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New York Supreme Court Dismisses Defendant’s Usury Defense for Merchant Agreement Banner Image

New York Supreme Court Dismisses Defendant’s Usury Defense for Merchant Agreement

Month: November 2017

New York Supreme Court Dismisses Defendant’s Usury Defense for Merchant Agreement

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The Supreme Court of New York, Westchester County, recently granted a plaintiff’s motion to dismiss defendant’s affirmative defenses and counterclaims and held that the parties’ merchant agreement whereby plaintiff purchased defendant’s future receivables was a valid contract, and not a usurious loan, as defendant alleged.  See Rapid Capital Fin., LLC v. Natures Mkt. Corp., 2017 WL 4764559 (N.Y. Sup. Ct. Oct. 11, 2017).  In the case, plaintiff paid defendant $30,000 and, in exchange, was to receive $38,100 in defendant’s future receivables through daily debits of $152.00 per day, which was 9.1% of defendant’s average daily sales.  When defendant blocked plaintiff from debiting the money, plaintiff filed a breach of contract action.  Defendant asserted affirmative defenses and counterclaims in which it argued that the contract was invalid because it was actually a loan agreement with a usurious interest rate of 127%.  Plaintiff filed a motion to dismiss these usury claims, and the Court granted the motion.

Although the Court acknowledged that a party cannot shield itself from a usurious loan contract simply by calling it a merchant agreement, it held that the contract at issue here was not a loan. The Court focused its analysis on the fact that the contract had a reconciliation provision, which required plaintiff to either credit or debit defendant’s account if the daily debits did not equal 9.1% of defendant’s sales.  Thus, the payment amounts were contingent on defendant’s sales and, unlike with a loan, not absolute.  The fact that plaintiff added additional protections, such as the ability to investigate defendant’s finances if the monthly receipts are low, did not change this analysis.  As such, the Court dismissed defendant’s usury defenses and claims.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New Jersey Federal Court Dismisses Plaintiff’s Complaint Against Mortgage Servicer Under Rooker-Feldman and Entire Controversy Doctrines

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The United States District Court for the District of New Jersey recently granted a mortgage servicer’s motion to dismiss a borrower’s claim because the allegations should have been brought in the parties’ foreclosure action.  See Sanchez v. Select Portfolio Servicing, Inc., 2017 WL 4711475 (D.N.J. Oct. 20, 2017).  In the case, plaintiff defaulted on a loan and defendant’s predecessor in interest instituted a state court foreclosure action in 2008.  After plaintiff defaulted in the action, the Court entered a final judgment of foreclosure, however, the original lender collapsed and the property was not sold.  In 2016, after the loan was assigned to defendant, the parties entered modification discussions but, according to plaintiff, no agreement was reached and defendant nonetheless unilaterally increased her monthly payments.  Later that year, defendant filed a motion to appoint a special servicer to sell the property, which plaintiff opposed.  The Court granted defendant’s motion, and plaintiff filed this action arguing that defendant had breached the terms of the mortgage and acted in bad faith.  Defendant then moved to dismiss.

The Court granted defendant’s motion to dismiss.  First, it held that plaintiff’s claims were barred by the Rooker-Feldman doctrine, under which “federal district courts are barred from hearing cases ‘that are essentially appeals from state-court judgments,’” including state court foreclosure judgments.  The doctrine applies when “‘(1) the federal plaintiff lost in state court; (2) the plaintiff ‘complain[s] of injuries caused by [the] state-court judgments’; (3) those judgments were rendered before the federal suit was filed; and (4) the plaintiff is inviting the district court to review and reject the state judgments.’”  In this matter, all of plaintiff’s claims related to the mortgage and foreclosure, and the relief she sought was to prevent the sale of the property.  Thus, the Rooker-Feldman doctrine applied and the Court dismissed the action for lack of jurisdiction.  Second, the Court held that even if plaintiff raised independent claims regarding defendant’s 2016 conduct, these would be barred by New Jersey’s entire controversy doctrine, which requires “whenever possible all phases of a legal dispute to be adjudicated in one action.”  Thus, because plaintiff’s claims were germane to the foreclosure action, plaintiff also was barred from bringing them in a separate proceeding pursuant to the entire controversy doctrine.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New Jersey Appellate Division Holds Foreclosing Lender Not Responsible for Condominium Association Fees after Winterizing the Property

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The New Jersey Appellate Division recently affirmed that a lender who winterizes and secures a property during a foreclosure is not deemed a mortgagee in possession subject to condominium association fees, even if the lender performed “modest repairs” to the property.  See Union Hill Condo. Ass’n v. Wells Fargo Bank, N.A., 2017 WL 5478310 (N.J. Super. Ct. App. Div. Nov. 15, 2017).  There, the borrower became delinquent on both his mortgage loan and his condominium association assessments.  The lender commenced a foreclosure action and, the next year, the borrower passed away.  The lender winterized the property, changed the locks, landscaped the property and repaired a door and handrail.  The condominium association then filed an action alleging that the lender was a mortgagee in possession of the property and therefore responsible for the association fees.  The trial court rejected this argument, found that the lender was not a mortgagee in possession and held that the association’s sole remedy was through the condominium lien priority statute.  See N.J.S.A. 46:8B-21.

On appeal, the Appellate Division affirmed the lower court’s decision.  Citing Woodlands Community Association, Inc. v. Mitchell, 450 N.J. Super. 310 (App. Div. 2017), the Court stated, “actions by a mortgagee that merely protect its security in the property, such as changing locks, paying realty taxes, and ‘winterizing’ the property to prevent frozen pipes, [are] insufficient to make the mortgagee a lender in possession.”  Although the Court acknowledged that a lender that performs more extensive repairs may be deemed a mortgagee in possession, “the modest repairs to a door and a railing essentially comprise measures to keep the premises safe rather than capital investments.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Beware of Contractual Statutes of Limitation Affecting Claims for Deficient Environmental Services

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The Appellate Division of the Superior Court of New Jersey recently upheld a provision in an environmental services contract that reduced the time to bring a claim under the contract to one year.  Elar Realty Co. v. Environmental Risk Limited, Docket No. A-2201-15 (N.J. App. Div. Oct. 11, 2017).  As a result, the property owner was unable to bring a claim against its environmental contractor for deficient work in performing remediation.

In Elar Realty, a property owner, Elar Realty Company (“Elar Realty”), entered into a written contract with an environmental contractor, Environmental Risk Limited, for work relating to the remediation of its property.  While Environmental Risk Limited initially began the work, it subsequently sold its assets and open contracts, including the contract with Elar Realty, to another environmental contractor, GZA GeoEnvironmental, Inc. (“GZA”).  GZA then performed services in connection with the Elar Realty’s property, and Elar Realty paid GZA for these services.  GZA performed under the contract until December 24, 2008 when Elar Realty terminated the contract because of “deficiencies in GZA’s work.”  Elar Realty Co., (slip op. at 2-3).

Approximately two years later, Elar Realty sued GZA and Environmental Risk Limited in connection with these deficiencies.  GZA and Environmental Risk Limited both argued that Elar Realty’s claims were barred by a one-year statute of limitations that it had agreed to in the written contract for environmental services.  Elar Realty challenged the applicability of the one-year statute of limitations, but the Appellate Division summarily upheld the shortened statute of limitations and dismissed Elar Realty’s claims.  Elar Realty Co., (slip op. at 7).  By way of explanation, the Appellate Division cited other cases, which held that “[c]ontract provisions limiting the time parties may bring suit have been held to be enforceable, if reasonable.” See, e.g.,  Mirra v. Holland Am. Line, 331 N.J. Super. 86, 91, 751 A.2d 138, 140 (App. Div. 2000).

This is not the first time that the New Jersey courts have upheld a strict contractual provision in a contract for environmental services.  For example, in 66 VMD Associates, LLC v. Melick-Tully and Associates, the Appellate Division upheld a provision limiting the liability of an environmental contractor for breach of contract to a mere $25,000.  Docket No. A-4008-09 (N.J. App. Div. Aug. 11, 2011).  In so doing, the Appellate Division acknowledged that courts generally enforce a contract as written, with few exceptions.
In light of the above, environmental contractors and anyone contracting for services from such a company should carefully review their contracts in order to adequately protect their respective interests.  Contractual statutes of limitation are commonly included in environmental services agreements that can and should be closely considered and negotiated.

For more information, please contact any attorney in our Environmental Practice Group.

New Jersey Federal Court Holds Plaintiff Had Standing to Bring FDCPA Claim for Procedural Violations

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The United States District Court for the District of New Jersey recently denied a debt collector’s motion to dismiss a debtor’s claim that a debt collection notice violated the Fair Debt Collection Practices Act (“FDCPA”) because the notice failed to state that certain requests must be in writing.  See Kausar v. GC Servs. Ltd. P’ship, 2017 WL 5175596 (D.N.J. Nov. 8, 2017).  In the case, plaintiff alleged that she received a debt-collection letter from defendant that violated the FDCPA because it did not state that any requests to verify the debt or obtain information regarding the original creditor must be in writing, as the FDCPA requires.  See 15 U.S.C. § 1692g.  Defendant filed a motion to dismiss, arguing that plaintiff’s claim here was “purely statutory and procedural,” and that plaintiff therefore lacked standing in light of the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), which requires a plaintiff to plead a concrete harm.  The Court disagreed and denied the motion.  Although it acknowledged that the Third Circuit has not addressed how Spokeo affects procedural FDCPA claims, it cited Pisarz v. GC Servs. Ltd. P’ship, 2017 WL 1102636 (D.N.J. Mar. 24, 2017) for the proposition that “the defendant’s failure to provide the statutorily required disclosures” is a concrete harm sufficient to meet Article III standing.  Thus, it denied defendant’s motion.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Connecticut Court Grants Title Insurance Company’s Motion for Summary Judgment and Holds Insureds Agreed to Easement Traversing Property

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The Superior Court of Connecticut recently held that insured owners were barred from coverage under a title insurance policy for an easement that the policy did not disclose because the sellers had informed the insureds about the easement before the closing, even if the insureds had misunderstood the scope of the easement.  See Pamela Egan et al. v. Eastland Title Servs., Inc. et al., 2017 WL 5202842 (Conn. Super. Ct. Sept. 29, 2017).  In the case, the insureds purchased a property and obtained a title insurance policy.  According to their complaint, after the purchase, they learned that the property was subject to an easement not disclosed in the title report.  They filed a claim with the title insurance company and, after the title insurance company denied the claim, filed a lawsuit against the title insurance company and the sellers.  The title insurance company then moved for summary judgment, arguing that the insureds knew about the easement before purchasing the property and that the claim therefore was barred under a policy exclusion for risks “that are created, allowed, or agreed to by [y]ou.”

The Court agreed and granted the motion.  First, it found that the sellers provided the insureds with a property condition report that stated “[n]eighbors have ROW near water to access their property.”  Second, it found that the real estate agent had informed the insureds of the easement when they visited the property.  The insureds did not deny these facts, but argued that they only had been informed that the neighbors had the right to cross the property in a “lawn tractor,” and were unaware “that the easement permitted their neighbor to repeatedly drive vehicles across the . . . property to access the waterfront.”  The Court nonetheless held that, even if the insureds misunderstood the scope of the easement, this does not preclude the application of the policy exclusion.  “The policy exclusion cannot be read to require full knowledge and understanding of an easement; rather, it simply excludes losses ‘that are created, allowed, or agreed to by [the insureds].’”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Florida Appellate Court Reverses Final Judgment of Foreclosure for Lack of Standing under PSA

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Florida’s District Court of Appeal recently reversed a trial court and vacated a final judgment of foreclosure because the bank, as trustee of a mortgage pool trust governed by a pooling and servicing agreement (“PSA”) was unable to prove standing.  See Friedle v. Bank of New York Mellon, 2017 WL 4280592 (Fla. Dist. Ct. App. Sept. 27, 2017).  In the case, the trial court granted the bank final judgment of foreclosure and the borrower appealed, arguing that the bank did not prove that it had possession of the note at the time it filed the complaint.  On appeal, the appellate court agreed that the bank had not proved it possessed the note and reversed.

First, the Court held that the bank’s introduction of the PSA into evidence was insufficient to prove standing.  Although the PSA was filed with the SEC and was considered self-authenticating evidence, the mortgage at issue was not referenced in these filed documents.  Additionally, the bank’s witness only testified that the PSA was part of the bank’s business records. However, neither this testimony nor the PSA showed when the note was physically transferred to the bank.  “And it is clear from the testimony that the witness had no knowledge of the workings of the PSA or MLS, nor did any other document or testimony show that the note was transferred to the Bank in accordance with the terms of the PSA. Therefore, the evidence in this case does not establish that this mortgage note was within the possession of the Bank as Trustee at the time suit was filed.”

Second, the Court rejected the bank’s argument that attaching a copy of the note to the complaint created a presumption of standing, holding that this presumption is only created if the copy of the note attached to the complaint is in the same condition of the note introduced at trial.  Here, the Court held that the original note introduced at trial was not in the same condition as the copy attached to the complaint.  “Where the copy differs from the original, the copy could have been made at a significantly earlier time and does not carry the same inference [of standing] of possession at the filing of the complaint.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

NJDEP To Adopt Strict Standards for PFOA and PFNA in Drinking Water

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On November 1st, New Jersey Department of Environmental Protection (“NJDEP”) Commissioner Bob Martin announced that the Department would move forward with adopting strict drinking water standards for two emerging contaminants that studies have linked to adverse health effects.  According to NJDEP’s press release, New Jersey will become the first state to formally adopt Maximum Contaminant Levels (“MCLs”) requiring statewide testing of public drinking water systems for perfluorooctanoic acid (“PFOA”) and perfluorononanoic acid (“PFNA”).  In fact, the Department has already accepted the State Drinking Water Quality Institute’s recommended health-based MCL of 14 parts per trillion (ng/L) for PFOA and has proposed an MCL of 13 ng/L for PNFA.  During a news conference in Voorhees, New Jersey, Commissioner Martin said that “setting protective standards for these contaminants continues New Jersey’s long tradition of being a national leader in using strong science to ensure residents receive the highest quality drinking water.”

PFOA and PFNA belong to a group of chemicals called per- and polyfluoroalkyl substances (“PFAS”) that do not readily break down in the environment and remain in the body for a long time, or bioaccumulate, once absorbed through drinking or eating.  For more than a decade, scientists have been studying the health effects associated with PFAS and a growing number of studies suggest that exposure to PFOA and PFNA over certain levels may lead to adverse effects, including developmental issues, thyroid and liver damage, increased blood cholesterol levels, and impacts to the immune system, as well as certain types of cancer. 

PFOA has been used in a wide variety of consumer products and industrial applications, including the manufacture of non-stick cookware and food packaging.  It also has been used to make upholstered furniture and carpets as well as all-weather clothing and water-resistant shoes and mattresses.  PFNA has been used in the manufacturing of high-performance plastics that are resistant to heat and harsh chemicals.  As a result of the wide usage of these chemicals and their persistence in the environment, PFOA and PFNA have been found in the majority of drinking water systems that have been tested throughout the state. 

Public water systems that identify exceedances of the MCLs for PFOA and PFNA will need to take steps to ensure that the drinking water is suitable for public consumption.  In fact, some water purveyors in impacted areas already have utilized point of entry treatment (“POET”) systems, while others have drawn replacement water from deeper, more protected groundwater sources.

Given the developing science and understanding of the prevalence of and adverse health effects associated with emerging contaminants like PFOA and PFNA, it is very possible that we will see the emergence of additional contaminants of concern and new regulation in the future.

For more information, please contact the author Jaan Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

New York Surrogate’s Court Holds Presumption Under Banking Law § 675 Does Not Apply to Joint Account Claim Made by Decedent’s Brother

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The Surrogate’s Court of New York, Oneida County, recently denied a petitioner’s motion for summary judgment seeking to compel the executor to deliver all of the funds withdrawn from a decedent’s accounts to the petitioner, as the alleged surviving joint owner, on grounds that there is insufficient proof to warrant a finding that title to the accounts is vested in the petitioner as the survivor.  See Matter of Sledziona, 56 Misc.3d 1206(A) (Surr. Ct. 2017).  There, the decedent opened two bank accounts in 1971.  He later married and, in July 1995, he and his wife signed a form entitled “Joint Share Account Agreement,” which, among other things, stated that the accounts “shall be owned by them jointly, with the right of survivorship[.]”  The wife died in April 2006.  In November 2014, the decedent and the petitioner, who was the decedent’s brother, signed a document entitled “Account Change Card” which listed the petitioner as “Joint Owner” of the account and the decedent as “Member/Owner.”  Although the form provided checkboxes for the applicants to designate the accounts as either “With Rights of Survivorship” or “Without Rights of Survivorship,” neither box was checked.

The decedent died in 2015 and his will was admitted to probate in December 2015.  His step-son, in his capacity as executor, withdrew all of the proceeds from the bank accounts.  The petitioner then instituted this proceeding in July 2016 pursuant to New York Surrogate’s Court Procedure Act § 2105, seeking an order compelling the executor to give him all of the funds withdrawn from the accounts.  The petitioner then filed a motion for summary judgment declaring his right to the funds.  The executor cross-moved for summary judgment declaring that the accounts were not joint accounts with rights of survivorship under New York Banking Law § 675, which provides that if specific words of survivorship are used when a joint account is created, it is prima facie evidence that title is vested in the survivor; the burden is on the party challenging the title of the survivor to prove otherwise.  Here, the petitioner argued that the bank’s Membership and Account Agreement states that “[u]nless otherwise stated on the Account Card or documented through the Credit Union’s online application and authentication process, a joint account includes rights of survivorship.”  As such, according to the petitioner, because neither box was checked on the Account Change Card, he was entitled to the protections under New York Banking Law § 675.

The court denied the petitioner’s motion and granted the executor’s cross-motion as to the applicability of Banking Law § 675.  The Court determined that when the decedent’s wife died, the decedent benefited from the survivorship language in the “Joint Share Account Agreement” and the money became his alone.  The accounts were no longer joint accounts but individual accounts.  The Court further found that nothing in the Joint Share Account Agreement bestows the same rights of survivorship on any future joint owner.  By failing to designate whether the accounts were to be “with” or “without” rights of survivorship when they signed the Account Change Card, the Court found that the petitioner does not benefit from the presumption afforded under Banking Law § 675.  In that vein, the petitioner admitted that he had not received a copy of the Membership and Account Agreement and was not aware of the language therein regarding rights of survivorship, and the Court found that he could not retroactively rely on the same.   The Court also rejected the petitioner’s argument in the alternative that no material question of fact exists as to the issue of whether the decedent intended to convey rights of survivorship when he added the petitioner as a joint owner.  Accordingly, the Court denied the petitioner’s motion for summary judgment, and granted the executor’s cross-motion to the extent it seeks a summary declaration that the accounts do not enjoy the presumption afforded by Banking Law § 675.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Florida Appellate Court Reverses Trial Court and Holds Homestead Tax Lien Has Priority Over Earlier Recorded Mortgage

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A Florida appellate court recently reversed a trial court’s decision granting summary judgment in favor of a mortgagee and instead held that a tax lien originating from improper homestead benefits had priority over the mortgage recorded seven years earlier.  See Miami-Dade Cty. v. Lansdowne Mortg., LLC, 2017 WL 4655060 (Fla. Dist. Ct. App. Oct. 18, 2017).  In the case, plaintiff mortgagee recorded a mortgage on the subject property in 2007.  In 2014, the county recorded a tax lien that “resulted from the tax assessor’s determination that the property improperly received homestead benefits.”  The mortgagee later foreclosed, and the trial granted its summary judgment motion, holding that the first-filed mortgage was superior to the tax lien.  The trial court agreed with the mortgagee’s argument that liens arising out of improper homestead tax exemptions are not given the same priority as other tax liens, and are instead governed by a separate homestead lien statute.  Fla. Stat. Ann. § 196.161(3).

On appeal, the appellate court reversed the decision and held the tax lien should have priority.  The Court held that certain liens are given priority over others, regardless of when they are recorded, including homestead tax liens.  Fla. Stat. Ann. § 197.122.  It rejected the trial court’s determination that Fla. Stat. Ann. § 196.161(3) governs the priority of homestead tax liens, holding instead that the statute only addressed “when and how such a lien attaches to a given property” and not priority.  Accordingly, the Court held that homestead tax liens are entitled to priority over earlier-recorded mortgages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

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