Opinion
51841/2015
12-11-2015
Karen Vitale and JENNA MAURIELLO, Plaintiffs, v. Gary Flocco, Defendant.
Appearances: Karen M. Riggio, Esq, for plaintiffs 1562 1st Avenue, Suite 174 New York, N.Y. 10028 Avery Steinberg, Esq., for defendant 2 William Street, Suite 406 White Plains, New York 10610
Appearances: Karen M. Riggio, Esq, for plaintiffs 1562 1st Avenue, Suite 174 New York, N.Y. 10028 Avery Steinberg, Esq., for defendant 2 William Street, Suite 406 White Plains, New York 10610 Terry J. Ruderman, J.
The following papers were considered in connection with (1) the defendant's motion for summary judgment pursuant to CPLR 3212 dismissing the complaint, quashing discovery, and imposing costs on plaintiffs and sanctions on plaintiffs' attorney, and (2) the plaintiff's cross-motion for summary judgment in their favor:
The notice of motion refers to CPLR 3212. The affirmation in support of the motion refers to CPLR 3211(a)(1). The motion is treated as a motion for summary judgment pursuant to CPLR 3212.
PapersNumbered
Notice of motion, memorandum of law, exhibits A - C 1 Cross-motion, affidavit, exhibits 1 — 52
The defendant moves for summary judgment pursuant to CPLR 3212 dismissing the complaint, and the plaintiffs cross-move pursuant to CPLR 3212 for an order granting them summary judgment on the complaint against the defendant.
By promissory note dated July 18, 2013, the defendant borrowed the amount of $50,000 from the plaintiffs. The stated purpose of the loan, as reflected in the promissory note, was to pay the deposits on two parcels of property located at 437 Howard Street and 375 Howard Street, Bridgeport, Connecticut. If neither property was purchased, defendant would repay the amount of $50,000; in the event either property was purchased, upon closing of either purchase, the defendant would repay the amount of $75,000; and lastly, if the real estate contracts were not terminated, and no closing held by February 28, 2014, the defendant would repay the amount of $75,000 on February 28, 2014. The note provides that it is governed by the laws of the State of New York.
The defendant maintains that since the amount of $50,000 was lent for a period of eight months (July 13, 2013 to February 28, 2014) with interest of $25,000, plus a late fee as demanded in the complaint of $3,000, the interest rate is over 80%. He contends that the loan is criminally usurious, and thus void.
On the cross-motion, plaintiff Karen Vitale submits her own affidavit, in which she states that the note was prepared by the defendant himself. She avers that the defendant has been a close family friend since the 1970's, and "an informal member of my family." She trusted the defendant as a friend, and understood him to be an expert in real estate transactions. In 2013, the defendant told the plaintiff that he was developing affordable housing projects in Connecticut, took the plaintiff to the site, and advised her he needed "start-up" capital. Defendant was aware that the money that plaintiff would invest were funds earmarked for her daughter's college education. Defendant offered to prepare the promissory note, personally or with his attorney. To overcome plaintiff's reluctance to invest her daughter's college funds, defendant offered a share of the profits as a "return on her investment."
Plaintiff Karen Vitale indicated that because the funds used to make the loan were to be used for her daughter's (Jenna Mauriello's) college education, she listed her daughter as the co-plaintiff herein. It is not disputed that co-plaintiff Jenna Mauriello was not personally involved in the transaction.
Analysis
The court's function on this motion for summary judgment is issue finding rather than issue determination. (Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395 [1957]). Since summary judgment is a drastic remedy, it should not be granted where there is any doubt as to the existence of a triable issue. (Rotuba Extruders v. Ceppos, 46 NY2d 223 [1978].) The burden on the movant is a heavy one, and the facts must be viewed in the light most favorable to the non-moving party. (Jacobsen v. New York City Health & Hosps. Corp., 22 NY3d 824 [2014].)
A transaction is usurious under civil law when it imposes an interest rate exceeding 16% per annum. (See General Obligations Law § 5-501 [1]; Banking Law § 14-a [1]). A transaction is criminally usurious when it imposes an interest rate exceeding 25% per annum. (See Penal Law §§ 190.40, 190.42; Abir v Malky, Inc., 59 AD3d 646, 649 [2d Dept. 2009] ["A transaction is usurious under civil law when it imposes an annual interest rate exceeding 16%, and is usurious under criminal law when it imposes an annual interest rate exceeding 25%"].)
Generally, a usurious loan is void. (See Gen. Oblig. Law §§ 5-511, referring to loans made by other than banks or savings and loan associations, which declares that all bonds, notes, contracts, deposits of goods, and the like arising within a usurious transaction are void.) Nevertheless, estoppel in pais will bar a defendant from asserting a usury defense in certain well-defined situations. In Baker v. Union Mutual Life Ins. Co. (43 NY 283, 289 [1871]) the court approved the definition of an estoppel in pais which was set forth in Dezell v. Odell (3 Hill 219 [1842]): "An admission or statement by one individual intended to influence the conduct of another with whom he is dealing, and actually leading him into a line of conduct which must be prejudicial to his interests, unless the party making the admission or statement be cut off from the power of retraction. . . . In such a case it would be against good conscience, and a fraud to deny the truth of the admission or statement thus made and acted upon, and this is the point upon which the question of estoppel turns."
More recently, the Court of Appeals has recognized the validity of estoppel in the context of a usury defense. In Seidel v. 18 East 17th Street Owners, Inc. (79 NY2d 735, 742 [1992]), the Court reasoned:
"The Appellate Divisions, and the majority of states to consider the issue, have recognized that a borrower may be estopped from interposing a usury defense when, through a special relationship with the lender, the borrower induces reliance on the legality of the transaction (see, Abramovitz v Kew Realties Equity, Inc., 180 AD2d 568 [1st Dept], lv denied 80 NY2d 753 [decided today]; Schaaf v Borsher, 82 AD2d 880 [2d Dept]; Angelo v Brenner, 90 AD2d 131 [3d Dept]; Hammond v Marrano, 88 AD2d 758 [4th Dept]; Annotation, Usury?Borrower's Initiation, 16 ALR3d 510, 513-516). We endorse such a rule. Otherwise, a borrower could void the transaction, keep the principal, and "achieve a total windfall, at the expense of an innocent person, through his own subterfuge and inequitable deception" (Angelo v Brenner, 90 AD2d 131, 133, supra)."
In Seidel, for her initial outlay of $ 150,000, plaintiff realized a return of at least $ 312,000 within four years. Any reliance on the transaction was to plaintiff's benefit, not her detriment, and on that basis the court ultimately rejected the plaintiff's estoppel argument.
In the context of usurious loans, estoppel in pais has been applied when (1) the defendant took advantage of, or the plaintiff relied upon, an alleged fiduciary or confidential relationship between the plaintiff and defendant, or (2) the plaintiff was "unschooled in financial matters" and relied to his or her detriment on the defendant's superior experience and knowledge. (Venables v. Sagona, 85 AD3d 904, 905 [2d Dept. 2011] [citing cases, although ultimately stating that evidence failed to establish an estoppel]; Russo v. Carey, 271 AD2d 889 [3d Dept. 2000] [finding issues of fact as to estoppel where plaintiff alleged that he loaned the money to defendant, his friend, due to her husband's impending open heart surgery, that the promissory notes were prepared by defendant, that defendant fixed the rate of return, that he relied upon defendant's experience in loan transactions, and that defendant intentionally prepared the notes with a usurious interest rate for the specific purpose of avoiding repayment].)
Although the defendant has raised a prima facie case of usury, the plaintiff has raised issues of fact as to whether the doctrine of estoppel in pais applies. Plaintiff's allegations, if established, require a factual resolution as to whether the defendant took advantage of, and the plaintiff relied upon, a confidential relationship of trust between the plaintiff and defendant, and in addition, whether the plaintiff was "unschooled in financial matters" and relied to her detriment on the defendant's superior experience and knowledge.
Based upon the foregoing, it is hereby,
ORDERED that defendant's motion and the plaintiffs' cross-motion for summary judgment are denied in all respects; and it is further
ORDERED that all parties appear in the Compliance Part on December 14, 2015 at 9:30 a.m. (the same date as set forth in the Preliminary Conference Order), at the Westchester County Courthouse located at 111 Dr. Martin Luther King, Jr., Boulevard, White Plains, New York, 10601.
This constitutes the Decision and Order of the Court. Dated: White Plains, New York____________/s/_______________________
December 11, 2015HON. TERRY JANE RUDERMAN, J.S.C.