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Note Which Was Extended and Consolidated with Other Debts Was Not Extinguished by the Consolidation, Extension and Modification Agreement (CEMA)—the Agreement, Therefore, Did Not Commence the Running of the Statute of Limitations for an Action on the Note

The Third Department, reversing Supreme Court, determined a Consolidation, Extension and Modification Agreement (CEMA) did not extinguish a note which was extended and consolidated under the agreement. Therefore the statute of limitations for action on the note did not commence running when the agreement was entered:

We agree with plaintiff that the plain language of the CEMA does not support Supreme Court’s conclusion that the CEMA extinguished the 1992 note and thereby recommenced the running of the statute of limitations. “It is well established that a subsequent note does not discharge the original indebtedness secured unless there is an express agreement between the parties” … . Defendant points to no express agreement and cites no authority supporting its claim that the CEMA operated to extinguish the 1992 note. Rather, the record makes clear that defendant still owed approximately $169,000 on the 1992 note at the time that the CEMA was executed. That debt was consolidated with two other debts into a new note and the mortgage liens were “coordinated, consolidated, combined and extended” to form a single lien. “Where, as here, balances of first mortgage loans are increased with second mortgage loans and CEMAs are executed to consolidate the mortgages into single liens, the first notes and mortgages still exist” … . Bechard v Monty’s Bay Recreation, Inc., 2015 NY Slip Op 04711, 3rd Dept 6-4-15

 

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Promissory Note Reflecting a Loan to a Limited Liability Company Was Criminally Usurious As Well As Void Under the General Obligations Law—Provision Purporting to Reduce the Interest Rate to a Non-Usurious Rate If the Original Rate Were Found to be Usurious Did Not Save the Note

The Second Department determined a promissory note imposing an annual interest rate of more than 25% (60% here) was criminally usurious (Penal Law 190.40) and could not be saved by a provision purporting to reduce the interest rate to a non-usurious rate if the original rate were found to be usurious. The court noted that, although a limited liability company (the defendant here) cannot assert the defense of civil usury, a limited liability company can assert the defense of criminal usury.  In addition, the note was void under General Obligations Law 5-511 because the interest rate exceeded 16%. Fred Schutzman Co. v Park Slope Advanced Med., PLLC, 2015 NY Slip Op 04447, 2nd Dept 5-27-15

 

Sale of Notes Was Champertous—Seller Subcontracted Out Its Litigation for Political Reasons In Violation of Judiciary Law 489 (1)

The First Department determined plaintiff’s purchase of notes was champertous. Champerty “is the purchase of claims with the intent and for the purpose of bringing an action that [the purchaser] may involve parties in costs and annoyance, where such claims would not be prosecuted if not stirred up . . . in [an] effort to secure costs”. Champerty is prohibited by Judiciary Law 489 (1). Although purchases of claims for more than $500,000 are not subject to the champerty prohibition (Judiciary Law 489 (2)), the First Department held that the $500,000 must actually be paid.  Here the price was set at $1,000,000 but nothing had been paid. The court determined the seller of the notes had subcontracted out its litigation to plaintiff for political purposes:

The purported sale of the notes is champertous since [the seller] maintained significant rights in the notes and expected the lion’s share of any recovery from defendants … . There is every indication that plaintiff entered into the Purchase Agreement with the intent of pursuing litigation on [the seller’s] behalf in exchange for a fee; plaintiff’s intent was not to enforce the notes on its own behalf …. Indeed, plaintiff could not enforce all of the rights under the notes, since, as the motion court noted, “No reasonable finder of fact could conclude that [plaintiff] was making a bona fide purchase of securities.” On the contrary, “[t]he only reasonable way to understand the [Purchase Agreement] is that [the seller] was subcontracting out its litigation to [plaintiff] for political reasons.” Accordingly, the sale of the notes violated Judiciary Law § 489(1). Justinian Capital SPC v WestLB AG, 2015 NY Slip Op 04381, 1st Dept 5-21-15

 

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Attorney Discharged without Cause Entitled to Fee as an Account Stated

The Third Department determined an attorney had been discharged without cause and was entitled to a charging lien and a retaining lien.  The client had signed a retainer agreement and had not expressed any objection to the detailed itemized bill submitted by the attorney.  The amount of the bill was therefore deemed an account stated.  In explaining the options available to an attorney who has been discharged without cause, the court wrote:

…[A]n attorney who has been discharged without cause may pursue the following cumulative remedies: (1) a charging lien, (2) a retaining lien, and/or (3) a plenary action in quantum meruit … . A charging lien is a statutory remedy — codified in Judiciary Law § 475 — that grants the attorney “a security interest in the favorable result of [the] litigation” … . A retaining lien, on the other hand, permits the discharged attorney to retain the contents of the client’s file until such time as the attorney has been paid or “the client has otherwise posted adequate security ensuring [the] payment [there]of” … . With respect to either lien, a hearing may be required to determine the amount of compensation due and owing to the discharged attorney. Here, however, we have no quarrel with Supreme Court’s finding that the firm was entitled to an award of $10,884.14 based upon an account stated. Roe v Roe, 2014 NY Slip 03317, 3rd Dept 5-8-14

 

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Replevin and Order of Seizure (Asserting a Superior Right to Property) Explained

The Second Department, in determining an order of seizure had been properly granted, explained the law of replevin and an order of seizure:

“The action of replevin is essentially possessory in its nature.”… . “A cause of action sounding in replevin must establish that the defendant is in possession of certain property of which the plaintiff claims to have a superior right” … .

“An order of seizure is not a final disposition of a matter but is a pendente lite order made in the context of a pending action where the movant has established, prima facie, a superior right in the chattel” … . Pursuant to CPLR 7102, an application for an order of seizure must be supported by an affidavit that “clearly identif[ies] the chattel to be seized” and states, among other things, facts demonstrating “that the plaintiff is entitled to possession” of the chattel, that “the chattel is wrongfully held by the defendant,” and that “no defense to the claim is known to the plaintiff” (CPLR 7102[c]…). Southeast Fin LLC v Broadway Towing Inc, 2014 NY Slip Op 03254, 2nd Dept 5-7-14

 

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Third-Party Beneficiary of an Indemnification Agreement May Enforce Obligations Owed to the Judgment Debtor by the Indemnifying Party

The Second Department determined the third-party beneficiary of an indemnification agreement could bring an action to collect a debt by suing the entity which entered the indemnification agreement with the judgment debtor. “Pursuant to CPLR 5227, a special proceeding may be commenced by a judgment creditor ‘against any person who it is shown is or will become indebted to the judgment debtor.’ Such a proceeding is properly asserted against one who agreed to indemnify the judgment debtor in the underlying proceeding … . The judgment creditor stands in the judgment debtor’s shoes, and may enforce the obligations owed to the judgment debtor by the indemnifying party… “. Matter of White Plains Plaza Realty, LLC v Cappelli Enters., Inc., 2015 NY Slip Op 03549, 2nd Dept 4-29-15

 

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Foreign Money Judgment Properly Enforced—Criteria Explained

The Second Department determined Supreme Court properly enforced a Canadian money judgment.  The court explained the relevant analytical criteria:

“Under CPLR article 53, a judgment issued by the court of a foreign country is recognized and enforceable in New York State if it is final, conclusive and enforceable when rendered'” … . “[A] foreign country judgment is considered conclusive between the parties to the extent that it grants or denies recovery of a sum of money'” … . “However, a foreign country judgment is not conclusive, and thus may not be recognized, if (1) it was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law’ or (2) the foreign court did not have personal jurisdiction over the defendant'” … . “A plaintiff seeking enforcement of a foreign country judgment bears the burden of making a prima facie showing that the mandatory grounds for nonrecognition do not exist” … .

The Ontario Superior Court of Justice is part of a judicial system that provides impartial tribunals and procedures compatible with due process of law … and, here, that court had a valid basis for exercising jurisdiction over the defendant, as the defendant purposefully transacted business in Ontario (see CPLR 5305[b]; CPLR 302[a][1]…). Moreover, CPLR 5305(a)(2) provides, in relevant part, that a foreign country judgment “shall not be refused recognition” by New York “for lack of personal jurisdiction if . . . the defendant voluntarily appeared” in the foreign court proceedings for purposes other than “contesting the jurisdiction of the court” over him or her. Although the plaintiff failed to establish that the defendant was properly served with process in the Canadian action …, the plaintiff nonetheless demonstrated that the Ontario Superior Court of Justice had personal jurisdiction over the defendant, as the defendant “voluntarily appeared” in the Canadian action (CPLR 5305[a][2]…) and “did more than [it] had to do to preserve a jurisdictional objection” … .  Gemstar Can., Inc. v George A. Fuller Co., Inc., 2015 NY Slip Op 02726, 2nd Dept 4-1-15

 

“Equitable Subrogation” Doctrine Defined

The Second Department explained the concept of “equitable subrogation” re: paying the debt of another:

The doctrine of equitable subrogation “is broad enough to include every instance in which one party pays a debt for which another is primarily answerable and which in equity and good conscience should have been discharged by the latter, so long as the payment was made either under compulsion or for the protection of some interest of the party making the payment, and in discharge of an existing liability” … . Bank of NY v Penalver, 2015 NY Slip Op 01406, 2nd Dept 2-18-15

 

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CPLR 5239 Is the Proper Vehicle for Vacation of an Execution—Here Defendant’s Brother Brought a CPLR 5239 Proceeding to Vacate an Execution Against the Brother’s Property Which Purported to Relate to a Debt Owed by Defendant—The Execution Was Vacated Based Upon the Brother’s Proof of Ownership

The Second Department determined Kamel, a non-party, had demonstrated that he did not have an ownership interest in property which was executed against to satisfy a judgment against the defendant, Kamel’s brother. The court explained the procedure to vacate an execution pursuant to CPLR 5239:

Pursuant to CPLR 5239, “any interested person may commence a special proceeding against the judgment creditor or other person with whom a dispute exists to determine rights in the property or debt” (CPLR 5239…). The court may “vacate the execution or order, void the levy, direct the disposition of the property or debt, or direct that damages be awarded” and, if necessary, may hold a hearing to determine the proper disposition (CPLR 5239…). As the party seeking relief, “it [is the] petitioner’s burden to proffer evidence demonstrating that the property was not subject to the lien identified in the notice of sheriff’s sale” … .

At the hearing, Kamel presented mortgage documents relating to the purchase of the LIC property, as well as documents identifying him as the principal of the LLC which held legal title to that property and his own personal guaranty for the $1.45 million mortgage loan for that property. Accordingly, Kamel met his burden of demonstrating that the LIC property was not subject to execution … . Born to Build LLC v Saleh, 2015 NY Slip Op 01232, 2nd Dept 2-11-15

 

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An Action by a Judgment Creditor Pursuant to CPLR 5225 and 5227 Seeks both Legal and Equitable Relief—a Jury Trial Is Therefore Not Available

The Fourth Department determined an action to enforce a judgment against a party other than the judgment debtor (here a judgment creditor) under CPLR 5225 and 5227 is a proceeding for both legal and equitable relief for which a jury trial is not available:

“[T]he right to trial by jury is zealously protected in our jurisprudence and yields only to the most compelling circumstances” … . “Trial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever” (NY Const, art 1, § 2). “That guarantee extends to all causes of action to which the right attached at the time of adoption of the 1894 Constitution . . . Historically, however, actions at law were tried by a jury, [and] matters cognizable in equity were tried by the Chancellor. Even though the two systems have merged, vestiges of the law-equity dichotomy remain in the area relating to trial by jury” … .

Thus, the right to a jury trial “depends upon the nature of the relief sought” … . Under the CPLR, a jury trial is available in an action “in which a party demands and sets forth facts which would permit a judgment for a sum of money only” (CPLR 4101 [1] [emphasis added]). Where a plaintiff joins legal and equitable causes of action in a complaint, it waives its right to a jury trial … . * * *

…[W]e conclude that enforcement of a judgment under CPLR 5225 and 5227 against a party other than the judgment debtor is an outgrowth of the “ancient creditor's bill in equity,” which was used after all remedies at law had been exhausted. We thus conclude that [the judgment creditor's] use of CPLR 5225 and 5227 in this case is in furtherance of both legal and equitable relief and, therefore, that [the judgment creditor] is not entitled to a jury trial on those combined legal and equitable claims … . Matter of Colonial Sur Co v  Lakeview Advisors LLC, 2015 NY Slip Op 01002, 4th Dept 2-6-15

 

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