Capital v. Oscar Bar Dedham LLC

1

2024 NY Slip Op 31495(U)

JAFFE CAPITAL, Plaintiff,; v. OSCAR BAR DEDHAM LLC AMD TALLON DEVELOPMENT, LLC AND MARJEM MORTGAGE- CORPORATION AND MICHAEL LIAM TALLON; Defendants.

Index No. 516767/23, Mot. Seq. No. 1-2, NYSCEF DOC. No. 51

Supreme Court, Kings County

April 15, 2024

Unpublished Opinion

DECISION/ORDER

HON HEELAD. CAPELL, J.S.C.

Recitation as required by CPLR § 2219(h)', of the electronically filed papers considered in the review of defendants' motions for leave to amend, pursuant to CPLR § 3025(b), and plaintiffs cross motion to dismiss pursuant to CPLR § 3211(a)-(b), numbered as they appear on NYSCEF.

Papers

Numbered

Notice of Motion/Cross Motion, Affirmations, and Exhibits Annexed ....

22-32,33-38

Opposing Affirmations (Affidavits) and Exhibits Annexed......... .. .

39, 40-43

Reply Affirmations. (Affidavits) and Exhibits Annexed ..................

44-45, 46-47, 50

Defendants1 Oscar Bar Dedham LLC, Tallon Development, LLC, Marjem Mortgage Corporation, and Michael Liam Tallon, collectively ("Defendants") motion for leave, pursuant to CPLR §3025 (b),to add an additional counterclaim to their answer and plaintiff's Jaffe Capital ("Plaintiff') cross motion for an order, pursuant to CPLR § 3211 (a)-(b) to dismiss Defendants5 extant counterclaims and affirmative defenses, are consolidated for disposition purposes only and are decided jointly as follows:

Plaintiff commenced this case by summons and complaint, subsequently amended and filed on June 8.2023. alleging that Defendants breached a contract for the sale of future receivables, and tc recoup the resulting monetary damages. Defendants interposed a verified answer on July 6, 2023, alleging, inter alia, that the contract at issue was actually a loan, with a usurious rate of interest, and that ds a result no monetary damages were owed.

Defendants move to amend their answer to add a counterclaim under Massachusetts Regulation of Business Practices for Consumers' Protection Act ("MCPA"), Mass. Gen. Laws Ann. ch. 93A, §§ 1-11, for allegedly inducing them to enter into a "Merchant Cash Advance Agreement," dated January 10,2023- (the 'Agreement"), and the related Guaranty (the "Guaranty"). The Counterclaim alleges, to the extent that is relevant here, that the "Plaintiff engaged in unfair and deceptive practices under Massachusetts General Laws Section 93 A .. .by inducing the Defendants to enter into a loan at a usurious rate of interest while intentionally disguising the true, nature of the transaction." Plaintiff argues in opposition, inter alia, that the parties' contract contains a choice of law provision choosing New York law, and that as a result this Massachusetts claim may not. be interposed. Defendants maintain that their MCPA claim sounds in tort, not breach of contract, and therefore the choice of law provision does not affect their claim that they were "induc[ed]...to enter into" the contract.

Pursuant to CPLR 3 025(b), a party may amend his or her pleading, or supplement it by setting forth additional or subsequent transactions or occurrences, at any time by leave of court or by stipulation of all parties. Leave shall be freely given upon such terms as may be just;.." However, leave to amend a pleading is properly denied, where the proposed amendment is "palpably insufficient or patently devoid of merit." (Calamari v Panos, 131 A.D.3d 1088 [2d Dept 2015]).

Plaintiff cites the following cases in opposition to Defendants' motion: NRO Boston LLC v CapCall LLC, (2020 NY Slip. Op 34510[U] Sup Ct, Westchester 2020), and OneBeacon AM. Iris. Co. y Colgate-Palmolive Co., (123 A,D. 3d 222,229 [Is1 Dept 2014]). OneBeacon relies upon 'Northeast Data Sys. v McDonnell Douglas Computer Sys., (986 F.2d 607 [1st Cir 1993]). In NRO Boston LLC, plaintiffs and defendants, or their related corporate entities, had entered into a series of merchant cash advance agreements wherein the plaintiff entities would sell their future business receivables at a specific purchase amount to the defendant funding entity in return for an up front sum. (NRO Boston LLC, 2020 NY Slip Op 34510[U] at *1). Plaintiffs subsequently sued, alleging, inter alia, violations of the Massachusetts Consumer Protection Statute (id at *4). Their complaint conceded that the contracts had choice of law provisions requiring the merchant to litigate in New York under New York law. Defendants moved to dismiss the MCPA allegation, relying on the choice of law provision. The court agreed, finding that Massachusetts Law did not govern any of the parties 'agreements because the choice of law provisions required New York law to apply to the contract principles (id; see-also OneBeacon, 123 A.D.3d 222)

Northeast Data Sys. v McDonnell Douglas Computer Sys, from the First Circuit Court of Appeals (Northeast Data Sys. y McDonnell Douglas Computer Sys., 986 F.2d 607 [1st Cir 1993]) is illustrative. In this case, the contract at issue had a choice of law provision providing for California law to govern as follows; "this agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance With the laws of California" . (Id. at 610). The plaintiff interposed MCPA claims and the court found that all but one of these claims amount to "embroidered' breach of contract' claims," and therefore California law applied (id), The court held that plaintiff's claim that defendant "threatened to take actions that the contract forbids, with a bad motive", are still covered under California law, pursuant to the contract (id, at 609-610) because it still required contract interpretation. The One exception the court found, was plaintiff s allegation of froud, insofar as defendant, while negotiating the contract, failed to disclose that it was doing business with plaintiffs, competitor in plaintiffs distribution area (id. at 611). The court reasoned that "because this, claim concerns the validity of the formation of the contract, it cannot be categorized as .one involving the rights or obligations arising under the contract," and therefore' the. MCPA could apply (id.)

Here, Defendants' proposed additional counterclaim under the MCPA does not lie. because it is barred, by the choice of law provision governing contract interpretation. Defendants' claim that Plaintiff "induced the Defendants to enter into a loan at a usurious rate of interest" concerns the "rights or obligations arising under the contract." as it requires the court to interpret the interest provision in the contract. The Choice of law provision specifically states that New York law governs "...any controversy or claim arising out of or relating to this Agreement or any Ancillary Document or the transactions contemplated hereby or thereby, or any breach hereof or default hereunder or thereunder." Accordingly Massachusetts law cannot apply to this counterclaim (see also Val. Juice Lid. v. Evian Waters of Fr., Inc., 87 F.3d 604 [2d Cir 1996]). Leave to interpose the proposed Amended Answer is therefore denied, Plaintiff cross-moves, inter alia, for dismissal of Defendants counterclaims for criminal usury, and affirmative defenses one through five, for criminal usury and related misconduct, in the existing answer.

"Although the defendants may assert criminal usury as an affinnative they may not assert criminal usury as the basis for 'd counterclaim." LG Funding, LLC v United Senior Props, of Olathe, LLC, 181 A.D.3d 664, 667 (2d Dept .'2020) (internal citations omitted; emphasis added). See General Obligations Law § 5 -521 (3). Thus, Defendants' counterclaims- in the existing answer are both dismissed.

However Defendants' allegations...