Beneficial National Bank, et al. v. Anderson, Marie, et al. (06/02/2003)

Questions presented: Whether a usury claim against a national bank, even if ostensibly brought under state law, necessarily arises under section 30 of the National Bank Act, 12 U.S.C. ?? 85-86, so as to permit a federal court to exercise removal jurisdiction under the doctrine of complete preemption?

BY MATT DUEHOLM, MEDILL NEWS SERVICE

Odds are we all know someone suing H&R Block Inc. An estimated 18 million people are involved in a class action against the Kansas City-based tax advisor because of its "rapid refunds."

The rapid refund program, offered by Block through partner banks, provides quick money against the borrowers tax refund. When the money from the IRS comes, it goes straight to the bank. Although Block and its partner banks dont classify these payments as loans, critics call them usurious. Calculating the interest on the refunds as if they were loans shows an annual interest rate approaching 200 percent.

Marie Anderson and 25 other Alabamans opted out of the class action suit and sued Block and its partner Beneficial National Bank in state court, alleging that the refunds violated Alabamas usury laws.

Block and Beneficial argued that usury claims fall under the National Banking Act of 1864, and as such could be removed to a federal court.

A federal district court in Alabama ruled in favor of the bank, allowing removal, but on April 3, 2002, a divided 11th Circuit Court of Appeals reversed, ordering the case remanded to Alabama state court.

The 11th Circuit majority said state claims couldnt be removed to federal court unless Congress clearly intended such a removal. There is no such Congressional intent here, concluded the opinion, written by Charles Wilson, because the banking act was enacted 11 years before Congress enacted a removal statute.

The dissent, written by Judge Gerald Tjoflat, argued that the 1789 Judiciary Act intended for federal courts to settle claims of usury. One penalty for usury is forfeiture, or giving up the interest on the loan, and Tjoflat wrote that the Judiciary Act makes forfeiture a federal matter.

On Jan. 24, 2003, the U.S. Supreme Court accepted review in the case.

The issue now before the Court is whether the doctrine of "complete preemption" allows this usury case to be removed from state to federal court.

Normally a case can be heard in federal court only if the plaintiffs claim is based on federal law. The doctrine of complete preemption allows a defendant to remove a state law claim to federal court if the defense falls under federal law.

So far the Supreme Court has recognized complete preemption under only two federal statutes: the Labor Management Relations Act and the Employee Retirement Income Security Act (ERISA). Beneficial Bank argues that the doctrine of complete preemption applies to any usury claim against a national bank, because the National Banking Act of 1864 regulates such claims.

The location of the court matters because the bank and Block think they will get a more favorable hearing in federal court, while the Alabama plaintiffs feel they will get a fairer shake in state court.

"These banks arent dummies," said Walter Calton, an attorney representing Anderson. "If the banks want you in federal court, you assume its for a reason."

Although the Supreme Court is being asked to rule on a narrow issue, lawyers on both sides said the ramifications could be far-reaching.

Brian Duffy, one of Beneficials attorneys, said the case "is certainly important to the national banks and how they do business, [so] that they can be assured of uniform application of the law everywhere."

Brian Clark, an Anderson attorney, said a Supreme Court decision for the bank would be a "stepping stone," adding that "any garden variety claim involving interest or anything else having to do with national banks will get removed to the federal courts."

"This [case] is the opening salvo in a battle [to determine] whether the national banks are exempt from state action," Calton declared.

On June 2, 2003, the Court reversed, holding 7-2 that the action to recover damages from a national bank for allegedly charging excessive interest in violation of both the "common law usury doctrine" and an Alabama usury statute, arose only under federal law and could therefore be removed to federal court.

Writing for the majority, Justice John Paul Stevens concluded that the National Bank Act provides the exclusive cause of action for usury claims against national banks.

Justices Antonin Scalia and Clarence Thomas dissented.