Debtor-Creditor – Page 16 – New York Appellate Digest

CITIBANK NOT ENTITLED TO SUMMARY JUDGMENT UNDER AN ACCOUNT STATED THEORY TO COLLECT A CREDIT CARD DEBT.

The Second Department determined plaintiff bank (Citibank) was not entitled to summary judgment on its account stated cause of action. Defendant's credit card balance increased substantially every month when he failed to pay, The bank increased the interest rate from 3.99 and 6.99% to 29.99%. Between May and November, the credit card balance increased from under $24,000 to over $27,000. Defendant made a $75 payment at some point:

Citibank … failed to establish its prima facie entitlement to judgment as a matter of law on its cause of action for recovery on an account stated. An account stated is an agreement between parties, based upon their prior transactions, with respect to the correctness of the account items and the specific balance due … . Although an account stated may be based on an express agreement between the parties as to the amount due, an agreement may be implied where a defendant retains bills without objecting to them within a reasonable period of time, or makes partial payment on the account … . The “agreement” at the core of an account stated is independent of the underlying obligation between the parties … . Here … Citibank alleged an account stated of $26,985.85. In support of its motion, Citibank submitted proof that it mailed regular monthly statements to the defendant through October 7, 2009.

Citibank failed, however, to establish that the defendant retained this final monthly statement without objecting to the “total new balance” contained on the statement within a reasonable time. In her affidavit, the Citibank employee averred that the “attached Account Statement does not reflect any outstanding disputes on the account.” However, the fact that the final statement did not reflect a protest does not prove that the defendant did not dispute the statement, since any protest would necessarily come after the statement was received by the defendant. Moreover, the record does not establish when the defendant sent a partial payment of $75, and, in any event, that payment was so small in relation to the alleged amount due that it does not give rise, prima facie, to an inference of assent to the total amount alleged to be due … . Citibank (South Dakota), N.A. v Abraham, 2016 NY Slip Op 03133, 2nd Dept 4-27-16

April 27, 2016

Debtor-Creditor, Medicaid, Social Services Law, Trusts and Estates

MORTGAGE HAD PRIORITY OVER COUNTY’S CLAIM FOR REIMBURSEMENT OF MEDICAID BENEFITS.

The Third Department determined a mortgage held by Wells Fargo had priority to a claim by the county seeking reimbursement of Medicaid benefits received by the decedent:

Petitioner [Saratoga County Department of Social Services] asserts priority pursuant to Social Services Law § 104 (1), which provides, in relevant part, that “[i]n all claims of the public welfare official made under [such] section[,] the public welfare official shall be deemed a preferred creditor” (emphasis added). “Preferred creditor” has been construed to give a social services department priority over a “general creditor, that is, a creditor that, upon giving credit, takes no rights against specific property of a debtor” … . Here, Wells Fargo holds a mortgage lien against the Rotterdam property that was recorded prior to the May 2014 decree of Surrogate's Court validating petitioner's claim. Although Medicaid assistance was provided to decedent before the mortgage was given, petitioner did not have a prior lien against the property (see Social Services Law § 369 [2] [a]). As such, we conclude that Wells Fargo's prior specific lien gives it priority over petitioner's claim with respect to the … property … . Matter of Shambo, 2016 NY Slip Op 02699, 3rd Dept 4-7-16

April 7, 2016

Bankruptcy, Civil Procedure, Debtor-Creditor

ACKNOWLEDGING DEBT IN BANKRUPTCY PLAN RENEWED THE STATUTE OF LIMITATIONS WHICH STARTED TO RUN UPON GRANT OF DISCHARGE IN BANKRUPTCY.

The Second Department determined the statute of limitations re: a default on a note secured by a mortgage was renewed when defendant (Raudkivi) acknowledged the debt in his bankruptcy plan. The statute therefore began to run when defendant was granted a discharge in bankruptcy, which occurred less than six years before suit was brought:

Raudkivi’s Chapter 13 bankruptcy plan, in which he acknowledged the mortgage debt and promised to repay it, renewed the limitations period (see General Obligations Law § 17-105[1]…). The automatic bankruptcy stay, which was in effect when Raudkivi executed his Chapter 13 bankruptcy plan, tolled the renewed limitations period (see CPLR 204[a]…), so the renewed limitations period did not begin to run until Raudkivi was granted his discharge in bankruptcy in October of 2006 (see 11 USC § 362[c][2][C]). Since this action was commenced less than six years later, in July of 2012, this action is not time-barred. PSP-NC, LLC v Raudkivi, 2016 NY Slip Op 02632, 2nd Dept 4-6-16

DEBTOR-CREDITOR (ACKNOWLEDGING DEBT IN BANKRUPTCY PLAN RENEWED THE STATUTE OF LIMITATIONS WHICH STARTED TO RUN UPON GRANT OF DISCHARGE IN BANKRUPTCY)/BANKRUPTCY (ACKNOWLEDGING DEBT IN BANKRUPTCY PLAN RENEWED THE STATUTE OF LIMITATIONS WHICH STARTED TO RUN UPON GRANT OF DISCHARGE IN BANKRUPTCY)/CIVIL PROCEDURE (ACKNOWLEDGING DEBT IN BANKRUPTCY PLAN RENEWED THE STATUTE OF LIMITATIONS WHICH STARTED TO RUN UPON GRANT OF DISCHARGE IN BANKRUPTCY)

April 6, 2016

Civil Procedure, Corporation Law, Debtor-Creditor

CORPORATE VEIL PIERCED TO ENFORCE JUDGMENTS.

The Second Department determined petitioners were properly granted summary judgment piercing the corporate (Diontech) veil to enforce judgments:

Equity will intervene to pierce the corporate veil and permit the imposition of individual liability on owners for the obligations of their corporations in order to avoid fraud or injustice … . A party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation with respect to the transaction at issue, and (2) such domination was used to commit a fraud or wrong against the party seeking to pierce the corporate veil which resulted in the injury to that party … . The decision whether to pierce the corporate veil in a given instance will depend on the circumstances of the case … .

Here, the petitioners demonstrated their prima facie entitlement to judgment as a matter of law on so much of the petition as sought to pierce Diontech’s corporate veil by submitting evidence showing, inter alia, that the appellants dominated Diontech, that Diontech did not adhere to any corporate formalities such as holding regular meetings and maintaining corporate records and minutes, that the appellants used corporate funds for personal purposes, and that the appellants stripped Diontech of assets as they wound down the business, leaving it without sufficient funds to pay its creditors, including the petitioners… . Matter of Agai v Diontech Consulting, Inc., 2016 NY Slip Op 02646, 2nd Dept 4-6-16

CORPORATION LAW (CORPORATE VEIL PIERCED TO ENFORCE JUDGMENTS AGAINST PRINCIPALS)/CIVIL PROCEDURE (CORPORATE VEIL PIERCED TO ENFORCE JUDGMENTS AGAINST PRINCIPALS)/DEBTOR-CREDITOR (CORPORATE VEIL PIERCED TO ENFORCE JUDGMENTS AGAINST PRINCIPALS)/PIERCING CORPORATE VEIL (CORPORATE VEIL PIERCED TO ENFORCE JUDGMENTS AGAINST PRINCIPALS)

April 6, 2016

Civil Procedure, Debtor-Creditor

CRITERIA FOR AN ORDER OF ATTACHMENT EXPLAINED.

The Second Department, affirming Supreme Court, determined the motion for an order of attachment was properly granted. The court explained the analytical criteria:

Attachment is a provisional remedy designed to secure a debt by preliminary levy upon the property of the debtor to conserve it for eventual execution, and the courts have strictly construed the attachment statute in favor of those against whom it may be employed … . In order to be granted an order of attachment under CPLR 6201(3), a “plaintiff must demonstrate that the defendant has concealed or is about to conceal property in one or more of several enumerated ways, and has acted or will act with the intent to defraud creditors or to frustrate the enforcement of a judgment that might be rendered in favor of the plaintiff” … . In addition to proving fraudulent intent, the plaintiff must show a probability of success on the merits … . Hume v 1 Prospect Park ALF, LLC, 2016 NY Slip Op 02055, 2nd Dept 3-23-16

CIVIL PROCEDURE (CRITERIA FOR AN ORDER OF ATTACHMENT EXPLAINED)/DEBTOR-CREDITOR (CRITERIA FOR AN ORDER OF ATTACHMENT EXPLAINED)/ATTACHMENT (CRITERIA FOR AN ORDER OF ATTACHMENT EXPLAINED)

March 23, 2016

Account Stated, Debtor-Creditor

PLAINTIFF ENTITLED TO SUMMARY JUDGMENT UNDER AN ACCOUNT STATED THEORY IN AN ACTION TO COLLECT A CREDIT CARD DEBT.

The Second Department determined plaintiff, who had purchased defendant's credit card debt of over $16,000, was entitled to summary judgment under an account stated theory. The court explained the elements:

” An account stated is an agreement between [the] parties to an account based upon prior transactions between them with respect to the correctness of the account items and balance due'” … . To establish its prima facie entitlement to judgment as a matter of law to recover on an account stated, a plaintiff must show that the defendant received the plaintiff's account statements for payment and retained these statements for a reasonable period of time without objection … .

In the case of existing indebtedness, the agreement may be implied as well as express … . “An agreement may be implied where a defendant retains bills without objecting to them within a reasonable period of time, or makes partial payment on the account” … . Cach, LLC v Aspir, 2016 NY Slip Op 02046, 2nd Dept 3-23-16

ACCOUNT STATED (PLAINTIFF ENTITLED TO SUMMARY JUDGMENT IN ACTION TO COLLECT A CREDIT CARD DEBT)/DEBTOR-CREDITOR (PLAINTIFF ENTITLED TO SUMMARY JUDGMENT UNDER AN ACCOUNT STATED THEORY IN AN ACTION TO COLLECT A CREDIT CARD DEBT)/CREDIT CARDS (PLAINTIFF ENTITLED TO SUMMARY JUDGMENT UNDER AN ACCOUNT STATED THEORY IN AN ACTION TO COLLECT A CREDIT CARD DEBT)

March 23, 2016

Civil Procedure, Debtor-Creditor, Family Law

WIFE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN AN ACTION SEEKING THE TURNOVER OF PERSONAL PROPERTY TO ENFORCE A JUDGMENT AGAINST HUSBAND; HER SEPARATE PROPERTY, AS OPPOSED TO MARITAL PROPERTY, COULD NOT BE REACHED BY A JUDGMENT CREDITOR.

The First Department determined the wife in a divorce proceeding, Wendy, should have been allowed to intervene in an action against her husband, Hugh, by plaintiff, Pensmore, seeking the turnover and sale of personal property to enforce a money judgment. Wendy submitted proof supporting her claim that the personal property in her possession was her separate property, not marital property, and therefore could not be reached by the creditor:

As a preliminary matter, we agree with Wendy that because Hugh was not in physical possession of the property which is the subject of the turnover order, the enforcement proceeding should have been brought as a special proceeding pursuant to CPLR 5225(b). Wendy was required to have been named as a party and separately served with the petition, because she is the one in actual possession of the disputed property (CPLR 5225[b] McKinney's Practice Commentary, 5225.5). Although Pensmore did not properly name Wendy, the error could have been cured by permitting Wendy to intervene, so long as the burden of proof remained on the judgment creditor (Pensmore) to establish that the judgment debtor (Hugh) has an interest in the property that is superior to the person in actual possession (Wendy) … .

The trial court was required to hold a hearing to determine whether the personal property in Wendy's possession is her sole separate property or marital property. * * *

While … an inchoate right to equitably share in marital property cannot be protected against third party creditors of a debtor spouse … , the same rule does not hold true for separate property of the non-debtor spouse. Domestic Relations Law § 236[B] provides that “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held” is marital property (Domestic Relations Law § 236 [B][1][c]…). There is an exception, however, for “property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;” such property is the separate property of that spouse (DRL § 236 [B][1][d]…). Separate property, is not “marital property” and it is not equitably distributed in a divorce action … . Although neither spouse has a vested interest in any property that is otherwise marital until it is distributed in a divorce action, separate property, unless transmuted or commingled, retains its character as the property of the spouse who owns it both during and after the marriage … . Pensmore Invs., LLC v Gruppo, Levey & Co., 2016 NY Slip Op 01789, 1st Dept 3-15-16

FAMILY LAW (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/PERSONAL PROPERTY (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/DEBTOR-CREDITOR (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/CIVIL PROCEDURE (NON-DEBTOR SPOUSE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN ACTION TO ENFORCE JUDGMENT AGAINST DEBTOR-HUSBAND)/INTERVENE, MOTION TO (NON-DEBTOR SPOUSE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN ACTION TO ENFORCE JUDGMENT AGAINST DEBTOR-HUSBAND)

March 15, 2016

Debtor-Creditor, Foreclosure

HOLDER OF SECOND MORTGAGE COULD PROPERLY SUE ONLY ON THE UNDERLYING DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS.

The Second Department determined plaintiff bank, the holder of a second mortgage on defendant’s residence to secure an equity loan, could sue to recover on the underlying debt, without bringing foreclosure proceedings. Because defendant’s ownership and possession of his residence was not at risk in the lawsuit, the protections afforded a homeowner by the foreclosure procedure were not applicable:

Where a creditor holds both a debt instrument and a mortgage which is given to secure the debt, the creditor may elect either to sue at law to recover on the debt, or to sue in equity to foreclose on the mortgage (… see generally RPAPL 1301). Here, contrary to the Supreme Court’s determination, the clear and unequivocal language of the parties’ agreement did not limit the plaintiff’s options to recover in the event of a default, and did not require that the plaintiff commence only a foreclosure action … . …

Accordingly, the plaintiff was free to commence the instant action to recover damages, and the protections afforded to homeowners under the foreclosure laws are inapplicable to this action, since the defendant’s ownership and possession of his residence are not at risk in this lawsuit. Wells Fargo Bank, N.A. v Goans, 2016 NY Slip Op 00710, 2nd Dept 2-3-16

MORTGAGES (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/FORECLOSURE (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/HOME EQUITY LOAN (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/DEBTOR-CREDITOR (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)

February 3, 2016

Debtor-Creditor

NOTE WITH 12% INTEREST RATE FOR LESS THAN A YEAR WAS USURIOUS.

The First Department determined a note was void as usurious. Although the face of the note indicated the interest rate was 12%, the duration of the note was less than a year. The actual interest was a usurious 36%:

It is true that the stated rate on the four-month note is 12%. However, it does not say 12% per annum. Where, as here, the loan is for less than a year, the interest rate is annualized … , and thus, the annual rate on the note is 36%, well above the criminal usury rate of 25%. It is also true that the note says, “in no event shall the rate of interest payable hereunder exceed the maximum interest permitted to be charged by applicable law and any interest paid in excess of the permitted rate shall be credited to principal and any balance refunded to” defendant. However, that does not make the subject note nonusurious … . Furthermore, even if defendant drafted the note, that “does not relieve the lender from a defense of usury” … . Bakhash v Winston, 2015 NY Slip Op 08966, 1st Dept 12-8-15

MONTHLY COMPILATION INDEX ENTRIES FOR THIS CASE:

USURY (EFFECTIVE ANNUAL INTEREST ON NOTE WAS 36%)

December 8, 2015

Debtor-Creditor

Question of Fact Raised About Whether Signature on Promissory Note Was Forged

In this action on a promissory note, the Second Department reversed Supreme Court, finding that defendant raised a triable issue of fact whether his signature was forged. The court noted that expert evidence is not necessary to raise a question of fact in this context:

Something more than a mere assertion of forgery is required to create an issue of fact contesting the authenticity of a signature … . Here, in addition to his own affidavit, the defendant submitted a copy of his driver license as an example of his signature, and an affidavit from the individual who allegedly witnessed execution of the note. Review of the defendant’s signature on his driver license and the signature on the note reveal some difference to the untrained eye. More importantly, the individual who is identified as the witness on the note stated in his affidavit that he had no recollection of witnessing the defendant signing the note, and that he believed that his own signature thereon was forged. Furthermore, while the defendant did not submit an expert affidavit, an expert opinion is not required to raise a triable issue of fact regarding a forgery allegation … . Finally, the defendant’s signature on the note was not notarized, and thus, there is no presumption of due execution … . Kitovas v Megaris, 2015 NY Slip Op 08388,2nd Dept 11-18-15

November 18, 2015