                        UNITED STATES DISTRICT COURT
                         FOR THE DISTRICT OF COLUMBIA
____________________________________
                                     )
V. JAMES ADDUCI, II,                 )
                  Plaintiff,         )
            v.                       )     Civil Action No. 13-1104 (AK)
                                     )
LEONARD W. KRANE,                    )
                  Defendant.         )
____________________________________)


                                   MEMORANDUM OPINION

          Pending before this Court is Plaintiff V. James Adduci’s Motion for Summary Judgment

and Statement of Material Facts as to which there is no genuine issue (collectively,“Motion”)

[20]; Pro Se Defendant Leonard W. Krane’s Request for Continuance and Extension of Time

(“Opposition”) [22] 1, and Plaintiff’s Reply Memorandum in support of Motion (“Reply”) [21].

Upon consideration of the Motion, the Opposition, and the Reply, and the record in this case, for

the reasons set forth herein, the Plaintiff’s Motion is granted in part and denied in part. A

separate Order accompanies this Memorandum Opinion.

                                       I. Factual Background

          On March 9, 2012, Defendant Leonard W. Krane (“Defendant”) entered into a

Promissory Note (“Note”) for the purpose of borrowing the principal sum of One Hundred

Thousand Dollars ($100,000.00) from Plaintiff V. James Adduci (“Plaintiff”). See Promissory

Note (Motion, Exh. 1.) The Note states that “Maker [Defendant] hereby represents and warrants

that the Loan evidenced hereby is made and transacted solely for the purpose of acquiring or




1
    Plaintiff’s Request for Continuance and Extended Time is treated as an Opposition brief.
                                                  1
carrying on a business, professional or commercial activity.” (Motion, Exh. 1.)

       The “Maturity Date” was defined thereunder as ninety (90) days after the date of the

Note. (Motion, Exh. 1 at (A).) 2 Pursuant to the Promissory Note, the Defendant was also

required to pay a “Loan Exit Fee” to the Plaintiff, in the amount of Nine Hundred Thousand

Dollars ($900,000.00), which is due at the time the Note is paid in full. (Motion, Exh. 1 at (B).)

Defendant is further responsible for payment of a “late charge” equivalent to five percent (5%)

“’[i]n the event any installment of principal and/or the Exit Fee due under this Note is not

actually received by the holder thereof within fifteen (15) days after the date when the same is

due. . . .” (Motion, Exh. 1.) Overdue payments of the principal and/or Exit Fee also incur

“interest at the rate of ten percent (10%) per annum until paid.” (Id.) As of February 4, 2015,

Defendant has made no payment to Plaintiff. (Motion [20].) 3 Plaintiff requests payment of the

loan amount, the Loan Exit Fee, late charge, and accrued interest. (Motion [20].)

                                        II. Legal Standard

             A court should grant summary judgment if the pleadings, depositions, answers to

interrogatories, and affidavits demonstrate that there is no genuine issue of material fact in

dispute and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P.

56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Holcomb v. Powell, 433 F.3d 889, 895

(D.C. Cir 2006). The burden is on the moving party to show that there are no material facts in


2
 The maturity date is calculated as June 7, 2012.
3
 Defendant claims the parties agreed that Defendant will pay $125,000.00 in settlement of the
matter by September 2014. Defendant then requested an extension to December 2014. See
(Opposition [22].)
                                                2
dispute and that they are entitled to judgment as a matter of law. Branch Banking & Trust Co. v.

Rappaport, 982 F. Supp. 2d 66, 68 (D.D.C. 2013); see also Sage v. Broadcasting Publications,

Inc., 997 F. Supp. 49 (D.D.C. 1998).

       In determining whether there exists a genuine issue of material fact sufficient to preclude

summary judgment, the court must regard the non-movant’s statements as true and accept all

evidence and make all inferences in the non-movant’s favor. See Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 255 (1986); see also Mastro v. Potomac Elec. Power Co., 447 F.3d 843, 850

(D.C. Cir. 2006). The adverse party’s pleading must demonstrate the existence of a genuine

issue of material fact. See Liberty Lobby, 477 U.S. at 248. To be genuine, the issue must be

supported by sufficiently admissible evidence such that a reasonable trier of fact could find for

the nonmoving party. In determining materiality, the factual assertion must be capable of

affecting the substantive outcome of the litigation. See id.; see also Laningham v. U. S. Navy,

813 F. 2d 1236, 1242-43 (D.C. Cir. 1987).

                                            III. Analysis

                                             A. Liability

       1. The Loan Exit Fee Provision Is Unreasonable

       Plaintiff and Defendant entered into a contract on March 9, 2012 whereby Plaintiff

loaned Defendant $100,000.00. See Promissory Note (Motion, Exh. 1.) Defendant does not

dispute that he entered into the contract but claims that certain provisions in the Note are

“invalid, illegal, or unenforceable.” (See Opposition [22].) The usual remedy in a breach of

contract dispute is to make Plaintiff whole by Defendant paying damages in the amount Plaintiff

would have received had the contract been performed as written. See Colletti v. Aina, No. Civ. A.

93-0394-LFO, 1995 WL 170380, at *2 (D.D.C. Mar. 29, 1995).
                                           3
        A court may refuse to enforce the contract, or a questionable provision in the contract, if

the court determines that clause is unconscionable. See D.C. Code § 28:2-302(1) (2014). The

court uses a two prong test for unconscionability: (1) whether one of the parties had no

meaningful choice, and (2) whether the contract terms unreasonably favored one party. See Fox

v. Computer World Servs. Corp., 920 F. Supp. 2d 90, 97-99 (D.D.C. 2013); Williams v. Walker-

Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965). To ascertain if a meaningful choice

existed, the court looks at the totality of the circumstances surrounding the deal, including the

parties’ education, reasonable opportunity to understand the terms of the contract, or whether the

terms were “hidden” or otherwise deceptive. Fox, 920 F. Supp. 2d at 98; see also Williams, 350

F.2d at 449.

        Turning to the first prong of the test, the record contains no indication that Defendant did

not have a fair opportunity to review the contract. (See Motion [20].) Further, Defendant does not

contend that he did not understand the terms of the contract. (See Opposition [22].) Because

Defendant had an opportunity to review the contract and does not show he failed to understand

any term in the contract, the Court finds that Defendant had a meaningful choice to enter the

contract. See Fox, 920 F. Supp. 2d at 98-99. Thus, Defendant fails to satisfy the first prong of the

test. See id.

        For the second prong of the test, the court must determine whether the contract terms

unreasonably favored one party over the other. See Williams, 350 F.2d at 449. To be

unreasonable, the terms must be “so extreme as to appear unconscionable according to the mores

and business practices of the time and place.” Id. At 450 (quoting 1 CORBIN, CONTRACTS §

128 (1963)). Simply stated, the contract terms are unreasonable if the terms “are so outrageously

unfair as to shock the judicial conscience.” Fox, 920 F. Supp. 2d at 99. Here, the Note indicates
                                                 4
that as long as the loan is paid on time, no interest will accrue. See (Motion Exh. 1.) Although no

interest accrues during this time, the Defendant is required to pay a “Loan Exit Fee” of

$900,000.00. (Motion, Exh. 1 at (B).) This equates to an interest rate of nine hundred percent

(900%) 4. A fee of this magnitude strikes the court as unfair, unreasonable and surely “shock[s]

the judicial conscience.” Fox, 920 F. Supp. 2d at 99; see also Colletti, 1995 WL 170380 at *2

(finding the terms of a contract “so incredible as to render the contract[] unconscionable, and

[therefore], unenforceable). Therefore, Defendant satisfies the second prong of the test. Id.

       2. The Loan Exit Fee Clause Is Against Public Policy

       Because results of the two prong test for unconscionability are indeterminate, the Court

next examines whether the contract is unenforceable by public policy. See Restatement (Second)

of Contracts § 178 (1981). A court may refuse to enforce a provision in a contract if “the interest

in its enforcement is clearly outweighed in the circumstances by a public policy against

enforcement of such terms.” Jacobsen v. Oliver, 555 F.Supp.2d 72, 79 (D.D.C.2008) (quoting

Restatement (Second) of Contracts § 178 (1981)). A contract that is clear and unambiguous but

violates public policy will not be enforced. Essex Ins. Co. v. Cafe Dupont, LLC, 674 F. Supp. 2d

166, 173 (D.D.C. 2009) (quoting Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35

(D.C. 1996) (internal quotes omitted)).

       District of Columbia usury laws prohibit interest rates in excess of twenty-four percent

(24%) per annum except in certain circumstances. See D.C. Code § 28-3301(a). It is, however,

lawful to contract for any interest rate if an individual borrows in excess of $2,500 for the


4
 Interest Rate Calculation. To determine interest rate, start with the formula I=P*r*t, where
I=loan exit fee, P=principal, and t=time. Interest rate (r) can then be determined. See Simple
Interest Calculator, WEBMATH.COM, http://www.webmath.com/simpinterest.html (last visited
January 28, 2015).
                                                  5
“purpose of acquiring or carrying on a business, professional, or commercial activity.” See D.C.

Code § 28-3301(d)(1)(B). While this implies that the interest rate may be higher than 24%, the

interest rate must still be within the bounds of the public interest. 5 In the instant case, the Loan

Exit Fee translates to an estimated interest rate for the three month loan of 900%. 6 This fee, or

interest rate, is unreasonable and blatantly unfair to Defendant. The interest in enforcing this

provision is “clearly outweighed . . . [by] public policy.” See Restatement (Second) of Contracts

§ 178 (1981). Thus, the Loan Exit Fee clause should be severed from the contract and the

remaining contract enforced. See Restatement (Second) of Contracts § 208 (1981); (Motion, Exh.

1 at 2.)

                                       B. Damage Determination

           Even though part of the contract is unenforceable, Plaintiff is still entitled to remedy. See

Colletti, 1995 WL 170380 at *2. The contract states that an interest rate of ten percent (10%) per

annum will be charged if the note is not paid in full within fifteen (15) days of the Maturity Date

which is calculated to be June 7, 2012. (Motion, Exh. 1.) Additionally, a late charge of five

percent (5%) will be added to the balance due. (Id.) The total due to Plaintiff is calculated using

the Late Fee and Interest Rate but without the Loan Exit Fee. See Restatement (Second) of

Contracts § 208 (1981); (Motion, Exh. 1 at 2.) Calculation of amount due is as follows:

    •      Principal is equal to the sum of $100,000.00 plus ($100,000.00 times 5%)




5
  The Small Business Association (SBA) states a maximum rate for a general small business loan
is a base rate (typically based on the prime rate) plus an allowable spread. The allowable spread
for loan terms less than seven years is a maximum of 2.25%. U.S. SMALL BUS. ASS’N., General
Small Business Loans: 7(a), available at https://www.sba.gov/content/7a-loan-amounts-fees-
interest-rates.
6
  See Interest Rate Calculation, supra note 3.
                                                   6
      •   Time is calculated in years from the Maturity Date through February 4, 2015 7

      •   Interest is equal to the product of Principal times 10% times 2.66 years 8

      •   Amount due is equal to the sum of Principal plus Interest

          Therefore, the amount due to Plaintiff as of February 4, 2015 is One Hundred Thirty-Two

Thousand Nine Hundred Thirty Dollars ($132,930.00).

                                             C. Tax Form

          Defendant also claims that Plaintiff incorrectly issued a 1099-Misc form causing the

Defendant to report an additional income of $100,000. (See Opposition [22].) Defendant states a

1099-C (Cancellation of Debt) form should have been submitted. (See id.) The Court agrees that,

although Plaintiff filed a 1099-Misc., it is simple enough for Plaintiff to amend his tax returns

and file a Form 1099-C once Defendant pays the debt in full. (See Reply [21].)

                                            IV. Conclusion

          For the foregoing reasons, this Court concludes that Plaintiff’s Motion for Summary

Judgment [20] is GRANTED in part and DENIED in part. A separate Order accompanies this

Memorandum Opinion.



Date: February 4, 2015                                  ______/s/____________________________
                                                        ALAN KAY
                                                        UNITED STATES MAGISTRATE JUDGE




7
    The time from June 7, 2012 to February 4, 2015 is 972 days, or 2.66 years.
8
    See Interest Rate Calculation, supra note 3.
                                                 7
