State Farm Bank, F.S.B. v. Burke

Citation445 F.Supp.2d 207
Decision Date21 June 2006
Docket NumberNo. 3:05CV808 (JBA).,3:05CV808 (JBA).
CourtU.S. District Court — District of Connecticut
PartiesSTATE FARM BANK, F.S.B., a Federal Savings Association, and Nick Lopreiato, Plaintiffs, v. John P. BURKE, Banking Commissioner of the State of Connecticut, in his official capacity, Defendant.

A.P. Doyle, Howard N. Cayne, Nancy L. Perkins, Arnold & Porter, Washington, DC, Daniel L. Fitzmaurice, Jason S. Weathers, Day, Berry & Howard, Hartford, CT, for Plaintiffs.

Mark F. Kohler, William J. Prensky, Attorney General's Office, Hartford, CT, for Defendant.


ARTERTON, District Judge.

Plaintiffs State Farm Bank, F.S.B. ("State Farm"), a federal savings association chartered under the Home Owners' Loan Act ("HOLA"), 12 U.S.C. § 1461 et seq., and Nick Lopreiato, an exclusive agent of State Farm, bring this action for declaratory and injunctive relief against defendant John P. Burke, in his official capacity as Banking Commissioner of the State of Connecticut ("Commissioner"), challenging on preemption grounds the constitutionality of certain state statutes purporting to regulate the activities of a federal savings association.1 See Amended Complaint, [Doc. # 33] at ¶ 1, Prayer for Relief 1 & 2.

The parties have filed cross motions for summary judgment [Does. # # 25, 28] which focus on the deference due an opinion letter issued by the Office of Thrift Supervision ("OTS")—an instrumentality of the United States Department of the Treasury which pursuant to HOLA supervises, examines, and regulates federal savings associations, including State Farm. See OTS Opinion Letter, Amended Complaint, Ex. 1 at 1. In its letter, in reliance on factual information provided by State Farm, OTS concluded that:

[W]hen [State Farm] uses agents in the manner [State Farm] has described to perform marketing, solicitation, and customer service activities related to [State Farm's] deposit and loan products and services and other authorized banking powers, state licensing and registration requirements that do not apply to [State Farm] also do not apply to [State Farm's] agents solely because they perform those activities for [State Farm].

See OTS Opinion Letter at 1.

As described below, because OTS's interpretation is one concerning the preemptive effect of its own regulations, the Court accords it "controlling weight" unless "plainly erroneous or inconsistent with [its] regulation[s]." Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997). In light of HOLA's remarkably broad grant of authority to OTS, given that OTS's regulations are silent on this issue of preemption, and because of the particular facts in this record as to the relationship of control and oversight between State Farm and its exclusive agents, the Court concludes that OTS's interpretation is neither plainly erroneous nor inconsistent with its own regulations. Thus, plaintiff's Motion for Summary Judgment [Doc. # 28] will be granted and defendant's Motion for Summary Judgment [Doc. # 25] will be denied.


In briefing their motions for summary judgment, the parties do not dispute the following facts. State Farm is a federal savings association chartered under HOLA, is a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company, and is headquartered in Bloomington, Illinois. State Farm markets and sells various deposit and loan products— such as mortgages and certificates of deposit ("CDs")2—including to customers in Connecticut.

As noted above, OTS has the authority to supervise, examine, and regulate federal savings associations and, at least with respect to the lending and deposit-related activities at issue here, OTS's regulation of federal savings associations explicitly preempts any state laws or regulations. See 12 C.F.R. § 557.11(b) ("OTS hereby occupies the entire field of federal savings associations' deposit-related regulations. OTS intends to give federal savings associations maximum flexibility to exercise deposit-related powers according to a uniform federal scheme. Federal savings associations may exercise deposit-related powers as authorized under federal law ... without regard to state laws purporting to regulate or otherwise affect deposit activities, except to the extent provided in § 557.13. State law includes any statute, regulation, ruling, order, or judicial decision.");3 see also 12 C.F.R. § 560.2(a) (providing that OTS occupies the field of regulation of lending activities of federal savings associations)4 OTS regulations expressly provide that the "OTS preempts state laws that purport to impose requirements governing the following: ... [s]tate licensing or registration requirements," (12 C.F.R. § 557.12(g)), "requirements regarding ... Micensing, registration, filings, or reports by creditors," (12 C.F.R. § 560.2(b)(1)), or "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages" (12 C.F.R. § 560.2(b)(10)).

State Farm markets its deposit and loan products through a network of exclusive agents. Plaintiff Lopreiato is one such agent and operates in Connecticut. State Farm's agents typically provide information to customers regarding State Farm's products and services and provide ministerial assistance to customers in completing and submitting applications to State Farm, but do not evaluate loan applications, apply underwriting criteria, make lending decisions, or accept loan payments or deposits on behalf of State Farm. Each agent is required to enter into an exclusive agency agreement with State Farm, which provides that "the relationship between the Bank and the Agent is that of a company and an independent contractor." See Def L.R. 56(a) Stmt. [Doc. # 27] Ex. A at 3. Accordingly, State Farm reports the income of its agents on Federal Tax Form 1099s. Agents participate in State Farm in-house education and training programs and are subject to State Farm oversight and compliance programs, but are responsible for their own office overhead expenses.

Under the Examination Parity Act (the "Parity Act"), codified as Section 5(d)(7) of HOLA, OTS has the authority to regulate and examine the performance of third-party contractors, such as State Farm's agents. Specifically, the Parity Act provides:

[I]f a savings association, a subsidiary thereof, or any savings and loan affiliate or entity ... that is regularly examined or subject to examination by the Director, causes to be performed for itself, by contract or otherwise, any service authorized under this chapter ... whether on or off its premises—(i) such performance shall be subject to regulation and examination by the Director to the same extent as if such services were being performed by the savings association on its own premises . . . .

12 U.S.C. § 1464(d)(7)(D) (emphasis added).

Defendant does not dispute that the Parity Act provides a basis for OTS to regulate and examine the services provided by State Farm's agents, but contends that those agents are also subject to Connecticut laws regulating the activities of mortgage brokers and the marketing of CDs. Chapter 668 of the Banking Law of Connecticut, Conn. Gen.Stat. § 36a-486 et seq., requires persons engaged in mortgage lending activities to be licensed by the State, pay annual license fees, meet bond, net worth and minimum experience requirements, and be subject to the regulation and oversight of the Commissioner. See id. at §§ 36a-488, 36a-492, 36a-493, 36a-513, 36a-516. The Commissioner has the authority to, after notice and hearing, suspend, revoke, or refuse to renew a license for, inter alia, fraud, misappropriation, or violations of the banking laws. See id. at §§ 36a-51, 36a-494, 36a-517. The Commissioner is also authorized to take measures to enforce the banking laws, including the imposition of civil penalties, issuance of cease-and-desist orders, and the institution of superior court actions for injunctive relief. See id. at §§ 36a-50, 36a-52.

Additionally, the Commissioner has construed the Connecticut Uniform Securities Act ("CUSA"), Conn. Gen.Stat. §§ 36b-2-36b-33, to apply to the sale of CDs over $100,000 ("jumbo CDs") by federal savings associations and their agents.5 Under the Commissioner's interpretation, CUSA would require all State Farm agents engaged in CD-related activities to be registered with the Securities and Business Investments Division of the Connecticut Department of Banking.

In response to an inquiry made on behalf of State Farm, on October 25, 2004, OTS provided its Opinion Letter, concluding that when State Farm uses its agents "to perform marketing, solicitation, and customer service activities related to [State Farm's] deposit and loan products and services and other authorized banking powers, state licensing and registration requirements that do not apply to [State Farm] also do not apply to [State Farm's] agents solely because they perform those activities for [State Farm]." See Opinion Letter at 1. The parties do not dispute that the state licensing and registration requirements at issue do not apply to activities undertaken by State Farm itself: the sole issue is whether these requirements apply to State Farm's agents or are preempted by OTS regulations.

A. Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where—as here—the parties agree as to the material facts, summary judgment is appropriate. See Leebaert v. Harrington, 332 F.3d 134, 139 (2d Cir.2003) ("These [summary judgment] standards apply where, as here, the summary...

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