The contrasts between deadbeat borrowers and opportunistic lenders, as alleged by the purveyors and users of merchant cash advance financing, is neatly depicted in two lawsuits filed on Nov. 9 in Westchester Supreme Court.
Greenwich Capital Management Limited Partnership of White Plains claims that the owner of Auto Custom Leathers Inc. of Ludlow, Massachusetts, quickly defaulted on a $76,945 loan and filed for bankruptcy.
Dave Hancock of Yonkers says in a separate complaint that New York Unity Factor, of Manhattan, unlawfully charged his company up to 288% interest.
Merchant cash advances are also called accounts receivable financing. The merchant gets a quick infusion of cash. The lender gets a percentage of future revenues to be assessed daily from the merchant’s bank account.
The industry characterizes the financing as a purchase of future assets and claims the advances are not actually loans.
The business owner is typically required to sign a confession of judgment guaranteeing the deal and waiving the right to a defense in court. Many states have banned confessions of judgment because of the potential for abuse, according to a 2018 series on merchant cash advances by Bloomberg News. New York allows them.
In the Greenwich Capital case, Auto Custom Leather agreed in January and April 2019 to sell a total of $76,945 in future revenues for $55,000.
Owner Gerald Zalucki guaranteed payment. He also signed documents in which he said he had no plans to cease operating the business within a year and he was not considering filing for bankruptcy.
Four months later, Auto Custom Leather allegedly stopped repaying the loan, and Zalucki filed for personal Chapter 13 bankruptcy, declaring $269,050 in assets and $315,374 in liabilities.
Zalucki failed to name Greenwich Capital as a creditor, according to the complaint, and Greenwich Capital was unaware of the bankruptcy until after the Chapter 13 plan was approved this past January.
Greenwich Capital claims that Zalucki still owes $45,456 on the original deals, plus 16% interest per annum beginning in August 2019.
Zalucki’s bankruptcy attorney, Eric Kornblum, did not respond to an email asking for his client’s side of the story.
Dave Hancock paints a very different picture. As an officer of CPC Construction, of Gilbert, Ariz., he and Alan Langer, also of Yonkers, made three deals with New York Unity Factor.
Each new deal absorbed the terms of the prior agreement. By November 2018, Hancock and Langer had agreed to sell more than $2.8 million in future revenues for about $1.3 million. The company had to pay back $25,000 a day for 113 days.
Hancock and Langer signed confessions of judgment guaranteeing the obligation.
The deals were made with Complete Business Solutions Group and were later acquired by New York Unity Factor.
New York Unity Factor sued in 2018 to enforce the confessions of judgment, and a Westchester Supreme Court judge approved the judgments.
Hancock argues that his judgment should be vacated because the loans were illegal, with interest ranging from 93% to 288%, whereas New York allows no more than 16% interest.
He cites a July 2020 emergency action filed by the U.S. Securities and Exchange Commission against Complete Business Solutions in Miami federal court. The SEC accused the company of making opportunistic loans and charging more than 400% in interest to small businesses.
Hancock has some basis for optimism. Last year, his partner, Langer, filed a nearly identical complaint against New York Unity Factor.
On Aug. 11, Westchester Supreme Court Justice Linda S. Jamieson granted Langer’s motion to vacate the judgment because the lender had failed to answer the complaint or respond to Langer’s motion.
Attempts to ask New York Unity Factor for its side of the story failed.
Greenwich Capital is represented by Manhattan attorney Jonathan M. Borg. Hancock is represented by Brooklyn attorney Jay B. Itkowitz.
