Discover Bank v. Vaden

• Decision Date: 18 January 2006
• Docket Number: No. CIV.WDQ-03-3224.,CIV.WDQ-03-3224.
• Citation: 409 F.Supp.2d 632
• Parties: DISCOVER BANK, et al., Plaintiffs, v. Betty E. VADEN, Defendant.
• Court: U.S. District Court — District of Maryland

409 F.Supp.2d 632

DISCOVER BANK, et al., Plaintiffs, v. Betty E. VADEN, Defendant.

No. CIV.WDQ-03-3224.

United States District Court, D. Maryland, Northern Division.

January 18, 2006.

Matthew Thomas Wagman, John Celeste, Joseph William Hovermill, Miles and Stockbridge PC, Baltimore, MD, for Plaintiffs.

John Andrew Mattingly, Jr., Baldwin Briscoe and Mattingly Chtd, Lexington Park, MD, for Defendant.

MEMORANDUM OPINION AND ORDER

QUARLES, District Judge.

Discover Bank and Discover Financial Services, Inc. ("DFS") (collectively, "Discover") moved to compel arbitration of Vaden's counterclaims under the Federal Arbitration Act ("FAA")¹. By Memorandum Opinion and Order dated June 21, 2004 ("June 2004 Opinion"), this Court granted Discover's motion and stayed prosecution of Vaden's counterclaims pending arbitration. Vaden appealed to the United States Court of Appeals for the Fourth Circuit. See Discover Bank v. Vaden, 396 F.3d 366 (4th Cir.2005). In her appeal, Vaden challenged the Court's subject matter jurisdiction. The case was vacated and remanded for the determination of whether subject matter jurisdiction exists. Id. at 373. If the Court found that jurisdiction existed, the Fourth Circuit ordered the Court to reexamine whether Vaden's counterclaims were subject to arbitration. Id. at 373 n. 4.

Pending is Vaden's motion to dismiss for lack of subject matter jurisdiction. For the reasons discussed below, Vaden's motion to dismiss will be denied and Vaden's counterclaims will be stayed pending arbitration.

BACKGROUND

On June 23, 2003, DFS sued Vaden in the Circuit Court for Baltimore City, Maryland for nonpayment of over $10,000 that was past due on Vaden's credit card. See Mem. in Support of Pls.' Mot. to Compel at p. 2. DFS is the servicing affiliate of Discover Bank, a Delaware federally insured bank. See Verified Complaint at ¶ 2. Vaden then filed class action counterclaims against DFS. See Mem. in Support of Pls.' Mot. to Compel at p. 2. The counterclaims allege illegal assessment of finance charges, late fees, and interest rates and breach of contract in violation of Maryland law. See Counterclaim at ¶¶ 41, 47, 52, 58, 67, 75, 81, 93.

On November 12, 2003, Discover filed a petition with this Court to compel arbitration of Vaden's counterclaims.² See Verified Complaint. Discover alleged that a mandatory arbitration provision was added to Vaden's Cardmember Agreement in 1999. See id. at ¶ 20. The Court granted Discover's motion. See June 2004 Opinion at p. 13.

The Fourth Circuit held that the Court's authority to grant Discover's motion depends upon whether the Court has subject matter jurisdiction over the parties' underlying dispute. See Discover Bank, 396 F.3d at 368. Vaden maintains that the Court lacks jurisdiction because her counterclaims are based solely upon Maryland law and no federal question is implicated. Discover counters that a federal question exists because Vaden's counterclaims are completely preempted by the Federal Deposit Insurance Act³ ("FDIA").

On January 28, 2005, the Court ordered the parties to submit supplemental briefs addressing the Court's subject matter jurisdiction over the parties' underlying dispute. On April 4, 2005, Vaden moved to dismiss for lack of subject jurisdiction.

ANALYSIS

A. Motion to Dismiss for Lack of Subject Matter Jurisdiction

When subject matter jurisdiction is challenged under Federal Rule of Civil Procedure 12(b)(1), the plaintiff has the burden of proving that subject matter jurisdiction exists. Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir.1999) (citing Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir.1991)). In determining whether jurisdiction exists, "the district court is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Richmond, Fredericksburg & Potomac, 945 F.2d at 768 (citing Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982); Trentacosta v. Frontier Pac. Aircraft Indus., 813 F.2d 1553, 1558 (9th Cir.1987)). The district court should apply the standard used for motions for summary judgment, whereby the nonmoving party must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists. Id. (citing Trentacosta, 813 F.2d at 1559). "The moving party should prevail only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Id. (citing Trentacosta, 813 F.2d at 1558).

1. Federal Question Jurisdiction and Complete Preemption

Although a district court may compel arbitration pursuant to Section 4 of the FAA, the FAA, alone, does not confer subject matter jurisdiction. See Discover Bank, 396 F.3d at 368. The court's jurisdiction, therefore, must lie within the underlying dispute allegedly subject to arbitration. See id. at 369. Discover contends that the Court has subject matter jurisdiction based upon Section 27(a) of the FDIA. Specifically, Discover argues that the FDIA completely preempts Vaden's state counterclaims.

Under the doctrine of complete preemption, a complaint that alleges only state law causes of action may be removed when the state claims necessarily invoke a federal law. See Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). The complete preemption doctrine rests on the notion that "on occasion...the preemptive force of a statute is so extraordinary that it converts an ordinary state common law complaint into one stating a federal claim ..." Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201 F.3d 1212, 1215 (9th Cir.2000).

Vaden's counterclaims are based upon fees and interest rates charged on her Discover account and breach of contract. In regard to her illegal fees and interest rate claims, Vaden alleges violations of sections 12-502, 12-506 and 12-506.2 of the Commercial Law Article of the Maryland Annotated Code. See Counterclaim at ¶¶ 41, 47, 52. These sections regulate the assessment of finance charges and late fees and the compounding of interest upon a consumer credit card account. See MD CODE ANN., COM. LAW §§ 12-502, 12-506, 12-506.2 (2005). These provisions, however, are in stark contrast with the laws of Delaware, the state in which Discover was organized. See DEL. CODE ANN. tit. 5, §§ 941(8), 943, 945, 950, 952 (2005) (permits bank to charge late fees, interest and compound interest in accordance with the cardholder agreement).

Section 27(a) of the FDIA provides in pertinent part:

In order to prevent discrimination against state-chartered insured depository institutions ... with respect to interest rates...such state bank[s]...may, notwithstanding any state constitution or statute which is hereby preempted for purposes of this section, take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest. ...at the rate allowed by the laws of the state...where the bank is located.

12 U.S.C. § 1831d(a).

The United States Supreme Court has determined that sections 85 and 86 of the National Bank Act, 12 U.S.C. §§ 85, 86 (2005), completely preempt state law usury claims against national banks. Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 11, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003). Section 27(a) is the counterpart to sections 85 and 86. Cross-Country Bank v. Klussman, No. C-01-4190, 2004 WL 966289, at *4, 2004 U.S. Dist. LEXIS 7835, at *15 (N.D.Cal. April 30, 2004). Courts, therefore, have held that Section 27(a) should be construed in pari materia with sections 85 and 86. Hill v. Chemical Bank, 799 F.Supp. 948, 951-52 (D.Minn.1992) ("Generally, similar language should be interpreted in the same way, unless context requires a different interpretation."). It is, after all, a general rule that when Congress borrows language from one statute and incorporates it into a second statute, the language of the two acts should be interpreted the same way. Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 826 (1st Cir.1992) (citing Morales v. TWA, 504 U.S. 374, 384, 112 S.Ct. 2031, 119 L.Ed.2d 157(1992)).

Vaden concedes that the FDIA completely preempts any state claims against a federally insured bank such as Discover Bank. Vaden, however, argues that because she filed counterclaims against DFS, a non-bank, the FDIA is not implicated. Looking solely at the face of Vaden's counterclaims, it appears that she is correct — Vaden's counterclaims address DFS only. However, as the Fourth Circuit noted, a determination as to whether Discover Bank, as opposed to merely DFS is a party of interest in the state law suit is dispositive. See Discover Bank, 396 F.3d at 373, n. 3.

Vaden's counterclaims allege damages based upon improper assessment of fees and interest charges. Although Vaden's claims are against DFS only, the record clearly demonstrates that Discover Bank is the real party in interest. Vaden and Discover Bank are the sole parties to the Cardmember Agreement. See Ex. 1 to Pls. Opp. Mot. Dism.⁴ ("Roberts Decl.") at ¶¶ 4,5. Discover Bank, not DFS, issues credit, establishes the terms of credit, including the interest rate and fees. See id. at ¶¶ 13, 14; See also Ex. 2 to Pls. Opp. Mot. Dism. ("Panzarino Decl.") at ¶¶ 3-5. DFS is merely a servicing affiliate of Discover Bank. See Ex. 1 to Pls. Opp. Mot. Dism. ("Roberts Decl.") at ¶ 14. As the servicing affiliate, DFS performs certain services for Discover Bank, including, but not limited to, marketing, customer service and collection services. See Ex. C to Roberts Decl. ("First Revised Service Agreement").

Despite this evidence, Vaden maintains that whether Discover Bank is the real party in interest is irrelevant. See Mot. Dism. at p. 7. She suggests that as the counter-plaintiff, she may sue a party even if her claim ultimately fails. See id. This argument, however, is...