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U.S. Bank National Ass’n v. Thomas

In the late 1990’s, some subprime lenders began to underwrite “high loan-to-value” second mortgages loans in which the total debt consisted of 125% of the value of the borrower’s home. Among these lenders was FirstPlus Bank, a now-defunct California-chartered entity that sold securitized pools of its subprime second mortgages to investors. In the course of these transactions, FirstPlus collected certain charges from borrowers that were passed on to a marketing affiliate as finders’ fees.

This case involved claims by Missouri homeowners who took out loans from FirstPlus. In 2004, the homeowners filed a lawsuit in state court alleging that the fees charged by FirstPlus violated Missouri law. The banks, which purchased the loans from FirstPlus, removed the case to federal court on the theory that the state-law claims were “completely preempted” by a federal law passed in 1980 to regulate the interest rates of federally insured, state-chartered banks. The Eighth Circuit held that the federal statute did not even apply to the facts of the case, so there could be no complete preemption.

In 2010, the banks filed a petition asking the U.S. Supreme Court to decide whether state-law usury claims are completely preempted by federal law. Co-counseling in the Supreme Court, we argued in the brief in opposition that the Court should deny certiorari because the complete-preemption question was not presented on these facts and, in any event, the lower courts were not divided on the issue. The opposition was successful; the Court denied the petition.