Civil Court of the City of New York, Bronx County, July 17, 2023

Relin, Goldstein & Crane LLP, Rochester (Shelly Baldwin of counsel), for plaintiff.

Jacqueline Holness, defendant pro se.

The decision/order of the court is as follows:

The instant motion by plaintiff to strike defendant's answer and for summary judgment seeking the remaining balance of a 2018 retail instalment contract financing defendant's purchase of an automobile is denied, and the court instead grants summary judgment to defendant dismissing this action pursuant to CPLR 3212 (b).

CPLR 3212 (b) provides that "[i]f it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion." (Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 110 [1984].) "Thus, under CPLR 3212(b) the court may, in its discretion, search the record and grant summary judgment to" a nonmoving party, such as defendant in the instant action. (West 152 Assoc., LP v Gassama, 65 Misc 3d 1218[A], 2019 NY Slip Op 51721[U], *5 [Civ Ct, NY County 2019].) The court need not provide notice to the parties that it intends to search the record. (See 205 W. 147th St., LLC v Daub, NYLJ, Nov. 14, 2018 at 30, 2018 NYLJ LEXIS 3753, *13 [Civ Ct, NY County, Oct. 12, 2018] [collecting authorities].) Here, notwithstanding that defendant did not submit written opposition to the instant motion, nor file any cross-motion, the court's review of the papers reveals a loan agreement that insidiously violates the clear public policy of New York to protect New Yorkers from usurious lenders through the sham use of a retail instalment contract to charge illegally high interest, and cannot be enforced in a New York court.^[FN1] Accordingly, [*2]plaintiff has not (and indeed cannot) establish a claim for which relief can be granted.{**80 Misc 3d at 348}

The Contract and Proceedings in This Action

According to plaintiff, "[t]he parties entered into a Retail Installment Contract on or about September 14, 2018 for the purchase of a 2012 Mercedes-Benz C Class." (Plaintiff's statement of facts ¶ 3.) "The terms of the Contract called for a 22.99% annual percentage rate ('APR') on the amount financed of $15,844.87, resulting in . . . sixty (60) consecutive monthly payments of $446.58," commencing on October 14, 2018. (Aff of Sandi Ostler in support ¶ 5 & exhibit B.)^[FN2] With interest and fees, the total cost of the vehicle—which had 113,464 miles on it when sold—was $29,294.80, from a cash sale price of $14,400.00. (Ostler aff in support, exhibit B.)

Defendant soon fell behind in making payments, and plaintiff repossessed the vehicle on or about November 16, 2021. (Ostler aff in support, exhibit C.) Plaintiff subsequently notified defendant that it intended to sell the vehicle by notice dated December 12, 2021, and did so by selling the vehicle at auction (for $4,500.00) on January 28, 2022. (Ostler aff in support, exhibits C, D.) Plaintiff then sought the alleged remaining balance of the loan and associated fees from defendant, and later commenced the instant action. (Ostler aff in support ¶¶ 9-12.)

Defendant answered the complaint in person at the clerk's office, asserting a general denial and what plaintiff asserts are six affirmative defenses: (1) lack of service; (2) denying owing the debt sought; (3) contesting the amount of the debt; (4) unjust enrichment; (5) unconscionability; and (6) a combined affirmative defense asserting that the vehicle was defective as sold (also known as a "lemon") and that defendant was {**80 Misc 3d at 349}unemployed due to recent surgery.^[FN3] (Answer; affirmation of Shelly Baldwin in support ¶ 6.) There is no indication in the record before the court that any discovery was sought or conducted, and plaintiff filed the instant motion on January 17, 2023. Defendant did not submit written opposition, and the court took the motion on submission.

Usury Laws in New York and Retail Instalment Contracts

"Statutes prohibiting usurious loans were enacted in 15th century England, became part of New York's colonial history, and have remained since." (Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 740 [1992].) "As early as 1717 the lawmaking body of the Colony [of New York] passed an act against usury," which "was in substance re-enacted in 1737," and "avoided usurious contracts and obligations, and imposed upon the lender a penalty or forfeiture." (Curtiss v Teller, 157 App Div 804, 810-811 [4th Dept 1913].) "After the Colony became a State, and in 1787, an act was passed which retained the essential provisions of the colonial act," and "[t]his principle has long been acknowledged, and acted upon in courts" of the state. (Id.) The state's usury laws are designed "to protect desperately poor people from the consequences of their own desperation." (Seidel at 740.) For all relevant times to the instant action, the maximum interest generally chargeable in New York is 16% per annum. (See General Obligations Law § 5-501 [1]; Banking Law § 14-a.)^[FN4] Usurious contracts are void by statute. (See General Obligations Law § 5-511.) The parties actively adopted New York law in a choice-of-law clause in the contract.{**80 Misc 3d at 350}

An exception to New York's usury laws exists for "retail instalment contracts," a specific type of sales agreements established by the Motor Vehicle Retail Instalment Sales Act, codified as Personal Property Law § 301 et seq. As defined by Personal Property Law § 301 (5), a retail instalment contract is

"an agreement, entered into in this state, pursuant to which the title to, the property or a security interest in or a lien upon a motor vehicle, which is the subject matter of a retail instalment sale, is retained or taken by a retail seller from a retail buyer as security, in whole or in part, for the buyer's obligation."

A "[r]etail seller" is defined as a person or entity "who sells a motor vehicle to a retail buyer under or subject to a retail instalment contract," who may then sell the interest in the contract to a "[f]inancing agency," which is defined in relevant part as someone who is "engaged, in whole or in part, in the business of purchasing retail instalment contracts from one or more retail sellers." (Personal Property Law § 301 [3], [9].) Retail instalment contracts may provide for interest at any rate "agreed to by the retail seller and the buyer." (Personal Property Law § 303 [1].) A willful violation of the procedures governing retail instalment contracts "shall bar . . . recovery of any credit service charge [i.e., interest], delinquency or collection charge or refinancing charge on the retail instalment contract involved," however, and violations can also be punished as an unclassified misdemeanor. (Personal Property Law § 307 [1], [2].)

There is no basis to strike defendant's answer, which preserved a usury defense.

Although plaintiff disagrees with defendant's pleadings in the answer, "the CPLR does not provide for the striking of improper denials," and that is not itself a basis to strike them as plaintiff seeks. (Gilberg v Lennon, 193 AD2d 646, 646 [2d Dept 1993].) However, even construing the instant motion as seeking summary judgment based upon dismissal of affirmative [*3]defenses, plaintiff's papers do not support granting it summary judgment. Even if defendant's first, second, third, fourth, and sixth affirmative defenses could be dispensed with in plaintiff's favor upon summary judgment, defendant's fifth affirmative defense—unconscionability—cannot.

Although defendant does not expressly plead usury as an affirmative defense, and "since at least 1853, it has been held that the defense of usury is personal to the defendant and may{**80 Misc 3d at 351} be waived," that does not conclude the question. (Merchant Funding Servs., LLC v Realtime Carriers, LLC, 2017 NY Slip Op 33542[U], *4 [Sup Ct, Rockland County, July 7, 2017] [collecting authorities and finding that defense had been waived].) A usurious loan agreement under New York law "constitutes an agreement with terms unreasonably favorable . . . sufficient to satisfy the requirement of substantive unconscionability." (In re GMI Group., Inc., 606 BR 467, 499 [ND Ga 2019] [internal quotation marks omitted].) Here, where defendant expressly pleaded unconscionability as an affirmative defense, defendant provided plaintiff sufficient notice of defendant's intent to rely upon that defense. As a consequence, defendant's fifth affirmative defense of unconscionability is live and, as discussed below, compelling.

The contract is a sham retail instalment contract.

While the subject contract is ostensibly between defendant auto buyer and nonparty auto seller C&M Auto Sales Group initially, only to be allegedly "subsequently" assigned to plaintiff—and thus exempt from New York's usury limits—courts have recognized the need to carefully review and scrutinize purported retail instalment contracts. (See e.g. Sheffield Commercial Corp. v Clemente, 792 F2d 282, 286 [2d Cir 1986] [noting "the strong public interest in enforcement of the (Motor Vehicle Retail Instalment Sales) Act"].) This includes scrutiny to guard against the use of shams or cutouts, as "[w]hile retail installment contracts are transferable . . . that presumes that the original transaction between the buyer and seller is a real payment agreement between those parties and not merely a vehicle for a third-party financing company to avoid the usury laws." (Capitol Discount Corp v Rivera, 38 Misc 3d 1226[A], 2013 NY Slip Op 50286[U], *6 [Civ Ct, Kings County 2013].) The contract plaintiff seeks to enforce does not even come close to surviving such scrutiny, and "[a]nalysis of the transaction leads to the conclusion that rather than being an agreement subject to a time-price equalization standard which forms the basis of the Personal Property Law, it is in fact a sham financial arrangement designed to avoid New York's usury laws." (Ford Motor Credit Co. LLC v Black, 27 Misc 3d 1211[A], 2010 NY Slip Op 50680[U], *6 [Civ Ct, Richmond County 2010] [internal quotation marks omitted].)

"It does not take careful and perceptive analysis to understand such a threat because this wolf comes as a wolf." (Bullock v United States Bur. of Land Mgt., 489 F Supp 3d 1112, 1129{**80 Misc 3d at 352} [D Mont 2020] [internal quotation marks and citation omitted] [discussing implications of defendant's position in granting summary judgment].) The subject contract itself (ostensibly between defendant and nonparty C&M Auto Sales Group) is a five-page preprinted form labeled as a "New York Credit Acceptance Corporation (11-16)" form, bearing a copyright mark and reservation of rights by plaintiff Credit Acceptance Corporation on the bottom of every page. (Ostler aff, exhibit B.) Further, although the identified seller in the contract (Ostler aff, exhibit B at 1) is nonparty C&M Auto Sales Group with an address in Bronx County, the contract itself includes (at page 4) preprinted language immediately assigning the contract to plaintiff, and (at page 5) an extensive arbitration clause specifically detailing an arbitration scheme between plaintiff and defendant. Not a single payment pursuant to the agreement was scheduled to be [*4]made to C&M Auto Sales Group. (Ostler aff, exhibit B at 1, 4.) Additionally, despite the contract ostensibly being between defendant and C&M Auto Sales Group in the Bronx, all notices under the arbitration clause are preprinted to be noticed to a post office box in Southfield, Michigan (the location of plaintiff, not C&M Auto Sales Group), and the arbitration clause contains a provision stating that "[i]t is expressly agreed that this Contract evidences a transaction in interstate commerce," and that the arbitration clause will be interpreted pursuant to the terms of the Federal Arbitration Act rather than state law. (Ostler aff, exhibit B at 5.) Indeed, unlike the definitions section in page 1 of the contract, the parties to the subject contract are identified in page 5 to expressly include plaintiff. (Ostler aff, exhibit B at 1, 5.) Notably, that express inclusion is preprinted in a form contract to which plaintiff was ostensibly not yet a party.

In using a preprinted contract form created and copywritten by plaintiff, with a preprinted arbitration clause featuring an opt-out procedure requiring notice to plaintiff and stipulating that the contract reflected "a transaction in interstate commerce," despite being executed in Bronx County and ostensibly between a resident of Bronx County and a car dealership located in Bronx County, it does not take long to see the parties' contract for what it is. What little effort plaintiff made to "clad, so to speak, in sheep's clothing," the contract it now seeks to enforce is quite transparent, and while plaintiff may have attempted to disguise the contract as initially between a local merchant and its customer, that attempted veneer of legality{**80 Misc 3d at 353} does not change the character of the contract. (ASARCO, LLC v Union Pac. R.R. Co., 762 F3d 744, 749 [8th Cir 2014] [citation omitted].) To the extent C&M Auto Sales Group was a party to the agreement underlying the contract at all, it was at best as a pass-through specifically intended for the express purpose of qualifying for an exemption from New York's usury limits, in a similar manner to the use of fronts or cutouts in other industries. (See e.g. United States v Kousisis, 66 F4th 406, 411 [3d Cir, Apr. 21, 2023] [discussing use of pass-through front companies to obtain contract terms available for disadvantaged business enterprises].) As if to remove all doubt, plaintiff's own moving papers state that "the parties [without any mention of C&M Auto Sales Group] entered into" the contract. (Plaintiff's statement of facts ¶ 3.)

Further, to the extent the court has discretion as to whether plaintiff would merely be precluded from recovery of any finance charges (i.e., interest) pursuant to Personal Property Law § 307 rather than rendering the entire agreement void pursuant to General Obligations Law § 5-511, the egregious facts presented support voiding the agreement ab initio.^[FN5] (Ford Motor Credit Co., 2010 NY Slip Op 50680[U], *7.) New York has been unequivocal that "a party . . . cannot ask a court of law to help him carry out his illegal object," which is the precise relief plaintiff now seeks. (Braunstein v Jason [*5]Tarantella, Inc., 87 AD2d 203, 207-208 [2d Dept 1982], quoting Stone v Freeman, 298 NY 268, 271 [1948].) Moreover, plaintiff admits having received more than the total finance charge as agreed prior to instituting this action, including through repossession and sale of the vehicle. (Ostler aff ¶¶ 8, 11 & exhibit B at 1.) Under either theory, there is no mechanism by which plaintiff could obtain relief.{**80 Misc 3d at 354}

Accordingly, it is ordered that plaintiff's motion for an order striking defendant's answer and granting plaintiff summary judgment in this action is denied, and it is further ordered, pursuant to CPLR 3212 (b), that the clerk enter judgment in favor of defendant dismissing this action.