Court Opinion

ID: 9474768
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:08:17.490089+00
Date Added: 2024-06-11T17:44:19.440552
License: Public Domain

HUNTER, Circuit Judge,
Dissenting:
1. Although the Majority is fully cognizant that the result it reaches today is inconsistent with the traditional judicial interpretation of usury statutes, it nevertheless believes that the “plain language” of the Virgin Islands’ statute compels its holding. In my view, this conclusion reveals a fundamental misunderstanding of the doctrine that formed the foundation for the Virgin Islands’ usury law. Moreover, the Majority Opinion ignores the established canons of Virgin Islands statutory interpretation. I must dissent.
I.
First enacted in the American colonies in the late seventeenth and early eigh*226teenth centuries, usury laws were designed to protect the debtor class — the so-called “borrowing class” — from exploitation by unscrupulous money lenders. Firmly rooted in the morals of pre-industrial society, usury laws also benefited merchants by ensuring the availability of commercial credit at reasonable rates. These laws rested on a sharp conceptual distinction between money, which could and should be regulated, and commodities, which were traded on the open market free from legislated price restrictions. See Shanks, Practical Problems in the Application of Archaic Usury Statutes, 53 Va.L.Rev. 327-28 (1967).1
Eventually, the distinction between money and commodities collapsed, but not before judicial interpretation of usury laws incorporated the distinction in the “time-price differential” doctrine. The doctrine holds that finance charges in excess of the highest lawful rate of interest are not within the scope of usury laws if the charges are included in a bona fide sale contract as part of the “time” or credit price. The Supreme Court placed its imprimatur on this doctrine in 1861, stating:
[I ]t is manifest that if A propose to sell to B a tract of land for $10,000 in cash, or for $20,000 payable in ten annual instalments, and if B prefers to pay the larger sum to gain time, the contract cannot be called usurious. A vendor may prefer $100 in hand to double the sum in expectancy, and a purchaser may prefer the greater price with the longer credit; and one who will not distinguish between things that differ, may say, with apparent truth, that B pays a hundred per cent for forbearance, and may assert that such a contract is usurious: but whatever truth there may be in the premises, the conclusion is manifestly erroneous. Such a contract has none of the characteristics of usury; it is not for the loan of money, or forbearance of a debt.
Hogg v. Ruffner, 66 U.S. (1 Black) 115, 118-19 (1861).
The time-price differential doctrine may profitably be viewed as a judicial gloss on usury laws premised on the conceptual distinction between money and commodities and the underlying policy of usury statutes, i.e., to protect certain favored classes against lenders who would otherwise loan money at exorbitant rates. See 45 Am. Jur. 2d § 127 (1969); Annot., 14 A.L.R.3d 1065, §§ 4, 5 (1967). The doctrine does not exclude the sales of goods entirely from the usury laws, however. Most courts recognize that the doctrine was never intended to shield “sham” transactions, i.e., sales that are actually loans, rather than sales of real or personal property. See Note, Judicial and Legislative Treatment of “Usurious” Credit Sales, 71 Harv.L.Rev. 1143, 1144 (1958). In so qualifying the doctrine, those courts review the transaction to ensure that a bona fide credit sale exists, i.e., that the form of a “sale” does not conceal its true nature as a loan. See Daniel v. First National Bank of Birmingham, 227 F.2d 353, 356 (5th Cir.1955); McGalliard v. Liberty Leasing Co., 534 P.2d 528, 530 (Alaska 1975). Whether a particular transaction is a scheme to evade the application of usury laws is generally considered to be a question of fact, Annot., 14 A.L.R.3d 1065, § 12 (1975), and a number of tests to indicate the presence of a usurious “sale” have been formulated. See Annot., 14 A.L. R.3d 1065, § 13. In the consumer context, these tests are directed toward preventing adhesive credit contracts by ensuring the disclosure of the difference between the cash price and the credit price:
[O]ne indicium frequently cited as indicating that a purported sale on credit at a price higher than would have been *227charged for a cash sale is merely a scheme or device to evade the usury laws, is that there was no clear disclosure by the seller of the two prices, or as it is sometimes stated, that the buyer has no real choice between a cash sale at one price and a credit purchase at an advanced price.
Annot., 14 A.L.R.3d 1065, 1128-29.
In the instant case, the district court, relying on the general acceptance of the time-price doctrine in the context of revolving charge account agreements, see Kass v. Garfinckel, Brooks Brothers, Miller & Rhoads, Inc., 299 A.2d 542 (D.C.App.1973) (18% per annum); Sliger v. R.H. Macy & Co., Inc. 59 N.J. 465, 283 A.2d 904 (1971) (18% per annum), held that the doctrine applied to Foreign Commerce’s charge account. In so holding, the court correctly followed the dictates of V.I. Code Ann. tit. 1, § 4 (1967), which requires Virgin Islands courts to apply the majority common law rule. See Benoit v. Panthaky, 780 F.2d 336, 339 (3d Cir.1985).
On the record before us, however, it is evident that the district court erred in failing to consider whether Foreign Commerce disclosed the time-price to Tonn. Indeed, the only evidence that bears on disclosure is the receipt’s statement that the net price would be due in ten days. Lacking a finding as to whether Foreign Commerce adequately disclosed the 1V2% service charge, I would remand this case to the district court.
II.
The Majority is unconcerned with the traditional judicial interpretation of usury laws because it grounds its decision on the “plain language” of the Virgin Islands usury statute. Maj. Op., typescript at 9. Specifically, the Majority reads the language in V.I. Code Ann. tit. 11, § 952 (1982)2 to proscribe unlawful interest resulting from “any bargain, sale or loan of merchandise, goods, chattels, lands and tenements” literally. Yet this literal reading abstracts § 952 from the body of law providing the framework for the statute, and, in so doing, violates the accepted rules of statutory construction.
Three jurisdictions explicitly include the sales of goods in the language of their usury laws: Alaska, Iowa, and the Virgin Islands. The Majority rests its interpretation of § 952 on the Iowa Supreme Court’s relatively recent interpretation of the Iowa usury statute. In State ex rel. Turner v. Younker Brothers, Inc., 210 N.W.2d 550 (Iowa 1973), the Iowa Supreme Court discarded more than one-hundred years of Iowa precedent when it held that the time-price differential doctrine did not apply to a sale of goods. In 1869 the court had reached the opposite result, analyzing its usury statute3 with language closely tracking the Supreme Court’s reasoning in Ruff-ner:
[O]ne man may rightfully sell his property to another for a certain sum in money down; or he may ask and receive a much larger sum on condition it is not paid for till a future day, and the fact that the increased price payable at a future day was more than the legal interest on the cash price, would not make the contract usurious. In other words, the owner of property may sell it for such price as he can get, either in cash down or payable at a future day, and although the price payable at the future day may be twice or thrice as much as the down price or as many per cent per month more than it, yet this will not make it usurious. The *228reason is, that such contracts are not within the statute against usury. Of course, if such contracts are resorted to as a cover for usury — to evade the usury laws — they will be held usurious. But the jury did not so find in this case.
Gilmore & Smith v. Ferguson & Cassell, 28 Iowa 220, 223 (1869). Until 1973, the Iowa Supreme Court relied on Gilmore & Smith for the proposition that bona fide sales of goods or services were not covered by the Iowa statute. See McGill v. Griffin, 32 Iowa 445 (1871); Weatherby v. Smith, 30 Iowa 132 (1870); Conrad v. Gibbon, 29 Iowa 120 (1870). Indeed, just three years before Congress enacted the first Virgin Islands Codes, including Title II, ch. 21 § 2,4 the predecessor to § 952, the Iowa Supreme Court cited with approval the Gilmore & Smith Court’s analysis of Iowa’s usury law. See Wehrman v. Moore, 186 Iowa 1124, 1132, 173 N.W. 154, 157 (1919).
The striking similarity between the Iowa and Virgin Islands statutes alone compels the Majority to follow Younker Brothers. Maj. Op., typescript at 9. I am prepared to grant the Majority’s assumption that the Virgin Islands statute is patterned after the Iowa statute.5 Although I have not been able to locate legislative history stating that § 952 has its roots in the Iowa statute, this seems a reasonable conclusion in light of the similarity in language and Iowa’s apparent status as the only jurisdiction with such a statute in 1921.6 Given these circumstances, Third Circuit precedent provides the basis for interpreting § 952 to include the time-price doctrine. In Berkeley v. West Indies Enterprises, Inc., 480 F.2d 1088 (3d Cir.1973), we set out the rule for interpreting Virgin Islands statutes patterned on statutes used in other jurisdictions. Judge Maris, speaking for the court, noted:
[T]he rule of statutory construction which is settled in the Virgin Islands that the language of a Virgin Islands statute which has been taken from the statutes of another jurisdiction is to be construed to mean what the highest court of the jurisdiction from which it was taken had, prior to its enactment in the Virgin Islands, construed it to mean.
Berkeley, 480 F.2d at 1092 (citations omitted); see also Matter of the Estate of Buckley, 536 F.2d 580, 582 & n. 5 (3d Cir.1976). The Iowa Supreme Court had consistently interpreted the Iowa statute as subject to the time-price doctrine until 1973. Younker Brothers, then, is clearly irrelevant to this court's analysis of § 952.
The Majority has to rely on Younker Brothers to reach its judgment. It makes no sense to me to base a decision that may engender a good deal of social disruption on so uncertain a reed as Younker Brothers. In my view, this case should be limited to its peculiar procedural and temporal circumstances. Two factors, not present in the instant appeal, appear to have influenced the Iowa Supreme Court in Younker Brothers. Most important, the Iowa Attorney General brought the suit in Younker Brothers, a circumstance that indicated both Iowa’s dissatisfaction with the judicial gloss of the time-price differential doctrine and that the state was prepared to deal with the consequences of the doctrine’s abolition. Not only is the Virgin Islands Attorney General not a party in this case, but we have not received any communication from the Virgin Islands government concerning § 952. The complete lack of interest suggests that the *229government is content with the accepted judicial interpretation of its usury laws, or at least that it certainly does not expect that our decision today will change the rules in the middle of the game. Second, Younker Brothers, decided in the early nineteen-seventies, came down at the beginning of an era of high consumer interest rates. See Statistical Abstracts of the United States, 1979, 538 (table 879) (1979). Faced with the State Attorney General’s request to “read out” the time-price differential doctrine it had read into the usury statute in 1869 and the debut of double-digit consumer credit rates, the Iowa Supreme Court’s decision in Younker Brothers was perhaps inevitable. This combination of circumstances, however, makes Younker Brothers unique and consequently a very weak pivot on which to turn today’s decision.
Conspicuously absent from the Majority’s discussion is any mention of Alaska’s usury statute. Alaska Code § 45.45.20 is nearly identical to the Virgin Islands and Iowa usury provisions.7 Unsurprisingly, the Alaska Supreme Court construes § 45.45.20 according to the accepted principles of usury law: the statute permits the reviewing court to examine the form of a suspect transaction to ascertain whether it is subject to the usury prohibitions. Both Alaska courts that have discussed § 45.45.-20 have adopted the traditional interpretation. Compare Metcalf v. Bartrand, 491 P.2d 747, 750-51 (Alaska 1971), with McGalliard v. Liberty Leasing Co., 534 P.2d 528, 529-31 (Alaska 1975). The Alaska Supreme Court has not yet had the opportunity to face the question of § 45.-45.20’s applicability to retail credit sales. Nevertheless, the court has noted the potential problems with the extension of usury laws to consumer retail credit sales, and has indicated its unwillingness to follow the Iowa Supreme Court’s Younker Brothers decision. See McGalliard, 534 P.2d at 533 n. 15.8
In my view, the Alaska Supreme Court's approach is preferable. Given the probable reliance of the Virgin Islands Code’s drafters on a usury statute that had been consistently interpreted by the Iowa courts to include the time-price doctrine, the questionable and factually unique Younker Brothers decision overruling a century of Iowa precedent, and the Alaska Supreme Court’s continued reliance on the traditional principles of usury law, I can see no other result. In light of traditional usury jurisprudence and our own precedent, what is “plain” is that the Virgin Islands Code § 952 must necessarily include the time-price gloss. The inclusion of sales transactions in § 952 assures that the Virgin Islands courts will have the latitude to examine any contract, regardless of form, that might be used as a device to evade the usury laws. A legitimate credit sale, however, is not such a device.
III.
This is a very simple case. The district court erred only in failing to ensure that Foreign Commerce disclosed the 114% service charge to Tonn at the time of the sale. Because the Majority has ignored our precedent in construing § 952, it has reached a result I cannot endorse. Accord*230ingly, I would vacate the district court’s judgment and remand with appropriate instructions.

. On the distinction between "commodities" and "money,” Mr. Shanks observes:
Although it was not thought necessary or de-sireable to fix the price of other commodities which competed on the open market, money was somehow different. It was abstract and was controlled by mysterious forces beyond
the ken of even the better educated citizens. Money was not in itself useful — only what it could buy was useful — and its cost — or at least its maximum cost — should be established on the basis of what seemed "right” to the legislators.
Shanks, 53 Va.L.Rev. at 328.

. V.I.Code Ann. tit. 11, § 952 provides:
No person shall, directly or indirectly, receive in money, goods, or things in action, or in any other manner, any greater sum or value for the loan or use of money, or upon contract founded upon any bargain, sale or loan of wares, merchandise, goods, chattels, lands and tenements, than prescribed in this chapter.

. Iowa Code Ann. § 535.4 (West 1950) provides: Illegal rate prohibited — usury. No person shall, directly or indirectly, receive in money or in any other thing, or in any manner, any greater sum or value for the loan of money, or upon contract founded upon any sale or loan of real or personal property, than is in this chapter prescribed.

. This section of the 1921 Codes provided:
No person shall, directly or indirectly receive in money, goods, or things in action, or in any other manner, any greater sum or value for the loan or use of money, or upon contract founded upon any bargain, sale or loan of wares merchandise, goods, chattels, lands and tenements, than in this chapter prescribed.

. Tonn’s counsel asserted at oral argument that the § 952 is based on the Iowa usury statute. We have yet to receive the requested supplemental briefing on this matter from Tonn.

. Alaska, the other jurisdiction with a usury law similar to § 952, first codified its usury law in 1949. See Alaska Cons.L.Ann., § 25-1-2 (1949). Oregon apparently also included "sales of goods” in its statutory definition of usury, but removed this language before 1900. See McGal-liard, 534 P.2d at 533.

. Alaska Stat.Ann. § 45.45.20 (Michie 1985) provides:
Higher rate of interest prohibited. No person may, directly or indirectly, receive in money, goods, or things in action, or in any other manner, a greater sum or value for the loan or use of money, or upon contract founded upon a bargain, sale, or loan of wares, merchandise, goods, chattels, lands, and tenements, than is prescribed in §§ 10-70 of this chapter.

. A number of commentators have examined the problems associated with the extension of usury laws to retail credit sales. See, e.g., Note, Interest Incognito — Usury Statute Applied to Revolving Charge Account Agreement, 34 U.Pitt.L. Rev. 54 (1972); Project, An Empirical Study of the Arkansas Usury Law: “With Friends Like That ..." 1968 U.Ill.L.F. 544: Warren, Regulation of Finance Charges in Retail Installment Sales, 68 Yale L.J. 839 (1959). The problems identified by the literature leave me with the conviction that a change in the Virgin Islands usury law is a matter best left to the legislature. Cf. Sliger, 59 NJ. at 470, 283 A.2d at 906.