In May 2017, the debtor entered into a loan with the creditor, which was securitized into a Commercial Mortgage-Backed Securities ("CMBS") structure. The structure pooled together multiple loans and transferred them into a trust that sold bonds to investors. In June 2020, the Oregon Governor signed HB 4204, which allowed borrowers to defer payments during the emergency period until maturity, pay no interest or fees, agree to modify, defer, or otherwise mitigate a loan, and prohibited lenders from declaring a default, imposing fees, or foreclosing on borrowers. The debtor’s business suffered during the pandemic and the debtor failed to make loan payments. The creditors notified the debtor that the loan amounts had been accelerated and were due, and that HB 4204 was preempted by federal law. The debtor did not make the payments, and the creditors sent notice of default and an election to sell. The debtor then sued, alleging claims of breach of contract, breach of the covenant of good faith and fair dealing, conversion, and seeking an accounting and declaratory judgment. The creditors counterclaimed for breach of contract, judicial foreclosure, and the appointment of a receiver, and, in a separate action, for breach of a guaranty. Both parties moved for summary judgment on their claims. The debtor also filed for sanctions regarding spoliation of evidence.
In Corvallis Hosp., LLC v. Wilmington Tr., N.A., No. 6:22-cv-00024-MC, 2025 WL 2624512, 2025 U.S. Dist. LEXIS 177812 (D. Or. Sept. 11, 2025) (opinion not yet released for publication), the court denied the debtor’s motion for summary judgment and granted in part the creditors’ motion for summary judgment. The court ruled that HB 4204 is preempted by federal law. The Oregon house bill interfered with the creditors’ powers under the National Bank Act (NBA). Under the NBA, the creditors had the power to service a loan, monitor payments, and declare default under the terms of the agreement. HB 4204's prohibition on declaring a borrower in default directly conflicts with the creditors’ powers under the NBA. The court dismissed the debtor’s breach in good faith and fair dealing claim because it found that the letter notifying the debtor of accelerated payments was valid, payments from the trust to a party were valid, there was no negligence or fraud by the creditors, and the debtor did not establish that the creditors acted in bad faith. The debtor’s conversion claim was dismissed because the issue was a challenge to the creditors’ performance of the contract, which is a contractual claim, and not a conversion one. The court also denied the debtor’s declaratory judgment claim because the debtor did not attempt to establish what injuries the creditors had actually suffered to see if the creditors’ charges to the debtor were grossly disproportionate. The court granted the creditors’ claim for breach of contract, finding that the debtor had breached the loan agreement by failing to make its payments. Therefore, the court denied the debtor’s summary judgment motion and its motion for sanctions and dismissed all its other claims with prejudice except its declaratory judgment that “fees incurred were unenforceable penalties.” The court granted and denied in part the creditor’s motion for summary judgment.
By Teddy Groce [email protected]
Edited By Jace Brown [email protected]
Edited By Hayden Mariott [email protected]