Spggc, LLC v. Blumenthal

• Decision Date: 19 October 2007
• Docket Number: Docket No. 05-4711-cv.
• Citation: 505 F.3d 183
• Parties: SPGGC, LLC, Plaintiff-Appellant, v. Richard BLUMENTHAL, Attorney General, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

505 F.3d 183

SPGGC, LLC, Plaintiff-Appellant, v. Richard BLUMENTHAL, Attorney General, Defendant-Appellee.

Docket No. 05-4711-cv.

United States Court of Appeals, Second Circuit.

Argued: May 10, 2007.

Decided: October 19, 2007.

Margaret M. Pinkham (Paul W. Shaw, on the brief), Brown Rudnick Berlack Israels LLP, Boston, MA, for Plaintiff-Appellant.

Clare E. Kindall, Assistant Attorney General (Richard Blumenthal, Attorney General, Susan Quinn Cobb, Perry Zinn Rowthorn, Jane R. Rosenberg, Assistant Attorneys General, on the brief), Hartford, CT, for Defendant-Appellee.

Julie L. Williams, Office of the Comptroller of the Currency, Washington, D.C., for Amicus Curiae Office of the Comptroller of the Currency.

Before: B.D. PARKER, RAGGI, and WESLEY, Circuit Judges.

B.D. PARKER, JR., Circuit Judge:

Plaintiff-Appellant SPGGC, LLC, a seller of prepaid gift cards, sued to prevent the Connecticut Attorney General from enforcing a state consumer protection law that regulates the terms and conditions of such cards. The United States District Court for the District of Connecticut (Underhill, J.) granted the Attorney General's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). At issue in this appeal is whether SPGGC stated valid claims for declaratory and injunctive relief on the grounds that the Attorney General's enforcement efforts are federally preempted or that they violate the Commerce Clause of the United States Constitution. We affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

Because this appeal is from the dismissal of a complaint under Rule 12(b)(6), we accept all factual allegations in the complaint as true and draw inferences in favor of SPGGC. United States v. Baylor Univ. Med. Ctr., 469 F.3d 263, 267 (2d Cir.2006).

A. The Simon Giftcard

SPGGC is a subsidiary of Simon Property Group, Inc., which operates shopping malls in more than thirty states, including Connecticut. The Simon Giftcard, a prepaid, stored-value payment card, is sold in Simon malls, as well as through Simon's website.

At the time SPGGC filed its Second Amended Complaint, the Giftcards were issued by Bank of America, N.A. ("BoA"), a national bank, and operated on the Visa debit card infrastructure. Simon Giftcards — which are similar in size and appearance to credit or debit cards, and carry a Visa logo along with Simon's name — are accepted by any merchants that accept Visa debit cards. SPGGC acknowledged selling "several thousands of Giftcards each year in Connecticut." All of SPGGC's revenue, and any profit, from the Giftcards derives from the fees associated with them. Several such fees are imposed directly on Giftcard purchasers, including "upfront handling/loading fees, [and] potentially applicable maintenance, replacement, and call center fees."

BoA is a Visa member bank, and as such may issue various forms of Visa payment cards. See generally United States v. Visa U.S.A., Inc., 163 F.Supp.2d 322, 332-33 (S.D.N.Y.2001) ("Visa I"), aff'd, 344 F.3d 229 (2d Cir.2003) ("Visa II"). Issuers generally act as "the liaison between the network [i.e., Visa] and the individual cardholder," and collect an interchange fee each time a transaction is executed. Visa II, 344 F.3d at 235. As a Visa member bank, BoA must adhere to Visa's bylaws and operating regulations. See Visa I, 163 F.Supp.2d at 332. Pursuant to its relationship with SPGGC, all Simon Giftcards and cardholder agreements identified BoA as the issuer. The cards themselves were identified as property of BoA.

In addition, BoA retained review and approval authority over all terms and conditions for the Giftcards, as well as design of the cards and card carriers with which they were sold. These terms and conditions were uniform across the United States, and, according to SPGGC, were modeled after those used for BoA's own branded gift cards. They included a $2.50 monthly service fee, to be deducted from any balance remaining on the Giftcard after six months from the date of purchase. In addition, to comply with Visa regulations, all Simon Giftcards carried a one-year expiration date. According to SPGGC's complaint, BoA approved these terms.

B. The Connecticut Giftcard Law

The Connecticut Gift Card Law prohibits the sale of any "gift certificate" subject to inactivity or dormancy fees or to an expiration date. See 2003 Conn. Pub. Acts 03-1 §§ 83, 84 (June 30, 2003 Spec. Sess.) (codified at CONN. GEN.STAT. §§ 3-65c, 42-460 (2007)). Gift certificates are defined to include gift cards and other stored-value cards. CONN. GEN.STAT. § 3-56a(5).

Under the general heading "Escheats," the Gift Card Law provides that "a holder of . . . a gift certificate . . . may not impose on the property a dormancy charge or fee, abandoned property charge or fee, unclaimed property charge or fee, escheat charge or fee, inactivity charge or fee, or any similar charge, fee or penalty for inactivity with respect to the property." Id. § 3-65c. Elsewhere, the Law provides that "[n]o person may sell or issue a gift certificate . . . that is subject to an expiration date." Id. § 42-460(a).

The Attorney General maintains that the Gift Card Law applies only to the sale of gift cards in Connecticut, not their use, and thus permits cards purchased out of state to be used in Connecticut despite any restrictions or fees such cards may carry. The intent of the Law, he suggests, is to protect Connecticut consumers from being deprived unwittingly of the value of gift cards they have purchased in the State.

C. Proceedings Below

In November 2004, the Connecticut Attorney General informed SPGGC that the State intended to bring an enforcement action against it for violating the Connecticut Gift Card Law. In response, SPGGC filed an action in federal district court seeking a declaratory judgment that the Attorney General's proposed enforcement action was preempted by the National Bank Act, 12 U.S.C. § 21 et seq. Three days later, the Attorney General sued SPGGC in state court, alleging that Simon Giftcards carry expiration dates and impose on consumers a variety of fees in violation of the Gift Card Law. SPGGC removed the Attorney General's action to federal court, where it was consolidated with the original suit. SPGGC amended its complaint to add a claim under the Commerce Clause. SPGGC also sought an injunction preventing the Attorney General from pursuing any further enforcement action against it in state court.

The Attorney General moved to dismiss SPGGC's complaint for failure to state a claim. Judge Underhill granted the motion. SPGGC moved for reconsideration on three bases: (1) that the court had failed to consider our decision in Wachovia Bank, N.A. v. Burke, 414 F.3d 305 (2d Cir.2005), which was issued a few weeks prior to the district court's ruling; (2) that the court had clearly erred in its analysis of SPGGC's Commerce Clause claim; and (3) that under an agreement scheduled to take effect in September 2005, the Simon Giftcard would be issued jointly by a national bank and a federal savings association, subjecting it to oversight by the Office of Thrift Supervision ("OTS") as well as the Office of the Comptroller of the Currency ("OCC"). The court granted reconsideration, but adhered to its prior decision dismissing SPGGC's complaint. See SPGGC, Inc. v. Blumenthal, 408 F.Supp.2d 87 (D.Conn.2006).

SPGGC appeals, arguing that the district court erroneously dismissed both its preemption and its Commerce Clause claims. SPGGC's arguments focus exclusively on its relationship with BoA — a non-party to this dispute — which has since terminated but was in effect throughout the proceedings in the district court. Cf. SPGGC, LLC v. Ayotte, 488 F.3d 525, 529 (1st Cir.2007) (noting that after SPGGC ended its relationship with BoA in September 2005, it entered into contracts with U.S. Bank, a national bank, and Metabank, a national thrift, and describing the terms of those contracts). Accordingly, we will not consider the new contractual arrangements, which SPGGC raised in its motion to reconsider but which were never included in an amended complaint and were not the subject of briefing before this Court. As the Attorney General continues to seek civil penalties from SPGGC relating to its issuance of Simon Giftcards in conjunction with BoA, the issues presented herein survive the termination of SPPGC's relationship with BoA.

DISCUSSION

We review de novo a district court's decision granting a motion to dismiss. Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 153 (2d Cir.2007).

A. Preemption

Federal preemption of a state statute can be express or implied, and generally occurs: "[1] where Congress has expressly preempted state law, [2] where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or [3] where federal law conflicts with state law." Burke, 414 F.3d at 313. "Federal regulations have no less preemptive effect than federal statutes." Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). At issue here is 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). SPGGC contends that applying the Connecticut Gift Card Law to Simon Giftcards would frustrate the purposes of the National Bank Act ("NBA") and OCC regulations.

The NBA authorizes national banks to exercise several enumerated powers as well as "all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24 Seventh. The Supreme Court has interpreted "grants of both enumerated and incidental `powers' to national banks as grants of authority not normally limited...