Court Opinion

ID: 31934
Source: CourtListenerOpinion
Date Created: 2010-04-25 18:47:34+00
Date Added: 2024-06-11T14:56:02.689910
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                      Revised July 23, 2003
                                                              July 1, 2003
                 UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT             Charles R. Fulbruge III
                     _______________________                    Clerk

                           No. 02-20197
                     _______________________

                  In the Matter of: CPDC, INC.,

                                                              Debtor.
                       -------------------

              JOSEPH ZER-ILAN; IDEAL SYSTEMS, INC.,

                                                          Appellees,

                             versus

                   GARY FRANKFORD; CPDC, INC.,

                                                        Appellants.

_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
_________________________________________________________________

Before JONES, WIENER, and DeMOSS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

          Gary Frankford and CPDC, Inc. (collectively “CPDC”) sued

Joseph Zer-Ilan and Ideal Systems, Inc. in bankruptcy court for

violations of the Texas usury statute.       They won a substantial

judgment in the bankruptcy court, but the district court reversed.

The principal issue on appeal is whether Zer-Ilan and Ideal timely

cured alleged usury violations, bringing them within the safe
harbor afforded by Tex. Fin. Code Ann. § 305.103.   Finding no error

in the district court’s conclusion, we affirm.

                             BACKGROUND

            In the summer of 1994, Ronald Sexton entered the final

stages of purchasing a potential real estate development, known as

“Cedar Point,” in Polk County, Texas.1    The seller was Bluebonnet

Savings Bank (“Bluebonnet”).     Sexton and Bluebonnet agreed to a

purchase price of $1,100,000, for which Bluebonnet would convey to

Sexton (1) Cedar Point, (2) 100% of the stock in the utility

company that served Cedar Point, and (3) 199 performing promissory

notes.    In preparation for his purchase, Sexton incorporated CPDC,

Inc. to serve as the owner and developer of Cedar Point.

            When Sexton was apparently unable to secure a loan in

time for the purchase of Cedar Point, he entered into negotiations

with Zer-Ilan for short-term financing.     Zer-Ilan, a resident of

California, was half-owner, with his wife, and president of a

California-based company selling security services and equipment.

In late July, Sexton negotiated a highly profitable sale/leaseback

arrangement with Zer-Ilan: for a loan of $1,400,000 to Sexton, Zer-

Ilan stood to gain between $525,000 - $900,000 in profit within a

few months.

            Before Sexton and Zer-Ilan executed their agreement,

however, Zer-Ilan’s attorney, Marvin Leon, received word from a

     1
         Cedar Point constituted 43 acres of unimproved land.

                                  2
Texas lawyer, John Hollyfield, that the sale/leaseback arrangement

ran afoul of the Texas usury laws.         The parties scuttled their

original agreement and sought to create a non-usurious financing

arrangement.    On August 2, they signed a new short-term financing

agreement.   Pursuant to the financing agreement:

     1.   Sexton executed a promissory note for $1,075,000, plus
          18% interest, payable to Zer-Ilan. As security for this
          note, Zer-Ilan received a first lien on Cedar Point. The
          funds from this note were used to purchase Cedar Point,
          and Sexton’s company, CPDC, became the successor
          borrower.

     2.   Sexton executed another secured promissory note for
          $200,000, plus 18% interest, payable to Zer-Ilan. The
          security for this note was a security agreement, covering
          the stock of the utility company that served Cedar Point.
          Sexton used the funds from this note to purchase the
          utility company that served Cedar Point.

     3.   Zer-Ilan paid Sexton $100,000 for the 199 performing
          promissory notes.

     4.   Ideal Systems and CPDC executed a Consulting Agreement,
          whereby CPDC would pay $750,000 to Ideal Systems (Zer-
          Ilan’s company) for a security system and related
          services at Cedar Point for two years.

The promissory notes and the deed of trust all contained usury

savings clauses in which Zer-Ilan disavowed any intent to charge or

receive interest in excess of the amount permitted by law.

          Several weeks after the financing agreement was executed,

Leon informed    Zer-Ilan   that   the   18%   interest   charged   on   the

promissory notes was usurious under Texas law.            Accordingly, in

late August 1994, Sexton and Zer-Ilan modified the agreement to (1)

retroactively reduce the interest on the promissory notes from 18%

                                    3
to 10%, (2) release any claims by Sexton and CPDC against Zer-Ilan

for    the    prior    inclusion   of   a       higher    interest     rate,    and   (3)

reiterate their intent to enter into a non-usurious financing

agreement.      They did not modify the consulting agreement, because

Leon    did    not    tell   Zer-Ilan   that       this    part   of   the     financing

agreement was usurious under Texas law.

              In early September 1994, CPDC was unable to make its

first payments due under the promissory notes and consulting

agreement.      Zer-Ilan refused to extend the due date.                       When CPDC

failed to make its second payment, Zer-Ilan and Ideal Systems

notified CPDC that it was now in default under the consulting

agreement.       On November 7, Zer-Ilan demanded that CPDC pay the

installment due under the $1,075,000 promissory note; when no

payment was received, he accelerated the loan and demanded payment

of the principal, accrued interest, and attorneys’ fees.                        Zer-Ilan

posted Cedar Point for foreclosure.

              Sexton and Zer-Ilan then embarked on extended workout

negotiations.         On April 27, 1995, Zer-Ilan’s new attorney, John

Nabors, sent Sexton a letter renouncing Zer-Ilan’s right to receive

any interest under the notes that could be construed as usurious,

and Ideal waived its right to compensation under the consulting

services agreement. In early May, culminating the impasse that had

been reached, Zer-Ilan attempted foreclosure on Cedar Point and

CPDC filed for bankruptcy.

                                            4
            A year later, Ben Floyd was appointed a Chapter 11

trustee for CPDC by the bankruptcy court.             Subsequently, Gary

Frankford, an unsecured creditor of CPDC, filed on the debtor’s

behalf an adversary complaint against Zer-Ilan and Ideal Systems,

alleging    usury,    equitable     subordination,    and   avoidance     of

transfers. Floyd, as trustee, intervened. The parties filed cross

motions for partial summary judgment, and Zer-Ilan and Ideal

Systems also moved to dismiss Frankford for lack of standing.            The

bankruptcy court granted partial summary judgment in favor of

Frankford and CPDC.      The court held that because the consulting

agreement constituted usurious interest on the loans, Zer-Ilan’s

and Ideal’s rights under all of the parties’ notes and agreements

were extinguished.     The court further ordered a trial to quantify

the amount of usurious interest by determining the value of the

consulting agreement.2

            The jury valued the consulting agreement at $40,000, not

the $750,000 specified by Sexton and Zer-Ilan.              The bankruptcy

court also accepted the conclusions of an affidavit submitted by

the CPDC’s expert, which stated that the 199 performing promissory

notes    were   undervalued   by   approximately   $61,200.      Thus,   the

bankruptcy court entered final judgment on February 3, 1999,

     2
        The bankruptcy court         dismissed     Frankford’s   equitable
subordination claim as moot.

                                      5
ordering Zer-Ilan and Ideal Systems to pay nearly $1.8 million in

damages and over $380,000 in attorneys’ fees and court costs.

            Zer-Ilan and Ideal appealed the judgment to the district

court.    Following its de novo review, the district court held that

(1) Frankford lacked standing to sue Zer-Ilan and Ideal Systems,

(2) Zer-Ilan and Ideal timely cured any usury violations in the

1994 financing agreement by means of the August 1994 renegotiation

of the promissory notes and the April 1995 renunciation letter, and

(3) the bankruptcy court erred in accepting CPDC’s expert evidence

concerning the alleged value of the 199 performing promissory

notes.     Consequently, the district court reversed the bankruptcy

court judgment.      Frankford and CPDC timely filed a notice of

appeal.

                               DISCUSSION

            “Bankruptcy court rulings and decisions are reviewed by

a court of appeals under the same standards employed by the

district     court   hearing   the   appeal   from   bankruptcy   court;

conclusions of law are reviewed de novo, findings of fact are

reviewed for clear error, and mixed questions of fact and law are

reviewed de novo.”     Century Indem. Co. v. NGC Settlement Trust (In

re National Gypsum Co.), 208 F.3d 498, 504 (5th Cir. 2000).

Although this court may certainly benefit from the district court’s

analysis of the issues presented, “[t]he amount of persuasive

weight, if any, to be accorded the district court’s conclusion[s]

                                     6
. . . is entirely subject to our discretion.”                 Heartland Fed. Sav.

& Loan Ass’n v. Briscoe Enters., Ltd. II (In re Briscoe Enters.,

Ltd. II), 994 F.2d 1160, 1163 (5th Cir. 1993) (quoting Equitable

Life Assurance Soc’y v. Sublett (In re Sublett), 895 F.2d 1381,

1384 n.5 (11th Cir. 1990)).

           “We    review    the     grant      of   summary   judgment    de    novo,

applying the same standards as the trial court.”                         Sholdra v.

Chilmark Fin. L.L.P. (In re Sholdra), 249 F.3d 380, 382 (5th Cir.),

cert.   denied,     534    U.S.     1042       (2001).     Summary     judgment    is

appropriate      when,    viewing     the       evidence   and   all    justifiable

inferences in the light most favorable to the non-moving party,

there is no genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. Hunt v. Cromartie, 526

U.S. 541, 552 (1999); see also Fed. R. Civ. P. 56(c).                          If the

moving party meets its burden, the non-movant must designate

specific facts showing there is a genuine issue for trial.                     Little

v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).

           CPDC argues that the district court erred in holding that

Zer-Ilan and Ideal, by means of their April 27, 1995 letter, cured

any violation of the Texas usury statute based upon the fees owed

under the consulting agreement between CPDC and Ideal.                   The error,

CPDC contends, is that Zer-Ilan and Ideal did not cure the usury

violation within sixty days of actually discovering the violation.

We disagree.

                                           7
     Under Texas law in 1995,

     (4)(A) A person has no liability to an obligor for a
     violation of [the usury statute] if:

        (i) within 60 days after the date the person actually
     discovered the violation the person corrects the
     violation as to the obligor by taking whatever actions
     and by making whatever adjustments are necessary to
     correct the violation, including the payment of interest
     on a refund, if any, at the applicable rate provided for
     in the contract of the parties; and

        (ii) the person gives written notice to the obligor of
     the violation before the obligor has given written notice
     of or has filed an action alleging the violation of this
     Subtitle.

     (B) For the purposes of this section, the term "actually
     discovered" may not be construed, interpreted, or applied
     in a manner that refers to the time or date when, through
     reasonable diligence, an ordinarily prudent person could
     or should have discovered or known as a matter of law or
     fact of the violation in question, but the term shall be
     construed, interpreted, and applied to refer to the time
     of the discovery of the violation in fact.

Tex. Rev. Civ. Stat. Ann. art. 5069-1.06(4)(A-B) (Vernon 1993),

repealed and codified at Tex. Fin. Code Ann. § 305.103 (Vernon 1998

& Supp. 2002).       CPDC argues that Zer-Ilan and Ideal “actually

discovered” that the fees provided for in the consulting agreement

constituted usurious interest more than sixty days before Zer-Ilan

and Ideal sent the April 27, 1995 cure letter.               Actual discovery

allegedly occurred either on August 16, 1994, when Zer-Ilan was

advised   by   his   attorneys   that       the   18%   interest   rate   on   the

$1,075,000 secured promissory note was usurious, or by October 17,

1994, when Ideal’s right to payment under the consulting agreement

vested.

                                        8
             CPDC does not contend that Zer-Ilan and Ideal had actual,

subjective knowledge that the consulting agreement constituted

usurious interest on either August 16 or October 17, but rather

that   the   objective    facts       which    form   the   basis    of     the    usury

violation were known to them on these dates.                   CPDC thus asserts

that a creditor “actually discovers” a violation when he learns of

the    objective    facts      that    form     the   basis    of     the    usurious

transaction.       Further, CPDC suggests, a creditor must prove that

he was diligent in attempting to discover the underlying facts.

Essentially, CPDC seeks to interpret “actually discovered” as

though it were the discovery rule, which is sometimes applied to

defer the accrual of a cause of action for statute of limitations

purposes.    See Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734

(Tex. 2001) (“The discovery rule exception operates to defer

accrual of a cause of action until the plaintiff knows or, by

exercising reasonable diligence, should know of the facts giving

rise to the claim.”).

             CPDC’s legal position conflicts with the plain language

of the usury savings statute.           “[I]t is cardinal law in Texas that

a court construes a statute, ‘first, by looking to the plain and

common meaning of the statute's words.’                 If the meaning of the

statutory language is unambiguous, we adopt, with few exceptions,

the    interpretation       supported     by    the    plain       meaning    of    the

provision's    words     and   terms.”         Fitzgerald     v.    Advanced       Spine

                                          9
Fixation Sys., 996 S.W.2d 864, 865 (Tex. 1999) (quoting Liberty

Mut. Ins. Co. v. Garrison Contractors, 966 S.W.2d 482, 484 (Tex.

1998)).      Section    1.06(4)(B)        explicitly     states   that   “the   term

‘actually discovered’ may not be construed, interpreted, or applied

in    a    manner    that   refers   to    the    time   or   date   when,   through

reasonable diligence, an ordinarily prudent person could or should

have discovered or known as a matter of law or fact of the

violation in question.”              Tex. Rev. Civ. Stat. Ann. art. 5069-

1.06(4)(B) (emphasis added).               The statute disavows interpreting

“actual discovery” in accord with the discovery rule.                         Actual

discovery occurs under the statute when the creditor subjectively

discovers that he has violated the prohibitions on usury.                     Id.

               This interpretation of “actual discovery” is fortified by

“[t]he primary rule in statutory interpretation [] that a court

must give effect to legislative intent.”                  Crown Life Ins. Co. v.

Casteel, 22 S.W.3d 378, 383 (Tex. 2000) (citing Tex. Gov't Code

Ann. § 312.005 (Vernon 1998)). The Texas legislature intended cure

provisions in the usury statute to encourage self-correction by

lenders of known usury violations so that they could avoid being

sued.       See Jim Walter Homes, Inc. v. Gibbens, 608 S.W.2d 706, 712

(Tex. Civ. App.–San Antonio 1980, writ ref’d n.r.e.). Interpreting

the       actual    discovery   element      to    require    actual,    subjective

knowledge of the violation is consistent with this purpose.

                                           10
           Attempting to show that Zer-Ilan and Ideal actually knew

of the usurious nature of the consulting agreement, CPDC points,

inter alia, to the deposition testimony of Marvin Leon, Zer-Ilan’s

attorney, and to communications in late 1994 between lawyers

retained   by   Zer-Ilan    that   discussed     whether     the    consulting

agreement might be usurious.          Except for Leon’s testimony, this

evidence was not part of the bankruptcy court record before its

entry of   judgment.       Instead,    the   district     court    allowed    the

evidence to be added to the record on appeal after CPDC moved to

supplement under Bankruptcy Rule 8006. Zer-Ilan and Ideal objected

to the supplementation.     A preliminary issue thus arises as to the

propriety of the supplemental order, and its resolution will

determine the evidentiary record we must review.

           Rule 8006 provides that the record on appeal from a

bankruptcy court decision consists of designated materials that

became part of the bankruptcy court’s record in the first instance.

The rule does not permit items to be added to the record on appeal

to the district court if they were not part of the record before

the bankruptcy court.       In re Neshaminy Office Bldg. Assocs., 62

B.R. 798, 802 (E.D. Pa. 1986); see also Sipes v. Atlantic Gulf

Communities Corp. (In re General Dev. Corp.), 84 F.3d 1364, 1369

(11th Cir. 1996) (supplementation of record on appeal allowed only

by documents considered by the bankruptcy court).                 The district

court   erred   in   allowing   CPDC    to   supplement    the     record    with

                                       11
documents and testimony that were not offered and admitted before

the bankruptcy court entered summary judgment.                   See Kabayan v.

Yepremian (In re Yepremian), 116 F.3d 1295, 1297 (9th Cir. 1997)

(refusing to consider deposition testimony and declarations taken

after the entry of summary judgment).              Thus, we will not consider

such untimely-submitted evidence in evaluating CPDC’s arguments.

          CPDC’s admissible evidence does not raise a genuine issue

of material fact as to whether Zer-Ilan and Ideal actually knew

that the consulting agreement constituted usurious interest more

than sixty days before the April 27, 1995 cure letter was sent to

CPDC.    Leon   testified    that   he      and    John   Hollyfield    (another

attorney) warned Zer-Ilan, around the time the consulting agreement

was executed, that if Ideal did not perform any services under the

consulting   agreement,     payments     due      under   the   agreement     might

constitute usurious interest. At no point before February 27, 1995

(sixty days before the cure letter was sent) did Zer-Ilan, Ideal,

or any of their attorneys conclude that the consulting agreement

constituted usurious interest.         “Concerns” that a transaction may

be   usurious   cannot    constitute        knowledge      or   recognition     of

illegality sufficient to constitute “actual discovery.”

          Confirming      the   uncertainty         expressed     by   Leon     and

Hollyfield, it is dubious at best that payments due under the

                                       12
consulting agreements would even constitute interest payments.3

“Whether an amount of money is interest depends not on what the

parties call it but on the substance of the transaction.”       First

USA Mgmt. v. Esmond, 960 S.W.2d 625, 627 (Tex. 1997) (citing

Gonzales County Sav. & Loan Ass'n v. Freeman, 534 S.W.2d 903, 906

(Tex. 1976)).   This court has recognized that

     Where . . . a charge is admittedly compensation for the
     use, forbearance, or detention of money, it is, by
     definition, interest regardless of the label placed upon
     it or the artfulness with which it is concealed. Indeed,
     the [Texas] Supreme Court in Gonzales Savings held that
     we must look beyond the superficial appearances of the
     transactions to their substance in determining the
     existence or nonexistence of usury.

Najarro, 904 F.2d at 1002, 1006-07 (quoting Skeen v. Slavik, 555

S.W.2d 516, 521 (Tex. Civ. App. – Dallas 1977, writ ref'd n.r.e.)).

“Amounts charged or received in connection with a loan are not

interest if they are not for the use, forbearance, or detention of

money.” First USA Mgmt., 960 S.W.2d at 627.

     3
       Although the consulting agreement was a separate document
from the documents which contained the loan agreement the parties
do not dispute that under Texas law the consulting agreement may be
considered part of the same transaction as the loan. “The question
of usury must be determined by a construction of all the documents
constituting the transaction, interpreted as a whole, and in light
of the attending circumstances."        Tygrett v. Univ. Gardens
Homeowners' Ass'n, 687 S.W.2d 481, 485 (Tex. App.–Dallas 1985, writ
ref'd n.r.e.); see also Najarro v. SASI Int’l, Ltd., 904 F.2d 1002,
1008-09 (5th Cir. 1990) (“However, where, as in the case sub
judice, the note does not constitute the entire contract, we
believe that Texas courts would still find the transaction usurious
on its face if some other documents, which constitute part of the
transaction and do not contradict the note, establish usury on
their face.”).

                                13
               Pursuant     to    the   consulting    agreement,      Ideal   was   to

provide home security systems and a monitoring center for Cedar

Point, to disclose trade secrets to CPDC, and render associated

services.       “Fees which are an additional charge supported by a

distinctly separate and additional consideration, other than the

simple lending of money, are not interest and thus do not violate

the usury laws.”4           First Bank v. Tony's Tortilla Factory, 877

S.W.2d   285,       287   (Tex.    1994).        Moreover,   the    parties   to    the

consulting agreement were not the borrower CPDC and the lender Zer-

Ilan,    but    CPDC      and    third-party     Ideal.      On    their   face,    the

consulting agreement payments thus appear not to have constituted

interest.

               It   is    certainly     possible     that    illusory      consulting

payments could constitute interest.                See, e.g., Marill Alarm Sys.,

Inc. v. Equity Funding Corp. (In re Marill Alarm Sys.), 81 B.R. 119

(S.D. Fla. 1986).           It is also at least conceivable that a court

could pierce the corporate veil between Ideal and Zer-Ilan.                        See,

e.g., Sapphire Homes, Inc. v. Gilbert, 426 S.W.2d 278 (Tex. Civ.

App. – Dallas 1968, writ ref’d n.r.e.) (piercing corporate veil

     4
       See Tex. Commerce Bank v. Goldring, 665 S.W.2d 103, 104
(Tex. 1984) (attorney's fee); Stedman v. Georgetown Sav. & Loan
Ass'n, 595 S.W.2d 486, 489 (Tex. 1979) (commitment fee); Freeman,
534 S.W.2d at 906 (commitment fee); Southland Life Ins. Co. v.
Egan, 126 Tex. 160, 86 S.W.2d 722, 724-25 (Tex. 1935) (prepayment
penalty); Bearden v. Tarrant Sav. Ass'n, 643 S.W.2d 247, 249 (Tex.
App.-Fort Worth 1982, writ ref'd n.r.e.) (prepayment penalty);
Morris v. Miglicco, 468 S.W.2d 517, 519 (Tex. Civ. App.-Houston
[14th Dist.] 1971, writ ref'd n.r.e.) (brokerage fee).

                                            14
where lenders used their wholly owned corporation to avoid usury

laws).    Such possibilities do not, however, afford a factual basis

upon which Zer-Ilan could actually discover that the consulting fee

constituted interest subject to Texas usury laws. Finally, Ideal’s

failure to perform services pursuant to the contract is irrelevant

here, because CPDC never made a single payment on it.              In sum,

CPDC’s evidence does not raise a genuine issue of material fact

that could support a finding that Zer-Ilan knew in 1994 that any

payment under the consulting agreement would be usurious interest.

            CPDC also argues that the cure provision in the Texas

usury statute allows correction of bona fide mistakes, such as

clerical errors, but not errors regarding judgments as to the

legality of a transaction.       CPDC bases its argument on section

1640(b) of the federal Truth in Lending Act (“TILA”), which states

that a creditor can avoid liability under TILA if “within sixty

days after discovering an error . . . the creditor . . .          notifies

the person concerned of the error and [corrects the error].” 15

U.S.C. § 1640(b) (2000).        In its appellate brief, CPDC quotes

§ 311.023(4) of the Texas Government Code Annotated (Vernon 1998)

for the    proposition   that   we   should   interpret   the   Texas   cure

provision in light of TILA because in Texas, courts should refer to

‘laws on the same or similar subjects’ regardless of a statute’s

ambiguity.    This argument is meritless.

                                     15
            First, CPDC misrepresents Section 311.023, which permits

but does not require a court to consider the same or similar

subjects.    Tex. Gov’t Code Ann. § 311.023(4).    It is not mandatory.

See Guilzon v. Comm’r, 985 F.2d 819, 823 (5th Cir. 1993) (“It is

well-settled that the word "may" is a permissive term.”). In fact,

looking to other statutes is improper when the interpretation of a

statute is self-evident from its text.         “When the purpose of a

legislative enactment is obvious from the language of the law

itself, there is nothing left to construction.       In such case it is

vain to ask the courts to attempt to liberate an invisible spirit,

supposed    to   live   concealed   within   the   body    of   the   law.”

Fitzgerald, 996 S.W.2d at 865 (quoting Dodson v. Bunton, 81 Tex.

655, 658, 17 S.W. 507, 508 (1891)).

            Second, CPDC obfuscates the requirements of Texas law by

misdirecting this court’s attention to an irrelevant section of

TILA.      In Texas, there are two distinct defenses against an

allegation of usury: (1) the violation arose from “accidental or

bona fide error” committed by the creditor, and (2) a timely cure

letter was sent by the creditor to the obligor, disclaiming or

correcting the usurious loan terms. See Pagel v. Whatley, 82 S.W.3d

571, 576 (Tex. App.–Corpus Christi 2002, pet. denied) (noting and

discussing these “two affirmative defenses”).             CPDC erroneously

asserts that the 60-day safe harbor period applies only to curing

bona fide usurious errors in the creation of a financing agreement.

                                    16
CPDC would reduce the cure provision to the separate defense of a

bona fide error.

            Finally, while it is true that some courts have read TILA

section 1640(b) to apply only to bona fide errors,5 this circuit

has explicitly avoided answering whether the provision is so

limited.     See James v. City Home Serv., Inc., 712 F.2d 193, 195

(5th Cir. 1983).      Since we will not consider TILA in interpreting

the Texas cure provision, for the reasons previously explained, we

need not answer this question today.

            CPDC also argues that Zer-Ilan and Ideal violated the

usury statute when Ideal filed a proof of claim seeking to recover

money owed by CPDC to Ideal.            The proof of claim included the

consulting agreement as an attachment. The proof of claim at issue

was filed     on September 11, 1995, almost seven months after Zer-

Ilan and Ideal executed and transmitted the cure letter to CPDC in

April 1995.    Zer-Ilan and Ideal filed an amended proof of claim on

October 27, 1995 seeking less money and excluding the consulting

agreement as part of the claim.

            CPDC’s argument that the filing of the September 11, 1995

proof of claim constitutes a violation of the usury law fails.            We

have previously held that amending a pleading to delete a claim

that is     alleged   to   constitute   a   usurious   charge   of   interest

     5
      See Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 251-52 (3d
Cir. 1980); Pearson v. Easy Living, Inc., 534 F. Supp. 884, 895
(S.D. Ohio 1981).

                                    17
precludes usury liability based on the filing of the allegedly

usurious claim. Gibraltar Sav. v. LDBrinkman Corp., 860 F.2d 1275,

1296 (5th Cir. 1988).    There is no reason to treat the amendment of

a proof of claim filed in a bankruptcy proceeding any differently

from a claim filed as part of a complaint in a civil proceeding for

purposes of the Texas usury statute. Under Gibraltar Savings, CPDC

cannot recover for violations of the usury statute based on Zer-

Ilan and Ideal’s proof of claim.

           Having found that the district court properly entered

judgment based on appellees’ timely cure of any usury violations

and that the proof of claim filed by Ideal did not constitute a

charging violation under the usury laws, we need not reach the

other issues raised by CPDC, such as Frankford’s standing to sue.

See Allandale Neighborhood Ass’n v. Austin Transp. Study Policy

Advisory Comm., 840 F.2d 258, 263 n.15 (5th Cir. 1988).

                                CONCLUSION

           Properly interpreted, the cure provision of the Texas

usury statute affords a creditor sixty days to cure a usury

violation from the date when the creditor subjectively knows or

recognizes that a contract violates the Texas usury laws. Based on

this standard we agree with the district court that Zer-Ilan and

Ideal   timely   cured   any   usury    violation   arising   out   of   the

consulting agreement between CPDC and Ideal.        Therefore, we affirm

the judgment of the district court.

                                       18
AFFIRMED.

            19