Reply Brief — US Bank National Ass'n ND v. Thomas

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we, 161 Supreme Cowl US

FILED

IN THE UN - 7 209

THE C

~~ CLERK

US BANK NATIONAL ASS’N ND; US BANK NATIONAL

ASS’N; FIRSTPLUS HOME LOAN TRUST 1996-2;

FIRSTPLUS HOME LOAN OWNER TRUSTS 1996-3, 1996-4,

1997-1, 1997-2, 1997-3, 1997-4, 1998-1, 1998-2, 1998-3,

1998-4, AND 1998-5; WILMINGTON TRUST Co.; GOLETA

NATIONAL BANK; RESIDENTIAL FUNDING Co., LLC;

SOVEREIGN BANK; HSBC FINANCIAL CORP., F/K/A

HOUSEHOLD FINANCIAL CORP.,

Petitioners,

DEANTHONY THOMAS, SUSAN JELINKE-

THOMAS, STEVEN M. RICH,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEA‘S

FOR THE EIGHTH CIRCUIT

REPLY BRIEF IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

CHRISTOPHER R. LIPSETT SETH P.WAXMAN

NOAH A. LEVINE Counsel of Record

DAVID S. LESSER DANIELS. VOLCHOK

WILMER CUTLER PICKERING WILMER CUTLER PICKERING

HALE AND DORR LLP HALE AND DORR LLP

399 Park Ave. 1875 Pennsylvania Ave. N.W.

New York, N.Y. 10022 Washington, D.C. 20006

(212) 230-8800 (202) 663-6000

seth.waxman@wilmerhale.com

(Additional counsel listed on inside cover)

PETER W. CARTER

PAUL R. DIESETH

DORSEY & WHITNEY LLP

50 South Sixth Street

Suite 1500

Minneapolis, MN 55402

(612) 340-7892

THOMAS L. ALLEN

Roy W. ARNOLD

DAVIDJ. BIRD

REED SMITH LLP

225 Fifth Avenue

Suite 1200

Pittsburgh, PA 15222

(412) 288-3131

Topp W. RUSKAMP

SHOOK, HARDY & BACON LLP

2555 Grand Boulevard

7th Floor

Kansas City, MO 64108

(816) 474-6550

WILLIAM E. QUIRK

MARK A. OLTHOFF

MIRIAM E.C. BAILEY

POLSINELLI SHUGHART P.C.

1700 Twelve Wyandotte Plaza

120 West 12th Street

Kansas City, MO 64105

(816) 421-8355

MICHAEL G. BIGGERS

BRYAN CAVE LLP

211 North Broadway

Suite 3600

St. Louis, MO 63102

(314) 259-2145

SCOTT W, MARTIN

MICHAELS. HARGENS

DAVID A. SCHATZ

HUSCH BLACKWELL

SANDERS LLP

4801 Main Street

Suite L000

Kansas City, MO 64112

(816) 988-8000

TABLE OF CONTENTS

TABLE OF AUTHORITIES

I. THERE ARE NO VEHICLE PROBLEMS.

[l. THE CIRCUIT CONFLICT IS CLEAR

CONCLUSION

TABLE OF AUTHORITIES

Affiliated Acce ptance

» Corp V Boggs, 917

S.W.2d 652 (Mo (*t App 1996)...

Beneficial Nationa! Bank

Vv. Ande

539 U.S. 1 (2008)...

[04 pers \‘ C‘omn dmLITY Bank oF Nor

ern Virgu 1a, No. O8-ev

WIL, 208843 (W.D. Pa

Jan

Central Pines

TABLE OF AUTHORITIES—Continued

Vaden v. Discover Bank, 129 S. Ct.

(2009)

Verizon Communications, Ince

535 U.S. 467 (2002)

West Virginia v. Cashcall, Inc., 605

K. Supp. 2d 781 (S.D. W.Va. 2009) ...

STATUTES

Mo. Rev. Stat.

§ 408.235

~ 108 +>*>*>

ot).

‘)

Depository Institutions Le regulation and

Monetary Control Act of 1980, Pub. L

No. 96-221, 94 Stat. 182

REGULATIONS

/.4001.,

OTHER AUTHORITIES

‘ Amicus Curia

2003), available a

Briefs LEXIS 1251...

Favored Lend

To Insured Stat

sory Op. 81-3 (Feb

it http://www.fdic.g

rules/4000-7350 htm]

IN THE

Supreme Court of the United States

No. 09-1161

US BANK NATIONAL ASS’N ND; US BANK NATIONAL

ASS’N; FIRSTPLUS HOME LOAN TRUST 1996-2;

FIRSYTPLUS HOME LOAN OWNER TRUSTS 1996-3, 1996-4,

1997-1, 1997-2, 1997-3, 1997-4, 1998-1, 1998-2, 1998-3,

1998-4, AND 1998-5; WILMINGTON TRUST CO.; GOLETA

NATIONAL BANK; RESIDENTIAL FUNDING Co., LLC;

SOVEREIGN BANK; HSBC FINANCIAL CORP., F/K/A

HOUSEHOLD FINANCIAL CORP.,

Petitioners,

DEANTHONY THOMAS, SUSAN JELINKE-

THOMAS, STEVEN M. RICH,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

REPLY BRIEF IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

The Eighth Circuit held in this case that section

521 of the Depository Institutions Deregulation and

Monetary Control Act of 1980 (DIDA), codified at 12

U.S.C. § 1831d, does not completely preempt respon-

dents’ claims that a California-chartered bank charged

them origination and other fees in excess of the limits

imposed by Missouri law. That holding created a cir-

cuit conflict, as the court of appeals recognized. See

Pet. App. lla. The Eighth Circuit’s erroneous conclu-

sion, and the disuniformity it has created, are harmful

to state-chartered banks and to the national economy,

in which those banks play a key role. See Pet. 16-17; see

also Amicus Br. for Am. Bankers Ass’n et al. 10-14.

When faced with similar considerations in Beneficial

National Bank v. Anderson, 539 U.S. 1 (2003), which

involved the same issue as this case but in regard to na-

tional banks, the Court granted certiorari to resolve a

1-1 circuit conflict. The Court should take the same ap-

proach here.’

Respondents offer no valid basis to do otherwise.

They do not defend the merits of the Eighth Circuit’s

interpretation of DIDA—ignoring petitioners’ myriad

challenges to that interpretation, see Pet. 17-24—nor do

they address the importance of avoiding ai:suniformity

in this context. Instead, respondents deny the exis-

' Anderson is not the only case in which this Court has

granted review promptly to address issues implicating the need

for uniform interpretation of federal banking law. See Smiley v.

Citibank (S.D.), N.A., 517 U.S. 735, 739 & n.2 (1996); Marquette

Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S.

299, 307 & n.17 (1978). Indeed, in Household Credit Services, Inc.

v. Pfennig, 541 U.S. 232 (2004), the Court granted certiorari de-

spite the absence of a clear circuit conflict, after the Solicitor Gen-

eral’s invitation brief explained the need for “clear and uniform

national standards for nationwide creditors,” the threat the Sixth

Cireuit’s decision in that case posed to such uniformity, and the

fact that that decision departed from this Court’s precedent, which

is analogous to the Eighth Circuit’s departure here from Smiley

and Anderson. See Brief for United States as Amicus Curiae 7, 10-

ll, Pfennig, No. 02-857 (May 30, 2003), available at 2003 U.S.

S. Ct. Briefs LEXIS 1251, **14, **18-20.

tence of the circuit conflict and posit the presence of

vehicle problems. Neither assertion has merit.

I. THERE ARE NO VEHICLE PROBLEMS

Respondents contend (Opp. 5-6) that this case is

not a good vehicle to decide the first question presented

because the Eighth Circuit made a threshold ruling

that DIDA does not apply on the facts here. But it is

that very ruling that created the circuit conflict, and

thus the need for this Court’s review. The Eighth Cir-

cuit held that because of the “if’ clauses in § 1831d,

DIDA has no application to respondents’ state-law

usury claims, see Pet. App. 7a (referring to “limited na-

ture of [DIDA]’s preemptive effect”); zd. at 8a (simi-

lar}—even though under Anderson identical usury

claims based on loans by a national bank would have

been completely preempted by the National Bank Act

(NBA), see 539 U.S. at 9-11, and even though Con-

gress’s express goal in adopting § 183ld was to give

state and national banks identical protection from state

usury laws.’ That holding by the Eighth Circuit con-

flicts with decisions from other circuits, which con-

cluded that DIDA completely preempts all state-law

usury claims against state-chartered banks. See In re

Community Bank of N. Va., 418 F.3d 277, 295 (38d Cir.

2005) (DIDA “completely preempts any state law at-

tempting to limit the ... interest and fees a federally

insured-state chartered bank can charge.” (emphasis

added)), quoted in Discover Bank v. Vaden, 489 F.3d

594, 605 (4th Cir. 2007), rev’d on other grounds, 129

S. Ct. 1262 (2009). Respondents cannot evade review of

2 . ‘ ' '

Respondents’ assertion that their claims are not usury

claims is meritless. See infra pp.9-10.

the statutory ruling at the heart of this case, a ruling

that is in no way “case-specific” (Opp. 5), simply by la-

beling it a threshold matter.

The Eighth Circuit was able to conclude that DIDA

does not apply here, moreover, only by interpreting the

term “interest” in § 1831ld to mean periodic interest

rates but not certain non-periodic fees, see Pet. App.

10a; see also Pet. 25 (citing Pet. 9-10)—an interpreta-

tion that plainly conflicts with Smiley v. Citibank

(South Dakota), N.A., 517 U.S. 7385 (1996). Respon-

dents advance several arguments in suggesting (Opp.

6-13) that this conflict with Smiley actually makes the

case less suitable for review rather than more. Re-

spondents repeatedly contend, for example, that peti-

tioners are merely making a “factbound” challenge

(Opp. 8) to the Eighth Circuit’s ruling. That is incor-

rect. Petitioners’ argument (Pet. 24-27) is that the

Eighth Circuit’s construction of a term in a federal

statute is inconsistent with this Court’s case law inter-

preting the same term. That is not a factbound issue

but a quintessentially legal one (and, indeed, the basis

for petitioners’ second question presented). Respon-

dents argue as though the court of appeals acknowl-

edged the rule of Smiley but then concluded that the

origination fees underlying respondents’ claims were

not “interest” under DIDA. That is manifestly not

what occurred here. The court simply ignored Smiley.

lar from being a reason to let the decision below stand,

the Eighth Circuit’s disregard for this Court’s prece-

dent underscores the need for certiorari—particularly

given the close connection between the Eighth Circuit’s

erroneous interpretation of “interest” and its flawed

complete-preemption ruling.

Respondents also assert (Opp. 6) that review

should be denied because the Eighth Circuit did not

expressly address the definition of “interest” and be-

cause had it done so the result would not have changed.

Both contentions are wrong. To begin with, contrary to

respondents’ claim (Opp. 1) that “this Court typically

refrains from deciding issues not passed on by the court

below,” the Court has made clear that “[aJny issue

pressed or passed upon below” may be reviewed by

certiorari. Verizon Comme’ns, Inc. v. FCC, 535 U.S.

467, 530 (2002) (emphasis added) (internal quotation

marks omitted); see also, e.g., United States v. Wil-

liams, 504 U.S. 36, 41 (1992) (“[TJhis rule operates (as it

is phrased) in the disjunctive.”). Respondents’ pre-

ferred approach would allow courts to immunize their

decisions from review simply by declining to expressly

address arguments presented to them. And even were

the rule as respondents posit, the Eighth Circuit’s opin-

ion leaves no doubt that the court’s analysis was indeed

based on the infirm legal conclusion that “interest” in

DIDA means only periodic rates. See Pet. App. 10a.

Respondents likewise err in contending that none

of the fees on which their claims rest constitutes “inter-

est” under DIDA, and hence the Eighth Circuit’s ruling

would have been the same even had the court explicitly

addressed the definition of “interest” and followed

Smiley. Respondents state (Opp. 9) that in initiating

this action they “challenged only two categories of non-

[periodic-Jinterest fees,” finders’ or brokers’ fees and

certain closing costs. But as petitioners showed (Pet. 9-

10), respondents’ state-court petition and their federal-

court complaint both alleged that respondents were

charged a 10% “origination fee” from which respon-

dents sought relief. See Dkt. No. 1-3 7 67 (state-court

petition); Dkt. No. 43, |] 67, 72 (amended complaint).°

These allegations were incorporated by reference into

respondents’ actual claims, see Dkt. No. 1-8, J 72; Dkt.

No. 43, 7 75, where respondents alleged that the origi-

nation fees “were not allowed by and in excess of what

fees are allowed by [Mo. Rev. Stat. §] 408.233.1(5).”

Dkt. No 1-3, ¥ 84(a); Dkt. No. 43, | 87(a). And that

provision pertains only to origination fees. See Mo.

Rev. Stat. § 408.233(1)(5) (allowing “[a] nonrefundable

origination fee not to exceed five percent of the princi-

pal”).* Respondents’ contention that their claims do not

involve origination fees is demonstrably wrong.”

Respondents’ fallback position (Opp. 10, 11) is that

the origination fees at issue here are not interest “be-

cause they compensated a third party.” But neither

respondents’ state-court petition nor their federal-court

complaint alleged that the origination fees were paid to

third parties. That is unsurprising, because an origina-

tion fee is charged by the lender to process the loan ap-

plication, i.e., as part of the extension of credit. See

Smiley, 517 U.S. at 742 (charges “assessed for simply

3 All docket numbers cited pertain to case number 5:04-cv-

06098-HF'S (W.D. Mo.).

‘The version of this provision applicable to some of respon-

dents’ loans limited origination fees to two percent of the principal

but was otherwise identical to the current version.

; Respondents accuse petitioners of “urg[ing] this Court ... to

‘look beyond’ the plaintiffs’ complaint” in determining what fees

their claims involve. Opp. 11 (quoting Pet. 27). That is false. On

the factual question of which fees underlie respondents’ claims,

petitioners cited only respondents’ state-court petition and their

federal-court complaint—the best sources. See Pet. 9, 10. Re-

spondents, by contrast, repeatedly rely on the Eighth Circuit’s

opinion. See Opp. 2, 10, 11.

making the loan” constitute “interest’”). Respondents’

failure to allege in their state-court petition or federal-

court complaint that the origination fees were paid toa

third party confirms that those fees are “interest” un-

der DIDA.®

Respondents alternatively assert (Opp. 7-8 & n.1)

that the Eighth Circuit’s departure from Smiley did

not affect its decision because the comparison of state

interest-rate limits required under DIDA involves,

they say, combining limits on periodic rates with limits

on other fees to produce a single maximum rate for

each state. Because Missouri law imposed no limit on

periodic rates for part of the relevant period, the argu-

ment continues, it is impossible for California’s rate to

have exceed Missouri’s, no matter what Missouri’s lim-

its on non-periodie fees were. That assertion is without

merit.

As an initial matter, respondents themselves rec-

ognize (Opp. 7) that the aggregation that they say is

required often cannot be done. Missouri’s origination-

fee limit of five percent of the principal, for example,

see Mo. Rev. Stat. § 408.233(1)(5), cannot meaningfully

be combined with Missouri’s pre-1998 periodic interest

limit of 20.04 percent per year, see id. § 408.232(1). Al-

though flat fees can be converted to periodic rates on

particular loans, see, e.g., Smiley, 517 U.S. at 741, sucha

. Respondents—who rightly acknowledge (Opp. 9) that the

FDIC has adopted the same definition of “interest” under DIDA

that the Office of the Comptroller of the Currency (OCC) has

adopted for the NBA—notably ignore petitioners’ argument (Pet.

26 n.9) that an origination fee is directly analogous to a line-of-

credit opening fee, which the OCC has authoritatively deemed to

be “interest.”

conversion is impossible in the abstract, i.e., without a

specific loan amount and duration. But that does not

mean that such “interest” is to be ignored for purposes

of DIDA or any other usury limit.

More fundamentally, respondents’ argument would

effectively eliminate the protection that Congress gave

state banks in passing DIDA. DIDA prevents States

from imposing their usury limits on other States’ banks,

by authorizing state banks to charge the maximum

rates allowed by their home States to any lender. See

12 U.S.C. § 1831d(a). Under respondents’ view, any

State that (like Missouri) set no limit on periodic rates

but did limit non-periodic “interest” charges could im-

pose those limits on federally insured state-chartered

banks (its own or other States’), because the peri-

odic/non-periodic aggregation that respondents say is

required would yield no limit. Similarly, a State that

set a limit on periodic rates but not on non-periodic fees

could impose that limit on federally insured state-

chartered banks (its own or ‘other States’). Again, that

would all but erase the core protection Congress sought

to give such banks in passing DIDA. The proper ques-

tion under that statute is simply whether a State’s

usury laws would prevent a federally insured state

bank from charging any type of “interest” (periodic or

non-periodic) that is permitted for other lenders by the

bank’s home State. If so, then claims based on those

laws are completely preempted. And that is the situa-

tion here, because respondents’ claims are based on a

Missouri law that limits origination fees (i.e., “interest’’)

more strictly than California law does.’

: Respondents do not dispute that California generally does

not limit state banks’ imposition of origination fees. But respon-

Finally, respondents attempt to distinguish Ander-

son, stating that there “the plaintiffs ‘unquestionably

and unambiguously’ alleged usury violations.” Opp. 1

(quoting Anderson, 589 U.S. at 11); aecord Opp. 12-13.

But the same is true here: As explained, see supra

pp.5-6, respondents claimed that they were charged

loan fees exceeding those allowed by Missouri law.

That is “unquestionably and unambiguously” a usury

claim. Respondents’ repeated contrary contention (e.g.,

Opp. 2, 12) could be correct only if “usury” were re-

stricted to excessive periodic-rate charges. That is not

the law. See Smiley, 517 U.S. at 745-746 (citing cases

“holding that flat charges violated state usury laws”);

see also, e.g., Affiliated Acceptance Corp. v. Boggs, 917

S.W.2d 652, 658 (Mo. Ct. App. 1996) (“The Boggs also

claim that the additional ... fees, including a ten percent

origination fee, were usurious.”).> The only difference

in this regard between this case and Anderson is that

respondents’ pleadings consciously avoided using the

word “usury.” Respondents believe that suffices to de-

feat federal jurisdiction. See, e.g., Opp. 138. They are

dents assert (Opp. 8 n.1) that as an industrial loan corporation,

FirstPlus was not authorized under California law to make the

loans at issue here at any interest rate. ‘True or not, that is irrele-

vant because under DIDA, FirstPlus could charge the maximum

interest permitted by California law for any lender. See 12 U.S.C.

§ 1831d(a); 12 C.F.R. § 7.4001(b); Marquette, 439 U.S. at 314 & n.26

(citing Tiffany v. National Bank of Mo., 85 U.S. (18 Wall.) 409, 413

(1874)); “Most Favored Lender” Doctrine Applies To Insured State

Banks, FDIC Advisory Op. 81-3 (Feb. 3, 1981), available at

http://www. fdic.gov/regulations/laws/rules/4000-730.html.

8 .

That respondents have sought a refund of all interest char-

ged on the relevant loans (see Pet. 9) further confirms that their

claims are for usury.

mistaken. See Rivet v. Regions Bank of La., 522 U.S.

470, 475 (1998) (“If a court concludes that a plaintiff has

‘artfully pleaded’ claims [so as to omit necessary federal

questions], it may uphold removal|.]”). This case is thus

just like Anderson in all pertinent respects. The Court

should grant certiorari here, as it did there.

II. THE CIRCUIT CONFLICT IS CLEAR

Respondents next contend (Opp. 18-17) that the

circuit conflict described in the petition does not actu-

ally exist. While certiorari would be warranted even if

respondents were correct—given the clarity of the

Eighth Circuit’s error and the tension between its rul-

ing and this Court’s decision in Anderson—they are not

correct.

According to respondents, the Fighth Circuit “did

not decide the complete-preemption question,” Opp. 14,

instead holding only that DIDA “did not apply here,”

Opp. 13-14. As explained, however, see supra p.3, it 1s

precisely that holding—that DIDA applies only in “lim-

ited circumstances,” Pet. App. 10a—that created the

circuit conflict. The Eighth Circuit itself recognized

that its interpretation of § 1831 was creating such a

conflict, observing that “other federal courts have in

terpreted the language of § 183ld differently.” Pet.

App. lla. Respondents assert (Opp. 16) that petition-

ers quote this language “out of context,” but they then

go on to reiterate the same argument that petitioners

made, namely that the Eighth Circuit’s point was that

other courts have disagreed with its view that the “if”

clauses in § 1831 mean that not all state-law usury

claims against state banks are completely preempted.

That is the basis for the first question presented here.

As to the Fourth Circuit’s decision in Discover

Bank v. Vaden, respondents state first (Opp. 15) that

there the complete-preemption question “was not a

subject of disagreement among the parties.” But no

such “disagreement” is required to create a holding. In

any event, the Fourth Circuit did not simply accept the

parties’ agreement, as respondents imply. As this

Court noted, the court of appeals instead

“[rJecogniz[ed] that ‘a party may not create jurisdiction

by concession,’” and thus “conducted its own analysis of

[§ 1831d], ultimately concluding that the provision

completely preempted state law.” Vaden v. Discover

Bank, 129 8S. Ct. 1262, 1269 (2009) (quoting Discover

Bank, 489 F.3d at 604 n.10).

Respondents next contend (Opp. 16) that this

Court’s reversal on different grounds in Vaden vitiates

the Fourth Circuit complete-preemption holding. But

this Court made clear that the complete-preemption

question was distinct from those it addressed, stating

that it was “express[ing} no opinion” on “the question of

[DIDA]s preemptive foree.” 129 S. Ct. at 1269 n.4.

Respondents cite no authority for their suggestion that

this Court’s decision in Vaden affects the Fourth Cir-

cuit’s complete-preemption holding—and one court in

that circuit has already deemed that holding “intact.”

See West Virginia v. Cashcall, Inc., 605 F.Supp. 2d

781, 785 n.5 (S.D. W.Va. 2009) (“The [Supreme] Court

did not ... address the question of complete preemption

with respect to § [1881d]. Accordingly, the Fourth Cir-

cuit’s holding on that issue remains intact[.]”); see also

Central Pines Land Co. v. United States, 274 F.3d 881,

894 (5th Cir. 2001) (“[Our] decision in Rogers ... had

been reversed by the Supreme Court on other grounds.

Nevertheless, this Court [subsequently] held that the

decision of the Rogers panel was still binding, because

the Supreme Court had not explicitly or implicitly

overruled our panel opinion.” (footnote omitted)).

Respondents also argue (Opp. 15) that the com-

plete-preemption ruling in In re Community Bank was

dictum because there were other bases for federal ju-

risdiction. But those bases pertained to different

claims. See 418 F.3d at 298. ‘The Third Circuit thus still

had to decide whether the district court had original

(rather than supplemental) jurisdiction over the claims

removed under DIDA. And its resolution of that ques-

tion, like the Fourth Circuit’s decision in Vaden, has

been regarded by courts as a holding. See Discover

Bank, 489 F.3d at 605; Bumpers v. Community Bank

of N. Va., No. 03-cv-1880, 2008 WL 203348, at. *3-*4

(W.D. Pa. Jan. 24, 2008).