This posting was written by Robert M. Jaworski.

After removing a complaint filed against National Penn Bank (the “Bank”) to federal court, Reed Smith attorneys Andrew J. Soven and Timothy P. Oak successfully defeated plaintiff’s attempt to have it remanded back to state court. The decision in Collier v. National Penn Bank, 2012 WL 1214325 (E.D. Pa. April 11, 2012), was issued by the U.S. District Court for the Eastern District of Pennsylvania.

Plaintiff alleged in her complaint that the Bank engaged in unconscionable commercial practices in violation of Pennsylvania law with respect to the order in which it posted transactions to customer accounts and imposed overdraft fees. The Bank removed the matter to federal court and defended that removal on the grounds that plaintiff’s claims are completely preempted by federal law, specifically, 12 C.F.R. § 7.4007, or, alternatively, that they “implicate significant federal issues” given their interaction with 12 C.F.R. § 7.4007. While the court rejected the Bank’s complete preemption argument, it nevertheless retained jurisdiction finding that plaintiff’s claims implicated significant federal issues.

Complete Preemption

In rejecting the Bank’s complete preemption argument, the court relied on a decision by the U.S. Court of Appeals for the Third Circuit, which held that complete preemption applies only if (i) the statute relied upon as being preemptive contains civil enforcement provisions, (ii) the plaintiff’s state law claims fell within the scope of those provisions, and (iii) there is a clear indication of Congressional intent to make the federal cause of action exclusive. Goepal v. Nat’l Postal Mail Handlers Union, 36 F. 3d 306, 311 (3rd Cir. 1994). The court determined that the Bank’s “complete preemption” argument was based entirely on 12 C.F.R. § 7.4007, a regulation adopted by the Office of the Comptroller of the Currency (“OCC”), and not a statute enacted by Congress.

Significant Federal Issue

With respect to the Bank’s alternative argument, however, the court relied on a U.S. Supreme Court decision holding that in certain, special and narrow circumstances, state law claims “that implicate significant federal issues” will be subject to federal question jurisdiction. Grable & Sons Metal Prods. Inc. v. Darue Eng’g & Mtg., 545 U.S. 308, 312 (2005). To qualify for such treatment, the state law claims must “necessarily raise [the] stated federal issue,” the federal issue must be “actually disputed and substantial,” and the federal court must be able to review it “without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Id. at *2.

The court then determined that the plaintiff’s state law claim of unconscionability satisfied each of these requirements. It first observed that:

There is a serious federal interest in having a federal forum decide [plaintiff’s] contract claims since the contract (or “Deposit Agreement with Customers”) is a creature of federal law in the sense that its terms are governed by the National Bank Act and its regulations, most especially, 12 C.F.R. § 7.4002(b).

Id. at *3-4.

Noting that section 7.4002 in part authorizes a national bank to charge its customers “non-interest charges and fees, including deposit account service charges,” and to establish such charges, their amounts and the method of calculating such fees “in its discretion, according to sound banking judgment and safe and secure banking principles,” the court concluded that to determine whether the plaintiff’s claim of unconscionability had merit, the court must ascertain whether the Bank’s conduct conformed with 12 C.F.R. § 7.4002(b). Id. at *4.

Recognizing that the Bank operates in several states, and recognizing the need for national banks to avoid having to operating in a hodgepodge of inconsistent state regulation, the court noted:

[T]he aim of this uniform national regulatory scheme may be frustrated if different state courts adopted conflicting interpretations of “safe and sound banking principles” because National Penn (and other similarly situated national banks) would then be forced to conform its day-to-day discretionary business decisions to a less uniform and predictable body of state-specific regulation.

Id. at *5.

Finally, the court found that retaining jurisdiction over this claim would not disrupt “the sound division of labor between state and federal courts” (a contention that plaintiff did not dispute) or “materially affect, or threaten to affect, the normal currents of litigation in the federal courts.” Id. at *6. With regard to the latter, the court recognized that similar claims were already before the federal courts.

The court thereupon denied plaintiff’s motion to have the case remanded to state court. The plaintiff dropped the lawsuit two days after the court issued its motion to remand.

In an interview with The Legal Intelligencer following the decision, Reed Smith partner Andrew Soven remarked: “I think it’s an important decision for national banks because it gives national banks an opportunity to argue that consumer claims based on state law should be heard in federal court.” “Federal Statute Trumps State Jurisdiction in Bank Fees Case,” The Legal Intelligencer, Vol. P. 2345, pg. 3 (April 16, 2012). Indeed, one of the possible consequences of this important decision is that future courts may show greater focus on the intent of the National Bank Act to create a uniform national banking system that may operate free from unduly burdensome and inconsistent state substantive requirements.

Robert M. Jaworski is a partner in Reed Smith's Financial Services Regulatory Group, resident in the Princeton, N.J. office. Bob is formerly the Deputy Commissioner of Banking for New Jersey, and formerly a New Jersey Deputy Attorney General.