WBL SPE III LLC v. Joel K. Schenfield and Liane M. Schenfield

Summary

The United States District Court for the Western District of New York reviews an appeal from a bankruptcy court order disallowing WBL SPE III LLC’s claim against Joel and Liane Schenfield. The court affirms, holding that applying New Jersey law under the loan agreement’s choice-of-law provision would violate New York public policy concerning usurious loans and that the transaction lacked a sufficient reasonable relationship with New Jersey.

Holdings

1. The New Jersey choice-of-law clause was unenforceable because applying New Jersey law to permit a 49.99% interest rate would violate New York's fundamental public policy against usurious lending, particularly where individual guarantors and mortgagors could face personal liability and loss of their home.
2. The loan agreement had no reasonable relationship with New Jersey sufficient to enforce the New Jersey choice-of-law clause.
3. Any error by the bankruptcy court in initially applying a center-of-gravity or grouping-of-contacts test was harmless because applying the correct reasonable-relationship analysis led to the same conclusion and then properly supported application of New York law.
4. Because New York law governed and the 49.99% interest rate was criminally usurious under New York law, the loan was void and WBL SPE III LLC's claim was properly disallowed.

Questions Presented

1. Whether the New Jersey choice-of-law clause was unenforceable because applying New Jersey usury law would violate New York's fundamental public policy.
2. Whether the loan transaction had a reasonable relationship with New Jersey sufficient to justify enforcement of the New Jersey choice-of-law clause.
3. Whether the bankruptcy court's use of a center-of-gravity or grouping-of-contacts analysis constituted reversible error.
4. Whether the loan was criminally usurious and therefore void under New York law, requiring disallowance of WBL SPE III LLC's claim.

Disposition

affirmed