Commerce Park Realty, LLC v. HR2-A Corp.

253 A.3d 1258

COMMERCE PARK REALTY, LLC, et al.

v.HR2-A CORP. as General Partner of HR2-A Limited Partnership et al.

No. 2019-468-Appeal.

PB 11-1922

Supreme Court of Rhode Island.

Issued June 30, 2021

Corrected July 1, 2021

Corrected July 6, 2021

Brian LaPlante, Esq., R. Thomas Dunn, Esq., Richard G. Riendeau, Esq., Michael J. Jacobs, Esq., Thomas M. Dickinson, Esq., John O. Mancini, Esq., Nicole M. Matteo, Esq., Matthew J. McGowan, Esq., for Plaintiffs.

Robert D. Wieck, Esq., William J. Delaney, Esq., for Defendants.

Present: Suttell, C.J., Goldberg, Robinson, and Long, JJ.

CORRECTED OPINION

Justice Long, for the Court.

The case before us involves complex and protracted litigation regarding multiple high-interest loans between commercial borrowers and lenders. The loans were for the development of the so-called "Centre of New England" project, which comprises retail, restaurant, hotel, multifamily residential, light industrial, and mixed-use developments in Rhode Island (the Centre of New England project). The defendants, HR2-A Corp. as General Partner for HR2-A Limited Partnership (HR2-A); HR4-A Corp. as General Partner of HR4-A Limited Partnership (HR4-A); MR4A-JV Corp. as General Partner of MR4A-JV Limited Partnership; and Realty Financial Partners (collectively the RFP defendants), appeal from the grant of partial summary judgment in favor of the plaintiffs, Commerce Park Realty, LLC; Commerce Park Properties, LLC (CPP); Commerce Park Commons, LLC; Commerce Park Associates 4, LLC; and the permanent receiver appointed for the four just-referenced limited liability companies (collectively the receivership plaintiffs); as well as Commerce Park Associates 11, LLC; Dartmouth Commons, LLC (Dartmouth); Warwick Village, LLC; Universal Properties Group, Inc.; Nicholas E. Cambio individually (N. Cambio) and as Trustee of the Nicholas E. Cambio, Roney A. Malafronte, and Vincent A. Cambio Trust; and Vincent A. Cambio (V. Cambio) (collectively the Cambio plaintiffs). That grant of partial summary judgment primarily determined that a series of loans made by the RFP defendants was usurious and null and void.¹ For the reasons set forth herein, we affirm the judgment of the Superior Court.

Facts and Procedural History

This case emanates from a series of commercial loans issued by HR2-A and HR4-A, Massachusetts entities with principal places of business located in Massachusetts, to the receivership plaintiffs and the Cambio plaintiffs beginning in 1997.² As security for the loans, the borrowers mortgaged hundreds of acres of property located in West Greenwich, East Greenwich, and Coventry, Rhode Island, and owned by the receivership plaintiffs. The debt that the receivership plaintiffs and the Cambio plaintiffs owed to HR2-A pursuant to the promissory notes exceeded $14 million, and the debt that receivership plaintiffs owed to HR4-A exceeded $7 million (the pre-2000 loans or pre-2000 debt). By July 2000, the receivership plaintiffs and the Cambio plaintiffs owed HR2-A and HR4-A over $21 million on the loans.

In July 2000, the General Assembly amended the Rhode Island usury statute, thereby creating an exception to the maximum allowable interest rate for commercial entities.³ See P.L. 2000, ch. 211, § 1 (effective July 13, 2000). Notwithstanding G.L. 1956 § 6-26-2(a), which dictates that no interest rate on a loan shall exceed the greater of 21 percent per annum, the resulting § 6-26-2(e) provides that

"there is no limitation on the rate of interest that may be legally charged for the loan to, or use of money by, a commercial entity, where the amount of money loaned exceeds the sum of one million dollars ($1,000,000) and where repayment of the loan is not secured by a mortgage against the principal residence of any borrower; provided, that the commercial entity has first obtained a pro forma methods analysis performed by a certified public accountant licensed in the state of Rhode Island indicating that the loan is capable of being repaid."

After this legislation was enacted, HR2-A and HR4-A demanded payment on the then-matured pre-2000 debt.

The receivership plaintiffs and the Cambio plaintiffs were unable to make payment. Consequently, HR2-A and HR4-A agreed to refinance the pre-2000 loans at interest rates that exceeded the previously charged rates. Interest began to accrue at these new interest rates on August 1, 2000, prior to the execution of the loan refinancing documents. With respect to the loan that exceeded $14 million (the $14 million loan), HR2-A charged a compounded monthly interest rate of 2.67 percent, resulting in an effective annual interest rate of 34 percent. With respect to the loan that exceeded $7 million (the $7 million loan), HR4-A charged a compounded monthly rate of 2 percent, resulting in an effective annual interest rate of 26 percent.

In September 2000, prior to closing on the refinanced loans, HR2-A and HR4-A required the receivership plaintiffs and the Cambio plaintiffs to obtain pro forma methods analyses in accordance with § 6-26-2(e). A month later, after the receivership plaintiffs and the Cambio plaintiffs were either unwilling or unable to produce the pro forma analyses, and after charging interest rates on the loans in excess of 21 percent since August 1, 2000, HR2-A and HR4-A subsequently modified their demand to instead permit the receivership plaintiffs and the Cambio plaintiffs to certify in writing that they had obtained the pro forma methods analyses in accordance with § 6-26-2(e).

The closing took place on December 11, 2000, at which time the parties⁴ executed the refinancing documents related to the $14 million loan and the $7 million loan.⁵ The receivership plaintiffs and the Cambio plaintiffs executed the documents before a notary public in West Warwick, Rhode Island and the loan documents were backdated to August 1, 2000.⁶ The receivership plaintiffs and the Cambio plaintiffs also executed written certifications for each loan at the closing. Those "borrower certifications," which were drafted by the RFP defendants and were not notarized, contained the following relevant language:

"(2) The undersigned have obtained a pro forma methods analysis from a certified public accountant for each of the Borrowers as required by R.I. Gen. Laws § 6-26-2.

"(3) The aforesaid pro forma methods analyses indicate that the Borrowers are capable of repaying the Loan.

"(4) For the purposes of this certification, the Borrowers represent that the term ‘pro forma methods analysis’ means an analysis of historical sales data, lease valuations based on existing leases and a review of appraisals of existing leases performed for other financial institutions, which analysis indicates that the value to loan ratio expressed as a percentage exceeds one hundred percent (100%).

"(5) The Lender and its counsel may rely on the foregoing representations of the undersigned."⁷

As with the $14 million and $7 million loans, the borrower certifications were backdated to August 1, 2000.⁸

On December 13, 2000, Dartmouth, N. Cambio, V. Cambio, and Roney A. Malafronte (Malafronte) granted a promissory note in the amount of $4.3 million to HR4-A (the $4 million loan or the $4 million note). Dartmouth is a Rhode Island limited liability company, and N. Cambio, V. Cambio, and Malafronte are individuals domiciled in Rhode Island. The note was secured by the partially constructed Centre of New England project, as well as property located in Massachusetts. The compounded monthly interest rate for the loan was 1.75 percent, which resulted in an effective annual interest rate greater than 23 percent. Notably, the $4 million note contained a choice-of-law provision that stated, "This note for all purposes shall be enforced and construed in accordance with the substantive law of the Commonwealth of Massachusetts, without resort to the state's conflict of laws rules." Each borrower signed the note in West Warwick, Rhode Island.⁹

Both the $14 million loan and the $7 million loan matured on January 31, 2001. The receivership plaintiffs and the Cambio plaintiffs were unable to satisfy their obligations under the two loans by that date, and the parties subsequently amended and restated the promissory notes for both loans on September 20, 2001 (the restated loans).¹⁰ The terms of the loans changed such that payment pursuant to the restated loans became due on demand by HR2-A and HR4-A. The annual interest rate on the restated loans exceeded 23 percent and the notes contained the following language:

"NOTWITHSTANDING THE INCLUSION IN THIS NOTE OF THE ABOVE EVENTS OF DEFAULT, THIS NOTE IS AND SHALL REMAIN FOR ALL PURPOSES A DEMAND NOTE AND AT ALL TIMES IS PAYABLE ON DEMAND OF HOLDER IRRESPECTIVE OF WHETHER ANY EVENT OF DEFAULT EXISTS."

Notably, no pro forma method analyses were conducted in connection with the restated loans, nor did the receivership plaintiffs or the Cambio plaintiffs execute any borrower certifications. The restated loans were signed by the receivership plaintiffs and the Cambio plaintiffs before a notary public in West Warwick, Rhode Island.

On March 28, 2003, CPP, a Rhode Island limited liability company, granted a demand promissory note to HR4-A in the principal amount of $350,000, secured by property located in Coventry (the $350,000 loan). The compounded monthly interest rate for the $350,000 loan was 1.75 percent, which resulted in an effective annual interest rate of over 23 percent. The note for the $350,000 loan contained a choice-of-law provision that stated, "This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts." Further, the top corner of the note bears the notation "Boston, Massachusetts."¹¹

Thereafter, in April 2003, HR2-A and HR4-A demanded payment in full on the restated loans; however, the receivership plaintiffs and the Cambio plaintiffs were unable to make payment. On April 24, 2003, HR2-A, HR4-A, the receivership plaintiffs, and the Cambio plaintiffs then...