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

• Decision Date: 20 November 1973
• Docket Number: No. 72--1066,72--1066
• Citation: 511 F.2d 980
• Parties: AMERICAN TIMBER & TRADING COMPANY, 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, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF OREGON, Defendant-Appellant, v. Lawrence BERNARD, Individually and Dr. Lawrence Bernard, ProfessionalCorporation, Intervening Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 980

511 F.2d 980

AMERICAN TIMBER & TRADING COMPANY, 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,

Plaintiff-Appellee, v. FIRST NATIONAL BANK OF OREGON, Defendant-Appellant, v. Lawrence BERNARD, Individually and Dr. Lawrence Bernard, ProfessionalCorporation, Intervening Plaintiff-Appellee.

No. 72--1066.

United States Court of Appeals, Ninth Circuit.

Nov. 20, 1973.

Rehearing and Rehearing En Banc

Denied Dec. 2, 1974.

Certiorari Denied April 14, 1975.

See 95 S.Ct. 1588.

Fredric A. Yerke (argued), Norman J. Wiener (argued), of Miller, Anderson, Nash, Yerke & Wiener, Portland, Or., for defendant-appellant.

Gerson F. Goldsmith (argued), of Goldsmith, Siegel & Engel, Portland, Or., Henry A. Carey, Jr., Carey & Hanlon, Portland, Or., for plaintiff-appellee.

Jesse Lee Griffin, Long Beach, Cal., and Matthew Hale (argued), Gen. Counsel, The American Bankers Assoc., Washington, D.C., amicus curiae.

Before CHAMBERS and CHOY, Circuit Judges, and KELLEHER, ^* District Judge.

CHOY, Circuit Judge:

Plaintiffs American Timber and Trading Co. (AT&T) and Lawrence Bernard and Dr. Lawrence Bernard, P.C. (Bernard) brought this class action claiming that the First National Bank of Oregon (the bank) charged usurious interest rates and thereby violated 12 U.S.C. §§ 85, 86.

The bank charged individual and corporate borrowers the Oregon statutory limits of interest at the rates of 10% and 12% per annum respectively for a 365 day year (ORS 82.010), but computed such interest on the basis of a 360 day year (365/360 method). ¹ By using this method, the actal interest rates for a calendar year were 10.139% and 12.167% respectively.

In the trial below, the district judge indicated that he wanted to segregate for advance determination the issue whether the 365/360 method was usurious under 12 U.S.C. § 86. ² Therefore, on stipulated facts the parties filed cross-motions for summary judgment. The court concluded that, because the 365/360 method produces in a single calendar year more interest than would be produced by applying the maximum legal rate to a calendar year of 365 days, it violates ORS 82.010. Moreover, the court ruled that the bank knowingly exacted the excess interest and thereby violated 12 U.S.C. § 86. 334 F.Supp. 888 (D.Ore.1971). The district court certified the issue to this court as appropriate for interlocutory appeal. We affirm.

Sections 85 and 86 of the National Bank Act, 12 U.S.C. §§ 85, 86 prescribe the rates of interest that may be charged by national banking associations and declare that the receiving of a rate of interest greater than that allowed, when knowingly done, shall be deemed a forfeiture of the entire interest due and in case the greater rate of interest has been paid, the borrower may recover twice the amount of the interest paid. Section 85 provides that a bank may charge interest at the rate allowed by the laws of the state where the bank is located. The National Bank Act 'adopts usury laws of the states only in so far as they severally fix the rate of interest.' Evans v. National Bank of Savannah, 251 U.S. 108, 111, 40 S.Ct. 58, 59, 64 L.Ed. 171 (1919).

Thus, we must first look to Oregon law to determine if the rate charged in the instant case was excessive. An Oregon lender may exact from individual and corporate borrowers 10% and 12% per annum respectively. ORS 82.010. Unfortunately there is neither legislative history, nor are there court decisions construing the words per annum in the 360 day context. The district court determined that the Latin words per annum mean 'by the year' and that the ordinary person assumes that a year, except leap year, has 365 days; thus, because the bank's method of computation produces in a single calendar year more interest than would be produced by applying the maximum legal rate to a calendar year of 365 days, the challenged method of computation violates ORS 82.010.

We attach great weight to the district court's determination as to the law of the particular state in which it sits, especially where, as here, there has been no clear exposition of the controlling principle by the highest court of Oregon. Insurance Co. of North America v. Thompson, 381 F.2d 677, 681 (9th Cir. 1967). The district court's determination will be accepted on review unless shown to be clearly wrong. Owens v. White, 380 F.2d 310, 315 (9th Cir. 1967). The bank has not convinced us that the decision of the district court (Judge Goodwin, a former Justice of the Oregon Supreme Court) is a clearly incorrect statement of Oregon law.

The bank contends that even if the rate charged is excessive, the loans were not usurious because the loan contracts were at rates permitted by law. Thus, the money received in excess of the legal rate is not interest, but an overcharge. We see no merit to this contention. Although the literal terms of the loan agreements provided for 10% and 12% interest, it was implicit in the agreement that the bank would calculate interest on its customary basis of a 360 day year. Moreover, Oregon law does not require that a usurious rate be specified in the loan agreement. The exacting of a greater rate of interest is sufficient to constitute usury. ORS 82.120(2), Balfour v. Davis, 14 Or. 47, 52, 12 P. 89, 92 (1886).

The bank further contends that it did not intend to violate the law, so it did not knowingly exact excess interest. We disagree. While the bank may not have realized that its method of computation was illegal, it was agreed that the bank knew that its computation of interest on the 360 day year would result in a borrower paying more in one year than at the maximum legal rate when computed on a calendar year. The act of charging the excessive interest was intentional. This is sufficient to constitute a knowing violation of the law. United States v. International Minerals & Chemical Corp., 402 U.S. 558, 91 S.Ct. 1697, 29 L.Ed.2d 178 (1971).

The bank also challenges the ruling of the district court on the ground that it was precluded from producing any evidence of banking custom. The bank contends that the use of a 365/365 method creates difficult computations and, therefore, for reasons of convenience the banking community considers it proper to use the simpler 365/360 method. The district court noted that the legislative intent in enacting usury laws is to protect borrowers from paying excessive interest. The court felt the act should be construed with regard to its net effect upon the borrower rather than upon the bookkeeping burden, custom, or convenience of the lender. The court noted that the bank used the 365/365 method to compute interest it paid to its depositors. Moreover, the court doubted whether the practice could obtain legitimacy by long usage because only in periods of high interest and heavy borrowing would the question ever arise. Therefore, it concluded that it could not be said that the Legislative Assembly has acquiesced in a practical construction of the law at odds with the plain meaning of its words. Again, we agree with the district court's ruling.

In September, 1971, the Oregon legislature enacted a provision which limits the defense of usury to transactions involving less than $50,000. ORS 82.125. It is undisputed that the nominal plaintiffs in this case had loans in excess of $50,000, although these loans were contracted prior to September, 1971. The bank, however, contends that the new Oregon legislation removes not only the defense of usury, but also any claim to recover usurious interest. We disagree with the bank's construction of this legislation. Plaintiffs' law suit commenced almost a year before ORS 82.125 became effective. Absent a clear, express intention, legislation in Oregon is not normally applied retroactively. Seton v. Hoyt, 34 Or. 266, 55 P. 967 (1899); Smith v. Clackamas County, 252 Or. 230, 448 P.2d 512 (1968). Nothing in either the language of the statute or the legislative history indicated a desire to eliminate causes of action that had already accrued...