Opinion
Case No. 97-12939-SSM
April 20, 1999
Bennett A. Brown, Fairfax, VA, of Counsel for the debtor
Jeffrey M. Sherman, O'Rourke Cundra, Washington, DC, of Counsel for the Estate of Rene Van Buren
Andrew Gordon, Alexandria, VA, of Counsel for Gordon P. Peyton chapter 7 trustee
MEMORANDUM OPINION
This matter is before the court on the debtor's objection to the claim filed by David Van Buren as personal representative of the Estate of Rene Van Buren (the "Van Buren Estate") on October 30, 1997, in the amount of $100,000. An evidentiary hearing was held on February 25, 1999, at which the debtor and the Van Buren Estate were each represented by counsel. Counsel for the chapter 7 trustee was also present as an interested party, but took no part in the hearing. The questions to be determined by the court are (a) whether the debtor has standing to object to the claim, and (b) if so, whether he has sustained his burden of proving that the claim is unenforceable on the ground of usury. After considering the evidence and the applicable law, the court concludes that the debtor in this case does indeed have standing and that the claim is unenforceable.
Facts
Richard Rae ("the debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on April 21, 1997. Although he was granted a discharge on August 7, 1997, that discharge was subsequently revoked on November 9, 1998, on a complaint brought by the Van Buren Estate. The debtor thereafter filed on December 4, 1998, the objection to claim that is presently before the court.
As will be discussed below, the complaint also sought a determination that the debt owed to Mrs. Van Buren was nondischargeable. The court determined that the debt was dischargeable and dismissed the nondischargeability count. However, since the debtor's discharge was revoked, none of his debts — including the debt at issue here — has been discharged.
There is no dispute that Rene Van Buren ("Mrs. Van Buren") loaned the debtor $100,000 in cash on August 3, 1995, in Miami, Florida. That loan is evidenced by a written promissory note dated and signed August 2, 1995, in the original principal amount of $100,000.00, with interest at the stated rate of 18% per annum, repayable in monthly installments of interest only in the amount of $1,500, with the principal amount being due in full on August 2, 1996. Contemporaneously with the execution of that note, the debtor also signed a $12,000.00 "no interest" promissory note payable to Mrs. Van Buren's son, David Van Buren, repayable in 12 monthly installments of $1,000.00 each. Although in their pleadings the Van Buren Estate took the position that the $12,000 represented a prior outstanding indebtedness, David Van Buren testified, both at the hearing on the objection to claim as well as at the prior trial to determine the dischargeability of the debt, that he loaned the debtor $12,000 in cash — taken from the same safe deposit box that held the $100,000 his mother was lending — simultaneously with his mother's loan. Although the debtor was asked to, and did, sign a receipt for the $100,000 in currency he received from Mrs. Van Buren, there was no receipt for the alleged additional $12,000 from David Van Buren. The debtor testified that no such additional cash was delivered to him, and that the second note was simply a device to collect additional interest on the $100,000 loan in violation of the Florida usury statutes.
At one point during cross examination, David Van Buren suggested that part of the $12,000 note could have documented a prior obligation, but his ultimate position was that the note represented a contemporaneous cash transaction.
At the time of the events in question, the debtor was a ticket broker specializing in sporting events and rock concerts. He and David Van Buren had engaged in a number of business transactions over a period of three years. In some of these business transactions, David Van Buren made short term loans to the debtor, while in others he was a partner with the debtor and shared in the profits, sometimes with a guaranteed return. These transactions, some of which involved as much as $50,000.00, were at best informally documented, and often not documented at all. One exception was a loan for $50,000 extended to the debtor in June 1995. A written agreement, albeit informal, stated that "interest will be paid on the $50,000 [at] 30% annually which will be paid in cash on December 23, 1995." Creditor's Ex. I. Another transaction was an "investment" contract signed in March 1996, which provided a guaranteed return, to purchase and sell college basketball tickets. Creditor's Ex. M.
Approximately a year prior to the 1996 summer Olympic games in Atlanta, the debtor told David Van Buren that he had an opportunity to acquire a large block of tickets for that event but needed $150,000 to $200,000 in cash. David Van Buren told the debtor that his mother, Mrs. Van Buren, might be willing to make a loan. There is a factual dispute as to whether David Van Buren ever discussed the terms of the proposed loan with the debtor. The debtor testified that he told David Van Buren that he was willing to pay 25% interest, and that David Van Buren told him that it would have to be 30%. David Van Buren, on the other hand, testified that he did not discuss interest rates with the debtor.
Toward the end of July 1995, the debtor was told to travel to Florida in order to consummate the loan. The parties met on August 2, 1995, at the office of Mrs. Van Buren's attorney, David Marko, who was conducting the loan settlement, to discuss the terms of the loan and to sign the necessary paperwork. Mr. Marko testified that Mrs. Van Buren told him what the loan terms were and that he did not negotiate them. The debtor testified that at the meeting it was agreed that Mrs. Van Buren would make a $100,000 loan at a stated interest rate of 18% per annum and that a separate note would be signed to David Van Buren for 12% interest in order to get around the Florida usury statute, which limited interest to 18%. Mr. Marko and David Van Buren denied that any such discussions took place, and both of them testified that the $12,000 note was drawn up at Mrs. Van Buren's request in order to avoid confusion as to what was owed to her and what was owed to her son. As security for the $100,000 loan, the debtor executed in Mrs. Van Buren's favor a mortgage against the debtor's house and a stock pledge agreement with respect to the corporation (The Ticket Outlet, Inc.) through which the debtor conducted business. When the mortgage was recorded in Virginia, attached to it as exhibits were both the $100,000 note and the $12,000 note, although only the former was expressly referenced in the mortgage instrument itself. Mr. Marko explained that the $12,000 note was accidently attached to the mortgage and stressed that it was not the parties' intention to secure David Van Buren's note.
The debtor succeeded in acquiring the Olympic tickets at discount prices, but the deal turned sour in the wake of the bombing at Olympic Centennial Park during the second week of the events. The debtor received numerous cancellations, which resulted in his inability to make the balloon payment of $100,000 to Mrs. Van Buren at the end of the Olympic games. According to the debtor, all of his obligations to David Van Buren had been paid in full at the time of the Olympics; however, he asked for additional time to repay Mrs. Van Buren's loan. The parties agreed to an extension of 6 months, but according to the debtor, the extension was conditioned upon the continuation of the 30% interest payments. The debtor testified that David Van Buren pulled him aside, after the meeting, and demanded a check for $10,000 to be applied as prepaid interest for the next four months. The debtor complied and continued to make interest payments thereafter. Once the 6 months lapsed, the debtor still did not have the funds to pay the $100,000 principal to Mrs. Van Buren. The debtor testified that he opted to file for bankruptcy after David Van Buren became more aggressive in attempting to collect on the note, often threatening foreclosure on the debtor's residence and business. David Van Buren contradicted the debtor's testimony, asserting that the debts owed to him by the debtor were not extinguished at the Olympic games. David Van Buren stated that the debtor's $1,000 interest payments, including the checks received after the Olympics, were applied to outstanding obligations. Mr. Van Buren did not keep records of debtor's obligations or payments, but he agreed that debtor did not owe him anything at the time the bankruptcy petition was filed.
Not surprisingly, much of the testimony focused on the characterization of the $12,000 promissory note made out to David Van Buren. As discussed, the debtor testified that this note served as a device to circumvent the Florida usury statute. David Van Buren disagreed, testifying that the $12,000 note involved a new cash transaction, which enabled the debtor to purchase Olympic tickets. Because the debtor was to provide him Olympic tickets at cost, which could be resold at a premium, Mr. Van Buren described the transaction as an investment rather than as a simple loan. Since the potential for profit was significant, according to David Van Buren, that is why the $12,000 note was "interest free." David Van Buren stated that he and the debtor had entered into similar "investment" transactions, whereby the parties would share profits instead of charging interest. Although Mr. Van Buren was to accept Olympic tickets at face value as payment towards the $12,000 note, he nevertheless accepted $1,000 monthly payments from the debtor as required by the note. David Van Buren's explanation was that he applied these payments to prior debts owed by the debtor which, at the time of the signing of the $12,000 note, totaled approximately $50,000. He stressed that the note's provision for monthly payments was never enforced and that at no time were these payments turned over to Mrs. Van Buren.
Discussion
This court has jurisdiction over this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(B), this is a core proceeding in which final judgments and orders may be entered by a bankruptcy judge.
I.
Once a creditor files a proof of claim, the claim is deemed allowed unless a "party in interest" objects. § 502(a), Bankruptcy Code. As an initial matter, counsel for the Van Buren Estate contends that Mr. Rae, as a chapter 7 debtor, lacks standing to object to its proof of claim. Counsel is correct that courts have generally held that a chapter 7 debtor is not a "party in interest" for the purpose of objecting to claims. See, e.g., In re l F Corp., 219 B.R. 483 (Bankr. S.D. Ohio 1998); In re Costello, 184 B.R. 166 (Bankr. M.D. Fla. 1995); Caserta v. Tobin (In re Caserta), 175 B.R. 773 (Bankr. S.D. Fla. 1994); In re Woods, 139 B.R. 876 (Bankr. E.D. Tenn. 1992); In re Olsen, 123 B.R. 312 (Bankr. N.D. Ill. 1991). A common rationale behind these decisions is that the trustee has full discretion in prosecuting or defending any litigation on behalf of the bankruptcy estate. See Nassau Savings and Loan Ass'n v. Miller (In re Gulph Woods Corp.), 116 B.R. 423, 428 (Bankr. E.D. Pa. 1990). Section 704(5), Bankruptcy Code, in particular, requires that the chapter 7 trustee "examine proofs of claims and object to the allowance of any claim that is improper[.]" See IF Corp., 219 B.R. at 485. In contrast, one of the debtor's duties involves "cooperat[ion] with the trustee as necessary to enable the trustee to perform the trustee's duties under the [Bankruptcy Code]. . . ." § 521(3), Bankruptcy Code. Therefore, since Congress has imposed a mandatory duty on the trustee, to permit a debtor to assume the trustee's responsibility would allow the debtor to usurp the trustee's authority and to impede the orderly and expeditious administration of the estate. Woods, 139 B.R. at 877-78.
The court does not question the holdings of these courts, but, as with every general rule, there are exceptions. In particular, courts have recognized an exception where the debtor has a pecuniary interest in the distribution of the estate. Olsen, 123 B.R. at 313. A debtor has been held to have a pecuniary interest, and thus standing to object to claims, when he or she expects to receive a surplus after the trustee administers the bankruptcy estate for the benefit of creditors. See In re Silverman, 37 B.R. 200, 201 (Bankr. S.D. N.Y. 1982); In re Creditors Service Corp., 206 B.R. 174, 176 (Bankr. S.D. Ohio 1997).
The only Fourth Circuit case that has addressed standing of chapter 7 debtors in matters of estate administration, albeit in a different context, is Willemain v. Kivitz, 764 F.2d 1019 (4th Cir. 1985). There, the debtor challenged the trustee's proposed sale of the estate's primary asset (a minority interest in a limited partnership). The court looked to § 502(a), Bankruptcy Code, and its underlying principles, and held that the chapter 7 debtor had no standing in the litigation. The Fourth Circuit reasoned that the debtor lacked a pecuniary interest in the outcome of the proposed sale, noting that the debtor's suggested amount of the sale would "neither return solvency to [the] estate nor provide [the debtor] with a surplus." Id. at 1022.
Applying the above principles, it could cogently be argued that the debtor does not have standing to object to the claim at issue. There is no evidence to suggest that there will be a surplus after the estate is distributed. Trustee's counsel, at the hearing, informed the court that the bankruptcy estate consists of approximately $3,700. Even assuming the Van Buren Estate's claim is invalid, the remaining allowed unsecured claims total $115,559.14. As it stands, therefore, there is no reasonable likelihood of the debtor's receiving a surplus.
The court notes that the proof of claim filed by the Van Buren Estate asserts that its claim is secured. However, neither the trustee nor the debtor has made an attempt to value the secured portion under § 506(a), Bankruptcy Code, nor has the validity of the security interest been challenged. In any event, the debtor's house (with respect to which Mrs. Van Buren had been granted a second mortgage) has gone to foreclosure, and it is doubtful that the debtor's stock in the Ticket Outlet, Inc., has any significant value.
Although the present facts do not fall neatly within the recognized exception, the court nevertheless concludes that, under the unusual circumstances of this case, the debtor actually has a "pecuniary interest" that gives him standing to challenge the validity of this claim. It is true that "[s]imply being a party to a bankruptcy case is not enough to give one standing to participate in every aspect of the [bankruptcy case] or to seek relief on every issue that may arise." In re Drost, 228 B.R. 208, 209 (Bankr. N.D. Ind. 1998). However, where a chapter 7 debtor's discharge has been revoked — which has the same effect as a denial of discharge — the debtor does have a personal stake in how assets are distributed to creditors. Since such a debtor is permanently left to bear the burden of repaying his debts without any possible relief in a future bankruptcy, a successful objection to one creditor's claim would free up assets to distribute to other creditors whose claims are unassailable.
The court notes that the cases, which have discussed the aforementioned exceptions, have never held them to be an exclusive list. In fact, some courts, in allowing chapter 7 debtors to prosecute an objection to claim, have created further exceptions to the general rule. See, e.g., In re Sun Ok Kim, 89 B.R. 876 (D. Hawaii 1987) (holding that the chapter 7 debtor had standing to challenge creditor's claim on the ground that the trustee had wrongfully transferred property to that creditor without court approval).
Article III of the U.S. Constitution authorizes federal courts to decide only "cases or controversies." In re Dellastatious, Inc., 121 B.R. 487, 490 (Bankr. E.D. Va. 1990) (citing Baker v. Carr, 369 U.S. 186, 198, 82 S.Ct. 691, 699-700, 7 L.Ed.2d 663 (1962). A party must have a personal stake in the outcome of a controversy, or must suffer injury that the court may redress before this court would have jurisdiction to decide the controversy.
Section 523(a)(10), Bankruptcy Code, provides:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —
* * *
(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title[.]
See Klapp v. Landsman (In re Klapp), 706 F.2d 998 (9th Cir. 1983) (§ 523(a)(10) applies to debtors whose discharge has been revoked).
Here, the debtor, whose discharge was revoked, will be left with nondischargeable debt totaling well over $100,000 after the bankruptcy case closes. Although the assets presently making up the bankruptcy estate are fairly minimal, thereby lessening the magnitude of debtor's stake in the distribution of the estate, the court concludes that the size of the estate is of no import. The debtor contends that the Van Buren Estate claim is void due to the Florida usury statute. Even if the Van Buren Estate were to receive, say, only $1,000 in a pro rata distribution of the estate, the debtor obviously would benefit from that amount being paid instead to other creditors holding legally viable claims that will survive this bankruptcy. Moreover, as will be discussed later, if the debtor succeeds in his affirmative defense under the Florida statute, the more than $20,000 in interest paid by the debtor could be recouped by the trustee for the benefit of all creditors.
The court is also persuaded by the fact that counsel for the chapter 7 trustee was present at the hearing as an "interested observer" and did not oppose the debtor's prosecution of the objection. In Mulligan v. Sobiech (In re Sobiech), 131 B.R. 917 (Bankr. S.D. N.Y.1991), the court ruled that the chapter 7 debtor had standing to object to an administrative expense claim. One of the reasons set forth in the opinion was the trustee's decision to file an affidavit supporting the debtor's ability to proceed with the objection. Id. at 920. Granted, the trustee in the present case has not expressly or affirmatively approved the debtor's carrying of the laboring oar, but the court does find that the trustee has silently acquiesced to the debtor's standing.
To say, given these circumstances, that the debtor is not a "party in interest" in this case is unfounded. Discussing § 502(a), Bankruptcy Code, a leading commentator has explained:
The debtor may wish to object to an excessive dischargeable claim whose holder would receive distributions that otherwise would be made to the holder of a nondischargeable claim. To the extent that a creditor holds a claim which survives discharge, the debtor is not freed from the claim. To the extent that a nondischargeable claim is satisfied in some measure by a distribution, it is in the debtor's interest to ensure that that distribution take place, thereby relieving the debtor from some or all of the claim of that creditor which survives the bankruptcy case. In other words, to the extent the claim of the nondischargeable debt is satisfied from a distribution of the debtor's assets, the debtor is free of the press of such creditor to the amount thus paid.
4 Collier on Bankruptcy ¶ 502.02[2][c], at 502-14 (Lawrence P. King, ed., 15th ed. rev. 1998). In Sobiech, the court, in concluding that the debtor had standing to object to a claim, reasoned that the debtor would be directly benefitted if the debtor's objection were sustained because funds would then be available to pay two nondischargeable claims. 131 B.R. at 920. It is true that Sobiech was not decided in the context of a revocation of discharge, but its analysis, as well as Collier's, equally applies in this case. This conclusion is supported by analogous decisions involving chapter 7 debtors whose discharge had been denied. The court in In re McKenzie Energy Corp., 228 B.R. 854 (Bankr. S.D. Tex. 1998), faced with an individual debtor who had been denied a discharge, found that the debtor had standing to object to trustee's counsel's fee application. The court stated that "in light of the denial of [debtor's] discharge, he, at least, has a sufficient financial interest in reducing the administrative costs of the estate to confer standing." Id. at 877. The D.C. Circuit in McGuirl v. White (In re McGuirl), 86 F.3d 1232 (D.C. Cir. 1996), also reached the same conclusion. There, the court reversed the lower court's ruling holding that the debtor lacked standing to challenge the trustee's fee application. The court took note that all the debts were held to be nondischargeable. Although the requested reduction of the trustee's fees was not great, the court found the magnitude to be irrelevant so long as there was a direct relationship between reducing the award and the debtor's personal liability post-bankruptcy. Id. at 1235. In the present case, such a relationship also exists. Accordingly, the court will overrule the Van Buren Estate's motion to dismiss the objection to claim for lack of standing.
II.
The next issue to be resolved is whether the Van Buren Estate's claim is unenforceable on the ground of usury. As noted, once a proof of claim is filed in a bankruptcy case, the claim "is deemed allowed" unless a party in interest objects. A proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes "prima facie evidence of the validity and amount of the claim." F.R.Bankr.P. 3002(f). As a result, the party objecting to a properly-filed proof of claim has the initial burden of presenting sufficient probative evidence to overcome such prima facie effect. In re C-4 Media Cable South, L.P., 150 B.R. 374, 377 (Bankr. E.D. Va. 1992). Once the debtor has done so, the burden of proof then shifts to the creditor to establish the validity and amount of its claim. In re Shabazz, 206 B.R. 116, 120 (Bankr. E.D. Va. 1996). Where the debtor's defense to the claim, however, is one with respect to which the debtor would have the burden of proof in a non-bankruptcy forum, the debtor must carry that same burden of proof in connection with an objection to claim. See IRS v. Levy (In re Landbank Equity Corp.), 973 F.2d 265 (4th Cir. 1992) (debtor-taxpayer has burden of proof on disallowed deductions); In re White, 168 B.R. 825, 829 (Bankr. D. Conn. 1994) (debtor has burden of proof where affirmative defense filed to proof of claim). Here, the debtor has pleaded an affirmative defense and, thus, carries the burden of proof in this proceeding.
A.
As a threshold matter, the Van Buren Estate contended in its opening statement that the debtor had waived his affirmative defense of usury by not pleading it in the prior adversary proceeding (AP No. 97-1295) between the parties. In addition to seeking the revocation of the debtor's discharge, the complaint in that proceeding sought a determination that the debtor's liability on the $100,000 promissory note was nondischargeable under § 523(a)(2), Bankruptcy Code. The debtor did not plead the defense of usury in that action, and counsel for the Van Buren Estate argues that the principle of res judicata prevents the debtor from relying on that defense now.
At the hearing, the court ruled that the defense was not waived. The following discussion is meant to clarify and expand the court's bench ruling.
Res judicata, commonly referred to as claim preclusion, prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties regardless of whether they were asserted or determined in the prior proceeding. Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979). In establishing a res judicata defense, the parties must show: "(1) a final judgment on the merits in the prior suit, (2) an identity of the cause of action in both the earlier and the later suit, and (3) an identity of the parties or their privies in the two suits." Jones v. Securities Exchange Comm., 115 F.3d 1173, 1178 (4th Cir. 1997) (quoting Meekins v. United Tramp. Union, 946 F.2d 1054, 1057 (4th Cir. 1991)). As the Supreme Court in Brown explained, "Res judicata thus encourages reliance on judicial decisions, bars vexatious litigation, and frees the courts to resolve other disputes." 442 U.S. at 131, 99 S.Ct. at 2209.
In a nondischargeability action, the court is primarily concerned with determining whether the debt is excepted from discharge. In other words, the validity and amount of the underlying debt is not necessarily an issue when a creditor files a nondischargeability complaint. However, that is not the case when a creditor requests, not merely a determination of dischargeability, but also a money judgment to liquidate its claim. When such relief is sought, there is no question that the court must necessarily decide that the creditor's claim is enforceable before damages can be awarded. Where the creditor seeks entry of a money judgment, the debtor is required by Fed.R.Civ.P. 8(c), which is incorporated by F.R.Bankr.P. 7008, to assert any affirmative defenses; otherwise those defenses are lost.
For example, the debt may have already been reduced to judgment, or, because a trial on the merits might require the presence of nondebtor parties, the creditor might prefer to liquidate the debt in another form.
In this district, it has been held that the bankruptcy court has jurisdiction to enter a money judgment in a dischargeability proceeding. Harris v. U.S. Fire Ins. Co., 162 B.R. 466 (E.D. Va. 1994). The court, noting that the bankruptcy court is a court of equity, relied on the maxim that once equitable jurisdiction has been properly invoked, it will proceed to render a full and complete disposition of the controversy. Id. at 468.
Here, the § 523(a)(2) count of the Van Buren Estate's complaint in the adversary proceeding did seek a money judgment. The debtor did not plead the affirmative defense of usury. However, when he was called by the plaintiff as an adverse witness at trial, he testified that Mrs. Van Buren and David Van Buren had attempted to circumvent the Florida usury statute by structuring what was a single $100,000 loan transaction using two promissory notes. Had the court determined that the claim was nondischargeable, the court would then have been required to determine also whether it was enforceable, and in what amount. Entry of a money judgment against the debtor in that adversary proceeding would necessarily have been conclusive as to any affirmative defenses. However, the Van Buren Estate did not, in that adversary proceeding, clear the first hurdle — that is, it failed to show that the debt was nondischargeable as having been incurred through fraud. Thus the court was never required to, and did not, make a determination whether the debt was valid and enforceable. Thus, there has been no final judgment concerning the validity and amount of the claim. That issue was simply left for another forum at another time. In the absence of a final judgment, res judicata simply does not apply. Accordingly, the court will turn to the merits of the debtor's affirmative defense.
B.
Under the Florida usury statute, a borrower is protected from money lenders who charge unconscionable interest rates. It is unlawful for a lender to charge an interest rate greater than 18% per annum, commonly referred to as civil usury. Fla. Stat. § 687.03. The statute further provides that a loan transaction constitutes criminal usury when "any person making an extension of credit . . . willfully and knowingly charge[s], take[s], or receive[s] interest thereon at a rate exceeding 25 percent per annum. . . ." Fla. Stat. § 687.071(2). It is well settled under Florida law that these sections provide statutory causes of action for borrowers to seek affirmative relief against lenders who extend usurious loans. In re Omni Capital Group, Ltd., 157 B.R. 712, 717 (Bankr. S.D. Fla. 1993) (citing to Tel Service Co. v. General Capital Corp., 227 So.2d 667 (Fla. 1969)). The difference between civil and criminal usury is that the former makes only the interest component of the debt unenforceable, while the latter makes the entire obligation unenforceable and entitles the borrower to recover all principal and interest paid to the lender. Id. at 717; Rollins v. J.D. Odom, 519 So.2d 652, 656 (Fla. 1st DCA 1988); Fla. Stat. § 687.071(7).
To sustain a finding of usury, the Florida courts require 4 elements to be proved: (1) an express or implied loan; (2) an understanding between the parties that the money lent shall be repaid; (3) an agreement to pay a greater interest rate than is allowed by law; and (4) the existence of a corrupt intent to exact more the legal rate of interest. Mickler v. Maranatha Realty Assoc., Inc. (In re Mickler), 50 B.R. 818, 828 (Bankr. M.D. Fla. 1985); Dixon v. Sharp, 276 So.2d 817, 819 (Fla. 1973). To succeed in a usury claim, the borrower must establish these elements by clear and satisfactory evidence. Omni Capital, 157 B.R. at 717.
There is no dispute as to the first two elements. What remains is whether the two promissory notes at issue were created by Mrs. Van Buren and David Van Buren in order to corruptly collect an interest rate in violation of the Florida usury statute. The debtor argues that the $100,000 and $12,000 notes were part of a single transaction structured to exact an interest rate of 30%. It is his testimony that the $12,000 note was not a distinct and separate transaction, but rather served solely as a device to collect additional interest on the $100,000 note. The Van Buren Estate denies any wrongdoing and contends that the $12,000 note was actually an investment contract to acquire Olympic tickets at face value.
When determining whether a transaction is usurious, the court must look beyond the documents themselves and consider all the surrounding circumstances of the transaction See Rollins, 519 So.2d at 657; Omni Capital, 157 B.R. at 717. The court, mindful that the debtor carries a greater burden greater than the preponderance of the evidence standard, nevertheless finds that the debtor has shown by clear and satisfactory evidence that the $12,000 note was a sham and that Mrs. Van Buren charged an usurious interest rate — effectively 30% — by tacking payments on the $12,000 note to the monthly interest payments required by the $100,000 note.
Having carefully considered both the demeanor of the witnesses and the content of their testimony, the court finds the debtor's account of the events surrounding the loan to be more convincing than that of David Van Buren and Mr. Marko. The debtor's testimony was generally consistent and, taken as a whole, more plausible. The debtor did have trouble in explaining a check made payable to David Van Buren which includes a notation concerning Superbowl tickets. See Debtor's Ex. G. Nevertheless, any inconsistency was minor, particularly in light of the other evidence supporting the debtor. In contrast, David Van Buren's testimony was akin to a child playing hopscotch. For example, he first testified that the $12,000 loan represented a new cash transaction, but then suggested that part of it may have incorporated a prior obligation of the debtor, and finally reverted to his initial position. Furthermore, he had difficulty in explaining certain key events of the transaction at issue. For example, he characterized the $12,000 he allegedly loaned to the debtor as being in the nature of an investment, and that he charged no interest because he was to receive Olympic tickets at face value. However, he did not satisfactorily explain why such terms were not included in the written promissory note. He testified that he was surprised when he arrived at the settlement to discover that a formal note had been prepared. He explained that his mother requested Mr. Marko to draft the document to avoid any confusion as to whom the debtor owed money.
The court finds David Van Buren's story to be implausible. The parties' records of their dealings range from sketchy to nonexistent, but it appears that such careless bookkeeping is commonplace in the ticket-selling business. It was testified that deals would often be done on the back of a business card and running balances kept on scraps of paper. The debtor and David Van Buren, nevertheless, kept some records of their deals. Of particular importance are two transactions which were formally documented. There is no need to recite the agreements in detail, but it is sufficient to note that one was a simple loan with interest to paid at a rate of 30%, Creditor's Ex. I, and another was an investment contract to purchase basketball tickets. Creditor's Ex. M. Because the parties had already drafted an investment contract before the $12,000 transaction, the most logical course of action would have been to include any related investment terms in the $12,000 note. The Van Buren Estate attempts to justify the absence of such terms on the ground that the note was not intended to encompass all the details of the transaction. David Van Buren testified that he was surprised to see a document memorializing the transaction at the loan settlement, and accepted the document, without caring what it stated, solely in order to satisfy his mother's concerns. It is difficult, however, for the court to see why if a document were to be signed at all, David Van Buren would not ask Mr. Marko to make sure it was complete.
The court also finds significant the fact the debtor received a receipt only for $100,000 at the time he supposedly picked up $112,000 at the bank where Mrs. Van Buren kept a safe deposit box. According to David Van Buren's testimony, the debtor received cash relating to both loans at the same time. If Mrs. Van Buren were insistent on documenting the $12,000 obligation with a formal promissory note to avoid confusion, it is odd that she would not also have insisted on a separate receipt for the $12,000 in currency taken from her safe deposit box at the same time. David Van Buren's testimony, in short, lacks the ring of truth, and the court gives it no credence.
C.
The required $1,000 per month "principal" payments on the sham $12,000 note, added to the $1,500.00 per month "interest only" payments on the $100,000.00 note, equate to an interest rate of $30% per annum on account of the $100,000 loan. Under the Florida criminal usury statute, neither the principal nor interest on such a loan is enforceable. Accordingly, a separate order will be entered sustaining the debtor's objection and disallowing the Van Buren Estate's $100,000.00 claim in its entirety.