Gavey Properties/762 v. First Financial Sav. & Loan Ass'n, 87-1111

• Decision Date: 10 May 1988
• Docket Number: No. 87-1111,87-1111
• Citation: 845 F.2d 519
• Parties: GAVEY PROPERTIES/762, Plaintiff-Appellant, v. FIRST FINANCIAL SAVINGS & LOAN ASSOCIATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 519

845 F.2d 519

GAVEY PROPERTIES/762, Plaintiff-Appellant, v. FIRST FINANCIAL SAVINGS & LOAN ASSOCIATION, et al Defendants-Appellees.

No. 87-1111.

United States Court of Appeals Fifth Circuit.

May 10, 1988.

C. Henry Kollenberg, Schlanger, Cook, Cohn, Mills & Grossberg, Houston, Tex., for plaintiff-appellant.

Jerry P. Jones, Thompson & Knight, Dallas, Tex., for defendants-appellees.

Dorothy L. Nichols, Sr. Associate General Counsel, Washington, D.C., amicus curiae, Federal Home Loan Bank Bd.

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

Before GARWOOD and JONES, Circuit Judges, and BLACK ^*, District judge.

EDITH H. JONES, Circuit Judge:

Appellant, Gavey Properties/762 ("Gavey"), seeks reversal of the summary judgment denying relief on its claim of usury against Appellee, First Financial Savings & Loan Association ("First Financial"). ¹ The district court, interpreting 12 U.S.C. Sec. 1730g(a), held that the loan was governed by Illinois law, which does not impose a commercial loan usury limit. We affirm the district court's construction of the "most-favored lender" provision of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).

BACKGROUND

Gavey, located in Texas, negotiated a loan from First Financial, located in Illinois, to finance the renovation of a Dallas-area apartment project it owned. The loan commitment, executed in January 1982, required Gavey to submit an opinion of counsel attesting "that the interest rates charged on the loan did not exceed the maximum applicable rate allowed by the law of the jurisdiction where the property is located."

The loan was closed the following month. The note executed by Gavey states that the parties intended for the laws of the state of Texas and the United States to control the usury limits of the transaction. ² The note also states that it is secured by a wraparound deed of trust and that the conditions of the deed of trust are incorporated into the note. The deed of trust provides that it is governed by Texas law. ³ Finally, Gavey executed a letter to First Financial to affirm, somewhat contradictorily, that the loan it was undertaking was intended to be a business loan as outlined in "Chapter 74, section 4, paragraph C", Illinois usury law. Ill.Rev.Stat.1980 Supp., Chap. 74, p 4(c).

At the pertinent times, the usury limit in Texas was no higher than 28%. Although the loan may have been intended to fall within this limit if it had been paid according to schedule, the effective interest rate significantly exceeded 28% because Gavey paid off the loan early as a result of a refinancing transaction.

DISCUSSION

The interest rates of First Financial were governed by 12 U.S.C. Sec. 1730g(a). ⁴ We interpret section 1730g(a) to allow a federally insured savings and loan association to charge the highest of three possible interest rates: the rate it would be permitted to charge in the absence of the provision; a rate of not more than one percent in excess of the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank in the federal reserve district where such institution is located; or the rate allowed by the laws of the state territory or district where such institution is located. Our interpretation rests upon the statutory language, which lends itself to this construction; Congressional intent; and the interpretation of the Federal Home Loan Bank Board (FHLBB), the regulatory agency charged with overseeing the regulation of federally insured financial institutions. The result of our interpretation of Sec. 1730g(a) in this case is that Illinois usury law both governs the loan to Gavey and, because it was a business loan for which Illinois specifies no interest ceiling, vindicates the transaction from a usury standpoint.

Section 1730g(a) is nearly identical to those provisions regulating interest limits for state-chartered federally insured banks, 12 U.S.C. Sec. 1831d, and federally insured credit unions, 12 U.S.C. Sec. 1785(g)(1). All three provisions were passed as part of the Depository Institutions Deregulation and Monetary Control Act of 1980. Congress passed the applicable provisions of DIDMCA in 1980, when interest rates stood at record levels, in order to assure that borrowers could obtain credit in states with low usury limits and that federally-insured state lending institutions would not be competitively disadvantaged by those usury rates. Without federal legislation, such institutions were being battered by competition from national banks that were allowed to charge higher rates of interest by federal law. See, e.g., 126 Cong.Rec. Sec. 6907 (March 27, 1980) (statement of Sen. Bumpers). Indeed, Sec. 1831d--the first of the three consecutive sections in the DIDMCA--begins with a statement of purpose explicitly confirming its intent to prevent such discrimination.

Congress effectuated its intent by enacting substantially identical language in Sec. 1730g(a), Sec. 1831d and Sec. 1785(g)(1), to that found in 12 U.S.C. Sec. 85, the usury provision governing national banks. ⁵ Given the similarity of language, the conclusion is virtually compelled that Congress sought to provide federally insured credit institutions with the same "most-favored lender" status enjoyed by national banks. See Finkelstein, Most Favored Lender Status for Insured Banks, 42 Bus.Lawyer 915, 916 (1987). Section 85 was early held to authorize a national bank to charge the rates allowed to the most-favored lender in the state in which it was located. Tiffany v. Bank of Missouri, 85 U.S. (18 Wall.) 409, 411, 21 L.Ed. 862 (1874). See also 12 C.F.R. Sec. 7.7310 (regulation issued by the Comptroller of the Currency). More recently, more precisely on point, and two years before the DIDMCA was passed, the Supreme Court also clarified that Section 85 allows a nationally chartered bank to "export" the favorable usury rate of its home state to transactions with borrowers from other states. Marquette National Bank v. First Omaha Service Corp., 439 U.S. 299, 313-320, 99 S.Ct. 540, 548-50, 58 L.Ed.2d 534 (1978). Consistent interpretation of Sec. 85 and Sec. 1730g(a) appear warranted, and such interpretation leads to uniformly allowing institutions such as First Financial to export a favorable home-state interest rate.

The Federal Home Loan Bank Board has interpreted Sec. 1730g(a) to harmonize fully with Section 85. The FHLBB's regulation interpreting Sec. 1730g(a) defines the "applicable rate" as the greater of the most favored lender rate under state law or one percent over the Federal Reserve discount rate. 12 C.F.R. Sec. 570.11(a). In addition, the FHLBB general counsel has addressed a situation virtually identical to the present case in a published advisory letter. The general counsel advised that a savings and loan could export the most-favored lender rate of its home state to other states where it may make loans. FHLBB General Counsel Opinion Letter (August 6, 1982). He reasoned that the FHLBB had already recognized the parallel between Sec. 1730g(a) and Sec. 85. 12 C.F.R. Sec. 570.11(a). To the extent that Sec. 1730g(a) is ambiguous, this FHLBB interpretation is entitled to deference provided it is reasonable. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 843-4, 104 S.Ct. 2778, 2781-2, 81 L.Ed.2d 694 (1984). Although, as will be seen, the argument for ambiguity in the statutory language is weak, we find FHLBB's reading of the statute reasonable.

Gavey contends, however, that Sec. 1730g(a) is inapplicable to this case by its terms. It contends that the provision's initial conditional clause (Gavey calls this the "triggering clause") is not satisfied, because the "applicable rate" that may be charged by First Financial does not exceed the Texas usury rate that First Financial would have been permitted to charge absent Sec. 1730g(a). This argument depends upon construing the "applicable rate" as only one percent in excess of the discount rate on 90-day commercial paper, instead of either that rate or the rate of Illinois where Gavey is located.

Gavey's statutory construction, although clever, seems counterintuitive to the language of Sec. 1730g(a). Gavey's interpretation is, however, arguably adopted in In re: Lawson Square, 816 F.2d 1236 (8th Cir.1987). There, an Arkansas lender lent an Arkansas borrower funds to purchase an Arkansas apartment complex, with the loan secured by a first mortgage on the complex. Arkansas's most-favored lender interest rate for such a mortgage was the Federal Reserve discount rate plus five percent, and the parties contracted for interest at the 90-day treasury bill rate plus four percent. The contract rate turned out to exceed the Arkansas usury limit for the period of the loan.

The Eighth Circuit found that the loan was saved by two provisions of the DIDMCA--Sec. 1730g(a) and 12 U.S.C. Sec. 1735f-7. Section 1735f-7 overrides state usury limits for mortgages secured by first liens on residential real property. Thus, no usury limit applied to the loan because of Sec. 1735f-7. The court's discussion of Sec. 1730g(a) can, in light of the overriding applicability of Sec. 1735f-7, ⁶ be seen as mere dicta. The court stated nevertheless that Sec. 1730g(a) is inapplicable because the conditional clause of that provision was not met. In addition, the court stated that the "applicable rate" referred to in the conditional clause of Sec. 1730g(a) is the federal discount rate plus one percent. However, the Eighth Circuit was faced with a considerably different set of facts than confronts this court, and we believe...