New York Law Review

Tag: Stutman v. Chemical Bank

  • Stutman v. Chemical Bank, 95 N.Y.2d 24 (2000): Deceptive Practices Under General Business Law § 349

    95 N.Y.2d 24 (2000)

    To state a claim for deceptive practices under New York General Business Law § 349, a plaintiff must demonstrate that the challenged act was consumer-oriented, materially misleading, and caused actual injury, but need not prove reliance on the deceptive act.

    Summary

    Michael Stutman and Jeanette Rodriguez sued Chemical Bank, alleging a deceptive practice under General Business Law § 349. Chemical Bank charged a $275 “attorney’s fee” for a simultaneous transfer of collateral during a loan refinancing, which Stutman and Rodriguez claimed was a disguised prepayment charge, violating the terms of their loan agreement. The New York Court of Appeals held that while reliance is not an element of a § 349 claim, the plaintiffs failed to prove that the bank’s assessment of the fee was a deceptive act because the fee was not actually a prepayment charge.

    Facts

    In 1991, Michael Stutman and Jeanette Rodriguez borrowed $175,000 from Chemical Bank, secured by their cooperative apartment shares. The loan agreement allowed prepayment without any prepayment charge. In 1994, they sought to refinance with Citibank, which required simultaneous transfer of collateral from Chemical. Chemical charged a $275 “attorney’s fee” for this arrangement. Stutman and Rodriguez paid the fee under protest and later sued, alleging the fee was a deceptive practice under General Business Law § 349.

    Procedural History

    The case was initially removed to federal court, where the TILA claim was dismissed and the case remanded to state court. In state Supreme Court, Chemical Bank’s motion to dismiss was partially denied concerning the General Business Law § 349 claim. The Appellate Division reversed, dismissing the § 349 claim. Stutman and Rodriguez appealed to the New York Court of Appeals, abandoning their claim that the fee was excessive.

    Issue(s)

    Whether the $275 “attorney’s fee” assessed by Chemical Bank during the refinancing of Stutman and Rodriguez’s loan constituted a deceptive practice under General Business Law § 349, given that the loan agreement stated there would be no prepayment charge.

    Holding

    No, because Stutman and Rodriguez failed to demonstrate that the fee was a disguised prepayment charge; it was a charge for the special arrangement of a simultaneous transfer of collateral, not a penalty for early repayment of the loan.

    Court’s Reasoning

    The Court of Appeals analyzed the elements of a General Business Law § 349 claim, emphasizing that it requires a consumer-oriented act that is materially misleading and causes actual injury. The court clarified that reliance is not an element of a § 349 claim, correcting the Appellate Division’s error. The court stated, “Intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim.” However, the court upheld the dismissal because Stutman and Rodriguez failed to prove that the $275 fee was a deceptive act. The court determined that the fee was not a prepayment charge but a charge for the special arrangement of delivering the collateral to Citibank. The court noted, “Thus, at bottom, plaintiffs’ argument is not that the note was deceptive in stating that there would be no prepayment charge. Clearly, no such charge was assessed. Rather, plaintiffs’ argument is that the $275 fee was excessive because it was not necessary for Chemical to retain an attorney.” Because Stutman and Rodriguez abandoned their excessiveness claim on appeal, the deceptive practice claim failed.