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Madden v. Midland Funding, LLC

United States Court of Appeals, Second Circuit

May 22, 2015

SALIHA MADDEN, on behalf of herself and all others similarly situated, Plaintiff-Appellant,
v.
MIDLAND FUNDING, LLC, MIDLAND CREDIT MANAGEMENT, INC., Defendants-Appellees

Argued March 19, 2015.

As Corrected May 27, 2015.

Appeal from the United States District Court for the Southern District of New York. No. 7:11-cv-08149 -- Cathy Seibel, Judge.

Appeal from an order of the United States District Court for the Southern District of New York (Cathy Seibel, Judge), holding that the plaintiff's claims are preempted by the National Bank Act, denying class certification, and granting judgment in favor of the defendants. We hold that non-national bank entities are not entitled to protection under the National Bank Act from state-law usury claims merely because they are assignees of a national bank.

Accordingly, we REVERSE the District Court's holding as to National Bank Act preemption, VACATE the District Court's judgment and denial of class certification, and REMAND for further proceedings consistent with this opinion.

DANIEL ADAM SCHLANGER, Schlanger & Schlanger LLP, Pleasantville, N.Y. (Peter Thomas Lane, Schlanger & Schlanger LLP, Pleasantville, NY; Owen Randolph Bragg, Horwitz, Horwitz & Associates, Chicago, IL, on the brief), for Saliha Madden.

THOMAS ARTHUR LEGHORN (Joseph L. Francoeur, on the brief), Wilson Elser Moskowitz Edelman & Dicker LLP, New York, NY, for Midland Funding, LLC and Midland Credit Management, Inc.

Before: LEVAL, STRAUB and DRONEY, Circuit Judges.

OPINION

Page 247

Straub, Circuit Judge :

This putative class action alleges violations of the Fair Debt Collection Practices Act (" FDCPA" ) and New York's usury law. The proposed class representative, Saliha Madden, alleges that the defendants violated the FDCPA by charging and attempting to collect interest at a rate higher than that permitted under the law of her home state, which is New York. The defendants contend that Madden's claims fail as a matter of law for two reasons: (1) state5 law usury claims and FDCPA claims predicated on state-law violations against a national bank's assignees, such as the defendants here, are preempted by the National Bank Act (" NBA" ), and (2) the agreement governing Madden's debt requires the application of Delaware law, under which the interest charged is permissible.

The District Court entered judgment for the defendants. Because neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden's claims rely would not significantly interfere with any national bank's ability to exercise its powers under the NBA, we reverse the District Court's holding that the NBA preempts Madden's claims and accordingly vacate the judgment of the District Court. We leave to the District Court to address in the first instance whether the Delaware choice-of-law clause precludes Madden's claims.

The District Court also denied Madden's motion for class certification, holding that potential NBA preemption required individualized factual inquiries incompatible with proceeding as a class. Because this conclusion rested upon the same erroneous preemption analysis, we also vacate the District Court's denial of class certification.

BACKGROUND

A. Madden's Credit Card Debt, the Sale of Her Account, and the Defendants' Collection Efforts

In 2005, Saliha Madden, a resident of New York, opened a Bank of America (" BoA" ) credit card account. BoA is a national bank.[1] The account was governed

Page 248

by a document she received from BoA titled " Cardholder Agreement." The following year, BoA's credit card program was consolidated into another national bank, FIA Card Services, N.A. (" FIA" ). Contemporaneously with the transfer to FIA, the account's terms and conditions were amended upon receipt by Madden of a document titled " Change In Terms," which contained a Delaware choice-of-law clause.

Madden owed approximately $5,000 on her credit card account and in 2008, FIA " charged-off" her account (i.e., wrote off her debt as uncollectable). FIA then sold Madden's debt to Defendant-Appellee Midland Funding, LLC (" Midland Funding" ), a debt purchaser. Midland Credit Management, Inc. (" Midland Credit" ), the other defendant in this case, is an affiliate of Midland Funding that services Midland Funding's consumer debt accounts. Neither defendant is a national bank. Upon Midland Funding's acquisition of Madden's debt, neither FIA nor BoA possessed any further interest in the account.

In November 2010, Midland Credit sent Madden a letter seeking to collect payment on her debt and stating that an ...


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