Opinion
A00A1413.
DECIDED: SEPTEMBER 15, 2000
Bernie and Susan Eisenstein, L.P. (Eisenstein) sued Joseph DiPrimio to recover the principal and interest on a $620,000 note. Eisenstein also sued the law firm of Holland and Knight, L.L.P., seeking to impose a constructive trust over a portion of the loan proceeds paid into a client's trust account by DiPrimio. See O.C.G.A. § 53-12-93 (a). The trial court granted summary judgment to Holland and Knight, finding that Eisenstein was not entitled to equitable relief because the loan to DiPrimio was usurious under Georgia law. Eisenstein appeals from this order. Finding no error, we affirm.
DiPrimio failed to answer the complaint and the trial court entered a default judgment against him on Counts 1 and 4 of the complaint. DiPrimio did not participate in this appeal.
A defendant may prevail on a motion for summary judgment under O.C.G.A. § 9-11-56 (c) by showing the court that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the plaintiff, warrant judgment as a matter of law.Lau's Corp. v. Haskins, 261 Ga. 491 ( 405 S.E.2d 474) (1991). The facts in this case show that in April 1998, Eisenstein issued a note to DiPrimio, the proceeds of which were to be used for the purchase of restaurant equipment. The face value of the note was $620,000, although DiPrimio only received $500,000 cash — the remaining $120,000 consisted of an "origination fee." The terms of the loan required DiPrimio to pay Eisenstein $10,000 per month for 17 months, then make a lump sum "balloon" payment of $830,000 in the 18th month, for a total payment of $1,000,000.
After receiving the $500,000 cash, DiPrimio obtained $450,000 in cashier's checks and used the funds to partially satisfy a consent order arising out of unrelated, pre-existing litigation with a client of Holland and Knight. The law firm accepted the cashier's checks on behalf of the client and placed the funds in a trust account. When Eisenstein discovered that DiPrimio had committed fraud by misrepresenting his business status and the purpose for which he borrowed the funds, Eisenstein filed suit.
1. (a) Eisenstein challenges the trial court's finding that the loan to DiPrimio was usurious. Because the payment of $500,000 in fees and interest on $500,000 in principal over 18 months exceeds the statutory maximum allowable interest rate of 5% per month, the loan was usurious as a matter of law under O.C.G.A. § 7-4-18 (a). See Fleet Finance, Inc. of Ga. v. Jones, 263 Ga. 228, 233(3) ( 430 S.E.2d 352) (1993); Norris v. Sigler Daisy Corp., 260 Ga. 271, 272-273(2), (3) ( 392 S.E.2d 242) (1990). There was no error.
Under O.C.G.A. § 7-4-18 (a), "`loan fees' are considered as interest for the purpose of determining criminal usury. [Cits.]" Williams v. Powell, 214 Ga. App. 216, 218(2) ( 447 S.E.2d 45) (1994).
Under Fleet Finance, Inc. of Ga. v. Jones, 263 Ga. at 230, n. 2, the interest on the loan in this case is calculated as follows:
Face amount of note: $620,000
Less upfront interest fees $120,000
Net principal received by DiPrimio $500,000
Sum of payments due under note $1,000,000
Minus net principal $500,000
Total cost of credit $500,000
Total cost of credit $500,000
Divided by months in loan ______18
Simple interest per month $27,778
Interest per month $27,778
Divided by principal $500,000
Monthly interest rate 5.56%
(b) We reject Eisenstein's contention that its inclusion of a "savings clause" in the note prevents a finding that the note was usurious. Eisenstein relies on the following language:
Notwithstanding any provision to the contrary in this Note, no such provision of this Note providing for the payment of interest, fees, costs or other charges, shall require the payment or permit the collection of any amount in excess of the maximum amount of "interest" permitted by law to be charged for the use, detention, or forbearance in the collection of all or any portion of the indebtedness evidenced by this Note; provided, however, that if any excess "interest" is provided for, or is adjudicated as being provided for, in this Note, then, in such event, (a) The provisions of this paragraph shall govern and control; (b) the undersigned shall not be obligated to pay any excess "interest"; and (c) the excess "interest" shall be applied to the unpaid balance, if any, or refunded to the undersigned if fully paid.
The problem with this Court's approval of such a "savings clause" is obvious: blatantly usurious loans, such as the one at issue here, could be drafted with impunity at whatever rates the market might bear, as long as the notes included this "savings clause." Then, if debtors were knowledgeable and resourceful enough to recognize and challenge the unlawful nature of the loans, lenders would not be punished with a misdemeanor, as provided by O.C.G.A. § 7-4-18 (a), but instead would receive the statutory maximum allowable interest rate of 5% per month. This scheme is a win/win proposition for unscrupulous lenders and totally undermines the purpose and effect of Georgia's usury laws. See Williams v. Powell, 214 Ga. App. at 219(2) (when the apparent intent of a transaction is to violate usury laws, the courts will not permit schemes or devices to circumvent such laws); see also Swindell v. Federal Nat. Mortgage Assn., 409 S.E.2d 892, 896(2) (N.C. 1991) (rejecting "savings clauses" because they contravene statutory policy and deprive borrowers of the benefit of usury laws); Note, State-Imposed Interest Rate Ceilings and the Home Equity Loan Scandal in Georgia, 11 Ga. St. U. L.Rev. 591, 598-601 (III) (1995) (providing an overview of policies behind state usury laws). As such, we decline to hold that the use of a "savings clause" will preclude a finding that a note is usurious under O.C.G.A. § 7-4-18 (a).
(c) Eisenstein also claims that Holland and Knight cannot assert the "personal defense" of usury because it is not the debtor. See O.C.G.A. § 7-4-11. However, Eisenstein sought an equitable remedy in the form of a constructive trust over the funds held in escrow by Holland and Knight. See O.C.G.A. § 53-12-93. The law firm therefore was entitled to defend itself in this action by arguing that Eisenstein should be denied equitable relief due to its "unclean hands," that is, its violation of O.C.G.A. § 7-4-18 (a). See O.C.G.A. § 23-1-10 ("He who would have equity must do equity[.]"); Dixon v. Murphy, 259 Ga. 643, 644(2) ( 385 S.E.2d 408) (1989). As we have previously found that Eisenstein's loan was usurious as a matter of law, there was no error in the trial court's finding that Eisenstein was not entitled to a constructive trust.
2. Eisenstein's remaining contentions are moot.
Judgment affirmed. Andrews, P.J., and Ruffin, J., concur.