Estate of Martin Andres Van Dyke

Case Number

22PR00280

Case Type

Hearing Date / Time

Wed, 02/07/2024 - 13:30

Nature of Proceedings

Petition for Final Distribution

Tentative Ruling

Probate Notes:

Appearances required.  After further briefing and review, the following is noted for the court:

Proposed Distribution to heirs of Charles Van Dyke.  Decedent’s estate, according to the petition, contains $324,783.  Pursuant to the law of intestacy, this amount is to be distributed to Decedent’s four children, making each distribution $ 81,195.75 before costs and fees are deducted.  Since that amount does not exceed the threshold for the small estate affidavit process outlined in Probate Code section 13101, the affidavit filed by the surviving spouse of Charles Van Dyke with the Petition for Final Distribution is sufficient to allow the Court to distribute the funds to the surviving spouse of Charles Van Dyke.

However, the amount to be distributed to Charles Van Dyke’s widow was partially assigned to a Probate Loan Company; Probate Advance, LLC.  In addition to the assignment being questionable as discussed below, the death of Charles Van Dyke arguably spawned a requirement of Probate Advance, LLC to file an affidavit pursuant to Probate Code section 13101, since an assignment places Probate Advance, LLC in the same shoes as Charles Van Dyke’s widow, up to the amount of the assignment.

Distribution to Probate Advance Improper and Excessive.  According to the contract on file, Probate Advance claims a right to $29,000 of the $81,195.75 to be distributed to Ms. Van Dyke, due to a $15,000 loan given to Mr. Van Dyke on January 9, 2023.  This equates to $14,000 in realized interest for a 397-day loan, or $35.26 in interest a day, or $12,871.53 a year, which is a realized interest rate of 85.8%.  This rate exceeds the usury laws of this state by 75.8 percentage points, which is objectively “grossly unreasonable” pursuant to Probate Code section 11604.5(h)(1).

Probate Advance argues that the usury laws do not apply by citing creatively to authorities that do nothing to actually define what the advance of cash is to Chales Van Dyke.  The gravamen of the agreement memorialized in the contract with Probate Advance is that $15,000 was given to Mr. Van Dyke on January 6, 2023, in exchange for the payment of $29,000 owed to Mr. Van Dyke from the Decedent’s estate “prior to making any distribution from this Estate to Charlie Van Dyke.” (Not. of Assgn., exh. A, ¶3.)  This is literally the payment of funds to A, in exchange for a promise to repay those funds to B, with an additional amount as consideration.  But-for the additional funds, there would be no consideration within the transaction.

Since Probate Advance included New York Law in their contract with Mr. Van Dyke, a recent Ninth Circuit Opinion should aid their understanding that the transaction in question is unquestionably a loan:

New York appellate courts have held that “[i]n order for a transaction to constitute a loan, there must be a borrower and a lender; and it must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender.” … Put simply, to constitute a “loan” under the usury statute, the purported lender must have the right to collect from the purported borrower in absolute terms—that is, a right not dependent on the occurrence of any condition precedent.

(Fast Trak Investment Company, LLC v. Sax (9th Cir. 2020) 962 F.3d 455, 465, certified question accepted sub nom. Fast Track Investment Company, LLC v. Sax (2020) 35 N.Y.3d 997 [149 N.E.3d 432], and certified question withdrawn (9th Cir. 2021) 4 F.4th 967.)

Essentially, Probate Advance claims that when it gave $15,000 to Charles Van Dyke, it was a “sale” and not a “loan,” and could not be considered a loan because repayment is not absolute due to the contingency that if Decedent’s estate does not payout to Charles Van Dyke, Mr. Van Dyke would have no obligation to repay Probate Advance, LLC the $15,000 he received.  This is not persuasive for several reasons.

One, selective wordsmithing that labels the remote chance a known estate value will not result in the payout of an identifiable sum a “contingency” is transparently ridiculous, and academically dishonest, especially when there are no conditions that have to be met before payout is guaranteed and the only subsequent condition that could nullify the obligation is so remote it basically does not exist.  As pointed out in the same opinion by the Ninth Circuit that was cited above:

… obligation to make payments is sufficiently “guaranteed” by the terms of the agreement, such that what appears not to be a “loan” is nonetheless treated like one for the purposes of New York usury law. While the Court of Appeals has not addressed this possibility in the realm of litigation finance, at least one New York state trial court has held that a similar purported non-recourse litigation financing arrangement was a “loan” (and thus subject to usury laws) because the recovery of the underlying plaintiff—and therefore the financier's payment—was “almost guaranteed.” [Citations]. In Echeverria, the plaintiff Echeverria received a $25,000 “advance” from a company called LawCash to pursue his personal injury case, which he agreed to repay “at an interest rate of 3.85% compounded monthly to LawCash from any judgment awarded,” [citations], which the court noted was “an obviously usurious rate,” [citations]. In finding that the finance agreement constituted a loan, the court concluded that:

[T]here was a very low probability that judgment would not be in favor of the plaintiff. It is a strict liability labor law case where the plaintiff is almost guaranteed to recover. There is low, if any risk. This is troubling considering the enormous profits that will be made from the rapidly accruing, extremely high interest rates they are charging.

[Citations]. The court also noted that, just like a bank making a loan, LawCash was able to demand its rate of return. [Citations]. The court then found that because the investment was a “sure thing,” “it is a loan, not an investment with great risk.

(Fast Trak Investment Company, LLC v. Sax, supra, 962 F.3d at p. 466.)

The court in the case above was relying upon an age old principle stated in the Restatement of Contracts:

If the probability of the occurrence of the contingency on which diminished payment is promised is remote, or if the diminution should the contingency occur is slight as compared with the possible profit to be obtained if the contingency does not occur, the transaction is presumably usurious.

(Restatement (First) of Contracts (1932) § 527, comment a.)

Just as a matter of common sense, a contingency is an event that must occur prior to the springing forth of an obligation by one obliged; in this case Mr. Van Dyke’s obligation to repay.  But even a cursory review of the contract shows Mr. Van Dyke’s obligation to repay was absolute, unless a subsequent condition defeated that obligation to pay the amount owed; the condition subsequent being the estate was not solvent.  This is evident in paragraph 2 of the contract, which contains not a single condition precedent that must occur before Probate Advance is to be paid from the Decedent’s estate.

To be finally precise on this matter, almost every conceivable contrivance that Probate Loan companies have come up with to justify these very real loans, have been refuted by several courts across the nation, and more convincingly, by empirical evidence published in three law review articles that not only collect those cases, but show that the collection rate for these probate ‘loans’ are between 96-100%, at an average interest rate that nearly always exceeds state usury limits.  (See David Horton, Andrea Cann Chandrasekher, Probate Lending (2016) 126 Yale L.J. 102, 130; David Horton, Borrowing in the Shadow of Death: Another Look at Probate Lending (2018) 59 Wm. & Mary L. Rev. 2447; David Horton & Reid K. Weisbord, Probate  Lending: Data from San Francisco (2022) 169 U. PA. L. REV. Online 293.)

As a result of the above analysis and empirical data, it is recommended that the Court find that the transaction between Probate Advance, LLC and Charles Van Dyke is a “loan” that is subject to state usury laws, that the “loan” terms are grossly unreasonable pursuant to Probate Code section 11604.5(h)(1), and order that the loan be repaid to Probate Advance, LLC at a maximum interest rate of 10% per annum, which equates to $45.21/day x 397 days, for a total of $17,946.58.