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TN high court urged to hear counterattack vs. N.Y. lender with 208.05% loans

Predatory lender Flexibility Capital is at 1501 Broadway, Suite 1511 in New York, preying upon Tennesseans with high-interest loans that it sues to enforce, with the aid of Tennessee courts. (Photo Google)

I have sent to the Tennessee supreme court my application for a hearing following a negative ruling from the court of appeals in Knoxville that does not reach the merits of my claim. It rules for Flexibility Capital Inc. of New York on grounds of untimely notice of appeal. Is it possible that a case that I argue is void from inception can be maintained by four judges in two courts?

By David Tulis / NoogaRadio Network

My claim of voidness is a powerful defense. The lawsuit to enforce the loan contract is illegal in Tennessee. First of all, the “advance purchase of future receivables” is a sham and fraud. The credit was a loan, bound thus by the 10 percent interest rate limit in Tennessee law. Secondarily, a suit to enforce an illegal loan gives the circuit court of Hamilton County no subject matter jurisdiction. This defense can be raised at any time, and we raise this defense at a hearing at which the judge, Kyle Hedrick, granted summary judgment.

Kyle Hedrick is circuit court judge in Hamilton County, Tenn. He refuses to heed challenge to the court’s subject matter jurisdiction, forcing Flexibility v. Cupelli into the court of appeal in defiance of his duty to handle the case and dismiss the complaint, based on criminal conduct, ministerially. (Photo Kyle Hedrick)

We were ready with oral arguments and a detailed brief about the law. No matter, the judge said he would not hear that defense, though it can be raised at any time, even years later. Hence, the law indicates I suffer under a void judgment, which is the argument in my petition for a Scotenn hearing. I omit here the arcane material regarding the timely filing of notice of appeal, the snare over which my defense is seen to have tripped.

I insist that even if I had filed the notice of appeal untimely — a point not entirely clear, and arguable — a void case cannot be given live and substance on account of defendant’s procedural error.

Application for permission to appeal

Ex pacto illicito non oritur actio. (No suit can be brought to enforce a contract in violation of law)

This application for a hearing is from a Jan. 5, 2024, order in the Knoxville court of appeals in Flexibility Capital v. Sabatino Cupelli et al No. E2023-00335-COA-R3-CV. Appellant did not request a rehearing. 

Appellant is one of two defendants sued in Hamilton County circuit court. He is acting alone in persona propria in this appeal, asking the court to take the case to clarify the interaction between the rules of civil procedure regarding notice of appeal in the context of a void judgment and whether the voidness of the complaint and the lack of subject matter jurisdiction are fundamental infirmities of no merit on grounds of untimely notice of appeal.

The case pits a New York merchant cash advance funder against two Chattanooga radio station operators who got a 208.05 percent per annum interest rate loan and who were harmed when Gov. Bill Lee locked down the Tennessee economy March 12, 2020, a state of emergency leaving them unable to fulfill a “future receivables sale and purchase agreement” (TR p. 25). Defendants borrowed $16,320 from Flexibility and began defaulting on automatic deduction payments March 3, 2020. The repayment total on the loan was to have been $24,140.

The appeals court focuses on two post-judgment motions to dismiss the petition. The Motion to reconsider and a supporting brief was filed Nov. 17, 2022. A second filing, Motion to set aside order for intrinsic fraud & demand for mandatory judicial notice (TR p. 252), submitted Dec. 22, 2022, is ruled a nullity because “the Motion to Set Aside was a serial post-judgment motion seeking to alter or amend the Summary Judgment Order on the same grounds that were raised in the earlier Motion to Reconsider” (Op. 10). The court says appellant “[filed] serial post-judgment motions for the express purpose of defeating the time constraints of Rule 4(A)” of the rules of appellate procedure. 

The Dec. 22, 2022, Motion to set aside order for intrinsic fraud & demand for mandatory judicial notice is denied April 10, 2023, nunc pro tunc to Feb. 15, 2023 (TR p. 288). Thirty days from that starting point expires March 17. The March 8 notice of appeal is timely if this is the dispositive final order “appealed from” under Tenn. R. App. P. 4(a).

Other stories about Flexibility Capital

In an appeal as of right to the *** Court of Appeals *** the notice of appeal shall be filed with the clerk of the appellate court within 30 days after the date of entry of the judgment appealed from.”  [emphasis added]

Appellant’s position is that this case is sufficiently in violation of due process rights as to warrant Rule 60.02 relief on subject matter jurisdiction grounds against a void complaint. 

The court of appeals errs in not seeing the judicial breach of void litigation and focusing on post-judgment motions it discerns are “on the same grounds” one after the other and improper.

Issues for review

The controversies inviting review are as follows.

I. Applicable standard: Rigidity and universality of rule of civil rules of procedure and the court’s duty to secure settlement of important questions of law.

Question for review: Whether the court is correct that petitioner’s motion to set aside was a forbidden serial post-judgment motion and, if so, what effect is this alleged nullity in a case where the court lacks subject matter jurisdiction because of an unenforceable usury contract?

II. Applicable standard: The “fundamental infirmity” standard in a lawsuit and Rule 60.02

Question for review: Is it just to dismiss for untimely filed notice of appeal if a Rule 60.02 motion is of record claiming no subject matter jurisdiction because of fraud?

III. Applicable standard: Operation of T.C.A. § 47-14-103 business credit relationships

Question for review:   Is the contract at center of this case a lawful advance purchase of future receivables, or is it a loan absolutely repayable and thus subject to the usury ban past 10 percent?

Main facts of the case

The conflict is over a 14-page loan agreement styled a “Future receivables sale and purchase agreement” (TR p. 25). The accused at Hot News Talk Radio receive $16,320 in a loan. The agreement requires the business to pay $164.22 every weekday by automatic withdrawal. The balance due is $24,140, or $7,820 more than the money extended. It takes 147 weekdays to pay off the loan, or 29.4 weeks, slightly more than half a year. 

Pages 1-10 of the contract indicate the agreement is a risk-sharing arrangement in which Flexibility admits it  might not be paid back if radio ad receipts are slack or if the business fails (TR p. 25 ff). Pages 11 and 12 are the “personal guaranty of performance” provision of the Feb. 6, 2020, agreement, requiring “prompt, full, faithful and complete performance and observance of all Merchant’s Obligations” and “shall well and truly pay *** the Obligations” on default or breach (TR p. 35). Defendant signatures appear on the form; no man or woman at Flexibility signs the contract.

Borrowers falter in making payments just ahead of the state of emergency declaration as ad sales dry up (Op. p. 3). 

Procedural history

The history relevant to this application touches on two post-judgment motions by appellant and which one controls the 30-day appeals clock.

A Nov. 7, 2022, hearing on plaintiff’s Motion for summary judgment ends with an order in its favor, followed by a written order Dec. 5, 2022. Prior to the court’s filing its order, appellant files Motion to reconsider and a supporting brief on Nov. 17, 2022.

At a hearing Dec. 19, 2022, the court denies orally the motion to reconsider. Visiting the clerk just prior to the hearing, accused file Answer to plaintiff response to motion to reconsider, challenge to subject matter jurisdiction. It is denied Jan. 18, 2023.

On Feb. 27, 2023, accused file Affidavit and objection to signing final order. It cites numerous cases regarding subject matter jurisdiction, inexplicably ignored of record.

The application focuses on No. 2, the motion to set aside order for intrinsic fraud etc. and whether it “[serially]” repeats material “on the same grounds” as his motion to reconsider (Op. pp. 9, 10). 

Issues for review


II. ‘Fundamental infirmity’

Defendants filed July 14, 2022, a Rule 8 motion for sanctions (false statements, lack of candor) for repeatedly calling the self-styled “future receivables sale and purchase agreement” a loan (TR p. 67). Attorneys Cheadle oppose, still using the loan language, “Plaintiff loaned defendants money that was to be paid back from defendant’s future receivables” (TR p. 77). The court denies the motion, rules “the document underlying this lawsuit shall be referred to as the ‘Future Receivables Sale and Purchase Agreement’” (TR p. 140).

This skirmish shows how defendants are victims of deception and fraud against a complaint with a fatal defect.

“‘[A] void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final. The list of such infirmities is exceedingly short; otherwise, [the] exception to finality would swallow the rule’ United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (internal citation omitted). A judgment rendered by a court lacking either personal or subject matter jurisdiction is void. Ins. Corp. of Ireland, 456 U.S. at 694, 102 S.Ct. 2099; Hood v. Jenkins, 432 S.W.3d 814, 825 (Tenn.2013); Gentry v. Gentry, 924 S.W.2d 678, 680 (Tenn.1996).” Turner v. Turner, 473 S.W.3d 257, 270 (Tenn. 2015)

In trial court the accused argued witlessly all through TR Vol. I against their own interest in insisting that the contract is a risk-sharing advance purchase of future receivables, in terms of which they initially argue they had a “valid excuse” for nonpayment, allowed in the contract (TR p. 28). Defendants attributed nonpayment to the “supervening impossibility” under Covid-19 and the state lockdown beginning April 2, 2020 (TR p. 145). 

The complaint seeks to enforce a usurious loan. “To constitute usury there must be a requirement that the money loaned be repayable absolutely. If it is payable only upon some contingency, the transaction is not usurious. The basic definition of ‘loan’ is an advance of money with an absolute promise to repay.” Lake Hiwassee Dev. Co. v. Pioneer Bank, 535 S.W.2d 323, 325 (Tenn. 1976). An honest advance purchase of receivables is not absolutely required to be repaid because repayment depends on performance. The contract repeatedly states Flexibility might not receive what it purchased — receivables as they come in from radio ad sales (TR p. 28). Defendants argue they could not pay receivables in the economic meltdown under Covid-19. Flexibility, calling the deal a loan on Page 1 of the complaint and other filings, switches position aided by the court’s order. It insists that if receivables dry up, borrowers must pay the entire sum at once even though the repayment does not come from radio ad receivables, despite being crippled financially.

The contract is a loan. The contract is deceitful and fraudulent. The contract is usury violating T.C.A. § 47-14-103. Contracting for such debt knowingly is a misdemeanor.

Accused come to themselves like the prodigal son in the Lord Jesus’ parable with a frontal challenge Dec. 19, 2022, with oral arguments and Answer to plaintiff response to motion to reconsider, challenge to subject matter jurisdiction (TR p. 227). 

In the trial court, appellant insists: “The court rejects the duty in well established law to have its conscience shocked at fraud, deceit, usury, ill-dealings. Defendants demand it take mandatory judicial notice of the law, per Tennessee evidence rule no. 202 as regards the control of state law and court rulings” (emphasis original) (TR p. 253).

The court of appeals does not see these proceedings as void, as absent a party with standing to sue and a court without subject matter jurisdiction. “[W]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.’ Tenn. R. Civ. P. 12.08. 

“Subject matter jurisdiction involves the court’s lawful authority to adjudicate a controversy brought before it. Chapman v. DaVita, Inc., 380 S.W.3d 710, 712 (Tenn. 2012); Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 639 (Tenn. 1996). Subject matter jurisdiction is conferred by statute or the Tennessee Constitution; the parties cannot confer it by appearance, plea, consent, silence, or waiver. In re Estate of Trigg, 368 S.W.3d 483, 489 (Tenn. 2012). Any order entered by a court lacking jurisdiction over the subject matter is void. Id. Therefore, subject matter jurisdiction is a threshold inquiry, which may be raised at any time in any court. Id.” Edith Johnson et al v. Mark Hopkins et al, No. M2012-02468-SC-S09-CV, Sup.ct. (2013)

Where subject matter jurisdiction is challenged, the party asserting that subject matter jurisdiction exists must secure it. Redwing v. Catholic Bishop at 445. A determination of subject matter jurisdiction involves questions of law; therefore, rulings on such questions are reviewed de novo on appeal, without any presumption of correctness. In re Estate of Trigg at 489; see also Lovlace v. Copley, 418 S.W.3d 1, 17 (Tenn.2013).

Citing Discover Bank v. Morgan, 363 S.W.3d 479, 488 n.17 (Tenn. 2012), the court says effectively appellant did not file a 60.02 petition because he “in fact” filed a Rule 59.04 motion to alter and amend, one that merely repeats appellant’s Motion to reconsider. The court ignores appellant’s subject matter jurisdiction challenge by representing it as wholly within his Rule 60.02 motion, converted into a “nullity” because it is a serial motion. 

“It is clear that the Motion to Set Aside filed within thirty days of the entry of the Summary Judgment Order was, in fact, a second Rule 59.04 motion to alter or amend the Summary Judgment Order” (Op. pp. 8, 9).

What of the court’s duty to render equity and justice? The Turner court says that under Rule 60.02(3) (“The judgment is void”), not even a reasonable time limit exists for appellant to file for void judgment, that case dealing with a personal jurisdiction challenge eight years after. +“We have determined that the Tennessee Rules of Civil Procedure do not supplant the prior precedents concerning the time for challenging a void judgment. Thus, except for exceptional circumstances that might require a different rule, Tenn. R. Civ. P. 60.02’s reasonable time limitation does not place a time limit on the right to challenge a judgment on the ground that it is void.” Pittman v. Pittman, No. 01-A-01-9301-CH00014, 1994 WL 456348, at *2 (Tenn. Ct. App. Aug. 24, 1994)

The court squeezes petitioner’s Rule 60.02 motion onto a dark judicial labyrinth from which cannot escape his claims of judicial misconduct and usury violation or challenges to fraud on the court, deceptive contract, lack of standing and subject matter jurisdiction. Rule 60.02 says one year; justice demands 8x that limit in Turner.

II. Loan vs. purchase

A totality of circumstances analysis of the relationship between Flexibility Capital and the radio station could determine if plaintiff is a buyer or a lender. Appellant’s position is that, based on the foregoing and admissions by Flexibility, it is a lender. The question is intensely fact-based, with the contract and the parties’ interactions seeking review.

The record contains a U.S. bankruptcy judge’s analysis of a case involving Shoot the Moon LLC, a restaurant business, and CapCall LLC, an ostensible advanced buyer of future receivables, outlining the distinction between loans and advanced sales of future receivables. The contract evaluation by the court may assist the court in deciding whether to reach the merits of this case.   The Shoot the Moon “memorandum disposition resolving competing motions for partial summary judgment,” In re Shoot The Moon, LLC, 635 B.R. 797 (Bankr. D. Mont. 2021) is of record (TR p. 235).

A transaction is judged by its real character, rather than by the form and color which the parties have seen fit to give it. The Flexibility complaint, as noted above, conceives of the contract in debtor-borrower terms. The contract has loan-like features giving Flexibility recourse against property other than receivables.  

  1. Flexibility claims collateral interest in “all accounts, including without limitation, all deposit accounts accounts-receivable, and other receivables, chattel paper, documents, equipment, general intangibles, instruments, and inventory *** now or hereafter owned or acquired by merchant” (contract p. 6 ¶ 16, TR p. 30).
  2. In the power of attorney section of the contract, p. 8 ¶ 26 , Flexibility can “obtain and adjust insurance,” “collect monies due or to become due under or in respect of any of the Collateral,” “collect any checks, notes, drafts, instruments” and “sign Merchant’s name on any invoice, bill of lading or assignment directing customers or account debtors to make payment directly to Flexibility” (TR p. 32). Such scheme appears to let Flexibility take over the radio station in pursuing interest beyond receipts from ad sales.
  3. Flexibility’s U.C.C. financing statement with the secretary of state gives it “a first priority lien on all of Seller’s tangible assets and intangible assets”). Flexibility’s security interests in the exchange are significantly broader than one expects from a sale of future receivables (TR p. 41).

Observes the Shoot the Moon court, 

These provisions all reflect an allocation of risk whereby CapCall is protected by significantly more than just the value of the receivables it purportedly bought while the Shoot the Moon entity remains exposed. Such an overall arrangement is consistent with a debtor-creditor relationship, not a seller-buyer relationship. 

Memorandum opinion p. 11 (TR p. 245)

When the counterparty has a legal right to be paid in full by the business, the existence of that legal right would be indicative of a debtor-creditor relationship even if practical realization of that legal right is “contingent on a merchant’s success” and hence not assured. [emphasis in original]

Id. In re Shoot The Moon at 820

Appellant asks the court to consider whether instant case is like that in Shoot the Moon, with expansive lender security interests beyond those of a purchase of future receivables.

The Flexibility agreement gives the impression of an advance purchase of future receivables by describing “[excusable]” events requiring the lender to accept no, or late, payments. These events on one extreme are bankruptcy, “adverse business conditions” and natural disasters “or similar occurrences beyond Merchant’s control,” down to, on the other extreme, payments less than the “specified percentage” (10 percent) “of each and every sum from sale made by Merchant” (TR p. 25).

The contract’s “merchant’s right for reconciliation” provisions at ¶10 run more than a full page. If the merchant experiences “sporadic increase or decrease in its daily receipts” (contract ¶ 10, TR pp. 26, 27), it can petition to change payments higher or lower. Reducing the amount on a slow day or for a bad week must be in writing. The merchant can “request retroactive reconciliation of the Merchants actual daily receipts for one full calendar month.” While the contract states on ¶ 1(b) the lender takes 10 percent “of each and every sum from sale made by Merchant,” the operation of the loan in this case brooks no variation in the fixed $164.22 deduction each weekday paid to Flexibility. 

The economic collapse caused by Gov. Bill Lee’s 2020 state of emergency is detailed as a third-party interference at TR pp. 95-97.  TR pp. 102-137 include executive orders, and appellant’s affidavit of injuries and harms caused by that third party against the agreement.

The record says nothing about emails and phone calls between the parties before the gloom preceding the official economic shutdown killed all radio station cash flow starting March 2, 2020, the date of first “failed” attempt by Flexibility to collect its $164.22 due. The payment record shows payments consistently failing starting March 11, 2020 (TR p. 39). The payments “fail” because the merchant account contains dollar amounts less than $164.22, meaning Flexibility wants more than 100 percent of that day’s receipts.

 It benefits plaintiff that its contract has provisions showing grace upon the merchant. The top New York court in K9 Bytes, Inc. v. Arch Cap. Funding, LLC, 56 Misc. 3d 807, 818, 57 N.Y.S.3d 625, 633 (N.Y. Sup. Ct. 2017) says right for reconciliation provisions indicate agreements such as Flexibility’s are a receivables purchase. 

The reconciliation provisions allow the merchant to seek an adjustment of the amounts being taken out of its account based on its cash flow (or lack thereof). If a merchant is doing poorly, the merchant will pay less, and will receive a refund of **633 anything taken by the company exceeding the specified percentage (which often can also be adjusted downward). If the merchant is doing well, it will pay more than the daily amount to reach the specified percentage. ***

If there is no reconciliation provision, the agreement may be considered a loan.

K9 Bytes at 632

The court gives credence to the contract provisions for reconciliation. “Having weighed all of the factors, the Court finds that the Arch agreements are sufficiently risky such that they cannot be considered loans, as a matter of law. Under no circumstances could Arch be assured of repayment, because its agreements are contingent on a merchant’s success, and the term is indefinite.” The court rules Arch is not a usurer.  K9 Bytes at 633 

The lack of variation in payments in instant case suggests the contract’s “advance purchase of future receivables” and its complicated reconciliation rules with a five-day delay are a sham, the relationship between the parties being debtor-lender, not merchant-buyer of receipts. 

Overshadowing Flexibility’s contract is the personal guaranty. It obliterates Flexibility’s risk exposure as expressed in its reconciliation provision. The personal guaranty overwrites the advance purchase of future receivables section of the contract with its risk-sharing provisions, and makes the agreement one for a loan absolutely repayable on demand. The guaranty makes the first 10 pages of the agreement legal pretense and balderdash. Payment is absolute, not contingent.

The case invites the court to dissect a trickster contract typical in the industry, protect duped hard-working borrowers and perhaps pare immense profits the pretended factors reap with each consummated transaction. 

If indeed the purported agreement is for a loan absolutely required to be repaid, as the complaint insists, such loan is illegal and unenforceable in any court, no matter what concessions about risk sharing appear in the contract drafted by the contract’s superior party.  

The record shows defendants rely on these representations about risk-sharing in arguing initially the contract is an advance purchase of future receivables with shared risk (Affidavit and amended answer to motion for summary judgment, TR pp. 98 ff). But they’d been fooled.


Petition for hearing

Will two courts without subject matter jurisdiction tolerate a New York predatory lender strong-arming crime victim appellant for nonpayment of a 208.05 percent loan? Are they allowed to magnify the good and reasonable Rule 4 notice of appeal filing deadline while diminishing a judicial enormity — a summary judgment void for the trial court’s lack of subject matter jurisdiction? Will the court authorize orders from four judges preoccupied with a damaged signpost while ignoring a washed-out bridge?

Case management and administration in two courts below are unjust and prejudicial. The Flexibility complaint displays its wares Day 1 Page 1 by heralding itself as a loan  (TR p. 6). Will this manifest fraud metastasize into fraud on the court, with the bench, Cheadle Law and Flexibility Capital forging themselves a single party with the challenge of subject matter jurisdiction swatted aside? 

Is it just that proper content in a Rule 60.02 motion, whenever filed, is a “nullity” when the court insists on Rule 4 and sees conscience-shocking claims therein as pretermitted?

“Issues concerning subject matter jurisdiction are so important that appellate courts must address them even if they were not raised in the trial court. *** A judgment or order entered by a court without subject matter jurisdiction is void.” Born Again Church & Christian Outreach Ministries, Inc. v. Myler Church Bldg. Sys. of the Midsouth, Inc., 266 S.W.3d 421 (Tenn. Ct. App. 2007)

If lack of subject matter jurisdiction means a judgment is void, which act in instant case cures such voidness to give the complaint and summary judgment substance? If we believe the opinion, judicial substance and legitimacy invest at the turning of the calendar page to Feb. 17, 2023, a Friday, and the absence that day of petitioner’s notice of appeal i hand of the clerk. The notice shows up 19 days later. 

Appellant proposes that legitimacy doesn’t flow backwards through the record to sanctify the Flexibility complaint. Rather, illegitimacy flows forward through two volumes of the technical record and the appeals court opinion. 

The contract’s venue provision, highlighted in the opinion (op p. 2), agrees the case does not belong in a Tennessee court — “any lawsuit *** shall be instituted exclusively in any court sitting in New York State, (the ‘Acceptable Forums’)” (TR p. 33, ¶ 37). Flexibility violates its own contract to sue in Hamilton County.

The case sheds light in a fraught area of the Tennessee economy — nonbank lending with myriad players taking advantage of Tennesseans in business and among the poor. The court’s taking the case can develop an analysis of the Flexibility business model without resistance from the plaintiff, which waives in the court of appeals defense of its “future receivables sale and purchase agreement.”

Determination of a void case supevenes over a finding of untimely filed appeal notice under the “longstanding rule that void judgments may be attacked at any time.” Turner at 279. Petitioner properly and timely demands the lower courts’ work be examined for voidness under Rule 60.02, such demand with its one-year time limit superseding the opinion’s narrow analysis regarding timely notice of appeal. 

This appeal is the first of its kind in Tennessee targeting a pernicious criminal industry having its way with the people across the state. The court of appeals opinion shares in manifest injustice and requires review so that the people and the government can be signaled that the business cash advance industry is in breach of law and morality. The case will serve a public interest in being considered more carefully in favor of the rules of law and equity.

The case empowers the court to exercise its supervisory authority on lesser tribunals and remind judges and the public of the basic standards of American jurisprudence touching the rules for standing, enforceability, subject matter jurisdiction and equity.

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