Meluzio, et al. v. Capital One Bank (USA), N.A.

Filing 11

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT: Court REVERSES the order of theBankruptcy Court granting the defendant Capital Ones motions to dismiss and REMANDS these cases to that court for further proceedings consistent with this Opinion. Signed by District Judge Irene M. Keeley on 3/13/2012. (Copy counsel of record via CM/ECF)Associated Cases: 1:11-cv-00058-IMK, 1:11-cv-00059-IMK, 2:11-cv-00033-IMK(jmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JAMES JOSEPH MELUZIO,
Appellant,
v.

CIVIL ACTION NO. 1:11CV58
BANKRUPTCY NO. 1:10BK2083
ADV. P. NO. 1:10AP165
(Judge Keeley)

CAPITAL ONE BANK (USA), N.A.,
Appellee.

MARY KATHERINE ROMEO, and
THOMAS JOSEPH ROMEO,
Appellants,
v.

CIVIL ACTION NO. 1:11CV59
BANKRUPTCY NO. 1:10BK1814
ADV. P. NO. 1:10AP124
(Judge Keeley)

CAPITAL ONE BANK (USA), N.A.,
Appellee.

TINA KAY JONES, and
JASON MICHAEL JONES
Appellants,
v.

CIVIL ACTION NO. 2:11CV33
BANKRUPTCY NO. 2:10BK1935
ADV. P. NO. 2:10AP125
(Judge Keeley)

CAPITAL ONE BANK (USA), N.A.,
Appellee.
MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
These

consolidated

appeals

stem

from

three

adversary

proceedings filed in the United States Bankruptcy Court for the

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
Northern District of West Virginia by the appellants, James Joseph
Meluzio (“Meluzio”), Mary Katherine and Thomas Joseph Romeo (“the
Romeos”), and Tina Kay and Jason Michael Jones (“the Joneses”)
(also

collectively

“the

debtors”)

against

Capital

One

Bank

(“Capital One”). After United States Bankruptcy Judge Patrick M.
Flatley dismissed the proceedings as preempted under the National
Bank Act (“NBA”), these appeals followed. For the reasons discussed
below, the Court REVERSES the decision of the Bankruptcy Court and
REMANDS these cases for further proceedings.
I.
Meluzio, the Joneses, and the Romeos owed unsecured debts to
Capital One. In June, 2010, each began receiving calls from Capital
One attempting to collect on these debts. In response, the debtors
informed Capital One that they had retained counsel and planned to
file for bankruptcy. Despite this, Capital One continued to call
them, as a result of which the bankruptcy attorney for the Joneses
called and also faxed a letter to Capital One verifying his
representation and demanding that it stop contacting his clients.
Counsel for Meluzio and the Romeos did the same. Capital One,
however, continued to make collection calls to the debtors.

2

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
On

September

8,

2010,

the

Joneses

and Romeos

filed

for

Chapter 7 protection in the United States Bankruptcy Court for the
Northern District of West Virginia (“Bankruptcy Court”), and on
December 23, 2010, Meluzio filed as well. As part of the filings in
their cases, the debtors commenced adversary proceedings against
Capital One (dkt. no. 1-4), claiming it had violated § 46A-2-128(e)
of the West Virginia Consumer Credit and Protection Act (“WVCCPA”)
by continuing its collection calls after being informed they had
retained counsel. Capital One responded by moving to dismiss these
state law claims as preempted by the NBA (dkt. no. 1-5).
On March 7, 2011, the Bankruptcy Court granted Capital One’s
motions to dismiss, concluding that, although the NBA did not
expressly preempt § 46A-2-128(e), the appellants’ claims were
preempted under the doctrine of conflict preemption (dkt. no. 111). Pursuant to Fed. R. Bankr. P. 8001 and 28 U.S.C. § 158(a)(1),
Meluzio, the Joneses, and the Romeos appealed that decision to this
Court on April 21, 2011 (dkt. no. 1).

3

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
II.
A.
The Court has jurisdiction over this appeal pursuant to 28
U.S.C. § 158(a). It reviews the Bankruptcy Court’s application of
the law de novo, but may not set aside its findings of fact unless
they are clearly erroneous. In re Biondo, 180 F.3d 126, 130 (4th
Cir. 1999). “A finding is ‘clearly erroneous’ when[,] although
there is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed.” Anderson v. City of Bessemer City, 470
U.S. 564, 573 (1985) (quotations omitted). “This standard plainly
does not entitle a reviewing court to reverse the finding of the
trier of fact simply because it is convinced that it would have
decided the case differently.” Id.
B.
In concluding that the NBA preempted the appellants’ claims,
the Bankruptcy Court relied heavily on two decisions in this
District in which Chief Judge Bailey held that, because § 46A-2128(e) of the WVCCPA more than incidentally affected lending, it
was preempted by the NBA. See Lomax v. Bank of America, N.A., 435

4

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
B.R. 362, 369-70 (N.D.W. Va. Aug. 18, 2010); Frye v. Bank of
America, N.A., No. 3:10CV47, 2010 WL 3244879, at *7 (N.D.W. Va. Aug
16, 2010). After the Bankruptcy Court’s decision, however, the
legal analysis governing preemption by the NBA changed radically
following enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”), and publication of
accompanying amended regulations by the Office of the Comptroller
of the Currency (“OCC”).
As a result of this reset of the law governing, among others,
consumer financial transactions, Chief Judge Bailey abandoned his
reasoning in Lomax and Frye in O’Neal v. Capital One Auto Finance,
Inc., No. 3:10-0040, 2011 WL 4549148, at *7 (N.D.W. Va. Sept. 29,
2011), where he held that the NBA does not preempt subsection
128(e).

Recent

decisions

from

other

district

courts

in

West

Virginia have also reached the same conclusion. See Cline v. Bank
of Am., N.A., No. 2:10-1295, 2011 WL 4857934, at *10 (S.D.W. Va.
Oct. 13, 2011); and Smith v. BAC Home Loans Servicing, LP, 769 F.
Supp. 2d 1033, 1043-44 (S.D.W. Va. 2011).
III.
The doctrine of preemption is rooted in the Constitution’s
Supremacy Clause. See U.S. Const. art. VI, cl. 2. “[T]he purpose of
5

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
Congress is the ultimate touchstone in every preemption case,” and
there is a “basic assumption that Congress did not intend to
displace state law.”

Wyeth v. Levine, 555 U.S. 129, S. Ct. 1187,

1194 (2009); Maryland v. Louisiana, 451 U.S. 725, 746 (1981); S.
Blasting Servs., Inc. v. Wilkes Cnty., 288 F.3d 584, 589 (4th Cir.
2002). The States’ police powers are not to be superceded by
federal law “unless that was the clear and manifest purpose of
Congress.” Wyeth, 129 S. Ct. at 1194-95 (2009); S. Blasting, 288
F.3d at 590.
A federal law may preempt state or local law, however, in any
of three ways:
First, Congress may expressly preempt such laws. Second,
in the absence of express preemptive language, Congress’
intent to preempt state law may be implied when “federal
law so thoroughly occupies a legislative field as to make
reasonable the inference that Congress left no room for
the States to supplement it.” Finally, preemption will
also be implied if state or local law “actually conflicts
with federal law.” Such a conflict occurs “when
compliance with both federal and state regulations is a
physical impossibility, or when state law stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.”
Id. at 590 (citations omitted). In addition to federal statutes,
properly enacted and promulgated regulations may also preempt

6

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
conflicting state or local actions. Anderson v. Sara Lee Corp., 508
F.3d 181, 191 (4th Cir. 2007).
A.
Although the NBA contains no express preemption provision, it
provides national banks with several broad powers and grants the
OCC power to regulate those banks. Pursuant to that regulatory
framework, national banks “are subject to state laws of general
application in their daily business to the extent such laws do not
conflict with the letter or general purposes of the NBA.” Watters
v. Wachovia Bank, N.A., 550 U.S. 1, 10 (2007). Therefore, the
States may “regulate the activities of national banks where doing
so does not prevent or significantly interfere with the national
bank’s or national bank regulator’s exercise of its powers.” Id.
Congress codified these concepts as part of its sweeping reform of
federal financial regulatory oversight in the Dodd-Frank Act.
Among these reforms was an entirely new provision addressing
NBA preemption, 12 U.S.C. § 25b (effective July 21, 2011), which,
in pertinent part, provides:
State consumer financial laws are preempted, only if–
(A) application of a State consumer financial law would
have a discriminatory effect on national banks, in
7

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
comparison with the effect of the law on a bank chartered
by that State;
(B) in accordance with the legal standard for preemption
in the decision of the Supreme Court of the United States
in Barnett Bank of Marion County, N.A. v. Nelson, Florida
Insurance Commissioner, et al., 517 U.S. 25 (1996), the
State consumer financial law prevents or significantly
interferes with the exercise by the national bank of its
powers; and any preemption determination under this
subparagraph may be made clear by a court, or by
regulation or order of the Comptroller of the Currency on
a case-by-case basis, in accordance with the applicable
law; or
(C) the State consumer financial law is preempted by a
provision of Federal law other than title 62 of the
Revised Statutes.
12

U.S.C.

§

25b(b)(1).

Section

25b

defines

“State

consumer

financial law” as a “State law that does not directly or indirectly
discriminate

against

national

banks

and

that

directly

and

specifically regulates the manner, content, or terms and conditions
of any financial transaction (as may be authorized for national
banks to engage in), or any account related thereto, with respect
to a consumer.” Id. § 25b(a)(2).
The OCC has also revised its preemption provision to reflect
the Dodd-Frank Act reforms. See 12 C.F.R. § 7.4008. As amended,
§ 7.4008(e) now provides:
State laws on the following subjects are not inconsistent
with the non-real estate lending powers of national banks
8

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
and apply to national banks to the extent consistent with
the decision of the Supreme Court in Barnett Bank of
Marion County, N.A. v. Nelson, Florida Insurance
Commissioner, et al., 517 U.S. 25 (1996):
(1) Contracts;
(2) Torts;
(3) Criminal law . . .;
(4) Rights to collect debts;
(5) Acquisition and transfer of property;
(6) Taxation;
(7) Zoning; and
(8) Any other law that the OCC determines to be
applicable to national banks in accordance with the
decision of the Supreme Court in Barnett Bank of Marion
County, N.A. v. Nelson, Florida Insurance Commissioner,
et al., 517 U.S. 25 (1996) or that is made applicable by
Federal law.
12 C.F.R. § 7.4008(e) (footnote omitted).
B.
The Dodd-Frank Act and its accompanying regulations thus
clarify that NBA preemption no longer depends on whether a state
law obstructs, impairs, or conditions a national bank’s full
exercise of its lending powers, or more than incidentally affects
the exercise of such powers. Rather, courts are to determine
whether state laws having an effect on national banks are preempted
9

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
by applying the conflict preemption principles articulated in the
Supreme Court’s decision in Barnett Bank. See Cline, 2011 WL
4857934, at *7 (citing 76 Fed. Reg. 43549-01 (Jul. 21, 2011)
(noting that certain regulatory amendments, including the deletion
of the “obstruct, impair, or condition” language, “will remove any
ambiguity that the conflict preemption principles of the Supreme
Court’s Barnett Bank decision are the governing standard for
national bank preemption”)).
In Barnett Bank, the Supreme Court concluded that a federal
statute permitting national banks to sell insurance in small towns
preempted a state statute forbidding the practice. 517 U.S. at 31.
In reaching this conclusion, the Court emphasized that the two
statutes

were

in

“irreconcilable

conflict.”

Id.

Although

the

statutes did not impose directly conflicting duties on national
banks, the state statute authorized banks to engage in practices
that the federal statute expressly forbade, and thus stood as “an
obstacle to

the

accomplishment”

of

one

of the

federal law’s

purposes. Id.
By codifying the Barnett Bank decision, the Dodd-Frank Act
directs courts to determine national bank preemption by analyzing
whether a state statute is irreconcilably in conflict with the NBA.
10

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
Thus, courts must now determine whether the state measure “either
(1) imposes an obligation on a national bank that is in direct
conflict with federal law, or (2) stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.” Cline, 2011 WL 4857934, at *9.
IV.
Applying

these

conflict

preemption

standards

here,

the

question is whether the NBA preempts the appellants’ claims under
§ 46A-2-128(e) of the WVCCPA. Initially, it is worth noting that,
although the Dodd-Frank Act became effective after the commencement
of this action, its provisions apply to the resolution of this
question. In

Chambers v. Reno, 307 F.3d 284, 289 (4th Cir. 2002),

the Fourth Circuit discussed retroactivity, stating:
A new statute does not produce a retroactive effect
“merely because it is applied in a case arising from
conduct antedating the statute’s enactment.” The question
instead is “whether the new provision attaches legal
consequences to events completed before its enactment.”
A statute would attach new legal consequences to prior
events if its application “would impair rights a party
possessed when he acted, increase a party’s liability for
past conduct, or impose new duties with respect to
transactions already completed.”
Id. (citations omitted). Section 25b and § 7.4008 have not impaired
Capital One’s rights, increased its liability, or imposed new
11

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
duties upon it. The present controversy concerns only the question
of NBA preemption, which was equally significant to the parties
before enactment of the recent amendments. These amendments, thus,
“are better understood as clarifications of the law as opposed to
substantive changes thereof, . . . and their application here does
not work an impermissible retroactive effect.” Cline, 2011 WL
4857934, at *8. Accordingly, the Court will apply § 25b and
§ 7.4008, as amended, here.
Section

128

of

the

WVCCPA

makes

it

unlawful

for

debt

collectors to use “unfair or unconscionable means to collect or
attempt to collect any claim.” The appellants allege a cause of
action under subsection 128(e), which specifically prohibits:
Any communication with a consumer whenever it appears
that the consumer is represented by an attorney and the
attorney’s name and address are known, or could be easily
ascertained, unless the attorney fails to answer
correspondence, return phone calls or discuss the
obligation in question or unless the attorney consents to
direct communication.
W. Va. Code § 46A-2-128(e).
Under

§

25b,

NBA

preemption

applies

to

“State

consumer

financial laws.” 12 U.S.C. § 25b(a)(2). Initially, to fit within
this definition, a state law may “not directly or indirectly
discriminate against national banks.” Id. Section 128 of the WVCCPA
12

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
satisfies this part of the definition as it applies generally to
“debt collectors” regardless of their status as national banks. See
Cline, 2011 WL 4857934, at *9.
Subsection 128(e) of the WVCCPA does not fall within the
remainder of § 25b’s definition of a “State consumer financial
law,”

however. Section 25b only preempts statutes that “directly

or specifically regulate[] the manner, content, or terms and
conditions of any financial transaction (as may be authorized for
national banks to engage in), or any account related thereto, with
respect to a consumer.” § 25b(a)(2). Section 128 of the WVCCPA was
not designed to regulate financial transactions or accounts, but
rather to protect West Virginia residents from unfair and abusive
collection practices. See Cline, 2011 WL 4857934, at *10; Chevy
Chase Bank v. McCamant, 512 S.E.2d 217, 224 (W. Va. 1998). When
viewed in this light, subsection 128(e) clearly does not fall
within the definition of “State consumer financial laws” under
§ 25b, and the appellants’ claims are thus not preempted.
Because the appellants’ claims survive NBA preemption under
the Dodd-Frank Act, it necessarily follows that they also are not
preempted under the OCC’s regulatory counterpart, § 7.4008. Both
the Act and the OCC regulation tie preemption to the Barnett Bank
13

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
standard, under which preemption applies only to state laws that
“either (1) impose an obligation that is in direct conflict with
federal law, or (2) stand as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.” Cline,
2011 WL 4857934, at *10.
Section 128 of the WVCCPA does neither. First, its prohibition
on unfair or unconscionable collections practices is not in direct
conflict with any federal law because no law provides for such
conduct.

Nor

does

its

prohibition

on

annoying

and

abusive

collection calls interfere with the purposes and objectives of the
NBA. National banks such as Capital One may still make loans and
collect

debts

but,

like

every

other

debt

collector

in

West

Virginia, they must abide by subsection 128(e)’s proscription on
unconscionable collection practices when doing do. See id.; O’Neal,
2011 WL 4549148, at *6.
V.
For the reasons stated, the Court REVERSES the order of the
Bankruptcy Court granting the defendant Capital One’s motions to
dismiss

and

REMANDS

these

cases

to

that

proceedings consistent with this Opinion.

14

court

for

further

MELUZIO V. CAPITAL ONE BANK
ROMEO, ET AL. V. CAPITAL ONE BANK
JONES, ET AL. V. CAPITAL ONE BANK

1:11CV58
1:11CV59
2:11CV33

MEMORANDUM OPINION AND ORDER REVERSING THE ORDER OF THE
BANKRUPTCY COURT AND REMANDING CASES TO THE BANKRUPTCY COURT
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to the Clerk of the United States Bankruptcy Court for the Northern
District of West Virginia and to counsel of record.
DATED: March 13, 2012

/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT

15

JUDGE