Bowles Sub Parcel A, LLC v. CW Capital Asset Mgmt. LLC

Debtors, limited liability companies, own pools of commercial and industrial real estate, subject to mortgages held by the Trust. The promissory notes for the loans provided that upon default, the interest rate on the remaining principal would be 5% in addition to the non-default rate of 5.04%. Debtors defaulted and later filed for Chapter 11 bankruptcy relief. The Trust filed proof of claim for $1,516,739.80 in default interest. The assigned asset manager for the loans testified about expenses associated with default and said that the 5% rate was consistent with the rate for similar loans. According to the Debtors’ chief manager, the additional interest duplicated costs associated with default that Debtors were already paying, including attorneys’ fees, late fees, and costs of administration and enforcement. The bankruptcy court allowed the claim, finding that Debtors failed to rebut the Minnesota law presumption that the default-interest provision was a valid liquidated-damages provision. The district court and the Eighth Circuit affirmed, rejecting arguments that the bankruptcy court misapplied Minnesota law because it did not require the Trust to prove actual damages; that actual damages for breach of a promissory note are always ascertainable; and that many of the costs the default rate purportedly covers are otherwise covered. View "Bowles Sub Parcel A, LLC v. CW Capital Asset Mgmt. LLC" on Justia Law