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RMP Capital Corp. v. BAM Brokerage, Inc.

United States District Court, E.D. New York

March 17, 2014

RMP CAPITAL CORP., Plaintiff, BAM BROKERAGE, INC. d/b/a ON THE EDGE MARKETING, CREATIVE OUTDOOR DISTRIBUTORS, INC., CREATIVE OUTDOOR DISTRIBUTORS USA, INC., and BRIAN HOROWITZ, Defendants. BAM BROKERAGE, INC. d/b/a ON THE EDGE MARKETING, Counterclaim Plaintiff,
v.
RMP CAPITAL CORP., RMP TRADE CREDIT, LLC, RMP MANAGED RECEIVABLES, INC., and STERLING NATIONAL BANK, Counterclaim Defendants

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[Copyrighted Material Omitted]

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For RMP Capital Corp.; RMP Trade Credit, LLC; and RMP Managed Receivables, Inc., Plaintiff and Counterclaim Defendants: David H. Peirez, Esq., Jerome Reisman, Esq., Jennifer Leigh Hartmann, Esq., Of Counsel, Reisman, Peirez & Reisman, LLP, Garden City, NY.

For the Defendants and Counterclaim Plaintiff: David M. Mannion, Esq., Of Counsel, Blakeley & Blakeley LLP, New York, NY.

NO APPEARANCE: Sterling National Bank.

OPINION

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MEMORANDUM OF DECISION AND ORDER

ARTHUR D. SPATT, United States District Judge.

On January 27, 2014, the Plaintiff RMP Capital Corp. (" RMP Capital" ), commenced this breach of contract action against the Defendants BAM Brokerage, Inc., d/b/a On the Edge Marketing (" BAM" ); Creative Outdoor Distributors, Inc. (" Creative I" ); Creative Outdoor Distributors USA, Inc. (" Creative II," and together with Creative I, the " Creative Defendants" ); CommerceWest Bank (" CommerceWest" ); H& H Wholesale Services, Inc. (" H& H Wholesale" ), and Brian Horowitz (" Horowitz" ) in the Supreme Court of the State of New York, Nassau County. Thereafter, on February 9, 2014, the action was removed to this Court based on the complete diversity that existed between the parties.

On February 25, 2014, BAM, the Creative Defendants and Horowitz (collectively, the " Defendants" ), filed their Answer, including affirmative defenses. In addition, the Defendants asserted seven counterclaims against RMP Capital, as well as Counterclaim-Defendants RMP Trade Credit, LL (" RMP Trade" ), RMP Managed Receivables, Inc. (" RMP Managed Receivables" ), and Sterling National Bank (" Sterling" ).

Also on February 25, 2014, BAM and Creative II filed an unsigned order to show cause directing RMP Capital and RMP Trade (collectively, " RMP" ) to show cause as to why the Court should not enter a preliminary injunction order

(1) requiring RMP [Trade] to provide purchase order financing for all pending orders currently held by BAM [ ] or, alternatively, permitting BAM [ ] to obtain alternate financing for any pending orders or other orders it receives during the course of this action free and clear of any security interests held by RMP;
(2) Requiring RMP [Capital] to make the following distribution to BAM [ ] from any proceeds received by RMP from non-party Summit Racing in relation to letter of credit no.: IMP 00314760: (a) $15,076.00 to Qingdao Outreach Metal Products Ltd., and (b) $19,710.70 to BAM [ ] to be applied to payroll and expenses;
(3) Terminating all UCC financing statements filed by or on behalf of RMP against Creative [II]; and
(4) Prohibiting RMP from contacting any customers or lenders of BAM [ ] or Creative [II] or otherwise interfering with their trade or financial relationships[.]

(Dkt. No. 14.) The Court signed the proposed order to show cause on February 27, 2014 and directed the parties to appear the next day, February 28, 2014. However, at the parties' request, the matter was adjourned to March 7, 2014.

On March 4, 2014, the Court so ordered a stipulation dismissing CommerceWest and H& H Wholesale from this action without prejudice. As such, BAM, the Creative Defendants and Horowitz are the only remaining Defendants in this action.

On March 7, 2014 and March 11, 2014, a hearing was held on BAM and Creative II's request for a preliminary injunction. During the hearing, BAM withdrew its request to require RMP Trade to provide purchase order financing for all its pending orders. BAM explained that it was only seeking to obtain alternate financing

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for its pending purchase orders and that any goods or proceeds from those pending purchase orders not be subject to RMP Capital's security interest. At the conclusion of the March 11, 2014 proceedings, the Court reserved decision.

For the reasons set forth below, the motion by BAM and Creative II for a preliminary injunction is denied. However, the Court notes that all the findings contained in this decision are made solely for the purpose of resolving BAM and Creative II's motion for a preliminary injunction.

I. BACKGROUND

The Plaintiff RMP Capital is an Illinois corporation with its principal place of business located in New York. RMP Capital provides factoring financing to its clients by purchasing their accounts receivable. Counterclaim-Defendant RMP Trade, also an Illinois corporation with its principal place of business in New York, is an affiliate of RMP Capital and provides purchase order financing by advancing funds to its clients based on the existing purchase orders of these clients. RMP Capital and RMP Trade are under common control.

The Defendant BAM is incorporated in California and has its principal place of business in California. BAM's business involves arranging for the manufacturing and importing of finished goods, such as tables, ice box coolers and folding chairs, which it then sells to brand-name domestic wholesalers and retailers. To that end, BAM was licensed to use the mark of several companies, such as the National Basketball Association, Coca Cola and General Motors (collectively, the " Licensors" ), on the goods it had manufactured and imported. In exchange, BAM was required to pay license fees and royalties to the Licensors.

On April 16, 2012, with advice from counsel, BAM entered into (1) a Factoring and Security Agreement (the " Factoring Agreement" ) with RMP Capital and (2) a Purchase Order Financing Agreement (the " Purchase Order Agreement," and together with the Factoring Agreement, the " Agreements" ) with RMP Trade. In the Factoring Agreement, RMP Capital agreed to purchase BAM's accounts receivable. Specifically, RMP Capital agreed to purchase BAM's unpaid invoices for eighty percent of their face value and then would collect one hundred percent of the invoice value once payment for the invoice was due. Of importance, the Factoring Agreement stated that " [RMP Capital] may, but need not, purchase from [BAM] [ ] Accounts as [RMP Capital] determines to be Eligible Accounts in its sole Discretion . . . . [RMP Capital has no obligation to purchase any Account from [BAM], or to designate and/or commit any funds to the purchase of [BAM's] Accounts." (Davis Decl., Exh. A.) In addition, the Factoring Agreement includes a " choice of law" provision, which provides that " [the] [Factoring] Agreement and all transactions contemplated [under the Factoring Agreement] and/or evidenced hereby shall be governed by, construed under, and enforced with the internal laws of [the State of New York]." (Davis Decl., Exh. A.)

In the Purchase Order Agreement, RMP Trade agreed to provide BAM with purchase order financing so that BAM could purchase goods from its foreign suppliers, which were mainly in China. However, pursuant to the terms and conditions of the Purchase Order Agreement, RMP Trade " could provide [ ] financing [to BAM] in its Discretion." (Davis Decl., Exh. B.) Under the Purchase Order Agreement's " Choice of Law" provision, " [the] [Purchase Order] Agreement and all transactions completed [under the Purchase Order Agreement] and/or evidenced

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hereby shall be governed by, construed under, and enforced in accordance with the internal laws of [the State of Illinois]." (Davis Decl., Exh. B.)

Both Agreements were executed by BAM in California and hand delivered by BAM to RMP in California. Under the terms and conditions of the Agreements, RMP received a security interest in BAM's then-existing and later acquired assets (the " Collateral" ). In this regard, both the Agreements grant RMP " a first priority security interest in the Collateral." (Davis Decl., Exhs. A and B.) RMP have duly perfected their respective security interests.

The Factoring Agreement states that " [n]otwithstanding the creation of this security interest, the relationship of the parties shall be that of Purchaser and Seller of Accounts, and not that of lender and borrower." (Davis Decl., Exh. A.) However, as additional security, Horowitz executed and delivered a Guaranty Agreement, which stated in relevant part that " RMP has no fiduciary relationship with or duty to [Horowitz] arising out of or in connection with [the Guaranty] Agreement or the indebtedness evidenced hereby and the relationship between [Horowitz] and RMP is solely that of debtor and creditor[.]" (Guaranty Agreement, pg. 9.) ...


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