James Keith Eudaley v. U.S. Bank National Association

                                                                                            12/19/2022
                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                               November 2, 2021 Session

   JAMES KEITH EUDALEY v. U.S. BANK NATIONAL ASSOCIATION

                 Appeal from the Circuit Court for Davidson County
                   No. 20C1556 Amanda Jane McClendon, Judge
                      ___________________________________

                            No. M2021-00344-COA-R3-CV
                        ___________________________________


A loan was secured by a deed of trust on the borrower’s real property. When the borrower
repaid the loan in full, the bank paid a fee to record a deed of release. The bank then sought
reimbursement of the fee from the borrower. The borrower filed a putative class action
suit, alleging that Tennessee law prohibited the bank from seeking reimbursement of the
recording fee. The trial court dismissed the complaint, concluding that federal regulations
preempted the borrower’s claims. We affirm.

  Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

W. NEAL MCBRAYER, J., delivered the opinion of the court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and ANDY D. BENNETT, J., joined.

Pat Montgomery Barrett, III, Nashville, Tennessee, and Tiffany N. Ray, Mobile, Alabama
for the appellant, James Keith Eudaley.

C.E. Hunter Brush, Nashville, Tennessee, and Thomas J. Cunningham, West Palm Beach,
Florida, for the appellee, U.S. Bank National Association.


                                         OPINION

                                              I.

       When James Keith Eudaley borrowed money from U.S. Bank National Association,
he signed a deed of trust to his real property as security for the loan. After Mr. Eudaley
paid off the loan, U.S. Bank recorded a deed of release with the Dickson County Register
of Deeds, paying a $12 recording fee. The bank then sought reimbursement of the fee from
Mr. Eudaley.
       In response, Mr. Eudaley filed a putative class action complaint against U.S. Bank.
He alleged that a state statute prohibits U.S. Bank from passing along the cost of recording
a release to borrowers. Specifically, Mr. Eudaley claimed that the bank’s conduct
constituted negligence per se and unjust enrichment.

       U.S. Bank moved to dismiss the complaint. It argued that the state statute did not
prohibit reimbursement of recordation fees; Mr. Eudaley’s claims were preempted by the
National Bank Act and its implementing regulations; Mr. Eudaley failed to give pre-suit
notice as required by the parties’ contract; and Mr. Eudaley failed to state a claim for either
negligence per se or unjust enrichment.

       The trial court granted U.S. Bank’s motion to dismiss. It concluded that the state
statute cited by Mr. Eudaley prohibited lienholders like U.S. Bank from seeking
reimbursement for recordation fees. But it also found that the National Bank Act’s
implementing regulations preempted Mr. Eudaley’s claims. Specifically, the regulations
permitted national banks to charge “customers non-interest charges and fees.” 

(b)(2) (2022). So the state statute was “in irreconcilable conflict” with federal
law.

                                              II.

        A motion to dismiss for failure to state a claim “challenges only the legal sufficiency
of the complaint, not the strength of the plaintiff’s proof or evidence.” Webb v. Nashville
Area Habitat for Humanity, Inc., 

 (Tenn. 2011). The “court must
construe the complaint liberally, presuming all factual allegations to be true and giving the
plaintiff the benefit of all reasonable inferences.” Trau-Med of Am., Inc. v. Allstate Ins.
Co., 

 (Tenn. 2002). The complaint should not be dismissed unless it
appears that the plaintiff can prove no set of facts in support of his or her claim that would
warrant relief. Doe v. Sundquist, 

 (Tenn. 1999). Making such a
determination presents a question of law. 

 So our review is “de novo without a
presumption of correctness.” 

      In considering Mr. Eudaley’s appeal, we must answer two separate questions. Does
Tennessee Code Annotated § 66-25-1061 prohibit a debt holder from seeking
reimbursement for costs associated with the recording of a release? And, if so, does federal
law preempt that prohibition when the debt holder seeking reimbursement is a national
bank?


       1
          When the case was filed, the relevant statute was found at Tennessee Code Annotated
§ 66-25-115. The Tennessee Code Commission has since re-designated the statute as Tennessee Code
Annotated § 66-25-106. So we refer to the statute using the re-designated section number.
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                                               A.

        In interpreting a statute, our goal is to “give effect to the intention or purpose of the
legislature as expressed in the statute.” Metro. Gov’t of Nashville & Davidson Cnty. v.
Motel Sys., Inc., 

 (Tenn. 1975). We read the words of a statute “in
the context in which they appear and in light of the statute’s general purpose.” Mills v.
Fulmarque, Inc., 

 (Tenn. 2012). When a statute’s text is
unambiguous, we derive legislative intent from the plain and ordinary meaning of the
statutory language. New v. Dumitrache, 

, 14 (Tenn. 2020); Thurmond v. Mid-
Cumberland Infectious Disease Consultants, PLC, 

 (Tenn. 2014). We
only look beyond the statute if the plain language of the text does not resolve the question
before us. Thurmond, 

; Lee Med. v. Beecher, 

(Tenn. 2010).

       Tennessee Code Annotated § 66-25-106 provides that “[a]ll costs . . . for registering
a formal release[] shall be paid by the holder of the debt secured by the . . . deed of trust.”

 (2022). The parties here disagree about the meaning of the
phrase, “shall be paid by the holder of the debt.” 

 Mr. Eudaley argues that the statute
requires holders of debt to pay all costs associated with recording a deed of release. So
they cannot pass those costs on to others. U.S. Bank concedes that the statute requires
holders of debt to pay the costs of recording. But it argues that the statute does not bar the
bank from seeking reimbursement of those costs from the borrower.

       Both parties offer the language of other statutes to support their interpretations.
Mr. Eudaley points to statutes that use the word “remit” instead of “paid.” See 

 (2019), 68-221-211 (2013). He argues that the word “remit” requires
only a transfer of money. But the word “paid” requires bearing the burden of the payment.
U.S. Bank points to a different statute that uses the word “borne” instead of “paid.” See

 § 69-5-815 (2019). The bank argues that a command to “pay” a cost permits
reimbursement. But a command to “bear” a cost does not.

       Contrary to the parties’ arguments, the plain and ordinary meaning of the word
“paid” does not resolve the question of whether the statute prohibits holders of debt from
seeking reimbursement. So we consider the broader statutory scheme. See Thurmond, 

. Chapter 25 of Title 66 of the Tennessee Code addresses the release of liens
created by written instruments filed of record. See generally 

 to -215 (2022). It requires “a formal deed of release” when a debt “has been
fully paid or satisfied.” 

 § 66-25-101(a). And it provides for fees and penalties against
the holder of the debt for “fail[ure] to enter a proper release of record” after written demand
from the party making payment. Id. § 66-25-102(a).

       Given this context, we conclude that Tennessee Code Annotated § 66-25-106
prohibits holders of debt from seeking reimbursement of costs associated with recording a

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release of a deed of trust. The debt holder’s obligation to record a release only arises if the
debt has been paid in full or satisfied, indicating that nothing further is owed to the debt
holder.2

                                                   B.

        Having determined that Tennessee Code Annotated § 66-25-106 prohibits a debt
holder from seeking reimbursement for costs associated with the recording of a release, we
consider the impact of federal law. U.S. Bank, which is a nationally chartered bank, argues
that the prohibition is preempted by the National Bank Act and regulations promulgated
by the Office of the Comptroller of the Currency (“OCC”). The Supremacy Clause of the
United States Constitution provides that the “Constitution, and the Laws of the United
States . . . shall be the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. Thus, federal
law “may preempt an otherwise valid state law, rendering it without effect.” Lake v.
Memphis Landsmen, LLC, 

 (Tenn. 2013).

       We usually presume that valid state laws are not “displaced by a federal statute
unless that is the clear and manifest intent of Congress.” PHI Air Med., LLC v. Corizon,
Inc., 

, 466 (Tenn. Ct. App. 2021) (quoting Pendleton v. Mills, 

 (Tenn. Ct. App. 2001)). But that presumption does not apply in the context of
national banking because banking is “an area where there has been a history of significant
federal presence.” Monroe Retail, Inc. v. RBS Citizens, N.A.¸ 

 (6th Cir.
2009) (quoting United States v. Locke, 

 (2000)).

        U.S. Bank was created under the National Bank Act, which vests the bank with
authority to exercise “all such incidental powers as shall be necessary to carry on the
business of banking.” 

 (Seventh). The National Bank Act does not expressly
preempt state law. See 12 U.S.C. § 25b(b); Barnett Bank of Marion Cnty., N.A. v. Nelson,

 (1996). Nor does it occupy the entire field of bank regulation. See Cuomo
v. Clearing House Ass’n, 

 (2009) (“No one denies that the National Bank
Act leaves in place some state substantive laws affecting banks.”); Monroe Retail, 

. Instead, “[f]ederally chartered banks are subject to state laws of general application
in their daily business to the extent such laws do not conflict with the letter or the general
purposes of the [National Bank Act].” Watters v. Wachovia Bank, N.A., 

(2007); see also Cadence Bank, N.A. v. The Alpha Trust, 

 (Tenn. Ct.
App. 2015). But state laws may not “prevent or significantly interfere with [a] national
bank’s exercise of its powers.” Barnett, 

. And “[t]he level of ‘interference’
that gives rise to preemption under the [National Bank Act] is not very high.” Monroe
Retail, Inc., 

.

        2
          We are not alone in this interpretation of the statute. See R. Wilson Freyermuth, Why Mortgagors
Can’t Get No Satisfaction, 72 MO. L. REV. 1159, 1168 n.24 (2007) (citing the Tennessee statute as
“obligat[ing] the mortgagee to provide a mortgage satisfaction without charge”).
                                                    4
        The OCC “is charged with the enforcement of the [national] banking laws.” Inv. Co.
Inst. v. Camp, 

 (1971); 

. Regulations promulgated by the
OCC further “define the ‘incidental powers’ of national banks beyond those specifically
enumerated in the statute.” Martinez v. Wells Fargo Home Mortg. Inc., 

(9th Cir. 2010). And the regulations possess the same preemptive effect as the National
Bank Act itself. See Conf. of State Bank Supervisors v. Conover, 

 (D.C.
Cir. 1983); 

(d) (“The OCC applies preemption principles derived from
the United States Constitution, as interpreted through judicial precedent, when determining
whether State laws apply that purport to limit or prohibit charges and fees described in this
section.”).

        Part 7 of the OCC regulations identifies the authorized activities and operations of
national banks. Subpart D of Part 7 is entitled “Preemption.” See 

 (2022). That subpart authorizes a national bank to “charge its customers
non-interest charges and fees.” 

 § 7.4002(a). The “establishment” and “method of
calculating” such charges and fees “are business decisions to be made by each bank, in its
discretion, according to sound banking judgment and safe and sound banking principles.”
Id. § 7.4002(b)(2). Safe and sound banking principles consider, among other things, “[t]he
cost[s] incurred by the bank in providing [its] service[s].” Id. § 7.4002(b)(2)(i).

        Making loans secured by liens on real property is a power granted to U.S. Bank by
the National Bank Act. See 

(a); Watters, 

. In Tennessee, a
holder of debt secured by real property must record a deed of release once the debt is paid
in full or satisfied. 

(a). At a minimum, the fee for recording
a release is $12. 

 § 8-21-1001(b)(3), (c) (2016). Failure to record a release subjects the
debt holder to fines and penalties. See id. § 66-25-102.

       Because U.S. Bank can only make loans secured by real property in Tennessee if it
pays fees to record a deed of release upon repayment of each of such loans, those fees are
a “cost incurred by the bank in providing [its lending] service.” 

(b)(2)(i). OCC regulations authorize national banks to charge fees based on such
costs. 

 So U.S. Bank was authorized under federal law to charge Mr. Eudaley for the
cost of recording the deed of release.

        The United States Court of Appeals for the Sixth Circuit addressed the effect of
charges and fees authorized by OCC regulations on state law limiting charges and fees in
an analogous situation. In Monroe Retail, Inc. v. RBS Citizens, N.A., the court held that
OCC regulations authorizing banks to charge a service fee preempted a state-law
conversion claim. 

. There, Ohio law authorized a garnishment fee of $1.

. But national banks would charge additional service fees for the garnishment
process. 

 The garnishors then sued the banks, alleging, among other things, that the
service fees violated Ohio law and amounted to conversion. 

. The banks

                                             5
responded that OCC regulations preempted the garnishors’ claims because the regulations
authorized the banks to charge such fees. 

. The Sixth Circuit agreed with the
banks. 

. It held that 

(b), in authorizing banks to charge
and collect service fees, authorized garnishment fees. 

. Because the Ohio law
“significantly interfere[d]” with that authorization by imposing a limit on the fees the banks
could charge, the garnishors’ conversion claims were preempted. 

       Applying these principles, we conclude that Mr. Eudaley’s claims are preempted by
federal law. Tennessee law prohibits a debt holder from seeking reimbursement of the fee
for recording a deed of release. See 

. But OCC regulations
authorize U.S. Bank to charge fees based on the cost of recording a deed of release. See

. So just like the state statute in Monroe Retail, Tennessee Code
Annotated § 66-25-106 prohibits what federal law authorizes. Thus, the state statute
prevents U.S. Bank from exercising its federally authorized powers.

                                             III.

       Tennessee Code Annotated § 66-25-106 prohibits a debt holder from seeking
reimbursement for costs associated with the recording of a deed of release. But that
prohibition is preempted by federal law when the debt holder seeking reimbursement is a
national bank. So we affirm the dismissal of Mr. Eudaley’s claims.


                                                       s/ W. Neal McBrayer
                                                    W. NEAL MCBRAYER, JUDGE




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