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Commerce Park Realty, LLC v. HR2-A Corp.

Superior Court of Rhode Island, Providence

June 19, 2019

COMMERCE PARK REALTY, LLC, COMMERCE PARK PROPERTIES, LLC COMMERCE PARK COMMONS, LLC COMMERCE PARK ASSOCIATES 4, LLC COMMERCE PARK ASSOCIATES 11, LLC UNIVERSAL PROPERTIES GROUP, INC. DARTMOUTH COMMONS, LLC WARWICK VILLAGE, LLC NICHOLAS E. CAMBIO, individually and NICHOLAS E. CAMBIO, Trustee of the NICHOLAS E. CAMBIO, RONEY A. MALAFRONTE & VINCENT A. CAMBIO TRUST and VINCENT A. CAMBIO, Plaintiffs,
v.
HR2-A Corp. as General Partner of HR2-A Limited Partnership, John Doe(s), the Limited Partners of HR2-A Limited Partnership and the Investors and the Beneficiaries of HR2-A Limited Partnership, HR4-A Corp., as General Partner of HR4-A Limited Partnership, John Doe(s), the Limited Partners of HR4-A Limited Partnership, MR4A-JV Corp., as General Partner of MR4A-JV Limited Partnership, REALTY FINANCIAL PARTNERS, DAVID ALLEN and DONALD BIERER and John Doe(s), the Officers and agents of REALTY FINANCIAL PARTNERS, Defendants.

          For Plaintiff: Richard G. Riendeau, Esq.; Matthew J. McGowan, Esq.

          For Defendant: Robert D. Wieck, Esq. Interested Parties: William J. Delaney, Esq.; David P. DiStefano, Esq.; Joseph V. Cavanagh, III, Esq.

          DECISION

          TAFT-CARTER, J.

         Before this Court for decision are four (4) motions for summary judgment. The motions seek summary judgment on the issue of an alleged violation of the Rhode Island usury law as codified in G.L. 1956 § 6-26-2 and the entitlement of monetary damages and other relief in the event that such a usury violation is found. The motions refer to three categories of litigants.

         The first category is collectively referred to as the Receivership Plaintiffs. It includes: Plaintiff Commerce Park Realty, LLC (CPR)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Commerce Park Properties, LLC (CPP)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Commerce Park Commons, LLC (CPC)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Commerce Park Associates 4, LLC (CPA 4)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; and, Receiver Matthew McGowan (Receiver)-appointed Permanent Receiver on February 20, 2013 for the four above-referenced limited liability companies. The second category is collectively referred to as the Non-Receivership Plaintiffs. This category includes: Plaintiff Commerce Park Associates 11, LLC (CPA 11)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Dartmouth Commons, LLC (Dartmouth)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Warwick Village, LLC (Warwick)-a limited liability company organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Universal Properties Group, Inc. (UPG)-a corporation organized in the State of Rhode Island, for which the principal place of business is West Warwick, Rhode Island; Plaintiff Nicholas E. Cambio individually (N. Cambio), and as Trustee of the Nicholas E. Cambio, Roney A. Malafronte, and Vincent A. Cambio Trust (N. Cambio, Trustee)-a resident of the Town of East Greenwich, Rhode Island; and, Plaintiff Vincent A. Cambio (V. Cambio)-a resident of Johnston, Rhode Island. Finally, the third category, collectively referred to as the RFP Defendants, includes: Defendant HR2-A Corp. as General Partner of HR2-A Limited Partnership (HR2-A)-a Massachusetts corporation for which the principal place of business is Wellesley, Massachusetts; Defendant HR4-A Corp. as General Partner of HR4-A Limited Partnership (HR4-A)-a Massachusetts corporation for which the principal place of business is Wellesley, Massachusetts; Defendant MR4A-JV Corp., as General Partner of MR4A-JV Limited Partnership-a Massachusetts corporation for which the principal place of business is Wellesley, Massachusetts; and, Defendant Realty Financial Partners (RFP Lenders)-a Massachusetts corporation for which the principal place of business is Wellesley, Massachusetts.

         This decision encompasses the following motions and objections now pending before the Court:

1) The Receivership Plaintiffs' motion for the entry of partial summary judgment[1] on the Receivership Plaintiffs' and Non-Receivership Plaintiffs' Amended Complaint Counts I and IV and Counts I and III of the Defendants' Counterclaim;[2]
2) The Non-Receivership Plaintiffs' Motion for Partial Summary Judgment pursuant to the Third Rule 16 Order; [3]
3) The RFP Defendants' Motion for Summary Judgment on the fifth amended complaint; [4] 4) The RFP Defendants' Motion for Ruling on the Usury Claim Entitlement Issue (Entitlement Motion).[5]

         In response to the pending motions, the Court has received the following:

5) Amicus Curiae Brief of the Estate of Louise Cardi in Support of Non-Receivership Plaintiffs' Cross-Motion for Summary Judgment on the Usury Issue;
6) The RFP Defendants' objection to Receivership Plaintiffs' Motion for Partial Summary Judgment;
7) The RFP Defendants' objection to the Non-Receivership Plaintiffs' Motion for Partial Summary Judgment;
8) The Receivership Plaintiffs' Limited Objection to the Non-Receivership Plaintiffs' Motion for Partial Summary Judgment relating to their demand for money damages;
9) The Receivership Plaintiffs' objection to the RFP Defendants' Motion for Summary Judgment;
10) The Receivership Plaintiffs' motion supporting in part the RFP Defendants' relief sought in the Entitlement Motion.
11) The Non-Receivership Plaintiffs' objection to the Entitlement Motion.

         As common issues of fact and law have been raised, this Court issues one decision for the purposes of judicial economy. This Court exercises jurisdiction pursuant to G.L. 1956 § 9-30-1 and Super. R. Civ. P. 56.

         I

         Facts and Travel

         A

         The Loans

         The Receivership Plaintiffs and others executed a series of promissory notes, mortgages and security documents to HR2-A and HR4-A prior to July 2000. These promissory notes were secured by mortgages on several hundred acres of land in the Town of Coventry, Rhode Island; Town of West Greenwich, Rhode Island; and Town of East Greenwich, Rhode Island. N.R. Pls.' Mot. Ex. A-3, ¶¶ 3-4; R. Pls.' Mot. Exs. 1-A-1, 1-A-3, 1-B. The financial obligations owed to HR2-A pursuant to the promissory notes executed before July 2000 exceeded $14, 000, 000. R. Pls.' Mot. Ex. 1-C; N.R. Pls.' Mot. Ex. A-3, ¶ 3. The liability to HR4-A for the pre-July 2000 indebtedness exceeded $7, 000, 000.00. R. Pls.' Mot. Ex. 1-D; N.R. Pls.' Mot. Ex. A-3, ¶ 4.

         The Rhode Island General Assembly, in July 2000, enacted an amendment to the Rhode Island usury statute, [6] which created an exception to the maximum allowable interest rate. Public Law 2000 Ch. 211 was codified into § 6-26-2(e), which states:

"there is no limitation on the rate of interest that may be legally charged for the loan to, or use of money by, a commercial entity, where the amount of money loaned exceeds the sum of one million dollars ($1, 000, 000) and where repayment of the loan is not secured by a mortgage against the principal residence of any borrower; provided, that the commercial entity has first obtained a pro forma methods analysis performed by a certified public accountant licensed in the state of Rhode Island indicating that the loan is capable of being repaid." Sec. 6-26-2(e).

After the passage of the legislation, the RFP Defendants demanded payment in full of the then matured pre-2000 debt. R. Pls.' Mot. Ex. 1 ¶ 8. The Receivership Plaintiffs were unable to discharge the pre-2000 debt then owed to the RFP Defendants. Tavenner Aff. ¶ 8, July 25, 2011; R. Pls.' Mot. Ex. 5 ¶ 10. As a result, the RFP Defendants agreed to refinance the pre-2000 indebtedness at interest rates in excess of the previously charged interest rates.[7] Tavenner Aff. ¶ 9, July 25, 2011; R. Pls.' Mot. Ex. 5 ¶¶ 4-5, 11.

         Before the loan documents relating to the refinance were executed, HR2-A began charging and accruing interest at an interest rate in excess of twenty-one percent against the $14, 320, 000 (Fourteen Million Dollar Note). R. Pls.' Mot. Ex. 1 ¶ 12; Ex. 1-C; Ex. 6 ¶ 12; Ex. 9. The compounded monthly interest rate amounted to 2.670 percent. This resulted in an effective interest rate of 34%.[8] R. Pls.' Mot. Ex. 5 ¶ 12; Ex. 9. From August 1, 2000 through November 30, 2000, HR2-A assessed $1, 591, 725.06 in interest charges against the promissory note. R. Pls.' Mot. Ex. 9.

         At the same time, HR4-A began charging and accruing interest at a rate in excess of twenty-one percent against the Seven Million Dollar promissory note (Seven Million Dollar Note). R. Pls.' Mot. Ex. 1-D. No funds were distributed to the borrowers at the time the Seven Million Dollar Note was executed. R. Pls.' Mot. Ex. 5 ¶ 14. The compounded monthly interest rate was 2.00%. This resulted in an effective interest rate of 26%. R. Pls.' Mot. Ex. 1-D; Ex. 5 ¶ 13; Ex. 10. From August 1, 2000 to November 30, 2000, HR4-A assessed $626, 429.43 in interest charges at an effective interest rate in excess of 21%. R. Pls.' Mot. Ex. 10.

         In preparation of the closing for these loans, the RFP Defendants, through counsel, requested that the plaintiffs obtain a pro forma methods analysis from a certified public accountant licensed to do business in Rhode Island.[9] R. Pls.' Mot. Ex. 6-A. This request was subsequently modified. In lieu of the pro forma methods analysis, the RFP Defendants accepted a "Borrower Certification" from the plaintiffs certifying "that the pro forma has been received and that the loan is capable of being repaid." R. Pls.' Mot. Ex. 6-B. According to counsel, this Borrower's Certification was an acceptable substitute for the statutory mandate of a pro forma methods analysis. Id.

         The loan documents relating to the Fourteen Million Dollar Note and the Seven Million Dollar Note were executed at the closing on December 11, 2000. R. Pls.' Mot. Ex. 6 ¶ 12. These loan documents were backdated to August 1, 2000. Ex. 6 ¶ 12; Ex. 1-C; Ex. 1-D. Between August 1, 2000 and December 10, 2000, the RFP Defendants had charged and accrued over two million dollars in interest. R. Pls.' Mot. Exs. 9, 10.

         During the closing, "Borrower Certifications" for the Fourteen Million Dollar Note and the Seven Million Dollar Note were also executed.[10] R. Pls.' Mot. Exs. 1-F-1, 1-F-2. The Receivership Plaintiffs, Commerce Park Associates 11, LLC, Dartmouth Commons, LLC, and Universal Properties Group, Inc., signed the Borrower Certification for the Fourteen Million Dollar Note. R. Pls.' Mot. Ex. 1-F-1. The parties executing the Borrower Certification for the Seven Million Dollar Note included the Receivership Plaintiffs and Commerce Park Associates 11, LLC. R. Pls.' Mot. Ex. 1-F-2. The Borrower Certifications contained the following relevant language:

"(2) The undersigned have obtained a pro forma methods analysis from a certified public accountant for each of the Borrowers as required by R.I. Gen. Laws § 6-26-2.
"(3) The aforesaid pro forma methods analyses indicate that the Borrowers are capable of repaying the Loan.
"(4) For the purposes of this certification, the Borrowers represent that the term 'pro forma methods analysis' means an analysis of historical sales data, lease valuations based on existing leases and a review of appraisals of existing leases performed for other financial institutions, which analysis indicates that the cash flow value to loan ratio expressed as a percentage exceeds one hundred percent (100%).
"(5) The Lender and its counsel may rely on the foregoing representations of the undersigned." R. Pls.' Mot. Ex. 1-F-1, 1-F-2.

         On December 11, 2000, Dartmouth Commons, LLC, Nicholas E. Cambio, Vincent A. Cambio, and Roney A. Malafronte, as borrowers, entered into a promissory note in the original principal amount of $4, 300, 000 (Four Million Dollar Note). R. Pls.' Mot. Ex. 2-D-1; Tavenner Aff. ¶ 7, May 9, 2011; M. Rinaldi Aff. ¶ 12(c), Mar. 6, 2014. The Four Million Dollar Note was secured by mortgage on land in the Centre of New England in Dartmouth, Massachusetts, and Warwick, Rhode Island. R. Pls.' Mot. Ex. 2-D-1. Notably, the Four Million Dollar Note contained a choice-of-law provision, which stated: "[t]his note for all purposes shall be enforced and construed in accordance with the substantive law of the Commonwealth of Massachusetts, without resort to the state's conflict of laws rules." Id. The Four Million Dollar Note included a compounded monthly interest rate of 1.75%, which computed to an effective annual interest rate in excess of 23%. R. Pls.' Mot. Ex. 2-D-1; Ex. 5 ¶ 30. At the closing, the borrowers for the Four Million Dollar Note executed a Borrower Certification containing the same language as those executed at the earlier closing. R. Pls.' Mot. Ex. 6-H, Ex. 6-D, Ex. 6-F.

         Fifty-one days after the execution of the loan documents, the Fourteen Million Dollar Note and the Seven Million Dollar Note matured. R. Pls.' Mot. Ex. 1-C, Ex. 1-D. As of January 31, 2001, the Fourteen Million Dollar Note was not satisfied and, according to the RFP Defendants' Accrual Analysis for the Fourteen Million Dollar Note, the principal and unpaid interest balance was $16, 653, 639.73. R. Pls.' Mot. Ex. 9. After the maturity date of the Fourteen Million Dollar Note, the RFP Defendants continued to charge interest. R. Pls.' Mot. Ex. 9. The interest rate adjusted to 1.75% compounded monthly. R. Pls.' Mot. Ex. 9. Similarly, the Seven Million Dollar Note was not discharged as of the maturity date. R. Pls.' Mot. Ex. 10. Based on the RFP Defendants' Accrual Analysis for the Seven Million Dollar Note, no payment was made on this loan, and the unpaid principal and interest balance was $5, 558, 083.24. R. Pls.' Mot. Ex. 10. Following the maturity date of the Seven Million Dollar Note, the RFP Defendants continued to charge interest at a rate of 1.75% compounded monthly. R. Pls.' Mot. Ex. 10.

         Subsequent to the maturity of the Fourteen Million Dollar Note loan obligations, the parties executed an "Amended and Restated Demand Promissory Note" (Amended Fourteen Million Dollar Note). R. Pls.' Mot. Ex. 2-A-3. Additionally, the Seven Million Dollar Note was amended and restated (Amended Seven Million Dollar Note). R. Pls.' Mot. Ex. 2-B-3. The payment obligations under these notes were due on demand. R. Pls.' Mot. Ex. 2-A-3, Ex. 2-B-3.[11] There was no pro forma methods analysis prepared in connection with the reinstated obligations. R. Pls.' Mot. Ex. 1 ¶¶ 19-20; Ex. 2 ¶ 27. An effective interest rate of 23% was charged pursuant to the terms of the amended and restated note from February 2001 until December 10, 2001.[12]

         On March 28, 2003, the Receivership Plaintiffs, as the borrowers, entered into a demand promissory note with HR4-A, for the principal sum of $350, 000 (Three Hundred Fifty Thousand Dollar Note). R. Pls.' Mot. Ex. 2-C-1. N. Cambio, V. Cambio, and Roney Malafronte, individually, were the guarantors on this note. Id. The Three Hundred Fifty Thousand Dollar Note was secured by property described as Assessor's Plat 14, Lot in the Coventry Land Records. Id. The interest rate on this Note was 1.75% compounded monthly, which computed to an effective annual interest rate of 23%. R. Pls.' Mot. Ex. 2-C-1; Ex. 5 ¶ 36. Significantly, the Three Hundred Fifty Thousand Dollar Note contained a governing law provision, stating "[t]his Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts." R. Pls.' Mot. Ex. 2-C-1.

         B

         Payments and Demand Letters

         In April 2003, the RFP Defendants demanded payment in full pursuant to the Fourteen Million Dollar and the Seven Million Dollar Notes. The plaintiffs[13] were unable to pay the obligations and on April 24, 2003, they entered into the Forbearance and Conveyance Agreement (Forbearance Agreement). Tavenner Aff. ¶ 12, May 9, 2011; R. Pls.' Mot. Ex. 5-F. Those executing the Forbearance Agreement included the Receivership Plaintiffs, the Non-Receivership Plaintiffs, Dartmouth Commons, LLC, Universal Properties Group, Inc. (collectively, the Forbearance Obligors), and the RFP Defendants. Tavenner Aff. ¶ 12, May 9, 2011; R. Pls.' Mot. Ex. 5-F. Significantly, the Forbearance Agreement provided the Forbearance Loans matured and the obligations were immediately due and payable in their entirety; requested the RFP Defendants forbear from collecting the obligations; confirmed that they were jointly and severally liable on the principal and interest that would continue to accrue; represented and warranted that each had no defenses, setoffs, or counterclaims to their respective liabilities and obligations to the RFP Defendants. R. Pls.' Mot. Ex. 5-F. Moreover, "[t]o the extent any such defenses, setoffs, counterclaims ever existed, they are hereby waived and the Lenders are released, remised, and forever discharged from any and all claims. . . in consideration for the [RFP Defendants'] agreements contained" in this Forbearance Agreement. Id. at 9. The Forbearance Agreement contained a governing law provision, deeming Rhode Island as the designated forum relating to the Forbearance Agreement. Id. at 15.

         After the Forbearance Agreement was executed, payments were made to the RFP Defendants. RFP Defs.' Mot. Entry Order Granting Entitlement Mot. Ex. 2. Most of the payments by third parties were made in conjunction with real estate conveyances within the Centre of New England. RFP Defs.' Entitlement Mot. Ex. A-4, Tavenner Aff. ¶ 20, Jan. 9, 2015. RFP Defendants would discharge their mortgage on the respective parcel in order to credit the Receivership Plaintiffs upon receipt of the payments. RFP Defs.' Entitlement Mot. Ex. A-4, Tavenner Aff. ¶¶ 20-21, Jan. 9, 2015.

         Home Depot, Washington Trust, and Randolph Savings Bank also made payments. RFP Defs.' Entitlement Mot. Ex. A-4, Tavenner Aff. ¶ 21, Jan. 9, 2015. In January of 2001, GTWO, LLC and Louis A. Guliano executed and delivered a note in the gross amount of $3, 000, 000 to the Receivership Plaintiffs, who endorsed and assigned the Note to HR4-A. RFP Defs.' Entitlement Mot. Ex. A-2, Tavenner Aff. ¶ 4, Dec. 12, 2014. Also, during this time, the Town of Coventry purchased three parcels from the Receivership Plaintiffs in accordance with a 2010 settlement agreement for the negotiated price of $3, 387, 863.22, of which $2, 202, 111.90 was credited towards RFP Defendants' Fourteen Million Dollar Note. RFP Defs.' Entitlement Mot. Ex. A-4, Tavenner Aff. ¶ 21(e), Jan. 9, 2015.[14] In another set of transactions, Potomac Realty Capital, LLC made payments to the RFP Defendants. RFP Defs.' Entitlement Mot. Ex. A-4, Tavenner Aff. ¶ 21(c), Jan. 9, 2015; RFP Defs.' Entitlement Mot. Ex. A-4-F. In exchange for and in consideration of these payments, the RFP Defendants subordinated their mortgage on real estate owned by the Receivership Plaintiffs and credited those payments to the Receivership Plaintiffs. Tavenner Aff. ¶ 5, Dec. 12, 2014; RFP Defs.' Entitlement Mot. Ex. A-4-F.

         On April 11, 2011, the RFP Defendants exercised their right to demand payment under the loans. R. Pls.' Mot. Ex. 5-G-1, 5-G-2, 5-G-3, 5-G-4. Pursuant to the Fourteen Million Dollar Note, the RFP Defendants demanded payment for the amount due as of April 11, 2011. The RFP Defendants claimed the balance totaled $92, 293, 086.09. R. Pls.' Mot. Ex. 5-G-1. The RFP Defendants also issued a demand letter to the Receivership Plaintiffs with respect to the Seven Million Dollar Note. The demand requested payment of the principal and balance within sixty days. The balance owed totaled $44, 022, 035.84. R. Pls.' Mot. Ex. 5-G-2. The RFP Defendants also issued a demand letter with respect to the Four Million Dollar Note to Dartmouth Commons. The payment of the principal and balance in the total outstanding amount of $7, 882, 294.72 was demanded within ten days of April 11, 2011. R. Pls.' Mot. Ex. 5-G-3. Finally, the RFP Defendants sent a demand letter to the Receivership Plaintiffs with respect to the Three Hundred and Fifty Thousand Dollar Note. The RFP Defendants demanded payment of the principal and balance within ten days for a total amount of $1, 867, 048.98. R. Pls.' Mot. Ex. 5-G-4.

         The Receivership Plaintiffs and the Non-Receivership Plaintiffs commenced this action on April 8, 2011 by filing a Verified Complaint in Rhode Island Superior Court.[15] On December 10, 2013, Matthew J. McGowan was appointed as Permanent Receiver for the Receivership Plaintiffs. An amended complaint was filed on June 18, 2014 by the Receivership Plaintiffs and the Non-Receivership Plaintiffs. The RFP Defendants responded on September 22, 2014. The parties filed the motions which are presently before the Court.

         This Court heard oral argument on January 24, 2019, regarding the motions for summary judgment. The Receivership Plaintiffs move on Counts I and IV of the Amended Complaint, which allege two usury violations under § 6-26-2 on the Fourteen Million Dollar Note and the Seven Million Dollar Note (collectively, the Loans). Additionally, the Receivership Plaintiffs seek an award of monetary damages in the amount of $22, 075, 542.50 reflecting their payments of principal and interest made on the Loans. The Receivership Plaintiffs also move for summary judgment asserting that the Three Hundred Fifty Thousand Dollar Note and the Four Million Dollar Note are governed by Rhode Island law. Lastly, the Receivership Plaintiffs request that this Court declare the Non-Receivership Plaintiffs are not entitled to affirmative recovery under § 6-26-4(c).

         The Non-Receivership Plaintiffs move for partial summary judgment on Counts XIII and XIX, which seek declarations that the Loans are usurious and void.[16] The Non-Receivership Plaintiffs also move on Counts XV and XXI of the Amended Complaint, which seek punitive damages for the Loans. The Non-Receivership Plaintiffs also request that this Court grant Count XXXV of the Amended Complaint, asserting Rhode Island law is the applicable law to all loans secured by Rhode Island real estate. Lastly, the Non-Receivership Plaintiffs move for partial summary judgment on Count XXXVI of the Amended Complaint, asserting that the waivers and releases are ineffective against public policy.

         The RFP Defendants move for summary judgment on the Receivership Plaintiffs' and Non-Receivership Plaintiffs' Amended Complaint. The RFP Defendants assert that the interest charged on the Loans is not usurious and complies with § 6-26-2(e). Alternatively, the RFP Defendants ask this Court to find that the borrowers waived and released any and all usury claims pursuant to the Forbearance Agreement. The RFP Defendants also assert that the valid, binding, and lawful indebtedness was due and owing prior to the execution of the Loans. Furthermore, the RFP Defendants request this Court find the Three Hundred Fifty Thousand Dollar Note and the Four Million Dollar Note are not subject to §§ 6-26-1, et seq. as the applicable law ...


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