Schnall v. Amboy Nat. Bank

• Decision Date: 28 January 2002
• Docket Number: No. 01-1502.,01-1502.
• Citation: 279 F.3d 205
• Parties: Martin SCHNALL, individually and on behalf of all others Similarly Situated, Appellant, v. AMBOY NATIONAL BANK.
• Court: U.S. Court of Appeals — Third Circuit

279 F.3d 205

Martin SCHNALL, individually and on behalf of all others Similarly Situated, Appellant, v. AMBOY NATIONAL BANK.

No. 01-1502.

United States Court of Appeals, Third Circuit.

Argued: November 6, 2001.

January 28, 2002.

Stuart A. Blander, (Argued) Alan A. Heller, Heller, Horowitz & Feit, P.C., New

York, NY, Abe Rappaport, David Kessler & Associates, L.L.C., Clifton, NJ, Counsel for Appellant.

Dennis T. Kearney, (Argued) Helen A. Nau, Pitney, Hardin, Kipp & Szuch, LLP Morristown, NJ, Counsel for Appellee.

Dolores S. Smith, Director Board of Governors of the Federal Reserve System Division of Consumer and Community Affairs, Washington, DC, Counsel for Amicus Curiae at the Invitation of the Court.

Before: BECKER, Chief Judge, McKEE and RENDELL Circuit Judges.

OPINION OF THE COURT

BECKER, Chief Judge.

In this putative class action, plaintiff Martin Schnall alleges that the newspaper advertisements and account disclosures of defendant Amboy National Bank ("the Bank") violated the Truth in Savings Act ("TISA"), 12 U.S.C. SS 4301-13, and regulations promulgated by the Federal Reserve Board pursuant to the Act. In particular, Schnall contends that the Bank failed to calculate the advertised annual percentage yield ("APY") on its money market savings accounts according to the methods prescribed by the regulations and required by the statute. The District Court granted summary judgment for the Bank, holding that the advertisements and disclosures at issue did not violate TISA or the relevant regulations, and that even if they did, Schnall had failed to show that he was misled by the advertised rates. Schnall appeals, and we reverse, holding that the advertisements and disclosures at issue violated TISA and the Act's implementing regulations. This holding is buttressed by the letter-brief of the Federal Reserve Board of Governors, amicus curiae at the request of the Court, which endorses this position.

Schnall brought this suit pursuant to 12 U.S.C.S 4310, which has since been repealed. See infra note 2. This section created a private cause of action for TISA violations, and provided for actual damages as well as statutory damages of between $100 and $1,000 in an individual action and "such amount as the court may allow" in a class action. See 12 U.S.C. S 4310. The Bank contends that even if there was a violation, Schnall may not recover statutory damages because he failed to establish that he was misled by or relied on the advertised rates or that he was financially harmed by the TISA violation. However, we hold that TISA imposes strict liability on depository institutions that violate its disclosure requirements, and that to recover statutory damages under S 4310, a plaintiff need not show that he relied to his detriment on the advertised APY, that he was misled by the advertised APY, or that he was financially harmed by the TISA violations. We therefore conclude that Schnall is entitled to partial summary judgment on the question of liability and will remand for a determination of damages.

I.

At various times between October 18, 1998 and October 10, 1999, the Bank placed in the Newark Star Ledger a number of substantially identical advertisements promoting its Money Market Accounts. In bold letters and large typeface, these advertisements offered "a 3-month bonus of 6.00% APY." In smaller print, the advertisements stated that "[a]fter the bonus your yield is based on the 3-month Treasury Bill. Plus, we'll guarantee that the yield will always be higher than the combined average yield offered by the 3 largest NJ banks." The advertisements also set forth the APY that the accounts had earned during the previous year.

Consumers who called the phone number listed on the advertisements would receive from the Bank an application and Disclosure of Account Terms and Fees ("account disclosure"), which stated the APY in the same manner as the advertisements. In particular, the account disclosure stated that an APY of 6% would apply for a period of 90 days from the date the account is opened. After that, "the Interest Rate paid on your account is based on the 3-month Treasury Bill and is guaranteed to be at least 1.00% higher than the average money market account yields of First Union/NJ, PNC Bank/NJ and Summit Bank as of the last business day of the previous month."

On October 16, 1998, before any of the advertisements at issue had been published, Schnall called the Bank to request an account application. On October 26, 1998, after seeing the advertisements described above, Schnall again phoned the Bank to request an application. The Bank sent Schnall an account disclosure and application, which he executed and returned, together with a check for $20,000 to open the advertised account. On or about October 28, 1998, the Bank received Schnall's application and check, and opened a Money Market Account in his name.

On October 18, 1999, Schnall filed this action on behalf of himself and a putative class of all persons who had deposited at least $20,000 into a Money Market Account with the Bank during the period from October 18, 1998 to October 18, 1999. The complaint alleged that the APY that appeared in the Bank's advertisements and account disclosures failed to comply with the required method of calculating the advertised APY under TISA and its implementing regulations. In particular, Schnall contends that under the regulations, the Bank may not advertise a 6% APY for the first three months and a variable rate APY for the remainder of the account term. Rather, in Schnall's submission, the regulations require the Bank to advertise a single "blended," or "composite," APY that represents the total yield on the account over a term of one year. According to Schnall, the regulations require this blended APY to be computed by applying the introductory rate for the first three months and applying whatever the variable rate was at the time of the advertisements for the remaining nine months, even though the resulting blended APY, which the Bank is required to advertise, may differ from the actual APY at the end of the year, depending on whether the variable rate changes.

The District Court granted the Bank's motion for summary judgment and denied Schnall's cross-motion for partial summary judgment. In an oral opinion, the Court held that because the variable rate on the accounts is a function of both the 3-month Treasury Bill as well as the APY of three other banks, the requirement that advertisements disclose the APY as a single blended rate was inapplicable, and the advertisements therefore complied with TISA. The Court further concluded that even if the Bank's advertisements and account disclosures violated TISA, summary judgment in favor of the Bank was appropriate because Schnall had failed to produce sufficient evidence that he relied to his detriment on the advertised APY.

The District Court had subject matter jurisdiction pursuant to 12 U.S.C. S 4310(e) and 28 U.S.C.S 1331, and this Court has appellate jurisdiction pursuant to 28 U.S.C. S 1291. We review de novo the District Court's disposition of the parties' cross-motions for summary judgment, see Woodside v. School Dist. of Philadelphia Bd. of Educ., 248 F.3d 129, 130 (3d Cir.2001), under the familiar standard set forth in the margin.¹ We turn first to whether the advertisements and disclosures in question violated TISA and the implementing regulations, and then address whether TISA imposes strict liability on depository institutions that violate its disclosure requirements or whether a plaintiff must also establish reliance or some form of financial injury.

II.

Schnall commenced this suit pursuant to a now-repealed provision of TISA, which created a private right of action against "any depository institution which fails to comply with any requirement imposed under this chapter or any regulation prescribed under this chapter...." 12 U.S.C. § 4310(a).² Thus, Schnall may establish liability by showing that the Bank's advertisements and account disclosures violated either a provision of TISA itself or a regulation promulgated pursuant to TISA. We consider first whether the Bank's disclosures violated requirements imposed by the regulations, and then turn to whether the disclosures also violated requirements imposed by TISA itself.

A.

1.

The relevant regulations were promulgated by the Federal Reserve Board pursuant to 12 U.S.C. § 4308(a), and are found in 12 C.F.R. Part 230, known as Regulation DD. Under the regulations, account disclosures and advertisements that state a rate of return are required to state the account's annual percentage yield. See 12 C.F.R. § 230.4(b)(1)(i) ("Account disclosures shall include the following, as applicable:... The `annual percentage yield' and the `interest rate,' using those terms...."); 12 C.F.R. § 230.8(b) ("If an advertisement states a rate of return, it shall state the rate as an `annual percentage yield' using that term."). The regulations define "annual percentage yield" as "a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period and calculated according to the rules in appendix A of this part." 12 C.F.R. § 230.2(c).

Part I.A of appendix A provides that "[f]or accounts without a stated maturity date (such as a typical savings or transaction account), the calculation shall be based on an assumed term of 365 days."³ Because the accounts at issue in this case lack a stated maturity date, the advertised APY must therefore assume a term of 365 days.

Part I.B of appendix A specifically defines how the APY should be computed for "stepped-rate accounts," which are accounts that apply different interest rates during different periods of the term: "For accounts with two or more interest rates applied in succeeding periods ... an institution shall assume each interest rate is in effect for the length of time provided...