Here's the next one. HJOE has some meritorious arguments

Here's the next one. HJOE has some meritorious arguments in this one. Lengthy, sorry.

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
————————————————————
KBM WORLD WIDE INC. : Civil Action # CV - 15 - 7254 (SJF) (GRB)
Plaintiff, :
: REPLY MEMORANDUM OF LAW
-against- :
:
:
HANGOVER JOE’S HOLDING CORP. :
AND MATTHEW VEAL
Defendants : :
————————————————————
______________________________________________________________________
MEMORANDUM OF LAW IN REPLY TO PLAINTIFF’S OPPOSITION AND IN
FURTHER 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
July 11, 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 23 Filed 07/12/16 Page 1 of 9 PageID #: 217
TABLE OF CONTENTS
PRELIMINARY STATEMENT…………………………………………………………………1
ARGUMENT
1. The Facts Make Clear that the Subject Note Is Usurious. The Plaintiff has
offered no evidence of a triable issue of fact warranting denial of theMotion for
Summary Judgment…………………………………………………………………………………….1
II. Plaintiff’s Arguments A-G in its Opposition to Defendant’s Motion Are
Unpersuasive And Raise no Triable Issue of Fact……………………………………2-6
CONCLUSION………………………………………………………………………………….6

Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 2 of 9 PageID #: 218
PRELIMINARY STATEMENT
Defendants, HANGOVER JOE’S HOLDING CORP & MATTHEW VEAL (“Hangover” and
“Veal”), by their attorney, Robert J. Young, Esq., Ellsworth & Young LLP, respectfully submit
this Memorandum of Law in Reply to Plaintiff’s Opposition and in further support of their
motion for summary judgment dismissing the complaint based on the usurious terms of the
subject note, dated January 2, 2015.
ARGUMENT
1. The Facts Make Clear that the Subject Note Is Usurious. The
Plaintiff has offered no evidence of a triable issue of fact
warranting denial of theMotion for Summary Judgment.
The evidence supports the following facts:
The Note between KBM as lender and Hangover as Borrower is dated January 2, 2015, and
has a maturity date of October 6, 2015.
While, the note states an interest rate of 8%, which purports to be due on October 6,
2015, the Note contains terms that provide a prepayment schedule as set forth in Exhibit D.
As set forth in defendants’ moving papers and which is not disputed by plaintiff, the note
further 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. This is the right of the lender and not the borrower with respect
to conversion.
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.
As stated in defendants’ moving papers, the 45% discount of the market value of the
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 3 of 9 PageID #: 219
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 amounts to interest of $35,182.00 on a $43,000.00 note, subjecting the borrower to
an interest rate on this debt conversion of 81%. This rate is not based on the sale of stock to a
third party as the Plaintiff would have this Court believe (see paragraph 1 of pg. 9 of Plaintiff’s
Opposition). As such, the Note, on its face, is usurious as the conversion subjects the borrower to
81% interest rate. The note should be deemed a nullity and the complaint should be dismissed
Further, Plaintiff has failed to raise any triable issue of fact that would warrant denial of
defendants’ Motion for Summary Judgment.
2. Plaintiff’s Arguments A-G in its Opposition to Defendant’s Motion Are
Unpersuasive And Raise no Triable Issue of Fact.
Plaintiff’s opposition sets forth arguments A-G which are based on inaccurate assertions
of the facts, inapplicable case law and in some instances, both. In fact, plaintiff has failed to raise
a triable issue of fact as is the standard when opposing a motion for summary judgment.
Moreover, it appears that the whole of plaintiffs arguments are based on an inaccurate
premise that defendants based the usurious interest calculations on the profit to be made if the
stock were sold to a third party after conversion. Defendant made no such calculations or
representations. Defendants calculated the interest based solely on the 45% discounted rate of
Hangover’s stock. This is not based on any such hypothetical as the Plaintiff suggests.
Notwithstanding the above, each of Plaintiff’s arguments delineated as A- G fail on their
own. Argument ‘A” states that defendant has not met its burden of establishing usury by clear
and convincing evidence which is the standard to be applied when asserting a usury defense.
This argument falls short as defendants have satisfied the applicable standards and
demonstrated that the Note on its face is usurious. This is proven by the calculations as set forth
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 4 of 9 PageID #: 220
in defendants moving papers and reiterated herein. Plaintiff only makes self-serving, conclusory
statements that defendants have not met their burden and strings together blurbs of case law
without raising a single issue of fact to support its argument that, by virtue thereof, defendants
have not met their burden. To the contrary, Defendants have shown by clear and convincing
evidence that the note is criminally usurious i.e. that the interest rate is above 25%. 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 receiving $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 effective interest rate on this debt conversion of 81%.
Argument B fares no better. Plaintiff argues that the note is not criminally usurious
because it provides for a stated interest rate of 8% . Plaintiff does not make any reference to
defendants’ calculated interest rate nor does it raise any triable issue of fact. Instead, Plaintiff
merely references the stated 8% interest rate, avoiding the issue entirely. This interest rate is
illusory as fully previously demonstrated by Defendants. Before the note even matures, the
Plaintiff can convert the defendants’ stock at a 45% discount from the market value. The
defendant is never permitted to avail itself of the interest 8% interest rate. If defendant prepays
the Note, it is subject to the prepayment interest penalties. If defendant does not prepay, the
lender can then convert the stock at the usurious discounted rate..
Plaintiff’s Argument C, while correct that pre-payment provisions can not form the basis
for a usury finding, is moot. Defendant is not asserting usury based upon prepayment penalties.
To the contrary, defendants are basing their usury defense on the discounted price of the stock
conversion, notwithstanding that the prepayments penalties are, in effect, usurious and that the
prepayment penalties are actually considered to be “interest” by the IRS.
Argument “D” (“that the defendant is not required to pay interest”) in any event is
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 5 of 9 PageID #: 221
supported only by Plaintiff’s mischaracterization of the Note and the applicable law. This is a
complete spin on the facts at issue. The Plaintiff states that the purpose of the agreements was for
defendant to sell unrestricted stock to the plaintiff, an investor. However, and contra, the crux of
the complaint is that of breach of contract. Plaintiff cites cases in this argument in an effort to
bolster its illusory position and, thus, spin the facts as the kind, supportive investor, and not the
predator it is and for which it has become known. For example, Plaintiff would have this
Court believe that if the Plaintiff were to pay “promptly” it could have avoid the conversion
when,this is simply not the case. The prompt payment that the Plaintiff suggests can defeat
conversion is actually prepayment of the note which subjects the defendant to high prepayment
penalties. There is no action that the defendant can take, other than prepayment which would
avoid the conversion. Plaintiff’s own admissions in its opposition show the true nature of the
devious agreement. Moreover, the interest is not calculated by defendant in relation to the sale of
stock to a third party but the interest rate is calculated pursuant to the conversion discount.
Plaintiff’s entire opposition is based on a premise that is incorrect. The usurious interest rate is
calculated from the discounted stock price and not from the sale of the stock to a third party.
Plaintiff’s Argument “E” that the defendant must be estopped from asserting a usury
defense because of its “long time relationship with the plaintiff during which it executed a series
of identical instrument under similar circumstances” is once again a spin on the facts and the
applicable law. Plaintiff cites a string of cases which state no authority for the novel proposition
advanced. The only bearing that these cases could have on a usury defense is when there exists a
special relationship which is not the case in the matter at hand. A special relationship is defined
as “attorney-client, fiduciary or trustee, or longstanding friendship or its equivalent." Hufnagel v.
George, 135 F.Supp.2d 406 (S.D.N.Y.2001).See Ammirato v. Kew Realty Equities These cases
deal specifically with loans where there exists a special relationship between the borrower and
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 6 of 9 PageID #: 222
lender, not so in this particular commercial setting.
Plaintiff cites one case as its “guiding precedent” in its Argument “F”. However, the
case is not applicable to the instant case because the alleged usurious interest was default interest
which is not the case in the matter before this Court. Asher vs. Digital is distinguishable from
the instant case as the Court in Asher found that the usury defense could not be sustained because
it applied to default interest. In the matter at hand, the usurious interest does not arise from a
default. However, the Asher case points specifically to plaintiffs’ calculated and continued efforts
to make illegal loans and to manipulate the Courts into enforcing the terms of such loans. In
some instances, the plaintiff is a lender in others it characterizes itself as an investor. It is all
about manipulating the Court into enforcing the illegal transactions and will seemingly go to
great lengths to do so.
Finally, Plaintiff’s Argument G that two of defendants’ cited cases are distinguishable and
therefore “lend no support to defendants’ cause” is yet another example of plaintiff’s faulty
analysis of case law. In their memorandum of law, Defendants properly cited Farei v. Rain for
the proposition that if usury can even 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]).This case clearly supports defendants’ claim of usury in fact and in law. Even if
the note was not usurious on its face, as in the instant case, the note is usurious even if it can be
gleaned from the document. Either way, the subject Note is usurious.
Defendants also cited 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 for the
proposition that the usurious nature of the Note renders the Note void and the Complaint must be
dismissed. The fact pattern of the Blue Wolf , case is of less import than the holding that if a
Note is found to be usurious, it is void as a matter of law. Plaintiff’s faulty interpretation of
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 7 of 9 PageID #: 223
defendants legal analysis should be disregard by the Court and instead the Court should apply
the standard set forth in Blue Wolf and dismiss the within complaint. 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. The Court in the instant case should find that the
Note is usurious and dismiss the complaint.
“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]
Essentially the plaintiffs would have this Court accept the proposition that since they
have gotten away with this activity in the past, that somehow the Court should turn a blind eye to
the fact that this activity of charging usurious interest rates is, in fact, a crime. At the very least
the Court should void the contract as it is based upon terms that are illegal and therefore
unenforceable in any court. The plaintiff is trying to dance around this issue. In the end, plaintiff
cannot escape the fact that this activity is criminal and can not be condoned by this or any Court.
CONCLUSION
WHEREFORE, based upon the foregoing, Defendants seek an Order granting summary
judgment in Defendants’ favor and dismissing the complaint in its entirety.
Case 2:15-cv-07254-SJF-GRB Document 23 Filed 07/12/16 Page 8 of 9 PageID #: 224
Dated: July 11, 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: rjy24@aol.com
Attorneys for Defendants