Memorandum of Opinion and Order

PATRICIA GAUGHAN, District Judge

INTRODUCTION

This matter is before the Court upon Defendants' Partial Motion to Dismiss Plaintiffs' Second Amended and Consolidated Complaint (Doc. 45). This case arises out of loan documents issued by defendant Key Bank in connection with plaintiffs' student loans. For the reasons that follow, defendants' Motion is GRANTED.

FACTS

Plaintiffs, Shannon M. Abel, Bradley S. Phillips and Laura L. Murphy, bring this class action lawsuit against defendants, KeyBank USA, N.A. (hereafter "Key"), JP Morgan Chase Bank (hereafter "JP Morgan") and Bank One National Banking Association (hereafter "Bank One") asserting wrongdoing in connection with the issuance of plaintiffs' student loans.

For purposes of ruling on defendants' Motion, the facts asserted in the Second Amended and Consolidated Class Action Complaint and Demand for Jury Trial ("Amended Complaint") are presumed true.

Plaintiffs are former students of Solid Computer Decisions (hereafter "SCD"). (Compl. ¶ 6). Plaintiffs each entered into a student enrollment contract with SCD that contained certain financial terms and disclosures related to student loans. The enrollment contract is a standardized, preprinted form contract. (Compl. ¶ 12b). Thereafter, SCD, on behalf of Key, presented a promissory note issued by Key. (Compl. ¶ 12c). SCD employees received training and instructions from Key with regard to the issuance of the promissory notes. (Compl. ¶ 12c). During the transaction, SCD received credit applications and presented Key documents to students. (Compl. ¶ 12e).

Ultimately, plaintiffs' student loans were closed and Key disbursed the funds to SCD as payment for plaintiffs' tuition. (Compl. ¶¶ 16, 22, 28). Prior to plaintiffs' completion of the training program, SCD closed for business. Key, however, refused to refund or release plaintiffs from their repayment obligations.

The first amended complaint contained five claims. Count one asserted a claim for violation of the Truth in Lending Act, 15 U.S.C. § 1601, et seq. (hereafter "TILA") and Regulation Z, 12 C.F.R. Pt. 226. Count two asserted a claim for derivative liability under the Ohio Consumer Sales Practices Act. Count three claimed violation of Ohio's Retail Installment Sales Act, O.R.C. § 1317, et seq. (hereafter "RISA"). Counts four and five asserted claims for unjust enrichment and civil conspiracy, respectively. Defendants filed a motion to dismiss the complaint. In a Memorandum of Opinion and Order dated September 24, 2003, this Court dismissed counts two, four and five, as well as a portion of count one. The court denied defendants' motion to the extent count one is based on Key's alleged failure to properly disclose the annual percentage rate of the loans at issue. In addition, the Court denied defendants' motion with respect to count three, the alleged violation of Ohio's RISA. The Court, however, ordered plaintiffs to file a more definite statement as to this claim. In response, defendants filed the Amended Complaint. The Amended Complaint asserts two claims for relief. Count one is a claim for violation of TILA. Count two asserts a claim for violation of RISA.

Defendants move to dismiss count two on the grounds that the National Bank Act preempts RISA. Plaintiffs oppose defendants' motion.

STANDARD

When considering a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the allegations of the complaint must be taken as true and construed liberally in favor of the plaintiff. Lawrence v. Chancery Court of Tenn., 188 F.3d 687, 691 (6th Cir. 1999). The complaint is not to be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). See also Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir. 1989). Notice pleading requires only that the defendant be given "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley, 355 U.S. at 47. However, the complaint must set forth "more than the bare assertion of legal conclusions." Allard v. Weitzman ( In Re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993).

"In practice, a . . . complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101 (7th Cir. 1984)). Legal conclusions and unwarranted factual inferences are not accepted as true, nor are mere conclusions afforded liberal Rule 12(b)(6) review. Fingers v. Jackson-Madison County General Hospital District, 101 F.3d 702 (6th Cir. Nov. 21, 1996), unpublished. Dismissal is proper if the complaint lacks an allegation regarding a required element necessary to obtain relief. Craighead v. E.F. Hutton Co., 899 F.2d 485, 489-490 (6th Cir. 1990).

DISCUSSION

Defendants argue that the National Bank Act, 12 U.S.C. § 24 (Seventh), preempts RISA and, accordingly, that claim must be dismissed. Plaintiffs claim that RISA is a consumer protection statute that is not preempted by the National Bank Act.

1. Preemption Standards

Preemption may occur in three ways. "It is well established that within Constitutional limits Congress may preempt state authority by so stating in express terms." Pacific Gas and Elec. Co. v. State Energy Res. Conservation Dev. Comm'n, 461 U.S. 190, 203 (1983) ( citing Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). Absent express preemptive language, "courts must consider whether the federal statute's `structure and purpose,' or nonspecific statutory language, nonetheless reveal a clear, but implicit, pre-emptive intent." Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 31 (1996) ( citing Jones, 430 U.S. at 525). This type of preemption is commonly referred to as "field preemption" and occurs when regulation by the federal government in a particular area is "so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it." American Bankers Ass'n v. Lockyer, 239 F.Supp.2d 1000, 1008 (E.D. Cal. 2002) ( quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947)). The third form of preemption is "conflict preemption." Conflict preemption exists where the federal law is in "irreconcilable conflict" with state law. Barnett Bank, 517 U.S. at 31.

A conflict will be found `where compliance with both federal and state regulations is a physical impossibility . . .,' Florida Lime Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963), or where the state `law stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress.' Hines v. Davidowtiz, 312 U.S. 52 (1941).

It is well established that, in addition to actions taken by Congress, federal regulations enacted by federal agencies may preempt state law. Fidelity Federal Savings and Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982) ("Federal regulations have no less pre-emptive effect than federal statutes."). "Where Congress has directed an administrator to exercise his discretion, his judgments are subject to judicial review only to determine whether he has exceeded his statutory authority or acted arbitrarily." Id. at 153-54 (citing United States v. Shimer, 367 U.S. 374, 381-82 (1961)). In such a case, "the court's inquiry is similarly limited,"

If [h]is choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.

2. Analysis

In this case, plaintiffs assert a claim pursuant to RISA Sections 1317.032(A) and (C). Section 1317.032(A) provides,

(A) A buyer who is entitled to assert in an action in connection with a consumer transaction any of the following defenses against the seller of goods or services that are obtained pursuant to a purchase money loan installment note or retail installment contract may also assert the defense against the holder, assignee, or transferee of the [note or contract], whether or not any notice of potential claims and defenses is included in the note or contract:

(1) That the subject of the consumer transaction was not furnished or delivered by the seller in accordance with the agreed upon terms of the transaction;

* * *

(4) That the subject of the consumer transaction did not conform to any express or implied warranty made by the seller;

* * *

In addition to preserving these defenses as against holders in due course, O.R.C. § 1317.032(C) allows a consumer to assert these defenses as affirmative claims against any subsequent holder, provided certain conditions are met.

Defendants argue that the National Bank Act, 12 U.S.C. § 24 (Seventh) preempts plaintiffs' RISA claim. That statue provides, in part,

Upon duly making and filing articles of association and an organization certificate a national banking association shall . . . have the power —

Seventh. To exercise . . . all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of title 62 of the Revised Statutes.

Defendants do not argue that the National Bank Act or any federal regulation expressly preempts RISA. Nor do defendants argue that Congress has "occupied the field" with regard to national banking. Rather, it appears that defendants claim only that the RISA provisions at issue conflict with the National Bank Act. Specifically, Defendants argue that plaintiffs' RISA claim must be dismissed because it impermissibly interferes with the ability of national banks to negotiate promissory notes, lend money and collect on outstanding loans, powers specifically granted by the National Bank Act. Defendants also argue that regulations recently enacted by the Office of the Comptroller of Currency (hereafter "OCC") demonstrate the federal government's intent to preempt state laws such as RISA.

Plaintiffs argue that RISA is a consumer protection statute and that, historically, such policing powers have been left to the states. Plaintiffs further argue that RISA does not regulate the manner or conduct of national banks, nor does it alter the way national banks conduct business in Ohio. As such, plaintiffs claim that defendants fail to establish that RISA obstructs the ability of national banks to exercise their federally granted powers.

"National banks are instrumentalities of the federal government created for a public purpose, and as such necessarily subject to the paramount authority of the United States." McClellan v. Chipman Traders' Nat'l Bank, 164 U.S. 347, 356 (1896). "Whatever may be the history of federal-state relations in other fields, regulation of banking has been one of dual control since the passage of the first National Bank Act in 1863." National State Bank v. Long, 630 F.2d 981, 985 (3d Cir. 1980). Yet, "[s]tate attempts to control the conduct of national banks are void if they conflict with federal law, frustrate the purposes of the National Bank Act, or impair the efficiency of national banks to discharge their duties." Bank of America v. City and County of San Francisco, 309 F.3d 551, 561 (9th Cir. 2002) ( quoting First Nat'l Bank v. California, 262 U.S. 366, 369 (1923)). "The supremacy of the federal government in regulating national banks has long been recognized." Bank of America, 309 F.3d at 561 (citations omitted). Although Congress may confer power on the states to regulate national banks, Congress may also choose to retain that power. Association of Nat'l Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 403 (6th Cir. 2001) ( citing Independent Comm. Bankers Ass'n of South Dakota, Inc. v. Board of Governors of Federal Reserve System, 820 F.2d 428, 436 (D.C. Cir. 1987)). "This question is basically one of Congressional intent. Did Congress, in enacting the [federal law], intend to exercise its constitutionally delegated authority to set aside the laws of a state?" Barnett Bank, 517 U.S. at 30. The fact that compliance with both federal and state law is possible does not prevent federal preemption where "the state laws `infringe the national banking laws or impose an undue burden on the performance of the banks' functions.'" Id. at 404 ( citing Anderson National Bank v. Luckett, 321 U.S. 233, 248 (1944).

In Barnett Bank, the Supreme Court addressed whether a Florida statute prohibiting banks from acting as insurance agents in towns with less than 5000 people was preempted by a provision in the National Bank Act providing that banks "may" act as an agent for an insurance company. The federal statute provided, in relevant part,

In addition to the powers now vested by law in national [banks] organized under the laws of the United States any such bank located and doing business in any place [with a population] . . . [of not more than] five thousand . . . may, under such rules and regulations as may be prescribed by the Comptroller of Currency, 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. . . .

In holding that the Florida statute was preempted, the Court first noted that "the Federal Statute's language suggests a broad, not a limited, permission." Id. at 32. In addition, the statute provided that the rules and regulations governing a bank's ability to act as an insurance agent are those imposed by the Comptroller of Currency, not the state. Id. The Court also found support for its conclusion based on Congress's use of the word "powers" in the statute. The Court concluded that "[i]n using the word `powers,' the statute chooses 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." Id.

Prior to Barnett Bank, the Supreme Court addressed several other state banking regulations and found them to be preempted by federal law. For example, in Franklin National Bank of Franklin Square v. People of the State of New York, 347 U.S. 373 (1954), the Court struck down a state statute that prohibited banks, other than state charter savings banks, from using the word "savings" in their advertising or business as preempted by the National Bank Act and the Federal Reserve Act. Notably, the state did not object to national banks taking savings deposits. Id. at 378. In finding that the statute was nonetheless preempted, the Court pointed out that the National Bank Act specifically grants national banks the power to receive deposits as well as "all such incidental powers as shall be necessary to carry on" this function. Id. at 376. The Court then concluded that regardless of the benefits the state statute afforded consumers, it was in "clear conflict" with the rights afforded to national banks by Congress under both the National Bank Act and the Federal Reserve Act. Id. at 378. See also Tiffany v. National Bank of Missouri, 85 U.S. 409 (1873) (state statute limiting interest rate preempted by National Bank Act).

The Sixth Circuit has also addressed preemption of state laws affecting national banks. In Duryee, a group of national banks and associations whose members are composed of national banks brought suit against the Ohio superintendent of insurance arguing that Ohio's "principal purpose test" was preempted by the same provision of the National Bank Act at issue in Barnett Bank. Duryee, 270 F.3d 397. The "principal purpose test" precluded entities whose "principal purpose" was to sell insurance in certain restricted categories. In essence, the state restrictions prohibited national banks from selling certain types of insurance primarily to their own customers. Thus, to comply with the state law "a national bank would . . . have to limit its business with many if not most of its customers until it could generate sufficient business outside this restricted customer base. . . ." Id. at 408-09.

Defendants argued that, unlike the state statute at issue in Barnett Bank, the Ohio statute does not wholly preclude national banks from selling insurance. Because it merely places limits on national banks, the statute is not preempted. The Sixth Circuit rejected this argument holding,

The intervenors' attempt to redefine `significantly interfere' as `effectively thwart' is unpersuasive, however. In Barnett Bank, the Supreme Court held that states may regulate national banks only where doing so does not `prevent or significantly interfere with' the banks exercise of their powers. The intervenors are asking this court to interpret `significantly interfere' in such a way that would render the two prongs of the Barnett Bank standard redundant.

Thus, the Sixth Circuit held that the fact that the statute did not entirely preclude national banks from selling insurance is, by itself, an insufficient basis to deny preemption. Rather, the court went on to determine whether the Ohio statute "significantly interferes" with a banks ability to exercise its powers under 12 U.S.C. § 92. The court held, "we agree with the district court that by preventing national banks from marketing insurance to a significant segment of their customers, the principal purpose test `significantly interferes' with a national bank's ability to exercise its § 92 powers." Id. at 410.

On the other hand, in McClellan, 164 U.S. 347, the Supreme Court held that a state law prohibiting certain preferential transfers was not preempted by a federal statute allowing national banks to hold real estate conveyed to it in satisfaction of debt. Following McClellan, the Supreme Court analyzed whether a Kentucky statute allowing for a transfer of abandoned bank deposits to the State Department of Revenue was preempted by the National Bank Act. See Anderson Nat'l Bank v. Luckett, 321 U.S. 233 (1944). In finding the state statute valid, the Court noted "under the statute, the state merely acquires the right to demand payment of the accounts in place of the depositors. . . . [A]n 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." Because the statute merely defined the identity of the individual entitled to receipt of the money, the Court concluded that the statute did not impose an undue burden on national banks. See also First Nat'l Bank in Plant City, Florida, v. Dickinson, 396 U.S. 122 (1970) (state statute was not inconsistent with federal law, which expressly recognized state law limitations).

Upon review of the RISA provisions at issue in this case, as well as the relevant preemption law, the Court finds that the National Bank Act and the corresponding federal regulations preempt RISA. In essence, the RISA provisions read into each promissory note (arising from a consumer transaction) a requirement that any holder, including a national bank, assume the liability of the seller under certain circumstances. The Court finds that this type of state imposed liability significantly interferes with a national bank's ability to negotiate promissory notes and lend money. As defendants pont out, the RISA provision essentially requires national banks to become insurers for sellers vis a vis consumers. This will undoubtedly have a significant impact on the value of promissory notes issued in Ohio because such notes will likely be worth less than similar notes issued in states that do not impose RISA type liability. Moreover, RISA will significantly impair the ability of the national bank to collect money on promissory notes that qualify for RISA protection.

The Court finds that recent revisions to the Code of Federal Regulations support this Court's conclusion and evidence federal intent to preempt state statutes such as RISA. The OCC is the federal agency charged with implementing federal banking regulations. On January 13, 2004, the OCC enacted federal regulations specifically addressing federal preemption of state banking laws. These regulations were enacted, in part, due to that fact that "the trend at the [s]tate and local levels toward enacting legislation that seeks to impose costly and inconsistent compliance burdens on national banks has accelerated." Testimony of Julie L. Williams Before the Subcommittee on Oversight and Investigations of the Committee on Financial Services of the U.S. House of Representatives (January 28, 2004) (testimony of Julie L. Williams, First Senior Deputy Comptroller and Chief Counsel Office of the Comptroller of the Currency) (hereafter "Williams Testimony") at 10. These preemption regulations provide, in relevant part,

§ 7.4008 Lending.

(a) Authority of national banks. A national bank may make, sell, purchase, participate in, or otherwise deal in loans . . . subject to such terms, conditions, and limitations prescribed by the Comptroller of the Currency and any other applicable Federal law.

* * *

(c) Unfair and deceptive practices. A national bank shall not engage in unfair or deceptive practices within the meaning of section 5 of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), and regulations promulgated thereunder in connection with loans made under this § 7.4008.

(d) Applicability of state law.

(1) Except where made applicable by Federal law, 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.

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

* * *

(iv) The terms of credit, including the schedule for repayment of principal and interest, amortization of loans, balance, payments due, minimum payments, or term of 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;

* * *

(e) State laws that are not preempted. 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 that they only incidentally affect the exercise of national banks' non-real estate lending powers:

(1) Contracts;

(2) Torts;

(3) Criminal law;

(4) Rights to collect debts;

(5) Acquisition and transfer of property;

(6) Taxation;

(7) Zoning; and

(8) Any other law the effect of which the OCC determines to be incidental to the non-real estate lending operations of national banks or otherwise consistent with the powers set out in paragraph (a) of this section.

The Court finds that Section 7.4008(d)(2)(iv), which indicates that national banks may lend money without regard to state laws imposing requirements as to the terms of credit, supports this Court's conclusion that the federal government intended to preempt statutes such as RISA, which essentially impose credit terms concerning defenses to repayment.

Plaintiffs point out in a footnote that the federal regulations specifically indicate that a variety of state laws do apply to national banks. The Court notes, however, that these state laws apply only to the extent that they "incidentally affect" the lending activities of national banks. As set forth above, this Court has concluded that RISA more than "incidentally" affects the lending activities of national banks. Moreover, plaintiffs do not develop any argument on this point and, instead, simply set forth the contents of the provision.

The Court further rejects plaintiffs' argument that RISA is not preempted because it is a consumer protection statute. Although RISA is a consumer protection statute that may have the laudable goal of protecting consumers, preemption is not precluded on this ground. "Where state and federal law are inconsistent, the state law is pre-empted even if it was enacted by the state to protect its citizens or consumers." Duryee, 270 F.3d at 404. Moreover, as the Williams Testimony indicates, the OCC considered the effect the new regulations would have on state consumer protection laws,

It is simply not the case that consumers will be hurt by our rules. National banks and national bank operating subsidiaries are subject to extensive Federal consumer protection laws and regulations, administered and enforced by the OCC. OCC examinations of national banks and national bank operating subsidiaries are conducted to ensure and enforce compliance with these laws and regulations and supplemental OCC supervisory standards.

* * *

Of course, nothing in the OCC's preemption or visitorial powers rules prevents States from applying State standards and taking actions against the entities they supervise and regulate. Indeed, resources would be deployed more efficiently to protect more consumers if States applied their resources to the conduct of State supervised entities, the OCC applied its resources to national banks, and State officials referred problems involving national banks that come to their attention to the OCC.

(Williams Testimony at 18-19) (emphasis altered from original).

The Court finds that this testimony, which directly addresses state consumer protection statutes, indicates at least in a general sense, the federal government's intent to preempt state consumer protection laws by enacting the revisions to the federal regulations. The Court finds that this testimony further supports the Court's conclusion that RISA is preempted by the National Bank Act and the corresponding federal regulations. CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants' Partial Motion to Dismiss Plaintiffs' Second Amended and Consolidated Complaint.

IT IS SO ORDERED. INTRODUCTION

This matter is before the Court upon Plaintiffs' Motion for Class Certification. (Doc. 56). This case arises out of loan documents issued by defendant Keybank in connection with plaintiffs' student loans. For the reasons that follow, the Motion is GRANTED with respect to plaintiffs' Truth in Lending Act claim and DENIED as MOOT with respect to the Ohio Retail Installment Sales Act claim.

FACTS

Only those facts necessary for a disposition of the pending motion are set forth herein. In addition, because the Court has dismissed plaintiffs' Retail Installment Sales Act claim, only the facts necessary for a determination as to whether class certification is appropriate with respect to the Truth in Lending Act claim are set forth.

Plaintiffs, Shannon M. Abel, Bradley S. Phillips and Laura L. Murphy, bring this class action lawsuit against defendants, KeyBank USA, N.A. (hereafter "Key"), JP Morgan Chase Bank (hereafter "JP Morgan") and Bank One National Banking Association (hereafter "Bank One") asserting wrongdoing in connection with the issuance of plaintiffs' student loans.

Plaintiffs are former students of Solid Computer Decisions (hereafter "SCD"). Plaintiffs each entered into a student enrollment contract with SCD that contained certain financial terms and disclosures related to student loans. The enrollment contract is a standardized, preprinted form contract. Thereafter, the students were presented with a promissory note issued by Key.

According to plaintiffs, the disclosures made by Key with respect to the annual percentage rate applicable to the loans do not comply with the Truth in Lending Act because they fail to fully identify the index to which the variable interest rate is tied. Specifically, it appears that Key disclosed that the interest rate was tied to the "LIBOR" index, yet did not identify which particular LIBOR index applies. Plaintiffs do not seek actual damages as a result of this alleged violation and, instead, seek only statutory damages.

Plaintiffs asserted two claims in their Second Amended and Consolidated Complaint. In a separate Memorandum of Opinion and Order, this Court dismissed count two, which asserted a violation of Ohio's Retail Installment Sales Act (hereafter "RISA"). As such, the sole remaining claim before this Court is a claim for violation of the Truth in Lending Act (hereafter "TILA"), 15 U.S.C. § 1601, and Regulation Z, 12 C.F.R. § 226. Plaintiffs move to certify this case as a class action and defendants oppose plaintiffs' motion. STANDARD

The decision to certify a class action is within the discretion of the district court, but that discretion must be exercised within the framework set forth in Federal Rule of Civil Procedure 23. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981); Cross v. National Trust Life Ins. Co., 553 F.2d 1026, 1029 (6th Cir. 1977). Before certifying a class, the district court must conduct a rigorous analysis of the Rule 23 prerequisites. General Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). The party moving for certification bears the burden of showing that the requirements for certification are met. In re American Medical Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996).

Rule 23 sets forth a two-part test for certifying a class action. First, the four prerequisites in 23(a) must be met. Rule 23(a) states,

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

Assuming the threshold requirements of numerosity, commonality, typicality and adequacy of representation set forth in Rule 23(a) are met, "parties seeking certification must also show that the action is maintainable under Rule 23(b)(1), (2), or (3)." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 138 (1997). Plaintiffs argue that this action can be maintained under Rule 23(b)(3), which requires the court to find

that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.

Decisions on class certification should not be conditioned on the merits of the case. However, the Court may go beyond the pleadings to the extent necessary "to understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." Castano v. American Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996) (citing Manual for Complex Litigation § 30.11 at 214 (3d ed. 1995)). Therefore, this Court has considered all materials submitted by the parties in determining whether class certification is appropriate.

LAW AND ANALYSIS

Plaintiffs seek certification of the following class with respect to the TILA claim:

All individuals within the states of Florida, Georgia, and Alabama who entered into promissory notes with Keybank USA, N.A., to finance the payment of tuition to Solid Computer Decisions, Inc. within the following time periods: Florida — on or after December 2, 2001; Georgia — on or after March 12, 2002; Alabama — on or after December 11, 2001.

This Court must determine whether this class should be certified pursuant to the requirements of Fed.R.Civ.Pro. 23. Each requirement will be addressed in turn.

Rule 23(a) Requirements

1. Numerosity

Plaintiffs argue that the numerosity requirement is satisfied because there are 87 potential class members and joinder of all members is impracticable. "While not a rule, it is generally accepted that a class of 40 or more members is sufficient to establish numerosity." Kilbourn v. Candy Ford-Mercury, Inc., 209 F.R.D. 121, 131 (W.D. Mich. 2002) (citing Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995)). Given the number of potential class members and the fact that defendants do not dispute numerosity, the Court finds that this requirement is satisfied.

2. Commonality

Commonality exists if there are "questions of law or fact common to the class." The Sixth Circuit explained the commonality requirement in Sprague v. General Motors Corp., 133 F.3d 388, 397 (6th Cir 1998):

The commonality requirement deals with shared questions of law or fact. Although Rule 23(a)(2) speaks of "questions" in the plural, we have said that there need only be one question common to the class. It is not every common question that will suffice, however; at a sufficiently abstract level of generalization, almost any set of claims can be said to display commonality. What we are looking for is a common issue the resolution of which will advance the litigation.

(citation omitted).

If there is a common issue of law or fact that will advance the litigation, the "mere fact that questions peculiar to each individual member of the class remain after the common questions of defendants' liability have been resolved does not dictate the conclusion that a class action is impermissible." Sterling v. Velsicol Chemical Corp., 855 F.2d 1188, 1197 (6th Cir. 1988).

The Court finds that plaintiffs have satisfied their burden with respect to the commonality element. In the student loans at issue, defendants allegedly disclosed that the applicable interest rate would vary based on the "LIBOR" index. Plaintiffs claim that defendants' failure to specify which LIBOR index, i.e., the 3-month, 6-month, 9-month, or 12-month index, applied to the loans at issue violates TILA. Defendants do not dispute that commonality exists for purposes of Rule 23(a). Because the Court finds that the resolution of this question will materially advance the litigation, plaintiffs have satisfied their burden of demonstrating commonality.

3. Typicality

Rule 23(a)(3) requires that the "claims or defenses of the representative parties [be] typical of the claims or defenses of the class." Like commonality, the test for typicality is "not demanding." Gilkey v. Central Clearing Co., 202 F.R.D. 515, 524 (E.D. Mich. 2001) ( quoting Forbush v. J.C. Penney Co., Inc., 994 F.2d 1101, 1106 (5th Cir. 1993)). The typicality requirement focuses on "the similarities between the named plaintiffs' claims and those of the class as a whole." Blaz v. Galen Hosp. Ill., Inc., 168 F.R.D. 621, 624 (N.D. Ill. 1996). As the Sixth Circuit stated in American Medical Systems,

Typicality determines whether a sufficient relationship exists between the injury to the named plaintiff and the conduct affecting the class, so that the court may properly attribute a collective nature to the challenged conduct. In other words, when such a relationship is shown, a plaintiff's injury arises from or is directly related to a wrong to a class, and that wrong includes the wrong to the plaintiff. Thus, a plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members, and if his or her claims are based on the same legal theory. A necessary consequence of the typicality requirement is that the representative's interests will be aligned with those of the represented group, and in pursuing his own claims, the named plaintiff will also advance the interests of the class members.

Plaintiffs argue that the claims of the named plaintiffs are typical of those of the class because, to the extent defendants are liable to plaintiffs, they are also liable to class members. According to plaintiffs, the proof needed to succeed on plaintiffs' TILA claim is identical to the proof the class members will present. Defendants do not dispute that the typicality element is satisfied. The Court finds plaintiffs' position to be convincing and, given defendants' failure to oppose class certification on this basis, concludes that the element of typicality is satisfied.

4. Adequacy of Class Representatives

Rule 23(a)(4) requires that the named plaintiffs demonstrate that they will "fairly and adequately protect the interests of the class." Since final judgment in a class action is binding on all class members, adequate representation is "essential to due process." American Medical Sys., 75 F.3d at 1083. The Sixth Circuit has articulated two criteria for determining adequacy of representation:

1) the representative must have common interests with unnamed members of the class, and

2) it must appear that the representatives will vigorously prosecute the interests of the class through qualified counsel.

Defendants acknowledge that at this time they have no concerns regarding the ability of plaintiffs' counsel. Defendants do argue, however, that the named plaintiffs are not adequate class representatives of the proposed TILA class because they have interests that conflict with members of the RISA class who are not also members of the TILA class. Defendants point out that the purported TILA class includes only students within the states of Florida, Georgia and Alabama, while the RISA class is a nationwide class. According to defendants, members of the RISA class that do not reside in either Florida, Georgia or Alabama will be effectively precluded from ever asserting a TILA claim based on their failure to assert the claim in this case. As such, defendants argue that the named plaintiffs, who are members of both classes, have little or no interest in protecting the rights of the RISA class members that are not a part of the TILA class.

Given the fact that this Court has dismissed plaintiffs' RISA claim, the Court finds that defendants' concern is no longer applicable. Defendants make no other argument in opposition to class certification on the grounds of adequacy. Plaintiffs, on the other hand, have presented the Court with affidavits indicating that they understand the duties involved and are willing to serve as class representatives. Moreover, plaintiffs' counsel is experienced in consumer class action litigation. The Court finds that plaintiffs have satisfied their burden with respect to this element and find that the named plaintiffs are adequate representatives of the proposed TILA class.

Rule 23(b)(3) Requirements

In addition to the Rule 23(a) requirements, plaintiffs must comply with one of the requirements of Rule 23(b). Plaintiffs argue that the class should be certified because the requirements of Rule 23(b)(3) are satisfied. Under 23(b)(3), a movant must show that common questions of law or fact predominate over individual questions and, in addition, must demonstrate that a class action is superior to other methods of adjudication. Fed.R.Civ.Pro. 23(b)(3).

1. Predominance

The predominance requirement "tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem, 51 U.S. at 623. Rule 23(b)(3) assumes that common issues of fact or law have already been established under Rule 23(a)(2). Therefore, "the presence of commonality alone is not sufficient to fulfill Rule 23(b)(3)." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998). Instead, the predominance requirement focuses on the relationship between the common and individual issues. Id.

"All class members need not be identically situated upon all issues, so long as their claims are not in conflict with each other." In re Ford Motor Co. Ignition Switch Products Liability Litigation, 194 F.R.D. 484, 488 (D.N.J. 2000). However, the individual differences must be of lesser overall significance and manageable in a single class action. Id.

Defendants argue that because some of the class members are in default on their loans, individual issues predominate over common issues with respect to the proposed TILA classes. According to defendants, they are required to assert compulsory counterclaims for the collection of the underlying obligations against these class members. The defendants argue that this individual issue predominates over the common issues in this case.

In support of their position, defendants cite Heavan v. Trust Co. Bank, 118 F.3d 735 (11th Cir. 1997). In Heaven, the Eleventh Circuit agreed with the district court that circuit precedent mandated that the bank's collection claims would constitute compulsory counterclaims to a TILA action. After recognizing that the class certification question was "very close," the court affirmed the district court's conclusion that the presence of these compulsory counterclaims weighed against class certification under Rule 23(b)(3). The district court based its decision on the fact that the presence of the counterclaims would result in difficulty managing the class because each counterclaim defendant would be required to assert individual defenses, which would result in multiple factual determinations. Moreover, the court of appeals concluded that the trial court did not abuse its discretion in determining that the presence of counterclaims would likely hinder a number of plaintiffs from joining the class, given that the recovery on their affirmative claims would be outweighed by the liability they would likely incur on the counterclaims.

Although affirming the trial court's decision, the Eleventh Circuit relied heavily on the deferential standard of review applicable to class certification orders. The court noted that "if this panel had faced the class certification issue in the first instance, we may well have found it appropriate to certify the class or to establish subclasses." Id. at 739. The court also made clear that the opinion should not be read to "suggest that compulsory counterclaims . . . preclude the maintenance of class actions . . . as a general rule." Id. The court held only that the trial court properly considered this factor in its analysis.

Unlike the Eleventh Circuit, however, the Sixth Circuit has held that debt collection actions are permissive as opposed to compulsory counterclaims when asserted in TILA actions. In Maddox v. Kentucky Finance Co., Inc., 736 F.2d 380 (6th Cir. 1984), the plaintiffs asserted a claim for violation of TILA due to allegedly inadequate disclosures. The defendant counterclaimed against the plaintiffs seeking to collect on the underlying obligation. Plaintiffs moved to dismiss the counterclaim, arguing that it was permissive and, as such, fell outside the ancillary jurisdiction of the district court. The district court denied the motion to dismiss finding that jurisdiction existed over the claim. In reversing the trial court, the Sixth Circuit noted,

The [plaintiffs'] claim presents a federal question under TILA; [Defendant's] counterclaim, however, is [a] common law debt [claim], and presents no independent basis for federal jurisdiction. Such a counterclaim is within the ancillary jurisdiction of the federal district court only if it is a compulsory counterclaim under Fed.R.Civ.P. 13(a).

The court then analyzed competing law from different circuits that had already addressed the issue and expressly rejected the analysis set forth in Plant v. Blazer Financial Services, Inc. of Georgia, 598 F.2d 1357 (5th Cir. 1979), a case issued by the former Fifth Circuit, on which Heavan relies. In concluding that debt collection actions are not compulsory counterclaims in TILA actions, the Sixth Circuit held,

We agree with the [Fourth Circuit] and the [Seventh Circuit] which have held the debt counterclaim to be permissive rather than compulsory. While the claim and counterclaim do arise out of the same transaction within the literal terms of Rule 13(a), we do not believe that they are logically related in such a way as to make the counterclaim compulsory. The claim and counterclaim will present entirely different legal, factual, and evidentiary questions. It is not clear that the interests of judicial economy and efficiency would be served in the least by requiring the two claims be heard together.

The Sixth Circuit also noted that to conclude otherwise could "frustrate the purposes of TILA by giving plaintiffs a disincentive to sue." Id. Upon concluding that the counterclaim was permissive rather than compulsory, the counterclaim against plaintiffs was vacated on appeal due to lack of jurisdiction.

Although defendants have not yet filed their counterclaims, they have indicated that they plan to assert claims against certain class members based on their underlying debt obligations. (Dfts' Brief at 15). It appears, however, that based on Maddox, these claims are not compulsory in nature and, in fact, this Court may not be empowered to exercise jurisdiction over the anticipated counterclaims. Although it is not necessary for this Court to expressly decide this issue at this stage, the Court finds that the presence of these anticipated counterclaims is not likely to create either individualized inquiries or difficulties in managing the class. To the extent counterclaims are actually asserted in this action and briefing is presented to the Court on the issue of jurisdiction, the Court is permitted to revisit the class certification issue to the extent any ruling would affect the decision set forth in this opinion. In all, given Maddox, the Court finds that any reliance defendants place on the Heaven or Plant is misplaced. The Court is not convinced that the presence of these potential counterclaims, over which the Court may not even possess jurisdiction, weighs against class certification at this time.

Plaintiffs argue that the predominance requirement is met with respect to the proposed subclass because the facts arising from Key's alleged failure to properly disclose the applicable variable interest rate index are identical among class members. According to plaintiffs, they seek only statutory damages. Plaintiffs argue that they need not demonstrate reliance or "actual deception" in order to recover statutory damages. Thus, no individual issues arise with respect to either liability or damages. This Court agrees with plaintiffs. The TILA allegations asserted by the plaintiffs relate to form documents prepared by defendants and it appears that the question of whether the disclosures violates TILA will apply with equal force to all members of the class. Having rejected defendants' argument that the counterclaims will necessarily result in individualized inquiries in this case, the Court finds that common issues predominate over any individualized issues.

2. Superiority

Plaintiffs argue that the class action vehicle is the superior method for resolving this litigation. According to plaintiffs, there is little interest in pursuing separate actions in this case because the amount recoverable by each plaintiff is relatively slight. In addition, plaintiffs point out that the forum selection clause in the promissory notes mandates that each plaintiff travel to this forum to assert claims. Plaintiffs argue that the forum selection clause will be a significant deterrent to the assertion of individual claims. Plaintiffs further claim that resolving the claims of similarly situated borrowers on a class-wide basis would promote fairness and efficiency. With regard to difficulties encountered in management of the class action, plaintiffs argue that no such difficulties are present because identification of the class members is easily accomplished through Key's business records. In addition, damages are easily calculated because they are statutory in nature and do not depend on the individual amounts of the students' loans.

Defendants argue that the individual plaintiffs in this case are in a position to bring separate actions because TILA allows for the recovery of costs and attorneys' fees. Defendants also argue that the fact that plaintiffs allege a technical violation is not in and of itself sufficient to render a class action the superior vehicle for resolving the dispute. Defendants further argue that, pursuant to Resolution Trust Corp. v. Martinez, 1994 U.S. Dist. LEXIS 21506 at *21, to the extent Key is able to demonstrate that it fully disclosed all relevant information in two or more documents received simultaneously by the plaintiffs, liability may be avoided. Thus, according to Key, an individualized inquiry will need to be conducted in order to determine which documents each plaintiff received, as well as the timing of the receipt of such documents.

The Court rejects defendants' argument that class action treatment for technical violations such as that alleged in this case is not appropriate. Although defendants rely on Shroder v. Suburban Coastal Corp., 729 F.2d 139 (11th Cir. 1984), that opinion relies heavily on a Sixth Circuit opinion, Watkins v. Simmons and Clark, Inc., 618 F.2d 398 (6th Cir. 1980). In Watkins, the Sixth Circuit upheld the district court's refusal to certify a TILA action as a class action, in part, because plaintiff alleged only technical violations that had already been cured by defendant. Although affirming the district court's conclusion, the Sixth Circuit held,

We are also aware that the technical nature of the violations may well argue in favor of the appropriateness of the class action here. Precisely because the violations are technical . . . most of the members of the consumer class will not be aware of them. . . . The superiority of the class action lies in the fact that the class members may share in a financial recovery which, otherwise, they would never pursue on their own behalf. . . .

* * *

There are persuasive arguments which favor class certification even in cases involving technical violations. Were the certification issue before us de novo we may very well have certified the class. However, we cannot find an abuse of discretion on the record.

* * *

We wish to state that certification is desirable and should be encouraged. Where the requirements of F.R.Civ.Pro. 23(a) have been met, class certification should be denied only in a case involving technical violations and only where the district court, in the exercise of discretion, believes that certification is unwarranted.

The Court finds that, far from suggesting that class action treatment is inappropriate for technical TILA violations, Watkins implies that a class action may very well be a superior method for adjudicating these types of claims. See also Lozada v. Dale Baker Oldsmobile, 197 F.R.D. 321 (W.D. Mich. 2000) (certifying class action after analyzing Watkins).

Accordingly, the Court rejects defendants' contention that the fact that plaintiffs' allegations appear to be based on a technical violation of TILA weighs against certification of the class.

Upon review of the parties' arguments, the Court finds that a class action is the superior method for adjudicating plaintiffs' TILA claim. The Court agrees that because only relatively minimal statutory damages are available, together with the fact that the forum selection clause mandates that an individual plaintiff travel a great distance to prosecute this claim, it is likely that a significant number of plaintiffs would not pursue their claims unless the class action vehicle is utilized. In addition, the Court finds that judicial efficiency and economy will be promoted by class action treatment. Rather than prosecute eighty-seven separate actions (all of which must be brought in this district), a class action will allow for expeditious and consistent rulings. Moreover, concentration of all TILA claims in one action will save attorney time and expense for all parties.

The Court further rejects defendants' argument that issues concerning the timing and receipt of the loan documents render class action treatment inappropriate. Although class certification discovery has been conducted, defendants provide the Court with no evidence or, for that matter, even an indication, of whether the "Resolution Trust defense" actually applies to any particular plaintiff or potential class member. Nor is there any indication of the number of potential class members that may be affected by this defense. As such, the Court cannot say that this issue is sufficient to render class action treatment inferior. To the contrary, as set forth above, the clear majority of factors demonstrate the superiority of adjudicating this claim on a classwide basis.

CONCLUSION

For the foregoing reasons, Plaintiffs' Motion for Class Certification is GRANTED as to the TILA claim. Because the RISA claim has been dismissed by the Court, plaintiffs' motion as it relates to certification of a RISA class is DENIED as MOOT.

IT IS SO ORDERED.