Preview
FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024
NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF KINGS
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SLATE ADVANCE LLC D/B/A SLATE ADVANCE,
Index No.: 505984/2024
Plaintiff,
MEMORANDUM OF LAW
-against-
ARIES LABORATORIES LLC D/B/A INDO
LABORATORIES and NICHOLAS BILOTTI,
Defendants.
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PRELIMINARY STATEMENT
NICHOLAS BILOTTI (“Defendant” or “Defendant Bilotti”) brings the instant Order to
Show Cause to vacate the Judgment entered against him by Plaintiff SLATE ADVANCE LLC
D/B/A SLATE ADVANCE (“Plaintiff”).
Plaintiff’s Summons and Verified Complaint was filed February 28, 2024. Exhibit “A”.
Threin, Plaintiff alleges failure to repay the Merchant Cash Advance Agreement (“MCA”)
purportedly signed by Defendant. Exhibit “B”. Plaintiff’s Affirmation of Service, referring to
service purportedly effectuated on February 29, 2024can be found at Exhibit “C”.
Defendant did not receive notice of the Summons and Complaint as he did not reside at the
address served. Exhibit “D”. Bilotti Aff. at ¶¶ 3-4.
A stipulation of settlement, also purported to have been signed by Defendant was filed on
March 4, 2024. Exhibit “E”
Upon the alleged default of the stipulation, Judgment was sought and entered on March 8,
2024. Exhibit “F”.
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Defendant discovered the Judgment when his bank account was frozen on March 12, 2024,
and expeditiously retained the undersigned attorneys. Bilotti Aff. at ¶ 2-4. We now move to vacate
that Judgment, and dismiss this Action.
ARGUMENT
I. DEFENDANT’S DEFAULT SHOULD BE EXCUSED BASED UPON CPLR § 317
GROUNDS
“A person served with a summons other than by personal delivery to him or to his agent
for service designated under rule 318, within or without the state, who does not appear may be
allowed to defend the action within one year after he obtains knowledge of entry of the judgment,
but in no event more than five years after such entry, upon a finding of the court that he did not
personally receive notice of the summons in time to defend and has a meritorious defense. If the
defense is successful, the court may direct and enforce restitution in the same manner and subject
to the same conditions as where a judgment is reversed or modified on appeal.” Unlike CPLR
§ 5015(a)(1)’s standard, “there is no necessity for a defendant moving pursuant to CPLR 317 to
show a ‘reasonable excuse’ for its delay.” Eugene DiLorenzo, Inc. v. A.C. Dutton Lumber Co.,
Inc., 67 N.Y.2d 138, 141 (1986); Booso v. Tausik Bros., LLC, 148 A.D.3d 1108, 1108 (2d Dep’t
2017).
A. Defendant Did Not Receive Notice of the Action
As detailed in his affirmation, Defendant was not properly served and had no notice of the
Action. Defendant resided at the address of 815 East Ellsworth Avenue 204, Denver, CO 80218.
A lease agreement showing that he was residing at 815 East Ellsworth Avenue 204, Denver, CO
80218 from March 11, 2023, up until March 31, 2024, is annexed hereto as Exhibit “D”. Bilotti
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Aff. at ¶¶ 6-8. It is not necessary that the excuse be “reasonable” to merit vacature under CPLR
§ 317, although Defendant’s excuse would certainly meet any reasonability test. Moreover, it has
been far less than a year since judgment was entered.
Defendant was not served – and knowledge of the Action cannot be imputed to him –
regardless of any service provisions in the MCA. Defendant separated from Company Defendant
in March of 2022. The MCA and Stipulation of Settlement at issue in the Action were purportedly
executed on October 25, 2023 (Exhibit “B” at p. 1), and February 29, 2024 (Exhibit “E” at p. 1),
respectively. Those dates of execution are far later than the Effective Date of the Defendant’s
Separation Agreement that ended his relationship with Company Defendant (Exhibit “H” at p. 1).
B. Defendant Has Numerous Meritorious Defenses
Defendant has meritorious defenses. Most saliently, his inclusion in this Action is the result
of fraud. In addition, the MCA itself could not support Plaintiff’s claims.
1. Defendant Did Not Sign or Execute the MCA
As noted immediately above, Defendant did not sign the MCA and accordingly is not
bound by its terms. “Every agreement, promise or undertaking is void, unless it or some note or
memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his
lawful agent, if such agreement, promise or undertaking…is a special promise to answer for the
debt, default or miscarriage of another person.” Gen. Ob. Law § 5-701(a)(2).
Only a signatory to the MCA could be bound by it, and Defendant never knew of the MCA,
never signed the MCA, and never benefited from the MCA.
Company Defendant had access to Defendant’s information because, years before the
events underlying this Action, he had been an employee. Bilotti Aff. at ¶ 3. The only explanation
for Defendant’s inclusion in the MCA and in the instant case is that his information had
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fraudulently been used by Company Defendant, who apparently impersonated him and thereby
listed him as a party to the MCA.
2. Defendant Has Defenses Grounded in Documents He Cannot Access Due to
Corporate Defendant’s Fraud
As explained above, Defendant was never actually a party to the MCA and accordingly has
none of the financial records concerning the relevant transactions. He has no access to documents
that an actual signatory to the MCA could have used to defend themselves.
Defendant’s defenses, contingent upon his acquisition of such documents, concern issues
such as whether Plaintiff performed under the MCA, whether Company Defendant either never
defaulted or paid all sums allegedly due under the MCA.
In short, in this identity fraud/mistaken identity case, Defendant has myriad defenses that
depend upon documents that, through no fault of his own, he cannot yet access.
3. Merchant Cash Advance Agreements Are Void as Against Public Policy
The legality of the Merchant Cash Advance industry is in dispute due to factors intrinsic to
such contracts – by their very nature, contracts in the form of Merchant Cash Advance agreements
are prone to being, in actual fact, usurious and unconscionable loans. In an action captioned People
v. Richmond Capital Group LLC, the State of New York alleged that various practices of the
industry are, as a whole, illegal subjecting all MCA agreements to recission. These practices
include usury, fraud, unconscionability, and harassment. The Honorable Andrew Borrok of the
Supreme Court, New York County, has rendered a decision largely agreeing with the State, in a
ruling cited at People v. Richmond Capital Group LLC, 2021 NY Slip Op. 50975[U] (Sup. Ct.
N.Y. Cnty. 2023).
“To determine whether a transaction constitutes a usurious loan, [t]he court must examine
whether the plaintiff is absolutely entitled to repayment under all circumstances. Unless a principal
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sum advanced is repayable absolutely, the transaction is not a loan. Usually, courts weigh three
factors when determining whether repayment is absolute or contingent: (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. Principis Capital, LLC v. I
Do, Inc., 201 A.D.3d 752, 754 (2d Dep’t 2022). However, it is not merely enough for a
reconciliation provision to exist. If that provision is “nominal” and does not relieve the merchant
of its obligation to pay, and does not qualify the MCA’s rights to declare the full amount due and
payable upon default, it is not truly a reconciliation provision. Fleetwood Servs., LLC v. Richmond
Capital Group LLC, 2023 U.S. App. LEXIS 14241, at *4 (2d Cir. 2023). It also evidences a loan
where the monies sough to be recovered by the MCA are “based on a fixed amount without any
regard whatsoever to receivables” and where “borrowers paid based on a fixed loan repayment
schedule.” People v. Richmond, 2023 NY Slip Op 50975[U] n. 18. A “reconciliation provision [is]
‘largely illusory’ when the adjustment of payments was left to the purchaser’s ‘sole discretion.’”
United States Info. Group LLC v EBF Holdings, LLC, 2023 US Dist. LEXIS 169605, *21
(S.D.N.Y. 2023)
Moreover, as ruled in People v. Richmond:
the Loan Documents themselves were a complete cover-up. The parties understood
that this was a lending transaction, yet the documents were intentionally designed
to disguise the true nature of the transaction. The Loan Documents were also
intentionally misleading, designed to further disguise the real terms of this “deal.”
By way of example, the MCAs include precatory language that the transaction was
“not a loan.” It was, and the parties knew that it was.
Id. at 33.
Criminal usury in New York is 25% per annum. “Where the interest rate exceeds the
criminal usury rate, a corporation may interpose an affirmative defense of usury and, if successful,
obtain a declaration that invalidates the debt instrument ab initio.” Haymount Urgent Care PC v.
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GoFund Advance, LLC, 609 F. Supp. 3d 237 (S.D.N.Y. 2022), citing Adar Bays, LLC v. GeneSYS
ID, Inc., 37 N.Y.3d 320, 333 (2021).
Bankruptcy is not, itself, listed as an “event of default” but it is a default if “Any
representation or warranty by Merchant to SA2 that proves to have been made intentionally false
or misleading in any material respect when made.” Exhibit “B” at ¶ 32(1).
One representation required to enter the agreement is:
No Bankruptcy. Each Merchant represents, warrants, and covenants that as of the
date of this Agreement, it does not contemplate and has not filed any petition for
bankruptcy protection under Title 11of the United States Code and there has been
no involuntary petition brought or pending against any Merchant. Each Merchant
further warrants that it does not anticipate filing any such bankruptcy petition and
it does not anticipate that an involuntary petition will be filed against it.
Id. at ¶ 27.
While this section applies to Defendants’ state of mind at the time of the execution of the
Agreement, if Defendant were to declare bankruptcy less than six months after signing, Plaintiff
could reasonably argue on that basis alone that they had “anticipated” doing so from that date or
earlier. Thus, the declaration of bankruptcy could very much be used as an event of default under
the MCA as it is specifically worded by Plaintiff, its sole author.
Moreover, the reconciliation provision is deliberately designed to give unilateral power to
Plaintiff. It holds as follows, in pertinent portion:
11. Request for Reconciliation Procedure.
a. It shall be Merchant's sole responsibility and the right hereunder to initiate
Reconciliation of Merchant's actual receipts during any Reconciliation Month by
sending a request for reconciliation to Purchaser.
b. Any such request for Reconciliation of the Merchant's weekly receipts for a
specific Reconciliation Month shall be in writing, shall include a copy of
Merchant's bank statement and a credit card processing statement for the
Reconciliation Month at issue, and shall be received by Purchaser via email to
admin@eminentfunding.com within five (5) Business Days after the last day of the
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Reconciliation Month at issue (time being of the essence to the last day of the period
during which such demand for reconciliation shall be received by Purchaser).
c. Purchaser's receipt of Merchant's request for Reconciliation after the expiration
of the five Business Days period following the last day of the Reconciliation Month
for which such reconciliation is requested nullifies and makes obsolete
Merchant's request for Reconciliation for that specific Reconciliation Month.
(emphasis added)
Id. at ¶ 11.
This rule is deliberately designed to create a false reconciliation provision where the
punishment for breaking any of the provisions is that no reconciliation need take place. This is
especially egregious when considering that Plaintiff gives itself complete power to perform the
reconciliation and dictate its decision on the matter to Defendants, without any appeal procedure.
Thus, the reconciliation provision provides false protection, and is “nominal” under Fleetwood
Services. Plainly speaking, Plaintiff “holds all of the cards.”
Furthermore, the Agreement does, in fact, have a finite term. The Merchant is directed to
provide a fixed amount of money on a daily schedule until a fixed amount of money is repaid. This
clearly amounts to a finite payment term which if breached, subjects the Merchant to severe
penalties and default. See Lateral Recovery LLC, et. al. v. Funderz.net, LLC d/b/a Hop Capital
and d/b/a Hop Capital and d/b/a Business Merchant Funding, et.al. 2024 WL 216533 (S.D.N.Y.
January 19, 2024) where the Court found the loan agreement had a de facto fixed term because the
expected duration of the repayment period was readily calculable, as the merchant’s total
repayment and the daily remittance amount were both known.
Because each of the Principis Capital provisions are present, this Court can consider the
transaction a loan, and usury applies.
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The Agreement provides for daily payments of $999.93 on a principal of $40,000.00 up to
a repayment total of $59,996.00 which is 60 daily payments. This means that the annual interest
rate is over 500% far exceeding the 25% per year usury rate. The loan is clearly usurious.
4. The MCA Agreement is Voidable as Unconscionable
As argued in the Attorney General’s Action, and pursuant to case law, a merchant cash
advance agreement may be substantively unconscionable when it includes clauses such as:
[a] provision giving [the cash advance issuer] the irrevocable right to withdraw
money directly from [the merchant]’s bank accounts; a provision giving [the issuer]
the power of attorney to act as if it were [the merchant], including collecting checks
and signing invoices in [the merchant]’s name; a provision preventing [the
merchant] from transferring, moving or selling the business or any assets without
permission from [the issuer]; and a one-sided attorneys’ fees provision obligating
[the merchant] to pay [the issuer]’s attorneys’ fees if [the issuer] won any litigation
but not obligating [the issuer] to pay [the merchant]’s attorneys’ fees if [the
merchant] won. . . .
Fleetwood Servs., LLC v. Complete Bus. Solutions Grp., Inc., No. 2:18-cv-00268-JS, 2019 WL
5422884 (E.D.Pa. 2019) (applying Texas law). Moreover, an agreement is unconscionable when
the lender “took advantage of [the merchant’s] ‘desperate financial condition’”. Id. at * 3.
The Agreement herein is no doubt voidable as unconscionable. As stated by Judge Borrok
in Richmond:
A determination of unconscionability requires a showing that the contract was both
procedurally and substantively unconscionable when made - i.e., an absence of
meaningful choice on the part of one of the parties together with contract terms
which are unreasonably favorable to the other party Kaufman v. Relx Inc., 211
AD3d 580, 581 (1st Dep’t 2022). Procedural unconscionability looks to the
circumstances at the time the agreement was entered into, including the commercial
setting, whether deceptive or high-pressured tactics were employed, whether a
party had a reasonable opportunity to understand the terms of the agreement, which
party drafted the contract, whether fine print was used as to material terms, whether
there was an alternative for the services in question, the experience of the parties,
and any disparity in bargaining power.
People v. Richmond, 2021 NY Slip Op. 50975[U].
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The NY AG has proved that the MCAs are both procedurally and
substantively unconscionable and not enforceable… The Predatory Lenders'
advertising was geared to and targeted Borrowers who were cash strapped, could
not obtain traditional funding, and who may have previously defaulted such that
finding a financing source that did not look to their lending history was their only
resort…
Id.
In the case at bar, there are a host of applicable factors which renders the Agreement
unconscionable. The prevailing theme of such provisions is that Plaintiff has unilateral rights and
control over Defendant with no corresponding rights for Defendant. For instance, and in pertinent
portion:
32. Power of Attorney. Each Merchant and Guarantor irrevocably appoints
Purchaser and its representatives as their respective agents as attorneys-in-fact
with full authority to take any action or execute any instrument or document
to do the following: (A) to settle all obligations due to Purchaser from any credit
card processor and/or account debtor(s) of Merchant; (B) upon occurrence of an
Event of Default under this Agreement, to perform any and all such obligations of
Merchant under this Agreement, including without limitation (i) to obtain and
adjust insurance; (ii) to collect monies due or to become due under or in respect of
any of the Collateral (iii) to receive, endorse and collect any checks, notes, drafts,
instruments, documents or chattel paper in connection with clause "i" or clause "ii"
above; (iv) to sign Merchant's name on any invoice, bill of lading, or assignment
directing customers or account debtors to make payment directly to Purchaser, (v)
to initiate any ACH with any bank of Merchant to make all payments due to
Purchaser; and (vi) to file any claim or take any action or institute any proceeding
against Merchant and/or Guarantor which Purchaser may deem necessary for the
collection of any portion of the undelivered Sold Amount of Future Receipts from
the Collateral, or otherwise to enforce its rights under this Agreement. (emphasis
added)
24. Attorney-in-Fact. Merchant hereby authorizes Purchaser at any time to
take any action and to execute any instrument including without limitation to
file one or more financing statements and/or continuation statements, to
evidence and perfect the security interest created hereby and irrevocably
appoints Purchaser as its true and lawful attorney-in-fact, which power of
attorney shall be coupled with an interest, with full authority in the place and stead
of Merchant and in the name of Merchant or otherwise, from time to time, in
Purchaser's sole and absolute discretion, including without limitation (a) for the
purpose of executing such statements in the name of and on behalf of Merchant,
and thereafter filing any such financing and/or continuation statements and (b) to
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receive, endorse, and collect all instruments made payable to Merchant. (emphasis
added)
9. Read Only Access to the Approved Bank and Credit Card Accounts.
Merchant hereby agrees that during the term of this Agreement Purchaser shall have
the right to perform ongoing read only electronic monitoring of transactions
occurring in the Approved Bank Account and Merchant's account with the
Approved Credit Card Processor (the "Approved Credit Card Account").
Merchant agrees to provide Purchaser all required online access codes for the
Approved Bank Account and the Approved Credit Card Account. If
Purchaser's electronic (online) access to Merchant's Approved Bank Account or the
Approved Credit Card Account is disabled for any reason, Merchant shall
immediately and diligently undertake all steps required from it to restore
Purchaser's access to both the Approved Bank Account and Approved Credit Card
Account. Merchant's failure to comply with the provisions of this Section 8 shall
constitute Merchant's material breach of its obligations under this Agreement.
(emphasis added)
48. Assignment. Purchaser may assign, transfer or sell its rights or delegate its
duties hereunder, either in whole or in part without prior notice to the Merchant or
the Guarantor. Neither Merchant nor Guarantor shall have the right to assign
their respective rights or obligations under this Agreement without first
obtaining Purchaser's written consent. (emphasis added)
Exhibit “B”.
A scenario where a Defendant is contractually obligated to appoint Plaintiff as Attorney-
in-Fact “with full authority to take any action or execute any instrument or document” or where
the Plaintiff has the right to freely assign its rights under the Agreement and a defendant must
obtain the Plaintiff’s permission, are clear examples of the unbridled control the Plaintiff has over
the Defendant under the MCA.
The Merchant Cash Advance industry’s high-pressure sales tactics and misleading
characterization of Merchant Cash Advance contracts’ terms make such contracts ordinarily
procedurally unconscionable. For these reasons, a meritorious defense exists that the agreement is
unconscionable.
For these reasons, the judgment should be vacated under CPLR § 317.
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II. THE DEFAULT JUDGMENT SHOULD BE VACATED AND THE ACTION
SHOULD BE DISMISSED IN ACCORDANCE WITH CPLR § 5015(a)(4)
Plaintiff claims that it served Plaintiff in accordance with the terms of the MCA. As detailed
above in Section I and in Defendant’s concurrently filed affidavit, Defendant never received actual
notice of the Action. Bilotti Aff. at ¶¶ 2-6. Defendant never signed the MCA, and therefore he
never consented to service in accordance with its terms. Accordingly, Plaintiff was not served and
the court has no jurisdiction over him in this case.
“The court which rendered a judgment or order may relieve a party from it upon such terms
as may be just, on motion of any interested person with such notice as the court may direct, upon
the ground of … lack of jurisdiction to render the judgment or order.” CPLR § 5015(a)(4). “CPLR
§ 5015(a)(4) is available for any defendant against whom a default judgment was entered, provided
the defendant can demonstrate that the court lacked jurisdiction over him to render the judgment
or order.” Caba v. Rai, 63 A.D.3d 578, 580 (1st Dep’t 2009).
Strict compliance with all the service dictates of the service of process statutes is required
in order to obtain jurisdiction, and it is a plaintiff’s burden to establish that service was properly
effectuated. Persaud v. Teaneck Nursing Center, Inc., 290 A.D.2d 350, 351 (1st Dep’t 2002). A
defendant’s subsequent receipt of actual notice of a lawsuit will not cure a defect of service or
confer jurisdiction of the court. See Raschel v. Rish, 68 NY2d 694, (3d Dep’t 1992); Feinstein v.
Bergner, 48 N.Y.2d 234, (2d Dep’t 1979).
Failure to effectuate proper service upon a defendant divests the court of jurisdiction. U.S.
Bank NA v. Roque, 172 A.D.3d 948, 949 (2d Dep’t 2019); Deutsche Bank National Trust Co. v.
Acevedo, 157 A.D.3d 859, 860 (2d Dep’t 2018). When the propriety of service is challenged, the
Court must rule on that matter before any other. “If … the court finds that service was improper,
then it must grant defendant’s motion to vacate the default judgment pursuant to CPLR 5015(a)(4)
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and dismiss the action.” Noah Bank v. Hudson Produce, Inc., 161 A.D.3d 573, 574 (1st Dep’t
2018); Cipriano v. Hank, 197 A.D.2d 295, 298 (1st Dep’t 1994). The failure to serve process in an
action leaves the court without personal jurisdiction over the defendant, rendering all subsequent
proceedings null and void. Rockman v. Nassau County Sheriff’s Department, 2024 WL 592577
(2d Dep’t 2024); Yoo v. Good Clean Fun, 222 A.D.3d 793 (2d Dep’t 2023); Wells Fargo Bank NA
v. Spaulding, 117 A.D.3d 817 (2d Dep’t 2019).
Plaintiff’s claims that it served Plaintiff in accordance with the terms of the MCA are
irrelevant because Defendant never signed the MCA and was never a party to it. Accordingly, he
never consented to service in accordance with its terms. Therefore, Plaintiff was not served and
the court has no jurisdiction over him in this case.
In the alternative, Plaintiff has failed to demonstrate that it engaged in any action that could
be construed as providing notice or as constituting service to any party. Specifically, it has failed
to show that it mailed the relevant documents to any party, including Defendant. Proof of proper
mailing requires proof of the actual mailing or recitation of proof of a standard office practice or
procedure to ensure the items are properly addressed and mailed. Tracy v. William Penn Life
Insurance Company, 234 A.D.2d 745 (2d Dep’t 1996). Plaintiff has not provided such proof.
In the alternative, Plaintiff fails to effectuate service even in accordance with the terms
indicated in the MCA, assuming that that document has any force, which it does not. The MCA
states in pertinent part:
All notices, requests, consents, demands, and other communications hereunder
shall be delivered by certified mail, return receipt requested, or by overnight
delivery with signature confirmation to the respective parties to this Agreement
at their addresses set forth in this Agreement and shall become effective only upon
receipt. Written notice may also be given to any Merchant or Guarantor by e-mail
to the E-mail Address listed on the first page of this Agreement or by text message
to the Phone Number listed on the first page of this Agreement if that phone number
is for a mobile phone. Each Merchant must set its spam or junk mail filter to accept
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e-mails sent by info@slateadvance.com and its domain. This Section is not
applicable to service of process or notices in any legal proceedings.
Exhibit “B” at ¶ 35.
The MCA further states, “Merchant and Guarantor hereby agree that the mailing of any
summons and complaint in any proceeding commenced by Purchaser by certified or registered
mail, return receipt requested to the Company Address listed in the Merchant Information, or the
Guarantor Information herein, or any other process required by any such court will constitute valid
and lawful service of process against Merchant…” Exhibit “B” at ¶ 53. The MCA Agreement
does not say “the initiation of a mailing, before mailing is fully complete.” Instead, the MCA says
“the mailing,” in words deliberately chosen by Plaintiff, the MCA’s sole drafter. Under the MCA,
until the mailing is not completed, service has not been effectuated. There is insufficient evidence
that it was completed in this case.
As Defendant Bilotti was never a party to the MCA and was never served, this Court lacks
personal jurisdiction over him. As such, the resulting proceedings, including the default judgment,
should be rendered null and void. This Court should therefore dismiss the Action and vacate the
Judgment, or in the alternative, grant Defendant the opportunity to file an Answer.
III. THE JUDGMENT SHOULD BE VACATED BASED UPON CPLR § 5015(a)(1)
GROUNDS
“The court which rendered a judgment or order may relieve a party from it upon such terms
as may be just, on motion of any interested person with such notice as the court may direct, upon
the ground of excusable default, if such motion is made within one year after service of a copy of
the judgment or order with written notice of its entry upon the moving party, or, if the moving
party has entered the judgment or order, within one year after such entry.” CPLR § 5015(a)(1). A
party seeking to vacate a default under this section must “demonstrate a reasonable excuse for his
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default in opposing an application and to demonstrate the existence of a potentially meritorious
defense to that application.” Proctor-Shields v. Shields, 74 A.D.3d 1347, 1348 (2d Dep’t 2010);
Wells Fargo Bank, N.A. v. Besemer, 131 A.D.3d 1047, 1049 (2d Dep’t 2015); Cummings v. Rosoff,
101 A.D.3d 713, 714 (2d Dep’t 2012).
The entry of a default judgment is a “drastic remedy” that should not be granted when there
is “a short, nonprejudicial delay and an arguably meritorious defense.” Scott v. Allstate Ins. Co.,
124 AD2d 481, 484 (1st Dep’t 1986).
As demonstrated below, Defendant has met this standard.
A. Defendant Bilotti Has a Reasonable Excuse for his Default
“Whether there is a reasonable excuse for a default is a discretionary, sui generis
determination to be made by the court based on all relevant factors, including the extent of the
delay, whether there has been prejudice to the opposing party, whether there has been willfulness,
and the strong public policy in favor of resolving cases on the merits. Harcztark v. Drive Variety,
Inc., 21 A.D.3d 876, 876-77 (2d Dep’t 2005); Orwell Building Corp. v. Bessaha, 5 A.D.3d 573,
574 (2d Dep’t 2004).
“When a default judgment based upon nonappearance is sought against a natural person in
an action based upon nonpayment of a contractual obligation an affidavit shall be submitted that
additional notice has been given by or on behalf of the plaintiff at least twenty days before the
entry of such judgment, by mailing a copy of the summons by first-class mail to the defendant at
his place of residence in an envelope bearing the legend ‘personal and confidential’ and not
indicating on the outside of the envelope that the communication is from an attorney or concerns
an alleged debt.” CPLR § 3215(g)(3)(i).
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Here, Bilotti did not actually receive service of process or the Notice of Entry of the
Judgment. He only found out about the subject Action when his bank account was restrained in
March 12, 2024. He then expeditiously retained the undersigned counsel, who filed this order to
show cause. Bilotti Aff. at ¶¶ 2-4.
Although the Affidavit of Service notes that mailing was sent to the same address as on the
MCA (Exhibits “B” at p. 1 and “C”), 257 Simarano Drive, Marlborough, MA 01752 is not
Defendant’s address. Defendant was residing at 815 East Ellsworth Avenue 204, Denver, CO
80218 from March 11, 2023, up until March 31, 2024. Exhibit “D”. Bilotti Aff. at ¶ 6.
Plaintiff herein fails to offer proof that the Judgment was served with Notice of Entry. The
Summons and Complaint was served on the wrong address. Regardless of whether service met the
technical requirements of the MCA, the papers never actually reached Defendant. Bilotti Aff. at ¶
7.
Therefore, Defendant has a reasonable excuse and did not waste any time in attempting to
vacate the Judgment as soon as he became aware of it.
B. Defendant Has Several Meritorious Defenses to the Action
The ‘meritorious defense’ requirement does not present a particularly high barrier.”
Brookdale Hosp. Med. Ctr. v. Lewis, 2005 N.Y. Slip. Op. 51200(U) (Civ. Ct. Kings Cnty. 2005).
“The defendant need not necessarily present admissible evidence of the type required on a motion
for summary judgment.” Brookdale, 2005 N.Y. Slip. Op. 51200(U), citing Goldman v. City of New
York, 287 A.D.2d 482, 483-84 (2d Dep’t 2001). “The quantum of proof required is not as great as
is required to oppose summary judgment.” Brookdale, 2005 N.Y. Slip. Op. 51200(U), citing Clark
v. MGM Textiles Industries, Inc., 307 A.D.2d 520, 521 (3d Dep’t 2003).
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Defendant directs the Court’s attention to the fact that, to meet this standard, a defendant
need only raise a potentially meritorious defense. A movant need not reach a successful ultimate
resolution of the entire case in an Order to Show Cause; rather, he must only establish that, should
the judgment be vacated, there would exist one or more issues ripe for litigation. As demonstrated
above in Section I(B), Defendant Bilotti has more than met this standard.
IV. THE JUDGMENT SHOULD BE VACATED UNDER THE INHERENT POWERS
OF THE COURT IMPLICIT IN CPLR § 5015(a)
“Under CPLR 5015(a), a court is empowered to vacate a default judgment for several
reasons, including excusable neglect; newly-discovered evidence; fraud, misrepresentation or
other misconduct by an adverse party; lack of jurisdiction; or upon the reversal, modification or
vacatur of a prior order. These categories represent a codification of the principal grounds upon
which courts have traditionally vacated default judgments as part of their ‘inherent discretionary
power’ … It thus follows that section 5015 (a) does not provide an exhaustive list as to when a
default judgment may be vacated. Indeed, the drafters of that provision intended that courts retain
and exercise their inherent discretionary power in situations that warranted vacatur but which the
drafters could not easily foresee.” Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 68 (2003);
Wansdown Props. Corp., N.V. v Azari, 165 A.D.3d 537, 538 (1st Dep’t 2018).
“In addition to the grounds set forth in section 5015(a), a court may vacate its own
judgment for sufficient reason and in the interests of substantial justice.” Woodson, 100 N.Y.2d at
68; Matter of Arici v. Scharf, 195 A.D.3d 925, 926 (2d Dep’t 2021).
Defendant never signed the Agreement and never consented to it in any way. He has been
dragged into this action solely on the basis of Company Defendant’s fraudulent entry of his name
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into the MCA. Because of the fraud underlying his inclusion in the case, he had no notice of the
action.
If the Court were to find that Defendant’s CPLR-based defenses are not viable due to some
technicality, the Court should act within its inherent power to vacate the unjust judgment against
Defendant.
Other considerations of fairness and justice also support such a determination. Specifically,
because Defendant has not yet had the opportunity to be heard on this matter, in accordance New
York courts’ preference for resolutions on the merits, and because of the relatively brief delay
between when Defendant found out about the judgment and when he took action on it, this Court
should vacate the judgment in the interest of substantial justice, and this Court should grant any
other relief it deems just and proper.
V. AS THE JUDGMENT IS VOID, THE ACTION SHOULD BE DISMISSED
PURSUANT TO CPLR § 3211(a)(1)
The default judgment against Defendant was predicated on the notion that Defendant
Bilotti signed the MCA. He did not, as proven by ample documentary evidence.
First, Defendant separated from Company Defendant in March of 2022. The MCA and
Stipulation of Settlement at issue in the Action were purportedly executed on October 25, 2023
(Exhibit “B” at p. 1), and February 29, 2024 (Exhibit “E” at p. 1), respectively. Those dates of
execution are far later than the Effective Date of the Defendant’s Separation Agreement that ended
his relationship with Company Defendant (Exhibit “H” at p. 1).
Second, the MCA and Stipulation of Settlement appear to have been signed via DocuSign,
an application which records information about when and how documents are electronically
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signed. However, Defendant’s DocuSign history does not show any of these documents being
executed. Exhibit “I”, generally.
Lastly, there exists a Police Report from Defendant – which was filed as soon as he found
out that his bank account was restrained – detailing that he does not and has never heard of
Plaintiff. Exhibit “G”.
“A party may move for judgment dismissing one or more causes of action against him on
the ground that a defense is founded upon documentary evidence.” CPLR § 3211(a)(1). A motion
to dismiss pursuant to CPLR § 3211(a)(1) will be granted only if the “documentary evidence
resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim.”
Fontanetta v. Doe, 73 A.D.3d 78, 83 (2d Dep’t 2010). “[T]o be considered ‘documentary,
‘evidence must be unambiguous and of undisputed authenticity.” Id. at 86.
“In order for evidence submitted in support of a CPLR 3211 (a)(1) motion to qualify as
‘documentary evidence,’ it must be ‘unambiguous, authentic, and undeniable.’ Judicial records, as
well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and
any other papers, the contents of which are essentially undeniable, would qualify as documentary
evidence in the proper case. At the same time, neither affidavits, deposition testimony, nor letters
are considered documentary evidence within the intendment of CPLR 321l(a)(l).” (Attias v.
Costiera, 120 A.D.3d 1281 [2d Dept 2014] [internal citations and quotation marks omitted]; cf.
Amsterdam Hospitality Group, LLC v. Marshall-Alan Associates, Inc., 120 A.D.3d 431 [1 51 Dept
2014][correspondence, including emails, are considered documentary evidence if they meet the
“essentially undeniable” test])”.
In this Action, two factual issues had erroneously been inferred to be in support of the
granting of the Judgment against Defendant Bilotti – the alleged execution and default of the MCA
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(Exhibit “B”) and the alleged default of the Stipulation of Settlement (Exhibit “E”). The case
against Defendant hinged upon these false inferences. However, these documents had not, in fact,
been executed by Defendant. Billotti Aff. at ¶ 9-10.
Upon the documentary evidence accompanying this Order to Show Cause, the judgment
should be vacated and the action dismissed on the grounds of CPLR 3211(a)(1).
VI. THIS COURT SHOULD GRANT A TEMPORARY RESTRAINING ORDER
“A temporary restraining order may be granted pending a hearing for a preliminary
injunction where it appears that immediate and irreparable injury, loss or damage will result unless
the defendant is restrained before the hearing can be had.” CPLR § 6301. “Any application for
temporary injunctive relief, including but not limited to a motion for a stay or a temporary
restraining order, shall contain … [an] affirmation [to] demonstrate that a good faith effort has
been made to notify the party against whom the temporary restraining order is sought of the time,
date and place that the application will be made in a manner sufficient to permit the party an
opportunity to appear in response to the application.” 22 NYCRR 202.7(f).
Here, D
Preview
FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS ------------------------------------------------------------------X SLATE ADVANCE LLC D/B/A SLATE ADVANCE, Index No.: 505984/2024 Plaintiff, MEMORANDUM OF LAW -against- ARIES LABORATORIES LLC D/B/A INDO LABORATORIES and NICHOLAS BILOTTI, Defendants. ------------------------------------------------------------------X PRELIMINARY STATEMENT NICHOLAS BILOTTI (“Defendant” or “Defendant Bilotti”) brings the instant Order to Show Cause to vacate the Judgment entered against him by Plaintiff SLATE ADVANCE LLC D/B/A SLATE ADVANCE (“Plaintiff”). Plaintiff’s Summons and Verified Complaint was filed February 28, 2024. Exhibit “A”. Threin, Plaintiff alleges failure to repay the Merchant Cash Advance Agreement (“MCA”) purportedly signed by Defendant. Exhibit “B”. Plaintiff’s Affirmation of Service, referring to service purportedly effectuated on February 29, 2024can be found at Exhibit “C”. Defendant did not receive notice of the Summons and Complaint as he did not reside at the address served. Exhibit “D”. Bilotti Aff. at ¶¶ 3-4. A stipulation of settlement, also purported to have been signed by Defendant was filed on March 4, 2024. Exhibit “E” Upon the alleged default of the stipulation, Judgment was sought and entered on March 8, 2024. Exhibit “F”. 1 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 Defendant discovered the Judgment when his bank account was frozen on March 12, 2024, and expeditiously retained the undersigned attorneys. Bilotti Aff. at ¶ 2-4. We now move to vacate that Judgment, and dismiss this Action. ARGUMENT I. DEFENDANT’S DEFAULT SHOULD BE EXCUSED BASED UPON CPLR § 317 GROUNDS “A person served with a summons other than by personal delivery to him or to his agent for service designated under rule 318, within or without the state, who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense. If the defense is successful, the court may direct and enforce restitution in the same manner and subject to the same conditions as where a judgment is reversed or modified on appeal.” Unlike CPLR § 5015(a)(1)’s standard, “there is no necessity for a defendant moving pursuant to CPLR 317 to show a ‘reasonable excuse’ for its delay.” Eugene DiLorenzo, Inc. v. A.C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 141 (1986); Booso v. Tausik Bros., LLC, 148 A.D.3d 1108, 1108 (2d Dep’t 2017). A. Defendant Did Not Receive Notice of the Action As detailed in his affirmation, Defendant was not properly served and had no notice of the Action. Defendant resided at the address of 815 East Ellsworth Avenue 204, Denver, CO 80218. A lease agreement showing that he was residing at 815 East Ellsworth Avenue 204, Denver, CO 80218 from March 11, 2023, up until March 31, 2024, is annexed hereto as Exhibit “D”. Bilotti 2 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 Aff. at ¶¶ 6-8. It is not necessary that the excuse be “reasonable” to merit vacature under CPLR § 317, although Defendant’s excuse would certainly meet any reasonability test. Moreover, it has been far less than a year since judgment was entered. Defendant was not served – and knowledge of the Action cannot be imputed to him – regardless of any service provisions in the MCA. Defendant separated from Company Defendant in March of 2022. The MCA and Stipulation of Settlement at issue in the Action were purportedly executed on October 25, 2023 (Exhibit “B” at p. 1), and February 29, 2024 (Exhibit “E” at p. 1), respectively. Those dates of execution are far later than the Effective Date of the Defendant’s Separation Agreement that ended his relationship with Company Defendant (Exhibit “H” at p. 1). B. Defendant Has Numerous Meritorious Defenses Defendant has meritorious defenses. Most saliently, his inclusion in this Action is the result of fraud. In addition, the MCA itself could not support Plaintiff’s claims. 1. Defendant Did Not Sign or Execute the MCA As noted immediately above, Defendant did not sign the MCA and accordingly is not bound by its terms. “Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking…is a special promise to answer for the debt, default or miscarriage of another person.” Gen. Ob. Law § 5-701(a)(2). Only a signatory to the MCA could be bound by it, and Defendant never knew of the MCA, never signed the MCA, and never benefited from the MCA. Company Defendant had access to Defendant’s information because, years before the events underlying this Action, he had been an employee. Bilotti Aff. at ¶ 3. The only explanation for Defendant’s inclusion in the MCA and in the instant case is that his information had 3 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 fraudulently been used by Company Defendant, who apparently impersonated him and thereby listed him as a party to the MCA. 2. Defendant Has Defenses Grounded in Documents He Cannot Access Due to Corporate Defendant’s Fraud As explained above, Defendant was never actually a party to the MCA and accordingly has none of the financial records concerning the relevant transactions. He has no access to documents that an actual signatory to the MCA could have used to defend themselves. Defendant’s defenses, contingent upon his acquisition of such documents, concern issues such as whether Plaintiff performed under the MCA, whether Company Defendant either never defaulted or paid all sums allegedly due under the MCA. In short, in this identity fraud/mistaken identity case, Defendant has myriad defenses that depend upon documents that, through no fault of his own, he cannot yet access. 3. Merchant Cash Advance Agreements Are Void as Against Public Policy The legality of the Merchant Cash Advance industry is in dispute due to factors intrinsic to such contracts – by their very nature, contracts in the form of Merchant Cash Advance agreements are prone to being, in actual fact, usurious and unconscionable loans. In an action captioned People v. Richmond Capital Group LLC, the State of New York alleged that various practices of the industry are, as a whole, illegal subjecting all MCA agreements to recission. These practices include usury, fraud, unconscionability, and harassment. The Honorable Andrew Borrok of the Supreme Court, New York County, has rendered a decision largely agreeing with the State, in a ruling cited at People v. Richmond Capital Group LLC, 2021 NY Slip Op. 50975[U] (Sup. Ct. N.Y. Cnty. 2023). “To determine whether a transaction constitutes a usurious loan, [t]he court must examine whether the plaintiff is absolutely entitled to repayment under all circumstances. Unless a principal 4 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 sum advanced is repayable absolutely, the transaction is not a loan. Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (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. Principis Capital, LLC v. I Do, Inc., 201 A.D.3d 752, 754 (2d Dep’t 2022). However, it is not merely enough for a reconciliation provision to exist. If that provision is “nominal” and does not relieve the merchant of its obligation to pay, and does not qualify the MCA’s rights to declare the full amount due and payable upon default, it is not truly a reconciliation provision. Fleetwood Servs., LLC v. Richmond Capital Group LLC, 2023 U.S. App. LEXIS 14241, at *4 (2d Cir. 2023). It also evidences a loan where the monies sough to be recovered by the MCA are “based on a fixed amount without any regard whatsoever to receivables” and where “borrowers paid based on a fixed loan repayment schedule.” People v. Richmond, 2023 NY Slip Op 50975[U] n. 18. A “reconciliation provision [is] ‘largely illusory’ when the adjustment of payments was left to the purchaser’s ‘sole discretion.’” United States Info. Group LLC v EBF Holdings, LLC, 2023 US Dist. LEXIS 169605, *21 (S.D.N.Y. 2023) Moreover, as ruled in People v. Richmond: the Loan Documents themselves were a complete cover-up. The parties understood that this was a lending transaction, yet the documents were intentionally designed to disguise the true nature of the transaction. The Loan Documents were also intentionally misleading, designed to further disguise the real terms of this “deal.” By way of example, the MCAs include precatory language that the transaction was “not a loan.” It was, and the parties knew that it was. Id. at 33. Criminal usury in New York is 25% per annum. “Where the interest rate exceeds the criminal usury rate, a corporation may interpose an affirmative defense of usury and, if successful, obtain a declaration that invalidates the debt instrument ab initio.” Haymount Urgent Care PC v. 5 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 GoFund Advance, LLC, 609 F. Supp. 3d 237 (S.D.N.Y. 2022), citing Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 333 (2021). Bankruptcy is not, itself, listed as an “event of default” but it is a default if “Any representation or warranty by Merchant to SA2 that proves to have been made intentionally false or misleading in any material respect when made.” Exhibit “B” at ¶ 32(1). One representation required to enter the agreement is: No Bankruptcy. Each Merchant represents, warrants, and covenants that as of the date of this Agreement, it does not contemplate and has not filed any petition for bankruptcy protection under Title 11of the United States Code and there has been no involuntary petition brought or pending against any Merchant. Each Merchant further warrants that it does not anticipate filing any such bankruptcy petition and it does not anticipate that an involuntary petition will be filed against it. Id. at ¶ 27. While this section applies to Defendants’ state of mind at the time of the execution of the Agreement, if Defendant were to declare bankruptcy less than six months after signing, Plaintiff could reasonably argue on that basis alone that they had “anticipated” doing so from that date or earlier. Thus, the declaration of bankruptcy could very much be used as an event of default under the MCA as it is specifically worded by Plaintiff, its sole author. Moreover, the reconciliation provision is deliberately designed to give unilateral power to Plaintiff. It holds as follows, in pertinent portion: 11. Request for Reconciliation Procedure. a. It shall be Merchant's sole responsibility and the right hereunder to initiate Reconciliation of Merchant's actual receipts during any Reconciliation Month by sending a request for reconciliation to Purchaser. b. Any such request for Reconciliation of the Merchant's weekly receipts for a specific Reconciliation Month shall be in writing, shall include a copy of Merchant's bank statement and a credit card processing statement for the Reconciliation Month at issue, and shall be received by Purchaser via email to admin@eminentfunding.com within five (5) Business Days after the last day of the 6 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 Reconciliation Month at issue (time being of the essence to the last day of the period during which such demand for reconciliation shall be received by Purchaser). c. Purchaser's receipt of Merchant's request for Reconciliation after the expiration of the five Business Days period following the last day of the Reconciliation Month for which such reconciliation is requested nullifies and makes obsolete Merchant's request for Reconciliation for that specific Reconciliation Month. (emphasis added) Id. at ¶ 11. This rule is deliberately designed to create a false reconciliation provision where the punishment for breaking any of the provisions is that no reconciliation need take place. This is especially egregious when considering that Plaintiff gives itself complete power to perform the reconciliation and dictate its decision on the matter to Defendants, without any appeal procedure. Thus, the reconciliation provision provides false protection, and is “nominal” under Fleetwood Services. Plainly speaking, Plaintiff “holds all of the cards.” Furthermore, the Agreement does, in fact, have a finite term. The Merchant is directed to provide a fixed amount of money on a daily schedule until a fixed amount of money is repaid. This clearly amounts to a finite payment term which if breached, subjects the Merchant to severe penalties and default. See Lateral Recovery LLC, et. al. v. Funderz.net, LLC d/b/a Hop Capital and d/b/a Hop Capital and d/b/a Business Merchant Funding, et.al. 2024 WL 216533 (S.D.N.Y. January 19, 2024) where the Court found the loan agreement had a de facto fixed term because the expected duration of the repayment period was readily calculable, as the merchant’s total repayment and the daily remittance amount were both known. Because each of the Principis Capital provisions are present, this Court can consider the transaction a loan, and usury applies. 7 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 The Agreement provides for daily payments of $999.93 on a principal of $40,000.00 up to a repayment total of $59,996.00 which is 60 daily payments. This means that the annual interest rate is over 500% far exceeding the 25% per year usury rate. The loan is clearly usurious. 4. The MCA Agreement is Voidable as Unconscionable As argued in the Attorney General’s Action, and pursuant to case law, a merchant cash advance agreement may be substantively unconscionable when it includes clauses such as: [a] provision giving [the cash advance issuer] the irrevocable right to withdraw money directly from [the merchant]’s bank accounts; a provision giving [the issuer] the power of attorney to act as if it were [the merchant], including collecting checks and signing invoices in [the merchant]’s name; a provision preventing [the merchant] from transferring, moving or selling the business or any assets without permission from [the issuer]; and a one-sided attorneys’ fees provision obligating [the merchant] to pay [the issuer]’s attorneys’ fees if [the issuer] won any litigation but not obligating [the issuer] to pay [the merchant]’s attorneys’ fees if [the merchant] won. . . . Fleetwood Servs., LLC v. Complete Bus. Solutions Grp., Inc., No. 2:18-cv-00268-JS, 2019 WL 5422884 (E.D.Pa. 2019) (applying Texas law). Moreover, an agreement is unconscionable when the lender “took advantage of [the merchant’s] ‘desperate financial condition’”. Id. at * 3. The Agreement herein is no doubt voidable as unconscionable. As stated by Judge Borrok in Richmond: A determination of unconscionability requires a showing that the contract was both procedurally and substantively unconscionable when made - i.e., an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party Kaufman v. Relx Inc., 211 AD3d 580, 581 (1st Dep’t 2022). Procedural unconscionability looks to the circumstances at the time the agreement was entered into, including the commercial setting, whether deceptive or high-pressured tactics were employed, whether a party had a reasonable opportunity to understand the terms of the agreement, which party drafted the contract, whether fine print was used as to material terms, whether there was an alternative for the services in question, the experience of the parties, and any disparity in bargaining power. People v. Richmond, 2021 NY Slip Op. 50975[U]. 8 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 The NY AG has proved that the MCAs are both procedurally and substantively unconscionable and not enforceable… The Predatory Lenders' advertising was geared to and targeted Borrowers who were cash strapped, could not obtain traditional funding, and who may have previously defaulted such that finding a financing source that did not look to their lending history was their only resort… Id. In the case at bar, there are a host of applicable factors which renders the Agreement unconscionable. The prevailing theme of such provisions is that Plaintiff has unilateral rights and control over Defendant with no corresponding rights for Defendant. For instance, and in pertinent portion: 32. Power of Attorney. Each Merchant and Guarantor irrevocably appoints Purchaser and its representatives as their respective agents as attorneys-in-fact with full authority to take any action or execute any instrument or document to do the following: (A) to settle all obligations due to Purchaser from any credit card processor and/or account debtor(s) of Merchant; (B) upon occurrence of an Event of Default under this Agreement, to perform any and all such obligations of Merchant under this Agreement, including without limitation (i) to obtain and adjust insurance; (ii) to collect monies due or to become due under or in respect of any of the Collateral (iii) to receive, endorse and collect any checks, notes, drafts, instruments, documents or chattel paper in connection with clause "i" or clause "ii" above; (iv) to sign Merchant's name on any invoice, bill of lading, or assignment directing customers or account debtors to make payment directly to Purchaser, (v) to initiate any ACH with any bank of Merchant to make all payments due to Purchaser; and (vi) to file any claim or take any action or institute any proceeding against Merchant and/or Guarantor which Purchaser may deem necessary for the collection of any portion of the undelivered Sold Amount of Future Receipts from the Collateral, or otherwise to enforce its rights under this Agreement. (emphasis added) 24. Attorney-in-Fact. Merchant hereby authorizes Purchaser at any time to take any action and to execute any instrument including without limitation to file one or more financing statements and/or continuation statements, to evidence and perfect the security interest created hereby and irrevocably appoints Purchaser as its true and lawful attorney-in-fact, which power of attorney shall be coupled with an interest, with full authority in the place and stead of Merchant and in the name of Merchant or otherwise, from time to time, in Purchaser's sole and absolute discretion, including without limitation (a) for the purpose of executing such statements in the name of and on behalf of Merchant, and thereafter filing any such financing and/or continuation statements and (b) to 9 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 receive, endorse, and collect all instruments made payable to Merchant. (emphasis added) 9. Read Only Access to the Approved Bank and Credit Card Accounts. Merchant hereby agrees that during the term of this Agreement Purchaser shall have the right to perform ongoing read only electronic monitoring of transactions occurring in the Approved Bank Account and Merchant's account with the Approved Credit Card Processor (the "Approved Credit Card Account"). Merchant agrees to provide Purchaser all required online access codes for the Approved Bank Account and the Approved Credit Card Account. If Purchaser's electronic (online) access to Merchant's Approved Bank Account or the Approved Credit Card Account is disabled for any reason, Merchant shall immediately and diligently undertake all steps required from it to restore Purchaser's access to both the Approved Bank Account and Approved Credit Card Account. Merchant's failure to comply with the provisions of this Section 8 shall constitute Merchant's material breach of its obligations under this Agreement. (emphasis added) 48. Assignment. Purchaser may assign, transfer or sell its rights or delegate its duties hereunder, either in whole or in part without prior notice to the Merchant or the Guarantor. Neither Merchant nor Guarantor shall have the right to assign their respective rights or obligations under this Agreement without first obtaining Purchaser's written consent. (emphasis added) Exhibit “B”. A scenario where a Defendant is contractually obligated to appoint Plaintiff as Attorney- in-Fact “with full authority to take any action or execute any instrument or document” or where the Plaintiff has the right to freely assign its rights under the Agreement and a defendant must obtain the Plaintiff’s permission, are clear examples of the unbridled control the Plaintiff has over the Defendant under the MCA. The Merchant Cash Advance industry’s high-pressure sales tactics and misleading characterization of Merchant Cash Advance contracts’ terms make such contracts ordinarily procedurally unconscionable. For these reasons, a meritorious defense exists that the agreement is unconscionable. For these reasons, the judgment should be vacated under CPLR § 317. 10 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 II. THE DEFAULT JUDGMENT SHOULD BE VACATED AND THE ACTION SHOULD BE DISMISSED IN ACCORDANCE WITH CPLR § 5015(a)(4) Plaintiff claims that it served Plaintiff in accordance with the terms of the MCA. As detailed above in Section I and in Defendant’s concurrently filed affidavit, Defendant never received actual notice of the Action. Bilotti Aff. at ¶¶ 2-6. Defendant never signed the MCA, and therefore he never consented to service in accordance with its terms. Accordingly, Plaintiff was not served and the court has no jurisdiction over him in this case. “The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of … lack of jurisdiction to render the judgment or order.” CPLR § 5015(a)(4). “CPLR § 5015(a)(4) is available for any defendant against whom a default judgment was entered, provided the defendant can demonstrate that the court lacked jurisdiction over him to render the judgment or order.” Caba v. Rai, 63 A.D.3d 578, 580 (1st Dep’t 2009). Strict compliance with all the service dictates of the service of process statutes is required in order to obtain jurisdiction, and it is a plaintiff’s burden to establish that service was properly effectuated. Persaud v. Teaneck Nursing Center, Inc., 290 A.D.2d 350, 351 (1st Dep’t 2002). A defendant’s subsequent receipt of actual notice of a lawsuit will not cure a defect of service or confer jurisdiction of the court. See Raschel v. Rish, 68 NY2d 694, (3d Dep’t 1992); Feinstein v. Bergner, 48 N.Y.2d 234, (2d Dep’t 1979). Failure to effectuate proper service upon a defendant divests the court of jurisdiction. U.S. Bank NA v. Roque, 172 A.D.3d 948, 949 (2d Dep’t 2019); Deutsche Bank National Trust Co. v. Acevedo, 157 A.D.3d 859, 860 (2d Dep’t 2018). When the propriety of service is challenged, the Court must rule on that matter before any other. “If … the court finds that service was improper, then it must grant defendant’s motion to vacate the default judgment pursuant to CPLR 5015(a)(4) 11 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 and dismiss the action.” Noah Bank v. Hudson Produce, Inc., 161 A.D.3d 573, 574 (1st Dep’t 2018); Cipriano v. Hank, 197 A.D.2d 295, 298 (1st Dep’t 1994). The failure to serve process in an action leaves the court without personal jurisdiction over the defendant, rendering all subsequent proceedings null and void. Rockman v. Nassau County Sheriff’s Department, 2024 WL 592577 (2d Dep’t 2024); Yoo v. Good Clean Fun, 222 A.D.3d 793 (2d Dep’t 2023); Wells Fargo Bank NA v. Spaulding, 117 A.D.3d 817 (2d Dep’t 2019). Plaintiff’s claims that it served Plaintiff in accordance with the terms of the MCA are irrelevant because Defendant never signed the MCA and was never a party to it. Accordingly, he never consented to service in accordance with its terms. Therefore, Plaintiff was not served and the court has no jurisdiction over him in this case. In the alternative, Plaintiff has failed to demonstrate that it engaged in any action that could be construed as providing notice or as constituting service to any party. Specifically, it has failed to show that it mailed the relevant documents to any party, including Defendant. Proof of proper mailing requires proof of the actual mailing or recitation of proof of a standard office practice or procedure to ensure the items are properly addressed and mailed. Tracy v. William Penn Life Insurance Company, 234 A.D.2d 745 (2d Dep’t 1996). Plaintiff has not provided such proof. In the alternative, Plaintiff fails to effectuate service even in accordance with the terms indicated in the MCA, assuming that that document has any force, which it does not. The MCA states in pertinent part: All notices, requests, consents, demands, and other communications hereunder shall be delivered by certified mail, return receipt requested, or by overnight delivery with signature confirmation to the respective parties to this Agreement at their addresses set forth in this Agreement and shall become effective only upon receipt. Written notice may also be given to any Merchant or Guarantor by e-mail to the E-mail Address listed on the first page of this Agreement or by text message to the Phone Number listed on the first page of this Agreement if that phone number is for a mobile phone. Each Merchant must set its spam or junk mail filter to accept 12 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 e-mails sent by info@slateadvance.com and its domain. This Section is not applicable to service of process or notices in any legal proceedings. Exhibit “B” at ¶ 35. The MCA further states, “Merchant and Guarantor hereby agree that the mailing of any summons and complaint in any proceeding commenced by Purchaser by certified or registered mail, return receipt requested to the Company Address listed in the Merchant Information, or the Guarantor Information herein, or any other process required by any such court will constitute valid and lawful service of process against Merchant…” Exhibit “B” at ¶ 53. The MCA Agreement does not say “the initiation of a mailing, before mailing is fully complete.” Instead, the MCA says “the mailing,” in words deliberately chosen by Plaintiff, the MCA’s sole drafter. Under the MCA, until the mailing is not completed, service has not been effectuated. There is insufficient evidence that it was completed in this case. As Defendant Bilotti was never a party to the MCA and was never served, this Court lacks personal jurisdiction over him. As such, the resulting proceedings, including the default judgment, should be rendered null and void. This Court should therefore dismiss the Action and vacate the Judgment, or in the alternative, grant Defendant the opportunity to file an Answer. III. THE JUDGMENT SHOULD BE VACATED BASED UPON CPLR § 5015(a)(1) GROUNDS “The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry.” CPLR § 5015(a)(1). A party seeking to vacate a default under this section must “demonstrate a reasonable excuse for his 13 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 default in opposing an application and to demonstrate the existence of a potentially meritorious defense to that application.” Proctor-Shields v. Shields, 74 A.D.3d 1347, 1348 (2d Dep’t 2010); Wells Fargo Bank, N.A. v. Besemer, 131 A.D.3d 1047, 1049 (2d Dep’t 2015); Cummings v. Rosoff, 101 A.D.3d 713, 714 (2d Dep’t 2012). The entry of a default judgment is a “drastic remedy” that should not be granted when there is “a short, nonprejudicial delay and an arguably meritorious defense.” Scott v. Allstate Ins. Co., 124 AD2d 481, 484 (1st Dep’t 1986). As demonstrated below, Defendant has met this standard. A. Defendant Bilotti Has a Reasonable Excuse for his Default “Whether there is a reasonable excuse for a default is a discretionary, sui generis determination to be made by the court based on all relevant factors, including the extent of the delay, whether there has been prejudice to the opposing party, whether there has been willfulness, and the strong public policy in favor of resolving cases on the merits. Harcztark v. Drive Variety, Inc., 21 A.D.3d 876, 876-77 (2d Dep’t 2005); Orwell Building Corp. v. Bessaha, 5 A.D.3d 573, 574 (2d Dep’t 2004). “When a default judgment based upon nonappearance is sought against a natural person in an action based upon nonpayment of a contractual obligation an affidavit shall be submitted that additional notice has been given by or on behalf of the plaintiff at least twenty days before the entry of such judgment, by mailing a copy of the summons by first-class mail to the defendant at his place of residence in an envelope bearing the legend ‘personal and confidential’ and not indicating on the outside of the envelope that the communication is from an attorney or concerns an alleged debt.” CPLR § 3215(g)(3)(i). 14 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 Here, Bilotti did not actually receive service of process or the Notice of Entry of the Judgment. He only found out about the subject Action when his bank account was restrained in March 12, 2024. He then expeditiously retained the undersigned counsel, who filed this order to show cause. Bilotti Aff. at ¶¶ 2-4. Although the Affidavit of Service notes that mailing was sent to the same address as on the MCA (Exhibits “B” at p. 1 and “C”), 257 Simarano Drive, Marlborough, MA 01752 is not Defendant’s address. Defendant was residing at 815 East Ellsworth Avenue 204, Denver, CO 80218 from March 11, 2023, up until March 31, 2024. Exhibit “D”. Bilotti Aff. at ¶ 6. Plaintiff herein fails to offer proof that the Judgment was served with Notice of Entry. The Summons and Complaint was served on the wrong address. Regardless of whether service met the technical requirements of the MCA, the papers never actually reached Defendant. Bilotti Aff. at ¶ 7. Therefore, Defendant has a reasonable excuse and did not waste any time in attempting to vacate the Judgment as soon as he became aware of it. B. Defendant Has Several Meritorious Defenses to the Action The ‘meritorious defense’ requirement does not present a particularly high barrier.” Brookdale Hosp. Med. Ctr. v. Lewis, 2005 N.Y. Slip. Op. 51200(U) (Civ. Ct. Kings Cnty. 2005). “The defendant need not necessarily present admissible evidence of the type required on a motion for summary judgment.” Brookdale, 2005 N.Y. Slip. Op. 51200(U), citing Goldman v. City of New York, 287 A.D.2d 482, 483-84 (2d Dep’t 2001). “The quantum of proof required is not as great as is required to oppose summary judgment.” Brookdale, 2005 N.Y. Slip. Op. 51200(U), citing Clark v. MGM Textiles Industries, Inc., 307 A.D.2d 520, 521 (3d Dep’t 2003). 15 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 Defendant directs the Court’s attention to the fact that, to meet this standard, a defendant need only raise a potentially meritorious defense. A movant need not reach a successful ultimate resolution of the entire case in an Order to Show Cause; rather, he must only establish that, should the judgment be vacated, there would exist one or more issues ripe for litigation. As demonstrated above in Section I(B), Defendant Bilotti has more than met this standard. IV. THE JUDGMENT SHOULD BE VACATED UNDER THE INHERENT POWERS OF THE COURT IMPLICIT IN CPLR § 5015(a) “Under CPLR 5015(a), a court is empowered to vacate a default judgment for several reasons, including excusable neglect; newly-discovered evidence; fraud, misrepresentation or other misconduct by an adverse party; lack of jurisdiction; or upon the reversal, modification or vacatur of a prior order. These categories represent a codification of the principal grounds upon which courts have traditionally vacated default judgments as part of their ‘inherent discretionary power’ … It thus follows that section 5015 (a) does not provide an exhaustive list as to when a default judgment may be vacated. Indeed, the drafters of that provision intended that courts retain and exercise their inherent discretionary power in situations that warranted vacatur but which the drafters could not easily foresee.” Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 68 (2003); Wansdown Props. Corp., N.V. v Azari, 165 A.D.3d 537, 538 (1st Dep’t 2018). “In addition to the grounds set forth in section 5015(a), a court may vacate its own judgment for sufficient reason and in the interests of substantial justice.” Woodson, 100 N.Y.2d at 68; Matter of Arici v. Scharf, 195 A.D.3d 925, 926 (2d Dep’t 2021). Defendant never signed the Agreement and never consented to it in any way. He has been dragged into this action solely on the basis of Company Defendant’s fraudulent entry of his name 16 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 into the MCA. Because of the fraud underlying his inclusion in the case, he had no notice of the action. If the Court were to find that Defendant’s CPLR-based defenses are not viable due to some technicality, the Court should act within its inherent power to vacate the unjust judgment against Defendant. Other considerations of fairness and justice also support such a determination. Specifically, because Defendant has not yet had the opportunity to be heard on this matter, in accordance New York courts’ preference for resolutions on the merits, and because of the relatively brief delay between when Defendant found out about the judgment and when he took action on it, this Court should vacate the judgment in the interest of substantial justice, and this Court should grant any other relief it deems just and proper. V. AS THE JUDGMENT IS VOID, THE ACTION SHOULD BE DISMISSED PURSUANT TO CPLR § 3211(a)(1) The default judgment against Defendant was predicated on the notion that Defendant Bilotti signed the MCA. He did not, as proven by ample documentary evidence. First, Defendant separated from Company Defendant in March of 2022. The MCA and Stipulation of Settlement at issue in the Action were purportedly executed on October 25, 2023 (Exhibit “B” at p. 1), and February 29, 2024 (Exhibit “E” at p. 1), respectively. Those dates of execution are far later than the Effective Date of the Defendant’s Separation Agreement that ended his relationship with Company Defendant (Exhibit “H” at p. 1). Second, the MCA and Stipulation of Settlement appear to have been signed via DocuSign, an application which records information about when and how documents are electronically 17 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 signed. However, Defendant’s DocuSign history does not show any of these documents being executed. Exhibit “I”, generally. Lastly, there exists a Police Report from Defendant – which was filed as soon as he found out that his bank account was restrained – detailing that he does not and has never heard of Plaintiff. Exhibit “G”. “A party may move for judgment dismissing one or more causes of action against him on the ground that a defense is founded upon documentary evidence.” CPLR § 3211(a)(1). A motion to dismiss pursuant to CPLR § 3211(a)(1) will be granted only if the “documentary evidence resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim.” Fontanetta v. Doe, 73 A.D.3d 78, 83 (2d Dep’t 2010). “[T]o be considered ‘documentary, ‘evidence must be unambiguous and of undisputed authenticity.” Id. at 86. “In order for evidence submitted in support of a CPLR 3211 (a)(1) motion to qualify as ‘documentary evidence,’ it must be ‘unambiguous, authentic, and undeniable.’ Judicial records, as well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the contents of which are essentially undeniable, would qualify as documentary evidence in the proper case. At the same time, neither affidavits, deposition testimony, nor letters are considered documentary evidence within the intendment of CPLR 321l(a)(l).” (Attias v. Costiera, 120 A.D.3d 1281 [2d Dept 2014] [internal citations and quotation marks omitted]; cf. Amsterdam Hospitality Group, LLC v. Marshall-Alan Associates, Inc., 120 A.D.3d 431 [1 51 Dept 2014][correspondence, including emails, are considered documentary evidence if they meet the “essentially undeniable” test])”. In this Action, two factual issues had erroneously been inferred to be in support of the granting of the Judgment against Defendant Bilotti – the alleged execution and default of the MCA 18 of 22 FILED: KINGS COUNTY CLERK 07/03/2024 12:02 PM INDEX NO. 505984/2024 NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 07/03/2024 (Exhibit “B”) and the alleged default of the Stipulation of Settlement (Exhibit “E”). The case against Defendant hinged upon these false inferences. However, these documents had not, in fact, been executed by Defendant. Billotti Aff. at ¶ 9-10. Upon the documentary evidence accompanying this Order to Show Cause, the judgment should be vacated and the action dismissed on the grounds of CPLR 3211(a)(1). VI. THIS COURT SHOULD GRANT A TEMPORARY RESTRAINING ORDER “A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had.” CPLR § 6301. “Any application for temporary injunctive relief, including but not limited to a motion for a stay or a temporary restraining order, shall contain … [an] affirmation [to] demonstrate that a good faith effort has been made to notify the party against whom the temporary restraining order is sought of the time, date and place that the application will be made in a manner sufficient to permit the party an opportunity to appear in response to the application.” 22 NYCRR 202.7(f). Here, D