88 Cal.App.5th 342
Cal. Ct. App.2023Background
- G Companies (California LLC) took a $4 million six-month loan from LREP (Arizona/Texas LLC) secured by two San Juan Capistrano parcels; contract interest 36% APR, 10% APR default rate.
- The loan agreement contained an Arizona choice-of-law clause and an exclusive forum selection clause for Maricopa County, Arizona, and used an Arizona escrow/closing agent.
- G Companies defaulted; LREP foreclosed, acquired the property by credit bid, and a large deficiency remained; guarantors later settled with LREP and obtained judgments against them.
- Guarantors sued G Companies seeking indemnity; G Companies filed a cross‑complaint against LREP alleging LREP collected usurious interest in violation of California usury law and sought declaratory relief, indemnity, contribution, and equitable apportionment.
- LREP moved to stay/enforce the forum clause; the trial court granted a stay and ordered the cross‑complaint litigated in Arizona. G Companies appealed.
- The Court of Appeal reversed, holding California’s usury prohibition is a fundamental, unwaivable public policy that precludes enforcing a forum selection clause that would deprive a California resident of those protections.
Issues
| Issue | G Companies' Argument | LREP's Argument | Held |
|---|---|---|---|
| Whether a forum‑selection clause can be enforced if it would deny a California resident unwaivable, fundamental rights under California law | Forum clause unenforceable because it would deprive G Companies of California's unwaivable usury protections | Forum clause enforceable; California usury law is not a fundamental policy here because of many exceptions and parties' sophistication | Court: Unenforceable where enforcement would deprive a CA resident of unwaivable constitutional protections against usury |
| Whether California's usury law reflects a significant public policy despite statutory/constitutional exemptions | Usury law is constitutional, unwaivable, protects Californians, and thus is a fundamental public policy | Exemptions and legislative control over rates show policy is not "strong" | Court: Usury law is fundamental public policy (constitutional, unwaivable), complexity/exceptions do not negate significance |
| Which party bears burden to show enforcement won't diminish California rights | If rights invoked are unwaivable, party seeking enforcement must prove no diminution | LREP argued G Companies failed to show enforcement would be unfair; tried to shift burden | Court: Because G Companies invoked unwaivable rights, LREP bore burden and failed to show Arizona forum would preserve those rights |
| Whether equitable forum‑non‑conveniens factors or parties' sophistication justify enforcement | Equitable factors cannot override deprivation of fundamental public policy protections | Claimed efficiency, prior Arizona proceedings, and borrower sophistication support enforcement | Court: Equities do not permit enforcement that would strip unwaivable California protections; LREP's factual showing insufficient |
Key Cases Cited
- Ury v. Jewelers Acceptance Corp., 227 Cal.App.2d 11 (discussed by parties for proposition that usury exceptions weaken public‑policy claim; court rejects that reading)
- Hyundai Securities Co., Ltd. v. Lee, 232 Cal.App.4th 1379 (involved enforcement/recognition issues under foreign‑judgment statute; cited but deemed unpersuasive here)
- Mencor Enterprises, Inc. v. Hets Equities Corp., 190 Cal.App.3d 432 (choice‑of‑law context; court finds it does not undermine that usury is fundamental policy)
- America Online, Inc. v. Superior Court, 90 Cal.App.4th 1 (explains forum‑selection clauses favored but unenforceable when they would violate California public policy)
- Verdugo v. Alliantgroup, L.P., 237 Cal.App.4th 141 (places burden on party seeking enforcement when unwaivable California statutory rights are asserted)
- Hall v. Superior Court, 150 Cal.App.3d 411 (refused to enforce forum/clause where doing so would deny unwaivable California statutory protections)
- Ghirardo v. Antonioli, 8 Cal.4th 791 (explains purpose of California usury law and that it protects borrowers including the sophisticated)
- Gamer v. duPont Glore Forgan, Inc., 65 Cal.App.3d 280 (recognizes California's strong public policy against usury)