Payment to Defendant Conclusively Not a Loan When Documentary Evidence Showed That It Was Actually Returned Equity

On December 14, 2023, Justice Andrew Borrok of the New York County Commercial Division issued a decision in JDS Fourth Avenue JC II LLC, et al. v. Largo 613 Baltic Street Partners LLC, Index No. 651948/2020, granting defendants' motion for summary judgment and dismissing plaintiffs' claim for breach of an oral loan agreement, explaining:

The documentary evidence also establishes that the Payment to Largo was not a loan. In the April 2022 Decision, the Court declined to dismiss the cause of action for breach of oral contract because the emails attached on the motion did not conclusively refute the Plaintiffs’ allegations as a matter of law that the Payment was intended to be a loan (NYSCEF Doc. No. 97, at 4). Specifically, the Court held that the emails did not provide sufficient context for the Court to determine whether there were additional oral terms agreed upon by the parties for Largo to pay back the Payment at some future point (id.). Now, on the fully developed record, the Defendants have established their entitlement to summary judgment dismissing the cause of action for breach of oral contract. The Defendants adduce an email dated May 17, 2018 from Mr. Stern to Nissim Ben-Nun in which he refers to the Payment as a distribution of returned equity:

We received you wire instructions and request for a distribution of $925,119.39 of returned equity, which we accept as your acknowledgment and confirmation of your agreement with the distribution calculations distributed yesterday. Please confirm and upon receipt we will initiate the distribution

(NYSCEF Doc. No. 155). The Payment was then made by wire transfer, as confirmed in an email from Mr. Stern to Mr. Ben-Nun dated the same day, from the Property Owner LLC to Largo in the amount of $925,119.39, and the transaction details stated: “FOURTH AVE LLC EQUITY DISTR” (NYSCEF Doc. No. 156). Kenneth Yormark, an expert retained by Largo in this matter, analyzed the Property Owner’s general ledger and testified that (i) the Property Owner recorded the Payment as a distribution, an decrease in Largo’s equity account, not an increase in a liability account, (ii) a loan would have been recorded on JDS Developer’s books and records and not on the Property Owner’s general ledger, and (iii) numerous documents he was provided with demonstrated that the Payment was treated as a distribution (NYSCEF Doc. No. 161, ¶¶ 27-31). The Payment was also treated as a distribution and not a loan by Largo in its 2018 tax return (NYSCEF Doc. No. 130). Accordingly, the Defendants have come forward with sufficient evidence to demonstrate their entitlement to judgment on this issue. In response, the Plaintiffs have failed to produce any documentary evidence to demonstrate an issue of fact and rely solely on the self-serving testimony of Mr. Stern. Even Mr. Byrd, Mr. Stern’s expert conceded (tr at 13, lines 8-9 [NYSCEF Doc. No. 212]) that the basis for suggesting that the Payment was a loan was based solely on Mr. Stern’s deposition testimony:

Q. So what about the records supports the view that this was a loan as opposed to something else?

A. It is consistent with Mr. Stern’s deposition that he lent money from JDS Developer to Largo.

Q. Okay. So you’re basing your conclusion of the consistency of the records with a loan based on Mr. Stern’s deposition, correct?

A. Yes.

Q. Anything else?

A. No

(id., at 99-100, lines 16-4). This is insufficient to raise a triable issue of fact (Caraballo v Kingsbridge Apt. Corp., 59 AD3d 270, 270 [1st Dept 2009]).

While conflicting testimony on a material factual issue will often be sufficient for a plaintiff to defeat summary judgment, as this case shows, that may not be the case when the documentary evidence contradicts the plaintiff's testimony. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning moving for, or defending against, a summary judgment motion.