Epps v. JP Morgan Chase Bank, N.A.

• Decision Date: 05 April 2012
• Docket Number: No. 10–2444.,10–2444.
• Citation: 675 F.3d 315
• Parties: Donna EPPS, On her own behalf and on behalf of all others similarly situated, Plaintiff–Appellant, v. JP MORGAN CHASE BANK, N.A., Defendant–Appellee,andChase Auto Finance, Defendant.Center For Responsible Lending; National Consumer Law Center, Amici Supporting Appellant,American Bankers Association; Consumer Bankers Association; The Financial Services Roundtable, Amici Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

675 F.3d 315

Donna EPPS, On her own behalf and on behalf of all others similarly situated, Plaintiff–Appellant,

v.JP MORGAN CHASE BANK, N.A., Defendant–Appellee,andChase Auto Finance, Defendant.Center For Responsible Lending; National Consumer Law Center, Amici Supporting Appellant,American Bankers Association; Consumer Bankers Association; The Financial Services Roundtable, Amici Supporting Appellee.

No. 10–2444.

United States Court of Appeals, Fourth Circuit.

Argued: Jan. 25, 2012.Decided: April 5, 2012.

ARGUED: Frank Paul Bland, Jr., Public Justice, Washington, D.C., for Appellant. Martin C. Bryce, Jr., Ballard Spahr, LLP, Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Melanie Hirsch, Public Justice, Washington, D.C.; Scott C. Borison, Legg Law Firm LLC, Frederick, Maryland, for Appellant. Alan S. Kaplinsky, Ballard Spahr, LLP, Philadelphia, Pennsylvania; Glenn A. Cline, Ballard Spahr, LLP, Baltimore, Maryland, for Appellee. Joanne L. Werdel, Nina F. Simon, Kenneth Edwards, Center for Responsible Lending, Washington, D.C.; John Van Alst, National Consumer Law Center, Boston, Massachusetts, for Amici Supporting Appellant. C. Dawn Causey, Gregory F. Taylor, American Bankers Association, Washington, D.C., for Amici Supporting Appellee.

Before TRAXLER, Chief Judge, and AGEE and DIAZ, Circuit Judges.

Vacated and remanded by published opinion. Judge AGEE wrote the opinion, in which Chief Judge TRAXLER and Judge DIAZ joined.

OPINION

AGEE, Circuit Judge:

Donna Epps appeals the district court's judgment granting JP Morgan Chase Bank, N.A.'s (“Chase”) motion to dismiss her putative class action claim brought pursuant to the Maryland Credit Grantor Closed End Credit Provisions (“CLEC”), Md.Code Ann., Com. Law § 12–1001 et seq. The district court concluded that federal regulations preempt relevant portions of the CLEC and that the retail sales installment contract (“RIC”) signed by Epps and Chase's predecessor in interest did not mandate that Chase comply with the CLEC. For the reasons set forth below, we conclude that the district court erred in both respects. Accordingly, we vacate the judgment and remand for further proceedings consistent with this opinion.

I.Background and Proceedings Below

In 2007, Epps purchased a used vehicle from Thompson Toyota Scion (“Thompson”), an automobile dealer, in Maryland. The purchase was financed through a RIC between Epps and Thompson that included the following language: “Applicable Law: Federal law and Maryland law apply to this contract. This contract shall be subject to the [CLEC].” (J.A. 51). Thompson later assigned the RIC to Chase. By the end of 2009, Epps had fallen behind in, and then ceased entirely, her payments to Chase under the RIC.¹

When Epps defaulted, Chase repossessed the vehicle and then sent Epps a notice stating that “[w]e will sell the Vehicle at private sale sometime after 12/28/2009.” (J.A. 38). Although the notice informed Epps of her right to redeem the vehicle, it did not set forth the location of the vehicle or the time and place where it was to be sold, as required by the CLEC.²

After the vehicle was sold, Chase sent Epps a document entitled “Explanation of Calculation of Surplus or Deficiency.” (J.A. 40–41). The document indicated that the vehicle was sold on January 25, 2010 to a purchaser identified only as “Manheim Fredericksburg.” The document also reflected that Chase would seek a deficiency judgment against Epps for the unpaid balance of the loan.

Epps then commenced the underlying putative class action in Maryland state court, raising claims based on the CLEC, as well as for breach of contract, injunctive relief, restitution, unjust enrichment, and violation of the Maryland Consumer Protection Act. Chase removed the action to the United States District Court for the District of Maryland pursuant to 28 U.S.C. § 1453 (the removal provisions of the Class Action Fairness Act). In district court, Epps moved for class certification and for partial summary judgment, whereupon Chase moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Chase argued that Epps' claims, which were based partially on the CLEC, must fail because relevant portions of that state statute had been preempted by the National Bank Act (“NBA”), 12 U.S.C. § 1 et seq., and its implementing regulations promulgated by the Office of the Comptroller of the Currency (“OCC”).

The district court ruled in favor of Chase and dismissed Epps' claims. After discussing the pertinent OCC regulations the district court cited extensively to two other district court cases in support of its conclusion that application of the CLEC was preempted: Perez v. Midland Funding, LLC, 2010 WL 4117461 (N.D.Cal. Oct. 19, 2010) and Aguayo v. U.S. Bank, 658 F.Supp.2d 1226 (S.D.Cal.2009), rev'd, 653 F.3d 912 (9th Cir.2011).³ In each of those cases, a district court in California concluded that California's Rees–Levering Act was preempted by the NBA and the relevant OCC regulation, 12 C.F.R. § 7.4008. Like the CLEC, the Rees–Levering Act is a consumer protection statute that imposes certain post-repossession notice requirements on lenders in the automobile financing context. Also, like the CLEC, the Rees–Levering Act prevents a lender from recovering a deficiency judgment against a buyer if the lender does not comply with the notice requirements. See Cal. Civ.Code § 2983.2.

Based on Perez and Aguayo, the district court concluded that the CLEC's post-repossession notice requirements were related to the initial extension of credit to the purchaser, and accordingly, preempted by the federal OCC regulations. The district court also rejected Epps' contention that the “savings clause” of the regulations, 12 C.F.R. § 7.4008(e), exempted her claims from preemption.

The district court also dismissed Epps' breach of contract claim, even though the RIC specified that the CLEC applied. In the district court's view, that part of the RIC was void under the rule that “where one party to a contract had no choice but to include in that contract a provision calling for the applicability of a particular law, the other party to the contract cannot assert a breach of contract claim based on a violation of that law. Wells Fargo Home Mortgage v. Neal, 398 Md. 705, 922 A.2d 538, 545–46 (2007).” (J.A. 83). The court then dismissed Epps' complaint in its entirety for failure to state a claim under Rule 12(b)(6).⁴

Epps noted a timely appeal of the district court's judgment. We have jurisdiction pursuant to 28 U.S.C. § 1291.

II.Analysis

We review de novo the grant of a Rule 12(b)(6) motion to dismiss for failure to state a claim. Coleman v. Md. Court of Appeals, 626 F.3d 187, 190 (4th Cir.2010). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Whether a state law is preempted by federal law is a legal question that this Court reviews de novo. AES Sparrows Point LNG, LLC v. Smith, 527 F.3d 120, 125 (4th Cir.2008).

On appeal, Epps argues that the district court erred in concluding that the NBA and its regulations preempt the CLEC, that it erred in rejecting Epps' breach of contract claim that Chase bound itself to follow the CLEC by taking assignment of the RIC, and that it erred in dismissing Epps' claims that do not implicate the CLEC.

We turn first to the question of whether the district court properly concluded that the NBA and associated regulations preempt the CLEC.

A.Preemption

The Supreme Court has “repeatedly made clear that federal control shields national banking from unduly burdensome and duplicative state regulation.” Watters v. Wachovia Bank, N.A., 550 U.S. 1, 11, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) (citations omitted). “Federally chartered banks are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or the general purposes of the NBA.” Id. However, “the [s]tates can exercise no control over [national banks], nor in any wise affect their operation, except in so far as Congress may see proper to permit.” Id. (quoting Farmers' & Mechanics' Nat'l Bank v. Dearing, 91 U.S. 29, 34, 23 L.Ed. 196 (1875)).

i.

The NBA authorizes national banks to exercise “all such incidental powers as shall be necessary to carry on the business of banking,” including “loaning money on personal security.” 12 U.S.C. § 24 (Seventh). Congress has also authorized the OCC to promulgate regulations implementing the NBA. See 12 U.S.C. § 93a. At issue in this case are the OCC regulations found at 12 C.F.R. § 7.4008(d) and (e), which describe the circumstances under which state law is (and is not) preempted by the NBA. Those regulations contain both an express preemption provision and a savings clause. The express preemption provision states as follows:

(1) Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank's ability to fully exercise its Federally authorized non-real estate lending powers are not applicable to national banks.

(2) A national bank may make non-real estate loans without regard to state law limitations concerning:

(i) Licensing, registration ... filings, or reports by creditors;

...

(vi) Security property, including leaseholds;

...

(viii) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents[.]

12 C.F.R. § 7.4008(d).⁵

Immediately following is the savings clause:

State laws on the following subjects are not inconsistent with the non-real estate lending powers of national banks and apply to national banks to...