On September 5, 2023, a New York state court invalidated a loan agreement’s choice of law provision, ruling that the loan agreement was void and depriving the lender of both principal and interest payments. The lender, Samson Lending LLC, entered into a loan agreement with Greenfield Management, LLC and certain of its subsidiaries for $1.3 million, with 34% interest for the term of the loan. The loan agreement included a Virginia choice-of-law provision. After the borrowers allegedly defaulted, the lender filed a breach of contract suit against them in New York. The borrowers moved to dismiss the complaint, arguing that the loan’s interest rate violated New York criminal usury laws. The court agreed with the borrowers.

The case turned on whether the loan agreement’s Virginia choice-of-law provision was valid. Virginia law would allow the 34% interest rate. But that rate violates New York’s criminal usury statute, which prohibits interest rates greater than 25% on loans for less than $2. million. The borrowers moved to dismiss on the ground that, notwithstanding the choice-of-law provision, New York law should apply. The court determined the parties had a sufficient nexus to New York for New York law to potentially apply and then decided that the state’s 300-year long commitment to protecting businesses in need of financial assistance outweighed the importance of honoring freedom to contract principles. As a result, the court invalidated the loan agreement’s Virginia choice-of-law clause, applied New York law, and determined that the loan agreement was void because its 34% interest rate exceeded the state’s 25% cap. As a result, the lender forfeited both principal and interest payments.

The case is Samson Lending LLC v. Greenfield Management LLC, No. 134457-2022 (N.Y. Sup. Ct. Ontario Cnty. Sept. 5, 2023). Samson Lending LLC is represented by Berkovitch & Bouskila, PLLC. Greenfield Management LLC is represented by Offit Kurman, P.A. The order is available here.