Resolution: Won't Fix
I have used svn merge plugin together with svn plugin v1.34 and it all worked fine. Some time ago I updated svn plugin to the latest one 1.37 and svnmerge stopped working.
Try creating a feature branch and it gives some svn error.
There's something wrong with svnm.getCopyClient().doCopy which complains about wrong paths passed as arguments, while it all worked fine with 1.34