State AG Lawsuit Not Preempted by National Banking Act

The Mississippi Attorney General filed a state court lawsuit against six credit card companies alleging violations of the Mississippi Consumer Protection Act by charging consumers for products they did not need or want and without their consent and without proper disclosure. See Hood v. JP Morgan Chase & Company, ___F.3d ____, (5th Cir. 2013) (Case No. 13-60686 dated December 2, 2013). The service at issue was a Payment Protection Plan which amended a customer’s credit card loan agreement and would suspend or cancel a customer’s obligation to repay credit card debt under certain circumstances such as death, disaster or disability. If the repayment obligation was suspended, the customer did not have to make minimum payments and was relieved of interest charges and late fees during the relevant period.

The credit card companies removed to federal district court, filed a motion to dismiss based on the class action fairness act and preemption under the National Banking Act. The credit card companies alleged that state law claims were preempted by federal usury laws or that the usury claims had to be resolved in accordance with those laws. The district court agreed with the credit card companies and an interlocutory appeal was taken to the United States Court of Appeals for the Fifth Circuit.

In reversing and remanding the case, the Fifth Circuit restated the well pleaded complaint rule and held that the Mississippi AG had the right to allege only state law causes of action, even when federal remedies may be available. A defendant, such as the credit card companies, cannot inject a federal question into a state law claim and transform the action into one arising under federal law.  While there is an exception to the well pleaded complaint rule for complete preemption which arises when Congress “so completely preempts a particular area that any complaint raising this select group of claims is federal in character,” the Mississippi AG’s claims are only preempted if federal law provides the “exclusive cause of action” for its claims. See Hood v. JP Morgan Chase & Company, ___F.3d ____, (5th Cir. 2013) (Case No. 13-60686 dated December 2, 2013).  In rejecting this argument, the Fifth Circuit pointed out that the Mississippi AG did not allege any usury issues; the removal statute required strict construction and based on comity considerations, preemption was held to be unwarranted because the credit card companies failed to identify a clear rule that demanded removal under the applicable law. Further, neither the National Banking Act or the regulations promulgated by the Office of the Comptroller of the Currency explicitly indicate that Payment Protection Plan fees are “interest.”

The result in this case should encourage more consumer protection lawsuits by State Attorney Generals.  The opinions in this blog are solely the author’s and any comments, suggestions or replies can be sent to John@jrjoneslaw.com.

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U.S. Supreme Court Sets Out Method for Enforcing Forum Selection Clauses (Texas Case)

In an unanimous decision, the United States Supreme Court set out the procedure for challenging the filing of a lawsuit in a forum that contradicts the parties’ agreed contractual forum-selection clause.  In Atlantic Marine Construction v. United States District Court for the Western District of Texas, 571 U.S. _____ (Case No. 12-929, December 3, 2013), Petitioner Atlantic Marine, a Virginia corporation, entered into a subcontract with J-Crew, a Texas corporation, for work on a construction project. The sub-contract included a forum-selection clause, which stated that all disputes would be litigated in Virginia.  J-Crew however filed suit in the Western District of Texas.  Atlantic Marine filed a motion to dismiss because the forum-selection clause rendered the venue wrong under 28 U.S.C. 1406(a) and improper under Federal Rule of Civil Procedure 12(b)(3).  Alternatively, Atlantic Marine moved to transfer venue under 28 U.S.C. 1404(a).  The District Court denied the motions and held that 28 U.S.C. 1404(a) is the exclusive mechanism for enforcing a forum-selection clause that points to another federal forum; that Atlantic Marine, as movant, had the burden of establishing that transfer was appropriate under 28 U.S.C. 1404(a); and that the court would consider both private- and public-interest factors, only one of which was the forum-selection clause.

The United States Court of Appeals for the Fifth Circuit denied Atlantic Marine’s petition for writ of mandamus directing the District Court to dismiss or transfer to the Eastern District of Virginia. The Fifth Circuit did agree that 28 U.S.C. 1404(a) was the exclusive mechanism; that dismissal under Federal Rule of Civil Procedure 12(b)(3) was the correct mechanism to enforce a forum-selection clause in a non-federal forum and found that the District Court had not abused its discretion in refusing to transfer after conducting the balance-of-interests analysis required by 28 U.S.C. 1404(a).

In reversing and remanding the case, the United States Supreme Court held that a forum-selection clause may be enforced by 28 U.S.C. 1404(a) which provides that “for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.”  The Supreme Court also held that 28 U.S.C. 1406(a) and Rule 12(b)(3) allow dismissal only when venue is wrong or improper. If a case falls into one of the 28 U.S.C. 1391(b)’s districts, venue is proper. Whether a parties’ contract has a forum-selection clause has no bearing on whether a case falls into one of the specified federal districts. The Supreme Court held that 28 U.S.C. 1404(a) governs transfers only within the federal court system, When a forum-selection clause points to a state or foreign forum, the forum-selection clause may be enforced through the doctrine of forum non conveniens.

In addition to the above, the Supreme Court held that when a defendant files a 1404(a) motion based on a forum-selection clause, a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavors a transfer. Justice Kennedy, concurring, went further and held that the presence of a valid forum-selection clause requires district courts to adjust their usual analysis under 28 U.S.C. 1404(a). Justice Kennedy opined that the plaintiff’s choice of forum merits no weight and that plaintiff, as the party defying the forum-selection clause, has the burden of establishing that transfer to the forum for which the parties bargained is unwarranted. More importantly, Justice Kennedy stated that private interest factors should not be considered only public interest factors. Because public-interest factors will rarely defeat a transfer motion, the “practical result is that forum-selection clauses should control except in unusual cases.” Finally, Justice Kennedy opined that when a party “flouts” its contractual obligation and files suit in a different forum, a 28 U.S.C. 1404(a) transfer of venue will not carry with it the original venue’s choice of law rules.

The Supreme Court opinion is a must read and points out that forum-selection clauses should be enforced absent extraordinary circumstances. The opinions of this blog are the author’s and any comments or suggestions should be sent to John@jrjoneslaw.com. 

Military Lending Act

The Military Lending Act was originally passed in 2006 and amended this year.  The Act was designed to protect active-duty service members, National Guard or reservists on active duty orders for thirty days or longer and their family members from bad loans. With deployments more frequent, more and more military families are facing cash flow and debt problems. The Act covers three specific types of loans-payday loans, vehicle title loans, and refund anticipation loans.

The payday loans that are covered are loans made at stores or via internet or telephone/fax, in the amount up to $2,000, closed end (single advance of credit over fixed term) with a term of 91 days or less, and based on a check held for future deposit or electronic access to account for future payment. The vehicle title loans that are covered under the Act have a term of 181 days or less, closed end and secured by title to a registered motor vehicle owned by a covered borrower. Tax refund anticipation loans that are covered are also closed end and tax refund goes to creditor to repay loan.

The Act contains certain protections and rights for service members and their families. These loans have a 36% annual percentage interest rate cap, which includes interest, fees, credit service charges, credit insurance premiums, and other fees for credit-related products sold in connection with the loan. The Act also requires that creditors make both oral and written disclosures concerning the interest and fees owed before a loan is issued and a creditor cannot roll-over or refinance the same loan, unless the new loan results in more favorable terms.  The Act also prohibits the waiver of consumer protection laws, mandatory arbitration, mandatory allotments, and pre-payment penalties.

The 2013 amendments to the Military Lending Act now allow both the Consumer Finance Protection Bureau and the Federal Trade Commission to share enforcement as to non-bank lenders.  The CFPB is already active and regularly enforces violations of the Servicemembers’ Civil Relief Act. The 2013 amendments also allow private actions for violations of the Act to be filed in federal court and in addition to actual damages, some commentators believe that violations can be imposed and require payment of a $500 fine when actual damages are less than that amount. The 2013 amendments clearly make enforcement easier and provides more protection to service members and their dependents.

The opinions in this blog are the author’s and any comments, suggestions or replies should be sent to john@jrjoneslaw.com.