Reply Brief — Cross Country Bank, Inc. v. New York (No. 08-405)

fi \ ;

\D No. 08-405 SL

FILED

_— DEC 18 2008

OFFICE OF THE CLERK

Supreme Court of the Unite ates

iho se —<e

CROSS COUNTRY BANK, INC.,

Petitioner,

—Yy. anes

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

REPLY TO BRIEF IN OPPOSITION

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

December 19, 2008 Attorneys for Petitioner

TABLE OF CONTENTS

PAGE

ARGUMENT

POINT I—

THE COURT OF APPEALS

REFUSED TO FOLLOW THIS

COURT'S HOLDINGS. .....26<c0-s0ccecves 3

POINT II—

THE COURT OF APPEALS’

HOLDING UNDERMINES

CONGRESS’ GOAL OF NATIONAL

RIIULE CPO REe & occxn yn dagee eae pee 6

POINT IlI—

THE COURT OF APPEALS

MISCONSTRUED THE SCOPE

OF SEA THIN 365006). -. ...1,c.c2s0e 9

CONCLUSION

on ow banca ae ee a ee 13

TABLE OF AUTHORITIES

Cases: PAGE

Altria Group, Inc. v. Good,

No. 07-562, 2008 WL 5204477

Capes: Ses: Rea MITE Ue 5-55 by So ew ce evsensceaes 5

Arkansas Electric Cooperative v.

Arkansas Public Services Commission,

461 U.S. 376 CI@SS) «00... eccecues eae eats 12

BedRoc Ltd., LLC v. United States,

re Sie PO Ce ib obie scasevvedxsases ee 8

Engine Manufacturers Ass'n v.

South Coast Air Quality

Management District,

ee Re ee ee re 5

FTC v. Febre,

No. 94 C 3625, 1996 U.S. Dist. Lexis

9487 (N.D. IIL. July 3, 1996),

aff’d, 128 F.3d 530 (7th Cir. 530).......... 6

Morales v. Trans World Airlines, Inc.,

a BRR ye 2G: 5 ren Renemer eerie." a

Norfolk & Western Railway Co. v. American

Train Dispatchers’ Ass’n,

ee cee eT 0 OED oo bade edndsdaducweaes een 8

Reigel v. Medtronic, Inc.,

128 S. Ct. 999 (2008) 5

iii

PAGE

Rowe v. New Hampshire Motor

Transport Ass’n,

EO wee Nee UO CI oss eeince ts vccecuensawets 3

Shaw v. Delta Air Lines, Inc.,

PR Re We EB ic crn aeeeeuinesweckdesemss: 3

United States National Bank of Oregon v.

Independent Insurance Agents of

America, Inc.,

Oe Rete, St CRED occ cesvcvcsccvsneveseesves 7

United States v. Locke,

Rk 12

Whitfield v. United States,

ee ee 2 7

Statutes And Other Authorties:

ae ae oo oo 6 ka i hoe esas eer srrneds 6

Ee Se fe eS | an errr err 6

ee es ee Eo oi on. keh eee cea er eink passim

iz C.F.R. pt. 226, Supp. (, 4 26¢d)(9)........... 8

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

EG ss REE rer pe Ig ne 7,8

Credit and Chrage Card Disclosures,

D4 Fed. Reg. 13,855 (Apr. 6, 1989)......... 8-9

S. Rep. No. 100-259 (1987),

reprinted in 1988 U.S.C.A.A.N. 3936..... 8

PRELIMINARY STATEMENT

The opposition of the Attorney General of the

State of New York (the “Attorney General”) to the

Petition of Cross Country Bank (“CCB”) underscores

the importance of this Court’s granting review of the

New York Court of Appeals’ decision eviscerating

the total preemption set forth in Section 1610(e) of

the Truth in Lending Act (“TILA”), 15 U.S.C.

§ 1610(e). Contrary to the Attorney General’s insis-

tence, the Court of Appeals refused to follow two

critical tenets of the Court’s preemption jurispru-

dence. The Court of Appeals relied on a contrived

distinction to evade this Court’s holdings that pre-

emption statutes using the phrase “relating to” are

to be construed broadly. Similarly, the Court of

Appeals insisted that the presumption against pre-

emption should be employed to preserve the right of

the Attorney General to impose additional disclo-

sure requirements in direct contravention of Section

1610(e)’s express prohibition. The Attorney General

fails to come forward with any principled justifica-

tion for that decision.

Indeed, at the end of his opposition to this Peti-

tion, the Attorney General confesses to the relief

that he really seeks. In response to the statute’s

express limitation restricting the right to apply State

law, the Attorney General asserts that “both the text

and purpose of the legislative and regulatory mate-

rials at issue ... expressly exempt state deceptive

practices laws from preemption, without any... lim-

itation.” See Attorney General’s Brief at 25. This

assertion tramples Section 1610(e)’s plain and unam-

biguous words, which are every use of state law is

preempted “except that any State may employ or

establish State laws for the purpose of enforcing the

2

requirements of [TILA].” The Court of Appeals erro-

neously upheld the Attorney General’s obliteration

of this limitation.

The Attorney General wrongly contends that the

Court of Appeals’ decision poses no threat to the

national uniformity that Congress mandated when it

amended TILA in 1988 and adopted Section 1610(e).

Yet, the Court of Appeals has sanctioned the Attor-

ney General’s efforts to impose additional and dif-

ferent disclosures in credit card solicitations via the

assertion of a claim for false and deceptive practices

and to ignore the exclusive authority vested in the

Federal Reserve Board. If not reversed, the Court of

Appeals’ ruling will invite every other State attorney

general to use state law to impose state-specific dis-

closure requirements.

3

ARGUMENT

POINT I

THE COURT OF APPEALS REFUSED TO

FOLLOW THIS COURT’S HOLDINGS

The New York Court of Appeals refused to abide

by this Court’s holding that, when Congress uses the

phrase “relating to” in provisions such as Section

1610(e), it is “express[ing] a broad pre-emptive pur-

pose.” Morales v. Trans World Airlines, Inc., 504

U.S. 374, 383 (1992); accord Rowe v. N.H. Motor

Transport Ass’n, 1288. Ct. 989, 995 (2008); Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). The

Attorney General responds that the Court of Appeals

did follow those decisions, and that it instead con-

cluded that the Attorney General’s claims do not

“relate” to disclosure obligations under TILA. See

Attorney General's Brief at 20. This argument merely

embraces the Court of Appeals’ refusal] to follow this

Court's jurisprudence based on an immaterial and

superficial factual distinction.

The Court of Appeals specifically concluded that

Morales is not relevant because the preemption

issue under TILA is too tenuous, remote or periph-

eral. Appl4a.' It claimed that “the reach of § 1610(e)

is not as expansive” as the statutory preemption pro-

vision at issue in Morales. Applda. The Attorney

General adopted this erroneous conclusion. See

Attorney General's Brief at 14. In fact, the two pre-

emption provisions are fundamentally identical.

In Morales, the National Association of Attorneys

General issued guidelines concerning airline adver-

“App” refers to the Appendix annexed to CCB's Petition.

4

tising, frequent flier programs and compensation

policies for passengers yielding their seats on over-

booked flights. A group of attorneys general, includ-

ing the Attorney General of New York, threatened to

use their deceptive practices statutes, such as

Section 349 of the New York General Business Law

(the “GBL”), to enforce their guidelines concerning

airline advertising. Morales, 504 U.S. at 379-80. This

Court held that the use of such statutes was pre-

empted by the Airline Deregulation Act, which pre-

empts any state law “relating to rates, routes, or

services of any carrier ....” Jd. at 383-84 (citation

omitted). Just as the State’s regulation of informa-

tion provided in airline advertising relates to “rates,

routes or services,” the State’s regulation of infor-

mation provided in credit card solicitations, such as

credit limits, likewise relates to “the disclosure of

information” in credit card solicitations. Jd.

Despite the fact that it was construing an express

preemption provision, the Court of Appeals further

erred by employing the presumption against pre-

emption to distort Section 1610(e)’s meaning. See

Petition at 25. The Attorney General wrongly con-

tends that “the Court of Appeals did not actually rely

on the presumption [against preemption] to decide

this case.” See Attorney General’s Brief at 20.

To the contrary, the Court of Appeals specifically

stated that its interpretation of Section 1610(e) was

“guided by the ‘starting presumption that Congress

does not intend to supplant state law’ unless its

intent to do so is ‘clear and manifest’.” App8a-9a

(citation omitted). Further, the court mischarac-

terized the order enjoining CCB’s disclosure prac-

tices as having only “‘indirect economic influence’

upon [CCB’s] solicitations practices,” and proceeded

5

to hold that this impact “is not sufficient to over-

come the presumption against preemption of state

law.” Appl6a.

The presumption against preemption has no role

in this case. In an express preemption case,

Congress’ intent is beyond dispute, and a court may

resort to the presumption only when there is more

than one plausible reading of the statute's text. See,

e.g., Altria Group, Inc. v. Good, No. 07-562, 2008

WL 5204477 at *4 (U.S. Dec. 15, 2008);* Reigel v.

Medtronic, Inc., 128 S. Ct. 999, 1008-09 (2008) (no

grounds for narrowing the scope of preemption

because “the statute itself speaks clearly to the

point at issue”); zd. at 1014 (Ginsburg, J., dissent-

ing); Engine Mfrs. Ass’n v. South Coast Air Qual-

ity Mgmt. Dist., 541 U.S. 246, 256 (2004) (“[O]ur

interpretive method ... neither invokes the ‘pre-

sumption against preemption’ to determine the

scope of pre-emption nor delves into Icgislative his-

tory. Application of those methods, on which not all

Members of this Court agree, demonstrably makes

no difference to resolution of the principal

question....” (citation omitted, emphasis in origi-

nal)). The Court of Appeals did not identify any

4

, The Court of Appeals’ decision is also inconsistent with

this Court’s recent ruling in Altria. The Atria Court employed the

presumption against preemption only because the provision at

issue in the statute was susceptible to more than one meaning.

2008 WL 5204477 at *4. The preemption provision in that statute

differs markedly from Section 1610(e). It applied only to state

law requirements “based on smoking and health.” The Court

specifically contrasted that provision to the type of provision

such as Section 1610(e): “Unquestionably, the phrase ‘relating to’

has a broader scope than the Labeling Act's reference to rules

‘based on smoking and health... .'” /d. at *8 (citations omitted).

The Court applied that narrower scope when it held that the

fraud claims were not preempted. /d at *8

6

ambiguity in the text, as it was required to do to

invoke the presumption, and instead used the pre-

sumption as a pretext for disregarding Section

1610(e)'s plain meaning and the Congressional man-

date of national uniformity.

POINT II

THE COURT OF APPEALS’ HOLDING

UNDERMINES CONGRESS’ GOAL OF

NATIONAL UNIFORMITY

The Attorney General argues that the Court of

Appeals’ ruling is not inconsistent with Congres-

sional goals for uniform national disclosure require-

ments because (i) “this case could equally have been

brought by the [Attorney General] under the FTC

Act, which is not displaced by TILA,” and (ii)

Congress intended for the States to supplement

TILA’s disclosure requirements through the appli-

cation of false and deceptive practice statutes such

as Section 349 of the GBL. See Attorney Gencral’s

Brief at 18, 21-22. The first argument is patently

erroneous, and the second is inconsistent with both

Section 1610(e) as well as any legitimate reading of

its legislative history.

First, the States have no authority to enforce the

FTC Act’s prohibition of unfair and deceptive prac-

tices. See 15 U.S.C § 45(a)(2) (granting enforcement

power to the FTC and, with respect to banks, to the

federal banking agencies designated in 15 U.S.C.

§ 57a(f)(3)). Moreover, the sole authority cited by

the Attorney General, FTC v. Febre, No. 94 C 3625,

1996 WL 396117 (N.D. ILL. July 3, 1996), aff'd, 128

F.3d 530 (7th Cir. 1997), did not involve an enforce-

ment proceeding against credit card solicitation dis-

closures, but was a run of the mill FTC case

7

concerning the marketing of a get-rich scheme. See

Attorney General's Brief at 22.

Second, the Attorney General's reliance on the

statute’s legislative history is improper. Section

1610(e) unambiguously prohibits any state action

other than “for the purpose of enforcing the require-

ments of [Section 1632 and Section 1637(c), (d), (e)

and (f) of TILA].” The Attorney General may not

subvert the statute’s plain meaning by resorting to

legislative history. See Whitfield v. U.S., 543 U.S.

209, 215-17 (2005); U.S. Nat'l Bank of Oregon v.

Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 462

n.11 (1993).

Further, the complete legislative history demon-

Strates that the Attorney General's use of it is wrong.

Congress balanced the competing interests of con-

sumers and banks, and national uniform regulation

of credit card solicitations was the result. See Peti-

tion at 36 (quoting remarks of Representative

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

(Oct. 13, 1988)). The legislative history makes clear

that Congress amended TILA in order to establish

national uniformity and to eliminate all state regu-

latory authority. For example, Representative St.

Germain explained in the House debate: “Some of

us, frankly, had hoped that we could avoid a flat pre-

emption of State laws and allow the so-called truth-

in-lending approach to apply—an approach which

would allow States to enact credit card disclosure

laws so long as they were not inconsistent with the

Federal Law. Ultimately, however, we settled on a

compromise which added ancillary fees which

brought the provisions of this legislation to the

outer limits of the strongest laws now on the books

in any State. We also gave the Federal Reserve

8

Board the authority to add disclosures in the

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

(Oct. 13, 1988). .

The Attorney General misuses the legislative his-

tory to distort Congress’ intent. He points to the

statement in the Senate Banking Committee Report

that the preemption provision does not “apply to the

use of State mini-Federal Trade Commission statutes

to address unfair or deceptive acts or practices.” See

Attorney General's Brief at 3 (quoting S. Rep. No.

100-259, at 9 (1987), reprinted in 1988 U.S.C.A.A.N.

3936, 3945). The Attorney General incorrectly

asserts that this passage gives the States the abso-

lute right to use such statutes for any purpose. See

Attorney General's Brief at 21-23.

This Court has consistently held that, if the leg-

islative history is inconsistent with the plain mean-

ing of the statute, the plain meaning of the statute

prevails. See BedRoc Ltd., LLC v. U.S., 541 U.S. 176,

183, 186-87 (2004); Norfolk & W. Ry. Co. v. Am.

Train Dispatchers’ Ass'n, 499 U.S. 117, 128 (1991).

Section 1610(e) expressly states that the use of

Siate statutes is limited solely to enforcement of

TILA’s requirements.”

The Attorney General's reliance on the adminis-

trative materials is likewise misplaced. See Attorney

General's Brief at 5-6. Those materials merely state

the non-controversial proposition that the use of

“state laws prohibiting deceptive acts or practices”

is not barred. See 12 C.F.R. pt. 226, Supp. I,

28(d)(3); Truth in Lending: Credit and Charge Card

Disclosures (Final Rule), 54 Fed. Reg. 13,855, 13,864

‘

For the same reason, the Attorney General's purported

reading of the House Conference Report, see Attorney General's

Brief at 4, is erroneous.

9

(Apr. 6, 1989). That proposition proves nothing. The

States are not absolutely barred from using such

Sstatutes—they are barred only from using them to

impose additional disclosure obligations.

POINT III

THE COURT OF APPEALS MISCONSTRUED

THE SCOPE OF SECTION 1610(e)

The Court of Appeals effectively eviscerated the

express preemption set forth in Section 1610(e)

when it held that the statute’s preemptive effect is

limited to State action that is inconsistent with the

specific disclosure requirements actually adopted by

the Federal Reserve Board under Regulation Z—a

classic “conflict” type of preemption. See Petition at

29-33. That holding renders Section 1610(e) a nullity

because TILA already had a conflict provision in

Section 1610(a) that, regardless of Section 1610(e),

preempts inconsistent state law requirements. See

id. at 26-28.

As Judge Read observed in her dissent, the major-

ity restricts Section 1610(e) to bar only state action

that would be inconsistent with actual disclosure

requirements established by the Federal Reserve

Board. See App29a-3la, 39a-40a. The majority

insisted that there was no conflict because CCB’s

disclosure of credit limits and initially available

credit “do not constitute the disclosure of any infor-

mation ‘which is subject to the requirements of [sic]

1637(c).’” See Applla (quoting 15 U.S.C. § 1610(e)).

The majority concluded:

Section 1610(e) preempts only those state

laws that relate to the format, content, man-

ner, or substance of the T/LA-required dis-

10

closures. Thus, there is no preemption here

because neither [the Attorney General’s]

claims nor the relief it was granted have any

effect upon those disclosures.

Appl5a (emphasis added).* The Court of Appeals

reasoned that the relief sought by the Attorney Gen-

eral did not impose any disclosure obligations. The

Attorney General echoes that assertion and con-

tends that all he sought to do here was to prohibit

deceptive practices. See Attorney General's Brief at

23-25.

The Attorney General’s argument is a quintessen-

tial example of elevating form over substance. The

Attorney General’s distinction between disclosure

requirements and the prohibition against false and

deceptive statements is both specious and contrary

to the principles of broad preemption.

Section 1610(e) bars the States from imposing any

disclosure obligation, regardless of how it seeks to

achieve such a result. In other words, Section

1610(e) prohibits both direct and indirect attempts

to regulate disclosures.

There is no doubt that the Attorney General

sought to impose disclosure requirements and that

he succeeded in persuading the New York courts to

do so. That fact is made plain by the intermediate

appellate ruling that the Court of Appeals affirmed.

The Appellate Division held, among other things:

: The Court of Appeals concluded that, prior to the Fed-

eral Reserve Board proposal in 2007 to require disclosures about

credit limits. there was a void that the States were entitled to fill

until the Federal Reserve Board affirmatively acted. See App|4a-

l5a, App2la-22a n 14

1]

[W]le agree that the violations were estab-

lished as a matter of law. The offers had a

prominent display informing consumers

they had been “pre-approved” for a credit

limit up to $1,000 or $2,500. They did nol

state that most consumers who received

these solicitations do not receive even half

the amount listed. While minimum credit

limits were detailed in the solicitations, no

disclosures revealed how likely a con-

sumer was to receive amounts above the

minimum. Scripts used by telemarketers to

solicit consumers did not clarify this infor-

mation or reveal credit limits usually

granted. In response to the representation

by CCB’s vice president, Paul Seitz, that

these problems had been corrected since

June 2001, our review of the new disclo-

sures found the correction to be embedded

on the second page of the “Terms and Con-

ditions of Offer,” in the same typeface as

the rest of the paragraph. Recognizing that

Respondent submitted the affidavit of

Donald Whittaker, a private consultant who

reviewed the terms of the solicitation from

December 2001, categorizing the disclosure

as “unsurpassed in the industry,” we find

Supreme Court to have correctly deter-

mined that neither of these proffers

addressed the obvious problems associated

with the initial solicitations.

App55a-56a (emphasis added).

As this illustration demonstrates, the relief

obtained by the Attorney General necessarily

.

imposes disclosure requirements. The Attorney Gen-

12

eral wrongly insists that there is no disclosure

requirement because CCB has the option of saying

nothing at all. See Attorney General’s Brief at 24.

That argument cannot withstand scrutiny. The trial

court directed that, when CCB disclosed the range

of credit limits, CCB also had to disclose the amount

of the credit likely to be received in the same promi-

nent manner. The fact that this disclosure obligation

is conditional does not change its nature. Any dis-

closure requirement, be it mandatory or conditional,

trespasses on the exclusive authority granted to the

Federal Reserve Board to establish national uniform

requirements.

Further, as this Court has recognized, preemption

equally applies when the federal regulator chooses

to be silent and not to impose additional obligations.

The decision to do nothing is entitlea to the same

preemptive effect as a decision to impose a require-

ment. In Morales, this Court rejected the contention

that State action is preempted only if it affirmatively

requires a different or additional affirmative dis-

closure. 504 U.S. at 385 (“Petitioner contends that

[the ADA] only pre-empts the States from actually

prescribing rates, routes, or services. This simply

reads the words ‘relating to’ out of the statute.”); see

U.S. v. Locke, 529 U.S. 89, 111-12, 115 (2000); Ark.

Elec. Coop. v. Ark. Pub. Serv. Comm’n, 461 U.S.

375, 385 (1983). Thus, the States are not free to

impose disclosure requirements unless and until the

Federal Reserve Board adopts new disclosure obli-

gations regarding credit limits such as those that it

proposed in 2007. See App4Qa.

13

CONCLUSION

For the foregoing reasons, the Petition should be

granted.

Dated: December 19, 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, NY 10022

(212) 715-1000

Attorneys for Petitioners