N.Y. Bankers Ass'n, Inc. v. City of N.Y.

• Decision Date: 07 August 2015
• Docket Number: No. 15 Civ. 4001(KPF).,15 Civ. 4001(KPF).
• Citation: 119 F.Supp.3d 158
• Parties: The NEW YORK BANKERS ASSOCIATION, INC., Plaintiff, v. The CITY OF NEW YORK, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

119 F.Supp.3d 158

The NEW YORK BANKERS ASSOCIATION, INC., Plaintiff,

v.The CITY OF NEW YORK, et al., Defendants.

No. 15 Civ. 4001(KPF).

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

Signed Aug. 7, 2015.

Marc Roland Trevino, Matthew A. Schwartz, Robert Joseph Giuffra, Jr., Thomas Charles White, Sullivan & Cromwell, LLP, H. Rodgin Cohen, New York, NY, for Plaintiff.

Joshua Paul Rubin, Corporation Counsel Office City of New York, New York, NY, for Defendants.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:

Plaintiff New York Bankers Association, Inc. ("NYBA") initiated this action on May 26, 2015, seeking (i) a declaratory judgment that City Local Law 38 for the Year 2012, entitled the Responsible Banking Act (the "RBA"), is preempted by federal and state law; and (ii) a permanent injunction prohibiting the operation and implementation of the RBA. Plaintiff now moves for summary judgment on its claims, or, in the alternative, for an order preliminarily enjoining Defendants City of New York (the "City"), the New York Department of Finance (the "DOF"), and the Community Investment Advisory Board (the "CIAB") (collectively, "Defendants") from enforcing the RBA. Simultaneously, Defendants move to dismiss the Complaint on the grounds that the RBA is not preempted and, in the alternative, ask the Court to sever any provisions of the RBA that it deems preempted.

A review of the extensive record in this case confirms that while the animating concerns of the City Council are valid, the means by which it sought to harness banks to redress those concerns intrudes on the province of the federal and state governments. Accordingly, and for the reasons discussed in the remainder of this Opinion, Plaintiff's motion for summary judgment is granted.¹

BACKGROUND²

The instant litigation is Plaintiff's second challenge to the RBA. As such, the Court assumes a degree of familiarity with its Opinion in New York Bankers Association v. City of New York ("N.Y. Bankers "), No. 13 Civ. 7212(KPF), 2014 WL 4435427 (S.D.N.Y. Sept. 9, 2014). The focus of the Court's prior opinion was standing, and not the merits of Plaintiff's preemption claims. For this reason, a more thorough recitation of the underlying facts—including an appropriately comprehensive account of the legislative history—is presented here.

A word about that legislative history is in order: It is lengthy, and marked by an abrupt change in position following the change in mayoral administrations. Broadly speaking, the Bloomberg administration concluded that the RBA was thoughtful but misguided, and, more importantly, preempted by federal and state law; the de Blasio administration concluded that the Act was an appropriate exercise of the City's discretion vis-à-vis the banks with which it deposited millions of dollars in City funds. The legislative history is contained here, despite its length, because it illuminates the motivations of the RBA's sponsors and supporters. In addition, the change in the City's position is discussed in detail, because that discussion yields contemporaneous insights into the legal issues now raised by the parties in this litigation.

A. Factual Background

1. The Parties and the City's Deposit Bank System

Plaintiff NYBA is an association of approximately 140 commercial banks and federal savings associations located in New York State. (Pl. 56.1 ¶ 9). NYBA's members include national banks chartered pursuant to the National Bank Act of 1864 (the "NBA"), ch. 106, 13 Stat. 99 (codified as amended in scattered sections of Titles 12, 19, and 31 of the United States Code); federal savings associations chartered pursuant to the Home Owners' Loan Act of 1933 (the "HOLA"), Pub.L. No. 73–43, 48 Stat. 128 (codified as amended at 12 U.S.C. §§ 1461 –1470 ); and commercial and thrift depository institutions chartered pursuant to the New York Banking Law (the "NYBL"). (Id. ). Fifteen NYBA members serve as depositories for City funds. (Id. at ¶ 8).

The New York City Banking Commission (the "Banking Commission") was created in 1873 under the City Charter. (Pl. 56.1 ¶ 1). The members of the Banking Commission include the Mayor of the City (the "Mayor"), the City Comptroller (the "Comptroller"), and the Commissioner of the DOF. (Id. at ¶ 2). Among other things, the Banking Commission is responsible for designating which banks and savings associations may hold the City's funds. (Id. at ¶ 3; see also N.Y.C. Charter § 1524(1) ("[The Banking Commission] designate[s] the banks or trust companies in which all moneys of the city shall be deposited, and may ... from time to time change the banks and trust companies thus designated.")). Only financial institutions that are designated as "Deposit Banks" by the Banking Commission may hold City funds. (Pl. 56.1 ¶ 4).

To become a Deposit Bank, an institution must submit an application that includes audited financial statements, historical financial information, an overview of the current managerial structure, its most recent federal Community Reinvestment Act ("CRA") rating,³ and other detailed information. (Pl. 56.1 ¶ 13). In addition, an institution must have a physical presence in the City. (Id. ). As of May 2015, there were 21 Deposit Banks, 15 of which were NYBA members. (Id. at ¶ 6).

2. The RBA's Introduction and Evolution

a. The November 23, 2010 Hearing

In the wake of the 2008 financial crisis, the New York City Council (the "City Council") Committee on Finance (the "Finance Committee") convened a hearing on November 23, 2010 (the "November 23 Hearing"), in order "to examine the process used by the Banking Commission when selecting the [City's] depository banks." (Pl. 56.1 ¶ 10). Domenic M. Recchia, Jr., then Chair of the Finance Committee, declared at the outset that

[t]he Finance Committee will focus on a general overview of the Banking Commission with an emphasis on the Banking Commission's relying on Banks ['] Community Reinvestment Act activity when determining which banks are eligible to be the depository of [ ] City funds.... In light of the current fiscal and housing crisis, the Finance Committee wants to make sure that banks hand[l]ing the City's money are doing all they can to address the needs of the communities in which they serve while still ensuring that the City's money is safe and that the City is provided with the best available interest rate on its money. The hearing today will seek to gain an understanding of the ... Banking Commission and its process for selecting depositories with an emphasis on the Banking Commission's reliance on the banks' commitment to providing services and programs that address the needs of the community in which [they do] business.

(Id. at ¶ 11).

Treasurer of the City of New York, Elaine Kloss, testified at the November 23 Hearing on behalf of the then-Commissioner of the DOF, David M. Frankel. (Pl. 56.1 ¶ 12). Treasurer Kloss explained that

the [Banking] Commission reviews and approves or denies applications it receives from banks or trust companies to become New York City designated [Deposit Banks].... A bank or trust company must apply to become a New York City [Deposit Bank] by submitting a formal application to the [Banking] Commission. The application includes audited financial statements, historical financial information, current managerial structure, the bank's most recent Federal Community Reinvestment Act rating, and other detailed information. To be approved as a [Deposit Bank], a bank or trust company must have a physical presence in the City of New York. The Commission reviews the application and votes to approve or deny the financial institution as a New York City [Deposit Bank].

(Id. at ¶ 13). Treasurer Kloss further testified that the Banking Commission "is not a regulatory body" and "is not a regulator." (Id. at ¶ 14).

Recalling his opening statements, Chairman Recchia asked Treasurer Kloss whether the City Comptroller's annual survey of City bank accounts sought information such as "what work [Deposit Banks] do in the community, how many loans they give out to small business[es] ... [and] how many mortgages they have modified." (Pl. 56.1 ¶ 15). Treasurer Kloss replied, "No I don't believe they do that." (Id. at ¶ 16). Chairman Recchia explained that

the CRA issue is really troubling to me and I think to many other Council Members [be]cause we would like to [address] other issues. You know, the credit counseling and foreclosure prevention services, loan modifications, [whether banks are] providing affordable products, you know, to small consumers, smaller loans.... [T]hese are certain things that we think that the Banking Commission could do and should be doing.

(Id. at ¶ 17). City Council Member Lewis A. Fidler added that he wanted to "know what efforts the [Banking] Commission makes to review and to in effect use the enormous power of [the] City as a depository to force banks or to pressure banks into being more cooperative with [the federal Home Affordable Modification Program]." (Id. at ¶ 18).

After hearing testimony from a City resident concerning his problems with obtaining loan modification, Chairman Recchia informed the resident that

[w]e heard what you're saying. This is why we're having this hearing. We are trying to address these—we are going to address these to try to help all these people. This is an issue that we can no longer just sit back and let it go. That's why we're having this. We're trying to be creative and finding ways that we could bring banks to the table, bring them out to the forefront to say now it's time to start modifying these loans, stop playing games, let's help those people that want to be helped, that could be helped, and we're trying to be creative.

(Pl. 56.1 ¶ 19).

b. The Bill Is Introduced Before the City Council

Following the November 23 Hearing, Introductory Number 485 ("Intro 485") was introduced before the City Council on February 16, 2011. (Pl. 56.1 ¶ 21). Intro 485 provided, in relevant part:

The commissioner of finance, in consultation with

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