State v. Liberty Nat. Bank and Trust Co.

Decision Date28 June 1988
Docket NumberNo. 870256,870256
Citation427 N.W.2d 307
PartiesSTATE of North Dakota, Plaintiff and Appellant, v. LIBERTY NATIONAL BANK AND TRUST COMPANY, a North Dakota Corporation, Defendant and Appellee. Civ.
CourtNorth Dakota Supreme Court

Allen C. Hoberg (argued), Asst. Atty. Gen., Atty. General's Office, Bismarck, for plaintiff and appellant. Appearance by Nicholas J. Spaeth.

Mackoff, Kellogg, Kirby & Kloster, P.C., Dickinson, for defendant and appellee, argued by Gordon W. Schnell. Appearance by Mary E. Maichel.

Keith C. Magnusson (argued), Bismarck, for amicus curiae N.D. Bankers Ass'n.

LEVINE, Justice.

The State appeals from a district court summary judgment dismissing its divestiture action against Liberty National Bank and Trust Company [Liberty National] on the ground that the three-year limitation for holding farmland under Sec. 10-06-13(5), N.D.C.C., of the corporate farming laws is not applicable to Liberty National because the state provision is pre-empted by 12 U.S.C. Sec. 29 of the National Bank Act. We reverse.

The facts are not disputed. Liberty National is a national bank chartered by and subject to the supervision of the Comptroller of the Currency pursuant to the National Bank Act of 1864, 12 U.S.C. Sec. 21 et seq. Marvin D. Lutz defaulted on a $150,000 loan from Liberty National which was secured in part by a real estate mortgage covering 320 acres of farmland in Slope County. In order to avoid foreclosure of the mortgage, Lutz conveyed the 320 acres to the Bank by warranty deed dated September 19, 1983. The agreed value of the land, approximately $107,000, was credited upon the loan indebtedness. The Bank leased the land to Lutz with an option to purchase from 1983 to 1986, but in the fall of 1986 Lutz told the Bank he had quit farming and would not buy or lease the land. According to the Bank, it has attempted to locate purchasers by seeking private bids and listing the property with a realtor, but has not received any offers "for an amount which would prevent the Bank from suffering a substantial loss on its investment."

The State brought this action against Liberty National in February 1987 pursuant to Sec. 10-06-13, N.D.C.C., to force the Bank to divest itself of the farmland because it had held the land for more than three years and none of the statutory exceptions for holding the land for a longer period applied. The Bank admitted that none of the statutory exceptions applied, but claimed in its answer that the three-year holding period in Sec. 10-06-13, N.D.C.C., was pre-empted by the five-year holding period in 12 U.S.C. Sec. 29. The district court agreed with Liberty National and granted summary judgment dismissing the action. The State appealed.

After oral argument in this court, we were informed by counsel that Liberty National has sold the land involved in this lawsuit. We will not dismiss an appeal as moot where the matter in controversy is one of great public interest and involves the authority and power of public officials, or where the matter is " 'capable of repetition, yet evading review.' " Matter of Prettyman, 410 N.W.2d 533, 536 (N.D.1987) [quoting Forum Publishing Co. v. City of Fargo, 391 N.W.2d 169, 170 (N.D.1986) quoting Nebraska Press Ass'n v. Stuart, 427 U.S. 539, 546, 96 S.Ct. 2791 2797, 49 L.Ed.2d 683 (1976) ]. 1 The issue presented in this case is a question of great public interest and will have important consequences in the State's future enforcement of the corporate farming laws. Moreover, considering a bank's continuing obligation to attempt to divest itself of foreclosed property and the length of time required for a case to work its way through the trial and appellate court processes, we believe that this issue is capable of repetition, yet evading review. We therefore conclude that the issue in this case is not moot and proceed to the merits.

PRE-EMPTION PRINCIPLES

National banks were brought into existence under federal legislation, are instrumentalities of the federal government, and are necessarily subject to the paramount authority of the United States. First National Bank v. Missouri, 263 U.S. 640, 656, 44 S.Ct. 213, 215, 68 L.Ed. 486 (1924). As such, Congress has the authority to determine the extent to which state law is pre-empted with respect to a national bank's activities. See Federal Land Bank of St. Paul v. Lillehaugen, 404 N.W.2d 452, 455 (N.D.1987).

The standards for deciding a pre-emption question are well established. Essentially, federal pre-emption of state law can occur in one of three ways. First, Congress may explicitly define the extent to which it intends to pre-empt state law. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95-96, 103 S.Ct. 2890, 2898-2900, 77 L.Ed.2d 490 (1983). Express pre-emption of state law occurs when Congress specifically declares in a federal statute that it intends to pre-empt state law in a particular field. See Exxon Corp. v. Hunt, 475 U.S. 355, 106 S.Ct. 1103, 89 L.Ed.2d 364 (1986); Aloha Airlines, Inc. v. Director of Taxation, 464 U.S. 7, 104 S.Ct. 291, 78 L.Ed.2d 10 (1983).

Second, even when there is no express pre-emptive language, Congress may indicate an intent to occupy an entire field of regulation and thereby impliedly pre-empt state law. See City of Burbank v. Lockheed Air Terminal, 411 U.S. 624, 93 S.Ct. 1854, 36 L.Ed.2d 547 (1973). Implied or occupation of the field pre-emption can be inferred "where the pervasiveness of the federal regulation precludes supplementation by the States, where the federal interest in the field is sufficiently dominant, or where 'the object sought to be obtained by the federal law and the character of obligations imposed by it ... reveal the same purpose.' " Schneidewind v. ANR Pipeline Co., --- U.S. ----, ----, 108 S.Ct. 1145, 1150, 99 L.Ed.2d 316 (1988) [quoting Rice v. Sante Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947) ]. See also Pacific Gas & Electric Company v. St. Energy Resources Conserv., 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983).

Third, even when Congress has not intended to entirely displace state law in a particular area, state law is pre-empted to the extent that it "actually conflicts" with federal law. Michigan Canners & Freezers v. Agricultural Bd., 467 U.S. 461, 469, 104 S.Ct. 2518, 2523, 81 L.Ed.2d 399 (1984). Conflict pre-emption occurs where compliance with both federal and state laws is a physical impossibility, Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963), or where state law "stands as an obstacle to the accomplishment and execution of the full purposes andobjectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). See also Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984); Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 103 S.Ct. 2476, 76 L.Ed.2d 678 (1983); Ray v. Atlantic Richfield Co., 435 U.S. 151, 98 S.Ct. 988, 55 L.Ed.2d 179 (1978).

Courts are reluctant to infer pre-emption, Federal Land Bank of St. Paul v. Lillehaugen, supra, and it is the burden of the party claiming Congress intended to pre-empt state law to prove it. Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913, 216 Cal.Rptr. 345, 362, 702 P.2d 503, 520 (1985), appeal dismissed, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986). We also recognize that the pre-emption doctrine is "not inapplicable ... simply because real property law is a matter of special concern to the States: 'The relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.' " Fidelity Federal Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) [quoting Free v. Bland, 369 U.S. 663, 666, 82 S.Ct. 1089, 1092, 8 L.Ed.2d 180 (1962) ]. In the final analysis, "the question whether federal law in fact preempts state action in any given case necessarily remains largely a matter of statutory construction." L. Tribe, American Constitutional Law Sec. 6-25, at p. 480 (2d ed. 1988). See also Schneidewind v. ANR Pipeline Co., supra ["A pre-emption question requires an examination of congressional intent."]

Liberty National does not contend that Congress has expressly pre-empted state holding periods for real estate. Nor does it contend that Congress, through enactment of the National Bank Act, has impliedly pre-empted the entire field of regulation over national banks. See First National Bank v. Missouri, supra ["[N]ational banks are subject to the laws of a State in respect to their affairs unless such laws interfere with the purposes of their creation, tend to impair or destroy their efficiency as federal agencies or conflict with the paramount law of the United States."]; McClellan v. Chipman, 164 U.S. 347, 356-357, 17 S.Ct. 85, 87, 41 L.Ed. 461 (1896); Biby v. Union National Bank of Minot, 162 N.W.2d 370, 375 (N.D.1968). Rather, the Bank asserts that the state holding period for real estate is pre-empted by the federal law because an actual conflict exists. The Bank does not contend that the conflict exists because compliance with both the state and federal laws is a physical impossibility, but because the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.

12 U.S.C. Sec. 29

12 U.S.C. Sec. 29 currently provides:

"Sec. 29. Power to hold real property

"A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others:

"First. Such as shall be necessary for its accommodation in the transaction of its business.

"Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted.

"Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the...

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