Spggc, LLC v. Ayotte

488 F.3d 525

SPGGC, LLC; Metabank; U.S. Bank, N.A., Plaintiffs, Appellees, v. Kelly A. AYOTTE, New Hampshire Attorney General, Defendant, Appellant.

No. 06-2326.

United States Court of Appeals, First Circuit.

Heard April 6, 2007.

Decided May 30, 2007.

David A. Rienzo, with whom Richard W. Head, Senior Assistant Attorney General, New Hampshire Department of Justice, were on brief, for appellant.

Paul W. Shaw, with whom Margaret M. Pinkham and Brown Rudnick Berlack Israels LLP, was on brief, for appellee SPGGC, LLP.

Christine B. Cesare, with whom Bryan Cave LLP, Bruce Felmly, and McLane, Graf, Raulerson & Middleton, P.A., was on brief, for appellee Metabank.

James R. McGuire, with whom Morrison & Foerster LLP, was on brief, for appellee U.S. Bank, N.A.

Douglas B. Jordan, Senior Counsel, Litigation Division, Office of the Comptroller of the Currency, with whom Julie L. Williams, Chief Counsel, Daniel P. Stipano, Deputy Chief Counsel, and Horace G. Sneed, Director, Litigation Division, was on brief for the Office of the Comptroller of the Currency, as amicus curiae in support of appellee U.S. Bank, N.A.

Before TORRUELLA, Circuit Judge, TASHIMA,^* Senior Circuit Judge, and LIPEZ, Circuit Judge.

TORRUELLA, Circuit Judge.

This is a case about the power of a state to regulate activities of national banks and national thrifts if these activities are carried out by third-party agents. New Hampshire passed a statute restricting the sale of "gift certificates," including stored value giftcards issued by national banks and national thrifts, that carry expiration dates or are subject to administrative fees. New Hampshire Consumer Protection Act, N.H.Rev.Stat. Ann. § 358-A:2 ("New Hampshire CPA"). Plaintiffs SPGGC, LLC, a mall owner ("Simon"), later joined by U.S. Bank, a national bank ("USB"), and Metabank, a national thrift, filed suit against Kelly A. Ayotte, Attorney General of New Hampshire, seeking injunctive relief and a declaratory judgment that the New Hampshire CPA was preempted by the National Banking Act, 12 U.S.C. § 1 et seq., the Home Owners Loan Act, 12 U.S.C. § 1461 et seq. ("HOLA"), and the regulations promulgated thereunder.¹ The district court granted summary judgment to Simon, Metabank, and USB, concluding that the New Hampshire CPA was preempted as applied to products sold by national banks and thrifts. After careful consideration, we affirm.²

I. Background

Simon is a subsidiary of the Simon Property Group, a retail shopping mall developer and manager. Simon manages the three largest shopping malls in New Hampshire, as well as a number of other malls throughout the United States. In 2001, Simon contracted with Bank of America ("BoA") to sell Simon-branded stored value giftcards.

Stored value giftcards come in two varieties: retail giftcards and bank-issued giftcards. Retail giftcards are similar to traditional gift certificates in that they are issued by a retailer, are serviced by a retailer or its agent, and can only be used at that retailer. Bank-issued giftcards may be sold by a retailer, but they are issued by a bank, typically carry the logo of a payment network such as Visa or MasterCard, and can be used at any location that accepts debit cards of the same payment network. The giftcards issued by BoA and sold by Simon were bank-issued giftcards. These cards carried an expiration date and were subject to administrative fees that reduced the redeemable value of the card after a certain period of time or after certain events, such as the loss and replacement of the card.

Under the agreement between Simon and BoA, BoA was responsible for the design of the cards, and BoA was identified as the issuer of the giftcard. All proceeds from the sale of BoA-issued giftcards were remitted to Simon, who in turn paid BoA a "transaction fee" for each transaction involving a BoA-issued card. Simon was responsible for marketing, selling, and servicing the BoA-issued giftcards.

On November 1, 2004, Ayotte gave notice to Simon that the Attorney General intended to file an enforcement action pursuant to the New Hampshire CPA to halt the sale of the Simon-branded BoA-issued giftcards. The CPA provides in relevant part:

It shall be unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce within this state. Such unfair method of competition or unfair or deceptive act or practice shall include, but is not limited to, the following:

* * *

XIII. Selling gift certificates having a face value of $100 or less to purchasers which contain expiration dates. . . . Dormancy fees, latency fees, or any other administrative fees or service charges that have the effect of reducing the total amount for which the holder may redeem a gift certificate are prohibited. This paragraph shall not apply to season passes.

N.H.Rev.Stat. § 358-A:2. On November 12, 2004, Simon filed a declaratory judgment action and request for injunctive relief against Ayotte in the United States District Court for the District of New Hampshire, seeking a declaration that enforcement of the CPA against Simon for the sale of BoA-branded giftcards would be preempted by the National Banking Act. New Hampshire proceeded to file a civil complaint against Simon in the New Hampshire Superior Court on November 15, 2004, alleging that Simon violated the CPA by selling giftcards with an expiration date and administrative fees. Simon filed a motion to dismiss the civil complaint on the ground that its giftcards were not "gift certificates" within the definition of the CPA. The Superior Court found that the Simon-branded BoA-issued giftcards were "gift certificates" within the definition of the CPA, and denied Simon's motion to dismiss, but stayed all further proceedings pending the outcome of the federal action. On August 31, 2005, Simon moved for summary judgment in the federal declaratory judgment action.

In September 2005, Simon terminated its relationship with BoA, and entered into contracts with USB to sell Simon-branded USB-issued giftcards at Simon malls, and with Metabank to sell Simon-branded Metabank-issued giftcards over the internet. USB is a federally chartered bank ("national bank") regulated by the federal Office of the Comptroller of the Currency ("OCC"). Metabank is a federally chartered thrift ("national thrift") regulated by the federal Office of Thrift Supervision ("OTS").

Simon's contract with USB states that USB shall be considered the "issuer" of the giftcards sold under the contract, and that the giftcards are to be "national bank products within the meaning of the National Bank Act for all purposes, including the principles of federal preemption." According to the contract, USB issues the giftcards and then provides a stock of cards to Simon. Simon then markets the giftcards to consumers. Consumers who wish to purchase a gift card provide Simon with some form of payment, which Simon remits to USB. Simon then electronically "loads" the stored value onto the card and gives the card to the consumer, along with the disclosures provided by USB. Simon is paid a commission for each gift card sold. From this point forward, the purchaser of the gift card has a contractual relationship only with USB. USB is responsible for servicing the card and is liable for charges upon it. Any fees associated with the card are set and collected by USB, and if the card is reported lost or misused, USB may be liable to the consumer for fraudulent charges. Simon has no authority under the contract to alter the terms and conditions of the agreement between USB and the consumer. Metabank's agreement with Simon is substantially similar to Simon's agreement with USB.

According to Metabank and USB, some amount of administrative fees are necessary to make their giftcard business economically viable. In addition, Metabank and USB have stated that Visa, who provides payment processing services for the giftcards, requires that the cards include an expiration date. According to Metabank and USB, the expiration date provides security so that the card's identity can be verified by seeing if the card number and expiration date match in a database.

The USB giftcards themselves resemble a credit card in physical appearance. They are about 3 3/8 inches long by 2 1/4 inches wide. The card has the Visa logo along with a hologram in the front bottom right corner. Sixteen raised digits appear on the front of the card, below which is an expiration date. The top of the card identifies it as a "Simon Giftcard;" the USB logo is also prominently displayed. On the reverse of the card, there is a strip emblazoned with the Visa logo for the customer's signature and a statement that use of the gift card is governed by the terms of the "cardholder agreement," that an administrative fee of $2.50 per month will be deducted beginning thirteen months after the card is purchased, and that the card will expire on the date printed on the front of the card. The card also states: "This card is issued by and the property of U.S. Bank National Association, pursuant to a license from Visa U.S.A. Inc., and must be returned upon request."

The "U.S. Bank Simon Giftcard Cardholder Agreement" indicates that the agreement is between USB and the consumer. The agreement states the schedule of fees, the expiration date, indicates that the card "may be used when making purchases from any merchant that accepts Visa debit cards," and states that USB "may be liable for failure to complete transactions." The agreement also explicitly limits USB's liability for certain transactions and notes that USB "may revoke the Giftcard at any time without cause or notice." The Agreement is printed on a brochure that accompanies the card. The brochure states that the card is "issued by USB," and that it may be purchased at a Simon mall or at the Simon website.³

Both Metabank and USB moved to intervene in the declaratory judgment...