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Patel v. Dammai

Superior Court of Massachusetts, Suffolk, Business Litigation Session

August 4, 2017

Vinod Patel
Vincent Dammai et al

          Filed August 7, 2017


          Edward P. Leibensperger, Justice

         In this action on a promissory note the parties seek a ruling by the court on two issues: (1) what should be the interest rate on the promissory note when the interest rate stated in the note is unlawful under the usury statute, and (2) what amount of attorneys fees are recoverable by the lender under the terms of the note. This action was commenced by plaintiff, the lender, against defendant, a person individually liable under the note, on January 12, 2017. As a result of this lawsuit and collection efforts by plaintiff, the principal sum of the note ($400, 000) was repaid to plaintiff on May 31, 2017. On April 20, 2017, in anticipation of the imminent payment of the principal amount, the parties submitted a Joint Proposal for Procedure and Schedule that was accepted and ordered by the court. In the Joint Proposal, the parties stated " [a]ll parties believe that these two issues can likely be resolved without discovery, on cross motions for summary judgment. All parties further believe that if these two issues are resolved by the Court, then that will likely facilitate a final resolution of the case . . ."

         The Interest Rate

         The following facts regarding the promissory note and the interest rate are submitted as undisputed in the parties' Consolidated Statement of Undisputed Material Facts.

         In May 2016, the parties met to discuss a business venture proposed by defendant, Vincent Dammai. Dammai intended to form a company called Biosimilars & Biologics to distribute and/or manufacture generic pharmaceutical drugs. Plaintiff, Vinod Patel, agreed to become employed by company and to receive a 4% equity interest in the company.

         Before the company could be organized it was recognized that the company needed money to get off the ground. Patel agreed to loan the not-yet-organized company $400, 000. It was anticipated that the loan would be for a short time period because Dammai anticipated a major investment from the government of Brazil. On July 1, 2016, a promissory note was executed by Dammai, Patel and a third person, Venkat Reddy. The relevant terms of the promissory note are the following.

         The " Borrower" is a " new business" designated as " NewCo." It is recited that NewCo consists of three " Owners, " Dammai, Patel and Reddy. NewCo and the Owners " individually and severally" promise to pay Patel the sum of $400, 000, plus interest on or before September 1, 2016. The promissory note states that the " loan is intended to be used [as] an advance to fund the start-up of a new business . . . to be named and formed in the next two weeks (called 'Biosimilar & Biologics')."

         The promissory note further provides that the interest rate on the note is 15% bimonthly. Accordingly, the amount owed under the note on the date due, September 1, 2016, is $460, 000.

         The note provides that the Borrower shall pay reasonable attorneys fees and disbursements incurred in connection with the collection of the note.

         On July 1, 2016, Patel wired $200, 000 to a bank account for another entity controlled by Dammai because the anticipated NewCo had not been formed. On July 5, 2016, Patel wired another $200, 000 to Dammai.

         On August 5, 2016, Patel and Reddy informed Dammai that they no longer wanted to participate in the anticipated new business to be called Biosimilars & Biologics. On August 15, 2016, Dammai incorporated Biosimilars & Biologics IBC as a Bahamas corporation, with Dammai as majority shareholder. Patel and Reddy have never been shareholders, officers, directors or employees of this company.

         Dammai admits in his answer that in May and June 2016, when the parties discussed the short-term loan, Dammai offered and proposed to pay Patel between 10% and 20% interest for the two-month period. Patel chose the mid-point: 15%. Neither Dammai nor Patel knew that the rate of interest violated the Massachusetts usury statute.[1] Patel obtained the form of the note from his neighbor, an attorney, with the interest rate left blank. Patel inserted the 15% rate without consulting an attorney. Dammai had no objection to the 15% interest rate. Indeed, he happily remarked in an email about his willingness to pay the 15% interest for two months.

         The loan was not repaid on September 1, 2016. Patel attempted to collect the debt by informal communications. The debt was not paid in response. In October 2016, Patel engaged counsel to help him collect the debt. Patel and his counsel proposed a new note to replace the original note but the proposal was rejected. In December 2016, Dammai, through counsel, disputed liability under the note. Patel filed this lawsuit on January 12, 2017. As mentioned above, as a ...

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