People v. First American Corp.

Citation2011 N.Y. Slip Op. 08450,18 N.Y.3d 173,960 N.E.2d 927,937 N.Y.S.2d 136
PartiesThe PEOPLE of the State of New York, by Andrew M. CUOMO, Attorney General of the State of New York, Respondent, v. FIRST AMERICAN CORPORATION et al., Appellants.
Decision Date22 November 2011
CourtNew York Court of Appeals

18 N.Y.3d 173
2011 N.Y. Slip Op. 08450
937 N.Y.S.2d 136
960 N.E.2d 927

The PEOPLE of the State of New York, by Andrew M. CUOMO, Attorney General of the State of New York, Respondent,
v.
FIRST AMERICAN CORPORATION et al., Appellants.

Court of Appeals of New York.

Nov. 22, 2011.


937 N.Y.S.2d 138] DLA Piper LLP, New York City (Andrew L. Deutsch, Richard F. Hans and Kerry Ford Cunningham of counsel), for appellants.

Eric T. Schneiderman, Attorney General, New York City (Richard Dearing, Barbara D. Underwood and Benjamin Gutman of counsel), for respondent.

[18 N.Y.3d 175] OPINION OF THE COURT
CIPARICK, J.

[960 N.E.2d 929

This appeal arises out of an action commenced by the New York State Attorney General against defendants The First American Corporation (First American) and eAppraiseIT, LLC (eAppraiseIT) seeking injunctive and monetary relief as well as [18 N.Y.3d 176] civil penalties for violations of New York's Executive Law and Consumer Protection Act ( see Executive Law § 63[12]; General Business Law § 349) as well as the common law. The primary issue we are called upon to determine is whether federal law preempts these claims alleging fraud and violations of real estate appraisal independence rules. We conclude that federal law does not preclude the Attorney General from pursuing these claims against defendants.

I.

First American provides real estate appraisal services to lending institutions, including savings and loan associations and banks. It supplies these services through its wholly owned subsidiary, eAppraiseIT, an appraisal management company that conducts business in New York. eAppraiseIT publicly advertises that its appraisals conform with the Uniform Standards of Professional Appraisal Practice (USPAP) and that they are “audited for compliance.” USPAP, incorporated into both federal and New York law ( see 12 CFR 34.44; 19 NYCRR 1106.1), requires appraisers to “perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests” (Advisory Standards Board, USPAP, Ethics Rule [2010–2011 ed.], available at http:// www. uspap. org/ USPAP/ frwra VETH ICS_ RULE. htm).

In a complaint filed in November 2007, the Attorney General initiated this action against defendants, pursuant to its authority under Executive Law § 63(12) and General Business Law § 349, asserting claims that defendants engaged in repeated fraudulent and deceptive acts in the conduct of its business to the detriment of consumers and the public. The Attorney General also alleges that defendants “unjustly enriched themselves by receiving payment for independent, accurate, and legal appraisals, but failing to provide such appraisals” in violation of the common law.

According to the complaint, in the spring of 2006, nonparty Washington Mutual, Inc. (WaMu), then the largest nationwide savings and loan institution, retained eAppraiseIT and another company to perform independent appraisals on WaMu loan applications. WaMu soon became eAppraiseIT's largest client, providing close to 30% of its business in New York. The complaint alleges that, in response to stricter federal appraisal regulations, WaMu hired eAppraiseIT in order to create “a structural buffer between the banks

[960 N.E.2d 930]

[937 N.Y.S.2d 139] and the appraisers that eliminates potential pressure or conflicts of interest.”

[18 N.Y.3d 177] Nevertheless, the Attorney General asserts that WaMu, throughout the course of its relationship with defendants, cajoled eAppraiseIT employees to augment the appraised values assigned to certain homes in order to allow the loans associated with those homes to proceed to closing. The complaint highlights that, shortly after WaMu hired eAppraiseIT, WaMu's loan production personnel complained that “eAppraiseIT's staff and fee appraisers were not ‘hitting value,’ that is, were appraising homes at a value too low to permit loans to close.” On August 15, 2006, eAppraiseIT's executive vice-president advised the company's president that WaMu loan officers' unsubstantiated requests for appraisal adjustments amounted to “direct pressure on the appraiser[s] for a higher value without” justification.

Initially, eAppraiseIT management attempted to thwart the coercion exerted by WaMu. During the latter part of 2006, however, WaMu allegedly continued to express its dissatisfaction with the appraisal reports issued by eAppraiseIT. It purportedly indicated to First American that any future business with WaMu would be “expressly conditioned” on eAppraiseIT's ability to furnish appraisals with “high enough values.” Furthermore, in February 2007, WaMu allegedly directed eAppraiseIT's to cease utilizing its panel of fee appraisers and instead employ appraisers from a panel previously selected by WaMu's loan origination staff who inflate the values of homes “in a greater majority of the time.”

As a result of this mounting pressure, the complaint asserts that eAppraiseIT eventually capitulated to WaMu's demands. According to the Attorney General, by April 2007, “WaMu had complete control over eAppraiseIT's appraiser panel” and defendants knew that their compliance with WaMu “violated appraiser independence regulations” under USPAP.

The Attorney General filed the complaint in Supreme Court and defendants removed the action to the United States District Court for the Southern District of New York, asserting that District Court had federal question jurisdiction of the action ( see 28 USC § 1331). Defendants also sought dismissal of the complaint in federal court. The Attorney General, in response, moved to remand the case back to Supreme Court. District Court granted the Attorney General's motion, and, in so doing, did not address defendant's motion to dismiss ( see People of New York ex rel. Cuomo v. First Am. Corp., 2008 WL 2676618, 2008 U.S. Dist. LEXIS 51790 [S.D.N.Y.2008] ).

[18 N.Y.3d 178] Back in Supreme Court, defendants moved to dismiss the complaint pursuant to CPLR 3211. Defendants contended that the Home Owners' Loan Act (HOLA) (12 USC § 1461 et seq.) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) (Pub. L. 101–73, 103 U.S. Stat. 183) and their concomitant regulations preempt the Attorney General from raising these claims. Defendants premised their preemption arguments on two theories: they maintained that the relevant federal statutory and regulatory scheme occupied the entire field of real estate appraisals. Alternatively, defendants posited that New York's attempt to regulate eAppraiseIT conflicted with federal law in that it obstructed WaMu's ability to finance real estate transactions. Lastly, defendants asserted that the complaint failed to state a cause of action under General Business Law § 349.

Supreme Court denied the motion. Addressing the preemption arguments, Supreme Court first concluded that “federal regulation does not occupy the entire field

[960 N.E.2d 931]

[937 N.Y.S.2d 140] with respect to real estate appraisal regulation” ( People v. First Am. Corp., 24 Misc.3d 672, 680–681, 878 N.Y.S.2d 860 [Sup. Ct., N.Y. County 2009] ). The court reasoned that “[i]n the area of real estate appraisals, Congress expressly envisioned a unique regulatory system overseen and enforced by both the federal government and the states” ( id. at 679, 878 N.Y.S.2d 860). Supreme Court likewise concluded that defendants failed to “articulate[ ] how the enforcement of USPAP standards under New York law or the application of General Business Law § 349 conflicts with federal law, or otherwise interferes with a bank's nationwide operations or ability to lend” ( id. at 682, 878 N.Y.S.2d 860). Finally, the court opined that the Attorney General adequately pleaded a cause of action under General Business Law § 349.

The Appellate Division affirmed the order of Supreme Court. Before the Appellate Division, defendants abandoned their conflict preemption arguments ( see People v. First Am. Corp., 76 A.D.3d 68, 72, 902 N.Y.S.2d 521 [1st Dept.2010] ) but still maintained that, given the comprehensive nature of HOLA and FIRREA, it is clear that Congress intended to occupy the entire home lending field. The Appellate Division disagreed and concluded, like Supreme Court, that Congress did not intend to occupy the entire field with respect to appraisal management companies ( see id. at 73–76, 902 N.Y.S.2d 521). The court also determined that the Attorney General articulated a cause of action under General Business Law § 349 and had standing to do so, reasoning that the complaint “references misrepresentations and other deceptive conduct allegedly [18 N.Y.3d 179] perpetrated on the consuming public within the State of New York” ( id. at 83, 902 N.Y.S.2d 521).

The same panel of the Appellate Division granted defendants leave to appeal to this Court and certified a question inquiring whether its order, which affirmed the order of Supreme Court, was “properly made” (2010 N.Y. Slip Op. 84106 [U], 2010 WL 3859718 [2010] ). We now affirm and answer the certified question in the affirmative.

II.

Preemption analysis begins, as always, with reference to the well-familiar Supremacy Clause of the United States Constitution, which provides that federal laws “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, cl. 2). Indeed, the Supremacy Clause “vests in Congress the power to supersede not only State statutory or regulatory law but common law as well” ( Guice v. Charles Schwab & Co., 89 N.Y.2d 31, 39, 651 N.Y.S.2d 352, 674 N.E.2d 282 [1996], cert. denied 520 U.S. 1118, 117 S.Ct. 1250, 137 L.Ed.2d 331 [1997] ). In determining whether federal law preempts state law, the United States Supreme Court has instructed that a court's “sole task is to ascertain the intent of Congress” ( California Fed. Sav. & Loan Assn. v. Guerra, 479 U.S. 272, 280, 107 S.Ct. 683, 93 L.Ed.2d 613 [...

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  • People v. First American Corp.
    • United States
    • New York Court of Appeals
    • November 22, 2011
    ...18 N.Y.3d 1732011 N.Y. Slip Op. 08450937 N.Y.S.2d 136960 N.E.2d 927The PEOPLE of the State of New York, by Andrew M. CUOMO, Attorney General of the State of New York, Respondent,v.FIRST AMERICAN CORPORATION et al., Appellants.Court of Appeals of New York.Nov. 22, [937 N.Y.S.2d 138] DLA Pipe......

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