West Virginia v. Cashcall, Inc.

• Decision Date: 11 March 2009
• Docket Number: Civil Action No. 2:08-cv-01292.
• Citation: 605 F.Supp.2d 781
• Parties: State of WEST VIRGINIA, et al., Plaintiffs, v. CASHCALL, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of West Virginia

605 F.Supp.2d 781

State of WEST VIRGINIA, et al., Plaintiffs, v. CASHCALL, INC., et al., Defendants.

Civil Action No. 2:08-cv-01292.

United States District Court, S.D. West Virginia, Charleston Division.

March 11, 2009.

Jill L. Miles, Norman Googel, Office of Attorney General, Charleston, WV, for Plaintiffs.

Alexander Macia, Bruce M. Jacobs, Charles L. Woody, Spilman Thomas & Battle, Charleston, WV, Eric N. Whitney, J. Scott Sheehan, Leah Edmunds, Greenberg Traurig, New York, NY, for Defendants.

ORDER

JOSEPH R. GOODWIN, Chief Judge.

Pending before the court is Defendant CashCall's Motion to Dismiss [Docket 7], and the plaintiff's Motion to Remand [Docket 14]. For the reasons herein, the plaintiffs Motion is GRANTED and Defendant CashCall's Motion is DENIED as moot.

I. Background

On October 8, 2008, the State of West Virginia ("the State") filed a Complaint against the defendants, CashCall, Inc. ("CashCall"), and J. Paul Reddam, in the Circuit Court of Kanawha County, West Virginia. (Notice Removal, Ex. A [Docket 1].) In that Complaint, the State alleges, among other things, that CashCall participated in an alleged "rent-a-bank" or "renta-charter" scheme designed to avoid West Virginia usury laws. The so-called "scheme" entailed CashCall's entry into a Marketing Agreement (the "Agreement") with a bank chartered in South Dakota, the First Bank and Trust of Milbank ("the Bank"). The Agreement provided that CashCall would market loans to consumers as an agent of the Bank. The Bank would then approve and directly fund the loans. Three business days later, CashCall would, pursuant to the Agreement, purchase the loan from the Bank and become the owner of the loan. The State argues that Cash-Call's overall involvement with those loans rendered it the de facto lender of the loans and that the interest rates charged on those loans exceed the amount allowed by West Virginia usury laws.

On November 17, 2008, CashCall removed this action to federal court¹ and the State subsequently filed a Motion to Remand [Docket 14]. CashCall has also filed a Motion to Dismiss [Docket 7]. In that motion, CashCall argues that the State's First, Second, Third, Fourth and Sixth Causes of Action should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). Both the State's Motion to Remand and CashCall's Motion to Dismiss are ripe for review.

II. Motion to Remand

In its Notice of Removal, CashCall asserts that this court has federal question jurisdiction over this matter by virtue of the complete preemption doctrine. Specifically, CashCall argues that the Bank is the real party in interest with respect to the State's claims, "each and every [one of which] concerns consumer loans made in West Virginia by the Bank." (Notice Removal ¶ 13.) (emphasis in the original). Because the Bank is the real lender, Cash-Call argues, the State's usury law claim is completely preempted by § 27 of the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1831d. The State responds that its Complaint only raises state law claims against CashCall, which is not a bank. Therefore, the State argues, the claims do not raise a federal question establishing federal subject matter jurisdiction and removal of this case to federal court was improper. (State's Mem. Supp. Mot. Remand 1 [Docket 15].) I FIND that because the State only asserts state law claims against CashCall, a non-bank entity, the claims do not implicate the FDIA, the FDIA does not completely preempt the state-law claims, and there are no federal questions on the face of the Complaint. Accordingly, the State's Motion to Remand is GRANTED.

A. Complete Preemption Doctrine

A defendant may remove to federal court any case filed in state court over which federal courts have original jurisdiction. 28 U.S.C. § 1441. Federal courts have original jurisdiction over all civil actions arising under the laws of the United States. 28 U.S.C. § 1331. An action arises under the laws of the United States if a federal claim or question appears on the face of a well-pleaded complaint. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987).

The well-pleaded complaint rule limits a defendant's ability to remove a case involving federal questions because it allows removal only if "the plaintiff's complaint establishes that the case `arises under' federal law." Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S.Cal., 463 U.S. 1, 10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983) (footnote omitted; emphasis in original).² In other words, "a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action" before removal can occur. Id. at 10-11, 103 S.Ct. 2841 (quoting Gully v. First Nat'l Bank in Meridian, 299 U.S. 109, 112, 57 S.Ct. 96, 81 L.Ed. 70 (1936)). Further, an action cannot be removed to federal court based upon "a federal defense, including the defense of preemption, even if the defense is anticipated in the plaintiffs complaint, and even if both parties admit that the defense is the only question truly at issue in the case." Id. at 14, 103 S.Ct. 2841; see also Caterpillar, 482 U.S. at 393, 107 S.Ct. 2425.

The complete preemption doctrine is an "independent corollary of the well-pleaded complaint rule." Caterpillar, 482 U.S. at 393, 107 S.Ct. 2425. As explained by the United States Supreme Court, the doctrine of complete preemption applies when the preemptive force of a federal statute is so "extraordinary" that it converts a complaint solely asserting state law claims into one raising a federal question and satisfying the well-pleaded complaint rule. Id. Thus, "[o]nce an area of state law has been completely pre-empted, any claim purportedly based on that preempted state law is considered, from its inception, a federal claim, and therefore arises under federal law." Id.

B. The State's Usury Law Claim Against CashCall is Not Completely Preempted

The complete preemption question in this case involves § 27 of the FDIA.³ Section 27 allows a state-chartered bank to charge interest rates permitted in its home state on loans made outside of its home state, even if the interest rate would be illegal in the state where the loan is made.⁴ 12 U.S.C. § 1831d(a). Therefore, state usury laws establishing maximum permissible interest rates do not apply to loans made by out-of-state banks. Id. In Discover Bank et al. v. Vaden, 489 F.3d 594, 603-04 (4th Cir.2007), rev'd on other grounds, 556 U.S. ___, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), the Fourth Circuit held that § 27 of the FDIA completely preempts state usury law claims against state-chartered banks.⁵

In this case, the State asserts a usury law claim against CashCall, a nonbank entity. The State alleges that "[t]he relationship between CashCall and the Bank was a sham intended to circumvent the usury and consumer protection laws of West Virginia," and that "CashCall made `usurious loans,' in violation of [West Virginia law]." (Id., Ex. A ¶¶ 82, 84). The FDIA does not apply to non-bank entities. Vaden, 489 F.3d at 601 n. 6. Thus, on its face, the Complaint does not state any usury law claims against a state-chartered bank that would implicate the FDIA and be completely preempted.

Nevertheless, courts addressing the complete preemption question with respect to state usury law claims have found it necessary to determine whether the claims were actually directed against a federally or state-chartered bank. See In re Cmty. Bank of N. Va. et al., 418 F.3d 277, 296 (3d Cir.2005) ("[W]e must examine the ... complaint to determine if it alleged state law claims of unlawful interest by a nationally or state chartered bank"); Krispin v. May Dep't Stores Co., 218 F.3d 919, 924 (8th Cir.2000) ("[T]he question of complete preemption in this case turns on whether appellants' suit against the [non-bank] store actually amounted, at least in part, to a state usury claim against the bank.").⁶ Courts evaluating the removal of state usury law claims similar to those in this case have found that the claims were directed only against the non-bank entity, rather than the bank, and that the claims were not completely preempted. For example, in Colorado ex rel. Salazar v. Ace Cash Express, Inc., 188 F.Supp.2d 1282 (D.Colo.2002), the plaintiff alleged that the defendant was an unlicensed supervised lender charging excessive and improper fees in violation of state law. Id. at 1284. The defendant removed the action on the grounds that it operated as an agent for a national bank and therefore the claims were completely preempted by the National Bank Act ("NBA"), 12 U.S.C. § 85.⁷ Id. The district court found that removal was improper because the defendant was a separate entity from the bank and the plaintiff alleged no claims against the bank. Id. at 1285.

Similarly, in Flowers v. EZPawn Oklahoma, Inc., 307 F.Supp.2d 1191 (N.D.Okla. 2004), the plaintiff brought a class action law suit based on claims of usury and fraud. Id. at 1196. The plaintiff alleged that the defendants charged interest rates on payday loans in excess of those permitted by Oklahoma usury laws and that they had entered into a "sham" relationship with a state-chartered, federally insured bank, "for the purpose of claiming federal preemption and evading usury, fraud and protection laws." Id. at 1196. The defendants argued that they acted as "servicers for the loan made by ... a Delawarechartered, federally insured bank. And as [the] Bank [was] the lender, federal banking law and not Oklahoma law govern[ed] the legality of interest rates." Id. Following the guidance of Salazar, the district court found that the plaintiff only asserted claims against non-bank defendants, which were separate entities from the state-chartered bank, and therefore, the district court had no subject matter jurisdiction over the claims. Id.

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