CHANGE CAPITAL PARTNERS FUND I, LLC, a Delaware limited liability company, Plaintiff/Amended Counterclaim Defendant,
VOLT ELECTRICAL SYSTEMS, LLC, a Texas limited liability company and PAUL J. BOUDREAUX, JR., Defendants/Amended Counterclaim Plaintiffs.
Submitted: January 10, 2018
Plaintiffs Motion to Dismiss Amended Counterclaim.
Harmon, Esquire, Rafael X. Zahralddin, Esquire, and Shelley
A. Kinsella, Esquire, Elliot Greenleaf, P.C., Wilmington,
Delaware, Attorneys for Plaintiff/Amended Counterclaim
Defendant Change Capital Partners Fund I, LLC.
S. Casarino, Esquire, White and Williams LLP, Wilmington,
Delaware, Attorney for Defendants/Amended Counterclaim
Plaintiffs Volt Electrical Systems, LLC and Paul J.
Richard R. Cooch, J.
Motion by Change Capital Partners Fund I, LLC
("Plaintiff) to Dismiss Defendants' Amended
Counterclaim, Plaintiff argues, pursuant to Superior Court
Civil Rule 12(b)(6), that this Court should honor the
parties' choice-of-law provision, which designates
Delaware law, in their operative "Merchants Receivables
Purchase and Security Agreement" contract. Defendant
Volt Electrical Systems, LLC ("Volt") and Defendant
Paul J. Boudreaux, Jr. ("Boudreaux" and,
collectively with Volt, "Defendants") argue in
response that Delaware law should not govern this transaction
as to Counts I-IV of the Complaint because either New York or
Texas would be the "default state(s)" for those
counts in the absence of a choice-of-law clause in the
contract, enforcement of the loan transaction under Delaware
law would be contrary to fundamental principles of New York
and Texas law, and New York and Texas have materially greater
interests in the determination of this issue than does
Delaware. Defendants acknowledge that Count V is governed by
Court finds, however, that Delaware law governs this
transaction. Delaware courts are generally reluctant to
subvert parties' agreed-upon choice-of-law provisions.
This Court may in appropriate cases ignore a choice-of-law
clause through the exception in Restatement (Second) of
Conflicts § 187(2)(b), which allows parties to a
contract to disregard the chosen state's governing law
and apply the law of a state that would have applied absent
the choice-of-law clause (the "default state") if
the default state has a materially greater interest than the
chosen state in the determination of the issue and
application of the law of the chosen state would be contrary
to a fundamental policy of the default state. The Court does
not find that use of this exception is proper under these
facts. Therefore, the Court will not disrupt the Delaware
choice-of-law clause. The Court grants Plaintiffs Motion to
Dismiss the Amended Counterclaim.
PROCEDURAL HISTORY AND FACTS
parties submitted at the Court's request a
"Parties' Statement of Agreed Upon: (i) Procedural
History; (ii) Facts; and (iii) Restated Contentions"
(the "Agreed Statement") on January 9, 2018. The
Agreed Statement follows below:
[Plaintiff] filed the Complaint commencing the instant action
on May 22, 2017. Defendants filed their Answer and
Counterclaim (the "Counterclaim") on July
5, 2017. [Plaintiff] filed a Motion on Behalf of
Plaintiff Change Capital Partners Fundi, LLC to Dismiss
Defendants' Counterclaim Pursuant to Del. Super. Ct. Civ.
R. 12(b)(6) on July 25, 2017 (the "Initial
Motion to Dismiss"). Thereafter, Defendants sought
leave to amend the original Counterclaim on August 2, 2017,
which leave was granted by this Court on August 14, 2017.
[Plaintiff] withdrew the Initial Motion to Dismiss on August
9, 2017 and Defendants filed the Amended Counterclaim on
August 15, 2017. The Amended Counterclaim lodges five causes
of action, four of which are predicated upon New York or
Texas statutes: (i) N.Y. Penal Law § 190.40; (ii) N.Y.
Gen. Bus. Law § 349; (iii) Tex. Fin. Code §
305.001(a) and § 304.001; (iv) Tex. Bus. & Com. Code
§ 17.44(a); and (v) negligence/negligent
On August 29, 2017, [Plaintiff] filed its Motion on
Behalf of Plaintiff Change Capital Partners Fund I, LLC to
Dismiss Defendants' Amended Counterclaim Pursuant to Del.
Super. Ct. Civ. R. 12(b)(6) (the "Motion to
Dismiss"). Defendants' Responsive Brief in
Opposition to Plaintiff's Motion to Dismiss Amended
Counterclaim was filed on September 29, 2017.
Thereafter, the Reply in Support of Motion on Behalf of
Plaintiff Change Capital Partners Fund I LLC to Dismiss
Defendants' Amended Counterclaim Pursuant to Del. Super.
Ct. Civ. R. 12(b)(6) (the "Reply")
was filed by [Plaintiff] on October 13, 2017. A hearing was
held on the Motion to Dismiss before the Court on November
20, 2017 (the "Hearing"). Both prior to
and after the Hearing, [Plaintiff] approached the Defendants
regarding the potential for resolving the matter via
mediation, further settlement discussions or some other form
of alternative dispute resolution. The parties could not
reach agreement on any form of resolution. Consequently, the
Parties are providing this Agreed Statement pursuant to the
Court's instructions after the Hearing.
On October 4, 2016, Azadian Group, LLC ("Azadian"),
Volt and Boudreaux entered into a Merchant Receivables
Purchase and Security Agreement (the
The fully executed Agreement contains a choice of law
provision designating Delaware law to apply to issues arising
from the Agreement.
On April 18, 2017, Azadian assigned the Agreement to
[Plaintiff] (the "Assignment"). Azadian and
[Plaintiff] are both Delaware limited liability companies
headquartered in New York. Volt is a Texas limited liability
company located in Texas. Boudreaux is a Texas resident and
the Managing Member of Volt. Volt and Boudreaux executed the
Agreement in Texas.
THE PARTIES' CONTENTIONS
parties restated their contentions in the Agreed Statement:]
A. Plaintiff's Contentions
[Plaintiff] hereby incorporates its Motion to Dismiss and
Reply as if fully set forth herein.
1. Pursuant to the terms of the Agreement, Azadian agreed to
purchase Volt's future receivables for a flat fee of
$350, 000.00, less fees and expenses, for a total payment of
$338, 000.00. Volt agreed to transfer $472, 500.00 of
purchased receivables to Azadian. Boudreaux personally
guaranteed Volt's obligations under the Agreement.
Azadian fully satisfied its obligations under the Agreement
and paid Volt $338, 000.00. Thereafter, Volt transferred a
total of $248, 590.00 in purchased receivables to Azadian.
Volt's last transfer to Azadian was on April 12, 2017.
Consequently, Defendants defaulted on their obligations under
the Agreement, leaving $223, 910.00 in purchased receivables
not transferred to Azadian. The Agreement contains provisions
allowing Azadian to recover attorneys' fees and interest
in the event that the Defendants default.
2. For purposes of a Motion to Dismiss, the Court must accept
only well pled allegations as true; the Court need not accept
conclusions of law averred in the Amended Counterclaim as
true. Further, with regard to well-pled allegations, the test
is whether Defendants may recover under any reasonably
conceivable set of circumstances.
3. Delaware law applies to this matter in its entirety. The
Agreement contains a provision of law designating Delaware
law as the law applicable to any dispute that arising from
the Agreement. There is no dispute that Azadian fulfilled its
obligations under the Agreement. The Defendants have
defaulted under the terms of the Agreement in perhaps the
most material and fundamental of their obligations to Azadian
and, subsequently, [Plaintiff]. That Delaware law should
apply to Defendant' default under the Agreement is
squarely within Azadian's and the Defendants' intent
as enshrined at Section 19.1 of the Agreement. Delaware law
applies because Azadian is a Delaware limited liability
company and Azadian and the Defendants agreed to designate
Delaware law as the applicable law for any disputes
concerning the Agreement, which facts establish a material
relationship between the Agreement and Delaware. The facts of
this matter provide no exception to Delaware's long held,
fundamental public policy in allowing parties freedom to
4. Because Delaware law applies, Counts 1 through IV of the
Amended Counterclaim must be dismissed. Count V of the
Amended Counterclaim must also be dismissed given the
insufficient allegations to establish that [Plaintiff] is
liable for Azadian's alleged conduct prior to the
Agreement being executed. Defendants have failed to
sufficiently allege that [Plaintiff] had knowledge of
Defendants' existing claims against Azadian at the time
the Agreement was assigned to [Plaintiff].
5. To the extent that the Court determines that Delaware law
does not apply, the Court must determine if New York and/or
Texas law apply to this matter.
a. Counts I and II must be dismissed because the alleged
conduct did not occur in New York and, consequently, the New
York statutes upon which Defendants rely are not applicable.
b. Further, Count I must be dismissed because N.Y. Penal Law
§ 190.40 may not be used as a predicate for a cause of
action by an entity, even if the cause of action is that
which seeks a declaratory judgment, but only as an
c. Count II must also be dismissed because the Defendants are
not consumers for purposes of N.Y. Gen. Bus. Law § 349
and Defendants have not alleged any basis that would allow a
factfinder to determine that Defendants are consumers.
Defendants' averment in the Amended Counterclaim that
they are consumers is not a well-pled factual allegation but
is rather a conclusion of law that need not be accepted by
the Court. The Agreement does not fall within the purview of
N.Y. Gen. Bus. Law § 349 because it has no impact on New
York's consumer public and it is not a consumer
transaction; Defendants have not alleged any bases upon which
a fact finder could find to the contrary.
d. Counts III and IV must be dismissed because Texas law does
not apply to the Agreement.
e. Count IV must also be dismissed because Defendants have
failed to allege any bases upon which they could be found to
be "consumers" under Tex. Bus. & Com. Code
§ 17.44. Defendants' baseless averments regarding
their status as consumers is a legal conclusion that need not
be accepted by the Court. Further, Defendants have failed to
allege any basis upon which the fact finder could find that
Azadian knew that the loaned funds were going to be used to
purchase or lease goods or services as required by Texas law.
As noted in the Motion to Dismiss, [Plaintiff] does not
concede that the Agreement is a loan transaction but
acknowledges that, for purposes of the Motion to Dismiss, the
Court must accept all well-pled factual allegations in the
Amended Counterclaim as true. Further, [Plaintiff] asserts
that Defendants' averments pertaining to the nature of
the Agreement are conclusions of law that need not be
accepted by the Court, rather than well-pled factual
Defendants incorporate their briefing on the Motion to
Dismiss and their arguments as stated on the record at the
Hearing, and this synopsis is not intended to limit,
restrict, or waive any of the Defendants' positions.
1. The transaction in dispute is a loan and not a purchase of
future accounts receivables.
2. The loan originated and was funded by Azadian (and
[Plaintiff] via the Assignment) in New York.
3. The Defendants were at all relevant times located in
4. Delaware has no relationship to the parties or the subject
5. The annualized interest rate charged by Azadian (and
[Plaintiff] via the Assignment) is at least 102%.
6. The loan transaction is usurious under New York and Texas
7. New York and Texas have well-settled public policies
against usurious loan transactions.
8. New York and Texas law would apply but for a choice-of-law
provision in the loan documentation referencing Delaware.
9. Delaware law recognizes that promiscuous use of Delaware
choice-of law provisions to circumvent another state law that
would apply but for the choice of-law provision warrants
disregard of the Delaware choice-of-law provision and
application instead of the law of the other state(s).
10. [Plaintiff] is wrong that the Defendants may not rely
upon New York law. The Defendants are permitted under New
York law to seek a declaration that the criminally usurious
nature of the loan transaction warrants cancellation of the
11. [Plaintiff] is wrong that the Defendants may not rely
upon New York law because they are not a consumer. The
Defendants have pleaded that they are a consumer for purposes
of New York law, and this is accepted for purposes of the
Motion to Dismiss. Nevertheless, as evidenced by the
information presented by the Defendants, New York law applies
broadly to protect consumers and businesses that
have been taken advantage of in usurious loan transactions.
12. The Defendants may also recover under Texas law since
they have been subjected to criminally usurious loan
practices in both New York and Texas. [Plaintiff] is wrong
that Texas law does not permit a claim unless there exists
the conjunctive "contracting for and receiving"
usurious interest, where the applicable Texas statute plainly
allows for a claim in the disjunctive of "contracting
for or receiving" usurious interest. In this instance,
Azadian (and [Plaintiff] via the Assignment) has both
contracted for and received usurious interest in violation of
13. The Defendants have pleaded that they are a consumer for
purposes of Texas law, and this is accepted for purposes of
the Motion to Dismiss. As such, [Plaintiff] is wrong to
suggest that the Defendants' claims under Texas law
should be dismissed for not being a consumer.
STANDARD OF REVIEW
motion to dismiss under Superior Court Rule 12(b)(6), the
Court "(i) accepts all well-pleaded factual allegations
as true, (ii) accepts even vague allegations as well-pleaded
if they give the opposing party notice of the claim, (iii)
draws all reasonable inferences in favor of the non-moving
party, and (iv) only dismisses a case where the plaintiff
would not be entitled to recover under any reasonably
conceivable set of circumstances." However, the
Court will "ignore conclusory allegations that lack
specific supporting factual allegations."