Denemark v. New Ch. Capital, Inc.

Denemark v New Ch. Capital, Inc.

2026 NY Slip Op 04553 July 23, 2026

Appellate Division, First Department Michael, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This decision is uncorrected and subject to revision before publication in the Official Reports. Andrew J. Denemark, Plaintiff-Appellant-Respondent,

v

New Chapter Capital, Inc., Defendant-Respondent-Appellant.

Supreme Court, Appellate Division, First Judicial Department

Decided and Entered: July 23, 2026

Index No. 152207/23|Appeal No. 5580|Case No. 2025-04000|

Sallie Manzanet-Daniels

Barbara R. Kapnick Llinét M. Rosado Marsha D. Michael Shlomo S. Hagler Chirico Law PLLC, Brooklyn (Vincent Chirico of counsel), and Auciello Law Group, PLLC, Brooklyn, for appellant- respondent.

McCalla Raymer Leibert Pierce, LLP, New York (Daniel S. LoPresti of counsel), for respondent-appellant. Plaintiff appeals and defendant cross-appeals from an order of the Supreme Court, New York County (Lyle E. Frank, J.), entered on or about July 26, 2024, which, to the extent appealed from as limited by the briefs, denied plaintiff's motion for summary judgment, and denied defendant's cross-motion for summary judgment.

Michael, J. [*1]

Plaintiff asks this Court for, among other things, a declaration that the parties' litigation funding agreement, in which defendant agreed to assist plaintiff in funding his divorce action in exchange for a portion of plaintiff's divorce proceeds, is usurious and void as a matter of law. To determine whether the agreement is usurious, we must first consider whether, under the totality of the circumstances, the agreement was truly an investment contingent on plaintiff's successful recovery in his divorce action, or if the transaction was, in reality, a loan. Upon careful review of the particular facts of this case, we conclude that the parties' litigation funding agreement constituted a loan. The loan imposed an interest rate in excess of the maximum permitted under New York's usury laws, rendering the agreement unenforceable as a matter of law. Accordingly, plaintiff's motion for summary judgment on his usury claim seeking a declaration that the parties' funding agreement is usurious and unenforceable should have been granted.

I.

The parties entered into a Purchase and Sale Agreement, dated May 23, 2018 (the PSA), wherein defendant agreed to advance approximately$200,000 to plaintiff to fund the legal costs of plaintiff's pending divorce action. In return, plaintiff agreed to assign to defendant his right to receive any proceeds from the divorce claim up to the amount owed to defendant under the PSA. The "Proceeds" consisted of "the total recovery from the Claim" and the "Claim" was defined as plaintiff's right, title, and interest in and to any amount granted to plaintiff in connection with his pending divorce action, any appeal or settlement with respect thereto, and any related action. The funds advanced to plaintiff accrued interest at arate of 1.58% per month or 18.96% per year, with a six-month minimum. As set forth in the chart in the PSA, the total amount owed for repayment within the first six months would be $222,134.94. Thereafter, the amount plaintiff owedwould increase in three-month intervals until defendant was paid in full. In other words, the longer the divorce litigation ensued, the more money plaintiff owed to defendant. The PSA clarified that "THIS IS NOT A LOAN" and was expressly contingent on plaintiff's "successful" recovery on the Claim. It proclaimed that "[i]f there is no recovery on the Claim, nothing will be owed to [defendant]." Yet, several provisions of the PSA together with the Sweetheart Guaranty (discussed below), entitled defendant to recoup the money it advanced plus interest even if "there is no recovery on the Claim," such as in the event of plaintiff's death or reconciliation with his wife.

[*2]

After the PSA was signed and while the divorce action was pending, defendant filed a UCC-1 financing statement on

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plaintiff's property located in Walkill, New York (the Property). Plaintiff alleges that when he asked defendant to remove the lien after he and his wife agreed to sell the Property, defendant refused to do so without an escrow agreement. Accordingly, the parties executed an Escrow Agreement dated March 17, 2021, whereby defendant agreed to file a UCC-3 financing statement to terminate the lien and in turn, plaintiff agreed to hold the sale proceeds in escrow pending final disposition of the divorce action. Once the divorce proceedings concluded, the escrow agent would be permitted to release no more than 50% of the sale proceeds to the wife, and upon defendant's demand, would pay the balance of the sale proceeds to defendant up to the amount owed under the PSA. The Escrow Agreement further stated that the "parties agree that the amount presently owed to [defendant] under the [PSA] is $318,309.52 through June 11, 2021."

A year and a half later, on October 12, 2022, plaintiff and his (now former) wife entered into a settlement agreement resolving their divorce. The settlement agreement purportedly entitled plaintiff to recover more than the balance owed to defendant. As a result, defendant alleges that plaintiff owes the entire balance under the PSA of $408,072 through April 30, 2024. It is undisputed that plaintiff has not made any payments to defendant. On March 7, 2023, plaintiff commenced this action against defendant seeking a declaration that defendant's actions of usury, duress, and undue influence rendered the PSA void and unenforceable as a matter of law. Plaintiff also asserted that defendant breached the PSA by improperly interfering with the divorce action. Defendant answered and asserted counterclaims alleging plaintiff breached the PSA and Escrow Agreement and sought judgment of the balance owed under the PSA and an award of attorneys' fees. Plaintiff subsequently moved for summary judgment on his claims and defendant cross-moved for summary judgment to dismiss the complaint and on its counterclaims for breach of contract and for attorneys' fees.

The court denied both motions and found that there were questions of fact as to whether the repayment provisions of the PSA were truly contingent and whether the usury laws apply to this case. Further, it found that there were issues of fact as to whether defendant inappropriately played an active role in the underlying divorce action by, among other things, filing the UCC financing statement. It also found issues of fact as to plaintiff's economic duress claim because it was based on the UCC filing and "it is unclear if defendant was entitled to file a UCC while the possibility of payment was still contingent."

II.

[*3] Defendant argues that plaintiff's usury claim fails because the parties' litigation funding agreement was not a loan, but rather an investment contingent on plaintiff's future recovery from his divorce litigation. Accordingly, the critical issue in this case is whether the parties' PSA was an investment or in fact a loan. A fundamental component of usury is the existence of a loan, "and where there is no loan, there can be no usury" (LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 664 [2d Dept 2020]; see Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 744 [1992]). Litigation funding agreements are not loans where "repayment of principal is entirely contingent on the success of the underlying lawsuit" and where the litigant "received [the advance] with no guaranteed obligation to repay, except from the proceeds, if any, recovered in [the lawsuit]" (Cash4Cases, Inc. v Brunetti, 167 AD3d 448, 449 [1st Dept 2018]). The court must consider the transaction "in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it" (Abir v Malky, Inc., 59 AD3d 646, 649 [2d Dept 2009]; see Adar Bays, LLC v GeneSYS ID, Inc., 37 NY3d 320, 334 [2021] ["When determining whether a transaction is a loan, substance â​​ not form â​​ controls"]; In re Greenwich Retail Group LLC, 2026 WL 482170, *17, 2026 Bankr LEXIS 417, *50 [Bankr SD NY, Feb. 20, 2026, Case No. 25-11295 (MEW)] ["If substance (not form) is to be determinative, as it is supposed to be, then a court must consider the scope and likelihood of the "risks" that a party has allegedly taken, and whether such risks are real or instead are just disguised efforts to evade the usury laws"]). The nature of the underlying litigation, whether the agreement provides for recourse in the event the recipient files for bankruptcy, and whether there was a personal guaranty, among other factors, may be considered to determine whether a purported contingent agreement is in truth, a loan (see e.g. Kapitus Servicing, Inc. v Ragtime Gourmet Corp./Joe-Le Holding Corp., 242 AD3d 638, 638-639 [1st Dept 2025]; Echeverria v Estate of Lindner, 7 Misc 3d 1019[A], 2005 NY Slip Op 05675[U], *9 [Sup Ct, Nassau County

2005]).

[*4]

In this case, the subject transaction is characteristic of a loan, not an investment (see Echeverria, 7 Misc 3d 1019[A] at *9). First, paragraph 3 of the PSA permits defendant to "file a [UCC] financing statement in any jurisdiction it chooses to protect its lien" on plaintiff's property. This provision does not expressly bar defendant from filing the UCC financing statement prior to plaintiff's recovery on his Claim. Defendant therefore filed its UCC-1 financing statement on the Property on April 6, 2020, while plaintiff's divorce action was pending. The filing secured defendant's lien on the covered property (see 3 UCC Trans Gd § 29:1 ["A financing statement completes the transaction and perfects the lender's security interest in the debtor's property"]; see also NRT New York, LLC v Middlegate Funding LLC, 2020 NY Slip Op 34297 [U], *9 [Sup Ct, NY County 2020], affd 202 AD3d 427 [1st Dept 2022] [UCC article 9 "enables creditors to protect their interests in collateral often held by debtors" and thus the "UCC-1 Financing Statement granted [plaintiff] a security interest in all of [defendant's] accounts"]). The fact that defendant was permitted under the PSA to file a UCC-1 financing statement, a device used by lenders to secure collateral, presentsthe hallmark of a loan. Additionally, the Escrow Agreement entered intoby the parties in connection with the UCC-1 filing suggests that the PSA was a loan. The Escrow Agreement's mandate that no more than 50% of the proceeds from the sale of the Property be distributed to plaintiff's then wife and that the balance be paid to defendant up to the amount owed under the PSA ensured that the sale proceeds would be used to repay defendant. Further, the PSA tellingly declared that "the amount presently owed to [defendant] under the [PSA] is $318,309.52 through June 11, 2021," at a time when the Property sale had to yet to occur and the divorce action remained pending.Plainly, if the amount due to defendant was truly based on

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