[*1]Decided on February 1, 2010

Alpha Capital Anstaltand Osher Capital, Inc., Plaintiffs, against Qtrax, Inc. and Allan Klepfisz, Defendants.

602256-09



Attorney for Plaintiff:

Kenneth A. Zitter

260 Madison Ave.

New York, NY 10016

(212) 532-8000

Judith J. Gische, J.

This is an action by plaintiffs, Alpha Capital Anstalt ("Alpha") and OsherCapital, Inc. ("Osher") against defendants Qtrax, Inc. ("Qtrax") and Allan Klepfisz ("Klepfisz")in connection with an agreement made relating to a prior money judgment awarded to plaintiffs.Klepfisz is the president and CEO of Qtrax. The court presently has before it the plaintiffs'motion for summary judgment in lieu of a complaint. CPLR § 3213. The motion is opposedby defendants, who argue that the motion should be denied and this case converted into aconventional action.

Applicable Law

Where an action is commenced under CPLR § 3213, the instrument upon which it isbased must be for the payment of money only. An instrument for the payment of money onlyexists if plaintiff can show a prima facie case just by proof of the instrument and that there is afailure to make payments called for by its terms. Seaman-Andwall Corp. v. Wright Mach.Corp., 31 AD2d 136 (1st Dept. 1968). An unconditional guaranty is an instrument for thepayment of money only, whether or not it recites a sum certain.European Am. Bank v.Cohen, 183 AD2d 453, 453 (1st Dept 1992). Although the need to consult the underlyingloan documents to establish the amount of liability does not affect the availability of CPLR§ 3213 [European Am. Bank v. Cohen, supra], to establish its primafacie case against guarantor, the lender must set forth the notes, an unconditional guaranty topay, and nonpayment thereof. Bank Leumi Trust Co. of New York v. Rattet & Liebman,182 AD2d 541 (1st Dept 1992). To defeat the motion, the guarantor must come forward withproof showing the existence of a triable issue of fact with respect to a bona fide defense.Bank Leumi Trust Co. of New York v. Rattet & Liebman, 182 AD2d at 542. [*2]

Arguments Presented

On May 1, 2009, this Court entered a prior judgment awarding Alpha $468,921.64 andawarding Osher $85,558.15 against Brilliant Technologies Corporation ("BTC" or "Brilliant")and LTD Networks, Inc. ("LTD"). Alpha Capital Anstalt, et al. v. Brilliant Tech. Corp., etal. (Sup. Ct. NY County. 603243/08). BTC and LTD subsequently entered into an electronicagreement (the "Agreement") with plaintiffs, on June 1, 2009, in which plaintiffs agreed toforbear in their attempts to collect on the judgments until June 22, 2009, at which time BTC andLTD were to pay the judgments in full. In exchange for the forebearance, Qtrax agreed to pay thejudgment and Klepfisz agreed he would personally guaranty the judgment.

It is undisputed that the terms of the Agreement were set forth in the May 26, 2009 emailfrom Kenneth Zitter, attorney for plaintiffs, addressed to Wallace Neel, attorney for defendants,and the June 1, 2009 reply of Allan Klepfisz. The two emails constituting the parties' Agreementprovides as follows:

May 26, 2009 email:

"1. Brilliant will wire transfer the sum of $500,487.24 to arrive in the Kenneth A. Zitterspecial account on or before June 22, 2009, with time of the essence . . . .

2. Brilliant will issue and deliver to plaintiffs, prior to close of business on June 1, 2009,with time of the essence, 35 million shares of Qtrax stock . . . . In the event all of the funds arenot timely paid, Alpha Capital and Osher Capital may retain all of the shares as liquidateddamages for their forebearance [sic] in collecting on their judgments. . . . In the event Brilliantpays all funds timely, then Alpha Capital shall return the certificate for 25,000,00 shares but mayretain the certificate for 4,150,000 shares and Osher Capital shall return the certificate for5,000,000 shares but may retain the certificate for 850,000 shares.

3. Provided Brilliant is not in default hereunder, Plaintiffs shall forebear in attempting tocollect on the judgments. . . .

4. Regardless of whether or not Plaintiffs perform under this agreement, and in considerationof Plaintiffs entering into this agreement, Allan Klepfisz hereby personally guarantees toplaintiffs the full payment (not collection) of the judgments entered on May 1, 2009. . . .Klepfisz's email acceptance of this agreement shall constitute his written signature to thispersonal guaranty."

June 1, 2009 email from Allan Klepfisz:

"I, Allan Klepfisz, hereby agree to the terms below. The shares will be issued forthwith."

Defendants do not dispute that this agreement binds Qtrax and Klepfisz personally. BTC andLTD failed to pay the remaining balance of the judgments, $500,487.24, by June 22, 2009, ashad been agreed. BTC and LTD requested extensions of the forbearance period to June 29, 2009and then to July 9, 2009. Plaintiffs agreed to these two extensions, without any conditions. BTCand LTD requested yet another extension. This time, plaintiffs agreed to grant the extension todefendants on condition that BTC and LTD wire the sum of $50,000 to plaintiffs' specialaccount. Defendants agreed and had the check delivered to Plaintiffs on July 1, 2009. That [*3]payment was returned for insufficient funds.

Plaintiffs argue that BTC and LTD did not pay the money judgments obtained in the prioraction and that, in accordance with the Agreement between plaintiffs and defendants, AllanKlepfisz and Qtrax are responsible to pay plaintiffs the amount of $500,487.24 plus interest fromJune 22, 2009, attorneys' fees, and costs and disbursements.

Defendants state that Qtrax is a private start-up company that provides a free and legal musicdownloading service. Defendants submit that Qtrax has experienced typical start-up companyissues, but that it is emerging in the global market, specifically in Asia, and that the currentlawsuit by Alpha and Osher are imperiling its success.

Furthermore, defendants argue that plaintiffs' demand for 35 million shares of Qtrax stock,worth $0.50 per share, is an attempt by plaintiffs to extract $17.5 million as liquidated damagesfor Plaintiffs' forbearance in collecting on the underlying judgment. Defendants argue that thisprovision of the Agreement renders the entire guaranty void and unenforceable as a matter of lawand public policy. Defendants contend that plaintiffs fail to state a valid claim since: (1) theentire contract is unconscionable as a disproportionate "penalty" rather than a reasonablereflection of damages; (2) the entire arrangement is usurious; and (3) the security interest in theshares have value far in excess of the allegedly guaranteed debt. Defendants state that the aboveissues render this case unsuited for accelerated judgment under CPLR § 3213.

Discussion

CPLR § 3213 is intended to be an efficient and effective means of securing a judgmenton claims presumptively meritorious. Interman Indus. Products, Ltd. v. R.S.M. ElectronPower, Inc., 37 NY2d 151 (1975). An instrument for the payment of money qualifies forCPLR § 3213 treatment if it contains an unconditional promise by the debtor to repaylender the moneys advanced to it or on its behalf for payment. Afco Credit Corp. v. BoroparkTwelfth Ave. Realty Corp., 187 AD2d 634, (2nd Dept. 1992). The moving party is entitledto summary judgment unless the other party comes forward with evidentiary proof sufficient toraise an issue as to the defenses to the instrument.Afco Credit Corp. v. Boropark,supra.

For the reasons that follow, the Court finds that the Agreement is an instrument for thepayment of money only and that the Agreement does not impose interest in a usurious amount.Further, there is no basis for any finding of unconscionability. Accordingly, plaintiffs are entitledto summary judgment against defendants and they are entitled to judgment against defendants inthe amount demanded, to wit: $500,487.24, plus interest thereon from June 22, 2009 at astatutory rate of 9% per annum.

Here, the instrument upon which plaintiffs' motion for CPLR § 3213 is based is anAgreement represented by an exchange of emails between both parties, upon which defendantAllan Klepfisz affixed his name in the form of an electronic signature. "An electronic signaturemay be used by a person in lieu of a signature affixed by hand. The use of an electronic signatureshall have the same validity and effect as the use of a signature affixed by hand." STL §304 (2).

Further evidence of an agreement and that Allan Klepfisz served as the personal guarantythereof is the $50,000 check delivered to defendants on July 1, 2009 that was [*4]returned for insufficient funds. Partial payment may establish aprima facie entitlement to judgment as a matter of law. Montalbano, Condon & Frank, P.C. v.Rodi, 54 AD3d 1012 (2nd Dept. 2008).

The mere presence of a security provision will not necessarily disqualify the [agreement] asan "instrument for the payment of money only." Health-Chem Corp. v. Blank, 176 AD2d469 (1st Dept. 1991). Additionally, the 35 million shares of Qtrax stock requested by plaintiff inparagraph 2 of the Agreement was used as a form of collateral to ensure that defendants paidplaintiff the amount owed. A security provision does not necessarily condition defendants'obligation or require any additional performance, such as would render CPLR § 3212treatment inapplicable. Health-Chem Corp. v. Blank, supra.

Plaintiffs signed the Agreement containing paragraph 2 and the conditions thereof, agreeingto provide the shares as collateral. Usury only applies to things taken or received asinterest for the forbearance of money. GOL § 5-501(2). Here, the 35 million shareswere used purely as a form of collateral to secure payment of the principal obligation and not asinterest for the forbearance of enforcement. This is apparent from the Agreement, whichprovides in paragraph 2 that: "[r]etention of such shares shall not effect the accrual of interest onthe outstanding judgments. . . ". Moreover, Qtrax is not a publicly traded company and the stockswere self-valued by defendants at a rate of $.50 per share, which is not an objective evaluation.The face of the stock certificate itself states that Qtrax stock has a par value of only $.00001.Therefore, defendants' argument that provision 2 of the Agreement renders the entire guarantyvoid and unenforceable as a matter of law and public policy does not raise any issue of triablefact.

The Agreement unequivocally requires defendants to pay plaintiffs $500,487.24, due onJune 22, 2009. The Agreement qualifies as an instrument for the payment of money. Therefore,plaintiffs have established entitlement to summary judgment against defendant (see AfcoCredit Corp. V. Boropark, supra).

Legal Fees

In general, each party to a litigation is required to pay its own legal fees, unless there is astatute or an agreement providing that the other party shall pay same. AG Ship MaintenanceCorp. v. Lezak, 69 NY2d 1 (1986). Here, the Agreement expressly provides that defendantsare liable for plaintiffs' reasonable attorneys fees, costs and expenses incurred in this action.Plaintiffs have not yet provided a bill of costs or an affidavit attesting to the fees incurred and thereasonableness thereof. The Court, therefore, refers the issue of what plaintiffs may recover fromdefendants for its reasonable attorneys fees, costs and disbursements to hear anddetermine. Plaintiffs are hereby directed to serve a copy of this decision and order uponthe Office of the Special Referee so that this reference can be assigned.

Conclusion

In accordance herewith, it is hereby:

ORDERED that Plaintiff's motion pursuant to CPLR § 3213 for summary[*5]judgment against defendant is granted in all respects; and it isfurther

ORDERED that the Clerk shall enter a money judgment in favor of plaintiffsAlpha Capital Anstalt and Osher Capital, Inc. against defendants Alan Klepfisz and Qtrax, Inc.,jointly and severally, in the amount of $500,487.24, plus interest thereon from June 22, 2009 atthe statutory rate of 9% per annum; and it is further

ORDERED that the issue of what Plaintiff may recover from Defendantfor its reasonable attorneys fees, costs and disbursements is hereby referred to a Special Refereeto hear and determine; and it is further

ORDERED that within the next 60 days, Plaintiff is directed to serve a copy of thisdecision and order upon the Office of the Special Referee so that the reference identified hereincan be assigned.

Any requested relief not expressly addressed herein has nonetheless been considered and ishereby denied.

This shall constitute the decision and order of the Court.

Dated:New York, New YorkSo Ordered:

February 1, 2010

___________________________

HON. JUDITH J. GISCHE, J.S.C.