NICHOLAS E. CAMBIO, individually; NICHOLAS E. CAMBIO, Trustee of the NICHOLAS E. CAMBIO, RONEY A. MALAFRONTE and VINCENT A. CAMBIO TRUST; CKLP, LLC; 1435 BALD HILL ROAD, LLC; COMMERCE PARK ASSOCIATES 1, LLC; COMMERCE PARK ASSOCIATES 2, LLC; COMMERCE PARK ASSOCIATES 6, LLC; COMMERCE PARK ASSOCIATES 12, LLC; and COMMERCE PARK ASSOCIATES 13, LLC, Plaintiffs,
POTOMAC REALTY CAPITAL, LLC; DANIEL M. PALMIER; ANNA COLLINS; SALVADOR F. LECCESE; BENTON KENDIG, III; POTOMAC LAWSON, LLC; CAPITAL MANAGEMENT SYSTEMS, INC.; Alias; and FIDELITY NATIONAL TITLE INSURANCE COMPANY, Alias, Defendants.
Providence County Superior Court
For Plaintiff: Richard G. Riendeau, Esq.
For Defendant: William J. Delaney, Esq. Kate Moran Carter, Esq.
Plaintiffs bring this Motion for Partial Summary Judgment seeking a declaration pursuant to Counts XIII and XIV of their Amended Complaint that CKLP's loan from Defendant Potomac Realty Capital, LLC (PRC) was usurious in violation of G.L. 1956 § 6- 26-2. Specifically, on Count XIII – Usury: Default Interest Rate, Plaintiffs claim that PRC's charging of interest at the "Default Rate" (as that term is defined in the loan documents) resulted in interest being charged on the loan above the maximum allowable interest rate set out in the usury statute. Moreover, on Count XIV – Usury: Two Million Dollar Payment, Plaintiffs claim that CKLP's loan with PRC also became usurious in violation of the statute when PRC collected a $2, 000, 000 payment for the release of certain personal guarantors to the loan but elected not to apply that amount to pay down the outstanding principal balance. As to that Count, Plaintiffs argue the $2, 000, 000 payment, when amortized over the entire life of the loan, resulted in an effective interest rate substantially in excess of the twenty-one percent maximum. Should the Court find a usurious interest rate charged by PRC to CKLP, Plaintiffs ask the Court to declare the loan void and its respective security interests discharged and voided under § 6-26-4.
Facts and Travel
On January 16, 2007, N. Cambio (as sole Manager), Defendant Potomac Lawson, LLC (Potomac Lawson), Defendant Salvador F. Leccese (Leccese), and Defendant Benton Kendig, III (Kendig) executed an Operating Agreement for the purposes of establishing CKLP. (Am. Compl. App. A). As set forth in the Operating Agreement, CKLP's stated purpose was to develop a mixed use (residential and commercial) project, which encompassed the development of "Cedar Ridge, " an approximate thirty-acre parcel in West Greenwich, Rhode Island. See Am. Compl. ¶ 26; App. A at 2. Specifically, the parties, in forming CKLP, intended to construct an age-restricted residential condominium development on the subject land. Id. To begin its development of the property, CKLP paid $6, 000, 000 to purchase 100 percent of the membership in CPA 12, as that entity owned the Cedar Ridge property. See Am. Compl. ¶ 27.
To finance the purchase of the membership interest in CPA 12, CKLP contemporaneously executed and delivered a promissory note to PRC in the original principal amount of $5, 300, 000 (the Note). See N. Cambio Aff. Ex. A, Dec. 16, 2014. This Note represented the loan agreed to by and between CKLP and PRC through a Mezzanine Loan Agreement (the Loan Agreement) dated January 16, 2007. Also, according to the Amended Complaint, on that same day, PRC entered into separate, so-called "Pledge and Security Agreements" with both CKLP and N. Cambio, in his capacity as Trustee, respectively. The Pledge and Security Agreements allegedly represented N. Cambio's (both as Manager of CKLP and separately in his capacity as Trustee) agreement with PRC to provide the several parcels of real estate owned by the various Plaintiffs as security for the loan. See N. Cambio Aff. Ex. A at § 1.9; Am. Compl. ¶¶ 31-32.
Pursuant to section 3 of the Note,
"Upon the occurrence of an Event of Default, then: (i) interest on the outstanding principal balance of this Note shall, commencing on the date of the occurrence of such Event of Default and without notice to Maker, accrue at the Default Rate until full payment of the outstanding principal balance of this Note; and (ii) Payee may exercise all remedies set forth in the Pledge and any other Loan Document, including, without limitation, declaring all or any portion of the unpaid Loan Amount to be immediately due and payable." (N. Cambio Aff. Ex. A at 7, § 3.2).
As defined in the Note, "Default Rate" means "the lesser of (a) twenty-four percent (24%) per annum and (b) the maximum rate of interest, if any, which may be collected from Maker under applicable law." Id. Ex. A at 1, §1.1. The two-year loan evidenced by the Note provided for an interest rate of fifteen percent per annum of which twelve percent was payable through a $1, 000, 000 "Interest Reserve" with three percent accruing until maturity. (N. Cambio Aff. ¶ 2). Although the Interest Reserve was required to be placed in escrow, PRC never complied. Id. ¶ 3.
N. Cambio (in his individual capacity), Leccese, and Kendig, jointly and severally, guaranteed the loan with PRC through the execution of an Indemnity and Guaranty Agreement. (PRC's Resp. to First Set of Req. for Admis., at No. 8) (hereinafter PRC's Admissions). However, on or about December 31, 2008, during the life of the loan, CKLP members Leccese and Kendig paid $2, 000, 000 to PRC in order to be released as guarantors (a payment characterized by PRC as a "Release Fee"). See N. Cambio Aff. ¶¶ 5, 8; PRC's Admissions, at Nos. 10-15. According to PRC's Admissions, the release from the loan was achieved through a Release and Guaranty Agreement by and among Leccese, Kendig, and PRC. (PRC's Admissions, at No. 10). The actual terms surrounding the $2, 000, 000 Release Fee remain unclear.
On December 19, 2008, through electronic correspondence from Daniel M. Palmier (Palmier), a Principal of PRC, to Melissa A. Faria (Faria), Vice President at Universal Properties Group, Inc. (an agent of N. Cambio), Palmier attached a ...