Petition for Writ of Certiorari — Cross Country Bank, Inc. v. New York (No. 08-405)

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\W No. _—h) Supreme Ceust US.

08-405 SEP 23 2008

IN THOFFICE OF THE CLERK

Supreme Court of the nes States

<->

CROSS COUNTRY BANK, INC.,

Petitioner,

THE PEOPLE OF THE STATE OF NEW YORK, by ANDREW

CUOMO, Attorney General of the State of New York,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

NEW YORK STATE COURT OF APPEALS

PETITION FOR A WRIT OF CERTIORARI

HOWARD N. CAYNE

Counsel of Record

NANCY L. PERKINS

ARNOLD & PORTER LLP

555 Twelfth Street, N.W.

Washington, DC 20004

(202) 942-5000

H. PETER HAVELES, JR.

ARNOLD & PORTER LIP

399 Park Avenue

New York, New York 10022

(212) 715-1000

September 23, 2008 Attorneys for Petitioner

QUESTIONS PRESENTED

Did the New York Court of Appeals fail to

abide by the dictates of the Supremacy Clause in

holding that the federal Truth in Lending Act,

15 U.S.C. § 1601 et seq. (“TILA”), did not preempt

the Attorney General of the State of New York

(the “Attorney General”) from asserting a claim

under state law that credit card solicitation dis-

closures were misleading and deceptive when:

(i) for the explicit legislative purpose of estab-

lishing nationwide uniformity in credit card

solicitation disclosures, Congress amended TILA

in 1988 to include an express preemption provi-

sion, 15 U.S.C. § 1610(e), that barred the States

from directly or indirectly regulating the content

or format of disclosures in credit card solicita-

tions and vested the Board of Governors of the

Federal Reserve with exclusive authority to pre-

scribe the content of all disclosures in credit card

solicitations and the manner in which they are

presented; (ii) the Court of Appeals allowed the

Attorney General to assert a claim that the dis-

closures at issue were insufficient and should be

presented in a different manner, even though

they fully complied with the requirements set

forth under TILA; and (iii) the New York Court of

Appeals affirmed the issuance of an injunction

barring the use of the disclosures that fully com-

plied with the requirements established under

TILA?

CORPORATE DISCLOSURE STATEMENT

The Caption of the Case Contains the Names of

all but one of the Parties to the Proceeding in the

Court whose Judgment is sought to be reviewed.

The other party was Applied Card Systems, Inc.

Pursuant to Supreme Court Rule 29.6, Peti-

tioner hereby states that it is a wholly-owned

subsidiary of Applied Card Holdings, Inc.

ill

TABLE OF CONTENTS

QUESTIONS PRESENTED .................

CORPORATE DISCLOSURE

PPP eho wae ee eds ke seveeuness

TABLE OF AUTHORITIES .................

PRELIMINARY STATEMENT..............

CITATIONS OF DECISIONS ...............

STATEMENT OF JURISDICTION.........

EPEC Re COORD ooh x eos cine

I. Nature of the Proceeding ...............

II. The Proceedings Below .................

III. The Court of Appeals’ Preemption

V. The Attorney General’s Claims

RE Ge os ps es ee

REASONS WHY CERTIORARI SHOULD

See RET OE hs eens ees eeetie pv cul oie ka

PAGE

POINT I IN DEROGATION OF THIS

COURT’S HOLDINGS, THE COURT

OF APPEALS’ DECISION FUNDA-

MENTALLY OVERRIDES AND

NEGATES TILA’S TOTAL PRE-

EMPTION OF STATE REGULATION

OF CREDIT CARD SOLICITATION

te Ee 8) 4. Ses nr 22

A. Congress Intended that TILA

Totally Preempt State Law

III vg ok cau ciceevesenceaxess 25

B. TILA Preempts the Entire Field of

Credit Card Solicitation Disclosure

PLOGUITOMIOTIES. ..... . . 2. icc cc cesses 29

POINT I1 THE COURT OF APPEALS’

DECISION WILL DESTROY THE

NATIONAL UNIFORMITY ESTAB-

Rg ey) ee 34

RR RPE lossy vow dns ks xan cy ee dsenvwees 38

APPENDIX

People of the State of New York ex rel.

Spitzer v. Applied Card Systems,

Inc., 11 N.Y. 3d 105 (2008)......... la

PAGE

People of the State of New York

ex rel. Spitzer v. Applied Card

Systems, Inc., 27 A.D.3d 104

(3d Dep’t 2005) .......... PMS cere 5la

Pee ae sere rrr re reer rary 60a

TABLE OF AUTHORITIES

Cases: PAGE

Arkansas Electric Cooperative v.

Arkansas Public Service Commission,

re ec OP CUED oie nde caudeavenserss 33

Barnhart v. Thomas,

BOS Fe 2 o | re 11

California Federal Savings & Loan

Association v. Guerra,

i. ge Ab eo ae. sree er ee 25

California v. Federal Energy Regulatory

Commission,

A Bo) 28

Cipollone v. Liggett Group, Inc.,

Pe Ty te, DW CEO? 6 iss crccececscnseesss 25

Egelhoff v. Egelhoff ex rel. Breiner,

BUR eo RS Sy ee 30

FMC Corp. v. Holliday,

ee oe: 30

Ingersoll-Rand Co. v. McClendon,

Coe 0. EGS LEO) 2. 26 ccc ceca cavaes 30

Medtronic v. Lohr,

5) BOR ee. | eee 14, 25

Morales v. Trans World Airlines, Inc,,

oe £6. 30

New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers

Insurance Co.,

Ee 8). GO (EO) onc doc ccecssecsscee 8-9

Vill

PAGE

Northern Natural Gas Co. v. Siate

Corporation Commission,

pp BSR Re Se |. rere rer errree rrr eee 29

Pilot Life Insurance Co. v. Dedaux,

Bie See: |. 3 er 30

Rice v. Santa Fe Elevator Corp.,

ee A ae) 2s ere rrr ee re err 34

Riegel v. Medtronic, Inc.,

128 S. Ct. 999 (2008) ........ 2, 40, 34, 33, 32

Rosario v. Diagonal Realty, LLC,

8 N.Y.3d 755 (2007),

cert. denied, 128 S. Ct. 1069 (2008) ... 25

Rowe v. New Hampshire Motor

Transportation Association,

oo ee ek) ee eee 25, 30

Schneidewind v. ANR Pipeline Co.,

SEG US. TOS (EGGS) oon ve cceecscccevevess 28

State Farm Bank, FSB v. Reardon,

539 F.3d 336 (6th Cir. 2008) ........... 37

Watters v. Wachovia Bank, N.A..,

ES? S. Ch. ESOP (BOG)... oe ccacccvsce, 2-3, 34

Statutes and Other Authorities:

15 U.S.C. § 1257(a) (ISSS) .. .. 2. 0c cccccseees 4

1S U.S.C. § FEGR a) CIGTS) ..... o.oo 13, 26

15 UW .Set.. © IGG aH TL) CIBRSE).... oo ccc 13, 26

6 U.S. dS PGI] (AGO os ik voces passim

vill

PAGE

26.47 .G4,. 9 3008 CE? sis knove5 eee 26, 27

18 U.8.C. § 16STCe) (BEGG) .. . 6. cc iecnaee SS passim

15 U.S.C. § G07 (a) (29O9) «| ...660sseccissciws 26

21 U.S.C. § 360k(a)(1) (1976).............. 23, 24

12 CFR Part 226, Supp. J (2008) ........... 26, 31

12 ©.F RR. § SOG. OS COG ee ci niiivossssey sees 17, 29

12 C.F .R. § 226.26( 4) (ZO0C) ...... 2.6. s0eess 29

21 C.F.R. § 808.1(0)(1) (2008) ... 2.25. ..002 23

Fair Credit and Charge Card

Disclosure Act,

Pub. L. No. 100-583,

102 Stat. SOGO (IGEB) ..... ccc svcveseess 26

134 Cong. Rec. H10179-02,

1988 WL 181188 (Oct. 13, 1988)....... 36

Credit and Charge Card Disclosures,

54 Fed. Reg. 13,855 (Apr. 6, 1989)..... 27

Truth in Lending, 72 Fed. Reg. 32948

(dume U6, BOOTS is vcccvenuxscseeeee eee 33

Truth in Lending, 73 Fed. Reg. 28866

(May 39, DOGO) . «00 sesscccnclee es eee 33

Joseph W. Gelb & Peter N. Cubita,

The Fair Credit and Charge Card

Disclosure Act of 1988: A Federal

Alternative to the Rate Ceiling

Approach,

44 Bus. Law. 941 (1988-198)).......... 25

PAGE

Jonathan A. Sheldon, Unfair and

Deceptive Acts and Practices

otc bso eeecrerteverecess 36

Brief for the State of New York, et al.

as Amici Curiae, Riegel v. Medtronic,

Inc., No. 06-179, 2007 WL 2456949

5 ee 23

PRELIMINARY STATEMENT

In defiance of an express and unambiguous

federal prohibition against state regulation of

consumer credit card disclosures, the State of

New York has unilaterally seized the authority to

supplement the uniform regulatory system man-

dated by Congress, and has imposed a separate

and parallel scheme of state regulation. Despite

the plain command in the federal Truth in Lend-

ing Act, 15 U.S.C. § 1601, et seg. (“TILA”), that,

without exception, federal disclosure require-

ments “supersede any provision of the law of any

State relating to the disclosure of information in

any credit or charge card application or solicita-

tion,” 15 U.S.C. § 1610(e) (1994), the New York

Court of Appeals, over a vigorous dissent, held

that New York could impose both additional dis-

closure obligations and penalties for not having

made those additional disclosures. The Court of

Appeals also ignored the interpretation of the

Board of Governors of the Federal Reserve (the

“Federal Reserve Board”), the regulatory agency

charged with exclusive responsibility for imple-

menting TILA’s disclosure requirements as well

as preserving the integrity of the credit system,

and substituted its erroneous interpretation of

TILA.

To support its refusal to abide by Congress’

express preemption of state law, the Court of

Appeals recycled the discredited argument that

state tort and consumer protection laws do not

impose additional disclosure requirements, hold-

ing that New York law here merely requires par-

ties “to refrain from fraud, deception and false

advertising ...” and does not require a party “to

disclose anything.” (lla) But as this Court has

recognized repeatedly—most recently in Riegel v.

Medtronic, Inc., 128 S. Ct. 999 (2008)—such state

laws “impose liability ‘premised on the existence

of a legal duty,’ and a tort judgment [here, a

judgment under a state false and deceptive prac-

tices statute] therefore establishes that the

defendant has violated a state-law obligation.

And while the common law remedy is limited to

damages, a liability award ‘can be, indeed is

designed to be, a potent method of governing

conduct and controlling policy.’” Jd. at 100 (cita-

tions omitted).

The impact of the Court of Appeals’ disruption

of the federal regulatory structure is important

and immediate. The nationwide regulation man-

dated by Congress strongly militates against dis-

missing this decision as merely an outlier or

letting the issue percolate through the lower

courts. New York is the financial capital of the

country. Many of this country’s largest national

banks are headquartered there. Virtually all of

them have branches there. They and all the

nation’s other issuers of credit cards routinely do

business with consumers in New York, and they

would have to modify their credit card disclo-

sures made to those consumers to satisfy the sup-

plemental New York requirements. And beyond

this enormous impact, there would be vast mate-

rial repercussions, as virtually every State main-

tains laws paralleling the New York law at issue

in this case.

Private plaintiffs and state Attorneys General

have assiduously tried to chip away at federal

uniformity. As this Court recognized in Watters

v. Wachovia Bank, 127 S.Ct. 1559 (2007), those

efforts have had adverse consequences in direct

contravention of Congressional intent. Allowing

the New York Court of Appeals’ decision to stand

would unleash countless state law challenges to

credit card practices in an area that Congress

declared to be exclusively within the province of

the federal government. Inevitably, the prolif-

eration of cases judging the adequacy of compa-

nies’ disclosures under state law standards will

undermine the uniform nationwide system of reg-

ulation of the issuers of credit cards, which

includes a substantial portion of the financial

services industry in the United States.

At a time when financial institutions are facing

many challenges, the Courts of Appeals’ erro-

neous decision threatens nationwide harm to the

lending industry by imposing the very burdens

that Congress specifically decided to prevent

when it enacted Section 1610(e) after 20 years of

regulation under TILA. The costs of complying

with the laws of 50 different states—and poten-

tially many more localities—that credit card

issuers will likely incur when other States follow

the Court of Appeals’ reasoning will substantially

impair the ability of those institutions to offer

credit to consumers across the nation. Indeed, it

is that very harm that caused Congress to man-

date in plain and unambiguous language that

there be exclusive federal regulation of credit

card disclosures. And it is that very harm that

urgently requires this Court to review the deci-

sion of the Court of Appeals.

CITATIONS OF DECISIONS

People of the State of New York ex rel. Spitzer

v. Applied Card Systems, Inc., 11 N.Y.3d 105

(2008) (1a-50a); People of the State of New York

ex rel. Spitzer v. Applied Card Systems Inc., 27

A.D.3d 104 (3d Dep’t 2005) (51a-59a).

STATEMENT OF JURISDICTION

The Judgments of the Supreme Court of the

State of New York, Albany County, were entered

on June 23, 2004 and June 26, 2006. On June 26,

2008, the Court of Appeals of the State of New

York affirmed the Judgments. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1257(a)

(1988).

STATUTE AT ISSUE

15 U.S.C. § 1610 (1994). (60a-62a)

STATEMENT OF THE CASE

I. Nature of the Proceeding

In April 2003, the Attorney General of the

State of New York (the “Attorney General”) com-

menced a special proceeding under New York

Executive Law § 63(12), alleging that petitioner

Cross County Bank (“CCB”) had violated Sections

349 and 350 of the New York General! Business

Law.'! The Attorney General broadly alleged that

The Attorney Gencral also asserted claims against

CCB’s affiliate Applied Card Systems, Inc. (“ACS”) with

respect Lo the collection practices that ACS employed. The

CCB “deceptively induce[d] [consumers] to enter

into onerous and confusing credit card agree-

ments” that required the payment of high fees

and costs in return for only “a minimal amount of

usable credit.” The Attorney General sought to

enjoin CCB from engaging in such conduct, as

well as an award of restitution and penalties.

On July 11, 2003, CCB and ACS filed their

joint Verified Answer, in which they asserted

numerous affirmative defenses. As one of its

affirmative defenses, CCB asserted that its dis-

closures fully complied with TILA’s requirements

and federal Regulation Z promulgated thereun-

der and that the Attorney General therefore

could not assert any claims under Sections 349

and 350.

II. The Proceedings Below

The proceedings before the trial court were

bifurcated. On May 28, 2004, the trial court ren-

dered a decision and shortly thereafter entered a

partial judgment with respect to liability and

injunctive relief. On January 27, 2006, the trial

court entered an order assessing penalties, resti-

tution and costs, and thereafter entered a second

judgment. CCB appealed from each of those judg-

ments to the Appellate Division, Third Depart-

ment (the “Appellate Division”), including on the

ground that 15 U.S.C. §1610(e) preempted the

Attorney General’s claims. (5]a-59a) On Septem-

ber 4, 2007, the Court of Appeals granted leave

to appeal. On June 26, 2008, the Court of

Appeals entered its Opinion and Order, affirming

claims asserted against ACS arc not the subject of this peti-

tion

each of the Appellate Division’s Orders, including

with respect to the issue of preemption. (la-50a)

On February 11, 2004, the trial court issued an

Order “to first address those issues which can be

readily determined at this juncture.” Among

other things, the trial court dismissed CCB’s

defense under TILA. On February 25, 2004, CCB

moved for reargument, and the trial court orally

ruled that “the TILA preemption claim [did] not

apply to the deceptive and fraudulent practices

that are the subject of this proceeding under the

Executive Law and the General Business Law.”

On May 28, 2004, the trial court issued its

decision granting injunctive relief. It held that,

as a matter of law, CCB’s credit card solicitations

violated Sections 349 and 350 of the General

Business Law. On June 238, 2004, the trial court

entered a Judgment (the “First Judgment”) per-

manently enjoining appellants “from engaging in

the fraudulent, deceptive and unlawful acts and

practices alleged in the Verified Petition.”

On January 27, 2006, the trial court entered its

Order directing respondents to pay restitution,

penalties and costs. On June 26, 2004, the Court

entered a Statement of Judgment reflecting the

monetary award set forth in the January 27

Order (the “Second Judgment”).

In 2004, CCB and ACS appealed to the Appel-

late Division from the First Judgment. In a Deci-

sion and Order entered December 1, 2005 among

other things, the Appellate Division held that

TILA did not preempt the Attorney General’s

claims because they were directed at unfair and

deceptive practices, as opposed to disclosure obli-

gations. (58a) The Appellate Division held in a

conclusory manner that the Attorney General

was not seeking to establish that the disclosures

were inadequate.’ (58a)

In 2006, the parties cross-appealed to the

Appellate Division from the Second Judgment.

On April 5, 2007, the Appellate Division issued a

Decision and Order modifying the remedies

granted (the “2007 Appellate Division Decision”).

CCB and the Attorney General thereafter each

moved for leave to appeal to the Court of

Appeals. Among other things, CCB sought leave

to appeal from the Appellate Division’s decision

that TILA did not preempt the claims asserted by

the Attorney General. On September 7, 2007, the

Court of Appeals granted the two motions. On

June 26, 2008, the Court of Appeals issued its

Opinion and Order affirming the Judgments,

including the dismissal of CCB’s preemption

defense.

Ill. The Court of Appeals’ Preemption

Ruling

The pertinent issue before the Court of Appeals

was whether Section 1610(e) of TILA preempted

the Attorney General’s attempt to impose addi-

tional disclosure requirements on CCB. Section

1610(e) states:

The provisions of subsection (c) of section

1632 of this title and subsections (c), (d),

)

The Appellate Division held that the disclosures vio-

lated Sections 349 and 350 of the General Business Law

because they did not disclose enough information and should

have been presented in a different manner. (55a-57a)

(e) and (f) of section 1637 of this title

shall supersede any provision of the law

of any State relating to the disclosure of

information in any credit or charge card

application or solicitation which is sub-

ject to the requirements of section

1637(c) of this title or any renewal notice

which is subject to the requirements of

section 1637(d) of this title, except that

any State may employ or establish State

laws for the purpose of enforcing the

requirements of such sections.

15 U.S.C. § 1610(e).

In rejecting CCB’s preemption defense, a

majority of the Court of Appeals read Section

1610(e) as preempting state actions only to the

extent that the relief sought conflicted with the

requirements of TILA and Regulation Z. (9a-10a)

In a detailed and carefully reasoned dissent,

however, Judge Read criticized the majority for

distorting the plain meaning of Section 1610(e),

which expressly states that TILA’s credit card

solicitation disclosure requirements preempt

state law, as well as for refusing to abide by

Congress’ express intent that there be national

uniformity with respect to the regulation of

credit card solicitations. (40a-41la).

The majority began its analysis by quoting

inaptly from a principle articulated by this Court

regarding assertions that state action is

impliedly (as opposed to explicitly) preempted,

t.e., Congress is presumed not to supplant state

law unless its intent is clear and manifest.

(8a-9a) (citing N.Y. State Conference of Blue

Cross & Blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 654 (1995)). It then concluded,

without any support in the statute, that Section

1610({e) does not preempt every state law con-

cerning disclosures in credit card solicitations

and applications:

Instead, it preempts those state laws

that relate to “disclosure of information,”

in credit card applications and solicita-

tions “subject to the requirements of sec-

tion 1637(c) [of TILA],” not those that

prevent fraud, deception and false adver-

tising. Preemption is limited, then, to

laws that purport to alter the format,

content, and manner of the TILA-

required disclosures and those that

require credit issuers to affirmatively

disclose specific credit term information

not embraced by TILA or Regulation Z.

(10a) (citations omitted). The majority thus con-

cluded that the Attorney General’s claims were

not preempted because Section 349 of the Gen-

eral Business Law requires a party merely to

“refrain from fraud, deception and false adver-

tising ...” and does not require a party “to dis-

close anything.” (lla)

The majority refused to follow this Court’s

precedent regarding construction of the phrase

“relating to” as having a meaning that

“express[es} a broad preemptive purpose.” (13a-

14a) (citations omitted). Instead, the majority dis-

regarded the Court’s precedents, and concluded

that the Attorney General’s claims were “too ten-

uous, remote or peripheral” to be “related to” the

matters preempted under Section 1610(e). (14a)

The majority held that its decision would not

interfere with the system established by Congress

based on the unsupported assertion that it does

not require CCB to alter any of the disclosures or

to disclose any additional terms. (17a)

The majority stated that the constitutional

principles articulated by this Court last term in

Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008),

are not governing for two reasons. (16a-17a) The

majority recited its conclusion that Section

1610(e) does not apply to state laws prohibiting

fraud or deception. (17a) It also asserted that the

Attorney General’s success against CCB will not

““disrupt[] the federal scheme’ of disclosure man-

dated under TILA” because no additional disclo-

sure requirements are imposed. (See 17a) The

majority took comfort from its belief that

Congress did not preempt a State’s use of unfair

trade practices laws, and observed that Section

349 is just such a statute. (20a) The majority,

however, did not address TILA’s express limita-

tion placed on a State’s right to employ such

tatutes. (See 20a-22a)

In her comprehensive dissent, Judge Read

began by stating that Section 1610(e) “preempts

the Attorney General’s bid to impose disclosure

requirements” and that the “majority reache[d]

the opposite conclusion by dint of misreading

TILA’s special preemption rule for credit or

charge card applications or solicitations.” (29a)

Judge Read identified the fundamental flaw in

the majority’s reading of Section 1610(e):

The majority reads the clause “which is

subject to the requirements of section

1637(c)” to modify “information.” Accord-

ingly, the majority reasons, “[t]he scope

of the section 1610(e) preemption is...

expressly limited to state laws relating to

disclosures specifically required under

section 1637(c)” [17a] (emphases added).

The majority therefore concludes that

“there is no preemption here because nei-

ther CCB’s claims nor the relief it was

granted below have any effect upon these

disclosures” [15a]. That is, because there

is no conflict between TILA’s disclosure

requirements and New York’s consumer

protection laws, CCB may (and indeed

must) devise a solicitation complying

with both federal and state law.

But the majority’s reading of the statu-

tory text is not correct. It completely

“disregards—indeed, is precisely contrary

to—the grammatical ‘rule of the last

antecedent,’ according to which a limit-

ing clause or phrase ... should ordinarily

be read as modifying only the noun or

phrase that it immediately follows ...

While this rule is not an absolute and

can assuredly be overcome by other indi-

cla if meaning, ... construing a statute in

accord with the rule is quite sensible as a

matter of grammar” (Barnhart v Thomas,

540 US 20, 26 [2003] [quotation marks

omitted]; see also 2A Singer and Singer,

Statutes and Statutory Construction

§ 47:33, at 487 [7th ed 2007] [“Referential

and qualifying words and phrases, where

no contrary intention appears, refer

solely to the last antecedent”}).

Here, the limiting clause “which is sub-

ject to the requirements of section

1637(c) immediately follows and there-

fore modifies “any credit or charge card

application or solicitation,” not “infor-

mation.”

(30a-3la) (emphasis and ellipses in original).

Judge Read reviewed the position of the Fed-

eral Reserve Board, observing that: “(t]he Fed-

eral Reserve Board, which implements section

1610(e) through its Regulation Z (12 CFR Part

226), disagrees with the majority’s textual anal-

ysis ....” (3la). She quoted extensively from the

text of Regulation Z and the Federal Reserve

Board’s Commentary, including the statement

that “[s]tate laws relating to the disclosure of

credit information on credit or charge card appli-

cations and solicitations subject to the require-

ments of [15 USC § 1637[c]) ... are preempted.”

(3 la-32a) (ellipsis in original; citations omitted).

Judge Read noted that the Federal Reserve

Board has concluded that:

TILA supplants State law “requirements”

that “relat[e] to the disclosure of credit

information” in certain credit or charge

card applications or solicitations (i.e.,

those that the Board has determined to

be subject to the requirements of 15 USC

§ 1637[c]); thus, preemption is not lim-

ited to “state laws relating to the disclo-

sures specifically required under section

1637(c)”. The Board’s view in this regard

is entirely consonant with the statute's

text, and with Congress’ purpose in

adopting a special preemption rule in the

first place.

(32a-33a) (citations omitted). She then reviewed

the history of TILA and Regulation Z to sub-

stantiate this conclusion. (33a-38a). She finished

that analysis by concluding:

As the discussion of the evolution of

TILA preemption illustrates, before

Congress adopted the special preemption

rule, states supplemented federal credit

disclosure requirements with regularity.

If Congress had wanted this state of

affairs to continue, there would have

been no need for it to supplant the incon-

sistency/contradictory standard in sec-

tion 1610(a)(1) (as interpreted by the

Board in Regulation Z) with the special

preemption rule in section 1610(e). By

reading the special preemption rule as it

does, the majority has undone Congress’

handiwork: the majority has effectively

reinstated the inconsistency/contradic-

tory standard for disclosures on credit or

charge card applications or solicitations.

While the majority cloaks its interpreta-

tion of section 1610(e) in the garb of the

presumption against preemption of state

law [16a-17a], the presumption does not

empower a state court to circumvent

Congress’ will as expressed in non-

ambiguous statutory language (“In all

pre-emption cases... we start with the

assumption that the historic police pow-

ers of the States were not to be super-

seded by the Federal Act unless that was

the clear and manifest purpose of

Congress,” Medtronic v Lohr, 518 US 470,

485 [1996] [emphasis supplied, internal

quotation marks and citations omitted]).

(40a-41a) (ellipsis and emphasis in the original).

Finally, Judge Read explained why the major-

ity could not justify its position that there is no

preemption on the ground that the Attorney Gen-

eral was enforcing only a statute that prohibited

unfair or deceptive acts and practices. Judge

Read stated that the majority took out of context

a truncated comment in the Federal Reserve

Board’s commentary regarding the authority of a

state to enforce such statutes. (42a-43a) She

quoted the Commentary to demonstrate the

majority’s error:

“\s]tate laws relating to the terms of

credit required to be disclosed or the

manner in which such terms are to be

disclosed are preempted as to any credit

or charge card application or solicitation

that is subject to [15 USC § 1637[c])...

The preemption of such provisions of

state law 1s total, and differs from other

provis'ons of the TILA which generally

preempt only inconsistent state laws” (54

Fed Reg at 13863) (emphases added).

(44a-45a) (ellipsis and emphasis in original)

Judge Read stated that the majority “cannot

evade preemption by portraying this enforcement

action as a suit to enjoin a misleading and fraud-

ulent ‘overall impression’ rather than ‘inade-

quate disclosure.’” (45a)

The only way for CCB to dispel the com-

plained-about “overall impression”—the

only way for CCB to comply with [the

trial court’s] injunction—is to revise and

alter the form and content of its solici-

tations, i.e., to make different and/or

additional disclosures. Neither the Attor-

ney General nor the majority explains

how else CCB may eliminate the alleged

misrepresentations from its solicitations.

(45a-46a) (citations and footnote omitted).

IV. Statement of Facts

CCB is a Delaware bank that issues credit

cards to consumers. CCB primarily issues credit

cards to consumers who have no or poor credit

- histories. CCB is a state-chartered bank, subject

to extensive regulation, supervision and exami-

nation by both the Federal Deposit Insurance

Corporation and the Delaware Banking Com-

missioner.

In order to attract consumers and to inform

them of its products, CCB sends out direct mail

solicitations. It also communicates with con-

sumers through the telephone and Internet. CCB

periodically sends out hundreds of thousands of

solicitations nationwide, including to consumers

in New York. In these solicitations, CCB provides

all the information required under TILA. It has

never been disputed that CCB’s solicitation

materials and disclosures are truthful and accu-

rate and comply with TILA’s requirements and

Regulation Z.

CCB’s solicitations offered potential cardhold-

ers credit limits of “up to” $2,500 or, in some

cases, “up to” $1,000. It is undisputed that CCB’s

solicitations never stated that a potential card-

holder would receive a credit limit of $2,500 or

$1,000. Since approximately November 2000,

CCB’s solicitations have disclosed the minimum

as well as the maximum credit limit and, since

June 2001, have generally disclosed the histori-

cal average of new credit lines as well. For

instance, a CCB solicitation mailed in December

2001 contained the following disclosure:

You will receive a Visa Gold account with

a minimum credit line of at least $350 if

CCB can verify all information you pro-

vide, and you continue to meet our selec-

tion criteria and any other applicable

criteria bearing on creditworthiness.

Your credit line (minimum $350, maxi-

mum $2,500) will be based on your cred-

itworthiness. Initial credit lines have

historically averaged approximately $400.

Over time your credit line may increase

to $2,500 or higher based on payment

history and other criteria bearing on

creditworthiness. Our credit line increase

programs may include offers that are

subject to fees as well as merit increases.

(Emphasis added.)

CCB charges late payment fees and overlimit

fees. The chart in each and every CCB solicita-

tion labeled “TERMS AND CONDITIONS OF

OFFER” discloses, among other things, the

amount of the annual and origination fees and

the amount of the late and overlimit charges.°

The chart is in the format dictated by TILA, and

contains all the information mandated by TILA.

Upon issuance of a credit card, the cardholder

receives the credit card attached to a piece of

card stock. That document discloses in clear and

readable type the precise credit limit, the annual

fee, the account origination fee, the current APR

and the current periodic rate. As of the time that

it is received, the credit card is not active, and

the cardholder must call an 800 number to acti-

vate it. Thus, if the cardholder decides that the

terms described on the document to which the

credit card is attached are unacceptable, the

cardholder may reject them simply by choosing

not to activate the card, and therefore will never

incur any of the fees or expenses.

CCB offers a voluntary insurance program to

its cardholders. In the event of a covered claim,

that program makes the cardholder’s minimum

monthly payment or pays the account balance up

to a certain dollar figure. The program is mar-

keted nationwide, but the program in each state

has varying requirements and limitations, con-

sistent with each state’s law. In New York, the

program provides only death and dismemberment

benefits, which are priced in accordance with

New York insurance law. The New York Super-

intendent of Insurance specifically approved the

prices and terms of these policies, as well as the

certificates delivered to participating cardholders.

This chart (which is sometimes called the “Schumer

Box”) is required by Regulation Z. See 12 C.F.R. § 226.5a

(2007)

Cardholders who enroll in the program in New

York are charged a premium only for the benefits

specifically available in New York and not for

any of the benefits available only in other states.

The mail solicitation specifically provides: “cov-

erage and costs vary by state. See the enclosed

insert for specific benefit terms and conditions.”

Immediately above the signature line that a

cardholder must execute in order to receive the

optional coverage, it states: “YES! Please enroll

me in the optional CAP insurance program. I

have read and understood the insurance and cost

disclosures as described in the enclosed insert.”

The insert—entitled “Optional Benefit Pro-

grams”—explicitly provides under the heading

“Credit Account Protector (CAP) Benefit Descrip-

tion” that certain benefits are not available in

New York. When a cardholder enrolls in the pro-

gram, a certificate is sent to the cardholder

before any premium is charged. The certificate

expressly provides, in bold print, that coverage is

limited to life and dismemberment and that the

cardholder may cancel the program and obtain a

full refund in the event that the cardholder is

dissatisfied with the coverage.

CCB also offers its customers optional mem-

bership in its Applied Advantage program. The

Applied Advantage program over time has

offered a number of benefits, including eligibility

for a no-cost credit line increase and convenience

checks. In order to enroll in the Applied Advan-

tage program, a potential cardholder must affir-

matively check a box on the Acceptance

Certificate immediately next to a statement read-

ing: “Check here if you wish to be enrolled in

Applied Advantage for the annual membership

fee of $34.95. Your credit card acceptance will be

processed even if you do not choose to accept

Applied Advantage. See the enclosed insert for

details.”

V. The Attorney General’s Claims against

CCB

The Attorney General asserts that CCB vio-

lated Sections 349 and 350 of the General Busi-

ness Law based on the alleged inadequacy of

CCB’s disclosures made pursuant to TILA’s and

Regulation Z’s requirements. The Attorney Gen-

eral’s Petition alleges, for example, that: “[CCB]

fails to disclose to consumers that the exorbitant

[account origination, annual and maintenance]

fees charged to the account will leave many

account holders with less than $150 in available

credit” and that “the terms of the secured credit

card agreement, including the high interest rate,

$10 monthly maintenance fee, $50 annual fee,

and $30 late and over-the-limit fees are incon-

spicuously bvried on the fifth page of the adver-

tisement and application in the ‘Terms and

Conditions’ chart and not otherwise referred to in

the advertisement and application.”

The Petition further alleges inadequate dis-

closure of the terms of services offered by CCB in

its credit card solicitations: “The [insurance] pro-

gram’s exclusions pertaining to New York con-

sumers are not conspicuously disclosed, but

rather are set forth in fine print on the last page

of the application, and are difficult and confusing

to read.” “The 60-day cancellation provision,

which enables consumers to avoid the automatic

renewal of their [Applied Advantage] member-

ship, is not always clearly and conspicuously dis-

closed and often appears in miniscule print

towards the end of the solicitation.”

In an Affirmation filed in support of the Peti-

tion, the Assistant Attorney General similarly

criticized CCB’s disclosures for not containing

sufficient information. In his Reply Affirmation,

he stated that:

[Nleither the card carrier nor the card-

holder agreement actually disclose that

the consumer’s credit limit will, upon

activation of the account, be reduced by

the amount of the Account Origination

Fee and Annual Fee, or that most con-

sumers will have less than $250 in avail-

able credit. Rather, the cardholder

agreement merely states—in difficult to

find or read small print size—that the

$100 Account Origination Fee will be

charged to the account in the same man-

ner as any other finance charge, and that

the $50 Annual Fee will be treated as a

“purchase.”

The trial court’s discussion of the Attorney

General’s claims also focused on the insufficiency

of CCB’s disclosures. The trial court observed

that the Attorney General “contends that CCB’s

credit card offers violate New York consumer

protection laws because the qualification and dis-

claimer disclosures are not sufficiently promi-

nent to avoid deceiving consumers.” The trial

court noted:

[The Attorney General’s] argument is

that you disclose all this stuff, but the

manner in which you disclose it, where

you put pre-approved in big, bold letters

and then up to $2500 credit line, more

prominent but less bold letters, and

somewhere in the back talk about other

things, that that’s deceptive and mis-

leading to the average reasonable con-

sumer. That’s what he is contending. He

is not contending that the TILA require-

ments aren’t met here.

REASONS WHY CERTIORARI

SHOULD BE GRANTED

The Court of Appeals refused to follow the fun-

damental constitutional principle reaffirmed by

this Court in Riegel v. Medtronic, Inc., 128 S. Ct.

999 (2008). The Court of Appeals disregarded the

plain language of Section 1610(e) of TILA, and

effectively converted Section 1610(e) into a con-

flicts preemption clause (and thus totally redun-

dant of Section 1610(a) of TILA). Contrary to the

Court of Appeals’ holding, when it enacted Sec-

tion 1610(e), Congress expressly preempted the

States’ right to impose additional disclosure

requirements for credit card solicitations. TILA’s

legislative history and the Federal Reserve

Bank’s interpretation confirm that the preemp-

tion mandated by Section 1610(e) is total.

Absent review by this Court, the Court of

Appeals’ decision will destroy the regulatory uni-

formity that Congress mandated in 1988 when it

amended TILA and preempted all state laws

regarding the disclosures in credit card solicita-

tions. If allowed to stand, the decision will enable

the State of New York—and embolden the other

States—to use the pretext of deceptive practices

claims to balkanize the federal requirements

governing the substance and manner of presen-

tation of disclosures in credit card solicitations.

Further, it will eviscerate the Federal Reserve

Board’s exclusive authority to determine what dis-

closures should (and should not) be made and how

and in what form those disclosures should take.

In concluding her dissent, Judge Read stated:

“In enacting Section 1610(e) Congress essentially

decided that the benefits from a uniform, nation-

wide regime for disclosure under the aegis of the

Board outweighed any loss of protection to con-

sumers under state law. The Supremacy Clause

permits Congress to make this judgment, and we

are bound to honor it.” (49a-50a). CCB’s petition

should be granted in order to prevent the harms

that will be triggered from the Court of Appeals’

failure to “honor” Congress’ judgment.

POINT I

IN DEROGATION OF THIS COURT’S

HOLDINGS, THE COURT OF APPEALS’

D ‘CISION FUNDAMENTALLY OVER-

RIDES AND NEGATES TILA’S TOTAL

PREEMPTION OF STATE REGULATION

OF CREDIT CARD SOLICITATION

DISCLOSURES

The Court has clearly and frequently stated the

constitutional principle that the States must

enforce the federal government’s decision to

occupy a field and to preempt state law. The most

recent expression of that duty is Riegel.

The plaintiffs in Riegel claimed that a medical

device was designed, labeled and manufactured

in a manner that violated New York’s common

law, despite the fact that the device had been

approved by the Food and Drug Administration

(the “FDA”). Id. at 1005-06. The Court granted

review to consider whether those claims were

barred by the explicit preemption provision in

the Medical Device Amendments of 1976 (the

“MDA”) to the federal Food, Drug, and Cosmetic

Act, 21 U.S.C. § 360k. The MDA expressly pre-

empts state law requirements that (i) relate to

health and safety and (ii) are “different from, or

in addition to, any requirement applicable” under

federal law. 21 U.S.C. § 360k(a)(1). The FDA reg-

ulation states that the MDA does not preempt

“[s]tate or local requirements of general appli-

cability.” 21 C.F.R. § 808.1(d)(1) (2008). The

plaintiffs in Riegel argued—as did the Attorney

General in his Riegel amicus brief—that the FDA

interpretive statement showed that those claims

fell outside of the scope of the MDA’s preemption

provision. Riegel, 128 S. Ct. at 1010; Brief for the

State of New York, et al. as Amici Curiae, No. 06-

179, 2007 WL 2456949 at *7-8 (Aug. 27, 2007).

This Court rejected that contention, and held

that the MDA preempted these common law

claims because they would effectively impose dif-

ferent or additional health and safety require-

ments. Riegel, 128 S. Ct. at 1011.

The Court’s unambiguous application of the

Supremacy Clause in Riegel should have lead the

Court of Appeals to hold that Section 1610(e) pre-

empts the Attorney General’s claims under Sec-

tions 349 and 350 of the General Business Law.

Indeed, the preemption provision at issue in

Riegel is not as broad as Section 1610(e), as it

declares preemption of “only state requirements

‘different from, or in addition to any requirement

applicable ... to the device under federal law.”

See Riegel, 128 S. Ct. at 1006 (quoting 21 U.S.C.

§ 360k(a)(1)). Section 1610(e) contains no such

limitation—it provides for preemption of “any

provision of the law of any State relating to the

disclosure of information.”

The Court of Appeals, however, affirmatively

refused to follow the constitutional principles

reaffirmed in Riegel. It justified its refusal by

limiting the application of Riegel to just the facts

arising under the MDA alone. (16a-17a) In her

dissent, Judge Read highlighted the majority’s

fallacious reasoning and concluded that: “This is

an even clearer case for preemption than Riegel.”

(47a) Judge Read stated:

(T}he relief that the Attorney General

sought (and has obtained) inevitably

cails for CCB to alter the format and con-

tent of the disclosures in its credit or

charge card solicitations of consumers in

New York, thus “disrupt[ing] the federal

scheme envisaged and designed by

Congress to “enhance credit shopping” by

requiring “more detailed and uniform”

disclosure of credit information to con-

sumers nationwide.

(48a-49a) (citing Riegel, 128 S. Ct at 1008)

(emphasis in original). As Judge Read’s analysis

makes plain, the majority’s refusal to follow

those principles and to enforce Section 1610(e) is

a significant legal error that will have grave

national consequences.

A. Congress Intended that TILA Totally

Preempt State Law Regulation

The Court of Appeals incorrectly based its rul-

ing on its view that there is a presumption

against preemption. (16a-17a) In deciding

whether state law is preempted by a federal

statute, the Court’s “sole task is to ascertain the

intent of Congress.” Cal. Fed. Sav. & Loan Ass’n

v. Guerra, 479 U.S. 272, 280 (1987); Rosario v.

Diagonal Realty, LLC, 8 N.Y.3d 755, 763 (2007),

cert. denied, 128 S. Ct. 1069 (2008). “‘[T]he pur-

pose of Congress is the ultimate touchstone’ ” in

any preemption analysis. Cipollone v. Liggett

Group, Inc., 505 U.S. 504, 516 (1992) (citations

omitted). If a state action falls within the scope

of an express preemption provision, it is barred,

and there is no place for any “presumption”, even

in the context of consumer protection actions.

Rowe v. N.H. Motor Transportation Ass’n, 128 S.

Ct. 989, 998 (2008); accord Medtronic, Inc. uv.

Lohr, 518 U.S. 470, 485 (1996).

Congress enacted TILA in 1968. TILA’s pur-

pose is to “assure a meaningful disclosure of

credit terms so that the consumer will be able to

compare more readily the various credit terms

available to him and avoid the uninformed use of

credit, and to protect the consumer against inac-

curate and unfair credit billing and credit card

practices.” 15 U.S.C. § 1601(a) (1976). TILA sets

forth a variety of credit-related disclosure

requirements, which, pursuant to Congress

directive, have been implemented through “Reg-

ulation Z,” 12 C.F.R. Pt. 226 (2008).

As originally enacted in 1968, TILA preempted

only “inconsistent” state law, i.e., it preempted

only those state laws whose application would

conflict with TILA’s requirements. See 15 U.S.C.

§ 1610(a)(1). That preemption standard, echoed

in a variety of other federal banking statutes,

e.g., 15 U.S.C. § 6807(a) (1999) (Gramm-Leach-

Bliley Act of 1999), remains the general rule

under TILA. However, as discussed below, a sep-

arate provision governing credit card solicita-

tions was enacted in 1988.

In 1988, after a generation of experience with

TILA and the development of a nationwide mar-

ket for credit cards, Congress amended TILA by

enacting the Fair Credit and Charge Card Dis-

closure Act (““FCCCDA”), Pub. L. No. 100-583,

102 Stat. 2960 (1988). The new provisions that

the FCCCDA added to TILA require detailed and

uniform disclosure of rates and other cost infor-

mation in solicitations and applications for credit

card and charge card accounts. These disclosure

requirements pertain to both the substance and

the manner of the disclosures. See 15 U.S.C.

§ 1632 (1988); 15 U.S.C. § 1637(c) (2005)

Congress’ intent in imposing these standards

was to enable consumers to understand the solic-

itations and to compare the terms of different

credit card offers. Congress concluded that con-

sumers could do so only if the disclosures in all

credit card solicitations were uniform with

respect to both the cuntent covered and the man-

ner of disclosure. As later stated by the Federal

Reserve Board when it amended Regulation Z to

implement the FCCCDA, Congress intended that

its 1988 amendments would ensure “detailed and

uniform disclosure|s]” in such solicitations. Truth

in Lending: Credit and Charge Card Disclosures,

54 Fed. Reg. 13,855, 13,855 (Apr. 6, 1989)

(emphasis added).

Congress therefore enacted two related and

reinforcing provisions designed to guarantee that

there would be only a single and uniform set of

federally imposed disclosure requirements. The

first provision totally preempts state law relating

to disclosure of information in a credit card solic-

itation or application. The second one grants

exclusive regulatory authority to the Federal

Reserve Board. The Court of Appeals refused to

enforce these two provisions.

The FCCCDA added a new provision that

expressly declares that TILA preempts all state

regulation of disclosures in credit and charge

card applications and solicitations. In contrast to

TILA’s general preemption rule in Section

1610(a)(1), this provision states:

The provisions of subsection (c) of section

1632 of this title [which concerns the

form of credit and charge card applica-

tion disclosures] and subsections (c), (d),

(e) and (f) of section 1637 of this title

[which concerns the content of required

credit and charge card application and

annual fee renewal disclosures] shall

supersede any provision of the law of any

State relating to the disclosure of infor-

mation in any credit or charge card

application or solicitation which is sub-

ject to the requirements of section

1637(c) of this title or any renewal notice

which is subject to the requirements of

section 1637(d) of this title, except that

any State may employ or establish State

laws for the purpose of enforcing the

requirements of such sections.

15 U.S.C. § 1610(e) (emphasis added).

Simultaneously, the FCCCDA conferred on the

Federal Reserve Board the authority that

Congress withdrew from the States, i.e., the

authority to dictate all disclosure requirements

in connection with credit card solicitations. Id.

§ 1637(c)(5). The FCCCDA assigned the Federal

Reserve Board the exclusive task of determining

both the required content and format of such

disclosures: “Information required by this sub-

chapter shall be disclosed clearly and conspicu-

ously, in accordance with the regulations of the

Board.” Jd. § 1632(a).

When Congress gives a federal agency exclu-

sive jurisdiction to regulate a particular field,

state regulations may not intrude on the regu-

latory scheme established by Congress. See, e.g.,

California v. Fed. Energy Regulatory Comm’n,

495 U.S. 490, 506-07 (1990) (California stream

flow requirements preempted because they

“interfere with [FERC’s] comprehensive planning

authority . ” (citations omitted)); Schneide-

wind v. ANR Pipeline Co., 485 U.S. 293, 310

(1988) (“When a state regulation ‘affects the abil-

ity of [FERC] to regulate comprehensively ... the

transportation and sale of natural gas, and to

achieve the uniformity of regulation which was

an objective of the Natural Gas Act’ or presents

the ‘prospect of interference with the federal reg-

ulatory power,’ then the state law may be pre-

empted even though ‘collision between the state

and federal regulation may not be an inevitable

consequence.” (quoting N. Natural Gas Co. v.

State Corp. Comm’n, 372 U.S. 84, 91-92 (1963))).

B. TILA Preempts the Entire Field of

Credit Card Solicitation Disclosure

Requirements

The Court of Appeals fundamentally miscon-

strued Section 1610(e) to limit its application to

only state actions creating a conflict with TILA’s

substantive disclosure requirements, thus ren-

dering it wholly redundant of Section 1610(a)(1).

Unlike Section 1610(a)(1), Section 1610(e) is

not a “conflict” preemption clause. It expressly

provides that TILA “supersedes any provision of

the law of any State relating to the disclosure of

information in any credit or charge card appli-

cation or solicitation... .” 15 U.S.C. § 1610(e)

(1994) (emphasis added). Similarly, Regulation Z

reiterates the “Special rule for credit and charge

cards” with respect to preemption:

State law requirements relating to the

disclosure of credit information in any

credit or charge card application or solic-

itation that is subject to the require-

ments of section 127(c) of chapter 2 of the

act (§ 226.5a of the regulation) ... are

preempted. State laws relating to the

enforcement of section 127(c) and (d) are

not preempted.

12 C.F.R. § 226.28(d) (2008) (emphasis added).

The Court of Appeals refused to abide by this

Court’s decisions that have repeatedly held that

the phrase “relating to” in preemption clauses is

to be given its broad meaning.

For purposes of the present case, the key

phrase, obviously, is “relating to.” The

ordinary meaning of these words is a

broad one—“to stand in some relation; to

have bearing or concern; to pertain;

refer; to bring into association with or

connection with,” Black’s Law Dictionary

1158 (5th ed. 1979)—and the words thus

express a broad pre-emptive purpose.

Morales v. Trans World Airlines, Inc., 504 U.S.

374, 383 (1992); accord Egelhoff v. Egelhoff ex

rel. Breiner, 532 U.S. 141, 146 (2001); Ingersoll-

Rand Co. v. McClendon, 498 U.S. 133, 137-38

(1990); FMC Corp. v. Holliday, 498 U.S. 52, 58

(1990); Pilot Life Ins. Co. v. Dedaux, 481 U.S. 41,

47 (1987). Section 1610(e) must therefore be read

to preempt all state laws and actions having “a

connection with, or reference to” the disclosure of

information in credit card solicitations. See

Rowe, 128 S. Ct. at 995 (emphasis in original;

quoting Morales, 504 U.S. at 384).

Regulation Z also makes clear that State laws,

such as Sections 349 and 350 of the General

Business Law, may be used in connection with

credit card solicitation disclosures only to help

enforce TILA’s own requirements—but not to

expand, supplement or modify TILA’s require-

ments. As explained in the Federal Reserve

Board's Official Staff Interpretations of Regula-

tion Z (the “Commentary’”):

The standard that applies to preemption

of state laws as they affect transactions

of this type subject to §§ 226.5a and

226.9(e) differs from the preemption stan-

dards generally applicable under the

Truth in Lending Act. The Fair Credit

and Charge Card Disclosure Act [section

1610(e)] fully preempts state laws relat-

ing to the disclosure of credit information

in consumer credit or charge card appli-

cations or solicitations.

12 C.F.R. pt. 226, Supp. I (2008) (emphasis

added). In other words, any state law that either

directly or indirectly has the effect of regulating

such disclosures is of no force or effect. The Com-

mentary dispositively illustrates the scope of pre-

emption:

For example, a state law requiring dis-

closure of credit terms in direct mail

solicitations for consumer credit card

accounts is preempted. A state law

requiring disclosures in telephone appli-

cations for consumer credit card accounts

also is preempted, even if it applies to

applications initiated by the consumer

rather than the issuer because the state

law relates to the disclosure of credit

information in applications or solicita-

tions within the general field of preemp-

tion, that is, consumer credit and charge

cards.

Td. (emphasis added).

The Court of Appeals misread the Commen-

tary. According to the Court of Appeals, use of

state deceptive trade practices laws for any pur-

pose is exempted from preemption under Section

1610(e). (10a) This reading, however, conflicts

with the plain language of Section 1610(e), Reg-

ulation Z and the totality of the Commentary.

Just before the passage on which the Court of

Appeals relies (10a), the Commentary states that

TILA “fully preempts state laws relating to the

disclosure of credit information in consumer

credit or charge card applications or solicita-

tions.” 12 C.F.R. Part 226, Supp. I at 493 (2007

ed.). The Commentary then observes: “For exam-

ple, a state law requiring disclosure of credit

terms in direct mail solicitations for consumer

credit card accounts is preempted.” Id. Likewise,

the Federal Register Notice publishing the Com-

mentary states: “State laws relating to the terms

of credit required to be disclosed or the manner

in which such terms must be disclosed are pre-

empted as to any credit or charge card applica-

tion or solicitation that is subject to 127(c)....

The preemption of such provisions of state law is

total ....” Truth in Lending: Credit and Charge

Card Disclosures, 54 Fed. Reg. 13855, 13863

(Apr. 6, 1989) (emphasis added). Just as was the

case in Riegel with respect to the MDA, the Com-

mentary interpreting TILA, when read in its

plain context, confirms that use of state decep-

tive trade practices laws are preempted except

when they are used solely to enforce the require-

ments imposed by TILA and Regulation Z. See

Riegel, 128 S. Ct. at 1010-11.

The Court of Appeals also wrongly concluded

that, when the Federal Reserve Board has not

mandated a particular disclosure, the States to

are free to supplement TILA’s requirements until

such time as the Federal Reserve Board, in fact,

does act. In her dissent, Judge Read identified

the flaw in that reasoning:

The majority’s contrary statutory inter-

pretation produces a patchwork scheme

whereby each state may effect different

or additional credit disclosures unless

and until the Board acts pursuant to sec-

tion 1637(c)(5) to regulate the form or

substance of disclosure of the same item

of credit information, which would per-

force then become “information ... which

is subject to section 1637(c).” This, of

course, completely undermines the uni-

formity of the federal regime that

Congress devised to govern a nation-wide

industry. Moreover, it leaves no room for

the possibility that the Board may have

policy reasons not to mandate a particu-

lar disclosure that a state considers to be

warranted.

(39a-40a) (citing Ark. Elec. Coop. v. Ark. Pub.

Serv. Comm’n, 461 U.S. 375, 384 (1983) (footnote

omitted, emphasis and ellipsis in original)).?

4 The Federal Reserve Board proved Judge Read's

point and asserted its exclusive authority in the area in 2007

and 2008, when it proposed and adopted regulations requir-

ing for the first time, on a prospective basis, disclosures of

the very type that the Attorney General alleged that CCB

had failed to make. See Truth in Lending, 72 Fed. Reg. 32948

(June 14, 2007); Truth in Lending, 73 Fed. Reg. 28866 (May

19, 2008).

POINT II

THE COURT OF APPEALS’ DECISION WILL

DESTROY THE NATIONAL UNIFORMITY

ESTABLISHED BY TILA

The importance of uniform nationwide regula-

tion in banking was highlighted by the Court in

Watters v. Wachovia Bank, N.A., 1278S. Ct. 1559

(2007). Although Watters involved only national

banks and their operating subsidiaries, the Court

emphasized the principles underlying the long-

standing history of preemption in the area of

banking regulation. Jd. at 1566-67 (discussing

the benefits of exclusive federal regulation for

the efficient exercise of bank powers). In Watters,

those principles led to the conclusion that the

state law was pree:npted, despite the lack of any

express statutory provision addressing the par-

ticular preemption at issue. Jd. at 1568-69. Here,

since there is an express mandate that state law

is preempted, that conclusion is even more com-

pelling.

In the FCCCDA, Congress expressly preempted

the entire field of state regulation of credit card

solicitation disclosures. “Congress left no room

for the States to supplement” TILA’s require-

ments with respect to credit card solicitation dis-

closures. Thus, a State may not pursue an action

for inadequate or insufficient disclosures, such as

the Court of Appeals has allowed the Attorney

Generai to do here. See Rice v. Santa Fe Elevator

Corp., 331 U.S. 218, 230 (1947).

Judge Read reviewed the cacophony of state

regulation of credit card disclosures prior to the

enactment of the FCCDA in 1988, pointing out

that at least eleven states had separately regu-

lated the field. She noted: “This time, Congress

tackled preemption head on, devising a ‘special’

rule for disclosure of credit information in credit

or charge card applications or solicitations,

which ‘departled] radically from’ the inconsis-

tency standard, ‘the approach which Congress

historically [had] adopted in the credit disclosure

area.” (37a) (citing Joseph W. Gelb & Peter N.

Cubita, The Fair Credit and Charge Card Dis-

closure Act of 1988: A Federal Alternative to the

Rate Ceiling Approach, 44 Bus. Law. 941, 955

(1988-1989)).

The legislative history of the FCCDA corrobo-

rates Judge Read’s observations. Congress

wanted to enable consumers to understand the

solicitations that they receive and to be able to

compare the terms of different credit card offers.

Congress concluded that this objective could be

achieved only if the disclosures were uniform

with respect to both the content covered and the

manner of disclosure.°

The House debate on the FCCCDA conference report

leaves no doubt about Congress’ belief that uniformity would

contribute to the goal of consumer understanding. For exam-

ple, Representative Barnard stated: “It is a bill requiring

comprehensive fair, simple and uniform disclosure of the

basic terms of credit cards .... If these terms are disclosed

conspicuously in the same manner and location according to

the type of application or solicitation, as provided by [this

bill], then consumers can choose the card and combination of

terms best for them.” 134 “ong. Rec. H10179-02, 1988 WL

181188 (Oct. 13, 1988). Similarly, Representative Hiler

stated: “{[The FCCCDA] adopts a single uniform federal stan-

dard that will greatly assist consumers in comparison shop-

ping between credit card programs.” 7d.

Congress understood the necessity of the pre-

emption provision in Section 1610(e) in order to

effectuate its goal of national! uniform regulation

of the disclosure requirements. During the House

debate, Representative Schumer explained its

importance:

The second issue on preemption is that

credit cards, unlike mortgages, or auto

loans, or home loans, are indeed a

national industry. The large issuers con-

trol a lot of the market. If they are will-

ing to go for tough disclosure, provided

that they do not have to make different

types of disclosure in each of the 50

States, that to me is a trade that benefits

consumers, and it is a trade that ought to

be made.

134 Cong. Rec. H10179-02, 1988 WL 181188

(Oct. 13, 1988).

The Court of Appeals’ decision will destroy the

uniformity established by Section 1610(e) and

will reinstate the chaotic situation that existed

before enactment of the FCCDA, when a regula-

tion under TILA was protected only by the con-

flict preemption clause in Section 1610(a)(1).

Indeed, the threat of multiple and different reg-

ulatory requirements in each of the fifty states

will be unbridled. Virtually every state has a

false and deceptive practices statute similar to

Section 349 and 350 of the General Business

Law.® Absent this Court’s intervention, the

—

More than 80 percent of the States have such laws.

See Jonathan A. Sheldon, Unfair and Deceptive Acts and

Practices, App. A(6th ed. 2004).

States will be empowered to challenge the ade-

quacy of the form and manner of the disclosures

required under Regulation Z and to impose their

own supplemental and inconsistent require-

ments.

The Court of Appeals’ decision establishes the

foundation for a completely balkanized system of

regulation, thereby undermining the very bene-

fits provided to consumers of a nationwide uni-

form system of disclosures and subjecting

financial institutions to inconsistent and multi-

ple burdens depending on the State to which the

credit card solicitations are being mailed. The

whole purpose of preemption, particularly in

light of the history underlying the enactment of

Section 1610(e), is to prevent those adverse con-

sequences. See State Farm Bank, FSB v. Rear-

don, 539 F.3d 336, 348 (6th Cir. 2008) (“Were

this Court to agree with the Superintendent that

the Ohio Act may be applied to State Farm Bank

exclusive agents, we would be opening the door to

subjecting State Farm Bank and its exclusive

agents to fifty separate and distinct licensing and

regulatory schemes, all with their own require-

ments and procedural hurdles. Subjecting State

Farm Bank and its exclusive agents to such a

veritable ‘hodgepodge’ of state regulation would

not only be unduly burdensome, it would also be

at odds with the very purpose behind federal reg-

ulation of federal savings associations.”).

CCB’s petition should be granted in order to

enforce the plain language of Section 1610(e) pre-

empting all state regulation of credit card solic-

itation disclosures and to prevent the destruction

of a national uniform system that Congress delib-

erately created.

CONCLUSION

For the foregoing reasons, the petition should

be granted.

Dated: September 23, 2008

Respectfully submitted,

HOWARD N. CAYNE

Counsel of Record

NANCY L. PERKINS

ARNOLD & PORTER LLP

555 Twelfth Street, N.W.

Washington, DC 20004

(202) 942-5000

H. PETER HAVELES, JR.

ARNOLD & PORTER LLP

399 Park Avenue

New York, New York 10022

(212) 715-1000

Attorneys for Petitioner

APPENDIX

Nos. 3, 96

IN THE MATTER OF THE PEOPLE OF THE

STATE OF NEW YORK, BY ELIOT SPITZER,

AS ATTORNEY GENERAL,

Respondent-Appellant,

—_—VYV.—

APPLIED CARD SYSTEMS, INC., et al.,

Appellants-Respondents.

H. Peter Haveles, Jr., for appellants-respondents.

Michelle Aronowitz, for respondent-appellant.

Attorney General of the State of Vermont,

et al., amici curiae.

CIPARICK, J.:

This appeal arises out of a special proceeding

initiated by the Attorney General, seeking resti-

tution, civil penalties, and injunctive relief for

violations of New York’s Executive Law and Con-

sumer Protection Act (see Executive Law § 63

(12), General Business Law §§ 349, 350). We are

asked to determine whether the federal Truth-in-

Lending Act (TILA) preempts these claims of a

fraudulent and deceptive credit card solicitation

scheme. We conclude that it does not. We hold,

however, that res judicata effect should be

granted to a prior nationwide class action set-

tlement agreement, thereby precluding the Attor-

ney General from recovering certain restitution.

Respondent Cross Country Bank (CCB) is a

Delaware Bank that, since 1997, has actively

solicited consumers in the “sub-prime” credit

market to apply for its credit cards. These con-

sumers “generally would not qualify for credit

under traditional underwriting guidelines and

principles.”! Certain of CCB’s marketing mate-

rials claim that the company’s “purpose is to help

people establish good credit.” Respondent Applied

Card Systems (ACS) provided, as relevant here,

debt collection services for CCB’s credit card

accounts.

On March 28, 2003, the Attorney General filed

a Verified Petition asserting that CCB’s credit

card solicitations and collections practices vio-

lated New York’s Executive Law and Consumer

Protection Act (see Executive Law § 63 [12]

[fraud], General Business Law §§ 349 [deceptive

business practices] and 350 [false advertising]).

The gravamen of the petitioner’s complaint was

that CCB had misrepresented the credit limits

that sub-prime consumers could obtain and that

it failed to disclose the effect that its origination

and annual fees would have on the amount of ini-

tially available credit.

CCB also solicits consumers who have yet to cstab-

lish a credit history.

For example, in its mail solicitations CCB told

consumers that they were “pre-approved” for a

credit limit “up to” $2,500 or $1,000. These com-

munications further clarified that the actually-

approved credit limit could be substantially less,

perhaps as low as $350.” CCB’s solicitations also

explained that upon approval consumers would

incur an $100 “Account Origination Fee” and a

$50 “Annual Fee.” But CCB’s explanation of the

fact that those fees would be treated as charges

that could greatly reduce the amount of credit

initially available to consumers were oblique.® In

some cases, the initial fees depleted consumers’

credit limits by approximately 40% or more.

As relevant here, the Verified Petition also con-

tained allegations of fraud and deception per-

taining to CCB’s marketing of “secured cards,”

the Credit Account Protector (CAP) insurance

program, the Applied Advantage (AA) cardholder

benefit program, and a debt collection device

known as “re-aging.” With respect to secured

In some of its solicitations, CCB also explained that

“historically,” the average approved credit limit was $400.

3 For example, in one of its mail solicitations, CCB

described the origination fee as a “one-time” charge. Fur-

ther, near the bottom of the first page of CCB’s “Credit Card

Agreement,” the company stated:

“Our Charges. You agree to pay us the follow-

ing fees in connection with your Account. Such

fees will be treated as Purchases on your

Account

1. Annual Fee. Your account is subject to an

Annual Fee and it will be imposed when your

Account is approved and in the same billing

cycle each following year.”

cards,’ petitioner asserted that CCB’s adver-

tisement was deceptive because its banner touted

“no late fees*” and “no collections calls*,” but fur-

ther clarified that such fees would be imposed

and such calls made in certain instances. The

marketing of CAP was fraudulent and deceptive,

petitioner claimed, because the program was

advertised as providing coverage in the event of

“death, disability, unemployment, or family

leave,” but—as CCB clarified in an insert and

subsequently-mailed certificate of coverage—only

life and dismemberment benefits were available

to New York consumers.® As for AA, petitioner

asserted that CCB’s practice of automatically

enrolling consumers in the benefit program—at a

cost of $34.95 per year—unless they expressly

opted-out of it was deceptive because the opt-out

mechanism was confusing and misleading.

Finally, petitioner alleged that ACS marketed re-

aging as a means for severely delinquent card-

holders to bring their accounts current through a

series of payments, while failing to explain that

. Such cards were “secured” by funds on deposit in sav-

ings accounts maintained by CCB. Secured cards’ credit lim-

its corresponded to the amount of funds on deposit in those

accounts. According to the Verified Petition, those limits

were reduced by a $50 account origination fee and a $10

monthly maintenance fee. And, like its other credit cards,

CCB’s secured cards were subject to monthly $30 late and

over-the-limit fees.

Petitioner further claimed that CCB’s solicitations

deceptively positioned the CAP authorization signature line

in close proximity to the line that consumers were required

to sign to accept CCB’s credit card offer.

over-the-limit fees would continue to accrue

throughout the re-aging process and that both

these fees and the previously imposed late fees

would be due at the conclusion of the re-aging

process.®

In addition to the alleged fraudulent and

deceptive practices described above, the Verified

Petition also set forth certain facts regarding

respondents’ late fees, finance charges, balance

calculation method, and the lack of any “grace

period” for consumer payments. Pursuant to

TILA, these terms must be disclosed in all credit

card solicitations. But petitioner claimed that

many consumers were “unaware” of the manner

in which charges and penalties based upon the

terms were assessed to their accounts.’ According

to petitioner, these charges and penalties con-

tributed to “trappling]. . . unwary consumers”

in a “vicious cycle of pyramiding debt.”

On February 11, 2004, Supreme Court issued a

Decision and Order that, in relevant part, held

that petitioner was barred by res judicata from

seeking restitution for pre-January 1, 2002

“front-end claims,” or those concerning illegal

conduct “at or near the inception of the card-

° Re-aging refers to a federally-regulated process

through which credit card companies enter into agreements

with delinquent card holders to avoid “charging-off” such

accounts due to persistent non-payment (see 65 Fed Reg

36903, 36903 [2000)).

With respect to CCB’s secured card advertisement,

petitioner asserted that the late and over-the-limit fee infor-

mation was “buried” in the application and its Terms and

Conditions chart.

holder relationship,” on behalf of New York con-

sumers who had opted to accept the benefits of a

nationwide class action settlement with CCB.°

The California Superior Court approved the set-

tlement and dismissal of the action with preju-

dice on September 30, 2002 (see Allec uv Cross

Country Bank, No. 802894, Final Judgment and

Order of Dismissal with Prejudice [Sept. 30,

2002]).

In their motion to reargue the February 11

Order, respondents asserted that the credit card

application and solicitation disclosure require-

ments set forth in TILA (see 15 USC §§ 1632 [cl]

1637 [c], [e], [f]) and its accompanying regula-

tion, Regulation Z (12 CFR Part 226), preempted

petitioner’s claims. Following oral argument,

Supreme Court held that the claims were not

preempted.

After issuing its preemption decision, the court

proceeded to find “as a matter of law and fact”

that CCB had “repeatedly and persistently”

engaged in fraud, deception and false advertising

in connection with its credit card solicitations,

and that ACS’s marketing of the re-aging process

was similarly illegal. These rulings were based

on the court’s review of “volumes of evidentiary

proof,” including more than 100 pages of appli-

cation and solicitation materials, more than 200

consumer complaints and affidavits, and the affi-

davits of former ACS collection employees.

On June 24, 2004, Supreme Court issued an Order

that, as relevant here, “permanently enjoined”

§ Ofthe New York members of the Allec class, only 12

chose not to accept the settlement’s benefits.

respondents from engaging in future fraud,

deception, and false advertising with respect to:

credit limits, initially-available credit, late fees

and collection calls concerning secured credit

card accounts, benefits available under CAP, and

the benefits of account repayment plans, such as

re-aging. Supreme Court also prohibited respon-

dents from automatically enrolling consumers in

AA without express authorization. The Appellate

Division affirmed, rejecting respondents’ pre-

emption argument (see 27 AD3d 104, 109 [2005]).

On January 19, 2006, Supreme Court entered an

Order awarding the Attorney General approxi-

mately $1.3 million in restitution and damages,

$7.9 million in penalties and $2,000 in costs. In

part, restitution was based upon costs incurred

by virtue of the origination and annual fees as

well as certain late and over-the-limit fees.

The Appellate Division modified. Upholding

Supreme Court’s res judicata ruling, the court

held that the “public interest does not justify giv-

ing New York consumers bound by the Allec set-

tlement two chances to receive make-whole

relief” (41 AD3d 4, 8 [2007] [internal quotation

and alteration omitted}]). As to respondents’

appeal, the court held that Supreme Court’s

award of restitution for petitioner’s CAP and re-

aging claims was improper. Finally, the court

affirmed each of the penalties assessed.

This Court granted respondents leave to appeal

and we now affirm.

II.

Under the U.S. Constitution’s Supremacy

Clause (U.S. Const. art. VI, cl. 2.), the purpose of

our preemption analysis is singular and straight-

forward. “(OJur sole task is to ascertain the

intent of Congress” (Cal. Sav. & Loan Ass’n v

Guerra, 479 US 272, 280 [1987]; Rosario v Diag-

onal Realty LLC, 8 NY3d 755, 763 [2007]; see

also Medtronic, Inc. v Lohr, 518 US 470, 485

[1996] [“[Tlhe purpose of Congress is the ulti-

mate touch-stone in every pre-emption case”]

firternal quotation omitted]). Preemption can

arise by: (i) express statutory provision, (ii)

implication, or (iii) an irreconcilable conflict

between federal and state law (see Balbuena v

IDR Realty LLC, 6 NY3d 338, 356 [2006]).

When dealing with an express preemption pro-

vision, as we do here, it is unnecessary to con-

sider the applicability of the doctrines of implied

or conflict preemption (see Cipollone vu Liggett

Group, 505 US 504, 517 [1992] [majority op]

[statute’s preemptive scope is “governed entirely”

by its “express language”]). Instead, the resolu-

tion in this case turns solely upon proper statu-

tory construction of TILA’s credit card application

and solicitation preemption provision (see Matter

of Frew Run Gravel Prods. v Town of Carroll, 71

NY2d 126, 131 [1987]). In undertaking that task,

we are guided by the “starting presumption that

Congress does not intend to supplant state law”

unless its intent to do so is “clear and manifest”

(New York State Conf. of Blue Cross & Blue

Shield Plans v Travelers Ins. Co., 514 US 645,

654 [1995]; Lohr, 518 US at 485; accord Bal-

buena, 6 NY3d at 356).

The preemption provision at issue here was

enacted as part of the Fair Credit and Charge

Card Disclosure Act of 1988 (FCCCDA), which

amended TILA.® It states:

“(e) Certain credit and charge card

application and solicitation disclo-

sure provisions

The provisions of subsection (c) of section

1632 of this title and subsections (c), (d),

(e), and (f) of section 1637 of this title

shall supersede any provision of the law

of any State relating to the disclosure of

information in any credit or charge card

application or solicitation which is sub-

ject to the requirements of section

1637(c) of this title or any renewal notice

which is subject to the requirements of

section 1637(d) of this title, except that

any State may employ or establish State

laws for the purpose of enforcing the

requirements of such sections” (15 USC

§ 1610 [e}]).

° Since its enactment in 1968, TILA has also contained

another preemption provision (see 15 USC § 1610 [a] |1]). In

contrast to 15 USC § 1610 (e), that provision preempts state

laws “relating to the disclosure of information in connection

with credit transactions,” only to the extent of their incon-

sistency with TILA or Regulation Z (see 15 USC § 1610 ja]

[1]; see also Clontz & Pannabecker, Truth-In-Lending Man-

ual: Text and Forms 4 2.03 [4] |2007 ed})

10a

Respondents repeatedly assert that section

1610 (e) expressly preempts “any and every state

law ‘relating to the disclosure of information in

any credit or charge card application or solicita-

tion.’” Petitioner counters that its claims are not

preempted because they do not relate to the dis-

closure of credit information, but rather to affir-

mative deception. Based upon the statutory text,

legislative history, and administrative interpre-

tation of section 1610 (e), we agree with peti-

tioner.

Section 1610 (e) does not preempt every state

law that could potentially touch upon any credit

information that respondents might choose to

include in their credit card applications and

solicitations. Instead it preempts those state

laws that relate to “disclosure of information,” in

credit card applications and solicitations “subject

to the requirements of section 1637(c),” not those

that prevent fraud, deception and false adver-

tising. Preemption is limited, then, to laws that

purport to alter the format, content, and manner

of the TILA-required disclosures and those that

require credit issuers to affirmatively disclose

specific credit term information not embraced by

TILA or Regulation Z (see 15 USC §§ 1610 [e],

1637 [c] [5], see also 54 Fed Reg 13855, 13863

(“State laws relating to the terms of credit

required to be disclosed or the manner in which

such terms must be disclosed are preempted”]; 12

CFR Part 226, Supp I, 28 (d) (1) [Jan. 14, 2008]

[explaining that state laws are preempted when

they require the disclosure of credit terms]).

Neither aspect of such preemption is present in

this case. This is because New York’s Executive

lla

Law and Consumer Practice Act, collectively, do

not require respondents to disclose anything.

These statutes simply require that they refrain

from fraud, deception, and false advertising when

communicating with New York consumers.

The misleading statements in respondents’

applications and solicitations regarding potential

credit limits, initially-available credit, secured

card benefits, credit insurance coverage, re-aging

benefits, and their deceptive automatic enroll-

ment of consumers in the AA program do not con-

stitute the disclosure of any information “which

is subject to the requirements of 1637(c)” (see 15

USC 1610 [e]).?° The only information in a credit

card application or solicitation that must be dis-

closed pursuant to section 1637 (c) is that

10 Petitioner’s claims also do not concern the tabular

format of certain TILA disclosures, disclosures in renewal

notices, disclosures of percentages used to determine fees, or

the disclosure of the range of fees applicable in different

states. Accordingly, these claims do not implicate section

1632 (c) or subsections (d), (e), or (f) of section 1637, which

are referenced at the beginning of the preemption clause at

issue here (see 15 USC §§ 1632 Ic] [1] [requiring presenta-

tion of “the information described in paragraphs (1)(A),

(3)(B)(i)C1), (4) A), and (4)(C)(i)(1) of section 1637 (c)” to be

set forth in a tabular format, commonly known as the

“Schumer Box” after FCCCDA’s House-sponsor, then-Rep-

resentative Charles Schumer (N.Y.), 15 USC § i637 {d] [1]

[B] [requiring disclosure in renewal statement of “the infor-

mation described in subsection (c)(1)(A) or (c)(4)(A)”], 1637

{e] [requiring disclosure of percentage and amount used to

determine “any fee required to be disclosed under subsection

“required to be disclosed. . . under {certain subparagraphs]

of subsection (c)”]})

12a

describing: (1) annual percentage rate, including

whether such rate is variable (ii) annual and

other periodic fees, including, “membership fees

imposed for the issuance or availability of a

credit card,” (iii) minimum finance and transac-

tion charges, (iv) grace period, (v) balance cal-

culation method, (vi) cash advance fee, (vii) late

fee, (villi) over-the-limit fee, and (ix) a statement

that charges incurred are due when a periodic

statement is received (see 15 USC § 1637 [c] [1]

[A} [I] - [B] [iii]; 15 USC § 1637 [c] [2] [mandat-

ing, with certain exceptions, disclosure of infor-

mation described in 1637 (c) (1) (A), in telephone

solicitations}; 12 CFR § 226.5a [b]). Pursuant to

15 USC § 1637 (c) (5), however, the Federal

Reserve Board of Governors (the Board) has

authority to enact regulations requiring “the dis-

closure of information in addition to” that

described in section 1637 (c).

The Verified Petition does make reference to

the fact that many consumers were “unaware” of

the manner in which certain credit terms, includ-

ing late and over-the-limit fees, balance calcu-

lation method, and the lack of any grace period,

were applied against their accounts. But peti-

tioner “takes no issue” with the substance or suf-

ficiency of respondents’ TILA disclosures and he

has obtained no relief based upon consumers’

purported lack of awareness. As we previously

have held, the mere fact that a complaint makes

reference to certain matters that are preempted

by a federal statute does not “transform” a state

law action into one that is preempted under fed-

l3a

eral law (see Nealy v US Healthcare HMO, 93

NY2d 209, 220-221 [1999])."?

Respondents argue, however, that the statu-

tory text compels us to conclude that section

1610 (e) bars the Attorney General’s claims.

Their textual argument is based primarily upon

the purportedly settled construction of the

phrase “relating to” in U.S. Supreme Court prece-

dent.

The U.S. Supreme Court’s interpretation of the

phrase “relating to,” does not help respondents.

When construing other statutes, the Court has

concluded that the phrase has a meaning that

“express(es] a broad pre-emptive purpose” (see

Morales v Trans World Airlines, Inc., 504 US

374, 383 [1992]; accord Rowe v N.H. Motor

Transp. Assn., ___ US ___, 128 S Ct 989, 994

[2008]). It has been defined as “having a con-

nection with, or reference to” the subject-matter

set forth in a particular preemption clause (see

Morales, 504 US at 384). But the Court has made

clear that the scope of its interpretation of “relat-

ing to” is subject to some limitation. This is

because “[i]lf ‘relate to’ were taken to extend to

the furthest stretch of indeterminancy, then for

all practical purposes pre-emption would never

run its course” (Travelers, 514 US at 655). Thus,

the U.S. Supreme Court has “cautioned against

an ‘uncritical literalism’ that would make pre-

This case does not present the question whether a

New York Executive Law or Consumer Protection Act claim

seeking relief based upon specific 1637 (c) disclosures would

be preempted. Accordingly, we offer no opinion upon the pro-

priety of such a claim

l4a

emption turn on ‘infinite connections’ ” (Egelhoff

v Egelhoff, 532 US 141, 147 [2001], quoting Trav-

elers, 514 US at 656).

We applied these principles in Nealy to con-

clude that even when a complaint refers to mat-

ters preempted under federal law, no preemption

occurs if the effect of the relief sought upon the

federal scheme is “ ‘too tenuous, remote or periph-

eral’” (Nealy, 93 NY2d at 220, quoting Shaw v

Delta Air Lines, Inc., 463 US 85, 100 n 21 [1983]).

We hold this rule of limitation to be applicable

here. Quite simply, petitioner’s claims do not

relate to the disclosure of federally-mandated

information in credit card applications or solici-

tations. Instead, they relate to the inclusion in

those materials of certain fraudulent and decep-

tive misinformation—none of which is even

addressed by the federal disclosure scheme.

The preemption clause at issue here is very dif-

ferent from that in Morales, a case that respon-

dents’ textual argument hinges upon. There, the

Airline Deregulation Act of 1978 (ADA) pre-

empted “any law ‘relating to rates, routes, or ser-

vices’ of any air carrier” (Morales, 504 US at

378-379 [quoting 49 USC § 1305 [a] [1]). Based on

the comprehensive preemptive intent evidenced

in this provision, the Court had little trouble con-

cluding that a set of purportedly enforceable

guidelines adopted by the National Association of

Attorneys General, which described in excruci-

ating detail the “content and format” of airline

advertising, frequent flyer programs, and pas-

senger compensation policies, was preempted (see

Morales, 504 US at 388, 390-414; see also Am.

Airlines v Wolens, 513 US 219, 227-228 [1995]

l5a

[preemptive provision in ADA bars claims under

Illinois’s Consumer Fraud Act]; Air Transp.

Assoc. of Am., Inc. v Cuomo, 520 F3d 218, 223 [2d

Cir 2008! [ADA preempts New York’s Passenger

Bill of Rights because that statute requires air-

lines to provide certain amenities to travelers

and therefore relates to “the service of an air car-

rier”]). But the reach of section 1610 (e) is not as

expansive as that of the ADA preemption provi-

sion at issue in Morales.

Section 1610 (e) preempts only those state laws

that relate to the format, content, manner, or

substance of the TILA-required disclosures.

Thus, there is no preemption here because nei-

ther petitioner’s claims nor the relief it was

granted below have any effect upon those dis-

closures (see Nealy, 93 NY2d at 220 [no preemp-

tion where “|[pjlaintiff's claims do not bind an

employee plan to any particular choice of bene-

fits, do not dictate the administration of such a

plan and do not interfere with a uniform admin-

istrative scheme”]; see also Harvey v Members

Empls. Trust for Retail Outlets, 96 NY2d 99, 106

[2001] [state insurance law and regulation relate

to an ERISA plan because they “impose a basic

benefit structure”]). To the contrary, Supreme

Court’s affirmed Orders did not mandate any

alteration of or addition to the required section

1637 (c) disclosures. Rather, its injunction simply

prevents respondents from affirmatively mis-

representing the nature of credit terms that, at

present, are not even subject to regulation under

TILA or Regulation Z. Indeed, petitioner’s enti-

tlement to the relief granted below exists wholly

apart from respondents’ section 1637 (c) disclo-

16a

sure obligations; it is based upon “a more general

obligation—the duty not to deceive” (see Cipol-

lone, 505 US at 528-529 [plurality opinion]).

But respondents maintain that Congress’s

intent to create a uniform system of disclosure in

credit card applications and solicitations mili-

tates in favor of preemption. We again empha-

size, however, that petitioner’s success in this

case does not force respondents to make any

alterations to their section 1637 (c) disclosures or

to affirmatively disclose any additional credit

terms. This is dispositive. In any event, the sort

of “indirect economic influence” upon respon-

dents’ solicitations practices resulting from the

relief accorded below is not sufficient to overcome

the presumption against preemption of state law

(see Travelers, 514 US at 664 [although ERISA

contains a broad, “relating to,” preemption clause

New York law imposing surcharges on all insur-

ers was not preempted because the law “d[id] not

impose [a] . . . substantive coverage require-

ment”]; accord Nealy, 93 NY2d at 220).

We acknowledge that the U.S. Supreme Court

recently reiterated that state tort judgments

impose substantive requirements that “can be.

a potent method of governing conduct and con-

trolling policy” (see Riegel v Medtronic, Inc., 552

US ___, 128 S Ct 999, 1008 [2008] [internal quo-

tation omitted]). But Reigel is not controlling

here for two reasons. First, the Medical Device

Act preemption provision at issue there is sub-

stantively different from 15 USC § 1610 (e). It

preempted “state requirements different from, or

in addition to, any requirement applicable to.

[a medical] device under federal law” (see id. at

l7va

1006, quoting 42 USC § 360k (a) (1)]). The scope

of section 1610 (e) preemption is, however,

expressly limited to state laws relating to the

disclosures specifically required under section

1637 (c), it does not extend to the additional

state requirement that respondent must refrain

from fraud and deception when making state-

ments about credit terms that are not even

within the scope of TILA or Regulation Z.

Second, unlike the tort law claims in Reigel,

the Attorney General’s success in this action will

not “disrupt| | the federal scheme” of disclosure

mandated under TILA (see 128 S Ct at 1008).

Petitioner has not sought relief based upon the

TILA-required disclosures. Nor has he sought to

alter the format, content, or manner of those dis-

closures. The relief granted below does not

impose any additional disclosure requirements

upon respondents, it merely precludes them from

making fraudulent and deceptive statements

regarding certain credit terms (compare Riegel,

128 S Ct at 1008 [state tort law claim preempted

because FDA’s exacting standards for pre-market

approval of medical devices would be disrupted

by judgment “that requires a manufacturer’s

catheters to be safer, but hence less effective,

than the model the FDA has approved”]}).

Respondents’ disruption argument assumes

that Congress intended the TILA disclosures to

provide consumers’ sole protection against credit

card companies’ fraudulent and deceptive mar-

keting practices. But the qualified nature of the

preemption provision’s text belies that sweeping

assertion, as does the statute’s legislative his-

tory.

18a

The FCCCDA’s House Conference Report states

that section 1610 (e) preempts “State credit and

charge card disclosure laws” (see HR Conf Rep

No. 100-1069, 100th Cong, 2d Sess, at 22, reprinted

in 1988 US Code Cong & Admin News, at 3960).

An example of such a law is California’s Areias

Credit Card Full Disclosure Act of 1986, which

contains application and solicitation disclosure

requirements very similar to TILA’s (see Cal. Civ.

Code §§ 1748.10-.12; Furletti, Comment, The

Debate Over the National Bank Act and the Pre-

emption of State Efforts to Regulate Credit Cards,

77 Temp. L. Rev. 425, 451 & n 233 [2004]; see

also Wis. Stat. Ann. § 422.308 [requiring that

“every application for an open end credit plan”

shall set forth certain specific information,

including “the annual percentage rate”]}).!*

Although the Senate’s version of FCCCDA would

have saved provisions of such state laws that

required disclosure of information in addition to

that set forth in section 1637 (c) from preemption

if they were reenacted within two years of the

Act’s passage (see S Rep No. 100-259, 100th

Cong, lst Sess, at 9-10, reprinted in 1987 US

Code Cong & Admin News, at 3945-3946), the

Senate compromised and “recede[d]” to the House

version, which “preempted the provisions of all]

‘3 Like TILA, these state credit card application and

solicitation laws mandated disclosure of only “selected costs

associated with credit cards” (see Gelb and Cubita, The Fair

Credit Card Disclosure Act of 1988: A Federal Alternative to

the Rate Ceiling Approach, 44 Bus Law 941 n 1 [1988-1989]

[quoting Act of Sept. 29, 1986, ch. 1397, § l(a), reprinted in

Cal. Civ. Code § 1748.10 historical note (West 1989)})

19a

state laws with respect to the disclosures man-

dated under its bill” (see HR Conf Rep No. 100-

1069, 100th Cong, 2d Sess, at 21, reprinted in

1988 US Code Cong & Admin News, at 3960

[emphasis added]; see also Gelb and Cubita,

Credit Card Application and Solicitation Dis-

closure Legislation: An Alternative to the Rate

Ceiling Approach, 43 Bus Law 1557, 1564

[1988]). The Attorney General’s claims in this

case do not effect any of the mandated disclo-

sures ultimately codified by the FCCCDA nor do

they require respondents to make any additional

affirmative disclosures regarding their credit

products. Thus, this case does not concern the

sort of credit card disclosure laws preempted

under TILA.

Congress also made clear that, even when

enforcing the TILA disclosure requirements,

states could use their unfair and deceptive trade

practices acts to “requirle] or obtain[]} the

requirements of a specific disclosure beyond

those specified in Section [1637] (c) in the set-

tlement or adjudication of a specific case or

cases” (see HR Conf Rep No. 100-1069, 100th

Cong, 2d Sess, at 22, reprinted in 1988 US Code

Cong & Admin News, at 3960).'* In sum, the leg-

islative record shows that Congress only

The Conference Report’s approval of the prospect of

settlements and adjudications by which state agencies would

gain the right to demand disclosures beyond those required

under section 1637 (c) stands in marked contrast to the dis-

sent’s claim that Congress “wanted to cut off and fully sup-

plant” all state regulation of credit card applications and

solicitations (see dissenting op at 18).

20a

intended FCCCDA to preempt a specific set of

state credit card disclosure laws, not states’ gen-

eral unfair trade practices acts.

Even more significantly, the Senate Banking

Committee Report states that TILA does not pre-

empt “the use of State mini-Federal Trade Com-

mission statutes to address unfair or deceptive

acts or practices” (see S Rep No. 100-259, 100th

Cong, lst Sess, at 9, reprinted in 1987 US Code

Cong & Admin News, at 3945). General Business

Law §§ 349 and 350 comprise, of course, just such

a “mini-FTC” act (see Oswego Laborers’ Local 214

Pension Fund v Marine Midland Bank, 85 NY2d

20, 26 [1995]; Goshen v Mut. Life Ins. Co. of N.Y.,

98 NY2d 314, 323-324 [2002]). The Senate

Report’s understanding of TILA’s disclosure

requirements is reflected in the Official Com-

mentary of Federal Reserve Board of Governors,

the agency charged by statute with administer-

ing TILA (see 12 CFR Pt 226, Supp I, 28 (d) (3)

(Jan. 14, 2008] [“([S]tate laws prohibiting unfair

or deceptive acts or practices concerning credit

and charge card applications, solicitations and

renewals are not preempted”}; 54 Fed Reg 13855,

13864 [1989] [“[A]ny prohibitions against unfair

and deceptive acts or practices (such as state

‘mini-FTC acts’). . . are not preempted”]). That

interpretation is entitled to great deference (see

Ford Motor Credit Co. vu Milhollin, 444 US 5585,

565 [1980] [“[Djeference is especially appropriate

in the process of interpreting the Truth in Lend-

ing Act and Regulation Z. Unless demonstrably

irrational, Federal Reserve Board staff opinions

Zla

construing the Act or Regulation should be dis-

positive”]).'4

- That the Board has recently proposed certain amend-

ments to Regulation Z that would require credit card issuers

to disclose in their applications or solicitations the effect of

“fees or a security deposit” upon an applicant’s credit limit,

if such fees “are 25 percent or more of the minimum credit

limit offered for the account” (see 72 Fed Reg 32948, 32954

(June 14, 2007]; see also 73 Fed Reg 28866, 28890 [May 19,

2008] [proposing disclosure of effect of fees or security

deposit in “initial disclosure”, or account opening, state-

ments]) does not alter our conclusion. After all, “[t]he pro-

posal of regulations is not synonymous with [their] adoption”

(see State by Malone v Burlington N., Inc., 311 Minn 89, 92,

247 NW2d 54, 55 [Minn 1976]).

Moreover, the Board, the Office of Thrift Supervision, and

the National Credit Union Administration, pursuant to their

authority under the Federal Trade Commission Act, have

also recently proposed Regulation AA, a provision of which

would prohibit charging fees and security deposits that con-

stitute a majority of a consumer’s credit limit during the

first 12 months of the account and would also require credit

issuers to spread the cost of fees totaling more than 25 per-

cent of a consumer’s credit limit equally over the course of

the year (see 73 Fed Reg 28904, 28923-28925 [May 19,

2008]). The agencies’ rationale for adopting proposed Reg-

ulation AA is that the practice of charging fees that quickly

deplete a new customer’s credit limit “appears to be an

unfair act or practice” under the Federal Trade Commission

Act, the very statute General Business Law §§ 349 and 350

were modeled upon (id. at 28,924). And to support their con-

clusion that consumers “may lack the information necessary

to avoid harm” from this practice, the agencies cite to the

Appellate Division’s initial decision in the instant case (see

id. at 28924 & n 60 [quoting Appellate Division’s conclusion

{see 27 AD3d at 108) that CCB’s post-2001 solicitations “ ‘did

not represent an accurate estimation of a consumer's credit

limit’ ”]). Thus, from these recent regulatory proposals, we

22a

Therefore, we hold that petitioner’s Executive

Law and Consumer Protection Act claims are not

preempted by TILA or Regulation Z.

Il.

We turn next to the res judicata effect of the

Allec settlement upon a portion of the Attorney

General’s claims for restitution. Pursuant to Cal-

ifornia’s procedural rules (Cal. Rules of Court

3.769 [f]), New York consumers were provided

with notice of the settlement and the opportunity

to “opt-in” to a nationwide settlement class. In

exchange for certain payments or account credits,

consumers who opted-in:

“forever released and discharged [{respon-

dents] from any claims ... of any

nature. . .that [they)} have had in the

past or now have against respondents,

which relate to the solicitation or origi-

nation of the cardholder relationship, the

‘pre-approval’ or persons being solicited

for CCB credit cards, the Initial Credit

Card Fees, the assignment of credit lim-

its and/or Disclosure Claims; and all

claims set forth in the [A/llec] action”

The California court approved the settlement.

And the parties do not dispute that the Allec

action was dismissed with prejudice, thereby

“forever barrling]” all settlement class members

can infer that TILA and Regulation Z have not previously

embraced the regulation of credit limit practices that were

determined to be deceptive below

23a

from prosecuting the released claims against

respondents. Under California law, such a

finally-approved settlement is entitled to res

judicata effect (sce e.g., Johnson v Am. Airlines,

Inc., 157 Cal App 3d 427, 431, 203 Cal Rptr 638,

640 [1984]; see also Moore & Thomas, Cal Civ

Prac Proc § 32:17 [2008 ed] [“A judgment ren-

dered in a proper class action is res judicata as to

the claims of every member of the class although

they are not formal parties to the suit”]).'°

In New York, res judicata, or claim preclusion,

bars successive litigation based upon the “same

transaction or series of connected transactions”

(see Siegel, NY Prac § 447 [4th ed]) if: (i) there is

a judgment on the merits rendered by a court of

competent jurisdiction, and (11) the party against

whom the doctrine is invoked was a party to the

previous action, or in privity with a party who

was (see Gramatan Home Invus. Corp. v Lopez, 46

NY2d 481, 485 [1979]; Weinstein-Korn-Miller,

NY Civ Prac 97 5011.08 [2d ed]). Here, the parties’

dispute focuses solely upon the second prong of

the res judicata test, privity.

The Attorney General argues that he is not in

privity with members of the Allec settlement

class because his interest in seeking restitution

The California court’s September 30 Order states

that “[a]s of Final Approval, the Action is. . . dismissed

with prejudice.” No order granting final approval (see Cal.

Rules of Court 3.769 [(h| [providing for entry of judgment

“after the final approval hearing”]), however, appears in the

record. Nevertheless, neither party disputes Supreme

Court’s statement that “there is no question that the Allec

class action was dismissed with prejudice on the merits”

pursuant to the Allec settlement.

24a

on those consumers’ behalf is far broader than

their individual pecuniary concerns. Rather, he

seeks restitution as a means of deterring future

fraud, deception, and false advertising and

restoring the public’s trust in the consumer

credit marketplace. Amici, the Attorneys General

of 30 states, agree with that view and urge us to

consider the problem of “class action abuse,”

which, they say, has led to collusive and under-

valued settlements such as that entered in Allec.

Respondents counter by invoking our traditional

solicitude towards settlement agreements, urging

us to permit the Allec settlement class members

only one opportunity to obtain make-whole relief.

We agree with respondents.

Our precedents have repeatedly explained that

privity is not susceptible to a hard-and-fast def-

inition (see Watts v Swiss Bank Corp., 27 NY2d

270, 277 [1970] [“[T]he term privity does not

have a technical and well-defined meaning”];

Gramatan, 46 NY2d at 485 [“[P]rivity is an amor-

phous term not susceptible to ease of applica-

tion”]; Buechel v Bain, 97 NY2d 295, 304-305

[2001] |“[PJrivity is “‘an amorphous concept’ ”]}).

Although we have provided examples of cases in

which privity is present (see Green v Santa Fe

Indus., 70 NY2d 244, 253 [1987]; see also

Buechel, 97 NY2d at 305) none of those are appli-

cable here. Ultimately, we must determine

whether the severe consequences of preclusion

flowing from a finding of privity strike a fair

result under the circumstances (see Buechel, 97

NY2d at 304). This inquiry is, of course, informed

by reference to the policies that res judicata is

25a

designed to protect (see Reilly v Reid, 45 NY2d

24, 28 [1978]).

It is a “ ‘familiar doctrine’ ” that a class action

judgment is binding upon class members who

were adequately represented in the action (see

Richards v Jefferson County, Alabama, 517 US

793, 800-801 [1996], quoting Hansberry vu Lee,

311 US 32, 42-43 [1940]; see also Taylor v

Sturgell, 552 US ___, 2008 US LEXIS 4885, *27

[June 12, 2008] [“Representative suits with

preclusive effect on nonparties include properly

conducted class actions”]; Restatement (Second)

of Judgments § 41 [e] & cmt. e [in properly autho-

rized class actions “persons within the class are

bound by a judgment for or against the repre-

sentative”]; 18 Moore’s Federal Practice—Civil

§ 131.40 [“All class members will be bound, under

[res judicata]. . . by a final judgment in a class

action, including a judgment following settle-

ment, assuming the action met the necessary

procedural due process prerequisites”]). The ade-

quacy of representation in the Allec action is not

at issue here (see Restatement (Second) of Judg-

ments § 42 [d]-[f]).

The Attorney General argues, however, that

his interest in protecting the public was not rep-

resented at all in the Allec case. Indeed, he

points out that he was not provided with notice of

the settlement or an opportunity to object to it.

Nevertheless, one specific portion of the relief

petitioner seeks here—restitution for pre-Jan-

uary 1, 2002 claims—is identical to that which

the New York members of the Allec settlement

class have already pursued to a final and binding

> 9

26a

judgment. As to that measure of relief alone, we

hold that there is privity.’®

Our conclusion is supported by a core principle

of res judicata, a party’s right to rely upon the

finality of the results of previous litigation (see

New York State Labor Relations Bd. v. Holland

Laundry, Inc., 294 NY 480, 493 [1945] [“(T]he

public tranquillity demands that, having been

once. . . tried, all litigation of [a] question, and

between [the] parties, should be closed forever”);

Reilly, 45 NY2d at 28 [“Res judicata is designed

to provide finality in the resolution of disputes”];

cf. Olympic Tower Assoc. v City of New York, 81

NY2d 961, 962-963 [1993] [settlement agreement

16 Our holding is in accord with the U.S. Supreme

Court’s recent rejection of “virtual representation” as a basis

for claim preclusion under federal common law (see Taylor,

552 US ___, 2008 US LEXIS 4885, *43). With respect to

petitioner’s claim for restitution, the members of the Allec

settlement class, on whose behalf the Attorney General sues,

have already had their “day in court” (see td. at *24, 33-34).

Moreover, there is no dispute that the settlement class mem-

bers’ interests were adequately represented in the Califor-

nia court, where they were afforded “the procedural

safeguards” codified in California’s procedural rules gov-

erning class actions (see id. at *37-38). Furthermore, our

holding today does not authorize “ ‘de facto class actions,’ ”

rather we give effect to the results obtained in an actually-

litigated class action (see id. at *38, quoting Tice v Am. Alr-

lines, Inc., 162 F3d 966, 973 [7th Cir 1998]). Finally, our

conclusion does not result in the proliferation of an amor-

phous balancing test, requiring the evaluation of myriad

case-specific factors (see id. at *39). Instead, we look simply

to the judgment approving a class action settlement and the

nature of the claims released therein to determine the

extent to which petitioner's claim for restitution is pre-

cluded.

27a

entitled to res judicata effect]; Siegel, NY Prac

§ 444 [4th ed] [judgments entered pursuant to

settlement are entitled to res judicata effect]). A

similar respect for finality has informed our long-

standing rule that—absent exceptional circum-

stances such as duress, illegality, fraud, or

mutual mistake (see Mangini v McClurg, 24

NY2d 556, 563 [1969])—a settlement must be

enforced according to its terms (see Denburg v

Parker Chapin Flattau & Klimpl, 82 NY2d 375,

383 [1993]).

Permitting the Attorney General to seek addi-

tional restitution on behalf of the Allec settle-

ment class members would undoubtedly “destroy

or impair rights” conclusively established in the

Allec case (see Schuylkill Fuel Corp. v Nieberg

Realty Corp., 250 NY 304, 306-307 [1929] [Car-

dozo, J.]). Indeed, the Attorney General has

asserted that restitution is about making con-

sumers whole. The problem here is that the Allec

settlement class members have already compro-

mised their entitlement to a full-measure of

make-whole relief in a proper judicial forum (cf.

Equal Opportunity Employment Comm’n v Waffle

House, 534 US 279, 297 [2002] [“[I]t ‘goes with-

out saying that the courts can and should pre-

clude double recovery by an individual’ ”)).

Although we recognize the importance of per-

mitting petitioner to seek restitution to deter

Executive Law and Consumer Protection Act vio-

lations, we cannot allow him to do so at the

expense of undermining a validly-entered judg-

ment of a sister-state, which it is our constitu-

tional duty to protect (U.S. Const., art. IV, cl. 1,

28 USC § 1738; O’Connell v Corcoran, 1 NY3d

179, 184 [2003]; cf. Matsushita Elec Indus Co. v

28a

Epstein, 516 US 367, 374 [1996] [“[Al judgment

entered in a class action, like any other judgment

entered in a state judicial proceeding, is pre-

sumptively entitled to full faith and credit”]).

Our holding does not, however, substantially

prejudice the public interest served by the Attor-

ney General in pursuing this action. Indeed,

respect for the finality of the Allec settlement

still permits the Attorney General to seek resti-

tution on behalf of those not bound by the set-

tlement and for the time-periods not embraced

therein. In addition, the claims for injunctive

relief, civil penalties, and costs remain undis-

turbed. And, as Supreme Court noted, the Attor-

ney General might be able to obtain disgorgement

—an equitable remedy distinct from restitution—

of profits that respondents derived from all New

York consumers, whether within the Allec set-

tlement class or not (see 41 AD3d at 8 n 2; cf.

SEC v Fischbach Corp., 133 F3d 170, 175 [2d Cir

1997] [“As an exercise of its equity powers, the

court may order wrongdoers to disgorge their

fraudulently obtained profits”]; accord Official

Comm. of Unsecured Creditors of WorldCom, Inc.

v SEC, 467 F3d 73, 81 [2d Cir 2006}).?’

We have considered petitioner’s arguments

regarding the Appellate Division’s reversal of

those portions of Supreme Court’s January 27

Order awarding restitution for damages allegedly

Although the Attorney Genera! sought disgorgement

as an alternative measure of relief in this case, Supreme

Court did not grant that relief and—in the present posture—

it would be inappropriate for us to do so

29a

incurred through consumers’ participation in the

CAP and re-aging programs and we find those

arguments meritless. In addition, respondents’

argument that extrinsic evidence of consumer

deception is required to establish petitioner’s

Consumer Protection Act claims is unpreserved

for our review.

Accordingly, the order of the Appellate Division

should be affirmed without costs.

READ, J. (DISSENTING):

The federal Truth-in-Lending Act (TILA) pre-

empts the Attorney General’s bid to impose dis-

closure requirements on Cross Country Bank

(CCB)’s credit card solicitations in the guise of

this proceeding seeking injunctive relief, resti-

tution and penalties pursuant to Executive Law

§ 63(12) (fraud), General Business Law § 349

(deceptive business practices), and General Busi-

ness Law § 350 (false advertising). The majority

reaches the opposite conclusion by dint of mis-

reading TILA’s special preemption rule for credit

or charge card applications or solicitations. I

respectfully dissent.

Section 1610(e) of TILA states as follows:

“Certain credit and charge card application

and solicitation disclosure provisions

30a

“The provisions of subsection (c) of section

1632 [governing the form or manner of dis-

closure] and subsections (c), (d), (e), and (f) of

section 1637 [governing the content or sub-

stance of disclosure] shall supersede any pro-

vision of the law of any State relating to the

disclosure of information in any credit or

charge card application or solicitation which

is subject to the requirements of section

1637(c) or any renewal notice which is sub-

ject to the requirements of section 1637(d),

except that any State may employ or estab-

lish State laws for the purpose of enforcing

the requirements of such sections.”

The majority reads the clause “which is subject

to the requirements of section 1637(c)” to modify

“information.” Accordingly, the majority reasons,

“[t]he scope of section 1610(e) preemption is .

expressly limited to state laws relating to the dis-

closures specifically required under section 1637(c)”

(majority op at 17) (emphases added). The major-

ity therefore concludes that “there is no pre-

emption here because neither CCB’s claims nor

the relief it was granted below have any effect

upon these disclosures” (majority op at 15). That

is, because there is no conflict between TILA’s

disclosure requirements and New York’s con-

sumer protection laws, CCB may (and indeed

must) devise a solicitation complying with both

federal and state law.

But the majority’s reading of the statutory text

is not correct. It completely

“disregards—indeed, is precisely contrary

to—the grammatical ‘rule of the last ante-

3la

cedent,’ according to which a limiting clause

or phrase. . . should ordinarily be read as

modifying only the noun or phrase that it

immediately follows. . . While this rule is

not an absolute and can assuredly be over-

come by other indicia of meaning,. . . con-

struing a statute in accord with the rule is

quite sensible as a matter of grammar”

(Barnhart v Thomas, 540 US 20, 26 [2003]

[quotation marks omitted]; see also 2A Singer

and Singer, Statutes and Statutory Con-

struction § 47:33, at 487 [7th ed 2007) [“Ref-

erential and qualifying words and phrases,

where no contrary intention appears, refer

solely to the last antecedent”]).

Here, the limiting clause “which is subject to the

requirements of section 1637(c)” immediately fol-

lows and therefore modifies “any credit or charge

card application or solicitation,” not “informa-

tion.”

The Federal Reserve Board, which implements

section 1610(e) through its Regulation Z (12 CFR

Part 226), disagrees with the majority’s textual

analysis: the Board’s expression of 'TILA’s special

preemption rule is completely at odds with the

majority’s apparent view that the clause “which

is subject to the requirements of section 1637(c)”

modifies “information” rather than “application

or solicitation.” In its discussion of section

1610(e), the Board took the position that “[s]tate

laws relating to the disclosure of credit infor-

mation in credit or charge card applications and

solicitations subject to the requirements of [15

USC § 1637[c]). . . are preempted” (54 Fed Reg

32a

13855, 13855-13856 [Apr 6, 1989]). Accordingly,

12 CFR 226.28(d) states as follows:

“(d) Special rule for credit and charge cards.

State law requirements relating to the dis-

closure of credit information in any credit or

charge card application or solicitation that

is subject to the requirements of [15 USC

$ 1637[c}) (§ 226.5a of the regulation) .

are preempted. State laws relating to the

enforcement of [15 USC $1637[c]).. . are

not preempted” (emphasis added).

Concomitantly, the Board has defined those

credit or charge card applications or solicitations

that are subject to the requirements of section

1637(c) (credit or charge accounts used primarily

by consumers to purchase goods and services},

and those that are not (applications or solicita-

tions to open overdraft lines of credit tied to

asset accounts accessible by use of a debit card;

open-end lines of credit accessed solely by

account numbers; home equity lines of credit that

may be accessed by the use of a credit or charge

card and are subject to the Home Equity Loan

Consumer Protection Act of 1988 amendments to

TILA; applications and solicitations to add a

credit or charge card to an existing open-end

plan) (54 Fed Reg at 13856).

According to the Board, then, TILA supplants

State law “requirements” that “relat[e] to the dis-

closure of credit information” in certain credit or

charge card applications or solicitations (i.e.,

those that the Board has determined to be sub-

ject to the requirements of 15 USC § 1637|[c]) (id.

at 13855); thus, preemption is not limited to

33a

“state laws relating to the disclosures specifically

required under section 1637(c)” (majority op at

17). The Board’s view in this regard is entirely

consonant with the statute’s text, and with

Congress’ purpose in adopting a special preemp-

tion rule in the first place.

At the time TILA was enacted in 1968, “con-

sumer credit [was] preponderantly small and

local in both its nature and operation

[Tlhere [was] no national market for consumer

credit. . . outside [a consumer's] town or city,

although there [was] some mail order business

But generally, the market for consumer

credit [was] fairly restricted” (Miller and Rohner,

In Search of a Uniform Policy—State and Federal

Sources of Consumer Financial Services Law, 37

Bus Law 1415, 1415-1416 [1981-1982] [footnotes

and quotation marks omitted]). In deference to

these state interests, TILA preserved state juris-

diction to regulate disclosures in consumer credit

transactions, including so-called “traditional”

credit or charge card accounts used primarily by

consumers to purchase goods and services.

Specifically, section 1610(a)(1) of TILA stated

that its provisions did not “annul, alter, or affect

the laws of any State relating to the disclosure of

information in connection with credit transac-

tions, except to the extent that those laws are

inconsistent with the provisions of this sub-

chapter and then only to the extent of the incon-

sistency.” “Since the statute and the legislative

history provided [the Board] with little guidance

on how to implement the preemption scheme, the

[Board] had substantial leeway in deciding how

and when state laws would be preempted” (Tid-

34a

well, Preemption of State Disclosures by the

Truth in Lending Act: The Continuing Quest for

a Workable Formula, 40 Bus Law 933, 935-936

[1984-1985] [discussing in detail the Board’s

interpretation and implementation of TILA pre-

emption from 1969 until the mid-1980s]}).

In section 226.6(b) of the original Regulation Z,

the Board counseled that a state law was “incon-

sistent” with TILA or Regulation Z

“to the extent that it required disclosures or

actions ‘different’ from the requirements of

the regulation with respect to form, content,

terminology, or time of delivery; disclosure of

the amount of the finance charge determined

in any manner other than that prescribed by

the regulation; and disclosure of the APR

determined in any manner other than that

prescribed in the regulation” (Tidwell at

936).

In addition, section 226.6(a) of the original Reg-

ulation Z “provided that no other information

could be placed with the federal disclosures if it

would tend to detract from [them] or mislead or

confuse the consumer” (Tidwell at 936).

It was generally left up to creditors to decide

whether a state law was inconsistent, although

the Board issued a number of interpretive let-

ters. A creditor was, in fact, permitted to make

an inconsistent state law disclosure so long as it

was placed on a separate piece of paper from the

TILA disclosures, or below a clearly marked line

on the same statement containing the TILA dis-

closures (12 CFR former 226.6[c]; Tidwell at 936-

937). The Board cautioned creditors “that when

35a

making a determination of what information

would not mislead, confuse, or detract from the

required disclosures, they should be ready to jus-

tify their determinations before their enforce-

ment agency and the courts” (id. at 938).

“The gist of the policy toward preemption of

state laws during the 1970s” has been summa-

rized as follows:

“State-required disclosures were rarely, if

ever, fully preempted in the sense that the

creditor was forbidden to use them in con-

tract documents. Instead, creditors remained

subject to any state disclosure law that called

for more detailed or different information,

and creditors were always free to make state-

required disclosures, either below a demar-

cation line or as permissible ‘additional

information’ interspersed among the TIL dis-

closures . . . If a creditor decided to make

his own preemption determinations, he ran

the risk that a state court might deem the

disclosure necessary for contract validity.

Therefore, not assuming the risk was con-

sidered prudent” (id. at 941) (emphasis

added).

Not surprisingly, lengthy, complex and confusing

credit forms proliferated.

Nonetheless, when Congress passed the Truth

in Lending Simplification and Reform Act (Pub L

96-221) in 1980, it only tweaked TILA’s preemp-

tion provision: the inconsistency standard

remained in section 1610(a)(1), although the

Board was now mandated to determine if a state

law requirement was inconsistent upon the

a oe

36a

request of a creditor, state or interested party.

Moreover, a state law disclosure requirement

could no longer appear in consumer credit con-

tract documents once the Board decided it was

inconsistent.!

When it revised Regulation Z in 1981 to bring

it in line with the TIL Simplification and Reform

Act, the Board framed the preemption standard

very narrowly so as to displace little state law.

That is, a state law was now inconsistent only if

“require[d] a creditor to make disclosures or

take actions that contradict[ed] the require-

ments of the federal law. A state law [was]

contradictory if it require[d] the use of the

same term to represent a different amount or

a different meaning than the federal law, or

if it require|d] the use of a term different

from that required in the federal law to

describe the same item” (12 CFR former

226.28[a}[1]; see 46 Fed Reg 20848, 20906

[Apr 7, 1981]) (emphasis added).

In short, “(t]he ‘contradictory’ standard” in Reg-

ulation Z

“simply removeld] many state disclosure pro-

visions . . . from the scope of preemption

and concomitantly allowled] compliance with

; Interestingly, the TIL. Simplification and Reform Act

aiso amended TILA preemption so as generally to permit a

creditor, state or interested party to petition the Board to

determine whether a state-required disclosure was so sim-

ilar to the disclosure mandated by TILA that creditors in

that state could comply with the state law in lieu of making

TILA disclosure (see 15 USC § 1610[a]!2]).

37a

state law in borderline situations. Allowing

creditors to comply with state disclosure

requirements until the [Board] malde] a pre-

emption determination removeld] any fear of

creditor violation of the TILA by making

these required [state] disclosures” (Tidwell at

944).

Congress next revisited TILA in a major way in

1988, when it enacted the Fair Credit and

Charge Card Disclosure Act (FCCCDA) (Pub L

100-583). By 1988, the credit card business was a

large, nationwide industry, not “preponderantly

small and local in both its nature and operation,”

as had been the case in 1968 when TILA was

enacted. In addition, beginning in 1986 with Wis-

consin’s enactment of a disclosure statute, state

legislation in this area was burgeoning: by the

time the FCCCDA was adopted, “at least 11

states and Suffolk County in New York had

enacted new cost of credit legislation designed to

foster price competition among card issuers”

(Gelb and Cubita, The Fair Credit and Charge

Card Disclosure Act of 1988: A Federal Alterna-

tive to the Rate Ceiling Approach, 44 Bus Law

941, 941 n 1 [1988-1989]). So this time, Congress

tackled preemption head on, devising a “special”

rule for disclosure of credit information in credit

or charge card applications or solicitations,

which “depart[ed] radically from” the inconsis-

tency standard, “the approach which Congress

historically [had] adopted in the credit disclosure

area” (Gelb and Cubita at 955).

The FCCCDA dictated what credit information

had to be disclosed (15 USC § 1637[c], [e] and [f]),

38a

and the manner of its disclosure (15 USC

1632[c]) in credit or charge card applications or

solicitations. To ensure that the marketplace did

not outpace its detailed mandates, Congress in

section 1637(c)(5) provided as follows:

“Regulatory authority of the Board

“The Board may, by regulation, require the

disclosure of information in addition to that

otherwise required by this subsection. . .,

and modify any disclosure of information

required by this subsection .. ., in any

application to open a credit card account for

any person under an open end consumer

credit plan or any application to open a

charge card account for any person, or a

solicitation to open any such account without

requiring an application, if the Board deter-

mines that such action is necessary to carry

out the purpose of, or prevent evasions of,

any paragraph of this subsection” (emphasis

added).

Section 1610(e), as previously discussed, then

specified that the provisions of sections 1632(c)

(governing the form or manner of disclosure) and

1637(c),(e) and (f) (governing the content or sub-

stance of disclosure) “supersede[d] any provision

of the law of any State relating to the disclosure

of information in any credit or charge card appli-

cation or solicitation which is subject to the

requirements of section 1637(c)” except to enforce

TILA and Regulation Z.

Congress thus occupied the entire field of cost-

of-credit disclosures in credit or charge card

applications or solicitations: it set out compre-

39a

hensive requirements and established a singular

federal mechanism (the Board) to add to or mod-

ify these requirements to keep abreast of devel-

opments in the consumer credit or charge card

business. A state may enforce TILA’s disclosure

provisions, and surely a state may bring con-

sumer complaints to the Board’s attention and

advocate revisions to Regulation Z. The language

of section 1610(e) and the structure of TILA’s

regulatory scheme after Congress’ adoption of the

FCCCDA, however, belie any notion that a state

may use its consumer protection laws to impose

additional or different cost-of-credit disclosure on

a creditor. The majority’s contrary statutory

interpretation produces a patchwork scheme

whereby each state may effect different or addi-

tional credit disclosure requirements unless and

until the Board acts pursuant to _ section

1637(c)(5) to regulate the form or substance of

disclosure of the same item of credit information,

which would perforce then become “information

. which is subject to section 1637(c).”? This, of

* At least I assume that the majority would, at a min-

imum, acknowledge that if the Board, for example, ulti-

mately amends Regulation Z to require disclosure of the

effect of fees or a security deposit upon an applicant’s credit

limits in credit card applications (see majority op at 21,n

14), the State could no longer challenge the form or sub-

stance of the disclosure of credit limits via a lawsuit

grounded in State consumer protection laws. That is, when

my colleagues state that “(t]he scope of section 1610(e) pre-

emption is. . . expressly limited to state laws relating to

the disclosures specifically required under section 1637(c)”

(majority op at 17), I assume they must intend “disclosures

specifically required under section 1637(c)” to include any

additional or modified disclosures required in Regulation Z

40a

course, completely undermines the uniformity of

the federal regime that Congress devised to gov-

ern a nationwide industry. Moreover, it leaves no

room for the possibility that the Board may have

policy reasons not to mandate a particular dis-

closure that a state considers to be warranted

(see Arkansas Elec. Coop. Corp. v Arkansas Pub.

Serv. Commn., 461 US 375, 384 [1983] [Under

the Supremacy Clause, “a federal decision to

forgo regulation in a given area may imply an

authoritative federal determination that the area

is best left unregulated, and in that event would

have as much preemptive force as a decision to

regulate”]).

As the discussion of the evolution of TILA pre-

emption illustrates, before Congress adopted the

special preemption rule, states supplemented

federal credit disclosure requirements with reg-

ularity. If Congress had wanted this state of

affairs to continue, there would have been no

need for it to supplant the inconsistency/contra-

dictory standard in section 1610(a)(1) (as inter-

preted by the Board in Regulation Z) with the

special preemption rule in section 1610(e). By

reading the special preemption rule as it does,

the majority has undone Congress’ handiwork:

the majority has effectively reinstated the incon-

sistency/contradictory standard for disclosures in

credit or charge card applications or solicitations.

While the majority cloaks its interpretation of

section 1610(e) in the garb of the presumption

by the Buard pursuant to its section 1637(c)(5) authority. If

not, the injury to the federal regime would be even more

Sseverc

4la

against preemption of state law (majority op at

16-17), the presumption does not empower a

state court to circumvent Congress’ will as

expressed in non-ambiguous statutory language

(“In all pre-emption cases. . . we start with the

assumption that the historic police powers of the

States were not to be superseded by the Federal

Act unless that was the clear and manifest pur-

pose of Congress,” Medtronic v Lohr, 518 US 470,

485 [1996] [emphasis supplied, internal quota-

tion marks and citations omitted]).

IT.

In this litigation, the Attorney General has

taken the position—approved by the majority—

that

“the overall tmpression of CCB’s representa-

tions regarding its credit cards, taken as a

whole, was fraudulent and misleading to the

average consumer. The flaw in these repre-

sentations was not that they failed to provide

the disclosures required by TILA, but rather

that they affirmatively misled consumers and

thus violated New York’s consumer protec-

tion laws. Because the petition alleges affir-

mative deception rather than inadequate

disclosure, the claim is not preempted by

TILA” (emphases added).

In sum, the Attorney General argued that

whether or not CCB’s solicitations comported

with TILA or Regulation Z was basically irrele-

vant because he was only suing to enforce state

42a

laws prohibiting unfair or deceptive acts or prac-

tices, and TILA does not preempt these state

laws. He stressed that he did not seek or obtain

“an order requiring that anything actually be dis-

closed, but rather requested and received an

order enjoining [CCB] from misrepresenting

credit terms.”

The foundation for the Attorney General’s ana-

lytical edifice is the Board’s discussion of the

scope of section 1610(e) when it revised Regula-

tion Z to implement the FCCCDA. In fact, the

Attorney General argues that the Board “directly

answer([ed] the question posed in this case by

declaring that ‘prohibitions against unfair and

deceptive acts or practices (such as ‘mini-FTC

acts’) also are not preempted,’” quoting the

Board’s commentary accompanying the final ver-

sion of section 228.28(d) of Regulation Z (54 Fed

Reg at 13864; see also majority op at 20-21).

First, the statement that the Attorney General

seizes upon is both truncated and taken out of

context. The paragraph in which it appears reads

in its entirety as follows:

“In addition, state laws regulating the sub-

stance of transactions subject to section

127(c) (15 USC § 1637[c] [applications and

solicitations]) or (d) (15 USC § 1637[d]

[renewal notice]) are not preempted, nor are

state laws preempted that regulate the form

or content of the disclosure of information

that is unrelated to the scope and content of

information required to be disclosed section

127(c) or (d). Thus, for example, the following

types of state laws are not preempted: laws

43a

requiring card issuers to offer a grace

period(*}] or prohibiting ertain fees in credit

or charge card transactions; laws such as

retail installment sales acts and plain lan-

guage laws([‘], unless they regulate the dis-

closure of credit term information in credit

and charge card applications, solicitations or

renewal notices; laws requiring notice of a

consumer’s rights under the antidiscrimina-

tion or similar laws; and laws notifying con-

sumers about credit information available

form state authorities. Finally, state laws

regarding the enforcement of the requirements

of section 127(c) or (d) or of any prohibitions

against unfair and deceptive acts or practices

(such as state ‘mini-FTC acts’) also are not

preempted” (54 Fed Reg at 13863-13864)

(emphasis added).

This last sentence accords with the House Con-

ference Report for the FCCCDA, which also dis-

cussed the use of mini-FTC statutes solely in the

context of enforcing TILA and Regulation Z (see

HR Conf Rep No. 100-1069, 100th Cong, 2d Sess,

at 21-22, reprinted in 1988 USCCAN at 3960;?

” See e.g. Personal Property Law § 413(3)(c)(ii).

4 See e.g. General Obligations Law § 5-702.

Here, the Attorney General concededly did not bring

this lawsuit to enforce TILA or Regulation Z; therefore, the

comment in the House Conference Report to the effect that

disclosures beyond those specified in section 1637(c) might

be required or obtained in the settlement or adjudication of

such a lawsuit is beside the point here (see majority op at

20).

44a

see also 12 CFR part 226, supp I at 577 [2008 ed];

Gelb and Cubita, Implementation of the Fair

Credit and Charge Card Disclosure Act of 1988:

The Regulatory Response, 44 Bus Law 1427, 1437

[1988-1989] [“[T]he supplementary information

accompanying the final] regulation indicates that

[section 1610(e)] would not preempt state laws

concerning the substance of credit card arrange-

ments® or the form and content of disclosures

that are unrelated to the scope and content of the

federal application, solicitation, and renewal dis-

closures” and, “[b]y way of illustration,” offers

examples]).

What is notably missing from the Board’s dis-

cussion is any suggestion whatsoever that state

mini-FTC laws might—after enactment of the

FCCCDA with its special preemption rule—

remain available as a mechanism to impose dis-

closure requirements on creditors over and above

those mandated by TILA and Regulation Z.

Indeed, the Board emphasized that

“[s]tate laws relating to the terms of

credit required to be disclosed or the

manner in which such terms must be dis-

closed are preempted as to any credit or

For example, section 1610(e) would not have pre-

vented the Attorney General from challenging CCB’s prac

tice of charging fees and security deposits that constitute a

majority of a consumer's credit limit for the first 12 months

of the account (see majority op at 21 n 14 [discussing pro-

posed Regulation AA, which would regulate this practice

under the Federal Trade Commission Act because it

“appears to be an unfair act or practice” (73 Fed Reg 28904,

28923 {May 19, 2008])}).

45a

charge card application or solicitation

that is subject to {15 USC § 1637[c]) .

The preemption of such provisions of

state law is total, and differs from other

provisions of the TILA which generally

preempt only inconsistent state laws” (54

Fed Reg at 13863) (emphases added).

This position is in tune with the text of section

1610(e) and the history of the special preemption

rule; it is reflected in the broad wording chosen

by the Board to implement section 1610(e)—i.e.,

“fs]tate law requirements relating to the disclo-

sure of credit information.”

Finally, the Attorney General (and the major-

ity) cannot evade preemption by portraying this

enforcement action as a suit to enjoin a mis-

leading and fraudulent “overall impression”

rather than “inadequate disclosure.” The only

way for CCB to dispel the complained-about

“overall impression”—the only way for CCB to

comply with Supreme Court’s injunction’—is to

revise and alter the form and content of its solic-

itations; i.e., to make different and/or additional

disclosures (compare majority op at 16 (“We

again emphasize . . . that (the Attorney Gen-

eral’s) success in this case does not force (CCB)

to affirmatively disclose any additional

credit terms”]). Neither the Attorney General nor

the majority explains how else CCB may elimi-

In relevant part, the injunction enjoins CCB “from

engaging in the fraudulent, deceptive and unlawful acts and

practices alleged in the Verified Petition” by “misrepre-

senting” certain credit information.

46a

nate the alleged misrepresentations from its

solicitations.

IIT.

Just a few months ago, the United States

Supreme Court handed down Riegel v Medtronic,

Inc. (___US ___, 128 S Ct 999 [2008]). Riegel

sued Medtronic for damages, alleging that a

catheter marketed by the company was “designed,

labeled and manufactured in a manner that vio-

lated New York common law, and that these

defects caused [him] to suffer severe and per-

manent injuries” (128 S Ct at 1005). The type of

catheter implicated in Riegel’s injuries had

received premarket approval from the Food and

Drug Administration(FDA) under a federal safety

oversight regime created by the Medical Device

Amendments of 1976 (MDA). The MDA includes

a preemption provision; specifically, 21 USC

§ 360k(a) provides that a state shall not

“establish or continue in effect with respect

to adevice. . . any requirement—(1) which

is different from, or in addition to, any

requirement applicable under [federal law] to

the device, and (2) which relates to the safety

or effectiveness of the device or to any other

matter included in a requirement applicable

to the device under [relevant federal law].”

The issue in Riegel was whether the FDA’s

approval of the catheter precluded the New York

common law tort suit. The Supreme Court

(affirming the United States Court of Appeals for

47a

the Second Circuit) decided that the MDA pre-

empted Riegel’s civil suit, reasoning that

“fa]bsent other indication, [Congress’] reference

to a State’s ‘requirements’ includes its common-

law duties,” and these “requirements” were “dif-

ferent from, or in addition to” the federal ones

(128 S Ct at 1008). Further, the Court remarked

that section 360k did “not prevent a State from

providing a damages remedy for claims premised

on a violation of FDA regulations” because in

such a case the state duties would “ ‘parallel’

rather than add to, federal requirements” (id. at

1011).

This is an even clearer case for preemption

than Riegel. In Riegel, the preemption provision

did not explicitly mention civil tort liability.

Here, there can be no doubt that the Attorney

General’s claims under the Executive Law and

the General Business Law are made under a

“provision of the law of [the] State relating to the

disclosure of information” in solicitations gov-

erned by TILA (15 USC § 1610[e]); or, as articu-

lated by the Board, are “[s]tate law requirements

relating to the disclosure of credit information”

(12 CFR 226.28[d]). As the Supreme Court has

observed, “[t]he ordinary meaning of [the phrase

‘relating to’] is a broad one—to stand in some

relation; to have bearing or concern; to pertain;

refer; to bring into association with or connection

with—and the words thus express a broad pre-

emptive purpose” (Morales v TWA, 504 US 374,

382 [1992] [quotation marks and citation omit-

ted;). Tire majority avoids this evident conclusion

only by resorting to its faulty analysis that the

“scope of section 1610(e) preemption is

48a

expressly limited to state laws relating to dis-

closures specifically required under 1637(c)”

(majority op at 17).

The majority also concludes that the MDA’s

preemption provision is broader than section

1610(e) because the former displaces those state

requirements that are “different from, or in addi-

tion to” federal law. Yet again, the majority

relies on its erroneous reading of section 1610(e)

to “expressly limit[]” preemption “to state laws

relating to the disclosures specifically required

under section 1637(c)” (majority op at 17). In fact

(and as discussed previously), the wording of sec-

tion 1610(e) illustrates its preemption of the

entire field of disclosure of cost-of-credit infor-

mation in credit or charge card solicitations.

Indeed (as discussed previously), under the for-

merly applicable inconsistency/contradictory

standard, states were empowered to enforce state

law disclosure requirements that differed from or

added to the requirements established for credit

or charge card solicitations by Congress in TILA.

Congress fashioned the “special” preemption rule

in section 1610(e) precisely because it wanted to

cut off and fully supplant supplemental state reg-

ulation in this area: only the Board may add to or

modify TILA’s statutory disclosure requirements.

Finally (again as discussed previously), the

relief that the Attorney General sought (and has

obtained) inevitably calls for CCB to aiter the

format and content of the disclosures in its credit

or charge card solicitations of consumers in New

York, thus “disruptling] the federal scheme”

envisaged and designed by Congress to “enhance

credit shopping” by requiring “more detailed and

49a

uniform” disclosure of credit information to con-

sumers nationwide (see Riegel, 128 S Ct at 1008;

54 Fed Reg at 13855; compare majority op at 17).

IV.

The majority’s desire to maximize our State’s

regulatory reach in the area of consumer pro-

tection is unsurprising. And the Board has

arguably been slow to appreciate the value to

consumers of at least certain of the specific dis-

closures at issue in this case (see 72 Fed Reg

32948 [June 14, 2007] [proposal by the Board to

amend Regulation Z following a comprehensive

review of TILA’s rules for open-end (revolving)

credit that is not home-secured]). But State pride

and good intentions are not enough to justify this

lawsuit. To borrow words from the Second Cir-

cuit’s decision in a recent preemption case, “[il]f

New York’s view regarding the scope of its regu-

latory authority carried the day, another state

could be free to enact,” its own laws or bring its

own lawsuits to supplement or modify the credit

disclosures required by TILA and Regulation Z,

thus “unraveling the centralized federal frame-

work” in this area (Air Transp. Assn. of Am. v

Cuomo, 520 F3d 218, 225 [2d Cir 2008] [deter-

mining that federal law preempts New York

State’s Passenger Bill of Rights (General Busi-

ness Law 251-g[1])]). In enacting section 1610(e),

Congress essentially decided that the benefits

from a uniform, nationwide regime for disclosure

under the aegis of the Board outweighed any loss

of protection to consumers under state law. The

Supremacy Clause permits Congress to make this

50a

judgment, and we are bound to honor it. Accord-

ingly, I respectfully dissent.

* * * * * * * * * * * si *K * bX *

Order affirmed, without costs. Opinion by Judge

Ciparick. Chief Judge Kaye and Judges Graffeo,

Pigott and Jones concur. Judge Read dissents in

an opinion. Judge Smith took no part.

Decided June 26, 2008

5la

No. 97985

SUPREME COURT, APPELLATE DIVISION

THIRD DEPARTMENT, NEW YORK

December 1, 2005

IN THE MATTER OF THE PEOPLE OF

THE STATE OF NEW YORK, BY ELIOT SPITZER,

AS ATTORNEY GENERAL,

Respendent,

V.—

APPLIED CARD SYSTEMS, INC., et al.,

Appellants.

Appeal from an order and judgment of the

Supreme Court (Cannizzaro, J.), entered June 24,

2004 in Albany County. The order and judgment,

among other things, granted petitioner’s appli-

cation, in a proceeding pursuant to Executive

Law § 63(12), to enjoin respondents from engag-

ing in certain fraudulent acts.

52a

APPEARANCES OF COUNSEL

Cooper, Erving & Savage, L.L.P., Albany (Mar-

tin C. Bryce Jr. of Ballard, Spahr, Andrews &

Ingersoll, L.L.P., Philadelphia, Pennsylvania,

admitted pro hac vice, of counsel), for appellants.

Eliot Spitzer, Attorney General, Albany (Mark

D. Fleischer of counsel), for respondent.

OPINION OF THE COURT

PETERS, J.

Respondent Cross Country Bank, Inc. (here-

inafter CCB) provides credit cards to consumers

who are otherwise unable to qualify for credit.

Respondent Applied Card Systems, Inc. (here-

inafter ACS) services CCB’s accounts and

engages in collection activities. Petitioner con-

tends that CCB was representing, in direct mail

solicitations, that prospective consumers would

be approved for a credit limit up to $2,500 when,

in reality, credit limits were often less than $400.

Each account was assessed a $100 application fee

and a $50 annual membership fee immediately

upon the opening of the account, often leaving

the consumer with far less credit than they had

originally anticipated. This led to a downward

spiral of accruing interest, late fees and over-

limit penalties. Moreover, unbeknownst to con-

sumers, CCB allegedly enrolled them in

third-party membership benefit programs for

which a fee was immediately assessed upon the

account. One such program, the Credit Account

Protection (hereinafter CAP) program, was vir-

53a

tually useless to New York consumers. Petitioner

further alleged that ACS employees would harass

consumers by telephone wherein they would,

among other things, misrepresent their identities

to facilitate contact with the consumer, call them

at work after having been instructed not to do so,

use obscene and abusive language, and make

unauthorized debits from their checking

accounts.

In April 2003, petitioner commenced this spe-

cial proceeding pursuant to CPLR 409(b) to per-

manently enjoin respondents from engaging in

these activities. It alleged violations of Executive

Law § 63(12), General Business Law §§ 349 and

350, and General Business Law article 29-H.

Respondents denied the allegations and raised

numerous affirmative defenses. Upon Supreme

Court’s issuance of a permanent injunction pre-

venting respondents from engaging in the chal-

lenged activities, this appeal ensued.

Special proceedings brought pursuant to CPLR

409(b) are subject to the same standards that

apply to a motion for summary judgment (see

CPLR 409[b]; Matter of Port of N.Y. Auth. [62

Cortlandt Realty Co./, 18 N.Y.2d 250, 255 (1966],

cert. denied sub nom. McInnes v. Port of N.Y.

Auth., 385 U.S. 1006 [1967]; Matter of People v

Telehublink Corp., 301 A.D.2d 1006, 1007

[2003]). Under Executive Law § 63, the Attorney

General may utilize CPLR 409(b) to seek injunc-

tive relief against any business engaged in

repeated fraudulent or illegal conduct in the

54a

transaction of business.' The test is whether the

act complained of “has the capacity or tendency

to deceive, or creates an atmosphere conducive to

fraud. Executive Law § 63(12) was meant to pro-

tect not only the average consumer, but also

‘the ignorant, the unthinking and the credulous’ ”

(People v General Elec. Co., 302 A.D.2d 314, 314

[2003] [citations omitted], quoting Guggenheimer

v. Ginzburg, 43 N.Y.2d 268, 273 [1977]) As to the

ciaims alleging deceptive business practices or

false advertising under General Business Law §§

349 and 350, the Attorney General was required

to establish that respondents engaged “ ‘in an act

or practice that is deceptive or misleading in a

material way and that [the consumer] has been

injured by reason thereof ” (Small v Lorillard

Tobacco Co., 94 N.Y.2d 43, 55 [1999], quoting

Oswego Laborers’ Local 214 Pension Fund vu

Marine Midland Bank, 85 N.Y.2d 20, 25 [1995];

accord Solomon vu Bell Atl. Corp., 9 A.D.3d 49, 54

[2004]). While the proof must show that the rep-

resentations or omissions are “likely to mislead a

reasonable consumer acting reasonably under the

circumstances” (Oswego Laborers’ Local 214 Pen-

ston Fund v Marine Midland Bank, supra at 26)

for conduct to be actionable it need “not neces-

sarily rise to the level of fraud” (Gaidon v

Guardian Life Ins. Co. of Am., 94 N.Y.2d 330,

343 [1999]); even omissions may be the basis for

such claims (see Bildstein v MasterCard Intl.,

Such conduct has been defined as “any device,

scheme or artifice to defraud and any deception, misrepre-

sentation, concealment, suppression, false pretense, false

promise or unconscionable contractual provisions” (Execu-

tive Law § 63[12]).

55a

2005 WL 1324972 *3 2005 US Dist LEXIS 10763,

10-11 [SDNY, June 6, 2005]).

(1) Reviewing these solicitation offers as a

whole (see Matter of Lefkowitz v E.F.G. Baby

Prods. Co., 40 A.D.2d 364, 368 [1973]), and rec-

ognizing that the interpretations of the Federal

Trade Commission Act (see 15 USC § 45 et seq.)

are useful in determining the aforementioned

violations under both the Executive Law and

General Business Law (see Oswego Laborers’

Local 214 Pension Fund v Marine Midland Bank,

supra at 26; Matter of State of New York v Col-

orado State Christian Coll. of Church of Inner

Power, 76 Misc.2d 50, 54-55 [1973]), we agree

that the violations were established as a matter

of law. The offers had a prominent display

informing consumers that they had been “pre-

approved” for a credit limit up to $1,000 or

$2,500. They did not state that most consumers

who received these solicitations do not receive

even half of the amount listed. While minimum

credit limits were detailed in the solicitations, no

disclosures revealed how likely a consumer was

to receive amounts above the minimum. Scripts

used by telemarketers to solicit consumers did

not clarify this information or reveal credit lim-

its usually granted. In response to the repre-

sentation by CCB’s vice president, Paul Seitz,

that these problems had been corrected since

June 2001, our review of the new disclosures

found the correction to be embedded on the sec-

ond page of the “Terms and Conditions of Offer,”

in the same typeface as the rest of the para-

graph. Recognizing that respondents submitted

the affidavit of Donald Whittaker, a private con-

56a

sultant who reviewed the terms of the solicita-

tion from December 2001, categorizing the dis-

closure as “unsurpassed in the industry,” we find

Supreme Court to have correctly determined that

neither of these proffers addressed the obvious

problems associated with the initial solicitations.

As to the later solicitations, they still did not

represent an accurate estimation of a consumer’s

credit limit; at all times, it appeared that the

confusion was purposely fostered by respondents’

telemarketers. As the allegations here “are based

on deceptive business practices, not on deceptive

contracts” (Gaidon v Guardian Life Ins. Co. of

Am., supra at 345), we agree that regardless of

what the industry standards are for these dis-

closures, a reasonable consumer would be misled

in believing that the “up to” amount boldly dis-

played on the solicitation letter was representa-

tive of a likely amount that a consumer would

receive (see Federal Trade Commn. vu Febre, 1996

WL 396117, *2, 1996 US Dist LEXIS 9487, *7-11

[N.D.Ill., July 3, 1996], affd.128 F.3d 530 [1997]).

We further agree with Supreme Court that the

information about the applicability of the CAP

program in New York was deceptive. First, con-

sumers could inadvertently enroll in the CAP

program because its acceptance line was directly

above the similarly looking acceptance line for

the credit card. Second, the explanation regard-

ing the benefits of the program, provided in a

separate insert, described unemployment, family

leave, life, dismemberment and disability bene-

fits when only the life, dismemberment and dis-

ability benefits were available to New York

consumers; that limitation was also embedded in

57a

the fine print of the benefit description. For these

reasons, the solicitations were misleading as a

matter of law (see generally Federal Trade

Commn. v Crescent Publ. Group, 129 F.Supp.2d

311, 321 [2001]) because a reasonable consumer

was led to believe that by signing up for the pro-

gram, he or she would be protected in case of an

income loss due to the conditions described.

Next addressing the practice of automatically

enrolling consumers in the Applied Advantage

Program for which they were charged an addi-

tional fee on their already-limited credit card,

the practice was no more palatable simply

because the consumers could discontinue it at

any time.? The solicitation letters stated, in the

middle of the letter, that “[bly simply responding

to our ‘invitation’ and also accepting membership

in Applied Advantage, you will be granted a Visa

Gold credit card.” To opt out, consumers were

required to check a box at the bottom of the let-

ter to indicate that they did not want to be

enrolled in the program; it was not clear that a

credit card, albeit with limited credit, would still

be issued if they declined such membership.

Although the later solicitation letters did not

mention the Applied Advantage Program in the

text of the initial solicitation, and instead pro-

vided a box on the bottom of the letter to indicate

whether consumers wished to process the appli-

cation with the Applied Advantage membership,

the solicitations, as a whole, led consumers to

believe that they had to participate in the costly

program to achieve the credit desired. To the

In later solicitations, membership was not automatic.

58a

extent that respondents voluntarily discontinued

automatic membership in such program, such

voluntary discontinuance of fraudulent or decep-

tive practices will not bar the issuance of an

injunction to prevent future practices (see Fed-

eral Trade Commn. v Crescent Publ. Group,

supra at 320; People v. General Elec. Co., 302

A.D.2d 314, 316 [2003], supra).

(2) We next reject respondents’ contention that

the Federal Truth in Lending Act (see 15 USC §

1601 et seq.) preempted petitioner’s claims

because the allegations seek to establish that

CCB’s disclosures were inadequate—an area

within the exclusive province of said Act. In our

view, the allegations instead pertain to unfair or

deceptive acts or practices which are illegal

under state law. As such, they are not preempted

(see 12 CFR part 226, Supp. I, J 28[d][1]; 12 CFR

226.28[d]; Therrien v Resource Fin. Group, 704

F.Supp. 322, 329 [1989]).*

Finally, considering the allegation that ACS

engaged in improper debt collection practices

pursuant to General Business Law article 29-H,

the record reflects that despite an initial training

emphasizing the parameters of the Debt Collec-

tion Procedures Act, the practice changed once

This contention was not waived by respondents’ fail-

ure to raise it as an affirmative defense in the answer (see

generally CPLR 3018|b]) since it was used as a defense in

the summary judgment motion (see Rogoff v San Juan Rac-

ing Assn., 77 A.D.2d 831, 832 [1980], affd. 54 N.Y.2d 883,

(1981]). Nor do we find that prejudice enured to petitioner

after we considered the affirmative defenses that were prop-

erly raised (see Sheils v County of Fulton, 14 A.D.3d 919,

921 (2005), lu denied 4 N.Y.3d 711 .2005)).

59a

actual collection practices commenced. ACS

employees were encouraged to use aggressive and

illegal practices, and evidence demonstrated that

the salary of both the collector and the supervi-

sor were determined by their success. Affidavits

further established that ACS collectors used rude

and obscene language with consumers, repeat-

edly called them even when requested not to do

so, misrepresented their identities to gain access,

and made unauthorized debits to consumer

accounts. Petitioner presented approximately 203

complaints from consumers describing these

practices and proffered affidavits from former

employees, some supervisory, to confirm these

allegations. While respondents submitted affi-

davits of several current employees of ACS which

either detailed their compliance practice or chal-

lenged other proof submitted by petitioner,

Supreme Court properly concluded that these

submissions were insufficient to create an issue

of fact regarding the specific allegations made in

the consumer complaints.

MERCURE, J.P., CREW III, CARPINELLO and

KANE, JJ., concur.

ORDERED that the order and judgment is

affirmed, without costs.

60a

15 U.S.C. § 1610. Effect on other laws

(a) Inconsistent provisions; procedures appli-

cable for determination

(1) Except as provided in subsection (e) of this

section, this part and parts B and C of this sub-

chapter do not annul. alter, or affect the laws of

any State relating to the disclosure of informa-

tion in connection with credit transactions,

except to the extent that those laws are incon-

sistent with the provisions of this subchapter and

then only to the extent of the inconsistency. Upon

its own motion or upon the request of any credi-

tor, State or other interested party which is sub-

mitted in accordance with procedures prescribed

in regulations of the Board, the Board shall

determine whether any such inconsistency exists.

If the Board determines that a State-required

disclosure is inconsistent, creditors located in

that State may not make disclosures using the

inconsistent term or form, and shall incur no lia-

bility under the law of that State for failure to

use such term or form, notwithstanding that such

determination is subsequently amended,

rescinded, or determined by judicial or other

authority to be invalid for any reason.

(2) Upon its own motion or upon the request of

any creditor, State, or other interested party

which is submitted in accordance with proce-

dures prescribed in regulations of the Board, the

Board shall determine whether any disclosure

required under the law of any State is substan-

tially the same in meaning as a disclosure

required under this subchapter. If the Board

determines that a State-required disclosure is

6la

substantially the same in meaning as a disclo-

sure required by this subchapter, then creditors

located in that State may make such disclosure

in compliance with such State law in lieu of the

disclosure required by this subchapter, except

that the annual percentage rate and finance

charge shall be disclosed as required by section

1632 of this title, and such State-required dis-

closure may not be made in lieu of the disclosures

applicable to certain mortgages under section

1639 of this title.

(b) State credit charge statutes

Except as provided in section 1639 of this title,

this subchapter does not otherwise annul, alter

or affect in any manner the meaning, scope or

applicability of the laws of any State, including,

but not limited to, laws relating to the types,

amounts or rates of charges, or any element or

elements of charges, permissible under such laws

in connection with the extension or use of credit,

nor does this subchapter extend the applicability

of those laws to any class of persons or transac-

tions to which they would not otherwise apply.

The provisions of section 1639 of this title do not

annul, alter, or affect the applicability of the

laws of any State or exempt any person subject to

the provisions of section 1639 of this title from

complying witii the laws of any State, with

respect to the reauirements for mortgages

referred to in section 1602(aa) of this title, except

to the extent that those State laws are inconsis-

tent with any provisions of section 1639 of this

title, and then only to the extent of the incon-

sistency.

62a

In any action or proceeding in any court involv-

ing a consumer credit sale, the disclosure of the

annual percentage rate as required under this

subchapter in connection with that sale may not

be received as evidence that the sale was a loan

or any type

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