The opinion of the court was delivered by: CASTILLO
Plaintiff Bill Demitropoulos and his fellow class members claim that defendant Bank One owes them interest on security deposits paid under the Bank's standard automobile lease agreement. In a nutshell, Demitropoulos contends that Article 9 of the Uniform Commercial Code requires the Bank to pay to him the fruits of the deposit, such as interest or profits from its use, at the lease's end. Because the Bank failed to pass along this bounty, he claims, it violated the UCC.
Count I of the amended complaint is directed to both defendants and alleges that the standard automobile lease form violates the disclosure requirements set forth in the Consumer Leasing Act, 15 U.S.C. § 1667 et seq.
The remaining counts are directed solely to Bank One. Count II of the amended complaint seeks restitution of the interest allegedly earned by the Bank. Count III claims that the Bank's failure to disclose its retention of the interest constitutes an unfair or deceptive act under the Wisconsin Consumer Fraud Act, Wis. Stat. § 100.18.
Early last year, this Court issued two published opinions on motions to dismiss this class action suit alleging numerous violations of federal and state consumer law. In the most recent opinion, we denied Bank One's motion to dismiss Counts II and III, holding that Wisconsin's Uniform Commercial Code applies and requires the Bank to remit to the class members any interest it may have earned on the car lease deposits. See Demitropoulos v. Bank One Milwaukee, N.A. (Demitropoulos I), 924 F. Supp. 894, 897 (N.D. Ill. 1996). Armed with a factual record, Bank One now moves for summary judgment on the very same issue. The Bank argues that because the deposits did not in fact earn interest, none is owed to Demitropoulos. Submitting a brief as amicus curiae, the American Financial Services Association goes one step farther, claiming that the UCC is not even applicable to the security deposits. After careful consideration, we decline to reverse our previous holding that the UCC applies and commands that any interest earned on the security deposit be paid to Demitropoulos. Nevertheless, we grant Bank One summary judgment on Counts II and III because the deposits did not produce interest cognizable under the UCC.
In December 1994, Demitropoulos signed Bank One's standard automobile lease form covering the lease of a 1994 Chevy Corvette.
Def's Facts P 3. As required by the lease, he paid a $ 550 refundable security deposit to Team Chevy. Id. P 6; Consumer Closed End Vehicle Lease Agreement ("Lease") P 4.b. (attached to Pl's Resp. as Ex. C). The deposit was not to be used as the final lease payment. Pl's Add'l Facts P 3. It was available to adjust Demitropoulos' liability in case of the lease's early termination. Lease P 13.b.
Team Chevy sold the Corvette to Bank One for financing purposes, subtracting $ 550 from the purchase price to reflect the fact that Demitropoulos had already paid Chevy the security deposit. Def's Facts P 6. In turn, Bank One entered a debit on its general ledger in the amount of the deposit, recognizing that it would have to return the $ 550 to Demitropoulos at the end of the lease.
Aff. Kurt Swiecichowski P 3. When the lease terminated, Bank One returned the security deposit to Demitropoulos, without interest. Def's Facts P 9.
The key factual dispute centers on what happened to the class members' security deposits in Bank One's possession. The parties agree that the Bank kept track of all its car lease deposits by entering them in a "Monthly Transaction Journal," which is simply a daily record of the Bank's funds from these deposits. Pl's Add'l Ex. They further concur that Bank One did not put the deposits in interest-bearing accounts.
Def's Facts P 6; Pl's Resp. P 6. From there, the parties diverge based on dueling affidavits.
By using the funds, the bank would likely have lowered its interest expense or increased its interest income. To not invest available unrestricted funds when the opportunity is present, would not be maximizing shareholder earnings and would likely bring criticism from shareholders and from bank regulators.
Id. Walsh explains that when a bank is short on funds late in the day, it borrows what it needs to manage its daily cash position, often from other banks' excess funds held in balances at the Federal Reserve. Id. But a bank operating at a surplus from security deposit funds can rely on them instead of borrowing money, and may even lend money to other banks. Id. The result is that the bank effectively earns interest on the security deposits, either relieved of the need to borrow from the Federal Reserve or able to collect interest by lending to other banks. Id. Walsh concludes that a "reasonable proxy" for the benefit from the deposits is the average Fed Funds Sold rate or the average interest rate accumulated on earning assets, both calculable from the Bank's quarterly or annual reports. Id.
Bank One admits that the class members' car lease security deposits increased the Bank's operating funds. Def. Mot. S.J. at 10. According to Bank One's Vice President, these funds fluctuated daily, as did the Fed's borrowing rate. Aff. Kurt Swiecichowski P 4. He states that the Bank did not rely on increased operating funds to manage its cash position every day during the class period. Id. P 5.
What appears to be a factual dispute about whether the deposits earned money is really a legal battle over whether Bank One received interest from the security deposits in a manner contemplated by Article 9 of the UCC. Thus, it is appropriate for summary judgment consideration.
Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). To withstand a motion for summary judgment, the non-movant must "make a showing sufficient to establish the existence of [the] element[s] essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 333, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
In considering a motion for summary judgment, the court views all evidence in the light most favorable to the non-moving party and draws all inferences in that party's favor. Schmidt v. Methodist Hosp., 89 F.3d 342, 344 (7th Cir. 1996). Summary judgment may be granted if the evidence is merely colorable, or is not significantly probative, Anderson, 477 U.S. 242, 249-50, 91 L. Ed. 2d 202, 106 S. Ct. 2505, or merely raises "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). If "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine' issue for trial." Id. at 587. In making its decision, the court's sole function is to determine whether sufficient evidence exists to support a verdict in the non-movant's favor. Anderson, 477 U.S. at 255.
Before we address the substance of the parties' (and amicus') arguments, we dispose of a preliminary matter -- the validity of the lease form's choice of law provision. We then revisit the UCC's applicability to Demitropoulos' security deposit, interpret the Code's provision governing money received from collateral, and, finally, apply the Code to the claims before us.
We are initially confronted with a choice of law issue that we had considered settled by our earlier opinions. Contained in Bank One's automobile lease is a clause providing that Wisconsin law will govern the parties' disputes. In briefing its first motion to dismiss, Bank One vigorously argued in favor of upholding that clause and applying Wisconsin law. Demitropoulos, an Illinois resident, urged the Court to invalidate the choice of law provision and apply Illinois law instead. We enforced the clause, using Wisconsin law to analyze Demitropoulos' state consumer law claims, including those seeking interest on the security ...