Court Opinion

ID: 9926540
Source: CourtListenerOpinion
Date Created: 2024-01-24 21:06:46.712365+00
Date Added: 2024-06-11T09:21:09.249378
License: Public Domain

Newco Capital Group, VI, LLC v Fat Cat Tavern, Inc.
               2024 NY Slip Op 30245(U)
                    January 22, 2024
            Supreme Court, Rockland County
        Docket Number: Index No. 035033/2023
                Judge: Thomas P. Zugibe
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  FILED: ROCKLAND COUNTY CLERK 01/22/2024 04:55 PM                                                        INDEX NO. 035033/2023
  NYSCEF DOC. NO. 41                                                                              RECEIVED NYSCEF: 01/22/2024

            To commence the 30 day statutory time period for
            appeals as of right (CPLR 5513[a]), you are advised
            to serve a copy of this order, with notice of entry,
            upon all parties.

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

                                               Plaintiff,                                 DECISION AND ORDER
                                                                                          Index No.: 035033/2023
                      -against-
                                                                                          Mot. Seq. #s: 1/2
            FAT CAT TAVERN, INC. d/b/a FAT CAT TAVERN,
            FAT CAT TAVERN, INC. TAVERN AND
            RESTAURANT, and WILLIAM JOHN SOLEAU,

                                                Defendants.
            --------------------------------------------------------------------------X
            ZUGIBE, J.

                   In connection with the motions submitted by NEWCO CAPITAL GROUP, VI, LLC
            (“Newco” or “Plaintiff”): (1) for dismissal of the counterclaims asserted against it pursuant to
            CPLR 3211(a)(1) and (7); and (2) for summary judgment against each of the Defendants, jointly
            and severally, pursuant to CPLR 3212, the Court has read and considered NYSCEF documents
            13-18, 20-21, 23-37, and 39, and hereby renders the following Decision and Order:
                            RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
                     This action was commenced by way of a Summons and Complaint filed with the
            Rockland County Clerk on October 11, 2023. NYSCEF Doc. 1. The underlying action seeks
            damages based on an alleged breach of a Revenue Purchase Agreement entered into between the
            parties on or around June 14, 2023. Id. As per the Agreement, the Defendant FAT CAT
            TAVERN, INC. d/b/a FAT CAT TAVERN (“Fat Cat Tavern”) was to remit to Plaintiff 5% of its
            receivables until the full purchase amount of the agreement, specifically, $66,000, was remitted.
            Id. The parties agreed upon the use of one specific bank account whereby the Plaintiff had
            authority from Defendant to make withdrawals of the specified amount of receivables until the
            $66,000 was paid. Id. As per the Plaintiff, Defendant WILLIAM JOHN SOLEAU (“Mr.
            Soleau”) is the owner and operator of Fat Cat Tavern, and he signed a personal guaranty of the
            obligations in set forth in the Agreement. Id. As per the Complaint, Fat Cat is a Florida limited
            liability corporation, and Mr. Soleau is a resident of the State of Florida. Id. As a result of the
            facts alleged in the Complaint, Plaintiff, a New York limited liability company, is suing for
            breach of contract and personal guarantee, and is seeking damages in the amount of $53,572.20,
            plus interest, costs and fees, against Fat Cat Tavern and Mr. Soleau jointly and severally. Id.

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  FILED: ROCKLAND COUNTY CLERK 01/22/2024 04:55 PM                                                 INDEX NO. 035033/2023
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                    Defendants have filed an Answer to the Complaint. NYSCEF Doc. 3. The Answer
            asserts counterclaims as against the Plaintiff, specifically breach of contract claims with respect
            to both Fat Cat Tavern and Mr. Soleau. Id. In response, Plaintiff has moved to dismiss the
            breach counterclaims, and has also moved for summary judgment against all Defendants. The
            Court will address each of these applications in the instant Decision.
                                       MOTION FOR SUMMARY JUDGMENT
                                                 Contentions of the Parties
                    Plaintiff, in support of its summary judgment motion, submits the Agreement at issue.
            NYSCEF Doc. 28. Plaintiff also submits the Affidavit of Phillip Scaglione, Esq., the manager of
            Newco, who affirms that his job duties include the maintenance of Defendants’ account records.
            NYSCEF Doc. 26. Scaglione affirms that on June 14, 2023, Defendant Fat Cat Tavern and
            Newco entered into the agreement which provided that said Defendant would sell future
            receivables and sale proceeds with a face value of $66,000 for the sum of $50,000 to Newco. Id.
            Pursuant to the agreement, Fat Cat would pay Newco by ensuring that its sale proceeds and
            receivables were deposited into one designated bank account, permitting Newco to electronically
            debit from said account 5% of their weekly sales proceeds until Newco collected the $66,000. Id.
            On June 14, 2023, Newco deposited $50,000, less applicable fees, into Fat Cat’s account, as
            evidenced by the proof of funding attached to the affidavit. NYSCEF Doc. 32. Subsequently,
            Scaglione contends that Fat Cat Tavern performed some of its obligations, by having remitted
            $27,206 of the sale proceeds to Newco between June 14, 2023 and October 5, 2023. NYSCEF
            Doc. 26. On October 5, 2023, Newco was apparently denied access to the authorized account. Id.
            This action was subsequently commenced. Defendants still owe Plaintiff the balance of $38,794.
            In addition, the Plaintiff asserts that the Defendants have incurred, as per the terms of their
            agreement, a default fee of $3,000, NSF fees totaling $140 and $11,638.20 in attorneys’ fees,1
            thus totaling $53,572.20. The agreement is signed by Mr. Soleau as a guarantor. NYSCEF Doc.
            28.
                    Based on the foregoing, Plaintiff contends that it has established its prima facie
            entitlement to summary judgment on its causes of action for breach of contract and breach of the
            personal guarantee.
                    In opposition, Defendants submit the affidavit of Defendant Mr. Soleau. NYSCEF Doc.
            33. Mr. Soleau admits to having entered into the subject agreement, but contends that he did so
            under “economic stress and fraudulent misrepresentations” of Plaintiff. Id. Mr. Soleau states that
            it was not explained to him that in the event of a default, or if he requested reconciliation or if he
            were to apply for another loan or file for bankruptcy, the Plaintiff would have the right to
            demand the immediate full repayment of any unpaid principal balance. Id. Mr. Soleau states that
            due to decreased business, he “reached out” to Plaintiff on October 4, 2023 in order to request a
            reconciliation of the remittance amount owed, and essentially disputes Mr. Scaglione’s
            conclusion that Defendants’ interference with Plaintiff’s right to collect the daily amount

            1
             The agreement specifically calculates attorney’s fees as the “amount equal to 30% of the
            Remaining Balance (purchased amount less amount remitted by Merchant” …shall be
            immediately assessed[.]” NYSCEF Doc. 2.
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            constituted a default. Id. Mr. Soleau admits that pursuant to the agreement, he is obligated to
            repay the Plaintiff both the unpaid principal and the sum advanced. Id. However, he contends
            that the loan was essentially procured by fraud, and the interest rates are usurious, and requests
            that the Court deny the motion and dismiss the action altogether. Id.
                    Counsel for the Defendants argues in his memorandum of law that the instant loan, when
            considering the transaction in its entirety, is usurious, and therefore unenforceable. NYSCEF
            Doc. 35. Defendants also contend that triable issues of fact exist which preclude the Court from
            granting summary judgment at this stage in the litigation. Specifically, Defendants’ counsel
            submits that issues of fact remain regarding Plaintiff’s frustration of Defendants’ ability to obtain
            reconciliation. Without an implementable and meaningful reconciliation clause, Defendants
            argue that the agreement is nothing more than “a usurious loan agreement” that is
            unconscionable as a matter of law. NYSCEF Doc. 35.
                     In reply, Plaintiff disputes that issues of fact exist and contends that the Defendants do
            not, in their opposition, dispute that they breached the terms of the agreement at issue.
            Additionally, Plaintiff argues that the agreement at issue does not constitute a usurious loan,
            inasmuch as it includes a reconciliation clause, does not contain a fixed term, and because filing
            of bankruptcy was not set forth as an event of default thereunder. NYSCEF Doc. 39.
                                                          Analysis
                     The remedy of summary judgment is a drastic one and it should only be granted when it
            is clear no triable issue of material fact exists. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 508
            N.Y.S.2d 923 (1986); Andre v. Pomeroy, 35 N.Y.2d 361, 362 N.Y.S.2d 131 (1974). On a
            motion for summary judgment, the proponent “must make a prima facie showing of entitlement
            to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of
            fact from the case.” Winegrad v. New York Univ. Med. Center, 64 N.Y.2d 851, 852, 487
            N.Y.S.2d 316, 317 (1985); Zuckerman v. City of New York, 49 N.Y.2d 557, 427 N.Y.S.2d 595
            (1980). Once such a showing has been made, the burden of proof shifts such that an opponent to
            a motion for summary judgment must demonstrate the existence of a genuine triable issue of
            fact. Alvarez, supra.
                     The papers submitted in support of and in opposition to a summary judgment motion
            should be scrutinized in a light most favorable to the party opposing the motion. Dowsey v.
            Megerlan, 121 A.D.2d 497, 503 N.Y.S.2d 591 (2d Dept. 1986); Gitlin v. Chirkin, 98 A.D.3d 561,
            949 N.Y.S.2d 712 (2d Dept. 2012). As summary judgment is the procedural equivalent of a trial,
            if there is any doubt as to the existence of a triable issue of fact, or where a material issue of fact
            is even “arguable”, the motion must be denied. Phillips v. Kantok & Co., 31 N.Y.2d 307, 338
            N.Y.S.2d 882 (1982); Andre, supra.
                    The Court determines that the Plaintiff in the instant matter has met its prima facie
            showing of entitlement to summary judgment. The evidence establishes that the Defendants
            breached the clear terms of the agreement. In fact, Mr. Soleau admits in his sworn affidavit that
            the terms of the agreement were such that he was unable to perform his obligations, and that
            pursuant to the agreement, he is obligated to repay the principal sum advanced as well as interest.
            NYSCEF Doc. 33. The issue then becomes whether the Defendants have raised triable issues of
            fact in opposition to the motion. Defendants contend that they have raised a factual issue as to

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            whether the agreement at issue is really a front for a usurious loan, in which case, it would be
            essentially unenforceable.
                     The Second Department has addressed this issue in cases with similar agreements. The
            Second Department set forth in LG Funding, LLC v. United Senior Props of Olathe, LLC, that
            “[t]he rudimentary element of usury is the existence of a loan or forbearance of money, and
            where there is no loan, there can be no usury, however unconscionable the contract may be[.]”
            181 A.D.3d 664, 665, 122 N.Y.S.3d 309 (2d Dept. 2020). Courts, in determining whether a
            transaction constitutes a usurious loan, must consider the transaction in its entirety and judge
            same “‘by its real character, rather than by the name, color, or form which the parties have seen
            fit to give it[.]’” Id. at 665 (internal citation omitted). If repayment of the principal sum
            advanced is absolute, the transaction may constitute a loan. In making this assessment, Courts
            generally weigh three factors: “(1) whether there is a reconciliation provision in the agreement;
            (2) whether the agreement has a finite term; and (3) whether there is any recourse should the
            merchant declare bankruptcy[.]” Id. at 666.
                    The Court, in examining the agreement in the instant matter, makes the following
            observations. First, the agreement has a reconciliation clause. This clause sets forth that “[a]s
            long as an Event of Default or breach of this agreement, has not occurred, [the]Merchant, at any
            time, may request a retroactive reconciliation of the total Remittance Amount. All requests
            hereunder must be in writing to Reconciliations@NewCoCapitalGroup.com”. NYSCEF Doc. 2.
            This section of the agreement continues by setting forth a list of what information needs to be
            included in the request for reconciliation. Id. The agreement, therefore, has a reconciliation
            provision. In addition, the agreement has a clause with instructions for requesting an adjustment
            of the remittance amount should the Merchant experience a decrease in future receipts. Similar
            to requesting a reconciliation, the requests must be in writing and emailed. Id.
                    Defendants contend that the reconciliation provision is illusory. Mr. Soleau affirms that
            he contacted the Plaintiff to request reconciliation, and his request was denied. NYSCEF Doc.
            33. However, absent from the opposition (or the counterclaims, for that matter) is any indication
            that the reconciliation process set forth in the agreement was followed. No written request for
            reconciliation or an adjustment of the remittance amount was apparently ever made. Therefore,
            the Court cannot rely on the suggestion from Defendants that the clauses were illusory when
            there is no record evidence that establishes Defendants complied with the requirements of the
            agreement in making the requests. Further, to the extent that the process for making a request to
            adjust the remittance amount has actually been followed by the merchant, the agreement
            indicates that “the remittance shall be modified to more closely reflect the Merchant’s actual
            receipts…” Id. There are no questions of fact raised by Defendants in response to the motion
            that indicate that this provision is illusory.
                     Next, the Court will address the term of the agreement. The agreement itself provides
            that it “shall remain in full force and effect until the entire Purchased Amount and any other
            amounts due are received[.]” NYSCEF Doc. 2. Therefore, there is no finite term set forth in the
            agreement.
                  Finally, with respect to the issue of recourse should the merchant Defendant declare
            bankruptcy, the Court notes that the agreement itself does not indicate that bankruptcy
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            constitutes an Event of Default. NYSCEF Doc. 2. The guarantor is specifically, as per the
            agreement, not liable for any amounts due pursuant to the agreement unless the merchant
            commits an act of default. Id. The agreement requires the Merchant to affirm that as of the date
            thereof, it is not insolvent and did not contemplate filing for bankruptcy. Id. However,
            bankruptcy is not delineated as an Event of Default.
                    Therefore, after examining the relevant characteristics of the transaction at issue, this
            Court determines that the agreement at issue does not constitute a loan. See, Principis Capital,
            LLC v. I Do, Inc., 201 A.D.3d 752, 160 N.Y.S.3d 325 (2d Dept. 2022) (where agreement does
            not have a finite term and no contractual provision existed establishing that a declaration of
            bankruptcy was an event of default, the transaction is not considered a loan). Therefore, since
            the Plaintiff has established its prima facie entitlement to summary judgment, its motion is
            granted.
                                     MOTION TO DISMISS COUNTERCLAIMS
                    The two counterclaims asserted in the Defendants’ Answer sound in breach of contract.
            NYSCEF Doc. 3. Though Defendants make reference to fraud in the procurement of the
            agreement, there is no fraud counterclaim set forth in their Answer. Rather, Defendants contend
            that Plaintiff did not live up to its end of the bargain when it denied their request for
            reconciliation. As a result, Defendants contend they suffered monetary damages.
                    Plaintiff moves to dismiss these counterclaims for failure to state a claim. Plaintiff argues
            that Defendants do not include allegations concerning how they performed their obligations
            pursuant to the agreement, when/how they requested a reconciliation in accordance with the
            agreement, that they were entitled to have their payments under the agreement reduced, and that
            they were damaged as a specific result of the Plaintiff’s denial of their request. Since the specific
            terms of the agreement that were purportedly breached are not laid out in the pleading, Plaintiff
            posits that the counterclaims must be dismissed pursuant to CPLR 3211(a)(7). Defendants
            oppose the motion and argue that same is really a summary judgment motion in disguise.
            Defendants submit that their counterclaims, as pled, fit within cognizable legal theories and,
            therefore, should not be dismissed.
                    In deciding a motion to dismiss, whether it pertains to a Complaint or a counterclaim as
            asserted in an Answer, the allegations in a complaint must be construed liberally, in the light
            most favorable to the plaintiff, and said allegations must be accepted as true. Zellner v. Odyl,
            LLC, 117 A.D.3d 1040, 986 N.Y.S.2d 592 (2d Dept. 2014). If, from the four corners of the
            pleading, “‘factual allegations are discerned which taken together manifest any cause of action
            cognizable at law’…” the dismissal motion must fail. Id. at 1040 (internal citation omitted).
            Whether the complaint will survive a summary judgment motion, or whether plaintiff will
            ultimately be able to prove its entitlement to relief, is irrelevant in determining a CPLR 3211
            dismissal motion. See generally, Id. In determining the motion to dismiss, however, the Court
            has no obligation to accept as true conclusory statements with no factual support. Kopelowitz &
            Co., Inc. v. Mann, 83 A.D.3d 793, 798, 921 N.Y.S.2d 108 (2d Dept. 2011).

                   For the reasons set forth, supra, the Court dismisses the counterclaims. First, the Court
            has granted the Plaintiff’s summary judgment motion for all the reasons delineated above.

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  NYSCEF DOC. NO. 41                                                                        RECEIVED NYSCEF: 01/22/2024

            Moreover, the Plaintiff is correct that the Defendants have asserted that the Plaintiff’s denial of
            their reconciliation request is a breach, but noticeably absent from the pleading is any allegation
            that a specific written request for reconciliation was ever made, much less that it was made
            properly and in accordance with the agreement. The fact that Defendants had the right to request
            reconciliation and that it was constructively denied is not tantamount to a breach of contract. The
            allegations in the counterclaims are, therefore, insufficient to state a claim for breach of contract.

                                                      CONCLUSION

                   Now, therefore, based on the foregoing, it is

                     ORDERED, that Plaintiff’s applications are granted in their entirety as set forth, supra;
            and it is further

                     ORDERED, summary judgment in the total amount of $53,572.20 is granted in favor of
            the Plaintiff and as against the above Defendants, jointly and severally, plus prejudgment interest
            at the rate of 9% per annum from the date of the breach, specifically, October 5, 2023, and
            ending when the money judgment against them has been fully satisfied, along with costs and
            disbursements as taxed by the Clerk upon the submission of a proper bill of costs and form
            judgment; and it is further

                     ORDERED, that Plaintiff serve a copy of this Decision and Order upon the Defendants
            via first class mail upon their counsel of record within ten (10) days from its entry. Proof of
            service of this Decision and Order upon Defendants shall be filed with the Clerk before said
            Judgment is entered.

                   This constitutes the Decision and Order of this Court.

            Dated: January 22, 2024
                   New City, New York
                                                                    __________________________________
                                                                    HON. THOMAS P. ZUGIBE, J.S.C.

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