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Court: OTC Company Has The Capacity To Protect Its Own Interests


Notably, California has a constitutional limitation on interest rates (Cal. Const. Art. XV, Section 1).   Section 25118 exempts certain evidences of indebtedness that meet specified conditions.  One of these conditions is that either:

(1) The lender and either the issuer of the indebtedness or the guarantor, as the case may be, or any of their respective officers, directors, or controlling persons, or, if any party is a limited liability company, the managers as appointed or elected by the members, have a preexisting personal or business relationship.

(2) The lender and the issuer, or the lender and the guarantor, by reason of their own business and financial experience or that of their professional advisers, could reasonably be assumed to have the capacity to protect their own interests in connection with the transaction.

Earlier this month, U.S. District Court Judge M. James Lorenz ruled that a borrower failed to plausibly allege that it could not fend for itself – apparently because it is “a technology company that licenses software . . .” and “its shares are publicly traded on the over-the-counter (OTC) market”.  Soc. Life Network, Inc. v. LGH Invs., LLC,  2022 WL 2718615, at *4 (S.D. Cal. July 13, 2022).  

Readers should not that Section 25118 includes other conditions and limitations that are not covered in this brief note.



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