Opposition Brief — Chevy Chase Bank, F. S. B. v. Wells

No. 03-918

In th

Supreme Court of the United States

CHEVY CHASE BANK, FSB., etal.

Petitioners,

vz.

DALE WELLS, et al.,

Respondents.

On Petition for a Writ for Certiorari to

the Maryland Court of Appeals

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT FOR CERTIORARI

F. Paul Bland, Jr. Arthur H. Bryant

(Counsel of Record) TRIAL LAWYERS FOR

Leslie Brueckner PUBLIC JUSTICE

Michael J. Quirk One Kaiser Plaza

TRIAL LAWYERS FOR Suite 275

PUBLIC JUSTICE Oakland, CA 94612

1717 Massachusetts Ave., NW, Suite 800 (510) 622-8150

Washington, D.C. 20036

(202) 797-8600

John T. Ward

Robert B. Kershaw

WARD KERSHAW, P.A.

113 West Monument Street

Baltimore, MD 21201

(410) 685-6700

Counsel for Respondents

Beha aa age

EN Ant,

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Page.

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Table of Contents

Page(s)

DEAL eres Ce BREE GABE 6c ccc deevscsecscees 1

a sees © GC AACIRIINEEOE occ cc scvvuceociusvaces 4

REASONS FOR DENYING THE WRIT .............. 8

I. THE COURT HAS NO JURISDICTION TO

REVIEW THE MARYLAND COURT OF

APPEALS’ INTERLOCUTORY ORDER.......... 8

II]. THE DECISION BELOW DOES NOT CONFLICT

WITH ANY DECISION OF THIS COURT ....... 13

A. THIS COURT HAS HELD THAT

FEDERAL PREEMPTION ONLY

APPLIES TO POSITIVE STATE LAW

REQUIREMENTS, NOT TO STATE

LAWS ENFORCING VOLUNTARY

CONTRACTUAL PROMISES ............-. 13

B. VOLUNTARILY UNDERTAKEN

CONTRACTUAL OBLIGATIONS DO NOT

SUDDENLY BECOME PREEMPTED

MERELY BECAUSE THEY ARE

CONTAINED IN A CHOICE-OF-LAW

a re ee ee rer rere 15

ii

III.

IV.

C. THE DECISION BELOW DOES NOT

CONFLICT WITH THIS COURT’S HOLDING

ei oe pe 5) yf ener marer ram oe ¢ 17

THERE IS NO SPLIT OF LOWER COURT

AUTHORITY WARRANTING THIS COURT’S

THE DECISION BELOW IS NOT IN CONFLICT

WITH THE OTS’s REGULATIONS ............. 22

THIS CASE POSES NO POLICY CONCERNS

WORTHY OF THIS COURT’S REVIEW ........ 25

CRRLBAIGON. ic cnc entieentecnee © sneer 29

ill

Table of Authorities

Cases

American Airlines v. Woilens, 513 U.S. 219 (1995) .. Passim

Ass'n of Int'l Auto. Mfrs. v. Commissioner,

Mass. Dep’t of Environmental Protection,

a 14

Atkinson v. General Electric Credit Corp.,

866 F.2d 396 (11" Cir.), cert. denied,

a 20, 21

Brown v. Investors Mortgage Company, 121 F.3d 472

ey a is eax siassiceceececes. 21

C & L Enter., Inc. v. Citizen Band Potawatomi

Indian Tribe, 532 U.S. 411 (2001) ............... 28

Cent. States Health & Welfare Fund v. Pathology

~ Labs., 71 F.3d 1251(7" Cir. 1995),

cert. dented, 17 U.S: 1233 (1996) ............... is

Cipollone v. Liggett Group, Inc.,

a 13

Cox Broadcasting Corp. v. Cohn,

| 4, 9-11

iv

Derenco, Inc. v. Benjamin Franklin Federal Savings &

Loan Ass’n, 577 P.2d 477 (Ore.), cert. denied,

OP Us SOOT OTD ob oo ors ees ast kee 25

Fantastic Flakes, Inc., v. Pickwick Intern., Inc.,

G61 F200" Ge: VOR) oon kg cee cic stan 21

Fidelity Federal Savings & Loan Association v.

De la Cuesta, 458 U.S. 141 (1982) ......... 6. 17, 18

Flanagan vy. Germania, F.A., 872 F.2d 231

Or oa eer eee tc eae 24

Florida v. Thomas, 532 U.S. 774 (2001) .........000.. 1]

Jefferson v. City of Tarrant, Ala., 522 U.S. 75 (1997)... 9, 10

Koynenbelt v. Flagstar Bank, 617 N.W.2d 706

Soe. Se UE 60d 658s eee seen 25

Michael v. Shiley, Inc., 46 F.3d 1316 (3° Cir.),

cert. denied, $16 U.S. $15 (1995) ......0000ce0.. 14

Morales v. Trans World Airlines, Inc.,

ee re oe eng eens ee nares 28

ProCad, Inc. v. Zeidenberg, 86 F.3d 1447

Pre eet as pas Oc a me ea 14

Roadway Package System, Inc. v. Kayser,

257 F.3d 287 (3rd Cir.), cert. denied,

Dae om Gy oe CES oa Sk ew as bo ee 19-21, 25

Seigel v. American Savings & Loan Ass’n,

pe eS eS) 24

Smith vy. Comair, Inc., 134 F.3d 254 (4" Cir. 1998) ..... 21

Tuxedo Beach Club Corp. v. City Federal Savings Bank,

Fee ©. BP. GIS CON. U9) oi ccc ees 24

Volt Information Sciences, Inc. v. Board of

Trustees of Leland Stanford Junior

University, 489 U.S. 468(1989) ............ 6, 16, 17

Williams v. First Gov't Mort. And Investors Corp.,

bre re Orr , Ce, POOP) ooo kk vccasekcesss 12

Regulations and Statutes

We EE ss he oe shee es 4,8

Pe ee ee eet ne eee ee ee ee 18, 22, 23

ee ee Ps ere ches cr awceca tien cin 12

Gl Fed. Reg: S0RGG .......cccues ere Pees rr re 23

Md. Code Ann., Comm. Law I, §12-9 ............ Passim

vi

STATEMENT OF THE CASE

Petitioner Chevy Chase, F.S.B. (“Chevy Chase”) has issued

credit cards to thousands of customers nationwide. Prior to

1996, Chevy Chase had its headquarters in Maryland, where a

state usury statute caps credit card and other interest rates at

24%. In its agreements with its card holders (“the Maryland

Agreement), Chevy Chase acknowledged this cap and

specifically promised that it would “never” raise their interest

rates over 24%.

In the Maryland Agreement, Chevy Chase also contracted

to amend the Maryland Agreement only “in accordance with

applicable law.” The contract further specified that it was

“governed by Subtitle 9 of Title 12 of the Commercial Law

Article of the Maryland Annotated Code and applicable federal

laws.” Subtitle 9 requires, inter alia, notice of amendments to

the cardholder with the opportunity to decline the amendments

and terminate the card holder agreement.’

In January 1996, Chevy Chase announced in its billing

ee

' Subtitle 9 obligates any credit grantor to provide notice of any

proposed amendments to plan provisions regarding interest rates, finance

charges, or any other fees charged to its customers, along with a statement

that a second notice will be sent in the card holder’s next billing statement.

Md. Code Ann., Comm. Law I, §12-912(b). The first notice must be sent in

an envelope bearing on its face, in 10 point type, a statement “that an

important notice of an increase in rates or fees” is enclosed. /d. § 12-

912(b)(8). The second notice must contain the same substantive information

as the first notice and be presented in the same format. /d. § 12-912(c){2).

Subtitle 9 also obligates credit grantors to provide card holders notice of

their right to refuse to accept new contract terms. See id. §12-912(b){7).

’

statements that it was officially changing its headquarters to

Virginia. It then attempted to replace the Maryland Agreement

with anew and different one (“the Virginia Document’). Under

the terms of the Virginia Document, interest rates are not

subject to a maximum limit. Chevy Chase then raised interest

rates well over 24%. The Virginia Document also increased

late fees from $15 to $20 and imposed an entirely new $20

penalty if a card holder exceeds his or her credit limit. Chevy

Chase did not include any of the statements required by Subtitle

9 in the Virginia Document, the mailing envelope or the billing

statement in which it was enclosed, and it did not second the

second required notice.

An extensive and undisputed factual record establishes that

Chevy Chase buried the notice of this amendment in a manner

that ensured that it was not noticed by consumers. A marketing

expert testified that the amendments were communicated in a

method that was “ineffective from a communications

standpoint. In other words, the vast majority of Chevy Chase’s

card holders were unlikely to notice or become aware of this

change to their cardholder agreement.” The named plaintiffs

also testified that they had never seen the Virginia Document,

and evidence of a sample of 136 card holders demonstrated that

not a single one of these customers recalled seeing the Virginia

Document.

This putative class action was filed in Maryland state court

in 1999. The card holder plaintiffs allege that Chevy Chase

breached its contracts with its card holders by raising the

interest rates above 24% and imposing various other new or

higher fees upon the card holders.

After the consumer plaintiffs filed their complaint and

discovery requests, the case became bogged down over Chevy

Chase’s claim that the plaintiff consumer card holders were

required to arbitrate their claims. The Maryland Court of

Appeals unanimously held that Chevy Chase’s contract did not

permit it to force plaintiffs into arbitration. Wells v. Chevy

Chase Bank, 768 A.2d 620 (Md. 2001).

The case was remanded to the trial court for proceedings

on the merits. The plaintiffs propounded discovery requests

relating to the reasons that Chevy Chase drafted the card holder

agreement to refer to Subtitle 9, and Chevy Chase refused to

respond on the grounds that the requested information was

irrelevant.

Chevy Chase moved to dismiss the entire action on the

ground that plaintiffs’ claims are preempted by the Home

Ownership Lending Act (“HOLA”) and the Office of Thrift

Supervision (“OTS”)’s regulations promulgated under that Act.

In connection with its motion to dismiss, Chevy Chase argued

that when it had drafted the reference to Subtitle 9 in the card

holder agreement, it had only intended that reference to refer to

the provisions of Subtitle 9 relating to interest rates, not the

provisions of Subtitle 9 relating to the notice to be provided to

class members. Chevy Chase offered no evidence to support

this statement about its intentions, but reaffirmed its position

that it would not respond to discovery on the topic as it was

irrelevant.? The trial court dismissed the case on the grounds

> In the Petition for Certiorari, Chevy Chase again argues that it

have never intended to follow the notice provisions of Subtitle 9. Pet. at 3

n. I.

that HOLA preempted plaintiffs’ contract claims.

The Maryland Court of Appeals reversed the trial court,

finding that plaintiffs’ breach of contract claims were not

preempted. The Court of Appeals noted that the OTS

regulations contain an express exemption from preemption for

contract actions, App. 22a, and that this Court had rejected the

idea that preemption applied to terms voluntarily agreed to in

private contracts in American Airlines v. Wolens, 513 U.S. 219

(1995). App. 27a. The Court noted that there was no conflict

with federal law if Chevy Chase chose to comply with Subtitle

9, App. 35a, and left to the trial court the question of whether

Chevy Chase did choose to comply with Subtitle 9 in the

contract. App. 42a. Chevy Chase has subsequently moved for

summary judgment on that contract interpretation issue. Chevy

Chase’s brief in support of its motion makes many of the same

arguments in support of its position on contract interpretation

that Chevy Chase’s Petition for Certiorari makes in support of

its federal preemption arguments.

SUMMARY OF ARGUMENT

The Petition for Certiorari should be denied because the

decision below is not a final judgment or decree within the

meaning of 28 U.S.C. § 1257(a). The decision merely reverses

a trial court opinion granting a motion to dismiss, and no state

court has yet passed upon the merits of the parties’ positions on

contract interpretation, class certification, damages or the like.

This case falls into none of the four prudential exceptions that

that this court recognized to the § 1257(a) finality rule in Cox

Broadcasting Corp. v. Cohn, 420 U.S. 469 (1974). This Court

should not exercise its jurisdiction over this case on the ground

that Chevy Chase is afraid that at some future point it may lose

on its contract defenses in the state court.

Even if the decision below were a final decision, however,

this case does not justify a grant of certiorari. Chevy Chase

claims that the decision below contradicts the decisions of this

Court. This Court has directed, however, that federal law does

not bar a party from agreeing to follow a state law that would

otherwise be preempted, unless the promise itself would

conflict with federal law. See American Airlines v. Wolens, 513

U.S. 219, 228 (1995). In Wolens, this Court explained that

federal preemption involves the imposition of state law upon a

party, not obligations voluntarily undertaken. Wolens’ holding

demonstrates that Chevy Chase’s real concern is with the

interpretation of its contract, because if the plaintiffs are right

that Chevy Chase voluntarily chose to promise to comply with

all of Subtitle 9, then Wolens conclusively establishes that there

is no federal preemption. Whether the Maryland courts will

agree that Chevy Chase voluntarily chose to comply with

Subtitle 9 is yet to be seen.

Chevy Chase argues in its Petition that Wolens does not

apply, because Wolens did not involve a choice-of-law clause.

Chevy Chase’s proposed distinction of Wolens fails for two

reasons. First, it does not respect the Court’s underlying

rationale — if the choice-of-law provision here can be fairly

interpreted under the normal principles of contract

interpretation to find that Chevy Chase voluntarily agreed to

comply with Subtitle 9, then Subtitle 9 was not “imposed” upon

Chevy Chase and there can be no federal preemption. In this

case, the specific language of the agreement drafted by Chevy

Chase makes such an interpretation reasonable.

Second, this Court has held previously that a party can

agree to follow an otherwise preempted state law through the

operation of a choice-of-law provision. In Volt Info. Sciences

v. Bd of Trustees, 489 U.S. 468 (1989), the Court affirmed a

state court ruling that a party had agreed in a choice-of-law

provision to follow California law even though federal law

might have dictated a different result.

Chevy Chase claims that the decision below conflicts with

this Court’s decision in Fidelity Federal Savings & Loan

Association v. De la Cuesta, 458 U.S. 141 (1982). De la Cuesta

is distinguishabie on two grounds. First, unlike this case, De la

Cuesta involved a generic choice-of-law provision that referred

generally to the law of a state, but that did not identify any

particular state statute. Second, De la Cuesta involved a body

of state law that conflicted with federal law. This Court noted

that an enumerated federal regulation specifically permitted

banks to include certain clauses in their contracts, and that the

state law that the plaintiffs claimed was incorporated by the

generic choice-of-law provision directly conflicted with that

regulation. In this case, by contrast, there is no conflict between

the purpose or operation of federal law and Chevy Chase giving

the sort of notice specified in Subtitle 9.

Chevy Chase argues that this Court should grant certiorari

because there is a conflict on questions of federal law between

the opinion below and several decisions from lower federal

courts. In fact, none of the cases cited by Chevy Chase

constitute genuine conflicts with the decision below. First, the

language of the choice-of-law provision in this case is uniquely

specific. Chevy Chase cites to several cases that involve

general choice-of-law provisions that refer to all of the laws of

a state, but do not specifically promise to comply with any

particular state statute or law. The choice-of-law provision

involved in this case, by contrast, specifically identifies by

citation a particular state statute that specifies the manner that

a credit card issuer must give notice of changes in the terms of

an agreement.

In addition, most of the cases cited by Chevy Chase are not

based on any discussion of principles of federal preemption, but

are merely exercises in the interpretation of contracts.

Accordingly, rather than identifying a genuine conflict on

principles of law, all Chevy Chase has demonstrated is that

different courts interpreting different contracts. (that use

different language) have reached different conclusions about

what the parties to those contracts intended. This hardly

justifies the exercise of this Court’s jurisdiction.

Third, several of the cases cited by Chevy Chase as

conflicting with the opinion below involve contractual promises

whose enforcement would have conflicted with the operations

and goals of federal law. In this case, by contrast, it would not

conflict with federal law for a lender to voluntarily agree to

comply with Subtitle 9.

Chevy Chase also claims that the decision of the Court

below contradicts the regulations of the OTS, which Chevy

Chase claims occupy the field. It is true that OTS has said that

its regulations preempt the field, but those regulations include

a savings Clause that specifically exempts contract claims from

this field preemption. Chevy Chase’s only response, again, is

to assert that the plaintiffs’ claims are not really contract claims

because it never really intended to promise to follow state law.

Finally, Chevy Chase closes with dire predictions of

disaster if the opinion below is not overturned. These

predictions, like Chevy Chase’s federal preemption theory, arise —

from the assumption that no honest court could interpret the

choice-of-law provision in this case as evidencing an intention

to comply with Subtitle 9. Chevy Chase conjures up a grim

vision of results-oriented state courts dishonestly

misinterpreting contracts in order to circumvent the OTS. See,

e.g., Pet. at 7 (expressing fear that state courts will use the ‘back

door of ‘contract interpretation’” to serve their “vested

interests.”) These attacks upon state courts are insulting and

without basis. Indeed, as this opposition will establish, the

most reasonable reading of the language of the contract in this

case demonstrates that Chevy Chase did promise to and intend

to follow all of Subtitle 9.

REASONS FOR DENYING THE WRIT

I. THE COURT HAS NO JURISDICTION TO REVIEW

THE MARYLAND COURT OF APPEALS’

INTERLOCUTORY ORDER.

The petition should be denied for want of this Court’s

jurisdiction. Congress has limited this Court’s authority to

review State-court decisions to those cases where a State court’s

judgment is final. The jurisdictional statute provides that

“flinal judgments or decrees rendered by the highest court of

a State in which a decision could be had, may be reviewed by

the Supreme Court by writ of certiorari...” 28 U.S.C. §

1257(a). This provision creates a “firm final judgment rule,”

under which a State court’s decision must be final in two senses

to be reviewable: “it must be subject to no further review or

correction in any other state tribunal; it must also be final as an

effective determination of the litigation and not of merely

interlocutory or intermediate steps therein.” Jefferson v. City of

Tarrant, Ala., 522 U.S. 75, 81 (1997) (citation omitted). Here,

the State court’s decision below is not final because it rejected

Chevy Chase’s preemption defense and remanded the case for

further proceedings on the merits of the plaintiffs’ breach of

contract claims. Therefore, this Court does not have

jurisdiction to review the State court’s decision at this time.

This case does not fall within any of the four prudential

exceptions to Section 1257's finality requirement that this Court

has recognized. See Cox Broadcasting Corp. v. Cohn, 420 U.S.

469, 477-85 (1974) (listing and explaining exceptions). First,

this is not a case where “the federal issue is conclusive and the

outcome of further proceedings preordained.” Jd. at 479. To

the contrary, the Maryland Court of Appeals declined to finally

answer the contract interpretation question that will determine

the merits of the plaintiffs’ breach claims, Pet. App. at 35an.13,

and instead remanded the case to the trial court for further

proceedings on this and other issues. Pet. App. at 42a. Since

the outcome of the state court litigation on the merits of the

contract interpretation and breach questions is not preordained,

the first Cox Broadcasting exception does not apply here.

For largely the same reason, the second exception also does

not apply since this is not a case where “the federal issue,

finally decided by the highest court in the State, will survive

and require decision regardless of the outcome of future state-

court proceedings.” Cox Broadcasting, 420 U.S. at 480. The

federal preemption issue is not guaranteed to survive the State-

court proceedings on remand because a ruling for Chevy Chase

on the contract interpretation and breach issues would moot the

bank’s preemption defense. See, e.g., Jefferson v. City of

Tarrant, 522 U.S. at 82 (finding lack of jurisdiction in part

because “[r]esolution of the state-law claims could effectively

moot the federal-law question raised here.”) Since either the

plaintiffs or Chevy Chase could prevail on the state law issues

to be litigated on remand, neither of the first twe Cox

Broadcasting exceptions to Section 1257's finality requirement

applies here.

Likewise, the third Cox Broadcasting exception does not

apply because this case does not involve a situation where “the

federal claim has been finally decided, with further proceedings

on the merits in the state courts to come, but in which later

review of the federal issue cannot be had, whatever the outcome

of the case.” Cox Broadcasting, 420 U.S. at 481. In Cox

Broadcasting, the Court described this exception as applying to

cases where there are legal impediments that could prevent a

party from appealing an adverse judgment, such as in a criminal

case where a State would be barred on remand from appealing

after an acquittal. Jd. at 481-82. There are no such legal

impediments here because, even if the Maryland courts adhere

to the ruling below as “law of the case,” that would not bar

Chevy Chase from seeking review on the federal issue after

there is a final State-court judgment. See Jefferson v. City of

Tarrant, 522 U.S. at 82-83.

Finally, this is not a case where the fourth Cox

Broadcasting exception applies. The fourth exception applies

in cases where, even though the party seeking review could

prevail! on the merits on non-federal grounds in the state court

proceedings on remand, this Court’s immediate review is

10

nonetheless deemed necessary because “a refusal immediately

to review the state court decision might seriously erode federal

policy.” Cox Broadcasting, 420 U.S. at 482-83. The Court has

applied this exception in cases where the federal law issue

concerned the proper forum for resolving the merits of a dispute

so that delayed review in deference to state court proceedings

would effectively erode the federal policy interest at issue

regardless of the outcome on the merits. Jd. at 483 (describing

prior case law). The Court has also applied this exception in

First Amendment cases, such as Cox Broadcasting itself, where

the delayed resolution of an “important question of freedom of

the press under the First Amendment” would “leave the press

in Georgia operating in the shadow of the civil and criminal

sanctions of a rule of law and a statute the constitutionality of

which is in serious doubt.” Jd. at 486. At the same time,

however, the Court has rejected a state’s attempt to invoke this

exception in a case involving Fourth Amendment search-and-

seizure issues, finding instead that “the State can make no claim

of serious erosion of federal policy that is not common to all

run-of-the-mine decisions suppressing evidence in criminal

trials.” Florida v. Thomas, 532 U.S. 774, 780 (2001).

The fourth Cox Broadcasting exception to Section 1257's

finality requirement does not apply here because the federal law

question at issue does not implicate the propriety of state court

proceedings in this case and does not allege a serious erosion of

federal policy. The only imaginable argument that Chevy

Chase might propose as to how this case constitutes an erosion

of federal policy would be if it would conflict with federal law

for Chevy Chase to promise — and then keep its promise — to

follow Subtitle 9.

1]

In fact, there is no conflict between the making and

keeping of this promise and federal law. Chevy Chase has

acknowledged, Pet. at 9, that it could have both promised to

follow and actually followed Subtitle 9 without any conflict

with federal law. While Chevy Chase asserts that express

language was necessary to make such a promise, the existence

of a conflict between federal and state law cannot depend upon

the presence of any “magic words.” In addition, the federal

statute relied upon by Chevy Chase, HOLA, does not address

how notice must or may be given of credit card contract

amendments. Nor do the OTS regulations. In fact, the OTS

itself has recognized in the context of home loans that loan

adjustments or amendments must be made the subject of lender

contracts since they are not the subject of federal laws. “The

OTS believes that as long as information about adjustments to

interest rates, terms, payment . . . is clearly disclosed to

purchasers, the details should be a matter of contract between

the savings association and the purchaser.” 61 Fed. Reg. 1166

(January 17, 1996). While the Truth in Lending Act (“TILA”) ©

imposes some limited requirements upon lenders, there is no

question that TILA does not preempt state regulations, much

less bar lenders from voluntarily undertaking to exceed its

requirements. E.g. Williams v. First Gov’t Mort. & Investors

Corp., 176 F.3d 497, 500 (D.C. Cir. 1999) (“Nothing in TILA

or its legislative history suggests that Congress intended the

Act’s disclosure regime to provide the maximum protection to

which borrowers are entitled nationwide; states remain free to

impose greater protections for borrowers.”)

In sum, it is clear that Chevy Chase’s Petition is premature,

and that this case is not ripe for this Court’s review.

12

Il. THE DECISION BELOW DOES NOT CONFLICT

WITH ANY DECISION OF THIS COURT.

A. THIS COURT HAS HELD THAT FEDERAL

PREEMPTION ONLY APPLIES TO POSITIVE

STATE LAW REQUIREMENTS, NOT TO

STATE LAWS ENFORCING VOLUNTARY

CONTRACTUAL PROMISES.

Chevy Chase claims that the decision below conflicts with

decisions of this Court. In fact, the decision below is compelled

by this Court’s decisions that differentiate between obligations

that arise as a matter of state Jaw, and obligations that arise out

of contracts a party has chosen to enter. In Wolens, 513 U.S. at

228, this Court distinguished between “state-imposed

obligations,” and a party’s “own self-imposed undertaking,” and

held that the latter category of claims were not the subject of

federal preemption. “This distinction between what the State

dictates and what the airline itself undertakes confines courts,

in breach-of-contract actions, to the parties’ bargain, with no

enlargement or enhancement based on state laws or policies

external to this agreement.” Jd. Cf Cipollone v. Liggett Group,

Inc., 505 U.S. 504, 526 (1992) (plurality opinion) (“[A]

common-law remedy for a contractual commitment voluntarily

undertaken should not be regarded as a ‘requirement...

imposed under State law’ within the meaning of [Federal

Cigarette Labeling and Advertising Act].”). Plaintiffs’ here

raise claims based upon what Chevy Chase “itself undertook,”

and not upon any dictates of the State of Maryland.’

4

> Notwithstanding Chevy Chase’s claims of a deep divide in the

law, these principles has been regularly followed by the lower courts. See

13

Chevy Chase doggedly refuses to grasp this distinction. It

argues, Pet. at 2, that the decision below “imposed [Subtitle 9]

on a federal lender.” As Wolens establishes, however, there is

no federal preemption here if Chevy Chase chose to voluntarily

' impose these requirements of Subtitle 9 upon itself. The only

remaining question is one of contract interpretation, because if

plaintiffs’ contract claims are correct, Chevy Chase chose to

draft a contract undertaking to follow Subtitle 9 with respect to

notices of amendments to its cardholder agreements. In this

case, Subtitle 9 is not a state law or policy “external” to the

contract, but is instead — through its incorporation by express

reference — a consensual term of the contract.

Michael v. Shiley, Inc., 46 F.3d 1316, 1323 (3d Cir. 1995) (express

warranty claims not preempted by Medical Device Amendments of 1976

because they “arise from the representations of the parties which are made

the basis of the bargain and do not result from the independent operation of

state law. . . .”) (citations and foctnotes omitted); Ass’n of Int’l Auto. Mfrs.

v. Commissioner, Mass. Dep't of Environmental Protection, 208 F.3d 1, 7

(Ist Cir. 2000) (holding that provisions set forth in a contract are not

preempted by Clean Air Act, and noting that “Supreme Court precedents

holding that federal preemption is generally confined to formal state laws

and regulations and not applicable to contracts and other voluntary

agreements”); ProCd, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7" Cir. 1996)

(holding that enforcement of private contracts relating to computer software

is not preempted by Federal Copyright Act and noting that “courts usually

read preemption clauses to leave private contracts unaffected”); Cent. States

Health & Welfare Fund v. Pathology Labs., 71 F.3d 1251, 1254 (7" Cir.

1995) (“{jJust as the Federal Aviation Act does not preempt enforcement of

contracts that set the effective price of air transportation [citing Wolens], so

ERISA does not preempt enforcement of contracts that specify who pays

how much to whom for medical care’).

14

B. VOLUNTARILY UNDERTAKEN

CONTRACTUAL OBLIGATIONS DO NOT

SUDDENLY BECOME PREEMPTED MERELY

BECAUSE THEY ARE CONTAINED IN A

CHOICE-OF-LAW PROVISION.

Chevy Chase seeks to distinguish Wolens on the ground

that the contract claim in Wolens was not based on a choice-of-

law provision. Pet. at 5, 10. This distinction fails for several

reasons. First, it assumes that Chevy Chase is correct in its

contract interpretation argument and that Chevy Chase did not

actually intend to comply with Subtitle 9. In fact, it would be

entirely reasonable if the state court below were to find that

Chevy Chase’s specific promise to comply with Subtitle 9

obligated Chevy Chase to do so. Second, this Court has

previously affirmed a decision in which a state court held that

a party had promised to comply with an otherwise preempted

state law by referring to that law in a choice-of-law clause.

Chevy Chase’s attempted distinction of Wolens is

meaningful only if one starts with the assumption that any

decision interpreting any choice-of-law decision as obligating

a bank to follow an otherwise preempted state law is necessarily

illegitimate as a matter of contract law. This assumption is

debunked in Part V of this Opposition, below. Where a choice-

of-law provision is in fact intended to incorporate an otherwise

preempted state law, Wolens dictates that federal law does not

preempt the application of such a provision.

Chevy Chase argues that Wolens does not apply here,

because Wolens distinguished between contractual obligations

and “policies external to the agreement.” Pet. at 10, citing

15

Wolens, 513 U.S. at 233. Chevy Chase assumes that in the

context of this case, Subtitle 9 is a “policy external to the

agreement,” rather than an actual term of the agreement. There

is no support in Wolens for this assumption, however. The

context of the passage is a sentence discussing “([t]his

distinction between what the State dictates and what the airline

itself undertakes. . . .” Jd at 233. This Court was

distinguishing between obligations that are external to the

contract and are imposed by a state through a statute, regulation

or judicial decision, and obligations that arise through a party’s

self-imposed undertaking. In short, the reasoning that underlay

the Court’s decision in Wolens is just as applicable to

contractual obligations voluntarily undertaken in a choice-of-

law provision as it is to obligations undertaken in language that _

expressly enumerates those obligations.

In addition, this Court has rejected Chevy Chase’s

argument that no choice-of-law provision can ever be found to

obligate a party to follow state law rather than federal law. In

Volt Info. Sciences, 489 U.S. 468, this Court gave effect to a

choice-of-law provision in an arbitration agreement which

stated that the contract would be governed by the law of the

“place where the Project is located.” The question in Volt was

whether the contract at issue should be governed by the

California Arbitration Act, which contains a provision allowing

a court to stay arbitration pending resolution of related

litigation, or by the Federal Arbitration Act (“FAA”), which

does not contain any provision regarding arbitration stays. Id.

at 470-72. Absent the choice-of-law provision, the contract

would have been governed by the terms of the FAA. This

Court affirmed the lower court’s finding that the choice-of-law

provision rendered the contract subject to the stay provisions of

16

the California statute. This result cannot be squared with Chevy

Chase’s theory that choice-of-law provisions may never

obligate a party to comply with otherwise preempted state laws.

Indeed, this case goes one step better than Volt, insofar as the

cardholder agreements at issue here contain a highly specific

reference to a particular provision of state law, rather than a

vague reference to the “law of the Place.”

c. THE DECISION BELOW DOES NOT

CONFLICT WITH THIS COURT’S

HOLDING IN DE LA QUESTA.

Chevy Chase argues that this Court must find that

plaintiffs’ claims are preempted due to this Court’s decision in

de la Cuesta, 458 U.S. 141. The preemption analysis of de la

Cuesta has no bearing here, however, as the facts of that case

are readily distinguishable from this one. First, De la Cuesta

involved a generic choice-of-law provision that did not refer to

or cite any particular state law. Second, De la Cuesta involved

a direct conflict between a state law that prohibited due-on-sale

clauses in mortgage agreements and an OTS regulation that

explicitly permitted such clauses and expressly preempted any

contrary state law. See id. This Court held that the federal

regulation preempted application of the California law, stating

that “state law is nullified to the extent that it actually conflicts

with federal law. Such a conflict arises when ‘compliance with

* This Court also directed in Volt that “the interpretation of

private contracts is ordinarily a question of state law, which this

Court does not sit to review.” 489 U.S. at 474. The only exception

that this Court noted was where a state contract interpretation might

interfere with federal rights, an exception that does not apply here.

17

federal and State regulations is a physical impossibility.’” Jd.

at 152. In this case, as set forth above, there is no physical

impossibility or other conflict.

Chevy Chase argues that it does not matter that the

conflict preemption analysis of de la Cuesta does not apply here

because there is preemption under a different theory — that

HOLA and the OTS regulations preempt the entire regulatory

field. This argument is without merit. Even if one assumes that

the OTS regulations preempt the field,* that preemption only

extends to state Jaws, meaning state-imposed obligations. See,

e.g., Section 560.2(a). The OTS regulations specifically

exclude claims based upon state contract law. 12 C.F.R. §

560.2(a). This exception draws the same distinction that this

Court did in Wolens between obligations that are “externally”

imposed upon lenders by state law, and those obligations that

are “self-imposed undertakings.”

* In fact, this Court did not hold that this field is preempted

in de la Cuesta. See id. at 159 n.14 (“[b]ecause we find a direct

conflict between federal and state law, we need not decide whether

the HOLA or the Board’s regulations occupy the field of due-on-sale

law or the entire field of federal savings and loan regulation.”); id. at

171-72 (O’Connor, J., concurring). In addition, the OTS’s Chief

Counsel has advised that HOLA does not preempt traditional

contract law. OTS Op. Chief Counsel (December 24, 1996).

18

{il. THERE IS NO SPLIT OF LOWER COURT

AUTHORITY WARRANTING THIS COURT’S

REVIEW.

No other court in the U.S. has examined the question

faced by the Court below: does federal law bar a savings bank

from promising to follow a state statute through a very specific

choice-of-law clause that identifies that particular state statute

by its citation, where it would not conflict with federal law for

the bank to perform the acts set forth in the statute.

Nonetheless, Chevy Chase claims that the decision of the

Maryland Court of Appeals in this case conflicts with a number

of decisions by lower federal courts. In fact, not one of the

cases cited by Chevy Chase conflicts with the decision below.

Each of the cases cited by Chevy Chase is readily

distinguishable on at‘least one of two grounds.

First, the terms of the choice-of-law provisions involved

in the cases cited by Chevy Chase are different in a number of

respects from the contract involved in this case. In case after

case cited by Chevy Chase, the contracts contained a “generic”

choice-of-law clause — a clause referencing state law generally,

without specifying precisely which provision or subchapter of

state law is to be incorporated into the contract.

Chevy Chase repeatedly cites the case of Roadway

Package System, Inc. v. Kayser, 257 F.3d 287 (3rd Cir.), cert.

denied, 122 S. Ct. 545 (2001), for example, as an illustration of

a case that conflicts with the decision below. Pet. at 13, 17, 19

and 21. The contract in Roadway stated that the agreement

“shall be governed by and construed in accordance with the

laws of the Commonwealth of Pennsylvania.” 257 F.3d at 290.

19

The Court held that “the presence of a generic choice-of-law

clause tells us little (@f anything) about whether contracting

parties intended to opt out of the [federal statute’s] default

standards and incorporate ones borrowed from state law... ..”

Accordingly, the Court held that the parties had not intended to

incorporate state law on the question. In this case, by contrast,

Chevy Chase’s cardholder agreement contains a highly specific

reference to “Subtitle 9 of Title 12 of the Commercial Law

Article of the Maryland Annotated Code.” Unlike the generic

reference to “the laws of the Commonwealth of Pennsylvania”

at issue in Roadway, there is no ambiguity about the promise to

comply with Subtitle 9.

This distinction is decisive. Far from conflicting with

the opinion below, Roadway strongly supports the conclusions

of the Maryland Court of Appeals. The Third Circuit

recognized that a specific reference to a particular state statute

in a contractual choice-of-law provision should be given full

force and effect notwithstanding contrary standards set forth in

a federal statute. See id. at 297 (noting that, if the contract at

issue had stated that “any controversy shall be settled by

arbitration in accordance with the terms of the Pennsylvania

Uniform Arbitration Act,” then the standards of the

Pennsylvania law would have displaced the FAA’s default

standards). The Governing Law provision of Chevy Chase’s

cardholder agreement meets precisely the standard for

specificity that the Third Circuit said was necessary to create a

binding obligation. Accordingly, Roadway confirms the

conclusion of the Court below.

This same point can be made in nearly all of the cases

cited by Chevy Chase. In Atkinson v. General Electric Credit

20

Corp., 866 F.2d 396 (11" Cir.), cert. denied, 493 U.S. 815

(1989), Pet. at 12-13, for example, the contractual choice-of-

law provision merely stated that the contract would be governed

by the laws of Georgia. No specific state statute was

enumerated. Brown v. Investors Mortgage Company, 121 F.3d

472 (9" Cir. 1997), Pet. at 12, is factually indistinguishable

from Atkinson and has no bearing here for the same reasons.

Similarly, in Fantastic Flakes, Inc., v. Pickwick Intern., Inc.,

661 F.2d 479 (5™ Cir. 1981), Pet. at 12, 13, 17 and 21, the

choice-of-law provision did not reference any particular state

laws, but referred vaguely to “the laws of [a particular state].”

The importance of the contract language is highlighted

by the fact that most of the cases cited by Chevy Chase do not

turn upon questions of federal preemption or other issues that

even arguably justify this Court’s review, but are instead simply

cases involving questions of coritract interpretation. As the

Third Circuit stated in Roadway: “The issue before us . . . is not

one of choice-of-law or preemption — it is simply a matter of

contract construction.” 257 F.3d at 294. The Court added that

it is wrong “to focus on preemption rather than contract

construction.” Jd. at 296 n.4. The decision in Atkinson,

similarly, turned upon the court’ s conclusion that “a more

reasonable interpretation of the contract is that the choice-of-

law provision was intended to govern contract matters not

covered by” federal law. Jd. at 398 (emphasis added).

Second, several cases cited by Petitioner are

distinguishable on the ground that a defendant’s promise to

follow the state law at issue would have conflicted with the

goals and operation of federal law. Chevy Chase claims, for

example, that the decision below conflicts with Smith v.

21

Comair, Inc., 134 F.3d 254 (4" Cir. 1998). In Smith, an airline

passenger forgot his drivers’ license and was not permitted to

board a plane. The passenger then sued the airline for breach of

contract, false imprisonment and other claims. The Fourth

Circuit noted that “Smith’s failure to produce identification

implicated the safety concerns of both the [Airline Deregulation

Act (““ADA”)] and the FAA directive. Because Smith’s

contract claim is based upon Comair’s refusal to permit him to

board, it directly implicates the airline’s discretion and/or duty

under federal law. Accordingly, the contract claim is preempted

under the ADA.” 134 F.3d at 258. In this case, by contrast,

there is no conflict with federal law, as set forth in Part I above.

IV. THE DECISION BELOW IS NOT IN CONFLICT

WITH THE OTS’s REGULATIONS.

Chevy Chase argues that the decision below conflicts

with the regulations of the OTS. In fact, those regulations make

clear that there is no basis to sweep away consumer claims of

the sort raised by plaintiffs here. ;

The OTS regulations contain a savings clause that

expressly preserves state “contract and commercial law” from

federal preemption. The regulations governing applicability of

state law begin by, stating that “OTS intends to give federal

savings associations maximum flexibility to exercise their

lending powers in accordance with a uniform federal scheme of

regulation,” 12 C.F.R. § 560.2(a), except to the extent that a

lender chooses to obligate itself by contract. In other words, the

“flexibility” that OTS seeks to protect includes the flexibility

for a lender to voluntarily promise to follow state laws.

22

Paragraph (c) of the regulations in turn provides that:

State laws of the following types are not

preempted to the extent that they only

incidentally affect the lending operations of

Federal savings associations or are otherwise

consistent with the purposes of paragraph (a) of

this section:

(1) Contract and commercial law; [and] .. .

(6) Any other law that OTS, upon review,

finds: (i) Furthers a vital state interest; and (ii)

Either has only an incidental effect on lending

operations or is not otherwise contrary to the

purposes expressed in paragraph (a) of this

section.

12 C.F.R. § 560.2(c). As the italicized language makes clear,

state contract law is expressly excluded from the preemptive

scope of HOLA and the OTS regulations except to the extent

that such law is otherwise inconsistent with the purposes of 12

C.F.R. § 560.2(a). See also 61 Fed. Reg. at 50966 (“OTS wants

to make clear that it does not intend to preempt basic state laws

such as state uniform commercial codes and state laws

governing real property, contracts [or] torts... .”).

Chevy Chase seeks to evade this Savings Clause with

the same gambit it uses to ignore this Court’s decision in

Wolens. Chevy Chase argues that the paragraph (c) Savings

Clause for contract causes of action is limited to contractual

provisions that mimic state law, rather than incorporate state

23

law by reference. Pet. at 21. A contractual provision that

incorporates state law by reference, according to Chevy Chase,

is exempted from this Savings Clause and is preempted.

This odd and formalistic defense finds no support in the

language of paragraph (c) itself, however, and no known

authority supports it. The evident purpose of the Savings

Clause is to permit lenders to craft agreements as they will, but

then to allow borrowers to hold lenders to those agreements if

they breach them. This applies just as strongly to contractual

promises that incorporate obligations by reference as to

contractual promises that mimic the obligations through

language. Holding parties to their promises, whatever those

may be, requires precisely the kind of traditional infrastructure

of state law that undergirds commercial consumer transactions

and that paragraph (c) is designed to save from preemption.

There is an exception for contractual promises that conflict with

the purposes of federal law, but this does not apply here, as was

established in Part I above.

In keeping with the OTS’s own position on the matter,

numerous courts have held that neither HOLA nor its

implementing regulations preempt common-law contract, tort,

and consumer protection claims that do not otherwise conflict

with OTS’s regulatory scheme. See, e.g., Flanagan vy.

Germania, F.A., 872 F.2d 231, 234 (8" Cir. 1989) (claim for

tortious interference with contract not preempted by HOLA);

Tuxedo Beach Club Corp. v. City Federal Savings Bank, 749 F.

Supp. 635, 648 (D.N.J. 1990) (private right of action under state

consumer protection law not preempted by HOLA); Seigel v.

American Savings & Loan Ass'n, 258 Cal. Rptr. 746, 748-53

(1989) (permitting state-law claims for unfair competition and

24

breach of contract); Koynenbelt v. Flagstar Bank, 617 N.W.2d

706, 712-14 (Mich. App. 2000) (HOLA does not preempt

common-law tort and contract claims); Derenco, Inc. v.

Benjamin Franklin Federal Savings & Loan Ass’n, 577 P.2d

477, 481-88 (Ore.), cert. denied, 439 U.S. 1051 (1978)

(applying state common-law restitutionary principles to loan-

related activities of federal lenders).

Chevy Chase argues that a recent opinion letter from the

OTS requires a contrary conclusion. Pet. at 13-14. The choice-

of-law provision discussed in that letter makes only a general

reference to the law of New York, however, rather than

specifically citing to any specific state law or statute. App.

106a. The question posed in the letter is whether this language

“establish[es] a contractual agreement,” appearing to constitute

a recognition that if the language had formed a valid contract

that it would not have been preempted. The OCC letter is thus

as readily distinguishable as cases cited by Chevy Chase such

as Roadway Packaging.

V. THIS CASE POSES NO POLICY CONCERNS

WORTHY OF THIS COURT’S REVIEW.

Chevy Chase and its amici suggest that this Court

should grant certiorari because state courts seeking to expand

the scope and power of state authority will seize upon the

decision below to do so. This purported fear is unfounded for

two reasons. First, the language of the choice-of-law provision

here is quite unusual, so the decision below will not have any

impact upon most choice-of-law provisions. Second, Chevy

Chase’s premise is that it would be a misinterpretation of the

contract for any court to read its choice-of-law clause as a

25

promise to comply with the notice provisions of Subtitle 9. A

building block of Chevy Chase’s argument is its assertion that

it promised to comply with Subtitle 9 for reasons that had

nothing to do with the notice requirements included in Subtitle

9. Pet. at 3,n. 1. This assertion is unjustified, and this Court

need not exercise its jurisdiction to guard against the possibility

that the state courts may eventually agree with that conclusion..

The notion that the choice-of-law provision involved in

this case is indicative of choice-of-law provisions generally is

belied by key evidence submitted by Chevy Chase’s own amici.

The Amicus Brief of the American Bankers Association, et al;

dramatically illustrates how uniquely specific the language in

Chevy Chase’s choice-of-law provision is, and thus how

unlikely it is that the decision below will affect the results in

many other cases. That brief provides, at 6-7 n. 3, six

exemplars of choice of law provisions found in other credit card

agreements. Each of those provisions refers generally to the

laws of one state or another, and not one of those provisions

mentions (much less provides a specific citation to) any

particular state statute dealing with the notice to be provided by

credit card issuers to their card holders.

Similarly, Chevy Chase’s premise that no honest court

could read the choice-of-law provision involved here as

requiring Chevy Chase to comply with the notice provisions of

Subtitle 9 is wrong. This Court should not exercise its

jurisdiction to resolve a dispute about how the peculiar contract

language at issue here should be interpreted. Since the Petition

depends upon the assumption that Chevy Chase is right about

this merits issue, however, this Opposition will summarize

some of the main reasons why it would be entirely reasonably

26

(and hardly a power grab by state courts) for the state court to

interpret this contract as a promise to comply with Subtitle 9.

First, Chevy Chase itself acknowledges that the choice-

of-law provision was intended to incorporate part of Subtitle 9

into its contract — the part of Subtitle 9 that involves interest

rates. This admission is inconsistent with and disproves its later

claim that such laws could never be incorporated into a

cardholder agreement by reference. In essence, Chevy Chase’s

position amounts to this: “Federal law preempts the conclusion

that a lender has agreed to follow any state law referred to ina

choice-of-law provision, except for state laws that the lender

chooses to follow once a dispute arises.”

Second, Chevy Chase’s assertions about its intention to

incorporate part, but not all, of Subtitle 9 into the contract are

contrary to the language of its contract. The actual language of

the choice-of-law clause states that Chevy Chase would follow:

Subtitle 9 of Title 12 of the Commercial Law Article of

the Maryland Annotated Code and applicable federal

laws. E. 78. :

Chevy Chase would like this Court to assume that the

only reasonable way for a court to interpret this provision would

be to instead pretend that it reads as follows:

Those parts of Subtitle 9 of Title 12 of the Commercial

Law Article of the Maryland Annotated Code that

relate to usury, but not other parts of that Subtitle

such as the ones that relate to giving adequate notice

27°

of changes to cardholder agreements, and applicable

federal laws.

The decision of the Court below that the trial court might refuse

to reach this interpretation is hardly evidence of some power

grab by state courts. Chevy Chase was free to have drafted this

contract of adhesion as it wished, and it could have written the

choice-of-law provision to limit itself to the provisions of

Subtitle 9 that relate to interest rates.

Chevy Chase’s proposed interpretation of the card

holder agreement also ignores the well-established rule of

contract interpretation that more specific promises (such as a

promise to comply with Subtitle 9) will govern over more

general promises (such as a general promise to comply with

applicable federal laws). E.g. Morales v. Trans World Airlines,

Inc., 504 U.S. 374, 384-85 (1992). Chevy Chase also asks this

Court to assume that the contract should be interpreted in favor

of the drafting party, an assumption that this Court has rejected

on many occasions. F.g., C & L Enter., Inc. v. Citizen Band

Potawatomi Indian Tribe, 532 U.S. 411 (2001) (“In appropriate

cases, this Court applies the common law rule of contract

interpretation that a court should construe ambiguous language

against the interests of the party that drafted it.”) If the state

court goes on to apply these doctrines to the plain language of

Chevy Chase’s choice-of-law provision, that will not be proof

of some abuse of power by state courts.

Finally, this Court should not credit the unsupported

assertions Chevy Chase offers in the Petition to the effect that

it never intended to follow the provisions of Subtitle 9 relating

to the notice to be given to card holders. Pet. at 3 n. 1. Chevy

28

Chase offers no record citation to any evidence supporting its

claims of purpose. In fact, Chevy Chase refused to respond to

any discovery requests relating to its purposes until after the

motion to dismiss was resolved. Having refused to produce any

evidence on this issue, it is inappropriate for Chevy Chase to

ask this Court to assume that the contract language at issue was

intended in a certain way. Even if it were an appropriate use of

this Court’s jurisdiction to resolve questions of contract

interpretation, it should hardly do so based upon bald assertions

of one party’s intent that are not supported by any record

evidence.

CONCLUSION

For the foregoing reasons, this Court should deny the

Petition for Certiorari.

Respectfully submitted,

F. Paul Bland, Jr.

(Counsel of Record)

Leslie A. Brueckner

Michael Quirk

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