United States District Court, S.D. New York
For Hillair Capital Investments, L.P., Plaintiff: Jordan Danforth Wolff, Ellenoff Grossman & Schole LLP(130E. 42nd St.), New York, NY; Ted Poretz, Bingham McCutchen LLP (NYC), New York, NY.
For Integrated Freight Corporation, Smith Systems Transport, Inc., Morris Transport, Inc., Cross Creek Trucking, Inc., Paul Henely, Henry P. Hoffman, Matthew A. Veal, Defendants: Thomas Donald Atkinson, Ledwith & Atkinson, Attorneys, Lynbrook, NY.
ORDER GRANTING DEFENDANTS' LEAVE TO AMEND ANSWER AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
ALVIN K. HELLERSTEIN, United States District Judge.
This case involves a hedge fund seeking to recover the money it lent to a financially struggling trucking company. That company
acknowledges it has failed to pay back two loans, but asserts that the loans were invalid because they were usurious.
In the fall of 2011, Plaintiff, a hedge fund, made two separate loans to Integrated Freight Systems (" IFC" ), a freight and trucking company. The first, an " Original Issue Discount Senior Secured Convertible Debenture," was issued on September 26, 2011 (the " September loan" ). Under the terms of the debenture, Plaintiff provided a loan of $165,000, which had to be repaid in the amount of $178,200 by April 1, 2012. On November 4, 2011, Plaintiff issued a second debenture to IEFC under which Plaintiff loaned $149,500 to IFC and IFC had to repay $161,460, also by April 1, 2012 (the " November loan" ). Each loan required IFC " to reimburse [Plaintiff] the non-accountable sum of $15,000 for its legal fees and expenses. . . ." Pl. Ex. 3, 5 at § 5.2. The loans were guaranteed by Smith Systems Transport, Morris Transport, and Cross Creek Trucking, IFC's subsidiaries. Pl. Ex. 7, 8. In addition, the presidents of those subsidiaries, Paul Henley, Henry Hoffman, and Matthew Veal, personally guaranteed the November loan, and Henley also guaranteed the September loan. Pl. Ex. 9, 10.
As part of the loan deal, IFC agreed to issue shares of its common stock to Plaintiff. IFC issued to Plaintiff 500,000 shares for the September loan, and an additional 453,030 shares for the November loan. Pl. Ex. 3, 5 at § 2.2. The shares, however, had not been registered under the Securities Act of 1933, and therefore could not be transferred until six months had passed. See Pl. Ex. A; SEC Rule 144. At the time the September loan was issued, the closing price of IFC shares was 11 cents a share. The closing price dropped to 8 cents a share on the day the November loan was issued. Def. Ex. D. By the time the six-month holding period had expired, the share price had dropped even further; shares closed at 2 cents a share on March 26, 2012 (six months after the September loan) and at a penny a share on May 4, 2012 (six months after the November loan).
Three other provisions of the loan are relevant:
o The debentures indicated that in the event of default, the principal would become due immediately, and Defendants would have to pay the " Mandatory Default Amount," defined as " the sum of 130% of the outstanding principal amount of this Debenture, plus all other amounts, costs, expenses and liquidated damages due in respect of this Debenture." Pl. Ex. 4, 6 at § § 1, 6(b).
o The agreements contained a variation of what is commonly called a " usury savings clause" or a " usury avoidance clause," which provided: " the total liability of [IFC] under the Transaction Documents for payments in the nature of interest shall not ...