874 F. Supp. 2d 108
N.D.N.Y.2012Background
- LFG National Capital, LLC sues the Firm and individuals Gary and Williams for breach of contract and breach of guarantees; the Firm counterclaims for implied covenant, interference, usury, and unfair business practices.
- Loan: on March 19, 2007 the Firm borrowed about $10 million from LawFinance; Gary and Williams executed personal guarantees.
- LawFinance assigned the loan to LFG National three days after the loan, making LFG National the secured creditor with a first-priority lien.
- Loan terms: indexed rate plus 13% (18% min default); case costs were payable to LFG National; an amendment in 2009 fixed interest at 16% with 21% default, if not repaid.
- Maturity occurred on June 30, 2010; by Oct. 5, 2011 the amount due under the loan (excluding litigation costs) was over $11 million.
- Plaintiff sent letters to third parties (Sussman & Watkins, Boies Schiller & Flexner, NY Attorney General) and a predrafted Zimmermann letter directing plaintiffs to pay fees to LFG; Firm alleges these actions harmed its client relationships and misled Judge Conti.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Gary and Williams validly waived a 2845/2849 defense | 2.4 waives rights; independent obligation supports direct action | Section 6 does not list 2845/2849 as waived defenses | Waiver found; Section 2.4 valid waiver of 2845/2849 defenses |
| Whether counterclaims for breach of implied covenant survive | Rights to enforce loan terms do not violate contract terms | Letters and actions undermine good faith | Dismissed; implied covenant cannot override express loan terms |
| Whether interference with contractual relations is stated | Letters disrupted Firm's contracts and co-counsel | No actionable interference pleaded; communications were authorized | Dismissed; insufficient facts showing improper interference |
| Whether California usury law applies to the loan | Assignment to out-of-state entity increased rate unlawfully | Exemption for California lenders and successors applies; usury not violated | Dismissed; no usury violation under California law |
| Whether the unfair competition claims under California's UCL survive | Letters and aggressive collection practices are unlawful/unfair | Loan terms and collection rights lawful; allegations lack particularity | Dismissed; claims fail under unlawful, unfair, and fraudulent prongs |
Key Cases Cited
- Guild Wineries & Distilleries v. Land Dynamics, 103 Cal.App.3d 966 (Cal. Ct. App. 1st Dist.1980) (waiver of section 2845/2849 defenses via independent-obligation language)
- Wiener v. Van Winkle, 273 Cal.App.2d 774 (Cal. Ct. App. 2d Dist.1969) (waiver inferred from language permitting action against guarantor without exhausting security)
- Engelman v. Bookasta, 264 Cal.App.2d 915 (Cal. Ct. App. 2d Dist.1968) (waiver of 2845/2849 defenses found in broad language about waiving rights)
- Strike v. Trans-West Discount Corp., 92 Cal.App.3d 735 (Cal. Ct. App. 4th Dist.1979) (usury exemptions and successor-in-interest analysis supporting exemptions)
- Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (Cal. 1999) (unfair competition law framework and test for unfairness)