The powers delegated by the proposed constitution to the federal

government, are few and defined. Those which are to remain in the state

governments are numerous and indefinite. The former will be exercised

principally on external objects, as war, peace, negociation [sic], and foreign

commerce; which will for the most part be connected. The powers reserved

to the several states will extend to all the objects, which, in the ordinary

course of affairs, concern the lives liberties and properties of the people; and

the internal order, improvement and prosperity of the state.^[FN1]

And I do verily believe, that if the principle were to prevail, of a

common law being in force in the US, (which principle possesses the general

government at once of all powers of the state governments, and reduced us

to a single consolidated government,) it would become the most corrupt

government on earth.^[FN2]

The plaintiff, Citibank (South Dakota), NA, moves for an order granting summary judgment pursuant to CPLR §3212 in its favor and for attorney fees. Both sides are represented by counsel. The defendant has submitted opposition and the plaintiff reply papers.The plaintiff, Citibank (South Dakota) N.A. is attempting to collect a debt, due on a credit card issued to defendant, Hesham F. Mahmoud, (in the amount of $16,424.44) and for legal fees of $3,120.64, allegedly permitted by the credit card agreement. [*2]

In opposition to the motion the defendant asserts that the interest rate imposed by Citibank, which was increased in January 2006 to 31.240% for purchases and 56.148%^[FN3] for advances, was illegal, usurious and barred by law. Defendant is seeking dismissal of plaintiff's complaint on this ground. The Court agrees that this is an exhorbitant amount of interest, six times the judgment rate of 9% (CPLR §5004) and more than double the criminal usury rate of 25 % (Penal Law §190.40) in New York State. However, national banks, such as plaintiff, are permitted by federal law to charge the highest rate of interest allowed by the state where the bank is located (12 USCA 85) and presumably may charge interest at a rate which would exceed the New York legal limit (Marquette Nat. Bank of Minneapolis v. First of Omaha Service, 439 U.S. 299, 318, 99 S.Ct. 540, 58 L.Ed.2d 534 [1978]), thereby not subjecting the bank to criminal prosecution for "loan sharking."

Citibank asserts it is "located" in South Dakota which does not have a maximum rate of interest or usury restriction (§SDCL 54-3.1.1).^[FN4] Presumably, this is why the plaintiff is located there. The South Dakota law provides:

Unless a maximum interest rate or charge is specifically established elsewhere

in the code, there is no maximum interest rate or charge, or usury rate

restriction between or among persons, corporations, limited liability companies,

estates, fiduciaries, associations, or any other entities if they establish the

interest rate or charge by written agreement. A written agreement includes the

contract created by § 54-11-9.

Plaintiff contends that pursuant to the National Bank Act (12 U.S.C. § 85), it may charge credit-card customers the higher of the rate permitted by the bank's home state or of the home state of the bank's customer^[FN5] ( Marquette Nat. Bank of Minneapolis v. First of [*3]Omaha Service, 439 U.S. 299, supra). Recognizing that federal statutes have preempted the rights of the states to protect their citizens from usurious loans, at some point an excessive interest rate, although not usurious by federal standards may shock the conscience of the court and violate the public policy of New York law. The New York State Banking Board sets the generally effective civil interest rate, which is currently 16.00% per annum (3 NYCRR. 4.1; L. 1980, ch. 883). The courts of New York may not be able to void the rates charged in this case by plaintiff or other federally regulated creditors because of this policy created by Congress. However, the existence of a federal law, the effect of which is so egregious, does not require New York to enforce agreements which common sense and [*4]reasonable persons would conclude have so gone beyond the intentions of Congress in passing legislation to insure that federally chartered banks were on the same competitive footing as their state chartered rivals that it has become unconscionable, especially when the legislation affects the economic well being of its citizens individually and the general public.

The court is setting this matter down for a hearing to determine if the practices of Citibank are in conformity with the federal law so as to entitle it to summary judgment in this and similar actions. Parenthetically, is it possible that there is a link between the inability of homeowners to keep their mortgages current, the subsequent high default rate in home mortgage loans and the inability of many of these individuals to timely pay their credit cards accruing interest charges of 30% or more?

Defendant is also disputing that the credit agreement submitted in support of plaintiff's motion applies to him. Defendant claims he has had a Citibank credit card for twenty years but that he never agreed to the terms and conditions which the plaintiff seeks to enforce against him. Plaintiff has submitted as an exhibit a credit agreement alleging it is the written agreement sent to the defendant along with the credit card which the defendant subsequently used for purchases, thereby triggering the applicability of the terms and conditions of that document, a practice allegedly sanctioned by South Dakota law (SDCL § 54-11-9). Plaintiff also asserts that any and all subsequent changes were disclosed to defendant. However, there is no evidence from plaintiff showing proof of mailing of copies of the agreement to the defendant. The court has no way of knowing if what plaintiff submitted is the complete copy of the retail credit contract and any subsequent amendments, alleged to have been entered into between the plaintiff and the defendant. There is no proof that the agreement provided was the actual agreement with defendant. It is simply an undated, unsigned form outlining general terms and conditions, does not even link it as a document issued by the plaintiff, except for a "© 2006 Citibank (South Dakota), N.A." entry on the bottom of the last page, which only supports the defendant's position. It does not contain defendant's signature or, if plaintiff is alleging a unilateral contract, an affidavit establishing defendant received notice (either actual or constructive) of the underlining agreement, including any subsequent amendments. (See Kurz v. Chase Manhattan Bank USA, N.A., 319 F.Supp.2d 457 [S.D.NY, 2004]; see also MBNA America Bank, NA v. Straub, 12 Misc 3d 963 [2006]). Further, there is no showing when in 2006 the new agreement went into effect; if, after the last date the defendant used the card, a question exists as to whether it is even applicable.

Upon a review of all the papers on this motion, the Court finds the moving plaintiff has not made out a prima facie case. The law is well settled that summary judgment only be granted when it is clear that no genuine triable issue of fact exists (Alvarez v. Prospect Hospital, 68 NY2d 320, [1986]). The burden is on the moving party to make a prima facie showing that they are entitled to summary judgment by presenting evidence in admissible form and demonstrating the absence of material facts. A failure of that showing requires a denial of the motion regardless of the opposition papers (Ayotte v. Gervasio, 81 NY2d 1062 [1993]). Furthermore, defendant's opposition papers sufficiently raises questions of fact requiring a trial on the issues. Plaintiff's motion seeking summary judgment is hereby denied.

All parties are directed to appear for the hearing on Monday, June 30, 2008 at 11:00 A.M. at 927 Castleton Avenue, Staten Island, NY. [*5]

At the above hearing the parties are to appear and address the following issues:

1. Is the plaintiff a legal entity? Plaintiff is designated in the pleadings as "Citibank (South Dakota), NA." A search of the South Dakota Department of State Division of Corporations records reveals that no such entity is incorporated in South Dakota. Yet the website for Citibank (South Dakota), NA, states that it is incorporated in South Dakota as of 1981. A search of other databases lists plaintiff as a Delaware corporation. The summons and complaint lists plaintiff's address in Kansas City, Missouri.

2. Is the plaintiff "located" in South Dakota? The National Bank Act (12 USCA 85) permits a national banking association to charge the interest rate allowed by the laws of the State "where the bank is located." If plaintiff is a Delaware corporation and the address in the complaint is Kansas City, Missouri, how is plaintiff "located" in South Dakota so as to take advantage of the South Dakota law?

3. How did the plaintiff calculate its interest rate? The document which plaintiff alleges is the contract between the parties sets the "Default APR" as "the Prime Rate plus up to 23.99% or up to 28.99% which ever is greater." The Prime Rate is defined in the agreement as the prime rate set in the Wall Street Journal two days prior to the statement closing date. How does this comply with 12 USCA 85 which states: "When no rate is fixed by the laws of the State,... the bank may...charge a rate not exceeding 7 per centum or 1 per centum 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,..." Because South Dakota has no usury rate (SDCL 54-3-1.1), why is not this the rate to be charged on the account and not the rate selected by the plaintiff?

The foregoing constitutes the decision and order of the Court.

Dated: May 28, 2008___________________________

Staten Island, NYHON. PHILIP S. STRANIEREJudge, Civil Court



ASN by ______ on __________.