Equine Luxury Properties, Inc. et al v. Commercial Capital Bidco, Inc. et al

Filing 78

OPINION; signed by Chief Judge Hala Y. Jarbou (tmb)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
EQUINE LUXURY PROPERTIES, LLC, et
al.,
Plaintiffs,
Case No. 1:23-cv-1142
v.
Hon. Hala Y. Jarbou
COMMERCIAL CAPITAL BIDCO, INC.,
et al.,
Defendants.
___________________________________/
OPINION
Plaintiffs Equine Luxury Properties, LLC (“Equine”) and 138 River Street, LLC (“138
River”) brought this action in state court for declaratory and injunctive relief against Defendant
Commercial Capital BIDCO, Inc. (“CCB”) seeking to prevent CCB from foreclosing on two
properties located in Michigan. CCB removed the action to this Court on the basis of diversity
jurisdiction. Before the Court is CCB’s motion for judgment on the pleadings and for summary
judgment (ECF No. 59), as well as Plaintiffs’ motion to amend the complaint (ECF No. 63). For
the reasons below, the Court will grant CCB’s motion and grant Plaintiffs’ motion in part.
I. BACKGROUND
A. Plaintiffs’ Complaint
Plaintiffs allege that they entered into a loan agreement1 in July 2022 with CCB, secured
by two properties in Michigan owned by Plaintiffs. (Verified Compl. ¶ 7, ECF No. 7.) Plaintiffs
made interest-only payments on the loan from September 2022 to July 2023. (Id. ¶ 24.) In August
2023, the parties agreed to extend the maturity date of the loan from July 28, 2023, to January 28,

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The loan agreement has multiple parts: a promissory note, two mortgages, and a personal guaranty. For simplicity’s
sake, the Court will refer to all of them, collectively, as the loan agreement.

2024, entering into an amended and restated promissory note that set forth the relevant terms. (Id.
¶ 26.)
The six-month loan extension allegedly charged more than 26% in interest on an annual
basis, and after CCB declared default, the interest rate increased to “more than 32%.” (Id. ¶¶ 12,
27.) The stated rate was 14%, but when accounting for a 6% origination fee, as well as processing
and underwriting fees, Plaintiffs allege the actual rate of annual interest was 26%. (Id. ¶ 30.)
When CCB declared default, it triggered “default interest,” which was 20%, resulting in an
effective annual rate of more than 32% when accounting for the fees mentioned above. (Id. ¶ 31.)
Plaintiffs objected to the interest rate because Michigan’s criminal usury statute makes it
unlawful for lenders to charge more than 25% interest per year “or the equivalent rate for a longer
or shorter period.” Mich. Comp. Laws § 438.41. On August 18, 2023, CCB’s attorney sent
Plaintiffs a notice of default and demanded payment. (Compl. ¶ 32.) A few days later, CCB sent
a payoff statement to 138 River, demanding full payment of the debt. Plaintiffs objected on the
basis of the Michigan and Tennessee usury statutes.
In September 2023, CCB allegedly attempted to foreclose on the mortgaged properties by
advertisement under Michigan law and a “power of sale” clause in the loan agreement. (Id. ¶ 7.)
CCB published a notice of the foreclosure and its attorney scheduled a foreclosure sale for October
2023. (Id. ¶ 14.) Plaintiffs believe that CCB sold its interests in the loan to Cogent Bank
(“Cogent”) in 2022 and that CCB is the servicing agent for Cogent. (Id. ¶ 41.) Plaintiffs apparently
contend that the foreclosure was improper because CCB lacked the right to initiate it.
Plaintiffs filed this action seeking a declaration that the loan is illegal and unenforceable
under “Michigan’s wrongful-conduct rule” because it violates “Michigan’s criminal usury act.”
(Id. ¶ 11.) Plaintiffs also seek a declaration that CCB did not comply with Michigan law regarding

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foreclosure by advertisement because CCB transferred its interests in the mortgages to Cogent.
Plaintiffs seek an injunction against CCB barring it from taking action to enforce the loan and
foreclose on the properties.
B. Procedural History
1. CCB Removes the Case to Federal Court
While the case was pending in state court, the state court granted a temporary injunction
preventing CCB from foreclosing on Plaintiffs’ properties. CCB then removed the case to this
Court on the basis of diversity jurisdiction.
2. Court Denies Plaintiffs’ Motion for Summary Judgment
Plaintiffs filed a motion for summary judgment on their claim that the loan agreement
between it and CCB was unenforceable under Michigan law because the agreement allowed CCB
to charge a rate of interest higher than that allowed by Michigan’s usury law. In an opinion entered
on May 30, 2024, this Court concluded that Tennessee law governed the parties’ dispute over the
enforceability of the loan agreement because that is the law the parties chose in their contract.
(5/30/2024 Op. 16-17, ECF No. 57.) As part of its choice-of-law analysis, the Court also
concluded that the parties’ choice of Tennessee law would not violate a fundamental policy of
Michigan because Michigan law permitted CCB to charge any rate of interest to which the parties
agreed in writing. (Id. at 13.) In other words, the loan agreement is enforceable under Michigan
law.
3. Pending Motions
Relying on the Court’s previous opinion, CCB has filed a motion for judgment on the
pleadings and for summary judgment. Plaintiffs have responded to that motion.

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Plaintiffs have filed a motion to amend their complaint.

Their proposed amended

complaint adds a claim that CCB attempted to charge a rate of interest that violates Tennessee law.
CCB opposes the motion to amend the complaint.
II. CCB’S MOTION FOR SUMMARY JUDGMENT
The Court will treat CCB’s motion solely as one for summary judgment because the
summary judgment standard allows the Court to consider all the attachments to the parties’
briefing. Summary judgment is appropriate “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The Court must determine “whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that one party must prevail as a matter of
law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). Summary judgment is not
an opportunity for the Court to resolve factual disputes. Id. at 249. The Court “must shy away
from weighing the evidence and instead view all the facts in the light most favorable to the
nonmoving party and draw all justifiable inferences in their favor.” Wyatt v. Nissan N. Am., Inc.,
999 F.3d 400, 410 (6th Cir. 2021).
A. Enforceability of Loan Agreement under Michigan Law
For the reasons stated in the Court’s opinion of May 30, 2024, the loan agreement does not
violate Michigan’s usury restrictions. For the type of loan here, Michigan law permits the parties
to agree in writing to any rate of interest. Consequently, Plaintiffs are incorrect in their assertion
that the agreement is unenforceable under Michigan law. For related reasons, Tennessee law
governs the enforceability of the parties’ agreement. The parties’ chose that law in their contract.
Under Michigan’s choice-of-law rules, the Court honors that choice.
In their response to CCB’s motion, Plaintiffs assert reasons why the Court should reach a
different outcome. In particular, they argue that the business entity exemption in Mich. Comp.
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Laws § 438.61(3) limited the interest rate CCB could charge because Plaintiffs are business
entities. That exemption caps the interest rate for loans to business entities from nonregulated
lenders at the rate “not exceeding the rate allowed under [Michigan’s criminal usury statute, Mich.
Comp. Laws § 438.41(1)].” Mich. Comp. Laws § 438.61(3). The criminal usury statute allows a
rate no higher than 25% (unless otherwise “authorized or permitted by law”). Mich. Comp. Laws
§ 438.41(1).
Plaintiffs made similar arguments in their motion for summary judgment. The Court
rejected them. As the Court explained, another Michigan law permits Plaintiffs and CCB to agree
in writing to “any rate of interest.” See Mich. Comp. Laws § 438.31c(11). That provision applies
to “a note, bond, or other indebtedness of $100,000.00 or more, the bona fide primary security for
which is a lien against real property other than a single family residence.” Id. Plaintiffs do not
dispute that their loan from CCB meets these requirements. And for reasons the Court previously
discussed, the Court is not persuaded that the business entity exemption prohibits lenders from
charging a business entity an interest rate above 25% where the loan satisfies § 438.31c(11).
Plaintiffs rely on Soaring Pine Capital Real Estate & Debt Fund II, LLC v. Park Street
Group Realty Services, LLC, 999 N.W.2d 8 (Mich. 2023), in which the Michigan Supreme Court
observed that, “for certain types of loans, the criminal usury rate of 25% is the only applicable
usury rate.” Id. at 19 n.16 (citing Mich. Comp. Laws §§ 438.61(3), 450.4212). That general
statement does not provide any guidance for this case, however, because it does not specify the
types of loans to which the rule applies. Indeed, that court did not make any observations about
how the business entity exemption in § 438.61 interacts with § 438.31c(11). To the contrary, the
court expressly declined to address the plaintiff’s argument that its loan was covered by §
438.31c(11). Soaring Pine, 999 N.W.2d at 23 n.24. Thus, Soaring Pine is inapposite.

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Similarly, none of the other cases cited by Plaintiffs discuss this issue. See Ross v. Peyerk,
No. 357597, 2022 WL 1714582 (Mich. Ct. App. May 26, 2022); Mendola v. TMI Se., Inc.,
No. 240632, 2003 WL 22138278 (Mich. Ct. App. Sept. 16, 2003); Dugan v. Vicko, 307 F. Supp.
3d 684 (E.D. Mich. 2018). Thus, they are not persuasive. Accordingly, CCB is entitled to
judgment on Plaintiffs’ claim that the loan agreement is unenforceable under Michigan law.
B. Foreclosure
Plaintiffs also contend that CCB did not comply with Michigan law when it commenced
non-judicial foreclosure proceedings because CCB does not own the underlying debt or security.
Mich. Comp. Laws § 750.3204 permits a party to foreclose on a mortgage if that party is “either
the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the
servicing agent of the mortgage.” Mich. Comp. Laws § 750.3204(1)(d).
Plaintiffs contend that CCB assigned its ownership interest in the mortgage to Cogent.
Under a “loan participation agreement” dated July 28, 2022, between CCB and Cogent, CCB
assigned its “ownership rights in and to the indebtedness, promissory notes or notes, collateral
security and all documents . . . relating to” its loan to 138 River. (Loan Participation Agreement
¶ 1, ECF No. 74-2.) Plaintiffs apparently contend that CCB does not qualify as a party who can
foreclose under Mich. Comp. Laws § 750.3204.
On its face, however, § 750.3204 also permits the owner “of an interest in the indebtedness
secured by the mortgage” to initiate foreclosure. Mich. Comp. Laws § 750.3204(1)(d) (emphasis
added). According to the Michigan Supreme Court, the owner of such an interest includes
“mortgagees of record.” Residential Funding Co. v. Saurman, 805 N.W.2d 909, 910 (Mich. 2011).
CCB has provided evidence from the register of deeds that it was the mortgagee of record at the

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time of foreclosure. (See Commercial Mortgages, ECF Nos. 60-4, 60-5.) Plaintiffs offer no
evidence to show otherwise.2 Thus, CCB is entitled to summary judgment on this claim.
III. MOTION TO AMEND COMPLAINT
Plaintiffs ask for leave to amend their complaint to add a claim under Tennessee law.
Plaintiffs may amend their complaint “with leave of the court.” Fed. R. Civ. P. 15(a)(2). “The
court should freely give leave when justice so requires.” Id. “The decision as to whether justice
requires the amendment is committed to the district court’s sound discretion.” Moore v. City of
Paducah, 790 F.2d 557, 559 (6th Cir. 1986).
In the absence of any apparent or declared reason – such as undue delay, bad faith
or dilatory motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party by virtue
or allowance of the amendment, futility of the amendment, etc. – the leave sought
should, as the rules require, be “freely given.”
Foman v. Davis, 371 U.S. 178, 182-83 (1962).
A. Futility of Amendment
CCB argues that the Court should deny leave because the proposed amendment would be
futile. “An amendment is futile when, after including the proposed changes, the complaint still
‘could not withstand a Rule 12(b)(6) motion to dismiss.’” Skatemore, Inc. v. Whitmer, 40 F.4th
727, 737 (6th Cir. 2022) (quoting Riverview Health Inst. LLC v. Med. Mut. of Ohio, 601 F.3d 505,
512 (6th Cir. 2010)).
To survive a Rule 12(b)(6) motion, a plaintiff’s complaint must contain “sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). While “[t]he plausibility standard . . . is not akin to a probability

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In addition, § 750.3204 permits the servicing agent to foreclose. Mich. Comp. Laws § 750.3204(1)(d). Here, the
loan participation agreement required CCB to “act as the disclosed agent of [Cogent] in connection with the collection
of payments and the servicing of the Loan.” (Loan Participation Agreement ¶ 3.) Plaintiffs themselves allege that
CCB is a servicing agent. (Compl. ¶ 41.) CCB could initiate the foreclosure in its role as a servicing agent.

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requirement . . . it asks for more than a sheer possibility” that the alleged misconduct occurred. Id.
“Specific facts are not necessary; the statement need only give the defendant fair notice of what
the . . . claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
When considering a motion under Rule 12(b)(6), courts “construe the complaint in the light
most favorable to the plaintiff, accepting all well-pleaded factual allegations as true.” Parrino v.
Price, 869 F.3d 392, 397 (6th Cir. 2017). The Court need not accept “threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements,” Iqbal, 556 U.S. at 678,
or “formulaic recitations of the elements of a cause of action.” Twombly, 550 U.S. at 555.
As part of its assessment, the Court can consider “exhibits attached to the complaint, public
records, items appearing in the record of the case, and exhibits attached to defendant’s motion to
dismiss, so long as they are referred to in the complaint and are central to the claims contained
therein.” Gavitt v. Born, 835 F.3d 623, 640 (6th Cir. 2016).
B. Count I: Michigan Usury Law
The proposed amended complaint contains two counts instead of one. Like the current
complaint, Count I of the proposed amended complaint asserts that the loan agreement is
unenforceable under Michigan law because it allows CCB to charge a rate of interest that is higher
than what Michigan usury law allows. Unlike the current complaint, the new Count I does not
contain allegations about the validity of the foreclosure process. This proposed count fails to state
a claim for the reasons discussed above and in the Court’s previous opinion. In short, Tennessee
law governs the enforceability of the loan agreement, not Michigan law. Also, the agreement does
not violate Michigan’s usury law.
The Court recognizes that “the test for futility” looks at whether the amended complaint
could withstand a Rule 12(b)(6) motion to dismiss rather than a motion for summary judgment.
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Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 421 (6th Cir. 2000). That test is satisfied
here. Resolving Plaintiffs’ newly proposed Count I does not require the Court to rely on evidence
that is beyond the scope of what the Court can consider on a Rule 12(b)(6) motion. The only such
evidence are the copies of the mortgages recorded in 2023. That evidence is relevant to Plaintiffs’
assertion in the complaint that CCB lacked authority to initiate foreclosure proceedings, but that
evidence is irrelevant to Count I of the proposed amended complaint, which does not contain such
an assertion. Accordingly, the Court will not allow Count I of the proposed amended complaint
to proceed because it would not survive a motion to dismiss.
C. Count II: Tennessee Law
Count II of the proposed amended complaint asserts that the rates charged by CCB violate
Tennessee law.
1. Tennessee BIDCO Act
Plaintiffs claim that CCB lacked authority to issue the loan under the Tennessee BIDCO
Act. As the Court has explained,
CCB is not subject to many of Tennessee’s interest rate restrictions because it is a
special entity formed under Tennessee’s BIDCO Act, which authorizes CCB to
charge rates as high as 30%, i.e., the “maximum rate that may be charged or
received by any other lender in Tennessee.” Tenn. Code § 45-8-210(b)(6)(A); see
Tenn. Code § 45-2-1904(a) (permitting a registered bank to charge interest at up to
30% per year).
(5/30/2024 Op. 12.)
Plaintiffs argue that the BIDCO Act does not apply to a loan from a BIDCO entity to a
borrower located outside Tennessee. “The stated purpose of the BIDCO Act is to make financial
assistance more readily available to businesses ‘in the state” and to promote economic
development ‘in the state.’” (Id. (citing Tenn. Code § 45-8-202).) However, nothing in the act
limits its application to in-state loans. Similarly, nothing in the act prohibits BIDCOs from
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transacting with businesses outside Tennessee. See Tenn. Code § 45-8-210 (listing the powers of
a BIDCO). Thus, the act applies here.
2. Formula Rate
Plaintiffs claim that the maximum rate of interest that CCB could charge was the “formula
rate” published by the Tennessee Financial Commissioner, which was 8.75% in 2022 and 12.25%
in 2023. (Proposed Am. Compl. ¶ 65.) They provide no support for this legal assertion, however,
and it conflicts with the BIDCO Act. The formula rate is not the maximum rate that may be
charged by any other lender in Tennessee.
3. Loan Charges
Plaintiffs contend that CCB charged them “unfair and unreasonable” loan charges that were
not part of a contract between the parties. (Proposed Am. Compl. ¶¶ 72, 76.)
For any written contract, signed by the party to be charged, and not subject to
subsection (a), the collection of loan charges shall be limited to those loan charges
agreed to in that contract; provided, that no such charges may validly be agreed to
in such a contract other than those which are fair and reasonable compensation for
some expense incurred or to be incurred, or some service rendered or to be rendered,
to or on behalf of the borrower, in connection with a particular loan.
Tenn. Code § 47-14-113(d) (emphasis added).
For instance, CCB allegedly charged $154,315 when closing on the original loan in July
2022. That amount allegedly includes a “loan origination fee” and a “referral fee to LevelUp
Capital.” (Proposed Am. Compl. ¶ 74.) CCB allegedly did the same when closing on the loan
renewal in July 2023, charging a $110,000 “loan origination fee” and a $2,500 “underwriting fee.”
(Id. ¶ 75.) Plaintiffs contend these charges were unfair and unreasonable. CCB does not address
these particular assertions in its response brief.
Instead, CCB argues that Plaintiffs lack standing to pursue their claim under Tennessee
law because that claim contends that CCB engaged in ultra vires actions. Generally, only certain
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parties have standing under Tennessee law to challenge the ability of a corporation to act outside
its corporate authority. See Tenn. Code § 48-13-104 (identifying specific individuals who can
challenge a corporation’s power to act). However, the Court construes the proposed complaint as
asserting a different sort of claim. Plaintiffs are not simply asserting that CCB acted outside its
corporate authority; instead, they are asserting that CCB violated Tennessee law regarding usury
and loan charges. Tennessee law expressly provides a remedy for usury and for excess loan
charges. See Tenn. Code §§ 47-14-114, 47-14-115(b); Hathaway v. First Fam. Fin. Servs., Inc.,
1 S.W.3d 634, 642 (Tenn. 1999) (“[I]t is possible to recover loan charges that are in excess of
those permitted by the Loan and Thrift Act.”).
To be sure, Plaintiffs contend in their motion to amend that CCB “engaged in ultra vires
acts under the Tennessee BIDCO Act and charged usurious interest and unreasonable and
excessive loan charges” (Pls.’ Mot. to Amend 3, ECF No. 63); however, the Court must look to
the substance of Plaintiffs’ claims rather than the label Plaintiffs give to them. Here, it appears
that Plaintiffs are asserting at least some claims that are not premised on ultra vires conduct. CCB
does not discuss such claims in its opposition to Plaintiffs’ motion.
In short, the Court is not persuaded that adding the claim in Count II of the proposed
amended complaint would be futile. Some parts of that claim may be meritless, but at this stage,
the Court is not persuaded that the entire claim is meritless. Also, the Court is not persuaded that
it should deny leave to amend to add this claim. Accordingly, the Court will grant leave to amend
to add Count II of the proposed amended complaint.
IV. CONCLUSION
For the reasons herein, the Court will grant CCB’s motion for summary judgment. The
Court will grant Plaintiffs’ motion to amend the complaint, in part. The Court will allow Count II
of the proposed amended complaint to proceed, but not Count I. Instead of requiring Plaintiffs to
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file a new version of the amended complaint without Count I, the Court will accept the proposed
version as the amended complaint and dismiss Count I because it is substantially the same as the
claim in the original complaint for which CCB is entitled to summary judgment.
An order will enter consistent with this Opinion.

Dated: November 25, 2024

/s/ Hala Y. Jarbou
HALA Y. JARBOU
CHIEF UNITED STATES DISTRICT JUDGE

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