Opposition Brief — Walters v. First Tennessee Bank, N. A.
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| No. 88-1185 ese aa
na aa RE NP CR St EE A EL EE NE ARNE aN NE ate - antinens
ae
In the Supreme Court of the United States
OCTOBER TERM, 1988
WILLIAM S. WALTERS, JR..,
Petitioner,
vs.
FIRST TENNESSEE BANK
N.A. MEMPHIS,
Respondent.
On Petrrion ror Wair or CERTIORARI TO THE UNITED STATES
Court oF APPEALS FOR THE SrxtH CIRCUIT
BRIEF IN OPPOSITION TO PETITION FOR
WRIT OF CERTIORARI
Leo M. BeaRMAN
Counsel of Record
R. Mark GLover
HEISKELL, DoNELSON, BEARMAN,
Apams, Witu1ams & Kirscu
2000 First Tennessee Bank
Building
Memphis, Tennessee 38103
(901) 526-2000
Attorneys for Respondent
First Tennessee Bank
N.A. Memphis
February, 1989
a TT a
E. L. Munpewmatz, Iwo., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-8080
QUESTIONS PRESENTED FOR REVIEW
Respondent does not agree with the Petitioner’s state-
ment of the questions presented, and submits that this
Petition requires the Court’s consideration of the follow-
ing questions:
1. Whether Petitioner may raise issues before this
Court by Petition for Writ of Certiorari, filed more than
90 days after entry of the judgment of the United States
Court of Appeals for the Sixth Circuit, where a Petition
to Rehear was filed with regard to only one of three cases
consolidated for trial, but where belated review is sought
of issues involved in the two cases which were not the
subject of a Petition to Rehear.
2. If Question No. 1 is answered in the affirmative,
whether the constitutionality of Pub. L. No. 96-221 and
Pub. L. No. 96-399 (codified at 12 U.S.C. §86a), as amended,
is a proper subject for review by this Court when chal-
lenged as giving rise to an unlawful impairment of con-
tract, where the statutes have expired and the contract
itself incorporated by reference applicable usury laws as
they may exist “from time to time’.
3. If Question No. 1 is answered in the affirmative,
whether the United States Court of Appeals for the Sixth
Circuit was correct in ruling that there is no violation of
12 U.S.C. §86 where no evidence exists in the record to
support a finding that excess interest was “knowingly”
charged to a borrower.
4. If Question No. 1 is answered in the affirmative,
whether the Courts below were correct in holding that
there was no evidence in the record in this case to sup-
port a finding of usury.
II
5. Whether the United States Court of Appeals for
the Sixth Circuit was correct in holding that there is no
violation of the federal mail fraud statute, 18 U.S.C. §1341,
absent any proof of fraud or deception.
2 re,
III
DISCLOSURE OF CORPORATE AFFILIATIONS
PURSUANT TO SUPREME COURT
RULE 28.1
Pursuant to Supreme Court Rule 28.1, Respondent,
First Tennessee Bank National Association (formerly First
Tennessee Bank N.A. Memphis) states that it is a wholly
owned subsidiary of a publicly owned corporation, First
Tennessee National Corporation and that First Tennessee
National Corporation is the only publicly owned corpora-
tion not a party to this proceeding that has a financial
interest in the outcome.
ce
TABLE OF CONTENTS
QUESTIONS PRESENTED FOR REVIEW .................. I
Trams or cots Iv
TABLE OF AUTHORITIES .....00.-ccccccccccsccssssececseeeee= v
iia irlccrttonseanive 1
CONSTITUTIONAL PROVISIONS AND STATUTES 2
COUNTER-STATEMENT OF THE CASE ................--- 3
SUMMARY OF ARGUMENT eee 9 |
ARGUMENT— |
The Petition for Writ of Certiorari is nct timely
and the Court has no jurisdiction to review the
usury issues described in the Petition —.............. 10
The trial court and the Court of Appeals were
correct in holding that under applicable law, in- i
cluding the surcharge amendments to 12 U.S.C.
§85 and §86, Respondent’s charges on the
$475,000 note were proper ....................2.....::..:0:s0- 11
The trial court and the Court of Appeals were cor-
rect in holding that there is no evidence in the
Record to support Petitioner’s claim of usury .... 21
Prarie rene
Petitioner failed to prove the elements of a viola-
tion of the mail fraud statute (18 U.S.C. §1341) 25
IE cosineieccsinigicatsinnonenssanioticicetiaaniipentinisiaeenannait 28
APPENDIX—
Pertinent statutes not reproduced by Petitioner ... Al
Vv
TABLE OF AUTHORITIES
Cases:
Aetna Life Ins. Co. of Hartford, Conn. v. Haworth,
300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617 (1937) ........ 12
Bender v. Southland Corp., 749 F.2d 1205 (6th Cir.
ee ee eee 26, 27
Citizens’ Bank v. Opperman, 249 U.S. 448, 39 S.Ct.
rs ee BE, cdecrctacetcntdncsgecionccsacciesnumnniie 11
Department of Banking v. Pink, 317 U.S. 264, 63 S.Ct.
eg Te Ie Te ID aces eercesitnacratttinncecennsipteentiotrrarnen 11
District of Columbia v. Sweeney, 310 U.S. 631, 60 S.Ct.
es Se MR, TI, CD peices dake ccthcceetaieeees 12
Epstein v. United States, 174 F.2d 754 (6th Cir. 1949)
ASL SERENE iy 2 A CAT Alt nah OL A PORN eT SoA ee Ne 26, 27
Ford Motor Credit Corp. v. Catalani, 238 Ark. 561,
SU are Te CIID ncnssetidcicchenisnsnniincnirnssprintbinsincataiasun 23
Maestro Music, Inc. v. Rudolph Wurlitizer Co., 354
FE I TIED -cdisni-4ncenaacnnanindatnesincnoneenapnanaie 24
Matton Steamboat Co., Inc. v. Murphy, 319 U.S. 412,
63 S.Ct. 1126, 87 L.Ed. 1483 (1943) —....02 11
Murphy Finance Co. v. Fredricks, 127 N.W.2d 924
I MII | sedans Sec cseecsckciiacaeahbevacidopud beak rataasotodeabeatiaeloieenadal 24
Mutual Protective Corp. v. Palatnick, 118 Conn. 1,
NG Ee CN reitiiinciiadtcn Daudi 24
National Labor Relations Board v. Pittsburgh Steam-
ship Co., 340 U.S. 498, 71 S.Ct. 453, 95 L.Ed. 479
PND sihctsies canes iececisnsissshcorniec’sveshaiccatsadiaeneiA oma ape iasinaaie 25
Pereira v. United States, 347 U.S. 1, 74 S.Ct. 358,
Se es GE A ID» siscincicannanctmehn score bendditeedicchaimndusisabacdeatidaats 27
Rice v. Sioux City Memorial Park Cemetery, Inc., 349
U.S. 70, 75 S.Ct. 614, 99 L.Ed. 897 (1955) 0000... 12
Schacht v. United States, 398 U.S. 58, 90 S.Ct. 1555,
EE TE III dese tcictitbisbiacernssntibticasedolclnslaslnseiial ll
VI
Sumner v. Investment Mortgage Company of Florida,
EE SO UP, MOI, BPO snc iesecnecccnsccncssnconnsscncsasices 24
United States v. Schilling, 561 F.2d 659 (6th Cir. 1977) 27
United States v. Talbott, 590 F.2d 192 (6th Cir. 1978) 27
United States v. Van Dyke, 605 F.2d 220 (6th Cir.),
cert. denied, 444 U.S. 994, 100 S.Ct. 529, 62 L.Ed.2d
suremanew ee: on
TT Tis etcieaphalionpacmenectecshsinmmnacemenenaunagse 27
Walters v. First Tennessee Bank N.A. Memphis, 855 |
EE EE SE, CED «ste nisennnntenssinnsonananteenniecnmniensninns 1 |
Wheeler v. Union National Bank of Pittsburgh, 96
SE ME, MC BUIBD occcnscccsensccccracscncssnnsesene 24
White v. Kaminsky, 196 Tenn. 180, 264 S.W.2d 813
Taki diiesesiocibceidntiiiniethcenladenintinsbaninsiteinssetein 23-24
Windsor v. United States, 384 F.2d 535 (9th Cir. 1967) 26
Statutes:
Neen aca erelecncentenasentnbsismmeestconntis 13, 15, 19
Teen sa cosnansnshinndnsinndatebinnpebsinenenvanis 19, 21, 24
ae aladdin snhinsdsededaisiletenmniansiiianpmatana 15, 18, 20
a nina ccncssscrntdmatcanesenebeneiinneinned 3, 8, 25, 27
I IIE. nsnccnsnsasnesanscsnecsssvorcions isaciuliidtbiebbipbecascsed 4,16
alan accicdairiclbeinabbnpabielasbasei ee
rum ka No. 96-104 ...................... PARES IOS 28a IPRS OS 16
TOI on ccsscoscsceseonesecsssevesesscnessuadvesesonns 16, 18, 19, 20
I snensosacvesessanbonsensonnnsniisshanauasnsocnines 18
TIMED, cscnsconsacsnscsssevacsssesscsvscvonss 14, 15, 16, 17, 20
I 14, 16, 17, 20
Zeem, Some Arm. $47-14-102 .................................. IRR aAL: 2,15
I |S | 2,15
Other Authorities:
St Peewee Slee ................... SS Te ee 24
\
No. 88-1185
In the Supreme Court of the United States
OCTOBER TERM, 1988
WILLIAM S. WALTERS, JR.,
Petitioner,
vs.
FIRST TENNESSEE BANE
N.A. MEMPHIS,
Respondent.
On PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES
Court oF APPEALS FOR THE SIXTH CIRCUIT
BRIEF IN OPPOSITION TO PETITION FOR
WRIT OF CERTIORARI
Respondent, First Tennessee Bank National Association
(formerly First Tennessee Bank N.A. Memphis), hereby
responds to and opposes the issuance of a Writ of Certiorari
to review the judgment of the United States Court of
Appeals for the Sixth Circuit.
OPINIONS BELOW
The opinion of the United States Court of Appeals
for the Sixth Circuit, review of which is sought by Peti-
tioner, is reported at 855 F.2d 267 (6th Cir. 1988). It
2
is also reproduced in Petitioner’s Appendix at A-l. Peti-
tioner’s Petition to Rehear in Court of Appeals Case No.
86-6031 is reproduced in Petitioner’s Appendix A-86. The
Order of the United States Court of Appeals, Sixth Cir-
cuit (filed October 14, 1988) denying Petitioner’s Petition
to Rehear is reprinted in Petitioner’s Appendix at A-59,
although it is erroneously reported by Petitioner to have
been filed on October 14, 1986. The original opinion of
the United States District Court for the Western District
of Tennessee, Western Division, styled “Ruling on Post-
Trial Arguments and Motions”, which initially disposed
of Petitioner’s claims, is reprinted in Petitioner’s Appendix
at A-32. [Petitioner’s Appendix is hereinafter abbreviated
as “Pet. App.” Respondent’s Appendix is abbreviated as
“Resp. App.” References to the record are denoted herein
by the abbreviation “R.” The transcript of the trial is
indicated by the abbreviation “Tr.”]
CONSTITUTIONAL PROVISIONS AND
STATUTES |
Pursuant to Supreme Court Rule 34.2 Respondent
states that the constitutional provisions and statutes rele-
vant to this Petition are set forth in the Petition for Writ
of Certiorari and in the Petitioner’s Appendix, with the
exception of the following:
1. Tenn. Code Ann. §47-14-102 (1979): (See Resp.
App.)
2. Tenn. Code Ann. §47-14-103 (1979): (See Resp.
App.)
a we
COUNTER-STATEMENT OF THE CASE
Because Petitioner does not clearly set forth the
factual background of this case, and because an under-
standing of the procedural history is important to an
understanding of why the Petition should be denied, this
Counter-Statement of the Case is provided by Respondent.
Three cases were consolidated for trial and all were
appealed to the United States Court of Appeals for the
Sixth Circuit. However, because only one of the three
consolidated cases was made the subject of a Petition for
Rehearing in the Court of Appeals, it is respectfully sub-
mitted that the issues raised by Petitioner relative to
his usury claim have not been preserved by his filing
of the Petition for a Writ of Certiorari. The remaining
issue, which Petitioner contends involves the question of
the type of intent to defraud required under the mail
fraud statute, 18 U.S.C. §1341, was the one issue raised
in a case which was made the subject of a timely Petition
to Rehear, but should not be reviewed by this Court for
the independent reasons hereinafter set forth.
Because no Petition to Rehear was filed with regard
to the cases in which the usury issues were raised, no
timely Petition for Writ of Certiorari to this Court has
preserved the issues in those separate cases. In order
properly to apprise the Court of the issues involved in
the consolidated cases and the issues remaining in the
one case over which this Court has jurisdiction, the
following statement of the case is offered.
Three consolidated cases were tried in the United
States District Court for the Western District of Ten-
nessee, Western Division commencing on August 26, 1985,
before the Honorable Robert M. McRae, Jr., Chief Dis-
as
4
trict Judge, sitting with a jury. The trial lasted approx-
imately two (2) weeks.
The first of the three cases, and the only one which
is properly the subject of this Petition, was filed on
May 28, 1982 by William S. Walters, Jr. (“Petitioner”)
against First Tennessee Bank N.A. Memphis (“Respon-
dent”) claiming, in essence, that Respondent charged
Petitioner more interest than he agreed to pay under
the terms of a $475,000 promissory note (Counts I and
III). That case bore Case No. 82-2391 in the trial court
and was assigned Case No. 86-6031 in the United States
Court of Appeals for the Sixth Circuit. Petitioner’s
theory was that Respondent had an “announced” prime
rate and a different and secret “true” prime rate; thus
Petitioner alleges “prime rate fraud.” The Complaint
also alleged misrepresentation (Count II), breach of con-
fidential relationship (Count IV), violations by Respon-
dent of various provisions of 18 U.S.C. §1961, et seq.
(“RICO”) (Count V), and usury (Count VI). When
the Complaint was amended, the usury count was dropped.
(R. 9, Amended Complaint) Respondent filed an answer
denying liability, raising affirmative defenses, and coun-
terclaiming with regard to the unpaid balance of the
promissory note. At the close of all proof the trial court
directed a verdict in favor of Respondent on all claims
asserted by Petitioner in his Complaint, as amended. [Tr.
pp. 1724-1745 and p. 1778, ll. 2-7]
The trial court also directed verdicts in favor of
Respondent as to all similar counts remaining in a share-
holder derivative complaint which involved two prom-
issory notes in the amounts of $1,341,000 and $376,000,
executed on behalf of a corporation partially owned by
Petitioner and known as Ten Tex Marine, Inc. (‘Ten
Tex”). This suit had been filed by Petitioner on behalf
H)
of himself and the other shareholder of Ten Tex (but
without the other shareholder’s approval) under Case
No. 82-2869 in the trial court. This case was assigned
Case No. 86-6033 in the Court of Appeals. The counts
in that Complaint which were disposed of by the directed
verdict included breach of contract (Counts I and VII),
RICO (Counts II, III & IV), fraud (Count V), and mis-
representation (Count VI). |Tr. pp. 1724-1745, and p.
1778] The usury counts in the derivative action had
previously been dismissed on September 20, 1984 on Re-
spondent’s Motion for Summary Judgment. This deriv-
ative suit was not brought before this Court by the
Petition for Writ of Certiorari.
The remaining action, filed on October 19, 1982, was
initiated by Fischer Lime and Cement Company, Inc.
(“Fischer”) against Petitioner and Respondent. In con-
nection with the $475,000 loan to Petitioner, Respondent
had taken from Petitioner, as collateral, an assignment
of a promissory note from Fischer to Petitioner (the
“Fischer note’). After Petitioner defaulted on his obli-
gation, and in accordance with the security agreements,
proceeds from the Fischer Note were applied by Respon-
dent to Petitioner’s outstanding interest on the defaulted
loan. This action in the nature of an interpleader was
instituted when the stakeholder, Fischer, was “notified’’
by counsel for Petitioner that it should cease making
monthly payments on the Fischer Note to Respondent.
After the commencement of the interpleader action,
Fischer Note payments were deposited into the registry
of the trial court. The only issue from that case which
was appealed to the Sixth Circuit Court of Appeals was
one portion of an issue raised by Petitioner in filing a
cross-claim against Respondent in the interpleader action
on November 23, 1982 alleging usury. As to this count, on
6
August 9, 1985 the trial court had ruled prior to trial that
the statute of limitations barred any cause of action for
alleged usury occurring prior to May 22, 1980. Peti-
tioner does not complain concerning that ruling and did
not appeal that portion of the trial court’s ruling to the
Court of Appeals for the Sixth Circuit.
As to the allegations of usury in that third action
which were not held to be barred by the statute of lim-
itations, the trial court granted a directed verdict in
favor of Respondent with regard to those claims for
collections allegedly occurring from October 8, 1980
through June 30, 1981, based upon a construction of state
and federal interest rate statutes. The only issue related
to the usury allegations which survived Respondent’s
motions was an allegation in connection with interest
charges on two specific instances covering 32 days from
May 29, 1980 through June 8, 1980 and from Septem-
ber 8, 1980 through September 25, 1980. The total of
allegedly “excess” interest charged on the $475,000 loan
during this period was $337.06. With regard to those
alleged overcharges, Respondent’s witness testified that
the incorrect charges were inadvertent, and that they
arose because of a clerical error in failing to adjust
manually the interest rate ceiling on Petitioner’s notes
on its computer on the precise date the federal discount
rate changed. The testimony established that those ad-
justments had to be made manually, and that the same
clerical errors resulted in undercharges favorable to Peti-
tioner, as well as overcharges, and that the cumulative
amount of undercharges always exceeded the amount of
any overcharges. Although no contrary testimony or
evidence was presented, the trial court submitted an issue
to the jury by means of the following special inter-
rogatory:
‘
Did the defendant First Tennessee Bank knowingly
take or receive from or charge to the plaintiff Wil-
liam S. Walters, Jr. interest in excess of the lawful
rate on the $475,000 note signed May 3, 1979, be-
tween the date of its signing and December 2, 1980?
The jury answered the interrogatory, which was the
only issue addressed to them, by responding, “Yes.”
Because there were numerous questions of law which
might affect the ultimate judgment, the court directed
counsel for the parties to prepare proposed judgments,
and heard arguments on the respective positions of the
parties. On June 5, 1986 the trial court entered its
Rulings on Post-Trial Arguments and Motions. (Pet. App.
32) The trial court found that there was no evidence
from which the jury could conclude that the collection
of allegedly excess interest was “knowingly done.” The
Court’s ruling contains a lengthy and comprehensive dis-
cussion of both the legal and factual justifications for
its conclusion. In explaining its reasons for so holding,
the trial court observed in part that:
The plaintiff must prove that the taking of excess
interest was ‘knowingly done.’ The Plaintiff has of-
fered no direct or sufficient circumstantial proof on
the issue of ‘knowingly done.’
Although counsel for Mr. Walters attempted to im-
peach Mr. Dudley’s testimony by suggesting in his
questions that the overcharges were or may have
been intentional, he produced no witness to testify
on this point and presented no other evidence which
would tend to prove this intent. (Pet. App. 40-41)
8
On appeal, this case was assigned case number 86-6032
in the Sixth Circuit Court of Appeals.
All three cases were separately appealed to the United
States Court of Appeals for the Sixth Circuit and the
trial court was affirmed in all three cases in a consol-
idated opinion. (Pet. App. 1) Petitioner filed a Petition
to rehear only in Case No. 86-6031. (Pet. App. 86) As
noted above, this was an appeal from Case No. 82-2391
below, and as listed by counsel for Petitioner in his Civil
Pre-Argument Statement, the single issue presented for
review in that case was:
In order for a corporate defendant to be liable for
engaging in a mail fraud, is it necessary that the
corporate offices responsible for the conduct proven
have engaged in the conduct intending to do some-
thing wrong?
In view of the fact that the opinion of the United States
Court of Appeals for the Sixth Circuit disposing of all
issues raised in the three cases was filed on August 16,
1988, and since a Petition to Rehear was filed in only
one of the three cases (86-6031) it is respectfully sub-
mitted that this Petition for Writ of Certiorari is timely
only with regard to that one case, since the time for
filing the Petition for Writ of Certiorari pursuant to
Supreme Court Rule 20.4 was extended by the Petition
to Rehear only in Case No. 86-6031.
Without regard to the untimeliness of the Petition
with regard to all issues other than the issues raised
concerning the mail fraud statute, 18 U.S.C. §1341, all
issues will be addressed below in order to point to addi-
tional compelling reasons why these are not proper cases
for review by this Court.
SUMMARY OF ARGUMENT
The questions which Petitioner claims have been
raised by his Petition for Writ of Certiorari are not
proper questions for consideration by the Court. None
of the considerations governing review set forth in Su-
preme Court Rule 17.1 exist in this case.
As a jurisdictional matter, only the issue denom-
inated as Question 7 in the Petition is properly before
the Court because the Petition is not timely with regard
to the other issues, which were issues raised in separate
cases which were not made the subject of timely Peti-
tions to Rehear.
In addition to the jurisdictional defect, Question 1
presented in the Petition is not a proper subject for
review because it challenges the constitutionality of in-
terest rate relief statutes which have expired and there-
fore do not merit review by the Court. Petitioner simply
seeks an advisory opinion on this issue, asking the Court
to “inform” Congress so that it will act properly “the
next time it faces the necessity to address an interest
rate crisis.” (Pet. p. 15) Moreover, the constitutional
challenge is based upon an alleged impairment of con-
tract yet the courts below made factual findings to the
effect that the contract in question, i.e., the promissory
note, clearly anticipated by the use of certain language
in the note floating interest rates based upon changes
which might occur in the law. Therefore, from a factual
standpoint, there has been no contractual impairment.
The several Questions purportedly raising the issues
of the requisite intent required under the usury statute
and the mail fraud statutes are not proper subjects for
10
review because the courts below found a total absence
of proof of intent with regard to either of these alle-
gations.
The Petition does not present any issue involving
conflict between an opinion of the Court of Appeals for
the Sixth Circuit and the decisions of another federal
court of appeals on the same matter; nor has the Court
of Appeals so far departed from the accepted and usual
course of judicial proceedings, nor so far sanctioned such
a departure by the District Court, as to call for the
exercise of this Court’s power of supervision.
ARGUMENT
The Petition For Writ Of Certiorari Is Not Timely And
The Court Has No Jurisdiction To Review The Usury
Issues Described In The Petition
Supreme Court Rule 20.4 provides that: “... [I]f
a petition for rehearing is timely filed by any party in
the case, the time for filing the petition for writ of
certiorari for all parties (whether or not they requested
rehearing or joined in the petition for rehearing) runs
from the date of the denial of rehearing or of the entry
of a subsequent judgment entered on the rehearing.”
However, no provision of the Rules tolls the time for
filing a petition for writ of certiorari in separate but
consolidated cases where a petition for rehearing is filed
in only one of the several cases which were consolidated
for trial, but which were appealed separately to the Court
of Appeals and assigned separate case numbers.
Since a petition to rehear was not filed in Case
No. 86-6032 nor in Case No. 86-6033, the 90 day period
for filing a petition for writ of certiorari in those cases
a a ee |
11
expired on or about November 14, 1988. The usury issues
attempted to be raised by Petitioner in this Petition for
Writ of Certiorari were not encompassed within Case
No. 86-6031, the only case in which a petition to rehear
was filed.
28 U.S.C. §2101(c) establishes the time for invoking
this Court’s jurisdiction in civil cases. Where, as here,
the time for filing a petition for writ of certiorari is
established by Congress, the timely filing of the petition
is a requisite to the Court’s jurisdiction. Schacht v.
United States, 398 U.S. 58, 65, 90 S.Ct. 1555, 26 L.Ed.2d
44 (1970); Matton Steamboat Co., Inc. v. Murphy, 319
U.S. 412, 63 S.Ct. 1126, 87 L.Ed. 1483 (1943); Depart-
ment of Banking v. Pink, 317 U.S. 264, 63 S.Ct. 233, 87
L.Ed. 254 (1942); Citizens’ Bank v. Opperman, 249 U‘S.
448, 39 S.Ct. 330, 63 L.Ed. 701 (1919). It is respect-
fully submitted that this Court has no jurisdiction to
review the usury issues raised by Petitioner.
While disagreeing that the usury related questions
are properly before the Court from a jurisdictional stand-
point, the following responses are given with regard to
all issues which Petitioner attempts to raise in his Peti-
tion for Writ of Certiorari.
The Trial Court And The Court Of Appeals Were
Correct In Holding That Under Applicable Law, In-
cluding The Surcharge Amendments to 12 U.S.C. §85
And §86, Respondent’s Charges On The $475,000
Note Were Proper
In Questions 1, 2 and 6 raised in the Petition, Peti-
tioner argues that in executing a promissory note on
May 3, 1979, even though that note provided for a floating
rate of interest, Petitioner was receiving a contractual
12
guarantee that he would never be charged more interest
than the maximum rate chargeable on the date of signing.
Based upon that assumption, Petitioner then seems to
argue that federal preemption legislation which granted
interest rate relief during and after 1980, if applied to
Petitioner’s note, would constitute an unconstitutional
impairment of this assumed “contract”.
Petitioner candidly observes that the legislation being
questioned has expired (Pet. p. 13), and is no longer in
existence. While this fact argues forcefully against re-
view by this Court, Petitioner still seeks what is essen-
tially an advisory opinion citing what he calls the general
public’s entitlement “to have Congress rightly informed
by this Court.” (Pet. p. 15) Respondent submits that
it is well settled that where the issue sought to be re-
viewed concerns a statute that has been repealed, the
issue does not merit consideration by this Court. District
of Columbia v. Sweeney, 310 U.S. 631, 60 S.Ct. 1082, 84
L.Ed. 1402 (1940). Likewise, where the enactment of
a statute subsequent to the commencement of litigation
confines the impact of an alleged violation to the case
at bar, certiorari should not be granted. Rice v. Sioux
City Memorial Park Cemetery, Inc., 349 U.S. 70, 76-77,
75 S.Ct. 614, 99 L.Ed. 897 (1955). Here, Petitioner ad-
mits not only that the questioned statute has expired,
but he also admits that “statutes of limitation have run
on any similar claims which, perhaps, could have been
made in years past.” (Pet. p. 15) Therefore, this is not
a compelling case for review by this Court, and mere
advisory opinions or opinions based upon hypothetical
facts should not be rendered by the Court. Aetna Life
Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227,
57 S.Ct. 461, 81 L.Ed. 617 (1937).
13
In examining the merits of Petitioner’s claims, it
must be noted that the interest preemption statutes ref-
erenced by Petitioner have never been declared uncon-
stitutional by any Court. More importantly, those stat-
utes could not constitute an impairment of Petitioner’s
contract because the contract embodied in the $475,000
promissory note obviously anticipated, because of its
floating rate of interest, that it might in the future ex-
ceed the rate which was the maximum legal rate on
the date of signing. This recognition is evidenced by
the following language in the note [Tr. Ex. 3]:
The rate of interest on the unpaid principal balances
of the indebtedness hereby evidenced shall be ad-
justed as of each day that the prime rate is changed;
provided, always, however, that notwithstanding any
changes in said prime rate, the rate of interest hereon
prior to maturity shall never be more than the max-
imum 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.
It is the intention of the Maker and the Bank to
contract in strict compliance with the usury laws
as set forth at 12 U.S.C. §85, and the laws of the
State of Tennessee incorporated therein by reference;
and, accordingly, in no event and upon no contin-
gency shall the Bank ever be entitled to receive,
collect, or apply as interest any interests, fees, other
payment equivalent to interest, in excess of the max-
imum 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 prin-
cipal place of business in the State of Tennessee... .
(Emphasis supplied. )
14
Clearly, the parties contemplated that the maximum rate
allowed under the law would fluctuate with time, thus
the language “from time to time” throughout the note.
The Court of Appeals clearly made this factual finding.
(Pet. App. 21) If it had been the intention of the parties
to simply provide an absolute 18% ceiling, that would
have been simple enough to insert; and it is respectfully
submitted that the absence of that language, together
with the inclusion of the language quoted above, makes
the construction urged by Petitioner illogical.
In his Question 6, Petitioner raises the issue of
whether the trial court correctly ruled that Respondent
was entitled to the benefit of the preemptive “surcharge”
statutes in the case of this note. (Pub. L. No. 96-221 and
Pub. L. No. 96-399) Petitioner, however, did not brief
that issue at the Court of Appeals, choosing instead to
attempt to incorporate by reference a brief filed with
the trial court.
In rejecting Petitioner’s argument as to the operation
of these statutes the Sixth Circuit Court of Appeals ob-
served:
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. We cannot countenance this
attempt to circumvent Fed. R. App. P. 28(g) and
its limitation on appellants’ briefs to 50 pages. (Pet.
App. p. 21, n. 5)
Because the issue was not properly raised before the
Court of Appeals, this Court should not review the issue.
However, Respondent disagrees that it misinterpreted the
applicable statutes and amendments and submits that the
15
trial court correctly adopted Respondent’s position, which
is set forth below.
The $475,000 loan was made and the note was signed
on May 3, 1979. The usury law on which Respondent
relied at that time and until December 2, 1980, was the
Tennessee usury law. (Tenn. Code Ann. §$§47-14-102 &
103) Respondent complied with that law.
Respondent, as a national bank, was entitled to rely
on the Tennessee usury law during the period May 3,
1979 to December 2, 1980 by virtue of 12 U.S.C. §85,
which allows a national bank to charge the greater of
(i) the rate permitted by state law or (ii) 1% over
the Federal Reserve discount rate in effect in the reserve
district in which Respondent is located.
Tennessee law permitted an interest rate of 5% over
the discount rate of the Federal Reserve Bank in Atlanta,
with a maximum of 18%. Except for the two inad-
vertent errors testified to by Mr. Charles B. Dudley, III,
and discussed later in this brief, which did not occur
during the period of the Federal Reserve surcharge, dur-
ing the period when Respondent relied on Tennessee law,
it never exceeded the rate permitted by state law. This
fact is not disputed by Petitioner.
On April 1, 1980, at a time when Respondent was
relying on state law and the rate charged Petitioner
was within the state law ceiling, Congress adopted Pub.
L. No. 96-221.
Pub. L. No. 96-221 [codified at 12 U.S.C. §86a]
amended 12 U.S.C. §85 to:
(a) Preempt any state law, whether statutory or
constitutional, to the extent state law imposed a rate
ceiling lower than Pub. L. No. 96-221 imposed;
16
(b) Permit national banks to charge (on loans of
the type to Plaintiff) up to “5% in excess of the
discount rate, including any surcharge thereon, ...
in effect at the Federal Reserve Bank in the Federal
Reserve District where the person is located”;
(c) Apply only with respect to business .. . loans
in amounts of $25,000 or more made in any state
during the period beginning on April 1, 1980, and
ending on the earlier of -
(1) April 1, 1983; or
(2) [The date such state expressly opts out of
the effect of Pub. L. No. 96-221 (which Tennes-
see never did) |
(d) Provide that where the amendments in para-
graphs (a), (b) and (c) above and “any other pro-
vision of law . . . apply with respect to the same
loan ... such loan... may be made at the highest
applicable rate”; and
(e) Repeal as of March 31, 1980, Pub. L. No. 96-104
and parts of Pub. L. No. 96-161 [neither of which
were relied on by Respondent for Petitioner’s loan].
When enacted, Pub. L. No. 96-221 by its express terms
did not apply to Petitioner’s loan because the loan was
not made “during the period beginning April 1, 1980 and
ending April 1, 1983.” At that time (April 1980), Re-
spondent continued to rely on Tennessee law and its rate
was within the Tennessee ceiling.
Pub. L. No. 96-221 nonetheless becomes important to
this issue because Pub. L. No. 96-399 on October 8, 1980
amended Pub. L. No. 96-221 to add a provision that per-
mitted Pub. L. No. 96-221 (with its provision for a sur-
17
charge) to apply to Petitioner’s loan by adding to Pub.
L. No. 96-221 the following language:
(b) A loan shall be deemed to be made during
the period described in subsection (a) [April 1, 1980
to April 1, 1983] if such loan -
* * *
(B) was made prior to or on April 1, 1980, and
bears or provides for interest during such period on
the outstanding amount thereof at a variable or fluc-
tuating rate. (Emphasis added.)
Pub. L. No. 96-399 further provided:
(2) The amendments made by paragraph (1) [those
amendments discussed above] take effect on April 1,
1980.
Pub. L. No. 96-399 thus made Pub. L. No. 96-221
applicable to Petitioner’s loan because that loan was
“made prior to April 1, 1980, and [bore] interest during
such period on the outstanding amount thereof at a var-
iable or fluctuating rate... .”
At the time Pub. L. No. 96-399 was adopted, Re-
spondent was continuing to rely on Tennessee law for
the rate ceiling. It was not until December 2, 1980 that
Respondent first relied on federal law for the applicable
interest rate ceiling. At that time, Pub. L. No. 96-221
as supplemented by Pub. L. No. 96-399:
(a) Preempted any state usury law, whether stat-
utory or constitutional, to the extent state law im-
posed a rate ceiling lower than Pub. L. No. 96-221
imposed.
(b) Permitted national banks to charge (on loans
of the type to Petitioner) up to “5% in excess of
)
18
the discount rate, including any surcharge thereon,
. . in effect at the Federal Reserve bank in the
Federal Reserve district where the person is located.”’
(c) Applied to loans made between April 1, 1980
and April 1, 1983 and to loans made prior to April 1,
1980 which provided for interest during such period
on the outstanding balance thereof at a variable or
fluctuating rate; and
(d) Provided that where the amendments in para-
graph (a), (b) and (c) above and “any other pro-
vision of law . . . apply with respect to the same
loan . . . such loan may be made at the highest
applicable rate.” (Emphasis added.)
12 U.S.C. §86a, as amended by Pub. L. No. 96-211
and Pub. L. No. 96-399, thus applied to the May 3, 1979
loan. It is on that statute that Respondent justifiably
relied after December 2, 1980 and consequently, the
application of the surcharge to the federal discount rate
does not constitute usury.
Petitioner contended at trial that reliance by Re-
spondent on 12 U.S.C. §86a was incorrect. Although
he does not address the issue in his brief, the trial brief
which he attempted to incorporate by reference claims
an earlier amendment to 12 U.S.C. §86a, ic, Pub. L.
No. 96-161, exempted Tennessee from the preemptive
federal usury legislation until July 1, 1981. This is an
incorrect reading of the statute.
Pub. L. No. 96-161 permitted national banks to charge
5% over the discount rate of the Federal Reserve Bank
in the district where the bank is located on business
loans in excess of $25,000. It did not provide a surcharge.
The amendment was effective from December 28, 1979
19
and expired on the earliest of (1) July 1, 1980 (in states
where there was a statutory usury provision); or (2)
July 1, 1981 (in states where there was a constitutional
usury provision); or (3) the date when the state specifically
and by reference rejected the federal usury law. As
stated earlier, Respondent never relied on this statute, as
the loan in question was made prior to its effective date.
It is evidently Petitioner’s position that in states
with a constitutional provision regarding usury the fed-
eral enactments did not become effective until July 1,
1981.
Petitioner reaches this conclusion on the wording of
§213 to Pub. L. No. 96-161, which reads as follows:
Notwithstanding any other provision of this title, sub-
ject to Sections 207(2) and (3) [the opt out pro-
visions], the provisions of this title shall continue
to apply until July 1, 1981, in the case of any state
having a constitutional provision regarding maximum
interest rates. (Emphasis added.)
It is clear that this provision gives the expiration
date of the amendment, and not its effective date. Only
by interpreting the emphasized phrase “this title” in
the above quoted portion of §213 to mean all of 12 U.S.C.
§85 and 12 U.S.C. §86 does Petitioner’s argument log-
ically proceed to the conclusion urged by him. Appar-
ently, Petitioner reads §213 to mean that the provisions
of 12 U.S.C. §85 (Petitioner’s interpretation of the mean-
ing of “this title’) as they existed prior to the amend-
ments contained in Pub. L. No. 96-161 would continue
in effect until July 1, 1981 in those states having a con-
stitutional provision regarding maximum interest rates.
Under Petitioner’s interpretation, the preemptive provi-
20
sions of Pub. L. No. 96-161 become effective in those
states having constitutional usury provisions beginning
July 1, 1981. This interpretation leads to a curious re-
sult in that Pub. L. No. 96-161 ceases to be effective in
those states having statutory usury provisions on July 1,
1980, a full year before they would become effective in
states having constitutional usury provisions. Obviously
such an interpretation makes no sense and must be
deemed to be without merit.
Petitioner’s argument on this issue and any refuta-
tion of it is unnecessary because Respondent never relied
on Pub. L. No. 96-161, as that enactment in no way
applied to the Petitioner’s loan. The effective date of
Pub. L. No. 96-161 was December 28, 1979 and Petitioner’s
loan was made on May 3, 1979. There is nothing in
Pub. L. No. 96-161, unlike Pub. L. No. 96-221, as amended
by Pub. L. No. 96-399, that permits retroactive applica-
tion. In the absence of applicable federal legislation
during that period, Respondent continued to operate under
state usury law. The proof showed that during the
period that Respondent was operating under state law,
it never exceeded the 18% ceiling (except for the two
inadvertent errors testified to by Mr. Dudley and ad-
dressed later in this brief).
The first of the federal usury laws that applied to
Respondent and to Petitioner’s loan is found in Pub. L.
No. 96-221 as amended by Pub. L. No. 96-399, codified
at 12 U.S.C. §86a. By its terms, this enactment, effec-
tive April 1, 1980, repealed Pub. L. No. 96-161, and pre-
empted any state law, whether statutory or constitutional.
that would prohibit the charging of a rate equal to 5%
over the discount rate of the Federal Reserve Bank.
including any surcharge. The amendments found in Pub.
21
L. No. 96-399, enacted October 8, 1980, made that rate
applicable to variable rate loans made prior to April 1,
1980. Respondent correctly relied on this statute, as
amended, because that statute preempted state law, and
because it applied to the Petitioner’s loan, which was
a variable loan made before April 1, 1980. The rates
charged Petitioner from December 2, 1980 to Novem-
ber 16, 1981, although over the 18% usury ceiling of
Tennessee, were not usurious because state law had been
effectively preempted by the federal statute that allowed
the higher rate. Simply stated, Respondent made no mis-
take of law in the rates it charged Petitioner.
The Trial Court And The Court Of Appeals Were
Correct In Holding That There Is No Evidence In The
Record To Support Petitioner’s Claim of Usury
Petitioner’s claim that Respondent collected some
“$25,000” in excess interest is based upon his incorrect
reading of the surcharge amendments to the federal usury
statutes as explained above. The only other usury alle-
gations discussed in the Petition relate to the issue of
whether the charging of $337.06 in allegedly “excess”
interest on the $475,000 promissory note was “knowingly
done” as required to subject Respondent to the forfeiture
and penalty provisions of 12 U.S.C. §86. That issue is
addressed in Petitioner’s Questions 3, 4 and 5 of his
Petition for Writ of Certiorari. Both the trial court
and the Court of Appeals held that Petitioner simply
failed to carry his burden of proof on that issue. The
focus of the inquiry by the Court of Appeals in addressing
this issue was whether there was any evidence that the
overcharges were made “knowingly” (Pet. App. 23) since
Respondent admitted that the interest charges occurred.
22
The Petitioner has the burden of meeting the stat-
utory test; a plaintiff must prove that the taking of
excess interest was “knowingly done.” The Petitioner
offered no proof on the issue of “knowingly done.” (Pet.
App. 40) The only testimony at the trial concerning
this issue came from Respondent’s witness, Charles B.
Dudley, III, who testified that Respondent inadvertently
and mistakenly charged Petitioner in excess of the amount
allowed by the federal discount rate plus five percentage
points on two occasions (May 29, 1980 through June 8,
1980 and September 8, 1980 through September 25, 1980).
Mr. Dudley testified that in each of those two instances
the overcharge resulted from an inadvertent oversight
in a clerk’s failure to lower Respondent’s usury ceiling
on the computer with regard to Petitioner’s notes when
the federal discount rate (and therefore the usury ceiling)
dropped. Mr. Dudley testified that Respondent was
undergoing a conversion in its computer systems which
made it impossible to add enhancements to the existing
system. Therefore it was necessary at the relevant times
manually to input the changes in the usury ceiling with
regard to each variable rate note. On these two occa-
sions there was simply a failure to reduce the interest
ceiling on the computer with regard to Petitioner’s note.
[Tr. Dudley, pp. 1341-1355 & Ex. 77 & 78]
Mr. Dudley testified that the usury ceiling or the
prime rate changed approximately one hundred times
during the period covered by this lending transaction.
[Tr. Dudley, p. 1340] He also testified that on three
occasions Respondent undercharged Petitioner due to the
same type of inadvertent clerical errors in setting the
rate on the computer that caused the “overcharges.” [Tr.
Dudley, pp. 1341-1355 & Ex. 77 & 78] Mr. Dudley’s un-
23
contradicted testimony established that these under-
charges preceded and exceeded the amount of the over-
charges, so that at all times Respondent on a cumulative
basis, charged Petitioner less than allowed by law and
the terms of the note. [Id.]
There was absolutely no contradictory testimony
from Petitioner or from any other witness during the
trial on the issue of the inadvertent errors that resulted
in the so-called “overcharges.” Although counsel for
Petitioner attempted to impeach Mr. Dudley’s testimony
by suggesting in his questions that the overcharges were
or may have been intentional, he produced no witness
to testify on this point and presented no other evidence
which would tend to prove any such intent, or to con-
tradict or impeach Mr. Dudley. (Pet. App. 41-42) Mr.
Dudley’s trial testimony, his deposition testimony and
his Affidavit in this case all reflect that the “overcharges”
were unintentional and inadvertent. Petitioner is not
entitled to a presumption of usury since the burden of
proof is on the plaintiff.
There is affirmative proof in the record showing
absence of intent (undercharges), and in light of the
harsh penalties for usury and the small amount of the
overcharges ($337.06), it is illogical to presume an intent
to exact excess interest on this note. Both the trial
court and the Court of Appeals so found.
It has been consistently held by courts considering
the issue of usurious intent that inadvertent errors in
bookkeeping or mathematical computations, when not
mistakes of law, are insufficient to show intent. Ford
Motor Credit Corp. v. Catalani, 238 Ark. 561, 383 S.W.2d
99 (1964); and White v. Kaminsky, 196 Tenn. 180, 264
24
S.W.2d 813, 815 (1954). See also cases collected at 11
A.L.R.3d §1498. In the instant case, there is no usurious
intent evident on the face of the note which distinguishes
it from typical usury cases. See Mutual Protective Corp.
v. Palatnick, 118 Conn. 1, 169 A. 917 (1934). In view
of the foregoing, the trial court and the Court of Ap-
peals held that proof of the requisite intent under 12
U.S.C. §86 was lacking and for that reason there was
no violation of the statute. Thus the trial court entered
judgment for Respondent, notwithstanding the jury in-
terrogatory. [(R. 51, Order on Motions for Summary
Judgment, entered September 20, 1984, p. 7; R. 128, Ruling
on Post-Trial Arguments and Motions) ]
Based upon the absence of any proof at trial that
the overcharges were made knowingly, the trial court
should not have sent the issue to the jury and properly
granted a judgment in favor of Respondent. The appli-
cable case law provides that “the burden to plead and
prove usury which does not appear on the face of an
instrument rests on the party seeking to avoid the in-
strument.” Maestro Music, Inc. v. Rudolph Wurlitzer
Co., 354 P.2d 266, 271 (Ariz. 1960); and Murphy Finance
Co. v. Fredricks, 127 N.W.2d 924 (Neb. 1964). The bur-
den of proof extends to proof of the element of intent.
Sumner v. Investment Mortgage Company of Florida, 332
So.2d 103 (Fla. App. 1976).
As the Court of Appeals and the trial court held.
there was an absence of proof of knowing conduct by
the Respondent. This is an essential element of usury
under 12 U.S.C. §86 which Petitioner had the burden
of proving “convincingly”. Wheeler v. Union National
Bank of Pittsburgh, 96 U.S. 268, 270, 24 L.Ed. 833 (1878).
25
Petitioner Failed To Prove The Elements Of A
Violation Of The Mail Fraud Statute
(18 U.S.C. §1341)
Finally, in Question 7, Petitioner seeks review of the
factual determination of both the trial court and the
Court of Appeals that there had been no evidence pre-
sented from which the jury could conclude that there
had been intent to defraud on behalf of Respondent as
required to establish the “predicate act” under RICO
i.e., a violation of the mail fraud statute, 18 U.S.C. $1341.
While Petitioner attempts to frame this issue in terms
of the need for a determination of the requisite level of
intent to defraud required under the mail fraud statute,
Respondent submits that this is not a proper case for
review of that issue since both the trial court and the
Court of Appeals in this case point to the complete ab-
sence of evidence of any type of intent to defraud, either
passive or active. What Petitioner is actually seeking
is a review by this Court of factual findings by the trial
court and the Court of Appeals. This Court will not
undertake such a review. National Labor Relations Board
v. Pittsburgh Steamship Co., 340 U.S. 498, 503, 71 S.Ct.
453, 95 L.Ed. 479 (1951). Petitioner cites to no support
in the transcript and makes no reference to any testi-
mony or proof whatsoever which he contends would sup-
port a finding that Respondent has committed mail fraud.
There is no such proof.
Although Respondent contends that the courts below
were correct in dismissing the RICO counts for a num-
ber of reasons, and although the trial court stated alter-
native grounds for its decision, clearly the lack of any
proof in the record whatsoever as to the existence of
mail fraud, and therefore the lack of a “predicate act”
under RICO adequately supports the rulings below.
26
Petitioner seems to argue that actual fraud is not a
necessary element of a violation of the mail fraud statute.
In Epstein v. United States, 174 F.2d 754 (6th Cir. 1949),
the Court of Appeals for the Sixth Circuit held that:
In order to prove a scheme to defraud under the mail
fraud statute, there must be proof of a scheme em-
bracing active or actual fraud. A charge of using
the mails to carry out a scheme to defraud cannot
be maintained on proof of mere constructive fraud.
(Emphasis supplied. )
Assuredly, we must consider fraud in mail fraud
cases according to the standard of what fraud is in
civil cases. That, however, is no qualification of the
rule that to sustain a charge of using the mails to
defraud, there must be proof of an actual fraud rather
than a constructive fraud. (Emphasis supplied.)
174 F.2d at 766.
Although the element of knowing participation in a
scheme to defraud may in appropriate cases be estab-
lished circumstantially, it cannot be based on “construc-
tive’ knowledge. Windsor v. United States, 384 F.2d 535
(9th Cir. 1967).
Relying upon a holding of this Court, the Sixth Cir-
cuit has recently applied the ruling in Epstein, supra
in the context of a violation of the mail fraud statute
as a predicate act in a RICO case. Bender v. Southland
Corp., 749 F.2d 1205 (6th Cir. 1984). In that case the
Court, upholding the dismissal of RICO counts in the
action, stated as follows:
We further hold that the district court properly dis-
missed the RICO claim in which the plaintiffs allege
that Southland committed mail fraud. The crime of
27
mail fraud has two elements: a scheme or artifice
to defraud and a mailing for the purpose of executing
the scheme. Pereira v. United States, 347 U.S. 1, 8,
74 S.Ct. 358, 362, 98 L.Ed. 435 (1954); United States
v. Talbott, 590 F.2d 192, 195 (6th Cir. 1978); United
States v. Schilling, 561 F.2d 659, 661 (6th Cir. 1977).
This court has held that the scheme to defraud must
involve:
[I]ntentional fraud, consisting in deception in-
tentionally practiced to induce another to part
with property or to surrender some legal right,
and which accomplishes the end desired. [A
scheme to defraud} requires intent to deceive or
defraud. [Emphasis the Court’s. }
Epstein v. United States, 174 F.2d 754, 756 (6th Cir.
1949). (Citations omitted.) This court has also held
that the scheme to defraud must involve “misrepre-
sentations or omissions reasonably calculated to de-
ceive persons of ordinary prudence and comprehen-
sion.” United States v. Van Dyke, 605 F.2d 220, 225
(6th Cir.), cert. denied, 444 U.S. 994, 100 S.Ct. 529,
62 L. Ed.2d 425 (1979).
749 F.2d at 1215-1216.
Petitioner failed to introduce any evidence from which
a jury could find a violation of 18 U.S.C. 81341. Fur-
thermore, Petitioner failed to introduce any evidence of
the underlying claim of a scheme of misrepresentation
which it claimed as giving rise to its RICO count. [R.
128, Ruling on Post-Trial Arguments and Motions, Pet.
App. p. 34] After two weeks of proof, fully considered
by the trial court and the Court of Appeals, Petitioner
now seeks to have this Court act as a fact finding body
and second guess the courts below.
28
CONCLUSION
For the reasons set forth above, the Petition for Writ
of Certiorari does not present issues which warrant re-
view by this Court. The Petition should therefore be
denied.
Respectfully submitted,
Leo M. BEARMAN
Counsel of Record
R. Mark GLOVER
HEISKELL, DONELSON, BEARMAN,
ApaMs, WILLIAMS & KIRSCH
2000 First Tennessee Bank
Building
Memphis, Tennessee 38103
(901) 526-2000
Attorneys for Respondent
First Tennessee Bank
N.A. Memphis
CERTIFICATE OF SERVICE
The undersigned counsel of record hereby certifies
that three copies of this Brief have been served upon
all parties required to be served by United States Mail,
postage prepaid, on the 9th day of February, 1989, in-
cluding Mr. Larry E. Parrish, The Crescent Center, 6075
Poplar Avenue, Suite 400, Memphis, Tennessee 38119.
Leo M. BEARMAN
Al
APPENDIX
Tenn. Code Ann. §47-14-102 (1979). Definitions.—
The following terms shall have the following meanings,
subject to additional definitions, specifications and lim-
itations contained in provisions of other statutes relating
to particular categories of lenders or of transactions:
(1) “Interest”? is compensation for the use or de-
tention of, or forbearance to collect, money over a period
of time; and does not include compensation for other
purposes, including, but not limited to, time-price dif-
ferentials, loan charges, brokerage commissions, or com-
mitment fees. For example, when you borrow money,
you pay the lender simple interest (which is like rent)
for the use of the money. The amount of interest you
pay depends on:
(A) the principal, which is the amount you
borrow;
(B) the rate, which is a percent based on a
period of time, usually 1 year; and
(C) the number of periods of time that you have
the use of the money.
Thus, interest equals principal X rate X time. Accord-
ingly, to determine the interest charged for borrowing
$500 for 3 years if the rate of interest is 9% per year,
we first calculate the interest for 1 year using the pro-
portion rate equal percent/base, or 9/100 equals 1/500;
where I stands for interest. interest equals 9 X 500/100
equals $45. For 3 years, the interest equals 3 X $45 equals
$135; or you can combine steps 1 and 2 so that interest
for 3 years equals (9% X $500) X 3 equals $135, pre-
suming that no payment is made toward the principal
of the loan during the three year period.
| einai
A2
(2) “Effective rate of interest” is the simple rate
of interest, i.e., the ratio between the interest payable
on an obligation and the principal for a period of time,
including the result of converting compound, discount,
add-on, or other nominal rates of interest into simple
rates of interest.
(3) “Formula rate” means an annual rate of interest
five (5) percentage points above the rate for advances
and discounts to member banks under §§ 13 and 13a of
the Federal Reserve Act, as now or hereafter may be
amended, in effect at the federal reserve bank of the
federal reserve district which includes the largest geo-
graphical area of this state.
(4) “Applicable formula rate” means either:
(A) the “formula rate” in effect at any given
time; or, at the election of the parties to the contract.
(B) the “formula rate” last published in the
Tennessee Administrative Register prior to the date
of the contract.
(5) “Actuarial method” means the method of allo-
cating payments made on a debt between the principal
and interest pursuant to which payment is applied first
to accumulated interest and any remainder is subtracted
from, or any deficiency is added to, the unpaid principal
balance of the debt.
(6) “Usury” is the collection of interest in excess
of the maximum amounts authorized by or pursuant to
this chapter or any other statute.
(7) “Principal” is the total amount of an obligation
to pay money on which interest is to be computed. With
respect to loans:
A3
(A) principal is the total amount of money paid
to, receivable by, credited to the account of, or pay-
able for the account of, a borrower;
(B) loan charges and other charges for which
the borrower contracts to pay may be included as
principal, subject to such limitations as may be im-
posed by statute;
(C) precomputed interest may not be included
as principal for the purpose of determining the simple
or the effective rate of interest.
(8) “Loan charges” are compensation to the lender
for services or expenses directly incident to a loan or
contract to make a loan; and do not include compensation
for other purposes, including, but not limited to, time-
price differentials, interest, brokerage commissions, or
commitment fees.
(9) “Time-price differential” is the difference, how-
ever denominated or expressed, between the amount
charged on a sale of property, or a charge for services,
for cash and the amount charged if payment were to be
deferred or if payment were to be made in future install-
ments; provided, however, that any difference in such
amounts charged with respect to the sale of real prop-
erty to be owned and occupied by the purchaser as his
principal place of residence for family residential pur-
poses shall be considered to be interest rather than time-
price diferential.
(10) “Commitment fees” are compensation to the
lender in return for its conditional or unconditional obli-
gation during a certain period of time to make a loan
or loans under specified terms and conditions.
A4
(11) “Brokerage commissions” shall include all fees
paid to mortgage bankers, banks, savings and loan asso-
ciations, savings banks, or other parties regularly engaged
in the business of originating and arranging for the place-
ment of loans secured by mortgages or deeds of trust
upon real estate for services performed in the origination
and placement of such loans with third party lenders,
whether the same be closed directly in the name of the
lender or, in the alternative, in the name of such mort-
gage banker or other party with the intention to sell
and transfer the same to such lender, provided that such
sale or a substantial portion thereof is completed within
one (1) year from the closing of such loan or the com-
pletion of construction, whichever is later. [Acts 1979,
ch. 203, § 1.]
Tenn. Code Ann. §47-14-103 (1979). Maximum ef-
fective rates of interest—Except as otherwise expressly
provided by this chapter or by other statutes, the max-
imum effective rates of interest shall be as follows:
(1) For all transactions in which provisions of other
statutes fix a maximum effective rate of interest for
particular categories of creditors, lenders, or transactions,
the rate so fixed;
(2) For all written contracts, signed by the party
to be charged, and not subject to subdivision (1) of this
section, the applicable formula rate; provided, however,
that in no event shall the applicable formula rate ex-
ceed eighteen percent (18%) per annum; and
(3) For all other transactions, ten percent (10%)
per annum. [Acts 1979, ch. 203, § 2.]
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.