Money Tree Capital Funding, LLC v. Money Tree Capital Markets LLC

Background

Money Tree Capital Funding, LLC (MTCF) sued Money Tree Capital Markets LLC, a New York limited liability company; Money Tree Capital Markets LLC, a Delaware limited liability company; and Kamal Malik. The opinion refers to the two companies collectively as the Money Tree Defendants. MTCF asserted breach-of-contract and alternative unjust-enrichment claims against the Money Tree Defendants, and a fraudulent-inducement claim against Malik.

MTCF alleged that it provided a warehouse funding facility—a line of credit used to finance mortgage loans—to Money Tree NY. According to MTCF, the agreement required repayment of principal when a mortgage loan was sold to an institutional buyer or within three months after funding, whichever came first, and required monthly interest generally calculated at an annual rate of 14%. MTCF alleged that Money Tree DE later used MTCF’s funds and acted consistently with the same arrangement.

MTCF alleged that the Money Tree Defendants stopped making required payments and failed to repay principal on 23 outstanding mortgage loans. It claimed at least $720,374.31 in unpaid interest and $10,563,345.06 in unpaid principal. MTCF also alleged that Malik falsely represented when certain mortgage loans would be sold, causing MTCF to continue financing loans that it otherwise would not have funded.

Motions and jurisdiction

The Money Tree Defendants and Malik moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which addresses subject-matter jurisdiction, and Rule 12(b)(6), which tests whether a complaint adequately states a legally plausible claim. They argued that the court lacked diversity jurisdiction and that MTCF had not adequately pleaded its claims.

The court found complete diversity. For a limited liability company, citizenship depends on the citizenship of its members. The court determined that MTCF’s members—Keith Stein, Oliver Cojot, and Ira Saferstein—were domiciled in Connecticut or Florida when the action began, rather than New York. The court therefore denied the motion to dismiss for lack of subject-matter jurisdiction.

Contract claims

The court held that MTCF adequately alleged an oral contract with Money Tree NY. Emails, texts, and a letter prepared for Money Tree NY’s accountants supported the allegation that the parties had an existing arrangement, rather than merely planning a future agreement. The court also held that MTCF adequately alleged an implied-in-fact contract with Money Tree DE because Money Tree DE allegedly used MTCF’s funds and repaid those funds with interest in accordance with the arrangement.

The court found that the alleged contract terms were sufficiently definite. The parties’ communications identified material terms, including the funding facility, repayment requirements, and interest. The court also concluded that the agreement’s lack of a fixed duration did not invalidate it because the agreement could be ended at will, subject to repayment of amounts already borrowed.

The court further held that the alleged agreements were not barred by New York’s Statute of Frauds, which generally requires certain agreements to be written and signed. The court concluded that the provisions concerning compensation for negotiating loans and agreements that cannot be performed within one year did not apply. It also allowed MTCF to plead unjust enrichment as an alternative theory while the enforceability of the alleged contracts remained disputed.

Fraudulent-inducement claim

The court held that MTCF adequately pleaded fraudulent inducement against Malik. MTCF identified seven emails, the dates of those emails, the alleged false statements about when loans would be sold, and the reasons the statements were allegedly fraudulent. The court found that MTCF adequately alleged Malik’s intent to deceive, MTCF’s reliance, and financial loss.

The court rejected Malik’s arguments that the statements were true, immaterial, insufficiently specific, lacking a sufficient showing of fraudulent intent, or not justifiably relied upon. Those arguments depended on factual disputes—particularly the meaning of “settlement date”—that the court could not resolve on a motion to dismiss. The court also rejected Malik’s argument that the fraudulent-inducement claim duplicated the contract claim because the two claims were brought against different defendants.

Disposition

The court denied the Money Tree Defendants’ motion to dismiss and denied Malik’s motion to dismiss. It denied MTCF’s request for oral argument as moot and directed the parties to appear for a telephonic conference. This was a pleading-stage ruling; the court did not enter a final judgment resolving liability or damages.