Wachovia Bank, N.A. v. Burke

• Decision Date: 01 June 2004
• Docket Number: No. CIV.A. 3:03-CV-0738(JCH).,CIV.A. 3:03-CV-0738(JCH).
• Citation: 319 F.Supp.2d 275
• Parties: WACHOVIA BANK, N.A., and Wachovia Mortgage Corporation, Plaintiffs, v. John P. BURKE, Banking Commissioner, Defendant.
• Court: U.S. District Court — District of Connecticut

319 F.Supp.2d 275

WACHOVIA BANK, N.A., and Wachovia Mortgage Corporation, Plaintiffs, v. John P. BURKE, Banking Commissioner, Defendant.

No. CIV.A. 3:03-CV-0738(JCH).

United States District Court, D. Connecticut.

June 1, 2004.

COPYRIGHT MATERIAL OMITTED

Daniel L. FitzMaurice, Jason S. Weathers, Day, Berry & Howard, Hartford, CT, for Plaintiffs.

John G. Haines, Lorrie Lewis Adeyemi, Mark F. Kohler, Richard Blumenthal, Rupal Shah Palanki, Attorney General's Office, Hartford, CT, for Defendant.

Brian C. Fournier, Margaret E. Haering, Hurwitz Sagarin & Slossberg, Milford, CT, for Movants.

Douglas B. Jordan, Washington, DC, for Movants and Amicus.

John W. Cannavino, Robert J. Sickinger, Cummings & Lockwood, Stamford, CT, Eric P. Smith, Lynch, Traub, Keefe & Errante, New Haven, CT, Jeremiah S. Buckley, Buckley Kolar, Arthur E. Willmarth, Jr., Washington, DC, for Amicus.

AMENDED RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

[DKT. NOS. 11, 21]

HALL, District Judge.

Wachovia Bank, N.A., and its wholly-owned subsidiary, Wachovia Mortgage Corporation, (collectively "plaintiffs") bring this suit against John P. Burke, Banking Commissioner of the State of Connecticut ("the Commissioner"), in his official capacity, seeking to enjoin his enforcement of certain Connecticut statutes that require businesses engaged in the making of first and second mortgage loans to obtain and maintain a Connecticut state license. The plaintiffs argue that the National Bank Act ("Act"), 12 U.S.C. § 21 et seq., and regulations promulgated by the Office of the Comptroller of the Currency ("OCC") preempt this licensing scheme as applied to Wachovia Mortgage. They seek a declaratory judgment and relief pursuant to 42 U.S.C. § 1983.¹ Both the plaintiffs and the Commissioner have moved for summary judgment.

I. BACKGROUND

Congress enacted the National Bank Act in 1864. The Act was designed to "facilitate ... a national banking system." Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 314-15, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978) (internal quotation omitted). It was further intended to "protect national banks against intrusive regulation by the States." Bank of Am. v. City and County of San Francisco, 309 F.3d 551, 561 (9th Cir.2002).

In furtherance of these goals, the Act created a system by which so-called "national" banks would receive a federal charter and would be free from state "visitorial" power except as permitted by law or court order. See 12 U.S.C. § 484. These national banks are regulated by a federal agency, the OCC, which is charged with the supervision and regulation of national banks and the administration of the Act. 12 U.S.C. § 1 et seq. The Supreme Court has noted that this establishment of "[u]niform rules limiting the liability of national banks and prescribing exclusive remedies for their overcharges" is "an integral part of a banking system that needed protection from `possible unfriendly State legislation.'" Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 10, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003) (quoting Tiffany v. Nat'l Bank of Missouri, 85 U.S. (18 Wall.) 409, 412, 21 L.Ed. 862 (1874)).

Wachovia Bank is a national banking association organized under the National Bank Act. Wachovia Mortgage is a North Carolina corporation, initially engaged in the business of making first mortgage loans in, among other places, the state of Connecticut, and has been licensed to do so since March 5, 1987. Wachovia Mortgage became a wholly-owned subsidiary of Wachovia Bank on January 1, 2003. It is currently engaged in the business of making both first and secondary mortgage loans.

Connecticut has delegated authority to enforce banking laws to its Banking Commissioner. Six Connecticut banking statutes are at issue here. Two require licenses for first and secondary mortgage lenders (Conn.Gen.Stat. §§ 36a-486(a) and 36a-511(a)); two require mortgage lenders to maintain certain records and make them available for inspection by the Banking Commissioner (Conn. Gen.Stat. §§ 36a-493 and 36a-516); one permits the Commissioner to conduct enforcement proceedings (Conn.Gen.Stat. § 36a-50); and one allows the Commissioner to issue cease and desist orders for violation of Connecticut banking laws (Conn.Gen.Stat. § 36a-52).

After it became a wholly-owned subsidiary of Wachovia Bank on January 1, 2003, Wachovia Mortgage declined to renew its mortgage-lending license with the Commissioner. On February 24, 2003, the Commissioner issued a Notice of Intent to Issue a Cease and Desist Order ("Notice") against Wachovia Mortgage for engaging in the first mortgage lending business in Connecticut without a lending license since January 1, 2003. Wachovia Mortgage and the Commissioner eventually entered into a Stipulation and Agreement, dated March 31, 2003, whereby the Commissioner withdrew the Notice and Wachovia Mortgage agreed to apply for relicensing, while reserving its right to seek judicial review or otherwise challenge the Commissioner's determination that it was subject to the licensing requirements. Wachovia Mortgage also applied for a Secondary Mortgage Lender License, because it desired to engage in the business of secondary mortgage lending in Connecticut.

The plaintiffs filed this suit on April 25, 2003, requesting injunctive and declaratory relief, on the grounds that the state's action is preempted by federal law under the Supremacy Clause of the United States Constitution,² and that the state's action deprives the plaintiffs of federal rights granted by the Act and OCC regulations, which rights are actionable pursuant to 42 U.S.C. § 1983. The parties have filed cross-motions for summary judgment.

II. DISCUSSION

A. Standard

In a motion for summary judgment, the burden is on the moving party to establish that there are no genuine issues of material fact in dispute and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir.2002). The parties agree that there are no issues of material facts in dispute. Thus, the court must determine whether plaintiffs or defendant are entitled to summary judgment as a matter of law.

B. The Statutes and Regulations at Issue

The court begins by surveying the scheme of laws and regulations that forms the basis of the this suit. Section 484(a) of the Act provides: "No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized." This provision, on its face, evidences a broad intent to preempt state law as to national banks. Case law has established, however, that Congress did not intend to deprive the States of all of their power to regulate national banks. States may regulate "where ... doing so does not prevent or significantly interfere with the national bank's exercise of its powers." Barnett Bank of Marion County, N.A., v. Nelson, 517 U.S. 25, 33, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (citing cases).

The general powers granted to a national bank are delineated in 12 U.S.C. § 24(Seventh). Section 24(Seventh) gives national banks the power to exercise "all such incidental powers as shall be necessary to carry on the business of banking." The Supreme Court has recognized that the powers "incidental" to the business of banking authorized by 12 U.S.C. § 24(Seventh) are not limited to those enumerated in section 24(Seventh). Instead, "the Comptroller therefore has discretion to authorize activities beyond those specifically enumerated." NationsBank of North Carolina, N.A., v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 n. 2, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995).

More specifically, national banks also have the authority to conduct their activities through operating subsidiaries. The OCC first codified this power in 1966. See Wells Fargo Bank, N.A., v. Boutris, 265 F.Supp.2d 1162, 1168 (E.D.Cal.2003) (quoting Acquisition of Controlling Stock Interest in Subsidiary Operations Corporation, 31 Fed.Reg. 11,459, 11,459-60 (Aug. 31, 1966)). At that time, the OCC explained that the power to operate through a subsidiary "may properly be found among such `incidental powers' of the bank `as shall be necessary to carry on the business of banking' within the meaning of 12 U.S.C. § 24(Seventh), or as incidental to another Federal banking statute ...." Id.

Today, a national bank's authority to operate through a subsidiary is embodied in 12 C.F.R. § 5.34. That section outlines the guidelines for establishing operating subsidiaries and authorizes national banks to "conduct in an operating subsidiary activities that are permissible for a national bank to engage in directly either as part of, or incidental to, the business of banking, as determined by the OCC or otherwise under statutory authority." 12 C.F.R. § 5.34(e)(1). In order to establish an operating subsidiary, a national bank must comply with the OCC's licensing requirements under section 5.34(b). See Wells Fargo, 265 F.Supp.2d at 1167.

Congress itself has implicitly recognized the ability of a national bank to conduct its authorized activities through an operating subsidiary in the Graham-Leach-Biley Act ("GLBA"), Pub.L. No. 106-102, 113 Stat. 1338 (1999), codified, among other places, at 12 U.S.C. § 24a. That section does not mention operating subsidiaries, but expressly contemplates that national banks use "financial subsidiaries" to conduct banking business and further authorizes them to use such subsidiaries to conduct types of business, like securities underwriting, in which national banks themselves could not otherwise engage. See id. at § 24a(g)(3).

Unlike the non-banking business authorized by the GLBA, the mortgage-lending...