Opinion ID: 2979910
Heading Depth: 2
Heading Rank: 1

Heading: Plaintiffs’ Bank Holding Company Act Claim

Text: In 1970, Congress amended the Bank Holding Company Act, 12 U.S.C. §§ 1841 et seq., by adding provisions that prohibit anticompetitive tying arrangements, id. §§ 1971 et seq. Whereas the original Act sought to regulate the power of bank holding companies “so as to prevent a small number of powerful banks from dominating commerce . . . the 1970 Antitying Amendment [] intended to reach anticompetitive practices of even smaller banks, which notwithstanding their comparative size, were able to exert economic power over businesses because of their control over credit.” Parsons Steel, Inc. v. First Ala. Bank of Montgomery, N.A., 679 F.2d 242, 244–45 (11th Cir. 1982). In relevant part, the Antitying Amendment provides that [a] bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement . . . that the 7 Case: 14-15297 Date Filed: 09/22/2015 Page: 8 of 18 customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service[.] 12 U.S.C. § 1972(1)(A). Here, Plaintiffs argue that Defendants forced on them an illegal tying arrangement when the latter insisted on and ultimately created an escrow account for the payment of real estate taxes, even though Plaintiffs had previously paid those taxes on their own and Plaintiffs were not otherwise in default on their loan obligations. Importantly though, Plaintiffs make no allegation that Defendants conditioned the grant of a loan to them in 2008 on the creation of an escrow account four years later, and for that reason they have failed to state a claim for an illegal tying arrangement in violation of the Antitying Amendment. Cf. Bass v. Boston Five Cent Sav. Bank, 478 F. Supp. 741, 743, 746–47 (D. Mass. 1979) (describing a loan agreement that conditioned the extension of credit on the establishment of an escrow account for the payment of taxes, and dismissing in part, on other grounds, plaintiffs’ related § 1972 and Sherman Act antitying claims). A tying arrangement conditions a consumer’s purchase of a desired product on his agreement to purchase a second product that he might not want. McGee v. First Fed. Sav. & Loan Ass’n of Brunswick, 761 F.2d 647, 648 (11th Cir. 1985); Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1502 (11th Cir. 1985). For example, where a grocer refuses to sell flour to a consumer unless he also purchases sugar, a tying arrangement exists. N. Pac. Ry. Co. v. United States, 356 8 Case: 14-15297 Date Filed: 09/22/2015 Page: 9 of 18 U.S. 1, 6–7 (1958). In the context of the Bank Holding Company Act, we have described an illegal tying arrangement as occurring, for example, when a bank refuses to extend credit to a borrower unless the latter also agrees to purchase a separate, unrelated bank service; conditions credit on the borrower providing to it a specific product or service unrelated to the extension of credit; or conditions credit on the borrower agreeing not to engage in a transaction with the bank’s competitors. Baggett v. First Nat’l Bank of Gainesville, 117 F.3d 1342, 1346 (11th Cir. 1997) (adopting the opinion of the district court). Clearly, no similar arrangement exists here. Plaintiffs had obtained their desired loan long before Defendants opened the undesired escrow account. In fact, Plaintiffs don’t even try to argue that the former event was contingent upon the latter, or otherwise occurred in anticipation of it. Put another way, Plaintiffs do not claim that Defendants required them, in 2012, to accept an escrow account in order to obtain, in 2008, a loan. Indeed, such a claim is not possible in a temporal sense because, absent some time travel mechanism, a person’s reluctant agreement to a demand in 2012 can never be said to have been given for the purpose of receiving a benefit that had already been conferred four years before. Nor do Plaintiffs claim that Defendants forced their acquiescence to the undesired escrow account by 9 Case: 14-15297 Date Filed: 09/22/2015 Page: 10 of 18 threatening alteration of the terms or conditions of their loan, such as by increasing the rate of interest.3 Consequently, Plaintiffs having failed to sufficiently plead that Defendants conditioned an extension of credit to them on their agreement to obtain an additional service, we conclude that the district court correctly dismissed their claim for violation of the Bank Holding Company Act. See Parsons Steel, 679 F.2d at 244–46 (affirming judgment notwithstanding the verdict for plaintiffs’ failure to establish a tying arrangement); see also Highland Capital, Inc. v. Franklin Nat’l Bank, 350 F.3d 558, 567–68 (6th Cir. 2003) (affirming summary judgment because plaintiff did not prove that “the purchase of the tied product or service was a mandatory condition or requirement of obtaining a loan from the lender.”). Moreover, even if Plaintiffs could surmount the first hurdle described above, they would falter on the next. A litigant who seeks to assert a claim for violation of the Antitying Amendment must allege that the “condition placed on the loan is (1) an unusual banking practice; (2) an anticompetitive tying arrangement; and (3) 3 The use of an escrow account to pay real estate taxes in the event of a default was a condition of Plaintiffs’ loan at its inception. As discussed infra, Plaintiffs argue the triggering event—a default—had not yet occurred, and therefore the escrow account Defendants created constituted a new condition imposed upon their loan. Such action, however, would give rise to a breach of contract claim, not a claim for an illegal tying arrangement in violation of the Bank Holding Company Act. 10 Case: 14-15297 Date Filed: 09/22/2015 Page: 11 of 18 a practice that benefits the bank.” Cohen v. United Am. Bank of Cent. Fla., 83 F.3d 1347, 1350 (11th Cir. 1996) (citing Parsons Steel, Inc., 679 F.2d at 245; Palermo v. First Nat’l Bank & Trust Co. of Okla. City, 894 F.2d 363, 368 (10th Cir. 1990); and Sanders v. First Nat’l Bank & Trust Co. in Great Bend, 936 F.2d 273, 278 (6th Cir. 1991)). Here, not only do Plaintiffs fail to allege that the creation of an escrow account for the payment of real estate taxes on a borrower’s mortgaged property is an unusual banking practice, they concede it is “typical” and “standard” in the industry, appears in their own loan documents, and even falls under an exception to the Antitying Amendment. 4 To avoid the dismissal of their Bank Holding Company Act count on the above ground, Plaintiffs argue that Defendants’ creation of an escrow account was unusual in this case because, while their loan documents called for that action if Plaintiffs committed a default, no default occurred. But even if factually accurate, Plaintiffs’ argument yields only a simple breach of contract claim, which cause of action Plaintiffs did not plead. A breach of contract claim cannot be contorted into a claim under the Antitying Amendment, particularly when the practice that is the subject of the alleged breach is standard in the banking industry. Indeed, one of Congress’s aims in passing the Amendment was to avoid “‘interfer[ing] with the conduct of appropriate traditional banking practices[.]’” Parsons Steel, Inc., 679 4 We make no judgment on the accuracy of the latter claim. 11 Case: 14-15297 Date Filed: 09/22/2015 Page: 12 of 18 F.2d at 245 (quoting Sen. Rep. No. 91–1084, 91st Cong., 2d Sess., reprinted in U.S. Code Cong. & Ad. News 5519, 5535 (1970)); see also Swerdloff v. Miami Nat’l Bank, 584 F.2d 54, 59 (5th Cir. 1978) (“It is sufficient to allege that the bank required a customer to do an act not related to nor usually provided in connection with a loan.”) (emphasis added) and 1 Grant S. Nelson, Real Estate Fin. Law § 4:17 (6th ed. 2014) (stating that the use of escrow accounts for the payment of taxes and insurance became “widespread” after the “depression experience of the 1930’s” and expanded in light of related Federal Housing Administration guidelines). Obviously, even for federally-chartered banks, not every wrong begets a federal cause of action. For all the above reasons, we conclude that the district court correctly dismissed Plaintiffs’ claim under the Bank Holding Company Act.