On February 1, 2024, a New York trial court held that the amount of a loan, and not the amount actually advanced to the borrower, is the relevant measurement to determine if New York’s criminal usury statute applies. Moreover, the court held that legal fees can be included in the amount owed when determining if the monetary cap set forth in the usury statute has been reached.

TS Falcon I, LLC, as lender, entered into a revolving loan and security agreement with Golden Mountain Financial Corp. for up to $5 million. Over the course of a few years and pursuant to the loan agreement, TS Falcon loaned Golden Mountain $1,535,000. While Golden Mountain made a partial payment, it did not pay off the balance of the loan. TS Falcon ultimately commenced an action against Golden Mountain and certain of its affiliates, asserting (among others) breach of contract claims. TS Falcon also moved for a preliminary injunction seeking to enjoin the defendants from (i) further breaching the loan agreement, (ii) making improper transfers, and (iii) dissipating TS Falcon’s collateral.

In opposing the request for a preliminary injunction, the defendants argued that TS Falcon could not demonstrate a likelihood of success on the merits because, among other things, the loan agreement was unenforceable pursuant to New York’s criminal usuary statute. The court disagreed. New York’s criminal usury statute applies to loans under $2.5 million. While the principal amount advanced by TS Falcon under the loan agreement was less than the $2.5 million cap, the court found that because TS Falcon agreed to loan up to $5 million, the criminal usury statute did not apply. In any event, the court also found that, when adding legal fees to the principal balance of the loan, the amount due was $3.5 million and thus over the $2.5 million cap. Accordingly, the court held that the loan agreement was not void under New York’s criminal usury statute.

The case is TS Falcon I, LLC v. Golden Mountain Financial Corp., et al., Index No. 655783/2023 (N.Y. Sup. Ct. Feb. 1, 2024). TS Falcon is represented by Dechert LLP. The Defendants are represented by ArentFox Schiff LLP. The opinion is available here.