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STROOCK & STROOCK & LAVAN LLP JULIA B. STRICKLAND (State Bar No. 083013) STEPHEN J. NEWMAN (State Bar No. 181570) 2029 Century Park East, Suite 1800 Los Angeles, California 90067-3086 Telephone: 310-556-5800 Facsimile: 310-556-5959 [email protected] Attorneys for Defendants CHASE BANK USA, N.A., erroneously sued as CHASE MANHATTAN BANK USA, N.A., and JPMORGAN CHASE & CO. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA DAVID J. LEE and DANIEL R. LLOYD, individually and on behalf of all others similarly situated, ) ) ) ) Plaintiffs, ) ) vs. ) ) CHASE MANHATTAN BANK U.S.A., ) N.A., a Delaware corporation, CHASE ) MANHATTAN BANK U.S.A., N.A. ) d.b.a. CHASE BANK U.S.A., N.A., ) JPMORGAN CHASE & CO., a ) Delaware corporation; and DOES 1 ) through 100, inclusive, ) ) Defendants. ) ) ) ) Case No. CV-07-4732 MJJ THE HON. MARTIN J. JENKINS REPLY BRIEF IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS DATE: December 4, 2007 TIME: 9:30 a.m. PLACE: Courtroom 11 19th Floor 450 Golden Gate Ave. San Francisco, CA 94102

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TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY OF ARGUMENT....................................... 1 II. ARGUMENT .......................................................................................................... 2 A. B. C. D. E. Plaintiffs Have Not Met Their Burden Of Showing That They Have Standing To Maintain This Action ................................................. 2 Plaintiffs Fail To State A Claim Under the CLRA .................................. 8 The Complaint Does Not Meet The Specificity Requirements Of Federal Rule of Civil Procedure 9(b) ..................................................... 12 All Of Plaintiffs' Claims Are Barred By The Statute of Limitations.............................................................................................. 13 Plaintiffs' Claims Are Preempted By The National Bank Act. ............. 15 1. 2. Plaintiffs' State-Law Claims Are Preempted Under 12 C.F.R. § 7.4008(d)(2).............................................................. 15 Plaintiffs' Argument That Defendant JPMorgan Chase & Co. Is Not Entitled To The Benefit Of Preemption Is Frivolous ...................................................................................... 20

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III. CONCLUSION.................................................................................................... 21

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TABLE OF AUTHORITIES Page(s) CASES In re Ameriquest Mortgage, No. 05-CV-7097, 2007 WL 1202544 (N.D. Ill. Apr. 23, 2007) ...................10 Austin v. Provident Bank, No. Civ.A.4:04 CV 33 P B, 2005 WL 1785285 (N.D. Miss. July 26, 2005).......................................18, 19 Barnett Bank v. Nelson, 517 U.S. 25, 116 S. Ct. 1103, 134 L. Ed. 2d 237 (1996) ..............................17 Beneficial National Bank v. Anderson, 539 U.S. 1, 123 S. Ct. 2058, 156 L. Ed. 2d 1 (2003) ....................................16 Berry v. American Express Publishing, Inc., 147 Cal. App. 4th 224, 54 Cal. Rptr. 3d 91 (2007) ......................... 1, 8-10, 17 Berryman v. Merit Property Management, Inc., 152 Cal. App. 4th 1544, 62 Cal. Rptr. 3d 177 (2007) ...................................11 Binetti v. Washington Mutual Bank, 446 F. Supp. 2d 217 (S.D.N.Y. 2006) ...........................................................17 Board of Trade v. Commodity Futures Trading Cmm'n, 704 F.2d 929 (7th Cir. 1983) ...........................................................................3 Bowen v. First Family Finance Services, 233 F.3d 1331 (11th Cir. 2000) .......................................................................4 Civil Services Employees Insurance Co. v. Superior Court of San Francisco, 22 Cal. 3d 362, 149 Cal. Rptr. 360 (1978) ....................................................11 Colbert v. City of Cleveland, 99 Ohio St. 3d 215, 790 N.E.2d 781 (2003)..................................................15 Daghlian v. DeVry University, Inc., 461 F. Supp. 2d 1121 (C.D. Cal. 2006).......................................................4, 7 Davis v. Chase Bank U.S.A., N.A., et al., Case No. CV 06-04804 DDP (PJWx) (C.D. Cal.) ..........................................8 Edwards v. Marin Park, Inc., 356 F.3d 1058 (9th Cir. 2004) .......................................................................12
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Flintkote Co. v. General Acc. Assur. Co. of Canada, 480 F. Supp. 2d 1167 (N.D. Cal. 2007).........................................................14 Franklin National Bank v. New York, 347 U.S. 373, 74 S. Ct. 550, 98 L. Ed. 767 (1954) .......................................17 Freeman v. Mattress Gallery, Nos. E039614, E039615, 2007 WL 3300717 (Cal. Ct. App. Nov. 8, 2007) ................................................................................................................4 Hernandez v. Hilltop Financial Mortg., Inc., No. C 06-7401 SI, 2007 WL 3101250 (N.D. Cal. Oct. 22, 2007) .........................................10, 11 Hitz v. First Interstate Bank, 38 Cal. App. 4th 274, 44 Cal. Rptr. 2d 890 (1995) .......................................10 Hogar Dulce Hogar v. Community Development Commission, 110 Cal. App. 4th 1288, 2 Cal. Rptr. 3d 497 (2003) .....................................14 In Re Late Fee And Over-Limit Fee Litigation, No. C 07-0634 SBA (N.D. Cal. Nov. 16, 2007) .......................................8, 19 Jefferson v. Chase Home Finance LLC, 2007 WL 1302984 (N.D. Cal. May 3, 2007) ..........................................10, 11 Lozano v. AT&T Wireless Services, Inc., Nos. 05-56466, 05-56511, 2007 WL 2728758 (9th Cir. 2007)................... 4-7 Kagan v. Gibraltar Sav. Loan Assn., 35 Cal. 3d 582 (1984) ......................................................................................4 Mass. Mutual Life Insurance Co. v. Super. Ct., 97 Cal. App. 4th 1282, 119 Cal. Rptr. 2d 190 (2002) ...................................13 McKell v. Washington Mutual, Inc., 142 Cal. App. 4th 1457, 49 Cal. Rptr. 3d 227 (2006) ...................................11 People v. Arnold, 145 Cal. App. 4th 1408, 52 Cal. Rptr. 3d 545 (2006) ...................................15 People v. Wesson, 138 Cal. App. 4th 959, 41 Cal. Rptr. 3d 883 (2006) .....................................15 Posern v. Prudential Securities, Inc., No. C-03-0507 SC, 2004 WL 771399 at *8 (N.D. Cal. Feb. 18, 2004)..........4 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S. Ct. 2862 (1984) .............................................................3
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Ryman v. Sears, Roebuck and Co., No. 06-35630 (9th Cir. Oct. 12, 2007) ............................................................9 SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007) .............................................................18 Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 116 S. Ct. 1730, 135 L. Ed. 2d 25 (1996) ........................16, 18 State ex rel. Metz v. CCC Information Services, Inc., 149 Cal. App. 4th 402, 57 Cal. Rptr. 3d 156 (2007) .....................................14 Tamplenizza v. Josephthal & Co., Inc., 32 F. Supp. 2d 702 (S.D.N.Y. 1999) ...............................................................3 Television Adventure Films Corp. v. KCOP Television, Inc., 249 Cal. App. 2d 268, 57 Cal. Rptr. 526 (1967) ...........................................13 Walton v. Mead, No. C 03-4921 CRB, 2004 WL 2415037 (N.D. Cal. Oct. 28, 2004) ...............................................12 Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559, 167 L. Ed. 2d 389 (2007) ............................................. 18-20 Wilens v. TD Waterhouse Group, Inc., 120 Cal. App. 4th 746, 15 Cal. Rptr. 3d 271 (2003) .......................................5 STATUTES 12 C.F.R. § 7.4001 ...................................................................................................16 12 C.F.R. § 7.4008(d)(2)................................................................................ 1, 14-18 California Civil Code § 1770(a)(19)............................................................5, 6, 9, 10 RULES California Rules of Court, Rule 8.1115 .....................................................................4 Federal Rule of Civil Procedure 9(b).......................................................................12

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I.

INTRODUCTION AND SUMMARY OF ARGUMENT

Plaintiffs1 do not allege that they have ever attempted to arbitrate a dispute with Chase over their Agreements, or that they were forced to arbitrate against their will or under unfair conditions. They merely assert that some day they may want to enforce the arbitration provision, but to date they have not taken any steps to do so. Thus, Plaintiffs' alleged injury lies in the future, if at all, and cannot meet the requirements of concreteness and immediacy for Plaintiffs to have standing under Article III of the United States Constitution, the California Unfair Competition Law, the California Consumers Legal Remedies Act, or for the fraud claim. All claims, therefore, are barred for lack of standing. The CLRA claim also is barred under Berry v. American Express Publishing, Inc., 147 Cal. App. 4th 224, 54 Cal. Rptr. 3d 91 (2007). Plaintiffs' novel and unsupported notion that a "convenience service" is a "service" under the CLRA is a transparent attempt to eviscerate the Berry decision, which is the controlling case on the inapplicability of the CLRA to "money or credit." Plaintiffs are unable to cite a single CLRA case in support of their argument that the CLRA regulates the terms and conditions of credit card agreements. Plaintiffs' desperate attempt to circumvent Berry should be rejected. Moreover, Plaintiffs are unable to meet the heightened pleading requirements under the Federal Rules for averring fraud. The "misrepresentations" they allege are based on no more than flimsy legal conclusions and questionable inferences. Plaintiffs do not deny receiving the written agreements stating precisely how the cards function. They also wholly fail to state the "time, place, and specific content of the false representations" upon which Plaintiffs allegedly relied at the time they obtained their credit cards, and they equally fail to reveal the identities of the makers of the alleged misrepresentations.

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1

All terms are used herein as defined in the Motion.
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Plaintiffs also fail to advance any legitimate basis to overcome the applicable statutes of limitations that apply to their UCL, CLRA and fraud claims. If there is standing, which Defendants deny, then those claims must have accrued in the late 1990s and in 2000, when Plaintiffs received their cards and card agreements. Plaintiffs' admission that they received the cards and the agreements in the late 1990s and in 2000 means that they possessed the facts giving rise to their claims long before the filing of the Complaint. These claims therefore are time-barred. Finally, Plaintiffs fail to show how their claims can survive federal preemption under the National Bank Act. Plaintiffs' claims are defeated because state law theories may not be used to mount a facial attack on the terms of a national bank's credit card agreement. By their claims, Plaintiffs attempt to do precisely what the NBA and its regulations forbid. Plaintiffs' claims against Chase are preempted in their entirety and must be dismissed. The defects in the Complaint are numerous and incurable. Accordingly, the motion to dismiss should be granted in its entirety, and without leave to amend. II. ARGUMENT A. Plaintiffs Have Not Met Their Burden Of Showing That They Have Standing To Maintain This Action. Plaintiffs' Opposition does not advance their argument for standing. Plaintiffs have failed to take their alleged "injury" beyond the realm of hypothetical abstract rights and into the realm of injuries in fact, as required by law. Plaintiffs' own statement of the issue betrays their inability to demonstrate standing. Plaintiffs state: 1. In paying their annual (or other) fee for their Chase cards, Plaintiffs purchased or acquired the contractual right to mandatory arbitration of all claims they had against Defendants and the merchants from whom they purchased goods or services with their Chase cards; ...

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4. Plaintiffs want to but cannot, as a matter of law, enforce the unenforceable and illegal arbitration provision in order to exercise the right to mandatory arbitration for which they paid; 5. Plaintiffs thus got less than that for which they paid--i.e., they did not get the full value of their contract-- and, as a result, lost money (the pecuniary value of the contractual right to mandatory arbitration). Opposition, at 2-3 (citations omitted). This is the gist of Plaintiffs' argument for standing, and plainly it fails. The fact that Plaintiffs allegedly "want" to enforce the arbitration provision but supposedly cannot does not state an injury sufficiently concrete and measurable to pass the standing test. They do not say what, specifically, they do or do not want to arbitrate about. Nowhere in their Complaint or Opposition do Plaintiffs allege that they have attempted to arbitrate a dispute with Chase over their Agreements, or conversely that they were forced to arbitrate against their will or under unfair conditions. Plaintiffs' alleged injury, therefore, is purely hypothetical, since they have not shown that they have attempted to vindicate their alleged contractual right to arbitrate and were thwarted. Abstract injuries of this sort are not legally cognizable injuries. Plaintiffs' injury is purely hypothetical, based on Plaintiffs' conjectures about what might happen if they were to attempt to arbitrate, or if someone were to attempt to arbitrate against them. Courts universally reject similar arguments, recognizing that arbitration agreements may not be challenged outside the context of a concrete, specific and substantive dispute. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1019, 104 S. Ct. 2862 (1984) (no standing where plaintiff "did not allege or establish that it had been injured by actual arbitration under the statute"); Board of Trade v. Commodity Futures Trading Cmm'n, 704 F.2d 929, 932-34 (7th Cir. 1983) (same); Tamplenizza v. Josephthal & Co., Inc., 32 F. Supp. 2d 702, 703, 704 (S.D.N.Y. 1999) (refusing to

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invalidate arbitration provision where no pending or imminent arbitral proceeding); Posern v. Prudential Secs., Inc., No. C-03-0507 SC, 2004 WL 771399 at *8 (N.D. Cal. Feb. 18, 2004) (same); Bowen v. First Family Fin. Servs., 233 F.3d 1331, 1341 (11th Cir. 2000) (same). Rather than address the above clear authorities, Plaintiffs stake their claim for standing solely on two cases, Lozano v. AT&T Wireless Services, Inc., Nos. 0556466, 05-56511, 2007 WL 2728758 (9th Cir. 2007), and Daghlian v. DeVry University, Inc., 461 F. Supp. 2d 1121 (C.D. Cal. 2006).2 Neither of these cases are of any help to them. Plaintiff in Lozano is a customer of AT&T who brought a class action based on AT&T's disclosures relating to its billing practices for cellular services. Lozano asserted various claims, including under the CLRA and UCL. Lozano based these claims on allegations that AT&T billed its customers for cellular telephone calls during a billing period other than the billing period in which the calls were made, an industry practice known as "out-of-cycle billing." Lozano contended that by doing this, AT&T assessed charges for cellular telephone calls that would not have been assessed if the calls had been billed during the billing period in which the calls were

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In a footnote, Plaintiffs also cite to Freeman v. Mattress Gallery, Nos. E039614, E039615, 2007 WL 3300717 (Cal. Ct. App. Nov. 8, 2007) for the proposition that the mere allegation of a violation of the CLRA confers standing. Plaintiffs' argument is without merit. First, Freeman is unpublished and noncitable, and therefore has zero persuasive or precedential value. See Cal. Rules of Court, Rule 8.1115 ("[A]n opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied on by a court or a party in any other action."). Second, Freeman was wrongly decided. As Judge Hollenhorst stated in dissent: "While plaintiffs do not have to allege monetary loss to have standing under the CLRA, they must suffer some damage as a result of defendants conduct. In other words, despite the fact that a plaintiff has alleged a violation of the CLRA, which, according to [Kagan v. Gibraltar Sav. Loan Assn., 35 Cal. 3d 582 (1984)], would be sufficient to confer standing, the fact that he or she did not sustain any tangible loss precludes him or her from bringing claims. Thus, in my opinion, damage requires something more than a mere allegation of an infringement upon a right protected by Civil Code section 1770." Id. at *18.
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made. AT&T, according to Lozano, did not fully and adequately disclose its billing practices to its customers at the time they entered into contracts with AT&T. Plaintiffs latch on to two quotes from Lozano that, they claim, support their position. Neither does. The first is the following: Any class certified under subsection (a)(19) necessitates a class definition that includes individuals who sought to bring class actions in California, but were precluded from doing so because of the class action waiver in AWS's arbitration agreement, and suffered some resulting damage. See Wilens v. TD Waterhouse Group, Inc., 120 Cal. App. 4th 746, 15 Cal. Rptr. 3d 271, 276-77 (2003) (holding a court may not presume damages based on the mere insertion of an unconscionable clause in a contract). Lozano, 2007 WL 2728758, at *10. Plaintiffs desperately try to wring "the requisites for standing" out of this passage, which (as is facially obvious) deals not with standing, but rather with the issue of class certification of claims asserted under California Civil Code section 1770(a)(19), assuming standing already is shown to be present. The Plaintiffs, in their eagerness to salvage an argument for standing, have confused class certification with standing. In any event, Lozano's citation to Wilens supports Defendants' position: absent pleading and proof of resulting pecuniary damages, merely inserting an allegedly unconscionable provision in a contract does not confer standing. The issue of standing did arise in Lozano in connection with Plaintiff's UCL claim, but Plaintiffs fail to address the Court's discussion of it. The court stated: The parties do not dispute that Lozano suffered pecuniary loss as a result of his alleged unawareness of AWS's [AT&T's] out-of-cycle billing practices. Shortly after contracting with AWS for cellular service, Lozano received an invoice stating that he had been charged fees as a result of out-of-cycle minutes from his previous invoice. The record also supports a finding that, during the course of his

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contract with AWS, AWS would occasionally charge Lozano an overage fee based on out-of-cycle billing. Lozano, 2007 WL 2728758, at *11 (emphasis supplied). The court also based its finding that Lozano had standing on the fact that "Lozano contracted for 400 free `anytime' minutes. Yet, due to out-cycle-billing, he reserved, and therefore lost, a certain number of those minutes each billing period to account for the late-billed roaming calls." Lozano, 2007 WL 2728758, at *12. Thus, the court found that Lozano, unlike the Plaintiffs here, had standing based on concrete, measurable, pecuniary injuries, namely, he was charged unnecessary fees by AT&T and he lost at least some of his 400 free "anytime" minutes, which had financial value because they needed to be replaced with purchased minutes. It is this finding as to standing that underlies the Lozano court's treatment of class certification. Thus, Plaintiffs ignore the discussion of standing in Lozano, and pin their hopes on the court's class definition under California Civil Code section 1770(a)(19). However, even facially, the passage the Plaintiffs quote does not help their argument because it specifies "individuals who sought to bring class actions in California" (emphasis added). Plaintiffs here fail to allege that they have actually sought arbitration under their Agreements, or that they had arbitration forced upon them on unfair terms. Therefore, they lack standing. Plaintiffs next cite the following in support of their claim for standing: "[W]e find that Lozano has properly stated an injury that he did not receive the full value of his contract ... and that this injury is redressable under the UCL." Lozano, 2007 WL 2728758 at *13. However, this is disingenuous. Plaintiffs neglect to quote the two immediately preceding sentences, which clearly show that the injury in question is both the actual charging of fees and also the loss of some of the 400 free anytime minutes to which Lozano was entitled--again a concrete, measurable injury with concrete, easily measurable economic value by reference to the actual price charged for paid anytime minutes. The full passage reads as follows:
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Here, Lozano has a vested interest in 400 free anytime minutes. Due to out-of-cycle billing, however, Lozano found it necessary to reserve, and therefore lose, a certain number of those minutes each billing period. Accordingly, we find that Lozano has properly stated an injury that he did not receive the full value of his contract with AWS due to its alleged failure to disclose out-of-cycle billing, and that this injury is redressable under the UCL. Lozano, 2007 WL 2728758, at *13. Plaintiffs also cite to Daghlian, but it likewise is inapplicable. In Daghlian, a student brought an action against a private university under the Private Postsecondary and Vocational Education Reform Act and other statutes, alleging that the university failed to inform him that academic units earned at the university probably would not transfer to other educational institutions; in other words, that what was purchased lacked economic value. Prior to enrolling, Daghlian met with a university recruiter, who represented that the university was an accredited institution where students were able to obtain degrees. Id. at 1125. The recruiter told Daghlian that unlike technical colleges that give students certificates that cannot be used toward advanced degrees, academic credits from the university were transferable to a wide variety of other academic institutions, in other words, that what was purchased had specific economic value in the form of tuition dollars that would not need to be paid at the other institution. Id. Defendants argued that Daghlian's § 17500 and § 17200 claims must be dismissed because he had not established standing to prosecute the claims as required by Proposition 64. The court disagreed and found that the fact that the plaintiff incurred $40,000 in educational debt based on the recruiter's promises was sufficient to bestow standing on the plaintiff. Again, the plaintiff was actually out-of-pocket by reason of a specific disclosure violation. Daghlian does not support Plaintiffs' position here. Unlike Plaintiffs, Daghlian's injury was not conjectural: he was promised an accredited degree with

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transferable credits but actually received a degree of far less value. Daghlian's degree, for which he paid, was less valuable than it would have been but for the defendant's misrepresentations. This is very different from the case here where Plaintiffs' alleged "injury" is to some future right to arbitrate. Daghlian's injury springs from the education (or perceived education) he received at defendants' university and the concrete symbol of that education, i.e., the degree. Plaintiffs' "injury" here, by contrast, is to something hypothetical in the future that has no value until actually exercised. Therefore, Plaintiffs lack standing to maintain their causes of action under Article III of the Constitution, the UCL, the CLRA or for commonlaw fraud.3 B. Plaintiffs Fail To State A Claim Under the CLRA. In their Opposition, Plaintiffs simply seek to re-litigate Berry, a case that is the controlling decision here, as judges of this Court have recognized over and over again, including as recently as Friday, November 16, 2007.4 In Berry, the plaintiff Plaintiffs claim, without any elaboration, that "Defendants are bound by the final order and unappealed order issued in Davis v. Chase Bank U.S.A., N.A., et al., Case No. CV 06-04804 DDP (PJWx) (C.D. Cal.) (in which all present defendants were defendants), that California law is controlling with regards to issues of unconscionability and that, indeed, the arbitration provision is unconscionable as a matter of law." Opposition, at 2 n.2. First, the order in Davis to which Plaintiffs refer is not final and in fact is under appeal. Chase and Circuit City Stores, Inc., the other defendant in that case, timely appealed on April 19, 2007, and the matter has been assigned Ninth Circuit Case No. 07-55561. Moreover, the Davis court recognized that Chase has a possibility of prevailing in the appellate proceedings, and for that reason stayed all proceedings pending resolution of the appeal, and recently denied a motion to lift the stay. Second, this case and Davis are factually dissimilar, which probably explains why Plaintiffs did not press this argument. Plaintiffs here do not have the same kind of credit card as does the Davis plaintiff. The Davis litigation relates to how Chase assesses finance charges on Circuit City Rewards Card credit card accounts, which is not an issue in this case at all. The underlying agreements at issue are completely different in each case, with two of the agreements in Davis not having been issued by Chase at all, but instead by predecessor banks who are not parties to the present litigation with Plaintiffs here. In Re Late Fee And Over-Limit Fee Litigation, No. C 07-0634 SBA (N.D. Cal. Nov. 16, 2007) (order granting motion to dismiss), the court dismissed the plaintiffs' CLRA claims, which were based on allegations that the defendant banks charged
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asserted a single cause of action for violation of the CLRA, contending that his credit card agreement contained an allegedly "unconscionable" arbitration agreement in violation of Civil Code section 1770(a)(19): essentially the same theory asserted here by the same plaintiff counsel. The Berry plaintiff contended that his credit card agreement was subject to the CLRA because a credit card supposedly constitutes a "good" or "service" as defined by Civil Code section 1761. Following the plain text of the statute, and relying on a close analysis of its legislative history, the Berry court flatly rejected plaintiff's argument, finding that an extension of credit is neither a "good" nor a "service" under the CLRA because the California Legislature intended to exclude transactions for "money or credit" from the CLRA. The California Supreme Court denied review in Berry, and also denied multiple requests to depublish the opinion. Plainly, the California courts have construed the CLRA definitively, and federal courts are obliged to apply the same interpretation. See Ryman v. Sears, Roebuck and Co., No. 06-35630 (9th Cir. Oct. 12, 2007) (copy attached as Exhibit B). Plaintiffs attempt to circumvent the Berry decision by arguing that when one pays the annual fee for a charge card, for example, one purchases a "convenience service." Plaintiffs do not, however, say what specific "convenience service" they bargained for was not provided. Plaintiffs do not address the Berry court's recognition that the California Legislature expressly excluded transactions for "money or credit" from coverage under the CLRA, and that post-Berry rulings read Berry (correctly) to exclude financial services generally from the CLRA. Plaintiffs' positing of an ill-defined "convenience service" in a transparent attempt to circumvent the inapplicability of the CLRA to extensions of credit cannot stand in light of Berry's clear holding that an extension of credit is neither a "good" nor a excessive late fees and/or over-limit fees, on the ground that credit-card accounts are not "goods or services" subject to the CLRA under Berry. The court noted that "[e]very federal court addressing the issue has followed [the Berry] precedent." Id. at 16. A copy of the decision is attached hereto as Exhibit A.
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"service" under the CLRA. The use of any plastic card in lieu of cash involves a transaction for "money or credit" that Berry excludes from the CLRA. Plaintiffs' argument must therefore be rejected. Plaintiffs fail to cite a single case in support of their claim that a "convenience service" is a "service" within the meaning of the CLRA. There is none. Plaintiffs extensively quote from Hitz v. First Interstate Bank, 38 Cal. App. 4th 274, 286-87, 44 Cal. Rptr. 2d 890 (1995), particularly for the proposition that credit cards may provide not only extensions of credit but also certain convenience features that constitute "services." However, Hitz is unavailing because it arose in the context of not the CLRA, but a different statute, California Civil Code section 1671, which governs only the enforceability of liquidated damages provisions. Section 1671 is irrelevant to this litigation. The other cases cited by Plaintiffs in support of their position are from the residential-mortgage context. Hernandez v. Hilltop Financial Mortg., Inc., No. C 067401 SI, 2007 WL 3101250, at *6 (N.D. Cal. Oct. 22, 2007), is not on point. In Hernandez, "plaintiffs did not seek just a loan; they sought defendants' services in developing an acceptable refinancing plan by which they could remain in possession of their home. Thus, unlike in Berry, the situation in the present case involves more than the mere extension of a credit line." Id. And unlike the ephemeral "convenience service" Plaintiffs posit, "the circumstances here deal not just with the mortgage loan itself, but also with the services involved in developing, securing and maintaining plaintiffs' loan." Id. Similarly unhelpful to Plaintiffs is Jefferson v. Chase Home Finance LLC, 2007 WL 1302984 (N.D. Cal. May 3, 2007). In Jefferson, the court held that the CLRA applied to certain services connected with mortgages, specifically to a program under which debtors were able to prepay their mortgages without penalty. However, the claim under the CLRA was not aimed at the extension of credit itself. Rather, it was directed at the defendant's prepaid mortgage practices, a financial service provided to debtors. (Jefferson also predated
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the denial of review in Berry.) Finally, Plaintiffs cite In re Ameriquest Mortgage, No. 05-CV-7097, 2007 WL 1202544, *6 (N.D. Ill. Apr. 23, 2007), for the general proposition that "it is not inconceivable that . . . plaintiffs could prove the existence of tangential `services' associated with their residential mortgages and establish that these transactions were covered by the CLRA." Indeed, this is not inconceivable at all, since Jefferson and Hernandez, notably also residential mortgage cases, similarly held that the CLRA may apply where "the circumstances ... deal not just with the mortgage loan itself, but also with the services involved in developing, securing and maintaining plaintiffs' loan." Hernandez, 2007 WL 3101250, at *6. But the services at issue in these cases are a far cry from a "convenience service." Plaintiffs also fail to address cases in the mortgage and real estate context where the court found the CLRA inapplicable. For example, in Berryman v. Merit Property Management, Inc., 152 Cal. App. 4th 1544, 62 Cal. Rptr. 3d 177 (2007), homeowners filed a putative class and representative action against the managing agent for a homeowners association, alleging violations of the Davis-Stirling Common Interest Development Act, the UCL and CLRA, and other claims. The homeowners' claims were based on allegations that the agent wrongfully charged homeowners document and transfer fees upon the purchase or sale of homes. The California Court of Appeal held that the homeowners failed to state a claim against the agent for violations of the CLRA. Also, in McKell v. Washington Mutual, Inc., 142 Cal. App. 4th 1457, 49 Cal. Rptr. 3d 227 (2006), the plaintiffs claimed that the defendants overcharged them "for underwriting, tax services, and wire transfer fees in conjunction with home loans." Id. at 1465. Finding that the defendants' "actions were undertaken in transactions resulting in the sale of real property," rather than "the sale or lease of goods or services," the court held the CLRA inapplicable to the facts of the plaintiffs' case. Id. at 1488. Even though these cases involved services ancillary to a real estate transaction, because the particular real estate transaction was not regulated by the CLRA, neither did the CLRA regulate the related services.
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Berry, as well as many other cases cited in the Motion to Dismiss, simply develop the basic principle recognized in Civil Services Employees Ins. Co. v. Superior Court of San Francisco, 22 Cal. 3d 362, 376, 149 Cal. Rptr. 360 (1978), that the CLRA only regulates those things that are "technically" goods or services, as traditionally understood. The payment cards at issue here indisputably involve transactions for "money or credit," as traditionally understood, and therefore are excluded from the CLRA. A "convenience service" is not a "service" within the meaning of the CLRA, and Plaintiffs fail to present any authority to the contrary. Plaintiffs' CLRA claims should be dismissed without leave to amend. C. The Complaint Does Not Meet The Specificity Requirements Of Federal Rule of Civil Procedure 9(b). A plaintiff who alleges fraud must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which provides that, "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." To avoid dismissal for inadequacy under Rule 9(b), Plaintiffs must state the "time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation." Walton v. Mead, No. C 03-4921 CRB, 2004 WL 2415037, *7 (N.D. Cal. Oct. 28, 2004) (citing Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)). Plaintiffs assert in their Complaint that Chase made misrepresentations to Plaintiffs and other cardmembers concerning the terms contained in Chase's Agreements and that these representations were made not only in the Agreements themselves but also in direct communications between Plaintiffs and Chase. (Comp. ¶ 76.) However, neither in their Complaint nor in the Opposition do Plaintiffs describe the alleged (mis-) representations, much less state the "time, place, and specific content of the false representations" upon which Plaintiffs relied at the time they obtained their credit cards. The "misrepresentations" Plaintiffs allege are non-

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specific, and therefore non-compliant with Rule 9(b). The fraud claim should be dismissed. D. All Of Plaintiffs' Claims Are Barred By The Statute of Limitations. Plaintiffs' claims also are barred by the applicable statutes of limitations (four years for the UCL claims, and three years for the CLRA and fraud claims). If somehow there is standing to assert these claims, then the claims would have accrued when Plaintiff Lee obtained a Chase card in the late 1990s and Plaintiff Lloyd obtained his Chase card in 2000, as Plaintiffs admit in the Complaint and the Opposition. See Comp. ¶¶ 25-26 and Opposition at 11-12. According to Plaintiffs, the allegedly offending provisions were present in the Agreements from inception. Thus, not later than 2000, both Plaintiffs possessed all the relevant facts giving rise to their UCL, CLRA and fraud claims and yet, for nearly seven years, chose to do nothing. Their claims, thus, are time-barred. Plaintiffs' attempts at extricating themselves from this bind are unavailing. Plaintiffs claim that Defendants periodically amended the Agreement and thus perhaps accrual started later. Not so. Plaintiffs fail to allege that the 2007 card agreement, from which they quote extensively in their Complaint, is materially different from the card agreements Plaintiffs Lee and Lloyd received in the late 1990s and in 2000, respectively. (Compl. ¶¶ 48-49.) Thus, the amendments to Plaintiffs' Agreements fail to explain Plaintiffs' delay in pressing their claims in a timely fashion. Next, although Plaintiffs correctly identify the rule of accrual, this rule clearly shows why Plaintiffs' claims are barred. Essentially, the rule is that the time starts to run from the discovery by the aggrieved party of the facts giving rise to the cause of action. See Mass. Mut. Life Ins. Co. v. Super. Ct., 97 Cal. App. 4th 1282, 1295, 119 Cal. Rptr. 2d 190 (2002); Television Adventure Films Corp. v. KCOP Television, Inc., 249 Cal. App. 2d 268, 279, 57 Cal. Rptr. 526 (1967). Plaintiffs contend that the "[injury] occurs at the time each payment of the annual fee was made, and/or at the
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time of the 2005 (and each post-2000) amendment to the arbitration provision was made....," among others. Opposition at 13-14. Plaintiffs further allege that the "delayed discovery" rule applies, with each payment of the annual fee triggering a new limitations period. Opposition at 14. In support of their position, Plaintiffs quote the following from Hogar Dulce Hogar v. Community Development Commission, 110 Cal. App. 4th 1288, 1295, 2 Cal. Rptr. 3d 497 (2003): "[w]hen an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period." But this is not a case of recurring wrongs. Plaintiffs allege only one supposed wrong: the inclusion of certain terms primarily dealing with arbitration and class action waiver in the original agreements they received in the late 1990s and in 2000. Plaintiffs do not allege that the subsequent amendments to the agreements materially changed these agreements, and thus the supposed amendments (not described in the Complaint with any particularity) constitute a new injury sufficient to restart the limitations clock. The fact that Plaintiffs made several annual payments has no bearing whatsoever on when their causes of action accrued. Those causes of action accrued in the late 1990s and in 2000 ­ when, by their own admission, Plaintiffs received their credit cards and agreements. The alleged wrongs in the credit agreement do not sprout anew every time Plaintiffs pay their fees. See, e.g., State ex rel. Metz v. CCC Information Services, Inc., 149 Cal. App. 4th 402, 418, 57 Cal. Rptr. 3d 156 (2007); Flintkote Co. v. General Acc. Assur. Co. of Canada, 480 F. Supp. 2d 1167, 1178 (N.D. Cal. 2007). Therefore, all of Plaintiffs' claims are time-barred and should be dismissed without leave to amend.

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E.

Plaintiffs' Claims Are Preempted By The National Bank Act. 1. Plaintiffs' State-Law Claims Are Preempted Under 12 C.F.R. § 7.4008(d)(2).

Plaintiffs' arguments against NBA preemption of their claims lack merit. Defendants argued that an OCC regulation, 12 C.F.R. § 7.4008(d)(2), forbids the states from regulating national banks with respect to the terms of credit set forth in credit card agreements (12 C.F.R. § 7.4008(d)(2)(iv)) and the disclosure and advertising related to such agreements (12 C.F.R. § 7.4008(d)(2)(viii)). In fact, with respect to these categories, the regulation expressly states that the national bank may act "without regard to state law limitations." See 12 C.F.R. § 7.4008(d)(2). Thus, pursuant to 12 C.F.R. § 7.4008(d)(2)(iv) and (viii), Plaintiffs' attempt to use California law to rewrite the terms of their Agreements must fail and their claims should be declared preempted. Plaintiffs allege that because 12 C.F.R. § 7.4008(d)(2)(iv) defines "terms of credit" as "including" certain "financial `loan' or fee information," it does not cover the disputed terms in the Agreements relating to the arbitration provision and class waiver, among others. Opposition, at 18. Plaintiffs allege that terms relating to arbitration, class waivers, consolidation of claims, and the like, are not "of the same kind" as the ones expressly included in 12 C.F.R. § 7.4008(d)(2)(iv), and, therefore, must be deemed excluded. Id. This interpretation of 12 C.F.R. § 7.4008(d)(2)(iv) falters for two reasons. First, it is well-established that "the words `include' and `including' are ordinarily words of enlargement, and not of limitation." People v. Wesson, 138 Cal. App. 4th 959, 968, 41 Cal. Rptr. 3d 883 (2006); People v. Arnold, 145 Cal. App. 4th 1408, 1414, 52 Cal. Rptr. 3d 545 (2006) (noting that "[t]he `statutory definition of a thing as `including' certain things does not necessarily place thereon a meaning limited to the inclusions.'") (citations omitted); Colbert v. City of Cleveland, 99 Ohio St. 3d 215, 217-218, 790 N.E.2d 781 (2003) (recognizing that "[e]xamples are typically intended to provide illustrations of a term defined in the
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statute, but not act as limitations on that term"). Plaintiffs fail to present any authority in support of their contention that the OCC intended 12 C.F.R. § 7.4008(d)(2)(iv) to be interpreted so narrowly. Second, even if "Terms of credit" is limited to things in the "same class as those listed in the regulation," which Plaintiffs contend are "payment terms and money-related matters" (Opposition at 19), the dispute here, at least as framed by Plaintiffs, is about "money-related matters." Plaintiffs allege that the presence of the arbitration agreement means that they overpaid their annual fees. (Compl. ¶ 1 and passim) This is the gravamen of Plaintiffs' Complaint: that they did not receive sufficient consideration for the annual fees they paid. Plainly, this is a dispute over the terms of credit under 12 C.F.R. § 7.4008(d)(2)(iv), even if this provision is narrowly construed as Plaintiffs allege. "The term `interest' as used in 12 U.S.C. § 85 ... includes, among other things ... late fees, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash advance fees, and membership fees." 12 C.F.R. § 7.4001 (emphasis added). Sections 85 and 86 of the NBA exclusively govern the amount of fees that a national bank may impose and provide the exclusive remedy for claims against a national bank based on allegedly excessive interest; no state-law theories may be asserted at all to challenge the amount of a national bank's annual fees. See Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 745-47, 116 S. Ct. 1730, 135 L. Ed. 2d 25 (1996); Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 1011, 123 S. Ct. 2058, 156 L. Ed. 2d 1 (2003). The U.S. Supreme Court has expressly recognized preemption in this field, stating: "Because §§ 85 and 86 provide the exclusive cause of action for such claims, there is, in short, no such thing as a statelaw claim of usury against a national bank." Beneficial, 539 U.S. at 11. Plaintiffs' argument that the presence of the arbitration provision caused them to overpay their annual fees, as a matter of state law, is barred by controlling United States Supreme Court authority and should be rejected.

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Plaintiffs' claims are also preempted under 12 C.F.R. § 7.4008(d)(1), which states: "Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank's ability to fully exercise its Federally authorized non-real estate lending powers are not applicable to national banks." This catch-all preemption provision is limited by 12 C.F.R. § 7.4008(e), which holds that Section 7.008(d)(1) does not apply to state laws that "only incidentally affect the exercise of national banks' non-real estate lending powers." Plaintiffs nowhere explain how requiring a national bank to use a completely different form of credit card agreement as opposed to in all other states would have only an "incidental" effect on the bank's nationwide operations, and therefore the OCC's general preemption regulation also bars Plaintiffs' claims. See also Barnett Bank v. Nelson, 517 U.S. 25, 33, 116 S. Ct. 1103, 134 L. Ed. 2d 237 (1996) ("Congress would not want [the] States to forbid, or to impair significantly," national banks' powers.).5 Plaintiffs cannot deny that a key goal of this litigation is to attempt to rewrite the terms of the Agreements that govern Chase's relationships with its cardmembers. Plaintiffs claim that they are not seeking to include any specific information or content to the Agreements (in contravention of 12 C.F.R. § 7.4008(d)(2)(viii)), but merely to exclude certain allegedly unconscionable terms therefrom. Opposition, at 19-20. This argument lacks merit. The distinction is illusory: Inclusion and exclusion are two sides of the same coin. Under federal law, state laws imposing requirements on the content of a credit agreement (12 C.F.R. § 7.4008(d)(2)(viii)) or terms of credit generally (12 C.F.R. § 7.4008(d)(2)(iv)) are preempted by the NBA. See Franklin Nat'l Bank v. New York, 347 U.S. 373, 377-79, 74 S. Ct. 550, 98 L.
5

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Binetti v. Washington Mutual Bank, 446 F. Supp. 2d 217 (S.D.N.Y. 2006), relied upon by Plaintiffs, is not to the contrary. Even when considering the NBA's underlying purpose, see Binetti, 446 F. Supp. 2d at 221, it is clear that the federal purpose (uniform nationwide standards for national bank lending operations), would be impaired if each state could require or prohibit particular terms in credit card agreements or if each state could require unique disclosures.
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Ed. 767 (1954) (state statute prohibiting national banks from using the word "saving" or "savings" in advertising was preempted by the NBA).6 Plaintiffs do not dispute that they are attempting to use state-law theories to dictate the content of credit-card agreements between Chase and its cardmembers. Plaintiffs have alleged that class-action waivers and provisions forbidding consolidation of claims are unconscionable under California law, and, therefore, should be severed from such agreements. Alternatively, if Plaintiffs' inclusion/exclusion argument is taken at face value, Plaintiffs would use California law to compel national banks to include express authorization in their credit card agreements for class-action and consolidation mechanisms. Regardless of the formulation, Plaintiffs are endeavoring to impose requirements on the content, and thus to dictate the terms, of the Agreements at issue. This is in direct contravention of the NBA. See Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559, 1567, 167 L. Ed. 2d 389 (2007) (recognizing, "the States can exercise no control over [national banks], nor in any wise affect their operation, except in so far as Congress may see proper to permit. Any thing beyond this is an abuse, because it is the usurpation of power which a single State cannot give.") (citation omitted). Therefore, Plaintiffs' state-law claims are preempted and should be dismissed. Plaintiffs contend that 12 C.F.R. § 7.4008(d)(2) only preempts state laws that "affirmatively" require the inclusion of certain terms, and that "no such `affirmative' requirement exists relative to the terms which Plaintiffs here challenge." Opposition,

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Plaintiffs argue that Defendants' position regarding the preemption of the CLRA is inconsistent with the position that the CLRA is inapplicable to financial services. Opposition, at 17 n.9. This is nonsense. California courts recognize (under the Berry rule) that the CLRA does not apply to financial services, but if the CLRA were construed to regulate financial services, it still could not regulate financial services offered by national banks (because of the NBA). Indeed, the strong federal interest expressed in the NBA of protecting national banks from state intrusion is yet one more reason why the CLRA must be construed to exclude financial services (i.e., all transactions for "money or credit").
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at 21. But plainly this is not a principled distinction. Whether the states "affirmatively" dictate the content of an agreement or do it indirectly, through the unconscionability provisions of the UCL or the CLRA, for example, ought not to make any difference. Regulation is regulation whether done under the cloak of darkness or in broad daylight.7 Allowing Plaintiffs' claims to proceed would result in a great deal of uncertainty as to how national banks, such as Chase, should structure and operate their lending programs. Moreover, cardmembers in each of the 50 states would be able to demand state-specific language and terms in each cardmember agreement. See Watters, 127 S. Ct. at 1568 ("Congress did not intend, . . . `to leave the field open for the States to attempt to promote the welfare and stability of national banks by direct legislation .... [C]onfusion would necessarily result from control possessed and exercised by two independent authorities.'" (citation omitted)). This would fundamentally undermine a key purpose of the NBA: to establish a national banking system free from excessive state regulation. Application of the UCL and CLRA to set requirements and substantive standards on credit agreements opens the door to similar efforts in other states, and thus would have more than an incidental impact on the lending activities of national banks, interfering with the NBA's plan and impairing the efficiency of national banks to discharge their duties.

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Plaintiffs simply ignore cases cited in the Motion that do not support their position. See SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007) (holding seller does set forth a valid preemption challenge against Connecticut Gift Card Law prohibiting the imposition of an expiration date on a gift card); Austin v. Provident Bank, No. Civ.A.4:04 CV 33 P B, 2005 WL 1785285, at *5-6 (N.D. Miss. July 26, 2005) (fraud claim predicated on state contract and tort law more than incidentally affected national bank's lending powers, and thus was completely preempted by the NBA). Also, Plaintiffs' claim that state deceptive practices acts, such as the UCL, are not subject to NBA preemption is belied by case law. See, e.g., Smiley, 517 U.S. at 738 & n.1, 744, 747; see also In Re Late Fee And Over-Limit Fee Litigation, No. C 07-0634 SBA (N.D. Cal. Nov. 16, 2007) (order granting motion to dismiss) (attached hereto as Exhibit A).
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Plaintiffs' state-law claims, if allowed to proceed, would fundamentally change national bank credit card lending operations. For that reason the claims are expressly preempted under the NBA, and therefore the Motion should be granted without leave to amend. 2. Plaintiffs' Argument That Defendant JPMorgan Chase & Co. Is Not Entitled To The Benefit Of Preemption Is Frivolous.

Plaintiffs argue that Defendants' preemption argument fails in part because JPMorgan Chase & Co., one of the named Defendants, is not a national bank. As set forth in the Motion, however, Plaintiffs only have accounts with Chase Bank USA, N.A., and thus JP Morgan Chase & Co. (in addition to Chase Manhattan Bank U.S.A., N.A.) was erroneously sued. JPMorgan Chase & Co. is a bank holding company and does not issue credit cards. There is no valid claim against this defendant at all. Moreover, under Watters, 127 S. Ct. at 1570-73, a corporate affiliate of a national bank is entitled to the same preemption as the national bank itself. In Watters, the United States Supreme Court held that a non-bank operating subsidiary of a national bank did not need to be licensed by state authorities to engage in mortgage lending activities. Id. at 1564-65. A national bank may choose to use whatever corporate structure it wishes to exercise the lending powers conferred upon it by its federal charter, without its corporate affiliates' losing the NBA's protection against state-law challenges to their conduct. Id. at 1570-71. If the affiliates lost the NBA's protection, the bank itself improperly would have to cope with indirect attacks on bank operations that are no less threatening to a bank's federal powers than a direct attack. Id. Because the credit card issuing function at issue in this case is indisputably regulated by the OCC through its powers under the NBA, all particular corporations alleged to be involved in the banking function at issue are similarly entitled to the benefits of federal preemption. Plaintiffs' argument to the contrary should be rejected because it is barred by recent, controlling authority of the United States Supreme Court.
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III.

CONCLUSION

For the foregoing reasons, Chase respectfully requests that this Court grant the Motion and dismiss the Complaint in its entirety, and without leave to amend. Dated: November 20, 2007 STROOCK & STROOCK & LAVAN LLP JULIA B. STRICKLAND STEPHEN J. NEWMAN By: s/Stephen J. Newman Stephen J. Newman Attorneys for Defendants CHASE BANK USA, N.A., erroneously sued as CHASE MANHATTAN BANK USA, N.A., and JPMORGAN CHASE & CO.

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