Steenstrup v. Araiz

• Decision Date: 10 January 2023
• Docket Number: Index No. 654746/2021,Motion Seq. No. 002
• Citation: 2023 NY Slip Op 30173 (U)
• Parties: TIM STEENSTRUP, Plaintiff, v. J. MICHAEL ARAIZ, Defendant.
• Court: New York Supreme Court

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2023 NY Slip Op 30173(U)

TIM STEENSTRUP, Plaintiff, v. J. MICHAEL ARAIZ, Defendant.

Index No. 654746/2021, Motion Seq. No. 002

Supreme Court, New York County

January 10, 2023

Unpublished Opinion

PART 36

DECISION + ORDER ON MOTION

HON VERNA L. SAUNDERS, JSC

The following e-filed documents, listed by NYSCEF document number (Motion 002) 19, 20, 21, 22,23,24, 25, 26, 27, 28, 29, 30 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 47 48, 49, 50, 51, 52, 53 were read on this motion to/for VACATE.

In this action to recover on a promissory note, defendant moves by order to show cause for an order, pursuant to CPLR 5015(a)(1) and (3), to vacate the default judgment entered against him and upon granting vacatur, for summary judgment dismissing plaintiffs complaint. Defendant also moves to disqualify plaintiffs counsel, non-party James J. DeCristofaro ("DeCristofaro") (NYSCEF Doc. No. 44, OSC).

In September 2019, defendant approached DeCristofaro about arranging a personal loan for him (NYSCEF Doc. No. 21, defendant aff, ¶3). DeCristofaro had represented defendant in real estate and legal matters, and they were friends (id.). DeCristofaro arranged for a loan from plaintiff, who was another of DeCristofaro's clients and friends (id, ¶¶ 3-4; NYSCEF Doc. No. 37, defendant aff Ex 16 at 2). By e-mail to DeCristofaro on September 27, 2019, plaintiff proposed the terms for the $50,000.00 loan; these terms included a signed promissory note and confession of judgment from defendant, a 35% annualized return, and a provision that "[defendant] pays your legal in drawing it up and he also covers legal if there is some problem and he doesn't pay me back. It's agreed you will be my attorney in both events (not his)" (NYSCEF Doc. No. 26, defendant aff, Ex 5). DeCristofaro forwarded plaintiffs e-mail to defendant, who responded that same day and wrote, "I am fine with the terms" and "[i]s it possible to make it a 60k loan" (NYSCEF Doc. No. 27, defendant aff Ex 6 at 1-2).

In a letter dated September 30, 2019 to plaintiff and defendant on the subject "WAIVER OF CONFLICT OF INTEREST," DeCristofaro disclosed the nature of his attorney-client relationships with each of them (NYSCEF Doc. No. 42, DeCristofaro affirmation, Ex B at 1 [Conflict Waiver]) (emphasis omitted). The Conflict Waiver reads, in part, as follows:

"Tim asked that I represent Tim in the preparation of the loan and consulting documentation (the 'Documentation'), and in the event of any default under the Documentation. Michael is not represented by counsel in the preparation of the Documentation, and Michael specifically acknowledges, understands, and agrees that I am not Michael's attorney in the preparation of the Documentation, and that I am Tim's attorney. As Tim's attorney, I am required by the rules of professional responsibility to act in Tim's best interests, which may not be Michael's best interests.

Also, as Michael's attorney in other matters, I may have access to Michael's confidential information, including the location of assets relevant for the securing of the loan from Tim. However, since Michael has freely disclosed these assets to Tim, the information is not confidential in a manner that would hinder my representation of Tim here in a manner adverse to Michael, whether in the context of drafting the Documentation, or enforcing the Documentation in the event of a default.

Regardless, I have disclosed the nature of my attorney client relationship to both of you, and by signing below, you hereby acknowledge and agree to waive any actual or potential future conflict arising out of my representation in connection with the drafting or the enforcement of the Documentation"

(id). Both parties signed the Conflict Waiver^[1] (id. at 2).

Defendant signed a promissory note ("Note"), dated September 30, 2019, in favor of plaintiff, which was secured by a lien and security interest on defendant's real and personal property to be memorialized in a separate security agreement^[2] (NYSCEF Doc. No. 30, defendant aff Ex 9 at 1). Pursuant to the Note's terms, defendant agreed to repay the principal balance of $60,000.00 within six months of September 30, 2019, or by the March 31, 2019 [sic] maturity date, with interest calculated at 25% per annum (id.). The Note provided that "[defendant] waives the defense of civil usury" (id.). Additionally, defendant agreed to pay plaintiffs legal fees, specifically a "flat attorney fee of $2,500" to DeCristofaro in connection with his drafting and reviewing the Note and the security agreement, with such fee to be paid to DeCristofaro directly or added to the balance on the Note (id. at 2). In the event of a default in payment of the principal balance and interest when due, plaintiff was entitled to recover from defendant the court costs, attorneys' fees, disbursements and related expenses he incurred in connection with collecting on the Note (id. at 2-3). Defendant also executed an affidavit of confession of judgment for $60,000.00, plus $2,500.00 in attorneys' fees, in favor of plaintiff (NYSCEF Doc. No. 32, defendant aff, Ex 11 at 1).

Plaintiff and defendant executed a separate consulting agreement dated September 30, 2019 ("Consulting Agreement") for plaintiff to review and evaluate a proposal for a project defendant was involved with (NYSCEF Doc. No. 31, defendant aff Ex 11). Under the Consulting Agreement, defendant agreed to pay plaintiff an initial fee of $12,000.00 and $500.00 every month thereafter until the agreement was terminated (id). Defendant executed a separate affidavit of confession of judgment for "Sixty Thousand Dollars and Zero Cents ($12,000.00), plus $500.00 per month after September 30, 2019" related to this agreement (NYSCEF Doc. No. 33, defendant aff, Ex 12).

On March 31, 2020, DeCristofaro forwarded an e-mail to defendant that he had received from plaintiff, who had asked DeCristofaro for an update as to when defendant would repay the Note and for a closing date on the sale of defendant's East Hampton home^[3] (NYSCEF Doc. 34, defendant aff Ex 13). Defendant avers that he spoke to DeCristofaro to advise him that the loan would be repaid when the home was sold (NYSCEF Doc. No. 21, 113).

When defendant failed to make any repayments, plaintiff filed a summons for summary judgment in lieu of a complaint to recover the balance due on the Note. Plaintiff filed the summons on August 3, 2021 (NYSCEF Doc. No. 1), and personally served defendant with process on August 11, 2021 at 1:09 P.M. at 800 Fifth Avenue, Apartment 33E, New York, New York 10065 (NYSCEF Doc. No. 50, DeCristofaro aff, ¶12 NYSCEF Doc. No. 9). In a decision and order dated December 10, 2021, this court granted plaintiffs motion, without opposition, and directed the Clerk of the Court to enter judgment against defendant for $112,500.00, together with costs and disbursements (NYSCEF Doc. No. 23). Plaintiff subsequently served a restraining notice and information subpoena upon an attorney who represented defendant in an unrelated real estate matter (NYSCEF Doc. No. 21, ¶ 2).

Defendant now moves to vacate the default judgment on the grounds that he has a reasonable excuse and a meritorious defense and that there was a fraud, misrepresentation or other misconduct perpetrated by plaintiff and DeCristofaro. In support of the motion, defendant relies on his affidavit, the Note, the Conflict Waiver and email correspondence with plaintiff and DeCristofaro, among other exhibits.

Defendant attributes his default to his confusion over which party DeCristofaro represented, or wished to represent, in this action. Defendant maintains that, notwithstanding the Conflict Waiver, DeCristofaro had offered to represent him in two solicitation letters he had received.^[4] Defendant avers that when he received the first letter in July or August 2021, he had no idea that DeCristofaro was representing plaintiff (NYSCEF Doc. No. 21, ¶ 14). Defendant states that he received this letter before he was served with process on August 11, 2021^[5] (id., ¶ 15). When he spoke to DeCristofaro on or around August 11, "DeCristofaro may have told me that a 'motion' was filed," which prompted him to write the following to DeCristofaro on August 17: "Long time no speak. I guess we need to discuss the motion you filed?" (id.; NYSCEF Doc. No. 35, defendant aff Ex 14). DeCristofaro responded on August 25 and included the motion papers as an attachment (NYSCEF Doc. No. 36, defendant aff Ex 15), which defendant believed was unnecessary if the papers had already been served (NYSCEF Doc. No. 21, ¶ 15). Defendant adds that DeCristofaro mentioned resolving the dispute "consensually" in his e-mail, but "DeCristofaro knew very well that I did not have another attorney because DeCristofaro himself was my attorney!" (id). Defendant avers that after he received the August 25 e-mail, he believed "the matter was on hold until [the] Hampton's house was sold" (id.). Then, on September 7, 2021, DeCristofaro mailed plaintiff a second solicitation letter (NYSCEF Doc. No. 38, defendant aff Ex 17 at 5), which "reinforced" defendant's belief that the "matter was on hold" (NYSCEF Doc. No. 21, ¶ 15). As for a meritorious defense, defendant contends that the Note is usurious on its face as the interest rate per annum exceeds the 16% interest rate for civil usury and exceeds the 25% interest rate for criminal usury, as the $2,500.00 in legal fees paid to DeCristofaro must be considered additional consideration for the loan.

Defendant also moves to vacate his default based on plaintiffs and DeCristofaro's misconduct in carrying out a criminally usurious scheme, and on DeCristofaro's misconduct in representing both parties in an illegal transaction. Because the Note is usurious, he seeks summary judgment...