Summary
holding that transactions "creat[ing] ownership interests in proceeds of claims, contingent on the actual existence of any proceeds," were not usurious because "Plaintiffs would have no contractual right to payment had Defendants been unsuccessful in negotiating settlements or winning judgments in the underlying actions"
Summary of this case from Obermayer Rebmann Maxwell & Hippel LLP v. John H.C. W., Iii, & Restorative Programming, Inc.Opinion
No. 04283–2011.
2012-03-29
KELLY, GROSSMAN & FLANAGAN, LLP, Flanagan & Associates, PLLC, Muraca & Kelly, Dennis Kelly, David Grossman, and Suzanne Flanagan, Plaintiff, v. QUICK CASH, INC., Casefunding,, Inc., Guardian Advisors LP I, Guardian Advisors LP II and Money For Lawsuits LP V, Defendants.
Isaac Zucker, Esq., Law Offices of Isaac Zucker, PLLC, Garden City, for Plaintiffs. Law Offices of Raul J. Sloezen, Esq., Oakland, for Defendants.
Isaac Zucker, Esq., Law Offices of Isaac Zucker, PLLC, Garden City, for Plaintiffs. Law Offices of Raul J. Sloezen, Esq., Oakland, for Defendants.
EMILY PINES, J.
ORDERED that the motion (001) by Defendants to dismiss the complaint, converted by the Court into a motion for summary judgment, is granted.
ORDERED that Defendants' request for attorneys' fees is referred to a hearing on April 23, 2012, at 10:00 a.m. before the undersigned.
In this action, Plaintiffs seek a judgment declaring that certain agreements between the parties are void as criminally usurious in violation of Penal Law § 190.04. The record reveals that Plaintiffs, as partners in a law firm, executed certain documents which provided that Plaintiffs would repay to Defendants a principal amount plus a fee which Plaintiffs allege amounted to an annualized interest rate in excess of 40%.
The complaint alleges that in May 2005, non-party Personal Injury Funding IV, LP, an affiliate and/or predecessor of one of the Defendants, extended a loan in the amount of $46,250 to plaintiff Muraca & Kelly, LLP. It alleges that, in October 2006, defendant Money For Lawsuits LP V extended a loan in the amount of $287,500 to plaintiff Muraca & Kelly, LLP; and the complaint alleges further that in December 2006, defendant Money For Lawsuits LP V extended a loan in the amount of $227,500 to plaintiff Muraca & Kelly, LLP. In April 2007, defendant Money For Lawsuits LP V extended a loan in the amount of $79,500 to plaintiff Muraca & Kelly, LLP. In September 2007, according to Plaintiffs, defendant Money For Lawsuits LP V extended a loan in the amount of $23,000 to plaintiff Muraca & Kelly, LLP. Plaintiffs allege that each and every one of the loans provided for the repayment of the principal loan plus a fee at an interest rate in excess of 40%. Plaintiffs also allege that they have repaid defendants in excess of one million dollars.
Plaintiffs contend that each and every payment they received from the Defendants was a loan and, therefore, subject to Criminal Usury laws under N.Y. Penal Law § 190.04. In support of this contention, Plaintiffs rely on the language of the original client agreements, which set forth that the Plaintiffs are “the Borrower” and the various defendants “the Lender”. There was never any doubt, according to Plaintiffs, that Defendants were “lending” money. It was only in August 2009, state Plaintiffs, when all the agreements were consolidated, that Defendants converted the word “loan” to the word “advance” in order to mask the obvious fact that Defendants were covering for the lending of funds at a criminally usurious rate.
Plaintiffs further assert that these loans were never non-recourse loans, despite their “label”, because the Defendants were not at risk. For example, if a judgment debtor were unable to pay a judgment entered in favor of one of Plaintiffs's clients in an underlying case, the individual Plaintiffs were still personally liable to Defendants. In addition, Defendants received their repayment without any reduction for Plaintiffs' costs or expenses. Moreover, if Plaintiffs were discharged as counsel and unable to find replacement counsel, Plaintiffs were required to find a new case to replace the collateral (i.e. former case) or pay liquidated damages.
The complaint further alleges that from December 2007 through February 2008 Defendants extended loans to plaintiff Flanagan & Associates. In August 2009, Plaintiffs and Defendants executed an Addendum to all prior agreements which provided that plaintiff Kelly, Grossman & Flanagan, LLP would assume responsibility for all outstanding loans and would provide additional collateral to secure the outstanding loans. Plaintiffs allege that the Addendum required them to pay an interest rate in excess of 40% annually. The instant action seeking declaratory relief voiding the alleged loans was commenced.
Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7). By order dated November 23, 2011 (Pines, J.), this Court converted the motion into a summary judgment motion and directed the parties to file and serve supplemental affidavits and other available proof, if desired, on thirty days' notice.
Kenneth Bradt avers in his personal affidavit that he is the President and CEO of defendants Quick Cash, Inc, Case Funding, Inc., and is a general partner in defendants Guardian Advisors LP I, Guardian Advisors LP II, and Money For Lawsuits LP V (Quick Cash Entities). He states that the principal purpose of the Quick Cash Entities is to advance money to attorneys and/or plaintiffs involved in litigation in either recourse loans or non-recourse advances. Bradt states that in a recourse loan, the attorneys grant a lien to the Quick Cash Entity against the attorneys' fees expected to be received on cases handled by the attorney/firm, and the attorney makes either monthly payments to the Quick Cash Entity or pays when each case settles and/or at the end of the term of the loan. Bradt avers however, that if the agreement is a non-recourse advance, the attorney assigns to the Quick Cash Entity a portion of their expected fee from the case or cases in which the attorney represented one or more of the parties, and pays the Quick Cash Entity only as each case settles. If there is no recovery in the case, then no money is due the Quick Cash Entity.
Bradt states all of the agreements at issue in this case were non-recourse advances, except for one contract dated February 29, 2007, which was subsequently converted to a non-recourse advance. At the time of the first advance made by Quick Cash to plaintiff Muraca & Kelly, in May 2005, it was agreed that Plaintiffs would provide their anticipated attorneys' fees recovered from three pending actions, and that Quick Cash would be paid only in the event of a recovery in those cases. It was also agreed that the obligation would increase at the rate of 3.5% compounded monthly. Plaintiffs Kelly and Grossman personally guaranteed the performance of this contract.
Bradt states that in October 2006, November 2006, April 2007, September 2007, plaintiff Muraca & Kelly requested financing from Quick Cash. The parties agreed that these were non-recourse advances. Plaintiffs also paid a processing fee and an origination fee with each advance. Plaintiffs Kelly and Grossman personally guaranteed the performance of each contract. Muraca and Kelly agreed to assign their anticipated fees in 27 pending actions as collateral. It was further agreed that the obligation would increase at the rate of 3.99% compounded monthly.
Bradt states that Flanagan & Associates obtained financing from Quick Cash in June 2007 and pledged all of their anticipated fees in two pending actions as collateral. Flanagan & Associates paid a processing fee. It was agreed that this advance was to be non-recourse funding. In October 2007, Flanagan paid off this contract in full.
Bradt further avers that in December 2007, plaintiffs Flanagan & Associates and Kelly & Grossman requested a second cash advance from Quick Cash and entered into three contracts on December 18, 2007. The Plaintiffs paid a processing fee. It was further agreed that these advances were to be non-recourse funding, and the obligation would increase at the rate of 40% compounded quarterly. The Plaintiffs agreed to provide periodic status updates on the cases held as collateral. Flanagan, Kelly, and Grossman personally guaranteed the performance of the contracts. A third cash advance made to Flanagan & Associates on December 20, 2007, reflected a true loan agreement with a maturity date of December 19, 2009. The Plaintiffs agreed to assign their anticipated fees from several pending actions and paid an application fee. Plaintiffs also agreed to provide periodic status updates regarding the cases held as collateral. Flanagan personally guaranteed the performance of the contract.
In February 2008, plaintiffs Flanagan and Flanagan & Associates requested a fourth cash advance from Quick Cash. Flanagan & Associates pledged fees from specific pending actions as collateral and Quick Cash agreed to make the advance a recourse loan agreement. Flanagan & Associates agreed to pay off the loan made on December 20, 2007, obtain an additional amount of funding, and pay an origination fee.
In May 2009, plaintiff Kelly, Grossman & Flanagan, a newly formed partnership, requested funding from Quick Cash for advertising fees and agreed to continue to prosecute the cases provided by Muraca & Kelly and Flanagan & Associates.
Bradt states that the Addendum was entered into by the parties on August 13, 2009, to modify some of the payment terms, wherein the Kelly & Grossman attorneys agreed to pay to Quick Cash 75% of the attorney fees and permitted retention of 25% of the attorney fees from the collateral. The anticipated attorneys' fees from sixteen pending actions were added to the collateral. In addition, a provision for liquidated damages was added in the amount of two times the payment obligation if a breach occurred. The Addendum converted the Flanagan recourse loan agreement dated February 29, 2008, into a non-recourse agreement, removed the requirement of Flanagan's personal guarantee, and deemed the Flanagan recourse loan agreement to be null and void.
Bradt states that the actual amount that was paid to all the Plaintiffs plus fees and costs was one million two hundred thousand sis hundred sixty one dollars and thirteen cents ($1,215,66.13). In contrast to the Plaintiffs' allegation that they have paid Defendants in excess of $1,000,000, Bradt avers that Quick Cash's records indicate that the actual amount received from the Kelly & Grossman attorneys was $451,136.27, and the amount received from Flanagan was $122,711.91. In addition, Bradt states that the Plaintiffs are in breach of the contracts, including not paying pursuant to the terms of the agreements, not providing accurate up to date status of the collateral cases and refusing to provide the settlement documents as required by the contracts.
A party moving for summary judgment must make a prima facie showing of entitlement as a matter of law, offering sufficient evidence to demonstrate the absence of any material issues of fact. Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 487 N.Y.S.2d 316 (1985); Zuckerman v. New York, 49 N.Y.2d 557, 427 N.Y.S.2d 595 (1980). Of course, summary judgment is a drastic remedy and should not be granted where there is any doubt as to the existence of a triable issue, Stewart Title Ins. Co. v. Equitable Land Servs., 207 A.D.2d 880, 616 N.Y.S.2d 650 (2d Dept 1994), but once a prima facie showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish material issues of fact which require a trial of the action. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 508 N.Y.S.2d 923 (1986).
“[I]t is well settled that when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms.” ‘ South Rd. Assoc., LLC v. International Bus. Machs. Corp., 4 NY3d 272, 277, 793 N.Y.S.2d 835 (2005), quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470, 475, 775 N.Y.S.2d 765 (2004). When interpreting a contract, “the court should arrive at a construction which will give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectation will be realized.” Herzfeld v. Herzfeld, 50 AD3d 851, 857 N.Y.S.2d 170 (2d Dept 2008). If the terms of a written contract are clear and unambiguous, intent of the parties must be found within the four corners of the contract. Correnti v. Allstate Props., LLC, 38 AD3d 588, 832 N.Y.S.2d 594 (2d Dept 2007). Extrinsic evidence of the parties' intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide. Innophos, Inc. v. Rhodia, S.A., 10 NY3d 25, 852 N.Y.S.2d 820 (2008). A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by the danger of misconception in the purport of the agreement itself and there is no reasonable basis of difference of opinion. Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 750 N.Y.S.2d 565 (2002).
In order to constitute a transaction subject to the Penal Code § 190.40, prohibiting criminal usury, such transaction must constitute a loan. Donatelli v. Siskind, 170 A.D.2d 433, 565 N.Y.S.2d 264 (2d Dep't 1991). Usury laws do not apply to investments (GOL § 5–501[2] ). Where a transaction involves interest to be paid based upon a contingency which is in the control of the debtor, usury will not apply. Summer v. People, 29 N.Y. 337 (1864). In order to determine whether a particular transaction qualifies as a loan subject to a criminal usury prohibitions, courts look to the purpose of the transaction; i.e., to lend money at a usurious rate dictated by the lender. Donatelli v. Siskind, 170 A.D.2d 433, 565, N.Y.S.2d 224 (2d Dep't 1991). Thus, the purpose of a transaction is determined by its true character, under all circumstances, rather than by its title. Vjuetta v. Euro–Quest Corp., 29 AD3d 895 (2d Dep't 2006).
The contracts dated May 6, 2005, October 10, 2006, December 7, 2006, April 9, 2007, June 5, 2007, and September 9, 2007 provide at paragraph 4.7 or 4.8:
“Attorney represents and warrants that Attorney fully understands that the Advance made hereunder is not a recourse loan, but a non-recourse financial transaction pursuant to which Investor's funds are at full risk.”
The Addendum to the Agreements by and among Quick Cash, Money For Lawsuits and Casefunding and affiliated entities, Muraca & Kelly, Dennis Kelly, Esq., David Grossman, Esq., Flanagan & Associates, PLLC, Suzanne Flanagan, Esq., and Kelly Grossman & Flanagan, LLP, dated August 13, 2009, page 8, provides, in part:
* * * Upon the signing of this Addendum, the Flanagan Recourse Agreement(s) shall be deemed null and void and the amounts due pursuant to those recourse agreement(s) are now incorporated in full herein as non-recourse.
Defendants have demonstrated their prima facie entitlement to judgment as a matter of law by proving that the disputed contracts are non-recourse advance agreements. In support of their motion, defendants contend that none of the contracts that exist as of today are true loan documents and they are not subject to the usury statutes. Copies of the alleged loan documents executed between the parties all so demonstrate.
Plaintiffs' contention that the language in the contacts was ambiguous, that “borrower” and “lender,” automatically qualify the contracts as loans and that the origination fees and processing fees, typically charged in connection with loans, qualify the contracts as loans is unpersuasive. In fact, the Defendants were always at risk of no recourse whenever one of the underlying cases went to trial and resulted in no recovery. Such circumstances simply cannot be stated to constitute a “loan”. The Court finds that the language in the contracts was not ambiguous, and the intent of the parties is clear, as demonstrated by the plaintiffs' express acknowledgment, as sophisticated attorneys, in each contract that a non-recourse agreement for a cash advance was entered into and not a loan.
The Court finds the holding in Matter of Strategies, LLC v. Ferreira (28 Misc.3d 1205[A], 2010 N.Y. Slip Op 51159[U][2010] ), to be persuasive. In that proceeding to confirm an arbitration award, the petitioner was a limited liability company that provided funding for a legal action brought by respondent Baltazar Ferreira, in which he was represented by respondent, the law firm of Jeffrey Lessoff. The funding, approximately $120,000, was a non-recourse advance pursuant to two agreements between the parties. The respondents agreed to pay petitioner from the proceeds received in the underlying action. The underlying action was subsequently settled for $250,000 and respondents began collecting the settlement proceeds. After respondents failed to pay petitioner its share of the settlement proceeds, petitioner initiated arbitration proceedings pursuant to the agreements to collect its share. An arbitrator issued an award in favor of petitioner holding respondents jointly and severally liable for approximately $120,000, plus 2.99% interest per month compounded monthly in accordance with the contract, plus additional simple interest and attorneys' and arbitration fees. In granting petitioner's motion to confirm the award of the arbitrator, the Supreme Court, New York County (Hunter, J.) rejected the respondents claim that the interest rate that was part of the arbitration award amounted to usury. In holding that the defense of usury was not applicable, the Court stated:
The concept of usury applies to loans, which are typically paid at a fixed or variable rate over a term. The instant transaction, by contrast, is an ownership interest in proceeds for a claim, contingent on the actual existence of any proceeds, Had respondents been unsuccessful in negotiating a settlement or winning a judgment, petitioner would have no contractual right to payment. Thus, usury does not apply to the instant case. ( See O'Farrell v. Martin, 292 NYS 581 [City Ct. N.Y.1936] [holding “[W]hen payment or enforcement rests on a contingency, the agreement is valid though it provides for a return in excess of the legal rate of interest.”] ).
Similarly, here, the transactions between the parties create ownership interests in proceeds of claims, contingent on the actual existence of any proceeds. Plaintiffs would have no contractual right to payment had Defendants been unsuccessful in negotiating settlements or winning judgments in the underlying actions. Therefore, under the circumstances, usury does not apply and the Defendants' motion for summary judgment dismissing Plaintiffs' complaint is granted.
Defendants' request for an award of its attorneys' fees is referred to a conference on April 23, 2012, at 10:00 a.m. before the undersigned.
This constitutes the DECISION and ORDER of the Court.