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ALEXIOU v. BRAD BENSON MITSUBISHI

December 26, 2000

ALEXIOU
V.
BRAD BENSON MITSUBISHI, ET AL.



The opinion of the court was delivered by: Politan, District Judge.

Dear Counsel:

This matter comes before the Court on the Motion of Defendant First Bank of Central Jersey ("First Bank") to Dismiss Plaintiffs Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Oral argument was initially heard on September 11, 2000. At oral argument the Court dismissed the First Count of Plaintiffs' Complaint against First Bank, which alleged assignee liability under the Truth In Lending Act.*fn1 First Bank also seeks dismissal of Counts Two through Six, all of which allege violations of New Jersey state law.

At oral argument on September 11, the Court directed Plaintiffs' counsel to file a supplemental brief addressing the issue of federal preemption of the state law claims, and adjourned the hearing on that issue until October 23, 2000. Plaintiffs' counsel and First Bank filed supplemental preemption briefs, and on October 23, 2000 the Court entertained additional argument on the issue of whether the Federal Truth In Lending Act preempts the New Jersey state law claims alleged by Plaintiffs against First Bank.

For the reasons stated herein, the Court finds that all of the remaining state law claims against First Bank are preempted by federal law, and as such, must be dismissed.

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 the loans.

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.

DISCUSSION

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 80 (1957).

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 this district.

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 (1981)).

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 ...


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