Rose v. Chase Manhattan Bank Usa

• Decision Date: 27 October 2005
• Docket Number: No. SACV 05754JVSANX.,SACV 05754JVSANX.
• Court: U.S. District Court — Central District of California
• Parties: Denise ROSE, et al. v. CHASE MANHATTAN BANK USA, N.A. et al.

396 F.Supp.2d 1116

Denise ROSE, et al. v. CHASE MANHATTAN BANK USA, N.A. et al.

No. SACV 05754JVSANX.

United States District Court, C.D. California.

October 27, 2005.

COPYRIGHT MATERIAL OMITTED

Jeffrey N. Wilens, Lakeshore Law Center, Yorba Linda, CA, for Plaintiffs.

Gerrit Warren Bleeker, Howard N.Cayne, Kurt S. Fritz, Laurence J. Hutt, Arnold & Porter, Los Angeles, CA for Defendants.

Proceedings: (In Chambers) Amended Order Granting Defendant's Motion for Judgment on the Pleadings (Fld 9-30-05)

SELNA, District Judge.

I. BACKGROUND

Defendant Chase Manhattan Bank USA ("Chase") moves for a judgment on the pleadings based on Plaintiffs' Rose, Raitt, Abeyta, Reis (collectively "Rose") First Amended Complaint.

In the first cause of action, Rose asserts three claims under California's unfair competition law ("UCL"), Cal. Bus. & Prof.Code § 17200 et seq., on behalf of a putative class of California credit cardholders who accepted offers of convenience check loans from Chase on or after June 13, 2001. The main thrust of Rose's claims is that Chase did not include information required by California Civil Code § 1748.9 ("Section 1748.9") in its offers, and that the failure to make those disclosures is an unlawful business practice under the UCL.

In the second cause of action, Rose asserts that Chase did not disclose that purchases paid for using convenience checks would accrue finance charges immediately, unlike purchases made with a credit card, and therefore that Chase engaged in deceptive conduct under the UCL. (FAC, ¶ 31.)

In the third cause of action, Rose asserts that Chase has committed unfair business practices because Chase "induced consumers to use the convenience checks without warning them they would incur immediate finance charges." (Id., ¶ 40.) Rose further asserts that, "[e]ven if such conduct were not unlawful, it was unfair because it served no legitimate business purpose while causing great harm to consumers." (Id.)

Rose seeks an order that Chase refund the members of the putative class the amounts paid in finance charges or transaction fees on the convenience checks, and disgorge all profits purportedly obtained by Chase's wrongful business conduct. Rose additionally seeks an injunction prohibiting Chase from continuing in its purported acts of unfair and unlawful competition and deceptive practices, an accounting, pre — and post-judgment interest, and costs including attorney's fees.

Chase asserts that it is entitled to a judgement on the pleadings because Section 1748.9 is preempted by federal law. (Mot., p. 1.) Chase claims that under the National Bank Act ("NBA"), 12 U.S.C. § 21 et seq., regulations promulgated thereunder, and a long line of NBA preemption jurisprudence, national banks are free to exercise their banking powers without regard to state-imposed restrictions. (Mot., p. 1.) Chase therefore contends that Rose's allegations that Chase violated the UCL by failing to comply with Section 1748.9 fail as a matter of law. (Id., p. 4.)

II. LEGAL STANDARD

Under the Federal Rule of Civil Procedure 12(c), "[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." A motion for judgment on the pleadings should be granted only if "taking all the allegations in the pleading as true, the moving party is entitled to judgment as a matter of law." McSherry v. City of Long Beach, 423 F.3d 1015, 1021 (9th Cir.2005).

Issues of preemption may be resolved as a matter of law. City of Auburn v. Qwest Corp., 260 F.3d 1160, 1172 (9th Cir.2001); Industrial Truck Ass'n, Inc. v. Henry, 125 F.3d 1305, 1308 (1997).

Fed. R. Civ. P 12(c) additionally states that a motion for judgment on the pleadings shall be treated as a motion for summary judgment if matters outside the pleadings are presented to and not excluded by the Court. However, the Court need not turn the present motion for judgment on the pleadings into one for summary judgment. When a party submits an indisputably authentic copy of a document, and the document is referred to in the complaint, the Court does not have to convert the motion into a summary judgment motion. This is because the purpose of conversion is to give the plaintiff notice and an opportunity to respond. GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.1997). The Court finds that the documents submitted by Chase for judicial notice may be considered without converting the instant motion for judgment on the pleadings into one for summary judgment.

III. DISCUSSION

A. NATIONAL BANK ACT

Under 12 U.S.C. § 24 a national bank association shall have the power to "exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking... by loaning money on personal security." "The National Bank Act of 1864 was enacted to protect banks against intrusive regulation by the States." Bank of America v. City and County of San Francisco, 309 F.3d 551, 561 (9th Cir.2002).

The Court finds that the NBA preempts Section 1748.9, and as discussed below, that a long line of jurisprudence addressing the preemptive effect of national banking laws demonstrates that Section 7.4008 merely codifies existing case law.

Federal law and state law conflict when compliance with both is a physical impossibility, or when state law is "an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). The Court finds that the instant case involves the second type of conflict. In Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32, 116 S.Ct. 1103, 134 L.Ed.2d 237, the Supreme Court held that "grants of both enumerated and incidental `powers' to national banks" are generally interpreted as "grants of authority not normally limited by, but rather ordinarily preempting, contrary state law." See generally First Nat. Bank of San Jose v. California, 262 U.S. 366, 368-69, 43 S.Ct. 602, 67 L.Ed. 1030 (1923) (holding that state attempts to define or control the conduct of national banks is void if they conflict with Federal laws, frustrate the purposes of the national legislation, or impair the efficiency of the bank to discharge the duties for which it was created); Easton v. Iowa, 188 U.S. 220, 229-30, 23 S.Ct. 288, 47 L.Ed. 452 (1903); Waite v. Dowley, 94 U.S. 527, 533, 4 Otto 527, 24 L.Ed. 181 (1876); Franklin Nat. Bank of Franklin Square v. New York, 347 U.S. 373, 375-79, 74 S.Ct. 550, 98 L.Ed. 767 (1954). In Barnett the Supreme Court stated that "[i]n defining the preemptive scope of statutes and regulations granting a power to national banks, [past Supreme Court precedent] ... normally Congress would not want States to forbid, or impair significantly, the exercise of power that Congress explicitly granted." 517 U.S. at 33, 116 S.Ct. 1103. The Barnett Court further held, "where Congress has not expressly condition the grant of `power' upon a grant of state permission, the Court has ordinarily found that no such condition applies." (Id., at 34, 116 S.Ct. 1103.)

The Court finds that under the above cited principles of preemption, Section 1748.9 is preempted when applied to national banks. The NBA expressly gives national bank's the power to loan money on personal security. 12 U.S.C. § 24 Congress did not condition its grant of power on a national bank's compliance with state laws which impose disclosure requirements on a bank's ability to make loans to residents of the state. This demonstrates that there should be a "broad interpretation of the [power to lend money] that does not condition federal permission upon that of the State." Barnett, 517 U.S. at 34-5, 116 S.Ct. 1103.

Section 1748.9 states:

(a) A credit card issuer that extends credit to a cardholder through the use of a preprinted check or draft shall disclose on the front of an attachment that is affixed by perforation or other means to the preprinted check or draft, in clear and conspicuous language, all of the following information:

(1) That use of the attached check or draft will constitute a charge against your credit account.

(2) The annual percentage rate and the calculation of finance charges ... associated with the use of the attached check or draft.

(3) Whether the finance charges are triggered immediately upon the use of the check or draft.

It is apparent from the face of the statute that it conditions Chase's ability to conduct lending in the form of convenience checks. Hence the Court finds that pursuant to the NBA, Chase may make offers for convenience check loans to their credit card holders without regard to Section 1748.9. The Court's conclusion is bolstered by the relevant regulator's view concerning the scope of the proscribed state regulation. See discussion infra.

B. FEDERAL REGULATION

1. Scope of Section 7.4008

Pursuant to the NBA, the Office of the Comptroller of the Currency ("OCC"), the federal agency exercising exclusive control over the national banks, promulgated a preemption regulation applicable to lending by national banks. See 69 Fed.Reg.1904-17 (Jan. 13, 2004). With respect to the applicability of state law, that regulation states, "[e]xcept 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." 12 C.F.R. § 7.4008(d)(1). In addition, Section 7.4008 states that "[a] national bank may make non-real estate loans without regard to state law limitations concerning: [d]isclosure 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)...