Public Justice Blanco Key Bank 041006

Case 1:04-cv-00230-KMO Document 110-1 Filed 04/10/2006 Page 1 of 41
UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
RAMON BLANCO, individually, and on

behalf of all those similarly situated,
Plaintiff, Case No.: 1:04CV0230
vs.
KEYBANK USA, N.A., JP MORGAN

CHASE BANK, and BANK ONE
NATIONAL BANKING ASSOCIATION,
Defendants.
/
PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO

DEFENDANTS’ MOTION TO DISMISS PLAINTIFF’S
THIRD AMENDED AND SUPPLEMENTAL COMPLAINT
JAMES, HOYER, NEWCOMER CLARK & MARTINO, P.A.

& SMILJANICH, P.A. (Pro hac vice) J. Daniel Clark, Esq. (Pro hac vice)
Christopher C. Casper 3407 W. Kennedy Boulevard
One Urban Centre, Suite 550 Tampa, FL 33609
4830 West Kennedy Boulevard (813)879-0700
Tampa, Florida 33609-2517 (813) 879-5498 (Facsimile)
(813) 286-4100
(813) 286-4174 (Facsimile)
TRIAL LAWYERS FOR PUBLIC JUSTICE BURDGE LAW OFFICE CO., LPA
Leslie Brueckner, Esq. (Pro hac vice) Ronald L. Burdge, Esq. OBN 0015609
Richard Frankel, Esq. (Pro hac vice) 2299 Miamisburg-Centerville Road
1717 Massachusetts Avenue, Suite 800, Dayton, Ohio 45459-3817
Washington, DC 20036 (937) 432-9500
(202) 797-8600 (telephone) (937) 432-9503 (Facsimile)
(202) 232-7203 (facsimile)
Attorneys For Plaintiff

TABLE OF CONTENTS
Table of Contents…………………………………………………………………………… i
Table of Authorities………………………………………………………………………… iii
Brief Statement of the Issues……………………………………………………………… vii
Summary of the Arguments………………………………………………………………… viii
Argument…………………………………………………………………………………... 1
I. Legal Standard For A Motion To Dismiss………………………………… 1

II. Factual Allegations Taken As True For Purposes
of Defendants’ Motion…………………………………………………….. 1
III. The Complaint States A Claim For TILA Violations………………………. 3
A. KeyBank Failed To Clearly and Accurately Disclose
Its Variable Interest Rate In the Federal Box………………………….. 5
IV. Plaintiff’s RISA Claim Is Not Preempted Because It
Does Not Conflict With Federal Purposes………………………………… 8
A. Plaintiff’s Claim Against JP Morgan Is Not Preempted………………. 9
B. Plaintiff’s RISA Cause of Action Does Not Conflict With
Or Otherwise Undermine National Banks’ Federally
Authorized Powers……………………………………………………. 10
1. Plaintiff’s RISA Claim Is Entirely Consistent With
the Goals Underlying the FTC Holder Rule……………………. 12
2. Plaintiff’s RISA Claim Is Entirely Consistent With
The Agency’s Decision Not To Make The FTC Holder
Rule Enforceable Against Banks………………………………… 16
3. Plaintiff’s Claims Will Not Unduly Burden Banks’
Ability To Conduct Federally Authorized Business……………… 20
a. Plaintiff’s Claim Places No New Burdens On
Defendants…………………………………………………. 20
b. Any New Obligations On Defendants Are
Minimal and Do Not Impair Their Business
Operations…………………………………………………. 22
4. Plaintiff’s RISA Claim Is Also Not Preempted Because

KeyBank’s Activities Were Not “Authorized” By
Federal Law……………………………………………………… 25
C. The OCC’s Regulations Are Invalid To the Extent They Seek
To Preempt the Entire Field of State Law…………………………….. 26
Conclusion …………………………………………………………………………………. 28
Certification of Tracking and Page Limitation ……………………………………………... 30
Certificate of Service ……………………………………………………………………….. 31
ii
TABLE OF AUTHORITIES
CASES
Abel v. KeyBank USA, N.A., __ F. Supp.2d __, 2004 WL 540699 (N.D. Ohio Mar. 4, 2004) .....8
Abel v. KeyBank USA, N.A., No. 0-3-CV-524 (N.D. Ohio Sept. 24, 2003) ..................................7
Abel v. KeyBank, 313 F. Supp.2d 720 (N.D. Ohio 2004) ............................................................19
Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944).................................................................23
Assoc. of Nat’l Banks in Ins., Inc. v. Duryee, 270 F.3d 397 (6th Cir. 2001) ...............................23
Atherton v. FDIC, 519 U.S. 213 (1997) .......................................................................................27
Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp.2d 894 (S.D. Miss. 1998)................7
Bank One Corp. v. Commissioner of Internal Revenue, 120 T.C. 174 (U.S. Tax Ct. 2003) ........6
Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996)..................................passim
Bates v. Dow Agrosciences, Inc., 544 U.S. 431, 125 S. Ct. 1788 (2005)....................9, 19, 20, 25
Bath Iron Works Corp. v. Director, Office of Workers’ Compensation Programs,

506 U.S. 153, 166 (1993) .................................................................................................11
Beach v. Owen Fed. Bank, 523 U.S. 410 (1998)............................................................................3
Begala v. Ohio National Assn., 163 F.3d 948 (6th Cir. 1998)........................................................4
Best v. United States National Bank, 739 P.2d 554 (Or. 1987) ...................................................28
Booth v. Old Nat’l Bank, 900 F. Supp. 836, 842 (N.D. W. Va. 1995) ........................................28
Bryant v. Mortgage Capital Resource Corp., 197 F. Supp. 2d 1357 (N.D. Ga. 2002)...............21
Chrysler Corp. v. Brown, 441 U.S. 281 (1979)............................................................................26
Columbia Natural Resources, Inc. v. Tatum, 58 F.3d 1101 (6th Cir. 1995) ..................................1
Conley v. Gibson, 355 U.S. 41 (1957)............................................................................................1
iii
CSX Transp., Inc. v. Easterwood, 507 U.S. 658 (1993)................................................................9
Equal Employment Opportunity Commission v. Ohio Edison Co., 7 F.3d 541 (6th Cir. 1993) ....1
Evans v. Federal Reserve Bank of Phila., 2004 WL 1535772 (E.D. Pa. July 8, 2004) ..............28
First Nat’l Bank v. Dickinson, 396 U.S. 122 (1969)....................................................................23
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (1980) ........................................................4, 5
Franklin Nat’l Bank of Franklin Square v. New York, 347 U.S. 373 (1954) ..............................23
Gen’l Motors Corp. v. Abrams, 897 F.2d 34 (2d Cir. 1990)..........................................................9
Gibson v. Bob Watson Chev.-Geo, Inc., 112 F.3d 283 (7th Cir. 1997) ..........................................7
Goleta Nat’l Bank v. Lingerfelt, 211 F. Supp. 2d 711 (E.D.N.C. 2002) .......................................9
Green Tree Acceptance, Inc. v. Pirtle, 1999 WL 33740367 (E.D. Mich. Mar. 1, 1999)............12
Green v. H&R Block, 981 F. Supp. 951 (D. Md. 1997).........................................................10, 12
Hendley v. Cameron-Brown Co., 840 F.2d 831 (11th Cir. 1988)...................................................7
Idaho v. Security Pac. Bank, 800 F. Supp. 922 (D. Idaho 1992).................................................28
Isle Royale Boaters Ass’n v. Norton, 330 F.3d 777 (6th Cir. 2003) ............................................11
Jones v. The TransOhio Sav. Ass'n, 747 F.2d 1037 (6th Cir.1984)...............................................4
Kroske v. US Bank Corp., 432 F.3d 976 (9th Cir. 2005) .........................................................9, 20
Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit,

507 U.S. 163 (1993) ...........................................................................................................1
Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155 (C.D. Ill. 1993)............................................3
Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (1980) ..................................................9, 27
Long v. ACE Cash Express, 2001 WL 34106904 (M.D. Fla. June 15, 2001).........................9, 28
Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355 (1986)......................................................26
iv
Maberry v. Said, 911 F. Supp. 1393 (D. Kan. 1995) ...................................................................12
McClellan v. Chipman, 164 U.S. 347 (1896)...............................................................................27
Michigan United Conservation Clubs v. Lujan, 949 F.2d 202 (6th Cir. 1991)...........................11
Nat’l Bank v. Commonwealth, 76 U.S. (9 Wall.) 353 (1869) ......................................................23
National State Bank v. Long, 630 F.2d 981 (3d Cir. 1980) .........................................................27
North Dakota v. Merchants Nat’l Bank and Trust Co., 634 F.2d 368 (8th Cir. 1980) ...............28
Owensboro Nat’l Bank v. Moore, 803 F. Supp. 24 (E.D. Ky. 1992)...........................................28
Pearson v. Easy Living, Inc., 534 F. Supp. 884 (S.D. Ohio 1981) ................................................4
Perdue v. Crocker National Bank, 702 P.2d 503 (Cal. 1985) .....................................................28
Purtle v. Eldridge Auto Sales, Inc., 91 F.3d 797 (6th Cir. 1996)...................................................4
Scheuer v. Rhodes, 416 U.S. 232 (1974)........................................................................................1
Sinay v. Lamson & Sessions Co., 948 F.2d 1037 (6th Cir. 1991)...................................................1
Smith v. Wells Fargo, 38 Cal. Rptr. 3d 653 (Cal. App. 2005) .....................................................20
Sprietsma v. Mercury Marine Corp., 537 U.S. 51 (2002) ...............................................18, 19, 20
State of Colorado ex rel. Salazar v. ACE Cash Express,

188 F. Supp. 2d 1282 (D. Colo. 2002)...............................................................................9
Turner v. Citywide Home Improvement Inc., 2000 WL 262664

(Ohio Ct. App. Mar. 10, 2000).........................................................................................vii
Univ. Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839 (6th Cir. 2000) ........................11
Varljen v. Cleveland Gear Co., 250 F.3d 426 (6th Cir. 2001)........................................................1
Video Trax, Inc. v. Nationsbank, N.A., 33 F. Supp. 2d 1041 (S.D. Fla. 1998)............................28
Wachovia Bank, N.A. v. Watters, 431 F.3d 556 (6th Cir. 2005)..................................................26
v
Zinermon v. Burch, 494 U.S. 113 (1990) .......................................................................................1
OTHER AUTHORITIES
12 C.F.R. § 226 ......................................................................................................................passim
12 C.F.R. § 226, Supp. I, Off. Staff Interpretation, Subpart C, ¶ 226.18 (f)(1)(i)1.......................5
12 C.F.R. § 226.17(a)(1).........................................................................................................3, 7, 8
12 C.F.R. § 226.18 ................................................................................................................. 5, 6, 7
12 C.F.R. § 7.4008 .................................................................................................................. 23-25
16 C.F.R. § 433.2 ..........................................................................................................................12
12 U.S.C. § 24 ............................................................................................................................. viii

12 U.S.C. § 371 .............................................................................................................................11
15 U.S.C. § 1601 ................................................................................................................. viii, 3, 6
15 U.S.C. § 1640 .....................................................................................................................4, 6, 7
15 U.S.C. §1638 ........................................................................................................................vii, 5
40 Fed. Reg. 53506 ........................................................................................................... 12-14, 21

41 Fed. Reg. 20022, Staff Guidelines on Trade Regulation Rule Concerning
Preservation of Consumers’ Claims and Defenses (May 14, 1976) ...............................15
53 Fed. Reg. 44456 ................................................................................................................. 16-17
69 Fed. Reg. 1904, Bank Activities and Operations; Real Estate Lending and Appraisals
(Jan. 13, 2004) .................................................................................................................11
O.R.C. § 1317.032(C) ........................................................................................................... vii, viii
5 Wright & Miller, Federal Practice & Procedure, § 1357..........................................................1

Patricia M. McCoy, BANKING LAW MANUAL, § 2.01 (2d ed. 2002)...........................................27
RULES
Fed. R.Civ. P. 8(a)(2)......................................................................................................................1
Fed. R. Civ. P. 12(b)(6)...................................................................................................................1
Fed. R. Civ. P. 9 ..............................................................................................................................1
vi
BRIEF STATEMENT OF THE ISSUES
The sole issue at this stage of the case is whether Plaintiff, taking as true all the factual
allegations in the Third Amended and Supplemental Class Action Complaint and Demand For
Jury Trial, [Dkt. # 98] (“Complaint”), and all inferences in the light most favorable to them, has
alleged a short, plain statement in support of his two causes of action against Defendants.
With respect to Plaintiff’s Truth-in-Lending Act (“TILA”) claim against KeyBank
(Count I), the issue is whether Plaintiff can allege violations due to KeyBank’s failures to
clearly and accurately identify the index tied to its variable interest rate pursuant to TILA, §
1638(a)(4), and Regulation Z, § 226.18(f)(1)(i).
The issue for Plaintiff’s Ohio Retail Installment Sales Act (“RISA”) claim against the
Defendants (Count II) is whether Defendants, as holders in due course, can be held liable under
the RISA, § 1317.032(C), or whether Defendants, collectively given KeyBank and Bank One
National Banking Association’s national banking status, are exempt from such liability under
their preemption argument even though Defendant, JP Morgan Chase Bank, is not a national
bank.
vii
SUMMARY OF THE ARGUMENTS
KeyBank is absolutely wrong when it says that it did not have to identify the index tied to
its variable interest rate to comply with TILA, 15 U.S.C. § 1601 et seq., and Regulation Z,
12 C.F.R. §226, TILA’s implementing regulation. The Official Staff Commentary to Regulation
Z says just that – “[t]he circumstances under which the [variable interest] rate may increase
include identification of any index which the rate is tied.” KeyBank goes even further to
undermine its argument with the admission that it failed to identify the actual index in the
“Federal Box” disclosure, listing the index as the “LIBOR” in the Federal Box, but then
correcting that disclosure by referencing the actual index as the “three month LIBOR” (one of
many LIBOR indexes) in the boilerplate terms of its standard form contract. TILA assesses strict
liability for such a failure.
Plaintiff’s remaining claim against Defendants falls under RISA, § 1317.032(C). This
Court need not look any further than the rights afforded to consumers, like Plaintiff and potential
Class Members here, under that statute and the Turner v. Citywide Home Improvement Inc., 2000
WL 262664 (Ohio Ct. App. Mar. 10, 2000) decision to reject the Defendants’ argument.
Defendants’ argument that the National Bank Act, 12 U.S.C. § 24 (the “Act”), preempts
RISA is incorrect. As a threshold matter, the Act does not preempt any claims against Defendant,
JP Morgan Chase, which is not a national bank. The National Bank Act only applies to national
banks, and therefore non-national banks such as JP Morgan Chase cannot avail themselves of this
preemption defense. Nor is Plaintiff’s RISA claim preempted with respect to any of the other
Defendants, because the RISA claim promotes, rather than conflicts with, the federal purposes
underlying the Federal Trade Commission’s Holder In Due Course Rule (“FTC Holder Rule”).
viii
Thus, Plaintiff’s claim does not “prevent or significantly interfere with” Defendants’ business.
Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 33 (1996). Finally, Defendants’
reliance on regulations passed by the Office of the Comptroller of the Currency (“OCC”) is
misplaced. The OCC did not intend to occupy the field of laws regulating national banks, and
RISA falls within one of the areas left to the states to regulate.
ix
ARGUMENT
I. LEGAL STANDARD FOR A MOTION TO DISMISS
First, the Court must accept as true all of the factual allegations of the Complaint and find
all inferences from those facts in the light most favorable to Plaintiff.1 Second, the Motion cannot
be granted "unless it appears beyond doubt that the plaintiff[s] can prove no set of facts in support
of [his] claim[s]."2
Put differently, Rule 12(b)(6) motions to dismiss are viewed with disfavor and rarely
granted. 5 Wright & Miller, Federal Practice & Procedure, § 1357. And with the exception of
fraud allegations under Rule 9 – not involved here – all that is required to state a claim is a short,
plain statement that gives a defendant fair notice of what the claim is and the grounds on which it
rests.3
II. FACTUAL ALLEGATIONS TAKEN AS TRUE FOR PURPOSES OF

DEFENDANTS’ MOTION
For the purposes of its Motion, KeyBank has admitted to the factual allegations in the
Complaint. Defendants’ memorandum of law (“Memo”), at 1, n.1. Therefore, the following facts
are assumed to be true.
1
Zinermon v. Burch, 494 U.S. 113, 119 (1990); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
See Columbia Natural Resources, Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995), cert. denied,
516 U.S. 1158 (1996); Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1039-40 (6th Cir. 1991)
(“All factual allegations made by the plaintiff are deemed admitted, and ambiguous allegations
must be construed in the plaintiff's favor.”).
2
Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord, Varljen v. Cleveland Gear Co., 250 F.3d
426, 429 (6th Cir. 2001) (emphasis added, all emphasis is added unless noted otherwise).
3
Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168
(1993) (citing Fed.R.Civ.P. 8(a)(2) and Conley, supra). Even so, the Sixth Circuit has
emphasized that the proper course of action is to give a plaintiff “at least one chance to amend
the complaint before . . . dismiss[ing] the action with prejudice.” Equal Employment Opportunity
Commission v. Ohio Edison Co., 7 F.3d 541, 546 (6th Cir. 1993).
KeyBank had a business arrangement with The Academy trade schools, known as The
Academy of Weston, Inc., The Academy of West Palm Beach, Inc., The Academy of Ft.
Lauderdale, Inc., The Academy of Tampa, Inc., The Academy of Kendall, Inc., and The Academy
of South Florida, Inc. (collectively referred to as “The Academy Schools”), across the State of
Florida to solicit loans for KeyBank. Compl. ¶¶ 3, 8-9. Plaintiff enrolled at The Academy of
Weston and entered into a “Student Enrollment Agreement” that included financial terms and
disclosures relating to his student loan. Id. ¶ 10. After Plaintiff signed that agreement, KeyBank
subsequently solicited and offered financing for Plaintiff’s student loan under his Student
Enrollment Agreement through its agent(s) at The Academy Schools. Id. ¶ 11. KeyBank then
made payment to The Academy of South Florida for the full amount of Plaintiff’s tuition before
Plaintiff enrolled in classes at The Academy of Weston. Id. At the time Plaintiff signed the
Student Enrollment Agreement, KeyBank issued a Truth-in-Lending disclosure and promissory
note to Plaintiff. Id. ¶ 12. Even though KeyBank was involved with The Academy Schools in its
transaction with Plaintiff, KeyBank failed to discharge Plaintiff’s payment obligations under the
promissory note after The Academy of Weston shut its doors before Plaintiff had the opportunity
to complete his education. Id. ¶ 13.
After making the subject loan to Plaintiff and all those similarly situated, KeyBank
received full value for the loans by selling them as part of a huge pool of loans that ultimately
became KeyCorp Student Loan Trust 2002-A. This sale process is called asset backed
securitization because the KeyCorp Student Loan Trust 2002-A issues investment securities that
are backed by the assets (i.e., the pool of loans) held by the trust. Id. ¶ 14. In addition to
receiving full value for the subject loan through the securitization process, KeyBank also
2
obtained a contract to service the loans and currently acts as servicer of the loans. Id. ¶ 15.
Defendants, JP Morgan Chase Bank (“JP Morgan”) and Bank One National Banking
Association (“Bank One”), are the current holders of the subject loans to Plaintiff and all those
similarly situated in its capacity as the eligible trustee of the KeyCorp Student Loan Trust 2002-
A. Id. ¶¶ 4, 5, & 14.
III. THE COMPLAINT STATES A CLAIM FOR TILA VIOLATIONS
We start with Count I of the Complaint and whether Plaintiff properly alleged that KeyBank
violated the TILA, 15 U.S.C. § 1601 et seq., and its implementing regulation, Regulation Z, 12
C.F.R. § 226 (“Reg. Z”).
TILA is a disclosure statute enacted by Congress "to assure a meaningful disclosure of
credit terms so that the consumer will be able to compare more readily the various credit terms
available to him and avoid the uninformed use of credit, and to protect the consumer against
inaccurate and unfair billing and credit practices.”4 Its purpose is to give consumers as much
information as possible and replace the old philosophy of let the buyer beware with let the seller
disclose. “To this end, the regulations requiring disclosures to be clear, conspicuous, and
segregated from irrelevant information have taken the form of what is commonly referred to as the
‘Federal Box.’”5 Compliance with these regulations is satisfied when the creditor places all the
4
15 U.S.C. § 1601(a). See Beach v. Ocwen Fed. Bank, 523 U.S. 410, 413 (1998).
5
Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155, 158 (C.D. Ill. 1993) (citing Reg. Z, §
226.17(a)(1)). Reg. Z, § 226.17(a) provides that “clear and conspicuous” means, among other
things, that the disclosures must be presented in a way that does not obscure the relationship of
the terms to each other; and “segregation of disclosures” means that the disclosures may appear
on a separate sheet of paper or may be set off from other information on the contract or other
documents by outlining them in a box, by bold print dividing lines, by different color
background, by a different style type. See 12 C.F.R. § 226, Supp. I, Off. Staff Interpretation,
Subpart C, ¶ 226.17(a)(1)1-2.
3
disclosures on one side of one document or groups the disclosures together within the Federal Box.
Id.
“TILA is a remedial statute and, therefore, should be given a broad, liberal construction in
favor of the consumer.” 6 In addition, such remedial purpose is furthered by imposing strict
liability on creditors when required disclosures have not been made. Purtle v. Eldridge Auto Sales,
Inc., 91 F.3d 797, 801 (6th Cir. 1996)("once violation found, "no matter how technical," court has
no discretion as to imposition of civil liability), cert. denied, 520 U.S. 1252 (1997). And liability is
based on an objective standard, irrespective of a particular plaintiff's subjective circumstances,
understanding, or reliance. Pearson v. Easy Living, Inc., 534 F. Supp. 884, 890 (S.D. Ohio 1981)
(“The standard of liability under TILA does not require that the failure to disclose or the garbled
disclosure deceive the consumer. TILA uses an objective standard and no actual deception need be
shown.”).
TILA, however, is not exhaustive. Congress delegated to the Federal Reserve Board the
authority to elaborate and expand the legal framework governing the commerce in credit. See Ford
Motor Credit Co. v. Milhollin, 444 U.S. 555, 567 (1980) (“Congress has specifically designated the
[FRB] . . . as the primary source for interpretation and application of the truth-in-lending law.”).
See TILA, § 1640(a)(explaining that FRB “shall prescribe regulations to carry out the purposes of
this subchapter”). The Supreme Court recognized that the “traditional acquiescence in
administrative expertise is particularly apt under TILA” and extended this judicial deference to
6
Begala v. Ohio National Assn., 163 F.3d 948, 950 (6th Cir. 1998). Additionally, the court stated
that “Indeed, TILA was designed to create a ‘system of private attorney generals to aid its
enforcement,’ and strict compliance with the disclosure requirement is necessary.” Id. (quoting
Jones v. The TransOhio Sav. Ass'n, 747 F.2d 1037, 1040 (6th Cir.1984)).
4
official staff interpretations, such as the Official Staff Commentary. Id., at 566, & n. 9.
The Complaint alleges that in connection with its extension of credit to Plaintiff and
potential Class Members, KeyBank violated TILA by failing to accurately disclose the variable
interest rate in accordance with TILA, § 1638(a)(4), and Reg. Z, § 226.18 (f)(1)(i)-(iv). Compl. ¶¶
32-33. A copy of a KeyBank TILA Disclosure to Plaintiff is attached as Exhibit No. 2 to the Third
Amended and Supplemental Class Action Complaint.
A. KeyBank Failed To Clearly and Accurately Disclose Its Variable Interest Rate
In the Federal Box.
KeyBank does not dispute that as the creditor, it was required to disclose all that is called
for in Reg. Z, § 226.18, specifically subpart (f)(1)(i)(disclosing “circumstances under which rate
may increase”). Memo, at 3. KeyBank had an obligation to “specify the particular index that the
annual percentage rate is tied to.” The Official Staff Commentary to Reg. Z, § 226.18(f)(1)(i)
clearly states that “[t]he circumstances under which the rate may increase include identification of
any index which the rate is tied.”7 However, KeyBank did not specify the index in the Federal
7
The Commentary provides in pertinent part:
1. Circumstances. The circumstances under which the rate may increase include
identification of any index to which the rate is tied, as well as any conditions or events on
which the increase is contingent.
12 C.F.R. § 226, Supp. I, Off. Staff Interpretation, Subpart C, ¶ 226.18 (f)(1)(i)1. Conformity
with the FRB’s pronouncement here is more compelling than it was in Milhollin, supra, where
the staff opinion only “fill[ed] the interstitial silences.” Id. at 565. Here, the Commentary states
exactly what a creditor is to do when disclosing a variable interest rate – identify the index which
the rate is tied to. This court should follow the preference of the Supreme Court for
administrative deference under TILA.
5
Box, merely referencing the London Interbank Offered Rates (“LIBOR”).8 That index disclosure
is inaccurate – or at a minimum unclear – because the LIBOR is made up of four (4) different
indexes and KeyBank generically identifies the index as the LIBOR.
KeyBank attempts to defend itself by relying on the boilerplate terms of its loan not found
in the Federal Box, and says that it did properly disclose the index as the “three month LIBOR”
(which is one of the four indexes of the LIBOR), and that its boilerplate disclosure should be
considered for dismissing TILA claim even though it was not disclosed precisely in the manner
contemplated by the regulations. Memo, at 4. A copy of KeyBank’s contract with Plaintiff is
attached as Exhibit No. 2 to the Third Amended and Supplemental Class Action Complaint, see ¶
D.3, at 1, under heading “Variable Rate,” with the boilerplate disclosure of the actual index – the
three month LIBOR.
Simply put, KeyBank believes it properly disclosed the index as the “three month LIBOR”
not where the regulations mandate – in the Federal Box – but instead in the small, boilerplate print
of its contract and that such disclosure is adequate. Such an argument admits the mistake and,
because of the strict compliance mandated by TILA "to assure a meaningful disclosure of credit
terms so that the consumer will be able to compare more readily the various credit terms available
to him and avoid the uninformed use of credit,” 15 U.S.C. § 1601(a), KeyBank’s failure is a TILA
violation. TILA, §§ 1640(a); and Reg. Z, § 226.18 (f)(1)(i)-(iv).
8
KeyBank merely references the LIBOR “published in the “Money Rates” section of the Wall
Street Journal . . . .” See Compl., Exh. 2; Memo, at 4. But there are actually four (4) different
indexes referenced in that publication – separate LIBOR rates are available and quoted for each
standard term, e.g. 1-month, 3-month, 6-month, and 12-month. Bank One Corp. v. Commissioner
of Internal Revenue, 120 T.C. 174, *19 (U.S. Tax Ct. 2003).
6
In Hendley v. Cameron-Brown Co., 840 F.2d 831 (11th Cir. 1988), a creditor’s disclosure
statement failed to fully disclose circumstances under which its variable interest rate might
increase. The Hendley court reversed the district court’s finding, among other things, that the
creditor was technically in compliance with the regulations. The district court had found that even
though the initial index information was not explicitly disclosed and that the disclosure statement
failed to comply with the requirements, it found that the creditor was protected under a good faith
defense pursuant to TILA, § 1640(f). Rejecting the good faith defense, the Hendley court held that
the creditor failed to meet regulatory standards under Reg. Z, § 226.18 (f) by “fully disclosing the
‘circumstances under which the rate may increase.’” Id. at 833.
Here, like in Hendley, KeyBank failed to “fully disclose” the circumstances under which
the rate may increase pursuant to Reg. Z, § 226.18(f) in the Federal Box, leaving unclear which
LIBOR its variable interest rate was tied to. It is not until you get to the small boilerplate terms of
the contract does one find that the rate is actually tied to the “three month LIBOR.” That
boilerplate disclosure does not meet TILA’s strict “Federal Box” disclosures. See Reg. Z, §
226.17(a)(1) and discussion at supra note 5 and 7.
KeyBank’s arguments and citations are inapposite. Memo, at 4-5. (citing Gibson v. Bob
Watson Chev.-Geo, Inc., 112 F.3d 283 (7th Cir. 1997)(totally unrelated to any issues at hand in this
class action). Cf. Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp.2d 894, 905 (S.D.
Miss. 1998) (disagreeing with Gibson on its reading of the Commentary).
Moreover, this Court in Abel et al v. KeyBank et al, Case No. 1:03cv524, United States
District Court, Northern District of Ohio, Eastern Division (Judge Patricia A. Gaughan presiding)
in an unpublished opinion dated September 24, 2003, [Dkt. # 41], rejected the same arguments
7
presented here by KeyBank in an identical situation (involving a different trade school) and denied
KeyBank’s motion to dismiss. See also Order dated September 30, 2005, [Dkt. # 68], denying
KeyBank’s original motion to dismiss in this case; subsequently vacated by Order dated December
28, 2005, [Dkt. # 97]). The Abel court also certified the class of TILA class members on the same
grounds sought here. See Abel v. KeyBank USA, N.A., __ F. Supp.2d __, 2004 WL 540699 (N.D.
Ohio Mar. 4, 2004).
Here, KeyBank must not only disclose the required terms, it must do so clearly and
accurately. As a result of its failure to fully disclose the circumstances under which the rate may
increase by clearly identifying the index that its variable interest rate is tied to – in the Federal Box
– pursuant to Reg. Z, §§ 226.17(a)(1), KeyBank violated TILA and Plaintiff has properly pled his
TILA claim.
IV. PLAINTIFF’S RISA CLAIM IS NOT PREEMPTED BECAUSE IT DOES NOT

CONFLICT WITH FEDERAL PURPOSES.
Defendants broadly assert that Plaintiff’s RISA claim is preempted by the National Bank
Act, 12 U.S.C. § 21, et seq. because, if allowed to proceed, it “would result in a novel expansion of
the law” and “would dramatically interfere” with defendants’ lending processes. Memo, at 12. As
explained below, however, despite Defendants’ doomsday predictions, the RISA claim does not
“expand” the law but is consistent with existing federal law, as it simply parrots the requirements
of the Federal Trade Commission’s Holder In Due Course Rule (“FTC Holder”), a rule that has
been on the books for more than 30 years.
Any consideration of a federal preemption defense begins with the presumption that “that
Congress does not cavalierly pre-empt state law causes of action. In areas of traditional state
regulation, we assume that a federal statute has not supplanted state law unless Congress has made
8
such an intention clear and manifest.” Bates v. Dow Agrosciences, Inc., 544 U.S. 431, 125 S. Ct.
1788, 1801 (2005). Because consumer protection is an area of traditional state regulation, the
presumption against preemption applies with full force here. Gen’l Motors Corp. v. Abrams, 897
F.2d 34, 41-42 (2d Cir. 1990).9 Even if such a presumption does not apply, however, Defendants’
preemption argument fails for the reasons explained below.
A. Plaintiff’s Claim Against JP Morgan Is Not Preempted.
Initially, regardless of whether this Court finds that the National Bank Act preempts
Plaintiff’s RISA claim against KeyBank and Bank One, Plaintiff’s RISA claim against JP Morgan
is not preempted because JP Morgan is not a national bank. The National Bank Act only applies to
nationally-chartered banks and exerts no preemptive force against non-national banks. See, e.g.,
Goleta Nat’l Bank v. Lingerfelt, 211 F. Supp. 2d 711, 717-18 (E.D.N.C. 2002) (“While it is true
that the NBA does preempt state efforts to regulate the interest collected by national banks, the
NBA patently does not apply to non-national banks.”); State of Colorado ex rel. Salazar v. ACE
Cash Express, 188 F. Supp. 2d 1282, 1284 (D. Colo. 2002) (“the NBA regulates national banks
and only national banks” (internal quotation omitted)); Long v. ACE Cash Express, 2001 WL
34106904 at *1 (M.D. Fla. June 15, 2001)(“The National Bank Act, however, does not apply to
9
Although Defendants contend that the presumption against preemption does not apply to claims
against national banks, see Memo, at 8 n.7, that contention has been rejected in cases where, as
here, the state law in question was enacted pursuant to a state’s historic police powers to protect
the health, safety and welfare of its citizens. See Kroske v. US Bank Corp., 432 F.3d 976, 981-82
(9th Cir. 2005) (applying presumption against preemption to a claim against a national bank); see
also Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 38 (1980) (“[B]oth as a matter of
history and as a matter of present commercial reality, banking and related financial activities are
a matter of profound local concern.”). Consequently, the U.S. Supreme Court has applied the
presumption against preemption in areas, such as railroad regulation, in which a significant
federal presence exists alongside a State’s powerful interest in protecting its citizens. See, e.g.,
CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993).
9
Defendant because defendant is not a national bank. Thus, the National Bank Act cannot preempt
plaintiff’s state law claims against defendants.”); Green v. H&R Block, 981 F. Supp. 951, 955 (D.
Md. 1997). Therefore, Plaintiff’s claim against JP Morgan is not preempted.
B. Plaintiff’s RISA Cause of Action Does Not Conflict With Or Otherwise

Undermine National Banks’ Federally Authorized Powers.
The National Bank Act also does not preempt Plaintiff’s RISA claim with respect to any of
the Defendants here because the claim furthers, rather than conflicts with, the federal purposes
underlying the FTC Holder Rule. Defendants correctly identify “conflict preemption” as the
proper standard to apply to charges of National Bank Act preemption. The U.S. Supreme Court
has established that the National Bank Act only preempts state laws that “prevent or significantly
interfere with the national bank’s exercise of its powers.” Barnett Bank of Marion County, N.A. v.
Nelson, 517 U.S. 25, 33 (1996). Although Defendants claim “further support” for their preemption
defense from regulations issued by the Office of the Comptroller of the Currency (OCC), see
Memo, at 8-9, in those regulations the OCC expressly declined to adopt a broad preemption
standard and instead adopted the existing, conflict-preemption standard set forth in U.S. Supreme
10
Court cases such as Barnett Bank. 10 See Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. 1904, 1910 (Jan. 13, 2004) (describing the final rule’s preemption
standard as a “distillation of the various preemption constructs articulated by the Supreme Court
. . . and not as a replacement construct that is in any way inconsistent with those standards,” and
expressly “declin[ing] to adopt the suggestion . . . that we declare that these regulations ‘occupy
the field’ of national banks’ . . . activities”); see also id. at 1908 (“The final rule does not entail any
new powers for national banks or any expansion of their existing powers.”).11 As explained
below, Plaintiff’s RISA claim does not run afoul of this standard; to the contrary, the claim actually
furthers important federal purposes as embodied in the FTC Holder Rule.
10
Although Defendants rely heavily on the public statements of Julie Williams, a single OCC
employee, in support of their motion, see Memo, at 9, 13-14, the lone statement of a single agency
employee merits no weight in interpreting the OCC’s preemption regulations. See Bath Iron Works
Corp. v. Director, Office of Workers’ Compensation Programs, 506 U.S. 153, 166 (1993) (“[W]e
give no weight to a single reference by a single Senator during floor debate in the Senate.”); Isle
Royale Boaters Ass’n v. Norton, 330 F.3d 777, 784-85 (6th Cir. 2003). That Ms. Williams’
statements must be disregarded is doubly true given that she issued her statements after the
adoption of the OCC regulations in question (the final rule was promulgated on January 13, 2004;
Ms. Williams testimony occurred on January 28, 2004). See Michigan United Conservation Clubs
v. Lujan, 949 F.2d 202, 209-10 (6th Cir. 1991) (holding that post-hoc statements are not part of a
statute’s legislative history and provide no interpretive guidance); see also Univ. Hosps. of
Cleveland v. Emerson Elec. Co., 202 F.3d 839, 848 n.7 (6th Cir. 2000) (holding that an ERISA
plan administrator’s self-serving post-hoc statements deserved no deference). In any event, her
statements regarding the ability of the OCC to protect consumers are irrelevant. Plaintiff’s
argument is not that a finding of preemption will leave consumers unprotected (although that is
most likely the case), but that his claim does not conflict with federal law.
11
The OCC took the same position in a “Question and Answer” sheet listed on its website,
which states (among other things) that, “although we believe the statute authorizing national
banks’ real estate lending activities (12 U.S.C. § 371) could permit the OCC to occupy the field
of national bank real estate lending through regulation, we have declined to announce such a
position in the final rule.” See “Preemption Final Rule, Questions and Answers, January 2,
2004,” at 1, available at www.occ.treas.gov/2004-3dPreemptionQNAs.pdf.
11
1. Plaintiff’s RISA Claim Is Entirely Consistent With the Goals

Underlying the FTC Holder Rule.
Defendants’ principal argument is that Plaintiff’s RISA claim must be preempted because it
is nothing more than a backdoor attempt to apply the FTC Holder Rule to banks. By way of
background, the FTC Holder Rule requires all sellers entering into “consumer credit contracts” or
accepting the proceeds of “purchase money loans” to include language in their loan agreements
preserving the buyer’s right to assert “all claims and defenses” against future “holders” of the loans
that the buyer could assert against the original seller. 16 C.F.R. § 433.2. The FTC recognized that
consumers who are victims of unscrupulous sellers often have no direct recourse against the seller
itself, either because the seller is judgment-proof or has sold the credit instrument to a third-party,
and concluded that it needed it to take action in order to correct the problem of leaving consumers
who are victims of seller misconduct stuck with substantial loan obligations. 40 Fed. Reg. 53506,
53522 (Nov. 18, 1975). Realizing that consumers often are in the worst position to determine the
future likelihood of seller misconduct, the FTC enacted the Holder Rule in order to “reallocate the
cost of seller misconduct to the creditor, who is in a better position to absorb the loss or recover the
cost from the guilty party -- the seller.” Green Tree Acceptance, Inc. v. Pirtle, 1999 WL 33740367
at *3 (E.D. Mich. Mar. 1, 1999); see also 40 Fed. Reg. at 53523; Maberry v. Said, 911 F. Supp.
1393, 1402 (D. Kan. 1995)(“The FTC holder rule reallocates the cost of seller misconduct from the
consumer to the creditor.”).
Although the FTC Holder Rule expressly allows a consumer to assert any claims or
defenses against a creditor that it could assert against the original seller, violations of the Rule
itself – i.e. where a seller fails to put the required language in its contract with the buyer – are only
directly actionable against sellers, not creditors. Thus, if a seller violates the rule and fails to
12
include the language in its loan documents with a creditor, the federal government is only
empowered to sue the seller, not the bank. As a practical matter, this does not undercut the
purposes of the rule, because the fact that it is enforceable is sufficient to ensure that the required
language is included, and hence that creditors bear the risk of seller misconduct, in most cases.
In their brief, however, Defendants argue that, because the FTC Holder Rule is not directly
enforceable against banks, permitting consumers like Plaintiff to hold creditors liable for seller
misconduct under RISA statute would conflict with – and thereby undermine – federal purposes.
In support of this argument, Defendants point out that the Federal Trade Commission (“FTC”)
actually rejected a regulation that would made violations of the FTC Holder Rule directly
enforceable against banks. Memo, at 12 n.10. Given this federal decision not to impose the precise
obligation that the plaintiff here seeks to impose under RISA, Defendants conclude that the
Plaintiff’s RISA claim interferes with federal purposes.
The regulatory materials accompanying the original FTC Holder Rule disprove
Defendants’ argument. The preamble to the Rule makes crystal clear that the federal government
fully intended for banks to be subject to the strictures of the Rule, even though they cannot be held
legally accountable for violating its terms. There, the FTC explained that its “primary concern . . .
has been the distribution or allocation of costs occasioned by seller misconduct in credit sale
transactions.” Id. at 53522. The agency stated that “[t]he current commercial system[,] which
enables sellers and creditors to divorce a consumers’ obligation to pay for goods and services from
the seller’s obligation to perform as promised, allocated all of these costs to the customer/buyer.”
13
Id. This was problematic and unfair, in the FTC’s view, because “[c]onsumers are generally not in
a position to evaluate the likelihood of seller misconduct in a particular transaction.” Id.12
To solve this problem, the agency consciously chose to impose the costs of seller
misconduct on the creditor – the best party, in the FTC’s view, to bear this responsibility. See id. at
53523. This choice reflected the agency’s conclusion that, “as a practical matter, the creditor is
always in a better position than the buyer to return seller misconduct costs to sellers, the guilty
party.” Id. The agency found that “a rule which compels creditors to . . . absorb seller misconduct
costs will discourage many of the predatory practices and schemes discussed [above].” Id. See
also id. at 53524 (FTC Holder Rule designed to ensure that “creditors will be responsible for seller
misconduct,” because “[w]e can imagine no reasonable measure of value which could justify
requiring consumers to assume all risk of seller misconduct, particularly where creditors who
profit from consumer sales have access to superior information combined with the means and
capacity to deal with seller misconduct consists expeditiously and economically”)(emphases
added); id. at 53509 (noting that, “[b]etween an innocent consumer, whose dealings with an
unreliable seller are, at most, episodic, and a finance institution. . . , the financier is in a better
position both to protect itself and to assume the risk of a seller’s responsibility”); id. at 53524
(noting that “creditors are always in a better position than consumers to return misconduct costs . .
. .”).
12
Notably, the agency specifically singled out “courses of training and instruction” as a
particular area of concern whereby seller misconduct has been unfairly passed on to innocent
consumers. See 40 Fed. Reg. at 53510 (listing various trade schools); id. at 53524 (noting that
“[t]he rule expressly applies to credit contracts arising from sales of services, such as trade or
vocational school agreements as well as sales of consumer tangibles.”).
14
Thus, the whole point of the FTC Holder Rule is to impose the costs of seller misconduct
on creditors, who are in the best position to evaluate the risks of any given transaction. Given this
goal, it is hard to imagine how Plaintiff’s RISA claim is inconsistent with the purposes underlying
the FTC Holder Rule. In reality, Plaintiff’s claim directly furthers federal purposes by making
creditors like Defendants liable for the misconduct of the sellers with whom they choose to do
business.
In response, Defendants may contend that Plaintiff’s RISA claim conflicts with federal
purposes because the FTC Holder Rule was intended to provide an upper limit on the extent of
liability that can be imposed on creditors. Any such argument would be disproved, however, by
guidelines promulgated by the FTC contemporaneously with the passage of the FTC Holder Rule.
See Staff Guidelines on Trade Regulation Rule Concerning Preservation of Consumers’ Claims
and Defenses, 41 Fed. Reg. 20022 (May 14, 1976). There, the agency stated that, although the
required FTC Holder Notice states that a consumers’ “recovery hereunder” is limited to certain
amounts, the FTC Rule does not limit a larger recovery under a different state or federal law. The
FTC specifically wrote that “[t]he limitation on affirmative recovery does not eliminate any other
rights the consumer may have as a matter of local, state, or federal statute. The words ‘recovery
hereunder’ which appear in the text of the Notice refer specifically to a recovery under the Notice.
If a larger affirmative recovery is available against a creditor as a matter of state law, the consumer
would retain that right.” Id. at 7 (emphasis added); see also Pirtle, 1999 WL 33740367 at *3, n.9
(citing FTC Staff Guidelines). Plaintiff’s claim is entirely consistent with this framework, as
Plaintiff simply seeks a “larger affirmative recovery” from Defendants than would be permitted by
federal law.
15
It is ironic that the only reason the federal preemption question has even arisen in this case
is because Plaintiff’s loan contracts were issued in violation of federal law. If those contracts had
contained the language required by the FTC Holder Rule, then Defendants would be contractually
subject to all the claims and defenses that the Plaintiff could have asserted against the seller, and
there would be no issue of federal preemption in this case. It is only because the contracts were
issued in violation of federal law that Defendants can even attempt to avoid liability here. Under
these circumstances, permitting Plaintiff to proceed with his RISA claim will actually vindicate
federal purposes by putting Defendants in the same position that it would have been in if the FTC
Holder Rule had not been violated in the first place. Against this backdrop, Defendants’ attempt
to turn a violation of federal law into a weapon for federal preemption rings hollow.
2. Plaintiff’s RISA Claim Is Entirely Consistent With the Agency’s

Decision Not to Make the FTC Holder Rule Enforceable Against
Banks.
Defendants defend their position by pointing to the fact that the federal government
affirmatively decided not to make the FTC Holder Rule directly enforceable against third-party
creditors. Memo, at 12 n.10. This decision, Defendants suggest, necessarily implies a federal
determination that creditors who violate the FTC Holder Rule should never be held subject to the
same defenses as could be asserted against sellers, even where such a cause of action exists under
state law. The regulatory history of the FTC’s decision, however, refutes Defendants’ point.
At the time the FTC promulgated the original Holder Rule, it commenced a proceeding to
amend the Rule to make it directly enforceable against third-party creditors. See 53 Fed. Reg.
44456 (Nov. 3, 1988)(discussing history of FTC Holder Rule). After many years, however, the
agency decided not to make creditors subject to federal punishment for violation of the Rule. See
16
id. In explaining its decision, the FTC stated first that its legal standards for evaluating unfairness
had changed since it issued its original proposal, and that, in light of these new standards, “the
evidence is inadequate to support issuance of the proposed amendment.” Id. The agency then
stated that “the record contains little evidence of consumer injury occurring after the Holder Rule
became effective and little evidence to suggest that creditor participation in cutting off consumers’
claims is prevalent.” Id. The agency noted, however, that “this decision does not, of course,
foreclose the Commission from considering in the future whether the Rule should be extended to
creditors,” id. at n.4, and it specifically sought public comment on “[w]hat evidence, if any, is there
now that the Rule should be extended to creditors.” Id. at 44458.
This language could not be more telling with regard to the agency’s purposes and the
absence of any conflict between plaintiff’s claims and federal goals. Contrary to the Defendants’
arguments, the sole reason the FTC decided not to extend the FTC Holder Rule to third-party
creditors was that there was insufficient evidence of “consumer injury” or of “creditor participation
in cutting off consumer claims” to justify this approach. In other words, because the FTC Holder
Rule was already being followed in most cases, the agency concluded that there was little need
affirmatively to extend it to creditors. This is a far cry from a decision that creditors affirmatively
should be permitted as a matter of federal law to conduct their business in violation of the FTC
Holder Rule. Rather, it is merely a finding that, as of that time, there was insufficient evidence of a
universal problem to justify a duplicative additional layer of federal bureaucracy to enforce a rule
that was already being followed, but that additional regulation might be warranted at some point in
the future.
17
As the U.S. Supreme Court recently instructed, that sort of reasoning – i.e., that insufficient
data currently exists to justify a universal federal regulation, but that some form of regulation
might be appropriate in the future – cannot form the basis for finding a conflict between state and
federal law sufficient to give rise to preemption. See Sprietsma v. Mercury Marine Corp., 537 U.S.
51 (2002). Sprietsma considered whether the U.S. Coast Guard’s decision not to require propeller
guards on all recreational boat engines impliedly preempted common-law claims that a boat
manufacturer was negligent for failing to install a propeller guard on a particular boat engine. The
Court held that the mere decision not to regulate does not exert any preemptive force; instead, the
question is whether the common-law claims would undermine the agency’s stated reasons for
declining to regulate. Id. at 65.
Sprietsma went on to hold that, because the Coast Guard never found that propeller guards
are unsafe, but instead merely found that it lacked available data to justify a uniform federal rule
requiring propeller guards on all boats – in part because there was no “universally acceptable”
propeller guard model suitable for use on all boats and in part because of the high cost of
“retrofitting millions of boats,” see id. at 66-67, the common-law claims would not undermine any
federal regulatory purposes and must be permitted to proceed.
This reasoning applies here with full force. First, Sprietsma makes clear that the FTC’s
mere decision not to extend the Holder Rule to creditors does not, in and of itself, possess any
preemptive force. Second, Sprietsma teaches that a decision not to regulate based on an agency’s
finding that there is insufficient evidence to justify a federal rule – but that such a rule might be
warranted in the future – also lacks any preemptive effect. As with the Coast Guard’s decision in
Sprietsma, the FTC merely found that, due to “insufficient evidence” of a widespread problem of
18
creditors cutting off consumer defenses, there simply was no justification for further federal
regulation in the area. And, as in Sprietsma, the agency did not decide that such a regulation
would never be justified; to the contrary, it said that such a rule might be warranted in the future,
and that it would continue to study the issue. This is precisely the sort of reasoning that, under
Sprietsma, cannot be said to preempt any common-law claims.13
Additionally, the Supreme Court’s recent decision in Bates v. Dow Agrosciences confirms
that federal law does not preempt state statutes which provide a remedy for actions that are
inconsistent with federal law, even where federal law does not provide an independent remedy,
because such state laws “would seem to aid, rather than hinder,” the purposes of federal law. 125
S. Ct. at 1802. There, the Court found that a state-law claim seeking to enforce a federal
requirement concerning pesticide labeling was not preempted, even though the federal law at issue,
like the FTC Holder Rule, did not provide a private cause of action. The Court held that “a state
cause of action that seeks to enforce a federal requirement” was not preempted and that the fact
that the federal statute “does not provide a federal remedy” does not “preclude[] States from
13
This argument is not inconsistent with the ruling in Abel v. KeyBank, 313 F. Supp.2d 720
(N.D. Ohio 2004), that the federal government has never created a private cause of action for
violation of the FTC Holder Rule or made the Rule directly applicable to creditors. Although the
plaintiff disagrees with that ruling (which was rendered without benefit of any of the arguments
set forth herein), the fact remains that the absence of a private cause of action for enforcement of
the FTC Holder Rule under federal law does not translate into an affirmative federal
determination to wipe out similar causes of action that may exist under state law. In fact, as
demonstrated by the regulatory history cited above, the sole reason that the federal government
decided not to apply the FTC Holder Rule to creditors is because such a rule appeared not to be
necessary due to creditors’ voluntary compliance with the FTC Holder Rule.
This decision is wholly consistent with the availability of state law remedies in those
relatively rare cases where – as here – the creditor seeks to evade the letter and the spirit of the
FTC Holder Rule by doing business with a disreputable seller and then insisting on payment for
services not rendered.
19
providing such a remedy.” Id. at 1800-01. Bates therefore establishes that Congress did not intend
to preempt state-law claims that track existing federal rules or that provide a remedy for a
defendant’s failure to follow those rules. That reasoning is fully applicable to the National Bank
Act and the OCC’s regulations as well. See Kroske, 432 F.3d at 987 (finding that the National
Bank Act did not preempt the Washington Law Against Discrimination (WLAD) because WLAD
“mirrors the substantive provisions of the [federal Age Discrimination in Employment Act] ADEA
and is interpreted consistently with the ADEA”); Smith v. Wells Fargo, 38 Cal. Rptr. 3d 653, 670-
71 (Cal. App. 2005)(holding that the OCC’s preemption regulations did not preempt a state-law
claim predicated on a violation of a federal rule). Thus, even though the FTC did not make its rule
directly actionable against creditors, the State of Ohio’s decision to enact a statute providing a
state-law remedy against creditors that fail to include in their contracts the language required by
the FTC Holder Rule is fully consistent, rather than in conflict, with the purposes of the FTC
Holder Rule. Defendants’ illogical argument that one federal law preempts attempts to carry out
the intent and purpose of another federal law misreads the doctrine of federal preemption and must
be rejected.
3. Plaintiff’s Claim Will Not Unduly Burden Banks’ Ability To

Conduct Federally Authorized Business.
a. Plaintiff’s Claim Places No New Burdens On

Defendants.
Defendants never discuss either Sprietsma or Bates in their Memo. Instead, in addition to
arguing about the FTC Holder Rule, Defendants argue that the Plaintiff’s RISA claim should be
held preempted because it would unduly interfere with banks’ ability to conduct their business.
Defendants suggest that RISA must be preempted because otherwise, banks would have to bear the
20
heavy burden of scrutinizing the legitimacy of sellers with whom they choose to do business.
Memo, at 11 (“[RISA] effectively makes national banks insurers for the poor performance of
unrelated parties or for purchases that go awry, dramatically interfering with banks’ lending
processes”). But that is already the “burden” imposed on banks by virtue of the FTC Holder
Rule, the whole point of which is to encourage third-party creditors to investigate sellers by
making them subject to the same claims and defenses as sellers. See, e.g., 40 Fed. Reg. at 53524
(goal of Rule is to “impel creditors to exercise reasonable care in financing certain sales
transactions”); Bryant v. Mortgage Capital Resource Corp., 197 F. Supp. 2d 1357, 1364 n.23
(N.D. Ga. 2002) (“[T]he aim of the FTC’s initiative was not only the literal preservation of claims
and defenses, but also the establishment of a broader market-based incentive for creditors to
inquire into the merchants from whom they purchase consumer installment paper and to refuse to
deal with those merchants whose conduct would subject the creditor to potential defenses.”
(citation and quotation omitted)). In other words, the “burden” that the Defendants seek to avoid is
one that federal law already places on it with respect to its dealings with reputable sellers. The
only reason that “burden” is not present in this particular case is because Defendants chose to enter
into loan contracts that violated federal law. Their attempt to leverage this situation into a reason
to avoid any liability under the RISA statute – a law that, for all intents and purposes, is animated
21
by exactly the same concerns as the FTC Holder Rule – should be rejected out of hand.14
Moreover, given that most loan agreements presumably do comply with the law and
therefore do contain the holder in due course language required by the FTC Holder Rule (language
that makes creditors subject to the same defenses as sellers), Defendants already must scrutinize
the legitimacy of sellers with whom they do business in order to avoid subjecting themselves via
contract to the same types of claims and defenses asserted by Plaintiff here. As a factual matter,
Plaintiff’s claim does not require Defendants to do anything that they do not already do.
Tellingly, although Defendants assert that Plaintiff’s claim will burden their business, they never
directly state that those alleged “burdens” are not ones that they already shoulder. Thus,
Defendants cannot credibly argue that Plaintiff’s RISA claim will “prevent or significantly
interfere with” their business in any way, because they are likely already engaging in the actions
that RISA requires.
b. Any New Obligations On Defendants Are Minimal And Do

Not Impair Their Business Operations.
Even aside from the FTC Holder Rule, Plaintiff’s claim does not “prevent or significantly
interfere with” Defendants’ ability to carry out authorized banking activities because RISA places,
at most, minimal obligations on defendants. Although Defendants contend that the OCC
14
Defendants’ argument that promissory notes in Ohio will be reduced in value relative to
similar notes as a result of plaintiff’s claim is equally unpersuasive. Memo, at 12. Defendants’
argument rests on a faulty premise; it applies only to loans that violate federal law by failing to
include the FTC Holder Rule language. In actuality, by requiring creditors to follow the terms of
the FTC Holder Rule, RISA ensures both (a) that promissory notes in Ohio have exactly the
same value relative to loans that comply with federal law by including the FTC Holder Rule
language, and (b) that loans which circumvent the Rule’s requirements are not unfairly inflated
in value.
22
regulations allow banks to make loans without regard to state-law limitations on “the terms of
credit,” see Memo, at 11 (citing 12 C.F.R. § 7.4008(d)(2)(iv)), Plaintiff’s RISA claim does not
affect Defendants’ ability to dictate the terms of the loan agreement. Ohio’s RISA law does not
prohibit Defendants from determining the interest rate, payment fees and penalties, payment
schedules, amortization rules, or anything else relating to the substance of the loans they offer.
Regardless of RISA’s applicability, Defendants can continue to make private loans under the terms
and conditions of their own choosing. Plaintiff’s RISA claim therefore is a far cry from the type of
statutes that courts typically have found to be preempted by the National Bank Act, i.e. statutes that
have effectively prohibited banks from conducting banking activities. See, e.g., Barnett Bank, 517
U.S. 25 (preempting state law prohibiting banks from selling insurance); Franklin Nat’l Bank of
Franklin Square v. New York, 347 U.S. 373 (1954)(finding that National Bank Act preempted state
law that directly prohibited banks from engaging in certain forms of advertising); Assoc. of Nat’l
Banks in Ins., Inc. v. Duryee, 270 F.3d 397 (6th Cir. 2001)(finding preemption of state law that
effectively “prohibit[ed] national banks from marketing insurance to a significant segment of their
own customers). By contrast, courts have refused to find preemption of statutes like RISA that
only incidentally affect bank activities. See, e.g., First Nat’l Bank v. Dickinson, 396 U.S. 122
(1969)(state law affecting branch banking not preempted); Anderson Nat’l Bank v. Luckett, 321
U.S. 233, 247-53 (1944)(National Bank Act did not preempt state law requiring banks to transfer
the assets of abandoned accounts to the State, despite the Bank’s allegations that the law would
interfere with its ability to take and pay deposits); Nat’l Bank v. Commonwealth, 76 U.S. (9 Wall.)
353, 362 (1869)(finding no preemption because “[i]t is only when the State law incapacitates the
23
banks from discharging their duties to the government that it becomes unconstitutional.” (emphasis
added)).
In fact, Plaintiff’s claim places no restriction whatsoever on Defendants’ ability to
negotiate, purchase, sell or otherwise deal in valid loans with respect to legitimate businesses.
RISA has no effect at all on valid loans. Its only impact is that an otherwise invalid loan cannot be
transformed into a legitimate loan simply because it involves a national bank. In other words,
because one cannot bring a successful RISA action if the underlying loan is valid and enforceable,
the law only affects the Defendants’ ability to traffic in illegal and invalid loans. Defendants do
not appear to dispute that the Academy Schools violated the law by breaching their contractual and
warranty obligations to Plaintiff.15 Rather, Defendants contend that Plaintiff’s RISA claim is
preempted precisely because the Academy School violated the law, as that violation is what
allegedly burdens defendants’ loan-making ability. Defendants’ preemption argument is
equivalent to a company like Merck arguing that states cannot pass laws concerning illegal drugs
because federal law preempts laws concerning legally approved medical drugs. Given that RISA
imposes no obligation with respect to Defendants’ relationship with legitimate sellers, which likely
constitute the bulk of Defendants’ business, Defendants’ argument that a state law restricting the
trafficking of illegal loans unduly burdens their business cannot withstand scrutiny.
15
Additionally, given that the loan’s invalidity arises from a breach of contract, the RISA claim
falls within the OCC preemption regulation’s savings clause. The OCC rule exempts state
contract law from federal preemption. 12 C.F.R. § 7.4008(e)(1). Here, the basis of Plaintiff’s
RISA claim is that the Academy Schools failed to provide the educational services that they
contracted to provide and that defendants assumed certain obligations under the contract when it
entered into a loan contract with the plaintiff. See Compl., ¶ 42 (alleging that the Academy
Schools breached their contract with Plaintiff and putative class members by failing to provide
contracted-for educational services). The critical legal issue underlying the RISA claim,
therefore, is one of contract law, not banking law.
24
4. Plaintiff’s RISA Claim Is Also Not Preempted Because KeyBank’s

Activities Were Not “Authorized” By Federal Law.
If any doubt remained about the extent of a conflict between plaintiff’s RISA claim and
federal purposes, it would be dispelled by another aspect of the OCC regulations that has
previously gone unmentioned in this case. On their face, those regulations merely preempt “state
laws that obstruct, impair, or condition a national bank’s ability to fully exercise its Federally
authorized non-real estate lending powers . . . .” 12 C.F.R. § 7.4008(d)(emphasis added). Under
this language, only state laws that interfere with “federal authorized” lending are even arguably
subject to a finding of federal preemption.
For all the reasons stated above, the conduct at issue in this case is not “federally
authorized” in any meaningful respect. To the contrary, Defendants’ dealings with the Academy
Schools were premised on an outright violation of the FTC Holder Rule. The fact that Defendants
themselves cannot be federally prosecuted by the FTC for their decision to enter into contracts that
violated the FTC Holder Rule does not mean that their activities are “authorized”; it merely means
that its conduct, although clearly in violation of the federal policies underlying the FTC Holder
Rule, is not affirmatively actionable by the federal government. Cf. Bates, 125 S. Ct. at 1800-01
(finding that a state law that provides a remedy for a violation of a federal requirement, even where
the federal requirement is not independently actionable, is not preempted). It defies logic to
contend, as Defendants must to prevail on their Motion, that the mere absence of a federal
prohibition automatically constitutes “authorization” within the meaning of the OCC regulations.
25
Clearly, the opposite is true, and this alone is reason enough to reject any finding of federal
preemption in this case.16
C. The OCC’s Regulations Are Invalid To the Extent They Seek To Preempt the
Entire Field of State Law.
In response, Defendants may contend that the OCC’s regulations go beyond the conflict
preemption standard of Barnett Bank to preempt the entire field of state law in the banking area.
Aside from the fact that the OCC did not intend to preempt the field, see pp. 11-12, supra, any
such argument must fail because the OCC lacks the authority under the national banking laws to
preempt the field of banking law.
Although a federal agency may preempt state law through its regulations, its ability to do
so is limited by the scope of its congressionally-delegated authority. See Louisiana Pub. Serv.
Comm’n v. FCC, 476 U.S. 355, 374 (1986). Because the OCC is charged with enforcing the
National Bank Act, it cannot take action that goes beyond the boundaries of the Act itself. See, e.g.,
Chrysler Corp. v. Brown, 441 U.S. 281, 302 (1979). Therefore, if the Act does not evince an intent
to occupy the banking field, any action by the OCC purporting to preempt the field would exceed
its authority and thus be invalid.
The history of the National Bank Act reveals that Congress never intended to occupy the
entire field of banking law. It is well-settled that the Act does not displace all state law; rather,
16
Defendants’ citation to the Sixth Circuit’s recent decision in Wachovia Bank, N.A. v. Watters,
431 F.3d 556, 563 (6th Cir. 2005), for the proposition that policy judgments regarding the
wisdom of preempting state law are left for Congress rather than the courts is inapposite. Memo,
at 14. While Plaintiff certainly agrees that twisting federal law to undermine RISA is a
misguided policy, the wisdom of the OCC rule does not form the basis of this opposition.
Rather, what the above reasoning demonstrates is that Congress did not intend for the National
Bank Act to preempt RISA because RISA does not “prevent or significantly interfere” with the
Defendants’ ability to carry out banking activities.
26
Congress intended for national banks to be subject to the dual regulation of state and federal
authorities.17 Since the passage of the National Bank Act, the U.S. Supreme Court has stated on
numerous occasions that Congress intended for the scope of the Act to encompass only conflict
preemption, not field preemption.18 Myriad lower courts have followed the Supreme Court’s lead
17
See, e.g., Lewis, 447 U.S. at 38 (“[B]oth as a matter of history and as a matter of present
commercial reality, banking and related financial activities are a matter of profound local
concern.”); National State Bank v. Long, 630 F.2d 981, 985 (3d Cir. 1980)(noting that Congress
did not preempt the field of banking law because “[w]hatever may be the history of federal-state
relations in other fields, regulation of banking has been one of dual control since the passage of
the first National Bank Act in 1863.”); see also Patricia M. McCoy, Banking Law Manual, § 2.01
(2d ed. 2002)(“The dual American system of banking is premised on a federalist division of
powers and divides the regulation of depository institutions between the federal government and
the states.”).
18
See, e.g., Barnett Bank v. Nelson, 517 U.S. 25, 31 (1996)(holding that preemption under the
National Bank Act depends on whether “the Federal and State statutes are in ‘irreconcilable
conflict.’”); McClellan v. Chipman, 164 U.S. 347, 356-57 (1896)(holding that “National Banks
are subject to the laws of the state, and are governed in their daily course of business far more by
the laws of the State than of the Nation,” and that federal preemption is a narrow exception to the
general rule that applies only when state laws “expressly conflict with the laws of the United
States, or frustrate the purpose for which the national banks were created, or impair their
efficiency to discharge the duties imposed upon them by the law of the United States.”); see also
Atherton v. FDIC, 519 U.S. 213, 222 (1997)(noting that the history of the National Bank Act is
replete with instances where “this Court held that federally chartered banks are subject to state
law.”).
27
and refused to read the Act as occupying the field of banking law.19 Thus, the National Bank Act
does not authorize the OCC to preempt the field of banking law at the expense of state law.
CONCLUSION
Based on all the reasons and authorities cited and discussed above, Plaintiff prays that this
Honorable Court will deny Defendants’ motion to dismiss.
19
For instance, in Perdue v. Crocker National Bank, 702 P.2d 503 (Cal. 1985), the California
Supreme Court refused to follow an OCC regulation attempting to preempt all state law in the
field of deposit-taking on the ground that the OCC’s regulation was inconsistent with
congressional intent. See id. at 519-25. Perdue is not an isolated decision. Other courts have
held overwhelmingly that Congress did not intend for the National Bank Act to occupy the field
of banking to the exclusion of state law. See, e.g., Long, 630 F.2d at 985-87; North Dakota v.
Merchants Nat’l Bank and Trust Co., 634 F.2d 368, 374-78 (8th Cir. 1980); Evans v. Federal
Reserve Bank of Phila., 2004 WL 1535772 at *2 (E.D. Pa. July 8, 2004); Video Trax, Inc. v.
Nationsbank, N.A., 33 F. Supp. 2d 1041, 1048 (S.D. Fla. 1998) (“Banking is not an area in which
Congress has evidenced an intent to occupy the entire field to the exclusion of the states . . . .”);
Booth v. Old Nat’l Bank, 900 F. Supp. 836, 842 (N.D. W. Va. 1995) (“as Congress has not
completely preempted the entire banking field, any preemption must arise out of an actual
conflict between a federal and state law”); Owensboro Nat’l Bank v. Moore, 803 F. Supp. 24, 34
(E.D. Ky. 1992); Idaho v. Security Pac. Bank, 800 F. Supp. 922, 925 (D. Idaho 1992)(“It is clear
that Congress has not completely preempted the entire banking field either expressly or impliedly
so any preemption must arise out of an actual conflict between federal and state law.”); Best v.
United States National Bank, 739 P.2d 554, 560-61 (Or. 1987)(Congress intended for national
banks generally to be subject to state law).
28
Respectfully submitted,
BURDGE LAW OFFICE CO., LPA

Ronald L. Burdge, Esq. OBN 0015609
2299 Miamisburg-Centerville Road
Dayton, Ohio 45459-38 17
(937) 432-9500
(937) 432-9503 (Facsimile)
JAMES, HOYER, NEWCOMER

& SMILJANICH, P.A.
Christopher C. Casper (Pro hac vice)
One Urban Centre, Suite 550
4830 West Kennedy Boulevard
Tampa, Florida 33609-25 17
(813) 286-4100
(813) 286-4174 (Facsimile)
TRIAL LAWYERS FOR PUBLIC JUSTICE

Leslie Brueckner, Esq. (Pro hac vice)
Richard Frankel, Esq. (Pro hac vice)
1717 Massachusetts Avenue, Suite 800,
Washington, DC 20036
(202) 797-8600 (telephone)
(202) 232-7203 (facsimile)
and
CLARK & MARTINO, P.A.

J. Daniel Clark, Esq. (Pro hac vice)
3407 W. Kennedy Boulevard
Tampa, FL 33609
(813) 879-0700
(813) 879-5498 (Facsimile)
By: _/s/ J. Daniel Clark______

J. Daniel Clark
Attorneys For Plaintiff
29
CERTIFICATE OF TRACKING AND PAGE LIMITATION
I HEREBY CERTIFY that this action has been assigned to the complex case track, [Dkt.
# 36], and that this memorandum of law in opposition to KeyBank’s motion to dismiss adheres to
the thirty (30) page limitation set forth under Local Rule 7.1(f).
/s/ J. Daniel Clark

J. Daniel Clark, Esq.
30
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 10th day of April, 2006, a true and correct copy of
the foregoing Plaintiff’s Memorandum Of Law In Opposition To Defendants’ Motion To
Dismiss was filed electronically. Notice of this filing will be sent to all parties in this case by
operation of the Court’s electronic filing system. Parties may access this filing through the
Court’s system
__________/s/ J. Daniel Clark_____________

J. Daniel Clark
31

Public Justice Blanco Key Bank 041006

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Case 1:04-cv-00230-KMO Document 110-1 Filed 04/10/2006 Page 1 of 41

UNITED STATES DISTRICT COURT

RAMON BLANCO, individually, and on

Plaintiff, Case No.: 1:04CV0230

KEYBANK USA, N.A., JP MORGAN

PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO

JAMES, HOYER, NEWCOMER CLARK & MARTINO, P.A.

Attorneys For Plaintiff

Table of Authorities………………………………………………………………………… iii

Brief Statement of the Issues……………………………………………………………… vii

Summary of the Arguments………………………………………………………………… viii

I. Legal Standard For A Motion To Dismiss………………………………… 1

4. Plaintiff’s RISA Claim Is Also Not Preempted Because

Certification of Tracking and Page Limitation ……………………………………………... 30

Certificate of Service ……………………………………………………………………….. 31

Abel v. KeyBank, 313 F. Supp.2d 720 (N.D. Ohio 2004) ............................................................19

Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944).................................................................23

Atherton v. FDIC, 519 U.S. 213 (1997) .......................................................................................27

Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996)..................................passim

Bath Iron Works Corp. v. Director, Office of Workers’ Compensation Programs,

Beach v. Owen Fed. Bank, 523 U.S. 410 (1998)............................................................................3

Chrysler Corp. v. Brown, 441 U.S. 281 (1979)............................................................................26

Conley v. Gibson, 355 U.S. 41 (1957)............................................................................................1

CSX Transp., Inc. v. Easterwood, 507 U.S. 658 (1993)................................................................9

First Nat’l Bank v. Dickinson, 396 U.S. 122 (1969)....................................................................23

Gen’l Motors Corp. v. Abrams, 897 F.2d 34 (2d Cir. 1990)..........................................................9

Green v. H&R Block, 981 F. Supp. 951 (D. Md. 1997).........................................................10, 12

Hendley v. Cameron-Brown Co., 840 F.2d 831 (11th Cir. 1988)...................................................7

Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit,

Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155 (C.D. Ill. 1993)............................................3

Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (1980) ..................................................9, 27

Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355 (1986)......................................................26

Maberry v. Said, 911 F. Supp. 1393 (D. Kan. 1995) ...................................................................12

McClellan v. Chipman, 164 U.S. 347 (1896)...............................................................................27

Nat’l Bank v. Commonwealth, 76 U.S. (9 Wall.) 353 (1869) ......................................................23

Owensboro Nat’l Bank v. Moore, 803 F. Supp. 24 (E.D. Ky. 1992)...........................................28

Scheuer v. Rhodes, 416 U.S. 232 (1974)........................................................................................1

Sprietsma v. Mercury Marine Corp., 537 U.S. 51 (2002) ...............................................18, 19, 20

State of Colorado ex rel. Salazar v. ACE Cash Express,

Turner v. Citywide Home Improvement Inc., 2000 WL 262664

Zinermon v. Burch, 494 U.S. 113 (1990) .......................................................................................1

12 U.S.C. § 24 ............................................................................................................................. viii

40 Fed. Reg. 53506 ........................................................................................................... 12-14, 21

O.R.C. § 1317.032(C) ........................................................................................................... vii, viii

5 Wright & Miller, Federal Practice & Procedure, § 1357..........................................................1

BRIEF STATEMENT OF THE ISSUES

With respect to Plaintiff’s Truth-in-Lending Act (“TILA”) claim against KeyBank

1638(a)(4), and Regulation Z, § 226.18(f)(1)(i).

SUMMARY OF THE ARGUMENTS

liability for such a failure.

I. LEGAL STANDARD FOR A MOTION TO DISMISS

II. FACTUAL ALLEGATIONS TAKEN AS TRUE FOR PURPOSES OF

are assumed to be true.

Student Enrollment Agreement, KeyBank issued a Truth-in-Lending disclosure and promissory

to complete his education. Id. ¶ 13.

A. Id. ¶¶ 4, 5, & 14.

III. THE COMPLAINT STATES A CLAIM FOR TILA VIOLATIONS

C.F.R. § 226 (“Reg. Z”).

TILA is a disclosure statute enacted by Congress "to assure a meaningful disclosure of

based on an objective standard, irrespective of a particular plaintiff's subjective circumstances,

Amended and Supplemental Class Action Complaint.

indexes and KeyBank generically identifies the index as the LIBOR.

contemplated by the regulations. Memo, at 4. A copy of KeyBank’s contract with Plaintiff is

/s/ J. Daniel Clark___