Court Opinion

ID: 3037871
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:57:22.002384+00
Date Added: 2024-06-11T09:40:58.031287
License: Public Domain

United States Court of Appeals
                        FOR THE EIGHTH CIRCUIT
                                ___________

                                No. 03-3423
                                ___________

Alvin L. Phipps; Linda L. Phipps;          *
John A. St. Clair; Elizabeth R. St. Clair; *
Shawn V. Starkey; Lorene A. Starkey, *
                                           *
              Appellants,                  *
                                           *
       v.                                  *
                                           *
Federal Deposit Insurance Corporation; *
GMAC-Residential Funding                   *
Corporation, a Minnesota Corporation; * Appeal from the United States
Residential Funding Mortgage Securities* District Court for the Western
II, Inc., a Minnesota corporation; Chase * District of Missouri.
Manhattan Bank, as Indenture Trustee *
of the GMAC-RFC and RFMS                   *
Securitized Trusts; Wilmington Trust *
Company, as Owner Trustee of the           *
GMAC-RFC and RFMS Securitized              *
Trusts; Homecomings Financial              *
Network, Inc., a Delaware corporation; *
Household Finance, Inc., a Delaware        *
corporation; Does, 1 through 25,           *
                                           *
              Appellees.                   *
                                    ___________

                           Submitted: March 17, 2005
                              Filed: July 28, 2005
                               ___________
Before RILEY, BOWMAN, and GRUENDER, Circuit Judges.
                           ___________

RILEY, Circuit Judge.

       The plaintiffs, Alvin and Linda Phipps (Phipps), John and Elizabeth St. Clair
(St. Clair), and Shawn and Lorene Starkey (Starkey) filed a putative class action
lawsuit in Missouri state court, seeking to recover allegedly unlawful fees charged on
second mortgage loans by Guaranty National Bank of Tallahassee (GNBT). GNBT
and other defendants removed to the federal district court,1 which denied the
plaintiffs’ motion to remand and granted the defendants’ motions to dismiss. We
affirm.

I.    BACKGROUND
      The plaintiffs purport to represent a class of Missouri borrowers who took out
second mortgage loans from GNBT, a federally chartered national bank located in
Florida and regulated by the Office of the Comptroller of Currency (OCC).2 The

      1
       The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.
      2
       After briefing on appeal, the Federal Deposit Insurance Corporation (FDIC)
was appointed as Receiver for GNBT, pursuant to 12 U.S.C. §§ 191 and 1821(c), and
was granted leave to substitute itself for GNBT as an appellee in this case. The FDIC
substitution clearly establishes federal court jurisdiction to resolve this case. “Under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(‘FIRREA’), suits to which the FDIC is party are generally deemed to arise under the
laws of the United States and, as such, should be litigated in federal court.” Dewey
v. Lutz, 930 F.2d 597, 598 (8th Cir. 1991). Indeed, 12 U.S.C. § 1819(b)(2)(A)
provides, with certain exceptions not germane to this appeal, that “all suits of a civil
nature at common law or in equity to which the [FDIC], in any capacity, is a party
shall be deemed to arise under the laws of the United States.” The FDIC’s
appointment as receiver “conferred instant subject matter jurisdiction over the case.”
Heaton v. Monogram Credit Card Bank of Ga., 297 F.3d 416, 426 (5th Cir. 2002).

                                          -2-
plaintiffs filed a putative class action in Missouri state court against GNBT, and also
against GMAC-Residential Funding Corporation (RFC), Household Finance
Corporation III (Household), and other defendants. The plaintiffs alleged GNBT
charged them unlawful fees on their second mortgage loans, in violation of
Missouri’s Second Mortgage Loan Act (SMLA), Mo. Rev. Stat. §§ 480.231-.241, and
later sold the second mortgage loans to the other defendants, including RFC and
Household. The plaintiffs claim GNBT unlawfully charged loan origination, loan
discount, underwriting, and application fees; settlement fees; abstract fees; title search
and examination fees; and document review fees, “together with charging high
interest rates all as part of a scheme to make high-cost loans to Missouri borrowers,
as well as borrowers across the country.” The plaintiffs also claim the loan
origination and loan discount fees actually were “finder’s fees” paid to a third party,
Equity Guaranty LLC (Equity), although the plaintiffs signed Settlement Statements
(HUD-1s) with the Department of Housing and Urban Development (HUD) stating
these fees were paid to GNBT. The plaintiffs further claim GNBT and Equity
conspired “to give the appearance of making these loans through a national
bank . . . to . . . avoid the consumer protection laws of the states.”

       In their state court petition (complaint), the plaintiffs sought a refund of the
allegedly unlawful fees and interest paid and also sought to enjoin the defendants
from collecting interest on the loans. Phipps allege they were charged 16.99%
interest on a 15-year loan, and St. Clair and Starkey claim they were charged 11.99%
interest on 25- and 15-year loans, respectively. The district court noted Missouri’s
usury law currently caps interest rates at 10%. See Mo. Rev. Stat. § 408.030.1.
However, the plaintiffs strenuously argue their claims are based on unlawful fees
charged, not unlawful interest.

       The defendants removed the case to federal court based on federal question
jurisdiction. The plaintiffs sought remand, claiming they had not stated a claim for
excessive interest against the defendants, so federal jurisdiction did not exist. In

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response, the defendants argued the plaintiffs’ claims are usury claims against a
national bank. The defendants contended federal law preempts the claims, because
the fees charged were actually “interest” under the broad definition afforded that term
under federal law. Thus, the defendants argued the federal court had jurisdiction.
Further, the defendants moved to dismiss the plaintiffs’ claims, because the complaint
did not state a claim for which relief could be granted. Household also moved to
dismiss, claiming the plaintiffs lacked standing to sue Household, as it did not hold
any of the plaintiffs’ mortgages.

       The district court denied the plaintiffs’ motion to remand, concluding the loan
origination and discount fees fit within the OCC’s definition of interest, so under
federal law, the plaintiffs’ claims were for interest, not fees. The court ruled federal
statutes governing national banks create an exclusive cause of action against national
banks for usury; thus, no state law cause of action exists. Next, because the plaintiffs
attempted to assert a usury claim against a national bank based upon the SMLA, a
Missouri statute, the district court dismissed the complaint for failure to state a claim
for which relief could be granted. Finally, the court concluded Household’s motion
to dismiss was moot, but granted the motion, because the claims against Household
derived from those against GNBT.

II.    DISCUSSION
       “We review the district court’s denial of a motion to remand and its dismissal
of the complaint on grounds of preemption under a de novo standard.” Gore v. TWA,
210 F.3d 944, 948 (8th Cir. 2000). As to the motion to dismiss, under Federal Rule
of Civil Procedure 12(b)(6), we must accept the plaintiffs’ factual allegations as true
and grant all reasonable inferences in the plaintiffs’ favor. MM&S Fin., Inc. v. Nat’l
Ass’n of Sec. Dealers, Inc., 364 F.3d 908, 909 (8th Cir. 2004). We may affirm the
district court’s dismissal on any basis supported by the record. In re K-tel Int’l, Inc.
Sec. Litig., 300 F.3d 881, 889 (8th Cir. 2001) (citation omitted).

                                          -4-
       A.     Preemption
       A defendant may remove a state law claim to federal court when the federal
court would have had original jurisdiction if the suit originally had been filed there.
See 28 U.S.C. § 1441(b). Removal based on federal question jurisdiction is usually
governed by the “well-pleaded complaint” rule. Krispin v. May Dep’t Stores Co., 218
F.3d 919, 922 (8th Cir. 2000). This rule provides that federal jurisdiction may be
invoked “only where a federal question is presented on the face of the plaintiff’s
properly pleaded complaint.” Id. The rule also “makes the plaintiff the master of the
claim,” allowing the plaintiff to “avoid federal jurisdiction by exclusive reliance on
state law.” Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). An independent
corollary to this general rule is the “complete preemption” doctrine, “under which the
preemptive force of certain federal statutes is deemed so ‘extraordinary’ as to convert
complaints purportedly based on the preempted state law into complaints stating
federal claims from their inception.” Krispin, 218 F.3d at 922 (citing Caterpillar Inc.,
482 U.S. at 393). Only claims falling within the preemptive scope of a federal statute
are considered to invoke federal question jurisdiction, and the presence of even a
single federal claim gives the defendant the right to remove an entire case to federal
court. Gaming Corp. of Am. v. Dorsey & Whitney, 88 F.3d 536, 543 (8th Cir. 1996).

       The National Bank Act (NBA), 12 U.S.C. §§ 21-216d, authorizes a national
bank “to charge interest at the rate allowed by the laws of the state in which the bank
is located.” Krispin, 218 F.3d at 922 (citing 12 U.S.C. § 85).3 The NBA preempts
actions challenging the lawfulness of the interest charged by a national bank. In
Beneficial National Bank v. Anderson, 539 U.S. 1, 11 (2003), the Supreme Court held
sections 85 and 86 of the NBA “supersede both the substantive and the remedial
provisions of state usury laws and create a federal remedy for overcharges that is

      3
       Because GNBT is located in Florida, it is allowed to charge interest at the rate
allowed by Florida law. Florida’s usury rate is currently set at 18%. See Fla. Stat.
Ann. § 687.03(1).

                                          -5-
exclusive, even when a state complainant . . . relies entirely on state law.” The Court
reasoned “[u]niform rules limiting the liability of national banks and prescribing
exclusive remedies for their overcharges are an integral part of a banking system that
needed protection from ‘possible unfriendly State legislation.’” Id. at 10 (citation
omitted). “Because §§ 85 and 86 provide the exclusive cause of action for such
claims, there is, in short, no such thing as a state-law claim of usury against a national
bank. Even though the complaint makes no mention of federal law, it unquestionably
and unambiguously claims that petitioners violated usury laws.” Id. at 11; see also
Krispin, 218 F.3d at 922 (“We have held that sections 85 and 86 . . . completely
preempt state law claims of usury brought against a national bank.”).

       As the district court observed, the remand issue here boils down to whether the
plaintiffs brought a claim of unlawful interest charged by the defendants,
notwithstanding the plaintiffs’ protestations their claims focused on unlawful fees.
The plaintiffs argue the loan origination and discount fees were merely “finder’s fees”
paid to Equity, which they contend are excluded from the OCC’s definition of
interest. However, we are required to look beyond the plaintiffs’ artful attempts to
characterize their claims to avoid federal jurisdiction, M. Nahas & Co., Inc. v. First
Nat’l Bank of Hot Springs, 930 F.2d 608, 611-12 (8th Cir. 1991), to determine
whether the plaintiffs actually allege unlawful interest claims without expressly using
the word “interest.”

        For purposes of 12 U.S.C. § 85, interest is defined as “any payment
compensating a creditor or prospective creditor for an extension of credit, making
available of a line of credit, or any default or breach by a borrower of a condition
upon which credit was extended.” 12 C.F.R. § 7.4001(a). Among other things,
interest includes certain fees associated with credit extension or availability, such as
“numerical periodic rates, late fees, creditor-imposed not sufficient funds (NSF)
fees . . . , overlimit fees, annual fees, cash advance fees, and membership fees.” Id.
However, interest “does not ordinarily include appraisal fees, premiums and

                                           -6-
commissions attributable to insurance guaranteeing repayment of any extension of
credit, finder’s fees, fees for document preparation or notarization, or fees incurred
to obtain credit reports.” Id. If any of the fees charged in the present case fall within
the definition of interest, the NBA preempts those claims and removal of the entire
case was proper. See Gaming Corp. of Am., 88 F.3d at 543.

       The Supreme Court has held various fees, such as late fees, are not excluded
from the NBA’s definition of interest simply because the fees do not vary depending
on the amount owed or the length of the delay. Smiley v. Citibank (S.D.), N.A., 517
U.S. 735, 745 (1996). The Court found no indication from prior decisions that
interest is “limited to charges expressed as a function of time or of amount owing.”
Id. The Court explained “[i]t would be surprising to find such a requirement in the
Act, if only because it would be so pointless. Any flat charge may, of course, readily
be converted to a percentage charge–which was indeed the basis for 19th-century
decisions holding that flat charges violated state usury laws establishing maximum
‘rates.’” Id. at 745-46. The Court concluded it was rational to consider as interest
those expenses “assessed for simply making the loan.” Id. at 741-42. The Court
opined the OCC’s definition draws a reasonable line between (1) payments
compensating creditors for extending credit or making a line of credit available, and
(2) “all other payments.” Id. at 741. Several courts, including our own, have held
charges similar to those in this case are considered interest. See, e.g., Fisher v. First
Nat’l Bank, 548 F.2d 255, 258-61 (8th Cir. 1977) (cash-advance fee considered
interest); Cronkleton v. Hall, 66 F.2d 384, 387 (8th Cir. 1933) (commissions and
bonuses considered interest); see also Greenwood Trust Co. v. Mass., 971 F.2d 818,
825 (1st Cir. 1992) (late fees and other “kindred charges” considered interest); Am.
Timber & Trading Co. v. First Nat’l Bank, 690 F.2d 781, 787-88 (9th Cir. 1982)
(“compensating balance requirement” as condition for receiving loan considered
interest). But see Hancock v. Bank of Am., 272 F. Supp. 2d 608, 610 (W.D. Ky.
2003) (fax fee not considered interest); Video Trax v. NationsBank, N.A., 33 F. Supp.
2d 1041, 1059 (S.D. Fla. 1998) (bank overdraft fee not considered interest).

                                          -7-
       In this case, most, if not all, the fees the plaintiffs claim are unlawful fall within
the OCC’s definition of interest. Clearly, the loan origination and discount fees
qualify as interest. Origination fees are “charged by a lender for preparing and
processing a loan.” Black’s Law Dictionary 648 (8th ed. 2004). Unlike the charges
normally incurred regardless of whether a loan is made, a loan origination fee is one
assessed after a loan is approved. Similarly, a loan discount fee is assessed by the
lender to reduce the interest rate charged on a loan. As the district court noted, the
OCC has reasoned that fees charged for opening an account with a bank are interest,
because these fees are payments made to compensate a creditor for extending credit
rather than a charge “‘specifically assigned’ to cover the cost of an activity or
service.” See OCC Interpretive Letter No. 803, 1998 WL 320183, at *3 (citation
omitted). The HUD-1 Settlement Statements the plaintiffs signed list the loan
origination, loan discount, underwriting, and application fees under the subheading
“Items Payable in Connection with Loan,” further convincing us these alleged fees
actually were payments compensating the creditor for an extension of credit. See
Smiley, 517 U.S. at 741-42. Furthermore, the instructions for completing the
Settlement Statements provide that Line 801, the line listing the loan origination fee,
“is used to record the fee charged by the Lender for processing or originating the
loan,” while “Line 802 is used to record the loan discount or ‘points’ charged by the
Lender.” 24 C.F.R. § 3500, App. A. The loan origination and loan discount fees, as
well as the underwriting and application fees, clearly were charged as compensation
to GNBT for extending credit, rendering these charges interest within the OCC’s
definition.

      The plaintiffs’ characterization of the various fees as non-interest “finder’s
fees” paid to Equity is unavailing. Courts must look at “the originating entity (the
bank), and not the ongoing assignee . . . in determining whether the NBA applies.”
Krispin, 218 F.3d at 924; see 12 C.F.R. § 7.1004(a) (“A national bank may use the
services of, and compensate persons not employed by, the bank for originating
loans.”). In this case, the plaintiffs signed numerous loan documents in which they

                                            -8-
acknowledged GNBT was the lender that funded and made the loans and charged the
fees. And the plaintiffs’ complaint repeatedly states GNBT was the lender. The
district court correctly disregarded the plaintiffs’ “finder’s fees” argument.

       The plaintiffs argue our court has no jurisdiction to review whether the charges
at issue in this case actually were interest, because the plaintiffs dispute the assertion
that the charges were interest. The plaintiffs’ complaint did not include claims for
usurious interest, so the issue whether the claims involve interest is disputed. The
plaintiffs contend removal jurisdiction does not exist unless a plaintiff’s claims
indisputably are based on excessive interest. Any assertion that a federal court’s
jurisdiction somehow depends upon a lack of objection by a litigant is misguided.
Subject matter jurisdiction is not controlled by the desires of one of the parties, see
Dale v. Weller, 956 F.2d 813, 815 (8th Cir. 1992) (noting “subject matter jurisdiction
cannot be conferred by the parties by waiver or otherwise”), and “[a] plaintiff’s
characterization of a claim as based solely on state law is not dispositive of whether
federal question jurisdiction exists,” Peters v. Union Pac. R.R. Co., 80 F.3d 257, 260
(8th Cir. 1996). As noted above, we simply are not required to look only to the
plaintiffs’ artful pleading and characterizations of the evidence to determine our
jurisdiction. M. Nahas & Co., 930 F.2d at 612. The district court properly concluded
some of the fees the plaintiffs challenge actually were interest within the OCC’s
definition. Accordingly, the court rightly concluded federal law preempted those
claims and provided removal jurisdiction.

      B.     Dismissal
      Once the district court determined the plaintiffs’ claims are preempted, it was
a short step to conclude these claims must be dismissed. The court found it
“impossible . . . to retain jurisdiction but not dismiss the case. If the [plaintiffs’] case
is completely preempted by federal law, the claims are anomalous and must be
dismissed. If the Court declines jurisdiction, the Court lacks authority to rule on the
motions to dismiss and they are thus moot.” As the court stated, the plaintiffs’

                                            -9-
“complaint attempts to state what does not exist, to wit: a usurious claim against a
national bank premised on Missouri law. This is not a claim for which relief may be
granted.” Because “there is . . . no such thing as a state-law claim for usury against
a national bank,” Beneficial, 539 U.S. at 11, the district court properly dismissed the
plaintiffs’ claims.

       Even if we assume all the fees the plaintiffs contest could not be considered
interest within the OCC’s definition and, therefore, are not preempted, any claims
based on those fees would be considered removable under 28 U.S.C. § 1441(c) as part
of the court’s supplemental jurisdiction under 28 U.S.C. § 1367(a). Although the
district court determined it could not reach these claims based upon its ruling
dismissing the plaintiffs’ complaint, the record supports dismissal under the SMLA.
See K-tel, 300 F.3d at 889 (stating we may affirm dismissal on any basis supported
by the record). The SMLA requires, as an essential element of a claim thereunder,
that the interest rate a bank charges exceed the rate limits provided by Missouri
statute. “To state a civil claim under these provisions of the SMLA, [the plaintiffs]
had to plead facts establishing that: (1) they obtained a secondary mortgage loan;
(2) an unlawful rate of interest was charged on the loan; and (3) the fees charged in
connection with the loan were not authorized by Section 408.233.” Avila v. Cmty.
Bank of Va., 143 S.W.3d 1, 4-5 (Mo. Ct. App. 2003). The SMLA “shall not apply
to any loans on which the rate of interest . . . charged [is] lawful . . . .” Mo. Rev. Stat.
§ 408.232.4. The plaintiffs argue they do not allege a claim for unlawful interest;
therefore, they have failed to state a claim under Missouri law for which relief may
be granted.

      Furthermore, even assuming the plaintiffs attempted to claim they were charged
an unlawful interest rate, they would not have a claim for which relief could be
granted, because GNBT, as a national bank from Florida, was allowed to “export” the
maximum interest rate it could have charged under Florida law, even if that rate
would be unlawful in Missouri. See Smiley, 517 U.S. at 743-44; Marquette Nat’l

                                           -10-
Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 314, 318-19
(1978); Krispin, 218 F.3d at 922. At the time of the transactions in this case, the
maximum interest rate permissible under Florida law was 18%, see Fla. Stat. Ann.
§ 687.03(1), so none of the plaintiffs were charged an unlawful interest rate.
Accordingly, even if the plaintiffs asserted they were charged an illegal interest rate,
the plaintiffs would have failed to make out a valid SMLA claim, and dismissal of
their complaint would have been proper.

      Additionally, for the reasons stated in the district court’s opinion, we affirm its
dismissal of Household.

III.  CONCLUSION
      We affirm the district court’s order denying the plaintiffs’ motion to remand
and dismissing the plaintiffs’ complaint.
                       ______________________________

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