Wells Fargo Bank v. Boutris, CIV.S-03-0157 GEB JFM.

• Decision Date: 10 March 2003
• Docket Number: No. CIV.S-03-0157 GEB JFM.,CIV.S-03-0157 GEB JFM.
• Citation: 252 F.Supp.2d 1065
• Court: U.S. District Court — Eastern District of California
• Parties: WELLS FARGO BANK, N.A., and Wells Fargo Home Mortgage, Inc., Plaintiffs, v. Demetrios A. BOUTRIS, in his official capacity as Commissioner of the California Department of Corporations, Defendant.

252 F.Supp.2d 1065

WELLS FARGO BANK, N.A., and Wells Fargo Home Mortgage, Inc., Plaintiffs, v. Demetrios A. BOUTRIS, in his official capacity as Commissioner of the California Department of Corporations, Defendant.

No. CIV.S-03-0157 GEB JFM.

United States District Court, E.D. California.

March 10, 2003.

William L. Stern, Severson and Werson, San Francisco, CA, E. Edward Bruce, Stuart C. Stock, pro hac vice, Robert A. Long, Jr, pro hac vice, Keith A. Noreika, pro hac vice, Covington and Burling, Washington, DC, for plaintiffs.

Horace G. Sneed, Office of Comptroller of Currency, Judy Lynn Hartley, State of Cal., Dept. of Corporations, Los Angeles, CA, for defendant.

ORDER^*

BURRELL, District Judge.

Plaintiffs Wells Fargo Bank, N.A. ("Wells Fargo") and Wells Fargo Home Mortgage, Inc. ("WFHMI") move for a preliminary injunction seeking to enjoin Defendant Demetrios Boutris, in his official capacity as the Commissioner of the California Department of Corporations ("the Commissioner") "from enforcing the California Residential Mortgage Lending Act, Cal. Fin.Code § 50002 et seq. (including § 50204(o)), California Civil Code § 2948.5, and the California Financial Lenders Law, Cal. Fin.Code § 22000 et seq., against [Wells Fargo and WFHMI]; from revoking WFHMI's licenses to do business in California under those laws; and from otherwise taking any action against WFHMI for continuing to do business in the state of California." (Pls.' Mot. for Prelim. Inj. at 1-2.) The essence of Plaintiffs' argument is that they are subject exclusively to federal regulation by the Office of the Comptroller of the Currency ("OCC") since federal banking law preempts the Commissioner's regulatory authority over federally regulated national banks. The OCC filed an amicus curiae brief in which it contends the National Bank Act precludes the Commissioner from exercising visitorial powers over Plaintiffs. The Commissioner opposes the motion and filed an opposition to the OCC's amicus curiae brief. The Commissioner argues that because WFHMI possesses California-issued licenses it is obligated to comply with all licensing requirements; and that "Congress has not vested in the [OCC] to the exclusion of the states, the power to control or regulate operating subsidiaries of national banks." ¹ (Commissioner's Opp'n to OCC's Amicus Br. at 2.) The Commissioner concedes "it is undisputed that the OCC has exclusive regulatory authority over Wells Fargo, a national bank." (Opp'n to Mot. at 2, n.1.)

The motion was argued March 10, 2003.²

Background

Wells Fargo is a federal national bank organized under the National Bank Act. (Pls.' Memo, of P. & A. in Support of Mot. for Prelim. Inj. at 3; Decl. of Stumpf in Support of Prelim Inj. ¶ 12.) WFHMI is a wholly owned operating subsidiary of Wells Fargo. (Pls.' Memo, of P. & A. at 3; Decl. of Moskowitz Ex. 1.) WFHMI is licensed to engage in real estate lending activities under the California Residential Mortgage Lending Act ("the RMLA") and the California Finance Lenders Law ("the CFLL"). (Decl. of Burns H 5, 7, Ex. 3; Decl. of Agbonkpolar 114; Decl. of Wissinger f f 5, 7.)

Following several regulatory examinations, the Commissioner demanded on December 4, 2002, that WFHMI conduct an audit of its residential mortgage loans made in California during 2001 and 2002. (Decl. of Burns H 15, Ex. 7.) This required audit was to identify; all loans where per diem interest was charged by WFHMI in violation of California Financial Code § 50204(o), those consumers entitled to a refund, and instances of understating finance charges in violation of the Truth in Lending Act and California Financial Code §§ 50204(i)(j) and (k). (Decl. of Burns Ex. 7.) WFHMI responded to the Commissioner's demand for an audit in a letter dated January 22, 2003, asserting because it is an operating subsidiary of a national bank it is subject to the exclusive federal regulation and supervision of the OCC; however, it proposed an alternate audit to accommodate the Commissioner's concerns. (Decl. of Burns Ex. 9.) The Commissioner demanded compliance. Subsequently, Plaintiffs commenced this federal lawsuit against the Commissioner on January 27, 2003. On February 4, 2003, the Commissioner instituted proceedings to revoke WFHMI's licenses issued under the RMLA and the CFLL. (Id. f 22; Decl. of Wissinger Ex. 1, Ex. 2.)

Preliminary Injunction Standards

To prevail on the motion for a preliminary injunction, each Plaintiff must demonstrate either: "(1) a combination of probable success on the merits and the possibility of irreparable injury if relief is not granted; or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor." Int'l Jensen, Inc. v. Metrosound U.S.A, Inc., 4 F.3d 819, 822 (9th Cir.1993). "Each of these two formulations requires an examination of both the potential merits of the asserted claims and the harm or hardships faced by the parties." Sammartano v. First Judicial Dist. Court, in and for County of Carson City, 303 F.3d 959, 965 (9th Cir.2002). "The alternative standards are not separate tests but the outer reaches of a single continuum," Int'l Jensen, Inc., 4 F.3d at 822 (quotations and citations omitted), "in which the required degree of irreparable harm increases as the probability of success decreases." Sammartano, 303 F.3d at 965. When the action involves the public interest, "the district court must also examine whether the public interest favors the plaintiff." Id.

Discussion

Plaintiffs argue the Commissioner's attempt to enforce the RMLA and the CFLL against WFHMI runs afoul of the National Bank Act. Plaintiffs contend this Act grants the OCC the exclusive authority to exercise visitorial powers over national banks and their operating subsidiaries; therefore, WFHMI is not required to hold a license under the RMLA or the CFLL to engage in residential mortgage lending and servicing business in California. (Pls.' Memo, of P. & A. at 16-17.) The OCC's amicus curiae brief agrees with Plaintiffs' position, stating that "in its capacity as administrator of the national banking system ... [and] pursuant to 12 U.S.C. § 484 and federal regulations, the OCC has exclusive `visitorial' power over national banks and their operating subsidiaries except where federal law specifically provides otherwise."³ (OCC Amicus Br. at 2.) The Commissioner counters that the OCC seeks to exceed its visitorial powers over national banks by unlawfully expanding its jurisdiction to include operating subsidiaries of national banks. (Def.'s Memo, of P. & A. at 13-14.)

National Bank Act

National banks are created and governed by the National Bank Act. 12 U.S.C. § 21 et seq. The National Bank Act was enacted 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)(quoting Cong, Globe 38th Cong. 1st Sess., 1451(1864)), and "to protect national banks against intrusive regulation by the States." Bank of America v. City and County of San Francisco, 309 F.3d 551, 561 (9th Cir.2002). The National Bank Act provides that such banks shall have power

[t]o exercise... all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes....

12 U.S.C. § 24(Seventh). The United States Supreme Court stated that the National Bank Act has charged the Comptroller with the supervision of the Act, and that the Comptroller bears "primary responsibility for surveillance of `the business of banking' authorized by § 24 (Seventh)." National Bank of North Carolina, N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995); see 12 U.S.C. § 1, 26-27, 481. The United States Supreme Court held that the "`business of banking' is not limited to the enumerated powers in § 24 Seventh and that the Comptroller therefore has discretion to authorize activities beyond those specifically enumerated. The exercise of the Comptroller's discretion, however, must be kept within reasonable bounds." NationsBank of North Carolina, N.A., 513 U.S. at 258 n. 2, 115 S.Ct. 810.

The OCC-promulgated regulation regarding the exercise of visitorial powers over national banks provides:

Only the OCC or an authorized representative of the OCC may exercise visitorial powers with respect to national banks except as provided in paragraph (b) of this section. State officials may not exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions, except in limited circumstances authorized by federal law. However, production of a bank's records (other than non-public OCC information under 12 CFR part 4, subpart C) may be required under normal judicial procedures.

12 C.F.R. § 7.4000.

At the March 10 hearing, the Commissioner argued that the OCC does not have exclusive visitorial powers over WFHMI because nothing in the National Bank Act authorizes the OCC to exercise this exclusive authority. Rather, the Commissioner asserted, at most the OCC has concurrent visitorial powers over WFHMI. The Commissioner further argued that should the Court find that 12 C.F.R. § 7.4006 provides the OCC with exclusive visitorial powers over WFHMI, since that regulation did not become effective until August 2001, it has no preemptive effect on the Commissioner's ability to exercise visitorial powers over WFHMI before its enactment. The OCC disagrees, arguing that the Commissioner's position violates the Congressional enactment in 12 U.S.C. § 484(a), and the intent of 12 C.F.R. § 7.4006.

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