Greenwald v. First Fed. Sav. & Loan Ass'n of Boston

• Decision Date: 22 February 1978
• Docket Number: Civ. A. No. 76-3931-C and 77-76-C.
• Citation: 446 F. Supp. 620
• Court: U.S. District Court — District of Massachusetts
• Parties: Carol S. GREENWALD, Commissioner of Banks, Plaintiff, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOSTON et al., Defendants. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOSTON et al., Plaintiffs, v. Carol S. GREENWALD, Commissioner of Banks of the Commonwealth of Massachusetts, and First Home Loan Bank Board, Defendants.

446 F. Supp. 620

Carol S. GREENWALD, Commissioner of Banks, Plaintiff, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOSTON et al., Defendants.

FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BOSTON et al., Plaintiffs, v. Carol S. GREENWALD, Commissioner of Banks of the Commonwealth of Massachusetts, and First Home Loan Bank Board, Defendants.

Civ. A. Nos. 76-3931-C and 77-76-C.

United States District Court, D. Massachusetts.

February 22, 1978.

Terence P. O'Malley, Asst. Atty. Gen., Boston, Mass., for plaintiff.

Carlton W. Spencer, James R. Brown, Jr., Boston, Mass., for Spencer & Stone, Boston, Mass.

William F. McKenna, Los Angeles, Cal., for First Federal Sav. and Loan Assoc. Harold B. Shore, Associate Gen. Counsel, Roland Marcotte, Jr. Atty., Washington, D. C., for Federal Home Loan Bank Bd.

MEMORANDUM

CAFFREY, Chief Judge.

These consolidated civil actions challenge the applicability to Federal savings and loan associations of a Massachusetts law requiring interest payments on certain real estate tax deposits.¹ In No. 76-3931-C, Massachusetts Commissioner of Banks Carol S. Greenwald (Commissioner), seeks declaratory and injunctive relief, specifically an order of the Court mandating defendants' compliance with the above-mentioned Massachusetts statute. Defendants in that action include the First Federal Savings and Loan Association of Boston (First Federal) and every other federal savings and loan association with its principal place of business in the Commonwealth.

No. 76-3931-C was originally filed in the Massachusetts Supreme Judicial Court. Pursuant to 28 U.S.C.A. § 1441(b), First Federal removed the matter to this Court, invoking federal question jurisdiction under 28 U.S.C.A. §§ 1331 and 1337. First Federal counterclaimed against the Commissioner and the Federal Home Loan Bank Board (Board) on the ground that any Massachusetts law requiring interest payments by federally-chartered savings and loan associations is unconstitutional. In 77-76-C, commenced in this Court, First Federal and all other federally-chartered savings and loan associations doing business in Massachusetts seek a declaration that ch. 183, § 61 does not apply to federal savings and loan associations because such associations are subject only to federal regulation. Both the Board and the Commissioner are named as defendants.

These cases are currently before the Court on the parties' cross-motions for summary judgment under Fed.R.Civ.P. 56. All parties concede there is no genuine issue of material fact. On the basis of the pleadings, a hearing on the cross-motions as well as the memoranda submitted by the parties, I rule as follows:

The basic issue raised by these cases is whether ch. 183, § 61 violates the Supremacy Clause, U.S.Const. Art. VI, cl. 2, when applied to federal savings and loan associations. First Federal contends that the Massachusetts statute is preempted by 12 C.F.R. § 545.6-11, a Board regulation. The Commissioner, on the other hand, argues that § 61 is a valid exercise of state authority in light of the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C.A. § 2601 et seq. (West Supp.1977) (RESPA).

It is familiar learning that a statute statute contravenes the Supremacy Clause when it obstructs "the accomplishment and the execution of the full purposes and objectives of an Act of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). Under traditional doctrine, the state statute is invalid either (1) if it appears that Congress either expressly or impliedly intended federal law to preempt the area, or (2) if the state statute conflicts irreconcilably with federal law. Florida Lime & Avocado Grovers, Inc. v. Paul, 373 U.S. 132, 141, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963).

In urging the Court to find preemption on an implied intent theory, First Federal contends that state laws governing mortgage lending have never applied to federal savings and loan associations, but rather such associations have traditionally been governed solely by federal law. A review of the history of the federal savings and loan system demonstrates the factuality and validity of this argument. The Federal Savings and Loan system was created by Congress to provide, inter alia, uniform national home financing. The program began in 1932 with passage of the Federal Home Loan Bank Act, 12 U.S.C.A. §§ 1421-1449. Under that Act, the Board was created and directed to charter 12 regional federal home loan banks to serve as reservoirs of credit for member financial institutions and to make home mortgage loans directly to the public. The following year, Congress enacted the Home Owners' Loan Act (HOLA), 12 U.S.C.A. §§ 1461-1468, which withdrew from the Federal Home Loan Banks the power to make direct loans to the public and authorized creation of federally-chartered savings and loan associations.

Under power delegated by Congress through § 5(a) of HOLA, the Board was authorized to "provide for the organization, incorporation, examination, operation and regulation" of federal savings & loan associations. 12 U.S.C.A. § 1464(a). Pursuant to its statutory mandate, the Board has promulgated comprehensive regulations governing "the powers and operations of every federal savings and loan association `from its cradle to its corporate grave'." Kupiec v. Republic Federal Savings & Loan Ass'n, 512 F.2d 147, 150 (7th Cir. 1975), citing Meyers v. Beverly Hills Federal Savings & Loan Ass'n, 499 F.2d 1145, 1147 (9th Cir. 1974).

Pursuant to its statutory authority, the Board on May 14, 1975, effective June 16, 1975, issued the previously-mentioned regulation governing interest payment on escrow accounts by all federal savings and loan associations, 12 C.F.R. § 545.6-11. In pertinent part, the regulation provides:

(c) Payment of interest on escrow accounts. A Federal association which makes a loan on or after June 16, 1975 on the security of a single-family dwelling occupied or to be occupied by the borrower (except such a loan for which a bona fide commitment was made before that date) shall pay interest on any escrow account maintained in connection with such a loan (1) if there is in effect a specific statutory provision or provisions of the State in which such dwelling is located by or under which State-chartered savings & loan associations, mutual savings banks and similar institutions are generally required to pay interest on such escrow accounts, and (2) at not less than the rate required to be paid by such State-chartered institutions but not to exceed the rate being paid by the Federal association on its regular accounts.. . Except as provided by contract, a Federal association shall have no obligation to pay interest on escrow accounts apart from the duties imposed by this paragraph. Emphasis added

Essentially, the regulation requires a Federal association to pay interest on any escrow account maintained after June 16, 1975, if the state where such dwelling is located has a specific statutory provision under which state-chartered savings and loan associations, mutual savings banks and similar thrift institutions are required to pay such interest.

The above-quoted Board regulation has the force and effect of a statute. Milberg v. Lawrence Cedarhurst Federal Savings and Loan Ass'n, 496 F.2d 523 (2d Cir. 1974); Community Federal Savings and Loan Ass'n v. Fields, 128 F.2d 705 (8th Cir. 1942). Every Federal Court which has addressed preemption questions involving HOLA has held that Congress impliedly intended that federal law should govern the regulation of federal savings and loan associations. See, e. g., Rettig v. Arlington Heights Federal Savings and Loan Ass'n, 405 F.Supp. 819 (N.D.Ill.1975). Such holdings establish the impropriety of any state regulation in the area. Meyers v. Beverly Hills Savings & Loan Ass'n, 499 F.2d 1145 (9th Cir. 1974); Murphy v. Colonial Federal Savings & Loan Ass'n, 388 F.2d 609 (2d Cir. 196...