Doe v. Norwest Bank Minnesota, N.A.

• Citation: 107 F.3d 1297
• Decision Date: 12 May 1997
• Docket Number: No. 96-1763,96-1763
• Parties: , RICO Bus.Disp.Guide 9218 John DOE; John Roe, on behalf of themselves and all others similarly situated, Appellants, v. NORWEST BANK MINNESOTA, N.A., a national banking association; Voyager Guaranty Insurance Company, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1297

107 F.3d 1297

65 USLW 2587, RICO Bus.Disp.Guide 9218

John DOE; John Roe, on behalf of themselves and all others similarly situated, Appellants, v. NORWEST BANK MINNESOTA, N.A., a national banking association; Voyager Guaranty Insurance Company, Appellees.

No. 96-1763.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 11, 1996.

Decided Feb. 28, 1997.

Rehearing and Suggestion for Rehearing En Banc Denied May

12, 1997. ^*

Ronald Goldser, Minneapolis, MN, argued (Barry G. Reed, J. Gordon Rudd, Jr., Howard Specter, Michael P. Malakoff, and Tom Lyons, on the brief), for Appellants.

Bradley Clary, Minneapolis, MN, argued (Ronald H. Groth, on the brief), for Voyager Guaranty Insurance (James L. Volling, Randall E. Kahnke and Timothy E. Rank, on the brief), for Norwest Bank.

Before BOWMAN and HEANEY, Circuit Judges, and SMITH, ¹ District Judge.

BOWMAN, Circuit Judge.

John Doe and John Roe brought a class action against Norwest Bank Minnesota, N.A. (Norwest) and Voyager Guaranty Insurance Company (Voyager), alleging violations of the usury provisions of the National Bank Act, 12 U.S.C. § 85-86 (1994), the anti-tying provisions of the Bank Holding Company Act Amendments of 1970, 12 U.S.C. § 1972 (1994), and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) (1994). Doe settled his claims and was dismissed from the case. The District Court ² granted judgment in favor of the defendants on the federal claims and declined to exercise supplemental jurisdiction over the plaintiffs' state-law claims. Roe appeals, and we affirm.

I.

Before summarizing the facts, we consider the relevance of Doe's claim to this case. Although Doe settled his claim and was dismissed from the case, Roe argues that "Doe's suitability as a class representative remains in issue." Roe's Br. at 1 n. 2. We disagree. This action was filed on November 3, 1994, and Doe agreed to settle on February 28, 1995. When Doe apparently had misgivings, the defendants moved the court to enforce the settlement agreement and dismiss Doe from the case. The District Court did so, dismissing Doe on September 11, 1995, and Doe has not appealed that order. Accordingly, Doe is no longer a party to this action, individually or in his capacity as a class representative.

Of course, the dismissal of Doe did not affect the claim of Roe or the claims of the unnamed class members in any way. This case remains a putative class action with Roe as representative. We will therefore summarize the facts of Roe's claim. In 1989, Roe purchased a pickup truck from a dealer and entered into an installment contract, granting the dealer a security interest in the pickup truck. The dealer assigned the contract to Norwest. Several provisions of the installment contract addressed insurance on the pickup truck:

Insurance on property I [Roe] give as security is required. If insurance is required, I may buy it through any insurance agent or company of my choice....

. . . . .

If you [Norwest] require property insurance, it must cover all risks of physical damage to the property and the risk that the vehicle may be lost.... I promise to keep the property insured throughout the term of my loan and to deliver a certificate of insurance to you that shows I have purchased insurance of this kind.

. . . . .

I also agree that, if I fail to keep any required insurance on the property, you may purchase such insurance for me. I will immediately repay you for any amounts you spend in purchasing that insurance, plus interest at the "annual percentage rate" disclosed on the other side of this contract.

Roe's App. at 135-36. At the same time, Roe signed a document entitled "Agreement to Provide Accidental Physical Damage Insurance," which read:

I understand that to provide protection from serious financial loss, should an accident or loss occur, Norwest ... requires the collateral securing my loan to be continuously covered with insurance against the risks of fire, theft, and collision, and that failure to provide such insurance gives Bank the right to declare the entire unpaid balance immediately due and payable or alternatively to purchase coverage for its interest and add the premium plus interest to the balance....

I further understand and agree to maintain insurance, as described above, in force during the term of the loan and will furnish Norwest ... with a loss payable endorsement upon each renewal of said insurance.

Norwest's App. at 69.

In February 1993, Norwest notified Roe that it had not received proof of insurance and warned him that if he failed to provide proof of insurance, Norwest could exercise its right to purchase insurance. Norwest's letter notified Roe that if the bank purchased insurance, the premium of $902 (for a year of coverage) would be added to his loan balance. When Roe did not provide proof of insurance, Norwest purchased insurance from Voyager and added $902 to Roe's balance. Voyager then sent Roe a certificate of coverage, which indicated that only Norwest's interest in the vehicle was insured.

When that coverage expired in January 1994, Norwest again warned Roe that it had not received proof of insurance. The same process was repeated, and Norwest purchased insurance and added the premium of $549 to Roe's loan balance. In June 1994, Roe apparently proved to Norwest that he had procured his own insurance, and Norwest credited his loan with $233, the unearned portion of the $549 premium. At about the same time, Norwest added to Roe's loan a charge of $11.60 for interest on the insurance charge.

As part of its collateral protection insurance program, Norwest has an umbrella insurance policy with Voyager, pursuant to which Norwest purchases insurance when borrowers fail to provide their own insurance. When Norwest purchases insurance from Voyager with respect to a particular piece of collateral, the insurance covers only Norwest's interest in the collateral. The coverage, which is otherwise similar to ordinary comprehensive and collision coverage, is limited to either the damage to the collateral or the balance of the customer's loan, whichever is smaller in amount. The umbrella policy also contains two endorsements that are significant in this case. The first endorsement, entitled "Waiver of Repossession Requirement," waives the requirement that Norwest repossess the borrower's vehicle before making a claim. The second, the "Waiver of Salvage Deduction on Non-Repossession Claims," modifies the policy so that the amount payable to Norwest on a claim is not reduced by the salvage value of the borrower's vehicle. ³ Roe's arguments that insurance charges attributable to these endorsements were unauthorized form the basis of this action.

The plaintiffs brought this action in federal district court, asserting claims under the National Bank Act and the Bank Holding Company Act against Norwest only and a RICO claim against Voyager only. After permitting discovery and dismissing Doe from the case, the District Court granted summary judgment to the defendants on the National Bank Act claim and dismissed the anti-tying and RICO allegations for failure to state a claim on which relief could be granted. See Doe v. Norwest Bank Minn., N.A., 909 F.Supp. 668 (D.Minn.1995) (order dismissing RICO count). The court dismissed these federal claims with prejudice and declined to exercise supplemental jurisdiction over the state-law claims, dismissing them without prejudice. Roe's appeal challenges the dismissal of the federal claims.

II.

We address the National Bank Act claim first. Insofar as it is relevant here, the National Bank Act permits a national bank to charge "interest at the rate allowed by the laws of the State ... where the bank is located ... and no more." 12 U.S.C. § 85 (1994). Section 86 provides a federal cause of action for usury against a national bank that "tak[es], receiv[es], reserv[es], or charg[es] a rate of interest greater than is allowed by section 85 of this title." 12 U.S.C. § 86 (1994); see also M. Nahas & Co. v. First Nat'l Bank, 930 F.2d 608, 612 (8th Cir.1991) (remedy of § 86 completely preempts state-law usury actions against national banks); Fisher v. First Nat'l Bank, 548 F.2d 255, 257 (8th Cir.1977) (interest rate a national bank may charge is ultimately a question of federal law).

Roe argues that the "unauthorized" charges attributable to the repossession and salvage waivers, and perhaps the full amount of insurance charges, should be considered interest with respect to his installment loan. Norwest argues that charges for insurance are not interest at all, but even if they were considered interest, the total interest rate on Roe's loan would be below the allowable cap under Minnesota law. The parties' experts assumed that all the charges were interest but used different interpretations of the Federal Reserve's Regulation Z (12 C.F.R. pt. 226 (1996)) to support their conclusions: Roe's expert calculated the interest rate by amortizing the insurance charges over the period of time from when they were imposed to the end of the loan term, while Norwest's expert amortized the insurance charges, like the ordinary interest charges, over the entire length of the loan. The District Court assumed that all the insurance charges were interest and approved the calculation method of Norwest's expert. Because that method resulted in an interest rate below the maximum allowed by Minnesota law, the court granted summary judgment to Norwest.

We review a grant of summary judgment de novo, affirming only if the record, viewed in the light most favorable to the nonmoving party, shows no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Smith v. City of Des Moines, 99 F.3d 1466, 1468-69 (8th Cir.1996). We may affirm on any ground supported by the record. See Phillips v. Marist Soc'y, 80 F.3d 274, 275 (8th Cir.1996).

We need not resolve the parties' thorny dispute...