Court of Appeals Accepts Certified Questions Relating to Usury

On June 23, 2020, the Court of Appeals accepted two pairs of certified questions--one from the United States Court of Appeals for the Second Circuit and one from the United States Court of Appeals for the Ninth Circuit--regarding New York's usury laws.

In Fast Trak Investment Company, LLC, &c. v Richard Philip Sax, et al., the Ninth Circuit certified the following questions to the Court of Appeals:

Whether a litigation financing agreement may qualify as a ‘loan’ or a ‘cover for usury’ where the obligation of repayment arises not only upon and from the client’s recovery of proceeds from such litigation but also upon and from attorney’s fees the client’s lawyer may recover in unrelated litigation?

If so, what are the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified?

In Adar Bays, LLC v GeneSYS ID, Inc., the Second Circuit certified the following questions to the Court of Appeals:

1. Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates N.Y. Penal Law § 190.40, the criminal usury law.

2. If the interest charged on a loan is determined to be criminally usurious under N.Y. Penal Law § 190.40, whether the contract is void ab initio pursuant to N.Y. Gen. Oblig. Law § 5-511.