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

469 B.R. 250

James Joseph MELUZIO, Appellant,

v.CAPITAL ONE BANK (USA), N.A., Appellee.

Mary Katherine Romeo, and Thomas Joseph Romeo, Appellants,

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

Tina Kay Jones, and Jason Michael Jones, Appellants,

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

Civil Action Nos. 1:11CV58, 1:11CV59, 2:11CV33.

Bankruptcy Nos. 1:10BK2083, 1:10BK1814, 2:10BK1935.

Adversary Nos. 1:10AP165, 1:10AP124, 2:10AP125.

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

March 12, 2012.

Todd B. Johnson, Johnson Law Office, Morgantown, WV, for Appellants.

Bruce M. Jacobs, James S. Crockett, Jr., Spilman Thomas & Battle PLLC, Charleston, WV, for Appellee.

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT

IRENE M. KEELEY, District Judge.

These consolidated appeals stem from three adversary proceedings filed in the United States Bankruptcy Court for the Northern District of West Virginia by the appellants, James Joseph Meluzio (“Meluzio”), Mary Katherine and Thomas Joseph Romeo (“the Romeos”), and Tina Kay and Jason Michael Jones (“the Joneses”) (also collectively “the debtors”) against Capital One Bank (“Capital One”). After United States Bankruptcy Judge Patrick M. Flatley dismissed the proceedings as preempted under the National Bank Act (“NBA”), these appeals followed. For the reasons discussed below, the Court REVERSES the decision of the Bankruptcy Court and REMANDS these cases for further proceedings.

I.

Meluzio, the Joneses, and the Romeos owed unsecured debts to Capital One. In June, 2010, each began receiving calls from Capital One attempting to collect on these debts. In response, the debtors informed Capital One that they had retained counsel and planned to file for bankruptcy. Despite this, Capital One continued to call them, as a result of which the bankruptcy attorney for the Joneses called and also faxed a letter to Capital One verifying his representation and demanding that it stop contacting his clients. Counsel for Meluzio and the Romeos did the same. Capital One, however, continued to make collection calls to the debtors.

On September 8, 2010, the Joneses and Romeos filed for Chapter 7 protection in the United States Bankruptcy Court for the Northern District of West Virginia (“Bankruptcy Court”), and on December 23, 2010, Meluzio filed as well. As part of the filings in their cases, the debtors commenced adversary proceedings against Capital One (dkt. no. 1–4), claiming it had violated § 46A–2–128 (e) of the West Virginia Consumer Credit and Protection Act (“WVCCPA”) by continuing its collection calls after being informed they had retained counsel. Capital One responded by moving to dismiss these state law claims as preempted by the NBA (dkt. no. 1–5).

On March 7, 2011, the Bankruptcy Court granted Capital One's motions to dismiss, concluding that, although the NBA did not expressly preempt § 46A–2–128(e), the appellants' claims were preempted under the doctrine of conflict preemption (dkt. no. 1–11). Pursuant to Fed. R. Bankr.P. 8001 and 28 U.S.C. § 158(a)(1), Meluzio, the Joneses, and the Romeos appealed that decision to this Court on April 21, 2011 (dkt. no. 1).

II.

A.

The Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a). It reviews the Bankruptcy Court's application of the law de novo, but may not set aside its findings of fact unless they are clearly erroneous. In re Biondo, 180 F.3d 126, 130 (4th Cir.1999). “A finding is ‘clearly erroneous' when[,] although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quotations omitted). “This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently.” Id.

B.

In concluding that the NBA preempted the appellants' claims, the Bankruptcy Court relied heavily on two decisions in this District in which Chief Judge Bailey held that, because § 46A–2–128(e) of the WVCCPA more than incidentally affected lending, it was preempted by the NBA. See Lomax v. Bank of America, N.A., 435 B.R. 362, 369–70 (N.D.W.Va. Aug. 18, 2010); Frye v. Bank of America, N.A., No. 3:10CV47, 2010 WL 3244879, at *7 (N.D.W. Va. Aug. 16, 2010). After the Bankruptcy Court's decision, however, the legal analysis governing preemption by the NBA changed radically following enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd–Frank Act”), and publication of accompanying amended regulations by the Office of the Comptroller of the Currency (“OCC”).

As a result of this reset of the law governing, among others, consumer financial transactions, Chief Judge Bailey abandoned his reasoning in Lomax and Frye in O'Neal v. Capital One Auto Finance, Inc., No. 3:10–0040, 2011 WL 4549148, at *7 (N.D.W.Va. Sept. 29, 2011), where he held that the NBA does not preempt subsection 128(e). Recent decisions from other district courts in West Virginia have also reached the same conclusion. See Cline v. Bank of Am., N.A., 823 F.Supp.2d 387, 398 (S.D.W.Va.2011); and Smith v. BAC Home Loans Servicing, LP, 769 F.Supp.2d 1033, 1043–44 (S.D.W.Va.2011).

III.

The doctrine of preemption is rooted in the Constitution's Supremacy Clause. SeeU.S. Const. art. VI, cl. 2. “[T]he purpose of Congress is the ultimate touchstone in every preemption case,” and there is a “basic assumption that Congress did not intend to displace state law.” Wyeth v. Levine, 555 U.S. 555, 129 S.Ct. 1187, 1194, 173 L.Ed.2d 51 (2009); Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981); S. Blasting Servs., Inc. v. Wilkes Cnty., 288 F.3d 584, 589 (4th Cir.2002). The States' police powers are not to be superceded by federal law “unless that was the clear and manifest purpose of Congress.” Wyeth, 129 S.Ct. at 1194–95 (2009); S. Blasting, 288 F.3d at 590.

A federal law may preempt state or local law, however, in any of three ways:

First, Congress may expressly preempt such laws. Second, in the absence of express preemptive language, Congress' intent to preempt state law may be implied when “federal law so thoroughly occupies a legislative field as to make reasonable the inference that Congress left no room for the States to supplement it.” Finally, preemption will also be implied if state or local law “actually conflicts with federal law.” Such a conflict occurs “when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”

Id. at 590 (citations omitted). In addition to federal statutes, properly enacted and promulgated regulations may also preempt conflicting state or local actions. Anderson v. Sara Lee Corp., 508 F.3d 181, 191 (4th Cir.2007).

A.

Although the NBA contains no express preemption provision, it provides national banks with several broad powers and grants the OCC power to regulate those banks. Pursuant to that regulatory framework, national banks “are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or general purposes of the NBA.” Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10, 127 S.Ct. 1559, 167 L.Ed.2d 389 (2007). Therefore, the States may “regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank's or national bank regulator's exercise of its powers.” Id. Congress codified these concepts as part of its sweeping reform of federal financial regulatory oversight in the Dodd–Frank Act.

Among these reforms was an entirely new provision addressing NBA preemption, 12 U.S.C. § 25b (effective July 21, 2011), which, in pertinent part, provides:

State consumer financial laws are preempted, only if—

(A) application of a State consumer financial law would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that State;

(B) in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996), the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers; and any preemption determination under this subparagraph may be made clear by a court, or by regulation or order of the Comptroller of the Currency on a case-by-case basis, in accordance with the applicable law; or

(C) the State consumer financial law is preempted by a provision of Federal law other than title 62 of the Revised Statutes.12 U.S.C. § 25b(b)(1). Section 25b defines “State consumer financial law” as a “State law that does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction (as may be authorized for national banks to engage in), or any account related thereto, with respect to a consumer.” Id. § 25b(a)(2).

The OCC has also revised its preemption provision to reflect the Dodd–Frank Act reforms. See12 C.F.R. § 7.4008. As amended, § 7.4008(e) now provides:

State laws on the following subjects are not inconsistent with the non-real estate lending powers of national banks and apply to national banks to the extent consistent with the decision of the Supreme Court in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996):

(1) Contracts;

(2) Torts;

(3) Criminal law ...;

(4) Rights to collect debts;

(5) Acquisition and transfer of...