Torosian v. National Capital Bank of Washington, Civ. A. No. 2110-69.

• Decision Date: 24 February 1976
• Docket Number: Civ. A. No. 2110-69.
• Citation: 411 F. Supp. 167
• Parties: Luke TOROSIAN et al., Plaintiffs, v. NATIONAL CAPITAL BANK OF WASHINGTON, Defendant.
• Court: U.S. District Court — District of Columbia

411 F. Supp. 167

Luke TOROSIAN et al., Plaintiffs, v. NATIONAL CAPITAL BANK OF WASHINGTON, Defendant.

Civ. A. No. 2110-69.

United States District Court, District of Columbia.

February 24, 1976.

Anthony Z. Roisman, Washington, D. C., for plaintiffs.

George A. Didden, III, Washington, D. C., for defendant.

MEMORANDUM

GASCH, District Judge.

This matter came on for hearing on cross-motions for summary judgment filed by the last remaining plaintiffs and defendant in this case. The only substantive issue before the Court is whether a material issue of fact exists as to the usurious or non-usurious nature of three loans that were made to plaintiffs Luke and Peggy Torosian by defendant, the National Capital Bank of Washington.¹ Resolution of this issue is governed in part by prior rulings in this case, as elaborated infra. The Court must also decide a novel issue, however: whether, for purposes of demonstrating compliance with the District of Columbia usury laws,² banks may compute the interest rate on personal unsecured installment loans according to the so-called "United States Rule" of interest computation, or whether the residuary method must be applied.

For the reasons set forth below, the Court has determined that computation of interest according to the U.S. Rule satisfies D.C.'s usury statute. Applying this rule of law to the undisputed facts relevant to the instant motions, the Court must grant defendant's motion for summary judgment and deny plaintiffs' motion.

PROCEDURAL BACKGROUND

The complaint, as subsequently amended, alleged that the District of Columbia National Bank and two other defendant banks — National Savings and Trust Company, and National Capital Bank of Washington — had violated the District of Columbia usury statute, the National Bank Act,³ and section one of the Sherman Act.⁴ The complaint alleged that defendants had charged and conspired to charge usurious rates of interest on certain loans, later defined as personal unsecured installment loans, that had been made to the named plaintiffs and the plaintiff class. The theory underlying plaintiffs' complaint was that the declining balance of principal must be taken into account in computing interest for purposes of the relevant D.C. usury statute, and that if the interest were so computed on the loans made to plaintiffs, the interest exceeded the lawful rate of eight percent. Plaintiffs sought statutory and punitive damages, plus declaratory and injunctive relief.

Early in the course of this litigation, the Court severed the usury and antitrust counts,⁵ certified the class action, and ordered separate trials for each defendant bank on the usury count.⁶ The Court further ordered that the litigation of the usury count would proceed first against the first named defendant, the District of Columbia National Bank.⁷ The litigation against D.C. National resulted in the issuance of two opinions that decided issues of direct relevance here.

The first opinion⁸ granted partial summary judgment for plaintiffs on the usury issue, holding that by failing to take the declining balances of principal into account in computing interest, and by charging interest in an amount equal to more than the lawful 8% if the declining balance were taken into account, D.C. National Bank had exacted usurious interest on the personal unsecured installment loans at issue on that motion. The second opinion, filed July 17, 1974, denied plaintiffs' motion for summary judgment on two issues: (1) whether the charges for life insurance, credit checks and processing fees which were included in the amounts due on the loans amounted to added interest; and (2) whether the bank had exacted usurious interest "knowingly" within the meaning of the National Bank Act. The opinion also ordered that notice would issue forthwith to the class of D.C. National Bank borrowers.

After issuance of the second opinion, D.C. National Bank and the second named defendant, National Savings and Trust, entered into a full settlement agreement with plaintiffs. Notice to the class of borrowers holding loans with the two settling banks was effectuated by publication in local newspapers on November 1, 1974. By Memorandum-Order filed May 27, 1975, the Court approved the settlement.

Approval of the settlement between plaintiffs and the first two named defendants left for adjudication only the usury and antitrust claims against the National Capital Bank of Washington. Plaintiffs have raised no objection to NCB's contention that a grant of summary judgment for NCB on the usury count would dispose of the antitrust claim as well.⁹ From plaintiffs' silence the Court concludes that plaintiffs have either abandoned the antitrust claim or they agree with NCB that summary judgment for defendant on the usury claim will require the entry of summary judgment for defendant on the antitrust claim. In view of NCB's success on the merits of the usury claim, it seems obvious to the Court that plaintiffs' claim against NCB for conspiracy to commit usury must fail. Accordingly, summary judgment will enter for defendant on both claims. Before reaching the merits of the instant motions, however, certain matters relevant to the status of this case as a class action must be clarified.

DEFINITION OF THE PLAINTIFF CLASS, AND WHETHER THE CLASS IS BOUND BY THIS JUDGMENT

In its motion papers and during the oral argument of these motions, National Capital Bank raised questions as to the definition of the certified class of plaintiffs,¹⁰ and as to the binding effect on the class of the judgment to be entered on these cross-motions. Defendant contends that the class members should be bound by the judgment in favor of defendant, even though no notice of the class action has been issued. Moreover, defendant argues that the definition of the class should be modified to exclude borrowers who had not paid more than the principal plus interest at the maximum legal rate on outstanding loans before this suit was filed on July 28, 1969.

Defendant's contention that the class should be bound by the judgment herein must be rejected. For more than two years defendant NCB has been on notice that a judgment in its favor would not be res judicata as to the class members so long as notice had not been issued to the class. A Memorandum-Order that was filed in this case on August 2, 1973, explicitly acknowledged this principal¹¹ in approving the proposal of D.C. National Bank to defer sending notice to the class of D.C. National's borrowers until after ruling on the merits of the usury issue. Although National Capital Bank has never formally requested that notice to the class of NCB borrowers be deferred until after adjudication of the usury claim, NCB nonetheless moved for summary judgment in its favor, knowing that notice had not been issued and that judgment in its favor would not bind the class. Under these circumstances, NCB has waived any objection it may have had to the issuance of judgment on the usury claim prior to the sending of notice to the class.¹²

NCB also seeks to alter the definition of the class. As defined in the Memorandum-Order that certified the plaintiff class, the class includes borrowers from each defendant bank "who, because of the computational method used and the various charges imposed, have been allegedly required to pay money in excess of the statutory limit of 8 percent per annum on the loans which they have transacted with a particular bank."¹³ The same Memorandum-Order further describes the class as "limited to only those persons who have obtained an unsecured installment loan from a single bank."¹⁴ The class is thus limited to persons who had "obtained" or "transacted" loans with NCB as of the filing date of this suit, but no other limitations have been imposed on the class.

National Capital Bank now seeks to exclude from the class those borrowers who had not yet made payments amounting to more than principal plus legal interest as of the date when this action was filed. NCB reasons that under District of Columbia law no cause of action accrues to recover payments of usurious interest until payments have been made in excess of principal plus legal interest,¹⁵ and accordingly, this suit was filed prematurely insofar as it bases claims for relief on loans encompassed within the challenged category. This rationale, if adopted, would mandate the dismissal of the Torosians' claims for relief based on the third loan they transacted with NCB. This loan was outstanding on July 28, 1969, when plaintiffs filed this suit, but plaintiffs had not repaid an amount equal to principal plus legal interest on that date.

Defendant's objection to the definition of the class and the maintenance of the cause of action based on the Torosians' third loan must be rejected as waived, for NCB participated fully in the briefing and argument of the class certification issue in 1972, yet did not raise the prematureness issue at that time.¹⁶ Having failed to raise this objection when the proper definition of the class was at issue, defendant should not be permitted to raise it two and one-half years after certification of the class. Class members with actual notice of this certified class action may have refrained from filing individual suits in the interim, believing that their interests were being represented by the Torosians. A second reason for treating NCB's prematurity argument as waived is that final payment on the third Torosian loan was made on April 7, 1971, and presumably most of the other personal unsecured installment loans that were outstanding on July 28, 1969, have also been repaid since this suit was filed. Causes of action for statutory damages having accrued with the final payments on these loans, NCB should not be permitted to raise the prematurity argument for the first time now when the limitations period for filing suit on those claims has passed.

Finally, the prematurity argument must be rejected as...