Preview
FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018
NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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JAMES DAVIS II and MEDISALE, INC.,
Plaintiffs, Index No. 656346/2018
- against -
RICHMOND CAPITAL GROUP, LLC; INFLUX
CAPITAL GROUP, LLC, a/k/a INFLUX CAPITAL,
LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC;
YES CAPITAL FUNDING GROUP, LLC, d/b/a YES
FUNDING SERVICES, LLC; JONATHAN BRAUN;
MICHELLE GREGG; TSVI REICH a/k/a STEVE
REICH; ROBERT GIARDINA; BRYAN BAKER d/b/a
BAKER CAP FUNDING d/b/a BAKER CAPITAL
FUNDING; REBAR CAPITAL, LLC;
AZRIEL INZELBUCH a/k/a DAVID B FRANK;
and TZVI DAVIS a/k/a STEVEN DAVIS,
Defendants.
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MEMORANDUM OF LAW IN SUPPORT OF MOTION
TO DISMISS PLAINTIFFS’ COMPLAINT
JACOBOWITZ NEWMAN TVERSKY LLP
Evan M. Newman
Abraham S. Beinhorn
Attorneys for Defendants INFLUX CAPITAL, LLC,
GTR SOURCE LLC, ADDY SOURCE LLC,
TZVI REICH, and TSVI DAVIS
377 Pearsall Avenue, Suite C
Cedarhurst, New York 11516
Tel: (516) 545-0343
Fax: (212) 671-1883
Email: abeinhorn@jntllp.com
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ........................................................................................................ III
PRELIMINARY STATEMENT .................................................................................................... 1
FACTUAL BACKGROUND ......................................................................................................... 3
ARGUMENT .................................................................................................................................. 5
STANDARD ON A MOTION TO DISMISS ............................................................................. 5
POINT I. PLAINTIFFS’ FIRST CAUSE OF ACTION FOR A DECLARATORY JUDGMENT
SHOULD BE DISMISSED ......................................................................................................... 6
A. The Agreement Are Not Usurious Because They Are Not Loans ........................................ 6
B. Plaintiffs May Not Invoke Usury to Void the Agreements .................................................. 8
C. No Other Basis for Voiding the Agreement ........................................................................ 8
D. Plaintiffs’ Claims Are Not Ripe for Review ...................................................................... 10
POINT II. PLAINTIFFS’ SECOND CAUSE OF ACTION FOR A CONSTRUCTIVE TRUST
IS ENTIRELY BASELESS....................................................................................................... 10
POINT III. PLAINTIFFS’ THIRD CAUSE OF ACTION FOR A RICO VIOLATION
SHOULD BE DISMISSED ....................................................................................................... 12
A. Standard ............................................................................................................................ 12
B. The Allegations in the Complaint Concerning Rico Are Not Plead with the Required
Specificity............................................................................................................................... 13
C. The Complaint Fails to Show How the Affairs of a RICO Enterprise Were Conducted
Through the Alleged Racketeering Activity ........................................................................... 14
D. Plaintiffs Do Not Allege a “Pattern of Racketeering Activity” ........................................ 15
POINT IV. PLAINTIFFS’ FOURTH CAUSE OF ACTION SHOULD BE DISMISSED AS
THERE IS NO FIDICIARY RELATIONSHIP WARRANTING THE RELIEF ..................... 16
POINT V. PLAINTIFFS’ FIFTH CAUSE OF ACTION SHOULD BE DISMISSED.............. 17
POINT VI. PLAINTIFFS’ SIXTH CAUSE OF ACTION SHOULD BE DISMISSED............ 18
POINT VII. PLAINTIFFS’ SEVENTH CAUSE OF ACTION REGARDING DECEPTIVE
BUSINESS PRACTICES IS WITHOUT MERIT..................................................................... 19
POINT VIII. PLAINTIFFS’ FAILED TO PROPERLY SERVE THE INDIVIDUAL MOVING
DEFENDANTS ......................................................................................................................... 20
CONCLUSION ............................................................................................................................. 22
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TABLE OF AUTHORITIES
Cases
Allard v Allard,
145 AD3d 1254, 1255-56, 145 A.D 3d 1254 [3d Dept 2016] .................................................. 10
Angel v Bank of Tokyo-Mitsubshhi, Ltd.,
39 AD 3d 368, 370, 835 N.Y.S. 2d 57 [1st Dept 2007]............................................................ 17
Beal Sav. Bank v. Sommer,
8 N.Y.3d 318, 324, 865 N.E.2d 1210 [2007] .............................................................................. 6
Beatty v Guggenheim Expl. Co.,
225 NY 380, 386, 225 N.Y. 380 [1919] ................................................................................... 11
Belco Petroleum Corp v. AIG Oil Rig.,
164 Ad2d 583, 598, 565 N.Y.S.2d 776 [1st Dept 1991]........................................................... 17
Bell v. Hubbert,
05-CV-10456, *12 (S.D.N.Y. 2006) ......................................................................................... 13
Bertoni v. Catucci,
117 A.D.2d 892, 498 N.Y.S.2d 902 [3d Dep't 1986]................................................................ 11
Besicorp Ltd. v. Kahn,
290 A.D.2d 147, 736 N.Y.S.2d 708 [3d Dept 2002] .......................................................... 12, 14
Biondi v. Beekman Hill House Apt. Corp.,
257 A.D.2d 76, 80, 692 N.Y.S.2d 304 [1st Dept 1999].............................................................. 5
Burrowes v. Combs,
25 A.D.3d 370, 373, 808 N.Y.S.2d 50 [1st Dept 2006].............................................................. 6
Caruso v Raju,
249 AD2d 256, 256, 670 N.Y.S. 2d 917 [2d Dept 1998] ......................................................... 22
Champion Auto Sales, LLC v Pearl Beta Funding, LLC,
159 AD3d 507, 69 N.Y.S. 3d 507, 2018 N.Y. Slip Op. 01645 [1st Dept 2018], lv to appeal
denied, 31 NY3d 910 [2018] ...................................................................................................... 8
Counihan v. Allstate Ins. Co.,
194 F.3d 357, 362 [2d Cir.1999]............................................................................................... 11
Cullen v. Margiotta,
811 F.2d 698, 712–13 (2d Cir.)................................................................................................. 12
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Dee v Rakower,
112 AD3d 204, 212, 976 N.Y.S. 2d 470 [2d Dept 2013] ......................................................... 11
DLJ Mortg. Capital Inc. v. Kontogiannis,
726 F. Supp.2d 225, 236, n.8 (E.D.N.Y. 2010) ........................................................................ 13
Elghanian v Elghanian,
277 AD2d 162, 717 N.Y.S. 2d 54 [1st Dept 2000]................................................................... 16
Elsevier Inc. v. W.H.P.R., Inc.,
692 F. Supp. 2d 297, 308 (S.D.N.Y. 2010)............................................................................... 14
ESPN, Inc. v. Office of the Comm’r of Baseball,
76 F. Supp.2d 383, 389 [S.D.N.Y. 1999] ................................................................................... 9
First Asset Capital Management v. Satinwood, Inc.
385 F.3d 159 (2d Cir. 2004)...................................................................................................... 15
Frame v Maynard,
39 A.D. 3d 328, 833 N.Y.S. 2d 487 [1st Dept 2007].................................................................. 9
GICC Capital Corp. v, Technology Insurance Group, Inc.
67 F.3d 463 (2d Cir. 1995)........................................................................................................ 15
Godfrey v. Spano,
13 N.Y.3d 358, 374 [2009] ......................................................................................................... 6
H.J. Inc. v. Northwestern Bell telephone Co.,
492 U.S. 229, 109 S. Ct. 2893 (1989) ....................................................................................... 15
Hochman v. Larea,
14 A.D.3d 653, 654, 789 N.Y.S.2d 300 [2d Dept. 2005] ........................................................... 9
K9 Bytes, Inc. v Arch Capital Funding, LLC,
56 Misc 3d 807, 57 N.Y.S. 3d 625, 2017 N.Y. Slip Op. 27166 [Sup Ct Westchester Co. 2017]
............................................................................................................................................... 8, 16
Massaro v. United States,
2004 U.S. Dist. LEXIS 20084, *13 (S.D.N.Y. 2004) ............................................................... 15
McLaughlin v. Anderson,
962 F.2d 187, 191 [2d Cir.1992]......................................................................................... 12, 13
Merchants Advance, LLC v. Tera K, LLC T/A Tribeca Frank Crabetta,
2008 NY Misc. LEXIS 10889, *4 [Sup. Ct. NY Co. 2008] ....................................................... 7
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Persaud v Teaneck Nursing Ctr., Inc,
290 AD2d 350, 351, 290 A.d.2d 350 [1st Dept 2002] .............................................................. 21
Plount v. Am. Home Assurance Co.,
668 F.Supp. 204, 207 [S.D.N.Y.1987]...................................................................................... 12
Schneider v. Phelps,
41 N.Y.2d 238, 242, 391 N.Y.S.2d 568, 571 [1977] .................................................................. 8
Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 497, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)), cert. denied, 483 U.S. 1021,
107 S.Ct. 3266, 97 L.Ed.2d 764 (1987) .............................................................................. 12, 14
Seidel v 18 E. 17th St. Owners, Inc.,
79 NY2d 735, 744 [1992] ........................................................................................................... 7
Sharp v Kosmalski,
40 NY2d 119, 351 N.E.2d 721 [1976] ...................................................................................... 11
Sherman v Mulerman,
45 Misc 3d 1220(A), 2014 WL 6673912 [NY Sup 2014] ........................................................ 19
Storper v WL Ross & Co., LLC,
2018 N.Y. Slip Op. 32235[U], 2018 WL 4334218, *4 [Sup Ct, NY County 2018] ................ 16
Stuart Lipsky, P.C. v. Price,
215 A.D.2d 102, 103, 625 N.Y.S.2d 563 [1st Dept 1995].......................................................... 5
Teller v Bill Hayes, Ltd.,
213 AD2d 141, 149, 630 N.Y.S. 2d 769 [2d Dept 1995] ......................................................... 19
Transmedia Rest. Co., Inc. v. 33 E. 61 Street Rest. Corp.,
184 Misc.2d 706, 710, 710 N.Y.S.2d 756 [Sup. Ct. N.Y. Co. 2000] ......................................... 9
Unitel Telecard Distrib. Corp. v Nunez,
90 AD3d 568, 569, 936 N.Y.S. 2d 117 [1st Dept 2011]........................................................... 16
Wal-Mart Stores Inc. v Campbell,
238 AD2d 831, 833, 656 N.Y.S. 2d 536 [3d Dept 1997] ......................................................... 10
Wilkinson Floor Covering, Inc. v Cap Call, LLC,
59 Misc 3d 1226(A) [Sup Ct New York Co. 2018] .................................................................... 7
Wilson Impex PTE Ltd. v. American Polymer Group, Inc.,
97 Civ. 4157, 1999 U.S. Dist. LEXIS 17013, *8-9 (S.D.N.Y. 1999) ....................................... 15
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Yellowstone Capital LLC v Cent. USA Wireless LLC,
60 Misc 3d 1220(A), 2018 WL 3765121 [Sup Ct Erie Co. 2018] .............................................. 7
Zoo Holdings, LLC v Clinton,
11 Misc 3d 1051(A), 814 N.Y.S. 2d 893 [Sup Ct NY Co. 2006] ........................................... 7, 8
Statutes
CPLR § 308................................................................................................................................... 20
CPLR § 3211(a)(8) ................................................................................................................. 20, 22
Gen. Oblig. L. § 5-501 .................................................................................................................... 7
General Business Law § 349............................................................................................... 3, 19, 20
Limited Liability Company Law § 808 ........................................................................................ 19
Penal Law § 190.40......................................................................................................................... 7
Section 1962(c) of 18 U.S.C. ........................................................................................................ 12
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PRELIMINARY STATEMENT
Defendants INFLUX CAPITAL GROUP LLC a/k/a Influx Capital LLC (“Influx Capital”),
GTR SOURCE LLC (“GTR”), ADDY SOURCE LLC (“Addy”), TZVI REICH1 and TSVI
DAVIS2 (hereinafter, collectively referred to as, the “Moving Defendants”) by and through their
attorneys, Jacobowitz Newman Tversky LLP, submit the following memorandum of law in
support of their motion to dismiss plaintiffs James Davis, II and Medisale3, Inc.’s, (collectively
“Plaintiffs”) Complaint as to the Moving Defendants.
In what amounts to a whole lot of nothing, Plaintiffs’ Complaint proffers a self-serving
treatise on the merchant cash advance industry. However, the broad irrelevant allegations as to
the merchant cash advance industry in general and the news articles annexed to the Complaint
about unrelated parties, do not set forth a claim for these Plaintiffs against these Moving
Defendants. However, in lieu of stating a single cognizable claim against the Moving Defendants,
Plaintiffs repeatedly reference scandalous innuendo and gossip as to other defendants and the
industry at large. Yet these red herrings do not mask the inescapable fact that nowhere in their
Complaint do Plaintiffs set forth a cognizable claim against the Moving Defendants.
Plaintiffs’ First Cause of Action seeks to void the relevant merchant agreements on the
basis that they are allegedly usurious. However, because repayment on the agreements in question
is contingent upon Plaintiffs’ receipt of account receivables, the agreements are not loans. This
has been confirmed on many occasions by numerous New York Courts who have repeatedly held
that merchant agreements are purchases of account receivables not loans and are thus not subject
1
Incorrectly sued here as “Tsvi” Reich.
2
Incorrectly sued here as “Tzvi” Davis.
3
Sometimes referred to by Plaintiffs themselves as “Medisales”, and sometimes “Medisale”.
1
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to usury laws. Additionally, Plaintiffs, as a matter of law, cannot assert usury as a basis for the
affirmative relief sought here.
Plaintiffs’ Second Cause of Action for a constructive trust also fails, as the Complaint does
not allege any of the elements of a constructive claim as it pertains to the Moving Defendants.
Plaintiffs do not even demonstrate that Defendant Jonathan Braun (“Braun”) has money belonging
to Plaintiffs, nor do they show how the Moving Defendants have Braun’s money. Moreover,
Plaintiffs’ bad faith invocation of Braun’s unrelated criminal issue aside, Plaintiff’s nonsensical
allegations do not show how without the imposition of a constructive trust the Moving Defendants
would be unjustly enriched through Braun. Again, Braun is an unrelated party and not one of the
Moving Defendants.
Plaintiffs’ Third Cause of Action for a RICO claim fails on every level. First, the
Complaint fails to meet the heightened pleading requirements for such a claim. Moreover, the
Complaint fails to set forth any of the required elements therefor. Specifically, there is no showing
of a criminal enterprise, nor can Plaintiffs evidence a pattern of racketeering activity as defendants
are distinct funding companies who operate and transact legal businesses. Furthermore, Plaintiffs
fail to allege even a single criminal action taken by any defendant, let alone a criminal enterprise
with a pattern of illegal actions as to the Moving Defendants.
Plaintiffs’ Fourth Cause of Action, a claim for an Accounting is also baseless. Plaintiffs
do not demonstrate the existence of a confidential or fiduciary relationship, nor do Plaintiffs show
that they lack an adequate remedy at law – both of which are required elements for the claim.
Plaintiffs’ Fifth Cause of Action – disclosure of confidential information is also meritless.
Plaintiffs Complaint is inadequately plead, and directly contradicted by Plaintiffs’ own concession
that as part of the regular funding process their information was given to various funders.
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Furthermore, Plaintiffs repeatedly sought these applications and agreements for which their
information was allegedly given, so they were in no way damaged by the alleged disclosures.
Plaintiffs’ Sixth Cause of Action regarding fictious business names is flatly untrue as to
the Moving Defendants. As the documentary evidence establishes, Addy and Influx Capital are
duly registered businesses. Moreover, Plaintiffs cannot show how the allegedly fictitious business
induced them into entering into the agreements they otherwise willfully sought.
Lastly, Plaintiffs’ Seventh Cause of Action, a claim of “deceptive business practices” under
General Business Law § 349 also fails, as the statute pertains solely to fraudulent actions that
impact consumers at large. Here, Plaintiffs’ allegations concern allegedly fraudulently statements
made by “defendants” to the Plaintiffs concerning their personal arm’s length negotiations.
Additionally, the allegation that defendants misrepresented the amounts to be funded is directly
contradicted by the executed agreements which specifically authorize the deductions and payoffs.
Accordingly, Plaintiffs’ Complaint fails set forth a single basis for the relief sought as to
the Moving Defendants and should be dismissed as to them in its entirety.
Additionally, Plaintiffs’ Complaint must further be dismissed as to the individual Moving
Defendants, who were not properly served.
FACTUAL BACKGROUND
As set forth in Plaintiffs’ Complaint, merchant cash advance funders, such as the Moving
Defendants, provide short term financing to businesses in need of working capital, in exchange for
a percentage of a merchant’s future account receivables. See, the annexed affirmation of Abraham
S. Beinhorn, Esq. (hereinafter “Atty Aff”), at ¶ 4.4 As set forth in the Complaint, a merchant in
need of MCA financing typically submits an application with its information through a broker or
4
A copy of Plaintiffs’ Complaint is attached to the Atty Aff as Exhibit 1.
3
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an individual sales office (“ISO”) who then finds an MCA funder by shopping the application to
get the best deal for the merchant. Id. at ¶ 5.
As generally set forth in the Complaint, the Plaintiffs entered into a series of merchant
agreements including several with the Moving Defendants. Id. at ¶ 6. First, as set forth in the
Complaint, Plaintiffs and Influx Capital entered into a Secured Merchant Agreement on or about
October 4, 2018, whereby Plaintiff sold Influx Capital rights to their account receivables for a
purchase price of $250,000.00 (the “Influx Agreement”). Id. at ¶ 7.5 The Influx Agreement
explicitly and clearly sets forth, including in an executed authorization form therein, that a portion
of the payment price was being utilized to payoff Plaintiffs’ outstanding balance with an entity
named Capital Merchant Services, LLC. Id. at ¶ 8.
Thereafter, as set forth in the Complaint, on or about October 16, 2018, Plaintiffs entered
into a Secured Merchant Agreement with Addy whereby Plaintiffs were given $200,000.00 in
working capital in exchange for up to $299,800.00 in rights to Plaintiffs’ future account
receivables, as further set forth in the agreement (“First Addy Agreement”). Id. at ¶ 9.6 After
entering into an agreement with another Defendant, SPG Advance, LLC, as set forth in the
Complaint, Plaintiffs came back to Addy and entered into a second agreement, on or about
November 1, 2018, pursuant to which Addy provided Plaintiffs with $320,000.00 in exchange for
$479,680.00 in rights to Plaintiffs’ future account receivables, as further set forth therein (“Second
Addy Agreement”). Id. at ¶ 10.7
5
A copy of the Influx Agreement is attached as Exhibit B to Plaintiffs’ Complaint, Exhibit 1, and as Exhibit
2 to the Atty Aff.
6
A copy of the First Addy Agreement is attached as Exhibit C to Exhibit 1, Plaintiffs’ Complaint, and as
Exhibit 3 to the Atty Aff.
7
A copy of the Second Addy Agreement is attached as Exhibit E to Exhibit 1, Plaintiffs’ Complaint, but a
fully executed copy is attached as Exhibit 4 to the Atty Aff.
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Plaintiffs allege that $281,803.00 was mysteriously deducted from the Second Addy
Agreement, yet, any faux confusion should be cleared up by the fully executed copy of the Second
Addy Agreement annexed hereto, wherein an executed balanced transfer form therein explicitly
shows that Plaintiff agreed to the payoff to the original agreement as part of the Second Addy
Agreement. Id. at ¶ 11; See also, Exhibit 4 to the Atty Aff.
As set forth in the Complaint, on or about November 7, 2018, Plaintiffs entered into a
merchant agreement with another defendant, Richmond Capital Group, as well as a separate
agreement with GTR for a funded amount of $375,000.00 (the “GTR Agreement”). Id. at ¶ 12.8
Incredibly, Plaintiffs’ Complaint feigns confusion about a $289,990.00 payoff coming from the
GTR Agreement, but as the fully executed copy of the GTR Agreement, also missing from
Plaintiffs’ Complaint, sets forth - as part of the GTR Agreement, Plaintiffs explicitly
acknowledged that $289,990.00 would be attributed to the balance still owed on the Influx
Agreement. Id. at ¶ 13; See also, Exhibit 5 to the Atty Aff.
ARGUMENT
STANDARD ON A MOTION TO DISMISS
A complaint should be dismissed pursuant to CPLR § 3211(a)(7) where, accepting all of
the allegations as true and drawing all reasonable inferences in the pleader’s favor, the complaint
fails to state a cause of action. See Stuart Lipsky, P.C. v. Price, 215 A.D.2d 102, 103, 625 N.Y.S.2d
563 [1st Dept 1995]. Bare legal conclusions and factual claims inherently or flatly contradicted
by the documentary evidence are not entitled to a presumption of truth. Ibid; See also, Biondi v.
Beekman Hill House Apt. Corp., 257 A.D.2d 76, 80, 692 N.Y.S.2d 304 [1st Dept 1999] (“[F]actual
claims either inherently incredible or flatly contradicted by documentary evidence’ are not
8
A copy of the GTR Agreement is attached as Exhibit H to Exhibit 1, Plaintiffs’ Complaint, but a fully
executed copy is attached as Exhibit 5 to the Atty Aff.
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presumed to be true and accorded every favorable inference.”) (internal quotations and citations
omitted).
Rather, to avoid dismissal “a plaintiff must support his claim with more than mere
speculation” to avoid dismissal. Burrowes v. Combs, 25 A.D.3d 370, 373, 808 N.Y.S.2d 50 [1st
Dept 2006].
Dismissal is appropriate under CPLR 3211(a)(1) where the “documentary evidence
submitted conclusively establishes a defense to the asserted claims as a matter of law.” Beal Sav.
Bank v. Sommer, 8 N.Y.3d 318, 324, 865 N.E.2d 1210 [2007] (internal quotations and citations
omitted). Further, the Court may consider evidence submitted by Defendants even where it “does
not in itself warrant dismissal under CPLR§ 3211” if the material supports the “judgment that the
conclusory nature of plaintiffs’ allegations is more than a matter of inartful pleading.” Godfrey v.
Spano, 13 N.Y.3d 358, 374 [2009].
POINT I.
PLAINTIFFS’ FIRST CAUSE OF ACTION FOR A DECLARATORY
JUDGMENT SHOULD BE DISMISSED
Plaintiffs’ First Cause of Action seeks a declaratory judgment that the agreements are null,
void and unenforceable, because they violate usury laws, and contends that a declaratory judgment
is warranted because “defendants” violated the “MCA Agreements and Plaintiffs are thereby
relieved of any duty to perform….”. See, Exhibit 1, at ¶ 260.
A. The Agreement Are Not Usurious Because They Are Not Loans
Plaintiffs’ haphazard attempt to convert the agreements wherein it sold rights in its future
receivables into loans is unconvincing as the overwhelming amount of case law suggests
otherwise.
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For there to be usury, civil or criminal, there must be a loan. See, Seidel v 18 E. 17th St.
Owners, Inc., 79 NY2d 735, 744 [1992] (noting that if the transaction is not a loan there can be no
usury, however unconscionable the contract may be). For criminal usury, the statute requires a
loan and the payment of interest. See, Penal Law § 190.40. Similarly, civil usury applies to
“interest on the loan or forbearance of any money, goods, or things in action at a rate exceeding
the rate above prescribed.” See, Gen. Oblig. L. § 5-501.
An indispensable element of a loan is the lender’s absolute right to repayment of the
principal sum. See, Zoo Holdings, LLC v Clinton, 11 Misc 3d 1051(A), 814 N.Y.S. 2d 893 [Sup
Ct NY Co. 2006]. Clearly, the agreements between Plaintiffs and the Moving Defendants are not
loans. As Plaintiffs readily concede, the right to repayment in each agreement was conditioned on
whether Plaintiffs would continue to accrue receivables, which determined the rate and
completeness of repayment. See, Wilkinson Floor Covering, Inc. v Cap Call, LLC, 59 Misc 3d
1226(A) [Sup Ct New York Co. 2018] (noting, there is no loan because the obligation to pay future
receivables was conditioned upon receipt of them); See also, Yellowstone Capital LLC v Cent.
USA Wireless LLC, 60 Misc 3d 1220(A), 2018 WL 3765121 [Sup Ct Erie Co. 2018], quoting,
Merchants Advance, LLC v. Tera K, LLC T/A Tribeca Frank Crabetta, 2008 NY Misc. LEXIS
10889, *4 [Sup. Ct. NY Co. 2008] (stating, where payment or enforcement rests upon a
contingency, the agreement is valid even though it provides for a return in excess of the legal rate
of interest) (internal citations and quotations omitted).
New York Courts have repeatedly confirmed that merchant agreements, such as the ones
between Plaintiffs and defendants, are not loans. See, Yellowstone Capital, LLC, 2018 WL
3765121, *4, 2018 N.Y. Slip Op. 51179(U) [Sup Ct Erie Co. 2017] (noting, that agreements
structured with reconciliation provisions directly based upon a specified percentage of account
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receivables purchased are clearly not loans); See also, Champion Auto Sales, LLC v Pearl Beta
Funding, LLC, 159 AD3d 507, 69 N.Y.S. 3d 507, 2018 N.Y. Slip Op. 01645 [1st Dept 2018], lv
to appeal denied, 31 NY3d 910 [2018]; See also, K9 Bytes, Inc. v Arch Capital Funding, LLC, 56
Misc 3d 807, 57 N.Y.S. 3d 625, 2017 N.Y. Slip Op. 27166 [Sup Ct Westchester Co. 2017] (noting
that many trial courts have examined similar agreements and determined they are purchases of
receivables not loans).
B. Plaintiffs May Not Invoke Usury to Void the Agreements
It is well settled that a usury claim can only be asserted by a corporation as an affirmative
defense, and cannot be asserted to gain affirmative relief, such as voiding the agreement. See, Zoo
Holdings, LLC v. Clinton, 11 Misc.3d 1051(A), 814 N.Y.S.2d 893 [Sup. Ct. N.Y. Co. 2006]
(holding that by seeking affirmative monetary relief, debtor was attempting to utilize the statute as
a “sword” rather than a “shield”); See also, K9 Bytes, Inc., 56 Misc 3d at 813 (dismissing usury
cause of action seeking judgment to void merchant agreement while affirming that “it has long
been settled in this state that criminal usury may only be asserted as a defense by a corporation,
and never as a means to seek affirmative relief.”). Furthermore, “where a corporation is barred
from asserting usury, so is its individual guarantor.” See, Schneider v. Phelps, 41 N.Y.2d 238, 242,
391 N.Y.S.2d 568, 571 [1977].
Accordingly, in addition to the fact that merchant agreements are not subject to usury laws,
because the Plaintiffs are a corporation and its guarantor, they cannot assert usury as a basis for
voiding their agreements.
C. No Other Basis for Voiding the Agreement
In their Complaint, Plaintiffs also vaguely allege that a purported breach of contract by
“defendants” justify voiding the agreements on the basis of usury.
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It is well-settled there is a strong presumption against the finding of usury. See,
Transmedia Rest. Co., Inc. v. 33 E. 61 Street Rest. Corp., 184 Misc.2d 706, 710, 710 N.Y.S.2d
756 [Sup. Ct. N.Y. Co. 2000]. Usury is an affirmative defense, and a heavy burden rests upon the
party seeking to impeach a transaction based upon usury. See, Hochman v. Larea, 14 A.D.3d 653,
654, 789 N.Y.S.2d 300 [2d Dept. 2005] (internal citations omitted).
Here, despite claiming that alleged breaches rendered the agreements usurious, Plaintiffs
do not deny they accepted the benefits of the agreements provided by the Moving Defendants, nor
do Plaintiffs deny that they are the ones who owe defendants money, and not the other way around.
Moreover, Plaintiffs are inappropriately seeking to use a vaguely plead breach of contract claim to
argue for rescission. See, Frame v Maynard, 39 A.D. 3d 328, 833 N.Y.S. 2d 487 [1st Dept 2007]
(noting rescission is not a proper remedy since money damages will adequately compensate the
plaintiffs).
Plaintiffs vaguely contend that “defendants” breached their agreements by “underfunding”
the amounts. However, Plaintiffs have not and do not assert a claim for breach of contract, which
would be the appropriate claim, if any. See, ESPN, Inc. v. Office of the Comm’r of Baseball, 76 F.
Supp.2d 383, 389 [S.D.N.Y. 1999] (noting that plaintiff had two choices against alleged breach,
terminate the parties’ contract and claim damages for total breach, or continue contract and sue for
partial breach, but when and if it chooses to continue the contract it cannot later decide to terminate
based on same breach).
Moreover, the entire argument that the Moving Defendants breached their agreements by
taking deductions for the payoffs, is directly contradicted by the parties’ agreements. Each
agreement directly provides for any deducted amount or payoff to a previous funder, as is standard,
and the agreements even contain authorizations forms executed by Plaintiffs noting this.
9
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D. Plaintiffs’ Claims Are Not Ripe for Review
Plaintiffs’ entire claim is wholly speculative, as Plaintiffs do not deny they accepted the
benefits of the agreements, including the monies funded by the Moving Defendants. Again,
Plaintiffs do not deny that they are the ones who money. Essentially, Plaintiffs is seeking relief
on the basis that the calculations made by defendants may account for a larger outstanding balance
than accurate upon which they may file a judgment. Therefore, the claims set forth in the
Complaint are not ripe for review. See, Allard v Allard, 145 AD3d 1254, 1255-56, 145 A.D 3d
1254 [3d Dept 2016] (holding that defendant’s contentions regarding the diminution of his share
of the equity or profit in a residence which may result if and when the residence was sold, were
not justiciable and were unripe for review); See also, Wal-Mart Stores Inc. v Campbell, 238 AD2d
831, 833, 656 N.Y.S. 2d 536 [3d Dept 1997] (holding that where the harm sought to be enjoined
is contingent upon events which may not come to pass, the claim is nonjusticiable as wholly
speculative and abstract).
Accordingly, Plaintiffs’ First Cause of Action should be dismissed as to the Moving
Defendants.
POINT II.
PLAINTIFFS’ SECOND CAUSE OF ACTION FOR A
CONSTRUCTIVE TRUST IS ENTIRELY BASELESS
Plaintiffs’ Second Cause of Action vaguely alleges a claim for “concealment of funds,
constructive trust/transfers in fraud of creditors”. Plaintiffs oddly suggest, without any evidence,
that the amorphous “defendants”, including Tz
Preview
FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ----------------------------------------------------------------------x JAMES DAVIS II and MEDISALE, INC., Plaintiffs, Index No. 656346/2018 - against - RICHMOND CAPITAL GROUP, LLC; INFLUX CAPITAL GROUP, LLC, a/k/a INFLUX CAPITAL, LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC; YES CAPITAL FUNDING GROUP, LLC, d/b/a YES FUNDING SERVICES, LLC; JONATHAN BRAUN; MICHELLE GREGG; TSVI REICH a/k/a STEVE REICH; ROBERT GIARDINA; BRYAN BAKER d/b/a BAKER CAP FUNDING d/b/a BAKER CAPITAL FUNDING; REBAR CAPITAL, LLC; AZRIEL INZELBUCH a/k/a DAVID B FRANK; and TZVI DAVIS a/k/a STEVEN DAVIS, Defendants. ----------------------------------------------------------------------x MEMORANDUM OF LAW IN SUPPORT OF MOTION TO DISMISS PLAINTIFFS’ COMPLAINT JACOBOWITZ NEWMAN TVERSKY LLP Evan M. Newman Abraham S. Beinhorn Attorneys for Defendants INFLUX CAPITAL, LLC, GTR SOURCE LLC, ADDY SOURCE LLC, TZVI REICH, and TSVI DAVIS 377 Pearsall Avenue, Suite C Cedarhurst, New York 11516 Tel: (516) 545-0343 Fax: (212) 671-1883 Email: abeinhorn@jntllp.com 1 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 TABLE OF CONTENTS TABLE OF AUTHORITIES ........................................................................................................ III PRELIMINARY STATEMENT .................................................................................................... 1 FACTUAL BACKGROUND ......................................................................................................... 3 ARGUMENT .................................................................................................................................. 5 STANDARD ON A MOTION TO DISMISS ............................................................................. 5 POINT I. PLAINTIFFS’ FIRST CAUSE OF ACTION FOR A DECLARATORY JUDGMENT SHOULD BE DISMISSED ......................................................................................................... 6 A. The Agreement Are Not Usurious Because They Are Not Loans ........................................ 6 B. Plaintiffs May Not Invoke Usury to Void the Agreements .................................................. 8 C. No Other Basis for Voiding the Agreement ........................................................................ 8 D. Plaintiffs’ Claims Are Not Ripe for Review ...................................................................... 10 POINT II. PLAINTIFFS’ SECOND CAUSE OF ACTION FOR A CONSTRUCTIVE TRUST IS ENTIRELY BASELESS....................................................................................................... 10 POINT III. PLAINTIFFS’ THIRD CAUSE OF ACTION FOR A RICO VIOLATION SHOULD BE DISMISSED ....................................................................................................... 12 A. Standard ............................................................................................................................ 12 B. The Allegations in the Complaint Concerning Rico Are Not Plead with the Required Specificity............................................................................................................................... 13 C. The Complaint Fails to Show How the Affairs of a RICO Enterprise Were Conducted Through the Alleged Racketeering Activity ........................................................................... 14 D. Plaintiffs Do Not Allege a “Pattern of Racketeering Activity” ........................................ 15 POINT IV. PLAINTIFFS’ FOURTH CAUSE OF ACTION SHOULD BE DISMISSED AS THERE IS NO FIDICIARY RELATIONSHIP WARRANTING THE RELIEF ..................... 16 POINT V. PLAINTIFFS’ FIFTH CAUSE OF ACTION SHOULD BE DISMISSED.............. 17 POINT VI. PLAINTIFFS’ SIXTH CAUSE OF ACTION SHOULD BE DISMISSED............ 18 POINT VII. PLAINTIFFS’ SEVENTH CAUSE OF ACTION REGARDING DECEPTIVE BUSINESS PRACTICES IS WITHOUT MERIT..................................................................... 19 POINT VIII. PLAINTIFFS’ FAILED TO PROPERLY SERVE THE INDIVIDUAL MOVING DEFENDANTS ......................................................................................................................... 20 CONCLUSION ............................................................................................................................. 22 ii 2 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 TABLE OF AUTHORITIES Cases Allard v Allard, 145 AD3d 1254, 1255-56, 145 A.D 3d 1254 [3d Dept 2016] .................................................. 10 Angel v Bank of Tokyo-Mitsubshhi, Ltd., 39 AD 3d 368, 370, 835 N.Y.S. 2d 57 [1st Dept 2007]............................................................ 17 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324, 865 N.E.2d 1210 [2007] .............................................................................. 6 Beatty v Guggenheim Expl. Co., 225 NY 380, 386, 225 N.Y. 380 [1919] ................................................................................... 11 Belco Petroleum Corp v. AIG Oil Rig., 164 Ad2d 583, 598, 565 N.Y.S.2d 776 [1st Dept 1991]........................................................... 17 Bell v. Hubbert, 05-CV-10456, *12 (S.D.N.Y. 2006) ......................................................................................... 13 Bertoni v. Catucci, 117 A.D.2d 892, 498 N.Y.S.2d 902 [3d Dep't 1986]................................................................ 11 Besicorp Ltd. v. Kahn, 290 A.D.2d 147, 736 N.Y.S.2d 708 [3d Dept 2002] .......................................................... 12, 14 Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76, 80, 692 N.Y.S.2d 304 [1st Dept 1999].............................................................. 5 Burrowes v. Combs, 25 A.D.3d 370, 373, 808 N.Y.S.2d 50 [1st Dept 2006].............................................................. 6 Caruso v Raju, 249 AD2d 256, 256, 670 N.Y.S. 2d 917 [2d Dept 1998] ......................................................... 22 Champion Auto Sales, LLC v Pearl Beta Funding, LLC, 159 AD3d 507, 69 N.Y.S. 3d 507, 2018 N.Y. Slip Op. 01645 [1st Dept 2018], lv to appeal denied, 31 NY3d 910 [2018] ...................................................................................................... 8 Counihan v. Allstate Ins. Co., 194 F.3d 357, 362 [2d Cir.1999]............................................................................................... 11 Cullen v. Margiotta, 811 F.2d 698, 712–13 (2d Cir.)................................................................................................. 12 iii 3 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 Dee v Rakower, 112 AD3d 204, 212, 976 N.Y.S. 2d 470 [2d Dept 2013] ......................................................... 11 DLJ Mortg. Capital Inc. v. Kontogiannis, 726 F. Supp.2d 225, 236, n.8 (E.D.N.Y. 2010) ........................................................................ 13 Elghanian v Elghanian, 277 AD2d 162, 717 N.Y.S. 2d 54 [1st Dept 2000]................................................................... 16 Elsevier Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 308 (S.D.N.Y. 2010)............................................................................... 14 ESPN, Inc. v. Office of the Comm’r of Baseball, 76 F. Supp.2d 383, 389 [S.D.N.Y. 1999] ................................................................................... 9 First Asset Capital Management v. Satinwood, Inc. 385 F.3d 159 (2d Cir. 2004)...................................................................................................... 15 Frame v Maynard, 39 A.D. 3d 328, 833 N.Y.S. 2d 487 [1st Dept 2007].................................................................. 9 GICC Capital Corp. v, Technology Insurance Group, Inc. 67 F.3d 463 (2d Cir. 1995)........................................................................................................ 15 Godfrey v. Spano, 13 N.Y.3d 358, 374 [2009] ......................................................................................................... 6 H.J. Inc. v. Northwestern Bell telephone Co., 492 U.S. 229, 109 S. Ct. 2893 (1989) ....................................................................................... 15 Hochman v. Larea, 14 A.D.3d 653, 654, 789 N.Y.S.2d 300 [2d Dept. 2005] ........................................................... 9 K9 Bytes, Inc. v Arch Capital Funding, LLC, 56 Misc 3d 807, 57 N.Y.S. 3d 625, 2017 N.Y. Slip Op. 27166 [Sup Ct Westchester Co. 2017] ............................................................................................................................................... 8, 16 Massaro v. United States, 2004 U.S. Dist. LEXIS 20084, *13 (S.D.N.Y. 2004) ............................................................... 15 McLaughlin v. Anderson, 962 F.2d 187, 191 [2d Cir.1992]......................................................................................... 12, 13 Merchants Advance, LLC v. Tera K, LLC T/A Tribeca Frank Crabetta, 2008 NY Misc. LEXIS 10889, *4 [Sup. Ct. NY Co. 2008] ....................................................... 7 iv 4 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 Persaud v Teaneck Nursing Ctr., Inc, 290 AD2d 350, 351, 290 A.d.2d 350 [1st Dept 2002] .............................................................. 21 Plount v. Am. Home Assurance Co., 668 F.Supp. 204, 207 [S.D.N.Y.1987]...................................................................................... 12 Schneider v. Phelps, 41 N.Y.2d 238, 242, 391 N.Y.S.2d 568, 571 [1977] .................................................................. 8 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 764 (1987) .............................................................................. 12, 14 Seidel v 18 E. 17th St. Owners, Inc., 79 NY2d 735, 744 [1992] ........................................................................................................... 7 Sharp v Kosmalski, 40 NY2d 119, 351 N.E.2d 721 [1976] ...................................................................................... 11 Sherman v Mulerman, 45 Misc 3d 1220(A), 2014 WL 6673912 [NY Sup 2014] ........................................................ 19 Storper v WL Ross & Co., LLC, 2018 N.Y. Slip Op. 32235[U], 2018 WL 4334218, *4 [Sup Ct, NY County 2018] ................ 16 Stuart Lipsky, P.C. v. Price, 215 A.D.2d 102, 103, 625 N.Y.S.2d 563 [1st Dept 1995].......................................................... 5 Teller v Bill Hayes, Ltd., 213 AD2d 141, 149, 630 N.Y.S. 2d 769 [2d Dept 1995] ......................................................... 19 Transmedia Rest. Co., Inc. v. 33 E. 61 Street Rest. Corp., 184 Misc.2d 706, 710, 710 N.Y.S.2d 756 [Sup. Ct. N.Y. Co. 2000] ......................................... 9 Unitel Telecard Distrib. Corp. v Nunez, 90 AD3d 568, 569, 936 N.Y.S. 2d 117 [1st Dept 2011]........................................................... 16 Wal-Mart Stores Inc. v Campbell, 238 AD2d 831, 833, 656 N.Y.S. 2d 536 [3d Dept 1997] ......................................................... 10 Wilkinson Floor Covering, Inc. v Cap Call, LLC, 59 Misc 3d 1226(A) [Sup Ct New York Co. 2018] .................................................................... 7 Wilson Impex PTE Ltd. v. American Polymer Group, Inc., 97 Civ. 4157, 1999 U.S. Dist. LEXIS 17013, *8-9 (S.D.N.Y. 1999) ....................................... 15 v 5 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 Yellowstone Capital LLC v Cent. USA Wireless LLC, 60 Misc 3d 1220(A), 2018 WL 3765121 [Sup Ct Erie Co. 2018] .............................................. 7 Zoo Holdings, LLC v Clinton, 11 Misc 3d 1051(A), 814 N.Y.S. 2d 893 [Sup Ct NY Co. 2006] ........................................... 7, 8 Statutes CPLR § 308................................................................................................................................... 20 CPLR § 3211(a)(8) ................................................................................................................. 20, 22 Gen. Oblig. L. § 5-501 .................................................................................................................... 7 General Business Law § 349............................................................................................... 3, 19, 20 Limited Liability Company Law § 808 ........................................................................................ 19 Penal Law § 190.40......................................................................................................................... 7 Section 1962(c) of 18 U.S.C. ........................................................................................................ 12 vi 6 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 PRELIMINARY STATEMENT Defendants INFLUX CAPITAL GROUP LLC a/k/a Influx Capital LLC (“Influx Capital”), GTR SOURCE LLC (“GTR”), ADDY SOURCE LLC (“Addy”), TZVI REICH1 and TSVI DAVIS2 (hereinafter, collectively referred to as, the “Moving Defendants”) by and through their attorneys, Jacobowitz Newman Tversky LLP, submit the following memorandum of law in support of their motion to dismiss plaintiffs James Davis, II and Medisale3, Inc.’s, (collectively “Plaintiffs”) Complaint as to the Moving Defendants. In what amounts to a whole lot of nothing, Plaintiffs’ Complaint proffers a self-serving treatise on the merchant cash advance industry. However, the broad irrelevant allegations as to the merchant cash advance industry in general and the news articles annexed to the Complaint about unrelated parties, do not set forth a claim for these Plaintiffs against these Moving Defendants. However, in lieu of stating a single cognizable claim against the Moving Defendants, Plaintiffs repeatedly reference scandalous innuendo and gossip as to other defendants and the industry at large. Yet these red herrings do not mask the inescapable fact that nowhere in their Complaint do Plaintiffs set forth a cognizable claim against the Moving Defendants. Plaintiffs’ First Cause of Action seeks to void the relevant merchant agreements on the basis that they are allegedly usurious. However, because repayment on the agreements in question is contingent upon Plaintiffs’ receipt of account receivables, the agreements are not loans. This has been confirmed on many occasions by numerous New York Courts who have repeatedly held that merchant agreements are purchases of account receivables not loans and are thus not subject 1 Incorrectly sued here as “Tsvi” Reich. 2 Incorrectly sued here as “Tzvi” Davis. 3 Sometimes referred to by Plaintiffs themselves as “Medisales”, and sometimes “Medisale”. 1 7 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 to usury laws. Additionally, Plaintiffs, as a matter of law, cannot assert usury as a basis for the affirmative relief sought here. Plaintiffs’ Second Cause of Action for a constructive trust also fails, as the Complaint does not allege any of the elements of a constructive claim as it pertains to the Moving Defendants. Plaintiffs do not even demonstrate that Defendant Jonathan Braun (“Braun”) has money belonging to Plaintiffs, nor do they show how the Moving Defendants have Braun’s money. Moreover, Plaintiffs’ bad faith invocation of Braun’s unrelated criminal issue aside, Plaintiff’s nonsensical allegations do not show how without the imposition of a constructive trust the Moving Defendants would be unjustly enriched through Braun. Again, Braun is an unrelated party and not one of the Moving Defendants. Plaintiffs’ Third Cause of Action for a RICO claim fails on every level. First, the Complaint fails to meet the heightened pleading requirements for such a claim. Moreover, the Complaint fails to set forth any of the required elements therefor. Specifically, there is no showing of a criminal enterprise, nor can Plaintiffs evidence a pattern of racketeering activity as defendants are distinct funding companies who operate and transact legal businesses. Furthermore, Plaintiffs fail to allege even a single criminal action taken by any defendant, let alone a criminal enterprise with a pattern of illegal actions as to the Moving Defendants. Plaintiffs’ Fourth Cause of Action, a claim for an Accounting is also baseless. Plaintiffs do not demonstrate the existence of a confidential or fiduciary relationship, nor do Plaintiffs show that they lack an adequate remedy at law – both of which are required elements for the claim. Plaintiffs’ Fifth Cause of Action – disclosure of confidential information is also meritless. Plaintiffs Complaint is inadequately plead, and directly contradicted by Plaintiffs’ own concession that as part of the regular funding process their information was given to various funders. 2 8 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 Furthermore, Plaintiffs repeatedly sought these applications and agreements for which their information was allegedly given, so they were in no way damaged by the alleged disclosures. Plaintiffs’ Sixth Cause of Action regarding fictious business names is flatly untrue as to the Moving Defendants. As the documentary evidence establishes, Addy and Influx Capital are duly registered businesses. Moreover, Plaintiffs cannot show how the allegedly fictitious business induced them into entering into the agreements they otherwise willfully sought. Lastly, Plaintiffs’ Seventh Cause of Action, a claim of “deceptive business practices” under General Business Law § 349 also fails, as the statute pertains solely to fraudulent actions that impact consumers at large. Here, Plaintiffs’ allegations concern allegedly fraudulently statements made by “defendants” to the Plaintiffs concerning their personal arm’s length negotiations. Additionally, the allegation that defendants misrepresented the amounts to be funded is directly contradicted by the executed agreements which specifically authorize the deductions and payoffs. Accordingly, Plaintiffs’ Complaint fails set forth a single basis for the relief sought as to the Moving Defendants and should be dismissed as to them in its entirety. Additionally, Plaintiffs’ Complaint must further be dismissed as to the individual Moving Defendants, who were not properly served. FACTUAL BACKGROUND As set forth in Plaintiffs’ Complaint, merchant cash advance funders, such as the Moving Defendants, provide short term financing to businesses in need of working capital, in exchange for a percentage of a merchant’s future account receivables. See, the annexed affirmation of Abraham S. Beinhorn, Esq. (hereinafter “Atty Aff”), at ¶ 4.4 As set forth in the Complaint, a merchant in need of MCA financing typically submits an application with its information through a broker or 4 A copy of Plaintiffs’ Complaint is attached to the Atty Aff as Exhibit 1. 3 9 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 an individual sales office (“ISO”) who then finds an MCA funder by shopping the application to get the best deal for the merchant. Id. at ¶ 5. As generally set forth in the Complaint, the Plaintiffs entered into a series of merchant agreements including several with the Moving Defendants. Id. at ¶ 6. First, as set forth in the Complaint, Plaintiffs and Influx Capital entered into a Secured Merchant Agreement on or about October 4, 2018, whereby Plaintiff sold Influx Capital rights to their account receivables for a purchase price of $250,000.00 (the “Influx Agreement”). Id. at ¶ 7.5 The Influx Agreement explicitly and clearly sets forth, including in an executed authorization form therein, that a portion of the payment price was being utilized to payoff Plaintiffs’ outstanding balance with an entity named Capital Merchant Services, LLC. Id. at ¶ 8. Thereafter, as set forth in the Complaint, on or about October 16, 2018, Plaintiffs entered into a Secured Merchant Agreement with Addy whereby Plaintiffs were given $200,000.00 in working capital in exchange for up to $299,800.00 in rights to Plaintiffs’ future account receivables, as further set forth in the agreement (“First Addy Agreement”). Id. at ¶ 9.6 After entering into an agreement with another Defendant, SPG Advance, LLC, as set forth in the Complaint, Plaintiffs came back to Addy and entered into a second agreement, on or about November 1, 2018, pursuant to which Addy provided Plaintiffs with $320,000.00 in exchange for $479,680.00 in rights to Plaintiffs’ future account receivables, as further set forth therein (“Second Addy Agreement”). Id. at ¶ 10.7 5 A copy of the Influx Agreement is attached as Exhibit B to Plaintiffs’ Complaint, Exhibit 1, and as Exhibit 2 to the Atty Aff. 6 A copy of the First Addy Agreement is attached as Exhibit C to Exhibit 1, Plaintiffs’ Complaint, and as Exhibit 3 to the Atty Aff. 7 A copy of the Second Addy Agreement is attached as Exhibit E to Exhibit 1, Plaintiffs’ Complaint, but a fully executed copy is attached as Exhibit 4 to the Atty Aff. 4 10 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 Plaintiffs allege that $281,803.00 was mysteriously deducted from the Second Addy Agreement, yet, any faux confusion should be cleared up by the fully executed copy of the Second Addy Agreement annexed hereto, wherein an executed balanced transfer form therein explicitly shows that Plaintiff agreed to the payoff to the original agreement as part of the Second Addy Agreement. Id. at ¶ 11; See also, Exhibit 4 to the Atty Aff. As set forth in the Complaint, on or about November 7, 2018, Plaintiffs entered into a merchant agreement with another defendant, Richmond Capital Group, as well as a separate agreement with GTR for a funded amount of $375,000.00 (the “GTR Agreement”). Id. at ¶ 12.8 Incredibly, Plaintiffs’ Complaint feigns confusion about a $289,990.00 payoff coming from the GTR Agreement, but as the fully executed copy of the GTR Agreement, also missing from Plaintiffs’ Complaint, sets forth - as part of the GTR Agreement, Plaintiffs explicitly acknowledged that $289,990.00 would be attributed to the balance still owed on the Influx Agreement. Id. at ¶ 13; See also, Exhibit 5 to the Atty Aff. ARGUMENT STANDARD ON A MOTION TO DISMISS A complaint should be dismissed pursuant to CPLR § 3211(a)(7) where, accepting all of the allegations as true and drawing all reasonable inferences in the pleader’s favor, the complaint fails to state a cause of action. See Stuart Lipsky, P.C. v. Price, 215 A.D.2d 102, 103, 625 N.Y.S.2d 563 [1st Dept 1995]. Bare legal conclusions and factual claims inherently or flatly contradicted by the documentary evidence are not entitled to a presumption of truth. Ibid; See also, Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76, 80, 692 N.Y.S.2d 304 [1st Dept 1999] (“[F]actual claims either inherently incredible or flatly contradicted by documentary evidence’ are not 8 A copy of the GTR Agreement is attached as Exhibit H to Exhibit 1, Plaintiffs’ Complaint, but a fully executed copy is attached as Exhibit 5 to the Atty Aff. 5 11 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 presumed to be true and accorded every favorable inference.”) (internal quotations and citations omitted). Rather, to avoid dismissal “a plaintiff must support his claim with more than mere speculation” to avoid dismissal. Burrowes v. Combs, 25 A.D.3d 370, 373, 808 N.Y.S.2d 50 [1st Dept 2006]. Dismissal is appropriate under CPLR 3211(a)(1) where the “documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.” Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324, 865 N.E.2d 1210 [2007] (internal quotations and citations omitted). Further, the Court may consider evidence submitted by Defendants even where it “does not in itself warrant dismissal under CPLR§ 3211” if the material supports the “judgment that the conclusory nature of plaintiffs’ allegations is more than a matter of inartful pleading.” Godfrey v. Spano, 13 N.Y.3d 358, 374 [2009]. POINT I. PLAINTIFFS’ FIRST CAUSE OF ACTION FOR A DECLARATORY JUDGMENT SHOULD BE DISMISSED Plaintiffs’ First Cause of Action seeks a declaratory judgment that the agreements are null, void and unenforceable, because they violate usury laws, and contends that a declaratory judgment is warranted because “defendants” violated the “MCA Agreements and Plaintiffs are thereby relieved of any duty to perform….”. See, Exhibit 1, at ¶ 260. A. The Agreement Are Not Usurious Because They Are Not Loans Plaintiffs’ haphazard attempt to convert the agreements wherein it sold rights in its future receivables into loans is unconvincing as the overwhelming amount of case law suggests otherwise. 6 12 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 For there to be usury, civil or criminal, there must be a loan. See, Seidel v 18 E. 17th St. Owners, Inc., 79 NY2d 735, 744 [1992] (noting that if the transaction is not a loan there can be no usury, however unconscionable the contract may be). For criminal usury, the statute requires a loan and the payment of interest. See, Penal Law § 190.40. Similarly, civil usury applies to “interest on the loan or forbearance of any money, goods, or things in action at a rate exceeding the rate above prescribed.” See, Gen. Oblig. L. § 5-501. An indispensable element of a loan is the lender’s absolute right to repayment of the principal sum. See, Zoo Holdings, LLC v Clinton, 11 Misc 3d 1051(A), 814 N.Y.S. 2d 893 [Sup Ct NY Co. 2006]. Clearly, the agreements between Plaintiffs and the Moving Defendants are not loans. As Plaintiffs readily concede, the right to repayment in each agreement was conditioned on whether Plaintiffs would continue to accrue receivables, which determined the rate and completeness of repayment. See, Wilkinson Floor Covering, Inc. v Cap Call, LLC, 59 Misc 3d 1226(A) [Sup Ct New York Co. 2018] (noting, there is no loan because the obligation to pay future receivables was conditioned upon receipt of them); See also, Yellowstone Capital LLC v Cent. USA Wireless LLC, 60 Misc 3d 1220(A), 2018 WL 3765121 [Sup Ct Erie Co. 2018], quoting, Merchants Advance, LLC v. Tera K, LLC T/A Tribeca Frank Crabetta, 2008 NY Misc. LEXIS 10889, *4 [Sup. Ct. NY Co. 2008] (stating, where payment or enforcement rests upon a contingency, the agreement is valid even though it provides for a return in excess of the legal rate of interest) (internal citations and quotations omitted). New York Courts have repeatedly confirmed that merchant agreements, such as the ones between Plaintiffs and defendants, are not loans. See, Yellowstone Capital, LLC, 2018 WL 3765121, *4, 2018 N.Y. Slip Op. 51179(U) [Sup Ct Erie Co. 2017] (noting, that agreements structured with reconciliation provisions directly based upon a specified percentage of account 7 13 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 receivables purchased are clearly not loans); See also, Champion Auto Sales, LLC v Pearl Beta Funding, LLC, 159 AD3d 507, 69 N.Y.S. 3d 507, 2018 N.Y. Slip Op. 01645 [1st Dept 2018], lv to appeal denied, 31 NY3d 910 [2018]; See also, K9 Bytes, Inc. v Arch Capital Funding, LLC, 56 Misc 3d 807, 57 N.Y.S. 3d 625, 2017 N.Y. Slip Op. 27166 [Sup Ct Westchester Co. 2017] (noting that many trial courts have examined similar agreements and determined they are purchases of receivables not loans). B. Plaintiffs May Not Invoke Usury to Void the Agreements It is well settled that a usury claim can only be asserted by a corporation as an affirmative defense, and cannot be asserted to gain affirmative relief, such as voiding the agreement. See, Zoo Holdings, LLC v. Clinton, 11 Misc.3d 1051(A), 814 N.Y.S.2d 893 [Sup. Ct. N.Y. Co. 2006] (holding that by seeking affirmative monetary relief, debtor was attempting to utilize the statute as a “sword” rather than a “shield”); See also, K9 Bytes, Inc., 56 Misc 3d at 813 (dismissing usury cause of action seeking judgment to void merchant agreement while affirming that “it has long been settled in this state that criminal usury may only be asserted as a defense by a corporation, and never as a means to seek affirmative relief.”). Furthermore, “where a corporation is barred from asserting usury, so is its individual guarantor.” See, Schneider v. Phelps, 41 N.Y.2d 238, 242, 391 N.Y.S.2d 568, 571 [1977]. Accordingly, in addition to the fact that merchant agreements are not subject to usury laws, because the Plaintiffs are a corporation and its guarantor, they cannot assert usury as a basis for voiding their agreements. C. No Other Basis for Voiding the Agreement In their Complaint, Plaintiffs also vaguely allege that a purported breach of contract by “defendants” justify voiding the agreements on the basis of usury. 8 14 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 It is well-settled there is a strong presumption against the finding of usury. See, Transmedia Rest. Co., Inc. v. 33 E. 61 Street Rest. Corp., 184 Misc.2d 706, 710, 710 N.Y.S.2d 756 [Sup. Ct. N.Y. Co. 2000]. Usury is an affirmative defense, and a heavy burden rests upon the party seeking to impeach a transaction based upon usury. See, Hochman v. Larea, 14 A.D.3d 653, 654, 789 N.Y.S.2d 300 [2d Dept. 2005] (internal citations omitted). Here, despite claiming that alleged breaches rendered the agreements usurious, Plaintiffs do not deny they accepted the benefits of the agreements provided by the Moving Defendants, nor do Plaintiffs deny that they are the ones who owe defendants money, and not the other way around. Moreover, Plaintiffs are inappropriately seeking to use a vaguely plead breach of contract claim to argue for rescission. See, Frame v Maynard, 39 A.D. 3d 328, 833 N.Y.S. 2d 487 [1st Dept 2007] (noting rescission is not a proper remedy since money damages will adequately compensate the plaintiffs). Plaintiffs vaguely contend that “defendants” breached their agreements by “underfunding” the amounts. However, Plaintiffs have not and do not assert a claim for breach of contract, which would be the appropriate claim, if any. See, ESPN, Inc. v. Office of the Comm’r of Baseball, 76 F. Supp.2d 383, 389 [S.D.N.Y. 1999] (noting that plaintiff had two choices against alleged breach, terminate the parties’ contract and claim damages for total breach, or continue contract and sue for partial breach, but when and if it chooses to continue the contract it cannot later decide to terminate based on same breach). Moreover, the entire argument that the Moving Defendants breached their agreements by taking deductions for the payoffs, is directly contradicted by the parties’ agreements. Each agreement directly provides for any deducted amount or payoff to a previous funder, as is standard, and the agreements even contain authorizations forms executed by Plaintiffs noting this. 9 15 of 28 FILED: NEW YORK COUNTY CLERK 01/22/2019 11:08 PM INDEX NO. 656346/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/22/2019 D. Plaintiffs’ Claims Are Not Ripe for Review Plaintiffs’ entire claim is wholly speculative, as Plaintiffs do not deny they accepted the benefits of the agreements, including the monies funded by the Moving Defendants. Again, Plaintiffs do not deny that they are the ones who money. Essentially, Plaintiffs is seeking relief on the basis that the calculations made by defendants may account for a larger outstanding balance than accurate upon which they may file a judgment. Therefore, the claims set forth in the Complaint are not ripe for review. See, Allard v Allard, 145 AD3d 1254, 1255-56, 145 A.D 3d 1254 [3d Dept 2016] (holding that defendant’s contentions regarding the diminution of his share of the equity or profit in a residence which may result if and when the residence was sold, were not justiciable and were unripe for review); See also, Wal-Mart Stores Inc. v Campbell, 238 AD2d 831, 833, 656 N.Y.S. 2d 536 [3d Dept 1997] (holding that where the harm sought to be enjoined is contingent upon events which may not come to pass, the claim is nonjusticiable as wholly speculative and abstract). Accordingly, Plaintiffs’ First Cause of Action should be dismissed as to the Moving Defendants. POINT II. PLAINTIFFS’ SECOND CAUSE OF ACTION FOR A CONSTRUCTIVE TRUST IS ENTIRELY BASELESS Plaintiffs’ Second Cause of Action vaguely alleges a claim for “concealment of funds, constructive trust/transfers in fraud of creditors”. Plaintiffs oddly suggest, without any evidence, that the amorphous “defendants”, including Tz