US District Court Holds Individual Guarantors Liable for Business Loan; Rejects Usury Challenge

An alternative small business lender provided a loan to a business located in Texas. The loan was guaranteed by two individuals.  The agreement contained a choice of law provision which provided that the transaction would be interpreted and governed by federal law and, where not preempted by federal law, Wisconsin state law.

The business and individuals later filed suit against the lender in an attempt to void the loan agreement. The lender filed a motion to dismiss the complaint. In opposing the motion, the plaintiffs first argued that the loan violated Texas’ civil usury statute. However, as the plaintiffs failed to provide any argument as to why the loan agreements’ choice of law clause should be ignored, the court held that federal and/or Wisconsin law would control.

The plaintiffs also claimed that the individuals were co-borrowers rather than guarantors and therefore the loan violated Wisconsin’s usury law. In support, the individuals cited to several instances where they signed the loan agreement as “borrowers.” The court, however, rejected the plaintiffs’ argument based on the totality of the agreement. The court noted that, “(1) elsewhere in the Agreement [the business] alone is identified as the borrower; (2) the loan proceeds were paid to [the business], not to the individual plaintiffs; and (3) the individual plaintiffs also signed the Agreement as guarantors, a step that would be redundant if they were already responsible for repayment as borrowers.”

As a result, the court granted the lender’s motion and dismissed the case with prejudice.

Grp. One Dev., Inc. v. Bank of Lake Mills, 2017 U.S. Dist. LEXIS 104960 (S.D. Tex. July 7, 2017)

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at
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