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Kelly, Grossman & Flanagan, LLP v Quick Cash, Inc. :: March, 2012 :: New York Ot... http://law.justia.com/cases/new-york/other-courts/2012/2012-ny-slip-op-50560-u.html Page 2 of 6 15/10/2012 In this action, Plaintiffs seek a judgment declaring that certain agreements between the parties [*2]are void as criminally usurious in violation of Penal Law §190.04. The record reveals that Plaintiffs, as partners in a law firm, executed certain documents which provided that Plaintiffs would repay to Defendants a principal amount plus a fee which Plaintiffs allege amounted to an annualized interest rate in excess of 40%. The complaint alleges that in May 2005, non-party Personal Injury Funding IV, LP, an affiliate and/or predecessor of one of the Defendants, extended a loan in the amount of $46,250 to plaintiff Muraca & Kelly, LLP. It alleges that, in October 2006, defendant Money For Lawsuits LP V extended a loan in the amount of $287,500 to plaintiff Muraca & Kelly, LLP; and the complaint alleges further that in December 2006, defendant Money For Lawsuits LP V extended a loan in the amount of $227,500 to plaintiff Muraca & Kelly, LLP. In April 2007, defendant Money For Lawsuits LP V extended a loan in the amount of $79,500 to plaintiff Muraca & Kelly, LLP. In September 2007, according to Plaintiffs, defendant Money For Lawsuits LP V extended a loan in the amount of $23,000 to plaintiff Muraca & Kelly, LLP. Plaintiffs allege that each and every one of the loans provided for the repayment of the principal loan plus a fee at an interest rate in excess of 40%. Plaintiffs also allege that they have repaid defendants in excess of one million dollars. Plaintiffs contend that each and every payment they received from the Defendants was a loan and, therefore, subject to Criminal Usury laws under NY Penal Law §190.04. In support of this contention, Plaintiffs rely on the language of the original client agreements, which set forth that the Plaintiffs are "the Borrower" and the various defendants "the Lender". There was never any doubt, according to Plaintiffs, that Defendants were "lending" money. It was only in August 2009, state Plaintiffs, when all the agreements were consolidated, that Defendants converted the word "loan" to the word "advance" in order to mask the obvious fact that Defendants were covering for the lending of funds at a criminally usurious rate. Connect with Justia RT @TechCrunch: San Francisco Proposes Revised Open Data Legislation, Plans to Hire Chief Data Officer http://t.co/IBtYahbx by @anthonyha Justia on Facebook Like 119,170 people like Justia. David Mikel Domenick Michael Charles Facebook social plugin Find a Lawyer Legal Issue or Lawyer Name City, State Search Browse Lawyers Lawyers - Get Listed Now! Get a free full directory profile listing Support Free Law Plaintiffs further assert that these loans were never non-recourse loans, despite their "label", because the Defendants were not at risk. For example, if a judgment debtor were unable to pay a judgment entered in favor of one of Plaintiffs's clients in an underlying case, the individual Plaintiffs were still personally liable to Defendants. In addition, Defendants received their repayment without any reduction for Plaintiffs' costs or expenses. Moreover, if Plaintiffs were discharged as counsel and unable to find replacement counsel, Plaintiffs were required to find a new case to replace the collateral (i.e. former case ) or pay liquidated damages. The complaint further alleges that from December 2007 through February 2008 Defendants extended loans to plaintiff Flanagan & Associates. In August 2009, Plaintiffs and Defendants executed an Addendum to all prior agreements which provided that plaintiff Kelly, Grossman & Flanagan, LLP would assume responsibility for all outstanding loans and would provide additional collateral to secure the outstanding loans. Plaintiffs allege that the Addendum required them to pay an interest rate in excess of 40% annually. The instant action seeking declaratory relief voiding the alleged loans was commenced. [*3] Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7). By order dated November 23, 2011 (Pines, J.), this Court converted the motion into a summary judgment motion and directed the parties to file and serve supplemental affidavits and other available proof, if desired, on thirty days' notice. Kenneth Bradt avers in his personal affidavit that he is the President and CEO of defendants Quick Cash, Inc, Case Funding, Inc., and is a general partner in defendants Guardian Advisors LP I, Guardian Advisors LP II, and Money For Lawsuits LP V (Quick Cash Entities). He states that the principal purpose of the Quick Cash Entities is to advance money to attorneys and/or plaintiffs involved in litigation in either recourse loans or non-recourse advances. Bradt states that in a recourse loan, the attorneys grant a lien to the Quick Cash Entity against the attorneys' fees expected to be received on cases handled by the attorney/firm, and the attorney makes either monthly payments to the Quick Cash Entity or pays when each case settles and/or at the end of the term of the loan. Bradt avers however, that if the agreement is a non-recourse advance, the attorney assigns to the Quick Cash Entity a portion of their expected fee from the case or cases in which the attorney represented one or more of the parties,
Kelly, Grossman & Flanagan, LLP v Quick Cash, Inc. :: March, 2012 :: New York Ot... http://law.justia.com/cases/new-york/other-courts/2012/2012-ny-slip-op-50560-u.html Page 3 of 6 15/10/2012 and pays the Quick Cash Entity only as each case settles. If there is no recovery in the case, then no money is due the Quick Cash Entity. Bradt states all of the agreements at issue in this case were non-recourse advances, except for one contract dated February 29, 2007, which was subsequently converted to a non-recourse advance. At the time of the first advance made by Quick Cash to plaintiff Muraca & Kelly, in May 2005, it was agreed that Plaintiffs would provide their anticipated attorneys' fees recovered from three pending actions, and that Quick Cash would be paid only in the event of a recovery in those cases. It was also agreed that the obligation would increase at the rate of 3.5% compounded monthly. Plaintiffs Kelly and Grossman personally guaranteed the performance of this contract. Bradt states that in October 2006, November 2006, April 2007, September 2007, plaintiff Muraca & Kelly requested financing from Quick Cash. The parties agreed that these were non-recourse advances. Plaintiffs also paid a processing fee and an origination fee with each advance. Plaintiffs Kelly and Grossman personally guaranteed the performance of each contract. Muraca and Kelly agreed to assign their anticipated fees in 27 pending actions as collateral. It was further agreed that the obligation would increase at the rate of 3.99% compounded monthly. Bradt states that Flanagan & Associates obtained financing from Quick Cash in June 2007 and pledged all of their anticipated fees in two pending actions as collateral. Flanagan & Associates paid a processing fee. It was agreed that this advance was to be non-recourse funding. In October 2007, Flanagan paid off this contract in full. Bradt further avers that in December 2007, plaintiffs Flanagan & Associates and Kelly & Grossman requested a second cash advance from Quick Cash and entered into three contracts on December 18, 2007. The Plaintiffs paid a processing fee. It was further agreed that these advances were to be non-recourse funding, and the obligation would increase at the rate of 40% compounded quarterly. The Plaintiffs agreed to provide periodic status updates on the cases held as collateral. [*4]Flanagan, Kelly, and Grossman personally guaranteed the performance of the contracts. A third cash advance made to Flanagan & Associates on December 20, 2007, reflected a true loan agreement with a maturity date of December 19, 2009. The Plaintiffs agreed to assign their anticipated fees from several pending actions and paid an application fee. Plaintiffs also agreed to provide periodic status updates regarding the cases held as collateral. Flanagan personally guaranteed the performance of the contract. In February 2008, plaintiffs Flanagan and Flanagan & Associates requested a fourth cash advance from Quick Cash. Flanagan & Associates pledged fees from specific pending actions as collateral and Quick Cash agreed to make the advance a recourse loan agreement. Flanagan & Associates agreed to pay off the loan made on December 20, 2007, obtain an additional amount of funding, and pay an origination fee. In May 2009, plaintiff Kelly, Grossman & Flanagan, a newly formed partnership, requested funding from Quick Cash for advertising fees and agreed to continue to prosecute the cases provided by Muraca & Kelly and Flanagan & Associates. Bradt states that the Addendum was entered into by the parties on August 13, 2009, to modify some of the payment terms, wherein the Kelly & Grossman attorneys agreed to pay to Quick Cash 75% of the attorney fees and permitted retention of 25% of the attorney fees from the collateral. The anticipated attorneys' fees from sixteen pending actions were added to the collateral. In addition, a provision for liquidated damages was added in the amount of two times the payment obligation if a breach occurred. The Addendum converted the Flanagan recourse loan agreement dated February 29, 2008, into a non-recourse agreement, removed the requirement of Flanagan's personal guarantee, and deemed the Flanagan recourse loan agreement to be null and void. Bradt states that the actual amount that was paid to all the Plaintiffs plus fees and costs was one million two hundred thousand sis hundred sixty one dollars and thirteen cents ($1,215,66.13). In contrast to the Plaintiffs' allegation that they have paid Defendants in excess of $1,000,000, Bradt avers that Quick Cash's records indicate that the actual amount received from the Kelly & Grossman attorneys was $451,136.27, and the amount received from Flanagan was $122,711.91. In addition, Bradt states that the Plaintiffs are in breach of the contracts, including not paying pursuant to the terms of
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