A LOAN BY ANY OTHER NAME … IS STILL A LOAN

Koch v. Boxicon, LLC
Dallas Court of Appeals, No. 05-14-01424-CV (March 30, 2016)

Justices Fillmore, Myers, and Whitehill (Opinion)

Ken Carroll

While Koch was finishing chiropractic school, he met Lindemuth, Boxicon’s general manager—an encounter both now likely regret. After Lindemuth had personally advanced several thousand dollars for Koch’s mortgage and living expenses, a Boxicon affiliate leased Koch space for a clinic, and Boxicon and Koch entered into an “Agreement to Purchase/Sell a portion of future business income.” Under that arrangement, Boxicon agreed to “provide bridge capital” to Koch in six installments totaling $96,000. Koch agreed to a fixed “pay back” schedule of $2400 per week for 80 weeks, a total of $192,000. Koch didn’t pay, and litigation ensued. Boxicon claimed breach of contract. Koch argued usury. The jury sided with Boxicon and, after his JNOV and new trial motions were denied, Koch appealed. The Dallas Court of Appeals reversed, finding the Agreement usurious as a matter of law based on its unambiguous language.

Boxicon argued the Agreement was not a loan at all, but a purchase of an asset. It pointed to an express recital that “This agreement is NOT a loan, but a purchase of specific business assets, namely a portion of future cash flow as provided herein.” But, the Court of Appeals found, neither recitals nor mere labels control; the substance of an agreement determines whether it is a loan or purchase, and this Agreement undeniably embodied a loan—an advance of money in exchange for the absolute obligation to repay the principal. Here, although the Agreement recited a purchase of “a portion of future cash flow,” the payment obligations were not tied to Koch’s cash flow; they were absolute, requiring a “fixed return.” And because the Agreement required Koch to “pay back” double the amount advanced, usurious “interest” was never really in dispute.

Nevertheless, Boxicon argued, Finance Code § 306.103(b) provides “the parties’ characterization of an account purchase transaction as a purchase is conclusive that the account purchase transaction is not a transaction for the use, forbearance, or detention of money”—i.e., not a “loan” bearing “interest” subject to the usury statute. But, applying the plain language of the statute, the appeals court responded that the Agreement did not characterize this deal as an “account purchase transaction,” and so the conclusive presumption of § 306.103(b) does not rescue it.

Although Koch prevailed on his legal issues and secured reversal of the judgment against him, the appeals court’s decision stopped short of what Koch might have achieved. Why? A lesson for all appellate practitioners: The Court noted that Koch had not specified or explained all the relief he sought on appeal. He did not say what judgment the trial court should have rendered, discuss the remedies available under usury law, or even ask the Court of Appeals to render judgment (in whatever form) in his favor. So, the Court reversed and remanded to the trial court for further proceedings consistent with its opinion.