Loan Funder LLC v. Alex, LLC
| Decision Date | 06 January 2020 |
| Docket Number | CIVIL NO. 19-00016 SOM/RT |
| Parties | LOAN FUNDER LLC, SERIES 2130, Plaintiff, v. ALEX, LLC; DONALD DWIGHT HODGE; ABRAHAM ANTONIO RAMOS, JR.; and INFINITY CAPITAL FINANCE CORPORATION, Defendants. |
| Court | U.S. District Court — District of Hawaii |
This is a foreclosure action in which three of the named Defendants--Alex, LLC, Donald Dwight Hodge, and Infinity Capital Finance Corporation, have defaulted. The fourth Defendant, Abraham Antonio Ramos, Jr., filed an answer in this matter. Ramos filed for bankruptcy, but this court, unaware of that, earlier adopted Magistrate Judge Rom Trader's Findings and Recommendation to Grant in Part and Deny in Part Plaintiff's Motion for Default Judgment and Decree of Foreclosure with Respect to Alex, LLC, Donald Dwight Hodge, and Infinity Capital Finance Corporation, ECF No. 37. That adoption occurred while the bankruptcy stay was in effect. To eliminate any issue on that score, this court here readopts the F&R now that the bankruptcy stay has been lifted.
Before this court is Plaintiff Loan Funder, LLC, Series 2130's Motion for Confirmation of Sale, Deficiency Judgment, Writ of Possession and Merger of Notice of Pendency of Action, ECF No. 48. That motion is granted except with respect to its request for attorneys' fees and costs, which is denied without prejudice to the filing of a separate motion. With respect to such a motion for attorneys' fees and costs, this court is very concerned with the amount requested and directs the Magistrate Judge to carefully consider those fees and costs before awarding them.
Alex, LLC, executed a promissory note dated August 16, 2017, for $917,681.00 as part of a loan from Loan Funder to purchase property in Honolulu, Hawaii. The note had an interest rate of 10.99%, with a default rate of 45%. The note required Alex, LLC, to make interest payments from October 1, 2017, through August 1, 2018, at which time the principal of the note had to be paid. Donald Dwight Hodge and Abraham Antonio Ramos,Jr., executed guarantees to further secure the loan. The note was secured by a mortgage on the property. The note states that it shall be governed by New York law. The Guarantees state that they shall be governed by New Jersey law.
According to the Complaint, Defendant Infinity Capital may have or may claim an interest in and to the property at issue because of a junior mortgage on the property.
On January 14, 2019, Loan Funder filed the present action against Alex, LLC, Hodge, Ramos, and Infinity Capital Finance Corporation. See ECF No. 1.
While Ramos answered the Complaint, the other Defendants did not. Default was entered against Alex, LLC, Hodge, and Infinity Capital (the "defaulted Defendants"). On March 28, 2019, Loan Funder moved for default judgment and a decree of foreclosure with respect to the defaulted Defendants. See ECF No. 29. On May 9, 2019, a hearing was held before Magistrate Judge Rom Trader at which he found and recommended that the motion be granted in part and denied in part. See ECF No. 35. On June 24, 2019, this court, unaware that Ramos had begun bankruptcy proceedings, adopted the unopposed F&R. See ECF No. 41. On December 3, 2019, this court gave Ramos the opportunity to object to this court's readoption of the default judgment F&R, telling Ramos that he would be deemed to have waived any objection to proceedings against the defaultedDefendants if Ramos failed to object. Ramos did not object. Accordingly, this court readopts the F&R and deems Ramos to have waived any right to challenge the propriety of proceeding in this manner.
On October 30, 2019, Loan Funder filed a motion for confirmation of sale, deficiency judgment, and writ of possession. See ECF No. 48. All Defendants were served with a copy of the motion via U.S. mail at their last known addresses. See ECF No. 48-4. Although this court has expressed concern about the 45% default interest rate, see ECF No. 53, the court nevertheless grants the motion except with respect to its request for attorneys' fees and costs. Loan Funder may submit another motion for fees and costs to the Magistrate Judge assigned to this case.
Because the note and the guarantees state that they shall be governed by New York and New Jersey law, respectively, this court turns to the law of those states with respect to the requested default interest rate. This court has previously noted its concerns about the default rate of interest in this matter.
Under New York law, "[p]arties are free to agree that a contract rate of interest shall increase upon default, so long asan interest rate is not usurious or does not constitute a penalty." Emigrant Funding Corp. v. 7021 LLC, 25 Misc. 3d 1220(A), 901 N.Y.S.2d 906 (Sup. Ct. 2009); Emery v. Fishmarket Inn of Granite Springs, Inc., 173 A.D.2d 765, 766, 570 N.Y.S.2d 821, 823 (1991) . New Jersey law similarly provides, "It is the general rule in the case of a corporate borrower that it is not illegal to provide for a higher rate of interest than the legal rate after maturity, but if such rate is unconscionably high it will be unenforceable because it amounts to a penalty." Feller v. Architects Display Bldgs., Inc., 54 N.J. Super. 205, 213, 148 A.2d 634, 639 (App. Div. 1959).
Even if the 45% default interest rate is not usurious under either New York or New Jersey law, this court makes no determination on that issue, leaving that determination for a future matter in which the court has the benefit of two-sided briefing. This court is aware that a number of courts interpreting New York law have determined that New York's usury laws do not apply to defaulted obligations, such as the default at issue in this case. See, e.g., Adar Bays, LLC v. Aim Expl., Inc., 285 F. Supp. 3d 698, 704-05 (S.D.N.Y. 2018) (); accord Manfra, Tordella & Brookes, Inc. v. Bunge, 794 F.2d 61, 63 (2d Cir. 1986) (). New York law further provides that "[n]o corporation shall hereafter interpose the defense of usury in any action." N.Y. Gen. Oblig. Law § 5-521 (McKinney).
New York also has a criminal usury cap, making it a felony to knowingly charge or collect interest on a "loan or forbearance" at a rate greater than 25% annually or the equivalent for a longer or shorter period. See N.Y. Penal Law § 190.40. Corporations may assert criminal usury in violation of section 190.40. See N.Y. Gen. Oblig. Law § 5-521(3) (McKinney) ("The provisions of subdivision one of this section shall not apply to any action in which a corporation interposes a defense of criminal usury as described in section 190.40 of the penal law."); Nextbridge Arc Fund, LLC v. Vadodra Prop., LLC, 31 Misc. 3d 1202(A), 929 N.Y.S.2d 201 (Sup. Ct. 2011) (). One court has held that "New York's criminal usury cap applies to prevent a creditor from collecting interest above 25% even in default." Madden v. Midland Funding, LLC, 237 F. Supp. 3d 130, 142 (S.D.N.Y. 2017). However, LG Capital Funding, LLC v. One World Holding, Inc., No.15-CV-698 (SJ)(JO), 2018 WL 3135848, at *13 (E.D.N.Y. June 27, 2018), found Madden unpersuasive.
New Jersey courts have similarly determined that "an increase in interest rate effective only upon a borrower's default appears not to be subject to the usury laws." Stuchin v. Kasirer, 237 N.J. Super. 604, 610, 568 A.2d 907, 910 (App. Div. 1990); accord Ramsey v. Morrison, 39 N.J.L. 591, 593 (Sup. Ct. 1877) ().
Even assuming that the 45% default interest rate is not usurious, it could be void if against public policy. Again, this court declines to decide that issue under the circumstances. "Liquidated damages constitute the compensation which, the parties have agreed, should be paid in order to satisfy any loss or injury flowing from a breach of their contract." Truck Rent-A-Ctr., Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420, 423-24, 393 N.Y.S.2d 365, 368 (1977). Liquidated damages are "an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement." Id., 41 N.Y.2d at 424, 393 N.Y.S.2d at 368. New York law provides that parties to contractsare allowed to agree to a liquidated damage clause, "provided that the clause is neither unconscionable nor contrary to public policy." Id. "[L]iquidated damage provisions will not be enforced if it is against public policy to do so and public policy is firmly set against the imposition of penalties or forfeitures for which there is no statutory authority." Id., 41 N.Y.2d at 424, 393 N.Y.S.2d at 369. A clause requiring "the payment of a sum of money...
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