SUPREME COURT STATE OF NEW YORK COUNTY OF NASSAU. Defendants.

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1 SCAN SHORT FORM ORDER SUPREME COURT STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. IRA B. WARSHAWSKY, Justice. TRIAL/IAS PART 14 WARHOUSE SPECIALISTS, INC. Plaintiff INEX NO. : /2005 MOTION DATE: 02/17/2006 MOTION SEQUENCE: against - xxx FASHION EYES, INC., DENNIS PALMER MELA BECOVIC and NADITA EDITA BECOVIC Defendants. The following papers read on this motion: Notice of Motion, Summons, Affidavit & Exhibits Anexed... Affidavit of Mela Becovic in Opposition... Reply Affidavit in Further Support of Milton Heid, Affidavit of Robert Cohen & Exhibits Annexed Reply Memorandum of Law in Further Support... This motion by plaintiff, Warehouse Specialists, Inc., for summar judgment in lieu of complaint pursuant to CPLR 3213, is granted against defendants Fashion Eyes, Inc. and Mela Becovic.

2 Plaintiff has established a prima facie case of entitlement to summary judgment in lieu of complaint by submission of the two promissory notes and related guaranties executed by the defendants together with proof of non-payment. Defendants, in turn, have failed to come forward with evidentiary proof sufficient to raise a triable issue of fact as to any of their affirmative defenses to the signed notes and guaranties. See Berlind v. Marin, 176 A.D.2d 452; 574 N. 2d 354 (1 st Dept. 1991); Seaman-Andwall COW. v. Right Machine COW., 31 A. 2d 136 (1 st Dept. 1968), aff 29 N. 2d 617 (1971); Interman Industrial Products. Ltd. v. RSM Electron Power Inc., 37 N. 2d 151 (1975). Plaintiff Warehouse Specialists, Inc. commenced this action against defendants, Fashion Eyes, Inc., Dennis Palmer, Mela Becovic, and Nadita Edita Becovic, seeking sumar judgment pursuant to CPLR 3213 jointly and severally against each ofthe named defendants, for non-payment of an instruent for the payment of money only, i.e. two (2) promissory notes which were made on behalf of the defendant corporation but guarantied by each of the individual defendants. The action against defendants Dennis Palmer and Nadita Edita Becovic has been discontinued without prejudice. Plaintiff asserts that defendants have defaulted on the two Negotiable Promissory Notes and corresponding Guaranties, for the principal amounts of $ (the July note) and $ (the May note). The notes were assigned to Cohen Fashion Optical, Inc. (CFO) which subsequently assigned the notes to plaintiff, who now brings action to recover on the defaulted notes. Plaintiff contends that it has established its prima facie case for recovery on the notes, and that defendants expressly waived their right to assert any defense, counterclaim or set-off under the notes and guaranties which would serve to defeat summary judgment. Defendants argue in opposition that Warehouse Specialists, Inc. cannot enforce the notes and guaranties at issue, and summary judgment should be denied, because the corporation is not a holder in due course, pursuant to Uniform Commercial Code 3-302(1),. They argue that the waiver clauses contained in the notes are void since the

3 transaction in which the notes were executed violates of section 687 of the New York Franchise Sales Act Y. Gen. Bus. Law 687, and therefore their primary defense is not waived as a matter of law, but serves to defeat plaintiffs motion. It is undisputed that the Promissory Notes were executed in connection with the purchase and sale of a franchise transaction. Defendants executed the notes for the purpose of purchasing Broadway Optical, Inc., an existing franchisee of CFO, and subsequently running the business as a franchisee ofcfo themselves. Therefore, if the franchise transaction was conducted in violation of the New York Franchise Sales Act the waiver clauses of the executed notes would be deemed void, and defendants would be permitted to raise the UCC 3-302(1) defense to defeat summary judgment. GBL 687(5) states: it is unlawful to require a franchisee to assent to a release, assignment, novation, waiver or estoppel which would relieve a person from any duty or liabilty imposed by this aricle. The purpose of this section is to prevent franchisors from insulating themselves from fraudulent liabilty under the Act. Keeping in mind the policies underlying the enactment of the Franchise Act and the deliberate incorporation of broad antifraud provisions into the statute, the cour finds that the Legislature intended to prevent a franchisor from contracting out of any liabilty imposed on the franchisor under the Act by the inclusion of merger and waiver clauses. J. Temple Marble & Tile v. Union Carbide Marble Care, 162 Misc. 2d 941 (1994). Essentially, defendants would be able to raise the defense that plaintiff is not a holder in due course under UCC 3-302(1) if they can demonstrate a triable issue of fact regarding violations of the Franchise Sales Act by CFO' s President, Robert Cohen, during the franchise transaction. Such a demonstration would trigger GBL 9 687(5), as noted above, where defendants could then raise the UCC 3-302(1) defense to defeat plaintiffs motion for summar judgment. However, Defendants fail to make this showing. Defendants claim that the franchise transaction was permeated with fraud, and violates the Franchise Sales Act, based on the representations, actions, and inactions of

4 CFO President, Robert Cohen during the inspection period leading up to signing the franchise agreement. Allegedly Cohen mislead them as to the viabilty of the Broadway Optical, Inc. location, and that franchise s previous financial performance. Specifically, defendants allege that Cohen was responsible for preventing them from observing Broadway s daily retail operations prior to consummating the transaction failng to provide Broadway s tax records prior to the transaction, and that subsequent to the transaction, CFO breached the Franchise Agreement by misusing advertising funds paid by the defendant corporation to CFO. See Affdavit of Mela Becovic, Pages, 9, & 16. Each of the defendants allegations are unsubstantiated and conclusory. The defendants have not provided the court with any documentation or evidence or objective proof of any sort to support their claims and thereby raise a bona fide triable issue of fact. Defendants fail to prove that such representations were made, or that Cohen was aware of the falsity of such statements assuming they were made, yet all of the allegations are susceptible of confirmation. Nor is there credible information about what sums defendants paid for advertising, what sum CFO agreed to spend on advertising and how much advertising was actually done. Defendants claim that Cohen had provided them with a computer printout that allegedly showed false and inflated monthly gross sales levels, on which they claim to have relied in accepting the terms of the franchise agreement with CFO. See Affdavit of Mela Becovic, Page 7. Again, defendants fail to produce this document as an exhibit, and therefore such statements are unsubstantiated and conclusory. Defendants finally contend that Elyse Rothschild, the former owner of Broadway Optical, visited the defendants store some time after the franchise transaction was consummated and revealed that she had sold the franchise to the defendants, as was faciltated by Cohen, due to the franchise s poor profits and unsuitable business location. See Affdavit of Mela Becovic, Page 11. Defendants offer this as evidence of Cohen

5 !,. '"\ scienter but again fail to support this statement with any documentation, such as an affidavit of Ms. Rothschild. This statement must therefore be considered hearsay and canot be used to raise a genuine issue of fact to defeat this motion. See Fields v. S & W Realty Associates, 301 A.D. 625, 754 N. 2d 348 (2d Dept. 2003). Due to the defendants failure to substantiate any of their claims as to Mr. Cohen alleged violations of the Franchise Sales Act, the court finds the waiver clauses in each of the signed promissory notes valid. As such, defendants are not entitled to raise any defense to the payment of the notes, including the aforementioned UCC 3-302(1) defense See Banque Nationale de Paris v Broadway Ownership Associates, 214 A. 2d 359, 361, 625 N. 2d 152, 154 (1st Dept. 1995), and the motion for summar judgment in lieu of complaint granted. Accordingly it is ORDERED and ADJUDGED, that the Clerk of the County of Nassau is directed to enter judgment in favor of Warehouse Specialists, Inc., and against Defendants, Fashion Eyes, Inc., and Mela Becovic, joint and severally, in the amount $193,512.89, together with interest, costs, and taxable disbursements. Dated: May u/tt C. xentere MI'\ AV 2006 COUNTY! NASSAU COUNTY CLERK' S OFFICE