Defendant Bobby Manziel, a resident of Texas, has moved by order to show cause under CPLR 5015 to vacate a default judgment entered against him by this court after his counsel failed to appear at two successive status conferences for which counsel had proper notice. Plaintiff Colonial Funding Network, Inc., domesticated this court's judgment in Texas in early 2020 and began attempting to collect on the judgment there.

On March 26, 2020, an Ex Parte Term of this court (Hagler, J.) granted Manziel a temporary restraining order barring plaintiff from any judgment-enforcement efforts pending the [*2]hearing date of the motion—today, May 6, 2020.^[FN1]

In his motion papers, Manziel contends that the default in appearing at case conferences was reasonably explained by a scheduling miscommunication between his counsel and his counsel's administrative assistant; and that Manziel has a meritorious defense because plaintiff Colonial Funding Network, Inc., lacks standing to bring this action. In opposing the motion, plaintiff argues that Manziel lacks a reasonable excuse for the default, that Colonial Funding has standing to sue here, and that in any event Manziel waived that defense by failing to raise it in his answer.

This court agrees with Manziel that he has a reasonable excuse and a potentially meritorious defense, and therefore grants the motion to vacate.

As its name reflects, plaintiff Colonial Funding Network, Inc., is part of a group of affiliated companies engaged in providing cash advances to businesses in exchange for a percentage of the businesses' receivables. Affidavits submitted by plaintiff on this motion reflect that Colonial Funding is a wholly owned subsidiary of Strategic Funding Source, Inc. Strategic Funding is, in turn the sole member of a New York limited liability company, New State Funding LLC. And New State Funding sometimes does business as Bankcard Funding (and has filed a certificate of assumed name to that effect with the Secretary of State).^[FN2]

Manziel is a Texas merchant, doing business as a sole proprietor as the Oil Palace. In 2015, Manziel (doing business as the Oil Palace) entered into a cash-advance agreement with Bankcard Funding, under which Bankcard Funding purchased a share of Manziel's future receivables. (See NYSCEF No. 1 at 11-15.) Manziel also executed a personal guarantee to secure his obligations under the agreement. (See id. at 16-17.) The cash-advance agreement states on each page in a footer that Bankcard Funding is a trade name of New State Funding. Neither the agreement nor the guarantee, however, mention Colonial Funding at any point.

According to the allegations of the complaint, in early 2016 Manziel defaulted on his obligations under the cash-advance agreement. New State Funding did not, however, sue Manziel to enforce the default provisions of the agreement—Colonial Funding did. In May 2016, Colonial Funding, d/b/a Bankcard Funding, brought this action on the agreement, naming Manziel as the sole defendant.

Manziel timely answered the complaint. The answer included two affirmative defenses relevant here. The fourth affirmative defense states that "[u]pon information and belief, plaintiff lacks standing to bring this action as against the nat[ural] person Defendant inasmuch as there was never any privity of contract between the parties. (NYSCEF No. 5 at 3.) And the fourteenth affirmative defense states that "[u]pon information and belief, the natural person Defendant never borrowed any money from this Plaintiff in the first instance." (Id. at 5.)

After Manziel answered, plaintiff let the action languish for 18 months, until filing a request for a preliminary conference in January 2018,^[FN3] after which the action proceeded in the ordinary course.

At a status conference in January 2019, counsel for Manziel notified plaintiff and the court that he intended to move for leave to withdraw as counsel. The next conference was scheduled for April 2019 to afford counsel sufficient time to move to withdraw. He did not, however, bring that motion. Nor did he appear at the scheduled conference. This court entered an order adjourning the conference until the end of May 2019, noting counsel's failure to appear, and warning him that failure to appear for the May conference absent good cause would result in entry of a default judgment against Manziel. (See NYSCEF No. 18.) Counsel neither moved to withdraw nor appeared at the May 2019 conference. This court therefore issued an order striking Manziel's answer and entering default judgment. (See NYSCEF No. 19.) Judgment was entered in July 2019, and Colonial Funding promptly served notice of entry.

In February 2020, plaintiff's local counsel in Texas instituted garnishment proceedings against Manziel to enforce the July 2019 default judgment. In March 2020 Manziel moved by order to show cause to vacate the judgment and for a temporary restraining order barring plaintiff from executing on the judgment. This application was heard before an Ex Parte Term (Hagler, J.) of this court. On March 26, 2020, Justice Hagler signed the order to show cause, set a hearing date of today, May 6, 2020, and granted the requested TRO pending this court's hearing of the motion.

Manziel moves under CPLR 5015 (a) (1) to vacate the default judgment against him. He therefore must establish both a reasonable excuse for the default and a potentially meritorious defense to the action. (See Burlington Ins. Co. v Vartel NY Construction Corp., 181 AD3d 421, 421, [1st Dept 2020].) Although it is a close question, this court concludes that Manziel has met both requirements for vacatur.

Manziel's explanation for his default in appearing for two successive scheduled conferences in the action is, in essence, a form of law-office failure. Manziel's counsel has provided an affirmation explaining this failure in (great) detail. The affirmation states that after the January 2019 conference, counsel instructed his administrative assistant to remove this action from his active-matters list because he intended to move to withdraw as counsel due to an inability to communicate with his client. Counsel then succeeded in reaching his client, learning that his client had been nonresponsive because he had been hospitalized with a serious illness. As a result, counsel decided not to withdraw after all, but did not put the case back on his active-matters list, leading him to fail to appear for the two conferences.

In response, plaintiff argues that counsel should have known to appear for the May 2019 conference in light of the order issued after the April conference, that counsel had in general been neglectful in defending the action, and that counsel failed to explain his 8-month delay in moving to vacate the default judgment.

These arguments are not without force. Notwithstanding Manziel's counsel's undoubtedly heavy caseload, this court is troubled by counsel's apparent failure to monitor the docket in this case to avoid a default judgment, and by the delay in moving to vacate the default judgment once entered. Nevertheless, in the circumstances of this case—given the detailed explanation provided by counsel, and plaintiff's own 18-month delay in prosecuting the action—this court concludes that Manziel has provided a reasonable excuse for his default.

This court also agrees with Manziel that he has a potentially meritorious defense to the action—namely that Colonial Funding is not a party to the cash-advance agreement, and therefore lacks standing to sue to enforce the agreement. As discussed in the Background section above, the cash-advance agreement here was entered into between Manziel and New State Funding, doing business as Bankcard Funding. Colonial Funding is a legally separate entity from New State Funding. Nor does any evidence in the record indicate that New State assigned its rights under the agreement to Colonial. Colonial Funding is thus not a party to the agreement. And the complaint does not allege that Colonial Funding has standing to sue as an intended third-party beneficiary.

Plaintiff argues that Colonial Funding nonetheless has standing as New State's agent, because Colonial Funding was acting as servicer for Bankcard under the cash-advance agreement between New State/Bankcard and Manziel. But the agreement does not indicate that Colonial Funding would be acting as a servicer here—or even mention Colonial Funding at all.

This court does not agree with plaintiff's contention that an agency relationship exists here because prior cash-advance agreements between Manziel and New State/Bankcard expressly identified Colonial Funding as Bankcard's servicer. Colonial Funding brought its action on this agreement, not on earlier, separate contracts. Indeed, that other agreements [*4]identified Colonial Funding as a servicer while this one did not would suggest that Colonial Funding was not New State's agent here and thus lacks standing to sue on New State's behalf.

There is also no merit to plaintiff's argument that because Colonial Funding qualified as New State's agent because Colonial Funding wrote to Manziel as New State/Bankcard's servicer to inform him that he was in default of his obligations under this agreement. The very cases on which plaintiff relies state that an agent may sue on its principal's behalf if "the defendant has acknowledged that the plaintiff possesses a general agency authorizing him to act in all matters." (College Mgmt. Co. v Belcher Oil Co. of NY, 159 AD2d 339, 341 [1st Dept 1990] [internal quotation marks omitted]; see also Airline Reporting Corp. v S and N Travel, Inc., 238 AD2d 292, 293 [2d Dept 1997] [same].) Plaintiff does not point to any such acknowledgement by Manziel here.

Finally, plaintiff contends that Manziel waived his challenge to plaintiff's standing by failing to raise it in the answer, as required by CPLR 3211 [e]. This court is not persuaded. The answer expressly raises the affirmative defenses that plaintiff lacks standing to sue because there is no privity of contract, and that Manziel never borrowed money from plaintiff. To be sure, as plaintiff points out, these affirmative defenses refer to "the natural person defendant," and the answer elsewhere refers merely to "defendant." But this court is disinclined to give dispositive weight to this distinction—not least because the complaint names only Manziel himself as a defendant, without meaningfully distinguishing between Manziel in his personal capacity and Manziel in his capacity as sole proprietor of the Oil Palace. Moreover, in the context of a CPLR 5015 motion, movant is not required to show definitively that he should prevail in the action, but merely that he has a potentially meritorious defense or claim. (See Tony U. v Amy J.P., 179 AD3d 467, 467 [1st Dept 2020].) Manziel has met that burden here.

Accordingly, it is hereby

ORDERED that Manziel's motion to vacate under CPLR 5015 is granted to the extent that the default judgment entered in this matter on July 15, 2019, is vacated; and it is further

ORDERED that plaintiff is hereby barred from engaging in any effort to collect on the July 15, 2019, judgment in this matter (whether through execution, restraining notice, garnishment, or other means); and it is further

ORDERED that plaintiff shall immediately lift or withdraw any restraining notice or writ of garnishment served on any bank or employer of Manziel based upon the July 15, 2019, judgment; and it is further

ORDERED that plaintiff shall withdraw, vacate, and rescind any judgment domesticated in a foreign jurisdiction (such as the State of Texas) that was based upon the July 15, 2019, judgment; and it is further

ORDERED that Manziel shall serve a copy of this order with notice of its entry on all parties; on the office of the General Clerk, which is directed to restore this case to active status [*5]and amend its records accordingly; and on the office of the County Clerk, which is directed to vacate the judgment entered July 15, 2019, and amend its records accordingly; and it is further

ORDERED that notice of entry may be served by mail or by overnight delivery service, and shall e-file the notice of entry (and accompanying affidavits of service) on NYSCEF when e-filing of notices of entry is again permitted by order of Chief Administrative Judge Lawrence Marks; and it is further

ORDERED that the parties shall confer regarding an appropriate discovery schedule going forward (and any other matters relevant to the continued progress of this action), and shall prepare a joint request for a status conference with this court, as set forth in the Remote Conference Protocol available on this court's website, http://ww2.nycourts.gov/courts/1jd/supctmanh/index.shtml.