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July 18, 1986

DURANTE BROS. & SONS, INC., Plaintiff,
FLUSHING NATIONAL BANK, Jack Farber, and Richard Gelman, Defendants

Nickerson, District Judge.

The opinion of the court was delivered by: NICKERSON

NICKERSON, District Judge.

This case is before the court following a remand by the Second Circuit on counts 1, 3, and 5 of the complaint. Durante Bros. and Sons, Inc. v. Flushing National Bank, 755 F.2d 239 (2d Cir.), cert. denied, 473 U.S. 906, 105 S. Ct. 3530, 87 L. Ed. 2d 654 (1985). This court had dismissed these counts alleging the collection of unlawful debts in violation of the Racketeer Influenced Corrupt Organization Act (RICO), 18 U.S.C. §§ 1962(a), (c) and (d) because the claims were time barred. Memorandum and Order dated September 27, 1983, reported at 571 F. Supp. 489 (E.D.N.Y.1983). The court also dismissed several of the other counts and the parties proceeded to trial on the remaining counts. Of the three counts submitted to the jury, it returned a verdict in favor of plaintiff on one count. The court set aside this verdict on January 17, 1984 and dismissed the complaint in its entirety.

 The Court of Appeals reversed that portion of this court's judgment dismissing counts 1, 3, and 5. The Court of Appeals held that the applicable statute of limitations was two years and that the action was timely brought. The Court suggested that these counts may be subject to summary dismissal because the complaint, although sufficient to meet pleading requirements, did not allege precisely that the defendant charged interest on its loans to plaintiff at twice the enforceable rate and that defendants were in the business of making usurious loans. Durante Brothers and Sons, Inc., supra, 755 F.2d at 249-50.

 Defendants now move for summary judgment dismissing counts 1, 3, and 5 of the complaint.

 The facts are summarized in this court's earlier memorandum and order, 571 F. Supp. 489 (E.D.N.Y.1983). Familiarity with that opinion is assumed.

 To state a claim for collection of an unlawful debt under RICO, plaintiff must show, among other things, that the loan secured by the Consolidated Mortgage Agreement "carried twice the enforceable interest rate" and "[was] incurred in connection with 'the business of' lending money at a usurious rate." Durante Brothers and Sons, Inc., supra, 755 F.2d at 249. Under New York law interest will be twice the enforceable rate if it exceeds 50% per year.

 On its face the Consolidated Mortgage Agreement does not charge excessive interest. Interest was to be no less than 15% per year nor more than 20% per year. Defendants allege in substance that in order for plaintiff to bring its claim within RICO it has inflated the interest owed by mislabeling principal, improperly calculating interest and adding a variety of unrelated charges.

 Defendants first allege that plaintiff miscalculated interest by not basing it on the full duration of the loan. Under the agreement plaintiff was to make monthly payments from April 10, 1976 until April 10, 1978 when unpaid principal and accrued interest would be due. Plaintiff argues that the precise duration of the loan presents a factual issue. It states that defendant Flushing National Bank (the Bank) repeatedly threatened to call in this and other outstanding loans and that plaintiff stopped making payments as of April 1, 1977 because of these demands. According to plaintiff, because defendant intended, from the inception of the loan, to treat it as a demand loan, all calculations should be based on a 13-month term.

 In the two cases cited by plaintiff, Lehman v. Roseanne Investors Corp., 106 A.D.2d 617, 483 N.Y.S.2d 106 (1984) and Moore v. Plaza Commercial Corp., 9 A.D.2d 223, 192 N.Y.S.2d 770 (1959), aff'd, 8 N.Y.2d 813, 168 N.E.2d 390, 202 N.Y.S.2d 321 (1960), the courts looked beyond the terms of the note to other writings that clearly evidenced both parties' intent as to the duration of the note. In Moore, for example, the note stated that the loan was payable on demand but a letter agreement modified the term of the loan to 120 days. The court rejected the lender's argument that the duration of the loan was an issue of fact, and stated that the terms of the letter were unambiguous and the parties' actions conformed to these terms.

 Similarly the terms of the Consolidated Mortgage Agreement in this case are equally clear. There is no evidence that both parties agreed that the loan was payable on demand and the Bank did not begin a foreclosure action until April 26, 1978.

 Moreover the parol evidence rule bars plaintiff from admitting evidence of the Bank's intention that contradicts the terms of the written document. See Leumi-Financial Corp. v. Richter, 17 N.Y.2d 166, 216 N.E.2d 579, 269 N.Y.S.2d 409 (1966). For these reasons interest calculations should be based on the full 25-month term of the loan.

 Plaintiff suggests that interest computations should be based on either the present value method or the "Rule of 78." However, there is no basis for adopting either formula. The New York Court of Appeals has stated that the simple interest formula rather than the present value method should be used to determine whether a loan is usurious. Band Realty Co. v. North Brewster, Inc., 37 N.Y.2d 460, 335 N.E.2d 316, 373 N.Y.S.2d 97 (1975). The "Rule of 78," which applies to the amount of a rebate to a borrower who prepays interest under an installment credit transaction, is also inappropriate.

 The parties dispute the amount of the loan that is considered principal. The Consolidated Mortgage Agreement specifies a principal sum of $ 181,925. Plaintiff argues, however, that principal should not include the $ 41,800 that the Bank loaned it to repay the debt of the same amount of Louis Durante, Sr. because it never had use of these funds.

 Under New York law a borrower's assumption or repayment of a preexisting debt of a third party to the lender in consideration for an additional loan is not usurious unless the plaintiff shows that the lender acted with usurious intent, for example, with knowledge that the third party would not or could not pay. Schreiber v. Thistle, Inc., 108 Misc.2d 333, 437 N.Y.S.2d 596 (N.Y.Sup.Ct.1981); see generally 32 N.Y.Jur. Interest and Usury § 62 (1963). Plaintiff has come forth with little more than conclusory allegations that the Bank acted with usurious intent. However, the court need not decide this arguably factual question to find the loan nonusurious. Even if interest calculations are based on a principal of $ 140,125, the interest charged, after excluding all charges that are improper as a matter of law, does not exceed ...

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