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Current Events - 06/12/2000

CBA In Court — Yesterday, Judge Vaughn Walker heard our motion for summary judgment in the ATM access fee case.  And while he did not hand down a ruling from the bench, I believe the oral argument went very well.  The judge noted that the issues in our motion are well-plowed ground for him since he has heard them now on a number of occasions.  Ed Bruce, the attorney for Bank of America and Wells Fargo who handled the bulk of oral argument for our side agreed.  He said it reminded him of an old married couple who keep having the same arguments.  With a twinkle in his eye the judge nodded and said, “Only here you will actually get a decision!”  I expect that decision relatively quickly, but I understand the judge’s desire to take his time with the written decision which could end this case.  Naturally, everyone is aware that his decision will be appealed again to the Ninth Circuit the way his preliminary injunction was.

For our part we again methodically laid out for the judge that ATMs are an authorized banking practice, including the offering of such services to non-account holders.  No duh, you say!  Well, the cities did not agree with even so basic a statement.  Next we carefully showed how there is no indication anywhere in the law that banks are not permitted to charge fees for the services they provide to the public, both account holders and non-account holders.  Indeed, the regulations are quite explicitly to the contrary.  No-duh again, you say.  And again, the cities did not agree.  They felt that the Electronic Funds Transfer Act gives them the authority to prohibit fees under the guise of consumer protection.  Never mind that the EFTA deals only with disclosures, retention of customer records, and error correction procedures and has nothing to do with the authority to charge for services, the amount of any fees, or the ability of states or municipalities to regulate those fees.  Other laws make it clear that price regulation cannot occur.  The judge pressed the cities on their theory that it is permissible for them to regulate or prohibit fees.  “Where does this authority end if I accept your argument?”  The response was that banks have the ability to charge fees in general, but each individual fee can be examined and prohibited on a case by case basis.  The judge smiled at the answer but did not pursue it further.  You know what I thought of that answer!

Normally when a motion is heard at oral argument, the moving party is given some time for rebuttal at the end of the opposition’s presentation.  After that the judge will usually ask the parties, “Matter submitted?”  This is a short way of saying “I think I have heard all I need to hear to make a decision in this case.  If you have anything else to say, make it quick and it had better be important.”  This time after the cities had spoken in opposition the judge turned to us and said, “Matter submitted.”  It was not a question.  We took this as shorthand for, “Your papers and your initial argument have already responded to their points.  I don’t need to hear from you further.”  I personally take this as a very good sign.  I expect a decision before the end of the month, but this is entirely out of our hands at the moment.

CBA IN Court, again — In other legal news, the California Supreme Court issued two favorable opinions in related cases where CBA had appeared as amicus, Kraus v. Trinity Management and Cortez v. Purolator Air.  At issue were several of the more troublesome features of California’s unfair practices law, Business & Professions Code §17200.  At first blush, the Kraus case deals with the legality of a $100 non-refundable fee charged by a landlord, with seemingly little relevance for banks.  However, it is the nature of the relief sought under the unfair business practices statute that will concern bankers.  Not only did the trial court order defendants to disgorge fees unlawfully obtained from the plaintiffs, but it also ordered defendants to disgorge nearly $1,000,000 in fees obtained from non-party tenants even though this lawsuit was not brought as a class action.  This money was then placed in trust to fund other San Francisco tenant litigation.  Without any class certification, granting this broad relief will not prevent other tenants from recovering the same fees again in separate actions, even though the money has already been placed in a trust account under the court’s order.  The trial court simply said the defendants would have to take this issue of multiple jeopardy up with the legislature.  The Supreme Court’s opinion is long and rather complex and we will present a longer summary of its effects in the near future, written by Wil Stern.  Wil is a partner with the CBA affiliate member law firm of Severson & Werson.  He was the primary drafter of our amicus brief and he was granted time to argue in front of the Supreme Court on these cases.  In general, the court held that only those individuals who actually bring a claim under Section 17200 can recover damages.  Further, so-called fluid recovery funds are not permitted in non-class actions.  A fluid recovery fund is created only where a defendant is required to disgorge funds that will not be returned to the people from whom they were obtained.  Fluid recovery funds are not authorized for Section 17200 (unfair business practices) lawsuits.  The Cortez case raised similar issues in a labor context and the two opinions were issued concurrently.  They even refer to one another.  Cortez, involves a Labor Code violation committed by a company later bought by Purolator.  The work week was changed from five 8-hour days per week to four 10-hour days, but the required vote of employees was never taken.  Cortez, who had been dismissed, brought a suit for back pay.  Although the case was not brought as a class action, the trial judge nevertheless granted back pay for 175 similarly situated employees who were not part of the suit.   In addition to disallowing the fluid recovery fund in this case, the Supreme Court also made it clear that those who are sued under Section 17200 must be allowed to assert a broader array of defenses in the interest of equity.  This is also good news.  Watch this space for a more detailed summary of these cases and what they mean for your banks.  Lawsuits alleging unfair business practices are all the rage these days.  Knowing how to combat these cases and how to use the tools the Supreme Court has just given you will guide our drafting of this user friendly summary.  My goal is to make you better prepared to use your own counsel should the need arise.

Compensation Survey — This annual survey produced by CBA is purchased by more banks than any other product we generate.  Your HR directors will be receiving this year’s survey forms sometime this week.  If you are interested in participating, make sure they fill them out and return them right away.  If you have questions, contact Elinor Heller in our San Francisco office at 415/284-6999 ext. 231.

Life in Washington — Tackling more issues in Washington is work that is never over.  President Clinton has just proposed new, tougher financial privacy legislation before the ink is dry on Gramm-Leach-Bliley.  Personally, I don’t think there is a banker in the state who would disagree with the notion that consumers do indeed have a right to financial privacy and that the banks are already committed to upholding this right.  GLB includes powerful new consumer privacy protections and they have just been implemented through the final version of the agencies’ privacy regulations.  Give the financial modernization law a chance to work before we tinker with federal or state law.  (I’ll stop preaching to the converted now.)  What else is on our Washington agenda at the moment?  There is still a chance to move the bankruptcy reform bill out of conference committee and onto the President’s desk.  We should do that.  Deposit insurance reform is another big issue, but with a longer time horizon of two years.  Some in Congress think this is just about merging the two insurance funds.  The opportunity must be used to do much more, however.  CBA has a Board level task force addressing this issue right now, considering such concepts as increasing the current $100,000 limit, permanently indexing that limit to inflation, putting a cap on premiums, and rebating excess over that cap back to bankers.  The matter is complex, and we know that you never get anything for free from Congress.  Balancing all of this will be difficult, but it is not a task the CBA is shying away from.

He’s Back! — Jamie Clark, one of our three Sacramento lobbyists, is getting back in the saddle after his automobile accident.  Welcome back, Jamie!  Although still in pain physically, his mind has always remained sharp.  He even called Greg the day following the accident to remind him of an appointment on a piece of legislation and what CBA’s position should be.  Now he is back in the office and terrorizing those who might do damage to our industry.  No one is happier than Maurine Padden and Greg Wilhelm to see him in his chair again.  These two had to pick up the slack during a very busy time in the legislative cycle while Jamie was out.  We are all delighted he is returning to work and we wish him well as he builds up his stamina and continues his recovery process.