Dampf v Moshell

[*1] Dampf v Moshell 2007 NY Slip Op 52446(U) [18 Misc 3d 1107(A)] Decided on December 21, 2007 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 21, 2007
Supreme Court, Nassau County

Barry Dampf, Plaintiff,

against

Stuart Moshell, Defendant.



11838-07



Counsel for Plaintiff

Gilden, Zelenitz & Shapiro, P.C.

138-44 Queens Blvd. 2nd floor

Briarwood, New York 11435

Counsel for Defendant

Kase & Druker, Esqs.

1325 Franklin Avenue - Suite 225

Garden City, New York 11530

Leonard B. Austin, J.

By promissory note dated May 23, 2007, Moshell promised to repay to Dampf:

"....the sum of Ninety Eight Thousand Five Hundred ($98,500.00)Dollars inclusive of guaranteed return on investment to an undisclosed principal and reimbursement of costs. Such sum payable as follows:

Principal payment of $98,500 due on June 25, 2007."

The note further provided that if any payment is not received within five (5) days of the due date, interest will be due on the unpaid balance at the highest rate permitted by the laws of the State of New York.

Moshell waived presentment, demand and notice of dishonor. The note further provided that if an action is commenced to enforce the note, Moshell would pay all costs including reasonable attorney's fees.

Moshell did not make payment of the note on June 25, 2007. Dampf seeks judgment for the amount due on the note plus interest from the due date to the date of entry and costs and attorney's fees.

Moshell cross-moves to dismiss asserting that the note is usurious. Moshell asserts Dampf loaned him $90,000 on May 23, 2007. The additional $8,500 Moshell agreed to repay on June 25, 2007 constitutes interest on the loan.This represents interest at the rate of 113% per annum which is far in excess of the maximum legal rate of 16% per annum permitted by Banking Law §14-a.

Dampf's attorney states his affirmation made in opposition to the cross-motion that, in May 2007, Moshell approached Dampf and advised Dampf that he had a good deal for him. Moshell requested Dampf loan Moshell $90,000. If Dampf would loan him the money, Moshell would repay Dampf the sum of $98,5000 one month later.

Dampf agreed to make the loan under these terms. Moshell then prepared and executed the promissory note. Dampf apparently gave Moshell a sum of money. Dampf has failed to provide the court with any evidence establishing the precise amount actually given to Moshell.

Dampf claims that Moshell and he had a fiduciary relationship. Moshell is an attorney who had represented Dampf in two real estate matters and potential litigation matters. Dampf claims that Moshell had a duty to advise him that a loan as described above was usurious and failed to do so.

Moshell counters that Dampf is a sophisticated businessman, investor and certified public accountant who was well aware of the usury laws. Dampf is a member of Spielberger, Dampf, Brill & Levine, LLC, SEC registered investment advisors. Dampf's biography on the firm's web site, a copy of which was annexed to the motion papers as an exhibit, indicates that prior to starting Spielberger, Dampf, Brill & Levine, LLC, Dampf had been a Vice President and Senior Manager with Chase Manhattan Bank's Private Advisory Services. In this capacity, Dampf was responsible for personal investment planning and managing assets in excess of $50 million dollars for individuals, pension plans and trusts. Dampf has over 20 years of experience in investment, finance and accounting. He began his career as an investment specialist and securities and stock options trader with Shearson, Smith, Barney. He then became a senior associate in financial services practices with Price Waterhouse/Coopers & Lybrand CPA's. Dampf is an honors graduate of SUNY Albany where he received a degree in finance and [*2]economics. He also has an M.B.A. in accounting.

DISCUSSION

The holder of a promissory note establishes a prima facie case by submitting proof of the existence of a promissory note executed by the maker containing an unequivocal and unconditional obligations to repay and the maker's default. Constructamax, Inc. v. CBA Assoc., Inc., 294 AD2d 460 (2nd Dept. 2002); and Colonial Commercial Corp. v. Breskel Assoc., 238 AD2d 539 (2nd Dept. 1997). See also, Seaman-Andwall Corp. v. Wright Machine Corp., 31 AD2d 136 (1st Dept. 1968), aff'd, 29 NY2d 617 (1971); Chemical Bank v. Nemeroff, 233 AD2d 239 (1st Dept. 1996); and Key Bank v. Munkenbeck, 162 AD2d 503, (2nd Dept. 1990).

Once the holder of the promissory note has established a prima facie case, the maker must come forward with evidence establishing the existence of triable issues of fact or a bona fide defense. Colonial Commercial Corp. v. Breskel Assoc., supra; and Silber v. Muschel, 190 AD2d 727 (2nd Dept. 1993).

Dampf has established a prima facie case. Thus, it becomes Moshell's burden to establish th existence of triable issues of fact or the existence of a bona fide defense

Moshell claims the usury laws provide him with either a complete defense to the action or a create issues of fact that cannot, at this stage, be decided summarily.

A loan is usurious if the rate of interest is in excess of legally permitted rate. General Obligations Law § 5-501. The maximum legal rate of interest is 16% per annum. Banking Law § 14-a(1).

The borrower does not have to repay either the principal or interest on a usurious loan. Seidel v. 18 East 17th Street Owners, Inc., 79 NY2d 735 (1992); and Pemper v. Reifer, 264 AD2d 625 (1st Dept. 1999).

A loan is usurious if the lender receives a rate of interest in excess of the permissible rate, even if the lender has no specific intent to violate the usury laws. Hammond v. Marrano, 88 AD2d 758 (4th Dept. 1982); and Bakis v. Levitin, 3 Misc 3d 1110(A) (Sup.Ct., Nassau Co. 2004).

If Dampf loaned Moshell $90,000 on May 23, 2007 and was to be repaid the sum of $98,500 on June 25, 2007, the loan would be usurious. Moshell would not have to repay either the principal or the interest.

Dampf asserts that Moshell is estopped from asserting the defense of usury.

"The purpose of usury laws, from time immemorial, has been to protect desperately poor people from the consequences of their own desperation." Schneider v. Phelps, 41 NY2d 238, 243 (1976).

"A borrower, who because of a fiduciary or other like relationship of trust with the lender, is under a duty to speak and who fails to disclose the illegality of the rate of interest he proposes is estopped from asserting the defense of usury where the lender rightfully relies upon the borrower in making the loan (Hammond v. Marrano, 88 AD2d

758; Schaaf v. Borsher, 82 AD2d 880)." Abramowitz v. Kew Realty Equities, Inc., 180 AD2d 568 (1st Dept.). lv. app. den., 80 NY2d 753 (1992).

An attorney has a fiduciary relationship with a client. Graubard, Mollen Dannett & Horowitz v. Moskovitz, 86 NY2d 112 (1995). An attorney may not enter into a business relationship with a client if the lawyer and the client have differing interests and the client expects the lawyer to exercise professional judgment for the protection of the client unless the [*3]transaction and its terms are fair and reasonable and fully disclosed to the client in writing, the lawyer advises the client to seek the advise of independent counsel and the client consents to the terms of the transaction in writing after full disclosure. 22 NYCRR 1200.23(a) [DR 5-104]; See, Matter of Puleo, -A.D.3d-, 2007 WL 2819310 (4th Dept. 2007).

Dampf and Moshell clearly had differing interests in this transaction. Dampf, the client, was loaning money to Moshell, the attorney. This was creating a debtor-creditor relationship. Moshell prepared a promissory note to reflect the transaction and his obligation to repay Dampf. Dampf believed the promissory note was prepared and executed as evidence of the loan and Moshell's obligation to make repayment.

Dampf is not a naive, unsophisticated client who was mislead by an unscrupulous, unethical attorney. Dampf is a sophisticated, experienced businessman, accountant and investment professional. Moshell avers that Dampf initially demanded "interest" of $10,000 on a six week loan of $90,000. The repayment sum of $98,500 was purportedly agreed upon as a result of negotiations between Dampf and Moshell.

Were usury is not clear from the terms of the note, usury is a question of fact. Freitas v. Geddes Savings and Loan Assoc., 63 NY2d 254 (1984); and Hort v. Devine, 1 AD3d 266 (1st Dept. 2003). In this case, usury is not clear on the face of the note. The note indicates repayment of a principal sum of $98,500. Moshell avers Dampf loaned him $90,000. The additional $8,500 Moshell was to repay was not principal but constitutes interest.

Dampf's attorney states in his papers that Moshell requested a loan of $90,000. Dampf and Moshell agreed provided the note would reflect payment of principal of $98,500. Dampf fails to place before the court any documentary evidence such as a canceled check, money order, bank check or wire transfer confirmation, establishing the precise amount of the loan. The note does not indicate the rate or amount of interest. Dampf relies upon the provisions of the note which indicates repayment of a principal amount of $98,500. Dampf never states the precise amount he actually loaned Moshell.

When deciding a motion for summary judgment, the Court must consider the evidence in a light most favorable to the non-moving party and must give that party all of the reasonable inferences that can be drawn from the evidence. Negri v. Stop & Shop, 65 NY2d 625 (1985); and Erikson v. J.I.B. Realty Corp., 12 AD3d 344 (2nd Dept. 2004);and Louniakov v. M.R.O.D. Realty Corp., 282 AD2d 657 (2nd Dept. 2001).

Viewing the evidence most favorably to Moshell, questions of fact exist as to the amount loaned and whether repayment of that amount stated in the note would be usurious.

Finally, a defendant will not be permitted to assert the defense of usury if permitting the defendant to assert the defense would permit the defendant through subterfuge and deception to obtain a windfall at the expense of an innocent plaintiff. Angelo v. Brenner, 90 AD2d 131 (3rd Dept. 1982). Dampf appears to be an knowledgeable and sophisticated professional who should have at least a passing familiarity with the usury laws. However, at this stage, the court must give Dampf the benefit of the doubt.

Since Dampf and Moshell has established the existence of issues of fact and issues relating to a bona fide defense to the action, both the motion for summary judgment in lieu of complaint and the cross-motion to dismiss must be denied.

Accordingly, it is,

ORDERED, that Plaintiff's motion for summary judgment in lieu of complaint is [*4]denied; and it is further,

ORDERED, that Defendant's cross-motion for summary judgment dismissing the action is denied; and it is further,

ORDERED, that pursuant to CPLR 3213 the motion paper shall stand as the pleadings in this action; and it is further,

ORDERED, that counsel for the parties are directed to appear for a preliminary conference on February 1, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

December 21, 2007Hon. Leonard B. Austin, J.S.C.