In In re E. Mark Moon (BAP Nos. NC-22-1103-SGB, NC-22-1117-SGB (cross-appeals)), the United States Bankruptcy Appellate Panel of the Ninth Circuit addressed the questions of: when is a usurious forbearance not an usurious forbearance, and, when is denial of post-maturity interest proper? In its decision, the Appellate Court affirmed the bankruptcy court’s judgment, holding that Cal. Civ. Code § 1916.1 cannot be construed to exempt all forbearances of exempt loans, and equitable estoppel does not necessarily justify a denial of post-maturity loan interest.
The Appellate Court cited California’s Constitution, article XV, section 1, which states: “No person, association, copartnership or corporation shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than the interest authorized by this section upon any loan or forbearance of any money, goods or things in action.” California’s usury law prohibits receipt of interest in excess of the prescribed maximum when: (1) the transaction is a loan or forbearance; (2) the borrower’s obligation to repay both principal and interest is absolute; and (3) the lender consciously and voluntarily takes an amount of interest, which exceeds the prescribed maximum.” However, the Court continued that there are numerous exceptions to California’s usury laws, such as the Broker Exemption codified in Cal. Civ. Code § 1916.1.
Cal. Civ. Code § 1916.1 reads, “The restrictions upon rates of interest contained in Section 1 of
Article XV of the California Constitution shall not apply to any loan or forbearance made or arranged by any person licensed as a real estate broker by the State of California, and secured,
directly or collaterally, in whole or in part by liens on real property. For purposes of this section, a loan or forbearance is arranged by a person licensed as a real estate broker when the
broker (1) acts for compensation or in expectation of compensation for soliciting, negotiating, or arranging the loan for another, (2) acts for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business for another and (A) arranges a loan to pay all or any portion of the purchase price of, or of an improvement to, that property or business or (B) arranges a forbearance, extension, or refinancing of any loan in connection with that sale, purchase, lease, exchange of, or an improvement to, real property or a business, or (3) arranges or negotiates for another a forbearance, extension, or refinancing of any loan secured by real property in connection with a past transaction in which the broker had acted for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business. The term “made or arranged” includes any loan made by a person licensed as a real estate broker as a principal or as an agent for others, and whether or not the person is acting within the course and scope of such license.” The statute was amended in 1985 to specifically include forbearances. The Court declined plaintiff’s proposition that a broad read of Cal. Civ. Code § 1916.1 requires that the statute apply to any subsequent modifications between parties when an original loan is exempt under the statute. The Court stated that, without a broker’s involvement in a forbearance, the statutory requirements for the Broker Exemption are not met, and thus, the exemption is unavailable in such circumstances.
Further, the Court addressed the contention that, because plaintiff received payoff demands that included a usurious interest rate and an improper acceleration fee, post-maturity interest should’ve been denied under the doctrine of equitable estoppel. The Court determined that a specific showing of detrimental reliance is necessary to support equitable estoppel, not mere error. The Court declared that equitable estoppel ordinarily requires: “(1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; and (4) he must rely on the conduct to his prejudice.” Butler Am., LLC v. Aviation Assurance Co., LLC, 55 Cal. App. 5th 136, 147 (2020). Thus, the Court concluded that, if the party asserting the estoppel fails to show that he or she relied on the opposing party’s representation or conduct to his or her detriment, equitable estoppel does not apply. Here, the Court determined that absent a demonstration of detrimental reliance, equitable estoppel is not sufficient to deny post-maturity interest.
Lastly, the Court addressed plaintiff’s assertion that the doctrine of unjust enrichment justifies denial of post-maturity loan interest. The Court determined that it does not necessarily do so. In reaching this conclusion, the Court declared that, when there is an adequate remedy at law – such as readily ascertainable damages – equitable remedies are not available.