RICHARD L. GEMMA, as Receiver for BR Asset Management, LLC f/k/a Benrus, LLC, Plaintiff,
MICHAEL F. SWEENEY, DUFFY & SWEENEY, LTD., PALMLAKE GROUP, LLC, Barry Gertz, Defendants.
Plaintiff: Max Wistow, Esq.
Defendant: John B. Daukas, Esq.; William Mark Russo, Esq.;
William M. Dolan, Esq.
L. Gemma, as Receiver for BR Asset Management, LLC, f/k/a
Benrus, LLC (BRAM or Plaintiff), filed this suit, alleging
Michael F. Sweeney (Sweeney), Duffy & Sweeney, Ltd.
(D&S), PalmLake, Group, LLC (PalmLake), and Barry Gertz
(Gertz) (collectively Defendants) engaged in actionable
lending practices. Before this Court are Defendants'
respective motions to dismiss Plaintiff's Second Amended
Complaint (Complaint or SAC) pursuant to Super. R. Civ. P.
Court will briefly summarize the facts as alleged in the
Complaint. BRAM was a retailer that designed, marketed,
branded, and sold consumer products, including watches and
backpacks. SAC ¶ 7. In or around 2014, and all relevant
times thereafter, Defendants Sweeney and D&S provided
legal counsel and representation to BRAM. Id.
¶¶ 8, 9. In or around April of 2016, BRAM was
projecting $1, 000, 000 in sales but lacked the cash flow to
pay expenditures relating to production costs; Defendants
Sweeney and D&S were aware of BRAM's financial
situation. Id. ¶¶ 10-11. By April 20,
2016, Defendants Sweeney, D&S, and BRAM had reached a
financing agreement, in principle, pursuant to which BRAM
would receive $499, 621.14 to fund the production of
backpacks. Id. ¶ 12. According to Plaintiff,
the parties understood the financing arrangement was a
"bridge loan." Id. Defendants internally
referred to the financing transaction as a loan. Id.
April 22, 2016, Defendants Sweeney and D&S notified BRAM
that some of the funds had been advanced in the amount of
$149, 886.34. Id. ¶ 15. On that same day,
Defendant Sweeney signed and submitted PalmLake's
Articles of Organization to the Florida Secretary of State,
identifying himself as the authorized Manager of PalmLake.
Id. ¶ 14. On April 23, 2016-after having already
advanced funds-BRAM and Defendant Sweeney, purportedly on
behalf of PalmLake, executed a financing transaction styled
as a sale of BRAM's backpack purchase orders to Defendant
PalmLake, for a total purchase price of $499, 621.14
(Agreement). SAC, Ex. A ¶ 2. Defendants Sweeney and
D&S negotiated and drafted the Agreement, which provided
for an initial advance of $149, 886.34, a "fee" to
PalmLake equal to 15% of the advances within ninety (90)
days, and a Florida choice-of-law provision. SAC ¶¶
19, 21, 44, 45.
5, 2016, Defendant Sweeney personally advanced $22, 500 to
BRAM in addition to the purchase price to fund BRAM's
production of watches. Id. ¶ 23. On or about
May 20, 2016, BRAM and Defendant Sweeney, purportedly on
behalf of PalmLake, entered into a supplemental financing
agreement (First Addendum), drafted by Defendants Sweeney and
D&S, which like the Agreement, contained a Florida
choice-of-law provision and provided for a 15%
"fee" due to PalmLake. Id. Ex. B
¶¶ 1, 2, 7. The First Addendum reflected the
additional $22, 500 advance. Id. ¶ 1. On May
20, 2016, the balance of the original purchase price was
purportedly advanced. Id. Ex. B ¶
23, 2016, Expeditors, a shipping and delivery company,
emailed a request for $77, 533.00 to BRAM, copying Defendant
Sweeney, who in turn forwarded the email to Defendant Gertz,
writing, "[w]e need to advance this for shipping and
duties for the large backpack order we funded . . . I will
wire today so not to delay and you can send me half."
Id. ¶¶ 32, 33. On June 23, 2016, Defendant
Sweeney responded to Expeditors, stating that he would be
"wiring the $77, 553 . . . from [his] UBS account."
Id. ¶ 34. Defendant Gertz replied to Defendant
Sweeney, stating, "I will write [sic] half to your
personal account." Id. ¶ 35. Defendant
Sweeney did, in fact, wire the money on June 23, 2016.
Id. ¶ 34. On or about June 28, 2016, BRAM and
Defendant Sweeney, purportedly on behalf of PalmLake, entered
into a supplemental financing agreement (Second Addendum,
together with First Addendum, "Addenda"), drafted
by Defendants Sweeney and D&S, which like the Agreement,
contained a Florida choice-of-law provision and provided for
a 15% "fee" due to PalmLake. Id. Ex. C
¶¶ 2, 7. The Second Addendum reflected the
additional $77, 533 advance. Id.
in July of 2016, Defendants Sweeney, D&S, and D&S
employees (acting on their behalf) demanded and collected
payments from BRAM and subsequently deposited amounts
collected into D&S's "Client Trust Account"
for BRAM. Id. ¶¶ 49-52. Most of the
payments came from BRAM's account debtors. Id.
¶ 51. After entering the Trust Account, D&S caused
substantially all funds to be distributed directly to
Defendants Sweeney and Gertz, individually, and not to
PalmLake. Id. ¶ 53. BRAM repaid a total of
$689, 625.26, plus an additional $4, 000 "legal
fee." Id. ¶ 56.
filed suit in the above-captioned matter on May 25, 2018, and
an amended complaint on July 30, 2018. Plaintiff filed the
operative Second Amended Complaint on April 25, 2019.
Defendants filed their respective 12(b)(6) motions. On July
19, 2019, this Court heard oral argument on those motions and
sole function of a motion to dismiss is to test the
sufficiency of the complaint.'" Palazzo v.
Alves, 944 A.2d 144, 149 (R.I. 2008) (quoting Rhode
Island Affiliate, ACLU, Inc. v. Bernasconi, 557 A.2d
1232, 1232 (R.I. 1989)). A court must assume the truth of a
complaint's allegations and "examine the facts in
the light most favorable to the nonmoving party."
A.F. Lusi Construction, Inc. v. Rhode Island Convention
Center Authority, 934 A.2d 791, 795 (R.I. 2007)
(citations omitted). This Court may only grant a motion to
dismiss upon being convinced that a plaintiff would not be
"entitled to relief under any conceivable set of
facts." Estate of Sherman v. Almeida, 747 A.2d
470, 473 (R.I. 2000). Our Supreme Court has yet to adopt the
federal courts' recently altered interpretation of the
legal standard employed with respect to a Rule 12(b)(6)
motion to dismiss. Chhun v. Mortgage Electronic
Registration Systems, Inc., 84 A.3d 419, 422 (R.I. 2014)
(citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007)). Nevertheless, allegations that are "more in the
nature of legal conclusions rather than factual assertions
are not necessarily assumed to be true." DiLibero v.
Mortgage Electronic Registration Systems, Inc., 108 A.3d
1013, 1016 (R.I. 2015) (citation omitted).
(Rhode Island Law)
II asserts usury claims against all Defendants pursuant to
Rhode Island's Interest and Usury statute set forth in
G.L. 1956 §§ 6-26-1 et seq. Plaintiff
alleges "Defendants Sweeney, Gertz, and purportedly
PalmLake loaned money to BRAM at an interest rate in excess
of the maximum rate of interest in Rhode Island . . . ."
SAC ¶ 74. The applicable statute provides,
"no person, partnership, association, or corporation
loaning money to or negotiating the loan of money for
another, except duly licensed pawnbrokers, shall, directly or
indirectly, reserve, charge, or take interest on a loan,
whether before or after maturity, at a rate that shall exceed
the greater of twenty-one percent (21%) per annum." Sec.
in violation of § 6-26-2 are usurious and void, and the
borrower is entitled to recover any amount paid on the
loan." NV One, LLC v. Potomac Realty Capital,
LLC, 84 A.3d 800, 805 (R.I. 2014).
moves to dismiss Count II, arguing that he did not loan money
or receive interest in connection with the subject financing
transactions; this argument runs counter to the well-settled
principles applicable on a 12(b)(6) motion. This Court must
assume the truth of all facts alleged by Plaintiff at this
stage of the litigation-even those made with "great
generality." See Haley v. Town of Lincoln, 611
A.2d 845, 848 (R.I. 1992). "Vagueness, lack of detail,
conclusionary statements, or failure to state facts or
ultimate facts" will not justify dismissal at the
pleadings stage. Butera v. Boucher, 798 A.2d 340,
353 (R.I. 2002). Plaintiff has repeatedly alleged Gertz,
in his individual capacity, loaned money at usurious
interest rates. For example, Plaintiff alleges
"Defendants Sweeney, Gertz, and purportedly
PalmLake loaned money to BRAM" at a usurious rate (SAC
¶ 74); "[a]ll Defendants reserved,
charged, demanded and took from BRAM interest in excess of
the maximum rate" (SAC ¶ 75) (emphasis added); and
"Defendants Sweeney, Gertz, and purportedly
PalmLake willfully and knowingly reserved, charged, or took
for a loan or advance of money." SAC ¶ 79 (emphasis
added). Determining which parties extended credit and in what
capacity is a fact-based inquiry not appropriate for
resolution on a motion to dismiss. Cf. Federated Capital
Corp. v. Lushinks, No. CV136034997S, 2013 WL 3315766, at
*3 (Conn. Super. Ct. June 11, 2013) (citation omitted)
(opining that determination of whether defendants contracted
in individual capacity was a question properly reserved for
the Agreement and its Addenda list PalmLake as the supposed
financier does not alter this Court's analysis. Plaintiff
has alleged such documentation "did not accurately
reflect the true arrangement between the parties and was
intended to disguise a usurious transaction." SAC ¶
18.Under strikingly analogous circumstances,
courts have credited a complainant's allegations that the
actual lender was not, in fact, the one identified in the
financing documents. Eul v. Transworld Systems, No.
15 C 7755, 2017 WL 1178537, at *7 (N.D. Ill. Mar. 30, 2017)
("It is plausible to infer from Plaintiffs'
allegations that the identification of Chase or Bank One as
lender on the loan documents was a self-serving statement,
insofar as it facilitated the alleged  scheme.");
Ubaldi v. SLM Corp., 852 F.Supp.2d 1190, 1203 (N.D.
Cal. 2012). A court need not accept the truth of matters
asserted in appended documents without considering, among
other things, who authored the documents, their reliability,
and the plaintiff's purpose for attaching the documents
in the first instance. Northern Indiana Gun & Outdoor
Shows, Inc. v. City of South Bend, 163 F.3d 449, 455
(7th Cir. 1998). Particularly considering our
Supreme Court's recent warning against relying on a
loan's face to assess whether a transaction, in
substance, functioned as a usurious one, NV One,
LLC, 84 A.3d at 805, this Court must proceed with
skepticism in relying on the purported financing documents at
this juncture. The Complaint sufficiently alleges Gertz
loaned money and received usurious interest. Thus,
Gertz's motion is denied.
like Gertz, D&S moves to dismiss Count II, contending,
among other things, that D&S did not profit from the
alleged loan and served merely as PalmLake's agent and
Plaintiff's attorney. Yet, this argumentation assumes the
Agreement and Addenda conclusively establish PalmLake acted
as the sole financier; the Court is not at liberty to make
this factual assumption. See supra, §
III(A)(1). Therefore, the Court cannot determine if D&S
acted as a lender receiving usurious proceeds or an attorney
receiving reasonable attorney's fees.
Plaintiff has alleged facts directly contrary to the ones
D&S would have this Court adopt. Plaintiff alleges,
"Defendant Sweeney was acting for himself and on behalf
of D&S" (SAC ¶ 61), and that Defendant Sweeney
loaned money to BRAM. Id. ¶ 74. Plaintiff has
also alleged "[a]ll Defendants acted in concert in (i)
making the loans; (ii) demanding payment on the loans; and
(iii) achieving receipt of funds in excess of the 21% per
annum maximum interest rate . . . ." Id. ¶
The agency and grouping issues embedded in Plaintiff's
allegations simply cannot be resolved through a 12(b)(6)
motion. Scarvalone v. Kowalewicz, 26 A.D.2d 885,
885-86 (N.Y.App.Div. 1966) (affirming denial of motion to
dismiss by co-owner of property where complaint alleged
dealings with one co-owner conducting for and on behalf of
other co-owner). At this stage of the proceedings, this Court
cannot discern the parties' respective roles without
drawing impermissible inferences against Plaintiff.
D&S's motion is accordingly denied.
Sweeney moves to dismiss Count II, arguing that the Agreement
upon which the Receiver predicates his usury claim contains a
Florida choice-of-law provision, thereby precluding Plaintiff
from maintaining a Rhode Island-based usury claim. He argues
that the Agreement and its Addenda reasonably designate
Florida law because "the financier, PalmLake, is a
Florida company organized under Florida law and PalmLake and
BRAM are two sophisticated companies with the ability to
choose the law that would govern their relationship."
Mem. Supp. of Def. Sweeney's Mot. Dismiss 21. Plaintiff
counters by asserting, inter alia, that the
choice-of-law provision is unenforceable because the
individual Defendants organized PalmLake "for the sole
purpose of evading Rhode Island law and never treated
[PalmLake] as a separate legal entity . . . ." SAC
a general rule, parties are permitted to agree that the law
of a particular jurisdiction will govern their
transaction." Sheer Asset Management Partners v.
Lauro Thin Films, Inc., 731 A.2d 708, 710 (R.I. 1999).
However, Rhode Island law places certain limitations on a
party's right to have a contract enforced in accordance
with the law of his or her choosing. Id.
"It is almost universally held that the parties, in
exercising the power to select the jurisdiction whose law
they intend to have control the obligations, rights, and
duties under their contract, must act in good faith and with
no purpose of evasion or of avoiding some provision of the
law of the place of making." Owens v.
Hagenbeck-Wallace Shows Co., 58 R.I. 162, 173, 192 A.
158, 164 (1937).
the parties may not contrive or create fictitious contact
with an otherwise non-interested jurisdiction to validate a
choice-of-law provision. Id. (explaining the chosen
state's laws must have a "real, and not a mere
fictitious, connection with the subject-matter of the
transaction"); see also 125 A.L.R. 482 § 1
(noting a court must apply the parties' chosen law
"provided it is the law of a place with which some of
the vital elements of the transaction are connected . . . and
provided it has not been selected by the parties as a means
of evading the usury law of the state to which the
transaction would otherwise be referable"). Our Supreme
Court has cited the Restatement, which provides,
'"the law of the state chosen by the parties to
govern their contractual rights and duties will be applied .
. . unless . . . the chosen state has no substantial
relationship to the parties or the transaction and there is
no other reasonable basis for the parties'
choice."' Sheer Asset Management Partners,
731 A.2d at 710 (quoting ...