Avenue 33, LLC v. Aventurine Capital Group, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

AVENUE 33, LLC, a New York limited Case No. 3:23-cv-896-YY

liability company,

ORDER

Plaintiff,

v.

AVENTURINE CAPITAL GROUP, LLC, a

Delaware limited liability company,

Defendant.

Michael H. Simon, District Judge.

United States Magistrate Judge Youlee Yim You issued Findings and Recommendation

(F&R) in this case on January 16, 2024. Judge You recommended that this Court grant in part

and deny in part Plaintiff Avenue 33, LLC’s Motion for Entry of Default Judgment and Award

of Attorney Fees and Costs. Judge You recommended that this Court enter judgment for Plaintiff

and against Defendant Aventurine Capital Group, LLC on Plaintiff’s breach of contract claim

for: (1) the principal sum of $84,406.90 plus prejudgment interest at 12 percent per month,

compounded monthly, from July 6, 2022 until entry of judgment; (2) attorney’s fees of

$55,510.15 and costs of $2,757.25; and (3) post-judgment interest at 12 percent per month on the

principal, attorney’s fees, and costs from the date of the entry of judgment until paid in full.

Finally, Judge You recommended that any other requests for fees or costs should be denied. No

party has filed objections, but Defendant has never appeared.

On March 8, 2024, the Court gave Plaintiff leave to file an optional supplemental

memorandum related to the rate of prejudgment and post-judgment interest. Plaintiff filed a

supplemental brief on March 22, 2024.

A. Legal Standard

Under the Federal Magistrates Act (Act), the court may “accept, reject, or modify, in

whole or in part, the findings or recommendations made by the magistrate.” 28 U.S.C.

§ 636(b)(1). If no party objects, the Act does not prescribe any standard of review. See Thomas v.

Arn, 474 U.S. 140, 152 (1985). Although review is not required in the absence of objections, the

Act “does not preclude further review by the district judge[] sua sponte . . . under a de novo or

any other standard.” Id. at 154.

B. Background

The Court has reviewed de novo the F&R and supporting record evidence. Before filing

this lawsuit in federal court, the parties litigated in Multnomah County Circuit Court issues

related to Defendant’s alleged failure to pay amounts due to Plaintiff. See generally Stone Decl.

Ex. 1 (Multnomah County Complaint) (ECF 17-1). During that litigation, the parties, through

their attorneys, reached a negotiated Settlement Agreement, which Defendant later refused to

sign. See Stone Decl. ¶ 2 (ECF 17). Plaintiff moved to enforce the Settlement Agreement, and on

December 22, 2022, Multnomah County Circuit Court Judge Katharine von Ter Stegge found

that Defendant’s attorney had apparent authority to bind Defendant to the negotiated agreement,

ordered a designee of Defendant to sign the Settlement Agreement dated June 27, 2022, and

subsequently entered a judgment dismissing the Multnomah County case. See Stone Decl. Ex. 4

(Order Granting Plaintiff’s Motion to Enforce Settlement Agreement) (ECF 17-4); Stone Decl.

Ex. 5 (General Judgment of Dismissal) (ECF 17-5).

The June 27, 2022 Settlement Agreement includes a term stating that Defendant “agrees

to pay the Promissory Note (‘Note’) . . . , which is incorporated by reference herein.” Stone Decl.

Ex. 2 (ECF 17-2). Paragraph 2.2 of the Promissory Note (which the Court sometimes refers to as

simply the “Note”), in turn, states: “On and after an event of default under this Note: interest will

accrue on the amount stated in paragraph 1.2 at a rate of 12% per month, compounded monthly.”

Stone Decl. Ex. 3 (ECF 17-3). In turn, paragraph 1.2 of the Note states in full: “In the event of

default under this Note, the principal sum will increase to $84,406.90.” Id. Paragraph 6.2

provides that an event of default occurs if the “Obligor fails to pay the entirety of this Note on or

before July 5, 2022.” Id. Thus, by the time that the Multnomah County Circuit Court ordered

Defendant to sign the Settlement Agreement on December 22, 2022, the Promissory Note

already was in default and had been for nearly six months.

As stated, Judge You recommended that the Court award prejudgment and post-judgment

interest on the Note’s principal sum at the rate of 12 percent per month, compounded monthly.

The Court became concerned that the total amount awarded under the stated interest rate term

would result in an award grossly disproportionate to the principal sum of $84,406.90. The Court

requested supplemental argument and legal authority justifying the extraordinary rate of interest

sought, and Plaintiff submitted a supplemental brief.

C. Discussion

1. Rate of Interest

Twenty-one months after an event of default, if calculated in accordance with the terms

of the Promissory Note, the interest on the principal sum of $84,406.90 totals $827,512.45.

Twenty-four months after an event of default, if calculated in accordance with terms of the

Promissory Note, the interest on the principal sum of $84,406.90 totals an eye-popping

$1,196,774.14. Put differently, the Note’s stated interest rate of 12 percent per month,

compounded monthly, amounts to an annual interest rate equivalent to about 290 percent for the

first year, and an interest rate of about 1,418 percent from the date of default through the end of

the second year. In Plaintiff’s supplemental briefing, Plaintiff offers several arguments in support

of this extraordinary interest rate. The Court briefly addresses Plaintiff’s arguments before

discussing whether to enter default judgment in this case in the amount sought.

Plaintiff argues first that the Court is prohibited under the Rooker-Feldman doctrine from

exercising subject matter jurisdiction over the issue of the enforceability of the Note’s interest

rate. Under the Rooker-Feldman doctrine,1 federal courts lack jurisdiction to hear cases that

amount to collateral attacks on state court judgments. See Benavidez v. County of San Diego, 993

F.3d 1134, 1142-43 (9th Cir. 2021). The Court is not persuaded, however, that the issue of the

enforceability of the Promissory Note amounts to a collateral attack on the state court’s

judgment. Even if Defendant had appeared in this action and raised the issue of enforceability,

this would not constitute a request to set aside the state court’s judgment. See Noel v. Hall, 341

F.3d 1148, 1164 (9th Cir. 2003) (“The Rooker-Feldman doctrine asks: is the federal plaintiff

seeking to set aside a state judgment, or does he present some independent claim, albeit one that

denies a legal conclusion that a state court has reached in a case to which he was a party? If the

former, then the district court lacks jurisdiction; if the latter, then there is jurisdiction and state

law determines whether the defendant prevails under principles of preclusion.” (quoting with

approval GASH Assocs. v. Village of Rosemont, 995 F.2d 726, 728-29 (7th Cir. 1993))). An

evaluation of the enforceability of the Note’s interest rate term is not a de facto appeal that is

prohibited by the Rooker-Feldman doctrine.

1 The Rooker-Feldman doctrine takes its name from Rooker v. Fidelity Trust Co., 263

U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).

Second, Plaintiff argues that the interest rate sought is enforceable because the term is not

subject to the limitations under Oregon Revised Statutes (ORS) § 82.010. Subsection (3) of ORS

§ 82.010 prohibits interest rates in excess of 12 percent per year, or 5 percent in excess of the

discount rate, only on specific types of loans. The Court agrees that subsection (3), on its face,

does not apply under these circumstances. See ORS § 82.010(3) (limiting the lawful interest rate

for specified types of loans for $50,000 or less). Plaintiff contends that the statutory interest rate

under subsection (1) does not impose a limitation on the Note’s interest rate because Oregon

courts routinely enforce contracts that provide a higher rate of interest than the rate provided by

statute. Plaintiff cites a variety of cases in support of this statement. None of Plaintiff’s cited

cases, however, approve an annual interest rate equivalent to about 290 percent for the first year

alone and rising exponentially thereafter, which is the case here. Thus, even though the Note’s

interest rate term is not invalidated by ORS § 82.010, the Court is not persuaded that the non-

applicability of Oregon’s statutory interest limitation goes far enough to justify the Note’s

interest rate term of 12 percent per month.

Plaintiff next argues that the doctrine of issue preclusion prevents the Court from

reexamining the enforceability of the Note’s interest rate term. Because there is no evidence that

the interest rate term was actually litigated or was essential to the state court’s judgment,

however, the Court is not persuaded that issue preclusion applies to this matter.

Plaintiff also argues that the interest rate term is not void as a penalty because the interest

rate term is not a liquidated damages clause. Plaintiff further argues that, even if it is a liquidated

damages clause, the clause is valid under Oregon law because the 12 percent per month default

interest rate represents Plaintiff’s “anticipated and actual harm” if the Note was breached.

Notwithstanding Plaintiff’s purely conclusory assertions as to why damages currently totaling

almost one million dollars, accruing exponentially each month, are necessary to return the parties

to the status quo in the event of a breach and thus are not a penalty, the Court concludes that the

interest rate term is void as a penalty.2 Finally, Plaintiff asserts that claim preclusion prevents the

Court from striking the Promissory Note’s interest rate term as an unlawful penalty.3

Even if the Court were constrained in its ability to blue pencil the Promissory Note’s

interest rate under a formalistic application of the claim preclusion doctrine, there is no doubt

that the Court would still be empowered to deny Plaintiff’s motion for entry of default judgment.

“The district court’s decision whether to enter a default judgment is a discretionary one.” Aldabe

2 In a recent case that is closely analogous, the Chancery High Court of England and

Wales examined a virtually identical interest rate term in a loan contract and came to the same

conclusion. That court observed:

Ahuja would by now owe the following sums on an initial loan of

£800,000 taken out only some 30 odd months ago:

(a) As at 14 June 2021: £23,862,975.83;

(b) As at 21st July 2021: £26,825,412.94;

(c) As at 21st August 2021: £30,143,342.48

There is said to be no evidence which would seek to justify that

level of default interest. No legitimate interest has been identified

other than the penalising of a breach by the failure to repay the

principal on the redemption date.

Ahuja Invest. Ltd. v. Victorygame Ltd. [2021] EWHC (Ch) 2382 [135]. In that case, the court was

“satisfied that a default interest rate of 12 percent per month, compounded monthly, . . . is

properly to be characterised as a penalty.” Id. at [142].

3 Under the doctrine of claim preclusion, a party is foreclosed from litigating the same

claim “on any ground or theory of relief that the party could have litigated in the first instance.”

Bloomfield v. Weakland, 339 Or. 504, 511 (2005). “[C]ourts employ a broad definition of what

could have been litigated.” Drews v. EBI Cos., 310 Or. 134, 141 (1990). Defendant could have

litigated the unenforceability of the interest rate term in the state court proceeding, but apparently

did not. Thus, claim preclusion might apply in this case, but for the consideration that the Court

discusses next.

v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see also Dreith v. Nu Image, Inc., 648 F.3d 779,

786 (9th Cir. 2011) (noting that a district’s court decision whether to enter a default judgment is

reviewed for abuse of discretion). In Eitel v. McCool, 782 F.2d 1470 (9th Cir. 1986), the Ninth

Circuit set out factors to guide a district court’s consideration of whether to enter a default

judgment. DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 852 (9th Cir. 2007) (noting that Eitel

“set[s] out factors to guide district court’s determination regarding the appropriateness of

granting a default judgment”). The Ninth Circuit in Eitel held:

Factors which may be considered by courts in exercising discretion

as to the entry of a default judgment include: (1) the possibility of

prejudice to the plaintiff, (2) the merits of plaintiff’s substantive

claim, (3) the sufficiency of the complaint, (4) the sum of money at

stake in the action; (5) the possibility of a dispute concerning

material facts; (6) whether the default was due to excusable

neglect, and (7) the strong policy underlying the Federal Rules of

Civil Procedure favoring decisions on the merits.

782 F.2d at 1471-72. Further, the “starting point” of the court’s analysis “is the general rule that

default judgments are ordinarily disfavored.” Id. at 1472.

The Court agrees with Judge You’s analysis of the Eitel factors, with one critical

exception. As to the fourth factor, the sum of money at issue in the action, “the court must

consider the amount of money at stake in relation to the seriousness of Defendant’s conduct.”

Strickland v. Citizens Bank, N.A., 2024 WL 195651, at *6 (D. Or. Jan. 18, 2024) (quotation

marks omitted). “If the sum of money at stake is completely disproportionate or inappropriate,

default judgment is disfavored.” Twentieth Century Fox Film Corp. v. Streeter, 438 F. Supp.

2d 1065, 1071 (D. Ariz. 2006). Judge You found that the amount at issue under the terms of the

Note when the Complaint was filed—$293,613.66, which includes both principal and interest—

did not weigh heavily against entering default judgment. Now, almost one full year after filing

the Complaint and almost two full years since the event of default under the Note, circumstances

have changed due to the effect of charging interest at the rate of 12 percent per month. The

amount at stake now is approaching one million dollars. The Court finds the amount at issue to

be grossly disproportionate in light of the seriousness of Defendant’s conduct and concludes that

this Eitel factor outweighs any counterbalancing factors. The Court therefore denies entry of

default judgment in the amount requested, which includes the exorbitant interest rate specified

under the Promissory Note.

In its supplemental briefing, Plaintiff requests in the alternative that, if the Court refuses

to award Plaintiff an amount that includes the Promissory Note’s stated interest rate, the Court

should instead award prejudgment and post-judgment interest on the principal sum at the

statutory rate of nine percent per annum. The Court construes Plaintiff’s alternative request as an

alternative motion for entry of default judgment awarding the principal sum plus prejudgment

and post-judgment simple interest at nine percent per annum as provided under ORS § 82.010(1).

Under this formula, the amount of prejudgment interest due after 21 months of default would be

approximately $13,294. Now, the balance of the Eitel factors tips in favor of entering this default

judgment. The Court therefore grants Plaintiff’s alternative motion to enter default judgment and

awards to Plaintiff the principal sum of $84,406.90 plus prejudgment simple interest at nine

percent per year from July 6, 2022 until entry of judgment.

As for the applicable rate of post-judgment interest, however, “[a]s a general rule, in

diversity actions, state law determines the rate of prejudgment interest, and postjudgment interest

is governed by federal law.” Citicorp Real Est., Inc. v. Smith, 155 F.3d 1097, 1107 (9th

Cir. 1998) (cleaned up). Federal law provides that “[i]nterest shall be allowed on any money

judgment in a civil case recovered in a district court.” 28 U.S.C. § 1961(a). Section 1961(a)

further provides that “interest shall be calculated from the date of the entry of the judgment, at a

rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the

Board of Governors of the Federal Reserve System, for the calendar week preceding[] the date of

the judgment.”

The Ninth Circuit has recognized that an “exception to § 1961 exists when the parties

contractually agree to waive its application.” Fidelity Fed. Bank, FSB v. Durga Ma Corp., 387

F.3d 1021, 1023 (9th Cir. 2004). “There must be a ‘specific agreement’ ‘on this specific

issue,’”—i.e., a sufficient manifestation of the parties’ intent to override default provisions of

§ 1691. Oreo Corp. v. Winnerman, 642 F. App’x 751, 755 (9th Cir. 2016) (quoting Durga Ma

Corp., 387 F.3d at 1023). The Ninth Circuit has recognized such intent when “the parties

specifically agreed that the contract rate of interest would be applied even after judgment was

entered.” Citicorp Real Est., 155 F.3d at 1108. On the other hand, a contractual choice-of-law

clause, without more, does not demonstrate an intent to override § 1961. Durga Ma Corp., 387

F.3d at 1023. District courts within the Ninth Circuit have also declined to find sufficient intent

to override § 1961 in contractual provisions governing an agreement’s generally applicable

interest rate. See, e.g., Jou v. Adalian, 2015 WL 7451160, at *4 (D. Haw. Nov. 23, 2015)

(“[C]ontractual provisions regarding interest generally, absent a specific reference to post-

judgment interest, are insufficient to demonstrate a clear and unequivocal intent to waive

§ 1961.”); Cataphora Inc. v. Parker, 2012 WL 13657, at *7 (N.D. Cal. Jan. 4, 2012) (“[T]he

contractual provision upon which Plaintiff relies is a provision for interest in the event of a late

payment—not a provision that expressly states that the parties agreed to a specified prejudgment

or postjudgment interest rate in the event of a dispute arising out of the contract, nor is it one that

clearly expresses the parties’ intent to ‘contract around’ section 1961.”).

Here, neither the Promissory Note’s default interest rate clause nor its choice-of-law

clause sufficiently demonstrates the parties’ intent to waive the application of § 1691 to the

post-judgment interest rate. The Court therefore awards post-judgment interest at the applicable

federal rate on the principal sum and prejudgment interest4 from the date of judgment until paid

in full.

2. Attorney’s Fees

The Court agrees with the F&R’s analysis and conclusion that Plaintiff should be

awarded reasonable attorney’s fees in the amount of $55,510.15 and costs in the amount of

$2,757.25. For the reasons explained above, the Court declines to adopt the F&R’s

recommendation that this award should accrue post-judgment interest at 12 percent per month

from the date of entry of judgment until paid in full. Even so, a party is entitled to post-judgment

interest on an award for attorney’s fees and costs. See Perkins v. Standard Oil Co. of Cal., 487

F.2d 672, 675 (9th Cir. 1973) (“In our view there exists no real distinction between judgments

for attorneys’ fees and judgments for other items of damages. . . . [O]nce a judgment is obtained,

interest thereon is mandatory without regard to the elements of which that judgment is

composed.”). Neither paragraph 15 of the Note, which provides for an award of attorney’s fees,

nor paragraph 16, which provides for costs, specifies an interest rate applicable to an award

under those paragraphs or otherwise demonstrates an intent to override § 1691. The Court

4 The Ninth Circuit has held that post-judgment interest “should be awarded on the entire

amount of the judgment, including any pre-judgment interest.” Lagstein v. Certain Underwriters

at Lloyd’s of London, 725 F.3d 1050, 1056 (9th Cir. 2013); see also Air Separation, Inc. v.

Underwriters at Lloyd’s of London, 45 F.3d 288, 291 (9th Cir. 1995) (recognizing that

“postjudgment interest under 28 U.S.C. § 1961 applies to the prejudgment interest component of

a monetary award”).

therefore awards post-judgment interest at the applicable federal rate on Plaintiff’s attorney’s

fees and costs from the date of judgment until paid in full.

D. Conclusion

The Court ADOPTS AS MODIFIED Judge You’s Findings and Recommendation,

ECF 20. The Court GRANTS IN PART AND DENIES in part Plaintiff’s Motion for Entry of

Default Judgment and Award of Attorney Fees and Costs, ECF 15, and enters judgment in

Plaintiff’s favor and against Defendant on Plaintiff’s breach of contract claim for: (1) the

principal sum of $84,406.90 plus prejudgment simple interest at the annual rate of nine percent

on the principal sum from July 6, 2022, until the entry of judgment; (2) attorney’s fees of

$55,510.15 and costs of $2,757.25; and (3) post-judgment simple interest at the applicable

federal rate on the principal sum plus prejudgment interest, attorney’s fees, and costs from the

date of the entry of judgment until paid in full.

IT IS SO ORDERED.

DATED this 10th day of April, 2024.

/s/ Michael H. Simon

Michael H. Simon

United States District Judge