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State of Hawaii, Ex Rel. v. Jp Morgan Chase & Co

November 30, 2012

STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
JP MORGAN CHASE & CO.,
CHASE BANK USA, N.A., AND DOE DEFENDANTS 1-20,, DEFENDANTS.
STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
HSBC BANK NEVADA, N.A.,
HSBC CARD SERVICES, INC., AND DOE DEFENDANTS 1-20, DEFENDANTS.
STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
CAPITAL ONE BANK (USA), N.A.
CAPITAL ONE SERVICES, LLC, AND DOE DEFENDANTS 1-20, DEFENDANTS.
STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
DISCOVERY FINANCIAL SERVICES, INC.,
DISCOVER BANK, DFS SERVICES, L.L.C., ASSURANT, INC., AND DOE DEFENDANTS 1- 20, DEFENDANTS.
STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
BANK OF AMERICA CORPORATION,
FIA CARD SERVICES, N.A., AND DOE DEFENDANTS 1-20, DEFENDANTS.
STATE OF HAWAII, EX REL.
DAVID M. LOUIE, ATTORNEY GENERAL, PLAINTIFF,
v.
CITIGROUP INC., CITIBANK, N.A., DEPARTMENT STORES NATIONAL BANK, AND DOE DEFENDANTS 1-20, DEFENDANTS.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

ORDER DENYING PLAINTIFF'S MOTION TO REMAND AND FOR COSTS AND FEES

Plaintiff the State of Hawaii, ex rel. David M. Louie, Attorney General ("the Attorney General") seeks to remand his lawsuits against several financial entities on the basis that, in each case, there was no federal jurisdiction for the removal of his litigation from state court. This Court concludes, as set forth more fully below, that removal was proper based on the complete preemption doctrine. In particular, this Court finds that the payment protection plans and other ancillary products at issue in these lawsuits are debt cancellation contracts and/or debt suspension agreements, and that the fees assessed for these products are interest for purposes of the National Bank Act. Thus, the Court concludes that the claims the Attorney General asserted under state law are preempted, and there is federal question jurisdiction.

On June 15, 2012, the Attorney General filed a Motion to Remand and for Costs and Fees in each of the following cases: State of Hawaii, ex rel. Louie v. JP Morgan Chase & Co., et al., CV 12-00263 LEK-KSC ("CV 12-00263"); State of Hawaii, ex rel. Louie v. HSBC Bank Nevada, N.A., et al., CV 12-00266 LEK-KSC ("CV 12-00266"); State of Hawaii, ex rel. Louie v. Capital One Bank (USA) N.A., et al., CV 12-00268 LEK-KSC ("CV 12-00268"); State of Hawaii, ex rel. Louie v. Discover Financial Services, Inc., et al., CV 12-00269 LEK-KSC ("CV 12-00269"); State of Hawaii, ex rel. Louie v. Bank of America Corp., et al., CV 12-00270 LEK-KSC ("CV 12-00270"); State of Hawaii, ex rel. Louie v. CitiGroup Inc., et al., CV 12-00271 LEK-KSC ("CV 12-00271").

On October 29, 2012, CV 12-00263 Defendants JP Morgan Chase & Co. and Chase Bank USA, N.A. (collectively "Chase Defendants") filed a Memorandum in Opposition on their behalf and on behalf of: the CV 12-00266 Defendants HSBC Bank Nevada, N.A., and HSBC Card Services, Inc. (collectively "HSBC Defendants"); the CV 12-00268 Defendants Capital One Bank (USA) N.A., and Capital One Services, LLC (collectively "Capital One Defendants"); Defendants Discover Financial Services, Inc., Discover Bank, DFS Services, LLC (collectively "Discover Defendants") in CV 12-00269;*fn1 the CV 12-00270 Defendants Bank of America Corporation and FIA Card Services, N.A. (collectively "BoA Defendants"); and the CV 12-00271 Defendants CitiGroup Inc., Citibank, N.A., and Department Stores National Bank (collectively "Citi Defendants"). [Dkt. no. 75.] The Attorney General filed his Reply to the Memorandum in Opposition on November 5, 2012. [Dkt. no. 78.] On November 15, 2012, Defendants filed their Sur-reply pursuant to leave of this Court. [Dkt. no. 85.]

These matters came on for hearing on November 19, 2012.

After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, the Attorney General's motions for remand are HEREBY DENIED for the reasons set forth below.

BACKGROUND

I. Initial Filings

On April 12, 2012, the Attorney General filed his Complaint in each of these actions in the Circuit Court of the First Circuit, State of Hawai`i ("State Court"). The six Complaints are substantively identical. They allege that Defendants have engaged in deceptive and predatory practices in marketing and selling ancillary credit card products to Hawai`i residents. Examples of such products include: payment protection plans, identity theft protection plans, and extended warranties. In particular, the Attorney General contends that Defendants have targeted particularly vulnerable consumers, including the elderly and persons with credit problems.

The Complaints allege the following claims: unfair or deceptive acts or practices ("UDAPs"), in violation of Haw. Rev. Stat. §§ 480-1 et seq. ("Count I"); violation of the UDAP laws, Haw. Rev. Stat. § 480-13.5, specifically addressing consumer fraud against elders ("Count II"); and unjust enrichment ("Count III"). The Complaints seek the following relief: an order enjoining Defendants from engaging in UDAPs; a judgment for restitution and disgorgement of monies for all Hawai`i consumers injured by Defendants' acts as alleged in the Complaints; a declaratory judgment that Defendants violated Hawai`i law; civil penalties; attorneys' fees and costs; pre-judgment and post-judgment interest; and any other appropriate relief.

On May 17, 2012, the Chase Defendants removed CV 12-00263 to this district court. The Chase Defendants assert federal jurisdiction based on the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d), and jurisdiction pursuant to 28 U.S.C. § 1331 based on the complete preemption doctrine. They also assert that there is supplemental jurisdiction pursuant to 28 U.S.C. § 1367 over any claims that are not independently removable. [CV 12-00263, Notice of Removal at ¶ 13.]

On May 18, 2012, the HSBC Defendants removed CV 12-00266, the Capital One Defendants removed CV 12-00268, the Discover Defendants removed CV 12-00269, and the BoA Defendants removed CV 12-00270 based on the same grounds that the Chase Defendants relied upon. [CV 12-00266, Notice of Removal at ¶ 8; CV 12-00268, Notice of Removal at ¶ 15; CV 12-00269, Notice of Removal at ¶ 10; CV 12-0027066, Notice of Removal at ¶ 13.] Also on May 18, 2012, the Citi Defendants removed CV 12-00271 based on the CAFA argument and the complete preemption argument that the other Defendants relied upon, as well as the additional argument that there is jurisdiction under 28 U.S.C. § 1331 because the case raises a "substantial federal question". [CV 12-00271, Notice of Removal at ¶ 15 (quotation marks omitted).] The Citi Defendants argue that, even if a federal question does not appear on the face of the well-pleaded complaint, the Attorney General's state law claims necessarily raise a federal issue. [Id. at ¶ 36 (quoting Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005)).]

II. The Instant Motions

Insofar as all of the Notices of Removal address the same two primary bases of removal - the CAFA argument and the complete preemption argument - the Attorney General submitted an omnibus memorandum in support of all six motions to remand. The memorandum in support of the motion for CV 12-00271 also contains a discussion of the Citi Defendants' Grable argument. The Court will therefore discuss the Attorney General's Motion to Remand and for Costs and Fees for CV 12-00263 ("Omnibus Motion") for the CAFA argument and the complete preemption argument, and the Court will discuss the Attorney General's Motion to Remand and for Costs and Fees for CV 12-00271 ("Grable Motion") for the Grable argument. The Court refers to all of the defendants in the six actions collectively as "Defendants".

A. Omnibus Motion

At the outset, the Attorney General emphasizes that the Complaints only assert state law claims and "expressly disclaim[] both the class action form and federal question jurisdiction.[*fn3 ]"

[Mem. in Supp. of Omnibus Motion at 2 (citation omitted).]

The Attorney General argues that the principles behind the general removal standard, which favors remand, "are heightened where, as here, the actions are brought by a state. In such cases, 'considerations of comity make [courts] reluctant to snatch cases which a State has brought from the courts of that State, unless some clear rule demands it.'" [Id. at 3 (alteration in Mem. in Supp. of Omnibus Motion) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 21 n.22 (1983)).] The Attorney General points out that the Ninth Circuit has relied on Franchise Tax Board in reversing the denial of the Nevada attorney general's motion to remand a case brought against various banking defendants for violations of state consumer protection laws because no clear rule demanded removal and removal did not serve an overriding federal interest. [Id. at 3-4 (discussing Nevada v. Bank of Am. Corp., 672 F.3d 661, 676 (9th Cir. 2012)).] The Attorney General urges this Court to rely on similar grounds and to grant the Omnibus Motion. [Id. at 4.]

1. CAFA

The Attorney General argues that CAFA does not demand removal. He emphasizes that the Ninth Circuit has held that:

"'Under the plain text of 28 U.S.C. § 1332(d), the parens patriae suits are not class actions within the meaning of CAFA.'" [Id. at 5 (quoting Washington v. Chimei Innolux Corp., 659 F.3d 842, 850 (9th Cir. 2011)).] The Attorney General also emphasizes that CAFA defines "class action" as a civil action that is filed pursuant to Fed. R. Civ. P. 23, or a similar state statute or rule, by one or more representative persons. In the instant cases, the Attorney General did not file the actions pursuant to a class action rule, and he did not bring the actions in a representative capacity. [Id. at 5-6 (quoting 28 U.S.C. § 1332(d)(1)(B)).] The Attorney General notes that the Ninth Circuit's CAFA holding in Chimei, which it re-affirmed in Bank of America, is consistent with the majority of federal decisions on the issue. [Id. at 6-7 (citing cases).]

The Attorney General argues that the instant case is indistinguishable from Chimei. As in the instant case, the Washington attorney general sought restitution on behalf of Washington consumers, and the California attorney general sought restitution for California residents, who purchased the defendants' products. The Attorney General asserts that he has brought the same type of parens patriae action that the California and Washington attorneys general brought in Chimei and which the Ninth Circuit held was distinguishable from a true class action. [Id. at 7-8 (discussing Chimei, 659 F.3d at 846, 848).] Further, Bank of America reinforced Chimei and also approved of the analysis in a Seventh Circuit case holding that a parens patriae suit is not a class action because it is not brought by a representative of a class. Both Bank of America and LG Display Co. v. Madigan, 665 F.3d 768 (7th Cir. 2011), held that determining whether a parens patriae suit is a class action requires looking at the Complaint as a whole to determine whether the states or the individual consumers are the real parties in interest. Both the Ninth Circuit and the Seventh Circuit rejected a claim-by-claim analysis. [Id. at 8 (citing Bank of Am., 672 F.3d at 667, 669; Madigan, 665 F.3d 772, 774).] Thus, the Attorney General argues that, in the instant cases, Defendants cannot focus solely on the restitution claims as the basis for federal CAFA jurisdiction. [Id. at 8-9.]

Defendants have also argued that the Attorney General's choice of counsel supports Defendants' position that the instant cases are class actions. [CV 12-00263, Complaint at ¶ 20.] The Attorney General asserts that there is no legal authority supporting the position that the identity of a plaintiff's counsel can make a particular case a class action. [Mem. in Supp. of Omnibus Motion at 9-10.]

The Attorney General emphasizes that he has not brought these actions pursuant to Haw. Rev. Stat. § 480-14(b) or Haw. R. Civ. P. 23, and he denies Defendants' position that he brought the actions pursuant to Haw. Rev. Stat. §§ 480-3.1, 480-13.5, and 480-15. He emphasizes that, although § 480-14(b) allows the attorney general to bring a class-action-type case alleging UDAP claims, the statute does not require a UDAP case to brought in that form.*fn4 The Attorney General also argues that parens patriae claims for disgorgement and restitution are distinguishable from private parties' claims for damages. He contends that the Complaints in the instant case are indistinguishable from the complaints in Chimei and Bank of America. [Id. at 11-14.]

The Attorney General also argues that Haw. Rev. Stat. § 480-22(c) indicates that the legislature clearly contemplated that the attorney general could bring a UDAP action without invoking § 480-14(b). [Id. at 17-18 & n.16.] Further, even assuming, arguendo, that the Attorney General brought the instant Complaints as a "class action" pursuant to § 480-14(b), he would not be advancing the case as a representative class member, as required by CAFA, and the action would not meet all of the requirements of a CAFA class action. As the Ninth Circuit noted in Chimei, where a state procedural device has some elements of a class action (notice to affected persons, opt-out provision, court approval of settlements), but not the adequacy or typicality elements, there is no CAFA jurisdiction. [Id. at 18-20 (discussing Chimei, 659 F.3d at 850).]

The Attorney General also argues that Defendants' argument that the instant action constitutes a "mass action" pursuant to CAFA is contrary to the plain language of CAFA and controlling Ninth Circuit case law. The Attorney General argues that the Ninth Circuit held in Bank of America that a state attorney general's parens patriae action pursuant to state consumer protection laws is not a "mass action". [Id. at 20.]

2. Complete Preemption

The Attorney General emphasizes that, pursuant to the well-pleaded complaint rule, he is the master of his claim and he may avoid federal jurisdiction by relying exclusively on state law. He also emphasizes that complete preemption is the exception rather than the rule, and the doctrine is reserved only for rare and extraordinary departures from the well-pleaded complaint rule. The Attorney General argues that the Court should not apply the complete preemption doctrine to Defendants' argument that the Complaints assert claims for usury, which are preempted pursuant to Beneficial National Bank v. Anderson, 539 U.S. 1 (2003), because Defendants rely on an overly expansive interpretation of Beneficial National. The Attorney General argues that the recognition in Beneficial National that 12 U.S.C. §§ 85, 86 completely preempts usury cases against national banks is inapplicable in the instant cases, which do not allege usury claims. [Id. at 23-25.]

The Attorney General argues that charges for Defendants' ancillary products, such as payment protection plans, are not interest as defined in § 85 because the charges do not compensate the banks for making loans. Further, even if the charges constitute interest, the Complaints do not challenge the rate of interest. [Id. at 25-26.]

The Attorney General notes that this Court need not decide whether the charges for payment protection plans constitute interest because, even if they are interest, complete preemption does not apply because the Attorney General is not challenging the rate of interest, and § 86 does not provide a remedy for the violations alleged in these cases. The Attorney General notes that the district court in West Virginia ex rel. McGraw v. JPMorgan Chase & Co., 842 F. Supp. 2d 984 (S.D.W. Va. 2012), rejected arguments identical to the ones Defendants raise here. The Attorney General emphasizes that none of the Complaints in the instant cases contains an allegation that an interest rate is excessive. [Id. at 30-32.] The Attorney General asserts that a long line of cases has held that non-usury consumer protection cases are not subject to preemption under the National Bank Act. [Id. at 33-35 (citing cases).]

In addition, the Attorney General notes that Discover Bank, one of the defendants in CV 12-00269, is a state-chartered bank. Discover Bank asserts federal jurisdiction pursuant to 12 U.S.C. § 1831d(a), but the Discover Defendants have not identified a state-law maximum interest rate which the Attorney General alleges Discover Bank has exceeded. [Id. at 35-36.]

Thus, the Attorney General urges this Court to remand these cases to the State Court, and the Attorney General seeks removal related expenses, including attorneys' fees, because the Attorney General contends that Defendants lacked an objectively reasonable basis for removal. [Id. at 37.]

B. Grable Motion

According to the Attorney General, the Citi Defendants argue that Grable overruled the well-pleaded complaint rule as set forth in Louisville & Nashville Railroad Co. v. Mottley, 211 U.S. 149 (1908), and its progeny. [Mem. in Supp. of Grable Motion at 38 (citing CV 12-00271 Notice of Removal at ¶ 36).] The Attorney General argues that Grable does not mention such a drastic shift in federal question jurisprudence, and the United States Supreme Court has expressly narrowed the scope of Grable to "a 'special and small category[.]'" [Id. at 39 (alteration in Mem. in Supp. of Grable Motion) (quoting Empire HealthChoice Assur., Inc. v. McVeigh, 547 U.S. 677, 699 (2006)).] Further, the Ninth Circuit has expressly rejected this interpretation of Grable. [Id. at 39-40 (quoting Cal. Shock Trauma Air Rescue v. State Comp. Ins. Fund, 636 F.3d 538, 542 (9th Cir. 2011)).]

The Attorney General emphasizes that the CV 12-00271 Complaint does not assert any federal claims and specifically disclaims any cause of action that would support federal jurisdiction. [Id. at 40 (citing CV 12-00271, Complaint at ¶ 9).] The Citi Defendants' Notice of Removal argues that the CV 12-00271 Complaint suggests that the Citi Defendants violated a federal regulation, which the Attorney General argues the Citi Defendants will rely upon to assert a non-complete preemption defense. [Id. at 40-41 (citing CV 12-00271, Notice of Removal at ¶¶ 39-40).] The Attorney General, however, argues that, even if the Citi Defendants violated federal regulations, that does not mean that federal law creates the cause of action the Attorney General asserts. Further, the mere fact that the Citi Defendants intend to raise a non-complete preemption defense based on federal regulations does not create removal jurisdiction. The Citi Defendants' Notice of Removal relies upon Sparta Surgical Corp. v. NASD, 159 F.3d 1209 (9th Cir. 1998), but the Attorney General argues that Sparta is inapplicable because, in that case, there was exclusive federal jurisdiction pursuant to 15 U.S.C. § 78aa, not 28 U.S.C. § 1331. [Id. at 41-44.]

The Attorney General emphasizes that the Citi Defendants are the only ones to make the Grable argument, which contradicts well-established Supreme Court precedent. Thus, the Attorney General asserts that an award of removal related expenses is particularly appropriate against the Citi Defendants. [Id. at 44-45.]

III. Joint Memorandum in Opposition

In Defendants' joint Memorandum in Opposition, Defendants state that the payment protection plans at issue in these cases "are actually contractual modifications of credit card loan agreements." [Mem. in Opp. at 4-5 & n.2 (citing Fink Decl. ¶ 4; Jantzi Decl. ¶ 4; Choltus Decl. ¶ 7)*fn5 .] Defendants assert that the payment protection plans are "loan modification agreements" considered "debt cancellation contracts" or "debt suspension agreements." [Id. at 5 (citing 12 C.F.R. § 37.1(a)).] According to Defendants:

Payment protection plans extend additional credit to credit card holders by relieving or suspending their obligation to repay their credit card debt under certain circumstances. For example, if a cardholder is hospitalized, loses a job, or becomes disabled, a payment protection plan typically will cancel or suspend the cardholder's payment obligations on an interest-free basis. In exchange for these favorable credit terms, cardholders pay a monthly fee calculated as a percentage of their credit card loan balance, e.g., 0.89 percent of their monthly balance. [Id. (footnotes omitted) (citing Fink Decl. ¶¶ 5-6; Jantzi Decl. ¶¶ 4-5; Choltus Decl. ¶¶ 7-8).] Defendants emphasize that the Office of the Comptroller of the Currency's ("OCC") regulations, 12 C.F.R. Part 37, authorize national banks to offer payment protection plans, and such plans are governed by federal law and regulations, not by state law. [Id. at 5-6 (citing 12 C.F.R. § 37.1(c)).] Discover Bank is chartered in Delaware, and Del. Admin. Code § 713-3.1.1 authorizes it to offer payment protection plans under Delaware law. [Id. at 5-6 n.5.]

Defendants urge this Court to carefully scrutinize the Complaints to determine whether it should re-characterize the Complaints to reflect the fact that they actually assert removable claims. [Id. at 7.]

A. CAFA

Defendants argue that these cases were properly removed pursuant to CAFA because the Attorney General filed them under a state statute that is similar to Fed. R. Civ. P. 23 and authorizes the suit as a class action. [Id. at 8 (citing 28 U.S.C. § 1332(d)(1)(B); Washington v. Chimei Innolux Corp., 659 F.3d 842, 848 (9th Cir. 2011)).] Defendants argue that § 480-14(b) is the only provision which authorizes the Attorney General to recover monetary relief on behalf of consumers for UDAPs, and it requires the Attorney General to do so through a parens patriae class action pursuant to Haw. R. Civ. P. 23. Defendants assert that this precludes the Attorney General from obtaining such monetary relief through any other means. [Id. at 8-11.]

Defendants also argue that legislative history indicates that the Hawai`i Legislature intended § 480-14(b) to be the sole method for the Attorney General to obtain monetary relief on behalf of consumers for UDAPs. [Id. at 11-12 (citing 1987 Haw. Sess. Laws Act 274, §§ 1, 5.] According to Defendants, the use of the word "may" in § 480-14(b) merely gives the Attorney General the discretion to determine whether or not to bring a class action on behalf of consumers. If he decides to do so, he must follow § 480-14(b). Defendants contend that courts ...


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