Submitted: May 5, 2014
Michael A. Weidinger Kevin M. Capuzzi Pinckney, Weidinger, Urban & Joyce LLC
John L. Reed Scott B. Czerwonka DLA Piper LLP (US)
This case involves litigation over a loan agreement that was secured by the historic Sequoia presidential yacht. That agreement has been the subject of extensive proceedings, and the underlying facts have elsewhere been described.The parties have now entered into a settlement agreement under which the Plaintiff, Sequoia Presidential Yacht Group LLC, has voluntarily dismissed its claims against Defendant FE Partners, LLC, and agreed to a default judgment on the Defendant's counterclaims alleging breach of the loan agreement. The loan agreement supplies an interest rate of 8.75%. The parties agree that the contract rate governs interest on the loan prior to entry of a judgment, but dispute whether the contract rate, or the lower statutory interest rate under 6 Del. C. § 2301(a), governs post-judgment interest. I assume for purposes of this Letter Opinion, as did the parties in briefing this matter, that the loan agreement in question is subject to Delaware law and governed by Section 2301 of Title 6 of the Delaware Code.
Chapter 23 of Title 6 of the Delaware Code contains Delaware's usury law.Specifically, Section 2301(c) governs the rate of interest that may be charged by unlicensed lenders of a sum greater than $100, 000 not secured by a mortgage, while Section 2301(a) provides the rate of interest that may be charged by unlicensed lenders for loans falling outside of subsection (c).
As stated since 2012, Section 2301 provides, in part:
(a) Any lender may charge and collect from a borrower interest at any rate agreed upon in writing not in excess of 5% over the Federal Reserve discount rate including any surcharge thereon. Where there is no expressed contract rate, the legal rate of interest shall be 5% over the Federal Reserve discount rate including any surcharge as of the time from which interest is due; provided, that where the time from which interest is due predates April 18, 1980, the legal rate shall remain as it was at such time. Except as otherwise provided in this Code, any judgment entered on agreements governed by this subsection, whether the contract rate is expressed or not, shall, from the date of the judgment, bear post-judgment interest of 5% over the Federal Reserve discount rate including any surcharge thereon or the contract rate, whichever is less.
(c) Notwithstanding any other provision in this chapter to the contrary, there shall be no limitation on the rate of interest which may be legally charged for the loan or use of money, where the amount of money loaned or used exceeds $100, 000, and where repayment thereof is not secured by a mortgage against the principal residence of any borrower.
At first blush, as the Plaintiff argues, subsection (a) of the 2012 statutory revision appears to reflect a legislative intent to limit post-judgment interest to the lower of the legal rate of interest or the contract rate. However, the Section operates such that, for any loan under subsection (a) providing contractually for a particular interest rate, the interest rate post-judgment shall be the contract rate, so long as that rate is lawful (that is, 5% over the Federal Reserve discount rate or less). In other words, where the parties have agreed to a (non-usurious) interest rate in a loan agreement, under subsection (a), post-judgment interest continues to accrue at this agreed-upon rate.
In fact, the current version of the statute is identical in its effect to the April 18, 1980 version, which provided (in language perhaps clearer than the current statute):
(a) The legal rate of interest on a judgment shall be at any rate expressed in the contract sued upon, or where there is no expressed contract rate, a 5% over the Federal Reserve discount rate including any surcharge, on the date of judgment, charged by the Federal Reserve Bank in the district encompassing the State of Delaware. Any lender may charge and collect from a borrower interest at any rate agreed upon in writing not in excess of 5% over the Federal Reserve discount rate including any surcharge thereon.
The April 1980 version of the statute was amended in May 1980; that version of subsection (a) provided the same maximum interest rate (5% over the Federal Reserve discount rate), and for post-judgment interest "at the rate in the contract sued upon." The synopsis of the current version of the statute—the 2012 revision—explains that the purpose of the amendment is to clarify that in "personal loans" governed by subsection (a), post-judgment interest shall accrue at the "lesser of the legal interest rate or the contract rate"—in other words, at the non-usurious interest rate provided for in the applicable loan agreement. The lawful rate of interest specified in a loan agreement governed by subsection (a) will always be less than or equal to the legal rate.
The loan agreement at issue here falls not under subsection (a), but under subsection (c), which states that "there shall be no limitation on the rate of interest which may be legally charged for the loan or use of money, where the amount of money loaned or used exceeds $100, 000 . . . ." That subsection does not address the rate at which post-judgment interest accrues, but speaks only to the rate of interest that may be legally charged. Notwithstanding the subsection's silence on post-judgment interest, as noted above it is clear from the statutory scheme under subsection (a) that the legislature intended, in circumstances where a lawful contract rate is specified, for the contract rate to set the post-judgment interest rate. The only limitation on post-judgment interest in subsection (a) is that the rate agreed upon must be no more than the "legal" rate; that restriction is explicitly ...