Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—5th Cir.: No federal jurisdiction for Mississippi’s suit over credit card payment protection sales practices, (Dec 4, 2013)

By Richard A. Roth, J.D.

Neither the Class Action Fairness Act nor the National Bank Act provided a basis for federal court jurisdiction over the State of Mississippi’s suit claiming that credit card companies’ practices in selling payment protection plans violated the Mississippi Consumer Protection Act, the U.S. Court of Appeals for the Fifth Circuit has decided. The court reversed a district court decision refusing to remand the suit to the Mississippi state courts and directed the trial court to remand the case unless the state’s claims presented a substantial federal question (Hood v. JP Morgan Chase & Co., Dec. 2, 2013, per curiam).

The Mississippi Attorney General sued six credit card lenders and their affiliates, alleging that they charged Mississippi consumers for payment protection services they did not apply for or even know about. The state’s complaint was careful to limit its claims to violations of the state law, the court noted, disclaiming any federal law theories or any usury claim. The state also said explicitly that it was bringing a parens patriae suit in its sovereign capacity, not a class action.

Nevertheless, the credit card companies removed the suit to federal court, asserting two theories for federal jurisdiction:

• the suit was a “mass action” under the Class Action Fairness Act (CAFA);

• the fees charged for the plans constituted interest, and the National Bank Act (NBA) provisions on the interest banks could charge preempted the Mississippi Consumer Protection Act.

The federal district court agreed with the companies on both theories and denied the state’s motion to remand the suit to state court.

Class Action Fairness Act. CAFA says that federal courts have jurisdiction over mass actions, which are suits in which monetary relief claims of at least 100 persons would be tried jointly based on a common question of law or fact. Jurisdiction also requires that a $75,000 amount in controversy threshold be met and that the total amount in controversy be at least $5 million (28 U.S.C. §1332(d)). Since the credit card companies were asserting federal court jurisdiction, they had the burden of producing facts supporting jurisdiction, the appellate court said.

The appellate court rejected the district court’s decision that the credit card companies had shown the $75,000 jurisdictional threshold had been satisfied. The federal statute said that “plaintiffs” had to satisfy the minimum amount, which meant that at least one individual plaintiff had to be seeking at least $75,000, the court said. There was no reason to conclude that was so.

If Mississippi consumers were considered to be the plaintiffs, it was clear that none reached the minimum amount, the court said. The state said the average annual fees the consumers paid were between $68.40 and $162.00 and, at that rate, it would take any one of them “hundreds of years to reach the individual amount in controversy requirement.” The court also observed that while the state said it had no information on any consumer’s individual charges, the credit card companies clearly had that information and had not produced it in support of their claim that the threshold was met.

The State of Mississippi could not be considered to be the plaintiff, the court continued. The state had not claimed that it, or its employees, had paid any of the challenged charges.

It was true that the state was seeking restitution, the court observed, and the companies claimed that this showed first, that the state was the real party in interest and second, that the $75,000 amount in controversy was met. The problem with that theory, said the court, was that if the state was the real party in interest then there would be only one plaintiff. CAFA required at least 100.

NBA preemption. The appellate court also reversed the district court decision that the NBA completely preempted the Mississippi state law claims. For the state law to be completely preempted, the NBA would have to provide the exclusive cause of action for the companies’ actions. The court first noted two principles governing removal of state court suits: a plaintiff is in control of his suit and can choose to assert only claims under state law, and removal statutes are to be strictly construed.

The credit card companies claimed that the state’s suit was completely preempted by the NBA, based on the Supreme Court decision in Beneficial National Bank v. Anderson (539 U.S. 1, 2003). However, the court said, the Beneficial National opinion decided only that the NBA completely preempted claims that state usury laws had been violated. The NBA was not “a blanket ban on any state law that might impact a national bank.”

The credit card companies convinced the district court that the fees they charged for the payment protection plans constituted interest under federal law. The appellate court, however, was harder to convince.

The relevant NBA sections, 12 U.S.C. §85 and 12 U.S.C. §86, did not define interest at all, the appellate court first noted. The Office of the Comptroller of the Currency regulation (12 C.F.R. §7.4001) did provide a definition, saying generally that interest was a payment that compensated a creditor for extending credit, for making credit available, or for a borrower’s breach of a term of credit. Any other payment was not interest.

The court accepted the state’s arguments that the payment protection plan fees did not fit the regulation’s definition. The fees were compensation for an ancillary service, not for extending credit, the court said. Also, payment protection plans were more like insurance than an extension of credit.

The credit card companies’ effort to interpret the regulation more broadly was rejected. It was true that the payment protection plans did modify the original account agreements, the court conceded. However, all ancillary services could be seen as part of the loan agreement to some extent, and that did not mean that all resulting fees were interest.

Even if the fees were interest under the OCC regulation, the state had never claimed the companies had charged an illegal rate of interest, the court also pointed out. There were no allegations in the complaint that the companies had charged interest rates higher than the NBA permitted. In fact, the court observed, the complaint said nothing about the companies’ interest rates at all. The state complained about unfair or deceptive sales practices, and the NBA provided no remedy for that.

There is a difference between claiming that consumers were charged too much and claiming that they should not have been charged at all, the court said. The state claimed only the latter.

As a result, the credit card companies failed to show that the NBA provided the only remedy for Mississippi’s claims of unfair and deceptive practices, and that was the test for complete preemption.

Remaining federal jurisdiction theory. The credit card companies had argued a third theory of federal court jurisdiction before the district court—the existence of a substantial federal question. The appellate court said it was unable to determine whether the district court had decided the issue.

As a result, the district court was directed to determine whether there was a substantial federal question that provided federal court jurisdiction. If there was not, the suit was to be remanded to the state courts.

The case is No. 13-60686 and No. 13-60687.

Attorneys: Robert D. Wick (Covington & Burling, L.L.P.) for JP Morgan Chase & Co., Chase Bank USA, and HSBC Bank Nevada. William Kurt Henke (Henke-Bufkin, P.A.) for Citigroup, Inc. George Waddell Neville, Office of the Attorney General, for Jim Hood and State of Mississippi.

Companies: American Bankers Management Company, Incorporated; Bank of America Corporation; Capital One Bank USA, N.A.; Capital One Services, L.L.C.; Chase Bank USA, N.A.; Citibank, N.A.; Citigroup, Incorporated; Department Stores National Bank; DFS Services, L.L.C.; Discover Bank; Discover Financial Services, Incorporated; FIA Card Services, N.A.; HSBC Bank Nevada, N.A.; HSBC Bank USA, Incorporated; HSBC Card Services, Incorporated; JP Morgan Chase & Co.

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