Fleetwood Servs. v. Ram Capital Funding, LLC

FLEETWOOD SERVICES, LLC, Plaintiff, v. RAM CAPITAL FUNDING, LLC, TSVI REICH a/k/a STEVE REICH, RICHMOND CAPITAL GROUP LLC n/k/a RCG ADVANCES LLC, and ROBERT GIARDINA, Defendants.

No. 20-cv-5120 (LJL)

United States District Court, S.D. New York

June 6, 2022

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

Plaintiff Fleetwood Services, LLC (“Plaintiff” or “Fleetwood”) moves, pursuant to Federal Rule of Civil Procedure 56, for an order granting it summary judgment with respect to the five causes of action it brought in the Amended Complaint. Dkt. No. 74.

For the following reasons, the motion for summary judgment is granted in part and denied in part.

BACKGROUND

The following facts are undisputed for the purposes of summary judgment except where otherwise indicated.

I. The Parties

Fleetwood is a small Texas business, providing golf course construction, development, renovation, and remolding for courses and country clubs in and around the Dallas area. Dkt No. 79 ¶ 11. Its owners are Pamela Fleetwood and Robert Fleetwood. Id. ¶ 15. Richmond Capital Group n/k/a RCG Advances LLC (“Richmond”) is a New York limited liability company that also operates under the name Ram Capital Funding (“Ram Capital”). Id. ¶ 2. Robert Giardina (“Giardina” and together with Ram Capital, “Defendants”) is the founder and sole managing member of Richmond. Id. ¶ 3. Ram Capital Funding LLC (“Ram LLC”) and Tsvi Reich a/k/a Steve Reich were initially named as defendants in this action, but Fleetwood voluntarily dismissed its claims against them after entering into a settlement agreement with those entities in September 2020. See Dkt. No. 13; Dkt. No. 28 at 1 n.1; Dkt. No. 38-14. Richmond d/b/a Ram Capital and Ram LLC were both involved in the cash advance business. Dkt. No. 78-10 at 19-20.

Beginning at least as early as July 2015 and continuing through the end of 2018, Richmond was in the business of advancing funds to small businesses in Texas and throughout the United States. Dkt. No. 79 ¶ 4. Richmond advanced these funds pursuant to agreements called “Merchant Agreements.” Each of the Merchant Agreements used by Richmond contained identical assignment and payment language, representations and warranties, events of default, default rights and remedies, a security agreement, a personal guaranty, a reconciliation provision, and Automated Clearing House (“ACH”) authorization terms. Id. ¶ 5. In connection with the transactions governed by each of the Merchant Agreements, merchants were required to complete a form that provided Richmond with the merchant's log-in information to its bank account; it stated: “[t]he way your advance is set up RCG needs viewing access to your bank accounts each business day in order to calculate the amount of your daily payment.” Id. ¶ 7. In addition, each merchant was required to execute a confession of judgment that, upon an event of default, permitted Richmond to obtain a judgment against the merchant and any guarantor in New York without notice or the need to commence a plenary action. Id.

II. The Fleetwood Agreement

In November 2016, as it was experiencing cash-flow issues, Fleetwood was contacted by a broker offering financing through Ram LLC. Id. ¶ 12. On or about November 28, 2016, Fleetwood entered into a Merchant Agreement written on the paper of Ram LLC (the “Fleetwood Agreement” or the “Agreement”), listing “Ram Capital Funding LLC (“RCF”)” as the counterparty. Id. ¶ 13; Dkt. No. 77-4 at 1. Though the Agreement was on the paper of Ram LLC, Richmond advanced the $100, 000 purchase price (the “Purchase Price”), less applicable fees, to Fleetwood, and Richmond collected the daily payments due pursuant to the Agreement. Dkt. No. 79 ¶ 35.

The Fleetwood Agreement was identical in form and substance to the Merchant Agreements. Id. at ¶ 13. As part of the transaction (the “Fleetwood Transaction”), Pamela and Robert Fleetwood also executed (i) a security agreement and personal guaranty; (ii) a confession of judgment; and (iii) an authorization agreement for direct deposit and direct payments. Id. ¶ 15. The provisions of the Fleetwood Agreement are analyzed elsewhere in this Opinion; here, it is sufficient to describe certain of the material terms. Pursuant to the terms of the Fleetwood Agreement, Ram LLC agreed to advance Fleetwood $100, 000 in exchange for the purported purchase of what was defined as all of Fleetwood's “future receivables” until Fleetwood had repaid the sum of $149, 900 (the “Purchased Amount”). Id. ¶¶ 16, 44. The Purchased Amount was to be repaid through daily ACH withdrawals from a designated account (the “Designated Account”) located at a Texas branch of JPMorgan Chase Bank, N.A., each in the equal amount of $1, 399.00, which was stated to equal 10% of Fleetwood's daily receipts. Id. ¶¶ 17-18, 45.

The first paragraph of the Fleetwood Agreement contains the provision regarding the purported “Purchase and Sale of Future Receivables” and reads in part as follows:

PURCHASE AND SALE OF FUTURE RECEIVABLES

Merchant (“Merchant” or “Seller”) hereby sells, assigns and transfers to RCF (“RCF” or “Buyer”) (making RCF the absolute owner) in consideration of the funds provided (“Purchase Price”) [$100, 000] specified, below, all of Merchant's future accounts, contract rights and other entitlements arising from or relating to the payment of monies from Merchant's customers' and/or other third party payors (the “Receipts” defined as all payments made by cash, check, electronic transfer or other form of monetary payment in the ordinary course of the Merchant's business), for the payments due to Merchant as a result of Merchant's sale of goods or services (the “Transactions”) until the amount specified below (the “Purchased Amount”) has been delivered by or on behalf of Merchant to RCF.

The Purchased Amount [$149, 900] shall be paid to RCF by Merchant's irrevocably directing and authorizing that there be only one depositing bank account, which account must be acceptable to, and preapproved by, RCF (the “Account”) into which Merchant and Merchant's customers shall remit the percentage specified below (the “Specified Percentage”) [10%] of the Merchant's settlement amounts due from each Transaction, until such time as RCF receives payment in full of the Purchased Amount. Merchant hereby authorizes RCF to ACH Debit the specified remittances from the merchant's Account on a daily basis and will provide RCF with all required access codes, and monthly bank statements. Merchant understands that it is responsible for ensuring that the specified percentage to be debited by RCF remains in the Account and will be held responsible for any fees incurred by RCF resulting from a rejected ACH attempt or an event of default. RCF is not responsible for any overdrafts or rejected transactions that may result from RCF's ACH debiting the specified amounts under the terms of this agreement. RCF will debit the specific daily amount each business day and upon receipt of the Merchant's monthly bank statements on or about the eighteenth day of each month reconcile the Merchant's Account by either crediting or debiting the difference from or back to the Merchant's Account so that the amount debited each month equals the specified percentage. RCF may, upon Merchant's request, adjust the amount of any payment due under this Agreement at RCF's sole discretion and as it deems appropriate. Notwithstanding anything to the contrary in this Agreement or in any other agreement between RCF and Merchant, upon the violation of any provision contained in Section 1.11 of the MERCHANT AGREEMENT TERMS AND CONDITIONS or the occurrence of an Event of Default under Section 3 of the MERCHANT AGREEMENT TERMS AND CONDITIONS, the Specified Percentage shall equal 100%. A list of all fees applicable under this Agreement is contained in Appendix A.

Dkt. No. 77-1 at 1; see also Dkt. No. 79 ¶¶ 48-49, 52. Although stated to be for “future receivables, ” the defined term “Transaction” is broader. It includes “the payment of monies from Merchant's customers' and/or other third party payors . . . for the payments due to Merchant as a result of Merchant's sale of goods or services.” Dkt. No. 77-1 at 1.

Section 3.1 of Fleetwood Agreement with respect to “Events of Default” reads as follows:

3.1 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” hereunder: (a) Merchant or Guarantor shall violate any term or covenant in this Agreement; (b) Any representation or warranty by Merchant in this Agreement shall prove to have been incorrect, false or misleading in any material respect when made; (c) Merchant shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Merchant seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, or composition of it or its debts; (d) the sending of notice of termination by Merchant; (e) Merchant shall transport, move, interrupt, suspend, dissolve or terminate its business; (f) Merchant shall transfer or sell all or substantially all of its assets; (g) Merchant shall make or send notice of any intended bulk sale or transfer by Merchant; (f) Merchant shall use multiple depository accounts without the prior written consent of RCF; (i) Merchant shall change its depositing account without the prior written consent of RCF; (j) Merchant shall perform any act that reduces the value of any Collateral granted under this Agreement; or (k) Merchant shall default under any of the terms, covenants and conditions of any other agreement with RCF.

Dkt No. 77-1 § 3.1. Appendix A to the Agreement provides that there is a fee...