Ninth Circuit Declines To Aggregate Loans For Usury Exemption
California limits the amount of interest that may be charged on loans and forbearances. While that is the general rule, there are numerous statutory exemptions. One of those exemptions can be found in California Corporations Code § 25118(b) which provides that the “purchasers or holders” of “[a]ny one or more evidences of indebtedness . . . shall be exempt from the usury provisions of the California Constitution if . . . [t]he evidences of indebtedness aggregate at the time of issuance at least three hundred thousand dollars ($300,000) in original face amount . . . ". [Note that the statute includes several other requirements not discussed in this post.]
In Social Life Network, Inc. v. LGH Investments, LLC, 2023 WL 3641791 (9th Cir. May 25, 2023), U.S. District Court Judge M. James Lorenz concluded that the lender was exempt under Section 25118(b) because the borrower had received several loans from different lenders that, in aggregate,” exceeded $300,000 by the time of borrower's agreement with the lender. The Ninth Circuit Court of Appeals disagreed, holding:
We conclude that the most logical and internally consistent interpretation of § 25118(b), and the one most consonant with the statutory text, is that § 25118(b) exempts borrowers from usury protections when their “evidences of indebtedness” with a single lender aggregate to $300,000 “at the time of issuance.” Nothing in § 25118(b) indicates that the provision “aggregate[s]” evidences of indebtedness from transactions with different lenders. Cf. Agapitov v. Lerner, 133 Cal. Rptr. 2d 837, 843 (Ct. App. 2003) (“[T]he constitutional usury provision protecting borrowers should be read broadly, and exemptions should be read strictly.”).
California courts have yet to address the question and the Ninth Circuit declined to certify the question to the California Supreme Court because it found it was "sufficiently clear" that the statute "does not call for the aggregation of loans across multiple lenders". However, one member of the panel agreed with the trial judge, meaning that two judges interpreted the statute to permit aggregation and two judges (the majority on the panel) saw it the other way. One might be forgiven therefore by questioning how "sufficiently clear" the majority's interpretation truly is.