Documents reviewed: NYSCEF Doc. No. 8: Notice of Motion filed September 15, 2023. NYSCEF Doc. No. 9: Affidavit in Support of Motion for Partial Summary Judgment filed September 15, 2023, with Exhibits AB, C and D (NYSCEF Doc. Nos. 10, 11 and 22) NYSCEF Doc. No. 12: Affirmation in Support of Motion for Partial Summary Judgment filed September 15, 2023, with Exhibits A-G (NYSCEF Doc. Nos. 13-21) NYSCEF Doc. No. 23: Memorandum of Law in Opposition to Motion filed September 25, 2023, with Exhibits A — D (NYSCEF Doc. Nos. 25-28) NYSCEF Doc. No. 29: Affidavit in Opposition to Motion filed September 25, 2023, with Exhibits A-J (NYSCEF Doc. Nos. 30-39) NYSCEF Doc. No. 40: Reply Affidavit in Support of Motion filed October 2, 2023. NYSCEF Doc. No. 41: Attorney’s Reply Affirmation in Support of Motion filed October 2, 2023 DECISION/ORDER Plaintiff has moved for partial summary judgment in this action to enforce the terms of a September 5, 2019 promissory note by defendant, as maker, to plaintiff, as lender, in the original principal amount of $400,000 (hereinafter, the “Note”). The interest rate is fixed at 16 percent annually. A balloon payment, together with all accrued interest was payable at maturity on September 30, 2020. The Note also contains a promise of sorts by defendant to pay plaintiff 3 percent of the net profits realized in the sale of its 2019 and 2020 industrial hemp crops, a new enterprise for the not-for-profit organization. It is undisputed that defendant completed payment of the $400,000 principal of the Note on December 23, 2022. The defendant’s executive director, Tessa Edick Williams, acknowledged in emails to plaintiff in 2022 that $140,000 in accrued fixed interest was due and owing. In reviewing a motion for summary judgment, the Court is concerned with issue-finding, not issue determination, and affidavits offered in support of or opposition to the motion will be scrutinized in the light most favorable to the party opposing the motion (Robinson v. Strong Mem. Hosp., 98 AD2d 976, 977 [4th Dept 1983]). The burden on a motion for summary judgment rests initially upon the moving party to come forward with sufficient proof in admissible form to enable a court to determine that it is entitled to judgment as a matter of law (Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851 [1985]; Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]). If the moving party fails to make a prima facie showing of its entitlement to judgment, the motion must be denied, regardless of the sufficiency of the opposing papers (Winegrad, 64 NY2d at 853). If, however, the moving party establishes a prima facie case by (1) tendering sufficient evidence to eliminate material issues of fact and (2) showing entitlement to judgment as a matter of law, then the burden shifts to the opposing party to produce evidentiary proof in admissible form establishing the existence of material issues of fact sufficient to require the motion’s denial (Dow v. Schenectady County Dept. of Social Servs., 46 AD3d 1084 [3d Dept 2007]). Here, plaintiff met his initial burden of establishing defendant’s liability on the Note by producing the instrument and documenting his unsuccessful efforts to collect the unpaid interest. Throughout this action, defendant has tacitly acknowledged that it executed the Note received the full proceeds of the loan, and expressly acknowledged that the interest under the note was in large part unpaid. The Court finds that plaintiff established his right to summary judgment as a matter of law as to defendant’s failure to pay the outstanding fixed interest under the Note. The burden of proof is therefore shifted to the defendant to offer evidence in admissible form sufficient to raise a triable issue of fact (Hirsh v. Brunenkant, 51 AD3d 1258, 1259-60 [3d Dept 2008]). Defendant’s opposes plaintiff’s motion for summary judgment by means of two affirmative defenses: 1. The motion for summary judgment is premature. 2. The Note is void because when the profit-sharing rights of plaintiff are added to the 16 percent fixed interest, the effective rate of interest exceeds 25 percent and is usurious under the Penal Law 190.40. Defendant’s burden with regard to the affirmative defenses is to demonstrate the existence of a triable issue of fact with respect to a bona fide defense (Lavelle v. Urbach, Kahn & Werline, PC, 198 AD2d 751 [3d Dept 1993]). Defendant also argues that material issues of fact are found in its allegation of a partial interest payment and a proposed amended payment schedule which made the final payment due and payable on December 2023, a date long after the filing of the motion for summary judgment. Motion Premature. Defendant argues that the motion for summary judgment is premature because discovery is not complete. CPLR 3212(a) expressly provides that a motion for summary judgment may be filed at anytime “after issue is joined” (see, Vasquez v. Soto, 61 AD3d 968 [2d Dept 2009]). Issue was joined in this proceeding when defendant filed its answer on May 30, 2023. Defendant contends, however, that dismissal of the motion for summary judgment is required because material facts essential to its case are within the plaintiff’s exclusive knowledge and have not been delivered to defendant despite its demands (CPLR 3212[f]). Dismissal will be granted only if defendant affirmatively demonstrates that the information sought is material, essential and in plaintiff’s exclusive possession (Scofield v. Trustees of Union College in Schenectady, 267 AD2d 651, 652 [3d Dept 1999]). “Mere speculation” will not suffice for this purpose (Svoboda v. Our Lady of Lourdes Mem. Hosp., Inc., 20 AD3d 805, 806 [3d Dept 2005]). Defendant identifies as evidence “material, essential and in plaintiff’s exclusive possession” the means of calculating the rate of interest attributable to the profit-sharing provisions of the Note, plaintiff’s potential waiver of defendant’s default and partial payment of fixed interest. Calculation of the plaintiff’s profit-sharing rights would require revenue and expense data derived from commercial hemp, all of which are in defendant’s exclusive possession. As to defendant’s defense of waiver, this defense was waived by defendant itself under the terms of Paragraph 8 of the Note. No amount of discovery could vary the express terms of the Note and defendant’s waiver of demands and notices thereunder. In a similar vein, if plaintiff actually received, endorsed and deposited the $12,000 allegedly paid on defendant’s behalf, proof of the same is easily obtained through a review of the payor’s bank records. The Court finds that it is defendant, not plaintiff, who is in exclusive possession of additional facts essential to the prosecution of its case. Plaintiff’s motion for summary judgment is timely and defendant’s affirmative defense to the contrary is denied. Material Issues of Fact. In arguing that material issues of fact exist, defendant proffers an amended payment schedule created by defendant and sent to plaintiff by email on January 17, 2023. The terms of the proposed amended payment schedule call for a final payment in December 2023 and was therefore not due and payable at the time that this motion was filed. Plaintiff acknowledges that he received the communications the proposed amended payment schedule, but he never accepted the proposal or even responded to the email. Defendant has proffered no proof to the contrary. The defendant is referred to the express terms of the Note (Article 9) which requires that any amendment to the Note terms be in writing and signed by plaintiff and defendant. Defendant has offered no proof of a writing signed by plaintiff accepting the amended payment schedule and therefore its provisions were not binding on him. The Court finds that no material issue of fact is created by the payment provisions of an unsigned and unenforceable amendment to the Note. Defendant also claims that a material issue of fact exists as to a partial interest payment of $12,000. The evidence of this payment consists of a copy of the front of a $12,000 check payable to plaintiff and dated. Plaintiff denies receiving the check and since defendant offers no evidence that it was tendered to plaintiff or endorsed or negotiated by him, the Court finds no factual basis for defendant’s contention of a partial payment. No issue of facts exists as to partial payment because defendant has failed to establish that the proceeds of the check allegedly tendered to plaintiff was actually received by him. Usury. Defendant also asserts the affirmative defense of usury under Penal Law 190.40, which provides, in relevant part, as follows: A person is guilty of criminal usury in the second degree when, not being authorized or permitted by law to do so, he knowingly charges, takes or receives any money…as interest on the loan…at a rate exceeding twenty-five per cent per annum or the equivalent rate for a longer or shorter period. Defendant bears the burden of proving usury (Orvis v. Curtiss, 157 NY 657, 661 [1918]), including the element of usurious intent (Lewis v. Gummer, 171 AD2d 989, 989 [3d Dept 1991]). Each element of usury must be proved by clear and convincing evidence to overcome the strong presumption against a finding of usurious intent (Gandy Mach. v. Pogue, 106 AD2d 684 [3d Dept 1984]; Freitas v. Geddes Sav. & Loan Assn., 63 NY2d 254, 260-261 [1984]). Usurious intent will be implied where the usurious interest is plain from the face of the instrument (see Fareri v. Rain’s Intl., 187 AD2d 481 [2d Dept 1992]). In its effort to establish criminal usury, defendant offers its undated and unsubstantiated projections of $5,000,000 in net profits for its hemp project in 2019 and 2020. Net profits on this scale would generate $300,000 in annual profit-sharing proceeds to plaintiff, increasing the Note’s interest rate to 30.3 percent, well over the 25 percent threshold for criminal usury under Penal Law 190.40. Notwithstanding that hemp cultivation was a new venture for plaintiff in an untested market, defendant contends that its optimistic projections of $5,000,000 annual profit was “assumed by all parties” (including plaintiff). Defendant offers no proof of such a shared assumption: there is no evidence that the projections of multi-million dollar net profits were communicated to plaintiff, ever. Indeed, plaintiff reports he saw them for the first time after they were produced in discovery. Plaintiff further affirms that the profit-sharing portion of the Note was included at the suggestion of defendant’s executive director, Tessa E. Williams. Williams reports that the profit-sharing was intended to “induce” a loan. It was not an inducement as far as plaintiff was concerned: he testified he had “no concept” of the amount that the profit-sharing provision might generate and would have made the loan without this added and uncertain benefit. Given that the express terms of the Note make the payment of net profits entirely discretionary with defendant, plaintiff’s skepticism is understandable.1 Whether an instrument is usurious is determined as of the time it was signed (Estate of Jackson, 120 AD2d 309, 313 [3d Dept 1986]). Defendant has offered no proof that its calculations of projected net profits were made at the time it signed the Note. Even if plaintiff was shown to have been made aware of defendant’s projections at the inception of the loan, the mere possibility that he would ultimately receive more than the legal rate of interest is not sufficient to establish that the Note was usurious (Phlo Corp. v. Stevens, 2001 U.S. Dist. LEXIS 17490 *13 [SDNY]). Defendant’s allegations are not sufficient to override the strong presumption against the finding of usurious intent (Lehman v. Roseanne Investors Corp., 106 AD2d 617, 618 [2d Dept 1984]). Defendant has failed to demonstrate the existance of a material issue of fact with respect to usurious intent or a usurious rate of interest and its affirmative defense on that basis is rejected. Alternate grounds for a finding dismissing the defendant’s affirmative defense of criminal usury are found in the equitable principal of estoppel in pais. Under this principal, the defendant is estopped from interposing a usury defense if the Note was conceived in the context of a “special relationship” between the parties. A “special relationship” is found when the party to be estopped (1) initiated the transaction, (2) induced reliance based upon either its representations or its inference that the transaction was legal, and (3) proposed the illegal interest rate (Pasechnik v. Bakley Consulting Corp., 19 Misc3d 1139(A)[Sup Ct Kings Cty 2008])2. In Seidel, the Court found that estoppel in pais was appropriately invoked because the plaintiff was induced to rely on the defendant as to the legality of the transaction (Seidel v. 18 East 17th St. Owners, Inc., 79 NY2d 735, 743 [1992]; see, also Kingsize Entertainment, LLC v. Martino, 155 AD3d 856 [2d Dept 2017]). Application of this equitable remedy, the Seidel Court reasoned, avoids a result where “a borrower could void the transaction, keep the principal, and ‘achieve a total windfall, at the expense of an innocent person’” (Seidel at 743, quoting Angelo v. Brenner, 90 AD2d 131,133 [3d Dept 1982]). In Russo v. Carey, 271 AD2d 889, 890 [3d Dept 2000], plaintiff alleged that he loaned the money to defendant, his friend, due to her husband’s impending heart surgery, that the promissory notes were prepared by defendant, that defendant fixed the rate of return and that he relied upon defendant’s experience in loan transactions in making the loan. The Appellate Term also noted the existence of evidence suggesting that defendant intentionally prepared the notes with a usurious interest rate for the specific purpose of avoiding repayment (see, also, O’Donovan v. Galinski, 62 AD3d 769, 770 [2d Dept 2009]; and Roopchand v. Mohammed, 154 AD3d 986 [2d Dept 2017](evidence established that defendant intentionally set a rate she knew to be usurious for the purpose of avoiding repayment). In this action, the Note was drafted by attorneys associated with defendant. One attorney, Stephen Cohen, was a fiduciary: he was member of defendant’s board of directors and is referred to by the executive director as the “pro bono Board counsel”. The other attorney, Steven Bernstein, was a senior creditor of defendant, having already lent $2,540,000 to the hemp enterprise. Bernstein approached plaintiff to make a $400,000 loan to defendant. (It is unknown if Bernstein disclosed that to plaintiff that he (Bernstein) was unwilling to make the loan himself.) Cohen drafted the note and it appears that both of the attorneys were engaged in negotiating the Note terms. Defendant also represents in the Note that it consulted with “independent counsel” regarding the terms of the Note. Plaintiff, a retired schoolteacher, was then 90 years old, with no professed expertise in financial instruments. He had no lawyer. While this Court need not determine whether defendant knowingly proposed a usurious rate to plaintiff, its insistence on the relevance of its projected returns comes perilously close to an admission that it knew, when the Note was signed, that the effective rate interest payable under the Note would ultimately exceed 25 percent. Moreover, in reserving to itself the discretion to determine plaintiff’s “entitlement” to profit-sharing payments, a significant question is raised as to whether a binding obligation to share in net profits was created by this instrument. The Court finds that the defendant is estopped from raising the affirmative defense of criminal usurious under the principle of estoppel in pais because it induced plaintiff to enter into the loan, it drafted the Note and it proposed the additional interest payment it termed “profit-sharing” which created an inference of its legality. The Court has considered the defendant’s remaining arguments and found them to be lacking in merit. It is, therefore, DECIDED and ORDERED that defendant has failed to produce evidence in admissible form sufficient to create a material issue of fact; and it is further DECIDED and ORDERED that plaintiff has established a prima facie case for a judgment on its first cause of action for payment of interest at the rate of 16 percent under the terms of the Note; DECIDED and ORDERED that defendant shall pay to plaintiff, within 30 days of the date of this order, interest at the rate of 16 percent on the $400,000 loaned to defendant, which shall be calculated from the maturity date of the loan (September 30, 2020) to the actual date of payment. This constitutes the order of the Court. All papers, including this Decision/Order, are hereby entered and filed with the Columbia County Clerk. Counsel is not relieved from the applicable provisions of CPLR Section 2220 relating to service and notice of entry. Dated: January 19, 2024
