Philip Decohen v. Capital One, N.A.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PHILIP DECOHEN, on his own behalf 
and on behalf of all others
similarly situated,
Plaintiff-Appellant,
v.
CAPITAL ONE, N.A., successor by
merger to Chevy Chase Bank,
F.S.B.,  No. 11-2161
Defendant-Appellee,
and
ABBASI LLC, d/b/a Nation Auto of
Marlow Heights; BEACON
INDUSTRIES WORLDWIDE,
INCORPORATED,
Defendants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William D. Quarles, Jr., District Judge.
(1:10-cv-03157-WDQ)
Argued: October 25, 2012
Decided: December 26, 2012
Before SHEDD, DAVIS, and WYNN, Circuit Judges.
2 DECOHEN v. CAPITAL ONE, N.A.
Vacated and remanded by published opinion. Judge Davis
wrote the opinion, in which Judge Shedd and Judge Wynn
joined.
COUNSEL
ARGUED: Benjamin Howard Carney, GORDON & WOLF,
CHTD, Towson, Maryland, for Appellant. Bryan Alan Frat-
kin, MCGUIREWOODS, LLP, Richmond, Virginia, for
Appellee. ON BRIEF: Martin E. Wolf, GORDON & WOLF,
CHTD, Towson, Maryland; Mark H. Steinbach, O’TOOLE,
ROTHWELL, NASSAU & STEINBACH, Washington, D.C.,
for Appellant. Ava E. Lias-Booker, Sung B. ("Ben") Yhim,
MCGUIREWOODS, LLP, Baltimore, Maryland, for Appel-
lee.
OPINION
DAVIS, Circuit Judge:
This appeal arises out of an allegation by Appellant Philip
Decohen that he paid for something that he did not receive.
The question presented is whether the Maryland law that pro-
tected his expectation is enforceable.
Decohen bought a used Chrysler Pacifica and financed it
with a loan from a Maryland car dealer, Nation Auto of Mar-
low Heights ("Nation Auto"). The amount financed included
a $600 charge for a "debt cancellation agreement." Under the
Maryland Credit Grantor Closed End Provisions ("CLEC"),
Md. Code Ann., Com. Law § 12-1001 et seq., such an agree-
ment requires a lender to cancel the remaining loan balance
when a car is totaled and the insurance payout does not cover
the entire outstanding balance. But that did not happen here.
Decohen’s car was totaled, but Nation Auto had assigned his
DECOHEN v. CAPITAL ONE, N.A. 3
loan to Appellee Capital One, N.A. ("Capital One"), and Cap-
ital One argues that it does not have to cancel the remaining
loan balance because the National Bank Act ("NBA") and
federal regulations preempt Maryland’s CLEC law. Decohen
filed this putative class action, asserting claims for, inter alia,
breach of contract and violation of the CLEC.
The district court was persuaded that the NBA and federal
regulations preempt the CLEC, and that Decohen failed to
state a claim for breach of contract; it therefore granted Capi-
tal One’s motion to dismiss. For the reasons set forth below,
we conclude that the district court erred. Accordingly, we
vacate the judgment and remand for further proceedings con-
sistent with this opinion.
I.
Decohen purchased a used Chrysler Pacifica from Nation
Auto in Temple Hills, Maryland, on September 29, 2007, for
$22,669, financing the purchase with a Retail Installment Sale
Contract ("RIC"). The RIC lists Decohen as the "Buyer" and
Nation Auto as the "Creditor – Seller." J.A. 42. The total price
of the vehicle included a $600 charge for an "Optional Debt
Cancellation Agreement." J.A. 43. The "Applicable Law" sec-
tion of the contract stated:
Federal law and Maryland law apply to this contract.
This contract shall be subject to the Credit Grantor
Closed End Credit Provisions (Subtitle 10) of Title
12 of the Commercial Law Article of the Maryland
Code.
J.A. 45. The contract also contained a "Holder Notice" that
stated:
Any holder of this consumer credit contract is sub-
ject to all claims and defenses which the debtor
could assert against the seller of goods or services
4 DECOHEN v. CAPITAL ONE, N.A.
obtained pursuant hereto or with the proceeds hereof.
Recovery hereunder by the debtor shall not exceed
amounts paid by the debtor hereunder.
Id. (emphasis removed).
Under Maryland’s CLEC law, the only valid debt cancella-
tion agreement that can be financed as part of the purchase of
a vehicle is one that pays off the entire remaining loan bal-
ance in the event of a total loss. Md. Code Ann., Com. Law
§§ 12-1001(h), 12-1005(c)(1). The law defines a "debt cancel-
lation agreement" as "an agreement between a credit grantor
and a borrower which provides for cancellation of the remain-
ing loan balance in the event of theft or total destruction of the
collateral for the loan minus the proceeds of any insurance
maintained on the collateral for the loan. . . ." Id. § 12-
1001(h).
The debt cancellation agreement that was part of Decohen’s
contract did not comply with Maryland law. The agreement
stated that the "Dealer/Assignee agrees to cancel a portion of
the Customer’s indebtedness in the event of a Total Loss of
the Vehicle." J.A. 47 (emphasis added). The agreement states
that portion will be calculated as the "Unpaid Net Balance
less the Actual Cash Value" of the vehicle. Id. The agreement
goes on to define "Unpaid Net Balance" and "Actual Cash
Value" such that the customer’s remaining loan balance may
not be entirely cancelled. The agreement defines the unpaid
net balance as the purchase price of the vehicle (the "amount
financed"), divided by the total number of payments, and then
multiplied by the number of payments remaining after the loss
of the vehicle. J.A. 48. This formula, however, omits interest
payments. Decohen’s "Amount Financed," according to his
RIC, was the purchase price: $22,669. J.A. 42. His total num-
ber of payments was 72. Divide $22,669 by 72, and the result-
ing monthly payment is $314. Decohen’s RIC, however,
specified that the monthly payment on the loan would be
$454, which includes interest with the principal.
DECOHEN v. CAPITAL ONE, N.A. 5
A second provision of the debt cancellation agreement also
was at odds with the CLEC. The agreement defines the "Ac-
tual Cash Value" of the vehicle as the amount paid by the
insurance company, or the Kelley Blue Book retail value of
the car, or the National Automobile Dealer Association’s
("NADA") used car guide retail value — whichever is greater.
J.A. 48. The CLEC, however, requires a debt cancellation
agreement to cancel "the remaining loan balance" minus "the
proceeds of any insurance maintained." Md. Code Ann., Com.
Law § 12-1001(h). The law does not allow for the use of retail
car guides in the calculation. See id.Decohen suffered a total loss of the Pacifica in 2010. His
insurance company paid a total of $12,839. But Decohen
owed another $1,504 on the vehicle. Under Maryland law, as
described above, the holder of the note on the vehicle would
have been compelled to cancel the remaining balance. Conse-
quently, Decohen submitted a claim to the servicer of the debt
cancellation agreement, Beacon Industries Worldwide, of Fort
Lauderdale, Florida. Beacon calculated the unpaid net balance
to be $12,908.1 Beacon then calculated the "actual cash value"
of the car by looking to the NADA used car guide, which set
the car’s value at $13,475. As the value was greater than the
balance, Beacon denied the claim. As a result of the claim
denial, Capital One demanded payment of the $1,504 remain-
ing loan balance.
On September 29, 2010, Decohen filed suit in the Circuit
Court for Baltimore City against Capital One, Beacon Indus-
tries, and Abbasi LLC (Nation Auto is a registered trade name
of Abbasi LLC, and Nation Auto apparently has gone out of
business). The lawsuit alleged violations of the CLEC, the
Maryland Consumer Protection Act ("MCPA"), and the
Maryland Retail Installment Sales Act ("RISA"), as well as
1
This figure represents the amount financed, $22,669, divided by the
total number of payments, 72, for a monthly payment of $314, multiplied
by the remaining number of payments, 41, for a total of $12,908.
6 DECOHEN v. CAPITAL ONE, N.A.
claims for breach of contract, declaratory relief, and restitu-
tion and unjust enrichment. Defendants removed the case to
the United States District Court for the District of Maryland
under the Class Action Fairness Act ("CAFA"), 28 U.S.C.
§ 1453, and 28 U.S.C. § 1332(d)(2).2
The district court dismissed all claims against Capital One
and Beacon. Decohen v. Abbassi, LLC, No. WDQ-10-3157,
2011 WL 3438625, at *7 (D. Md. July 26, 2011). Because
Decohen appeals only the dismissal of the CLEC and breach
of contract claims against Capital One, we limit our review to
those claims. First, the court found that the debt cancellation,
or Guaranteed Asset Protection ("GAP"), agreement attached
to Decohen’s financing contract was not permissible under
Maryland law. Specifically, the court stated: "Decohen’s com-
plaint is sufficient to show that the GAP Agreement is not a
‘debt cancellation agreement’ within the meaning of the
CLEC, and therefore may not be financed ‘in connection with
closed end credit offered and extended’ under the statute." Id.
at *4 (quoting Md. Code Ann., Com. Law § 12-1002(b)).
Thus, the court reasoned, "the CLEC claim will not be dis-
missed on the basis that Decohen’s allegations fail to state a
basis for relief under Maryland law." Id.The district court, however, found the CLEC claim was
preempted by the NBA. Id. at *6. The court first noted that
national banks are controlled by the NBA and regulations pro-
mulgated thereunder by the Office of the Comptroller of the
Currency ("OCC"). Id. at *5. Under OCC regulations,
national banks have authority "‘to enter into debt cancellation
contracts . . . in connection with extensions of credit.’" Id. at
2
Section 1332(d)(2) creates federal jurisdiction over any class action in
which the amount in controversy exceeds $5 million. The removal notice
in the instant case states that the amount in controversy is approximately
$5.5 million and that Capital One has identified at least 1,145 retail install-
ment sales contracts with a debt cancellation agreement. See Decohen v.
Abbasi, LLC, No. WDQ-10-3157, 2011 WL 3438625, at *2 (D. Md. July
26, 2011).
DECOHEN v. CAPITAL ONE, N.A. 7
*6 (quoting 12 C.F.R. § 37.1(a)). The court then noted that
under the NBA, a debt cancellation contract is defined as a
"‘loan term of contractual arrangement . . . under which a
bank agrees to cancel all or part of a customer’s obligations
to repay an extension of credit from that bank upon the occur-
rence of specified events.’" Id. (quoting 12 C.F.R. § 37.2(f)).
Thus, the court concluded, the GAP agreement in the instant
case was a "debt cancellation contract" for NBA purposes. Id.Because such contracts are governed by federal law and regu-
lations, the court held, state regulation of such contracts is
preempted. Id.Finally, the district court reasoned that the fact that Capital
One did not originate the loan, but rather was assigned it, does
not change the preemption analysis. Id. To support this legal
conclusion, the court cited Aguayo v. U.S. Bank, 658 F. Supp.
2d 1226, 1235-36 (S.D. Cal. 2009), which held that because
loans purchased by national banks are "subject to the same
regulation" as loans originated by the bank, "it follows that
assigned [retail installment contracts] are subject to the same
preemption [analysis] as direct loans." However, since the
district court adopted that view in the instant case, the Ninth
Circuit has reversed Aguayo, see Aguayo v. U.S. Bank, 653
F.3d 912, 919 (9th Cir. 2011), finding that state laws relating
to "contracts" and "rights to collect debts" are not preempted
by the NBA because they are covered by an OCC savings
clause, 12 C.F.R. § 7.4008(e)(1).3
The district court also found that Decohen failed to state a
claim for breach of contract, Decohen, 2011 WL 3438625, at
*5, reasoning that "nothing in the complaint, Credit Contract,
or GAP Agreement shows that Capital One agreed, or was
otherwise required, to cancel Decohen’s remaining loan bal-
3
We recently stated that we "find persuasive" the Ninth Circuit holding
in Aguayo, Epps v. JP Morgan Chase Bank, 675 F.3d 315, 319 n.3 (4th
Cir. 2012), but of course the district court in the case at bar did not have
the benefit of our approval.
8 DECOHEN v. CAPITAL ONE, N.A.
ance." Id. The court further stated that "no provision in the
CLEC mandates that creditors cancel a remaining loan bal-
ance in the event of a total loss." Id. The court thus dismissed
the breach of contract claim.
Decohen noted a timely appeal of the district court’s judg-
ment. We have jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo the question of whether a state law is
preempted by federal law. AES Sparrows Point LNG, LLC v.
Smith, 527 F.3d 120, 125 (4th Cir. 2008). We also review de
novo the grant of a Rule 12(b)(6) motion to dismiss for failure
to state a claim. Coleman v. Md. Court of Appeals, 626 F.3d
187, 190 (4th Cir. 2010). "To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’"
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Decohen argues that the district court erred in finding that
federal law preempts the CLEC and in dismissing his breach
of contract claim. We first consider Decohen’s CLEC claim.
A.
1.
The Constitution’s Supremacy Clause states that the Con-
stitution and the laws made in pursuance thereof "shall be the
supreme Law of the Land." U.S. Const. Art. VI, cl. 2. In
McCulloch v. Maryland, 17 U.S. 316, 424 (1819), the
Supreme Court held federal law supreme over state law with
respect to national banking. In 1864 Congress enacted the
National Bank Act and established the system of national
banking still in place today. See Watters v. Wachovia Bank,
N.A., 550 U.S. 1, 10 (2007). The Act vested in nationally
DECOHEN v. CAPITAL ONE, N.A. 9
chartered banks enumerated powers and "all such incidental
powers as shall be necessary to carry on the business of bank-
ing." 12 U.S.C. § 24 (Seventh). To prevent inconsistent state
regulation from impairing the national system, Congress pro-
vided: "No national bank shall be subject to any visitorial
powers except as authorized by Federal law." 12 U.S.C.
§ 484(A).
The Supreme Court, in interpreting the NBA, has "repeat-
edly made clear that federal control shields national banking
from unduly burdensome and duplicative state regulation."
Watters, 550 U.S. at 11. Despite the broad scope of the NBA,
however, national banks "are subject to state laws of general
application in their daily business to the extent such laws do
not conflict with the letter or the general purposes of the
NBA." Id. "States are permitted to regulate the activities of
national banks where doing so does not prevent or signifi-
cantly interfere with the national bank’s or the national bank
regulator’s exercise of its powers." Id. at 12. But when state
regulations significantly impair a national bank’s authority
under the NBA — its ability to engage in "the business of
banking" — the state regulations must give way. Id. at 12, 21.
The doctrine of federal preemption, which regulates the
interplay between federal and state laws when they conflict or
appear to conflict, tilts in favor of the federal government in
the arena of national banking. The "grants of both enumerated
and incidental ‘powers’ to national banks" are "not normally
limited by, but rather ordinarily pre-empt[ ], contrary state
law." Barnett Bank of Marion County, N.A. v. Nelson, 517
U.S. 25, 32 (1996). Our precedent is clear that the presump-
tion against preemption, which governs fields traditionally
regulated by the states, does not apply to the NBA. See Nat’l
City Bank of Ind. v. Turnbaugh, 463 F.3d 325, 330-31 (4th
Cir. 2006) (holding the presumption against preemption does
not apply to state regulation of federally chartered banks);
Epps, 675 F.3d at 321-22 (same). We have specifically
declined to apply the presumption to Maryland’s CLEC
10 DECOHEN v. CAPITAL ONE, N.A.
because the state law "regulates an area with authorized fed-
eral presence." Epps, 675 F.3d at 322.
Following the Supreme Court’s lead, we have acknowl-
edged three types of federal preemption: (1) express preemp-
tion, in which Congress expressly states its intent to preempt
state law, Cox v. Shalala, 112 F.3d 151, 154 (4th Cir. 1997);
(2) field preemption, in which Congress occupies a certain
field by "regulating so pervasively that there is no room left
for the states to supplement federal law," id. (citing Fid. Sav.
& Loan Ass’n v. de la Cuesta, 458 U.S. 141, 153 (1982)); and
(3) conflict preemption, arising when state law is preempted
"to the extent it actually conflicts with federal law," id. (citing
Pac. Gas & Elec. Co. v. State Energy Res. Conservation &
Dev. Comm’n, 461 U.S. 190, 204 (1983)). In the instant case,
the district court found that the NBA and the relevant regula-
tions both expressly preempt and field preempt state regula-
tions of debt cancellation contracts. We disagree.
In examining both express and field preemption under the
NBA, we must consider the guidance of the OCC and its reg-
ulations. Congress has authorized the OCC to promulgate reg-
ulations implementing the NBA. See 12 U.S.C. § 93a. Those
regulations contain both an express preemption provision and
a savings clause. The express preemption provision states:
(1) Except where made applicable by Federal law,
state laws that obstruct, impair, or condition a
national bank’s ability to fully exercise its Federally
authorized non-real estate lending powers are not
applicable to national banks.
(2) A national bank may make non-real estate loans
without regard to state law limitations concerning:
...
(iv) The terms of credit, including the schedule for
repayment of principal and interest, amortization of
DECOHEN v. CAPITAL ONE, N.A. 11
loans, balance, payments due, minimum payments,
or term to maturity of the loan, including the circum-
stances under which a loan may be called due and
payable upon the passage of time or a specified
event external to the loan[.]
12 C.F.R. § 7.4008(d). Following the preemption provision is
the savings clause:
State laws on the following subjects are not inconsis-
tent with the non-real estate lending powers of
national banks and apply to national banks to the
extent that they only incidentally affect the exercise
of national banks’ non-real estate lending powers:
(1) Contracts;
...
(4) Rights to collect debts;
(5) Acquisition and transfer of property[.]
12 C.F.R. § 7.4008(e) (the "savings clause").
The OCC has also promulgated regulations concerning debt
cancellation contracts ("DCCs") entered into by national
banks. The OCC regulations "appl[y] to debt cancellation
contracts and debt suspension agreements entered into by
national banks in connection with extensions of credit they
make" and "are governed by . . . applicable Federal law and
regulations, and not by . . . State Law." 12 C.F.R. § 37.1(c).
The regulations define a debt cancellation agreement as one
"under which a bank agrees to cancel all or part of a custom-
er’s obligation to repay an extension of credit from that bank
upon the occurrence of a specified event." 12 C.F.R. § 37.2(f)
(emphasis added). The regulations also state that national
banks are "authorized to enter into debt cancellation contracts
12 DECOHEN v. CAPITAL ONE, N.A.
and debt suspension agreements and charge a fee therefor
. . . ." 12 C.F.R. § 37.1(a). Further, the OCC has stated that
"national banks are authorized to enter into DCC’s with
respect to loans they purchase as well as loans they originate
directly." OCC Interpretive Letter No. 1095, 2008 WL
3274062 (Feb. 27, 2008). Capital One relies heavily on the
fact that the OCC has stated that retail installment contracts
purchased by banks are treated the same as loans originated
by banks for regulatory and reporting purposes. Id. Therefore,
the OCC stated, the purchase of a RIC "constitutes an exten-
sion of credit on which a national bank may offer a DCC
. . . ." Id.
2.
Having carefully considered the matter in light of the plain
language and purpose of the above-described regulatory
regime and our precedent, we conclude, first, that the CLEC
provisions regarding debt cancellation agreements are not
expressly preempted by federal law when the agreements are
part of credit contracts originated by a local lender and
assigned to a national bank. The OCC regulations explicitly
concern debt cancellation agreements entered into by national
banks. See 12 C.F.R. § 37.1(c) ("This part applies to debt can-
cellation contracts and debt suspension agreements entered
into by national banks in connection with extensions of credit
they make."). Undoubtedly, if Capital One had directly loaned
Decohen the money to purchase his vehicle, and that loan
included a debt cancellation agreement, it would be governed
by federal regulations. That is not the case before us. Here,
Capital One did not loan Decohen the money to purchase his
vehicle; Nation Auto did, and then Nation Auto assigned the
loan to Capital One. The RIC identifies Decohen as the
"[b]uyer" and Nation Auto as the "[c]reditor." J.A. 42. Federal
regulations of national banks do not encompass such a situa-
tion and thus do not expressly preempt the CLEC’s regulation
of debt cancellation agreements originated by local lenders
and assigned to national banks.
DECOHEN v. CAPITAL ONE, N.A. 13
We further conclude that Congress has not occupied the
field with regard to debt cancellation agreements. The OCC
regulations concern only debt cancellation agreements entered
into by national banks. This leaves room for state regulation
of debt cancellation agreements entered into by entities other
than national banks (such as here, a car dealer) and of agree-
ments assigned to national banks. Congress has not spoken on
those two matters in the NBA, and the OCC’s regulations are
not so pervasive as to crowd out any possible state regula-
tions. See Epps, 675 F.3d at 323 ("‘[T]he OCC has explicitly
avoided full field preemption in its rulemaking and has not
been granted full field preemption by Congress.’" (quoting
Aguayo, 653 F.3d at 921-22)).
Finally, we conclude that the CLEC is not conflict pre-
empted by federal banking regulations. "Conflict preemption
occurs either when it is physically impossible to comply with
both the federal and the state laws or when the state law
stands as an obstacle to the objective of the federal law." Fla.
State Conf. of the NAACP v. Browning, 522 F.3d 1153, 1167
(11th Cir. 2008). The CLEC requires a debt cancellation
agreement to cancel all of the "remaining" debt, Md. Code
Ann., Com. Law § 12-1001(h), while federal regulations
require a debt cancellation agreement to cancel "all or part of"
the remaining debt, 12 C.F.R. § 37.2(f). It is not physically
impossible to comply with both laws. A bank that chooses to
cancel all of a customer’s remaining debt would be in compli-
ance with both the CLEC and federal regulations. Moreover,
the state law does not stand as an obstacle to the objective of
the federal law. The purpose of the OCC regulation of debt
cancellation agreements "is to ensure that national banks offer
and implement such contracts and agreements consistent with
safe and sound banking practices, and subject to appropriate
consumer protections." 12 C.F.R. § 37.1(b). The CLEC does
not inhibit that purpose; indeed, it furthers it.
Capital One’s arguments for preemption are not persuasive.
Its focus on OCC regulations of loans made or entered into by
14 DECOHEN v. CAPITAL ONE, N.A.
national banks is misplaced. This case concerns a loan entered
into by Nation Auto, a local car dealer, and assigned to Capi-
tal One. As Nation Auto is not a national bank, there is no
question that a RIC signed by Nation Auto that contains a
clause electing to be governed by the CLEC is in fact gov-
erned by the CLEC. Because Capital One did not "enter into"
or "offer" any debt cancellation agreements to Decohen, the
regulations dealing with such conduct are inapposite.
Capital One’s list of cases in which courts have held debt
cancellation agreements preempted by federal law are, with-
out exception, instances in which national banks entered into
the agreements at issue. See Appellee Br. 12-13 (citing First
Nat’l Bank of E. Ark. v. Taylor, 907 F.2d 775, 776 (8th Cir.
1990) (national bank "offering debt cancellation contracts");
Denton v. Dep’t Stores Nat’l Bank, No. C10-5830RBL, 2011
U.S. Dist. LEXIS 84024, at *1 (W.D. Wash. Aug. 1, 2011)
(national bank "sold [plaintiff] and other Washington consum-
ers a credit card payment protection service"); Rose v. Bank
of Am. Corp., No. CV 10-5067-VBF, 2010 U.S. Dist. LEXIS
143516, at *2 (C.D. Cal. Nov. 5, 2010) (national bank "of-
fered" debt cancellation products to plaintiff); Spinelli v. Cap-
ital One Bank, 265 F.R.D. 598, 605 (M.D. Fla. 2009)
("national banks entering into Debt Agreements"); Thomas v.
Bank of Am. Corp., 711 S.E.2d 371, 374 (Ga. App. 2011)
(national bank "created a debt cancellation product" that was
"purchased" by the plaintiff)). These cases do not address the
issue presented here: the assignment of a loan containing a
debt cancellation agreement to a national bank by an entity
that is not itself a national bank.
Capital One argues, in the alternative, that the assignment
of the RIC does not affect the preemption analysis. We dis-
agree. Indeed, the assignment makes all the difference here in
that it takes the debt cancellation agreement out of the ambit
of the NBA and OCC regulations. The OCC interpretive let-
ters relied on by Capital One to show that assignment does
not affect preemption concern debt cancellation agreements
DECOHEN v. CAPITAL ONE, N.A. 15
entered into or issued by national banks while using an auto-
mobile dealer as an agent. See Appellee Br. 16-18 (citing
OCC Interpretive Letter No. 1095, 2008 WL 3274062 (Feb.
27, 2008) (concerning an "automobile dealer sell[ing] a
national bank’s DCC, as the bank’s agent"); OCC Interpretive
Letter No. 1093, 2007 WL 5396020 (Oct. 29, 2007) (concern-
ing banks offering debt cancellation contracts "through auto-
mobile dealers," in which the dealers "act as the Bank’s non-
exclusive agents")). Here, Nation Auto was not an agent of
Capital One; it merely negotiated and consummated the loan
to Decohen and then assigned the loan to Capital One. Fur-
thermore, as we have noted, the principal cases relied on by
Capital One to show that assignment is irrelevant to our anal-
ysis, Aguayo v. U.S. Bank, Inc., 658 F. Supp. 2d 1226 (S.D.
Cal. 2009), and Epps v. JP Morgan Chase Bank, No. WMN-
10-1504, 2010 U.S. Dist. LEXIS 122782 (D. Md. Nov. 19,
2010), both have been reversed, see Aguayo v. U.S. Bank,
Inc., 653 F.3d 912 (9th Cir. 2011); Epps v. JP Morgan Chase
Bank, 675 F.3d 315 (4th Cir. 2012).
Capital One argues that allowing state regulation of debt
cancellation agreements acquired through assignment will
burden its lending activities. See Appellee Br. 14-15. But, as
the Supreme Court has stated, national banks "are subject to
state laws of general application in their daily business to the
extent such laws do not conflict with the letter or the general
purposes of the NBA." Watters, 550 U.S. at 11. The Court
noted that national banks must follow state usury laws, that
contracts made by national banks "are governed and con-
strued by State laws," and national banks’ "acquisition and
transfer of property [are] based on State law." Id. (internal
citations and quotation marks omitted) (insertion in original).
We also observe that national banks follow the notice require-
ments of state laws, including Maryland’s CLEC, see Epps,
675 F.3d at 318, 326, and California’s Unfair Competition
Law, see Aguayo, 653 F.3d at 915. Manifestly, the CLEC’s
debt cancellation provision will not burden Capital One any
more than the state laws it presumably already complies with.
16 DECOHEN v. CAPITAL ONE, N.A.
Indeed, the only foreseeable burden today’s decision places
on Capital One’s lending activities is that it would, in Capital
One’s words, "require national banks to examine the defini-
tions of debt cancellation agreements for all fifty states to
determine whether the assignment of a RISC might subject
the bank to liability." Appellee Br. 15. We have little sympa-
thy over this lament. Examining state laws for usury limits,
notice requirements, and contract provisions is exactly what
national banks already do. They are certainly capable of deter-
mining the definitions of debt cancellation agreements in the
states in which they wish to acquire through assignment loans
that contain such agreements. Capital One makes no showing
to the contrary.
Finally, the undiscriminating nature of the CLEC under-
mines a central purpose of the federal preemption doctrine.
The Comptroller of the Currency has stated that federal pre-
emption provisions "do[ ] not preempt undiscriminating laws
of general applicability that form the legal infrastructure for
conducting a banking or other business[,]" and listed as exam-
ples "state laws on contracts, rights to collect debts, acquisi-
tion and transfer of property, taxation, zoning, crimes, and
torts." Statement of John D. Hawke, Jr., Comptroller of the
Currency, Before the S. Comm. on Banking, Hous. & Urban
Affairs, on Federal Preemption of State Laws, Washington,
D.C., 23 OCC Q.J. 69 (Sept. 2004). We stated in Epps that the
relevant inquiry "is whether the state law at issue is undis-
criminating, that is, does it treat national banks differently
from other lenders." 675 F.3d at 315 (internal quotation marks
omitted). We concluded that the CLEC "applies to any lender
in Maryland and does not treat national banks differently from
any other creditor." Id. The CLEC provision at issue here reg-
ulates "an agreement between a credit grantor and a bor-
rower." Md. Code Ann., Com. Law § 12-1001(h). "Credit
grantor" is broadly defined to include "any individual, corpo-
ration, business trust, statutory trust, estate, trust, partnership,
association, two or more persons having a joint or common
interest, or any other legal or commercial entity making a loan
DECOHEN v. CAPITAL ONE, N.A. 17
or other extension of credit," and also includes "[a]ny bank,
trust company, depository institution, or savings bank having
a branch in [Maryland]." Md. Code Ann., Com. Law
§ 12–1001(g). The law is undiscriminating in its application:
it does not treat national banks differently from other lenders.
For the foregoing reasons, we hold that the district court
erred in deeming Decohen’s CLEC claim against Capital One
preempted by federal law and regulations. Having found that
Capital One is subject to the terms of the CLEC in loans it
acquires through assignment, we now turn to whether Capital
One breached the RIC by failing to honor the terms of the
CLEC.
B.
Decohen challenges the district court’s legal conclusion
that he failed to state a claim for breach of contract. Under
Maryland law, a complaint alleging a breach of contract
"must of necessity allege with certainty and definiteness facts
showing a contractual obligation owed by the defendant to the
plaintiff and a breach of that obligation by defendant." RRC
Northeast, LLC v. BAA Maryland, Inc., 994 A.2d 430, 440
(Md. 2010) (citation and internal quotation marks omitted).
The facts alleged by Decohen show both that Capital One
owed him an obligation under the contract and that such obli-
gation was breached when Capital One did not abide by the
terms of the CLEC. Simply stated, Nation Auto’s assignment
of the contract to Capital One did not cleanse the agreement
of its state law terms such that Capital One could ignore the
CLEC entirely.
We are again guided in our analysis by our opinion in Epps,
675 F.3d at 326-28, where we held that a Maryland car deal-
er’s assignment to a national bank of a RIC that the parties
voluntarily elected to be governed by the CLEC bound the
national bank to the terms of the CLEC. We stated in Epps,
"This Court and the Supreme Court have recognized that
18 DECOHEN v. CAPITAL ONE, N.A.
when a party to a contract voluntarily assumes an obligation
to proceed under certain state laws, traditional preemption
doctrine does not apply to shield a party from liability for
breach of that agreement." Id. at 326-27 (citing Am. Airlines,
Inc. v. Wolens, 513 U.S. 219, 229 (1995)); see also Cipollone
v. Liggett Group, Inc., 505 U.S. 504, 526 n.24 (1992)
("[C]ommon understanding dictates that a contractual require-
ment, although only enforceable under state law, is not
‘imposed’ by the State, but rather is ‘imposed’ by the con-
tracting party upon itself"). Epps warned, however, that under
Maryland law, "when a contractual term incorporating state or
federal law is not ‘the product of a negotiation yielding a
freely-entered contract,’ it will not be enforced." 675 F.3d at
327 (quoting Wells Fargo Home Mortg., Inc. v. Neal, 922
A.2d 538, 546 (Md. 2007)).
The inquiry, then, turns on whether the CLEC clause in
Decohen’s RIC was freely chosen by the parties. The contract
stated that it "shall be subject to the Credit Grantor Closed
End Credit Provisions (Subtitle 10) of Title 12 of the Com-
mercial Law Article of the Maryland Code." J.A. 45. We have
held the election of the CLEC in a contract is voluntary. See
Epps, 675 F.3d at 328 (noting that a car dealer can choose to
have a RIC governed by either the CLEC or the Maryland
Retail Installment Sales Act, Md. Code Ann., Com. Law § 12-
601 et seq.). We stated in Epps that when the originating
lender chooses to adopt the CLEC when it could have made
a different choice, the assignee "is bound by that choice." Id.For the breach of contract claim, the facts of this case are
indistinguishable from the facts in Epps, in which a local car
dealer originated a RIC in which the parties elected to be gov-
erned by the CLEC, and then assigned the RIC to a national
bank, Chase. Id. at 318. We held the assignment did not allow
Chase to escape its obligations under a voluntarily chosen
contract term. We stated:
Chase has purchased a RIC that elects the CLEC,
sought higher late fees from Epps (as authorized by
DECOHEN v. CAPITAL ONE, N.A. 19
the CLEC), and, upon breaching the RIC by failing
to abide by its repossession notice requirements,
claimed that the election of the CLEC was foisted
upon it. . . . Chase may not take advantage of favor-
able, voluntary, contract terms, and then cry foul
when it fails to adhere to its own contractually
derived obligations.
Id. at 328. We reach the same conclusion here: Capital One
may not purchase a RIC that elects the CLEC, accept pay-
ments on a principal amount that includes a $600 fee for a
debt cancellation agreement governed by the CLEC, and then
refuse to abide by the terms of the CLEC when it is no longer
convenient to do so. The RIC signed by Decohen and Nation
Auto voluntarily elected to be governed by the CLEC. The
assignment of the loan by Nation Auto to Capital One does
not allow Capital One to escape the obligations Nation Auto
voluntarily undertook.
Other courts have come to similar conclusions. In Thomas
v. U.S. Bank, N.A., 575 F.3d 794, 796 (8th Cir. 2009), a Cali-
fornia lending institution assigned mortgages in Missouri to
various national banks. The national banks argued they were
not subject to the Missouri Second Mortgage Loans Act
because the NBA preempted any claims against them under
state law, regardless of whether the national banks originated
the loans or purchased the loans as assignees. Id. at 797. The
Eighth Circuit held the assignment did not absolve the
national banks of state law claims:
The national banks did not originate the loans at
issue, but rather are assignee banks who subse-
quently purchased the loans. As assignees, they are
subject to all the claims which could have been
brought against the originator of the loan. To hold
otherwise would allow an originating bank to
cleanse an otherwise illegal loan merely by assigning
it to a national bank.
20 DECOHEN v. CAPITAL ONE, N.A.
Id. at 800-01 (citation omitted). Analogously, in Aguayo, 653
F.3d at 915, the Ninth Circuit stated that when a car dealer-
ship signs a RIC with a consumer and assigns that RIC to a
national bank, the bank "assume[s] the contract terms as an
assignee." The court thus held that the California Rees-
Levering Act, enacted to protect motor vehicle purchasers,
applied to "any defaulted car loan repossession, irrespective
of who made the initial car loan, whether it was a local lender
such as the dealership, a California state lender, or a national
bank." Id. at 924.
Finally, the reference to the CLEC in the RIC signed by
Decohen and Nation Auto is sufficient to incorporate the
terms of the CLEC into the contract. "Maryland law recog-
nizes that parties may agree to define their rights and obliga-
tions by reference to documents or rules external to the
contract." Wells v. Chevy Chase Bank, F.S.B., 832 A.2d 812,
831 (Md. 2003). The district court erred in reasoning that
"nothing in the complaints, Credit Contract, or GAP Agree-
ment shows that Capital One agreed, or was otherwise
required, to cancel Decohen’s remaining loan balance." Deco-
hen, 2011 WL 3438625, at *5. The credit contract, or RIC,
plainly stated that it "shall be subject to the [CLEC]." J.A. 45.
The CLEC states that the credit grantor must cancel "the
remaining loan balance in the event of theft or total destruc-
tion." Md. Code Ann., Com. Law § 12-1001(h). The district
court similarly erred when it stated that "no provision in the
CLEC mandates that creditors cancel a remaining loan bal-
ance in the event of a total loss." Decohen, 2011 WL
3438625, at *5. The provision that does so is § 12-1001(h).
Decohen’s credit contract, in which the parties elected to be
governed by the CLEC, thus incorporated the terms of the
CLEC to govern the attached debt cancellation agreement.
Absent some contrary evidentiary showing, Capital One’s
refusal to cancel Decohen’s "remaining loan balance" would
constitute a breach of that contract. In any event, a breach of
contract claim demonstrably has been adequately pleaded.
DECOHEN v. CAPITAL ONE, N.A. 21
Accordingly, the district court erred in dismissing Decohen’s
breach of contract claim.
III.
For the foregoing reasons, we vacate the judgment of the
district court with regard to Decohen’s CLEC and breach of
contract claims and remand for further proceedings consistent
with this opinion.
VACATED AND REMANDED