Wiesel v Rubinstein

[*1] Wiesel v Rubinstein 2006 NY Slip Op 51107(U) Decided on June 7, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 7, 2006
Supreme Court, Nassau County

Michael J. Wiesel and DEBBIE ROSENZWEIG, Executors of the Estate of Sol Wiesel and the Estate of Harriet Wiesel, Plaintiffs,

against

Kalman Rubinstein a/k/a KALMEN RUBINSTEIN, Defendants.



5678-03



COUNSEL FOR PLAINTIFF

Moskowitz & Book, LLP

1372 Broadway - 14th Floor

New York, New York 10018

COUNSEL FOR DEFENDANT

Leo Salzman, Esq.

2116 Avenue J

Brooklyn, New York 11210

Leonard B. Austin, J.

Defendant moves for leave to serve an amended answer asserting the

affirmative defense of usury; for summary judgment dismissing the first cause of action on the ground that the promissory notes sued upon in this action are unenforceable because they are usurious or to dismiss the first cause of action on the ground that it is barred by the Statute of Limitations.

BACKGROUND

A. Factual Background

This is action seeks to recover amounts due on six promissory notes. All of the promissory notes were made by the Defendant Kalman Rubinstein a/k/a Kalmen Rubinstein ("Rubinstein") as follows:

DATEFACE AMOUNTPAYABLE TODUE DATE

7-1-87$ 5,000Sol Wiesel

7-10-87$40,000Saul Wiesel 7-8-88

1-30-89$40,000Saul Wiesel 6-30-89

Harriet Wiesel

3-2-89$10,000Sol Wiesel 8-2-89

3-8-89$10,000Sol Wiesel 9-30-89

Harriet Wiesel

6-1-89$15,000Sol Wiesel 12-1-89

Harriet Wiesel

Each of the notes provides for payment of interest at the rate of 14%.

Plaintiffs allege that Rubinstein failed to pay the notes when they became due.

The complaint alleges two causes of action. The first cause of action seeks to recover the amount due on the notes with interest from their respective due dates.

The second cause of action seeks to recover on six checks totaling $11,200 issued on an account maintained by Melrose Distributors Inc. payable to cash or Saul Wiesel. All of these checks were dishonored when presented for payment.

Rubinstein's answer interposes three affirmative defenses. The first affirmative defense asserts that the claims are barred by the Statute of Limitations.

The second affirmative defense asserts heter iska. Heter iska is a Talmudic doctrine which was devised to avoid the religious proscription against lending money for interest.

Each of the notes contains a notation in Hebrew indicating the notes are subject to heter iska. Such transactions are viewed under Jewish law as creating a partnership between the monied party and the party with operational skill or the business idea. The [*2]"partner" with the operational skill agrees to return to the investor the money invested in the business with a specific rate of return. Payment is required only if the business succeeds. If the business fails, the investment is lost.

Rubinstein asserts that the promissory notes represent advances made by Wiesel as an investment in a Kosher pizza shop Rubinstein opened on Chambers Street in Manhattan. When the business failed, Rubinstein was absolved of his obligation to repay the amounts due on the notes.

The third affirmative defense states that the checks reflected in the second cause of action are unrelated to the promissory notes at issue in the first cause of action.

B. Procedural Background

Since the parties to this action are Orthodox Jews, the parties had agreed to submit this dispute for resolution to a Bet Din, a Jewish Religious Court. An agreement to submit a dispute for resolution to a Bet Din is treated as an agreement to resolve the dispute through arbitration. See, Spilman v. Spilman, 273 AD2d 316 (2nd Dept. 2000); Erber v. Goldstein, 195 Misc 2d 792 (App.Term, 2nd Dept. 2003): and Levovitz v. Yeshiva Beth Henoch, Inc., 120 AD2d 289 (2nd Dept. 1986). As a result of this agreement, this Court stayed the action subject to the resolution before the Bet Din.

Despite Rubinstein's agreement to submit to the jurisdiction of a Bet Din, he failed to appear before the Bet Din to which the parties agreed. A Bet Din will not proceed in the absence of a party. That is, it will not enter a default judgement in favor of the appearing party. Since Rubinstein failed to appear before the Bet Din, this Court vacated the stay and reinstated the action to active status before this Court.

After the action had been reinstated, Rubinstein moved for leave to serve an amended answer adding the affirmative defense of usury, for an order declaring the promissory notes that give rise to this action void as usurious or to dismiss the first cause of action as barred by the statute of limitations.

In deciding that motion, issues arose with regard to Plaintiffs' standing to bring this action. Plaintiffs Michael Wiesel ("Michael") and Debbie Rosenzweig (Debbie") are the children of Saul and Harriet Wiesel. Michael and Debbie brought this action in their

capacity of "successors-in-interest to and beneficiaries of the Saul a/k/a Sol Wiesel and Harriet a/k/a Harriot Wiesel".

By order June 20, 2005, this Court directed Michael and Debbie to demonstrate their standing to prosecute this action. In compliance with that order, Michael and Debbie produced Letters Testamentary of the Estate of Harriet Wiesel which were issued to Michael and Debbie by the Surrogate's Court, Kings County on May 23, 2002 and that Letters Testamentary of the Estate of Saul Wiesel were issued to Michael and Debbie by the Surrogate's Court, Kings County on July 10, 2003. As co-executors of the estates of Saul and Harriet Wiesel, Debbie and Michael have standing to proceed with this action.

Since Debbie and Michael established their standing to proceed with this action, the Court reinstated Rubinstein's motion to the motion calendar for determination on the merits.

DISCUSSION[*3]

A. Substitution of Parties

Although Plaintiffs have not formally moved for substitution in their capacity as co-executors of the Estates of Saul Wiesel and Harriet Wiesel, such substitution is appropriate.

The promissory notes, to the extent they are enforceable, are property belonging to the estates of Saul and/or Harriet Wiesel. Where the property party to an action is the personal representative of an estate, the court should sua sponte substitute the personal representative of the estate as the party. See, Paul v. Ascher, 106 AD2d 619 (2nd Dept. 1984).

Therefore, Michael and Debbie in their capacity as co-executors of the Estates of Saul Wiesel a/k/a Sol Wiesel and Harriet Wiesel a/k/a Harriot Wiesel shall be substituted as party Plaintiffs in this action.

B. Amended Answer

Defendant seeks leave to serve an amended answer asserting the defense of usury. See, General Obligations Law §5-511. If the amendment is granted, Defendant then seeks to dismiss the first cause of action on the ground that usury would bar enforcement of the notes.

A party should be granted leave to serve an amended pleading in the absence of prejudice or surprise resulting from delay. Fahey v. County of Ontario, 44 NY2d 934 (1978); Northbay Construction Co., Inc. v. Bauco Construction Corp., 275 AD2d 310 (2nd Dept. 2000); and CPLR 3025(b). The party opposing the amendment must demonstrate that there will be actual prejudice in permitting the service of an amended pleading. Edenwald Contracting Co., Inc. v. City of New York, 60 NY2d 957 (1983); Holchendler v. We Transport, Inc., 292 AD2d 568 (2nd Dept. 2002); and O'Neal v. Cohen, 186 AD2d 639 (2nd Dept. 1992).

The determination of whether to deny or permit an amendment to the pleadings is one addressed to the discretion of the court. Liendo v. Long Island Jewish Med. Ctr.,

273 AD2d 445, (2nd Dept. 2000); and Henderson v. Gulati, 270 AD2d 308 (2nd Dept. 2000)

The party seeking leave to serve an amended pleading must make an evidentiary showing establishing merit to the proposed amendment. Joyce v. McKenna Assocs., Inc., 2 AD3d 592 (2nd Dept. 2003); and Morgan v. Prospect Park Assocs. Holdings, L.P., 251 AD2d 306 (2nd Dept. 1998). The evidentiary showing establishing merit must be made by one with actual knowledge of the facts surrounding the proposed amendment. Id.; and Frost v. Monter, 202 AD2d 632 (2nd Dept. 1994).

A court will not consider the merits of the proposed amendment unless it is insufficient as a matter of law or totally devoid of merit. Sunrise Plaza Assocs., L.P. v. International Summit Equities Corp., 288 AD2d 300 (2nd Dept. 2001); and Norman v. Ferrara, 107 AD2d 739 (2nd Dept.1985); See also, Siegel, New York Practice 4th §237.

General Obligations Law §5-501 provides that no person shall charge interest at a rate greater than the higher of 6% or the rate set by Banking Law §14-a. Banking Law §14-a fixes the maximum legal interest rate at 16%. General Obligations Law §5-511 provides that any note having an interest rate in excess of the legally permitted rate shall be unenforceable. [*4]

All of the notes bear interest at the rate of 14%. However, the notes do not indicate the period for the calculation of interest. Defendant seeks to have the notes interpreted in a manner that interest is calculated over the term of the respective notes.

If such an interpretation were adopted by the Court, interest would be in excess of the legal rate, and thus, usurious.

The law, however, favors an interpretation which renders the agreement legal and enforceable rather than one that renders it illegal or unenforceable. 22 NY Jur2d Contracts § 219. "An agreement will not be adjudged to be illegal when it is capable of a construction which will uphold and make it valid." Lorillard v. Clyde, 86 NY 384 (1881). See also, Friedman v. State of New York, 242 App.Div. 314 (3rd Dept. 1934). The interpretation of the notes urged by Defendant would render them usurious and unenforceable. The interpretation of the notes suggested by Plaintiffs would render them enforceable. Given these alternatives, the Court must find that the notes were payable with interest at the rate of 14% per annum.

Rubinstein did not make any payments on the notes when they became due. Plaintiffs allege that Rubinstein began making payments of $400 per month to Saul Wiesel commencing in November 1996. Rubinstein made these payments through January 1999. From February 1999 through March 2001, Rubinstein made payments of $800 per month. Rubinstein has not made any payments since the payment made in March 2001.

The payments made by Rubinstein would be insufficient to pay the monthly interest on the outstanding balance.[FN1] Rubinstein has failed to place before this Court any evidence in admissible form that would support the claim that interest was anything other than 14% per annum.

Rubinstein's argument is premised more upon Plaintiffs' interpretation of the notes than what the notes actually provide. Plaintiffs calculate the amount due using compound interest. This is not proper. "[T]here can be no implied agreement to charge compound interest." Rourke v. Fred H. Thomas Assocs., 216 AD2d 717 (3rd Dept. 1995). Compound interest will be awarded only if the note specifically so provides. See, Giventerv v. Arnou, 37 NY2d 305 (1975); and Steinberg v. Williams, 163 AD2d 516 (2nd Dept. 1990). If Plaintiffs prevail, at most they will be entitled to recover is the principal amount due $120,000 together with simple interest at the rate of 14% per annum on the principal sum from the date the loans were made until the date of judgment, with credit being given for any payments made by Defendant.

The proposed amendment to the answer seeking to interpose the defense of usury is totally devoid of merit. Thus, the motion to amend the answer to assert this defense must be denied.

Since the Court is denying Plaintiffs' motion to amend his answer to assert the affirmative defense of usury is being denied, the motion to dismiss on the grounds the notes are usurious must be denied as academic.

C. Statute of Limitations

1.Equitable Estoppel

All of the notes were due between 1987 and December 1, 1989. This action was commenced in April 2003.

An action on a note is governed by six (6) year statute of limitations. A cause of action on an instrument accrues on the day after the date of maturity. Uniform Commercial Code § 3-112(1)(a). A cause of action on a demand note or a note on which no date of payment is stated accrues on the date of issue. Uniform Commercial Code § 3-122(1)(b). All of the notes sued upon herein were due and payable substantially more than six years prior to the commencement of this action. Thus, the action would be barred by the Statute of Limitations unless Rubenstein is estopped from asserting the Statute of Limitations or the limitations period was tolled, waived or otherwise extended.

None of the provisions tolling or extension provisions contained in CPLR 204, 205, 207, 208, 209 or 210 are applicable to this action. Nevertheless, Plaintiffs assert Rubinstein should be equitably estopped from asserting the Statute of Limitations as a defense to this action.

The doctrine of equitable estoppel is applicable only when the actions of the Defendant lulled the Plaintiff into inaction to allow the statute of limitations to expire. Incorporated Village of Rockville Centre v. Town of Hempstead, 278 AD2d 279 (2nd Dept. 2000); and East Midtown Plaza Housing Co., Inc. V. City of New York, 218 AD2d 628 (1st Dept. 1995). "[D]efendant may be estopped to plead the Statute of Limitations where Plaintiff was induced by fraud, misrepresentation or deception to refrain from filing a timely action (citations omitted)." Simcuski v. Saeli, 44 NY2d 442, 448, 449 (1978). "[T]he doctrine of estoppel is only available to a Plaintiff who commences an action within a reasonable time after the facts giving rise to the estoppel have ceased to be operational (citations omitted)." Campbell v. Chabot, 189 AD2d 746 (2nd Dept. 1993). The Plaintiff asserting equitable estoppel must establish the Defendant's specific actions kept Plaintiff from timely commencing the action. Zumpano v. Quinn, -N.Y.3d-, 2006 WL 395229 (2006).

Plaintiffs must also establish that they reasonable relied upon the Defendant's affirmative misconduct. DeGori v. Long Island Rail Road, 202 AD2d 549 (2nd Dept. 1994).

Plaintiffs have failed to present any facts which would establish an equitable estoppel. Plaintiffs' assertion of estoppel is premised upon the allegation that Rubinstein was in contact with Saul Wiesel at least monthly between July 1988 and January 2001 regarding the notes. During these conversations, Rubinstein is alleged to have acknowledged the indebtedness. Plaintiffs further allege that Rubinstein repeatedly advised Saul Wiesel that financial hardship prevented him paying amounts due on the notes or paying a greater amount. Rubinstein is alleged to have told Saul Wiesel that if he would just wait a bit longer Rubinstein would make payment.

Plaintiffs do neither allege nor establish that Rubinstein engaged in any [*5]affirmative misconduct which prevented Saul Wiesel from timely commencing the action to recover the amounts due on the notes. It is clear that Saul Wiesel was aware of all of the facts that give rise to the cause of action on the notes before the Statute of Limitations expired. See, Zumpano v. Quinn, supra. Financial inability to pay the amounts due on the notes or to satisfy any judgement obtained in an action brought on the notes does not give rise to an estoppel. Rubinstein may never have had the financial ability to pay the notes or any judgment obtained in an action brought on the notes. Thus, Plaintiffs have not established an equitable estoppel to the application of the Statute of Limitations.

2.Partial Payment

Plaintiffs also assert that Rubinstein reaffirmed the debt by making payments from November 1996 through March 2001. Michael alleges that Rubinstein verbally acknowledged to him his obligations on the note in mid-2001 and indicated his intention to make payment in full.

"[I]f part payment of a debt otherwise outlawed by the Statue of Limitations is made under circumstances from which a promise to honor the obligation may be inferred, it will be effective to make the time limited for bringing an action start anew from the time of such payment (citations omitted)." Roth v. Michelson, 55, NY2d 278, 281 (1982). The debtor or the debtor's agent must make payment of an admitted debt, the payment must be accepted as such and must be made under circumstances in which the debtor unqualifiedly and absolutely acknowledges that additional amounts are due. Siani v. Cinelli Enterprises, Inc., 289 AD2d 770 (3rd Dept. 2001).

Michael affirms that Rubin made payments to Saul Wiesel on account of the notes from November 1996 through March 2001. Rubinstein does not submit an affidavit denying these payments. If Rubinstein made the payments during that period, then the Statute of Limitations on the notes would begin to run anew. Since the last partial payment was made in March 2001 and this action was commenced in 2002, the action would be timely.

D.Summary Judgment

When deciding a motion for summary judgment, the court's function is to determine if triable issues of fact exist. Matter of Suffolk County Dept. of Social Services v. James M. 83 NY2d 178 (1994); and Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 (1957). Summary judgment should be denied if the court has any doubt regarding the existence of triable issues of fact. Freese v. Schwartz, 203 AD2d 513 (2nd Dept., 1994); and Miceli v. Purex Corp., 84 AD2d 562 (2nd Dept.1984). Since questions of fact exist regarding whether payments were made by Rubinstein reaffirming and reviving the debt and, thus, recommencing the running of the Statute of Limitations, his motion to dismiss the action as being barred by the Statute of Limitations must be denied.

Accordingly, it is,

ORDERED, that Defendant's motion for leave to serve an amended answer asserting the defense of usury is denied; and it is further,

ORDERED, that Defendant's motion to dismiss the action on the promissory notes as being void as usurious is denied as academic; and it is further,

[*6]ORDERED, that Defendant's motion to dismiss this action as barred by the Statute of Limitations is denied; and it is further,

ORDERED, that Michael Wiesel and Debbie Rosenzweig as co-Executors of the Estate of Saul Wiesel a/k/a Sol Wiesel and as co-Executors of the Estate of Harriet Wiesel a/k/a Harriot Wiesel are substituted as the party Plaintiffs in this action and the caption of the action should be accordingly amended to reflect such substitution; and it is further,

ORDERED, that counsel for the parties are directed to appear for a status conference on July 6, 2006 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY _____________________________

June 7, 2006 Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1: Saul and Harriet Wiesel loaned Rubinstein a total of $120,000. Interest on this amount, at 14% per annum, would be $1,400 per month. ($120,000 x 14% = $16,800; $16,800 ÷ 12 = $1,400.)