Filed 6/21/12
IN THE SUPREME COURT OF CALIFORNIA
ALLAN PARKS,
Plaintiff and Appellant,
S183703
v.
Ct.App. 4/3 G040798
MBNA AMERICA BANK, N.A.,
Orange County
Defendant and Respondent.
Super. Ct. No. 04CC00598
We granted review to address whether the National Bank Act of 1864 (13 Stat. 99)
(NBA) preempts Civil Code section 1748.9, a California law requiring that certain
disclosures accompany preprinted checks that a credit card issuer provides to its
cardholders for use as credit. The NBA contains no such requirement with respect to the
issuance of so-called “convenience checks” to credit customers. Instead, it broadly grants
to national banks “all such incidental power as shall be necessary to carry on the business
of banking . . . by [among other powers] loaning money on personal security.”
(12 U.S.C. § 24, par. Seventh.) We conclude that the NBA preempts Civil Code section
1748.9 because the state law stands as an obstacle to the broad grant of power given by
the NBA to national banks to conduct the business of banking. Accordingly, we reverse
the Court of Appeal‟s judgment and remand the matter to that court for further
proceedings consistent with our opinion.
I.
As indicated in the Court of Appeal‟s opinion below, defendant MBNA America
Bank, N.A. (MBNA) “renamed itself as FIA Card Services, N.A. Nevertheless, for the
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sake of simplicity, we shall follow the parties in continuing to refer to defendant as
MBNA.”
In 2003, MBNA issued a credit card to plaintiff Allan Parks. Later that year, as
part of its service to cardholders, MBNA extended credit to plaintiff by sending him
preprinted drafts, commonly referred to as “convenience checks.” (See Rose v. Chase
Bank USA, N.A. (9th Cir. 2008) 513 F.3d 1032, 1034 (Rose).) Plaintiff used several of
these convenience checks to purchase holiday gifts and pay bills, and he incurred finance
charges in excess of those he would have incurred had he used his credit card for similar
transactions. The convenience checks that MBNA sent to Parks did not include
disclosures required by Civil Code section 1748.9. That statute says: “A credit card
issuer that extends credit to a cardholder through the use of a preprinted check or draft
shall disclose on the front of an attachment that is affixed by perforation or other means
to the preprinted check or draft, in clear and conspicuous language, all of the following
information: (1) That „use of the attached check or draft will constitute a charge against
your credit account.‟ (2) The annual percentage rate and the calculation of finance
charges, as required by Section 226.16 of Regulation Z of the Code of Federal
Regulations, associated with the use of the attached check or draft. (3) Whether the
finance charges are triggered immediately upon the use of the check or draft.”
(Civ. Code, § 1748.9, subd. (a) (paragraphing omitted) (hereafter section 1748.9).)
In 2004, plaintiff sued MBNA on behalf of himself and similarly situated MBNA
customers, alleging that the bank engaged in unfair competition in violation of Business
and Professions Code section 17200 et seq. by failing to make the disclosures mandated
by section 1748.9. Plaintiff sought both monetary and injunctive relief. MBNA took the
position that the NBA and a now-superseded federal regulation, title 12 Code of Federal
Regulations part 7.4008(d) (2004) (hereafter former regulation 7.4008(d)), preempt the
state disclosure law. (Former regulation 7.4008(d) was superseded by a 2010 amendment
to 12 C.F.R. section 7.4008 promulgated after Congress enacted the Dodd-Frank Wall
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Street Reform and Consumer Protection Act (Pub. L. No. 111-203 (July 21, 2010)
124 Stat. 1376) (hereafter Dodd-Frank Act).) After several years of litigation, MBNA
renewed a previously rejected motion for judgment on the pleadings in light of the 2008
decision by the United States Court of Appeals for the Ninth Circuit in Rose, which
involved different parties but the same factual and legal issues presented here. The Ninth
Circuit concluded that the NBA and former regulation 7.4008(d) preempt section 1748.9,
and it affirmed the district court‟s conclusion that the bank‟s failure to attach the
statutorily mandated disclosures to its convenience checks was not unlawful. (Rose,
supra, 513 F.3d at p. 1038.) Relying on Rose, the trial court granted MBNA‟s renewed
motion.
The Court of Appeal reversed. Applying Barnett Bank of Marion County, N.A.
v. Nelson (1996) 517 U.S. 25 (Barnett Bank), the Court of Appeal concluded that the
NBA does not preempt section 1748.9 because the state law does not “significantly
impair” the power of national banks. According to the Court of Appeal, section 1748.9 is
a “generally applicable disclosure law” that does not forbid banks from making loans via
convenience checks. It “merely requires „clear and conspicuous‟ disclosures of three
items of information and requires those disclosures to be attached to the convenience
checks.” The Court of Appeal acknowledged that section 1748.9 “imposes some burden”
on national banks and that finding preemption would “establish clarity in the law.” But
the court said its task was “not to divine the best policy,” and it went on to hold that
“when a state disclosure requirement does not, on its face, forbid or significantly impair
national banks from exercising a power granted to it by Congress under the NBA,
national banks claiming preemption must make a factual showing that the disclosure
requirement significantly impairs the exercise of the relevant power or powers.” The
court concluded that “[s]ection 1748.9 does not, on its face, significantly impair federally
authorized powers under the NBA” and that “given the procedural posture of this case,
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MBNA has not yet had an opportunity to submit evidence establishing a significant
impairment.”
The Court of Appeal further held that section 1748.9 was not preempted by former
regulation 7.4008(d). That regulation provided, in pertinent part, that “state laws that
obstruct, impair, or condition a national bank‟s ability to fully exercise . . . lending
powers are not applicable to national banks. [¶] . . . A national bank may make non-real
estate loans without regard to state law limitations concerning: [¶] . . . [¶] . . . 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.” (12 C.F.R. § 7.4008(d)(1), (2)(viii)
(2004).) The Court of Appeal held that “if valid, [former regulation 7.4008(d)] expressly
preempts section 1748.9,” and it further noted that the Office of the Comptroller of the
Currency (OCC) had properly promulgated the regulation through the notice and
comment procedure required for issuing a preemptive regulation under title 12 United
States Code section 43(a).
The Court of Appeal concluded, however, that “[t]he language of [former
regulation 7.4008(d)] does not suggest a reasonable attempt to describe and interpret the
reach of NBA preemption. [Citation.] Rather, the regulation exempts national banks
from all state disclosure requirements, even though . . . the NBA . . . [did not] express[]
an intention to create this bright line exemption.” Moreover, the Court of Appeal
reasoned, Congress failed to “delegate[] the power to [the] OCC to take „administrative
action whose sole purpose [is] to preempt state law rather than to implement a statutory
command.‟ (Watters [v. Wachovia Bank, N.A. (2007)] 550 U.S. [1,] 44 (dis. opn. of
Stevens, J.).)” Though “reluctant to create a split of authority [sic] with the Ninth
Circuit Court of Appeals on a point of federal law,” the Court of Appeal said it was
“require[d] . . . to do so.”
We granted MBNA‟s petition for review.
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II.
A preemption “question is basically one of congressional intent. Did Congress, in
enacting the Federal Statute, intend to exercise its constitutionally delegated authority to
set aside the laws of a State? If so, the Supremacy Clause requires courts to follow
federal, not state, law.” (Barnett Bank, supra, 517 U.S. at p. 30, citing U.S. Const, art.
VI, cl. 2; see also Viva! Internat. Voice for Animals v. Adidas Promotional Retail
Operations, Inc. (2007) 41 Cal.4th 929, 935 (Viva! International).)
This court has recognized “four species of federal preemption: express, conflict,
obstacle, and field.” (Viva! International, supra, 41 Cal.4th at p. 935.) “First, express
preemption arises when Congress „define[s] explicitly the extent to which its enactments
pre-empt state law. [Citation.] . . . .‟ [Citations.] Second, conflict preemption will be
found when simultaneous compliance with both state and federal directives is impossible.
[Citations.] Third, obstacle preemption arises when „ “under the circumstances of [a]
particular case, [the challenged state law] stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress.” ‟ [Citations.] Finally,
field preemption, i.e., „Congress‟ intent to pre-empt all state law in a particular area,‟
applies „where the scheme of federal regulation is sufficiently comprehensive to make
reasonable the inference that Congress “left no room” for supplementary state
regulation.‟ [Citation.]” (Id. at p. 936; accord, Bronco Wine Co. v. Jolly (2004)
33 Cal.4th 943, 955; see also Barnett Bank, supra, 517 U.S. at p. 31.) As explained
below, the main dispute in this case implicates the third type of preemption — that is,
whether section 1748.9 stands as an obstacle to the accomplishment and execution of the
NBA‟s purposes.
A.
“Since McCulloch v. State of Maryland [citation], it has not been open to question
that the Federal Government may constitutionally create and govern [banks] within the
states.” (Franklin Nat. Bank of Franklin Square v. New York (1954) 347 U.S. 373, 375
5
(Franklin).) In Franklin, the high court considered whether a New York statute
prohibiting banks “from using the word „saving‟ or „savings‟ in their advertising or
business” (id. at p. 374) was preempted by the Federal Reserve Act, which authorized
national banks “ „to receive time and savings deposits‟ ” (Franklin, at p. 375, quoting
12 U.S.C. § 371), or by the NBA, which grants national banks “ „all such incidental
powers as shall be necessary to carry on the business of banking‟ ” (Franklin, at p. 376,
quoting 12 U.S.C. § 24, par. Seventh). Franklin held that the state law was preempted,
explaining that “[w]e cannot believe that the incidental powers granted to national banks
should be construed so narrowly as to preclude the use of advertising in any branch of
their authorized business.” (Franklin, at p. 377.) Because Congress had authorized
national banks to “accept and pay interest on time deposits of people‟s savings, . . . they
must be deemed to have the right to advertise that fact by using the commonly
understood description which Congress has specifically selected. We find no indication
that Congress intended to make this phase of national banking subject to local
restrictions, as it has done by express language in several other instances.” (Id. at p. 378,
fn. omitted.)
In subsequent cases involving national bank legislation, the high court has found
preemption where compliance with federal and state law did not pose the kind of physical
impossibility that exists where federal law requires banks to do something that state law
prohibits. Following Franklin, the high court has repeatedly found a sufficient basis for
preemption where the federal banking statute provides “a broad, not a limited,
permission.” (Barnett Bank, supra, 517 U.S. at p. 32.) In Barnett Bank, the court
observed that the word “powers” is “a legal concept that, in the context of national bank
legislation, has a history. That history is one of interpreting grants of both enumerated
and incidental „powers‟ to national banks as grants of authority not normally limited by,
but rather ordinarily pre-empting, contrary state law.” (Ibid.) The court went on to say
that “where Congress has not expressly conditioned the grant of „power‟ upon a grant of
6
state permission, the Court has ordinarily found that no such condition applies. In
Franklin Nat. Bank, the Court made this point explicit. It held that Congress did not
intend to subject national banks‟ power to local restrictions, because the federal power-
granting statute there in question contained „no indication that Congress [so] intended . . .
as it has done by express language in several other instances.‟ 347 U.S. at 378, and n. 7.”
(Barnett Bank, supra, 517 U.S. at p. 34.)
Barnett Bank applied these principles to a Florida law providing that “banks
cannot sell insurance in Florida — except that an unaffiliated small town bank (i.e., a
bank that is not affiliated with a bank holding company) may sell insurance in a small
town.” (Barnett Bank, supra, 517 U.S. at p. 29.) The federal law at issue said that
“ „any‟ ” national bank operating in a small town “ „may . . . act as the agent for any fire,
life, or other insurance company authorized by the authorities of the State . . . to do
business [there], . . . by soliciting and selling insurance. . . .‟ ” (Id. at p. 28, citing Act of
Sept. 7, 1916, 39 Stats. 753, as amended, 12 U.S.C. § 92, alterations except final ellipsis
in original.) The court held the state law preempted, explaining that “[t]he Federal
Statute before us, as in Franklin Nat. Bank, explicitly grants a national bank an
authorization, permission, or power. And, as in Franklin Nat. Bank, it contains no
„indication‟ that Congress intended to subject that power to local restriction.” (Barnett
Bank, supra, 517 U.S. at pp. 34-35.)
In reaching this conclusion, the high court observed that a federal grant of power
to national banks does not preempt state law where there is “an explicit statement that the
exercise of that power is subject to state law” (Barnett Bank, supra, 517 U.S. at p. 34) or
where the state law “does not prevent or significantly interfere with the national bank‟s
exercise of its powers” (id. at p. 33). Although “normally Congress would not want
States to forbid, or to impair significantly, the exercise of a power that Congress
explicitly granted,” federal banking laws do not preempt state laws that do not
significantly impair a national bank‟s exercise of its congressionally authorized powers.
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(Ibid.) In 2010, the Dodd-Frank Act codified the significant impairment test articulated
in Barnett Bank. (See 12 U.S.C. § 25b (b)(1)(B) [declaring state consumer financial laws
preempted if “in accordance with the legal standard for preemption in the decision of the
Supreme Court of the United States in [Barnett Bank] the State consumer financial
law prevents or significantly interferes with the exercise by the national bank of its
powers”].)
The high court affirmed and elaborated on these principles in Watters v. Wachovia
Bank, N.A., supra, 550 U.S. 1 (Watters). There, the court considered Michigan statutes
requiring “mortgage brokers, lenders, and servicers that are subsidiaries of national banks
to register with the State‟s Office of Financial and Insurance Services . . . and submit to
state supervision.” (Id. at p. 8, citing Mich. stats.) It was undisputed that under the NBA
“Michigan‟s licensing, registration, and inspection requirements cannot be applied to
national banks” themselves. (Watters, supra, 550 U.S. at p. 15; see id. at p. 13, quoting
12 U.S.C. § 484(a) [“ „No national bank shall be subject to any visitorial powers except
as authorized by Federal law.‟ ”].) The question was whether Michigan‟s regulatory
regime survived preemption as applied to operating subsidiaries of national banks. The
court held that it did not, relying on federal statutes and regulations authorizing operating
subsidiaries to “engage only in activities national banks may engage in directly, „subject
to the same terms and conditions that govern the conduct of such activities by national
banks.‟ ” (Watters, supra, 550 U.S. at p. 16, quoting Gramm-Leach-Bliley Act, § 121
(a)(2), 113 Stats. 1378, codified at 12 U.S.C. § 24a(g)(3)(A); see also Watters, supra, 550
U.S. at pp. 15-16, 20-21 [relying on OCC regulations].) Except where federal law
provides otherwise, the court explained, “we have treated operating subsidiaries as
equivalent to national banks with respect to powers exercised under federal law” (id. at
p. 18), including the NBA‟s grant of power “to engage in real estate lending” (Watters,
supra, 550 U.S. at p. 7, citing 12 U.S.C. § 371) and “ „all such incidental powers as shall
be necessary to carry on the business of banking‟ ” (Watters, supra, 550 U.S. at p. 7,
8
quoting 12 U.S.C. § 24, par. Seventh). Because the Michigan statutes would interfere
with the business of banking conducted by operating subsidiaries just as much as it would
interfere with such business conducted by national banks themselves, the NBA
preempted the state regulatory regime whether applied to national banks or to their
operating subsidiaries. (Watters, supra, 550 U.S. at pp. 17-19.)
Summarizing the principles established in Franklin and Barnett Bank, the high
court in Watters said: “In the years since the NBA‟s enactment, we have repeatedly
made clear that federal control shields national banking from unduly burdensome and
duplicative state regulation. [Citations.] . . . [¶] We have „ “interpret[ed] grants of both
enumerated and incidental „powers‟ to national banks as grants of authority not normally
limited by, but rather ordinarily pre-empting, contrary state law.” [Citations.] States 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 powers. But when state prescriptions significantly impair the exercise of authority,
enumerated or incidental under the NBA, the State‟s regulations must give way.‟ ”
(Watters, supra, 550 U.S. at pp. 11-12.)
Moreover, in explaining why the Michigan supervisory regime could not apply to
national banks and their operating subsidiaries, the high court in Watters said that were it
otherwise, “[n]ational banks would be subject to registration, inspection, and enforcement
regimes imposed not just by Michigan, but by all States in which the banks operate.
Diverse and duplicative superintendence of national banks‟ engagement in the business
of banking, we observed over a century ago, is precisely what the NBA was designed to
prevent: „Th[e] legislation has in view the erection of a system extending throughout the
country, and independent, so far as powers conferred are concerned, of state legislation
which, if permitted to be applicable, might impose limitations and restrictions as various
and as numerous as the States.‟ [Citation.] Congress did not intend, we explained, „to
leave the field open for the States to attempt to promote the welfare and stability of
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national banks by direct legislation. . . . [C]onfusion would necessarily result from
control possessed and exercised by two independent authorities.‟ ” (Watters, supra, 550
U.S. at pp. 13-14, fn. omitted; see also id. at pp. 17-18 [“[J]ust as duplicative state
examination, supervision, and regulation would significantly burden mortgage lending
when engaged in by national banks, so too would those state controls interfere with that
same activity when engaged in by an operating subsidiary.”].)
B.
Applying the principles above, we conclude that the NBA preempts section
1748.9. As noted, the NBA broadly authorizes national banks to exercise “all such
incidental power as shall be necessary to carry on the business of banking.” (12 U.S.C.
§ 24, par. Seventh.) This broad power expressly includes “loaning money on personal
security.” (Ibid.) The disclosure requirements in section 1748.9 impose a condition on
the federally authorized power of national banks to loan money on personal security.
Those requirements say that national banks like MBNA may offer credit in the form of
convenience checks so long as the checks contain specific disclosures. But here, as in
Barnett Bank, the federal statute does not grant national banks a “limited permission, that
is, permission to [loan money on personal security] to the extent that state law also grants
permission to do so.” (Barnett Bank, supra, 517 U.S. at p. 31.) Instead, federal law
authorizes national banks to loan money on personal security with “no „indication‟ that
Congress intended to subject that power to local restriction.” (Id. at p. 35, quoting
Franklin, supra, 347 U.S. at p. 378.)
The specific disclosure obligations imposed by section 1748.9 exceed any
requirements in federal law. The requirement in section 1748.9 that disclosures appear
“on the front of an attachment that is affixed by perforation or other means to the
preprinted check or draft” has no counterpart in federal law. The same is true of section
1748.9‟s requirement that precise language (“use of the attached check or draft will
constitute a charge against your credit account”) appear on each check. (§ 1748.9, subd.
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(a)(1).) In addition, although federal regulations require certain disclosures when the
terms of using a convenience check differ from the terms of the customer‟s credit account
(12 C.F.R. § 226.9(b)(1), (2)), they do not mandate that every convenience check disclose
“[w]hether the finance charges are triggered immediately upon use of the check,” as
section 1748.9, subdivision (a)(3) requires. Furthermore, although section 1748.9,
subdivision (a)(2) mandates disclosure of interest rates and finance charges “as required
by Section 226.16 of Regulation Z of the Code of Federal Regulations,” that federal
regulation pertains to “advertising” (see 12 C.F.R. § 226.16) and arguably does not apply
to convenience check offers.
In characterizing the disclosure requirements of section 1748.9, the Court of
Appeal said that the statute “does not forbid the exercise of a banking power authorized
by the NBA. Section 1748.9 does not bar national banks from loaning money on
personal security through convenience checks.” It is true that section 1748.9, unlike the
state law in Barnett Bank that prohibited national banks from selling insurance in small
towns, does not outlaw a category of banking activity. However, to say that MBNA may
offer convenience checks so long as it complies with section 1748.9 is equivalent to
saying that MBNA may not offer convenience checks unless it complies with section
1748.9. Whether phrased as a conditional permission or as a contingent prohibition, the
effect of section 1748.9 is to forbid national banks from offering credit in the form of
convenience checks unless they comply with state law. As demonstrated by the instant
lawsuit brought under California‟s unfair competition law (Bus. & Prof. Code, § 17200 et
seq.), a national bank may be subject to monetary liability, and its convenience check
offers may be enjoined, if it does not comply.
Requiring compliance with section 1748.9 as a condition of “loaning money on
personal security” (12 U.S.C. § 24, par. Seventh) through convenience checks
“significantly impair[s] the exercise of authority” granted to national banks by the NBA
(Watters, supra, 550 U.S. at p. 12). Section 1748.9 prescribes the content of the
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disclosures by specifying what must be disclosed on each convenience check. Section
1748.9 prescribes specific language that a credit card issuer must use (“use of the
attached check or draft will constitute a charge against your credit account”). (§ 1748.9,
subd. (a)(1).) In addition, section 1748.9 prescribes the manner and format of the
disclosures: the disclosures must appear “on the front of an attachment,” the attachment
must be “affixed by perforation or other means to the preprinted check,” and the
disclosures must appear “in clear and conspicuous language.” These requirements as to
the content, language, manner, and format of disclosures seem no less prescriptive than
the New York law in Franklin that prohibited banks other than the state‟s own chartered
savings institutions from using the word “saving” or “savings” in their advertisements or
business. (See Franklin, supra, 347 U.S. at p. 374 fn. 1, citing N.Y. stat.) The New York
law did not bar national banks from receiving deposits or soliciting deposits through
advertisements. It simply required national banks operating in New York to use other
words to entice people to deposit their money for safe-keeping and to describe the
business of protecting, growing, and lending those deposits. (See Franklin, at p. 378
[“[The state] does not object to national banks taking savings deposits or even to their
advertising that fact so long as they do not use the word „savings.‟ ”].) Nevertheless, the
high court held that the state law impermissibly interfered with the federally authorized
business of national banks. (See id. at pp. 377-378.)
Moreover, even if California‟s disclosure requirements by themselves do not seem
particularly onerous, the high court in Watters made clear that our preemption analysis
must consider the burden of disclosure “regimes imposed not just by [California], but by
all States in which the banks operate.” (Watters, supra, 550 U.S. at p. 13.) If disclosure
requirements such as those in section 1748.9 were allowed to stand, national banks
operating in multiple states would face the prospect of “ „limitations and restrictions as
various and as numerous as the States.‟ [Citation.]” (Id. at p. 14.) National banks would
have to monitor requirements as to the content, language, manner, and format of
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disclosures for each of the 50 states (and possibly municipalities as well), and continually
adjust their convenience check offers to comply with the prescriptions of each local
jurisdiction. Such “[d]iverse and duplicative [regulation] of national banks‟ engagement
in the business of banking . . . is precisely what the NBA was designed to prevent.” (Id.
at pp. 13-14.) Congress intended national banks to have broad power to engage in the
“business of banking” by “loaning money on personal security” (12 U.S.C. § 24, par.
Seventh), and that power would be significantly impaired if national banks had to comply
with a diverse or duplicative patchwork of local disclosure requirements.
C.
Plaintiff contends that the phrase “subject to law” in the federal banking statute
means that Congress intended state laws like section 1748.9 to apply to national banks.
(See 12 U.S.C. § 24, par. Seventh [authorizing national banks “[t]o exercise by its board
of directors or duly authorized officers or agents, subject to law, all such incidental
powers as shall be necessary to carry on the business of banking” (italics added)].) But
plaintiff‟s reading of the phrase “subject to law” cannot be squared with the consistent
line of high court precedent broadly construing the preemptive force of the NBA absent
express language that makes a federal banking power subject to state law. (See ante, at
pp. 6-7.) Plaintiff‟s textual argument contravenes the high court‟s “history . . . of
interpreting grants of both enumerated and incidental „powers‟ to national banks as grants
of authority not normally limited by, but rather ordinarily pre-empting, contrary state
law.” (Barnett Bank, supra, 517 U.S. at p. 32.)
Plaintiff further contends that section 1748.9 is a state law of “general
application,” akin to state contract law, from which national banks are not exempt unless
federal law expressly provides. (See Watters, supra, 550 U.S. at p. 11.) But section
1748.9 is quite different from the kind of state contract law we have previously upheld
against preemption challenge. In Perdue v. Crocker National Bank (1985) 38 Cal.3d
913, 932-944 (Perdue), we examined whether federal banking laws preempted California
13
law prohibiting unreasonable charges or unconscionable contracts as applied to bank
charges on checks drawn against insufficient funds. In finding no preemption, we said
that “Congress clearly anticipated that banks would be able to charge fees for depositor
services sufficient to recover the cost of such services.” (Id. at pp. 942-943.) The state
laws at issue were consistent with Congress‟s intent, we explained, because they “permit
the bank to charge fees sufficient to recover the cost of the services and a reasonable
profit.” (Id. at p. 943.) Importantly, we observed that the state laws “are part of the
common law governing all commercial transactions; they regulate not only sale of bank
services but the sale of groceries, automobiles, furniture or medical services.” (Ibid.) We
found no indication that Congress sought to authorize banks to charge more for depositor
services than what they could charge in a “free and competitive market” with state law
doctrines against unreasonable charges or unconscionable contracts comprising part of
the background law “applicable to all . . . commercial operations.” (Ibid.) Perdue is
consistent with other banking cases that have rejected preemption arguments on the
ground that the state laws at issue were laws of general applicability. (See McClellan v.
Chipman (1896) 164 U.S. 347, 358 [“No function of such banks is destroyed or
hampered by allowing the banks to exercise the power to take real estate, provided only
they do so under the same conditions and restrictions to which all the other citizens of the
state are subjected . . . .”]; National Bank v. Commonwealth (1870) 76 U.S. (9 Wall.) 353,
362 [contracts made by national banks “are governed and construed by State laws”].)
Section 1748.9 is not a generally applicable law similar to California‟s law against
unconscionable contracts. It is a law specifically directed at “credit card issuer[s]” and at
offers of “credit to a cardholder through the use of a preprinted check or draft.” (Ibid.)
Section 1748.9 does not state a background legal principle against fraudulent, deceptive,
or unconscionable practices. It prescribes specific and affirmative conduct that credit
card issuers must undertake if they wish to lend money through convenience checks.
Unlike the state law considered in Perdue, the disclosure requirements of section 1748.9
14
cannot be understood as part of the general legal backdrop to Congress‟s enactment of
federal banking legislation.
To be sure, section 1748.9 is a generally applicable law in the sense that it applies
equally to all credit card issuers and does not discriminate against national banks. That
distinguishes section 1748.9 from the New York law at issue in Franklin, for example,
which directed its prohibition on use of the word “savings” at non-state-chartered banks.
(See Franklin, supra, 347 U.S. at p. 374 and fn. 1.) However, Franklin‟s preemption
analysis did not emphasize or even mention the discriminatory aspect of the state law; the
high court simply observed that the state law unduly limited the incidental power of
national banks to advertise. (Id. at pp. 377-378.) Similarly, although the Florida law in
Barnett Bank allowed only small town banks unaffiliated with a holding company to sell
insurance in small towns, the high court indicated that its holding would be the same even
if the state law had prohibited all banks from selling insurance in small towns. (Barnett
Bank, supra, 517 U.S. at p. 37 [“[T]he Federal Statute means to grant small town national
banks authority to sell insurance, whether or not a State grants its own state banks or
national banks similar approval.”].)
Moreover, as Fidelity Federal Savings & Loan Association v. de la Cuesta (1982)
458 U.S. 141 (de la Cuesta) shows, state laws that restrict federally authorized banking
powers may be preempted even if they are nondiscriminatory. In de la Cuesta, the high
court examined federal and state law governing the exercise of a due-on-sale clause, “a
contractual provision that permits the lender to declare the entire balance of a loan
immediately due and payable if the property securing the loan is sold or otherwise
transferred.” (Id. at p. 145.) Under California law, exercise of a due-on-sale clause
violates the state prohibition of unreasonable restraints on alienation “ „unless the lender
can demonstrate that enforcement is reasonably necessary to protect against impairment
to its security or the risk of default.‟ ” (Id. at p. 149, quoting Wellenkamp v. Bank of
America (1978) 21 Cal.3d 943, 953.) The California rule applied to all lenders, not just
15
to national banks. Yet the high court held that it was preempted by a federal regulation
authorizing a federal savings and loan association “ „at its option‟ ” to exercise a due-on-
sale clause. (Id. at p. 147, quoting federal regulation.) Although the federal regulation
did not compel savings and loan associations to use or enforce due-on-sale clauses, it was
enough that the California rule “deprived the lender of the „flexibility‟ given it by the
[federal regulation].” (Id. at p. 155.) Similarly here, section 1748.9 restricts the broad
permission that federal law gives to national banks to engage in the “business of banking”
by “loaning money on personal security.” (12 U.S.C. § 24, par. Seventh.) The
impairment of a national bank‟s exercise of its federally authorized power is not lessened
by the fact that section 1748.9 applies to all credit card issuers, not just national banks.
(See Watters, supra, 550 U.S. at p. 11 [“Federally chartered 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 the general purposes of the NBA.” (Italics added.)].)
To conclude that section 1748.9 is preempted does not mean that all state laws that
specifically regulate banking activities are preempted. For example, in Anderson
National Bank v. Luckett (1944) 321 U.S. 233, the high court held that national banking
laws did not preempt a Kentucky statute authorizing the state to take custody of
abandoned bank deposits. In addition to noting that the state law applied to “state and
national banks alike” (id. at p. 247), the court explained: “Under the statute the state
merely acquires the right to demand payment of the accounts in the place of the
depositors. Upon payment of the deposits to the state, the bank‟s obligation is
discharged. Something more than this is required to render the statute obnoxious to the
federal banking laws. For an inseparable incident of a national bank‟s privilege of
receiving deposits is its obligation to pay them to the persons entitled to demand payment
according to the law of the state where it does business. A demand for payment of an
account by one entitled to make the demand does not infringe or interfere with any
authorized function of the bank.” (Id. at pp. 248-249.) In other words, the Kentucky law
16
authorized “a change in the dominion over [abandoned] accounts . . . , to which the bank
must respond by payment of them on lawful demand. But this . . . is nothing more than
performance of a duty by the bank imposed by the federal banking laws, and not a denial
of its privileges as a federal instrumentality.” (Id. at p. 252.) Moreover, because of
procedures ensuring that “[e]scheat or forfeiture to the state” occurred “only on proof of
abandonment in fact,” the state law could not be said to “deter [depositors] from placing
their funds in national banks in that state.” (Ibid.)
The Kentucky statute in Anderson National Bank v. Luckett is an example of a
state banking law that does not significantly impair the exercise of a national bank‟s
federally authorized power. As the high court explained, the state law transferred
ownership of abandoned accounts without affecting a national bank‟s prerogative to
receive deposits or its obligation to pay upon lawful demand. The state law did not
annul, condition, restrict, hamper, or otherwise limit the powers of a national bank. The
same cannot be said of section 1748.9. Because section 1748.9 “ „ “stands as an obstacle
to the accomplishment and execution of the full purposes and objectives” ‟ ” of the NBA,
it is preempted. (Viva! International, supra, 41 Cal.4th at p. 936.)
D.
Concluding that “[s]ection 1748.9 does not, on its face, significantly impair
federally authorized powers under the NBA,” the Court of Appeal held that “national
banks claiming preemption must make a factual showing that the disclosure requirement
significantly impairs the exercise of the relevant power or powers.” After stating this
requirement of factual proof, the Court of Appeal said “[w]e need not elucidate a precise
„yardstick for measuring when a state law “significantly interferes with” . . . the exercise
of national banks‟ powers.‟ [Citation.]” We believe the Court of Appeal‟s approach is
unsupported by preemption case law and unworkable in practice.
17
In Franklin, supra, 347 U.S. 373, the court did not examine record evidence
before concluding that the state prohibition on using the word “savings” significantly
impaired the ability of national banks to advertise. And in Watters, supra, 550 U.S. 1, the
court did not undertake an evidentiary inquiry before concluding that the state registration
and supervision regime significantly impaired the real estate lending powers of national
banks and their operating subsidiaries. (See Watters, 550 U.S. at p. 35 (dis. opn. of
Stevens, J.) [“There is no evidence . . . that compliance with the Michigan statutes
imposed any special burdens on Wachovia Mortgage‟s activities . . . .”].) The Court of
Appeal cited our decision in Perdue, where we held on the pleadings that the state law
survived preemption and then said that “conceivably information not contained in the
pleadings might lead to a different conclusion.” (Perdue, supra, 38 Cal.3d at p. 943,
italics added; see id. at pp. 943-944 [“We cannot presume, without evidence, that
prohibiting a national bank from setting unreasonable prices or enforcing an
unconscionable contract will render that bank less efficient, less competitive or less able
to fulfill its function in a national banking system.”].) But Perdue‟s speculative
statement was dicta, and we know of no case decided by our court or by the United States
Supreme Court in which the issue of preemption turned on whether a national bank made
an adequate factual showing that state law significantly impaired its federally authorized
powers.
That the Court of Appeal declined to “elucidate a precise „yardstick for
measuring‟ ” significant impairment suggests the impracticality of this approach. As
amici curiae American Bankers Association and California Bankers Association explain:
“If the yardstick consists of a cost threshold for the specific state law, the law might be
preempted as applied to some banks but not others, as banks with more expansive
convenience-check activities are able to evidence higher costs. If, in contrast, the
yardstick focuses on costs in proportion to the size of the bank, the law might be
preempted as to smaller banks but not larger banks. In fact, preemption outcomes might
18
change over time for a specific bank, as it expands its operations. Preemption rulings
based on „factual evidence‟ for a particular defendant bank therefore will have little value
— even for a single bank — much less for many or all national banks.
“Additionally, the new evidentiary requirement will make it very difficult for
national banks to predict, in advance, with which state laws they must comply. Even
where one national bank has litigated the applicability of the precise state law at issue,
other national banks will not be able to rely on the outcome of that litigation because the
inquiry will vary depending on the particular operations of the bank and the factual
showing made. A national bank that believes it has been subjected to a preempted law
will be forced to initiate a lawsuit and submit its own evidence, to prove significant
impairment of its own operations. Otherwise, absent such a lawsuit, the bank would have
to monitor, analyze, and comply with state laws that may in fact be preempted . . . .”
Here, we conclude as a matter of law that the NBA preempts the disclosure requirements
in section 1748.9.
Because we find section 1748.9 preempted by the NBA, we express no view on
whether section 1748.9 is also preempted by former regulation 7.4008(d).
19
CONCLUSION
The judgment of the Court of Appeal is reversed and the matter remanded for
further proceedings.
LIU, J.
WE CONCUR: CANTIL-SAKAUYE, C. J.
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CORRIGAN, J.
GOMES, J.*
*
Associate Justice, Court of Appeal, Fifth Appellate District, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
20
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Parks v, MBNA America Bank, N.A.
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 184 Cal.App.4th 652
Rehearing Granted
__________________________________________________________________________________
Opinion No.
S183703Date Filed: June 21, 2012
__________________________________________________________________________________
Court:
SuperiorCounty: Orange
Judge: Gail Andrea Andler
__________________________________________________________________________________
Counsel:
Rosner & Mansfield, Law Office of Michael R. Vachon and Michael R. Vachon for Plaintiff and Appellant.Arbogast & Berns, David M. Arbogast; Spiro Moss and J. Mark Moore for Consumer Attorneys of California as
Amicus Curiae on behalf of Plaintiff and Appellant.
Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Manuel M. Medeiros, State Solicitor General,
Frances T. Grunder, Assistant Attorney General, Kathrin Sears and Sheldon H. Jaffe, Deputy Attorneys General, for
People of the State of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Arnold & Proctor, Nancy L. Perkins, Laurence J. Hutt, Teri R. Richardson and Christopher S. Tarbell for Defendant
and Respondent.
Morrison & Foerster, James R. McGuire, Rita F. Lin and Aaron D. Jones for American Bankers Association and
California Bankers Association as Amici Curiae on behalf of Defendant and Respondent.
Sullivan & Cromwell, Bruce E. Clark, H. Rodgin Cohen, Michael M. Wiseman and Achyut J. Phadke for The
Clearing House Association L.L.C. as Amicus Curiae on behalf of Defendant and Respondent.
Horace G. Sneed and Douglas B. Jordan for the Office of the Comptroller of the Currency Administrator of National
Banks, upon the request of the Court of Appeal.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Michael R. VachonLaw Office of Michael R. Vachon
17150 Via Del Campo, Suite 302
San Diego, CA 92127
(858) 674-4100
Sheldon H. Jaffe
Deputy Attorney General
455 Golden Gate Avenue, Suite 11000
San Francisco, CA 94102
(415) 703-5389
Laurence J. Hutt
Arnold & Proctor
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017-5844
(213) 243-4000
Petition for review after the Court of Appeal reversed the judgment in a civil action. This case presents the following issues: (1) Is Civil Code section 1748.9, which requires credit card issuers to make certain disclosures on checks issued to cardholders for cash advances from the cardholders’ credit card accounts, preempted by the National Bank Act (12 U.S.C. § 21 et seq.)? (2) Is 12 Code of Federal Regulations section 7.4008, which was promulgated under the National Bank Act by the Office of the Comptroller of the Currency and which provides that state laws that impair a nationally chartered bank’s non real-estate banking powers are not applicable to nationally chartered banks, a valid regulation?
| Date: | Citation: | Docket Number: |
| Thu, 06/21/2012 | 54 Cal. 4th 376, 278 P.3d 1193, 142 Cal. Rptr. 3d 837 | S183703 |
| Opinion Authors | |
| Opinion | Justice Goodwin Liu |
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| Jun 11, 2013 Annotated by Jonathan Mayer | Facts Many credit card issuers supply “convenience checks” as an alternative method of payment. When a business does not accept a particular card, the customer can complete his or her purchase with a convenience check instead. The transaction is then automatically passed through to the cardholder’s account. Customers may not, however, expect the fees and interest associated with using a convenience check. In 1999 the California legislature responded by requiring that a set of mandatory disclosures be printed on convenience checks, codified at Civil Code Section 1748.9. MBNA America Bank, the largest credit card issuer in the United States, failed to provide the required disclosures on its courtesy checks. This class action was brought in 2004 under California’s unfair competition law, Civil Code Section 17200, on behalf of millions of California cardholders who had used MBNA convenience checks. (The named plaintiff, Allan Parks, bought holiday gifts and made bill payments in 2003 with MBNA convenience checks.) The class sought both monetary damages and injunctive relief. MBNA argued that the state law disclosure requirements were preempted by federal law, either by constituting an obstacle to the National Bank Act (NBA), or by falling within a since-superseded regulation issued by the Office of the Comptroller of the Currency (OCC), 12 C.F.R. § 7.4008(d), that expressly preempted certain state lending disclosure requirements. Procedural History This case was filed in the Superior Court of Orange County in 2004. The trial court initially denied MBNA’s motion for judgment on the pleadings, requiring a factual showing of burden on the bank before finding federal preemption. While litigation was ongoing in the trial court, the United States Court of Appeals for the Ninth Circuit handed down Rose v. Chase Bank USA, N.A., 513 F.3d 1032 (2008). Rose involved a nearly-identical convenience check fact pattern, unfair competition claim, and class posture, except filed in the federal courts and against Chase. The three-judge panel in Rose concluded that California’s mandatory disclosure law was preempted by both the NBA and the OCC regulation. MBNA renewed its motion for judgment on the pleadings. The trial court then followed Rose and dismissed the case in June 2008. Parks promptly appealed. A three-judge panel of the Fourth District Court of Appeals, Division Three, unanimously reversed in March 2010. Parks v. MBNA America Bank, N.A., 184 Cal. App. 4th 652 (2010). The state appellate court expressed reluctance to create a split of authority with the Ninth Circuit. After conducting its own examination of controlling precedent from the Supreme Court of the United States and the Supreme Court of California, however, the court disagreed with both of the Ninth Circuit’s holdings. It found that that the NBA does not necessarily preempt California’s courtesy check law and that the OCC’s regulation exceeded the agency’s statutory authority. The court left open the possibility that MBNA could develop a factual record of conflict between federal and state law. MBNA appealed to the Supreme Court of California. In mid-2010 Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, a comprehensive reworking of federal banking law. One provision of Dodd-Frank, codified at 12 U.S.C. § 25b, amended the National Bank Act to expressly provide a standard for federal preemption of state law as applied to national banks. Oral arguments were held on May 29, 2012, and the court issued its opinion on June 21. Parks subsequently appealed to the Supreme Court of the United States, which denied his petition for a writ of certiorari. Issues First, does the National Bank Act preempt California’s courtesy check disclosure statute? Second, was the Office of the Comptroller of the Currency’s lending disclosure preemption regulation properly authorized and promulgated? Holding The court unanimously held that California’s courtesy check disclosure statute is preempted as an obstacle to the National Bank Act. The court declined to address the Office of the Comptroller of the Currency’s since-superseded lending disclosure regulation. Analysis In the narrowest reading, the court resolved a split in authority involving a common fact pattern and regarding the validity of a state statute. California’s credit card courtesy check disclosure requirements, Civil Code Section 1748.9, are now preempted in both the state and federal courts. The court’s unanimous opinion includes a detailed recounting and synthesis of Supreme Court guidance on national bank preemption. Several points of reasoning work far-reaching consequences for California’s ability to regulate national banks. First, the court acknowledges Congress’s policy, as understood by the Supreme Court in Barnett Bank and progeny, is to establish near-uniform national banking law. Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 30-37 (1996). State law may not “significantly impair” the statutory functions of a national bank. Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10-15 (2007). Mandatory disclosures are generally invalid, especially where they prescribe manner and formatting. Franklin National Bank of Franklin Square v. New York, 347 U.S. 373, 377-79 (1954). Second, generally applicable state law receives no special deference in preemption analysis. Barnett Bank, 517 U.S. at 37. A principle of ordinary state contract law, for example, may be preempted as applied to the national banks. Fidelity Federal Savings & Loan Association v. de la Cuesta, 458 U.S. 141, 152-59 (1982). Third, in considering the burden of a regulation, courts should weigh the hypothetical of other states adopting duplicative or divergent requirements. Minor burdens under California law are magnified to potential nationwide burdens for purposes of preemption analysis. Fourth, a bank need not produce evidence of actual burden to invalidate state law; the possibility of a significant burden is enough. Judgment on the pleadings will often be available to national banks claiming preemption against state law. Last, the court reads the Dodd-Frank Act to codify Supreme Court precedent on NBA preemption and not enact a relaxed standard that allows more room for state law. (Since the court does not indicate whether Dodd-Frank has retroactive effect, this component of its reasoning could be considered dicta.) Taken together, these principles of law sharply narrow California’s ability to intervene in the national banks. Tags Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”): A federal law enacted in 2010 that made sweeping changes to federal financial services law, including the National Bank Act. National Bank Act (“NBA”): A term of art for the set of federal statutes that authorize and regulate national banks. Originally enacted as the National Banking Acts of 1863 and 1864. Obstacle Preemption: See preemption. Office of the Comptroller of the Currency (“OCC”): An agency within the Department of the Treasury that is responsible for regulating national banks. Preemption: When federal law supersedes state law. There are four species of preemption: when Congress expressly preempts state law (“express”), when compliance with both federal and state law is not possible (“conflict”), when state law frustrates the purposes of federal law (“obstacle”), and when Congress so thoroughly regulates an area as to imply there is no room left for the states (“field”). Judgment on the Pleadings: When a court is able to resolve a legal dispute using initial filings, without resorting to any fact finding. Judgment on the pleadings is a crucial stage of litigation: pre-trial discovery can be burdensome, costly, and time-consuming. Split of Authority: When courts reach conflicting holdings, particularly exacerbated at the appellate level where lower courts are subsequently bound to reach further conflicting holdings. Authority splits are most commonly discussed in the context of the federal appellate circuits (a “circuit split”). The rules of both the Supreme Court of the United States and the Supreme Court of California indicate review is more likely if a case involves a split of authority. In Parks, there was a split of authority between a state appellate court and a federal appellate court. State Preemption: See preemption. Unfair Competition Law (“UCL”): A set of California statutes that prohibit unfair business practices and provide for both private and government remedies. In this case, the plaintiff class used the UCL as a cause of action for enforcing a separate provision of California law. |
