Agile Opportunity Fund, LLC v Vectormax Corp.
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Agile Opportunity Fund, LLC v Vectormax Corp. 2011 NY Slip Op 33534(U) December 27, 2011 Sup Ct, Nassau County Docket Number: 015235/2009 Judge: Ira B. Warshawsky Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] '5CJ SHORT FORM ORDER SUPREME COURT: STATE OF NEW YORK COUNTY OF NASSAU HON. lRAB. WARSHAWSKY, Justice. TRIAL/IAS PART 7 AGILE OPPORTUNITY FUND , LLC and EASTERN MANAGEMENT & FINANCIAL , LLC, Plaintiffs, - against - Index No. : 015235/2009 Motion Date: 10/28/2011 Sequence No:OOl , 002 VECTORMAX CORPORATION Defendant. The following documents were read on this motion: Plaintiff' Motion for Parial Summar Judgment on First and Third Causes of Action 1. Affirmation of Vector MAX in opposition to Motion for Parial Summar Judgment 2. Defendant' s Memorandum of Law in Opposition to Motion ......................... 3. Supplemental Affidavit of Jeffrey A. Miler, Esq. in Furher Support of Motion ..... 4. Affirmation of Max Folkenflik , Esq. in Furher Opposition to Motion ..........". 5. Appendix to Exhibits to Sur- Reply Affrmation in Opposition to Motion ............. 6. Motion for Leave to Amend Answer......................................................................... 7. Affrmation of Jeffrey A. Miler , Esq. in Opposition to Motion to Amend ............. 8. PRELIMINARY STATEMENT Plaintiff moves for parial summar judgment in the amount of not less than 075, 297.23 on the First Cause of Action; and in the amount of not less than $460 841.67 on the Third Cause of Action. Defendant moves for leave to amend its Answer to include an affirmative defense of usury . [* 2] BACKGROUND Agile Opportunity Fund, LLC (" Agile ) is the lender under two promissory notes executed by VectorMAX as borrower. The first note of December 26, 2007 is in the principal 000. amount of $560, 000; the second note of Januar 28, 2008 is in the principal amount of $224 The notes bore interest at the rate of 12% per annum , and provided that , in the event of default the interest rate would increase to 17% per annum, and that the face amount of the notes , together with accrued interest would be immediately due and payable. The original maturity date of June 26, 2008 was extended to May 15, 2009. Plaintiff claims that as of May 6 , 2011, defendant owed principal on the two notes of $784 000 , $52, 996. 67 accrued interest at 12% between October 31 2008 and May 15, 2009 , $238, 330. 56 of accrued interest at 17% between May 15 2009 through May 6 2011. Plaintiff Eastern Management & Financial , LLC (" Financial") is the lender under a promissory note made by VecorMAX on or about Januar 28, 2008 , in the principal amount of $336 000. The note called for interest at the rate of 12% per anum and for 17% in the event of default. It also called for acceleration of the indebtedness in the event of default. As with the 2009. Agile Notes , the original maturity date was June 26 , 2008 , which was extended to May 15, Financial claims that as a result of the default on May 15 2009, it is entitled to the principal sum of $336, 000, interest at 12% from October 31 2008 through May 15, 2009 , in the amount of $22 700, and interest at the rate of 17% from May 15, 2009 through May 6 , 2011 in the amount of $1 02 , 141. Defendants contend that the notes , with face amounts of $560 000 , $224 000, and $336 000 , were issued in retur for advances of $500, 000, $200 000 , and $200 000 respectively. Dealing, for example with the December 28, 2007 note , defendants claim that the $60, 000 over and above the $500, 000 actually received , constituted a 12% interest charge. With an initial due date of June 26 , 2008 with interest at 12%, the effective interest rate was 24% for six months, greater than the legally permissible rate of 25% per year. Defendant makes the same argument with respect to the Januar 26 , 2008 Agile Note with a face amount of $224 000 , but an Issue Price of $200, 000, a maturity date of June 26, 2008, and an interest rate of 12% , called for interest at the rate of24% for 5 months. The Financial [* 3] Note of Januar 28, 2008 has a face amount of $336 000 and an Issue Price of $200, maturity date of June 26, 2008, and interest at the rate of 12% per 000 , with a anum. In addition to the interest requirements on the Notes, under the accompanying Securties 000 loan, VectorMAX issued to Purchase Agreement , as additional consideration for the $500 Agile warants to purchase 125, 000 shares of Vector MAX stock at $4. 00 per share, and an additional warant for 25, 000 shares on the same terms. The Securties Agreement also contemplated an additional $200 000 loan, ultimately 000, with a $24 000 made in the form of the Second Agile Note with a face amount of $224 , the Securities original issue discount" . As additional consideration for the second loan Agreement also provided for additional warants for 50 shares at $4. 00 000 and 10 000 additional VectorMAX per share. put" the initially issued The Securities Purchase Agreement also gave Agile the right to " warrants back to VectorMAX for a period of 5 years , at 35% of the original loan of December 26, 2008 , or after the note was paid. Defendant contends that this put provision produces an , VectorMAX additional 35% interest for loans which extended only 5 or 6 months. In addition warants for 50% of had the right under the Securities Agreement to repurchase up to 50% of the additional the original loan. Had VectorMAX exercised this call, it would have produced an interest of 42 % for the one-year term of the loan. Defendant contends it payed usurious interest on the notes in the first half of 2008, and as the maturity date of June 28, 2008 approached, it became clear that VectorMAX would be unable condition of extension to October 31 , 2008 , Agile insisted on to satisfy the notes. As a 200 for the deferment payments . Defendants incurred $324 870 for the Agile Notes and $139 , essentially adding Eastern Note, $116 017 per month for a deferment of less than four months interest of 136% interest on top of the already scheduled interest. Agile and Eastern also allegedly insisted on the receipt of an additional 300, common stock , with a value of approximately $600, 000, 000 shares of which they obtained on June 30, 2009. Based upon the allegations of the Verified Complaint alone , defendants contend that the 719, 475. , or 155% interest demanded on the $700 000 loaned for less than 19 months was $1 , 167% per interest claimed on the Eastern Note was $753, 720. 30 for 18 months per anum. The '" [* 4] anum. Plaintiffs respond that the defendant' s calculations of interest required by the promissory notes are erroneous , and that, in any event, the notes contain multiple savings clauses. Moreover they contend that the inclusion in the interest calculation of the terms of the Securties Agreements and other agreements between the paries , first raised in a sur-reply, evidences defendant's recognition that the notes are not usurious on their face. Defendant's original answer of2009 did not include an affrmative defense of usury. They contend that they are entitled to an Order permitting them to amend the Answer to do so. Plaintiff contends that the failure to include such an affirmative defense constituted a waiver as a matter oflaw , and that , some two years later , there is no justification for such authorization. DISCUSSION Sumar Judgment When presented with a motion for sumar judgment , the fuction of a court is "not to determine credibilty or to engage in issue determination , but rather to determine the existence or non-existence of material issues of fact." (Quinn Dept. 1992)); See also (SJ Capelin Associates, Inc. v. 179 A. Krumland, v. 2d 448 , 449 - 450 34 N. Y.2d 338, 343 Globe Mfg. Corp. (1974)). To grant sumar judgment , it must clearly appear that no material and triable issue of fact is presented. (Stilman v. Twentieth Century-Fox Corp., 3 N. Y.2d 395 , 404 (1957)). It is a drastic remedy, the procedural equivalent of a trial , and wil not be granted ifthere is any doubt as to the existence of a triable issue. (Moskowitz v. Garlock 23 A.D. 2d 94 (3d Dept. 1965)); (Crowley s Milk Co. v. Klein 24 A.D. 2d 920 (3d Dept. 1965)). The evidence will be considered in a light most favorable to the opposing par. Garfield, (Weil v. 21 A.D. 2d 156 (3d Dept. 1964)). The proof submitted in opposition will be accepted as true and all reasonable inferences drawn in favor of the opposing par. A.D.2d 201 206 (Pi Dept. 2003)). On a motion to dismiss , (Tortorello v. Carlin, 260 the court must" , accept the facts as alleged in the complaint as true , accord plaintiffs the benefit of every possible favorable inference , and determine only whether the facts as alleged fit within any cognizable legal theory (Braddock v. Braddock 2009 WL 23307 (N. Y. A.D. I sl Dept. 2009)), (citing Leon v. '" [* 5] Martinez 84 N. Y.2d 83, 87 88 (1994)). But this rule wil not be applied where the opposition is evasive or indirect. The opposing par is obligated to come forward and bare his proof, by affdavit of an individual with personal knowledge , or with an attorney s affirmation to which appended material in admissible form , and the failure to do so may lead the Cour to believe that there is no triable issue of fact. (Zuckerman v. City of New York 49 N. Y.2d 557 562 (1980)). The role of this Cour , therefore , is not to decide whether or not the three loans are usurous, but whether or not defendants have raised triable issues of fact as to whether or not they are. Plaintiff makes the point that the notes , on their face, are not usurious , and , in any event claims are protected by the savings clause, which provides that "(n)otwithstanding , the any other provision hereof, interest paid or becoming due hereunder shall in no event exceed the maximum rate permitted by applicable law Were the promissory notes the only issues before the Court, it may well be that the plaintiff would be entitled to summar judgment. However , in examining the substance of a transaction which is suspected of usury, it does not matter whether the payments for the loan are (Vee Bee Service Co. v. Household Finance Corporation 51 N. Y.S. 2d 590 (Sup. Ct. , New York County, 1944)). That case involved the payment ofa fee by the borrower direct or indirect. of 5% of the amount borrowed, 40% of which was to pay Vee Bee Service Co. , which provided certin consulting and underwting services to some 52 bans. The other 60% of the 5% premium was maintained , initially in a special account , but thereafter not , to cover losses in the repayment of loans. In evaluating all the payments attendant to the loans, the decision noted that " . . . the Cour should not be confined to its superficial form, but should examine into the real nature thereof. Id at 597. The Cour there stated that the two elements of interest are " , the inconvenience of paring with it (the principal) for the present, and the hazard oflosing it entirely , citing Chase Blackstone , 4 Ed. 65 66. Nothing has changed since those statements. Where the lender provides for a legal rate of interest in the notes , but charges additional fees as protection against the risk of loss, it may well be that these charges are indirect charges of interest, however denominated , and may render the agreements in violation of the usury statutes. [* 6] Amendment of Pleadings The amendment of pleadings is governed by Civil Practice Law and Rules 9 3025 of the Civil Practice Law and Rules , which provides , in par , as follows: Rule 3025. Amended and supplemental pleadings (a) Amendments without leave. par may amend his pleading once without leave of court within twenty days after its service , or at any time before the period for responding to it expires , or within twenty days after service of a pleading responding to it. A par (b) Amendments and supplemental pleadings by leave. may amend his pleading, or supplement it by setting forth additional or subsequent transactions or occurences , at any time by leave of court or by stipulation of all paries. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances. The language of the statute, and cases interpreting it , make it abundantly clear that amendment of pleadings is to be freely granted unless the proposed amendment is "palpably insuffcient" to state a cause of action or defense , or it is patently devoid of merit. To the extent that prior decisions led to the conclusion that the movant was under a burden to establish the merit of the amendment , they erroneously stated the standard to be followed. Mancuso, (Lucido v. 49 A.D.3d 220 (2d Dept. 2008)). Defendants contentions require a scrupulous analysis of all of the loan agreements , but they are not "palpably insufficient" or "patently devoid of merit" . defendants, in failng to plead Plaintiff contends that usur as an affirmative defense, have waived the claim. The initial waiver does not preclude defendant from seeking to reinstate the claim by seeking to amend its pleading. When, as in this case , a defendant fails to plead an affrmative defense , but asserts the defense in connection with a motion for summary judgment, the waiver is considered to have been retracted and the Court is free to consider the defense in the defense or support of a motion for summar judgment. (Strauss v. BMW Financial Services Vehicle Leasing, 29 Misc.3d 362 [* 7] (Sup. Ct. , Kings Co. 2010)). The Court determines that defendant has raised significant material questions of fact as to whether or not , in the context of all the agreements between the paries , it was compelled to incur interest payments which exceeded the maximum rate permitted by statute. Motion Sequence 001 for Sumar Judgment in favor of plaintiff on the First and Third Causes of Action is denied. Motion Sequence 002 by defendant for leave to amend the Verified Answer to include an affrmative defense of usur is granted. This constitutes the Decision and Order of the Cour. Dated: December 27 2011 ENTERED DEC 2 9 2011 NASSAU COUNTY COUNTY CLER' S OFFfCE
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