Sharabani v. Simon Prop. Grp., Inc.

• Decision Date: 17 April 2012
• Citation: 942 N.Y.S.2d 551
• Parties: Leigh SHARABANI, etc., appellant, v. SIMON PROPERTY GROUP, INC., et al., respondents.
• Court: New York Supreme Court — Appellate Division

942 N.Y.S.2d 551

Leigh SHARABANI, etc., appellant,

v.SIMON PROPERTY GROUP, INC., et al., respondents.

Supreme Court, Appellate Division, Second Department, New York.

April 17, 2012.

Irwin Popkin, Melville, N.Y. (Leland L. Greene of counsel), for appellant.

Sills Cummis & Gross P.C., New York, N.Y. (Jeffrey J. Greenbaum and Charles J. Falletta of counsel), for respondents.

DANIEL D. ANGIOLILLO, J.P., THOMAS A. DICKERSON, L. PRISCILLA HALL, and JEFFREY A. COHEN, JJ.

COHEN, J.

This appeal requires us to examine the extent to which federal laws and regulations governing national savings associations preempt New York State laws as they may relate to "electronic stored value systems," commonly known as gift cards, specifically, whether federal laws and regulations preempt New York State contract law and statutes such as General Business Law § 349. This Court previously has addressed federal preemption issues involving gift cards sold through agreements with federally chartered national banks (see Goldman v. Simon Prop. Group, Inc., 31 A.D.3d 382, 818 N.Y.S.2d 245; see also Goldman v. Simon Prop. Group, Inc., 58 A.D.3d 208, 869 N.Y.S.2d 125; Lonner v. Simon Prop. Group, Inc., 57 A.D.3d 100, 866 N.Y.S.2d 239; Lonner v. Simon Prop. Group, Inc., 31 A.D.3d 398, 817 N.Y.S.2d 503). As in our prior decisions, the scope of preemption depends upon the extent to which state law imposes substantive limitations on the authorized activities of the federal financial institution.

Factual and Procedural Background

It is alleged in the instant action that, in May 2007, the infant plaintiff (hereinafter the plaintiff) received a gift card for her birthday, which was issued by the defendant MetaBank and marketed and promoted by the defendant Simon Property Group, Inc. (hereinafter Simon). The gift card had an initial balance of $40 and an expiration date of April 2009. The plaintiff used the gift card to make purchases in January 2008 and January 2009, leaving an available balance of $17.71. On or about July 22, 2009, the plaintiff attempted to make a purchase using the gift card, but she was advised that a $15 renewal fee would be assessed, leaving an available balance of $2.71, which would have been insufficient to pay for her intended purchase. The plaintiff did not renew the gift card.

The Complaint and Amended Complaint

The plaintiff commenced this action, on behalf of herself and others similarly situated, against Simon, alleging five causes of action. Simon, joined by proposed intervenor Metabank, moved to dismiss the plaintiff's original complaint. In lieu of responding to Simon's motion to dismiss the complaint, the plaintiff served and filed an amended complaint, joining Metabank as a party¹ , and alleging six causes of action on behalf of herself and others similarly situated. The first cause of action sought to permanently enjoin the defendants from charging a renewal fee on expired gift cards. The second cause of action alleged a violation of the obligation of good faith and fair dealing. The third cause of action sounded in breach of contract, alleging that the defendants failed to "handle" the unused balance "according to applicable law," as set forth in the terms and conditions in the literature accompanying the card. The fourth cause of action alleged deceptive, misleading, and fraudulent conduct in willful and knowing violation of General Business Law § 349(a) that would subject the defendants to liability in accordance with General Business Law § 349(h). The remaining causes of action sought damages for money had and received, conversion, and unjust enrichment.

The "Applicable Law"

The amended complaint alleged that the literature accompanying the gift card purchased for the plaintiff recited that, upon expiration, the gift card would be closed and any unused balance "will be handled according to applicable law." The literature further provided a phone number through which one may request a new gift card containing the remaining balance, minus an "Expired Card Fee." Citing sections 1415 and 1422 of the Abandoned Property Law, the amended complaint alleged that, under the "applicable law," the plaintiff was entitled to the return of the unused balance upon expiration, without payment of any fee. Thus, the amended complaint alleged that the defendants breached the underlying contract of sale of the gift card by failing to handle the unused balance according to applicable law, converted the unused funds, and were unjustly enriched by their retention of those funds. The amended complaint also alleged that the defendants deceptively and fraudulently represented that the only option to gain access to the unused balance upon expiration was to pay a fee and renew the gift card, when the defendants knew that, under the applicable law, the plaintiff was entitled to the return of the funds. The amended complaint further alleged that the defendants failed to advise the plaintiff and other members of the class of the right to claim the unused balance in accordance with applicable law.

The Motion to Dismiss the Amended Complaint

The defendants moved to dismiss the amended complaint pursuant to CPLR 3211(a)(1), (2), and (7), or for summary judgment dismissing the amended complaint, arguing, inter alia, that the plaintiff's claims were preempted by the Federal Home Owners' Loan Act of 1933 ( 12 USC §§ 1461 – 1468 ) and its implementing regulations, promulgated by the Office of Thrift Supervision (hereinafter the OTS) of the United States Department of the Treasury ( 12 CFR 7.4000 – 7.5010, hereinafter the OTS regulations). In an order entered July 20, 2010, the Supreme Court granted that branch of the motion which was pursuant to CPLR 3211(a)(2) to dismiss the amended complaint, concluding that all of the plaintiff's causes of action were preempted by federal law. Consequently, the Supreme Court did not address the other branches of the defendants' motion. The plaintiff appeals. We modify the order, deny those branches of the defendants' motion which were pursuant to CPLR 3211(a)(2) to dismiss, as preempted by federal law, the first, second, fourth, fifth and sixth causes of action in the amended complaint and so much of the third cause of action in the amended complaint as was not premised on the Abandoned Property Law, and remit the matter to the Supreme Court, Nassau County, for a determination on the merits of those branches of the defendants' motion which were pursuant to CPLR 3211(a)(1) and (7) to dismiss those causes of action or for summary judgment dismissing those causes of action.

Federal Preemption Doctrine

The federal preemption doctrine has its roots in the Supremacy Clause of the United States Constitution, which declares that the laws of the United States made in pursuance of the Constitution "shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding" ( U.S. Const., Art. VI, cl. 2 ). Under the doctrine of federal preemption, Congress may preempt state laws, either expressly or impliedly (see Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d 604). In every inquiry into the scope of a statute's preemptive effect, the intent and purpose of Congressional legislation is the ultimate touchstone (see Altria Group, Inc. v. Good, 555 U.S. 70, 76, 129 S.Ct. 538, 172 L.Ed.2d 398; People v. First Am. Corp., 18 N.Y.3d 173, 937 N.Y.S.2d 136, 960 N.E.2d 927).

Federal preemption of state laws generally can 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, cert. denied 550 U.S. 913, 127 S.Ct. 2093, 167 L.Ed.2d 830; see Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 31, 116 S.Ct. 1103, 134 L.Ed.2d 237). A state law conflicts with federal law where "compliance with both federal and state regulations is a physical impossibility" (Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142–143, 83 S.Ct. 1210, 10 L.Ed.2d 248), or where state law "stands as 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). A federal agency acting within the scope of its congressionally delegated authority may preempt state regulation (see Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 369, 106 S.Ct. 1890, 90 L.Ed.2d 369). Federal regulations have the same preemptive effect as federal statutes (see Fidelity Fed. Sav. & Loan Assn. v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664).

Home Owners' Loan Act and Office of Thrift Supervision Regulations

Pursuant to its powers under the Commerce Clause (see U.S. Const., art. I, § 8, cl. 3 ), Congress passed the Home Owners' Loan Act of 1933 (hereinafter HOLA). The purpose of HOLA was to prevent foreclosures by refinancing home mortgages currently in default. HOLA confers lending and investment powers upon federal savings associations or thrifts, "to encourage such institutions to provide credit for housing safely and soundly" ( 12 USC § 1464 [a] ). In 1989, in response to the then-existing savings and loan crisis, Congress amended HOLA to establish the OTS² within the Department of the Treasury (see 12 USC § 1461 et seq. ). HOLA authorized the OTS to prescribe regulations "to provide for the organization, incorporation, examination, operation, and regulation of ... Federal savings associations" ( 12 USC § 1464 [a][1] ).

While national banks are explicitly authorized by regulations promulgated by the Office of the Comptroller of the Currency to issue gift cards (see 12 CFR 7.5002 [a][3] ), neither HOLA nor the OTS regulations promulgated under the authority of the OTS explicitly...