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Merchant Cash & Capital LLC v. Edgewood Group, LLC

United States District Court, S.D. New York

July 2, 2015

MERCHANT CASH & CAPITAL LLC, Plaintiff,
v.
EDGEWOOD GROUP, LLC, et al., Defendants.

REPORT AND RECOMMENDATION

DEBRA FREEMAN, Magistrate Judge.

TO THE HONORABLE JOHN G. KOELTL, U.S.D.J.:

This breach-of-contract action is currently before this Court for a damages inquest on a judgment entered in favor of plaintiff Merchant Cash & Capital LLC ("Plaintiff") against defendants Edgewood Group, LLC ("Edgewood Group" or "Edgewood") and William Travis Crocker ("Crocker") (collectively, "Defendants"). For the reasons that follow, I recommend that Plaintiff be awarded damages in the amount of $129, 689.95 - representing $116, 276.12 in contractual damages, $10, 292.83 in prejudgment interest, $461.00 in costs, and $2, 660.00 in attorneys' fees - plus interest at the rate of nine percent per annum running from July 31, 2014 until the date of entry of final judgment.

BACKGROUND

A. Procedural History

Plaintiff filed its Complaint in this action on May 15, 2014, seeking damages in the amount of $117, 376.12 - as well as interest, costs, and attorneys' fees - as a result of Defendants' purported breach of an agreement related to the sale of future credit card receivables. ( See generally Complaint, dated May 12, 2014 ("Compl.") (Dkt. 2).) The details of the Complaint are discussed in the following section.

Plaintiff served the Summons and Complaint on Defendants on June 4, 2014 ( see Dkt. 4), but, to date, neither defendant has appeared in this action or otherwise communicated with this Court. On June 26, 2014, upon Plaintiff's request, the Clerk of Court entered a default as to each defendant. ( See Request to Enter Default, dated June 26, 2014 (Dkt. 5); Clerk's Certificate & Notation of Default, dated June 26, 2014 (Dkts. 6 (Edgewood), 7 (Crocker)).) Plaintiff then moved for a default judgment on July 23, 2014. (Dkt. 11.) By Order dated July 31, 2014, the Honorable John G. Koletl, U.S.D.J., granted Plaintiff's motion and referred the matter to me for an inquest on damages. (Dkts. 14, 15.)

At this Court's request ( see Dkt. 17), Plaintiff, on November 4, 2014, timely made a supplemental submission clarifying the basis for the amount of damages claimed in its motion for a default judgment ( see Dkt. 18). In addition, in response to this Court's Order to Show Cause, dated May 29, 2015 (Dkt. 20), Plaintiff made a timely submission clarifying the basis for this Court's subject matter jurisdiction over the current action ( see Dkt. 21). The contents of Plaintiff's submissions are described below.

B. Plaintiff's Submissions to the Court

1. The Complaint

According to the Complaint, Plaintiff is a Delaware limited liability company, with its principal place of business in New York, and none of its members are citizens of Virginia. (Compl. ¶¶ 1-2.) Edgewood Group is alleged to be a Virginia limited liability company with its principal place of business in Virginia ( id. ¶ 3), and Crocker, a resident of Virginia ( id. ¶ 4), is alleged to be its "owner" ( id. ¶ 5). The Complaint lists four causes of action: two against Edgewood Group alone, one against Crocker alone, and one against both.

As described in the Complaint, Plaintiff's claims arise out of an agreement entered into on or about June 21, 2013 (the "Agreement"), in which Edgewood Group "sold $163, 726.00 of its business receivables/revenue to [Plaintiff]... for an upfront sum of $115, 300.00." (Id. ¶ 9.) Plaintiff and Edgewood Group allegedly agreed that the "business receivables/revenue" would be paid "from a percentage of [Edgewood Group's] daily revenue." (Id. ) The Complaint contains no further information as to the terms of the Agreement, nor was a copy of the Agreement annexed to the Complaint.

Plaintiff's first cause of action, against Edgewood, is for breach of the Agreement. Plaintiff alleges that it "fulfilled its obligation" to make the upfront payment of $115, 300.00 required under the Agreement. (Id. ¶ 10.) Plaintiff further alleges, however, that Edgewood Group "defaulted under the terms of the Agreement by breaching its representations and warranties to Plaintiff in direct violation of the Agreement." (Id. ¶ 12.) According to Plaintiff, Edgewood has been "in breach and default" since August 6, 2013. (Id. ¶ 15.) Plaintiff contends that, as a result of the breach, "[a]ny outstanding balance owed by [Edgewood Group] at the time of default became immediately due and payable." (Id. ¶ 11.) Yet Plaintiff claims that Edgewood "refused to make all payments due" ( id. ¶ 13), leaving a "balance" of $117, 376.12 as of May 12, 2014 ( id. ¶ 14).

Plaintiff's second cause of action merely alleges that Edgewood Group "utilized the funds" provided by Plaintiff ( id. ¶ 20), that Edgewood has "failed to pay [Plaintiff] a balance of $117, 376.12" owed in accordance with the Agreement ( id. ¶ 21), and that, as a result, Edgewood Group is "indebted to [Plaintiff] for the balance of $117, 376.12, " plus statutory interest as of August 6, 2013 ( id. ¶ 22).

Plaintiff's third cause of action, against Crocker, alleges that Crocker "made a written unconditional personal guarantee of [Edgewood Group's] performance" under the Agreement. (Id. ¶ 24.) The Complaint alleges that Edgewood Group "failed to perform under the terms and conditions of the Agreement damaging [Plaintiff] in the amount of the outstanding balance, " and that, as a result, Crocker "is personally liable for the entire balance pursuant to the personal guarantee." (Id. ¶ 25.)

Plaintiff's fourth cause of action, against both Edgewood Group and Crocker, is for costs and attorneys' fees pursuant to the Agreement. (Id. ¶¶ 29-32.) Plaintiff alleges that Edgewood, under the Agreement, "agree[d] to pay all costs associated with a breach and the enforcement thereof, including, but not limited to, court costs and attorneys' fees and disbursements." (Id. ¶ 29.) Plaintiff further alleges that Crocker also agreed to pay any costs, expenses, and attorneys' fees that Plaintiff incurred as a result of Edgewood Group's default. (Id. ¶ 30.)

2. Plaintiff's Motion for a Default Judgment

In support of its application for a default judgment, Plaintiff submitted a declaration from its attorney, Christopher R. Murray, Esq. ("Murray"), including further factual allegations. (Declaration in Support of a Default Judgment, dated July 23, 2014 ("Murray Default Decl.") (Dkt. 12).) Murray's declaration also annexes a copy of the Agreement, which in fact consists of two parts: a "Merchant Agreement" (Merchant Agreement, included in Ex. D to Murray Default Decl. (Dkt. 12-4), at 2-7), and an addendum relating to the "MCC Cash Advance/Fixed ACH Program" (Letter agreement regarding "MCC Cash Advance/Fixed ACH Program, " dated Apr. 15, 2013 ("ACH Agreement"), included in Ex. D to Murray Default Decl. (Dkt. 12-4), at 8-12).

a. Murray's Declaration in Support of Default Judgment

In his declaration, Murray states, as alleged in the Complaint, that "Edgewood sold $163, 726.00 of its future sales receivables to be paid as a percentage of its daily sales receivables to [Plaintiff] for the upfront sum of $115, 300.00." (Murray Default Decl. ¶ 12.) He also states that, on or about July 1, 2014, Plaintiff provided Edgewood with the $115, 300.00 purchase price for Edgewood's receivables. (Id. ¶ 19.)

Murray also lays out several terms of the Agreement that were not included in the Complaint, including that (1) "[p]ursuant to [a] Fixed ACH Program addendum, the Defendants would pay [Plaintiff] $930.26 on each business day until such time as defendant Edgewood had paid [Plaintiff] the total purchased amount of $163, 726.00" ( id. ¶ 12);[1] (2) "Edgewood agreed that it would not change the designated bank account, close the designated bank account, or use another bank account to hold its deposits or receive credit card sales receivables prior to [Plaintiff's] receipt of the total purchased amount" ( id. ¶ 14); (3) Edgewood agreed that it would not "permit any necessary licenses or permits to lapse" ( id. ¶ 16); and (4) Crocker "agreed that liability for a breach of the agreement and/or the representations and warranties made by Edgewood [G]roup would result in joint and several liability for all damages" ( id. ¶ 18).

In terms of Edgewood's breach, Murray states that Edgewood "made some payments under the [A]greement until August 6, 2013, when it began maintaining insufficient funds in the designated bank account." (Id. ¶ 20.) He also states that, on September 23, 2013, Plaintiff contacted Crocker, who "admitted that Edgewood had allowed certain permits and/or licenses to lapse that were necessary for Edgewood's operation, " which constituted "an admission that Edgewood breached its representations and warranties to Plaintiff." (Id. ¶ 22.) Murray also alleges that Edgewood "continues to operate but refuses to resume payments of the purchased receivables... [and] refuses to provide [Plaintiff] access to its business bank account" to obtain the purchased receivables. (Id. ¶ 24.) The basis for Murray's knowledge as to these facts is apparently based on his "review of the file maintained by [his] office." (Id. ¶ 1.) He also annexes a payment ledger, displaying the history of payments Plaintiff had received from Edgewood Group up to that point. (Murray Default Decl., Ex. E (Dkt. 12-5), at 5-19.)

b. The Agreement

The Merchant Agreement, annexed to Murray's declaration, is dated June 21, 2013, and signed by Crocker, on his own behalf and on Edgewood's behalf, on June 24, 2013. (Merchant Agreement, at 1.) The signature of Plaintiff's representative is undated. (Id. at 6.) The parties agreed that the Agreement would be governed by and construed in accordance with "the laws of the State in which the Physical Address of [Plaintiff] is located" - that is, New York - and consented to the jurisdiction of New York state and federal courts in the case of a dispute (ACH Agreement ¶ M (amending Merchant Agreement § 5.6)).[2]

i. Edgewood Group's Obligations

Under the Merchant Agreement, Plaintiff was entitled to "a percentage, as specified below (the Purchased Percentage'), of each future credit card, debit card, bank card and/or other charge card... receivable... due to [Edgewood Group] from its credit card processor until [Plaintiff]" received the "Purchased Amount, " i.e., $163, 726.00. (Merchant Agreement, at 1.) The parties, however, did not specify a "Purchased Percentage" in the document (that is, the space to identify the "Purchased Percentage" reads only "%") ( id. ), and Plaintiff has not, in any of its submissions, identified the percentage of future receivables it purportedly purchased.

On or about the same date as Edgewood executed the Merchant Agreement, Edgewood also, by way of the addendum to that agreement, entered into Plaintiff's "Fixed ACH Program, "[3] in which Edgewood agreed to allow Plaintiff to initiate transfers from a designated bank account on each business day in the amount of $930.26, until Plaintiff had received the purchased amount of $163, 726.00.[4] (ACH Agreement ¶ B.) Edgewood further agreed that it would deposit all of its credit card receipts into the designated bank ...


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