Opinion
022038/2010
06-28-2011
Janet Sheinkin, on behalf of herself and all others similarly situated, Plaintiff, v. Simon Property Group, Inc., SPGGC, LLC, and U.S. BANK NATIONAL ASSOCIATION, , Defendants.
, J.
The following papers read on this motion:
Notice of Defendants' Motion to Dismiss, Carol Rossman Affidavit and Exhibits Annexed, and Michele Sullender Affidavit and Exhibits Annexed1
Defendant's Memorandum of Law in Support2
Plaintiffs' Memorandum of Law in Opposition3
Irwin Popkin Affirmation in Opposition and Exhibits Annexed4
Defendants Reply Memorandum of Law5
PRELIMINARY STATEMENT
This class action surrounds allegedly illegal fees that U.S. Bank and Simon Property Group have assessed to plaintiff's gift card purchased from the defendants. The defendants move to dismiss on the ground that all claims against them are precluded under the Supremacy Clause by the federal regulation of banks chartered under the National Bank Act. Because the defendants limit their arguments to the issue of federal preemption, the court does not consider whether each of plaintiff's causes of action independently states a valid legal claim, but only whether plaintiff's allegations state any cognizable cause for relief in light of the preemption doctrine.
BACKGROUND
Defendant U.S. Bank is a national bank chartered pursuant to National Bank Act, 12 USC §§ 22, et seq. U.S. Bank issues prepaid, stored-value Visa Gift Cards which it markets through its own efforts as well as through Simon Property Group. Simon Property Group in turn sells these gift cards in its stores as well as through its websites. U.S. Bank avers that it alone controls the terms of these cards, is solely liable for their value, and it handles all inquiries, complaints, and customer assistance by a twenty-four hour service. These cards have a prepaid, electronically stored value which can be used in any store or location in the Visa network which accepts debit cards, including locations not associated with Simon Property Group.
The gift cards at issue are sold with disclosures prepared by U.S. Bank. These disclosures are as follows: a sticker on the front of the card describes dormancy, replacement and renewal fees and it draws attention to the expiration date; the back of the card again notes existence of dormancy, replacement, renewal fees, and an expiration date, and it refers holder to terms and conditions; and, a multi-page "sleeve" attached to the card contains all terms and conditions relating to the gift card.
The plaintiff alleges that she received a gift card that had been purchased from a Simon Group mall with an original balance of $50. The card was subject to an "expiration date" of January 1, 2009. Although she had never used her card, the balance of the card had been reduced to $22.50 at the time of expiration due to the operation of monthly "dormancy fees." After the expiration of the card, dormancy fees continued to be assessed until April 1, 2009, yielding an account balance of $12.50. U.S. Bank then charged an "account closure fee" of $12.50 on April 3, 2009. The Complaint alleges causes of action premised on breach of contract, implied covenant of good faith and fair dealing, GBL § 349, indebtedness, and unjust enrichment. Plaintiff's causes of action broadly allege that defendants' conduct in failing to provide more complete disclosures in accordance with CPLR § 4544 and failure to permit the escheatment of the remaining balance at the expiration date constitute deceptive and wrongful business practices.
STANDARD
The defendants move to dismiss under CPLR § 3211(a)(7) for failure to state a cause of action, andCPLR § 3211(a)(1) because there is a complete defense founded on documentary evidence. As a preliminary matter, the court notes that the defendants make the same arguments and submit the same proof with respect to CPLR §§ 3211(a)(1) and 3211(a)(7). While some proof consists ofcopies of the bank's disclosures, most of the proof regarding the nature of U.S. Bank's gift card program is made by personal affidavit. Personal affidavits are not "documentary evidence" of the sort that was intended by CPLR § 3211(a)(1), since the subsection could otherwise become a vehicle for dismissal on any ground that could be founded on an affidavit. Proper documentary evidence for a motion under CPLR § 3211(a)(1) must be valid on its face and directly prove a defense as a matter of law. (Stein v. Garfield regency Condominium, 65 AD3d 1126 [2d Dep't 2009]). Therefore, the court considers defendants' motion only under CPLR § 3211(a)(7).
When determining a motion to dismiss for failure to state cause of action, the pleadings must be afforded a liberal construction and the court must determine only whether the plaintiff has a cause for relief under any cognizable legal theory. (Uzzle v. Nunzie Court Homeowners Ass',. Inc. 70 AD3d 928[2d Dept. 2010]). Thus, a pleading will not be dismissed for insufficiency merely because it is inartistically drawn; rather, such pleading is deemed to allege whatever can be implied from its statements by fair and reasonable intendment. (Brinkley v. Casablancas, 80 AD2d 815 [1st Dept. 1981]). Conversely, allegations that state only legal opinions or conclusions, rather than factual statements, are not afforded any weight. (Asgahar v. Tringali Realty, Inc., 18 AD3d 408 [2d Dep't 2005]).
The plaintiff has no burden to produce documentary evidence supporting the allegations in the complaint in order to oppose a motion to dismiss under CPLR3211(a)(7). (Stuart Realty Co. v. Rye Country Store, Inc., 296 AD2d 455 [2d Dep't 2002]). However, if the movant introduces evidence that "flatly contradicts" the plausibility of allegations in the complaint, the court no longer presumes the validity of those allegations (Asgahar v. Tringali Realty, Inc., 18 AD3d 408 [2d Dep't 2005]), and the court then examine s"whether or not a material fact claimed by the pleader is a fact at all and whether a significant dispute exists regarding it." (Doria v. Masucci, 230 AD2d 764, 765 [2d Dept. 1996]). Also, the plaintiff can introduce documentary evidence to show that the allegations in the complaint are supportable with further proof.(CPLR §§ 3211(c) & 3211(e), Rovello v. Orofino Realty Co., 40 NY2d 633 [1976]).When the plaintiff offers such proof in response to a motion to dismiss, the standard"is whether the proponent of the pleading has a cause of action, not whether he has stated one." (Leon v. Martiznez, 84 NY2d 83, 88 [1994]).
DISCUSSION
The defendants contend that federal law preempts the causes of action alleged in the present class action Complaint, because defendant U.S. Bank is federally regulated under the National Bank Act and any liability by defendant Simon Property Group is contingent upon U.S. Bank's liability. Several federal District Courts have addressed precisely the same question raised in this matter and those courts have agreed that "nothing in the federal law preempts general deceptive practices statutes." (Binetti v. Washington Mut. Bank, 446 F.Supp.2d 217, 219 [S.D.NY 2006], Baldanzi v. WFC Holdings Corp., 2008 WL 4924987, *2 [E.D.NY 2008]; see also Mwantembe v. TD Bank, NA, 669 F.Supp.2d 545 [E.D.Pa. 2009], Green v. Charter One Bank, NA, 640 F.Supp.2d 998 [N.D.Ill. 2009]; see generally George Blum, "Regulation of Pre-Paid Stored-Value Gift Cards,'" 46 ALR 6th 437 [2009]). This court agrees, and defendants' motion to dismiss on the ground of preemption is therefore denied.
As a starting point, the National Bank Act and federal law do not regulate national banks exclusively such that all state laws that might affect a national bank's operations are preempted, as would be the case in field preemption. Rather, only those state laws that specifically conflict with the National Bank Act's regulation of national banks are preempted. This system comports with "Congress's decision not to pre-empt substantive state law [and] [it] echoes many other mixed state/federal regimes in which the Federal Government exercises general oversight while leaving state substantive law in place." (Cuomo v. The Clearing House Assoc., LLC, 129 S.Ct.
The States' superintendence of national banks, which of course is not at issue here, is expressly preempted, however. (12 USC § 484[a]).
2710, 2718 [2009]). Thus, "[f]or example, state usury laws govern the maximum rate of interest national banks can charge on loans, contracts made by national banks are governed and construed by State law, and national banks' acquisition and transfer of property are based on State law." (Watters v. Wachovia Bank, NA, 550 US 1, 11 [2007] [internal citations omitted]).
While the defendants make much of the fact that issuing stored-value cards is an established "incidental power" of national banks (12 C.F.R. § 7.5002[a][3]) and the U.S. Supreme Court has articulated that it has "interpreted 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 of Marion Cty., NA v. Nelson, 517 US 25, 32 [1996]), the U.S. Supreme Court has substantially clarified and limited this language in subsequent cases. With regard to such enumerated and incidental powers, "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." (Watters, 550 US at 12 [emphasis added]). In this light it should be noted that the Office of the Comptroller of the Currency (OCC), which regulates national banks, has also stated in its regulations that laws of general applicability, such as state laws relating to contract, tort, criminal law, and transfers of property are not preempted. (12 C.F.R. § 7.4009).
The class action Complaint in this matter alleges causes of action that are predicated on state law of general applicability. The defendants are wrong to rely upon SPGCC, LLC v. Ayotte (488 F.3d 525 [1st Cir. 2007]). That case concerned a New Hampshire statute which sought to directly regulate stored-value gift cards that were issued by national banks, and the state statute forbade banking activities that had been expressly authorized by the OCC's regulations. The narrow holding of Ayotte has already been distinguished by the Second Circuit in SPGGC, LLC v. Blumenthal (505 F3d 183 [2d Cir. 2007]), where a similar state statute sought to regulate stored-value gift cards but the statute was applied to a subsidiary of Simon Property Group, which is not a national bank. New York's Appellate Division has also issued holdings that are factually distinguishable from Ayotte in Lonner v. Simon Property Group, Inc. (31 AD3d 398 [2d Dept. 2006] and Goldman v. Simon Property Group, Inc. (58 AD2d 208 [2d Dept. 2008]), because the party in interest was not a national bank. While the present matter admittedly involves stored-value cards issued by a federally-chartered national bank, Ayotte is plainly distinguishable given that the causes of action at issue do not seek to enforce a state law that prohibits banking activities that are expressly authorized by federal regulation.
Further, there is little evidence that "the New York Consumer Fraud Statute has been used, by filing lawsuits or otherwise, to set substantive standards or establish particular requirements for [issuance of stored-value cards] in the state of New York." (Binetti, 446 F.Supp.2d at 220). Therefore, there is no reason to conclude that GBL § 349 as applied to stored-value cards which are issued by national banks would substantially interfere with or impair the OCC's ability to regulate the operations of national banks. While OCC regulations sanction and permit stored-value gift cards, the OCC has not set any regulations regarding any required disclosures. In the absence of regulation, state substantive law fills the void, such as it would in other areas occupied by "mixed state/federal regimes." In fact, there is little evidence that the OCC would not recognize application of state law of general applicability in this area.
Addressing a Connecticut statute which prohibited certain fees and practices in connection with gift cards issued by a subsidiary of Simon Property Group, the Second Circuit noted that "the OCC does not view the regulation of SPGGC's collection of fees as an encroachment on [Bank of America]'s power, stating specifically in its amicus brief that we do not believe that the state restrictions on Simon charging a monthly service fee in connection with the gift cards would burden or interfere with national bank powers to issue stored-value cards as a payment mechanism." (SPGGC, LLC v. Blumenthal, 505 F.3d 183, 190-91 [2d Cir. 2007]). However, it is unclear how the OCC would view the application of state laws of general applicability to stored-value gift cards issued and controlled by national banks.
The defendants strenuously argue that "resolving any of these theories in Ms. Sheinkin's favor would significantly interfere with U.S. Bank's authorized power to charge such fees in conjunction with its gift card program, and to determine their proper amount." But, plainly, national banks do not operate in a legal void in the absence of OCC regulation, even when a banking activity involves an expressly enumerated power. Thus, usury laws are not preempted even though national banks have an express lending power. (Watters, 550 US at 11). As another court has aptly noted, "[s]imply put, there is a difference between challenging a national bank's power to do something and challenging the manner in which it is done." (Baptista v JP Morgan Chase Bank N.A., 2010 WL 2342436 [M.D. Fla. June 4, 2010] affd sub nom. Baptista v JPMorgan Chase Bank, N.A., 640 F3d 1194 [11th Cir 2011]). Indeed, as has been held numerous times, "contracts made by national banks are governed and construed by State laws." (Watters, 550 U.S. at 11). The causes of action alleged in the class action Complaint regard contracts made and entered into by defendant U.S. Bank.
In the context of similar claims in a gift-card program in which Simon Property Group issued and controlled the terms of stored-value cards, the Appellate Division, Second Department already had occasion to consider whether facts relating to small-print disclosures and dormancy and cancellation fees stated causes of action under CPLR § 4544, GBL § 349, and the implied covenant of good faith and fair dealing. (Lonner v. Simon Prop. Gr., Inc., 57 AD3d 100 [2d Dept. 2008]). The Second Department held that those causes of action were validly stated where the disclosures regarding fees associated with the cards were only disclosed in small-print which did not comport with CPLR § 4544. (Cf. Binetti v. Washington Mutual Bank, 446 F.Supp.2d 217 [S.D.NY 2006]).
The defendants' motion to dismiss the Complaint is denied. This constitutes the Decision and Order of the Court.
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J.S.C.