Emigrant Mortg. Co. v. Fitzpatrick

• Decision Date: 23 May 2012
• Parties: EMIGRANT MORTGAGE COMPANY, INC., appellant, v. Linda FITZPATRICK, also known as Linda J. Fitzpatrick, respondent, et al., defendants.
• Court: New York Supreme Court — Appellate Division

95 A.D.3d 1169

945 N.Y.S.2d 697

2012 N.Y. Slip Op. 03980

EMIGRANT MORTGAGE COMPANY, INC., appellant,

v.Linda FITZPATRICK, also known as Linda J. Fitzpatrick, respondent, et al., defendants.

Supreme Court, Appellate Division, Second Department, New York.

May 23, 2012.

Deutsch & Schneider, LLP, Glendale, N.Y. (Doris Barkhordar of counsel), for appellant.

Jeffrey Seigel, Hempstead, N.Y. (Michael Wigutow of counsel), for respondent.

DANIEL D. ANGIOLILLO, J.P., PLUMMER E. LOTT, SHERI S. ROMAN, and ROBERT J. MILLER, JJ.

In an action to foreclose a mortgage, the plaintiff appeals, as limited by its brief, from so much of an order of the Supreme Court, Suffolk County (Spinner, J.), dated August 11, 2010, as denied that branch of its motion which was for summary judgment dismissing the affirmative defenses of the defendant Linda Fitzpatrick, also known as Linda J. Fitzpatrick.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and that branch of the plaintiff's motion which was for summary judgment dismissing the affirmative defenses of the defendant Linda Fitzpatrick, also known as Linda J. Fitzpatrick, is granted.

The defendant Linda Fitzpatrick, also known as Linda J. Fitzpatrick (hereinafter Fitzpatrick), received an asset-based loan from the plaintiff, based upon the equity in her home. The plaintiff commenced this action after Fitzpatrick defaulted on her monthly repayments for the subject loan. In her verified answer, Fitzpatrick asserted, as a first affirmative defense, that the subject loan was unconscionable and, as a second affirmative defense, that the plaintiff engaged in deceptive business practices in violation of General Business Law § 349 when it issued the subject loan. The plaintiff moved, inter alia, for summary judgment dismissing these affirmative defenses, and the Supreme Court denied its motion. The plaintiff appeals, and we reverse the order insofar as appealed from.

“In general, an unconscionable contract has been defined as one which is so grossly unreasonable as to be unenforcible because of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonablyfavorable to the other party” ( King v. Fox, 7 N.Y.3d 181, 191, 818 N.Y.S.2d 833, 851 N.E.2d 1184;see Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10, 537 N.Y.S.2d 787, 534 N.E.2d 824;Simar Holding Corp. v. GSC, 87 A.D.3d 688, 689, 928 N.Y.S.2d 592;FGH Contr. Co. v. Weiss, 185 A.D.2d 969, 970–971, 587 N.Y.S.2d 415). This definition has been broken down into two elements: procedural and substantive unconscionability ( see Gillman v. Chase Manhattan Bank, 73 N.Y.2d at 10, 537 N.Y.S.2d 787, 534 N.E.2d 824;Simar Holding Corp. v. GSC, 87 A.D.3d at 689, 928 N.Y.S.2d 592;Gendot Assoc., Inc. v. Kaufold, 56 A.D.3d 421, 423, 866 N.Y.S.2d 361;Matter of Friedman, 64 A.D.2d 70, 84–85, 407 N.Y.S.2d 999).

“Substantive elements of unconscionability appear in the content of the contract per se; procedural elements must be identified by resort to evidence of the contract formation process” and meaningfulness of the choice (Matter of Friedman, 64 A.D.2d at 85, 407 N.Y.S.2d 999;see Gillman v. Chase Manhattan Bank, 73 N.Y.2d at 10–11, 537 N.Y.S.2d 787, 534 N.E.2d 824;Simar Holding Corp. v. GSC, 87 A.D.3d at 689, 928 N.Y.S.2d 592). “ ‘Examples of unreasonably favorable contractual provisions are virtually limitless but include inflated prices, unfair termination clauses, unfair limitations on consequential damages and improper disclaimers of warranty’ ” ( Simar Holding Corp. v. GSC, 87 A.D.3d at 690, 928 N.Y.S.2d 592, quoting State of New York v. Wolowitz, 96 A.D.2d 47, 67–68, 468 N.Y.S.2d 131;see Matter of Friedman, 64 A.D.2d at 85, 407 N.Y.S.2d 999). With respect to procedural unconscionability, examples include, but are not limited to, “ ‘high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance in the understanding and acumen of the parties' ” ( Simar Holding Corp. v. GSC, 87 A.D.3d at 689–690, 928 N.Y.S.2d 592, quoting State of New York v. Wolowitz, 96 A.D.2d at 67, 468 N.Y.S.2d 131;see Gillman v. Chase Manhattan Bank, 73 N.Y.2d at 10–11, 537 N.Y.S.2d 787, 534 N.E.2d 824;Matter of Friedman, 64 A.D.2d at 85, 407 N.Y.S.2d 999). “[I]n general, it can be said that procedural and substantive unconscionability operate on a ‘sliding scale’; the more questionable the meaningfulness of choice, the less imbalance in a contract's terms should be tolerated and vice versa” ( State of New York v. Wolowitz, 96 A.D.2d at 68, 468 N.Y.S.2d 131, quoting Eddy, On the “Essential” Purposes of Limited Remedies: The Metaphysics of UCC Section 2–719[2], 65 Cal. L. Rev. 28, 41–42, n. 56; see Simar Holding Corp. v. GSC, 87 A.D.3d at 690, 928 N.Y.S.2d 592).

“ ‘The determination of unconscionability is a matter of law for the court to decide’ ” ( Simar Holding Corp. v. GSC, 87 A.D.3d at 690, 928 N.Y.S.2d 592, quoting Industralease Automated & Scientific Equip. Corp. v. R.M.E. Enters., 58 A.D.2d 482, 488, 396 N.Y.S.2d 427;see Laidlaw Transp. v. Helena Chem. Co., 255 A.D.2d 869, 870, 680 N.Y.S.2d 365;State of New York v. Wolowitz, 96 A.D.2d at 68, 468 N.Y.S.2d 131). “Where the significant facts germane to the unconscionability issue are essentially undisputed, the court may determine the issue without a hearing” ( Scott v. Palermo, 233 A.D.2d 869, 870, 649 N.Y.S.2d 289;see Simar Holding Corp. v. GSC, 87 A.D.3d at 690, 928 N.Y.S.2d 592).

Here, the plaintiff lender proffered documentary evidence establishing that Fitzpatrick, the defendant borrower, was fully informed as to the terms of the subject asset-based loan, and, in particular, was aware of the fact that the plaintiff would not be independently verifying her income before issuing the subject loan. Specifically, the plaintiff submitted copies of the mortgage and note, as well as a resource letter and high-equity loan certificate, which informed Fitzpatrick that the subject loan was being issued based primarily upon the equity in her home, her annual income would not be verified by the plaintiff, and the plaintiff was relying upon Fitzpatrick's representations as to her ability to repay the subject loan. Fitzpatrick signed each document. In opposition, Fitzpatrick set forth no evidence regarding her education, financial status, or access to legal or financial counsel, the availability of other types of loans or loans of a lesser amount, or any deception or high pressure tactics utilized by the plaintiff. Moreover, she did not offer evidence relating to the industry standards for residential loans at the time the subject loan was issued. In addition, the plaintiff correctly notes that, contrary to the Supreme Court's determination that the plaintiff's possible violations of the restrictions and limitations placed on subprime and high-cost loans by the Banking Law create a triable issue of fact on the issue of unconscionability, the subject loan, issued on April 9, 2008, does not fall under the purview of Banking Law § 6–m(4), which applies only to subprime and high-cost loans issued on or after...