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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2004
- **Citation:** 541 U.S. 983

## Text

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,

1 ft
Page.
ange ed

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

TRIAL LAWYERS FOR PUBLIC
JUSTICE, P.C.

1717 Massachusetts Avenue, N.W.

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(202) 797-8600

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29

John T. Ward

Robert B. Kershaw

Ward Kershaw, P.A.

113 West Monument Street
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(410) 685-6700

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30

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_0861%3A2. Public record. Not legal advice.