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Madden v. Midland Funding, LLC

United States District Court, S.D. New York

February 27, 2017

SALIHA MADDEN, on behalf of herself and all others similarly situated, Plaintiffs,
v.
MIDLAND FUNDING, LLC and MIDLAND CREDIT MANAGEMENT, INC., Defendants.

          OPINION & ORDER

          CATHY SEIBEL, U.S.D.J.

         Before the Court are Defendants' Renewed Motion for Summary Judgment, (Doc. 112), and Plaintiff's Renewed Motion for Class Certification, (Doc. 99). For the reasons stated below, Defendants' Motion is GRANTED in part and DENIED in part, and Plaintiff's Motion is GRANTED as modified below.

         I. FACTUAL BACKGROUND

         The following facts are set forth based on the parties' Local Civil Rule 56.1 statements and supporting materials, and are undisputed unless otherwise noted. Plaintiff in this action, Saliha Madden, opened a credit card account with Bank of America on April 23, 2005. (Doc. 117 (“P's Stmt. & Resp.”), ¶ 10.) Plaintiff received the Cardholder Agreement applicable to such accounts, and agreed to be bound by it. (Id. ¶¶ 11, 12.) The Cardholder Agreement provided that it was “governed by applicable Arizona and federal law.” (Doc. 113 (“Leghorn Decl.”) Ex. 3-B (“Cardholder Agreement”), at 1.)

         Plaintiff's August 14, 2006 account statement was sent to her address in White Plains, New York, (Doc. 118 (“Schlanger Decl.”) Ex. E, at 1), and disclosed a variable daily periodic interest rate of 0.08833, which corresponds to an annual percentage rate of 32.24%, (P's Stmt. & Resp. ¶ 18). It stated that payment was to be made online or sent to an address in Newark, New Jersey, and that billing disputes were to be sent to an address in Norfolk, Virginia. (Schlanger Decl. Ex. E, at 2.) The August 2006 account statement also contained an “Important Notice” alerting customers that Bank of America was “changing the terms of the Cardholder Agreement that governs [Plaintiff's] credit card Account.” (Id. at 1.) Plaintiff received the Change in Terms attached to her August 14, 2006 account statement. (P's Stmt. & Resp. ¶¶ 13, 14.)

         The Change in Terms advised Plaintiff that, beginning on the effective date of October 19, 2006, [1] the Change in Terms would replace the Cardholder Agreement. (Schlanger Decl. Ex. F (“Change in Terms”), at 1.) It also stated that “beginning on October 19, 2006 . . . your Bank of America credit card account will be issued and administered by FIA Card Services, N.A.” (Id.) The Change in Terms provided that “The Agreement is made in Delaware and we extend credit to you from Delaware. This Agreement is governed by the laws of the State of Delaware (without regard to its conflict of laws principles) and by any applicable federal laws.” (Id. ¶ 44.) FIA Card Services, N.A. (“FIA”) was at all times relevant to this action an active national bank. (P's Stmt. & Resp. ¶ 16.)

         On November 10, 2010, FIA sold, transferred, and set over unto Midland Funding, LLC (“Midland”) Plaintiff's outstanding debt of $5, 291.25, with full authority to perform all acts necessary for collection, settlement, adjustment, compromise, or satisfaction of the claim. (Id. ¶ 20.) This charge-off constituted an assignment of Plaintiff's debt from FIA to Midland. (Id. ¶ 21.) Midland is in the business of purchasing defaulted debts, (Doc. 16 (“Answer to AC”), ¶ 6), and Midland Credit Management, Inc. (“MCM”) is in the business of collecting those debts, (id. ¶ 8). Both are indirect wholly-owned subsidiaries of Encore Capital Group, Inc. and both have their principal places of business in San Diego, California. (Id. ¶¶ 6-9.)

         Midland sued Plaintiff in the City Court of the City of White Plains, Westchester County on May 2, 2011 to collect on her debt of $5, 291.25. (Schlanger Decl. Ex. A.) In that complaint, Midland alleged that Plaintiff lived in White Plains, New York, and that its action to collect the debt arose out of transactions in Westchester County, New York. (Id. at 2.) That case has since been dismissed. (Schlanger Decl. ¶ 3.)

         II. PROCEDURAL BACKGROUND

         Plaintiff filed the amended complaint on May 7, 2012, asserting violations of: (1) the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., based on Defendants' attempt to collect interest on her debt above the rate permitted by New York's usury laws; (2) New York General Business Law (“GBL”) § 349, based on Defendants' representations that they were entitled to collect interest at a usurious rate; and (3) New York's civil and criminal usury laws, entitling Plaintiff to a declaration that her debts are void and to disgorgement. (Doc. 13 (“AC”), ¶¶ 50-70.)

         Plaintiff moved for class certification on January 18, 2013. (Doc. 25.) Defendants moved for summary judgment on January 25, 2013, (Doc. 30), arguing that Plaintiff's state-law claims were preempted by the National Bank Act (“NBA”) and thus that Plaintiff's federal clam, which is predicated on the state law claims, also failed. On September 30, 2013, I denied both motions, finding that although the NBA preempted state law usury claims against assignees of national banks, fact issues remained as to whether Plaintiff had agreed to the Cardholder Agreement and Change of Terms, and whether Plaintiff's debt had been validly assigned to Defendants. I also denied Plaintiff's motion for class certification because each individual's claims would turn on the factual issues I identified in Plaintiff's case.

         The parties then entered into a Stipulation for Entry of Judgment dated May 30, 2014, agreeing that “FIA assigned Defendants Ms. Madden's account, and that Plaintiff received the Cardholder Agreement and Change in Terms.” (Doc. 84 Ex. 3 (“Stipulation”), ¶ 1.) In light of the Stipulation, I entered judgment for Defendants on June 2, 2014.

         The Second Circuit reversed and remanded, holding that the NBA did not preempt Madden's state law usury claims, but leaving it to me “to address in the first instance whether the Delaware choice-of-law clause precludes Madden's claims.” Madden v. Midland Funding, LLC, 786 F.3d 246, 247 (2d Cir. 2015). The Second Circuit also vacated my denial of class certification as it was “entwined” with the preemption analysis, and remanded for me to consider the question again in light of its opinion. Id. at 255. Defendants' petition for writ of certiorari was denied on June 27, 2016. (Doc. 126 Ex. 1.)

         Defendants now move for summary judgment again, (Doc. 112), arguing that Delaware law applies to Plaintiff's claims, and so Plaintiff's claims under New York law fail, (Doc. 114 (“Ds' Mem.”), at 1). Defendants further argue that because governing Delaware law imposes no usury cap and Plaintiff's FDCPA claims are predicated on a violation of New York's usury laws, Plaintiff's FDCPA claims must also fail. (Id.)

         Plaintiff moves again for class certification. (Doc. 99.)

         III. SUMMARY JUDGMENT

         A. Legal Standard

         Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[T]he dispute about a material fact is ‘genuine' . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is “material” if it “might affect the outcome of the suit under the governing law . . . . Factual disputes that are irrelevant or unnecessary will not be counted.” Id. On a motion for summary judgment, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255. The movant bears the initial burden of demonstrating “the absence of a genuine issue of material fact, ” and, if satisfied, the burden then shifts to the non-movant to present “evidence sufficient to satisfy every element of the claim.” Holcomb v. Iona Coll., 521 F.3d 130, 137 (2d Cir. 2008) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986)). “The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant].” Anderson, 477 U.S. at 252. Moreover, the non-movant “must do more than simply show that there is some metaphysical doubt as to the material facts, ” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and he “may not rely on conclusory allegations or unsubstantiated speculation, ” Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 428 (2d Cir. 2001) (internal quotation marks omitted).

         “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials . . . .” Fed.R.Civ.P. 56(c)(1). Where an affidavit is used to support or oppose the motion, it “must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant . . . is competent to testify on the matters stated.” Fed.R.Civ.P. 56(c)(4); see Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 310 (2d Cir. 2008). In the event that “a party fails . . . to properly address another party's assertion of fact as required by Rule 56(c), the court may, ” among other things, “consider the fact undisputed for purposes of the motion” or “grant summary judgment if the motion and supporting materials - including the facts considered undisputed - show that the movant is entitled to it.” Fed.R.Civ.P. 56(e)(2)-(3).

         B. Delaware & New York Usury Law

         At the outset, Defendants argue that even if the Court were to apply New York law, Plaintiff's claims would fail because New York's usury laws, on which Plaintiff's claims are predicated, do not apply to defaulted obligations like Plaintiff's.

         Delaware usury law provides no cap on interest rates, but instead allows interest to be charged in an amount pursuant to the agreement governing the debt. See Del. Code Ann. tit. 5 § 943; Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 622 (3d Cir. 2009) (“Delaware has no usury law.”). Defendants argue, and Plaintiff does not dispute, that were Delaware law to apply, it would not prohibit Defendants from charging the interest rate in question. (Ds' Mem. 13; see Doc. 98 (“P's Class Cert. Mem.”), at 11 (Utah law “like Delaware, provided for no usury cap”).)

         New York's “civil usury cap” forbids charging interest on a “loan or forbearance” at a rate above 16% annually. See N.Y. Gen. Oblig. Law § 5-501(1)-(2); N.Y. Banking Law § 14-a(1). Generally, corporations may not assert a civil usury defense. N.Y. Gen. Oblig. Law § 5-521(1). The civil usury cap does not apply to defaulted obligations. See Manfra, Tordella & Brookes, Inc. v. Bunge, 794 F.2d 61, 63 n.2 (2d Cir. 1986) (“[T]he usury laws do not apply to defaulted obligations.”); Bruce v. Martin, 845 F.Supp. 146, 150 (S.D.N.Y. 1994) (“Under Manfra, Section 5-501 is inapplicable to the defaulted obligations under the Notes.”). The parties agree the Plaintiff's debt is in default, so the civil usury cap is inapplicable here. (See Doc. 129 (“P's Supp. Mem.”), at 1; Doc. 128 (“Ds' Supp. Mem.”), at 1-2.)

         New York's “criminal usury cap” makes it a felony to knowingly charge or collect interest on a “loan or forbearance” at a rate above 25% annually. See N.Y. Penal Law § 190.40. Nothing prevents a corporation from asserting a criminal usury defense. N.Y. Gen. Oblig. Law § 5-521(3). Defendants contend that the criminal usury cap does not apply to defaulted obligations, (Ds' Supp. Mem. 1-5), while Plaintiff contends that it does, (P's Supp. Mem. 1-5).

         Defendants argue that the Second Circuit's decision in Manfra controls and that it “clearly recognized that usury has no application with regard to defaulted obligations.” (Ds' Supp. Mem. 2.) In Manfra, the plaintiff extended credit to the defendant for the purchase and sale of gold, the agreement for which required the defendant to pay immediately upon confirmation of purchases. 794 F.2d at 62. The defendant failed to make certain payments, and accumulated indebtedness to the plaintiff with interest charged at rates between 22% and 27%. The plaintiff agreed to consolidate the defendant's debt into one promissory note with an interest rate of 18%, on which the defendant also failed to make payments. The plaintiff sued on the note, and the court held that the defense of usury was unavailable to the defendant because the debt was not a “loan or forbearance” under New York law. Id. at 62-63. In a footnote, the court added that “the usury laws do not apply to defaulted obligations. Because interest was charged only on [the defendant's] past due debts, the usury laws do not apply.” Id. at 63 n.3 (citing Am. Express Co. v. Brown, 392 F.Supp. 235, 238 (S.D.N.Y. 1975) and Bloom v. Trepmal Constr. Corp., 289 N.Y.S.2d 447 (2d Dep't), aff'd, 244 N.E.2d 62 (N.Y. 1968)). Because the interest rate on the note was above the civil usury cap but below the criminal usury cap, the Manfra footnote - which is dictum in any event - cannot definitively be said to have ruled out application of the criminal usury cap to defaulted obligations. But its language does not distinguish between the two caps, lending some support to Defendants' position.

         Plaintiff argues, however, that “New York's Courts have repeatedly and explicitly held that New York's criminal usury cap applies even where an obligation is exempt from New York's civil usury laws.” (P's Supp. Mem. 1.)

         “As a federal court applying state law, [I am] generally obliged to follow the state law decisions of state intermediate appellate courts.” Broder v. Cablevision Sys. Corp., 418 F.3d 187, 199-200 (2d Cir. 2005) (internal quotation marks omitted). I will thus look first to decisions of New York state courts (to only one of which Defendants cites, in their Reply brief).

         1. State Court Decisions

         In Bloom, a 1968 state court decision cited by Manfra, the Second Department held (without discussion) that a provision in a note fixing interest at a rate above 25% annually upon default or maturity was valid and enforceable. See 289 N.Y.S.2d at 448. The Second Department cited two New York Court of Appeals cases in support of this holding - Union Estates Co. v. Adlon Construction Co., 116 N.E. 984 (N.Y. 1917), and Salvin v. Myles Realty Co., 124 N.E. 94 (N.Y. 1919) - but they do not support the proposition for which Manfra cited Bloom or for which Defendants cite Manfra. Both of those decisions held that the usury statute in effect at the time expressly prohibited corporations from raising a usury defense, but did not address the application of the usury laws to defaulted obligations. See Salvin, 124 N.E. at 96; Union Estates Co., 116 N.E. at 985. The cases also held that parties were free to agree to an increased interest rate upon default or maturity of an obligation, and that the fact of such an increase would not be considered an impermissible penalty. Union Estates Co. explained that such an increased rate would still be subject to an unconscionability analysis, suggesting that the rate charged upon default was not without bounds. 116 N.E. at 985-86 (“It may be that a stipulated rate may be so excessive that the contract will . . . be adjudged unconscionable and invalid . . . .”).

         In any event, several more recent New York cases have held that, where a contract provision allows collection of interest at “the highest interest permitted under the law, ” New York's criminal usury cap applies to prevent a creditor from collecting interest above 25% even in default. See 815 Park Ave. Owners Corp. v. Lapidus, 643 N.Y.S.2d 89, 90 (1st Dep't 1996); Stein v. Am. Mortg. Banking, Ltd., 628 N.Y.S.2d 162, 164 (2d Dep't 1995); Emery v. Fishmarket Inn of Granite Springs, 570 N.Y.S.2d 821, 824 (2d Dep't 1991); Nextbridge Arc Fund, LLC v. Vadodra Prop., LLC, 929 N.Y.S.2d 201, 2011 WL 1124347, at *3 (Sup. Ct. Queens Cty. Mar. 11, 2011) (citing Emery, 570 N.Y.S.2d 821). One decision held outright that the interest on a defaulted mortgage above 25% was “a criminally usurious rate.” See Emigrant Funding Corp. v. 7021 LLC, 901 N.Y.S.2d 906, 2009 WL 3530022, at *4 (Sup. Ct. Queens Cty. Oct. 26, 2009). These cases are strong indicators that New York's criminal usury cap applies even to defaulted obligations.

         In Emery, a mortgagee sought to collect interest on a defaulted purchase money mortgage. In the event of default, the mortgage allowed the mortgagee to collect “the highest interest permitted under law.” Emery, 570 N.Y.S.2d at 823. The court recognized that § 5-501 does not apply to purchase money mortgages, id. at 824 (citing, among other things, Barone v. Frie, 472 N.Y.S.2d 119 (2d Dep't 1984) (purchase money mortgage not a “loan or forbearance”)), but found that the parties nevertheless intended the interest charged on default to be capped by New York's usury laws, including §§ 190.40, 190.42, under which the “highest interest permitted by law” was 25%. Id. Defendants contended at oral argument that Emery merely decided what the parties had in mind, not what the law permits, but they overlook Emery's acknowledgement that interest rates on defaulted debts are subject to usury limits. See Id. at 823 (“[S]o long as an interest rate is not usurious or does not constitute a penalty, the parties are . . . free to agree that the contract rate of interest shall increase upon default.”).

         In 815 Park Ave, a residential lease contained a provision stating that in the event of a default in the payment of rent, the lessee would pay interest at the “maximum legal rate.” 643 N.Y.S.2d at 90. Because the lessee was eventually charged 1.5% per month (or 19.56% annually when compounded) - a rate above the civil usury cap but below the criminal cap - the court relied on Emery in holding that rate permissible. See id.

         In Stein, a mortgage provided that the interest rate on any unpaid balance after the maturity date would be 2% monthly, or if that was above the maximum rate permissible by law, then the maximum rate permissible by law. 628 N.Y.S.2d at 162. Citing § 5-521 and § 190.40 - citations that would have been unnecessary had the criminal usury cap been inapplicable to defaulted obligations - the court held that 2% monthly was not above the maximum rate and therefore permissible.[2] Id.

         In Nextbridge Arc Fund, a mortgage note provided that the annual interest rate in the event of a default would increase to the lower of either 18% above the current rate or “the highest rate allowed by law.” 2011 WL 1124347, at *3. The court, citing § 190.40 and Emery, noted that “[t]he highest interest rate allowed by law is 25% per annum.” Id.

         While several post-Emery decisions can be read to suggest that the criminal usury cap does not apply to defaulted obligations, see Hicki v. Choice Capital Corp., 694 N.Y.S.2d 750, 751 (2d Dep't 1999); Miller Planning Corp. v. Wells, 678 N.Y.S.2d 340, 340-41 (2d Dep't 1998); Shorehaven Assocs., Inc. v. King, 587 N.Y.S.2d 190 (2d Dep't 1992), a careful reading of this line of cases shows that they are distinguishable. Hicki stands for the uncontroversial proposition that the civil usury cap does not apply to defaulted obligations. 694 N.Y.S.2d at 751 (“The Supreme Court incorrectly determined that the subject loan was usurious because the plaintiff was required to pay interest at a rate greater than 16% per year after the original maturity date of the loan.”). In Shorehaven Associates, the court held that a “defense of usury based upon a provision in the mortgage increasing the interest to a higher rate upon a default in payment is meritless.” 587 N.Y.S.2d at 191. This case does not support the proposition that the criminal usury cap does not apply to defaulted debts, because one cannot tell from the one-paragraph decision what interest rate was charged, whether the defense was based on the mere fact of an increase (which indeed would have been meritless, see Emery, 570 N.Y.S.2d at 823), or even if the court purported to address the applicability of the criminal usury cap. In Miller Planning Corp., the court held that “for the purpose of determining usury, the effective annual interest rate . . . did not exceed the legal maximum.” 678 N.Y.S.2d at 340. The court then went on to note that “[f]urthermore, the defense of usury does not apply where, as here, the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity.” Id.; see also Kraus v. Mendelsohn, 948 N.Y.S.2d 119, 120 (2d Dep't 2012) (same, quoting Miller Planning Corp.). To support this holding, the Miller Planning Corp. court cited Bloom (the shaky foundation of which I addressed above), Shorehaven Associates, and Klapper v. Integrated Agricultural Mgmt. Co., 539 N.Y.S.2d 812 (3d Dep't 1989). In Klapper, the court held that a rate of 18% charged upon default was not usurious. 539 N.Y.S.2d at 814 (“The defense of usury does not apply where the terms of a promissory note impose a rate of interest in excess of the statutory maximum only after maturity of the note.”).[3] Because 18% is not above the criminal usury cap of 25%, it is clear that the Klapper court was addressing only the civil usury cap's inapplicability to defaulted obligations. Miller Planning Corp. did not state the rate charged and so it cannot be presumed it was exempting defaulted debt from the civil and criminal usury caps.

         Based on this survey of New York state cases, I believe that the New York Court of Appeals, were it to face this situation, would hold that the criminal usury cap limits interest charged on debts to 25% annually, even for defaulted debts. I will next address federal court decisions addressing this question, bearing in mind my obligation to follow New York law as described by New York State's courts.

         2. Federal Court Decisions

         In Brown, 392 F.Supp. 235, the federal case relied on in Manfra's footnote, a credit card company had executed a promissory note in satisfaction of the defendant's unpaid credit card debt. After the defendant failed to make payment on the note, the credit card company sued to collect on the note plus interest. The court dismissed as frivolous the defendant's criminal usury defense, stating that “enforcement of New York state's criminal usury law is beyond my jurisdiction and . . . the defendant lacks the power to enforce the criminal usury law of the state.” 392 F.Supp. at 237-38. The court did not otherwise address the applicability of the criminal usury cap to defaulted obligations, and so does not appear to support the Manfra footnote.[4]

         Since Manfra, there has been some confusion in the federal courts as to whether the criminal usury cap applies to defaulted obligations. On the one hand, some courts have held that the footnote in Manfra referred only to the civil usury cap. See T&S Chinatown Trading v. Lin China Buffet, No. 95-CV-9090, 1996 U.S. Dist. LEXIS 11867, at *5-6 (S.D.N.Y. Aug. 15, 1996) (“Under New York law, the interest recoverable in the event of a default is capped by New York criminal usury law.”); Bruce, 845 F.Supp. at 150 (“Under Manfra, Section 5-501 is inapplicable to the defaulted obligations under the Notes. As in Emery, this does not leave the interest rate without a discernable cap. Rather, the interest rate is ‘capped' by Section 190 at 25% per annum.”).

         On the other hand, many federal courts have applied Manfra to bar a claim or defense for usury. See, e.g., Bristol Inv. Fund, 310 F.Supp.2d at 562 (“[I]t is well established that the usury statutes do not apply to defaulted obligations.”); In re Integrated Res., Inc. Real Estate Ltd. P'ship Sec. Litig., 851 F.Supp. 556, 565 (S.D.N.Y. 1994) (“Any penalty interest rates or late fees assessed against the Plaintiffs do not constitute usury, since New York's usury statutes do not apply to defaulted obligations.”).

         Many of the cases that seem to suggest that the criminal usury cap does not apply to defaulted obligations in fact addressed default rates that were below 25%, and so would not have violated the criminal usury cap even if it applied. See, e.g., Llewellyn v. Asset Acceptance, No. 14-CV-411, 2015 WL 6503893, at *8-9 (S.D.N.Y. Oct. 26, 2015) (9% interest rate collected after default not usurious), aff'd, __ F. App'x __, No. 15-3681-cv, 2016 WL 5944723 (2d Cir. Oct. 13, 2016); Prowley v. Hemar Ins. Corp. of Am., No. 05-CV-981, 2010 WL 1848222, at *4 (S.D.N.Y. May 7, 2010) (8.75% interest rate on defaulted obligation does not give rise to claim for “civil usury”); In re Vargas Realty Enters., Inc., 440 B.R. 224, 233-34 (S.D.N.Y. 2010) (plaintiff's criminal usury claim failed because, among other reasons, the default rate was only 24%); Schwartzbaum v. Emigrant Mortg. Co., No. 09-CV-3848, 2010 WL 2484116, at *6 (S.D.N.Y. Apr. 22, 2010) (claim for usury failed based on 18% default rate), report and recommendation adopted in part and rejected in part, 2010 WL 2484116 (S.D.N.Y. June 16, 2010); Roswell Capital Partners LLC v. Alt. Constr. Techs., No. 08-CV-10647, 2009 WL 222348, at * (S.D.N.Y. Jan. 30, 2009) (default rate of 18% not usurious); see also Avila v. Riexinger & Assocs, LLC, Nos. 13-CV-4349, 14-CV-2740, 2015 WL 1731542, at *11 (S.D.N.Y. Apr. 14, 2015) (§ 5-501 claim for civil usury failed because debt was in default), aff'd in part, 817 F.3d 72 (2d Cir. 2016), vacated in part on other grounds, 644 F. App'x 19 (2d Cir. 2016). These cases did not address a default rate in excess of the criminal usury cap. Thus, even where they purport to hold that defaulted obligations are immune from all usury protection, they should be understood only as supporting the unremarkable proposition that - as in Manfra - the civil usury cap does not apply to defaulted obligations. See Schaefer v. State Ins. Fund, 207 F.3d 139, 143 (2d Cir. 2000) (disregarding part of district court's opinion as dictum that “was unnecessary to its holding”).

         Defendants cite several additional federal court decisions that they argue show that the criminal usury cap does not limit interest rates charged on defaulted obligations. See Hillair Capital Invs., L.P. v. Integrated Freight Corp., 963 F.Supp.2d 336, 340 (S.D.N.Y. 2013) (citing Manfra, 794 F.2d at 63 n.3) (without noting what interest rate was, holding increase in interest rate upon default irrelevant to usury analysis because “default payments are separate and distinct from the actual interest rate and therefore are not relevant in determining if the rate is usurious”); Sabella v. Scantek Med., Inc., No. 08-CV-453, 2009 WL 3233703, at *17 (S.D.N.Y. Sept. 25, 2009) (criminal usury defense not available for loans over $2.5 million or “where the loan imposes an interest rate greater than the statutory maximum only after a default”) (quoting Roswell Capital, 2009 WL 222348, at *15); Urban Communicators PCS Ltd. P'ship v. Gabriel Capital, L.P., 394 B.R. 325, 341-42 (S.D.N.Y. 2008) (New York usury laws do not apply to defaulted obligations).[5] To the extent these decisions contain statements about New York law that are at odds with New York state court decisions like Emery, the state court decisions control. See Broder, 418 F.3d at 200-01.[6]

         In sum, although the issue may ultimately have to be settled by the New York Court of Appeals, I conclude, based on Emery and its progeny, that New York's criminal usury cap applies to prevent a ...


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