There is some interesting information in HJOEs mot
Post# of 15187
Posted On: 07/12/2016 10:30:29 AM
There is some interesting information in HJOEs motion for summary judgement. It is a large document. Scan as you wish. Happy reading. BTW, the KBM response is out, I just can't cut and copy into a document to post here. It seems weak to me. I'll keep trying.
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254
Plaintiff, :
:
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL :
:
————————————————————
NOTICE OF MOTION
PLEASE TAKE NOTICE that Defendants, HangoverJoe’s Holding Corp. and Matthew
Veal, will move this Court for Summary Judgment dismissing the Complaint, on a date and time
to be set by the Court, before the Honorable Judge Sandra J. Feuerstein, U.S. District Judge,
U. S. District Court for the Eastern District of New York, at the Central Islip Courthouse, located
at 100 Federal Plaza, Central Islip, NY 11722, to enter an order granting summary judgment on
the pleadings, and dismiss with prejudice Plaintiff’s Complaint. Defendants also seek reasonable
costs and attorneys’ fees in connection with this motion. For support, Defendants submit an
accompanying Memorandum of Law in Support of Defendants’ Motion on the Pleadings, and a
declaration of defendant, Matthew Veal, with supporting Exhibits.
Dated: New York, New York
June 16, 2016 ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: rjy24@aol.com
Attorneys for Defendants
Case 2:15-cv-07254-SJF-GRB Document 21 Filed 07/12/16 Page 1 of 2 PageID #: 67
To: Robert P. Johnson, Esq.
NAIDICH WURMAN LLP
111 Great Neck Road, Suite 214
Great Neck, New York 11021
Tel No. (516) 498-2900
Fax No. (516) 466-3555
Email: rjohnson@nwlaw.com
Attorneys for Plaintiff
Case 2:15-cv-07254-SJF-GRB Document 21 Filed 07/12/16 Page 2 of 2 PageID #: 68
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254 (SJF) (GRB)
Plaintiff, :
:
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL
Defendants : :
————————————————————
______________________________________________________________________
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT SEEKING DISMISSAL OF THE COMPLAINT ON THE GROUNDS THAT
THE NOTE IS CRIMINALLY USURIOUS
______________________________________________________________________
Dated: Queens, New York
June 16, 2016 ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: rjy24@aol.com
Attorneys for Defendants
To: Robert P. Johnson, Esq.
NAIDICH WURMAN LLP
111 Great Neck Road, Suite 214
Great Neck, New York 11021
Tel No. (516) 498-2900
Fax No. (516) 466-3555
Email: rjohnson@nwlaw.com
Attorneys for Plaintiff
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 1 of 11 PageID #: 69
TABLE OF CONTENTS
PRELIMINARY STATEMENT………………………………………………………………..1
STATEMENT OF FACTS……………………………………………………………………1-2
ARGUMENT
1. SUMMARY JUDGMENT IS APPROPRIATE AS THERE ARE NO ISSUES OF FACT…2-3
2. THE NOTE CHARGES INTEREST RATES THAT ARE CRIMINALLY USURIOUS ….3-7
3. THE NOTE IS VOID AND THE COMPLAINT SHOUD BE DISMISSED……………….7-8
CONCLUSION………………………………………………………………………………….8
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 2 of 11 PageID #: 70
Defendants, HANGOVER JOE’S HOLDING CORP. and MATTHEW VEAL
(“Hangover” and “Veal”), by and through their attorney, Robert J. Young, Esq., Ellsworth &
Young LLP, submit this Memorandum of Law in support of their Motion against Plaintiff KBM
WORLD WIDE INC. (“KBM”), for summary judgment, dismissing the complaint, based on the
criminally usurious and illegal terms of the subject note sued upon, dated January 2, 2015.
PRELIMINARY STATEMENT
This is an action brought by a predatory lender, KBM, against HANGOVER, an
emerging growth company on the OTC-BB (Over the Counter Bulletin) stock exchange,
wherein the Plaintiff seeks to enforce a criminally usurious promissory note in violation
of New York Banking Laws and the New York Penal Code. Plaintiff brought this suit
when defendants refused to allow its stock to be converted in furtherance of plaintiff
scheme to obtain defendants’ stock at a 45% discount as repayment of a loan and seeks
equitable relief on money it lent and for the enforcement of an agreement in addition to
monetary damages. Defendants seek to have the complaint dismissed based on the
criminally usurious nature of the note. During a telephone conference with the Court,
defendants’ counsel was instructed by the Court to make their motion for summary judgment
to dismiss the Complaint with respect to defendants’ affirmative defense that the subject loan is
usurious by June 16, 2016. As such, the within motion is brought with respect to Defendants’
claim that the Note is usurious and the Complaint should be dismissed.
STATEMENT OF FACTS
The Complaint alleges that Plaintiff executed a Note (curiously never attached to the
1
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 3 of 11 PageID #: 71
Complaint even though it is the gravamen for the claims made) with Defendant Hangover on
January 2, 2015, in the principal amount of $43,000.00, having a maturity date of October 6,
2016. The note states that the interest rate is 8% per annum with a 22% default interest rate. The
Note further provides in “Article 1- CONVERSION RIGHTS” language in paragraphs
Article1:1-1:8 that, in summary, the lender has the right from 180 days after January 2, 2015,
which is July 1, 2015, until the maturity date, which is October 6, 2015, to convert any or all of
the debt into stock at a 45% discounted rate.
Effectively, the lender can, after 180 days, cause repayment of the note before it even
becomes due by converting stock in satisfaction of all or part of the note. The lender would then
receive $78,182.00 worth of stock for repayment of the $43,000.00 note. This is interest of
$35,182.00 on a $43,000.00 note.
At Article 1:9 of the note, at pages 12 and 13, there is a “Prepayment Percentage
Schedule. The borrower can avoid being subject to this stock conversion by exercising its right
of prepayment of the note at “prepayment percentage rates” set forth on said schedule.
Attached hereto as Exhibit “A” is the Complaint, dated January 19, 2016. Attached hereto as
Exhibit “B” is the Answer raising affirmative defenses. Among the affirmative defenses,
defendants assert that the note is criminally usurious. Attached hereto as Exhibit “C” is the
subject Note, with an Affidavit of Defendant Veal authenticating same.
All of the repayment options have interest rates that are above and beyond 25%.
ARGUMENT
1. SUMMARY JUDGMENT IS APPROPRIATE AS THERE ARE NO ISSUES OF
FACT
Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106
2
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 4 of 11 PageID #: 72
S. Ct. 2548, 2552 (1986), Back v. Hastings on Hudson Union Free Sch. Dist., 365 F.3d
107, 122 (2d Cir.2004). The party seeking a summary judgment must present the court
with “the basis for its motion, ...identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,’
which it believes demonstrate the absence of a genuine issue of material fact.” Celotex
at 326.
In the instant case, the Note on its face has repayment terms that are above 25% which
renders the Note criminally usurious and, hence, void. As such, Judgment must be entered in
favor of Defendants and the Complaint dismissed.
2. THE NOTE CHARGES INTEREST RATES THAT ARE CRIMINALLY
USURIOUS
New York General Obligations Law (“GOL”) 5-521[3] permits corporations to assert the
defense of criminal usury.
GOL 5-521 (1) prohibits corporations from asserting usury as a defense.
[“GOL § 5-521. Corporations prohibited from interposing defense of usury. 1. No
corporation shall hereafter interpose the defense of usury in any action. The term
corporation, as used in this section, shall be construed to include all associations, and
joint-stock companies having any of the powers and privileges of corporations not
possessed by individuals or partnerships”.
However, GOL 5-521(3) does not apply where the corporation interposes criminal usury
as a defense.
[“GOL 5-521(3). The provisions of subdivision one of this section shall not apply
to any action in which a corporation interposes a defense of criminal usury as described
in section 190.40 of the penal law”.]
NYS Penal Code provides the following in relevant part:
Ҥ 190.40 Criminal usury in the second degree.
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 or other property as interest
on the loan or forbearance of any money or other property, at a rate exceeding
3
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 5 of 11 PageID #: 73
twenty-five per cent per annum or the equivalent rate for a longer or
shorter period.
Criminal usury in the second degree is a class E felony.”
The subject Note (Exhibit “C”) made by and between Plaintiff KBM as lender, and
Defendant Hangover as Borrower, is dated January 2, 2015, and has a maturity date of October
6, 2015. At first glance, the Note is an attractive proposition, especially for one who is in dire
need of cash as it sets forth an interest rate of only 8% with a default interest rate of 22%, and
which purports to be due on October 6, 2015. (See the first paragraph of the Note).
However, although it states that the Note is not due until October 6, 2015, the next
section entitled “Article 1- CONVERSION RIGHTS” contains language in paragraphs
Article1:1 - 1:8 which, in summary, provides that the lender has the right from 180 days after
January 2, 2015, which is July 1, 2015, until the maturity date, which is October 6, 2015, to
convert any or all of the debt into stock at a 45% discounted rate. Effectively, the lender could,
after 180 days, cause repayment of the note before it even becomes due by converting stock in
satisfaction of all or part of the note.
The 45% discount of the market value of the stock to satisfy either part or all of
the money owed amounts to a usurious rate of interest. The lender is effectively getting
$78,182.00 worth of stock for repayment of the $43,000.00 note. This is interest of
$35,182.00 on a $43,000.00 note. This subjects the borrower to an interest rate on this debt
conversion of 81%. It does not even take into account the windfall of profit that the lender
receives when it then sells the stock at the market value and the damage to the Defendants in
having to sell their stock at a 45% discount and having to suffer the consequences of the market
being flooded with more stock causing the stock price to plummet after Plaintiff has made its
enormous profits. The Note, on its face, is criminally usurious as the conversion rate subjects the
borrower to said 81% interest rate. 4
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 6 of 11 PageID #: 74
To successfully raise the defense of usury, a debtor must allege and prove by clear and
convincing evidence that a loan or forbearance of money, requiring interest in violation of a
usury statute, was charged by the holder or payee with the intent to take interest in excess of the
legal rate (see Giventer v Arnow, 37 NY2d 305, 309 [1975]). If usury can be gleaned from the
face of an instrument, intent will be implied and usury will be found as a matter of law (see
Fareri v Rain's Intl., 187 AD2d 481, 482 [2d Dept 1992]). It is clear in the instant case that the
lender intended to make interest above the usury rate as the borrower was subject to the
conversion even before the note was due. Usury is evident on the face of the note pursuant to the
debt conversion rights of the lender, and further as set forth below, all revealing the intent of the
holder, Plaintiff KBM.
Further, as indicated at Article 1:9 of the Note, at pages 12 and 13, there is a
“Prepayment Percentage Schedule”. The borrower can avoid being subject to said stock
conversion by exercising its right of prepayment of the note at “prepayment percentage rates” set
forth on said schedule. Exhibit “D” attached reveals the effective interest rate if the borrower
prepaid the note by choice as so offered and prescribed within the first 180 days. For example, at
60 days, the borrower must pay a “prepayment percentage” of 120 % of the $43,000.00 debt,
which amounts to $51,600.00. Reflected by said Exhibit “D” is the effective interest rate if the
borrower was to choose this particular option. The interest rate in this example would be 884%.
As indicated, the interest rates were calculated by the Effective Interest Rate Calculator @
http://www.calculatorsoup.com/calculators/fin...ulator.php.
These true and effective interest rates, hidden by the deceptive and shrewd semantical
label of a “prepayment percentage”, if the borrower were to prepay the note, are far above and
beyond the defined floor of the criminal usury rate of 25%. Even though criminal usury defense
may not apply to prepayment interest, this contention of criminal usury is proferred to the Court
in the context of the overall criminally usurious nature of the Note. This “prepayment option” is
5
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 7 of 11 PageID #: 75
the only available avenue for the borrower to avoid the inevitable conversion of its stock with the
devastating consequences after 180 days and before the due date of the note. Movants assert that
because of the very nature of this Note, and how the usury is fraudulently hidden by calling it a
different name, nonetheless it is criminally usurious by the set-up of the traps laid by the
deceitful and predatory lender, calling it a Note when it is a mere ruse to convert the stock.
This Plaintiff lender sought by deliberated fraud and design to make it impossible for
this Defendant borrower, already in financial difficulties, to repay the note prior to the
conversion period, which begins 180 days after the issue date of the Note and is the very same
date that the prepayment rights of the borrower cease. This is all part and parcel of an
elaborate scheme conceived and contrived by this predatory Plaintiff lender to acquire the
Defendant borrower’s stock at a heavily discounted rate and to then dump the stock in the
market, realizing a windfall of profit and causing catastrophic downward spiral of the stock
price. The effective interest rate of this conversion process as set forth above is far above the
threshold of 25%
In the instant case, Plaintiff went to great lengths in its efforts to draft an agreement to
mislead the Defendant borrower that the interest rate was 8% and that the higher interest
rates apply when the borrower chooses to prepay when, in fact, the borrower is faced with only
two options, both of which are criminally usurious, to wit, either the Plaintiff lender converts the
shares of stock to satisfy the loan at a 45% discounted rate below the market value, or the
borrower prepays the loan prior to the 180 days to avoid the conversion. Essentially, all of the
power lies in the hands of the Plaintiff lender and forces the Defendant borrower to allow the
conversion of its stock or be compelled to pay the Note off by a prepayment penalty to avoid the
conversion. Either way, the Defendant borrower is trapped, by a subject Note which is illusory
6
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 8 of 11 PageID #: 76
on its face by its claim of 8% and due date in October, all after the criminal usury kicks in and
Defendant borrower has to pay such prepayment percentages that are way beyond the criminally
usurious rate.
3. THE NOTE IS VOID AND JUDGEMENT MUST BE GRANTED IN FAVOR OF
DEFENDANTS WITH THE COMPLAINT DISMISSED
The criminally usurious nature of the subject Note on its face and in the deceptive terms
thereof renders the Note void. Plaintiff can never prevail on any action to enforce its terms and,
thus, this Motion for Summary Judgment should be granted in favor of Defendants and the
Complaint dismissed. See Blue Wolf Capital Fund II, L.P. v American Stevedoring, Inc.2013 NY
Slip Op 01483 [105 AD3d 178]March 7, 2013 Appellate Division, First Department:
“Since ASI has successfully asserted criminal usury as an affirmative defense, the loan
transaction and the associated note, loan agreement, and collateral agreement are void
and unenforceable” (see General Obligations Law § 5-511 [unless lender is bank or
savings and loan association, usurious transaction is void]; Szerdahelyi v Harris, 67
NY2d 42, 47-48 [1986]; Hammelburger v Foursome Inn Corp., 54 NY2d 580, 590
[1981] ["it would be most inappropriate to permit a usurer to recover on a loan for which
he could be prosecuted" (emphasis and internal quotation marks omitted)]; Bietola v
McCue, 308 AD2d 416, 416-417 [1st Dept 2003]).
Defendant and moving party further emphasizes to the Honorable Court the underlying
and inherent fraud of Plaintiff borrower in this transaction and its drafting of this subject Note.
Clearly, the other defenses raised of fraud are germane, as well as the fact that any interpretation
of the subject Note must be construed against Plaintiff, the maker of the Note. What is so
obvious is the blatant deceit and fraud the Plaintiff borrower uses by utilizing different words to
hide the true criminally usurious rates of interest charged. Not only is it evident in the disguise of
the discounted conversion rate when examined and determined what the effective period interest
rate and the effective annual interest rates actually are, the egregious conduct perpetrated by this
deceit and fraud of this Plaintiff lender jumps out when one sees just how much interest is
7
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 9 of 11 PageID #: 77
being gouged from the hapless borrower. The NYS Penal Code and the GOL were written just
for this. The Court should not allow such a stench to permeate commercial business practices
with this overwhelming glare of criminally usury. Summary judgment in favor of Defendants
will put an end to such chicanery and fraudulent practices.
` CONCLUSION
WHEREFORE, based upon the foregoing, Defendants respectfully submit and duly
pray that their Motion for Summary Judgment be granted, dismissing the complaint in its
entirety.
Dated: June 16, 2016
Queens, NY
ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: ryoung@eyllp.com
rjy24@aol.com
Attorneys for Defendants
8
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 10 of 11 PageID #: 78
Case 2:15-cv-07254-SJF-GRB Document 21-1 Filed 07/12/16 Page 11 of 11 PageID #: 79
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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254
Plaintiff, :
: VERIFIED ANSWER
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL :
:
————————————————————
DEFENDANTS, HANGOVER HOLDING CORP. hereinafter “Hangover” and
MATTHEW VEAL, hereinafter “Veal”, by their attorneys answer the complaint as follows:
1. Answering the allegations contained in Paragraph 1, these answering Defendants
deny each and every allegation contained in said Paragraph.
2. Answering the allegations contained in Paragraphs 2, these answering Defendants deny
that Veal was or is the Chairman of the Board of Hangover.
3. Answering the allegations contained in Paragraphs 3, these answering Defendants
deny that KBM was an investor and deny that KBM was well known to plaintiffs.
Defendants lacks sufficient information and belief upon which to answer remaining
allegations.
4. Answering the allegations contained in Paragraph 4, these answering Defendants
denies each and every allegation contained in said Paragraph.
Case 2:15-cv-07254-SJF-GRB Document 14 Filed Case 2:15-cv-07254-SJF-GRB Document 21-3 Filed0 017/2/162/1/166 P Paaggee 1 1 o of f1 188 P PaaggeeIDID # #: 993
5. Answering the allegations contained in Paragraph 5, these answering Defendants
denies each and every allegation contained in said Paragraph.
6. Answering the allegations contained in Paragraphs 8, these answering Defendants
lacks sufficient information and belief upon which to answer in which district plaintiff
maintains its principal place of business and denies remaining allegations.
7. Answering the allegations contained in Paragraph 7, these answering Defendants
denies each and every allegation contained in said Paragraph.
8. Answering the allegations contained in Paragraphs 8, these answering Defendants
lacks sufficient information and belief upon which to answer said allegations.
9. Answering the allegations contained in Paragraph 9, these answering Defendants
denies that they have a place of business in Colorado.
10. Answering the allegations contained in Paragraph 10, these answering Defendants admit
the allegation in paragraph 10 of the complaint.
11. Answering the allegations contained in Paragraph 11, these answering Defendants
denies each and every allegation contained in said Paragraph.
12. Answering the allegations contained in Paragraph 12, these answering Defendants
denies each and every allegation contained in said Paragraph.
Case 2:15-cv-07254-SJF-GRB Document 14 Filed Case 2:15-cv-07254-SJF-GRB Document 21-3 Filed0 017/2/162/1/166 P Paaggee 2 2 o of f1 188 P PaaggeeIDID # #: :4 904
13. Answering defendants repeats and reiterates each and every response contained in
paragraph 1-12 of the Complaint with the same force and effect as if fully set forth
herein.
14. Answering the allegations in paragraph 14, the answering defendants deny that the note
was issued pursuant to a purchase agreement.
15. Answering the allegations contained in Paragraph 10, these answering Defendants admit
the allegation in paragraph 15 of the complaint.
16. Answering the allegations contained in Paragraph 16, these answering Defendants
denies each and every allegation contained in said Paragraph.
17. Answering the allegations contained in Paragraph 17, these answering Defendants
denies each and every allegation contained in said Paragraph.
18. Answering the allegations contained in Paragraph 19, these answering Defendants
deny each and every allegation contained in said Paragraph.
19. Answering the allegations contained in Paragraph 19, these answering Defendants
deny each and every allegation contained in said Paragraph.
20. Answering defendants repeat and reiterate each and every response contained in
paragraph 19 of the Complaint with the same force and effect as if fully set forth
herein.
Case 2:15-cv-07254-SJF-GRB Document 14 Filed Case 2:15-cv-07254-SJF-GRB Document 21-3 Filed0 017/2/162/1/166 P Paaggee 3 3 o of f1 188 P PaaggeeIDID # #: :4 915
21. Answering the allegations contained in Paragraphs 21, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
22. Answering the allegations contained in Paragraphs 22, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
23. Answering the allegations contained in Paragraph 23, these answering Defendants
denies each and every allegation contained in said Paragraph.
24. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-23 of the Complaint with the same force and effect as if fully set forth
herein.
25. Answering the allegations contained in Paragraph 25, these answering Defendants
denies each and every allegation contained in said Paragraph.
26. Answering the allegations contained in Paragraph 26, these answering Defendants
denies each and every allegation contained in said Paragraph.
27. Answering the allegations contained in Paragraph 27, these answering Defendants
deny each and every allegation contained in said Paragraph.
28. Answering the allegations contained in Paragraph 28, these answering Defendants
denies each and every allegation contained in said Paragraph.
Case 2:15-cv-07254-SJF-GRB Document 14 Filed Case 2:15-cv-07254-SJF-GRB Document 21-3 Filed0 017/2/162/1/166 P Paaggee 4 4 o of f1 188 P PaaggeeIDID # #: :4 926
29. Answering the allegations contained in Paragraph 29, these answering Defendants
deny each and every allegation contained in said Paragraph.
30. Answering the allegations contained in Paragraph 30, these answering Defendants
deny each and every allegation contained in said Paragraph.
31. Answering the allegations contained in Paragraph 31, these answering Defendants
deny each and every allegation contained in said Paragraph.
32. Answering the allegations contained in Paragraph 32, these answering Defendants
deny each and every allegation contained in said Paragraph.
33. Answering Defendants repeat and reiterate each and every response contained in
paragraph 1-32 of the Complaint with the same force and effect as if fully set forth
herein.
34. Answering the allegations in paragraph 34, these answering Defendants deny each and
every allegation contained in said Paragraph.
35. Answering the allegations contained in Paragraph 35, these answering Defendants
deny each and every allegation contained in said Paragraph.
36. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-35 of the Complaint with the same force and effect as if fully set forth
herein.
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37. Answering the allegations contained in Paragraph 37, these answering Defendants
deny each and every allegation contained in said Paragraph.
38. Answering the allegations contained in Paragraph 38, these answering Defendants
deny each and every allegation contained in said Paragraph.
39. Answering the allegations contained in Paragraph 39, these answering Defendants
deny each and every allegation contained in said Paragraph.
40. Answering the allegations contained in Paragraph 40, these answering Defendants
deny each and every allegation contained in said Paragraph.
41. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-35 of the Complaint with the same force and effect as if fully set forth
herein.
42. Answering the allegations contained in Paragraph 42, these answering Defendants
deny each and every allegation contained in said Paragraph.
43. Answering the allegations contained in Paragraph 43, these answering Defendants
deny each and every allegation contained in said Paragraph.
44. Answering the allegations contained in Paragraphs 44, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
45. Answering the allegations contained in Paragraphs 45, these answering Defendants
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lack sufficient information and belief upon which to answer said allegations.
46. Answering the allegations contained in Paragraph 46, these answering Defendants
deny each and every allegation contained in said Paragraph.
47. Answering the allegations contained in Paragraphs 47, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
48. Answering the allegations contained in Paragraphs 48, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
49. Answering the allegations contained in Paragraphs 49, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
50. Answering the allegations contained in Paragraphs 50, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
51. Answering the allegations contained in Paragraph 51, these answering Defendants
deny each and every allegation contained in said Paragraph.
52. Answering the allegations contained in Paragraph 52, these answering Defendants
deny each and every allegation contained in said Paragraph.
53. Answering the allegations contained in Paragraph 53, these answering Defendants
deny each and every allegation contained in said Paragraph.
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54. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-53 of the Complaint with the same force and effect as if fully set forth
herein.
55. Answering the allegations contained in Paragraph 55, these answering Defendants
deny each and every allegation contained in said Paragraph.
56. Answering the allegations contained in Paragraph 56, these answering Defendants
deny each and every allegation contained in said Paragraph.
57. Answering the allegations contained in Paragraph 57, these answering Defendants
deny each and every allegation contained in said Paragraph.
58. Answering the allegations contained in Paragraph 58, these answering Defendants
deny each and every allegation contained in said Paragraph.
59. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-58 of the Complaint with the same force and effect as if fully set forth
herein.
60. Answering the allegations contained in Paragraph 60, these answering Defendants
deny each and every allegation contained in said Paragraph.
61. Answering the allegations contained in Paragraph 61, these answering Defendants
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deny each and every allegation contained in said Paragraph.
62. Answering the allegations contained in Paragraph 62, these answering Defendants
deny each and every allegation contained in said Paragraph.
63. Answering the allegations contained in Paragraph 63, these answering Defendants
deny each and every allegation contained in said Paragraph.
FIRST AFFIRMATIVE DEFENSE
64. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of subject-matter jurisdiction;
SECOND AFFIRMATIVE DEFENSE
65. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of personal jurisdiction;
THIRD AFFIRMATIVE DEFENSE
66. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to improper venue;
FOURTH AFFIRMATIVE DEFENSE
67. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
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complaint due to insufficient process;
FIFTH AFFIRMATIVE DEFENSE
68. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to insufficient service of process;
SIXTH AFFIRMATIVE DEFENSE
69. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure to state a claim upon which relief can be granted; and
SEVENTH AFFIRMATIVE DEFENSE
70. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure to join a party under Rule 19.
EIGHTH AFFIRMATIVE DEFENSE
71. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to Illegality including:
A)usury
B)10(b)5 market manipulation; manipulative and deceptive practices
NINTH AFFIRMATIVE DEFENSE
72. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of standing
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TENTH AFFIRMATIVE DEFENSE
73. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to the unconscionable terms of the contract.
ELEVENTH AFFIRMATIVE DEFENSE
74. Plaintiff is barred in whole or in part from prosecuting the claims set forth in the
complaint due to usury.
TWELFTH AFFIRMATIVE DEFENSE
75. Plaintiff is barred in whole or in part from prosecuting the claims set forth in the
complaint due to duress.
THIRTEENTH AFFIRMATIVE DEFENSE
76. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to Doctrine of unclean hands.
FOURTEENTH AFFIRMATIVE DEFENSE
77. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure of consideration.
FIFTEENTH AFFIRMATIVE DEFENSE
78. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
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complaint due to fraud;
SIXTEENTH AFFIRMATIVE DEFENSE
79. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to laches;
SEVENTEENTH AFFIRMATIVE DEFENSE
80. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to license, or lack thereof;
EIGHTEENTH AFFIRMATIVE DEFENSE
81. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the complaint
due to payment;
NINETEENTH AFFIRMATIVE DEFENSE
82. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to the statute of frauds;
TWENTIETH AFFIRMATIVE DEFENSE
83. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to waiver.
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FACTS RELEVANT TO COUNTERCLAIMS
84. Plaintiff developed a scheme whereby it preys upon publicly trading companies in
desperate need of operating capital and makes usurious loans convertible into common stock .
85. Plaintiff set up its “loan arrangements” with defendant with the intent to convert the
defendant’s debt into publicly trading stock at a usurious rate of interest.
86. Plaintiff assured defendant that it would not convert defendants’ stock and would, rather,
work with defendant to avoid enforcing the illegal usurious terms of the agreement.
87. As a result of the subject loan agreement, plaintiff is attempting to usurp common trading
stock from the defendant and then, effectively, dump it into the market and drive the
price of defendant’s stock into near oblivion while enjoying substantial profit.
88. The Plaintiff knowingly, intentionally and willfully advanced sums to the Defendants
which it was aware could not be repaid.
89. The Plaintiff knowingly, intentionally and willfully advanced such sums to the
Defendants upon oppressive, usurious, improper, unlawful and unfair terms.
90. The Plaintiff knowingly, intentionally and willfully advanced such sums to the
Defendants with the understanding that they were under extreme economic duress and would
accede to any terms that the Plaintiff dictated.
91. The Plaintiff knowingly, intentionally and willfully advanced such sums with the
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understanding that it would receive trading common stock well in excess of the value of the
purported loans so that it could then engage in illicit and detrimental trading of such stock, all
to its own benefit and all to the detriment of the Defendants.
FIRST COUNTERCLAIM
92. FRAUDULENT MISREPRESENTATION
a)Plaintiffs made aforesaid representation to defendants concerning the loan and the agreement,
and the Plaintiff and its affiliates such that
b)said representations were false;
c)that when made, the representations were known to be false or made recklessly without
knowledge of its truth;
d)that said representations were made with the intention that the defendants rely on them;
e)that the defendants did rely on them; and
f)that the defendants suffered damages as a result thereof.
SECOND COUNTERCLAIM
93. VIOLATION OF NY PENAL LAW §190.40 (CRIMINAL USURY)
a)that the costs of plaintiffs loans bore interest in excess of 150%
b)that said interest rate exceeds the maximum rate allowable in New York State
c)that Defendants are damaged as a result thereof
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THIRD COUNTERCLAIM
94. FRAUDULENT INDUCEMENT
a)that Plaintiffs made knowing misrepresentation of material facts relating to loans made to
defendants;
b)that Plaintiffs had intention to deceive defendants;
c)that defendants relied on said misrepresentations; and
d)defendants suffered injury therefrom
FOURTH COUNTERCLAIM
95. TORTIOUS INTERFERENCE
a)Plaintiff caused Defendants to retain auditors, brokers, accountants; and
b)Plaintiff required Defendants to pay said professionals fees and costs
c)that Plaintiff’s aforesaid agents caused damages to defendants.
FIFTH COUNTERCLAIM
96. FRAUD
a)that Plaintiff made representation of fact relating to Plaintiffs loan, contracts, and affiliates;
b)that Plaintiff’s representations were false;
c)that said representations were material;
d)Plaintiffs knew of the representations falsity, or were ignorant of the truth;
e)the Plaintiffs had intent that said representations should be acted upon by the defendants in the
manner reasonably contemplated;
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f)that defendants, the injured parties, were ignorant of the falsity of said representations;
g)that defendants relied on the truth of said representations;
h)that defendants had the right to rely thereon; and
I) that said false representations caused consequent and proximate injury to defendants.
SIXTH COUNTERCLAIM
97. RESCISSION
Equity requires that defendants’ transactions with Plaintiffs should be rescinded because it was
consummated through material misrepresentations as set forth above, even if fraud has been
alleged but the facts do not rise to the level of actionable fraud:
SEVENTH COUNTERCLAIM
98. PRIMA FACIE TORT
a) Plaintiffs intended to damage corporate driving price down, and depriving individual
defendant of profit
b)Plaintiffs had intent to cause ill will or knew their acts would damage defendants
c)Plaintiffs acts caused Damage to Corporate Defendant’s Business or Trade
d)Plaintiffs acts not justifiable under circumstances
EIGHTH COUNTERCLAIM
99. NY GBL § 349
a)Plaintiff’s acts or practices were deceptive business practices directed at consumer-oriented
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borrower Defendants;
b)said acts or practices were misleading in a material respect; and
c)the defendants were injured as a result of the deceptive act or practice.
WHEREFORE, Defendants respectfully request that plaintiffs’ complaint be denied in its
entirety, and, that this Honorable Court enters judgment in favor of defendants on their
Counterclaims awarding :actual damages upon proof at trial ; as well as:
- Treble damages;
- Injunctive relief;
- Disgorgement of profits;
- Punitive damages;
-Reasonable attorney fees and costs of litigation; and such other and further relief as to this court
seems just and proper.
Dated: January 24, 2016
Brooklyn, New York Yours, etc., /S/ RY6560
Robert Young, Esq.
Ellsworth, Young, LLP
1164 Manhattan Avenue
Brooklyn, NY 11222
718-875-8000
Rjy24@aol.com
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1.
Affirmation of Robert J. Youns
I, Robert J. Young, affirm and say as follows:
I am an attorney at law, duly licensed under and by virtue of the laws of the States of
California and New York, am a member of the firm of Ellsworth Young LLP, with
our law offices located in the State of New York at 11-11 44tn Road. Suite 303. Lons
Island City, New York 11101.
In this instant action, I am the attorn6y of record for the the Defendants therein.
If called as a witness, I could and would competently testify to all of the statements
made herein.
I did prepare and calculate the effective interest rate per period and the effective
annual interest chart as appears and is attached to the subject Motion filed herewith as
Exhibit' o A", :utilizing the calculator provided at
rs/fi nanciaVeffective-interest-ratecalculator.
php
5. The specified rates are the true and correct rates as provided by said calculator.
Executed this 15In day of June,2076, at Long Island City, New York.
Robert J.
2.
a
J.
4.
Case 2:15-cv-07254-SJF-GRB Document 21-6 Filed 07/12/16 Page 1 of 1 PageID #: 135
EFFECTIVE INTEREST RATE*
OF PRE-PAYMENT PERCENTAGE
AS APPEARS ON CONVERTIBLE PROMISSORY NOTE
PER CHART PAGE 12-13
Period Percentage Indicated Effective Period Rate Effective Annual Rate
30 days 115% 15% 435.025%
60 days 120% 21% 884.9733%
90 days 125% 27.1412% 1684.1683%
120 days 130% 33.5469% 3118.15%
150 days 135% 40.2552% 5694.6427%
180 days 140% 47.2897% 10324.8088%
*As calculated by Effective Interest Rate Calculator
http://www.calculatorsoup.com/calculators/fin...calculator.
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254
Plaintiff, :
:
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL :
:
————————————————————
NOTICE OF MOTION
PLEASE TAKE NOTICE that Defendants, HangoverJoe’s Holding Corp. and Matthew
Veal, will move this Court for Summary Judgment dismissing the Complaint, on a date and time
to be set by the Court, before the Honorable Judge Sandra J. Feuerstein, U.S. District Judge,
U. S. District Court for the Eastern District of New York, at the Central Islip Courthouse, located
at 100 Federal Plaza, Central Islip, NY 11722, to enter an order granting summary judgment on
the pleadings, and dismiss with prejudice Plaintiff’s Complaint. Defendants also seek reasonable
costs and attorneys’ fees in connection with this motion. For support, Defendants submit an
accompanying Memorandum of Law in Support of Defendants’ Motion on the Pleadings, and a
declaration of defendant, Matthew Veal, with supporting Exhibits.
Dated: New York, New York
June 16, 2016 ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: rjy24@aol.com
Attorneys for Defendants
Case 2:15-cv-07254-SJF-GRB Document 21 Filed 07/12/16 Page 1 of 2 PageID #: 67
To: Robert P. Johnson, Esq.
NAIDICH WURMAN LLP
111 Great Neck Road, Suite 214
Great Neck, New York 11021
Tel No. (516) 498-2900
Fax No. (516) 466-3555
Email: rjohnson@nwlaw.com
Attorneys for Plaintiff
Case 2:15-cv-07254-SJF-GRB Document 21 Filed 07/12/16 Page 2 of 2 PageID #: 68
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254 (SJF) (GRB)
Plaintiff, :
:
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL
Defendants : :
————————————————————
______________________________________________________________________
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT SEEKING DISMISSAL OF THE COMPLAINT ON THE GROUNDS THAT
THE NOTE IS CRIMINALLY USURIOUS
______________________________________________________________________
Dated: Queens, New York
June 16, 2016 ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: rjy24@aol.com
Attorneys for Defendants
To: Robert P. Johnson, Esq.
NAIDICH WURMAN LLP
111 Great Neck Road, Suite 214
Great Neck, New York 11021
Tel No. (516) 498-2900
Fax No. (516) 466-3555
Email: rjohnson@nwlaw.com
Attorneys for Plaintiff
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TABLE OF CONTENTS
PRELIMINARY STATEMENT………………………………………………………………..1
STATEMENT OF FACTS……………………………………………………………………1-2
ARGUMENT
1. SUMMARY JUDGMENT IS APPROPRIATE AS THERE ARE NO ISSUES OF FACT…2-3
2. THE NOTE CHARGES INTEREST RATES THAT ARE CRIMINALLY USURIOUS ….3-7
3. THE NOTE IS VOID AND THE COMPLAINT SHOUD BE DISMISSED……………….7-8
CONCLUSION………………………………………………………………………………….8
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Defendants, HANGOVER JOE’S HOLDING CORP. and MATTHEW VEAL
(“Hangover” and “Veal”), by and through their attorney, Robert J. Young, Esq., Ellsworth &
Young LLP, submit this Memorandum of Law in support of their Motion against Plaintiff KBM
WORLD WIDE INC. (“KBM”), for summary judgment, dismissing the complaint, based on the
criminally usurious and illegal terms of the subject note sued upon, dated January 2, 2015.
PRELIMINARY STATEMENT
This is an action brought by a predatory lender, KBM, against HANGOVER, an
emerging growth company on the OTC-BB (Over the Counter Bulletin) stock exchange,
wherein the Plaintiff seeks to enforce a criminally usurious promissory note in violation
of New York Banking Laws and the New York Penal Code. Plaintiff brought this suit
when defendants refused to allow its stock to be converted in furtherance of plaintiff
scheme to obtain defendants’ stock at a 45% discount as repayment of a loan and seeks
equitable relief on money it lent and for the enforcement of an agreement in addition to
monetary damages. Defendants seek to have the complaint dismissed based on the
criminally usurious nature of the note. During a telephone conference with the Court,
defendants’ counsel was instructed by the Court to make their motion for summary judgment
to dismiss the Complaint with respect to defendants’ affirmative defense that the subject loan is
usurious by June 16, 2016. As such, the within motion is brought with respect to Defendants’
claim that the Note is usurious and the Complaint should be dismissed.
STATEMENT OF FACTS
The Complaint alleges that Plaintiff executed a Note (curiously never attached to the
1
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Complaint even though it is the gravamen for the claims made) with Defendant Hangover on
January 2, 2015, in the principal amount of $43,000.00, having a maturity date of October 6,
2016. The note states that the interest rate is 8% per annum with a 22% default interest rate. The
Note further provides in “Article 1- CONVERSION RIGHTS” language in paragraphs
Article1:1-1:8 that, in summary, the lender has the right from 180 days after January 2, 2015,
which is July 1, 2015, until the maturity date, which is October 6, 2015, to convert any or all of
the debt into stock at a 45% discounted rate.
Effectively, the lender can, after 180 days, cause repayment of the note before it even
becomes due by converting stock in satisfaction of all or part of the note. The lender would then
receive $78,182.00 worth of stock for repayment of the $43,000.00 note. This is interest of
$35,182.00 on a $43,000.00 note.
At Article 1:9 of the note, at pages 12 and 13, there is a “Prepayment Percentage
Schedule. The borrower can avoid being subject to this stock conversion by exercising its right
of prepayment of the note at “prepayment percentage rates” set forth on said schedule.
Attached hereto as Exhibit “A” is the Complaint, dated January 19, 2016. Attached hereto as
Exhibit “B” is the Answer raising affirmative defenses. Among the affirmative defenses,
defendants assert that the note is criminally usurious. Attached hereto as Exhibit “C” is the
subject Note, with an Affidavit of Defendant Veal authenticating same.
All of the repayment options have interest rates that are above and beyond 25%.
ARGUMENT
1. SUMMARY JUDGMENT IS APPROPRIATE AS THERE ARE NO ISSUES OF
FACT
Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106
2
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S. Ct. 2548, 2552 (1986), Back v. Hastings on Hudson Union Free Sch. Dist., 365 F.3d
107, 122 (2d Cir.2004). The party seeking a summary judgment must present the court
with “the basis for its motion, ...identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,’
which it believes demonstrate the absence of a genuine issue of material fact.” Celotex
at 326.
In the instant case, the Note on its face has repayment terms that are above 25% which
renders the Note criminally usurious and, hence, void. As such, Judgment must be entered in
favor of Defendants and the Complaint dismissed.
2. THE NOTE CHARGES INTEREST RATES THAT ARE CRIMINALLY
USURIOUS
New York General Obligations Law (“GOL”) 5-521[3] permits corporations to assert the
defense of criminal usury.
GOL 5-521 (1) prohibits corporations from asserting usury as a defense.
[“GOL § 5-521. Corporations prohibited from interposing defense of usury. 1. No
corporation shall hereafter interpose the defense of usury in any action. The term
corporation, as used in this section, shall be construed to include all associations, and
joint-stock companies having any of the powers and privileges of corporations not
possessed by individuals or partnerships”.
However, GOL 5-521(3) does not apply where the corporation interposes criminal usury
as a defense.
[“GOL 5-521(3). The provisions of subdivision one of this section shall not apply
to any action in which a corporation interposes a defense of criminal usury as described
in section 190.40 of the penal law”.]
NYS Penal Code provides the following in relevant part:
Ҥ 190.40 Criminal usury in the second degree.
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 or other property as interest
on the loan or forbearance of any money or other property, at a rate exceeding
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twenty-five per cent per annum or the equivalent rate for a longer or
shorter period.
Criminal usury in the second degree is a class E felony.”
The subject Note (Exhibit “C”) made by and between Plaintiff KBM as lender, and
Defendant Hangover as Borrower, is dated January 2, 2015, and has a maturity date of October
6, 2015. At first glance, the Note is an attractive proposition, especially for one who is in dire
need of cash as it sets forth an interest rate of only 8% with a default interest rate of 22%, and
which purports to be due on October 6, 2015. (See the first paragraph of the Note).
However, although it states that the Note is not due until October 6, 2015, the next
section entitled “Article 1- CONVERSION RIGHTS” contains language in paragraphs
Article1:1 - 1:8 which, in summary, provides that the lender has the right from 180 days after
January 2, 2015, which is July 1, 2015, until the maturity date, which is October 6, 2015, to
convert any or all of the debt into stock at a 45% discounted rate. Effectively, the lender could,
after 180 days, cause repayment of the note before it even becomes due by converting stock in
satisfaction of all or part of the note.
The 45% discount of the market value of the stock to satisfy either part or all of
the money owed amounts to a usurious rate of interest. The lender is effectively getting
$78,182.00 worth of stock for repayment of the $43,000.00 note. This is interest of
$35,182.00 on a $43,000.00 note. This subjects the borrower to an interest rate on this debt
conversion of 81%. It does not even take into account the windfall of profit that the lender
receives when it then sells the stock at the market value and the damage to the Defendants in
having to sell their stock at a 45% discount and having to suffer the consequences of the market
being flooded with more stock causing the stock price to plummet after Plaintiff has made its
enormous profits. The Note, on its face, is criminally usurious as the conversion rate subjects the
borrower to said 81% interest rate. 4
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To successfully raise the defense of usury, a debtor must allege and prove by clear and
convincing evidence that a loan or forbearance of money, requiring interest in violation of a
usury statute, was charged by the holder or payee with the intent to take interest in excess of the
legal rate (see Giventer v Arnow, 37 NY2d 305, 309 [1975]). If usury can be gleaned from the
face of an instrument, intent will be implied and usury will be found as a matter of law (see
Fareri v Rain's Intl., 187 AD2d 481, 482 [2d Dept 1992]). It is clear in the instant case that the
lender intended to make interest above the usury rate as the borrower was subject to the
conversion even before the note was due. Usury is evident on the face of the note pursuant to the
debt conversion rights of the lender, and further as set forth below, all revealing the intent of the
holder, Plaintiff KBM.
Further, as indicated at Article 1:9 of the Note, at pages 12 and 13, there is a
“Prepayment Percentage Schedule”. The borrower can avoid being subject to said stock
conversion by exercising its right of prepayment of the note at “prepayment percentage rates” set
forth on said schedule. Exhibit “D” attached reveals the effective interest rate if the borrower
prepaid the note by choice as so offered and prescribed within the first 180 days. For example, at
60 days, the borrower must pay a “prepayment percentage” of 120 % of the $43,000.00 debt,
which amounts to $51,600.00. Reflected by said Exhibit “D” is the effective interest rate if the
borrower was to choose this particular option. The interest rate in this example would be 884%.
As indicated, the interest rates were calculated by the Effective Interest Rate Calculator @
http://www.calculatorsoup.com/calculators/fin...ulator.php.
These true and effective interest rates, hidden by the deceptive and shrewd semantical
label of a “prepayment percentage”, if the borrower were to prepay the note, are far above and
beyond the defined floor of the criminal usury rate of 25%. Even though criminal usury defense
may not apply to prepayment interest, this contention of criminal usury is proferred to the Court
in the context of the overall criminally usurious nature of the Note. This “prepayment option” is
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the only available avenue for the borrower to avoid the inevitable conversion of its stock with the
devastating consequences after 180 days and before the due date of the note. Movants assert that
because of the very nature of this Note, and how the usury is fraudulently hidden by calling it a
different name, nonetheless it is criminally usurious by the set-up of the traps laid by the
deceitful and predatory lender, calling it a Note when it is a mere ruse to convert the stock.
This Plaintiff lender sought by deliberated fraud and design to make it impossible for
this Defendant borrower, already in financial difficulties, to repay the note prior to the
conversion period, which begins 180 days after the issue date of the Note and is the very same
date that the prepayment rights of the borrower cease. This is all part and parcel of an
elaborate scheme conceived and contrived by this predatory Plaintiff lender to acquire the
Defendant borrower’s stock at a heavily discounted rate and to then dump the stock in the
market, realizing a windfall of profit and causing catastrophic downward spiral of the stock
price. The effective interest rate of this conversion process as set forth above is far above the
threshold of 25%
In the instant case, Plaintiff went to great lengths in its efforts to draft an agreement to
mislead the Defendant borrower that the interest rate was 8% and that the higher interest
rates apply when the borrower chooses to prepay when, in fact, the borrower is faced with only
two options, both of which are criminally usurious, to wit, either the Plaintiff lender converts the
shares of stock to satisfy the loan at a 45% discounted rate below the market value, or the
borrower prepays the loan prior to the 180 days to avoid the conversion. Essentially, all of the
power lies in the hands of the Plaintiff lender and forces the Defendant borrower to allow the
conversion of its stock or be compelled to pay the Note off by a prepayment penalty to avoid the
conversion. Either way, the Defendant borrower is trapped, by a subject Note which is illusory
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on its face by its claim of 8% and due date in October, all after the criminal usury kicks in and
Defendant borrower has to pay such prepayment percentages that are way beyond the criminally
usurious rate.
3. THE NOTE IS VOID AND JUDGEMENT MUST BE GRANTED IN FAVOR OF
DEFENDANTS WITH THE COMPLAINT DISMISSED
The criminally usurious nature of the subject Note on its face and in the deceptive terms
thereof renders the Note void. Plaintiff can never prevail on any action to enforce its terms and,
thus, this Motion for Summary Judgment should be granted in favor of Defendants and the
Complaint dismissed. See Blue Wolf Capital Fund II, L.P. v American Stevedoring, Inc.2013 NY
Slip Op 01483 [105 AD3d 178]March 7, 2013 Appellate Division, First Department:
“Since ASI has successfully asserted criminal usury as an affirmative defense, the loan
transaction and the associated note, loan agreement, and collateral agreement are void
and unenforceable” (see General Obligations Law § 5-511 [unless lender is bank or
savings and loan association, usurious transaction is void]; Szerdahelyi v Harris, 67
NY2d 42, 47-48 [1986]; Hammelburger v Foursome Inn Corp., 54 NY2d 580, 590
[1981] ["it would be most inappropriate to permit a usurer to recover on a loan for which
he could be prosecuted" (emphasis and internal quotation marks omitted)]; Bietola v
McCue, 308 AD2d 416, 416-417 [1st Dept 2003]).
Defendant and moving party further emphasizes to the Honorable Court the underlying
and inherent fraud of Plaintiff borrower in this transaction and its drafting of this subject Note.
Clearly, the other defenses raised of fraud are germane, as well as the fact that any interpretation
of the subject Note must be construed against Plaintiff, the maker of the Note. What is so
obvious is the blatant deceit and fraud the Plaintiff borrower uses by utilizing different words to
hide the true criminally usurious rates of interest charged. Not only is it evident in the disguise of
the discounted conversion rate when examined and determined what the effective period interest
rate and the effective annual interest rates actually are, the egregious conduct perpetrated by this
deceit and fraud of this Plaintiff lender jumps out when one sees just how much interest is
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being gouged from the hapless borrower. The NYS Penal Code and the GOL were written just
for this. The Court should not allow such a stench to permeate commercial business practices
with this overwhelming glare of criminally usury. Summary judgment in favor of Defendants
will put an end to such chicanery and fraudulent practices.
` CONCLUSION
WHEREFORE, based upon the foregoing, Defendants respectfully submit and duly
pray that their Motion for Summary Judgment be granted, dismissing the complaint in its
entirety.
Dated: June 16, 2016
Queens, NY
ELLSWORTH & YOUNG LLP.
By: /s/ Robert J. Young
11 -11 44th Rd. - Suite 303
Long Island City, NY 11101
Telephone: (718) 875-8000
Facsimile: (718) 797-5739
Email: ryoung@eyllp.com
rjy24@aol.com
Attorneys for Defendants
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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254
Plaintiff, :
: VERIFIED ANSWER
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL :
:
————————————————————
DEFENDANTS, HANGOVER HOLDING CORP. hereinafter “Hangover” and
MATTHEW VEAL, hereinafter “Veal”, by their attorneys answer the complaint as follows:
1. Answering the allegations contained in Paragraph 1, these answering Defendants
deny each and every allegation contained in said Paragraph.
2. Answering the allegations contained in Paragraphs 2, these answering Defendants deny
that Veal was or is the Chairman of the Board of Hangover.
3. Answering the allegations contained in Paragraphs 3, these answering Defendants
deny that KBM was an investor and deny that KBM was well known to plaintiffs.
Defendants lacks sufficient information and belief upon which to answer remaining
allegations.
4. Answering the allegations contained in Paragraph 4, these answering Defendants
denies each and every allegation contained in said Paragraph.
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993 5. Answering the allegations contained in Paragraph 5, these answering Defendants
denies each and every allegation contained in said Paragraph.
6. Answering the allegations contained in Paragraphs 8, these answering Defendants
lacks sufficient information and belief upon which to answer in which district plaintiff
maintains its principal place of business and denies remaining allegations.
7. Answering the allegations contained in Paragraph 7, these answering Defendants
denies each and every allegation contained in said Paragraph.
8. Answering the allegations contained in Paragraphs 8, these answering Defendants
lacks sufficient information and belief upon which to answer said allegations.
9. Answering the allegations contained in Paragraph 9, these answering Defendants
denies that they have a place of business in Colorado.
10. Answering the allegations contained in Paragraph 10, these answering Defendants admit
the allegation in paragraph 10 of the complaint.
11. Answering the allegations contained in Paragraph 11, these answering Defendants
denies each and every allegation contained in said Paragraph.
12. Answering the allegations contained in Paragraph 12, these answering Defendants
denies each and every allegation contained in said Paragraph.
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13. Answering defendants repeats and reiterates each and every response contained in
paragraph 1-12 of the Complaint with the same force and effect as if fully set forth
herein.
14. Answering the allegations in paragraph 14, the answering defendants deny that the note
was issued pursuant to a purchase agreement.
15. Answering the allegations contained in Paragraph 10, these answering Defendants admit
the allegation in paragraph 15 of the complaint.
16. Answering the allegations contained in Paragraph 16, these answering Defendants
denies each and every allegation contained in said Paragraph.
17. Answering the allegations contained in Paragraph 17, these answering Defendants
denies each and every allegation contained in said Paragraph.
18. Answering the allegations contained in Paragraph 19, these answering Defendants
deny each and every allegation contained in said Paragraph.
19. Answering the allegations contained in Paragraph 19, these answering Defendants
deny each and every allegation contained in said Paragraph.
20. Answering defendants repeat and reiterate each and every response contained in
paragraph 19 of the Complaint with the same force and effect as if fully set forth
herein.
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21. Answering the allegations contained in Paragraphs 21, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
22. Answering the allegations contained in Paragraphs 22, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
23. Answering the allegations contained in Paragraph 23, these answering Defendants
denies each and every allegation contained in said Paragraph.
24. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-23 of the Complaint with the same force and effect as if fully set forth
herein.
25. Answering the allegations contained in Paragraph 25, these answering Defendants
denies each and every allegation contained in said Paragraph.
26. Answering the allegations contained in Paragraph 26, these answering Defendants
denies each and every allegation contained in said Paragraph.
27. Answering the allegations contained in Paragraph 27, these answering Defendants
deny each and every allegation contained in said Paragraph.
28. Answering the allegations contained in Paragraph 28, these answering Defendants
denies each and every allegation contained in said Paragraph.
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29. Answering the allegations contained in Paragraph 29, these answering Defendants
deny each and every allegation contained in said Paragraph.
30. Answering the allegations contained in Paragraph 30, these answering Defendants
deny each and every allegation contained in said Paragraph.
31. Answering the allegations contained in Paragraph 31, these answering Defendants
deny each and every allegation contained in said Paragraph.
32. Answering the allegations contained in Paragraph 32, these answering Defendants
deny each and every allegation contained in said Paragraph.
33. Answering Defendants repeat and reiterate each and every response contained in
paragraph 1-32 of the Complaint with the same force and effect as if fully set forth
herein.
34. Answering the allegations in paragraph 34, these answering Defendants deny each and
every allegation contained in said Paragraph.
35. Answering the allegations contained in Paragraph 35, these answering Defendants
deny each and every allegation contained in said Paragraph.
36. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-35 of the Complaint with the same force and effect as if fully set forth
herein.
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37. Answering the allegations contained in Paragraph 37, these answering Defendants
deny each and every allegation contained in said Paragraph.
38. Answering the allegations contained in Paragraph 38, these answering Defendants
deny each and every allegation contained in said Paragraph.
39. Answering the allegations contained in Paragraph 39, these answering Defendants
deny each and every allegation contained in said Paragraph.
40. Answering the allegations contained in Paragraph 40, these answering Defendants
deny each and every allegation contained in said Paragraph.
41. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-35 of the Complaint with the same force and effect as if fully set forth
herein.
42. Answering the allegations contained in Paragraph 42, these answering Defendants
deny each and every allegation contained in said Paragraph.
43. Answering the allegations contained in Paragraph 43, these answering Defendants
deny each and every allegation contained in said Paragraph.
44. Answering the allegations contained in Paragraphs 44, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
45. Answering the allegations contained in Paragraphs 45, these answering Defendants
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lack sufficient information and belief upon which to answer said allegations.
46. Answering the allegations contained in Paragraph 46, these answering Defendants
deny each and every allegation contained in said Paragraph.
47. Answering the allegations contained in Paragraphs 47, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
48. Answering the allegations contained in Paragraphs 48, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
49. Answering the allegations contained in Paragraphs 49, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
50. Answering the allegations contained in Paragraphs 50, these answering Defendants
lack sufficient information and belief upon which to answer said allegations.
51. Answering the allegations contained in Paragraph 51, these answering Defendants
deny each and every allegation contained in said Paragraph.
52. Answering the allegations contained in Paragraph 52, these answering Defendants
deny each and every allegation contained in said Paragraph.
53. Answering the allegations contained in Paragraph 53, these answering Defendants
deny each and every allegation contained in said Paragraph.
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54. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-53 of the Complaint with the same force and effect as if fully set forth
herein.
55. Answering the allegations contained in Paragraph 55, these answering Defendants
deny each and every allegation contained in said Paragraph.
56. Answering the allegations contained in Paragraph 56, these answering Defendants
deny each and every allegation contained in said Paragraph.
57. Answering the allegations contained in Paragraph 57, these answering Defendants
deny each and every allegation contained in said Paragraph.
58. Answering the allegations contained in Paragraph 58, these answering Defendants
deny each and every allegation contained in said Paragraph.
59. Answering defendants repeat and reiterate each and every response contained in
paragraph 1-58 of the Complaint with the same force and effect as if fully set forth
herein.
60. Answering the allegations contained in Paragraph 60, these answering Defendants
deny each and every allegation contained in said Paragraph.
61. Answering the allegations contained in Paragraph 61, these answering Defendants
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deny each and every allegation contained in said Paragraph.
62. Answering the allegations contained in Paragraph 62, these answering Defendants
deny each and every allegation contained in said Paragraph.
63. Answering the allegations contained in Paragraph 63, these answering Defendants
deny each and every allegation contained in said Paragraph.
FIRST AFFIRMATIVE DEFENSE
64. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of subject-matter jurisdiction;
SECOND AFFIRMATIVE DEFENSE
65. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of personal jurisdiction;
THIRD AFFIRMATIVE DEFENSE
66. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to improper venue;
FOURTH AFFIRMATIVE DEFENSE
67. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
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complaint due to insufficient process;
FIFTH AFFIRMATIVE DEFENSE
68. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to insufficient service of process;
SIXTH AFFIRMATIVE DEFENSE
69. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure to state a claim upon which relief can be granted; and
SEVENTH AFFIRMATIVE DEFENSE
70. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure to join a party under Rule 19.
EIGHTH AFFIRMATIVE DEFENSE
71. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to Illegality including:
A)usury
B)10(b)5 market manipulation; manipulative and deceptive practices
NINTH AFFIRMATIVE DEFENSE
72. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to lack of standing
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TENTH AFFIRMATIVE DEFENSE
73. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to the unconscionable terms of the contract.
ELEVENTH AFFIRMATIVE DEFENSE
74. Plaintiff is barred in whole or in part from prosecuting the claims set forth in the
complaint due to usury.
TWELFTH AFFIRMATIVE DEFENSE
75. Plaintiff is barred in whole or in part from prosecuting the claims set forth in the
complaint due to duress.
THIRTEENTH AFFIRMATIVE DEFENSE
76. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to Doctrine of unclean hands.
FOURTEENTH AFFIRMATIVE DEFENSE
77. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to failure of consideration.
FIFTEENTH AFFIRMATIVE DEFENSE
78. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
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complaint due to fraud;
SIXTEENTH AFFIRMATIVE DEFENSE
79. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to laches;
SEVENTEENTH AFFIRMATIVE DEFENSE
80. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to license, or lack thereof;
EIGHTEENTH AFFIRMATIVE DEFENSE
81. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the complaint
due to payment;
NINETEENTH AFFIRMATIVE DEFENSE
82. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to the statute of frauds;
TWENTIETH AFFIRMATIVE DEFENSE
83. Plaintiff is barred in whole or in part form prosecuting the claims set forth in the
complaint due to waiver.
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FACTS RELEVANT TO COUNTERCLAIMS
84. Plaintiff developed a scheme whereby it preys upon publicly trading companies in
desperate need of operating capital and makes usurious loans convertible into common stock .
85. Plaintiff set up its “loan arrangements” with defendant with the intent to convert the
defendant’s debt into publicly trading stock at a usurious rate of interest.
86. Plaintiff assured defendant that it would not convert defendants’ stock and would, rather,
work with defendant to avoid enforcing the illegal usurious terms of the agreement.
87. As a result of the subject loan agreement, plaintiff is attempting to usurp common trading
stock from the defendant and then, effectively, dump it into the market and drive the
price of defendant’s stock into near oblivion while enjoying substantial profit.
88. The Plaintiff knowingly, intentionally and willfully advanced sums to the Defendants
which it was aware could not be repaid.
89. The Plaintiff knowingly, intentionally and willfully advanced such sums to the
Defendants upon oppressive, usurious, improper, unlawful and unfair terms.
90. The Plaintiff knowingly, intentionally and willfully advanced such sums to the
Defendants with the understanding that they were under extreme economic duress and would
accede to any terms that the Plaintiff dictated.
91. The Plaintiff knowingly, intentionally and willfully advanced such sums with the
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understanding that it would receive trading common stock well in excess of the value of the
purported loans so that it could then engage in illicit and detrimental trading of such stock, all
to its own benefit and all to the detriment of the Defendants.
FIRST COUNTERCLAIM
92. FRAUDULENT MISREPRESENTATION
a)Plaintiffs made aforesaid representation to defendants concerning the loan and the agreement,
and the Plaintiff and its affiliates such that
b)said representations were false;
c)that when made, the representations were known to be false or made recklessly without
knowledge of its truth;
d)that said representations were made with the intention that the defendants rely on them;
e)that the defendants did rely on them; and
f)that the defendants suffered damages as a result thereof.
SECOND COUNTERCLAIM
93. VIOLATION OF NY PENAL LAW §190.40 (CRIMINAL USURY)
a)that the costs of plaintiffs loans bore interest in excess of 150%
b)that said interest rate exceeds the maximum rate allowable in New York State
c)that Defendants are damaged as a result thereof
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THIRD COUNTERCLAIM
94. FRAUDULENT INDUCEMENT
a)that Plaintiffs made knowing misrepresentation of material facts relating to loans made to
defendants;
b)that Plaintiffs had intention to deceive defendants;
c)that defendants relied on said misrepresentations; and
d)defendants suffered injury therefrom
FOURTH COUNTERCLAIM
95. TORTIOUS INTERFERENCE
a)Plaintiff caused Defendants to retain auditors, brokers, accountants; and
b)Plaintiff required Defendants to pay said professionals fees and costs
c)that Plaintiff’s aforesaid agents caused damages to defendants.
FIFTH COUNTERCLAIM
96. FRAUD
a)that Plaintiff made representation of fact relating to Plaintiffs loan, contracts, and affiliates;
b)that Plaintiff’s representations were false;
c)that said representations were material;
d)Plaintiffs knew of the representations falsity, or were ignorant of the truth;
e)the Plaintiffs had intent that said representations should be acted upon by the defendants in the
manner reasonably contemplated;
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f)that defendants, the injured parties, were ignorant of the falsity of said representations;
g)that defendants relied on the truth of said representations;
h)that defendants had the right to rely thereon; and
I) that said false representations caused consequent and proximate injury to defendants.
SIXTH COUNTERCLAIM
97. RESCISSION
Equity requires that defendants’ transactions with Plaintiffs should be rescinded because it was
consummated through material misrepresentations as set forth above, even if fraud has been
alleged but the facts do not rise to the level of actionable fraud:
SEVENTH COUNTERCLAIM
98. PRIMA FACIE TORT
a) Plaintiffs intended to damage corporate driving price down, and depriving individual
defendant of profit
b)Plaintiffs had intent to cause ill will or knew their acts would damage defendants
c)Plaintiffs acts caused Damage to Corporate Defendant’s Business or Trade
d)Plaintiffs acts not justifiable under circumstances
EIGHTH COUNTERCLAIM
99. NY GBL § 349
a)Plaintiff’s acts or practices were deceptive business practices directed at consumer-oriented
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borrower Defendants;
b)said acts or practices were misleading in a material respect; and
c)the defendants were injured as a result of the deceptive act or practice.
WHEREFORE, Defendants respectfully request that plaintiffs’ complaint be denied in its
entirety, and, that this Honorable Court enters judgment in favor of defendants on their
Counterclaims awarding :actual damages upon proof at trial ; as well as:
- Treble damages;
- Injunctive relief;
- Disgorgement of profits;
- Punitive damages;
-Reasonable attorney fees and costs of litigation; and such other and further relief as to this court
seems just and proper.
Dated: January 24, 2016
Brooklyn, New York Yours, etc., /S/ RY6560
Robert Young, Esq.
Ellsworth, Young, LLP
1164 Manhattan Avenue
Brooklyn, NY 11222
718-875-8000
Rjy24@aol.com
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1.
Affirmation of Robert J. Youns
I, Robert J. Young, affirm and say as follows:
I am an attorney at law, duly licensed under and by virtue of the laws of the States of
California and New York, am a member of the firm of Ellsworth Young LLP, with
our law offices located in the State of New York at 11-11 44tn Road. Suite 303. Lons
Island City, New York 11101.
In this instant action, I am the attorn6y of record for the the Defendants therein.
If called as a witness, I could and would competently testify to all of the statements
made herein.
I did prepare and calculate the effective interest rate per period and the effective
annual interest chart as appears and is attached to the subject Motion filed herewith as
Exhibit' o A", :utilizing the calculator provided at
rs/fi nanciaVeffective-interest-ratecalculator.
php
5. The specified rates are the true and correct rates as provided by said calculator.
Executed this 15In day of June,2076, at Long Island City, New York.
Robert J.
2.
a
J.
4.
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EFFECTIVE INTEREST RATE*
OF PRE-PAYMENT PERCENTAGE
AS APPEARS ON CONVERTIBLE PROMISSORY NOTE
PER CHART PAGE 12-13
Period Percentage Indicated Effective Period Rate Effective Annual Rate
30 days 115% 15% 435.025%
60 days 120% 21% 884.9733%
90 days 125% 27.1412% 1684.1683%
120 days 130% 33.5469% 3118.15%
150 days 135% 40.2552% 5694.6427%
180 days 140% 47.2897% 10324.8088%
*As calculated by Effective Interest Rate Calculator
http://www.calculatorsoup.com/calculators/fin...calculator.
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