STATEMENT OF FACTS
Plaintiffs*fn2, Nicholaos Alexiou ("Mr.Alexiou") and
Veronica Ortiz ("Ms.Ortiz") (collectively "Plaintiffs"),
purchased automobiles from Brad Benson Mitsubishi. Mr. Alexiou
purchased a 1999 Hyundai Elantra on or about April 29, 1999. Ms.
Ortiz purchased a 1999 Hyundai Accent on or about July 23, 1999.
Plaintiffs obtained financing from Defendant Brad Benson
Mitsubishi for the purchase of their vehicles. Plaintiffs also
financed the purchases of extended warranties and either Credit
or GAP insurance. Plaintiffs and Brad Benson Mitsubishi entered
into retail installment contracts which reflect the financing
transactions. Upon execution, the retail installment contracts
were contemporaneously assigned to First Bank.
The remaining counts against First Bank allege violations of
state law only. Count Two alleges violation of the New Jersey
Consumer Fraud Act, N.J. STAT. § 56:8-1 et seq. Specifically,
Plaintiffs allege that they were unconscionably overcharged for
the extended warranties and insurance and that they were not
notified that the dealer was retaining a portion of the sales
price as a commission.
Count Three alleges breach of contract and breach of the
implied covenant of good faith and fair dealing, in violation of
state common-law principles. Plaintiffs rely on the "Holder
Rule" as set forth in the New Jersey Retail Installment Sales
Act of 1960 ("NJRISA"), codified at N.J. STAT. § 17:16C-38.2, in
their allegations against First Bank. Plaintiffs allege that
under the Holder Rule, First Bank is a subsequent holder and is
thus liable to Plaintiffs for any claims they would have had
against the retail seller, Brad Benson Mitsubishi, assignor of
Count Four alleges a cause of action for money paid by
mistake, in violation of state common-law principles. The two
remaining counts are alleged against all defendants as
individuals; both counts repeat and reallege all preceding
paragraphs of the Complaint.
Because First Bank is an assignee of Plaintiffs' loans, the
viability of all state law claims against First Bank hinges on
whether First Bank can be held liable as an assignee under the
New Jersey Holder Rule.
Rule 12(b)(6) of the Federal Rules of Civil Procedure
instructs that a court may dismiss a complaint if it fails to
state a claim upon which relief can be granted. In deciding a
motion to dismiss, courts must accept all allegations in the
complaint as true. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.
1996). If "it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him
to relief," dismissal pursuant to Rule 12(b)(6) is proper.
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d
The specific issue before the Court is whether a provision of
the Federal Truth In Lending Act ("TILA"), 15 U.S.C. § 1641(a),
which governs assignee liability preempts the NJRISA Holder
Rule, N.J. STAT. § 17:16C-38.2, which also governs assignee
liability. This issue appears to be one of first impression in
As previously stated, if the TILA preempts the State Holder
Rule, then an assignee of a loan can only be held liable as an
assignee where that assignee has violated § 1641(a) of the TILA.
The alleged TILA violations against First Bank have already been
dismissed by this Court pursuant to Rule 12(b)(6). If the Court
finds that the TILA preempts the State Holder Rule, the
remaining state law claims against First Bank must be dismissed.
A. The Supremacy Clause
Congress clearly has the power to preempt state laws where it
chooses to do so. U.S. CONST., Art. 6, cl. 2. Federal law may
preempt state law "either by express provision, by implication,
or by a conflict between federal and state law." New York State
Conference of Blue Cross & Blue Shield Plans et al. v. Travelers
Ins. Co. et al., 514 U.S. 645, 654, 115 S.Ct. 1671, 131 L.Ed.2d
695 (1995). The Court must therefore analyze the preemption
question with respect to each of these potential preemption
avenues. However, the Court must begin its analysis with the
presumption that Congress typically "does not intend to supplant
state law." Id. at 654-55, 115 S.Ct. 1671. (citing Maryland
v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576
B. Implied Preemption
First Bank argues that, in enacting TILA, Congress has
impliedly preempted any state laws relating to disclosure in
loan transactions. This type of preemption is commonly referred
to as "preempting the field." First Bank contends that because
Congress has preempted the field, the New Jersey Holder Rule is
trumped by the TILA and thus has no effect. The Court is not
convinced by this argument.
Congress has expressly addressed the issue of when the TILA
preempts related state laws:
[T]his subchapter [does] not annul, alter or affect
the laws of any State relating to the disclosure of
information in connection with credit transactions,
except to the extent that those laws are
inconsistent with provisions of this subchapter and
then only to the extent of the inconsistency.
15 U.S.C. § 1610(a)(1) (emphasis added); see also Regulation
Z, 12 C.F.R. § 226.28(a)(1). This language clearly indicates
that Congress only intended to preempt state laws that conflict
with provisions of the TILA. See Morales v. Trans World
Airlines, Inc., 504 U.S. 374, 386-87, 112 S.Ct. 2031, 119
L.Ed.2d 157 (1992).
Where a federal statute requires "inconsistency" in order for
it to preempt state law, the federal statute cannot be one which
preempts the field. Id.; see also Heastie v. Community Bank of
Greater Peoria, 690 F. Supp. 716, 720 (N.D.Ill. 1988); Harvey
v. Ford Motor Credit Co., 8 S.W.3d 273, 275 (Tenn.Ct.App.
1999); Mason v. General Finance Corp. of Va., 542 F.2d 1226,
1230 (4th Cir. 1976) (indicating that "Congress clearly did not
preempt the field" in enacting TILA).
This Court is guided by the Supreme Court and the above-cited
case law, which clearly indicates that the TILA was not meant to
preempt the field of laws relating to consumer lending
practices. For these reasons, First Bank's argument that
Congress has impliedly preempted the New Jersey Holder Rule
C. Express Preemption
Defendants alternatively argue that the TILA expressly
preempts all New Jersey state law claims, urging that a TILA
provision pertaining to assignee liability conflicts with the
New Jersey Holder Rule. The TILA limits the liability of
assignees of loan contracts. A TILA provision prevents the
imposition of liability on assignees unless the alleged TILA
violations are apparent on the face of the disclosure statement.
The federal law states, in part:
Except as otherwise specifically provided in this
subchapter, any civil action for a violation of this
subchapter or proceeding under section 1607 of this
title which may be brought against a creditor may be
maintained against any assignee of such creditor
only if the violation for which such action or
proceeding is brought is apparent on the face of the
disclosure statement, except where the assignment
15 U.S.C. § 1641(a) (emphasis added).