Citilink Motors, LLC v. Joel K. Holding Co, LLC

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Citilink Motors, LLC v Joel K. Holding Co, LLC 2024 NY Slip Op 32560(U) July 25, 2024 Supreme Court, Kings County Docket Number: Index No. 510636/2024 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.

FILED: KINGS COUNTY CLERK 07/25/2024 02:28 PM INDEX NO. 510636/2024 NYSCEF DOC. NO. 36 RECEIVED NYSCEF: 07/25/2024

SUPREME CO.ORT OF THE STATE ·op NEW ·yoRK C_OUNTY OF KINGS : CIVIL TERM:. COMMERCIAL 8 . ---------- . --- .---- .----- . --. -·- .- .-.-------x .CITILINK MOTORS, LLC ~ _MR. SAMUEL M. HECHT, Plaintiff, Decision _.and qrder

- against - Iridex ~o. 5l0636/2b24

JOEL K-. HOLD.ING co, LLC & MR. YOEL: KLEIN, Defendant~ July .25, 20.24 -·-·-. --------- ·--·-·-·--- . -·------. ·--- ·. ---------x PRESENT: HON. LEON RUCHELSMAN Motion seq .. #¹ & #²

The plaintiff has mov~d pursuant to CPLR §3213 seeking

s-ummary judgement in lieu b"f a complain;t. 'l'he. defe_ndants hav:e

cross-moved seeking to dismiss the- action on the gr.ounds, there

was improper service and als.o see.k summary judgement dismissing

the action.. The .motions have be~n :OPPO:SE;!d respect..i vely. Papers

were -submitted by the parties and .arguments held. .AJter

reviewing -o-f all the arguments, this court now tnak,e·s the

following deteri:ni.riat~o n -~-

on NovembE;ir 29, .2017, the d~:i:endant Yoel Klei.n as borrower

executed a p,romissqry nQte ta. tti.e plaintiff in the amount of $·707, 000. ·The de.fendant Yael Klei.n gua.;r:anteed the debt ih his

individual capacity. Tl.1.e def1;;ndant has hot made any payments

pursuant to the. note and guaranty.

on .Janua.ry· 5, 2.018, the d_efendant Yo·e1 Klein. as bOrrowe-r

exe_cutE!_d a promissory note to the plaintiff in the amount of

$275,000. The defei1dant Yoel Klein -guaranteed the debt in his

FILED: KINGS COUNTY CLERK 07/25/2024 02:28 PM INDEX NO. 510636/2024 NYSCEF DOC. NO. 36 RECEIVED NYSCEF: 07/25/2024

Kings County 2015]). Therefore, there is no basis to assert the

notes are hot really loans.

The plaintiff next as$erts that there-is no conclusive

consensus whether criminally usurious loans are void and the

court should not declare the loans void when to do so would

absolve the diefendant of paying the loans, an unjust and

unconscionable result. General Obligations Law §5,...511 states

that usurious contracts contained within General Obligations Law

§5-501 are void. General Obligations Law §5-501 governs civil

usury. The voiding statute does not mention criminal usury at

all. Therefore, in Sabella v. Scantek Medical Inc., 20-09 WL

3233703 [S.D.N,Y. 2009] the court held it was an "open question''

whether criminally usurious 1·oans are void.

However, while that ma:y be true in the Federal Courts (see,

In re Venture Mortgage Ftirid L. P., 282 F3d 185 [2d Cir. 2002])

there is no question that contracts that contain rates that are

criminally usurious are void ab initio in New York state courts.

Thus, in Fareri v. Rain's International Ltd., 1'87 AD2d 481, 589

NYS2d 579 [2d Dept., 1992] where a contract had an effective

interest rate above twenty-five percent the court explicitly

stated that ''the agreement is in vio.lation of Penal Law 190. 40

and was void ab initio" (id). In Funding Group Inc., v; Water

Chef Inc.; 19 Misc3d 483,. 852 NYS2d 736 [Supreme . <:ourt . . New York

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County 2008] the court sought to distinguish Fareri (supra) by

essentially asserting that Fareri merely copied language from an

earlier case that dealt with civil usury and inadvertently

applied the rule to Criminal usury as well. To the extent other

courts impute :such explanations in attempts to soften the result

of Fareri, this court is bound by its plain language. Again, in

Blue Wolf Capital Fund II. L. P. v .. American Stevedoring Inc., 105

AD3d 17 8, 961 NYS2d 86 [ pt Dept., 2Q13] the court held that a

note with criminally usurious interest was void (see, In re BH

Sutton Mezz IIC, 2016 WL 8352445 [S.D.N.Y. 2016] essentially

disagreeing with Blue Wolf (supra) and consistent with Federal .. .

decisions refused to declare the note void). Finally, in

Venables v. Sagona, 85 AD3d 904, 925 NYS2d 578 [2d Dept., 2Dll]

the court explicitly upheld the dismissal o.f a "cause of action

seeking recovery of principal and interest payments pursuant to

the demand note on the ground that the subject transaction was

void and unenforceable,- (id) where the rate of interest was

criminally usurious (see, also, Roopchand V; Mohammed, 154 AD3d

986, 62 NYS3d 514 [2d Dept., 2017] ,. Powercap Partners LLC v.

Beaux Equities LLC, 77 Misc~d 1221{A), 179 NYS3d 894 [Supreme

court New Yor:k county 2023], sasidharan v. Pivercter, 43 Misc3d

12.31, (A), 993 rYS2d 646 [Supreme Court Kings County 2014]).

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FILED: KINGS COUNTY CLERK 07/25/2024 02:28 PM INDEX NO. 510636/2024 NYSCEF DOC. NO. 36 RECEIVED NYSCEF: 07/25/2024

These cases are direct and binding authority that any

contract that contains usurious interest rates is void. The

court is constrainei;:I. to follow th(;) above precedent and is unable

to temper the harshne.ss of this result. Any efforts to amend the

law and validate usurious contracts, at least conc(;)rning the

principle, must be addressed to the Legislature. Therefore, the

notes which contain criminally usurious interest are

unenforceable~ Cohsequently the ~laintiff's motioh s~ekihg

summary judgement is denied artd the cross-motion seeking

dismissal of the lawsuit is granted.

So ordered.

DATED: July 25, 2024 Brooklyn N.Y. Hoh. Leoh Ruchelsman JSC

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Footnotes

[1] of 10 [* 1] individual capacity. The defend.ant has not made any payments pursuant to the note and guaranty. on February 2, 2018, the defendant Yael Klein as borrower executed a promissory note to the plaintiff in the amount of $342,500. The defendant Yciel Klein guaranteed the debt in his individual capacity. The defendant has not made any payments pursuant to the note and guaranty. The plaintiff now moves seeking summary judgement concerning the f1 rst note including interest in the amount of $1, 9 98 , O7 4, . . . the second note including interest in the amount of $772,334.63 and the third note including interest in the amount of $ 979•, 669. 07 plus interest until judgement is entered. The defendants, as noted, have cross-moved arguing they were never served with process. Conclusions of Law It is well s.ettled that the ,statutory framework for service of process is to fairly notify the defendant of an impending action and provide the defendant with the tnechanisms necessary to ad,equately respond (Valz v. Sheepshead Bay Bungalow Corporation., 249 NY 122 163 NE 124 [1928]). Moreover, service of process is also an exercise of the court's power.. and authority over litigants and thu$, such service of proces-s infuses. the 2

[2] of 10 [* 2] litigation with court sanctioned legitimacy (McDonald v. Ames Supply Co. r 22 NY2d 111, 291 NYS2d 32·8 [1968]) . It is for these reasons that simple notice is insufficient to confer jurisdiction over a defendant (Bankers Trust Company of California, N. A. v. Tsoukas, 303 AD2d 343, 756 NYS2d 92 [2d Dept., 2003]). Likewise, the failure to abide by any of the necessary requirements for the lawful service of a summons and complaint will result in the failure to confer jurisdiction (Persaud v. Teanech Nursing Center, Inc., 290 AD2d 350, 736 NYS2d 367 [Pt Dept., 2002] ) . Pursuant to CPLR§311..:..a service upon a company such as the defendant in t11is case can only be made "to any other person designated by the limited liability company to receive process, in the manner provided by law for service of a summons as if such person was a defendant" (id). Generally a process server's affidavit provides pd.ma facie ev:idence of proper serv.i,ce (Household Finance Realty Corp., of New York v. Brown, 13 AD3d 340, 785 NYS2d 742: [2d Dept., 2004]). To contend that service was improper and that defendant is entitled to a hearing on the matter, the defendant must allege facts to support the contention (Mortgage Electronic: Registration Systems, Inc .. , v. Schotter, 50 AD3'd 983, 857 NYS2d 592 [2d Dept., 2008, Hannover Insurance Company v. Gannon Express Corp., 1 AD3d 358, 766 NYS2d 853 [2d Dept . , 200 3] ) .

[3] of 10 [* 3] The affidavit ;of th~ pro_cess. .serve-r, John Ath-an:a:3atos, states that on April 1.6, 2024, at the defendant's home a woman stated she knew of the corporation. and .also kr:iew tli.e defendan·t Y6el Kleiri ·(see, Affidavit of Service [NYSCEF Doc. Mo. 1-5)). This woman was Molly Klein, the wife of Yael Klein and she accepted service on behalf of both defendants. In Ciaforie v .. Queens Center for Rehabilitatio n and Residential Healthcare, .12_6 AD3d 662, 5 NYS3d 462 [2d D_ep.t., 2015] the co.v.rt he-1.d tha.t "jurisdiction was not obtained by the allegecf delivery of the summons and complaint· to an etnplo_yee at ·the facili_ty' s -s!;!!c;;urity desk because it is a lirni ted liability .c.ompan_y, and its f:our individual members are the only p.e.rsons authorized to accept :.serv-ice on: l.ts behalf.'; (.:Ld) .• Thus, se'rvice c:an11ot pe e.ffe¢tuated pursuant to CPLR §311-a by delivery to s.omeon.e of suitabJ.e c1ge .i3.nd cl.iscretion pursuant to CPLR §308 (2). Therefore, the_ motion seeking to dismiss the defendant- .Joel K. Holding Cq .. , LLC. is 9ranted. Turning to the defendant Yoe·1 .Klein, he was s_erved in his individual ca:pac-ity pursui:l.nt to C.PLR S3·08 (2) .•.. The·re: is ·no bas-is to. challenge the service effectuated on hi_s wife. as someone with suitabie age and discretion. The ni.etr·e denial of receipt, w-i"thout mo-re;- is. insuf·fici:en.t to, rebut the presumption of proper service created by a statutorily sufficient affidavit of service (Indymac 4

[4] of 10 [* 4] Federal Bank FSBv. Ouattrochi; 99 AD3d 763, 952 NYS2d 239 [2d Dept., 2012]). Therefore, there is no pp.s·is to contend that service upon Yael Klein was improper and no evidence has been pre~ented that even warrants a hearing. Therefore, the motion seeking to dismiss the complaint as to Yoel Klein based upon service of prqcess is denied. Turning to the timeliness of the lawsuit, pursuant to CPLR §231(2) the statute of limitations for a breach of contract claim is six yea.rs. Moreover, the statute of limitations begins to run when a cause of action accrues (CPLR §203(a)) which means "when . . . . . . . . . all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court" (see, Aetna Life & Casualty Company v. Nelson, 67 NY2d 169, 5Ql NYS2d 313 [19861). Thus, according to the notes the payments were due on February 21, 2018, April 2, '2018 and April 11, 2018. cons.equently, any lawsuit was required to be filed within six years of those dates. The lawsuit was commenced on April 15, 2024. While that date appears to be later than six years, On March 20, 2020, Governor Andrew Cuomo signed Executive Order Z02.8, which tolled the state statute of limitatibns due to the Covid-19 pandemic (see, 9 NYCRR §8.202). The toll was extended until November 3, 2020 {see, §§8.202.14, 8,202.28, 8.202.38, 5

[5] of 10 [* 5] 8.202.48, H.202.55, 8.202.55.1, 8.202.60, 8.202.63, and 8.202.67. Executive Order 202.72 stated the tolling of time limits established by Execµtive Order 202.8 would no longer be in effect as of November 4, 2020) and therefore the statute of limitations was tolled for 228 days (see, McLaughlin v. Snow-lift Inc., 214 AD3d 720, 185 NYS3d 212 [2dDept., 2023]). Considering the toll in place this action was timely commenced. Next, the defendants argue the plaintiffs do not maintain any standing to pursue this action since they are not the holders of any o,f the notes. The first and third note lists David Genuth as the payee and the second note lists Joseph Hecht as the payee. However, Mr. Genuth assigned the right to pursue the lawsuit to :the plaintiff Samuel Hecht ( ~ , Affidavit of David Ge:tmth, 'TI'TI6,

[45] [NYSCEF DQc. No. 23]). Likewise; Mr. Joseph Hecht assigned the right to pursue the lawsuit to the plaintiff Samuel Hecht (see, Affidavit of Joseph Hecht, 'TI'.IT7, 41, 46 [NYSCEF Doc. No. 24]). Therefore, the plaintiffs maintain standing to pursue this action. Next, the defendant argues the notes are criminally usurious loans, Indeed, all three notes state the interest rate is twenty-nine percent per annum. .In New York, a rate of interest that exceeds twenty-five percent is criminally usurious (PL ,§190. 40). Thus, the .loans. are usur.ious; Furthermore, the 6 6 of 10 [* 6] existence of what is commonly termed a "usury savings clauself or a "usury avqidance clause" whic::h purports to reduce :the interest stated to a permitted amount does not save the loan from. being usurious. In Fred Schutzman Company v. Park Sloo·e Advanced Medical, PLLC, 128 AD3d 1007, 9 NYS3d 682 [2nd Dept., 2015]) the court explained that "a clause in the subject promissory note purporting to reduce the rate of interest to a hon-usurious rate if the rate originally imposed was found to be usurious could not save the note from being usurious" (id) • The plaintiffs present numerous arguments why the court should not void the contract. First, they assert the parties entered into a Heter I.ska, a religious document utilized to circumvent the Jewish prohibitiort again.st interest by treating all loans as partnerships or business ventures (see, In re Venture Mortgage Fund L.P., 245 BR 460 [S.D,N.Y. 2000]). Thus, they assert that in fact no loan took place. However, the notes clearly evidence loans and obligations pursuant to the notes. are not affected by a Heter Iska (8430985 Canada The., v. United Realty Advisors LP, 148 AD3d 428 1 48 NYS3d 402 [ 1 s~ Dept., 2017]). Thus, a Heter Iska is "merely a compliance in form with Hebraic law" arid does not actually create any partne.rship, joint venture, or some other profit sha.ring agreement (~, Kirzner v. Plasticwa:re LLC, 47 Misc3d 1209(A), 16 NYS3.d 792 [Supreme Court: 7 7 of 10 [* 7]