USCA1 Opinion
October 26, 1992 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_________________________
Nos. 91-2205
92-1065
92-1150
GREENWOOD TRUST COMPANY,
Plaintiff, Appellant,
v.
COMMONWEALTH OF MASSACHUSETTS, ET AL.,
Defendants, Appellees.
_________________________
ERRATA SHEET
ERRATA SHEET
The opinion of the Court issued on August 6, 1992, is
corrected as follows:
On page 6, line 6 insert . . . after "bank[s]"
On page 9, footnote 4, line 7 change "Title V" to "Title
IV"
On page 26, line 17 change "1987" to "1986"August 6, 1992
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_________________________
Nos. 91-2205
92-1065
92-1150
GREENWOOD TRUST COMPANY,
Plaintiff, Appellant,
v.
COMMONWEALTH OF MASSACHUSETTS, ET AL.,
Defendants, Appellees.
_________________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
___________________
_________________________
Before
Selya, Circuit Judge,
_____________
Lay,* Senior Circuit Judge,
____________________
and Pieras,** District Judge.
______________
_________________________
Arthur R. Miller, with whom Andrew F. Lane, Gilbert R. Hoy,
_________________ ______________ _______________
Jr., Warner & Stackpole, Burt M. Rublin, Wolf, Block, Schorr and
___ __________________ ______________ _______________________
Solis-Cohen, Alan R. Feldman, and Sullivan & Worcester were on
___________ ________________ ____________________
brief, for appellant.
Ernest L. Sarason, Jr. and William T. Matlack, Assistant
________________________ ___________________
Attorneys General, with whom Scott Harshbarger, Attorney General,
_________________
and Sarah Wald, Special Assistant Attorney General, were on
___________
brief, for appellees.
Frank Max Salinger and Robert E. McKew on brief for American
__________________ _______________
Financial Services Association, amicus curiae.
Arnold M. Lerman, Christopher R. Lipsett, John B. Bellinger,
________________ ______________________ __________________
III, Kenneth L. Chernof, and Wilmer, Cutler & Pickering on brief
___ __________________ __________________________
for Bank of America, et al., amici curiae.
John J. Gill, Michael F. Crotty, and Irving D. Warden on
____________ __________________ _________________
brief for American Bankers Association, amicus curiae.
Ralph J. Rohner, Marcia Z. Sullivan, and Steven I. Zeisel on
_______________ __________________ ________________
brief for Consumer Bankers Association, amicus curiae.
L. Richard Fischer, Robert M. Kurucza, Steven S. Rosenthal,
__________________ __________________ ___________________
James A. Huizinga, and Morrison & Foerster on brief for Visa
__________________ ____________________
U.S.A., Inc. and Mastercard International Incorporated, amici
curiae.
Alfred J.T. Byrne, General Counsel, Douglas H. Jones, Senior
_________________ ________________
Deputy General Counsel, Thomas A. Schulz, Assistant General
_________________
Counsel, Colleen B. Bombardier, Senior Counsel, and Lisa M.
______________________ ________
Miller, Counsel, on brief for Federal Deposit Insurance
______
Corporation, amicus curiae.
Marsha Kramarck, Deputy Attorney General, on brief for
________________
Delaware State Bank Commissioner, amicus curiae.
Richard P. Eckman, Daniel I. Prywes, Joseph L. Lakshmanan,
__________________ ________________ ____________________
and Pepper, Hamilton & Scheetz on brief for Delaware Bankers
____________________________
Association, amicus curiae.
Lee Fisher, Attorney General (Ohio) and Kathleen McDonald
___________ _________________
O'Malley, Chief Counsel, Office of Attorney General, on brief for
________
States of Ohio, Arizona, Illinois, Louisiana, Nevada, South
Dakota and Utah, amici curiae.
Bonnie J. Campbell, Attorney General (Iowa), and Peter R.
___________________ ________
Kochenburger, Assistant Attorney General, on brief for States of
____________
Arkansas, Colorado, Connecticut, Hawaii, Idaho, Iowa, Kansas,
Kentucky, Maine, Minnesota, New Jersey, North Carolina,
Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, West
Virginia and the District of Columbia, amici curiae.
Michael M. Malakoff, Ellen Doyle, Malakoff, Doyle & Finberg,
___________________ ___________ _________________________
Nicholas E. Chimicles, Michael D. Donovan, Robin Resnick and
______________________ ___________________ _____________
Greenfield & Chimicles on brief for Bankcard Holders of America,
______________________
et al., amici curiae.
James C. Sturdevant, Kim E. Card, Sturdevant & Sturdevant,
____________________ ___________ _______________________
and Gail Hillebrand on brief for Consumer Action and Consumers
_______________
Union, amici curiae.
Albert Endsley, Steven W. Hamm, and Philip S. Porter on
_______________ _______________ _________________
brief for National Association of Consumer Credit Administrators
and American Conference of Uniform Consumer Credit Code States,
amici curiae.
_________________________
_________________________
________________
*Of the Eighth Circuit, sitting by designation.
**Of the District of Puerto Rico, sitting by designation.
SELYA, Circuit Judge. This train wreck of a case
SELYA, Circuit Judge.
______________
arises out of a headlong collision between a state consumer-
protection law and a federal banking law. It brings into sharp
focus the tensions inherent in our federalist system while
presenting a novel legal question: can a federally insured bank,
chartered in Delaware, charge its Massachusetts credit-card
customers a late fee on delinquent accounts, notwithstanding a
Massachusetts statute explicitly prohibiting the practice? The
district court answered this question in the negative, enforcing
the state statute and granting partial summary judgment in
appellees' favor. Because we believe that the lower court was on
the wrong track, we reverse. Federal law has the right of way in
this area.
I.
I.
__
Background
Background
__________
The pertinent facts are largely undisputed. Plaintiff-
appellant Greenwood Trust Company (Greenwood) is a Delaware
banking corporation. Its deposits are insured by the Federal
Deposit Insurance Corporation. Through a wholly owned
subsidiary, Greenwood offers an open end credit card the
Discover Card to customers nationwide. More than one hundred
thousand of its cardholders live in Massachusetts.
The terms and conditions applicable to use of the
Discover Card are spelled out in a Cardmember Agreement. The
Agreement stipulates, inter alia, that the holder must make a
_____ ____
minimum monthly payment, calculated by reference to the credit-
4
card balance outstanding from time to time, on or before a
designated due date. Failure to make this payment in a timeous
fashion constitutes a default. If the default is not cured
within twenty days, a ten-dollar late charge is automatically
assessed.
On October 27, 1989, the Commonwealth of Massachusetts
advised Greenwood that its imposition of late charges under such
circumstances contravened state law. The Commonwealth threatened
to take legal action. Greenwood promptly launched a preemptive
strike, filing a complaint for declaratory and injunctive relief
in the United States District Court for the District of
Massachusetts.1 The Commonwealth denied that federal law
preempted the Massachusetts statute. It also counterclaimed,
seeking to bar Greenwood from assessing late charges and to
collect restitutionary damages, together with civil penalties,
referable to Greenwood's defiance of state law.
The district court adjudicated the parties' competing
claims on cross-motions for summary judgment. Discerning no
federal preemption, the court ruled that Massachusetts law
applied. Since the court interpreted that law to forbid
Greenwood's imposition of late charges upon cardholders who lived
in Massachusetts, it denied Greenwood's motion and granted
partial summary judgment in the Commonwealth's favor. Greenwood
_________
____________________
1Greenwood's suit invoked the Supremacy Clause of the
federal Constitution. The Commonwealth and its Attorney General
were named as defendants. For simplicity's sake we refer to both
defendants as "the Commonwealth."
5
Trust Co. v. Massachusetts, 776 F. Supp. 21 (D. Mass. 1991). The
_________ _____________
district court certified its rulings for interlocutory appeal
under 28 U.S.C. 1292(b) (1988). In light of the pivotal
importance and broad commercial consequence of the questions
presented, we accepted the certification. (As an aside, we
remark that our belief as to the importance of the questions
presented has been validated to some degree by the outpouring of
amicus briefs, some favoring appellant's position and some
opposing it.) These appeals ensued.2
II.
II.
___
The Statutory Scheme
The Statutory Scheme
____________________
Two statutes lay at the heart of the dispute between
these protagonists: the state law that prohibits the imposition
of late fees by credit-card issuers, viz., Mass. Gen. L. ch. 140,
114B (1991) (Section 114B), and the federal law which arguably
preempts the state statute, viz., Section 521 of the Depository
Institutions Deregulation and Monetary Control Act of 1980
(DIDA), Pub. L. No. 96-221, 94 Stat. 132 (1980) (codified, as
amended, in scattered sections of the U.S. Code). This case
demands that we determine whether section 114B's immovable
prohibition survives section 521's irresistible preemptive sweep.
The Massachusetts statute is straightforward. It
provides that: "No creditor shall impose a delinquency charge,
____________________
2Endeavoring to ensure that its flanks are fully protected,
Greenwood has prosecuted three separate appeals, each with a
different jurisdictional thrust. It is not necessary for us to
distinguish among them.
6
late charge, or similar charge on loans made pursuant to . . . an
open end credit plan." Mass. Gen. L. ch. 140, 114B.
On the other hand, section 521 is equally
uncompromising:
In order to prevent discrimination
against State-chartered insured depository
institutions, including insured savings
banks, . . . with respect to interest rates,
. . . such State bank[s] . . . may,
notwithstanding any State constitution or
statute which is hereby preempted for the
purposes of this section, take, receive,
reserve, and charge on any loan or discount
made, or upon any note, bill of exchange, or
other evidence of debt, interest at a rate of
not more than 1 per centum in excess of the
discount rate on ninety-day commercial paper
in effect at the Federal Reserve bank in the
Federal Reserve district where such State
bank . . . is located or at the rate allowed
by the laws of the State, territory, or
district where the bank is located, whichever
may be greater.
12 U.S.C. 1831(d)(a) (1988 & Supp. 1990).
III.
III.
____
Discussion
Discussion
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A.
A.
__
Preemption: General Principles
Preemption: General Principles
_______________________________
In Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824), Chief
_______ _____
Justice Marshall declared that, under the rubric of the Supremacy
Clause,3 state laws which "interfere with, or are contrary to
____________________
3The Supremacy Clause provides that:
This Constitution, and the Laws of the
United States which shall be made in
Pursuance thereof; and all Treaties made, or
which shall be made, under the Authority of
the United States, shall be the supreme Law
7
the laws of Congress, made in pursuance of the constitution," are
preempted and, therefore, invalid. Id. at 211. This verity
___
remains firmly embedded in our modern jurisprudence. See, e.g.,
___ ____
Wisconsin Pub. Intervenor v. Mortier, 111 S. Ct. 2476, 2481
___________________________ _______
(1991); Hillsborough County v. Automated Medical Labs., Inc., 471
___________________ _____________________________
U.S. 707, 712 (1985); Securities Indus. Ass'n v. Connolly, 883
________________________ ________
F.2d 1114, 1117 (1st Cir. 1989), cert. denied, 495 U.S. 956
_____ ______
(1990).
In placing constitutional theory into practice, the
Court has generally distinguished between express and implied
preemption. Express preemption occurs "when Congress has
'unmistakably . . . ordained' that its enactments alone are to
regulate a [subject, and] state laws regulating that [subject]
must fall." Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)
_____ ________________
(quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S.
_____________________________________ ____
132, 142 (1963)). In such instances, the only remaining question
is whether a particular state statute intrudes into the federal
pale. See Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 299
___ ____________ _________________
(1988); Cable Television Ass'n v. Finneran, 954 F.2d 91, 98 (2d
______________________ ________
Cir. 1992).
Implied preemption comes in a wide variety of sizes and
shapes. Indeed, we have said that "[t]he concept . . . has a
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of the Land; and the Judges in every State
shall be bound thereby, any Thing in the
Constitution or Laws of any State to the
Contrary notwithstanding.
U.S. Const., art. VI, cl. 2.
8
certain protean quality, which renders pigeonholing difficult."
French v. Pan Am Express, Inc., 869 F.2d 1, 2 (1st Cir. 1989).
______ ____________________
Implied preemption can occur when Congress constructs a scheme of
federal regulation "so pervasive as to make reasonable the
inference that Congress left no room for the States to supplement
it"; or when an "Act of Congress . . . touch[es] a field in which
the federal interest is so dominant that the federal system will
be assumed to preclude enforcement of state laws on the same
subject"; or when the goals of, and obligations imposed by, the
federal law make manifest a purpose to uproot state law. Rice v.
____
Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947); accord
__________________________ ______
Mortier, 111 S. Ct. at 2481-82; English v. General Elec. Co., 496
_______ _______ _________________
U.S. 72, 79 (1990). Implied preemption can also occur in
situations involving actual conflicts, such as when compliance
with both federal and state regulation is an impossibility, see,
___
e.g., Florida Lime, 373 U.S. at 142-43, 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. 52, 67 (1941).
Certain common strands bind these diverse species of
express and implied preemption together. Two such threads run
through the fabric of the instant case. For one thing, in any
preemption analysis, "the question of whether federal law
preempts a state statute is one of congressional intent."
French, 869 F.2d at 2; accord Ingersoll-Rand Co. v. McClendon,
______ ______ __________________ _________
111 S. Ct. 478, 482 (1990); Securities Indus., 883 F.2d at 1117.
_________________
9
For another thing, the different strains of preemption all
operate on "the assumption that the historic police powers of the
States [are] not to be superseded by [a] Federal Act unless that
was the clear and manifest purpose of Congress." Rice, 331 U.S.
____
at 230; see also Mortier, 111 S. Ct. at 2482; California v. ARC
___ ____ _______ __________ ___
America Corp., 490 U.S. 93, 101 (1989). Courts must tread
______________
cautiously in this arena because the authority to displace a
sovereign state's law is "an extraordinary power . . . . that we
must assume Congress does not exercise lightly." Gregory v.
_______
Ashcroft, 111 S. Ct. 2395, 2400 (1991). Even federal statutes
________
that contain express preemption clauses must be viewed through
the prism of this assumption. See Cipollone v. Liggett Group,
___ _________ ______________
Inc., 60 U.S.L.W. 4703, 4706-07 (U.S. June 24, 1992) (plurality
____
opinion); id. at 4711 (Blackmun, J., concurring in part and
___
dissenting in part).
B.
B.
__
The Track We Must Travel
The Track We Must Travel
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We move now from the general to the particular.
Section 521 boasts an express preemption clause. In recent days,
the High Court has made it pellucidly clear that, whenever
Congress includes an express preemption clause in a statute,
judges ought to limit themselves to the preemptive reach of that
provision without essaying any further analysis under the various
theories of implied preemption. See Cipollone, 60 U.S.L.W. at
___ _________
4707 (plurality opinion); id. at 4711 (Blackmun, J., concurring
___
in part and dissenting in part). Given the teachings of
10
Cipollone and the plain language of section 521 ("notwithstanding
_________
any State constitution or statute which is hereby preempted for
the purposes of this section"), we reject the Commonwealth's
contention that this is an implied preemption case.4
Our conclusion that the proper analysis in this case
reduces to an inquiry into express preemption is unaffected by
the fact that the inquiry requires us to interpret the terms
"interest" and "interest rates" as they are employed in section
521. While uncertainty about the meaning of interstitial terms
in the text of a federal statute may affect the scope of express
preemption, it does not bear directly on the character of
Congress's preemptory intent. See Cipollone, 60 U.S.L.W. at
___ _________
4707-10 (plurality opinion); id. at 4711-14 (Blackmun, J.,
___
concurring in part and dissenting in part); Cable Television, 954
________________
F.2d at 98. In other words, so long as Congress's intent to
effect preemption remains clear and manifest, uncertainty which
pertains only to the contours of the ensuing preemption does not
____________________
4The district court apparently accepted the Commonwealth's
position and treated the case as one of implied preemption. See
___
Greenwood Trust, 776 F. Supp. at 30. It is likely that this
_______________
error derived from the miasma of doubt surrounding the
applicability of section 521 in Massachusetts. The district
court believed that the Commonwealth had exercised its right,
under section 525 of DIDA, 12 U.S.C. 1730(g) note (since
repealed by Title IV of FIRREA, Pub. L. No. 101-73, 103 Stat.
183, 363 (1989)), to opt out of section 521's preemptive grasp.
See, e.g., Greenwood Trust, 776 F. Supp. at 24 n.6, 26, 30 &
___ ____ ________________
n.24, 35. The court overlooked, however, that although
Massachusetts opted out in 1981, see 1981 Mass. Acts 231, it
___
reversed direction and, in effect, opted back in well before this
litigation began. See 1986 Mass. Acts 177 (repealing pertinent
___
portions of 1981 Mass. Acts 231). Section 521 is, therefore,
fully applicable to the instant case.
11
necessitate an alteration of a reviewing court's basic analytic
approach.
C.
C.
__
The Scope of Express Preemption under Section 521
The Scope of Express Preemption under Section 521
_________________________________________________
We must still resolve the crucial question of what
____
state laws are preempted. Put specifically, is a state law
banning the imposition of late charges a law regulating
"interest" within the purview of section 521? If so, chapter
114B is preempted.
This inquiry necessarily reduces to ascertaining what
Congress meant by the word "interest" in drafting section 521.
In divining this legislative intent, it is incumbent upon us to
"begin with the language employed by Congress and the assumption
that the ordinary meaning of that language accurately expresses
the legislative purpose." Morales v. Trans World Airlines, Inc.,
_______ __________________________
112 S. Ct. 2031, 2036 (1992) (quoting FMC Corp. v. Holliday, 111
_________ ________
S. Ct. 403, 407 (1990)). In the process, however, we should not
wear blinders: if there is "good reason to believe" that
Congress intended to deviate from the ordinary meaning of the
language selected, then a reviewing court must follow the
congressional lead. Cipollone, 60 U.S.L.W. at 4708 (plurality
_________
opinion) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97
____ ______________________
(1983)); see also American Tobacco Co. v. Patterson, 456 U.S. 63,
___ ____ ____________________ _________
68 (1982).
Should perlustration of a statute's text fail to
disclose the scope of Congress's preemptory intent, we must then
12
assess the statute's structure and purpose in order to probe
Congress's wishes. Ingersoll-Rand, 111 S. Ct. at 482; FMC Corp.,
______________ _________
111 S. Ct. at 407. Moreover, a court, faced with the necessity
of delineating a facially cryptic statute's preemptive scope, can
repair to statutory history and legislative context in order to
facilitate its inquiry into congressional purpose. See Toibb v.
___ _____
Radloff, 111 S. Ct. 2197, 2200 (1991); Blum v. Stenson, 465 U.S.
_______ ____ _______
886, 896 (1984).
1.
1.
__
The Commonwealth urges, and the lower court determined,
Greenwood Trust, 776 F. Supp. at 36-38, that section 521's
________________
language plainly limits its preemptory impact to state laws that
govern numerical interest rates, thereby leaving state laws
regulating flat fees unscathed even when, as here, such fees
arise out of the extension and maintenance of credit. We are not
persuaded that the plain meaning of "interest" and/or "interest
rates" as used in section 521 requires so grudging an
interpretation.
In the first place, we do not believe that the plain
meaning of "interest" necessarily restricts the definition of the
word to numerical percentage rates. Reference works typically
define interest as "a charge for borrowed money[,] generally a
_________
percentage of the amount borrowed." Webster's Ninth New
_____________________
Collegiate Dictionary 630 (1989) (emphasis supplied); see also
_____________________ ___ ____
Black's Law Dictionary 812 (6th ed. 1990). Such definitions do
______________________
not limit interest to numerical percentage rates, for they simply
13
note that interest is often, but not always, expressed as a
percentage. If the Commonwealth's circumscribed view of the word
were accurate, there would be no basis for suggesting that
exceptions exist.
Judicial opinions also tend to shy away from limiting
the word "interest" to numerical percentage rates. Specifically,
federal case law has long suggested that, in ordinary usage,
interest may encompass late fees and kindred charges.5 See,
___
e.g., Shoemaker v. United States, 147 U.S. 282, 321 (1893)
____ _________ ______________
("Interest accrues either by agreement of the debtor to allow it
for the use of money, or, in the nature of damages, by reason of
the failure of the debtor to pay the principal when due."); Brown
_____
v. Hiatts, 82 U.S. (15 Wall.) 177, 185 (1873) ("[i]nterest is the
______
compensation allowed by law, or fixed by the parties, for the use
or forbearance of money, or as damages for its detention").
Thus, the door is open to appellant's interpretation of
the term. Suggesting that an additional fee attached to a
delinquent, defaulted account is related to the creditor's cost
of lending that money does no violence to language, to precedent,
or, indeed, to logic. Default necessarily increases the
____________________
5Since we are interpreting the terms of a federal statute in
a dispute between Massachusetts and a Delaware bank, we do not
believe that definitions of interest emanating from courts in
other states are relevant to our inquiry, except insofar as those
cases purpose to interpret DIDA or its forebears. In any event,
such state-law definitions go both ways. Compare, e.g., Perry v.
_______ ____ _____
Stewart Title Co., 756 F.2d 1197, 1207-08 (5th Cir. 1985) (under
__________________
Texas law, late charges are not a component of interest) with,
____
e.g., Swindell v. Federal Nat'l Mortgage Ass'n, 409 S.E.2d 892,
____ ________ _____________________________
894-95 (N.C. 1991) (under North Carolina law, late charges are a
component of interest).
14
creditor's cost of processing a loan. Therefore, a late fee is
sufficiently related to the "use or forbearance of money, or . .
. damages for its detention" that it can appropriately be
classified as "interest."
In the second place, the use of words like "rate" in
conjunction with the word "interest" does little to advance the
Commonwealth's thesis. While there may exist support for the
assertion that a flat fee is not included in the plain meaning of
terms such as "rate" and "interest rates," section 521's
preemptive reach cannot so easily be restricted to numerical
percentage rates. Terms in an act whose meaning may appear plain
outside the scheme of the statute can take on a different meaning
when read in their proper context. See United Steelworkers of
___ ______________________
America v. Weber, 443 U.S. 193, 201 (1979); Train v. Colorado
_______ _____ _____ ________
Pub. Interest Research Group, Inc., 421 U.S. 1, 10 (1976). As
___________________________________
Judge Learned Hand once wrote, words can be "chameleons, which
reflect the color of their environment." Commissioner v.
____________
National Carbide Corp., 167 F.2d 304, 306 (2d Cir. 1948), aff'd,
_______________________ _____
336 U.S. 422 (1949).
In short, the plain-meaning doctrine is not a
pedagogical absolute. This rule of construction is more "an
axiom of experience than a rule of law, and does not preclude
consideration of persuasive evidence" in contradiction to
supposedly plain meaning if such evidence exists. Boston Sand &
_____________
Gravel Co. v. United States, 278 U.S. 41, 48 (1928) (Holmes, J.).
__________ _____________
Hence, a court must always hesitate to construe words in a
15
statute according to their apparent meaning if to do so would
defeat Congress's discovered intendment. See Bob Jones Univ. v.
___ _______________
United States, 461 U.S. 574, 586 (1983); Watt v. Alaska, 451 U.S.
_____________ ____ ______
259, 266 (1981); Church of the Holy Trinity v. United States, 143
__________________________ _____________
U.S. 457, 459 (1892). It follows that:
deference to the plain meaning rule should
not be unthinking or blind. We would go
beyond the plain meaning of the statutory
language when adherence to it would produce
an absurd result or an unreasonable one
plainly at variance with the policy of the
legislation as a whole.
Massachusetts Fin. Servs., Inc. v. Securities Investor Protection
_______________________________ ______________________________
Corp., 545 F.2d 754, 756 (1st Cir. 1976) (citations and internal
_____
quotation marks omitted), cert. denied, 431 U.S. 904 (1977);
_____ ______
accord In re Trans Alaska Pipeline Rate Cases, 436 U.S. 631, 643
______ _______________________________________
(1978).
Viewed as part of this mise-en-scene, the
Commonwealth's plain-meaning argument cannot carry the day. The
argument gathers little steam because the use of the terms
"interest" and "interest rates" in section 521 is an example of
how phrases' meanings can take on different colorations when read
in their legislative and historical context. Accordingly, we
must move beyond the plain-meaning doctrine to determine the
scope of express preemption under section 521.
2.
2.
__
The preamble to section 521 states that the law was
created "to prevent discrimination against State-chartered
insured depository institutions, including insured savings
16
banks." To understand the reference, we examine the historical
context.
As the 1970s wound down, the Nation was caught in the
throes of a devastating credit crunch. Interest rates soared.
See, e.g., United States v. Ven-Fuel, Inc., 758 F.2d 741, 764
___ ____ ______________ ______________
n.20 (1st Cir. 1985) (cataloguing fluctuations in the prime rate
from 1975 to 1983). Nevertheless, state lending institutions
were constrained in the interest they could charge by state usury
laws which often made loans economically unfeasible from a
lender's coign of vantage. See Gavey Properties/762 v. First
___ ____________________ _____
Fin. Sav. & Loan, 845 F.2d 519, 521 (5th Cir. 1988); Bank of New
________________ ____________
York v. Hoyt, 617 F. Supp. 1304, 1309 (D.R.I. 1985). National
____ ____
banks did not share this inhibition because they could charge
whatever interest rates were allowed under the National Bank Act
of 1864, ch. 106, 13 Stat. 99 (1864) (codified, as amended, in
scattered sections of 12 U.S.C.) (the Bank Act), and
specifically, those rates which were permitted under Bank Act
85, 12 U.S.C. 85 (1988), quoted infra note 7. Since section 85
_____
authorized national banks to use interest rates set by reference
to federal discount rates, state institutions were at an almost
insuperable competitive disadvantage.6
____________________
6Section 85 was originally enacted to shield national banks
from state laws that were discriminating against them. See
___
Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299,
____________________ __________________________
314-18 (1978); Cong. Globe, 38th Cong., 1st Sess. 2126 (1864)
(statement of Sen. Sherman). More than a century later, this
shield had become a sword wielded by national banks against
state-chartered lenders. As we have written before, "irony is no
stranger to the law." Amanullah v. Nelson, 811 F.2d 1, 18 (1st
_________ ______
Cir. 1987).
17
Congress tried to level the playing field between
federally chartered and state-chartered banks when it enacted
DIDA. See 126 Cong. Rec. 6,907 (1980) (section 521 will "allow[]
___
competitive equity among financial institutions, and reaffirm[]
the principle that institutions offering similar products should
be subject to similar rules") (statement of Sen. Bumpers); 126
Cong. Rec. 6,900 (1980) (section 521 should "provide[] parity, or
competitive equality, between national banks and State[-
]chartered depository institutions on lending limits") (statement
of Sen. Proxmire). To achieve this objective, Congress engrafted
onto DIDA's bare bones, at several points, language taken from
the Bank Act. Section 521, modeled on section 85 of the Bank
Act, was the site of one such transplantation.7 The parallelism
____________________
7We consider the transplanted language to be the following:
[A state-chartered, federally insured
depository institution], with respect to
interest rates, . . . may . . . take,
receive, reserve, and charge on any loan or
discount made, or upon any note, bill of
exchange, or other evidence of debt, interest
at a rate of not more than 1 per centum in
excess of the discount rate on ninety-day
commercial paper in effect at the Federal
Reserve bank in the Federal Reserve district
where such State bank . . . is located or at
the rate allowed by the laws of the State,
territory, or district where the bank is
located, whichever may be greater.
12 U.S.C. 1831(d)(a) (DIDA 521). The comparison between this
language and the language of section 85 is striking. The latter
provided in relevant part:
[A national bank] may take, receive,
reserve, and charge on any loan or discount
made, or upon any notes, bills of exchange,
or other evidence of debt, interest at the
18
was not mere happenstance. To the exact contrary, Congress made
a conscious choice to incorporate the Bank Act standard into
DIDA. See, e.g., 126 Cong. Rec. 6,907 (1980) (statement of Sen.
___ ____
Bumpers); 125 Cong. Rec. 30,655 (1979) (statement of Sen. Pryor);
see also Gavey, 845 F.2d at 521.
___ ____ _____
The historical record clearly requires a court to read
the parallel provisions of DIDA and the Bank Act in pari materia.
__ ____ _______
It is, after all, a general rule that when Congress borrows
language from one statute and incorporates it into a second
statute, the language of the two acts should be interpreted the
same way. See Morales, 112 S. Ct. at 2037; Ingersoll-Rand, 111
___ _______ ______________
S. Ct. at 485-86; Oscar Mayer & Co. v. Evans, 441 U.S. 750, 756
__________________ _____
(1979). So here. What is more, when borrowing of this sort
occurs, the borrowed phrases do not shed their skins like so many
reinvigorated reptiles. Rather, "if a word is obviously
transplanted from another legal source, whether the common law or
other legislation, it brings the old soil with it." Frankfurter,
Some Reflections on the Reading of Statutes, 47 Colum. L. Rev.
_____________________________________________
____________________
rate allowed by the laws of the State,
Territory, or District where the bank is
located, or at a rate of 1 per centum in
excess of the discount rate on ninety-day
commercial paper in effect at the Federal
reserve bank in the Federal reserve district
where the bank is located, whichever may be
the greater . . . .
12 U.S.C. 85 (1988) (Bank Act 85). Although there are
niggling variations, the key phraseology is substantially
identical. Accord Gavey, 845 F.2d at 521 (interpreting 12 U.S.C.
______ _____
1730(g)(a), a section of DIDA containing language parallel to
section 521).
19
527, 537 (1947). Because we think it is perfectly plain that
this portable soil includes prior judicial interpretations of the
transplanted language, see Holmes v. Securities Investor
___ ______ ____________________
Protection Corp., 112 S. Ct. 1311, 1317-18 (1992); Pierce v.
_________________ ______
Underwood, 487 U.S. 552, 567 (1988); Lorillard v. Pons, 434 U.S.
_________ _________ ____
575, 580-81 (1978), Bank Act precedents must inform our
interpretation of words and phrases that were lifted from the
Bank Act and inserted into DIDA's text.
While we believe that several principles inherent in
section 85 were transfused into section 521, the critical item
for present purposes is the principle of exportation. This
principle, solidly embedded in the language and purpose of both
acts, provides the mechanism whereby a bank may continue to use
the favorable interest laws of its home state in certain
transactions with out-of-state borrowers.8 See Marquette Nat'l
___ _______________
Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 313-19 (1978);
____ ___________________________
Gavey, 845 F.2d at 521. To the extent that a law or regulation
_____
enacted in the borrower's home state purposes to inhibit the
bank's choice of an interest term under section 521, DIDA
expressly preempts the state law's operation.
Read in this way, the language borrowed from Bank Act
85 and incorporated into DIDA 521 achieves parity between
national banks and their state-chartered counterparts by allowing
____________________
8The exportable rates are those available to the most
favored lenders in the bank's state, not merely those available
to lenders of a similar size, character, or function. See
___
Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409,
_______ ___________________________
411-13 (1874).
20
lenders such as Greenwood to choose among three interest rate
ceilings: (1) the highest rate lawfully permitted without
reference to section 521; (2) a rate not more than one percent
above the discount rate on 90-day commercial paper in effect at
the Federal Reserve Bank in the federal reserve district where
the lender is located; or (3) the highest rate allowed by the
laws of the state where the lender is located. Section 521's
express preemption clause is designed to maintain this parity.
Acting in combination with the principle of exportation, this
clause necessarily derails any state-sponsored attempt to
regulate the maximum interest chargeable by a federally insured
bank chartered in another state. For our purposes, this means
that any Massachusetts law applicable to Greenwood must yield to
the preemptory force of section 521 insofar as the regulation of
"interest" is concerned.
We reach this conclusion mindful of the fact that the
state statute here at issue visits two areas which are squarely
within the ambit of the states' historic powers banking, see,
___
e.g., Northeast Bancorp, Inc. v. Board of Governors of the
____ ________________________ ____________________________
Federal Reserve Sys., 472 U.S. 159, 177 (1985); Valley Bank v.
_____________________ ___________
Plus Sys., Inc., 914 F.2d 1186, 1195 (9th Cir. 1990), and
_________________
consumer protection. See, e.g., ARC America, 490 U.S. at 101;
___ ____ ___________
General Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d Cir.
______________________ ______
1990). Although this circumstance means that any preemption
provision must be construed cautiously and with due regard for
state sovereignty, see Cipollone, 60 U.S.L.W. at 4706-07
___ _________
21
(plurality opinion); id. at 4711 (Blackmun, J., concurring in
___
part and dissenting in part), it does not serve as a buckler
against the force of the Supremacy Clause. When Congress has
acted within its authority and its intent to displace state law
is clear preconditions which obtain here preemption is not
foreclosed by the fact that the federal statute intrudes into the
range of subjects over which the states have traditionally
exercised their police powers.9 See Fidelity Fed. Sav. & Loan
___ __________________________
Ass'n v. De La Cuesta, 458 U.S. 141, 153 (1982).
_____ ____________
3.
3.
__
To be sure, the impuissance of the Commonwealth's
plain-meaning argument signifies only that the terms "interest"
and "interest rates" as used in section 521 are susceptible to
interpretation not that the Commonwealth's interpretation of
those terms is necessarily wrong or that the appellant's
interpretation is necessarily correct. To like effect, our
recognition of DIDA's ancestry, while illuminating, provides us
with no definitive answer to the precise question at hand. Since
DIDA's text and legislative history are, at bottom, inconclusive,
we must look either to federal common law or to state law to give
content to the terms in question.
In general, the words and phrases contained in a
federal statute are defined by reference to federal law. See
___
____________________
9By the same token, the relative importance of a state law
to a state sovereign is immaterial when that law is displaced by
a valid federal statute, for the Framers provided that the
federal law must prevail. See Free v. Bland, 369 U.S. 663, 666
___ ____ _____
(1962).
22
Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 43
___________________________________ _________
(1989); Jerome v. United States, 318 U.S. 101, 104 (1943). There
______ _____________
are two compelling reasons for adhering to this praxis. First,
application of state-law definitions may threaten the policies or
interests which a federal statute is designed to serve. See
___
United States v. Kimbell Foods, Inc., 440 U.S. 715, 728 (1979);
_____________ ____________________
Burks v. Lasker, 441 U.S. 471, 479 (1979). Second, application
_____ ______
of state-law definitions may disrupt Congress's desire for
nationwide uniformity under a federal statute. See Kamen v.
___ _____
Kemper Fin. Servs., Inc., 111 S. Ct. 1711, 1717 (1991);
___________________________
Mississippi Band, 490 U.S. at 43-44.
________________
Resort to uniquely federal definitions is not, however,
automatic. "Congress sometimes intends that a statutory term be
given content by the application of state law." Mississippi
___________
Band, 490 U.S. at 43. In such instances, a federal court may
____
properly use state law to fill the interstices within a federal
legislative scheme. See, e.g., Kamen, 111 S. Ct. at 1722-23
___ ____ _____
(holding it proper to borrow a definition from state corporate
law); Mississippi Band, 490 U.S. at 47-53 (allowing state-law
________________
definition of "domicile" to inform a federal definition); Federal
_______
Election Comm'n v. National Right to Work Comm., 459 U.S. 197,
________________ _____________________________
204-05 (1982) (similar, in corporate-law context); De Sylva v.
_________
Ballentine, 351 U.S. 570, 580-81 (1956) (borrowing definition
__________
from state domestic relations law); Reconstruction Fin. Corp. v.
_________________________
Beaver County, 328 U.S. 204, 208-10 (1946) (borrowing definition
_____________
from state property law). This "does not mean that a State would
23
be entitled to use [a statutory term] in a way entirely strange
to those familiar with its ordinary usage, but at least to the
extent that there are permissible variations in the ordinary
concept [of that term] we [may] deem state law controlling." De
__
Sylva, 351 U.S. at 581.
_____
In this case, we need not decide whether federal or
state law is the appropriate point of reference. Since both
sources produce the same result, it would be a mere matter of
form and idle to choose between them. See Royal Business
___ ______________
Group, Inc. v. Realist, Inc., 933 F.2d 1056, 1064 (1st Cir. 1991)
___________ _____________
(eschewing choice of law where, whatever the choice, the result
of the litigation would not be affected); Fashion House, Inc. v.
___________________
K Mart Corp., 892 F.2d 1076, 1092 (1st Cir. 1989) ("When a
______________
choice-of-law question has been reduced to the point where
nothing turns on more precise refinement, that should be the end
of the matter."). We illustrate briefly.
a.
a.
__
Section 521 allows a state bank to charge interest "at
the rate allowed by the laws of the State . . . where the bank is
located." We think this is a fairly clear indication that, if a
state-law definition of interest is applicable, it must emanate
from Delaware law. We so hold, much bolstered by the recognition
that section 85 "adopts the entire case law of [a state bank's
home] state interpreting the state's limitations on usury; it
does not merely incorporate the numerical rate adopted by the
state." First Nat'l Bank v. Nowlin, 509 F.2d 872, 876 (8th Cir.
________________ ______
24
1975); accord Roper v. Consurve, Inc., 777 F. Supp. 508, 510-11
______ _____ ______________
(S.D. Miss. 1990), aff'd, 932 F.2d 965 (5th Cir.) (table), cert.
_____ _____
denied, 112 S. Ct. 181 (1991). Our conclusion is further
______
fortified by the knowledge that several other federal tribunals,
in addition to the Nowlin and Roper courts, have interpreted
______ _____
identical language in section 85 of the Bank Act as adopting
definitions drawn from the law of the state where the bank is
located. See, e.g., Daggs v. Phoenix Nat'l Bank, 177 U.S. 549,
___ ____ _____ __________________
555 (1900); Union Nat'l Bank v. Louisville, N.A. & C. Ry., 163
_________________ __________________________
U.S. 325, 331 (1896); NCNB Nat'l Bank v. Tiller, 814 F.2d 931,
_______________ ______
937 (4th Cir. 1987), overruled on other grounds by Busby v. Crown
_____________________________ _____ _____
Supply, Inc., 896 F.2d 833, 840-42 (4th Cir. 1990) (en banc);
____________
Bartholomew v. Northampton Nat'l Bank, 584 F.2d 1288, 1295 (3d
___________ _______________________
Cir. 1978); McAdoo v. Union Nat'l Bank, 535 F.2d 1050, 1055-58
______ _________________
(8th Cir. 1976); Northway Lanes v. Hackley Union Nat'l Bank &
______________ ____________________________
Trust Co., 464 F.2d 855, 861-64 (6th Cir. 1972).
_________
Delaware law explicitly incorporates late charges into
the definition of interest and allows lenders to assess such fees
against credit-card customers. See Del. Code Ann. tit. 5, 950
___
(1985 & Supp. 1990). Thus, were we to look to Delaware law for
help in fathoming the meaning of "interest" and "interest rates,"
late charges would be included. In that event, section 114B's
prohibition on late fees would be nullified by section 521's
express preemption of state laws limiting exported interest
rates.
b.
b.
__
25
Federal common law brings us to precisely the same
result. Several courts, in analyzing the language of section 85
of the Bank Act, have had little trouble in construing the term
"interest" to encompass a variety of lender-imposed fees and
financial requirements which are independent of a numerical
percentage rate. See, e.g., American Timber & Trading Co. v.
___ ____ ______________________________
First Nat'l Bank, 690 F.2d 781, 787-88 (9th Cir. 1982)
__________________
(compensating balance requirement); Fisher v. First Nat'l Bank,
______ _________________
548 F.2d 255, 258-61 (8th Cir. 1977) (fee for cash advance);
Panos v. Smith, 116 F.2d 445, 446-47 (6th Cir. 1940) (taxes and
_____ _____
recording fees); Cronkleton v. Hall, 66 F.2d 384, 387 (8th Cir.)
__________ ____
(bonus or commission paid to lender), cert. denied, 290 U.S. 685
_____ ______
(1933); Nelson v. Citibank (South Dakota) N.A., ___ F. Supp. ___,
______ ____________________________
___ (D. Minn. 1992) [1992 W.L. 112166 at *6-*9] (late fees).
Fairly read, these opinions expand the scope of section 85
preemption and, by implication, the scope of section 521
preemption well beyond periodic percentage rates.10
____________________
10The court below relied upon the legislative history of
DIDA 501, 12 U.S.C. 1735f-7a, to support the proposition that
late charges are not a component of interest under section 521.
Greenwood Trust, 776 F. Supp. at 29-32. Congress enacted section
_______________
501 as an amendment to the National Housing Act, while section
521 altered the Federal Deposit Insurance Act. The mere fact
that both of these sections fell under the broad umbrella of DIDA
does not make them fair congeners. Since DIDA contains an
amalgam of different provisions, the legislative history and
purpose of one section of DIDA does not necessarily inform the
interpretation of all other parts of that law. See Bank of New
___ ___________
York, 617 F. Supp. at 1311-13. As we have stated, "it is not
____
unusual for the same word to have differing connotations in the
same act and surely no canon of statutory construction forecloses
courts from attributing to the word the meaning which the
legislature intended that it should have in each instance."
Sherman v. Hamilton, 295 F.2d 516, 520 (1st Cir. 1961), cert.
_______ ________ _____
26
While we are aware that many of these cases involve the
intrastate extension of loans by national banks rather than the
exportation of interest rates, the analogy is persuasive.
Furthermore, some of them do involve exportation. For example,
Fisher concerned a credit-card cash advance fee charged by a
______
Nebraska bank to a customer residing in Iowa. The court
suggested that this fee was a component of the "rate of
interest," making no distinction between the meaning of
"interest" in intrastate, as opposed to interstate, transactions.
Fisher, 548 F.2d at 258-61. For our part, we can discern no
______
principled basis for such a distinction.
4.
4.
__
It is, moreover, obvious that construing the terms
"interest" and "interest rates" to include late charges fits most
comfortably with the rationale undergirding section 521. DIDA
was enacted in order to strike a competitive balance between
state and national lending institutions by giving them equal
power in charging interest rates. Allowing state banks to charge
the same or similar fees in connection with the extension and
____________________
denied, 369 U.S. 820 (1962); see also Dewsnup v. Timm, 112 S. Ct.
______ ___ ____ _______ ____
773, 777-78 (1992). This sentiment seems especially apropos in
view of the fact that section 501 addresses different categories
of lenders and loans and contains materially different preemption
terms than does section 521.
In light of the irrefutable evidence that section 521
was conceived as an offspring of section 85 of the Bank Act, we
believe that the district court's reliance upon a comparison
between it and DIDA 501 was misplaced. The proper analogy in
this case is to compare lineal descendants who share common
language and purpose, not distant cousins who share little more
than a name.
27
maintenance of credit as national banks are allowed to charge
ensures parity between the two types of institutions.
Such a construction also finds broad support in the
rulings and informal opinion letters of the various agencies
charged with interpreting the meaning of section 85 and section
521. See, e.g., 12 C.F.R. 7.7310(a) (1992) (ruling of the
___ ____
Comptroller of the Currency to the effect that all of a bank's
home-state laws "material to the determination of the interest
rate" are exportable); Letter by Robert B. Serino, Deputy Chief
Counsel of the Office of the Comptroller of Currency, [1988-1989
Transfer Binder] Fed. Banking L. Rep. (CCH) 85,676 (Aug. 11,
1988) (concluding that, under Bank Act 85, state-law
prohibition of late charges may be preempted); Letter by Harry W.
Quillian, Acting General Counsel of the Federal Home Loan Bank
Board 3 (June 27, 1986) (similar; interpreting DIDA 522).11
We need not grease the rails. Given our conclusion
that DIDA 521 should be interpreted in pari materia with its
__ ____ _______
direct lineal ancestor, section 85 of the Bank Act, and given,
also, the litany of cases extending section 85 to a wide variety
of fees and charges associated with the extension and maintenance
of credit, we see no reason to define either the term "interest"
or the term "interest rates," for purposes of section 521, in a
manner that excludes late fees.
IV.
IV.
___
____________________
11We need not join the parties' heated debate over the level
of deference these materials deserve, for we would reach the same
result independent of any reliance on them.
28
Conclusion
Conclusion
__________
When Congress furnishes clear and unequivocal evidence
of its preemptory mindset in the text of a statute, the "task of
discerning congressional intent is considerably simplified."
Ingersoll-Rand, 111 S. Ct. at 482. Here, section 521 provides
______________
with undeniable clarity that usury laws in effect in the
borrower's state may be preempted as applied to federally insured
banks chartered in other states.
With respect to the specific scope of section 521's
preemption, section 85 of the Bank Act long ago laid the track
upon which the parties must now travel. Section 85's preemption
acts as a cowcatcher by brushing aside states' attempts to
regulate "interest rates" charged by national banks. Included
within those displaced state laws are regulations regarding flat
fees analogous to late charges. In passing DIDA, Congress
expressly placed section 521 on the same footing. Hence,
"interest" in section 521 encompasses late fees charged to
credit-card customers. Section 114B, which prohibits the
assessment of late charges, thereby regulates the interest a bank
may charge in a more restrictive manner than federal law permits.
We need go no further.12 For the reasons set forth
above, it is patent that the state statute is on a collision
____________________
12Inasmuch as we conclude that section 114B is preempted, we
need not confront various other issues addressed by the court
below. See Greenwood Trust, 776 F. Supp. at 39-47. We take no
___ ________________
view of any such issues.
29
course vis-a-vis section 521. Given the imperatives of the
Supremacy Clause, the whistle sounds loud and clear. Section
114B must yield. It is preempted.
Reversed.
Reversed.
________
30
