First Union Nat. Bank v. Burke, 3:98CV2171 JBA.
| Decision Date | 07 April 1999 |
| Docket Number | No. 3:98CV2171 JBA.,3:98CV2171 JBA. |
| Citation | 48 F.Supp.2d 132 |
| Parties | FIRST UNION NATIONAL BANK, Plaintiff, Fleet Bank, N.A. Consolidated-Plaintiff Office of the Comptroller Of The Currency, Intervenor-Plaintiff, v. The Honorable John P. BURKE, Banking Commissioner, Defendant. |
| Court | U.S. District Court — District of Connecticut |
Donald E. Frechette, Edwards & Angell, Hartford, for First Union Natl Bank, plaintiff.
Daniel L. Fitzmaurice, Day, Berry & Howard, Hartford, for Fleet Bank, N.A., consolidated plaintiff.
F. Thomas Eck, IV, Horace G. Sneed, Comptroller of the Currency Litigation Division, Washington, DC, for Office of the Comptroller of the Currency, Office of the Comptroller of Currency, intervenor-plaintiff.
Gregory T. D'Auria Attorney General's Office, Hartford, William J. Prensky Attorney General's Office, Finance & Public Utilities, Hartford, for Banking Commissioner, Dept.of Banking, Legal Div., Ct, /o Hon. John P. Burke Comm, defendant, John Burke, consolidated defendant.
RULING ON INTERVENOR-PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION [Doc. # 37] AND DEFENDANT'S MOTION TO DISMISS [Doc. # 41]
These motions present the deceptively simple question of who has the authority to administratively enforce state banking laws against in-state branches of national banks. The answer requires analysis of the requirements of the national banking regulatory scheme with respect to the Connecticut Banking Commissioner's ("Commissioner") recent issuance of administrative cease and desist orders against the plaintiff banks, requiring that they cease imposing on non-depositor customers a surcharge fee for transactions at the banks' automated teller machines ("ATMs").
These now consolidated actions were originally brought by two out-of-state national banks with branches in Connecticut, joined subsequently by the Office of the Comptroller of the Currency ("OCC") whose request to file an intervening complaint was granted without objection. In its intervening complaint, the OCC claims that by the National Banking Act and related federal banking statutes, Congress intended the OCC to have exclusive administrative enforcement authority over national banks for all laws, including state banking laws related to ATM transaction fees. The OCC seeks a preliminary injunction to enjoin the Commissioner from proceeding with its pending administrative action against the two plaintiff national banks. [doc. # 37] The Commissioner seeks to dismiss the OCC's intervening complaint claiming: lack of subject matter jurisdiction, that abstention is required, that the OCC fails to state a claim, and that the regulatory scheme urged by the OCC violates the Tenth Amendment. [doc. # 41]
For the following reasons, the Commissioner's Motion to Dismiss the OCC's Intervening Complaint is DENIED and the OCC's Motion for a Preliminary Injunction is GRANTED, enjoining the Commissioner from proceeding with his pending administrative enforcement proceeding against Fleet Bank and First Union National Bank pending final disposition of the OCC's complaint. This order does not address the Commissioner's interpretation of the ATM statute in dispute, Conn. Gen. Stat. § 36a-156, nor does it preclude either the OCC from initiating its own administrative proceeding related to Conn. Gen.Stat. § 36a-156 or the Commissioner from further seeking enforcement through judicial means.
Although this action arises within the context of the ongoing dispute between Fleet Bank and the Connecticut Banking Commissioner over whether a national bank may impose surcharge or "convenience" fees on non-depositors who access Fleet's ATMs in the state of Connecticut, the current posture of the case raises an issue not previously before this Court or the Second Circuit in Fleet Bank, Nat'l Ass'n v. Burke, 23 F.Supp.2d 196, vacated 160 F.3d 883 (2d Cir.1998) (hereafter "Fleet I"): whether the Commissioner's cease and desist order unlawfully interferes with the OCC's exclusive regulatory and enforcement authority over national banks on this subject.
In Fleet I, Fleet sought a declaratory judgment asserting the preemptive effect of the national banking laws over the Banking Commissioner's interpretation of Conn. Gen.Stat. § 36a-156. The Second Circuit vacated this Court's ruling that interpreted state law as the predicate step for determining whether the state law conflicted with federal law so as to be preempted. The Second Circuit articulated the principle that Fleet's defensive preemption claim was inadequate to confer subject matter jurisdiction and remanded the case for dismissal. In denying Fleet's motion for reconsideration, the Second Circuit made clear that raising the OCC's claim of exclusive authority over national banks as grounds for reconsideration Fleet Bank, Nat'l Ass'n v. Burke, 160 F.3d 883 (2d Cir.1998) ().
Immediately following issuance of the Second Circuit's decision on November 9, 1998, the Commissioner issued cease and desist orders directing Fleet, First Union and a third national bank to immediately stop imposing surcharge fees or subject themselves to fines of up to $7,500 per violation. On the same day, Fleet and First Union separately filed these actions under 42 U.S.C. § 1983, seeking injunctive relief prohibiting the Commissioner from enforcing his cease and desist order. Simultaneously, Fleet and First Union sought and were denied a temporary injunction in Connecticut superior court in which they sought to enjoin the Commissioner's temporary cease and desist orders on state law grounds expressly reserving their federal law claims for adjudication in federal district court. See Fleet Nat'l Bank v. Burke, 1998 WL 892258 (Conn.Super.Nov.20, 1998) (Teller, J.). After initially filing an amicus brief in this action, the OCC intervened to preserve what it claims to be its exclusive authority to enforce all banking laws, state and federal, against national banks. By agreement of all parties at oral argument, further administrative proceedings on the cease and desist orders were stayed pending the Court's ruling on the plaintiffs' motions for a preliminary injunction and the Commissioner's motions to dismiss.
Before considering the pending motions, it is informative to overview briefly the origins and history of the dual state and national banking systems in this country. This dual banking system was not the product of any deliberate or conscious power sharing effort between national and state regulators, but rather an accident of history and the result of the continuing tension between the two structures of government. See Friedman & Friesen, A New Paradigm For Financial Regulation: Getting From Here To There, 43 Md. L.Rev. 413, 416 (1984); Howard H. Hackley, Our Baffling Banking System, 52 Va. L.Rev. 565, 570-71 (1966). See generally Kenneth E. Scott, The Dual Banking System: A Model of Competition in Regulation, 30 Stan. L.Rev. 1 (1977).
The Supreme Court first upheld the authority of Congress to charter a national bank in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819). Later, Congress provided for the chartering of national banks with the National Bank Act of 1863, to provide the nation with a stable system of currency to replace the existing system of notes issued by state banks, and to provide a ready market for the new bonds the federal government was issuing to finance the Civil War. See Geoffrey P. Miller, The Future of the Dual Banking System, 53 Brook. L.Rev. 1, 13 (1987). Indeed, those who drafted the 1863 enabling legislation thought that existing banks soon would exchange their state charters for federal charters and that a dual banking system would exist only during a brief transition period. When state banks showed a reluctance to give up their state charters, Congress imposed a punitive tax on state bank notes, a measure that failed only because banks were able to offer checking accounts as low cost substitutes for the bank notes. See Id. Thus, "[t]he creators of the dual banking system ... were hardly bent on establishing the overlapping scheme of state and federal chartering that we observe today." Id. No matter its origin or intended purpose, the "dual banking system" continues to raise new issues as banks diversify their functions, expand their venues and, as illustrated in this case, incorporate new technology, such as ATMs, to expand their daily operations.
National banks are federally chartered under the National Banking Act of 1874 (12 U.S.C. § 21 et. seq.). Related federal banking statutes have been construed to grant the OCC broad supervisory and enforcement powers over these national banks. See NationsBank of North Carolina v. Variable Annuity Life Ins. Co., 513 U.S. 251, 115 S.Ct. 810, 130 L.Ed.2d 740 (); Clarke v. Securities Indust. Ass'n, 479 U.S. 388, 107 S.Ct. 750, 93 L.Ed.2d 757 (1987) (). Further, the OCC is charged with enforcement of 12 U.S.C. § 36(c), the provision of the National Banking Act that permits national banks to establish and operate branches to the extent permissible for state banks under state law. See Ind....
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