On March 17, 2025, the U.S. Bankruptcy Court for the Eastern District of Michigan denied a borrower’s motion for summary judgment, finding that a secured loan did not violate Michigan’s usury laws. In so holding, the court acknowledged that Michigan’s “distressing” patchwork of usury laws resulted in an “unfair and unreasonable” result in this case and invited the Michigan legislature to clarify this area of the state’s law.
Shah Sports, LLC entered into a $1.1 million loan arrangement with World Business Lenders, LLC (“WBL”) secured by commercial property located in Michigan. The standard interest rate under the loan was 30% per year, which increased to 40% in the event of a default. Shah Sports defaulted on the loan and, prior to the planned foreclosure sale, one of the guarantors filed for bankruptcy. During the adversary proceeding in connection with the bankruptcy proceeding, Shah Sports argued that the promissory note’s choice of law provision in favor of New Jersey did not apply and that, under the forum law of Michigan, the promissory note was unenforceable under the state’s usury laws.
Judge Daniel S. Opperman first determined that, notwithstanding the New Jersey choice of law provision, the laws of the state of Michigan applied to this dispute. The court noted that New Jersey’s only connection to the case was the location of WBL’s corporate office, whereas the borrowers, guarantors, and subject property are all located in Michigan, and that there was otherwise no reasonable basis for New Jersey law to govern this dispute. Further, in light of those strong ties to Michigan, the “policies and public interests of Michigan should govern.”
Turning to the substance of the dispute, the Court began by stating that “Michigan usury statutes are incomplete and do not otherwise connect with each other.” The court then followed the “circuitous statutory path” and ultimately concurred with the court’s statutory analysis in Equine Luxury Properties, LLC v. Commercial Capital BIDCO, Inc., a case we analyzed in the last edition. The Court concluded that one of the Michigan usury statutes, which permits parties to agree to “any rate of interest” on a loan of more than $100,000 that is secured by real property other than a single-family residence, operates as an exception to the general cap on interest at 25% found in another usury statute. According to the court, this interpretation “follows all of the statutes, gives full meaning to all the statutes, and does not ignore certain statutory language.” However, the court conceded the “merit of the conflicting conclusions” in light of the confusing statutory framework and that it “could easily see how a reversal or modification of this Opinion could occur.”
The case is In re Top Shelv Worldwide, LLC, No. 23-ap-2031 (Bankr. E.D. Mich. Mar. 17, 2025). The plaintiffs are represented by Honigman LLP and Stephen P. Stella. The defendants are represented by Dalton & Tomich PLC. The opinion is available here.
