Giannangeli v. Target National Bank, N.A.

Filing 28

ORDER granting 7 Defendant Target National Banks Motion for Dismissal With Prejudice Under Rule 12(b)(6, by Judge William J. Martinez on 8/2/2012.(ervsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 11-cv-02154-WJM-MEH
MARIE T. GIANNANGELI,
Plaintiff,
v.
TARGET NATIONAL BANK, N.A.,
Defendant.

ORDER GRANTING DEFENDANT’S MOTION TO DISMISS

This matter is before the Court on Defendant Target National Bank’s Motion for
Dismissal Under Rule 12(b)(6) (the “Motion”). (ECF No. 7.) The Motion seeks
dismissal of Plaintiff Marie T. Giannangeli’s Complaint and Jury Demand Including
Complaint for Class Action (the “Complaint”). (ECF No. 1.) The Motion is fully briefed
(see also ECF No. 17, 18), and ripe for adjudication. For the following reasons, the
Motion is GRANTED.
I. BACKGROUND
Plaintiff filed this action on August 17, 2011. (ECF No. 1.) In the Complaint,
Plaintiff challenges the interest rates that Defendant has charged her on her Target
“REDcard” credit card, alleging that “Target [has] always charged Plaintiff . . . a
minimum interest charge of 25.99%.” (Id. ¶ 5.)1 The Complaint brings both an
individual claim and a putative class action claim, alleging that Target, by charging these
1

This relationship between Plaintiff and Defendant is governed by a credit card
agreement entered into by Plaintiff in 2009. (Id. ¶¶ 4-5.)

rates to Plaintiff and other customers, has violated the National Banking Act, 12 U.S.C.
§ 85. (Id. ¶¶ 17-22.) While the Court discusses Plaintiff’s arguments in more detail
below, Plaintiff’s case is premised on the argument that Defendant is not allowed to
charge her more than the seven percent maximum interest rate found in 12 U.S.C. § 85.
(Id. ¶¶ 7-10, 17-22.)
On October 3, 2011, Defendant filed its Motion to Dismiss. (ECF No. 7.)
Defendant’s basic argument is that the interest rate allowed by South Dakota law (and
not that in 12 U.S.C. § 85) applies, and that South Dakota law allows Defendant to
charge Plaintiff the interest rate for which the parties contracted. (See id.)
On November 7, 2011, Plaintiff filed a Response to the Motion. (ECF No. 17.)
On November 22, 2011, Defendant filed a Reply. (ECF No. 18.).
II. LEGAL STANDARDS
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to
dismiss a claim in a complaint for “failure to state a claim upon which relief can be
granted.” In evaluating such a motion, a court must “assume the truth of the plaintiff’s
well-pleaded factual allegations and view them in the light most favorable to the
plaintiff.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
2007). In ruling on such a motion, the dispositive inquiry is “whether the complaint
contains ‘enough facts to state a claim to relief that is plausible on its face.’” Id. (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Granting a motion to dismiss “is
a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the
liberal rules of pleading but also to protect the interests of justice.” Dias v. City & Cnty.
of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quotation marks omitted). “Thus, ‘a
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well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of
those facts is improbable, and that a recovery is very remote and unlikely.’” Id. (quoting
Twombly, 550 U.S. at 556).
III. ANALYSIS
The parties agree that the viability of Plaintiff’s Complaint turns on the proper
interpretation of 12 U.S.C. § 85. That statute provides, “Any association may take,
receive, reserve, and charge on any loan . . . interest at the rate allowed by the laws of
the State . . . where the bank is located.” 12 U.S.C. § 85 (emphasis added). The
statute continues, “When no rate is fixed by the laws of the State . . ., the bank may
take, receive, reserve, or charge a rate not exceeding 7 per centum . . . .” Id. (emphasis
added).
The parties also agree that Defendant is located in South Dakota, and so,
applying 12 U.S.C. § 85, the Court should evaluate what interest rate is “allowed” by
South Dakota law and whether South Dakota law “fixe[s]” an interest rate. The
governing South Dakota statute provides,
Unless a maximum interest rate or charge is specifically established
elsewhere in the code, there is no maximum interest rate or charge, or
usury rate restriction between or among persons, corporations, limited
liability companies, estates, fiduciaries, associations, or any other entities
if they establish the interest rate or charge by written agreement. A written
agreement includes [credit card agreements].
S.D. Codified Laws § 54-3-1.1 (emphasis added); see also id. § 54-11-9.
Plaintiff’s case hinges on the argument that, because South Dakota does not “fix”
a particular specific maximum interest rate, then South Dakota does not “fix” an interest
rate within the meaning of 12 U.S.C. § 85, and so 12 U.S.C. § 85’s maximum interest
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rate of seven percent applies. 12 U.S.C. § 85 can certainly be read that way (although
it is also susceptible to contrary interpretations2). However, Plaintiff’s interpretation of
12 U.S.C. § 85 has been uniformly rejected in the case law, including controlling
authority from the United States Supreme Court. Instead, courts have consistently held
that, where a state law allows parties to contract for any interest rate, a national bank
located in that state may contract for any interest rate, and is not limited by the seven
percent cap in 12 U.S.C. § 85.
In Daggs v. Phoenix National Bank, 177 U.S. 549 (1900), the Supreme Court
resolved the precise issue presented here (interpreting a prior, but virtually identical,
version of 12 U.S.C. § 85, and a state law equivalent to that involved here).3 The Court
held that the proper interpretation of the federal statute is that a national bank “may
charge interest at the rate allowed by the laws of the state or territory where it is
located,” and that the term “‘fixed by the laws’ [under the statute] must be construed to
mean ‘allowed by the laws,’ not a rate expressed in the laws.” Id. at 555 (emphasis in
original). The Court explained that adopting the appellant’s interpretation of the federal
statute would put national banks at a significant competitive disadvantage with state
banks, which Congress could not have intended in passing the statute, stating that “[t]he

2

E.g., the interpretation arrived at by the Supreme Court in Daggs v. Phoenix National
Bank, 177 U.S. 549 (1900), discussed directly below.
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The language of that statute, as interpreted by Daggs, provided, “[A] national bank may
charge on any note interest at the rate allowed by the laws of the state or territory where it is
situated. . . . [H]owever, that if no rate is fixed by such laws the bank may not charge a greater
rate than 7 per cent . . . .” Id. at 554 (citing §§ 5197 and 5198 of the Revised Statutes of the
United States). The governing Arizona statute provided, “Parties may agree in writing for the
payment of any rate of interest whatever on money due or to become due on any contract . . . .”
Id. (citing the governing Arizona statute).

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intention of the national law is to adopt the state law, and permit to national banks what
the state law allows to its citizens and to the banks organized by it.” Id.
Although there is not a substantial amount of case law on this issue, the Court’s
research indicates that every other court that has addressed this issue has followed
Daggs.4 For example, in Hiatt v. San Francisco National Bank, 361 F.2d 504 (9th Cir.
1966), the Ninth Circuit stated that “[w]e cannot avoid the plain direction of the . . .
expressions of the Supreme Court [in Daggs],” and held that “the language of 12 U.S.C.
§ 85 . . . should be construed as meaning that a national association located in a
particular state may charge as much interest as may be legally charged by the state’s
banks under the state’s existing law.” Id. at 507. In Hawkins v. Citicorp Credit Servs.,
Inc., 665 F. Supp. 2d 518 (D. Md. 2009), the court came to the same conclusion in
holding that South Dakota law (the law applicable here) governed, not the seven
percent maximum rate found in 12 U.S.C. § 85. Id. at 523. See also Tully v. Citibank
(South Dakota), N.A., 173 S.W.3d 212, 218 & n.7 (Tex. Ct. App. 2005) (“Assuming that
Citibank is a national bank located in South Dakota, . . . it may charge interest at the
rate authorized by South Dakota.”).5

4

While the Court did its own independent scouring of the case law, it is notable that both
Westlaw and Lexis indicate that there is no negative authority to Daggs.
5

See also Citibank South Dakota NA v. Machleid, No. 63409-7-I, 2010 WL 428006, at *5
(Wash. Ct. App. Feb. 8, 2010) (“Citibank is a national bank located in South Dakota . . . . The
maximum interest rate South Dakota law allows is that interest rate to which the parties agree in
writing. . . . [Thus, the interest rates charged by Citibank] were authorized by South Dakota law
and, thus, were not usurious.”); Citibank (South Dakota), N.A. v. Shapiro, No. 11-P-955, 2012
WL 1172182, at *2 (Mass. Ct. App. Apr. 10, 2012) (same); Higginbottom v. U.S. Bancorp, No
10-CV-04593, 2011 WL 1558681, at *3 (N.D. Cal. Apr. 25, 2011); Keresey v. Nev. Nat’l Bank,
646 P.2d 1224, 1225 n.3 (Nev. 1982).

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Plaintiff has not pointed to any contrary authority on point. Instead, Plaintiff
argues, “Daggs is inconsistent with later Supreme Court authority, is inconsistent with
the legislative history of the [National Banking Act], and assuming it has any remaining
vitality, Daggs should be limited to its facts.” (ECF No. 17, at 5.) The Supreme Court
authority that Plaintiff refers to is Evans v. National Bank of Savannah, 251 U.S. 108
(1919), and Beneficial National Bank v. Anderson, 539 U.S. 1 (2003). Those cases do
not help Plaintiff’s cause for several reasons. First, neither of those cases addressed
the particular issue that is presented here and that was presented in Daggs. Instead,
Evans addressed the National Banking Act’s preemption of state usury law, while
Beneficial National Bank involved the related issue of whether a claim brought in state
court alleging only a violation of state usury law could be removed to federal court.
Thus, those cases’ general statements of law regarding the National Banking Act,
seized upon by Plaintiff as purportedly calling Daggs into question, do no such thing.
Notably, neither of those cases even cite to Daggs. Therefore, Daggs, and not those
cases, continues to be controlling here.
Also, Plaintiff’s focus on the legislative history of the National Banking Act is
misguided because Daggs is controlling Supreme Court precedent interpreting the
relevant provisions of the National Banking Act. See Mass. Mut. Life Ins. Co. v. United
States, 103 Fed. Cl. 111, 162 (Fed. Cl. 2012) (“Although defendant cited extensively to
non-binding legislative history . . ., the Federal Circuit precedent . . . is binding on this
court . . . .”); Rolls-Royce PLC v. United Techs. Corp., No. 1:10cv457, 2011 WL
1740143, at *3 (E.D. Va. May 4, 2011) (“[Plaintiff] urges this Court to ignore . . .
controlling precedent in favor of its own interpretation of the statute by focusing on the
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legislative history; however, a district court cannot ignore binding . . . precedent.”). If
Daggs misinterpreted Congress’s intent in passing the applicable language from the
National Banking Act, Congress could have amended the National Banking Act to reflect
its actual intent. Despite the fact that Congress has amended the National Banking Act
several times since Daggs was decided in 1900, it has not changed the statutory
language governing the issue presented here.
IV. CONCLUSION
In accordance with the foregoing, the Court hereby ORDERS as follows:
(1)

Defendant Target National Bank’s Motion for Dismissal Under Rule 12(b)(6)
(ECF No. 7) is GRANTED; and

(2)

This action is DISMISSED WITH PREJUDICE.
Dated this 2nd day of August, 2012.
BY THE COURT:

_________________________
William J. Martínez
United States District Judge

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