| AJW Partners LLC v Itronics Inc. |
| 2009 NY Slip Op 09385 [68 AD3d 567] |
| December 17, 2009 |
| Appellate Division, First Department |
| AJW Partners LLC et al., Respondents, v Itronics Inc. etal., Appellants. |
—[*1] Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York (Thomas J. Fleming ofcounsel), for respondents.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered July 30, 2009,which granted plaintiffs' motion to dismiss seven of eight counterclaims and denied defendants'cross motion to dismiss the complaint, unanimously affirmed, with costs.
The parties entered into a complex financing arrangement, as set out in a securities purchaseagreement pursuant to which defendants issued callable secured convertible notes valued at theloan amount of $3.25 million. When, several years later, defendants refused to honor plaintiffs'exercise of stock conversion rights, plaintiffs brought this action for breach of contract. Inresponse, defendants interposed the subject counterclaims, alleging that plaintiffs violated theparties' agreement by short selling the stock of defendant Itronics Inc. and by engaging in marketmanipulation in order to maximize gains. Both parties moved to dismiss the others' claims.
The counterclaim alleging that the agreement allowed for a usurious rate of interest wasproperly dismissed, as the usury laws do not apply here. In general, corporations may notinterpose a usury defense, except for criminal usury as defined in Penal Law § 190.40(General Obligations Law § 5-521). General Obligations Law § 5-501 (6) (b),however, provides that penal usury laws do not apply where, as here, loans in excess of $2.5million are issued in one or more installments pursuant to a written agreement. The counterclaimalleging fraud was properly dismissed, as it is based on a mere general allegation that plaintiffsentered into the agreement with no intent to perform (see Laura Corio, M.D., PLLC v R. Lewin Interior Design, Inc., 49AD3d 411, 412 [2008]). The counterclaims alleging negligent misrepresentation and breachof fiduciary duty were properly dismissed, as there can be no fiduciary obligation in acontractual arm's length relationship between a debtor and note-holding creditor (see RiverGlen Assoc. v Merrill Lynch Credit Corp., 295 AD2d 274, 275 [2002]; SNS Bank v Citibank, 7 AD3d352, 354 [2004]). Here, the parties' agreement stated that they acted solely in arm's lengthcapacities and that plaintiffs were not fiduciaries of defendants. The counterclaims allegingconversion and breach of the implied covenant of good faith and fair dealing were properlydismissed, as they are based on a claim that plaintiffs had violated the parties' agreement by shortselling Itronics Inc.'s stock, and are thus duplicative of the remaining counterclaim allegingbreach of contract on that [*2]same ground (see Levi v Utica First Ins. Co., 12AD3d 256, 257-258 [2004]; Yeterian v Heather Mills N.V. Inc., 183 AD2d 493, 494[1992]). The counterclaim alleging breach of contract due to a purported violation of aprohibition against plaintiffs' acquiring beneficial ownership of more than 4.99% of ItronicsInc.'s common stock was properly dismissed, because, as made clear by defendants' filings withthe Securities and Exchange Commission, the prohibition prevented plaintiffs from holding morethan 4.99% of the corporation's stock at any one time, but permitted plaintiffs to convert and sellshares in excess of that percentage over the life of the loan so long as its actual holdingsremained below the conversion cap. Concur—Gonzalez, P.J., Mazzarelli, Nardelli, Acostaand RomÁn, JJ.