Soaring Pine Capital Real Estate & Debt Fund II, LLC v. Park St. Grp. Realty Servs., LLC

337 Mich.App. 529

976 N.W.2d 674

SOARING PINE CAPITAL REAL ESTATE AND DEBT FUND II, LLC, Plaintiff/Counterdefendant-Appellee,

v.PARK STREET GROUP REALTY SERVICES, LLC, Park Street Group, LLC, and Dean J. Groulx, Defendants/Counterplaintiffs-Appellants.

Soaring Pine Capital Real Estate and Debt Fund II, LLC, Plaintiff/Counterdefendant-Appellant,

v.Park Street Group Realty Services, LLC, Park Street Group, LLC, and Dean J. Groulx, Defendants/Counterplaintiffs-Appellees.

No. 349909

No. 350159

Court of Appeals of Michigan.

Submitted February 2, 2021, at Detroit.

Decided June 10, 2021, at 9:05 a.m.

Conlin, McKenney & Philbrick, PC, Ann Arbor (by W. Daniel Troyka ) and Mark Granzotto PC, Royal Oak (by Mark R. Granzotto ) for plaintiff.

Plunkett Cooney, Bloomfield Hills (by Mary Massaron ) for defendants.

Before: Murray, C.J., and Jansen and Stephens, JJ.

Murray, C.J.

In these consolidated appeals¹ involving a contract dispute and allegations of usury, in Docket No. 349909, defendants, Park Street Group Realty Services, LLC (PSGRS), Park Street Group, LLC (PSG), and Dean J. Groulx, appeal by leave granted² the June 27, 2019 order of the trial court granting in part and denying in part defendants' motion for summary disposition under MCR 2.116(C)(10). In Docket No. 350159, plaintiff, Soaring Pine Capital Real Estate and Debt Fund II, LLC, also appeals by leave granted³ the same order of the trial court. We affirm.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Groulx, the sole owner of PSGRS and an operating member of PSG, is a licensed attorney. In 2015, he began discussions with plaintiff about receiving a loan that would provide defendants operating capital for their business flipping tax-foreclosed homes. In July 2016, plaintiff prepared a presentation to convince its investors that the loan would be profitable, noting that plaintiff planned to obtain a 5% "upfront fee," 20% interest, and success fees of $1,000 per sale. Plaintiff projected that the loan would "yield a cash-on-cash return of 37.4% and an [internal rate of return (IRR)] of 36.5%."

Plaintiff agreed to loan $500,000 to PSGRS, which was guaranteed by PSG and Groulx, personally. On September 23, 2016, a second tranche of $500,000 was disbursed to PSGRS, an amended loan agreement was signed, and an updated mortgage was provided on properties owned by PSG to secure repayment of the loan. Before that occurred, though, plaintiff issued another proposal to its investors reflecting that the total $1 million loan was "projected to yield a cash-on-cash return of 31.4% and an IRR of 29.6%." Despite there being two separate tranches of loan money, and two sets of documents, the terms relevant to this appeal were the same in all of the documents.

The mortgage note stated that "[i]nterest on the outstanding principal amount of the Loan shall accrue interest [sic] at the Interest Rate of Twenty Percent (20.00%) (‘Interest’) per annum[.]" PSGRS was also required to pay a "Commitment Fee," listed as $25,000 and due at each closing—$50,000 in total. PSGRS had the responsibility to pay "all closing costs, including by way of description and not limitation, reasonable attorneys' fees incurred by [plaintiff] in connection with the consummation and closing of the Loan." As part of repayment, PSGRS was not required to pay anything for the first two months, but the interest still accrued and would "be capitalized and added to the loan balance ...." After that, PSGRS was to make monthly payments on the principal of the loan, with a final "balloon payment of the remaining outstanding principal balance of the Loan, plus all accrued and unpaid Interest," due one year after the loan agreement and mortgage note were signed. Because the loan proceeds were to be used by PSGRS to purchase homes, renovate them, and sell them, the loan agreement contained a clause requiring that, "[u]pon consummation of a Home Sale, [PSGRS] shall to pay to [sic] [plaintiff] a success fee in the amount of One Thousand and 00/100 Dollars ($1,000.00) per home or lot sold (‘Success Fee’)." Importantly, the last relevant term of the contract was a usury-savings clause, which provided that if the interest rate under the contract was determined to be usurious, it would revert to the maximum legal interest rate. Groulx signed all of the mortgages, notes, and guaranties on behalf of PSGRS, PSG, and himself.

After paying plaintiff more than $140,000 in interest, defendants stopped paying on the loans in July or August 2017. In December 2017, plaintiff issued Groulx a demand for payment with the threat of a lawsuit. The demand contained a summary of the amounts still owed—$1,029,811.74 in principal; $34,337.06 in interest through the date of maturity; $67,223.82 in default interest, which would continue to accrue at $715.15 per day; $70,000 in success fees; and $6,153.86 in attorney fees. That gave a total due of $1,207,562.48 as of December 26, 2017, with the interest paid to date and the interest sought in the demand letter constituting 23.4% interest.

When defendants still did not pay, plaintiff filed suit in January 2018. After a lengthy procedural history and discovery period, plaintiff's second amended complaint contained three breach-of-contract claims (one each against PSGRS, PSG, and Groulx) and two claims of fraud. Plaintiff alleged that defendants had made misrepresentations about the businesses and the people involved in the businesses to fraudulently induce plaintiff into giving the loan. Defendants, meanwhile, counterclaimed that plaintiff breached a contract to give $2 million by only providing $1 million and committed fraud.

After considering a number of different motions for summary disposition, the trial court heard defendants' motion that the wrongful-conduct rule precluded the breach-of-contract claims where the contracts violated the criminal-usury statute, MCL 438.41, by charging an effective interest rate above 25% simple interest per annum. Defendants' arguments relied on allegations that the "commitment fees," "success fees," and two months of compound interest should be considered hidden interest and incorporated to determine the actual interest charged. Defendants supported that argument with an affidavit from an accounting expert, John Fiorrito, C.P.A., in which he averred that the planned rate of return for plaintiff corresponded with a rate of 36.5% simple interest per annum.

Plaintiff argued that the criminal-usury statute was not applicable for a variety of reasons, including that the usury-savings clause had to be enforced as written, and that the claimed instances of hidden interest should not be included in the calculation of interest. Plaintiff insisted that the trial court was required only to consider that the contract stated a rate of 20% simple interest per annum, which was not criminally usurious. Lastly, plaintiff contended that, even if the contract was determined to be criminally usurious, the remedy was to bar plaintiff from collecting interest only. In other words, plaintiff argued that it should still be permitted to collect the $1 million principal of the loan.

The trial court ultimately agreed with defendants that the contract provided for a criminally usurious interest rate. However, the trial court declined to apply the wrongful-conduct rule to bar plaintiff's collection of the principal of the loan, holding that there was not a sufficient causal nexus between plaintiff's illegal behavior and the claims. The trial court ordered that an upcoming trial would take place on the amount owed, but that plaintiff would not be permitted to introduce evidence of defendants' alleged fraud. These appeals followed.

II. SUMMARY DISPOSITION

A. STANDARD OF REVIEW

During the trial court proceedings, the parties presented arguments under both MCR 2.116(C)(8) and (C)(10). Because the trial court did not specifically state under which rule the motions were being decided and relied on evidence outside of the pleadings, this issue is appropriately reviewed under (C)(10). "This Court... reviews de novo decisions on motions for summary disposition brought under MCR 2.116(C)(10)." Pace v Edel-Harrelson , 499 Mich 1, 5, 878 NW2d 784 (2016). A motion for summary disposition under MCR 2.116(C)(10) "tests the factual sufficiency of the complaint ...." Joseph v Auto Club Ins Ass'n , 491 Mich 200, 206, 815 NW2d 412 (2012). "In evaluating a motion for summary disposition brought under this subsection, a trial court considers affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties, MCR 2.116(G)(5), in the light most favorable to the party opposing the motion." Maiden v Rozwood , 461 Mich 109, 120, 597 NW2d 817 (1999). Summary disposition is proper where there is no "genuine issue regarding any material fact." Id. "A genuine issue of material fact exists when reasonable minds could differ on an issue after viewing the record in the light most favorable to the nonmoving party." Auto-Owners Ins Co v Campbell-Durocher Group Painting & Gen Contracting, LLC , 322 Mich App 218, 224, 911 NW2d 493 (2017) (quotation marks and citation omitted).

"Questions of statutory interpretation are also reviewed de novo." Rowland v Washtenaw Co Rd Comm. , 477 Mich 197, 202, 731 NW2d 41 (2007). "Insofar as the motion for summary disposition involves questions regarding the proper interpretation of a contract, this Court's review is de novo." Johnson v USA Underwriters , 328 Mich App 223, 233, 936 NW2d 834 (2019).

B. CRIMINAL-USURY STATUTE AND USURY-SAVINGS CLAUSE

Plaintiff argues that the criminal-usury statute, MCL 438.41, does not apply because of a certain statutory exception, the language of the criminal-usury statute itself, and the existence of the usury-savings clause. Only the latter argument is properly before us.

1. WAIVED ARGUMENTS

Plaintiff's first argument is that the trial court's decision must be reversed because the exception in MCL 438.31c(11) makes the criminal-usury statute in...