Suit against federal bank not preempted by federal law where cardholders charge violation of state notice law was breach of contract

Law Reporter, Mar 2004

CONSUMER PROTECTION

Wells v. Chevy Chase Bank, F.S.B., 832 A.2d 812 (Md. 2003).

The Maryland Court of Appeals held that federal law does not preempt breach of contract suits involving a credit card agreement between a consumer and a bank when the agreement states that Maryland law controls.

Here, three consumers obtained credit cards from federally chartered banks. When the banks changed the terms of the agreement, THe consumers sued them, alleging defendants had breached their contractual obligation to comply with state notice requirements. The trial court dismissed, holding federal law governing federal savings institutions preempts plaintiffs' claim.

Reversing, the state high court held that federal law preempts state law in disputes regarding whether a valid contract exists. However, a provision in the contract applying state law to disputes is not preempted when the issue is whether contractual obligations were met, rather than whether a contract exists. The court noted that Congress intended to preempt state laws when necessary to "facilitate the safe and sound operation of federal savings associations." The court said that federal Office of Thrift Supervision regulation 12 C.F.R § 560.2 specifically exempts contract disputes that only incidentally affect lending operations and is not designed to preempt basic state laws governing contracts.

The court determined that a U.S. Supreme Court case, American Airlines v. Wolens, 513 U.S. 219 (1995), 38 ATLA L. Rep. 97 (Apr. 1995), is directly on point. In that case, which involved federal airline regulations, the Court held that terms and conditions offered by airlines are private contractual obligations, the enforcement of which does not amount to imposition of state law. The court disputed defendants' reading of Wolens to mean that, even if contract disputes could be regulated by states, any obligations not specifically addressed in the contract are preempted. Rather, the court said, state law allows parties to agree to terms via reference to other documents or rules, as here, without spelling out each requirement.

Moreover, defendants' reliance on other cases was misplaced, the court said. Those cases did not directly involve the question of whether contract disputes could be regulated by state law.

Accordingly, the court remanded.

Plaintiffs' Counsel

*F. Paul Bland Jr., Washington, D.C.

Leslie Bruckner, Washington, D.C.

John T. Ward, Baltimore, Md.

Robert B. Kershaw, Baltimore, Md.

Michael P. Malakoff, Pittsburgh, Pa.