Petition for Writ of Certiorari — Walters v. First Tennessee Bank, N. A.

Supreme Court brief1989

Ask Donna

What actually matters in this document.

Text

In the Supreme Court of the United States

OCTOBER TERM, 1988

WILLIAM S. WALTERS, JR.,

Petitioner,

VS.

FIRST TENNESSEE BANK,

N.A. MEMPHIS,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Larry E. PARRISH, P.C.

LARRY E. PARRISH

The Crescent Center

6075 Poplar Avenue

Suite 400

Memphis, Tennessee 38119

(901) 767-8000

Attorney for Petitioner

January 1989

E. L. MENDENHALL, INc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030

QUESTIONS PRESENTED

Whether Public Law 96-161, December 28, 1979, 93

Stat. 1237-1238, §205 (codified at 12 U.S.C. §86a), 1240

§213; Public Law 98-221, March 31, 1980, 94 Stat. 164,

$512, 168 §529; and Public Law 96-399, October 8, 1980,

94 Stat. 1648 §512 (the latter two being amendments

to the former) violated the Constitution of the United

States, Amendment 5 (for the same reasons Article 1

$10 prohibits state action doing the same), facially and

as applied, as an unlawful impairment of contract.

Whether it is possible for a national bank, by an in-

terest overcharge, to breach a contract to loan money

unless the overcharge is done with requisite knowledge

to constitute a violation of 12 U.S.C. §86 prohibiting

usurious overcharges by national banks.

Whether the requisite knowledge for a national bank

to violate 12 U.S.C. §86 is knowledge specifically pos-

sessed by a specifically identified human agent de-

liberately acting for the national bank designedly over-

charging a borrower or is general knowledge of the

national bank as an entity whereby the entity is charged

with knowledge of its actions irrespective of whether

any agent, individually considered, possessed the knowl-

edge.

Whether a mistake of fact, other than a scrivener’s

error or a mathematical miscalculation, is assertable

by a national bank as a defense to what, otherwise,

would be a usurious overcharge under 12 U.S.C. §86.

Whether the knowledge on the part of a national bank

requisite to a finding that an interest overcharge by

a national bank violates 12 U.S.C. §86 is general knowl-

edge or is specific intent-type knowledge.

Whether the $25,000 charge by respondent collected

from petitioner for 208 days of interest calculated at a

rate in excess of the maximum allowed by the law

of Tennessee was the result of a mistake of law by

respondent.

Whether the inteni required to violate 18 U.S.C. §1341

(mail fraud statute) is a general intent to defraud or

a specific intent to defraud.

III

TABLE OF CONTENTS

ar dei Snsdies a cudicimuhecenasinsensesiosaabaiies 1

Sic act sSbatasanscnsitsniipeobinneutinnnce 1

CONSTITUTIONAL PROVISIONS AND STATUTES

INVOLVED. ............... Rei cock sh minsncprcndtotestniosesnectbhanioin nies 1

iain cactpecesensvesccmessinnsosacosacnabs 2

REASONS FOR GRANTING WRIT _... il

iat can cs sceitenercas ttc enendennacteussevaeceedansencessen 30

APPENDIX (printed under separate cover):

Opinion of the United States Court of Appeals,

Sixth Circuit in Walters v. First Tennessee

Bank, N.A. Memphis, 855 F.2d 267 (6th Cir.

ted laile aedeataniatise cach teneceniemneonpscisinmevenirnmisaecenensne Al

Judgment of United States District Court, West-

ern District of Tennessee, Western Division

SE IE A IED ce cnsneniencenaconcecancescnsuntnaserees A25

Order Directing Entry of Judgment in United

States District Court, Western District of Ten-

nessee, Western Division (Filed August 15,

ii iain siptetpaceninencemngeonioneantonnnns A28

Ruling on Post-Trial Arguments and Motions in

United States District Court, Western District

of Tennessee, Western Division (Filed June 4,

cele gl diretan peck Saatastwenadensnencosnvseiess A3l

Civil Docket Continuation Sheet —.......00 2... A46

ee MS I sence cee A49

Order of United States Court of Appeals, Sixth

Circuit (Filed October 14, 1986) —....000 0... A59

Ee an EE A60

Opening Brief of Appellant, William S. Walters,

Appellant’s Petition to Rehear -......22...22.0.00.2...22.--.

Joint Brief of Appellee, First Tennessee Bank

DUA: SE citntccchucicniniascnbnbisammbadabanaia

Reply Brief of Appellant, William S. Walters, Jr.,

PI. TN | arceccaeeitedsseinionieb bene A115

Constitutional Provisions and Statutes Involved ..A120

Response of Walters to First Tennessee Motion to

Dispose of Pending Motion for Summary Judg-

ment, and to Apply Collateral Estoppel to Usury

Issues in Cause Nos. 82-2391-H and 82-2783-H ..A125

TABLE OF AUTHORITIES

Cases

Alabama Power Company v. McIntosh, 219 Ala. 546,

Be Ge Oe OIE cocttetires erecpetiteedirecreetiertiritoenes

American Medical Association v. United States, 130

F.2d 233 (D.C. Cir. 1942), aff'd, 317 U.S. 519 (1943)

American National Bank And Trust Company of

Chicago v. Haroco, Inc., 473 U.S. 606 (1985) ............

American Socialists Society v. United States, 266 F.

212 (2nd Cir. 1920), cert. denied, 254 U.S. 637 (1920)

Armco Industrial Credit Corporation v. SLT Ware-

house Company, 782 F.2d 475 (5th Cir. 1986) —........

Atlas Realty Corporation v. House, 192 A. 564 (Conn.

BU ehaisiaii: Nias sensninssmeastsdsantbdgtenbin pada daiaedla daha iobainasielponiehe

Baker v. G.C. Services Corp., 677 F.2d 775 (9th Cir.

SII Jialing case babeapigns edad dadalatcell ides eR aeAL as ices

Buford v. American Finance Co., 333 F.Supp. 1243

EINE Cc SEIENNEE © © ssx/soncesens bibnsenainnaiieiibbinibnadtiabasebeaagaaneban

Caldwell & Company v. Lea, 152 Tenn. 48, 272 S.W.

Be etc rienstseniosunscaendacaindapieineatiaaoibatnannensee

Citizens National Bank of Kansas City v. Donnell, 195

7: , Sa Ae NEN ist RMS ENF 18

Continental Baking Company v. United States, 281

ee UII IED sekcicisnisscthscnsenncteiilesbdigabbntparieaabiindnce 25

Cotton v. Commonwealth Loan Co., 190 N.E. 853 (Ind.

BOUND. ; piunivpeipnndbentbadataienenbasasilishssnpaali taint samelieloniudaic 20

Deaver v. United States, 155 F.2d 740 (D.C. Cir. 1946) 29

Dews v. Eastham, 10 Tenn. 463 (1830) 0.000002. 25

Dickey v. Bank of Clarksdale, 184 So. 314 (Miss. 1938) 20

Dollar S. S. Company v. United States, 101 F.2d 638

NU: ne TIO aiticcth kc tecacanaseccineidieaphdbaisdichircidhdidesadibonjaiautelolads 25

Dreyfus Company, Inc. v. Tim Wargo and Sons, Inc.,

Ga Gey ie Ge GAG, SOE chilis 20

Dupree v. Virgil R. Coss Mortgage Co., 267 S.W. 586

Fe ET I CNT OY i EMEC 20

Durland v. United States, 161 U.S. 306 (1896) _........00.... 27

Fisher v. Bethesda Discount Corporation, 157 A.2d 265

ee: TRI TID | eescamnisridecidnicmnaoecticcelanatalanse cadelseipeleee 20

Ford Motor Credit Co. v. Catalini, 383 S.W.2d 99 (Ark.

SENG ‘wscscarhlawarsdeaiidiiincincacucloubassaednadaaeaeadade 20, 21

Gem City Motors, Inc. v. Minton, 109 Ga.App. 842, 137

ep eaeee a epnve nme pane Vinee oo SRR EIOU NEN Tar 24

Grant Brothers Construction Company v. United

States, 13 Ariz. 388, 114 P. 955 (1911), aff’d, 232 US.

eI - anccchnidindschenacelpaaegetieaidiinansedadaaonsbameonta teased 24

Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161

Ce Sew ON ia dcinstenstesttittndicciniecptis amee le aasines 22

Hebron Bank v. Gambrell, 77 So. 148 (Miss. 1918) __..... 20

Holland v. Doan, 307 S.W.2d 538 (Ark. 1957) _.......... 20, 21

Inland Freight Lines v. United States, 191 F.2d 313

(10th Cir. 1951) ........... kdhelincieavspesanrcaleaitnesinemncnniat 23-24

Ives v. W.T. Grant Co., 522 F.2d 749 (2nd Cir. 1975) ... 22

Jefferson Standard Life Ins. Co. v. Davis, 163 So. 506

CR: BED ccsincereistinsneshecintanycenecccsunatnsanstatialsidasstinlecmmbiapion 20

Johnson v. Associates Finance, Inc., 369 F.Supp. 1121

CR, TR, BID G)...sisneccecsteninncnsensasirainseashidntelienssilinhetiibdatienandon 22

Kaufmann v. United States, 282 F.2d 776 (3rd Cir.

1922), cert. denied, 260 U.S. 735 (1922)... 29

Kessing v. National Mortgage Corporation, 180 S.E.2d

GE CEL. BFE). cniswinicericctsanicrensciinetietestinntnonens 20

Lawrence v. Morrison, 9 Tenn. 444 (1830) -.......0......... 25

Lloyd v. Scott, 7 L.Ed. 833 (1830) ........................--ssceee 18, 20

McCollum v. Hamilton National Bank, 303 U.S. 245

CIID axcescsscctnssnssnssiiusaniesnissincietnasessiidentietiitesantbuieibtastliaaiecinia wares 18

McNally v. United States, 483 US. ........ , 107 S.Ct.

Beedoand , PUTTS TEE CORR) Siteinetiinnen I

Mariscal v. United States, 449 U.S. 405, 101 S.Ct. 909,

eR fF ES | en tr ee ee seen 27

Marquette National Bank of Minneapolis v. First

Omaha Service Corporation, 439 U.S. 299 (1978) .... 11

Muir v. Newark Sav. Inst., 16 N.J.Eq. 537 -....................... 20

Nashville Bank v. Hays, 9 Tenn. 243 (1829) ................ 25

Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974) -.......... 22

Paloeian v. Day, 299 Mass. 586, 13 N.E.2d 398 (1938) . 24

Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4

MN REE CRO aiisesccitncctisscccscesnmeniananiatemnestannnin 27

People v. Canadian Fur Trappers Corporation, 248

FT. 200, Tl Fe. Ge CE) aici 24

Pyler v. McGee, 57 S.E. 57 (S.C. 1907) ...............2...------- 20

Ratner v. Chemical Bank New York Trust Co., 329 F.

De. SO (GIA. 2 BOTS) kc ee 22

Rossberg v. Hosesapple, 260 P.2d 563 (Utah 1953) ........ 20

Sarna v. American Bosch Magneto Corp., 290 Mass.

OR, TD FE. BO CAO) assewstiiesincirsictcniata 24

VII

Schreiber Distributing Company v. Serve-Well Furni-

ture Company, 806 F.2d 1393 (9th Cir. 1986) ..........

Shirley v. Shirley, 181 S.W.2d 346 (Tenn. 1944) ........

Slater v. Missouri Edison Company, 245 S.W.2d 457

CIO SUI Ghandi escstceensnuichscninaspsinlasghivabnsininidhisissitemesi

State v. Louisville & Nashville Railroad, 91 Tenn. 445,

Me a Ee) a eR

Teshner v. Roome, 212 P. 473 (Ore. 1923) 2.000.

The Bank of the United States v. Waggener, 9 L.Ed.

ee EE tibkiceiteheninaicasssibieidaninssseshenuistionbiistaleticnababanssdtaciedisdenchina

United States v. American Stevedores, Inc., 310 F.2d

47 (2nd Cir. 1962), cert. denied, 371 U.S. 969 (1963)

United States v. Armour & Company, 168 F.2d 342

CR A I enc oar eee ee Tee

United States v. Austin-Bagley Corp., 31 F.2d 229 (2nd

Cir. 1929), cert. denied, 279 U.S. 863 (1929)

United States v. Baliant, 258 U.S. 250 (1922) 0.0...

United States v. Bibby, 752 F.2d 1116 (6th Cir. 1985)

United States v. Cadillac Overall Supply Company, 568

F.2d 1078 (5th Cir. 1978), cert. denied, 437 U.S. 903

CE | tianlian detaRiihsipaiaadicailibaipehnasaniistllibdisicatainccubic

United States v. Dick, 744 F.2d 546 (7th Cir. 1984) _..

United States v. Dotterweich, 320 U.S. 277 (1943) ........

United States v. Frankel, 721 F.2d 917 (3rd Cir. 1983)

United States v. Freed, 401 U.S. 601 (1971) —...00000......

United States v. General Motors Corporation, 121 F.2d

376 (7th Cir. 1941), cert. denied, 314 U.S. 618 (1941)

United States v. Harry L. Young & Sons, 464 F.2d 1295

CN Sy PEIED . herivecsnsncuintnanninsslinnbitagtnbimtcntamatcbccislanicacals

United States v. Hilton Hotels Corporation, 467 F.2d

1000 (9th Cir. 1972), cert. denied, 409 U.S. 1125

OPED \ cnsienceademsshusinencsenendeeeinnaiediasammbeanaeanneaahinntan

VIII

United States v. Kemmel, 160 F.Supp. 718 (M.D. Penn.

Es sega ciiadndosiatceesektinveemesiiiebecomddenaneieaeheabiesaial

United States v. Lane, 474 U.S. 438, 106 S.Ct. 725, 88

SIE HEUER NEUE. © setnnitncttcinennsccninnindcncveneiincientcianieniniannsiaasi 27, 28

United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38

REALE See on ae a ee eT OE

United States v. Park, 421 U.S. 658 (1975) —.......0.........

United States v. Powell, 513 F.2d 1249 (8th Cir. 1975)

United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9

SR I SEED sesisicindstcnenasiciiibadieneadatieinticninaanidcadelbiietia

United States v. Sawyer Transport, Inc., 337 F.Supp.

29 (D. Minn. 1971), aff’d, 463 F.2d 175 (8th Cir. 1972)

United States v. Stern, 535 F.2d 512 (9th Cir. 1976) ....

United States v. Thaggard, 477 F.2d 626 (5th Cir. 1973)

United States v. Thompson-Powell Drilling Company,

ae Fee. SF (ea. See. Ss) ss .

United States v. T.I.M.E.-D.C., Inc., 381 F.Supp. 730

Ce NK STUER eiscantsetecnctictionsnctsitiincasilinnipscbtincicieiesclialieninniieaabdic

United States v. Wood, 446 F.2d 505 (9th Cir. 1971) ....

United States v. Y. Hata & Company, 535 F.2d 508

(9th Cir. 1976), cert. denied, 429 U.S. 828 (1977) ....

United States v. Young Brothers, 728 F.2d 682 (5th

I TERI saichceecnsnteitpincabineaiaececsiieidlaiiabala a eet ttiiialesanhegtaiarccae

Vee Bee Service Co. v. Household Finance Corpora-

tion, 51 N.Y.S.2d 590 (N.Y. S.Ct. 1944) ~..................

Welmaker v. W.T. Grant Co., 365 F.Supp. 531 (N.D.

I IE i chcheicdetsbclncdbcigeiceaned eoasaibilgpdaleaoms socio benn

Wilcox v. First Interstate Bank of Oregon, N.A., 815

P24 S22 (8th Cir. 1987) -.....-......... sicdcdestaiceortcadiblaghiosdniele

ns eee ema

Constitutional Provisions

Constitution of Tennessee, Article 1 §20 000000000... 1

Constitution of Tennessee, Article 11 §7 000-0000... 1,13

United States Constitution, Article 1 §10 00000000000... 1

United States Constitution, Amendment 5 _.............. l

Statutes

ATELIER SSIES CIE AP ot ayn ee 1, 3, 11, 16

Is ecteeeeadini Aaa 1, 6, 19, 21

I eri cic etecseainanicntsinldaninisiasiuidbndmenocaenaan passim

I secede 22

IRN aa te Pe AOS RE 2

Oe alain ic lasebhidaledcnaicuann 2

I i el 2

op eee ns Oe OO) i a 3

a a Sniclssinaebloaenodabinbiesaaite 3

a SEEN ed eR ee al Riv OLED 1

Public Law 96-161, December 28, 1979, 93 Stat. 1240

ERR T noe RSPAS OR eee NO aC PI CT TLE LOO eT TD 2,3

Public Law 96-221, March 31, 1980, 94 Stat. 164 §512.... 2

Public Law 96-221, March 31, 1980, 94 Stat. 168 §529... 2

Public Law 96-399, October 8, 1980, 94 Stat. 1648 §512 2

Tennessee Code Annotated §47-14-103(2) (1979) _...... 1,3

Other Authorities

eee eee 25

47 C.J.S., Interest and Usury, §120 p. 223 _.......... 20

CO, Be Oe CS Fore. FOR oR SARA 20

125 Cong. Rec. 29,911, 30,610, 31-309-31,310, 31,320-

I Taieidicchi collsuicocattonnensasndiccsctedgnancésoninaciihetabiacesneisee 12

—E

-iiiiibieeineasasiiiiimmsiaiaiisasiaaiaiuieniiiieaaieiiass

125 Cong. Rec. 35,267-35,268, 36,394-36,397, 36,404-

36,405, 36,613-36,616, 36,903-36,906 —....................2....- 12

126 Cong. Rec. 6,965-6,984, 7,062-7,074 (1980) —.............. 12

126 Cong. Rec. 16,112, 22,668 (1980) ...................-.-..-....--- 12

Consumer Usury and Credit Overcharges, (National

Consumer Law Center) §2.2.6 pp. 10-11 -................... 20

Hurson, Limiting the Federal Mail Fraud Statute - A

Legislative Approach, 20 Am.Crim.L.Rev. 423 (1983) 28

Rakoff, The Federal Mail Fraud Statute (Part 1), 18

i Fae: Gt __| penieeerrnencu ere nn ean ven Enron eNoren 28

S. Rep. No. 96-368, 96th Cong., reprinted in 1980 U.S.

Code Cong. & Admin. News 236 ...................2.-2.2:220----- 11, 12

S. Rep. No. 96-423, 96th Cong., reprinted in 1980 U.S.

Code Cong. & Admin. News 2584 .............-..-.----...- 12

S. Rep. No. 96-736, 96th Cong., reprinted in 1980 U.S.

Code Cong. & Admin. News 3506 ...................2.-2---------- 12

14 Williston, Contracts (1972 Ed.) §698 pp. 795-801 .... 20

William S. Walters, Jr. petitions for a writ of certio-

rari to review the judgment of the United States Court

of Appeals for the Sixth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. Al-24) is

reported at 855 F.2d 267. The opinion (App. A31-45)

of the district court is not reported.

JURISDICTION

The judgment of the court of appeals (App. A1-24)

was entered on August 16, 1988. A petition for rehearing

by the court of appeals was denied on October 14, 1988

(App. A59). The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1).

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

1. The United States Constitution, Article 1 §10, in per-

tinent part, provides: (See Appendix)

2. The Constitution of Tennessee, Article 1 §20, in per-

tinent part, provides: (See Appendix)

3. The United States Constitution. Amendment 5, in

pertinent part, provides: (See Appendix)

4. The Constitution of Tennessee, Article 11 §7, in per-

tinent part, provides: (See Appendix)

5. Tennessee Code Annotated §47-14-103(2) (1979)

provides: (See Appendix)

6. In pertinent part, 12 U.S.C. §85 provides: (See Ap-

pendix)

7. In pertinent part, 12 U.S.C. §86 provides: (See Ap-

pendix)

8. In pertinent part, 12 U.S.C. §86a provides: (See Ap-

pendix)

9. In pertinent part, Public Law 96-161, December 28,

1979, 93 Stat. 1240 §213 provides: (See Appendix)

10. In pertinent part, Public Law 96-221, March 31, 1980,

94 Stat. 164 §512 provides: (See Appendix)

11. In pertinent part, Public Law 96-221, March 31, 1980,

94 Stat. 168 §529 provides: (See Appendix)

12. In pertinent part, Public Law 96-399, October 8, 1980,

94 Stat. 1648 §512 provides: (See Appendix)

13. In pertinent part, 18 U.S.C. §1341 (1976) provides:

(See Appendix)

14. In pertinent part, 18 U.S.C. §1961 provides: (See

Appendix)

15. In pertinent part, 18 U.S.C. §1962 provides: (See

Appendix)

STATEMENT

On May 3, 1979, petitioner, an individual, made a

$475,000 business loan from respondent, a national bank

(App. A4). The contract governing the loan terms was

evidenced by a written promissory note (App. A115).

After receiving the recapitulation from respondent as

requested, on May 28, 1982, petitioner filed his complaint

because of the alleged overcharging of interest (App.

A72). A declaratory judgment was requested to adjudge

what the term “prime rate,’ used in the loan contract,

meant. Additionally, petitioner alleged that respondent

was liable for common law misrepresentation with re-

spect to what the base interest rate used to calculate

and charge petitioner interest was, and claimed that re-

spondent (1) breached the loan contract by overcharging

contractually agreed interest; (2) breached the confiden-

tial relationship between petitioner and respondent in

that petitioner vested confidence in respondent to cal-

culate the correct amount of interest using correct in-

formation known only (App. A72) to respondent. Peti-

tioner, additionally, charged respondent with violation of

18 U.S.C. §1962(a) and (c) and sought relief under 18

U.S.C. §1964(c) alleging “prime rate fraud” familiar to

the Court from American National Bank And Trust Com-

pany of Chicago v. Haroco, Inc., 473 U.S. 606 (1985).

The allegation is that respondent designedly set about

to overcharge interest to its prime-plus business borrowers.

The district court directed a verdict with respect to peti-

tioner’s breach of contract and breach of confidential re-

lationship claims without specification as to what prompted

the directed verdict (App. A34-35).

The district court directed a verdict against petitioner

dismissing the common law misrepresentation (App. A82-

83) claim and the prime rate fraud claim.

The rulings of the district court with respect to the

usury claims require a bit more explanation. The se-

quence of events, with special emphasis on the days and

the years of those events, complicate the usury situation.

It is important to note that there is no factual dispute

with respect to how much interest was charged and col-

lected nor that the amount of interest collected, in toto,

exceeded the total amount of interest permitted by govern-

ing law, irrespective of various amendments to the law

which interceded at various times.

The subject loan was made on May 3, 1979. The gov-

erning law with respect to the maximum amount of

interest chargeable was that codified in TCA §47-14-103

(2) (1979) and 12 U.S.C. §85. The contract which fixed

the terms of the loan explicitly incorporated these statu-

tory provisions (infra p. 9).

Under the governing statutes on May 3, 1979, it is un-

disputed that there existed no law nor facts which would

permit respondent to charge or collect from petitioner in-

terest at a rate greater than 18%. Further, it is undis-

puted that there were gaps of time during which the

maximum amount which respondent could charge was less

than 18%. Finally, it is undisputed that there were 37

days between May 1980 and October 1980 on which re-

spondent collected from petitioner interest at a rate

greater than the maximum permissible under the indis-

putably governing law.

On December 28, 1979 (almost 8 months after

petitioner’s loan was made, Congress enacted 12 U.S.C.

§86a. In short, this statute, for loans like the subject |

loan, preempted certain (but did not preempt other) state

laws fixing usury ceilings for national banks. Section 213

of §86a has never been codified but explicitly postponed

the applicability of §86a in states, such as Tennessee (App.

A64-65), which had constitutional provisions regarding

maximum interest rates, until July 1, 1981.

However, on March 31, 1980 (App. A65) and October

8, 1980 (App. A66), Congress amended 12 U.S.C. §86a, and

these amendments are the basis for a dispute between

petitioner and respondent with respect to how, if at all,

respondent (1) was relieved from the loan contract and,

if relieved (2) could constitutionally charge more interest

than the contract, standing alone, would have allowed

(App. A78, A97-104). This dispute exists based on undis-

puted facts (App. A69-70) and is a pure law question.

The critical importance of the question at hand, like-

wise, proceeds without factual dispute (App. A69-70).

That is, indisputably, between December 1980 and mid-

November 1981 respondent collected approximately $25,-

000 in interest over and above the amount which could

have been collected unless the amendments to §86a passed

by Congress on March 31, 1980 and October 8, 1980 per-

mitted respondent to collect more interest than could be

collected at the rate of 18%. The decision of respondent

to exact interest at a rate in excess of 18%, indisputably

(App. A98-104), was based on an interpretation of law

by respondent’s counsel. There exists no dispute (App.

A69-70) that, if respondent’s interpretation of the law was

a mistake, interest collected over 18% constituted inde-

fensible usury.

The action (App. A32-45) of the district court relative

to the usury claims is now in context. Petitioner claimed

that, if the March 31, 1980 and October 8, 1980 amend-

ments to §86a were applicable to the loan (which pre-

dated §86a) so as to allow respondent to deviate from the

loan contract, the March 31 and October 8, 1980 amend-

ments were unconstitutional impairments of contract.

The district court first ruled (App. A50-51) that the

§86a amendments did not apply to the interest charges

in question; therefore, the interest ceiling was 18%. Based

on this ruling, it became indisputable that the 208 days

from December 1980 through November 1981 on which

respondent collected interest in excess of 18% amounted

to usury. However, on reconsideration, the district court

reversed itself (App. A73) and, with no discussion, dis-

missed (App. A78) petitioner’s claim that, if applied to

the subject loan, §86a would amount to an unconstitutional

impairment of contract.

With respect to the undisputed overcharges on the

32 days between May and October 1980, the district court

found that there was a factual dispute with regard to

whether those overcharges were “knowingly” exacted.

If “knowingly” collected, the overcharges were violations

of indisputably controlling law, ie., §86 (this was pre-

§86a), and, as such, usurious.

The jury was instructed with respect to the word

“knowingly” (App. A46-48, A57-58). The instruction is

consistent with knowledge required on the part of one

acting with a general (as opposed to a specific) intent to

do that which was done. The jury returned a verdict

finding that respondent overcharged with requisite knowl-

edge dictating liability for usury (App. A48).

Eighteen months after the jury’s verdict that respon-

dent acted with requisite knowledge, the district court

ruled (App. A32-45), germane to the instant petition,

reversing the jury’s verdict and granting a JNOV (App.

A25-26). The district court premised its reversal on:

(1) that, effectually, petitioner had the burden of proving

by a preponderance of the evidence the negative that

the admitted overcharges were not a result of a mistake

of fact and (2) petitioner did not refute the testimony

of the executive of respondent that the overcharges were

mistakes of fact and, therefore, failed to carry his burden

to prove that the overcharges were “knowingly” made.’

The court of appeals affirmed the district court (App.

A1-24). Isolating the language from the published opinion

of the court of appeals which has bearing on this petition,

the Court’s attention is drawn to certain determinative

language:

1. Respondent had argued before the jury and in post-

trial motions what became known as its “undercharge” theory.

Essentially, respondent claimed that it had undercharged peti-

tioner during the same period when it had overcharged petitioner.

This was advocated to be evidence of mistake and was pre-

sented to the jury for its consideration in determining whether

respondent had “knowingly” overcharged. In its memorandum

opinion (App. A32-45), the district court ruled that the under-

charge theory of defense was legally impermissible. Respon-

dent did not appeal nor cross-appeal from any aspect of the

ruling of the district court, including the district court’s determi-

nation that the undercharge theory of defense could not be made.

[W]alters failed to prove that the excess interest

charge was knowingly charged. The only testimony

on the issue was from the Bank’s witness, . . . who

admitted two periods of overcharges, but who tes-

tified that they . . . were inadvertent errors due to

manual programming oversights. Walters presented

no contradictory evidence tending to show that the

overcharges were anything but the result of negligence

(App. A8; see also A75).... [i]mplicit in this stan-

dard is that an honest mistake of fact, e.g., a mistake

in computation, is not usurious (App. Al2).

[Walters presented no evidence of intent. The only

evidence .. . was provided by the affidavit . . ., sub-

mitted to support the Bank’s motion for summary

judgment. In that affidavit, Mr. Dudley thoroughly

and concisely explained how the overcharges and

undercharges occurred. * * * [Djudley attributed

the errors solely to negligence and inadvertence (App.

Al2).

In response, Walters presented no evidence tending

to show that the Bank acted other than negligently

or by mistake (App. Al3). (emphasis added)

s * *

[djistrict court properly rejected the jury’s verdict

for Walters and entered judgment NOV. The only

testimony at the trial regarding the Bank’s overcharge

was that of Mr. Dudley. * * * [t]his evidence...

at most established negligence on the part of the

Bank, Walters presented no contradictory testimony

or evidence. * * * However, this argument only

permits one to conclude that the Bank was negligent.

Viewing the case in a light most favorable to Walters,

and drawing all reasonable inferences in his favor,

there simply was an absence of proof of knowing

conduct by the Bank, an essential of usury under

12 U.S.C. §86 which Walters had the burden of

proving ‘convincingly.’ (App. A23).

On the prime rate fraud question, the court of ap-

peals stated:

In order to state of valid RICO claim, a plaintiff must

prove that the defendant committed an illegal pred-

icate act. See 18 U.S.C. $1962. Walters relied on

the federal mail fraud statute,.... [A]s stated by

this court in Bender v. Southland Corp., 749 F.2d

1205 (6th Cir. 1984):

[T]he crime of mail fraud has two elements: a

scheme or artifice to defraud and a mailing for

the purpose of executing the scheme. * * * This

court has held that the scheme to defraud must

involve:

[I|ntentional fraud, consisting in deception

intentionally practiced to induce another to

part with property or to surrender some

legal right, and which accomplishes the end

designed. [A scheme to defraud] requires

intent to deceive or defraud. (citations omit-

ted) This court has also held that the

scheme to defraud must involve ‘misrepre-

sentations or omissions reasonably calculated

to deceive persons of ordinary prudence and

comprehension.’ (citations omitted)

There was no evidence that the Bank published a

false rate. * * * Finally, there was no evidence that

the Bank ever represented that the prime rate would

be the lowest rate... . [t]here simply was an absence

of proof of an intent to defraud, deception, or mis-

representations or omissions reasonably calculated to

deceive Walters as required for mail fraud (App.

Al4-17).

With respect to the breach of contract claim, i.e., that

the overcharging of interest by respondent, if not usurious,

was a breach of the loan contract, was addressed as fol-

lows:

Walters also advanced the argument that even if the

collection of interest in certain instances was not

usurious, it nonetheless breached the contract because

the maximum interest rate under his promissory note

was limited by the usury laws in force as of May 3,

1979, the date he obtained the $475,000 loan and not

as of the date the interest was collected. The plain

language of the note is contrary to Walters’ interpre-

tation:

[p]rovided, always, however, that notwithstand-

ing any changes in said prime rate, the rate of

interest hereon prior to maturity shall never

be more than the maximum lawful contract

rate which a national bank, having its principal

place of business in the State of Tennessee, may

lawfully charge from time to time . . . [a]nd,

accordingly, in no event and upon no contingency

shall the bank ever be entitled to receive, collect

or apply as interest any interest ... in excess of

the maximum contract rate which may, from

time to time, be lawfully charged to the maker

hereof under the applicable law by a national

. bank having its principal place of business in

the State of Tennessee. (emphasis theirs).

Clearly, the Bank was not limited by the maximum

rate in effect on the day of signing, but could charge

interest limited by the rate ceiling and usury laws in

effect as they changed from ‘time to time.’ (App.

A18-21).

With respect to whether §86a and its amendments, if

applied to the subject loan, amounted to an unconstitu-

tional impairment of contract, the court of appeals stated:

5 _. ; [I]nsofar as Walters argues that this federal

legislation, which preempted state usury ceilings and

granted interest rate relief to banks during and after

1980, constitutes an unconstitutional impairment of

the contract, we note that no court has ever declared

these statutes unconstitutional. Moreover, the con-

tract Walters signed expressly contemplated that the

interest rate charged and allowed by law would or

could fluctuate from ‘time to time,’ which negates his

contention that the rate in effect on the date of sign-

ing of the contract was the maximum rate that could

ever be charged (App. A22).

With respect to whether §86a and its amendments

were even applicable to the subject loan, the court of ap-

peals refused to review the contention with the following

(factually erroneous) words:

5 Walters superficially challenges the district court’s

construction of Pub. L. No. 96-221 and Pub. L. No.

96-399 in its appellate brief by simply referencing its

trial memorandum (App. A21-22).

In the petition to rehear before the court of appeals,

petitioner detailed how and why an observation that the

challenge of petitioner was “superficially” made was

incorrect and that everything petitioner wished to be

considered, in fact, appeared in the four corners of

petitioner’s reply brief (App. A105-111). In short, peti-

tioner, in its opening brief, did nothing more than draw

attention to the fact that petitioner did not concede, in

the district court, that the subject statutes were appli-

cable but contended (App. A74) to the contrary and

made his position known to the district court in writing.

However, in respondent’s answering brief, respondent de-

voted ten pages (App. A96-104) in an effort to convince

the court that the subject statutes were applicable and

governed, essentially attempting to refute any mistake

of law contention.

REASONS FOR GRANTING WRIT

It is notable that this Court, since 1959, has ad-

dressed the subject of the federal usury law only once

and, then, only restated that the usury ceiling for na-

tional banks is that of the state in which the bank is

“located.” However, the specific question at hand in that

case was one not pertinent to the instant inquiry, i.e.,

what the word “located,” used in 12 U.S.C. §85 means.

Marquette National Bank of Minneapolis v. First Omaha

Service Corporation, 439 U.S. 299 (1978). There remain

questions with respect to federal usury laws which are

of universal impact on the economy. These questions in-

volve billions upon billions of dollars of transferred gross

national product on an annual basis.

In 1979, the Nation was faced with what was stated

to be an economic crisis directly related to the inter-

relationship between interest rates and inflation. The

banking community brought to bear all of the clout it

could muster on Congress demanding excusal from usury

laws. The result was the enactment of 12 U.S.C. §86a

by which Congress, carte blanche, zapped out of exis-

tence state statutes and constitutional provisions relating

to usury ceilings.

The legislative history (S. Rep. No. 96-368, 96th

Cong., reprinted in 1980 U.S. Code Cong. & Admin. News

236; 125 Cong. Rec. 29,911, 30,610, 31,309-31,310, 31,320-

31,327 (1979); 126 Cong. Rec. 6,965-6,984, 7,062-7,074

(1980); S. Rep. No. 96-736, 96th Cong., reprinted in 1980

U.S. Code Cong. & Admin. News 3506; 126 Cong. Rec.

16,112, 22,668 (1980); S. Rep. No. 96-423, 96th Cong.,

reprinted in 1980 U.S. Code Cong. & Admin. News 2584;

125 Cong. Rec. 35,267-35,268, 36,394-36,397, 36,404-36,405,

36,613-36,616, 36,903-36,906) of §86a reveals a situation

where Congress acted at almost a panic pace. What is

particularly revealing is that even Congress expressed

serious doubt with respect to the constitutionality of §86a

and its amendments but passed it anyway. Presumably,

the thought was that, if the laws are unconstitutional,

the courts will swiftly react, and Congress can adjust

accordingly. As it turned out, there is no evidence that

any court ever reviewed or passed on the constitutionality

of §86a or its amendments. When the court of appeals

below noted that no court had ever declared the statutes

to be unconstitutional, it failed to mention that there is

no evidence that any court ever even considered the ques-

tion.

The areas of constitutional concern to Congress were

of no small moment. The first (and most talked about)

involved whether it was within the power of Congress

to so summarily reduce to nothingness state laws and

state constitutional provisions. The less talked about but

equally pressing question involved what right Congress

had to so summarily reduce to nothingness valid and |

existing contracts between borrowers and lenders.

When Congress passed §86a, it showed special defer-

ence to state constitutional provisions by postponing the

applicability of the preemption legislation in states where

constitutional provisions governed interest rate ceilings

(App. A62-63). Also, as initially enacted, §86a preempted

state statutes only prospectively and, thereby, avoided

the impairment of contract problems (id.). However, in

March and October 1980, Congress enacted amendments

to retrospectively apply §86a to loans initially made prior

to its passage.

The claim of petitioner that the amendments to §86a

were not applicable to the subject loan rests solely on

the fact that respondent is located in Tennessee, and

Tennessee was/is a state where the maximum rate of

interest is controlled by a constitutional provision. Ten-

nessee Constitution, Article 11 $7. Because loans made

by national banks located in such states were treated

differently from loans in states where no such constitu-

tional provisions existed, petitioner has always contended

(App. A89-93) that proper interpretation of the amend-

ments to §86a exclude the subject loan.

If petitioner is correct, there exists no further ques-

tion with respect to the $25,000 interest charge over and

above what otherwise concededly would have been the

usury ceiling. The district court first ruled with peti-

tioner and then against petitioner on the statutory inter-

pretation question, and the court of appeals simply re-

fused to address the subject. There is no precedent.

The thought that, since the questioned legislation has

expired itself out of existence, there could be no question

of sufficient magnitude to require this Court’s attention

dissipates under examination. There is no assurance that

the economy will not, again, be visited by the economic

terrors of inflation with another interest rate “crisis.” In

fact, the fear is ever-present and based on reality. There

is hardly doubt that Congress will be pressured, someday,

by the banking industry for repeal of usury ceilings. Con-

sidering the options available to Congress in the next

“crisis,” the natural inclination will be to use the unre-

viewed statutes represented by §86a and its amendments.

Though Congress recognized that §86a, as amended, was

constitutionally dubious, it has survived to now without

judicial review.

Upon passage of §86a and its amendments, untold bil-

lions of dollars were forcefully transferred from the Na-

tion’s business and agricultural borrowers to the Nation’s

business and agricultural lenders.

Arguably, the reason for no judicial review of legis-

lation like §86a and its amendments is that the most di-

rectly and negatively impacted part of society is the small

business borrower, and he is the most directly dependent

on banking relationships for survival. Therefore, as long

as such a borrower continues to exist, particularly in a

tenuous economy, legal action against his lender is out of

the question. Additionally, the small business borrower

who is economically crushed is in no condition to seek

relief against his lender and, as far as there ever being a

future for such a small business borrower, he tends to

fear, with reason, that an action against his lender would

make impossible any opportunity to establish an essential

line of credit necessary to re-establish a new business in

better times. Because of these practicalities, the system for

judicial review of constitutionally infirm legislation such

as $86a experiences break down.

The likelihood that there is (or ever again will be)

in the judicial review pipeline, at this stage, any case other

than the present one which would present this Court with

opportunity to review the constitutional soundness of §86a

and its amendments, as an obvious matter of practicality,

is remote. Yet, whether or not §86a and its amendments

stand as constitutionally permissible solutions to an inter-

est rate “crisis” or not is a question which has immense

ramifications of present extreme importance. -

For example, the lurking possibility that a business

borrower might again face a statute like §86a and its

amendments is of considerable importance in a small busi-

ness borrower’s present decision with respect to how much

to borrow and under what terms and conditions. Like-

wise, knowledge on the part of business borrowers and

business lenders today that the solution evidenced by §86a

and its amendments cannot be re-effectuated because of

constitutional provisions can markedly shape present lend-

ing practices.

Perhaps of even more importance, however, is the

entitlement of the general public which must exist in the

context of prevailing economic conditions to have Con-

gress rightly informed by this Court the next time it faces

the necessity to address an interest rate “crisis.’’

There is a uniqueness about this opportunity to re-

view which makes it particularly appropriate as the

vehicle by which this Court should speak. That is, stat-

utes of limitation have run on any similar claims which,

perhaps, could have been made in years passed. There-

fore, were this Court to rule that §86a and/or its amend-

ments failed to meet constitutional standards, the salutary

effects (no matter which way this Court ruled) of such

a ruling could be felt prospectively without disruption of

existing contracts.

The court of appeals latched onto the “from time to

time” language in the loan contract as its basis for holding

that petitioner agreed that the maximum chargeable in-

terest was the maximum the law allowed, on the date

of collection rather than the date on the contract. This

reasoning supports the conclusion that, even if §86a and

its amendments created an unconstitutional impairment

of some contracts, it did not impair the subject contract.

Respectfully, this reasoning errs in that it lifts lan-

guage out of context and gives it a meaning which,

when read in context, has a materially different meaning.

The loan contract explicitly incorporates, by reference, 12

U.S.C. §85 (pre-amendment) and the Tennessee statute

which §85 adopts, by reference, creating an 18% usury

ceiling. All §85 does is state that the maximum amount

chargeable is the maximum allowable under the Tennessee

law.

By this language, petitioner contracted, on May 3,

1979, that respondent would never charge a rate in excess

of the usury ceiling fixed by Tennessee. But, Tennessee

law never changed; thus, there never existed a time when,

according to the loan contract, respondent could charge

petitioner more than 18%.

While the language might have anticipated some

change in the maximum allowable rate, it was a change

in Tennessee law enacted by the Tennessee General As-

sembly. It defies all reason to suggest that petitioner,

on May 3, 1979, agreed that, if federal law intervened

to obliterate the Tennessee law, petitioner would, then,

be contractually bound by whatever Congress might enact.

Further attention to the context of the “from time to

time” language yields an even more plausible meaning.

That language appears in that part of the contract known

as the self-protection clause by which respondent seeks

to protect itself from ever being considered to have in-

tended to enter into a usurious contract. The object of

the language is to give respondent an out if it collects

more interest than the law permits. Respondent protects

itself by contracting, in advance, that it never intends, in

the future, to collect more than the law might allow “from

time to time” and that, if respondent does collect more,

it can contractually substantiate an argument that, in so

doing, it did not intend so to do. The district court ruled

that the self-protection language was unenforceable (App.

A41-44). From this ruling, respondent neither appealed

nor cross-appealed.

A somewhat subtle yet, upon study, clearly discernible

ruling of the court of appeals constitutes law previously un-

known to American jurisprudence and which upsets law

at its most fundamental level. This ruling involves the

32 days of overcharges which the jury determined to have

been knowingly exacted. That these were collections at

a rate greater than permitted by governing law was ad-

mitted and is uncontestable. While the court of appeals

affirmed the district court in overruling the jury’s verdict

that these charges were “knowingly” exacted, the court of

appeals repeatedly stated that the overcharges were the

result of respondent’s negligence (supra p. 7).

There could hardly be any more sure violation of the

terms of the loan contract than for respondent to coilect

an amount greater than respondent explicitly promised

(App. A115) it would collect based on information known

only to respondent (App. A72). There is no dispute that

respondent did just that. This overcharge is a classic

breach of contract, and nothing more need be asked.

Whether the overcharge was “knowingly” or inad-

vertently done could hardly be less material to whether

there had been a pure and simple breach of the contract.

The court of appeals repeatedly stated that the overcharge

was the result of negligence. To negligently breach a

contract certainly must be more egregious than to non-

negligently breach a contract.

Without authority, the court of appeals ruled that the

only way a national bank can be liable for breach of a loan

contract, by overcharging interest, is to be guilty of “know-

ingly” overcharging. The court of appeals has ruled that

national banks are excused from the common law remedy

of breach of contract, if the contract is a loan agreement

and the breach is accomplished by collecting more interest

than the national bank promised it would collect.

While a breach of contract by a lender overcharging

interest does not yield to the borrower the statutory

penalties for a usurious overcharge, damages as well as

contract termination remedies afforded by the common

law for breach of contract are of no small importance.

However, by the ruling of the court of appeals, national

banks are given license to overcharge interest in viola-

tion of a loan contract without being responsible for

damages and without jeopardizing continuation of the

loan contract so long as the lender can produce a witness

to say that the overcharging, though it may have been

repeated on more than thirty different occasions, was

merely the product of negligence.

Though this Court has stated in dictum, which has

become accepted as law, that interest overcharges because

of the bank’s erroneous, albeit good faith and plausible,

interpretation of the law [as is equally true in other areas

of the law: United States v. Powell, 513 F.2d 1249,

1251 (8th Cir. 1975); United States v. Wood, 446 F.2d

505, 507 (9th Cir. 1971); United States v. Thaggard, 477

F.2d 626, 631-632 (5th Cir. 1973)] will not excuse resul-

tant usury [The Bank of the United States v. Waggener,

9 L.Ed. 163 (1835); Lloyd v. Scott, 7 L.Ed. 833 (1830),

both of which are cases to determine whether the trans-

actions were or were not “loans”’] and although this

Court has ruled that it is impossible for an overcharge

of interest to be excused as de minimis non curat

lex [Citizens National Bank of Kansas City v. Don-

nell, 195 U.S. 369 (1904) where $14.51 was overcharged

on a $20,000 loan; see also McCollum v. Hamilton Na-

tional Bank, 303 U.S. 245, 247 (1938)] and although this

Court has recognized the statutory provision that an in-

terest overcharge must be “knowingly” exacted in order

for usury to exist, this Court has never explicitly ruled

with respect to the quality of the required knowledge.

It would seem that the explicit holding of this Court

in Lloyd v. Scott, supra, that usury is a malum prohib-

itum act would leave beyond further inquiry whether

the knowledge required was of a general or a specific

kind [United States v. Freed, 401 U.S. 601, 607 (1971);

United States v. Dotterweich, 320 U.S. 277 (1943); United

States v. Baliant, 258 U.S. 250 (1922); United States v.

Park, 421 U.S. 658, 668-674 (1975)] the courts below ap-

parently overlooked the implication.

The knowledge requirement utilized below imposes

a standard which makes it necessary to find that, not

only did respondent do what it did knowing that it had

done it, but for the lender to additionally know that doing

what it knew it had done was usurious. This approach

to the knowledge requirement of §86 reduces to mean-

inglessness the pronouncements by this Court explicitly

holding that usury is a malum prohibitum act and that

the usury risks of the consequences of conduct knowingly

engaged in by the lender remain squarely with the lender.

The law concededly recognizes an honest mistake of

fact as negation of requisite knowledge to violate §86.

But, the law has been extremely careful to circumscribe

what constitutes an “honest mistake of fact” because to

allow the mistake of fact defense to become a catch-all

would reduce to effective nothingness the exceedingly

important precept that usury is a malum prohibitum act.

If unguarded, the “honest mistake of fact” defense, though

traveling under a different name, becomes, in esse, the

fast track to a specific intent requirement which converts

usury from a malum prohibitum act to a malum in se act.

A leap of this magnitude completely flips all established

law, and the order of things protected by it, on its head.*

As indicated by the authorities in footnote 2, the

honest mistake of fact which the law has taken pains

to avoid expanding is of two kinds which have been

dubbed as (1) a scrivener’s error and (2) a mistake in

computation. The scrivener’s error is one where correct

information is known and intended to be recorded but,

without any knowledge of having so done, incorrect in-

formation is recorded and, because of the incorrect infor-

mation, more is charged than was intended to be charged.

The computation error is one where, intending so to do,

the right numbers are recorded but, without any knowl-

edge that such has been done, the wrong total, product

or quotient is calculated, e.g., a “2” is rightly recorded

to be added to a “3” which has been rightly recorded

but, without the knowledge of the lender, the rightly

2. The following is a list of citations, from among hun-

dreds available, selected because of the discussion in each articu-

lating clearly each aspect of the general law on the subject:

Consumer Usury and Credit Overcharges, (National Con-

sumer Law Center) §2.2.6 pp. 10-11; 47 C.J.S., Interest and

Usury, §120, p. 223; 14 Williston, Contracts (1972 Ed.) §698

pp. 795-801; Comyn, Law of Usury p. 7; Dickey v. Bank of

Clarksdale, 184 So. 314, 317 (Miss. 1938); Vee Bee Service

Co. v. Household Finance Corporation, 51 N.Y.S.2d 590, 611

(N.Y. S.Ct. 1944); Muir v. Newark Sav. Inst., 16 N.J.Eq.

537, 539; Ford Motor Credit Co. v. Catalini, 383 S.W.2d 99,

101 (Ark. 1964); Holland v. Doan, 307 S.W.2d 538, 540 (Ark.

1957); Jefferson Standard Life Ins. Co. v. Davis, 163 So.

506, 507 (Miss. 1935); Hebron Bank v. Gambrell, 77 So. 148,

149 (Miss. 1918); Atlas Realty Corporation v. House, 192 A.

564 (Conn. 1937); Fisher v. Bethesda Discount Corporation,

157 A.2d 265, 269 (Md. App. 1960); Cotton v. Common-

wealth Loan Co., 190 N.E. 853, 856 (Ind. 1934); Pyler v.

McGee, 57 S.E. 57, 58 (S.C. 1907); Rossberg v. Hosesapple,

260 P.2d 563, 566 (Utah 1953); Lloyd v. Scott, 7 L.Ed. 833,

839 (1830); Dupree v. Virgil R. Coss Mortgage Co., 267 S.W.

586, 589 (Ark. 1925); Kessing v. National Mortgage Cor-

poration, 180 S.E.2d 823, 827-828 (N.C. 1971); Dreyfus Com-

pany, Inc. v. Tim Wargo and Sons, Inc., 668 S.W.2d 957

(Ark. 1984); Teshner v. Roome, 212 P. 473, 475 (Ore. 1923).

recorded numbers are totalled to be “6.” No other types

of mistake have ever been recognized as sufficient to

negate a finding of requisite knowledge. The most pro-

bative evidence that an overcharge is not a mistake has

been held to be failure to make a correction when the

overcharge is brought to the lender’s attention (App. A79-

80). Holland v. Doan, 307 S.W.2d 538 (Ark. 1957).

Perhaps the most illustrative clarification of the dif-

ferentiation can be found in Ford Motor Credit Company

v. Catalini, 383 S.W.2d 99, 100-101 (Ark. 1964). There,

the responsible employee added the figures put down but

claimed mistake of fact because he inadvertently selected

the wrong chart from which to obtain the numbers written

down. It was not contested that the clerk intended to use

the right chart or that the mistake in selecting the wrong

chart was not one made in good faith. The court found

that the mistake in that case was not a mistake of the

kind required in order to excuse the overcharge from

classification as usury and discussed what it takes to be

an excusing mistake.

The reason underlying the ruling in Catalini is that

the numbers intended to be written down were knowingly

written down (i.e., there was no scrivener’s error) and,

once written down, the numbers were correctly combined

and, accordingly, the right mathematical result was

reached using numbers knowingly intended to be used in

calculating (i.e., there was no mathematical calculation

error). The type of errors claimed by the lender and

rejected by the court in Catalini as insufficient to excuse

a finding of usury are precisely the kind of errors accepted

by the courts below as sufficient to excuse a finding of the

requisite knowledge to violate §86.

The policy implications of the rulings of the courts

below are quite significant. In short, the rulings shift to

the borrower all of the risk of being overcharged interest

because the lender has chosen to operate understaffed,

with incompetent employees, with inadequate equipment

or with outdated systems relative to the workload de-

mands. There is a very real sense in which, under the

precedent set by the rulings below, a borrower, before

being able to make an intelligent borrowing decision, must

be fully advised of not just what the lender charges as

interest but of the competence of the lender’s personnel

and adequacy of the lender’s systems.

This is of critical importance in modern times when

business borrowing customarily is by use of a fluctuating

interest rate which varies according to a standard (e.g.,

the prime rate of the lender) which is known only (App.

A72) to the lender. If the ruling of the courts below is

acceptable precedent, courts will be required to re-eval-

uate rulings explaining the statutory provisions in the

Truth-In-Lending Act [15 U.S.C. §1601 et seq.], where the

lender/seller retains full responsibility for mistakes sim-

ilar to those held below to excuse overcharged interest.*

The rationale in those cases could hardly be more ap-

plicable to the present subject. From a societal stand-

point, it would be unwise to remove the pressure of pres-

ent law which forces national banks to be efficient or fail

so to do at their own risk which the law will not permit

to be shifted to a helpless small business borrower.

Another error in the ruling below has major society-

wide impact, reversing all known law on the subject and

3. Ratner v. Chemical Bank New York Trust Co., 329 F.

Supp. 270, 279-282 (S.D.N.Y. 1971); Buford v. American Fi-

nance Co., 333 F.Supp. 1243, 1247-1248 (N.D. Ga. 1971); Ives

v. W.T. Grant Co., 522 F.2d 749, 757-758 (2nd Cir. 1975); John-

son v. Associates Finance, Inc., 369 F.Supp. 1121, 1123 (S.D. Ill.

1974); Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir. 1974); Wel-

maker v. W.T. Grant Co., 365 F.Supp. 531, 544 (N.D. Ga. 1972);

Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1165-1167

(7th Cir. 1974); Baker v. G.C. Services Corp., 677 F.2d 775, 779

(9th Cir. 1982).

reducing to effective nothingness a rule of universal ap-

plication, but one which this Court is yet to directly ad-

dress. The courts below excused respondent, a multi-

billion dollar national bank, as an entity because they

considered that petitioner had failed to identify a specific

individual who, while acting as an agent for respondent,

possessed what they considered sufficient knowledge

and/or intent for those individuals to have had personal

liability had those been persons responsible under the law

and had been individually charged (supra p. 8; App. A41-

42).

Where the knowledge and/or intent of an entity, as

an entity, must be determined, the question is not whether,

or what, any particularly identified individual within the

entity knew and/or intended but what the entity knew

and/or intended. Even an acquittal or specific finding

of no wrongdoing by the employee who engaged in the

conduct does not insulate the entity from even criminal

liability.*

The relevant knowledge of respondent is the collective

knowledge of all of its employees and the content of its

records. The fact that no one individual agent of respon-

dent has a sufficient quantum or quality of knowledge to

have supported culpability, were there no other knowl-

edge, is irrelevant.° Continuous conduct, established as a

4. United States v. American Stevedores, Inc., 310 F.2d 47,

48 (2nd Cir. 1962), cert. denied, 371 U.S. 969 (1963); United

States v. Young Brothers, 728 F.2d 682, 688 (5th Cir. 1984);

American Medical Association v. United States, 130 F.2d 233,

252 (D.C. Cir. 1942), aff’d, 317 U.S. 519 (1943); United States

v. General Motors Corporation, 121 F.2d 376 (7th Cir. 1941),

cert. denied, 314 U.S. 618 (1941); United States v. Austin-Bagley

Corp., 31 F.2d 229, 233 (2nd Cir. 1929), cert. denied, 279 U.S.

863 (1929).

5. United States v. T.I.M.E.-D.C., Inc., 381 F.Supp. 730,

740-741 (W.D. Va. 1974); Inland Freight Lines v. United States,

(Continued on following page)

course of the business, is a sufficient basis to irrebuttably

presume that corporate officers were informed.

A misrepresentation by an entity agent who lacked

even a reason to believe that what was represented was

not, in fact, true leaves the entity liable if, within the

ken of the entity, there exists information which would

make the representation a knowing misrepresentation.'

Because the court below made much of the fact that in-

dividuals within respondent “believed” (App. A84) what

they were doing was “right,” it should be noted that prior

authority reduces this “belief” to an irrelevancy.

In Slater v. Missouri Edison Company, 245 S.W.2d

457, 460 (Mo.App. 1952), it was conceded that the tres-

passing agent of the corporation “believed” that the prop-

erty on which he traversed was owned by the corporation.

The court held that this is no defense. The corporation’s

“honest mistake” defense was rejected because there were

other employees of the corporation who knew. The fact

that an employee acts on an honest belief that what he

does is permissible does not mean that his corporate em-

ployer gets the advantage of the good faith belief.

Footnote continued—

191 F.2d 313, 315 (10th Cir. 1951); United States v. Sawyer

Transport, Inc., 337 F.Supp. 29, 30-31 (D. Minn. 1971), aff'd,

463 F.2d 175 (8th Cir. 1972); Alabama Power Company v. Mc-

Intosh, 219 Ala. 546, 551, 122 So. 677, 681 (1929).

6. People v. Canadian Fur Trappers Corporation, 248 N.Y.

159, 161 N.E. 455, 458 (1928); Grant Brothers Construction Com-

pany v. United States, 13 Ariz. 388, 114 P. 955, 957 (1911), aff’d,

232 U.S. 647 (1914); American Socialists Society v. United

States, 266 F. 212 (2nd Cir. 1920), cert. denied, 254 U.S. 637

(1920).

7. Gem City Motors, Inc. v. Minton, 109 Ga.App. 842, 845,

137 S.E.2d 522, 525 (1964); Paloeian v. Day, 299 Mass. 586, 591,

13 N.E.2d 398, 401 (1938); Sarna v. American Bosch Magneto

Corp., 290 Mass. 340, 343, 195 N.E. 328, 330 (1935).

Given public policy,® the law tilts the scales in favor

of the public welfare. Shirley v. Shirley, 181 S.W.2d 346,

347-348 (Tenn. 1944); 17 C.J.S., Contracts, §201 p. 1001.

Where the public welfare is involved, corporations as

entities apart from their employees, have a non-delegable

duty to supervise agents to protect the public. The lead-

ing authority is State v. Louisville & Nashville Railroad,

91 Tenn. 445, 19 S.W. 229 (1892). Ironically, the court

of appeals below conclusively adopted the reasoning in

United States v. Armour & Company, 168 F.2d 342, 344,

n.2 (3rd Cir. 1948) in ruling consistently with those

courts but departed from its own precedent in the in-

stant case. Continental Baking Company v. United States,

281 F.2d 137, 151 (6th Cir. 1960). The rule has wide

acceptance® and applies even if criminal mens rea is in-

voked. United States v. Harry L. Young & Sons, 464 F.2d

1295, 1287 (10th Cir. 1972). An objective impossibility

prohibiting adequate supervision will not excuse liability.’

The courts below read only the self-serving and exon-

erating comments from two of respondent’s responsible

executive employees, and petitioner was left with this

excerpt of testimony as the end-all on the subject of re-

spondent’s knowledge even though that very testimony

8. Caldwell & Company v. Lea, 152 Tenn. 48, 272 S.W. 715

(1925); Nashville Bank v. Hays, 9 Tenn. 243 (1829); Lawrence

v. Morrison, 9 Tenn. 444 (1830); Dews v. Eastham, 10 Tenn.

463 (1830).

9. United States v. Hilton Hotels Corporation, 467 F.2d 1000,

1004 (9th Cir. 1972), cert. denied, 409 U.S. 1125 (1973); United

States v. Cadillac Overall Supply Company, 568 F.2d 1078, 1090

(5th Cir. 1978), cert. denied, 437 U.S. 903 (1978); Dollar S. S.

Company v. United States, 101 F.2d 638, 640 (9th Cir. 1939);

United States v. Thompson-Powell Drilling Company, 196 F.

Supp. 571, 574 (N.D. Tex. 1961); United States v. Kemmel, 160

F.Supp. 718, 720 (M.D. Penn. 1958).

10. United States v. Y. Hata & Company, 535 F.2d 508 (9th

Cir. 1976), cert. denied, 429 U.S. 828 (1977); United States v.

Stern, 535 F.2d 512 (9th Cir. 1976).

established admitted conduct (App. All1l-114; A125-134)

which proves facts which, when proven in all other like

and similar cases, have always yielded liability on the part

of the suspect entity.

The jury, firsthand, heard the proof offered through

the two executives and, after proper and unchallenged

instruction on the law, found the proof from the two

executives to convince that respondent, as an entity,

was liable. In practical effect, the rulings below make it

impossible for a borrower to prove that a national bank

is liable for usury under §86; therefore, again, in terms of

practical effect, the rulings below judicially repeal §86.

The prime rate fraud claims of petitioner were lost

to a directed verdict because the district court, affirmed

by the court of appeals, applied standards with respect to

the intent required to violate the mail fraud statute which

are inconsistent with the law.

The district court explicitly articulated that the term

“prime rate” was “unfair” to petitioner, created problems

in that it was impossible for any borrower to “figure

out” what the prime rate was from the loan contract

In spite of this, the district court directed a verdict, on

the premise that it was impossible for petitioner to prove

mail fraud, because the one responsible must have a

“criminal intent to violate the law” which was as “some-

thing wicked, unlawful and deliberate” and an “intent

to deceive” and an “intent to injure” (App. A83-85).

The district court complicated this ruling by holding

that petitioner must prove not just that respondent, as

an entity, possessed the requisite intent but that specif-

ically identified agents of respondent, individually and

personally, acted with such an intent. The district court

explicitly held that, if the respondent’s responsible agents

were “men [who] thought they were doing the right

mene

thing” and/or believed they were “supposed to” do what

they did, it becomes impossible to prove that respon-

dent, as an entity, had the necessary intent to violate

the mail fraud statute (App. A84).

The court of appeals let stand the ruling of the

district court and stated little more than a truism, with-

out further explanation, that mail fraud requires “inten-

tional fraud” which is “intentionally practiced” and which

“requires intent to deceive” (App. Al4).

This Court, since 1959, has handed down rulings with

respect to various aspects of mail fraud on five separate

occasions" and, in a seminal ruling, once in times passed

in Durland v. United States, 161 U.S. 306 (1896). One

of the more recent cases is of particular importance here.

This Court passed up the opportunity to rule on this sub-

ject in that case because the proof supported the more

rigorous intent conceptualization; thus, nothing this Court

could say on the subject would change the result in that

case. However, important here is the language where this

Court stated as follows in United States v. Lane, 474 US.

438 (1986) at 453:

“ The Lanes argue that the Government must show

that the charged mailings were specifically intended

to lull, rather than showing simply a general intention

on their part to defraud, in order to come within

Sampson’s holding. We need not determine whether

any such specific intent must be shown, as we agree

with the Court of Appeals that there was sufficient

11. McNally v. United States, 483 U.S. 167 BCH. ....._,

97 L.Ed.2d 292 (1987); United States v. Lane, 474 U.S. 438, 106

S.Ct. 725, 88 L.Ed.2d 814 (1986); Mariscal v. "United States, 449

U.S. 405, 101 S.Ct. 909, 66 L.Ed.2d 616 (1981); United States v.

Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974); United

States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136

(1962); Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4

L.Ed.2d 1277 (1960).

evidence for the jury to infer specific intent to lull

here under these instructions, which the Lanes did

not challenge on appeal or in their cross-appeal.

In the instant case, unlike the Lane case, petitioner

was denied the opportunity to have the evidence con-

sidered by the jury because of the clearest possible ruling

of the district court that the most rigorous standards

for specific criminal intent on the part of identified agents

of respondent was not, in the opinion of the district court,

shown by the proof. This issue would not seem capable

of being more clearly crystalized and appropriate for

ruling by this Court than as is presented by this case.

The question of the kind and quality of intent, if

any at all, required to be liable for mail fraud is one

of importance and to which society is in need of a soon

answer. The problems created by not having an answer

are growing in volume and intensity. The statistics

clearly indicate that mail fraud is one of the, if not the

most, frequently used statutes to support criminal pros-

ecutions in the federal courts.’* Added to this is the

modern-day reality that mail fraud is used as the pred-

icate offense in many, if not most, civil RICO claims.

At present, there is a diversity of interpretations among

courts at all levels and, even, within the various circuits.

This Court, in 1878, left it without doubt that the

mail fraud statute made criminal conduct other than

common law fraud and had elements less rigorous than

common law fraud. Though somewhat slow in coming,

this precept is taking on new prominence because, among

other reasons, mail fraud is gaining even wider usage

than in the past. A recapitulation of the diverse au-

12. Rakoff, The Federal Mail Fraud Statute (Part 1), 18

Duq.L.Rev. 771 (1980); Hurson, Limiting the Federal Mail Fraud

Statute - A Legislative Approach, 20 Am.Crim.L.Rev. 423 (1983).

sm SOAS AS

thority on this subject was recently published in the

opinion and dissenting opinion in Wilcox v. First Inter-

state Bank of Oregon, N.A., 815 F.2d 522, 530-534 (9th

Cir. 1987). Also see Deaver v. United States, 155 F.2d

740, 744 (D.C. Cir. 1946) saying: “Similarly, a ‘scheme’

may be fraudulent though no misrepresentation is made.”

[citing Kaufmann v. United States, 282 F.2d 776 (3rd

Cir. 1922), cert. denied, 260 U.S. 735 (1922) ].

Likewise, see the thoughtful analysis in United States

v. Frankel, 721 F.2d 917 (3rd Cir. 1983) saying at 921:

“Schemes to defraud come within the scope of statute

even absent a false representation.”

Another informative recent statement appears as fol-

lows in Armco Industrial Credit Corporation v. SLT Ware-

house Company, 782 F.2d 475 (5th Cir. 1986) at 481: “By

confusing mail fraud with common law fraud, SLT’s argu-

ment falls wide of the mark.... [T]o find a violation of

the federal mail fraud statute it is not necessary that the

victim have detrimentally relied on the mailed representa-

tions (citation omitted). Indeed, the intended victim need

not even have been defrauded for liability to attach under

the mail fraud statute.” (citation omitted).

It is equally well established that the mail fraud

statute imposes some affirmative duty on the part of one

making representations. That is, a person who, though

confused, ignorant or mistaken about information, makes

a representation about the subject concerning which he

is confused at his own risk and, if what is represented

deceives or has the potential to deceive or mislead, the

recklessness of the person making the representation is

taken as sufficient to establish intent. United States v.

Dick, 744 F.2d 546 (7th Cir. 1984).

The court of appeals below has recently restated the

very often repeated rule that a person uses the mail to

further any conduct which is not morally upright, irre-

spective of the form or the way in which such conduct

manifests itself, is a violation. United States v. Bibby,

752 F.2d 1116 (6th Cir. 1985).

Innumerable cases use the term “specific intent’ to

describe the kind of intent which must be proven. How-

ever, in further explanation of what is meant by “spe-

cific intent,’ when so used, courts often provide a def-

inition which makes the intent described more akin to

general intent than specific intent. Typical of this is

Schreiber Distributing Company v. Serve-Well Furniture

Company, 806 F.2d 1393 (9th Cir. 1986).

In short, the question of what intent and how much

of it is required by whom to violate the mail fraud

statute is becoming more and more confused instead of

more and more clarified. Only this Court can resolve

this many-times recurring question, and, thereby, save

hundreds upon hundreds of judicial hours.

CONCLUSION

It is respectfully submitted that the petition for writ

of certiorari should be granted.

Respectfully submitted,

Larry E. Parrisu, P.C.

LarrRY E. PARRISH

The Crescent Center

6075 Poplar Avenue

Suite 400

Memphis, Tennessee 38119

(901) 767-8000

Attorney for Petitioner

January 1989

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.