SIGNIFICANT LEGAL DECISIONS AS OF 12/17/2001

PREJUDGMENT INTEREST
Spodek v. Park Property Development Associates

Recent Developments: On Nov. 15, 2001, the New York Court of Appeals ruled, in what appears to be a significant departure from prior court holdings, that CPLR Section 5001(a) "permits a creditor to recover prejudgment interest on unpaid interest and principal payments, awarded from the date each payment became due under the terms of the promissory note to the date liability is established." The Court stated that this outcome was consistent not only with the plain language of CPLR 5001(a), which mandates the award of interest to verdict in breach of contract actions, but also is consistent with the Court's long-standing recognition that the purpose of awarding interest is to make an aggrieved party whole.

KEY POINT: This case is potentially quite significant, because heretofore courts were reluctant to award prejudgment interest on unpaid interest payments. Now, however, creditors will be able to seek not only unpaid interest amounts set forth in the underlying credit agreements, but will also be able to receive interest on those amounts. This finding may be of particular importance to lenders at this time, given the current economic climate and the increasing number of loan defaults.

Background: In this case, the defendant executed a note in April 1980, agreeing to pay plaintiff the principal sum of $1,437,500 in connection with a real estate transaction. Interest was to accrue at the rate of 8% per annum. In this regard, for the first 60 months interest only was to be paid; after that time, principal payments were also to be made at the rate of 1% per annum. Between 1980 and 1997 defendant made no payments. The plaintiff instituted this action in l997 seeking repayment of principal and interest owed from 1991 (conceding that any sums due prior to 1991 were barred by the Statute of Limitations). After joinder of the issue, plaintiff moved for summary judgment which the Supreme Court denied but the Appellate Division subsequently granted.

Upon remand, the Supreme Court awarded plaintiff interest owed for each month of default from August 1991, together with annual amortized principal payments from April 1992. The Court, however, denied plaintiff's request for prejudgment interest on these sums. On appeal, the Appellate Division reversed the judgment with respect to the denial of prejudgment interest and remitted to the Supreme Court for the calculation of interest. The Court of Appeals then granted defendant leave to appeal, ultimately affirming the decision of the Appellate Division.

Outlook: As this decision was rendered by New York's highest court and no further appeal is available, this decision should stand as an important vehicle to make lenders whole in litigation scenarios.

NATIONAL BANK ACT & ATM SURCHARGE FEES
Metrobank, N.A. v. Foster (D. Ia. 4-01-CV-80226)

Recent Developments: On May 31, 2001 the defendant, Iowa's Superintendent of Banks, filed a motion to dismiss this case, which seeks a declaratory judgment finding that the National Bank Act preempts Iowa Code Chapter 527. Chapter 527 has been interpreted by the Superintendent of Banks and Iowa's Attorney General to ban ATM surcharges. In his motion, the defendant claims that the case is not yet ripe for adjudication because no bank has yet to charge the ATM fees in question and thus the state has not threatened any enforcement action. The defendant also claims that the court should refrain from exercising jurisdiction in this case under the principle of abstention - that is, due to the possibility that defendant's interpretation of Chapter 527 could be challenged in state court, and thus eliminate the need for Federal involvement. As yet, there has been no ruling on this motion.

KEY POINT: As in the California ATM surcharge case, this case may ultimately provide determinative law with respect to the question of whether state and municipal laws and regulations regarding the imposition of ATM surcharges may be preempted by the National Bank Act with respect to national banks.

Background: On April 12, 2001 five national banks filed suit in the United States District Court for the Southern District of Iowa Central Division, seeking a declaratory judgment finding that the National Bank Act preempts Iowa Code Chapter 527, as well as injunctive relief. The complaint alleges that the interpretation and effect of Chapter 527 is to ban ATM surcharges, although the statute does not explicitly say so. Rather, the statute requires that ATMs be available to other financial institutions and to all customers "on a nondiscriminatory basis" ­ a requirement that Iowa's Superintendent of Banks and Attorney General have both apparently interpreted to create a fee ban.

On May 31, 2001, the defendant filed a motion to dismiss the case on two main grounds: (i) that the case is not ripe for adjudication insofar, as to date, no bank is charging ATM surcharges, and the state has not threatened enforcement against any bank; and (ii) under the principle of abstention, because of the "realistic possibility that Defendant's interpretation of chapter 527 could be challenged in another case by Plaintiffs or some other bank" presumably in state court. To date, there has been no decision on the motion to dismiss.

Outlook: Because this case is in its most preliminary stages, and the issues before the court in defendant's current motion to dismiss are more technical than substantive, it is far too early to predict what impact this case will ultimately have on the final resolution of the ATM surcharge issue.

ATM SURCHARGE FEES
Bank of America, et al. v. City and County of San Francisco, et al. (No. C 99 4817 VRW)

Recent Developments: In July 2000, the United States District Court for the Northern District of California issued a ruling that struck down ATM surcharge bans in Santa Monica and San Francisco. U.S. District Court Judge Vaughn Walker ruled that only the Federal government could impose such restrictions on nationally chartered banks and thrift institutions, citing the National Bank Act and Home Owners Loan Act. Both Santa Monica and San Francisco filed notices of appeal on July 14, 2000. The banks filed their briefs in this matter on Dec. 13, 2000.

KEY POINT: This case is providing red letter law with respect to the question of whether and to what extent a state regulatory body has enforcement powers over a national bank at least with respect to the bank's ability to set fees. As more and more municipalities and state governments question the appropriateness of banks' array of fees, and the amount of those fees, the decision, finding that Federal law preempts state governmental regulation with respect to national banks, if upheld, may be pivotal in maintaining a deregulated competitive pricing environment.

Background: On Oct. 12, 1999 the citizenry of the City of Santa Monica voted to adopt section 4.32.040 of the Municipal Code, thereby banning (effective Nov. 11, 1999), the imposition by banks of ATM convenience fees by use of ATM machines by non-customers. The voters of the City and County of San Francisco, California, on Nov. 2, 1999 approved Proposition F, an ordinance also banning ATM convenience fees. (The San Francisco ordinance was scheduled to become effective on or about Dec. 1, 1999.) On Nov. 3, 1999 the plaintiffs in this matter filed suit in the United States District Court for the Northern District of California, seeking declaratory and injunctive relief, preventing implementation of the fee bans. The banks claimed that the San Francisco and Santa Monica ordinances are preempted by the National Bank Act, 12 U.S.C. Section 21 et seq., as well as regulations adopted by the Office of the Comptroller of the Currency.

In its Nov. 15, 1999 ruling, (which was reaffirmed and clarified on Nov. 24, 1999), the court granted the preliminary injunction based on its assessment that the ordinances were likely preempted by federal law as to the national bank plaintiffs and the provisions applicable to state-chartered banks non severable and thus also invalid. While enjoining the defendants from enforcing the disputed ordinance, the court also required plaintiffs to escrow any fees whose collection would otherwise violate the ordinances pending the outcome of the litigation, and to post $50,000 bond. In its Nov. 24, 1999 ruling the Court further prohibited the City of San Francisco from certifying its referendum results and barred residents in Santa Monica which had already enacted its ordinance from suing banks over the issue.

On March 31,2000, the Ninth Circuit upheld the granting of the preliminary injunction by the United States District Court enjoining the defendants from enforcing these disputed city ordinances.

Outlook: This decision may have far reaching effects with respect to the ongoing initiatives in many localities to impose ATM fee restrictions and limitations. Indeed, this decision which has clearly ruled that national banks cannot be subjected to ATM fee bans imposed on them by local governments coupled with similarly favorable recent decisions in other cases addressing this issue nationwide, will hopefully quell the interest of local governments in pursuing this kind of fee ban. Clearly, this decision strengthens NYBA's arguments against any New York City initiative. However, as both local governments are appealing, the final resolution of this issue may still be far off.

CONSUMER PROTECTION LAW
Jules Polonetsky, etc., et al. v. Better Homes Depot, Inc. and Eric Fessler (2001 LEXIS N.Y. 3414)

Recent Developments: On Nov. 19, 2001, the New York Court of Appeals overturned a decision of the Appellate Division First Department, which Appellate Division decision had, among other things, granted defendant's motion to dismiss as against Better Homes Depot on the grounds that the real estate transactions in this case did not constitute consumer transactions within New York City's Consumer Protection law. The Court of Appeals stated in its decision that while the simple sale of a house does, in fact, not involve consumer goods or services within the meaning of the law, the program of consumer services rendered in connection with the home sales addressed in this case (see below) were within the purview of the law. The Court of Appeals stated that it was "unwilling to conclude that a program of consumer services loses its character simply because it was rendered in connection with a home sale." Thus, it concluded that the defendant's motion to dismiss must fail.

KEY POINT: There are a number of laws and regulations that already exist to protect consumers against predatory lending, including Part 41, the New York State Banking Department's "high-cost" home loan regulation. In reversing the Appellate Division's decision, the Court of Appeals made clear that New York City's Consumer Protection Law, may be added as a vehicle for addressing real estate-related transactions, provided that more than the actual sale of a home is included. As the predatory lending debate gains public attention and therefore may attract unwarranted (as well as warranted) litigation, this may be a significant factor for defendants and plaintiffs alike.

Background: The plaintiffs sued to enjoin defendants from "committing deceptive trade practices in the marketing and sale of residential homes," and to recover fines pursuant to New York City's Consumer Protection Law (the "Law"). The plaintiffs alleged that defendant Better Homes Depots, Inc. violated the Law by, among other things: (i) inducing consumers to purchase a home with promises of making needed repairs and renovations, and then failing to make such proposed repairs and renovations; (ii) causing electrical, plumbing and other repairs and renovations to be made without the required permits and without informing consumers of this failure; and (iii) discouraging home buyers from exercising their right to retain an attorney of their choosing and instead steering consumers to lawyers pre-selected by the defendant. Better Homes Depot filed a motion to dismiss on the grounds that these real estate transactions did not constitute consumer transactions within the meaning of the Law, and thus, the complaint failed to state a cause of action. The Supreme Court disagreed with defendant's position, stating instead the real estate transactions in the case, were "within the scope of the Consumer Protection Law, and state a cause of action against Better Homes Depot."

On appeal, the Appellate Division, First Department unanimously modified the lower court's decision, granting the motion to dismiss the complaint as to defendant Better Homes Depot. The Appellate Division stated that the lower court had erred in failing to dismiss the complaint as against this defendant "because real estate sales do not fall within the plain and unambiguous definition of consumer goods or services contained" in the Law.

Outlook: This decision clearly adds another legal vehicle with which to address alleged predatory lending practices in New York City.