Am. Res. Corp. v. C6 Capital, LLC

Full title: AMERICAN RESOURCES CORPORATION, QUEST ENERGY INC, ERC MINING INDIANA CORP…

Court: SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS: CIVIL TERM: COMMERCIAL 8

INDEX NO. 518051/2020

Date published: Dec 16, 2020

Fact:

The plaintiffs have moved seeking to vacate a confession of judgement filed and seek a preliminary injunction restraining its enforcement. The defendants have cross-moved seeking to dismiss the complaint and for a turnover pursuant to CPLR §5225(a). The motions have been opposed respectively. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination. On May 29, 2018 the defendants, merchant cash advance funding providers entered into a contract with plaintiffs. Pursuant to the agreement the defendants purchased $1,662,500 of plaintiff’s future receivables for $1,250,000. The parties further agreed that the defendants would be able to obtain a weekly amount of $51,953.12 until the amount of $$1,662,500 was fully paid. The plaintiffs argue the contract was really a loan and that  consequently it is not enforceable because it is usurious. The plaintiffs have thus moved seeking a preliminary injunction to vacate the confession of judgement.

Conclusions of Law:

  • To vacate a judgment based on a confession of judgment, a plenary action must generally be commenced.
  • Plaintiffs argue that the contract was a usurious loan, making it unenforceable.
  • CPLR §6301 allows the court to issue a preliminary injunction if the plaintiff demonstrates a probability of success on the merits, danger of irreparable injury, and a balance of equities in their favor.
  • Plaintiffs must establish that the contract was unenforceable due to usury, incurred in the business of lending money, at least twice the enforceable rate, and resulted in injury to their business or property.
  • The presence of a reconciliation provision in the contract indicates that the agreement is not a loan, as repayment is contingent.
  • However, the reconciliation provision in this case states that the buyer “may” adjust payments, leading plaintiffs to argue it is illusory and renders the contract a loan.
  • Courts have found similar reconciliation provisions to be illusory, indicating a likelihood of success for plaintiffs on the merits.
  • Plaintiffs have demonstrated irreparable harm if the injunction is not granted, as their reputation in the community may be adversely affected.
  • Equities favor plaintiffs based on the facts presented.
  • Defendants’ motion to dismiss the complaint is denied because it alleges recognizable causes of action, including vacatur of the confession of judgment based on usury.
  • The fourth cause of action, labeled as public policy, is not dismissed, but the court does not maintain jurisdiction over it.
  • Defendants’ motion for a turnover of funds is denied due to questions about the validity of claims against the judgment debtors.

Conclusion:

Plaintiffs’ motion for a preliminary injunction is granted, and defendants’ motion to dismiss the complaint and for a turnover of funds is denied. Further discovery may narrow the specific causes of action, and parties can move for further substantive relief after discovery.

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