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Federal banking law doesn't pre-empt state usury claims.

In an 11th Circuit opinion that provides a brief history lesson on two Congressional acts dating back to 1789 and 1864, the court determined that the National Bank Act (NBA) does not completely pre-empt state law claims challenging usurious interest rates. A dissenting judge in Anderson v. H&R Block Inc., 287 F.3d 1038 (2002), however, said he found language in a law predating the NBA's enactment in 1864 that shows that the usury rate action can be filed only in federal court.

The 11th Circuit's decision also departs from the Eighth Circuit's ruling in M. Nahas & Co. v. First National Bank of Hot Springs, 930 F.2d 608 (1991), which held that the NBA's Section 86 completely pre-empts state law usury claims.

Twenty-six customers of H&R Block who had taken out tax refund anticipation loans from Beneficial National Bank, alleged that Block and the bank violated Alabama's usury rate laws. Asserting that the state law usury claims should be recharacterized as federal claims under the doctrine of complete pre-emption because they were covered by Sections 85 and 86 of the NBA, Beneficial and Block removed the case to federal court.

On the plaintiff's motion to remand back to state court, the district court held that removal was proper because federal question jurisdiction existed based on complete pre-emption. The district court, recognizing that the issue was unsettled in the 11th Circuit, certified an interlocutory appeal to determine whether the NBA provisions pre-empt state law usury claims so as to confer removal jurisdiction.

The majority of the 11th Circuit panel, in an opinion by Judge Wilson, held that complete pre-emption, which means that a federal forum is mandated, was not what Congress intended when it enacted the NBA in 1864. Complete pre-emption, the court pointed out, is a different animal from "ordinary pre-emption," which can be asserted in state court and applied by state judges. The court noted that the U.S. Supreme Court has found complete preemption under only two federal statutes: Section 301 of the Labor Management Relations Act and Section 502(a) of the Employee Retirement Income Security Act.

Examining the legislative history surrounding enactment of the NBA, the court noted that Congress allowed suits under the act to be filed in either federal or state court, and it did not provide for removal. Through an amendment to the NBA four years later, Congress provided that corporations organized under federal law could remove a case from state to federal court by filing a petition, but excepted national banks from the removal power. Finding no clear Congressional intent to permit removal under either Section 85 or 86 of the NBA, the court held that these sections may provide a defense to state law usury claim, but they do not accomplish complete pre-emption so as to permit removal.

In declining to follow the Eighth Circuit's holding in M. Nahas, the 11th Circuit explained that the Eighth found complete pre-emption without examining Congressional intent.

Dissenting, Judge Tjoflat found sound Congressional intent in the Judiciary Act of 1789 to support his conclusion that the two sections of the NBA completely preempt state law usury claims. The Judiciary Act, enacted by the first Congress, made clear that suits for penalties and forfeitures incurred under the laws of the United States were squarely in the district courts' exclusive jurisdiction, he wrote. He dissenter also noted that the NBA's Section 86 provided that one who has been charged a usurious interest rate may seek a judgment declaring forfeiture of the entire interest sought or bring suit to recover twice the amount collected as a penalty to the lender. Since plaintiffs' actions either sought forfeiture or a penalty under federal laws, he concluded that they had to be filed in federal court.
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Author:Sanders, Carol McHugh
Publication:Defense Counsel Journal
Geographic Code:1USA
Date:Jul 1, 2002
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