Title: MARQUETTE NAT., ETC. v. First of Omaha Serv.
Citation: 262 N.W.2d 358
Docket Number: 47561
State: Minnesota
Issuer: Minnesota Supreme Court
Date: November 10, 1977

262 N.W.2d 358 (1977) The MARQUETTE NATIONAL BANK OF MINNEAPOLIS, Respondent, v. FIRST OF OMAHA SERVICE CORPORATION, Appellant, and State of Minnesota, Intervenor, Respondent. No. 47561. Supreme Court of Minnesota. November 10, 1977. Rehearing Denied December 8, 1977. *359 Mackall, Crounse &amp; Moore, Clay R. Moore, Minneapolis, Swarr May, Smith &amp; Andersen, William E. Morrow, Jr., and Donald J. Buresh, Omaha, Neb., for appellant. Levitt, Palmer, Bowen, Bearmon &amp; Rotman and John Troyer and J. Patrick McDavitt, Minneapolis, for Marquette Nat. Bank. Warren Spannaus, Atty. Gen., Richard B. Allyn, Sol. Gen., Thomas R. Muck, Asst. Atty. Gen., Stephen Shakman and Roderick I. MacKenzie, Sp. Asst. Attys. Gen., St. Paul, for the State. Considered and decided by the court en banc. TODD, Justice. The Marquette National Bank of Minneapolis (Marquette) sought to enjoin the First National Bank of Omaha (Omaha Bank) and its wholly-owned subsidiary, First of Omaha Service Corporation (Omaha Service) from issuing BankAmericard credit cards to the State of Minnesota. The Omaha Bank program assessed customers an annual interest rate of 18 percent on unpaid balances of less than $1,000, to be computed upon the prior month's balance of the individual account. The Minnesota Credit Card Act (Minn.St. 48.185)[1] sets a maximum interest rate of 12 percent per annum with the interest charge to be based on an amount no greater than the average balance of the individual account for the prior month. As a result of procedural actions, Omaha Service remains as the only defendant, but the matter was considered as though the Omaha Bank still remained as a defendant. The district court entered judgment permanently enjoining Omaha Service from soliciting BankAmericard customers on behalf of the Omaha Bank in Minnesota in contravention of the provisions of Minn.St. 48.185. We reverse. Prior to the hearing on the matter, the parties agreed to a stipulation of facts which provides: The procedural history of this case is significant. Marquette originally commenced an action in Minnesota district court against the Omaha Bank, Omaha Service, and the Credit Bureau of St. Paul, Inc., alleging violations of the Minnesota Credit Card Act (Minn.St. 48.185), and the Minnesota Deceptive Trade Practices Act (Minn.St. 325.772); and seeking money damages and injunctive relief to restrain the defendant from solicitation in Minnesota *362 for defendant's BankAmericard program. Since the Omaha Bank was a national bank, the case was removed to the United States District Court for Minnesota pursuant to 28 U.S.C.A., § 1441. Marquette thereafter dismissed Omaha Bank as a party defendant, resulting in the case being remanded back to the state district court because of a lack of Federal subject matter jurisdiction.[2] The case then proceeded solely against Omaha Service. However, because Omaha Service's function is limited to entering into agreements with merchants and local banks, and, since it does not have control over the issuance of credit cards or establishing the rate of finance charge, the case was treated as if the Omaha Bank was still the defendant. The district court issued a permanent injunction against Omaha Service prohibiting the "solicitation of residents of the State of Minnesota or other activity in connection with * * * the operation of a bank credit card program" which violates Minn.St. 48.185. In issuing the permanent injunction, the court held that while Federal law prevents states from enacting laws which discriminate against classes of lendors, it does not preclude states from discriminating against classes of loans. The principal issue presented on appeal is whether a state may regulate, by statute, the credit card interest rate charged by a national bank located in another state but conducting business within the regulating state. National banks are regulated by the United States Congress. The amount of interest which a national bank may charge its customers is governed by 12 U.S.C.A., § 85, which provides in part: The application of this section to interstate credit transactions has been recently considered by both the Seventh and Eighth Circuit Courts of Appeals. In Fisher v. First National Bank of Chicago, 538 F.2d 1284 (7 Cir. 1976), certiorari denied, 429 U.S. 1062, 97 S. Ct. 786, 50 L. Ed. 2d 778 (1977), the court addressed a situation in which a national banking association with its principal place of business in Illinois was charging Fisher, an Iowa resident, interest on the unpaid balance of his monthly BankAmericard statement at a rate allowable in Illinois. Fisher brought an action alleging that the Illinois bank was charging usurious interest to Iowa residents under its Bank-Americard program. In permitting the Illinois bank to assess Illinois interest rates to Iowa resident users of the credit card, the court of appeals stated (538 F.2d 1289): After the action against the Illinois bank was in progress, the same plaintiff brought an almost identical action against the First National Bank of Omaha, challenging its right to charge Iowa resident customers of the Omaha BankAmericard program interest rates allowable in Nebraska. In Fisher v. First National Bank of Omaha, 548 F.2d 255, 257 (8 Cir. 1977), the court of appeals, in denying the plaintiff's claim, stated: Thus, we have a situation where the Eighth Circuit Court of Appeals, which includes the State of Minnesota, has adopted with approval the view of the Seventh Circuit that a national bank can charge its credit customers an interest rate allowable in the state where it is physically located, or the interest rate of the state where it is doing business, whichever is higher. At this point, the procedural history of this case assumes a greater importance. It appears fairly obvious that if the Omaha Bank had remained as a party defendant, the Federal District Court for Minnesota or for Nebraska would have followed the opinion of the Eighth Circuit. In reaching a decision to enjoin Omaha Service and, in practical effect, the Omaha Bank from operating their BankAmericard *364 program in Minnesota in violation of § 48.185, the district court sought to distinguish the two Fisher cases. In a well-reasoned memorandum accompanying its order, the district court discussed and interpreted the Fisher cases in light of the factual situation of the present case and determined those cases to be inapplicable as there did not exist a statute setting a credit card rate of interest in any of the states involved. The court concluded that while 12 U.S.C.A., § 85, precludes states from discriminating against lendors as a class, it does not prohibit a state from establishing classes of loans which are applied uniformly to all banks doing business in the state. If we were writing on a clean slate, this reasoning would appear to be more consistent with the history and purpose of the National Bank Act. The particular section of the National Bank Act under consideration in this case has been in existence for over a century. Obviously, the ramifications and problems resulting from bank credit card financing could not have been considered by Congress at the time of its adoption. Furthermore, a rather strong argument can be made that credit card financing is not purely banking business even though a bank may administer the program. The original version of the National Bank Act was enacted by Congress to protect national banks from discriminatory economic legislation by individual states in which the various national banks were located. The result of the Federal legislative efforts was to create what has commonly been referred to as a "most favored lendor status" for national banks. First National Bank in Mena v. Nowlin, 509 F.2d 872, 879 (8 Cir. 1975); United Missouri Bank of Kansas v. Danforth, 394 F. Supp. 774, 779 (W.D.Mo.1975). In the landmark case of Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409, 21 L. Ed. 862 (1874), the laws of Missouri limited the amount of interest chargeable by banks organized under state laws to 8 percent but allowed all other persons in the state to assess a 10-percent interest charge upon credit transactions. Within this statutory scheme a national banking association organized and located in the State of Missouri charged its credit customers a 9-percent interest rate which was alleged to be usurious. In an early interpretation of virtually identical statutory language to that employed in 12 U.S.C.A., § 85, the Supreme Court held that the National Bank of Missouri could lawfully charge its customers a 10-percent interest rate and reasoned (85 U.S. [18 Wall.] 412, 21 L.Ed. 683): The decisions reached in the Fisher cases injected a new attribute into the "most favored lendor status," which resulted in allowing the interstate shipment of interest rates by national banks in their credit card programs. This result is accomplished despite the fact that the individual state has attempted to specifically limit the interest rates allowable on certain loan transactions and its laws apply uniformly to all lending institutions within the state. Thus, by allowing a national bank to transport a given interest rate under these circumstances could afford it a distinct advantage in competing with state banking institutions, an advantage which appears to be contrary to the original purpose in adopting this particular section of the National Bank Act. However, we deem it inappropriate for this court to permit the use of procedural devices to obtain a result inconsistent with the existing doctrine in the Eighth Circuit. Consequently, we must reverse the district court's order which enjoins Omaha Service from operating the Omaha Bank's BankAmericard program by charging an interest rate in violation of § 48.185. Consistent with the reasoning in the Fisher cases, the Omaha Bank may assess an interest rate to its BankAmericard customers in Minnesota which complies with the applicable Nebraska statutory interest rate. See, Neb.Rev.Stat. § 8-820. Finally, we observe that under the present situation it is the responsibility of the United States Congress to resolve the obvious inequities created. A national bank engaged in the interstate business of credit card financing should not be able to avoid the provisions of Minnesota law relating to allowable interest rates. The granting of a pecuniary advantage to the national banks seems inconsistent with the original purposes of the banking act and contrary to the expressed local interest of the state in protecting its citizens from excessive financing charges. Reversed. SHERAN, Chief Justice (concurring specially). I agree with the result. I do not agree that the public suffers by application of the law in this case where users of credit cards now have a choice between competing suppliers. SCOTT, Justice (dissenting). I respectfully dissent. The original purpose of 12 U.S.C.A., § 85, of the National Bank Act was to prohibit states from discriminating against national banks in favor of local financial institutions. It was intended to put "national banks on an equal footing with the most favored lenders in the state without giving them an unconscionable and destructive advantage over all state lenders." First National Bank in Mena v. Nowlin, 509 F.2d 872, 880 (8 Cir. 1975). Section 85 thus was intended to insure intrastate competitive equality among state lenders and national banks. The Fisher decisions and the majority of this court interpret § 85 to apply in situations involving interstate transactions. These decisions and the majority would allow a credit card subsidiary of a Nebraska national bank to have rights greater than those enjoyed by national banks located in Minnesota. The shield of the Act has thus been turned into a sword which can now be used by national banks located outside Minnesota against local national banks. National banks located outside Minnesota would not only have most favored lender status in Minnesota, but rights greater than the most favored lender. Surely this result is not within the contemplation of the National Bank Act. *366 As the majority opinion states, "The decisions reached in the Fisher cases injected a new attribute into the `most favored lender status,' which resulted in allowing the interstate shipment of interest rates by national banks in their credit card programs." Additionally, should a simple credit card transaction between a local citizen and a local merchant be construed as a bank loan by the Nebraska bank to a Minnesota citizen as Fisher proclaims without question? Minnesota should reject such an extension as a misinterpretation of the National Bank Act[1] and exercise its own judgment. In such matters we are not bound by the Federal circuit court cases but only by holdings of the United States Supreme Court.[2] E. g., United States ex rel. Lawrence v. Woods, 432 F.2d 1072, 1076 (7 Cir. 1970). I would therefore affirm the trial court's issuance of the permanent injunction against Omaha Service prohibiting the solicitation of credit card customers in Minnesota as a violation of Minn.St. 48.185. YETKA, Justice (dissenting). I join in the dissent of Mr. Justice SCOTT. WAHL, Justice (dissenting). I join in the dissent of Mr. Justice SCOTT. [1] Minn.St. 48.185 provides in pertinent part: "Subd. 3. A bank or savings bank may collect a periodic rate of finance charge in connection with extensions of credit pursuant to this section, which rate does not exceed one percent per month computed on an amount no greater than the average daily balance of the account during each monthly billing cycle. If the billing cycle is other than monthly, the maximum finance charge for that billing cycle shall be that percentage which bears the same relation to one percent as the number of days in the billing cycle bears to 30. "Subd. 4. No charges other than those provided for in subdivision 3 shall be made directly or indirectly for any credit extended under the authority of this section, except that there may be charged to the debtor: "(a) Annual charges, not to exceed $15 per annum, payable in advance, for the privilege of using a bank credit card which entitled the debtor to purchase goods or services from merchants, under an arrangement pursuant to which the debts resulting from the purchases are paid or satisfied by the bank or savings bank and charged to the debtor's open and loan account with the bank or savings bank." [2] If Marquette had not dismissed the Omaha Bank as a party defendant, the case would have undoubtedly been transferred to the United States District Court for Nebraska since a national bank can only be sued in the forum where it is established. See, Radzanower v. Touche Ross &amp; Co., 426 U.S. 148, 96 S. Ct. 1989, 48 L. Ed. 2d 540 (1976). [3] But see, Meadow Brook National Bank v. Recile, 302 F. Supp. 62, 73 (E.D.La.1969), in which the court reasoned: "In effect, 12 U.S.C. § 85 provides that a national bank may charge interest at the rate allowed by the laws of the state where the bank is located. The question is whether this was meant to fix the rate of interest on all loans made by the bank or merely those loans made in that state. Admittedly, the above quoted language would seem to include all loans made by the bank and not solely those made in the state where the bank is located. * * * * * * * * * "We hold that 12 U.S.C. § 85 fixes the rate of interest chargeable by a national bank only as to loans made in the state where the bank is located; it does not fix the rate of interest which may be charged by a national bank which is located in one state and makes a loan in another state." This reasoning was disapproved by the Seventh Circuit in Fisher v. First National Bank of Chicago, 538 F.2d 1284, 1290 (7 Cir. 1976), certiorari denied, 429 U.S. 1062, 97 S. Ct. 786, 50 L. Ed. 2d 778 (1977): "We are not inclined to so twist the plain meaning of the statute. It clearly states that the interest on `any loan' is governed by the rate allowed by the state `where the bank is located,' which in this case is Illinois." [1] The trial court, in its order of December 22, 1976, stated: "To take a statute that has been on the books for almost 100 years and find in that law an intention, in 1976, to nullify a financial practice of 200 years standing is ludicrous and makes a mockery of the doctrine of legislative intent. If there be any intent in Congress it must be to preserve the financial customs of so long a standing in our Republic." [2] "While a decision of a federal court, other than the Supreme Court, may be persuasive in a state court on a federal matter, it is, nevertheless, not binding, since the state court owes obedience to only one federal court, namely the Supreme Court." 1B Moore, Federal Practice, Par. 0.402[1], p. 65 (2 ed.).