Holiday Acres No. 3 v. MIDWEST FEDERAL, ETC., 50637.

• Decision Date: 05 August 1981
• Docket Number: No. 50637.,50637.
• Citation: 308 NW 2d 471
• Parties: HOLIDAY ACRES NO. 3, a partnership, Respondent, v. MIDWEST FEDERAL SAVINGS AND LOAN ASSOCIATION OF MINNEAPOLIS, Appellant.
• Court: Minnesota Supreme Court

308 N.W.2d 471 (1981)

HOLIDAY ACRES NO. 3, a partnership, Respondent, v. MIDWEST FEDERAL SAVINGS AND LOAN ASSOCIATION OF MINNEAPOLIS, Appellant.

No. 50637.

Supreme Court of Minnesota.

April 3, 1981.

Rehearing Denied August 5, 1981.

Hessian, McKasy & Soderberg, Thomas E. Harms and John A. Knapp, Minneapolis, for appellant.

Holmes & Graven, David L. Graven and Larry M. Wertheim, Minneapolis, for respondent.

Jonathan K. Heffron, Washington, D.C., for Federal Home Loan Bank Bd.

Faegre & Benson, James A. Dueholm and James G. Ray, Minneapolis, for Savings League of Minnesota.

Robins, Davis & Lyons, James R. Safely and Leslie H. Novak, Minneapolis, for Minnesota Ass'n of Realtors.

Heard, considered, and decided by the court en banc.

WAHL, Justice.

Midwest Federal Savings and Loan Association of Minneapolis (hereinafter Midwest Federal) appeals from a declaratory judgment ¹ of the Dakota County District Court which declares the due-on-sale clause contained in the mortgage agreement between Midwest Federal and respondent Holiday Acres No. 3 (hereinafter Holiday Acres) null and void as an unlawful restraint upon the alienation of property and restrains the exercise by Midwest Federal of any rights under the due-on-sale clause. This judgment was entered after we had reversed a previous dismissal for want of justiciable controversy and remanded the case for thorough consideration. Holiday Acres No. 3 v. Midwest Federal Savings & Loan Association, 271 N.W.2d 445 (Minn.1978). The case raises important questions with regard to the validity of the due-on-sale clause in a mortgage to which a federally chartered savings and loan association is a party. We reverse.

Appellant Midwest Federal is a federally chartered savings and loan association. Respondent Holiday Acres is a partnership formed for investment purposes. On April 30, 1969, appellant and respondent entered into a mortgage agreement to finance respondent's purchase of an apartment complex in West St. Paul, Minnesota. The mortgage contains a standard acceleration-of-payment clause, commonly referred to as a due-on-sale clause, which provides as follows:

In the event that the mortgagors convey the title (legal, equitable or both) to all or any portion of said premises or in the event that such title becomes vested in a person other than the mortgagors in any manner whatsoever except under the power of eminent domain, that in any such case the entire unpaid principal of the note secured hereby with all accrued interest thereon shall, at the option of the mortgagee at any time thereafter, become immediately due and payable without notice.

On January 26, 1976, respondent entered into an earnest money contract to sell the property to a third-party purchaser. The contract provided that either party could terminate if mortgagee Midwest Federal did not agree to waive its rights under the due-on-sale clause. Appellant Midwest Federal was advised of the terms of the prospective conveyance. Appellant advised respondent that it did not agree to waive the due-on-sale clause and would require the prospective purchaser to refinance at a higher interest rate, with the unpaid balance of the loan callable after 10 years. The purchaser found this unacceptable and terminated the purchase agreement on April 15, 1976. Holiday Acres then sought the declaratory judgment and equitable relief which the trial court granted on remand.²

The controversy over the validity of due-on-sale clauses, which has been litigated in many state and federal courts, has now reached this court. We must first decide, however, whether the Federal Home Loan Bank Board regulations or other federal law preempt the operation of state law with regard to the exercise of that clause by a federal savings and loan association.

I.

The Supremacy Clause of the United States Constitution declares:

This Constitution, and the laws of the United States which shall be made in Pursuance thereof; * * * shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.

U.S.Const. art. VI, § 2. But the powers of the United States are limited in our federal form of government. "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." U.S.Const. amend. X.

Professor David Currie has said, with respect to the preemption of state law by federal:

It seems mandatory to begin with Hart and Wechsler\'s famous insight, The Federal Courts and the Federal System 470-71 (2d ed. 1973):

Federal law is generally interstitial in its nature. It rarely occupies a legal field completely, totally excluding all participation by the legal systems of the states .... It builds upon legal relationships established by the states, altering or supplanting them only so far as necessary for the special purpose. Congress acts, in short, against the background of the total corpus juris of the states in much the way that a state legislature acts against the background of the common law, assumed to govern unless changed by legislation. That this is so was partially affirmed in § 34 of the First Judiciary Act, now 28 U.S.C. § 1652 state laws as rules of decision ....

State law that contradicts federal, obviously, is outlawed by the Supremacy Clause. Where there is a contradiction is often not so obvious * * *. Although the Court has not always said so, it seems proper to say that the question in such cases is the familiar choice-of-law problem of accommodating conflicting governmental interests: Does the purpose of the federal law require subordination of state policy?

* * * * * *

Somewhat less obvious in principle, but resting basically upon the same process of construction in the light of state and federal policies, are decisions holding that federal laws preclude application of state laws with parallel rather than contrary effect.

* * * * * *

The issues demands consideration of the state interest served by the contested law and the degree to which its effectuation would infringe federal policy.

D. Currie, Federal Courts 886-88 (2d ed. 1975).

The Eighth Circuit Court of Appeals has suggested a general framework for analysis of whether federal law preempts state law: (1) Does the federal government possess the power to regulate in a given area? (2) If so, is compliance with federal law and state law a physical impossibility? (3) If not, did Congress unequivocally and expressly declare that the authority conferred by it should be exclusive? (4) Even if not, has Congress impliedly preempted state control? Key factors to be considered here include the intent of Congress, the pervasiveness of the regulatory scheme, whether the nature of the subject matter "demands `exclusive federal regulation in order to achieve uniformity vital to national interests,'" and whether state law would "stand as an obstacle" to the realization of such national policy. Northern States Power Co. v. Minnesota, 447 F.2d 1143, 1146-47 (8th Cir. 1971), aff'd mem. 405 U.S. 1035, 92 S.Ct. 1307, 31 L.Ed.2d 576 (1972).

This court, applying the Northern States Power framework, found that federal regulation of flammable fabrics which specifically preempted inconsistent state laws did not preempt the state's imposition of punitive damages on a defendant who had complied with minimum federal standards. Gryc v. Dayton-Hudson Corp., 297 N.W.2d 727 (Minn.), cert. denied, ___ U.S. ___, 101 S.Ct. 320, 66 L.Ed.2d 149 (1980).

We will find federal preemption in a field of traditional state interest only when legislative intent and delegation of authority are clear. Home loan mortgages, and the inclusion of due-on-sale clauses in those mortgages, are matters of traditional state interest and concern.³ The Minnesota legislature has in fact established state policy in this area.⁴ The United States Supreme Court is reluctant to deem that state regulatory power is preempted by federal regulation of an area of commerce "in the absence of persuasive reasons — either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained." Florida Lime & Avocado Growers v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963). That court will not find the "historic police powers" of a state to be superseded by a federal act "unless that was the clear and manifest purpose of Congress." Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947).

We recognize that "Congress can act so unequivocally as to make clear that it intends no regulation except its own." Rice, id. at 236, 67 S.Ct. at 1155. There is no challenge here to the power of Congress to regulate due-on-sale clauses, but we find no express and unequivocal exercise of that power in the relevant acts of Congress.

In 1932, Congress passed the Federal Home Loan Bank Act (hereinafter Bank Act), 12 U.S.C. §§ 1421-1449 (1976). The Bank Act established a Federal Home Loan Bank Board (hereinafter Bank Board) which is to supervise the Federal Home Loan Banks, carry out the duties specifically prescribed in the Bank Act, and "adopt, amend, and require the observance of such rules, regulations, and orders as shall be necessary from time to time for carrying out the purposes of the provisions of this chapter." Id. § 1437(a). The Bank Board is an independent agency in the executive branch of the federal government. Id. § 1437(b). All obligations issued by a Federal Home Loan Bank are exempted from taxation by the United States government. Id. § 1433. Moreover, claims or defenses by associations based on state usury laws are specifically preempted with respect to certain obligations. Id. § 1425b(e) (Supp. III 1979).

The Bank Board is authorized to...