U.S. Bank Nat'l Ass'n v. Schipper

• Citation: 812 F.Supp.2d 963
• Decision Date: 29 August 2011
• Docket Number: No. 4:10–cv–00064–JEG.,4:10–cv–00064–JEG.
• Parties: U.S. BANK NATIONAL ASSOCIATION d/b/a Elan Financial Services, Plaintiff, v. James M. SCHIPPER, in his official capacity as Superintendent of the Iowa Division of Banking and Superintendent of Savings and Loan Associations, and Administrator of Electronic Transfer Funds, Iowa Division of Banking; and JoAnn M. Johnson, in her official capacity as Superintendent of the Iowa Division of Credit Unions and Administrator of Electronic Transfer of Funds, Iowa Division of Credit Unions, Defendants.
• Court: U.S. District Court — Southern District of Iowa

812 F.Supp.2d 963

U.S. BANK NATIONAL ASSOCIATION d/b/a Elan Financial Services, Plaintiff,

v.James M. SCHIPPER, in his official capacity as Superintendent of the Iowa Division of Banking and Superintendent of Savings and Loan Associations, and Administrator of Electronic Transfer Funds, Iowa Division of Banking; and JoAnn M. Johnson, in her official capacity as Superintendent of the Iowa Division of Credit Unions and Administrator of Electronic Transfer of Funds, Iowa Division of Credit Unions, Defendants.

No. 4:10–cv–00064–JEG.

United States District Court,S.D. Iowa,Central Division.

Aug. 29, 2011.

Limited on Preemption Grounds

I.C.A. §§ 527.5, 527.9

James R. McGuire, Morrison & Foerster LLP, San Francisco, CA, Thomas D. Hanson, Hanson Bjork & Russell LLP, Des Moines, IA, for Plaintiff.

Jeffrey C. Peterzalek, Jessica Jean Whitney, Iowa Attorney General, Des Moines, IA, for Defendants.

ORDER

JAMES E. GRITZNER, District Judge.

This matter comes before the Court on Motion for Summary Judgment brought by Plaintiff U.S. National Bank Association d/b/a Elan Financial Services (U.S. Bank). Defendants Iowa Division of Banking Superintendent James M. Schipper (Schipper) and Iowa Division of Credit Unions Superintendent JoAnn M. Johnson (Johnson) (hereinafter, collectively the State) resisted and filed a Cross–Motion for Summary Judgment. The Court held a hearing on the motions on May 17, 2011. Attorneys James R. McGuire and Thomas D. Hanson represented U.S. Bank. Attorney Jessica Jean Whitney represented Defendants. The matter is fully submitted and ready for disposition.

I. BACKGROUND

U.S. Bank is a national bank organized under the National Bank Act (NBA), 12 U.S.C. § 21 et seq., that provides electronic transfer of funds (EFT) services to financial institutions throughout the United States. Schipper and Johnson serve as administrators of the Iowa Electronic Transfer of Funds Act (the Iowa EFTA), Iowa Code Chapter 527, which regulates the transmission of information between satellite terminals, including automatic teller machines (ATMs) and point-of-sale terminals, and financial institutions. This Court previously summarized the process by which ATMs operate and the relevant provisions of the Iowa EFTA in Farmers State Bank v. Gronstal, 598 F.Supp.2d 960, 963 (S.D.Iowa 2009):

ATMs work by sending the information on an ATM card to the bank issuing the card. By communicating with the cardholder's bank, the ATM can determine whether to authorize or deny the cardholder's requested transaction. The connection between the ATM and the bank is accomplished by means of a network similar to the Internet. The Iowa EFTA sets forth two entities that can provide and operate the network—data processing centers (DPCs) and central routing units (CRUs)—and requires all ATMs in Iowa to be directly connected to either a DPC or a CRU. See [Iowa Code] § 527.5(8).

While similar, there are important distinctions between DPCs and CRUs and the types of transactions that they can handle. There are two basic types of transactions, referred to informally as “on-us” and “not-us.” An on-us transaction occurs when a cardholder uses an ATM belonging to the bank named on the card, whereas a not-us transaction occurs when a cardholder uses an ATM not belonging to the bank named on the card.

DPCs can authorize both on-us and not-us transactions if the DPC to which the ATM is connected has access to the balance account files (BAF) of the cardholder's bank. When an ATM sends a transaction to a DPC that cannot authorize the transaction (because it does not have access to the BAF of the cardholder's bank), the DPC must forward the request to a CRU for authorization. If an ATM is not connected to a DPC, it can alternatively be connected directly to a CRU, which can authorize any transaction.

The Iowa EFTA requires nondiscriminatory and interoperable consumer access to ATMs within the state of Iowa. Nondiscriminatory consumer access is obtained by requiring all CRUs to maintain a direct connection to all DPCs that are directly connected to Iowa ATMs. See id. § 527.9(2)(f). Interoperable consumer access is achieved by requiring CRUs to be able to receive and route all transmissions from ATMs anywhere in Iowa. See id. § 527.9(2)(e).

An entity that seeks to operate as a CRU in Iowa must disclose information about the CRU to an Iowa EFTA administrator and receive written approval from an Iowa EFTA administrator. See Iowa Code § 527.9(1)-(2). An entity operating a CRU within the state of Iowa must “include public representation on any board setting policy for the [CRU],” by allowing the administrators to appoint at least four public members to the board. Id. § 527.9(5)(a). Further, the public members appointed must be granted full participation and voting rights and must “represent the interest of consumers and the business and agricultural communities in establishing policies for the [CRU].” Id. § 527.9(5)(c). Finally, a CRU “operating under the approval of the administrator shall be subject to examination by the administrator for the purpose of determining compliance with [the Iowa EFTA].” Id. § 527.9(4).

The Iowa EFTA includes broad enforcement provisions, including a grant of authority to the administrators to “issue any order necessary to secure compliance with or prevent a violation of [the Iowa EFTA],” and the administrators may subject a violator “to a civil penalty not to exceed one thousand dollars for each day the violation continues.” Id. § 527.3(8). An administrator may also request that Iowa's attorney general “institute any legal proceedings necessary to obtain compliance with an order of the administrator or to prosecute a person for a violation of the [Iowa EFTA].” Id.

U.S. Bank has provided Farmers State Bank (FSB), an Iowa state-chartered bank, with EFT services for on-us transactions since 2006. Although U.S. Bank seeks to provide FSB and other Iowa state-chartered banks with CRU services necessary to complete not-us transactions, U.S. Bank has not been able to do so because it is not an approved CRU. Only one company, SHAZAM, has been approved by the Iowa EFTA administrator as a CRU. In order to process all of FSB's transactions, U.S. Bank routes FSB's not-us transactions through SHAZAM and reimburses FSB for the fees charged by SHAZAM, which range from two to eight cents per transaction. U.S. Bank also provides EFT services to four other state-chartered banks but does not reimburse those four state-chartered banks for fees incurred from routing information through SHAZAM.

On April 24, 2007, representatives from FSB met with Thomas B. Gronstal (Gronstal), who was then the Iowa Superintendent of Banking and an Iowa EFTA administrator, regarding whether “state-chartered banks such as [FSB] do not have to comply with the provisions of [the Iowa EFTA] when the entity providing services to [FSB] is a national bank.” Gronstal Letter, Pl.'s Appl. in Supp. of Pl.'s Mot. Summ. J. 25., ECF No. 25–3. On June 12, 2007, Gronstal provided an informal response by letter and explained to FSB that assuming arguendo a nationally-chartered bank could not be obligated to comply with the Iowa EFTA, “it appears to me that state-chartered banks still must comply with all requirements of [the Iowa EFTA], including section 527.5(8), even if they are receiving services from a nationally-chartered bank.” Id.

U.S. Bank filed this action on February 16, 2010, seeking a declaration that the State may not enforce Iowa Code §§ 527.5 and 527.9 against U.S. Bank or any other financial institution that engages in business with U.S. Bank because Iowa Code §§ 527.5 and 527.9 are preempted by the NBA. U.S. Bank also seeks to permanently enjoin Defendants from enforcing §§ 527.5 and 527.9 against U.S. Bank and those financial institutions for which U.S. Bank provides EFT services.

II. DISCUSSIONA. Summary Judgment Standard

On these cross-motions for summary judgment, “[s]ummary judgment in favor of [U.S. Bank] is appropriate only if, after viewing the evidence in the light most favorable to [the State] and affording [the State] all reasonable inferences, there are no genuine issues of material fact and [U.S. Bank is] entitled to judgment as a matter of law.” Lexicon v. ACE Am. Ins. Co., 634 F.3d 423, 425 (8th Cir.2011) (citing Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 984 (8th Cir.2009); Fed.R.Civ.P. 56(a)). U.S. Bank and the State agree that no genuine issues of material fact exist and that the case is ripe for disposition on summary judgment. Cf. Jankovitz v. Des Moines Indep. Cmty. Sch. Dist., 421 F.3d 649, 653 (8th Cir.2005) (“Where, as here, the unresolved issues are primarily legal, rather than factual, summary judgment is particularly appropriate.”); Nat'l Bank of Commerce v. Dow Chem. Co., 165 F.3d 602, 607 (8th Cir.1999) (noting that the issue of “[p]reemption is a question of law”).

B. Preemption

“The general law of preemption is grounded in the Constitution's command that federal law shall be the supreme Law of the Land.” Lefaivre v. KV Pharm. Co., 636 F.3d 935, 938 (8th Cir.2011) (internal quotation marks and citations omitted); see also Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007) (“Nearly 200 years ago, in M'Culloch v. Maryland, [17 U.S. 316, 4 Wheat. 316, 4 L.Ed. 579] (1819), this Court held federal law supreme over state law with respect to national banking.”). “Whether a particular federal statute preempts state law depends upon congressional purpose.” In re Aurora Dairy Corp. Organic Milk Mktg. & Sales Practices Litig., 621 F.3d 781, 791 (8th Cir.2010). “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).

“Preemptive intent may be indicated through a statute's express language or through its structure and purpose. A state law is expressly preempted when a federal statut...