The decision by the United States Supreme Court in Beneficial National Bank v. Anderson, 123 S. Ct. 2058 (2003), holding that the National Bank Act completely preempted state usury law claims against nationally chartered, federally insured banks, has significant impact on the doctrine of complete preemption, not only within the realm of usury claims, but within the umbrella of other federal laws as well. The net effect of the decision has already allowed (and will continue to allow) the removal of suits based on claims arising under other areas of federal law. Simply put, Beneficial clarified the analysis a court should use in determining whether a certain area of law has been preempted by Congress. In order to fully explain this change, it is necessary to briefly discuss the doctrine of complete preemption.
In general, for a court to have federal question jurisdiction over an action under 28 U.S.C. § 1331, at least one of the claims in the complaint must specifically plead for relief under federal law. This is often referred to as the “well-pleaded complaint rule,” which provides that even where the defendant may assert a defense arising under federal law, unless the complaint alleges claims based on federal law, the action does not arise “under the Constitution, treaties or laws of the United States.” See 28 U.S.C. § 1441(b).
However, a rare exception to this rule is the doctrine of complete preemption. Complete preemption provides that in certain cases, where the plaintiff has plead claims based solely on state law, the action is removable because Congress completely preempted that area of law. In short, the state law that the plaintiff is bringing claims has been entirely displaced by federal law, so that, in essence, the plaintiff’s claims are federal in nature. Complete preemption only occurs in rare circumstances, and prior to Beneficial, the Supreme Court had only recognized complete preemption in three areas: claims under the Employee Retirement and Income Security Act, the Railway Labor Act, and the Labor Management Relations Act. See Hawaiian Airlines, Inc., v. Norris, 512 U.S. 246 (1994), Metropolitan Life Inc. v. Taylor, 481 U.S. 58 (1987), Avco v. Aero Lodge No. 735, 390 U.S. 557 (1968).
For an area of federal law to completely preempt state law, Congress must have intended that federal law to do so. As often occurs, it is difficult to determine congressional intent. Prior to Beneficial, some courts held that the creation of an exclusive federal remedy was sufficient to infer congressional intent to completely preempt. However, other courts held that a more express statement by Congress was required to find congressional intent to completely preempt an area of law.
Beneficial resolved the dispute. Prior to Beneficial, the Eighth Circuit held that §§ 85 and 86 of the NBA completely preempted state usury law claims against nationally chartered, federally insured banks, by virtue of providing an exclusive remedy for usury claims. Krispin v. The May Department Stores Co., 218 F.3d 919, 922 (8th Cir. 2000); M. Nahas & Co., v. First Nat. Bank of Hot Springs, 930 F.3d 608, 611 (8th Cir 1991). However, the Third Circuit disagreed with the reasoning of the Eighth Circuit, and stated that more than an exclusive federal remedy was required to establish congressional intent to completely preempt such claims. Spellman v. Meridian Bank, 1995 WL 764548, *5 (3rd Cir. Jan 12. 1996).
In Anderson v. H&R Block, Inc., 287 F.3d 1038 (11th Cir. 2002), the Eleventh Circuit considered, and expressly rejected, the Eighth Circuit’s approach regarding the issue of complete preemption of usury claims by §§ 85 and 86 of the NBA. The Eleventh Circuit recognized that without any further evidence of congressional intent, the mere presence of an exclusive remedy was insufficient to create complete preemption. Anderson v. H&R Block, 287 F.3d at 1044-46. The Eleventh Circuit’s opinion was appealed to the Supreme Court and became Beneficial.
In Beneficial, the Supreme Court reversed the Eleventh Circuit, holding that because §§ 85 and 86 provided an exclusive federal remedy for state law claims against nationally chartered banks there was “no such thing as a state-law claim of usury against a national bank.” 123 S. Ct. at 2064. The Court did not require that Congress provide an express statement indicating its intent to completely preempt an area of law, instead finding that by wholly displacing an area of law, Congress intended to create complete preemption.
Beneficial has two distinct but related areas of application. First, Beneficial paved the way for courts to find complete federal preemption in other areas. For instance, two circuits have found complete preemption based on the analysis in Beneficial. Briarpatch Limited, L.P., v. Phoenix Pictures, Inc., 2004 WL 1418115 (2nd Cir. June 25, 2004) (Copyright Act); Hoskins v. Bekins Van Lines, 343 F.3d 769 (5th Cir. 2003) (Carmack Amendment).
Second, Beneficial has applications in banking law. Perhaps the most immediate application of Beneficial, is to § 521 of the Depository Institution Deregulation Act (“DIDA”), 12 U.S.C. § 1831d, which provides an exclusive federal remedy for allegations of usury against state chartered banks, in the same manner that the §§ 85 and 86 of the NBA applies tonationally chartered banks. In fact, the statutory language of the two acts is virtually identical, and other courts have recognized that Congress intended to give the same protection to state chartered banks by enacting the DIDA. See, e.g., Gavey Properties/762 v. First Fin. Sav. & Loan Ass’n, 845 F.2d 519 521 (1988). Actually, the purpose of the DIDA was to level the playing field between national and state banks. Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 826-27 (1992). Thus, many other courts have interpreted the DIDA and the NBA in the same manner. See, e.g., Spellman, 1995 WL 764548 at *4 (3rd Cir. 1996). Therefore, the argument is that since §§ 85 and 86 provide an exclusive federal remedy against national banks, § 1831d should also provide an exclusive federal remedy against state chartered banks. However, since Beneficial, no court has taken up and ruled on this precise issue.
On a related note, in many cases, the question is not whether a claim for usury is preempted, but whether the claims in the complaint actually make a claim for usury. The issue ultimately may come down to how the court views claims for charging “excessive” or “exorbitant” interest, and several courts since Beneficial have viewed claims for usury very narrowly. In other words, it may not be sufficient to find a claim for usury if the complaint merely makes claims based on “excessive” or “exorbitant” interest rates. See, e.g., Delaney v. Bank of America Corp., 2004 WL 1553518 (N.D. Miss. June 16, 2004); Cross-Country Bank v. Klussman, 2004 Wl 966289 (N.D. Cal. April 30, 2004); Wilson v. Bank of America Corp., 2004 WL 443881 (S.D. Miss. Feb. 20, 2004). But see Budnik v. Bank of America Corp., 2003 WL 22964372 (N.D. Ill. Dec. 16, 2003) and Phipps v. Guaranty National Bank of Tallahassee, 2003 WL 22149646 (W.D. Mo. Sept 13, 2003).
Also, it is worth noting that courts have not interpreted Beneficial as an expansion of the scope of federal preemption of claims against nationally chartered banks beyond usury claims under the National Bank Act, and thus, have applied Beneficial narrowly. See, e.g., Dunlap v. G & L Holdings Co., 2004 WL 1908424 (11th Cir. Aug. 27, 2004) (no preemption of claims based on employment agreements under the NBA); Hancock v. Bank of America, 272 F. Supp.2d 608 (W.D. Ky. 2003) (no preemption of claims related to “faxing fees” by mortgage loan services); Jacobs v. ABN AMRO Bank N.V., 2004 Wl 809557 (E.D.N.Y. April 21, 2004) (same).
On a final note, there is a lingering question regarding how Beneficial would apply to claims of usury against subsidiaries of national banks. One court extended the application of Beneficial to a claims of charging excessive interest against a subsidiary of Wells Fargo, a nationally chartered bank. Taylor v. Wells Fargo Home Mortgage Inc., 2004 WL 856673 (E.D.La. April 20, 2004). However, another court has found that the National Bank Act does not apply to subsidiaries of national banks. Wachovia Bank v. Burke, 2004 Wl 1171368 (D. Conn. May 25, 2004).