Clearing House Ass'n, L.L.C. v. Spitzer

• Decision Date: 12 October 2005
• Docket Number: No. 05 Civ. 5629(SHS).,05 Civ. 5629(SHS).
• Parties: THE CLEARING HOUSE ASSOCIATION, L.L.C. Plaintiff, v. Eliot SPITZER, in his official capacity as Attorney General for the State of New York, Defendant.
• Court: U.S. District Court — Southern District of New York

394 F.Supp.2d 620

THE CLEARING HOUSE ASSOCIATION, L.L.C. Plaintiff, v. Eliot SPITZER, in his official capacity as Attorney General for the State of New York, Defendant.

No. 05 Civ. 5629(SHS).

United States District Court, S.D. New York.

October 12, 2005.

COPYRIGHT MATERIAL OMITTED

H. Rodgin Cohen, New York, NY, Robinson Burrell Lacy, Adam Rhys Brebner, Sullivan and Cromwell, LLP, (NYC), New York, NY, for plaintiff.

Dennis David Parker, New York State Department of Law (EPB), Albany, NY, for Eliot Spitzer, defendant.

Matthew Byron Colangelo, NAACP Legal Defense & Educational Fund, Inc., New York, NY, for NAACP Legal Defense & Educational Fund, Inc., defendant.

Lars Franklin Nance, N.C. Department Of Justice, Raleigh, NC, for General Roy Cooper, defendant.

OPINION AND ORDER

STEIN, District Judge.

The Clearing House Association, L.L.C., (the "Clearing House"), brings this action against Eliot Spitzer, the Attorney General of the State of New York to enjoin him from instituting enforcement actions or investigating the Clearing House's national bank members and their operating subsidiaries relating to their residential mortgage lending practices. The Clearing House contends that the Attorney General's investigation and threatened enforcement actions impinge on the exclusive visitorial powers of the Office of the Comptroller of the Currency (the "OCC") in violation of section 484(a) of the National Bank Act, 12 U.S.C. § 484(a), and the OCC's regulation interpreting that provision, codified at 12 C.F.R. § 7.4000.

The bulk of the issues raised by the Clearing House's application for injunctive relief have been resolved in the opinion issued today in the related action of The Office of the Comptroller of the Currency v. Spitzer, No. 05 Civ. 5636, ("OCC v. Spitzer"). In OCC v. Spitzer, this Court, applying the framework set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), concluded that 12 C.F.R. § 7.4000 reflects a reasonable and permissible construction of the National Bank Act. (See Opinion and Order in OCC v. Spitzer, dated October 12, 2005). Because the Attorney General's assertion of authority pursuant to state law to investigate and bring enforcement actions related to the residential lending practices of national banks impermissibly infringes on the OCC's exclusive visitorial authority as defined in 12 C.F.R. § 7.4000, this Court granted the OCC's application for declaratory and permanent injunctive relief against the Attorney General.

In this action, the Clearing House seeks an additional measure of relief based on the Attorney General's assertion that 42 U.S.C. § 3613(a), the civil enforcement provision of the federal Fair Housing Act, (the "FHA"), authorizes the Attorney General to sue national banks in the state's parens patriae capacity for alleged violations of the FHA's fair lending provisions. Because an action in the state's parens patriae capacity to enforce the FHA's fair lending provisions against the Clearing House national bank members constitutes a form of visitorial authority prohibited by section 484(a) of the National Bank Act, and is not expressly authorized by the FHA, the Clearing House is entitled to the injunction it seeks.

I. Background

The Court assumes familiarity with its opinion issued today in OCC v. Spitzer, No. 05 Civ. 5636(SHS), and limits the discussion here to issues not raised directly in OCC v. Spitzer. Indeed, this opinion need be read in conjunction with that one. The Court writes separately to address issues regarding the Clearing House's ability to bring its claim in federal court, and to answer the question raised only by the Clearing House of whether the Attorney General should be enjoined from bringing an action in the state's parens patriae capacity to enforce the federal Fair Housing Act against national banks.

The Clearing House commenced this action on June 16, 2005 seeking to enjoin the Attorney General from issuing subpoenas for information concerning, or taking any other action to enforce federal and state discrimination in lending laws against the national banks that are members of the Clearing House, with respect to their mortgage lending operations. OCC v. Spitzer was accepted as a related case, and pursuant to Fed.R.Civ.P. 65(a)(2), the trials on the merits in this action and OCC v. Spitzer were consolidated, with the hearings on the preliminary injunction applications. (Order, dated July 5, 2005). The trial in both actions was held on September 7, 2005, and at that time, argument was heard and affidavits and other exhibits were admitted into evidence. (Transcript, dated Sept. 7, 2005, at 36-37).

The Clearing House Association, L.L.C., is an association of commercial banks, including federally chartered national banks. (See Declaration of Norman R. Nelson, Esq., dated June 15, 2005 at ¶¶ 1-3). The Clearing House describes itself as dedicated to protecting the rights and interests of its member banks as well as advancing the broader interests of the domestic commercial banking industry. (Id. at ¶¶ 2, 4). The Clearing House states that it is "interested in ensuring stability and certainty in the regulatory environment in which its member banks operate." (Id. at ¶ 4). At least four of the Clearing House's national bank members or their operating subsidiaries — Citibank, N.A., Wells Fargo Bank, N.A., HSBC Bank U.S.A., N.A., and JPMorgan Chase Bank, N.A. — are subjects of the inquiry initiated by the Attorney General and have received requests for certain non-public lending information. (See Nelson Decl. at ¶¶ 7-8; Declaration of Dennis D. Parker in Supp. of Def.'s Opp to Pls.' Request for Injunctive and Declaratory Relief and in Supp. of Counterclaim, dated August 5, 2005, ("Parker Decl."), at ¶ 4-5, and Ex. 2).

As recounted in the related action, a preliminary analysis by the Attorney General of home loan pricing data made publicly available pursuant to the federal Home Mortgage Disclosure Act, 12 U.S.C. §§ 2801 — 2810, led the Attorney General to conclude that the data established a prima facie case of race discrimination in violation of federal and state fair lending laws. (See Parker Decl., at ¶¶ 4-5). In letters to HSBC, Wells Fargo and JP Morgan Chase, the Attorney General informed the banks that he had commenced a preliminary inquiry into each bank's lending practices, and requested that "[i]n lieu of issuing a formal subpoena..." the banks "voluntarily provide" certain non-public lending information. (See Letters from Dennis D. Parker, dated April 19, 2005, Ex 2 to Parker Decl.).

In his opposition to the Clearing House's application for injunctive relief, the Attorney General asserted that the FHA creates a federally authorized exception to section 484's general limitation on states' visitorial powers. See 12 U.S.C. § 484(a) (limiting the exercise of visitorial powers, "except as authorized by Federal law ..."). Specifically, the Attorney General contends that the FHA's private right of action provision, 42 U.S.C. § 3613(a) — which authorizes suits by an "aggrieved person" — permits the state to sue national banks both in its parens patriae capacity, and on its own behalf, claiming injury to its proprietary interests.

Because the injunction issued in OCC v. Spitzer applies by its terms to all national banks and their operating subsidiaries, it clearly encompasses the national bank members of the Clearing House on whose behalf the Clearing House seeks injunctive relief. The single outstanding issue on the merits of the Clearing House's application is whether the Attorney General's threatened action pursuant to the Fair Housing Act, is also prohibited by section 484's limitation on states' visitorial authority, or whether such an action would fall within an exception "authorized by Federal law."

Because the Attorney General has challenged the Clearing House's ability to bring this claim in federal court, the Court turns first to the questions of whether federal subject matter jurisdiction exists, and whether the Clearing House has standing to bring this action, and answers each question in the affirmative.

II. Subject Matter Jurisdiction

The Clearing House contends that subject matter jurisdiction exists pursuant to 28 U.S.C. § 1331 because this action arises under the National Bank Act, 12 U.S.C. §§ 21, et seq., asserting that "[i]t is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with federal rights." Fleet Bank, Nat. Ass'n v. Burke, 160 F.3d 883, 888 (2d Cir.1998) (citing Ex parte Young, 209 U.S. 123, 160-62, 28 S.Ct. 441, 52 L.Ed. 714 (1908)).

The Attorney General responds by claiming that the Clearing House's complaint is one that merely anticipates a federal defense that would be filed in answer to a potential state court action brought by the Attorney General, and thus lacks federal jurisdiction under what is known as the "well-pleaded complaint" rule. See Fleet Bank, 160 F.3d at 886. However, the U.S. Supreme Court has long made it clear that actions such as this one that seek to enjoin state officials from interfering with federal rights present a federal question over which federal courts have jurisdiction. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96, n. 14, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (citing Ex parte Young, 209 U.S. 123, 160-62, 28 S.Ct. 441, 52 L.Ed. 714 (1908)); see also Verizon Md., Inc. v. Pub. Serv. Comm'n, 535 U.S. 635, 642, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002). The rule was stated most plainly in Shaw as follows:

It is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with federal rights. See Ex parte Young, 209 U.S. 123, 160-62, 28 S.Ct. 441, 52 L.Ed. 714 (1908). A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute which, by...