American Express Natl. Bank v Plaine

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American Express Natl. Bank v Plaine 2023 NY Slip Op 34602(U) July 13, 2023 County Court, Tompkins County Docket Number: Index No. 2023-0085 Judge: Joseph R. Cassidy Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. At a term of the County Court of the State of New York, Tompkins County, held in Ithaca, New York on July 13, 2023 Present: Hon. JOSEPH R. CASSIDY County Court Judge AMERICAN EXPRESS NATIONAL BANK, Appellant, DECISION and ORDER Motion to Dismiss vs. Index No. 2023-0085 DAVID PLAINE AKA DAVID A. PLAINE, Respondent. Before the Court is an appeal from a Decision and Order of the Ithaca City Court (Peacock, J.) entered on February 10, 2023 denying Appellant's motion for summary judgment and granting partial summary judgment to the defendant in a credit card collection action. Procedural History On or about August 24, 2021, Plaintiff-Appellant American Express National Bank (hereinafter "Plaintifr' or "American Express"), a national bank, filed a collection action against the Defendant-Respondent David A. Plaine (hereinafter "Defendant" or "Mr. Plaine"). Plaintiff sought a judgment of $ 4,191.20 for a balance due on a Lowe 1s Business Rewards credit card issued by American Express. Mr. Plaine answered the Complaint by filing a letter dated September 15, 2021 in which he did not dispute the debt and sought to establish a repayment plan. On November 21, 2022. Plaintiff filed a Motion for Summary Judgment, made returnable on submission on January 12, 2023. Mr. Plaine did not submit a reply or otherwise oppose the motion. On February 10. 2023, Ithaca City Court issued a Decision and Order in which it denied Plaintiffs motion for summary judgment and sua sponte granted partial summary judgment to the Defendant. IHlllllllllllllllllllllllllll lllflll II IIIIIIIIII IIIIIIIIII Ill llll Index#: 2023-0085 Cl2023-14406 07/19/2023 10:45:55 AM DECISION AND ORDER Maureen Reynolds, Tompkins County Clerk [* 1] Appellant filed a timely Notice of Appeal from the Decision and Order and moved for a stay of the proceedings below. This Court granted the stay. Plaintiff filed a Notice of Argument and Supporting Brief, along with an Affidavit of Service indicating service on the Defendant. Defendant did not submit a response and the deadline to do so has passed. The Court deems the matter fully submitted. Factual Background The undisputed facts are as follows: Plaintiff American Express National Bank is a national bank with its headquarters located in Utah. American Express owns Lowesbranded Business Rewards credit cards. Mr. Plaine opened a Lowes Business Rewards credit card account on or about April l , 2013. The account is governed by a Cardmember Agreement. The Cardmembcr Agreement stipulates that "Utah law and federal law govern this Agreement and the Account...without regards to internal principles of conflicts oflaw. We are located in Utah. We hold the account in Utah. We entered into this Agreement with you in Utah." The Agreement sets forth an annual percentage rate (APR) of the prime rate plus 14.99%, a penalty APR of the prime rate plus 23.99%, and late fees ofup to $ 35.00. Plaintiff asserts that Defendant defaulted on the Cardmember Agreement on or about April 28, 2022 with a charge-off balance of $ 4,191.20 in principal, interest and accumulated late fees. Plaintiff's motion for summary judgment included the Cardmember Agreement, Mr. Plaine's credit card statements from June 27, 2017 to May 27, 2022, affidavits of service, and a sworn affidavit from the custodian of the records of Mr. Plaine's account. Mr. Plaine did not reply to the motion. On February 10, 2023, City Court issued a written Decision and Order. The Court granted the motion in part. finding that Defendant was liable to Plaintiff for an unspecified amount, but also granted partial summary judgment in favor of the Defendant, sua sponte, 2 [* 2] because it found Plaintiff charged an interest rate in excess of New York's criminal usury statutes. On appeal, Plaintiff contends that l) City Court's Decision and Order is erroneous on the law; 2) City Court improperly shifted the burden of proof from the Defendant to the Plaintiff; and 3) City Court's proceedings violated fundamental principles of due process. Discussion I. Standard for Summary Judgment To prevail on a motion for summary judgment, the moving party "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case." Winegard v. New York Univ. Med. Ctr., 64 N.Y.2d 851,853 [1985]. If the movant satisfies this requirement, the burden shifts to the opposing party to present evidentiary proof: in admissible form, of a material fact requiring a trial. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986}; Zuckerman v. City of New York, 49 N.Y.2d 557,562 [1980]. Affidavits from those with personal knowledge of the facts are the primary source of proof in a motion for summary judgment. CPLR § 3212 [b]; Siegal NY Practice§ 281 6 th ed.; Viviane Etienne Med. Care, P.C. v. Country-Wide Ins. Co .• 25 N.Y.3d 498, 508 [201 SJ. A court may grant summary judgment to a non-moving party when it is clear from the submitted papers that ••it is warranted by the facts plainly appearing on the papers on both sides. if the relief granted is not too dramatically unlike the relief sought, the proof offered supports it, and there is no prejudice to any party." Frankel v. Stavsky. 40 A.D.3d 918, 918-919 [2 nd Dept. 2007). To make a prima facic showing of it-, entitlement to judgment in an action to collect a credit card debt, Plaintiff must show 1) The existence of an agreement; 2) Acceptance of 3 [* 3] the agreement, which it can demonstrate through Defendant's use of the card and payments made thereon; and 2) Breach of contract, which is established by Defendant's failure to make payments on the account. Citibank v. Roberts, 304 A.D.2d 901,902 [3 rd Dept. 2002], Citibank (South Dakota), N.A. v. Keskin, 121 A.D.3d 635, 636 [2 nd Dept. 2014]. Tender of a written contract and an uncontroverted assertion that the Defendant failed to pay the amounts due thereunder is sufficient for entitlement to summary judgment Convenient Med Care v. Medical Bus. Assoc., 291 A.D.2d 617,618 [3 rd Dept. 2002]. Here, Plaintiff provided the Cardmember Agreement, billing statements showing acceptance through use of the card, and an affidavit of American Express's business records custodian showing Defendant defaulted on payments. However, despite the fact that the Defendant acknowledged that he owed the debt. City Court raised affinnative defenses sua sponte and found that Plaintiff failed to provide sufficient proof that it was authorized to charge an interest rate under Utah law. II. Application of the National Bank Act American Express is a national bank governed by the National Bank Act codified in Title 12 of the United States Code. As such. Appellant argues, it is permitted to charge the interest rate of its home state of Utah. Under 12 U.S.C. § 85, national banks are expressly pennitted to "charge on any loan ... interest at the rate allowed by the laws of the State, Territory, or District where the bank is located." 12 U.S.C. § 85. A national bank is "located" in the state named on its organi7,ation certificate. otherwise known as its "home state." Marquette National Bank of Minneapolis v. First Omaha Service Corp., 439 U.S. 299, 309, 99 S.Ct. 540, 546 I l 978]. The Marquette ruling is known as the "exportation doctrine," as it pennits national banks "to 'export' the consumer credit regulation (or lack thereof) from the state in which they are located to all other states where they have customers," thus circumventing state-enacted consumer protections. Elizabeth R. Schiltz, The Amazing, Elastic, Ever~Expanding Exportation Doctrine and Its Effect on 4 [* 4] Predatory Lending Regulation. 88 Minn. L. Rev. 518,522 (2004]. Interstate national banks are also considered located in any state in which they operate branches, known as "host states." 1 OCC Interpretive Letter 822 (March 1998), OCC Interpretive Letter 1171 (June 1, 2020). The Office of the Comptroller of Currency (hereinafter "OCC") is tasked with overseeing and regulating national banks. To determine which state's laws govern the interest an interstate national bank may charge, the OCC adopted a framework that evaluates where three non-ministerial functions associated with making a loan occur. Id. These are I) approving the loan: 2) extending the credit: and 3) disbursing the loan proceeds. Id. The 2020 Interpretive Letter explains: Based on this analysis, an interstate national bank may charge interest in accordance with the laws of its home state unless all three non-ministerialfimctions occur at one or more of the bank's branches in a single host state. If all three non-ministerial functions occur within a branch or branches in a single host state, the bank must use that host state's rates. If some, but not all, of the non- ministerial functions occur in a host state, the bank may elect to use the host state's rates. provided that there is a clear nexus between the loan and the host state based on an assessment of all the facts and circumstances. In this case, the bank may also elect to use the home state's rates. If the non-ministerial functions occur in different states (e.g., both home state and host state(s)) and there are not sufficient contacts to establish a clear nexus between the loan and any host state, the bank must use the home state's rates. OCC Interpretive Letter# 1171, June l, 2020 at 3-4 (emphasis added). Thus, under the OCCs interpretation, a host state's rate must apply only when all three of a national bank's non-ministerial functions occur in that state alone. Otherwise, National banks operating exclusively through the internet are deemed to be located in the state the bank identified on its organization certificate. 12 C.F.R. § 7.5009; 12 U.S.C. § 22. 5 [* 5] the bank may apply the rate of its home state. The National Bank Act preempts state law under the federal preemption doctrine set forth in the Supremacy Clause of Article VI of the lJ. S. Constitution, which states: *'The Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding." This means that "any state law, however clearly within a State's acknowledged power, which interferes with or is contrary to federal law, must yield ... even state regulation designed to protect vital state interests." Gade v. Nat 1 Solid Waste Mgmt. Assn, 505 U.S. 88, I 08 L1992] [internal citations and quotations omitted]. It is well-settled that the National Bank Act "provide[ s J the exclusive cause of action for usury claims against national banks, and therefore completely preempt[s] analogous state-law usury claims. Thus, there is no such thing as a state-law claim of usury against a national bank." Madden v. Midland Funding, LLC, 786 F.3d 246,249 [2 nd Cir. 2015], quoting Beneficial Nat. Bank v. Anderson, 539 U.S. L 10 [2003 J. Here, City Court acknowledged that Plaintiff is a national bank and held that the National Bank Act would govcm if at least one of its non-ministerial functions takes place in Utah. It declined to apply Utah law, however. because Plaintifr s pleadings and supporting documentation did not specify the state(s) in which American Express performed non-ministerial functions. 3 Because Plaintiff did not specify which ministerial functions it performs in Utah, the Court found it could not determine which state's interest rates govern the loan, and consequently decided that, as a matter of public policy, it could apply New York State's criminal usury statute to effectively preempt the National Bank 3 It is not clear whether City Court accepted that the NBA preempts state law. a'l it also suggested that New York's "center of gravity approach." guides the choice of law. This application of New York law is inapposite in a case involving a national bank. Many of the cases City Court relied upon in its decision do not concern national banks. 6 [* 6] Act. Whether a bank must prove where its non-ministerial functions occur may be open to interpretation. The vast majority of cases do not undergo this analysis. City Court follows the reasoning in Citibank (SD) v. Hansen, 208 Misc 195 [Nassau County Dist. Ct. 20 IO], which held that a national bank can only impose its home state interest rates if it demonstrates that at least one significant non-ministerial function takes place in the home state. See also American Exp. Bank. f"'SB v. Dalhis, 30 Misc.3d l 235(A), [Richmond County Civ. Ct. 2011 J. These are local court decisions that do not appear to have been tested on appeal and have no precedential value for this Court. Moreover. they predate the OCC's most recent Interpretive Letter on the issue, Interpretive Letter 1171. 4 The ministerial functions test in these decisions is at odds with the later OCC interpretation, which docs not require any ministerial function of the home state~ host state rates must apply only if all three non~ministerial functions take place in that single host state. 5 See supra. American Express plead that its home state is the State of Utah. The Cardmember Agreement designates Utah as the state in which it is located. Its supporting documentation showed its customer service center was in Texas and payments were to be sent to an address in New Jersey. Notably. however, there was nothing to establish that American Express had branches in either of those states or in New York State. The Defendant did not contest that Plaintiffs location was in Utah. Even if the OCC's ministerial functions test governs. 4 The Courts in these cases also put the parties on notice with respect to their concerns about usury before ruling. The ministerial functions test is complicated by modem banking practices, particularly online banking and the immediate extension of credit for store-branded credit cards, which do not take place at a "branch." In these circumstances. the OCC opines that the rates of the host state in which the criteria for extending credit is made would apply over other host states. but not necessarily over the home state. OCC IL 1171 at 4. 7 [* 7] there is nothing to establish that American Express is located in New York State, let alone that it performs all three of its non-ministerial functions in this state. Accordingly, this Court finds City Court's application of New York law was in error. II. Improper Burden Shifting: The Defense of Criminal Usury New York State's usury laws are encoded in General Obligations Law§ 5-501 (civil usury) and Penal Law § 190.40 ( criminal usury). The civil usury annual interest rate is 16%. Interest exceeding 25% per annum is criminally usurious in New York State. Criminal usury can be raised as a defense in civil actions in certain circumstances. Adar Bays, LLC v. GeneSYS ID. Inc., 37 N.Y.3d 320,327 [2021 j. City Court found that public policy concerns permitted it to apply New York's criminal usury law because Plaintiff failed to establish it conducted non-ministerial activities in its home state of Utah. While acknowledging that civil usury is an aftirmative defense that must be pied and proven, City Court nonetheless found that public policy concerns permitted it to raise criminal usury as a defense. sua sponte. under the doctrine of unclean hands. a doctrine generally used by courts of equity. City Court found that the defense of criminal usury "is not waived merely by a defendant's failure to assert it." and that the burden is on the plaintiff to demonstrate its authority to charge an interest rate in excess of New York's criminal usury statute. City Court erred by harnessing Plaintiff with the burden of proving that its nonministerial functions occurred in Utah. The parties' Cardmember Agreement is governed by the National Bank Act. and New York law would apply only if§ 85 of the National Bank Act so permits. Moreover. even if this were a circumstance in which New York law could be applied, City Court should have provided Plaintiff with the opportunity to address the issue, rather than raising the defense sua sponte. 8 [* 8] II I. Procedural Due Process More fundamental is the Court having raised an affirmative defense sua sponte in a case in which the defendant acknowledged liability and did not oppose the motion for summary judgment. Unless subject matter jurisdiction is at issue, a court should not raise an issue sua sponte when a party is prejudiced by its inability to respond. Level 3 Commc ns. LLC v. Essex Cnty, 129 A.D.3d 1255, 1256 p rd Dept. 2015]. When a defendant fails to raise an affirmative defense, it is improper for a court to raise it sua sponte. CPLR § 3018[b], Progressive Northeastern Insurance Co. v. North State Autobahn, Inc., 71 A.D.3d 657,658, 896 N.Y.S.2d 137 [2nd Dept. 2010J. It is well-established that usury, including criminal usury, is an affirmative defense that must be proven by clear and convincing evidence as to all its elements. Hochman V. laRea, 14 A.D.3d 653,654, 789 N.Y.S.2d 300,301 r2 nd Dept. 2005]. "A heavy burden rests upon the party seeking to impeach a transaction based upon usury ... and usury will not be presumed." Id. Iinternal citations omitted!, White v Benjamin, 138 N.Y. 623,625, 33 N.E. 1037118931. Failure to raise the affirmative defense of usury constitutes waiver of the defense. Power Up Lending Group. Ltd. v. Cardinal Resources, Inc., 160 A.D.3d 674,675, 74 N.Y.S.3d 67 [2 nd Dept. 20181, City Court did not provide Plaintiff with the opportunity to argue the issue of usury or to prove where the bank is located for purposes of the NBA. This denied Plaintiff its basic right to due process. Chase Home Fin.. LLC v. Plaut, 171 A.D.3d 692, 694, 97 N.Y.S.3d 731 f2 nd Dept. 2019]; see CPLR § 3216. U.S. Bank N.A. v. Ahmed, 137 A.D.3d 1106, 1108, 29 N.Y.S.3d 33 [2 nd Dept.2016]. Absent notice and an opportunity to be heard, it is error for a court to sua sponte grant relief that is not requested by the parties. Myers v. Markey, 74 A.D.3d 1344, 1345 [2 nd Dept. 2010]. Rehman v. Sheikh, 152 A.D.3d 910, 913 [3 rd Dept. 2017]. See also Evans v. Argent Mtge. Co., LLC, 120 A.D.3d 618, 620-21 [2 11d Dept. 2014J. 9 [* 9] Conclusion There is no doubt that there is an extreme power imbalance between national banks and consumers. Thus, City Court was correct to examine PlaintifPs application with scrutiny. The National Bank Act was designed to impart a special status on national banks which enables them to circumvent state consumer protection laws. However unsavory a policy a court may find that to be, the federal preemption doctrine requires state courts to follow federal law. regardless of the unfair advantage it may bestow upon one party over another. ln light of the foregoing, the Decision and Order of the Ithaca City Court, insofar as appealed from, is reversed and Plaintiff's motion for summary judgment for$ 4J 91.20 is granted. This is the decision and order of the Court made upon notice to all parties. A notice of appeal. if any. must be filed within thirty days of entry. So Ordered Enter: ,)13 , 2023 Ithaca. New York copies to: seph R. Cassidy unty Court Jud e Zwicker & Associates, P.C. Attorneys for Appellant by Joseph Jakas Esq. 100 Corporate Woods, Suite 230 Rochester, New York 14623 Respondent, pro se Ithaca City Court 118 E. Clinton Street Ithaca. New York 14850 10 [* 10]

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