Alaska Bar Assoc. — Bankruptcy Section

We just spoke at the Alaska Bar Association — Bankruptcy Section on the issue of the Alaska usury statute.  We had less than two hour notice to prepare for the presentation.  The materials are available at the Bar Office.

The attendees seemed surprised to learn that the Cox v. Cooper decision actually doesn’t have very wide sweeping effect.  There are seven state statutes that exempt whole classes of creditors and transactions from the decision.  Two Federal acts also limit the decisions scope:  The Banking Act of 1864 and the Depository Institutions and Deregulation and Monetary Control Act of 1980.  These two acts exempt all federal banks and state banks that compete against federal banks from state regulation.  Add to that the Marquette National Bank v. First of Omaha Service Corp. and Smiley v. Citibank decisions and all interest and fees for banks are exempt from state regulation.

The Cox v. Cooper decision only concerns local Alaska credit between private parties.  The sky is not falling.  Even though the creditors bar insists that it is.  I wonder how much money the local and national banks will pay in fees for amicus briefs on a local issue with no bearing on their operations?  Indeed, regulating hard money lenders could actually send more business to the banks.

Thank you for the invite, Michelle Boutin, Chair of the Alaska Bar Association — Bankruptcy Law Section.

 

Alaska Usury Interest Rules

Has your lender violated Alaska usury laws?  Have you paid more than 10.5% interest on loans larger than $25,000.00? Are the loans from a person or non-bank? Do you still owe or have you paid any interest in the past two years? You may have a basis to recover money.

Alaska Usury Interest Rules

Alaska Usury rules establish the maximum interest that a lender may charge.  The rules also provide different remedies for maximum interest charge rules.  The Alaska statutes provide six different sets of usury or interest rules:

  1. The Legal Rate of Interest Rules in the Trade and Commerce Code at Alaska Statutes 45.45.010-070;
  2. The Retail Installment Sale Contract at Alaska Statutes 45.45.010-230;
  3. The Small Loan Rules at Alaska Statutes 06.20.010-920;
  4. The Credit Card Rules at Alaska Statutes 06.05.209;
  5. The Judgment on Contracts at Alaska Statutes 09.30.070;
  6. The Credit Union Rules at Alaska Statutes 06.45.060; and,
  7. The Negotiable Instruments Rules at Alaska Statutes 45.03.112.

Alaska Legal Rate of Interest A.S. 45.45.010-.070

There are two key subsections that define the usury rate.  They are found in Section 45.45.010, subsection (a) and subsection (b).  Those two provisions provide:

(a) The rate of interest in the state is 10.5 percent a year and no more on money after it is due except as provided in (b) of this section.

(b) Interest may not be charged by express agreement of the parties in a contract or loan commitment that is more than the greater of 10 percent or five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day on which the contract or loan commitment is made.  A contract or loan commitment in which the principal amount exceeds $25,000.00 is exempt from the limitation of this subsection.

Many people who read these two provisions simply disregard the existence of subsection (a) and only read subsection (b).  For Instance Matsu Title Usury Alert issued their Usury notice and only quoted subsection (b) and wholly ignored (a).   They then imply that any interest rate may be applied to loans exceeding $25,000.00.  However, loans that exceed $25,000.00 are exempt only from the limitation of subsection (b).  Loans exempt from subsection (b) are then governed by subsection (a) which does not have the value exemption.  Large Alaska loans are capped  at the higher 10.5%.

The Retail Installment Sale Contract at Alaska Statutes 45.45.010-230

If the transaction qualifies as a retail installment contract, then the parties may charge any interest rate to which they agree in writing.  Alaska Statute 45.10.120.  To be a qualified retail installment contract the seller must be financing the transaction.  Virtually every car deal from a dealership will be written in this way.  The law doesn’t protect you on these transactions.  However, if a car dealer independently finances the down payment separately from the car loan itself usury laws apply.

The Small Loan Rules at Alaska Statutes 06.20.010-920

Licensed small loan lenders, typically pawn shops and payday lenders, are allowed to charge higher rates:

(a) A licensee may lend any sum of money not exceeding $25,000 and may charge, contract for, and receive on the loan interest at a rate not exceeding three percent a month on that part of the unpaid principal balance of a loan not in excess of $850; two percent a month on the unpaid principal balance exceeding $850 but not exceeding $10,000; and at a rate agreed by contract on the remainder of any unpaid principal balance exceeding $10,000 but not exceeding $25,000.

(b) Notwithstanding the provisions of (a) of this section, a licensee who makes open-end loans under this chapter may charge, contract for, and receive interest at a rate not exceeding three percent a month on that part of the unpaid principal balance of a loan not in excess of $850; two percent a month on the unpaid principal balance exceeding $850 but not exceeding $10,000; and at a rate agreed by contract on the remainder of any unpaid principal balance exceeding $10,000 but not exceeding $25,000.

(c) Interest on loans under (b) of this section shall be computed according to the actuarial method on the entire unpaid principal balance as determined under AS 06.20.285 (b).

The Credit Card Rules at Alaska Statute 06.05.209

In order to allow Alaska banks to compete with national banks, Alaska allows credit card issuers to charge any rate agreed to in the parties’ contract.

(b) A state bank may issue a credit card or other similar credit granting device to a customer for obtaining money, goods, services, or anything else of value, and, notwithstanding AS 45.45.010 , the state bank, when credit is extended under this section, may impose a service charge at a monthly rate as agreed upon by contract between the state bank and the customer receiving the credit granting device.

The old version of the statute capped interest rates on credit cards at 17%.  The statue was changed to conform with the reality of federal preemption having stripped usury protection from credit cards.

The Judgment on Contracts at Alaska Statutes 09.30.070

This statute provides an interest formula that may allow interest rates to exceed the Alaska usury statute.

(a) Notwithstanding AS 45.45.010 , the rate of interest on judgments and decrees for the payment of money, including prejudgment interest, is three percentage points above the 12th Federal Reserve District discount rate in effect on January 2 of the year in which the judgment or decree is entered, except that a judgment or decree founded on a contract in writing, providing for the payment of interest until paid at a specified rate not exceeding the legal rate of interest for that type of contract, bears interest at the rate specified in the contract if the interest rate is set out in the judgment or decree.

The Credit Union Rules at Alaska Statutes 06.45.060

Alaska Credit Unions have their own usury rule that provides:

(vi) the rate of interest may not exceed the greater of 15 percent a year or the rate specified in AS 45.45.010 (b);

Though there is no case law on this matter, it is possible that federal preemption may allow them to ignore this rule.  Also note that because 45.45.010(b) specifically exempts loans less than $25,000, loans greater than $25,000 would be limited to 15%.

The Negotiable Instruments Rules at Alaska Statutes 45.03.112

The Alaska Negotiable Instruments rules provides the following rules that may exceed regular usury rules:

(a) Unless otherwise provided in the instrument, an instrument is not payable with interest, and interest on an interest-bearing instrument is payable from the date of the instrument.(b) Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. If an instrument provides for interest but the amount of interest payable cannot be ascertained from the description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues.

Federal Preemption

The Federal Banking Statute of 1864 preempts state law.  National Banks and state chartered banks competing with National Banks are exempt from state law under federal preemption.  The National banks can export the interest rate rules of their home state.  This is true even if their home state is either higher or completely unregulated.  Most credit cards are issued in states with high or unregulated interest rates.  Most credit cards are issued by National Banks so that they can charge the high unregulated rates.

Alaska Remedies for Usury Violations

  1. If you have paid an amount greater than the original principle, the additional amount counts as interest paid and you may recover double that amount.  Alaska Stat. 45.45.030; Werner v. Lorentzen, 3 Alaska 275 (1907).  Unlike most states, Alaska requires you to have paid the illegal interest to gain a double recovery.
  2. Charging an illegal rate is a forfeiture of all interest. 45.45.040.  The debtor still owes the principal, less any amounts paid.
  3. Recovery of Attorney fees and costs whether the matter is contested or not.
  4. Small lenders that forfeit principal and interest.  Alaska Stat. 06.20.310.

Federal Criminal Extortion

Interest rates in excess of 45% are per se criminal extortion. 18 United States Code 891.  Violation of a federal criminal extortion statute may be a violation of the Alaska Unfair Trade practices act.

 

Alaska Usury laws and associated federal statutes are often complicated.  Alaska has very little case history interpreting the interplay between the statutes, or even between the subsections of the statutes.  It is obvious from third-party, non-legal information present in the state that there is a great deal of confusion about the meaning of the statutes.  If you are paying greater than 10.5% interest on a loan, and that loan is not from a bank or other licensed lender, you may be paying too much.

 

Alaska Overtime — Professional Employee Exemption Doesn’t Cover Pilots

Alaska Overtime law requires covered employers to pay overtime to covered employees.  One exemption to the overtime law is the Professional Employee Exemption.  The old Alaska exemption was not the same as the Federal Exemption and was particularly vague.  The Alaska Supreme Court provided guidance on interpreting the old statute in Dayhoff v. Temsco Helicopters, Inc.,  848 P.2d 1367, 1371 (Alaska 1993).  In Dayhoff the court provided a four-part test to define whether an employee was an exempt professional.  Under Dayoff, an employee was an exempt professional if:

  1. the employee’s primary duty is to perform work requiring knowledge of advanced type,
  2. the work requires consistent exercise of discretion,
  3. the work [is] predominantly intellectual and varied, and
  4. the work [is] compensated on a fee basis.”

Under this test commercial pilots were exempt employees.  This position was previously affirmed in  Era Aviation, Inc. v. Lindfors,17 P.3d 40 (Alaska 2000). It was also the opinion other states had reached. Paul v. Petroleum Equip. Tools Co., 708 F.2d 168 (5th Cir. 1983); Kitty Hawk Air Cargo, Inc. v. Chao, 304 F. Supp. 2d 897 (N.D. Tex. 2004).  But these cases preceded the amendment to 29 C.F.R. § 541.301 in 2004.

The Alaska legislature amended the Alaska Overtime law (Alaska Wage and Hour Act) in 2005.  The legislature adopt the federal definition of this exemption.  However, the federal code of federal regulation implementing the federal definition was itself amended in 2004.  The new federal regulation restricted the exemption to employees in “professions where specialized academic training is a standard prerequisite.”   29 C.F.R. § 541.301(d) (2014).

Since the 2004 amendment of 29 C.F.R. § 541.301(d), every federal court considering whether pilots fall within the professional exemption has concluded that they do not, because commercial piloting does not require specialized academic training as a standard prerequisite. In Pignataro v. Port Authority, the Third Circuit Court of Appeals upheld a trial court’s determination that helicopter pilots did not qualify for the professional exemption under the Fair Labor Standards Act. The appellate court acknowledged the significant credentials required to become a Port Authority helicopter pilot: 2,000 hours of flying time, a commercial helicopter pilot certificate, a second class medical certificate, knowledge of the FAA’s rules and regulations, and a high school diploma or GED. But critically, none of those credentials involved the attainment of an advanced academic degree — the “pilots’ knowledge and skills were acquired through experience and supervised training as opposed to intellectual, academic instruction.” For this reason, the court concluded that the pilots were “not ‘learned professionals’ and . . . not exempt from the provisions of the [Fair Labor Standards Act].

Alaska Pilots are not exempt employees from the Overtime laws.  Accordingly, they are entitled to time and a half for any hours over 8 in a day or 40 in a week.  How many other professions don’t require specialized academic training as a standard perquisite?

Alaska Pilots Earn Overtime
Jerome Hoffman 2015.

No. 6966 S-14864/14883 Moody v. Royal Wolf Lodge

 

 

 

 

 

 

 

Watch the Details When Leasing

When it comes to Landlord Tenant relationships, you need to watch the details.

Representing Landlords or Tenants in Lease Review
Representing Landlords or Tenants in Lease Review

In general, most people want to be liked and don’t want to sow seeds of hate and discontent.  When given the opportunity to agree and be amiable about something, and if there’s no obvious downside, we jump right up on that wagon and go for the ride.  But when it comes to legal relationships, rethink that impulse.

When one moves into a new property there is the inevitable signing of lease agreements, walk-through, and a myriad of other formalities.  Unfortunately, too often these formalities are either overlooked or ignored altogether.

Lease terms:  Know what the lease says.  Unfortunately most renters have little or no say in what the terms are.  Many leases are just basic forms someone swiped off the internet and was never designed for your specific property.  Know who’s responsible for what.  Know what the late fee terms are.  Know how to get a hold of your landlord or management company if there’s a problem.  Many see this as just a routine formality, but if there are later problems it’s the lease terms that tell you what you can and can’t do to fix it.

The walk-through:  this gets a lot of folks in trouble.  We all want to be nice and not complain, to go along to get along.  But your failure to note each item out-of-place is essentially your acceptance.  Who wants to complain to the little ol’ lady showing you the apartment?  You’re all best buds, aren’t you?  They won’t do you wrong.  What’s a little carpet staining, anyway?  Well, two years later that carpet stain belongs to you.  So does the scratched linoleum floor in the kitchen.  And the cracked window.  And the hole in the wall behind the kid’s bedroom door.  And anything else you felt just wasn’t important enough to mention.  Put all of this down on the report.  Your security deposit depends upon it.

When things do go wrong:  Sooner or later something comes up.  The heat goes out, the entry walk lights burn out, the neighbors just bought their teenaged son a new bass guitar, or the local nocturnal recreational pharmaceutical distributor just moved in next door.  Don’t hesitate to contact the landlord.  Better yet, and often required, put such notices in writing.  You don’t want to cause waves, after all, who wants to move out in the middle of winter?  But your ability to properly address the problems can depend on who you notified when, and how.  Landlords must give all notices in writing.  Tenants, too, if they wish to get out of their lease under proper circumstances, usually must also notify the landlord of any problems in writing.  When there’s a later argument about the right to terminate the lease, you will want to make sure you have all the documentation you can get.

Don’t be afraid to speak up and write things down.  When getting into that new apartment, make sure you are not taking the responsibility for old carpets and broken fixtures.  You can be sure that on the move-out report the landlord will list each anomaly they see.  If it you didn’t note it at the beginning then they will probably blame you.   Legal relationships require you to think about the details in the beginning or suffer consequences later.

These are just a few of the things to be thinking about in leases.

 

Transaction Questions

Please consider and answer the following questions to help us efficiently evaluate and structure your transaction, and help you address issues prospectively.

General information about the proposed transaction:

1. Is there a confidentiality agreement in place?

2. Is the transaction an asset purchase or a purchase of the ownership interest of an entity?

a. Will the transaction cause a termination of the entity?

b. Would you like the purchase of the ownership interest of the entity to be treated as an asset purchase?

3. What is the purchase price?

a. Are there any adjustments to the purchase price (e.g. floors/ceilings/allowances)?

b. Will the purchase price be paid in installments?

c. Is there a reason to hold back any part of the purchase price?

4. How is the purchase price allocated?

5. Is the transaction seller-financed?

a. What are the terms of the promissory note?

Unsuccessful Public Contract Bid Process

Unsuccessful Public Contract Bid Process

The Alaska Supreme Court issued an opinion addressing a litigants complaints about an unsuccessful public contract bid process.  The full opinion can be found here.  There are a number of interesting issues addressed in the matter that have application outside the construction field. However, some factual background always makes the matter more memorable.

Factual Background

Back in 2002, Bachner Company, Inc. and  Bowers Investment  Company bid for the Alaska Department of Transportation office Building in Fairbanks.  They were not awarded the project.  So, Bachner filed bid protests alleging bid scoring irregularities in the scoring process.  Bachner lost the appeal, found here. Undeterred, Bachner mounted an attack on four of the committee members that voted in awarding the contract to a competitor.   Bachner’s claims were dismissed in part based on absolute immunity.  Bachner appealed that decision. The supreme court remanded the matter back to the state court, holding that the committee members were only entitled to qualified immunity and Bachner’s allegations of bad faith, if proven, would fall outside of qualified immunity. Decision found here.

Board Member Qualified Immunity

“Under a rule of qualified immunity, a public official is shielded from liability . . . when discretionary acts within the scope of the official’s authority are done in good faith and are not malicious or corrupt.”  Thus, “ ‘malice, bad faith or corrupt motive transforms an otherwise immune act into one from which liability may ensue.’ ” Qualified immunity “ ‘protect[s] the honest officer who tries to do his duty,’ ” but it does not protect “malicious, corrupt, and otherwise outrageous conduct.”  When committee members raise qualified immunity as a defense and testify that they acted in good faith, the committee members are entitled to judgment as a matter of law unless the plaintiffs can present some admissible evidence that creates an issue of fact as to whether the committee members acted in bad faith or with an evil motive.  The supreme court then analyzed Bachner’s evidence offered to support the claims and found that even in the light most favorable to Bachner that it did not have a case.

Public Service Litigant Attorney Fee Shield Denied

Having concluded that Bachner did not present a genuine issue for trial and that the statutory exclusive remedy rule barred the claim, the court awarded defendants their attorney fees.   defendants, who had been defended by the State attorneys didn’t actually incur any fees but was awarded $93,871.85.    In Alaska attorney fee awards are within the very broad discretion of the trial court.  They are seen as a powerful tool to discourage litigants from filing frivolous suits against the state and its employees.  An exception to the attorney fee award is available for public servant litigants.  The court denied Bachner public service litigant status “due to its significant financial interest in this case.”

Alaska’s New Security Interest Law

Security interest law concerns security interests in personal property rather than real property.  The law is generally known as UCC 9, or the Uniform Commercial Code section 9.  We find the statute at Alaska Statute 45.29.101-709.    Alaska recently adopted the 2010 changes to the security interest law.  The law is effective for security interests after July 1, 2013.

The law instituted significant changes between the old recording rules and the new rules.  The impact of not recording your security interests may mean that you can’t collect your debt if the debtor becomes bankrupt.

 

What you need to record a lien.

You must give value to a debtor.  The debtor must have rights in the collateral.  The Debtor must give an acknowledged security agreement to you.

Properly Recording Perfects the Lien.

Properly recording the security interest provides notice to the world of your rights and perfects your interest.  The new rule changes substantially change the recording rules.

Account Debtors Must Comply With Notice of Debt Assignment

The statute includes new provisions that need debtors to pay the assignee of a debt rather than the original creditor.  A debtor’s failure to pay the assignee after notice of an assignment leaves the debtor liable to pay twice.

Filing Financing Statements

You will still use form UCC-1 to file the financing statement.  In most circumstances you will only need to file a single document and not multiple documents in several jurisdictions.  You don’t need to get the debtor’s signature on the financing statement to file the document.  You also don’t need to have the organization’s ID or the form of their entity.  If the proper filing place is in Alaska you can file online here.

Foreclosure After Default

You can still engage in self-help repossession of property as long as you can go ahead without breaching the peace.  You can also start a judicial foreclosure.  There are also still the rights of proceeding with a strict foreclosure.

Substance over Form

The statute will apply to transactions, even if you word your agreement in a way to try and escape the statute.  The bankruptcy court is likely to consider whether there is an obligation and whether it is secured by collateral. For example, the sale of Accounts can still be considered simply a UCC 9 security agreement transaction.  The risks of not recording the financing statement are that someone else may claim priority over you or a bankruptcy judge could rule that you are not perfected and therefore not collateralized.  Similarly transactions where you keep title may be treated as a security interest, requiring perfection.  It also applies to consignments, sales of intangibles, sales of promissory notes and accounts.

The New Location Rules

Where you record the financing statement depends on the debtor.  The debtors place determines the choice of law and the place of filing.  Registered organizations must be recorded at the place where they are organized.  Alaska companies in Alaska.  Delaware companies in Delaware.  Individual debtors in the state of their residence.  Other entities at the chief executive office.

Foreign Debtors are recorded in their own country, if their laws are like our UCC9; otherwise, you will need to record in Washington DC.  For all Canadian provinces, except Quebec you would file in Canada.  For other countries you can take a look at Prof. Arnold S. Rosenberg’s work at Thomas Jefferson School of Law here.

Other Means of Perfection

There are other means of perfection such as control or automatic perfection.  The control generally concern accounts, such as deposits, investments, electronic chattel paper and letters of credit.

Recording your Financing Statements

The financing statement lasts for six years without a continuation.  When you search the state records you do not know whether the recorded documents were actually authorized.  They are based solely on the name of the debtor as typed by the submitting party.  All financing statement once recorded stay in the system, even if they have been terminated. If the financing statement has been wrongfully terminated your interest may be subject to the existing claims.  Accordingly, reviewing the state documents is merely the start of your due diligence.

Debtor Name Trap

Many people working for companies don’t actually know what the official name for their business is as recorded in the State’s records.  If you simply take your debtor’s word for the name of the enterprise, it is likely the name will be incorrect and that could leave you unsecured.  It is a best practice to get a copy of the record recorded with the state.  You want the name from the articles of incorporation.  When the debtor is an individual you want to use their name as typed on their current drivers license issued by the State of Alaska.

 

For more information on the changes to Alaska UCC 9 give us a call.