Wachovia Bank v. Watters

• Citation: 431 F.3d 556
• Decision Date: 19 December 2005
• Docket Number: No. 04-2257.,04-2257.
• Parties: WACHOVIA BANK, N.A. and Wachovia Mortgage Corporation, Plaintiffs-Appellees, v. Linda A. WATTERS, Commissioner of the Michigan Office of Insurance and Financial Services, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

431 F.3d 556

WACHOVIA BANK, N.A. and Wachovia Mortgage Corporation, Plaintiffs-Appellees, v. Linda A. WATTERS, Commissioner of the Michigan Office of Insurance and Financial Services, Defendant-Appellant.

No. 04-2257.

United States Court of Appeals, Sixth Circuit.

Argued: October 27, 2005.

Decided and Filed: December 19, 2005.

ARGUED: E. John Blanchard, Michigan Department of Attorney General, Lansing, Michigan, for Appellant. Lori McAllister, Dykema Gossett, Lansing, Michigan, for Appellees. ON BRIEF: John C. Scherbarth, Michigan Department of Attorney General, Lansing, Michigan, for Appellant. Lori McAllister, William J. Perrone, Dykema Gossett, Lansing, Michigan, for Appellees. Jessica Dvorak, Iowa Attorney General's Office, Des Moines, Iowa, Gregory L. McClelland, McClelland & Anderson, Lansing, Michigan, Frederick C. Schafrick, Goodwin Procter, Washington, D.C., Douglas B. Jordan, Office of the Comptroller of the Currency, Washington, D.C., for Amici Curiae.

Before: MARTIN, GIBBONS, and GRIFFIN, Circuit Judges.

OPINION

BOYCE F. MARTIN, Circuit Judge.

The question before us is whether the National Bank Act and regulations promulgated by the Office of the Comptroller of the Currency preempt Michigan banking laws concerning operating subsidiaries of nationally chartered banks.¹ The district court held that the Michigan laws are preempted and granted summary judgment in favor of Wachovia. The State of Michigan filed its notice of appeal on January 27, 2004. Since that time, the federal district court for the District of Maryland, and the United States Courts of Appeal for the Second and Ninth Circuits ruled on precisely the issue we address today. See Wachovia Bank v. Burke, 414 F.3d 305 (2d Cir.2005); Wells Fargo Bank v. Boutris, 419 F.3d 949 (9th Cir.2005); National City Bank v. Turnbaugh, 367 F.Supp.2d 805 (D.Md.2005). Each of those courts held that the National Bank Act and the regulations promulgated by the Comptroller preempt conflicting state laws. Because we agree with the outcome and reasoning of those courts's decisions, we hold that the National Bank Act and the regulations at issue preempt the conflicting Michigan law. We further hold that the regulations do not violate the Tenth Amendment to the United States Constitution. We therefore affirm the district court's grant of summary judgment in favor of Wachovia.

I.

The parties agree that no material facts are disputed. Michigan has enacted a series of banking laws that are enforced by the defendant, the Commissioner of the Michigan Office of Insurance and Financial Services. As explained by the district court, two Michigan statutes are at issue. See MICH. COMP. LAWS § 445.1651 et seq. MICH. COMP. LAWS § 493.51 et seq. Pursuant to these statutes, Wachovia Mortgage must register with the State, but is not required to obtain a license to operate. See MICH. COMP. LAWS § 445.1652, 493.52. Moreover, Michigan's regulatory scheme permits it to investigate a specific consumer complaint if the complaint is not otherwise being pursued by the Comptroller. See MICH. COMP. LAWS § 445.1663(2) ("[T]he commissioner. . . shall make no investigation of the complaint if the complaint is being adequately pursued by the appropriate federal regulatory authority."). Finally, the Michigan statutes also require Wachovia to provide a financial statement annually, to pay an annual operating fee, to maintain certain documents, and to retain those documents for examination by the Commissioner. See MICH. COMP. LAW §§ 445.1657(2), 493.56a(2), 445.1658(1), 493.54, 445.1671, 493.68.

Wachovia Bank is a national banking association chartered under the National Bank Act, 12 U.S.C. § 21 et seq. Wachovia Mortgage originally registered in Michigan to make first mortgage loans as it does in various states. On January 1, 2003, Wachovia Mortgage became a wholly owned operating subsidiary of Wachovia Bank. After July 1, 2003, Wachovia Mortgage also began making second mortgage loans in Michigan.

On April 3, 2003, Wachovia Mortgage advised the State of Michigan that it was surrendering its lending registration in Michigan. The Commissioner responded by advising Wachovia Mortgage that effective July 1, 2003, Wachovia Mortgage would no longer be authorized to conduct mortgage lending activities within the State. Wachovia then filed suit seeking a declaration that the Michigan statutes at issue are preempted by the National Banking Act and the Comptroller's regulations.

II.

We review a district court's decision to grant summary judgment de novo. Bennett v. Eastpointe, 410 F.3d 810 (6th Cir.2005). Summary judgment is only appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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). The parties agree that no material facts are disputed and therefore only two legal issues are before the Court: (1) do the National Bank Act and the Comptroller's regulations preempt the Michigan laws' application to Wachovia and (2) do the Comptroller's regulations violate the Tenth Amendment to the United States Constitution? We answer yes to the first question and no to the second.

The National Bank Act was enacted in 1864 "to facilitate . . . a national banking system." Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 315, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978) (internal quotation omitted). Relevant to our discussion, the National Bank Act establishes nationally chartered banks and vests these banks with certain powers, including "all such incidental powers as shall be necessary to carry on the business of banking." 12 U.S.C. § 24 (Seventh). To prevent state regulation of the national banking system, the Act provides that "[n]o national bank shall be subject to any visitorial powers except as authorized by Federal Law. . . ." 12 U.S.C. § 484(a).

The Office of the Comptroller of the Currency is the federal administrative agency with the "primary responsibility for surveillance of `the business of banking' authorized by § 24 Seventh." NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995). Congress has authorized the agency to promulgate rules and regulations, and the agency may use its authority to define the "incidental powers" of national banks beyond those specifically enumerated in the Civil War era statute. See id. at 258, 115 S.Ct. 810 ("[T]he business of banking is not limited to the enumerated powers in § 24 Seventh . . . [and] the Comptroller therefore has discretion to authorize activities beyond those specifically enumerated."); see also 12 U.S.C. § 93a. Drawing on its authority, the Comptroller has issued a regulation that, subject to certain exceptions, it has exclusive visitorial powers over national banks. 12 C.F.R. § 7.4000 (including the power to examine national banks, inspect their records, and regulate their activities authorized by federal law).

As Wachovia notes in its brief, additional regulations are relevant to this case. One such regulation is 12 C.F.R. § 5.34, providing that a "national bank may 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." 12 C.F.R. § 5.34(e)(1); see also Wells Fargo Bank, 419 F.3d at 960 (noting that "permitting operating subsidiaries does not expand the functions carried out by the banks"). Moreover, "[a]n operating subsidiary conducts activities authorized under this section pursuant to the same authorization, terms, and conditions that apply to the conduct of such activities by its parent national bank." 12 C.F.R. § 5.34(e)(3). This reflects the Comptroller's view — held since the 1960s — that the practice of using an operating subsidiary to conduct the business of banking is an appropriate incidental power under 12 U.S.C. § 24 (Seventh).

The federal regulation the State of Michigan argues most vehemently against was adopted in 2001 and promulgated as 12 C.F.R. § 7.4006. It states that "[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank." 12 C.F.R. § 7.4006. Michigan argues that the Comptroller exceeded its congressionally delegated authority by promulgating section 7.4006 because the regulation impermissibly expands the definition of "national bank." The State further argues that a federal regulatory agency cannot preempt state laws unless Congress has expressly and clearly manifested an intent for it to do so.

Michigan's argument regarding preemption is "misdirected." Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). The type of preemption at issue in this case is "conflict preemption," which can arise where "state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Id. at 153, 102 S.Ct. 3014 (internal questions and citations omitted).² Michigan does not dispute the fact that its regulatory scheme stands as an obstacle to the National Banking Act and the relevant regulations promulgated by the Comptroller. Thus, the only question is whether the Comptroller "has exceeded [its] statutory authority or acted arbitrarily." Id. at 154, 102 S.Ct. 3014. Contrary to Michigan's arguments, a "pre-emptive regulation's force does not depend on express congressional authorization to displace state law." Id. at 154, 102 S.Ct. 3014. Such a "narrow focus" is "misdirected." Id.³

We therefore decline Michigan's invitation to frame the issue as whether Congress has expressly and clearly manifested its intent to preempt state laws such as Michigan's and instead focus on whether the...