Loan Shark at the Supreme Court

Much has been written about the Supreme Court these past few weeks. The extensive and, often, heated public discourse made me think back on my own, more youthful past.  One particularly disagreeable event came immediately to mind.  It took place in a somewhat dreary, poorly lit, institutional setting; I was at the mercy of five dark costumed strangers.  No, it was not a fraternity prank.  I was a defendant in a Supreme Court case.

The Supreme Court of Rhode Island.

Some twenty years ago, my partners and I prevailed at a bankruptcy court auction, purchasing the assets of LTF, a Woonsocket, RI based PVD coating firm.  Prior to entering the time-worn courthouse on Benefit Street, we had negotiated with the LTF’s key lenders, assuming their creditor positions at discounted prices.  We were then able to bid with the confidence that a large portion of our winning offer would be returned to us as the creditors’ assignees.

Or, so we thought.

A lawsuit filed by a disgruntled owner of LTF delayed the distribution of our creditor proceeds and placed our turnaround plans on hold.  What were we alleged to have done?  According to the plaintiff, we were loan sharks; we were accused of usury.  Yes, usury.   It seems that one of the creditor positions we had assumed (that of S. Asset Management) involved a loan that had been renegotiated multiple times.  Each time it was renegotiated LTF had agreed to pay ever higher interest rates and sales-based royalties.  According to the plaintiff, the total interest payments exceeded the amount permissible by Rhode Island law.  Our firm, DB Thin Films, had prevailed in the initial, Superior Court case, but the matter had been appealed to the state’s highest court.  The court of last resort.

How did things turn out?   I’ll spare you the legal details, except to point out that if you wish to accuse someone of usury it helps to have made some payments under the allegedly usurious loan.  One might say that we “won” the case.  After all, the Supreme Court denied the plaintiff’s appeal and dismissed the case.

It was not a celebratory moment.

Small businesses face many quotidian obstacles. Most firms are ill prepared for the added burdens of a lawsuit.  We at DB Thin Films were no exception.  Preparing our case and defending ourselves in court was a drain on both our financial and human resources.  Key plans were put on hold for more than a year.  We survived, we didn’t win.

Take it from an exonerated loan shark:  Winning a Supreme Court case can be a pyrrhic victory.