Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_03-cv-04190/USCOURTS-cand-4_03-cv-04190-6/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1441 Petition for Removal- Injunctive/Declaratory Relief

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RETAILERS NATIONAL BANK,

Plaintiff,

v.

LISA HARDING and DOES 1 through 15,

inclusive,

Defendants.

 /

AND RELATED COUNTERCLAIMS

 /

No. C 03-4190 CW

ORDER GRANTING

MOTION TO REMAND

Plaintiff Retailers National Bank (Retailers) sued in State

court to collect a credit card debt from Defendant Lisa Harding. 

Ms. Harding, along with her husband Andrew Harding, counterclaimed

against Retailers and a host of financial entities (collectively,

Counterclaim-Defendants) involved in issuing credit cards to them. 

The Hardings’ counterclaims (denominated a “cross-complaint” in the

parties’ papers) assert that Counterclaim-Defendants violated

various State and federal laws, including California Business &

Professions Code § 17200 et seq., by extending credit to the

Hardings to purchase “chips” to use at offshore on-line gambling

sites. The Hardings seek, both individually and on behalf of the

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general public, declaratory and injunctive relief relating to

Counterclaim-Defendants' collection of past on-line gambling debts

and the processing of future on-line gambling transactions.

While the case was in State court, the Hardings served their

counterclaims on some, but not all, Counterclaim-Defendants. On

September 12, 2003, Citibank, NA, a Counterclaim-Defendant served

in State court, removed the action to this Court under the Edge

Act, 12 U.S.C. § 632, which provides that federally chartered

corporations may remove suits arising out of foreign banking

transactions. Retailers, the other Counterclaim-Defendant served

in State court, joined in the removal. Remaining CounterclaimDefendants were served following removal to federal court.

Four Counterclaim-Defendants (Fleet Financial Group, Inc.,

Citibank, Discover Financial Services, Inc., and MBNA America Bank,

NA) moved pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et

seq., to stay this case and compel arbitration of the Hardings’

counterclaims pursuant to the arbitration clauses of the cardmember

agreements the Hardings entered into with each of them. MBNA

America Bank and Visa International Association and Visa USA, Inc.,

(collectively, Visa), joined by MasterCard International, Inc., and

Providian Financial Services, moved to stay the action against them

pending any arbitration of the Hardings’ counterclaims. The

Hardings oppose arbitration of their counterclaims. 

The Court, the Honorable Vaughn R. Walker presiding, heard

oral argument on these motions on March 17, 2005. Following the

hearing, the Court requested supplemental briefing and sua sponte

raised the question of its subject matter jurisdiction. On April

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28, 2005, the Hardings moved to remand the case for lack of subject

matter jurisdiction or, in the alternative, to sever and remand

certain counterclaims. Chief Judge Walker heard further oral

argument on June 2, 2005. Both before and after this hearing, the

Court asked Counterclaim-Defendants to address whether the

“merchant banks” involved in the transactions in this case were

foreign. On March 29, 2006, Chief Judge Walker recused himself

from the case, and it was reassigned to the undersigned on April 4,

2006. 

Having considered the papers filed by the parties and the

transcripts of the hearings before Chief Judge Walker, the Court

grants the Hardings' motion to remand on the grounds of lack of

subject matter jurisdiction. Accordingly, the Court denies as moot

Counterclaim-Defendants' various motions to compel arbitration and

motions to stay. The Hardings' objections to CounterclaimDefendants' evidence are overruled as moot.

DISCUSSION

I. Edge Act Jurisdiction

The notice of removal specifies that the Edge Act is the

source of federal jurisdiction and the basis of removal for this

case. The Edge Act provides, in relevant part:

[A]ll suits of a civil nature . . . to which

any corporation organized under the laws of the

United States shall be a party, arising out of

transactions involving international or foreign

banking . . . or out of other international or

foreign financial operations . . . shall be

deemed to arise under the laws of the United

States, and the district courts of the United

States shall have original jurisdiction of all

such suits; and any defendant in any such suit

may, at any time before the trial thereof,

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remove such suits from a State court into the

district court of the United States for the

proper district by following the procedure for

the removal of causes otherwise provided by

law.

12 U.S.C. § 632. Although there is scant appellate authority on

this jurisdictional grant, courts applying this provision have

generally begun “with the well recognized proposition that removal

statutes should be strictly construed with all doubts being

resolved against the removing party.” Telecredit Serv. Center v.

First Nat'l Bank of the Florida Keys, 679 F. Supp. 1101, 1103 (S.D.

Fla. 1988). Indeed, the removing party has the burden of proving

that a court has jurisdiction. Cf. Gaus v. Miles, Inc., 980 F.2d

564, 566-67 (9th Cir. 1992) (In removed diversity cases, if the

jurisdictional basis is unclear "then the defendant bears the

burden of actually proving the facts to support jurisdiction,

including the jurisdictional amount."); see also id. at 567 ("[T]he

court may demand that the party alleging jurisdiction justify his

allegations by a preponderance of evidence.") (emphasis omitted)

(quoting McNutt v Gen. Motors Acceptance Corp., 298 U.S. 178, 189

(1936)).

The required elements of the Edge Act are clear from the

statute and have been consistently interpreted by district courts:

“[T]o establish jurisdiction under the Edge

Act: ‘1) the suit must be civil in nature;

2) one of the parties at interest is a

corporation organized under the laws of the

United States; and 3) the suit arises out of a

transaction involving international or foreign

banking.’” Pinto v. Bank One Corp., 2003 WL

21297300, at *2 (S.D. N.Y. June 4, 2003)

(quoting First Nat'l Bank v. Promatek Med.

Sys., Inc., 870 F. Supp. 234, 237 (N.D. Ill.

1994)); accord Stamm v. Barclays Bank of N.Y.,

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1

 Based on the parties’ submissions, the Court finds the

following are national banks: Retailers (now known as Target

National Bank); Citibank; Chase Bank USA, NA (successor in interest

to Bank One Delaware, NA, a national bank); MBNA America Bank, NA;

Providian National Bank and Bank of America, NA (successor in

interest to Fleet Bank (RI), NA, a national bank). Washington

Mutual Bank is a federally-chartered savings and loan association. 

The remaining Counterclaim-Defendants appear not to be federally

chartered corporations.

5

1996 WL 614087, at *2 [(S.D. N.Y. Oct. 24,

1996)]; Bank of N.Y. v Bank of Am., 861 F.

Supp. 225, 232 (S.D. N.Y. 1994).

In re Currency Conversion Fee Antitrust Litig., 2003 WL 22097502,

at *2 (S.D. N.Y. Sept. 10, 2003) (first alteration in original).

This suit is plainly civil in nature. One party in interest

is a corporation organized under the laws of the United States;

indeed, most of the card issuers are national banks.1 And this

suit involves the extension of credit and collection of the same,

both of which clearly involve banking transactions and financial

operations. See In re Currency Conversion Fee, 2003 WL 22097502,

at *2 (“[T]he issuance of a credit card involves a traditional

banking function such that Edge Act jurisdiction is warranted.”)

(citing Pinto, 2003 WL 21297300, at *3-5; Clarken v. Citicorp

Diners Club, Inc., 2001 WL 1263366, at *1 (N.D. Ill. Oct. 22,

2001)).

The only substantial question is whether the suit arises out

of a transaction or transactions involving international or foreign

banking. In moving to remand the case, the Hardings rely heavily

on Telecredit, while Counterclaim-Defendants urge the Court to

follow Pinto. The Court does not find any inconsistency between

these cases.

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Broadly speaking, Telecredit takes the view that, whatever the

subject matter of some underlying transaction may be, it is the

disputed transaction immediately before the court that matters for

jurisdictional purposes. In Telecredit, the dispute was over

chargebacks on purchases of offshore travel club memberships, but

the banks, merchants and credit card processors were all apparently

domestic entities. Accordingly, the Telecredit court found it had

no jurisdiction. Telecredit, 679 F. Supp. at 1104 (“Following the

defendant's reasoning would lead this court to find jurisdiction in

every chargeback dispute involving a foreign product or service,

consumed in the United States by an American consumer, sold by an

American corporation, simply because the consumer purchased the

product or service with her credit card.”).

Pinto, which is factually similar to the case at bar, is not

inconsistent with the principle enunciated in Telecredit because

the transactions at issue in Pinto involved domestic issuing banks

(on behalf of plaintiff credit card holders) and offshore merchant

banks (which had contracted with offshore on-line gambling sites). 

See Pinto, 2003 WL 21297300, at *1, *3. (For a discussion of

credit card transaction processing, see, e.g., Nat'l Bancard Corp.

v. VISA USA, Inc., 779 F.2d 592, 594-96 (11th Cir. 1986) and Nat'l

Bancard Corp. v. VISA, USA, 596 F. Supp. 1231, 1236-39 (S.D. Fla.

1984).)

As in Pinto, the Court concludes that for Edge Act

jurisdictional purposes, the relevant banking transactions are

between the issuing banks (here, Counterclaim-Defendants) and the

casino’s merchant banks. If the casino's merchant banks were

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domestic, however, the only banking transaction that crossed the

foreign-domestic border was between a merchant bank and an on-line

gambling site. Such a transaction would be too tangentially

related to this case to satisfy the Edge Act’s foreign transaction

nexus requirement. Indeed, none of the parties to that transaction

would even be before the Court. If, on the other hand, the

merchant banks were foreign, then transactions between the issuing

banks and the foreign banks would be “transactions involving

international or foreign banking” within the meaning of the Edge

Act.

Applying this principle to this case, the Court begins by

observing that Citibank's notice of removal does not specify that

the merchant banks are foreign. Rather, the notice simply asserts

that “[t]he Action is removable pursuant to Edge Act because . . .

the suit allegedly arises out of transactions involving

international or foreign banking.” Sept. 12, 2003 Notice of

Removal at 2. And although Citibank notes that the transactions at

issue involved “foreign Internet gambling merchants,” id. at 3, it

never suggests that the banks servicing these gambling merchants

were themselves foreign. Cf. Pinto, 2003 WL 21297300, at *3 n.3

(“The Notice of Removal clearly states that ‘[a]t least some of the

transactions that are the subject of the complaint have been

processed by foreign banking or financial entities operating, on

behalf of internet casinos, through international credit card

banking systems.’”) (emphasis added).

Counterclaim-Defendants have subsequently failed to show that

the transactions at issue involved foreign merchant banks. Most

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Counterclaim-Defendants never responded to Judge Walker's order

requiring them to file supporting declarations establishing the

identity of "the merchant banks involved in each of the

transactions at issue in this case.” May 27, 2005 Order at 2. 

Counterclaim-Defendant MasterCard responded by simply incorporating

by reference its previously-aired argument that “other grounds for

Edge Act jurisdiction can apply even if the merchant bank is not

foreign.” Joinder of Cross-Def. Mastercard in Supp. Mem. Regarding

Edge Act Jurisdiction at 2. Counterclaim-Defendants Discover,

Citibank and Washington Mutual Bank were similarly non-responsive,

requesting that “the Hardings be required to identify the specific

charges or transactions that they contend were made for Internet

gambling and that are the subject of the Cross-Complaint.” 

Statement of Cross-Defs. Citibank et al. in Resp. to Order to

Provide Information Regarding Merchant Banks at 2. Of course, this

request is not well-taken because Counterclaim-Defendants, not the

Hardings, bear the burden of establishing that removal was proper. 

See Gaus, 980 F.2d at 566-67.

Despite these failures, Judge Walker gave CounterclaimDefendants Visa, MasterCard and Discover another opportunity to

demonstrate that the relevant merchant banks were foreign by asking

them to submit their “rules governing the location of merchant

banks.” June 3, 2005 Order at 1. In response, Visa

International’s Vice-President of Global Compliance, Robert Alandt,

noted in a declaration that it had regulations that “require that a

merchant bank must be located in the same country as the merchants

it services (except that any banks within the Visa Europe Region

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can sign any merchants located in that Region).” Alandt Decl. ¶ 4. 

But Mr. Alandt undermined the significance of this statement by

acknowledging that “[t]here are very limited exceptions to these

Regulations, and exceptions would require approval by the Visa

International Regional Board with jurisdiction over the merchant. 

I am not aware of any instance where such approval has been given

in connection with Internet gambling.” Id. ¶ 5. MasterCard

responded similarly, arguing that, “the applicable Bylaws and Rules

Manuals of MasterCard International [to Internet gambling merchants

operating from off-shore locales] create a presumption that the

acquirers that service such merchants are also located outside the

United States.” Mastercard's Submission in Response to June 3,

2005 Order at 2. In short, these statements do not demonstrate

that the particular transactions in this case involved foreign

merchant banks.

Mindful of the presumption that removal statutes are to be

strictly construed, Telecredit, 679 F. Supp. at 1103, and that

generally “courts have interpreted § 632 narrowly,” Bank of N.Y.,

861 F. Supp. at 232, the Court finds that there is not an adequate

basis to conclude that the transactions at issue here were foreign. 

Visa and MasterCard have not sufficiently demonstrated that their

general rules regarding merchant banks actually applied to the

relevant transactions here. Other Counterclaim-Defendants have

failed to provide any evidence whatsoever that the relevant

merchant banks were foreign. The Court declines to order any

additional briefing because Counterclaim-Defendants have already

been permitted to file two supplemental briefs on this matter. 

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Therefore, the Court finds that it has no jurisdiction pursuant to

the Edge Act over this case. 

II. Alternative Bases for Federal Jurisdiction

In their supplemental papers, some Counterclaim-Defendants

contend that the Court has general federal question jurisdiction

under 28 U.S.C. § 1331, because (1) the Hardings seek a declaration

that the banks’ conduct is prohibited by the USA PATRIOT Act and

(2) the case was properly removed under 28 U.S.C. § 1441(a), the

general removal statute. 

Alternative grounds for jurisdiction are unavailable to

Citibank and Retailers, the only two Counterclaim-Defendants that

had been served with the Hardings' counterclaims when the notice of

removal was filed. A defendant seeking to remove a case to federal

court must do so within thirty days of being served with the

complaint. 28 U.S.C. § 1446(b). The notice of removal "‘cannot be

amended to add a separate basis for removal jurisdiction after the

thirty day period.’” Arco Envtl. Remediation, LLC v. Dept. of

Health & Envtl. Quality, 213 F.3d 1108, 1117 (9th Cir. 2000)

(quoting O’Halloran v. Univ. of Washington, 856 F.2d 1375, 1381

(9th Cir. 1988)); id. (“[A]mendment may be permitted after the

30-day period if the amendment corrects defective allegations of

jurisdiction, but not to add a new basis for removal

jurisdiction.”) (quoting 16 Moore’s Federal Practice

§ 107.30[2][a][iv]). Accordingly, Citibank and Retailers must rely

on the Edge Act because that was the only basis for removal

specified in the removal notice. 

Whether those Counterclaim-Defendants who were not served in

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State court prior to removal may rely on alternative bases for

jurisdiction is less clear. The parties cite no cases that address

facts similar to those here, and the Court has located none. It is

true that unserved Counterclaim-Defendants had no opportunity to

augment the jurisdictional bases advanced by the removing

Counterclaim-Defendants. However, the removal statute elsewhere

denies unserved parties the opportunity to assert their preferences

regarding removal. For example, “[o]rdinarily, under 28 U.S.C.

§ 1446(a), all defendants in a state action must join in the

petition for removal, except for nominal, unknown or fraudulently

joined parties. This general rule applies, however, only to

defendants properly joined and served in the action.” Emrich v.

Touche Ross & Co, 846 F.2d 1190, 1193 n.1 (9th Cir. 1988)

(citations omitted). Hence, unserved defendants who would prefer

to remain in State court cannot prevent removal. 

Here, a rule allowing Counterclaim-Defendants not served in

State court to assert alternative bases for federal jurisdiction

would be unworkable. The Court has already found that the Notice

of Removal fails to state a proper basis for federal jurisdiction,

and therefore the counterclaims against Citibank and Retailers must

be remanded. Allowing those Counterclaim-Defendants who were not

served in State court to remain in federal court would result in a

bifurcated action, an outcome inconsistent with the removal

statute's usual requirements that defendants must unanimously join

in removal and that an entire suit must be transferred. E.g., 28

U.S.C. § 1441(c) (providing that an “entire case may be removed”

when a federal question claim is “joined with one or more otherwise

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non-removable claims”). Therefore, the Court concludes that the

entire action must be remanded even if federal jurisdiction under

28 U.S.C. § 1331 exists over the Hardings' counterclaims. 

CONCLUSION

For the foregoing reasons, the Court GRANTS the Hardings’

motion to remand (Docket No. 121) and hereby REMANDS the case to

Superior Court of California for the County of Alameda. The Court

DENIES the motions to compel arbitration (Docket Nos. 35, 40 and

41); the motions to stay (Docket Nos. 42 and 48); and the Hardings'

motions for leave to file an amended cross-complaint (Docket Nos.

157 and 163), without prejudice to refiling these motions in State

court. The Hardings' objections to evidence in CounterclaimDefendants' declarations are overruled as moot. The Clerk is

directed to close the file and terminate all other pending motions.

IT IS SO ORDERED.

Dated: 6/30/06

 

CLAUDIA WILKEN

United States District Judge

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