ADDITIONAL CASES Disque, Inc. d/b/a Mardon Salon, Margarete Nowak and Donna Disque, Counterclaim-Plaintiffs v. Principis Capital, LLC, Counterclaim-Defendant The following e-filed documents for Motion Sequences 04 and 05, listed by NYSCEF document numbers “57,” “58,” “64,” “70,” “71,” “72,” “73,” “74,” “85,” “86,” “87,” and attachments and exhibits have been read on this motion: Notice of Motion X Affidavits/Affirmations in Support X Memorandum of Law in Support X Notice of Cross Motion Affidavits/Affirmations in Support of Cross Motion and In opposition to Motion X Affidavit/Affirmation in Reply and in opposition to Cross Motion X Memorandum of Law in Reply and In Opposition to Cross Motion X Reply Affidavit/Affirmation on Cross Motion N/A Principis Capital LLC (“Plaintiff”) moves this Court (Motion Sequence 04) for an Order granting it summary judgment against Disque Inc. d/b/a Mardon Salon (“Disque, Inc.”), Salon/Spa Headhunters, Inc. (“Salon”), Margarete Nowak (“Nowak”), and Donna Disque (“Disque”) (collectively “Defendants”) based upon Disque Inc.’s alleged defaults under three Merchant Cash Agreements (collectively “MCAs”) pursuant to CPLR §3212(b), dismissing the Defendants’ counterclaims based upon waiver provisions contained in the MCAs pursuant to CPLR §3211(a)(1) and CPLR §3211(a)(7); and dismissing Defendants’ Amended Answer with Affirmative Defenses with prejudice pursuant to CPLR §3211(b). The Defendants oppose the motion and cross-move (Motion Sequence 05) pursuant to CPLR §3212(b) for an Order granting them summary judgment dismissing Plaintiff’s Amended Verified Complaint alleging the MCAs are usurious loans, in disguise, violating New York’s banking laws. The plaintiff opposes the motion and submits a reply in further support of its motion. Background The Plaintiff initiated this proceeding by filing a Summons and Verified Complaint alleging four causes of action sounding in breach of contract, account stated, unjust enrichment, and breach of guarantee. The Defendants interposed an answer and asserted counterclaims against the Plaintiff sounding in breach of agreement, account stated, unjust enrichment, and breach of guarantee. The Plaintiff, which is a domestic limited liability company formed under the laws of the State of New York, allegedly advanced the Disque, Inc. monies under three separate MCAs to help Disque, Inc. operate its hair salon located within the State of Indiana. Pursuant to the parties’ initial MCA, dated June 3, 2019 (“June MCA”), the Plaintiff advanced Disque, Inc. $17,854.00 in exchange for 10 percent of its future receivables generated during the course of its business for a total repayment amount of $23,210.00. The June MCA was personally guaranteed by Nowak and Disque. Under the parties’ second MCA, dated July 24, 2019 (“July MCA”), the Plaintiff advanced Disque, Inc. the sum of $50,616.00 in exchange for 12 percent of Disque, Inc.’s future receivables generated during the course of its business for a total repayment amount of $65,548.00. The July MCA was personally guaranteed by Nowak, Disque and Salon. The Plaintiff advanced Disque, Inc. another $20,938.00 in exchange for 12 percent of Disque, Inc.’s future receivables generated during the course of its business for a total repayment amount of $27,115.00. The October MCA was personally guaranteed by Nowak and Disque. The MCAs authorized the Plaintiff to collect Disque, Inc.’s future receivables through daily withdrawals from a designated bank account. On July 21, 2020, Disque, Inc. stopped allowing the Plaintiff to collect the required payments from the designated bank account and Nowak and Disque, as guarantors, did not cure Disque, Inc.’s alleged default in payment. The terms of the MCAs provide in the event of a default, New York law governs. Discussion In support of its motion, the Plaintiff argues that it has established prima facie entitlement summary judgment as a matter by demonstrating that Disque, Inc. breached the MCAs. Specifically, the Plaintiff claims it is undisputed that the three MCAs existed and were guaranteed by Nowak and Disque, that it performed under the MCAs by delivering to Disque, Inc. the agreed upon purchase prices, that the Defendants breached their obligations by preventing the collection of payments and the guarantors failed to cure the default and, as a result, the Plaintiff suffered damages in the amount of $94,496.83 plus reasonable attorneys’ fees and expenses. With respect to dismissing the Defendants’ counterclaims, the Plaintiff argues that MCAs contain provisions waiving Disque, Inc.’s right to pursue a class action, counterclaim, litigation, and/or damages arising out of the MCAs. The guarantees also contain clauses whereby the guarantors waived their rights to assert counterclaims and class actions against the Plaintiff. In addition, the Plaintiff argues this Court must strike Defendants’ affirmative defenses because they are pled as conclusions of law, without supporting facts, and are fatally defective. In opposition to the Plaintiff’s motion and in support of their Cross-Motion, the Defendants argue that the central question at issue is whether the MCAs are Merchant Cash Agreements, as alleged by the Plaintiff, or loans, as alleged by the Defendants. The Defendants argue that they have established prima facie entitlement to summary because the MCAs are loan, that are usurious, violate banking laws and are merely “smokescreens covering up the loan lying beneath the writing.” According to the Defendants, if the agreements are MCAs they are not liable to Plaintiff for the “daily amount” because when their salon closed there were no daily receivables to collect upon. This Court recognizes that summary judgment is a drastic remedy and as such should only be granted in the limited circumstances where there are no triable issues of fact. (Andre v. Pomeroy, 35 N.Y.2d 361). The motion court is required to accept the opponents’ contentions as true and resolve all reasonable inferences in the manner most favorable to the opponent. (Giraldo v. Twins Ambulette Serv., Inc., 96 AD3d 903). The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, offering sufficient evidence to demonstrate the absence of any material issues of fact. (Alvarez v. Prospect Hosp., 68 N.Y.2d 320; Zuckerman v. City of New York, 49 N.Y.2d 557). Once the movant makes its prima facie showing, the burden shifts to the opponent, who must produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial. (Id.). Here, the Plaintiff established prima facie entitlement to summary judgment for breach of contract as the plaintiff has submitted the proof of a written contract, to wit the MCAs, under which the Plaintiff performed its obligation by paying the Disque, Inc. certain sums of money that the Defendants failed to repay pursuant to the terms of the MCAs, which injured the Plaintiff. (Alliance Natl. Ins. Co. v. Absolut Facilities Mgt., LLC, 140 AD3d 810). However, if the MCAs are found to be a loan, as argued by the Defendants, criminal usury would be a defense to enforcement of the MCAs, which would render the MCAs unenforceable. (Principis Capital, LLC v. I Do, Inc., 201 AD3d 752). As such, the threshold question presented is whether the MCAs constitute merchant cash advances or loans. There is a criterial to determine whether or not a particular arrangement between parties is a merchant cash advance or a loan: “(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). Generally, if repayment is contingent the agreement is considered a Merchant Cash Advance whereas if repayment is absolute, the agreement is considered a loan. (LG Funding, LLC v. United Senior Props. of Olathe, LLC, 181 AD3d 664). The “rudimentary element of usury is the existence of a loan and where there is no loan, there can be no usury, however unconscionable the contract may be.” (LG Funding, LLC v. United Senior Props of Olathe, LLC, 181 AD3d 663). A review of the MCAs shows that there is conflicting language as to whether Plaintiff is entitled to absolute payment. For example, paragraph “1″ of each agreement states that Plaintiff may collect the “daily amount” from the designated bank account, which is a certain percentage of that day’s receivables, which, as argued by the Defendants, suggests that if there are no receivables, no payment is required. In contradiction to paragraph “1″, paragraph “1.2″ of each MCA states in the event of a default, the Plaintiff is authorized to debit the designated bank account for the full amount of money advanced inclusive of fees and charges. Paragraph “9″ of each MCA also authorizes the Plaintiff to recover the full amount of money advanced as liquidated damages. Thus, paragraphs “1.2″ and “9″ suggest the presence of a loan. Moreover, although the MCAs contain reconciliation provisions, it is unclear whether such provisions are mandatory or discretionary. While Disque, Inc. may request a reconciliation, the MCAs are not clear as what happens in the event that the Plaintiff does not “timely” comply. If the Plaintiff must affirmatively act, the reconciliation provision may not be mandatory, suggesting the existence of a loan. Accordingly, triable issues of fact exist concerning whether the MCAs entered into between the Plaintiff and Disque, Inc. are merchant cash advances or loans. Therefore, a finding summary judgment in favor of the Plaintiff or the Defendants is not warranted. However, the Defendants’ counterclaims, including those alleging class action allegations, should be dismissed. “A motion pursuant to CPLR 3211(a)(1) to dismiss a counterclaim may be granted only if the documentary evidence submitted by the moving party utterly refutes the factual allegations underlying the counterclaim and conclusively disposes of the counterclaim as a matter of law.” (JPMorgan Chase Bank, N.A. v. Klein, 178 AD3d 788, 790). A review of the MCAs and guarantees show that the Defendants expressly waived their right to bring a class action or counterclaim arising out of the MCAs against Plaintiff. The Defendants’ submission has not established that said terms are based upon fraud and, as so, the waivers to bring a class action or assert a counterclaim against the plaintiff are enforceable as they are not void against public policy. (Fed. Deposit Ins. Corp. v. Frank L. Marino Corp., 74 AD2d 620). Accordingly, the MCAs conclusively disposes of the Defendants’ counterclaims. (JPMorgan Chase Bank, N.A., 178 AD3d at 790). The Court has considered the remaining contentions of the parties and finds that they do not require discussion or alter the determination herein. Based upon the foregoing, it is hereby ORDERED, that the branch of the Plaintiff’s motion (Motion Sequence 04) for an order granting it summary judgment against the Defendants is denied, and it is further ORDERED, that the branch of the Plaintiff’s motion (Motion Sequence 04) for an order dismissing, with prejudice, all of the Defendants’ counterclaims alleged int eh Defendants’ Amended Verified Answer with Counterclaims and all class action allegations contained therein is granted, and it is further ORDERED, that the branch of the of the Plaintiff’s motion (Motion Sequence 04) for an order striking and dismissing the Defendants’ Amended Answer and all of the Defendants’ affirmative defenses contained therein is denied, and it is further ORDERED, that the Defendants’ cross-motion (Motion Sequence 05) for an order granting them summary against the Plaintiff is denied, and it is further ORDERED, that counsel for all parties shall appear before the undersigned for an in-person compliance conference on May 25, 2023 at 9:30 A.M. The foregoing constitutes the Order of this Court. Dated: May 2, 2023
