Bowles Sub Parcel A, LLC v. CW Capital Asset Mgt. LLC (In re Bowles Sub Parcel A, LLC)

Summarized by Lars Fuller , BakerHostetler
10 years 9 months ago

Citation:

Bowles Sub Parcel A, LLC, et al. v. CW Capital Asset Mgt. LLC, et al. (In re Bowles Sub Parcel A, LLC, ), Nos. 14-1055, 14-1060, 14-1061, 14-1064, 14-1065 (8th Cir. July 1, 2015)

Tag(s):

Ruling:

The 8th Circuit affirmed the affirmed the ruling of the bankruptcy court (D. Minn.), which determined that a default-interest provision in a loan agreement was a valid liquidated-damages provision under Minnesota law. Appellants were six limited liability companies who were debtors in six consolidated bankruptcy cases. Eighth Circuit agreed that bankruptcy court properly applied Minnesota law to find that default interest was a valid liquidated damages provision that was reasonable in light of the contract as a whole, the nature of the damages contemplated, and the surrounding circumstances. The promissory notes included requisite language regarding damages being difficult or impracticable to ascertain, and the default amount being a reasonable estimate of damages, and not a penalty. There was sufficient testimonial evidence to justify the bankruptcy court's conclusions, and debtors failed to prove that the liquidated damages were manifestly disproportionate to the actual damages.

Procedural context:

Creditor filed claim, and consolidated debtors objected to default interest. Bankruptcy court overruled objection, and debtors appealed to district court. District court affirmed, and debtors appealed to 8th Circuit.

Facts:

Debtors, six LLCs with six consolidated bankruptcy cases, owned three "pools" of commercial and industrial real etate that was subject to mortgages held by creditor. Creditor made three separate loans to debtors pursuant to three separate promissory notes, each with virtually identical provisions except for the loan amounts and the collateral securing the loan. The notes all provided that upon default, the interest rate would be 5% in additon to the non-default rate of 5.04%. In May 2011, debtors defaulted on loans. In May 2012, they filed for chapter 11. Creditor filed a proof of claim for default interest in excess of $1.5 million. Debtors objected. At the hearing, the bankruptcy court heard evidence that the default interest rate was both duplicative and consistent with commercial practices. Following hearing, the bankruptcy court allowed the default interest, ruling that debtors failed to rebut presumption that the default interest provision was a valid liquidated damages provision. The district court affirmed.

Judge(s):

Gruender, Shepherd, Kelly

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