Toxic Note Fight Taken To Federal Appeals Court In New York
Yesterday, The Basile Law Firm P.C. announced that its’ client, 5BARz International Inc., (OTC: BARZ) filed a motion in the United States Circuit Court of Appeals for the Second Circuit to certify questions of law to the New York Court of Appeals requesting that several issues of unsettled state usury law be put in front of the New York Court of Appeals to address and resolve. If certified, the New York Court of Appeals will have the opportunity to clarify certain provisions of New York States usury laws (civil and criminal) and how they apply to “toxic convertible notes”. Some of the issues raised in the motion have already been found by many federal courts to be “unsettled” law. There are approximately 40 active toxic debt cases pending in New York’s federal Southern and Eastern District Courts seeking to enforce these types of “death spiral loans“.
There are hundreds of microcap companies that have numerous toxic convertible notes on their books that are governed under New York State law. Shareholders of these companies have suffered enormous losses while the companies themselves struggle to survive financially.
New York’s usury laws have been on its’ books for more than 140 years. Those statutes were amended in 1965 to include criminal usury . High interest rate loans exceeding 25% in New York are illegal and against New York’s fundamental public policy and in some instances, charging a rate of interest of 25% or more can be found to be criminal with penal sanctions (misdemeanor or felony)(N.Y. Penal Law §190.40). Criminal usury is a defense authorized by statute to be used by a corporation in a civil proceeding brought to enforce a loan. (Gen. Oblig. Law. §5-521(3).) However, there have been conflicting decisions among various state and federal courts on several issues concerning New York State’s usury laws, from interpreting when and how they are to apply; how the civil and criminal usury statutes interact in a civil proceeding, and to what extent do the statutes impose on the courts a responsibility to conduct an in-depth “robust” analysis of the under lying transaction documents. If the Second Circuit certifies these questions, New York’s highest court can finally resolve these issues which if consistent with its 140 year history against loansharking, may help the entire OTC Markets from issuers to shareholders, by clarifying the law that these types of toxic convertible loans are void. (New York’s Gen. Oblig. Law §5-511).
The Basile Law Firm P.C. has been contacted by several firms including litigation, securities and corporate counsel to numerous microcap companies looking to file Amicus support for the Motion to Certify. For those with access to PACER the case is Blue Citi, LLC v 5BARz International, Inc., USCA Docket No. 18-3044.
If you are the CEO of a microcap company and have taken loans from New York lenders in the form of a floorless or toxic convertible promissory note, please contact The Basile Law Firm P.C. at 516-455-1500.
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