American Express Bank, FSB v Dalbis

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[*1] American Express Bank, FSB v Dalbis 2011 NY Slip Op 50366(U) Decided on March 14, 2011 Civil Court Of The City Of New York, Richmond County Straniere, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 14, 2011
Civil Court of the City of New York, Richmond County

American Express Bank, FSB, Petitioner,


Gino Dalbis, Respondent.


Philip S. Straniere, J.

Plaintiff, American Express Bank, FSB, commenced this action against the defendant, Gino Dalbis, alleging that the defendant failed to make payments as required by a credit card agreement. The action was commenced in Supreme Court, Richmond County (Index No. 51722/09) and was transferred to Civil Court pursuant to CPLR §325(d). Defendant defaulted in appearing and answering. Currently before the court is plaintiff's unopposed motion seeking a default judgment against the defendant.

Even though the defendant has failed to appear and answer, plaintiff still has the burden of proof. In regard to consumer credit transactions among the items required for a plaintiff to prevail are proof of an agreement, use of the credit card, demand for payment and a failure of the defendant to pay. Although the billing statements are from American Express, the alleged contract is an "Agreement Between Hilton HHonors Credit Card Members and American Express Bank, FSB."

For the following reasons the motion for a default judgment must be denied. [*2]


A. "Big Jule, you cannot interpolate Chicago dice in a New York crap game.[FN1]" Or, why Utah law cannot be interpolated into a New York courtroom.

1. Has the Statute of Limitations Run?

The first issue to be addressed is whether the action was timely commenced or if the statute of limitations has run. Plaintiff has neither presented evidence as to when the account was opened by the defendant nor when the last payment was made making it impossible for the court to determine this issue. Plaintiff asks the court to rely on the affirmation of its New York counsel in which he concludes under either New York or Utah law the action is timely and states that he has based his opinion on the "financial electronic records maintained by American express [sic] for the account(s) of the Defendant(s)." This affirmation is unsupported by any documentation. Interestingly, counsel is located on Vesey Street in New York County, yet the pleadings direct all correspondence to be addressed to "American Express Legal" at a PO Box in Ramsey, New Jersey which also happens to be the location from which certain mailings were made and affidavits executed.

An initial problem to be dealt with is whether plaintiff's counsel has based his affirmation on information which would be admissible in New York. Counsel admits that the only records available to him are "financial electronic records" maintained by the plaintiff. New York State Technology Law §306 provides: In any legal proceeding where the provisions of the civil practice law and rules are applicable, an electronic record or electronic signature may be admitted into evidence pursuant to the provisions of article forty-five of the civil practice law and rules including, but not limited to section four thousand five hundred thirty-nine of such law and rules.

Civil Practice Law & Rules [CPLR] §4539 provides: (b) A reproduction created by any process which stores an image of any writing, entry, print or representation and which does not permit additions, deletions, or changes without leaving a record of such additions, deletions, or changes, when authenticated by competent testimony or affidavit which shall include the manner or method by which tampering or degradation of the reproduction is prevented, shall be as admissible in evidence as the original.

Counsel's affirmation does not comply with the above statutes. Not only does he fail to attach copies of what "electronic-documents" he reviewed to make his statement, there is nothing in the affirmation to verify that the requirements of CPLR §4539 have been [*3]complied with so as to insure that the process utilized by plaintiff "does not permit additions, deletions or changes without leaving a record of such...." Such a statement must be made under oath by someone who is aware of the manner in which plaintiff's records are compiled and maintained as well as the system employed by plaintiff to prevent tampering. Plaintiff then has to establish that the records of this particular defendant are maintained in that manner. None of this is information has been presented to the court nor has counsel indicated that he has such required knowledge.

The second problem to be resolved in regard to this issue is whether the statute of limitations of New York or Utah is applicable. It is impossible for the court to determine whether or not four years have expired under the Utah statute of limitations which counsel alleges applies to this consumer credit contract or six years under the equivalent New York statute without documentation as to the date of the last payment by the defendant. The court notes that the alleged agreement between American Express Bank, FSB and the defendant makes the contract subject to "Utah law." The New York Court of Appeals has held that in regard to consumer credit transactions the shorter statute of limitations between New York and the contract designated jurisdiction is applicable [Portfolio Recovery Associates, LLC v King, 14 NY3d 410 (2010)].

Counsel for plaintiff makes the bald, unsupported statement that the statute of limitations for this type of transaction in Utah is four-years and that it is applicable to the credit card holder agreement. Counsel does not cite any Utah statute to validate this assertion. The court on its own has examined the Utah Code Annotated [UCA] and determined that the plaintiff is contending that UCA §78B-2-307 is applicable as it sets forth what actions must be commenced within four years under Utah law. It provides:

An action may be brought within four years:

(1) after the last charge is made or the last payment received: (a) upon a contract, obligation, or liability not founded upon an instrument in writing;

(b) on open store account for any goods, wares, or merchandise; or ( c) on an open account for work, labor or services rendered, or materials furnished;...

(3) for relief not otherwise provided for by law.

Is plaintiff contending that this is the applicable statute of limitation because the defendant's obligation to pay the debt is based on the passage of four years from either the last charge or payment on the defendant's account which arose "upon a contract, obligation, or liability not founded upon an instrument in writing;..."? The court was under the impression that the agreement submitted by plaintiff as an exhibit was allegedly the underlying written contract setting forth the terms of the cardholder agreement and subjecting the transaction to Utah law. If this is not the case, then why is the court being asked to apply Utah law? Is the plaintiff asserting that an oral agreement can bind a New York defendant to Utah law?

If plaintiff is alleging that the card holder agreement is the written instrument governing the transaction then, perhaps, the correct statute of limitations under Utah law would be the same as it is in New York-six years. UCA §78-12-23 provides:

An action may be brought within six years: (2) upon any contract, obligation or liability founded upon an instrument in writing,...

Because plaintiff neglected to provide any citations as to its representation as to the applicable statute of limitations, the court is at a loss to determine the basis of its conclusion.

The above being said, it is apparent that under Utah law the correct statute of limitations is neither four nor six years. It is one-year. Utah has enacted the "Utah Consumer Credit Code" under "Title 70C" of the Utah Code Annotated. This title appears to be applicable to consumer credit transactions such as alleged in this case and has its own "statute of limitations." UCA §70C-7-205 provides: No action under this title may be brought more than one year after the occurrence of the violation. This section does not bar a person from asserting a violation of this title in an action to collect the debt which is brought more than one year after the date of the occurrence of the violation as a matter of defense by recoupment or setoff to the extent of the outstanding balance of the debt.

Other parts of this Consumer Credit Code title define an "Agreement" as "the bargain of the parties as stated in a written contract or otherwise found in the parties' language or by implication from other circumstances,...[UCA §70C-1-302(1)] and "Contract" as "a document containing written terms and conditions of a credit agreement" [UCA §70C-1-302(2)].

Essential to plaintiff's claim that it is not subject to New York laws, especially those involving usury and consumer protection, are the sections of Utah's Title 70C which plaintiff apparently relied on to define certain terms of the contract such as: interest rates [UCA §70C-1-106]; finance charges [UCA §70C-2-101]; the ability of a creditor to change the written term of an open-end consumer credit contract [UCA §70C-4-102] and unconscionability [UCA §70C-7-106]. If the cardholder agreement is not subject to this Utah "title", then what Utah law does plaintiff allege governs the agreement?

The Utah legislature requiring a one-year statute of limitations for consumer credit transactions does make sense because in exchange for acquiring the right to charge interest without a statutory cap (presumably charging interest of one hundred percent a day is permitted), or adding terms without having to give actual notice to the consumer so long as [*4]the consumer uses the card, (presumably requiring the consumer to sing "In-A-Gadda-Da-Vida" in Yiddish in the local town square dressed as Scarlet O'Hara in the barbecue scene of "Gone With the Wind" so as not to be in default), is also permissible so long as it is in the "agreement" reached by the parties [UCA 70C-1-302]. Because of these and other advantages under Utah law, that state's legislature could reasonably determine that there should be a short statute of limitations so as to limit the potential monetary exposure to a defaulting debtor. It makes sense that the legislature could conclude that to permit these practices, which raise the amount owed by the debtor to sums in excess of what the cardholder could reasonably be expected to pay based on the financial information provided to the creditor when the credit card was issued should be subject to a short limitations period. Due process requires steps to be put into place so as to insure the amount owed has not become so exorbitant so as to be uncollectible and the agreement unconscionable. In view of the fact that federal regulations require the creditor to "charge off" the debt on its books after six-months of delinquency, requiring the creditor to commence an action within a year of the default becomes reasonable. It keeps the debt to an amount that in most situations could be repaid by the cardholder over a reasonable period of time in affordable amounts. This assumes that the creditor actually wants to be paid.

Based upon the above, in this case, the one- year statute of limitations period would be applicable. However, the court cannot apply any statute of limitations as the plaintiff has failed to comply with both the New York State Technology Law and CPLR and has provided absolutely no information by which the court, after reviewing the exhibits submitted in support of the motion, could determine either the date of the last payment from or charge by the defendant and thereby fix a triggering date for the commencement of the limitations period.

2. What "Agreement" is in Effect Governing the Relationship Between the Parties?

The second issue to be addressed assumes Utah law provides that the defendant is liable for charges made on the credit card even if a copy of the underlying agreement is never received by the card holder so long as the cardholder utilized the credit card. In plaintiff's papers there is no showing or even an allegation that the plaintiff ever attempted to deliver a copy of the agreement to the defendant. The court did not locate any statute in Utah which permits "oral" consumer credit agreements, in fact, the Consumer Credit Code, UCA §70C-1-302 seems to indicate that for the purposes of this statute a written agreement is required. There is just an unsupported inference by plaintiff that the Hilton HHonors Credit Card Member agreement with American Express Bank FSB (07/09) attached to the motion papers was the one in effect between the parties.

The twelve page agreement submitted as an exhibit by the plaintiff has a "(c) 2009 American Express" date on the last page and a "(07/09)" date set forth on the top of the first page only. (The copy attached as an exhibit by plaintiff has page 6 between pages 10 and 11 and not between pages 5 and 7). The first monthly billing statement provided by the [*5]plaintiff in support of its motion has a closing date of 8/12/09. Based on this information only, it is impossible to determine if the "07/09 agreement" was the one in effect when the account was opened particularly because the 8/12/09 statement has no purchases or other consumer generated activities on it which would establish use of the card. Because it has an 8/12/09 closing date, it should reflect card use between July 12, 2009 and August 12, 2009, a period of time when the alleged agreement may have been put into effect. Plaintiff has failed to establish by someone with personal knowledge of the history of defendant's account when the "agreement" went into effect, when the terms were allegedly communicated to the defendant, and when any of the charges were incurred. The affidavit from the "assistant custodian of records" is based on his "access to the business records of defendant." He fails to state that he has knowledge as to how those records are gathered and maintained. His affidavit too is not in compliance with the same sections of the New York Technology Law and CPLR.

Attached to the November 11, 2009 billing is a document that allegedly sought to amend the terms of the card holder agreement to reflect changes required by the "new Federal Credit Card Regulation" which, if included with that monthly billing statement, would create a presumption that it was mailed to the defendant. There is no affidavit from someone with personal knowledge of the procedures utilized by the plaintiff to notify cardholders of the terms and conditions of the agreement with plaintiff to establish when and how this new agreement was communicated to the defendant. The affidavit from the "assistant custodian of records" states that he has knowledge as to how the agreements are transmitted to cardholders but does not describe the procedure utilized by the plaintiff to notify cardholders. Also he fails to indicate that he has any personal knowledge as to the specifics of this particular account.

It is impossible to conclude that the alleged "agreements" produced by the plaintiff as exhibits in support of this motion reflect the contract terms in effect when the defendant used this account to accumulate more than $50,000.00 in debt.

3. Would the "Agreement" be Admissible at Trial in New York?

Further, there is no allegation that either agreement complies with CPLR §4544 which governs "Contracts in small print." This section provides:

The portion of any printed contract or agreement involving a consumer transaction...where the print is not clear and legible or is less than eight points in depth or five and one-half points in depth for upper case type may not be received in evidence in any trial, hearing or proceeding on behalf of the party who printed or prepared such contract or agreement, or who caused said agreement to be printed or prepared. As used in the immediately preceding sentence, the term "consumer transaction" means a transaction wherein the money, property or service which is the subject of the transaction is primarily for personal, family or household purposes. No provision of any contract or agreement waiving the provisions of this section shall be effective.

This statute falls into the category of state laws which are not necessarily preempted by federal law under 12 CFR §560.2( c) [Albank FSB v Foland, 177 Misc 2d 569 (1998)]. A credit card issuer who operates in every state would have to print its agreements in the largest type size required by a particular state after reviewing the statutes of all fifty jurisdictions so as to be in compliance in all states. In New York the type size measurement is set forth in CPLR §105(t) and General Construction Law §62. In any case, the plaintiff has not made an allegation that the agreement is either in compliance with this statute or that it is exempt from its application. Plaintiff is seeking to rely on it to establish its prima facie case, as such it has the burden of proving compliance with this statute. As such, the alleged agreement is inadmissible to support plaintiff's default judgment application. The court lacks the ability to properly measure the print in the agreement not having had the opportunity to apprentice with Benjamin Franklin when he printed "Poor Richard's Almanac.[FN2]"

4. How is the Amount Due and Owing Calculated?

The plaintiff has provided billing statements dated 8/12/09; 9/11/09; 10/12/09; 11/11/09; 12/11/09; and 9/13/10. None of these statements indicate any activity by the card user. There are no charges or cash advances reflected on any of them. Also there is no explanation as to why there is a gap of nine months in the billings submitted between December 2009 and September 2010. As a result, how may plaintiff claim that defendant is bound by the terms of the agreement and the amendment to the agreement submitted as exhibits if plaintiff asserts that use of the card, even in the absence of receipt of the agreement, binds the card holder to its terms when the plaintiff cannot establish any use by the defendant? Based on the documents provided to the court, the charges sought to be collected on this credit card were all incurred prior to the dates of the agreements submitted. The validity of these alleged charges and the defendant's contract rights cannot be subject to either of those documents as the charges pre-date the issuance of the agreements. Plaintiff has failed to provide the court with the agreement in effect when defendant became a card holder and when the charges were allegedly incurred. The court would think that somewhere in plaintiff's records there would be some evidence as to how and when the defendant incurred a debt to plaintiff in excess of $50,000.00. Did the defendant make multiple purchases over a long period of time (such as one McDonald's Dollar meal a day for 137 years) or did he splurge on one really big, expensive item(perhaps a six -foot tall solid Godiva Chocolate Easter Bunny modeled after "Harvey"[FN3])? There is no way to determine how much of the amount claimed due was the [*6]result of purchases made by the defendant and to what extent the debt resulted from interest being assessed at 27% as shown on the six billing statements submitted.

The first bill submitted by plaintiff dated 8/12/09 indicates in the section "Hilton HHonors Total HHonors Points Earned: Year to Date: 10,091" and contains as a note the following language "Your qualifying Year-to-Date spend [sic] on your HHonors Card is $3,117.00. To qualify for Hilton HHonors Gold VIP Status, you need to have $20,000.00 qualified spend [sic] by December 31st. This statement seems to support the conclusion that the vast majority of the $50,000.00 debt incurred on this credit card was for usage prior to July 2009 and that the "agreements" submitted as exhibits did not govern this cardholder when all of this debt was incurred. It also calls into question as to whether this litigation was commenced within one-year of the last payment or charge as required by Utah law as pointed out above.

5. Is Defendant Bound by the Terms of a Contract Issued After the Litigation was Commenced?

As noted above, plaintiff submitted as an exhibit the attachment to the November 11, 2009 billing changing the terms of the agreement, yet this litigation was commenced by service on October 2, 2009 of a summons and complaint dated September 9, 2009. Because the defendant had ceased making payments at some point prior to the institution of this litigation, plaintiff cannot seriously be asserting there still was a viable contractual relationship between the parties subject to a change of terms after the lawsuit has been started. Due process requires that the rights of the parties be fixed as of the date of breach of the agreement which in this case appears to have been sometime prior to plaintiff issuing either of the "agreements" submitted as exhibits.

6. Is an Affidavit Admissible Just Because it is Notarized?

The "affidavit of facts in support of plaintiff's motion for default judgment" has all the trappings of a "robo-document." It begins "State of New York; County of New York." The first line of the affidavit states: "I_____________, hereby certify as follows:" The blank line is competed by a two-line stamp "Marc Davis, Assistant Custodian of Records." It is followed by a paragraph beginning " I am the ____Custodian of Records" or the "Assistant Custodian of Records." The latter designation is checked. This document is not in the form for an affidavit in New York. It does not begin with the affiant "swearing" to the truth of the contents as required in New York, i.e. "being duly sworn deposes and says." The fact that the statement is "sworn to" before a notary public does not make the contents of the document an affidavit in conformity with New York practice. Although New York does not require any specific form for an oath [General Construction Law §36] it must be "administered in a form calculated to awaken the conscience and impress the mind of the [*7]person taking it in accordance with his [FN4] religious or ethical beliefs" [CPLR §2309(b)]. The "affidavit" does not recite that Davis has read the statement and that the statements are true, so it does not rise to the standards necessary to insure they are factual as set forth in Collins v AA Truck Renting Corp., 209 AD2d 363 (1994). The affiant does not state that he has sworn to the truth of the contents of the document. Further, New York does not recognize "certification" as a means of authenticating the truth of the contents of a document [See Practice Commentary by Patrick Connors after CPLR §3020 in regard to verification of pleadings]. Perhaps such a practice is permitted in New Jersey where plaintiff's "legal" department is located.

7. Are There Other Examples of Why Utah Law Cannot be Interpolated into New York Litigation?

An examination of the documents in the court file discloses some other errors to support the contention that you cannot interpolate Utah law into New York litigation. The Rules of the Chief Administrator provide: Every pleading, written motion, and other paper, served on another party or filed or submitted to the court shall be signed by an attorney, or by a party if the party is not represented by an attorney, with the name of the attorney or party clearly printed or typed directly below the signature [22 NYCRR §130-1.1-a].

The summons and complaint in this matter lacks such a certification, as does the notice of entry of the CPLR §325(d) transfer order, and the request of judicial intervention (which also lacks proof of service on the defendant).

The affidavit of service of the additional mailing of the summons and complaint as required by CPLR §3215(g)(2) in order to enter a default judgment, lacks both a certificate of conformity for the notarization of the mailing in New Jersey and the mailing affidavit does not state that it was marked "personal and confidential." Neither does the affidavit state that the envelope did not indicate that it was from an attorney nor concerns an alleged debt as required by that statute.

Similarly, the affidavit of non-military service also lacks a certificate of conformity for the New Jersey acknowledgment.

The affidavit of the employee of the plaintiff, along with the above noted documents submitted in support of the motion are not in conformity with New York law and must be rejected. These failures to comply with New York procedure make the entire motion defective. [*8]

B. " I.O.U. one thousand dollars.' Signed X!. How is it you can write one thousand, but cannot write your signature? (Nathan Detroit)

"I was good in arithmetic, but stunk in English." (Big Jule)[FN5]

Or, why is it that creditors can produce billing statements but lack the ability to deliver signed agreements or billing statements showing actual use of the credit card?

8. Must There be Some Factual Basis to Support an Affidavit of Facts?

The "affidavit of facts" submitted by plaintiff's employee so as to be able to obtain a default judgment [CPLR§3215(f)] contains some other questionable statements. The person making the alleged "affidavit"(Davis) states "I have personal knowledge and authorized access to American Express' business records regarding the account of the defendant,...and can therefore testify to the accuracy of the statements contained herein." In the next paragraph Davis claims, "In such capacity, I have personal knowledge and authorized access to Plaintiff's computer records and am able to determine as to when the current balance on account number...became due." Unfortunately the "affidavit" gives no explanation as to how the "computer records" are maintained, the method used to input account information into the computer, the relationship between the computer records and the generation of monthly statements, and how the computer system keeps track of the original cardholder agreement, its amendments and how and when they are conveyed to the cardholder. There is also nothing to link these records to this defendant.

Davis goes on to state that based on these computer records he can determine "when the current balance on the account...became due." Yet there is nothing in the "affidavit" indicating when the account was open, when charges were incurred, when the last payment was made, when changes of the agreement were mailed, when the changes went into effect, and how the total claimed due was calculated. The six monthly statements clearly reflect an account in excess of $50,000.00 being claimed due, yet there is no indication of how that sum was calculated. Davis states he has the ability to determine when the current balance became due yet he does not provide the court with that information. Is that because it is not available or nonexistent?

It should be noted that in the court file are the motion papers submitted by the plaintiff in the Supreme Court where this application for a default judgment was first made prior to transfer to the Civil Court. An "affirmation of facts" by "Angela Ramirez: Assistant Custodian of Records" is part of those pleadings. The paragraphs of her "affirmation" almost mirror those in the "affidavit" of Davis. The court will not delve into the intriguing issue as to when "consistent" or "boilerplate" legal pleading become "robo-signing" other than to notice like the voice over in "Dragnet" the only difference may be that "the names have been changed to protect the innocent." Plaintiff also corrected the error in the Supreme Court papers of having Ms. Ramirez submit an "affirmation," something available only to attorneys, physicians and certain other professionals and not [*9]an "assistant custodians of records" [CPLR §2106].

Plaintiff, like Big Jule, apparently, is "good in arthimetic" and capable of producing a numerical total but "stunk in English" and is incapable of establishing how that number was calculated by any verifiable documentary evidence.

C. "But these-these dice ain't got no spots. They're blank." (Nathan Detroit)

"I had the spots taken off for luck. But I remember where the spots formerly were."(Big Jule)

"You are going to role blank dice and call em from remembering where the spots

formerly was?" (Nathan Detroit)

"Why not?" (Big Jule)

"I see no reason." (Nathan Detroit)[FN6]

Or, why some consumer credit agreements are like shooting craps with blank dice.

9. Are Choice of Law Provisions Valid if Selected Solely to Avoid New York Usury Law?

The "Applicable Law" provision of the cardholder agreement which plaintiff alleges governs this transaction states: "This Agreement and your Account, and all questions about their legality, enforceability and interpretation, are governed by the laws of the State of Utah (without regard to internal principles of conflicts of law), and by applicable federal law. We are located in Utah, hold your account in Utah, and entered into this Agreement with you in Utah."

That certainly is an interesting statement considering payments are to be sent to "American Express"[FN7] (not the named plaintiff) at a PO Box in Newark, New Jersey, and customer services and billing inquiries are directed to a PO Box in El Paso, Texas. The alleged "Agreement" does not list any Utah address for the plaintiff. Among the addresses set forth in agreement are ones notifying the consumer that if he or she wants to challenge the accuracy of how the account is reported to consumer reporting agencies, such an inquiry must be sent to a PO Box in Ft. Lauderdale, Florida; problems with electronic fund transfers get sent to a PO Box in Phoenix, Arizona; problems with travel related electronic fund transfers also go to a PO Box in Ft. Lauderdale, Florida; a Notice of Claim for return protection is made to a PO Box in Golden, Colorado as do claims made pursuant to the baggage insurance coverage; Car Rental Loss and Damage Claims are made to a PO Box in Cleveland, Ohio; and AMEX Assurance Company is located in Green Bay, Wisconsin. [*10]And, oh yes, the Legal Department is in Ramsey, New Jersey.

In analyzing the legality of banks selecting a state having extremely favorable interest rates to govern consumer credit transactions one court noted: Although such a structuring of bank functions may be done "deliberately" in order to invoke the more favorable usury laws of certain states,...the location of non-ministerial functions must actually be shifted to the bank's home office to take advantage of the exception. [Citibank (SD) NA v Hansen, 28 Misc 3d 195 (2010)].

Nowhere in the Agreement or in the monthly bills submitted in support of the motion does a Utah address appear. All of the locations listed in relation to this credit card take place somewhere other than Utah. In fact, the alleged agreement makes it impossible to conclude that any meaningful functions concerning this or any other American Express Credit Card accounts take place in Utah. A website called "iBanknet" indicates that the plaintiff bank has only one branch in Utah employing 137 workers. In light of the millions of American Express Credit Cards issued worldwide the court must conclude plaintiff must have an extremely efficient workforce in Utah. Based on all of the above, it is obvious that the only connection with Utah, is that the plaintiff selected that jurisdiction to form a "bank" solely for the purpose of availing itself of the Utah laws which allow: unfettered interest rates in excess of the New York usury laws [UCA §15-1-1; & UCA §70C-1-106]; the terms of the consumer credit "agreement" to be "as found in the parties' language" [UCA 70C-1-302] ; and permit the consumer to be bound by an agreement that they may or may not in fact have ever received [UCA §70C-4-102].[FN8]

This court has on numerous occasions pointed out that if these statutes from states that permit parties to agree on an interest rate were taken to its logical extreme, a charge of daily interest at the rate of 100 percent would be permitted. Apparently Utah would in fact accept such a charge as enforceable. The Utah Department of Financial Institutions website under the heading "Consumer Tips: Interest Rates" provides: Utah law does not specify an interest rate ceiling, but does have an "unconsionability"[sic] provision (section 70C-7-106 of the Utah Code). Rates are determined by the market; in other words, competition and demand determine the interest rate....

This paragraph is followed by a chart alerting the consumer of the amount of [*11]interest incurred if $2,000.00 is borrowed for 24 months at an "Annual Percentage Rate" of "7%; 14%; 36% or 120% (emphasis added). The fact that the Department of Financial Institutions uses such an abnormally high interest rate as an example and does not think that this is "unconscionable" not only shocks the conscience of this court but would probably do so for a court in the Weimer Republic.[FN9]

The rational for the ability to charge what previously throughout history would have been considered usurious interest rates is Title 12 of the United State Code Annotated §85. Utah in fact refers to the federal statute in justifying its current rate-less system [UCA §70C-1-106]. A reading of the federal law leads to the conclusion that this is a perversion of the federal statute. Section 85 provides: Any association may take, receive, reserve, and charge on any loan or discount made,...interest at the rate allowed by the laws of the State, Territory, or District where the bank is located, or at a rate of 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the federal reserve district where the bank is located, whichever is greater, and no more, and except that where by the laws of any State a different rate is limited for banks organized under state laws, the rate so limited shall be allowed for association organized or existing in any such State under title 62 of the Revised Statutes. When no rate is fixed by the laws of the State, or Territory, or District, the bank may take, receive, reserve, or charge a rate not exceeding 7 per centum, or 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the federal district where the bank is located, whichever may be the greater,... [See Marquette National Bank v First of Omaha Service Corp., 439 US 299 (1978)].

This section was passed by Congress to insure that national banks could compete effectively with state banks and may have become anachronistic in an age where national and international banks are not only the norm but are also establishing the practices governing loans and consumer credit transactions. Section 85 is still the law. Although the "cost of money," mortgage and other loan rates have been in single digits for several years, for some reason, consumer credit finance charges have been in double figures with default rates often in excess of 30%. In this case, the monthly statements presented by plaintiff show interest being assessed at a rate in excess of 27%.

Currently the federal discount rate is .75% and has been at that level for at least one year. If this was used as the basis for setting the rate under Section 85, interest would be 1.75% or the usury rate fixed in a particular state. If a state did not have an interest rate, [*12]then the rate to be charged would be 7% as that is the maximum to be charged if the discount rate plus 1% was less than that number. These are rates are nowhere near the finance charge credit card companies such as plaintiff are imposing on their customers. Common sense might lead someone to conclude that a state legislature not fixing a definite interest rate would trigger the default provisions of Section 85, however, case law has held that if a legislature enacts a statute that permits the parties to set their own interest rate, that is in effect legislative action negating the rate cap and protections of Section 85. These cases have interpreted the term "fixed by the laws" as meaning "allowed by the laws"[FN10] [Daggs v Phoenix National Bank, 177 US 549 (1900); Citibank, NA v Shapiro, 2010 WL 5550646 (Mass App Div)]. The federal government has sought to preempt state usury laws [12 CFR §560.2; 12 CFR §560.110; Citibank (SD) NA v Hansen, 28 Misc 3d 195 (2010)].

The language of these federal regulations seems to indicate a belief that there should be some cap on interest rates even though none is fixed in the regulation. Allowing credit card issuers to charge rates so far in excess of those permissible under Section 85 seems to be beyond the intention of the statute and perhaps should be addressed by Congress so as to normalize credit card interest rate to be in-line with other consumer credit rates currently prevailing.

This court has previously analyzed New York and Utah law in regard to which state's usury rule was applicable to the consumer credit transaction and concluded that New York's interest rate of 16% had to be applied. The court will not reiterate that analysis and findings in this decision but stands by the holding in American Express Travel Related Service Co. v Assih, 26 Misc 3d 1016 (2009) and incorporates the holdings in that case into this decision.

Further, if Utah law allows unfettered interest rates, the why does Utah still maintain a "criminal usury" statute? UCA §76-6-520 provides: A person is guilty of criminal usury when he knowingly engages in or directly or indirectly provides financing for the business of making loans at a higher rate of interest or consideration therefor than is authorized by law.

Perhaps there is a recognition that allowing the parties to fix the interest rate by agreement would at some point create a usurious situation otherwise why keep the statute on the books? The rates being charged by plaintiff is at a higher rate of interest than is "authorized by law" in New York and as pointed out in American Express v Assih (supra), New York courts have permitted New York to apply its own usury laws to contractual choice of law provisions [A. Connor General Contracting, Inc. v Rols Capital Co., 145 AD2d 452 (1988).

Likewise if courts are not supposed to analyze the terms of consumer credit contracts to insure fairness why does the Utah law apply an "unconscionability" standard [*13]to these agreements? UCA §70C-7-106 holds: (1) With respect to a consumer credit agreement, if the court finds the agreement or any part of the agreement to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or it may enforce the remainder of the agreement without the unconscionable clause if that will avoid any unconscionable result.

Under Utah case law a court should look to the following:

Factors which bear upon unconscionability are: 1) the use of printed form orboilerplate contracts drawn by the party in the strongest economic position [citation omitted]; 2)excessive price or interest; 3) phrasing clauses in language that is incomprehensible to a layman or that divert his attention from the problems raised by them or the rights given up through them; 4) an overall imbalance in the obligations and rights imposed by the bargain; 5) exploitation of the underprivileged, unsophisticated, uneducated and illiterate [citation omitted];6) contract terms so one-sided as to oppress or unfairly surprise an innocent party [citation omitted]; and 7) lack of opportunity for meaningful negotiation [citation omitted]. [Bekins Bar V Ranch v Huth, 644 P2d 455 (1983)].

Clearly applying these tests of "unconscionability" from Utah law, an argument may be made that the standard credit card agreement such as that used by plaintiff herein may in fact be unconscionable on it face.

Conclusion: One of these days in your travels a guy is going to come to you and show you a nice brand-new deck of cards on which the seal is not yet broken, and this guy is going to offer to bet you that he can make the Jack of Spades jump out of the deck and squirt cider in your ear. But son, do not bet this man, for as sure as you stand there you are going to wind up with an earful of cider.[FN11]

Credit card issuers and third party debt buyers have over the last few years been "squirting cider" in the ears of the court system. Over the last five years, the number of consumer credit actions brought in the New York City Civil Court has averaged about 270,00filings a year. Of that number almost 66.7% result in default judgments being entered against debtors. Of the 33.7% of consumers who do answer the complaints, in excess of 95% are unrepresented by counsel. Recent rulings by New York courts have challenged the basis of the creditors' procedures in bringing these actions and have resulted in findings concerning service of process by creditors that the procedures used were so questionable they might not even rise to "sewer service." Consent orders vacating many of these judgments have been negotiated owing to these proven abuses. [*14]

Historically, these creditors, especially third-party debt buyers do not bring to trial these consumer credit cases and when they do, more often than not, the plaintiffs lack the ability to prove the necessary elements of a prima facie case. Similarly, consumer credit plaintiffs who seek to enter a judgment by making a summary judgment motion also, more often than not, fail to sustain their burden of proof when the papers submitted in support of the application are scrutinized to any extent.

Because of the above history, this court has started to examine submissions marked for "inquest clerk" [Collins Financial v Vitiglaino, 2011 WL 71478], motions to enter a default judgment such as presented here, and assignments of judgments to third-party debt collectors [Chase Bank USA NA v Cardello, 27 Misc 3d 791 (2010)] and found that for the most part these submissions lack a "nano" of a "modicum" of a "scintilla" of a prima facie case so as to be entitled to a judgment whether it be by default or otherwise. The court must wonder if this seemingly industry-wide problem exists because there is either an inability to provide the necessary documentation or just an unwillingness. Most debtors who do appear and answer, other than those alleging identity theft, acknowledge that they had a credit card and do owe an amount of money, but challenge the amount due the plaintiff. Consistently plaintiffs are unable to produce statements showing use of the credit card by the debtor. Billing statements that are produced, such as in this case, reflect some existing balance not related to purchases and interest charges which often bring the amount owed to a sum beyond most of the debtors ability to pay. Often it is a sum that had the debtor applied for a credit line of that amount, would have resulted in a denial of credit by the plaintiff.

The utter failure of large numbers of consumer credit plaintiffs to prove their cases has created substantial problems requiring the courts to take steps to insure that the due process rights of the unrepresented debtors and even defaulting defendants are protected.

This court believes that people who make purchases using their credit cards should pay for them. However, when they do not pay the debt, and plaintiff's use the court system to enforce the obligation, the rules of evidence and legal precedents existing will then govern the transaction. If this is creating the impression that the courts are "pro-consumer" the credit card industry need only to look in the mirror to see the real reason for this seeming intense judicial scrutiny. Plaintiff's should spend more time putting all fifty-two cards in the deck rather than just a Jack of Spades that can squirt cider in the court's ear.

Plaintiff's motion to enter a default judgment is denied. The clerk will restore the case to the "inquest by court" calendar upon the filing of the required forms and payment of the necessary fees if any. On the inquest date, plaintiff will appear with a witness to testify who is prepared to correct all of the defects set forth herein and prove a prima facie case under the laws of the state of New York. [*15]

Based on the above and the finding of this court in American Express v Assih, plaintiff should be prepared to recalculate the amount owed using the interest rate established by New York's usury law.

Plaintiff should be prepared to establish when the contract was breached by the defendant, the charges made which constitute the amount claimed due and whether the correct statute of limitations is only one year as found by the court.

The foregoing constitutes the decision and order of the court.

Dated: March 14, 2011


Judge, Civil Court




Footnote 1:

Nathan Detroit to Big Jule, "Guys & Dolls" music & lyrics by Frank Loesser, book by Jo Swerling & Abe Burrows. Based primarily on the Damon Runyon short-story "The Idyll of Miss Sarah Brown."

Footnote 2: "Poor Richards Almanack" was printed by Benjamin Franklin in Philidelphia 1732-1758

Footnote 3:"Harvey" is a Pulitizer Prize written play writtin by Mary Chase and produced in 1944. People ar more familier with the 1950's film version which starred Jane Stewart as "Elwood P. Dowd" and "Harvey" as "Harvey" to be accurate Harvey is a six-foot, three-and-one-half-inch tall pooka who appears as a rabbit.

Footnote 4: This section has not been made gender neutral by the legislature.

Footnote 5: "Guys & Dolls"

Footnote 6:

Footnote 7:6. Guys & Dolls"

7. A search of the New York Department of State, Division of Corporations discloses fourteen (14) entities registered in New York containing the words "American Express"-none of which are the plaintiff. So just who is receiving and processing payment checks?

Footnote 8: Apparently at one time there was an entity known as "American Express Bank Ltd." with its principal place of business in New York. This entity entered into a "written agreement" with the New York State Banking Department on August 6, 2007 because "there are deficiencies in the Bank's compliance with applicable federal and state laws,..." The plaintiff herein, American Express Bank FSB, was apparently formed in 2000 and has no branches but one office in Salt Lake City, Utah.

Footnote 9: The term Weimer Republic refers to the period of Germany history between the end of World War I in 1918 and the rise of Nazi Germany in 1933. During the period 1921-1923 inflation was rampant in Germany and interest rates skyrocketed to unheard of heights.

Footnote 10: The court has yet to find a thesaurus that lists "fixed" as a synonym for "allowed."

Footnote 11: Sky Masterson's relating to Nathan Detroit the advice given him by his father concerning sure bets. From "Guys & Dolls."

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