Opinion
23746/07.
Decided May 29, 2008.
Attorney for Plaintiff Kent D. Arthur, Esq., Brooklyn, NY.
Attorney for Defendants Noreen M. Revuelta, Esq., Wolfe Yukelson PLLC, Port Washington, NY.
Defendants Michael, Marina and Gregory Vax and Bakley Consulting Corp. ("Vax Defendants") move pursuant to CPLR 3212 for summary judgment dismissing plaintiff's complaint. For the reasons set forth below defendants' motion is denied.
BACKGROUND
This case arises from a loan, evidenced by a Promissory Note, Security Agreement and "Good Guy Guaranty," from plaintiff David Pasechnik to defendants Michael and Gregory Vax and Bakley Consulting Corp. ("Bakley"). Plaintiff claims, and the Promissory Note dated May 5, 2006, indicates, that the amount lent was $80,000. However, defendants claim that the actual amount lent was $70,000. The Promissory Note is signed by defendants Michael and Gregory Vax and Marina Vax as President of Bakley. The accompanying Security Agreement dated May 5, 2006 is also signed by both Michael and Gregory Vax and Marina Vax as President of Bakley. The Guaranty is signed by defendants Vadim Tesler and Oleg Bortnikov. Plaintiff's and the Vax defendants' signatures are all notorized by Lubov M. Arulin, purported to be an attorney. The loan was to be repaid, with $4,000 interest, two months later on July 5, 2006, for the total sum of $84,000.
Defendants move for summary judgment asserting that the terms of the loan were usurious because the $4,000 interest due in two months amounts to a 30 percent interest rate annually and, thus, is both civilly and criminally usurious. In addition, it is undisputed that the loan was used to discharge personal, rather than corporate obligations. Therefore, defendants claim that their obligations to repay the loan should be voided and that they should be entitled to recover $40,000, which they allege to have advanced toward repayment of the loan.
Plaintiff denies that any money has ever been repaid to him. He argues that defendants "made fraudulent representations to him in order to make him lend his money to enrich themselves" (Complaint ¶ 11). In opposition to the motion for summary judgment, he asserts that defendants are estopped from asserting the defense of usury because they allegedly initiated the transaction and suggested the interest rate on the note. Furthermore, plaintiff states that he was not aware that the interest rate on the loan exceeded the maximum legal rate because he relied on defendants and their attorney, Lubov Arulin, who allegedly drafted the documents. However, defendants claim that plaintiff actually chose Arulin as his own lawyer to draft the documents and defendants were only required to pay a fee to that attorney. They aver there was no special relationship between them and plaintiff, who was introduced to them because he was known in the community as a lender.
DISCUSSION
On a motion for summary judgment the burden of proof is on the movant to establish, by evidentiary proof in the form of affidavits or other evidence, such as deposition testimony, that no issues of material fact exist and judgment, as a matter of law, should be granted in its favor (CPLR 3212(b); Zuckerman v City of New York, 49 NY2d 557, 560). If the movant meets its burden, the burden shifts to the nonmovant to establish, with evidentiary support, the existence of a factual issue requiring trial of the action ( Vermette v Kenworth, 68 NY2d 714, 717). The parties' competing contentions are viewed in a light most favorable to the nonmovant ( Marine Midland Bank, N.A. v Dino Artie's Automatic Transmissions Co., 168 AD2d 610, 610 [2d Dept 1990]).
Defendants in this case corporation and individuals have claimed that the loan is both civilly and criminally usurious because the interest rate exceeds the maximum legal rate under both statutes. Under New York law, an annual interest rate exceeding 16 percent is civilly usurious (General Obligations Law § 5-501; Banking Law § 14-a), and an annual interest rate exceeding 25 percent is criminally usurious (Penal Law § 190.40). By statute, a loan that has been found to be usurious is void and unenforceable and the borrower is relieved from the obligation to repay both the principal and any accrued interest. (General Obligations Law 5-511(2); Seidel v 18 East 17th Street Owners, Inc., 79 NY2d 735, 740). A borrower who has successfully raised a civil usury defense is entitled to the reimbursement of payments made in excess of the legal interest rate (General Obligations Law § 5-513; see also Dollar Dry Dock Sav. Bank of NY v Bellino, 206 AD2d 499 [2d Dept 1994]). Corporations are usually barred from asserting the usury defense (General Obligations Law § 5-521), as are the individual guarantors of a corporate obligation( Webar v Capra, 212 AD2d 594, 595 [2d Dept 1995]). However, "an exception . . . is recognized where the corporate form is used to conceal a usurious loan to an individual to discharge his personal obligations, and not to further a corporate enterprise" ( Id. at 595; see also Schneider v Phelps, 41 NY2d 238, 242). Moreover, a corporate defendant may avail itself of a defense of criminal usury (General Obligations Law § 5-521; Seidel, 79 NY2d at 741).
The parties do not dispute that the annual interest rate on the loan is 30 percent and is thus in excess of the rates set forth in both the civil and criminal usury statutes. Moreover, Michael Vax's affidavit in support of the defendants' motion for summary judgment expressly states that the "money loaned was to discharge personal debts" (Michael Vax Affidavit in Support of Motion ¶ 3). Defendant Gregory Vax states in his reply affidavit that "My father [Michael Vax] was in deep financial straits, needed $70,000 and was willing to pay whatever rate he could negotiate with plaintiff," suggesting that the loan was to pay off personal rather than corporate debts. (Gregory Vax Affidavit in Reply ¶ 4). Indeed, neither of the purported loan checks are paid to the order of the corporate defendant Bakley, but rather, are paid to the order of defendant Michael Vax in the amount of $10,000 and an attorney, Leonard Adoff, in the amount of $60,000, further suggesting that the loan was made to satisfy a personal debt of Mr. Vax and not to benefit the Bakley corporation. Plaintiff proffers no evidence rebutting the assertion that the loan was made to alleviate the personal debts of Michael Vax.
Not disputing the usurious nature of the loan, plaintiff opposes the motion on the theory of estoppel in pais which, in certain contexts, prevents the borrower from successfully asserting the defense of usury when, as a result of a special relationship existing between the lender and the borrower, the lender is induced by the borrower to rely upon representations or an inference as to the legality of the transaction ( Seidel, 79 NY2d at 743). In some instances, if the court finds that the transaction, including the usurious interest rate, was the brainchild of the borrower, the lender will be entitled to the recovery of the principal plus legal interest ( Keezing v Rodriguez, 196 Misc 2d 408, 411 [Sup Ct, Kings County 2003]).
Generally, courts have found that an issue of fact exists with respect to the reliance upon a special relationship for the purpose of estoppel in pais where attorneys who are themselves borrowers draft the promissory note for a loan ( see Abramovitz v Kew Realty Equities, Inc., 180 AD2d 568 [1st Dept 1992]; Schaaf v Brosher, 82 AD2d 880 [2d Dept 1981]; Greenfield, 186 AD2d 391). In Russo v Carey ( 271 AD2d 889 [3d Dept 2000]), the court found a triable issue of fact where the lender claimed that he was induced to make the loan because of his friendship with the borrower for whom he felt sympathy because the borrower's husband was undergoing open heart surgery. In that case, there was also evidence suggesting that defendant deliberately placed usurious rates in the note to avoid repayment ( See Russo, 271 AD2d at 890).
In this case, plaintiff asserts that his friends (and guarantors) Oleg Bortnikov and Vadim Tesler introduced him to their co-defendants, suggesting that a special relationship of trust was thus created. Plaintiff further alleges that he relied on defendants' attorney, Lubov Arulin, who drafted the documents, and did not inform him that the rate was usurious. Defendants deny that Lubov Arulin was hired by them. Instead, they allege that the attorney was in fact employed by plaintiff, and defendants were merely required to pay the attorney a fee. Furthermore, they claim that the Vax family were strangers to plaintiff and were introduced to plaintiff only because he was known in the community as a money lender.
Issues of fact and credibility are presented by these contradictory contentions concerning the circumstances under which this loan was made. The question of Lubov Arulin's representation might readily be resolved by an affirmation from her, but neither party has provided such evidence. Upon the record before the court, it cannot be determined whether or not defendants made false representations to plaintiff which induced him to rely on the legality of the interest rate suggested by them. Inasmuch as the parties' competing contentions are to be viewed in a light most favorable to the nonmovant on a motion for summary judgment ( Marine Midland Bank, N.A., 168 AD2d at 610), issues of fact exist as to whether defendants and plaintiff had a special relationship which induced plaintiff to blindly trust defendants, and whether the Vax defendants established the interest rate, arranged the terms of the loan and actually drafted the Promissory Note sued upon ( see Schaaf, 82 AD2d at 880).
CONCLUSION
Accordingly, defendants' motion for summary judgment pursuant to CPLR 3212 is denied. Counsel are directed to appear for a conference in Commercial I at 9:45 am on July 16, 2008.
This constitutes the decision and order of the court.