Wells Fargo Bank N.A. v. Boutris, No. 03-16194.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBerzon
Citation419 F.3d 949
PartiesWELLS FARGO BANK N.A.; Wells Fargo Home Mortgage, Plaintiffs-Appellees, v. Demetrios A. BOUTRIS, Defendant-Appellant. National City Bank of Indiana; National City Mortgage Co., Plaintiffs-Appellees, v. Demetrios A. Boutris, Defendant-Appellant. Wells Fargo Bank N.A.; Wells Fargo Home Mortgage, Plaintiffs-Appellants, v. Demetrios A. Boutris, Defendant-Appellee.
Docket NumberNo. 03-16197.,No. 03-16194.,No. 03-16461.
Decision Date12 August 2005
419 F.3d 949
WELLS FARGO BANK N.A.; Wells Fargo Home Mortgage, Plaintiffs-Appellees,
v.
Demetrios A. BOUTRIS, Defendant-Appellant.
National City Bank of Indiana; National City Mortgage Co., Plaintiffs-Appellees,
v.
Demetrios A. Boutris, Defendant-Appellant.

Page 950

Wells Fargo Bank N.A.; Wells Fargo Home Mortgage, Plaintiffs-Appellants,
v.
Demetrios A. Boutris, Defendant-Appellee.
No. 03-16194.
No. 03-16461.
No. 03-16197.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted November 4, 2004.
Filed August 12, 2005.

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Virginia Jo Dunlap, Deputy Commissioner, Alan S. Weinger, Supervising Counsel, Judy L. Hartley, Senior Corporations Counsel, Kimberly L. Gauthier, Corporations Counsel, and Douglas M. Gooding, Corporations Counsel, California Department of Corporations, Los Angeles, California, for the defendant-appellant/cross-appellee.

William L. Stern, Severson & Werson, San Francisco, California, and E. Edward Bruce, Stuart C. Stock, Robert A. Long, Jr., and Keith A. Noreika, Covington & Burling, Washington, D.C., for the plaintiffs-appellees/cross-appellants.

Julie L. Williams, Acting Comptroller, Daniel P. Stipano, Acting Chief Counsel, L. Robert Griffin, Deputy Chief Counsel, and Horace G. Sneed, Director of Litigation, U.S. Department of the Treasury, Office of the Comptroller of the Currency, Washington, D.C., for amicus curiae Office of the Comptroller of the Currency.

Edward P. Sangster and Dylan B. Carp, Kirkpatrick & Lockhart LLP, San Francisco, California, for amicus curiae Quicken Loans Inc.

Appeal from the United States District Court for the Eastern District of California, Garland E. Burrell, District Judge, Presiding.

Before: REINHARDT, PAEZ, and BERZON, Circuit Judges.

BERZON, Circuit Judge:


In these cross-appeals concerning California's regulation of residential mortgage lenders, we decide two issues: First, does the National Bank Act ("Bank Act"), 12 U.S.C. §§ 21 et seq., preempt the California Commissioner of Corporations' ("the Commissioner") exercise of investigative and licensing authority over "operating subsidiaries" of national banks? Second, does section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), 12 U.S.C. § 1735f-7a, preempt California's per diem loan-interest statute?

The district court answered both questions in the affirmative. Wells Fargo Bank, N.A. v. Boutris, 265 F.Supp.2d 1162 (E.D.Cal. 2003) (Wells Fargo II).1 For the reasons that follow, we affirm the district court's conclusion as to preemption under the Bank Act but hold that the per diem loan-interest statute is not preempted by the DIDMCA.

I. Background

These appeals arise out of California's attempts to require Wells Fargo Home Mortgage Inc. (WFHMI) and National City Mortgage Co. (NCMC), wholly owned subsidiaries of Wells Fargo National Bank and National City Bank of Indiana, respectively, to conduct audits of their residential mortgages. The purpose of the audits was

Page 955

to ascertain whether the mortgage subsidiaries had overcharged interest and provided unduly low estimates of certain classes of settlement fees, in violation of California law.2 From 1996 to 2003,3 WFHMI was licensed to engage in real estate lending activities under the California Residential Mortgage Lending Act (CRMLA), CAL. FIN. CODE §§ 50000 et seq.,4 and the California Finance Lenders Law (CFLL), CAL. FIN. CODE §§ 22000 et seq.5 The Commissioner is the state official charged with enforcing those laws governing licensed home-mortgage lenders, including a statute barring lenders from charging interest during certain periods. CAL. FIN. CODE § 50204(o); see Wells Fargo II, 265 F.Supp.2d at 1164.

To that end, the Commissioner routinely conducts regulatory examinations of licensees' records. The facts giving rise to this suit began after one such examination, when

the Commissioner demanded that WFHMI conduct an audit of its residential mortgage loans made in California during 2001 and 2002. The purpose of the audit was to identify all loans where WFHMI charged per diem interest in violation of California Financial Code § 50204(o), so that WFHMI could make appropriate refunds, and identify instances of understating finance charges in violation of the federal Truth in Lending Act. WFHMI objected to the Commissioner's request in a letter dated January 22, 2003, in which it asserted because it is an operating subsidiary of a national bank it is subject to the OCC's exclusive regulatory authority.

Id. (citations omitted).

Five days after sending its objection letter to the Commissioner, Wells Fargo filed this suit in the U.S. District Court for the Eastern District of California, seeking declaratory and injunctive relief. Wells Fargo's position throughout this litigation has been that the Commissioner cannot require an audit because the relevant provisions of California law from which any such authority derives are preempted by federal laws and regulations — specifically, by the Bank Act, the DIDMCA, and the regulations promulgated by the Office of the Comptroller of the Currency thereunder, 12 C.F.R. §§ 5.1 et seq. (2005).6

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On February 4, 2003, eight days after Wells Fargo filed this suit, the Commissioner instituted administrative proceedings against WFHMI to revoke its California licenses. Wells Fargo sought a preliminary injunction, both to bar the administrative proceedings and to enjoin the Commissioner from continuing to exercise "visitorial" authority over WFHMI.7 The district court rejected the injunction application as to the revocation proceedings, but granted the preliminary injunction as to the visitorial authority issue.8

The parties then cross-moved for summary judgment. The district court granted Wells Fargo's motion for summary judgment on the preemption claims and the Commissioner's motion for summary judgment on the retaliation claim. The court also entered a permanent injunction against the Commissioner, barring him from "exercising visitorial powers over Plaintiffs and from enforcing California Financial Code § 50204(o) and California Civil Code § 2948.5 against Plaintiffs." Wells Fargo II, 265 F.Supp.2d at 1179. These appeals followed.

II. Bank Act Preemption

As we observed three years ago:

Congress has legislated in the field of banking from the days of M'Culloch v. Maryland, creating an extensive federal statutory and regulatory scheme. The history of national banking legislation has been "one of interpreting grants of both enumerated and incidental `powers' to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law."

Bank of Am. v. City & County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002) (quoting Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 32, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996)) (citation omitted).

In light of this history, we held in Bank of America that the usual presumption against federal preemption of state law is inapplicable to federal banking regulation. See 309 F.3d at 558-59. Thus, "[i]n defining the pre-emptive scope of statutes and regulations granting a power to national

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banks, [the Supreme Court's jurisprudence] take[s] the view that normally Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted." Barnett Bank, 517 U.S. at 33, 116 S.Ct. 1103. As shall become apparent, our analysis draws on these animating principles of federal primacy and exclusivity in the field of banking regulation. Cf. Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 10, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003) (recognizing "the special nature of federally chartered banks").

A. Operating Subsidiaries and the Bank Act

At the core of these appeals is 12 C.F.R. § 7.4006, a regulation promulgated by the OCC in 2001, which states: "Unless 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." See Investment Securities; Bank Activities and Operations; Leasing, 66 Fed.Reg. 34,784, 34,788-89 (July 2, 2001). Section 7.4006 does not define "operating subsidiary." Instead, the term is defined, indirectly, in both the Bank Act and OCC regulations, as a subsidiary that "engages solely in activities that national banks are permitted to engage in directly and are conducted subject to the same terms and conditions that govern the conduct of such activities by national banks." 12 U.S.C. § 24a(g)(3)(A); see also 12 C.F.R. § 5.39(d)(6)(i).9 The federal banking statutes do not otherwise mention operating subsidiaries.

The Commissioner's central contention is that this regulation is beyond the scope of the OCC's delegated authority. More specifically, the Commissioner maintains that because operating subsidiaries are not, themselves, "national banks," they are therefore not subject to exclusively federal regulation to the same extent as are national banks. His argument therefore challenges the propriety of the regulation, raising a question of first impression in this circuit.10 Although posed in the singular, the question whether the OCC may preempt contrary state law as applied to operating subsidiaries of national banks

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depends, in our view, on the answer to two logically prior questions: First, we must resolve whether the OCC regulation allowing national banks to create and operate subsidiaries that perform national bank functions is consistent with the Bank Act. Second, we need to consider whether the OCC may regulate such entities. Only after answering these first two questions can we decide whether the OCC may regulate such entities to the exclusion of the states in the two areas pertinent here — visitorial authority and licensing...

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37 practice notes
  • Goonan v. Fed. Reserve Bank of N.Y., No. 12 Civ. 3859(JPO).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • January 7, 2013
    ...492]that Congress's clear and manifest purpose was preemption of the entire field of state law”); Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 963 (9th Cir.2005) (“Since shortly after the Bank Act was enacted in 1864, the Supreme Court has oft reiterated that federal substantive authorit......
  • Green Mountain Chrysler Plymouth Dodge v. Crombie, No. 2:05-CV-302.
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • September 12, 2007
    ...Campbell v. Hussey, 368 U.S. 297, 302-03, 82 S.Ct. 327, 330, 7 L.Ed.2d 299 (1961) (tobacco grading); Wells Fargo Bank, N.A. v. Boutris, 419 F.3d 949, 967 (9th Cir.2005) (licensing requirements for operating subsidiaries of national banks); PubL Util. No. 1 v. IDACOR Inc., 379 F.3d 641, 649 ......
  • Hood v. Santa Barbara Bank & Trust, No. B184489.
    • United States
    • California Court of Appeals
    • September 28, 2006
    ...of property, and taxation, zoning, criminal, and tort law.'" (Wells Fargo Bank N.A. v. Boutris (9th 49 Cal.Rptr.3d 383 Cir.2005) 419 F.3d 949, 963, 970.) Appellants' claims seeking relief under state contract, tort or debt collection are not preempted by federal The Deposit-Taking and ......
  • Montgomery v. Bank of America Corp., No. CV 07-1204 CASAJWX.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • September 24, 2007
    ...of property, and taxation, zoning, criminal, and tort law." Bank of Am., 309 F.3d at 559; see also, Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 963 (9th In the instant case, plaintiff's claims arise from two allegations: (1) NSF/OD fees charged by defendants, which escalate on a sl......
  • Request a trial to view additional results
37 cases
  • Goonan v. Fed. Reserve Bank of N.Y., No. 12 Civ. 3859(JPO).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • January 7, 2013
    ...492]that Congress's clear and manifest purpose was preemption of the entire field of state law”); Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 963 (9th Cir.2005) (“Since shortly after the Bank Act was enacted in 1864, the Supreme Court has oft reiterated that federal substantive authorit......
  • Green Mountain Chrysler Plymouth Dodge v. Crombie, No. 2:05-CV-302.
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • September 12, 2007
    ...Campbell v. Hussey, 368 U.S. 297, 302-03, 82 S.Ct. 327, 330, 7 L.Ed.2d 299 (1961) (tobacco grading); Wells Fargo Bank, N.A. v. Boutris, 419 F.3d 949, 967 (9th Cir.2005) (licensing requirements for operating subsidiaries of national banks); PubL Util. No. 1 v. IDACOR Inc., 379 F.3d 641, 649 ......
  • Hood v. Santa Barbara Bank & Trust, No. B184489.
    • United States
    • California Court of Appeals
    • September 28, 2006
    ...transfer of property, and taxation, zoning, criminal, and tort law.'" (Wells Fargo Bank N.A. v. Boutris (9th 49 Cal.Rptr.3d 383 Cir.2005) 419 F.3d 949, 963, 970.) Appellants' claims seeking relief under state contract, tort or debt collection are not preempted by federal The Deposit-Taking ......
  • Montgomery v. Bank of America Corp., No. CV 07-1204 CASAJWX.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • September 24, 2007
    ...of property, and taxation, zoning, criminal, and tort law." Bank of Am., 309 F.3d at 559; see also, Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 963 (9th In the instant case, plaintiff's claims arise from two allegations: (1) NSF/OD fees charged by defendants, which escalate on a sliding......
  • Request a trial to view additional results

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