408 F.Supp.3d 171
E.D.N.Y2019Background
- Plaintiffs (Hymes and Cantero) sued Bank of America in two consolidated putative class actions, alleging the Bank failed to pay interest on mortgage escrow accounts as required by New York General Obligations Law § 5-601 and by their mortgage contracts.
- Bank moved to dismiss under Rule 12(b)(6), principally arguing the National Bank Act (NBA) and OCC preemption regulations preempt § 5-601, so contract, unjust enrichment, and GBL § 349 claims fail.
- The OCC previously adopted a regulation listing “escrow accounts” among state laws preempted for national banks (12 C.F.R. § 34.4); Dodd–Frank later constrained OCC preemption authority and transferred RESPA rulemaking to the CFPB.
- Dodd–Frank also enacted 15 U.S.C. § 1639d(g)(3) (escrow rule) requiring creditors to pay interest on certain escrow accounts “if prescribed by applicable State or Federal law,” which the court read as indicating Congress expected state escrow-interest laws to be relevant to national banks.
- The district court held the NBA does not preempt NY GOL § 5-601, denied Bank’s preemption-based dismissal, allowed breach of contract claims to proceed, and dismissed unjust enrichment and GBL § 349 claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the NBA preempts NY GOL § 5-601 (escrow-interest law) | § 5-601 does not "significantly interfere" with national banks’ power to administer escrow accounts; Dodd–Frank § 1639d(g)(3) shows Congress intended state escrow-interest laws to apply | NBA (and OCC regs) preempt state limits on escrow accounts; § 1639d(g)(3) cannot incorporate preempted state law | Court: NBA does not preempt § 5-601; § 1639d(g)(3) indicates Congress contemplated state escrow-interest laws as relevant |
| Weight due to OCC preemption regulation (12 C.F.R. § 34.4) | OCC list is not persuasive re: escrow-interest laws; agency never reasoned specifically about escrow interest after Dodd–Frank | OCC regs preempt escrow-account limits; regulation controls and merits deference | Court: § 34.4 is entitled only to Skidmore (not Chevron) deference; OCC never gave reasoned, case-specific justification for preempting escrow-interest laws, so the regulation is not persuasive on this issue |
| Breach of contract viability | Plaintiffs plead contracts that incorporate applicable state law; if § 5-601 applies, contract claims valid | If § 5-601 is preempted, the contracts do not incorporate it and breach claims fail | Court: breach claims survive because § 5-601 is not preempted |
| Unjust enrichment and GBL § 349 claims | Plaintiffs may plead unjust enrichment/consumer-protection claims alternatively; Bank’s communications deceived customers | Contract governs subject matter; no plausible deceptive practice alleged | Court: unjust enrichment dismissed (contract governs); GBL § 349 dismissed for failure to plead a materially deceptive act |
Key Cases Cited
- Barnett Bank of Marion Cty., N.A. v. Nelson, 517 U.S. 25 (1996) (articulates NBA implied-preemption standard: state law preempted only if it "prevents or significantly interferes" with national banks’ exercise of powers)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007) (discusses dual federal-state banking regulation and scope of federal authority over national banks)
- Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944) (upheld state escheat/reporting laws as not significantly interfering with banks’ power to receive deposits)
- Franklin Nat’l Bank of Franklin Square v. New York, 347 U.S. 373 (1954) (state law preventing banks from identifying savings services was preempted as it would nullify the federal grant of power)
- Wyeth v. Levine, 555 U.S. 555 (2009) (agency preemption/interpretation of preemption determinations entitled to Skidmore weight)
- Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018) (similar dispute; Ninth Circuit held NBA did not preempt California escrow-interest law)
- Flagg v. Yonkers Sav. & Loan Ass’n, F.A., 396 F.3d 178 (2d Cir. 2005) (held HOLA preempted NY § 5-601 as applied to federal savings associations; distinguishable because it arose under HOLA’s field-preemption regime)
- Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (limits deference to agency interpretations of their own ambiguous rules; emphasizes that Auer deference is not automatic)
- Hines v. Davidowitz, 312 U.S. 52 (1941) (instructs that preemption analysis asks whether state law stands as an obstacle to federal objectives)