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G Company Management

On Behalf of | Apr 6, 2023 | Firm News

In G Companies Management LLC v. LREP Arizona LLC, (No. G060992, 2023 WL 2011816 (Cal. Ct. App. Feb. 15, 2023)) (“G Companies”) the Court of Appeals, Fourth District, Division 3, answered the question: Does California’s usury limitations constitute a “strong public policy”? The Appellate Court held that it does.

G Companies appealed the trial court’s order that upheld the enforceability of a forum selection clause that they argued deprived them, a California resident, of the protections of fundamental public policy. The trial court based its determination that California’s usury limitations are not important public policy on the fact that California’s usury laws are riddled with exceptions, and thus the limitations cannot be considered important public policy.

On appeal, the Appellate Court answered only the question of whether usury limitations constitute important public policy; the Appellate Court declined to address the validity of G Companies’ claim. In its opinion, the Appellate Court emphasized the fact that usury limitations are expressly included in Article XV, Section 1 of California’s Constitution, which reads,“[n]o 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.” Therefore, the court declared, the inclusion of the usury limitations in the Constitution reflects that it is in fact “important public policy” that cannot be waived. Further, the Appellate Court determined that the trial court’s insistence that the various exceptions included in the usury limitations indicates a lack of important public policy is incorrect. The Appellate Court stated that a policy’s complexity does not indicate a lack of importance; rather, the heightened detail in a provision indicates significant importance.

The Appellate Court acknowledged that California does respect forum selection clauses, so long as they are entered into freely and voluntarily, and their enforcement is not unreasonable. However, the Appellate Court held that a forum selection clause will not be upheld if enforcement results in the substantial diminishment of a California resident’s rights in a way that violates public policy. Therefore, given the determination that usury limitations are important public policy, forum selection clauses that inhibit the limitations set forth in California’s Constitution will not be upheld.