Opinion
11-P-955
04-10-2012
CITIBANK (SOUTH DAKOTA), N.A. v. GRACE O. SHAPIRO & another.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The defendants, Grace and Michael Shapiro, appeal from a decision and order of the Appellate Division of the District Court Department, which, in a consolidated appeal, affirmed judgments for the plaintiff (Citibank) on its collection claims.
In the underlying proceedings, Citibank brought separate collection actions against the defendants and they answered and counterclaimed, charging violations of the National Bank Act (NBA). Citibank, successfully brought motions to dismiss the defendants' counterclaims, and thereafter brought successful motions for summary judgment on its claims. The District Court entered separate judgments for Citibank in the total amount owed by each defendant, plus related damages, costs, and fees. The defendants appealed to the Appellate Division and their appeals were consolidated. In a comprehensive and thoughtful opinion, the Appellate Division affirmed the judgments of the District Court. Here, as in the proceedings below, the defendants specifically contend that the plain language of the NBA, and the underlying legislative intent, prohibit a national bank that is located within a State, in which there is not a fixed, maximum rate of interest, to set a usury rate above seven percent. We disagree and affirm.
On August 5, 2009, Citibank filed a collection action against Grace O. Shapiro to collect the amount owed on her delinquent Citibank account. On September 2, 2009, Citibank filed a separate collection action against Grace's husband, Michael M. Shapiro, to collect the amount owed on a delinquent Citibank account held by Michael. Thereafter, on September 14, 2009, Grace filed an answer and counterclaim asserting Citibank violated the NBA, 12 U.S.C. § 85 (2006), by charging her account in excess of seven percent interest. On October 5, 2009, Michael filed an answer and counterclaim, similarly asserting that Citibank violated the NBA by charging interest in excess of seven percent on his account.
Under § 86 of the NBA, a national banking association, such as Citibank, 'charging a rate of interest greater than is allowed by [12 U.S.C. § 85 (2006)] . . . shall be deemed a forfeiture of the entire interest which the . . . evidence of debt carries with it.' 12 U.S.C. § 86 (2006). Section 85, in turn, generally specifies that a bank may charge any interest allowed by the State in which it is incorporated, but, relevant to the instant case: 'When no rate is fixed by the laws of the State . . ., the bank may take, receive, reserve, or charge a rate not exceeding 7 per centum . . .' 12 U.S.C. § 85. Here, Citibank is chartered in South Dakota, where State statutory law does not give a set number for the maximum rate.
The defendants' main contention is that, where South Dakota does not set a numerical interest rate, Citibank is prohibited from charging more than seven percent, pursuant to § 85 of the NBA. Specifically, the defendants contend that because South Dakota has not 'fixed,' by statute, a maximum interest rate within the meaning of 12 U.S.C. § 85, the maximum rate that Citibank may legally charge is, as relevant here, seven percent.
However, as argued by Citibank below, the absence of a numerically articulated value does not automatically signify the absence of a 'fixed rate' in South Dakota. Rather, in lieu of setting a fixed rate, the South Dakota statute explicitly allows a bank to charge any interest rate it may choose: 'Unless a maximum interest rate or charge is specifically established elsewhere in the code, there is no maximum interest rate or charge, or usury rate restriction between or among persons, corporations, limited liability companies, estates, fiduciary, associations, or any other entities if they establish the interest rate or charge by written agreement.' S.D. Codified Laws § 54-3-1.1 (2004) (emphasis supplied). The language of the statute clarifies that a written agreement between two parties, in this case Citibank and the defendants, effectively 'fixes' a maximum rate of interest, over which Citibank cannot charge.
The defendants counter that under ordinary interpretative principles, 'fixed' means to establish a definitive, set interest rate (rather than a floating or allowable or 'open ended' interest rate) and that this interpretation is in accord with the purported legislative intent behind the NBA. However, in sharp contrast to the defendants' contention, Daggs v. Phoenix Natl. Bank, 177 U.S. 549 (1900), and other authorities cited by the parties have determined otherwise, interpreting that the purpose of the NBA was to allow national banks to compete equally with State banks wherever they may be chartered. Moreover, Daggs has been cited favorably for this proposition in this Commonwealth. See Westminster Natl. Bank v. Graustein, 270 Mass. 565, 586-587 (1930) ('[I]t has been decided that '[a] national bank may charge interest at the rate allowed by the laws of the State or Territory where it is located''), and Rockland-Atlas Natl. Bank of Boston v. Murphy, 329 Mass. 755, 759 (1953) ('It was held that the proper interpretation of what is now § 85 was that, where no rate was ' fixed by the laws' of the State, the rate must be construed to mean one ' allowed by the laws,' not a rate expressed in the laws'), both quoting from Daggs, supra at 555.
They suggest further that South Dakota allowed itself to be manipulated by Citibank to subvert the national banking laws for its exploitive purposes.
The Appellate Division panel relied on this interpretation of Daggs, observing that in Daggs, the Supreme Court specifically held that a then-current territorial statute that 'allowed' a bank to charge any interest rate meant the same thing as 'fixing' that rate within the meaning of 12 U.S.C. § 85, and that, therefore, the bank could properly charge interest rates in excess of the seven percent specified in § 85. Citibank (South Dakota), N.A. v. Shapiro, 2010 Mass. App. Div. 275 (2010). We agree. The defendants, conceding below that Daggs is more or less on point and that it held contrary to their position, nonetheless attempted to distinguish Daggs on the ground that it was 'aberrant,' 'illogical,' and is contrary to various other decisions. The Appellate Division panel disagreed:
To support their position, including their stance that Daggs is inapplicable to the instant case, the defendants assert an array of century-old Supreme Court cases. Such cases do not address the narrow issue before this court, namely, what the maximum interest rate must be where the State fails to explicitly limit the rate in its own statutes. As such, they are inapt.
'[Daggs] does not [stand at odds with other decisions of the Supreme Court]. . . . Moreover, as the Shapiros concede, Daggs has never been overruled. Much as they attempt to argue otherwise with theories that we find unpersuasive, the Shapiros' only hope of success is for us to overrule the Supreme Court. For reasons that should appear obvious, we decline to do so.'Citibank, supra at 278-279. As we are persuaded that the Supreme Court decision in Daggs is controlling, we affirm.
Decision and order of the Appellate Division affirmed.
By the Court (Cypher, Smith, & Fecteau, JJ.),