A Pennsylvania federal district court recently held that Regulation J did not completely preempt state law claims related to a wire transfer, and thus did not fall under the “complete preemption” exception to the “well-pleaded complaint rule.” Reg J deals with the collection of checks and other items by Federal Reserve Banks and fund transfers through Fedwire.
In the case, the plaintiff was the victim of a fraud scheme. Over the course of several months, a fraudster convinced the plaintiff to wire $4,300,000 from her account at Dollar Bank to an account controlled by the fraudster. The plaintiff filed a lawsuit against Dollar Bank in Pennsylvania state court alleging state law claims for negligence in failing to protect her from the fraudulent scheme and for violating the Pennsylvania Unfair Trade Practices and Consumer Protection Law by advertising that it keeps customer information safe from scams.
Dollar Bank removed the lawsuit to federal court, alleging that, because the case involved a wire transfer, Reg J preempted the plaintiff’s state law claims. Specifically, Dollar Bank argued that the case fell under the complete preemption exception to the well-pleaded complaint rule such that the federal court had subject matter jurisdiction over the case.
The federal court rejected Dollar Bank’s argument. In so holding, the federal court reiterated the well-known rule: although federal question jurisdiction is typically decided on the face of a complaint, a narrow exception exists when a federal cause of action wholly displaces the state law claims. The Pennsylvania federal court held that Reg J cannot completely preempt state law because complete preemption requires an act of Congress, and the Federal Reserve Act—the enabling statute for Reg J—does not reflect a congressional intent for Reg J to completely preempt state law claims. Rather, Reg J offers “ordinary preemption,” namely, a preemption defense to conflicting state law claims.
The Pennsylvania federal court’s decision is in-line with decisions from the U.S. Court of Appeals for the Sixth Circuit and a federal district court in Mississippi holding that Reg J does not completely preempt state law claims.