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Decohen v. Capital One, N.A.
In Decohen v. Capital One, N.A., the Fourth Circuit Court of Appeals reversed and remanded the district court’s decision to grant the defendant’s motion to dismiss. In so holding, the Fourth Circuit held that the Maryland Credit Grantor Closed End Provisions (“CLEC”), MD. CODE ANN., COM. LAW § 12-1001 et seq., was not preempted by the National Banking Act (“NBA”), 12 U.S.C. § 484 as to the third-party assignee of an auto loan. Additionally, the Court held that Plaintiff stated properly a claim for breach of contract.
Decohen arises out of an automobile loan, which plaintiff financed through Nation Auto, a local Maryland car dealer. As part of the loan, Decohen purchased an optional debt cancellation agreement for $600. The optional debt cancellation agreement provided that, in the event the automobile was declared a total loss, the debt cancellation agreement would provide plaintiff with the difference between the unpaid net balance of the loan and the actual cash value of the vehicle. The agreement defined unpaid net balance as the purchase price of the vehicle, divided by the total number of payments, and then multiplied by the total number of payments remaining after the vehicle was declared a total loss. At some point, Nation Auto assigned the loan to Capital One, N.A. (“Capital One”).
In 2010, Plaintiff suffered a total loss of his vehicle and he received $12,839.00 from his insurance company. After his insurance disbursement, Plaintiff still owed $1,504 on his loan. Therefore, Plaintiff filed a claim under his debt cancellation agreement. The administrator of his debt cancellation agreement, however, determined that the unpaid net balance of the loan was $12,908 and that the actual cash value of the vehicle was $13,475. Therefore, it denied Plaintiff’s claim. As such, Plaintiff filed suit.
Plaintiff sued Capital One for alleged violations of CLEC and for breach of contract. With respect to Plaintiff’s CLEC claim, Plaintiff claimed that a financing company is only permitted to impose an extra fee or charge for a debt cancellation agreement if the agreement actually cancels the entire remaining balance of the loan, excluding late payments and other similar exclusion permitted by statute. Plaintiff alleged that Capital One’s debt cancellation agreement did not cancel Plaintiff’s entire outstanding debt, as required by the statute. Capital One filed a motion to dismiss on the grounds that Plaintiff’s CLEC claims were preempted by the NBA and that Plaintiff failed to state a claim for breach of contract because the administrator complied with the exact terms of Plaintiff’s contract. The District Court held that the CLEC was preempted by the National Bank Act and the District Court also held that plaintiff failed to state a claim for breach of contract.
The Fourth Circuit first addressed whether the NBA preempted CLEC, and it held that the NBA did not preempt CLEC with respect to Capital One. The Fourth Circuit held that the NBA only applies to national banks which “entered into” loans. It was clear that Capital One did not enter into the loan with plaintiff. Instead, Capital One was assigned the loan by a local automobile dealer. The Fourth Circuit held that the NBA does not apply, as was the case here, to national banks which purchase or are assigned loans. Since the NBA does not apply to Capital One in this instance, it cannot preempt CLEC.
The Fourth Circuit also addressed whether Plaintiff stated properly a claim for breach of contract. Under the express terms of the loan, the parties elected for CLEC to govern the loan. Therefore, the Fourth Circuit found that the contract between the parties expressly incorporated the terms of the statute. As such, Plaintiff did not receive what he contracted for. Plaintiff contracted for an agreement which complied with CLEC and would eliminate all of his remaining debt. Instead, he received a debt cancelation agreement which left him $1,504 in debt. As such, Plaintiff stated properly a claim for breach of contract.
The Fourth Circuit reversed and remanded the case to the district court for a determination as to: (1) whether Chase Bank violated CLEC; and (2) whether Capital One breach its contract with plaintiff.
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