A little-known lawsuit that could entitle thousands of Bank-America Corp. customers to more than $44 million in refunds passed a major hurdle last week when San Francisco U.S. District Court judge ruled that the heart of the case would be heard as a class-action suit.
The ruling by Judge Charles Legge brings to a head a case that has been mired for almost two years in legal maneuverings that fill a stack of court folders almost three feet high.
At issue is weather BofA adequately repaid some 6,700 trust account beneficiaries who were overcharged for almost 20 years by Security Pacific Corp., a large Southern California bank BofA Bought in 1992.
BofA insisted that it's refund, with interest, was more than satisfactory. But Carol Nickel, a trust customer from Fresno, sued. She argued that BofA underpaid because it used only simple interest in refunding the overcharged fees.
As reported by the Chronicle, Security Pacific from 1973 to 1992 routinely raised fees on many trust accounts without the necessary customer approval and often contrary to the original contracts that set up the trusts. The overcharges amounted to about $23.5 million.
Eventually, BofA became aware of the problem and refunded the overcharges on about 2,500 trusts, which had some 6,700 beneficiaries. In addition to reimbursing the overcharges, BofA paid $18 million in lost interest to the trusts.
But nickel's attorney, Robert Mills of Greenbrae, argued that "using simple interest was a completely inadequate remedy. BofA should have used a higher standard, and, in fact, did use a higher standard in many other cases."
BofA repaid the fee overcharge, plus 7 percent simple interest on accounts from 1973 to 1982 and 10 percent interest on accounts from 1983 until 1993.
Mills argued that BofA's lost interest calculations are too low. Judge Legge has ruled against using compound interest, on largely technical grounds, but the law provides two other remedies that would result in much higher refunds.
One is to refund the amount that the trust would have earned over the same period of time. The other is to repay whatever the trustee, Security Pacific, earned on it's trust business for the period.
Mills is arguing that BofA must use whichever of these two other remedies is higher. BofA's simple interest scenario gave customers an interest refund of about 163 percent over 20 years. But the stock market, a common trust investment, rose more than 340 percent over the same period.
" We looked into all the fees these customers were charged, and we just made the refund we thought was appropriate," said the BofA spokesman. The class-action portion of the case is scheduled for trail May 20.