Opinion
7235/10.
Decided March 21, 2011.
Pasricha Patel, LLC, by Gary S. Pasricha Len Garza, Esqs., New York, New York, for the Plaintiff.
Manmohan K. Bakshi, P.C., by Manmohan K. Bakshi, Esq., Manhasset, New York, for the Defendants.
Plaintiff commenced this action against defendant Vadodra Property, LLC (Vadodra) to recover all moneys due under a mortgage note, and against defendants Baroda Properties, Inc. (Baroda) and Faizulmunir A. Kazi (Kazi) to recover all moneys due under a guaranty, by motion for summary judgment in lieu of complaint pursuant to CPLR 3213. Defendant Vadodra allegedly defaulted under the note, and defendants Baroda and Kazi allegedly defaulted under the guaranty.
Defendants Vadodra, Baroda, and Kazi oppose the motion, and cross move to dismiss the action on the grounds of a defense based upon documentary evidence and usury. They assert that the caption on the summons and the notice of motion identifies the plaintiff as "NextBridge Arc Fund, LLC," whereas the note, guaranty and mortgage identify the payee or lender as "NextBridge Arc Fund, LP," and make no mention of NextBridge Arc Fund, LLC. They also assert that plaintiff has made no showing that it is the holder of the mortgage note or guaranty. Defendants Vadodra, Baroda, and Kazi further assert that the loan is usurious, and, therefore, the loan documents are unenforceable.
Counsel for plaintiff admits to having made a typographical error in the summons in relation to the abbreviation used in the name of plaintiff, and indicates that the actual name of plaintiff is "NextBridge Arc Fund, LP," rather than "NextBridge Arc Fund, LLC." Plaintiff asserts that the error should be disregarded and the caption should be amended to reflect the correct abbreviation.
At any time, in its discretion and upon such terms as it deems just, the court may allow any summons to be amended, if a substantial right of a party against whom the summons issued is not prejudiced (CPLR 305, 2001).
"It is well settled that an amendment which would shift a claim from a party without standing to another party who could have asserted that claim in the first instance is proper since such an amendment, by its nature, does not result in surprise or prejudice to the defendants who had prior knowledge of the claim and an opportunity to prepare a proper defense'" ( New York State Thruway Auth. v CBE Contr. Corp., 280 AD2d 390, quoting MK W. St. Co. v Meridien Hotels, 184 AD2d 312, 313-314; see Frankart Furniture Staten Is. v Forest Mall Assocs., 159 AD2d 322, 323; Bellini v Gersalle Realty Corp., 120 AD2d 345, 347" ( JCD Farms, Inc. v Juul-Nielsen, 300 AD2d 446).
Defendants Vadodra, Baroda, and Kazi make no claim they were not fairly apprised by the summons served upon them that the object of the action was to recover money due under the mortgage note and guaranty dated May 16, 2008. Although they assert they have been involved in negotiations to modify the underlying loan with entities related to NextBridge Arc Fund, LP, they have failed to establish the negotiations were successful and resulted in any modification of the subject mortgage note and guaranty, including one to change the entity entitled to enforce the note and guaranty to "NextBridge Arc Fund, LLC."
To the degree defendants Vadodra, Baroda, and Kazi assert they made mortgage payments to another limited liability company named "NextBridge Group, LLC," they have failed to demonstrate their position in this action has in any way changed by virtue of the typographical error in the summons. They have failed to prove such payments were made after the commencement of this action. Thus, defendants Vadodra, Baroda, and Kazi have failed to show that they will suffer any prejudice if the caption is amended to correct the typographical error and reflect that plaintiff is a limited partnership, as opposed to a corporation.
A corporation and a limited liability company are not entitled to impose a defense based upon civil usury in any action, except for in those instances where the corporation or a limited liability company has, as its principal asset, a one or two family dwelling and either the corporation or the limited liability company was organized, or the controlling interest acquired, within six months prior to execution by the corporation of the note evidencing the indebtedness ( see, General Obligations Law § 5-521; Limited Liability Company Law § 1104). Furthermore, because an individual guarantor may be viewed as standing in the shoes of the principal, such guarantor can avail only those defenses available to the principal ( see, General Phoenix Corp. v Cabot, 300 NY 87, 95 [1949]; European American Bank Trust Co. v Boyd, 131 AD2d 629 [2nd Dept. 1987]). Hence, a guarantor cannot rely upon the defense of civil usury in the instance where the principal is a corporation or a limited liability company prohibited from interposing the defense of civil usury ( see General Phoenix Corp. v Cabot, 300 NY 87, 95 [1949]; European American Bank Trust Co. v Boyd, 131 AD2d 629, supra).
Defendants Vadodra, Baroda, and Kazi do not deny that defendant Vadodra is a limited liability company and defendant Baroda is a corporation. They make no claim that the loan is secured by a one or two family residence. In addition, the mortgage indicates that at the time of the making of the loan, the mortgaged premises was not improved by a one or two family dwelling ( see section 5.15). Defendants Vadodra, Baroda, and Kazi may not raise the defense of civil usury as a basis for dismissing the action.
To the extent defendants Vadodra, Baroda, and Kazi assert criminal usury, a corporation and a limited liability company are not barred from imposing a defense of criminal usury ( see, General Obligations Law § 5-521(3); Limited Liability Company § 1104[c]). Under New York's criminal usury statutes, any lender that knowingly collects usurious interest, defined as a rate greater than 25% per annum on nonexempt loans, commits a felony ( see Penal Law §§ 190.40, 190.42). The instant note bears an annual contract interest rate of 12%, which rate is not criminally usurious. Even if this Court were to assume that the "loan commitment fee" provided for in the note ( see section 2) constituted an additional interest charge of 12% per annum, the total effective contract rate of interest would be 24% per annum, which rate also is not criminally usurious.
With respect to the default rate of interest, parties are free to agree that a contract rate of interest shall increase upon default. In this instance, section 2.4 of the note calls for default interest "at a rate per annum which shall at all times be the lower of (i) the maximum eighteen percent (18%) per annum above the current rate (ii) the highest rate allowed by law, compounded daily and payable on demand . . ." (emphasis supplied).
Although plaintiff contends that subsection "i" calls for a default rate of interest of 18% per annum, such subsection, on its face, calls for a default rate of interest of 18% "above the current rate." The note does not contain a definition of the phrase "current rate," and such phrase is ambiguous as to its meaning. Subsection "ii" calls for a default rate of interest, which when calculated by using a methodology calling for daily compounding, results in the highest rate of interest allowed by law. The highest interest allowed by law is 25% per annum ( see, Penal Law § 190.40; General Obligations Law § 5-501; Emery v Fishmarket Inn of Granite Springs, Inc., 173 AD2d 765, 766-767 [2nd Dept. 1991]). Even assuming the default rate of interest provided for in subsection "i" exceeds 25% per annum, the default rate of interest provided in subsection "ii" is lower and not criminally usurious. Because the note calls for default interest at a rate which is the lower of the rates set forth in subsection "i" and subsection "ii," the note does not contain a criminally usurious default rate of interest.
The cross motion by defendants Vadodra, Baroda, and Kazi is granted only to the extent of amending the summons and caption to reflect that the named plaintiff is a limited partnership rather than a limited liability company.
To qualify for CPLR 3213 treatment, a plaintiff must prove a prima facie case by the instrument for the payment of money only and a failure to make the payments called for by its terms ( see, Interman Ind. Prods. v R.S.M. Electron Power, 37 NY2d 151, 155; Engel v Boymelgreen , 80 AD3d 653 [2nd Dept. 2011]; Bloom v Lugli, 81 AD3d 579 [2nd Dept. 2011]; Ro Ke, Inc. v Stevens , 61 AD3d 953 [2nd Dept. 2009]; Premium Assignment Corp. v Utopia Home Care, Inc. , 58 AD3d 709 [2nd Dept. 2009]).
In support of its motion, plaintiff has submitted, among other things, a copy of the mortgage note, guaranty and mortgage, an affidavit of Mukesh M. Patel, the managing director of the general partner for NextBridge Arc Fund, LP, and an accounting of the payments received and calculation of principal, interest and fees purportedly due plaintiff.
Mukesh M. Patel attests that defendant Vadodra executed and delivered to NextBridge Arc Fund LP a promissory note in the principal amount of $499,000.00, payable with interest and other sums due under the note and other loan documents, and a mortgage to secure the note. He also attests that defendants Baroda and Kazi executed and delivered to NextBridge Arc Fund LP, an unlimited continuing guaranty whereby Baroda and Kazi jointly and severally guaranteed the payment obligations of defendant Vadodra pursuant to the note and mortgage.
According to the terms of the note, defendant Vadodra was required to pay a monthly installment payment of interest only on the 16th day of the month, for a period of 18 months, and to pay the principal balance, along with a loan commitment fee in the amount of 1% per month that the loan is outstanding (unless a prepayment charge was paid in a timely fashion) and any interest arrears, on November 16, 2009, the note's maturity date.
Under the note, events of default include any failure to pay the amount due after the expiration of any applicable cure period, or to pay any amount owing under the note within 10 days after its due date. The guaranty provides that:
this is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and not of collectibility and is in no way conditioned or contingent upon any action or omission by Lender, including any requirement that Lender first attempt to collect any of the Obligations from Borrower or resort to any security thereof. . . .
The note and guaranty provide for the payment to plaintiff reasonable attorney's fees and expenses incurred in seeking to enforce the obligations of defendants Vadodra, Baroda, and Kazi arising under the respective instruments.
Mukesh M. Patel states that defendant Vadodra failed to make timely payment of the interest installment payment due for December 2008, and thereafter made untimely payments of subsequent interest installments. Mukesh M. Patel indicates that defendants Vadodra, Baroda and Kazi failed to repay the amounts due and owing under the note and guaranty on the date of maturity of the note insofar as he states "[a]s of the date of March 16, 2010, Vadodra owes an outstanding balance of $731,838 under the Note, Guaranty and mortgage, plus reimbursement of attorneys [sic] fees and costs, and with default interest continuing to accrue thereafter," in accordance with plaintiff's accounting.
Plaintiff has met its initial burden by submitting proof of the existence of the mortgage note and guaranty, and the default by defendants Vadodra, Baroda and Kazi in payment of the amount due under the mortgage note on the date of maturity of the note ( see, Premium Assignment Corp. v Utopia Home Care, Inc. , 58 AD3d 709 , supra). Although the note permitted plaintiff, at its election, to accelerate the entire amount due upon default in timely payment of any installment and seek immediate repayment, it did not do so.
The burden shifts to defendants Vadodra, Baroda and Kazi to establish by admissible evidence the existence of a triable issue of fact with respect to a bona fide defense ( see, Samet v Binson , 79 AD3d 1005 [2nd Dept. 2010]; Lugli v Johnston , 78 AD3d 1133 [2nd Dept. 2010]; Gullery v Imburgio , 74 AD3d 1022 [2nd Dept. 2010]; Craven v Rigas , 71 AD3d 1220 [3rd Dept.], lv. to appeal denied, 14 NY3d 713. Quest Commercial, LLC v Rovner , 35 AD3d 576 [2nd Dept. 2006]; Bank of NY v Vega Tech. USA, LLC , 18 AD3d 678, 679 [2nd Dept. 2005]).
Defendants Vadodra, Baroda, and Kazi contend they paid plaintiff the amount of $5000.00 by check numbered 5863 towards the monthly interest installment due on December 16, 2008, and therefore were not in default under the loan. They also contend they were not provided with any notice of default and consequently, plaintiff is in breach of the loan documents. Defendants Vadodra, Baroda, and Kazi further contend that any default on their part was waived by plaintiff during the parties' discussions, and by means of proposed agreements, including one executed by plaintiff.
Defendants Vadodra, Baroda, and Kazi have failed to demonstrate that their payment, by check numbered 5863, constituted a timely payment of the monthly interest installment due and owing plaintiff on December 16, 2008. Plaintiff has shown that it credited such payment as a payment towards the monthly interest installment due on November 16, 2008. Defendants Vadodra, Baroda, and Kazi, furthermore, have failed to prove they cured all their arrears, including payment of default rate interest, at any time prior to the maturity date of the note, and tendered to plaintiff the payment of the entire amount due and owing at maturity according to the note's terms.
Defendants Vadodra, Baroda, and Kazi also have failed to establish plaintiff was required to provide a notice of default as a condition precedent to suit to recover under the note and guaranty based upon a default in payment on the maturity date. The note, moreover, contains a waiver of notice of nonpayment and all notices "of a like nature," (section 6.5[a]), and the guaranty provides, in relevant part, that the lender may, at its option "proceed directly and at once without notice of [a payment] default, against the Guarantor to collect and recover the full amount of the liability hereunder, or any portion thereof . . ." (paragraph no. 7).
Defendants Vadodra, Baroda, and Kazi likewise have failed to prove that plaintiff waived its right to recover under the mortgage note and guaranty. The note provides that any event of default may be waived only upon the written consent of the borrower and lender ( see section 6.11). Defendants Vadodra, Baroda and Kazi have failed to prove any such written consent by plaintiff. The copy of the document denominated "term sheet" is unsigned.
The copy of the document denominated "INTER-CREDITOR AGREEMENT" (Agreement) is not executed by defendant Vadodra, Baroda or Kazi. Such Agreement, moreover, evidences that plaintiff did not intend any waiver, since plaintiff acknowledges therein that the loan has already matured and is in default status, but contains no provision to extend the maturity date or waive the default. Defendants Vadodra, Baroda, and Kazi, moreover, have not submitted evidence that they have made any payments to plaintiff, or otherwise changed their position to their substantial detriment, in reliance upon a well-founded belief that plaintiff orally waived its right to proceed to recover under the note and guaranty. Defendants Vadodra, Baroda, and Kazi have thus failed to raise a triable issue of fact or a meritorious defense ( see, Premium Assignment Corp. v Utopia Home Care, Inc. , 58 AD3d 709, supra).
Plaintiff refers, in its accounting, to a default rate of interest in the amount of 24% per annum, for a total of default interest in the amount of $109,780.00. In defending against the claim of criminally usury, plaintiff, nevertheless, asserted that the default rate of interest called for under the note is only 18% per annum. Under such circumstances, plaintiff has waived its right to seek any default rate of interest against defendants Vadodra, Baroda, and Kazi at any rate higher than 18% per annum.
The note, in addition, calls for late charges "equal to the greater of (i) one percent (1%) of the amount of the [interest due which was not made withing 15 days of its due date], or (ii) fifteen ($15.00) Dollars." The accounting relied upon by plaintiff, however, shows late charges in the amount of $99.80, which amount is not equal to 1% of the monthly interest installment amount. The monthly interest installment amount is $4990.00, and therefore, the correct amount of late charges to be assessed is $49.90 per month.
The plaintiff's motion for summary judgment in lieu of complaint is granted as to liability only against defendant Vadodra and defendants Baroda and Kazi by reason of their breach of the obligation to pay under the terms of the note upon maturity and guaranty, respectively. Since plaintiff's calculations, in its accounting, do not comport with this decision, plaintiff is instructed to submit new, proper calculations.
Plaintiff also shall submit, in connection with the settlement of the judgment, an affidavit of its counsel as to reasonable attorneys' fees. Such affidavit shall recite the hourly rate for the legal services, the specific services rendered, and the time expended by plaintiff's counsel for the work described, and all costs.
Settle judgment, together with new calculations, in accordance with this decision, and plaintiff counsel's affidavit of reasonable attorneys' fees and costs.