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United States District Court, S.D. New York

April 23, 2004.


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge


Plaintiff American Equities Group, Inc. ("AEG") and defendants Ahava Dairy Products Corporation ("Ahava"), Lewis County Dairy Corporation ("Lewis County Dairy"), Ahava Food Corporation ("AFC") and Moise Banayan ("Banayan") have each moved for summary judgment pursuant to Federal Rule of Civil Procedure 56(b). For the reasons set forth below, both motions are denied.


  AEG is a corporation organized and existing pursuant to the laws of the State of New York. Its current principal place of business is in New York, as it was when AEG filed a voluntary petition for bankruptcy on November 21, 2000. When AEG commenced contractual relations with Ahava, its principal place of business was in Wayne, New Jersey. AEG does business as a financial services company engaged principally in the business of accounts receivable factoring.

  Ahava is a corporation organized and existing pursuant to the laws of the State of New York, with its principal place of business in Brooklyn, New York, engaged in the sale of dairy products. Lewis County Dairy is a corporation organized and existing pursuant to the laws of the State of New York, with its principal place of business in the Lowville, New York.

  AFC is a corporation organized and existing pursuant to the laws of the State of New York, with its principal place of business in Brooklyn, New York.

  Banayan is a resident of the State of New York, and is President of Ahava, Lewis Dairy and AFC.

 Prior Proceedings

  On November 21, 2000, AEG filed a voluntary petition for relief under Chapter 11, Title 11, United States Code (the "Bankruptcy Code") and is continuing to operate its business and manage its property as a debtor-in-possession.

  On April 17, 2001, AEG commenced an adversary proceeding against Ahava, Lewis County Dairy and Banayan to recover an account balance of over $8 million arising out of a Master Purchase & Sale Agreement of November 6, 1996 (the "Agreement") to provide factoring of Ahava's accounts. A factoring agreement is an "agreement to convert receivables into cash by selling them at a discount." E. Armata Bank, Inc. v. Korea Commercial Bank of New York, 361 F.3d 100, 110 (2d Cir. 2004) (internal quotations omitted).

  On September 27, 2001, the motion by defendants to withdraw the adversary proceeding in Bankruptcy Court was granted, and defendants' motion to transfer this case to the District of New Jersey was denied. See American Equities Group, Inc. v. Ahava Dairy Products Corp., 01 Civ. 5207, 2001 WL 1143188 (S.D.N.Y. Sept. 27, 2001).

  Following discovery, both plaintiff and defendants filed simultaneous motions for summary judgment on January 12, 2004. After submission of briefs, oral argument was heard on the motions on February 11, 2004, at which time the motions were deemed fully submitted.


  The following facts are taken from the parties' Rule 56.1 statements, the responses to those statements, and the briefs. Factual disputes are noted. As required, the facts are construed in the light most favorable to the non-movant, as applicable. They do not constitute findings of fact by the Court.

  Other than the actual wording of the relevant contracts, virtually every aspect of the relationship between the parties is disputed. AEG contends that the Agreement was generally followed properly by both parties, except that Ahava fell behind on its obligations to AEG, ultimately owing AEG millions of dollars. Ahava, by contrast, argues that the Agreement was not followed from the start, and resembled not a factoring agreement but a criminally usurious loan.

  As mentioned above, the parties entered into the Agreement on November 6, 1996. The Agreement specifies that it, along with


all transactions occurring hereunder shall be deemed made in and governed by and construed in accordance with the laws of the State of New Jersey, except as to the application of the New York Uniform Commercial Code, without regard to the principles of conflict of law.
Agreement, ¶ 9 (in all capitals in original). The Agreement also contains a provision waiving any right Ahava may have to a jury trial. Id., ¶ 10. On the same date, Lewis County Dairy and Banayan executed an absolute and unconditional guaranty (the "Guaranty") of payment for all of Ahava's contractual obligations under the Agreement.

  The Agreement provided that AEG would purchase the account receivables of Ahava and advance Ahava, pursuant to a formula set forth in the Agreement, 55% to 75% of the net outstanding value of the receivables, less any management, service, discount and overdraft fees.

  Immediately following the signing of the Agreement, the parties executed a supplemental letter agreement (the "Letter Agreement"). The Letter Agreement permitted Ahava "to collect any amounts owed by customers whether prepay, COD or payments on account and to deposit said moneys in a bank account designated and owned solely by AEG (the "AEG Collection Account')." Further, Ahava agreed "to provide its reasonable commercial best efforts in collecting, excluding litigation, and depositing promptly into the AEG Collection Account all outstanding consumer debts."

 AEG's Claims

  Pursuant to the Letter Agreement, Ahava did its own collections of receivables from its customer and deposited the proceeds into a bank account at Republic Bank maintained under the exclusive control of AEG (the "DBA Account"). Ahava could not make any withdrawals out of the DBA Account. Ahava would report the information about the account receivables it had collected in a regular or weekly submission of customer sales reports. AEG contends that the receivables were purchased by AEG pursuant to the Agreement, that the purchase of a group of receivables was referred to as a "pool," and that AEG subsequently advanced funds to Ahava based on the purchasing of the account receivable pools. Ahava disputes this account, referring to the advance of funds by AEG as a loan, and contending that the pools were held by AEG as collateral. According to AEG, however, it did loan Ahava additional monies via credit line arrangements and term loan arrangements, but those began some time in 1998 and continued through December 2000.

  The Agreement's initial term expired on November 6, 1997. AEG contends that the term expired with a balance due of over $4 million. Ahava contends that the numbers are drawn from the Summary of Ahava's Account, which is an inaccurate document. AEG and Ahava agreed to continue their contractual relationship and to extend the Agreement through November 2000. AEG contends that from November 1997 through November 2000, the parties continued their contractual relationship in accordance with the terms of the Agreement. During this time, AEG claims that it advanced millions of dollars to Ahava, and that Ahava was obligated to continue depositing its collected accounts receivables and related fees into a collection account set up by Ahava for the benefit of AEG. Ahava denies this, stating that the terms of the Agreement were not followed from the very beginning.

  AEG contends that it performed its obligations under the Agreement, but that Ahava fell behind on its payment obligations. Ahava denies that it fell behind on its payment obligations, and contends that AEG failed to perform its obligations under the Agreement. AEG contends that at no time prior to the commencement of this litigation did Ahava give notice of non-acceptance of any of the advanced monies or dispute the money or fees assessed to Ahava.

  According to AEG, by December 2000 Ahava breached its payment obligations under the Agreement by failing to deposit all of the account receivables it collected into the collection account, leaving an outstanding balance due to AEG of over $8 million. AEG alleges that in total, Ahava paid only $35,271,338 of the $43,353,157 owed to AEG. AEG states that as of late 2000 Ahava has made no payments to AEG on the outstanding balance. Ahava disputes this, stating that there was no funding to Ahava from AEG in 2000, and thus no obligation to pay AEG. Further, Ahava alleges that the Book Account is an unreliable document, and that approximately $8.7 million of payments by Ahava were not recorded.

  On December 20, 2000, pursuant to the Agreement, AEG gave notice of default to Ahava. Ahava acknowledges receiving the default notice from AEG, but denies that it was sent pursuant to the Agreement, because it denies that it owed AEG anything.

  AEG states that it was advised by Ahava that it was unwilling to pay its outstanding payment obligations under the Agreement and that Ahava would shortly no longer be in business. AEG also alleges that Ahava is undercapitalized, as that term is generally construed. Ahava argues that these statements are inadmissible under Fed.R. Evidence 408 because they were made in the context of settlement negotiations.

  AEG states, and Ahava does not deny, that at no time prior to the commencement of this lawsuit did Ahava give notice of non-acceptance of any of the monies advanced to Ahava.

 Ahava's Alleged Alter Egos

  AEG claims that Ahava, Lewis County Dairy and AFC are alter egos of each other, and that Ahava and AFC share the same (i) post office boxes, (ii) office space, (iii) telephone and facsimile numbers, (iv) officers, directors and personnel; (v) customers; and (vi) plant and equipment. Ahava disputes this and states that Ahava and AFC have different post office boxes, offices, and telephone and facsimile numbers.

  As to the shareholders, Ahava states that when AFC was formed in 1999, Banayan, Ruben Beityakov, Farrojollah Banayan, and Yossi Banayan were each 25% shareholders. Later, after AFC received a $7.1 million loan from New York City's Economic Development Corporation ("EDC"), Banayan was forced to take a second and third mortgage on his home in order to support AFC, which none of the other shareholders were willing to do. Banayan thereby became AFC's sole shareholder. AFC's funding comes virtually exclusively from EDC, and AFC did not use any of Ahava's assets as seed money.

  Ahava also states that while Ahava never employed more than 31 people, AFC employs nearly 60 people. Ahava also states that the customers of Ahava and AFC are not the same. Ahava distributed only dairy products, while AFC distributes a variety of Israeli salads, Canadian juices, imported cheeses, meats and fish.

  AFC's customer base is larger and more diverse than Ahava's. Ahava notes that AFC has made millions of dollars in purchases of food products from various companies, while Ahava makes no purchases from those companies. Finally, Ahava and AFC distribute their products from different Brooklyn locations.

  AEG alleges that Ahava receives and has received payment from customers for amounts owed under invoices sent by AFC. Ahava disputes this, although it acknowledges that years ago, monies due and owing were occasionally sent to AFC. Ahava maintains that this was a rare occurrence which has not been repeated in years.

  AEG also claims that Ahava and AFC have intermingled corporate funds and have not maintained or observed corporate formalities. Ahava denies that funds were ever intermingled. Ahava also notes that in addition to the differences already listed, the two entities have different banking relationships. Ahava did its banking at Republic Bank and later HSBC and the Bank of Utica, while AFC banks at Commerce Bank and Staten Island Bank. Further, Ahava only functioned as a distributorship, while AFC is also a manufacturer.

  AEG alleges that on or about July 1, 2000, AFC assumed from Ahava Dairy the exclusive right to distribute the products of Lewis County Dairy, without giving an explanation or notice to AEG. Ahava denies that either Ahava or AFC ever had the right to be an exclusive distributor of Lewis County Dairy. Ahava further states that AFC never took over any business from Ahava.

  AEG states, and Ahava does not deny, that Ahava, AFC and Lewis County Dairy all use the same accountant, and that Lewis County Dairy and Banayan guaranteed Ahava's obligations to AEG.

 Ahava's Claims

  Ahava contends that AEG never examined Ahava's receivables, never investigated Ahava's customers, did no credit checks of Ahava's customers and had no contact with them. AEG contends that AEG attempted for months to access Ahava's clients and to get financial information from Ahava, but that Ahava refused to allow AEG to contact Ahava's customers. AEG also contends that while AEG agreed to let Ahava make the calls to its customers, AEG maintained control of the collections. Ahava alleges that AEG assessed fees against Ahava whether or not receivables were purchased. AEG disputes this, contending that it assessed fees according to the terms of the Agreement. AEG was entitled to the following fees: 2% discount fee of the face value of the receivable pool purchased;.80% to 1.5% service fee (depending on initial receivable value) of the face value of the receivable pool purchase;.50% penalty fee of the outstanding receivables at 90 days from the establishment of the receivable pool; and 18% per annum interest on any daily overdraft position in the book account.

  Ahava alleges that Initial Receivable Values ("IRVs") were never set by Ahava and were established solely by AEG. AEG does not directly dispute this, noting only that AEG purchased account receivables from Ahava based on a formula set forth in the Agreement, which took into account the outstanding value of the receivables. AEG does not specify how the value of these receivables was assessed.

  Ahava also alleges that AEG reduced IRVs below that 55% level set forth in the Agreement, and that although the levels were below that permitted in the Agreement, the services were not correspondingly lowered. AEG disputes this, and contends that the tables prepared by Ahava to demonstrate this allegation are misleading, as they do not reflect the fact that uncollected accounts receivable pools were replaced with new accounts receivable pools from Ahava. A portion of the receivables which are identified in the tables that Ahava has provided to illustrate improperly valued IRVs are "simply additional accounts receivable factored as collateral to replace past uncollected receivables." Affidavit of Susan Henry ("Henry Aff."), ¶ 14(c). Ahava also alleges that fees were charged by AEG even when no money was advanced. AEG disputes this by noting that account receivables not paid within 90 days were subject to penalty fees and annual interest under the Agreement.

  Ahava alleges that AEG improperly charged fees based on the gross receivables it "batched," although Ahava does not explain what this means or why it is improper. Ahava also alleges that AEG charged fees based on receivables that it arbitrarily declared to be Client Risk Receivables. In response, AEG argues that Ahava has failed to acknowledge that according the Agreement, fees are to be calculated based on the gross receivable value.

  Ahava further alleges that AEG charged fees on cash sales. AEG does not directly dispute this, but refers to the Letter Agreement, according to which AEG was not permitted to charge fees on COD or prepay amounts. However, a payment will be considered COD or prepaid only if the customer has no outstanding indebtedness to AEG or Ahava. Perhaps most importantly, Ahava alleges that the Book Account did not accurately reflect the monies transferring hands between the parties. Ahava charges that deposits made by Ahava into the DBA Account were not posted in the Book Account on the day that they were deposited. AEG disputes this characterization. AEG states that in the first month or two of the relationship between the parties, Ahava had not provided complete and timely information to AEG, and as a result collected funds were not posted promptly to the Book Account. However, AEG states that Ahava was charged no interest fees or interest because of this delay. After the initial period, AEG states that it would provide Ahava with credit for cleared funds. Further, AEG notes that Ahava received credit only for cleared funds after first subtracting any adjustments for returned checks and related bank charges.

  Ahava alleges that if the fees recorded in the Book Account are considered to be interest, AEG charged an effective interest rate in excess of 25% and at times approaching 1000%. AEG disputes this, arguing that Ahava calculates numerous imputed interest rates based on a skewed sample of pools and not on the entirety of the transactions in the Book Account. AEG maintains that the amounts charged to Ahava over the entire course of their relationship did not exceed 24.54% per annum, including all interest and fees charged. If overdraft interest and penalty fees charged to Ahava are excluded, AEG argues that the effective interest rate would be 16.75%. Ahava also alleges that IRV levels both declined below and rose above the levels contemplated in the Agreement. AEG disputes this characterization, arguing that the tables prepared by Ahava fail accurately to account for remittances that are properly applied to factored receivables within the Book Account. Ahava raises several related allegations as to the disparities between the remittances received and the IRV. In each case, AEG disputes that such disparities exist, and argues that Ahava has provided misleading figures.

  Ahava claims that the Book Account fails to record approximately $8,000,000 of payments made by Ahava to AEG, as reflected in the bank statements for the DBA Account. According to AEG, in November 1999, AEG and Ahava agreed to transfer the money deposited into the AEG collection back to Ahava's bank account on the same day minus $2,500 to AEG as collections. Over the course of their relationship, the amount transferred back to Ahava totals approximately $8,000,000, according to AEG's estimate.

  Ahava also claims that over $900,000 was recorded in the Book Account as having been transferred by AEG to Ahava, but there is no corresponding entry in Ahava's bank statement. AEG counters that the amount was $821,000, and that AEG forwarded that amount on November 6, 1996, at AEG's direction, to its prior factor to pay off an outstanding invoice that Ahava owed to them. Further, AEG states that Ahava instructed AEG to pay $24,400 directly to Mark's Dairy the next day.

  Ahava claims that the difference between the amount advanced to Ahava according to the Book Account and the amount that should have been advanced according to the Agreement exceeds $13 million. AEG disputes this figure, arguing that Ahava has improperly based the amount due to Ahava on the gross receivables, rather than the "factor risk," as specified in the Agreement.

  Ahava argues that it was charged $70,335 for the issuance of only two letters of credit. AEG conversely argues that several letters of credit were provided to Ahava throughout the contractual relationship.

  Ahava further claims that the Book Account fixed the service fee throughout at 1.5%, irrespective of the IRV. The application of an incorrect service fee occurred in 290 pools of receivables, representing purchases of over $40 million. Ahava also alleges that AEG improperly charged fees on 220 pools of Client Risk Receivables, representing over $17 million in receivables. AEG disputes these charges as well, arguing that

  Ahava's figures are misleading, and that the service and discount fees should be based on the gross receivable value of the accounts receivable, as indicated in the Agreement. Ahava claims that Banayan complained to AEG's CEO David Goldberg ("Goldberg") as early as 1997 that the effective interest rate being charged to Ahava was approximately 50%. According to Ahava, Goldberg wrote back to Banayan, stating that the cost of funding was not 50%, and did not exceed 33.05%. AEG disputes this, stating that at no time prior to the commencement of this lawsuit did Ahava give notice of its non-acceptance of any of the advanced monies, nor did it dispute the money or fees assessed to Ahava. According to AEG, up until December 2000, Ahava was paying AEG in accordance with the Agreement. AEG alleges that it was only after AEG had advanced Ahava millions of dollars that Ahava refused to pay the outstanding balance and fees owed to AEG under the Agreement. In the letter from Goldberg to Banayan, Goldberg objected to the method by which Banayan was calculating interest.

  Ahava claims that despite numerous requests from Ahava, AEG did not provide any payoff letter for Ahava. AEG disputes this, stating that AEG provided a payoff amount to Ahava every month in the reports that were sent to Ahava. Further, AEG provided a special report to Ahava whenever Ahava requested a payoff amount before the monthly report was sent to Ahava.

 New York Law Applies to AEG's Claims against Defendants

  The Agreement states that it is to be governed in accordance with "the laws of the State of New Jersey, except as to the application of the New York Uniform Commercial Code, without regard to the principles of conflict of law." In a previous opinion in this case, it was noted that "the choice of law clause likely mandates the application of New Jersey law," American Equities, 2001 WL 1143188, at *4, although the issue was not decided at that time. Ahava argues that New York law should apply. The choice of law may be significant for Ahava's defense of usury because "New York's maximum rate of interest of 25% is half of New Jersey's permissible interest rate." In re McCorhill Pub., Inc., 86 B.R. 783, 793 (Bankr. S.D.N.Y. 1988).*fn1

  A bankruptcy court hearing claims that are based upon state law and that do not implicate a significant federal interest must apply the choice of law rules of the forum state, here the State of New York. See In re Gaston & Snow, 243 F.3d 599, 605-07(2d Cir. 2001); see also In re PSINet, Inc., 268 B.R. 358, 376 (Bankr. S.D.N.Y. 2001).

  Although New York recognizes the "choice of law principle that parties to a contract have a right to choose the law to be applied to their contract, this freedom of choice on the part of the parties is not absolute." S. Leo Harmonav, Inc. v. Binks Mfg. Co., 597 F. Supp. 1014, 1025 (S.D.N.Y. 1984), aff'd 762 F.2d 990 (2d Cir. 1985) (internal citation omitted). To determine the appropriateness of the parties' choice of law, New York follows the "substantial relationship" approach, as stated in Restatement (Second) of Conflicts of Law § 187:

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied . . . unless either
(a) the chosen state has no substantial relationship to the parties . . . or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state . . .
See Leo Harmonay, 597 F. Supp. at 1025; see also Levine v. Arabian American Oil Co., 84 Civ. 2396, 1985 WL 3945, at *3-*4 (S.D.N.Y. Nov. 27, 1985); Southern Int'l Sales. Co. v. Potter & Brumfield Division, 410 F. Supp. 1339, 1342-43 (S.D.N.Y. 1976) (Weinfeld, J.).

  "The New York Court of Appeals has addressed the `substantial relationship' approach and held that while the parties' choice of law is to be given `heavy weight,' the law of the state with the `most significant contacts' is to be applied." Agricultural Ins. Co., Inc. v. Ace Hardware Corp., 98 Civ. 8708, 2003 WL 164272, at *5 (S.D.N.Y. Jan. 17, 2003) (quoting Haag v. Barnes, 9 N.Y.2d 554, 559-60, 216 N.Y.S.2d 65, 175 N.E.2d 441 (1961)); see also Cargill, Inc. v. Charles Kowsky Resources, Inc., 949 F.2d 51, 55 (2d Cir. 1991) ("New York law allows a court to disregard the parties' choice when the `most significant contacts' are in another state.") (quoting Haag); Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 52 (2d Cir. 1984) (same).

  It is undisputed that the Agreement was negotiated in New York; it was signed by Ahava in New York; all performance there-under was in New York, including the deposit of money into the AEG controlled bank account located in New York. Further, both Ahava and AEG are incorporated in New York. Ahava's principal place of business is in New York. AEG's place of business, now and at the time it filed for bankruptcy is in New York. However, when AEG and Ahava executed the Agreement, AEG's principal place of business was in New Jersey. That, however, is the only significant contact of the parties with New Jersey, apart from the fact that the Agreement was delivered to AEG in New Jersey. Under these circumstances, New Jersey


has no substantial relationship to the parties and New York would seem to have a materially greater interest in the application of its law. In light of the foregoing, the rights and duties of the parties are governed by the law of New York, despite the `agreement' of the parties to the contrary.
Leo Harmonay, 597 F. Supp. at 1025. In addition, "New York has a strong public policy against interest rates which exceed 25%, which policy must be enforced." In re McCorhill, 86 B.R. at 793 (citing North American Bank, Ltd, v. Schulman, 123 Misc.2d 516, 474 N.Y.S.2d 383 (N.Y. Co. Ct. 1984)).

  AEG argues that New Jersey law should apply to Ahava's usury defense under New York's so-called "rule of validation." Under that rule, "the forum state chooses the state whose usury statute would sustain the contract in full or else impose the lightest penalty for usury from the set of all states that have a substantial relationship to the contract." Walter E. Heller & Co. v. Chopp-Wincraft Printing Specialties, Inc., 587 F. Supp. 557, 560 (S.D.N.Y. 1982) (citing Speare v. Consolidated Assets Corp., 367 F.2d 208 (2d Cir. 1966)). The rule of validation has, however, been disapproved by New York courts subsequent to the Chopp-Wincraft decision. In A. Conner General Contracting Inc. v. Rols Capital Co., 145 A.D.2d 452, 535 N.Y.S.2d 420 (2d Dep't 1988), the Second Department held:

  New York's present choice-of-law rule, dubbed the center of gravity approach is that the law of the State having the most significant contacts with the matter in dispute will be applied even where the matter in dispute is usury. The Federal courts have held by way of dicta that New York follows the rule of validation [citing Chopp-Wincraft and Speare]and approval of that rule has occasionally been expressed by New York courts. However, the Court of Appeals has not articulated a special rule for usury cases. Rather, it appears to remain that "the law of the jurisdiction having the greatest interest in the litigation will be applied and that the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict." 145 A.D.2d at 453 (quoting Miller v. Miller, 22 N.Y.2d 12, 290 N.Y.S.2d 734, 237 N.E.2d 877 (1968)) (internal citations omitted); accord Industrial Development Bank of Israel, Ltd. v. Bier, 149 Misc.2d 797, 804, 565 N.Y.S.2d 980, 984 (Sup.Ct., N.Y. Co. 1991), aff'd 182 A.D.2d 570, 582 N.Y.S.2d 429 (1st Dep't 1992); see also In re Chateaugay Corp., 150 B.R. 529, 540 n.13 (Bankr. S.D.N.Y. 1993) ("it appears far from settled that New York courts apply the `rule of validation' even in usury cases."). While this Court applied the rule of validation following the publication of the A. Conner decision, see Superior Funding Corp. v. Big Apple Capital Corp., 738 F. Supp. 1468, 1471 (S.D.N.Y. 1990), it did so without considering the Second Department's ruling.

  Because New York is the state with the most significant contacts to the parties in the context of the Agreement, and because the rule of validation is not the law of the jurisdiction, New York law will apply to the claims made by AEG against Ahava.

 The Book Account is Admissible as a Business Record

  Ahava argues that the Book Account, which is one of the crucial documents relied on by AEG in order to establish its claims against Ahava, is inadmissible as it does not qualify as a business record under Fed.R.Evid. 803(6). Rule 803(6) provides an exception to the rule excluding hearsay. It provides, in part, for the admission of any memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness . . . unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.

 The "principal precondition to admission of documents as business records pursuant to Fed.R.Evid. 803(6) is that the records have sufficient indicia of trustworthiness to be considered reliable." Potamkin Cadillac Corp. v. B.R.I. Coverage Corp., 38 F.3d 627, 632 (2d Cir. 1994) (quoting Saks Int'l, Inc. v. M/V Export Champion, 817 F.2d 1011, 1013 (2d Cir. 1987)). The Second Circuit has stated that Rule 803(6) "favors the admission of evidence rather than its exclusion if it has any probative value at all." United States v. Williams, 205 F.3d 23, 34 (2d Cir. 2000) (quoting In re Ollag Constr. Equip. Corp., 665 F.2d 43, 46 (2d Cir. 1981)).

  Ahava argues that the Book Account is inadmissible because of a lack of foundation. Ahava contends that AEG is unable to show that the record was made by an individual with personal knowledge. In particular, Ahava alleges that Sam Awar ("Awar"), AEG's former Director of Operations, could not name the particular person who was responsible for making entries in the Book Account, and that no single person was responsible for data entry. AEG has put forward Awar and Jack Sandier ("Sandier"), AEG's former Controller, as the "custodian[s] or other qualified witness[es]" who have testified that the Book Account was "kept in the course of a regularly conducted business activity." The "`custodian need not have personal knowledge of the actual creation of the document' to lay a proper foundation . . . Nor is there any requirement under Rule 803(6) that the records be prepared by the party who has custody of the documents and seeks to introduce them into evidence." Phoenix Associates III v. Stone, 60 F.3d 95, 101 (2d Cir. 1995) (quoting 4 Weinstein's Evidence, at 803-201-04). In Phoenix, the Second Circuit therefore rejected the argument that the failure of the custodian "to identify the specific employee responsible for filling out the record proved fatal to its foundation." Id.

  Awar testified that while other individuals inputted data into the Book Account, Awar Deposition at 176, when he was Director of Operations, "it was my responsibility to keep accurate records of the book account." Id. at 45. Ahava alleges that, according to Sandier, there was no system of verification which ensured that the Book Account tracked the Agreement or that deposits by Ahava were correctly recorded. However, Sandier testified that while he had not

  seen anything on a day-to-day basis . . . I know that all of the information [in the Book Account] was definitely checked on a monthly basis, and I know personally I looked at the summary information for the month and compared them to the bank statements on probably half the time I was there, maybe more. Sandier Deposition at 57. Such statements are sufficient to create a foundation by the custodians of the business records.

  Ahava further argues that the Book Account is unreliable and untrustworthy because it does not contain all of the transactions between Ahava and AEG in the course of the contractual relationship between the parties, and because the Book Account does not follow the terms of the Agreement in several material respects. AEG argues that Ahava never objected to the inaccuracy of the Book Account until this litigation had commenced, despite the fact that it was provided with the information contained in the Book Account throughout the contractual relationship between the parties.

  Questions as to the completeness of the Book Account and its congruence with the Agreement are more appropriately directed toward showing that the Book Account, by itself or with other documents, does not demonstrate that Ahava breached the Agreement. In other words, Ahava's arguments go to the weight to be placed on the Book Account, rather than to its admissibility. In United States v. Scholl, 166 F.3d 964 (9th Cir.), cert. denied, 528 U.S. 873 (1999), the Ninth Circuit held that

a party need not prove that business records are accurate before they are admitted. "Generally, objections that an exhibit may contain inaccuracies, ambiguities, or omissions go to the weight and not the admissibility of the evidence." United States v. Keplinger, 776 F.2d 678, 694 (7th Cir. 1985); see also La Porte v. United States, 300 F.2d 878, 880 (9th Cir. 1962) (noting "the admissibility of a document, as distinguished from its weight, normally does not depend upon either completeness or freedom from ambiguity").
166 F.3d at 978; see also United States v. Reyes, 157 F.3d 949, 953 (2d Cir. 1998) (business records admitted despite questions raised about trustworthiness); Schachtman Fagan, Inc. v. Winthrop Labs.Inc., 82 Civ. 8398, 1985 WL 3126, at *1 (Oct. 15, 1985) ("absence or extent of personal knowledge regarding preparation of business records [a]ffects weight rather than admissibility of evidence") (citing United States v. Page, 544 F.2d 982 (8th Cir. 1976)).

  Ahava's many objections to the Book Account are taken into account below. However, the Book Account displays sufficient indicia of trustworthiness for admission as a business record pursuant to Fed.R.Evid. 803(6).

 The Henry Affidavit is Admissible

  Ahava objects to the affidavit submitted by Susan Henry ("Henry"), a senior manager in the Litigation & Fraud Investigations Department at the accounting firm of BDO Seidman, on the grounds that it is based on insufficient facts or data, that it is "based on conversations with others and knowledge gleaned about the case as opposed to general experience in the particular industry," and that Henry "opines as to the meaning and application of the contract terms at issue." Def.'s Reply Mem. in Further Support of Def.'s Mot. for Summ. Judgment and in Opposition to Pl.'s Mot. for Summ. J. at 4. The standard for the admissibility of expert testimony is set forth in Federal Rule of Evidence 702:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the case.
Fed.R.Evid. 702.

  The standard was the subject of extensive analysis by the Supreme Court in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579(1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999). Daubert charges "trial judges with the responsibility of acting as `gatekeepers, `" in light of the fact that "the Federal Rules of Evidence `assign to the trial judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand.'" United States v. Salim, 189 F. Supp.2d 93, 99-100 (S.D.N.Y. 2002) (quoting Daubert, 509 U.S. at 597). Thus, "[t]he determination as to the relevance and reliability of such evidence is committed to the sound discretion of the trial court." Daubert, 509 U.S. at 591. In Kumho Tire Co. v. Carmichael, the Supreme Court clarified that this gatekeeper function applies to all expert testimony, not just scientific testimony. 526 U.S. at 147 (explaining that Rule 702 makes "no relevant distinction between `scientific' knowledge and `technical' or `other specialized' knowledge. It makes clear that any such knowledge might become the subject of expert testimony.").

  Henry testified that she based her opinions on review of legal pleadings in this case, the Agreement and Letter Agreement, correspondence related to the dealings between AEG and Ahava, the Book Account and related reconcilations, various bank statements and other documents evidencing transactions between AEG and Ahava. Henry also based her opinions on discussions with AEG's present and former personnel. In the context of the instant motions, Henry's opinions are based on sufficient facts and data.

  Ahava's objections to Henry's testifying based on her discussions with AEG personnel are drawn from United States v. Duakcnini, 326 F.3d 45 (2d Cir. 2002). However, in that case, a Special Agent for the Drug Enforcement Administration was testifying in a dual capacity as case agent and as expert in drug jargon. The Second Circuit was therefore concerned that his non-expert testimony may have been hearsay. See id. at 55. Because Henry was retained solely to render an expert opinion, no such potential confusion exists here.

  Finally, Ahava alleges in a conclusory manner that Henry opines as to the meaning of contract terms. While "testimony encompassing an ultimate legal conclusion based upon the facts of the case is not admissible," United States v. Bilzerian, 926 F.2d 1285, 1295 (2d Cir. 1991), Ahava has not demonstrated that Henry has given any such opinion. The thrust of the Henry affidavit is that the amounts charged by AEG to Ahava do not equal or exceed 50% interest per annum. Such testimony is within Henry's expertise, and is an appropriate subject for expert testimony. The Henry Affidavit is therefore admissible.

 Summary Judgment Standard

  Summary judgment is granted only if there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Silver v. City Univ., 947 F.2d 1021, 1022 (2d Cir. 1991); see generally 11 James Wm. Moore, et al., Moore's Federal Practice § 56.11 (3d ed. 1997 & Supp. 2004). The court will not try issues of fact on a motion for summary judgment, but, rather, will determine "whether the evidence presents a sufficient disagreement to require submission to a [factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).

  "The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish her right to judgment as a matter of law." Rodricruez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir. 1995). In determining whether a genuine issue of material fact exists, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Gibbs-Alfano v. Burton, 281 F.3d 12, 18 (2d Cir. 2002). Thus, "[s]ummary judgment may be granted if, upon reviewing the evidence in the light most favorable to the non-movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law." Richardson v. Selsky, 5 F.3d 616, 621 (2d Cir. 1993).

  A material fact is one that would "affect the outcome of the suit under the governing law," and a dispute about a genuine issue of material fact occurs if the evidence is such that "a reasonable [factfinder] could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 57 (2d Cir. 1997). The Court is "to grant summary judgment where the nonmovant's evidence is merely colorable, conclusory, speculative or not significantly probative." Schwimmer v. Kaladjian, 988 F. Supp. 631, 638 (S.D.N.Y. 1997) (citing Anderson, 477 U.S. at 249-50).

 Summary Judgment is Denied AEG's Alter Ego Claim AEG argues that Ahava, AFC, and Lewis County Dairy are all alter egos of one another.*fn2 Under New York law, a plaintiff can establish alter ego liability only by showing that one defendant has exercised such "complete domination `in respect to the transaction attacked' so that the [other defendants] had `at the time' no separate will of [their] own, and such domination must have been used to `commit fraud or wrong' against plaintiff, which proximately caused plaintiff's injury." American Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2d Cir. 1988), (quoting Lowendahl v. Baltimore & Ohio R.R., 247 A.D. 144, 157, 287 N.Y.S. 62 (1st Dept.), aff'd, 2 N.Y. 360, 6 N.E.2d 56 (1936), quoted with approval in Gorrill v. Icelandair/Fluqleidir, 761 F.2d 847, 853 (2d Cir. 1985)). To satisfy the control element, AEG must demonstrate "by a preponderance of the evidence" that AFC and Lewis County Dairy was controlled and dominated by Ahava with respect to its payment obligations under the Agreement "to such an extent that it had no separate will of its own" or in other words, that AFC and Lewis County Dairy were "mere instrumentalit[ies] of Ahava." Id.

  Factors indicating that one defendant controls another "include lack of normal corporate formality in the subsidiary's existence, under-capitalization, and personal use of the [other defendants'] funds" by the defendant. Id. citing Video Innovations, 730 F.2d at 53).

  In support of its claim, AEG argues that (i) Banayan is the president of Ahava, AFC and Lewis County Dairy; (ii) Ahava has represented that it is undercapitalized; (iii) Ahava and Lewis County Dairy have commingled funds; (iv) all defendants receive mail from the same mail box addresses; (v) AFC and Ahava distribute products for Lewis County Dairy; (vi) Ahava and AFC have substantially identical customers; (vii) customers of AFC write checks addressed to Ahava to satisfy invoices sent by Ahava; (vii) AFC and Ahava use the same plant to distribute products; (viii) Ahava, AFC and Lewis County Dairy employ the same accountant; (ix) AFC served notice to customers of Ahava that AFC would begin distributing Lewis County Dairy's products in place of Ahava; and (x) Lewis County Dairy and Banayan guaranteed the debts Ahava owes to AEG.

  Except for (i), (viii), and (x), Ahava either contests AEG' s allegations or argues that such practices occurred only rarely and ceased years ago. Ahava states that the three companies had different addresses, customers, funding sources, and banking relationships. Ahava also contests the admissibility of the statement that Ahava is undercapitalized on the grounds that it was made in the course of settlement negotiations. See Fed.R.Evid. 408. Taking the facts in the light most favorable to Ahava, AEG has not met its burden on this motion of establishing by a preponderance of evidence that any domination of AFC and Lewis County Dairy was so complete that these entities had no will of their own. In particular, AEG has adduced no specific evidence of domination with respect to Ahava's payment obligations under the Agreement, alleging only that because of the alleged overlaps in customers and distribution plants, as well as commingled funds, that "Defendants have been able to improperly divert millions of dollars derived from Ahava's account receivables . . . to other bank accounts controlled by" AFC. Donnelly Declaration ¶ 38. Even if Ahava had the ability to divert funds, AEG has not shown that Ahava has actually done so. AEG's motion for summary judgment on its claim of alter ego liability is accordingly denied.

 Summary Judgment is Denied on AEG's Claims for Breach of Contract, Unjust Enrichment and Conversion

  AEG has moved for summary judgment against all defendants on its claims for breach of contract, unjust enrichment and conversion. Because Ahava has raised a genuine issue of material fact as to whether the defendants breached the Agreement, summary judgment is denied as to all claims.

  Although the Book Account will be admitted based on the testimony of Awar and Sandier that it was kept in the course of regularly conducted business and that it generally shows trustworthiness, the Book Account and supporting documentation do not support a finding that AEG is entitled to judgment as a matter of law on its claims in light of Ahava's numerous challenges to the incompleteness of the document, and in particular in light of Ahava's allegations that the Book Account does not comport with the Agreement.

  Each of AEG's claims rests on the argument that Ahava either breached the Agreement by defaulting on its contractual obligations or that Ahava improperly refused to return approximately $2.5 million of over $37 million advanced to Ahava by AEG. In order to prevail on its breach of contract claim, AEG must demonstrate that the undisputed facts prove that Ahava breached the contract. See Saffire Corp. v. Newkidco, LLC, 286 F. Supp.2d 302, 306 (S.D.N.Y. 2003). Similarly, to prevail on a claim of unjust enrichment, the undisputed facts must show, among other elements, "that the circumstances are such that in equity and good conscience the defendant should return the money or property to the plaintiff." Golden Pacific Bancorp. v. F.D.I.C., 273 F.3d 509, 519 (2d Cir. 2001). To establish a claim of conversion under New York law, the undisputed facts must show, among other elements, "that the defendant exercised unauthorized interference with the plaintiff's ownership or possession of that property." Rose v. Amsouth Bank of Florida, 296 F. Supp.2d 383, 397 (E.D.N.Y. 2003). Construing all ambiguities and inferences against AEG, there are disputed facts as to each of these elements. As to the breach of contract claim, there is a material dispute as to whether the terms of the Agreement were followed. Ahava has alleged that AEG never purchased accounts receivable from Ahava, even though such transactions formed the basis for the Agreement. Ahava also alleges that AEG has failed to credit approximately $8 million which Ahava claims it paid to AEG. The claim for unjust enrichment is similarly based on AEG's claim that Ahava breached the Agreement, see Pl.'s Summary Judgment Mem. at 13, and Ahava's claims raise material questions of fact. As to the conversion claim, for the reasons stated previously, AEG has not shown undisputed facts which prove that AEG owes Ahava $2 million. While AEG has provided substantial rebuttals to Ahava's claims that AEG breached the Agreement and that Ahava does not owe AEG anything, it cannot be determined on this record that no "reasonable [factfinder] could return a verdict for the nonmoving party," Anderson, 477 U.S. at 248, and summary judgment is therefore denied as to each claim. Further, because AEG has not demonstrated on this motion a breach by Ahava "of or failure to perform any of its representations, warranties, commitments or covenants in this Agreement," Agreement ¶ 13, AEG is not entitled to costs and attorneys' fees.

 Ahava's Motion for Summary Judgment is Denied

  The defendants have moved for summary judgment dismissing the same three claims against them, for breach of contract, unjust enrichment, and conversion. Construing all ambiguities and inferences against Ahava, it cannot be shown that no reasonable factfinder would not find for AEG on each of its claims.

  In particular, the Book Account and Henry's testimony, which are presumed accurate in the context of Ahava's motion, both demonstrate that Ahava owes AEG several million dollars. Henry's testimony raises numerous issues of material fact as to the accuracy and completeness of the tables submitted by Ahava purporting to show improper fees and exorbitant rates of interest charged by AEG. Construing the Book Account and the Henry Affidavit in AEG's favor, AEG has shown both that Ahava defaulted on the Agreement, and that the interest rate charged to Ahava was below 25%, negating the factual basis for Ahava's usury defense.

  Ahava also moves to dismiss the conversion claim on the grounds that it is duplicative of the breach of contract claim. "It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated . . ." Spanierman Gallery, PSP v. Love, 03 Civ. 3188, 2003 WL 22480055, at *3 (S.D.N.Y. Oct. 31, 2003) (quoting Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 521 N.Y.S.2d 653, 516 N.E.2d 190, 193 (1987)); see also New York Racing Ass'n v. Meganews, Inc., 97 CV 1091, 2000 WL 307378, at *5 (E.D.N.Y. Mar. 21, 2000) (conversion claims "will be deemed redundant when Marriages are merely being sought for breach of contract.'") (quoting Peters Griffin Woodward, Inc. v. WCSC, Inc., 88 A.D.2d 883, 884, 452 N.Y.S.2d 599, 600 (1st Dept' 1982)).

  AEG has alleged a distinct harm in its claim for conversion. The damages from the breach of contract allegedly arise from Ahava's failure to pay AEG any part of the overdraft position on the Book Account, while the damages on the conversion claim (as well as the unjust enrichment claim) allegedly arise from the approximately $2.5 million in funds which were advanced to Ahava, and which Ahava has not repaid. Further, AEG has alleged "that defendants had a duty to remit particular funds to the plaintiff." Meganews, 2000 WL 307378, at *5. Conversion claims may be alleged in addition to breach of contract claims as long as the "legal duty . . . spring[s] from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract." Spanierman, 2003 WL 22480055, at *3. AEG's conversion claim will therefore not be dismissed as duplicative.

  Neither The Applicability Nor the Effect of Ahava's Usury Defense is Clear from the Record

   Ahava has alleged that AEG is guilty of criminal usury because the effective interest rate charged to Ahava over the course of their contractual relationship exceeds 25% per annum. See N.Y. Penal Law § 190.40. AEG disputes Ahava's calculation of the interest rate, arguing that even if all fees charged to Ahava are included when calculating the effective rate of interest, the rate does not exceed 24.54%.

   On the record before the Court, it is not possible to make a determination as a matter of law as to the effective interest rate. However, for the purposes of AEG's motion for summary judgment only, it may be assumed that the interest rate exceeds 25%. Even if that were the case, it is still not clear to what relief Ahava would be entitled, if any.

   Ahava has not specified the total amount of money which was allegedly loaned to it by AEG. However, the money advanced to Ahava over the course of their contractual relationship apparently totaled in the tens of millions of dollars. New York's usury laws, however, do not regulate transactions over $2.5 million. See N.Y. Gen. Oblig. Law § 5-501(6)(b); see also Tides Edge Corp. v. Central Federal Sav., F.S.B., 151 A.D.2d 741, 742, 542 N.Y.S.2d 763, 765 (2d Dep't 1989). For purposes of determining the law's applicability,

   Loans . . . aggregating two million five hundred thousand dollars or more which are to be made or advanced to any one borrower in one or more installments pursuant to a written agreement . . . shall be deemed to be a single loan . . . for the total amount which the lender or lenders have agreed to advance or make pursuant to such agreement on the terms and conditions provided therein. § 5-501(6)(b). The total amount of AEG's loans to Ahava therefore must be calculated in order to determine the applicability of the usury defense.

   Loans of greater than $250,000 but less than $2.5 million are not subject to New York's civil usury laws but are subject to criminal usury laws. § 5-501(6)(a). If AEG's loans to Ahava total less than $2.5 million, and if Ahava is able to establish that the loans were criminally usurious, it is unclear under New York law what remedy is authorized. Ahava argues that AEG should be barred from recovering under the Agreement because of the usurious arrangement. Ahava is apparently contending that if the Agreement is found to be criminally usurious, in effect if not on its face, it will be rendered void, although Ahava nowhere makes this point explicitly. Some courts have so held. See, e.g., Hufnagel v. George, 135 F. Supp.2d 406, 406-07 (S.D.N.Y. 2001); Fareri v. Rain's Intern. Ltd., 187 A.D.2d 481, 589 N.Y.S.2d 579 (2d Dep't 1992); In re McCorhill, 86 B.R. at 792. However, the Second Circuit considered the issue in a section of its opinion explicitly labeled as dictum, and opined that "it is an open question under New York law whether a criminally usurious loan is void." Venture Mortgage, 282 F.3d at 190-91 (disagreeing with Hufnagel and Fareri).

   The Venture Mortgage court reached that conclusion "from a close reading of the complex and cross-referencing statutes that compose New York's usury law," in which it appears "that the voiding provision only operates to void loans that violate the civil usury statute — a statute that by its terms applies only to loans of less than $250,000 . . ." Id. at 189 (citing N.Y. Gen. Oblig. Law §§ 5-501, 5-511; N.Y. Banking Law § 14-a). It further noted that "[n]othing we see in the criminal usury statute provides for voiding, and it is unclear whether the Legislature intended that criminally usurious loans of $250,000 or greater be voided." Id. (citing N.Y. Penal Law § 190.40). The Venture Mortgage court reviewed the policy rationales and noted that they both favored and disfavored finding criminally usurious loans void. Id. Because this unsettled issue was neither raised nor briefed by either party, it would be premature for the Court to rule on it.

   It appears, however, that at least some remedy was contemplated by the Legislature for a borrower who is subjected to a criminally usurious loan. General Obligation Law § 5-521(1) prohibits corporations from interposing the defense of usury in any action. However, subsection 3 of § 5-521 provides an exception to that provision in "any action in which a corporation interposes a defense of criminal usury as described in section 190.40 of the penal law." Because it would be inconsistent to provide for a defense without also providing a remedy, some kind of remedy must be available.*fn3 The Venture Mortgage court, however, was not convinced that § 5-521(3) implied "that a loan in violation of the penal law is void ab initio." Id. at 189 n.3. Instead of voiding the loan, a successful defense of criminal usury may result instead "merely in a cancellation of the interest obligation but not the obligation to pay principal, or in a revised obligation to pay a non-usurious rate." Id. Neither of these remedies can be derived either from case law or from statutory law. Without further briefing from the parties, the Court will not rule on this question.


   For the reasons set forth above, the motions for summary judgment by both AEG and Ahava are denied, as is AEG's motion for costs and attorneys' fees. The Book Account is admissible as a business record pursuant to Fed.R.Evid. 803(6), and the Henry Affidavit is admissible pursuant to Fed.R.Evid. 702. Finally, if Ahava elects to continue to pursue its usury defense under New York law, the parties are directed to brief the applicability of the usury defense as well as available remedies in connection with any in limine motions. AEG will serve Ahava with its proposed Pretrial Order on May 5. The final Pretrial Order will be filed on May 17 any motions in limine will be made returnable on that day. The trial will commence on May 17, 2004.

   It is so ordered.

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