Zomongo.TV USA Inc. v. Capital Advance Servs., LLC

2024 NY Slip Op 33872(U)

Opinion

Zomongo.TV USA Inc. v Capital Advance Servs., LLC 2024 NY Slip Op 33872(U) October 29, 2024 Supreme Court, Kings County Docket Number: Index No. 512735/2021 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. FILED: KINGS COUNTY CLERK 10/29/2024 01:27 PM INDEX NO. 512735/2021 NYSCEF DOC. NO. 358 RECEIVED NYSCEF: 10/29/2024

SUPREME COURT OF TI-IE STA'l'E OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL 8 .-- .---- ·--. ---·----------·---------- .. ----.. -x ZOMONGO.TV USA INC. D/B/A ZOMONGO.TV USA, JOCELYNE LISA HUGHES-OSTROWSKI and JEREMY GENE OSTROWSKI, Plaintiffs, Decision and order

- against - Index No. 512735/2021

CA.PITAL ADVANCE SERVICES,· LLC , .

Defendant, . October 29., 2024 ----------- ----- ----- ---- -------------x PRESENT: HON. LEON RUCHELSMAN Motion Seq. #13

The plaintiff has moved pursuant to CPLR §2221 seeking to

.reargue a decision and orde.t dated May 14, 2024 which denied the

plaintiff's motion seeking to amend the complaint to add causes

.of action for: trespass, conversion, and RICO claims. The

defendant has opposed the motion. Papers were submitted by the

parties and arguments held. After reviewing all the arguments

this Court rtow makes the following determination.

The facts have been adequately·recorded in prior orders and

need not be repeated here.

Concltisions of Law

A motion to rea:rgue must be based upon the fact the court

overlooked o.r misapprehended fa.ct or law Or for some other reason

mistakenly arrived at in its earlier decision (Deutsche Bank National Trust Co. • v. Russo, 170 AD3d 952, 96 NYS3d 61.7 [2d

Dept. i 2019] ) .

The. plaintiff asse.rts tll.e court Irtisapprehended the law

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concerning the meaning of an enterprise for :RICO purposes.. A

RICO enterprise "includes any individucl.1, partnership,

corporation, association; or other legal entity, and ahy union or

group of individuals associated in fact although not a legal

erttJ..ty" (18 USC §1961(4}), A RICO enterprise "must have at least

three structural features:. a purpose, r;elationships among those

associated with the e·nte.rprise, and longevity sufficient to

permit these a$sociates to pursue t:he enterprise's purpose"

(Boyle v. U. s., 556 us 938, 129 S .Ct. 2237 [2009]) .

Further, the RICO statute, §1962(c} describes the

culpability of a 'person' conducting the affairs of the

'enterprise', clearing indicating they are two distinct entities

(DeFalco v. Bernas, 244 F3d 286 2d Cir. 2001]). This

distinctness requirement means "a corporate entity may not be

both the RICO person and the RICO enterprise under section

19 62 (c) ~, ( Riverwoods Chappagua Corporation v. Marine Midland

Bank, N. A., 3:0 F3d 339 [2d cir. 1994 J l .

In Anglirt Automotive .LLC v. EBF Holdings LLC, 2024 WL

1118892 [S.D.N.Y. 2024.] the court rejected RICO claims against a

merchant cash funder similar to the allegations herein. The

court explained that

"it is plain on the face. of these allegations tii.at .each of these wer1.terprises 11 is nothing more thari the respective MCA-Funder Defendant . .Each 1\enterprise'' consists merely of a: corporate d$fertdant and its corresponding J;ohn and; Jane Doe owners, employees, and investors; See DeFazio v. Wallis, 500 F.. $upp. ::2d

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197j 209 ·(E.D.N.Y. 2007) (finding that the distin~tiveness requirement was not met· where the plaintiffs describecl the RICO enterprise as the corporate defendant and named individuals alleged to be owners, officers, and shareholders of the corporate defendant and/or its affiliates). And these John and Jane Doe Defendants are merely allege<:l to be "carrying on the regular a:f fa: ir s" of the respective MCA- Funder Defendant • Riverwoods Chappaqua Corp;, 30 F.3d at 344. Indeed, Plaintiffs assert that the MCA~Funder Defendants regularly disguise usurious loan agreements as bona fide merchant cash advance agreements to collect unlawful oebts, see, e.g., id. 'TI'TI 26, 86, 158, and further allege that the John and Jane Doe Defendants undertake the steps required to effectuate that aim, see id. 'TI 158. Nothing in the Complaint suggests that the John and Jane Doe Defendants, in setting up these agreements and collecting the resultant debts, acted beyond "the regular affairs of the corpo_ration. '1 See Riverwoods Chappaqua Corp., 30 F.3d at 344 (discussing with approval Atkinson v. Anadarko Bank & Trust Co., 808 F.2d 438, 440-41 (5th Ci:t. 1987), in which the Fifth Circuit foUhd that the plaintiffs failed to meet the distinctness requirement in alleging an association-in-fact comprised of a bank, its holding company, and its employees, given the absence of any evidence that they "were associated in :3ny manner apart from the _ activities of the bank"); Reed Const. Data Inc. v. McGraw-Hill Cos.i Inc., 745 F. Supp. 2d 343, 352 (S.D.N.Y. 2010) (explaining in the context of the distinctness requirement that where the corporate defendant's agents are alleged to participate in the very racketeering activity alleged to constitute the corporate defendant's "regular way of conducting" its business, the agents' conduct cannot be considereo as occurrir1g ''beyond the regular affairs of the corporation"). The Court thus finds that Plaintiffs have failed to plead a distinct enterprise" (id).

In this case the proposed amended complaint does riot allege anything other than the corporate defendants and their owners,

officers or investors. The proposed amended complaint does

assert that defendant Davis and the John arid Jane Doe investors

'\are pe.tsons that exist separate and distinct from the

Enterpris e'i: ( .§.§§, Propos.ed Amended Comp la_int,

No~ 191]) howeve_r the remainder of the proposed amended complaint

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belies that legal requirement. The proposed amended complaint

asserts that "Yellowstone" is the parent company of the

defendants Capital Advance Services LLC and HFH Merchant Services

LLC and that defendant Davis has an ownership interest in

Yellowstone (see, Proposed Amended Complaint, g('.I[ 1;348,357

[NYSCEF Doc. No. 191] ) . Paragraph 34 9 of the proposed amended

complaint states that \\through his operation of Yellowstone, the RICO Persons solicit, underwrite, fund, service and Collect upon

lawful debt incurred by small businesses in states that do

not have usury laws" (id), The next paragraph of the. proposed

amended complaint asserts that "Yellowstone, HFH, and CAS

constitute an Enterprise (the "Enterprise") within the meaning of

18 U. s. c. §§ 1961 ( 4) and 1962 (C)" (see; Proposed Amended

Complaint,

complaint does state that "Yellowstone is organized under the

laws of New York and maintains officers, books, records, and bank

accounts independent of Davis, the Investors, HFH, and CAS.

HFH and CAS are wholly owned and controlled by Yellowstone" (:see,

Proposied Amended Complaint, 1372 [NY.SCEF Doc. No,. l91]) .

However, Yellowstone, or any corporation fOr that matter, cannot

possibly maintain books and records that are independerit of its

owners (cf., New Y-Capp v. Arch Capital Funding LLG, 2022 WL

48.13962 [S.D.N.Y. 202.2]). Thus, t:he proposed amended complaint

cannot assert that riavis owns YEillowstone and "in .his capacity as

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the day-to-day funder of the Enterprise, Davis was responsible

for creating, approving and implementing the policies, practices

and instrumentalities used by the Enterprise to accomplish its

common goals and purposes including: (i) the form of merchant

agreements used by the Enterprise to attempt to disguise the

unlawful loans as receivable purchase agreements to avoid

applicab:le usury laws and conceal the Enterprise's collection of

an unlawful debt; (iL) the method of collecting the daily

payments via ACH withdrawals; (iii J form Affidavits of Confession

used by the Enterprise to collect upon.the unlawful debt if the

borrower defaults upon its obligations, and (iv) providing sworn

testimony for enforcement of the unlawful debts and entry of

judgment'' (see, Proposed Amended Complaint, Sl.358 [NYSCEF Doc. No.

191 J) and then assert that the books of Ye,llowstone are

independent of Davis. Thus, there is absolutely no

distinctiveness between the persons and the enterprise itself.

Further, there can be no conspiracy to commit RICO i:f the

substantive RICO claims are deficient (™, Havmount Urgent Car.e

PC v. GoFund Advance LLC, 690 F.Supp3d 167 [S.D.N.Y. 2023, Nygard

v. Bacon, 2021 WL 431 2581 [S.D,N.Y. 2021]).

Therefore, based on the foregoing, tne motion seek_ing

reaigument to plead RICO cla.ims is denied. Turning -i:o the next i.ssue, th.e. court de.nied the requE!st to

amertd the complaint to a.ssert causes of action for trespass and

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conversion holding that GPLR §5240 wa:·s the exclusive remedy based

upon an improper levy. Upon reargument the plaintiff asserts the

causes of action alleged seeking trespass and conversion were

really causes of action to recover attorney's fees and pre and

post judgement interest respectively,

First, in another action between the parties the court held

that Zomongo's request for attorney's fees making the motion

required a plenary action (see, Decision dated May 4, 2022 in

Capital Advance Services LLC -V-, Zomongo. TV USA Inc., et aL.,

Index Number 1229/2018, page 6 [NYSCEF Doc. No. 81]). That

directive, which was limited to fees for making a motion has

nothing to db with the proposed amendments sbught here which seek

far ;greater relief,'namely defending a wrongful atta,chment.

Further, to the extent the relief is the same, this action was

filed on May 26, 2021, more than a year prior to the decision

requiring Zomongo to file a plenary action. Thus, this lawsuit

cannot serve as that plenary action since it existed prior to the

mandate that such plenary action be filed. Moreover, i t is

curious Zornongo waited almost two years after the court

instructed Zomongo tb file a plenary action seeking such

attorney's fees.' More importantly, the cause of action seeking

attorn,ey's fees in the proposed amended complaint is designated as one for trespass. The plaintiff agrees th~t nq tprt claims i:::an arise froi;n. an invali.d levy .and the plaintiff must resort to

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remedies pursuant to CPLR §5240. Thus, the trespass cause of

action contains eight paragraphs which describe that a trespass

occurred upon the levy being declared void. Paragraph 313 of the

proposed amended complaint does assert that "reasonable counsel

fees incurred or expended in defending against a wrongful

attachment are recoverable" ( ~ , Proposed Amended Complaint,

'1[313 [NYSCEF Doc. No. 191]}. Howevert that s,ing1e sentence in a

much larger claim asserting trespa$s cannot transform the cause

of action to one seeking attorney's fees. Thus, if the claim was

simply for attorney's fee$ the pleading should reflect such

straightforward re.lief. The plaintiff has not explained why it

seeks at.torney' s fees under an umbrella of improper trespass

claims.

Likewise, concerning the claim for conversion the plaintiff

asserts it is merely seeking interest lcist as a result of the

improper levy. However, conversion is defined as ''the value of

the property at the time and place of conversion, plus interest"

(Fanti s Foods Inc , , v. Starida rd Importing .Company Inc .. , 4 9 NY2d

317, 425 NYS2d 783 [1980]). Thus, the tort of cOnversibn that is

foreclosed by the remedy provided in CPLR §5240 similarly

forecloses any telief seeking interest .

.In addition:~ Plymouth Venture Partners, II, LP v. GTR

Source,. LLC~ J7 NY3d 591, 163 NYS3d 467 [2021] specifically

stated that an "article 52 proceeding is. the correct vehicle for

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resolving claims based on collection efforts that are alleged to

violate article 52'' (id). The plaintiff insists that is true,•

however, not exhaustive, and once an Article 52 hearing has been

concluded the plaintiff is free to pursue tort claims. However,

Plymouth expressly rejected that approach. Plymouth held that

whenever there were violations of the procedural requirements of

Article 52 then Article 52 was the exclusive vehicle seeking relief, The court explained that "permitting an action based

solely bn the violation of requirements established by article 52

to proceed outside the mechanisms provided by article 52 would be

inconsistent with the relevant statutory frameworku (id). That

remains true whether the other ciaims are sought before or after

Article 52 remedies are achieveq., Indeed, the timing of the

other claims sought is really irrelevant. The court in Plymouth

did leave open the possibility for tort claims but only when

those were claims outside violations of the procedures of Article

52 (see, Plymouth, supra, Footnote 10) . Where, as here, there

are no s.uch allegations; then Article 52 remains the exclusive

remedy.

The plaintiff may pursue claims for attorney's fee.s if

appropriate with a properly pled complaint in a plenary action.

The merits of such a claim is not present1y before_ the.- court.

The c.laims that are pled, are insufficient to ass.ert attorney's

fees.

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Cons.equently, the motion seeking reargurri.ent is denied in all

respects.

So ordered.

ENTER:

DATED: October 29, 2024 Brooklyn N.Y. Hon. Leon Ruchelsmari JSC

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