CAROL A. SMITH, Petitioner,
CAS, LLC, 60 HAMMARLUND WAY, UNIT NO. 2, LLC, Respondent.
Newport County Superior Court
For Plaintiff: Brendan P. Smith, Esq.
For Defendant: Richard M. Coen, Esq.; Benjamin C. Caldwell, Esq.; Vincent A. Indeglia, Esq.
Before this Court is Northeast LP IV, LLC's (Claimant) Motion to Approve its Amended Receivership Proof of Claim. On October 14, 2014, Claimant filed a Proof of Claim (Original Proof of Claim) as the owner and holder of a first Open-End Mortgage (Mortgage) and Promissory Note (the Note) executed by CAS, LLC, doing business as 60 Hammarlund Way, Unit No. 2, LLC (Respondent or Debtor). Claimant has since filed an Amended Receivership Proof of Claim (Amended Proof of Claim) and now petitions this Court to approve its claim. Carol A. Smith (Petitioner) objects to the Claimant's Motion on the grounds that the Amended Proof of Claim fails to adequately establish the amount the Claimant alleges to be owed. Additionally, the Petitioner argues that the Respondent has defenses to the enforcement of the Note under the Uniform Commercial Code that prevents this Court from approving the Claimant's Amended Proof of Claim. Jurisdiction is pursuant to G.L. 1956 § 8-2-14.
Facts and Travel
The Respondent is a Rhode Island limited liability company which owned and operated real property (the Property) in Middletown, Rhode Island. During the course of its business, the Respondent took out a $500, 000 loan from Sovereign, and in exchange, executed the Note for the amount of the loan. The Respondent executed a Mortgage on the Property in favor of Sovereign to secure payment and performance under the loan provided by Sovereign. On September 6, 2012, Sovereign assigned its right, title and interest in the Note and Mortgage to the Claimant. Claimant is now the holder of the first Mortgage on the Property and the accompanying Note.
The Note was for a term of ten years with a chargeable interest rate of 6.77% for the first five years. After the initial five years, the Note stated that Sovereign could, in its sole discretion, change the interest rate and charge a rate equal to the five-year marginal cost of funds index plus a 2.25% margin per annum. Sovereign did not change the interest rate at the end of the first five years, but instead continued to charge interest at a rate of 6.77%. However, in April of 2011, Sovereign did change the interest rate and began charging a rate of 4.957%. The Petitioner alleges that the change in interest rate occurred six months after the point in time Sovereign was allowed to change the rate. The overcharging of interest for this six month period forms the basis of the Petitioner's objection to the Claimant's Amended Proof of Claim.
After the Respondent was placed into receivership, the receiver planned to sell the Property. As a result, the Claimant filed its Original Proof of Claim. In its objection to the Claimant's Original Proof of Claim, the Petitioner argued that by fraudulently charging an improper interest rate for a six month period in 2010-2011, Sovereign had overcharged the Respondent approximately three thousand dollars in interest. Additionally, the Petitioner alleged that the Claimant's Original Proof of Claim should be denied by this Court on the grounds that the Claimant is not a holder in due course of the Note since the Respondent had defenses to the Note's enforcement at the time of the Note's transfer to the Claimant.
At the hearing on the motion to approve the Original Proof of Claim, the Claimant stipulated to a lower amount from its Original Proof of Claim in order to offset the amount of the alleged overpayment of interest. At the June 10, 2015 hearing, this Court ordered that the Claimant could amend its claim to the stipulated amount of $420, 582.28. Additionally, this Court ordered additional briefing from the parties concerning the Claimant's Amended Proof of Claim. Following the Court's directive, the Petitioner has filed an additional objection arguing the Claimant has failed to satisfy its burden of proof supporting its claim.