Mickler v. Maranatha Realty Associates, Inc. (In re Mickler)
Docket: No. 80-1226; Adv. No. 81-92
Court: United States Bankruptcy Court, M.D. Florida; May 3, 1982; Us Bankruptcy; United States Bankruptcy Court
An order on a Motion for Partial Summary Judgment has been issued in an adversary proceeding involving Mara-natha Realty Associates, Inc. and Stanley E. Kreimer as Defendants and Counter-Plaintiffs, against Bartley L. and Elaine Mickler, the Plaintiffs and Counter-Defendants, who filed for Chapter 11 bankruptcy on August 20, 1980. The case centers around a loan agreement dated January 31, 1979, where Maranatha and Kreimer lent the Micklers funds for a shopping center and dinner theater development in Pasco County, Florida. The loan included a promissory note with a 12% interest rate on a $400,000 principal and a mortgage on the Micklers’ land.
The loan documents, drafted by the lenders' Georgia counsel, specified that Florida law would govern the note. It is noted that the negotiation process was not conducted at arm’s length and was primarily managed by the lenders' attorney. The principal place of business for the lenders is Georgia, while the Micklers reside in Florida, with the property also located in Florida. The loan agreement was executed in North Carolina.
The key legal issue involves determining which state's law applies regarding the interest rate. Under Georgia law, the 12% interest rate is not usurious, as there are no restrictions for loans over $100,000. However, under Florida law, prior to an amendment in 1979, the maximum allowable rate was 10%, making the 12% rate usurious. The 1979 amendment increased the maximum rate to 18%, raising the question of whether this change applies retroactively, which is crucial for determining the usury status of the interest rate in this case.
The Plaintiffs argue that a significant portion of the consideration from lenders constitutes disguised interest, suggesting the actual interest rate exceeds 18%, even if this rate were applied retroactively. The determination of which state's law applies is crucial, as illustrated by the case of Continental Mortgage Investors v. Sailboat Key, Inc., where Florida's Supreme Court allowed a choice of law provision if the chosen jurisdiction had a legitimate connection to the transaction. In contrast, in the current case, the lenders explicitly chose Florida law, which prohibits the contract's interest rate, conflicting with their expectations of contractual validity. Although the Defendants advocate for Georgia law, which allows a 12% interest rate, the fact that the loan documents were drafted by their Georgia counsel does not alter the clear designation of Florida law. Given that Florida is both the location of the property and the debtors’ residence, the court concludes that Florida law governs the case. Additionally, the court will consider whether the 1979 amendment to Fla.Stat. 687.03(1) should apply retroactively. The 1977 version of the statute stated that charging an interest rate above 10% for loans was unlawful, directly impacting the agreements in question.
In 1979, Florida's legislature raised the maximum allowable interest rate from 10% to 18%, effective July 1, 1979. The loan agreement in question was executed prior to this date, specifically on January 31, 1979. Generally, usury statutes focus on remedies rather than substantive rights, which means that new statutory interest limits would retroactively apply unless explicitly stated otherwise. The 1979 act included a provision stating its applicability only to loans made on or after its effective date, preserving previous laws for loans completed before that date. However, an amendment on December 13, 1979, altered this prospective application, allowing for the new interest rate to apply retroactively if lenders had the legal right to demand full payment or modify the interest rate through various means.
The amendment specifies that it covers loans made before July 1, 1979, if the lender could enforce payment or adjust the rate. Importantly, the Senate Staff Analysis indicated that the previous law had resulted in extra costs for both lenders and borrowers, as lenders were incentivized to create new loans at the higher interest rates rather than renewing existing ones. Lenders argue that since their note matured on June 29, 1979, it falls under the retroactive clause, thus permitting the application of the new 18% interest rate. Conversely, debtors contend that the amendment should only apply to existing acceleration clauses and not to fully mature obligations, arguing that if the interpretation allows the retroactive application to all pre-July 1 loans, it would undermine the purpose of subsection 5(b). The language of the December 1979 amendment is acknowledged as ambiguous, particularly concerning the interpretation of "if the lender has the legal right to demand full payment."
A literal interpretation of the amendment might suggest it applies to all pre-July 1, 1979 loans that had matured, but the Court finds that the Staff Analysis and Economic Impact Statement clarify that the amendment was intended to assist lenders with loans not yet matured, specifically those containing an acceleration clause or a clause allowing interest rate modification. Without the amendment, lenders would have to call in old loans and issue new ones, incurring additional costs for both parties. The retroactive application of the amendment enables lenders to benefit from increased interest rates without the need to call in old loans, thus avoiding extra expenses. However, the Court concludes that the adjusted interest rate of 18% does not apply retroactively to the loan in question, which remains subject to the 10% per annum interest rate that was in effect prior to July 1, 1979. Consequently, the Court denies the Motion for Partial Summary Judgment from the Defendants and grants final partial summary judgment in favor of the Plaintiffs, recognizing that the laws of Florida prior to July 1, 1979, shall govern the transaction.
