Complaint Fails to Allege Facts Supporting Special Relationship Exception to Usury Defense

On October 4, 2022, the First Department issued a decision in Kuriyan v. Schreiber, 2022 NY Slip Op. 05499, holding that a complaint failed to allege facts supporting the special relationship exception to a usury defense, explaining:

As pleaded in the verified complaint, the five loans to defendants for which plaintiff seeks to recover in this action were, on their face, criminally usurious and, as such, void and unenforceable. Further, the verified complaint fails, as a matter of law, to allege facts that, if true, could support a finding of a special relationship of trust and confidence between the parties estopping defendants from raising criminal usury as a defense. Plaintiff—a highly educated and sophisticated financier and investment professional, who holds a finance-related doctorate from Harvard University and has previously headed a unit at Bank of America that managed over $30 billion in assets—does not allege that defendant Schreiber’s knowledge and expertise in finance is in any way superior to that of plaintiff himself, nor does plaintiff allege that he relied upon any representation by Schreiber concerning the legality of the interest rates on the loans, or that Schreiber even made any such representation. While plaintiff averred in opposition to the motion to dismiss that Schreiber proposed the terms of the loans (contradicting the verified complaint’s allegations that the terms were negotiated between plaintiff and Schreiber), it is well established that, even if defendant drafted the note, that does not relieve the lender from a defense of usury.

That plaintiff allegedly considered Schreiber a personal friend, and had a longstanding professional relationship with him, does not, standing alone, suffice to allege a special relationship of trust and confidence for these purposes.

In sum, the motion court’s correct conclusion, in dismissing the claim for breach of fiduciary duty (from which plaintiff has not appealed), that the complaint describes an arm’s length commercial transaction that lacks the required level of trust or confidence to give rise to a fiduciary obligation, should have led the court also to reject plaintiff’s argument that defendants are estopped to assert the affirmative defense of usury. As previously noted, that defense, in the absence of grounds for application of the doctrine of estoppel, is dispositive, as a matter of law, based on the allegations of the verified complaint itself. Accordingly, the causes of action at issue on this appeal should have been dismissed.

(Internal quotations and citations omitted).

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