Minnesota ex rel. Hatch v. Fleet Mortg. Corp.

• Citation: 158 F.Supp.2d 962
• Decision Date: 19 June 2001
• Docket Number: No. CIV. 01-48 ADM/AJB.,CIV. 01-48 ADM/AJB.
• Parties: State of MINNESOTA, by its Attorney General Mike HATCH, Plaintiff, v. FLEET MORTGAGE CORP., a South Carolina corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

158 F.Supp.2d 962

State of MINNESOTA, by its Attorney General Mike HATCH, Plaintiff, v. FLEET MORTGAGE CORP., a South Carolina corporation, Defendant.

No. CIV. 01-48 ADM/AJB.

United States District Court, D. Minnesota.

June 19, 2001.

COPYRIGHT MATERIAL OMITTED

Prentiss Cox, Esq., Assistant Minnesota Attorney General, appeared for and on behalf of the Plaintiff.

Gary DiBianco, Esq., Benjamin Klubes, Esq., and Andrew Sandler, Esq., Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., and Alan Maclin, Esq., Briggs & Morgan, St. Paul, MN, appeared for and on behalf of the Defendant.

MEMORANDUM OPINION AND ORDER

MONTGOMERY, District Judge.

I. INTRODUCTION

The above-entitled matter came on for hearing before the undersigned United States District Judge on April 24, 2001, pursuant to Defendants' Rule 12(b) Motion to Dismiss [Doc. No. 19]. For the reasons set forth below, the motion is denied.

II. BACKGROUND

The State of Minnesota ("State") alleges Defendant Fleet Mortgage ("Fleet Mortgage") provided other companies with information about its customers and participated in a related telemarketing scheme in violation of various state and federal consumer fraud statutes.¹ On a motion to dismiss, a complaint's factual allegations must be accepted as true. Anderson v. Franklin County, 192 F.3d 1125, 1131 (8th Cir.1999). Accordingly, the following facts are as stated in the State's Complaint.

Fleet Mortgage is a South Carolina corporation that is a subsidiary of Fleet National Bank ("FNB"). Fleet Mortgage provides, buys, and services home mortgages to customers around the United States and in Minnesota. Compl. ¶¶ 3, 6. For the last three years, Fleet Mortgage has entered into business relationships with various telemarketing companies ("Companies") to facilitate through telemarketing the sale of certain "membership programs" to Fleet Mortgage customers ("Customers"). Id. ¶¶ 7, 9. The membership programs provide discounts on certain services, such as health care, home shopping, and car repair. Id. ¶ 8. Fleet Mortgage participated in deciding which membership programs to offer, as well as content, details, and price to its Customers. Id. ¶ 12. It also reviewed and approved the telemarketing scripts. Id. ¶ 13.

Fleet Mortgage provided the Companies with the names, phone numbers and addresses of Customers. Id. ¶ 10. In order to tailor the sale of the membership programs, Fleet Mortgage also disclosed information specific to Customers' mortgages: the account number, current balance, original loan amount and the monthly payment. Id. Prior to May 1999, Fleet did not disclose to its customers that it was relaying this information to the other Companies. Id. ¶ 18. In May 1999, FNB, Fleet Mortgage's parent company, announced a data privacy policy, declaring that while it may share information with unaffiliated companies to offer products or services, it provides "the minimum amount of information necessary for that company to offer its product or service." Id. ¶ 19.

During the sales calls, the telemarketers stated that they were calling at Fleet Mortgage's request or on its behalf. Id. ¶ 14. Typically, the telemarketer would first tell the Customer that he had a "free trial offer" for the Customer's consideration. Id. ¶ 26. After explaining the membership programs, the telemarketer offered the Customer a free month membership. Id. ¶ 32. Near the end of the call, the Customer was told that if she decided to continue with the plan after 30 days, a monthly fee would be automatically charged to her account. Id. ¶ 37. If the customer did not cancel within the requisite time period, Fleet Mortgage added the monthly fee directly onto the Customer's mortgage. Id. ¶ 32. The charge was placed without the customer making another affirmative action. This scheme is known as "pre-acquired account telemarketing." Id. ¶ 7. Fleet Mortgage retained a percentage of the fee and paid the balance to the Companies. Id. ¶ 16.

III. DISCUSSION

The State argues that Fleet Mortgage's information sharing practices and membership program telemarketing scheme violates both federal and state law. The State's Complaint alleges five counts of violations of the Minnesota Consumer Fraud Act ("MCFA"), Minn.Stat. § 325F.69, subd. 1 (Count I & Count III), the Uniform Deceptive Trade Practices Act ("UDTPA"), Minn.Stat. § 325D.44, subd. 1 (Count I & Count III), the Minnesota False Statement in Advertising Act ("MFSAA"), Minn.Stat. § 325F.67 (Count II & Count III), and the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. §§ 6101-6108 (Count IV & Count V). Fleet Mortgage's Motion to Dismiss seeks dismissal of all causes of action on several different grounds.

A. Motion to Dismiss Standard

On a motion to dismiss under rule 12(b)(6), the court must construe the complaint's allegations in a light most favorable to the plaintiff. Anderson v. Franklin County, 192 F.3d 1125, 1131 (8th Cir. 1999). All factual allegations must be accepted as true. Id. Only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would demonstrate an entitlement to relief" should a complaint be dismissed. Springdale Educ. Ass'n v. Springdale Sch. Dist., 133 F.3d 649, 651 (8th Cir.1998).

B. OCC's Exclusive Authority/Primary Jurisdiction

Fleet Mortgage avers that it is a branch of a national bank, and that federal law gives the Office of the Comptroller of the Currency ("OCC") exclusive authority to bring all state and federal claims against national banks and their branches. The OCC regulates federally chartered national banks and can issue "cease and desist" orders against any insured bank that violates a "law". 12 U.S.C. § 1818(b)(1); see Nat'l St. Bank, Elizabeth, N.J. v. Long, 630 F.2d 981, 987 (3d Cir.1980). Federal banking law also states that "[t]he provisions of any State law to which a branch of a national bank is subject... shall be enforced, with respect to such branch, by the Comptroller of the Currency." 12 U.S.C. § 36(f).

The fraud and deceptive trade practice laws at issue do not directly concern a banking practice and the alleged illegal actions are not banking industry specific. Federal law does not require that the OCC have exclusive enforcement over such actions. See Long, 630 F.2d at 988. The OCC has no direct responsibility for enforcing non-banking state laws such as the MCFA, UDTPA, and MFSAA.

Fleet Mortgage also avers that the instant claims should be dismissed as barred by the "primary jurisdiction" doctrine. Primary jurisdiction is a common law doctrine that "allows a district court to refer a matter to the appropriate administrative agency for a ruling in the first instance, even when the matter is initially cognizable by the district court." Access Telecomm. v. SW Bell Tel. Co., 137 F.3d 605, 608 (8th Cir.1998). Because the OCC does not have expertise regarding these non-banking claims, the doctrine is not to be applied in this situation. See id.

C. Count I—MCFA

Count I of the Complaint alleges that Fleet Mortgage violated the MCFA/UDTPA by failing to adequately disclose to customers that it: (1) was sharing financial and personal data with other companies ("Data Sharing"); and (2) charged Customers' mortgage accounts without written or other traditional forms of consent ("Pre-acquired Account Telemarketing"). Compl. ¶ 54. Fleet Mortgage argues that these practices are not on the UDTPA's list of "deceptive practices" in Minnesota Statutes section 325D.44. Although Data Sharing and Pre-acquired Account Telemarketing are not specifically listed, section 325D.44 contains a "catch-all" provision stating that a deceptive practice occurs where a person "engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding." Fleet Mortgage asserts that because its practices are not similar to the deceptive practices enumerated in section 325D.44, the practice is not actionable under the UDTPA. However, the catchall does not require that the conduct itself be similar to the actions listed, just that the result to the consumer is similar in creating confusion or misunderstanding. See Minn.Stat. § 325D.44. Accordingly, Fleet Mortgage's argument fails.

Fleet Mortgage next asserts that the Data Sharing component of Count I should be dismissed because it merely alleges an omission. Fleet Mortgage avers that an "omission can only give rise to a claim of misrepresentation where there is a duty to disclose the allegedly omitted information." Def.'s Mem. Supp. at 13. The cases relied upon for this proposition concern common law fraud and not state consumer protection statutes. Id. The MCFA and UDTPA are broader than common law fraud and support omissions as violations. See In Re Prof'l Fin. Mgmt., Ltd., 703 F.Supp. 1388, 1397 (D.Minn. 1989). While there is no Minnesota case authority directly on point, other courts hold that while a duty to disclose may be required by common law fraud/misrepresentation, it is not required for liability under more broadly drafted consumer protection statutes. See V.S.H. Realty v. Texaco, Inc., 757 F.2d 411, 417 (1st Cir.1985); Connick v. Suzuki Motor Co., 174 Ill.2d 482, 221 Ill.Dec. 389, 675 N.E.2d 584, 595 (1996). In such situations, the omission must be material, see 757 F.2d at 417, 675 N.E.2d at 595, meaning it must naturally affect the person's decision or conduct, Yost v. Millhouse, 373 N.W.2d 826, 830 (Minn.Ct.App.1985). At this early stage of the litigation, the Complaint survives on the issue of whether the failure to disclose the Data Sharing with customers is a material omission. Dismissal of Count I is denied.

D. Count II—MFSAA

Count II premises a violation of the MFSAA, Minn.Stat. § 325F.67, on allegations that Fleet Mortgage engaged in Data Sharing while representing on a FNB website that it shared only "the minimum amount of information necessary" for other companies to provide products and...