American Timber & Trading Co. v. First Nat. Bank of Oregon

• Decision Date: 22 October 1982
• Docket Number: 81-3214 and 81-3236,Nos. 80-3230,s. 80-3230
• Citation: 690 F.2d 781
• Parties: AMERICAN TIMBER & TRADING CO., an Oregon corporation, on its own behalf and on behalf of all corporations and individuals who have been and are presently being charged interest rates in excess of the rates permitted by law, Plaintiffs/Appellants/Cross Appellees, Lawrence Bernard, individually and Dr. Lawrence Bernard, Professional Corporation, Intervening Plaintiffs/Appellants, v. FIRST NATIONAL BANK OF OREGON, a national banking association, Defendant/Appellee/Cross Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 781

690 F.2d 781

AMERICAN TIMBER & TRADING CO., an Oregon corporation, on its own behalf and on behalf of all corporations and individuals who have been and are presently being charged interest rates in excess of the rates permitted by law Plaintiffs/Appellants/Cross Appellees, Lawrence Bernard individually and Dr. Lawrence Bernard Professional Corporation, Intervening Plaintiffs/Appellants, v. FIRST NATIONAL BANK OF OREGON, a national banking association, Defendant/Appellee/Cross Appellant.

Nos. 80-3230, 81-3214 and 81-3236.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 9, 1982.

Decided Oct. 22, 1982.

Brad Littlefield, Goldsmith, Siegel, Engel & Littlefield, Phil Goldsmith, Portland, Or., for appellants.

James Westwood, Portland, Or., argued for defendant/appellee/cross appellant; R. Alan Wright, Miller, Nash, Yerke, Wiener & Hager, Fredric A. Yerke, Portland, Or., on brief.

Appeal from the United States District Court for the District of Oregon.

Before CHOY, TANG, and BOOCHEVER, Circuit Judges.

BOOCHEVER, Circuit Judge:

These consolidated appeals, two direct appeals and a cross appeal, arise out of a class action under §§ 85 and 86 of the National Bank Act (Bank Act), for double recovery of usurious interest. Following determinations that two practices of First National Bank of Oregon (First National) resulted in usury, judgment was awarded to subclass III and several members of subclass IV. The district court declined to add prejudgment interest to the statutory double recoveries. It further ruled that the requirement of First National that certain borrowers maintain compensating balances resulted in usury as to two members of subclass IV but not as to a third member. We affirm.

BACKGROUND

By a complaint filed in 1970, plaintiffs sought double recovery under 12 U.S.C. § 86 of all interest paid on allegedly usurious loans. The class was certified and divided into three subclasses. A fourth subclass was later added. The claims of the first three subclasses were based on First National's use of the 3 65/360 method of computing interest on loans. ¹ Subclass IV members were also subject to a requirement that they maintain demand deposit accounts with compensating balances equal to a percentage of their loans.

In 1971, the district court ruled that use of the 3 65/360 method of computing interest was knowingly usurious. The question was certified for interlocutory appeal, and we affirmed. American Timber & Trading Co. v. First National Bank of Oregon, 511 F.2d 980 (9th Cir. 1974), cert. denied, 421 U.S. 921, 95 S.Ct. 1588, 43 L.Ed.2d 789 (1975). After our decision, subclass III was The second appeal (No. 81-3214) and the cross appeal (No. 81-3236) raise numerous issues regarding the disposition by summary judgment of the claims of three members of subclass IV who had been required to maintain compensating balances as a condition of their loans. Those usury claims are based on the theory that the compensating balance requirement reduced the net loan principal available for their use and thus raised the effective interest rate. Although the original class complaint did not specify a compensating balance claim, plaintiffs sought to engage in discovery on the issue from the early stages of the lawsuit.

awarded double the amount of all interest paid under the usurious loans. They appeal the denial of prejudgment interest on that award (No. 80-3230).

In 1976, after the interlocutory appeal, plaintiffs were allowed to resume discovery on the compensating balance issue. In 1979, the district court ruled that the issue was within the scope of the case. It further ruled that the plaintiffs who were subject to the compensating balance requirement should be treated as a fourth subclass, although all of them were also included in all three pre-existing subclasses. After cross motions, summary judgment was granted in favor of two members of subclass IV, Columbia River (Columbia) and Lenrich, and against a third, Willamette Western (Willamette). Columbia and Lenrich appeal the denial of their motions for prejudgment interest (No. 81-3214).

Willamette appeals the summary judgment against it, attacking both the district court's treatment of the two extensions of credit to it as a single loan and the computation of the effective interest rate on that loan (No. 81-3214). First National cross appeals from the summary judgment in favor of Lenrich and Columbia, raising five issues regarding compensating balances (No. 81-3236).

DISCUSSION

I DENIAL OF PREJUDGMENT INTEREST

The district judge concluded that "the statutory penalty provided by 12 U.S.C. § 86 should not be increased by an award of prejudgment interest". We agree.

A district court has discretion to award prejudgment interest on compensatory damages in order to make the injured party whole. ² United States v. California State Board of Equalization, 650 F.2d 1127, 1132 (9th Cir. 1981), aff'd mem. --- U.S. ----, 102 S.Ct. 2261, 72 L.Ed.2d 864 (1982). See also Whittaker v. Whittaker Corp., 639 F.2d 516, 534 (9th Cir.), cert. denied, 454 U.S. 1031, 102 S.Ct. 566, 70 L.Ed.2d 473 (1981). Where the recovery is penal, as opposed to compensatory, the availability of prejudgment interest depends upon the purposes of the statute. Rodgers v. United States, 332 U.S. 371, 68 S.Ct. 5, 92 L.Ed. 3 (1947).

The appellants first argue that the statutory double recovery under the Bank Act is remedial. 12 U.S.C. § 86 provides that:

The taking, receiving, reserving, or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed a forfeiture of the entire interest.... In case the greater rate of interest has been paid, (payor) may recover back, in an action in the nature of an action of debt, twice the amount of the interest thus paid....

Since its enactment over 100 years ago, this section of the Bank Act has been characterized as penal. See First National Bank of Newton v. Turner, 3 Kan.App. 352, 42 P. 936 (1895); McCreary v. First National Bank of Morristown, 109 Tenn. 128, 70 S.W. 821, 822 (1902); McCollum v. Hamilton National Bank, 303 U.S. 245, 247-49, 58 S.Ct. 568, 570-71, 82 L.Ed. 819 (1938); First Relying on our dicta in Riggs v. Government Employees Financial Corp., 623 F.2d 68, 70 (9th Cir. 1980), plaintiffs contend that the statute is remedial as to borrowers even if penal as to lenders. The statutory recovery under the Bank Act is twice the total amount of interest paid, not merely double the usurious portion. Subclass III paid $3,372 excess interest over the legal rate. Their recovery, however, was twice the total interest paid-an award of $422,295.68. There was also a large disparity between the overcharges and the recovery by subclass IV members. In light of this large disparity between the overcharges and recoveries, we conclude that the double recovery provision is penal, not compensatory. ³

National Bank in Mena v. Nowlin, 509 F.2d 872, 875 (8th Cir. 1975). But see Farmers' & Mechanics' National Bank v. Dearing, 91 U.S. 29, 35, 23 L.Ed. 196 (1875).

Prejudgment interest under a primarily penal statute such as the double recovery provision of the Bank Act depends upon whether an interest award would be consistent with the statute's purposes. In Rodgers the Supreme Court reversed an award of prejudgment interest upon an award under the double recovery provision of the Agricultural Adjustment Act. It reasoned that it was "unable to say that it would be consistent with the congressional purpose for the courts to add interest to these very substantial penalties already imposed...." 332 U.S. at 376, 68 S.Ct. at 8. The same is true here.

Although we understand plaintiffs' argument that the double recovery provision may be compensatory in the sense that recovery beyond actual loss could serve as compensation for the costs and delays inherent in litigation, this does not, in our opinion, necessarily warrant the award of prejudgment interest in addition to the statutory double recovery. See Spagnuolo v. Whirlpool Corp., 641 F.2d 1109, 1114 (4th Cir.), cert. denied, 454 U.S. 860, 102 S.Ct. 316, 70 L.Ed.2d 158 (1981) (no interest on Age Discrimination in Employment Act award because Congress has compensated for delay via award of statutory double recovery of back wages).

The Bank Act provides for recovery of twice the amount of total interest paid if any part of the interest paid is usurious. The purpose of this harsh provision is to deter future usury. Anderson v. Hershey, 127 F.2d 884, 887 (6th Cir. 1942). Plaintiffs, like the Rodgers dissenters, argue that deterrence will be diluted if interest is disallowed. Although this argument has force, it would support interest on penalties of every type, a result not contemplated in Rodgers. In addition, increasing penalties will increase the burden on national banks and hence may be inconsistent with the balance struck by Congress between deterrence and other goals. One of the major purposes of the Bank Act was to encourage formation of national banks by placing them on the same competitive footing as state banks. See First National Bank v. Dickinson, 396 U.S. 122, 133, 90 S.Ct. 337, 343, 24 L.Ed.2d 312 (1969); First National Bank v. Walker Bank & Trust Co., 385 U.S. 252, 261, 87 S.Ct. 492, 497, 17 L.Ed.2d 343 (1966); First National Bank in Mena v. Nowlin, 509 F.2d at 879-80. We are therefore reluctant to expand upon the remedy provided by Congress. As the Supreme Court said in regard to the Bank Act in McCollum v. Hamilton National Bank:

(T)he law itself fixes the punishment at precisely twice the usurious exaction paid; it may not be enhanced or mitigated because of aggravating circumstances or equitable considerations.

303 U.S. at 247, 58 S.Ct. at 570.

In applying Rodgers, courts have given great weight to whether a statute is remedial in nature in determining whether to award prejudgment interest. See Dependahl v. Falstaff...