United States District Court, D. Maryland
U.S. HOME CORPORATION
SETTLERS CROSSING, LLC, et al.
DEBORAH K. CHASANOW, District Judge.
On January 22, 2015, following a post-trial motions hearing on several unresolved issues, the undersigned issued a memorandum opinion and final judgment ("the Judgment") in this case involving a contract dispute over the sale of 1, 250 acres of land in Prince George's County, Maryland (the "Property"). (ECF Nos. 730 and 731). As part of the Judgment, Defendant/Counter-Plaintiff istar Financial, Inc. ("istar") was awarded specific performance of the parties' Purchase and Sale Agreement ("PSA" or "Agreement") and Plaintiff/Counter-Defendant Lennar Corporation, and its subsidiary U.S. Home Corporation (collectively "Purchaser"), were ordered to proceed to settlement within thirty days and perform their obligations under the parties' Agreement, including payment of the Purchase Price for the Property and interest on the Purchase Price as provided for in the Agreement.
Following issuance of the Judgment, the parties filed several motions, including: (1) a motion to clarify the Judgment filed by Purchaser (ECF No. 732); (2) a motion to stay the Judgment filed by Purchaser (ECF No. 733); and (3) a motion for a civil contempt order filed against Purchaser by istar. (ECF No. 740). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, Purchaser's motion to clarify the Judgment will be granted in part and denied in part, and Purchaser's motion to stay the Judgment will be granted on condition that Purchaser post the requisite bond. istar's motion for a civil contempt order will be denied.
I. Motion to Clarify the Judgment
A. Interest on the Purchase Price
The first issue is whether the interest rate provided in the Judgment, which reflects the language used in the parties' PSA and Contract for Services, should be calculated on a simple or compound basis. That portion of the Judgment states that:
Judgment will be entered in favor of istar and against U.S. Home and Lennar on Counts I-III of istar's amended counterclaim (ECF No. 447), in the amount of $114, 000, 000 plus interest at a rate of 12% per annum, calculated on a per diem basis from May 27, 2008 until Purchaser proceeds to Settlement, plus real estate taxes in the amount of $1, 556, 203.32.
(ECF No. 730, at 45 and 731) (emphasis added).
Purchaser argues that the contractual interest rate should be calculated on a simple basis. According to Purchaser, "[t]he Purchase and Sale Agreement does not specifically provide' for compound interest or speak directly' to providing interest on interest." (ECF No. 732-1, at 10). Purchaser asserts that the word "compound" does not appear anywhere in the interest section of the PSA, nor does the PSA provide a frequency at which compounding of interest should occur.
In response, istar argues that Purchaser has waived its right to challenge the interest provision because it failed to raise this argument at trial or at the post-trial hearing. istar argues that "the PSA contemplates that the 12% interest rate will be compounded annually and added to the Purchase Price" until Purchaser proceeds to Settlement. (ECF No. 738, at 2-3). In addition, istar contends that it has consistently applied a compound annual interest rate as part of its Proposed Final Pretrial Order, and that it presented evidence at trial to support its claimed damages based on a compound interest rate. It asserts that Purchaser waived this issue because it never challenged these assertions or presented rebuttal evidence. According to istar, the plain language of PSA § 3(a) calls for interest to accrue on the Purchase Price and be added annually to the Purchase Price. (ECF No. 738, at 8).
The January 22, 2015 opinion and Judgment did not provide a specific dollar amount for the interest due on the Purchaser Price, just as this opinion will not provide a dollar amount, because the amount of interest owed by Purchaser increases daily. Additionally, the Judgment did not indicate whether the interest would be calculated on a simple or compound basis because the Judgment incorporated the language from the parties' own Agreement. Moreover, prior to the issuance of the Judgment, the parties had not argued that the contractual language was ambiguous. Nonetheless, because Purchaser argues that it cannot obtain a supersedeas bond until it has a clear directive from the court as to what this language means, the court will clarify the judgment and the contract language upon which the Judgment is based.
As noted by the United States Court of Appeals for the Fourth Circuit in Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1033 (4th Cir. 1993), "[a]bsent a statute or an agreement between the parties an award of interest on interest is impermissible either under general federal or common law." S ee also Cherokee Nation v. United States, 270 U.S. 476, 490 (1926) ("What the appellant here seeks is compound interest; that is, interest on interest[.] The general rule, even as between private persons, is that, in the absence of a contract therefor or some statute, compound interest is not allowed to be computed upon a debt.").
Section 3(a) of the Second Amended PSA states that if the Purchaser wrongfully fails to make Settlement:
the Purchase Price shall accrue interest at a rate of twelve percent (12%) per annum to be calculated on a per diem basis from the Settlement Date until Purchaser proceeds to Settlement in accordance with this Agreement. In such event, any interest accrued on the Purchase Price shall be deemed to be an addition to the Purchase Price hereunder.
The "[a]llowance of interest on the unpaid interest amounts to compound interest[.]" Med. Mut. Liab. Ins. Soc. of Maryland v. Davis, 389 Md. 95, 108 (2005) (alteration in original) (emphasis added) ( quoting Walker v. Acting Director, Dept. of Forests & Parks, 284 Md. 357, 367 (1979)) (internal quotation marks omitted). Compound interest requires a compounding frequency or "rest period, " a time at which the outstanding interest owed on the principal balance, if unpaid, is added to the principal balance, after which time the debtor pays interest on the new principal amount, which includes paying interest on the original interest that became due. Cf. Exxon Corp. v. Crosby-Mississippi Res., Ltd., 40 F.3d 1474, 1488-89 (5th Cir. 1995) (finding that an agreement called for compound interest because it required a portion of all bills to be paid within thirty days of receipt and provided that "[i]f payment is not made within such time, the unpaid balance shall bear interest monthly at the rate of twelve percent (12%) per annum"); see also Texon Energy Corp. v. Dow Chem. Co., 733 S.W.2d 328, 331 (Tex.App. 1987) (noting that the parties' agreement called for interest to compound during the monthly "rest period" because it required bills to be paid within fifteen days of receipt and "[i]f payment is not made within such time, the unpaid balance shall bear interest monthly at the rate of twelve percent (12%) per annum ") (alteration and emphasis in original). The PSA and Contract for Services do not provide any "rest" or "compounding" frequency. In other words, the PSA does not provide that the 12% annual interest accruing on the Purchase Price "compounds" on any given frequency, nor is it added to the principal amount on any given frequency, nor are interest payments due on a certain frequency. See Ronald J. and Dana Cohen Family Ltd. P'ship v. City of Capitals Inc., 829 F.2d 36, at *1-2 (4th Cir. Aug. 28, 1987) (unpublished table decision) (finding that compound interest was not permitted when the "language [of the instrument] [did] not provide for adding overdue interest to the principal of the debt or for creating an accumulating account of overdue interest, and then applying the penalty interest to such lump sum"); see also In re Fortescue, 200 B.R. 833, 834-35 (W.D. N.C. 1995) (reviewing the "amount, type, and timing of interest payments" required by various promissory notes and finding that none required compound interest in part because they did not specify when interest payments were due); cf. TCI Courtyard, Inc. v. Wells Fargo Bank, NA, No. 3:13-CV-3465-L, 2014 WL 2095369, at *2 (N.D.Tex. May 20, 2014), aff'd sub nom. In re TCI Courtyard, Inc., 591 F.Appx. 256 (5th Cir. 2015) (finding that the language of the parties' agreement unambiguously called for compound interest because it stated that "after default, the interest, to the extent not paid when due, shall be added to the Principal Amount ") (emphasis in original) (internal quotation marks omitted). Indeed, the PSA indicates that the interest accrues from the "Settlement Date" until Purchaser proceeds to Settlement, at which time, "any interest accrued on the Purchase Price shall be deemed to be an addition to the Purchase Price[;]" meaning that interest on the Purchase Price is not due until Settlement, when it is added to the principal amount, but at no time before Settlement is Purchaser required to pay interest on interest.
Moreover, the use of the term "per annum" in the phrase "shall accrue interest at a rate of twelve (12%) per annum " does not indicate that the interest is compounded annually, it merely establishes the rate at which the interest accrues. See Berman v. B.C. Assocs., 219 F.3d 48, 50 (1st Cir. 2000) (noting that "the overwhelming majority of Massachusetts cases equate an interest rate per annum, ' whether in a contract or a statute, with simple interest") (internal citation omitted); see also American Mill. Co. v. Brennan Marine, Inc., 623 F.3d 1221, 1225 (8th Cir. 2010) ("Per annum' is defined in English to mean in each year' or annually.' Accordingly, the six percent interest [per annum] is an annual rate, but the plain language does not speak directly to whether the interest is to accrue on a compound or simple basis.") (internal citation omitted); Helland v. Helland, 214 Ill.App.3d 275, 277 (1991) ("Per annum' merely denotes the frequency at which the applicable rate of interest is to be applied and does not permit a compounded annual method of computation."). Because the PSA does not include any language indicating that the accrued interest is added to the Purchase Price on a given frequency, the use of "per annum" alone does not suggest that the twelve percent (12%) interest accruing on the Purchase Price is to be compounded annually.
B. Post-Judgment Interest
Purchaser also seeks clarification as to what interest rate applies post-judgment: the federal statutory interest rate set forth in 28 U.S.C. § 1961 or the contractual interest rate of 12%. Purchaser asserts that "[t]o the extent the Court intended to apply the contractual interest rate to the judgment, Lennar respectfully submits that the Court's decision to apply the parties' pre-judgment contractual interest rate of 12% post-judgment represents a ...