LLC v. HSBC LLP DC LLP LLP WI 11 2014 HSBC 246 224 228 1998 HSBC LLC 104 1195 1196 2013 16 2009 HSBC ERC 16W LLC 95 498 503 2012 (2015)

Supreme Court, Appellate Division, First Department.

Sherman Originator LLC, Plaintiff–Respondent, v. HSBC Taxpayer Services Inc., et al., Defendants–Appellants.  Arnold & Porter LLP, Washington, DC (David B. Bergman of the bar of the District of Columbia, admitted pro hac vice of counsel), for appellants.  Foley & Lardner LLP, New York (Adam Pence of counsel), and Foley & Lardner LLP, Milwaukee, WI (Andrew J. Wronski of the bar of the State of Wisconsin, admitted pro hac vice of counsel), for respondent.  Order, Supreme Court, New York County (Jeffrey K. Oing, J.), entered September 11, 2014, which denied defendants' motion to dismiss the complaint, unanimously affirmed, without costs.  In this case involving a contract dispute between the originator and servicer (HSBC) of a certain portfolio of “refund anticipation loans” and the subsequent purchaser (Sherman) of a partial interest in that portfolio, plaintiff sufficiently pleaded that defendants' unilateral decision not to enforce “cross-collection agreements” had a disproportionate negative impact on the collection of the overdue, in default, and charged-off refund anticipation loans that Sherman had purchased from defendants, in violation of the parties' contractual provision requiring Sherman's prior consent (see Hoag v. Chancellor, Inc., 246 A.D.2d 224, 228 [1st Dept 1998] ).  Contrary to HSBC's argument, the plain language of section 3(d)(1) of the purchase agreement does not “conclusively” refute Sherman's claim (see Thirty One Dev., LLC v. Cohen, 104 AD3d 1195, 1196 [4th Dept 2013] ).  According to the complaint, the parties had estimated that Sherman would recover its $16.5 million investment, along with a contractually calculated “Excess Distribution” amount, by sometime in 2009.  It would therefore not appear to be economically feasible for Sherman to agree to HSBC's unilateral cessation of its cross-collection activities within two years of Sherman's purchase of the defaulted business.  “It is a longstanding principle of New York law that a construction of a contract that would give one party an unfair and unreasonable advantage over the other, or that would place one party at the mercy of the other, should, if at all possible, be avoided” (ERC 16W Ltd. Partnership v. Xanadu Mezz Holdings LLC, 95 AD3d 498, 503 [1st Dept 2012] ), and discovery was properly allowed to move forward.

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Decided: October 22, 2015

Sweeny, J.P., Renwick, Saxe, Gische, JJ.