The enforcement of a choice of law provision where a claim of usury is involved often turns on whether the interest rate set by the chosen state would violate the usury laws of the forum state. If they would, the court must determine if the usury laws of the forum state are a fundamental public policy of that state. If the court finds that they are, the court may decline to enforce the chosen state’s law regarding the usury claim.
Federal courts that encounter this issue generally do so in relation to state usury laws as there are no federal usury laws. As a result, the question of whether usury laws are a fundamental public policy of the United States has not been widely addressed. A U.S. District court in California, however, recently had an opportunity to the examine this question.
In the case, a foreign corporation sought confirmation of an arbitration award it had received against a U.S. citizen located in California. The citizen argued that the District court should not confirm the award because the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards allows courts to refuse to confirm a foreign award where the enforcement of the award would be contrary to a fundamental public policy of that country.
The citizen argued that the arbitration award contained an interest rate of 15% that violated the usury laws of California. The court, however, rejected the argument. It held that California’s usury laws are not a “part of the United States’ most basic notions of morality and justice.” As such, the court confirmed the arbitration award, including the 15% interest rate.
Intel Capital Cayman Corp. v. Hsia, 2015 U.S. Dist. LEXIS 154191 (N.D. Cal. Oct. 16, 2015).