SPGGC v . AG 04-CV-420-SM 08/01/06 P UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
SPGGC, LLC; MetaBank; and U.S. Bank, N.A., Plaintiffs
v. Civil N o . 04-cv-420-SM Opinion N o . 2006 DNH 089P Kelly A . Ayotte, Attorney General, Defendant
O R D E R
This case arises from the sale of prepaid gift cards by
SPGGC, LLC, in New Hampshire - cards the State says fail to meet
regulatory requirements and limitations imposed on “gift
certificates” under New Hampshire law. When the Attorney General
threatened enforcement action, SPGGC brought this suit seeking
declaratory and injunctive relief. In count one of its third
amended complaint, it seeks a declaration that relevant
provisions of New Hampshire’s Consumer Protection Act (“CPA”) are
preempted by the National Bank Act and/or the Home Owners’ Loan
Act and, therefore, do not apply to it as a seller of prepaid
gift cards issued by a national bank or a federal savings
association. In count two, SPGGC seeks a declaration that
various provisions of that state statute, if enforced against i t ,
would violate the Commerce Clause of the United States
Constitution. U.S. Bank is a national bank, organized under the National
Bank Act, 12 U.S.C. § 2 1 , et seq. (the “NBA”). MetaBank is a
federal savings association, organized under the Home Owners’
Loan Act, 12 U.S.C. § 1461, et seq. (“HOLA”). They are the
banking entities that actually own and issue the prepaid Simon
Giftcards. After SPGGC initiated this declaratory judgment
action, the banks sought and were granted leave to intervene as
plaintiffs.
SPGGC, supported by both U.S. Bank and MetaBank, moves for
summary judgment as to both counts in its third amended
complaint. Defendant objects. For the reasons set forth below,
SPGGC’s motion is granted in part, and denied in part.
Standard of Review
When ruling on a party’s motion for summary judgment, the
court must “view the entire record in the light most hospitable
to the party opposing summary judgment, indulging all reasonable
inferences in that party’s favor.” Griggs-Ryan v . Smith, 904
F.2d 1 1 2 , 115 (1st Cir. 1990). Summary judgment is appropriate
when the record reveals “no genuine issue as to any material fact
and . . . the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). In this context, “a fact is
2 ‘material’ if it potentially affects the outcome of the suit and
a dispute over it is ‘genuine’ if the parties’ positions on the
issue are supported by conflicting evidence.” Intern’l Ass’n of
Machinists and Aerospace Workers v . Winship Green Nursing Ctr.,
103 F.3d 196, 199-200 (1st Cir. 1996) (citations omitted).
Factual Background
I. General.
SPGGC, LLC (“Simon”) is an affiliate of Simon Property
Group, L.P., which owns and operates shopping malls across the
United States, including three in the State of New Hampshire.
Simon is not a bank, a bank subsidiary, or a bank affiliate. In
August of 2001, Simon began selling the Simon Visa Giftcard (the
“Giftcard”). It has been available in Simon malls in New
Hampshire since 2003. According to Simon, it is currently
selling the Giftcard in 35 states, as well as over the Internet.
The Giftcard is a prepaid electronic stored value card. It
looks like a credit card or bank debit card, consisting of an
embossed plastic card with a magnetic information strip on the
back, which operates on the Visa debit infrastructure. The card
is accepted worldwide, wherever Visa debit cards are accepted
(both online and in person), including locations that are not
3 affiliated with Simon malls. According to MetaBank, that
involves more than 30 million merchants in over 150 countries.
The purchaser of a Giftcard specifies the amount, or value,
that he or she wishes to place on the Giftcard and a balance in
that denomination (less an initial “handling fee”) is established
on the card. Unlike a traditional gift certificate, however, the
Giftcard can be replaced if lost or stolen, and its owner is not
responsible for unauthorized uses of the card. But, according to
plaintiffs, in order to comply with Visa fraud prevention and
card maintenance requirements, all Giftcards, including those
sold in New Hampshire, must bear an expiration date.
Also unlike a traditional gift certificate, several fees and
charges are associated with the Giftcard, which plaintiffs say
are levied in order to recover administrative costs associated
with maintaining the Giftcard program. The State asserts that
those other fees, to the extent they diminish the total amount
for which the Giftcard may be redeemed, as well as the fact that
the Giftcards have an expiration date, violate specific
provisions of New Hampshire’s Consumer Protection Act applicable
to gift certificates.
4 II. Simon’s Various Giftcard Programs.
From the program’s inception in 2001, through August of
2005, Simon Giftcards were issued through Bank of America
(“BoA”). Under Simon’s agreement with BoA, all Giftcards and
cardholder agreements were required to identify BoA as the issuer
of the Giftcard. According to Simon, BoA was responsible for the
design of the cards and could make changes to them and the
cardholder agreements at any time (though it appears that BoA
generally deferred to Simon on that issue). And, says Simon, it
acted simply as BoA’s agent for the purpose of marketing,
selling, and servicing the Giftcards. Unlike the current
Giftcard programs, all funds generated by the sale of the
Giftcards and all fees and charges associated with the Giftcard
program were remitted to Simon. For its part, BoA was
compensated in the form of a “transaction fee” for each Giftcard
transaction that generated interchange fees from VISA.1
1 According to Simon, “Giftcard transactions are modeled on credit card transactions, in which the merchant who accepts a credit card as payment actually receives only about 98% of the charged price of the item. The remaining 2% is called the “merchant discount,” which is a fee paid to the merchant’s acquiring bank for providing its services. The acquiring bank splits this fee with the card-issuing bank, which is paid approximately 1.4% of the purchase price. The 1.4% is called the ‘interchange fee.’” Simon’s memorandum (document n o . 36-2) at 10 n.12.
5 In July of 2005, Simon entered into agreements with both
U.S. Bank (a national bank) and MetaBank (a federal savings
association) for the purpose of promoting and selling the Simon
Visa-branded Giftcards. Although the individual agreements are
distinct, they generally describe similar programs, under which
the bank owns and issues the Giftcards, defines the relationship
between the bank and the consumer (i.e., the purchaser/holder of
the Giftcard), and establishes the various fees associated with
the cards. Simon is responsible solely for promoting and selling
the Giftcards and lacks any authority to alter the terms or
conditions of the contractual relationship between the
purchaser/holder of the Giftcard and the issuing bank.
It appears that the Simon Giftcards sold over the Internet
are issued by Metabank, while those sold at Simon malls are
issued by U.S. Bank. Under the terms of the agreement between
U.S. Bank and each purchaser/holder of the Giftcard, the
following fees and charges apply to the Giftcards: an initial
$2.00 “handling fee,” a $2.50 monthly “service fee” (which is
waived during the first 12 months), a $5.00 “lost or stolen card”
fee, and a $15.00 “balance transfer or cash-out fee” upon the
Giftcard’s expiration. Unlike prior Simon Giftcards, there is no
balance inquiry fee, nor is there a “customer service” fee. The
6 new Simon Giftcards expire a minimum of 20 months after purchase.
The fee schedule applicable to cards issued by MetaBank is
similar ($5.95 handling fee, $2.50 monthly administrative fee
beginning 12 months after issuance of the card; $5.00 fee to
replace lost or stolen card; and $15.00 fee to replace an expired
card). Simon began selling Giftcards pursuant to its agreements
with U.S. Bank and Metabank in September, 2005.
When Simon sells a Giftcard to a consumer, it collects
payment from the consumer and a corresponding amount (less the
initial handling fee) is loaded onto the card. Simon also
provides the consumer with a copy of the Giftcard agreement
between the consumer and the issuing bank. The funds collected
by Simon are deposited into an account at the bank. U.S. Bank
says it accounts for the value loaded onto each Giftcard as a
liability running from the bank to the consumer, and it books the
fees collected as part of the Giftcard sale as income. At the
end of each quarter, U.S. Bank pays a commission to Simon, based
on the total amount of Giftcard value sold, which commission U.S.
Bank books as an expense. As the consumer redeems the Giftcard,
U.S. Bank remits monies to merchants through the Visa settlement
network. If any additional fee-generating events occur (e.g.,
replacement of a lost or stolen card), those fees are imposed by
7 (and retained by) U.S. Bank. Although the record is not entirely
clear on this point, the court assumes that MetaBank’s accounting
practices are substantially similar.
III. The State Court Litigation.
The New Hampshire Consumer Protection Act, N.H. Rev. Stat.
Ann. (“RSA”) ch. 358-A, establishes rules governing the sale of
gift certificates within the State of New Hampshire. That
statute broadly defines a gift certificate as “a written promise
given in exchange for payment to provide the bearer, upon
presentation, goods or services in a specified amount.” RSA 358-
A:1 IV-a. Among other things, the Consumer Protection Act
provides that gift certificates of $100 or less shall not have
expiration dates. RSA 358-A:2 XIII. It also prohibits any
“[d]ormancy fees, latency fees, or any other administrative fees
or service charges that have the effect of reducing the total
amount for which the holder may redeem a gift certificate.” Id.
On November 1 , 2004, the State of New Hampshire notified
Simon that its sale of Giftcards in this state violates various
provisions of the CPA. Accordingly, it informed Simon of its
intention to file an enforcement action under that statute to
halt the sale of Simon Giftcards in New Hampshire. In
8 anticipation of that enforcement action, on November 1 2 , 2004,
Simon filed suit for declaratory and injunctive relief in this
court. Three days later, the State filed its own complaint
against Simon in the New Hampshire Superior Court (Merrimack
County), alleging numerous violations of the CPA.
Simon moved to dismiss the State’s complaint in the superior
court action, alleging that the CPA does not regulate its
Giftcards. In essence, Simon asserted that its Giftcard is not a
“gift certificate,” as defined by the CPA and, therefore, is not
subject to the restrictions imposed by the CPA. The state
superior court disagreed, concluding that the Simon Giftcard is a
“gift certificate” as contemplated by the CPA and, therefore, is
subject to the restrictions and limitations imposed on the sale
of gift certificates by that statute. But, aware of the ongoing
litigation in this court, the state court stayed all further
proceedings before i t , pending this court’s resolution of
plaintiffs’ federal constitutional and preemption challenges.
Discussion
At this juncture, the court need not address whether the
various Giftcard programs historically administered by Simon were
subject to the provisions of New Hampshire’s CPA. Simon’s third
9 amended complaint focuses on its current Giftcard programs, which
are now administered in association with U.S. Bank and MetaBank.
While Simon’s past Giftcard programs are, at least in part, the
subject of the ongoing state court litigation, this court is not
inclined to exercise its discretion to resolve a legal issue
central to that litigation but not at issue here.
One important purpose of the Declaratory Judgment Act is to
inform the parties of their legal rights and obligations s o ,
going forward, they can alter their behavior, act in compliance
with applicable law, and prevent further damages from accruing.
See, e.g., Ernst & Young v . Depositors Economic Protection Corp. ,
45 F.3d 5 3 0 , 534 (1st Cir. 1995) (“The Declaratory Judgment Act
serves a valuable purpose. It is designed to enable litigants to
clarify legal rights and obligations before acting upon them.”).
Here, of course, there is no threat of additional (allegedly)
wrongful conduct on the part of Simon with regard to its prior
Giftcard programs. To the extent any of those programs ran afoul
of state law, there is little threat that Simon will revive them.
Consequently, damages (if any) flowing from those programs have
been fixed and the allegedly wrongful conduct has ceased.
10 Accordingly, in the exercise of its discretion, the court
declines Simon’s invitation to rule on its claims relating to
prior, now defunct, Giftcard programs. See generally Ernst &
Young, 45 F.3d at 534 (“Because the Act offers a window of
opportunity, not a guarantee of access, the courts, not the
litigants, ultimately must determine when declaratory judgments
are appropriate and when they are not. Consequently, federal
courts retain substantial discretion in deciding whether to grant
declaratory relief. As we have stated, the Declaratory Judgment
Act neither imposes an unflagging duty upon the courts to decide
declaratory judgment actions nor grants an entitlement to
litigants to demand declaratory remedies.”) (citations and
footnote omitted). The state court has concurrent jurisdiction
to address those legal issues and it i s , of course, fully capable
of resolving them. If appropriate, it is equally capable of
calculating damages stemming from Simon’s past conduct. This
court will focus, instead, on the ongoing Giftcard programs and
the current legal rights and obligations of Simon, U.S. Bank, and
MetaBank.
I. Background.
In count one of its third amended complaint, Simon asserts
that provisions of New Hampshire’s Consumer Protection Act:
11 are not applicable to the seller of prepaid electronic stored value gift cards issued by a national bank or federal savings bank, such as the Simon Visa Giftcard, because of federal preemption by the National Bank Act of 1864, 12 U.S.C. § 21 et seq., and regulations issued by the Office of the Comptroller of the Currency, and by the Home Owners’ Loan Act, 12 U.S.C. § 1461, et seq., and regulations issued by the Office of Thrift Supervision.
Id. at para. 2 . In Simon’s view (which is shared by both U.S.
Bank and MetaBank), the national banking laws, combined with the
broad supervisory authority over national banks and federal
savings associations that Congress vested in the Office of Thrift
Supervision (“OTS”) and the Office of the Comptroller of the
Currency (“OCC”), are exclusive and serve to “preempt conflicting
state regulation with respect to all banking activities,
including those of parties engaged in the business of banking in
concert with national banks.” Simon’s memorandum (document n o .
36-2) at 2 6 . And, says Simon, any claims against it relating to
the administrative charges and fees imposed by the banks are
actionable exclusively under federal law, which law preempts
related state law claims.
For its part, the State does not assert that either U.S.
Bank or MetaBank lacks authority to issue the Giftcards. Nor
does it seriously contend that the provisions of the New
12 Hampshire CPA would (or even could) control the terms and
conditions of the Giftcards if they were sold directly to
consumers by U.S. Bank and/or MetaBank - in fact, it appears that
both banks currently sell stored value cards through the Internet
(available for purchase in New Hampshire), which are
substantially similar to the Simon Visa Giftcard. The State has
not challenged those products as violating the New Hampshire CPA.
Nevertheless, because the Giftcards are promoted and sold by
Simon, as agent for the banks, the State asserts that the CPA is
not preempted by federal banking laws and may properly be applied
to the Giftcards sold by Simon.
The State does not question the Banks’ authority to contract with non-bank third parties to distribute bank products. It merely asserts that federal preemption does not extend to those non-bank third parties who therefore must abide by state law.
Defendant’s supplemental memorandum (document n o . 84) at 4 . In
other words, because the Giftcard is sold by Simon - a non-bank
entity - the State asserts that federal banking laws do not
preempt the limitations the CPA would otherwise impose on the fee
structure of the Giftcard.
The State’s action to enforce the Consumer Protection Act remains against Simon, and only against Simon. Entry by the Banks [as intervenors] into this case does nothing to rectify the remoteness of the relationship
13 between a consumer and the Banks. Simon is still not a national bank, thus the Simon Giftcard is still not a bank product.
Id. at 6. The court disagrees.
II. Preemption.
“A fundamental principle of the Constitution is that
Congress has the power to preempt state law.” Crosby v . National
Foreign Trade Council, 530 U.S. 363, 372 (2000). Federal law can
preempt state law in three ways. First, Congress can explicitly
declare that state regulation in a particular area is preempted
by federal law. See, e.g., Beneficial Nat’l Bank v . Anderson,
539 U.S. 1 , 6-7 (2003). Second, federal preemption may be
inferred when congressional regulation of a particular field is
“so pervasive as to make reasonable the inference that Congress
left no room for the States to supplement it.” Rice v . Santa Fe
Elevator Corp., 331 U.S. 2 1 8 , 230 (1947). Finally, state
regulations are preempted when those regulations actually
conflict with federal regulations or when state law “stands as an
obstacle to the accomplishment and execution of the full purposes
and objectives of Congress.” Hines v . Davidowitz, 312 U.S. 5 2 ,
67 (1941). See also Florida Lime & Avocado Growers, Inc. v .
Paul, 373 U.S. 1 3 2 , 142-43 (1963).
14 In interpreting national bank legislation, the Supreme Court
has consistently construed “grants of both enumerated and
incidental ‘powers’ to national banks as grants of authority not
normally limited by, but rather ordinarily pre-empting contrary
state law.” Barnett Bank v . Nelson, 517 U.S. 2 5 , 32 (1996). “In
defining the pre-emptive scope of statutes and regulations
granting a power to national banks, [our cases] take the view
that normally Congress would not want States to forbid, or to
impair significantly, the exercise of a power that Congress
explicitly granted.” Id. at 3 3 .
Here, federal regulations authorize both U.S. Bank and
MetaBank to issue stored value cards, such as the Simon Visa
Giftcard. See, e.g., 12 C.F.R. § 7.5002(a)(3) (authorizing
national banks to offer “electronic stored value systems”); 12
C.F.R. § 555.200(a) (authorizing federal savings associations to
use “electronic means or facilities to perform any function, or
provide any product or service, as part of an authorized
activity”). See also Exhibit 1 to MetaBank’s motion to
supplement (document n o . 8 7 - 2 ) , OTS Opinion Letter P-2006-3 (June
9, 2006) at 3 (discussing the multiple sources of authority for
federal savings associations to issue stored value cards).
Implicit in that grant of authority to issue stored value cards
15 is the “incidental” power to establish the conditions under which
those cards are issued and employed (including fee schedules and
expiration dates) - subject, of course, to applicable federal
(rather than state) consumer protection laws. See generally, OCC
98-31, Guidance of Electronic Financial Services and Consumer
Compliance, 1998 WL 460874 (July 3 0 , 1998).
Consequently, state statutory or regulatory provisions which
purport to limit fees that may be charged to the holder of a
stored value card, or otherwise impose restrictions on the
contractual relationship between the cardholder and the issuing
national bank or federal savings association are preempted. See
generally Bank of America v . City & County of San Francisco, 309
F.3d 551 (9th Cir. 2002) (discussing the preemptive effect of
HOLA and OTS regulations); Wells Fargo Bank of Texas v . James,
321 F.3d 488 (5th Cir. 2003) (discussing the preemptive effect of
the NBA and OCC regulations). See also Exhibit 1 to MetaBank’s
motion to supplement (document n o . 8 7 - 2 ) , OTS Opinion Letter P-
2006-3 (June 9, 2006) (discussing federal preemption of state
gift card restrictions); 12 C.F.R. § 7.5002(c) (noting that
“State laws that stand as an obstacle to the ability of national
banks to exercise uniformly their Federally authorized powers
through electronic means or facilities, are not applicable to
16 national banks”). As the District Court for the District of
Connecticut recently observed:
Because the OCC explicitly authorizes national banks to charge [their] customers fees, any state law that impairs a national bank from exercising its federally authorized power to charge fees could arguably be preempted by the NBA. The rationale underlying that conclusion is that Congress has clearly expressed its intent for national banks to be regulated by federal authority. Complying with both laws could cause an irreconcilable conflict, because the OCC has ruled that, when it explicitly authorizes a national bank to exercise a power, a state may not infringe that authorization.
Blumenthal v . SPGGC, Inc., 408 F. Supp. 2d 8 7 , 93-94 (D.Conn.
2006) (citation omitted).
The question remains, however, whether the State may enforce
provisions of the CPA against Simon (rather than either of the
issuing banks), or whether Simon, as issuing agent of those
banks, is also protected from local regulation by principles of
federal preemption. In essence, while the State implicitly
concedes that the banks are authorized to sell the Giftcards in
New Hampshire (free from regulation under the State’s C P A ) , it
claims they cannot use Simon as their agent to conduct such
sales. See generally Transcript of February 2 8 , 2006 hearing
(document n o . 8 0 ) . The State asserts that, by employing Simon as
17 a sales agent, the issuing banks have removed themselves too far
from the consumer/purchaser for principles of preemption to
apply. Id. In other words, while the State concedes that it
cannot directly prevent U.S. Bank or MetaBank from issuing stored
value cards in New Hampshire that bear user fees and expiration
dates, it believes it can achieve that goal indirectly by
preventing Simon from marketing and selling those cards on behalf
of the banks. It cannot.
III. Use of Third Parties.
The central issue presented in this case is whether the
involvement of Simon as promoter/seller of the Giftcards exposes
those cards to state regulations which would otherwise be
preempted by federal banking laws. O r , viewed from a slightly
different perspective, the question is whether Simon’s
involvement in the Giftcard program is so substantial and its
relationship with Giftcard consumers so close that it renders the
banks’ involvement too remote to properly consider the Giftcard a
national bank product.
Merely because the Giftcard is sold by Simon does not compel
the conclusion that it is not a bank product. First, both
national banks and federal savings associations are specifically
18 authorized to use third parties to carry on the business of
banking. See, e.g., 12 U.S.C. § 24 Seventh (authorizing national
banks to use agents to conduct banking business); Exhibit C to
MetaBank’s supplemental memorandum (document n o . 8 3 ) , Office of
Thrift supervision, Thrift Bulletin 82a (September, 2004)
(discussing savings association’s use of third parties to provide
assistance in providing banking services). See generally
Franklin Nat’l Bank v . New York, 347 U.S. 373 (1954). And, as
U.S. Bank points out, national banks routinely establish
relationships with non-banking entities in order to market and/or
distribute the national bank’s products. Examples include: (1)
issuance of private label credit cards (e.g., department store
credit cards); (2) issuance of co-branded credit cards; (3) use
of mortgage brokers to solicit real estate loans; (4) use of
automobile dealers to solicit loans to finance motor vehicles;
and (5) the use of third parties to solicit tax refund
anticipation loans. See, e.g., Cades v . H & R Block, Inc., 43
F.3d 869 (4th Cir. 1994).
In none of those circumstances does the mere involvement of
a third party render the product being sold something other than
a national bank product. Nor does the involvement of the third
party automatically subject the product to state regulation. The
19 cases involving payday lenders and tax refund anticipation loans
cited by the State do not undermine this legal principle. See
Defendant’s memorandum (document n o . 41-2) at 4-5. Rather, those
cases deal primarily with removal jurisdiction and complete
preemption and/or fraudulent or deceptive conduct by the agent of
the bank - issues not present in this case.
The State’s reliance on the court’s preemption analysis in
Blumenthal, supra, is also misplaced. In that case, the
challenged monthly maintenance fees were charged by and retained
by SPGGC, not the issuing bank. As the court noted, the issuing
bank “does not profit from the monthly maintenance fees. Rather
[the bank] earns its profit on the card by way of the interchange
fees from Visa on a per-transaction basis.” 408 F. Supp. 2d at
94. Thus, it was SPGGC (a non-banking entity) that was charging
and profiting from fees imposed on holders of stored value cards
that arguably violated state law. That is a critical factual
difference from the case at hand, in which the issuing banks levy
the various fees (which are disclosed to the customer and form
part of his or her contract with the issuing bank) and establish
the expiration dates for the Giftcards.
20 Moreover, as distinct from the facts pled in Blumenthal,
Simon’s role as sales and marketing agent for both U.S. Bank and
MetaBank is quite circumscribed. Its involvement in the U.S.
Bank Giftcard program is limited t o : marketing of the program;
maintenance of an inventory of Giftcards; the sale and initial
collection of funds from the consumer; activation and loading of
the Giftcard; the physical transfer of the Giftcard to the
consumer, along with a copy of the agreement between the consumer
and U.S. Bank; and the remission of collected funds to the bank.
Unlike earlier Giftcard programs, Simon is not compensated
through the collection of fees imposed on Giftcard holders -
those sums are retained by the issuing banks. Instead,
consistent with its role as sales agent, Simon is compensated
through a sales-based commission.
Moreover, Simon has no authority to alter the terms of the
Giftcards, the associated fee schedule, the substantive terms of
the disclosures provided to the purchaser, or the terms and
conditions of the contractual relationship that arises between
the consumer and the issuing bank. Those aspects of U.S. Bank’s
relationship with the consumer are governed by the contract
between the bank and the consumer. And, they are subject to
21 federal banking laws and regulations, as well as the regulatory
oversight of the OCC.
Simon’s involvement in the MetaBank Giftcard program appears
to be even more limited than its role in the U.S. Bank program:
Simon markets the cards issued by MetaBank at its various malls
and through its Web site. Like the U.S. Bank Giftcard program,
the relationship between the consumer and MetaBank is governed by
the contract between those parties. Simon lacks authority to
alter the terms of that contractual relationship. Finally, the
contractual relationship between MetaBank and the Giftcard
consumer is overseen by federal regulators - in this case, the
OTS - and is subject to federal banking laws and regulations.
Plainly, then, the relationship between the issuing bank and
the Giftcard consumer is substantial, the terms of which are
established by the issuing bank. Simon’s involvement in the
marketing and sale of those Giftcards on behalf of the issuing
banks does not alter or even attenuate that relationship. See
generally Krispin v . May Dep’t Stores Co., 218 F.3d 919 (8th Cir.
2000) (recognizing that, for purposes of determining the legality
of late fees charged to customers, the true party in interest was
the national bank that issued the credit, processed and serviced
22 customer accounts, and set terms such as interest rates and late
fees). Consequently, the terms of the relationship between the
Giftcard consumer and either U.S. Bank or MetaBank (including the
fee schedule and provisions regarding expiration dates) are
governed by federal banking law. State law, to the extent it
purports to regulate the terms or essential aspects of that
relationship, is preempted.
The essence of the State’s argument in favor of application
of the gift certificate provisions of the CPA against Simon is
this: “[T]he enforcement of the Consumer Protection Act will not
frustrate any purpose of Congress [by hindering the operations of
a national bank or federal savings association], as only Simon
will be affected, not the Banks.” State’s reply (document n o .
84) at 6. Plainly, that perspective is unrealistic. If the
State were able to enforce provisions of its CPA against Simon,
one of two consequences would necessarily follow: either the
banks would be required to stop all sales in New Hampshire of the
Simon Visa stored value Giftcard, or the banks would have to
alter the terms and conditions of the contractual relationship
between themselves and purchasers of those Giftcards to comply
with local law. Given that the Giftcards are banking products
issued by federally chartered and federally regulated banks, the
23 State cannot force those banks to elect between those options.
Overseeing the terms and conditions of the Simon Giftcard, as
well as those of the contractual agreement between purchasers of
the Giftcard and the issuing bank, are matters for federal
regulators, not the individual states. If there are to be any
restrictions on fees associated with the Giftcards, or
limitations imposed on expiration dates, they must come either
from Congress or the federal agencies empowered by Congress to
oversee national banks and federal savings associations.
Conclusion
The Simon Visa Giftcards, as currently marketed, are
national banking products. Each Giftcard is owned and issued by
either U.S. Bank or MetaBank. The contractual relationship
arising out of the purchase of a Simon Visa Giftcard is between
the issuing bank and the customer; that bank (not Simon) sets the
fee schedule, as well as the terms and conditions governing the
use, replacement, and expiration of the Giftcards.
Relevant federal banking regulations authorize both U.S.
Bank and MetaBank to issue electronic stored value cards such as
the Simon Giftcard. They also authorize those banks to employ
the services of third parties, like Simon, to promote and sell
24 their products. Under the circumstances of this case, Simon’s
role in promoting the Giftcard program and selling the Giftcards
does not alter the fact that the Giftcards are federal banking
products. Accordingly, the relationship between the issuing bank
and the purchaser of a Giftcard - including the terms and
conditions governing use of the Giftcard, as well as the
associated fee structure - is governed by federal law. To the
extent state laws, like New Hampshire’s Consumer Protection Act,
attempt to impose additional restrictions or limitations on that
relationship, they stand as an obstacle to the fulfillment of
Congressional policies and goals embodied in federal banking laws
and the associated regulations implemented by both OTS and OCC.
See Barnett Bank, 517 U.S. at 3 1 .
Stated slightly differently, those aspects of the Simon
Giftcard with which the State takes issue - the expiration date
and the imposition of fees that have the effect of diminishing
the purchased value of the card - are terms that are set by the
issuing banks, not Simon. Because those banks are (1) subject to
federal banking laws and regulations, and (2) specifically
authorized to issue stored value cards such as the Giftcard
through third parties, the CPA cannot operate to restrict or
otherwise limit those aspects of the Giftcard. This is true
25 notwithstanding the fact that, as the State repeatedly points
out, its enforcement action is directed exclusively against
Simon, not the issuing banks. In pursuing Simon, the State is
indirectly attempting to accomplish that which it cannot do
directly: regulate, in New Hampshire, the terms and conditions of
stored value cards issued by national banks and federal savings
associations.
Moreover, the State’s assertion that the terms and
conditions of Giftcards sold in New Hampshire could be altered to
comply with provisions of the CPA is of little moment. The
question presented is whether the State can compel the banks to
alter those terms to comply with the CPA (or, from the State’s
perspective, whether it can force Simon to stop selling the
Giftcards in New Hampshire unless and until the banks change the
terms of their contracts with individual Giftcard purchasers).
As noted, the State lacks such authority.
Of course, if this case involved allegations o f , say,
fraudulent conduct or unfair business practices on the part of
Simon, such claims would probably not be preempted. But, no such
claims are made here. The sole legal issue is whether the State
can, by attempting to enforce provisions of the CPA against
26 Simon, prevent U.S. Bank and MetaBank from imposing various fees
on their customers and setting expiration dates on the Giftcards
which federal law allows. It cannot.
For the foregoing reasons, as well as those set forth in the
memoranda submitted by Simon, MetaBank, and U.S. Bank, the court
concludes that the provisions of the New Hampshire CPA which the
State seeks to enforce against Simon with respect to the current
Giftcard program are preempted by federal banking laws. Simon’s
motion for summary judgment (document n o . 36) i s , therefore,
granted to the extent it seeks a declaratory judgment to that
effect. Having resolved that issue in favor of plaintiffs, the
court need not address Simon’s assertion that enforcement of the
CPA against it is precluded by the Commerce Clause. Accordingly,
in all other respects, Simon’s motion is denied as moot.
The parties’ cross-motions to strike (documents n o . 61 and
63) are denied. And, finally, the parties’ various motions for
leave to file supplemental authority (documents n o . 8 7 , 8 8 , 9 0 ,
and 91) are granted.
The Clerk of Court shall enter judgment in accordance with
this order and close the case.
27 SO ORDERED.
S ___ven J./McAuliffe :hief Judge
August 1 , 2006
cc: David E . Melaugh, Esq. James R. McGuire, Esq. Margaret M . Pinkham, Esq. Paul W . Shaw, Esq. Marc R. Scheer, Esq. Bruce W . Felmly, Esq. Richard W . Head, Esq. David A . Rienzo, Esq.