Wachovia Bank, N.A. v. Burke

• Decision Date: 11 July 2005
• Docket Number: Docket No. 04-3770-CV.
• Citation: 414 F.3d 305
• Parties: WACHOVIA BANK, N.A. and Wachovia Mortgage Corporation, Plaintiffs-Appellees, v. John P. BURKE, in his official capacity as Banking Commissioner of the State of Connecticut, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

414 F.3d 305

WACHOVIA BANK, N.A. and 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.

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Daniel L. Fitzmaurice, Day, Berry & Howard (Jason S. Weathers, on the brief), Hartford, CT, for Plaintiffs-Appellees.

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.

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 Wachovia Mortgage on the ground that the state laws are preempted by the National Bank Act ("NBA"), 12 U.S.C. § 21 et seq., and regulations issued by the Office of the Comptroller of the Currency ("OCC"). The plaintiffs also asserted claims under 42 U.S.C. § 1983 for violation of rights allegedly provided by the NBA. On cross-motions for summary judgment, the District Court found that OCC regulations preempt the application of the state laws to Wachovia Mortgage. Wachovia Bank, N.A. v. Burke, 319 F.Supp.2d 275, 281-88 (D.Conn.2004). It further held that the NBA provided Wachovia Bank with rights enforceable under 42 U.S.C. § 1983 but that the NBA provided no such rights to Wachovia Mortgage. Id. at 288-90.

The precise preemption issue is whether the NBA and OCC regulations preempt state banking laws concerning operating subsidiaries of nationally chartered banks. No court of appeals has addressed this issue, although several district courts have done so and have reached the same conclusion as the District Court in this case. We agree with the finding of preemption in this case. The NBA grants powers to national banks, including "incidental powers" necessary to carry on the business of banking, see 12 U.S.C. § 24 (Seventh), and it provides that national banks, in the exercise of their powers, shall be free from state "visitorial" power, see 12 U.S.C. § 484. The OCC, meanwhile, has issued regulations allowing national banks to conduct business through an operating subsidiary, see 12 C.F.R. § 5.34(e), and providing that "State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank," 12 C.F.R. § 7.4006. These regulations define a national bank's "incidental powers" to include conducting business through an operating subsidiary, and they preempt state visitorial power over operating subsidiaries to enable national banks to exercise this incidental power. We defer to these regulations because they are reasonable and within the OCC's authority under the NBA.

We must, however, reverse the District Court's holding with respect to Wachovia Bank's claim under 42 U.S.C. § 1983. Although the key provision, 12 U.S.C. § 484, prevents states from infringing on the power of national banks, the NBA focuses on national banks as federal instrumentalities empowered as part of a national banking system to the benefit of the national economy as a whole. There is no clear intent to benefit national banks as private entities with individual rights, and the powers granted to national banks simply operate to establish federal regulatory authority vis-à-vis the states.

BACKGROUND

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 Conn. Gen.Stat. §§ 36a-486(a), 36a-511(a). Two statutes require mortgage lenders to maintain certain records and to make them available for inspection by the Commissioner. See id. §§ 36a-493, 36a-516. And two involve the Commissioner's power to enforce the law through proceedings and the issuance of cease and desist orders. See id. §§ 36a-50, 36a-52. A national bank is exempted from the licensing requirements but a subsidiary of national bank expressly is not exempted. See, e.g., id. §§ 36a-486, 36a-487(1).

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.

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 42 U.S.C. § 1983 for abridgement of rights allegedly provided by federal law.

Upon cross-motions for summary judgment, the District Court found that the Connecticut banking statutes conflict with, and are preempted by, the NBA and OCC regulations — 12 C.F.R. § 7.4006 in particular. Applying the Chevron doctrine, the District Court found first that Congress has not spoken on the precise issue of "whether state law should apply to a subsidiary of a national bank in the same way as it applies to the national bank itself." The court further found that section 7.4006 was a reasonable regulation designed to prevent state laws from inhibiting a national bank's ability to conduct banking through a subsidiary, as authorized under 12 U.S.C. § 24 (Seventh).

With respect to the § 1983 claims, the District Court found that the NBA, through 12 U.S.C. § 24 (Seventh) and § 484, provides national banks with the "right" to be free from state regulation. The District Court thus granted summary judgment in favor of Wachovia Bank on its § 1983 claim. The court, however, found that Congress did not provide "rights" to operating subsidiaries, and it granted summary judgment to the Commissioner on Wachovia Mortgage's § 1983 claim.

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

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 42 U.S.C. § 1983.

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 preemption 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.

We first lay out the statutory and regulatory framework...