American E Group LLC v. LiveWire Ergogenics Inc., No. 1:2018cv03969 - Document 28 (S.D.N.Y. 2018)
Court Description: MEMORANDUM OPINION AND ORDER re: 22 MOTION to Dismiss the Amended Complaint filed by LiveWire Ergogenics Inc. Given that the Note expressly caps the interest that can be recovered under its terms, the Court cannot determine from its face that it is criminally usurious. Therefore, Defendant's motion to dismiss is DENIED. The Clerk of the Court is directed to terminate the motion pending at ECF No. 22. SO ORDERED. (Signed by Judge Gregory H. Woods on 10/27/2018) (anc)
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American E Group LLC v. LiveWire Ergogenics Inc. U NI T E D S T A T E S DI S T RI C T C O U R T S O U T H E R N DI S T RI C T O F N E W Y O R K ------------------------------------------------------------------ X : A M E RI C A N E G R O U P L L C , : : Pl ai nt iff, - v: : : LI V E WI R E E R G O G E NI C S I N C. , : D ef e n d a nt. ------------------------------------------------------------------ X Doc. 28 US D C S D N Y D OC U ME NT E L E C T R O NI C A L L Y FI L E D D O C #: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ D A T E FI L E D: 1 0/ 29 / 2 0 1 8 1: 1 8- c v -3 9 6 9 -G H W M E M O R A N D U M O PI NI O N A N D OR DER G R E G O R Y H. W O O D S, U nit e d St at es Distri ct J u d g e: D ef e n d a nt Li v e wir e Er g o g e ni cs I n c. b orr o w e d $ 3 0, 0 0 0 fr o m A m eri c a n E Gr o u p L L C. I n e x c h a n g e, D ef e n d a nt a gr e e d t o r e p a y t h e l o a n i n f ull i n si x m o nt hs at a n a n n u al i nt er est r at e of 2 0 % . D ef e n d a nt als o a gr e e d t o iss u e Pl ai ntiff $ 5 0, 0 0 0 w ort h of D ef e n d a nt’s st o c k as a d diti o n al c o nsi d er ati o n f or t h e l o a n. D ef e n d a nt f ail e d t o eit h er iss u e t h e st o c k or p a y t h e l o a n , a n d n o w ar g u es t h at t h e i m pli e d i nt er est r at e of t h e l o a n is cri mi n all y us uri o us, a n d, t h us, t h at t h e pr o miss or y n ot e r e pr es e nti n g t h e l o a n is v oi d . B ot h p arti es a gr e e t h at t h e v al u e of t h e st o c k D ef e n d a nt was r e q uir e d t o d eli v er as c o nsi d er ati o n f or t h e l o a n c a n b e c o nsi d er e d t o d et er mi n e w h et h er t h e eff e cti v e i nt er est r at e o n t h e l o a n e x c e e ds t h e 2 5 % ca p i m p os e d b y N e w Y or k’s cri mi n al us ur y st at ute. T h e p arti es’ bri efi n g f o c us es o n t h e q u esti o n of w h et h er t h e v al u e of t h e st o c k c a n b e as c ert ai n e d as a m att er of l a w o n a m oti o n t o dis miss . D ef e n d a nt ar g u es t h at t h e v al u e of t h e c o nsi d er ati o n is pl ai n fr o m t h e f a c e of t h e p arti es’ n ot e; Pl ai ntiff ar g u es t h at v al u ati o n of t h e st o c k r ais es a q u esti o n of f a ct n ot s uit a bl e f or r es ol uti o n i n a m oti o n t o dis miss. B ut t h e m oti o n t o dis miss m ust b e d e ni e d f or a r e as o n t h at w as n ot a d dr ess e d b y t h e p arti es at all i n t h eir bri efi n g. B e c a us e t h e pr o miss or y n ot e c o nt ai ns a n e x pr ess c a p o n t h e m a xi m u m i nt er est t h at Pl ai ntiff c a n Dockets.Justia.com c oll e ct , t h e C o urt c a n n ot d et er mi n e t h at it is cri mi n all y us uri o us o n its f a c e. As a r es ult, D ef e n d a nt’s m oti o n t o dis miss is D E NI E D. I. BACK GR O U N D D ef e n d a nt Li v e wir e Er g o g e ni cs I n c. is a p u bli cl y-tra d e d c or p or ati o n t h at d e v el o ps n utriti o n al pr o d u cts. A m. C o m pl. ( E C F N o. 7) ¶ 9. In 2 0 1 5, D ef e n d a nt s o u g ht c a pit al t o f u n d its o p er ati o ns. I d. ¶ 1 0. D ef e n d a nt w as i ntr o d u c e d t o Pl ai ntiff i n N o v e m b er of t h at y e ar, a n d as k e d it f or a l o a n. I d. ¶ 1 1. Pl ai ntiff a gr e e d, a n d t h at sa m e m o nt h, l o a n e d D ef e n d a nt $ 3 0, 0 0 0 , w hi c h was dis b urs e d dir e ctl y t o D ef e n d a nt a n d c ert ai n of its r e pr es e nt ati v es . I d. ¶ 1 2. I n c o n n e cti o n wit h t h e l oa n, D ef e n d a nt e x e c ut e d a pr o miss or y n ot e (t h e “ N ot e ”), d at e d as of N o v e m b er 1 7, 2 0 1 5 , i n f a v or of Pl ai ntiff. I d. E x. A. I n t h e N ot e, D ef e n d a nt pr o mis e d t o r e p a y t h e pri n ci p al a m o u nt of t h e l o a n si x m o nt hs aft er t h e d at e of t h e N ot e (t h e “ M at urit y D at e ”). D ef e n d a nt als o a gr e e d t o p a y i nt er est o n t h e N ot e at a r at e of 2 0 % p er a n n u m, d u e i n f ull o n t h e M at urit y D at e . N ot e at 1 . T h e N ot e als o r e q uir e d D ef e n d a nt t o p a y a d diti o n al c o nsi d er ati o n f or t h e l o a n t hr o u g h t h e iss u a n c e of st o c k t o Pl ai ntiff. T h e N ot e pr o vi d e d t h at I d. M or e o v er, as a d diti o n al c o nsi d er ati o n f or t his N ot e, t h e B orr o w er will gi v e t o t h e L e n d er r estri ct e d s h ar es of t h e B orr o w er e q u al t o U S $ 5 0, 0 0 0. 0 0 (t h e “ R estri ct e d S h ar es ” ) t h at will b e c o n v erti bl e t o fr e el y tr a d ea bl e s h ar es o n t h e M at urit y D at e. T h e B orr o w er will pr o vi d e t o t h e L e n d er, at t h e B orr o w er’s e x p e ns e, a n o pi ni o n of c o u ns el st ati n g t h at, o n t h e M at urit y D at e, t h e R estri ct e d S h ar es ar e fr e el y tr a nsf err a bl e p urs u a nt t o S E C R ul e 1 4 4 A . . . . T h e N ot e s et f ort h a n u m b er of e v e nts of d ef a ult a n d d es cri b e d t h e c o ns e q u e n c es of t h os e d ef a ults. N ot e § 4. F ail ur e b y D ef e n d a nt t o p a y t h e pri n ci p al a n d i nt er est o n t h e N ot e wit hi n 3 0 d a ys aft er t h e M at urit y D at e c o nstit ut e d a n e v e nt of d ef a ult. T h e N ot e i n cl u d e d a p arti c ul arl y ri c h b o u nt y f or Pl ai ntiff f oll o wi n g t h e o c c urr e n c e of s u c h a d ef a ult: “if a n E v e nt of D ef a ult s h all o c c ur, 2 t h e n t h e R estri ct e d S h ar es s h all b e fr e el y tr a nsf er a bl e a n d t his N ot e s h all b e i m m e di at el y c o n v erti bl e t o t e n ( 1 0) ti m es t h e li q ui d at e d v al u e of t h e I n d e bt e d n ess. ” I d.1 T h e N ot e c o nt ai n e d a c a p o n t h e m a xi m u m i nt er est r at e t h at c o ul d b e c har g e d p urs u a nt t o its t er ms. S e cti o n 5 r e a ds as f oll o ws M a xi m u m I nt er e st R at e: I n n o e v e nt s h all a n y a gr e e d t o or a ct u al i nt er est c h ar g e d, r es er v e d or t a k en b y t h e L e n d er as c o nsi d er ati o n f or t his N ot e e x c e e d t w e nt y p er c e nt ( 2 0 %). I n t h e e v e nt t h at t h e i nt er est pr o visi o ns of t his N ot e s h all r es ult at a n y ti m e or f or a n y r e as o n i n a n eff e cti v e r at e of i nt er est t h at e x c e e ds t w e nt y p er c e nt ( 2 0 %), t h e n wit h o ut f urt h er a gr e e m e nt or n oti c e t h e o bli g ati o n t o b e f ulfill e d s h all be a ut o m ati c all y r e d u c e d t o s u c h li mit a n d all s u ms r e c ei v e d b y t h e L e n d er i n e x c ess of t h os e l a wf ull y c oll e cti v e as i nt er est s h all b e a p pli e d a g ai nst t h e pri n ci p al of t his N ot e i m m e di at e u p o n t h e L e n d er’s r e c ei pt t h er e of . . . . I d. § 5 . S e cti o n 7 of t h e N ot e e x pr essl y pr o vi d e d f or t h e s e v er a bilit y of u n e nf or c e a bl e pr o visi o ns of t h e N ot e. T h e r el e v a nt l a n g u a g e fr o m t h e N ot e is q u ot e d b el o w. S e v er a bilit y : If a n y pr o visi o n of t his N ot e is, f or a n y r e as o n, i n v ali d or u n e nf or c e a bl e, t h e r e mai ni n g pr o visi o ns of t his N ot e will n e v ert h el ess b e v ali d a n d e nf or c e a bl e a n d will r e m ai n i n f ull f or c e a n d eff e ct. A n y pr o visi o n of t his N ot e t h at is h el d i n v ali d or u n e nf or c e a bl e b y a c o urt of c o m p et e nt j uris di cti o n will b e d e e m e d m o difi e d t o t h e e xt e nt n e c essar y t o m a k e it v ali d a n d e nf or c e a bl e a n d as s o m o difi e d will r e m ai n i n f ull f or c e a n d eff e ct. I d. § 7. T h e N ot e is g o v er n e d b y N e w Y or k l a w. I d. § 1 4. D ef e n d a nt n e v er iss u e d t h e R estri ct e d S h ar es t o Pl ai ntiff as r e q uir e d b y t h e t er ms of t h e N ot e. A m. C o m p l. ¶ 1 9. N or di d D ef e n d a nt p a y t h e pri n ci p al a n d i nt er est o utst a n di n g u n d er t h e N ot e o n t h e M at urit y D at e ; it h as n ot p ai d t o d at e. I d. ¶ ¶ 2 1, 2 3. As a r es ult, Pl ai ntiff — o ut $ 3 0, 0 0 0 — br o u g ht t his s uit s e e ki n g $ 3 3 0, 0 0 0 (r e pr es e nti n g t h e pri n ci p al a m o u nt of t h e N ot e, pl us a 1 D ef e n d a nt ass erts t h at it w as r e pr es e nt e d b y J S B ar k ats, P L L C as c o u ns el i n c o n n e cti o n wit h its n e g oti ati o n of t h es e Pl ai ntiff- f a v or a bl e t er ms. O p p. at 2 n. 3. A c c or di n g t o D ef e n d a nt, S u n n y B ar k ats is t h e pri n ci p al of t h at fir m. I d. D ef e n d a nt ass erts t h at Mr. B ar k ats is t h e h us b a n d of t h e s ol e e q uit y o w n er of Pl ai ntiff. I d. D ef e n d a nt st at es t h at it w as n ot a w ar e of its l a w y er’s r el ati o ns hi p wit h t h e l e n d er at t h e ti m e t h at t h e l o a n w as n e g oti at e d a n d t h at “t h e cri mi n al us uri o us i nt er est r at e s et f ort h i n t h e N ot e w as t h e r es ult of [ Mr. B ar k ats ’] s h a m ‘ n e g oti ati o ns’ wit h his wif e ( or hi ms elf).” I d. T h e C o urt d o es n ot c o nsi d er t h es e ass erti o ns i n its e v al u ati o n of t his m oti o n, b ut n ot es t h e m t o pr o vi d e c o nt e xt f or t h e r e a d er. 3 1, 0 0 0 % d ef a ult b all o o n pa y m e nt) pl us d eli v er y of 2 5 0 milli o n fr e el y tr a d e a bl e s h ar es of D ef e n d a nt’s c o m m o n st o c k. I d. at 8. II. P R O C E D U R A L HI S T O R Y Pl ai ntiff i niti at e d t his a cti o n o n M a y 3, 2 0 1 8, E C F N o. 1 , a n d fil e d t h e g o v er ni n g a m e n d e d c o m pl ai nt j ust s e v e n d a ys l at er, o n M a y 1 0, 2 0 1 8. A m. C o m pl. ( E C F N o. 7). D ef e n d a nt fil e d its m oti o n t o dis miss o n J u n e 8, 2 0 1 8. E C F N o. 2 2. T h e m oti o n ar g u es t h at t h e N ot e is “ cri mi n all y us uri o us ” u n d er N e w Y or k l a w, a n d, t h er ef or e, v oi d a n d u n e nf or c e a bl e. D ef.’s M e m. i n S u p p. of M ot. t o Dis miss ( “ D ef.’s M e m. ”) ( E C F N o. 2 3) at 2. Pl ai ntiff fil e d its o p p ositi o n o n J u n e 2 9, 2 0 1 8. ( “ O p p. ”) ( E C F. N o. 2 5 ). D ef e n d a nt fil e d its r e pl y o n J ul y 6, 2 0 1 8. ( E C F. N o. 2 6). III. S T A N D A R D O F R E VI E W T o s ur vi v e a m oti o n t o dis miss p urs u a nt t o R ul e 1 2( b)( 6), a c o m pl ai nt “ m ust c o nt ai n s uffi ci e nt f a ct u al m att er, a c c e pt e d as tr u e, t o ‘st at e a cl ai m t o r eli ef t h at is pl a usi bl e o n its f a c e.’ ” As hcroft v. I q b al , 5 5 6 U. S. 6 6 2, 6 7 8 ( 2 0 0 9) ( q u oti n g Bell Atl a ntic Cor p. v. T wo m bly , 5 5 0 U. S. 5 4 4, 5 7 0 ( 2 0 0 7)). “ A cl ai m h as f a cial pl a usi bilit y w h e n t h e plai ntiff pl e a ds f a ct u al c o nt e nt t h at all o ws t h e c o urt t o dr a w t h e r e as o n a bl e i nf er e n c e t h at t h e d ef e n d a nt is li a bl e f or t h e mis c o n d u ct all e g e d. ” I d. ( citi n g T wo m bly , 5 5 0 U. S. at 5 5 6). “ T o s ur vi v e dis missal, t h e pl ai ntiff m ust pr o vi d e t h e gr o u n ds u p o n w hi c h his cl ai m r ests t hr o u g h f a ct u al all e g ati o ns s uffi ci e nt ‘t o r ais e a ri g ht t o r eli ef a b o v e t h e s p e c ul ati v e l e v el.’ ” A T SI Co m mc’ ns, I nc. v. S ha ar F u nd, Lt d. , 4 9 3 F. 3 d 8 7, 9 8 ( 2 d Cir. 2 0 0 7) ( q u oti n g T wo m bly , 5 5 0 U. S. at 5 5 5 ). D et er mi ni n g w h et h er a c o m pl ai nt st at es a pl a usi bl e cl a i m is a “ c o nt e xt-s p e cifi c t as k t h at r e q uir es t h e r e vi e wi n g c o urt t o dr a w o n its j u di ci al e x p eri e n c e a n d c o m m o n s e ns e. ” I q b al, 5 5 6 U. S. at 6 7 9. T h e c o urt m ust a c c e pt all f a cts all e g e d i n t h e c o m pl ai nt as tr u e a n d dr a w all r e as o n a bl e i nf er e n c es i n t h e pl ai ntiff’s f a v or. B urc h v. Pio neer Cre dit Recovery, I nc. , 5 51 F. 3 d 1 2 2, 1 2 4 ( 2 d Cir. 2 0 0 8) (p er c uri a m) ( citi n g C ha mbers v. Ti me W ar ner, I nc. , 2 8 2 F. 3 d 1 4 7, 1 5 2 ( 2 d Cir. 2 0 0 2)). H o w e v er, 4 “[t] hr e a d b ar e r e cit als of t h e el e m e nts of a c a us e of a cti o n, s u p p ort e d b y m er e c o n cl us or y st at e m e nts, d o n ot s uffi c e, ” I q b al, 5 5 6 U. S. at 6 7 8– 7 9, a n d c o urts n e e d n ot gi v e “ cr e d e n c e t o pl ai ntiff’s c o n cl us or y all e gati o ns. ” C a ntor Fit zger al d, I nc. v. L ut nic k , 3 1 3 F. 3 d 7 0 4, 7 0 9 ( 2 d Cir. 2 0 0 2) (i nt er n al q u ot ati o n m ar ks a n d cit ati o n o mitt e d); see also T wo m bly , 5 5 0 U. S. at 5 5 5 ( “[ A] plai ntiff’s o bli g ati o n t o pr o vi d e t h e gr o u n ds of his e ntitl e m e nt t o r eli ef r e q uir es m or e t h a n l a b els a n d c o n cl usi o ns, a n d f or m ul ai c r e cit ati o n of t h e el e m e nts of a c a us e of a cti o n will n ot d o . . . .”). T h e N ot e is g o v er n e d b y N e w Y or k l a w. N ot e § 1 4. U n d er N e w Y or k l a w, t h e “f u n d a m e nt al, n e utr al pr e c e pt of c o ntr a ct i nt er pr et ati o n is t h at a gr e e m e nts ar e c o nstr u e d i n a c c or d wit h t h e p arti es’ i nt e nt. ” Gree nfiel d v. P hilles Recor ds, I nc. , 9 8 N. Y. 2 d 5 6 2, 5 6 9 ( 2 0 0 2). “ Th e b est e vi d e n c e of w h at p arti es t o a writt e n a gr e e m e nt i nt e n d is w h at t h e y sa y i n t h eir writi n g. ” I d. (i nt er n al q u ot ati o n m ar ks a n d cit ati o n o mitt e d). “ T h us, a writt e n a gr e e m e nt t h at is c o m pl et e, cl ear a n d u n a m bi g u o us o n its f a c e m ust b e [i nt er pr et e d] a c c or di n g t o t h e pl ai n m e a ni n g of its t er ms. ” I d.; see So ut h R d. Assocs., L L C v. I B M , 4 N. Y. 3 d 2 7 2, 2 7 7 ( 2 0 0 5) ( “I n c as es of c o ntr a ct i nt er pr et ati o n, it is w ell s ettl e d t h at wh e n p arti es s et d o w n t h eir a gr e e m e nt i n a cl ear, c o m pl et e d o c u m e nt, t h eir writi n g s h o ul d . . . b e e nf or c e d a c c or di n g t o its t er ms. ” (i nt er n al q u ot ati o n m ar ks a n d cit ati o n o mitt e d)). “I n a dis p ut e o v er t h e m e a ni n g of a c o ntr a ct, t h e t hr es h ol d q u esti o n is w h et h er t h e c o ntr a ct is a m bi g u o us.” Loc k hee d M arti n Cor p. v. Ret ail Hol di ngs, N. V. , 6 3 9 F. 3 d 6 3, 6 9 ( 2 d Cir. 2 0 1 1) ( q u oti n g Kr u m me v. West Poi nt Steve ns, I nc. , 2 3 8 F. 3 d 1 3 3, 1 3 8 ( 2 d Cir. 2 0 0 0)). Th e q u esti o n of “[ w] h et h er or n ot a writi n g is a m bi g u o us is a q u esti o n of l a w t o b e r es ol v e d b y t h e c o urts. ” W. W. W. Assocs., I nc. v. Gi a nco ntieri , 7 7 N. Y. 2 d 1 5 7, 1 6 2 ( 1 9 9 0) ( cit ati o n o mitt e d). “It is w ell s ettl e d t h at a c o ntr a ct is u n a m bi g u o us if t h e l a n g u a g e it us es h as a d efi nit e a n d pr e cis e m e a ni n g, as t o w hi c h t h er e is n o r e as o n a bl e b asis f or a diff er e n c e of o pi ni o n. ” Loc k hee d M arti n Cor p. , 6 3 9 F. 3 d at 6 9 ( cit ati o ns o mitt e d). “ C o n v ers el y, . . . t h e l a n g u a g e of a c o ntr a ct is a m bi g u o us if it is c a p a bl e of m or e t h a n o n e 5 m e a ni n g w h e n vi e w e d o bj e cti v el y b y a r eas o n a bl y i nt elli g e nt p ers o n w h o h as e x a mi n e d t h e c o nt e xt of t h e e ntir e i nt e gr at e d a gr e e m e nt. ” I d. at 6 9. I V. DI S C U S SI O N a. B ut f or S e cti o n 5, t h e N ot e i s Cri mi n all y U s uri o u s o n it s F a c e T h e p arti es a gr e e t h at if t h e i nt er est r at e c h ar g e d o n t h e N ot e is us uri o us i n vi ol ati o n of N e w Y or k L a w , it is v oi d a n d u n e nf or c e a bl e.2 See O p p. at 5 – 6. N e w Y or k’s ci vil us ur y r estri cti o ns f or bi d c h ar gi n g i nt er est at a r at e i n e x c ess of 1 6 % a n n u all y. See N. Y. G e n. O bli g. L a w § § 5- 5 0 1( 1) – ( 2); N. Y. Ba n ki n g L a w § 1 4 -a( 1). As a g e n er al matt er, h o w e v er, c or p or ati o ns a n d li mit e d li a bilit y c o m p a ni es m a y n ot ass ert a ci vil us ur y d ef e ns e. N. Y. G e n. O bli g. L a w § 5 – 5 2 1( 1); N. Y. Li mit. Li a b. C o. § 1 1 0 4 (a). H o w e v er, li mit e d li a bilit y c o m p a ni es, s u c h as D ef e n d a nt h er e, ar e n ot b arr e d fr o m r aisi n g cri mi n al us ur y as a n affir m ati v e d ef e ns e. N. Y. G e n. O bli g. L a w § 5 – 5 2 1 ( 3); N. Y. Li mit. Li a b. C o. § 1 1 0 4( c). U n d er S e cti o n 1 9 0. 4 0 of N e w Y or k’s P e n al L a w, a l o a n is cri mi n all y us uri o us w h e n t h e l e n d er “ c h ar g es . . . as i nt er est o n t h e l o a n . . . a r at e e x c e e di n g t w e nt y-fi v e p er c e nt u m p er a n n u m or t h e e q ui v al e nt r at e f or a l o n g er or s h ort er p eri o d. ” N. Y. P e n al L. § 1 9 0. 4 0 ( M c Ki n n e y 2 0 1 7). “ Cri mi n al us ur y r e q uir es pr o of t h at t h e l e n d er ( 1) k n o wi n gl y c har g e d, t o o k or r e c ei v e d ( 2) a n n u al i nt er est e x c e e di n g 2 5 % ( 3) on a l o a n or f or b e ar a n c e. ” H uf n agel v. George , 1 3 5 F. S u p p. 2 d 4 0 6, 4 0 7 ( S. D. N. Y. 2 0 0 1) ( q u oti n g I n re Ve nt ure Mortg. F u n d, L. P., 2 4 5 B. R. 4 6 0, 4 7 3– 7 4 ( Ba n kr. S. D. N. Y. 2 0 0 0), aff’d , 2 8 2 F. 3 d 1 8 5 ( 2 d Cir. 2 0 0 2)). 2 T h e S e c o n d Cir c uit h as n ot e d i n di ct a t h at “it a p p e ars fr o m a cl os e r e a di n g of t h e c o m pl e x a n d cr oss -r ef er e n ci n g st at ut es t h at c o m p os e N e w Y or k's us ur y l a w t h at t h e v oi di n g pr o visi o n o nl y o p er at es t o v oi d l o a ns t h at vi ol at e t h e ci vil us ur y st at ut e — a st at ut e t h at b y its t er ms a p pli es o nl y t o l o a ns of l ess t h a n $ 2 5 0, 0 0 0 ( wit h i nt er est i n e x c ess of 1 6 %) — a n d mi g ht n ot o p er at e t o v oi d a l o a n of $ 2 5 0, 0 0 0 or gr e at er e v e n if s u c h l o a n's a n n u al i nt er est r at e e x c e e ds 2 5 % a n d is t h er ef or e cri mi n all y us uri o us.” I n re Ve nt ure Mortg. F u nd, L. P., 2 8 2 F. 3 d 1 8 5, 1 8 9 ( 2 d Cir. 2 0 0 2). N eit h er p art y s u g g ests t h at t h e v oi di n g pr o visi o n of t h e ci vil us ur y st at ut e d o es n ot a p pl y t o t his $ 3 0, 0 0 0 l o a n. 6 “ Us ur y is a n affir m ati v e d ef e ns e a n d a h ea v y b ur d e n r ests u p o n t h e p art y s e e ki n g t o i m p e a c h a tr a nsa cti o n f or us ur y. ” G a n dy M ac h. I nc. v. Pog ue , 4 8 3 N. Y. S. 2 d 7 4 4, 7 4 5 ( 3 d D e p’t 1 9 8 4) ( cit ati o ns o mitt e d). “ A n ess e nti al el e m e nt of t h e affir m ati v e d ef e ns e of us ur y is t h e l e n d er’s us uri o us i nt e nt, ” a n d “[s] u c h i nt e nt . . . r e mai ns a q u esti o n of f a ct a n d will n ot b e pr es u m e d w h er e a n ot e st at es a l e gal r at e of i nt er est.” Co ncor d Fi n. Cor p. v. Wi ng Foo k, I nc ., N o. 9 6 CI V. 5 2 9 3 ( D L C), 1 9 9 7 W L 3 7 5 6 7 9, at * 5 ( S. D. N. Y. J ul y 7, 1 9 9 7). Y et, t h e d ef e ns e of us ur y d o es n ot r e q uir e pr o of of s p e cifi c i nt e nt: “[ a] l o a n is us uri o us if t h e l e n d er i nt e n ds t o t a k e a n d r e c ei v e a r at e of i nt er est i n e x c ess of t h at all o w e d b y l a w e v e n t h o u g h t h e l e n d er h as n o s p e cifi c i nt e nt t o vi ol at e t h e us ur y l a ws. ” I n re Mortg age F u n d, L. P. , 2 8 2 F. 3 d 1 8 5, 1 8 8 ( 2 d Cir. 2 0 0 2) ( q u oti n g H a m mo n v. M arr a no , 4 5 1 N. Y. S. 2 d 4 8 4, 4 8 5 ( 4t h D e p’t 1 9 8 2)) . T o d et er mi n e w h et h er t h e i nt er est r at e c h ar g e d o n t h e N ot e is cri mi n all y us uri o us i n vi ol ati o n of S e cti o n 1 9 0. 4 0, t h e C o urt is n ot li mit e d t o l o o ki n g o nl y at t h e N ot e’s st at e d r at e of i nt er est, h er e 2 0 %. I nst e a d, t h e C o urt m a y c o nsi d er “t h e s u bst a n c e of t h e tr a nsa cti o n t o d et er mi n e w h et h er t h e eff e cti v e r at e of i nt er est e x c e e ds 2 5 %. ” U nio n C apit al L L C v. V a pe Hol di ngs I nc. , N o. 1 6c v -1 3 4 3 ( RJ S), 2 0 1 7 W L 1 4 0 6 2 7 8, at * 4 ( S. D. N. Y. M ar. 3 1, 2 0 1 7); Bl ue Wolf C a pital F u n d II, L. P. v. A m. Steve dori ng I nc. , 9 6 1 N. Y. S. 2 d 8 6, 8 9 (1st D e p ’t 2 0 1 3) ( “ T o d et er mi n e w h et h er a tr a nsa cti o n is us uri o us, c o urts l o o k n ot t o its f or m b ut t o its s u bst a n c e or r e al c har a ct er. If a n i nstr u m e nt pr o vi d es t h at t h e cr e dit or will r e c ei v e a d diti o n al pa y m e nt i n t h e e v e nt of a c o nti n g e n c y b e y o n d t h e b orr o w er's c o ntr ol, t h e c o nti n g e nt p a y m e nt c o nstit ut es i nt er est wit hi n t h e m e a ni n g of t h e us ur y st at ut es . . . .” ). T h e p arti es c orr e ctl y a gr e e t h at t h e C o urt s h o ul d c o nsi d er t h e v al u e of t h e R estri ct e d St o c k t o d et er mi n e w h et h er t h e N ot e’s t er ms ar e cri mi n all y us uri o us. See O p p. at 8 ( “ . . . D ef e n d a nt c orr e ctl y ass erts t h at t h e v al u e of st o c k m a y b e i n cl u d e d i n d et er mi ni n g t h e a ct u al r at e of i nt er est of a pr o miss or y n ot e or ot h er i nstr u m e nt . . .”) ; see also Hill air C apit al I nv., L. P. v. I ntegr ate d Freig ht Cor p. , 9 6 3 F. S u p p. 2 d 3 3 6, 3 4 0 ( S. D. N. Y. 2 0 1 3) ( “ D ef e n da nts ar e c orr e ct t h at t h e st o c k p a y m e nt s h o ul d 7 b e t a k e n i nt o c o nsi d er ati o n i n d et er mi ni n g t h e i nt er est r at e. ”); S a bell a v. Sc a nte k Me d., I nc. , N o. 0 8 CI V. 4 5 3( C M)( H B P), 2 0 0 9 W L 3 2 3 3 7 0 3, at * 1 7 ( S. D. N. Y. S e pt. 2 5, 2 0 0 9) ( h ol di n g t h at t h e v al u e of c o m m o n st o c k gi v e n t o t h e l e n d er s h o ul d b e t a k e n i nt o a c c o u nt w h e n d et er mi ni n g t h e l o a n's i nt er est r at e). W h er e t h e p arti es disa gr e e is w h et h er t h e v al u e of t h e R estri ct e d St o c k pr es e nts a q u esti o n of f a ct t h at is i n c a p a bl e of r es ol uti o n i n t h e c o nt e xt of a m oti o n t o dis miss. F or t h e r e as o ns t h at f oll o w, t h e C o urt c o n cl u d es t h at t h e v al u e of t h e R estri ct e d St o c k — a n d t h er ef or e t h e i m pli e d i nt er est r at e f or t h e N ot e— c a n b e d et er mi n e d as a m att er of l a w fr o m t h e f a c e of t h e N ot e. Pl ai ntiff ar g u es t h at t h e v al u ati o n of t h e R estri ct e d St o c k t o b e r e c ei v e d b y Pl ai ntiff p urs u a nt t o t h e N ot e is u n c ert ai n, gi vi n g ris e t o a q u esti o n of f a ct t h at c a n n ot b e r es ol v e d i n t h e c o nt e xt of a m oti o n t o dis miss. O p p. at 7. Pl ai ntiff ar g u es t h at t h e N ot e is n ot cri mi n all y us uri o us o n its f a c e b e c a us e a d diti o nal e vi d e n c e is r e q uir e d t o as c ert ai n t h e a ct u al val u e of t h e st o c k. I d. A n d, i n d e e d, w h e n t h e v al u e of s u c h c o nsi d er ati o n is u n cl e ar fr o m t h e f a c e of t h e tr a nsa cti o n d o c u m e nts, t h e cri mi n al us ur y d ef e ns e c a n n ot b e est a blis h e d o n t h e b asis of t h e pl e a di n gs. See P hlo Cor p. v. Steve ns , 0 0 -c v -3 6 1 9 ( D C), 2 0 0 1 W L 1 3 1 3 3 8 7 , at *5 ( S. D. N. Y. O ct. 2 5, 2 0 0 1) ( h ol di n g t h at us ur y d ef e ns e w as i m pr o p er b e c a us e “it is f ar fr o m cl e ar, i n li g ht of t h e n u m b ers a n d t h e cir c u mst a n c es, t h at t h e eff e cti v e i nt er est r at e w o ul d e x c e e d 2 5 % i n a n y e v e nt. ”) ; S a bell a , 2 0 0 9 W L 3 2 3 3 7 0 3, at * 2 0 ( “Pl ai ntiffs’ e ntitl e m e nt t o S c a nt e k c o m m o n st o c k f or m a ki n g t h e A u g ust 2 0 0 2 l o a n d o es n ot, b y its elf, m a k e t h e l o a n us uri o us. F or t h at t o b e s o, t h e v al u e of t h e s h ar es f or t h e l o a n m ust c a us e t h e r et ur n o n t h e l o a n t o e x c e e d 2 5 %. T h e p arti es disa gr e e a b o ut t h e v al u e of t h e s h ar es iss u e d. ”) H er e, h o w e v er, t h e v al u e of t h e R estri ct e d St o c k t o b e pr o vi d e d p urs u a nt t o t h e N ot e is u n a m bi g u o us. T h e N ot e st at es t h at, “ as a d diti o n al c o nsi d er ati o n f or t his N ot e, [ D ef e n d a nt] will gi v e t o [ Pl ai ntiff] r estri ct e d s h ar es of [ D ef e n d a nt] e q u al t o $ 5 0, 0 0 0 . . . t h at will b e c o n v erti bl e t o fr e el y tr a d e a bl e s h ar es o n t h e M at urit y D at e. ” N ot e at 1. Pl ai ntiff w as cl e arl y e ntitl e d t o r e c ei v e R estri ct e d St o c k wit h a val u e of $ 5 0, 0 0 0 o n t h e d at e of iss u a n c e — n ot a p arti c ul ar n u m b er of s h ar es wit h a n 8 esti m at e d v al u e as of eit h er t h e d at e of iss u a n c e or t h e M at urit y D at e . Pl ai ntiff’s ar g u m e nts t h at t h e v al u e of t h e R estri ct e d S h ar es mi g ht h a v e c h a n g e d f oll o wi n g t h e d at e of t h eir iss u a n c e ar e n ot p erti n e nt. T h e N ot e c all e d f or Pl ai ntiff t o b e pr o vi d e d ass ets w ort h $ 5 0, 0 0 0 as c o nsi d er ati o n f or t h e l o a n. I d. T h e m o n et ar y val u e of t h e R estri ct e d St o c k t o b e d eli v er e d p urs u a nt t o t h e N ot e is u n a m bi g u o us, t h er ef or e t h e i m pli e d i nt er est r at e c a n b e d et er mi n e d fr o m t h e f a c e of t h e N ot e. If t h e a n al ysis e n d e d t h er e, t h e i m pli e d i nt er est r at e of t h e N ot e w o ul d gr e atl y e x c e e d 2 5 % a n d t h e N ot e w o ul d b e cri mi n all y us uri o us a n d v oi d. b. S e cti o n 5 of t h e N ot e Li mit s It s Eff e cti v e I nt er e st R at e B ut t h e a n al ysis d o es n ot e n d t h er e. O d dl y, n eit h er p art y dis c uss es t h e i m p a ct o f S e cti o ns 5 a n d 7 of t h e N ot e i n t h eir bri efi n g.3 B ut t h e C o urt c a n n ot i g n or e t h e m. As n ot e d a b o v e, S e cti o n 5 of t h e N ot e st at es t h at “[i] n t h e e v e nt t h at t h e i nt er est pr o visi o ns of t his N ot e s h all r es ult at a n y ti m e or f or a n y r e as o n i n a n eff e cti v e r at e of i nt er est t h at e x c e e ds t w e nt y p er c e nt ( 2 0 %), t h e n wit h o ut f urt h er a gr e e m e nt or n oti c e t h e o bli gati o n t o b e f ulfill e d s h all b e a ut o m ati call y r e d u c e d t o s u c h li mit . . . . ” N ot e § 5. T h e val u e of t h e R estri ct e d St o c k gr a nt r es ults i n a n eff e cti v e r at e of i nt er est u n d er t h e N ot e t h at e x c e e ds 2 0 % f or p ur p os es of t h e us ur y a n al ysis. 4 T h er ef or e, p urs u a nt t o t h e N ot e’s e x pr ess t er ms, t h at c o m p o n e nt of t h e c o nsi d er ati o n f or t h e N ot e m ust b e eli mi n at e d i n or d er f or t h e eff e cti v e r at e of t h e N ot e n ot t o e x c e e d 2 0 %. Gi v e n t h at Pl ai ntiff a gr e e d t o ca p t h e eff e cti v e r at e of i nt er est o n t h e N ot e at 2 0 %, t h e C o urt c a n n ot c o n cl u d e fr o m t h e f a c e of t h e N ot e t h at Pl ai ntiff i nt e n d e d t o c h ar g e a cri mi n all y us uri o us r at e of i nt er est.5 3 B ot h p arti es m a y h a v e h a d a n i n c e nti v e t o a v oi d fl a g gi n g t his iss u e: it d e pri v es b ot h of w h at m a y b e t h eir pr ef err e d h o m e r u n o ut c o m e. F or D ef e n d a nt, a c k n o wl e d gi n g t h e e xist e n c e a n d eff e ct of t his pr o visi o n u n d er mi n es t h e cri mi n al us ur y ar g u m e nt t h at mi g ht h a v e t h e eff e ct of v oi di n g t h e N ot e i n its e ntir et y. F or Pl ai n tiff, t h e pr o visi o n c a n b e r e a d— as t h e C o urt h as — t o li mit t h e a m o u nt t h at it c an s e e k t o r e c o v er u n d er t h e N ot e . 4 T his w o ul d b e t h e c as e i n all cir c u mst a n c es i n w hi c h t h e v al u e of t h e R estri ct e d St o c k is gr e at er t h a n $ 0. 0 0. 5 T h e p arti es’ bri efi n g als o d o es n ot a d dr ess t h e eff e ct of S e cti o n 7 of t h e N ot e. H er e, b ut f or t h e eff e ct of S e cti o n 5 of t h e N ot e, t h e r e q uir e m e nt t h at D ef e n d a nt pr o vi d e Pl ai ntiff wit h t h e R estri ct e d St o c k w o ul d r e n d er t h e N ot e cri mi n all y us uri o us a n d, t h us, u n e nf or c e a bl e. A n ar g u m e nt mi g ht b e pr es e nt e d t h at S e cti o n 7 of t h e N ot e, li k e S e cti o n 5, h as t h e eff e ct of n ullif yi n g D ef e n d a nt’s o bli g ati o n t o pr o vi d e t h e R estri ct e d St o c k. B ut b e c a us e t h e p arti es h a v e n ot pr es e nt e d ar g u m e nt o n t h at p oi nt, t h e C o urt will n ot a d dr ess it. N or i n t h e a bs e n c e of bri efi n g will t h e C o urt dis c uss t h e 9 V. C O N C L U SI O N Gi v e n t h at t h e N ot e e x pr essl y c a ps t h e i nt er est t h at c a n b e r e c o v er e d u n d er its t er ms, t h e C o urt c a n n ot d et er mi n e fr o m its f a c e t h at it is cri mi n all y us uri o us. T h er ef or e , D ef e n d a nt’s m oti o n t o dis miss is D E NI E D . T h e Cl er k of t h e C o urt is dir e ct e d t o t er mi n at e t h e m oti o n p e n di n g at E C F N o. 2 2. S O O R D E R E D. _____________________________________ D at e d: Oct o b er 2 7 , 2 0 1 8 N e w Y ork , Ne w Y or k G R E G O R Y H. W O O D S U nit e d St at es Distri ct J u d g e e nf or c e a bilit y of t h e pr o visi o n of t h e N ot e r e q uiri n g t h at D ef e n d a nt p a y a b all o o n a m o u nt 1 0 ti m es t h e pri n ci p al a m o u nt of t h e N ot e i n t h e e v e nt of a p a y m e nt d ef a ult. 10
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