WACHOVIA BANK, N.A. аnd Wachovia Mortgage Corporation, Plaintiffs-Appellees, v. John P. BURKE, in his official capacity as Banking Commissioner of the State of Connecticut, Defendant-Appellant.
Docket No. 04-3770-CV.
United States Court of Appeals, Second Circuit.
Argued: May 31, 2005. Decided: July 11, 2005.
414 F.3d 305
Mark F. Kohler, Assistant Attorney General for the State of Connecticut (Richard Blumenthal, Attorney General, on the brief), Hartford, CT, for Defendant-Appellant.
William L. Brauch, Assistant Attorney General of the State of Iowa (Thomas J. Miller, Attorney General of Iowa, on the brief), Des Moines, IA, for the Attorneys General of 40 Amici States and Conference of State Bank Supervisors as amici curiae in support of Appellant.
Douglas B. Jordan, Counsel for the Office of the Comptroller of the Currency (Daniel P. Stipano, Acting Chief Counsel; Horace G. Sneed, Director of Litigation, on the brief), Washington, D.C., for the Office of the Comptroller of the Currency as amicus curiae in support of Appellees.
Frederick C. Schafrick, Goodwin Procter LLP (Thomas M. Hefferon, Goodwin Procter LLP; Joseph M. Kolar, Jeremiah S. Buckley, Buckley Kolar LLP, on the brief), Washington, D.C., for the American Bankers Association, America‘s Community Bankers, Consumer Bankers Association, Consumer Mortgage Coalition, and Financial Services Roundtable as amici curiae in support of Appellees.
Before: McLAUGHLIN, STRAUB, and HALL, Circuit Judges.
STRAUB, Circuit Judge.
1 Defendant-Appellant John P. Burke, in his official capacity as Banking Commissioner of the State of Connecticut (“the Commissioner“), appeals from a decision of the United States District Court for the District of Connecticut (Janet C. Hall, Judge) granting summary judgment in favor of Plaintiffs-Appellees Wachovia Bank, N.A. (“Wachovia Bank“), a nationally chartered bank, and its wholly owned, state-chartered subsidiary Wachovia Mortgage Corporation (“Wachovia Mortgage“) (together “Wachovia“). The plaintiffs brought an action for declaratory and injunctive relief to prevent enforcement of certain Connecticut banking laws against Wachоvia Mortgage on the ground that the state laws are preempted by the National Bank Act (“NBA“),
3 We must, however, reverse the District Court‘s holding with respect to Wachovia Bank‘s claim under
BACKGROUND
4 The following facts are not in dispute. Connecticut has enacted a series of banking laws with enforcement power delegated to the Commissioner. As explained by the District Court, six Connecticut banking statutes are at issue in this case. Two statutes require state licenses for first and secondary mortgage lenders. See
5 Wachovia Bank is a national banking association organized under the NBA. Wachovia Mortgage is a North Carolina corporation that was initially engaged in making first mortgage loans and has been licensed in Connecticut to do so since 1987. On January 1, 2003, Wachovia Mortgage became a wholly owned subsidiary of Wachovia Bank and surrendered its mortgage licenses with the Commissioner. On February 24, 2003, the Commissioner issued a Notice of Intent to Issue a Cease and Desist Order against Wachovia Mortgage for engaging in the first mortgage lending business in Connecticut without a license. Pursuant to a stipulation with the Commissioner, dated March 31, 2003, Wachovia Mortgage agreed to apply for re-licensing while reserving its right to seek legal action. Wachovia Mortgage also applied for a license to engage in secondary mortgage lending.
6 On April 25, 2003, Wachovia Mortgage and Wachovia Bank filed suit in the United States District Court for the District of Connecticut, requesting declaratory and injunctive relief on the ground that the NBA and OCC regulations preempt the state laws’ application in this case. The plaintiffs also brought claims under
8 With respect to the § 1983 claims, the District Court found that the NBA, through
9 The District Court entered a declaratory judgment in favor of the plaintiffs on the preemption issue and in favor of Wachovia Bank on its § 1983 claim, and it closed the case.1 The Commissioner timely appealed and now challenges the preemption and § 1983 rulings. Wachovia Mortgage does not challenge the dismissal of its § 1983 claim.2
DISCUSSION
10 We review de novo a district court‘s decision to grant summary judgment. See Green Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 639 (2d Cir.2005). In this case, the parties agree that the appeal solely involves legal issues and that there are no disputed facts. The legal issues are: (1) whether the NBA and OCC regulations preempt the Connecticut laws’ application to Wachovia Mortgage, and (2) whether the NBA provides Wachovia Bank with rights enforceable under
11 No court of appeals has addressed whether the OCC regulations preempt state regulation of operating subsidiaries. Three district courts have reached this precise issue and have found prеemption based on essentially the same reasoning used by the District Court in this case. See Nat‘l City Bank of Ind. v. Turnbaugh, 367 F.Supp.2d 805 (D.Md.2005) (”Turnbaugh“); Wachovia Bank v. Watters, 334 F.Supp.2d 957 (W.D.Mich.2004) (”Watters“), appeal docketed, No. 04-2257 (6th Cir. Oct. 14, 2004); Wells Fargo Bank, N.A. v. Boutris, 265 F.Supp.2d 1162 (E.D.Cal.2003) (”Boutris“), appeal argued, No. 03-16197 (9th Cir. Nov. 4, 2004).3 Watters and Boutris also decided the § 1983 issue, and, contrary to the District Court in this appeal, they found that the NBA does not create federal rights for national banks. See Watters, 334 F.Supp.2d at 965; Boutris, 265 F.Supp.2d at 1176-78.
12 We first lay out the statutory and regulatory framework before addressing the preemption and § 1983 issues in turn.
14 In 1864, Congress enacted the NBA4 “to facilitate . . . a national banking system.” Marquette Nat‘l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 315 (1978) (internal quotation omitted). In pertinent part, the NBA establishes nationally chartered banks and grants these banks certain powers, including “all such incidental powers as shall be necessary to carry on the business of banking.”
15 The OCC is the federal agency entrusted with the “primary responsibility for surveillance of `the business of banking’ authorized by § 24 Seventh.” NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256 (1995). It has the power to promulgate rules and regulations and may use its rulemaking authority to define the “incidental powers” of national banks beyond those specifically enumerated in the statute. See id.; see also
16 Pertinent to this case, the OCC promulgated
17 In 2001, shortly after making pertinent revisions to
18 The majority of commenters who addressed this issue supported the proposal. Many of these commenters said that it is a permissible exercise of the authority granted by the National Bank Act for national banks to create operating subsidiaries that exercise both direct and incidental powers under
12 U.S.C. Section 24 (Seventh). These commenters noted that operating subsidiaries have long been authorized for national banks and provide national banks with a convenient alternative to conduct activities that the bank could conduct directly. Further, they agreed that operating subsidiaries are, in essence, incorporated departments or divisions of the bank and, accordingly, should not be treated differently than their parent banks under State laws.
20 A similar interplay of statutes and regulations exists specifically with respect to national banks’ real estate lending powers. Pursuant to
21 Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank‘s ability to fully exercise its Federally authorized real estate lending powers do not apply to national banks. Specifically, a national bank may make real estate loans under
12 U.S.C. 371 and [12 C.F.R.] § 34.3 without regard to state law limitations.
22 Id. § 34.4(a). Licensing requirements are specifically listed as a prohibited state limitation.
II. Preemption
23 The preemption doctrine is rooted in the Supremacy Clause of the Constitution. Fid. Fed. Sav. & Loan Ass‘n v. de la Cuesta, 458 U.S. 141, 152 (1982); see also
24 “Federal regulations have no less pre-emptive effect than federal statutes.” Id. Federal courts have recognized that the OCC may issue regulations with preemptive effect. See, e.g., Wells Fargo Bank of Tex., 321 F.3d at 493-94; Conf. of State Bank Supervisors v. Conover, 710 F.2d 878, 882, 885 (D.C.Cir.1983). Congress has expressly recognized the OCC‘s power to preempt particular state laws by issuing opinion letters and interpretive rulings, subject to certain notice-and-comment procedures. See
26 There is typically a presumption against preemption in areas of regulation that are traditionally allocated to states and are of particular local concern. See Flagg v. Yonkers Sav. & Loan Ass‘n, 396 F.3d 178, 183 (2d Cir.2005). “The presumption against federal preemption disappears, however, in fields of regulation that have been substantially occupied by federal authority for an extended period of time. Regulation of federally chartered banks is one such area.” Id. (citations omitted); see also United States v. Locke, 529 U.S. 89, 108 (2000) (explaining operation of presumption generally); Barnett Bank, 517 U.S. at 32-33 (documenting the long history of federal regulations preempting state laws that purport to govern federally chartered banks); Bank of Am. v. City & County of San Francisco, 309 F.3d 551, 558 (9th Cir.2002) (tracing federal preemption as to national banks back to M‘Culloch v. Maryland, 17 U.S. (4 Wheat) 316 (1819)). States have a legitimate role in regulating certain banking activity, and it is often said that we have a “dual banking system” of federal and state regulation. See generally Nat‘l State Bank v. Long, 630 F.2d 981, 985-86 (3d Cir.1980); First Union Nat‘l Bank v. Burke, 48 F.Supp.2d 132, 136-37 (D.Conn.1999). Nonetheless, state regulation is preempted if it will “significantly interfere with the national bank‘s exercise of its powers.” Barnett Bank, 517 U.S. at 33; see also id. at 32 (explaining that history of national banking legislation “is one of interpreting grants of both enumerated and incidental `powers’ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law“).
27 Given these principles, the Commissioner incorrectly attempts to frame the issue as whether Congress has expressly and clearly manifested an intent to preempt state visitorial power over operating subsidiaries. The focus, rather, is on the reasonableness of the OCC‘s exercise of its regulatory authority. See de la Cuesta, 458 U.S. at 153-54. The District Court properly approached the issue through the framework of Chevron U.S.A, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). See NationsBank, 513 U.S. at 257-58 (applying the Chevron doctrinе to determine whether OCC was authorized to grant a national bank‘s application to sell annuities); Wells Fargo Bank of Tex., 321 F.3d at 492-95 (applying Chevron and deferring to agency rule preempting state law concerning check-cashing fees).6 Pursuant to Chevron, we ask, first, “whether the intent of Congress is clear as to the precise question at issue.” NationsBank, 513 U.S. at 257 (internal quotation omitted). If Congress‘s intent is clear, “that is the end of the matter. But if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency‘s answer is based on a permissible construction of the statute.” Id. (internal quotation and citation omitted). If there is an ambiguity, we must “give great weight to any reasonable construction” of the statutes by the OCC. Clarke v. Secs. Indus. Ass‘n, 479 U.S. 388, 403 (1987); see also NationsBank, 513 U.S. at 257; de la Cuesta, 458 U.S. at 153-54.
29 The District Court properly identified the precise question as whether Congress has addressed the manner in which state law should apply to a national bank operating subsidiary. As the District Court recognized,
30 First, the Commissioner‘s argument concerning § 484 fails to account for how preemption actually arises in this case. The OCC does not purport to define the term “national bank,” as used in § 484, to include an “operating subsidiary.” Instead, the OCC has interpreted a national bank‘s “incidental powers” under
31 The Commissioner‘s second argument concerning “affiliates” is more nuanced but fares no better. As the Commissioner explains, the Banking Act of 1933 (the “Glass-Steagall Act“) enacted
33 Moreover, it was not until the 1960s that the OCC first recognized national banks’ use of a “subsidiary operations corporation” to conduct “functions or activities ... that a national bank is authorized to carry on.” Acquisition of Controlling Stock Interest in Subsidiary Operations Corporation, 31 Fed.Reg. 11,441, 11,459 (Aug. 31, 1966). That regulation reflected the OCC‘s interpretation of national banks’ powers under
34 With the passage in 1999 of the Gramm-Leach-Bliley Act (“GLBA“), Pub.L. No. 106-102, 113 Stat. 1338, Congress, at least implicitly, recognized the unique role of operating subsidiaries. In enacting
35 For at least 30 years, national banks have been authorized to invest in operating subsidiaries that are engaged only in activities that national banks engage in directly. For example, national banks are authorized directly to make mortgage loans and engage in related mortgage banking activities. Many banks choose to conduct these activities through subsidiary corporations. Nothing in this legislation is intended to affect the authority of national banks to engage in bank permissible activities through subsidiary corporations.
36 S.Rep. No. 106-44, at 8 (1999).8 Similarly,
38 Overall, the history of the banking laws indicates that operating subsidiaries have been treated distinctly by Congress and the OCC, and no statute speaks directly to the scope of federal versus state power over them. Particularly with the passage of the GLBA, it appears that Congress has intentionally left open a gap concerning the treatment of national bank operating subsidiaries. The OCC has the authority to fill that gap by defining a national bank‘s incidental powers to include conducting the business of banking — business that the national bank itself could conduct directly — through an operating subsidiary. See
B. The Reasonableness of the OCC‘s Regulations
40 Having concluded that Congress has not addressed the precise issue in this case and that the OCC generally has the authority to promulgate the regulations at issue, we must defer to the regulations if they reflect a reasonable construction of the statutory scheme. See NationsBank, 513 U.S. at 257; de la Cuesta, 458 U.S. at 153-54. The Commissioner attacks the reasonableness of the rationale for
1. The Rationale Underlying 12 C.F.R. § 7.4006
42 The Commissioner focuses on and attacks a particular rationale expressed for
43 We disagree. There is nothing unreasonable about the OCC‘s rationale. The OCC is not disregarding any principle of corporate separateness; it is recognizing that “[f]or decades national banks have been authorized to use the operating subsidiary as a convenient and useful corporate form for conducting activities that the parent bank could conduct directly.” 66 Fed.Reg. at 34,788. Section 7.4006 reflects the OCC‘s policy judgment that national banks’ use of operating subsidiaries as separately structured corporate entities is desirable and that it should not be hindered by state regulations.
2. Whether Section 7.4006 Simply Reflects the OCC‘s View of Case Law
46 The Commissioner‘s next argument arises out of the OCC‘s discussion of an Executive Order that requires certain notice-and-comment procedures for agency regulations with federalism implications and preemptive effect. See Exec. Order No. 13132, 64 Fed.Reg. 43,255 (Aug. 4, 1999). In addressing whether the Executive Order applied to the promulgation of
47 do not affect the OCC‘s intention to address questions of preemption on a case-by-case basis, according to preemption principles derived from the United States Constitution, as interpreted through judicial precedent. Section 7.4006 generally provides that national bank operating subsidiaries are subject to State law to the extent State law applies to their parent bank. The section itself does not effect preemption of State law; it reflects the conclusion we believe a federal court would reach, even in the absеnce of the regulation, pursuant to the Supremacy Clause and applicable Federal judicial precedent.
48 66 Fed.Reg. at 34,790. The Commissioner seizes on the last sentence in arguing that
49 In this case, however, the OCC‘s codification of section 7.4006, at its core, reflects a policy judgment about national banks’ use of operating subsidiaries. Section 7.4006 “clarified” that state laws apply to operating subsidiaries to the same extent that they аpply to the parent national bank, and the clarification reflects the OCC‘s view that preemption already existed based on the combination of federal statutes (
Overall, the OCC concluded:
51 When national banks are unable to operate under uniform, consistent, and predictable standards, their business suffers, which negatively affects their safety and soundness. The application of multiple, often unpredictable, different state or local restrictions and requirements prevents them from operating in the manner authorized under Federal law, is costly and burdensome, interferes with their ability to plan their business and manage their risks, and subjects them to uncertain liabilities and potential exposure. In some cases, this deters them from making certain products available in certain jurisdictiоns.
52 The OCC therefore is issuing this final rule in furtherance of its responsibility to enable national banks to operate to the full extent of their powers under Federal law, without interference from inconsistent state laws, consistent with the national character of the national banking system, and in furtherance of their safe and sound operations.
53 Id. (footnote omitted). This reasoning is consistent with, and is fairly imputed to, the OCC‘s statements concerning the other regulations in this case. Even if this reasoning could not be imputed to
3. Conclusion on the Reasonableness of the OCC Regulations
55 For the reasons explained above, the OCC regulations reflect a consistent and well-reasoned approach to preempting state regulation of operating subsidiaries so as to avoid interference with national banks’ exercise of their powers under
42 U.S.C. § 1983
57 The next issue is whether the NBA provides Wachovia Bank with federal rights enforceable under
58 In Blessing v. Freestone, the Supreme Court explained that we “have traditionally looked at three factors” to determine whether a statute gives rise to a federal right:
59 First, Congress must have intended that the provision in question benefit the plaintiff. Second, the plaintiff must demonstrate that the right assertedly protected by the statute is not so vague and amorphous that its enforcement would strain judicial competence. Third, the statute must unambiguously impose a binding obligation on the States. In other words, the provision giving rise to the asserted right must be couched in mandatory, rather than precatory, terms.
60 Blessing v. Freestone, 520 U.S. 329, 340-41 (1997) (internal quotations and citations omitted). The Supreme Court has clarified, however, that “it is only violations of rights, not laws, which give rise to § 1983 actions,” and the Court has rejected an interpretation of Blessing that “our cases permit anything short of an unambiguously conferred right to support a cause of action brought under § 1983.” Gonzaga Univ. v. Doe, 536 U.S. 273, 283 (2002). Thus, “where the text and structure of a statute provide no indicаtion that Congress intends to create new individual rights, there is no basis for a private suit” under § 1983. Id. at 286.
61 Moreover, the concurrence in Gonzaga University noted that the “statute books are too many, the laws too diverse, and their purposes too complex, for any single formula to offer more than general guidance.” Id. at 291 (Breyer, J., concurring) (referring to Blessing). We understand the Gonzaga University majority and concurring opinions to mean, at least, that courts should not find a federal right based on a rigid or superficial application of the Blessing factors where other considerations show that Congress did not intend to create federal rights actionable under § 1983.
62 In this case, the District Court applied the Blessing factors and found that the NBA intended to create federal rights for national banks. As to the first factor, the District Court found that
64 has in view the erection of a system extending throughout the country, and independent, so far as powers conferred are concerned, of state legislation which ... might impose limitations.... Having due regard to the national character and purposes of that system, we cannot concur in the suggestions that national banks, in respect to the powers conferred upon them, are to be viewed as solely organized and operated for private gain.
65 Easton v. Iowa, 188 U.S. 220, 229 (1909); see also id. at 230 (rejecting notion that “national banks are organized and their business prosecuted for private gain“). These cases, which indicate Congress‘s purpose in enacting the NBA, show that any focus on national banks — as relevant to the first Blessing factor — does not imply the creation of a federal right. On the contrary, Congress created national banks as instruments to foster a national banking system. As the Supreme Court has stated: “[W]hen congressional pre-emption benefits particular parties only as an incident of the federal scheme of regulation, a private damages remedy under § 1983 may not be available.” Golden State, 493 U.S. at 109.
66 Moreover, while Blessing dealt with Congress‘s exercise of its spending power, see Blessing, 520 U.S. at 333-34, the Supreme Court‘s decision in Golden State provides a slightly different approach to determining whether preemptive legislation creates federal rights, and Golden State undermines Wachovia Bank‘s argument under the NBA. In Golden State, which found that the National Labor Relations Act (“NLRA“) both effected preemption and created federal rights, the Court distinguished between two kinds of preemption rules. See Golden State, 493 U.S. at 110. The first is based on Machinists v. Wisconsin Employment Relations Commission, 427 U.S. 132 (1976), and involves a rule of preemption that “is more akin to a rule that denies either [the federal or state] sovereign the authority to abridge a personal liberty.” Golden State, 493 U.S. at 112. The second is the rule of San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), that state jurisdiction over conduct protected by the NLRA is preempted “in the interest of maintaining uniformity in the administration of the federal regulatory jurisdiction.” Golden State, 493 U.S. at 110; see id. (noting that the Machinists Rule and Garmon rule are “fundamentally distinct“). In Golden State, the Court allowed a claim under § 1983 after finding that Congress intended to give parties the ability to engage in peaceful methods of economic pressure free from government interference, whether by the federal or state government. See id. at 111-12.
68 In addition, despite the fact that the NBA‘s pertinent provisions are long-standing —
69 Finding that Wachovia Bank has rights enforceable under § 1983 would likely allow national banks to pursue § 1983 claims whenever preemption exists by virtue of the NBA and OCC regulations. Such a finding is inappropriate in light of the complex regulatory framework and the ever-changing nature of the industry and the powers exercised by national banks. See, e.g., Investment Securities, Bank Activities and Operations; Leasing, 66 Fed.Reg. 34,784, 34,790 (July 2, 2001) (addressing
CONCLUSION
70 The District Court‘s entry of a declaratory judgment in favor of the plaintiffs on the basis of preemption is AFFIRMED. With respect to Wachovia Bank‘s claim under
71 Each party shall bear its own costs.
Notes
Neither party has questioned that the Chevron framework generally applies in this case. In any event, the analysis would be the same even if we did not apply Chevron itself. Under de la Cuesta, which addressed preemptive regulations in a decision prior to Chevron, we would review the OCC regulations “only to determine whether [the agency] has exceeded [its] statutory authority or acted arbitrarily,” and we would enfоrce the regulations unless they are unreasonable or inconsistent with the statutory scheme. de la Cuesta, 458 U.S. at 154.