Virginia Lawyers Weekly VA Lawyers Weekly
Where a borrower challenged whether interest in a promissory note compounded after the note matured, but that borrower previously submitted a spreadsheet that the court adopted in which its expert compounded interest following maturity, res judicata applied.
Background
In 2008, Hunter Mill West LC, or HMW, executed a one-year note in favor of BDC Capital LLC, set to mature on Nov. 19, 2009. The note provided that, before maturity, interest accrued at a rate of 14%, compounded monthly; that, upon default, BDC could unilaterally increase the interest rate by 10 points, to 24% and that, in the event that a court entered judgment on the note against HMW, the judgment would bear interest at the default interest rate of 24%.
After HMW failed to satisfy its obligations under the note, BDC placed HMW in default on Sept. 24, 2010. Two years later, on Nov. 9, 2012, HMW filed for bankruptcy. In a proof of claim filed in the bankruptcy court, BDC asserted that HMW owed roughly $1.8 million on the note. HMW objected, maintaining that the debt was closer to $1.5 million.
In support of its argument, HMW submitted a spreadsheet, prepared by its expert, that calculated the balance due from the note’s inception until the date of the bankruptcy petition. Critically, HMW’s expert compounded interest throughout this entire period. Following a hearing, the bankruptcy court sustained HMW’s objection and, aside from one minor adjustment not pertinent here, adopted HMW’s calculations in full. Accordingly, the bankruptcy court entered a claims order fixing BDC’s claim at $1,504,998.55.
Analysis
The parties disagree whether the claims order conclusively established that interest compounded after the note matured. As noted above, the bankruptcy court used HMW’s own spreadsheet to determine the amount due under the note, and those calculations included compounding interest from the maturity date through the date of the bankruptcy petition. And given that the application of compounding interest necessarily impacted the value of BDC’s claim as recorded in the claims order, it stands to reason that this issue was necessary to the bankruptcy court’s decision. For these reasons, the court agrees that HMW is precluded from relitigating the issue of postmaturity compounding interest.
Turning to the rate of interest, HMW argues that the federal rate should apply to the amount owed under the claims order. Under § 1961(a), the federal interest rate “shall be allowed on any money judgment in a civil case recovered in a district court.” However, although “§ 1961 provides a standard rate of post-judgment interest, the parties are free to stipulate a different rate, consistent with state usury and other applicable laws.” Here, the note clearly stipulated that, following entry of judgment, interest would accrue at a rate of 24%. Thus, assuming without deciding that the claims order is a money judgment governed by § 1961, the terms of the note supplanted the federal interest rate.
Affirmed.
Caten LLC v. Hunter Mill West LC, Case No. 19-1790, July 8, 2021. 4th Cir. (per curiam), from EDVA at Alexandria (Brinkema). J. Chapman Petersen and David L. Amos for Appellant. Nicholas M. DePalma and Christian R. Schreiber for Appellee. VLW 021-2-252. 7 pp.
