Barbara KENTY, et al., Plaintiffs-Appellants, v. BANK ONE, COLUMBUS, N.A., and Transamerica Premier Insurance Company, Defendants-Appellees.
No. 93-4211.
United States Court of Appeals, Sixth Circuit.
Decided Aug. 5, 1996.
Denied Sept. 19, 1996.
92 F.3d 384
Reargued Feb. 7, 1996. Rehearing and Suggestion for Rehearing En Banc Denied Sept. 19, 1996.
Before: GUY, RYAN, and SUHRHEINRICH, Circuit Judges.
trary. That order renders the defendants’ objections to the summary jury trial moot.
It therefore is ORDERED that the petition for a writ of mandamus is dismissed as moot.
ORDER
In this class action arising from riots that occurred at the Southern Ohio Correctional Facility in April of 1993, the district court ordered the parties to participate in a summary jury trial in an attempt to obtain a settlement of the action. The defendants moved to vacate the order on the grounds that In re NLO, Inc., 5 F.3d 154 (6th Cir. 1993), prohibited compelling a party to participate in a summary jury trial. The district court denied the motion. The defendants agreed not to seek a mandamus to vacate the summary jury trial if the proceedings would be closed to the public. The summary jury trial began on June 6, 1996. The Cincinnati Enquirer then filed a petition for a writ of mandamus seeking to require that the proceedings be opened to the public. On June 7, 1996, a single judge of this court, acting on an emergency basis, issued an order temporarily prohibiting the court from conducting the proceedings without permitting public access. In re Cincinnati Enquirer, 85 F.3d 255 (6th Cir.1996). The district court continued the summary jury trial in opened court.
The petitioners, defendants below, filed this petition for a writ of mandamus seeking to vacate the summary jury trial proceedings because the proceedings were now required to be opened to the public. On June 10, 1996, a single judge of the court issued a stay of the summary jury trial pending consideration of the defendants’ mandamus petition. Contemporaneously with this order, we are issuing an order in In re Cincinnati Enquirer, 85 F.3d 255 (6th Cir.1996), holding that the press does not have the right of access to the summary jury trial, denying that petition for a writ of mandamus, and vacating this court‘s prior ruling in that case to the con
David S. Cupps (argued and briefed), Vorys, Sater, Seymour & Pease, Cleveland, OH, Michael J. Betts, Betts & Perry, Pittsburgh, PA, for Bank One, Columbus, N.A.
Joel Mirman, Benesch, Friedlander, Coplan & Aronoff, Columbus, OH, Mark P. Ladner (argued and briefed), Morrison & Foerster, New York City, NY, for Transamerica Premier Ins. Co.
John J. Gill (briefed), American Bankers Ass‘n, Washington, DC, for amicus curiae.
Before: MERRITT, Chief Judge; KEITH and BOGGS, Circuit Judges.
MERRITT, C.J., delivered the opinion of the court, in which KEITH, J., joined. BOGGS, J. (pp. 395-96), delivered a separate concurring opinion.
AMENDED OPINION
MERRITT, Chief Judge.
Plaintiffs in this class action suit appeal the grant of summary judgment for the defendants by the district court. Each plaintiff
I. Facts
The plaintiffs in this case individually contracted with the Bank for an automobile loan. The loan contract, which was identical in each case, provided that each plaintiff would purchase collision and comprehensive insurance coverage for the automobile they purchased with the loan proceeds. In the alternative, if a plaintiff did not purchase insurance the agreement provided that the Bank could take out an insurance policy on behalf of that plaintiff and add the charges to the balance of the loan. Specifically the Notice of Requirement to Provide Insurance executed by the plaintiffs stated:
I understand that the terms of my loan require that:
(a) I provide property insurance against loss or damage (subject to a maximum deductible of $250) on the collateral securing my loan, in an amount sufficient to cover the outstanding balance on my loan, plus any existing liens on the collateral. This coverage is commonly referred to as collision or comprehensive insurance . . . and
(b) The insurance policy contained a loss payable clause endorsement naming BANK ONE as the holder of a lien on the collateral.
. . . .
I understand that I may obtain the insurance from any agent or company of my choice; if I fail to obtain the required insurance, BANK ONE, at its option but without any obligation to do so, may apply in my name at my expense to purchase limited insurance for the protection of only Bank One for the amount of my loan. I authorize Bank One to add such insurance premiums, and finance charges thereon, to my loan balance. I understand that Bank One will retain a security interest in the collateral securing my loan until the entire balance, including any premiums and finance charges, is paid.
Each of the plaintiffs in the class did not purchase the insurance against loss or damage of their automobile, and the Bank purchased insurance for them from Transamerica.
The policy which the Bank purchased from Transamerica included endorsements which protected the automobiles (the Bank‘s collateral) from theft and damage that could diminish the value of the automobile. The plaintiffs do not contest these endorsements. In addition, however, the policy purchased from Transamerica also insured the Bank against malfeasance by the plaintiff-borrower and against losses that could be incurred by the Bank even when an automobile was repossessed in undamaged condition (“additional insurance“). For example, in the insurance policy taken out for the class representative, the coverage included protection against “borrower conversion, embezzlement and secretion of the vehicle“; expenses included in “repossessing the vehicle with a prior mechanics lien“; payments for a “loaned insurance premium if borrower defaults and vehicle is repossessed“; “repossession expenses“; “repossessed storage expenses“; “additional coverage to insure vehicle . . . after insurance
Although each plaintiff received notice that the Bank had purchased insurance from Transamerica in his or her name, the notice they received did not explain that the coverage included any additional coverage beyond protection against “loss or damage.” In the case of the class representative, the notice only mentioned “extra endorsements” by number listing “CSI-1, 2, 3, 4, 5, 6, 7, 9, 10, 12, 13, 15.” Subsequent notices sent to the plaintiffs included no further suggestion that the insurance coverage included protection of the Bank‘s loan beyond the value of the collateral in the undamaged automobile. All of the notices included a statement that “This Insurance Protects in the Interest of the Lender in the Vehicle.”
Each of the premiums were added to the balances on the plaintiffs’ loans with the Bank. But, according to the plaintiffs, the Bank received rebates from Transamerica that were not reflected in the price each plaintiff was charged. Thus the Bank did not pass on the rebates to the plaintiffs, and therefore overcharged them for the insurance.
While the case was pending in district court, the plaintiffs filed a similar claim in state court in Ohio on a breach of contract theory, and related state-law grounds. The Ohio Court of Appeals dismissed all the plaintiffs’ claims. Recently, however, the Ohio Supreme Court overruled that decision and held that the plaintiffs did state a cause of action under Ohio law sufficient to survive summary judgment. As we read that decision, the Ohio Supreme Court also interpreted Ohio contract law to hold that the Bank breached its contracts with the plaintiffs when it purchased the additional insurance. Kenty v. Transamerica Premium Ins. Co., 72 Ohio St.3d 415, 650 N.E.2d 863 (1995). Nonetheless, as there is now no final judgment in the Ohio state courts, we are not barred from considering this case under res judicata or collateral estoppel. See State ex rel. Kirby v. S.G. Loewendick & Sons, Inc., 64 Ohio St.3d 433, 437, 596 N.E.2d 460, 463 (1992) (holding that final judgment required for estoppel by judgment and necessary determination needed for collateral estoppel).
II. Standard of Review
We review the district court‘s grant of summary judgment de novo, using the same standard as that used by the district court. See Moore v. Philip Morris Cos., 8 F.3d 335, 339 (6th Cir.1993). In deciding upon a motion for summary judgment, we must view the factual evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962).
III. RICO
The plaintiffs assert that the Bank and Transamerica violated RICO in two respects. First, plaintiffs argue that the purchase of the additional coverage beyond loss and damage insurance violated RICO. Second, plaintiffs contend that the “kickbacks” that the Bank received from the insurance company also violated RICO.
A violation of RICO under
Mail fraud consists of “a scheme or artifice to defraud and a mailing for the purpose of executing the scheme.” Bender v. Southland Corp., 749 F.2d 1205, 1215-16 (6th Cir.1984). A scheme to defraud consists of “[i]ntentional fraud, consisting in deception intentionally practiced to induce another to part with property or to surrender some legal right, and which accomplishes the
A. Statement as to Type of Coverage Purchased
The plaintiffs argue that every insurance notice sent to them included the statement “This Insurance Protects in the Interest of the Lender in the Vehicle.” The plaintiffs contend that this statement is a false statement of fact that was reasonably calculated to deceive them. Specifically, the plaintiffs argue that this statement led them to believe that they were only paying for loss and damage insurance when in fact they were also buying insurance that protected the Bank from malfeasance by the plaintiffs and from losses connected to the loan that might occur even if a secured automobile were not damaged or stolen. The plaintiffs stress that the word “Vehicle” is misleading and contend that to be correct the statement should have informed them that the insurance also protected the interest of the Bank in the loan.
This statement is not sufficiently misleading to form the basis of a fraud claim. The “Interest of the Lender” could be read to mean its interest in the vehicle as collateral. When read in this way, all of the insurance coverage can be construed to protect the Bank from diminution in value of its collateral, whether through damage, theft, or other costs incurred because the plaintiffs failed to make their payments (such as the cost of repossession). All of the coverage is designed to insure that the Bank will be fully secured up to the amount of the loan balance. While we recognize that one could read this statement another way, the language is too vague for us to conclude that the statement was “reasonably calculated to deceive” the plaintiffs. Furthermore, the same notice on which this statement appears includes a section which lists by number all of the policy endorsements about which the plaintiff complains. Although the plaintiffs would have had to ask the Bank or Transamerica what these codes stood for, it would have required minimal effort to do so. If the Bank or Transamerica were attempting to deceive the plaintiffs, it is hardly likely that they would have placed all of the endorsements on the notices sent to the plaintiffs. In addition, the presence of these endorsements on the face of the notices undermines the plaintiffs’ claims that they reasonably relied on the statement they cite as misleading. A claim of fraud does not inevitably follow from every breach of a contract. Even if the Bank breached the loan agreements here, the plaintiffs still must point to a falsehood that would form the basis for fraud. They have failed to do so. Consequently, the district court properly granted summary judgment for the defendants on this issue because the plaintiffs failed to state with particularity a false statement of fact.
B. Insurance Rebates from Transamerica to the Bank
The plaintiffs also contend that the Bank and Transamerica entered into an agreement that provided the Bank with rebates or “kickbacks” for placing the insurance with Transamerica. Although the defendants argue that these sums were insurance “commissions” that were paid to an affiliate of the Bank, for the purposes of this review we must interpret the facts in the light most favorable to the plaintiffs.
The loan contract in question—i.e., subsection (b) quoted in the first paragraph of Section I of the opinion—states that in case of default Bank One “may purchase limited
We agree with the district court that Kenty has not alleged the particular false statement on which she relies in light of the factual basis of fraud alleged in the complaint. She does not explain why the amounts charged to her were not “premiums and finance charges” or how the amounts charged constitute fraud. The allegations of the complaint fail under Rule 9 to identify with particularity the statement made by the Bank in the dealings between Kenty and the bank that was untrue. Hence the misrepresentation element of fraud has not been sufficiently identified to withstand the motion to dismiss.
C. McCarran-Ferguson Act Exemptions
The plaintiffs also charge that Transamerica should be held liable under RICO pursuant to the same theories that make the Bank liable. But Transamerica responds that it is exempt from RICO liability under the McCarran-Ferguson Act. That statute provides:
(b) No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any state for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance.
In addition, Ohio has several state-law statutes that regulate insurance premiums, rebates and commissions. See
Once it is determined that McCarran-Ferguson applies, the central question depends on whether RICO will “invalidate, impair or supersede” any section of the Ohio insurance code. Under this analysis, McCarran-Ferguson requires three inquiries: (1) does the federal statute at issue “specifically relate to the business of insurance“; (2) was the state statute at issue “enacted for the purpose of regulating the business of insurance“; and (3) would application of the federal statute “invalidate, impair or supersede” the same statute. Ambrose v. Blue Cross & Blue Shield of Virginia, Inc., 891 F.Supp. 1153, 1158 (E.D.Va.1995) (citing Fabe, 508 U.S. at 501, 113 S.Ct. at 2208). It is clear that RICO does not specifically relate to the business of insurance and that the provisions of Ohio‘s insurance code, including those on “unfair and deceptive practices” under
Recently, this Court in Nationwide Mut. Ins. Co. v. Cisneros, held that the McCarran-Ferguson Act did not bar application of the federal Fair Housing Act to insurers who were accused of discriminating in issuing home owner insurance policies in Ohio, even though the Ohio Revised Code contained provisions also designed to combat discrimination in housing insurance, 52 F.3d 1351, 1363 (6th Cir.1995). The insurance company claimed that the Fair Housing Act impaired or superseded the Ohio Revised Code in two respects. First, it claimed that the Fair Housing Act allowed claims based on disparate impact that were not permissible under the Ohio Revised Code. Id. at 1361. Second, it argued that the Fair Housing Act created a private right of action allowing jury trials and punitive damages that were not permissible under Ohio‘s administrative review process. Id. at 1363. The Nationwide court held that the issue of whether the Fair Housing Act impaired the Ohio Code because it allowed claims based on disparate impact was not ripe. Id. It then held that allowing additional procedural means, such as jury trials or punitive damages, could not be said to be impairing or superseding Ohio law. Id. Nationwide stands for the proposition that McCarran-Ferguson protects the substantive measures embodied in state law. A party seeking to invoke McCarran-Ferguson cannot simply point to additional procedural measures included in a federal law without identifying some substantive aspect of the state law that is being invalidated, impaired or superseded. Thus, as the plain language of the statute suggests, this is fundamentally a question of what effect RICO has on the state law. Ambrose, 891 F.Supp. at 1166-67.
In this case, Transamerica has pointed to several substantive sections of the Ohio Revised Code that would be either impaired or superseded by application of RICO. Most notably, sections
In this instance, application of RICO to Transamerica is precluded by McCarran-Ferguson. Consequently, state law governs whatever misconduct Transamerica may have committed. For cases holding insurance
Some disagreement exists, however, as to whether banks should also be entitled to exemption under McCarran-Ferguson. Compare Gordon v. Ford Motor Credit Co., 868 F.Supp. 1191, 1197 (N.D.Cal.1992) (holding that McCarran-Ferguson does protect finance company from RICO action) with Bermudez v. First of America Bank Champion, N.A., 860 F.Supp. 580, 589-91 (N.D.Ill.1994) (ruling that McCarran-Ferguson does not protect bank). In the present case, the Bank is not protected by McCarran-Ferguson. The Bank cannot claim here that it was engaged in the practice of risk spreading or transferring risk. Instead it was purchasing insurance to protect its own security interest, and then was passing the costs along to the plaintiffs. Indeed, all of the documentation makes clear that the insurance purchased from Transamerica is for the Bank‘s protection, and is limited to the outstanding balance on the loans held by the Bank. See Bermudez, 860 F.Supp. at 589-91. As the Bermudez court noted “[t]he fact that the unlawful practices alleged in the instant case involve a scheme for passing on the cost of insurance premiums does not covert this case into one limited to the insurance industry.” Id. at 591. Therefore, because the Bank was not engaged in the practice of insurance, it is not protected from this RICO action by the McCarran-Ferguson exemption.
IV. The National Bank Act
The plaintiffs also contend that they have been charged excessive interest by the Bank on the premiums that were added to their automobile loans. The Bank is a nationally chartered bank and therefore governed by the National Bank Act.
Any association may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State where the bank is located . . . .
Consequently, the maximum interest rate allowed to banks under Ohio law determines whether the Bank in this case has charged excessive interest. The Ohio Revised Code allows “building and loan” banks as well as savings banks to charge unlimited dues, fines, interest and premiums on “loans made.”
The plaintiffs contend that the charges for the insurance were not “loans made” and are governed by another section of the Ohio Revised Code that limits the interest chargeable on forbearances or payments of money at a future time. This statute provides:
(A) The parties to a bond, bill, promissory note, or other instrument of writing for the
forbearance or payment of money at any future time, may stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight percent per annum payable annually, except as authorized in division (B) of this subsection [which does not apply to the present case].
But the Bank did not forbear its right to collect the premiums. Under Ohio law, in order for a forbearance to occur a party must forego all of its legal rights to collect money or enforce an obligation for a specified period of time. See, e.g., Kellogg-Mackay Co. v. O‘Neal, 39 Ohio App. 372, 384, 177 N.E. 778, 782 (1931). Here, the Bank could collect part of the premiums each time an installment on the loan came due. In addition, the Bank and the plaintiffs did not make an agreement for “payment at a future time.” The annual insurance premiums were due in full when the notices were sent to the plaintiffs, and the Bank then financed the amount due by granting an extension of the automobile loan. Finally, the Notice of Requirement to Provide Insurance that each plaintiff signed specifically states that the premiums and other charges associated with the insurance will be “added to [the] loan balance.” Nowhere in any of the contracts does the word “forbearance” appear. The language of the agreements indicates that the plaintiffs were obligated to pay the loan made by the Bank to finance the premiums. Consequently, these contracts for loans are governed by the Most Favored Lender Doctrine, and there is no limit on the amount of interest the Bank could charge.
V. Anti-Tying Claims Under the National Bank Holding Company Act
The plaintiffs also contend that the Bank‘s requirement that they purchase insurance constituted an illegal tying arrangement that is prohibited by the National Bank Holding Company Act. The anti-tying provisions of that act apply antitrust principles to the banking industry. They provide in relevant part:
(1) A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement—
(A) that the customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service;
* * * * *
(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service.
To recover under the anti-tying provisions of
In this case, the plaintiffs allege that the Bank‘s actions violated the anti-tying
The plaintiffs’ second theory alleges a more substantial claim. The plaintiffs contend that only the “additional insurance” that did not cover loss or damage of the automobile was illegally tied either to the authorized loss or damage insurance or to the underlying automobile loan. The validity of this claim turns on whether the Bank breached the loan agreement when it charged the plaintiffs for the additional insurance. If the Bank did breach, then the plaintiffs never agreed to purchase the additional insurance and therefore its purchase simply was not a “condition or requirement” of purchasing the authorized loss or damage insurance or receiving the automobile loan. More simply, a valid breach of contract claim cannot be converted into an anti-tying claim.
As we read the Ohio Supreme Court‘s recent opinion, under Ohio law the Bank breached the loan agreement when it purchased the additional insurance. Although the Ohio Supreme Court only addressed whether the plaintiffs could survive a summary judgment motion on the question of whether they could recover on a claim of intentional interference with a contract, as part of its analysis it held as a matter of law that the Bank did breach the loan agreement. The Ohio Supreme Court noted that the tort of intentional interference with a contract consists of five elements, one of which is “the wrongdoer‘s intentional procurement of the contract‘s breach.” Kenty, 72 Ohio St.3d at 419, 650 N.E.2d at 866. The Court then held that, when the facts were construed in the light most favorable to the plaintiffs, the Bank “[charged] Kenty for insurance that she was not required to purchase.” Id. Furthermore the Court held that “this overcharging for insurance coverage could have been a breach by [the Bank] induced by the appellees.” Id. While on the record there may be some dispute of material fact as to who induced the breach and whether that breach was intentional, there appears no dispute of material fact as to whether a breach occurred. There is no dispute as to the terms of the loan agreement, nor is there any dispute of fact as to what types of insurance the Bank purchased on behalf of the plaintiffs. The Ohio Supreme Court‘s opinion must be read as holding that the Bank‘s purchase of the additional insurance was a breach of the loan agreement under Ohio law. Consequently, the plaintiffs never agreed to purchase the additional insurance, and the Bank never made its purchase a condition or requirement of receiving the automobile loan, or purchasing the authorized loss and damage insurance. Thus, the anti-tying claims based on this second theory were also properly dismissed by the district court.
Accordingly, the judgment of the district court is AFFIRMED.
BOGGS, Circuit Judge, concurring.
While I fully agree with the court‘s disposition of this case, I write separately to make a few significant points. I would not address the McCarran-Ferguson Act issue contained in Section III.C, pp. 9-13, because the revisions to our opinion that now dispose of the RICO claim make it unnecessary to address the question of preemption. In addition, I am also not in agreement with the court‘s statement in the last paragraph of Section I that “the Ohio Supreme Court also interpreted Ohio contract law to hold that the Bank breached its contracts with the plaintiffs when it purchased the additional insurance.” See Kenty, 72 Ohio St.3d at 419. The Ohio Su