District Court says Reg. J does not preempt state law in wire transfer case
On October 5, a federal judge for the U.S. District Court for the Western District of Pennsylvania remanded a case back to state court, holding that the Federal Reserve’s regulation governing Fedwire transfers does not completely preempt state law claims. The elderly plaintiff alleged that bank employees helped her execute wire transfers totaling $4.3 million to an unknown scam artist, but never questioned whether she “intended, or knew, that the wire transfers were being made through a crypto currency bank to a crypto currency trust company.” The plaintiff sued the bank, claiming that it was negligent in not protecting her from the scheme, and that its advertising claims about keeping client information safe from scams were misleading and violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. While recognizing that the plaintiff only asserted state law claims, the bank removed the case to federal court on the ground that the Fedwire system used to make the transfers was governed by the Fed’s Regulation J, and thus state law was preempted.
The court ruled that, while the bank could invoke Regulation J as a defense, the regulation does not expressly provide a private right to seek redress in federal court, nor does the regulation itself allow the bank to remove the case to federal court. “[T]he court concludes that the more persuasive case law reflects that only Congress (not a federal agency in a regulation) can completely preempt a state law cause of action to create removal jurisdiction.” The plaintiff did not assert federal claims, and so “[t]he mere fact that [the bank] intends to assert Regulation J as a preemption defense does not create removal jurisdiction.” Furthermore, the court cited the Fed’s commentary to Regulation J, which said regulations “may pre-empt inconsistent provisions of state law” but do not affect state law where there was no conflict. Since there was no conflict between Regulation J and the Pennsylvania law, the federal regulation does not provide the exclusive cause of action, the court said.