Cuomo v. Clearing House Association, L.L.C. (08-453)

Oral argument: Apr. 28, 2009

Appealed from: United States Court of Appeals, Second Circuit (Dec. 4, 2007)

NATIONAL BANK ACT, VISITATION, CHEVRON DEFERENCE, PREEMPTION

Suspecting racially discriminatory lending practices, the Attorney General of New York State sent letters of inquiry to numerous national banks requesting information about their lending practices and warning them of the potential illegality of their acts. The Office of the Controller of the Currency ("OCC") and the Clearing House Association L.C.C., which consists of several national banks, maintained that the National Bank Act's "visitorial powers" provisions, interpreted by the OCC in 12 C.F.R. § 7.4000, bar states from enforcing state laws against national banks. The Attorney General argues that the OCC's interpretation of § 7.4000 violates the Administrative Procedures Act, and that the National Bank Act's "visitorial powers" provisions do not interfere with state enforcement of their generally applicable laws. The decision in this case may affect lending practices and the balance of power between the federal government and state governments.

Question(s) presented

12 U.S.C. § 484(a), a provision of the National Bank Act, prohibits the exercise of "visitorial powers" as to national banks, except where those powers are authorized by federal law, vested in the courts of justice, or exercised by Congress or a House or committee thereof. The Office of the Comptroller of the Currency has issued a regulation (12 C.F.R. § 7.4000) interpreting § 484(a) to preempt state enforcement of state laws against national banks, even when the state laws are not substantively preempted.

The questions presented are:

1. Whether 12 C.F.R. § 7.4000 is entitled to judicial deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

2. Whether 12 C.F.R. § 7.4000 is invalid because it is inconsistent with the authoritative construction of the National Bank Act by this Court in First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924).

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Issue(s)

Whether the Office of the Comptroller of the Currency's regulation 12 C.F.R. § 7.4000, which interprets 12 U.S.C. §484(a) of the National Bank Act to preempt state enforcement of state laws against national banks even when the state laws are not substantively preempted, is entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and/or whether the regulation is invalid because of the construction of the National Bank Act, as announced in First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924).

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Facts

In 2005, Eliot Spitzer, in his official capacity as the New York State Attorney General, began investigating several national banks and their residential real estate lending practices for evidence of racial discrimination. See Clearing House Ass'n L.L.C. v. Cuomo ("Clearing House Ass'n"), 510 F.3d 105, 109 (2d Cir. 2007). Spitzer began his investigation after reviewing public data from the Home Mortgage Disclosure Act ("HMDA") that suggested that some national banks issued a higher percentage of high-interest home mortgage loans to African-American and Hispanic borrowers than to white borrowers. See id. Spitzer sent "letters of inquiry" to some of the mortgage lenders represented in the data, warning that their actions "unless legally justified may violate federal and state antidiscrimination laws such as the Equal Credit Opportunity Act and its state counterpart, New York State Executive Law § 296-a." Id. Instead of issuing a subpoena, the letters also requested that lenders voluntarily provide the Attorney General with data concerning loans related to property in New York State. See id.

Following Spitzer's letter, the Office of the Comptroller of the Currency ("OCC"), an independent bureau of the Department of the Treasury created to supervise the actions of national banks, sued to enjoin Spitzer's "investigative and enforcement efforts." See Clearing House Ass'n, 510 F.3d at 109. The OCC is the agency in charge of implementing the National Bank Act ("NBA"), which lets national banks engage in numerous activities "and also limits the exercise of ‘visitorial powers'" over national banks. See id. A "visitation" occurs when a "superior" officer visits a corporation to observe and enforce its laws and regulations on the visited party. See id. at 111. The OCC sued to enjoin Spitzer's investigation based on its recently promulgated regulation 12 C.F.R. § 7.4000 ("§ 7.4000"), which interprets the NBA's visitorial powers provision in 12 U.S.C. § 484. See id. at 109. In § 7.4000, the OCC interpreted the NBA's visitorial powers provision to preclude state officials from forcing national banks to comply with state or federal laws related to activities authorized by the NBA. See id. at 109-10. In addition, the Clearing House Association L.L.C. ("Clearing House"), a group of national banks including several that received letters of inquiry, filed a similar complaint to enjoin Spitzer from investigating or enforcing federal and state discrimination-in-lending laws against Clearing House members. See id. at 110. Spitzer counterclaimed, arguing that § 7.4000 was unlawful under the Administrative Procedures Act, that his investigation was not a prohibited use of visitorial powers, and alternatively, that he could sue the banks under the Fair Housing Act ("FHA"). See id.

The District Court for the Southern District of New York gave the OCC interpretation of the NBA's visitorial powers provision deference under Chevron U.S.A., Inc. v. Natural Res. Def. Council. See 467 U.S. 837 (1984); Office of the Comptroller of the Currency v. Spitzer, 396 F. Supp. 2d 383 (S.D.N.Y. 2005). Chevron presents a two-step analysis to determine whether to defer to an agency interpretation. See Chevron, 467 U.S. at 842-43. In another opinion, the district court also held that the "FHA does not create an exception authorizing the exercise of visitorial powers otherwise prohibited under § 484(a)." Clearing House, 510 F.3d at 110; see also Clearing House Ass'n, L.L.C. v. Spitzer, 394 F. Supp. 2d 620 (S.D.N.Y. 2005).

After Andrew Cuomo assumed the position of New York's Attorney General, he was automatically substituted for Spitzer when the United States Court of Appeals for the Second Circuit reviewed the two lower court opinions. On appeal, the Second Circuit agreed that the OCC's interpretation of 12 U.S.C. § 484 deserved deference under Chevron and that it was proper to grant injunctive relief from Spitzer's attempts to investigate the national banks, but vacated the holding that the Attorney General cannot sue under the FHA. See Clearing House Ass'n, 510 F.3d at 110. Attorney General Cuomo petitioned the United States Supreme Court for certiorari, which it granted on January 16, 2009.

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Discussion

In this case, the U. S. Supreme Court will address the balance of state and federal authority in the context of banks and lending practices. Petitioner Andrew Cuomo, in his official capacity as Attorney General for the State of New York, argues that the National Bank Act ("NBA") term "visitorial powers" cannot reasonably be interpreted to encompass state enforcement of state consumer protection and anti-discrimination laws. See Brief for Petitioner, Andrew M. Cuomo in his Official Capacity as Attorney General for the State of New York at 17-19. Cuomo further maintains that deference under Chevron U.S.A., Inc. v. Natural Res. Def. Council does not apply to the Office of the Comptroller of the Currency's ("OCC") interpretation of the NBA. See id. at 17. Respondent the Clearing House Association L.L.C. ("Clearing House") and the Federal Respondent OCC (together, "Respondents"), on the other hand, argue that the NBA precludes state investigations and enforcement covering national banks' authorized powers. Respondents further argue that the OCC's interpretation of the NBA's visitorial powers through its regulations deserves Chevron deference because it is a reasonable interpretation well within Congress's delegation of authority to the OCC. See Brief for Respondent Clearing House Association L.L.C. ("CHA") at 7-10; Brief for the Federal Respondent at 8-13.

A decision favoring Clearing House and the OCC, argues amici supporting Cuomo, could affect the balance of power between the federal government and the states. Amici, which include the other forty-nine states and the District of Columbia ("States"), warn that a finding that precludes states from enforcing their non-preempted laws against federally chartered banks under the NBA is "a serious assault on our federal system." See Brief of Amici Curiae North Carolina, et al. in Support of Petitioner at 4. Amici States argue that the political accountability and representation that citizens receive from their state governments are essential elements of federalism, and that the OCC's exclusive enforcement of federal bank compliance with federal and state laws would interfere with this political accountability. See id. at 5-6. In addition, amici Conference of State Bank Supervisors and amici members of Congress emphasize that if the Supreme Court sustains the OCC's regulation, the responsibility for the enforcement of local laws would fall to Executive Branch officials who are "insulated" from accountability to state citizens. See Brief of Amicus Curiae Conference of State Bank Supervisors in Support of Petitioner at 3-4; Brief of Amicus Curiae Members of Congress in Support of Petitioner at 10.

The OCC, Clearing House and its amici, on the other hand, argue that deferring to the OCC's interpretation of visitorial powers will not disturb the balance of federalism between the states and the federal government. See Brief for the Federal Respondent at 17; Brief for Respondent CHA at 43-44. The OCC points to the nearly two hundred year-old case, McCulloch v. Maryland, to show that in regards to national banking, the Supreme Court has long held that federal law is superior to state law. See Brief for Federal Respondent at 17. The OCC further points to the recent case of Watters v. Wachovia Bank, N.A., which reaffirms that the states can only exercise control over national banks insofar as Congress permits them. See 550 U.S. 1 (2007); Brief for Federal Respondent at 17. In light of the federal government's traditional dominance in this field, the OCC and its amici the American Bankers Association, et al. contend that the interpretation of 12 U.S.C. § 484 in § 7.4000 simply reserves to the federal government its traditional responsibility to enforce laws that regulate national banks, and gives rise to no federalism concerns. See Brief for Federal Respondent at 18; Brief of Amici Curiae American Bankers Association, et al. in Support of Respondents at 7-8, 19-20.

However, amici for Cuomo maintain that upholding the OCC's claim of exclusive enforcement of federal bank compliance with federal and state laws interferes with the ability of States to combat abusive and discriminatory lending practices. See, e.g., Brief of North Carolina at 8. Amici Lawyers' Committee for Civil Rights Under Law, et al. ("Lawyers' Committee") explain that lending discrimination is longstanding and widespread; therefore, both federal and state means must be available to remedy this discrimination. See Brief of Amici Curiae Lawyers' Committee for Civil Rights Under Law, et al. in Support of Petitioner at 12. In addition, the Lawyers' Committee contends that the current credit crisis continues to provide new instances of discrimination against minority borrowers that both states and the federal government must address. See id. Amici the States further argue that these problems of unfair mortgage lending issues, which underlie this case, will be exacerbated if the OCC's interpretation is upheld. See Brief of North Carolina at 8, 13. The States argue that for years, the States have been the primary vehicle for combating predatory mortgage lending and loans, and point out that at least twenty-five States have enacted their own anti-predatory laws since 1999. See id. at 9-10. The States argue that the OCC, on the other hand, has a less effective history of enforcing consumer protections. See id. at 12-13.

The OCC, however, disputes claims about its ineffectiveness in enforcement, responding that it has consistently demonstrated its ability to enforce laws and carry out investigations. See Brief for the Federal Respondent in Opposition to Certiorari at 22-24. The OCC contends that Congress explicitly intended it to enforce state consumer protection and fair lending laws against national banks, which illustrates Congress's confidence in the agency to enforce the appropriate laws. See id. at 22-23. The OCC next points out that it employs over 2000 bank examiners, has carried out thousands of fair lending examinations, and between 2002 and 2007 alerted bank management to approximately two hundred issues concerning fair lending and mortgage data reporting. See id. at 23. Finally, the OCC points to its customer assistance group, which has recovered tens of millions of dollars for injured customers of national banks. See id. at 23-24.

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Analysis

The National Bank Act ("NBA") prohibits state officials from exercising "visitorial powers" over national banks except in specific circumstances. 12 U.S.C. 484(a). As the agency responsible for overseeing the NBA, the Office of the Comptroller of the Currency ("OCC") interpreted "visitorial powers" to prohibit states from enforcing their laws against national banks. See Brief for the Federal Respondent at 2. The issue in this case is whether the agency's interpretation warrants deference. See id. at 9-12. In Chevron U.S.A. Inc. v. Natural Resources Defense Council ("Chevron"), the U.S. Supreme Court held that courts must defer to an agency's interpretation of a statute where the statute is ambiguous and the agency's interpretation is reasonable. See id. at 14-17.

Does OCC's Interpretation of the Statute Pass the Chevron Test?

Petitioner Andrew M. Cuomo, the Attorney General of the State of New York, argues that the OCC's interpretation fails both parts of the Chevron test: the statute unambiguously forecloses that interpretation and, even if the statute is ambiguous, OCC's interpretation is unreasonable. See Brief for Petitioner, Andrew M. Cuomo in his Official Capacity as Attorney General for the State of New York at 20-21. According to Cuomo, "visitorial powers" have historically referred to "supervisory authority" over corporations and not "general law enforcement." Id. at 19-20. Therefore, he claims, the NBA only prohibits states from supervising national banks through on-site examinations to ensure the banks are complying with their federal charters. See id. at 20. Cuomo argues that the NBA does not prohibit states like New York from enforcing their laws against national banks. See id.

Cuomo points to the legislative history of the NBA to support his view. See id. at 22-24. During legislative debates over the NBA, a senator suggested granting states "visitorial powers over national banks so that the banks could ‘be examined by the states.'" Id. at 22. The NBA's sponsor successfully rejected this idea, claiming that such "examination" was unnecessary and that it would be "unwise to allow state authorities to interfere with [the] organization" of national banks." Id. at 22. Cuomo argues that this exchange proves that Congress intended the NBA's visitorial powers provision to prevent states from exercising supervisory authority over national banks through examinations, but did not intend that provision to preclude state law enforcement. See id.

Cuomo also argues that treatises and Supreme Court decisions have long understood the prohibition on visitorial powers as a reference to supervisory authority and not law enforcement. See id. at 22-24. One early treatise on corporations, for instance, refers to visitorial powers as inspections on "the conduct of [the corporation's] internal affairs," which indicates that general law enforcement is not included within the scope of visitation. Id. at 24. Cuomo also relies on the 1924 Supreme Court decision in First Nat'l Bank in St. Louis v. Missouri. See id. at 28-30. In St. Louis, the United States and national bank argued as amicus curiae that Missouri's attempts to enforce its anti-branching laws on the national bank violated the NBA's visitorial powers provision. See id. The Court in St. Louis rejected that argument, explaining that though the provision prohibits states from "inquir[ing] . . . whether a national bank is acting in excess of its charter powers," it does not prohibit states from enforc[ing] its own law," as Missouri was doing. Id. at 28.

On the other hand, the respondents, Clearing House Association, L.L.C. ("Clearing House") and the Federal Respondent OCC (together, "Respondents"), counter that the OCC's interpretation passes the Chevron test because it provides a reasonable interpretation of the ambiguous term "visitorial powers." Brief for the Federal Respondent at 14-17; Brief for Respondent Clearing House Association, L.L.C. ("CHA") at 37. Respondents emphasize the historical background of the term to prove that the visitation prohibition has long been understood to restrict state law enforcement of national banks. See Brief for Respondent CHA at 14; Brief for the Federal Respondent at 28-35.

In addition, Respondents point to the Supreme Court's 2007 decision, Watters v. Wachovia Bank, N.A, which dealt with Michigan laws regulating mortgage brokers and lenders. See Brief for Respondent CHA at 26-28; Brief for the Federal Respondent at 44-46. There, the State of Michigan conceded that under the NBA visitation provision, it could not enforce these laws against the national bank, but argued nonetheless that it should be able to enforce the laws against the national bank's subsidiaries. See Brief for Respondent CHA at 26-28; Brief for the Federal Respondent at 44-46. In rejecting Michigan's argument, the Court emphasized that enforcement of Michigan laws (against both national banks and their subsidiaries) would constitute visitation and violate the NBA. See Brief for Respondent CHA at 26-28; Brief for the Federal Respondent at 44-46. Therefore, Respondents argue, the NBA's visitation provision prevents New York in this case from enforcing its fair lending laws on the national bank. See Brief for Respondent CHA at 26-28; Brief for the Federal Respondent at 44-46. The OCC and Clearing House also argue that the exceptions to the visitation provision prove that the prohibition on visitation generally encompasses state law enforcement. See Brief for Respondent CHA at 22-23; Brief for the Federal Respondent at 35-36. One exception to the visitation prohibition, for instance, permits state officials to review a national bank's records to enforce "compliance with applicable State unclaimed property or escheat laws." Brief for Respondent CHA at 22; Brief for the Federal Respondent at 35-36. Respondents contend that this exception would be superfluous if states were permitted to enforce their laws under the visitation provision. See Brief for Respondent CHA at 22-23; Brief for the Federal Respondent at 35-36. The exception is only necessary, Respondents claim, because the visitation provision generally bars state law enforcement. See Brief for Respondent CHA at 22-23; Brief for the Federal Respondent at 35-36.

Even if OCC's Interpretation Passes the Chevron Test, Should it be Entitled to Chevron Deference?

(a) The Issue of Preemption

Cuomo argues that the OCC's interpretation of the NBA does not warrant deference even if it passes the Chevron test, because the Supreme Court has never deferred to an agency interpretation which "declares the preemptive scope of a federal statute." Brief for Petitioner at 48. An agency's interpretation, Cuomo acknowledges, can have preemptive effect where the federal statute, as interpreted by the agency, conflicts with state law and regulations. See id. at 48-50. In such cases, federal law will govern instead of state law. See id. Cuomo argues, however, that the OCC has not merely interpreted the substantive meaning of the NBA. See id. Instead, it has expressly called for preemption by prohibiting state enforcement of state law against national banks. See id. Cuomo argues that agencies are not entitled to Chevron deference under such circumstances. See id. According to Cuomo, the rationale for courts to accord agencies Chevron deference is that agencies have greater expertise than courts in implementing statutes that pertain to their line of work. See id. However, when it comes to preemption cases, the courts are better equipped because they have already established judicial doctrines of preemption analysis. See id.

The OCC and Clearing House counter that the OCC's interpretation does not declare the "preemptive scope of a federal statute," as Cuomo maintains-in other words, the OCC has not declared some state law preempted by federal law. See Brief for Respondent CHA at 46-48; Brief for the Federal Respondent at 20-22. Instead, the OCC has interpreted the words "visitorial powers" of the federal statute (i.e. the NBA) as prohibiting the enforcement of non-preempted state laws against national banks. See Brief for Respondent CHA at 46-48; Brief for the Federal Respondent at 20-22. Furthermore, Respondents argue that the OCC's interpretation should still be entitled to Chevron deference even if it does declare the preemptive scope of the statute. See Brief for Respondent CHA at 48; Brief for the Federal Respondent at 22-24. Respondents explain that, contrary to Cuomo's contentions, agencies are well-equipped to address preemption concerns. See Brief for Respondent CHA at 48; Brief for the Federal Respondent at 22-24. Agencies have a good understanding of the statutes they implement and can consequently see how state laws may sometimes impede the statutes' purpose. See Brief for Respondent CHA at 48; Brief for the Federal Respondent at 22-24. Therefore, as the administrator of the NBA, OCC is well-positioned to determine whether state law enforcement will impede the national banks in carrying out their banking activities. See Brief for Respondent CHA at 48; Brief for the Federal Respondent at 22-24.

Cuomo, however, counters that the Supreme Court should still not defer to OCC's interpretation because there is a presumption against preemption when dealing with areas traditionally regulated by states. See Brief for Petitioner at 45-48. In such cases, courts generally prefer the interpretation that does not result in preemption. See id. Cuomo argues that the presumption against preemption applies in this case because it is primarily about consumer protection (an area long dominated by the states), as New York wants to enforce its laws to prevent banks from discriminating in its lending practices. See id.

On the other hand, the OCC and Clearing House argue that this case does not primarily deal with consumer protection but rather deals with the regulation of national banks, where federal, and not state, law has "historically been predominant." Brief for the Federal Respondent at 19; Brief for Respondent CHA at 42-43. The presumption against preemption, they argue, consequently does not apply. See Brief for the Federal Respondent at 19; Brief for Respondent CHA at 42-43.

(b) The Gregory v. Ashcroft Clear Statement Rule

The Court in Gregory v. Ashcroft held that courts should avoid interpreting statutes in such a way as will alter the usual "federal-state balance of authority" unless Congress clearly advocates doing so. Brief for Petitioner at 43. Based on this holding, Cuomo argues that the Supreme Court should not defer to the OCC's interpretation of the visitation provision, as Congress has not advocated doing so, and the interpretation will affect the federal-state balance. See id. at 43-45. Under the OCC's interpretation, states are barred from enforcing their laws against national banks, though the OCC can do so. See id. The public, however, expects the states to enforce its laws and will hold the estates, instead of the OCC, politically accountable for not doing so. See id.

Respondents argue that the OCC's interpretation will not alter the traditional balance between the state and federal government. Brief for the Federal Respondent at 17-18; Brief for Respondent CHA at 43-45. They contend that this interpretation is consistent with the Supreme Court's "repeated statements that national banks are created by the government to serve federal purposes and that oversight of the banks is therefore principally entrusted to the federal government" instead of to the states. Brief for the Federal Respondent at 17; Brief for Respondent CHA at 43-45. Furthermore, Clearing House argues that "preclusion of state . . . enforcement authority over national banks has always been in full view of the public," so that states will not be held politically accountable where the federal government is responsible. Brief for Respondent CHA at 45.

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Conclusion

In this case, the United States Supreme Court will determine to what extent states can enforce their laws against national banks. Respondents, Clearing House Association LLC and Federal Respondent Office of the Comptroller of the Currency, argue that the National Bank Act's ("NBA") prohibition on states from exercising "visitorial powers" over national banks prevents states from enforcing their laws against national banks. Petitioner Andrew M. Cuomo, the New York State Attorney General, counters that the NBA's visitorial provision only bars states from exercising supervisory authority over a national bank's internal activities but does not impede states from enforcing their generally applicable laws. The Court's decision in this case could significantly affect the balance between the federal and state governments.

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Authors

Prepared by: Bill Kennedy and Sarah Soloveichik

Edited by: Courtney Zanocco

Additional Sources

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Edited by: