The opinion of the court was delivered by: ROBERT W. SWEET
Defendant National Union Fire Insurance Company ("National Union") has submitted an application for entry of judgment against numerous plaintiffs (collectively, the "Plaintiffs") in this matter, in which judgment they have requested approval by this Court of an interest rate of 24.9%. The Plaintiffs contest National Union's right to this rate of interest, and request the Court to fix the appropriate interest rate for the National Union judgment (the "Interest Rate"). For the following reasons, the Interest Rate will be set at 24.9%.
The facts, parties, and prior proceedings to the underlying action in this matter have been described in full detail in prior opinions of this court, familiarity with which is assumed. See, e.g., Bruce v. Martin, 1993 U.S. Dist. LEXIS 5776 (S.D.N.Y. April 28, 1993) (the "April 28 Opinion"); Bruce v. Martin, 1992 U.S. Dist. LEXIS 12138 (S.D.N.Y. Aug. 13, 1992); Bruce v. Martin, 766 F. Supp. 200 (S.D.N.Y. 1991); Bruce v. Martin, 691 F. Supp. 716 (S.D.N.Y. 1988). The background of these proceedings will therefore be described only to the extent necessary to answer the discreet question of the appropriate Interest Rate.
On April 28, 1993, this Court granted National Union summary judgment on its counterclaims against the Plaintiffs in this matter and dismissed the non-settling plaintiffs' claims against National Union. See Bruce v. Martin, 1993 U.S. Dist. LEXIS 5776 (S.D.N.Y. April 28, 1993). National Union's counterclaims consisted of contract claims based upon indemnification and pledge agreements executed by the Plaintiffs and a claim as a subrogee to the rights of the holders of promissory notes executed by the Plaintiffs (collectively, the "Notes").
Each Note provides for the accrual of interest on the defaulted principal amount of the Note at the highest rate legally permissible. National Union has taken the position that the interest rate chargeable following a default under the Notes is a rate just under 25%, the criminal usury ceiling. See N.Y. Penal L. §§ 190.40 & 190.42 (collectively, "Section 190").
On September 3, 1993, National Union submitted a proposed judgment to the Court. The proposed judgment is based upon National Union's claims as subrogee under the Notes. Argument was heard on the issue of the appropriate Interest Rate on September 15, 1993, and this matter was considered fully submitted as of that date.
The Plaintiffs oppose National Union's proposed Interest Rate of 24.9% on the grounds first that National Union did not plead in its counterclaims that it would seek interest on the defaulted promissory notes at 24.9%, and second that, since some of the Notes provide for default interest at the highest rate permitted by law while others provide for the highest rate permitted by New York law, the Notes including the less restrictive language may be governed by the law of each plaintiff's state of residence.
National Union's counterclaims stated that National Union would seek interest, and the Notes provide that interest would accrue after the maturity date on the unpaid principal balance at the highest rate legally permissible. Further, the Notes do not contain choice of law clauses. National Union Fire Insurance Co. v. Alexander, 728 F. Supp. 192 (S.D.N.Y. 1989), involved a suit very similar to the present case in which the issuer of financial guarantee bonds sued to enforce indemnity agreements between itself and limited partners in a tax shelter limited partnership, and to enforce its rights as subrogee on the limited partners' promissory notes which it honored on their behalf.
The Court, sitting in diversity, held that it was bound to look to New York choice of law principles to determine which state's law applied, and further held that, under New York law, the general rule is that a note is to be governed by the laws of the place where it is made, unless by its terms it is to be performed elsewhere. Since the notes in question called for payment in Texas, the Court held that Texas law applied. National Union, 728 F. Supp. at 199.
In the present case, the Notes require that payments be made in New York or some other place that the holder of the note designates. The Court applied New York to the interpretation of the Notes in the April 28 Opinion. See Bruce v. Martin, 1993 U.S. Dist. LEXIS 5776, at *39 (S.D.N.Y. April 28, 1993). Therefore the rate of interest shall be determined pursuant to New York law.
Plaintiffs also contend that National Union agreed to collect interest only under its Indemnification Agreements with the plaintiffs, rather than as subrogee to the Notes or, alternatively, that, as subrogee to the holder of the Notes, National Union is limited to recovery of the monies it paid to the noteholders and may ...