Gift Card Suit Brought Under State Laws Not Federally Preempted

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A national bank failed to establish that federal law and regulations preempted a gift card holder's class action complaint, asserting state law claims against the bank for imposing inactivity fees on the card, the federal district court in Chicago has ruled.

When the holder first used his $30 card 11 months after receiving it as a gift, he discovered that the bank already had deducted $12.50 to pay five months of inactivity fees. This prompted him to file suit against the bank in Illinois state court, alleging breach of fiduciary duty; unjust enrichment; and violation of various state consumer fraud and deceptive trade practices acts. The bank removed the case to federal court based on the Class Action Fairness Act of 2005.

National Bank Act, Federal Regulations

The bank argued that the state law claims were barred by the National Bank Act, which preempts unduly burdensome and duplicative state regulations. The bank further cited a regulation of the federal Office of the Comptroller of the Currency that authorized the charging of fees to "customers." A customer was defined as a party who obtained a product or service from a bank.

The gift card holder alleged that he obtained a product or service from the bank only after inactivity fees had been deducted from his card balance. At an early stage of the litigation, there did not appear to be an irreconcilable conflict between the state law claims and the federal law and regulations.

Fraud Pleading

The holder failed to plead with particularity the statutory consumer fraud claims but could pursue a common law unjust enrichment claim, the court determined. The consumer protection claims failed to meet the heightened standards for pleading fraud under Rule 9(b) of the Federal Rules of Civil Procedure.

Unjust Enrichment

The bank contended that the unjust enrichment claim failed because the parties had entered into a contract. While this was a correct statement of the law, the argument could not succeed at an early stage of the case when the holder's theory was that no contract was formed when the inactivity fees were charged.

The bank's reliance on the law of Ohio as governing under the card holder agreement was misplaced when the claim was quasi-contractual and could not by its very nature be governed by the terms of the agreement. The law of Illinois explicitly recognized that an unjust enrichment claim may be brought by a plaintiff seeking recovery of a benefit transferred to the defendant by a third party, according to the court.

The opinion in Green v. Charter One Bank, N.A. appears at CCH Advertising Law Guide ¶63,221.