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(FILED: NASSAU COUNTY CLERK 07/07/2022 10:10 AM INDEX NO. 611469/2021
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SHORT FORM ORDER
SUPREME COURT OF THE STATE OF NEW YORK
PRESENT: HON. DENISE L. SHER.
Acting Supreme Court Justice
TRIAL/IAS PART 30
THE AVANZA GROUP, LLC, NASSAU COUNTY
Plaintiff, Index No.: 611469/2021
Motion Seq. No.: 01
-against- Motion Date: 02/07/2022
XXX
INVESTMENT MANAGEMENT GROUP, LLC d/b/a
INVESTMENT MANAGEMENT GROUP, LLC,
BALLARD INVESTMENTS INC. d/b/a BALLARD
INVESTMENTS INC. and LEWIS BALLARD III,
Defendants.
The following papers have been read on this motion:
Papers Numbered
Order to Show Cause, Affidavit, Affirmation and Exhibits and
Memorandum of Law 1
xhibits and Memorandum of Law sss
Upon the foregoing papers, it is ordered that the motion is decided as follows:
Defendants move, pursuant to CPLR §§ 5015(a) and 2004, for an order vacating the
default judgment entered against them; and move, pursuant to CPLR § 6301, for an order
restraining and enjoining plaintiff from further enforcing its default judgment against defendants
and defendants’ assets; and move for an order vacating and rescinding all restraints, freezes
and/or demand letters already issued by plaintiff, including, without limitation, restraints on
defendants’ bank accounts; and move for an order that plaintiff returns any monies seized and/or
collected from defendants pursuant to the default judgment; and move for an order permitting
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defendants to Answer or otherwise respond to the pleadings within thirty (30) days. Plaintiff
opposes the motion.
In support of the motion, defendants submit the Affidavit of defendant Ralph Lewis
Ballard, III, the founder and principal of defendants Investment Management Group, LLC d/b/a
Investment Management Groups and Ballard Investments Inc. d/b/a Ballard Investments Inc.
See Defendants’ Affidavit in Support. Defendant Ralph Lewis Ballard, III asserts, in pertinent
part, that, “I am a resident of West Virginia, and the Business Defendants are located in
West Virginia. On May 14, 2021, I executed the underlying Merchant Cash Advance Agreement
(‘Agreement’). Section 1 of the Agreement states, ‘Merchant(s) hereby sell, assign, and transfer
to AVANZA (making AVANZA the absolute owner) in consideration of the funds provided
(‘Purchase Price’) specified above, all of each Merchant’s future accounts, contract rights,
and other obligations arising from or relating to the payment of monies from each
Merchant’s customers and/or other third party payors (the ‘Receivables’, defined as all
payments made by cash, check, credit or debit card, electronic transfer, or other form of
monetary payment in the ordinary course of each merchant’s business), for the payment of each
Merchant’s sale of goods or services until the amount specified above (the ‘Receivables
Purchased Amount’) has been delivered by Merchant(s) to AVANZA.’ Section 15 is one of the
provisions of the Agreement that is inserted to prevent the Agreement from being considered a
usurious loan: ‘Each Merchant [Defendant] and AVANZA 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 shaif it be construed as a loan from AVANZA to any Merchant.
AVANZA is entering into this Agreement knowing the risks that each Merchant’s business
may decline or fail, resulting in AVANZA not receiving the Receivables Purchased
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Amount. Each Merchant agrees that the Purchase Price in exchange for the Receivables pursuant
to this Agreement equals the fair market value of such Receivables. AVANZA has purchased
and shal! own all the Receivables described in this Agreement up to the full Receivables
Purchased Amount as the Receivables are created. Payments made to AVANZA in respect to the
full amount of the Receivables shall be conditioned upon each Merchant's sale of products and
services and the payment therefor by each Merchant’s customers in the manner provided in this
Agreement.’ It is explicitly not an event of default if a business’ ability to generate receivables
slows down or if the business stops generating revenue. The Business Defendants generate their
revenue from mining coal in West Virginia. On July 21, 2021, when business began to slow,
I notified Plaintiff via email that Business Defendants were unable to maintain the daily payment
of $5,996. I requested Plaintiff reduce the daily payment amount—a contractual right owed to
Defendants under Section 4 entitled ‘Reconciliation.’ Plaintiff only agreed to reduce payments
for 1.5 weeks. Shortly thereafter on or about August 20, 2021, the equipment lease for the
majority of our mining equipment was terminated. Business Defendants had no funds to pay for
additional blasting in order to uncover coal reserves to sell and no equipment. The mine is
currently idled with no marketable coal production and has been since approximately
August 21, 2021. The Business Defendants reduced their workforce from 41 mine employees to
5 from August 23, 2021 to September 15, 2021. Defendants have several other MCA loans.
On or about August 9, 2021, one of the other lenders filed an action against Defendants. Shortly
thereafter, a company named National Credit Partners began calling and emailing me advising
that if I did not engage their services, default judgments and liens would be filed against me and
my companies. National Credit Partners stated they specialize in negotiating, settling, and
litigating MCA debt. National Credit Partners specifically told me they provide legal
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representation. | engaged National Credit Partners due to their representations made to me and
sent them copies of the pleadings herein. I have paid National Credit Partners approximately
$160,000 to assist with the instant alleged debt, and other outstanding loans. National Credit
Partners has failed to appear or plead in every single action filed against me and my companies
leading to two default judgments held by Plaintiff and several other defaults. I only became
aware of the default judgments held by Avanza after my bank account, that I share with my wife,
was frozen at Truist Bank and the Business Defendants’ accounts were frozen at Summit Bank.
Neither bank has a location or authorized representative for service in New York. Neither I nor
the Business Defendants have any contact whatsoever with the state of New York. As soon as I
was made aware of the default judgments, I obtained experienced and reputable
New York counsel to make the instant application. My attorney has advised that under
New York law, this constitutes a ‘reasonable excuse’ within the meaning CPLR § 5015.
Defendants also have a meritorious defense to the action required to vacate the default judgment.
The Business Defendants are not generating receivables. The Business Defendants were only
able to make ends mee (sic) by filling a rock quarry order through November 2021 while seeking
working capital to restart mining operations. The revenue generated from that rock quarry order
was delivered to Plaintiff, but the order has since been fulfilled. The Business Defendants are
only performing reclamation activities (the rehabilitation of land after coal mining operations
have stopped) at this time which does not generate revenue. There are zero receivables at this
time and there are zero forecasted receivables while the mine remains idled. Plaintiff explicitly
assumed the risk of the Business Defendants’ slowdown or failure ((AVANZA is entering into
this Agreement knowing the risks that each Merchant’s business may decline or fail, resulting in
AVANZA not receiving the Receivables Purchased Amount’). Avanza was notified in writing of
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the slowdown and failure as far back as July 2021. Clearly, Avanza did not assume the risks
explicitly stated in the Agreement. Instead, Avanza sued the Defendants to satisfy the Agreement
using savings from the bank account I share with my wife and other funds in the business
accounts set aside for tax purposes.” See id.; Defendants’ Affirmation in Support Exhibits A-E.
Counsel for defendants argues, in pertinent part, that, “Mr. and Mrs. Ballard’s personal
accounts are currently being restrained by Avanza. The Ballard’s do not have access to any
personal funds and are currently borrowing from friends and family to even pay for the instant
application. This was an Agreement solely contingent on the businesses’ ability to generate
receivables. When they stopped generating the receivables, Avanza attempted to satisfy the
alleged debt by collecting Mr. and Mrs. Ballard’s life savings— an explicit breach of the
underlying agreement. Moreover, the Business Defendants’ accounts are restrained making it
impossible for the Defendants to access funds owed to the IRS. The Defendants are being
irreparably harmed by the restraints on their accounts; they must be lifted... Here, the
Defendants have a reasonable excuse for the default in the instant action. As stated in the
Ballard Affidavit, in August 2021, Defendants were contacted by National Credit Partners
(‘NCP’) to negotiate and resolve Defendants’ merchant cash advance debt. NCP held themselves
out as a company that supplied all of their clients with counsel to represent them in any cases
filed by such merchant cash advance creditors. Indeed, on NCPs (sic) website, they have a video
entitled ‘Legal’ which states, ‘The business owner was very stressed and worried about losing
the business...the solution was to have our attorneys restructure the business debt contracts which
took less than one week. And after the business restructuring...there were no upfront costs and
no credit checks...our team saved this business from bankruptcy and we can save your business
as well.’ Defendants agreed to retain NCP’s services and paid upwards of $160,000 to have them
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litigate and settle Defendants’ debts. Once served, Defendants sent notice of the lawsuits directly
to NCP. NCP repeatedly told Defendants that the lawsuits were being handled. In reality, NCP
charged Defendants exorbitant fees for no services. NCP is not a law firm, nor does NCP provide
legal representation to their customers like they promise. Indeed, NCP had permitted Defendants
to default in six (6) New York actions that they were made aware of. NCP took over $160,000 of
Defendants funds to settle the companies’ debts, but instead, pocketed the money. Defendants
were defrauded by NCP. The default judgment should be vacated for this fraud, alone. [citation
omitted]. Defendants assumed that NCP had responded to all of the lawsuits against Defendants,
avoiding default. There was no reason for Defendant’s (sic) to assume otherwise. However,
because NCP is not a law firm and makes money misrepresenting what they actually do, NCP
permitted Defendants to default. Because of NCP, the default judgment was entered against the
Defendants on December 1, 2021. The Notice of Entry of the default judgment was filed on
December 3, 2021. The Defendants are all located in West Virginia and have no contacts in the
State of New York. The annexed Affidavit of Mr. Ballad swears that his only notice of the
default was when his bank account, that he shares with his wife, was restrained at his two local
banks (with no locations in New York). Once Mr. Ballard realized a default judgment was filed
against him, he immediately sought New York counsel to confront the default. Mr. Ballard called
several attorneys and finally landed on Colonna Cohen Law, PLLC. Thus, the default judgment
should be vacated as Defendants immediately acted upon notice of the default and obtained
legitimate New York counsel to move to vacate same within a month’s time. [citations omitted].”
Counsel for defendants further argues, in pertinent part, that, “(t]he underlying agreement
is a standard Merchant Cash Advance Agreement which is a ‘purchase and sale’ of the
merchant-defendant’s receivables/revenue. The Agreement states Avanza allegedly purchased
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$299,800 of Defendants’ receivables to be collected at $5,996 per day; a term of exactly
50 business days or 10 weeks. Avanza purchased the $299,800 worth of receivables in exchange
for $200,000 less $20,000 in fees for a total price of $180,000... ‘For a true loan it is essential to
provide for repayment absolutely and at all events or that the principal in some way be secured
as distinguished from being put in hazard.’ [citation omitted]. In order to not be considered a
usurious loan, and for the funds advanced to be sufficiently at hazard, a (sic) MCA Agreement
must have certain elements. The first, and the one cited by each and every court that found that
the transaction was not a loan, is whether or not there is a reconciliation provision in the
agreement. The reconciliation provisions allow the merchant to seek an adjustment of the
amounts being taken out of its account based on its cash flow (or lack thereof). If a merchant is
doing poorly, the merchant will pay less, and will receive a refund of anything taken by the
company exceeding the specified percentage (which often can also be adjusted downward). If the
merchant is doing well, it will pay more than the daily amount to reach the specified percentage.
[citation omitted]. The next provision that is deemed quintessential is whether the agreement has
a finite term or not. If the term is indefinite, then it ‘is consistent with the contingent nature of
each and every collection of future sales proceeds under the contract.’ [citation omitted]. This is
because defendants’ ‘collection of sales proceeds is contingent upon [plaintiffs’] actually
generating sales and those sales actually resulting in the collection of revenue.’ [citation
omitted]. Indeed, ‘neither party could have known when the Agreement might end because
[plaintiffs’] collection of sales proceeds was wholly contingent upon the outside factor of
customers actually ... paying for products and services. 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.’ [citations omitted]. The final factor is whether the defendant has any
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recourse should the merchant declare bankruptcy. Section 15 is one of the provisions of the
Agreement that is inserted to prevent the Agreement from being considered a usurious loan:...
The Agreement explicitly states that business slow down or failure is not an event of default.
Here, as sworn to in the Ballard Affidavit, the Business Defendants advised Avanza that there
was a business slow down starting in July 2021, since November 30, 2021, the
Business Defendants have generated zero receivables, and there are zero receivables forecasted
as there are no funds to rent and operate the heavy machinery necessary to mine the coal for sale.
Even though the Agreement states Avanza purchased 25% of the receivables, 25% of zero is still
zero.... If Plaintiff is able to file the instant action based upon Defendants’ mere non-payment of
receivables that have not been generated and do not exist, Plaintiff's right to repayment is
absolute and immutable making this a usurious loan. Thus, the Plaintiff violated their own
Agreement by filing the instant action.... Because Avanza has attempted to enforce the
underlying agreement when the business’ receivables declined and eventually stopped—with
notice thereof—the Agreement is subject to usury laws as there is no possible way Defendants
would not owe Avanza $299,800; the instant lawsuit is proof of that. The Agreement states
Defendants were required to pay Avanza $299,800 in 50 equal payments of $5,996 per
business day (10 weeks). Of the $200,000 purchase price, Defendants only received $180,000.
The interest rate required to get a total amount, principal plus interest, of $299,800.00 from
simple interest on a principal of $180,000.00 over 10 weeks is 6.6556% per week. Calculating
the annual rate 6.6556%/week x 52 weeks/year = 346.0912%/year which is almost 14 times
higher than the New York criminal interest limit of 25%. [citation omitted]. At { 8 of the
Complaint, Avanza alleges the way in which Defendants breached the underlying agreement:
The Complaint states, ‘Company Defendant ceased remitting to Plaintiff the Plaintiffs (sic) share
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of Purchased Receivables and otherwise breached the Agreement by intentionally impeding and
preventing Plaintiff from making the agreed upon ACH withdrawals from the Bank Account
while conducting regular business operations and collecting revenue.” (emphasis added)
First, the Defendants are not conducting regular business operations or collecting revenue. Thus,
the allegations in the Complaint are just false—full stop. There (sic) no receivables for Avanza to
collect. Avanza is not entitled to collect if there are no receivables being generated. Since
Avanza is enforcing the Agreement against Defendants, without receivables, the Agreement can
be considered a usurious loan, with an absolute repayment, with more than 25% annual interest
in violation of New York Law. Second this statement does not give a concrete declaration of fact
asserting how Defendants allegedly defaulted pursuant to the underlying agreement or when the
default occurred. This is a generic boilerplate copy and pasted informational statement from a
mass production type collection firm. This is insufficient and not survive a motion to dismiss.”
In opposition to the motion, counsel for plaintiff asserts, in pertinent part, that, “[t]his
action was commenced on September 3, 2021, by the filing of the Summons and
Verified Complaint, with an attached copy of the purchase and sale of future receivables
agreement at issue.... The Defendants were each personally served on September 7, 2021....
The Defendants never appeared and never filed an answer or motion to dismiss. I subsequently
mailed the Defendants additional copies of the Summons and Verified Complaint on
October 21, 2021.... The Defendants still did not appear and did not file an answer or motion to
dismiss. The Defendants defaulted on October 7, 2021. On December 1, 2021, the Clerk entered
a default judgment against the Defendants. I served the Defendants with Notice of Entry and the
Judgment on December 3, 2021.... The Defendants did not file their proposed order (sic) to
Show Cause until January 4, 2022, almost three months after they defaulted. The Defendants
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offer no reasonable explanation for why their ignored the Summons and Verified Complaint in
September, why they ignored the additional copies mailed to them in October, or why they
ignored the judgment with Notice of Entry in December, 2021. The Defendants offer no
meritorious defenses to the Complaint and, instead, advance conclusory and self-serving
assertions devoid of evidence. Worse still, the Defendants’ purported explanations are incredibly
misleading. Defendants contend without evidentiary support that their revenues began to decline
between July and August 2021. However, they omit any mention that Defendant Ballard
maintained a mining company, Elite Materials LLC identical to Investment Management
Group LLC (‘IMG’) that operated from the same location during the pendency of the agreement
with TAG.... Thus, Defendants failed to mention that they created a new identical business
through which Ballard could divert IMG’s business at the same time they claim revenue began to
decline. Defendants’ supposed explanation for the decline in business is a conclusory assertion
that ‘on or about August 20, 2021, the equipment lease for the majority of our mining equipment
was terminated’ is devoid of particulars.... While Defendants’ affidavit offers no further
explanation, publicly available corporate records reveal that Ballard owned Adler Equipment,
LLC, a supplier of mining equipment, and Elite Energy Services, LLC, a mining support services
company (e.g., a supplier of mining equipment and/or personnel).... Furthermore, IMG’s
bank statements show that IMG hired Elite Energy Services, LLC, for its mining support
services, and further retained other businesses owned and operated by Ballard... Ballard’s
explanation does not pass the straight face test when confronted with publicly available corporate
records of his own businesses.” See Plaintiff's Affirmation in Opposition Exhibits A-H.
Counsel for plaintiff further argues, in pertinent part, that, “[a]s an initial matter, the
Court should deny Defendants’ motion because they have failed to demonstrate a reasonable
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excuse for their months-long default in answering the Complaint. In fact, the one case relied
upon by the Defendants actually serves to highlight why they have failed to demonstrate a
reasonable excuse.... Here, the Defendants concede that they were aware of the action and do
not dispute that they were properly served. Defendants offer (sic) claim that they hired a
debt settlement company, which did not retain counsel to appear on their behalf...
The Defendants do not claim that they corresponded with an attorney, do not claim that they
repeatedly followed up, do not claim that they reviewed draft answers, and do not claim that they
received assurances from an attorney that the attorney had appeared on their behalf...
Defendants represent that they believed a debt settlement company would hire counsel to appear
for them. However, this general belief is no different from the multitude of cases in which Courts
have held that a belief that one’s insurance company with hire counsel to promptly appear is not
a reasonable excuse for a default. [citations omitted]. Ultimately, the Defendants’ papers do not
provide a reasonable excuse for why they did not timely appear in September-October, 2021 and
they offer no reasonable explanation for their further delay between October, 2021, through
January, 2022.”
Counsel for plaintiff also contends, in pertinent part, that, “[t]he Defendants’ motion must
also be denied because their conclusory moving papers are insufficient to meet their evidentiary
burden to demonstrate a meritorious defense.... A movant’s motion to vacate a default must be
denied where the showing of merit consists of a bare or conclusory affidavit reciting or repeating
claims or defenses from a pleading. [citations omitted]. Conclusory allegations and vague
assertions are insufficient to meet the movant’s burden. [citations omitted]. While Defendants’
affidavit is laden with legal conclusions, the only relevant assertion is effectively a self-serving
and conclusory denial of a breach.... Defendants acknowledge that a business slow down or
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failure to generate receivables is not a default.... Defendants then follow up with a conclusory
assertion about ‘when business began to slow’ and a claim that they had ‘no funds to pay for
additional blasting in order to uncover coal reserves to sell and no equipment.’ ... Notably,
Defendants did not attach any admissible evidence relating to their business’ receivables. Indeed,
the Defendants have not submitted any bank statements, accounts receivable ledgers, financials,
or other documents that might support their conclusory denials. The Defendants did not offer
specific numbers regarding their accounts receivables, dates, counterparties, outstanding
accounts receivable, or when accounts receivable were paid. Rather, the Defendants provide only
self-serving generalities. Furthermore, while Defendants claim that IMG’s mining business has
been declining since July 2021, they omit any mention that in August 2021, Ballard at all times
maintained an identical mining company, ‘Elite Material, LLC,’ that was operating concurrently
with IMG. Defendants’ failure to even mention the fact that they maintained multiple entities
through which Ballard can divert IMG’s business at during a time when they make an
unsupported claim of declining revenues compounds the inadequacy of Defendants’ affidavit.
Finally, the Defendants’ supposed an (sic) excuse for a decline in business is a conclusory
assertion that ‘on or about August 20, 2021, the equipment lease for the majority of our mining
equipment was terminated’ is devoid of particulars.... This vague contention is itself inadequate
because it does not mention what equipment, the counterparty for the lease, why was the lease
terminated, or anything else. The lack of information is glaring because IMG’s bank records
from the first half of 2021 show that IMG paid Elite Energy Services, LLC, (among various
other entities wholly owned by Ballard) another company wholly owned and operated by
Ballard, for its mining support services (e.g., equipment)... Moreover, Defendants say nothing
of Ballard’s ownership of Adler Equipment, a supplier of mining and industrial equipment....
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As the Defendants have failed to submit anything more than an inadequate and conclusory
affidavit, and their own documents reveal their self-serving affidavit to be misleading at best,
their motion should be denied.” See Plaintiff's Affirmation in Opposition Exhibits E-G.
Counsel for plaintiff adds, in pertinent part, that, “[t]he Defendants, apparently aware that
they have no evidence supporting a meritorious defenses, resort to dumping a conclusory
legal argument that the transaction should be retroactively recharacterized into a usurious loan in
the face of extensive case law rejecting that very argument. The Defendants cite factually
distinguishable cases in a desperate effort to hammer a square peg through a round hole.
However, despite the prolixity of the Defendants’ counsel’s usury arguments, the case law
explicitly holds that the subject transaction was not a loan as a matter of law. Thus, Defendants’
usury defense is meritless as a matter of law and cannot be a potentially meritorious defense...
The fact that the subject transaction was not a loan, is fatal to Defendants’ usury argument....
Indeed, purchase and sale of future accounts receivable transactions, such as the one in this case,
are not usurious loans. [citations omitted]. Moreover, the great body of authority from around
New York has rejected usury arguments raised against substantively identical transactions.”
Relief under CPLR § 5015(a) is available where a party can demonstrate a reasonable
excuse for the default and a showing of a meritorious cause of action/defense (emphasis added).
See Eugene DiLorenzo, Inc. v. A.C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 501 N.Y.S.2d 8
(1986); Szilaski v. Aphrodite Const. Co., Inc., 247 A.D.2d 532, 669 N.Y.S.2d 297 (2d Dept.
1998). The requirements are not alternative requirements and both requirements must be met in
order to vacate the default judgment.
The determination of whether the circumstances of a particular case constitute an excuse
sufficient to support the vacatur of a default judgment is in the sound discretion of the Court.
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See Hye-Young Chon v. Country-Wide Ins. Co., 22 A.D.3d 849, 803 N.Y.S.2d 699 (2d Dept.
2005); Hareztark v. Drive Variety, Inc., 21 A.D.3d 876, 800 N.Y.S.2d 613 (2d Dept. 2005);
Bergdoll v. Pentecoste, 17 A.D.3d 613, 794 N.Y.S.2d 78 (2d Dept. 2005)
Even viewing the moving papers in their best light, the Court finds that defendants have
failed to demonstrate a reasonable excuse for their default in appearing in this matter and that
they have a potentially meritorious defense to this action.
Therefore, based upon the above, defendants’ motion, pursuant to CPLR §§ 5015(a) and
2004, for an order vacating the default judgment entered against them; and, pursuant to CPLR
§ 6301, for an order restraining and enjoining plaintiff from further enforcing its default
judgment against defendants and defendants’ assets; and for an order vacating and rescinding all
restraints, freezes and/or demand letters already issued by plaintiff, including, without limitation.
restraints on defendants’ bank accounts; and for an order that plaintiff returns any monies seized
and/or collected from defendants pursuant to the default judgment; and for an order permitting
defendants to Answer or otherwise respond to the pleadings within thirty (30) days, is hereby
DENIED.
Any and all stays issued in the Order to Show Cause are hereby lifted.
This constitutes the Decision and Order of this Court.
=)
NTER:
Xue LILA
DENISE I, SHER, AJS.C.
Dated: Mineola, New York
June 29, 2022 ENTERED
Jul 07 2022
NASSAU COUNTY
COUNTY CLERK'S OFFICE
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(FILED: NASSAU COUNTY CLERK 07/07/2022 10:10 AM INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 SHORT FORM ORDER SUPREME COURT OF THE STATE OF NEW YORK PRESENT: HON. DENISE L. SHER. Acting Supreme Court Justice TRIAL/IAS PART 30 THE AVANZA GROUP, LLC, NASSAU COUNTY Plaintiff, Index No.: 611469/2021 Motion Seq. No.: 01 -against- Motion Date: 02/07/2022 XXX INVESTMENT MANAGEMENT GROUP, LLC d/b/a INVESTMENT MANAGEMENT GROUP, LLC, BALLARD INVESTMENTS INC. d/b/a BALLARD INVESTMENTS INC. and LEWIS BALLARD III, Defendants. The following papers have been read on this motion: Papers Numbered Order to Show Cause, Affidavit, Affirmation and Exhibits and Memorandum of Law 1 xhibits and Memorandum of Law sss Upon the foregoing papers, it is ordered that the motion is decided as follows: Defendants move, pursuant to CPLR §§ 5015(a) and 2004, for an order vacating the default judgment entered against them; and move, pursuant to CPLR § 6301, for an order restraining and enjoining plaintiff from further enforcing its default judgment against defendants and defendants’ assets; and move for an order vacating and rescinding all restraints, freezes and/or demand letters already issued by plaintiff, including, without limitation, restraints on defendants’ bank accounts; and move for an order that plaintiff returns any monies seized and/or collected from defendants pursuant to the default judgment; and move for an order permitting 1 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 defendants to Answer or otherwise respond to the pleadings within thirty (30) days. Plaintiff opposes the motion. In support of the motion, defendants submit the Affidavit of defendant Ralph Lewis Ballard, III, the founder and principal of defendants Investment Management Group, LLC d/b/a Investment Management Groups and Ballard Investments Inc. d/b/a Ballard Investments Inc. See Defendants’ Affidavit in Support. Defendant Ralph Lewis Ballard, III asserts, in pertinent part, that, “I am a resident of West Virginia, and the Business Defendants are located in West Virginia. On May 14, 2021, I executed the underlying Merchant Cash Advance Agreement (‘Agreement’). Section 1 of the Agreement states, ‘Merchant(s) hereby sell, assign, and transfer to AVANZA (making AVANZA the absolute owner) in consideration of the funds provided (‘Purchase Price’) specified above, all of each Merchant’s future accounts, contract rights, and other obligations arising from or relating to the payment of monies from each Merchant’s customers and/or other third party payors (the ‘Receivables’, defined as all payments made by cash, check, credit or debit card, electronic transfer, or other form of monetary payment in the ordinary course of each merchant’s business), for the payment of each Merchant’s sale of goods or services until the amount specified above (the ‘Receivables Purchased Amount’) has been delivered by Merchant(s) to AVANZA.’ Section 15 is one of the provisions of the Agreement that is inserted to prevent the Agreement from being considered a usurious loan: ‘Each Merchant [Defendant] and AVANZA 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 shaif it be construed as a loan from AVANZA to any Merchant. AVANZA is entering into this Agreement knowing the risks that each Merchant’s business may decline or fail, resulting in AVANZA not receiving the Receivables Purchased 2 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 Amount. Each Merchant agrees that the Purchase Price in exchange for the Receivables pursuant to this Agreement equals the fair market value of such Receivables. AVANZA has purchased and shal! own all the Receivables described in this Agreement up to the full Receivables Purchased Amount as the Receivables are created. Payments made to AVANZA in respect to the full amount of the Receivables shall be conditioned upon each Merchant's sale of products and services and the payment therefor by each Merchant’s customers in the manner provided in this Agreement.’ It is explicitly not an event of default if a business’ ability to generate receivables slows down or if the business stops generating revenue. The Business Defendants generate their revenue from mining coal in West Virginia. On July 21, 2021, when business began to slow, I notified Plaintiff via email that Business Defendants were unable to maintain the daily payment of $5,996. I requested Plaintiff reduce the daily payment amount—a contractual right owed to Defendants under Section 4 entitled ‘Reconciliation.’ Plaintiff only agreed to reduce payments for 1.5 weeks. Shortly thereafter on or about August 20, 2021, the equipment lease for the majority of our mining equipment was terminated. Business Defendants had no funds to pay for additional blasting in order to uncover coal reserves to sell and no equipment. The mine is currently idled with no marketable coal production and has been since approximately August 21, 2021. The Business Defendants reduced their workforce from 41 mine employees to 5 from August 23, 2021 to September 15, 2021. Defendants have several other MCA loans. On or about August 9, 2021, one of the other lenders filed an action against Defendants. Shortly thereafter, a company named National Credit Partners began calling and emailing me advising that if I did not engage their services, default judgments and liens would be filed against me and my companies. National Credit Partners stated they specialize in negotiating, settling, and litigating MCA debt. National Credit Partners specifically told me they provide legal 3 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 representation. | engaged National Credit Partners due to their representations made to me and sent them copies of the pleadings herein. I have paid National Credit Partners approximately $160,000 to assist with the instant alleged debt, and other outstanding loans. National Credit Partners has failed to appear or plead in every single action filed against me and my companies leading to two default judgments held by Plaintiff and several other defaults. I only became aware of the default judgments held by Avanza after my bank account, that I share with my wife, was frozen at Truist Bank and the Business Defendants’ accounts were frozen at Summit Bank. Neither bank has a location or authorized representative for service in New York. Neither I nor the Business Defendants have any contact whatsoever with the state of New York. As soon as I was made aware of the default judgments, I obtained experienced and reputable New York counsel to make the instant application. My attorney has advised that under New York law, this constitutes a ‘reasonable excuse’ within the meaning CPLR § 5015. Defendants also have a meritorious defense to the action required to vacate the default judgment. The Business Defendants are not generating receivables. The Business Defendants were only able to make ends mee (sic) by filling a rock quarry order through November 2021 while seeking working capital to restart mining operations. The revenue generated from that rock quarry order was delivered to Plaintiff, but the order has since been fulfilled. The Business Defendants are only performing reclamation activities (the rehabilitation of land after coal mining operations have stopped) at this time which does not generate revenue. There are zero receivables at this time and there are zero forecasted receivables while the mine remains idled. Plaintiff explicitly assumed the risk of the Business Defendants’ slowdown or failure ((AVANZA is entering into this Agreement knowing the risks that each Merchant’s business may decline or fail, resulting in AVANZA not receiving the Receivables Purchased Amount’). Avanza was notified in writing of 4 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 the slowdown and failure as far back as July 2021. Clearly, Avanza did not assume the risks explicitly stated in the Agreement. Instead, Avanza sued the Defendants to satisfy the Agreement using savings from the bank account I share with my wife and other funds in the business accounts set aside for tax purposes.” See id.; Defendants’ Affirmation in Support Exhibits A-E. Counsel for defendants argues, in pertinent part, that, “Mr. and Mrs. Ballard’s personal accounts are currently being restrained by Avanza. The Ballard’s do not have access to any personal funds and are currently borrowing from friends and family to even pay for the instant application. This was an Agreement solely contingent on the businesses’ ability to generate receivables. When they stopped generating the receivables, Avanza attempted to satisfy the alleged debt by collecting Mr. and Mrs. Ballard’s life savings— an explicit breach of the underlying agreement. Moreover, the Business Defendants’ accounts are restrained making it impossible for the Defendants to access funds owed to the IRS. The Defendants are being irreparably harmed by the restraints on their accounts; they must be lifted... Here, the Defendants have a reasonable excuse for the default in the instant action. As stated in the Ballard Affidavit, in August 2021, Defendants were contacted by National Credit Partners (‘NCP’) to negotiate and resolve Defendants’ merchant cash advance debt. NCP held themselves out as a company that supplied all of their clients with counsel to represent them in any cases filed by such merchant cash advance creditors. Indeed, on NCPs (sic) website, they have a video entitled ‘Legal’ which states, ‘The business owner was very stressed and worried about losing the business...the solution was to have our attorneys restructure the business debt contracts which took less than one week. And after the business restructuring...there were no upfront costs and no credit checks...our team saved this business from bankruptcy and we can save your business as well.’ Defendants agreed to retain NCP’s services and paid upwards of $160,000 to have them 5 of 14 (FILED: NASSAU COUNTY CLERK 07/07/2022 10:10 AM INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 litigate and settle Defendants’ debts. Once served, Defendants sent notice of the lawsuits directly to NCP. NCP repeatedly told Defendants that the lawsuits were being handled. In reality, NCP charged Defendants exorbitant fees for no services. NCP is not a law firm, nor does NCP provide legal representation to their customers like they promise. Indeed, NCP had permitted Defendants to default in six (6) New York actions that they were made aware of. NCP took over $160,000 of Defendants funds to settle the companies’ debts, but instead, pocketed the money. Defendants were defrauded by NCP. The default judgment should be vacated for this fraud, alone. [citation omitted]. Defendants assumed that NCP had responded to all of the lawsuits against Defendants, avoiding default. There was no reason for Defendant’s (sic) to assume otherwise. However, because NCP is not a law firm and makes money misrepresenting what they actually do, NCP permitted Defendants to default. Because of NCP, the default judgment was entered against the Defendants on December 1, 2021. The Notice of Entry of the default judgment was filed on December 3, 2021. The Defendants are all located in West Virginia and have no contacts in the State of New York. The annexed Affidavit of Mr. Ballad swears that his only notice of the default was when his bank account, that he shares with his wife, was restrained at his two local banks (with no locations in New York). Once Mr. Ballard realized a default judgment was filed against him, he immediately sought New York counsel to confront the default. Mr. Ballard called several attorneys and finally landed on Colonna Cohen Law, PLLC. Thus, the default judgment should be vacated as Defendants immediately acted upon notice of the default and obtained legitimate New York counsel to move to vacate same within a month’s time. [citations omitted].” Counsel for defendants further argues, in pertinent part, that, “(t]he underlying agreement is a standard Merchant Cash Advance Agreement which is a ‘purchase and sale’ of the merchant-defendant’s receivables/revenue. The Agreement states Avanza allegedly purchased 6 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 $299,800 of Defendants’ receivables to be collected at $5,996 per day; a term of exactly 50 business days or 10 weeks. Avanza purchased the $299,800 worth of receivables in exchange for $200,000 less $20,000 in fees for a total price of $180,000... ‘For a true loan it is essential to provide for repayment absolutely and at all events or that the principal in some way be secured as distinguished from being put in hazard.’ [citation omitted]. In order to not be considered a usurious loan, and for the funds advanced to be sufficiently at hazard, a (sic) MCA Agreement must have certain elements. The first, and the one cited by each and every court that found that the transaction was not a loan, is whether or not there is a reconciliation provision in the agreement. The reconciliation provisions allow the merchant to seek an adjustment of the amounts being taken out of its account based on its cash flow (or lack thereof). If a merchant is doing poorly, the merchant will pay less, and will receive a refund of anything taken by the company exceeding the specified percentage (which often can also be adjusted downward). If the merchant is doing well, it will pay more than the daily amount to reach the specified percentage. [citation omitted]. The next provision that is deemed quintessential is whether the agreement has a finite term or not. If the term is indefinite, then it ‘is consistent with the contingent nature of each and every collection of future sales proceeds under the contract.’ [citation omitted]. This is because defendants’ ‘collection of sales proceeds is contingent upon [plaintiffs’] actually generating sales and those sales actually resulting in the collection of revenue.’ [citation omitted]. Indeed, ‘neither party could have known when the Agreement might end because [plaintiffs’] collection of sales proceeds was wholly contingent upon the outside factor of customers actually ... paying for products and services. 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.’ [citations omitted]. The final factor is whether the defendant has any 7 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 recourse should the merchant declare bankruptcy. Section 15 is one of the provisions of the Agreement that is inserted to prevent the Agreement from being considered a usurious loan:... The Agreement explicitly states that business slow down or failure is not an event of default. Here, as sworn to in the Ballard Affidavit, the Business Defendants advised Avanza that there was a business slow down starting in July 2021, since November 30, 2021, the Business Defendants have generated zero receivables, and there are zero receivables forecasted as there are no funds to rent and operate the heavy machinery necessary to mine the coal for sale. Even though the Agreement states Avanza purchased 25% of the receivables, 25% of zero is still zero.... If Plaintiff is able to file the instant action based upon Defendants’ mere non-payment of receivables that have not been generated and do not exist, Plaintiff's right to repayment is absolute and immutable making this a usurious loan. Thus, the Plaintiff violated their own Agreement by filing the instant action.... Because Avanza has attempted to enforce the underlying agreement when the business’ receivables declined and eventually stopped—with notice thereof—the Agreement is subject to usury laws as there is no possible way Defendants would not owe Avanza $299,800; the instant lawsuit is proof of that. The Agreement states Defendants were required to pay Avanza $299,800 in 50 equal payments of $5,996 per business day (10 weeks). Of the $200,000 purchase price, Defendants only received $180,000. The interest rate required to get a total amount, principal plus interest, of $299,800.00 from simple interest on a principal of $180,000.00 over 10 weeks is 6.6556% per week. Calculating the annual rate 6.6556%/week x 52 weeks/year = 346.0912%/year which is almost 14 times higher than the New York criminal interest limit of 25%. [citation omitted]. At { 8 of the Complaint, Avanza alleges the way in which Defendants breached the underlying agreement: The Complaint states, ‘Company Defendant ceased remitting to Plaintiff the Plaintiffs (sic) share 8 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 of Purchased Receivables and otherwise breached the Agreement by intentionally impeding and preventing Plaintiff from making the agreed upon ACH withdrawals from the Bank Account while conducting regular business operations and collecting revenue.” (emphasis added) First, the Defendants are not conducting regular business operations or collecting revenue. Thus, the allegations in the Complaint are just false—full stop. There (sic) no receivables for Avanza to collect. Avanza is not entitled to collect if there are no receivables being generated. Since Avanza is enforcing the Agreement against Defendants, without receivables, the Agreement can be considered a usurious loan, with an absolute repayment, with more than 25% annual interest in violation of New York Law. Second this statement does not give a concrete declaration of fact asserting how Defendants allegedly defaulted pursuant to the underlying agreement or when the default occurred. This is a generic boilerplate copy and pasted informational statement from a mass production type collection firm. This is insufficient and not survive a motion to dismiss.” In opposition to the motion, counsel for plaintiff asserts, in pertinent part, that, “[t]his action was commenced on September 3, 2021, by the filing of the Summons and Verified Complaint, with an attached copy of the purchase and sale of future receivables agreement at issue.... The Defendants were each personally served on September 7, 2021.... The Defendants never appeared and never filed an answer or motion to dismiss. I subsequently mailed the Defendants additional copies of the Summons and Verified Complaint on October 21, 2021.... The Defendants still did not appear and did not file an answer or motion to dismiss. The Defendants defaulted on October 7, 2021. On December 1, 2021, the Clerk entered a default judgment against the Defendants. I served the Defendants with Notice of Entry and the Judgment on December 3, 2021.... The Defendants did not file their proposed order (sic) to Show Cause until January 4, 2022, almost three months after they defaulted. The Defendants 9 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 offer no reasonable explanation for why their ignored the Summons and Verified Complaint in September, why they ignored the additional copies mailed to them in October, or why they ignored the judgment with Notice of Entry in December, 2021. The Defendants offer no meritorious defenses to the Complaint and, instead, advance conclusory and self-serving assertions devoid of evidence. Worse still, the Defendants’ purported explanations are incredibly misleading. Defendants contend without evidentiary support that their revenues began to decline between July and August 2021. However, they omit any mention that Defendant Ballard maintained a mining company, Elite Materials LLC identical to Investment Management Group LLC (‘IMG’) that operated from the same location during the pendency of the agreement with TAG.... Thus, Defendants failed to mention that they created a new identical business through which Ballard could divert IMG’s business at the same time they claim revenue began to decline. Defendants’ supposed explanation for the decline in business is a conclusory assertion that ‘on or about August 20, 2021, the equipment lease for the majority of our mining equipment was terminated’ is devoid of particulars.... While Defendants’ affidavit offers no further explanation, publicly available corporate records reveal that Ballard owned Adler Equipment, LLC, a supplier of mining equipment, and Elite Energy Services, LLC, a mining support services company (e.g., a supplier of mining equipment and/or personnel).... Furthermore, IMG’s bank statements show that IMG hired Elite Energy Services, LLC, for its mining support services, and further retained other businesses owned and operated by Ballard... Ballard’s explanation does not pass the straight face test when confronted with publicly available corporate records of his own businesses.” See Plaintiff's Affirmation in Opposition Exhibits A-H. Counsel for plaintiff further argues, in pertinent part, that, “[a]s an initial matter, the Court should deny Defendants’ motion because they have failed to demonstrate a reasonable 10 10 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 excuse for their months-long default in answering the Complaint. In fact, the one case relied upon by the Defendants actually serves to highlight why they have failed to demonstrate a reasonable excuse.... Here, the Defendants concede that they were aware of the action and do not dispute that they were properly served. Defendants offer (sic) claim that they hired a debt settlement company, which did not retain counsel to appear on their behalf... The Defendants do not claim that they corresponded with an attorney, do not claim that they repeatedly followed up, do not claim that they reviewed draft answers, and do not claim that they received assurances from an attorney that the attorney had appeared on their behalf... Defendants represent that they believed a debt settlement company would hire counsel to appear for them. However, this general belief is no different from the multitude of cases in which Courts have held that a belief that one’s insurance company with hire counsel to promptly appear is not a reasonable excuse for a default. [citations omitted]. Ultimately, the Defendants’ papers do not provide a reasonable excuse for why they did not timely appear in September-October, 2021 and they offer no reasonable explanation for their further delay between October, 2021, through January, 2022.” Counsel for plaintiff also contends, in pertinent part, that, “[t]he Defendants’ motion must also be denied because their conclusory moving papers are insufficient to meet their evidentiary burden to demonstrate a meritorious defense.... A movant’s motion to vacate a default must be denied where the showing of merit consists of a bare or conclusory affidavit reciting or repeating claims or defenses from a pleading. [citations omitted]. Conclusory allegations and vague assertions are insufficient to meet the movant’s burden. [citations omitted]. While Defendants’ affidavit is laden with legal conclusions, the only relevant assertion is effectively a self-serving and conclusory denial of a breach.... Defendants acknowledge that a business slow down or 11 11 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 failure to generate receivables is not a default.... Defendants then follow up with a conclusory assertion about ‘when business began to slow’ and a claim that they had ‘no funds to pay for additional blasting in order to uncover coal reserves to sell and no equipment.’ ... Notably, Defendants did not attach any admissible evidence relating to their business’ receivables. Indeed, the Defendants have not submitted any bank statements, accounts receivable ledgers, financials, or other documents that might support their conclusory denials. The Defendants did not offer specific numbers regarding their accounts receivables, dates, counterparties, outstanding accounts receivable, or when accounts receivable were paid. Rather, the Defendants provide only self-serving generalities. Furthermore, while Defendants claim that IMG’s mining business has been declining since July 2021, they omit any mention that in August 2021, Ballard at all times maintained an identical mining company, ‘Elite Material, LLC,’ that was operating concurrently with IMG. Defendants’ failure to even mention the fact that they maintained multiple entities through which Ballard can divert IMG’s business at during a time when they make an unsupported claim of declining revenues compounds the inadequacy of Defendants’ affidavit. Finally, the Defendants’ supposed an (sic) excuse for a decline in business is a conclusory assertion that ‘on or about August 20, 2021, the equipment lease for the majority of our mining equipment was terminated’ is devoid of particulars.... This vague contention is itself inadequate because it does not mention what equipment, the counterparty for the lease, why was the lease terminated, or anything else. The lack of information is glaring because IMG’s bank records from the first half of 2021 show that IMG paid Elite Energy Services, LLC, (among various other entities wholly owned by Ballard) another company wholly owned and operated by Ballard, for its mining support services (e.g., equipment)... Moreover, Defendants say nothing of Ballard’s ownership of Adler Equipment, a supplier of mining and industrial equipment.... 12 12 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 As the Defendants have failed to submit anything more than an inadequate and conclusory affidavit, and their own documents reveal their self-serving affidavit to be misleading at best, their motion should be denied.” See Plaintiff's Affirmation in Opposition Exhibits E-G. Counsel for plaintiff adds, in pertinent part, that, “[t]he Defendants, apparently aware that they have no evidence supporting a meritorious defenses, resort to dumping a conclusory legal argument that the transaction should be retroactively recharacterized into a usurious loan in the face of extensive case law rejecting that very argument. The Defendants cite factually distinguishable cases in a desperate effort to hammer a square peg through a round hole. However, despite the prolixity of the Defendants’ counsel’s usury arguments, the case law explicitly holds that the subject transaction was not a loan as a matter of law. Thus, Defendants’ usury defense is meritless as a matter of law and cannot be a potentially meritorious defense... The fact that the subject transaction was not a loan, is fatal to Defendants’ usury argument.... Indeed, purchase and sale of future accounts receivable transactions, such as the one in this case, are not usurious loans. [citations omitted]. Moreover, the great body of authority from around New York has rejected usury arguments raised against substantively identical transactions.” Relief under CPLR § 5015(a) is available where a party can demonstrate a reasonable excuse for the default and a showing of a meritorious cause of action/defense (emphasis added). See Eugene DiLorenzo, Inc. v. A.C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 501 N.Y.S.2d 8 (1986); Szilaski v. Aphrodite Const. Co., Inc., 247 A.D.2d 532, 669 N.Y.S.2d 297 (2d Dept. 1998). The requirements are not alternative requirements and both requirements must be met in order to vacate the default judgment. The determination of whether the circumstances of a particular case constitute an excuse sufficient to support the vacatur of a default judgment is in the sound discretion of the Court. 13 13 of 14 INDEX NO. 611469/2021 NYSCEF DOC. NO. 51 RECEIVED NYSCEF: 06/30/2022 See Hye-Young Chon v. Country-Wide Ins. Co., 22 A.D.3d 849, 803 N.Y.S.2d 699 (2d Dept. 2005); Hareztark v. Drive Variety, Inc., 21 A.D.3d 876, 800 N.Y.S.2d 613 (2d Dept. 2005); Bergdoll v. Pentecoste, 17 A.D.3d 613, 794 N.Y.S.2d 78 (2d Dept. 2005) Even viewing the moving papers in their best light, the Court finds that defendants have failed to demonstrate a reasonable excuse for their default in appearing in this matter and that they have a potentially meritorious defense to this action. Therefore, based upon the above, defendants’ motion, pursuant to CPLR §§ 5015(a) and 2004, for an order vacating the default judgment entered against them; and, pursuant to CPLR § 6301, for an order restraining and enjoining plaintiff from further enforcing its default judgment against defendants and defendants’ assets; and for an order vacating and rescinding all restraints, freezes and/or demand letters already issued by plaintiff, including, without limitation. restraints on defendants’ bank accounts; and for an order that plaintiff returns any monies seized and/or collected from defendants pursuant to the default judgment; and for an order permitting defendants to Answer or otherwise respond to the pleadings within thirty (30) days, is hereby DENIED. Any and all stays issued in the Order to Show Cause are hereby lifted. This constitutes the Decision and Order of this Court. =) NTER: Xue LILA DENISE I, SHER, AJS.C. Dated: Mineola, New York June 29, 2022 ENTERED Jul 07 2022 NASSAU COUNTY COUNTY CLERK'S OFFICE 14 14 of 14