http://www.fbtbankingresource.com/ Frost Brown & Todd LLC RSS Feed en-US Copyright Frost Brown & Todd LLC webmaster@sablaw.com Thu, 20 Nov 2008 00:07:48 GMT Thu, 20 Nov 2008 00:07:48 GMT http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=6bc5af1f-fbff-4e57-ad9f-00293b21ade8&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=6bc5af1f-fbff-4e57-ad9f-00293b21ade8&RSS=true November 19, 2008
The Supreme Court of Ohio recently held, in the case of Maynard v. Eaton Corp.,¹ that the amendment to R.C. § 1343.03(A), which was enacted by 2004 Sub.H.B. No. 212 (“H.B. 212”)² and became effective on June 2, 2004, adjusts the statutory rate of postjudgment interest on a final judgment entered by a trial court when the case is pending on appeal on the amendment’s effective date.

Before June 2, 2004, the statutory rate for calculating postjudgment interest on a final judgment was ten percent.³ Following the statute’s amendment by H.B. 212, the fixed statutory interest rate was replaced with a variable rate tied to the variable federal short-term rate. Thus, under H.B. 212, the applicable interest rate on or after June 2, 2004 is the rate that has been determined annually by the tax commissioner pursuant to R.C. § 5703.47.⁴

In Maynard, an employee received a favorable judgment on his claims for an employer intentional tort and his request for punitive damages. The plaintiff argued that the postjudgment interest rate should be calculated according to the statutory rate in effect on April 2, 2003, which is when the final trial judgment was entered. According to the defendant, however, the litigation had not been finally determined because it was still pending on appeal. Consequently, the defendant argued that the statutory interest should be calculated on different statutory rates, depending on when each was statutorily in effect during the litigation.

The Third District Court of Appeals held that because the judgment was rendered on April 2, 2003, the statutory amount for postjudgment interest was ten percent annum. On appeal, the Supreme Court of Ohio reversed. In so doing, the Court examined the uncodified portions of H.B. 212 and determined that the General Assembly clearly intended for interest on a judgment in a case pending after the effective date of H.B. 212 to be calculated at a rate different from that used for calculation of interest accruing before H.B. 212’s effective date. To that end, the Court explained that “[t]he uncodified section of the H.B. 212 directs that the fixed rate of ten percent per annum in effect prior to June 2, 2004, applies through June 1, 2004, and is to be used to calculate the amount of interest accrued through June 1, 2004; the annually determined rate then applies and is used to calculate the amount of interest to be paid from June 2, 2004, forward.”

The Court further noted that the uncodified section of H.B. 212 also directs that the use of different rates for calculating statutory interest is only to apply to actions “pending” on H.B. 212’s effective date. After examining how prior Ohio cases have defined the word “pending,” the Court reasoned that for purposes of R.C. § 1343.03(A), a matter is deemed to be pending when it is on appeal and a decision by the court on the disputed issues is anticipated. Because the matter was still on appeal and, therefore, pending, the different rates for calculation of statutory interest were applicable in the case.

The Court’s decision in Maynard is instructive to all attorneys and litigants when calculating the postjudgment interest on a final judgment. It is clear that in cases where a final judgment is entered after June 2, 2004, the applicable interest rate is established by the amended version of R.C. § 1343.03(A). But after Maynard, it is now equally clear that the amendment to R.C. § 1343.03(A) also applies to cases where the trial court has entered a final judgment before June 2, 2004, but the judgment has not been paid in full and was pending on appeal as of that date. In that scenario, the ten-percent postjudgment interest rate would apply from the date of the judgment entry through June 1, 2004, the day before the statute’s effective date, and the rate as annually determined by the tax commissioner pursuant to the amended version of R.C. § 1343.03(A) would apply from June 2, 2004 until the date the judgment is satisfied.

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¹ (2008), 119 Ohio St.3d 443.
² 2004 Sub.H.B. No. 212, 150 Ohio Laws, Part III, 3417 (effective June 2, 2004).
³ Former R.C. § 1343.03(A), 149 Ohio Laws, Part I, 382, 386 (effective July 6, 2001).
⁴ R.C. § 1343.03(A).]]> Blog Entry http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=c9e4ab3e-de50-40a7-9b13-8ae3c4cf7cae&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=c9e4ab3e-de50-40a7-9b13-8ae3c4cf7cae&RSS=true November 12, 2008
Ever on the watch for stealth legislation affecting the financial services industry, we now bring to your attention H.R. 5938. This legislation was signed by the President into law on September 29, 2008. The legislation is titled “The Former Vice President Protection Act of 2008,” but within its text is an unrelated section styled the “Identity Theft Enforcement and Restitution Act of 2008.” Under these new statutory amendments, victims of identity theft may now recover as criminal restitution damages “an amount equal to the value of the time reasonably spent by the victim in an attempt to remediate the intended or actual harm incurred by the victim from the offense.” See 18 USC §3663(b). This new basis for compensation of one’s time spent in dealing with identity theft harm is available only within a federal criminal prosecution. Civil practitioners should continue to note that “time spent” damages typically remain unavailable to civil litigants.

Interesting, but what is its potential impact for banks, thrifts and credit unions? First, your customers may want to know about this new avenue of redress, should they ever become a victim of identity theft. This potentially might affect their decision when deciding who should be the target of their immediate angst, and just perhaps might even dissuade them from looking first to their financial institution. Second, a business entity that finds itself the victim of identity theft may be able to recover its personnel time as a statutory “victim” (see, 18 USC 3663) in a criminal proceedings. I would even propose that it is an open question as to whether the financial institution whose instrumentalities were targeted by the wrongdoer may similarly qualify for such new restitution damages. Finally, given the statutory definition of identity theft used in Section 1028(a)(7), customers and their financial institutions whose checks are involved in an identity theft scheme (fraudulent drawer or endorsement signatures, for example), may possibly have a new reason to consider pursuing the wrongdoers criminally, or participating in ongoing prosecutorial efforts. Maybe a stretch, but the new Act’s language presents new opportunities that must be evaluated.

Bill Repasky practices in the Louisville offices of Frost Brown Todd, and can be reached at brepasky@fbtlaw.com or (502) 779-8184.
]]> Blog Entry http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=76caca74-1357-4e1a-9fed-7cf2ef43134c&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=76caca74-1357-4e1a-9fed-7cf2ef43134c&RSS=true November 12, 2008
Most of our lender clients charge fees when a loan is initiated. Sometimes one of the fees is described as a “loan documentation fee” which is described to borrowers as the charge for producing items like the note, the mortgage, the security agreement and/or the guaranty. Many lenders use commercially prepared forms to generate these documents to memorialize or “document” the loan. These loan documents are often prepared by an employee who is not a lawyer. This post addresses two items of potential concern with respect to the collection of those fees.

A few borrowers have made the following argument: (a) the loan documents (promissory note, etc.) are legal documents and therefore their preparation is legal work; and (b) several states have laws against the unauthorized provision of legal services and those laws sometimes make it illegal to charge for legal work that was not performed by a lawyer. One such borrower is Gary Greenspan who has made this assertion against Third Federal Savings & Loan. The Ohio Court of Appeals recently issued an opinion in the litigation which should be examined by lenders. Greenspan v. Third Federal Savings & Loan, 177 Ohio App. 3d 372 (Ohio Ct. App. May 22, 2008). In this case the court said two things of potential importance: (i) not only is the unauthorized practice of law a defense to collection of the purported legal fees, it also creates a cause of action permitting the recovery of the fees that should not have been charged; and (ii) in Ohio, a litigant who seeks to avoid or recover inappropriately charged “legal fees” must first get the Ohio Supreme Court to declare that in the fee collector engaged in the “unauthorized practice of law” if the putatively unauthorized legal work was performed on or after September 15, 2004.

Not every state has a law like Ohio so you cannot rely on the Supreme Court hurdle to protect fees charged for “unauthorized” legal work performed outside Ohio. It is appropriate to carefully consider what it is that you are charging for and to make certain that “document preparation” is not limited to completion of documents which only a lawyer can legally prepare.

Another attack on fee income arises from a plaintiff proposed interpretation of the Truth In Lending Act, 15 U.S.C. Sections 1601-15. The TILA requires the disclosure of all “finance charges.” 15 U.S.C. Section 1605(a), but “bona fide and reasonable” fees for preparing loan documents may be excluded from the disclosed “financing charges.” 12 C.F.R. Section 226.4(c). The Sixth Circuit has ruled that a lender is not entitled to dismissal of a claim challenging exclusion of those fees without at least some discovery on the reasonableness of those fees when the issue is whether the bank charged and retained document preparation fees in excess of what it actually cost the bank to prepare the documents using an in-house employee. Inge v. Rock Financial Corp., 281 F.3d 613 (6th Cir. 2002). The lesson from Inge on this point is that a bank should have good cost accounting so that it can justify the fee it charges and the bank should know the cost of using an outside service provider so that the reasonableness of the bank’s fee can be easily established.]]> Blog Entry http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=5cedfdc8-0a0a-4b0d-9a4a-0097a89156a2&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=5cedfdc8-0a0a-4b0d-9a4a-0097a89156a2&RSS=true November 12, 2008
In re Harchar, No. 07-3184, 2008 WL 2746872 (Bankr. N.D. Ohio July 14, 2008)

For those taxpayers lucky enough to receive a federal tax refund each spring, it has generally become an event many people rely on to satisfy other debts and obligations. It might be considered a matter of “right”. Even those individuals who file for Chapter 13 relief generally consider their tax refund to be their property, whether received or not, since they simply overpaid taxes into the system.

What happens then if an individual files for relief under Chapter 13 but has not received their tax refund yet? In the case referenced above, the IRS did not issue the refund when expected, so the Debtors brought an action against the IRS alleging injury due to the wrongful delay of their tax overpayments. In their complaint, the Debtors alleged that the conduct of the IRS resulted in a violation of the automatic stay among other claims.

An “automatic stay” operates to stay any act by a creditor to obtain possession of property of the individual’s estate or to create any lien against such property. The stay is effective against all entities including the IRS.

In the case referenced above, the Debtors allege that the IRS violated the stay by exerting wrongful possession and control over their refund. This “control” occurred when the IRS, in compliance with the stay, instituted its V-Freeze on all automated action involving the individuals. On its face, the Debtor’s allegations “make it plausible that strong coercive pressure was being brought to bear on the Debtors to pay their nonpriority tax liability” (See Harchar, 2008 WL 2746872, at *). However, after reviewing the IRS procedures with respect to the V-Freeze, it was clear that the “freeze” not only prevented the mailing of collection letters but also had the effect of delaying the distribution of their tax refund pending a manual approval by an Internal Revenue Service agent.

The Court recognized that “the Debtors were inconvenienced by not having their 1999 tax refund more expeditiously issued…but inconvenience does not, as the Debtors would seem to suggest, equate with ‘control’ for purposes of the …stay violation.” (See Harchar, 2008 WL 2746872, at *33).

Because of implementation of the V-Freeze policy by the IRS, as a means to comply with stay actions, the Court found that the IRS exercised “reasonable restraint” in its actions and did not “place affirmative pressure on the Debtors to coerce them…”(See Harchar, 2008 WL 2746872, at *38). In the end, the Debtors were desperate to receive a tax refund and did not realize that their actions in filing for Chapter 13 would lead to bureaucratic delays within the IRS.

Before filing for bankruptcy in April….make sure your check is in the mail!!]]> Blog Entry http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=4e817eed-d3a4-4bf2-b8f7-080331021fad&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=4e817eed-d3a4-4bf2-b8f7-080331021fad&RSS=true October 31, 2008
Like most other businesses, banks seek to maximize the return to their shareholders. In this day and age of competition and economic issues, that often means that a bank will venture from its traditional pasture of consumer and commercial loans to enter into the greener grass of the other side of the fence that may be offered by less traditional products. In this case, Pacific Capital Bank, N.A. v. State of Connecticut, U.S. Ct. Ap. 2d, No. 06-4149 (September 12, 2008), Pacific Capital Bank sought to do just that in the arena of tax refund anticipation loans (“RALs”).

Pacific is a national bank that has its headquarters in California. Under the National Bank Act law, a national bank may export to other states a loan interest rate that is permitted by the laws of the state in which it is headquartered, in this case, California. The Pacific Capital court stated that California law places no limits on interest rates charged by banks.

Pacific has no branches in Connecticut, but it affiliated itself with certain tax preparers that were located there. The tax preparers would prepare the taxpayer’s tax return, and, if a refund was indicated and the taxpayer was inclined, the tax preparer would provide the taxpayer with a loan application form. The completed form would be forwarded by the tax preparer to Pacific Capital. Pacific Capital alone would decide whether to extend the RAL.

The RALs were typically short term loans. The average fee charged by Pacific Capital on a $3,000 RAL would be $100, and the average loan period was 11 days. If annualized, the interest rate on the loan, therefore, would be 115%, although the taxpayer only paid a total finance charge of 3.3% of the total loan amount.

Connecticut passed a general statute, 42-480, which, among other things, was intended to limit the interest rate payable on RALs. The statute by its terms applied to all “facilitators” of these loans. The statute then defined a “facilitator” as “a person who, individually, or in conjunction or cooperation with another person, makes a refund anticipation loan, processes, receives or accepts for delivery an application for a refund anticipation loan, issues a check in payment of refund anticipation loan proceeds, or in any other manner acts to allow the making of a refund anticipation loan,…” Conn. Gen. Stat. §42-480(a)(2). The statute goes on to expressly exclude banks from its application.

It did not, however, expressly indicate how agents of a national bank would be treated, and in short order, Pacific Capital was unable to make RALs in Connecticut unless it complied with the provisions of §42-480, which strictly limited the interest that could be charged on RALs.

Pacific Capital sued the State of Connecticut. The essence of its case was that §42-480 was pre-empted by the National Bank Act (“NBA”). The State contended that §42-480 by its own terms did not regulate national banks, and therefore the pre-emption argument should be unavailing. Pacific Capital’s argument was, essentially, that by regulating “facilitators” and without specifically exempting facilitators that work with national banks, §42-480 effectively regulated the national banks and, therefore, should be unconstitutional.

The court agreed with Pacific Capital. It stated that “[i]n determining whether a state statute is preempted by the NBA, the Supreme Court has observed that the proper focus is not on whether the state statute regulates national banks directly but rather on whether it significantly interferes with national bank’s authorized activity….” Since all of the parties agreed that RALs are typically offered by tax-preparers, it seemed clear that regulating the tax-preparers that operated as agents of the banks would, in effect, regulate the bank.

Since it was clear that §42-480 could not apply to facilitators working as agents of national banks, the court had one more question to resolve: Is §42-480 of the Connecticut General Statutes pre-empted by the National Bank Act? The court stated that where it is faced with a choice of interpreting a state statute in a way that avoids conflict with a federal statute and determining whether the state statute is pre-empted by the federal statute, the court should prefer to interpret the state statute to avoid constitutional problems.

As a result, the court declined to declare §42-480 unconstitutional, but instead sidestepped the question by interpreting the definition of “facilitator” in §42-480 to exclude facilitators that assisted national banks in making RALs.]]> Blog Entry http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=a98ec36c-e2f2-4bd9-831c-00a1f2beaf0c&RSS=true http://www.fbtbankingresource.com/banklit/blog/BlogEntry.aspx?_entry=a98ec36c-e2f2-4bd9-831c-00a1f2beaf0c&RSS=true October 21, 2008
The Bankruptcy Court for the Southern District of Ohio recently held that the Bankruptcy Code’s application of New Hampshire’s homestead exemption to an Ohio residence following the debtors’ move from New Hampshire to Ohio was constitutional. In the case of In re Varanasi ¹, the debtors, a husband and wife, moved from New Hampshire to Ohio shortly before filing their bankruptcy petition. Under the Bankruptcy Code, New Hampshire law applied to the debtor’s exemptions because the debtors had not lived in Ohio for two years prior to the filing of the bankruptcy petition. The Chapter 7 trustee, however, argued that the Bankruptcy Code was unconstitutional to the extent that it required the application of New Hampshire’s $100,000.00 homestead exemption rather than Ohio’s far less generous homestead exemption to the debtors’ Ohio residence.

The court rejected the trustee’s argument, holding that the Bankruptcy Code’s application of New Hampshire’s homestead exemption was constitutional. Specifically, the court held that the explicit language of New Hampshire’s exemption law did not limit the application of that law to property located in within New Hampshire. Further, the court held that the Bankruptcy Code’s provision requiring the debtors to live in Ohio for a certain length of time before claiming exemptions under Ohio law did not violate the requirements of due process or equal protection, the Takings Clause, the Uniformity Clause, or the Contract Clause. For these reasons, the debtors were permitted, due to their status as former citizens of New Hampshire, to seek the protection of New Hampshire’s homestead exemption for property located in Ohio. While it is unlikely that this decision will affect debtors’ pre-petition decisionmaking, the court’s decision in this case permits the application of non-Ohio exemptions in a number of Ohio bankruptcy cases where debtors’ claimed exemptions would otherwise be governed by Ohio law.

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¹ 2008 WL 2884340 (Bankr. S.D. Ohio 2008).]]> Blog Entry