Zyppah, Inc. v. United Secured Capital, LLC

Background

Zyppah, Inc. doing business as Zyppah, Sleep Certified Inc., Greenburg D.D.S. P.C., and Jonathan Greenburg entered merchant cash advance agreements involving defendants United Secured Capital, LLC and Green Note Capital Partners, Inc. The agreements involved $750,000 borrowed from defendants Ace Funding Source, LLC and Green Note. The plaintiffs alleged that they timely made required weekly payments, which they said entitled them under related letters of guarantee to reduced payment amounts and a lower total cost.

The plaintiffs alleged that defendants did not reduce the debited amounts as promised. In January 2019, the plaintiffs obtained other financing to pay the balances. They alleged that defendants required payment of the full amounts, later acknowledged that more had been paid than was owed under the guarantee letters, and refunded only part of the difference.

In Count Five of the amended complaint, the plaintiffs sought appointment of a receiver for the assets of Ace, Green Note, United Secured, and Merchant Advance. A receiver is a person appointed by a court to take control of property or assets during a dispute. The plaintiffs argued that a receiver was needed to prevent fraudulent conduct and ensure that the entity defendants could pay any judgment.

Legal Standard

The court described receivership as an extraordinary remedy used cautiously to protect a party’s interest in property while ownership or control of that property is being decided. The court considered factors including alleged fraud, danger that property could be lost or diminished, whether ordinary legal remedies were inadequate, the comparative harm to the parties, the likelihood of success, and possible irreparable injury.

Court’s Analysis

The court found that the plaintiffs’ claims centered on alleged breaches of the letters of guarantee. If the plaintiffs prevailed, they could receive compensatory damages and potentially consequential, punitive, or incidental damages. Because damages were available to address the alleged injuries, the court held that this factor strongly weighed against appointing a receiver.

The court also held that the case did not involve the type of ownership or control dispute for which receivers are ordinarily used. The plaintiffs had not asserted a specific property interest in the entity defendants’ assets. Instead, they sought a receiver mainly to ensure that the defendants could pay damages if the plaintiffs won. The court declined to establish a rule that would allow receivers in any breach-of-contract case involving defendants who might be unable to pay a judgment.

Because the lack of a specific ownership interest was dispositive, the court did not address the remaining factors, including the plaintiffs’ allegations of fraud and the balance of the harms.

Disposition

Judge Andrew L. Carter, Jr. denied the plaintiffs’ motion for appointment of a receiver. The court also denied the plaintiffs’ requests for an evidentiary hearing and a conference concerning the receiver motion.