Voitier v. First Nat. Bank of Commerce, Civ. A. No. 80-3397.

• Decision Date: 22 May 1981
• Docket Number: Civ. A. No. 80-3397.
• Citation: 514 F. Supp. 585
• Parties: Martial H. VOITIER et al. v. FIRST NATIONAL BANK OF COMMERCE.
• Court: U.S. District Court — Eastern District of Louisiana

514 F. Supp. 585

Martial H. VOITIER et al. v. FIRST NATIONAL BANK OF COMMERCE.

Civ. A. No. 80-3397.

United States District Court, E. D. Louisiana.

May 22, 1981.

Robert Hugh Matthews, Robert M. Hearin, Jr., Matthews & Breeden, New Orleans, for plaintiffs.

Herschel L. Abbott, Jr., Marta Alison Richards, Edward H. Bergin, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, for defendant.

J. Michael Cutshaw, Alexandria, for Louisiana Bankers Association as amicus curiae.

David Willenzik, McGlinchey, Stafford & Mintz, New Orleans, for Hibernia National Bank, et al., as amici curiae.

MEMORANDUM OPINION AND ORDER

BOYLE, District Judge:

This action arises under chapter 106, section 30 of the National Bank Act, 12 U.S.C. §§ 85-86, but resolution of the matter involves important questions of judicial first impression under the law of Louisiana. Plaintiffs, Martial Voitier and Terence Hall, allege that defendant, First National Bank of Commerce (FNBC), charged and received usurious interest for plaintiffs' two loans dated October 14, 1977 and September 8, 1978. Plaintiffs have moved for summary judgment with respect to both loans. Defendant has cross-moved for summary judgment with respect to loan # 1. For the following reasons, we find that neither loan was usurious. Therefore, plaintiffs' motion must be DENIED and summary judgment in favor of defendant must be GRANTED.

I. THE FACTUAL BACKGROUND

On October 14, 1977, plaintiffs borrowed $525,000 from FNBC (Loan # 1) and agreed to repay this amount in stated principal installments over a two year period, subject to interest at a floating rate of 1.5% per year over FNBC's prime rate, adjusted monthly. The parties agreed in the note that the loan was made for non-consumer purposes, but further agreed that the loan would be "governed by and construed under" the Louisiana Consumer Credit Law (LCCL), LSA-R.S. 9:3510 et seq. The loan was secured by plaintiffs' pledge of a collateral mortgage note which was secured by a mortgage on certain real estate. On September 8, 1978, plaintiffs executed a renewal note (Loan # 2) in favor of FNBC in the face amount of $454,295.02, the then-remaining unpaid principal balance of Loan # 1. The principal sum was made payable over the thirteen months then remaining in the term of Loan # 1. Loan # 2 was made subject to interest under the same terms as Loan # 1 and was secured by the same collateral. Loan # 2 also contained the same clause as Loan # 1 making the loan subject to the LCCL.

Loan # 2 matured on November 1, 1979, but at that time the unpaid principal balance then due remained unpaid. Plaintiffs paid the remaining balance on June 23, 1980, and FNBC subsequently marked the note "PAID" and returned it to plaintiffs.

According to FNBC records and statements filed into the record of this case, the floating interest rate on Loan # 1 (FNBC's prime rate plus 1.5%, adjusted monthly) rose above 10% per year for several months during the period. The bank's records and statements also indicate that the floating interest rate on Loan # 2 remained above 10% for the entire period of this second loan, climbing to 18% per year for the final three months of the period. The records and statements indicate that plaintiffs were charged and paid the interest at these rates. FNBC contends, however, that the records do not accurately reflect the true situation.

The bank calculated the interest due on Loan # 1 using the actual/365 or 365/365 (hereinafter 365/365) method. This method calls for dividing the specified annual rate of interest by 365, multiplying the unpaid balance by that figure, and then further multiplying that result by the exact number of days in the month involved.

The bank's records and statements indicate that a different method was used to calculate interest on the second loan, the actual/360 or 365/360 (hereinafter 365/360) method. FNBC again contends that its records are inaccurate on this point. The 365/360 method calls for dividing the specified annual rate of interest by 360, multiplying the unpaid balance by that figure, and then further multiplying that result by the exact number of days in the month involved. Use of the 365/360 method yields 5/360 or 1/72 greater interest than the 365/365 method. In other words, applied to a loan with a nominal rate of 18%, the 365/360 method results in an effective annual rate of 18.25%. See Gulf Federal Savings & Loan Ass'n v. Federal Home Loan Bank Board, No. 78-2549 (5th Cir. Dec. 15, 1980), slip op. at 5, n.1 (unpublished opinion).

Plaintiffs filed this suit in September, 1980. They allege that FNBC charged usurious interest on both Loan # 1 and Loan # 2. According to plaintiffs, the loans were subject to the 10% interest ceiling fixed by LSA-R.S. 9:3503.¹ Loans subject to the LCCL could yield interest up to 18%,² but plaintiffs contend that the agreement to bring these loans under the LCCL was ineffective. If this were true, plaintiffs would be entitled to recover double the $151,687.19 interest paid on the two loans, a total of $303,374.38. See 12 U.S.C. § 86.

In the alternative, if the agreement to contract the loans under the LCCL was valid, plaintiffs argue that Loan # 2 was nevertheless usurious. They contend that defendant used the 365/360 method to calculate interest at 18% during the final three months the loan was outstanding. Because this resulted in an effective rate of 18.25%, plaintiffs believe that this rate exceeded the LCCL's maximum permissible rate of 18% per year. If this were true, plaintiffs would be entitled to recover twice the $107,736.30 in interest paid on Loan # 2, a total of $215,526.60.

We disagree with both of plaintiffs' arguments. We find that neither loan was usurious.

II. THE APPLICABLE LAW

A. Could Defendant Contract Plaintiffs' Loans Under the LCCL?

Under the National Bank Act, defendant may charge interest on loans "at the rate allowed by the laws of the State ... where the bank is located, or at a rate of 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the Federal reserve district where the bank is located. ..." 12 U.S.C. § 85. Neither party has raised the possibility that plaintiffs' loans might be sustained under the second of these alternatives, so we assume this alternative is irrelevant to the present case. Therefore, the interest charged on plaintiffs' loans was usurious if it exceeded the maximum permissible under Louisiana law.

At the time of these loans, LSA-R.S. 9:3503 permitted a maximum interest rate of 10% on loans secured by a written mortgage on immovable property. However, loans subject to the LCCL, under LSA-R.S. 9:3519, could yield up to 18% interest.

Prior to its amendment in 1980, the LCCL provided in pertinent part:

This chapter does not displace legal limitations upon the powers of credit unions, savings banks, savings and loan associations or other thrift institutions whether organized for the profit of shareholders or as mutual organizations, but the parties to a transaction other than a consumer credit transaction, whether any of such parties is such a thrift institution or not, may contract with one another that such transaction shall be subject to the provisions of this chapter, in which event the transaction shall be a consumer credit transaction within the provisions of this chapter.

LSA-R.S. 9:3514 (West.Pamph. 1951 to 1979) (emphasis added).

Before its amendment in 1980, the LCCL provided a definition of "consumer loan" which excluded loans exceeding $25,000. LSA-R.S. 9:3516(13) (West.Pamph. 1951 to 1979). Both loans under consideration exceeded $25,000.

Section 9:3514 clearly allows parties to a non-consumer credit transaction to agree that their transaction "shall be a consumer credit transaction within the provisions of the LCCL." Plaintiffs contend, however, that this language should be interpreted as permitting only parties to a nonconsumer transaction of less than $25,000 to opt into the LCCL. They claim it is "ludicrous" to believe the Louisiana legislature intended to permit loans as large as plaintiffs' to be contracted under the LCCL.

The language of 9:3514 is clear and unambiguous. Under these circumstances, it would be inappropriate for the court to attempt to discern legislative intent. Article 13 of the Louisiana Civil Code mandates: "When a law is clear and free from all ambiguity, the letter of it is not to be disregarded, under the pretext of pursuing its spirit." See Gill Trailer & Equipment Rentals, Inc. v. S. D'Antoni, Inc., 282 So.2d 714, 716 (La.1973), cert. denied, 415 U.S. 957, 94 S.Ct. 1485, 39 L.Ed.2d 572 (1974). If the legislature erred in expressing its intention, it is not the function of the judiciary to correct the error, unless the error creates ambiguity. Rada v. Administrator, Division of Employment Security, 319 S.2d 460, 463 (La.App. 4th Cir.), writ refused, 323 So.2d 128 (La.1975).

Plaintiffs' argument is rather curious in view of the fact that the legislature in 1980 specifically deleted the $25,000 limitation from the definition of "consumer loan." See LSA-R.S. 9:3516(13) (West.Pamph. 1951 to 1980). What is claimed was "ludicrous" in 1972 is now expressly authorized.

Our conclusion that the parties could agree to subject their loans to the LCCL accords with Opinion No. 74-1160 of the Attorney General of the State of Louisiana, dated August 16, 1974. The opinion, authored by First Assistant Attorney General Warren E. Mouledoux, stated that the language of 9:3514 was "clear and explicit."³ The opinion concluded: "a bank and a borrower may legally agree that a loan shall be subject to the Consumer Credit Law, even though it exceeds $25,000.00, and that, accordingly, the bank may then charge interest pursuant to the other provisions of the Consumer Credit Law." While not binding on the judiciary, an opinion of the Attorney General is regarded as persuasive authority by ...