Opinion
62996-2014
06-24-2015
Richard S. Klein and NORTHERN WESTCHESTER INTERNAL MEDICINE, P.C., Plaintiffs, v. On Deck Capital, Inc., Defendant.
To commence the statutory time period for appeals as of right (CPLR 5513[a]), you are advised to serve a copy of this order, with notice of entry, upon all parties.
DECISION & ORDER
Index No: 62996-2014
Motion Return Date:
March 20, 2015
Motion Seq. No.1
The following papers (e-filed documents 7-30) were read on the E-filed motion by defendant for an order dismissing the complaint pursuant to CPLR 3211(a)(1) and (7).
Notice of Motion, Affirmation (Exhibits A-D)
Affidavit in Support (Exhibits A-E)
Memorandum of Law
Affirmation in Opposition (Exhibits A-E)
Reply Memorandum of Law
Upon reading the foregoing papers it is
ORDERED the motion is granted and the complaint is dismissed.
On August 16, 2013, the plaintiff, Northern Westchester Internal Medicine, P.C., borrowed $100,000.00 from defendant. The plaintiff, Richard S. Klein, guaranteed the loan. The terms of the loan called for the repayment of the loan in 251 installments of $543.66, to be paid on the first business day following disbursement of the principal and continuing on each and every business day thereafter until fully paid, or a total of $137,000.00. The plaintiff, Northern Westchester Internal Medicine, P.C., repaid the loan in full. The plaintiff, Richard Klein, made no payments on the loan or his guaranty.
Plaintiffs now sue claiming the loan is usurious under New York law, and seek to recover $37,000.00 which Northern Westchester Internal Medicine, P.C., claims it paid in interest.
Plaintiffs claim the effective interest rate of the loan is 37%, and defendant concedes the effective interest rate of the loan exceeds 25% (the criminal usury rate in New York [Penal Law 190.40]).
However, the defendant claims that a corporation has no cause of action for usury, and moves to dismiss the complaint upon the grounds that the complaint fails to state a cause of action (CPLR 3211[a][7]), and that there is a defense founded upon documentary evidence (CPLR 3211[a][1]). "A motion pursuant to CPLR 3211(a)(1) to dismiss a complaint on the ground that a defense is founded on documentary evidence may be appropriately granted only where the documentary evidence utterly refutes the plaintiff's factual allegations, conclusively establishing a defense as a matter of law. On a motion to dismiss the complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Atlantic Capital Realty v Cayuga Capital Mgmt., 116 AD3d 890, 890 [2d Dept 2014] [internal quotations and citations omitted).
The defendant argues that pursuant to the loan agreement Virginia law applies, and that the loan is not usurious under Virginia law. Moreover, defendant argues that even if New York law were applied plaintiffs have no cause of action for usury.
Choice of Law
Paragraph 39 of the "Business Loan and Security Agreement" signed by plaintiff provides,
"[O]ur relationship including this Agreement and any claim, dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to this Agreement is governed by, and this Agreement will be construed in accordance with, applicable federal law and (to the extent not preempted by federal law) Virginia law without regard to internal principles of conflict of laws. The legality, enforceability and interpretation of this Agreement and the amounts contracted for, charged and reserved under this Agreement will be governed by such laws. Borrower understands and agrees that (I) Lender is located in Virginia, (ii) Lender makes all credit decisions from Lender's office in Virginia, (iii) the Loan is made in Virginia (that is, no binding contract will be formed until Lender receives and accepts Borrower's signed Agreement in Virginia) and (iv) Borrower's payments are not accepted until received by Lender in Virginia."
"Generally, courts will enforce a choice-of-law clause so long as the chosen law bears a reasonable relationship to the parties or the transaction. A basic precept of contract interpretation is that agreement should be construed to effectuate the parties' intent. Where an agreement is clear and unambiguous, a court is not free to alter it and impose its personal notions of fairness. The freedom of contract, however, has its limits. Courts will not, for example, enforce agreements that are illegal or where the chosen law violates some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal. If the foreign law does not entail any such violation full effect should be given to law of our sister State" (Welsbach Electric Corp. v Mastec North America, Inc., 7 NY3d 624, 629 [2006] [ internal quotation marks and citations omitted]).
Here, Virginia law governs the parties' relationship. Pursuant to their agreement the parties intended Virginia law to apply. Moreover, Virginia law bears a reasonable relationship to the loan and the application of Virginia law is not offensive to New York public policy. Virginia law bears a reasonable relationship to the loan since defendant is headquartered in Virginia and the agreement provides that all payments are not considered made until received in Virginia (Astoria Fed. Mtge. Corp. v Pellicane, 78 AD3d 632 [2d Dept 2010]). In addition, plaintiff failed to meet its "heavy burden of proving that application of [Virginia] law would be offensive to a public policy of the State" (Welsbach Elec. Corp. 7 NY3d at 632). Virginia and New York law are similar in that each precludes an action by a corporation for usury (GOL 5-21[3]); Intima-Eighteen, Inc. v A.H. Schreiber Co., Inc., 172 AD2d 456 [1st Dept 1991], lv denied 78 NY2d 856 [1991]). The only difference is New York law permits a corporation to interpose a defense of criminal usury to an action against it for payment (GOL 5-521[3]), while Virginia law does not. Here, however, plaintiff does not seek to assert a defense to an action, but rather, as a corporation, it seeks to assert a cause of action for usury and recover the interest it paid. However, New York law does not permit a corporation to employ GOL 5-521 (3) "as a means to effect recovery by the corporate borrower" (see, Intima-Eighteen , Inc., supra, at 457).
Accordingly, the complaint is dismissed for failure to state a cause of action because Virginia law applies and Virginia law, as conceded by plaintiffs, does not permit a corporation to sue for usury.
New York Law
Even if New York law were applied the complaint fails to state a cause of action. GOL 5-521[3], which permits corporations to assert the defense of criminal usury, does not permit corporations to assert a cause of action for usury (Intima-Eighteen, Inc., supra). Moreover, documentary evidence in the form of the merged loan agreement signed by the plaintiff, Northern Westchester Internal Medicine, P.C., establishes that the loan was a business loan, made for business purposes, and thus it refutes plaintiffs' unsubstantiated and undocumented claim that the business loan defendant made to Northern Westchester Internal Medicine, P.C., to be used for the business purposes stated in the loan agreement was in reality a personal loan made to Richard Klein to be used as a down payment on a vacation home in Florida (see, Schneider v Phelps 41 NY2d 238 [1978]).
Finally, plaintiff's cause of action for unjust enrichment is dismissed "since the existence of an express contract, [the loan agreement], between the parties governing the particular subject matter precludes recovery under such a theory" ( Cooper, Bamundo, Hecht & Longworth, LLP v Kucsinski, 14 AD3d 644, 646 [2d Dept 2005]).
E N T E R,
Dated: White Plains, New York
June 24, 2015_________________________________
HON. JOAN B. LEFKOWITZ, J.S.C.