Mwantembe v. Td Bank, N.A.

• Decision Date: 17 November 2009
• Docket Number: Civil Action No. 09-0135.
• Citation: 669 F.Supp.2d 545
• Parties: Chawezi MWANTEMBE, et al. v. TD BANK, N.A., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

669 F.Supp.2d 545

Chawezi MWANTEMBE, et al. v. TD BANK, N.A., et al.

Civil Action No. 09-0135.

United States District Court, E.D. Pennsylvania.

November 17, 2009.

Leonard V. Fodera, Silverman & Fodera, PC, Daniel C. Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Michael E. Berman, Michael E. Berman PC, Long Beach, NY, for Plaintiffs.

Angelo A. Stio, III, Pepper Hamilton LLP, Princeton, NJ, Eric J. Goldberg, Stephen G. Harvey, Pepper Hamilton LLP, Philadelphia, PA, for Defendants.

MEMORANDUM OPINION

SAVAGE, District Judge.

Introduction

This putative consumer class action asserting causes of action under Pennsylvania law for the defendant banks' failure to disclose the deduction of dormancy and replacement fees¹ from gift cards prior to their expiration dates raises a question of the preemptive effect of the National Bank Act. Moving to dismiss the amended complaint, the defendants, nationally chartered banks, argue that the state law claims are preempted by the National Bank Act ("NBA") and the regulations issued by the Office of the Comptroller of the Currency ("OCC"). There is no dispute that gift cards issued by national banks are federally regulated. The question is whether state law imposing disclosure and marketing requirements for gift cards prevents or significantly interferes with the national banks' activity or the federal regulator's exercise of its powers.

Because enforcing state consumer protection laws regarding the disclosures does not conflict with federal law governing gift cards and will not unduly impair the defendants banks' ability to engage in the business of selling gift cards, we hold that the plaintiffs' state law claims are not preempted.

Factual Allegations

The plaintiffs, on behalf of Pennsylvania residents who held or hold gift cards sold by the defendants,² assert causes of action under Pennsylvania law for violations of the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. §§ 201-2(3), 201-2(4)(xxi), 201-3, breach of contract and third party beneficiary.³ They allege that the defendants' deducting undisclosed dormancy and other fees that diminish the value of the gift cards before their expiration is "deceptive, unlawful, and misleading," and is calculated to "trick, mislead, and significantly confuse consumers in Pennsylvania into not retaining or claiming the full value and buying power" of the cards.⁴

The plaintiffs allege that the defendant banks marketed and sold the gift cards without adequately disclosing the cards' material terms and conditions to purchasers and recipients. They also claim that prior to purchase, the defendants' representatives never discussed or otherwise disclosed to purchasers the imposition of dormancy and replacement fees, or issue dates and expiration dates.⁵

According to the amended complaint, the gift card at issue is a credit-card sized plastic card with a magnetic stripe on the back. On the front, there appears a "Good Thru" date, in raised, large letters, and the value amount, which is the card's value at the time of purchase. There is no issue date anywhere on the card. In very small print on the back of the card, it states, "Cardholder by using or permitting use of this Gift Card, you agree to the terms and conditions that accompanied the Card." The gift card comes in a prepackaged decorative box which is tied shut. Inside the box, in a hidden pouch within a cardboard folding envelope, a piece of paper containing terms and conditions may be found. Nowhere on the box or on the cardboard folding envelope is there notice of the material terms and conditions related to the card, or notice of the existence of the hidden pouch where the terms and conditions can be found. There is no procedure, such as an 800 number or a website address, a cardholder can use to ascertain the issue date or fees that have been deducted from the card.⁶

The plaintiffs allege that after a period of time of non-use, known as the "dormancy period," the defendants deduct a $2.50 monthly "dormancy" fee, silently reducing the value of the card prior to the "Good Thru" date. Some gift cards are devoid of any disclosure of the dormancy fee on their face; others contain a non-bolded statement concerning the dormancy fee⁷ in "minuscule font on the back corner" on the reverse side behind the raised-letter impressions from the front of the card, rendering the statement distorted and unreadable. Because the dormancy fee is calculated from the card's date of issue, the plaintiffs contend that even if the cardholder knows the length of the dormancy period, without knowing or being able to ascertain the issue date, knowledge of the length of the dormancy period is useless. They also contend that deducting dormancy fees renders the "Good Thru" date and value amount displayed on the front of the card materially misleading, deceptive and confusing because the card will have either diminished or no value prior to the "Good Thru" date without the cardholder having made a single purchase.⁸

Additionally, the plaintiffs allege that the defendant banks' local branches advertising "free" and "no fee" gift cards is deceptive because the advertisements fail to disclose the imposition of dormancy fees.⁹

The defendants argue that the plaintiffs' state law claims are preempted by the NBA and the OCC regulations. They contend that the plaintiffs are attempting to impose a disclosure regime under Pennsylvania law that is inconsistent and in conflict with the federal scheme under the NBA.¹⁰

The National Bank Act and Recent Supreme Court Law

National banks are authorized by the NBA, 12 U.S.C. § 1, et seq., and are regulated by the OCC, §§ 24, 93(a) and 371(a). The NBA grants national banks the authority to exercise certain enumerated powers and "all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24 Seventh. Congress has authorized the OCC to oversee the operations of national banks and to define these "incidental powers." NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 n. 2, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995); 12 U.S.C. § 93a.

To curtail intrusive state regulation of national banks, these "incidental powers" have been deemed "grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law." Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996). See also Watters v Wachovia Bank, N.A., 550 U.S. 1, 12, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) ("when state prescriptions significantly impair the exercise of authority, enumerated or incidental under the NBA, the State's regulations must give way"). Nevertheless, states may regulate the activities of national banks so long as they do not prevent or significantly interfere with the exercise of the banks' authority. Barnett Bank, 517 U.S. at 33, 116 S.Ct. 1103.

In its recent decision, Cuomo v. Clearing House Ass'n, L.L.C., ___ U.S. ___, 129 S.Ct. 2710, 174 L.Ed.2d 464 (2009), the Supreme Court caused a sea change in the perception of the preemptive effect of the NBA and the OCC regulations. Before this pronouncement, courts appeared to be expanding the scope of federal preemption for national banks. See, e.g., Adam J. Levitin, Hydraulic Regulation: Regulating Credit Markets, 26 Yale J. on Reg. 143, 157-58 (2009) (noting the strengthening trend in recent years of federal preemption of state laws regulating: late fees, various loan closing fees, disclosures in credit agreements, mortgage-broker subsidiaries of national banks, check-cashing fees, gift cards, tax refund anticipation loans, and credit card convenience checks); Rashmi Dyal-Chand, From Status to Contract: Evolving Paradigms for Regulating Consumer Credit, 73 Tenn. L. Rev. 303, 320-21 and n. 107 (2006) (noting how federal courts have limited the effectiveness of state consumer protection laws to protect credit-card borrowers by expanding the preemptive effect of § 85 of the National Bank Act). Cuomo reverses this trend and has dispelled the popular notion that all state laws that affect national banks in any way or to any degree are preempted.

In Cuomo,¹¹ the New York Attorney General sought information "in lieu of a subpoena" from national banks to determine whether they had violated New York's fair lending laws. The Second Circuit affirmed the district court's enjoining the attorney general from enforcing those state laws through demands for records or judicial proceedings. Those courts based their decisions on the OCC's regulation that had determined that the NBA prohibited states from enforcing compliance with their laws. 12 C.F.R. § 7.4000.

The Supreme Court held that the OCC's regulation preempting states from prosecuting enforcement actions against national banks is not a reasonable interpretation of the NBA; and, accordingly, it is not entitled to Chevron deference.¹² Cuomo, 129 S.Ct. at 2715, 2721. In reaching its decision, the Court distinguished between a sovereign's visitorial powers and its enforcement power. It clarified that only visitorial powers are preempted, leaving the states free to enforce their laws so long as they are not contrary to and not preempted by federal law. Id. It cleared the way for state attorneys general to file suit against national banks for violating state consumer protection laws.

Noting that "[n]o one denies that the National Bank Act leaves in place some state substantive laws affecting banks," the Court underscored that Congress has declined to exempt national banks from all state banking laws or state enforcement of those laws. Id. at 2717-18, 2720. The Court reaffirmed the holding of First Nat'l Bank in St. Louis v. Missouri, 263 U.S. 640, 660, 44 S.Ct. 213, 68 L.Ed. 486 (1924), that where a state statute of general applicability is not substantively preempted, the power of enforcement must rest with the state and not with the national government....