2017 COA 72
Colo. Ct. App.2017Background
- In April 2013 KH Blake Street, LLC loaned Blooming Terrace No. 1, LLC $11,000,000 under a promissory note charging 11% annual interest, 21% default interest, a $220,000 origination fee, a $110,000 exit fee, 5% late charge, and monthly interest payments that did not amortize principal; maturity was May 1, 2014.
- Borrower defaulted in April 2014; lender and borrower executed a forbearance agreement (then amended) requiring forbearance fees ($110,000 then an additional total to $220,000), continued default interest, late charges, and related fees to permit delay until mid-May 2014.
- Borrower paid off the loan on May 15, 2014, then sued lender claiming the fees and charges during the forbearance exceeded Colorado’s 45% usury cap and asserted unjust enrichment.
- Lender moved to dismiss under C.R.C.P. 12(b)(5); the district court held the effective applied per annum interest over the loan life was 12.924% (non-usurious) and dismissed; district court awarded lender contractual attorney fees under the Note and costs.
- The court of appeals affirmed: it computed total interest/charges from the complaint ($1,937,027.61) and held the retrospective applied per annum rate was 17.60% (non-usurious), rejected borrower’s annualization of short-term forbearance fees over the entire loan, and upheld the contractual fee award (remanding to determine appellate fees).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether charges during the forbearance period rendered the loan usurious under § 5-12-103 | Forbearance charges should be annualized (compute daily forbearance charge, extrapolate to an annual rate and apply to the whole loan), which yields an effective rate >45% | Charges should be measured as applied per annum over the life of the single extension of credit; retrospectively compute effective rate across the loan term | Court rejected annualizing forbearance fees; applied a retrospective per annum computation and held the effective rate was non-usurious (affirmed dismissal) |
| Proper retrospective method to determine ‘‘applied per annum rate’’ under Dikeou v. Dikeou | Dikeou permits annualizing short default-period charges to determine an applied per annum default rate | Dikeou requires computing an effective applied per annum rate retrospectively across all interest-related charges over the loan life, not annualizing a brief forbearance fee as though charged for the whole term | Court applied Dikeou’s retrospective approach, declined borrower’s annualization method, and found total applied per annum rate below 45% |
| Whether litigation was covered by the Note’s fee-shifting clause | Borrower: Forbearance agreements aren’t Loan Documents and thus litigation about them isn’t covered by the Note’s fee clause | Lender: Litigation relates to the Note and Loan Documents so fees are recoverable under the Note | Court held litigation was “related to” the Note (a Loan Document) and fee-shifting clause applied; awarded attorney fees |
| Reasonableness and amount of awarded attorney fees | Borrower: Fees were excessive, inadequately documented, lumped, and not properly apportioned | Lender: Fees reasonable and incurred defending related litigation under the Note | Court affirmed district court’s fee calculation and reduction exercise as within discretion; remanded for appellate-fee determination |
Key Cases Cited
- Stone v. Currigan, 334 P.2d 740 (Colo. 1959) (interest defined as compensation for use, detention, or forbearance of money)
- Perino v. Jarvis, 312 P.2d 108 (Colo. 1957) (court’s prior treatment of late charges as penalties in consumer context)
- Dikeou v. Dikeou, 928 P.2d 1286 (Colo. 1996) (for nonconsumer loans, compute applied per annum default rate retrospectively and add to initial rate; late/daily charges construed as interest for usury analysis)