Money Tree Capital Funding, LLC v. Money Tree Capital Markets LLC
1:22-cv-10084
S.D.N.Y.Nov 9, 2023Background
- MTCF (a NY LLC) formed in July 2020 by three principals (Stein, Cojot, Saferstein) to provide a warehouse lending facility to Money Tree Capital Markets (Money Tree NY); funds were used to finance short‑term mortgage loans that were "pre‑sold" to institutional buyers.
- Under the alleged agreement Money Tree NY would provide loan information, repay principal upon sale (or within three months), and pay interest at ~14% per annum (payable monthly); no formal written credit agreement was executed.
- Malik (UK citizen, domiciled in Virginia per counsel) was a principal of Money Tree NY; in April 2022 he formed Money Tree DE and began using it in the business; starting summer 2022 some loans were repaid directly by the Money Tree entities rather than by institutional buyers.
- Between July–September 2022 Malik sent emails stating certain loans were "settling"; MTCF alleges Malik knew those loans had already been sold and made the statements to induce continued funding of 23 outstanding loans.
- MTCF alleges defendants ceased timely interest payments (Oct 2022–Feb 2023), terminated MTCF’s access to loan files on Box.com, and owe approximately $720,374 in unpaid interest and $10,563,345 in principal on 23 outstanding loans.
- Procedural posture: MTCF filed an amended complaint alleging breach of contract (against Money Tree NY and Money Tree DE), unjust enrichment (alternative), and fraudulent inducement (against Malik); defendants moved to dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). The court denied the motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject‑matter jurisdiction (diversity) — domicile of MTCF members | MTCF principals were domiciled in Connecticut (Stein) and Florida (Cojot, Saferstein), so complete diversity exists | At least one principal (esp. Stein) remained domiciled in New York, defeating diversity | Court found Stein domiciled in CT (sold NYC apt, CT license, tax return), Cojot and Saferstein domiciled in FL; complete diversity exists — 12(b)(1) dismissal denied |
| Existence and definiteness of contract (oral/implied) | There was an oral agreement with Money Tree NY and an implied‑in‑fact contract with Money Tree DE: material terms (repayment on sale/3 months, interest, information provision) were agreed and repeatedly ratified by conduct and communications | No enforceable contract: terms indefinite, parties contemplated future documentation; any agreement was with principals personally | Court held an enforceable oral contract with Money Tree NY and an implied‑in‑fact contract with Money Tree DE; terms were sufficiently definite (letters/emails/texts and course of performance supported mutual assent); breach claim survives |
| Statute of Frauds / Unjust enrichment | SOF does not apply (not a §5‑701(a)(10) intermediary arrangement; contract terminable at will so performance could occur within one year); unjust enrichment pleaded alternatively | SOF bars enforcement of oral agreement and precludes restitution claim | Court rejected SOF arguments and held unjust enrichment may be pleaded alternatively if the contract is found unenforceable; unjust enrichment claim survives in the alternative |
| Fraudulent inducement against Malik (Rule 9(b), scienter, reliance) | Malik knowingly misrepresented loan "settlement" dates in several emails to induce continued funding; allegations specify statements, dates, speakers, and were pleaded on information and belief because core evidence was in defendants' control; motive/opportunity alleged | Statements were true if "settlement" meant repayment to MTCF; pleading is insufficiently particular; scienter and justifiable reliance inadequately pleaded | Court found fraud pleaded with requisite particularity as to seven emails, scienter adequately alleged via motive/opportunity, and reliance factually plausible (denial of Box.com access cited); fraudulent inducement claim against Malik survives |
Key Cases Cited
- Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167 (2d Cir. 2008) (standard that court may consider evidence outside pleadings on Rule 12(b)(1))
- Makarova v. United States, 201 F.3d 110 (2d Cir. 2000) (plaintiff bears burden to prove jurisdiction by preponderance; court may consider materials outside pleading)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a claim that is plausible on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for federal pleadings)
- Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567 (2004) (citizenship for diversity is determined at commencement of action)
- Linardos v. Fortuna, 157 F.3d 945 (2d Cir. 1998) (domicile test for individual citizenship)
- Kolchins v. Evolution Mkts., Inc., 31 N.Y.3d 100 (N.Y. 2018) (objective‑manifestations test for contract formation)
- Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 976 F.3d 239 (2d Cir. 2020) (contracts of indefinite duration terminable at will are enforceable)
- Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573 (2d Cir. 2006) (contracts implied in fact are binding and terms derive from parties' conduct)
- Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir. 2005) (scienter pleading: strong inference of fraudulent intent required)