Pryor v. Bank of America, N.A. (In re Pryor)

Citation: 479 B.R. 694Docket: Bankruptcy No. 10-02137-8-JRL; Adversary No. 12-00055-8-JRL

Court: United States Bankruptcy Court, E.D. North Carolina; September 25, 2012; Us Bankruptcy; United States Bankruptcy Court

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Judgment was rendered by Bankruptcy Judge J. Rich Leonard regarding the motion to dismiss filed by Bank of America, N.A. and Bank of America Corporation against plaintiffs Derek Christopher Pryor and Tammy Shawntae Pryor. The court heard the motion on July 26, 2012, concerning the plaintiffs' claims related to violations of the automatic stay, the North Carolina Debt Collection Act, and the Telephone Consumer Protection Act. The plaintiffs filed for Chapter 13 bankruptcy on March 18, 2010, and initiated this adversary proceeding on March 28, 2012. 

Jurisdiction is established under 28 U.S.C. sections 151, 157, and 1334, along with a General Order of Reference from the Eastern District of North Carolina. The plaintiffs own real property in Franklin County, North Carolina, secured by a deed of trust held by the defendants due to a loan agreement. Despite the bankruptcy filing and the notice of the 341 meeting served to the defendants, the plaintiffs continued to receive collection notices. The defendants sought relief from the automatic stay to foreclose on the property, acknowledging knowledge of the plaintiffs' intent to surrender the property. 

The plaintiffs assert that they notified the defendants of their bankruptcy status and requested an end to collection communications, yet the defendants continued their collection efforts. The defendants have denied the allegations, prompting the plaintiffs to file the adversary proceeding. Under the standard of review, a claim must show a "short and plain statement" demonstrating entitlement to relief and include sufficient facts to establish a plausible claim, as outlined in Federal Rule of Civil Procedure 8(a)(2) and supported by case law.

To withstand a motion to dismiss under Rule 12(b)(6), a plaintiff must present more than mere labels or conclusory statements; a detailed factual basis is required. In the case concerning the plaintiffs' second cause of action for violations of the North Carolina Debt Collection Act (NCDCA), the defendants argue for dismissal based on their status as a national bank under the National Bank Act of 1864 (NBA), claiming federal preemption of the state law claim.

Preemption, according to the Supremacy Clause of the U.S. Constitution, occurs when state law conflicts with federal law. The analysis of preemption is guided by Congress's intent, with a general presumption against displacing state laws unless Congress's purpose is clear. The Supreme Court recognizes three types of preemption: express, implied, and conflict preemption. Express preemption occurs when Congress explicitly states its intent to preempt state authority. Field preemption arises when federal regulation is so comprehensive that states have no room to supplement it. Conflict preemption occurs when it is impossible to comply with both state and federal laws or when state law obstructs federal objectives.

Consumer protection laws, such as the NCDCA, are traditionally governed by state law, reflecting states' historic police powers. The analysis suggests that the state statute in question relates to areas of banking and consumer protection, which fall within state jurisdiction. Therefore, preemption should be presumed against the federal law unless there is a clear indication of Congressional intent to override state authority.

The National Bank Act (NBA) was established to create a national banking system and protect national banks from state regulations. The Office of the Comptroller of the Currency (OCC) has the authority to regulate national banking institutions under the NBA. While the NBA did not initially address preemption, the OCC later issued regulations regarding preemption (12 C.F.R. 34.4), which were influenced by the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010. The Dodd-Frank Act includes explicit preemption provisions affecting national banks, stating that state consumer financial laws may only be preempted under certain conditions: if they discriminate against national banks, significantly interfere with their powers, or are preempted by other federal laws.

Dodd-Frank restricts the federal preemption of state consumer financial laws, marking a shift back to pre-OTS and OCC preemption practices. The preemption standard established in Dodd-Frank aligns with the Supreme Court's decision in Barnett Bank, which serves as the basis for preemption analysis regarding national banks. Following the Dodd-Frank Act, the OCC updated its regulations to reflect this new preemption framework, specifically for real estate lending under 12 U.S.C. 371. While national banks can operate without adhering to certain state laws, the regulations also include a savings clause, affirming that specific state laws (e.g., contracts, torts, criminal law, homestead laws, debt collection, real property transfer, taxation, zoning) are generally not preempted, so long as they are consistent with the Barnett Bank decision or other applicable federal laws.

The savings clause in 12 C.F.R. 34.4(b) reflects the Dodd-Frank Act's endorsement of the Barnett Bank decision as the standard for assessing preemption claims against national banks under the National Bank Act (NBA). The North Carolina Debt Collection Act (NCDCA) is classified under 12 C.F.R. 34.4(b)(5) as a state law that aligns with the real estate lending authority of national banks, thus not preempted by the NBA unless indicated by the Barnett Bank analysis. The Supreme Court's ruling in Barnett Bank established that a federal statute allowing national banks to sell insurance in small towns preempted a conflicting state law, as their provisions were in "irreconcilable conflict." This ruling mandated that courts evaluate whether state laws conflict with federal laws or impede the objectives of Congress. The Dodd-Frank Act, effective July 21, 2011, introduced provisions regarding retroactivity and clarified existing preemption guidelines. Specifically, Sections 1043 and 1044 of the Act indicate that state laws affecting contracts made before the Act's enactment are not altered by the new preemption framework, reinforcing Congressional intent regarding the applicability of state law.

The court interprets that the relevant legal language only prevents changes in the law from applying to pre-existing contracts with national banks, without insulating those banks from state consumer protection actions related to post-contractual collection activities. The Fourth Circuit's decision in Chambers v. Reno clarifies that a new statute does not have retroactive effects simply because it is applied to actions occurring before its enactment; instead, it must be determined if the statute imposes new legal consequences that impair rights, increase liability, or create new duties regarding past conduct. The court finds that the Dodd-Frank Act does not impair the defendants' rights, increase their liabilities, or impose new duties. The defendants' ability to collect debt remains governed by existing contractual agreements and the bankruptcy proceedings, unaffected by the Dodd-Frank Act. Furthermore, state statutes that prohibit abusive debt collection practices do not impose new duties on the defendants. The court concludes that applying Dodd-Frank’s preemption provisions does not result in impermissible retroactive effects and views the Dodd-Frank Act as a clarification of existing law rather than a substantive change. Finally, the court will evaluate whether OCC Regulation 12 C.F.R. 34.4 preempts the North Carolina Debt Collection Act (NCDCA) given that it has determined the NCDCA is not preempted by the National Bank Act (NBA) under the Dodd-Frank amendments.

The regulation 12 C.F.R. 34.4 aligns its preemption provisions with the Barnett Bank decision, stipulating that preemption applies only to state laws that conflict with federal law or obstruct Congress's objectives. The North Carolina Debt Collection Act (NCDCA) aims to prevent harassing and fraudulent debt collection practices and does not conflict with federal law, nor does it obstruct Congress's regulatory intent concerning national banks. Consequently, the Office of the Comptroller of the Currency's (OCC) regulations do not preempt the NCDCA, allowing consumers increased protection.

The defendants' motion to dismiss the plaintiffs' third cause of action, based on alleged violations of the Telephone Consumer Protection Act (TCPA), is also denied. The plaintiffs assert that the defendants used an automatic telephone dialing system to make non-emergency calls to their cell phones without prior consent. These allegations sufficiently state a claim for relief under the TCPA, with issues of consent and revocation to be determined on a more developed factual record. The court emphasizes that at this procedural stage, it is inappropriate to dismiss the claim due to the lack of sufficient evidence regarding consent. The conclusions state that both motions to dismiss concerning the NCDCA and TCPA are denied, affirming the relevance of federal law as the supreme law.