Wells v. Chevy Chase Bank

• Decision Date: 23 September 2003
• Docket Number: No. 41 Sept. Term 2002.,41 Sept. Term 2002.
• Court: Maryland Court of Appeals
• Parties: Dale WELLS, et al. v. CHEVY CHASE BANK, F.S.B., et al.

832 A.2d 812

377 Md. 197

Dale WELLS, et al. v. CHEVY CHASE BANK, F.S.B., et al.

No. .

Court of Appeals of Maryland.

September 23, 2003.

F. Paul Bland, Jr. (Leslie Bruekner of Trial Lawyers for Public Justice of Washington, DC,; John T. Ward, Robert B. Kershaw of Ward Kershaw, P.A. of Baltimore; Michael P. Malakoff of Malakoff, Doyle & Finberg, P.C. of Pittsburgh, PA), on brief, for appellants.

David J. Cynamon (Erica S. Simpson of Shaw Pittman LLP, on brief), Washington, DC, for appellees.

Argued before BELL, C.J., ELDRIDGE, RAKER, WILNER, CATHELL, HARRELL and BATTAGLIA, JJ.

BELL, Chief Judge.

In this case, we are asked to resolve whether a credit-card agreement (the "Cardholder Agreement"), between Dale Wells, Sharon Goldenberg and John Dovel, the appellants, and Chevy Chase Bank, F.S.B. and U.S.A. Bank, N.A., the appellees, contractually bound the appellees to comply with provisions of Subtitle 9, which address the form of the notice required when a Cardholder Agreement is amended, where the Cardholder Agreement in the section captioned "Governing Law," references Subtitle 9 of the Commercial Law Article, Md.Code (1975, 2000 Repl. Vol.), §§ 12-901—12-924 of the Commercial Law Article ("Subtitle 9") and "applicable federal law." Although the parties agree that State laws purporting to regulate the appellees' lending activities have been preempted by § 5(a) of the Homeowners Loan Act ("HOLA") 12 U.S.C. 1464(a) and its implementing regulations, see 12 C.F.R. pt. 560, the appellants characterize the reference to Subtitle 9 in the Cardholder Agreement as a provision in a contract, which, notwithstanding federal preemption, defines a particular aspect of the relationship between the parties, the manner in which notice is to be given when the Cardholder Agreement is amended. Consequently, rather than because it was a failure to comply with state law, the appellants seek to recover damages from the appellees for breach of their contract with the appellants to comply with Subtitle 9 when amending the Cardholder Agreement. The Circuit Court for Baltimore City observed that it "seems both implausible and inconsistent with federal preemption to claim that a state regulatory scheme was agreed to between [the] parties by a mere reference to Subtitle 9" and, thus, rejected the appellants' argument. We do not agree. Accordingly, we shall reverse and remand the case to the Circuit Court for further proceedings.

I.

This is not the first occasion on which this case, the parties to it and the issues presented by it, have been before this Court. Wells v. Chevy Chase Bank, F.S.B., et al., 363 Md. 232, 768 A.2d 620 (2001) ("Wells I") was an appeal taken from an order compelling arbitration. Preparatory to addressing the substantive issue that case presented, whether the appellants agreed to arbitrate, we summarized the factual and procedural history of the case:

"Plaintiffs' first amended complaint alleges that the Defendants, in a number of aspects, breached the open end credit agreement (the Cardholder Agreement) in effect between Plaintiffs, as cardholders of credit cards issued by Chevy Chase, and Chevy Chase, as card-issuing credit grantor.

"Prior to January 16, 1996, Chevy Chase had maintained its home office in Maryland.¹ The Cardholder Agreement provided for an annual fee, a minimum late charge fee of fifteen dollars, described the method of computing the finance charge, and stated that the `ANNUAL PERCENTAGE RATE will never exceed 24%' With respect to amendments the Cardholder Agreement read:

`We may amend the terms of this Agreement in accordance with applicable law at any time. Also we may at any time add new credit services, discontinue any credit services, or replace your card with another card.'

"The Cardholder Agreement also contained a `Governing Law' provision reading:

`This Agreement is made in Maryland. It is governed by Subtitle 9 [`Credit Grantor Revolving Credit Provisions'] of Title 12 [`Credit Regulations'] of the Commercial Law Article of the Maryland Annotated Code and applicable federal laws.'

"There was no mediation or arbitration provision in the Cardholder Agreement.

"On or about January 16, 1996, Chevy Chase moved its home office to Virginia. With the periodic statements mailed in January and February of 1996 to its cardholders, Chevy Chase included a notice of change of terms of the Cardholder Agreement. The notice of change took the form of a restatement and revision of the Cardholder Agreement, with the new or revised terms italicized and, with respect to a waiver of jury trial provision, both italics and all uppercase print was used. Solely for purposes of this appeal, and without indicating any opinion on whether the Cardholder Agreement was effectively amended or whether the amendments are substantively valid, we shall call the product of the January and February mailings the `Amended Agreement.' The Amended Agreement provided that it was made in Virginia and was `subject to and governed by Virginia law and applicable federal law and regulations.' The Amended Agreement further recited that `[t]he parties agree that by engaging in activities with or involving each other, they are participating in transactions involving interstate commerce.' "Also contained in the Amended Agreement was an alternative dispute resolution section which in relevant part reads:

`Mediation and Arbitration—Any controversy or claim ("Claim") between or among you and us or our agents, employees and affiliates, including but not limited to those arising out of or relating to this Agreement or any related agreements, including without limitation any Claim based on or arising from an alleged tort, shall, at the request and expense of the claiming party, be submitted to mediation, using the rules of the American Arbitration Association ("AAA").'

`If mediation fails to resolve the Claim within 30 days from the date of engagement, then the Claim shall be determined by binding arbitration. (Mediation or Arbitration, as appropriate, are sometimes referred to below as the `Proceeding'.) Arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S.Code), notwithstanding any choice of law provision in this Agreement, and under the rules of the AAA. Either you or we may, by summary proceedings (e.g., a plea in abatement or motion to stay further proceedings), bring an action in any court having jurisdiction for the sole purpose of compelling compliance with these mediation and arbitration provisions.'

"On or about September 30, 1998, First U.S.A.² purchased the credit card portfolio of Chevy Chase.

"Plaintiffs instituted the ... action [in Wells I] in January 1999. They allege that the defendants breached the Cardholder Agreement by charging interest in excess of twenty-four percent, by increasing the interest on past balances, by failing to provide legally required notice of the amendments, by changing the method of calculating the finance charge without proper notice, and by increasing the late fees and over-limit fees without proper notice. Plaintiffs also allege violation of the Maryland Consumer Protection Act, Maryland Code (2000 Repl.Vol.), §§ 13-101(d) and 13-303(3) of the Commercial Law Article (CL)."

Wells I, 363 Md. at 235-37, 768 A.2d at 621-22 (footnote omitted). This history applies as well to the case sub judice.

The Court identified the principal theory of the appellants' case as being that the Cardholder Agreement had not been effectively amended and elucidated the supporting rationale underlying it:

"Plaintiffs principally rely on CL § 12-912 that addresses amendment of the agreement governing a revolving credit plan. In broad strokes, that section requires, `at least 25 days before the effective date of the amendment,' a clear and conspicuous written notice, `if the amendment has the effect of increasing the interest, finance charges, or other fees and charges to be paid by the borrower... or altering the manner of their computation.' § 12-912(b)(1). The notice must include `[a] clear statement comparing the original terms and the terms under the amended agreement.' § 12-912(b)(1)(i). The initial notice is also to include `a statement that a second notice will be sent in the borrower's next periodic statement.' § 12-912(c)(7). Both notices are to be in ten point type. Id. The notice is to advise of the cardholder's optional right to refuse the amendment and to describe the manner of refusing. § 12-912(c)(7)(ii). Where, as here, the plan charges an annual fee, rejection of the amendment entitles the cardholder to `use the account pursuant to its original, unamended terms, for ... the duration of the time for which a fee was paid for use of the plan.' § 12-912(c)(5)(i)1.

"In addition, § 12-912(e) provides:

`If the terms of the agreement governing the plan, as originally drawn or amended[,] provide, any amendment may, on or after the date on which it becomes effective as to a particular borrower, apply to all then outstanding unpaid indebtedness in the borrower's account under the plan, including any indebtedness which shall have arisen out of purchases made or loans obtained prior to the effective date of the amendment.'"

Wells I, 363 Md. at 237-38, 768 A.2d at 622-23.

We noted, that in addition to moving to compel arbitration, the appellees also argued in the trial court that § 12-912, on which the appellants principally relied, was preempted by 12 C.F.R. § 560.2(a), a regulation of the Office of Thrift Supervision (OTS) that undertakes to "occupy[] the entire field of lending regulation for federal savings associations." Id. As indicated, the motion to compel arbitration prevailed in the trial court, prompting the appellants' appeal.

In response, the appellees moved to dismiss the appeal, arguing that the Maryland law permitting an appeal from an order compelling arbitration was, itself, preempted by 9 U.S.C. § 16(b)(2) of the Federal Arbitration Act. This...