Court Rejects COVID-19 as Defense, Saying the “Pandemic is Not a Catch-All Defense to Disputes that Began Last Year”

• Posted on: Sep 28 2020

“A promissory note is a financial instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party (the note’s payee) a definite sum of money, either on demand or at a specified future date. See Investopedia, Adam Barone, Apr. 20, 2020 (here). “A promissory note typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer’s signature.” Id.

“When an action is based upon an instrument for the payment of money only … the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. A note qualifies as such an instrument for this purpose, provided the plaintiff can establish a prima facie case via proof of the note and a failure to make the payments called for by its terms. It does not qualify if outside proof is needed, other than simple proof of nonpayment or a similarly de minimis deviation from the face of the document.” Bonds Fin., Inc. v. Kestrel Tech., LLC, 48 A.D.3d 230, 231 (1st Dept. 2008) (internal quotations and citations omitted). See also Weissman v. Sinorm Deli, 88 N.Y.2d 437 (1996).

In Firmenich Inc. v. TPR Holdings LLC, 2020 N.Y. Slip Op. 33087(U) (Sup. Ct., N.Y. County Sept. 18, 2020) (here), plaintiff filed a motion for summary judgment in lieu of complaint in connection with the failure by defendant to make payments under a promissory note executed as part of a settlement between the parties. The Court (Justice Arlene P. Bluth) granted the motion.

Plaintiff claimed that in February 2016, the parties settled a dispute, pursuant to which defendant delivered a promissory note for $1,450,000, plus interest in plaintiff’s favor. The note required defendant to pay plaintiff according to a schedule set forth therein. Plaintiff claimed that there were numerous issues with defendant’s payments, culminating with defendant ceasing to make payments after March 2019. Plaintiff sent defendant a notice of default dated July 31, 2019 after defendant failed to make the April, May, June and July 2019 payments. Plaintiff asserted that under the terms of the note, it could commence the action after a default and appropriate notice to defendant. Plaintiff alleged that defendant owed plaintiff $320,175.00 under the terms of the note. 

In opposition, defendant claimed that the note referenced the settlement agreement between the parties and that agreement imposed obligations on plaintiff, which rendered the use of summary judgment in lieu of complaint inapplicable. It claimed that plaintiff had to establish other elements besides simply nonpayment before it could recover. In addition, defendant claimed that the emergence of the COVID-19 pandemic had rendered performance under the settlement agreement objectively impossible and frustrated the purpose of the agreement: “the cataclysmic shutdown of commerce arising from the COVID-19 emergency (which was entirely unforeseeable and unforeseen) rendered the performance of the supply obligations of the parties under the Settlement Agreement objectively impossible.” Slip Op. at *2 (citation to the record omitted).

In granting the motion, the Court found that the note was “an instrument for the payment of money only (i.e. the payment of $1,450,000 in certain installments)” and did not impose any “obligations on plaintiff except for the requirement that plaintiff provide written notice to defendant if there was a default.” Slip Op. at *3. That requirement, said the Court, “only required plaintiff to comply with a procedure to collect the money; it d[id] not remove the note from the auspices of CPLR 3213.” Id. 

The Court rejected defendants’ argument that “reference to the settlement agreement” imposed an obligation on plaintiff to perform, stating that such reference “was … besides the point.” Id. The Court explained that the settlement agreement merely “memorialized that the dispute … was being resolved for $1.45 million and that defendant was to pay that amount.” Id. Thus, concluded the Court, “[t]here [was] no issue of fact regarding whether th[e] case involve[d] an instrument for the payment of money only.”

Notably, observed the Court, “defendant [did] not dispute that it failed to make payments or that plaintiff failed to abide by the notice provisions contained in the note.” Id. 

The Court also rejected “defendant’s claims about impossibility and frustration of purpose,” saying that they were “patently absurd.” Slip Op. at *3, *4. The Court noted that the non-payments “started in April 2019. The pandemic did not start causing business disruption in the United States until 2020.” Id. at *3. The Court found it to be “patently absurd” to use the pandemic as a defense, saying that such as defense was “disingenuous[ ]”, especially since the “default … occurred last year.” Id. at *4. The Court admonished defendant for using the pandemic as “a catch-all defense”. Id.

Accordingly, the Court granted the motion and directed the clerk to enter judgment in favor of plaintiff and against defendant in the amount of $320,175.00, plus interest, from March 24, 2019 until the entry of judgment and then at the statutory rate.

Takeaway

CPLR § 3213 provides that a plaintiff may file a motion for summary judgment in lieu of a complaint “[w]hen [the] action is based upon an instrument for the payment of money only ….” [This Blog wrote about CPLR § 3213 here and here.] The provision “was enacted to provide quick relief on documentary claims so presumptively meritorious that a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro, 25 N.Y.3d 485, 491-92 (2015) (internal quotation marks and citation omitted). 

“To establish prima facie entitlement to summary judgment in lieu of complaint, a plaintiff must show,” as in Firmenich, “the existence of a promissory note executed by the defendant containing an unequivocal and unconditional obligation to repay and the failure of the defendant to pay in accordance with the note’s terms.” Zyskind v. FaceCake Mktg. Techs., Inc., 101 A.D.3d 550, 551 (1st Dep’t 2012). “Once the plaintiff submits evidence establishing these elements, the burden shifts to the defendant to submit evidence establishing the existence of a triable issue with respect to a bona fide defense.” Id. As the Court in Firmenich explained, reliance on the COVID-19 pandemic, which occurred in 2020, months after defendant’s default, was not a bona fide defense.  

Although there will likely be many cases exploring how the pandemic might affect disputes over contracts and promissory notes, this is not such a case. In fact, it is patently absurd that defendant would disingenuously cite to a pandemic that has caused so much harm around the world as a defense to a default that occurred last year. The pandemic is not a catch-all defense to disputes that began last year.

Slip Op. at *3-*4.