Commerce Park Realty, LLC v. HR2-A Corp. as General Partner of HR2-A Limited Partnership, 19-468

Background

Beginning in 1997 HR2-A and HR4-A (Mass. lenders) made commercial loans secured largely by Rhode Island real estate to Commerce Park entities and Cambio parties; pre-2000 debt exceeded $21 million.
In July 2000 Rhode Island amended its usury statute, § 6-26-2(e), to permit uncapped rates for commercial loans over $1,000,000 if the borrower had "first obtained" a pro forma methods analysis from a Rhode Island–licensed CPA indicating ability to repay.
Lenders backdated higher interest rates to August 1, 2000 (monthly compounding producing effective rates of ~34%, 26%, and >23% on several loans); loan documents were executed December 11–13, 2000 and included borrower certifications asserting the required pro formas had been obtained (certifications were unnotarized and analyses were not produced).
In April 2003 borrowers and lenders executed a forbearance agreement in exchange for a broad waiver/release of claims (including usury); borrowers contend the waiver was coerced.
Trial court granted partial summary judgment declaring the $14M and $7M loans (and later the $4M and $350K loans) usurious and void, refused to enforce the forbearance waiver as to usury, and applied Rhode Island law to the smaller loans; RFP defendants appealed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the $14M and $7M loans were usurious	Lenders charged >21% and failed to satisfy § 6-26-2(e) because no pro forma analyses by RI-licensed CPA were obtained; therefore loans are usurious and void	Section 6-26-2(e) exception applies because borrowers certified pro formas were obtained; lenders entitled to uncapped rates	Held usurious: borrower certifications alone insufficient; lenders bore the burden to show the required pro formas were actually obtained, which they failed to do.
Whether interest charged Aug–Dec 2000 (before December closing) was usurious	Interest accrued at >21% between Aug 1 and Dec 10, 2000 and thus was charged in violation of § 6-26-2(a) because the statutory exception was not met beforehand	Rates were not "charged" until closing/december when certifications were executed, so pre-closing accrual is not usury	Held usurious: accrual of interest at >21% before compliance with § 6-26-2(e) is usurious; backdating and retroactive charges fatal to defendants.
Validity of the forbearance agreement release/waiver of usury claims	Borrowers argued the waiver was coercive, executed under duress to avoid foreclosure, and thus against public policy	Lenders relied on DeFusco; argued parties knowingly and freely waived claims in exchange for forbearance, so waiver should be enforced	Held waiver ineffective as to usury: court found the agreement was coercive/Hobson’s choice and not within narrow category permitting waiver of usury defense.
Choice-of-law for $4M and $350K notes (Mass. vs. R.I.)	Plaintiffs: Rhode Island has materially greater interest (execution/subject property/borrowers in R.I.); applying Mass. law would frustrate R.I. public policy against usury	Defendants: express contractual choice of Massachusetts law should govern (Sheer Asset precedent)	Held R.I. law governs: although Massachusetts has a substantial relation, R.I. has materially greater interest and applying Mass. law would conflict with a fundamental R.I. public policy on usury.

Key Cases Cited

NV One, LLC v. Potomac Realty Capital, LLC, 84 A.3d 800 (R.I. 2014) (establishes that >21% interest is usurious; usury law treated with strict liability and lenders bear compliance burden)
DeFusco v. Giorgio, 440 A.2d 727 (R.I. 1982) (waiver of usury defense permitted only when freely and knowingly made after reasoned reflection to settle or avoid litigation; not allowed when subterfuge or coercion)
Sheer Asset Mgmt. Partners v. Lauro Thin Films, Inc., 731 A.2d 708 (R.I. 1999) (upholds parties’ choice-of-law when chosen state has substantial relation and application does not offend forum public policy)
Reichwein v. Kirshenbaum, 201 A.2d 918 (R.I. 1964) (debtor’s voluntary act cannot render usurious that which otherwise would be lawful; distinguished where loan was facially usurious)
St. Germain v. Lapp, 48 A.2d 181 (R.I. 1946) (substituted/ refinanced loan extinguishes prior loan obligations; new terms control)