As many practitioners are aware, the litigation process in New York often feels like a tortoise race, with many cases taking years to resolve. Section 3213 of the CPLR (“Summary Judgment in Lieu of Complaint”) is a bit of an outlier in New York practice, as it provides a mechanism to streamline cases without bearing the delay of protracted litigation. However, because a CPLR 3213 motion provides for a remedy which precludes a litigant from presenting his evidence to a judge or jury, courts heavily scrutinize this type of motion.
For example, courts tend to dismiss CPLR 3213 motions where the instrument for payment (e.g., a promissory note) requires “outside proof … other than simple proof of nonpayment or a similar de minimis deviation from the face of the document” (Kitchen Winners NY, Inc. v Triptow, 226 AD3d 989, 991 [2d Dept 2024]). But what happens when an additional document (e.g., a Heter Iska) is required to be executed under religious law in connection with a promissory note? This question was recently addressed by Kings County Commercial Division Justice Leon Ruchelsman in Junik v 61 N. 11 LLC.
Background and Analysis
In Junik, defendant 61 N. 11 LLC (“61 North”) and the individual defendants (collectively “Defendants”) executed and delivered to plaintiffs Dov Junik (“Junik”), and DSJ Holdings, LLC (“DSJ”) (collectively, “Plaintiffs”) the following documents: (i) a promissory note for $1 million dollars between 61 North and Plaintiffs to be paid over 24 months (the “Note”); and (ii) personal guaranties of the individual defendants, guaranteeing up to fifty (50) percent of the alleged indebtedness of 61 North (the “Guarantees”).
That same day, Junik and one of the individual defendants entered into a Shtar Isko (“Heter Iska”), which is “a device developed in the 12th to 14th centuries to overcome the Biblical prohibition against charging interest by one Jew to another” (Khaimov v Fuzailov, 2020 WL 1059620 [Sup Ct, Queens County 2020]). While certain payments were made towards the principal amount of the Note, Defendants ultimately defaulted on the Note and ceased making payments.
As a result of Defendants’ default, Plaintiffs commenced an action by way of a CPLR 3213 motion for summary judgment in lieu of complaint. In their opposition papers, Defendants argued that “the mere existence of the [Heter Iska], warrants the denial of Plaintiffs’ motion, as the [Heter Iska] is a document consisting of outside proof which was entered into at the same time as the Note, and clearly alters the terms of the Note.” Specifically, Defendants highlighted that the Heter Iska created significant ambiguities: (i) it made zero reference to DSJ or 61 North, two of the three parties to the Note; (ii) three out of the four individual defendants did not sign the Heter Iska; and (iii) the individual defendant who did sign the Heter Iska did not sign the Note.
In his decision, Justice Ruchelsman acknowledged that while the Heter Iska contains different terms than the Note, the Note “clearly evidences a loan and obligations pursuant to that note … unaffected by a Heter Iska” since a Heter Iska is merely a “compliance in form with Hebraic law and does not actually create any partnership, joint venture, or some other profit-sharing Agreement.” Accordingly, the Court held the existence of the Heter Iska did not create any questions of fact concerning the content of the Note, and granted Plaintiffs’ motion for summary judgment in lieu of complaint.
Takeaway
On its face, the Junik decision demonstrates that certain documents, such as a Heter Iska, are the exception to the “outside proof” rule under CPLR 3213 motions. However, the decision leaves open the question of how much outside proof is too much or excessive for purposes of a CPLR 3213 motion. To avoid this potential issue, parties should either (i) avoid drafting any additional documents in connection with a promissory note; or (ii) make sure that any additional documents drafted in connection with a promissory note are drafted carefully to avoid a potential ambiguity.