In re Jones

449 B.R. 494

In re Tina Kay JONES, and Jason Michael Jones, Debtors.Tina Kay Jones, and Jason Michael Jones, Plaintiffs,

v.Capital One Bank (USA), N.A., Defendant.

Bankruptcy No. 10–1935.

Adversary No. 10–125.

United States Bankruptcy Court, N.D. West Virginia.

March 7, 2011.

OPINION TEXT STARTS HEREWest CodenotesLimited on Preemption GroundsWest's Ann.W.Va.Code, 46A–2–128(e) Todd Johnson, Johnson Law, PLLC, Morgantown, WV, for Debtor.

MEMORANDUM OPINION

PATRICK M. FLATLEY, Bankruptcy Judge.

Tina and Jason Jones (the “Debtors”) filed this adversary proceeding against Capital One Bank (USA), N.A., seeking recovery for alleged pre-petition violations of W. Va.Code § 46A–2–128(e), which prohibits a debt collector from having any communication with a consumer whenever it appears that the consumer is represented by an attorney.

Capital One seeks to dismiss this adversary proceeding on the basis that it is a national bank, covered by the National Bank Act, which preempts the Debtors' alleged cause of action under § 46A–2–128(e).

I. STANDARD OF REVIEW

In adjudicating a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), a court must accept as true all of the factual allegations in the complaint as well as the reasonable inferences that can be drawn from them, and a court may dismiss the complaint “only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).

II. BACKGROUND

As alleged in the Debtors' adversary complaint, before they filed bankruptcy they owed Capital One two unsecured debts. In June 2010, Capital One made a collection call to Mr. Jones, who gave notice to the representative that the Debtors had retained counsel and were filing for bankruptcy. From then until July 20, 2010, Capital One made repeated collection calls to the Debtors.

On July 20, 2010, the Debtors' bankruptcy counsel called Capital One to verify his representation of the Debtors and to request that Capital One stop contacting his clients. Counsel then faxed a letter to Capital One confirming his representation and instructing Capital One to cease all communications with the Debtors.

Subsequently, Capital One made several additional collection calls to the Debtors. The Debtors filed their Chapter 7 bankruptcy case on September 8, 2010, and filed this adversary proceeding against Capital One the same day.

III. DISCUSSION

Capital One argues that it is a national bank association, covered by the National Bank Act, and this adversary proceeding must be dismissed on the basis that W. Va.Code § 46A–2–128(e) is preempted by the National Bank Act as previously determined by the District Court for the Northern District of West Virginia in Lomax v. Bank of America, N.A., 435 B.R. 362 (N.D.W.Va.2010); Frye v. Bank of America, N.A., 3:10–cv–47, 2010 WL 3244879, 2010 U.S. Dist. LEXIS 83969 (N.D.W.Va. Aug. 16, 2010); and Padgett v. OneWest Bank, FSB, 3:10–cv–08, 2010 WL 1539839, 2010 U.S. Dist. LEXIS 38293 (N.D.W. Va. April 19, 2010).

As far back as 1819, the United States Supreme Court determined that the individual “States have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government.” McCulloch v. Maryland, 17 U.S. 316, 436, 4 Wheat. 316, 4 L.Ed. 579 (1819). One of the powers vested in the general government is the power to establish national banks. Id. at 424 (“[T]he act to incorporate the Bank of the United States is a law made in pursuance of the constitution, and is a part of the Supreme law of the land.”). Today, the business activities of national banks are controlled by the National Bank Act, 12 U.S.C. § 1 et seq., and regulations promulgated by the Office of the Comptroller of Currency. Watters v. Wachovia Bank, N.A., 550 U.S. 1, 6, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007). Under the National Bank Act, banks may exercise “all such incidental powers as shall be necessary to carry on the business of banking.” 12 U.S.C. § 24 (Seventh). One purpose of the National Bank Act is to “protect national banks against intrusive regulation by the states.” Bank of Am. v. City & County of S.F., 309 F.3d 551, 561 (9th Cir.2002).

This does not mean, however, that a national bank is not subject to state law: “national banks are subject to state laws, unless those laws infringe the national banking laws or impose an undue burden on the performance of the bank's functions.” Anderson Nat'l Bank v. Luckett, 321 U.S. 233, 248, 64 S.Ct. 599, 88 L.Ed. 692 (1944). Put another way, “[s]tates are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank's or the national bank regulator's exercise of its power.” Watters, 550 U.S. at 12, 127 S.Ct. 1559. For example, the Comptroller of the Currency has determined that state laws regarding, among other things, contracts, torts, criminal laws, and the right to collect debts are “not inconsistent with the non-real estate lending powers of national banks and apply to national banks to the extent that they only incidentally affect the exercise of national bank's non-real estate lending powers.” 12 C.F.R. § 7.4008(e).

More specifically, laws concerning the right to collect debts “typically do not regulate the manner or content of the business of banking authorized for national banks, but rather establish the infrastructure that makes practicable the conduct of that business.” 69 F.R. 1904, 1913 (Jan. 13, 2004). On the other hand, “state laws that obstruct, impair, or condition a national bank's ability to fully exercise its Federally authorized non-real estate lending powers are not applicable to national banks.” 12 C.F.R. § 7.4008(d)(1).

In this case, the Debtors' cause of action against Capital One arises under W. Va.Code § 46A–2–128(e), a debt collection statute, which states:

No debt collector shall use unfair or unconscionable means to collect or attempt to collect any claim. Without limiting the general application of the foregoing, the following conduct is deemed to violate this section:

....

(e) Any communication with a consumer whenever it appears that the consumer is represented by an attorney and the attorney's name and address are known, or could be easily ascertained, unless the attorney fails to answer correspondence, return phone calls or discuss the obligation in question or unless the attorney consents to direct communication.

§ 46A–2–128(e).

Thus, the State of West Virginia has declared it an unfair or unconscionable method of debt collection for a debt collector to communicate directly with a consumer when it appears that the consumer is represented by an attorney. It both regulates how collections efforts by a debt collector are to be made, and preserves the integrity of the attorney-client relationship. It is a law of general applicability and does not target national banks. Thus, the issue is whether § 46A–2–128(e) obstructs, impairs, or conditions a national bank's ability to fully exercise its Federally authorized non-real estate lending powers.

In making this determination as to whether a state law obstructs, impairs, or conditions a national bank's lending powers, the District Court in Lomax, 435 B.R. at 369–70, applied the same preemption analysis for real estate lenders ¹ under the National Bank Act as was used by the Office of Thrift Supervision for considering the preemptive effect of state laws to federal thrifts:

When analyzing the status of state laws under [the Regulation], the first step will be to determine whether the type of law in question is listed in [the Regulation's illustrative examples of the types of state laws preempted]. If so, the analysis will end there; the law is preempted. If the law is not covered [by one of the illustrative examples], the next question is whether the law affects lending. If it does, then ... the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown [to have, at most, only an incidental effect on lending operations.] Any doubt should be resolved in favor of preemption.Id. (citing OTS, Lending and Investment, 61 Fed.Reg. 50951, 50966–67 (Sept. 30, 1996)).

A. Illustrative Examples of Preempted State Law

Under the preemption analysis set forth in Lomax, the court must first analyze W. Va.Code § 46A–2–128(e) in relation to the illustrative examples of preempted state laws in 12 C.F.R. § 7.4008(d)(2) to determine whether W. Va.Code § 46A–2–128(e) is the type of state law that is preempted. The examples are:

(2) A national bank may make non-real estate loans without regard to state law limitations concerning:

(i) Licensing, registration (except for purposes of service of process), filings, or reports by creditors;

(ii) The ability of a creditor to require or obtain insurance for collateral or other credit enhancements or risk mitigants, in furtherance of safe and sound banking practices;

(iii) Loan-to-value ratios;

(iv) The terms of credit, including the schedule for repayment of principal and interest, amortization of loans, balance, payments due, minimum payments, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;

(v) Escrow accounts, impound accounts, and similar accounts;

(vi) Security property, including leaseholds;

(vii) Access to, and use of, credit reports;

(viii) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents;

(ix) Disbursements and repayments; and

(x) Rates of interest on...