No.

(Subscribe to View)

Document Filed Date

September 14, 2023

Case Filing Date

July 01, 2021

County

Parties

DRAMER, KENNETH HARLAN Attorney for the Defendant
HFH CAPITAL LLC Plaintiff
HFH CAPITAL LLC Plaintiff
James Arthur Pierson Defendant
James Arthur Pierson Defendant
PIERSON AUTOMOTIVE LLC DBA PIERSON AUTOMOTIVE LLC PRE OWNED AUTOS Defendant
PIERSON AUTOMOTIVE LLC DBA PIERSON AUTOMOTIVE LLC PRE OWNED AUTOS Defendant
ZACHTER, JEFFREY S Attorney for the Plaintiff
Ryan Starstrom Attorney

For full print and download access, please subscribe at https://www.trellis.law/.

Document for Hfh Capital Llc v. Pierson Automotive Llc DBA PIERSON AUTOMOTIVE LLC PRE OWNED AUTOS, James Arthur Pierson

Preview

Related Topics

Case Info

Parties