Motion for Writ in Newco Capital Group Vi Llc v. Jmf Solutions, Jmf Solutions Inc-Dba, Jmf, Leasedminds, Jmf Networks, John M Francis Ii| Trellis.Law

On October 02, 2023 a Motion-Secondary was filed involving a dispute between Newco Capital Group Vi Llc, and Jmf, Jmf Networks, Jmf Solutions, Jmf Solutions, Inc, Jmf Solutions Inc-Dba, John M Francis Ii, Leasedminds, for Other Matters - Contract - Other in the District Court of Rockland County.

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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ROCKLAND
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NEWCO CAPITAL GROUP VI LLC,

Plaintiff, Index No. 034861/2023
(Zugibe, J.)
Motion Seq. No. 1
-against-

JMF SOLUTIONS INC. D/B/A JMF SOLUTIONS;
JMF SOLUTIONS, INC., JMF; LEASEDMINDS; JMF
NETWORKS and JOHN MICHAEL FRANCIS, II,

Defendants.

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DEFENDANTS AND COUNTERCLAIM-PLAINTIFFS’ REPLY
MEMORANDUM OF LAW IN FURTHER SUPPORT OF THEIR MOTION FOR A
PRELIMINARY INJUNCTION AND A TRO.

LAW OFFICES OF CAROLE R. BERNSTEIN
178 East 80th Street
Suite 25D
New York, New York 10075
(203)255-8698

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TABLE OF CONTENTS Page

Table of Authorities……………………………………………………………………… iii

PRELIMINARY STATEMENT ……………………………………………………… 1

INTRODUCTION……………………………………………………………………… 2

The Scaglione Affidavit is a Fraud on the Court……………………………..… 5

ARGUMENT…………………………………………………………………………… 4

POINT ONE
IF THE RPA IS DETERMINED TO BE A CRIMINALLY
USURIOUS LOAN, THEN THE UCC LIENS AND NOTICES
ISSUED PURSUANT TO THE RPA ARE VOID AB INITIO………………… 4

POINT TWO
DEFENDANTS HAVE SUBMITTED SUFFICIENT PROOF
SUPPORTING THEIR REQUEST FOR A PRELIMINARY
INJUNCTION………………………………………………………………….. 5

A. Defendants Demonstrate Irreparable Harm.................................................... 5

B. Demonstrated a Likelihood of Success on the Merits……………………….. 7

1. The Reconciliation Provision is A Craftily Worded Sham
Provision of the RPA………………………………………………… 9

2. The RPA Contains a De Facto Term………………………………… 12

3. The RPA Provides Recourse In the Event of Bankruptcy as the Personal
Guaranty of Performance Is Actually a Guaranty of Payment…………… 12

C. The Balance of Equities Warrants Issuance of the TRO………………………. 14

D. The Relief Sought in the Preliminary Injunction is Not “Too Broad”………….15

E. Given the Precarious Circumstances Surrounding JMF Solutions
Continued Existence, Hastened By Newco’s Predatory Lending,
the Court Should Set a Modest Bond…………………………………………... 15

CONCLUSION ………………………………………………………………………….. 16

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TABLE OF AUTHORITIES

Cases Page

Adar Bays, LLC v. GeneSYS ID, Inc.,
37 N.Y.3d 320 (2021)……….............................................................................................. 8

Crystal Springs v. Big Thicket Coin,
220 A.D.3d 745 (2d Dep’t 2023)…………………………………………………………. 9

Davis v. Richmond Cap. Gr.,
194 A.D.3d 516 (1st Dep’t 2021)…………………………………………………………….. 9

Fleetwood Servs., LLC v. Ram Capital Funding LLC,
2021 WL 1987320 (S.D.N.Y. 2021)…………………………………………………………. 11, fn6

Fleetwood Services v. Richmond Capital Group,
2023 WL 3882697 (2d Cir. 2023)(summary order)................................................................. 11,13

Haymount Urgent Care PC v. GoFund Advance, LLC,
609 F. Supp. 3d 237 (S.D.N.Y. 2022)...................................................................................... 11, fn6

Hi Bar Capital v. Parkway Dental Services et ano.,
2022 WL 3757589 (Kings Co. Aug. 25, 2022)........................................................................ 11, fn6

LG Funding, LLC v. United Senior Props, of Olathe, LLC,
181 A.D.3d 664 (2d Dep’t 2020)............................................................................................... 8,9,13

Lateral Recovery LLC v. Queen Funding, LLC
2022 WL 2829913 (S.D.N.Y. 2022).......................................................................................... 11, fn6

New Y-Capp v. Arch Cap. Funding LLC,
2022 WL 4813962 (S.D.N.Y. 2022).......................................................................................... 13

Polans v. Swedish Crown Casual Furniture Corp.,
69 A.D.2d 833 (2d Dep’t 1979)……………………………………………………………….5

Stellar Beach Rentals v. Redstone Advance, Inc.,
2023 WL 4421809 (S.D.N.Y. 2023)…………………………………………………………. 7

iii

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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ROCKLAND
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NEWCO CAPITAL GROUP VI LLC,

Plaintiff, Index No. 034861/2023
(Zugibe, J.)
-against- Motion Seq. No. 1

JMF SOLUTIONS INC., et al.

Defendants.

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DEFENDANTS AND COUNTERCLAIM-PLAINTIFFS’ REPLY
MEMORANDUM OF LAW IN FURTHER SUPPORT OF THEIR MOTION FOR
A PRELIMINARY INJUNCTION AND A TRO

Defendants and Counterclaim-Plaintiffs, by their attorneys, the Law Offices of

Carole R. Bernstein, respectfully submit this Reply Memorandum of Law.

PRELIMINARY STATEMENT

Newco’s opposition to the instant motion contains arguments that are in direct

conflict with prevailing law in this State as to how a Court is to analyze an agreement that

purports to purchase a merchant’s accounts receivables “at a discount” in determining

whether such agreement is simply a guise for a usurious loan. Newco champions a

mechanical “check the box” approach to analyzing the revenue purchase agreement

(“RPA”), which approach is calculated to overlook the inexcusable misrepresentations in

the RPA regarding the true availability of “reconciliation” as well as the fact that Newco

is absolutely entitled to payment from the guarantor in the event of a bankruptcy filing.

By urging the Court to accept a pretextual reconciliation provision because Newco

changed one word in its pre-printed RPA from “may” to “shall” is both intellectually and

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actually dishonest. By burying traps within microscopic language in a multi-page,

multiple columned RPA and misleadingly referring to material terms when the falsity of

such language is revealed several microscopic paragraphs into the RPA, Newco seeks to

hoodwink the Court into rubberstamping its usurious loans. The RPA is a usurious loan

and the UCC liens that emanate therefrom are void and should be enjoined before the

Court decides the merits of this action.

The unarticulated objective of Newco’s opposition is its sincere hope that the

Court will buy what Newco is selling: a “litmus test” of the RPA to be performed by the

Court in a matter of minutes. Defendants’ moving papers demonstrate that the case law

requires the RPA to be carefully scrutinized and when it is, the Court will reach the

inescapable conclusion that Defendants have prima facie established a reasonable

likelihood of success on the merits of their counterclaim seeking a declaratory judgment

that the RPA is a criminally usurious loan. Accordingly, the Court should issue a

preliminary injunction so that while this action is pending, Newco cannot finish the job it

set out to accomplish: decimating JMF Solutions’ business.

INTRODUCTION

In its opposition, Newco does not deny that:

 It took advantage of JMF Solutions’ financial desperation;

 It is a predatory lending outfit;

 That if this Court determines that the RPA is a loan, it is criminally
usurious;
 That the attempt to blue line the RPA as well as requiring Defendants
to waive usury as a defense is a tacit admission that the RPA is just
that—a usurious loan;
 That the a pre-printed attorney’s fees provision in the RPA entitling
Newco to 30% of the outstanding indebtedness in an attorney’s fee, is
unlawful;

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 That a threat to the continued existence of a business amounts to
irreparable injury and
 That the so-called “guaranty of performance” is, in fact, a guaranty of
payment.

The Scaglione Affidavit is A Fraud on the Court.

In addition to admitting the foregoing, the submission of the Affidavit of Phillip

Scaglione, dated December 27, 2023, (“Scaglione Aff.”) is a fraud on this Court and

should result in a sua sponte order to show cause as to why the affiant and the notary

should not be disciplined. First, the Scaglione Aff. is replete with false statements. For

instance, at ¶3, the affidavit states:

Fusion entered into an agreement …[and] agreed to sell to
[Newco] $108,000 of their [sic] future receivables to be
remitted to [Newco] at a rate of 7% of the weekly collected
receivables of Merchant. (emphasis supplied)

This is untrue.

Next, the Scaglione Aff. states, under the penalty of perjury, that

the Agreements did not provide for recourse as against the
guarantor in the event of the Merchant’s filing for
bankruptcy. See id. At 3.1.

Scaglione Aff., ⁋11. This is patently false. Pursuant to the Guaranty Newco required

Francis to sign, the RPA explicitly states:

[i]n the event that [Newco] must return any amount paid
by [JMF Solutions] … of the Guaranteed Obligations
because that person has become subject to proceeding
under the United States Bankruptcy Code … Guarantor(s)’
obligations under this Agreement shall continue and
survive throughout the bankruptcy proceeding and after the
proceeding has closed.

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Francis Mov. Aff.1 Ex. B, p. 7.

Finally, there is evidence of misconduct on the part of the notary, who,

unfortunately in this case, is Newco’s counsel. The acknowledgement that appears

directly beneath Mr. Scaglione’s purported signature states:

On the 27th Day of December 2023, before me, the
undersigned, appeared Chad Johnson personally known
to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to
the within instrument and acknowledge to me that she
executed the same in his/her individual capacity, and that
by his/her name signature on the instrument, the
individual, or the person upon [sic] behalf of whom the
individual acted, executed the instrument.

Scaglione Aff., p. 3(emphasis supplied). In addition to the fact that the affiant whose

signature Ariel Bouskila, Esq. allegedly notarized is not Chad Johnson, Defendants

maintain that Mr. Scaglione is a resident of the State of Florida and further that he was

not in the State of New York within the County of Rockland and personally in front of

Attorney Bouskila on December 27, 2023.

At a minimum, the Scaglione Aff. is a nullity.

POINT ONE

IF THE RPA IS DETERMINED TO BE A CRIMINALLY USURIOUS
LOAN, THEN THE UCC LIENS AND NOTICES ISSUED PURSUANT TO THE
RPA ARE VOID AB INITIO.

Newco misses the point when it accuses Defendants of not “submitting a single

case that issuing the UCC liens is somehow prohibitive.” Opp. Mem. 2 at p. 5. Newco

plainly ignores the fact that where the document purporting to provide Newco with the

1
All references herein to “Francis Mov. Aff.” are to the moving Affidavit of John Michael Francis, II,
sworn to December 8, 2023.
2
References to “Opp. Mem.” are to Newco’s Memorandum of Law in Opposition to Defendants’ Order to
Show Cause, dated December 27, 2023.

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UCC secured interest(s) is unlawful, the entire transaction, including any UCC security

interest Defendants were duped into providing, is, a fortiori, void ab initio. See Polans v.

Swedish Crown Casual Furniture Corp., 69 A.D.2d 833 (2d Dep’t 1979)(where plaintiff

defaulted on a usurious loan, security agreement that otherwise permitted the defendant

to take the car was deemed void and unenforceable); Condren v. Grace, 1990 WL

151108 (S.D.N.Y. 1990)(similar).

Accordingly, if the Court finds that the RPA is a loan and that the rate of interest

is, in fact, 87.989%, then the RPA is void ab initio and the UCC liens issued pursuant to a

usurious loan will have irrevocably devastated a business.

POINT TWO

DEFENDANTS HAVE SUBMITTED SUFFICIENT PROOF SUPPORTING
THEIR REQUEST FOR A PRELIMINARY INJUNCTION.

A. Defendants Demonstrated Irreparable Harm.

Newco baselessly states that “Defendants do not allege that they would suffer

irreparable harm absent the injunction” and “[Defendants] fail to attach an affidavit from

someone with any personal knowledge as to this alleged harm…” See Opp. Mem. p. 18.

Even a cursory reading of the Francis Mov. Aff. demonstrates the recklessness of this

statement. The Francis Mov. Aff., contained the following sworn statements:

• Newco has sent UCC lien letters to JMF Solutions’ credit card
processors, billing system vendors and every client of JMF
Solutions that Newco could locate. As a direct result of these
UCC letters, Newco has shut down JMF Solutions’ entire billing
system, and JMF Solutions is unable to collect any funds from its
customers, vendors or processors for services it has rendered which
has effectively rendered JMF Solutions inoperable. As a result,
JMF Solutions is at risk of filing for bankruptcy, as it cannot
sustain these actions from Newco. Francis Mov. Aff.¶¶ 33-34.

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•Newco has sent similar communications to JMF Solutions’ bank.
As a result of Newco’s scorched earth tactics, JMF Solutions’
banks have downgraded its loans, even though JMF Solutions has
timely serviced such loans. Francis Mov. Aff. ¶ 35.

• Newco has succeeded in damaging JMF Solutions’ ten-year
relationships with its banks by intentionally generating overdraft
fees after Newco declared a default. The restraints imposed by
Newco as a result of a criminally usurious loan will result and have
resulted in negative balances across all of JMF Solutions’
accounts in hundreds of thousands of dollars. Francis Mov. Aff. ¶
35.

• JMF Solutions has not been able to close on a new financing
package due to the overbroad nature of the UCC’s that Newco
filed. Francis Mov. Aff.¶ 36.

• JMF Solutions’ accounts payable is growing daily and JMF
Solutions has serious cash flow issues as a result of Newco’s
scorched earth collection tactics. Newco has prevented remittance
to JMF Solutions of hundreds of thousands of dollars. JMF
Solutions will not be able to sustain its business operations without
its incoming receivables. JMF Solutions will not be able to meet its
payroll obligations, which will result in fines and penalties.
Francis Mov. Aff. ¶ 38.

Similarly untrue is the unsupported statement that “[o]nly Defendant’s [sic] counsel’s

memorandum of law mentions that Defendant’s [sic] accounts have been frozen but does

not allege any harm.” Opp. Mem., p. 18. Not surprisingly, Newco does not cite to any

portion of the Defendants’ moving memorandum of law to support this unfounded

statement because it does not exist.

Next, Newco resorts to an equally specious argument, i.e., that JMF Solutions

harm is “purely monetary.” Id. This, too, has been soundly rejected by courts in the very

circumstances described by the Francis Mov. Aff. Indeed, Defendants provided

substantial case law in its moving memorandum of law dated December 11, 2023 (“Mov.

Mem. Law”) -- entirely undistinguished by Newco -- holding that a threat to the

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continued existence of a business constitutes irreparable injury. See Mov. Mem. Law,

p.10. In response to the plethora of case law cited by Defendants, Newco cites to a single

Supreme Court, Ontario County case, providing no indication of what was alleged

therein. Regardless, the fact that the harm Defendants have experienced may be partly

financial in nature, does not foreclose the conclusion that Newco’s brazen collection

campaign has caused and will continue to cause “irreparable harm” to Defendants.

As set forth recently in another MCA case where the court granted a TRO and

then a preliminary injunction, “when the potential economic loss is so great as to threaten

the existence of the moving party’s business, then a preliminary injunction may be

granted, even though the amount of direct financial harm is readily ascertainable.” Stellar

Beach Rentals v. Redstone Advance, Inc., 2023 WL 4421809*3 (S.D.N.Y. 2023).

B. Defendants Demonstrated a Likelihood of Success on the Merits.

Consistent with the allegations contained in Defendants’ counterclaims,

Defendants properly seek a declaration of their rights under the RPA. There is a bona

fide substantial “justiciable controversy between the parties which involves a present

prejudice to Defendants that has sufficiently matured so as to be ripe for judicial

determination.” Zwarycz v. Marnia Construction, 102 A.D.3d 774 (2d Dep’t 2013).

Here, Defendants have demonstrated that it has a likelihood of success on the merits of

obtaining a declaratory judgment that the RPA is a criminally usurious loan.

Newco desperately needs to continue its usurious MCA business in perpetuity

with its corresponding extra-judicial enforcement through the use of UCC liens obtained

through trickery—all without having a court scrutinize an agreement that looks, tastes,

feels and smells like a criminally usurious loan. This is the reason that Newco

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erroneously urges this Court to apply a “litmus test” in determining whether the RPA is a

loan. Opp. Mem. p. 9. Shockingly, in support of this short-sighted approach, Newco

cites to LG Funding, LLC v. United Senior Props. of Olathe, LLC (“Olathe”), 181

A.D.3d 664 (2d Dep’t 2018). Id. The suggestion that Olathe demands a rudimentary

“litmus test” is palpably incorrect. Olathe states just the opposite: Olathe mandates that

a Court, tasked with determining whether an MCA is a loan, undertake such an analysis

of the MCA “in its totality and judged by its real character, rather than by the name,

color, or form which the parties have seen fit to give it.” Olathe, 181 A.D.3d 664.

Further, Newco’s suggested “litmus test” has likewise been rejected by the Court of

Appeals in Adar Bays v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021). Based on a

longstanding history of attempts to disguise usurious loans, our Court of Appeals

instructs “when determining whether a transaction is a loan, substance—not form—

controls.” Adar Bays at 334. Thus, when analyzing an MCA, it is not a matter of (i)

looking for a reconciliation provision to make sure the term “shall” as opposed to “may”

is present or (ii) looking at the default provision to see if bankruptcy is an event of default

or (iii) looking for a date when the monies are due to determine if there is a finite term.

The RPA must be read as a whole and in its entirety. 3 We urge the Court to do the same

and decline to “buy what Newco is selling.” i.e. an unprecedented “check the box”

approach to analyzing the RPA.

Recently, the Second Department reviewed and modified a lower court’s denial of

a motion to vacate a judgment “in the interest of justice” on the ground that the

3
In the RPA, it took the undersigned counsel, who has been practicing for 36 years, several hours to read
and re-read the microscopically printed agreement and to identify the hidden terms and undetected
inconsistencies that render the RPA a loan. A lay person, like Mr. Francis, who signed the agreement via
Docusign, would be hard-pressed to have understood the ramifications of all of the one-sided terms and
inconsistencies counsel has uncovered.

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agreement at issue “constituted a criminally usurious loan.” Crystal Springs v. Big

Thicket Coin, 220 A.D.3d 745 (2d Dep’t 2023). In Crystal Springs, defendants sought a

declaratory judgment in connection with a motion, but did not have an underlying answer

with a counterclaim (as Defendants do here). But the Court’s analysis in Crystal Springs

supports the conclusion here that Defendants have demonstrated a likelihood of success

on the merits:

Here, … the agreement constituted a criminally
usurious loan. The agreement … provided, … that, in
exchange for the purchase, … defendants were
obligated to authorize … plaintiff to automatically debit
$4,000 from their bank account each business day, …
plaintiff was ‘under no obligation’ to reconcile the
payments to a percentage amount of the Big Thicket
defendants’ sales rather than the fixed daily amount,
and the plaintiff was entitled to collect the full
uncollected purchase amount plus all fees due under the
agreement in the event of the … defendants’ default by
changing their payment processing arrangements4 or
declaring bankruptcy. Together, these terms established
that the agreement was a loan, pursuant to which
repayment was absolute, rather than a purchase of
future receipts under which repayment was contingent
upon the Big Thicket defendants’ actual sales (see
Davis v. Richmond Capital Group, LLC, 194 A.D.3d
516, 517 …; LG Funding, LLC v. United Senior Props.
of Olathe, LLC, 181 A.D.3d at 666 …).

So, too, here.

1. The Reconciliation Provision is a Craftily Worded Sham
Provision of the RPA.

Newco has bandied terms that appear to mandate reconciliation while cloaking

other terms in the reconciliation provision that readily permit Newco to deny any such

request. For instance, Newco conditions granting reconciliation on the merchant

4
The RPA in the instant case declares an event of default if Defendants change their payment processing
arrangements, entitling Newco to collect the full uncollected purchase amount (plus all fees due under the
agreement). See Francis Aff., Ex. B, §3.1 (h)(i).

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providing “any and all documents that Newco may request.” A merchant’s failure to do

so provides Newco with a complete basis to deny the reconciliation regardless of changes

to the merchant’s receivables. Accordingly, whether or not the RPA states that there

“shall”5 be reconciliation means nothing—the Court needs to analyze how that

reconciliation provision functions in practice. Thus, the fact that Newco has the right to

request any documents it desires before implementing a reconciliation request completely

negates any mandatory reconciliation available to a borrower. Newco has the power to

deny or delay any reconciliation until the point at which a merchant defaults. Further, the

reconciliation requires that all bank account statements be provided to Newco from the

date of the RPA “through and including the date the [reconciliation] request is made.”

This, too, is a trap, all but guaranteeing there could be no reconciliation because a bank

statement “through the date the request is made” is an impossibility since bank statements

become available several days after the end of a month.

Newco designed its reconciliation provision to be effectively impossible for a

merchant to use because the merchant would be placed in default if it missed a weekly

fixed payment while its reconciliation request was still pending—which is certain since a

merchant can only request reconciliation where it is experiencing a slowdown in

projected revenue—and being in default voids the merchant’s right to reconciliation.

So, inasmuch as there was no way to stop the weekly fixed ACH debit from JMF

Solutions’ bank account, once business slowed it was nearly guaranteed that JMF

5
The predatory lending industry thought that if they removed the word “may” from the reconciliation
provision and replaced the word “shall,” a Court would conclude that there is a functional mandatory
reconciliation provision. But the MCA industry was not walking away from millions of dollars in usurious
interest that would become due and owing in the event of a default: what they gave with the right hand,
they took away with the left.

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Solutions would shortly be in default and therefore, the magnanimous reconciliation

provision would be inapplicable.

The Second Circuit6 recently held, in affirming the lower court’s finding of an

MCA to be a usurious loan, that a reconciliation provision in an MCA was ineffectual in

that it did not relieve the merchant of its obligation to pay the fixed daily amount during

the reconciliation process. Fleetwood Services v. Richmond Capital Group, 2023 WL

3882697*2 (2d Cir. 2023)(summary order), aff’g, Fleetwood Services v. Ram Capital

Funding, LLC, 2021 WL 1987320*13 (S.D.N.Y. 2021). See also Haymount Urgent

Care v. GoFund Advance, 609 F. Supp. 3d 237, 248-49 (S.D.N.Y. 2022) (MCA

agreement was a loan where “the reconciliation provision purports to be ‘mandatory,’ its

structure nonetheless vests substantial discretion in [MCA lender] to deny reconciliation

in that the reconciliation provision permits lender ‘to request additional documentation . .

.” “It is readily apparent how the lender could use this contractual right to obtain from the

merchant further documentation as a procedural pretext for denying reconciliation’).

All of the foregoing traps for the unwary demonstrate that reconciliation was an

illusory provision, designed to fool courts, who are urged by the predatory MCA industry

6
Newco’s disdain for federal court’s applying New York law to its RPAs is readily apparent both in its
brief (Opp. Mem. at 13) as well as the language of the RPA alone which prohibits removal to federal court.
Nevertheless, the well-reasoned decisions that come out of the SDNY should not be ignored, as Newco
would have it. At least one trial court in New York has looked to the reasoning in some of the oft-cited
decisions and respectfully, this Court should, too. See Hi Bar Capital v. Parkway Dental Services et ano.,
2022 WL 3757589 (Kings Co. Aug. 25, 2022)(“[r]ecently Federal courts have engaged in a more thorough
and exacting scrutiny of merchant cash advance agreements, looking at the agreements in a holistic and
comprehensive manner and the conclusions they have reached are compelling.”) In Hi Bar Capital, the
analysis employed in Fleetwood, Haymount, and Lateral Recovery LLC v. Queen Funding, LLC, 2022 WL
2829913 (S.D.N.Y. 2022) was endorsed by Justice Ruchelsman in the Commercial Division, who
reconsidered his prior decision and on reargument, granted a motion to vacate a default judgment,
explaining that “there are … arguments presented which raise significant defenses whether the agreement
in this case is really a high-interest loan” and concluding “… there are surely questions raised whether the
agreement comports with the requirements necessary to be considered a genuine cash advance agreement.”
Id. at *3-4.

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to forego analysis and simply engage in box-checking, into believing that these

agreements are not usurious loans.

2. The RPA Contains a De Facto Term.

The lack of a functional reconciliation provision coupled with the innumerable

instances constituting events of default, support the conclusion that Newco always

understood the reconciliation provision to be illusory—it would never be invoked

because it could never be invoked. And without a mandatory reconciliation provision,

the term of the RPA is fixed to the number of days that it would take for the Fixed

Weekly amount to pay off the Purchased Amount—in this case, 40 weeks.

3. The RPA Provides Recourse in the Event of Bankruptcy as the Personal
Guaranty of “Performance” is Actually a Guaranty of Payment.

Another trap set by Newco in the RPA is the mischaracterization of the personal

Guaranty as merely a “guaranty of performance.” Francis Mov. Aff., Ex. B, p. 2

(“merchant and guarantors are only guaranteeing their performance of the terms of this

[RPA] and are not guaranteeing the payment of the Purchased Amount.”). That

statement, to a lay person sounds like the guarantor is not responsible for payment. But

upon reading other paragraphs in the RPA, the trickery employed in describing the

guaranty as not being a guaranty of payment becomes readily apparent. What the

agreement actually provides is that in the event JMF Solutions files for bankruptcy, the

RPA authorizes Newco to, among other things, collect on personal guarantees. See

Francis Mov. Aff., Ex. B, ⁋3.2 (“Guaranty shall only guaranty the Merchant’s

performance of the covenants, representations and conditions of this Agreement and shall

not guarantee the remittance payment except upon the occurrence of an Event of

Default”) emphasis supplied. That provision goes on to say that upon the occurrence of

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an event of default, Newco will enforce its right against the Guarantors of the RPA.

Further, under a separate section entitled Guaranty of Performance, the RPA states:

“guarantor will not be personally liable for any amount due under the RPA unless

Merchant commits an Event of Default.” Francis Mov. Aff., Ex. B, p. 6. And critically,

in the event there is a default under the RPA, the RPA states that Newco can seek

recovery from the Guarantor for all of Newco’s losses and damages. The foregoing

terms are, without more, the classic definition of a guaranty of payment.

Fatal to Newco’s argument is that in the event of JMF Solutions’ bankruptcy,

Newco would be entitled to enforce the Guaranty against Francis. See Francis Mov. Aff.,

Ex. B, p. 7 (“[i]n the event that [Newco] must return any amount paid by Merchant … of

the Guaranteed Obligations because that person has become subject to proceeding under

the … Bankruptcy Code … Guarantor(s)’ obligations under this Agreement shall include

that amount.”). Inasmuch as Newco ensured it had recourse in the event of JMF

Solutions’ bankruptcy, the RPA is indeed a loan. See, Olathe, 181 A.D.3d 664, 666

(MCA was a loan where “[t]he agreement provides that in the event defendant files for

bankruptcy or is placed under an involuntary filing, plaintiff would be entitled to enforce

the provisions of the personal guaranty”); New Y-Capp v. Arch Cap. Funding LLC, 2022

WL 4813962*5 (S.D.N.Y. 2022) (“while bankruptcy may no longer have been an express

default under the revised standard form of MCA Agreement, guarantor continued to be

absolutely liable for repayment in the event of a bankruptcy filing”). Fleetwood Services

v. Richmond Capital Group, 2023 WL 3882697*2 (2d Cir. 2023)(summary

order)(existence of personal guarantees and ability to collect upon them in the event

merchant files for bankruptcy is evidence of a loan).

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The foregoing explains why Newco urges the Court to blindly check the box

under “bankruptcy is not an event of default.” The RPA must be read in its entirety as it

says one thing on page one, but something completely to the contrary several pages

therein.

C. The Balance of Equities Warrants Issuance of the Preliminary
Injunction.

Newco argues that the balance of equities favors it because granting the

preliminary injunction would allow Defendants to “accept the benefit of the [usurious

loan] by retaining the [monies] remitted to [them] and ... generate a windfall for their

indisputable bad acts.” Opp. Mem., p. 19. While the “bad acts” that Newco references

are not delineated, Newco must certainly understand that a usurious loan is unenforceable

and the lender is not entitled to return of either principal or interest. N.Y. Gen. Oblig Law

§ 5-511(2). The only harm that Newco claims it will suffer if the preliminary injunction is

granted is that “it would permit the defendants to continue to evade their responsibility to

[Newco], and ultimate[sic] render themselves judgment proof.” Opp. Mem., p. 19. First,

the “alleged harm” to Newco will continue if the preliminary junction is not granted as the

continued scorched earth collection tactics will result in the loss of the entire business.

Francis Mov. Aff., ⁋⁋ 34-36, and 38. Newco’s interest in this case is purely monetary

and thus, is remediable through damages. Newco’s only hardship would, if it prevails, be

delay in receiving payment. Conversely, it is all but certain that JMF Solutions will

forfeit the good-will earned in its business, if not its entire business, without injunctive

relief.

Finally, when this Court considers the balancing of equities between a predatory

lender with a criminally usurious loan, afforded no protection by a state public policy

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against criminal usury going back over 150 years, compared to an 18-year-old

telecommunications company that provides critical services to numerous business in the

southeastern United States, including hospitals, state and local government agencies and

many non-profit companies, there is not a scintilla of equity available for the scales of

justice to tip in Newco’s direction. The decades old criminal usury statute is based

entirely on a fundamental public policy against loan-sharking by typical gangsters, even

those that are cloaked in expensive business suits.

Accordingly, a preliminary injunction should be granted.

D. The Relief Sought in the Preliminary Injunction is Not “Too Broad.”

Newco fares no better in its argument that the relief in the TRO/Preliminary

Injunction request is “too broad” and improperly grants the “ultimate relief.” Opp. Mem.,

p. 6. To the contrary neither the TRO granted, nor the preliminary injunction sought,

grants the “ultimate relief.” To be clear, the relief that Defendants seek by their

counterclaims are numerous and set forth in their Verified Answer and Counterclaims, at

p. 21 (ad damnum clause 1-7).

E. Given the Precarious Circumstances Surrounding JMF Solutions Continued
Existence, Hastened By Newco’s Predatory Lending, The Court Should Set a
Modest Bond.

Not surprisingly, Newco demands that this Court set a bond in the amount of the

balance of the usurious loan and unlawful attorney’s fees sought by Newco. Opp. Mem.

p. 20. Defendants respectfully request that given the damage already inflicted upon it by

Newco, that the Court set a bond in a modest amount and provide Defendants with a

reasonable amount of time to procure the bond.

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Case Info

Judge

Thomas P Zugibe Track Judge’s New Case

Case No.

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Document Filed Date

January 09, 2024

Case Filing Date

October 02, 2023

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Motion-Secondary: Newco Capital Group Vi Llc v. Jmf Solutions, Jmf Solutions Inc-Dba, Jmf, Leasedminds, Jmf Networks, John M Francis Ii

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