PRESENT: Carrico, C.J., Keenan and Kinser, JJ., Poff,
Stephenson, and Whiting, Senior Justices, and Cochran, Retired
Justice
CARMEN PEREZ, SUING INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED
OPINION BY
v. Record No. 990677 SENIOR JUSTICE ROSCOE B. STEPHENSON, JR.
November 5, 1999
CAPITAL ONE BANK
UPON A QUESTION OF LAW CERTIFIED BY THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF ILLINOIS
The United States District Court for the Northern District
of Illinois entered an order of certification requesting that we
exercise our certification jurisdiction, Va. Const. art. VI,
§ 1; Rule 5:42, and answer the following question:
Does § 6.1-330.63 of the Virginia Code preclude a
challenge, under the common law doctrine of unlawful
liquidated damages, to late fees included in contracts
between credit-card issuers and card holders, where
those contracts are governed by Virginia law?
By order entered April 21, 1999, we accepted the question for
consideration.
I
On December 4, 1997, Carmen Perez filed in the United
States District Court for the Northern District of Illinois her
class action complaint against Capital One Bank (Capital One).
In Count V of her complaint, Perez alleged that the late fees
charged to her credit card account by Capital One constituted
unlawful liquidated damages (i.e., penalties) under the common
law of Virginia.
Capital One filed a motion for summary judgment as to Count
V. The District Court reserved its ruling on the motion,
pending this Court's answer to the certified question.
II
The relevant facts as found by the certifying court are as
follows: Perez is an Illinois resident and the only named
plaintiff alleged to represent the putative class in the sole
remaining count, Count V of the third amended complaint.
Capital One is a Virginia limited-purpose credit card bank with
its principal place of business in Glen Allen, Virginia.
Capital One currently has in excess of sixteen million credit
card account holders nationwide, and Perez has a credit card
account with Capital One.
Perez's account is governed by the terms of Capital One's
Customer Agreement. Paragraph 23 of the Customer Agreement
provides that the agreement is governed by Virginia and federal
law. Virginia Code § 6.1-330.63(A) provides, in part, that:
Notwithstanding any other provision of this chapter,
any bank or savings institution may impose finance
charges and other charges and fees at such rates and
in such amounts and manner as may be agreed by the
borrower under a contract for revolving credit or any
plan which permits an obligor to avail himself of the
credit so established.
2
Capital One's Customer Agreement provides that a late
charge will be imposed when a customer fails to make a timely
payment. The Customer Agreement at issue provides, in pertinent
part:
Late Payment Charge. A late payment charge of $18.00
(Effective 01/01/97, the late charge will be $20) will
be imposed if we do not receive your Minimum Payment
in time for it to be credited within 3 days after the
due date shown on your Periodic Statement. (Effective
01/01/97, a late payment charge will be assessed if
your payment is not received on the due date. There
will be no grace period.)
At the time the question was certified, Capital One imposed
late fees that ranged from $20.00 to $29.00. Perez's February
1, 1997 statement from Capital One reflects an $18.00 late
payment charge imposed on January 2, 1997, because of an
untimely December 1996 payment. Her Minimum Payment Due at the
time was $10.00, and her account balance was $305.53. There is
no dispute that Perez did not pay the Minimum Payment Due within
the time provided in the Customer Agreement.
On August 1, 1997, the late fee charged by Capital One to
Perez's account increased to $20.00. From February 1, 1997,
through July 2, 1998, Perez incurred $396.00 in various fees,
$178.00 of which represented late fees. From June 1, 1996,
through July 2, 1998, Perez made payments to her account
totaling $415.00.
III
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Under the common law, contracting parties may agree in
advance that, in the event the contract is breached, the
breaching party shall pay liquidated damages. A liquidated
damages provision is enforceable when the actual damages
contemplated at the time of the contract are not certain and are
difficult to measure with accuracy and when the fixed amount of
damages is not out of all proportion to the probable loss. On
the other hand, when the damages caused by the breach are prone
to definite measurement or when the stipulated amount would
grossly exceed actual damages, courts of law usually construe
such a provision as an unenforceable penalty. 301 Dahlgren Ltd.
Partnership v. Board of Sup., 240 Va. 200, 202-03, 396 S.E.2d
651, 653 (1990); Taylor v. Sanders, 233 Va. 73, 75, 353 S.E.2d
745, 746-47 (1987).
Perez, on her own behalf and on behalf of a putative
nationwide class of Capital One's cardholders, challenges the
amount of the late fees being imposed by Capital One as unlawful
liquidated damages under the common law of Virginia. She
contends that Code § 6.1-330.63(A) does not preclude her from
bringing an unlawful liquidated damages claim against Capital
One because the Code section does not abrogate the common law of
contracts. Perez asserts that, in the absence of language that
plainly manifests an intent to abrogate the common law, the
common law remains intact.
4
Capital One argues that the common law was explicitly
abrogated in 1987 when the General Assembly enacted Code § 6.1-
330.80, which provides, in pertinent part, as follows:
Any lender . . . may impose a late charge for
failure to make timely payment of any installment due
on a debt, . . . provided that such late charge does
not exceed five percent of the amount of such
installment payment and that the charge is specified
in the contract between the lender . . . and the
debtor.
1987 Va. Acts ch. 622. Capital One further argues that the
General Assembly, in also enacting Code § 6.1-330.63, merely
removed the 5% limit and permitted the contracting parties to
agree to fees in excess thereof with respect to a contract for
revolving credit.
Both Perez and Capital One assert that the language of Code
§ 6.1-330.63 is clear and unambiguous, and we agree. Therefore,
we must accept its plain meaning and not consider rules of
statutory construction, legislative history, or extrinsic
evidence. Yates v. Pitman Manufacturing, Inc., 257 Va. 601,
605, 514 S.E.2d 605, 607 (1999); Town of Blackstone v. Southside
Elec. Coop., 256 Va. 527, 533, 506 S.E.2d 773, 776 (1998).
In 1987, the General Assembly enacted Chapter 7.3, entitled
"Money and Interest," which is part of Title 6.1 of the Code,
entitled "Banking and Finance." As previously noted, Code
§ 6.1-330.80, a part of Chapter 7.3, permitted a lender and a
debtor to agree to a late charge that did not exceed 5% of the
5
amount of a past due installment. Thus, a lender could charge
up to 5% without being required to show that the actual damages
were uncertain and difficult to determine and that the amount
charged was not out of proportion to the probable loss.
Manifestly, in enacting Code § 6.1-330.80, the General
Assembly intended to abrogate the common law rule prohibiting a
penalty. In also enacting Code § 6.1-330.63, the General
Assembly removed the 5% cap on charges imposed by banks and
savings institutions under contracts for credit, allowing such
charges "at such rates and in such amounts . . . as may be
agreed by the borrower." It logically follows, therefore, that
Code § 6.1-330.63, which contains more specific language
applicable to banks and revolving credit plans, perpetuates the
abrogation of the common law rule.
Accordingly, we answer the certified question in the
affirmative.
Certified question answered in the affirmative.
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