September 24, 2017

Colorado Court of Appeals: Forbearance Fees and Interest Charges on Loan Were Not Usurious

The Colorado Court of Appeals issued its opinion in Blooming Terrace No. 1, LLC v. KH Blake Street, LLC on Thursday, May 18, 2017.

Usury—Motion to Dismiss—Attorney Fees.

KH Blake Street, LLC and Kresher Holdings, LLC (collectively, lender) loaned Blooming Terrace No. 1 LLC (borrower) $11 million for an origination fee of $220,000. The loan was secured by a deed of trust and memorialized by a promissory note (note) that contained an accrual interest rate of 11% per annum, a default interest rate of 21% per annum, a 5% late charge on any late monthly payments, and an $110,000 exit fee. The note required monthly interest payments calculated at the rate of 8% per annum, with none of the monthly payments being applied to the principal.

Borrower defaulted. The parties executed a forbearance agreement whereby lender agreed to forbear from foreclosing on the deed of trust in exchange for a $110,000 forbearance fee plus continued accrual of default interest, late charges, and certain additional fees. At that time, the amount of all outstanding charges was $778,583.33. The loan was not paid when due, and the forbearance agreement was amended for $220,000. Borrower then paid off the loan, including all outstanding interest, fees, and costs.

Borrower sued lender, claiming that the fees, interest, costs, and expenses exceeded the 45% per annum interest allowable under Colorado’s usury law. Lender moved to dismiss under C.R.C.P. 12(b)(5), arguing the loan fees did not constitute interest above the maximum allowable rate. The district court agreed, concluding that the effective rate of interest was 12.924% based on the total amount of interest charged during the life of the loan. The complaint was dismissed. Lender sought attorney fees pursuant to the note, and the district court awarded attorney fees in the amount of $15,407.20 to lender.

On appeal, borrower argued that the court of appeals should annualize the forbearance charges. The district court had measured the interest charged on a purely per annum rate based on the entire amount of interest charges over the life of the loan. The court concluded that borrower’s computation would not accurately reflect the rate of interest actually charged. Although it found the district court overlooked some charges, the court agreed with the district court’s computation approach and calculated an interest rate of 17.60%. The court concluded that the interest charges were not usurious and the complaint failed to state a claim for which relief could be granted

Borrower then argued it was error to grant attorney fees, asserting that because the forbearance agreements were not loan documents, the litigation regarding those agreements was not related to any loan document. The note provided for attorney fees incurred in any litigation related to any “Loan Document.” This litigation concerned the interest charged by lender under both the note and the forbearance agreements. Therefore attorney fees were properly awarded.

Borrower further contended that the district court abused its discretion in calculating the fees awardable to lender. The court rejected this contention.

The judgment was affirmed and the case was remanded for determination of the amount of reasonable appellate attorney fees to be awarded to lender.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Insured Not Entitled to Prejudgment Interest when Settlement Reached Prior to Filing Suit

The Colorado Court of Appeals issued its opinion in Munoz v. American Family Mutual Insurance Co. on Thursday, February 23, 2017.

Prejudgment Interest under C.R.S. § 13-21-101(1).

Munoz was injured in a collision with an uninsured motorist (UM). Munoz opened a UM claim with his insurer, American Family Mutual Insurance Co. (American Family). American Family made settlement offers to Munoz but maintained it was not required to pay prejudgment interest because it was only required to do so after a judgment had been entered by a court. Munoz accepted American Family’s final offer, understanding that it did not include interest.

Munoz then sued American Family and the UM. Munoz moved under C.R.C.P. 56(h) for a determination whether American Family was required to include prejudgment interest as part of its UM claim settlement. The trial court ruled, as a matter of law, that the insured is entitled to such interest only when a judgment has been entered and interest is awarded as a component of damages assessed by the jury’s verdict or the court.

On appeal, Munoz argued that the trial court erred because prejudgment interest is a necessary element of compensatory damages that makes an injured party whole. American Family countered that the plain language of C.R.S. § 13-21-101 states that prejudgment interest can only be awarded after a judgment, based on a damages award determined by a trier of fact, has been entered. The Colorado Court of Appeals determined the plain language of the statute requires, prior to prejudgment interest being awarded, that (1) an action must be brought; (2) the plaintiff must claim damages in the complaint; (3) there must be a finding of damages by a jury or the court; and (4) judgment is entered.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

SB 16-184: Eliminating Floor Rate for Post-judgment Interest

On April 11, 2016, Sens. Bill Cadman & Mark Scheffel and Rep. Yeulin Willett introduced SB 16-184Concerning Market-Based Rates for Interest on Judgments. The bill was introduced in the Senate and assigned to the Senate Judiciary Committee.

The current rate of post-judgment interest is 2 percent above the discount rate of the federal reserve bank of Kansas City, with a floor of 8 percent. This bill eliminates the floor. The current interest rate for judgments for personal injury damages caused by a tort is 9 percent. This bill ties this interest rate to the current rate of post-judgment interest.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Tenth Circuit: Prejudgment Interest Due from Date Entitlement to Benefits Shown, Not Date of Breach

The Tenth Circuit Court of Appeals issued its opinion in Folks v. State Farm Mutual Automobile Insurance Co. on Tuesday, April 28, 2015.

Roberta Folks was injured in 1998 when, as a pedestrian, she was struck by the sideview mirror of a passing car. Ms. Folks received PIP benefits from State Farm, the driver’s insurer, until she exhausted the benefits in 2002. She joined a lawsuit seeking additional benefits in 2004, in which lawsuit she unsuccessfully attempted to certify a class three times. In response to her last failed attempt in 2011, the district court determined she failed to satisfy the requirements of Rule 23(a) and Rule 23(b)(2) and denied class certification. In 2012, a jury decided in Ms. Folks’ favor, and in 2013 the district court amended the judgment to correct errors in the damages calculation. Ms. Folks appealed, challenging the district court’s denial of class certification, calculation of treble damages for willful and wanton conduct, and calculation of prejudgment interest.

First examining Ms. Folks’ argument that the district court erred in finding Ms. Folks had not properly demonstrated relief was appropriate as to the class as a whole, the Tenth Circuit found the issue was not properly preserved for appeal. Although Ms. Folks pointed to several places in the record where she believes she sought class-wide notice, the Tenth Circuit determined that, because class-wide notice is different than notice apprising of a lawsuit, these claims were not preserved. Additionally, Ms. Folks did not show that she sought a certification ruling on class-wide notice, which waived the argument for purposes of appeal.

Turning to the calculation of damages in Ms. Folks’ individual case, the Tenth Circuit found the district court had correctly trebled only the $40,000 damage award for willful and wanton conduct under C.R.S. § 10-4-708(1.8) (now repealed). Ms. Folks argues the court should have trebled the damages and also applied the original damage award, for a total of $160,000, but the Tenth Circuit looked to prior circuit precedent and the Colorado Supreme Court to refute this claim.

Finally, the Tenth Circuit addressed the district court’s calculation of prejudgment interest, reviewing de novo the district court’s conclusion regarding the date of the breach. State Farm was obligated to pay benefits within 30 days after Ms. Folks demonstrated entitlement. The district court determined State Farm was first obligated to pay benefits on May 13, 2009, when she submitted documentation establishing she was entitled to benefits. Ms. Folks relied on the 2002 coverage exhaustion letter to establish the date of the breach, but statutorily prejudgment interest was due only from the date she established entitlement, not from the date of the original breach. The Tenth Circuit found Ms. Folks was not entitled to additional prejudgment interest.

The Tenth Circuit affirmed the judgment of the district court.

Colorado Court of Appeals: Personal Injury Plaintiff Should Receive Statutory Interest on Damages, Not Market Rate Interest

The Colorado Court of Appeals issued its opinion in Averyt v. Wal-Mart Stores, Inc. on Thursday, January 17, 2013.

Post-Judgment Interest Rate Personal Injury Tort Case.

In general, if a plaintiff obtains a money judgment in a personal injury tort case, CRS § 13-21-101(1) requires the trial court to add post-judgment interest to the amount of damages the jury awards, at the rate of 9%, compounded annually. However, if the judgment debtor appeals the money judgment, then the court must calculate post-judgment interest at a market-determined rate. This appeal raised the question of whether the exception applies when the judgment creditor—here, the plaintiff—appeals after (1) the jury has awarded the plaintiff money damages; (2) the trial court enters judgment in plaintiff’s favor; (3) the judgment debtor—here, the defendant—files a motion for a new trial; and (4) the trial court grants the defendant’s motion for a new trial and vacates the judgment. In this case, the applicability of the exception is particularly meaningful because the post-judgment interest rate established by the general rule is much higher than the market determined rate (9% versus 3%). The Court of Appeals held that the exception did not apply and affirmed the trial court’s judgment.

Holly Averyt drove a commercial truck. She slipped and fell on grease-coated ice on a loading dock when she was making a delivery to Wal-Mart Stores, Inc. (Wal-Mart). The fall ruptured a disc in her spine and injured her shoulder and neck, rendering her unable to do her job and unable to control her bladder or bowel.

Averyt sued Wal-Mart for negligence and premises liability. The jury returned a verdict in her favor, assessing total damages at $15 million. In December 2010, the trial court entered judgment and reduced the damages to $9,866,250 to reflect the statutory cap on noneconomic damages. Wal-Mart moved for a new trial based on an evidentiary issue, and the motion was granted. Averyt sought relief in the Supreme Court under CAR 21. The Supreme Court reversed the trial court’s order granting Wal-Mart a new trial.

In February 2012, the trial court entered judgment for the driver in the amount of $9,866,250, pre-judgment interest in the amount of $2,794,788.47, and costs of roughly $45,000. It also awarded post-judgment interest at the statutory rate of 9%, accruing from December 1, 2010 and compounding annually until the judgment was satisfied. Wal-Mart appealed.

Wal-Mart argued that the premises liability verdict was not supported by sufficient evidence. However, the Court found sufficient facts in the record to support the verdict.

Wal-Mart also argued that the market-based interest rate of 3% should apply. It contended that the trial court should have treated Averyt’s CAR 21 original proceeding after the trial court vacated the judgment (an appeal by the judgment creditor) like an appeal by a judgment debtor for the purposes of determining the rate of post-judgment interest. The Court disagreed. CRS § 13-21-101(1) refers only to judgment debtors, not to judgment creditors. The 9% rate was affirmed.

Averyt contended that she should be awarded attorney fees because Wal-Mart’s appeal was frivolous. The Court disagreed. The appeal was not frivolous because there was a basis for Wal-Mart’s argument.

Summary and full case available here.

HB 12-1305: Altering the Rate of Pre-Judgment Interest Paid in Personal Injury Cases

On February 15, 2012, Rep. Bob Gardner and Sen. Steve King introduced HB 12-1305 – Concerning Statutory Rates of Interest. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Currently, if no interest rate is specified, creditors are entitled to receive interest at a rate of 8% per annum compounded annually. The bill changes the statutory interest rate to a rate equal to 2 percentage points above the discount rate that the federal reserve bank of Kansas City charges commercial banks as of January 2 of the year in which the moneys become due. The Secretary of state will certify the interest rate each January 2.

Currently, the secretary of state certifies the interest rate for judgments that are appealed and for damages for personal injuries on December 31 for the following year. The bill changes the date of certification to January 2 for each year. The bill clarifies language on interest recoverable for damages in a personal injury action. On March 28 the bill was defeated on 3rd Reading on the floor of the House.

Summaries of other featured bills can be found here.