Madden v. Midland Funding, LLC

• Decision Date: 22 May 2015
• Docket Number: No. 14–2131–cv.,14–2131–cv.
• Citation: 786 F.3d 246
• Parties: Saliha MADDEN, on behalf of herself and all others similarly situated, Plaintiff–Appellant, v. MIDLAND FUNDING, LLC, Midland Credit Management, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

786 F.3d 246

Saliha MADDEN, on behalf of herself and all others similarly situated, Plaintiff–Appellant

v.MIDLAND FUNDING, LLC, Midland Credit Management, Inc., Defendants–Appellees.

No. 14–2131–cv.

United States Court of Appeals, Second Circuit.

Argued: March 19, 2015.

Decided: May 22, 2015.

Daniel Adam Schlanger, Schlanger & Schlanger LLP, Pleasantville, N.Y. (Peter Thomas Lane, Schlanger & Schlanger LLP, Pleasantville, N.Y.; Owen Randolph Bragg, Horwitz, Horwitz & Associates, Chicago, IL, on the brief), for Saliha Madden.

Thomas Arthur Leghorn (Joseph L. Francoeur, on the brief), Wilson Elser Moskowitz Edelman & Dicker LLP, New York, N.Y., for Midland Funding, LLC and Midland Credit Management, Inc.

Before: LEVAL, STRAUB and DRONEY, Circuit Judges.

Opinion

STRAUB, Circuit Judge:

This putative class action alleges violations of the Fair Debt Collection Practices Act (“FDCPA”) and New York's usury law. The proposed class representative, Saliha Madden, alleges that the defendants violated the FDCPA by charging and attempting to collect interest at a rate higher than that permitted under the law of her home state, which is New York. The defendants contend that Madden's claims fail as a matter of law for two reasons: (1) state-law usury claims and FDCPA claims predicated on state-law violations against a national bank's assignees, such as the defendants here, are preempted by the National Bank Act (“NBA”), and (2) the agreement governing Madden's debt requires the application of Delaware law, under which the interest charged is permissible.

The District Court entered judgment for the defendants. Because neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden's claims rely would not significantly interfere with any national bank's ability to exercise its powers under the NBA, we reverse the District Court's holding that the NBA preempts Madden's claims and accordingly vacate the judgment of the District Court. We leave to the District Court to address in the first instance whether the Delaware choice-of-law clause precludes Madden's claims.

The District Court also denied Madden's motion for class certification, holding that potential NBA preemption required individualized factual inquiries incompatible with proceeding as a class. Because this conclusion rested upon the same erroneous preemption analysis, we also vacate the District Court's denial of class certification.

BACKGROUND

A. Madden's Credit Card Debt, the Sale of Her Account, and the Defendants' Collection Efforts

In 2005, Saliha Madden, a resident of New York, opened a Bank of America (“BoA”) credit card account. BoA is a national bank.¹ The account was governed by a document she received from BoA titled “Cardholder Agreement.” The following year, BoA's credit card program was consolidated into another national bank, FIA Card Services, N.A. (“FIA”). Contemporaneously with the transfer to FIA, the account's terms and conditions were amended upon receipt by Madden of a document titled “Change In Terms,” which contained a Delaware choice-of-law clause.

Madden owed approximately $5,000 on her credit card account and in 2008, FIA “charged-off” her account (i.e., wrote off her debt as uncollectable). FIA then sold Madden's debt to Defendant–Appellee Midland Funding, LLC (“Midland Funding”), a debt purchaser. Midland Credit Management, Inc. (“Midland Credit”), the other defendant in this case, is an affiliate of Midland Funding that services Midland Funding's consumer debt accounts. Neither defendant is a national bank. Upon Midland Funding's acquisition of Madden's debt, neither FIA nor BoA possessed any further interest in the account.

In November 2010, Midland Credit sent Madden a letter seeking to collect payment on her debt and stating that an interest rate of 27% per year applied.

B. Procedural History

A year later, Madden filed suit against the defendants—on behalf of herself and a putative class—alleging that they had engaged in abusive and unfair debt collection practices in violation of the FDCPA, 15 U.S.C. §§ 1692e, 1692f, and had charged a usurious rate of interest in violation of New York law, N.Y. Gen. Bus. Law § 349 ; N.Y. Gen. Oblig. Law § 5–501 ; N.Y. Penal Law § 190.40 (proscribing interest from being charged at a rate exceeding 25% per year).

On September 30, 2013, the District Court denied the defendants' motion for summary judgment and Madden's motion for class certification. In ruling on the motion for summary judgment, the District Court concluded that genuine issues of material fact remained as to whether Madden had received the Cardholder Agreement and Change In Terms, and as to whether FIA had actually assigned her debt to Midland Funding. However, the court stated that if, at trial, the defendants were able to prove that Madden had received the Cardholder Agreement and Change In Terms, and that FIA had assigned her debt to Midland Funding, her claims would fail as a matter of law because the NBA would preempt any state-law usury claim against the defendants. The District Court also found that if the Cardholder Agreement and Change In Terms were binding upon Madden, any FDCPA claim of false representation or unfair practice would be defeated because the agreement permitted the interest rate applied by the defendants.

In ruling on Madden's motion for class certification, the District Court held that because “assignees are entitled to the protection of the NBA if the originating bank was entitled to the protection of the NBA ... the class action device in my view is not appropriate here.” App'x at 120. The District Court concluded that the proposed class failed to satisfy Rule 23(a)'s commonality and typicality requirements because “[t]he claims of each member of the class will turn on whether the class member agreed to Delaware interest rates” and “whether the class member's debt was validly assigned to the Defendants,” id. at 127–28, both of which were disputed with respect to Madden. Similarly, the court held that the requirements of Rule 23(b)(2) (relief sought appropriate to class as a whole) and (b)(3) (common questions of law or fact predominate) were not satisfied “because there is no showing that the circumstances of each proposed class member are like those of Plaintiff, and because the resolution will turn on individual determinations as to cardholder agreements and assignments of debt.” Id. at 128.

On May 30, 2014, the parties entered into a “Stipulation for Entry of Judgment for Defendants for Purpose of Appeal.” Id. at 135. The parties stipulated that FIA had assigned Madden's account to the defendants and that Madden had received the Cardholder Agreement and Change In Terms. This stipulation disposed of the two genuine disputes of material fact identified by the District Court, and provided that “a final, appealable judgment in favor of Defendants is appropriate.” Id. at 138. The District Court “so ordered” the Stipulation for Entry of Judgment.

This timely appeal followed.

DISCUSSION

Madden argues on appeal that the District Court erred in holding that NBA preemption bars her state-law usury claims. We agree. Because neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden's claims rely would not significantly interfere with any national bank's ability to exercise its powers under the NBA, we reverse the District Court's holding that the NBA preempts Madden's claims and accordingly vacate the judgment of the District Court. We also vacate the District Court's judgment as to Madden's FDCPA claim and the denial of class certification because those rulings were predicated on the same flawed preemption analysis.

The defendants contend that even if we find that Madden's claims are not preempted by the NBA, we must affirm because Delaware law—rather than New York law—applies and the interest charged by the defendants is permissible under Delaware law. Because the District Court did not reach this issue, we leave it to the District Court to address in the first instance on remand.

I. National Bank Act Preemption

The federal preemption doctrine derives from the Supremacy Clause of the United States Constitution, which provides that “the Laws of the United States which shall be made in Pursuance” of the Constitution “shall be the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. According to the Supreme Court, “[t]he phrase ‘Laws of the United States' encompasses both federal statutes themselves and federal regulations that are properly adopted in accordance with statutory authorization.” City of New York v. FCC, 486 U.S. 57, 63, 108 S.Ct. 1637, 100 L.Ed.2d 48 (1988).

“Preemption can generally occur in three ways: where Congress has expressly preempted state law, where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or where federal law conflicts with state law.” Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 313 (2d Cir.2005), cert. denied, 550 U.S. 913, 127 S.Ct. 2093, 167 L.Ed.2d 830 (2007). The defendants appear to suggest that this case involves “conflict preemption,” which “occurs when compliance with both state and federal law is impossible, or when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objective of Congress.” United States v. Locke, 529 U.S. 89, 109, 120 S.Ct. 1135, 146 L.Ed.2d 69 (2000) (internal quotation marks omitted).

The National Bank Act expressly permits national banks to “charge on any loan ... interest at the rate allowed by the laws of the State, Territory, or District where the bank is located.” 12 U.S.C. § 85. It also “provide [s] the exclusive cause of action” for usury claims against national banks, Beneficial Nat'l...